296 Rigged market Capitalism - Ellen Brown

Rigged market Capitalism - Ellen Brown

(1) Statoil? sure but everything is safer in Scandinavia
(2) Derivatives come to Hollywood - Ellen Brown
(3) Rigged market Capitalism - Ellen Brown
(4) Stock Market Collapse: More Goldman Market Rigging? - Ellen Brown
(5) Senate probe: Goldman planned to profit from housing bust, made billions at clients' expense
(6) Spotlight falls on role of consultancies

(1) Statoil? sure but everything is safer in Scandinavia

From: gzibordi <gzibordi@cobraf.com> Date: 10.05.2010 09:10 PM

> Statoil operates the most environmentally
> friendly offshore oil rigs in the world --
> because it's state-owned
> http://www.salon.com/news/opinion/joe_conason/2010/05/03/norway/index.html

Statoil? sure but everything is safer in Scandinavia, why not quote Pemex in Mexico as a state company?

I appreciate the calm tone and I agree with most of your material

I find natural to call comunism "mass murder", the same way I would call Himmler and Hitler mass murderers even after discounting the revisionist count of the 6 millions, even David Irving does. I do not understand how else to designate a movement that caused north of 50 millions deaths and as I mentioned I was Communist Party militant elected in some local council in 1979-1981 as a student, so I wasn't born anti-comunist as a default

I appreciate you narrative of Stalin fighting in covert way the Jews during the Terror, the purges of the '30s as a fight between the jewish and russian faction and therefore the idea that without a jewish chauvinist element Comunism could have been different. But in China and Cambodia there were no Jews in the '50 and '70s and Comunist terror and mass murder was as similar

My feeling is that down under in nice Australia you were sheltered by what we suffered in Europe and indulge a bit in intellectual chic about "mabe comunism can work" and yes, this seems absurd to me, the same way by default, without debate, at the same intellectual level of finding absurd to attribute the eathquake in Haiti to the Pentagon and the CIA as some do now.

This guy from Lithuania comes from Comunism and find US Capitalism as bad ? Well, he does not seem as smart as you, his piece is very naive !.... sorry to sound arrogant it is just that I cannot refer my writing because they are in Italian, but I am 50 and I do know Economics, when I was 25 I passed the exams to enter in the Central Bank of Italy Research, I have a doctorate in economics in Rome, an MBA from UCLA 1992, worked for Booz Allen & Hamilton and I trade futures and stocks since 1996 and I have written in Italian at least 20k comments on financial and economics matters only on the internet http://www.google.it/search?hl=en&rlz=1B3GGLL_enIT371IT371&q=giovanni+zibordi&btnG=Search&aq=f&aqi=&aql=&oq=&gs_rfai=
I get quoted on the financial press also), speak at meetings and I predicted pretty much the subprime crisis on my website in 2006-2007, so in Italian at least I am used to pass judgement on Economics matters
If you check my website I post 10 comments or articles a day on average and we have a forum with 500-700 comments daily
http://www.cobraf.com/forum/

I read as much as I could on Eastern Europe and also China and as I mentioned they did kill a bunch of people around here in Europe, not only in Siberia or during the famine of Ukrane, here in Italy next to my house, we have bullets on the door of my mother's farm house and just in the last 5 years finally, after 60 years since the end of the war the mainstream media aknowledged thanks to the work of a "revisionist" lefitst historian (Gianpaolo Pansa) that at least 20k people were tortured and murdered after the Liberation from Allied forces. This happened with the Anglo-Americans troops occupying the country and not under Stalin or Yagoda, in Eastern Europe where the Soviets were in charge instead it was mass slaughter in the hundred of thousands.

In short I spent a lot of time around Communists, most of my friends were when I was 20 and I spent time then reading about it and thinking how so many could be fooled so much and for so much time

I just thought that whatever solution can be for the West it is obvious that Communism has little to do with it

Anyway here is a communist website with an interesting analysis of Sarkozy I posted
http://www.cobraf.com/forum/coolpost.php?topic_id=6261&reply_id=231180
http://www.voltairenet.org/article157821.html

Regards

GZ

Giovanni,

The article about Sarkozy says that he's affiliated with the Rothschild bank and the CIA.

He's against Gaullism, which represents French and West European independence of the Anglo-American axis.

Surely the article backs up my argument about the danger of big private banks and corporations. If Mitterand's nationalization of the banks had not been undone by Chirac, Rothschild power would have remained diminished.

The lesson is, that we need Socialism but not Communism.

Trotskyists confuse the debate by calling THEIR system "Socialism", whereas they are Communists. The influence of Trotskyism is what has led people to equate Socialism with Gay Marriage and minorities lobbies.

Let's cleanse Trotskyism out of the debate. By Socialism, we mean Socialism a la Francois Mitterand in France and Ben Chifley in Australia.

(2) Derivatives come to Hollywood - Ellen Brown

From: Ellen Brown <ellenhbrown@gmail.com> Date: 04.05.2010 12:29 PM

http://www.huffingtonpost.com/ellen-brown/will-hollywood-go-the-way_b_560379.html

Will Hollywood Go the Way of Enron? Derivatives Come to the Movies

Ellen Brown

May 3, 2010

As if attacks from paparazzi and star-crazed fans weren't enough, Hollywood stars may soon have a literal price put on their heads by investors in the Cantor Exchange, a real-money trading platform where people can bet on the gross profits of upcoming movies. Sales of The Dark Knight skyrocketed after Heath Ledger died unexpectedly, and so did sales after the deaths of Michael Jackson, Elvis Presley and Marilyn Monroe. Will greed-driven investors now be laying in wait for the stars of movies they have bet on?

The Cantor Exchange (CE) is based on a virtual trading platform called the Hollywood Stock Exchange (HSX), a web-based, multiplayer simulation in which players buy and sell "shares" of actors, directors, upcoming films, and film-related options. The difference is that where the HSX uses virtual money, CE will turn the game into a real casino using real dollars.

On April 21, Cantor Exchange reported that it had just received regulatory approval from the Commodity Futures Trading Commission (CFTC), which oversees futures exchanges. "This is a significant step forward in achieving our ultimate goal," it said in a letter, "which is to launch a market in Domestic Box Office Receipt Contracts."

Having "contracts" out on movies and movie stars, however, has an ominous ring; and the Motion Picture Association of America (MPAA) apparently doesn't like the sound of it. The Cantor letter said that its tentative launch date of April 22 was being delayed because the MPAA and others "raised concerns about the economic purpose of this market and its usefulness as a hedging vehicle."

The legitimate hedgers, the moviemakers and equity holders with a real financial interest to protect, don't want it. But Cantor is pushing forward, because gambling is big business and there are vast sums of money to be made.

Critics are worried that the new exchange will turn Hollywood into another derivatives casino, vulnerable to insider trading. Even if short sellers aren't hiding behind bushes waiting to trip up the stars, the exchange could create bizarre incentives for moviemakers to manipulate and distort the market for their own products, perhaps intentionally sabotaging movies they know are losers.

The Derivative Craze

A "derivative" market is one that is "derived" from an underlying asset, but participants don't have to own the asset to play. Like gamblers at a race track, they can bet without owning a horse. Derivatives have now become a $605 trillion industry, about ten times the gross domestic product of all the countries of the world combined. This money is not contributing capital to businesses, helping the economy to grow. Rather, it is being diverted into wagers. Money is made by taking it from someone else.

Worse, half the wagers are negative: the players want the thing to fail. Warren Buffet called derivatives "financial weapons of mass destruction." By massively short selling a stock or a currency, speculators can actually force the price down. Derivatives can be used to sabotage not only businesses but whole economies. Derivatives have been blamed for such economic disasters as the collapse of Japan's stock market in 1987, the Asian crisis of 1998, and the recent collapse of Greece.

Gaming the Hollywood Game

Max Keiser, who founded CE's virtual forerunner HSX in the 1990s, has firsthand knowledge of how the Hollywood exchange can be abused. When he was CEO of HSX, he says, he came under pressure from fellow board members to give in to studio heads who were offering cash and other inducements to manipulate the prices of projects, either up (to legitimize more marketing dollars) or down (to sabotage competing projects). "These guys, including my own board of directors," he says, "could not tell the difference between marketing and market manipulation."

Whether a movie's stock price rises or falls is considered to be a predictor of the movie's future success; but Keiser warns that today, the prediction value of market pricing is largely a hoax. Traders using sophisticated computer programs have learned how to manipulate prices, and market rigging has become institutionalized.

"The only difference between the new box office futures contracts being manipulated and blowing up," he says, "and stocks in companies like Lehman Brothers being manipulated and blowing up, is that people losing their money can imagine getting screwed by Scarlett Johansson instead of Dick Fuld."

Keiser predicts that his altered HSX computer technology, if approved by the CFTC for use in a real-money exchange, will produce an insider trader's paradise, with Hollywood going the way of Enron and Lehman Brothers in two years or less.

"But this is what rigged market capitalism is all about," he says. "It's not economics really. It's arson. They bet against a company or a country and then burn it down."

(3) Rigged market Capitalism - Ellen Brown

From: Ellen H Brown <ellenbrownjd@gmail.com> Date: 24.04.2010 04:47 PM

HFT, Goldman, And How to Save Free Markets

April 23, 2010

Ellen Brown

http://seekingalpha.com/article/200478-hft-goldman-and-how-to-save-free-markets

Market commentators are fond of talking about "free market capitalism," but according to Wall Street commentator Max Keiser, it is no more. It has morphed into what his TV co-host Stacy Herbert calls "rigged market capitalism": All markets today are subject to manipulation for private gain.

Keiser isn't just speculating about this. He claims to have invented one of the most widely used programs for doing the rigging. Not that that's what he meant to invent. His patented program was designed to take the manipulation out of markets. It would do this by matching buyers with sellers automatically, eliminating "front running" – brokers buying or selling ahead of large orders coming in from their clients. The computer program was intended to remove the conflict of interest that exists when brokers who match buyers with sellers are also selling from their own accounts. But the program fell into the wrong hands and became the prototype for automated trading programs that actually facilitate front running.

Also called High Frequency Trading (HFT) or "black box trading," automated program trading uses high-speed computers governed by complex algorithms (instructions to the computer) to analyze data and transact orders in massive quantities at very high speeds. Like the poker player peeking in a mirror to see his opponent's cards, HFT allows the program trader to peek at major incoming orders and jump in front of them to skim profits off the top. And these large institutional orders are our money - our pension funds, mutual funds, and 401Ks.

When "market making" (matching buyers with sellers) was done strictly by human brokers on the floor of the stock exchange, manipulations and front running were considered an acceptable (if morally dubious) price to pay for continuously "liquid" markets. But front running by computer, using complex trading programs, is an entirely different species of fraud. A minor flaw in the system has morphed into a monster. Keiser maintains that computerized front running with HFT has become the principal business of Wall Street and the primary force driving most of the volume on exchanges, contributing not only to a large portion of trading profits but to the manipulation of markets for economic and political ends.

The "Virtual Specialist": The Prototype for High Frequency Trading

Until recently, most market making was done by brokers called "specialists," those people you see on the floor of the New York Stock Exchange haggling over the price of stocks. The job of the specialist originated over a century ago, when the need was recognized for a system for continuous trading. That meant trading even when there was no "real" buyer or seller waiting to take the other side of the trade.

The specialist is a broker who deals in a specific stock and remains at one location on the floor holding an inventory of it. He posts the "bid" and "ask" prices, manages "limit" orders, executes trades, and is responsible for managing the uninterrupted flow of orders. If there is a large shift in demand on the "buy" side or the "sell" side, the specialist steps in and sells or buys out of his own inventory to meet the demand, until the gap has narrowed.

This gives him an opportunity to trade for himself, using his inside knowledge to book a profit. That practice is frowned on by the Securities Exchange Commission (SEC), but it has never been seriously regulated, because it has been considered necessary to keep markets "liquid."

Keiser's "Virtual Specialist Technology" (VST) was developed for the Hollywood Stock Exchange (HSX), a web-based, multiplayer simulation in which players use virtual money to buy and sell "shares" of actors, directors, upcoming films, and film-related options. The program determines the true market price automatically, by comparing "bids" with "asks" and weighting the proportion of each. Keiser and HSX co-founder Michael Burns applied for a patent for a "computer-implemented securities trading system with a virtual specialist function" in 1996, and U.S. patent no. 5960176 was awarded in 1999.

But things went awry after the dotcom crash, when Keiser's company HSX Holdings sold the VST patent to investment firm Cantor Fitzgerald, over his objection. Cantor Fitzgerald then put the part of the program that would have eliminated front-running on ice, just as drug companies buy up competing patents in order to take them off the market. Instead of preventing front-running, the program was altered so that it actually enhanced that fraudulent practice. Keiser (who is now based in Europe) notes that this sort of patent abuse is illegal under European Intellectual Property law.

Meanwhile, the design of the VST program remained on display at the patent office, giving other inventors ideas. To get a patent, applicants must list "prior art" and then prove that their patent is an improvement in some way. The listing for Keiser's patent shows that it has been referenced by 132 others involving automated program trading or HFT.

Since then, HFT has quickly come to dominate the exchanges. High frequency trading firms now account for 73% of all U.S. equity trades, although they represent only 2% of the approximately 20,000 firms in operation.

In 1998, the SEC allowed online electronic communication networks, or alternative trading systems, to become full-fledged stock exchanges. Alternative trading systems (ATS) are computer-automated order-matching systems that offer exchange-like trading opportunities at lower costs but are often subject to lower disclosure requirements and different trading rules. Computer systems automatically match buy and sell orders that were themselves submitted through computers. Market making that was once done with a "specialist's book" - something that could be examined and audited -- is now done by an unseen, unaudited "black box."

For over a century, the stock market was a real market, with live traders hotly bidding against each other on the floor of the exchange. In only a decade, floor trading has been eliminated in all but the largest exchanges, such as the New York Stock Exchange (NYSE); and even in those markets, it now co-exists with electronic trading.

Alternative trading systems allow just about any sizable trader to place orders directly in the market, rather than routing them through investment dealers on the NYSE. They also allow any sizable trader with a sophisticated HFT program to front run trades.

Flash Trades: How the Game Is Rigged

An integral component of computerized front running is a dubious practice called "flash trades." Flash orders are permitted by a regulatory loophole that allows exchanges to show orders to some traders ahead of others for a fee. At one time, the NYSE allowed specialists to benefit from an advance look at incoming orders; but it has now replaced that practice with a "level playing field" policy that gives all investors equal access to all price quotes. Some ATSs, however, which are hotly competing with the established exchanges for business, have adopted the use of flash trades to pull trading business away from the exchanges. An incoming order is revealed (or flashed) to a trader for a fraction of a second before being sent to the national market system. If the trader can match the best bid or offer in the system, he can then pick up that order before the rest of the market sees it.

The flash peek reveals the trade coming in but not the limit price – the maximum price at which the buyer or seller is willing to trade. This is what the HFT program figures out, and it is what gives the high-frequency trader the same sort of inside information available to the traditional market maker: he now gets to peek at the other player's cards. That means high-frequency traders can do more than just skim hefty profits from other investors. They can actually manipulate markets.

How this is done was explained by Karl Denninger in an insightful post on Seeking Alpha in July 2009:

Let's say that there is a buyer willing to buy 100,000 shares of BRCM with a limit price of $26.40. That is, the buyer will accept any price up to $26.40. But the market at this particular moment in time is at $26.10, or thirty cents lower.

So the computers, having detected via their 'flash orders' (which ought to be illegal) that there is a desire for Broadcom shares, start to issue tiny (typically 100 share lots) 'immediate or cancel' orders - IOCs - to sell at $26.20. If that order is 'eaten' the computer then issues an order at $26.25, then $26.30, then $26.35, then $26.40. When it tries $26.45 it gets no bite and the order is immediately canceled.

Now the flush of supply comes at, big coincidence, $26.39, and the claim is made that the market has become 'more efficient.'

Nonsense; there was no 'real seller' at any of these prices! This pattern of offering was intended to do one and only one thing -- manipulate the market by discovering what is supposed to be a hidden piece of information -- the other side's limit price!

With normal order queues and flows the person with the limit order would see the offer at $26.20 and might drop his limit. But the computers are so fast that unless you own one of the same speed you have no chance to do this -- your order is immediately 'raped' at the full limit price! . . . [Y]ou got screwed for 29 cents per share which was quite literally stolen by the HFT firms that probed your book before you could detect the activity, determined your maximum price, and then sold to you as close to your maximum price as was possible.

The ostensible justification for high-frequency programs is that they "improve liquidity," but Denninger says:

Hogwash. They have turned the market into a rigged game where institutional orders (that's you, Mr. and Mrs. Joe Public, when you buy or sell mutual funds!) are routinely screwed for the benefit of a few major international banks.

In fact, high-frequency traders may be removing liquidity from the market. So argues John Daly in the U.K. Globe and Mail, citing Thomas Caldwell, CEO of Caldwell Securities Ltd.:

Large institutional investors know that if they start trying to push through a large block of shares at a certain price – even if the block is broken into many small trades on several ATSs and markets -- they can trigger a flood of high-frequency orders that immediately move market prices to the institution's disadvantage. ... That's why institutions have flocked to so-called dark pools operated by ATSs such as Instinet, and individual dealers like Goldman Sachs. The pools allow traders to offer prices without publicly revealing their identities and tipping their hand.

Because these large, dark pools are opaque to other investors and to regulators, they inhibit the free and fair trade that depends on open and transparent auction markets to work.

The Notorious Market-Rigging Ringleader, Goldman Sachs

Tyler Durden, writing on Zero Hedge, notes that the HFT game is dominated by Goldman Sachs (GS), which he calls "a hedge fund in all but FDIC backing." Goldman was an investment bank until the fall of 2008, when it became a commercial bank overnight in order to capitalize on federal bailout benefits, including virtually interest-free money from the Fed that it can use to speculate on the opaque ATS exchanges where markets are manipulated and controlled.

Unlike the NYSE, which is open only from 10 am to 4 pm EST daily, ATSs trade around the clock; and they are particularly busy when the NYSE is closed, when stocks are thinly traded and easily manipulated. Tyler Durden writes:

[A]s the market keeps going up day in and day out, regardless of the deteriorating economic conditions, it is just these HFT's that determine the overall market direction, usually without fundamental or technical reason. And based on a few lines of code, retail investors get suckered into a rising market that has nothing to do with green shoots or some Chinese firms buying a few hundred extra Intel servers: HFTs are merely perpetuating the same ponzi market mythology last seen in the Madoff case, but on a massively larger scale.

HFT rigging helps explain how Goldman Sachs earned at least $100 million per day from its trading division, day after day, on 116 out of 194 trading days through the end of September 2009. It's like taking candy from a baby, when you can see the other players' cards.

Reviving the Free Market

So what can be done to restore free and fair markets? A step in the right direction would be to prohibit flash trades. The SEC is proposing such rules, but they haven't been effected yet.

Another proposed check on HFT is a Tobin tax – a very small tax on every financial trade. Proposals for the tax range from .005% to 1%, so small that it would hardly be felt by legitimate "buy and hold" investors, but high enough to kill HFT, which skims a very tiny profit from a huge number of trades.

That is what proponents contend, but a tiny tax might not actually be enough to kill HFT. Consider Denninger's example, in which the high-frequency trader was making not just a few pennies but a full 29 cents per trade and had an opportunity to make this sum on 99,500 shares (100,000 shares less 5 100-lot trades at lesser sums). That's a $28,855 profit on a $2.63 million trade, not bad for a few milliseconds of work. Imposing a .1% Tobin tax on the $2.63 million would reduce the profit to $26,225, but that's still a nice return for a trade that takes less time than blinking.

The ideal solution would fix the problem at its source - the price-setting mechanism itself. Keiser says this could be done by banning HFT and installing his VST computer program in its original design in all the exchanges. The true market price would then be established automatically, foreclosing both human and electronic manipulation. He notes that the shareholders of his former firm have a good claim for voiding out the sale to Cantor Fitzgerald and retrieving the program, since the deal was never consummated and the investors in HSX Holdings have never received a penny for the sale.

There is just one problem with their legal claim: The paperwork proving it was shipped to Cantor Fitzgerald's offices in the World Trade Center several months before September 2001. Like free market capitalism itself, it seems, the evidence has gone up in smoke.

Comment (Peter M.):

Something like this now happens on Ebay.

It now allows a buyer to withdraw a bid - but this does not show up on the publicly available Bid History. A seller, trying to assess the "maximim bid" of the buyer(s), can put in bids to detect when he (the seller) is "winning", ie has just exceeded the "maximim bid". The seller can then withdraw his last bid to ensure that he is not the winner. By this means, he could put in fake bids to push the price up, then withdraw his last bid if he realizes he "won". The last genuine bidder thus "wins". Or, if the price is not high enough, the seller can withdraw the item from sale.

Certain events in the Bid History are only visible to the seller and the bidder. But if the seller IS the bidder, no-one else sees them.

As Ebay earns a % of the final price, it has a vested interest in allowing such manipulation.

It's mainly bigtime sellers - "power sellers" - who would know how to do this. Mum & Dad sellers wouldn't do it.

Now that so many people are short of money, prices on Ebay have fallen, so sellers are tempted to use backhand methods.

This is especially dangerous for people buying expensive items like cars.

Ebay is just as corrupt as the Share Trading system. But we're forced to use it, anyway. If we know how it works, we can at least take some protective measures.

(4) Stock Market Collapse: More Goldman Market Rigging? - Ellen Brown

From: Ellen Brown <ellenhbrown@gmail.com> Date: 08.05.2010 06:21 PM
  
Stock Market Collapse: More Goldman Market Rigging?

http://www.huffingtonpost.com/ellen-brown/stock-market-collapse-mor_b_568164.html
 
Ellen Brown

Posted: May 7, 2010 04:52 PM

Last week, Goldman Sachs was on the congressional hot seat, grilled for fraud in its sale of complicated financial products called "synthetic CDOs." This week the heat was off, as all eyes turned to the attack of the shorts on Greek sovereign debt and the dire threat of a sovereign Greek default. By Thursday, Goldman's fraud had slipped from the headlines and Congress had been cowed into throwing in the towel on its campaign to break up the too-big-to-fail banks. On Friday, Goldman was in settlement talks with the SEC.

Goldman and Wall Street reign. Congress appears helpless to discipline the big banks, just as the European Central Bank appears helpless to prevent the collapse of the European Union. . . . Or are they?

Suspicious Market Maneuverings

The shorts circled like sharks in the Greek bond market, following a highly suspicious downgrade of Greek debt by Moody's on Monday. Ratings by private ratings agencies, long suspected of being in the pocket of Wall Street, often seem to be timed to cause stocks or bonds to jump or tumble, causing extreme reactions in the market. The Greek downgrade was suspicious and unexpected because the European Central Bank and International Monetary Fund had just pledged 120 billion Euros to avoid a debt default in Greece.

Markets were roiled further on Thursday, when the U.S. stock market suddenly lost 999 points, and just as suddenly recovered two-thirds of that loss. It appeared to be such a clear case of tampering that Maria Bartiromo blurted out on CNBC, "That is ridiculous. This really sounds like market manipulation to me."

Manipulation by whom? Markets can be rigged with computers using high-frequency trading programs (HFT), which now compose 70% of market trading; and Goldman Sachs is the undisputed leader in this new gaming technique. Matt Taibbi maintains that Goldman Sachs has been "engineering every market manipulation since the Great Depression." When Goldman does not get its way, it is in a position to throw a tantrum and crash the market. It can do this with automated market making technologies like the one invented by Max Keiser, which he claims is now being used to turbocharge market manipulation.

Goldman was an investment firm until September 2008, when it became a "bank holding company" overnight in order to capitalize on the bank bailout, including borrowing virtually interest-free from the Federal Reserve and other banks. In January, when President Obama backed Paul Volcker in his plan to reinstate a form of the Glass-Steagall Act that would separate investment banking from commercial banking, the market collapsed on cue, and the Volcker Rule faded from the headlines.

When Goldman got dragged before Congress and the SEC in April, the Greek crisis arose as a "counterpoint," diverting attention to that growing conflagration. Greece appears to be the sacrificial play in the EU just as Lehman Brothers was in the U.S., "the hostage the kidnappers shoot to prove they mean business."

The Nuclear Option

It is still possible, however, for the European Central Bank to snatch Greece from the fire and rout the shorts. It can do this with what has been called the nuclear option -- "monetizing" the debt of Greece and other debt-laden EU countries by effectively "printing money" (quantitative easing) and buying the debt itself at very low interest rates. This is called the "nuclear option" because it would blow up the hedge funds and electronic sharks operated by Goldman and other Wall Street heavies, which specialize in bringing down corporations and whole countries for strategic and exploitative ends.

Will the ECB proceed with this plan? Perhaps, say some experts. It could just be waiting for the German election on Sunday, which the ECB does not want to appear to be influencing.

(5) Senate probe: Goldman planned to profit from housing bust, made billions at clients' expense
From: Tim OSullivan <timos2003z@hotmail.com> Date: 27.04.2010 06:56 PM

Senate probe: Goldman planned to profit from bust

WASHINGTON (AP) April 26, 2010

http://www.npr.org/templates/story/story.php?storyId=126287961&ft=1&f=1014
http://finance.yahoo.com/news/Senate-probe-Goldman-planned-apf-4175665460.html

Goldman Sachs developed a strategy to profit from the housing meltdown and reaped billions at the expense of clients, a Senate investigation has found.

Top Goldman executives misled investors in complex mortgage securities that became toxic, investigators for a Senate panel allege. They point to e-mails and other Goldman documents obtained in an 18-month investigation. Excerpts from the documents were released Monday, a day before a hearing that will bring CEO Lloyd Blankfein and other top Goldman executives before Congress. ...

(6) Spotlight falls on role of consultancies

By Megan Murphy, Justin Baer and Brooke Masters

Financial Times

April 9 2010 03:00

http://xinkaishi.typepad.com/a_new_start/bankingfinance/

The revelation this week that Citigroup's disastrous expansion into the complex mortgage securities that lay at the heart of the financial crisis was based in part on a study by outside consultants has raised serious questions about the bank's managerial judgment.

But is has also highlighted how management consultancy groups exploited Wall Street's collective paranoia about ceding ground to rivals building up big businesses during the boom years.

It emerged on Wednesday in testimony before the Financial Crisis Inquiry Commission in Washington that, partly on the back of a 2005 Oliver Wyman analysis of potential growth in the fixed-income market, Citi decided to ramp up its business in collateralised debt obligations, or CDOs, backed by high-risk or "subprime" mortgage loans.

This ultimately led to a US government bail-out after Citi racked up more than $50bn in losses in the wake of the implosion of the subprime market.

In the heady pre-crisis years, firms such as Oliver Wyman and McKinsey were frequently called in to assess how banks could bolster profits in underperforming divisions, as bank executives looked to stave off shareholder complaints about lagging returns.

Oliver Wyman, for example, marketed a yearly analysis of how banks were faring relative to each other in hard-to-measure areas such as fixed income and commodities, offering previously unavailable competitive intelligence.

Citi was not the only bank that increased its exposure to CDOs at an inopportune moment. UBS was singling out structured credit and securitised products as big opportunities for growth as late as March 2007, again partly on the back of a strategic review of its fixed-income business led by Oliver Wyman.

In a 50-page report into the Swiss bank's near-collapse, published in April 2008, UBS revealed that the consultancy group "recommended that UBS selectively invest in developing certain areas of its business to close key product gaps, including in credit, rates... subprime and adjustable- rate mortgage products."

Oliver Wyman repeatedly declined to comment on either report, citing client confidentiality.

But people familiar with the analysis provided to Citi say it included ample warnings about the risks of diving into the structured product market, as well as other precautions that should be considered.

Citi insiders say that those precautions may have been overlooked amid mounting pressure on senior executives within Citi's midtown Manhattan headquarters and at 388 Greenwich Street, the downtown home of the company's investment bank. ...