Author Archives: Yves Smith

Big Investors Rebelling Against Private Equity Fees

In a remarkable and long-overdue change in attitude, institutional investors are starting to tell private equity titans that they think they don’t earn their outsized pay. And that’s before you get to all the grifting they’ve been exposed to be doing on top of that.

The Wall Street Journal described a confrontation at a conference in Paris, with a pension fund manager responsible overseeing private equity investments calling out the unjustifiable level of private equity fees.

Bill Black: Dudley Do Wrong Rejects Being a “Cop” and Embraces “Foaming the Runways”

William Dudley, the President of the New York Fed, is not a stupid man. He is, however, wholly unfit to be a regulator. He has now admitted that publicly. It is time for him to return to Goldman Sachs so that he can be replaced by someone expressly chosen to be a vigorous regulator who will embrace the most critical function of a financial regulator – to be the tough “regulatory cop on the beat.”

Links 11/22/14

Wolf Richter: Signs That the Startup Bubble is Totally Maxed Out

Yves here. Wolf’s longer original headline to this post focused on how gobsmacked he was to get glossy mail pieces to promote supposedly hot Silicon Valley startups. Apparently, the deemed-to-be-transgressive communications medium (by West Coast standards) was a way to cut through the new venture clutter. But what I found more surprising was how obviously lame these ideas were, yet they’ve all already gotten multiple rounds of funding and have eight figure investments so far.

Elizabeth Warren Blasts New York Fed President William Dudley

This Elizabeth Warren grilling of New York Fed William Dudley over the revelations in tapes made by ex-New York Fed employee Carmen Segarra, is a bit more Socratic than her normal approach, presumably because she has more than the typical five minutes for questions. Don’t be deceived by her pacing.

Bill Black: Why the New York Fed Isn’t Trustworthy

Yves here. Readers may recall that we criticized the New York Times’ reporting on an important story on a criminal investigation underway involving both Goldman and New York Fed employees. A Goldman employee who had worked at the New York Fed and his boss were fired because the ex-Fed staffer allegedly had obtained confidential bank supervisory information. A New York Fed employee was also fired immediately after the Goldman terminations. The piece was composed as if the intent was to be as uninformative as possible and still meet the Grey Lady’s writing standards. Readers were left in the dark as to where the two Goldman employees fit in the organization and what the sensitive information was.

Bill Black dug through later news reports, did some additional sleuthing, and based on is experience as a regulator, concluded that there is no way the Goldman employee, Rohit Bansal, didn’t recognize that he was misusing confidential bank supervisory information. That matters because whether or not breach is criminal hinges on whether he “willfully” broke the law.

Links 11/21/14

Private Equity Firms Start ‘Fessing Up to Cheating

The Wall Street Journal describes how some private equity firms are attempting to clean up their act by admitting to dubious practices in revised regulatory filings with the SEC.

There’s a wee problem with this approach. Securities law is not like the Catholic Church, where confession and a promise not to sin again buys you redemption.

Russia Can Survive An Oil Price War

Yves here. This article is an important sanity check on the impact of the current oil price war on Russia. We’ve seen similarly skewed conventional wisdom on the Saudis: “No, they can’t make it on a fiscal budget basis at below $90 a barrel,” completely ignoring the fact that the Saudis clearly believe it is in their long-term interest to suffer some costs to inflict pain on some of their enemies, and render some (a lot) of shale oil and alternative energy development uneconomical, which increases their ability to extract more in the long term from their oil asset.

New York Fed, Goldman in Criminal Investigation for Sharing Confidential Information

A New York Times story manages to bury the lead, even given the salacious material, in an important story that provides more evidence of the overly-cozy relationship between the New York Fed and its favored large banks, particularly Goldman. The issue is sensitive in the wake of former New York Fed staffer Carmen Segarra releasing hours of tape recordings that show undue deference by the Fed employees towards Goldman. One particularly troubling incident was the Fed allowing Goldman to pretend it had gotten Fed approval for a derivatives deal designed to snooker Spanish banking regulators. Another was Goldman’s lack of a conflicts of interest policy (see former regulator Justin Fox’s discussion of why this is a serious matter).

What is striking about the New York Times expose is how tortuous the writing is, and how it takes (and I am not exaggerating) three times as many words as necessary to finally describe what happened. For instance, it isn’t until the 9th paragraph that the article mentions that this sharing of confidential information can be a crime and the authorities are giving a serious look into that very question.

But the really damaging part is it looks as if Goldman waited to take action on its having obtained impermissible information until the Carmen Segarra story with secret tapes of how the New York Fed toadied to Goldman broke when they could finally see how damaging it actually was. And Goldman and the Fed clearly knew that story was coming weeks in advance.

Links 11/20/14

Elizabeth Warren Blasts FHFA’s Mel Watt: “You Haven’t Helped a Single Family”

Elizabeth Warren tore into FHFA director Mel Watt over his failure to develop a program for Fannie and Freddie to provide principal modifications to underwater borrowers at risk of foreclosure. She also got in a dig for his failure to stop the agencies from pursuing deficiency judgments. That means going after former homeowners when the sale of the house they lost didn’t recoup enough to cover the mortgage balance. In the stone ages, when banks kept the mortgage loans they made, they never pursued deficiency judgements. They knew there was no point in trying to get blood from a turnip. Not surprisingly, the sadistic Fannie/Freddie policy has also proven to be spectacularly unproductive in financial terms. An FHFA inspector general study found that recoveries were less than 1/4 of 1% of the amount sought. Moreover, since those mortgage balances were often inflated by junk fees and other dubious costs, and mortgage servicers have done a poor job of maintain properties (they are too often stripped of copper and appliances, or get mold), any deficiency might be significantly or entirely the servicer’s fault.

Michael Hudson, Other Experts Discuss America, China and Russia Jockeying in G20 and APEC Summits

Yves here. This is an intriguing exchange among Michael Hudson, John Weeks, professor emeritus of development economics at the University of Long and Colin Bradford of Brookings. The points of difference between Hudson and Bradford are sharp, with Bradford admitting to giving a Washington point of view that Obama scored important gains at the APEC summit, with Hudson contending that both confabs exposed America’s declining role and lack of foreign buy-in for its neoliberal economic policies.

John Helmer: Leaky Russian Sanctions, or the Difference Between an Oligarch and a Crony

Yves here. This post focuses on the considerable gap between rhetoric and action as far as sanctions against Russia are concerned. John Helmer describes who is exempted from sanctions against Russia and why.