Category Archives: Derivatives

On Goldman’s (and Now Morgan Stanley’s) Deceptive Synthetic CDO Practices (aka Screwing Their Customers)

Goldman is trying to diffuse the increasingly harsh light being turned on its dubious practices in the collateralized debt obligation market, with the wattage turned up considerably last week by a story in the New York Times that described how a synthetic CDO program called Abacus was the means by which Goldman famously went “net […]

“What’s in Store for 2010”

By Bruce Krasting, a former foreign exchange and derivatives trader and hedge fund manager. Mohammad said, “One cannot foretell the future”. I think he was on to something. What looks predictable rarely happens. There are always surprises. I have been tripped up so many times. The following are not predictions of things that will happen. […]

“Is Blaming AAA Investors Wall-Street Serving PR?”

By Thomas Adams, at Paykin Krieg and Adams, LLP, and a former managing director at Ambac and FGIC. In my view, Goldman, and a host of other clever bankers, are deliberately obscuring one of the most important points about modeling, CDOs and sophisticated investors. One of their defenses against the tremendous losses these products delivered […]

Will Continued Stealth Bailout of Housing Produce Unwanted Side Effects?

The Treasury Department, as reported by Bloomberg, and commented on by Rolfe Winkler and Huffington Post (among others) noted, considerably increased its Freddie and Fannie safety net, by removing all limits on the amounts on offer (an increase from a ceiling of $400 billion) and simultaneously allowing the two GSEs to increase their balance sheets […]

Guest Post: Princeton Economist and Computer Scientists Show that Derivatives Are Inherently Vulnerable to Fraud

By Washington’s Blog. As I have previously noted, credit default swaps are destabilizing for the economy. See this. And the models used to evaluate financial instruments – such as the Gaussian copula formula for CDOs – are inherently flawed. Now, Princeton University economists and computer scientists have demonstrated that financial derivatives are also inherently vulnerable […]

Goldman, Deutsche, and the Destructive Use of Synthetic CDOs Come Into Focus

Gretchen Morgenson and Louise Story have a good article up at the New York Times on synthetic CDOs (or more accurately, synthetic ABS CDOs, for “asset backed securities” CDOs). The press is finally starting to turn some lights onto one of the activities that played an important role in the crisis, but has not gotten […]

“Body Count From Goldman Actions Crosses Into Criminal Territory”

By Thomas Adams, at Paykin Krieg and Adams, LLP, and a former managing director at Ambac and FGIC. Readers may have noticed Janet Tavakoli’s recent article at Huffington Post on Goldman Sachs and AIG. While much of it covers territory that Yves and I already wrote about previously, Ms. Tavakoli stops short of telling the […]

Some Things Went Bump in The Night Last Week (Bank Regulatory Shenanigans Edition)

By Richard Smith, a capital markets and IT consultant There was some really strange stuff going on last week. First, Citi got in a right old tangle. Monday: Citi announce share sale. Pretext: TARP escape. Wednesday: the share sale falls through. Wednesday: it also emerges that the IRS has been quite kind (or at least […]

Spitzer, Partnoy, Black Call for AIG Open Source Investigation (and Goldman Implications)

An op-ed in the Sunday New York Times by former investigators and prosecutors Eliot Spitzer, Frank Parnoy, and William Black calls for AIG to put non-privileged e-mails, accounting documents, and financial models on line to allow for an “open source” investigation. The questions they want to examine include: As fraud investigators, we would like to […]

Bernanke Stonewalls and Prevaricates in Response to Questions by Sen. Bunning

Senator Jim Bunning gave a long, detailed, specific, and very good list of questions to Fed chair Ben Bernanke, and Bunning has posted the resulting Q&A on his website. I find this a pretty remarkable document. While a certain amount of bureaucratic jousting is to be expected (ie, there is a level of artful dodging […]

“Financial Reform, or, Rearranging Chairs on the Titanic”

By L. Randall Wray is a professor of economics and research director of the Center for Full Employment and Price Stability at the University of Missouri–Kansas City and writes for New Deal 2.0 Congress is nearing completion of its financial reform bill HR 4173 (Wall Street Reform and Consumer Protection Act of 2009), which appears […]

Volcker: Little Evidence Financial Innovation Has Helped Economy

Tall Paul is my hero. I would go further than he did in a speech in Sussex. The case can made that financial innovation of the OTC derivatives variety, which has mushroomed from 1992 onward, has been at best a wealth transfer device from the real economy to the financial economy, and has probably exacted […]

Guest Post: Head of California’s Cap and Trade Offsets Program: Cap and Trade Won’t Work for Climate, It’s a Scam

Paul Krugman argues that cap and trade worked to reduce sulfur dioxide and stop acid rain, and so it will work to reduce C02. However, two EPA lawyers with more than 40 years of cumulative experience – including the guy who has been head of California’s cap and trade offset programs for more than 20 […]

Alan Grayson Asks Bernanke for Answers in Latest Retrade of AIG Deal

The ongoing tempest in a teapot about executive compensation at AIG appears to be a bit of Kabuki theater designed to divert attention from the real drama, which is the continuing sweetening of the deal to the troubled insurer. We will get to Congressman Alan Grayson’s pointed questions to Bernanke about the latest de facto […]

Guest Post: Woman Who Invented Credit Default Swaps is One of the Key Architects of Carbon Derivatives, Which Would Be at the Very CENTER of Cap and Trade

As I have previously shown, speculative derivatives (especially credit default swaps or “CDS”) are a primary cause of the economic crisis. They were largely responsible for bringing down Bear Stearns, AIG (and see this), WaMu and other mammoth corporations. According to top experts, risky derivatives were not only largely responsible for bringing down the American […]