Fast, easy, and off-the-record.
Heh. A cutting funny about Lisa Murkowski from Greenpeace.
Category: Corruption
Big Surprise
What causes this?
Could it be ………… Satan?
Barry Ritholtz finds a rather delicious piece of information showing that fraud in earnings statements is rather widespread, to be fair, it originally came from the Wall Street Journal, but since that’s behind a pay wall, and Ritholtz summarizes nicely, he gets the link.
You see, when you look at companies reporting earnings per share, the general number is rounded to the whole cent, but when you delve deeper into the numbers you get fractions of a cent per share, and lo and behold, a fraction of 0.4¢ a share is conspicuously absent from these numbers?
Why would this be?
It’s not the work of Satan, but the work of accountants.
Basically, if your earnings are 13.4¢ a share, you announce earnings of 13¢ a share, but if they are 13.5¢ a share, you announce earnings of 14¢ a share.
This number is statistically significant.
If you saw this in a poll you would immediately conclude that someone was just making sh%$ up.
Quoting Ritholtz, quoting the Journal:
The study, which examined nearly half a million earnings reports over a 27-year period, reached its conclusion by going beyond the standard per-share earnings results that are reported in pennies and analyzing the numbers down to the 10th of a cent.
That deeper look showed that companies tend to nudge their earnings numbers up by a 10th of a cent or two. That lets them round results up to the highest cent. Investors often snap up shares of companies that beat earnings expectations, even by a cent, and, likewise, sell off shares of companies that don’t make their numbers.”
I love the euphemism “meet investor expectations” as opposed to the more colloquial “lie cheat and steal.”
It also points out the need for the SEC to develop a Department of Quantitative Analysis filled with math geeks and computers, doing nothing but sifting through data looking for investor fraud. I’d bet they would get more convictions than the rest of the SEC combined. (If someone in the SEC would call me, I’ll help you set it up).
(emphasis mine)
This is the sort of application of “quants” in finance that I could wholeheartedly get behind.
Can We Please Start Arresting Bankers?
Seriously, the good folks at Citi are planning to start selling, “derivatives intended to pay out in the event of a financial crisis.”
That’s right, they are creating instruments that will allow people to bet against our financial system, and win if they, or their friends take it down:
Credit specialists at Citi are considering launching the first derivatives intended to pay out in the event of a financial crisis. The firm has drawn up plans for a tradable liquidity index, known as the CLX, on which products could be structured that allow buyers to hedge a spike in funding costs.
(emphasis mine)
Seriously, if our forfathers understood the need to prevent this sort of casino gambling masquerading as insurance when the parliament passed the Marine Insurance Act of 1746, no that’s not an error, taking out insurance on something in which you have no interest in the continued existence of the insured property has been illegal for 264 years, because otherwise, people do things like take out insurance in their neighbor’s house, and then burn it down.
These people are terrorists under the (admittedly lax) standards of the PATRIOT act and its successors, and they should be pursued as such, with all the jurisprudence that Dick Cheney wants for suspected al Qaeda members.
H/t Felix Salmon, who crystallizes the basic point rather clearly:
We learned in the crash of 1987 [and 2001, and 2008, me] that when financial markets start selling products which insure a portfolio against catastrophic loss, the very existence of those products can destabilize the market and make it more prone to crashing. And, of course, we learned that such insurance has a tendency not to get paid out on exactly when it’s most needed. But heaven forfend that the market should ever learn from its mistakes.
We need hand cuffs for dishonest and delusional bankers today, or we’ll need pitchforks, torches, tar and feathers for all bankers tomorrow.
Speaking of Not Having Real Regulation in the United States
It looks like one of the major changes in regulation of financial services firms, that they act in their clients best interest, a so-called fiduciary responsibility, as opposed to the current standard of “industry standard” behavior, which basically says that the only crime is to get caught.
Well, Tim Johnson, no doubt still suffering from the effects of his stroke 3 years ago, has decided to kill the fiduciary requirement, and send the idea to the SEC for a “study”:
Lobbying by insurers and banks including Morgan Stanley may result in the elimination of a proposed new standard that would make retail brokers more accountable to their clients.
Tim Johnson, the South Dakota Democrat in line to become the next chairman of the Senate Banking Committee, is circulating a proposal that would drop the so-called fiduciary standard for brokers from the panel’s reform package, according to a copy obtained by Bloomberg News. Johnson instead proposes that the U.S. Securities and Exchange Commission conduct an 18- month study to see if there’s need for a new broker standard.
Consumer advocates have pushed for the fiduciary standard, arguing that investors are misled by the adviser title used by thousands of brokers. Investors have difficulty distinguishing between investment advisers and brokers, and most see their brokers as advisers, according to a 2008 Rand Corp. study commissioned by the SEC. Without the fiduciary requirement, brokers don’t have the same accountability for their advice as investment advisers and have more leeway to sell financial products created by their own firms instead of seeking the best investment for the customer.
Not only is this bad policy, it’s bad politics.
Make the Republicans vote against a law that says, “Financial advisers must act in their client’s best interests,” if you push it, people will understand it.
We Are All Max Bialystock*
Have you heard the latest derivative?
Cantor-Fitzgerald, showing evidence that they are still insane with grief after having 2/3 of their employees on 911, have come up with a twist to their new and innovative financial product, the Hollywood Stock Exchange, a game where people can “bet” funny on the success and failure of movies.
The twist, they are asking for regulatory approval to allow people to bet real money.
If any of you have seen The Producers, then you understand the possibilities:
Here’s how it would work. Hollywood studios, actors, directors, investment banks, hedge funds, and anyone else would be able to buy and sell contracts based on the value of all ticket sales in the first four weeks of a movie’s release. According to Cantor Fitzgerald’s plans, the contracts would each be worth one-millionth of a given movie’s gross sales during that four-week period. Let’s say that you thought Avatar would pull in $500 million during its first four weeks. So, you buy 100 futures contracts at $490, figuring that when Avatar made $500 million you’d be up $1,000. Unfortunately, as it turned out, Avatar “only” made some $430 million domestically in the first month after its release—meaning that you’d lose a cool six grand.
One problem, skeptics say, is that Hollywood insiders could have a huge advantage in such a market. People in the movie business often have far greater access to crucial information about a film’s box office prospects than ordinary investors do—such as how big the marketing budget will be or how bad the performances are. “If the industry is selling, odds are that it is a bad idea to buy,” says Dean Baker, the codirector of the Center for Economic and Policy Research.
The deeper meaning to all of this is that these folks at Cantor Fitzgerald really see an opportunity for people to use their inside information as a way to steal from the general as a legitimate financial innovation.
It’s not, it’s a fraud, and it is transparently a fraud conceived for the purpose of generating commissions.
It is an indictment of the very concept of “financial innovation” as put forward by Wall Street.
Whoever came up with this idea should be banned from working as a broker for life.
*Seriously, if you don’t understand the reference, for Pete’s sake, get out more, or go to the Wiki.
OK, Now, it’s Time To Roll Tom Tomorrow
Click for full size
Tom Tomorrow, from Sept. 19, 2005 and Feb. 1, 2010
So Barack Obama is now saying that he, “doesn’t begrudge the $19 million in bonuses for Goldman Sach CEO Lloyd Blankfein and JP Morgan Chase CEO Jamie Domon:
“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”
This is simbply a complete mind f%$#.
It is as Krugman notes, clueless, and Simon Johnson notes that this is an example of, “One of the most complete (and awful) instances ever of savvy businessmen capturing a state and the minds of the people who run it.”
Even if you accept the argument, such as was made by Greg Seargant, that Obama was actually making a nuanced statement where he attempted to show concern without being too “anti-business” in his statements, an to be fair, both Simon Johnson and Paul Krugman, as well as yours truly accept this, it’s still wrong, and shows a concern that is warping the decision making process at the white house.
Johnson notes that he is, “Not sure why he needs to strike that balance. CEOs are overpaid, bankers are overpaid, and bank CEOs are overpaid. Why not just say it plainly?”
Paul Krugman thinks that the nuance makes it worse:
I really don’t see how this makes things any better than the reporting in the Bloomberg story. We don’t begrudge wealth in the free market system — OK, but this wasn’t about free markets, this is an industry that survives only thanks to taxpayer backing. And Wall Street bonuses are like baseball salaries; please.
Just to be clear: what freaks me out about this isn’t what it says about Obama’s policies, it’s what it says about failure to read the mood of the country. The president seems solely concerned that someone might think that he’s anti-business, without — in this interview, at least — appearing to consider it necessary to say a thing about the pervasive sense of unfair Wall Street privilege. He doesn’t have to bash bankers every step of the way, but to respond to a question about bonuses solely by praising free markets and comparing bankers to baseball stars is … clueless.
Whether Tom Tomorrow is right, or whether Paul Krugman is right, what it means is that there is a distinct possibility of a President Palin in 2012.
Shelby Backs Down
Remember when I wrote that Richard Shelby had placed holds on every single Obama nominee because he wanted his pork?
Well, he’s backed down, a little at least:
Sen. Richard Shelby (R-Ala.) has released his controversial “holds” on more than 70 pending presidential nominations, his office said Monday night.
Note that his holds directed at anyone, or anything that might have to do with the USAF tanker RFP, remain in place though.
Matt Taibbi Nails it Again
He discusses the fact that John Thain, the man who spent over a million dollars rehabbing his office at Merrill Lynch while conspiring to conceal losses from Bank of America shareholders has now been appointed CEO of troubled business lender CIT.
Matt Taibbi asks the question that this raises, “Man, exactly what do you have to do to become unhirable in this country? Eat Christian babies on CNN?“
It’s true. As Mr. Taibbi notes, the “Genius” behind the LTCM fiasco is still getting to make his money playing with other people’s money.
This is all about corruption and nepotism.
Big Surprise
Former Liberian President, and mass murderer, Charles Taylor is saying that he did mining deals with Pat Robertson in exchange for his lobbying Bush and His Evil Minions™ for support:
Former Liberian president Charles Taylor, testifying in his war crimes trial in The Hague on Thursday, said that his government had awarded American televangelist Pat Robertson a gold mining concession in 1999 and that Robertson later offered to lobby the Bush administration on the government’s behalf.
The revelations came in the midst of Taylor’s U.N.-backed trial on 11 counts of committing war crimes and crimes against humanity during Sierra Leone’s 1990s civil war. Taylor is accused of directing a Sierra Leonean rebel group, the United Revolutionary Front, in a campaign aimed at securing access to the country’s diamond mines. The rebel movement stands accused of committing mass atrocities in the West African country in the late 1990s, including the mutilation of thousands of civilians.
Here’s hoping that the war crimes tribunal comes after Pat Robertson, whose association with Taylor has been common knowledge for at least a decade.
Of course, Robertson will never see the inside of a court room, because the United States won’t turn over anyone for war crimes, because we’re big enough not to play by the rules, so all that we will hear from him on this is his spokesman’s denial.
Stephen Andrew Wakefield Acted Unethically
Medical regulators in the UK have now ruled that Stephen Andrew Wakefield acted unethically in the conduct of his study linking vaccinations and autism.
The doctor who first suggested a link between MMR vaccinations and autism acted unethically, the official medical regulator has found.
Dr Andrew Wakefield’s 1998 Lancet study caused vaccination rates to plummet, resulting in a rise in measles – but the findings were later discredited.
The General Medical Council ruled he had acted “dishonestly and irresponsibly” in doing his research.
, Dr Wakefield said the claims were “unfounded and unjust”.
The GMC case did not investigate whether Dr Wakefield’s findings were right or wrong, instead it was focused on the methods of research.
During the two-and-a-half years of hearings – one of the longest in the regulator’s history – he was accused of a series of charges.
‘Callous disregard’
The verdict, read out by panel chairman Dr Surendra Kumar, criticised Dr Wakefield for the invasive tests, such as spinal taps, that were carried out on children and which were found to be against their best clinical interests.
The panel said Dr Wakefield, who was working at London’s Royal Free Hospital as a gastroenterologist at the time, did not have the ethical approval or relevant qualifications for such tests.
The GMC also took exception with the way he gathered blood samples. Dr Wakefield paid children £5 for the samples at his son’s birthday party.
Dr Kumar said he had acted with “callous disregard for the distress and pain the children might suffer”.
(emphasis original)
It’s likely that they will pull his certification to practice medicine, though this might not mean much, as Wakefield left the UK, and now practices in the United States.
His research, which was not merely bad, but corrupt, had sickened thousands of children who were either not vaccinated, or caught disease from their unvaccinated friends. (vaccines are not 100%, and the loss of herd immunity is a serious issue)
Additionally, Lancet has already rescinded the original article.
One hopes that he ends his life in jail, because he wasn’t just wrong, he pushed forward his bogus study in the hopes of making money from an equally bogus therapy that he had patented.
[on edit]
A sharp eyed reader noticed that I got his name wrong. I have corrected, but have left the original strike through to show what a complete prat I am.
The New Supreme Court Official Photo
Taken just after their vote on the Citizens United case, which allowed unlimited corporate campaign donations:
Someone at the by invitation only Stellar Parthenon BBS received this via email.
True Dat
Why People Hate Bankers
Because their systems are patently unfair.
Case in point, AIG, which is owned by the US government, gave retention bonuses to employees who no longer work there:
A substantial number of AIG’s Financial Products employees set to get some $195 million in retention payments no longer work with the bailed out insurer, sources familiar with the matter said on Wednesday.
It’s clear that such behavior not only does not serve society, but it does not serve the share holders or the company.
This is a crooked game, and it needs to be shut down.
I’m going long on pitchforks and torches.
Blankfein Buys a Clue
Well, it appears that he is a bit less arrogant than his ilk, as Goldman Sachs CEO Lloyd Blankfein year bonus was just $9 million, with none of it in cash, a far cry from the reports of $100 million:
Goldman Sachs stunned many in the Wall Street community Friday by awarding chief executive Lloyd Blankfein $9 million as his year-end bonus, far less than many were anticipating, and none of it in cash.
It was in restricted stock.
My guess is that there are some back channel deals, and the whole idea of a “just $9 million” being an exercise in frugality is odd, but he recognizes that there is a very real problem, and he is taking actions to immunize himself, as well as the vampire squid,* from some of the treats of regulatory and legislative action, so credit where is due.
My guess would be is that he got some security and buy-out guarantees that are worth a lot more, in exchange, but those are crafted so as not to show up headline.
Additionally, this may be a big “f%$# you” to his competitors, who now have to explain why they got bigger bonuses with less performance.
*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.
Bipartisanship This!
Richard Shelby is now placing holds on all Obama nominations he doesn’t think that the Obama administration is being friendly enough to Airbus/Northrop-Grumman on the tanker deal, and because they have not started constructed an FBI lab that he cut an earmark for in his district:
According to the report, Shelby is holding Obama’s nominees hostage until a pair of lucrative programs that would send billions in taxpayer dollars to his home state get back on track. The two programs Shelby wants to move forward or else:
– A $40 billion contract to build air-to-air refueling tankers. From CongressDaily: “Northrop/EADS team would build the planes in Mobile, Ala., but has threatened to pull out of the competition unless the Air Force makes changes to a draft request for proposals.” Federal Times offers more details on the tanker deal, and also confirms its connection to the hold.
– An improvised explosive device testing lab for the FBI. From CongressDaily: “[Shelby] is frustrated that the Obama administration won’t build” the center, which Shelby earmarked $45 million for in 2008. The center is due to be based “at the Army’s Redstone Arsenal.”
(emphasis mine)
Seriously, you cannot negotiate with these clowns.
Bipartisanship needs a plan B.
I would suggest stress positions, waterboarding, extreme sleep deprivation, and enforced nudity.
Just in Case You are Wondering
Click for full size
Lazard HQ, Let’s bring pitch forks and torches,
30 Rockefeller Center, New York City, NY
Well, one of the older investment banks out there, Lazard Ltd. formed in 1848, just declared a profit in the 4th quarter.
Wait, no, they didn’t they had a loss.
Why did they have a loss? Because they decided that they had to issue yet another round of indefensible bonuses to their staff:
What should have been a profitable quarter a Lazard Ltd. turned into a surprising loss due to the investment bank paying its people big bonuses.
The firm doled out $616 million in compensation and benefits to about 2,300 employees last quarter, or more than triple the amount handed out in the same period in 2008. It was a consequence, Lazard said, of a decision to pay more bonuses in cash and accelerate some deferred cash awards from a prior year. But so great was the firm’s generosity that compensation costs overwhelmed quarterly revenues and resulted in a net loss of about $55 million for the fourth quarter. The charges also almost wiped out full-year profits.
Lazard Chief Executive Kenneth Jacobs, who took over from the late Bruce Wasserstein last fall, argued that he had no choice but to pay his people to protect and build the franchise. Lazard was one of the few major Wall Street firms to avoid government bailout assistance.
“[Our compensation policies] should enhance our competitiveness and drive shareholder value,” Mr. Jacobs said, in a prepared statement. “Our goal is to grow annual compensation expense at a slower rate than revenues.
(emphasis mine)
Note the comment about shareholder value. Lazard has been publicly held since 2005, but what the f%$#, just screw the share holders.
BTW, their goal, “to grow annual compensation expense at a slower rate than revenues,” that means that their goal is to make a profit …………… some day …………… in the indeterminate future …………… because compensation is pretty much their only expense, ex- renting some office space, and pay a few licensing fees.
They are spending over ½ million an employee:
For all of 2009, Lazard had $11 million in earnings, down sharply from the prior year’s $196 million. Total compensation costs for all of 2009 were a little over $1.3 billion, or an average $565,000 per employee.
Mr. Jacobs’ remarks about pay come a day after Morgan Stanley CEO James Gorman promised to rein in compensation this year at his firm. At Morgan Stanley, compensation ate up 62% of revenues last year. At Lazard, it was 72%. Typically, half of Wall Street revenues go out in compensation.
So, under the normal and customary rules, half the gross revenue, you know, before expenses goes to an already overpaid staff, but it’s not enough for the vampire squids smaller cousins.
Congress needs to change laws to allow shareholders to truly hold managers accountable.
I’m also wondering if shareholders have grounds for a suit here, since it’s pretty clear that management is ignoring them, and the well being of the company, in its decisions.
Andrew Cuomo Sues Ken Lewis and Bank of America for Fraud
Now that the SEC has settled with Bank of America over its misrepresentations, New York State Attorney General Andrew Cuomo is going after the bank for the same thing:
Former Bank of America Corp. Chief Executive Officer Kenneth Lewis was sued by New York Attorney General Andrew Cuomo for defrauding investors and the government when buying Merrill Lynch & Co. The bank agreed to pay $150 million to settle a related lawsuit by U.S. regulators.
Cuomo also sued the bank’s former chief financial officer Joe Price and the bank itself for not disclosing about $16 billion in losses Merrill had incurred before it was bought by Bank of America in an effort to get the merger approved. Afterwards, Lewis demanded government bailout funds, Cuomo said.
“We believe the bank management understated the Merrill Lynch losses to shareholders, then they overstated their ability to terminate their agreement to secure $20 billion of TARP money, and that is just a fraud,” Cuomo said today at a telephone press conference. “Bank of America and its officials defrauded the government and the taxpayers at a very difficult time.”
Of note is the fact that Bank of America performed its due diligence on Merrill Lynch in only 25 yours, which, along with their firing of their general counsel when he suggested that there might be issues, does appear to indicate that something stinks here.
Another bit of weirdness is that while BoA had intended to buy a brokerage for some time, it wasn’t Merrill, at the board meeting in which the proposal was mooted, most of the board members thought that they would be purchasing Lehman:
When Bank of America Corp.’s board met to approve the acquisition of an investment bank on Sept. 15, 2008, members thought they were going to buy Lehman Brothers Holdings Inc., not Merrill Lynch & Co., according to New York Attorney General Andrew Cuomo.
The bank bought Merrill after examining its books for just 25 hours, Cuomo claimed. Shareholders approved the deal Dec. 5, 2008. The acquisition closed Jan. 1, 2009, after Merrill losses had increased by billions of dollars, a change the bank didn’t disclose before the shareholder vote, Cuomo said.
“It’s the way we approved acquisitions that ticks me off the most!!!” director Chad Gifford later wrote in an e-mail about the last-minute switch, according to a securities-fraud complaint Cuomo filed today in New York against the bank, former Chief Executive Officer Kenneth Lewis and ex-Chief Financial Officer Joe Price over their handling of the Merrill deal.
E-mails and written notes that were gathered by Cuomo for his investigation of the matter show personal reactions of executives as they learned of Merrill’s rising losses, which reached $16 billion before taxes by December 2008. They also show Merrill kept Price informed of the losses as they grew, yet he resisted pressure from his lawyers to disclose them to shareholders.
“Read and weep,” wrote Bank of America accounting officer Neil Cotty to Price on Nov. 4, 2008, when Merrill’s financial reporting unit forwarded preliminary October results with a loss of $6 billion. The merger documents had already gone out to shareholders. Five days later, the October loss was put at $7.5 billion before taxes.
I think that this was a deliberate scheme to get some more taxpayer money to do the deal, and I hope that Cuomo goes where the SEC did not, and throws Ken Lewis’ sorry ass in jail.
H/t Huffpo for the full complaint (90 pages, scrollable PDF window) after the break.
Yet More Evidence that Cap & Trade Sucks
The latest is that the EU is looking to declare cutting down rain forests for farming are actually the maintenance of forests:
The European Commission and some EU member states hope to redefine palm oil plantations as “forests,” according to a leaked document from the EU executive.
Rules governing the use of biofuels were supposed to be designed to sort out the sustainable versions of the technology from their dirtier cousins following a massive backlash against it in 2008. At the time, an avalanche of reports revealed that many forms of the fuel source both increase greenhouse gas emissions and put pressure on food prices.
…………
But in a manoeuvre that has shocked environmental campaigners, a draft commission communication offering guidance to EU member states on the use of biofuels has classified palm oil plantations – the source of one of the most destructive forms of biofuels – as “forests.”
Essentially, the document argues that because palm oil plantations are tall enough and shady enough, they count as forests.
(emphasis mine)
This is why you go with a carbon tax: Because cap and trade, and the offsets that are inherent in the system are going to be dominated by forces that will use fraud and political influence peddling to make themselves money.
If you tax carbon when it comes from the ground, you disincentivize using fossil fuels. If you allow for offsets, you create phony carbon offsets, like palm oil forests, and Chinese hydroelectric dams that do not hook into the grid.
This is going to be a disaster.
OK, Count Me Disappointed
I’ve generally been supportive of Chris Dodd. I think that he has been good on civil rights, particularly in his pushing back against torture and the PATRIOT act.
Additionally, I think that he was hung out to dry by Obama and Geithner over AIG.
Further, he was remarkably refreshing about why he dropped out of the Senate race.
That being said, his behavior on the Consumer Financial Protection Agency (CFPA) earlier, and now his opposition to the weak “Volker” banking reforms, has gotten me wholeheartedly agreeing with Barry Righoltz’s assesment of his behavior: “
Thus, Dodd proves that the only thing more corrupt than a congressperson whoring for a campaign donations to get re-elected congressperson not seeking re-election, whoring for a job.
Of Course They Were Trying To Steal Children
For a few days, the Baptist missionaries currently detained in Haiti for trafficking in children has been in the news, and I have been marinating on this.
At its most basic, I think that this was a deliberate attempt to abduct these children, though I think that money was at the root of this evil.
These people weren’t just missing paperwork, they were moving children out of the country for a purpose: to save souls.
They believed that these children would go to hell unless they were raised as, and became, Baptists, so they were breaking the law to “save” these children, some of whom were probably actually had living relatives.
So, much like William Calley, they likely, “destroyed families to save them”.
You must understand, notwithstanding all the stories about Voodoo in Haiti, the populace there is overwhelming (80%) Catholic, and these people were not rescuing people from Voodoo, but from Catholicism, which they see as not Christian, and hence a road straight to hell.
This is the evil that true believers do: Stealing children from the families.
As to the disposition, should it be determined in court that they are guilty, they should go to jail for a very long time.
Any consideration in terms of sentencing on the of the sincerity of their faith will just encourage more people with similar world views to do similarly evil things.
FWIW, I chose the Al Jazeera link just because it f%$#s with these people, here is the Google news link.