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Archive for the ‘Janet Tavakoli’ Category

Another solid contribution that ought to have us all scratching our heads and looking for answers…

Despite widespread crime of various types across all classes of society, most Americans polled were comfortable trusting their own “moral compass.”  Let’s see how we did with that in July.

What follows is a litany of crimes — and the fact that the financial ones have been “gotten away with” free and clear, for all intents and purposes.

Moral compass?  Where?

More to the point where is justice?

The real moral failing is ours folks.  We’re the ones responsible for this.  We are the ones who have the choice to stand up and demand that the Department of Justice enforce the law when people are harmed — including especially financial crimes — but we do not.

We get the politicians we deserve, because they are the ones we vote for.

Are you tired of being robbed blind by men and women with expensive suits?

Then stand and demand that those who rob with suits and briefcases get the same sentences as those who do so with guns.

Reprinted with permission:

“Sometimes Being Responsible Means Pissing People Off”

By Janet Tavakoli – July 3, 2012

Last week, Gillian Tett of the Financial Times wrote how five years previously, she and her fellow journalists were intimidated into backing off of a huge story about banks manipulating LIBOR. This is the London Interbank Offered Rate set by a poll of leading banks to determine the benchmark interest rate referenced by many home mortgage loans, floating rate notes, collateralized debt obligations, and many other financial instruments:

“At the time, this sparked furious criticism from the British Bankers’ Association, as well as big banks such as Barclays; the word “scaremongering” was used. But now we know that, amid the blustering from the BBA, the reality was worse than we thought. As emails released by the UK Financial Services Authority show, some Barclays traders were engaged in a constant and pervasive attempt to rig the Libor market from 2006 on, with the encouragement of more senior managers. And the British bank may not have been alone.”

(“LIBOR Affair Shows Banking’s Big Conceit,” Financial Times, June 28, 2012.)

At the heart of the allegations is what appears to be a blasé criminal conspiracy within Barclays. Moreover, Tett is correct. Barclays is far from alone.

Unfortunately, the intimidation was a success. The BBA and Barclays chose their word carefully, because accusing journalists of “scaremongering” suggests they are irresponsible sensationalist hacks. In essence, through lies and intimidation, they threatened to ruin careers.

The Financial Times backed off. As a result, the best coverage of the ongoing scandal came from a controversial blog with mostly anonymous writers called ZeroHedge. It pounded on the story harder than mainstream financial media. Not only are other banks implicated in the scandal, the Bank of England, a bank regulator, is also implicated.

The Future of Finance

In December 2009, I participated in the Wall Street Journal’s Future of Finance Initiative in England along with Alistair Darling, then Britain’s Chancellor of the Exchequer, and Robert (“Bob”) E. Diamond, Jr., then President of Barclays PLC among others. The Wall Street Journal wrote a summary of the conference highlights. Allow me to highlight some things it missed.

Alistair Darling, Chancellor of the Exchequer, spoke on the opening evening. I asked him why massive financial fraud remained unaddressed. Darling appeared momentarily confused and seemed to suggest this was exclusively a U.S. problem to be handled by the courts. I pushed back on this notion. By the time one needs a lawyer, it is too late. I noted that we, the middle aged financiers in the room, are responsible for taking action. If we don’t face this issue head on, we will never restore trust in the financial system.

That was the last time the word “fraud” was mentioned at the conference, and my question and Darling’s answer and my rebuttal were not reported.

Bob Diamond defended financial innovation saying there is a real purpose for structuring credit for pension funds. He was probably unaware that state pension funds in the United States were damaged by the unintended consequences of a “AAA” rated structured credit product. The pension funds were wise enough to avoid investing in the product, yet as I explained in my February 2007 letter to the Securities and Exchange Commission, large fixed income pension funds were unintentionally harmed by the market distortions caused by this “financial innovation.”

This conference took place just over one year after the global financial meltdown. Diamond didn’t address malfeasance much less fraud. For example, he conveniently omitted Barclays’ business relationship with Bear Stearns’s hedge funds (Barclays sued over hundreds of millions in losses and later dropped the suit.)—among other unrelated problematic issues—and he was mum about Barclays’ LIBOR manipulation.

Today, Bob Diamond, CEO of Barclays, announced his resignation in the midst of the LIBOR scandal. There is speculation that Diamond was pressured to resign by the Bank of England after Diamond’s bellicose threats to expose embarrassing details about his interactions with bank regulators.

Threats are more effective against respected journalists whose careers you are threatening to ruin than against complicit regulators that can ruin yours.

How Many Billions in Unrecognized Losses?

So how did the “Future of Finance” work out for the British attendees? It worked out much as it had in the past. Malfeasance remains unchecked, unless something like the LIBOR scandal blows up. This isn’t the only problem with the British banks. Like their U.S. and European counterparties, the balance sheets need a thorough going-over to determine the true extent of the global financial debacle. The banks are not just lying about LIBOR.

Ed: The allegation has now been made that the UK government and/or BOE, and perhaps the Fed, were involved as well.  What’s clear is that there were multiple people involved in an organized attempt to rig this market — the largest interest-rate market in the world – and that they did so with intent to profit.  This was not a “one-off” event predicated by some government official; it was an on-going series of intentional acts.

But just as with the other scams of this sort, nobody has been indicted, prosecuted or jailed, and until they are, it simply is not going to stop.  We the people of this nation and indeed of the world must decide if, and when, we’re going to stop allowing this serial financial rape to be perpetrated upon us.

Discussion (registration required to post)

Derivatives expert Janet Tavakoli today on Capital Account.

Bernanke speaks and everyone seems to listen. In a speech today, he warned about the job market and said continued accommodative easy-money policies will be needed to make further progress. This has the financial press reading the tea leaves and saying more QE. Is it really because, as our guest says — TBTF really means “trust Bernanke to fund?” She’s Janet Tavakoli, author of “The New Robber Barons: How Bankers created an International Oligarchy,” and she’s here to talk about the too big to fail banks, the financial oligarchy, and how MF Global fits into this web of derivative inspired meth lab of shadow liquidity and off-balance sheet risk.

And since we are on the issue of MF Global, what’s the latest on its former CEO, Jon Corzine? Did he or didn’t he knowingly transfer close to 200 million dollars in customer money from MF Global to JP Morgan on one occasion before the firm imploded? Internal emails that have come out reportedly point different ways. Regardless, has he gotten away with other types of fraud already? And do credit derivatives, like those used to bet the firm on Europe’s debt crisis, continue to pose a major risk to markets? And does regulation do anything to stop this?

Go Janet (Tavakoli)!

Last week a Goldman Sachs former employee Greg Smith wrote an op-ed for the New York Times explaining why he was resigning from Goldman Sachs.  He alleged Goldman’s culture had recently deteriorated and that Goldman’s “toxic and destructive” culture isn’t doing right by its clients.

The puzzling thing about his article is that he claims this is new behavior for Goldman.

Yeah, that was my immediate take too.  Where’s the news in something like this?

Goldman didn’t actually respond to Mr. Smith’s allegations.  I’m guessing Goldman’s senior leaders, Lloyd Blankfein and Gary D. Cohn, didn’t flunk statistics.  After all, they keep telling us they’re the best and brightest.

They are the best and brightest — at taking money from people who are gullible enough to believe they’re actually interested in anything other than maximizing their “profits.”

And since our Just-US system has been corrupted to the core, to the point that our last Treasury Secretary came from Goldman, what do you expect the outcome to be?

After all, as I have repeatedly observed if the penalty for bank robbery was that you had to give some (not even all) of the loot if you got caught, and nothing more, you could determine whether a building was in fact a bank by simply looking for the mile-long line of men in ski masks snaking out the door!

Janet goes on to describe one deal she was involved in and declined, noting:

The transformer wasn’t even worth the price of the child’s toy of the same name for the purpose they were suggesting. Sure, the SPE would have ultimately got paid and the bank would ultimately have received payment, but that wasn’t the point.  The point was that the SPE did not have the resources to perform under the terms of its transaction with the bank.  It could not pay on a timely basis, no matter how cleverly crafted the credit default swap confirmation.

Sounds a lot like selling toilet paper as “AAA” home loans, doesn’t it?

The more things change…..

At the risk of people hearing too much truth-telling today….here’s some more for you, from one of the world’s foremost experts on derivatives.