Archive for the ‘US’ Category
Though the recession is still ongoing and Congress is still wrangling over health care reform, I’d like to take this chance to wish Barack Obama a meaningful 48th birthday. He won’t have time to do anything special today, that’s for sure. But happy birthday all the same.
Let ‘s not forget the tirelss contribution of the birthers, who managed to dig up actual solid evidence that Obama was born in Kenya:
A fitting gift for an American Kenyan president, isn’t it?
When this blog went online earlier this year in March 2009, plenty of its earliest posts focused criticism on the US Treasury’s public-private investment plan (PPIP). Some five months later, there has been barely a word on the newstands on its fate, and it seems doomed to languish unimplemented. To recap, the PPIP was conceived by US Treasury Secretary Tim Geithner for removing so called “toxic assets” consisting of collateralized debt obligations (CDOs), mortgage backed securities (MBS) and credit default swaps (CDS) which were difficult to price because of the collapse of housing prices and rising delinquent rates among homeowners on mortgages, especially for those whose home values have collapsed below the principal amount owed on the mortgage (negative equity).
Subsequent shunning of these securities earned them the nickname of being “toxic”. That proved to be a problem for financial institutions which had loaded up on a lot of these assets. The original aim of the PPIP was to provide taxpayers’ funds to help subsidise purchases for a public auction for this securities. That’s the original purpose of the PPIP.
Over the past few weeks (and months), I have been posting a series of rants against Goldman Sachs. Yet at times I wonder if this is overblown and if most of these rumors and whispers about it may have been started and/or encouraged by its major investment banking rivals on Wall Street. Much of this review is due to a spate of news coverage which have probed beneath the surface of these charges and have shown that a number of them are exaggerated to some extent.
It might be wise to review how all the recent chatter about Goldman Sachs started. Here’s an extremely long piece in NY Magazine written by Joe Hagan which would help you do just that, among other fascinating tidbits about how the firm operates and what went on within the firm during the frenzy last Sept 2008. I have compiled below some points to consider when evaluating the stand of the critics.
Update: FT is reporting that Goldman Sachs’ public image has been tarnished since the financial crisis.
Update: Goldman Sachs finally responds, claiming that HFT accounts for less than 1% of its Q1 & Q2 revenue.
Update 2: Paul Krugman wrote an op-ed on this here.
The NYT reported yesterday that Goldman Sachs’ high frequency program trading may have given the bank an unfair competitive leg up over its rivals:
Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.
And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes — software that a federal prosecutor said could “manipulate markets in unfair ways” — it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage.
Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.
Update 1st Aug: A friend pointed out to me via a New York Times blog article that the warrants issued by Goldman came with a cancellation feature which automatically voids half of them should Goldman Sachs undertake a successful equity public offering of US$10bn before 31st Dec 2009. So far, they have raised $6bn to date. The warrants are dated to last 10 years and have a strike price of US$122.90 Goldman’s stock is currently trading at $163.30
The article goes on to conclude that in light of this revelation, it’s not unreasonable to suppose that Goldman Sachs may have paid Treasury the full worth of its warrants. I have since relooked the original news sources, HuffPo and FT, and unfortunately neither of them pointed this out.
I haven’t been posting much in the past few days due to work commitments. I finally had time to sit down and write some stuff during this weekend. Anyway…
Goldman Sachs became the first major bank to buy back warrants held by the US Treasury on Wednesday, allowing the group to shake off the last vestige of its participation in the government bail-out programme after just nine months.
Goldman paid $1,1bn to the US Treasury to buy back the warrants. which were granted as part of the government’s $10bn investment of troubled asset relief programme funds in the bank last year.
… the larger profits you make it seems. Today’s NYT has an article on JPM’s CEO who apparently enjoys a close relationship with those in power:
In Washington, One Bank Chief Still Holds Sway
WASHINGTON — Jamie Dimon, the head of JPMorgan Chase, will hold a meeting of his board here in the nation’s capital for the first time on Monday, with a special guest expected: the White House chief of staff, Rahm Emanuel.
Mr. Emanuel’s appearance would underscore the pull of Mr. Dimon, who amid the disgrace of his industry has emerged as President Obama’s favorite banker, and in turn, the envy of his Wall Street rivals. It also reflects a good return on what Mr. Dimon has labeled his company’s “seventh line of business” — government relations.
When Mr. Dimon was fired, he got a supportive call from Mr. Emanuel, who recalled his own firing early in the Clinton years and how he worked his way back into the inner circle.
Another Obama associate is on JPMorgan’s payroll. Mr. Dimon hired William M. Daley, a former commerce secretary and Chicago powerbroker, in 2004 as vice chairman and head of Midwest operations. Since 2007, Mr. Daley has overseen global government relations.
Glenn Beck of Fox News explains the web of relationships Goldman Sachs has with the rest of Wall Street and the federal government. I don’t like Fox News, but I find myself disliking Goldman Sachs more with each passing week.
P.S. I first saw this on Lucky Tan’s blog.