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Posts tagged ‘ENRON’

Banking System Rotten to the Core

By William K Black PhD

The following is a transcript of a recent speech given by Professor William Black on an Economics Panel regarding the fradulent roots of our current crisis and the urgent need for criminal prosecutions among major US banks

In the Savings and Loans crisis, which was 1/70th the size of this crisis, our agency made over 10,000 criminal referrals and that resulted in the conviction on felony grounds of over 1,000 elites in what were designated as major cases. And to pick up on what’s just been said, this is not just some sidelight to economics, this is why we have recurrent intensifying crises, is these epidemics of fraud from the C-Street—from the CEOs and CFOs.

In the Savings and Loans crisis, the inevitable National Commission said that fraud was invariably present at the typical large failure. In the Enron era, always frauds from the very top of the organization, and in this crisis the frauds came from the very top of the organization again. But what’s different in this crisis? In this crisis, the same agency that I worked with that made over 10,000 criminal referrals in a tinier crisis made zero criminal referrals. They got rid of the entire function. And so there are zero convictions of anybody in the elite ranks of Wall Street. And if they can defraud us with impunity they will cause crisis after crisis and they will produce maximum inequality.

full article at source: http://www.financialsense.com/contributors/william-black/2011/11/25/banking-system-rotten-to-the-core

Reggie Middletons take on Goldman Sacks

Can You Believe There Are Still Analysts Arguing How Undervalued Goldman Sachs Is? Those July 150 Puts Say Otherwise, Let’s Take a Look

To begin with , Goldman Sachs produces more accounting revenue and accounting profits than its peers. This is because Goldman benefits from virtual monopoly pricing and advantages in several markets. Despite this advantage, when one factors in economic RISK and the cost of capital, Goldman doesn’t fare nearly as well as the sell side makes it seem. Of course, the sell side rarely attempts to quantify risk, which is cool until reality rears its (sometimes ugly) head. Before we get to risk adjust returns, let’s look at the simple accounting numbers and attempt to throw some logic on them…

Above, you see that GS has enjoyed a significant premium over its peers in terms of book valuation. This premium has actually increased over the past year. Let me be the one to remind you that no US company has every survived a criminal judgment, none. Arther Anderson was driven into bankruptcy from charges stemming from the Enron collapse, and that is despite the fact that the Supreme Court overturned the guilty verdict! Assuming, for the benefit of the doubt, GS can somehow set precedence, or more realistically, criminal charges are not filed, we still have to contend with:

  1. the SEC lawsuit
  2. the increased regulation, in particular the Volcker rule and derivatives oversight
  3. follow on litigation, which is virtually guaranteed, and virtually guaranteed to be extremely expensive, time consuming, and distracting from the core businesses.
  4. a general decline in business since we are coming off of a credit and risky asset boom and going into a sovereign debt crisis that will make FICC much less predictable (seeThe Next Step in the Bank Implosion Cycle???
    for a more on how this could end with the Pan-European Sovereign Debt Crisis drama unfolding).

  5. Taking all of this into consideration, you tell me… Does Goldman really deserve to be trading at such a premium considering the myriad risks it is currently exposed to PLUS the murky business and regulatory environment? They are also losing talent on the sales side, and at the MD level to boot. Today’s market is starting to see things the Reggie Middleton way.

    Now, let’s factor in some more reality. No matter what your broker says about accounting earnings and revenues, they don’t come free. They all have a cost of capital attached to them. Let’s reference an excerpt from When the Patina Fades… The Rise and Fall of Goldman Sachs???

    GS return on equity has declined substantially due to deleverage and is only marginally higher than its current cost of capital. With ROE down to c12% from c20% during pre-crisis levels, there is no way a stock with high beta as GS could justify adequate returns to cover the inherent risk. For GS to trade back at 200 it has to increase its leverage back to pre-crisis levels to assume ROE of 20%. And for that GS has to either increase its leverage back to 25x. With curbs on banks leverage this seems highly unlikely. Without any increase in leverage and ROE, the stock would only marginally cover returns to shareholders given that ROE is c12%. Even based on consensus estimates the stock should trade at about where it is trading right now, leaving no upside potential. Using BoomBustBlog estimates, the valuation drops considerably since we take into consideration a decrease in trading revenue or an increase in the cost of funding in combination with a limitation of leverage due to the impending global regulation coming down the pike.

    Remember, practically everybody poo-poohed my research and opinion in 2008 when I said Goldman was drastically overvalued – Reggie Middleton on Risk, Reward and Reputations on the Street: the Goldman Sachs Forensic Analysis. Those 600% to 1000% gains on the put options proved otherwise. Speaking of which, those July 150 puts… Can you smell what the forensic analysis is cookin’???

    For those who haven’t read my review of Goldman’s latest quarter performance, please do: A Realistic View of Goldman Sachs and Their Latest Quarterly Results


The €22bn question should be the 78 billion ++ Question?(Just Anglo)


AFTER the revelations of a horrendous capital hole of €9.3bn for 2010, and potentially a further €10bn over the next number of years, defending a future for Anglo Irish Bank has become a very difficult task for the Irish Government.

However, there are two key reasons why the Government is continuing to support the bank as a going concern:

  • Macro impact: the bank’s current and potential role in supporting liquidity to the Irish economy, particularly the Irish small/medium business sector. Also, by winding down Anglo Irish Bank, the impact of a ‘fire sale’ of the Anglo loan book on the existing Irish banking market would be highly detrimental to the sector.

lRetrieval of capital: the potential that the State can retrieve some of the invested capital used to support the bank in the years to come through a trade sale.

The contraction of liquidity in Irish lending has been drastic, particular among the foreign-owned banks operating in Ireland.

Strong relationship

Anglo is an incumbent and has strong relationships across many sectors in the economy, outside of its property exposure. In a well-defined focus, it has a role to play as lending provider in the small- to-medium sized enterprise sector where it holds a 20pc market share.

Discontinuing Anglo Irish Bank and winding it down as a franchise virtually eliminates any chance of a retrieval of value from the capital committed by the State.

There is no certainty that winding up the bank will prove any less costly than providing support as a going concern.

Whether the bill for winding up Anglo Irish Bank is €20bn, €30bn or potentially €60bn as the Finance Minister indicates, it would have a destabilising impact on the sector.

The fall of a bank with a €72bn lending book — €35bn after the National Asset Management Agency — with the loss of deposits and the potential house-of-cards effect on the remaining sector, are all justifiable reasons for the continued support of Anglo.

Closing down the loan book of the bank simply forces a massive liquidation event on all non-property borrowers in the Irish economy.

As a going concern, Anglo may be able to create some value for its franchise in the coming years.

The most significant threat to the future of Anglo Irish Bank comes in three forms:

  • The complete loss of credibility as a counter-party.
  • A decision from the EU that the state influence at the bank is distorting competition in Irish banking.
  • Its shocking capital hole.

The need for a strong independent management, strong capital levels and a cohesive strategy can mitigate the counter-party risk issue over time.

However, Anglo will need to demonstrate its ability to survive in the funding markets independently from government.

Plans to create a “good bank/bad bank” are believed to be advancing to EU level. The single key question for the EU concerning Anglo Irish Bank is whether the state ownership of the bank will distort the competitive landscape in the Irish banking industry. This question must be resolved before a “good bank” can compete in the Irish market.

Finally, the state bill for supporting Anglo has already breached the most negative assumptions flagged during the imposition of the bank guarantee scheme.

Defending Anglo should not be a political decision or an emotional one, but an economic one. If the bill for winding the bank down is greater than that for investing in its support, then the State must act to minimise the final long-term cost to Ireland — however unpopular the decision appears.

– Kevin McConnell

Irish Independent



I have for many years invested in the stock market (a Day trader ) at the beginning used to invest in companies like IBM and INTEL and small companies like PGNX and Trinity Bio Tec etc.

I would start by putting in a small amount of money and then If the trade went against me I would put in more and then more and at some time I would start thinking well it must go up sometime and then double down and hen I would find myself looking for reasons to put even more funds into a bad trade

Reading the above article I recognize the very reasons I would use, It would cost more if I left the trade so I must stick with it and sometime in the futures it will go up again.

It’s a good company a big company has huge assets and so on

As a trader now for the last 14 years I have to say that the reasons the Minister has put forward and the Minster bought and paid for media seem to be supporting are just laughably.

I have learned to become a discerning investor, and have learned painful facts of life about the financial world.

The market is unforgiving and has no loyalty. There are two worlds for the market one is the makeup spin world that the ordinary retail investor belongs (Mostly you and me)

Then there is the real world, after you strip away the spin (like stripping an onion) the smart money world .this world is made up of the institutional investors, the big guys, the smart money.

These are the guys that manipulate the media and reports, publish up-grades to a stock

e .g .Such and such received an increased price target from a broker to –day .You see there are so many vested interests manipulating the news that it is practically impossible in truth to give good advice on any stock .It all boils down to the thrust wordiness of the company’s Management, their past performance and the strength of their balance sheet (technical and fundamental analyzes) and Business model. Now to any investor looking at the Anglo proposal and the available information

It would be red flagged .this is what’s known as a basket case! Doing a technical and fundamental analyzes on the available information it’s a lost cause and no more money should be put into this dead loss! There is no upside, this will gobble up any amount of funds you have and will become a dumping for other lost causes as well (losses for other Banks)

No amount of money will retrieve the thrust that has been lost in the business model this bank had!

The damage that has being caused by this Bank is worse than ENRON, Lehman Brothers! Or World com and must be closed down now!

The Brand ANGLO is dead and anything or anyone to do with is toxic.

As an investor my advice is get out and cut your losses now! You would have a better chance to revive any one of the above companies, and the yanks with their infinite amount of capital chose to closes down their Turkeys (lost causes).in the states this would be shut down To-day Period!

The management would be in Handcuffs and some would be in Jail now.

There is the real possibility of huge class actions been taken against Anglo Irish Bank, the Irish Government and against the senior management!

Keeping this Bank on life support is just plain madness, but a bad investor will always find a reason to stay in a bad trade no matter what.

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