Crossposted from The Stars Hollow Gazette

One of the few things I miss about working in a convenience store is that I used to be able to read 5 or 6 newspapers a day and even take them home after I cut out the masthead.  It’s like those paperback books with the cover ripped off, the publisher doesn’t charge you for the unsold stock and since it’s too damn expensive to handle the whole thing the cover will do for the refund.  Who wants to read a coverless book anyway?

Heh.

Now the Daily News is great for sports and has 3 pages of comics, but the one I really hoped wouldn’t sell out when I was addicted to dead trees was The New York Times.  Their paywall was anticipated with much trepidation and loathing but I’ve personally found it a great convenience.  I used to get nagged all the time to register, but now hardly ever because they don’t count views from blogs like this one or even aggregators like Google.

If you are having a problem I suggest you get a selective cookie deleter and search and destroy the ones containing “nyt”.  There’s also a tool called NYTClean that I’m told works except I’ve never had to use it.

All of which is an introduction to this roundup of the not so Gray Lady’s coverage of the Rajaratnam verdict that I actually did pick up from the front page of their International Herald Tribune subsidiary.

So if I start getting nasty messages I’m going to blame you, dear reader.  It’s one of the sacrifices I make for blogging.

Wall Street, Held Accountable

The New York Times

Published: May 11, 2011

It is sometimes said insider trading is a victimless crime. It is not. Was it good for Goldman Sachs’s reputation to have wiretaps played in court of a director leaking confidential information to Mr. Rajaratnam? Or for Intel, I.B.M., McKinsey or other companies to have illegal inside tips about them passed to him and his cronies?

More fundamentally, everyone affected by markets distorted by such illicit trading is a victim. The prosecution of Mr. Rajaratnam was a test of whether this kind of fraud is still offensive to an American jury.

…

The crimes he was tried for began in 2003 and ended in 2009, a period when markets were out of control. Had he been acquitted, Americans might have concluded that it was O.K. for an insider to play the markets as dishonestly as he did because they are basically rigged.

Galleon Chief’s Web of Friends Proved Crucial to Scheme

By PETER LATTMAN and AZAM AHMED, The New York Times

May 11, 2011, 7:28 pm

In many respects, Mr. Rajaratnam was no different from the thousands of Wall Street stock pickers who diligently network with corporate executives and industry experts to gain an investment edge. But Mr. Rajaratnam, a 53-year-old Sri Lankan native, sought out information that was confidential, beyond the reach of research, and illegally traded on it, a jury in Federal District Court in Manhattan found on Wednesday, convicting him on all 14 counts of securities fraud and conspiracy.

Next Up, a Crackdown on Outside-Expert Firms

By EVELYN M. RUSLI, The New York Times

May 11, 2011, 9:11 pm

Federal authorities have tried to quell the anxiety by drawing a distinction between the legitimate players and the bad actors. In March, Preet S. Bharara, the United States attorney in Manhattan, said that there was “nothing inherently wrong or bad about hedge funds or expert networking firms or aggressive market research, for that matter.”

Such statements have provided little reassurance. Many financial firms that are still using expert networks have moved their business to the largest outfits with the most established compliance practices

“If this little industry is to survive, it’s going to have to glow with virtue, which means a lot of self-regulation,” said Robert Weisberg, a professor of criminal law at Stanford.

Also there are these two handy charts-

• The Galleon Network
• The Verdict on Raj Rajaratnam

Happy nag free reading!

Crossposted from The Stars Hollow Gazette

Bank of England cuts UK economic growth forecasts

• UK economic growth likely to be just 1.7% in 2011
• Inflation likely to hit 5% in the coming months
• Mervyn King admits outlook has darkened since last report

Graeme Wearden, guardian.co.uk

Wednesday 11 May 2011 13.43 BST

The Bank estimated that Britain will grow by around 1.7% during 2011, down from February’s forecast of 2% growth and in line with the latest forecasts from the independent Office for Budget Responsibility.

In 2012, GDP is expected to be around 2.2%, down from an earlier estimate of close to 3%. This is weaker than the OBR forecast of 2.5% growth.

On inflation, King said that higher commodity and import prices, and the increase in the standard rate of VAT, was pushing up the cost of living more rapidly than expected in February. He said that higher utility bills were likely to drive the consumer prices index (CPI) up to 5% this year. CPI, which fell back to 4% last month, was likely to remain above the 2% target until the end of 2012, the Bank predicted. Three months ago it had forecast that CPI would drop back to 2% next year.

Crossposted from The Stars Hollow Gazette

You may think this is about Economics, but it’s really about censorship.

Yesterday I published some notes about how transparently insolvent the mega-banks are.  Today there are follow up developments.

First of all I’d like to quash any thought I’m being unnecessarily hard on Italy by including them in the PIIGS–

Another recession in Europe as a whole is also a very likely prospect, Zulauf said.

“The EU is trying to dictate a very severe austerity program…and that will lead to a lengthy recession, I would call it a depression, and we will see later this year that Italy, Spain and virtually all the peripheral countries will be in negative growth again,” he said.

“I think there is a 90 percent likelihood of another recession in Europe (beginning) later this year,” Zulauf said.

(h/t Chris in Paris @ Americablog which you should be sure to click on)

Extend and Pretend

The big news today (h/t emptywheel @ Firedog Lake), the Wall Street Journal caught BLATANTLY scrubbing the words of Timo Soini after the fact and after they printed it unedited online yesterday.

Why did the Brussels-Frankfurt extortion racket force these countries to accept the money along with “recovery” plans that would inevitably fail? Because they needed to please the tax-guzzling banks, which might otherwise refuse to turn up at the next Spanish, Belgian, Italian, or even French bond-auction.

Unfortunately for this financial and political cartel, their plan isn’t working. Already under this scheme, Greece, Ireland and Portugal are ruined. They will never be able to save and grow fast enough to pay back the debts with which Brussels has saddled them in the name of saving them.

And so, unpurged, the gangrene spreads. The Spanish property sector is much bigger and more uncharted than that of Ireland. It is not just the cajas that are in trouble. There are major Spanish banks where what lies beneath the surface of the balance sheet may be a zombie, just as happened in Ireland for a while. The clock is ticking, and the problem is not going away.

…

If some banks are recapitalized with taxpayer money, taxpayers should get ownership stakes in return, and the entire board should be kicked out. But before any such taxpayer participation can be contemplated, it is essential to first apply big haircuts to bondholders.

For sovereign debt, the freedom to fail is again key. Significant restructuring is needed for genuine recovery. Yes, markets will punish defaulting states, but they are also quick to forgive. Current plans are destroying the real economies of Europe through elevated taxes and transfers of wealth from ordinary families to the coffers of insolvent states and banks. A restructuring that left a country’s debt burden at a manageable level and encouraged a return to growth-oriented policies could lead to a swift return to international debt markets.

This is not just about economics. People feel betrayed. In Ireland, the incoming parties to the new government promised to hold senior bondholders responsible, but under pressure, they succumbed, leaving their voters with a sense of democratic disenfranchisement. The elites in Brussels have said that Finland must honor its commitments to its European partners, but Brussels is silent on whether national politicians should honor their commitments to their own voters. In a democracy, where we govern under the consent of the people, power is on loan. We do what we promise, even if it costs a dinner in Brussels, a “negative” media profile, or a seat in the cabinet.

The bolded parts are the censored ones.  Timo Soini is the head of the populist True Finn party and the top vote getter in Finland’s recent elections.

Crossposted from The Stars Hollow Gazette

New general strike over Greek austerity program

By ELENA BECATOROS, Forbes

05.11.11, 06:57 AM EDT

The general strike suspended all train and ferry services, grounded flights between noon and 4 p.m. and disrupted Athens public transport. All radio and television news broadcasts were suspended as journalists walked off the job for the day. The Thursday editions of newspapers were not being published, and news websites were not updating their content.

…

“Every day that passes, (the government) takes back what the working class has won through blood and struggles all these years,” retiree John Pavlidis said.

…

Greek unions say the protracted austerity, amid a two-year recession and unemployment at around 15 percent, is unfairly targeting the less well-off.

A statement from the country’s largest union, the GSEE, said Wednesday’s strike expresses “strong protest at the unjust and cruel policies that have caused a surge in unemployment … violated labor rights, and squandered public wealth, while failing to insure an exit from recession.”

In Athens’ port of Piraeus, Greece’s biggest, striking ferry electrician Athanassios Sidiropoulos said the government was trying to scrap rights won over the course of decades by working classes.

“All seamen should have pension and healthcare rights, collective labor contracts, healthcare contributions,” he said.

An opinion poll commissioned by the private Mega TV station and published Tuesday said 71 percent of the public oppose the government’s handling of the economic crisis, compared with 66 percent in February.

Sing along with Mitch.

Galleon’s Rajaratnam Found Guilty

By PETER LATTMAN, The New York Times

May 11, 2011, 10:50

Raj Rajaratnam, the billionaire investor who once ran one of the world’s largest hedge funds, was found guilty of fraud and conspiracy on Wednesday by a federal jury in Manhattan. He is the most prominent figure convicted in the government’s crackdown on insider trading on Wall Street.

…

The government built its case against Mr. Rajaratnam with powerful wiretap evidence. Over a nine-month stretch in 2008, federal agents secretly recorded Mr. Rajaratnam’s telephone conversations. They listened in as Mr. Rajaratnam brazenly – and matter-of-factly – swapped inside stock tips with corporate insiders and fellow traders.

“I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share,” Mr. Rajaratnam said to one of his employees in advance of the bank’s earnings announcement.

“One thing we know, this is very confidential, someone is going to put in a term sheet for Spansion,” he told a colleague, referring to a proposed acquisition of a technology company.

“So yesterday they agreed on, at least they’ve shaken hands,” a tipster told Mr. Rajaratnam about an upcoming deal involving another publicly traded business. “So I think, uh, you can now just buy.

…

Galleon brought Mr. Rajartnam great wealth. Forbes magazine pegged his net worth at $1.3 billion. He owns a second home in the wealthy suburb of Greenwich, Conn., and a condominium at the Setai Hotel in Miami Beach. During the trial, Mr. Rajaratnam’s former friends told the jury about lavish vacations including, for his 50th birthday, chartering a private jet to fly dozens of family and friends for a safari in Kenya.

Under Federal sentencing guidelines Rajaratnam is liable for at least 5 years per count (not that he’s likely to serve that).

Crossposted from The Stars Hollow Gazette

The fact of the matter is that most, if not all, of the mega-banks are insolvent.  The paper they base their balance sheets on is suitible mostly for lining litter boxes and wrapping fish and ultimately, when the write downs come, they’re going to shoulder the brunt of it because now that they own over 50% of all assets there’s simply no place else they can steal from.

Yesterday I mentioned the continuing decline in real estate, more from the Wall Street Journal today-

Home values fell 3% in the first quarter and 1.1% in March, according to Zillow, which says prices have fallen 57 consecutive months. CoreLogic (CLGX) this week reported that home prices have fallen for eight months in a row.

The Realtors’ trade group, which measures resales using median prices where half sell for more and half sell for less, says existing-home prices rose in 34 out of 153 metropolitan statistical areas in the first quarter compared to a year ago. The data also shows four double-digit increases – including Buffalo, N.Y., and Burlington, Vt. – and 118 price declines.

…

NAR also makes it clear that distressed-home sales, which typically command a discount around 20%, continue weighing on prices. In the first quarter, the median existing home price came in at $158,700 nationwide, down 4.6% from a year earlier. Distressed sales made up 39% of the first-quarter’s sales, up from 36% a year ago.

…

This has some economists pushing back their estimates of when the battered market will see prices strike the long-awaited bottom and begin recovery.

Stan Humphries, Zillow’s chief economist, now believes prices won’t hit bottom before next year and expects they will fall by another 7% to 9%.

Paul Dales, a senior U.S. economist with Capital Economics, said prices could fall by as much as 10%, down from his previous forecasts of around 5%.

Others are even more pessimistic. “The real-estate market is dead money until at least 2014,” says Michael Pento, a senior economist with Euro Pacific Capital. “There is just too much supply.”

Banks lied about the value of these mortgages in the prospectuses for the securities they re-sold to investors, exposing them to Trillions of Dollars of Civil Liability and Criminal Fraud charges.

Deutsche Bank Accused Of Massive Mortgage Fraud, Sued for $1 Billion By U.S. Government

Shahien Nasiripour, The Huffington Post

05/ 3/11 04:42 PM ET

The Justice Department is seeking damages three times the amount HUD has already shelled out for defaulted mortgages with allegedly fraudulently-obtained government insurance, plus additional penalties for each mortgage that broke federal rules.

While private investors have thus far faced a long, slow war battling lenders and connected Wall Street firms to buy back toxic mortgages investors claim were sold to them fraudulently, the government’s suit is fairly straightforward. As part of the FHA program MortgageIT participated in, lenders are required to annually certify that they check basic records like borrowers’ incomes, credit history and employment record. The lenders also are required to review loans that quickly default to guard against sloppy lending practices, and act in the government’s best interests because taxpayers are bearing the risks for potentially poor loans.

…

“These companies repeatedly and brazenly breached the public trust,” said Preet Bharara, the U.S. Attorney in Manhattan. “This lawsuit sends them — and other lenders — the message that they cannot get away with lies and recklessness. They cannot casually assign the prospect of being caught to the cost of doing business.”

Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names 3 Companies

By MARY WILLIAMS WALSH, The New York Times

Published: May 4, 2011

The lawsuit, filed by a pair of veteran political activists from the La Jolla area of San Diego, asserts that A.I.G. and two large banks engaged in a variety of fraudulent and speculative transactions, running up losses well into the billions of dollars. Then the three institutions persuaded the Federal Reserve Bank of New York to bail them out by giving A.I.G. two rescue loans, which were used to unwind hundreds of failed trades.

…

“To cover losses of those engaged in fraudulent financial transactions is an authority not yet given to the Fed board,” said the plaintiffs, Derek and Nancy Casady, in their complaint, filed in Federal District Court for the Southern District of California.

The lawsuit names A.I.G., Goldman Sachs and Deutsche Bank as defendants, but not the Fed.

Will "False Claims" Lawsuit Against AIG, Goldman, Deutsche, BofA, SocGen on Fed Funding Lead to New Round of Embarrassing Revelations?

Yves Smith, Naked Capitalism

Thursday, May 5, 2011

The case focuses on allegedly fraudulent representations made by AIG and the various major dealers in the course of obtaining the financing. But the part I find interesting is the Fed’s evident non-compliance with the requirements of this section, particularly the fact that the central bank lent 100% against the face value of the AIG CDOs, between taking out the CDS and then lending the bailout vehicle Maiden Lane III the funds to buy the CDOs. Interestingly, the SIGTARP investigation missed this issue. If this was at all considered, the argument may have been that the AIG equity in MLIII was tantamount to a discount, but the lawsuit argues that notion is bogus. Since AIG was broke, any money for the AIG equity came from the outside (in fairness, it’s a bit more complex, thanks to reserves set aside over the collateral dispute).

The suit argues that the initial loan was made under false premises, since the loan was secured by all assets of AIG, when the assets were already pledged (all the regulated subs have prior claims on them, both to creditors and policy-holders). The understanding, as depicted in various less-than-official accounts, like the Andrew Ross Sorkin Too Big Too Fail, is that the loans were secured by the equity of the subs. Fine in theory, but in practice, that isn’t what the loan document says, and as important (although not argued in the case) is the amount of the loan was based on what AIG needed to stay afloat, not on any effort to find a market value of the assets pledged and discount that.

In addition, the notion that it was acceptable to lend against stock appears to be based on the discount schedule that the Fed posts and revises from time to time as to the types of collateral that are accepted for lending and the various discount rates established for them. But note that schedule is for depositary institutions. The Fed acted as if it could simply lend against the same assets held by non-depositaries, but the language of the germane section does not appear to support that idea.

And then there are Portugal, Ireland, Italy, Greece, and Spain.

Investors count cost to banks of Greek default

By Tracy Alloway, Megan Murphy and David Oakley, Financial Times

Published: May 10 2011 19:17

Financial markets are pricing in the once unthinkable. Worried by the possibility that Greece could restructure its debt, investors are gauging the likely impact on European banks that hold its bonds. Some, it has emerged, could be exposed to billions of euros in losses

The question of who would suffer in the event of a writedown being imposed on Greek bondholders has acquired extra urgency as analysts digest different scenarios should Greece be unable to return to the bond markets next year.

…

A 50 per cent writedown, or haircut, on the value of Greek bonds, which some commentators believe is a possibility, would cost BNP €1.7bn.

At Dexia, the Franco-Belgian bank, its €3.5bn banking exposure represents a sizeable 39 per cent of the bank’s tangible net asset value, Morgan Stanley estimates. A 50 per cent haircut would lead to the group taking a €1.3bn hit.

Commerzbank of Germany and Société Générale in France are also exposed, both holding about €2bn-€3bn of Greek sovereign debt. In total, non-Greek banks hold 11 per cent of outstanding Greek debt, UBS says, the International Monetary Fund and European nations that took part in last year’s Greek bail-out having similar exposure.

…

The European Central Bank is estimated to hold 20 per cent through direct purchases of Greek bonds, making it Greece’s second-biggest investor. Widening the central bank’s exposure to take account of its financial liquidity operations paints a starker picture.

JPMorgan analysts estimate that including lending by the ECB to Greek banks raises its notional exposure to nearly €200bn. Using that figure, they calculate the ECB can withstand a haircut of up to 30 per cent before taking losses. “A hypothetical Greek debt restructuring exceeding that haircut would be damaging especially if Ireland followed suit,” JPMorgan says.

…

For Greek banks, a 50 per cent haircut in a hard restructuring would lead to about €25bn in losses, JPMorgan says, leaving only €4bn of equity to cushion the Hellenic banking system.

It is only a question of when, and not if, there will be another global financial crisis and another leg down in the Greatest Depression.  My bet is that it will come just in time to completely doom Obama’s re-election prospects.

For which he has no one to blame but himself.

As read by Keith.

Crossposted from The Stars Hollow Gazette

• June 16th, 2009
• August 24th, 2008

Negative Homeowner Equity at New High

By Theresa McCabe, The Street

05/09/11 – 12:09 PM EDT

NEW YORK (TheStreet) — Home prices in the United States dropped 3% in the first quarter of 2011, the largest decrease since 2008 when the housing market experienced its worst performance, and negative homeowner equity hit a new high, according to Zillow’s Real Estate Market Report.

Median home values fell 8.2% year over year to $169,600 and are expected to fall as much as 9% this year as foreclosures spread and unemployment remains high, Zillow Chief Economist Stan Humphries said. The U.S. unemployment rate rose to 9% in April, up from 8.8% in March, the Department of Labor reported earlier this month.

“With accelerating declines during the first quarter, it is unreasonable to expect home values to return to stability by the end of 2011,” Humphries said.

Home prices were down 29.5% from their peak in June 2006. Humphries predicts that prices won’t find a floor until 2012.

Negative equity reached a new high in the first quarter, with 28.4% of U.S. homeowners with mortgages underwater, meaning they owed more than their properties were worth. This was up from 27% in the fourth quarter of 2010.

I’ll point out that The Street is Jim Cramer’s own web site.