NEW YORK (Reuters) – Two of the three U.S. companies that raised more than $900 million in their initial public offerings rose in their debuts on Thursday, while a third traded down, signaling that the appetite for new issues is still choppy.
Ministers are to set out options for reforming the benefits system and moving people from welfare into work.
The publication of sensitive military documents on the Wikileaks website is “potentially severe and dangerous” for US troops and their partners in Afghanistan, US Defence Secretary Robert Gates has said.
If understood correctly Goldman finally has a truly serious situation on its hands. A memo from above has just been circulated to Goldman’s traders that henceforth no expletives are to be used in describing financial junk or otherwise in the text of ‘in house’ emails. Now we all remember Senator Levin holding up copy of a Goldman-formulated email describing a Goldman fabricated financial instrument as sh…, sorry, I can’t say it, but you know what I mean.
Now the dilemma is, without proper clarity, without language and argot that clearly defines what they have brewed in the way of financial engineering for the less wary to gobble up (you know, those who didn’t go to MIT or the Harvard Business School) at pension funds or soft overseas marks, how will they communicate to their trading desks to aggressively short (remember derivatives, CDS’s and on) those very instruments? How now can they now make a double bonanza, first by pocketing commissions selling the sh… (still can’t say it) and then betting or having their favored clients bet against them?
This is a big problem. Hank Paulson, where are you when we need you again?
Wall Street devastated America’s cities. Consider the neighborhoods dotted with foreclosed homes; the jobs vanished with the bursting of the housing bubble pumped up by bankers; the public services slashed when the Wall Street-induced recession decimated city revenues. To add insult to injury, BusinessWeek describes how the same banks that brought down the economy in the first place are now raking in mega-fees from cities and states struggling to deal with the fallout. But here’s the ray of light: from Cleveland to Chicago to San Francisco, cities are contriving ways to get a bit of the money back. Through lawsuits and tax proposals that voters will have the chance to weigh in on, they’re blazing a trail for other municipalities hit hard by reckless speculation.
This week Cleveland suffered a setback in its an effort to sue major lenders and speculators in mortgage-backed securities for causing the plague of foreclosures ravaging the city. A federal appeals court ruled that the link between encouraging reckless mortgage lending and the arson, property deterioration, and crime that followed foreclosures was too indirect. Yet lawyers for the city insist that such consequences were “entirely foreseeable by Wall Street” when banks profited by encouraging more loans to homebuyers and homeowners who clearly never had the means to pay them back. Cleveland will seek a review of the decision. In the meantime, cities from Baltimore to Memphis are pursuing similar legal strategies to hold banks accountable.
In Chicago, banks may be asked to pay up at the point of foreclosure itself. Every other buyer and seller of property in the city is required to pay a real estate transfer tax, yet banks have traditionally been exempt. Alderman Roberto Maldonado proposes (pdf) closing the loophole, requiring the banks that foreclose on thousands of homes in the city each year to finally pay their share. The new revenue would support both the city’s general fund and the cash-strapped Chicago Transit Authority. Better yet, voters will have the opportunity to weigh in on the measure, which may appear as a proposition on the November ballot.
Meanwhile voters in San Francisco will have the chance to mark their ballots to increase the real estate transfer tax on the sale of the most expensive properties: those valued at more than $5 million. While the new levy wouldn’t hit banks directly, it would enable the public to realize some gain from the rampant speculation in high-priced real estate which is still going strong in the Golden Gate City. The real estate tax will appear alongside other revenue raising measures on the November ballot.
While neither the Cleveland, Chicago nor San Francisco efforts has the potential to fully make up for the urban ruin triggered by the financial sector’s reckless profiteering, they represent important steps to hold lenders and speculators responsible for contributing to cities’ recovery. It’s also significant that in Chicago and San Francisco voters themselves will have the opportunity to reject yet more rounds of painful service cuts and austerity in favor of policies that ask banks and real estate speculators to give something back. If they win, other cities may take the hint.
Thomas C. Priore had a very impressive resume. Harvard B.A., Columbia M.B.A., fourteen years of structured credit investment and origination experience, and a 76% ownership stake in Institutional Credit Partners LLC, better known as ICP. Priore was also the President and CEO of ICP, which arranged and structured about $11 billion worth of CDOs. A big chunk of that risk, about $4.3 billion, was insured by AIG, and later acquired by the New York Federal Reserve as part of Maiden Lane III.
Priore’s accomplishments were truly extraordinary. He helped found ICP in August 2004 as an affiliate of The Bank of New York, which sold off a majority ownership stake in May 2006, when he was 37. In September 2006, Priore launched a $2.5 billion deal, CDO Triaxx Prime CDO 2006-1, which was jointly arranged with Canadian Imperial Bank of Commerce. AIG insured about 2/3 of that deal, or $1.8 billion, for the benefit of UBS.
Later, ICP Securities acted as the sole arranger for a $5 billion deal called Triaxx Prime CDO 2006-2. About half of that deal, $2.5 billion, was insured by AIG for the benefit of Goldman Sachs. AIG and Goldman must have been dazzled by Priore. I can’t think of any other instance when a big institution bought a billion-plus piece of a deal that wasn’t structured and arranged by a large bank or brokerage firm. Other banks take comfort from knowing that the entity behind a deal has a big capital cushion and is subject to regulatory oversight. ICP was a three-year-old company owned by one guy who lived in Chappaqua.
Many CDOs are structured in ways that offer opportunities for abusive self-dealing, and the Triaxx deals were no exception. Investors in these deals did not acquire static portfolios; they were either actively managed deals, and/or deals that enabled the asset manager, ICP, to pick and choose which investments were added to the CDO portfolio during the ramp up period. The investments were subject to certain eligibility criteria, most notably that they had to be rated triple-A and they had to be residential mortgage backed securities. The senior tranches of the CDOs of were entitled to a fixed rate of return, and any excess profits, above and beyond that fixed return, went directly to ICP, which held the equity in the deals.
A month ago, the S.E.C. alleged in a complaint that Priore’s firm made all sorts of fraudulent transfers for the benefit of himself and ICP, at the expense of investors in the Triaxx CDOs. The most notorious transfer, according to the S.E.C.’s complaint, was Priore’s fast-and-loose acquisition of a $1.3 billion of Bear Stearns bonds initiated in late June 2007, when Bear was seeking to raise cash to bail out two failing hedge funds. Priore had agreed to purchase the bonds for the Triaxx CDOs, but later decided assign the purchased assets to a different investment account managed by ICP. Shortly thereafter, Standard & Poor’s and Moody’s, within a few hours of each other, announced a series of downgrades on a relative handful of subprime bond issues. Those downgrades spooked the market, and sent prices of the mortgage bonds downward. So in August 2007, Priore arranged a series of unauthorized forward sales of the Bear mortgage bonds to the Triaxx CDOs, which acquired the assets at higher-than-current-market prices.
The S.E.C.’s case does not address the more questionable attributes of the deal. What were Goldman, or UBS, or AIG thinking when they signed on for billions in credit risk on transactions sponsored by a fledgling operation? Why did AIG, the rating agencies, and the U.S. government feel the need to transfer the Triaxx deals into Maiden Lane III? At the time of the transfer, they were still rated Aaa by Moody’s, which downgraded the Triaxx deals to Caa levels on January 30, 2009. Ostensibly, these CDOs did not invest in subprime mortgages. But we have no way of finding out what went on, because the government still refuses to lift the veil of secrecy surrounding all CDOs, not only those acquired by the Federal Reserve. Until the government voids the nondisclosure agreements that limit public disclosure of CDO performance reports, persons far more culpable than Thomas Priore remain insulated from accountability.
Read more: Ubs, Goldman Sachs, Federal Bailouts, Cdos, Hedge Funds, AIG Bailout, Rating Agencies, Aig, Banks, Credit Rating Agencies, Federal Reserve, Securities and Exchange Commission, Collateralized Debt Obligations, Moody's, Business News