Friday, September 30, 2011

Cruel Calculus: Wall Street slashes jobs, salaries and bonuses

According to thedeal’s Michael Rudnick: For thousands of investment bankers who toiled on Wall Street during the heady days of the mid-2000s, 80% of success, to borrow a line from Woody Allen, was just about showing up. In those precrisis, high-profit times, almost every banker working at a major firm could count on receiving an extra reward in their paycheck come bonus time, largely to compensate for what was viewed as their relatively low fixed salaries.

But no more. Under increased pressure from shareholders, lawmakers, regulators and the public at large, earnings-strapped Wall Street banks are now much more selective about who receives the top rewards -- and what those rewards consist of. These days, there is at least a 30% bonus differential between a bank's best performers and its next level of producers, says Alan Johnson of New York-based compensation consultancy Johnson Associates Inc. There are also fewer bonuses in "the middle and more outliers on both ends," he adds, meaning that some bankers will receive no bonus at all. As one back-office employee at a big investment bank puts it, "This is the first time Wall Street is not the best place to earn money."

To be sure, bonus season, which at most firms begins toward the end of the year when bankers learn what they will receive in their paychecks the following year, is still a highly anticipated time on Wall Street as incentive-based compensation, while now a smaller portion of total pay, still represents a large majority of overall comp. But at the urging of regulators, bonus pay today is more likely to be paid in equity and deferred cash than in the past, and in some cases, it can even be clawed back. Meanwhile, banks have moved to raise base salaries to keep employees happy as their bonuses drop. But that has served only to significantly increase the firms' fixed costs at a time when their earnings are under pressure from a sputtering global economy and from their regulator-mandated exit from high-risk, high-profit businesses, such as proprietary trading....

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Younger, Smaller Hedge Funds Performed Best In 2010

No big surprise according to finaltneratives. Small (presumably hungry) hedge funds outperform their larger peers, while young funds outperform their seniors according to the latest data from industry analytics provider PerTrac.

According to the firm's latest report—Impact of Fund Size and Age on Hedge Fund Performance—funds with under $100 million AUM returned 13.04% in 2010, while mid-sized funds ($100 million to $500 million) returned 11.14% and large funds (over $500 million) returned 10.99%.


Sad End of an Era: Kodak Shares Plunge After Reports Of Possible Bankruptcy

Eastman Kodak Co. (EK), the unprofitable 131-year-old camera maker, is weighing options including a bankruptcy filing because of concerns raised by possible bidders for its patent portfolio, three people with direct knowledge of the process told Bloomberg.

Some potential buyers of the patents are reluctant to proceed with bids because a purchase may amount to a so-called fraudulent transfer if Kodak becomes insolvent, said the people, who asked not to be named because the talks are private.
A number of suitors, such as Google Inc. (GOOG), have signed confidentiality agreements to examine the assets, said these people. If a sale were judged a fraudulent transfer, creditors could later sue for more money, said one of the people. A bankruptcy filing may help clear the way for the patent sale, said the people. The sale could fetch about $3 billion, according to estimates from MDB Capital Group.

Kodak has discussed its options with law firms Kirkland & Ellis LLP and Jones Day, the people said. It hasn’t yet hired a firm and a filing isn’t imminent, they said. Lazard Ltd. is advising Kodak on options for the patent portfolio….

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Warren Buffett: Brian Moynihan Has About 3-5 Years Of Toilet Scrubbing Ahead Of Him

Warren Buffett, whose Berkshire Hathaway Inc. (BRK/A) invested $5 billion in Bank of America Corp. (BAC), said that problems at the biggest U.S. lender by assets will take “much longer” to clean up.

“The bank has a wonderful underlying business -- it’s got lots of problems,” Buffett, 81, told Bloomberg Television’s Betty Liu today in an interview from the floor of the New York Stock Exchange.

“The bet is, is Brian going to get rid of those problems?” Buffett said, referring to Bank of America Chief Executive Officer Brian T. Moynihan, 51. “It won’t take six months or a year; it will take much longer than that even. But the underlying business is doing fine.”
Bank of America, which has lost more than half its market value this year as mortgage-related costs climb, pays Berkshire $300 million annually in preferred stock dividends and gave the company warrants to purchase 700 million shares of common stock for $7.14 each. The deal was announced on Aug. 25, two weeks after Moynihan said his firm had enough capital.

Moynihan, who has been in charge of the Charlotte, North Carolina-based bank since the start of 2010, should be given time to turn the firm around, Buffett said.
“I don’t want him to step down,” Buffett said. “Brian, stay at work….”

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Sentiment Toward China's Internet Darlings Shifts

The Good Ship Lollypop is so over. A series of alleged frauds at little-known Chinese companies listed in the U.S. has triggered a stunning shift in sentiment among investors, who are now dumping even the darlings of the Chinese Internet as they focus on hidden business risks, according to a report in the Wall St Journal.

For years investors, swept up in the broader China growth story, gave U.S.-listed Chinese companies the benefit of the doubt on governance and regulatory issues.

That was particularly true of the Internet sector. Investors were prepared to overlook unreliable Internet traffic data, pervasive censorship, and a reliance on an inherently risky corporate structure in their enthusiasm to profit from the explosive spread of social media, online shopping and search.
That's now changing as risk-averse investors reassess investing in China, where growth is slowing.

The latest news to send investors running was a report by Reuters on Thursday that quoted U.S. Securities and Exchange Commission Director of Enforcement Robert Khuzami as saying the Department of Justice is investigating accounting irregularities at Chinese firms. The story didn't name any of the companies being investigated, and didn't suggest that Internet firms specifically would be affected. But shares of Chinese Internet majors plunged….

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John Paulson Lost Another 6% In September

You can end the speculation. John Paulson lost another 6% in September according to Bloomberg.

There's been tons of speculation about how well he did in August, especially considering the carnage in the gold miners, which he is heavily invested in.
The Advantage Fund is down 28% for the year, according to the report. It's his Advantage Plus Fund that's much worse, having already lost over 40% going into this month.

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The Best Fund Manager You Never Heard Of Scored 100% Gains!

According to this year is the moment of truth for mutual fund managers. As the economy slows and stocks fall, managers' strategies are laid bare, and those who can't make money for investors face the firing squad.The Legg Mason Value Trust, which beat the S&P 500 Index for a record 15 years under Bill Miller, has slumped 10% this year. Ken Heebner's CGM Focus Fund, which used to gain more in one quarter than most funds did in a year, has dropped twice as much as the Value Trust. Even Fidelity's Contrafund has declined 1.9%.

Brian Lazorishak of the Chase Mid-Cap Growth Fund(CHAMX_) is earning his keep. The mutual fund is in the top 2% of its category in terms of performance this year with a return of 6% and the top 1% over the past 12 months with a 27% gain, as tracked by Morningstar. The S&P 500 Index is down 4% this year and up 8% over the past 12 months.

Lazorishak, the lead manager of the fund since 2002, said in an interview that although his best successes have been in consumer companies, Chase Mid-Cap Growth's management doesn't use a sector-focused approach in selecting stocks. Rather, it performs a series of evaluation screens to trim the field down to 600 or so prospects and then applies another test based on fundamentals. Then it reviews each of the finalists for the winners….

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News You Can Use: Good at Chess? A Hedge Fund May Want to Hire You

Boaz Weinstein’s opening move on Wall Street came as a result of chess. According to NY Times' Dealbook Mr. Weinstein, now a star hedge fund manager, was trying to get a summer job at Goldman Sachs in 1991, when he was just 18. After being told there was nothing available, he stopped in a bathroom on the way out and ran into David F. Delucia, then the head of corporate bond trading.

Mr. Delucia, who is ranked as an expert by the United States Chess Federation, had played Mr. Weinstein, ranked as a master by the federation, many times. He arranged for a series of interviews until Mr. Weinstein got an internship on a Goldman trading desk.

Mr. Weinstein is not alone among Wall Streeters who have a chess connection. Peter Thiel, the billionaire co-founder of PayPal who now runs the hedge fund Clarium Capital, is also a chess master, and Douglas Hirsch, the founder of Seneca Capital, while not an expert, has become an ardent chess enthusiast.

Chess helps in trading, Mr. Weinstein said. To become a good chess player, he learned to focus on how he made decisions because he could not calculate the results of all his possible moves. Learning to deal with that uncertainty or risk has been useful. When you make an investment, “you can have an 80 percent chance of being right. And then the 20 percent comes up,” he said. “But really it is the process that you used to make the decision.....”

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Global Investors See Europe Meltdown

Global investors anticipate Europe’s debt crisis leading to an economic slump, a financial meltdown and social unrest in the next year with 72 percent predicting a country abandoning the euro as a shared currency within five years, a Bloomberg survey found.

About three-quarters of those questioned this week said the euro-area economy will fall into recession during the next 12 months and 53 percent said turmoil will worsen in a banking sector laden with government bonds, according to the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. Forty percent see the 17-nation currency bloc losing at least one member in the next year.

More than a third of participants say deteriorating European debt will derail the world economy over the next year, with the pessimism highlighting the pressure European policy makers face as they try again to fix their 18-month sovereign crisis. Stocks last week tumbled into their first bear market in two years and foreign leaders, including President Barack Obama, are urging European leaders to intensify their rescue efforts.


Uh-OH! Morgan Stanley as Risky as Italian Banks

Morgan Stanley, which owns the world’s largest retail brokerage, is being priced in the credit- default swaps market as less creditworthy than most U.S., U.K. and French banks and as risky as Italy’s biggest lenders, Bloomberg reports.

The cost of buying the swaps, or CDS, which offer protection against a default of New York-based Morgan Stanley’s debt for five years, has surged to 456 basis points, or $456,000, for every $10 million of debt insured, from 305 basis points on Sept. 15, according to prices provided by London-based CMA. Italy’s Intesa Sanpaolo SpA (ISP) has CDS trading at 405 basis points, and UniCredit SpA (UCG) at 424, the data show….

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Dow Jones Industrials, S&P 500 Indices May Combine

McGraw-Hill Cos. is in advanced talks with CME Group Inc. to combine stock-market icons such as the Dow Jones Industrial Average and S&P 500 into a joint venture that would give the firms more sway over investors and exchanges around the world, according to people familiar with the situation and the Wall St Journal.

Talks to form a joint venture between McGraw-Hill's S&P Indices business and CME's Dow Jones Indexes unit began more than a year ago and could still fall apart, these people cautioned. If a deal goes through, the combined indexes business venture would be managed by McGraw-Hill, and the New York company ...

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Thursday, September 29, 2011

The Guy Who Emailed All Of Wall Street Sends Out His "Sincerest Apologies"

Earlier BusinessInsider mentioned the guy who disastrously CC'd hundreds and hundreds of people across Wall Street in an blast-email attempt to get a gig for next summer.
Obviously that backfired, and everyone passed the email around mocking him.
Well, he's sent an apology.

Subject: My Sincerest Apologies

Dear Mr. __________,
I am very ashamed and embarrassed to have sent you a mass email. It was extremely impersonal. It also demonstrated a complete and utter lack of professionalism. I realize that I have disrespected you, your firm, my school and all the alumni of Penn. I know that I do not even deserve a reply from you, but I hope that we can somehow move past this and develop a good relationship. Again, I very sincerely and deeply apologize.

Best Regards,

Madoff trustee says ruling means $6B less for victims

Bernie Madoff trustee Irving Picard is crying foul over a federal court ruling, claiming the decision to toss much of his case against the owners of the Mets will also cut recovery for Madoff victims by nearly $6 billion, according to a report in the NY Post.

Manhattan federal judge Jed Rakoff threw out nine of 11 counts brought by Picard against Mets owners Fred Wilpon and Saul Katz, and limited the trustee to clawing back money withdrawn in just the two years prior to Madoff coming clean. The two-year limit caps the amount Picard can recover from the Mets at $386 million. Picard had been seeking $1 billion, including $300 million in alleged profits and $700 million in principal based on the life of their Madoff investment.

Madoff trustee Irving Picard struck out in his attempt to claw back six-years worth of profits from Madoff investors, which is a clearwin for Mets owner Fred Wilpon.

After a court hearing yesterday, a member of Picard’s legal team argued that it will also thwart his ability to collect money for thousands of Madoff victims. Picard may even put a stop to the first round of checks that was set to be mailed tomorrow to burned investors, according to David Sheehan, one of the trustee’s attorneys.

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Maybe Too Soon To Call A Hedge Fund Meltdown…but

From the Wall St Journal: Man Group's revelation yesterday that its assets under management had fallen by $6 billion in its second quarter wiped 25% off its share price and sparked much talk of doom and gloom for the hedge fund industry. But this is premature and it is unlikely that hedge funds are staring down the barrel of large-scale redemptions.

The co-head of European prime brokerage at a large bank said he expects to see 5% redemptions from hedge funds by the end of 2011. Separately, Bob Leonard, global head of capital services at Credit Suisse, said: "We're not sensing wholesale redemptions across the board like there was in 2008. We're hearing of targeted redemptions from managers who suffered losses beyond their draw-down parameter or from those who have underperformed historically."

Both prime brokers said that this is not money that is leaving the hedge fund industry; investors will wait on the sidelines and redeploy the cash when there is more clarity on the macro environment.

There are two main reasons why hedge fund industry is likely to be cushioned from widespread redemptions: the quality of the investor base and the fact that investors don't need cash right now.

Today's hedge fund investor is a very different beast from the one before the financial crisis...

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Man Group outflows surge, shares dive

Reuters reports that Man Group, the world's largest listed hedge fund manager, said clients withdrew money over the summer months at the fastest pace since early 2009 amid "relentless volatility" in world markets, knocking its fragile recovery.

Man Group shares traded 19.3 percent lower at 193.4 percent at 1131 GMT after the firm said clients pulled out a net $2.6 billion in the three months to end-September, with its GLG unit particularly suffering. Shares had earlier hit a five-week low at 187.7 pence.

Outflows accelerated in September, Peter Clarke, CEO said, making the latest quarter the worst for the group since shortly after the collapse of U.S. investment bank Lehman Brothers.

Man's trading update raises the possibility of heavy client outflows across the $2 trillion hedge fund industry, which has recovered strongly after suffering nearly $300 billion of redemptions during the credit crisis in 2008 and 2009, according to Hedge Fund Research…

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Wealth Watch: Forget about stocks; the ultra-rich turn to art

At Christie's auction house in London one evening last July, as art investors bid millions for an 18th-century painting of a horse, the sons and daughters of the capital's super-rich were going through their paces in a simulated auction.
In an upstairs room in London's plush St James's district, around 30 people mostly in their 20s chatted politely in fluent English, their accents Russian, Arabic, South Asian and Chinese. After a three-course dinner of salmon and roast lamb, the program began: a role-play in which teams bid in an imaginary auction for various works of art.

A crew of experts was on hand to advise on the value of the pieces. The bidding gathered pace. Staff took fake phone calls and bid on behalf of "mystery buyers." A young woman shouted encouragement in Arabic. One team bid hard, driving prices far higher than the recommended valuations. At the last minute they pulled out, landing rivals with an exorbitant bill. A large plasma screen showed the real-life bidding going on downstairs. George Stubbs' "Gimcrack on Newmarket Heath" sold for 22.4 million pounds ($35 million), making it the third most valuable Old Master ever sold at auction.

Art used to be known as an "investment of passion"; today for those who can pay, it is a form of haven. Demand for art, watches, rare wines, vintage cars, boats and wine expanded in 2010 as the world's super-rich rebounded from the 2008 financial crisis, according to a report by Capgemini and Merrill Lynch in June.

BOfA To Charge New $5/Month Fee For Debit Card Holders

Bank of America will now charge $5/month to debit card holders who make purchases with their cards. You can thank new Dodd-Frank regulations on debit cards for the $60/year fee. It takes effect in early 2012, according to BusinessInsider.

According to an internal memo sent to the bank employees today that is cited by Dow Jones, "The fee will apply to various consumer checking accounts but will not apply to customers in certain premium accounts."

Sounds like if you keep a certain amount of cash in there, you're home-free.
Other banks will do something similar (remember JPMorgan considered $5 ATM fees), because the Durbin amendment to the Dodd-Frank financial reform act, the reason for the profit loss on debit cards, applies to all U.S. banks that issue debit cards.
"The economics of offering a debit card have changed with recent regulations," a spokesman for BofA said..

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Stocks up stongly at midday on Europe, data

Stocks traded sharply higher by midday Thursday as investors cheered upbeat news on jobless claims and economic growth and on optimism that Europe is taking steps to tackle its debt crisis. The Dow Jones industrial average was up 181 points just before noon, or about 1.7 percent. The broader S&P 500 and Nasdaq indexes were up too.

Stocks broke a three-day winning streak Wednesday on worries that Europe would not be able to contain its growing debt crisis. But Germany's parliament on Thursday approved an expansion of a euro-zone crisis fund, which helped dispel some of those concerns.

In U.S. economic news, jobless claims dropped sharply in the latest week, offering a glimmer of hope that layoffs were easing. And the government reported that economic growth expanded at a slightly faster pace than previously estimated in the second quarter, although still at a very sluggish rate.

The economic news came the morning after Federal Reserve Board Chairman Ben Bernanke said the persistently high unemployment rate, which has been above 9 percent for some time, is a "national crisis" and that the Fed would act to head off deflation (a combination of low growth and falling prices) if it should occur and the goverment should act to boost jobs.

"The unemployment situation we have, the job situation, is really a national crisis," Bernanke said.

In a question-and-answer period after a speech in Cleveland, he added that workers "are losing the skills they had, they are losing their connections, their attachment to the labor force," The Associated Press reported…

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This Is The Type Of Story That Makes People Freak Out About China's Banking System

One of those Chinese loan sharks — who collectively hold at least $470 billion — was operating a massize ponzi scheme worth up to $1 billion, according to Caixin Century Magazine (via @chinahearsay).

The lender, a Mongolian woman named Tuya, had worked with three clerks at Bank of China. She would solicit deposits for the bank, and in exchange they would let her use the money for speculative investments in property and mines. Their scheme unraveled when the bank noticed money missing from over 40 savings accounts and promptly fired the three clerks.

Tuya and the clerks responded by kidnapping the head banker's wife and demanding $31 million plus the reinstatement of the clerks. When police rescued the wife, everything came undone.

This all took place near the famous Chinese ghost city of Ordos, which is presumably the kind of thing Tuya was investing in. How much of the underground banking system is this shady?

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A Massive Union Just Voted To Side With The Wall Street Protesters

According to Daily Kos, The New York Transit Workers Union (TWU) voted to support the Wall Street Protestors at their meeting last night.
A member of TWU Local 100 told a reporter that they would join the protest Friday at 4PM.

Here's more about them from their website:
The TWU has four main divisions: Railroad; Gaming; Airline; Transit; and Utility, University and Service. The Union has 114 autonomous locals representing over 200,000 members and retirees in 22 states around the country.

Occupy Wall Street has been picking up some decent support from unions in the past few days. Yesterday we reported that the Teamsters Union declared their support for protestors, and we also found out that the United Pilots Union had members at the protest demonstrating in uniform.

Today we learned the Industrial Workers of the World put a message of support on their website as well. That's good for the protestors, sure, but the bottom line is whether or not these unions can produce bodies.


Texas Fund Fraudsters Sentenced Over Life-Settlement

The Wall St Journal reports: Two more principals of A&O Resource Management Ltd. received decades-long prison sentences for their involvement in a $100 million life settlement fraud scheme, the Justice Department said Wednesday.

Hedge fund manager and A&O principal Adley H. Abdulwahab, 36, was sentenced to 60 years in prison, while A&O vice president and co-founder Christian Allmendinger, 40, was sentenced to 45 years in prison, according to a Justice Department statement.
The Houston-based defendants had defrauded investors by misrepresenting A&O's prior success, its size and office locations and its use of investor funds, the department said. According to the original indictment, the defendants and their co-conspirators sold life settlement investments, which have attracted growing scrutiny in recent years. In such deals, investors buy life-insurance policies or portions of them from the people who took them out for an upfront payment.

Fund Goes Down Blind Alley: Developer Couldn't 'Make the Numbers Work'

Real-estate developer Stephen Ross and his partners spent more than a year digging into U.S. banks, including more than 100 with loans to local bakeries, gas stations and amusement parks. According to the Wall St Journal they hoped to spend about $1.1 billion buying or investing in lenders.

But the deeper they went, the worse things looked. As a result, Related Cos., the New York firm in which Mr. Ross is chief executive, gave back the money it raised from roughly 150 investors, including hedge-fund manager David Einhorn. The firm did find several investments it was interested in but was outbid….

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Crook busted after robbing same bank for third day in row

Incredible! Talk about your customer loyalty! A greedy bank robber starred in his own criminal version of “Groundhog Day” -- holding up the same downtown Sovereign branch on three consecutive days before he was finally busted yesterday, police sources told The NY Post yesterday.

Charles Burnett, 29, allegedly stole a total of more than $26,000 before cops thwarted his unprecedented crime spree. Burnett began his heist hat trick at 9:19 a.m. Monday, when he boldly entered the bank, shoved a customer out of the way and handed a teller a demand note that read: “Put money in the bag, I have a gun.”
To show he was serious, he produced a brown paper bag and banged it on the counter to indicate it had something heavy, and threatening, inside. The teller gave him $2,258 and he walked out while peeling off a blue glove.

The next day he came back at 10:54 a.m., aggressively cut the line and demanded loot.
Danielle Stephens, 25, a teller who was on her first day at work said she told him she didn’t have any cash, so he went to another teller.

“He told the girl next to me, ‘I will shoot you in the f--king face if you don’t give me all your money,’” Stephens said. “He walked out with like $14,000.”
After the second heist, the suspect’s security-camera photo was put up in police stations and published in yesterday’s Post. Still, he couldn’t resist taking a third shot at the bank yesterday. Just after 9 a.m. he passed a demand note that said, “I have a gun put all the money in the bag.”

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Is Jamie Dimon Committing The Ultimate Betrayal?

JP Morgan honcho Jamie Dimon, once a “fat cat” ally of President Obama, seems to have strayed to Republican contender Mitt Romney, the NY Post reports.

Dimon, a lifelong Democrat who was rumored to be on Obama’s short list for treasury secretary before he settled on Tim Geithner, met privately with Romney on Tuesday morning before a fund-raiser at Brasserie 8¹/2 hosted by Highbridge Capital, a JPMorgan-owned hedge fund.

Dimon, who was spotted “in a discreet one-on-one” discussion with Romney, cannot publicly endorse a candidate because he sits on the board of the Federal Reserve Bank of New York. But he donated to Democratic candidates in 2008 and privately supported Obama.

While Dimon’s spokesperson declined to comment, a JP Morgan insider tells us that Dimon has not attended an Obama fund-raiser and has not made any contributions to his campaign during this election cycle. And Dimon has met privately with many of the Republican presidential candidates…

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Mets ruling could upend Madoff bankruptcy

Madoff clawbacks would be history. Thomson/Reuters writes: Judge Rakoff's 18-page ruling could completely upend the Madoff bankruptcy. Among the big-name Madoff investors who would be off Picard's hook completely if Rakoff's ruling stands is former Securities and Exchange Commission general counsel David Becker, who's in hot water for allegedly failing to alert SEC commissioners of a potential conflict of interest stemming from his parents' long-closed Madoff account. Picard had filed a clawback suit against Becker, who inherited money after his parents' account was liquidated in 2002; Rakoff's ruling would wipe out Picard's suit.

Other big winners from Rakoff's ruling could be Madoff's surviving children, who would still face a $58.7 million clawback claim for their two-year withdrawals but not claims on another $83.3 million they withdrew between 2002 and 2006, according to Picard's 2009 complaint. Bank Medici founder Sonja Kohn's clawback exposure would be reduced from $38.8 million to $11.2 million. Madoff's early alleged enablers Frank Avellino and Michael Bienes would be looking at $17.2 million in clawback claims, not $56 million….'ANV'

Will accused Galleon tipster Gupta face indictment?

When does an insider trading case turn from civil to criminal? It's a question that has confounded white-collar defense lawyers for years, reports ThomsonReuters.

For Gary Naftalis, a partner at Kramer Levin Naftalis & Frankel, the question is more than academic. As you'll no doubt recall, Naftalis, a dean of the white-collar defense bar, represents Rajat Gupta, the former Goldman Sachs Group director who has come under scrutiny in the government's enormous hedge fund insider-trading investigation.

The Securities and Exchange Commission first brought charges against Gupta in March, accusing him in a rare administrative proceeding of giving tips about Goldman to Galleon Group hedge fund manager Raj Rajaratnam. Naftalis called the allegations "baseless" and complained that Gupta had not been accused of sharing in any of the profits made by Rajaratnam. There was no evidence, Naftalis asserted, that Gupta had received any benefit from allegedly leaking information to the Galleon founder.

The SEC, however, claimed that Gupta was an investor in Galleon funds at the time of the alleged misconduct in the summer and fall of 2008 and "stood to benefit from his relationship with Rajaratnam."

Read more at'ANV

Financial Criminal of the Day: Retired NBA Star-Turned-Ponzi-Schemer

New York Observer writes: What’s with retired athletes having second careers as financial criminals?It’s not going anywhere, is what’s with it. After all, it was just last month when former MLB All-Star third baseman Doug DeCinces was busted for insider trading. But eh, baseball players are practically taught to cheat that way; Joe Mauer steals signs in broad daylight!

But an NBA player running an entire ponzi scheme? That’d be impressive. And in former New Jersey Nets and Milwaukee Bucks player Tate George’s case, it kind of is, especially when you consider the magnitude of the lies he told, and who he targeted: he told his investors he had $498M more than he had in his portfolio.

What kind of investors would believe that?

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Feeling Vulnerable, H-P Hires Banker In Defense Move. Not just ANY banker....

Hewlett-Packard Co. has hired Goldman Sachs Group Inc. to help the company defend itself against possible activist investors who could push for change at H-P, people familiar with the matter said.

Concerns about H-P intensified when Leo Apotheker was ousted as chief executive and replaced by Meg Whitman.

H-P has felt vulnerable to possible activist investor pressure amid questions about the company's performance and strategic direction, the people said. The concerns intensified earlier this month when Leo Apotheker was ousted as chief executive and replaced by Meg Whitman.

As a result, Goldman was recently brought on board to help H-P formulate defenses in case it becomes the target of shareholders seeking change, the people added. Typically, companies with such a concern put in "poison pills" – shareholder rights' plans that make takeovers more difficult for activist investors…

Wednesday, September 28, 2011

Yale’s Swenson Beat Harvard: Endowment Returned 22%

According to Bloomberg Yale University, whose endowment strategy has been a model for U.S. schools, said its investments returned 22 percent in the past fiscal year, helped by foreign stocks and private-equity gains.

The endowment’s value rose to $19.4 billion as of June 30, from $16.7 billion a year earlier, according to an e-mail today from spokesman Tom Conroy. That amount includes investment gains of $3.6 billion and distributions of $1 billion to the New Haven, Connecticut, university.

Yale, the second-richest school after Harvard University of Cambridge, Massachusetts, said foreign stocks beat benchmarks and its private-equity and real-asset investments rebounded. The school trailed its Ivy League rivals last year after a second straight year of losses on real estate, timber and oil and gas holdings.

Yale’s 22 percent gain is the best of the Ivy League schools that have reported results so far. The group consists of eight selective private schools in the northeastern U.S. Harvard, the world’s richest school, said Sept. 22 its investments rose 21 percent. The University of Pennsylvania in Philadelphia said Sept. 15 its fund gained 19 percent, helped by rising stock markets. Cornell University in Ithaca, New York, said today that its fund gained 20 percent...

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And now for something completely different: Seven NY Students Charged in SAT Scheme

From Bloomberg: Seven Long Island, New York, students were charged with taking part in a scheme in which six of them paid the seventh to take the SAT college-admissions test on their behalf, prosecutors said.

Six current or former students at Great Neck North High School, about 20 miles east of Manhattan, are accused of paying Samuel Eshaghoff, 19, of Great Neck, to impersonate them so they could get higher scores on the test, Nassau County District Attorney Kathleen M. Rice said in a statement.

Eshaghoff, a 2010 Great Neck North graduate, now attends Emory University in Atlanta after spending his freshman year at the University of Michigan in Ann Arbor, Rice’s office said. He was paid $1,500 to $2,000 for each test, and took the exam for free for a female student.

Eshaghoff surrendered yesterday and was charged with scheme to defraud in the first degree, six counts of falsifying business records in the second degree and six counts of criminal impersonation in the second degree. He faces as long as four years in prison if convicted….

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Judge Throws Curve in Mets-Madoff Case

In a ruling that could have a far-reaching impact on lawsuits seeking money for Bernard Madoff's victims, a federal judge threw out the bulk of claims by a court-appointed trustee who sought to recover about $1 billion from the owners of the New York Mets baseball team, according to a Wall St Journal report.

The decision by U.S. District Judge Jed Rakoff limited—though didn't eliminate—possible financial ramifications from the epic Ponzi scheme for one of Major League Baseball's most valuable franchises.

Beyond making it harder for trustee Irving Picard to recover the owners' principal investment in the Ponzi scheme, the ruling indicated that he would only be able to take back money withdrawn in the last two years of the fraud, a decision that could also benefit others against whom he had launched so-called clawback suits.

Judge Rakoff's decision comes after nearly a year of contentious legal wrangling between Mr. Picard and the team's owners,…

Amazon challenges Apple’s iPad! Inc. on Wednesday unveiled the Kindle Fire tablet computer, the latest—and possibly biggest—challenger to Apple Inc.'s dominant iPad, the WAll St Journal reports.

Priced at $199, the Fire tablet has a 7-inch screen and can access Amazon's app store, streaming movies and TV shows, the company said. By comparison, the lowest price for a new iPad is $499.

The Fire will be available Nov. 15, with pre-orders started Wednesday.

"We asked ourselves, 'Is there some way we can bring all of these things together [Web, movies, apps, books and games] into a remarkable product offering customers would love?'" Amazon Chief Executive Jeff Bezos said at the company's launch event in New York. "Yes, the answer is Amazon Kindle Fire."

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Blankfein Played Good Cop to Jamie Dimon’s Bad Cop

From New York Magazine: Jamie Dimon, noted patriot, is not afraid of starting a war with Canada, or anyone else who wants to mess with our freedom from financial regulation, for that matter. (FDR probably cut that one for space.)

The JPMorgan boss apparently "exploded" at an IMF meeting over the weekend when Bank of Canada's Mark Carney spoke out in favor of new, more stringent capital requirements that Dimon's already on record as disliking. According to the FT, he "launched a tirade" at the closed-door meeting, in front of 30 or so other big shots.

Many of [Basel III's] rules discriminate against US banks, and I'm going to continue to use the phrase “anti-American” [which he first used in a Financial Times interview this month] because it seemed to resonate with people who might be able to modify the reforms.

Apparently Canadians aren't on the list of people with whom that phrase resonated.

Not everyone thought Dimon's negotiating tactics were so smart. Goldman Sachs's Lloyd Blankfein reportedly wrote Carney an e-mail that amounted to an apology for the incident.

But killing him with kindness didn't work either. Carney, not dazzled by the Blankfein–Dimon tag-team efforts, gave a speech that seemed like a fairly direct, uncowed response: “If some institutions feel pressure today, it is because they have done too little for too long, rather than because they are being asked to do too much, too soon." Isn't doing the minimum required sort of our national operating principle? Perhaps Dimon's right about the anti-American thing after all….

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It’s Ugly: Huge Hedge Fund Clients Race For The Exits

Shares of Man Group, the huge publicly listed hedge fund group, are getting killed today to the tune of 21%. The culprit: Basically, really ugly assets under management/client flows numbers.

Via FT Alphaville, here's the important part of the company's statement:
Flows: inflows from AHL and institutional fund of funds and outflows from guaranteed products and GLG styles gave a Q2 outflow of $2.6 billion (H1 inflow of $1.1 billion driven by positive flows from GLG in Q1 and from AHL across both quarters)
o After record sales in Q1 of $9.0 billion, Q2 sales reduced to $4.5 billion, reflecting an anticipated deterioration in investor sentiment over the summer

o Redemptions increased from $5.3 billion in Q1 to $7.1 billion in Q2
All told, AUM of $65 billion was about $5 billion shy of expectations.
And obviously, Man's ugly numbers will raise questions about how the rest of the industry is holding up during the volatility. So far there haven't been that many stories about mad investor exits, but it sounds like we'll hear more soon.

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Heap Big Trouble About to Hit John Paulson

Traders are viciously anticipating John Paulson's liquidation of some of his holdings, according to the Wall Street Journal.

Paulson's returns have been terrible, and as the October deadline for investors to ask for redemptions inches closer, traders are avoiding his holdings in anticipation of big investor liquidations.

And in at least one case (Harrah's), when a Paulson holding hit the market, traders "reached out to brokers to see if they can buy more of it" -- a way to see if Paulson is liquidating, which would cause more of his holdings to sell off.
Billions in redemptions at Paulson & Co would cause him to sell of big chunks of stock because he doesn't own very many. That will hurt the stock price of those investments. So of course traders would want to anticipate this.


Wall Street Protesters Could Use Some Socks, Are Good On Snacks, Have Gotten Comfortable

But according to the Wall St Journal there hasn’t been much need for [medical supplies]. Ms. Lembitz, another medic, was tending to one of the most common injuries: blisters on a bongo drummer’s fingers. The only other common injuries, Mr. Pilon said, were cuts from food preparation and cases of foot fungus caught by activists who didn’t change out of wet socks…A website set up for the protest has a link to a nearby pizzeria, Liberato’s. Donors call, give the restaurant their credit card information, and a short time later a few pies—the website says the protesters prefer them without meat—show up at the area set up for food. Protesters hope they’ll be able to hold out for a while—some say forever. “Until Wall Street crumbles,” said Chris Mapp, a 20-year-old film student who lives in Harlem. “And we say that in the most peaceful way possible.” [


Layoff Watch: Top Firm Said To Be Planning 2nd Wave Of Job Cuts

From BeaconEquity: Goldman Sachs Group Inc. (NYSE: GS), the Wall Street giant, is planning to make deeper cost cuts, which may include more job cuts, according to a report by the New York Times. The plans for additional cost cuts come following the recent turmoil in financial markets, which has negatively impacted Wall Street firms.

Goldman has among the worst sufferers in the recent turmoil in financial markets. The bank is expected to report weak trading revenues when it releases its third-quarter financial results next month. The recent volatility has also hurt Goldman shares, although the stock has rebounded in the last three trading sessions. Last week, Goldman shares fell below the $100 mark and touched a new 52-week low of $91.40. Since August, when the sell-off in the global equity markets began, Goldman shares lost almost a quarter of their value.

The New York Times reported that the bank is now preparing for one of its worst quarters since going public in 1999 by making deeper cost cuts. The bank has already announced plans to reduce costs by $1.2 billion and cut 1,000 jobs. However, the New York Times says that the bank could make additional cost cots. The paper said that the bank may raise the cost cutting target to $1.45 billion from $1.2 billion. This would likely result in more layoffs than the original 1,000 announced. Also, bankers will have to do with lower salaries and lower non-compensation expenses like real estate and travel,

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Black-Swan Investor Universa Seeks Cool $1 Billion for New Fund

Universa Investments, a hedge fund that aims to protect clients against market cataclysms known as black swans, is seeking $1 billion for a new macro fund that will try to capitalize on mispriced options, aa person familiar with the matter told Bloomberg, who in turn told us.

Universa, which has about $6 billion under management, will market the fund as one that specializes in convexity, the term for investments that risk little capital yet have the potential for big payoffs, said the person, who asked not to be identified because the firm is private. The Universa Convex Macro Fund will make bets primarily by purchasing options on benchmarks such as the Standard & Poor’s 500 Index, as well as individual commodities, currencies, stocks and other financial instruments, the person said.

The fund will seek to profit from macroeconomic developments by combining the best ideas from investment partnerships that the Santa Monica, California-based firm has set up to protect clients against specific types of tail risks, such as inflation and stock market declines, the person said. Rising volatility in recent months has spurred demand for macro- type investments, as well as protection against unforeseen events….


WSJ: Vulture Investors Circle Top Firm As Deadline Looms

As John Paulson suffers through some of the worst losses of his career, vulture investors are circling.Rival hedgies and brokers are canvassing through Paulson & Co.’s likely investments in an effort to anticipate what the star manager might want to part with if he needs to return cash to investors, according to the WSJ.

Two of Paulson’s largest funds so far this year have suffered losses of more than 20% through August. As we noted earlier this month, the billionaire manager’s biggest fund, the Advantage Plus, had reportedly lost 34% in 2011 by the end of last month.

Most of Paulson’s investors are believed to be required to let him know by the end of October if they want their money back this year.

Some firms have already starting making “lowball” offers for investments they believe Paulson might need to unload, sources told the paper. Calls between brokers trying to get ahead of a potential Paulson windfall have created a buzz along Wall Street, the report added….

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Judge to weigh how much Rajaratnam coined

The folks at Reuters report that the judge who will decide the fate of Raj Rajaratnam is set to hear arguments next week over the amount of illicit profits the convicted Galleon Group hedge fund founder collected from insider trading.

The hearing on October 4 is part of U.S. District Judge Richard Holwell's preparations before he sentences Rajaratnam nine days later -- an event expected to be one of the most closely watched sentencing proceedings for an insider trading case in years.

A spokeswoman for the Manhattan federal court and Holwell's courtroom deputy said on Tuesday that the judge had scheduled the hearing over "loss amount" in the case. The judge's determination after hearing arguments from prosecutors and defense lawyers will have an impact on his sentence decision.

In case you’re having an ADD flareup, Rajaratnam was convicted by a jury in May at a two-month-long trial in which the government said his illicit gains amounted to $63 million from insider trading for several years up until his arrest in October 2009…..


Hedgie Merkin wants Madoff suit tossed

An already-bitter battle pitting disgraced hedge-fund manager Ezra Merkin and the New York attorney general just got nastier, according to reports in the NY Post. Lawyers for Merkin sent a letter to New York state judge Richard Lowe on Monday demanding that he toss the AG’s lawsuit, which accuses Merkin of earning a half-billion dollars for parading as an investment guru while really just funneling the money to Ponzi King Bernie Madoff.

Merkin’s lawyers sent the letter as a result of a separate ruling by federal court judge Deborah Batts, who dismissed a class-action against Merkin earlier Monday that accused him of defrauding investors.

Batts’ decision to toss the lawsuit “is directly relevant” to the AG’s case, which was filed under former AG, Andrew Cuomo, said Merkin’s lawyer in the letter to Lowe. Eric Schneiderman, the new AG, shot back yesterday with his own letter to Batts, saying there’s plenty of evidence that Merkin breached his fiduciary duty to investors by not telling them that their money was being funneled to Madoff.

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US Has More Mega-Serious Problems Than Europe: Jim Rogers

From CNBC: Jim Rogers says he's more worried about the U.S. debt situation than he is about Europe. According to Rogers, the U.S. has deeper structural problems than Europe as well as higher debt levels.

"Europe's got some bad problems but the entity as a whole is not nearly as deep in debt as the U.S. They don't have a huge balance of trade deficit, like we do," Rogers said.

Investors have been worried about the lack of a unified response from Europe. Leaders in the single currency group have been accused of being behind the curve and not getting to grips with the crisis even as stock markets have swooned. But Rogers believes that America, despite having a single fiscal policy, is actually worse off in terms of its debt situation.

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'Occupy Wall Street' Gains Starpower

The noisy bazaar of militants, 21st century hippies and dreadlocked nomads with rainbow stocking caps may have fallen short of their "Occupy Wall Street" goal, but they are getting noticed, according to CNBC. That may also be the most the week-old demonstration accomplishes. "Occupy Wall Street"—a rag-tag organization orchestrated on the streets and online—promised thousands but has delivered just hundreds.

Still, the attention is being looked at as the first step in a long journey.

"I came down here to educate myself," actress Susan Sarandon told "It's been really informative and I'll be back (following a trip to Italy). There's a huge void between the rich and the poor in this country." Clad in jeans, a modest polka-dot pullover and just a touch of makeup, Sarandon could have blended in easily with the crowd had it not been for a small phalanx of cameras and gawkers trailing the biggest shot of starpower "Occupy Wall Street" has seen so far. (Filmmaker Michael Moore reportedly stopped by Monday evening.)

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Doc Doom: U.S. in Throes of Economic Contraction

Bloomberg reports that most advanced economies are lapsing back into recession while the U.S. is already in the throes of an economic contraction, according to Nouriel Roubini, co- founder and chairman of Roubini Global Economics LLC.
“The way I see the global economy, I think we’re entering into a recession again in most advanced economies,” Roubini said in a panel discussion today at the Bloomberg Dealmakers Summit in New York. “I think we’re already into one in the U.S. based on the hard and soft data -- same with most of the euro zone, same with the United Kingdom.”
“At this point, the issue is not whether there is going to be a recession or a double-dip but whether it’s going to be relatively mild or whether it’s going to be a severe recession and a global financial crisis,” Roubini said. “The answer to that question depends on what’s going to happen in the euro zone and whether they can get their act together.”

Only In America: Pawn Shops for the (Formerly) Rich

The rich have always faced periodic “liquidity shortfalls,” where they have plenty of assets but not enough cash, according to a report in the Wall St Journal. Yet apparently, those shortfalls are becoming more common in the bad economy. And the cash-poor rich are fueling a continued rise in high-end pawn shops.

According to an article in the South Florida Sun-Sentinel, business is booming at Boca Raton Pawn, which will pawn everything from Hublot watches and Jimmy Choo shoes to diamonds and Lamborghinis. The shop recently got a call about a Picasso.
“We looked around and there were really no pawn shops in the area catering to the rich,” owner Seth Marcus said. “We call ourselves a pawn shop, but we’re really a high-end collateral lender….”

Boca Raton Pawn is part of a growing cottage industry of pawning to the rich. They work like regular pawn shops, where the shop gives a loan based on a piece of collateral that it holds. If the loan isn’t paid back, the shop sells the collateral. The only difference is that high-end pawn shops deal in bigger numbers….

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BofA facing a $50 Billion Shareholder Lawsuit

The lawsuit isn't new, BusinessInsider reminds us, it's been "working its way through the system" since soon after BofA's $50 billion acquisition of Merrill (recently, a judge allowed shareholders claims to proceed in August), however details about the case -- like that it seeks $50 billion -- and what it means for BofA are now more clear.

The shareholders claim that Bank of America "engaged in a deliberate effort to deceive the bank’s shareholders" about big losses looming at Merrill Lynch. The losses would hit BofA days after the acquisition. The shareholders (Ohio Public Employees Retirement System, State Teachers Retirement System of Ohio, the Teacher Retirement System of Texas, Stichting Pensioenfonds Zorg en Welzijn, represented by PGGM Vermogensbeheer B.V., and Fjärde AP-Fonden) claim BofA execs, particularly former CEO Ken Lewis and former CFO Tom Price, knew the losses were over $10 billion and concealed details from other execs.

Dealbook says Lewis and Price might end up paying to settle the case. As for BofA, Dealbook says "the settlement value appears to be in the billions."

The trial is set for October 12 2012.

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Tuesday, September 27, 2011

Bulls Storm Wall Street; Stocks Soar

From Fox Business: The Dow soared more than 250 points in afternoon on trade on Tuesday, rallying for a second-straight day, as traders scooped up beaten down shares amid hopes European officials would move to cool down the region's sovereign debt crisis.
As of 1:20 p.m. ET, the Dow Jones Industrial Average jumped 279 points, or 2.5%, to 11,323, the S&P 500 soared 27.2 points, or 2.3%, to 1,190 and the Nasdaq Composite rose 60.1 points, or 2.4%, to 2,577.

The rally was broad, but energy and financial issues performed the best by a wide margin, with blue chips like JPMorgan Chase (JPM: 32.33, +0.68, +2.15%) and Chevron (CVX: 94.97, +3.48, +3.80%) rallying. Volatility, meanwhile, plunged 9%, as tracked by the VIX index.

Additionally, traders were buying up stocks that took some of the most intense selling last week. Indeed, three top-performing blue chips, Caterpillar (CAT: 79.32, +2.47, +3.21%), Disney (DIS: 31.53, +1.23, +4.06%) and Hewlett-Packard (HPQ: 24.30, +1.60, +7.02%), have hit 52-week lows in the past week.

The yield on the 10-year Treasury, which repeatedly touched historic lows amid the intense turmoil last week, has climbed in a sign of the return to riskier equity and commodities markets. The benchmark bond recently yielded 1.988%, up from 1.905%, and in the range leading up to the Federal Reserve's monetary policy decision last week.
Worries that Greece may default on its debt, sparking a chain of events that could put pressure on other countries, and the euro zone's financial system, roiled the markets last week.

However, Greece's parliament is expected to vote on Tuesday on the last part of its austerity measures, a property tax that has been highly unpopular, but is crucial for securing a much-needed aid tranch next month. Officials from the European Union and International Monetary Fund have also broadly signaled that they are ready to take action to continue quelling the crisis….


SecondMarket: an Exchange Without the Volatility

According to Dealbook’s Andrew Ross Sorkin, that’s how Barry Silbert, the chief executive of SecondMarket, the fast-growing private stock exchange for start-ups, views trading on the big exchanges like the New York Stock Exchange and Nasdaq.

If you don’t know SecondMarket, you should: Whenever you hear about companies like Facebook being valued at as much as $100 billion or Groupon at $15 billion — before they’ve had an initial public offering — the sky-high values are in large part being set on exchanges like SecondMarket, which allow wealthy investors to trade shares of private companies in the secondary market. Think of it as an eBay for shares of private companies.

Of course, some people might consider that a casino. But they would be wrong. Mr. Silbert’s company is trying to rewrite the rules of investing by finally creating an exchange for investors, not just traders.

And on Tuesday, Mr. Silbert is taking an unusual step: He is listing his own company’s private shares on SecondMarket.

Over the last several weeks, he secretly ran a private electronic auction on SecondMarket for a slice of the company. A handful of the most influential investors in the start-up world have taken stakes in SecondMarket, including the Facebook-backed fund, the Social + Capital Partnership; Yuri Milner, the Russian investor with stakes in Facebook, Twitter, Groupon and Zynga; and Ashton Kutcher’s investment vehicle A Grade Investments. (Yes, that Ashton Kutcher.) In total, SecondMarket raised $13 million at a valuation of $160 million.

While that may seem like small potatoes compared with NYSE Euronext — which has a valuation of $6.5 billion — the story of SecondMarket is worth considering against the backdrop of what seems like out-of-control volatility in the public stock market and an anemic market for I.P.O.’s….

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White Men With Money: There Are More Than 100 Wall Streeters Who Donated to Romney, Even Though They Supported Obama in 2008

In addition, Romney has a 2-1 edge over the president when it comes to Wall Street cash. The whole Buffett Tax proposal will surely turn things around for him, though, according to Bloomberg…

SEC Proposes Changing Trading Circuitbreaker

The Securities and Exchange Commission began an overhaul of rules adopted after the Crash of 1987 designed to shut down the stock market during periods of volatility, proposing that curbs be triggered when the Standard & Poor’s 500 Index falls 7 percent, according to the good people at Bloomberg

The changes would switch the index used for the circuit breakers to the S&P 500 from the Dow Jones Industrial Average, according to proposals submitted by U.S. equities exchanges and the Financial Industry Regulatory Authority. The duration of the halts, which also pause trading in stock futures, would be shortened, according to a summary of the proposals from the SEC.

S&P 500 declines of 7 percent, 13 percent and 20 percent from the prior day’s close would set off halts across all markets, narrowing the current thresholds of 10 percent, 20 percent and 30 percent, according to the SEC.

“This new marketwide circuit breaker together with other post-Flash Crash measures is designed to reduce extraordinary volatility in our markets,” SEC Chairman Mary Schapiro said in the statement…

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Rajaratnam Judge Asks to Review Jiau Sentencing

The U.S. judge who is to sentence Galleon Group LLC co-founder Raj Rajaratnam for insider trading on Oct. 13 asked to see the sentencing report for Winifred Jiau, a former consultant for Primary Global Research LLC, Bloomberg reports.

Jiau was sentenced to four years in prison last week for her role in an insider-trading ring. She was convicted in June of one count each of conspiracy and securities fraud for passing earnings and other information about Nvidia Corp. and Marvell Technology Group two hedge fund managers.

Rajaratnam, 54, was convicted in May of 14 criminal counts of conspiracy and securities fraud for directing what prosecutors said was the largest hedge-fund insider trading ring. The U.S. has said Rajaratnam should be sentenced to a term of 19 1/2 to 24 1/2 years, a penalty the defense has called “grotesquely severe.”
The request by U.S. District Judge Richard Holwell in Manhattan, who presided over Rajaratnam’s trial, was granted Sept. 23 by U.S. District Judge Jed Rakoff, who sentenced Jiau, according to a court filing today….

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China Banks Shunned by Investors Fearing Bust

The cheapest Chinese bank stocks since 2004 may drop further as the three-year credit boom that created the world’s most profitable lenders shows signs of turning into a bust, according to Bloomberg

The MSCI China Financials Index sank 24 percent this month, falling more than benchmark bank gauges for Europe, the U.S., Japan and emerging markets. Valuations in China dropped below levels reached during the global financial crisis for the first time last week, even after Industrial & Commercial Bank of China (1398) Ltd. and Bank of China Ltd. (3988) said first-half profits hit a record and analysts raised forecasts for next year.

While banks in the MSCI index reported $104 billion of earnings in the past 12 months, bad loans to local governments, a fading real estate boom and slower economic growth are making some of the most successful investors bearish. Jim Chanos, the short seller who predicted Enron Corp.’s collapse, says Chinese banks will fall below the value of their net assets for the first time since December 2003, from an average premium of about 20 percent. Fund managers at Vontobel Asset Management Inc. and International Value Advisers LLC who beat 99 percent of peers this year are avoiding the stocks….

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What Buffett Knows (And You Don’t): S&P 500 May Be A Bargain

Warren Buffett’s determination that Berkshire Hathaway Inc. shares are cheap enough to buy back may mean the Standard & Poor’s 500 Index is also a bargain.

The company is authorized to repurchase stock for the first time in four decades as long as its price is less than 1.1 times book value, or assets minus liabilities, according to a statement yesterday. The level is 29 percent below Berkshire’s average of 1.55 since 2000, almost the same discount investors are getting in the S&P 500, according to data compiled by Bloomberg. Shares of Omaha, Nebraska-based Berkshire fell to $100,000 for the first time in almost two years on Sept. 22.

Declines that have erased about $2.8 trillion from the value of American equities in the last two months are luring Buffett, who said his company spent more to buy stocks on Aug. 8 than any other time this year. The S&P 500 tumbled 6.7 percent that day and has lost 15 percent from its 2011 high on April 29, driven down by concerns Europe’s debt crisis will spread and shrink the global economy. The benchmark index rose 2 percent to 1,186.49 at 10:09 a.m. New York time.

“If he thought the possibilities of a recession were on the horizon, then he’d wait to do this,” James Dunigan, who helps oversee $109 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “You can make a number of arguments that on some traditional measures, the market is undervalued.”


If You're Outraged By Greece Now, Wait Till You Read Michael Lewis' New Book

Financial journalist and award-winning author Michael Lewis is out with a new book called "Boomerang." And based solely on its RAVE book review in The New York Times, it sounds awesome and relevant. The new book traces the origins of the European sovereign debt crisis, giving "the reader a guided tour through some of the disparate places hard hit by the fiscal tsunami of 2008..."

The prime example of course is Greece. Lewis writes about how Greece rang up massive debt, according to a review by The New York Times:
Greece, Mr. Lewis writes, ran up astonishing debts — from high-paying government jobs and generous pensions, as well as waste, bribery and theft — that came to “about $1.2 trillion, or more than a quarter-million dollars for every working Greek.” In just the last 12 years, he says, “the wage bill of the Greek public sector has doubled, in real terms” with the average government job now paying almost three times the average private sector job. Those who work in jobs classified as “arduous” can retire and start collecting pensions, he adds, “as early as 55 for men and 50 for women”; more than 600 Greek professions have somehow managed “to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on.”
Stories of Greece's years-long public sector corruption will no doubt infuriate the public at exactly the right time, as Europe contemplates whether to let Greece default or bail it out…

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Applying 'Moneyball' to early-stage venture capital

Is quant analysis just for baseball, or could venture capitalists also benefit?
According to Fortune, after watching a trailer last week for Moneyball, blogger Dan Frommer wondered if the film's lessons could be applied to early-stage tech investing: "Tech is, after all, an inherently data-driven industry, but much of the talk around investment seems to be about relationships and personality. With the recent boom in startups and smaller investment vehicles, you'd think that data- and value-driven startup investing — looking for specific indicators and trying to exploit them — could be an opportunity."

He then asked a few VCs to opine, and their (paraphrased) responses ranged from "interesting idea, but not for us" to "you so crazy." Two thoughts:

1. If you were going to pitch a fund like this, I'm not so sure Moneyball should be in the slide-deck. After all, the story's (not so) dirty little secret is that it hasn't actually worked for Oakland. The team Michael Lewis chronicled was successful mostly because the team had great starting pitching, not because it had a bunch of everyday players with high OPS (that's also true of the 2004 Red Sox, by the way). Moreover Oakland is in third place, on its way to a fifth-straight year without heading a playoff appearance. Pretty sure the sequel will be titled: "I'm number 3."

2. More to the point: There are at least two firms that have tried some version of this. The first is Correlation Ventures, which so far has raised at least $45 million for its debut fund (according to a regulatory filing). Not exactly what Frommer envisioned, since Correlation is a co-investor rather than lead, but it's still analytics-driven venture. Still too early to determine is Correlation will be a division-winner or also-ran….

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Buffett Spots Fresh Bargains

Warren Buffett, the stock market's most-revered bargain hunter, thinks his own stock is the sweetest deal available—the latest sign that many big U.S. companies have more cash than they know what to do with.

Berkshire Hathaway Inc., the holding company run by the billionaire investor, took a step Monday toward repurchasing what could amount to tens of billions of dollars' worth of its own shares.

In a share repurchase, or buyback, a company takes some of its shares off the market by buying them from outside investors, which gives remaining holders a larger proportionate stake in the company's future earnings.

Buffett has often been critical of buybacks motivated by, as he wrote in his 1999 letter to shareholders, an "ignoble reason: to pump or support the stock price." But when a company's shares are cheap enough, he argues, buying them back is good for shareholders….

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Revenge? SEC move vs. S&P may be just the first shot

From Yahoo: The Securities and Exchange Commission is considering taking civil action against Standard & Poor's for its rating of a 2007 mortgage debt offering. Such action could be just the first shot in a legal assault against the major credit rating agencies.

The three major agencies -- S&P, Moody's Investors Service and Fitch Ratings -- gave high ratings to mortgage investments that turned out to be worthless and contributed to the 2008 financial crisis.

If the SEC charges S&P with violating securities laws, it would mark the first time it's brought an enforcement action against a top rating agency. The formal notice from the SEC's enforcement staff gives S&P a chance to make a case that there's no basis for charges. S&P said it's been cooperating with the SEC and will continue to do so. It had no further comment.

Regardless of the outcome of the S&P case, the entire rating agency industry may be facing enforcement actions related to the financial crisis...


Goldman Plans Up Deeper Cuts

According to Bloomberg Goldman Sachs, bracing for what could be one of its worst quarters since it went public 12 years ago, is preparing to expand its cost-cutting initiative by hundreds of millions of dollars, a move that could lead to additional job losses at the Wall Street bank.

This summer, Goldman said that it would wring out $1.2 billion in costs from its operations by mid-2012 and cut roughly 1,000 jobs, about 3 percent of its work force. But as the market turmoil has weighed on trading and other businesses in recent weeks, senior executives have been debating even deeper reductions, according to people briefed on the matter who were not authorized to speak publicly.

With the company’s third quarter closing on Friday, Goldman has been revising its plans, potentially raising the cuts by as much as $250 million, to $1.45 billion. Based on its 2010 spending, such reductions would amount to 5 percent of the firm’s expenses....

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Monday, September 26, 2011

Goldman rules the world not governments: Trader Alessio Rastani

"This is not a time right now for wishful thinking that governments are going to sort things out," Rastani said on an interview with BBC on Monday morning. "The governments don't rule the world, Goldman Sachs rules the world." The statement came towards the end of an almost three and a half minute interview in which Rastani warned viewers to "get prepared" for the inevitable: "The savings of millions of people are going to vanish" in less than a year, he said.

"This economic crisis is like a cancer, if you just wait and wait thinking this will go away, just like a cancer it's going to grow and it's going to be too late," he continued.'

In spite of statements like Rastani's, Euro policymakers continue to press ahead with possible reforms. Currently, they are working to bolster their 440 billion-euro rescue fund, after being criticized by leaders from both China and the U.S. for letting Greece's debt crisis already wreak havoc on global stocks, according to Reuters.

But the crash will be good news for traders, Rastani told the stunned BBC anchors.

"For most traders we don't really care about having a fixed economy, having a fixed situation, our job is to make money from it," he said. "Personally, I've been dreaming of this moment for three years. I go to bed every night and I dream of another recession."

Rastani said traders aren't the only ones who can benefit from the crisis.

"When the market crashes... if you know what to do, if you have the right plan set up, you can make a lot of money from this….."

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Warren Watch: Berkshire's Surprise Stock Buyback 'Authorization:' What's Buffett Up to Now?

Shares of Warren Buffett's Berkshire Hathaway are soaring on this morning's announcement the company may repurchase some of the company's Class A and/or Class B shares if they're cheap enough, according to CNBC.

Buffett appears to be loosening his definition of "cheap enough" but that doesn't necessarily mean buybacks are underway now, especially since the stock is up.

The announcement is a big surprise, in part because it does not require Berkshire's stock price to be below its "intrinsic" value....

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Would you believe…Traders Are Worse Than Psychopaths!

Come on. Did you really believe Adoboli and before him Kerviel were rogues?
What makes individual stockbrokers blow billions in financial markets with criminal trading schemes? According to a new study conducted at a Swiss university, it may be because share traders behave more recklessly and are more manipulative than psychopaths.

Two weeks ago, yet another case of rogue trading shocked the financial world when UBS trader Kweku Adoboli was arrested for allegedly squandering some $2.3 billion with a risky and unauthorized investment scheme. The 31-year-old, who had been based in London for the Swiss bank, remains in jail. The bank's chief executive Oswald Grübel, meanwhile, has resigned over the scandal -- the third major embarrassment to rattle the institution in just a few years.

According to a new study at the University of St. Gallen seen by SPIEGEL, one contributing factor may be that stockbrokers' behavior is more reckless and manipulative than that of psychopaths. Researchers at the Swiss research university measured the readiness to cooperate and the egotism of 28 professional traders who took part in computer simulations and intelligence tests. The results, compared with the behavior of psychopaths, exceeded the expectations of the study's co-authors, forensic expert Pascal Scherrer, and Thomas Noll, a lead administrator at the Pöschwies prison north of Zürich.

"Naturally one can't characterize the traders as deranged," Noll told SPIEGEL. "But for example, they behaved more egotistically and were more willing to take risks than a group of psychopaths who took the same test."

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Madoff suits targeting hedge funds tossed

According to the AP, A judge has thrown out several lawsuits by investors who blame hedge funds for failing to detect Bernard Madoff's massive fraud, saying the one-time Nasdaq chairman "cleverly leveraged his considerable reputation" to dupe even the most sophisticated financial entities, including regulators and Wall Street banks.

In a Friday ruling that was made public today, Judge Deborah Batts concluded that investors in the hedge funds run by J. Ezra Merkin were sufficiently warned about risks.

Merkin's funds had put more than $2 billion of investors' money into Madoff's investment business. The Manhattan judge noted that the plaintiffs had cited testimony by Merkin that he was aware of a number of people who were suspicious of the returns Madoff claimed to achieve….

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Goldman Gets Bonus Lawsuits Dismissed

Bloomberg writes that Goldman Sachs Group Inc. won dismissal of suits over employee bonuses filed in New York by shareholders who called the awards a waste of assets.

Security Police & Fire Professionals of America Retirement Fund and Judith A. Miller sued the investment bank in December 2009, accusing directors and executives of breaching their fiduciary duties by reserving half of the company’s net revenue for employee compensation. Shareholders Ken Brown and Central Laborers Pension Fund filed similar suits the following month.

New York State Supreme Judge Bernard J. Fried ordered the lawsuits dismissed on Sept. 21, according to court documents filed today. The plaintiffs agreed to the dismissal in January 2010, after New York-based Goldman Sachs said its ratio of compensation and benefits to net revenue for 2009 was its “lowest as a public company…,”

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U.S. stocks rally on Europe hopes; Dow gains 272

According to MarketWatch, U.S. stocks rallied Monday, ending near session highs, spurred by hopes that European policymakers were coalescing around a new plan to keep the sovereign debt crisis from spreading. The Dow Jones Industrial Average DJIA +2.53% rose 272.38 points, or 2.5%, to 11,043.86, led by a nearly 7% surge in the shares of J.P. Morgan Chase & Co. JPM -0.13% and a 4.6% rally in Bank of America Corp. BAC +0.15% shares. The S&P 500 SPX +2.33% ended up 26.52 points, or 2.3%, to 1,162.95, led by a 4.4% rally in financial stocks. The Nasdaq Composite COMP +1.35% gained 33.46 points, or 1.4%, to 2,516.69 points after spending much of the session in the red...


The Sell Off: Gold ends at lowest in two months

From Marketwatch: Gold futures settled lower Monday, notching their fourth straight close in the red as investors rushed for cash amid persistent concerns of a global slowdown and a liquidity crunch due to Europe's simmering sovereign-debt crisis. Gold for December delivery GC1Z -0.55% declined $45, or 2.7%, to end at $1,594.80 an ounce on the Comex division of the New York Mercantile Exchange, the lowest settlement since July 21. Silver, which had wavered between gains and losses earlier, closed lower, with the December contract SI1Z +2.16% off 13 cents, or 0.4%, to settle at $29.98 an ounce, the lowest finish since Feb. 7.

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Trader Pay May Face Limits (Is it Un-American?)

U.S. banks would have to change the way they compensate traders involved in market-making activities under one of the proposed restrictions of the so-called Volcker rule, according to a draft circulating among regulators.

The rule, which aims to ban most proprietary trading by banks with federally insured deposits, would exempt trades related to market-making as long as the activity met at least seven standards, or principles. One principle would be that traders get paid from fees and the spread of the transactions rather than the appreciation or profit from their positions, according to a copy of the draft reviewed by Bloomberg News.

The Volcker rule, part of the Dodd-Frank Act, is being written by regulators in five Washington agencies and may be released as early as October, according to three people briefed on the discussions. It aims to reduce the chance that banks will make risky investments with their own capital that put their deposits at risk. A forced change to pay structure “could have the effect of driving people out of the regulated industry to the unregulated industry,” said Douglas Landy, a partner at Allen & Overy LLP who once worked at the Federal Reserve Bank of New York…..

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Meet Phil Falcone, NYC’s Tax-deadbeat billionaire

From the Ny Post: Philip Falcone controls a billion-dollar hedge fund but couldn’t cough up $192,182 to pay the city taxes he owes on his two Upper East Side homes. Falcone and his wife, Lisa Marie, failed to pay their semiannual tax bill on July 1 and owe a total $201,101 with interest on the two East 67th Street properties, city records show.

The net worth of Harbinger Capital Partners honcho Falcone sank to $2.2 billion from $2.8 billion last year, according to Forbes magazine, which ranked him as the 188th richest American last week. He was No. 124 a year ago.

While stiffing the city, the couple continue to live the high life, summering at a $700,000 rental in the Hamptons and sinking $45 million into the renovation of one of their mansions. But the two houses apparently are not enough for Lisa Marie Falcone, who recently rented an $8,000-a-month apartment nearby, according to a source familiar with the transaction….

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Can Anything (or anybody) Save Greece?

According to the NYTimes on Saturday, the finance minister of Greece, Evangelos Venizelos, said that Athens had received a “clear message of support” from U.S. and European officials at the annual meetings of the monetary fund and World Bank, held this weekend in Washington.

Mr. Venizelos, who was to meet on Sunday with Christine Lagarde, the managing director of the I.M.F., also said that he expected the next allotment of funds to be released soon.

“Greece is and will always be a member of the euro, a member of the euro zone,” Mr. Venizelos said.

That Mr. Venizelos had to come out and insist that Greece was not leaving the euro zone — until recently an unspoken article of faith in Greece — underscored how close the country has come to defaulting on its debt and how dangerous such an outcome could be, not just for the euro zone but for a global economy teetering on the verge of recession.

With Greek government debt trading on the open market below 40 cents on the dollar, it is quickly approaching what debt experts call the recovery rate — the price investors would get for their bonds if the country officially defaulted. In effect, that means investors have given up….

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Is this a tipping point for the industry – or a turning point?

From HedgeFund Intelligence: Once again hedge funds seem to be at a turning point, not to say a possible tipping point. It has been a grisly summers and start to autumn, with acute alarm about Europe’s financial (and political) crisis and mounting worries about global economic growth prospects triggering widely volatile and often chaotic market conditions over the past few weeks..

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Goldman infuses $201 mln in India start-up firm

Reuters reports that U.S. investment bank Goldman Sachs will invest 10 billion rupees ($201.6 million) in equity of Indian renewable energy start-up ReNew Wind Power, the Indian firm said on Monday.

ReNew Wind Power was founded about 6 months back by Suman T. Sinha, a former chief operating officer of India's Suzlon Energy , the world's fifth-largest wind turbine manufacturer by capacity.

ReNew expects to reach capacity of 1 gigawatt by 2015 and plans to expand its wind portfolio by 200-300 megawatts annually, the company said in a statement….


Ermotti is favorite to land UBS post

Switzerland’s biggest bank is likely to name newcomer Sergio Ermotti as permanent boss within the next days or weeks, sources tell The NY Post.

Ermotti, a 51-year-old Swiss native who’s only been at UBS since April, was named interim chief executive after his predecessor Oswald Gruebel’s stunning resignation on Saturday. Ermotti and investment banking boss Carsten Kengeter are both viewed as possible heirs.

Ermotti is tasked with steering the Swiss giant, which has a big presence in New York, in the aftermath of a train wreck caused by an unauthorized trading loss that has left a $2.3 billion hole in its balance sheet.

One plan is making the Swiss bank a smaller operation focused more on investment banking as an afterthought to its business that manages trillions for the world’s uber-rich.
The decision to tap Ermotti occurred as early as Friday after Gruebel, 67, handed in his resignation to the bank’s board of directors, sources said. He had earlier said he had no such plans.

However, some sources said, Gruebel, hired in 2009 to restore UBS’s battered reputation, felt obliged to give the board a chance to make a choice…

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The Simple Reason Why Gold Sucks In A Market Crisis

For awhile it looked like the performance of gold might make for one major difference between 2011 and 2008, BusinessInsider writes.. In 2008, gold got destroyed as the market tumbled.
Gold, meanwhile, was at 1900/oz. just a few days ago. Now gold is getting put through the meat grinder with everything else. Pretty much only US Treasuries, the dollar, and the yen are doing well.

What's the problem with gold? Quite simply, nobody has debts or bills to pay in gold.
Think of a financial crisis as basically a period in which everyone is scrambling to raise money to pay their debts. Mostly people have debt in dollars. A lot of people in Europe have debt in euros. There's a ton of yen-denominated debt out there. There's basically no gold-denominated debt (as fas we know). Thus gold is a really great thing to sell (to raise cash). Very few people have an acute need to own more of it.

When growth is bad, and interest rates are ultra-low, there's a case for holding gold. When things are getting really ugly though, cash re-becomes king…

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Holy Crap! Apple Cuts IPad Orders 25%

Apple Inc. is cutting orders to vendors in the supply chain for its iPad tablet computer, a move that may result in slower sales for companies including Hon Hai Precision Industry Co., JPMorgan Chase & Co. said in a report, according to Bloomberg.

Several supply-chain vendors indicated in the past two weeks that Apple, the world's biggest company by market value, lowered fourth-quarter iPad orders 25 percent, the first such cut that analysts at JPMorgan’s electronic manufacturing services team in Hong Kong said they have ever seen. The report did not list the affected companies.

For a vendor such as Hon Hai, that could mean a drop to 13 million units in the fourth quarter, from 17 million units in the third quarter, JPMorgan analysts wrote in the Sept. 25 report. The report said JPMorgan U.S. analyst Mark Moskowitz, who covers Apple, does not expect to lower his projection of 10.9 million to 12 million units of iPad shipments in the third and fourth quarters after the supply chain adjustments.

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Grübel's Exit Leaves UBS in Lurch

From the Wall St Journal: the resignation of UBS AG Chief Executive Oswald Grübel throws Switzerland's largest bank into renewed turmoil, leaving it struggling with the twin problems of revamping a troubled investment bank and finding a permanent CEO.

In a fresh blow to the beleaguered bank, Mr. Grübel resigned Saturday morning in the wake of huge trading losses allegedly by a London-based trader at UBS's investment-banking unit. The bank's board appointed Sergio Ermotti, head of the European business, as interim CEO effective immediately. A search is under way for a permanent chief executive, with the board considering both internal and external candidates, said UBS ...

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Markets Flash Global Warnings

Yellow Alert: From Copper to Chinese Stocks to Junk Bonds, More Signals Are Pointing to a Slowdown in World Economy

According to the Wall St Journal for months it has been all about Europe and the U.S. Suddenly, investors have reasons to worry about the rest of the world.

Last week, the Dow Jones Industrial Average tumbled 6.4%, its worst week since October 2008, leaving it down nearly 7% for the year. The Standard & Poor's 500-stock index did nearly as poorly last week and now is down 9.6% this year. But rather than focus solely on Greek debt, European banks and the U.S economy, many investors have begun to wring their hands about a new set of indicators they say portend a serious slowdown in ...

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Solyndra Meltdown May Hammer Goldman’s Rep

SuperShocker: Since the financial crisis hit, investment banks have been rightly criticized for their tendency to be more concerned with their own trading profits than the well-being of their customers. According to Bloomberg sometimes, however, an investment bank can take the whole client service thing a bit too far.

Take, for instance, the case of Goldman Sachs Group Inc. (GS) and its client Solyndra LLC, the California-based solar-panel maker that filed for bankruptcy protection on Sept. 6 and dismissed its 1,100 employees.

Solyndra has become infamous lately as the company that, with much political fanfare, was handed a large government loan and then went kaput. Solyndra is usually described as “politically connected” because President Barack Obama visited the company in 2010 and said that “companies like Solyndra are leading the way toward a brighter and more prosperous future.”

Also, one of the company’s major supporters was the George Kaiser Family Foundation; George Kaiser, a wealthy Oklahoma oil executive, was one of Obama’s bundlers of contributions during his successful 2008 presidential campaign. (A conservative website reported that, according to White House logs, Solyndra investors and management had made “no fewer than 20 trips” to the White House between March 2009 and April 2011).