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Banks May Have Mispriced Things That Had No Price

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http://www.bloomberg.com/news/2014-01-08/banks-may-have-mispriced-things-that-had-no-price.html

There's not a ton of detail in this Wall Street Journal article about federal regulators' "wide-ranging examination of mortgage-bond sales by banks in the years that followed" the financial crisis but ooh boy is it interesting. The examination seems largely metaphysical, looking not so much into the banks' e-mails as their souls. Here:

Regulators are investigating whether traders exploited the murky pricing around residential mortgage-backed securities from around 2009 through 2011 to buy or sell the investments at artificially depressed or inflated values, the people close to the inquiry said. The other parties in such transactions would typically be rival banks, hedge funds and other large investment firms.

Unlike with publicly traded stocks, where pricing is transparent, investors in mortgage-backed securities markets often rely on traders to disclose honestly the prices paid and the commissions charged. It is generally illegal for traders to misrepresent to investors aspects of a transaction that are important enough to affect the decision to buy or sell.

..

None of these scams is all that blood-curdling: Your victims can avoid being victimized by just checking the price with multiple dealers, or by not trading complex illiquid securities in the first place. But they provide wonderful opportunities to look really scammy, because who can resist the chance to send their colleagues a high-fiving e-mail saying "hahaha we really ripped that client's face off, good work boys"? No one, is apparently the answer. I for one am excited to see the results of this federal investigation. The results will be e-mails, and they will be hilarious and ungrammatical.

They probably won't answer the metaphysical question, though, which in the Journal's words is "where does aggressive salesmanship cross the line into fraud?" I mean, the threshold question is hard enough: If you're buying at 60 and selling at 80 in a volatile and illiquid market, is that because you're being aggressive/scammy, or because you need compensation for taking serious risks?

..

Can't wait to find out what happens with this which probably won't be a lot.

If I can buy at 50 and can find a buyer at 60 am I ripping someone off?

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None of these scams is all that blood-curdling: Your victims can avoid being victimized by just checking the price with multiple dealers, or by not trading complex illiquid securities in the first place. But they provide wonderful opportunities to look really scammy, because who can resist the chance to send their colleagues a high-fiving e-mail saying "hahaha we really ripped that client's face off, good work boys"? No one, is apparently the answer. I for one am excited to see the results of this federal investigation. The results will be e-mails, and they will be hilarious and ungrammatical.

They probably won't answer the metaphysical question, though, which in the Journal's words is "where does aggressive salesmanship cross the line into fraud?" I mean, the threshold question is hard enough: If you're buying at 60 and selling at 80 in a volatile and illiquid market, is that because you're being aggressive/scammy, or because you need compensation for taking serious risks?

Just like the aftermath of the dotcom boom. The dotcom era when they were telling "clients" (apparently they call them clients) how cheap some stocks were and at the same time shorting the same stocks.

It's the same old story time and again. For sure they'll sort it out this time? although Bloomberg clearly enjoys reporting on how clients are repeatedly ripped off over the years and decades.

Edited by billybong

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They were just living the Ayn Rand dream- do unto others because they surely would do unto you given the chance.

The true nugget of absurdity at the root of neo liberal thinking is the unexamined assumption that these randian games of self interest would be played out by people in whom the judeo-christian ethic would have somehow miraculously survived as some kind of theological anti matter in a universe of pure greed.

Greenspan's 'flaw' was not that he had misunderstood the consequences of his own theories- but that he made the error of assuming that the values he had internalized in his youth were shared by the people who came to maturity not in the 1930's but in the 1980's- overlooking the fact that he himself had instructed these very people to venerate greed as a virtue in it's own right.

The willingness of the people in the financial sector to place their own self interest above the integrity of the system surprised him- which is quite surprising in itself- given that they were simply acting out the very ideas he claimed to believe in himself.

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They were just living the Ayn Rand dream- do unto others because they surely would do unto you given the chance.

Which, of course, is nothing to do with Rand. But I wouldn't expect you to know what you're talking about.

Greenspan's 'flaw' was not that he had misunderstood the consequences of his own theories- but that he made the error of assuming that the values he had internalized in his youth were shared by the people who came to maturity not in the 1930's but in the 1980's- overlooking the fact that he himself had instructed these very people to venerate greed as a virtue in it's own right.

Similarly, since you don't understand Rand, you don't understand Greenspan.

He was just playing the Francisco D'Anconia role on a global scale. Without him, Big Statism might have struggled on for a few decades more.

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Which, of course, is nothing to do with Rand. But I wouldn't expect you to know what you're talking about.

Similarly, since you don't understand Rand, you don't understand Greenspan.

He was just playing the Francisco D'Anconia role on a global scale. Without him, Big Statism might have struggled on for a few decades more.

Big Statism has ended? No-one tells me a thing. Thanks, Greenie. I never understood you.

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Watched a film called "arbitrage" last night. Richard Gere was a "rich" wall street man who had to sell his company to bail himself out of a 400m hole caused by malinvestment.

To cover this up he got staff to falsify accounts and borrowed 400m from a "friend" to make the books look balanced on a cursory look.

Basically, the idea was that he would present the confident face to the buyer of the firm selling the great reputation the firm had and its potential.

He did the deal...almost last scene, the buyer is in a car with his auditor who had done a post sale audit and he was shown the 400m black hole.

He asked the auditor what he thought...The auditor said they should throw the whole thing back...the buyer said that he didnt see a problem with the black hole and that they would also keep schtum.

IE, this film illustrated, in a roundabout way, that Wall Street doesnt give a frack about reality...if they can chin it through with confidence, 400m black hole is irrelevant..its the TRADE that matters.

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Watched a film called "arbitrage" last night. Richard Gere was a "rich" wall street man who had to sell his company to bail himself out of a 400m hole caused by malinvestment.

To cover this up he got staff to falsify accounts and borrowed 400m from a "friend" to make the books look balanced on a cursory look.

Basically, the idea was that he would present the confident face to the buyer of the firm selling the great reputation the firm had and its potential.

He did the deal...almost last scene, the buyer is in a car with his auditor who had done a post sale audit and he was shown the 400m black hole.

He asked the auditor what he thought...The auditor said they should throw the whole thing back...the buyer said that he didnt see a problem with the black hole and that they would also keep schtum.

IE, this film illustrated, in a roundabout way, that Wall Street doesnt give a frack about reality...if they can chin it through with confidence, 400m black hole is irrelevant..its the TRADE that matters.

They could have done that movie about the financing of UK premiership footie clubs. Gere could have played Mike Bassett England Manager.

http://

www.youtube.com/watch?v=V5QfKxYbAag

It's free. Something has to be.

Why shouldn't Wall Street managers get some of the good publicity as well.

They could even do a sequel about Parliament. Mike Bassett Prime Minister.

Edited by billybong

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Similarly, since you don't understand Rand, you don't understand Greenspan.

Greenspan didn't understand Greenspan- how else to explain a man whose core belief was in a free market solution to every problem who then takes a job as the head of the Federal reserve and spends his life attempting to micro manage that very market as a state sanctioned apparatchik.

And Rand didn't understand Rand- how else to explain a woman who spent her whole life attacking the idea of welfare only to claim welfare herself in her old age?

As someone once pointed out- Atlas shrugged and The lord of the Rings are two books that can have a tremendous influence on young and unformed minds- one being a sweeping fantasy tale about unlikely heroes and dastardly villains and the other being a story about Hobbits.

Edited by wonderpup

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