Monday, July 7, 2014

Wall Street's Phantom Castles In The Sky...

Castles Made of Sugar in the Sky ! Enron All Over Again, Lets Blame Lawyers, Accountants and the MBAs. No Pass for the Lawyers This Time! Stunned by the 600 Billion Dollar Bankruptcy of Lehman Brothers and Other Firms like AIG , One Day Solvent and the Next Day Out of Capital. Something Seems Wrong Lex Loeb, Yahoo Contributor Network . Back in the good old days of Enron corporations final days less than 300 billion dollars were being lost. The CEO suite was gutted and blamed by the regulators and the courts but the corporate lawyers got a pass. Arthur Anderson , the big accounting firm took a fatal hit and disappeared from the face of the earth which seemed extreme since only a few divisions had anything to do with Enron's cooked books. Well,. Here we go again. Looking at the financial statements of companies like Lehman, Morgan Stanley, Goldman Sachs, AIG they had seemed to be well to adequately capitalized and in order. Now that they are going belly up or are slated to be sold and merged. The old financial statements seem to have been total fiction. Wall Street had been building castles made of sugar in the sky. They were impressive Castles designed to tempt people to drop in and leave their money on deposit or to be traded for special money products. . Now It is beginning to look like everyone was duped by management . The corporate lawyers engineered everything that went on in the big wall street firms and their CPA s put quality assurance stamps on opperations that increasingly appear to have been a lot of fabrication. As these firms suddenly turn insolvent after saying they had adequate capital and then suddenly under pressure of short sellers have to raise capital in a big hurry. It is time to say wait a minute. These firms all have cooked books like Enron did! It is not just Bear Sterns now but all of them including Goldman Sachs doing the capital infusion dance with a fifteen minute lapse time before they are dead broke and bankrupt. That makes no sense unless their books are terribly cooked. The MBA crowd has proved to be pretty dim witted. The accountants and the lawyers are the smart ones. An investigation is in order. Warren Buffet was right to call derivatives weapons of mass destruction. Now he can tell us all he told us so. The balance sheets of all the troubled companies share derivatives in common. They also , we are finding out , had excessive leverage. Financial banking houses are in the business of borrowing money at low rates of interest and re-lending it at higher rates giving them what is supposed to be profitable positive cash flow. All the recapitalization nonsense in the media seems to be a euphemism for , "well we cooked the books quite a lot and our capital base is really next to non existent." Evidence is surfacing of derivatives of derivatives of derivatives issued and re-distributed among the incestuous financial system banks and brokers. Fees and more fees are charged to costumers while the derivatives even suffer from dilution and general scattering in the entire financial world. POOF AND A DERIVATIVE IS WORTHLESS! The wall street powerhouse firms were essentially taking condominiums and making excess money chopping them up in to smaller condominiums. The firms told clients that they could make less into more. Condominiums can be resold in parts as kitchen condos and bathroom condos and bedroom condos, all separately in order to maximize profits to the firms selling the parts or pooled interests in a number of condo or their parts. It is great getting fees for every transaction. This is really reminiscent of Enron where Enron executives took natural gas and the energy it could produce and made traded securities out of them. Not only were the big market making firms allowing lucrative trading to go on they also found a way to swap bathrooms for kitchens. The condominiums of condominiums is not something clearly stated in nature of business in their annual reports. When the underlying mortgages that were held by one or another firm started to fail with abstract bits and pieces spread all over the world's financial system is when what the professional CPA accountants were telling me were assets turned in Nothing . Poof. Gone. With all the super computers on wall street there is no algorithm to figure out how to put the bits and pieces of the derivatives of derivatives of derivatives of mortgages back together necessarily in all cases. One then starts to wonder if the wall street firms failing were really selling tin air? Why not sell all the thin air you can if you are living in a spectacular Castle made of Sugar in the sky. What appears to have happened with AIG, once the world's largest multi line insurance company with many other types of subsidiaries, is that AIG bought derivatives of derivatives of derivatives from the issuing wall street banking houses and used those pieces of paper to try earning higher than average returns on their policy owners float money. The slightly higher yield AIG got for the higher risk turns out to have been the opposite. While all this was going on AIG paid a nothing dividend to it's Shareholder. That was probably a clue in the annual report that the company was running a scam. There is a lot more rain predicted and Candy lands giant sugar castles in the sky do not look like they are going to be likely to survive. Even the most well financed companies like secretary of the treasury Paulson's Goldman Sachs is entangled in the web of ownership of condominiums of condominiums of condominiums of condominiums. Once I started seeing the interconnections revealed as failing firms caused other firms to fail it quickly became clear that a lot more would be failing. All day long I have been waiting for the Bush Administration to figure out they have a problem and have him hold some sort of press conference before the whole candy cluster melts down leaving the country with government agencies trying to figure out what derivative of what derivative is and who really owns it. People do not realize that for all the calls for more market regulation that this was the most regulated market ion earth. Fannie Mae and Freddie Mac were new deal sorts of creations of the government that were later spun off as private companies with the role of satisfying their federal charter as a means of making home ownership possible for the working poor and middle classes. The federal government fostered the whole home building national economy. When Fannie Mae and Freddie Mac turned out to be insolvent their high yield derivatives were sill in effect all over the world. It is all coming down to no candy left on wall street and that could be a bad thing . MY theory is that the Bush Administration undermined the economic order that was in place with the castles made of sugar in the sky by fostering an idiotic devaluation of the US dollar hoping to make the export side of the US economy a more robust game. .

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