A number of articles all saying the same thing more or less:
How a Personal Finance Columnist Got Caught Up in Fraud
By RON LIEBERPublished: April 17, 2009
On Sunday, I returned from vacation, picked up the mail and found a disturbing letter from Charles Schwab & Company. It said that it had discovered unauthorized money transfers out of accounts associated with the financial planning firm I use.
Here is another one from Zero Hedge (Tyler Durden):
When Zero Hedge first presented its thesis about a likely upcoming mega squeeze in Citi common concurrent with the bank’s shares trading at $1, some readers expressed their dismay with our lack of intellectual capacity. Less than two months later, and $3 dollars higher, the situation has changed… at least for the Citi shorts.
Egan Jones, easily the best rating agency (which is not really saying much when your competition is the buffoonery conglomerates known as S&P and Moody’s), had the following choice words in their developing analysis of Citigroup:
Accounting and government magic – the recasting of FASB157 enables financial institutions to defer the recognition of losses with the result that C’s March trading profits swung from a $6.8B loss to a $3.8B gain. Another item worth reviewing is the decline in interest expense from $16.5B last year to $7.7B this year. Nonetheless, much more equity capital is needed. Beyond the conversion of preferred to common, watch the form of any additional capital. The Fed and Treas. have guaranteed $306B of C’s assets, have injected $45B in preferred and converted to common leaving few additional options. The problem is that C has $2T of assets ($3+T including off balance sheet assets) whose values are depressed by 10% to 20%. C needs to be watched.
There are hundreds of other examples; All These articles identify just a few in a long list of reasons why the individual investors have abandoned markets, leaving mainly institutions.
Other reasons include program trading, ‘invisible’ bid- ask spreads, disappearing market makers, settlement ‘errors’, complex options- derivatives- hedging that moves markets but excludes individuals, over- the- counter derivatives, churning, complex trades across- markets (crude oil – Treasury bond) and ‘Basis trades’ (betting spreads of spreads). Above this is the overwhelming concentration of market and market- making power in the hands of a few favored firms.
The ‘portfolio insurance’ meltdown of Oct 1987 began the flight of the individual investor. The Dot Com NASDAQ crash confirmed it. With few widows and orphans remaining to rob,, Wall Street now consumes its institutional participants. Firms are ruined by naked short selling with credit default swaps. Investment houses are salvaged – or allowed to founder – based on the whims of officials for ‘policy’ reasons or no reason at all.
Did Lehman really fail because it was less solvent than insolvent AIG or did some hidden relationship between undisclosed parties trigger the event? The fact of the question, rather than what the question asks is the thief of confidence in the system.
How is an individual supposed to navigate this nonsense? All market phenomena – inflation, deflation, real estate or asset bubbles, and recessions – require public participation. The (World) public is currently participating in recession, the market mechanisms that would generate economic development and point in another direction are repellent to the public! This is not simply a matter of aesthetics, this is existential!
If the markets cannot make themselves ‘friendly’ to their end- users, the outcome is a complete erosion of confidence in them, and in the idea that supports them, even in market capitalism itself. Right now, it is the (mis)understanding that it is the favored firms – not the firms’ customers – are what constitutes a market. This is a fatal misconception. When people believe that going outside is the first step to being robbed, they don’t go outside! With institutional investors being pounded; if the Calpers’ and Harvard University Endowments’ are being crushed, what hope is there for the little guy?
Since the economy depends on finance and the current establishment seems to feel that structured finance is integral to the world’s future (by deeds not words) it is vital that trust be restored. This means the markets have to become something more than a spectacle; ‘Mad Money’ or an hourly dribble about the Dow. The public needs to be invited – by the operations of the markets themselves – to participate.
This is not simply a matter of punishing thieves, it is more reforming the structure. The conflicts of interest need be removed, such as the US- Citigroup and US- Goldman Sachs marriages of convenience. Holding those accountable for the current unwinding is essential. Removing the hazards of the over- the- counter derivatives cannot be delayed. Giving smaller firms a seat at the table … and breaking up the uber- firms … all of this is important.
Otherwise, the markets will be Goldman, Citi, a few other banks selling the same spreads and equities back and forth to each other. That is not an economy.