GoldmanSachs666 Message Board

Fraud*
According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Sunday, January 22, 2012

Goldman Sachs's Corzine, MF Global and JP Morgan

Naked Capitalism examines the relationship between MF Global and JP Morgan and Goldman Sachs. Why anyone would trust these banks is a moot question. They certainly don't seem to trust each other.

More Evidence that JP Morgan Stuck the Knife in MF Global

By Yves Smith - Naked Capitalism

The death of MF Global and JP Morgan’s role in its demise is starting to look like a beauty contest between Cinderalla’s ugly sisters. As much as most market savvy observers are convinced that there is no explanation for how MF Global made $1.2 billion in customer funds go poof that could exculpate the firm, JP Morgan’s conduct isn’t looking too pretty either.

Reader Michael C sent a link to a Reuters investigative piece on the MF Global collapse, and it’s a doozy. While in proper journalistic form it is careful about reaching firm conclusions on a post mortem that is still underway, the pattern it has uncovered is not surprising to those of us who are onto JP Morgan. As many, including this blogger, have pointed out, it was JP Morgan that did in the doomed Lehman by withhold $7 billion of cash and collateral. And we’ve written how it used one of its best private clients, billionaire investor and industrialist Len Blavatnik, as a stuffee for toxic subprime debt in summer 2007, when every financial firm was desperate to offload US housing dreck.

The short form of the Reuters story is that JP Morgan, by virtue of being both a lender to MF Global as well as clearing its trades, has a big information advantage and could see how distressed the firm was. MF Global drew down the full amount of a newly-syndicated $1.3 billion credit facility, a huge warning sign.

The Reuters story makes clear that JP Morgan went into “possession is 9/10ths of the law” mode, calling for full compliance with transaction procedures when normal business practice was to be more forgiving. The New York bank offers up the excuse that it lost money to MF Global, but that is not the issue. Any creditor to a bankrupt company will lose money. The issue is whether JP Morgan did anything irregular or impermissible to cut its losses, which in this case appears to have come in no small measure out of the hides of customers.

The story is worth reading in full, but this incident gives a picture of the sort of behavior JP Morgan was engaged in:

MF Global also decided to sell $1.3 billion of IOUs known as commercial paper. The short-term debt was part of some $7 billion of securities the firm sold that week. But this sale was critical, people familiar with the situation said, because MF Global had used customer funds to invest in the short-term debt and now badly needed to liquidate the IOUs and move cash into the customer accounts to meet their demands. The investments in the IOUs were allowed by industry regulations, these people said.

For help, Corzine turned to his old employer, Goldman Sachs, which specializes in trading the short-term paper. Corzine phoned Goldman President Gary Cohn to ask him to buy the IOUs, offering a slight discount, according to people familiar with the situation.

Read the rest of the article here

0 COMMENTS:

Post a Comment