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In the run-up to Facebook’s (FB.O) $16 billion IPO, Morgan Stanley (MS.N), the lead underwriter on the deal, unexpectedly delivered some negative news to major clients: The bank’s consumer Internet analyst, Scott Devitt, was reducing his revenue forecasts for the company.

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“This was done during the roadshow – I’ve never seen that before in 10 years,” said a source at a mutual fund firm who was among those called by Morgan Stanley.

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“They definitely lowered their numbers and there was some concern about that,” he said. “My biggest hedge fund client told me they lowered their numbers right around mid-roadshow.”

That client, he said, still bought the issue but “flipped his IPO allocation and went short on the first day.”

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Institutions and major clients generally enjoy quick access to investment bank research, while retail clients in many cases only get it later. It is unclear whether Morgan Stanley only told its top clients about the revised view or spread the word more broadly. The firm declined to comment when asked who was told about the research.

Economics Professor Richard Wolff details the problems of capitalism and urges our recognizing its obsolescence and replacing it with institutions that truly serve the people.
Read the rest of this entry »

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“If it were you or I doing it, we’d be sitting in jail right now,” Danforth said. “Why isn’t JPMorgan in jail?”

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The quick version of this terrible story is that Norman and Oriane Rousseau of Newbury Park, California were scammed into a predatory mortgage. But they made their payments anyway, always paying with a cashier’s check in person at the same branch. Then one day the bank misapplied their payment and said they still owed the money. This started a long, nasty process that led to the bank evicting the Rousseaus from their home.

Here’s the shocker: right at the start the Rousseaus came up with proof that the bank had received the payment and had cashed the check. But the bank continued to claim it had missed the payment, gave the Rousseaus the runaround, started applying fees, and used it as an excuse to foreclose on the house anyway.

The Rousseaus fought back, the bank dragged it out for so long and pulled so many tricks, getting its way every step of the process, until this last Sunday Norman Rousseau finally gave up and shot himself in despair – two days before the scheduled eviction, Tuesday, May 15. (The Rousseau’s lawyer just said he was able to win a 2-week delay.)

It is a tragic story, but when you dig into the details it becomes much worse.

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“It is an obvious conflict of interest for Jamie Dimon, the CEO of the largest bank in America, to serve on the New York Fed’s board of directors,” Sanders said yesterday in an e- mailed statement. “This is a clear example of the fox guarding the henhouse.”

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Iceland’s approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn.

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Three JPMorgan Chase senior executives are reportedly set to resign this week over the firm’s $2 billion loss on derivatives trades, including the executive who oversaw the trade.

US media, citing company executives, reported on Sunday that the bank’s chief executive Jamie Dimon was set to accept as early as Monday the resignation of Ina Drew, a 55-year-old chief investment officer who has worked at the firm for three decades.

I think back to the good ol’ days of piracy (ahem) er,  privateering on the high seas, when a failure of this magnitude would get you hung on a short rope at Wapping and, after three tides had washed over your head, your body would be tarred and hung in chains at Blackwall as a warning to others. Your boss would get at least a knighthood (after handing over sufficient cash).

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Jamie Dimon, the chief executive of JPMorgan Chase, can be clear as a bell when he denounces financial reform. But on an emergency conference call with analysts on Thursday to announce the bank’s stunning $2 billion trading loss, his message was frustratingly vague.

The loss, according to Mr. Dimon, was in the bank’s “synthetic credit portfolio,” which presumably means it involved the same type of complex derivatives that played such a destructive role in the financial crisis. And Mr. Dimon said that sloppiness, bad judgment and stupidity — his own and his colleagues’ — had led to the loss.

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The fact that JPMorgan’s loss — which Mr. Dimon has warned could “easily get worse” — is not enough to topple the bank, is not the point. What matters is that JPMorgan, like the nation’s other big banks, is still engaged in activities that can provoke catastrophic losses. If policy makers do not strengthen reform, then luck is the only thing preventing another meltdown.

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Traci Jackson (2nd R) and others help clean up in front of a foreclosed home on May 3, 2012 in Miami, Florida. According to the Miami Workers Center, the home is owned by the Bank of America. The residents of the Liberty City neighborhood came together to clean up the abandoned property and later in the day planned on delivering the collected trash to a Bank of America branch. Trenise Bryant, a member of the Miami Workers Center who organized the event said, ”Banks maintain foreclosed properties in white neighborhoods why can’t they do the same in black communities?” ”It’s bad enough these big banks put families out of their homes, now they just let the houses sit there bringing down the property value for everyone else in the neighborhood.

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Less than a year before the 2008 collapse of Lehman Bros. plunged the global economy into a terrifying free fall, the Wall Street firm awarded nearly $700 million to 50 of its highest-paid employees, according to internal documents reviewed by The Times.

The documents, which were among the millions of pages submitted in Lehman’s bankruptcy, show the list of top earners each were pledged $8 million to $51 million in cash, stock and other compensation. How much, if any, of the stock was cashed in before the bankruptcy wiped out its value couldn’t be determined.

Still, the rich pay packages for so many people raised eyebrows even among compensation experts and provided fresh evidence of the money-driven Wall Street culture that was blamed for triggering the financial crisis.

“Many people are going to be stunned at how well some people were being paid,” said Brian Foley, an executive compensation expert in White Plains, N.Y. “This wasn’t a matter of five or six people being paid a lot.”

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“There is a significant minority of shareholders who feel that we got some of these judgements [on remuneration] wrong for 2011 and that we have not sufficiently taken their views on board,” Mr Agius said at the bank’s annual meeting.

“For this I apologise and I assure you that in the future we will be engaging differently and more purposefully with shareholders in order to ensure that we obtain a broader level of support on remuneration policy and practice,” he said.

His speech provoked occasional heckles and sarcastic laughter.

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My argument is that around 1980 the U.S. adopted a fundamentally flawed economic paradigm. From 1945 through to the mid-1970s the U.S. economy was characterized by a “virtuous circle” Keynesian growth model built on full employment and wage growth tied to productivity growth. The political triumph of Ronald Reagan enshrined a new economic paradigm that abandoned full employment and severed the link between wages and productivity growth.

The new paradigm was fundamentally flawed. One flaw was that it relied on debt and asset price inflation to fuel growth instead of wages. A second flaw was the model of globalization which created an economic gash in the form of leakage of spending on imports (the trade deficit), leakage of investment spending offshore, and leakage of manufacturing jobs offshore. These twin flaws created a growing demand gap.

That is where finance enters the picture as its role was to fill the demand gap. Financial deregulation, regulatory forbearance, financial innovation, financial mania, and plain vanilla financial fraud kept the economy going by making ever more credit available, However, as the economy cannibalized itself by undercutting income distribution and accumulating debt, it needed ever larger speculative bubbles to grow. The house price bubble was simply the last and biggest bubble and was effectively the only way around the stagnation that would otherwise have developed in 2001.

The house price bubble delayed the onset of stagnation but at a cost. When it burst it created a financial crisis because of the scale of financial excess. Moreover, it also makes it harder to escape stagnation now because of the scale of debt burdens and the extent of destruction of credit-worthiness.

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In a stinging rebuke, Citigroup shareholders rebuffed on Tuesday the bank’s $15 million pay package for its chief executive, Vikram S. Pandit, marking the first time that stock owners have united in opposition to outsized compensation at a financial giant.

The shareholder vote, which comes amid a rising national debate over income inequality, suggests that anger over pay for chief executives has spread from Occupy Wall Street to wealthy institutional investors like pension fund and mutual fund managers. About 55 percent of the shareholders voting were against the plan, which laid out compensation for the bank’s five top executives, including Mr. Pandit.

“C.E.O.’s deserve good pay but there’s good pay and there’s obscene pay,” said Brian Wenzinger, a principal at Aronson Johnson Ortiz, a Philadelphia money management company that voted against the pay package. Mr. Wenzinger’s firm owns more than 5 million shares of Citigroup.

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Today, speculators dominate the trading of oil futures. According to Congressional testimony by the commodities specialist Michael W. Masters in 2009, the oil futures markets routinely trade more than one billion barrels of oil per day. Given that the entire world produces only around 85 million actual “wet” barrels a day, this means that more than 90 percent of trading involves speculators’ exchanging “paper” barrels with one another.

Because of speculation, today’s oil prices of about $100 a barrel have become disconnected from the costs of extraction, which average $11 a barrel worldwide. Pure speculators account for as much as 40 percent of that high price, according to testimony that Rex Tillerson, the chief executive of ExxonMobil, gave to Congress last year. That estimate is bolstered by a recent report from the Federal Reserve Bank of St. Louis.

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In a scathing opinion issued last week, Elizabeth Magner, a federal bankruptcy judge in the Eastern District of Louisiana, characterized as “highly reprehensible” Wells Fargo’s behavior over more than five years of litigation with a single homeowner and ordered the bank to pay the New Orleans man a whopping $3.1 million in punitive damages, one of the biggest fines ever for mortgage servicing misconduct.

“Wells Fargo has taken advantage of borrowers who rely on it to accurately apply payments and calculate the amounts owed,” Magner writes. “But perhaps more disturbing is Wells Fargo’s refusal to voluntarily correct its errors. It prefers to rely on the ignorance of borrowers or their inability to fund a challenge to its demands, rather than voluntarily relinquish gains obtained through improper accounting methods.”

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Goldman Sachs was mortified when I began inquiring last week about its stake in America’s leading Web site for prostitution ads. It began working frantically to unload its shares, and on Friday afternoon it called to say that it had just signed an agreement to sell its stake to management.

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Last week was a big one for the banks. On Monday, the foreclosure settlement between the big banks and federal and state officials was filed in federal court, and it is now awaiting a judge’s all-but-certain approval. On Tuesday, the Federal Reserve announced the much-anticipated results of the latest round of bank stress tests.

How did the banks do on both? Pretty well, thank you — and better than homeowners and American taxpayers.

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Goldman Sachs Group Inc. (GS) saw $2.15 billion of its market value wiped out after an employee assailed Chief Executive Officer Lloyd C. Blankfein’s management and the firm’s treatment of clients, sparking debate across Wall Street.

The shares dropped 3.4 percent in New York trading yesterday, the third-biggest decline in the 81-company Standard & Poor’s 500 Financials Index, after London-based Greg Smith made the accusations in a New York Times op-ed piece.

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TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

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Janet Robinson, the New York Times Co. chief executive officer who was pushed out in December, received an exit package, including stock options and retirement benefits, of $23.7 million.

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The payout to Robinson is equal to about 2.4 percent of the company’s market value of $981.9 million, and exceeds the approximately $3 million the company earned in net income over the past four years. Not included in Robinson’s exit package is her salary of $1 million for 2011, when Times Co. reported a loss $39.7 million.

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Bank of America NA prevented homeowners from receiving mortgage-loan modifications under a federal program in order to avoid millions of dollars in losses while benefitting from financial incentives for participating in the program, according to a complaint unsealed in federal court Wednesday.

The suit is the second whistleblower complaint unsealed so far with apparent ties to the $1 billion False Claims Act settlement announced by Bank of America and the U.S. Attorney’s Office for the Eastern District of New York on February 9.

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Before the settlement, we learned that nearly every aspect of the robosigned documents was false. None of the details were ever reviewed. The signatures attesting to the review of the documents were fabricated — made by someone other than the person whose name was on the document. Neither person — the supposed signatory to the document nor the hired forger — ever validated the facts of each case. All of the safeguards put in place to make sure foreclosures were done correctly and legally were bypassed. Even the notary stamps were bogus — they were not real, and not signed by a notary to validate that the signer and the signature matched.

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Violating the law has merely become the banker’s cost of doing business.

Thus, the robosigning agreement has allowed the mass production of perjury. It has gone unrecognized and unpunished. It has made perjury a business expense, like travel or office furniture. The same reckless approach to giving loans to unqualified people was institutionalized, leading to another reckless approach to foreclosing homes.

We still don’t know who ordered these crimes, who is responsible for this, whether they still are in their jobs — or whether they are in a position of authority to do the same thing again.

Last, politically, the settlement reveals the corrupting influence of bank bailouts.

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In the United States, ultrafast trading in financial markets between 2006 and 2011 was the underlying factor for over 18,000 extreme price changes, according to a new study. Neil Johnson, a professor in the physics department of the University of Miami in Coral Gables, one of the authors of the study, thinks that a buildup of such “fractures” can destabilize the market. This study, “Financial Black Swans Driven by Ultrafast Machine Ecology” was submitted to arXiv earlier this month, suggesting the link between extreme-change fractures and market crashes.

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For Switzerland’s largest bank, the hits just keep coming. After years of being whacked with millions of dollars of fines for all sorts of infractions, UBS now appears to be at the center of the financial world’s latest scandal: an alleged conspiracy by traders and brokers to rig the price of derivatives around the world by manipulating a key interest rate.

The Wall Street Journal reports that UBS has admitted to Canadian regulators that between 2007 and 2010, some of its traders and cash brokers conspired to manipulate the London interbank offered rate, also known as Libor. This is the rate that banks use to lend to each other, and it is essentially the backbone of half the world’s fixed-income market, because it’s also used to calculate the price of trillions of dollars of floating-rate securities every day, from car loans to corporate bonds and derivatives.

By allegedly conspiring to set Libor rates, traders and cash brokers appear to have been able to profit off of derivatives linked to it. Bloomberg News reports that UBS recently suspended a number of senior executives and traders in conjunction with the investigation.

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JUST days after sacking 1000 workers and raising interest rates, ANZ chief executive Mike Smith is to take 200 lucky staff on a five-day butler-serviced cruise on the “world’s best” luxury liner.

At a cost of $1.75 million, the workers, rewarded as part of the bank’s CEO recognition program, will sail away on the Silver Shadow to Malaysia’s Langkawi Islands on March 6.

Details of the sojourn have been posted on the bank’s internal website just days after it was confirmed that backroom jobs are being outsourced to India and the Philippines.

ANZ yesterday announced a record $1.48 billion three-month profit – and Mr Smith warned home loan rates may go even higher to protect the bank’s profit margins.

I’ve always said that you can tell what a company is most worried about by simply reading their advertising slogan. It is always something they desperately want to be true but deep down know isn’t true at all.

The ANZ slogan is “we live in your world”.

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The audit of almost 400 foreclosures in San Francisco found that 84 percent of them appeared to be illegal, according to the study released by the California city on Wednesday.

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A $698 million class action against Goldman Sachs will proceed, after a federal judge certified a class arising “out of a single offering … of certificates derived from a pool of securitized fixed-rate, second-lien home mortgages.”

U.S. District Judge Harold Baer Jr. in Manhattan certified the Public Employees’ Retirement System of Mississippi as representative of a class of more than 150 investors.

“All of the mortgage loans underlying the certificates were originated by New Century Financial Corp. (‘New Century’) and purchased by defendants in late 2005 to be securitized,” according to Baer’s Opinion and Order. “The Second Amended Complaint (‘Complaint’) asserts that the Offering Documents for the Certificates contained untrue statements and omitted material facts …

“Plaintiff contends that New Century failed to follow its own stated underwriting standards and used improper appraisals overstating the collateral value, and that defendants failed to conduct adequate due diligence when acquiring the loans for securitization. Consequently, the statements in the Offering Documents concerning compliance with underwriting and appraisal standards were materially untrue when they were made, and as a result, plaintiff and the class purchased certificates that were far riskier than represented.

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JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. were sued by New York Attorney General Eric Schneiderman over the use of a mortgage database that the state said led to improper foreclosures.

The banks’ use of the database, known as MERS, misled homeowners, undermined foreclosure proceedings and created uncertainty about ownership interests in properties, the state said in the complaint filed yesterday in New York State Supreme Court in Brooklyn.

“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages,” Schneiderman said in a statement. “Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions.”

The purpose of MERS is to cheat your county government out of money for recording fees. Think about this the next time your county doesn’t have enough money for roads or parks or whatever.