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Don't worry, everything is fine, it's all just a little out of hand, is all....

Location: Blogs Bob O'Brien's Sanity Check Blog    
Posted by:   bobo 8/14/2007 3:41 PM

Really kind of astounding, no?

Patrick, Patch, Faulk, Bud, I have all been signaling that a cataclysmic flaw in the system is going to cause a full scale vapor lock of the system, and yet Wall Street's apologists have for years been claiming that there is no there there.

And yet here we are, as the first rumors of some of the largest Wall Street institutions being in truly bad trouble start to surface, and every day brings new news of alarming events in the credit and mortgage markets, and the Wall Street apologists continue to spin their jabbering nonsense in the hopes that someone will be fooled. I wonder how that's working?

Go back to some of the earliest blogs on this site, and note the concern that the large, anonymous pools of money called hedge funds, completely unregulated and unchecked by any constraints, pose a systemic risk to the financial system, due to their tremendous leverage, the larcenous nature of some of the most high profile operators, and good old human nature. Wonder aloud as blog after blog articulates the domino effect of highly leveraged players all running for the exits in an asset class at the same time. Contemplate the argument that the inter-penetration of the prime brokers and their hedge fund clients creates a natural scenario of racketeering-like cartel behavior, where risk is not distributed, but rather concentrated at dangerous levels with just a few of the Wall Street behemoths.

Then read this interview with Gary Aguirre, whose observations as an SEC insider are pretty much identical.

Folks, this is pretty simple. Crooks tend to love the cover of darkness, and the US financial markets act as a comforting, Stygian pool for them to splash about in. The lack of transparency, and complete disregard for investor protection that the markets' regulator displays, virtually assures a catastrophe in the making.

I believe we are now seeing the end stage, as the out-sized bets and contemptuous disregard for risk management come home to roost. I saw a rumor floating around today about a money market fund halting redemptions - think about that. What is the effect on the dollar, whose value is predicated on the notion that our financial markets and economy are stable and responsible, when money markets can't redeem their investors' cash due to liquidity concerns?

Boom. That's what.

Even as the inevitable crisis unfolds, wonks like 'lilGW continue down increasingly bizarre paths, now blaming the advocates of market reform for the SEC's elimination of the uptick rule, one of the few remaining protections from the 1934 Act, designed to curb abusive bear raids by requiring a price test and only allowing a sale on an uptick. The logic is, as we were attempting to cut out one type of cancer, the crooked SEC stripped investors of another protection, thus by not stopping that violation of the public trust, we were to blame. I wonder why the mind-numbingly dim poorly-dyed wonder doesn't also blame us for the resurgence of the Taliban, FEMA's inability to tie its own shoes, and teen pregnancy? Makes about as much sense. That this fecal remnant still commands any interest at all (I occasionally receive his inarticulate gibbering quoted in an email by some well-intentioned soul) is about as surprising as the idea that anyone would pay for as ineffective and incoherent a spokesperson to represent their spin. I mean, even the singing tractor-workers in Soviet era propaganda had a humorous quality - but the jaundiced hackwork of our hero's plodding, if palsied hand, falls flat when compared. The heavy equipment singers have the light touch of angels compared with the clumsy mutterings of our favorite rant-meister.

Anyhow, I'm glad to see that the wig is slipping as obviously as it now is. I repeat my observation - anyone still in the market is asking for their money to be stolen by the criminal syndicates working the system. Plain and simple. You can't do much but buy commodities and hunker down to try to cushion the inevitable collapse of the greenback, but you have to invite the thieves into your house to allow them to steal your savings. Be smart, people. You can see this one coming from a mile away.

Copyright ©2007 Bob O'Brien
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Comments (24)
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By cdo on 8/14/2007 9:56 PM
I've been thinking about the whole mortgage mess and this quote from a press release from TMA this afternoon caught my eye.

"The Board of Directors said it took this action in response to significant disruptions in the mortgage market which resulted in the sudden and unprecedented decline in the market prices of its AAA-rated mortgage securities that began on August 9, 2007 and subsequent increase in margin calls related to its repurchase agreement financings on those securities."

It doesn't matter how good the credit is if the bond market goes "no bid".

Big wallstreet could confidently naked short the lenders, knowing that on a moment's notice, they could naked short the bonds or suddenly downgrade them forcing margin calls that would inevitably bankrupt the lenders.

The packages of mortgages plummet in value and the big banks pick up AAA mortgages at pennies on the dollar.

The only way it makes sense for someone to naked short day in and day out is if they expected, with certainty, an event that would cause their short to pay off and let them off the hook for their fails.

I wonder how manipulated the CDO market is / was? (CDO is collateralized debt obligation).

To top it off, the government is monetizing the bonds and saving big Wallstreet using tax payers' money after letting the equity investors take it on the chin.
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By frank carlucci on 8/14/2007 9:58 PM
Does anyone know what Mr.Aguirre has to say about Patrick Byrne and whether or not he thinks it a victim of 'naked shorting' ? An interview of him regarding these subjects is on HEDGEWorld but I was too miserly to pay the thousand books or so to red the article.Also can anyone tell me when the term naked short selling first appeared in the history of market vocabulary ? I believe this an important and overlooked query,don't you ? I mean, was the term created by a reknowned economist or a penny stock tout ? An important distinction to make wouldn't you say ?
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By oldfeller on 8/14/2007 10:01 PM
This domino blowup scenario has been explained and predicted in quite a few bestselling books in the last 5-6 years or so. I don`t think it`s that much of a surprise to most active investors. Even Greenspan talked about something like this happening. The wolves are surely expecting the sheep to run where they herd them. But there are more sheep than ever that understand what`s going on. They might be growing some teeth of their own. lil`GW rant today was just sad. Poor guy must not have any friends that let him know when he`s only hurting himself.
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By Sean on 8/14/2007 10:02 PM
FYI!!I beleive this is what you were referring too above Sentinel Management Group.....

SAN FRANCISCO (MarketWatch) -- Recent losses suffered by some hedge funds have raised concern that managers in the $1.5 trillion industry could get big redemption requests from investors this week.

"Some investors will feel they've had enough," said Virginia Parker, chief investment officer of Parker Global Strategies, a $400 million hedge fund investment firm.

Hedge funds usually lock up investor's money for three months or longer. There are also redemption-notice periods, giving managers time to raise cash to repay investors. Those range from roughly 15 to 90 days.

If investors want to get their money out of a fund by the end of the third quarter, a 45-day redemption notice period would mean that withdrawal requests need to be in by the middle of this week.

Some of the largest hedge fund firms in the world were hit by losses in early August, including Goldman Sachs (GS), Renaissance Capital and AQR Capital Management. See full story.

If investors are rattled by such losses, they could ask for their money back this week. That, in turn, may be causing hedge funds to raise cash now to prepare for big withdrawals. (It's not clear whether Goldman, Renaissance or AQR have received redemption requests).

"This week is a major redemption window," said Lawrence Glazer, managing partner of Mayflower Advisors LLC, a Boston-based financial advisory firm. "So managers may be raising cash in anticipation of these redemption requests."

Sentinel Management Group Inc., a firm that manages cash for institutional investors including hedge funds, roiled markets on Tuesday after telling clients that it will halt redemptions to avoid selling securities at deep discounts.

Some of the hedge fund managers who are worried about possible redemption requests from their clients could be contacting Sentinel to ask for their cash back. See full story.

Some firms that allocate money to a range of outside hedge funds - so-called fund of hedge funds - may be forced to redeem because they are getting withdrawal requests from their own clients, Parker also noted.

Parker Global Strategies is a fund of hedge funds firm, but it has not seen large redemption requests, Parker said.

Hedge funds that have experienced big losses could see lots of redemptions, according to Glen Dailey, head of prime brokerage at Jefferies Group (JEF).

"Money could disappear quickly - faster than it came in -- if you've had a bad drawdown this past month or two," he explained.

However, some of the biggest and most respected hedge fund firms have much longer lockups - of two or three years. See story on lockups.

A lot of those firms probably won't be facing any redemption pressure this week, Dailey noted.

"That's exactly why these firms have them -- to prevent clients panicking in situations like this and pulling their money out," Dailey said.

Parker also noted that many hedge funds have 60-day redemption notice periods, so the window for third-quarter withdrawals may have passed for some investors.

"I am not certain whether there will be a run on redemptions notices tomorrow, but I suspect we will see redemptions during the fall," she said.

A bigger concern is that investment banks are trying to shrink their balance sheets and could decide to lend less money to hedge funds, Parker said.

Most hedge funds rely on leverage, or borrowing, to magnify their returns. Some fixed-income hedge funds that don't have long-term financing in place could be forced to sell their assets quickly if their financing lines are pulled by investment banks, Parker explained.

"Liquidating a portfolio when there are no bids is devastating to the investors," she added.

Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By bobo on 8/14/2007 10:31 PM
Well, Frank, that's a great question. I mean, with companies like OSTK on the SHO list for years, and the SEC acknowledging that this is a significant problem, and Congress basically finding that the SEC is obstructing justice in order to persecute and punish an attorney who calls it a big issue, for you to wonder aloud at who first coined the term, "Naked Short Selling", which I personally believe is a crummy euphemism for "Fraudulent Stock Trade" or "Failure to Deliver in Order to Defraud Buyers, as a Trading Strategy", is rather akin to questioning who coined the term "Ethnic Cleansing" to describe "Murdering Millions In A Brutal Act of Genocide" rather than addressing the act. Then again, I'm sure many feel that rhetorical nonsense is far preferable to discuss than the hard facts of hundreds of billions of dollars of failures in the system (documented by the SIA and linked at this site) or systemic collapse and the like.

For those curious about the interview, here's a snippet:

"I agree with Mr. Byrne," Mr. Aguirre said, "that the SEC has failed to protect the capital markets from naked shorting. From my perspective, however, naked shorting is just one of the tactics, and perhaps not the most significant, that hedge funds have used to create a tilted playing field. At some point, the erosion of investor confidence may reach a point that we experience a full blown market collapse."

So Mr. Aguirre feels that Byrne is correct, however also feels that there are even worse problems with the market. Perhaps. I wonder if he actually knows the size of the problem, and is privvy to some of the data Patrick has?

But hey, let's argue semantics and epistemology rather than the issue itself, right? Sidetrack the deal, if possible...

You wouldn't happen to be yet another of 'lilGW's sock puppets, would you? Or perhaps work on Wall Street?

Carry on. Very effective. Really.

BTW, for anyone wondering about 'lilGW's sanity (wasted bandwidth, IMO) or whether his tripe has any merit, consider where he was when we were writing comment memos to the SEC to stop them from abolishing the uptick rule - probably the same place he was when they were passing out brains, or sobriety genes, or whatnot.

Consider these:

http://sec.gov/comments/s7-21-06/s72106-1.pdf

http://sec.gov/comments/s7-21-06/dpatch5789.pdf

http://sec.gov/comments/s7-21-06/s72106-39.pdf

http://sec.gov/comments/s7-21-06/dpatch6879.pdf

If you are wondering whether "lilGW is even phoning it in, or whether he just comes to long enough to fall against his keyboard and flail at the keys, my sense is that both are likely. Or he could just be a lying weasel going through obligatory, if embarrasing, rationalizations at the behest of his Wall Street sponsors.

Whatever fails to convey the depth of apathy I have for the answer.
here is Aguirre link By lenofus on 8/15/2007 8:33 AM
http://www.investorvillage.com/smbd.asp?mb=3532&mn=9413&pt=msg&mid=2792242
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By VeryGrimm on 8/15/2007 8:33 AM
Bob, I don't get it.

On one hand Vyrne is predicting the colapse of our markets and on the other hand Patrick is the CEO of a publicly traded company that encourages stock ownership in that company.

Does not make sence.
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By bobo on 8/15/2007 8:39 AM
Grimm: Patrick's calls on the market are different than his decision to take the company public years ago.
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By Jeremiah 9:24 on 8/15/2007 8:41 PM
Is anyone able to give the gist of the Hedgeworld interview with Gary without violating copyright laws? I am not interested in subscribing, either, but would love to read it.
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By bobo on 8/15/2007 8:43 PM
Jeremiah 9:24 - try http://www.investorvillage.com/smbd.asp?mb=3532&mn=9413&pt=msg&mid=2792242
Re: Don't worry, everything is fine. Nope, but maybe not as bad as some want us to see it By cutty on 8/23/2007 6:23 AM
I do not mean you Bob, but some BBB (Big Bad Banks) who want to buy cheap assets.

Yes it might go worse for some people, but from the broader perspective, read this
http://www.investorvillage.com/smbd.asp?mb=4148&pt=msg&mid=2802577.

I find this piece very well articulated. To make it short, we do not really know how bad it is really. (Not yet).
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By Jeremiah 9:24 on 8/23/2007 6:25 AM
Thanks BobO, that worked great. I disagree with Gary though, in that I believe the stock counterfeiting of itself is a systemic risk, as we will likely soon see. I don't see insider trading as a systemic risk - type problem only because the regulators won't police the main culprits and the 'mullets' are not going to be allowed to know what ate them.

If the Fed lowers rates then we can be sure things are far worse than is being reported.

I am watching a number of bear raids this morning, as usual. Wonder if the SEC will hire those "experts" to do more studies on rule changes like they did for the elimination of the "uptick" rules. Clearly those guys had it all figured out. A pack of geniuses (genii if you are into Latin). Wonder what the day rate for such a whore is? Wonder why they didn't defend their honor against Mr. Patch's critiques of their work?

Can't wait to see where these SEC rats jumping ship land. Really can't wait to see where Brigagliano goes to work after his stint as Wall Street's towel boy.

Remember Proverbs 16:4, friends. There is a short term, and a long term view.
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By wiki on 8/23/2007 6:27 AM
This tool can be used to identify edits to naked shorting articles on Wikipedia by lil gw et al.

Look who its caught so far.

http://news.bbc.co.uk/2/hi/technology/6947532.stm
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By oldfeller on 8/23/2007 6:29 AM
All the water is in small bottles. The only way to drink is thru straws. I own all the straws. You must use my straws or die of thirst. Each straw has a hole in it`s side near the bottom. So you never get all the water in the bottle. I get what`s left. I can move the holes in the straws up or down at will, I decide how much water is left after you drink. If I move the holes up you need more straws to quench your thirst. I can make you beg me for more straws. Who am I? I`m the Fed. Ok, not a perfect analogy?. I`m just roughing out a children`s book explaining how our economy works. Someone should teach the kids about the dollars they will spend their lives working for. If you disagree with this explanation or have a simpler one please lay it out there. I still have a lot to learn myself. tia
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By narco_dollars on 8/23/2007 6:32 AM
Market rallies in the last hour. Ya right, bargain hunters all got together, waited to the last hour and bought. The whole game is so manipulated, with the private federal reserve using the plunge protection team to move markets up or down at the whims of their wallstreet buddies as they collapse the sub prime debt market so they can take over those profitable mortgages for themselves at pennies on the dollar.

Keep an eye on this site:

http://www.narconews.com/narcodollars1.html

as naked shorting is used to launder drug money, arms money and other illegal begotten gains. It is heavily related to BCCI and THAT group.

Can you say "centrally controlled" (communist), "privately owned" (fascist), "house always wins" (mob casino), "liquid" (narco dollars), feudal system set up to cater to the most elite criminals at the expense of the rest of us who believe in democracy, capitalism and the laws of supply and demand and the invisible hand of market forces.

The only reason the population doesn't realise it is they keep them doped up on the latest "bread and circuses" mind numbing TV and tabloid pap. It's hilarious Dow Jones is owned by tabloid Murdoch.

NASDAQ to Open Unregulated Private Stock Exchange for Investors with a Minimum of $100 Million in Assets
August 15th, 2007

I’m sure that this has nothing to do with money laundering, and the fact that Afghanistan now supplies virtually all of the opium in the world.

Via: Washington Post:

Nasdaq is set to launch tomorrow what its executives are calling one of the most significant developments on Wall Street in decades — a private stock market for super-wealthy investors.

Minimum requirement for traders: $100 million in assets.

Any private firm can list on Nasdaq’s new platform, which is called the Portal Market, and raise money by selling stock to an elite group of shareholders. These companies would remain private and not have to make public their financial statements or submit to federal regulation, such as the Sarbanes-Oxley corporate accountability law.

The boom in private money has become so important to the financial system that major investment banks, including Goldman Sachs, Merrill Lynch, Lehman Brothers and Citigroup are setting up rival private stock markets of their own. But none will be as large as Portal, which will list the shares of about 500 firms on its first day of trading.
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By narco_news on 8/23/2007 6:34 AM
It's like the movie the matrix. Once you take the pill and realize the conspiracy theorists were right, you realize the world is a different place than leave it to beaver or the andy griffith show would have you believe.

refco and yasser arafat? Come on...

http://www.rgm.com/articles/refco4.html

At the Israeli army checkpoint on the edge of Jericho, gamblers from Jerusalem and Tel Aviv streamed into the West Bank town to wager on blackjack, play poker and face off with slot machines at the Palestinian-run Oasis Hotel Casino Resort. The casino was open 24 hours a day, seven days a week.

The party that started in September 1998 ended when a Palestinian uprising scared away customers in October 2000, forcing the casino to close within a month.

The Israeli shells that punched holes in the Oasis's stucco- and-black-glass facade also struck a financial blow to one of the casino's investors, Vienna-based Bawag PSK Bank -- the same bank that backed Refco Inc., the New York-based brokerage that collapsed last October after belatedly reporting $430 million in hidden losses.

The tale of Refco's bank -- and its role in the biggest meltdown on Wall Street since junk bond scandals felled Drexel Burnham Lambert Inc. in 1990 -- shows how executives gambled with customers' money and may have deceived the elite of the global financial community, including Goldman Sachs Group Inc., whose chief executive officer, Henry Paulson, is poised to become the next U.S. Treasury Secretary.

Charlotte, North Carolina-based Bank of America Corp., Zurich-based Credit Suisse Group and New York-based Goldman were managers of Refco's 2005 initial public offering. They're now defendants in a shareholder lawsuit against Refco.

Investors allege the banks didn't ensure all important facts about Refco were disclosed in offering papers. The firms haven't yet responded in court.
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By Paul on 8/23/2007 6:36 AM
Now that Dell executives have apparently been involved in fradulent reporting issues - the naked short Wall Street Machine will use that as an excuse to loot much of the investor value of Dell.

These reporting issues weren't caused by Dell investors - it wasn't a failure of due diligence on their part - executives that were once trustworthy now aren't.

The crooks on WS - once charged with the assignment of growing American business - now view themselves worthy of the opportunity to loot the value of Dell

This is just a prediction - It's my guess that what once used to be the tremendous shareholder value of Enron was one of WS naked Shorters greatest conquests. The net result was that shareholders who might have been left with something to salvage were left with nothing - and more huge mansions were built on an island in NY once purchased from the indians for a few colored trinkets.

Paul
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By Bruce Thjompson on 8/23/2007 7:30 AM
Here's a little something that sheds a different light on Lil GW's editing of Wikipedia

http://www.reuters.com/article/technologyNews/idUSN1642896020070816?feedType=RSS&feedName=technologyNews&rpc=22&sp=true

It violates Wikipedia's neutrality guidelines for a person with close ties to an issue to contribute to an entry about it, said spokeswoman Sandy Ordonez of the Wikimedia Foundation, Wikipedia's parent organization.
Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By rtway on 8/23/2007 7:32 AM
How's your finger Bobo? Hope all is well and good to hear your take and and explanation. My question to you is this. Is there a direct corelation or a strong relationship with NFI's phanthom shares causing this subprime meltdown or is it a blanket effect of all the shenanigans that are causing this turmoil. In my mind I felt that the air shares of NFI had to come home to roost on someones doorstop in the subprime arena but I certainly am not astute in this area as you and all the other great contributors who write here.
Bobo, I'm Scared......................................... By metoo on 8/23/2007 7:39 AM
It appears we are on the verge of a financial collapse. I can tell you from business emails I received this weekend that credit to Private Equity is dry, gone, bust. The banks are puckering up and holding every nickle. If this continues for eight weeks, the economy is toast.

Also, on Thursday I moved a very very substantial amount of money from an S&P Index fund to short term treasuries. My investment firm (I won't embarass them by saying their name) called me 3 times, not just to confirm my trade but to try to convince me not to do it. I don't know why they hesitated. Maybe they were hedged some other way, but they did make it happen. I missed the run up on Friday but slept well Thursday night. Their hesitation and the entire experience scared the hell out of me.
Hedge Fund manager losing his toys! By Becky B. Quick on 8/23/2007 7:41 AM
http://www.dailytimes.com.pk/default.asp?page=2007%5C08%5C19%5Cstory_19-8-2007_pg5_18

US trader puts helicopter, yacht on market

NEW YORK: An American hedge fund trader, who has seen his high-flying career lose altitude due to mortgage-related trading losses, has put a multimillion-dollar helicopter up for sale, a news report said Friday.

The New York Post newspaper said hedge fund manager John Devaney had put a Sikorsky S76C helicopter on the market with $11million price tag.

Mr Devaney manages the Florida-based United Capital Asset Management hedge fund. The thirty something trader could not be reached for comment by AFP.

Prior to the recent stock market downturn, triggered in part by heavy losses affecting mortgage-backed securities, Mr Devaney had been profiled in media articles detailing his lavish lifestyle.

The Post said Mr Devaney has also had to put his ‘prized’ 142-foot (43-metre) yacht and a luxury home in the exclusive resort of Aspen, Colorado, up for sale after his investments soured dramatically.

Other news reports say the hedge fund trader is seeking $23.5 million for his state-of-the-art yacht and $16.5 million for the Aspen property, which boasts 16 bedrooms. It appears that Mr Devaney has other assets to cushion his bruising losses.

Money magazine reported earlier this year that Mr Devaney also owns a Rolls-Royce car, a Gulfstream jet, a 12,000-square-foot (1,114-square-metre) mansion in Key Biscayne, Florida, as well as Renoir paintings and a ‘valuable’ 1823 reproduction of the US Declaration of Independence. afp

Re:possible OSTK solution??? By Overstock on 8/23/2007 7:43 AM
Could Patrick take Overstock private? Do a share cert pull and true owners get a dividend.

That will F - with the shorters. Screw the big game. The company is making money.

I think Ford went private, I will double check that but in the book 'BRAVE NEW WORLD' they market time A.F. (after Ford)

Re:possible OSTK solution??? By Ford on 8/23/2007 7:49 AM
NEW YORK (MarketWatch) - The Fords are reportedly mulling the possibility of bringing their company back into the family fold, which would end 50 years on the stock exchange and pave the way for Bill Ford and his inner circle to retool the struggling automaker without further meddling by shareholders.

http://www.marketwatch.com/news/story/Story.aspx?guid=%7B07537408-0280-49BF-A230-ADAAAF628BF5%7D&siteid=

Re: Don't worry, everything is fine, it's all just a little out of hand, is all.... By oldfeller on 8/23/2007 7:50 AM
I`ve been looking for a long time for a short, concise explanation in laymen`s terms of how our economy works. This is one of the best I have found. Our present problems with stock market fraud, which I believe to be cyclical and mostly politically driven (as in how much fraud are you willing to accept in exchange for liquidity), can be found between the lines.

http://www.lewrockwell.com/north/north539.html

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