Insider Trading Charges Against Goldman’s Rajat Gupta By R Tamara de Silva October 26, 2011

Yesterday Rajat K. Gupta, a Senior Partner Emeritus and Managing Director of McKinsey & Co. and Board Member of Goldman Sachs Group, Inc., was indicted on criminal charges of insider trading.[ 1] Mr. Gupta is alleged to have provided Raj Rajaratnam, the founder of one of the largest hedge funds in history, Galleon Group inside information from which Rajaratnam profited[2 ]. Mr. Gupta will likely be prosecuted by the same U.S. Attorney, Preet Bharara, who obtained a conviction and eleven year sentence (the longest sentence ever dealt on the charge of insider trading) against Raj Rajaratnam.

Mr. Gupta’s arrest comes on the heels of what has been an over four year investigation of alleged insider trading on Wall Street. The principal focus of the government’s investigation has been on whether information was passed along by analysts and consultants of companies that provide “expert network” analysis to hedge funds and mutual funds. Expert network companies arranged for meetings and calls with executives from hundreds of companies and then shared this information with traders at hedge funds and mutual funds.

By R. Tamara de Silva October 25, 2011

On October 24, 2011 the Federal government announced that it would revise the Home Affordable Refinance Program (“HARP”). HARP was originally launched in March 2009 as a $75 billion plan to put a stop to the foreclosure crisis. HARP was supposed to prevent millions of the 9 million American homeowners facing foreclosure from defaulting on their mortgages and losing their homes. Yet as of this past July, HARP has only helped 865,000 of the 9 million homeowners who must refinance their home loans or soon default.

The housing crisis is by all accounts far from over. The bottom has yet to be reached in the housing market and one cannot but wonder how mortgage defaults would be affected were the Federal Reserve not to keep interest rates continually suppressed. Recently, Moody’s announced that foreclosures will rise to unprecedented levels in 2012, enveloping 30% of all mortgages and totaling over 1.5 million defaults.

The Suspension of Civil Liberties by Regulation in Colleges and Universities

By R. Tamara de Silva August 20, 2011

The Obama Administration has dealt a solid blow to the civil liberties of all college and university students in America, and it has done so without fanfare or protest-in deafening silence, not even deemed ratings worthy by the media. New law was made via regulation, as agencies and departments of the Executive Branch have done for decades- by edict, or interpretation, or as in this case one seemingly unassuming, albeit verbose, letter.

Here is a thought but more of a question…does Wall Street manage risk as well as a casino? I realize this is a preposterous question because of differences in scale, in operations and in the “things” bet upon. This said, it is possible to say that casinos seem better able to account for the occurrence of devastating fat tails. Remember fat tails? They are things like the market crashes of 1987 and 2000, Long-Term Capital Management, the collapse of Bear Stearns, the Savings and Loan Crisis, the crash of 1929, the collapse of Northern Rock, the Russian Debt crisis, the 1997 Asian financial crisis, the 1990 Japanese asset bubble crisis, the 1973 oil crisis and 1978 energy crisis, the Credit Crisis, etc. Anyway, casinos, unlike investment banks seem at times to display a better operational grasp of risk. With fewer investment banks and universal banks like Chase and Bank of America left after the Credit Crisis, the possibility of prospective catastrophic failure may still be greater than before.

Two years ago, things were going along well on Wall Street before the current Credit Crisis. So well, that we stopped talking about Barings, National Australia Bank, Kidder Peabody, Enron and other things like that. Talking about the possibility of operational failure at global investment banks was until last September 2008, would have been odd. Somewhat akin to warning a teenager about old age-a futile and strange exercise.

Consider that in 2006, Goldman Sachs announced, before it was on the cover of the Economist in 2007, that it had turned out $2.6 billion in profits in just three months-nearly half of what it earned in the entire 2005 year. Perhaps not coincidentally, Goldman also put a record amount of the firm’s capital at risk of evaporating on any given trading day. Goldman’s value at risk jumped to $92 million, up 135% from $39 million in 2001.

If you are looking for that next house in the Hamptons, there are two words you need to get your arms around and own. These two simple words can make you wealthy beyond measure. Excess will be yours. You could be a Master of the Universe able to buy, anything and anyone. These words are “financial obfuscation.” It is true. I am talking about the greatest game ever, no not baseball. . .investment banking.

Marking to market works against financial obfuscation. Marking to market is the opposite of notional value and it is a characteristic of the most transparent financial markets.

One of the provisions of the $700 billion dollar bailout bill that was passed by the House of Representatives on October 3, 2008 includes a provision that gives the Securities and Exchange Commission the right to suspend mark-to-market accounting under Statement Number 157 of the Financial Accounting Standards Board. In other words, the SEC would be allowed to suspend the use of mark to market accounting standards whenever it thinks the public’s interest would be best served by its doing so.

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