Articles About Trading & Investing

Apple Is a “Buy” on Every Dip

0 | By Wall Street Insights and Indictments Staff

We’re in the middle of a tech sell-off, so Shah says now is the time to scoop up discounted shares of Apple Inc. (Nasdaq: AAPL) while you can – the company’s shares are now 9% off their 52-week highs. “The company is just extraordinary in every respect.” Shah told Stuart Varney during his latest appearance on Fox Business.

Shah weights in on how the Apple Watch and the company’s performance in China are going to affect the tech powerhouse’s near-future growth, earnings and share price.

 



Why “Patient” Doesn’t Matter on Fed Day

0 | By Wall Street Insights and Indictments Staff

All eyes were on Janet Yellen on Fed Day to find out if, and when, interest rates were going to be raised. In a recent appearance on Fox Business, Shah reveals to Varney & Co. watchers why the word “patient” doesn’t matter one way or another when it comes to the latest statement from the Federal Reserve.

 



At Citigroup, It’s the Same as It Ever Was

6 | By Shah Gilani

Flashback to the 2008 credit crisis.

There’s Citigroup Inc. (NYSE: C) – bent-over by arrogance, off-balance sheet liabilities and derivative weapons of mass destruction in an insolvent fetal position.

Back in those dark days, Citi’s “Help! I’ve fallen, and I can’t get up!” cries were heard loudly across the interconnected, too closely correlated banking landscape.

Federal Reserve defibrillators were immediately attached to the heart of the too-big-to-fail bank, via its capital and liquidity arteries, and its survival was miraculously guaranteed.

Fast-forward to the gold statue just awarded to Citigroup for passing the Federal Reserve’s 2015 bank stress tests.

As Citi grabbed the Oscar from winking Fed presenters, the capital markets and America cheered, “You’ve come a long way baby!”…

Repeating the Past

Too bad the truth is that Citi has gone a long way back to where it was in 2008. And the Fed, which acted like a regulator and resuscitator back then, is now only acting out its part as regulator and likely will have to resuscitate Citigroup yet again in the coming financial crisis.

What’s really going on behind the curtain is nothing short of frightening.

First of all, the Fed is as clueless now as a regulator as it was going into the credit crisis.

As Citigroup’s principal regulator, the Fed was blind right up to Oct. 28, 2008, when it had to direct $25 billion from the new Troubled Asset Relief Program (TARP) to Citi. Nor did it see that on November 17, 2008, the failing bank would have to fire 52,000 employees.

Or that by the end of the following week Citi shares would lose 60% of their market value. Or that a week later Citi would need another TARP infusion of $20 billion, in addition to Fed guarantees on $306 billion of its securities held as “investments.”

In fact, the Fed never saw it would have to, according to a 2010 Government Accounting Office report, soak up more than $2 trillion in below-market-rate loans as part of its bailout lending programs.

So it shouldn’t surprise anyone that, following the latest stress tests, the Fed now thinks Citigroup has done a good job managing its capital and capital ratios.

Citi has done a good job.

But how it has done good is the problem.

A Crooked Scale

Citigroup has been trumpeting its exit from subprime lending and talking up how it has become more focused on capital and return on capital and equity metrics. And while Citi has been doing that, the Fed hasn’t noticed the bank has done that by taking on more “assets” that require less capital to hold.

I’m talking about derivatives.

The problem with calculating reserve requirements and capital requirements when it comes to derivatives is that there’s no real transparency on derivatives positions or counterparty risk calculations. How a bank accounts for its derivatives risk exposure can be masked in multiple ways. For example, how banks weigh the risks of certain assets is a matter of internal modeling.

Applying standardized capital reserve requirements to “risk-weighted” assets is a slippery slope if the assessment on the building in question can be mitigated by obscuring what’s really in the building. With internal models, it’s your building – you describe to the regulators what’s in it.

Citigroup’s investment bank unit held $32 trillion (notional amount) worth of derivatives in 2009. At the end of the third quarter of 2014, the unit held $70 trillion of derivatives.

The New York Times reported the other day that while the nation’s largest bank, JPMorgan Chase & Co. (NYSE: JPM), decreased its derivatives holdings by 17%, Citi has been buying up derivatives portfolios, including a $250 billion derivatives book from Deutsche Bank AG (NYSE: DB).

Adding weapons of mass financial destruction into a black-box building like Citi, where it tells regulators how solid its foundation is, against which it is assessed, is scary.

In her 2012 book, Bull by the Horns: Fighting to Save Main Street From Wall Street and Wall Street From Itself, former Federal Deposit Insurance Corp. (FDIC) Chair Sheila Bair gives us her insider view of Citigroup at the time of the credit crisis.

“By November, the supposedly solvent Citi was back on the ropes, in need of another government handout,” Bair writes. “The market didn’t buy the [Office of the Comptroller of the Currency]‘s and NY Fed‘s strategy of making it look as though Citi was as healthy as the other commercial banks. Citi had not had a profitable quarter since the second quarter of 2007. Its losses were not attributable to uncontrollable ‘market conditions’; they were attributable to weak management, high levels of leverage, and excessive risk taking. It had major losses driven by their exposures to a virtual hit list of high-risk lending; subprime mortgages, ‘Alt-A’ mortgages, ‘designer’ credit cards, leveraged loans, and poorly underwritten commercial real estate. It had loaded up on exotic [collateralized debt obligation]s and auction-rate securities. It was taking losses on credit default swaps entered into with weak counterparties, and it had relied on unstable volatile funding – a lot of short-term loans and foreign deposits.”

There’s a history of bad acting, both on the part of the Fed as a regulator and of Citi as a badly managed, leveraged risk-taking-for-profits TBTF bank. So I might be forgiven for being skeptical that Citi’s passing grade on its Fed-administered stress tests is a sign anything other than business as usual in the world of protected banks being coddled by their central bank supervising saviors.

P.S. I encourage you all to “like” and “follow me on Facebook and Twitter. Once you’re there, we’ll work together to uncover Wall Street’s latest debaucheries – and then we’ll bank some sky-high profits.

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How to Cash In on the Strong Dollar’s “Good” Side

0 | By Wall Street Insights and Indictments Staff

The strong dollar has given us a mixed bag in the markets this week – good, bad… and ugly. It helps companies that manufacture overseas and sell here. But the strengthening dollar hacks away at earnings and is a detriment to multinationals – and that’s ugly if earnings surprises come on top of faltering global growth.

Shah spoke with Stuart Varney on Fox Business to discuss the exceptional performance of the greenback – and the one stock that will take advantage of this jittery market.


Bank Stress Test Kabuki Theater Begins Again

3 | By Shah Gilani

It’s that time of year again. Not for spring cleaning – but for bank stress tests.

Too bad stress tests are nothing more than a sweeping-dirt-under-the-rug exercise, despite the rug-beater supposedly hanging them on the line.

The whole show, which first started in April 2009, is just a public performance.

After all, is any bank ever going to fail and be expelled from the club?

Never.

The stress tests, in fact, are nothing more than Dances With Wolves…

Domino Theory

Back in April 2009, I wrote, “The key problem with the whole stress-test exercise is that it does nothing to improve financial-system transparency.”

How much of a farce are the tests? We don’t really know because they’re not transparent. The public has no way of knowing what’s being looked at through what prisms.

What we do know is that the tests are a joke.

Last year Bank of America Corp. (NYSE: BAC) breezed through Round 1 (there are two rounds), where quantitative number crunching determines how much capital and reserves banks really have. After that, Bank of America submitted its “we have so much excess capital we might want to raise our dividend or buyback shares plans” to Federal Reserve carpet-bangers as part of Round 2.

After the quantitative dance is over, Round 2 is a qualitative dance known as Comprehensive Capital Analysis and Review, or CCAR. That’s where the banks are looked at through some other prisms to determine if their capital plans make sense, and if rewarding shareholders is okay, or if they need to keep more of the capital they say they have to be safer institutions.

The joke is that last year, after Bank of America passed the quantitative round and the CCAR round where it got approval to reward shareholders for its good capital management, it had to notify the Fed that… oops, it miscalculated its capital by a few billion dollars.

Here’s how The Wall Street Journal reported the kerfuffle: “The second-largest U.S. bank by assets said it discovered a mistake in certain figures submitted to the Federal Reserve for the regulator’s annual ‘stress tests’ of major U.S. financial institutions. The error leaves the Charlotte, N.C., bank with $4 billion less in capital than it thought it had. The bank had been making the same calculation error since 2009, according to a person close to the bank. Bank of America brought the mistake to the Fed’s attention. The regulator revoked its prior approval of a dividend increase and gave the bank until May 27 to submit a new plan.”

That’s scary. The Federal Reserve, which conducts the tests, supposedly, had no idea that the numbers Bank of America submitted since 2009 were calculated incorrectly. Does that mean the Fed doesn’t do its own calculations? Is this an open-book test? Are there teachers’ pets?

How’s that for confidence in the stress tests?

It gets worse.

According to a working paper from the U.S. Department of the Treasury‘s Office of Financial Research (OFR), published March 3, all the top stress-tested banks are remarkably alike in how they come out of the tests. According to the paper’s authors – Columbia University researchers Paul Glasserman, who used to be with the OFR, and Gowtham Tangirala – that’s because all those banks go in remarkably alike.

“The results are striking. The patterns appear to be an artifact of the stress testing process rather than an accurate reflection of potential bank losses,” Glasserman and Tangirala write. “The main concern with a routinized stress test is the danger that it will lead banks to optimize their choices for a particular supervisory hurdle and implicitly create new, harder to detect risks in doing so. This concern applies to any fixed supervisory scheme, including one based on risk-weighted assets.”

There are many reasons the banks look the same, more or less.

For one, the banks all use the same consultants to guide them through the testing processes. These consultants are often former federal regulators – from the very agencies that conduct the tests – who have joined the lucrative consulting game.

What’s not funny about the stress tests is that they don’t recognize that the correlation (specifically and empirically measured in the OFR working paper) between the banks is staggering. Stress testing each bank individually says nothing about testing them collectively.

The banks are connected dominos.

The only thing the stress tests tell us is if capital requirements, reserve requirements and other buffers aren’t enough to protect the financial system from its own greed.

Stress tests aren’t the answer.

The answer is to break up the monster banks before they break the economy again.

P.S. I encourage you all to “like” and “follow me on Facebook and Twitter. Once you’re there, we’ll work together to uncover Wall Street’s latest debaucheries – and then we’ll bank some sky-high profits.

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How the 1% Controls Our Central Bank “Comrades”

22 | By Shah Gilani

Central bankers aren’t stalwart free-market shepherds, though that’s how they cloak themselves.

The truth is they’re a lot more than just communist wolves in sheep’s clothing.

They’re emperors of a new global regime that goes by the name “The Owners Club.”

Today I’m going to show you what their game really is.

I’m going to show you how they play it, who benefits and who will end up suffering so much that they’ll spark a global revolution…

Free Agents

Central banks aren’t free-market practitioners.

Sure, they profess doing God’s work, saving free markets from the excesses they’re prone to, but that’s utter rubbish or worse.

Central banks are run by central bankers. Central bankers are bankers. Bankers are wolves, not sheep.

It’s just an act that central banks are government-affiliated entities shepherding the public from predatory packs of profiteering pimps and panderers. They are the ultimate example of wolves guarding the proverbial henhouse.

Every central bank has a mandate. It is to serve and protect banks and bankers who leverage themselves and lend in excess in order to reap greater profits – and too often need bailing out before they collapse.

Central banks don’t lend to companies, or people. They only lend to banks. That’s what they exist to do.

What’s amazing is how central banks are able to lend to banks. They have their governments’ green light to simply print money and give it to their bank “constituents.”

Sure, sometimes it looks like there are government forces controlling central banks, but that’s all part of the grand facade for the sake of fooling the public.

Central banks can print money and give it to banks because they have a standing deal with the governments that are supposed to somehow control them.

Here’s the deal.

Governments – meaning the people in power, who want to stay in power, who want to buy votes, buy goodwill, buy the public’s perception that they run a good government – don’t want to tax their people to pay for the free stuff they give them to buy their loyalty and votes. And they don’t have to, because central banks print the money those governments need.

Of course, it’s not the government’s fault if there’s too much money printed and there’s inflation. That’s the fault of central banks printing too much money. Bad bankers!

Of course, it’s not the government’s fault if there’s not enough money printed and there’s deflation. That’s the fault of central banks not printing enough money. Bad bankers!

Here’s a look right through that iron curtain that’s been pulled over the public’s eyes.

Government-Backed Greed

We’ve been experiencing deflation, not inflation. Not just here in the United States, but globally.

Why aren’t prices rising? Why aren’t wages rising? Why is global demand so lackluster?

Because bankers’ extraordinary greed caused the credit crisis and the Great Recession.

All the too-big-to-fail banks that were either literally insolvent or technically insolvent got bailed out by their central banks. (Okay a few didn’t, but they were sacrificial lambs, supposedly to make a point that excess has a price. That’s a lie, but now’s not the time to retell that story.) Consumers got jack squat.

If left to its devices the free market would have taken out a bunch of big banks. That would have been really bad, but we could have survived. The banks and central banks wouldn’t have.

But we don’t have free markets, so all the big banks were saved by their central banks.

And to combat deflation, the central banks are doing what they’re supposed to do to combat deflation. They’re printing money and giving it to banks to heal them.

And because governments can’t tax people more when they all have less, and because governments need to roll over their trillions in debts and need to borrow more to run bigger deficits, they wink at the central bankers who magically came up with this thing called quantitative easing, or QE.

QE is just another blanket pulled over the public’s eyes. QE is central banks printing money to buy governments’ debts. That’s the nature of their partnership.

Central banks, which flat-out bailed out insolvent constituent banks, drove down interest rates so that the interest paid by governments on the debts they were rolling over and on new debt issuance, would be dirt cheap, then went Full Monty with QE to justify buying government debt to keep interest rates low to, you guessed it, fight off deflation.

That’s not a free market. That’s central planning. That’s communism.

But it’s communism for the rich.

Because the rich own the assets whose prices are rising, they’re getting richer – a lot richer. It’s happening all over the world

The divide between rich and poor is expanding exponentially.

Central banks are now not just lapdogs for their bank constituents. Their racket is serving, protecting and enriching the Owners Club of asset-rich one-percenters everywhere.

And that’s not going to lead to a revolution eventually?

P.S. I encourage you all to “like” and “follow” me on Facebook and Twitter. Once you’re there, we’ll work together to uncover Wall Street’s latest debaucheries – and then we’ll bank some sky-high profits.

The Fed’s History of Assassination

25 | By Shah Gilani

The Federal Reserve System has a very dark history.

I’m talking about a history of murder.

Maybe you didn’t know, but there’s a theory that the Fed ordered John F. Kennedy’s assassination.

Today, I’ll share with you the facts behind that theory.

And then I’ll show you the facts that prove the Fed is guilty of even more murders…

By Any Other Name

First of all, “Federal Reserve System” is a misleading name.

A group of private bankers, who crafted the Fed, dubbed it that in 1910.

They chose “Federal” because it implies the system is a federal institution.

It never was – and it isn’t today. It’s private.

They chose “Reserve” to imply that the system would be rich in “reserves” and, therefore, supersafe. The Fed mandates “reserve requirements” for the United States’ banks but has a zero reserve requirement for itself.

And those bankers, back in 1910, chose “System” because they agreed to never call it a “bank.” But that’s exactly what it is.

The Federal Reserve System is a privately held (by banks as shareholders) bank.

It’s the United States’ central bank.

Beyond comprehension, beyond what’s written in the U.S. Constitution about Congress’s right to coin money and issue bills of credit, the Federal Reserve owns the money of the United States.

You read that right.

When President Woodrow Wilson signed the Federal Reserve Act into law on Dec. 23, 1913, the Fed was granted the power to control America’s money – to actually issue it and own it. They got around the Constitution by having the U.S. Treasury actually print and coin their money.

Look at any bill in your wallet, right now, get one out. Right there on the front of every bill, on the top, it says “Federal Reserve Note.” A “note” is a loan. All the money in your hand is on loan, from the Fed.

The BIG picture works like this.

The government can’t pay for what it spends, so it borrows. It borrows by issuing Treasury bills, notes and bonds. The Federal Reserve buys a lot of that debt (most of it) with the money it tells the Treasury to print for it. The Treasury then pays interest on its debt instruments.

So the Fed collects interest on money it made up out of thin air. A very neat trick, but that’s how banks work, folks.

Where does the interest come from? From taxes we pay. And because the Federal Reserve was going to buy the government’s debt from Day 1, those bankers wanted to make sure the government would be able to pay the interest it promised.

So, also in 1913 – surprise, surprise – Congress votes something new into law: the income tax.

Welcome to the new slavery, only this time it’s the Federal Reserve that’s our master.

The Theories

Fast-forward to June 4, 1963.

President John F. Kennedy issued Executive Order 11110, which empowered JFK with “The authority vested in the President by paragraph (b) of section 43 of the Act of May 12, 1933, as amended (31 U.S.C. 821(b)), to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury not then held for redemption of any outstanding silver certificates, to prescribe the denominations of such silver certificates, and to coin standard silver dollars and subsidiary silver currency for their redemption.”

In other words, Kennedy, by executive order, created the authority to print money.

Some conspiracy theorists believe the president was assassinated because he directly challenged the Fed’s sole authority to issue money.

Is that possible? If you believe in conspiracy theories surrounding the Kennedy assassination, anything’s possible.

I don’t believe the “lone gunman” theory.

But I also don’t believe the Fed had JFK killed.

The president gave his Treasury the right to print and issue silver certificates in lieu of having people come with their other dollars and coins in order to redeem them for actual silver. Instead, they would get “silver certificates.”

However, Jim Marrs, in his 1989 book, Crossfire: The Plot That Killed Kennedy, postulates that Executive Order 11110 was Kennedy’s opening salvo in what would be a battle with the Fed for control of the country’s money.

That’s theory.

The Facts

What isn’t a theory is the fact that the Federal Reserve Act murdered the Constitution by running over it. It gave the Fed the right to own America’s money

And then it back up over the Constitution again, by having the Treasury physically print and coin the Fed’s money to make it look Constitutional.

The Fed, right out of the gate, murdered U.S. citizens. It forever enslaved them through a federal income tax to pay interest to the Federal Reserve Bank for so graciously printing all the money any and every profligate government would ever need to borrow.

The Fed murdered the stock market in 1929. It let speculators borrow insane amounts of easy money to bet on stocks that had been “watered-down” by the banksters who mostly controlled the markets.

Then the Fed murdered the economy by causing the Great Depression with its failed monetary policies. Just ask Ben Bernanke – he knows.

The Fed murdered free-market capitalism and replaced it with Soviet-style central planning in 1977. That’s when it wrangled from the incompetent, panicked hands of a sycophantic Congress the Fed’s now infamous “dual mandate.”

What’s the dual mandate? It’s the Fed’s second mandate. The first is the Fed’s duty to keep prices stable and long-term interest rates moderate.

The second mandate, the one delivered in 1977, is to “promote effectively the goals of maximum employment.” In other words, the Fed is supposed to run the economy as if it were the Politburo.

The Fed murdered the economy again in 2008. But you know that.

And it’s killing us all now.

There’s no fiscal responsibility anywhere because everything’s in the Fed’s hands. There’s not even any trickle-down economics anymore because the Fed’s “stimulus” policies, also known as Quackatative Euphoria, has only benefited the 1% who own all the assets that have gone up.

And the Fed just keeps pumping markets higher and higher. The Fed hopes to help addicted speculators come down easy as it weans them from heroin onto methadone, and then down to Xanax, so no one feels the fall from Dow 30,000, or wherever it goes.

No, we don’t need to “audit the Fed.”

We need to kill it and bury it an unmarked grave.

P.S. I encourage you all to “like” and “follow me on Facebook and Twitter. Once you’re there, we’ll work together to uncover Wall Street’s latest debaucheries – and then we’ll bank some sky-high profits.

All We Know Is That a Black Swan Is Coming

13 | By Shah Gilani

Last week I wrote to my trading service subscribers that most of the hurdles facing the stock market were out in front of us, that we could see them, and that as long as the market climbs that “wall of worry” the path of least resistance for stocks, for the moment at least, appears to be up.

However, the known worries aren’t what worry me – it’s the black swans.

That led to a lot of people asking, “What black swans?”…

They’re Out There

There are plenty. But the nature of black swans is that we supposedly don’t know what they are.

I don’t buy that, nor or any of The Black Swan author Nassim Nicholas Taleb’s other theories, for that matter.

The whole black swan thing is about real black swans.

Forever and a day, everyone thought all swans were white. It was a given. There’s no such thing as a black swan.

Then, sure enough, black swans were discovered in Australia. Now we know there are black swans. That’s the thing about black swans – they’re not out there, until they are.

Black swan events aren’t unpredictable.

Take the markets, for example. We know that things we expect to work sometimes stop working.

The May 6, 2010, Flash Crash is an example.

My biggest black swan market fear is that terrorists, jokesters, or something in-between – like a mad nation-state to prove it can – “black-swans” the market.

We know it can happen. It happened in the Flash Crash. I’m not saying that was a cyberattack. I don’t think it was. But it could have been. We don’t really know what caused it.

The regulators have never come out with an explanation.

That’s what worries me. They know what went wrong and they’re not telling us.

What triggered the 1,000-point Dow Jones Industrial Average drop in a matter of seconds is secondary, though I’ll come back to that.

What’s important is that regulators can’t come out and say why what happened was possible in the first place.

There’s a difference – and it’s very important.

Whatever triggered the drop is secondary to the fact that stocks fell 1,000 points because systemic changes in how markets operate, mechanically, made it possible.

The long and short history of those changes has to do with the proliferation of electronic trading networks, competing exchanges, decimalization (trading in one-penny increments), high-frequency trading and the “unintended consequences” of other mechanical changes in markets.

So, the 2010 Flash Crash happened because it’s a possibility now. That’s what’s scary.

There are real ghosts in the machinery.

All it takes is a trigger to turn currently benign friendly market ghosts into black swans.

So, yes, a cyberattack could trigger a market crash. Because the black swans in the markets are actually sinkholes that we’ve let settle into the market’s foundation.

Sure, there are “circuit breakers” and all kinds of safety switches that will slow markets or halt trading if bad things happen.

But if a building can collapse because its foundation has been undermined, outside supports can only last so long.

Our markets are prone to cyberattacks, and our markets are mechanically unstable.

That’s the biggest black swan I can see.

And I’m not the only one who can see it.

P.S. I encourage you to “like” or “follow my communities of friends, colleagues and readers who want to receive ongoing coverage of Wall Street’s latest debaucheries in order to bank the biggest profits.

The Myth That This Time Is Different

11 | By Shah Gilani

Remember subprime?

It’s not that it’s back. It never left.

But this time is different.

Remember how low interest rates led investors into buying packaged, securitized boxes with black holes?

It’s not that that’s back. It never left.

But this time is different.

What’s different? Today I’ll tell you…

The Dice Are Different

The new subprime buildup isn’t about credit-damaged borrowers taking out mortgages. And new securitized boxes aren’t being filled with mortgages.

This time is different because credit-impaired borrowers are buying autos, borrowing on newly minted credit cards and taking out personal, mostly unsecured, loans. This time, institutional investors, mutual funds and retail investors are buying pieces of packaged leveraged loans.

This time is different because the dice are different.

What isn’t different is how the game ends. It’s still craps, and a lot of players will crap out.

According to a report released today – compiled by credit-reporting firm Equifax Inc. for The Wall Street Journal — in the first 11 months of 2014, four out of 10 auto loans, credit cards and personal loans went to subprime borrowers with credit scores of less than 640. That’s 50 million loans for $189 billion, in 11 months.

I’ve written about subprime auto loans here before. Subprime lending has helped boost auto sales 59% since 2009. That’s why we’re seeing record auto sales – lenders are throwing record amounts of money at borrowers, especially subprime borrowers.

Non-bank lenders, like private equity companies and hedge funds and venture capital firms, are able to borrow at next to nothing and put that money out to work in the “free market.” There they look to maximize the yield they get on the loans they make.

These non-bank lenders play in different sandboxes. Some throw money at auto dealers, both new- and used-car shops, so anybody who comes in the door can get a loan, as long as they’re willing to pay sky-high interest rates. Some back lending sites, like LendingTree or Elevate, which help themselves and their backers by lending money at high rates.

In 2014 LendingTree upped the loans it made to borrowers with FICO scores of 500 to 619 by 761% over 2013. None of the loans were mortgages.

Elevate, for its part, lends out at annual interest rates from 36% to a mere 365%.

Bound to Break

The New York Federal Reserve said last Tuesday that total household debt rose $306 billion in just the fourth quarter of 2014.

With so much of that debt being carried by subprime borrowers, something’s bound to break.

But not to worry.

Most of the debt that might turn rotten isn’t sitting on banks’ balance sheets. It’s in private hands. Or public hands, depending on which investors are backing private equity shops, hedge funds and VC firms – or, sometimes, as in a lot, the crap gets packaged and sold off to other yield-hungry “investors.”

Banks themselves are packaging some new, old stuff this time around.

They’re making “leveraged loans” to companies whose balance sheets are leveraged up with debt already. Borrowers apparently like the leverage to sometimes speculate on their own businesses, maybe buy each other out, maybe pay their controlling masters’ fees, maybe pay dividends, maybe buy back their overpriced shares, maybe just pay off old debt with new debt.

But not to worry.

Most of the debt that might turn rotten isn’t sitting on the banks’ balance sheets. No, they syndicate big loans among club banks who are in on the same game, package them up (you know how that works) and sometimes, for good measure, “structure” them into collateralized loan obligations with funky “tranches” and different credit quality profiles that pay different buyers different amounts with different associated risks.

But not to worry.

Institutional investors, pension plans and mutual funds are buying these bits and pieces, and they’re being put into exchange-traded funds (ETFs) so individual investors can grab that little extra yield they’re so desperate for.

In other words, don’t worry, this time risks are being spread around, not to just the same people as before, but to new investors who just know this time is different.

P.S. In case you don’t know how to play craps, I recommend the “don’t pass” line. That’s a bet against the dice.

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When It Comes to Wall Street Crooks… Size Matters

5 | By Shah Gilani

If you didn’t read yesterday’s BrokeAndBroker blog by Wall Street lawyer Bill Singer, you should.

In in his earlier life, before he got a life, Singer was an attorney at the National Association of Securities Dealers (NASD) - now known as the Financial Industry Regulatory Authority (FINRA). And his latest blog is titled “A Tale of Two Streets and FINRA’s Disparate Sanctions.”

It’s about a guy named Adam Jensen, who was registered with the FINRA – but isn’t anymore.

Jensen’s tale is interesting, but it’s his example that I’m interested in today…

Our Crooked Two-Tiered System

FINRA is the self-regulatory outfit that operates underneath the U.S. Securities and Exchange Commission‘s blinking eye, and that polices peeps and perps on Da Street of Dreams and Schemes.

Jensen, it so happens, submits a Letter of Acceptance, Waiver and Consent (AWC) to FINRA, neither admitting nor denying that he violated FINRA rules. In other words, it’s a “settlement.” He violated rules, got caught – and flashed his get-out-of-jail card.

If you want to know what he did, you’ll have to read the blog. Suffice it to say, Jensen came up with a clever scam to inflate his sales production numbers to get paid more… DUH.

His punishment? Jensen gets barred for life from associating with any FINRA-registered firm in any capacity. In other words, his Wall Street days are over, unless he wants to run a hot dog stand in one of the Street’s alleys.

Then, Singer tells the tale of the “FINRA 19,” as he calls them. All 19 are broker-dealers with names like UBS Securities, Merrill Lynch, JMP Securities – names you’ve heard of.

The 19 collectively paid a couple million dollars in fines and had to sign those good, old AWC letters, neither admitting nor denying that they pumped up some of their own numbers to attract more business to their trading desks, to, of course, make more money.

Again, you’ll have to read the blog to get the details about their misdeeds.

Anyway, some of them do the exact same thing again a few years later.

So, they have to pay some more money and sign some more AWCs. That’s it.

The point is, no one is barred, no one loses their jobs, no one is any worse off for violating rules, not once, but twice… that we know of.

That’s Bill Singer’s “Tale of Two Streets.”

It made me realize something pretty frightening.

By coddling crooks at big shops and barring little crooks where they find them, Wall Street’s regulators are engineering – make that breeding – super-crooks.

They’re like those super-bacteria that antibiotics can’t kill. They’re the bugs in the hospital that make everyone afraid to end up there.

Only the hospital here happens to be our capital markets – our economy.

No wonder we’re sick all the time.

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