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August 15th, 2013 |
Think about how Shakespeare might guide Paul McCartney’s Paperback Writer. In July 2013, William would teach that the Paperback Writer did not need to use a fictional legend. Rather there are plenty of nonfictional miscreants in Federal District Court who supply amazing story fodder. Shakespeare might suggest that the Paperback Writer start with the greed conflict and the connection between action and consequence. Steve Cohen, Fabrice Tourre and Fannie Mae possess storied egos and the ethics of Wall Street. The theme would encircle the idea that ‘if I can get away with it, why would I not try to do it.’ Hedge funds are classic protagonists who represent that miracles are possible by uncovering inefficiencies in the market or predicting the future. As the 2007-2008 financial crisis illustrated, certain hedge fund sponsors are signaled by an over powering sense of amorality. There are no rules! Darth Vader is conquering Luke Skywalker with a winner take all prize. The diluted response to the crisis illustrates vividly how the ruling class manipulates or ignores the oversight process. Conversely the investing public also learned why the investment playing field is not level and how protagonist focuses upon the weaknesses of their antagonist. Seemingly in 2013, despite bluster by politicians, institutional investors and the media, the dark side of the 2007-2008 financial crisis continued to be lobbied into a non-event. The protagonist now operates in the post-truth era.
Steve Cohen, head magician at SAC Capital, has been on the SEC radar for thirty years. The SEC questioned him about whether he traded RCA Corp. stock based on inside information in 1985. At that time he asserted his 5th Amendment right against self-incrimination and refused to answer questions. (“I didn’t break the law but I am not going to tell you how.”)In July Mr. Cohen was indicted in what US prosecutors called an unprecedented, decade long insider trading scheme stemming from a six year crackdown on Wall Street crime. The probe of SAC has led to insider trading charges against the hedge fund and eight SAC employees. One SAC portfolio manager was indicted for orchestrating a $275 million insider trading fraud. The US indictment commented that SAC Capital and its management operated an unprecedented “deep and wide” illegal trading operation that cheated the investing public of “hundreds of millions of dollars.”
Fabrice Tourre, formerly a Goldman Sachs actor, peddled synthetic collateralized mortgage debt obligations. (In July) Mr. Tourre is being tried on civil charges of defrauding investors. There is no dispute that, in exchange for a $15 million fee to Goldman, Mr. Tourre sold a a shoddy mortgage deal that was secretly designed to fail; he personally profited handsomely from it, then tried to reinvent the sales narrative for a jury to stay out of trouble. The Tourre defense strategy emphasizes a “See no evil, do no evil, speak no evil” as Wall Street defines evil. The defense strategy also includes a defense that all of the parties knew the deal was suspect and consequently Mr. Tourre should not be found guilty. (Goldman Sachs previously paid a sizeable fine for its part in the scheme.)
Fannie Mae and Freddie Mac were placed in conservatorship by the Federal Housing Finance Agency in 2008 and the Treasury Department took 79.9 percent ownership- in return for $187 billion in taxpayer funds. The Federal Housing Finance Agency retained the right to change the “the terms and conditions” of the conservatorship. Although repayment appeared unlikely, the bailout was to be defrayed by eventual annual payments. Hedge funds later acquired the remaining shares which were almost valueless because of the conditions of the conservatorship. Hedge funds made a long shot bet that Fannie and Freddie would return some money to shareholders and that Congress would not find a solution to the complex business of mortgage securitization. By late 2012, Fannie and Freddie headed back into the black and paid the Treasury $66 billion as a partial repayment of their bailout. Pursuant to a tried and true strategy, the concerned hedge funds filed a complaint on July 7 claiming that the ‘rule of law’ does not permit the government to change the terms and conditions and to exclude them from significant returns. In effect the hedge funds are arguing that the court should reward them for the taxpayer bailout of the government sponsored entities.
The Paperback Writer might find an audience with a transcript that sensationalizes the bold deception in investment services, business and politics…everyone is intrigued by schemes but there needs to be a happy ending which presently is hard to establish. THAT’S ENTERTAINMENT. The cost of the deception is an expense that society will pay. Actions do have consequences.
“You say goodbye and I say hello…You say why and I say I don’t know”