Friday, April 16, 2010

Still "Too Big To Fail?" Morgan Stanley Faces $5.4 Billion Loss & Goldman Sachs Defrauded Investors By Bets Against

(EXTRA: If anyone could make a contribution to my PayPal account (or otherwise - contact me for further info), it would be sincerely appreciated as I've just gone off the cliff financially. I really appreciate everything that my kind readers have done for me in the past financially and otherwise. Now . . . back to your regular viewing.)

Remember the diamond-studded banker, Jamie, head of Morgan Stanley, paragon of truth, virtue, intelligence and integrity? Yes, it is hard to go back to those thrilling days of yesteryear when the smart guys who worked on Wall Street were so much smarter than anyone else, isn't it? But hang on. The hot hot hot new book out on the scam (really apologies for how stoopid they were (and so sorry now for taking your money under false pretenses)) has a few choice phrases on him and his brilliancy in planning that may capture your imagination. Or at least they all hope so, and heck, he still got to keep on those ill-gotten gains! (It's not his fault, really!!!!) Andrew Ross Sorkin has written the ultimate insider's guide to whot hoppened as far as that goes for the present, and his empathy with these wealthiest of the wealthy guys will thrill your soul and soften the blow. NOT. I have included part of the Prologue at the bottom of this essay for your vasty enjoyment.

Later on past these events, we find out that Jamie's leadership position of Morgan Stanley may not have been in the top five. Read on for the facts (emphasis marks added - Ed.):

The soured investments made by the $8.8 billion fund, Msref VI International, continue to be a distraction for Morgan Stanley as it tries to extricate the fund from complex deals around the world. In many cases, the company can't walk away from foundering investments because the fund made billions of dollars in guarantees.

- - - - - - - Fresh Off the Griddle:
Apr 16, 2010 WASHINGTON (AP) - The government is accusing Wall Street powerhouse Goldman Sachs & Co. of defrauding investors in its disclosures about securities it sold tied to subprime mortgage securities as the housing market was faltering.

The Securities and Exchange Commission announced Friday civil fraud charges against Goldman Sachs and one of its vice presidents. The agency alleges that the company marketed complex subprime mortgage securities and failed to disclose to investors that a major hedge fund had bet against the securities.

Goldman Sachs shares fell 7.4 percent.

- - - - - - -

APRIL 14, 2010 Morgan Stanley Property Fund Faces $5.4 Billion Loss Morgan Stanley has told investors in its $8.8 billion real-estate fund that it may lose nearly two-thirds of its money from bum property investments, according to fund documents reviewed by The Wall Street Journal. That would likely make it the biggest dollar loss—$5.4 billion—in the history of private-equity real-estate investing. Over the past 20 years, Morgan Stanley's real-estate unit was one of the biggest buyers of property around the world, doing some $174 billion in deals since 1991, mostly with money raised from pension funds, college endowments and foreign investors. The losses come from investments in properties such as the European Central Bank's Frankfurt headquarters, a big development project in Tokyo and InterContinental hotels across Europe, among others. Morgan Stanley projects losses of 90% on the fund's $77 million investment in the Eurotower, which is the headquarters of the European Central Bank. The loss also represents a huge challenge for the firm as it tries to resuscitate its Morgan Stanley Real Estate Funds business, known as Msref. The firm has reinstated Owen Thomas, the executive who helped create Msref, as head of the real-estate business and brought in an outsider, real-estate-debt veteran John Klopp, to lead its property business in the Americas. The soured investments made by the $8.8 billion fund, Msref VI International, continue to be a distraction for Morgan Stanley as it tries to extricate the fund from complex deals around the world. In many cases, the company can't walk away from foundering investments because the fund made billions of dollars in guarantees.

Read on for more details of how this financial reality informs your world.

From Too Big To Fail (which I am reading now):

Standing in the kitchen of his Park Avenue apartment. Jamie Dimon poured himself a cup of coffee, hoping it might ease his headache. He was recovering from a slight hangover, but his head really hurt for a different reason: He knew too much.

It was just past 7:00 a.m. on the morning of Saturday, September 13, 2008. Dimon, the chief executive of JP Morgan Chase, the nation's third-largest bank, had spent part of the prior evening at an emergency, all-hands-on-deck meeting at the Federal Reserve Bank of New York with a dozen of his rival Wall Street CEOs. Their assignment was to come up with a plan to save Lehman Brothers, the nation's fourth-largest investment bank - or risk the collateral damage that might ensue in the markets.

To Dimon it was a terrifying predicament that caused his mind to spin as he rushed home afterward. He was already more than two hours late for a dinner party that his wife, Judy, was hosting. He was embarrassed by his delay because the dinner was for the parents of their daughter's boyfriend, whom he was meeting for the first time.

“Honestly, I’m never this late,” he offered, hoping to elicit some sympathy. Trying to avoid saying more than he should, still he dropped some hints about what had happened at the meeting. “You know, I am not lying about how serious this situation is,” Dimon told his slightly alarmed guests as he mixed himself a martini. “You’re going to read about it tomorrow in the papers.”

As he promised, Saturday’s papers prominently featured the dramatic news to which he had alluded. Leaning against the kitchen counter, Dimon opened the Wall Street Journal and read the headline of its lead story: “Lehman Races Clock; Crisis Spreads.”

Dimon knew that Lehman Brothers might not make it through the weekend. JP Morgan had examined its books earlier that week as a potential lender and had been unimpressed. He also had decided to request some extra collateral from the firm out of fear it might fall. In the next twenty four hours, Dimon knew, Lehman would either be rescued or ruined. Knowing what he did, however, Dimon was concerned about more than just Lehman Brothers. He was aware that Merrill Lynch, another icon of Wall Street, was in trouble, too, and he had just asked his staff to make sure JP Morgan had enough collateral from that firm as well. And he was also acutely aware of new dangers developing at the global insurance giant American International Group (AIG) that so far had gone relatively unnoticed by the public — it was his firm’s client, and they were scrambling to raise additional capital to save it. By his estimation AIG had only about a week to find a solution, or it, too, could falter.

Of the handful of principals involved in the dialogue about the enveloping crisis — the government included — Dimon was in an especially unusual position. He had the closest thing to perfect, real-time information. That “deal flow” enabled him to identify the fraying threads in the fabric of the financial system, even in the safety nets that others assumed would save the day.

Dimon began contemplating a worst-case scenario, and at 7:30 a.m. he went into his home library and dialed into a conference call with two dozen members of his management team.

“You are about to experience the most unbelievable week in America ever, and we have to prepare for the absolutely worst case,” Dimon told his staff. “We have to protect the firm. This is about our survival.”

His staff listened intently, but no one was quite certain what Dimon was trying to say.

Like most people on Wall Street — including Richard S. Fuld Jr., Lehman’s CEO, who enjoyed one of the longest reigns of any of its leaders — many of those listening to the call assumed that the government would intervene and prevent its failure. Dimon hastened to disabuse them of the notion.

“That’s wishful thinking. There is no way, in my opinion, that Washington is going to bail out an investment bank. Nor should they,” he said decisively. “I want you all to know that this is a matter of life and death. I’m serious.”

Then he dropped his bombshell, one that he had been contemplating for the entire morning. It was his ultimate doomsday scenario.

“Here’s the drill,” he continued. “We need to prepare right now for Lehman Brothers fi ling.” Then he paused. “And for Merrill Lynch filing.” He paused again. “And for AIG fi ling.” Another pause. “And for Morgan Stanley filing.” And after a final, even longer pause he added: “And potentially for Goldman Sachs filing.”

There was a collective gasp on the phone.

As Dimon had presciently warned in his conference call, the following days would bring a near collapse of the financial system, forcing a government rescue effort with no precedent in modern history. In a period of less than eighteen months, Wall Street had gone from celebrating its most profitable age to finding itself on the brink of an epochal devastation. Trillions of dollars in wealth had vanished, and the financial landscape was entirely reconfigured. The calamity would definitively shatter some of the most cherished principles of capitalism. The idea that financial wizards had conjured up a new era of low-risk profits, and that American-style financial engineering was the global gold standard, was officially dead.

This book was not written as an exposure of what actually happened. Instead, it's a product of research and conversations among intimates (and all that that connotes) and the best guesstimates of what actually did occur.

We'll have to wait for Matt Taibbi or the new Dr. HST (Driftglass?) to get the real story. Suzan ____________

13 comments:

RealityZone said...

The World Bank and the IMF are the ones to watch now. imo. some major changes are coming.

Suzan said...

Your blog absolutely rocks hard, RZ.

Thanks for the comment.

I myself am on tenterhooks waiting for the next shoe(s) to drop.

Salute!

S
_______

Teeluck said...

I have no compassion for the architects of this recession, my losses are too many...financially. May the bastards be condemned to remember this for the rest of their wasted lives.

RealityZone said...

TL:
These psychopaths can not be condemned.
They have no soul.

Marja said...

Hi dear suzan I see that there is again a lot going on in the big bad world. It all goes above me. Good that you showcase them although it is difficult to eliminate these bad forces.
I am playing around with the idea to showcase people who are the opposite in the future. I am busy as you know but enjoy it all

Lisa G. said...

I am so damned happy Goldman got indicted by the SEC - about time they got off their asses and did something about these bloodsuckers.

As for Jaime Dimon, well he's the reason I pulled my money from Chase - which I've banked with for over 20 years. His arrogance while testifying in front of Congress as well as his statement that he 'didn't know when they could start lending again' - what a fucking asshole! We bailed your asses out and now, even with big incentives you can't loan money - FU! Oh, and his statement that 'the commercial property foreclosures are already done'; well, not only are you the world's most arrogant asshole, but you totally called that WRONG 100 ways to Sunday. That downfall is just starting and the recession will be lengthened because of it. I'd love to see his ass in jail; not Club Fed either - Marion Max Prison right here in IL. I'd even go visit him so I could spit in his face.

Lisa G. said...

And Otis and I just shorted the shit out of Goldman today - I don't think their earnings call on Monday can save them. The only time we play Goldman is to short them - this is gonna be fun and their shareholders are going to be out for blood now!
BWAHAHAHAHA!

Short Short Stories said...

We have a financial crime syndicate operating in this country. Dimon, Blankfein, and others need to be indicted as domestic enemy non-combatants :)

At least, for fraud and conning their shareholders, investors and the world.

Short the hell out of GS and then, JPMorganChase, and BoA.

This nation will see no real recovery until these crooks are indicted, and they use up their personal millions defending themselves.

http://eye-on-washington.blogspot.com

RealityZone said...

It is really quite simple.
All they have to do is find ONE upper echelon guy. Give him total immunity, protective custody [he will need it].
He or she will talk. Perhaps remind him or her of some [Cheney tactics] for enticement. LOL
The whole house of card would fall, and burn.
They left a paper trail. They always do.

mud_rake said...

Yes, thanks for taking the time to enlighten the dumbed-down citizens of this nation although they aren't paying attention as usual.

There must have been some mysterious and potent chemical release some decades ago that dulled the curiosity of the masses here in America which has allowed the elite, the oligarchy to maintain control of this once-great nation.

Great reporting, Susan!

Suzan said...

I like your style, Mud_rake!

There must have been some mysterious and potent chemical release some decades ago that dulled the curiosity of the masses here in America which has allowed the elite, the oligarchy to maintain control of this once-great nation.

And RZ, from your lips to ?'s ears! And I've also been calling them "psychopaths" since Sept. 2008, when I first heard the fantastic tale of the know-nothing wizards.

All they have to do is find ONE upper echelon guy. Give him total immunity, protective custody [he will need it]. He or she will talk.

SSS, I am in complete agreement. Funny how when you're killed economically they don't think it a serious crime, huh? I, myself, don't think of them as "non-combatants" as they were aware of every move they made. If they weren't, they would have lost money like everyone else. But they didn't, did they?

We have a financial crime syndicate operating in this country. Dimon, Blankfein, and others need to be indicted as domestic enemy non-combatants :)


And Lisa, girl!!!!

You and Otis have my nomination for couple of the century!

So great to hear from you again!

And Otis and I just shorted the shit out of Goldman today

Great comment, Tee!

I can only add "in jail!"

May the bastards be condemned to remember this for the rest of their wasted lives.

Love you guys!

Smartest, most perceptive blog audience ever. It's a pleasure to know you.

S
__________________

libhom said...

I strongly agree with the idea of limiting the size of the banks. The old state laws against branch banking deserve a reexamination.

RealityZone said...

50 failed banks so far this year.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYAIaUFyiq2M&pos=6