The Fab Goes on Tour.

Baltic Dry Index. 3002 -07

LIR Gold Target by 2019: $3,000.

“Egol and Fabrice were way ahead of their time,” said one of the former Goldman workers.
“They saw the writing on the wall in this market as early as 2005.”

We open this morning with more on the Goldman scandal that typifies all that is wrong with parasitic casino capitalism and unrestricted hedge fund derivatives gambling. Was the great credit calamity, that nearly brought down the world’s economic system and plunged the world into the worst and continuing recession since the Great 1930s Depression, deliberately made in Goldman heaven at 85 Broad Street? But first this news from London. The “fabulous Fab” goes on the lam. Well actually just takes some time off. With the European airlines closed down and going out of business fast, and the trains and ferries that link John Bull’s advanced civilization with the natives of Europe jammed up with stranded refugees trying to get home, going on the lam from the world’s recently impoverished taxpayers isn’t exactly an option thanks to Iceland.

It’s morally wrong to let a sucker keep his money.

W.C. Fields. Goldman Ethicist.

Goldman's staffer charged by SEC takes time off
April 19, 2010, 3:08 p.m. EDT
Fabrice Tourre, a Goldman Sachs Group Inc. employee at the center of a government case against the bank over its sale of mortgage securities, is taking some time off but isn't suspended, the Fox Business Network reports Monday, citing Goldman Sachs.

Tourre remains an employee, according to the report.

Reuters also reported that Tourre remains with the firm. "He remains an employee of Goldman Sachs," and has taken a "personal decision to take a bit of time off," the news service quoted a Goldman Sachs spokesman as saying. The spokesman, who wasn't identified by name, also told Reuters that Goldman had found Tourre did "nothing wrong" during an internal investigation it conducted after the Securities and Exchange Commission first contacted the bank about the case.
http://www.marketwatch.com/story/goldmans-staffer-charged-by-sec-takes-time-off-2010-04-19

Below, a NY Times article we covered just before Christmas. I suspect that someone at the SEC was providing background briefing back then. I suspect that there is still a whole lot more to come out.

"The product was new and complex, but the deception and conflicts are old and simple."

SEC Director Division of Enforcement Robert Khuzami.

Banks Bundled Bad Debt, Bet Against It and Won
By GRETCHEN MORGENSON and LOUISE STORY Published: December 23, 2009

----- Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.
Goldman’s own clients who bought them, however, were less fortunate.
Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.

Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.
----- One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.

Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created.

------ But Goldman and other firms eventually used the C.D.O.’s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients’ interests.

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

Investment banks were not alone in reaping rich rewards by placing trades against synthetic C.D.O.’s. Some hedge funds also benefited, including Paulson & Company, according to former Goldman workers and people at other banks familiar with that firm’s trading.

Michael DuVally, a Goldman Sachs spokesman, declined to make Mr. Egol available for comment.

----- From 2005 through 2007, at least $108 billion in these securities was issued, according to Dealogic, a financial data firm. And the actual volume was much higher because synthetic C.D.O.’s and other customized trades are unregulated and often not reported to any financial exchange or market.

----- Worried about a housing bubble, top Goldman executives decided in December 2006 to change the firm’s overall stance on the mortgage market, from positive to negative, though it did not disclose that publicly.

Even before then, however, pockets of the investment bank had also started using C.D.O.’s to place bets against mortgage securities, in some cases to hedge the firm’s mortgage investments, as protection against a fall in housing prices and an increase in defaults.

Mr. Egol was a prime mover behind these securities. Beginning in 2004, with housing prices soaring and the mortgage mania in full swing, Mr. Egol began creating the deals known as Abacus. From 2004 to 2008, Goldman issued 25 Abacus deals, according to Bloomberg, with a total value of $10.9 billion.

Abacus allowed investors to bet for or against the mortgage securities that were linked to the deal. The C.D.O.’s didn’t contain actual mortgages. Instead, they consisted of credit-default swaps, a type of insurance that pays out when a borrower defaults. These swaps made it much easier to place large bets on mortgage failures.

Rather than persuading his customers to make negative bets on Abacus, Mr. Egol kept most of these wagers for his firm, said five former Goldman employees who spoke on the condition of anonymity. On occasion, he allowed some hedge funds to take some of the short trades.

------ Mr. Egol and Fabrice Tourre, a French trader at Goldman, were aggressive from the start in trying to make the assets in Abacus deals look better than they were, according to notes taken by a Wall Street investor during a phone call with Mr. Tourre and another Goldman employee in May 2005.

On the call, the two traders noted that they were trying to persuade analysts at Moody’s Investors Service, a credit rating agency, to assign a higher rating to one part of an Abacus C.D.O. but were having trouble, according to the investor’s notes, which were provided by a colleague who asked for anonymity because he was not authorized to release them. Goldman declined to discuss the selection of the assets in the C.D.O.’s, but a spokesman said investors could have rejected the C.D.O. if they did not like the assets.

Goldman’s bets against the performances of the Abacus C.D.O.’s were not worth much in 2005 and 2006, but they soared in value in 2007 and 2008 when the mortgage market collapsed. The trades gave Mr. Egol a higher profile at the bank, and he was among a group promoted to managing director on Oct. 24, 2007.

“Egol and Fabrice were way ahead of their time,” said one of the former Goldman workers.

“They saw the writing on the wall in this market as early as 2005.”
http://www.nytimes.com/2009/12/24/business/24trading.html?_r=1&pagewanted=2

Up next, AIG heads to the lawyers. The first of many I suspect.

AIG eyes action on Goldman over CDOs
By Francesco Guerrera in New York and Brooke Masters in London
Published: April 20 2010 00:00 Last updated: April 20 2010 01:09

AIG, the US government-controlled insurer, is considering pursuing Goldman Sachs over losses incurred on $6bn of insurance deals on mortgage-backed securities similar to the one that led to fraud charges against the US bank.

AIG’s move over the deals that caused it a loss of about $2bn is a sign that Friday’s decision by the Securities and Exchange Commission to file civil fraud charges against Goldman could spark actions from investors who lost money on mortgage-backed securities.

If AIG and others discover that their transactions had disclosure issues similar to those alleged in the SEC charges, they would be able to complain to the SEC, file a private lawsuit, or both, lawyers said.

People close to the situation said that AIG was reviewing deals to insure $6bn-worth of Goldman’s collateralised debt obligations in the run-up to the crisis. They added that AIG had yet to decide whether to take action. AIG and Goldman declined to comment.
http://www.ft.com/cms/s/0/db7dc52a-4bee-11df-a217-00144feab49a.html

We end on the subject of Goldman’s Madoff moment in the sunlight, busy capping a 141 year record of financial success, with the WSJ covering the hedge fund that seems to have got a pass in the developing scandal. Mr. Paulson, it seems, bet on red and black in the politics of money talks.

“In early 2008, the firm hired former Federal Reserve Chairman Alan Greenspan…. In September 2008, Paulson bet against four of the five biggest British banks. His positions included a £350m bet against shares in Barclays; £292m against Royal Bank of Scotland; and £260m against Lloyds TSB. He eventually booked a profit of as much as £280m after reducing its short position in RBS in January 2009.” Wikipedia.

APRIL 20, 2010
Paulson Gave to Both Parties
Politicians Seek to Tar by Association, but Bank and Paulson Gave Across Aisle
John Paulson, the man at the center of the government's case against Goldman Sachs Group Inc., has held political fund-raising events in recent weeks for top politicians of both political parties.

According to people familiar with the events, Mr. Paulson organized one of the events on behalf of the Republican National Committee and featured RNC Chairman Michael Steele and Republican presidential hopeful Mitt Romney. The other was for Democratic Sen. Charles Schumer of New York.

Mr. Paulson's bipartisan support for politicians points to the difficulty both parties face as they try to use the case against Goldman for political gain. Goldman was charged last week by the Securities and Exchange Commission with civil fraud relating to its trading in mortgage-related investments.

Mr. Paulson wasn't accused of wrongdoing. A spokesman said: "John Paulson supports a variety of candidates in both political parties based on keeping the United States the financial and economic capital of the world."

A spokesman for the RNC and Mr. Schumer declined to comment. A spokesman for Mr. Romney didn't respond to a request for comment.
http://online.wsj.com/article/SB10001424052748703757504575194502882068296.html?mod=WSJ_article_MoreIn

Below, Der Spiegel on Europe increasingly laid low by Iceland’s ash not cash. A-tissue, a-tissue we all fall down.

Eyjafjallajökull's Economic Impact
Airlines Fear Losses Higher than 9/11
04/19/2010
The disruption to air traffic caused by Iceland's volcanic ash is not just affecting German airlines' bottom lines. The knock-on effect on the entire economy could be severe. The initial estimates are of losses amounting to 1 billion euros a day.

Five days of quiet, plane-free skies have left Europe's airlines furious and warning that some companies may not survive. Now Brussels says it could come to the rescue of some of the airlines that are losing millions of euros a day due to closed airspace.

On Monday, Competition Commissioner Joaquin Almunia said that the European Union was prepared to react as it had after the Sept. 11, 2001 terror attacks. "If member states would decide to help with state aid and provided conditions for receiving state aid were not discriminatory, we are ready to think in a similar framework to after Sept. 11," he said at a conference in Brussels.

The International Air Transport Association (IATA) estimates that the losses caused by the volcanic ash cloud from Iceland could be higher than those incurred after Sept. 11, which saw airlines lose more than $10 billion (€7.4 billion). Officials at German airline Lufthansa alone say the company is losing €25 million a day.

IATA has warned that if the flight ban goes on for longer than a week that some of the 150 European airlines could go bust. The smaller airlines would be the first to go, IATA President Giovanni Bisignani said on Monday.

Airlines Slam Government

According to a study by the Swiss bank UBS, Europe's six biggest airlines -- Easyjet, Ryanair, British Airways, Iberia, Air France-KLM and Lufthansa -- together have seen losses of up to €140 million a day.

The ongoing paralysis is hitting Europe's airlines on the stock markets, as well. Shares in airlines fell by between 3.5 and 4.5 percent on Monday, with Germany's biggest airlines Lufthansa and Air Berlin each losing 5 percent of their value.

The two airlines have sharply criticized the flight ban in Germany, which after being eased somewhat on Sunday, has been re-imposed until 2 a.m. on Tuesday.
The two companies have slammed Transport Minister Peter Ramsauer and German Air Traffic Control (DFS) for closing German airspace. Lufthansa boss Wolfgang Mayrhuber said that the safety concerns had been unfounded.

----Meanwhile, his colleague Economy Minister Rainer Brüderle in Chancellor Angela Merkel's cabinet says he fears that the affects on the wider German economy could be significant. "If the global economic value-added chain is interrupted for a long period of time, then we get to a serious situation, because many of our industrial giants are dependent on air transport," he said in Berlin on Monday.

-----For example, replacement parts and components for machines and facilities built by German manufacturers cannot be transported. Many medical supplies are also usually delivered by air. "Urgent, perishable or high quality goods" cannot simply be transported by trucks or ships instead of by air he said.

Around 35 to 40 percent of international trade is conducted by air. This would amount to trade worth around €350 billion from Germany, the equivalent of around €1 billion a day. There are, of course, compensatory factors and some businesses can make up the losses later "but not 100 percent," according to Trier.

The affect is already being felt in one of Germany's leading companies. Carmaker BMW is not able to send important components to the United States, a spokesman said on Monday. While the production in the plants was continuing as normal, if the flight ban continues for two more days, the situation could get critical. "In the worse case scenario the conveyor belts might stop," he said.
http://www.spiegel.de/international/business/0,1518,689883,00.html#ref=nlint

APRIL 20, 2010
Vow to Renew Flights Clouded by Ash Warning
European Regulators Suggest Loosening Ban, but Pilots Ask for More Research; U.K. Sees New Plume From Iceland's Volcano

European regulators planned to start lifting flight bans Tuesday, but news late Monday put those plans in doubt even as pilot groups and scientists called for more caution before putting planes back into European skies clouded by volcanic ash.

Britain's National Air Traffic Services agency said late Monday that flying conditions were "worsening" in some areas. "The volcano eruption in Iceland has strengthened and a new ash cloud is spreading south and east towards the U.K.," the air-traffic agency said in its latest update. The agency said it still hopes to clear some airports to reopen Tuesday, though not the London gateways that handle the bulk of the country's air traffic.

The news came after European air-safety authorities agreed earlier Monday to relax flight bans that it enacted after Iceland's Eyjafjallajökull volcano (ay-yah-FYAH'-tlah-yer-kuh-duhl) started erupting violently Thursday, spewing a cloud of fine but potentially dangerous dust high into the atmosphere. Days of airspace closures across most of northern and central Europe, the world's biggest restriction of flights since 2001, have left more than eight million passengers dislocated and cost airlines at least $1 billion dollars.

Following criticism by airlines that authorities were being overly cautious in grounding flights, European Union officials agreed Monday to divide EU airspace into three zones based on ash concentrations in the atmosphere. European aviation authorities will establish a "limited" no-fly zone surrounded by a buffer area. Airlines will be allowed to fly outside the zone once they are opened by national authorities.
http://online.wsj.com/article/SB10001424052748704671904575193292611544742.html?mod=WSJEUROPE_hps_LEFTTopStories

In other European news, Greece edges closer to default. They may be out of sight amidst all of Iceland’s ash, and not a feature in this particular Goldman scandal that threatens to bring to an end Goldie’s 141 year Wall Street checkered career, but Greece is not helped if Europe’s tourists can’t get to visit and spend their hard earned cash. Europe’s fix-its and the IMF team had a hard time getting there too.

If at first you don't succeed, try again. Then quit. There's no use being a damn fool about it.

W.C. Fields.

Greece’s Uncertain Future Weighs on Bond Market
By MATTHEW SALTMARSH Published: April 19, 2010

Yields on Greek bonds pushed to fresh highs on Monday and shares in Athens sank as investors continued to worry about the country’s near-term ability to finance its debt. Some raised the specter of default even if international aid arrived soon.

Analysts said traders shifted out of Greek bonds amid worries about the country’s ability to raise more than 11 billion euros, or $14.8 billion, in May, especially in light of the delay of a crucial meeting that was to be held Monday between European, Greek and International Monetary Fund officials.

Vassilis Papadimitriou, a spokesman for the Greek government, said the meeting, postponed because of travel chaos in Europe, would go ahead Wednesday provided that European Union and central bank officials were able to get to Athens. Airports across Europe remained closed Monday because of the volcanic eruption on Wednesday in Iceland, which has spread potentially hazardous ash across the Continent.

Bill Murray, a Washington-based spokesman for the I.M.F., confirmed on Monday that most members of the I.M.F. team had arrived in Athens to discuss “policies that could be the basis for a fund financing program.” He declined to comment on the duration of the mission.
Even with those talks expected to move ahead, investors were worrying about the country’s financing needs — in coming months and years.
http://www.nytimes.com/2010/04/20/business/global/20drachma.html

So, Goldman is a serial arsonist that has turned betting against its clients' interests into a science. The Times article makes it clear that shorting subprime and luring gullible investors into the trap, was standard operating procedure. Goldman's CEO Lloyd Blankfein dismisses the criticism with a wave of the hand saying, "They were sophisticated investors," which is the same as saying "buyer beware". It's worth noting that shorting subprimes exacerbated the pain in housing by creating incentives for originators to issue more mortgages to people with poor credit. This prolonged the housing boom and deepened the recession when the bubble finally burst. The eventual downturn was largely engineered by Wall Street.
http://www.counterpunch.org/whitney04192010.html

At the Comex silver depositories Monday, final figures were: Registered 48.85 Moz, Eligible 66.08 Moz, Total 114.93 Moz.

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Crooks & Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Today, you really couldn’t make this nonsense up. Yet another reason for the UK to leave the insane European Union. The world doesn’t just owe Europe a free living Greek style, it owes them free or subsidized holidays as well. Another unintended consequence of the error of the great Nixonian error of fiat money.

April 18, 2010
Get packing: Brussels decrees holidays are a human right

AN overseas holiday used to be thought of as a reward for a year’s hard work. Now Brussels has declared that tourism is a human right and pensioners, youths and those too poor to afford it should have their travel subsidised by the taxpayer.

Under the scheme, British pensioners could be given cut-price trips to Spain, while Greek teenagers could be taken around disused mills in Manchester to experience the cultural diversity of Europe.

The idea for the subsidised tours is the brainchild of Antonio Tajani, the European Union commissioner for enterprise and industry, who was appointed by Silvio Berlusconi, the Italian prime minister.

The scheme, which could cost hundreds of millions of pounds a year, is intended to promote a sense of pride in European culture, bridge the north-south divide in the continent and prop up resorts in their off-season.

Tajani, who unveiled his plan last week at a ministerial conference in Madrid, believes the days when holidays were a luxury have gone. “Travelling for tourism today is a right. The way we spend our holidays is a formidable indicator of our quality of life,” he said.

Tajani, who used to be transport commissioner, said he had been able to “affirm the rights of passengers” in his previous office and the next step was to ensure people’s “right to be tourists”.
The European Union has experience of subsidised holidays. In February the European parliament paid contributions of up to 52% towards an eight-day skiing trip in the Italian Alps for 80 children of Eurocrats.

Tajani’s programme will be piloted until 2013 and then put into full operation. It will be open to pensioners and anyone over 65, young people between 18 and 25, families facing “difficult social, financial or personal” circumstances and disabled people. The disabled and the elderly can be accompanied by one person.

In the initial phase, northern Europeans will be encouraged to visit southern Europe and vice versa. Details of how participants are chosen have not yet been finalised, but it is expected the EU will subsidise about 30% of the cost.
http://www.timesonline.co.uk/tol/news/world/europe/article7100943.ece

Below, the more things change the more they stay the same. Goldie has form as they say.

In the early 20th century, Goldman was a player in establishing the initial public offering market. It managed one of the largest IPOs to date, that of Sears, Roebuck and Company in 1906. It also became one of the first companies to heavily recruit those with MBA degrees from leading business schools, a practice that still continues today.

On December 4, 1928, it launched the Goldman Sachs Trading Corp. a closed-end fund with characteristics similar to that of a Ponzi scheme. The fund failed as a result of the Stock Market Crash of 1929, hurting the firm's reputation for several years afterward. Of this case and others like Blue Ridge Corporation and Shenandoah Corporation John Kenneth Galbraith wrote: The Autumn of 1929 was, perhaps, the first occasion when men succeeded on a large scale in swindling themselves.

Wikipedia.

The monthly Coppock Indicators finished March:

DJIA: +168 UP. NASDAQ: +370 UP. SP500: +196 UP. The great Bull market goes on with the all three continuing higher in positive numbers.

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