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LSE buys Turquoise

The London Stock Exchange (LSE) announced this morning that it will take control of rival trading platform Turquoise.

The LSE will merge the platform with its own Baikal operation, to create "a new pan-European trading venture".

The merged entity will be 60 per cent owned by LSE and 40 per cent by existing Turquoise shareholders and will continue to trade under the Turquoise name.

Xavier Rolet, chief executive of the LSE, said: "Turquoise's existing pan-European footprint is a strong proposition and together with the introduction of new trading technology and a neutral structure, we believe it is now well positioned to be an agent of change and to capture a healthy slice of the market's growth potential."

The exchange will incur exceptional costs of up to £20m in the current financial year, comprising the write-off of legacy technology costs, and other restructuring and integration costs, including contract exit costs.

Turquoise was set up by a consortium of investment banks following deregulation, and was an attempt to force traditional exchanges such as the LSE to lower trading fees. It began operating around 18 months ago.

But the banks were no longer willing to fund the unprofitable platform after being hit hard by the recession. The deal this week is being seen by some in the City as a political move by the LSE to make peace with the banks.

Christopher Morris, director of consultancy Aequitas Associates, told the Financial Times: “It is rebuilding goodwill with the banking community that will be the most valuable asset.”

The LSE will fully fund the cash needs of the new venture for the first two years and says it wants to bring the business to sustainable profitability.

David Lester, the LSE's head of IT, has been tipped as the head of the new joint venture, which is expected to be run as an independent operation.

Buffett: My Best Deals Are Ones I Didn't Make

Investment icon Warren Buffett says his firm Berkshire Hathaway may not have made out like a bandit during the financial crisis, but it did OK.

"I bought my first stock in 1942, and this roller coaster surpassed anything that I've seen," he told The Wall Street Journal.

"We didn't do all the smartest things. We didn't do anything really dumb."

Buffett says his smartest decisions during the crisis may have been the deals he turned down. Those included opportunities to invest in Bear Stearns, Lehman Brothers, AIG, Freddie Mac and Wachovia.

All those firms failed or received government bailouts.

"I don't think Buffett gets enough credit for all the pitches he doesn't swing at," Paul Howard, an analyst at Janney Montgomery Scott, told The Journal. "And he gets a lot of pitches."

The two main deals Buffett did make, investing $5 billion in Goldman Sachs and $3 billion in General Electric, were made on terms very favorable to Berkshire.

He does regret making all his investments before early March when the stock market bottomed. "I didn't maximize the opportunities offered by the chaos. But in the end, it worked out OK," Buffett said.

Many analysts are bullish about Berkshire’s latest deal – to buy Burlington Northern Santa Fe for $34 billion.

"(Buffett is) buying at the trough; things aren't going to get much worse. He's getting in at a good time," Art Hatfield, an analyst at Morgan Keegan, told the Associated Press.

Whitney Says Goldman Sachs Lost ‘Tremendous’ Talent

Meredith Whitney, the analyst who cut her rating on Goldman Sachs Group Inc. last month, said the bank has lost some of its top-performing employees as executives left to start their own investment companies.

“Goldman’s lost a tremendous amount of talent going to set up their own hedge funds,” Whitney, founder of Meredith Whitney Advisory Group, said today in an interview on Bloomberg Radio. “It became a scary prospect of having the government determine what you make.”

The Federal Reserve said last month it will review the 28 largest banks to ensure pay doesn’t create incentives to make the kinds of risky investments that brought the financial system to the edge of collapse, prompting bailouts of firms including Bank of America Corp. and Citigroup Inc. Goldman Sachs Chief Executive Officer Lloyd Blankfein said in May the bank, the most profitable Wall Street firm in history, was having no more trouble than usual in retaining employees.

Bill Gross; out out brief candle...

“almost all assets appaear to be overvalued”

“The last fifty years produced a persistent increase in asset prices vs. nominal GDP that led to an average overall 50-year appreciation advantage of 1.3% annually. That’s another way of saying you would have been far better off investing in paper than factories or machinery or the requisite components of an educated workforce. We, in effect, were hollowing out our productive future at the expense of worthless paper such as subprimes, dotcoms, or in part, blue chip stocks and investment grade/government bonds. Putting a compounding computer to this 1.3% annual outperformance for 50 years, produces a double, and leads to the conclusion that the return from all assets was 100% (or 15 trillion - one year’s GDP) higher than what it theoretically should have been. Financial leverage, in other words, drove the prices of stocks, bonds, homes, and shopping malls to extraordinary valuation levels - at least compared to 1956 - and there could be payback ahead as the leveraging turns into delevering and nominal GDP growth regains the winner’s platform”

Wall Street’s Naked Swindle

A scheme to flood the market with counterfeit stocks helped kill Bear Stearns and Lehman Brothers — and the feds have yet to bust the culprits

On Tuesday, March 11th, 2008, somebody — nobody knows who — made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness — “like buying 1.7 million lottery tickets,” according to one financial analyst.

But what’s even crazier is that the bet paid.

At the close of business that afternoon, Bear Stearns was trading at $62.97. At that point, whoever made the gamble owned the right to sell huge bundles of Bear stock, at $30 and $25, on or before March 20th. In order for the bet to pay, Bear would have to fall harder and faster than any Wall Street brokerage in history.

The very next day, March 12th, Bear went into free fall. By the end of the week, the firm had lost virtually all of its cash and was clinging to promises of state aid; by the weekend, it was being knocked to its knees by the Fed and the Treasury, and forced at the barrel of a shotgun to sell itself to JPMorgan Chase (which had been given $29 billion in public money to marry its hunchbacked new bride) at the humiliating price of … $2 a share. Whoever bought those options on March 11th woke up on the morning of March 17th having made 159 times his money, or roughly $270 million. This trader was either the luckiest guy in the world, the smartest son of a bitch ever or…

Or what? That this was a brazen case of insider manipulation was so obvious that even Sen. Chris Dodd, chairman of the pillow-soft-touch Senate Banking Committee, couldn’t help but remark on it a few weeks later, when questioning Christopher Cox, the then-chief of the Securities and Exchange Commission. “I would hope that you’re looking at this,” Dodd said. “This kind of spike must have triggered some sort of bells and whistles at the SEC. This goes beyond rumors.”

Cox nodded sternly and promised, yes, he would look into it. What actually happened is another matter. Although the SEC issued more than 50 subpoenas to Wall Street firms, it has yet to identify the mysterious trader who somehow seemed to know in advance that one of the five largest investment banks in America was going to completely tank in a matter of days. “I’ve seen the SEC send agents overseas in a simple insider-trading case to investigate profits of maybe $2,000,” says Brent Baker, a former senior counsel for the commission. “But they did nothing to stop this.”

The SEC’s halfhearted oversight didn’t go unnoticed by the market. Six months after Bear was eaten by predators, virtually the same scenario repeated itself in the case of Lehman Brothers — another top-five investment bank that in September 2008 was vaporized in an obvious case of market manipulation. From there, the financial crisis was on, and the global economy went into full-blown crater mode.

Like all the great merchants of the bubble economy, Bear and Lehman were leveraged to the hilt and vulnerable to collapse. Many of the methods that outsiders used to knock them over were mostly legal: Credit markers were pulled, rumors were spread through the media, and legitimate short-sellers pressured the stock price down. But when Bear and Lehman made their final leap off the cliff of history, both undeniably got a push — especially in the form of a flat-out counterfeiting scheme called naked short-selling.

That this particular scam played such a prominent role in the demise of the two firms was supremely ironic. After all, the boom that had ballooned both companies to fantastic heights was basically a counterfeit economy, a mountain of paste that Wall Street had built to replace the legitimate business it no longer had. By the middle of the Bush years, the great investment banks like Bear and Lehman no longer made their money financing real businesses and creating jobs. Instead, Wall Street now serves, in the words of one former investment executive, as “Lucy to America’s Charlie Brown,” endlessly creating new products to lure the great herd of unwitting investors into whatever tawdry greed-bubble is being spun at the moment: Come kick the football again, only this time we’ll call it the Internet, real estate, oil futures. Wall Street has turned the economy into a giant asset-stripping scheme, one whose purpose is to suck the last bits of meat from the carcass of the middle class.

What really happened to Bear and Lehman is that an economic drought temporarily left the hyenas without any more middle-class victims — and so they started eating each other, using the exact same schemes they had been using for years to fleece the rest of the country. And in the forensic footprint left by those kills, we can see for the first time exactly how the scam worked — and how completely even the government regulators who are supposed to protect us have given up trying to stop it.

This was a brokered bloodletting, one in which the power of the state was used to help effect a monstrous consolidation of financial and political power. Heading into 2008, there were five major investment banks in the United States: Bear, Lehman, Merrill Lynch, Morgan Stanley and Goldman Sachs. Today only Morgan Stanley and Goldman survive as independent firms, perched atop a restructured Wall Street hierarchy. And while the rest of the civilized world responded to last year’s catastrophes with sweeping measures to rein in the corruption in their financial sectors, the United States invited the wolves into the government, with the popular new president, Barack Obama — elected amid promises to clean up the mess — filling his administration with Bear’s and Lehman’s conquerors, bestowing his papal blessing on a new era of robbery.

To the rest of the world, the brazenness of the theft — coupled with the conspicuousness of the government’s inaction — clearly demonstrates that the American capital markets are a crime in progress. To those of us who actually live here, however, the news is even worse. We’re in a place we haven’t been since the Depression: Our economy is so completely fucked, the rich are running out of things to steal.

If you squint hard enough, you can see that the derivative-driven economy of the past decade has always, in a way, been about counterfeiting. At their most basic level, innovations like the ones that triggered the global collapse — credit-default swaps and collateralized debt obligations — were employed for the primary purpose of synthesizing out of thin air those revenue flows that our dying industrial economy was no longer pumping into the financial bloodstream. The basic concept in almost every case was the same: replacing hard assets with complex formulas that, once unwound, would prove to be backed by promises and IOUs instead of real stuff. Credit-default swaps enabled banks to lend more money without having the cash to cover potential defaults; one type of CDO let Wall Street issue mortgage-backed bonds that were backed not by actual monthly mortgage payments made by real human beings, but by the wild promises of other irresponsible lenders. They even called the thing a synthetic CDO — a derivative contract filled with derivative contracts — and nobody laughed. The whole economy was a fake.

For most of this decade, nobody rocked that fake economy — especially the faux housing market — better than Bear Stearns. In 2004, Bear had been one of five investment banks to ask the SEC for a relaxation of lending restrictions that required it to possess $1 for every $12 it lent out; as a result, Bear’s debt-to-equity ratio soared to a staggering 33-1. The bank used much of that leverage to issue mountains of mortgage-backed securities, essentially borrowing its way to a booming mortgage business that helped drive its share price to a high of $172 in early 2007.

But that summer, Bear started to crater. Two of its hedge funds that were heavily invested in mortgage-backed deals imploded in June and July, forcing the credit-raters at Standard & Poor’s to cut its outlook on Bear from stable to negative. The company survived through the winter — in part by jettisoning its dipshit CEO, Jimmy Cayne, a dithering, weed-smoking septuagenarian who was spotted at a bridge tournament during the crisis — but by March 2008, it was almost wholly dependent on a network of creditors who supplied it with billions in rolling daily loans to keep its doors open. If ever there was a major company ripe to be assassinated by market manipulators, it was Bear Stearns in 2008.

Then, on March 11th — around the same time that mystery Nostradamus was betting $1.7 million that Bear was about to collapse — a curious thing happened that attracted virtually no notice on Wall Street. On that day, a meeting was held at the Federal Reserve Bank of New York that was brokered by Fed chief Ben Bernanke and then-New York Fed president Timothy Geithner. The luncheon included virtually everyone who was anyone on Wall Street — except for Bear Stearns.

Bear, in fact, was the only major investment bank not represented at the meeting, whose list of participants reads like a Barzini-Tattaglia meeting of the Five Families. In attendance were Jamie Dimon from JPMorgan Chase, Lloyd Blankfein from Goldman Sachs, James Gorman from Morgan Stanley, Richard Fuld from Lehman Brothers and John Thain, the big-spending office redecorator still heading the not-yet-fully-destroyed Merrill Lynch. Also present were old Clinton hand Robert Rubin, who represented Citigroup; Stephen Schwarzman of the Blackstone Group; and several hedge-fund chiefs, including Kenneth Griffin of Citadel Investment Group.

The meeting was never announced publicly. In fact, it was discovered only by accident, when a reporter from Bloomberg filed a request under the Freedom of Information Act and came across a mention of it in Bernanke’s schedule. Rolling Stone has since contacted every major attendee, and all declined to comment on what was discussed at the meeting. “The ground rules of the lunch were of confidentiality,” says a spokesman for Morgan Stanley. “Blackstone has no comment,” says a spokesman for Schwarzman. Rubin declined a request for an interview, Fuld’s people didn’t return calls, and Goldman refused to talk about the closed-door session. The New York Fed said the meeting, which had been scheduled weeks earlier, was simply business as usual: “Such informal, small group sessions can provide a valuable means to learn about market functioning from people with firsthand knowledge.”

So what did happen at that meeting? There’s no evidence that Bernanke and Geithner called the confidential session to discuss Bear’s troubles, let alone how to carve up the bank’s spoils. It’s possible that one of them made an impolitic comment about Bear during a meeting held for other reasons, inadvertently fueling a run on the bank. What’s impossible to believe is the bullshit version that Geithner and Bernanke later told Congress. The month after Bear’s collapse, both men testified before the Senate that they only learned how dire the firm’s liquidity problems were on Thursday, March 13th — despite the fact that rumors of Bear’s troubles had begun as early as that Monday and both men had met in person with every key player on Wall Street that Tuesday. This is a little like saying you spent the afternoon of September 12th, 2001, in the Oval Office, but didn’t hear about the Twin Towers falling until September 14th.

Given the Fed’s cloak of confidentiality, we simply don’t know what happened at the meeting. But what we do know is that from the moment it ended, the run on Bear was on, and every major player on Wall Street with ties to Bear started pulling IV tubes out of the patient’s arm. Banks, brokers and hedge funds that held cash in Bear’s accounts yanked it out in mass quantities (making it harder for the firm to meet its credit payments) and took out credit- default swaps against Bear (making public bets that the firm was going to tank). At the same time, Bear was blindsided by an avalanche of “novation requests” — efforts by worried creditors to sell off the debts that Bear owed them to other Wall Street firms, who would then be responsible for collecting the money. By the afternoon of March 11th, two rival investment firms — Credit Suisse and Goldman Sachs — were so swamped by novation requests for Bear’s debt that they temporarily stopped accepting them, signaling the market that they had grave doubts about Bear.

All of these tactics were elements that had often been seen in a kind of scam known as a “bear raid” that small-scale stock manipulators had been using against smaller companies for years. But the most damning thing the attack on Bear had in common with these earlier manipulations was the employment of a type of counterfeiting scheme called naked short-selling. From the moment the confidential meeting at the Fed ended on March 11th, Bear became the target of this ostensibly illegal practice — and the companies widely rumored to be behind the assault were in that room. Given that the SEC has failed to identify who was behind the raid, Wall Street insiders were left with nothing to trade but gossip. According to the former head of Bear’s mortgage business, Tom Marano, the rumors within Bear itself that week centered around Citadel and Goldman. Both firms were later subpoenaed by the SEC as part of its investigation into market manipulation — and the CEOs of both Bear and Lehman were so suspicious that they reportedly contacted Blankfein to ask whether his firm was involved in the scam. (A Goldman spokesman denied any wrongdoing, telling reporters it was “rigorous about conducting business as usual.”)

The roots of short-selling date back to 1973, when Wall Street went to a virtually paperless system for trading stocks. Before then, if you wanted to sell shares you owned in Awesome Company X, you and the buyer would verbally agree to the deal through a broker. The buyer would take legal ownership of the shares, but only later would the broker deliver the actual, physical shares to the buyer, using an absurd, Brazil-style network of runners who carried paper shares from one place to another — a preposterous system that threatened to cripple trading altogether.

To deal with the problem, Wall Street established a kind of giant financial septic tank called the Depository Trust Company. Privately owned by a consortium of brokers and banks, the DTC centralizes and maintains all records of stock transactions. Now, instead of being schlepped back and forth across Manhattan by messengers on bikes, almost all physical shares of stock remain permanently at the DTC. When one broker sells shares to another, the trust company “delivers” the shares simply by making a change in its records.

This new electronic system spurred an explosion of financial innovation. One practice that had been little used before but now began to be employed with great popularity was short- selling, a perfectly legal type of transaction that allows investors to bet against a stock. The basic premise of a normal short sale is easy to follow. Say you’re a hedge-fund manager, and you want to bet against the stock of a company — let’s call it Wounded Gazelle International (WGI). What you do is go out on the market and find someone — often a brokerage house like Goldman Sachs — who has shares in that stock and is willing to lend you some. So you go to Goldman on a Monday morning, and you borrow 1,000 shares in Wounded Gazelle, which that day happens to be trading at $10.

Now you take those 1,000 borrowed shares, and you sell them on the open market at $10, which leaves you with $10,000 in cash. You then take that $10,000, and you wait. A week later, surveillance tapes of Wounded’s CEO having sex with a woodchuck in a Burger King bathroom appear on CNBC. Awash in scandal, the firm’s share price tumbles to 3½. So you go out on the market and buy back those 1,000 shares of WGI — only now it costs you only $3,500 to do so. You then return the shares to Goldman Sachs, at which point your interest in WGI ends. By betting against or “shorting” the company, you’ve made a profit of $6,500.

It’s important to point out that not only is normal short-selling completely legal, it can also be socially beneficial. By incentivizing Wall Street players to sniff out inefficient or corrupt companies and bet against them, short-selling acts as a sort of policing system; legal short- sellers have been instrumental in helping expose firms like Enron and WorldCom. The problem is, the new paperless system instituted by the DTC opened up a giant loophole for those eager to game the market. Under the old system, would-be short-sellers had to physically borrow actual paper shares before they could execute a short sale. In other words, you had to actually have stock before you could sell it. But under the new system, a short-seller only had to make a good-faith effort to “locate” the stock he wanted to borrow, which usually amounts to little more than a conversation with a broker:

Evil Hedge Fund: I want to short IBM. Do you have a million shares I can borrow?

Corrupt Broker [not checking, playing Tetris]: Uh, yeah, whatever. Go ahead and sell.

There was nothing to prevent that broker — let’s say he has only a million shares of IBM total — from making the same promise to five different hedge funds. And not only could brokers lend stocks they never had, another loophole in the system allowed hedge funds to sell those stocks and deliver a kind of IOU instead of the actual share to the buyer. When a share of stock is sold but never delivered, it’s called a “fail” or a “fail to deliver” — and there was no law or regulation in place that prevented it. It’s exactly what it sounds like: a loophole legalizing the counterfeiting of stock. In place of real stock, the system could become infected with “fails” — phantom IOU shares — instead of real assets.

If you own stock that pays a dividend, you can even look at your dividend check to see if your shares are real. If you see a line that says “PIL” — meaning “Payment in Lieu” of dividends — your shares were never actually delivered to you when you bought the stock. The mere fact that you’re even getting this money is evidence of the crime: This counterfeiting scheme is so profitable for the hedge funds, banks and brokers involved that they are willing to pay “dividends” for shares that do not exist. “They’re making the payments without complaint,” says Susanne Trimbath, an economist who worked at the Depository Trust Company. “So they’re making the money somewhere else.”

Trimbath was one of the first people to notice the problem. In 1993, she was approached by a group of corporate transfer agents who had a complaint. Transfer agents are the people who keep track of who owns shares in corporations, for the purposes of voting in corporate elections. “What the transfer agents saw, when corporate votes came up, was that they were getting more votes than there were shares,” says Trimbath. In other words, transfer agents representing a corporation that had, say, 1 million shares outstanding would report a vote on new board members in which 1.3 million votes were cast — a seeming impossibility.

Analyzing the problem, Trimbath came to an ugly conclusion: The fact that short-sellers do not have to deliver their shares made it possible for two people at once to think they own a stock. Evil Hedge Fund X borrows 100 shares from Unwitting Schmuck A, and sells them to Unwitting Schmuck B, who never actually receives that stock: In this scenario, both Schmucks will appear to have full voting rights. “There’s no accounting for share ownership around short sales,” Trimbath says. “And because of that, there are multiple owners assigned to one share.”

Trimbath’s observation would prove prophetic. In 2005, a trade group called the Securities Transfer Association analyzed 341 shareholder votes taken that year — and found evidence of over-voting in every single one. Experts in the field complain that the system makes corporate-election fraud a comically simple thing to achieve: In a process known as “empty voting,” anyone can influence any corporate election simply by borrowing great masses of shares shortly before an important merger or board election, exercising their voting rights, then returning the shares right after the vote is over. Hilariously, because you’re only borrowing the shares and not buying them, you can effectively “buy” a corporate election for free.

Back in 1993, over-voting might have seemed a mere curiosity, the result not of fraud but of innocent bookkeeping errors. But Trimbath realized the broader implication: Just as the lack of hard rules forcing short-sellers to deliver shares makes it possible for unscrupulous traders to manipulate a corporate vote, it could also enable them to manipulate the price of a stock by selling large quantities of shares they didn’t possess. She warned her bosses that this crack in the system made the specter of organized counterfeiting a real possibility.

“I personally went to senior management at DTC in 1993 and presented them with this issue,” she recalls. “And their attitude was, ‘We spill more than that.’” In other words, the problem represented such a small percentage of the assets handled annually by the DTC — as much as $1.8 quadrillion in any given year, roughly 30 times the GDP of the entire planet — that it wasn’t worth worrying about.

It wasn’t until 10 years later, when Trimbath had a chance meeting with a lawyer representing a company that had been battered by short-sellers, that she realized someone outside the DTC had seized control of a financial weapon of mass destruction. “It was like someone figured out how to aim and fire the Death Star in Star Wars,” she says. What they “figured out,” Trimbath realized, was an early version of the naked-shorting scam that would help take down Bear and Lehman.

Here’s how naked short-selling works: Imagine you travel to a small foreign island on vacation. Instead of going to an exchange office in your hotel to turn your dollars into Island Rubles, the country instead gives you a small printing press and makes you a deal: Print as many Island Rubles as you like, then on the way out of the country you can settle your account. So you take your printing press, print out gigantic quantities of Rubles and start buying goods and services. Before long, the cash you’ve churned out floods the market, and the currency’s value plummets. Do this long enough and you’ll crack the currency entirely; the loaf of bread that cost the equivalent of one American dollar the day you arrived now costs less than a cent.

With prices completely depressed, you keep printing money and buy everything of value — homes, cars, priceless works of art. You then load it all into a cargo ship and head home. On the way out of the country, you have to settle your account with the currency office. But the Island Rubles you printed are now worthless, so it takes just a handful of U.S. dollars to settle your debt. Arriving home with your cargo ship, you sell all the island riches you bought at a discount and make a fortune.

This is the basic outline for how to seize the assets of a publicly traded company using counterfeit stock. What naked short-sellers do is sell large quantities of stock they don’t actually have, flooding the market with “phantom” shares that, just like those Island Rubles, depress a company’s share price by making the shares less scarce and therefore less valuable.

The first documented cases of this scam involved small-time boiler-room grifters. In the late 1990s, not long after Trimbath warned her bosses about the problem, a trader named John Fiero executed a series of “bear raids” on small companies. First he sold shares he didn’t possess in huge quantities and fomented negative rumors about a company; then, in a classic shakedown, he approached the firm with offers to desist — if they’d sell him stock at a discount. “He would press a button and enter a trade for half a million shares,” says Brent Baker, the SEC official who busted Fiero. “He didn’t have the stock to cover that — but the price of the stock would drop to a penny.”

In 2005, complaints from investors about naked short-selling finally prompted the SEC to try to curb the scam. A new rule called Regulation SHO, known as “Reg SHO” for short, established a series of guidelines designed, in theory, to prevent traders from selling stock and then failing to deliver it to the buyer. “Intentionally failing to deliver stock,” then-SEC chief Christopher Cox noted, “is market manipulation that is clearly violative of the federal securities laws.” But thanks to lobbying by hedge funds and brokers, the new rule included no financial penalties for violators and no real enforcement mechanism. Instead, it merely created a thing called the “threshold list,” requiring short-sellers to close out their positions in any company where the amount of “fails to deliver” exceeded 10,000 shares for more than 13 days. In other words, if counterfeiters got caught selling a chunk of phantom shares in a firm for two straight weeks, they were no longer allowed to counterfeit the stock.

A nice, if timid idea — except that it’s completely meaningless. Not only has there been virtually no enforcement of the rule, but the SEC doesn’t even bother to track who is targeting companies with failed trades. As a result, many stocks attacked by naked short-sellers spent years on the threshold list, including Krispy Kreme, Martha Stewart and Overstock.com.

“We were actually on it for 668 consecutive days,” says Patrick Byrne, the CEO of Overstock, who became a much-ridiculed pariah on Wall Street for his lobbying against naked short-selling. At one point, investors claimed ownership of nearly 42 million shares in Overstock — even though fewer than 24 million shares in the company had actually been issued.

Byrne is not an easy person for anyone with any kind of achievement neuroses to like. He is young, good-looking, has shitloads of money, speaks fluent Chinese, holds a doctorate in philosophy and spent his youth playing hooky from high school and getting business tips from the likes of Warren Buffett. But because of his fight against naked short-selling, he has been turbofragged by the mainstream media as a tinfoil-hat lunatic; one story in the New York Post featured a picture of Byrne with a flying saucer coming out of his head.

Nonetheless, Byrne’s howlings about naked short-selling look extremely prescient in light of what happened to Bear and Lehman. Over the past four years, Byrne has outlined the parameters of a naked-shorting scam that always includes some combination of the following elements: negative rumors planted in the financial press, the flooding of the market with enormous quantities of undelivered shares, absurdly high trading volumes and the prolonged appearance of the targeted company on the Reg SHO list.

In January 2005 — at the exact moment Reg SHO was launched — Byrne’s own company was trading above $65 a share, and the number of failed trades in circulation was virtually nil. By March 2006, however, Overstock was down to $28 a share, and Reg SHO data indicated an explosion of failed trades — nearly 4 million undelivered shares on some days. At those moments, in other words, nearly a fifth of all Overstock shares were fake.

“This really isn’t about my company,” Byrne says. “I mean, I’ve made my money. My initial concern, of course, was with Overstock. But the more I learned about this, the more my real worry became ‘Jesus, what are the implications for the system?’ And given what happened to Bear and Lehman last year, I think we ended up seeing what some of those implications are.”

Bear Stearns wasn’t the kind of company that had a problem with naked short-selling. Before March 11th, 2008, there had never been a period in which significant quantities of Bear stock had been sold and then not delivered, and the company had never shown up on the Reg SHO list. But beginning on March 12th — the day after the Fed meeting that failed to include Bear, and the mysterious purchase of the options betting on the firm’s imminent collapse — the number of counterfeit shares in Bear skyrocketed.

The best way to grasp what happened is to look at the data: On Tuesday, March 11th, there were 201,768 shares of Bear that had failed to deliver. The very next day, the number of phantom shares leaped to 1.2 million. By the close of trading that Friday, the number passed 2 million — and when the market reopened the following Monday, it soared to 13.7 million. In less than a week, the number of counterfeit shares in Bear had jumped nearly seventyfold.

The giant numbers of undelivered shares over the course of that week amounted to one of the most blatant cases of stock manipulation in Wall Street history. “There is not a doubt in my mind, not a single doubt” that naked short-selling helped destroy Bear, says Sen. Ted Kaufman, a Democrat from Delaware who has introduced legislation to curb such financial fraud. Asked to rate how obvious a case of naked short-selling Bear is, on a scale of one to 10, former SEC counsel Brent Baker doesn’t hesitate. “Easily a 10,” he says.

At the same time that naked short- sellers were counterfeiting Bear’s stock, the firm was being hit by another classic tactic of bear raids: negative rumors in the media. Tipped off by a source, CNBC reporter David Faber reported on March 12th that Goldman Sachs had held up a trade with Bear because it was worried about the firm’s creditworthiness. Faber noted that the hold was temporary — the deal had gone through that morning. But the damage was done; inside Bear, Faber’s report was blamed for much of the subsequent panic.

“I like Faber, he’s a good guy,” a Bear executive later said. “But I wonder if he ever asked himself, ‘Why is someone telling me this?’ There was a reason this was leaked, and the reason is simple: Someone wanted us to go down, and go down hard.”

At first, the full-blown speculative attack on Bear seemed to be working. Thanks to the media-fueled rumors and the mounting anxiety over the company’s ability to make its payments, Bear’s share price plummeted seven percent on March 13th, to $57. It still had a ways to go for the mysterious short-seller to make a profit on his bet against the firm, but it was headed in the right direction. But then, early on the morning of Friday, March 14th, Bear’s CEO, Alan Schwartz, struck a deal with the Fed and JPMorgan to provide an emergency loan to keep the company’s doors open. When the news hit the street that morning, Bear’s stock rallied, gaining more than nine percent and climbing back to $62.

The sudden and unexpected rally prompted celebrations inside Bear’s offices. “We’re alive!” someone on the company’s trading floor reportedly shouted, and employees greeted the news by high-fiving each other. Many gleefully believed that the short-sellers targeting the firm would get “squeezed” — in other words, if the share price kept going up, the bets against Bear would blow up in the attackers’ faces.

The rally proved short-lived — Bear ended the day at $30 — but it suggested that all was not lost. Then a strange thing happened. As Bear understood it, the emergency credit line that the Fed had arranged was originally supposed to last for 28 days. But that Friday, despite the rally, Geithner and then-Treasury secretary Hank Paulson — the former head of Goldman Sachs, one of the firms rumored to be shorting Bear — had a sudden change of heart. When the market closed for the weekend, Paulson called Schwartz and told him that the rescue timeline had to be accelerated. Paulson wouldn’t stay up another night worrying about Bear Stearns, he reportedly told Schwartz. Bear had until Sunday night to find a buyer or it could go fuck itself.

Bear was out of options. Over the course of that weekend, the firm opened its books to JPMorgan, the only realistic potential buyer. But upon seeing all the “shit” on Bear’s books, as one source privy to the negotiations put it — including great gobs of toxic investments in the subprime markets — JPMorgan hedged. It wouldn’t do the deal, it announced, unless it got two things: a huge bargain on the sale price, and a lot of public money to wipe out the “shit.”

So the Fed — on whose New York board sits JPMorgan chief Jamie Dimon — immediately agreed to accommodate the new buyers, forking over $29 billion in public funds to buy up the yucky parts of Bear. Paulson, meanwhile, took care of the bargain issue, putting the government’s gun to Schwartz’s head and telling him he had to sell low. Really low.

On Saturday night, March 15th, Schwartz and Dimon had discussed a deal for JPMorgan to buy Bear at $8 to $12 a share. By Sunday afternoon, however, Geithner reported that the price had plunged even further. “Shareholders are going to get between $3 and $5 a share,” he told Paulson.

But Paulson pissed on even that price from a great height. “I can’t see why they’re getting anything,” he told Dimon that afternoon from Washington, via speakerphone. “I could see something nominal, like $1 or $2 per share.”

Just like that, with a slight nod of Paulson’s big shiny head, Bear was vaporized. This, remember, all took place while Bear’s stock was still selling at $30. By knocking the share price down 28 bucks, Paulson ensured that the manipulators who were illegally counterfeiting Bear’s shares would make an awesome fortune.

Although we don’t know who was behind the naked short-selling that targeted Bear — short-traders aren’t required to reveal their stake in a company — the scam wasn’t just a fetish crime for small-time financial swindlers. On the contrary, the widespread selling of shares without delivering them translated into an enormously profitable business for the biggest companies on Wall Street, fueling the growth of a booming sector in the financial-services industry called Prime Brokerage.

As with other Wall Street abuses, the lucrative business in counterfeiting stock got its start with a semisecret surrender of regulatory authority by the government. In 1989, a group of prominent Wall Street broker-dealers — led, ironically, by Bear Stearns — asked the SEC for permission to manage the accounts of hedge funds engaged in short-selling, assuming responsibility for locating, lending and transferring shares of stock. In 1994, federal regulators agreed, allowing the nation’s biggest investment banks to serve as Prime Brokers. Think of them as the house in a casino: They provide a gambler with markers to play and to manage his winnings.

Under the original concept, a hedge fund that wanted to short a stock like Bear Stearns would first “locate” the stock with his Prime Broker, then would do the trade with a so-called Executing Broker. But as time passed, Prime Brokers increasingly allowed their hedge-fund customers to use automated systems and “locate” the stock themselves. Now the conversation went something like this:

Evil Hedge Fund: I just sold a million shares of Bear Stearns. Here, hold this shitload of money for me.

Prime Broker: Awesome! Where did you borrow the shares from?

Evil Hedge Fund: Oh, from Corrupt Broker. You know, Vinnie.

Prime Broker: Oh, OK. Is he sure he can find those shares? Because, you know, there are rules.

Evil Hedge Fund: Oh, yeah. You know Vinnie. He’s good for it.

Prime Broker: Sweet!

Following the SEC’s approval of this cozy relationship, Prime Brokers boomed. Indeed, with the rise of discount brokers online and the collapse of IPOs and corporate mergers, Prime Brokerage — in essence, the service end of the short- selling business — is now one of the most profitable sectors that big Wall Street firms have left. Last year, Goldman Sachs netted $3.4 billion providing “securities services” — the lion’s share of it from Prime Brokerage.

When one considers how easy it is for short-sellers to sell stock without delivering, it’s not hard to see how this can be such a profitable business for Prime Brokers. It’s really a license to print money, almost in the literal sense. As such, Prime Brokers have tended to be lax about making sure that their customers actually possess, or can even realistically find, the stock they’ve sold. That point is made abundantly clear by tapes obtained by Rolling Stone of recent meetings held by the compliance officers for big Prime Brokers like Goldman Sachs, Morgan Stanley and Deutsche Bank. Compliance officers are supposed to make sure that traders at their firms follow the rules — but in the tapes, they talk about how they routinely greenlight transactions they know are dicey.

In a conference held at the JW Marriott Desert Ridge Resort in Phoenix in May 2008 — just over a month after Bear collapsed — a compliance officer for Goldman Sachs named Jonathan Breckenridge talks with his colleagues about how the firm’s customers use an automated program to report where they borrowed their stock from. The problem, he says, is the system allows short-sellers to enter anything they want in the text field, no matter how nonsensical — or even leave the field blank. “You can enter ABC, you can enter Go, you can enter Locate Goldman, you can enter whatever you want,” he says. “Three dots — I’ve actually seen that.”

The room erupts with laughter.

After making this admission, Breckenridge asks officials from the Securities Industry and Financial Markets Association, the trade group representing Wall Street broker-dealers, for guidance in how to make this appear less blatantly improper. “How do you have in place a process,” he wonders, “and make sure that it looks legit?”

The funny thing is that Prime Brokers didn’t even need to fudge the rules. They could counterfeit stocks legally, thanks to yet another loophole — this one involving key players known as “market makers.” When a customer wants to buy options and no one is lining up to sell them, the market maker steps in and sells those options out of his own portfolio. In market terms, he “provides liquidity,” making sure you can always buy or sell the options you want.

Under what became known as the “options market maker exception,” the SEC permitted a market maker to sell shares whether or not he had them or could find them right away. In theory, this made sense, since delaying the market maker from selling to offset a big buy order could dry up liquidity and slow down trading. But it also created a loophole for naked short-sellers to kill stocks easily — and legally. Take Bear Stearns, for example. Say the stock is trading at $62, as it was on March 11th, and someone buys put options from the market maker to sell $1.7 million in Bear stock nine days later at $30. To offset that big trade, the market maker might try to keep his own portfolio balanced by selling off shares in the company, whether or not he can locate them.

But here’s the catch: The market maker often sells those phantom shares to the same person who bought the put options. That buyer, after all, would love to snap up a bunch of counterfeit Bear stock, since he can drive the company’s price down by reselling those fake shares. In fact, the shares you buy from a market maker via the SEC-sanctioned loophole are sometimes called “bullets,” because when you pump these counterfeit IOUs into the market, it’s like firing bullets into the company — it kills the price, just like printing more Island Rubles kills a currency.

Which, it appears, is exactly what happened to Bear Stearns. Someone bought a shitload of puts in Bear, and then someone sold a shitload of Bear shares that never got delivered. Bear then staggered forward, bleeding from every internal organ, and fell on its face. “It looks to me like Bear Stearns got riddled with bullets,” John Welborn, an economist with an investment firm called the Haverford Group, later observed.

So who conducted the naked short- selling against Bear? We don’t know — but we do know that, thanks to the free pass the SEC gave them, Prime Brokers stood to profit from the transactions. And the confidential meeting at the Fed on March 11th included all the major Prime Brokers on Wall Street — as well as many of the biggest hedge funds, who also happen to be some of the biggest short-sellers on Wall Street.

The economy’s financial woes might have ended there — leaving behind an unsolved murder in which many of the prime suspects profited handsomely. But three months later, the killers struck again. On June 27th, 2008, an avalanche of undelivered shares in Lehman Brothers started piling up in the market. June 27th: 705,103 fails. June 30th: 814,870 fails. July 1st: 1,556,301 fails.

Then the rumors started. A story circulated on June 30th about Barclays buying Lehman for 25 percent less than the share price. The tale was quickly debunked, but the attacks continued, with hundreds of thousands of failed trades every day for more than a week — during which time Lehman lost 44 percent of its share price. The major players on Wall Street, who for years had confined this unseemly sort of insider rape to smaller companies, had begun to eat each other alive.

It made great capitalist sense to attack these giant firms — they were easy targets, after all, hideously mismanaged and engorged with debt — but an all-out shooting war of this magnitude posed a risk to everyone. And so a cease-fire was declared. In a remarkable order issued on July 15th, Cox dictated that short-sellers must actually pre-borrow shares before they sell them. But in a hilarious catch, the order only covered shares of the 19 biggest firms on Wall Street, including Morgan Stanley and Goldman Sachs, and would last only a month.

This was one of the most amazing regulatory actions ever: It essentially told Wall Street that it was enjoined from counterfeiting stock — but only temporarily, and only the stock of the 19 of the richest companies on Wall Street. Not surprisingly, the share price for Lehman and some of the other lucky robber barons surged on the news.

But the relief was short-lived. On August 12th, 2008, the Cox order expired — and fails in Lehman stock quickly started mounting. The attack spiked on September 9th, when there were over 1 million undelivered shares in Lehman. On September 10th, there were 5,877,649 failed trades. The day after, there were an astonishing 22,625,385 fails. The next day: 32,877,794. Then, on September 15th, the price of Lehman Brothers stock fell to 21 cents, and the company declared bankruptcy.

That naked shorting was the tool used to kill the company — which was, like Bear, a giant bursting sausage of deadly subprime deals that didn’t need much of a push off the cliff — was obvious to everyone. Lehman CEO Richard Fuld, admittedly one of the biggest assholes of the 21st century, said as much a month later. “The naked shorts and rumormongers succeeded in bringing down Bear Stearns,” Fuld told Congress. “And I believe that unsubstantiated rumors in the marketplace caused significant harm to Lehman Brothers.”

The methods used to destroy these companies pointed to widespread and extravagant market manipulation, and the death of Lehman should have instigated a full-bore investigation. “This isn’t a trail of bread crumbs,” former SEC enforcement director Irving Pollack has pointed out. “This audit trail is lit up like an airport runway. You can see it a mile off. Subpoena e-mails. Find out who spread false rumors and also shorted the stock, and you’ve got your manipulators.”

It would be an easy matter for the SEC to determine who killed Bear and Lehman, if it wanted to — all it has to do is look at the trading data maintained by the stock exchanges. But 18 months after the widespread market manipulation, the federal government’s cop on the financial beat has barely lifted a finger to solve the two biggest murders in Wall Street history. The SEC refuses to comment on what, if anything, it is doing to identify the wrongdoers, saying only that “investigations related to the financial crisis are a priority.”

The commission did repeal the preposterous “market maker” loophole on September 18th, 2008, forbidding market makers from selling phantom shares. But that same day, the SEC also introduced a comical agreement called “Rule 10b-21,” which makes it illegal for an Evil Hedge Fund to lie to a Prime Broker about where he borrowed his stock. Basically, this new rule formally exempted Wall Street’s biggest players from any blame for naked short-selling, putting it all on the backs of their short-seller clients. Which was good news for firms like Goldman Sachs, which only a year earlier had been fined $2 million for repeatedly turning a blind eye to clients engaged in illegal short-selling. Instead of tracking down the murderers of Bear and Lehman, the SEC simply eliminated the law against aiding and abetting murder. “The new rule just exempted the Prime Brokers from legal responsibility,” says a financial player who attended closed-door discussions about the regulation. “It’s a joke.”

But the SEC didn’t stop there — it also went out of its way to protect the survivors from the normal functioning of the marketplace. On September 15th, the same day that Lehman declared bankruptcy, the share price of Goldman and Morgan Stanley began to plummet sharply. There was little evidence of phantom shares being sold — in Goldman’s case, fewer than .02 percent of all trades failed. Whoever was attacking Goldman and Morgan Stanley — if anyone was — was for the most part doing it legally, through legitimate short-selling. As a result, when the SEC imposed yet another order on September 17th curbing naked short-selling, it did nothing to help either firm, whose share prices failed to recover.

Then something extraordinary happened. Morgan Stanley lobbied the SEC for a ban on legitimate short-selling of financial stocks — a thing not even the most ardent crusaders against naked short- selling, not even tinfoil-hat-wearing Patrick Byrne, had ever favored. “I spent years just trying to get the SEC to listen to a request that they stop people from rampant illegal counterfeiting of my company’s stock,” says Byrne. “But when Morgan Stanley asks for a ban on legal short-selling, they get it literally overnight.”

Indeed, on September 19th, Cox imposed a temporary ban on legitimate short- selling of all financial stocks. The stock price of both Goldman and Morgan Stanley quickly rebounded. The companies were also bailed out by an instant designation as bank holding companies, which made them eligible for a boatload of emergency federal aid. The law required a five-day wait for such a conversion, but Geithner and the Fed granted Goldman and Morgan Stanley their new status overnight.

So who killed Bear Stearns and Lehman Brothers? Without a bust by the SEC, all that’s left is means and motive. Everyone in Washington and on Wall Street understood what it meant when Lehman, for years the hated rival of Goldman Sachs, was chosen by Treasury Secretary Hank Paulson — the former Goldman CEO — to be the one firm that didn’t get a federal bailout. “When Paulson, a former Goldman guy, chose to sacrifice Lehman, that’s when you knew the whole fucking thing was dirty,” says one Democratic Party operative. “That’s like the Yankees not bailing out the Mets. It was just obvious.”

The day of Lehman’s collapse, Paulson also bullied Bank of America into buying Merrill Lynch — which left Goldman Sachs and Morgan Stanley as the only broker-teens left unaxed in the Camp Crystal Lake known as the American economy. Before they were hacked to bits, Merrill, Bear and Lehman all nurtured booming businesses as Prime Brokers. All that lucrative work had to go somewhere. So guess which firms made the most money in Prime Brokerage this year? According to a leading industry source, the top three were Goldman, JPMorgan and Morgan Stanley.

We may never know who killed Bear and Lehman. But it sure isn’t hard to figure out who’s left.

While naked short-selling was the weapon used to bring down both Bear and Lehman, it would be preposterous to argue that the practice caused the financial crisis. The most serious problems in this economy were the result of other, broader classes of financial misdeed: corruption of the ratings agencies, the use of smoke-and-mirrors like derivatives, an epidemic tulipomania called the housing boom and the overall decline of American industry, which pushed Wall Street to synthesize growth where none existed.

But the “phantom” shares produced by naked short-sellers are symptomatic of a problem that goes far beyond the stock market. “The only reason people talk about naked shorting so much is that stock is sexy and so much attention is paid to the stock market,” says a former investment executive. “This goes on in all the markets.”

Take the commodities markets, where most of those betting on the prices of things like oil, wheat and soybeans have no product to actually deliver. “All speculative selling of commodity futures is ‘naked’ short selling,” says Adam White, director of research at White Knight Research and Trading. While buying things that don’t actually exist isn’t always harmful, it can help fuel speculative manias, like the oil bubble of last summer. “The world consumes 85 million barrels of oil per day, but it’s not uncommon to trade 1 billion barrels per day on the various commodities exchanges,” says White. “So you’ve got 12 paper barrels trading for every physical barrel.”

The same is true for mortgages. When lenders couldn’t find enough dope addicts to lend mansions to, some simply went ahead and started selling the same mortgages over and over to different investors. There are now a growing number of cases of such double-selling of mortgages: “It makes Bernie Madoff seem like chump change,” says April Charney, a legal-aid attorney based in Florida. Just like in the stock market, where short-sellers delivered IOUs instead of real shares, traders of mortgage-backed securities sometimes conclude deals by transferring “lost-note affidavits” — basically a “my dog ate the mortgage” note — instead of the actual mortgage. A paper presented at the American Bankruptcy Institute earlier this year reports that up to a third of all notes for mortgage-backed securities may have been “misplaced or lost” — meaning they’re backed by IOUs instead of actual mortgages.

How about bonds? “Naked short-selling of stocks is nothing compared to what goes on in the bond market,” says Trimbath, the former DTC staffer. Indeed, the practice of selling bonds without delivering them is so rampant it has even infected the market for U.S. Treasury notes. That’s right — Wall Street has actually been brazen enough to counterfeit the debt of the United States government right under the eyes of regulators, in the middle of a historic series of government bailouts! In fact, the amount of failed trades in Treasury bonds — the equivalent of “phantom” stocks — has doubled since 2007. In a single week last July, some $250 billion worth of U.S. Treasury bonds were sold and not delivered.
The counterfeit nature of our economy is troubling enough, given that financial power is concentrated in the hands of a few key players — “300 white guys in Manhattan,” as a former high-placed executive puts it. But over the course of the past year, that group of insiders has also proved itself brilliantly capable of enlisting the power of the state to help along the process of concentrating economic might — making it less and less likely that the financial markets will ever be policed, since the state is increasingly the captive of these interests.
The new president for whom we all had such high hopes went and hired Michael Froman, a Citigroup executive who accepted a $2.2 million bonus after he joined the White House, to serve on his economic transition team — at the same time the government was giving Citigroup a massive bailout. Then, after promising to curb the influence of lobbyists, Obama hired a former Goldman Sachs lobbyist, Mark Patterson, as chief of staff at the Treasury. He hired another Goldmanite, Gary Gensler, to police the commodities markets. He handed control of the Treasury and Federal Reserve over to Geithner and Bernanke, a pair of stooges who spent their whole careers being bellhops for New York bankers. And on the first anniversary of the collapse of Lehman Brothers, when he finally came to Wall Street to promote “serious financial reform,” his plan proved to be so completely absent of balls that the share prices of the major banks soared at the news.
The nation’s largest financial players are able to write the rules for own their businesses and brazenly steal billions under the noses of regulators, and nothing is done about it. A thing so fundamental to civilized society as the integrity of a stock, or a mortgage note, or even a U.S. Treasury bond, can no longer be protected, not even in a crisis, and a crime as vulgar and conspicuous as counterfeiting can take place on a systematic level for years without being stopped, even after it begins to affect the modern-day equivalents of the Rockefellers and the Carnegies. What 10 years ago was a cheap stock-fraud scheme for second-rate grifters in Brooklyn has become a major profit center for Wall Street. Our burglar class now rules the national economy. And no one is trying to stop them.

Was the Chicago PMI Leaked?

Conspiracy theorists are buzzing this morning regarding the release of the weaker than expected Chicago PMI. Economists were expecting a level of 52.0, but the actual level came in well below 50 (46.1). Even though the report was released to the general public at 9:45 ET, the S&P 500 began its nosedive minutes before the official release of the report. At first glance, most would agree that the report was leaked.



While everyone likes a scandal these days, a deeper look at an intraday chart of the S&P 500 and the firm that compiles the Chicago PMI (Kingsbury International) shows that there was most likely nothing nefarious taking place. The S&P 500 certainly did decline prior to the official release, but traders should be aware that anyone who wants early access to this report can do so provided they are willing to pay for it.

On the company's website, Kingsbury describes the Chicago PMI as, "a proven monthly ‘first look’ at business, government and NGO economic activity in the USA." They then go on to say that subscribers to Kingsbury's data will receive "access to this market-moving data 3 minutes before public release." In other words, Kingsbury will 'leak' the report to anyone who is willing to pay at least $200 per month.

With this information in mind, another look at an intraday chart of the S&P 500 shows that today's decline began at 9:42, which was (not coincidentally) three minutes before the official release of the Chicago PMI when Kingsbury alerts their subscribers to what the official release will be. While there appears to be nothing illegal taking place, it does provide another example of how the market is stacked against the individual investor.




Source:Bespoke Investment

Sell down to the sleeping point

The stock market sometimes causes many people to lose sleep. An old Wall Street proverb is to “sell down to the sleeping point”—that is, only assume the risk that can make you sleep comfortably at night, without excessive worry.

The Wall Street proverb is cited in print by at least March 1891, when Dickson G. Watts, head of the New York Cotton Exchange from 1878 to 1880, wrote an article (later reprinted as a book) on “Speculation as a Fine Art” for The Cosmopolitan magazine. The saying is sometimes (probably incorrectly) attributed to J. P. Morgan, although no early, direct print citations can be credited to him.


Stock Market Adages
Buy to the sleeping point. [If you are troubled about making an investment but still feel the need to make it, make the smallest possible investment that leaves you feeling like you’ve ‘dealt’ with the need and can calmly sleep at night. To feel obligated to make an “all or nothing” investment.]
(...)
Sell to the sleeping point. —if you are troubled by an investment but still desire to hang onto it, sell just enough so that you can feel that you’ve ‘dealt’ with the anxiety and can calmly sleep at night, but you’ve kept enough to feel comfortable with what you have left.

What goes up, must come down...

What goes up eventually comes down, even in stock markets. Still, it can take a long time, much to the chagrin of those looking for a buying opportunity.

Many have warned of a reckoning, where the stock market gives up the gains of more than 50 percent posted by major U.S. averages since March. Yet the market has gone from strength to strength as the economy emerges from the worst recession since the 1930s.

Those waiting for a much talked-of pullback of 10 percent or more may be cooling their heels for a long time, if previous market experiences are any guide. The rallies that commenced after the two most recent U.S. recessions ran longer than pessimists expected.

"You might not get that decline if that's what you're waiting for," said Cleveland Rueckert, market strategist at Birinyi Associates in Stamford, Connecticut. "A lot of people have been and probably will be surprised how far the market can go."

Six months before the United States pulled out of recession in March 1991 the stock market began to rally. Seven years later the S&P 500 had more than tripled in value without ever pulling back by 10 percent.

This was not the only time markets have run ahead without a significant correction. Coming out of a bear market after the dot-com bubble, the S&P 500 surged 95 percent from 2003 to 2007, again, without a 10 percent correction.

US Regulators Propose Ban on 'Flash' Trading

U.S. securities regulators proposed a ban on flash orders that stock exchanges send to a select group of traders, fractions of a second before revealing them publicly.

The Securities and Exchange Commission is seeking to end the practice criticized for giving an unfair advantage to some market participants who have lightning-fast computer trading software.

Nasdaq OMX's [NDAQ 22.57 0.32 (+1.44%) ] Nasdaq Stock Market and privately held BATS Exchange recently canceled their flash services that disclosed buy and sell orders to specific trading firms before sending them to the wider market.

NYSE Euronext's [NYX 29.84 0.28 (+0.95%) ] New York Stock Exchange did not adopt the flashes under scrutiny but major alternative venue Direct Edge still offers flashes.

The SEC will put its proposal out for public comment for 60 days, and will later schedule a meeting to decide whether to adopt the proposal.

The agency said it will seek feedback on on the cost and benefits of the proposed ban, and whether the use of flash orders in options markets should be evaluated differently from those in equity markets.

The agency also tightened rules on credit rating agencies by imposing more disclosure requirements and encouraging unsolicited ratings. Those moves, and others proposed by the SEC, took aim at an industry widely criticized as having fueled the financial crisis through over-generous ratings assigned to toxic mortgage-backed securities.

Is Citadel Becoming The Next Goldman Sachs?

Among asset management circles on Wall Street, there’s a persistent rumor that just won’t go away: the world’s most aggressive hedge fund is gearing up to become a full-scale banking institution.

Citadel Investment Group, a Chicago-based hedge fund, is on many asset managers’ radars right now to one day become a full-service boutique investment bank. Recently, the fund seems to be doing little to hide that ambition.

Citadel’s interest in online broker E*Trade Financial is a good starting point. With nearly $2 billion invested in its long-time holding E*Trade this year, Citadel has become far more than a speculator in the stock: it’s pretty much an operating manager. Signs of that status were confirmed by its recent refusal to enter into a 120 million share sale in late August in the interests of the company, despite financial benefits for the fund.

More recently, E*Trade’s chief executive Donald Layton said he will step down from the job at the end of the year. That announcement followed Citadel manager Ken Griffin’s ascension to the broker’s board earlier in the year. It’s a well-known fact that Layton and Griffin frequently argued over the E*Trade’s strategic direction.

In other news, Citadel’s administrative division, Citadel Solutions, recently gained a contract to provide accounting, IT and back-office services to a $50 billion piece of what remains of the former Lehman Brothers carcass. Citadel re-branded its Solutions subsidiary Omnium on the eve of the deal. Citadel is also one of the first hedge funds to resume hiring after last year’s market train-wreck.

The two deals are a pretty clear sign that Griffin has more in mind for his financial warchest than pure asset management. In fact, via both the E*Trade and the Omnium subsidiaries, it’s evident that the financial warlord (most of his companies have names borrowed from military contexts) is building a sizeable back-office, capable of handling a range of financial services functions.

Griffin is the kind of Type A, leap-feet-first-into-the-next-big-thing-when-the-going-gets-tough, hyper-aggressive money manager that you more often see on the big screen than casually strolling around Chicago. According to hedge fund lore, he paid his way through college with his trading profits.

In that light, it wouldn’t be surprising to see Citadel become a sort of Goldman Sachs-style bank: with a strong trading arm, a razor-sharp team, and an increasing tightening in hedge fund regulation, the move definitely makes sense from a growth perspective.

Double-Dip Recession Possible

Pimco Chief Investment Officer Bill Gross sees a good chance of a double-digit recession as the government pulls back from its massive fiscal stimulus.

As a result, he recommends that investors buy medium- and long-term Treasuries.

"To the extent that we have had $1 trillion worth of stimulus, from the standpoint of deficits, and more, the government basically has to continue to do that and to add to that in order to keep the economy chugging along," he told CNBC.

"To the extent that that's limited, to the extent that they pull back on some of those stimulus programs — Cash for Clunkers and those types of things — then the double-dip moves into the realm of possibility."

And what does that mean for Treasuries?

"As long as the Fed and other central banks keep policy rates low and as long as inflation doesn't rear its head, intermediate and longer bonds do well," Gross said.

“In this new normal world of slow growth and low inflation, there are attractive aspects of, yes, long-term U.S. Treasury bonds. To the extent we might have … a double dip in the economy in 2010, then the long bond at 4.13, 4.14, 4.15 (percent) begins to have some attractiveness.”

Gross isn’t the only one to warn of a possible double-dip recession.

Economic guru Nouriel Roubini wrote in the Financial Times last month that “there is a rising risk of a double-dip W-shaped recession.”

Most Overbought ETFs

Buy/Sell spread

Smart Monday / Dumb Money Confidence

Dumb money confidence too high.

Hitler Misses the Bull Market

Warren Buffetts bailout

Hot Waitress Economic Index

Who needs the GDP?
As if it wasn’t unpleasant enough, this recession comes with an info glut, all this economic data purporting to answer a simple question: Are things getting better? The answer is rarely straightforward. The numbers aren’t just confusing. They seem to be measuring some other planet.

http://nymag.com/news/intelligencer/58195/

SEC set to target flash trading

The US Securities and Exchange Commission is preparing to clamp down on lightning-fast “flash” trades made on electronic trading systems amid growing concerns that the practice puts some investors at a disadvantage.

Mary Schapiro, SEC chairman, said on Tuesday that she had instructed her staff to find “an approach that can be quickly implemented to eliminate the inequity that results from flash orders”.

The SEC has been looking into flash orders – in which some exchanges allow traders a look at share order flows a fraction of a second before the broader market – as part of a review of so-called “dark pools”, anonymous electronic trading venues that do not display public quotes for stocks. Ms Schapiro’s statement underscores the agency’s intention to respond quickly to market concerns.

Flash orders have stoked the ire of some lawmakers, including New York Senator Charles Schumer, who last month started urging the SEC to ban the practice altogether. Mr Schumer said on Tuesday that Ms Schapiro had personally assured him that the agency plans to put a ban in place.

“It is also important to make sure flash orders aren’t just the tip of an iceberg lurking in the dark reaches of the market,” he said. “There is a lot of mystery about what goes on in dark pools and in the realm of high-frequency trading generally.”

Any proposals involving flash orders would have to approved by the full commission and be open to public comment.

Flash orders are not endorsed by NYSE Euronext, whose share price rose nearly 4 per cent after the SEC statement was issued. But rival Nasdaq OMX – whose share price briefly dropped some 3 per cent before recovering yesterday – and other trading venues such as BATS and Direct Edge use them in order to compete for market share.

The use of flash orders is not confined to high frequency traders. Retail brokers, institutional investors, proprietary trading firms and automated market makers also use flash orders.

Some traders say that when Direct Edge started offering flash orders three years ago, the practice was not controversial. But as Direct Edge’s market share has grown, complaints have emerged. Direct Edge’s market share of daily volume has jumped to 12 per cent from around 1.5 per cent in the past two years.

Is Ken Lewis lying?

Bank of America Corp. was sued by the U.S. Securities and Exchange Commission for allegedly making false claims about the purchase of Merrill Lynch & Co. in proxy statements. The SEC filed the suit in federal court in New York.

UBS Ends Sales of Leveraged ETFs

UBS AG’s U.S. brokerage unit stopped selling leveraged exchange-traded funds, a fast-growing segment of the asset-management market that some regulators say might be inappropriate for individual investors.

UBS Wealth Management Americas suspended sales of inverse and leveraged ETFs immediately, citing the “short-term nature of these securities,” the New York-based unit said yesterday in a statement.

Naked short selling banned permanently

The Securities and Exchange Commission on Monday made permanent a rule designed to curtail abusive "naked" short selling. "The new rule, Rule 204, requires broker-dealers to promptly purchase or borrow securities to deliver on a short sale," the SEC said. A temporary rule meant to curtail the practice was set to expire on July 31. The SEC said it is also working together with several self-regulatory organizations to make short sale volume and transaction data available.

Schumer Asks SEC to Ban Flash Orders Used by High-Speed Traders

Senator Charles Schumer asked the U.S. Securities and Exchange Commission to ban “flash orders,” saying the transactions give high-speed traders an unfair advantage over other investors.

Nasdaq OMX Group Inc., Bats Exchange Inc. and Direct Edge Holdings Inc. hold these orders for milliseconds, giving their customers the opportunity to gauge demand before traders on other exchanges get the chance to bid, Schumer said in a letter to SEC Chairman Mary Schapiro. Brian Fallon, a spokesman at Schumer’s office, confirmed the authenticity of the letter.

“Flash orders allow certain members of these exchanges to obtain access to order flow information before that information is made available to the public,” Schumer wrote. That allows “those members to use rapid trading programs to trade ahead of those orders and profit from advanced knowledge of buying and selling activity,” he added.

The senator said that if the SEC doesn’t prohibit flash orders, he will introduce legislation that would.

Javier Bardem leaves ‘Wall Street’ sequel

Javier “Friend-O” Bardem is leaving the sequel to the hit 1987 film “Wall Street,” which is tentatively titled “Money Never Sleeps.”

Javier Bardem (on the left) and his doppelganger, Jeffrey Dean Morgan (right).

The original starred Michael Douglas and Charlie Sheen. This one will see Douglas reprise his role as Gordon Gekko, and will add Shia LeBeouf to the mix.

The movie is to begin filming in August, but Bardem won’t be part of it.

Bardem apparently has “five or six other offers,” according to one of his representatives.

I’ve got a suggestion for a replacement: Jeffrey Dean Morgan. I’m not convinced they aren’t the same person anyway.

High Frequency Trading

It is called high-frequency trading ‘ and it is suddenly one of the most talked-about and mysterious forces in the markets. Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense. These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk.

http://www.nytimes.com/2009/07/24/business/24trading.html

Dr. Marc Faber: More Helicopters?

Is Goldman Sachs Front Running the Entire Market?

Goldman Sachs just raised the S&P target for 2009 to 1,060. Why? It's not because things are "really" getting better. And it's not because they would be buyers in this market. No, it's because they need to pump this market, so they can dump their shares to you . . . at inflated prices that will be big losers for you.

NYSE Begins Extensive Renovation of Trading Floor

NYSE Euronext has launched a major renovation of its stock-trading floor.

Over the next 18 months, the exchange operator plans to demolish much of its Main Room where NYSE-listed securities are traded and build large sit-down trading areas for brokers.

The goal is to encourage brokers with existing floor operations to situate all or some of their upstairs trading operations on the floor, giving them a unified trading environment and, hopefully, generate more volume for the NYSE.

"We are going to create a refreshed look for the floor trading community and create traditional trading desks," Bob Airo, a senior vice president for NYSE market operations. "A floor-based firm could bring its whole upstairs trading desk down to the NYSE floor."

Currently, in the Main Room, broker booths ring the perimeter while specialist posts fill in the center. The booths are old--"decrepit," according to NYSE senior executive Larry Leibowitz--and require traders to stand up while working.

The NYSE plans to demolish many of the old booths and build large open trading areas that will be able to accommodate as many as 40 traders each.

The exchange also plans to upgrade its network, add new wallboards, outfit a booth for a major news organization and build a food court. It will also renovate the specialists' posts by making them more open.

The finished product will likely resemble NYSE Euronext's brand new NYSE Amex trading floor. The floor is more open with wide countertops; a stark contrast to the closed-in environment of the Main Room.

The work will mostly be done on the weekends, so as not to disrupt trading. After the exchange finishes work on the Main Room, it will undertake a similar renovation of the Garage, its second trading room for NYSE-listed securities.

The exchange has divided the project into quadrants. It expects to be able to put about 15 firms in all four quadrants when the work is completed. It has firm commitments from five firms for the first quadrant, including one bulge bracket firm. It is in talks with six others. The rebuild is expected to appeal mostly to small and growing floor brokers trying to balance a floor presence and an upstairs operation.

The exchange would not divulge the cost of the project although it says it is partnering with the brokers to pay for it. Sources say the exchange is picking up the lion's share.

Behind the move is the realization that most activity on the floor takes place at the opening and the close. In between those time periods, most trading is done upstairs. The exchange believes that many, mostly independent, firms would benefit by being able to do all their trading in one place. They would save on real estate costs and generate efficiencies by having all personnel in one place.

The exchange also hopes to see more trading happen on the floor. "A sales trader on the floor might be less likely to throw an order into an upstairs algorithm," Airo explains. "He would work it on the floor."

One of the firms with which the exchange is in talks is Rosenblatt Securities. With seven traders on the floor, Rosenblatt operates the largest NYSE-listed trading operation at the exchange. Rosenblatt has had an upstairs desk for twenty years

Dick Rosenblatt, chief executive of Rosenblatt Securities and an NYSE executive floor governor, says he's not currently planning to move his upstairs operation down to the floor, but sees the benefit for some firms. "I think it's most appealing for a firm that is trying to launch or expand an upstairs business," he says. "In growing anything, you are absorbing a lot of costs. Here the exchange is offering to help you defray that expense."

Rosenblatt also notes that floor brokers benefit from unique order types provided by the exchange that upstairs traders use through their floor brokers. A combined facility would ease that coordination.

Who's Jordan Belfort?

Jordan Belfort is the biggest Wall Street crook you've never heard of. He was the king of funny business (not in the ha-ha way) during the bull market of the '90s, nicknamed "The Wolf of Wall Street." Belfort hired young, hungry brokers. Some hadn't even graduated from high school. All they had to do was swear loyalty to him, read his scripts over the phone while cold calling, and everyone would get rich. It was a classic pump and dump scheme where brokers would drive up the price of stocks, and then Belfort would dump the large chunks he and his partners controlled, cashing out. Then the stock prices would collapse.

And everyone at Stratton Oakmont did get rich. And then they all did a lot of drugs, drank a lot of expensive wine, bought a lot of outrageous toys, and threw outrageous parties populated by a lot of hookers. You have to hear this guy tell his own story. More details are in his new book "The Wolf of Wall Street," which has now been optioned for a movie, naturally. Leonardo Di Caprio is interested!

He says he flew his own helicopter while high, sank his 167-foot yacht (once owned by Coco Chanel) in the Mediterranean while high, drove with his 3-year-old daughter unbuckled beside him though a garage door while high. Belfort says at the height of his drug problem, he was taking 22 different medications: 20 quaaludes a day, balanced out by cocaine, the morphine, xanax, valium, etc. You name it, he abused it.Even if half of this is true (skeptical as always) how are you alive? He says he was just really good about balancing it all out.

Belfort was finally arrested and convicted. And, in keeping with the insanity of it all, his cellmate turned out to be Tommy Chong, of Cheech and Chong fame. Chong was apparently serving time for selling bongs over the internet

Four Bad Bears Markets

Shanghai Wants its Own ‘Wall Street Bull’

New York’s charging bull statue that sits near Wall Street in lower Manhattan is a symbol of wealth, power and dominance ; a status that China desperately seems to want to achieve. According to Chinese state media reports on Saturday, Mainland’s financial capital, Shanghai, has decided to build a relatively similar version of New York’s charging bull. It will be twice as big as the one in NYC.

From Reuters:

Shanghai, plans to install its own version of the Street’s famed charging bull statue, casting in metal its hopes to eventually rival New York.

[The statue] will sit on the city’s famous Bund riverfront, across from the Pudong financial district, weighing 6 metric tonnes, compared with Wall Street’s 3.2 tonne beast.

Xin Yaqin, an official in Shanghai’s Huangpu district, said the statue was intended to “bring confidence and fortune to the Chinese people in times of economic uncertainty,” the paper reported.

“Shanghai is different from New York, so we’ll ask the artist to add Chinese characteristics to the sculpture,” Xin said.

The giant bull statue will weigh more than 13,000 pounds compared to the 7,000 pound bull in New York, according to China Daily.

China’s growing business hub, Shanghai, is home to China’s biggest stock exchange and the regional base of many multinationals.

Ex-Goldman Programmer Must Post $750,000 Bail

A former Goldman Sachs computer programmer accused of stealing secret trading codes from the investment bank was being held in federal custody Monday, pending the posting of $750,000 bail.

Sergey Aleynikov, 39, was ordered by U.S. Magistrate Kevin Nathaniel Fox in Manhattan on Saturday to post a $750,000 personal recognizance bond to be secured by three financially responsible people.

The bond also was to include $75,000 in cash, and Aleynikov was ordered to surrender his passport.

Aleynikov, a Russian immigrant living in New Jersey, was arrested on Friday night by FBI agents at Newark Liberty International Airport after returning from Chicago, according to court documents.

He is accused of "theft of trade secrets" related to computer codes used for automated stock and commodities trading at an unspecified financial institution.

Sources familiar with the situation have told Reuters columnist Matthew Goldstein that the financial institution is Goldman Sachs

A Goldman representative declined to comment Monday. A lawyer for Aleynikov, Sabrina Shroff, also declined to comment.

Authorities contend that Aleynikov improperly copied a financial institution's proprietary computer code and then uploaded it to a computer server in Germany.

In court papers, an FBI agent said Aleynikov worked at an unspecified financial institution as a programmer from May 2007 until June 5, when he left to work for a new company focused on high-volume automated trading.

The case could shed light on the intricate trading systems developed by Goldman, and also raises questions about the security of Wall Street's proprietary trading operations.

Aleynikov's wife, Elina, told Reuters on Sunday that her husband is innocent.

Speaking in a phone interview from the couple's New Jersey home, she said her husband worked hard for Goldman and has been a good citizen who has lived in the United States for 19 years.

Aleynikov was being held at the Metropolitan Detention Center in Brooklyn as of Monday morning, according to the federal Bureau of Prisons website and an officer at the jail.

Bernard Madoff Gets 150 Years in Jail

Bernard Madoff was sentenced to 150 years in federal prison for masterminding the largest Ponzi scheme in history, a penalty six times longer than those meted out to the chief executives of WorldCom Inc. and Enron Corp.

Hedge Fund Fun

For those who are big Entourage fans, writer Doug Ellin, along with Brian Koppelman and David Levien to write a new show based around the life of a forty-something hedge fund manager. As the New York Times noted, Hedge Funds have become a true cultural phenomenon with the media obsessively following the notoriously tight-lipped and haute classe investment vehicles.

Government Motors-Powered by subsidies

Government Motors new CEO Barack Obama says the taxpayer will back the warranties of the failing automaker, well isn’t that just dandy? So not only is the government in the banking business and the mortgage business and the insurance business and the automakers business it’s also in the business of auto warranties too and we get to pay for it all, great huh?

GM Bankruptcy

General Motors Corp. won court approval on its first day in bankruptcy to sell assets as soon as next month after collapsing under $172.8 billion in debt and failing to adapt to consumer demands for smaller cars.

The automaker, the largest manufacturer to seek protection from creditors, also won permission yesterday from Judge Robert Gerber in Manhattan to draw $15 billion from a $33.3 billion bankruptcy loan.

Detroit-based GM plans to form a new company in 60 to 90 days, built around its Cadillac, Chevrolet, Buick and GMC brands in the U.S. The lead bidder for the assets is the U.S. Treasury, which will provide the 100-year-old company with billions in loans that would be converted into a 60 percent equity stake. GM today said it has an agreement with a buyer for its Hummer sport-utility vehicle unit.

EU to hit Microsoft, again

Every few years, the European Union takes another bite out of Microsoft's (MSFT) business in the region. All of the actions are based on antitrust laws, and most have to do with the bundling of the company's Internet Explorer with the Windows operating system. The belief among EU antitrust officials is that this shuts other browsers like Firefox out of the market.

The EU does not appear to be happy with Microsoft's efforts to date to cooperate on the browser issue so it is getting ready for another round of sanctions. According to The Wall Street Journal. "Rather than forcing Microsoft to strip its Internet Explorer from Windows, people close to the case say, the EU is now ready to try the opposite measure: Forcing a bunch of browsers into Windows, thus diluting Microsoft's advantage."

The punishment does not make much sense given the inroads that Firefox and Google's (GOOG) Chrome product are already making. Microsoft is losing browser market share every year.

The EU ought to let the free markets take their own course. Whatever advantage IE had at one time, it is being eaten away by the natural course of competition.

VIX

VIX volatility index moves below 30 for the first time since 9/19/08 - according to CNBC, historically the S&P has gained an average of 3% and 6% respectively over the 3 and 6 months that follow a crossover below 30.
- the peak in late Oct was at 89.53.

Stress Test Results

American Express Company (AXP) $30.4 Billion Market Cap
NO NEW CAPITAL NEEDED…. $10.1 billion in tier-1 capital and total estimates losses in a more adverse scenario are $11.2 billion. Total Risk Weighted Assets were $104.4 billion.

Bank of America Corporation (BAC) $86.5 Billion Market Cap
SCAP BUFFER, or capital need to be raised, is $33.9 billion. B of A could have $173.2 billion in Tier-1 capital and could have $136.6 billion in total losses in a more adverse scenario. Total Risk Weighted Assets were $1.6338 trillion.

BB&T Corporation (BBT) $14.2 Billion Market Cap
NO NEW CAPITAL NEEDED. Tier-1 capital was listed as $13.4 billion and its total estimate losses in a more adverse scenario are $8.7 billion. Total Risk Weighted Assets were $109.8 billion.

Bank of New York Mellon Corporation (BK) $34 Billion Market Cap
NO NEW CAPITAL NEEDED. Its tier-1 capital was listed as $15.4 billion and its total estimate losses in a more adverse scenario are $5.4 billion. Total Risk Weighted Assets were $115.8 billion.

Capital One Financial Corp. (COF) $10.3 Billion Market Cap
NO NEW CAPITAL NEEDED… Tier 1 Capital was $16.8 billion and the total estimate losses in a more adverse scenario are $13.4 billion. Total Risk Weighted Assets were $131.8 billion.

Citigroup, Inc. (C) $21.3 Billion Market Cap
Its SCAP BUFFER, or capital needed to be raised, is $5.5 billion. Tier 1 capital was $118.8 billion and total estimate losses in a more adverse scenario are $104.7 billion. Total Risk Weighted Assets were $996.2 billion.

Fifth Third Bancorp (FITB) $3.08 Billion Market Cap
SCAP BUFFER, or capital need to be raised, is $1.1 billion. That is smaller than many thought. Tier-1 capital was $11.9 billion and its total estimate losses in a more adverse scenario are $9.1 billion. Total Risk Weighted Assets were $112.6 billion.

GMAC LLC (private)
SCAP BUFFER, or amount needed to be raised, is $11.5 billion. Its Tier 1 capital was $17.4 billion and total estimate losses in a more adverse scenario are $9.2 billion. Total Risk Weighted Assets were $172.7 billion.

Goldman Sachs Group Inc. (GS) $63.6 Billion Market Cap
NO CAPITAL NEEDED…. Tier-1 capital was $55.9 billion and total estimate losses in a more adverse scenario are $17.8 billion. Total Risk Weighted Assets were $444.8 billion.

JPMorgan Chase & Co. (JPM) $132.4 Billion Market Cap
NO CAPITAL NEEDED… Tier 1 capital $136.2 billion and total estimate losses in a more adverse scenario are $97.4 billion. Total Risk Weighted Assets were $1.3375 billion.

KeyCorp (KEY) $3.8 Billion Market Cap
SCAP BUFFER, or capital needed to be raised, is $1.8 billion. Tier 1 capital was $11.6 billion and total estimate losses in a more adverse scenario are $6.7 billion. Total Risk Weighted Assets were $106.7 billion.

MetLife Inc. (MET) $25.9 Billion Market Cap
NO CAPITAL NEEDED… Tier 1 Capital was $30.1 billion and the total estimate losses in a more adverse scenario are $9.6 billion. Total Risk Weighted Assets were $326.4 billion.

Morgan Stanley (MS) $29.1 Billion Market Cap
SCAP BUFFER, or capital needed to be raised, is $1.8 billion. Tier 1 capital was listed as $47.2 billion and the total estimate losses in a more adverse scenario are $19.7 billion. Total Risk Weighted Assets were $310.6 billion. After the close, Morgan Stanley said it will offer $2 billion in common stock and will sell $3 billion worth of non-FDIC guaranteed debt. That non-FDIC is key, because this allows the company to pay back the TARP if those rules have not changed.

PNC Financial Services Group (PNC) $21.1 Billion Market Cap
SCAP BUFFER, or capital need to be raised, is $0.6 billion. Tier 1 capital was listed as $24.1 billion and total estimate losses in a more adverse scenario are $18.8 billion. Total Risk Weighted Assets were $250.9 billion.

Regions Financial Corporation (RF) $3.6 Billion Market Cap
SCAP BUFFER, or capital needed to be raised, is $2.5 billion. Tier 1 capital was $12.1 billion and its total estimate losses in a more adverse scenario are $9.2 billion. Total Risk Weighted Assets were $116.3 billion.

State Street Corp. (STT) $16.43 Billion Market Cap
NO CAPITAL NEEDED. Tier 1 Capital was $14.1 billion and its total estimate losses in a more adverse scenario are $8.2 billion. Total Risk Weighted Assets were $69.6 billion.

SunTrust Banks, Inc. (STI) $6.61 Billion Market Cap
SCAP BUFFER, or Capital needed to be raised $2.2 billion; Tier 1 capital was $17.6 billion and its total estimate losses in a more adverse scenario are $11.8 billion. Total Risk Weighted Assets were $162 billion.

US Bancorp (USB) $34.4 Billion Market Cap
NO CAPITAL NEEDED. Tier 1 capital was $24.4 billion and total estimate losses in a more adverse scenario are $15.7 billion. Total Risk Weighted Assets were $230.6 billion.

Wells Fargo & Company (WFC) $105.5 Billion Market Cap
SCAP BUFFER, or capital needed to be raised, is $13.7 billion. Tier 1 capital was $86.4 billion and its total estimate losses in a more adverse scenario are $86.1 billion. After the close, Wells Fargo filed to raise $6 billion via stock sale. Total Risk Weighted Assets were $1.0823 trillion.