Monday, April 26, 2010

This week is dubbed Goldman week!

This week the alleged evildoers from Goldman testify before the US Senate Permanant Subcommittee on Investigations. The emails released over the weekend are required reading for all interested parties. What is really interesting, however, is the range of discussion regarding the facts of the case and the fundamentals of what Goldman allegedly did WRONG. Here is William Easterly getting his clock cleaned with comments after he posted that all Goldman was doing was hedging.

Also, IKB-the German bank/victim of the alleged fraud has gotten little press so here is a blog regarding them. Remember, Goldman needed ACA involved so that IKB would be comfortable investing in the CDO. (just hedging my left foot!)

I find the articles in the press all over the place in terms of what the case is about from a mindless attack on the only firm that can help us get out of recovery, to a futile attempt by the SEC to dispute the materiality of the ommission (that is failing to disclose to investors that Paulson helped pick out the debt in the CDO-was that a material ommission??). Maybe the case is all of these things. It just seems that so many people don't understand the basics and they should-'cause it ain't rocket science.

I do think that there is a serious lack of financial literacy in America. We need to start explaining this stuff to kids in High School and at the community level as well. Financial education is the job of FINRA and the SEC. Protecting investors also means educating them.

Saturday, April 24, 2010

It’s all about gender, Stupid!!

(Warning…this post is rated R for bad language)

If I have to read another article that claims that the West is a big factor in modern Africa’s problems I am going to bust a vein. Seriously, still beating that drum ?? My second favourite aggravation is the claim that the West just does not understand Africa. WTF?? As far as I can tell, no one understands me either (sob) but that does not seem to get me a lot of financial assistance from evil donors or food aid from the diabolical NGOs. I muddle along just like the rest of humanity-alone in an existential way and misunderstood. When meditating on how some African countries cannot seem to let go of the past, the first thing that comes to my mind is a line from that fabulous movie Shaun of the Dead, “Sort your fucking life out, mate!“…which Shaun begins to do…until the Zombies show up!!

Here are my humble answers to all the whiners who do not understand that the West doesn’t exist and neither does Africa. You will remain globally misunderstood until you understand that. Only people exist and on that level what you must understand is that until woman are treated with respect and equality, it is not possible to have peace and prosperity.

Africa is upset at how it is portrayed in the Western media: No one believes journalists, so why get bothered by them. They get PAID to write things that will get printed. They do not get paid to print the truth. The ‘things’ that they write are a far cry from the truth. It is more like a hi-light reel-selective and taken out of context. But the media, just like politics, is here to stay, so use them to your advantage and stop whinging about the BBC. They are entertainment-understand that and set yourself free. Start paying attention to how women are portrayed in British media and get some perspective, mate.

The only Westerners who work in Africa have guilt about being white and privileged: If I were to guess, that might be the biggest generalisation possible in the Universe. How can anyone know why someone does something? How presumptuous? Maybe if you take a walk in the person’s shoes you might understand them. Until then, you are just ignorant. People are motivated by things seen and unseen. Cynicism about those motivations is an easy road to take. You don’t need to hope that people have good intentions, just watch what they do and understand them individually. Everyone reveals themselves eventually. Cynics have no cojones.

No one in America cares about the international arena: Dude, there are 300 million Americans. Who exactly doesn’t care and about what specifically? AND when was the last time YOU were in North America and who did you talk to? It is expensive to get to Africa and most Americans are not that rich. The average American takes a big road trip in the summer and visits the National Parks or they save in order to get good seats at the ball park during baseball season. American media is provincial….HELLO?!!!...have you seen the evening news in London, Abuja, Paris or Kampala? Everyone is provincial, that is why these generalisations don’t help increase understanding. There is plenty to learn from the internet. Set up a site, allow everyone access and start educating the people.

The UN Security Council is a puppet for powerful countries: Uncle Bob and Ahmadinejad do have a point here. I hate to say it but I feel squirrelly about the powerful countries imposing these restrictions on smaller ones. I don’t want to die because two power-hungry men cannot control their urge to feel significant and end up blowing up the planet. However, I would like more explanation about the criteria for getting in to the country club of decision makers. I simply think that right now, whoever has the biggest stick has the power. This brings me to gender.

Endemic rape, control of women through the ruse of religion, sexual violence, genital mutilation and the lack of education for women and children: this happens everywhere on the planet.

So when people complain that the West is oppressing them ,I scoff. Dude, try being a woman. Try being a woman and African. Try being a girl baby and Chinese. It is all about power imbalances. The feminists were right-bless their braless, same-sex souls. But how far have we come really? Talk about domination, invasion and control-Man, try being a woman.

Gender inequality is an age old problem, older than imperialism, white farm invasions, the global financial crisis and black empowerment movements,. Start looking at how your society, media, and government treats women and let’s have a real, meaningful conversation.

Let’s talk about adequate pre-natal care and solving the Aids, malaria, and polio crisis so we can stop their disparate impact on women. Let’s talk about rape as a form of political intimidation and oppression. Let's talk about the children of acts of rape. Let’s talk about the education of woman and children which is vital to an escape from our narrow, provincial perspectives.

Until you sort THAT out, mate, I don’t have time for your historical, whinging, nonsense. I have a son to raise and he is already a better man than you.

Sunday, April 18, 2010

Correction...SEC v. Goldman Sucks

I have small correction to make on yesterday's post. IKB was not taken over by RBS.
Rather, another actor in the SEC v. Goldman saga is ABN AMRO who insured the senior tranche of the debt portfolio at issue in this case. ABN was told by Goldman that ACA had selected the assets in the portfolio and they insured it. ABN was taken over by the Royal Bank of Scotland.


Saturday, April 17, 2010

SEC v. Goldman Sucks

The US Securities and Exchange Commission on 16 April 2010, filed a complaint in the Southern District of New York, a US district court against Goldman Sachs &Co, and Fabrice Tourree, currently working for Goldman in London. The complaint charges civil claims of fraud. This claim was brought by the newly established enforcement division of the SEC that focuses on structured and new products. This specialised Unit within the SEC Enforcement division focuses on complex derivatives and financial products, which include credit default swaps. Collateralised debt obligations and securitised products. This claim is an amazing development in securities regulation enforcement as it targets a leader in Wall Street and a firm that prides itself on disclosure and legal compliance. It is my opinion that this action is the SEC’s shot across the bow for firms that underestimated the political fallout from the Global Financial Crisis. Also, this cause of action is an opportunity for the SEC to re-establish itself as a cop on the beat rather than a tool of Wall Street.

The complaint by the SEC describes an arrangement facilitated by Goldman that misled investors to believe they were investing in quality debt obligations while another Goldman client participated in the set-up and then sold short. A simplistic explanation follows but first let me quote the SEC . “The product was new and complex but the deception and conflicts are old and simple,” SEC Enforcement Director Robert Khuzami said. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.” (see citations below)

The players
Goldman, and employee Fabrice Touree
John Paulson, and the Hedge Fund, Paulson & Co.

The played
ACA Capital Holdings
IKB Deutsche Industriebank AG
maybe you and me

Very, very simplistically, Goldman asked a well respected bond insurer, ACA Capital Holdings, to assist in creating a portfolio of mortgage backed debt. ACA had expertise in residential –mortgage backed securities so they would select the assets in the portfolio. Included in the meetings where assets were selected was Paulson & Co. Allegedly, ACA was informed by Goldman that Paulson was an equity investor in the deal. (see SEC Complaint section E, para’s 25-35) In reality, according to the complaint, Paulson & Co from the beginning believed that the residential mortgage market was about to have a ‘credit event’ and tank. Paulson & Co intended to short the deal.

Once the portfolio had been selected by ACA and Paulson, Goldman marketed it to clients. IKB Deutsche Industriebank AG bought in to the deal because ACA, a reputable bond insurer, had chosen the debt vehicles. There is some evidence to show that during negotiations in the early stages, Paulson & Co did not approve of some Wells Fargo debt that would be better performing. ACA questioned this. (see SEC Complaint section E, para 24)

Regardless of any doubts, the deal was concluded and IKB invested in the portfolio. Paulson & Co shorted it and 2 months later all of the assets were worthless. ACA went bankrupt and IKB is now majority owned by the Royal Bank of Scotland.

In many of the stories regarding this complaint the name of Warren Buffett comes up. Buffett invested in Goldman in 2008 when there were questions about Goldman’s integrity. Buffett staked his reputation on Goldman. Uh, well, how is that workin’ for you Warren???

Money does funny things to people. I learned this when I worked on an equity trading desk in the late 80’s. We need cops like the SEC to get everyone’s head out of the sand particularly given the devastating effect of he Global financial crisis here and abroad. I hope the SEC shows some leadership.

As always we wait with interest to read Goldman’s well crafted and expertly written response to this complaint. We all know this is the tip of the iceberg. Let’s see if the SEC, and Goldman for that matter, has what it takes to see this through.

Monday, April 12, 2010

Civil Procedure in Action: more drama surrounding the 2008 SADC Tribunal ruling!

A house owned by the Zimbabwe government and located in the Cape Town suburb of Kenilworth was attached in early April pursuant to a court order from the High Court of South Africa. See Muzungu on Africa, 10 Feb 2010. The court order registered the SADC tribunal ruling of 2008 as well as a late order granting damages to white farmers whose land was seized in Zimbabwe under the government’s land reform programme.

I teach Civil Litigation, and have done for many years, through the University of California, at Irvine, Paralegal Extension Program. Procedural matters are thrilling. It is in the process of satisfying judgments that you begin to emerge from the smoke (and mirrors) of the dispute and reach a state of clarity. You have a judgment and it will be satisfied. The dispute is over so there is no more emotional turmoil only satisfaction of the judgment. I like that imagined space.

The Zim government originally claimed that the property had diplomatic immunity so it could not be attached. News reports stated that this was not the case and the property was in fact attached in order to satisfy the court judgment. (see endnote citation)

However, in a fascinating twist the South African Government said it would oppose the attachment of property. I wait with interest for any news regarding the grounds of this opposition. The opposition could jeopardise the High Court ruling and undermine the SADC Tribunal ruling as well.

There is something greater than politics at play here. What is at stake in all of these proceedings is the legitimacy of the SADC Tribunal itself. That tribunal represents both SA and Zim together as members of SADC. If the SA High Court ruling is not respected it is tragic for all the parties involved because it destabilises the SADC ruling. A working and respected SADC Tribunal takes all disputes under SADC jurisdiction, out of domestic courts and sets them for resolution in an arena that is consensual and co-operative. I think this is a good thing. The facts surrounding this ruling make it more interesting to write (and read) about but for me it is about alternative dispute resolution and not racial and political friction in that desperate part of the planet.

I look forward to learning about the basis for the SA government opposition. You may recall, they did not oppose the registration of the SADC ruling way back when it made sense to do so.

Politics may win out-it seems to trump everything down there. Yet, I am hopeful. Civil procedure is a powerful thing. It’s like laser surgery-little or no blood, but it eradicates the target. - South Africa

Sunday, April 11, 2010

Growing Pains

I spent the weekend with my old Aunties in Salt Lake City, Utah. They were very concerned about South Africa.

Hate Speech is a sophisticated concept. Once a country paves the way for Hate Speech they have to deal with lots of unintended consequences.

The SA Hate Speech provisions read:
In South Africa, Act No. 4 of 2000: Promotion of Equality and Prevention of Unfair Discrimination Act.contains the following clause:
10. (1) Subject to the proviso in section 12. no person may publish, propagate, advocate or communicate words based on one or more of the prohibited grounds, against any person, that could reasonably be construed to demonstrate a clear intention to -
(a) be hurtful;
(b) be harmful or to incite harm;
(c) promote or propagate hatred.

All I can think about is Martin Luther King Jr. (Sorry, I am Muzungu after all). I asked my old Aunties what it was really like when he was shot. They said the entire country was horrified, appalled and distressed. I was just trying to get a bead on the time when race relations in the US was ‘bad’, like people died. [some may argue that happens everyday through the dominance of the white majority but that is not actually everywhere in the US, mostly in urban areas, if at all]

I don’t really understand racial relations in SA. But I do think that Hate Speech takes a lot of getting used to. You need to put yourself in the other guy’s shoes. You cannot just say what you like. You have to worry about inciting violent acts as a consequence of your speech. That is exceedingly difficult.

I worry about the World Cup and I worry that the growing pains of racial tolerance have hit SA at the worst possible time, just like everyone else.

Sunday, April 4, 2010

US conference on Zimbabwe

Interesting conference trying to create a middle-path discussion about Zimbabwe.