During a week when the S&P has put in about a 100 point gain and the DOW about 800 points, we certainly do not want to put a negative spin on things.
And we are great believers in people making as much money as they possibly can, with one big caveat; that it be done fairly, ethically and within the spirit and the letter of the law.
But we could not help thinking this week about some of the headlines which have surfaced over the past couple of weeks, triggered by a headline in the tabloid NY Post, “The Rich Get Richer”.
Now, it is hard to fully believe that a newspaper owned by Rupert Murdoch represents the “voice of the people”, but that is how the NY Post likes to think of itself in the New York market.
That specific headline was referring to the Connecticut Powerball win of $254 million by three wealth managers reportedly employed by Belpointe Capital in Greenwich, CT. The “outrage” was over the thought of those who seemingly least need to win the lottery taking money somehow unfairly out of the hands of more deserving winners. "The lottery screws the poor to begin with; the fact that rich men won is an insult," said one Occupy Wall Streeter.
And then the story got very twisted, with speculation that the trio was fronting for an unnamed client, alternatively reported as someone of great wealth and then reportedly an hourly wage earner. But the three gentlemen claim they are the winners and that a significant portion will go to charitable causes. Adding to the confusion and speculation was the fact the winning ticket had gone unclaimed for quite a while, with the three winners claiming this was only to use the time to set up the “Putnam Avenue Family Trust” for better handling charity and personal matters. Anyway, the story continues to drag on.
But we digress as usual. Let’s look at some of the recent headlines which might give the Occupy Wall Street crowd a real reason to be a bit upset.
- A story broke this week that former Treasury Secretary Henry ‘Hank’ Paulson shared insider information with hedge fund chiefs during the financial crisis about upcoming Federal support for Fannie Mae and Freddie Mac. At least five of the hedge fund managers were Goldman Sachs alums.
- And in a related story, Bloomberg reported this week that Paulson and FOMC chief Ben Bernanke kept hidden from Congress and the public the huge amount of true emergency capital infusions to financial institutions during the crisis, an issue claimed to be able to unite both the Tea Party and the OWS crowd.
- Then we have the reports that among other “lobbying” jobs, Presidential candidate and self-proclaimed “non-lobbyist” Newt Gingrich made over $1.5 million working for Freddie Mac, in a role he claims was as “historian”.
- And the flap over members of Congress “trading on insider information”, highlighted by 60 Minutes and now the focus of several Congressional committees looking to set up new more formal guidelines and restrictions on members’ trading and investment activities.
- There was a Federal judge blocking a settlement between CITI and the SEC of $285 million on mortgage fund “fraud”, claiming that the proposed settlement was “pocket change and a cost of doing business for Citi”, and having little meaning if they did not admit or deny wrongdoing (it is estimated that Goldman Sachs paid over $700 million in legal fees in 2010, just fees, not settlement costs).
- And of course Thursday’s headlines of the Massachusetts Attorney General suing five major banks over “illegal behavior” in foreclosure practices.
- A slightly older story involves the $6 million and $5 million “golden parachutes” given out by Bank of America to two “downsized” execs, Sallie Krawcheck and Joseph Price, at a time the bank is talking about tens of thousands of employee layoffs. It was recently reported that 2500 banks cut staff in the 3rd quarter, with over 20,000 jobs lost.
- Pfizer is also under the gun, with an investigation of “unfair business practices” related to its efforts to suppress sales of new generic versions of its cash cow cholesterol drug, Lipitor.
- And of course the ongoing saga of MF Global and the accusations of political “cronyism” and the two-way street between Washington and Wall Street.
- But our favorite storyline is perhaps the most trivial, involving beleaguered hedge fund multi-billionaire John Paulson, who is reportedly having a tough time in his funds, some estimated to be down close to 50% for 2011. Mr. Paulson, it is reported, is on the Board of Manhattan’s famous Upper East Side 92nd Street “Y”, a “Y” unlike any you have ever seen in terms of its membership roster, cultural events, and charitable activities. It also has a most sought after pre-school program, which is renowned for its exclusivity and waiting list. Mr. Paulson cut a deal with the “Y”, it is reported, to guarantee their investment portfolio with his firm against any losses whatsoever...that’s right, all the upside and none of the risk. (One can draw their own conclusions; was this the act of a truly generous benefactor or a parent looking for an edge on admissions, as ridiculous as that must sound to the rest of America).
We will leave it right there, although many other stories are out there which the Occupy Wall Streeters are all over. According to Robert Shiller, of Case-Shiller fame and a Professor at Yale, teaching economics and finance these days “is about as popular on campus as teaching ROTC in the days of the Vietnam War.” We think that might be a bit of an overstatement, knowing some present college students, but we do understand why the 99%’ers might have something to talk about these days. But the bigger question is why do the 1%’ers feel compelled to give them the ammunition?
Good Trading!
David W. (aka The Underground Trader)
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