QUOTATION OF THE DAY: Insider Trading

"Having fallen from respected insider to convicted inside 

 

trader, Mr. Gupta has now exchanged the lofty board room 

 

for the prospect of a lowly jail cell."

 

 

 PREET BHARARA, the United States attorney in Manhattan, after Rajat K. Gupta, former head of the consulting firm McKinsey & Company, was convicted of conspiracy and securities fraud.

File under hippocrit... along with Jim Baker

Bloomberg Television: Live TV - Bloomberg 3D Photocopier

Bloomberg Television: Live TV - Bloomberg

Damn It Feels Good to be Banker -- A Wall Street Musical - YouTube

Damn It Feels Good to be Banker -- A Wall Street Musical - YouTube




by nhoughte on Aug 27, 2008

Bankers vs. Consultants. Contact: info@portal-a.com.

An LSO and Portal A Interactive Production.

http://www.portal-a.com
http://www.leveragedsellout.com

http://www.amazon.com/exec/obidos/ASIN/1401309682/levesellout-20 -- get the book by Leveraged Sell-Out.

mp3 @ http://www.zshare.net/audio/5112236545d91f6f/

Category:

Comedy

Tags:

• finance
• bankers
• consultants

License:

Standard YouTube License

Neuroscience and Financial Markets

This discussion leaves many questions to be answered by investors, like - 

Do you want money managers gambling with your pension money?  Emotional stability is one hallmark of a good investor according to Warren Buffett and John Coates is suggesting that the financial markets are dominated by bipolar emotions exaggerating moves in both up and down movements.  Markets may eventually revert to the mean but do you have the constitution to stay the course amidst the volatility?

CBC Books - The high stakes of Wall Street


27:29 (Pop-up)

John Coates  explains his ideas: 





"The Hour Between Dog and Wolf: John Coates Research in Neuroscience" suggests that the physical reactions on trading floors are similar to war zones or elite sports where the pressure to perform and survive is great. 

In such situations, the Visceral trumps the Rational.

The man behind that view spent years on the trading floor for the big players on Wall St. before studying neuroscience.




The trading floor looks like an adrenaline-fuelled battle zone and the truth isn't far off. 

Research in neuroscience suggests that being a part of this whirlwind world of buying and selling leads to physiological reactions akin to fighting in a war zone or playing in the NBA playoffs. The pressure to perform is huge and the instinct to survive is powerful.



One man who knows much about this is John Coates, author of The Hour Between Dog and Wolf.





Coates was a Wall Street stock trader for years,  at  firms like Goldman Sachs and Deutsche Bank during the dot.com boom of the 1990s.

 Seeing the behaviour of other traders,  he observed hey seemed to operate contrary to how economics is supposed to work.

"Well, I think everybody was seeing it, but I guess I was particularly struck by how anomalous the behaviour was from the point of view of economics," Coates said.

"Traders on the floor had become delusional and euphoric ... They were putting on trades in ever-increasing size with worse and worse risk-reward trade-offs. And I thought this was odd because they hadn't been this way before the bubble, and after it crashed or popped, they weren't like that any more, in fact they were like revellers with a hangover. And they couldn't believe that they had just blown five years' worth of profits on a handful of stupid trades."

There are some chemicals that your body producing that was basically having this narcotic effect on you. And that got Coates to think about the influence of the body on financial risk-taking.

We'd like to think that financial trading is based on solid reasoning and rationality, but human beings are not robots, even if some purport to operate that way.

Emotions get in the way. Fear can sink in. So can the natural instinct to fight. 

 

Through studying neuroscience, Coates explored his theory about what he was seeing on the trading floor: that physiological changes happening within traders as they gain and lose vast amounts of money may be driving the instability of the financial markets.

"The trouble is right now we've got an unstable biology coupled with risk-management practices that expand risk limits during the bull markets and contract them during the bear, and a bonus scheme that rewards high-variance trading."

Coates concludes the biology increases volatility by exaggerating movements on markets whether up or down because the reward system of bonuses encourages high risk trading;  flight or fight drives behavior when markets start crumbling and adrenaline , testosterone, and pleasure seeking kicks in when market start running to the upside.... more bonuses and more high risk taking behavior.  Egos expand brashness and the "greater fool" theory takes precedence over value investing.


Coates suggests: "I think also if there is the biological contributor to this instability, then a way of dampening it is to have more women and older men managing money because they have very different biologies from young men."



First aired on The Current (28/05/12)

Link:

http://www.cbc.ca/books/2012/06/the-high-stakes-of-wall-street.html

Caterpillar Demands Concessions from Workers after Boosting CEO Pay by 60 Percent

Who Said life was fair???  How did they engineer this outrage in the age of Occupy Wall Street???

Illinois plant for the manufacturer Caterpillar have been on strike for a month after rejecting a concession-heavy contract proposed by the company. 

Yesterday, workers overwhelmingly rejected a second Caterpillar offer.
 

According to union officials, the contract “provided no raises, eliminated the defined benefits pension program, weakened seniority rights and required machinists to pay higher contributions for health care.” All of this, at a time when the company is making record profits. 

At the same time that it is refusing to give its workers a fair raise, the company saw fit to increase its CEOs pay by 60 percent:

The annual compensation of Caterpillar Inc.’s chairman and chief executive rose 60 percent in 2011, as the company posted a record revenue of $60.1 billion.

Douglas Oberhelman earned $16.9 million in 2011...

The typical American worker would have to work 244 years in order to earn what the average CEO makes in just one year. Over the last 30 years, CEO pay has increased 127 times faster than worker pay.

Originally published on ThinkProgress

by Pat Garofalo
Link: Mega Manufacturer Caterpillar Demands Concessions from Workers after Boosting CEO Pay by 60 Percent | NationofChange

Insider trading scandal

Maybe people should have remembered how Zukerberg treated his early partners in the creation of the social networking giant.

 Cameron Winklevoss and his brother Tyler are known for co-founding HarvardConnection (later renamed ConnectU) along with Harvard classmate Divya Narendra..,.considered to be the precursor to Facebook.

In 2004, the Winklevoss brothers sued Facebook founder Mark Zuckerberg for $140 million, claiming he stole their ConnectU idea to create the popular social networking site.

 One of ConnectU's law firms, Quinn Emanuel, inadvertently disclosed the confidential settlement amount in marketing material by printing "WON $65 million settlement against Facebook".( http://en.wikipedia.org/wiki/Cameron_Winklevoss)

If Zukerberg was willing to stiff  the guys that brought him the idea for Facebook, why would he stop unfair dealings at that point.  The public looks like a vast sea of 'easy' money to players in the money game. The scorpion's nature is to sting...

In Wall Street terms this was a successful distibution of a stock...they are underwriters not undertakers....the sooner they get Facebgook off their books and collect their fees, the happier they are... it allows them to free up cpital to do more deals.  They thrive on doing deals but you don't want to be around when the music stops.

 

Facebook IPO engulfed by insider trading scandal

Multiple investigations and lawsuits have been announced following reports of deceptive practices and insider trading in connection with the  $16 billion initial public offering of Facebook stock.

Reuters reported that the social networking company and its bank underwriters downgraded their forecasts for the company’s earnings shortly before they increased the number of shares and raised the offering price in advance of the IPO. 

Neither Facebook nor the banks publicly announced their downgrades. The major banks involved are Morgan Stanley, JPMorgan Chase, Goldman Sachs and Bank of America.

Morgan Stanley, the lead underwriter of the IPO, is specifically accused of informing institutional investors and favored clients of its downgrade of Facebook and not telling the investing public at large.

Pump and Dump


The stench of fraud is compounded by the frenzied media hype in the run-up to the IPO, which was instrumental in inveigling small investors into what appears to have been a trap laid by Facebook and the banks.

On May 9, nine days before the IPO, Facebook filed an updated 

IPO prospectus with the Securities and Exchange Commission in which it said its revenue and earnings prospects were threatened by a disconnect between the growth of its user base and advertising volume. Its users were growing much faster than its ads business, a problem the company attributed to the rapid growth of its mobile user base.

Facebook officials personally called stock analysts at its major IPO underwriters to advise them of these negative trends. Just days before the IPO, analysts at Morgan Stanley, Goldman Sachs, JPMorgan Chase and Bank of America lowered their forecast numbers for Facebook as a result. The banks then relayed the weaker forecasts to selected clients, one of whom reportedly was warned that second-quarter revenue could be 5 percent lower than earlier estimates.

The Wall Street Journal reported May 17 that Goldman Sachs, Tiger Global Management and Facebook director Peter Thiel, had more than doubled the volume of shares they planned to sell.
 

Forbes magazine reported Wednesday that Morgan Stanley and the other big bank underwriters made $100 million of profit by “shorting,” i.e., betting against, the Facebook IPO. 

“That’s on top of the $175 million in IPO fees the underwriting banks received for selling the deal,” Forbes wrote. 

That is $275 million in underwriting fees and trading profits betting against the shares they convinced their clients to buy...but don't feel too sorry for the clients who bought in, if they were among the sellers of Facebook shares:

The magazine added that Goldman Sachs sold $1.09 billion of Facebook stock it owned for itself and on behalf of its clients.

 

By Barry Grey
24 May 2012

Read More:
Source:
 http://www.wsws.org/articles/2012/may2012/face-m24.shtml

Knowledge@Wharton

Knowledge@Wharton

Online resarch and business ananysis journal of the Wharton School


Knowledge@Wharton


 http://knowledge.wharton.upenn.edu/

Wall Street Did It Again - Failed to provide full disclosure to all parties

 The way Wall Street underwriters behaved in this situation is referred to as

 PUMP and DUMP!!!

John  Maxfield wrote a strong indictment of the Wall Street inner circle who seem to have played some clients off against the rest by maybe giving information about possible problems at FB that could materially affect the valuation given to the company by buyers.  

Buyers might have even turned down the offering of over-priced shares of FB.  To my mind, the stock exchange listing FB needs to be looked at for any participation in the scheme to sell FB to one group of 'clients' while another coterie of 'clients was going short on the stock.  

Also, a large percentage of the offering was made up of insiders selling their 'founding' shares. which is a "Red Flag" in itself.

"57% of the Facebook stock being offered in the IPO is coming from insiders selling shares."

For some context on how unusual that is, the Wall Street Journal reports that only 37% of Google's IPO offering came from insiders, and 0% for Amazon and Yahoo came from insiders.

In Facebook's case, it's going public at a later stage in its development, so investors are itching to get out. And word is that Facebook asked insiders to sell during the IPO so they don't crush the stock when the lock-up period ends."
 




Oops! Wall Street Did It Again - DailyFinance
By John Maxfield, The Motley Fool

Posted 7:28PM 05/31/12  

Posted under: Investing
 

   

Facebook (NAS: FB)  ... the company's investment bankers rigged the initial public offering process to ensure you'd lose money.

Wall Street's role in the orchestrated Facebook debacle including Lloyd Blankfein, the CEO of Goldman Sachs (NYS: GS) 
 

Eric Bleeker  wrote that while Goldman was underwriting Facebook's IPO, it was also lending out shares to short sellers who "were likely acting on the knowledge of Facebook estimates that were reduced downward just days earlier -- again, information that was only selectively disseminated and wasn't known by the average individual investor racing to buy Facebook shares."

Two lessons from the Facebook IPO:
 
First, run in the opposite direction anytime somebody insinuates a change in paradigm.

Revenue, sales, and other traditional valuation metric were discarded during the dotcom bubble in favor of measurements such as "eyeballs" -- that is, page views -- only to be adopted again once the dust finally settled.

The same can be said of Facebook. At the IPO price of $38, the social networking giant was valued at 97 times earnings despite the fact that nobody knows for sure how it intends to monetize its user base.

Second, be wary of anything in which you're competing against Wall Street for a piece of, as they see it, their pie. 

The investment banks on Wall Street didn't float Facebook's IPO so individual investors could get rich. 

They did it so they could get rich, collecting an estimated $100 million in underwriting fees.


 


Source:

http://www.dailyfinance.com/2012/05/31/oops-wall-street-did-it-again/
by John Maxfield, The Motley Fool

Past Deals Gone Sour

Included in the article about Facebook were a litany of past deals in which Wall Street orchestrated financings to take advantage of investor credulity; that is, they pulled the wool over the heads of unsuspecting investors who were told that the rules were different this time around.  You can ignore mundane things like price earnings or the need for a well articulated business plan, i.e. how to monetize the very popular  "free" service that attraced millions of people to sign up and use for "FREE!".... Who can be made to pay for the right to advertise to this giant list of  potential  'suckers'?  GM dropped its Facebook Advertising just about the same time Facebook and Wall Street were telling you that "its different this time" just "trust us" because this IPO "is going to the moon" regardless of good old fashioned balance sheet issues and uncertainties.

The more we ignore history, the more likely history will repeat....

In the last 12 years alone, Goldman Sachs and other Wall Street firms have made us believe we were getting a good investment but:
In 2003, 10 of the largest investment banks in the United States -- including Goldman, JPMorgan Chase (NYS: JPM) , and Merrill Lynch (now a part of Bank of America (NYS: BAC) ), among others -- ch reports to inflate the value of their clients' IPOs.admitted to issuing fraudulent resear

In 2007, emails between Goldman bankers show how the firm created financial instruments designed to fail and then sold them to clients in the now-infamous TimberWolf deal

In October of last year, Rajat Gupta, one of Goldman's directors was arrested on charges of insider trading.
In November of last year, Goldman underwrote the disastrous Groupon (NAS: GRPN) IPO after the daily deals website over-reported its revenue by a factor of two.
In March of this year, a departing Goldman executive penned an op-ed in The New York Times revealing that managing directors at the firm regularly referred to their clients as "muppets."
And just this month, after attacking the proposed Volker Rule as unnecessary, which bans federally insured banks from proprietary trading, Jamie Dimon, the CEO of JPMorgan, was forced to acknowledge that this very behavior had cost the bank's shareholders over $2 billion in losses.

One would have thought investors had learned their lesson by now. But evidently not.



Source:

http://www.dailyfinance.com/2012/05/31/oops-wall-street-did-it-again/
by John Maxfield, The Motley Fool