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EDITOR’S NOTE: At the end of the day, everybody knows everything. Goldman is losing its grip on the narrative. You can’t fool all the people all the time. If the pools were empty and the mortgage bonds were bogus, then any balance sheet carrying loans or securities based upon the illusion of securitization will need a major adjustment. If the loans were bad to begin with, if the appraisals and ratings were false, if the documentation of the loans described a fictitious transaction, then the real transaction remains undocumented, unsecured and probably unenforceable. Reports of income and assets by the banks would be greatly exaggerated while reports of their demise may still be wishful thinking, it is looking more and more likely every day.

Goldman No Longer Laps the Field


Goldman Sachs has lost its luster. The firm earned a best-in-class reputation for its history of profitability and navigating upheaval. But it seems less assured lately. In fact, Goldman is in danger of looking downright average.

It’s not the first time. Goldman has been sent reeling by shocks, from Penn Central’s bankruptcy in 1970 to Russia’s default in 1998. But the Goldman advantage comes from an ability not only to climb off the canvas but to thrive in the face of adversity.

Today’s investors are expressing doubt, or at least not giving the firm led by Lloyd C. Blankfein the benefit of it. Over the last decade, Goldman’s shares have outperformed those of the biggest American banks, including JPMorgan Chase and Morgan Stanley, as well as the Standard & Poor’s 500-stock index. But they have tumbled 16 percent this year, lagging rivals and the broader market.

One reason is Goldman’s struggle to get out of the headlines and clear its name in Washington even after last year’s record $550 million settlement with the Securities and Exchange Commission. The bank still faces the possibility the Justice Department will come after it or some of its people. Two analysts cut their ratings on Goldman’s stock last week for that reason.

Goldman’s gold-plated advisory business has been disappointing, too. For example, instead of its normal perch atop the United States merger rankings, nearly halfway through the year it ranks a dismal sixth, according to Thomson Reuters. That may help explain Monday’s reshuffle at the firm’s investment bank.

The company is not even so sure of itself anymore. Top executives told Barclays Capital last week that uncertainty about financial reform meant it could not stand by its long-term high-teens target for return on equity.

And while Goldman still commands a valuation premium to its largest rivals, it is trading at just 1.1 times book value. That implies it will barely cover its cost of capital. Five years ago, around the peak of the boom, Goldman fetched 2.6 times book, nearly twice JPMorgan’s multiple.

The advantage has shrunk to just 10 percent, only part of which can be put down to the compression associated with an industrywide bad patch.

Goldman and its supporters can argue the naysayers merely see the glass half empty. But to truly shine again, Goldman’s glass needs to be more than just half full.

Beware of Bubbles

It’s easy to make the parallel between today’s Internet stock frenzy and the bubble that popped a decade ago. But a comparison to the more damaging credit boom may be appropriate too. As they did amid dot-com mania, investors are taking big risks without clear rewards and signing their rights away.

The latest illustration comes courtesy of LinkedIn, the social network with a big following among those out of a job or looking for a new one. The company supersized the price of its initial public offering by 30 percent, giving the firm a potential value of as much as $4.3 billion when the I.P.O. prices, probably late on Wednesday.

At the top of the range, LinkedIn would fetch a valuation of 15 times trailing 12-month sales, or about 82 times earnings before interest, taxes, depreciation and amortization. Even assuming its growth trajectory continues over the next year, the I.P.O. would value LinkedIn at nine times future sales and nearly 70 times estimated Ebitda.

If LinkedIn’s chief executive, Jeff Weiner, can keep the company expanding at a similar pace for a few years, the company might grow into the value investors seem willing to accord it now. But that does not offer much upside and takes little account of LinkedIn’s risks, which are amply laid out in its prospectus.

LinkedIn’s debut also brings an extra frisson of danger that recalls the credit bubble that burst in 2008. Back then bondholders, in their headlong drive for yield, surrendered many of their covenants, the rules that determine what borrowers must or must not do. LinkedIn is asking investors to abdicate similar rights.

The shares the company is selling carry only a sliver of the voting power of Class B shares that LinkedIn founders, managers and staff own. This group will hold approximately 99.1 percent of the voting power after the I.P.O.

True, the mighty Google did a similar thing when it began to trade a few years after the dot-com bust. But LinkedIn is no Google. It may turn into another reminder that in bubbles investors give up too much today for the lure of riches tomorrow. 

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23 Responses

  1. This is maah-velous. A Florida court denied the bankster’s (BAC) motion. Apparently BAC somehow outed itself as the mere servicer, claiming holder status of a note endorsed in blank, whereas these days these actions will be brought allegedly by the trustee of an alleged trust a note is allegedly in.

    Even so, the big trip in this ruling is that the judge ordered the movant to plead and identify both the holder and OWNER of the note and mortgage. Judge said if svcr (BAC) not owner, must specifically plead facts identifying the owner and PROOF of BAC’s representation, including attachments / documents verifying even these ‘facts’. He wanted the complaint to be verified and any language like “on information and belief” wasn’t going to cut it.
    This is the first time I’ve seen a court so order.
    The case is BAC (et al) v Stentz

  2. leapfrog,

    Here is the problem with new home buyers today. When you buy a new home — you normally purchase an owners home insurance policy – to protect you from any fraudulent title defects.

    But, those owner policies — if you can even get one — are highly restrictive. They greatly reduce liability payout — if homeowner buyer suspected any mortgage title fraud. Well, if you buy a foreclosed property — you suspect mortgage title fraud.

    Insurance will not pay. They will blame the buyer. And, it addition to home prices still falling, it is for this reason that potential home buyers are steering clear. All while the government is still trying to clear that nasty inventory of foreclosed homes. Forget it — not going to easily clear. And, question is, can the economy recover without recovery in the housing market??? Answer — NO.

  3. Anonymous: I agree, but I know I was very naive about any title problems or MERS mess or securitization about a year ago. My, how I have learned, and STILL don’t understand (lol). But I imagine the average homebuyer really doesn’t know about MERS or clouded titles. As a matter of fact, I know this to be true because several folks in my office have recently bought and I asked them about MERS and title problems and got the deer-in-the-headlight look. They believe their title insurance will cover everything. I just say, “Oh, okay,” because they really don’t want to hear any more about it. I truly think that will be the next scandal a few years from now; when the title reserves are gone and the suits pile up.

  4. leapfrog,

    People have to be nuts to buy a house now.

  5. Did anyone see John Gault’s latest? I think this is pretty good advice (I’m not an atty though) on how to bring attention to the issue of a clouded title/fraudclosure to a potential purchaser. If folks do this, the pretender-lender definitely will not be getting a “free house” without spending some money to clear the fraud. Even money may not clear the fraud!

  6. What would happen if all the people who are current on their “subprime loans” (not really loans), and all the people in default of what they still believe to be loans, (but are really just debt collectors with no standing to foreclose because they have no legal proof of a creditor)—-what would happen if EVERYBODY suddenly knew of the sham, and stopped paying the “bogus bill” every month—as a protest to the pervasive fraud…and had absolute PROOF that the “pretender lender” had no standing to foreclose?
    I think that might wake them up a little…

  7. After years of fighting these fraudulent schemes, I decided to simply leave the country, enjoy the world and be happy! I recommend the same to everyone! The problem is deep; you can fight, maybe you are in a state you win, you can trough your hole life away, instaed of finding true purpose in life and be happy. These coporoations are deep in with the government, it is deeeeppppp…..I always recommend if you have any problems such as judgments, lien, wage garnishment, whatever you need to pay, to file for bankruptcy; don’t give them a penny; move on but don’t settle or give them anything; the best justice is to enjoy your life because it is all not worth fighting; just cut your losses and move on! It is very easy to file for bankruptcy; spending your life in court and letting the lawyers ripp you isn’t worth it all on the long run.

  8. Chief Judge Becoming Foreclosure Mill Attorney
    Posted on May 18, 2011 by Mark Stopa
    Victor Tobin, the Chief Judge of Broward County, Florida, is resigning as a judge effective June 30 to go into private practice … but not just any job – with foreclosure mill Marshall Watson.

    Look. I recognize a judge’s right to resign as a judge and get a normal lawyer job. However, I’m exceptionally concerned here about the appearance of impropriety. Judge Tobin has been handling foreclosure-related issues for quite some time. He acknowledges as much in the article below. Hence, I think it’s abundantly clear that he must refrain from anything foreclosure-related immediately. Hopefully, he’s already done so, but it should go without saying that since he’s leaving the bench, he shouldn’t be doing anything whatsoever foreclosure-related, as a judge, ever again.

    Also, this causes some tough questions. For instance, for how long has Judge Tobin known he was going to work for Marshall Watson? Has he done anything foreclosure-related, as a judge, during the “interview” process with Marshall Watson? I’m particularly troubled by his quote, below, that he can “carry on” some of what he’s done as Chief Judge. Respectfully, it doesn’t take a conspiracy theorist to be a bit unsettled at a quote like that.

    I’m not trying to accuse anyone of anything, particularly since, at this point, I have no evidence upon which to do so. What I am saying is that reasonable people can raise difficult questions about issues like this, and I hope this doesn’t become a bigger story than it already is.

    Here is the article. …

    Broward Chief Circuit Judge Victor Tobin is leaving the bench to go into foreclosure law.
    Tobin notified fellow judges by email Tuesday that he would be leaving at the end of June and planned to start working July 1 at the Law Offices of Marshall C. Watson, one of Florida’s biggest foreclosure law firms.

    The Fort Lauderdale law firm settled an investigation by the state attorney general’s office in March by paying a $2 million penalty. The firm cooperated with the investigation and made no admission of wrongdoing.

    Tobin said today that he will have a supervisory role at the firm.

    “Number one, it’s a firm that has a need. Number two, it’s a good fit for me. It’s an opportunity for me to carry on some of what I’ve done in the courthouse to see that best practices are used. They instituted a best-practices policy, and I’m going to make sure that is followed and make sure we do everything right,” he said.

    Tobin became a peacemaker after taking over as chief judge in a contested election in 2007. He was reelected by fellow judges in 2009.

    Circuit Judge Peter Weinstein succeeds him as chief judge July 1.

    Mark Stopa

  9. uprootedone – that’s good. funny, too.


  11. Didnt Neil Garfield have an article about the Rating Companies a while ago?



  12. yes leapfrog I saw that. Dont worry the judge will now go to jail. He will not have immunity and will go to jail, if he is lucky.


  13. Yes, A-man, I saw the Matt Weidner attacks. Outrageous! But hardly suprising since the system is so corrupt. Did you also see the story on the judge who is going to work for the FC mill, but refuses to recuse himself meanwhile?

  14. Thank you leapfrog.

    Matt Weidner going up against the Machine. Welcome to the Machine


  15. Thank you for the video uprootedone. Like I said this is a national security issue.

  16. Matt Taibbi- Rosner- Spitzer

    Talk White Elephant, Flying Pig and Unicorn

    A Must see..

  17. Just from the Court :

  18. More Smoke and MERS..

  19. Id have to say thier luster is either very tarnished or it was fools gold to begin with.One is as bad as another.Finish them off enough harms been done.

  20. It seems to me like the bankruptcy courts are really the only hope with all of the corruption in the local courts. The BK courts/trustees may be slowly warming up to the homeowner’s/debtors cause. They seem to be putting up with no nonsense, even from those who THINK they are above the law (rich powerful shyster attorneys) or THINK that there should be two sets of law; one for them and one for the “little people”.

  21. The common stock bubble

    Do you understand quantum data processing logic – pending?

    Puts for stocks electronic and pending – always pending alike an electronic auction –

    The price keeps going up if the current price is met, pending instructions stay till the date changes – pending till certain amount of time changes –

  22. Check out the bankster apologist’s version of the vampire squid:

    The comments section on this post was hilarious.

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