Former Goldman Sachs trader Fabrice Tourre has only one tie left to the securities firm where he helped assemble an infamous bond deal: his legal bills. Mr. Tourre no longer works for Goldman, which put him on paid leave after the Securities and Exchange Commission accused him in April 2010 of misleading investors in a collateralized debt obligation called Abacus 2007-AC1. Goldman soon settled related allegations, but Mr. Tourre decided to fight. Since late 2011, Mr. Tourre has been a graduate student in economics at the University of Chicago, and Goldman changed his status to unpaid leave. He left the firm at the end of December 2012, a company spokesman said…The SEC’s lawsuit instantly made Mr. Tourre one of the most memorable names of the financial crisis. In an email to a friend that was disclosed by the agency, Mr. Tourre wrote: “The whole building is about to collapse anytime now … Only potential survivor, the fabulous Fab[rice Tourre] … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!” [WSJ]
When regular old bank analysts switch firms, people don’t tend to make a big deal about it. Gardening leave is taken, contracts are signed, key cards are distributed, new business cards are printed. Sometimes you’ll get an email address with updated contact information. That’s usually it. Dick Bové, as you all know, however, is no regular bank analyst. Which is following his departure from Rochdale Securities, potential employers didn’t interview him, he interviewed them, why his son/spokesman, Joe Bové sent out a press release announcing the final countdown to Bové Day, and why, when that blessed day arrived, it was celebrated with a three-course feast fit for a king and a little something called the Dick Bové Banking Manifesto. Read more »
The private equity firms bid $410 million for most of Hostess’ cakes, and certainly all of the important ones: Twinkies, Ding Dongs, CupCakes and Ho Hos, as well as some things called Donettes. (I’ve never heard of the latter. Were they available in the greater New York area during the late 80s and early 90s?) Read more »
We’ve talked a lot about bank capital today but there’s still time for one quick addendum. First, though, two rough-and-ready equations:
Capital = cash paid in by shareholders plus retained earnings
Capital ratio = capital divided by assets
The first equation explains my puzzlement at the claim that Deutsche Bank “book[ed] a loss to boost its capital ratio without selling shares;” it’s arithmetically impossible to boost your capital by losing money, though you can (separately) boost your capital ratio by fiddling with the denominator.
The important thing about the second equation is that, for banks, the ratio is well under 1. So if your capital ratio is a relatively robust 10%, that means that 90% of your total assets are funded with borrowed money, and 10% are funded with cash from shareholders and retained earnings. Some people dislike this system.
Anyway there are various semi-magical ways to monkey with the denominator but there is one simple and obvious way to monkey with the numerator – the actual amount of capital that you have – and it is this:
Take some money,
dress it up in a fancy costume, and
issue some new shares to the the now-cleverly-disguised money.
You have magically transformed Assets (money) – which, remember, are 90%+ funded with borrowed money – into Capital. This has perpetual-motion-machine properties,1 so it’s pretty good.
Also it is, like, wildly wildly wildly illegal. Or, I mean, it’s pretty illegal as I just outlined it above, but if you put a fancy enough costume on the money maybe that makes it okay.2 Anyway draw your own conclusions about this: Read more »
If you were going to try and extort money Bear Stears alum, how would you do it? Would you call him at his new job and talk trash about his wife? Would you call his house and tell his wife he was running around on her with another woman? Would you call his mother-in-law in New Jersey and breathe heavily into the phone? Or would you bring out the big guns and start sending pizzas, sometimes 20 at a time, to his home in New Canaan, as a sign you really meant business? Donato Anthony Minicozzi chose all of the above. Read more »