• Market Crumbs

Wall Street Back To Its Old Tricks, While Getting Busted For New Ones

It was around this time in 2008 when Wall Street was at the height of the Financial Crisis with events such as Lehman Brothers' bankruptcy, the largest in U.S. history, and AIG receiving an $85 billion bailout from the U.S. government. The subprime mortgage crisis was spiraling out of control with global credit conditions deteriorating and the largest banks on the brink of insolvency, creating panic and causing markets to plummet. With the passing of the Emergency Economic Stabilization Act of 2008, TARP was created bailing out countless banks, and the financial system was "saved." No bank executives went to jail.

So here we are in 2019 in the midst of the longest bull market in history. So what is Wall Street up to now? The same exact thing they were that caused the crisis. Over the last year, Citigroup, Goldman Sachs, Wells Fargo, and JPMorgan Chase have started to pull mortgages into securitized products, a market which basically disappeared following the crisis. Given this was a huge money-maker and they didn't get punished, why wouldn't they get back into this market?

While the market is much smaller than it was during the crisis, it is likely to continue to grow if Fannie Mae and Freddie Mac either shrink or are privatized, which is what the Trump administration is pushing for. So what's causing banks to create these products? Demand from investors for yield in a low-rate world, which has been caused by central banks' interest rate policies.

On the other hand, the gig is up for three JPMorgan employees who were busted by the U.S. Department of Justice for placing orders, and then cancelling them (known as spoofing), on precious metals such as gold and silver. The alleged market manipulation between May 2008 and August 2016 deceived other market participants about the actual supply and demand in the precious metals market.

U.S. prosecutors didn't mince words, calling JPMorgan's precious metals desk "a criminal enterprise operating inside the bank for nearly a decade." The list of charges against them is lengthy, with one standing out - "conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity." The RICO statute is rarely used against big banks. It's typically reserved for the likes of the mafia, but some may argue they're not much different.

So while the fate of the JPMorgan precious metal traders, or "criminal enterprise," will likely be worse than those of the financial crisis bank executives, those securitizing mortgage products seem to think it's different this time, or at least know if it isn't, that they will not be prosecuted.

Leftover Crumbs

  • WeWon'tIPO. As WeWork's valuation falls by the day, the company's parent, The We Company, decided to pull the plug on its planned imminent IPO. The company was expected to begin its road show, which involves a series of sales pitches to prospective investors, this week. The company declined to comment, but according to sources they may not IPO at all this year now.

  • That's gold, Jerry! Gold! After losing popular shows "The Office" and "Friends," Netflix has won global streaming rights for the hit comedy "Seinfeld." The 5-year deal goes into effect in 2021 and will allow Netflix to exclusively air the 180-episode series to its customers globally. Terms of the deal were not disclosed, but it is assumed they paid well above the $500MM NBCUniversal paid for "The Office." 

  • Purdue Pharma, the manufacturer of controversial painkiller OxyContin, has filed for Chapter 11 bankruptcy as part of a proposed $10 billion settlement. The drug company is settling thousands of lawsuits brought upon them for its role in the U.S. opioid epidemic. Owners of Purdue, the billionaire Sackler family, will not be criminally charged and will remain billionaires. 

  • Time to start a GoFundMe? The biggest backers of WeWork's biggest backer, Softbank Group, are scaling back future commitments. Saudi Arabia’s Public Investment Fund and Abu Dhabi's Mubadala Investment Co., who have contributed a combined $60 billion to Softbank's $100 billion Vision Fund, are done throwing good money after bad. Saudi Arabia's PIF is now planning to only invest its profits from the Vision Fund into any new fund, while Mubadala is scaling back its planned investment to less than $10 billion from $15 billion. 

  • Ocean's 14: Danny Ocean and the gang steal from the world's largest private equity firm. Blackstone Group is in discussions to buy and lease back Las Vegas casinos Bellagio and MGM Grand Las Vegas from MGM Resorts International. The deal would provide cash for MGM and bolster the casino portfolio of Blackstone, which is reportedly trying to sell another holding it owns in Las Vegas, The Cosmopolitan.