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Citigroup Inc (C.N) was sued for fraud by Loreley Financing over nearly $1 billion worth of collateralized debt obligations purchased in 2006 and 2007. Citigroup is accused of defrauding Loreley into purchasing "fraudulent investments that are now worthless," Loreley said in a complaint filed Tuesday in New York State Supreme Court in Manhattan...

WASHINGTON (AFP) – The Senate will soon issue findings of a probe of the US mortgage meltdown that fueled the global financial crisis, with Goldman Sachs likely to face fresh embarrassment over its role, the Wall Street Journal reported Sunday. The Senate Permanent Subcommittee on Investigations, whose high-profile inquiry commission subpoenaed Goldman's and other executives last year, is due to release its report on the subprime implosion of 2007 and 2008. The paper, citing people familiar with the matter, said the report was expected to release emails from securities firms that developed or sold subprime mortgages and financial vehicles including...

NEW YORK (Reuters) – An Australian hedge fund is suing Goldman Sachs Group Inc (GS.N) over an investment in a subprime mortgage-linked security that hastened the fund's demise in 2007. The lawsuit, being filed on Wednesday, accuses Goldman of misrepresenting the value of the notorious Timberwolf collateralized debt obligation, which garnered a lot of attention during a recent congressional hearing. Basis Yield Alpha Fund is suing Goldman to recoup the $56 million it lost on the CDO, according to a lawyer for the fund, Eric Lewis. The suit also seeks $1 billion in punitive damages. The litigation is the latest...

The financial-reform bill will do its part to save the economy—by creating jobs for accountants and lawyers. President Obama and leading Democrats are calling the "Restoring American Financial Stability Act of 2010" the greatest overhaul of Wall Street since the Great Depression. And that may well be true. But judging from the many loopholes in the legislation—with more to come as the banks maneuver stealthily to tweak the final product in conference—the new bill might be better termed "the Accountants' and Lawyers' Welfare Act of 2010." The bottom line is that despite the blizzard of amendments and provisions added—including some...

For the past two weeks, Goldman Sachs, the now-humbled Wall Street titan, has been battered by a potent troika of government assaults. The Securities and Exchange Commission has filed its civil fraud action. Senate hearings have had the riotous feel of a Soviet show trial. And the Manhattan office of the United States Department of Justice has recently announced its ongoing criminal investigation. To its sorrow, Goldman has learned that its market clout is ever more vulnerable to these combined legal threats. Billions in wealth and legions of lobbyists and lawyers can't block these unilateral government initiatives. Yet they can...

I turned 43 years old on Tuesday, but after listening to the Goldman Sachs hearing in Washington I felt like I was born yesterday. That's essentially how the Goldman witnesses treated their viewing audience while defending their dubious behavior: You're too dumb to understand the complexity of our business and the instruments we trade. In our line of work, they explained, deceit and double-dealing is expected and condoned on all sides. Everybody has fair warning. So what's the big deal if we sold a "shitty" product without disclosing it was designed to lose money? But as the day wore on,...

CHICAGO -- The lawsuit filed by the US Securities and Exchange Commission against Goldman Sachs for securities fraud, charging the bank with misrepresenting the way a collateralized debt obligations (CDO) had been formed, has revived public disgust at credit default swaps (CDS), the instrument used to bet against these CDOs. Before the 2008 financial crisis, CDSs were an esoteric product, known only to a restricted number of sophisticated investors and specialized academics. Today, they are a household name, synonymous with unruly speculation, boundless greed, and, ultimately, systemic instability. Indeed, CDSs are blamed as one of the main causes of the...

THERE may not be a person in America without a strong opinion about what coulda, shoulda been done to prevent the underwear bomber from boarding that Christmas flight to Detroit. In the years since 9/11, we’ve all become counterterrorists. But in the 16 months since that other calamity in downtown New York — the crash precipitated by the 9/15 failure of Lehman Brothers — most of us are still ignorant about what Warren Buffett called the “financial weapons of mass destruction” that wrecked our economy... --snip-- As Paul Volcker, the regrettably powerless chairman of Obama’s Economic Recovery Advisory Board, said...

Mark Lloyd, newly appointed Chief Diversity Officer of the Federal Communications Commission, has called for making private broadcasting companies pay licensing fees equal to their total operating costs to allow public broadcasting outlets to spend the same on their operations as the private companies do. Lloyd presented the idea in his 2006 book, Prologue to a Farce: Communications and Democracy in America, published by the University of Illinois Press. Lloyd’s hope is to dramatically upgrade and revamp the Corporation for Public Broadcasting through new funding drawn from private broadcasters. The CPB is a non-profit entity that was created by Congress...

Mark Lloyd has recently been appointed “Chief Diversity Officer” at the Federal Communications Commission. Conservative groups believe his installation is merely another way to impose the dangerous principles contained in the Fairness Doctrine. Lloyd is a longtime Democrat activist who has strategized about ways to censor conservative media under the guise of “local accountability.” In 2007, he co-wrote a report that called for, among other things, the restoration of local and national caps on the ownership of commercial radio stations and fines for commercial radio station owners if their stations didn’t air enough “progressive” content. Those fines would go directly...

MBIA sues Merrill over CDO losses Thu Apr 30, 5:16 pm ET NEW YORK (Reuters) – MBIA Inc (MBI.N), the world's largest bond insurer, sued Merrill Lynch & Co on Thursday seeking damages for losses from complex debt securities it insured for the bank. The lawsuit, filed in New York State Supreme Court in Manhattan, seeks to void certain credit default swaps and related insurance contracts that MBIA, through a special purpose vehicle, wrote on the securities held by Merrill. The insurer wrote $5.7 billion in guarantees on these securities, which were packages of mortgages known as collateralized debt obligations...

Insight: Time to expose those CDOs Published: February 26 2009 16:34 | Last updated: February 26 2009 16:34 Just how much should a debt vehicle backed by subprime mortgage bonds be worth these days? Two years ago, most banks and insurance companies assumed the answer was close to 100 per cent of face value – or more. Since then, however, that “price” has clearly collapsed, triggering tens of billions of dollars worth of writedowns, particularly in relation to a product known as collateralised debt obligations of asset-backed securities (CDO of ABS.) But as the zeroes relating to writedowns multiply, a...

The death throes of the bond insurers Google Chart of ABK share price: Ambac’s share price hit an all-time low on Wednesday, falling below $1 a share for the first time in the company’s history as a public company. Why? A rather savage downgrade from S&P, which cut the bond insurer’s financial strength rating to A from AA, The outlook on the ratings is negative, meaning further cuts are likely in the medium term. S&P’s rationale (emphasis FT Alphaville’s): The rating action on Ambac reflects our view that the company’s exposures in the U.S. residential mortgage sector and particularly the...

Toxic corporate CDOs may touch $1 trillion (originated from Bloomberg)

A nuclear winter? Sep 18th 2008 From The Economist print edition The fallout from the bankruptcy of Lehman Brothers WHEN Warren Buffett said that derivatives were “financial weapons of mass destruction”, this was just the kind of crisis the investment seer had in mind. Part of the reason investors are so nervous about the health of financial companies is that they do not know how exposed they are to the derivatives market. It is doubly troubling that the collapse of Lehman Brothers and the near-collapse of American International Group (AIG) came before such useful reforms as a central clearing house...

FOR decades now, as a writer, economist and scold, I have been receiving letters from thoughtful readers. Many of them have warned me about the dangers of a secret government running the world, organized by the Trilateral Commission, or the Ford Foundation, or the Big Oil companies or, of course, world Jewry. I always scoff at these letters. The world is far too complex a place to be run by any one group. But the closest I have recently seen to such a world-running body would have to be a certain large investment bank, whose alums are routinely Treasury secretaries,...

The subprime spread continues: A Goldman Sachs report says the overall impact of mortgage losses on economic activity could be huge Just a few months ago, analysts believed the collapse of subprime mortgage securities and related investments would lead to losses of $50 billion to $100 billion, a large but manageable number. Now, a new report from Goldman Sachs (GS) says losses from subprime exposure could be much larger than recently assumed, hitting as much as $400 billion. But that's not the extent of the financial carnage: Goldman said the full impact on the economy could be even more substantial,...

Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street: 1. Carina: CD-Oh-No Standard & Poor's said a collateralized debt obligation managed by State Street (STT) began liquidating its assets, prompting the ratings firm to slice the investment vehicle's ratings as much as 18 levels, according to Bloomberg. * It's an important story. * Carina CDO Ltd., the CDO in question, is the first CDO to begin unwinding. * According to S&P, the ratings on the most senior class of Carina CDO Ltd. were lowered to BB, two levels below investment grade,...

Several of the world’s biggest banks are in talks to put up about $75 billion in a backup fund that could be used to buy risky mortgage securities and other assets, a move designed to ease pressure on a crucial part of the credit markets that threatens the broader economy. Citigroup, Bank of America and JPMorgan Chase, along with several other financial institutions, have been meeting to come up with a plan to create a fund that could prevent a sharp sell-off in securities owned by bank-affiliated investment vehicles. The meetings, which began three weeks ago, have been orchestrated by...

Mr. Chairman and Members of the Committee: Thank you for this opportunity. My name is Robert Kuttner. I am an economics and financial journalist, author of several books about the economy, a magazine editor, and former investigator for the Senate Banking Committee. I have a book appearing in a few weeks that addresses the systemic risks of financial innovation coupled with deregulation and the moral hazard of periodic bailouts. In researching the book, I devoted a lot of effort to reviewing the abuses of the 1920s, the effort in the 1930s to create a financial system that would prevent repetition...

“THE medium-term outlook for the company is very positive,” declared Northern Rock's chief executive, Adam Applegarth, unveiling its first-half results in July. He spoke of a credit book that was “robust”. Who would have guessed that less than two months later Britain's fifth-largest mortgage lender would be fighting for its life, its branches besieged by customers demanding their savings back? The run on Northern Rock is the most dramatic symptom of the contagion gripping the financial markets. Here was a bank that had grown rich from the innovations of recent years, using abundantly stocked wholesale markets to fund its lively...

"The rich are different from you and me," wrote Fitzgerald and I suppose they are, but the differences – they wax and wane with the economic tides. Gilded ages come, go, and are reborn on the monsoon cloudbursts of seemingly intangible forces such as globalization, innovation, and favorable tax policy. For the rich to be truly rich and multiply their numbers, they need help. Adept surfers they may be, but like all riders, the wealthy need a seventh wave that allows them to preen their skills and declare themselves masters of their own universe, if only for a moment in...

NEW YORK (Reuters) - Investors looking for signs of a crack in the credit markets are turning their attention to a corner of the debt market that's been feeding the leveraged buyout frenzy. Banks used to finance buyouts mainly with loans on their balance sheets, but are now packaging and selling that debt to investors using instruments called "collateralized loan obligations" (CLOs) that group various loans together to diversify risk. For example, debt issued by the $5.6 billion private-equity purchase of rental company Hertz (HTZ.N: Quote, Profile, Research) is now in the hands of more than 200 CLOs. Similarly, HCA...