AGE OF DECEPTION II
"Satan has effectively blinded man to the painful damaging consequences of sin. The effects of sun are all around us, yet many continue ti indulge in the sex, status- and pleasure-seeking, and rampant self-centeredness that cause much anguish and pain. Satan contradicted God in the Garden when he said, "You surely will not die!" (Gen. 3:4). Sin is pleasant but only for a season. Sooner or later, sin will result in some form of destruction."
THE SEARCH FOR SIGNIFICANCE by Robert S. McGee
You begin to see why I started back there. There in those first three deceptions, They set the tone for everything around us today. The creation of one myth after another by Hollywood, The creation of one scam after another by those running large corporations, research programs, financial institutions.
Go back to Ruth. She is gleaning IN the middle of the harvest. The harvest of souls is going on right now, has been since Jesus returned and this happened:
Mt 27:51 And the curtain of the Temple was parted in two from end to end; and there was an earth-shock; and the rocks were broken;
52 And the resting-places of the dead came open; and the bodies of a number of sleeping saints came to life;
53 And coming out of their resting-places, after he had come again from the dead, they went into the holy town and were seen by a number of people.
(BBE)
The resurrection is called the harvest:
https://www.ucg.org/bible-study-tools/booklets/gods-holy-day-plan-the-promise-of-hope-for-all-mankind/the-feast-of-1
(Note: Ii don;t agree with the United Church of God about some things, but this research is accurate and so used her.)
"In the process of revealing His plan of salvation for mankind, God established His annual Holy Days around the harvest seasons in the Middle East (Leviticus 23:9-16; Exodus 23:14-16). Just as His people harvested their crops around these three festival seasons, God’s Holy Days show us how He is harvesting people for eternal life in His Kingdom.
"The Holy Days have meanings that build upon each other. Together they progressively reveal how God works with humanity.
"Earlier we saw Passover symbolizing Christ’s giving of Himself for us so our sins could be forgiven and we could be redeemed from death. We also learned how the Days of Unleavened Bread teach us that we must remove and avoid sin and instead obey God in actions and attitudes. The next festival and Holy Day, Pentecost, builds on this important foundation.
"This festival is known by several names that derive from its meaning and timing. Also known as the Feast of Harvest (Exodus 23:16), it represents the firstfruits (Numbers 28:26) gathered as the result of the labor of those who completed the spring grain harvests in ancient Israel (Exodus 23:16).
"It is also called the Feast of Weeks (Exodus 34:22), with this name coming from the seven weeks plus one day (50 days in all) that are counted to determine when to celebrate this festival (Leviticus 23:16). Similarly, in the New Testament, which was written in Greek, this festival is known as Pentecost ( Pentekostos in the original), which means “fiftieth” (W.E. Vine, Vine’s Complete Expository Dictionary of Old and New Testament Words , 1985, “Pentecost”).
"Among Jews the most popular name for this festival is the Feast of Weeks, or Shavuot, in Hebrew. When celebrating this festival, many Jewish people recall one of the greatest events in history, God’s revealing of the law at Mount Sinai.
"But Pentecost doesn’t just picture the giving of the law; it also shows—through a great miracle that occurred on the first Pentecost in the early Church—how we can persist in living by the spiritual intent of God’s laws.
The gift of Pentecost: the Holy Spirit
"God chose the first Pentecost after Jesus Christ’s resurrection to pour out His Holy Spirit on 120 believers (Acts 1:15). “Now when the Day of Pentecost had fully come, they were all with one accord in one place. And suddenly there came a sound from heaven, as of a rushing mighty wind, and it filled the whole house where they were sitting. Then there appeared to them divided tongues, as of fire, and one sat upon each of them. And they were all filled with the Holy Spirit and began to speak with other tongues [languages], as the Spirit gave them utterance” (Acts 2:1-4).
"The speaking in various languages occurred as a crowd of people from many nations gathered in Jerusalem, with each visitor hearing the speech of the disciples in his own native tongue (Acts 2:6-11). These astounding events demonstrated the presence of the Holy Spirit."
The Feast of the Harvest started with those first fruits. the ones raise right after the Resurrection of the Lord. In the festival they formed the "wave Sheaf" which was waved over the alter and used to symbolize the beginning of the harvest.
The resurrection has been going on spiritually since then. The fallen saints are in the Spiritual state in the presence of the Lord.
Php 1:21 For to me life is Christ and death is profit.
22 But if I go on living in the flesh--if this is the fruit of my work--then I do not see what decision to make.
23 I am in a hard position between the two, having a desire to go away and be with Christ, which is very much better:
(BBE)
Waiting>
And then there is an old song:
https://www.youtube.com/watch?v=BFlgDeA6Wog
We are in His Presence here and then there by the indwelling Spirit. Awaiting the Rapture for tieh arrival of our Final Flesh.
But, like Ruth, we await our Boaz to deliver us from the wear and tear of this flesh. But we know the time draws near. We know because:
2Ti 3:12 Yes, and all whose purpose is to be living in the knowledge of God in Christ Jesus, will be cruelly attacked.
13 Evil and false men will become worse and worse, using deceit and themselves overcome by deceit.
14 But see that you keep to the teaching you have been given and the things of which you are certain, conscious of who has been your teacher;
(BBE)
So let me touch on just one way deception has increased: the idea of junk bonds and how they represent the greed our times Not coincidentally one in which the current President of the USA was intimately involved in.
http://www.npr.org/2016/03/17/470806232/opening-the-books-on-donald-trumps-business-deals-in-atlantic-city
(An interview from right before the last election about Mr. trumps claim never to have gone bankrupt.)
So when you file for bankruptcy for your business but you own all the shares in the business and it's a private company, where is the line between a personal and a corporate bankruptcy, especially if you've personally guaranteed some of the loans that your company has taken out?
O'HARROW: You've just asked a question that they examine in the best law schools in the country. But suffice it to say that there is a line, and he filed corporate bankruptcies, not personal bankruptcies here. And he has rightfully pointed out that the law provides bankruptcy in a positive way. It's to enable entrepreneurs to restructure and to keep going rather than just fail outright.
And so, you know, we need to note something that he has said repeatedly is that he used the laws of the nation to his own benefit. And everybody's going to have to decide on their own the degree to which he was personally involved here and what that means to them because there's no question this was a corporate bankruptcy.
GROSS: So we actually have a clip standing by of exactly what you talking about, so let's listen to this clip. And this is an excerpt of the first Republican debate hosted by Fox News. This is August 6, 2015, and the person asking the question is Chris Wallace.
(SOUNDBITE OF ARCHIVED RECORDING)
CHRIS WALLACE: Trump Corporation's casinos and hotels have declared bankruptcy four times over the last quarter-century. In 2011, you told Forbes Magazine this - I've used the laws of the country to my advantage. But at the same time, financial experts involved in those bankruptcies say that lenders to your companies lost billions of dollars. Question, sir. With that record, why should we trust you to run the nation's business?
TRUMP: Because I have used the laws of this country just like the greatest people that you read about every day in business have used the laws of this country, the chapter laws, to do a great job for my company, for myself, for my employees, for my family, et cetera. I have never gone bankrupt, by the way. I have never. But out of hundreds of people...
WALLACE: ...No, but sir, that's...
TRUMP: Excuse me.
WALLACE: ...You're lying.
TRUMP: Excuse me...
WALLACE: ...But your companies have gone bankrupt.
TRUMP: Out of - what am I saying? Out of hundreds of deals that I've done, hundreds, on four occasions I've taken advantage of the laws of this country like other people. I'm not going to name their names 'cause I'm not going to embarrass them, but virtually every person that you read about on the front page of the business sections, they've used the laws. The difference is when somebody else uses those laws, nobody writes about it.
GROSS: So, Robert O'Harrow, when you spoke to people who had worked with Trump and when you spoke to members of the casino commission in New Jersey, did they talk to you about how he used the bankruptcy laws and if he used them kind of, like, straightforwardly or if there was a lot of, like, manipulation of those laws?
O'HARROW: I did. You know, of course, some of these folks feel spurned by Donald Trump because he made a whole host of promises and they felt that he didn't keep his promises. One of them was Steven Perskie. He's the former chairman of the Casino Control Commission. He also was a former Democratic lawmaker.
Now he worked very closely with Trump to sort through a lot of these problems that came along, and the way he describes it is that the city - Atlantic City officials and the casino regulators were in a really tough spot because Atlantic City was struggling. The casino business was struggling. And in maneuvering the way that he did, according to Perskie, Trump gave them really no choice but to keep going. And here's what Perskie said.
"When I read and hear him say he was beloved in Atlantic City, that was before the bankruptcy. He remembers to perceive how he started, not how he was perceived when he left."
And Perskie went on to tell me that it got to the point where Donald Trump himself was such a force in Atlantic City with the three different casinos that he became too big to fail, so that they cut him slack with that in mind because they were worried about the impact on a city that was already struggling.
GROSS: Because if this huge casino, the Taj, went under, it would be bad for all of Atlantic City.
O'HARROW: Well, not just the Taj. The other two casinos also struggled and eventually filed bankruptcy as well.
GROSS: My guest is Robert O'Harrow, a reporter for The Washington Post's investigative unit. We're talking about his article examining Donald Trump's business practices and deals when he took over the Atlantic City casino hotel the Taj Mahal. After we take a short break, we'll talk about who lost out when the Taj went bankrupt. I'm Terry Gross, and this is FRESH AIR.
(SOUNDBITE OF MUSIC)
GROSS: Donald Trump's deals and promises when he took over the not-yet-completed Taj Mahal in Atlantic City. When it opened in 1990, it was the largest casino hotel in Atlantic City. He already owned two other casinos in the city, Trump's Castle and Trump Plaza. The year after the Taj opened, it filed for bankruptcy. When we left off, we had listened to a clip from the first Republican candidates debate, which was hosted by Fox News in August. Chris Wallace had asked Trump about his company's four bankruptcies.
So in that clip that we heard, Donald Trump said that he did a great job for his company, for himself, for his employees and his family. And he's talking about how the Taj ended up after bankruptcy. But you looked into, like, who lost money on this deal when he declared bankruptcy and couldn't pay all of his loans. So who lost out?
O'HARROW: The answer about who was affected is deeper than it might seem because in March of 1992, Trump's Castle and his Plaza casinos also filed for bankruptcy. And to resolve those debts, Trump gave up half his stake in each of the casino to the lenders. So the lenders definitely lost money through the cascading failures of these three casinos. But small-time investors who had bought the bonds directly or through retirement funds also suffered losses. And so did small business owners who sold the Trump organization paint, equipment, food, limousine services. And many of those were eventually paid only a fraction of what they were due. And we know this in part because a professor at Temple University - in your town - Bryant Simon went in and studied Atlantic City and found that a lot of people recall having to struggle to get by after these bankruptcies.
Bryant Simon - the professor - told me that Trump was quote, "a brutal and ruthless negotiator." And he said that people paid the price. And when I brought that up with Donald Trump, he said that he acknowledged that he drove hard bargains, but he said that he created many opportunities for a lot of people in the city to make money. And here's what he told me.
"I wasn't the nicest person on earth. Many of these same people, if not all, made a lot of money with me."
GROSS: I want to play another Donald Trump clip. And this also is from the first Republican debate, which was hosted by Fox News on August 6, 2015. And this is Donald Trump speaking. And he's speaking about getting out of the casino business in Atlantic City.
(SOUNDBITE OF ARCHIVED RECORDING)
TRUMP: I had the good sense to leave Atlantic City - which by the way, Caesar's just went bankrupt. Every company - Chris can tell you - every company, virtually, in Atlantic City went bankrupt - every company. And let me just tell you; I had the good sense - and I've gotten a lot of credit in the financial pages. Seven years ago, I left Atlantic City before it totally cratered. And I made a lot of money in Atlantic City. And I'm very proud of it.
GROSS: OK, and the Chris that Donald Trump referred to is Governor Chris Christie of New Jersey. And of course, Atlantic City is in New Jersey. So what do you think about when you hear that? Like, what facts did you find that either back up or contradict what Donald Trump just said?
O'HARROW: Well, I'm going to tell you what Steve Perskie told me. But first, I think it's worth noting - and I've been struck by this during the whole election - that how often Donald Trump uses money as the measurement of his civic virtue, or his talent, or his credential to become the president of the United States. And clearly, money can serve as one way of measuring success. But it's - in my business over the years as a journalist, I haven't seen another candidate rely so much on claims of wealth to underscore personal integrity.
GROSS: Right. Well, you know, he said, I made a lot of money in Atlantic City. We've been talking about his bankruptcies, how he couldn't pay off his debts, how people who he owed money to lost money. So is it true that he made a lot of money in Atlantic City, as he said, by the time he actually pulled out? Can we - can you tell whether he made money or lost money?
O'HARROW: Oh, I think he made money. The degree to which he made money and how he made it I think is open to question. I would like to get specifics. But getting specifics on the actual dollar value and how they're anchored to particular deals and bottom lines is a very difficult thing. But I think that probably the - the - maybe the thing that is more illuminating for me is the reaction that people had after he was gone. And Steven Perskie - again, I think his voice is interesting. And he said to me this.
"Trump was welcomed with open arms by everybody. And he provided the sense that he was able to do everything he promised, Perskie told me a few months ago. He said, his name and his legacy in the city were significantly tarnished. The business community and regulators no longer accepted the music of the Pied Piper."
I thought that was really an interesting statement from a man that in some ways helped Trump get through the bankruptcies by allowing him to continue to do business."
Understand: Trump issued junk bonds on the Taj even after he said he wouldn't. Tose bonds went up in smoke when he declared bankruptcy
http://www.royalgazette.com/martha-myron/article/20161008/junk-bonds-and-tale-of-trump-haircut
An article by Allan Sloan in Newsday magazine from 1991 explains why the banks didn't want Trump using junk bonds on his real estate yet again.
https://www.washingtonpost.com/archive/business/1991/01/02/the-year-junk-bonds-bombed-trump-slumped-and-lorenzo-bailed-out/74c70251-9e82-46e6-8ff0-43d63cc18f30/?utm_term=.bae2ff1d6083
My three best predictions of the year -- the collapse of the junk bond market, the fall of Donald Trump and the bankruptcy of the Frank Lorenzo airline empire -- were all simple logic, if you think the way I do.
Early in 1990, anyone with two eyes, half a brain and an open mind could see that the junk bond market, in its late 1980s form, was finished. Dead, kaput. In the 1980s junk was a Tinker Bell market -- everyone clapped and believed in junk bonds, so there was a market, even though many junk issuers were financially unsound. When Michael Milken was driven out and everyone finally stopped believing, you had a market in which you could buy all the junk bonds you wanted, you just couldn't sell them at a reasonable price. Junk bonds, to quote one of my February columns, became a financial Roach Motel. You can check in, but you can't check out.
That made calling the fall of Donald Trump easy. Especially after Forbes magazine, in April, published Trump's balance sheet. Do a little forensic accounting, and you saw that Trump had almost no cash cushion and his properties weren't producing enough cash to pay his interest bills, and that the only way he would emerge with anything other than his mouth is by making deals with his lenders, those poor souls. I've missed a prediction or two on The Donald, but in all, my record on Trump's deals is lots better than Trump's is.
I made the Lorenzo call with help from my Newsday colleague Glenn Kessler, who covered the Eastern Airlines bankruptcy. I realized that the deficit in Eastern's pension fund could sink Lorenzo's whole empire because the U.S. Pension Benefit Guaranty Corp. wasn't letting him walk way from it. So Lorenzo's empire, which included Continental Airlines and Continental Airlines Holdings (nee Texas Air Corp.) went under, as I predicted. But Lorenzo managed to bail out ahead of the crash, which I hadn't predicted.
Once you realize that junk bonds were gone, you realized that junk bank loans would vanish too. Which is why I was sure that the two employee bids for United Airlines would fail, as they did.
The Bermuda Investment Primer Series.
The recent focus on Donald Trump’s leaked (or however the information was obtained) 1995 partial personal tax return by the New York Times brings up the very interesting topic of junk bonds.
The enormous loss of almost $1 billion — considered a lot more significant 20 years ago — stated on the above tax return was attributed, by various analysts, to the financing structures of a casino and possibly other large-scale developments.
What does junk have to do with bonds and financing? Don’t most people take a loan known as a mortgage to purchase or build property? Well, no, not always. In fact, in business circles, other financing forms probably take precedent.
At this juncture, we will just take a brief look** (see link at US Securities & Exchange filing below — an extremely tedious, highly detailed multi-page look at a complicated corporate / partnership operation) at one business structure, the Trump Taj Mahal in Atlantic City, launched in 1990 by Mr Trump. The new venture was supported with a series of bond issues, paying an estimated 11 per cent interest rate annually to the bondholders, to fund acquisition and construction.
Those were heady days (oops, not a reference to the famous hair style) even though it was only a few years after the infamous 1987 Black Monday stock market crash. The hype was that Atlantic City was to receive much needed revitalisation and many, many people stood to benefit from the influx of new businesses.
However, in rather short order, probably not more than a year later in 1991, the Trump Taj casino model was deemed not sustainable according to the US SEC report — meaning that there was insufficient cash flow to meet the debt obligations to the bondholders for their interest and principal payments.
The entire scheme was placed into a legal structure of reorganisation and renegotiation of repayment terms by the debtors of the corporation. In investment jargon terms, creditors of the Trump Taj had to accept a “haircut” or another form of ownership in lieu of debt repayment.
What on earth does all this mean? We will explore the concept of bonds, conversions, repayments, junk or quality credit ratings, risk coupon versus yield, market interest rates, discounts and premiums, surety bonds with guarantees and yes, haircuts and as many other basic components that we can — without boring you to tears, or having you turn off learning in frustration.
Bonds appeared first on stone in 2400 BC in Mesopotamia***, where the payment of grain was guaranteed by a surety. (Bill note: In Babylon!) Bonds then evolved into paper missives of a sort by the clever Venetians in the 11th to 14th centuries as government bonds to fund wars, then, bonds were upscaled into securities trading as annuities.
Various governments through the latter centuries, first by the Bank of England to fund wars against the French in 1693, then other countries followed suit delving into patriotic fervour to fund wars across continents, including the US Revolutionary war — where $27 million in the late 1700s was an astronomical sum.
In the early 1900s the US issued the first US Treasury bond, so called Liberty Bonds for funding the First World War.
Modern day bonds are used primarily for finance, investments, capital structures, economic money flow circulation, and business commerce. And we hope, not for war.
Bonds are fascinating things. One might say that they are formalised versions of informal gentlemen’s handshake, or a complex version of a simple IOU between friends, but no matter the shape, they are still a promise to repay. They are almost never considered ownership of an asset — but an agreement between the borrower and the lender.
Ordinary bonds can be confused with mortgages, but the big difference there is that a mortgage has attached collateral giving the lender the right to liquidate the property, the equipment, or something of more than equal value in order to be repaid.
How then does a bond work? Someone, or many, thousands of years ago had a brilliant idea. Instead of one friend, or hundreds of friends, neighbours, businesses, loaning another money in exchange for interest income and hoping for a repayment down the road, why not make the act of borrowing and lending an independent security.
A real stand-alone legal entity contract, so to speak, that can bring bonds for purchasing and selling right to the public, is called a bond indenture, a deed of trust. The trust indenture is a complex binding document between an appointed trustee and the bond issuer, who may be a government, a corporation or another form of commercial structure.
A quick aside to wrap up the end of part one of this section of the series. Junk bonds, by definition, almost always offer very high rates of interest when compared to market interest rates of the same time frame. They are considered much higher risk, than say a US Treasury Bond or a Canadian government bond. And more often than not, junk bonds do not return all of the original principal invested, thus the name.
Teaching or writing about investments during Bermuda finance employment positions, I liked to refer to The Donald bonds — which were listed every day in the print in the Wall Street Journal — heavens, old-fashioned newspapers. Everyone knew who Mr Trump was even way back then.
My question was always the same, whether the bonds were from Trump, or from Brazil or Argentina — that were often listed close by, do you think you will get your full amount of the bond principal back?
For instance, more than once, the 2002 year comes to mind, Argentina government bondholders watched as Argentina bonds, at that time paying about 14 per cent interest, went into default while the government defiantly stated they would pay only a lower percentage of the principal back. Around 30 per cent of the principal investment was offered and many small investors accepted.
Large creditor bondholders fought back, but it took 14 years to finally settle early this year — 75 per cent of the principal will be returned to them.
Now one would that banks and other financial institutions wold learn a lesson from Trump's ways and eliminate junk bonds. Well they did learn a lesson but it wan't that one.
Business schools from Harvard on down have been caught up with the Korda effect. Michael Korda wrote a book called Power which basically told everyone in business to go get what they can for themselves. It appeared in the mid 970's and so I take it as an early example of the deception game for business success. many other such books followed. Harvard has been teaching business using the book The Art Of War as their main model for how to succeed. The book involves doing whatever is needed to win in the battle from lying ans cheating to more subtle forms of attacking your boss behind his back while you honor hi to his face. A Harvard MBA gets you into the larf=gest corporations and everyone there is essentially doing the same thing.
So if you have business people taught to get everything for themselves then logically it doesn't matter who gets hurt along the way so long as the business person wins.
So with the mentality in mind, this is what they learned from Trump:
1) Junk bonds can make YOU a ton of money. Recall Trump used his massive personally assured business losses to claim enough personal losses to avoid income tax for about 20 years. All the while claiming how rich he was.
2) The law is a nasty thing that can get in our way.
Fortunately for those who were rich and wanted to get richer, the Tea Party movement began. It featured libertarian ideas of ending government watchdog agencies and repackaged them around Christian sounding ideas. Actual libertarians are usually atheists and atheism is even in their party's platform. But they used the idea of keeping government out of religion and preaching an end to big government to disguise that they wanted to assure Big Business of an very unlevel playing field. Under the Bush II administration they took advantage of rule relaxation from the Clinton Administration. Financial watchdog agencies were gutted and laws were passed that allowed banks and insurance companies and brokerage firms to intermingle. One could own the other could own the other could own... Laws to prevent the collapse of the economy as it had under Hoover were vacated or routinely ignored.
3) Everyone needs to be in on it.
Real estate programs were huge in the 90's and the idea of becoming a millionaire by buying and selling properties flourished. Many people did but they knew how to work finances and how to develop the actual plan to do it, Many did not and ended up ruined. Those stories never made it to late night infomercials.
Debt became a hot commodity. The more debt a bank could accrue the more bonuses were paid to bank officers and real estate lenders. The stock broker mentality was everywhere. It was summed up in The Wolf of Wall Street: "Move the money from their pocket to yours."
I recall when in was buying penny stocks. I had one that I purchased at $ .25 a share and I checked it one evening to see that I now had $7000 dollars worth of stock. I went to my broker the next morning to sell it and talk with him about a couple other purchases. When I told him how much I had made (This is a guy I played Little League baseball with and who graduated from high school with me), he got a worried look on his face. He seemed really disturbed. He quickly looked up the stock, saw the listing, then did some checking. He finally actually got a relieved look, hung up his phone and said, "They split the stock."
http://www.investopedia.com/ask/answers/113.asp
"All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision by the company's board of directors to increase the number of shares that are outstanding by issuing more shares to current shareholders. For example, in a 2-for-1 stock split, an additional share is given for each share held by a shareholder. So, if a company had 10 million shares outstanding before the split, it will have 20 million shares outstanding after a 2-for-1 split.
"A stock's price is also affected by a stock split. After a split, the stock price will be reduced since the number of shares outstanding has increased. In the example of a 2-for-1 split, the share price will be halved. Thus, although the number of outstanding shares and the price change, the market capitalization remains constant.
"A stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. The primary motive is to make shares seem more affordable to small investors even though the underlying value of the company has not changed."
Except, in this case, the company had reduced the number of my shares so that I had a much smaller holding of the larger value. This use of the "tool" resulted in me not gaining any value on my common stock. But my old friend did get his commission. My broker was relieved because the system as he understood it worked. I wasn't supposed to get a lot of money on my investment.
4) But junk bonds have to be properly marketed so the seller can actually sell them to someone else.
Hence the CDO:
A structured financial product that pools together cash flow-generating assets and repackages this asset pool into discrete tranches that can be sold to investors. A collateralized debt obligation (CDO) is so-called because the pooled assets – such as mortgages, bonds and loans – are essentially debt obligations that serve as collateral for the CDO. The tranches in a CDO vary substantially in their risk profile. The senior tranches are relatively safer because they have first priority on the collateral in the event of default. As a result, the senior tranches of a CDO generally have a higher credit rating and offer lower coupon rates than the junior tranches, which offer higher coupon rates to compensate for their higher default risk.
BREAKING DOWN 'Collateralized Debt Obligation - CDO'
As many as five parties are involved in constructing CDOs:
Securities firms, who approve the selection of collateral, structure the notes into tranches and sell them to investors;
CDO managers, who select the collateral and often manage the CDO portfolios;
Rating agencies, who assess the CDOs and assign them credit ratings;
Financial guarantors, who promise to reimburse investors for any losses on the CDO tranches in exchange for premium payments; and
Investors such as pension funds and hedge funds.
The earliest CDOs were constructed by Drexel Burnham Lambert – the home of former “junk bond king” Michael Milken – in 1987 by assembling portfolios of junk bonds issued by different companies. Securities firms subsequently launched CDOs for a number of other assets with predictable income streams, such as automobile loans, student loans, credit card receivables and even aircraft leases. However, CDOs remained a niche product until 2003-04, when the U.S. housing boom led the parties involved in CDO issuance to turn their attention to non-prime mortgage-backed securities as a new source of collateral for CDOs.
CDOs subsequently exploded in popularity, with CDO sales rising almost 10-fold from $30 billion in 2003 to $225 billion in 2006. But their subsequent implosion, triggered by the U.S. housing correction, saw CDOs become one of the worst-performing instruments in the broad market meltdown of 2007-09. The bursting of the CDO bubble inflicted losses running into hundreds of billions on some of the biggest financial institutions, resulting in them either going bankrupt or being bailed out through government intervention, and contributing to escalation of the global financial crisis during this period.
Now here's Anthony Bourdain talking about how junk real estate bonds from all those houses that were bought by under financed (read poor) citizens were melded with other bonds to make them look good before the major economic crash of 2008.
https://www.usatoday.com/story/life/entertainthis/2016/02/22/watch-why-selena-gomez-explained-economics-big-short/80769978/
The Selena Gomez section explains that essentially the various banks and lending houses were taking a gamble on the various junk bonds and junk bond/Triple A (best)bond mixes (the fish stew in Bourdain's analogy) created by their owners because the relaxed or eliminated laws allowed them to do that and seem to make lots of money and get their "commissions" and bonuses. . One house would buy the doomed bonds, then resell them to another and, thanks to derivative mixes another would then bet on the stock succeeding and, since everyone was betting on it succeeding it had a very good chance to win. Then the people who bought houses with cheap loans began to default and everything fell like a house of cards in the wind, This was why everyone was moaning when Gomez lost her bet in the film clip. Plus almost every insurance company in the world was someone signed on to insure those bond mixes and the derivative (again part of the law so the brokerage firm had someone o cover them, but, of curse, NOT their investors) and they would have taken monumental losses on the falling card house. seeing everything financial going down and seeing the banks had no money to cover the losses, that the FDIC which covers bank losses didn't have enough money to cover the losses since the USA had burned up a lot of it's money fighting a war on terror, triggered the general collapse, But you need to realize the brokers and banks had sold these dogs world wide. Hence, Great Recession.
Now understand clearly that this should never have happened, there was a major stock market crash in 1998. One that didn't crush everything because it didn't have everyone in it. This was caused by hedge funds collapsing. So what's a hedge fund?
http://www.investopedia.com/terms/h/hedgefund.asp
'Hedge funds are alternative investments using pooled funds that employ numerous different strategies to earn active return, or alpha, for their investors. Hedge funds may be aggressively managed or make use of derivatives and leverage in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). It is important to note that hedge funds are generally only accessible to accredited investors as they require less SEC regulations than other funds. One aspect that has set the hedge fund industry apart is the fact that hedge funds face less regulation than mutual funds and other investment vehicles.
BREAKING DOWN 'Hedge Fund'
Each hedge fund is constructed to take advantage of certain identifiable market opportunities. Hedge funds use different investment strategies and thus are often classified according to investment style. There is substantial diversity in risk attributes and investments among styles.
Legally, hedge funds are most often set up as private investment limited partnerships that are open to a limited number of accredited investors and require a large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year, a time known as the lock-up period. Withdrawals may also only happen at certain intervals such as quarterly or bi-annually.
The History of the Hedge Fund
Former writer and sociologist Alfred Winslow Jones’s company, A.W. Jones & Co. launched the first hedge fund in 1949. It was while writing an article about current investment trends for Fortune in 1948 that Jones was inspired to try his hand at managing money. He raised $100,000 (including $40,000 out of his own pocket) and set forth to try to minimize the risk in holding long-term stock positions by short selling other stocks. This investing innovation is now referred to as the classic long/short equities model. Jones also employed leverage to enhance returns.
In 1952, Jones altered the structure of his investment vehicle, converting it from a general partnership to a limited partnership and adding a 20% incentive fee as compensation for the managing partner. As the first money manager to combine short selling, the use of leverage, shared risk through a partnership with other investors and a compensation system based on investment performance, Jones earned his place in investing history as the father of the hedge fund.
"Hedge funds went on to dramatically outperform most mutual funds in the 1960s and gained further popularity when a 1966 article in Fortune highlighted an obscure investment that outperformed every mutual fund on the market by double-digit figures over the past year and by high double-digits over the last five years.
"However, as hedge fund trends evolved, in an effort to maximize returns, many funds turned away from Jones' strategy, which focused on stock picking coupled with hedging and chose instead to engage in riskier strategies based on long-term leverage. These tactics led to heavy losses in 1969-70, followed by a number of hedge fund closures during the bear market of 1973-74.
"The industry was relatively quiet for more than two decades until a 1986 article in Institutional Investor touted the double-digit performance of Julian Robertson's Tiger Fund. With a high-flying hedge fund once again capturing the public's attention with its stellar performance, investors flocked to an industry that now offered thousands of funds and an ever-increasing array of exotic strategies, including currency trading and derivatives such as futures and options.
"High-profile money managers deserted the traditional mutual fund industry in droves in the early 1990s, seeking fame and fortune as hedge fund managers. Unfortunately, history repeated itself in the late 1990s and into the early 2000s as a number of high-profile hedge funds, including Robertson's, failed in spectacular fashion. Since that era, the hedge fund industry has grown substantially. Today the hedge fund industry is massive—total assets under management in the industry is valued at more than $3.2 trillion according to the 2016 Preqin Global Hedge Fund Report.
"The number of operating hedge funds has grown as well. There were around 2,000 hedge funds in 2002. That number increased to over 10,000 by 2015. However, in 2016, the number of hedge funds is currently on a decline again according to data from Hedge Fund Research. Below is a description of the characteristics common to most contemporary hedge funds.
Key Characteristics of Hedge Funds
"1. They're only open to "accredited" or qualified investors: Hedge funds are only allowed to take money from "qualified" investors—individuals with an annual income that exceeds $200,000 for the past two years or a net worth exceeding $1 million, excluding their primary residence. As such, the Securities and Exchange Commission deems qualified investors suitable enough to handle the potential risks that come from a wider investment mandate.
"2. They offer wider investment latitude than other funds: A hedge fund's investment universe is only limited by its mandate. A hedge fund can basically invest in anything—land, real estate, stocks, derivatives, and currencies. Mutual funds, by contrast, have to basically stick to stocks or bonds, and are usually long-only.
3. They often employ leverage: Hedge funds will often use borrowed money to amplify their returns. As we saw during the financial crisis of 2008, leverage can also wipe out hedge funds.
4. Fee structure: Instead of charging an expense ratio only, hedge funds charge both an expense ratio and a performance fee. This fee structure is known as "Two and Twenty"—a 2% asset management fee and then a 20% cut of any gains generated.
There are more specific characteristics that define a hedge fund, but basically, because they are private investment vehicles that only allow wealthy individuals to invest, hedge funds can pretty much do what they want as long as they disclose the strategy upfront to investors. This wide latitude may sound very risky, and at times it can be. Some of the most spectacular financial blow-ups have involved hedge funds. That said, this flexibility afforded to hedge funds has led to some of the most talented money managers producing some amazing long-term returns.
The first hedge fund was established in the late 1940s as a long/short hedged equity vehicle. More recently, institutional investors – corporate and public pension funds, endowments and trusts, and bank trust departments—have included hedge funds as one segment of a well-diversified portfolio.
It is important to note that "hedging" is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment. The name is mostly historical, as the first hedge funds tried to hedge against the downside risk of a bear market by shorting the market. (Mutual funds generally don't enter into short positions as one of their primary goals). Nowadays, hedge funds use dozens of different strategies, so it isn't accurate to say that hedge funds just "hedge risk." In fact, because hedge fund managers make speculative investments, these funds can carry more risk than the overall market.
Below are some of the risks of hedge funds:
1. Concentrated investment strategy exposes hedge funds to potentially huge losses.
2. Hedge funds typically require investors to lock up money for a period of years.
3. Use of leverage, or borrowed money, can turn what would have been a minor loss into a significant loss."
That mild notation about the late 1990's is the way most business reporting treats the failure of any financial "device."
From THE RETURN OF DEPRESSION ECONOMICS by Paul Krugman.
"In the summer of 1998, the balance sheets of the world's hedge funds were not only huge but immensely complex.\\Still, there was a pattern. typically, these funds were short on assets that were safe-not likely to plunge in value-and liquid- that is easy to to sell if you needed cash.
At the same time, they were long in assets that were risky and illiquid...
"The general principle here was that historically markets have tended to place a rather high premium on both safety and liquidity, because small investors were risk-averse and never knew when they might need to cash out. this offered the opportunity to big operators, who could minimize the risk by careful diversification (buying a mix of assets, so that gains on one would normally offset losses on another), and who would not normally find themselves in need of cash. Ii was largely by exploiting these margins that hedge finds made so much money, year after year.
"By 1998, many people understood the basic idea.
The result was funds stretching to find new opportunities and new resources. Lots of funds going after limited investment opportunities.
"What nobody realized until it happened was that the competition among hedge funds to exploit opportunities had created a sort of financial doomsday machine."
So a fund would take a risk on bad bonds. The bonds would fail and their investors would demand money back. Since hedge finds don't keep a lot of liquid assets, they would have to sell their stronger position stocks, Except they owned so much f the stock that their selling it made the stock plunge in value. And a second fund has invested in the same stocks because the finds were all thinking alike. Worse, since the first fund selling caused the "secure" investment to tank, the second fund, owning a lot of that stock had to sell it to recoup some losses to lay their investors.
Which revealed something terrible to the hedge finds of that day:
"You see, it turned out that the hedge funds had been so assiduous about arbitragng away liquidity that FOR MANY ILLIQUID ASSETS, they were the market. when they all tried to sell at once, there were no alternative buyers."
In the midst of the crisis, "Commercial mortgage backed securities-the financial instruments that indirectly fund most nonresidential real estate construction-could not be sold at all. At one meeting I attended participants ask a Federal Reserve official who described the situation what could be done to resolve it. "Pray, " he replied."
The failing of the hedge finds who were essentially selling the same kind of mixed product as EVERYONE would not ten years later put financial safety at risk. And one fund failing precipitated the need for a cure to the problem. Long Term Capitol Management lost value and plummeted from it's highs to new lows. This was a fund with two Nobel laureates on board whose rep had built a considerable clientele.
Long-Term Capital Management L.P. (LTCM) was a hedge fund management firm[1] based in Greenwich, Connecticut that used absolute-return trading strategies combined with high financial leverage. The firm's master hedge fund, Long-Term Capital Portfolio L.P., collapsed in the late 1990s, leading to an agreement on September 23, 1998, among 16 financial institutions—which included Bankers Trust, Barclays, Bear Stearns, Chase Manhattan Bank, Credit Agricole, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Paribas, Salomon Smith Barney, Societe Generale, and UBS—for a $3.6 billion recapitalization (bailout) under the supervision of the Federal Reserve.[2]
LTCM was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives".[3] Initially successful with annualized return of over 21% (after fees) in its first year, 43% in the second year and 41% in the third year, in 1998 it lost $4.6 billion in less than four months following the 1997 Asian financial crisis and 1998 Russian financial crisis, requiring financial intervention by the Federal Reserve, with the fund liquidating and dissolving in early 2000.
And then the main thing Trump taught, that Iacocca taught when he pleaded for government money for Chrysler:
"And suddenly it became clear that LTCM had become so large a player in the markets that if it failed and its positions were liquidated it might precipitate a full-scale panic."
Only the Fed stepping in and lowering interest rates so failing institutions could borrow enough at a cheap rate bailed that one out.
So everyone involved in the real collapse of 2008 had ample warning not to do any of their maneuvering. They even had the Great Depression of the Hoover era to warn them.
But conservatives like Bush adviser Karl Rove held Hoover in high esteem and they long fooled themselves into thinking FDR and his social programs to stimulate the economy were not the end of the Depression, it was World war II which actually stimulated the US economy. This underpins much if Neo-conservative/Tea Party/Republican philosophy even though they also watched the war on terror ruin the US economy. A part of that delusion.
And then you have the Great Hypocrisy.
5) You need to be too big to fail. It is public knowledge that 5 million lost their jobs in the US alone in 2008. (I was one of them,) Also public knowledge was the huge multi-billion dollar bail outs given banks with no requirement for repayment. Thanks to the right and left wing pols who wanted to keep the machine of buying and selling going.
And many of those politicians from then fought against Obama bail outs of the auto companies to save jobs because "the government shouldn't rescue failing institutions." Oh, and they demanded the auto companies pay back the loans, which they did.
The deception of selfishness. Don't rescue this institution because it has unions and they don't vote "our" way. Don't save jobs, save the rich.
This is hardly just a conservative bent. During the Great Depression, FDR took us off the gold standard and confiscated all the gold in the country. EXCEPT some months later he reneged a it and allowed the trading in gold coins which many rich had held in secret, since they were the only ones who could even afford to keep them at that time.
As we mentioned hedge funds still exist, Now to come full circle.
"During the past decade, Mercer, who is seventy, has funded an array of political projects that helped pave the way for Trump’s rise. Among these efforts was public-opinion research, conducted by Caddell, showing that political conditions in America were increasingly ripe for an outsider candidate to take the White House. Caddell told me that Mercer “is a libertarian—he despises the Republican establishment,” and added, “He thinks that the leaders are corrupt crooks, and that they’ve ruined the country.”
(Keep in mind the way hedge funds were rescued not that long ago.)
'Trump greeted Caddell warmly in North Charleston, and after giving a speech he conferred privately with him, in an area reserved for V.I.P.s and for White House officials, including Stephen Bannon, the President’s top strategist, and Jared Kushner, Trump’s son-in-law. Caddell is well known to this inner circle. He first met Trump in the eighties. (“People said he was just a clown,” Caddell said. “But I’ve learned that you should always pay attention to successful ‘clowns.’ ”) Caddell shared the research he did for Mercer with Trump and others in the campaign, including Bannon, with whom he has partnered on numerous projects.
"The White House declined to divulge what Trump and Caddell discussed in North Charleston, as did Caddell. But that afternoon Trump issued perhaps the most incendiary statement of his Presidency: a tweet calling the news media “the enemy of the American people.” The proclamation alarmed liberals and conservatives alike. William McRaven, the retired Navy admiral who commanded the 2011 raid that killed Osama bin Laden, called Trump’s statement a “threat to democracy.” The President is known for tweeting impulsively, but in this case his words weren’t spontaneous: they clearly echoed the thinking of Caddell, Bannon, and Mercer. In 2012, Caddell gave a speech at a conference sponsored by Accuracy in Media, a conservative watchdog group, in which he called the media “the enemy of the American people.” That declaration was promoted by Breitbart News, a platform for the pro-Trump alt-right, of which Bannon was the executive chairman, before joining the Trump Administration. One of the main stakeholders in Breitbart News is Mercer.
(Keep in mind this IS media that they own.)
"Mercer is the co-C.E.O. of Renaissance Technologies, which is among the most profitable hedge funds in the country. A brilliant computer scientist, he helped transform the financial industry through the innovative use of trading algorithms. But he has never given an interview explaining his political views. Although Mercer has recently become an object of media speculation, Trevor Potter, the president of the Campaign Legal Center, a nonpartisan watchdog group, who formerly served as the chairman of the Federal Election Commission, said, “I have no idea what his political views are—they’re unknown, not just to the public but also to most people who’ve been active in politics for the past thirty years.” Potter, a Republican, sees Mercer as emblematic of a major shift in American politics that has occurred since 2010, when the Supreme Court made a controversial ruling in Citizens United v. Federal Election Commission. That ruling, and several subsequent ones, removed virtually all limits on how much money corporations and nonprofit groups can spend on federal elections, and how much individuals can give to political-action committees. Since then, power has tilted away from the two main political parties and toward a tiny group of rich mega-donors.
So now a hedge fund operator funds Trump who might have been referred to as "the junk bond of the candidates". A rich man complaining about how the people aren't heard and it turns out the people he wants heard are rich ones of a different opinion.
Do you see the deception throughout? Junk bonds are junk so they had to be dressed up with nicer AAA rated bonds only to bring down all the higher rated bonds they were deceptively meshed with. junks themselves are a deception that there is worth to the bad real estate investment they represent. All allowed because Christian people IN government charged with doing careful governing act out of a belief that governing is itself wrong. Daffy Duck does indeed seem to be in charge of the sinking ship. He even seems to be planting explosives with the intent of blowing it out of the water so it won't sink.
And all of them hover around the shoulders of a newly elected President who seems unable to stop tweeting and damaging his own causes.
"Satan has effectively blinded man to the painful damaging consequences of sin. The effects of sun are all around us, yet many continue ti indulge in the sex, status- and pleasure-seeking, and rampant self-centeredness that cause much anguish and pain. Satan contradicted God in the Garden when he said, "You surely will not die!" (Gen. 3:4). Sin is pleasant but only for a season. Sooner or later, sin will result in some form of destruction."
THE SEARCH FOR SIGNIFICANCE by Robert S. McGee
You begin to see why I started back there. There in those first three deceptions, They set the tone for everything around us today. The creation of one myth after another by Hollywood, The creation of one scam after another by those running large corporations, research programs, financial institutions.
Go back to Ruth. She is gleaning IN the middle of the harvest. The harvest of souls is going on right now, has been since Jesus returned and this happened:
Mt 27:51 And the curtain of the Temple was parted in two from end to end; and there was an earth-shock; and the rocks were broken;
52 And the resting-places of the dead came open; and the bodies of a number of sleeping saints came to life;
53 And coming out of their resting-places, after he had come again from the dead, they went into the holy town and were seen by a number of people.
(BBE)
The resurrection is called the harvest:
https://www.ucg.org/bible-study-tools/booklets/gods-holy-day-plan-the-promise-of-hope-for-all-mankind/the-feast-of-1
(Note: Ii don;t agree with the United Church of God about some things, but this research is accurate and so used her.)
"In the process of revealing His plan of salvation for mankind, God established His annual Holy Days around the harvest seasons in the Middle East (Leviticus 23:9-16; Exodus 23:14-16). Just as His people harvested their crops around these three festival seasons, God’s Holy Days show us how He is harvesting people for eternal life in His Kingdom.
"The Holy Days have meanings that build upon each other. Together they progressively reveal how God works with humanity.
"Earlier we saw Passover symbolizing Christ’s giving of Himself for us so our sins could be forgiven and we could be redeemed from death. We also learned how the Days of Unleavened Bread teach us that we must remove and avoid sin and instead obey God in actions and attitudes. The next festival and Holy Day, Pentecost, builds on this important foundation.
"This festival is known by several names that derive from its meaning and timing. Also known as the Feast of Harvest (Exodus 23:16), it represents the firstfruits (Numbers 28:26) gathered as the result of the labor of those who completed the spring grain harvests in ancient Israel (Exodus 23:16).
"It is also called the Feast of Weeks (Exodus 34:22), with this name coming from the seven weeks plus one day (50 days in all) that are counted to determine when to celebrate this festival (Leviticus 23:16). Similarly, in the New Testament, which was written in Greek, this festival is known as Pentecost ( Pentekostos in the original), which means “fiftieth” (W.E. Vine, Vine’s Complete Expository Dictionary of Old and New Testament Words , 1985, “Pentecost”).
"Among Jews the most popular name for this festival is the Feast of Weeks, or Shavuot, in Hebrew. When celebrating this festival, many Jewish people recall one of the greatest events in history, God’s revealing of the law at Mount Sinai.
"But Pentecost doesn’t just picture the giving of the law; it also shows—through a great miracle that occurred on the first Pentecost in the early Church—how we can persist in living by the spiritual intent of God’s laws.
The gift of Pentecost: the Holy Spirit
"God chose the first Pentecost after Jesus Christ’s resurrection to pour out His Holy Spirit on 120 believers (Acts 1:15). “Now when the Day of Pentecost had fully come, they were all with one accord in one place. And suddenly there came a sound from heaven, as of a rushing mighty wind, and it filled the whole house where they were sitting. Then there appeared to them divided tongues, as of fire, and one sat upon each of them. And they were all filled with the Holy Spirit and began to speak with other tongues [languages], as the Spirit gave them utterance” (Acts 2:1-4).
"The speaking in various languages occurred as a crowd of people from many nations gathered in Jerusalem, with each visitor hearing the speech of the disciples in his own native tongue (Acts 2:6-11). These astounding events demonstrated the presence of the Holy Spirit."
The Feast of the Harvest started with those first fruits. the ones raise right after the Resurrection of the Lord. In the festival they formed the "wave Sheaf" which was waved over the alter and used to symbolize the beginning of the harvest.
The resurrection has been going on spiritually since then. The fallen saints are in the Spiritual state in the presence of the Lord.
Php 1:21 For to me life is Christ and death is profit.
22 But if I go on living in the flesh--if this is the fruit of my work--then I do not see what decision to make.
23 I am in a hard position between the two, having a desire to go away and be with Christ, which is very much better:
(BBE)
Waiting>
And then there is an old song:
https://www.youtube.com/watch?v=BFlgDeA6Wog
We are in His Presence here and then there by the indwelling Spirit. Awaiting the Rapture for tieh arrival of our Final Flesh.
But, like Ruth, we await our Boaz to deliver us from the wear and tear of this flesh. But we know the time draws near. We know because:
2Ti 3:12 Yes, and all whose purpose is to be living in the knowledge of God in Christ Jesus, will be cruelly attacked.
13 Evil and false men will become worse and worse, using deceit and themselves overcome by deceit.
14 But see that you keep to the teaching you have been given and the things of which you are certain, conscious of who has been your teacher;
(BBE)
So let me touch on just one way deception has increased: the idea of junk bonds and how they represent the greed our times Not coincidentally one in which the current President of the USA was intimately involved in.
http://www.npr.org/2016/03/17/470806232/opening-the-books-on-donald-trumps-business-deals-in-atlantic-city
(An interview from right before the last election about Mr. trumps claim never to have gone bankrupt.)
So when you file for bankruptcy for your business but you own all the shares in the business and it's a private company, where is the line between a personal and a corporate bankruptcy, especially if you've personally guaranteed some of the loans that your company has taken out?
O'HARROW: You've just asked a question that they examine in the best law schools in the country. But suffice it to say that there is a line, and he filed corporate bankruptcies, not personal bankruptcies here. And he has rightfully pointed out that the law provides bankruptcy in a positive way. It's to enable entrepreneurs to restructure and to keep going rather than just fail outright.
And so, you know, we need to note something that he has said repeatedly is that he used the laws of the nation to his own benefit. And everybody's going to have to decide on their own the degree to which he was personally involved here and what that means to them because there's no question this was a corporate bankruptcy.
GROSS: So we actually have a clip standing by of exactly what you talking about, so let's listen to this clip. And this is an excerpt of the first Republican debate hosted by Fox News. This is August 6, 2015, and the person asking the question is Chris Wallace.
(SOUNDBITE OF ARCHIVED RECORDING)
CHRIS WALLACE: Trump Corporation's casinos and hotels have declared bankruptcy four times over the last quarter-century. In 2011, you told Forbes Magazine this - I've used the laws of the country to my advantage. But at the same time, financial experts involved in those bankruptcies say that lenders to your companies lost billions of dollars. Question, sir. With that record, why should we trust you to run the nation's business?
TRUMP: Because I have used the laws of this country just like the greatest people that you read about every day in business have used the laws of this country, the chapter laws, to do a great job for my company, for myself, for my employees, for my family, et cetera. I have never gone bankrupt, by the way. I have never. But out of hundreds of people...
WALLACE: ...No, but sir, that's...
TRUMP: Excuse me.
WALLACE: ...You're lying.
TRUMP: Excuse me...
WALLACE: ...But your companies have gone bankrupt.
TRUMP: Out of - what am I saying? Out of hundreds of deals that I've done, hundreds, on four occasions I've taken advantage of the laws of this country like other people. I'm not going to name their names 'cause I'm not going to embarrass them, but virtually every person that you read about on the front page of the business sections, they've used the laws. The difference is when somebody else uses those laws, nobody writes about it.
GROSS: So, Robert O'Harrow, when you spoke to people who had worked with Trump and when you spoke to members of the casino commission in New Jersey, did they talk to you about how he used the bankruptcy laws and if he used them kind of, like, straightforwardly or if there was a lot of, like, manipulation of those laws?
O'HARROW: I did. You know, of course, some of these folks feel spurned by Donald Trump because he made a whole host of promises and they felt that he didn't keep his promises. One of them was Steven Perskie. He's the former chairman of the Casino Control Commission. He also was a former Democratic lawmaker.
Now he worked very closely with Trump to sort through a lot of these problems that came along, and the way he describes it is that the city - Atlantic City officials and the casino regulators were in a really tough spot because Atlantic City was struggling. The casino business was struggling. And in maneuvering the way that he did, according to Perskie, Trump gave them really no choice but to keep going. And here's what Perskie said.
"When I read and hear him say he was beloved in Atlantic City, that was before the bankruptcy. He remembers to perceive how he started, not how he was perceived when he left."
And Perskie went on to tell me that it got to the point where Donald Trump himself was such a force in Atlantic City with the three different casinos that he became too big to fail, so that they cut him slack with that in mind because they were worried about the impact on a city that was already struggling.
GROSS: Because if this huge casino, the Taj, went under, it would be bad for all of Atlantic City.
O'HARROW: Well, not just the Taj. The other two casinos also struggled and eventually filed bankruptcy as well.
GROSS: My guest is Robert O'Harrow, a reporter for The Washington Post's investigative unit. We're talking about his article examining Donald Trump's business practices and deals when he took over the Atlantic City casino hotel the Taj Mahal. After we take a short break, we'll talk about who lost out when the Taj went bankrupt. I'm Terry Gross, and this is FRESH AIR.
(SOUNDBITE OF MUSIC)
GROSS: Donald Trump's deals and promises when he took over the not-yet-completed Taj Mahal in Atlantic City. When it opened in 1990, it was the largest casino hotel in Atlantic City. He already owned two other casinos in the city, Trump's Castle and Trump Plaza. The year after the Taj opened, it filed for bankruptcy. When we left off, we had listened to a clip from the first Republican candidates debate, which was hosted by Fox News in August. Chris Wallace had asked Trump about his company's four bankruptcies.
So in that clip that we heard, Donald Trump said that he did a great job for his company, for himself, for his employees and his family. And he's talking about how the Taj ended up after bankruptcy. But you looked into, like, who lost money on this deal when he declared bankruptcy and couldn't pay all of his loans. So who lost out?
O'HARROW: The answer about who was affected is deeper than it might seem because in March of 1992, Trump's Castle and his Plaza casinos also filed for bankruptcy. And to resolve those debts, Trump gave up half his stake in each of the casino to the lenders. So the lenders definitely lost money through the cascading failures of these three casinos. But small-time investors who had bought the bonds directly or through retirement funds also suffered losses. And so did small business owners who sold the Trump organization paint, equipment, food, limousine services. And many of those were eventually paid only a fraction of what they were due. And we know this in part because a professor at Temple University - in your town - Bryant Simon went in and studied Atlantic City and found that a lot of people recall having to struggle to get by after these bankruptcies.
Bryant Simon - the professor - told me that Trump was quote, "a brutal and ruthless negotiator." And he said that people paid the price. And when I brought that up with Donald Trump, he said that he acknowledged that he drove hard bargains, but he said that he created many opportunities for a lot of people in the city to make money. And here's what he told me.
"I wasn't the nicest person on earth. Many of these same people, if not all, made a lot of money with me."
GROSS: I want to play another Donald Trump clip. And this also is from the first Republican debate, which was hosted by Fox News on August 6, 2015. And this is Donald Trump speaking. And he's speaking about getting out of the casino business in Atlantic City.
(SOUNDBITE OF ARCHIVED RECORDING)
TRUMP: I had the good sense to leave Atlantic City - which by the way, Caesar's just went bankrupt. Every company - Chris can tell you - every company, virtually, in Atlantic City went bankrupt - every company. And let me just tell you; I had the good sense - and I've gotten a lot of credit in the financial pages. Seven years ago, I left Atlantic City before it totally cratered. And I made a lot of money in Atlantic City. And I'm very proud of it.
GROSS: OK, and the Chris that Donald Trump referred to is Governor Chris Christie of New Jersey. And of course, Atlantic City is in New Jersey. So what do you think about when you hear that? Like, what facts did you find that either back up or contradict what Donald Trump just said?
O'HARROW: Well, I'm going to tell you what Steve Perskie told me. But first, I think it's worth noting - and I've been struck by this during the whole election - that how often Donald Trump uses money as the measurement of his civic virtue, or his talent, or his credential to become the president of the United States. And clearly, money can serve as one way of measuring success. But it's - in my business over the years as a journalist, I haven't seen another candidate rely so much on claims of wealth to underscore personal integrity.
GROSS: Right. Well, you know, he said, I made a lot of money in Atlantic City. We've been talking about his bankruptcies, how he couldn't pay off his debts, how people who he owed money to lost money. So is it true that he made a lot of money in Atlantic City, as he said, by the time he actually pulled out? Can we - can you tell whether he made money or lost money?
O'HARROW: Oh, I think he made money. The degree to which he made money and how he made it I think is open to question. I would like to get specifics. But getting specifics on the actual dollar value and how they're anchored to particular deals and bottom lines is a very difficult thing. But I think that probably the - the - maybe the thing that is more illuminating for me is the reaction that people had after he was gone. And Steven Perskie - again, I think his voice is interesting. And he said to me this.
"Trump was welcomed with open arms by everybody. And he provided the sense that he was able to do everything he promised, Perskie told me a few months ago. He said, his name and his legacy in the city were significantly tarnished. The business community and regulators no longer accepted the music of the Pied Piper."
I thought that was really an interesting statement from a man that in some ways helped Trump get through the bankruptcies by allowing him to continue to do business."
Understand: Trump issued junk bonds on the Taj even after he said he wouldn't. Tose bonds went up in smoke when he declared bankruptcy
http://www.royalgazette.com/martha-myron/article/20161008/junk-bonds-and-tale-of-trump-haircut
An article by Allan Sloan in Newsday magazine from 1991 explains why the banks didn't want Trump using junk bonds on his real estate yet again.
https://www.washingtonpost.com/archive/business/1991/01/02/the-year-junk-bonds-bombed-trump-slumped-and-lorenzo-bailed-out/74c70251-9e82-46e6-8ff0-43d63cc18f30/?utm_term=.bae2ff1d6083
My three best predictions of the year -- the collapse of the junk bond market, the fall of Donald Trump and the bankruptcy of the Frank Lorenzo airline empire -- were all simple logic, if you think the way I do.
Early in 1990, anyone with two eyes, half a brain and an open mind could see that the junk bond market, in its late 1980s form, was finished. Dead, kaput. In the 1980s junk was a Tinker Bell market -- everyone clapped and believed in junk bonds, so there was a market, even though many junk issuers were financially unsound. When Michael Milken was driven out and everyone finally stopped believing, you had a market in which you could buy all the junk bonds you wanted, you just couldn't sell them at a reasonable price. Junk bonds, to quote one of my February columns, became a financial Roach Motel. You can check in, but you can't check out.
That made calling the fall of Donald Trump easy. Especially after Forbes magazine, in April, published Trump's balance sheet. Do a little forensic accounting, and you saw that Trump had almost no cash cushion and his properties weren't producing enough cash to pay his interest bills, and that the only way he would emerge with anything other than his mouth is by making deals with his lenders, those poor souls. I've missed a prediction or two on The Donald, but in all, my record on Trump's deals is lots better than Trump's is.
I made the Lorenzo call with help from my Newsday colleague Glenn Kessler, who covered the Eastern Airlines bankruptcy. I realized that the deficit in Eastern's pension fund could sink Lorenzo's whole empire because the U.S. Pension Benefit Guaranty Corp. wasn't letting him walk way from it. So Lorenzo's empire, which included Continental Airlines and Continental Airlines Holdings (nee Texas Air Corp.) went under, as I predicted. But Lorenzo managed to bail out ahead of the crash, which I hadn't predicted.
Once you realize that junk bonds were gone, you realized that junk bank loans would vanish too. Which is why I was sure that the two employee bids for United Airlines would fail, as they did.
The Bermuda Investment Primer Series.
The recent focus on Donald Trump’s leaked (or however the information was obtained) 1995 partial personal tax return by the New York Times brings up the very interesting topic of junk bonds.
The enormous loss of almost $1 billion — considered a lot more significant 20 years ago — stated on the above tax return was attributed, by various analysts, to the financing structures of a casino and possibly other large-scale developments.
What does junk have to do with bonds and financing? Don’t most people take a loan known as a mortgage to purchase or build property? Well, no, not always. In fact, in business circles, other financing forms probably take precedent.
At this juncture, we will just take a brief look** (see link at US Securities & Exchange filing below — an extremely tedious, highly detailed multi-page look at a complicated corporate / partnership operation) at one business structure, the Trump Taj Mahal in Atlantic City, launched in 1990 by Mr Trump. The new venture was supported with a series of bond issues, paying an estimated 11 per cent interest rate annually to the bondholders, to fund acquisition and construction.
Those were heady days (oops, not a reference to the famous hair style) even though it was only a few years after the infamous 1987 Black Monday stock market crash. The hype was that Atlantic City was to receive much needed revitalisation and many, many people stood to benefit from the influx of new businesses.
However, in rather short order, probably not more than a year later in 1991, the Trump Taj casino model was deemed not sustainable according to the US SEC report — meaning that there was insufficient cash flow to meet the debt obligations to the bondholders for their interest and principal payments.
The entire scheme was placed into a legal structure of reorganisation and renegotiation of repayment terms by the debtors of the corporation. In investment jargon terms, creditors of the Trump Taj had to accept a “haircut” or another form of ownership in lieu of debt repayment.
What on earth does all this mean? We will explore the concept of bonds, conversions, repayments, junk or quality credit ratings, risk coupon versus yield, market interest rates, discounts and premiums, surety bonds with guarantees and yes, haircuts and as many other basic components that we can — without boring you to tears, or having you turn off learning in frustration.
Bonds appeared first on stone in 2400 BC in Mesopotamia***, where the payment of grain was guaranteed by a surety. (Bill note: In Babylon!) Bonds then evolved into paper missives of a sort by the clever Venetians in the 11th to 14th centuries as government bonds to fund wars, then, bonds were upscaled into securities trading as annuities.
Various governments through the latter centuries, first by the Bank of England to fund wars against the French in 1693, then other countries followed suit delving into patriotic fervour to fund wars across continents, including the US Revolutionary war — where $27 million in the late 1700s was an astronomical sum.
In the early 1900s the US issued the first US Treasury bond, so called Liberty Bonds for funding the First World War.
Modern day bonds are used primarily for finance, investments, capital structures, economic money flow circulation, and business commerce. And we hope, not for war.
Bonds are fascinating things. One might say that they are formalised versions of informal gentlemen’s handshake, or a complex version of a simple IOU between friends, but no matter the shape, they are still a promise to repay. They are almost never considered ownership of an asset — but an agreement between the borrower and the lender.
Ordinary bonds can be confused with mortgages, but the big difference there is that a mortgage has attached collateral giving the lender the right to liquidate the property, the equipment, or something of more than equal value in order to be repaid.
How then does a bond work? Someone, or many, thousands of years ago had a brilliant idea. Instead of one friend, or hundreds of friends, neighbours, businesses, loaning another money in exchange for interest income and hoping for a repayment down the road, why not make the act of borrowing and lending an independent security.
A real stand-alone legal entity contract, so to speak, that can bring bonds for purchasing and selling right to the public, is called a bond indenture, a deed of trust. The trust indenture is a complex binding document between an appointed trustee and the bond issuer, who may be a government, a corporation or another form of commercial structure.
A quick aside to wrap up the end of part one of this section of the series. Junk bonds, by definition, almost always offer very high rates of interest when compared to market interest rates of the same time frame. They are considered much higher risk, than say a US Treasury Bond or a Canadian government bond. And more often than not, junk bonds do not return all of the original principal invested, thus the name.
Teaching or writing about investments during Bermuda finance employment positions, I liked to refer to The Donald bonds — which were listed every day in the print in the Wall Street Journal — heavens, old-fashioned newspapers. Everyone knew who Mr Trump was even way back then.
My question was always the same, whether the bonds were from Trump, or from Brazil or Argentina — that were often listed close by, do you think you will get your full amount of the bond principal back?
For instance, more than once, the 2002 year comes to mind, Argentina government bondholders watched as Argentina bonds, at that time paying about 14 per cent interest, went into default while the government defiantly stated they would pay only a lower percentage of the principal back. Around 30 per cent of the principal investment was offered and many small investors accepted.
Large creditor bondholders fought back, but it took 14 years to finally settle early this year — 75 per cent of the principal will be returned to them.
Now one would that banks and other financial institutions wold learn a lesson from Trump's ways and eliminate junk bonds. Well they did learn a lesson but it wan't that one.
Business schools from Harvard on down have been caught up with the Korda effect. Michael Korda wrote a book called Power which basically told everyone in business to go get what they can for themselves. It appeared in the mid 970's and so I take it as an early example of the deception game for business success. many other such books followed. Harvard has been teaching business using the book The Art Of War as their main model for how to succeed. The book involves doing whatever is needed to win in the battle from lying ans cheating to more subtle forms of attacking your boss behind his back while you honor hi to his face. A Harvard MBA gets you into the larf=gest corporations and everyone there is essentially doing the same thing.
So if you have business people taught to get everything for themselves then logically it doesn't matter who gets hurt along the way so long as the business person wins.
So with the mentality in mind, this is what they learned from Trump:
1) Junk bonds can make YOU a ton of money. Recall Trump used his massive personally assured business losses to claim enough personal losses to avoid income tax for about 20 years. All the while claiming how rich he was.
2) The law is a nasty thing that can get in our way.
Fortunately for those who were rich and wanted to get richer, the Tea Party movement began. It featured libertarian ideas of ending government watchdog agencies and repackaged them around Christian sounding ideas. Actual libertarians are usually atheists and atheism is even in their party's platform. But they used the idea of keeping government out of religion and preaching an end to big government to disguise that they wanted to assure Big Business of an very unlevel playing field. Under the Bush II administration they took advantage of rule relaxation from the Clinton Administration. Financial watchdog agencies were gutted and laws were passed that allowed banks and insurance companies and brokerage firms to intermingle. One could own the other could own the other could own... Laws to prevent the collapse of the economy as it had under Hoover were vacated or routinely ignored.
3) Everyone needs to be in on it.
Real estate programs were huge in the 90's and the idea of becoming a millionaire by buying and selling properties flourished. Many people did but they knew how to work finances and how to develop the actual plan to do it, Many did not and ended up ruined. Those stories never made it to late night infomercials.
Debt became a hot commodity. The more debt a bank could accrue the more bonuses were paid to bank officers and real estate lenders. The stock broker mentality was everywhere. It was summed up in The Wolf of Wall Street: "Move the money from their pocket to yours."
I recall when in was buying penny stocks. I had one that I purchased at $ .25 a share and I checked it one evening to see that I now had $7000 dollars worth of stock. I went to my broker the next morning to sell it and talk with him about a couple other purchases. When I told him how much I had made (This is a guy I played Little League baseball with and who graduated from high school with me), he got a worried look on his face. He seemed really disturbed. He quickly looked up the stock, saw the listing, then did some checking. He finally actually got a relieved look, hung up his phone and said, "They split the stock."
http://www.investopedia.com/ask/answers/113.asp
"All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision by the company's board of directors to increase the number of shares that are outstanding by issuing more shares to current shareholders. For example, in a 2-for-1 stock split, an additional share is given for each share held by a shareholder. So, if a company had 10 million shares outstanding before the split, it will have 20 million shares outstanding after a 2-for-1 split.
"A stock's price is also affected by a stock split. After a split, the stock price will be reduced since the number of shares outstanding has increased. In the example of a 2-for-1 split, the share price will be halved. Thus, although the number of outstanding shares and the price change, the market capitalization remains constant.
"A stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. The primary motive is to make shares seem more affordable to small investors even though the underlying value of the company has not changed."
Except, in this case, the company had reduced the number of my shares so that I had a much smaller holding of the larger value. This use of the "tool" resulted in me not gaining any value on my common stock. But my old friend did get his commission. My broker was relieved because the system as he understood it worked. I wasn't supposed to get a lot of money on my investment.
4) But junk bonds have to be properly marketed so the seller can actually sell them to someone else.
Hence the CDO:
A structured financial product that pools together cash flow-generating assets and repackages this asset pool into discrete tranches that can be sold to investors. A collateralized debt obligation (CDO) is so-called because the pooled assets – such as mortgages, bonds and loans – are essentially debt obligations that serve as collateral for the CDO. The tranches in a CDO vary substantially in their risk profile. The senior tranches are relatively safer because they have first priority on the collateral in the event of default. As a result, the senior tranches of a CDO generally have a higher credit rating and offer lower coupon rates than the junior tranches, which offer higher coupon rates to compensate for their higher default risk.
BREAKING DOWN 'Collateralized Debt Obligation - CDO'
As many as five parties are involved in constructing CDOs:
Securities firms, who approve the selection of collateral, structure the notes into tranches and sell them to investors;
CDO managers, who select the collateral and often manage the CDO portfolios;
Rating agencies, who assess the CDOs and assign them credit ratings;
Financial guarantors, who promise to reimburse investors for any losses on the CDO tranches in exchange for premium payments; and
Investors such as pension funds and hedge funds.
The earliest CDOs were constructed by Drexel Burnham Lambert – the home of former “junk bond king” Michael Milken – in 1987 by assembling portfolios of junk bonds issued by different companies. Securities firms subsequently launched CDOs for a number of other assets with predictable income streams, such as automobile loans, student loans, credit card receivables and even aircraft leases. However, CDOs remained a niche product until 2003-04, when the U.S. housing boom led the parties involved in CDO issuance to turn their attention to non-prime mortgage-backed securities as a new source of collateral for CDOs.
CDOs subsequently exploded in popularity, with CDO sales rising almost 10-fold from $30 billion in 2003 to $225 billion in 2006. But their subsequent implosion, triggered by the U.S. housing correction, saw CDOs become one of the worst-performing instruments in the broad market meltdown of 2007-09. The bursting of the CDO bubble inflicted losses running into hundreds of billions on some of the biggest financial institutions, resulting in them either going bankrupt or being bailed out through government intervention, and contributing to escalation of the global financial crisis during this period.
Now here's Anthony Bourdain talking about how junk real estate bonds from all those houses that were bought by under financed (read poor) citizens were melded with other bonds to make them look good before the major economic crash of 2008.
https://www.usatoday.com/story/life/entertainthis/2016/02/22/watch-why-selena-gomez-explained-economics-big-short/80769978/
The Selena Gomez section explains that essentially the various banks and lending houses were taking a gamble on the various junk bonds and junk bond/Triple A (best)bond mixes (the fish stew in Bourdain's analogy) created by their owners because the relaxed or eliminated laws allowed them to do that and seem to make lots of money and get their "commissions" and bonuses. . One house would buy the doomed bonds, then resell them to another and, thanks to derivative mixes another would then bet on the stock succeeding and, since everyone was betting on it succeeding it had a very good chance to win. Then the people who bought houses with cheap loans began to default and everything fell like a house of cards in the wind, This was why everyone was moaning when Gomez lost her bet in the film clip. Plus almost every insurance company in the world was someone signed on to insure those bond mixes and the derivative (again part of the law so the brokerage firm had someone o cover them, but, of curse, NOT their investors) and they would have taken monumental losses on the falling card house. seeing everything financial going down and seeing the banks had no money to cover the losses, that the FDIC which covers bank losses didn't have enough money to cover the losses since the USA had burned up a lot of it's money fighting a war on terror, triggered the general collapse, But you need to realize the brokers and banks had sold these dogs world wide. Hence, Great Recession.
Now understand clearly that this should never have happened, there was a major stock market crash in 1998. One that didn't crush everything because it didn't have everyone in it. This was caused by hedge funds collapsing. So what's a hedge fund?
http://www.investopedia.com/terms/h/hedgefund.asp
'Hedge funds are alternative investments using pooled funds that employ numerous different strategies to earn active return, or alpha, for their investors. Hedge funds may be aggressively managed or make use of derivatives and leverage in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). It is important to note that hedge funds are generally only accessible to accredited investors as they require less SEC regulations than other funds. One aspect that has set the hedge fund industry apart is the fact that hedge funds face less regulation than mutual funds and other investment vehicles.
BREAKING DOWN 'Hedge Fund'
Each hedge fund is constructed to take advantage of certain identifiable market opportunities. Hedge funds use different investment strategies and thus are often classified according to investment style. There is substantial diversity in risk attributes and investments among styles.
Legally, hedge funds are most often set up as private investment limited partnerships that are open to a limited number of accredited investors and require a large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year, a time known as the lock-up period. Withdrawals may also only happen at certain intervals such as quarterly or bi-annually.
The History of the Hedge Fund
Former writer and sociologist Alfred Winslow Jones’s company, A.W. Jones & Co. launched the first hedge fund in 1949. It was while writing an article about current investment trends for Fortune in 1948 that Jones was inspired to try his hand at managing money. He raised $100,000 (including $40,000 out of his own pocket) and set forth to try to minimize the risk in holding long-term stock positions by short selling other stocks. This investing innovation is now referred to as the classic long/short equities model. Jones also employed leverage to enhance returns.
In 1952, Jones altered the structure of his investment vehicle, converting it from a general partnership to a limited partnership and adding a 20% incentive fee as compensation for the managing partner. As the first money manager to combine short selling, the use of leverage, shared risk through a partnership with other investors and a compensation system based on investment performance, Jones earned his place in investing history as the father of the hedge fund.
"Hedge funds went on to dramatically outperform most mutual funds in the 1960s and gained further popularity when a 1966 article in Fortune highlighted an obscure investment that outperformed every mutual fund on the market by double-digit figures over the past year and by high double-digits over the last five years.
"However, as hedge fund trends evolved, in an effort to maximize returns, many funds turned away from Jones' strategy, which focused on stock picking coupled with hedging and chose instead to engage in riskier strategies based on long-term leverage. These tactics led to heavy losses in 1969-70, followed by a number of hedge fund closures during the bear market of 1973-74.
"The industry was relatively quiet for more than two decades until a 1986 article in Institutional Investor touted the double-digit performance of Julian Robertson's Tiger Fund. With a high-flying hedge fund once again capturing the public's attention with its stellar performance, investors flocked to an industry that now offered thousands of funds and an ever-increasing array of exotic strategies, including currency trading and derivatives such as futures and options.
"High-profile money managers deserted the traditional mutual fund industry in droves in the early 1990s, seeking fame and fortune as hedge fund managers. Unfortunately, history repeated itself in the late 1990s and into the early 2000s as a number of high-profile hedge funds, including Robertson's, failed in spectacular fashion. Since that era, the hedge fund industry has grown substantially. Today the hedge fund industry is massive—total assets under management in the industry is valued at more than $3.2 trillion according to the 2016 Preqin Global Hedge Fund Report.
"The number of operating hedge funds has grown as well. There were around 2,000 hedge funds in 2002. That number increased to over 10,000 by 2015. However, in 2016, the number of hedge funds is currently on a decline again according to data from Hedge Fund Research. Below is a description of the characteristics common to most contemporary hedge funds.
Key Characteristics of Hedge Funds
"1. They're only open to "accredited" or qualified investors: Hedge funds are only allowed to take money from "qualified" investors—individuals with an annual income that exceeds $200,000 for the past two years or a net worth exceeding $1 million, excluding their primary residence. As such, the Securities and Exchange Commission deems qualified investors suitable enough to handle the potential risks that come from a wider investment mandate.
"2. They offer wider investment latitude than other funds: A hedge fund's investment universe is only limited by its mandate. A hedge fund can basically invest in anything—land, real estate, stocks, derivatives, and currencies. Mutual funds, by contrast, have to basically stick to stocks or bonds, and are usually long-only.
3. They often employ leverage: Hedge funds will often use borrowed money to amplify their returns. As we saw during the financial crisis of 2008, leverage can also wipe out hedge funds.
4. Fee structure: Instead of charging an expense ratio only, hedge funds charge both an expense ratio and a performance fee. This fee structure is known as "Two and Twenty"—a 2% asset management fee and then a 20% cut of any gains generated.
There are more specific characteristics that define a hedge fund, but basically, because they are private investment vehicles that only allow wealthy individuals to invest, hedge funds can pretty much do what they want as long as they disclose the strategy upfront to investors. This wide latitude may sound very risky, and at times it can be. Some of the most spectacular financial blow-ups have involved hedge funds. That said, this flexibility afforded to hedge funds has led to some of the most talented money managers producing some amazing long-term returns.
The first hedge fund was established in the late 1940s as a long/short hedged equity vehicle. More recently, institutional investors – corporate and public pension funds, endowments and trusts, and bank trust departments—have included hedge funds as one segment of a well-diversified portfolio.
It is important to note that "hedging" is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment. The name is mostly historical, as the first hedge funds tried to hedge against the downside risk of a bear market by shorting the market. (Mutual funds generally don't enter into short positions as one of their primary goals). Nowadays, hedge funds use dozens of different strategies, so it isn't accurate to say that hedge funds just "hedge risk." In fact, because hedge fund managers make speculative investments, these funds can carry more risk than the overall market.
Below are some of the risks of hedge funds:
1. Concentrated investment strategy exposes hedge funds to potentially huge losses.
2. Hedge funds typically require investors to lock up money for a period of years.
3. Use of leverage, or borrowed money, can turn what would have been a minor loss into a significant loss."
That mild notation about the late 1990's is the way most business reporting treats the failure of any financial "device."
From THE RETURN OF DEPRESSION ECONOMICS by Paul Krugman.
"In the summer of 1998, the balance sheets of the world's hedge funds were not only huge but immensely complex.\\Still, there was a pattern. typically, these funds were short on assets that were safe-not likely to plunge in value-and liquid- that is easy to to sell if you needed cash.
At the same time, they were long in assets that were risky and illiquid...
"The general principle here was that historically markets have tended to place a rather high premium on both safety and liquidity, because small investors were risk-averse and never knew when they might need to cash out. this offered the opportunity to big operators, who could minimize the risk by careful diversification (buying a mix of assets, so that gains on one would normally offset losses on another), and who would not normally find themselves in need of cash. Ii was largely by exploiting these margins that hedge finds made so much money, year after year.
"By 1998, many people understood the basic idea.
The result was funds stretching to find new opportunities and new resources. Lots of funds going after limited investment opportunities.
"What nobody realized until it happened was that the competition among hedge funds to exploit opportunities had created a sort of financial doomsday machine."
So a fund would take a risk on bad bonds. The bonds would fail and their investors would demand money back. Since hedge finds don't keep a lot of liquid assets, they would have to sell their stronger position stocks, Except they owned so much f the stock that their selling it made the stock plunge in value. And a second fund has invested in the same stocks because the finds were all thinking alike. Worse, since the first fund selling caused the "secure" investment to tank, the second fund, owning a lot of that stock had to sell it to recoup some losses to lay their investors.
Which revealed something terrible to the hedge finds of that day:
"You see, it turned out that the hedge funds had been so assiduous about arbitragng away liquidity that FOR MANY ILLIQUID ASSETS, they were the market. when they all tried to sell at once, there were no alternative buyers."
In the midst of the crisis, "Commercial mortgage backed securities-the financial instruments that indirectly fund most nonresidential real estate construction-could not be sold at all. At one meeting I attended participants ask a Federal Reserve official who described the situation what could be done to resolve it. "Pray, " he replied."
The failing of the hedge finds who were essentially selling the same kind of mixed product as EVERYONE would not ten years later put financial safety at risk. And one fund failing precipitated the need for a cure to the problem. Long Term Capitol Management lost value and plummeted from it's highs to new lows. This was a fund with two Nobel laureates on board whose rep had built a considerable clientele.
Long-Term Capital Management L.P. (LTCM) was a hedge fund management firm[1] based in Greenwich, Connecticut that used absolute-return trading strategies combined with high financial leverage. The firm's master hedge fund, Long-Term Capital Portfolio L.P., collapsed in the late 1990s, leading to an agreement on September 23, 1998, among 16 financial institutions—which included Bankers Trust, Barclays, Bear Stearns, Chase Manhattan Bank, Credit Agricole, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Paribas, Salomon Smith Barney, Societe Generale, and UBS—for a $3.6 billion recapitalization (bailout) under the supervision of the Federal Reserve.[2]
LTCM was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives".[3] Initially successful with annualized return of over 21% (after fees) in its first year, 43% in the second year and 41% in the third year, in 1998 it lost $4.6 billion in less than four months following the 1997 Asian financial crisis and 1998 Russian financial crisis, requiring financial intervention by the Federal Reserve, with the fund liquidating and dissolving in early 2000.
And then the main thing Trump taught, that Iacocca taught when he pleaded for government money for Chrysler:
"And suddenly it became clear that LTCM had become so large a player in the markets that if it failed and its positions were liquidated it might precipitate a full-scale panic."
Only the Fed stepping in and lowering interest rates so failing institutions could borrow enough at a cheap rate bailed that one out.
So everyone involved in the real collapse of 2008 had ample warning not to do any of their maneuvering. They even had the Great Depression of the Hoover era to warn them.
But conservatives like Bush adviser Karl Rove held Hoover in high esteem and they long fooled themselves into thinking FDR and his social programs to stimulate the economy were not the end of the Depression, it was World war II which actually stimulated the US economy. This underpins much if Neo-conservative/Tea Party/Republican philosophy even though they also watched the war on terror ruin the US economy. A part of that delusion.
And then you have the Great Hypocrisy.
5) You need to be too big to fail. It is public knowledge that 5 million lost their jobs in the US alone in 2008. (I was one of them,) Also public knowledge was the huge multi-billion dollar bail outs given banks with no requirement for repayment. Thanks to the right and left wing pols who wanted to keep the machine of buying and selling going.
And many of those politicians from then fought against Obama bail outs of the auto companies to save jobs because "the government shouldn't rescue failing institutions." Oh, and they demanded the auto companies pay back the loans, which they did.
The deception of selfishness. Don't rescue this institution because it has unions and they don't vote "our" way. Don't save jobs, save the rich.
This is hardly just a conservative bent. During the Great Depression, FDR took us off the gold standard and confiscated all the gold in the country. EXCEPT some months later he reneged a it and allowed the trading in gold coins which many rich had held in secret, since they were the only ones who could even afford to keep them at that time.
As we mentioned hedge funds still exist, Now to come full circle.
"During the past decade, Mercer, who is seventy, has funded an array of political projects that helped pave the way for Trump’s rise. Among these efforts was public-opinion research, conducted by Caddell, showing that political conditions in America were increasingly ripe for an outsider candidate to take the White House. Caddell told me that Mercer “is a libertarian—he despises the Republican establishment,” and added, “He thinks that the leaders are corrupt crooks, and that they’ve ruined the country.”
(Keep in mind the way hedge funds were rescued not that long ago.)
'Trump greeted Caddell warmly in North Charleston, and after giving a speech he conferred privately with him, in an area reserved for V.I.P.s and for White House officials, including Stephen Bannon, the President’s top strategist, and Jared Kushner, Trump’s son-in-law. Caddell is well known to this inner circle. He first met Trump in the eighties. (“People said he was just a clown,” Caddell said. “But I’ve learned that you should always pay attention to successful ‘clowns.’ ”) Caddell shared the research he did for Mercer with Trump and others in the campaign, including Bannon, with whom he has partnered on numerous projects.
"The White House declined to divulge what Trump and Caddell discussed in North Charleston, as did Caddell. But that afternoon Trump issued perhaps the most incendiary statement of his Presidency: a tweet calling the news media “the enemy of the American people.” The proclamation alarmed liberals and conservatives alike. William McRaven, the retired Navy admiral who commanded the 2011 raid that killed Osama bin Laden, called Trump’s statement a “threat to democracy.” The President is known for tweeting impulsively, but in this case his words weren’t spontaneous: they clearly echoed the thinking of Caddell, Bannon, and Mercer. In 2012, Caddell gave a speech at a conference sponsored by Accuracy in Media, a conservative watchdog group, in which he called the media “the enemy of the American people.” That declaration was promoted by Breitbart News, a platform for the pro-Trump alt-right, of which Bannon was the executive chairman, before joining the Trump Administration. One of the main stakeholders in Breitbart News is Mercer.
(Keep in mind this IS media that they own.)
"Mercer is the co-C.E.O. of Renaissance Technologies, which is among the most profitable hedge funds in the country. A brilliant computer scientist, he helped transform the financial industry through the innovative use of trading algorithms. But he has never given an interview explaining his political views. Although Mercer has recently become an object of media speculation, Trevor Potter, the president of the Campaign Legal Center, a nonpartisan watchdog group, who formerly served as the chairman of the Federal Election Commission, said, “I have no idea what his political views are—they’re unknown, not just to the public but also to most people who’ve been active in politics for the past thirty years.” Potter, a Republican, sees Mercer as emblematic of a major shift in American politics that has occurred since 2010, when the Supreme Court made a controversial ruling in Citizens United v. Federal Election Commission. That ruling, and several subsequent ones, removed virtually all limits on how much money corporations and nonprofit groups can spend on federal elections, and how much individuals can give to political-action committees. Since then, power has tilted away from the two main political parties and toward a tiny group of rich mega-donors.
So now a hedge fund operator funds Trump who might have been referred to as "the junk bond of the candidates". A rich man complaining about how the people aren't heard and it turns out the people he wants heard are rich ones of a different opinion.
Do you see the deception throughout? Junk bonds are junk so they had to be dressed up with nicer AAA rated bonds only to bring down all the higher rated bonds they were deceptively meshed with. junks themselves are a deception that there is worth to the bad real estate investment they represent. All allowed because Christian people IN government charged with doing careful governing act out of a belief that governing is itself wrong. Daffy Duck does indeed seem to be in charge of the sinking ship. He even seems to be planting explosives with the intent of blowing it out of the water so it won't sink.
And all of them hover around the shoulders of a newly elected President who seems unable to stop tweeting and damaging his own causes.
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