July 3, 2012 archive

Jul 03

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Jul 03

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Court Papers Undercut Ratings Agencies’ Defense

By GRETCHEN MORGENSON, The New York Times

Published: July 2, 2012

When Cheyne issued its various securities in 2005, Moody’s and S.& P. rated them all investment grade. Even though Cheyne’s portfolio was bulging with residential mortgage securities, some of its debt received the agencies’ highest ratings, a grade equal to that assigned to United States Treasury securities. About two years later, as mortgage losses began to balloon, both agencies downgraded Cheyne’s debt below investment grade, to what is known as junk.

After the institutions that bought Cheyne’s debt sued Morgan Stanley and the ratings agencies, Moody’s and S.& P. immediately mounted a First Amendment defense. But Shira A. Scheindlin, the federal judge overseeing the matter, ruled in September 2009 that it did not apply because the Cheyne deal was a private offering whose ratings were distributed to a small group of investors and not the public at large. Judge Scheindlin agreed with the plaintiffs, who argued that the ratings were not opinions but were misrepresentations that were possibly a result of fraud or negligence.

“The disclaimers in the Information Memoranda that ‘a credit rating represents a rating agency’s opinion regarding credit quality and is not a guarantee of performance or a recommendation to buy, sell or hold any securities,’ are unavailing and insufficient to protect the rating agencies from liability for promulgating misleading ratings,” Judge Scheindlin ruled.

The judge also ruled against the defendants’ motion that documents and depositions generated in the case should be sealed. As a result, e-mails and deposition transcripts were filed with the court on Monday, showing how closely agency officials rating the deal had collaborated with Morgan Stanley, the firm that hired them to rate Cheyne’s securities.

Former Brokers Say JPMorgan Favored Selling Bank’s Own Funds Over Others

By SUSANNE CRAIG and JESSICA SILVER-GREENBERG, The New York Times

July 2, 2012, 9:06 pm

Amid the market volatility, ordinary investors are leaving stock funds in droves.

In contrast, JPMorgan is gathering assets in its stock funds at a rapid rate, despite having only a small group of top-performing mutual funds that are run by portfolio managers. Over the last three years, roughly 42 percent of its funds failed to beat the average performance of funds that make similar investments, according to Morningstar, a fund researcher.

“I was selling JPMorgan funds that often had weak performance records, and I was doing it for no other reason than to enrich the firm,” said Geoffrey Tomes, who left JPMorgan last year and is now an adviser at Urso Investment Management. “I couldn’t call myself objective.”



There is also concern that investors may not have a clear sense of what they are buying. While traditional mutual funds update their returns daily, marketing documents for the Chase Strategic Portfolio highlight theoretical returns. The real performance, provided to The Times by JPMorgan, is much weaker.

Marketing materials for the balanced portfolio show a hypothetical annual return of 15.39 percent after fees for three years through March 31. Those returns beat a JPMorgan-created benchmark, or standard of comparison, by 0.73 percentage point a year.

The actual return was 13.87 percent a year, trailing the hypothetical performance and the benchmark. All four models with three-year records were lower than the hypothetical performance and the benchmarks.



Regulators tend to discourage the use of hypothetical returns. “Regulators frown on using hypothetical returns because they are typically very sunny,” said Michael S. Caccese, a lawyer for K&L Gates.

Jul 03

Cartnoon

The Correspondents Explain – The Economy – Recessions & Depressions (2:35)

Jul 03

On This Day In History July 3

Cross posted from The Stars Hollow Gazette

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

Click on images to enlarge.

July 3 is the 184th day of the year (185th in leap years) in the Gregorian calendar. There are 181 days remaining until the end of the year.

On this day in 1863, Battle of Gettysburg ends

On the third day of the Battle of Gettysburg, Confederate General Robert E. Lee’s last attempt at breaking the Union line ends in disastrous failure, bringing the most decisive battle of the American Civil War to an end.

Third day of battle

General Lee wished to renew the attack on Friday, July 3, using the same basic plan as the previous day: Longstreet would attack the Federal left, while Ewell attacked Culp’s Hill. However, before Longstreet was ready, Union XII Corps troops started a dawn artillery bombardment against the Confederates on Culp’s Hill in an effort to regain a portion of their lost works. The Confederates attacked, and the second fight for Culp’s Hill ended around 11 a.m., after some seven hours of bitter combat.

Lee was forced to change his plans. Longstreet would command Pickett’s Virginia division of his own First Corps, plus six brigades from Hill’s Corps, in an attack on the Federal II Corps position at the right center of the Union line on Cemetery Ridge. Prior to the attack, all the artillery the Confederacy could bring to bear on the Federal positions would bombard and weaken the enemy’s line.

Around 1 p.m., from 150 to 170 Confederate guns began an artillery bombardment that was probably the largest of the war. In order to save valuable ammunition for the infantry attack that they knew would follow, the Army of the Potomac’s artillery, under the command of Brig. Gen. Henry Jackson Hunt, at first did not return the enemy’s fire. After waiting about 15 minutes, about 80 Federal cannons added to the din. The Army of Northern Virginia was critically low on artillery ammunition, and the cannonade did not significantly affect the Union position. Around 3 p.m., the cannon fire subsided, and 12,500 Southern soldiers stepped from the ridgeline and advanced the three-quarters of a mile (1,200 m) to Cemetery Ridge in what is known to history as “Pickett’s Charge”. As the Confederates approached, there was fierce flanking artillery fire from Union positions on Cemetery Hill and north of Little Round Top, and musket and canister fire from Hancock’s II Corps. In the Union center, the commander of artillery had held fire during the Confederate bombardment, leading Southern commanders to believe the Northern cannon batteries had been knocked out. However, they opened fire on the Confederate infantry during their approach with devastating results. Nearly one half of the attackers did not return to their own lines. Although the Federal line wavered and broke temporarily at a jog called the “Angle” in a low stone fence, just north of a patch of vegetation called the Copse of Trees, reinforcements rushed into the breach, and the Confederate attack was repulsed. The farthest advance of Brig. Gen. Lewis A. Armistead’s brigade of Maj. Gen. George Pickett’s division at the Angle is referred to as the “High-water mark of the Confederacy”, arguably representing the closest the South ever came to its goal of achieving independence from the Union via military victory.

There were two significant cavalry engagements on July 3. Stuart was sent to guard the Confederate left flank and was to be prepared to exploit any success the infantry might achieve on Cemetery Hill by flanking the Federal right and hitting their trains and lines of communications. Three miles (5 km) east of Gettysburg, in what is now called “East Cavalry Field” (not shown on the accompanying map, but between the York and Hanover Roads), Stuart’s forces collided with Federal cavalry: Brig. Gen. David McMurtrie Gregg’s division and Brig. Gen. Custer’s brigade. A lengthy mounted battle, including hand-to-hand sabre combat, ensued. Custer’s charge, leading the 1st Michigan Cavalry, blunted the attack by Wade Hampton’s brigade, blocking Stuart from achieving his objectives in the Federal rear. Meanwhile, after hearing news of the day’s victory, Brig. Gen. Judson Kilpatrick launched a cavalry attack against the infantry positions of Longstreet’s Corps southwest of Big Round Top. Brig. Gen. Elon J. Farnsworth protested against the futility of such a move but obeyed orders. Farnsworth was killed in the attack, and his brigade suffered significant losses.

Jul 03

Late Night Karaoke

Jul 03

A Savagely Perilous Place

Steal 15 trillion dollars?  No problem.  

Violate park rules?  Riot police will splatter your blood all over the street.

William Rivers Pitt . . .

Buffalo Springfield was wrong. There’s something happening here, and it is exactly clear. We are, at this moment, in a savagely perilous place.

There are plenty of people out there who will flap the idiots currently running for the GOP in your face in order to dragoon you into supporting President Obama come November, and that’s fine. That’s their job, that’s what they do, and there is no doubt that the comparison favors them…but it is a stone-sharpened fact that, nationally, we are at this moment hedging true fascism as sharply as we were back in the ‘Bad Old Days’ of George and the boys, if not more so.

Some would argue that we are closer now to a true fascist America than we were then, because people of good conscience who fought against George W. Bush’s militant, media-succored fascism tend nowadays to be inclined to let this current happy-faced fascism slide. After all, it’s an election year, “Obama is better than Bush.”