Hedge Funds, LBOs and Banksters, oh my!

The other day many of us were exposed to a BBC interview where a business reporter kept repeating the tired old mantra that hedge funds had no involvement with the global economic meltdown.

Oh really?

Then surely, given the opaque nature of these private investment concerns, there would be no surprises forthcoming if they were to be intensively audited by forensic accounting teams together with certified fraud examiners?

And while we're at it, might not the same auditing processes yield interesting results if also directed at those private equity leveraged buyout funds (LBOs) and the major credit derivatives dealers, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Citigroup and Bank of America (with Credit Suisse FB, UBS and Deutsche Bank in the mix as well)?

Awhile back, Dr. John L. Goldberg of the University of Sydney, was brought in by the Australian government as a consultant to research the financing behind a number of public-private partnerships concerning Australian toll roads and infrastructure projects.

Now public-private partnerships, where securitizations with the subsequent generation of credit derivatives occur, incorporate the same underlying fundamental financial model as hedge funds, private equity firm LBOs and credit derivatives dealing by major ("too big to fail") banks.

Dr. Goldberg's three principal points, taken from one of his executive summaries, were as follows:

"Paying equity dividends with virtually no cash flow available (CCT)"

"The introduction of large spurious amounts of debt capital of unknown origin to augment cash flow, and the drawing down of fictional amounts of capital from reserves (LCT)."

"The use of dual entries to disguise the non-amortization of project debt (M2)."

[The codes in parentheses are toll road project designations.]

Now what do you suppose such an intensive audit of those hedge funds, private equity LBOs and bankster credit derivatives deals would reveal? (Perhaps those amazing returns from the hedge funds weren't really so amazing after all?)

In the U.S.A. there has been convened an official Financial Crisis Inquiry Commission. Now generally speaking, the usual purpose of any commission is to whitewash and obfuscate the truth, and given that some of this particular posse are affiliated with the American Enterprise Institute and the Peterson Institute, one should expect nothing less!

A real investigative body, of course, would thoroughly scrutinize any and all relationships between the financing and ownership of the InterContinental Exchange (ICE, and ICE Futures, ICE Clear, ICE Europe), TradeSpark, the Climate Exchange, PLC, the DTCC, the Markit Group, those pertinent transactions involving Markit Wire, and later named Swaps Wire, and ELX Futures, and the leveraged speculation, market rigging and manipulation which took place leading up to, and during, the global economic meltdown.

Naturally, we can rest assured that nothing of the sort will transpire.


Goldberg, John L. "The Fatal Flaw in the Financing of Private Road Infrastructure in Australia - Executive Summary" 2006.

Goldberg, John L. "The Fatal Flaw in the Financing of Private Road Infrastructure in Australia" 2006.

Goldberg, John L. "A Quantitative Examination of the Financial Risk to Superannuation Funds From Investment In Toll Road Infrastructure" 2006.

Soon to come: The Strange Case of the Shorting of the Eurozone



what do AEI, Peterson Institute have to do with this?

Not saying it's not true but what is that about?

The makeup of that FCIC

The Financial Crisis Inquiry Commission:

Bill Thomas, Commission Vice Chairman.

Commissioner Douglas Holtz-Eakin.

Commissioner Peter J. Wallison.

And I'm not too thrilled with Murren, Hennessey and Graham, either.

credibility of AEI vs. Peterson

I cannot cite specifics, because you have to do this paper by paper, paragraph by paragraph, equation by equation, statistic by statistic, but it seems to me Peterson Institute, has some research work that is fairly valid (and yes I know the infamous attack on SS, social safety nets and so on agenda), vs. AEI.

So, I don't know who these cats are, but I'd claim that just a blanket dismissal may not be in order, at least from Peterson. I cannot recall reading something from AEI that didn't have theoretical or statistical spin in it.

On the other hand, I've seen papers from Harvard with some brazen, god awful, as in how do you even have a job awful, statistical spin, bias. My favorite spin machine papers are when some of these cats get into "immigration" related topics. OMG! I've literally seen entire variables set to zero to make their philosophy work. Not good. (yes Virginia, there is always some element of substitution, you cannot set that variable to zero because you want it to be so!).

I think Angry Bear did an entire series on the social security statistical spin machine. But Medicare/Medicaid, ya know, the elephant in the room are for profits costs which of course are not to date addressed. I think the CBO just increased the cost of "health care reform" a couple of hundred billion?