Out of far left field, I see something coming that I never expected.
It's more like the coming together of pieces of a puzzle that have eluded us for too long.
By the way, Occupy Wall Street, if you're listening, and I hope you are, and you're still floundering (which I know you are) without a cause that anybody can really wrap their heads around, drop your drums, chants, and wanderings, and make the coming together of this puzzle what you're protesting.
And make what could result what you are demanding.
Because, really, this could be the mother lode.
The U.S. Securities and Exchange Commission (SEC) is accusing six former executives of Fannie Mae and Freddie Mac of playing down the risk to investors of their firms' aggressive fast-forward into subprime mortgages… which caused them to implode spectacularly.
Two separate civil suits, filed last Friday, allege that the executives "knowingly misled investors" who owned shares in the companies and were thus deprived of critical information against which meaningful investment decisions are generally made.
The two wards, currently under U.S. conservatorship (life support attended by a wet-nurse), were themselves spared being sued, on account of their signing civil non-prosecution agreements and promising to cooperate and not dispute allegations (and also not have to admit nor deny wrongdoing). Yet the SEC is seeking financial penalties, disgorgement, and an order barring guilty parties from serving as officers or directors of any public companies in the future against the implicated executives.
The SEC faces an uphill battle based on one word – "subprime."
The problem is, subprime has never been legally defined.
You know what it means, I know what it means, everybody knows what it means, without knowing its exact definition. But if there's no definition of subprime, defense lawyers will counter that it's not possible to sue based on a standard that has never been defined.
How about we compare mortgages to cars and subprime to clunkers. If you're on my used car lot and I offer you two cars at the same price and don't tell you one is a clunker, is that fair? You wouldn't need me to define "clunker." If I said one was a clunker, you would simply choose the other car; after all, it's the same price.
There is a difference, there's a big difference.
Over on the Fannie and Freddie lots between 2006 and 2007, they were loading up on clunkers and not telling anyone what they were stocking. In fact, they were saying things like, "basically (we) have no subprime exposure" in the single-family realm.
One of the reasons they were loading up on subprime was because Wall Street banks were eating their lunch by buying up subprime loans, packaging them, and selling them to investors hand over fist, and Fannie and Freddie wanted in on that very lucrative business. It's not that they hadn't dabbled in subprime before; they had. But as they saw stresses in the marketplace on the better mortgages in their portfolios, they still loaded up on far weaker credits; also known in the business as SUBPRIME.
So what's next?
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.