The Bear Market of 1929 - 1933 and the Decline of June 1930

It was the first wave down in October 1929 that took out the speculators.

It was the third wave decline that decimated the nation and the professional traders such as Jesse Livermore and Arthur W. Cutten.

There were temporary bottoms and substantial rallies of hope off steep short term declines, all the way down to the bottom in 1933. The Republicans were swept out of office and a reform Democrat was elected, Franklin Delano Roosevelt.

The decline we have seen so far this June in the Dow Jones Industrial Average is the largest June drop since that short term market bottom in 1930.

A historical reminder for those who have a certain mindset about what happens when debt is wiped out, a serious deflation occurs, and a currency is devalued in response to it.

Dow Jones Industrial Average Nears its Worst June Decline Since 1930

Union Bank of Switzerland Formally Charged with Fraud by State of Massachusetts

AP
Mass. regulators file fraud charges against UBS
Thursday June 26, 1:50 pm ET
By Jay Lindsay, Associated Press Writer
Mass. regulators accuse UBS of fraud in sales of risky auction-rate securities

BOSTON (AP) -- Massachusetts regulators filed civil fraud charges Thursday against UBS Financial Services for allegedly selling investments it knew were extremely risky, but portrayed as safe.

The complaint by the Massachusetts Securities Division alleges that the financial services arm of the Swiss bank UBS AG knowingly let brokers present its auction-rate securities as virtually risk-free so it could reduce its own stake in the failing program.

The investments have their interest rates set at periodic auctions, depending on the submitted bids.

When the program ultimately failed, investors -- many of them retirees or small business owners -- were left with securities they can't sell, the complaint said.

"These customers have now discovered ... that they have been blindsided by the very people who were supposed to have their best interests at heart," the complaint said.

UBS spokeswoman Karina Byrne said the company was disappointed state regulators filed the complaint while the company was working to solve the problems caused by the auction rate market failure.

In a statement, she said the company supported the market longer than any other firm, and have offered loans at favorable rates to clients with holdings in it. "Contrary to the allegations, UBS is committed to serving the best interests of our clients," she said.

Auction rate securities were once considered safe, and were purchased by investors who wanted a place to park their money where it could be easily accessed.

But starting in February, weekly and monthly auctions at which investors normally purchase such the securities failed to yield buyers, as investors sought to avoid risk amid turmoil in credit markets.

The complaint alleges that even though executives were calling the program an "albatross" and knew it was near collapse early this year, it continued to sell the securities to individual investors. It presented them as a good value, in order to reduce its own inventory, the complaint says.

The complaint also alleges investors were never told the auctions weren't true auctions, and that UBS stepped in when buyers abandoned the program to underwrite the products and set the interest rate so the program wouldn't fail.

The state wants to force UBS to return all investor funds and pay a fine. The amount of money being sought was not disclosed in the complaint.

Last month, UBS agreed to buy back $37 million worth of these securities sold to 17 Massachusetts towns and cities and to the Massachusetts Turnpike Authority, under an agreement with Attorney General Martha Coakley.

Here Comes the Cavalry

Wall Street and the financial interests painted a picture of a 'bottom' and continued to hand off the losses and risk to the public and shareholders.

You were warned.

It is not over.

Goldman Cuts Banks, Strongly Advises Selling Citi
Thu Jun 26 11:32:32 2008 EDT
By Ed Welsch

NEW YORK (Dow Jones)- The business models of Wall Street investment banks and U.S.-based global banks continue to deteriorate and their recovery will take longer than anticipated, Goldman Sachs Group Inc. told clients Thursday.

The firm cut its recommendation of the sector to neutral from attractive and strongly recommended that investors sell shares of Citigroup Inc., saying it faced multiple problems, including more asset write-downs, higher loss provisions for consumer credit and the potential for more capital raises, dividend cuts or asset sales. (But they'd buy them for $2 and a backstop from Benny. - Jesse)

Financial stocks declined broadly, with shares of Citigroup recently falling 6.5% to $17.62 after earlier reaching a new 52-week low of $17.57. The previous low of $17.99 was reached March 17. A Citigroup spokeswoman said the company doesn't comment on analyst reports.

The move came as Goldman itself was downgraded to market perform by analysts at Wachovia "in light of renewed economic fears" and a poor outlook for investment banking business. Goldman is widely considered to be the strongest investment bank in the U.S. Goldman shares fell 3.2% to $177.84 in recent trading.

By adding Citigroup to its conviction sell list and expressing caution on other financial firms, Goldman reversed the positive stance it took on the financial sector following the near-collapse of Bear Stearns Cos. Wall Street had hoped that March 17 had marked the bottom for financial stocks and write-downs. Although write-downs have been slowing, more problems have cropped up for the banks as their boom-year businesses in structured financial products disappear and their assets tied to consumers deteriorate as the overall economy weakens.

Goldman cut its second-quarter and full-year estimate for several financial firms, both large and small. The most significant cuts were on Citigroup and Merrill Lynch & Co. (MER) -Goldman now sees both firms posting losses in the second quarter and full year; it put the second-quarter losses at 75 cents a share at Citigroup and $2 a share at Merrill. Goldman also cut its estimates for Piper Jaffray Cos. (PJC), Lazard Ltd. (LAZ), Evercore Partners Inc. (EVR)and Greenhill & Co. (GHL).

Shares of Merrill fell 4.9% to $33.73 in recent trading. A Merrill spokeswoman said the firm doesn't comment on analyst research.

Goldman expects Citigroup to take $9 billion in write-downs during the second quarter and Merrill to take $4.2 billion in write-downs in the quarter. Both firms are scheduled to report their second-quarter results in mid-July.

Bernstein Research also added to the gloomy chorus on investment banks Thursday, swinging its estimate of Merrill's second quarter to a loss. Bernstein expects Merrill to write down $3.5 billion during the quarter on its collateralized debt obligations, mortgage-related legacy exposures and its counterparty exposure to monoline insurers.

Bernstein said its projection of a second-quarter loss of 93 cents a share could prove to be too optimistic, "given the uncertainty of where CDO marks and monoline reserve levels will be this quarter."

Citigroup Chief Financial Officer Gary Crittenden said the bank would take "substantial additional marks on our subprime exposure" if current trends continue. He said the second quarter remained challenging but "was characterized in many respects by sequential improvement" over the first quarter, when Citigroup posted a loss of $5 billion on more than $10 billion in write-downs.

"However, the market continues to change rapidly, and volatility remains unprecedented," he said. "This could cause the remainder of the quarter to shape up very differently from what I've just discussed."

The analysts said the most troubled business units of the financial firms are investment banking, where merger and acquisition activity has slowed and where underwriting remains depressed compared to year-earlier levels, and the distressed areas of the fixed-income market made up of mortgage-backed securities.