Toomre Capital Markets LLC

IP address 95.108.240.252 maps to a spider computer hosted on the Yandex Enterprise Network. About every minute and a half or so, a spider process on that computer (still) attempts to retrieve yet another piece of content from the Toomre Capital Markets ("TCM") website. Many of the pages this spider requests either do not exist or are part of the no-follow rule section in the robots.txt file. This spider certainly is aggressive and ignores the rules that many other bots seem to respect.

A few months ago, after watching this particular malformed spider consume more five percent of the total hosting bandwidth used that month, we had had enough. Hence, some modifications were made to a custom Drupal module running on the TCM website concerning visitor information (including various bots) and what specific information was being sought. Now as a result, when this Yandex spider come looking for a page like "search/node/facebook", it somehow ends up redirected to a page from a third-party website.

One would think that the person(s) controlling the spider would get the message after some fifty thousand plus attempts to get information from the TCM website. Somehow a human user might wonder why attempts to retrieve information on structured finance products, risk management and/or MATLAB topics always results in a page full of "gay anal porn" or other similar material. Until then, the TCM website might well become a frequent referrer to certain pornographic websites.

Toomre Capital Markets LLC ("TCM") uses the open-source Content Management System ("CMS") system called Drupal to generate the web pages that are served up on this website. As part-time technology "geeks", we at TCM are big fans of the flexibility that this technology offers. That flexibility comes at a cost though. Whereas as some other popular CMS software like WordPress are much easier to use "right out of the box" so to speak, Drupal requires considerable effort in setting various parameters and even some programming to get a website to look and work as desired.

The current version of the TCM website has remained basically unchanged for the past two plus years. During the summer of 2010, we will be making some changes both to address the resolution of some long-known issues and to prepare for a move both to a new version of Drupal (Drupal 7) and the adoption of the HTML5 language. Hence, there may be some temporary hick-ups as these changes are incorporated into the production website.

If there are annoyances about the current presentation and/or operation of this website that bother the reader, please let us know. We will try to incorporate such changes before we are distracted by the upgrades to HTML5 and Drupal 7. Thanks!

Diana Furchtgott-Roth over at Real Clear Markets raises concerns about Section 342 of the pending Dodd-Frank financial regulation bill. This section has not been publicized much at all during the contentious reconciliation process.

Section 342 apparently "declares that race and gender employment ratios, if not quotas, must be observed by private financial institutions that do business with the government. In a major power grab, the new law inserts race and gender quotas into America's financial industry." Through the establishment of at least twenty Offices of Minority and Women Inclusion, this section aims to assure "to the maximum extent possible the fair inclusion" of women and minorities, individually and through businesses they own, in the activities of the agencies, including contracting.

Toomre Capital Markets LLC ("TCM") applauds the broad diversity goal that this section attempts to address. For far too long, the financial services industry and its service providers have been dominated by white males. It is reassuring to know that my teenage daughter, based solely on her capabilities, might have some possibility of obtaining employment in the investment banking sector should she desire so. In short, females and minorities will have a "fair" chance for opportunities and employment.

The devil is in the details of implementation, though: How does one define "fair"? As Ms. Furchtgott-Roth explains,

John Carney is headed to CNBC as a Senior Editor. The former editor and writer for Business Insider's financial news and gossip vertical, Clusterstock, will now be writing for the blogs section of the CNBC.com website as well as serving as an on-air commentator on the popular business news cable channel.

Toomre Capital Markets LLC ("TCM") has followed Mr. Carney's work since the beginning of the financial crisis when he at that time was writing for the Dealbreaker website, a Wall Street blog that covers the personalities and culture that shape the financial industry. Partly as a result of John Carney's insightful writing for his former employers, both of these Wall Street blogs became among the most popular. Perhaps the CNBC website will also soon become more popular because of John's work? TCM wishes John success with his new position.

Around 5 PM on Monday May 10th 2010, visitor traffic to the Toomre Capital Markets LLC ("TCM") website noticeably spiked. Many of the visitors first came to the post Possible Bankruptcy for Joe Gregory of Lehman Brothers before often continuing to other postings. The source of much of this increased traffic was tied to the micro blogging service twitter.

The market making results of Goldman Sachs are simply amazing!! According to its recently filed documents with the Securities and Exchange Commission for the first quarter of 2010, Goldman Sachs had zero trading days where it lost money from its trading activities!! Toomre Capital Markets LLC ("TCM") is stunned by this news.

According to the filing, on more than half of the 63 trading days in the quarter, it recorded more than a hundred million dollars in net revenues for that day!! Further, with the understanding that 76% of the firm's $9.7 billion in revenues came from trading activities, the average net revenue for each day was approximately $117 million — and on at least twelve of those days, the net revenues were north of $160 million!!

The chart to the left is from the Zero Hedge blog and their post Unfuckingbelievable: Goldman Has Zero Trading Loss Days In Last Quarter. As that post states, "The statistic probability of this event is itself statistically undefined." TCM whole-heartedly agrees that these results are unbelievable. Utilizing classic risk management measures, one could even argue that Goldman Sachs was not taking enough risk since it never experienced a penny of loss!!

The week of April 26th 2010 will be important for the future of derivatives and where those type of instruments may be legally transacted in the financial services industry. At the start of the week, it appears that the Senate bill will force commercial and investment banks to spin off those divisions that transact in derivatives into separate companies that will not have access to either FDIC deposit insurance or emergency borrowings from the Federal Reserve.

If passed into law, this proposal will dramatically change the securities industry in several ways. Derivatives have long been one of the most profitable areas of the securities business. Hence, by definition, the remaining portion of the securities firms will be less profitable. It is an open question about how much the valuation of financial institutions with securities businesses should be adjusted downward.

Second, derivatives are critical risk management tool(s), particularly in the management of physical commodities where both future supply and demand are uncertain. Apparently, there will be a narrow exception for "end users" — producers, manufacturers, and other companies that are not financial players who used derivatives to hedge. The proposed legislation will require exchange trading, with margining, with clearing and a number of other provisions that provide reasonable safeguards. However, whether it makes sense to restrict a major source of capital liquidity to the derivatives markets remains open.

Third, one of the main reasons credit default swaps ("CDS") first caught on in the interest rate markets was the ability for the first time to effectively 'short' a particular credit. Previously, it was virtually impossible to short a bond and then to borrow it to cover the 'short sale'. The introduction of CDS led to much better price transparency in the credit markets. CDS contracts also became an effective tool in the management of credit portfolios, both on the investor 'buy-side' and dealer 'sell-side' of the credit interest rate markets. Preventing security dealers from using CDS will likely lead to reduced liquidity, profitability and size of the credit trading businesses at major securities firms.

Toomre Capital Markets LLC ("TCM") hopes that the provision to spin-off derivatives units of securities firms fails to pass in the legislative process. There is an open question about what to do about the many derivatives contracts that are outstanding. Should they be moved to clearing houses where collateral will need to be posted or should just new contracts going forward be subject to the clearing house and collateral posting requirements? Good arguments can be made on both sides.

However, artificially separating derivatives from a major source of liquidity capital does not make sense. The forthcoming tussles over derivatives in the U.S. Congress will be well worth watching and understanding. Clearly the derivatives playing field will be changing. The question is how and what will the consequences be.

Goldman Sachs and one of its Structured Finance Vice Presidents, Fabrice Tourre, were sued in civil court by the SEC for fraud on Friday, April 16, 2009 regarding representations that they made in the marketing and offering materials for what is known as a synthetic CDO named Abacus 2007-AC1. This news has sent the Goldman Sachs common stock lower by more than ten percent. It is also significant implications as the investigation is said to be still open and on-going.

Toomre Capital Markets LLC ("TCM") has received several messages looking for more insight on this latest questionable activity in the mortgage and structured finance markets. We have been busy on a detailed review of the detailed Exhibits related to the Examiner's review of the Lehman Brothers bankruptcy. We will shift our focus and hope to shortly have some further insights posted here.