From the Gold Prices Newsletter

The SubPrime Sopranos?

We have recently noticed how the actions of top executives at some of the largest financial institutions are not too different from those of The Sopranos.

Allow us to explain:

For those not familiar with the HBO TV series “The Sopranos”, this is a crime drama focused on the criminal activities of the mafia in New Jersey, USA.

In the episode entitled “Watching Too Much Television”, Tony Soprano and one of his captains, Ralphie, get an idea from Tony’s financial advisor Brian Cammarata to defraud the Department of Housing and Urban Development, which ultimately is stealing from the taxpayer.

Tony buys some very low quality houses in Newark for $100,000 and persuades a surveyor to overvalue them at $300,000. He then gets Maurice Tiffen, the formerly idealistic head of a non-profit low income housing program, to buy the houses for $300,000 using his position via a government loan. Afterwards, Tiffen gets the organisation he is in charge of to buy the houses at the overvalued prices, his department stops making repayments and says they can’t keep the house due to unforeseen circumstances. So Tony and his gang make a tidy profit, and the government, and therefore the taxpayer, never see their money again and are stuck with assets that are basically junk.

Compare that story with this one:

“ABC Financials” buys some very low quality securities, backed by poor subprime loans, and make a lot of money out of them for quite some time. Then the securities begin to lost their value as the subprime loans default. ABC Financials persuades the government to give up some of their high quality securities in exchange for the low quality ones. ABC Financials sell the government high quality securities on the market to generate cash.

Now lets compare the pure basics:

Both the Sopranos and the financial institutions bought low quality assets.
Both the Sopranos and the financial institutions made money out of these assets.
Both the Sopranos and the financial institutions got the government to take the junk assets off their hands for a tidy sum of cash.
Both the Sopranos and the financial institutions would have lost money if it wasn’t for the government.
Therefore, it could be said, that both the Sopranos and the financial institutions have defrauded the government out of large sums of money.

The only real difference is that the government was unaware that it was handing cash to the Sopranos, but in the case of recent bailouts in the financial sector, the government was fully aware that it was handing taxpayers money away!

We are not saying that both these acts were exactly the same, but it appears to us that there are a great number of similarities.

But wait! That could possibly make the executives criminals? Or the Sopranos innocent?

You decide…

Paulie Walnuts, Capo of The Soprano Family and Angelo Mozilo, CEO of Countrywide Financial.

Carmine Lupertazzi, Boss of the Lupertazzi Family and Jimmy Cayne, CEO of Bear Stearns.