Journalism in the Public Interest

Deutsche Analyst Sounded Alarm When Asked to Alter Numbers

A junior analyst at Deutsche Bank protested when a mid-level executive asked him to adjust a spreadsheet to make a mortgage-backed security look less risky. The 2007 episode raises questions about whether the SEC has looked closely enough at the bank’s practices leading up to the financial crisis.

A guard stands outside the New York headquarters of Deutsche Bank in Lower Manhattan on April 8, 2010. (Dan Nguyen/ProPublica)

At a time when mortgage-backed securities were imploding and customers were fleeing the market, a junior analyst at Deutsche Bank AG protested when he was asked to alter the numbers in a spreadsheet to make a Deutsche security look less risky to ratings agencies, according to a person with knowledge of the matter.

The analyst, this person said, was asked by a mid-level Deutsche executive in late 2007 to make it appear that the investment would produce more cash than the bank actually expected at certain time points.

The request came at a crucial moment. In the last months of 2007, investors had grown skittish about such investments amid signs that the housing bubble was deflating, if not bursting. Up and down Wall Street, banks were trying to persuade ratings agencies that large portions of their mortgage-backed securities merited the coveted AAA stamp, meaning that they posed negligible risks of default. The analyst was asked to alter the spreadsheets in order to get a better rating, the person said.

The analyst's protest prompted an internal investigation conducted by a law firm, according to five current and former Deutsche employees. The protest and probe have not been previously reported.

Much remains unclear about this incident. It could not be learned whether false information was actually provided to the ratings agencies, nor whether the internal investigation dismissed or substantiated the analyst's account.

Two Deutsche employees who worked on the same team as the analyst told ProPublica they knew of no wrongdoing, and Deutsche issued a strong denial. "Any suggestion that we misled ratings agencies is unfounded and categorically false," said a Deutsche spokesman, who declined to answer specific questions about the analyst's protest or the internal inquiry.

But four years later, the revelation that an analyst protested raises questions about how vigorously, if at all, the government is investigating Deutsche Bank and its practices leading up to the financial crisis. In any case, ProPublica has learned, neither the S.E.C. nor any other government regulator or law-enforcement agency has interviewed the analyst.

Securities and Exchange Commission's Division of Enforcement Director Robert Khuzami testifies before the House Oversight and Government Reform Committee on Dec. 11, 2009, in Washington, D.C. (Chip Somodevilla/Getty Images)The SEC's director of enforcement is Robert Khuzami. Before joining the SEC in 2009, he had been Deutsche Bank's general counsel for the Americas since 2004. He worked as one of the bank's top lawyers during the time the analyst raised questions. Khuzami has said he would recuse himself from any actions regarding Deutsche.

Another key SEC official -- George Canellos, who oversees enforcement for the New York regional office -- used to be a corporate lawyer who defended Deutsche against M&T Bank Corp. M&T, which was suing Deutsche over a security similar to the one the analyst raised objections to, had sought to depose the analyst and obtain the results of Deutsche's internal inquiry, according to people familiar with the lawsuit.

In December, M&T settled with Deutsche for $55 million in cash, M&T said Tuesday in its fourth-quarter earnings statement.

An SEC spokesman said the agency doesn't discuss whether it is investigating a firm. In general, spokesman Kevin Callahan said, Khuzami doesn't work on matters related to Deutsche, and Canellos is recused with respect to any matters related to Deutsche Bank's CDO business.

"We have policies and procedures for all staff to even prevent even the appearance of a possible conflict of interest," Callahan said. "We have experienced and professional staff ... to follow the evidence no matter where it leads, how complicated the product or which firms are involved."

The analyst's protest sheds light on a little-understood function, called modeling, that was critical to many of the transactions that wreaked major damage during the financial crisis. Modelers created vast and intricate spreadsheets that estimated or "modeled" how the securities were likely to perform, including on payment schedules.

The Analyst

Through 2006 and into 2007, a part of Deutsche Bank known as the CDO Group was humming. CDOs, or collateralized debt obligations, were securities, underpinned by mortgages, that the bank sold to investors. Even as it hawked these CDOs, Deutsche Bank and some clients were often betting that they would fail, because the mortgages that backed them looked increasingly likely to default. In essence, the bank was selling to investors a product that the bank itself believed was composed of "crap," as one Deutsche executive famously put it.

During 2006 and '07 -- when CDO sales peaked -- Deutsche ranked fourth in issuing CDOs behind Citigroup Inc., J.P. Morgan Chase & Co. and Merrill Lynch & Co., according to a 2011 report on the financial crisis issued by the U.S. Senate Permanent Subcommittee on Investigations.

Inside Deutsche's CDO Group, pressure to complete and sell the deals was intense, according to the Senate investigation, court records and people familiar with the Deutsche team. Investors were beginning to balk at purchasing CDOs because of signs the housing market was weakening. Employees often worked until 1 a.m. before being driven home in company-supplied town cars.

Among the hardest workers was a team of financial modelers and analysts. But despite their long hours, they "needed more bodies to process the work that was coming through," said a person familiar with the situation. So, some of the work was farmed out to a relatively cheap but highly skilled source of labor: Deutsche's Global Markets Centre in Mumbai, India. There, workers proficient in mathematics helped assemble and input the data for key spreadsheets.

Workers in Mumbai eagerly wanted to join Deutsche's prestigious and lucrative desks in London or New York. Few got the chance. One employee who did was Ajit Jain.

Jain had studied at the Indian Institute of Technology in New Delhi and joined Deutsche in June 2006, according to employment records kept by the Financial Industry Regulatory Authority. He joined the New York office in September 2007, when the CDO Group was struggling to find investors.

Within a short time of his arrival, according to three people familiar with the matter, Jain raised questions about whether spreadsheets were being improperly altered. His complaints went to senior levels within Deutsche, including its legal and compliance departments, according to people familiar with the matter.

A Deutsche spokesman said Jain wasn't available for comment.

Those spreadsheets were often so large and complex they could take several minutes to open on a computer, according to a person familiar with them. The spreadsheets involved fiendishly complex arrays of inputs and sophisticated calculations, involving everything from the default rates of the mortgages that backed the CDO, to when borrowers would pay off their loans. But one purpose of the spreadsheets was simple: to estimate how much cash the CDOs would generate at certain time points.

One place those estimates went was to ratings agencies such as Moody's and Standard & Poor's.

The Quest for a AAA Rating

A CDO is divided into different slices, called tranches, depending on the risk and potential return. These tranches were rated by one of the ratings agencies. For a CDO to be sold, it was crucial that the largest tranche be rated AAA, indicating that this investment was low-risk because it was the last layer to take losses.

But there was a catch: The ratings agencies relied heavily on the banks themselves to estimate the payment schedule on the underlying assets of the CDO, according to a person familiar with the work done at the ratings agencies. It was an "honors" system, this person said, in which the ratings agencies "outsourced" to the banks the inputs for the spreadsheets.

Those spreadsheets are the essence of what are known as CDO models, because the spreadsheets provide a model of how the CDO is likely to perform.

Meanwhile, banks knew how to engineer the key elements of a CDO spreadsheet so that it would spit out cash flow and other outcomes that would meet the ratings agencies' off-the-shelf formulas, according to a former ratings analyst and a former CDO manager who worked with Deutsche. In other words, banks structuring the deals knew what outcomes were necessary to receive a AAA or AA rating, and they knew how to adjust the spreadsheets to produce these outcomes, these people said.

That's the same conclusion that John Griffin came to. A professor of finance at the University of Texas at Austin, he co-authored a 2011 paper on CDO modeling that said banks pushed increasingly for top-tier AAA ratings, and that ratings agencies succumbed to the pressure. This led to a "downward movement in standards over time," Griffin said in an interview.

"Cash flow modeling is more susceptible to influence from the investment bank," the paper said.

Griffin and his co-author, Dragon Yongjun Tang of the University of Hong Kong, wrote that former employees at two investment banks told them that banks had learned how to tailor CDO models to obtain good ratings.

That is very similar to what Jain told his bosses was happening at Deutsche. According to the person familiar with the matter, a mid-level Deutsche executive asked Jain to alter the spreadsheets by changing certain payment schedules to win a higher rating.

It is not known whether Deutsche submitted such modified spreadsheets to a ratings agency to receive better ratings. As best as could be determined, the specific CDO Jain complained about was not sold to investors. It is not known why.

The Internal Investigation

According to people with knowledge of the internal probe, the alarm Jain sounded went to senior levels inside the bank, including Deutsche's compliance and legal departments.

Soon, Deutsche called in the New York law firm Milbank, Tweed, Hadley & McCloy to conduct an investigation. The law firm interviewed employees on the CDO desk, according to people familiar with the situation.

Two employees on the desk, in interviews with ProPublica, said they knew of no improper modeling, and a third said he didn't know because he wasn't part of the modeling unit.

"I personally don't think there is anything interesting," said Konstantin Kulev, who worked as a modeler on the CDO team, according to people familiar with the situation and internal Deutsche documents. In an interview with ProPublica, Kulev declined to answer specific questions.

Milen Shikov, another senior modeler, said in an interview that he knew Jain "did raise some questions" about the CDOs. But Shikov said the matter was "resolved."

Shikov recalled that he was interviewed by a law firm -- he could not remember the firm's name -- for three hours. He said he gave the law firm's questioners an email exchange with a ratings agency that he said showed Deutsche had followed the ratings agency's guidelines for preparing cash flow estimates.

A Milbank, Tweed spokeswoman declined comment. A Deutsche spokesman declined to discuss the inquiry or release the law firm's findings, but he categorically denied the bank had misled any ratings agency.

Lawsuits and a Senate Investigation

It is not known whether the SEC is investigating Deutsche. The SEC has settled with other large banks, such as Citigroup Inc. and JP Morgan Chase & Co. Critics of the agency say its settlements have been too small and have allowed the banks to neither admit nor deny wrongdoing.

Last month, M&T settled its civil suit against Deutsche, ending the high-profile case that had been wending its way through a New York state court.

M&T had alleged that Deutsche improperly sold slices of a $1.1 billion CDO called Gemstone VII that lost more than 95 percent of their value within months. M&T, according to its complaint, bought two layers of Gemstone VII: a $42 million layer rated AAA and a $40 million layer rated AA. "The AAA ratings and AA ratings were major considerations in M&T's determination to invest in the Gemstone VII notes, because they indicated that the notes were safe, stable and nearly risk-free investments," M&T claimed.

The complaint does not mention how payment schedules were modeled. But M&T contended that Deutsche and the outside Gemstone VII manager "gave false information to Standard & Poor's and Moody's, the two leading credit ratings agencies, to induce them to rate the Gemstone VII CDO notes higher than the notes deserved so as to overstate their quality and safety."

Jain's objections did not concern Gemstone VII but a later, similar CDO, according to people familiar with the matter. As part of its investigation for the suit, M&T learned of Jain's protest and the internal Deutsche inquiry, according to the person familiar with the suit, and sought to depose Jain and obtain the inquiry report.

Judge John Michalek sealed the case in April, and now M&T has settled. So the suit has revealed very little new information about Deutsche's practices.

Deutsche declined to discuss the lawsuit. In court papers, Deutsche and its law firm, Milbank, Tweed, said M&T knew the risks of investing in securities underpinned by subprime loans. A Deutsche court filing in 2008 called M&T a "sophisticated participant" in mortgage securities and that the bank had "received detailed written disclosures about the risks of the investment." The document added that M&T "was counseled to perform its own due diligence" and was told "it could not rely" on Deutsche.

At least one lawsuit concerning Deutsche's CDOs is continuing. An affiliate of Germany's IKB Deutsche Industriebank AG sued Deutsche in October after the affiliate lost money investing in five Deutsche CDOs, according to court documents from that case. The IKB affiliate alleges that by late 2005, "Deutsche knew that the subprime market had increasingly come to resemble a house of cards teetering on the verge of collapse." The court filings do not mention the modeling Jain raised questions about.

A Deutsche spokesman declined comment. One of the most detailed public accounts of Deutsche's CDO business is the 646-page, 2011 report produced by the Senate investigation. But the report does not discuss how payment schedules for Deutsche CDOs were modeled, or the internal inquiry that stemmed from Jain's alarm.

The Senate report discusses Greg Lippmann, a Deutsche risk manager who oversaw the assets in Gemstone VII and other CDOs, and helped Deutsche earn $200 million by betting against some of the bank's mortgage-backed securities. Lippmann called assets that went into the CDO a "pig" and "crap," according to the Senate report.

Deutsche's views "were fully communicated to the market through research reports, industry events, trading desk commentary and press coverage," a bank spokeswoman said. "Despite the bearish views held by some, Deutsche Bank was long the housing market and endured significant losses."

Within a few months after Jain raised the alarm, many on Deutsche's CDO team had left the bank, according to FINRA records, and now work for boutique firms that specialize in buying distressed mortgage bonds -- exactly the kind of bonds that destroyed the CDOs they once created at Deutsche.

Jain remains at Deutsche.

The “judge” naturally sealed the files to keep the criminal fraud secret.

The lawyers “investigating” the fraud naturally found nothing wrong.

The benefits of a law school education.


The stink surrounding these banks and the marketing of their CDO’s should be enough to raise the dead, but our regulatory and investigative agencies (including the Justice Dept) walk into court holding their noses with one hand and offering sweetheart settlements with the other.  Settlements that end up barring further prosecution and provide cover in civil cases.  If there is any better clue as to who owns our govt, please point it out.  Excellent article, by the way.

Excellent article.

This is yet another answer to the “why was nobody prosecuted” question, the answer being “because government itself was complicit”. That’s an uncomfortable answer for many Dems/Repubs, as pols seem to be using every disaster they create as an argument for more power.

These are precisely the types of articles we need reporters to work on. When it comes to these financial institutions, you need all the facts and you need to nail them down, word for word. Else they rely on high-priced liars (defense lawyers) who will say anything to earn their hourly rate.

Interesting and informative article. Yet, I wonder whether the short position, as Goldman Sachs took, on many of the CDO’s issued resulted in servicers, many owned or controlled by these institutions, being required or directed to seek foreclosure on mortgages in the underlying RMBS’s pools rather than seeking loss mitigation alternatives that would have allowed homeowners to retain homeownership in order to protect their short position in the CDO.

Barry Schmittou

Jan. 19, 2012, 2:25 p.m.

Here’s the intro to evidence of the U.S. Governments protection of corporate organized criminals that I’ve filed in Federal Court and is linked at

Murderous Drug Money Laundering and Bid Rigging Including Wachovia Bank Laundering $378 Billion, and Bank of America Laundering $3 Billion and No One Was Prosecuted !!

NBC Links Prove A 12 year Old San Diego Boy Was Kidnapped and Forced To Decapitate Four People For the Cartels !!

40,000 Murders Have Occurred Since 2006 !! 35 Bodies Were Recently Dumped in Front of a Busy Mall !!

Many People are Disemboweled and Hung from Mexican Bridges !!

American Farmers on the Border Are Moving Their Families Off of Their Farms and Wearing Bullet Proof Vests !!

(Please read this entire document before clicking on links below)

Obama Has received Huge Contributions From Many of the Corporate Criminals as Seen at :

(2)      Multiple Counts of Bid Rigging By JP Morgan, AIG, MetLife, Prudential and Others That Are Linked Below !!

(3)      Stop MetLife, AIG and Other Insurance Companies From Rigging Bids To Increase Sales of Health and Workers’ Comp Policies While Ignoring Life Threatening Medical Conditions Including Multiple Sclerosis, Cancer and Cardiac Conditions of Many Patients and Destroying the Lives of Thousands of Injured and Disabled Americans, and Injured War Zone Contractors As Seen in the Links Below !!

Of course there are many more crimes to add, and evidence that Bush also protected organized corporate crimes, but my eye cancer etc make it difficult to complete. I only continue because our entire planet is under attack from organized criminals who are protected by the leaders of the worlds governments as seen at

Internet’s freedom will force shrink justice system all over the new world to be least expensive.

“A Deutsche spokesman said Jain wasn’t available for comment.”

For the sake of people on all sides of several oceans, I hope that statement doesn’t cause Wall Street to think “Huh…I bet it’s pretty easy to make an H-1B ‘unavailable for comment’.  Useful, that.”

The financial sector remains an anvil waiting to drop on our collective heads.  The SEC is virtually useless, worse than useless, dangerous.  And no one is in jail besides Bernie Madoff.  As Matt taibbi noted in the Epilogue to his insightful book, “Griftopia”, after Bear, Merrill, and Lehman imploded, Morgan and Goldman are “ascendant,” and “Chase, Wells Fargo and Bank of America all exceed the legal size limit of 10 percent of all American deposits”.  In other words, things are worse, and financial power is concentrated in fewer hands. And what is the far right telling us - we still have too much government regulation of the financial sector.  You can’t make this stuff up.

Walter D. Shutter, Jr.

Jan. 19, 2012, 3:30 p.m.

This is an excellent article.  Every question that should have been asked was indeed asked, if not truthfully answered.  I thought the most amusing part of the article was the statement of Milen Shikov, a senior modeler for Deutche Bank, who noted that he had been interviewed by a Law Firm (Milbank,Tweed..a New York law firm had been hired by the bank for an internal audit) for THREE HOURS but that he FORGOTTEN THE NAME of the firm.

OK, I thought it was funny.

“much remains unclear’ because there has never been a real investigation.
It’s difficult to prove criminal acts when don’t bother to have one.

Carol DW said,
“much remains unclear’ because there has never been a real investigation.
It’s difficult to prove criminal acts when don’t bother to have one.”

Well, you can thank me for that.  I voted for Obama.  The candidate who said he would seek truth and speak it to the American people, turned out to be the “we need to look forward, not back…” guy.  Sorry.  I am so sorry…

This article is not all true. What really happened is as follows.
Deutche in an effort to keep up with wall street instead of growing the U.S. Operations farmed out work to India.  However because of the competition, they realized hiring the best and brightest was a short term move as most employees left within a few months, for more rewarding jobs. As such hard working but average intelligence workers like ajit were brought in to do the mundane tasks so the employees in NYC could concentrate on the harder stuff.  The job was not that complicated but required long hours.  After a year or so of service ajit was rewarded with his dream of moving to the U.S. When he arrived he realized he was mentally outgunned and grew worried about being fired.  When he could no longer compete and deliver on time he made up this story to stay.  What the article fails to mention is ajits time in India and how he would bully and steal the other analysts work and claim for his own.  It got so bad at one point that he almost got in a fist fight for stealing other peoples work and his dad had to call his
boss to apologize.  Deutsche did not learn of ajits behavior until it was
too late and was in NYC.  This story is more about one mans desire to rise to the top at the cost of blackmail than anything else

John Doe,

I don’t know what degree of a loser you are. But for the records, I do know from going to school with Ajit that he had a 9 pointer CGPA at IIT Delhi - which you and your lesser mortal friends can’t even reach in your 1000 lives. I also hear that he is at a top business school.

From being friends with him, I can also tell you that the story was actually the other way round - he was the one punched in his face. We (a lot of us) know that his Dad had grown really worried for him when he went to US for the first time. He should have punched that guy back - but what he did was simply report it to his seniors.

All of us who know Ajjit know that he is never violent. He is a strong follower of Jainism (religion based on non-violence principles) for God’s sake.

Finally why would he be offered a position in NY if not on his merit?

Now stop your slander and go by facts.

@S.A.: lollll…I give “john doe” credit for bringing some amusement into my morning.  Most of the time when attempts are made to discredit someone’s testimony “on the web”, they’re laden with difficult to verify numbers and arcane language.  I got a good laugh out of what appears to have been somebody encouraging their child to launch an attack.

Of course, it isn’t beyond the pale that the individual who composed that missive is, in fact, an adult - but one so accustomed to successfully deluding regulators and investors with the aforementioned numbers and arcane language that they just assumed that they had an expertise that would translate into all forms of fiction.  Mistakenly.

I´m german and this article was really hard for me to read, the bank is called “Deutsche Bank AG” which is german for “German bank PLC”.
So everytime you refered to it as “Deutsche” or translated “German” it became very confusing for me, it´s like If I were talking about American Bank and would refer to it as American, ae. “The American excecutive said…”
See how confusing this can be?
Therefore the only people working at “Deutsche” or translated “German” would be people working for the German goverment, please be sure to get this right next time.

Sorry If I messed up grammar or anything else, but as I already stated at the beginning, I´m german and only know english trough some school education and the internet itself.

lollll…not to worry, Steven Luchs, there is no nationality associated with or implied by the incorporated name of Deutsche Bank.  I, at least, am well aware (as I suspect most Americans are) that the den of inequity that is Wall Street features - almost up and down the line - Americans playing the role of “the bad guys”.

Although to be realistic our headlines of late suggest that the environment created by “high finance” in America is such that any individual of any nationality that spends any significant amount of time associating with Wall Street or “the big banks” in America is rapidly…assimilated.  E.g., Raj Rajaratnam.

This is some of the most biased reporting I have seen. It shows a complete lack of knowledge of financial modeling in its most basic form, financial models are built on assumptions. Most of these assumptions are based on past behavior of trends and behaviors, financial modeling is not a science and there is no such thing as a correct model predicting the future. Models are only a guesstimate of what the future will look like. In this case it appears that one analyst out of many who worked on this deal had a different view of the assumptions. We do not know what the assumptions were that the analyst had problems with, nor did anyone know that the assumptions plugged into the model were overstated. Only in hindsight can we say that the scenario analysis proved to be incorrect.

As long as the future remains unpredictable scenarios are going to occur like this over and over again, not just in finance but in all aspects of life. People need to learn to live with uncertainty and stop placing blame or think something is criminal just because people’s observations about the future are not correct.

@Magnetar:  Interesting name.  I don’t think “As long as the future remains unpredictable scenarios are going to occur like this over and over again” is all that reassuring, though…

So we can expect other scams like the mortgage-backed financial instruments from the new, improved Wall Street forevermore?

Michael Schmidt

Jan. 20, 2012, 1:54 p.m.

While this is interesting, a single event at a single company doesn’t begin to convey the scope of the problem.  Read “Reckless Endangerment” to get some idea of the enormity of the corruption and incompetence.  The most amazing thing is that nobody, either in government or the private sector, has gone to jail over any of this.

The assertion made by “Magnetar” seems to be:

a)  Nobody knows for certain what is going to happen in the future
b)  Therefore, any financial model is necessarily inaccurate
c)  Therefore, choosing the financial model that will move the most product is acceptable as that model’s accuracy can neither be ascertained nor conclusively disputed until the future has arrived

That last, rephrased, is the elimination of any possibility of wrongdoing no matter how much you bias a model to increase your profits because whatever you predict might come true much as you might correctly choose the next set of winning numbers in the Powerball lottery.

Those who defend that premise, of course, reinforce my premise that we can indeed expect other scams like the mortgage-backed financial instruments from the new, improved Wall Street forevermore.

@Magnetar.  Really?  Did we read the same article and witness the same economic meltdown?  Still amazes me how so many cling to their narrow and selective interpretation of events despite all of the damning testimony and information that has come to light.  Trying to paint what actually happened as just some normal correction that caught well-meaning analysts and brokers off guard, is like defending Bernie Madoff as just a victim of bad timing!  Please!  Ethics and personal integrity in business are not just quaint, outdated concepts but very real protections against fraud, and economic malfeasance.  We saw what happened in the S&L scandal, the energy and Enron scandals. Not to mention the current foreclosure “irregularities”.

How many times do you have to be poked in the eye with a stick before you get that the guy holding the stick doesn’t really have a nervous twitch?

I understand your concerns and your feeling of being taken advantage of in the marketplace, but that does not change the fact that assumptions are built into financial models. In the case of CDO’s or more specifically CMO’s behaviors such as PSA (Prepayment Speeds), Recovery Rates, and 30,60,90 day delinquent loans were based on historical analysis of consumer data. These are the numbers that are plugged into models, and depending on the granularity of the analysis different assumptions can be justified as inputs into the models. Each of these will effect the ultimate waterfall of cash flows.

Since I doubt that many individuals were buying CMO’s and CMO derivative products it is not surprising that many people do not understand the nature of these products. Financial Institutions on the other hand who have highly educated staff and are experts in these fields should not cry foul if they conducted their own analysis before buying, if the analysis was conducted and they purchased the bonds then they felt that the risk/reward payoff was justified. If the firm bought and did no due diligence then it is there own fault they lost money. As investors everyone has likely lost some money in an individual security, this does not mean that we get to sue to get our money back or that management committed some fraud to get us to buy, we had a view on the equity that turned out to be incorrect. We take the loss and move on.

@Magnetar:  Mind if I condense your explanation?

“Those who creatively package junk for sale are entitled to snooker their investors because the only rule of the new, improved Wall Street is caveat emptor.”

With all of the incest between the SEC and Deutsche Bank how is it possible to get a real investigation? Who does the SEC answer to?

Magnatar wrote:
“I understand your concerns and your feeling of being taken advantage of in the marketplace, but that does not change the fact that assumptions are built into financial models…”

Not really the point!  Everyone with a brain knows that assumptions go into modelling.  Do you understand the difference between an honest assumption and a purposeful manipulation of those assumptions?  Assumptions are very dangerous and should be viewed warily, in the first place.  But if those tasked with detailing ‘assumptions” in a model are rewarded by a particular outcome, these models are even more suspect.  When I go to buy a car,  do I rely on everything the car salesman tells me as fact?  I would be a fool to do so.  And yet, the ratings agencies relied on the banks own analysts to provide the “modelling” for the CDOs.  That demonstrates either pre-school levels of naivete, or fraudulent collusion.


The only reason you know its junk now is because you have perfect clarity with hindsight. Why don’t you tell us what going to happen to Sovereign Debt in Europe and the Euro over the next five years? You can’t do it, and that is my point. You have an educated opinion and so does everyone else , you will invest on your feelings to the future irregardless of others. The market has always been caveat emptor. Asset bubbles have always existed and they will continue to exist, placing blame only on sellers is unfair because bubbles aren’t created in a vacuum, someone needs to believe that they can get a higher price or no market exists.


Would this have happened without deregulation and the creation of “investment banks”?  Given deregulation, is there anything to prevent it from happening again?


I believe it was more a function of market demand for freeing up capital on a banks balance sheet. Deregulation may have had a small part to do with it but it appears the low interest environment created in the US to spur investment had more to do with demand being created for higher yielding investments. Also the more risky deals for banks required more capital reserves under Basel 2 accords, much of the growth in this market was due to the original BISTRO deal at JP Morgan, which was a way of packaging riskier loans into CDO’s selling of risky tranches to investors and keeping the new high rated bonds which required a much lower reserve ratio.

So to answer your question I think that the market would have gone there without deregulation but would the market have been as large? I think not. These problems may have not been present in the first place if investment banks remained partnerships, where it was partners money that was being risked. Public ownership tends to lead itself to excess since the brunt of the risk is shouldered by the equity holders and not the management.

Important question which arises from this story is that - What does Ajit Jain know for which he is still being employed by Deutsche Bank while others have been fired. I guess he has one more year left of his employment given statute of limitation runs out in five years.

Why powerful people within SEC is protecting Deutsche Bank while M&T Bank seems to have won a good compensation from Deutsche Bank for being duped. Still, M&T suffered significant loss on a investment of $82mn + legal fees to be only made whole $55mn.

Can you publish the results of internal investigation? Also, role of powerful people in SEC to help Deutsche Bank? This is not the first time SEC is working for Deutsche Bank, it did so during the acquisition of Banker’s Trust also.

I feel Ajit is a blockhead and doesn’t keep himself updated about the regulations. He should have been a whistle blower which protects people trying to do right, standing for truth and even wouldn’t have to loose his job in a year’s time…

Ajit keep up your good work of speaking your mind and exposing the crooks.

@Magnetar: you make a valid point about insufficient data and incomplete information that goes into the models. The trouble is that banks never, NEVER disclose the assumptions to the investors and even the savviest of investors can be easily fooled by the ratings assigned to these securities. The way I see it, corporate greed is not going anywhere and in SEC, these banks have a perfect partner who will just slap the wrist at worst.
I don’t know what Ajit’s situation is but it does seem to me to be a very brave act to stand up to ones superiors and question their “advice” esp. in a banking environment. Kudos to Ajit.  You make us IIT’ians proud and as a fellow IIT-D alum, I can vouch for your intelligence. “John Doe”- I am sure that your intelligence is truly as commonplace as your name is so thanks for bringing in humor to this forum.

What I’m about to say is hearsay to me, and even less to everybody else.  However, in the years before this occurred, I worked at a company that had a big software contract with DB.  At meetings, we heard stories like this all the time, analyst after analyst being pushed into unethical situations.

I left that company (since gobbled up by a major software company I like even less) when it started to look like the behavior was rubbing off on our CTO.  And thank goodness I did, since they’ve now been dragged into court for an assortment of very bad anti-competitive and contract-violating reasons.

It’s nothing like evidence, but I do want to point out that Ajit’s story absolutely has the ring of truth to it and I have trouble imagining that anybody there didn’t know exactly what was happening.

@John-I want to take the time to thank you for your honesty and insight. It is unfortunate that many do not share the same principles as yourself.


Jan. 24, 2012, 8:38 a.m.

Very well written article. I found especially the fact intriguing that Deutsche has its “alumni” sitting in very interesting/strategic positions.

While I’m aware that positions at the SEC or the treasury demand industry experience, but the influence of Goldman, Deutsche & Co on these crucial institutions appears to create over and over again a conflict of interest that is benefiting no one but Wall Street.


I didn’t mean to make any of this about me, Roy (but thanks, nonetheless).  I just wanted to give enough background that someone could investigate what I was talking about if they really wanted to, and to be clear that I didn’t have a stake in the issue.

Specifically, anybody working with DB at the time probably has the same stories, and I believe that’s a widespread sentiment out here, so it’s impossible that this was an isolated incident.

It’s also probably a good avenue of investigation.  If a small-potatoes software company was privy to the gossip, companies with closer relationships probably have evidence.

The character slander is making me laugh.  But it is counterproductive, for what it suggests to me is that Ajit is not the only person who is aware of some serious wrongdoings - and whoever else is has far, far more at stake in making any investigation go away.

I had tried to raise many alarms - it shoved up by desk as well as my former boss who got me fired. I was given an option to join Greg’s desk to SHUT-up.

Lamont and crew was cooking up spreadsheet. They had multiple set of spreadsheets cooked up for telling different story to different type of investors - gullible ones and hedgies like Magnetar by Bob, Casey and crew.

I knew everybody was cooking - it baffles why did this guy scream only. Please keep on screaming - can I get you a Megaphone?

its easy to change financial numbers in the computer age….

Stop ACTA.  Anti Counterfeiting treaty agreement

This article is part of an ongoing investigation:
The Wall Street Money Machine

The Wall Street Money Machine

Enticed by profits and bonuses, Wall Street took advantage of complicated mortgage-based instruments to reap billions, only to exacerbate the eventual crash.

The Story So Far

As the housing market started to fade, bankers and hedge funds scrambled for ways to maintain the lavish bonuses and profits they had become so accustomed to, repackaging mortgages in complex securities called collateralized debt obligations. The booming CDO market masked how weak the housing market was, and exacerbated its collapse.

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