"End of Wall Street Boom" - Must-read history

[2012 Countdown]

The next step for Europe
Tuesday, 26 June 2012

In the political farce set in the present, everything can be summarized in two future scenarios.
The EU fiscal union, whose representation is provided by the so-called Eurobonds.

Basic economics says that a monetary union like the EU, has to be supported on the basis of a fiscal union, management and treasury. The EU is the son of an embryo as it was before EMU, was born in a wrong way or at least flawed by default.
The fiscal union was much more difficult to achieve, hence, not included in the initial treaty of EMU. And until now.

Having reached the inevitable point where we are, with some structural differences between countries sharing the currency and that has led to the current unsustainable situation on the horizon just will see two options.

Or a total integration, with Eurobonds that means transfer of fiscal sovereignty would include transfer of political sovereignty from PIGS to Germany...
Or back off at the monetary union, with the exit of euro of countries who don't want yield the sovereign monetary

Political events to date, including economic events that are not such, have been artificially created to reach the decision point with all the cards on the table.
Continue in the EU represents for the PIGS cede sovereignty. This battle is happening at present, while the ECB and IMF prepare the new vehicle to capitalize monetary losses of countries and banking systems.

When will be released the Eurobonds? When countries agree to cede their sovereignty to the core euro countries. Until then the theater Greece continue day in and day out, as in the past two years. The door to the output of the euro, is permanently open, yet no one has taken it yet, although in this little theater some have threatened to do so and others have invited others to take it.

The truth is that this dance seems to have its end.

This political farce actually has nothing to do with the economy, although in this whole farce the word most often repeated is economics, but that is another matter.

It is entertaining. Full many minutes on television, many pages of newspaper and consume many days.
-
http://leadenhallst.blogspot.co.uk/2012 ... urope.html

[2012 Countdown]

Investment Banking June 28, 2012, 2:30 am
JPMorgan Trading Loss May Reach $9 Billion
By JESSICA SILVER-GREENBERG and SUSANNE CRAIG

Losses on JPMorgan Chase’s bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation.

When Jamie Dimon, the bank’s chief executive, announced in May that the bank had lost $2 billion in a bet on credit derivatives, he estimated that losses could double within the next few quarters. But the red ink has been mounting in recent weeks, as the bank has been unwinding its positions, according to interviews with current and former traders and executives at the bank who asked not to be named because of investigations into the bank.

The bank’s exit from its money-losing trade is happening faster than many expected. JPMorgan previously said it hoped to clear its position by early next year; now it is already out of more than half of the trade and may be completely free this year.

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http://dealbook.nytimes.com/2012/06/28/ ... illion/?hp

[Aldebaran]

Big Banks Have Criminally Conspired Since 2005 to Rig $800 Trillion Dollar Market
Submitted by George Washington on 07/01/2012 21:40 -0400

We noted Friday:

Barclays and other large banks – including Citigroup, HSBC, J.P. Morgan Chase, Lloyds, Bank of America, UBS, Royal Bank of Scotland– manipulated the world’s primary interest rate (Libor) which virtually every adjustable-rate investment globally is pegged to.
***
That means they manipulated a good chunk of the world economy.

We actually understated the impact of the Libor scandal.

Specifically, more than $800 trillion dollars worth of investments are pegged to the Libor rate. As the Wall Street Journal reports today:

More than $800 trillion in securities and loans are linked to the Libor, including $350 trillion in swaps and $10 trillion in loans.

(Click here if you don’t have a subscription to the Journal).

Remember, the derivatives market is approximately $1,200 trillion dollars. Interest rate derivatives comprise the lion’s share of all derivatives, and could blow up and take down the entire financial system.

The largest interest rate derivatives sellers include Barclays, Deutsche Bank, Goldman and JP Morgan … many of which are being exposed for manipulating Libor.

They have been manipulating Libor on a daily basis since 2005.

They are still part of the group of banks which sets Libor every day, and none have been criminally prosecuted.

They have received a light slap on the wrist from regulators, which – as nobel economist Joe Stiglitz points out – is just the cost of doing business when fraud is the business model.

Indeed – as Bloomberg notes – they’re probably still manipulating the rate:

The U.K. bankers and regulators charged with reviewing Libor in the wake of regulatory probes are resisting calls to overhaul the rate because structural changes risk invalidating trillions of dollars of contracts.

The group, established by the British Bankers’ Association in March after probes into allegations that traders rigged the London interbank offered rate … won’t propose structural changes such as basing the rate on actual trades or taking away oversight of the benchmark from the BBA, the people said.

Libor is determined by a daily poll that asks banks to estimate how much it would cost them to borrow from each other for different timeframes and in different currencies. Because banks’ submissions aren’t based on real trades, academics and lawyers say they are open to manipulation by traders. At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate, the benchmark for $350 trillion of securities.

“I don’t see a significant enhancement to the reputation of Libor without basing it on actual transactions,” said Rosa Abrantes-Metz, an economist with Global Economics Group, a New York-based consultancy, an associate professor with New YorkUniversity’s Stern School of Business and the co-author of a 2008 paper entitled “Libor Manipulation?” [Shah Gilani also warned of Libor manipulation in 2008, and Tyler Durden, Max Keiser and others started sounding the alarm at or around the same time.]

“It would only be disruptive if current quotes are inaccurate,” so resistance “is suspicious,” she said.

***

Traders interviewed by Bloomberg in March at three firms said they were given no guidance on how Libor should be set and there were no so-called Chinese walls preventing contact between the treasury staff charged with submitting the rate and traders who stood to profit on where Libor was set each day. They regularly discussed where Libor would be set with their colleagues and their counterparts at other firms, they said.

“Sadly the response looks to be very consistent with the response of policy makers to the banking disasters we’ve seen over the last four years — cosmetic changes, but nothing substantial happens,” said Richard Werner, a finance professor at the University of Southampton. “It’s insufficient and doesn’t really go to the heart of the problem.”

[freemason9]

tell me again when the wall street boom ends

[JackRiddler]

tell me again when the wall street boom ends

Yeah, you already pointed this out. It's the title of an article with which this thread started.

The banksters are still pillaging, obviously, but only thanks to socialism for the bankers. You could always understand the phrase to mean that the general economic boom driven by Wall Street machinations, such as it was, ended in 2007-8 and hasn't come back.

[JackRiddler]

http://www.counterpunch.org/2012/07/05/ ... trap/print

July 05, 2012

Are We Stuck Pushing on Strings?
The Great Liquidity Trap

by ROBERT POLLIN


Since the onset of the Great Recession in 2008, commercial banks in the United States began accumulating huge cash reserves in their accounts at the Federal Reserve. Thus, in 2007, just before the onset of the Wall Street crash and ensuing recession, commercial bank reserves at the Fed totaled $20.8 billion.

By the end of 2008, that figure had ballooned to $860 billion. By the middle of 2011, it had reached $1.6 trillion, where it remains. This is more than 10 percent of U.S. GDP, an order of magnitude for commercial bank cash holdings that is without precedent since the Federal Reserve began reporting such statistics systematically.

The banks obtained most of these funds through borrowing within the federal funds market—the market for short-term interbank loans—nearly for free, since the Federal Reserve pushed their policy target rate, the federal funds rate, close to zero in December 2008. The Fed has held the federal funds rate at close to zero since then, and Fed Chair Ben Bernanke has announced that the Fed plans to keep the federal funds rate at near-zero at least through 2014.

Over this same period that the banks built up these massive cash reserves, credit stopped flowing into the non-corporate business sector in the U.S. For these smaller businesses, total borrowing fell from $546 billion in 2007 to negative $346 billion in 2009—a nearly $900 billion reversal. The non-corporate business sector overall continued to obtain zero net credit over both 2010 and 2011. This pattern is especially damaging coming out of the severe employment crisis created by the recession, since, on average, smaller businesses are relatively labor intensive, and thus typically serve as a major engine of job creation during economic recoveries.

These conditions in credit markets over the Great Recession and subsequently are hardly unique relative to previous recessions, in the U.S. and elsewhere, and the 1930s Depression itself. Indeed, this contemporary experience represents just the most recent variation on the classic problems in recessions in reaching a “liquidity trap” and trying to “push on a string.” This is when banks would rather sit on cash hoards than risk making bad loans, and businesses are not willing to accept the risk of new investments, no matter how cheaply they can obtain credit.

They need to sit on cash hoards to make credible the myth that they could ever cover a fraction of their exposure if things go south, derivatives are activated and loans are called in. They're actually living dead sustained by government-guided collective illusion (changes to accounting rules, tolerance for ficition as well as fraud) as much as by this largesse; thus the "zombie" label. It's all about herd mentality. The only rationality in it is not in an overall understanding of the system, but in the attempts by herd members to analyze how the herd will move next. If there was overall rationality the Libor revelations would have caused all of them to bolt. Something is going to set that off, possibly something minor at first, historically sooner rather than later.

Under such circumstances, conventional central bank open-market operations—i.e. lowering the target short-term policy—is greatly weakened as a tool for pushing an economy out of a recession and toward a healthy recovery.

The liquidity trap that has prevailed since the 2008-09 recession has served as a major headwind, counteracting the effects of what, on paper, has been a strongly expansionary macro policy stance by the U.S. government in the face of the Wall Street crash and recession. The expansionary policy measures included the nearly $800 billion, 2-year Obama stimulus program, the American Recovery and Reinvestment Act (ARRA).

The ARRA was financed by an increase in the federal government’s fiscal deficit that was unprecedented over the post World War II period. The fiscal deficit reached $1.4 trillion, or 10.1 percent of U.S. GDP in 2009 and $1.3 trillion, or 9.0 percent of GDP, in 2010.

In terms of Federal Reserve Policy, in addition to the near-zero interest rate monetary policy, Chair Bernanke dramatically expanded the Fed’s lending facilities during the recession to include mortgage brokers, money market funds, and insurance companies. The Fed also purchased commercial paper directly immediately after the recession.

Finally, the Fed engaged in two rounds of quantitative easing, beginning in November 2008 and November 2010 respectively, which involved the Fed purchasing long-term Treasury bonds in an effort to directly bring down long-term lending rates. Despite all of these measures, the recovery out of recession has been weak and fitful. The threat of a double-dip recession is ongoing.

Under this combination of circumstances, the Fed’s near-zero interest rate has indeed amounted to pushing on a string. But that does not mean that there are no policy tools available through which the central bank can gain leverage within the current-day liquidity trap—i.e. to develop the capacity to pull on the string.

Among the range of policy proposals that have been made in the contemporary literature, I have argued that the two most widely discussed—i.e. raising the inflation rate and depreciating the dollar—are not likely to provide policymakers with significant new leverage within the liquidity trap.

However, three other proposals are more likely to be achieving significant new policy leverage. First, the Fed could undertake open market operations on private assets, with the aim of directly bringing down long-term rates for business borrowers. The failure of quantitative easing interventions was not that they were targeted at long-term rates in general, but that they were directly influencing long-term Treasury rates only. This intervention meant that the interest rate spread between long-term Treasuries and private bonds grew, since the quantitative easing policies did nothing to reduce the risk premium embedded in long-term private rates.

But even more promising, the Fed could impose maximum reserve requirements, which would be the equivalent of an excess reserve tax. Along with this stick of a policy, the federal government should then provide a carrot of substantially expanding the federal loan guarantees for smaller businesses. Through this combination of measures, the government would be aiming policy interventions with precision at two central problems associated with the liquidity trap. That is, banks would become forced to pay a price for hoarding excess cash reserves, while both the banks and non-financial businesses would see the high risks of borrowing/lending fall sharply. Moreover, these policies can be implemented on a large scale with only modest impact on the federal budget.

To estimate the costs to taxpayers of a loan guarantee program for smaller businesses, let’s assume that $300 billion in new small business loans are guaranteed. This would then be in addition to the current total of about $800 billion in various sorts of federally guaranteed loans. Let’s assume this $300 billion in new loan guarantees carry a 90 percent guarantee. Then assume that the default rate on these loans is of 3.5 percent , twice the rate in 2007. Under these circumstances, the net government liability is $9.5 billion (i.e. $300 billion x 0.9 x 0.35). This is, of course, a whole lot of money, but it is also only ¼ of one percent of federal government spending. One could also adjust the calculations based on an increase in either the default rate or the extent of the guarantee. But overarching fact is that the overall impact of such a measure on the federal budget would be modest within any reasonable range in terms of the level of the guarantee and the default rate.

Such policies for escaping the liquidity trap will have to be combined with a new round of fiscal stimulus policies to directly bolster aggregate demand. The dismal performance of the U.S. economy since the fiscal crisis began in 2008 has made clear that only through combining an expansionary fiscal stance with equally expansionary credit market policies—i.e. policies capable of pulling on a string—will the U.S. economy have a fighting chance of achieving a strong and sustainable recovery out of the Great Recession.

This article is adapted from Robert Pollin’s paper The Great Liquidity Trap: Are We Stuck Pushing on Strings? Working paper with the Political Economy Research Institute , forthcoming in Review of Keynesian Economics.


Robert Pollin’s latest book is Back to Full Employment (MIT Press).

[JackRiddler]

I'd like to relabel those, "False Dichotomy" and "Too Much Complexity."

Anyway, it's probably how it's going to go, because of momentum and human nature to double down on simple answers and all.

[JackRiddler]

http://www.propublica.org/article/beyon ... stigations


Beyond Barclays: Laying out the Libor Investigations

by Cora Currier
ProPublica, July 6, 2012, 1:45 p.m.


Last week, the British bank Barclays was slapped with $450 million in fines and penalties for manipulating information used to set a critical interest rate.

Settlements filed by government regulators in the U.S. and the U.K. show this manipulation happened in two ways: first, Barclays’ traders attempted to steer rates up or down in order to benefit trades they had made to profit off of those rates. Separately, the filings show that during the financial crisis, Barclays tried to counter reports that it had financial troubles by changing the interest rate it reported.

If you’re just catching up to this, here’s some background on the scandal, and how we’ll likely see government action on other banks besides Barclays.

What are these interest rates? How could one bank manipulate them?

The Libor, or London Inter Bank Offered Rate, is a short-term interest rate [1] that’s meant to reflect the cost of borrowing between banks. A panel of banks submits estimates daily to a trade group [2], the British Bankers’ Association. Thomson Reuters compiles an average rate for them, discarding any very high or low submissions. That rate is used to set rates for an estimated $360 trillion [3] worth of financial products, all the way down to consumer loans and mortgages. (An analogous process sets the Euribor, for Eurozone banks. For help cutting through all the jargon, see this helpful explainer [4] from American Public Media.)

And why did Barclays traders want to mess with them?

Emails [5] quoted by government regulators show Barclays traders asking employees in charge of submitting estimates for Libor and Euribor to go low or high on a given day (sample: “No probs…low it is today” and “Come over one day after work and I’m opening a bottle of Bollinger! Thanks for the libor.”) Some of the attempts [6] involved former Barclays traders at other banks.

The traders wanted to influence the rates in order to profit on positions they had taken in particular trades and to benefit Barclays’ derivatives portfolio as a whole. Emails and other records show that this occurred frequently from 2005 to 2007 and occasionally until 2009. It’s not clear when, and by how much, the traders’ requests actually affected the rates, though the U.S. Justice Department says they sometimes did [7].

Robert Diamond, Barclays’ CEO, has called these actions “reprehensible [8]” and the bank maintained in a statement [9] prepared for a British parliamentary committee that no one “above desk supervisor level” knew about it at the time. The government’s complaints fault Barclays for not setting controls on how the Libor was submitted.

Barclays’ other Libor problem

Much attention’s been paid to the scheming traders and their emoticon-filled emails [10] but regulators’ complaints also focus on another aspect of Libor manipulation: How Barclays tried to shore up market confidence in the bank’s stability during the financial crisis.

As the filings detail [11], in 2007, Barclays started submitting higher estimates for the Libor, saying they reflected rocky market conditions. But relative to other banks, which were still submitting low rates, Barclays looked risky. The bank maintains it was hamstrung because other banks were going artificially low. “A number of banks were posting rates that were significantly below ours that we didn’t think were correct,” Diamond told a committee of British lawmakers [12] Wednesday.

According to regulators, Barclays management issued a directive [13] that Barclays should not be an “outlier,” and that submitters should lower their estimates to bring Barclays “within the pack.”

In October 2008, with the financial crisis at full bore, Barclays was again on the higher end of rate submissions. That month, according to filings, a senior Barclays manager spoke with a Bank of England official [14] about Libor rates, and the idea that they might be artificially low. Hearing of this conversation, other Barclays managers “formed the understanding” that the Bank of England wanted Barclays to lower its submissions.

This week, Barclays released an email [15] confirming the conversation was between Diamond and Bank of England’s deputy governor Paul Tucker. It was another Barclays manager, Jerry del Missier, who determined what he thought Tucker’s comments meant, Barclays says [16].

On Wednesday, Diamond maintained he did not know [17] about the artificial rate-lowering until the settlement documents were released last month.

The Barclays fallout so far

Barclays settled for approximately $450 million, of which $160 million goes to the U.S. Justice Department [18], $200 million to the Commodity Futures Trading Commission [19], and the rest to the U.K.’s Financial Services Authority. Barclays’ chairman resigned Monday, shortly followed [20] by Diamond and del Missier. As part of the agreement with the Justice Department, Barclays admitted to a set of facts, which may help private lawsuits over Libor manipulation, as this New York Times legal explainer [21] lays out. (Here’s the Justice Department’s “statement of facts [22],” as well as orders of settlement from the CFTC [23] and the FSA [24]).

The Serious Fraud Office in Britain is considering [25] a criminal investigation and the Justice Department could also potentially bring charges against individuals [21] at the bank.

A problem bigger than Barclays

The Barclays penalty is the first to result from a multi-agency investigation into Libor meddling at more than a dozen banks that reaches back [26] to 2007.

The investigation’s next steps hinge on a few questions: Which other banks were traders at Barclays communicating with when they attempted to steer rates? Was similar behavior happening at other banks? And were other banks artificially suppressing rates during the financial crisis?

In his testimony, Diamond stuck by the line that everybody was doing it. And indeed, the revelation that banks might have tried to keep their rates artificially low during the crisis isn’t altogether new—in 2008, the Wall Street Journal reported [27] that banks were submitting much lower rate estimates than other market measures would have suggested. In 2008, the British Bankers’ Association said it had received suggestions that banks were exhibiting “herd [28]” behavior in setting low rates.

The Washington Post notes [29] that a manipulated Libor doesn’t just have repercussions for investors and borrowers, but also for regulatory efforts; by keeping rates low during the financial crisis, the banks were trying to quell concerns about the health of the banking system and “stave off calls for additional regulation.”

So who else is being investigated?

Revelations about other banks have been trickling out over the past year:

· UBS previously made agreements to cooperate with several [21] international [30] investigations [31] in exchange for leniency on potential criminal charges.

· Citigroup was also a target of investigation. Earlier this year, it emerged [32] that a few traders at Citigroup and UBS tried to manipulate Libor rates for the Yen.

· The Times of London reported [33] that Royal Bank of Scotland could soon be hit with a fine of up to $150 million for related charges.

· Bank of America also reportedly received [34] a subpoena last year from regulators as part of the investigation. JPMorgan Chase, Credit Suisse, HSBC and others were also [35] on the Libor-setting panel during the period being investigated.

· Last fall, European regulators seized documents [36] from Deutsche Bank and others regarding manipulation of the Euribor.

Private lawsuits over Libor are already underway. Last summer, Charles Schwab filed a suit [37] alleging anti-trust violations against many Libor-setting banks and at least one class action [38] has been filed alleging that Libor manipulation meant banks paid “unduly low interest rates to investors.”

[2012 Countdown]

Mainstream Economist: We Might Need to Hang Some Bankers to Stop Criminal Looting
Posted on July 8, 2012 by WashingtonsBlog

Even Nouriel Roubini Says We Need to Jail or Hang Some Bankers
Nobel prize winning economist Joe Stiglitz – and many other experts – have said nothing will change unless dishonest bankers are jailed.

Former trader Max Keiser has been calling for years for crooked bankers to be hanged, to send a message that crime won’t be tolerated.
But Nouriel Roubini is a lot more mainstream than Keiser – or even Stiglitz – being very close to Treasury Secretary Tim Geithner. See this and this.

Roubini told Bloomberg that nothing has changed since the start of the financial crisis, and we might need to throw bankers in jail – or hang them in the streets – before they’ll change:

Nobody has gone to jail since the financial crisis. The banks, they do things that are illegal and at best they slap on them a fine. If some people end up in jail, maybe that will teach a lesson to somebody. Or somebody hanging in the streets.
-
I noted 7 years ago:
I am NOT calling for the overthrow of the government. In fact, I am calling for the reinstatement of our government. I am calling for an end to lawless dictatorship and a return to the rule of law. Rather than trying to subvert the constitution, I am calling for its enforcement.
***
The best way to avoid all types of revolution would be for the government to start following the rule of law. I passionately hope it will do so.

The fact that even mainstream economists like Roubini are talking about hanging bankers shows that this is the last chance for the justice system – the only thing which stands between criminals on Wall Street and pitchforks – to work.
-
http://www.washingtonsblog.com/2012/07/ ... avior.html

[JackRiddler]

Elite crime is in my opinion the type of crime for which the criminological theory of deterrence would best apply, if the authorities ever bothered.

Proper deterrence would require widespread prosecutions, I believe. Sentencing is a secondary consideration. A year and a half in prison with personal asset seizures is sufficient, assuming that it hits a few thousand of the fuckers. These are very stiff, bourgeois-minded executive pricks. If they are humiliated in front of their peers and then cut down to mere wage-earners, like the rest of us, they will feel like they're ruined.

Dramatic sentences for just a few is a scapegoating exercise. This would not impress the class as a whole. In fact, this exercise has been done in the past (not so long ago in the Enron/Worldcom days) and seems merely to make most of the class smug: The bad apples are gone, now let's get back to business. To make all of them take the law seriously, you would need to reach into a substantial fraction of the upper class. It goes without saying that this has to hit executives at the dominant institutions, not the odd unlucky patsy from the periphery who is occasionally paraded as an example of law enforcement at work.

Oh, okay, if prosecutions are genuine and widespread, a few cathartic public hangings of the likes of Dimon, Blankfein, Mozillo and Fuld would help create an enduring historical narrative, which is important in preventing future occurrences and in encouraging the sense of a new age a-dawning. Are you satisfied, you blood-thirsty bastards?

But it's one law for us and a different law - no law - for them.

Too bad Goldman has plundered hundreds of billions and destroyed trillions in wealth, and probably caused millions literally to starve. If only they'd stashed a half-million dollars worth of cocaine or marijuana in Lloyd Blankfein's office! DEA-ATF-FBI-NYPD could have sent a thousand heavily-armed coppers and agents to raid the place. As in other drug seizures, they would have sealed the perimeter, then roughed up and hog-tied every single human being coincidentally present within a 200-foot radius of Goldman Sachs headquarters. Thrown everyone around like rotten sides of beef, regardless of individual suspicion. Also, shoot their pets, the cruelest aspect. Let a judge sort them out! Let the innocent beg for plea bargains and testimony deals! Fuck'em, shouldn't have been hanging around a drug dealer! The building would have been sealed after the interiors were smashed up with jackbooted relish. They would have sent it to auction in advance of anyone's trial.

Now if that sounds bloodthirsty, recall I'm not exaggerating the details of real-life drug raids on public housing projects and farms suspected of growing marijuana, sometimes mistakenly. Just imagining the same procedure applied to deserving targets.

.

[seemslikeadream]

New York Times, Gretchen Morgenson Applaud British, Issue Challenge To American Regulators Over LIBOR Scandal
POSTED: July 9, 11:17 AM ET

The New York Times and its outstanding financial reporter, Gretchen Morgenson, have published an important article about the LIBOR banking crisis, challenging American regulators to take this mess as seriously as the British appear to be.

We found out just over a week ago that Barclays CEO Bob Diamond, as well as several other senior Barclays officials, were pushed out of their jobs after Bank of England chief Mervyn King trained a mysterious Vaderesque power on them, impelling them to leave with an "inflection of the eyebrows."

Morgenson's piece from Saturday, "The British, at Least, Are Getting Tough," wonders aloud why American regulators – Ben Bernanke, cough, cough – don't take a similarly stern approach with our own corrupt bank officials. First, she summarizes what seems to be the mindset of American officials:

"Dirty clean" versus "clean clean" pretty much sums up Wall Street’s view of cheating. If everybody does it, nobody should be held accountable if caught. Alas, many United States regulators and prosecutors seem to have bought into this argument.

This viewpoint has been particularly in evidence since 2008. Time and again, American regulators have appeared to be paralyzed by corruption in cases when most or all of the banks have been caught raiding the same cookie jar. From fraudulent sales of mortgage-backed securities, to Enronesque accounting, to Jefferson-County-style predatory swap deals, to municipal bond bid-rigging, the strategy of American regulators has been to accept "Well, everybody was doing it" as a mitigating factor when negotiating settlements, where that should have made them want to crack the whip even harder.

Why? Because "everybody is doing it" corruption is way more dangerous than corruption involving one or two rogue firms going off-reservation. Regulators who spot that kind of industry-wide problem, to say nothing of cartel-style anticompetitive corruption, should be in a panic: They should always impose serious, across-the-board punishments, and it goes without saying that senior executives responsible have to be removed.

This is exactly what has begun to happen in England, now that the British have gotten wind of this LIBOR scandal, which involves the worst and most serious form of corruption – huge companies acting in concert to fix prices/rates. As the Times explains:

Last week’s defenestrations of Marcus Agius, the Barclays chairman; Robert E. Diamond Jr., its hard-charging chief executive; and Jerry del Missier, its chief operating officer, apparently occurred at the behest of the Bank of England and the Financial Services Authority, the nation’s top securities regulator. (Mr. del Missier also seems to have lost his post as chairman of the Securities Industry and Financial Markets Association, the big Wall Street lobbying group. His name vanished last week from the list of board members on the group’s Web site.)

Morgenson notes that the Barclays CEO, Diamond, seemed shocked that there were actual consequences for his misbehavior:

MR. DIAMOND seemed shocked to be pushed out. An American by birth, he probably thought he’d be subject to American rules of engagement when confronted with evidence of wrongdoing at his bank. You know how it works on this side of the Atlantic: faced with a scandal, most chief executives jettison low-level employees, maybe give up a bonus or two — and then ride out the storm. Regulators, if they act, just extract fines from the shareholders.

The article goes on to point out the frightening fact that del Missier, the outgoing Barclays COO, was at the time the scandal broke the sitting head of SIFMA, the trade group representing securities dealers. We know from the emails Barclays released last week that del Missier was privy to the discussions about rigging LIBOR rates; he was one of the people Diamond was writing to when he penned a memo claiming that Paul Tucker, the Bank of England deputy chief, had urged the bank to fake its LIBOR rates.

At the very least, del Missier should have said something, should have opposed the idea. Instead, he went right on being a front for Wall Street's largest professional association:

With each new financial imbroglio, the gulf widens between Main Street’s opinion of Wall Street and the industry’s view of itself. When Mr. del Missier, the former Barclays chief operating officer, took over as chairman of the Securities Industry and Financial Markets Association last November, he said: “We will continue to work on maintaining and burnishing the level of confidence investors have in our markets, in our own financial institutions, and in the general economic outlook for the future.”

Given the Libor scandal, let’s just say good luck with that.

Hear hear.

When the rest of this scandal comes out, and it turns out that up to 15 more of the world's biggest banks (including Chase, Bank of America, and Citi) were doing the same thing as Barclays, our regulators better start "inflecting their eyebrows" pretty damn vigorously. Because if it comes out that these other banks were all involved with this scandal (and it will come out that way, almost for sure), and their CEOs and COOs get to keep their jobs, that'll be a sure sign that the fix is in. Let's hope Ben Bernanke, Eric Holder, and Tim Geithner are listening.

[Luther Blissett]

It's not "the worst and most serious form of corruption," Mr. Taibbi. I think we know better than that. It's price fixing, and we all know that has been going on for some time now.

[JackRiddler]

http://www.chicagotribune.com/business/ ... 4689.story

chicagotribune.com

Wells Fargo to pay $175M in subprime mortgage settlement
Illinois borrowers to get $15 million in Wells Fargo deal.

By Mary Ellen Podmolik
Tribune staff reporter

10:15 AM CDT, July 12, 2012


The Justice Department announced a fair-lending settlement with Wells Fargo & Co., Thursday morning that will compensate tens of thousands of the bank's African-American and Hispanic borrowers who were steered into high-cost, subprime mortgages.

A $175 million price tag is attached to one part of the national settlement, compensating more than 34,000 Wells’ customers nationally whose loans were originated by non-bank mortgage brokers.

Another undetermined sum, expected to be many more millions of dollars, will be used to compensate victims who received bad mortgages directly from Wells Fargo employees. The bank still has to review its records to identify those customers.

In Illinois, the known part of the settlement includes $8 million in cash payments that will be made to 3,300 customers. It will be divided into average cash payments of $15,000 each to borrowers who were wrongly steered into subprime loans by mortgage brokers between 2004 and 2009, and an average of $1,500 to $2,000 each to minority borrowers who were wrongly charged higher fees on their mortgages.

Wells Fargo also will spend another $7 million in Illinois to offer down payment assistance to homebuyers through a special program.

"When you look at what's taken place, it's horrendous," said Illinois Attorney General Lisa Madigan, who attended the announcement. "It's not an understatement at all to say that there's an entire generation of wealth in minority communities that's been taken away. The settlement won't roll back the clock but it is a significant step forward to hold banks accountable."

While other states also will receive monies, Illinois was the only state to file suit against Wells Fargo for its minority lending practices.

Madigan's case, filed July 31, 2009, charged that Wells Fargo allegedly discriminated against African-American and Latino borrowers by selling them high-cost, subprime mortgages while white borrowers with the same credit profile received lower cost mortgages. The state began investigating those practices after a Chicago Reporter analysis of Wells Fargo lending data found wide disparities in how white and non-white borrowers were treated.

In 2007, for instance, the study found that Wells Fargo put 34 percent of Chicago-area African-American borrowers who earned more than $120,000 into subprime loans while only 22 percent of white borrowers who earned less than $40,000 were put into that high-cost mortgage product.

According to the state's complaint, Wells Fargo's policies rewarded employees for selling borrowers high-cost mortgages.

In late October, a Cook County Circuit Court judge denied Wells Fargo's motion to dismiss Illinois' case and allowed it to move forward.

"Wells really fought this lawsuit to the nail," Madigan said. The October ruling "certainly put Wells in a position of contending with a lawsuit that wasn't going away. Now we're in the discovery phase and that changes a lot of things."

"Wells really fought this lawsuit to the nail," Madigan said. The October ruling "certainly put Wells in a position of contending with a lawsuit that wasn't going away. Now we're in the discovery phase and that changes a lot of things."

Nationally, about 4,000 borrowers were steered into subprime loans because of their race or national origin, and another 30,000 African-American and Hispanic borrowers who received their Wells Fargo mortgages from brokers were charged higher fees, according to the lawsuit and accompanying consent decree the Justice Department's filed Thursday morning in U.S. District Court in Washington, D.C.

"Wells Fargo adopted loan pricing and origination policies that allowed the personnel who originated its loans both to set the loan prices charged to borrowers and to place borrowers into loan products in ways unconnected with credit risk," the filing said. "Wells Fargo created financial incentives for its employees and mortgage brokers by sharing increased revenues with them."

The filing notes that Wells Fargo has been the largest originator of home mortgages since 2008 and, as the bank told the Justice Department, it now originates one out of every four residential mortgages in the nation.

Last July, the Federal Reserve fined Wells Fargo $85 million to settle allegations that employees of Wells Fargo Financial, a subsidiary, steered customers who were eligible for prime interest rate loans into higher, subprime home mortgages. It was the largest civil money penalty ever assessed by the Fed in a consumer-protection enforcement action and in agreeing to the order, Wells Fargo did not admit any wrongdoing.

The Justice Department's pact with Wells Fargo is the department's second-largest fair-housing settlement and follows a framework established in December's $335 million settlement of similar allegations made against Countrywide Financial Corp., a subsidiary of Bank of America.

Madigan in June 2010 filed suit against Countrywide Financial Corp. and two related subsidiaries, alleging that it violated the state's fair lending and human rights laws.

Since the subprime mortgage crisis, many lenders have stopped using outside mortgage brokers, which once were a lucrative part of their business, to originate their loans as they seek to improve loan quality. Most recently, in February, Citigroup said it would exit the wholesale mortgage lending channel.


mepodmolik@tribune.com | Twitter @mepodmolik

Copyright © 2012, Chicago Tribune

Hard to criticize a settlement that means some money for people impoverished by this scam, and that historically establishes the racist policies at the heart of the subprime crime, but... Same old story!

Wells Fargo: No admission of wrongdoing.

The settlement is a business expense. They're still ahead on it.

The responsible executives: get away cleanly, with enormous bonuses.

Lesson, as usual: Crime pays, if only you do it on a sufficiently large, bold and complicated scale. Keep doing it, you will get away with it. You are the kings of the world. The people are serfs.

Where's Judge Rakoff when you need him?

[hanshan]

...

this is an interesting analysis:

excerpt from:

Getting Away with It
Paul Krugman and Robin Wells

JULY 12, 2012

http://www.nybooks.com/articles/archives/2012/jul/12/getting-away-it/?page=1

Yet most of the evidence Edsall advances for this thesis involves pointing to the consequences of the economic crisis—which isn’t at all a crisis of scarcity, but rather a crisis of bad financial and macroeconomic policy. Why, exactly, must there be a “death struggle” over resources when the US economy could, according to Congressional Budget Office estimates, be producing an extra $900 billion worth of goods and services right now if it would only put unemployed workers and other unused resources back to work? Why must there be a bitter struggle over the budget when the US government, while admittedly running large deficits, remains able to borrow at the lowest interest rates in history?

The truth is that the austerity Edsall emphasizes is more the result than the cause of our embittered politics. We have a depressed economy in large part because Republicans have blocked almost every Obama initiative designed to create jobs, even refusing to confirm Obama nominees to the board of the Federal Reserve. (MIT’s Peter Diamond, a Nobel laureate, was rejected as lacking sufficient qualifications.) We have a huge battle over deficits, not because deficits actually pose an immediate problem, but because conservatives have found deficit hysteria a useful way to attack social programs.

So where does the embittered politics come from? Edsall himself supplies much of the answer. Namely, what he portrays is a Republican Party that has been radicalized not by a struggle over resources—tax rates on the wealthy are lower than they have been in generations—but by fear of losing its political grip as the nation changes. The most striking part of The Age of Austerity, at least as we read it, was the chapter misleadingly titled “The Economics of Immigration.” The chapter doesn’t actually say much about the economics of immigration; what it does, instead, is document the extent to which immigrants and their children are, literally, changing the face of the American electorate.

As Edsall concedes, this changing face of the electorate has had the effect of radicalizing the GOP. “For whites with a conservative bent,” he writes—and isn’t that the very definition of the Republican base?—

the shift to a majority-minority nation [i.e., a nation in which minorities will make up the majority] will strengthen the already widely held view that programs benefiting the poor are transferring their taxpayer dollars to minority recipients, from first whites to blacks and now to “browns.”

And that’s the message of Rick Santelli’s rant, right there.

Now, the GOP could in principle have responded to these changes by trying to redefine itself away from being the party of white people. Instead, Edsall writes, the response has been to “gamble that the GOP can continue to win as a white party despite the growing strength of the minority vote.” And that means a strategy of radical, no-holds-barred confrontation over everything from immigration policy to taxes and, of course, economic stimulus, some part of which would be paid to minorities.

The immediate effect of this bitter confrontation has been to paralyze economic policy in the crisis. Obama might have had a window of opportunity in his first few months in office, but as Scheiber shows, that window was lost—and there has been little chance of effective action since. So the slump drags on. But as Thomas Mann and Norman Ornstein say in the title of their new book, It’s Even Worse Than It Looks.* They argue that Congress—and indeed the whole American political system—is close to complete institutional collapse. We have entered a new politics of “hostage taking,” they tell us, epitomized by but by no means limited to the 2011 fight over the debt ceiling. And they strongly suggest that the ongoing fiasco of macroeconomic policy may be only the beginning.

It’s a remarkable if depressing book, especially impressive given its provenance. Mann and Ornstein are deeply respected congressional scholars, and their book would seem on the surface to epitomize the kind of bipartisan effort Washington insiders claim to love: Mann is at the liberal Brookings Institution, Ornstein at the conservative American Enterprise Institute. Yet they reject the temptation to shade their conclusions in the name of “balance.” What the country faces, they write, isn’t a problem with partisanship in the abstract; it’s a problem with one party:

However awkward it may be for the traditional press and nonpartisan analysts to acknowledge, one of the two major parties, the Republican Party, has become an insurgent outlier—ideologically extreme; contemptuous of the inherited social and economic policy regime; scornful of compromise; unpersuaded by conventional understanding of facts, evidence, and science; and dismissive of the legitimacy of its political opposition. When one party moves this far from the center of American politics, it is extremely difficult to enact policies responsive to the country’s most pressing challenges.

And where, in all this, is the hope that was so widespread back in 2008? It is, frankly, hard to find. President Obama bears some of the blame for that; he chose to listen to the wrong people, and arguably missed his best chance to turn the economy around. (Just to be clear, this isn’t a suggestion that Mitt Romney would do better. On the contrary, Romney is deeply committed to the false Republican narrative about what ails our economy, and all indications are that if he wins, he will make a bad situation much, much worse.) But ultimately the deep problem isn’t about personalities or individual leadership, it’s about the nation as a whole. Something has gone very wrong with America, not just its economy, but its ability to function as a democratic nation. And it’s hard to see when or how that wrongness will get fixed.

[seemslikeadream]

UPDATE 3-U.S. report says HSBC handled Iran, drug money

* Senator Levin says HSBC culture was "polluted"

By Carrick Mollenkamp

WASHINGTON, July 16 (Reuters) - A "pervasively polluted" culture at HSBC Holdings Plc allowed the bank to act as financier to clients seeking to route shadowy funds from the world's most dangerous and secretive corners, including Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria, according to a scathing U.S. Senate report issued on Monday.

While the big British bank's problems have been known for nearly a decade, the Senate probe detailed just how sweeping the problems have been, both at the bank and at the Office of the Comptroller of the Currency, a top U.S. bank regulator which the report said failed to properly monitor HSBC.

"The culture at HSBC was pervasively polluted for a long time," said Senator Carl Levin, chairman of the U.S. Senate Permanent Subcommittee on Investigations, a Congressional watchdog panel.

The report comes at a troubling time for a banking industry reeling from a multi-country probe into the manipulation of global benchmark rates. Last month, rival British bank Barclays Plc agreed to pay a $453 million fine to settle a U.S.-U.K. probe into the rigging of the benchmark interest rate known as the London interbank offered rate, or Libor.

The Senate probe provides a rare look at how HSBC responded when confronted with numerous cases of suspect money flows.

The report caps a year-long inquiry that included a review of 1.4 million documents and interviews with 75 HSBC officials and bank regulators. It will be the focus of a hearing on Tuesday at which HSBC and OCC officials are scheduled to testify.

The bank and the regulator are expected to face tough questions at the hearing about how the abuses were allowed to continue, even after the OCC took regulatory action against HSBC in 2010. A Reuters investigation found persistent and troubling lapses in the bank's anti-money laundering compliance since 2010.

In an emailed statement, HSBC said the Senate report had provided "important lessons for the whole industry in seeking to prevent illicit actors entering the global financial system."

The bank said it is spending more money on compliance and has become more coordinated in policing high-risk transactions.

The report also contained strong criticism of the OCC, saying the regulator failed to crack down on the bank despite multiple red flags, allowing money laundering issues "to accumulate into a massive problem."

Thomas Curry, who took over as comptroller less than four months ago, said in a statement on Monday that anti-money laundering compliance "is crucial to our nation's efforts to combat criminal activity and terrorism, and the OCC expects national banks and federal thrifts to have programs in place to effectively comply with these laws."

Curry said the Senate report had made a number of "thoughtful" recommendations, "which we fully embrace."

LAX CONTROLS

The failings and lax controls inside HSBC included an inability to properly monitor $15 billion in bulk cash transactions between mid-2006 and mid-2009, inadequate staffing and high turnover in the bank's compliance units, the report said.

HSBC ignored risks in doing business in countries such as Mexico, a country rife with drug trafficking, it said.

Between 2007 and 2008, HSBC's Mexican operations moved $7 billion into the bank's U.S. operations. According to the report, both Mexican and U.S. authorities warned HSBC that the amount of money only could have reached such a level if it was tied to illegal narcotics proceeds.

The focus of the Senate probe was HSBC's U.S. operations, which has its main office in New York. HSBC used the U.S. unit as a selling point to clients outside the United States, touting its ability to handle U.S. dollar transactions.

Among HSBC's problems, the report described the bank's compliance division as unable to battle the suspect money. High turnover of top compliance officials made it difficult for reform to take hold, the report said. Employees were "overwhelmed," by a mounting number of suspect transactions that needed review.

"We're strapped and getting behind in investigations," one bank official wrote in June 2008. By that time, HSBC was cutting costs to offset losses tied to subprime home loans and the brewing financial crisis. In 2010, one disgusted top compliance official threw up his hands and quit after less than a year on the job, according to the report.

Typical of the problems inside the bank were transactions tied to Mexico, a country the report said is "under siege from drug crime, violence and money laundering."

HSBC, according to the report, helped move money for a Mexican foreign-exchange dealer called Casa de Cambio Puebla that served as a hub for laundered proceeds, according to the report.

Between 2005 and 2007, there was a "growing flood" of U.S. dollars moving between the exchange house and HSBC, setting off red flags inside HSBC. Some bankers claimed the transfers were legal. One said the money came from Mexican landscapers working in the United States and routing money back home to their families.

HSBC ultimately closed the account in November 2007 after it received a seizure warrant from the Mexican attorney general seeking money tied to the exchange dealer, the Senate report said.

DEALINGS WITH IRAN

Some of the money that moved through HSBC was tied to Iran, the report said, which would violate U.S. prohibitions on transactions tied to it and other sanctioned countries.

To conceal the transactions, HSBC affiliates used a method called "stripping," where references to Iran are deleted from records. HSBC affiliates also characterized the transactions as transfers between banks without disclosing the tie to Iran in what the Senate report called a "cover payment."

HSBC "failed to take decisive action to confront these affiliates and put an end to the conduct," the report said.

Between 2001 and 2007, more than 28,000 transactions were identified by an outside auditor for HSBC that potentially could have run afoul of laws that prohibit transactions with sanctioned countries. Of those, 25,000 involved Iran. A smaller number required additional analysis to determine if violations of U.S. regulations had occurred, the report said.

At the heart of HSBC's failings was the fact that it served as a hub for smaller financial firms needing access to the global banking system, the report said.

In one example detailed in the Senate investigation, HSBC continued to do business with one client that admitted to U.S. law enforcement that it had failed to maintain an effective anti-money laundering system.

The client, Sigue Corp, was a money processor in California, the report said. In 2008, the company agreed to a so-called deferred prosecution with the U.S. Justice Department and other U.S. agencies where it admitted to allowing millions of dollars of suspect transactions between 2003 and 2005. Undercover U.S. officers, in a sting, even moved money through the company, explicitly telling Sigue agents they were moving illegal drug proceeds, the report said.

A day after the agreement was announced, David Bagley, the head of HSBC compliance, sent a handwritten note to another bank official, asking, "Obvious question--I assume they are not our customer." Bagley is scheduled to testify on Tuesday at the Senate hearing.

In fact, Sigue was an HSBC customer, and bank officials internally discussed whether to close the account. One compliance official recommended it should be shut down. In the end, the bank kept doing business with Sigue.

In 2009, the Justice Department said Sigue had satisfied the requirements of the agreement and a criminal case was dismissed.