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

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Postby tom the mad » Sun Feb 01, 2009 5:17 pm

Just curious.

"Every day we hear about governments "borrowing" billions in order to stimulate the economy. Do we ever hear who is lending us this money, and where it is coming from? You'd think that would be pertinent. "

Where/how is the US economy getting the"819 billion $" from.?

Any ideas?
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Postby JackRiddler » Sun Feb 01, 2009 6:08 pm

.

Well I'm curious too. So why don't you tell us? Which $819 billion, do you mean the stimulus plan?

And as you ask: "where/how is the US economy getting the'819 billion $' from.?" Let us know your answer.

.
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Postby madeupname452 » Sun Feb 01, 2009 6:34 pm

Here is the opinion of someone better informed than I
Phrases like "Financial Innovation" in reality describe increasingly sophisticated counterfeiting schemes. I believe that the creation of derivative bonds, as described above, is likely to be exposed as a massive global counterfeiting scheme by Wall Street's most venerated names. I also think that is why you've seen massive amounts of money lent to undisclosed groups by the Fed, in exchange for undisclosed collateral. The Fed has had to step in and essentially backstop the fraudulently created paper with the taxpayers' money, to keep China and Russia from going berserk at being cheated, and to keep the global banking system from completely melting down.

http://thesanitycheck.com/BobsSanityCheckBlog/...
The rest of this article quoted explains the counterfeiting scam in comprehensible terms.

There is much more of interest on this website.I also recommend Deepcapture.com as mentioned upthread.

heres a snip from the latest post
Madoff did not just orchestrate a $50 billion Ponzi scheme. He was also the principal architect of SEC rules that made it easier for “naked” short sellers to manufacture phantom stock and destroy public companies – a factor in the near total collapse of the American financial system.
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Postby justdrew » Sun Feb 01, 2009 6:39 pm

tom the mad wrote:Just curious.

"Every day we hear about governments "borrowing" billions in order to stimulate the economy. Do we ever hear who is lending us this money, and where it is coming from? You'd think that would be pertinent. "

Where/how is the US economy getting the"819 billion $" from.?

Any ideas?


well, as far as the cash flow goes, it's the people buying treasury bonds isn't it.

that's what galls me so much about anti-tax, the government still needs money to run, they don't REALLY want the government to not be able to spend, so they KNOW that too-low taxes mean more t-bills will have to be sold. They then buy some. Their goal of permitting the government to continue to exist is met. Unlike me, who's share of the duty to fund the government is met by enforced taxation, they get to be exempted and some of the money used to buy t-bills instead. Then the bond matures and they get the money returned to them, with interest.

This crises can be fixed, but it will mean enforcing strict and heavy corporate taxation. Business is just going to have to see their profit margins shrink. Easy way to do this... whatever the company reports to wall street as it's annual profit, 25% is paid to the feds, no deductions, no wiggle room. It would save a lot on accountants and tax lawyers.
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Postby Nordic » Sun Feb 01, 2009 7:10 pm

chiggerbit wrote:
:The meme was sold to the American taxpayer public, who kinda, sorta bought the line while feeling a bit blindsided by the collapse.


Actually, public sentiment was something like 80% against the bailout. As usual, Washington didn't consult the American people before doing what they did, they just did it.. Shoved it down our throats, told us that it was for our own good.

It may be the only time in my life when I've seen right and left actually united on something. I was visiting my right-wing father and his wife at the time, and while we almost never agree on anything (except, often, that things are royally fucked up), they were just incensed at the bailout, and so was I. Their friends were as well. NOBODY wanted this bailout except Washington and Wall Street.

But the media has managed to quash this, like they always do.
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Postby vigilant » Sun Feb 01, 2009 7:26 pm

Don't ask, don't tell.

"Don't ask us how we value foreclosure, what we pay for supposed assets, or what we are truly doing with all this money, because we ain't gonna tell ya."

A while back I wrote something that alluded to the fact that I just couldn't see enough foreclosure activity to tally up to the amount of bailout money needed. It seemed that there had to be some serious padding in there somewhere. This guy outlines it a little bit but not in great detail.

By implication the public is to believe that this bailout money is needed for bad housing loans, but in reality the housing loans are only a fraction of it. An enormous amount of the money needed for the fictional bailout was conjured from thin air. But whats new, conjuring money from thin air is the name of the game....





The End: Michael Lewis Revisits Wall Street Swindling
February 1st, 2009

This piece makes a great epilogue for my 2006 Wall Street Chop Shop essay. (comments cryptogon.com)

http://www.portfolio.com/news-markets/n ... 008/11/11/

The-End-of-Wall-Streets-Boom?print=true#
Now 36, Daniel grew up a lower-middle-class kid in Queens. One of his first jobs, as a junior accountant at Arthur Andersen, was to audit Salomon Brothers’ books. “It was shocking,” he says. “No one could explain to me what they were doing.” He left accounting in the middle of the internet boom to become a research analyst, looking at companies that made subprime loans. “I was the only guy I knew covering companies that were all going to go bust,” he says. “I saw how the sausage was made in the economy, and it was really freaky.”



By the spring of 2005, FrontPoint was fairly convinced that something was very screwed up not merely in a handful of companies but in the financial underpinnings of the entire U.S. mortgage market. In 2000, there had been $130 billion in subprime mortgage lending, with $55 billion of that repackaged as mortgage bonds. But in 2005, there was $625 billion in subprime mortgage loans, $507 billion of which found its way into mortgage bonds. Eisman couldn’t understand who was making all these loans or why. He had a from-the-ground-up understanding of both the U.S. housing market and Wall Street. But he’d spent his life in the stock market, and it was clear that the stock market was, in this story, largely irrelevant. “What most people don’t realize is that the fixed-income world dwarfs the equity world,” he says. “The equity world is like a fucking zit compared with the bond market.”



Later, when I sit down with Eisman, the very first thing he wants to explain is the importance of the mezzanine C.D.O. What you notice first about Eisman is his lips. He holds them pursed, waiting to speak. The second thing you notice is his short, light hair, cropped in a manner that suggests he cut it himself while thinking about something else. “You have to understand this,” he says. “This was the engine of doom.” Then he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB tranche—the bonds Eisman had shorted. But Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a “particularly egregious” C.D.O. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA. These bonds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities. “I cannot fucking believe this is allowed—I must have said that a thousand times in the past two years,” Eisman says.



Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?”

This particular dinner was hosted by Deutsche Bank, whose head trader, Greg Lippman, was the fellow who had introduced Eisman to the subprime bond market. Eisman went and found Lippman, pointed back to his own dinner companion, and said, “I want to short him.” Lippman thought he was joking; he wasn’t. “Greg, I want to short his paper,” Eisman repeated. “Sight unseen.”
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Postby Joe Hillshoist » Sun Feb 01, 2009 11:37 pm

tom the mad wrote:Just curious.

"Every day we hear about governments "borrowing" billions in order to stimulate the economy. Do we ever hear who is lending us this money, and where it is coming from? You'd think that would be pertinent. "

Where/how is the US economy getting the"819 billion $" from.?

Any ideas?


Evil jewish bankers?
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Postby JackRiddler » Sun Feb 01, 2009 11:58 pm

madeupname452 quoting bobo on Bob's Sanity Check wrote:
Phrases like "Financial Innovation" in reality describe increasingly sophisticated counterfeiting schemes. I believe that the creation of derivative bonds, as described above, is likely to be exposed as a massive global counterfeiting scheme by Wall Street's most venerated names.


Ah, good work finding this, thank you! Bobo describes the same fraud as in what we've been calling the "money paragraphy" in the article by Michael Lewis.

At the high point of the mortgage-backed securities scammery, bond issuers had very high demand for these suspect "AAA-rated" instruments: more than they could meet. So they invented copy bonds (1:1 tracking derivatives) of the "AAA" instruments and sold those. But since these are not the original bond, and do not earn money from mortgage interest payments, the question arises: where does the money come from to pay the periodic dividends? Well, the issuer of this copy bond finds other clients who are willing to bet that the original bond will default, and get them to buy credit-default swaps! With this money from bets that the copy bonds will fail, they can pay the dividends to the suckers who buy the copy bonds.

It's brilliant, it's fraudulent, in a sense it's even counterfeit. The only thing that bothers me is, it may well be legal. As I said somewhere far above: they were inventing new forms of crime not necessarily covered by existing laws.

Image

My Take On The Subprime Meltdown
Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 12/8/2008 7:12 AM
I guess you could say part of me isn't buying that the entire global banking system has collapsed due to the lousy payment penchant of under-qualified borrowers in the US. I have spent considerable time digging around trying to get a handle on what is actually going on, and below represents my best take on it.

By all appearances, what is actually going on is nothing more than the equivalent of naked short selling, but in the bond market. This fundamentally fraudulent behavior is completely consistent with what we have seen in the stock market. It involves the fraudulent misrepresentation of a derivative (read, counterfeit) as the genuine article. In the stock market, it is the representation of a securities entitlement for which no stock has been delivered as being equivalent to genuine registered stock. It isn't. It has none of the rights of stock. It is a sham transaction.

Now, consider how the system treats these sham transactions in the stock market when a dividend is to be paid. Genuine shares get the dividend from the company. All good. The fakes, that is to say, the securities entitlements that are fraudulently represented to account holders as genuine, don't get their dividend from the company, and thus aren't entitled to the special tax treatment of a dividend. No, they get their payment from those who sold the shares short and then refused to deliver that which they sold - the guys failing to deliver the stock.

So the account holder's broker fraudulently represents to the account holder that they have genuine stock in their account (by misrepresenting securities entitlements as the genuine article) and then perpetuates this sham by paying money taken from the short sellers, as though the company had paid the dividend. It's a fraud designed to trick the account holder into believing that its all good.

Hold onto this thought when I describe the CMO market now.

There was huge demand for subprime paper, rated AAA (highly rated due to the credit default swaps purchased to backstop the risk of loss). Huge demand, because the paper paid outsized returns. There was actually far more demand than there was supply. Sort of like the demand you would see for a stock in a company that is "hot." Sound familiar so far? Lots of demand, little supply of genuine article. Check.

Well, imagine with me that Wall Street dealt with that demand exactly as it deals with stocks for which there is mucho demand, or commodities that are on a tear. It counterfeits supply to meet any demand.

Follow along with me on how I believe it worked in the mortgage market.

Big Wall Street Bank XYZ has securitized $100 billion of subprime paper in 2005 via its in house desk. But it has buyers for $500 billion worth - the Chinese, the Russians, banks all over the world who want outsized returns from "AAA" rated paper.

Never ones to let a lack of the genuine article stop them, XYZ creates $400 billion more paper out of thin air, and then happily sells it to the banks and Russians and whatnot. How do they do it? Not so hard, at the end of the day. They create a derivative that performs and pays exactly as the genuine $100 billion would perform, tracking its performance. It is a synthetic, a derivative wholly lacking the collateral that the genuine $100 billion has - and there's only two niggling problems: How do you protect the bondholders when it all blows up, and how do you get cashflow with which to pay the "dividend" - the payment on the bonds to the suckers, er, I mean, the buyers?

Let's take the last one first. What you do is a variation of what you do with stock - you get short selling hedge funds to short the paper, and then you pass the fee they pay to short the paper (or some of the fee) to the bondholders, pretending that money came from the mortgages. Money is money, so nobody questions it. You, XYZ Bank, do the math for the hedge funds - it costs 20% or more to hold a short position on crappy subprime company Z, whereas they can short the AAA paper for only 10%. That's a no-brainer. Go for the 10%, and wait for the inevitable blowup. Bank XYZ distributes 8% to the bondholders, pockets 1%, and uses the other 1% to hedge the short position, by taking the other side of the bet by purchasing credit default swaps that will cover it's ass when the blowup occurs.

So now to the question of how to protect the bondholders? Simple. Same way as you hedge. You buy credit default swaps that protect them when the bonds go down in value, mimicking the performance of the genuine tranche of bonds. Again, the bogus $400 billion performs identically to the way the genuine $100 billion does - think of it as a tracking stock, only with no actual intrinsic value arising from real collateral.

That actually explains how a 5% default in certain subprime paper can cause a tidal wave of defaults in real dollars - far more than the actual genuine mortgages are worth. 5% gets multiplied across all the fraudulently created tranches, the bogus ones, causing an outsized reaction. And then allow the banks who are holding these counterfeits to leverage them as though they had gold bullion in the vault, and you get an additional massive compounding of the downside risk.

So at its essence, it's simple. Create a piece of paper you represent as being identical to the genuine article (and simply leave out the critical difference - that you just ginned up yours in the back room, as opposed to buying mortgages to collateralize the paper), create a mechanism wherein you can pay out dividends and mask the bogus nature of your piece of paper, and misrepresent the paper as having essentially the same collateral as the genuine article - I mean, a credit default swap from AIG is iron clad protection, right? Right? Who wants a lousy worthless mortgage as collateral when they have the guarantee of the biggest insurance company in the world? Right? I mean, it's almost like Wall Street was doing the bondholders a favor by counterfeiting all that paper to meet demand...

This introduces one of the reasons why, when it became apparent that AIG was a ponzi scheme and was insolvent (that's really what their credit default swaps business was - a ponzi scheme), that when they were downgraded and it became obvious that the credit default swaps were potentially worthless unless the government took over the ponzi scheme using taxpayer dollars, that it caused such an instant meltdown worldwide. The same CDOs had been used to get AAA ratings on toxic garbage, but they'd also been used to collateralize the fraudulently created paper. The fact that venerated names like Goldman and Morgan had such exposure to AIG's CDOs and thus such an interest in the taxpayers picking up the ponzi scheme's funding should give one insight as to what Wall Street firms were likely the biggest creators of this counterfeit garbage.

For some insight into my hypothesized mechanism, read Michael Lewis' recent article, in which he describes one hedge fund coming to grips with what was actually being done.

And then consider the statements from the former HUD official that there was a massive disconnect between the amount of mortgage bonds being sold, versus what was being generated via genuine mortgages. The question is how. I think I just described the how.

It would also explain why we periodically see articles, quickly hushed up, about how increasingly at foreclosure sales nobody can locate the title for the mortgage. Those articles inevitably chock it up to the complexity of the slicing and dicing going on in the securitization process, however there is a much easier explanation, as described above. Speaking of which, does anyone have some of those articles? I want to start collecting them. Post them below, or email them to me, if you would be so kind.

So that's how I believe it all worked. It explains a lot. It explains how the penchant of Wall Street to counterfeit crosses over from stocks, to bonds, to commodities, to anything it can touch. Phrases like "Financial Innovation" in reality describe increasingly sophisticated counterfeiting schemes. I believe that the creation of derivative bonds, as described above, is likely to be exposed as a massive global counterfeiting scheme by Wall Street's most venerated names. I also think that is why you've seen massive amounts of money lent to undisclosed groups by the Fed, in exchange for undisclosed collateral. The Fed has had to step in and essentially backstop the fraudulently created paper with the taxpayers' money, to keep China and Russia from going berserk at being cheated, and to keep the global banking system from completely melting down.

And now for a little lightness in these dark times. I've been inundated by demands from obese women with too many cats, to put into graphic form the complex series of issues and moral conundrums I discuss on these pages (or series of pixels - you get the drift). Thus, I've prepared a sort of primer to be used when explaining why Daddy has to go to work at McDee's on the night shift, and the family has to move into a tent (albeit a tent in the best God D#mned country in the world!!!). This exercise in communication via the magic that is MS Paint is intended to heal wounds, and bridge valleys. Brothers and sisters, black, brown and white alike, can feel united in the power of its simple, compelling message. Enjoy.


One of the commenters asks:

By Cutty on 12/12/2008 8:14 AM
What I do not understand: If bonds have been sold multiple times with the same collateral, shouldn't we see multiple claims to foreclosing the same loan on a single property? Then we would have one bond holder holding the genuine thing, and the others empty bags?

Do I miss something here?


No, I'm pretty sure the ones who missed something were the suckers who bought the copy bonds without reading the fine print that these bonds were not the original bonds, but only tracking the original bonds. So the copy bonds would pay the same dividend (thanks to cash flow from CDS's), but if the original bond failed, the copies would not be backed by the foreclosed real estate that serves as collateral to the original bond.

Man o man! What a scam. These people were inventive, give them that. Criminal genius, albeit (like sociopaths in general) with a fatal blindness to how wrong and stupid the overall scheme is, and also how many of them will, in fact, be caught.

Madoff did not just orchestrate a $50 billion Ponzi scheme. He was also the principal architect of SEC rules that made it easier for “naked” short sellers to manufacture phantom stock and destroy public companies – a factor in the near total collapse of the American financial system.


Yeah, this is the real Madoff story: He's the head of the fucking NASDAQ, man, he's in a partnership with all four of the big investment banks at once, he's writing the friggin' rules at SEC. He's not an aberration - he's the paradigm!

.
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Postby madeupname452 » Mon Feb 02, 2009 2:46 pm

http://thesanitycheck.com/FAQ/

• Wall Street has a colorful history of institutionally-condoned stock manipulation and fraud.

• Stock manipulation was not illegal until the introduction of the SEC in 1934.

• Joe Kennedy, the first SEC Chairman (and father of JFK) made his fortune running stock manipulation "pools" on Wall Street.
...

• The SEC was never intended to police Wall Street and ensure a level and fair playing field – Roosevelt created it to, "Restore investor confidence in the market" after the 1929 and 1932 crashes – not to ensure there was any good reason to have confidence.
...

• Broker/dealers have transitioned from owing their clients a fiduciary obligation of safekeeping, to a "customer" relationship, that is essentially adversarial – caveat emptor being the rule for customers.
...

• Stock lending is exclusively an activity used by short sellers, who must borrow stock before selling it.

• Short selling is a bet on stock price declines. The short seller borrows stock, and then sells that borrowed stock, hoping to buy it back at a lower price later, when he returns it to the lender.

• Illegal "naked short selling" involves placing a sales transaction, but not borrowing the stock, and simply failing to deliver it on delivery day. It is also called "failing to deliver" or FTD – or delivery failure.

• Delivery failure is a significant problem nowadays, as it can be used to run stock prices down in a manipulative manner. Delivery failure in any other industry is called fraud. Hedge funds are the biggest culprits in this illegal trading strategy, with broker/dealers right behind them in the culpability queue.
...

• The SEC keeps the total dollar value of trades that have failed to be delivered secret.
...
• Many investors that think they have "shares" in their brokerage accounts, don't. They have "markers" that have no underlying share to validate them. Some call these "counterfeit shares", with good reason. The technical term is "Securities Entitlement."
...

• There is nothing to stop your broker from taking your money, and merely representing to you that you bought shares, without ever actually buying them. You have no way of knowing the difference, barring demanding paper certificates for your property.

• Only a handful of people on the planet understand all this.

• In the end, it is simple – Wall Street is printing shares electronically, investors are paying real money for those bogus shares, and the whole thing is predicated on the idea that few will ever understand what is being done, or bother to check.

• This represents a hidden tax on investors and the economy.

• It is, for the most part, illegal.

• It is being kept secret by the DTCC and the SEC, who are terrified of systemic collapse, and a complete loss of investor confidence, should all the facts become known.

• All the facts are becoming known.

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Postby JackRiddler » Mon Feb 02, 2009 3:28 pm

Only a handful of people on the planet understand all this.


A lot of us are working on it!
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Postby vigilant » Mon Feb 02, 2009 3:40 pm

"Restore investor confidence in the market"


Ever noticed how much that word is used in conjunction with problems that the PTB is handling? Might mean more than ya think...in 'certain' contexts. What are they trying to instill in the markets? Confidence.

When the foreclosure scam was at its pinnacle and the pirate ships like Lehman were coming into port to unload the loot, what were they saying? "There is a crisis of confidence."

Intilling confidence could be defined as, "Calming down the herd, suckering them into believing this is the opposite of what it is, and prepping them for the next abuse."

A crisis in confidence could be defined as, "the herd is catching on to us, and as their confidence in us erodes so do our chances of escaping with the loot, perhaps we should take what we have and wrap this scam up now."

A crisis in confidence could be defined as, "this is getting out of hand, too many or some of the wrong people know, and they might not keep their confidences (secret) and get us in trouble."


Trust or faith in a person or thing.

That which is confided; a secret: A friend does not betray confidences.

A feeling of assurance that a confidant will keep a secret.

confidence - a state of confident hopefulness that events will be favorable; "public confidence in the economy. (sound familiar lately in the campaign?)

confidence - a secret that is confided or entrusted to another.

secret - something that should remain hidden from others (especially information that is not to be passed on); "the combination to the safe was a secret";

Of, relating to, or involving a swindle or fraud: a confidence scheme; a confidence trickster.


(wiki)

A confidence trick or confidence game (also known as a bunko, con, flim flam, gaffle, grift, scam, scheme, or swindle) is an attempt to defraud a person or group by gaining their confidence.

The first known usage of the term "confidence man" in English was in 1849; it was used by American press during the United States trial of William Thompson. Thompson chatted with strangers until he asked if they had the confidence to lend him their watches, whereupon he would walk off with the watch; he was captured when a victim recognized him on the street.[1]

Persons of any level of intelligence are vulnerable to deception by experienced con artists. Confidence tricks exploit human weaknesses like greed, dishonesty, vanity, but also virtues like honesty, compassion, or a naïve expectation of good faith on the part of the con artist.

Just as there is no typical profile for swindlers, neither is there one for their victims. Virtually anyone can fall prey to fraudulent crimes. … Certainly victims of high-yield investment frauds may possess a level of greed which exceeds their caution as well as a willingness to believe what they want to believe. However, not all fraud victims are greedy, risk-taking, self-deceptive individuals looking to make a quick dollar. Nor are all fraud victims naive, uneducated, or elderly.[2]

Confidence tricksters often rely on the greed and dishonesty of the mark, who may attempt to out-cheat the con artist, only to discover that he or she has been manipulated into losing from the very beginning. This is such a general principle in confidence tricks that there is a saying among con men that "you can't cheat an honest man."[3]

Nevertheless, some tricks depend on the honesty of the victim. In a common scam, as part of an apparently legitimate transaction, the victim is sent a worthless check, which the victim then deposits. The victim is then urged to forward the apparent value of the check to the trickster as cash, possibly keeping a small portion of the money as a commission, which they may do before discovering the check bounces. Another fashionable scenario (as of 2006)[citation needed] has the victim recruited as a "financial agent" to collect "business debts." Paper checks are not always involved: funds may be transferred electronically from another victim.

Sometimes con men rely on naive individuals who put their confidence into get-rich-quick schemes, such as "too good to be true" investments. It may take years for the wider community to discover that such investment schemes are bogus. By the time they are discovered, many people may have lost their life savings to something in which they have been persuaded to invest.

The confidence trickster often works with one or more accomplices called shills, who help manipulate the mark into accepting the con man's plan. In a traditional confidence trick, the mark is led to believe that he will be able to win money or some other prize by doing some task. The accomplices may pretend to be random strangers who have benefited from successfully performing the task.





http://www.knowledgerush.com/kr/encyclopedia/Confidence_trickster/
Confidence trickster
A confidence trick, confidence game, or con for short, (also known as a scam) is an attempt to intentionally mislead a person or persons (known as the mark) usually with the goal of financial or other gain. The confidence trickster, con man, scam artist or con artist often works with an accomplice called the shill, who tries to encourage the mark by pretending to believe the trickster. In a traditional con, the mark is encouraged to believe that he will obtain money dishonestly by cheating a third party, and is stunned to find that due to what appears to be an error in pulling off the scam he is the one who loses money; in more general use, the term con is used for any fraud in which the victim is tricked into losing money by false promises of gain.
Confidence tricks in general exploit the inherent greed and dishonesty of their victims; it has been said by confidence tricksters that it was impossible to con a completely honest man. Often, the mark tries to out-cheat the conmen, only to discover that they have been manipulated into this.
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Postby vigilant » Mon Feb 02, 2009 3:42 pm

• There is nothing to stop your broker from taking your money, and merely representing to you that you bought shares, without ever actually buying them. You have no way of knowing the difference, barring demanding paper certificates for your property.


Jim Sinclair must have understood it pretty well. He beat the war drum relentlessly for people to demand paper stock certificates or refuse to buy a stock.
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naked short selling

Postby madeupname452 » Mon Feb 02, 2009 7:56 pm

A crime is routinely occurring in our capital markets, but it is enormously profitable for Wall Street banks and hedge funds so they instruct the SEC not to address it. The common name for the crime is “naked short selling” but this is just one flavor of a much broader problem: unsettled trades in our capital markets.



You and I enter a stock trade. You buy a share of stock from me. You hand over your money, and I hand over the share of stock. That is called, “settlement.”

It may surprise you to learn that there are loopholes in our nation’s regulations that permit some people, when it comes time to settle, to hand over nothing but an IOU.

There is no system in place to alert you to the fact that you sent me your money and received nothing but an IOU. The system treats these IOU’s just as though they were real shares. Your brokerage statement will say that you got shares, even though I never sent anything but an IOU. You can sell them, and that IOU will pass on through the system into someone else’s account.

Suppose I find a company that is likely to need capital to expand, or simply survive, in the near future? They plan on raising that capital by issuing shares of stock to the public . Imagine that I target one of them, and deliberately go out selling that company’s shares into the marketplace, yet instead of delivering stock, I deliver nothing but IOU’s. I flood the market with them, always standing ready to sell more than anyone wants to buy. My IOU’s are anything but temporary: they drift around in the market for weeks, months, and eventually years. ... Eventually I flood the market with so many IOU’s that people end up reselling them, and they go and on until there are more share-IOU’s bouncing around than there are actual shares.

I generate more IOU’s than there are shares of stock in the company, then the market in those shares will crack ... Once cracked, the stock becomes next-to-worthless. And if I manage to issue enough IOU’s in my target company’s stock that it cracks and becomes near-worthless, they become barely an obligation at all. Who cares about millions of IOU’s, if those IOU’s are for something with infinitesimal value?

I walk away with my winnings. The company, however, is in a fix: they planned on issuing stock to raise capital, but now their stock price has been destroyed through my manipulations, and they cannot raise capital.

...Only large hedge funds and broker-dealers can access these loopholes to create IOU’s


http://www.deepcapture.com/category/4-the-crime-naked-shorts-other-insincere-ious/
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Re: naked short selling

Postby JackRiddler » Mon Feb 02, 2009 11:14 pm

madeupname452 quoting someone wrote:Suppose I find a company that is likely to need capital to expand, or simply survive, in the near future? They plan on raising that capital by issuing shares of stock to the public . Imagine that I target one of them, and deliberately go out selling that company’s shares into the marketplace, yet instead of delivering stock, I deliver nothing but IOU’s. I flood the market with them, always standing ready to sell more than anyone wants to buy. My IOU’s are anything but temporary: they drift around in the market for weeks, months, and eventually years. ... Eventually I flood the market with so many IOU’s that people end up reselling them, and they go and on until there are more share-IOU’s bouncing around than there are actual shares.

I generate more IOU’s than there are shares of stock in the company, then the market in those shares will crack ... Once cracked, the stock becomes next-to-worthless. And if I manage to issue enough IOU’s in my target company’s stock that it cracks and becomes near-worthless, they become barely an obligation at all. Who cares about millions of IOU’s, if those IOU’s are for something with infinitesimal value?

I walk away with my winnings. The company, however, is in a fix: they planned on issuing stock to raise capital, but now their stock price has been destroyed through my manipulations, and they cannot raise capital.

...Only large hedge funds and broker-dealers can access these loopholes to create IOU’s


Crazy shite! It's diabolical. Wanna make a movie about it.

.
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Postby JackRiddler » Tue Feb 03, 2009 1:30 am

.

Adding article posted by elpuma on other thread cos I like it.

http://www.treasuryandrisk.com/Issues/2 ... Money.aspx

Follow the Money

Are taxpayers on the hook for hundreds of billions of dollars for a credit crisis that may have been overblown? Who is the bailout really helping?


By Dave Lindorff

Key members of Congress were stunned to hear Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Hank Paulson say on Sept. 18 in a closed-door meeting on Capitol Hill that the country was “days away” from a complete financial meltdown—one that could lead to Depression-like runs on banks, widespread violence and ultimately even to a possible declaration of martial law. It was a vision of Armageddon, but, of course, 10 days later, the House rejected a Wall Street bailout package sent over by Paulson, only to pass one in a more limited form—the Emergency Economic Stabilization Act—a week later that gave Paulson less power and only half the money he wanted.

Meanwhile, the financial system did not collapse and while a few banks were failing, there were no runs on them, and martial law wasn’t invoked. One reason things didn’t fall apart when Congress didn’t immediately act as Paulson and Bernanke demanded, may be that there wasn’t any danger of a meltdown in the first place. So say three senior economists working at the Federal Reserve Bank of Minneapolis, who in October examined the Fed’s own data, and concluded in an article titled Facts and Myths About the Financial Crisis of 2008 that the claims that interbank lending and commercial lending had seized up were simply not true. “Bank lending to consumers and to non-financial companies had not ceased, and banks were lending to each other at record levels,” says V.V. Charri, an economist at the Minneapolis Fed. “Maybe Bernanke and Paulson had information that they were not making public, but the available data simply did not support what they were saying.” Charri and his colleagues and co-authors Lawrence Christiano and Patrick Kehoe agree that with companies like Lehman Brothers, AIG and Citigroup foundering because of toxic debt instruments, there was a sense of a financial crisis brewing, but they say it wasn’t a credit freeze. “This was a lot like the run-up to the Iraq invasion in 2003,” says Charri. “You had people in government saying: `We’re smart guys, trust us.’ But they were either wrong or they were lying.”

Adds Kehoe: “Normally, when you’re going to spend a lot of money, you present the data and the economic theory to support it, yet here’s the biggest non-military government intervention in history since the Great Depression, and there was no evidence presented to support it, and no detailed economic argument made about what market failures this $700 billion was going to fix.”

Supporting that view, Octavio Marenzi, founder of financial technology research and consulting firm Celent, says more bluntly: “There was no credit crisis. What was happening was much more arcane: A few big institutions that had made bad bets were at risk of going bust, and that’s it. And if they had gone bankrupt, it wouldn’t have been the end of the world. In fact, there is huge excess capacity in financial services and there’s a need to focus on the healthy ones and let others fail. Meanwhile, business lending and consumer lending were still strong in September and October, and it’s still okay.”

Even in the corporate realm, there are some indications that all may not be as it appeared as the $700 billion Wall Street bailout was hammered out, followed by trillions of dollars more in government backing pledged for everything from corporate paper to money market funds to the Big Three auto companies. Bill Dunkleberg, chief economist with the National Federation of Independent Businesses (NFIB), says that over the years of routine business condition surveys conducted among members by his organization, which primarily consists of companies with sales of under $1 billion, only about 3% of financial officers have cited access to credit as their biggest problem. This November, the latest survey, which covered the period of the credit crunch and bailout, the figure was still 3%. Dunkleberg adds: “We also asked people who borrow every quarter if things had gotten harder for them or not; 11% said it had, but then that’s about what happened in 1991, when the percentage saying that loans had gotten harder to obtain in that recession was 12%. So the situation is really pretty typical for a period when an expansion runs out and P&Ls get worse.”

No doubt things have gotten tougher for businesses, and obtaining credit has become more challenging. The question is whether it was necessary or even a good idea for the government to put taxpayers on the hook for hundreds of billions of dollars for a crisis that may have been overblown or mischaracterized, or whether all that money has been spent in the best way so as to address the crisis at hand.

“We haven’t seen a freeze,” says the treasurer of a leading A-rated global international consumer goods company, who asked to remain unidentified. “Credit has consistently been available, but at a price. And I do imagine if you were a new credit customer going to a bank, or if you didn’t have a good credit rating, you might have problems.”

Another treasurer at a global management consulting company based in New York City, who also asked to not be named, says his firm raised $500 million in debt last year. “But now things are tight. The kind of funds we could raise last year, we cannot raise now,” he says. “Even if funds were available, the credit spreads have widened significantly and the ‘covenant-lite’ era is a thing of the past.”

But that, argues Robert Higgs, an economist and senior fellow at the Independent Institute, a libertarian think tank, is just the point. In recessionary times, companies should be improving their balance sheets, not adding debt. “For the last five or six years, financial institutions have been lending irresponsibly, and companies and individuals have been making borrowing decisions based upon easy credit,” he says. “In a recessionary period, companies should not be trying to borrow; they should be de-leveraging.”

Higgs worries that by injecting staggering and unprecedented amounts of capital into the nation’s banks, the government is encouraging a continuation of irresponsible lending practices, and is deferring an overdue correction that would adjust corporate balance sheets. “The Fed can print money and it can throw trillions of dollars around, but it just puts off the day of reckoning, and makes the inevitable adjustment in the future that much worse,” he says. Higgs was one of a group of 200 prominent economists who wrote Congress to oppose the Wall Street bailout.

Critics of the bailout are not just on the right. Liberal economist James Galbraith, a professor at the University of Texas, calls the credit crisis “more hype than real math.” He adds: “Calling the problems on Wall Street a credit freeze was a mischaracterization.” In Galbraith’s view, Secretary Paulson’s original proposal to have the Treasury Department buy up the banks’ toxic securities, which was not implemented, was a bad plan. “Like trying to fill the Pacific Ocean with basketballs,” he says. And the actual action—the government’s injecting capital into troubled banks by buying preferred shares—was only marginally better. He thinks backing the commercial paper market and extending deposit insurance to cover $250,000 per depositor made more sense, which the government also eventually did, though not with the bailout money. “I think belatedly they did some things right,” he argues.

So did the government bailout work? If keeping companies from going belly up, or preventing massive layoffs, or rescuing the mortgage markets, was the goal, as the Treasury Department, the Fed and backers of a bailout in Congress were arguing before passage, the answer is clearly “No.” Housing markets have continued to slump, even at an accelerated rate, unemployment has continued to rise, and more to the point, credit is still tight for all but the most credit-worthy borrowers.

Indeed, while corporate treasurers differ on whether they think there was a crisis that required a big bailout of Wall Street, most of those contacted, along with many economists, agree that borrowing money has not gotten appreciably easier for them following the injection of all that cash in financial institutions.

“Credit is still tight after the bailout for companies at the low end,” says Joanna Oliva, vice president and treasurer of Fluor Corp., an A-rated Dallas-based global construction firm. She says the tight credit situation, which she would not characterize as a freeze, did not really impact Fluor Corp., because her company had decided more than a year ago to reduce leverage. “We felt that the banks had been too loose about credit, and we were saying that a tightening was due, though I must say I never saw tightening accelerate so quickly.” While Fluor did not access credit markets this year, Oliva says: “We do have to be bonded on all our projects so we have been speaking with our banks about providing letters of credit and bank guarantees, so we have a sense of what’s going on.”

That the recession may be more about contracting markets than about frozen credit was underscored by comments from the assistant manager at an auto dealership outside of Philadelphia, part of a regional family-owned multi-dealership chain. He said that the chain would probably be closing a few of its dealerships soon, as many dealerships are doing, but when asked if this was because of the credit crisis and potential car buyers’ difficulty in obtaining credit, he laughed. “No. The local banks are happy to lend to customers who want a car loan, and to back our lending program,” he said. “But who is going to buy a new car when everyone’s worried about whether they¹ll have a job six months from now?”

Yves Smith, an economist and management consultant who operates a blogsite called “Naked Capitalism,” is skeptical about the Minneapolis Fed trio’s thesis on the nature of the credit crunch, noting that the data it reviews is only what is on bank balance sheets. “A lot of lending, including bank lending, is off balance sheet.” she says, adding, “commercial lending and corporate paper are just part of the picture.” Noting that banks have been canceling unused consumer and small business credit lines and cards for the past year, she says, “It seems clear to me that there was a serious credit crunch.”

Charri and Kehoe don’t deny that they were only looking at the 20% of lending that is reported to the Fed monthly, but Charri adds, “All we’re saying is that based upon the data that is available there was no justification for the actions that were taken, and if there were really a freeze of other credit, the officials who were concerned should have shown the data to justify what was done.”

Adds Kehoe, “If what we’re experiencing is a generic recession, all that money spent investing in the banks would be wasted, and that may be what this is: a generic recession.”

Smith though expresses concern that the bailout of the Wall Street’s big financial institutions, using the so-called Troubled Assets Relief Program (TARP), which she argues was a bad strategy, may have “precluded other remedies” that the government needs to take. “With all the money that’s already been committed, it is going to be hard to get the stimulus money that is needed now,” she says. “Deficits are already so massive that at some point interest rates on long bonds are going to jump from 3% to 5%, and that will be good-bye mortgage markets.”

Looking ahead, Smith offers some advice to corporate treasurers and financial officers. “Be very conservative and loss averse,” she says. “Financial crises take a long time to resolve, and this is a period when customers will be really slow to pay. Receivables will be bad. In general, even if the risks seem low, the downside these days could be catastrophic.”
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