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

[JackRiddler]

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Okay! So the other post I lost in the weekend crash was right at the top of this new page. I noted that last week's big development was the announcement by Obama:

We’ll also establish a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud and protect people’s investments. Some financial firms violate major anti-fraud laws because there’s no real penalty for being a repeat offender. That’s bad for consumers, and it’s bad for the vast majority of bankers and financial service professionals who do the right thing. So pass legislation that makes the penalties for fraud count.

And tonight, I’m asking my Attorney General to create a special unit of federal prosecutors and leading state attorney general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. (Applause.) This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.

Apparently this came together on the day when the speech was delivered. The White House announced that the task force would be led by Schneiderman. I don't know for sure yet how to interpret it. Along with Kamala Harris, Schneiderman has been leading the non-conforming AGs on the federal attempt to grant immunity to the MERS banks. Have they really won the day and are they going to be allowed to have a real criminal investigation? Is this going to be sabotaged?

Here's a comment and summary of the ways in which the great fraud may still be actionable:

http://www.democraticunderground.com/1002217895


There have been enough broken promises (in every administration) that you know you have to "make them do it" - join Occupy and keep pushing!

This sudden sliver of hope for justice could screech to a heartbreaking halt if the Feds manage to broker the prospective deal to grant immunity to the MERS member banks for running mortgage title forgery mills.

But thanks to this passage from Obama's state of the union speech, at least we can do away with the pernicious myth, often seen here, that the banksters of the 2008 crash merely took advantage of loopholes. Or are somehow impossible to catch because you have to prove intent before you even call them in for an interview. Or because they made sure to legalize all their prospective crimes by changing the laws in advance.

But as even Al Capone learned, it's not possible to commit crimes on that scale without some damn part of it being illegal.

Fraud and forgery have always been crimes. Gramm-Leach-Bliley and the other crime-is-legal acts of the late 1990s forgot to neuter those. Both fraud and forgery were committed on an epic scale...

...in the MERS system: Many thousands of mortgage transfer forgeries known to have been committed, indications that it runs into the millions. Forgeries are actionable and showing them could in fact invalidate millions of default claims. This is why MERS is now the subject of the outrageous immunity deal the feds are trying to work out between all 50 states and the MERS member banks. May Scheiderman and Harris stand strong!

...by the predatory lenders who opened up the credit spigots for borrowers they knew would default; every witting acceptance of a false loan application by the lower-level mortgage sharks is potentially actionable.

...by the paid academic and media stooges of the Wall Street complex who devised models and promoted hype they knew were based on imaginary premises but encouraged people to invest in the lie of perpetual growth in housing prices. (Okay, it's an ideological fraud, so here you'd be right to say not actionably criminal - a pity since Cramer and his peers and their fancier counterparts at the Ivies, the academic whores-for-hire exposed by "Inside Job," have it coming.)

...by the market makers who violated fiduciary responsibility to their clients by devising and selling instruments they knew would fail, in some cases were designed to fail - and even betting against them. (Actionable, as evidenced by the outrageous immunity deals the SEC has offered in several cases, allowing the scam artists to skate with most of their profits in exchange for paying a small cut in fines and no admission of guilt. Judge Rakoff has famously suspended one of these deals, may he stay strong and determined and bring this sort of rotten exoneration deal to an end.)

...by the ratings agencies who took the payoffs from the market makers and didn't do due diligence before delivering false verdicts on these instruments, without which investors like pension funds could not have been lured into the trap. (Actionable as fraud in commercial speech, and they should be the first entities to be seized and interrogated in unravelling the fraud, being no better than Arthur Andersen.)

...by the derivatives sellers and speculators who bet on the whole system to burn down and then lit the match. (The biggest fraud of all: setting up a system allowing unlimited and unpayable bets running into the hundreds of trillions, including by institutions that are also commercial banks and therefore "TBTF" : but this one they made sure to make legal beforehand.)

Recall the beautiful moment at the start of Inside Job: Nouriel Roubini is asked, "Why do you think there weren't more vigorous investigations into financial frauds?" His marvelously deadpan answer: "Because then they would find the culprits."

THOUSANDS of executives were prosecuted during the S&L frauds of the 1980s. They were caught because of investigations. When it was seen that a crime must have been committed, authorities went to work and so they found the culprits. Thousands of financial fraud investigators were employed at the time, hundreds today. The whole trick today is NOT to investigate, therefore not to discover perpetrators, and for the SEC to offer get-out-of-jail-free immunity deals in exchange for insulting "settlements" that the banks view as a minor cost of doing their dirty business.

It's been said that the government's been spending more on investigating food stamp fraud than financial fraud, but I've found it hard to locate the actual breakdowns to determine this and it's an arguable point.

The more interesting comparison is to the perpetual, Nixon-to-Obama "war on drugs." If it's about drugs, then evidence that a crime has been committed (the presence of drugs) can sometimes be enough to raid premises, summarily arrest everyone within smelling distance, seize properties and sell them before trial. Sometimes authorities don't wonder about states of mind or intents to commit or determining who exactly they can pin as the mastermind. They just move in and fuck everyone, and let the judge sort them out.

Too bad Goldman Sachs merely plundered tens of billions of dollars by some of the most evil scams imaginable (we haven't even got into the commodities speculation frauds that contributed to the food price bubble of 2008 meaning millions of victims). If only GS had kept half a million dollars worth of cocaine in the executive suite, the government would have found a reason to bust in the doors, shoot the pet dogs and shut this criminal organization down. Even if most of the banksters would get off after a raid on Goldman Sachs to arrest a few hundred suspects, they would not soon forget the being hogtied and having their wrists painfully cuffed behind their backs and being thrown into Manhattan Central Booking with the pot-smokers and the drivers with expired licenses and the poor slobs who drank a beer on the street. Some deterrent effect would stick, right?

We haven't even gotten into RICO, but same deal there. If the feds decide to designate a criminal organization, they have the means to go after them despite omerta and distributed responsibility. Once they're considered a criminal group, the crimes of any one of them are good enough to bag the executives no matter what they say they forgot.

The FBI can infiltrate and set up honey-traps and entrapments for animal rights and peace activists, and create entrapment schemes for mentally disabled patsies they style into "terrorists," but they can't place one damn spy as a secretary at Goldman Sachs?

Okay, I'm veering into satire, but why does this seem so absurd to you? Seriously. If the FBI thinks it's okay to infiltrate some Quaker antiwar meeting on suspicion they might eventually engage in some kind of sedition, then not infiltrating Goldman Sachs on the presumption that they must be doing some dirt they can be nailed for is strictly a product of class prejudice. We see no white collar crime, hear no white collar crime, speak not of it.

As Bertolt Brecht asked: Which is the bigger crime, robbing a bank or owning one?

[JackRiddler]

http://blackagendareport.com/print/cont ... all-street

Published on Black Agenda Report (http://blackagendareport.com)

State of Obama: Immunity for Wall Street

Wed, 01/25/2012 - 13:37

by BAR executive editor Glen Ford


President Obama had hoped to put on a big show – a huge con, really – at his State of the Union address, by announcing a monetary “settlement” of massive banker criminality in housing foreclosures. “Obama’s operatives have doggedly pressed for a settlement that would effectively give banks immunity from prosecution.” But he was thwarted by a small group of state attorneys general that wanted a real investigation into “the crime of the century.” So the president “was finally forced to set up a federal unit of his own.” Since Obama’s own law enforcers have failed to send a single banker to jail, Wall Street immunity is likely to remain the real State of the Union.

“Every action he has taken as president has been to protect the innocents on Wall Street.”

Empire and the banks. President Obama’s State of the Union address, bracketed by imperial bombast, made actual news with yet another administration maneuver to protect Wall Street from the wrath of the states. The remainder of his speech was mainly a rehash of previous policies, heavy on tax tinkerings that would have made a previous generation of moderate Republicans – a now extinct breed – proud.

The only newsworthy item, the creation of a “special unit of prosecutors” that the president announced would “expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis,” is not an Obama initiative, but a response to unwanted pressures. Up until almost the moment of the presidential address, the administration has been bullying state attorneys general to drop their independent investigations into banker criminality in the 2008 meltdown and the foreclosure of millions of Americans’ homes. The so-called “robo-signing” scandal calls into question the fundamental legality of Wall Street mortgage securities practices – what some have described as the “crime of the century.” The small group of attorneys general – variously numbered between 5 and 15 – have been buttressed by a vocal Campaign for a Fair Settlement, made up of consumer and labor groups and activist organizations such as MoveOn.

“Obama had hoped to roll over the recalcitrant attorneys general in time to make the settlement the centerpiece of his State of the Union.”

Obama’s operatives have doggedly pressed for a settlement that would effectively give banks immunity from prosecution. Instead, home owners would be “compensated” from a paltry fund of no more than $25 billion – a drop in the bucket, considering the trillions in housing values that disappeared into illegally securitized air in the catastrophe, and much of the money might not even come out of the bankers’ own accounts. Obama had hoped to roll over the recalcitrant attorneys general in time to make the settlement the centerpiece of his State of the Union.

The “special unit of prosecutors,” officially dubbed the Unit on Mortgage Origination and Securitization Abuses, is to be co-chaired by New York Attorney General Eric Schneiderman, whom the White House had booted out of a negotiating committee because of his opposition to Obama’s banker protection racket. Last night, at the joint session of Congress, Obama sat Schneiderman in the First Lady’s box, to give the impression that he and the obstinate New Yorker had been on the same page all the time. Nothing could be farther from the truth. Obama was trying to shut down the attorney generals’ probes into banker criminality, and was finally forced to set up a federal unit of his own. However, with the “investigation” now in Obama’s hands, de facto banker immunity may have been achieved, and the puny “settlement” could soon be announced. Wall Street will be pleased, and no doubt reciprocate with hundreds of millions in campaign contributions.

“With the ‘investigation’ now in Obama’s hands, de facto banker immunity may have been achieved.”

U.S. Attorney Eric Holder, the former corporate lawyer, has been a good soldier. His own investigations of the meltdown and its aftermath – if they actually existed – have resulted in not a single corporate bad actor going to jail. Although Obama told the Congress and the people that what happened when the “house of cards collapsed” was “wrong,” he has also opined that most of what the bankers did was “not illegal.” Every action he has taken as president has been to protect the innocents on Wall Street.

“We’ve put in place new rules to hold Wall Street accountable, so a crisis like that never happens again,” said the president. Nonsense. Obama fought tooth and nail to defend the fatal derivatives market from serious tampering by progressive Democrats. The crisis of 2008 was set off by the multiplier effect of derivatives on the collapse of toxic mortgage securities. At the time, at least $600 trillion dollars in derivatives loomed over the planet. Today, derivatives have rebounded to…over $600 trillion. The banks that were “too big to fail” are even bigger, and there are fewer of them – meaning, capital is more concentrated than before. Obama’s “new rules” have preserved and further consolidated the hegemony of finance capital over U.S. economic and political life. The world economy teeters on the brink.

But, “America is back!” says the president. It is the “indispensable nation” – the one that treats the rest of the planet, and most of its own citizens, as entirely dispensable. Hail to the Chief!

BAR executive editor Glen Ford can be contacted at Glen.Ford@BlackAgendaReport.com [6].

Links:
[1] http://blackagendareport.com/category/u ... tdown-2008
[2] http://blackagendareport.com/category/u ... te-union-0
[3] http://blackagendareport.com/category/u ... /obamarama
[4] http://blackagendareport.com/category/u ... bo-signing
[5] http://blackagendareport.com/sites/www. ... aMoney.jpg
[6] mailto:Glen.Ford@BlackAgendaReport.com
[7] http://www.addtoany.com/share_save?link ... l%20Street

[smiths]

http://www.financialsense.com/contribut ... ed-to-know

The Petrodollar, Iran, and Gold (sic) - Marin Katusa

Tehran Pushes to Ditch the US Dollar

The official line from the United States and the European Union is that Tehran must be punished for continuing its efforts to develop a nuclear weapon. The punishment: sanctions on Iran's oil exports, which are meant to isolate Iran and depress the value of its currency to such a point that the country crumbles.

But that line doesn't make sense, and the sanctions will not achieve their goals. Iran is far from isolated and its friends - like India - will stand by the oil-producing nation until the US either backs down or acknowledges the real matter at hand. That matter is the American dollar and its role as the global reserve currency.

The short version of the story is that a 1970s deal cemented the US dollar as the only currency to buy and sell crude oil, and from that monopoly on the all-important oil trade the US dollar slowly but surely became the reserve currency for global trades in most commodities and goods. Massive demand for US dollars ensued, pushing the dollar's value up, up, and away. In addition, countries stored their excess US dollars savings in US Treasuries, giving the US government a vast pool of credit from which to draw.

We know where that situation led - to a US government suffocating in debt while its citizens face stubbornly high unemployment (due in part to the high value of the dollar); a failed real estate market; record personal-debt burdens; a bloated banking system; and a teetering economy. That is not the picture of a world superpower worthy of the privileges gained from having its currency back global trade. Other countries are starting to see that and are slowly but surely moving away from US dollars in their transactions, starting with oil.

If the US dollar loses its position as the global reserve currency, the consequences for America are dire. A major portion of the dollar's valuation stems from its lock on the oil industry - if that monopoly fades, so too will the value of the dollar. Such a major transition in global fiat currency relationships will bode well for some currencies and not so well for others, and the outcomes will be challenging to predict. But there is one outcome that we foresee with certainty: Gold will rise. Uncertainty around paper money always bodes well for gold, and these are uncertain days indeed.

The Petrodollar System

To explain this situation properly, we have to start in 1973. That's when President Nixon asked King Faisal of Saudi Arabia to accept only US dollars as payment for oil and to invest any excess profits in US Treasury bonds, notes, and bills. In exchange, Nixon pledged to protect Saudi Arabian oil fields from the Soviet Union and other interested nations, such as Iran and Iraq. It was the start of something great for the US, even if the outcome was as artificial as the US real-estate bubble and yet constitutes the foundation for the valuation of the US dollar.

By 1975 all of the members of OPEC agreed to sell their oil only in US dollars. Every oil-importing nation in the world started saving their surplus in US dollars so as to be able to buy oil; with such high demand for dollars the currency strengthened. On top of that, many oil-exporting nations like Saudi Arabia spent their US dollar surpluses on Treasury securities, providing a new, deep pool of lenders to support US government spending.

The "petrodollar" system was a brilliant political and economic move. It forced the world's oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt, while essentially letting the US pretty much own the world's oil for free, since oil's value is denominated in a currency that America controls and prints. The petrodollar system spread beyond oil: the majority of international trade is done in US dollars. That means that from Russia to China, Brazil to South Korea, every country aims to maximize the US-dollar surplus garnered from its export trade to buy oil.

The US has reaped many rewards. As oil usage increased in the 1980s, demand for the US dollar rose with it, lifting the US economy to new heights. But even without economic success at home the US dollar would have soared, because the petrodollar system created consistent international demand for US dollars, which in turn gained in value. A strong US dollar allowed Americans to buy imported goods at a massive discount - the petrodollar system essentially creating a subsidy for US consumers at the expense of the rest of the world. Here, finally, the US hit on a downside: The availability of cheap imports hit the US manufacturing industry hard, and the disappearance of manufacturing jobs remains one of the biggest challenges in resurrecting the US economy today.

There is another downside, a potential threat now lurking in the shadows. The value of the US dollar is determined in large part by the fact that oil is sold in US dollars. If that trade shifts to a different currency, countries around the world won't need all their US money. The resulting sell-off of US dollars would weaken the currency dramatically.

So here's an interesting thought experiment. Everybody says the US goes to war to protect its oil supplies, but doesn't it really go to war to ensure the continuation of the petrodollar system?

The Iraq war provides a good example. Until November 2000, no OPEC country had dared to violate the US dollar-pricing rule, and while the US dollar remained the strongest currency in the world there was also little reason to challenge the system. But in late 2000, France and a few other EU members convinced Saddam Hussein to defy the petrodollar process and sell Iraq's oil for food in euros, not dollars. In the time between then and the March 2003 American invasion of Iraq, several other nations hinted at their interest in non-US dollar oil trading, including Russia, Iran, Indonesia, and even Venezuela. In April 2002, Iranian OPEC representative Javad Yarjani was invited to Spain by the EU to deliver a detailed analysis of how OPEC might at some point sell its oil to the EU for euros, not dollars.

This movement, founded in Iraq, was starting to threaten the dominance of the US dollar as the global reserve currency and petro currency. In March 2003, the US invaded Iraq, ending the oil-for-food program and its euro payment program.

There are many other historic examples of the US stepping in to halt a movement away from the petrodollar system, often in covert ways. In February 2011 Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), called for a new world currency to challenge the dominance of the US dollar. Three months later a maid at the Sofitel New York Hotel alleged that Strauss-Kahn sexually assaulted her. Strauss-Kahn was forced out of his role at the IMF within weeks; he has since been cleared of any wrongdoing.

War and insidious interventions of this sort may be costly, but the costs of not protecting the petrodollar system would be far higher. If euros, yen, renminbi, rubles, or for that matter straight gold, were generally accepted for oil, the US dollar would quickly become irrelevant, rendering the currency almost worthless. As the rest of the world realizes that there are other options besides the US dollar for global transactions, the US is facing a very significant - and very messy - transition in the global oil machine.
The Iranian Dilemma

Iran may be isolated from the United States and Western Europe, but Tehran still has some pretty staunch allies. Iran and Venezuela are advancing $4 billion worth of joint projects, including a bank. India has pledged to continue buying Iranian oil because Tehran has been a great business partner for New Delhi, which struggles to make its payments. Greece opposed the EU sanctions because Iran was one of very few suppliers that had been letting the bankrupt Greeks buy oil on credit. South Korea and Japan are pleading for exemptions from the coming embargoes because they rely on Iranian oil. Economic ties between Russia and Iran are getting stronger every year.

Then there's China. Iran's energy resources are a matter of national security for China, as Iran already supplies no less than 15% of China's oil and natural gas. That makes Iran more important to China than Saudi Arabia is to the United States. Don't expect China to heed the US and EU sanctions much - China will find a way around the sanctions in order to protect two-way trade between the nations, which currently stands at $30 billion and is expected to hit $50 billion in 2015. In fact, China will probably gain from the US and EU sanctions on Iran, as it will be able to buy oil and gas from Iran at depressed prices.

So Iran will continue to have friends, and those friends will continue to buy its oil. More importantly, you can bet they won't be paying for that oil with US dollars. Rumors are swirling that India and Iran are at the negotiating table right now, hammering out a deal to trade oil for gold, supported by a few rupees and some yen. Iran is already dumping the dollar in its trade with Russia in favor of rials and rubles. India is already using the yuan with China; China and Russia have been trading in rubles and yuan for more than a year; Japan and China are moving towards transactions in yen and yuan.

And all those energy trades between Iran and China? That will be settled in gold, yuan, and rial. With the Europeans out of the mix, in short order none of Iran's 2.4 million barrels of oil a day will be traded in petrodollars.

With all this knowledge in hand, it starts to seem pretty reasonable that the real reason tensions are mounting in the Persian Gulf is because the United States is desperate to torpedo this movement away from petrodollars. The shift is being spearheaded by Iran and backed by India, China, and Russia. That is undoubtedly enough to make Washington anxious enough to seek out an excuse to topple the regime in Iran.

Speaking of that search for an excuse, this is interesting. A team of International Atomic Energy Agency (IAEA) inspectors just visited Iran. The IAEA is supervising all things nuclear in Iran, and it was an IAEA report in November warning that the country was progressing in its ability to make weapons that sparked this latest round of international condemnation against the supposedly near-nuclear state. But after their latest visit, the IAEA's inspectors reported no signs of bomb making. Oh, and if keeping the world safe from rogue states with nuclear capabilities were the sole motive, why have North Korea and Pakistan been given a pass?

There is another consideration to keep in mind, one that is very important when it comes to making some investment decisions based on this situation: Russia, India, and China - three members of the rising economic powerhouse group known as the BRICs (which also includes Brazil) - are allied with Iran and are major gold producers. If petrodollars go out of vogue and trading in other currencies gets too complicated, they will tap their gold storehouses to keep the crude flowing. Gold always has and always will be the fallback currency and, as mentioned before, when currency relationships start to change and valuations become hard to predict, trading in gold is a tried and true failsafe.

2012 might end up being most famous as the year in which the world defected from the US dollar as the global currency of choice. Imagine the rest of the world doing the math and, little by little, beginning to do business in their own currencies and investing ever less of their surpluses in US Treasuries. It constitutes nothing less than a slow but sure decimation of the dollar.

That may not be a bad thing for the United States. The country's gargantuan debts can never be repaid as long as the dollar maintains anything close to its current valuation. Given the state of the country, all that's really left supporting the value in the dollar is its global reserve currency status. If that goes and the dollar slides, maybe the US will be able to repay its debts and start fresh. That new start would come without the privileges and ingrained subsidies to which Americans are so accustomed, but it's amazing that the petrodollar system has lasted this long. It was only a matter of time before something would break it down.

[Wombaticus Rex]

LULZ: http://www.npr.org/2012/01/30/145995636 ... homeowners

I mean...

Freddie Mac Betting Against Struggling Homeowners

Freddie Mac, a taxpayer-owned mortgage company, is supposed to make homeownership easier. One thing that makes owning a home more affordable is getting a cheaper mortgage.

But Freddie Mac has invested billions of dollars betting that U.S. homeowners won't be able to refinance their mortgages at today's lower rates, according to an investigation by NPR and ProPublica, an independent, nonprofit newsroom.

LINK: http://www.propublica.org/article/fredd ... ger-arnold

These investments, while legal, raise concerns about a conflict of interest within Freddie Mac.

"We were actually shocked they did this," says Scott Simon, who heads the mortgage-backed securities team at the giant bond trading and investment firm called PIMCO. "It seemed so out of line with their mission, out of line with what Congress wanted them to do."

Freddie Mac, formally called the Federal Home Loan Mortgage Corp., was chartered by Congress in 1970. On its website, it says it has "a public mission to stabilize the nation's residential mortgage markets and expand opportunities for homeownership." The company is owned by U.S. taxpayers and overseen by a regulator, the Federal Housing Finance Agency (FHFA).

In December, Freddie's chief executive, Charles Haldeman, assured Congress his company is "helping financially strapped families reduce their mortgage costs through refinancing their mortgages."

But public documents show that in 2010 and 2011, Freddie Mac set out to make gains for its own investment portfolio by using complex mortgage securities that brought in more money for Freddie Mac when homeowners in higher interest-rate loans were unable to qualify for a refinancing.

Those trades "put them squarely against the homeowner," PIMCO's Simon says.

Freddie Mac's trades came at a time when mortgage rates were falling to record lows. Millions of homeowners wish they could refinance, but their lenders tell them they can't qualify for today's low rates because of tight rules. Freddie Mac is one of the gatekeepers with the power to set those rules, and lately, it has been saying no more often to homeowners.

That raises concerns among some industry insiders who see a conflict: Freddie Mac's own financial health improves when homeowners can't refinance.

Simply put, "Freddie Mac prevented households from being able to take advantage of today's mortgage rates — and then bet on it," says Alan Boyce, a former bond trader who has been involved in efforts to push for more refinancing of home loans.

Freddie and FHFA repeatedly declined to comment on the specific transactions, but Freddie did say that its employees who make investment decisions are "walled off" from those who decide the rules for homeowners.

...

Tight For Homeowners, But Elsewhere, Money Still Flows

Economists say that during the housing bubble, lending standards got too loose. Now many believe the pendulum has swung too far, making rules too tight.

The short-sale restriction may be a good example. For a home purchase, such a rule may be prudent, but allowing people with existing loans to refinance actually lowers the risk that they may default by giving them more affordable mortgage payments.

In a recent analysis of remedies for the stalled housing market, the Federal Reserve criticized Fannie and Freddie for the fees they have charged for refinancing. Such fees are "another possible reason for low rates of refinancing," the Fed wrote, adding that the charges are "difficult to justify."

Meanwhile, even though Freddie is a ward of the federal government, its top executives are highly compensated. The Freddie Mac official then in charge of its investment portfolio, Peter Federico, made $2.5 million in 2010, and had target compensation of $2.6 million for last year — the time period during which most of these inverse floater investments were made. ProPublica and NPR made numerous attempts to reach Federico. A woman who answered his home phone said he declined to comment.

[JackRiddler]

Is this really happening?

http://www.ag.ny.gov/media_center/2012/ ... 3a_12.html

A.G. SCHNEIDERMAN ANNOUNCES MAJOR LAWSUIT AGAINST NATION’S LARGEST BANKS FOR DECEPTIVE & FRAUDULENT USE OF ELECTRONIC MORTGAGE REGISTRY

Complaint Charges Use Of MERS By Bank Of America, J.P. Morgan Chase, And Wells Fargo Resulted In Fraudulent Foreclosure Filings

Servicers And MERS Filed Improper Foreclosure Actions Where Authority To Sue Was Questionable

Schneiderman: MERS And Servicers Engaged In Deceptive and Fraudulent Practices That Harmed Homeowners And Undermined Judicial Foreclosure Process

[En Español]

NEW YORK – Attorney General Eric T. Schneiderman today filed a lawsuit against several of the nation’s largest banks charging that the creation and use of a private national mortgage electronic registry system known as MERS has resulted in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process. The lawsuit asserts that employees and agents of Bank of America, J.P. Morgan Chase, and Wells Fargo, acting as "MERS certifying officers," have repeatedly submitted court documents containing false and misleading information that made it appear that the foreclosing party had the authority to bring a case when in fact it may not have. The lawsuit names JPMorgan Chase Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A., as well as Virginia-based MERSCORP, Inc. and its subsidiary, Mortgage Electronic Registration Systems, Inc.

The lawsuit further asserts that the MERS System has effectively eliminated homeowners' and the public's ability to track property transfers through the traditional public records system. Instead, this information is now stored only in a private database – which is plagued with inaccuracies and errors – over which MERS and its financial institution members exercise sole control. Additional defendants include BAC Home Loans Servicing, LP, Chase Home Finance LLC, EMC Mortgage Corporation, and Wells Fargo Home Mortgage, Inc.

“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages. Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law,” said Attorney General Schneiderman. “Our action demonstrates that there is one set of rules for all – no matter how big or powerful the institution may be – and that those rules will be enforced vigorously. Only through real accountability for the illegal and deceptive conduct in the foreclosure crisis will there be justice for New York’s homeowners.”

The financial industry created MERS in 1995 to allow financial institutions to evade local county recording fees, avoid the hassle and paperwork of publicly recording mortgage transfers, and facilitate the rapid sale and securitization of mortgages. MERS operates as a membership organization, and most large companies that participate in the mortgage industry – by originating loans, buying or investing in loans, or servicing loans – are members, including JPMorgan Chase, Bank of America, Wells Fargo, Fannie Mae, and Freddie Mac. Over 70 million loans nationally have been registered in MERS System, including about 30 million currently active loans.

Through their membership in MERS, these companies avoided publicly recording the purchase and sale of mortgages by designating MERS Inc. – a shell company with no economic interest in any mortgage loan – as the "nominal" mortgagee of the loan in the public records. Instead, MERS members were supposed to log mortgage transfers in the MERS private electronic registry. The basic theory behind MERS is that, because MERS Inc. serves as a "nominee" (or agent) for most major lenders, it remains the "mortgagee" in the public records regardless of how often the loan is sold or transferred among MERS members. Thus, although MERSCORP has only about 70 employees, MERS Inc. serves as the mortgagee of record for tens of millions of loans registered in the MERS System.

MERS has granted over 20,000 “certifying officers” the authority to act on its behalf, including the authority to assign mortgages, to execute paperwork necessary to foreclose, and to submit filings on behalf of MERS in bankruptcy proceedings. These certifying officers are not MERS employees, but instead are employed by MERS members, including JPMorgan Chase, Bank of America, and Wells Fargo.

MERS' conduct, as well as the servicers’ use of the MERS System, has resulted in the filing of improper New York foreclosure proceedings, undermined the integrity of the judicial process, created confusion and uncertainty concerning property ownership interests, and potentially clouded titles on properties throughout the State of New York. In fact, several New York judges have questioned the standing of the foreclosing party in cases involving MERS loans and the validity of mortgage assignments executed by MERS certifying officers.

The lawsuit specifically charges that the defendants have engaged in the following fraudulent and deceptive practices:

* MERS has filed over 13,000 foreclosure actions against New York homeowners listing itself as the plaintiff, but in many instances, MERS lacked the legal authority to foreclose and did not own or hold the promissory note, despite saying otherwise in court submissions.
* MERS certifying officers, including employees and agents of JPMorgan Chase, Bank of America, and Wells Fargo, have repeatedly executed and submitted in court legal documents purporting to assign the mortgage and/or note to the foreclosing party. These documents contain numerous defects, including affirmative misrepresentations of fact, which render them false, deceptive, and/or invalid. These assignments were often automatically generated and "robosigned" by individuals who did not review the underlying property ownership records, confirm the documents’ accuracy, or even read the documents. These false and defective assignments often masked gaps in the chain of title and the foreclosing party's inability to establish its authority to foreclose, and as a result have misled homeowners and the courts.
* MERS' indiscriminate use of non-employee "certifying officers" to execute vital legal documents has confused, misled, and deceived homeowners and the courts and made it difficult to ascertain whether a party actually has the right to foreclose. MERS certifying officers have regularly executed and submitted in court mortgage assignments and other legal documents on behalf of MERS without disclosing that they are not MERS employees, but instead are employed by other entities, such as the mortgage servicer filing the case or its counsel. The signature line just indicates that the individual is an "Assistant Secretary," "Vice President," or other officer of MERS. Indeed, these documents often purport to assign the mortgage to the certifying officer's own employer. Moreover, as a result of the defendants' failure to track the designation of certifying officers and the scope of their authority to act, individuals have executed legal documents on behalf of MERS, such as mortgage assignments and loan modifications, when they were either not designated as a MERS certifying officer at the time or were not authorized to execute documents on behalf of MERS with respect to the subject loan.
* MERS and its members have deceived and misled borrowers about the importance and ramifications of MERS' role with respect to their loan by providing inadequate disclosures.
* The MERS System is riddled with inaccuracies which make it difficult to verify the chain of title for a loan or the current note-holder, and creates confusion among stakeholders who rely on the information. In addition, as a result of these inaccuracies, MERS has filed mortgage satisfactions against the wrong property.

The lawsuit seeks a declaration that the alleged practices violate the law, as well as injunctive relief, damages for harmed homeowners, and civil penalties. The lawsuit also seeks a court order requiring defendants to take all actions necessary to cure any title defects and clear any improper liens resulting from their fraudulent and deceptive acts and practices.

The matter is being handled by Deputy Bureau Chief of the Bureau of Consumer Frauds & Protection Jeffrey K. Powell, Assistant Attorney General Clare Norins, and Assistant Solicitor General Steven C. Wu, under the supervision of First Deputy Attorney General Harlan Levy.

[JackRiddler]

http://www.sfgate.com/cgi-bin/article.c ... 1N857R.DTL

Errors found in 84% of SF mortgages in foreclosure

John Wildermuth

Thursday, February 16, 2012

More than 80 percent of the residential mortgage loans that have gone into foreclosure in San Francisco contain one or more clear violations of the law, Assessor-Recorder Phil Ting said Wednesday.

While the errors, many of them technical paperwork violations, don't necessarily indicate criminal conduct by lenders and others in the mortgage industry, they do show that changes must be made in California's century-old real estate regulations, he added.

"The whole process ... is absolutely, 100 percent broken and not working for any of us at this time," Ting said. "These rules were made for people who walked or rode their horse to the bank."

A rash of complaints to Ting's office last fall about missing or inaccurate mortgage documents persuaded him to hire an outside company, Aequitas Compliance Solutions of Newport Beach (Orange County), to review a sample of the city's 2,405 foreclosure sales between January 2009 and October 2011.

The study of 382 loans found that along with the 84 percent with violations, 99 percent of them showed some apparent irregularities and almost a third had problems in four of the six areas of concern the company checked, which include assignments of loans, notices of default and substitution of trustees.
Backdated documents

For example, 59 percent of the loans had documents that were backdated, showing a time difference between the date of the document and the date it was notarized or recorded. Although that can be a potentially serious problem, the report also noted that there can be legitimate reasons for the discrepancy.

In other cases, the original owner of the loan may not have signed a required document or there was no affidavit showing lenders had called or met with borrowers to explore options to foreclosure 30 days before the notice of default was filed, as the state requires.

"Given these well-documented and widespread ... issues," the report stated, "it is not implausible that there are homeowners who are alleged to have defaulted on loans to which they never fully agreed to and, further, are being foreclosed upon by lenders that might not even own those loans."

Both Ting and Lou Pizante, the Aequitas partner who compiled the review, insisted the report was aimed at the system, rather than individual lenders.

"I'm not here to indict the mortgage industry or say that all the people who lost their homes didn't deserve to lose them," Pizante said.
Systemic problems

But the county recorder's job is to provide an accurate public record of property ownership and the chain of title, and when the rules aren't followed, for whatever reason, the system falls apart.

"How can we expect homeowners to have a fighting chance of saving their homes when they can't even find who currently owns their debt?" Ting said in a statement.

While the study was limited to San Francisco, there's no reason to believe similar problems wouldn't be found elsewhere in the state, said Ting, who is a Democratic candidate for the Assembly seat now held by the termed-out Fiona Ma.

Just last week, California and 48 other states signed an agreement with five of the nation's top mortgage lenders that provides $25 billion in relief to distressed borrowers. That agreement may hold those lenders harmless for some of the technical violations the new study found, although not for criminal conduct, Ting said.

"I see across the board laws that have not been followed," he said. "It's up to the district attorney and attorney general to decide whether that's prosecutable."

The study probably won't help San Francisco homeowners who have lost their property, but it could help those who are in the middle of the foreclosure process by identifying problems their lenders need to deal with, Ting said.
Scope of irregularities

The problems found by the study have wider implications, said Bruce Mirken, a spokesman for Berkeley's Greenlining Institute, a liberal public policy and advocacy group.

"It's clearly time for a statewide inquiry to see if the patterns seen in San Francisco" are widespread, he said.

Many of the problems probably stem from both a system where loans are often quickly passed from lender to lender and from the sheer volume of both mortgage activity and foreclosures in recent years.

Ting said he is working with state legislators on ways to update and improve the state's real estate laws.


John Wildermuth is a San Francisco Chronicle staff writer. jwildermuth@sfchronicle.com

http://sfgate.com/cgi-bin/article.cgi?f ... 1N857R.DTL

This article appeared on page A - 1 of the San Francisco Chronicle

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Golden State Warriors

[eyeno]

seems unlikely that there was much serious intent behind this action. Geithner arrested and released for participation in AIG insurance activities.

http://www.youtube.com/watch?v=q5j6Yk0q ... r_embedded

[Nordic]

I just saw that video somewhere else. The video makes no mention of Geithner being arrested in any way.

It's saying he probably SHOULD be arrested.

Interesting how Shephard Smith at one point says the banks run the country, then a second later says "KIDDING!" I wonder who was freaking out somewhere in his eyeline after he said that.

I would love to see this blow up and Geithner (and the rest of them) go to jail.

[Elvis]

---

Seems like this belongs here. I frankly don't fully understand it, technically, but could be a factor in events and worth watching:

http://money.cnn.com/2012/03/11/markets ... ?iid=HP_LN

Big banks at center of interest rate probe
By James O'Toole @CNNMoneyMarkets March 11, 2012: 8:08 PM ET

NEW YORK (CNNMoney) -- It affects everything from mortgages to credit cards to student loans, and now some of the world's biggest banks are at the center of a criminal investigation into whether they manipulated it for their own benefit.

The London Interbank Offered Rate, or Libor, is a measure of the cost of borrowing between banks that serves as a benchmark for over $350 trillion worth of financial products worldwide.

Higher Libor rates translate into higher borrowing costs for businesses and consumers, while lower rates could make lenders reluctant to lend since they can't charge as much in interest. In addition to consumer loans, certain bonds and interest rate swaps also use it as a benchmark.

With all the different loans and investments tied to Libor, there are serious consequences if the process is tampered with.

"If you move it even a little bit, it can cause massive redistribution of resources because it's so extensively used," said Rosa Abrantes-Metz, a professor at New York University's Stern School of Business and a former economist with the Federal Trade Commission.

Last week, the Justice Department said in a letter to a federal judge that it was conducting a criminal investigation of alleged Libor manipulation. Officials in Switzerland, Canada and the United Kingdom are also looking into the issue, according to disclosures in several banks' public filings.

In addition, a number of banks, including Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), HSBC, JPMorgan (JPM, Fortune 500) and Credit Suisse (CS), are defendants in a U.S. civil case brought by investors -- ranging from mutual funds to individual traders to the city of Baltimore -- who say they lost profits due to Libor distortion as far back as 2006.

Law enforcement officials and the banks targeted in the suit either declined to comment or did not respond to requests for comment.

How Libor works: Libor rates are set each business day through a process overseen by the British Bankers' Association.

Between seven and 18 large banks are asked what interest rate they would have to pay to borrow money for a certain period of time and in a certain currency. In all, the process generates rates for 10 currencies across 15 different time periods, ranging from one day to one year.

The responses are collected by Thomson Reuters, which removes a certain percentage of the highest and lowest figures before calculating the averages and creating the Libor quotes.
BofA to slash mortgage balances

Banks trying to appear stronger and more creditworthy may have been tempted to submit lower numbers, particularly during the financial crisis.

In addition, if the banks coordinated their submissions, they could adjust trading positions tied to Libor in order to profit from their advanced knowledge of its movements.

"The banks involved in this were largely trusted by the public to be setting these rates in a fair way -- it was supposed to be a transparent measure of the cost of borrowing," said Arun Subramanian, a lawyer representing plaintiffs involved in the civil litigation. "To the extent that the banks were colluding to manipulate these rates, everyone was harmed and the public trust was violated."
Key Wall Street reform rule under fire

No banks have been formally accused of wrongdoing in the United States.

However, Japanese regulators temporarily suspended some transactions by UBS (UBS) and Citi in December after it was revealed that traders at both banks attempted to influence yen Libor rates and the related Tokyo Interbank Offered Rate, or Tibor.

UBS also recently revealed in public documents that it was providing information to U.S. and Swiss officials investigating possible Libor manipulation in exchange for leniency and conditional immunity, depending on the jurisdiction.

There's no telling how long all the various probes will take to resolve, but if the allegations are proven, liabilities could be in the billions, said Jonathan Macey, a professor at Yale Law School. There's also the possibility of criminal charges should conspiracy among traders be established, as well as the potential for more lawsuits from private plaintiffs.

"It's a very serious issue when you're talking about banks manipulating these rates across the globe," Subramanian said. "I think the liability for the banks is going to be staggering."

[JackRiddler]

Gotta love the latest Taibbi, fucking the banks rhetorically at Occupy Wall Street, found and posted by seemslikeadream.

But today's big big find for me is that Bonnie Faulkner of Guns and Butter (a show that redefines "mixed bag" to an extreme) was in Italy for a Rimini conference on money and a new economy. So far she has published hour-long shows with William Black, Hudson and a new partner Stephanie Kelton, and Alain Parquez.

Download these now, Pacifica keeps saying they'll reduce their archives, though Guns and Butter still goes back to 2003.

I listened to Black, once again he provides a one-hour introduction to everything one needs to know about banking fraud. If only everyone had heard him, things would be appreciably different. Well, maybe. I look forward to Hudson, especially given the promising title. Parquez I don't know, he's in good company.

http://www.kpfa.org/archive/id/78274

"The Greatest Bank Robbery Ever" with William K. Black.

Banks, intensifying financial crises; money manager capitalism; sovereign currency; crony capitalism; theoclassical economists; control fraud, Commodities Future Modernization Act of 2000; S&L Liars' Loan Crisis of 1990-91; Reinventing Government Movement; deregulation, desupervision and defacto decriminalization; fraud incentives; looting; subprime; Enron; Parmalat; BofA; Citigroup; Ameriquest; Washington Mutual; systemically dangerous institutions; Financial Accounting Standards Board (FASB); faux stress tests; European austerity crisis; Mario Draghi, President of the ECB.

http://www.kpfa.org/archive/id/78503

"There IS An Alternative To European Austerity: Modern Money Theory (MMT)"
with Stephanie Kelton and Michael Hudson in Rimini, Italy.

Difference between sovereign and non-sovereign money; what is money; fiat money; gold standard; fixed exchange rates; the Euro; difference between central banks and commercial banks; deflation and inflation; financial war against the economy; credit supply and asset prices; bank lending and capital investment; debt deflation stage and austerity stage of finance capitalism.

http://www.kpfa.org/archive/id/78707

"The Birth of the European Central Bank: Its Real Agenda" with Alain Parquez
at the first Italian Summit on Modern Money Theory in Rimini, Italy.

Matt Taibbi: Bank of America is a “raging hurricane of theft and fraud”

Matt Taibbi [...] wrote this article for OWS, and passed it out to the crowd. It’s an informative and urgent call to action for Americans from all walks of life. We are happy to be the first to publish it.



There are two things every American needs to know about Bank of America.

The first is that it’s corrupt. This bank has systematically defrauded almost everyone with whom it has a significant business relationship, cheating investors, insurers, homeowners, shareholders, depositors, and the state. It is a giant, raging hurricane of theft and fraud, spinning its way through America and leaving a massive trail of wiped-out retirees and foreclosed-upon families in its wake.

The second is that all of us, as taxpayers, are keeping that hurricane raging. Bank of America is not just a private company that systematically steals from American citizens: it’s a de facto ward of the state that depends heavily upon public support to stay in business. In fact, without the continued generosity of us taxpayers, and the extraordinary indulgence of our regulators and elected officials, this company long ago would have been swallowed up by scandal, mismanagement, prosecution and litigation, and gone out of business. It would have been liquidated and its component parts sold off, perhaps into a series of smaller regional businesses that would have more respect for the law, and be more responsive to their customers.

But Bank of America hasn’t gone out of business, for the simple reason that our government has decided to make it the poster child for the “Too Big To Fail” concept. Because it is considered a “systemically important institution” whose collapse would have a major, Lehman-Brothers-style impact on the economy, two consecutive presidential administrations have taken extraordinary measures to keep Bank of America in business, despite a staggering recent legacy of corruption schemes, many of which were simply overlooked by regulators.

This is why the question of whether or not Bank of America should remain on public life support is so critical to all Americans, and not just those millions who have the misfortune to be customers of the bank, or own shares in the firm, or hold mortgages serviced by the company. This gigantic financial institution is the ultimate symbol of a new kind of corruption at the highest levels of American society: a tendency to marry the near-limitless power of the federal government with increasingly concentrated, increasingly unaccountable private financial interests.

The inevitable result of that new form of corruption is this bank, whose continued, state-supported existence should naturally outrage all Americans, be they conservative or progressive.

Conservatives should be outraged by Bank of America because it is perhaps the biggest welfare dependent in American history, with the $45 billion in bailout money and the $118 billion in state guarantees it’s received since 2008 representing just the crest of a veritable mountain of federal bailout support, most of it doled out by the Obama administration.

For instance, with its own credit rating hovering just above junk status, Bank of America has been allowed to borrow tens of billions of dollars against the government’s credit rating using little-known bailout programs with names like the Temporary Liquidity Guarantee Program. Since the crash of 2008, it’s also borrowed billions if not trillions in emergency, near-zero interest rate loans from the Federal Reserve – it took out $91 million in rolling low-interest financing from the Fed on just one day in January, 2009.

Conservatives believe that a commitment to free market principles and limited government will lead us out of our economic troubles, but Bank of America represents the opposite dynamic: a company that is kept protected from the judgments of the free market, and forces the state to expand to take on its debts.

Last summer, for instance, the Bank – in order to satisfy creditors who were nervous about the enormous quantity of risky assets on its balance sheet – decided to move some $73 trillion (that’s trillion, with a T) in exotic derivative bets from one end of the company into the federally-insured, depository side of the bank.

This move, encouraged by the Obama administration, put the American taxpayer on the hook for an entire generation of irresponsible gambles made by another failed investment firm that should have gone out of business, but was instead acquired by Bank of America with $25 billion in taxpayer help – Merrill Lynch.

When did we make it the job of the taxpayer to buy failed companies, and rescue companies from their own bad decisions? How is that conservative?

Meanwhile, if you’re a progressive, Bank of America is the ultimate symbol of modern predatory capitalism. This company has knowingly sold hundreds of billions of worthless securities to unions and pension funds (New York state filed two different lawsuits against Bank of America and its subsidiaries on behalf of its pension fund, one of which was settled for $624 million) brazenly overcharged its depositors (it was forced to pay customers $410 million in restitution for bogus overdraft charges), and repeatedly lied to its shareholders (most notoriously, it lied about billions in losses on Merrill Lynch’s books before asking shareholders to approve its merger with the firm).

Moreover, Bank of America has ruthlessly preyed upon millions of homeowners, throwing them out on the street on the strength of doctored, “robosigned” paperwork created through brazenly illegal practices they helped pioneer — the firm sped struggling families to foreclosure court using perjured affidavits produced in factory-like fashion by the hundreds or thousands every day, with full knowledge of management. Through the firm’s improper use of an unaccountable private electronic mortgage registry system called MERS, it also systematically evaded millions of dollars in local fees, forcing some communities to cut services and raise property taxes.

Even when caught and punished for its crimes by the authorities, Bank of America has repeatedly ignored court orders. It was one of five companies identified in two separate investigations earlier this year that were caught continuing the practice of robosigning, even after promising to stop in a legally binding consent decree. Last summer, the state of Nevada sought to terminate a settlement over mortgage abuses it had entered into with Bank of America after it found the company was brazenly violating the agreement, among other things raising payments and interest rates on mortgage customers, despite the fact that the settlement only allowed them to modify loans downward.

Over and over again, we see that leveling fines and punishments at this bank is not enough: it simply ignores them. It is the very definition of an unaccountable corporate villain.

Companies like Bank of America are a direct threat to national security, for many reasons. For one thing, they drive smaller, more honest banks out of business: since the market knows the federal government will never let Bank of America fail, it charges less to lend the bank money. That gives Bank of America, despite its near-junk credit rating, a competitive advantage over a smaller, regional bank that might have a better credit rating, but doesn’t have the implicit support of the federal government.

Worse still, stock market investor dollars that normally would go to more customer-friendly, more creative, and more commercially dependable firms will instead continue to flow to Too-Big-To-Fail behemoths like Bank of America, as buying stock in a company with implicit state support will be considered almost a safe-haven investment, like buying gold or Treasury bills.

This robs more deserving and ingenious entrepreneurs of scarce capital, and also encourages existing companies to pour resources not into better performance and increased productivity, but into lobbying and government influence. The result will be fewer Googles and Apples, more bad banks, and more campaign contributions for politicians.

Moreover, we’ve seen throughout our history that when criminal organizations are not punished, they tend to be encouraged to commit more crimes. Five years from now, our government’s decision to avoid jailing Bank of America executives for their roles in the vast robosigning program may result in a situation where no court document of any kind can be trusted, as companies will realize that it is cheaper and easier to simply invent legal affidavits than to draw them up properly and accurately.

What will your defense be against a future lawsuit for a credit card debt or a foreclosure, when your bank walks into court with a pile of invented documents? Will you wish then that you’d fought harder for Bank of America to be punished now?

And the state’s decision to allow Bank of America to pay a middling, $137 million fine for the rigging of bids for five years of municipal bond issues – a very serious crime that robbed taxpayers of millions in revenue, and incidentally is exactly the sort of thing we used to put mobsters in jail for, when the rigged contracts were for cement instead of bonds – may mean that down the road, all municipal bond issues will be rigged.

In recent years, Too-Big-To-Fail banks like Bank of America and Chase and Wells Fargo have been caught rigging the bids for financial services in dozens of municipalities nationwide. Worse, these same banks have repeatedly been let off the hook by regulators, who rarely seek jail sentences for the offenders, and more often simply apply fractional fines to the companies caught. This behavior, if left unchecked, will ultimately mean that we will all have to pay more for our roads, our traffic lights, our sewers, in fact all public services, as the banker’s secret bonus will soon become an institutionalized part of the invoice. And it’ll be our fault, because we didn’t do anything about it now.

The only way to prevent this kind of slide to total lawlessness is to break this unhealthy relationship between bank and government. It would be a great sign of America’s return to healthier capitalism if we could allow one of the worst of public-private monsters, Bank of America, to sink or swim on its own, in the free market.

We don’t want Bank of America to fail. Our position is, it already is insolvent, and already has failed – and only our tax dollars, and our government’s continued protection, is keeping that failure from becoming more common knowledge. There are many opinions about the nature of modern American capitalism. Some think the system is no longer able to meet the needs of ordinary people and needs to be radically overhauled, while others like it just the way it is.

But one thing that everyone on this spectrum of beliefs can agree upon is that our system doesn’t work when corrupt companies, companies that should fail in the free market, are kept alive by the government. When we allow that, what we get is a system that is neither capitalism nor socialist, but somewhere more miserably in between – a bureaucratic state in which profit is not tied to performance, but political power.

We have to break that cycle, and we can. Even with the enormous levels of state support, Bank of America has been teetering on the edge of collapse for years now. In December of 2011, its share price briefly dipped below $5, a near-fatal event in the firm’s history. The market has reacted violently to bad news about the bank on multiple occasions in the last year – after news of layoffs, after hints that the government might not bail the bank out completely in the event of a collapse, and after significant new lawsuits were filed. Each of these corrections nearly sent the company into a tailspin, but it was always rescued in the end by the widespread belief that Uncle Sam would bail it out in the event of a collapse.

We need to put a dent in that belief. We need to convince politicians and investors alike to allow failure to fail.

– Matt Taibbi, February 29th, 2012, Occupy Wall Street

[eyeno]

if boa goes belly up that giant sucking sound you hear will be trillions of dollars worth of assets going with it. that would be ugly.

[2012 Countdown]

.
Nevermind the 'central planning' bash and couching, but the facts remain:

=====

How To Cripple the Real Estate Market in Five Easy Steps
March 19, 2012

If you were head of Central Planning (howdy, Ben!) and were tasked with crippling the real estate market, here's what you would recommend.

1. Choke the market and banking sector with zombie banks. Central Planning creates zombie banks in one easy step: it allows insolvent banks to mark their impaired "real estate owned" to fantasy rather than to market. This enables the banks to survive in a deathless state, propped up by free money from the Federal Reserve and lax regulations that enable fantasy accounting and all sorts of off-balance sheet trickery.

Zombie banks have no incentive to auction off their holdings of real estate with defaulted, underwater or otherwise impaired mortgages, for having the market discover the price of these properties would immediately reveal the insolvency of the bank as properties it held on its books at (say) $400,000 were actually only worth $200,000. Since the mortgage is (say) $350,000, then the bank would be forced to recognize a $150,000 loss (actually more with transaction fees, repair of the derelict property, etc.).

If the bank's entire portfolio of phantom-value properties was auctioned off or its price discovered by the market, the bank would be declared insolvent and closed.

So instead the zombie banks' impaired properties clog the market, unlisted, unsold, indefinitely held off the market until unicorns arrive and valuations return to bubblicious 2006 levels where the bank can unload them with no loss.

Since those valuations haven't arrived, millions of properties are being held off the market. This "shadow inventory" is well-known (tens of thousands of people are living rent and mortgage-free in homes that the banks have yet to even put in the foreclosure pipeline), so no one has any confidence that "the bottom is in." Confidence cannot be restored until the market clears the inventory and a real bottom is established.

This destruction of confidence undermines the entire market. Zombie banks create zombie valuations. Who can say valuations won't decline once the shadow inventory finally hits the market?

Keeping zombie banks alive via bogus valuations and shadow inventory of derelict and defaulted homes has another consequence: banks themselves cannot be confident that prices won't decline further, so it makes no sense for them to put capital at risk by issuing mortgages on real estate.

2. Have the central bank (the Federal Reserve) buy up $1 trillion in toxic, impaired mortgages. If these mortgages were such a great deal, then why didn't private buyers snap them up? Exactly: they were fetid garbage no private buyer would touch except at steep discounts that would have sent the banks into insolvency. (That isn't allowed in crony-capitalist State-run economies.)

The market was thus denied the opportunity to discover the price of all this mortgage debt, and this effectively destroyed the private market for mortgages. Literally 99% of all mortgages in the U.S. are guaranteed by the Central State. Suppressing market price discovery works just as well in the mortgage market as it does in the housing market.

3. Lower the rate that banks can borrow from the Fed to zero, and then pay the banks interest on all funds deposited at the Fed. I wish we had this option, don't you? We could borrow $1 billion from the Fed at zero interest, then deposit the $1 billion with the Fed and skim risk-free interest.

But the real-estate effect of ZIRP (zero-interest rate policy) is to lower the mortgage rate to such a low level that it makes no sense to take on the risks and unknowns of real estate valuations for such a paltry return. After all, what if the bank loans $300,000 on a $400,000 home, the value subsequently drops to $300,000 and the buyer defaults? The bank will lose capital it can't afford to lose dumping the property at auction.

Better to avoid the mortgage market altogether by refusing most applicants as risks--and given the high debt levels of most households, they may indeed be poor risks.

4. Try to prop up the housing market by giving poor credit risk buyers loans with only 3% down. This generates a new pool of ready buyers, but since the government is guaranteeing the loan, qualifying is easy and the buyers only have a few thousand dollars of skin in the game. This means defaulting is not very painful, especially if it takes the lender a few years to foreclose on the property.

The net effect of subsidizing poor credit risks to buy houses is that another pool of uncertainty is created, as these buyers are defaulting in droves, dumping inventory that had just been cleared back on the market. (The default rates of FHA loans is skyrocketing, and now the taxpayers will have to bail out the FHA.)

This is what happens when you try to prop up the market with unqualified buyers and 3% down mortgages--those buyers bail out in huge numbers and the homes return to the inventory. The clearing of inventory was as phantom as the real estate valuations on the banks' balance sheet.

5. Load young people up with the equivalent of a mortgage in student loans. That insures that the majority of potential new homebuyers won't be qualified to buy a house--they're already indentured to the banks for student loans. Those fortunate few who get good-paying jobs will qualify for a mortgage when they're getting grey hair; most will never qualify, having been buried by impossible-to-default student loans.

OK,let's see how our Organs of Central Planning are doing: check, check, check, check, check: a perfect score! they're doing everything possible to cripple the real estate market.

Do they care? Of course not; the only goal is to keep the zombie banks alive, regardless of the cost to the nation. Great work, Ben, Barack, Timmy and the rest of the gang at Central Planning: thanks to your policies, the real estate market will never clear and therefore it can never be restored to health.
==
link-

http://www.oftwominds.com/blogmar12/cripple-RE3-12.html

[Wombaticus Rex]

Great piece: Via Bloomberg

Federal Reserve Stress Tests Make Us All Muppets

There was disheartening news last week regarding the way the U.S. financial system operates. I’m not referring to the opinion piece by a departing Goldman Sachs Group Inc. employee, which suggested that the company has little respect for its customers.

If you have a complex derivatives transaction in place with Goldman -- or any other big Wall Street firm -- and you didn’t know they thought of you as a malleable “muppet,” it may be time to replace your chief financial officer.

Anyone who thinks this kind of hubris is new should read Frank Partnoy’s inside account, “F.I.A.S.C.O.,” published in 1999. Wall Street became a more aggressive and risk-loving place when trading increased as a line of business, but this happened way back in the 1980s by most accounts.

The truly dreadful news last week was conveyed in the results of the Federal Reserve’s latest bank stress tests. As presented by the Fed, most of the news was good. Some large financial institutions were judged likely to have sufficient equity capital even if the U.S. economy were to experience a significant downturn. With that, banks such as JPMorgan Chase & Co. were allowed to increase their dividends and buy back shares. Naturally, bank stocks rallied.

Economic Uncertainty

But there’s a problem, and it’s not a small one. If you buy the Fed’s view of what is likely to constitute stress, there is some justification for its action. Even then, you should ask the question that Anat Admati, a Stanford University finance professor, has been pressing: Why would we let banks reduce their capital in the face of so much financial and economic uncertainty around the world? If you leave shareholder equity on bank balance sheets, it still belongs to shareholders. Let it stay there as loss-absorbing capital in case the world turns nasty again.

Reducing bank capital, according to Admati and her colleagues, doesn’t help the economy. Bankers like lower capital levels because their pay is based on return-on-capital unadjusted for risk. Shareholders are willing to go along either because they don’t understand the risks of thinly capitalized and therefore highly leveraged businesses, or they expect to share in the downside protection that will be provided by the government.

Make no mistake: Lower equity at big banks means higher expected losses for taxpayers down the road. Don’t let anyone fool you into thinking that banking crises are costless. The disaster of 2008 caused about a 50 percent increase in U.S. debt relative to gross domestic product -- the second largest shock to the country’s balance sheet after World War II. (The details of this calculation and a broader perspective on today’s fiscal risks are in my new book with James Kwak, “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You,” which will be published April 3.)

And the Fed’s record as an economic forecaster is less than stellar. As chief economist at the International Monetary Fund in 2007 and 2008, I sat through innumerable meetings in which the senior Fed official painted a picture of the world that, in retrospect, was overly optimistic. When the Fed ran stress tests in early 2009, did it anticipate the depth and length of the U.S. recession? When it ran tests in late 2010, did it envisage even the rough contours of what became the European sovereign debt crisis? In both cases, the answer is no -- neither the Fed nor anyone else knows the future.

When the Fed leans toward the bright side, it isn’t accidental. As the organization that sets monetary policy and communicates the likely future direction of interest rates, the Fed feels the need to be careful about what it says, and goes out of its way to convey calmness.

Too Benign

For example, the Fed’s assumption in the stress scenario that Europe would have a mild recession seems too benign. My sources tell me that the Fed further assumed that only one large European bank would fail. But a single failure is a rarity -- either many banks do or they all receive bailouts, presumably depending on how public-sector balance sheets hold up and what happens politically.

But if the Fed implied, through its stress-test design, that it was seriously concerned about a major European meltdown, including perhaps a large restructuring of Italian or French government debt, what would that do to bond spreads and fiscal solvency around the world?

Another major omission from the stress tests is any serious consideration of interest-rate volatility, (!!!!!!) either with the economy far below full employment (as now) or if there is a faster than expected recovery. Long-term interest rates could easily rise if international investors shift away from holding dollars and the Fed decides not to resume buying long-term debt, which it had been doing to stimulate the economy. Short-term rates could also rise sharply. Either way, the Fed should examine the implications for banks.

Failure to do so is the kind of hubris we should fear. The Fed has an imperfect view of the future, as do we all. It has repeatedly demonstrated a limited ability to control economic outcomes. In light of this, the Fed could have required banks to build up shareholder capital on their balance sheets in case their aggressive risk-taking again becomes reckless and creates enormous losses.

Instead, the Fed is allowing big banks to reduce capital levels, increasing the likelihood of another financial and fiscal crisis and endangering the broader U.S. economy. We are all muppets now.

[Wombaticus Rex]

Via: Yahoo News

Political intelligence: Wall Street pays handsomely for Washington inside dope

By Zachary Roth

In 2009, an unusual meeting took place at a federal government agency in Baltimore. For around 90 minutes, a group of financial industry professionals grilled staffers at the Centers for Medicare and Medicaid Services, seeking information about an obscure policy question: whether CMS, which oversees the two massive federal health programs, planned to change the reimbursement policies under Medicare for a class of medical devices. The decision stood to affect the bottom line of several companies that produce versions of the device, and the bankers wanted to use what they learned to make investment decisions.

"They hammered us for an hour and a half to try to figure out where we were headed, what our process was, how we'd done things like this in the past," one CMS staffer at the meeting told Yahoo News. "It was theater of the obscene."

The Wall Street crowd didn't learn whether the reimbursement policies would change, but they still got something out of the meeting. "They learned a great deal about the process," said the source. "So they had an enormous competitive advantage over others in the marketplace."

After the meeting was first reported by the Project on Government Oversight, a good-government group, Sen. Charles Grassley, an Iowa Republican, sent a stern letter to CMS questioning whether the confab had served taxpayers' interests. The agency told POGO the meeting was "consistent with agency rules on contacts between CMS staff and members of the public."

Still, this wasn't the kind of meeting that any concerned citizen could have set up. It was arranged by the Marwood Group, a "strategic advisory and financial services firm" focused on health care policy and founded in 2000 by Edward Kennedy Jr., son of the late Massachusetts senator. Marwood is one of an increasing number of players in the fast-growing "political intelligence" industry, which provides information or analysis about legislative developments or policy decisions to clients—usually Wall Street hedge funds or other financial institutions—whose business decisions are affected by what happens in Washington. And lately, it's attracted the attention of some federal lawmakers, who fear that it gives insiders an unfair leg up.

The concept isn't new. Back in the 1980s, stock trader Ivan Boesky hired lobbyists whose main goal wasn't to convince lawmakers to act in a certain way—as most lobbyists aim to do—but rather to gather intelligence on whether Congress planned to block a proposed takeover of Gulf Corp. by Standard Oil. Boesky learned that the merger would be approved, and used that information to make some profitable trades.

But observers say that over the last decade, as hedge funds have proliferated, creating a larger number of institutional money managers, the political intelligence business has boomed. Integrity Research Associates, which monitors the investment research industry, estimates that around 300 separate firms perform political intelligence services, and that the industry does around $400 million of business per year worldwide.

"The amount of money institutional investors make from understanding what's going on in Washington is astronomical," Integrity Research chairman Michael Mayhew told Yahoo News.

That growth raises some thorny issues. Consider that Raj Rajaratnam, who ran a top Wall Street hedge fund, was sentenced in October to 11 years in prison after being found to have used a network of experts to gain inside information about publicly traded companies, then make trades based on that information. But if Rajaratnam's intelligence had concerned legislative or policy-making developments, and he had picked it up from a member of Congress or agency staffer, he'd likely have broken no laws. That's because lawmakers and their aides, unlike employees of publicly-traded companies, generally have no fiduciary duty to keep that information confidential. Indeed, though Boesky was later convicted of insider trading, the information he got from Washington wasn't part of the case.

Earlier this year, Grassley introduced a measure that would have required purveyors of political intelligence to register and disclose their clients, just as lobbyists must do. But after an outcry from lobbying firms, who feared that it could force them to disclose every casual conversation with lawmakers and their aides, the measure was removed by House Republicans from a larger bill to ban insider trading by members of Congress.

It's not hard to see why the political intelligence industry could view disclosure requirements as a threat. One leading political intelligence firm, the Open Source Intelligence Group, touts as a major selling point the anonymity it offers clients. "Providing this service for clients who do not want their interest in an issue publicly known is an activity that does not need to be reported under the Lobbying Disclosure Act (LDA), thus providing an additional layer of confidentiality for our clients," it declares prominently on its website.

Still, there's a wide range of practices—with varying degrees of secrecy and sophistication—that fall under the political intelligence umbrella. Many of its practitioners are plugged-in law, lobbying and consulting firms that regularly pick up inside information from lawmakers, Capitol Hill aides or staffers at regulatory agencies, and run a side business passing that information on to Wall Street clients trying to figure out how developments in Washington will affect a given industry or company. Others are policy research firms, which generally specialize in one field—energy policy, say—and gather information from those same sources, then mix it with their own analysis to compile reports. Then there are investment banks themselves, including Goldman Sachs and Morgan Stanley, that have in-house staff who gather political intelligence for their own and their clients' use. There are individual operators—academics, policy specialists, lawyers or lobbyists—who sell analytic expertise, as much as raw information, to Wall Street. Some firms even operate as middlemen, connecting these experts to financial industry clients.

In some cases, Wall Street isn't paying for specific information, but rather for expert analysis or judgment. Kevin Kinser, an associate professor of educational policy at SUNY Albany who focuses on the for-profit college sector, told Yahoo News he helps financial industry clients interpret publicly available data on for-profit colleges, as they try to game out where federal policy is heading and how that might affect specific companies.

Kinser isn't privy to any inside dope—his role is more that of a guide or interpreter than an informant. "I have a particular expertise that comes from my scholarship, and I'm sharing that expertise with people who want that information," he said.

Still, many political intelligence practitioners depend on direct contact with lawmakers or government officials in a position to at least offer educated guesses about issues of major significance to a company's bottom line. And that's why the growth of the industry could make those lawmakers or government officials wary of holding conversations with stakeholders.

"When you talk to a lobbyist, you know their background and agenda," Mayhew said. "When you're talking to someone who has another agenda, which is undisclosed, you want to know that—particularly if that's to inform the decision-making of a hedge fund."

But some supporters of the industry argue that, with a growing number of ordinary people counting on Wall Street to manage their money, it's in everyone's interest for Wall Street to be able to make the best-informed decisions it can.

"We all just sort of hand our retirement funds over to professional investors, so these places are managing average Americans' retirement money," said one senior executive involved in the business. "Shouldn't they be required to do the best research?"

NOTE: If this subject is of interest, check out this longer, more in depth piece on the hedge fund lobbyist pipeline from 2006: http://old.post-gazette.com/pg/06342/744652-28.stm

[2012 Countdown]

No Housing Recovery On This Chart Either
Submitted by Tyler Durden on 03/20/2012

Minutes ago, the US Census Bureau released the February Housing Starts data, which printing at 698K was a mild disappointment, as it was below expectations of 700K, and down from a revised 706K. However, as usual, the headline gives only half the story. Here is the reality: in February, only 48.1k homes were started (Not Seasonally Adjusted). This compares to 46.5K in January. However, of this number Single Unit houses, those which are relevant for actual housing demand, and not the 5+ units more relevant for rental purposes, declined from 33.0K to 31.5K. In fact, the 31.5K number was the weakest since December's 31.0K, and then all the way back to February 26.6K. What offset this? The surge in multi-family housing units, as usual, which rose from 12.3K to 16.1K. Recall that lately there has been a shift from owning to renting, and as such builders are focusing on this. All of this is summarized in the SAAR based (Seasonally Adjusted) chart below. It gets worse: looking at actual completions, far more important in this New Normal economy, where everyone is willing to take credit for a hole in the ground as "new housing" what really matters is the rate of completions. And in January, it was a meager 28.6K, a tiny rise from January, and lowest than any number in 2011, except for last February. Sorry - there is no housing bottom. If anything, true housing continues to creep along the bottom as can be seen in the chart below.



http://www.zerohedge.com/news/no-housin ... art-either

---

And an interesting but not suprising comment:

jus_lite_reading
If you want to see a "recovery" or even a housing BOOM, go check out what they are doing in places like Alpine NJ, Chatham NJ, Short Hills and Summit NJ... I DARE YOU!!

MEGA MANSIONS that you have never seen before!! One house currently under construction has 21 BATHROOMS and a 3000 SQ FT pool house with heated marble floors!!

Yet in most middle class areas you see abandoned homes, emtpy homes that have been sitting for years for sale and worse... the property taxes continue to rise...
GAME OVER!

===

Financial Expert on Why Buying a Home Is a Bad Idea
The idea that buying a home might be a totally bad investment is a hard statement to digest. Hedge fund manager and Huffington Post contributor James Altucher made big internet waves last week with his declarative and super-viral post stating: "Why I Am Never Going to Own a Home Again."

The kind of guy to make a lofty statement like that and then follow it up with an extensive and pretty good argument as to why he's even bothering to say it, clearly can go on and on about such advice. So AOL Real Estate called him up at home in his New York state rental home for a chat:

People have a hard time accepting the idea that buying a home is a bad idea and that renting is actually smarter. Besides ticking off real estate brokers, this is also critical of the American dream. What do you say to the continued naysayers?

full-
http://realestate.aol.com/blog/2011/03/ ... -bad-idea/