03 Saturday Apr 2010
Simon Johnson, MIT professor, Huffington Post contributor, co-founder of Baseline Scenario, and author of the new book 13 Bankers, on why it is imperative that “Too Big To Fail” becomes a thing of the past:
“You can’t have a market economy if some people have get out of jail free cards.”Vodpod videos no longer available.
02 Friday Apr 2010
Tags
Alabama, Jamie Dimon, Jefferson County, JPMorgan Chase, Looting Main Street, Matt Taibbi, Rolling Stone
In a March 26 letter to shareholders Jamie Dimon, CEO of JPMorgan Chase, wrote:
“The crisis of the past couple of years has had far-reaching consequences, among them the declining public image of banks and bankers…[W]hen we vilify whole industries…we are denigrating ourselves and much of what made this country successful…We also should refrain from indiscriminate blame of any whole group of people…While JPMorgan Chase certainly made its share of mistakes in this tumultuous time, our firm always has remained focused on the fundamentals of banking and the part we can play to support our clients and communities.”
One example of JPMorgan’s “support” for their “clients and communities” and a reason for the “declining public image of banks and bankers” can be found in another in a long line of excellent pieces by Matt Taibbi at Rolling Stone, entitled “Looting Main Street: How the nation’s biggest banks are ripping off American cities with the same predatory deals that brought down Greece”
The article is lengthy, but a must-read, in my opinion. It’s the story of bribery, corruption, and fraud in Jefferson County, Alabama. Briefly (or maybe not so briefly), it goes like this.
In the early 90’s the EPA sued the county in order to bring its antiquated sewer system into compliance with the Clean Water Act. In 1996 county commissioners decided to build the “Taj Mahal of sewage treatment plants” with cost estimates of $250 million. Taibbi:
“But in a wondrous demonstration of the possibilities of small-town graft and contract-padding, the price tag quickly swelled to more than $3 billion. County commissioners were literally pocketing wads of cash from builders and engineers and other contractors eager to get in on the project, while the county was forced to borrow obscene sums to pay for the rapidly spiraling costs.”
Originally the plan was to pay for the project by increasing sewer rates. But as costs continued to escalate county commissioners knew that sooner or later customers would revolt over the ever-increasing rates, so they started looking for “creative financing.” That’s music to the banksters ears and, true to form, they came riding to the rescue with their gobbledegook of variable rate refinancing and “swaps.”
Here’s where local JPMorgan rep Charles LeCroy meets crooked politician, with local “wheeler-dealer” Bill Blount as the middle man:
“LeCroy paid Blount millions of dollars, and Blount turned around and used the money to buy lavish gifts for his close friend Larry Langford, who at the time had just been elected president of the county commission…Langford then signed off on one after another of the deadly swap deals being pushed by LeCroy. Every time the county refinanced its sewer debt, JP Morgan made millions of dollars in fees.
Even more lucrative, each of the swap contracts contained clauses that mandated all sorts of penalties and payments in the event that something went wrong with the deal. In the mortgage business, this process is known as churning: You keep coming back over and over to refinance, and they keep “churning” you for more and more fees.”
But unbeknownst to LeCroy, Blount had a another suitor, Goldman Sachs. So:
“JP Morgan cut a separate deal with Goldman, paying the bank $3 million to [go away], with Blount taking a $300,000 cut of the side deal.”
The payoff for JPMorgan?:
“The deals wound up being the largest swap agreements in JP Morgan’s history. Making matters worse, the payoffs didn’t even wind up costing the bank a dime. As the SEC explained in a statement on the scam, JP Morgan “passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions.”
In other words, not only did the bank bribe local politicians to take the [lousy] deal, they got local taxpayers to pay for the bribes. And because Jefferson County had no idea what kind of deal it was getting on the swaps, JP Morgan could basically charge whatever it wanted. According to an analysis of the swap deals commissioned by the county in 2007, taxpayers had been overcharged at least $93 million on the transactions.”
As happens sooner or later with all Wall Street scams, the whole thing collapsed in early 2008. And as also happens with Wall Street scams, the banksters got the gold mine and the taxpayers of Jefferson County got the shaft.
But don’t think this is an isolated incident. Taibbi concludes:
“The destruction of Jefferson County reveals the basic battle plan of these modern barbarians, the way that banks like JP Morgan and Goldman Sachs have systematically set out to pillage towns and cities from Pittsburgh to Athens. These guys aren’t number-crunching whizzes making smart investments; what they do is find suckers in some municipal-finance department, corner them in complex lose-lose deals and flay them alive. In a complete subversion of free-market principles, they take no risk, score deals based on political influence rather than competition, keep consumers in the dark — and walk away with big money.”
Any questions about that “declining public image” of banks and bankers, Mr. Dimon?
01 Thursday Apr 2010
Posted in bailout, Financial Crisis, Justice Department, Politics, Wall Street
From Bankster USA, Will Anyone Bunk With Bernie?
“Bernie Madoff is lonely. Eighteen months after the collapse of the financial system, not one Wall Street Titan has joined the [Ponzi] King in the federal pen…Apparently no one at the Department of Justice (DOJ) or the FBI really cares about the greatest white-collar crime wave in the history of the world — even if it did rob average American of some $14 trillion dollars in lost wages, savings, and housing wealth. After eighteen months, it is difficult to point to one CEO from a major Wall Street bank, hedge fund, or fraudulent mortgage company who is behind bars.”
Compare that with the Savings and Loan crisis of the late 1980’s:
“In the wake of the S&L crisis, Congress pushed regulators to investigate and prosecute. Congress also provided them with the resources to do the job. A series of strike forces based in 27 cities were staffed with 1,000 FBI agents and dozens of federal prosecutors.
The result? According to government statistics, no less than 1,852 S&L officials were prosecuted and 1,072 were jailed. Over 500 of these were top officers.
Bernie is lonely. I am sure the federal penitentiary can squeeze in hundreds of more bunk beds to accommodate his friends and colleagues from Wall Street. But it’s not going to happen until the FBI and the DOJ are given the resources they need, and a kick in the pants by Congress.”
31 Wednesday Mar 2010
Posted in bailout, economy, Financial Crisis, financial reform, financial regulation, Politics, Wall Street
In an interview with Maria Bartiromo yesterday on CNBC, TARP Oversight Panel chairperson Elizabeth Warren commented on a wide range of topics from the alleged “profit” the government will receive from the sale of shares of Citigroup, to “pulling the plug” on Fannie and Freddie, to the impending crash of the commercial real estate market.
About the sale of Citi stock, Dave Dryden at Firedoglake has the explanation of why it’s all accounting hocus pocus. The upshot is this–the TARP money Citi received was only a small portion of the total federal commitment.
This message to the TBTF’s made me want to stand up and cheer:
“I don’t care how big you are, if you make serious enough mistakes, then your business can be wiped out. There is no guarantee anymore.”
Are they listening at the White House, the Treasury, and the Fed? One can only hope.
But the most ominous warning was on commercial real estate, calling it a “very serious problem that we’re going to have to resolve over the next 3 years,” Warren added that nearly 3,000 mid-size banks have what she called a “dangerous concentration” in commercial real estate lending. Asked if she saw a “return to normalcy” in 2010, Warren said, “I don’t think so, I don’t see it.” Watch:Vodpod videos no longer available.
30 Tuesday Mar 2010
Posted in bailout, economy, Financial Crisis, financial reform, financial regulation, Politics, Wall Street
Tags
Citigroup, Dallas, derivatives, Dodd, Federal Reserve, Geithner, Joseph Stiglitz, Paul Volcker, Richard Fisher, Sheila Bair, Ted Kaufman, too big to fail
The chorus of those calling for breaking up the big banks is growing larger and louder by the day. Senator Ted Kaufman (D-DE) in a speech on the floor of the Senate last Friday:
“These mega-banks are too big to manage, too big to regulate, too big to fail and too interconnected to resolve when the next crisis hits. We must break up these banks and separate again those commercial banking activities that are guaranteed by the government from those investment banking activities that are speculative and reflect greater risk.”
Richard Fisher, President of the Federal Reserve Bank of Dallas, March 3:
“A truly effective restructuring of our regulatory regime will have to neutralize what I consider to be the greatest threat to our financial system’s stability—the so-called too-big-to-fail, or TBTF, banks. In the past two decades, the biggest banks have grown significantly bigger. In 1990, the 10 largest U.S. banks had almost 25 percent of the industry’s assets. Their share grew to 44 percent in 2000 and almost 60 percent in 2009.
…Given the danger these institutions pose to spreading debilitating viruses throughout the financial world, my preference is for a more prophylactic approach: an international accord to break up these institutions into ones of more manageable size—more manageable for both the executives of these institutions and their regulatory supervisors.”
Senator Kaufman and Mr. Fisher are just the latest additions to the list that includes former Fed chairman Paul Volcker, Nobel prize-winning economist Joseph Stiglitz, FDIC head Sheila Bair, Sen. Cantwell, and Sen. McCain, among many others. Unfortunately, two names not on the list are Treasury Secretary Geithner and Chairman of the Senate Banking Committee, Chris Dodd.
And as if on cue, Citigroup gives us a prime example of why these financial behemoths need to be dissolved, and have what was once the “boring” business of commercial banking–taking deposits and making loans–separated from the risky business in which the banksters love to engage (with OPM of course) and why Wall Street cannot be left to its own devices:
“It appears that the pain of the recession is not deep enough to teach Citigroup Inc. what it needs to learn. The bank..is now readying a new unregulated insurance credit derivative, the CLX…The company is heading back into familiar territory where they’re putting taxpayer money into play on another risky bet. Simply put the instrument will enable it to gamble on future events by issuing complex financial instruments which attempt to quantify risk. This is very similar to the original business that Citigroup was heavily involved with that precipitated their fall from glory.”
Leopards and banksters never change their spots.
28 Sunday Mar 2010
Tags
Bank of America, Bear Stearns, Bloomberg, conspiracy, General Electric, interest rates, JPMorgan, Lehman Brothers, too big to fail, Wall Street
Only in the bizarro world of high finance can one be named as a co-conspirator and not subject to criminal charges:
“March 26 (Bloomberg) — JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and UBS AG were among more than a dozen Wall Street firms involved in a conspiracy to pay below-market interest rates to U.S. state and local governments on investments, according to documents filed in a U.S. Justice Department criminal antitrust case.
…None of the firms or individuals named on the list has been charged with wrongdoing.”
A government list of previously unidentified “co- conspirators” contains more than two dozen bankers at firms also including Bank of America Corp., Bear Stearns Cos., Societe Generale, two of General Electric Co.’s financial businesses and Salomon Smith Barney, the former unit of Citigroup Inc., according to documents filed in U.S. District Court in Manhattan on March 24.
Apparently “too big to fail” is also “too big to jail.”
24 Wednesday Mar 2010
Tags
big business, commercial real estate, economic recovery, existing home sales, foreclosure prevention program, health care reform, housing crisis, ticking time bomb, Wall Street
Now that health care reform, such as it is, has been signed, sealed, and set to be delivered in varying stages between now and 2014, can we please move on to other things. Believe it or not there are some significant storm clouds on the horizon which have the potential to come on shore sooner than 4 years from now, and which might merit some attention from policymakers in Washington, D.C. Such as:
The next wave of the housing crisis:
“This month, the Fed confirmed that it will no longer make open market purchases of mortgage backed securities after March 31st…As the Fed begins to unwind its historic intervention, it faces a second wave of toxic mortgage maturities that could be even more damaging than the last wave of subprime mortgages. These are the 3 and 5 year Option ARM mortgages, and they were the credit bubble’s absolute creme de la creme…these loans will reset at rates that are far higher than the initial “teaser” rate. Sadly, this may spell doom for borrowers who used these loans to fund overpriced home purchases in 2006-2007, especially in high-priced markets along the coasts.”
Add to that the lack of success of the foreclosure prevention program which has fallen far short of its original goals of helping 4 million homeowners. The number so far is less than 170,000.
“The program risks helping few, and for the rest, merely spreading out the foreclosure crisis over the course of several years” at significant expense for taxpayers and borrowers, the inspector general’s office wrote. If too many participants re- default, the modification plan “will have done little to achieve the goal of assisting homeowners who would still find themselves losing their homes.”
Then there’s the commercial real estate “ticking time bomb”:
“Estimates published last November by the Urban Land Institute and PricewaterhouseCoopers suggest that commercial real estate vacancies will continue to increase in 2010, while prices could tumble further during the year. Prices could fall as low as half their peak levels from 2007.
If that happens, that would only darken borrowers’ hopes that banks will refinance their outstanding loans. And some $1.4 trillion is commercial real estate debt is expected to come due over the next three years.”
Existing home sales have fallen for the third straight month, to their lowest level since last July:
“Resales of U.S. homes and condominiums fell 0.6% in February to a seasonally adjusted annual rate of 5.02 million, the lowest level in eight months, raising doubts about the durability of the housing recovery, the National Association of Realtors reported Tuesday.
…”We need to have a second surge,” said Lawrence Yun, chief economist for the real estate lobbying group. However, the jury’s still out, he said…A double-dip recession is a “possibility” if a second surge of buying doesn’t occur, he said.”
And last but not least, the economic “recovery” which is being felt in few places outside of big business and Wall Street:
“The earnings of companies in the Standard & Poor’s 500 stock index tripled in the fourth quarter, but this does not mean the rest of the US economy is doing well. Much of their sales were into fast-growing markets in places like India, China and Brazil. Meanwhile, they continued to slash jobs and cut costs at home.”
Large corporations are flush with cash, but:
“…Much is being used to buy other companies, which usually leads to more job losses. Much of the rest is being used to buy back their own stock in order to boost their share prices…The major beneficiaries are shareholders, including top executives, whose pay is linked to share prices. But the buy-backs do nothing for most Americans.
…The economy shows signs of improvement largely because the government is spending huge sums and the Fed is essentially printing even more money. But where will demand come from when the stimulus is over and the Fed tightens? That question hangs over the economy like a dense cloud. Until there is an answer, a sustainable recovery for any other than America’s largest corporations, Wall Street and the wealthy is a mirage.”
Just a few things for our elected representatives to consider. You’ve done your touchdown dance, now it’s time to get ready for the kickoff—the game is far from over.
23 Tuesday Mar 2010
Posted in bailout, economy, Financial Crisis, financial reform, financial regulation, Politics, Wall Street
Tags
bankruptcy, junk loans, Lehman Brothers, New York Federal Reserve, Senator Chris Dodd, Treasury Secretary Geithner, warehouse
How much more of these “junk loans” are bring “warehoused” on the books at the Fed? A question to which we may never know the answer if Treasury Secretary Geithner and Senator Chris Dodd have anything to say about it:
“As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn’t sell in the market, according to a report from court-appointed examiner Anton R. Valukas.
Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books.”
The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a “warehouse” for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds.
Meanwhile, the Fed and Geithner both strongly oppose a congressional measure to authorize an independent audit of the central bank and its lending facilities. The provision passed the House but is under attack in the Senate, where Banking Committee Chairman Chris Dodd (D-Conn.) says he hopes to stop it.
I suspect this has a lot to do with Secretary Geithner’s strong opposition:
“The Valukas report found clear evidence that the New York Fed knew that Lehman was sending it garbage that it had no intention to market. In other words, the baskets of assets were created for the specific purpose of selling to the Fed for far more than they were worth.
Lehman knew it too: “No intention to market” was scrawled on one of the internal presentations about the assets…Geithner himself was aware that there was a gap between what Lehman claimed the assets were worth and what they were really worth.”
What else don’t we know? The stonewall is on:
“The Fed won’t say how much more toxic “garbage” is in the Fed’s “warehouse”…The Treasury didn’t immediately respond to a request for comment.”
Sounds an awful lot like fraud and obstruction of justice to me.
17 Wednesday Mar 2010
Tags
Bureau of Consumer Financial Protection, Chris Dodd, Comptroller of the Currency, Elizabeth Warren, Financial Stability Oversight Council, Geithner, independent watchdog, John Dugan, Lehman Brothers, New York Fed, The Nation, too big to fail
Sen. Chris Dodd’s so-called “sweeping overhaul of the U.S. financial system” creates a Bureau of Consumer Financial Protection, which is supposed to be “a new, independent consumer watchdog.” You just know there’s a “but” coming here, right? Right:
“…the legislation would impose significant limits on the autonomy of the new watchdog. It would establish a Financial Stability Oversight Council [with veto power over the bureau] of nine members, all but one of whom would be existing financial regulators such as the Treasury Secretary and Comptroller of the Currency, which oversees national banks.”
In just one example, let’s take a look at what those “existing regulators” and the now-Treasury Secretary were doing in the case of Lehman Brothers, as revealed in the report by the examiner of Lehman’s bankruptcy. While management at Lehman was engaging in Enron-stlye accounting, where were the federal regulators? Looking on:
“One crucial move was to shift assets off its books at the end of each quarter in exchange for cash through a clever accounting maneuver…to make its leverage [debt] levels look lower than they were. Then they would bring the assets back onto its balance sheet days after issuing its earnings report.
And where was the government while all this “materially misleading” accounting was going on? In the vernacular of teenage instant messaging, let’s just say they had a vantage point as good as POS (parent over shoulder).”
What’s worse is that “there is no evidence that Lehman kept two sets of books or tried to hide what it was doing from regulators.” Among the spectators:
“The NY Fed, the regulatory agency led by then FRBNY President Geithner [which] stood by while Lehman deceived the public through a scheme that FRBNY officials likened to a “three card monte routine.”
The FRBNY knew that Lehman was engaged in smoke and mirrors designed to overstate its liquidity and, therefore, was unwilling to lend as much money to Lehman. The FRBNY did not, however, inform the SEC, the public, or the OTS (which regulated an S&L that Lehman owned) of what should have been viewed by all as ongoing misrepresentations.”
So much for the “watchdog” capabilities of existing regulators and the Treasury Secretary. What about the other named mentioned, the Comptroller of the Currency. That would be John Dugan, a name not many are familiar with, but who was called in an article in The Nation last December, “one of the earliest architects of the too big to fail economy”:
“Too big to fail banks were a ticking time bomb, but they might not have ravaged the global economy in 2008 without major shortcomings in consumer protection over the previous five years. As head of the Office of the Comptroller of the Currency, Dugan played a leading role in gutting the consumer protection system, allowing big banks to take outrageous risks on the predatory mortgages that led to millions of foreclosures.
“For years, the OCC has had the power and the responsibility to protect both banks and consumers, and it has consistently thrown the consumer under the bus,” says Harvard University Law School professor Elizabeth Warren, chair of the Congressional Oversight Panel for the Troubled Asset Relief Program.”
Consumer Financial Protection? Sounds more like Wall Street Financial Protection to me.
13 Saturday Mar 2010
Posted in bailout, Financial Crisis, Politics, Wall Street
Tags
Geithner, Lehman Brothers, Market Ticker, naked capitalism, New York Federal Reserve, stress tests
Timmy’s got more trouble. In a newly-released examiner’s report about the bankruptcy at Lehman Brothers, the New York Federal Reserve Bank (NYFRB), which was headed at the time by Treasury Secretary Geithner, is implicated as being in collusion with Lehman management’s efforts to keep their true financial condition hidden.
Here’s just one area of, shall we say, questionable behavior. The so-called “stress tests”:
“After March 2008 when the SEC and FRBNY began onsite daily monitoring of Lehman, the SEC deferred to the FRBNY to devise more rigorous stress-testing scenarios to test Lehman’s ability to withstand a run or potential run on the bank. The FRBNY developed two new stress scenarios: “Bear Stearns” and “Bear Stearns Light.” Lehman failed both tests. The FRBNY then developed a new set of assumptions for an additional round of stress tests, which Lehman also failed. However, Lehman ran stress tests of its own, modeled on similar assumptions, and passed. It does not appear that any agency required any action of Lehman in response to the results of the stress testing.”
Karl Denninger at Market Ticker:
“So let’s see what we got here. They ran two sets of stress tests and the firm failed both. Not satisfied with the results they then designed a third set, which the firm also failed (we can reasonably presume the third had less stringent requirements than the other two!)
Instead of applying any of these three, FRBNY, which was run by one Mr. Timothy Geithner… instead took Lehman’s word that all was ok and did nothing.Wait a minute. In the spring of 2009 we were told that all the big banks ran “Stress Tests” of Geithner’s design. But Treasury didn’t actually run them and didn’t actually get and process the data – they told the banks to do so.
Uh, that’s exactly what Lehman did, right? And Lehman passed its own “internally computed” stress test but failed all three of the externally-computed ones.
Do you still accept that all these other banks are solvent?”
Yves Smith at naked capitalism has the solution:
“It is time for Geithner to go. He is not fit to serve as Treasury secretary.”
Desperado's Outpost 