Category Archives: Wall Street

Geithner and Dodd Oppose Fed Audit Which Could Reveal Billions in Toxic Assets

23 Tuesday Mar 2010

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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.

Dodd’s Toothless Consumer Protection “Watchdog”

17 Wednesday Mar 2010

Posted by in bailout, Congress, Democrats, Financial Crisis, financial reform, financial regulation, Politics, Wall Street

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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.

Geithner and the Lehman “Stress Tests”

13 Saturday Mar 2010

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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.”

Treasury Department “Vigorously Opposed” To Fed Audit

09 Tuesday Mar 2010

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What is this man hiding?

“The Treasury Department is vigorously opposed to a House-passed measure that would open the Federal Reserve to an audit by the Government Accountability Office (GAO), a senior Treasury official said Monday.”

And how’s this for openness, transparency, and accountability?

“Secretary Tim Geithner, Assistant Treasury Secretary Alan Krueger and Gene Sperling, a counselor to the secretary, held a briefing Monday with new media reporters and financial bloggers during which they discussed the Fed audit and other topics. Under the briefing’s ground rules, the officials could be paraphrased but not quoted, and the paraphrase could not be connected to a specific official.”

Alan Grayson isn’t buying it:

“Rep. Grayson said he finds Treasury’s opposition to the audit troubling. “There is a growing feeling on the part of real Democrats that the president is getting bad advice from people who have sold out to Wall Street,” said Grayson.”

I’ll go one step further. The president is among those who have sold out to Wall Street, in my opinion.

Another Kabuki Dance on Consumer Financial Protection Agency

07 Sunday Mar 2010

Posted by in Congress, Democrats, Financial Crisis, financial regulation, lobbyists, Obama, Politics, special interests, Wall Street

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If there’s anything transparent in this administration of “openness and transparency” it’s the way the well-rehearsed and often-repeated three-act Kabuki theater plays out their alleged attempts at any major reform on any particular issue. It’s as easy to see through as a pane of glass and as easy to see coming as a freight train. Here’s how it goes, again and again:

Act I.  The president professes to want (but doesn’t actually want) real reform on a given issue. The House passes a bill containing real reform. The Senate at first seems to embrace it, but then claims ‘woe is us, we can’t pass it without Republican votes.’

Act II. The legislation is watered-down in search of bi-partisan support that the administration and the Senate leadership knows they aren’t going to get in spite of the watering-down.

Act III. What started out as “reform” becomes so weakened as to be of no real affect. Thus, the original goal of the president and his former colleagues and current accomplices in the Senate is achieved–give the appearance of doing something while actually doing nothing.

The latest example is on the creation of the Consumer Financial Protection Agency. In July of last year:

“The Obama administration…proposed legislation for a financial oversight agency designed to protect consumers and investors from unscrupulous deals…The White House sent Congress a 152-page draft bill to create the Consumer Financial Protection Agency, which it says would offer greater consumer protections for such financial products as mortgages, credit cards and loans by establishing simpler and more transparent rules and regulations.

“Consumer protection will have an independent seat at the table in our financial regulatory system,” Treasury Secretary Timothy F. Geithner said.”

At the time, Senate Banking Committee chairman Chris Dodd “called the administration’s bill a “bold and aggressive plan” to defend against a future financial crisis.”

In December the House passed a sweeping financial reform bill which contained an independent consumer protection agency.

Fast forward to Thursday of last week:

“Creating a powerful and independent consumer agency, which is strongly opposed by the financial industry and Republicans, has been the major roadblock in drafting a bill that could pass in the Senate…Dodd has been searching for months for a bipartisan compromise, a move made more urgent after a Republican, Scott Brown, won the special Massachusetts Senate election in January, giving the GOP enough votes to block any Democratic legislation. After negotiations with Sen. Richard C. Shelby (R-Ala.) reached an impasse, Dodd began working with Sen. Bob Corker (R-Tenn.).

The “compromise” reached by Dodd and Corker would take away the independence of the agency and instead making it an arm of the Federal Reserve. This despite the fact that Dodd himself said 4 months ago that Fed’s record on consumer protection was an “abysmal failure,” and more recently, “criticized the Fed’s previous inaction as a main reason for creating such an entity, noting that the central bank took 14 years before enacting rules in 2008 to protect consumers from unscrupulous mortgage lending.”

And where does the Obama administration come down? It appears to be the usual fence-straddling:

“Treasury Secretary Timothy F. Geithner and Valerie Jarrett, a senior White House advisor, met Wednesday with representatives from consumer, labor and other organizations that support a strong, stand-alone consumer agency and told them that “strengthening consumer protections remains a central objective of our financial reform efforts,” according to an administration official.

Although Geithner and Jarrett said they would not accept a bill unless it included a consumer agency with “real independence,” they did not specifically rule out housing it in the Fed or another agency.”

But appearances can be deceiving. With a little reading between the lines one can see what the administration really wants. Geithner is the former president of the New York Fed, Valerie Jarrett is a former member of the board of directors of the Chicago Fed. It seems to be too much of a coincidence that these were the two administration representatives to the negotiations. I would surmise that the president wants the agency in the Fed.

Why? It follows the script–giving the appearance of doing something–creating a consumer protection agency, while actually doing nothing–putting the agency inside the Fed, whose track record on enforcing any kind of regulation is, to use Sen. Dodd’s word, abysmal.

Mission accomplished. The peasants are appeased and the corporate masters are not angered. The campaign contributions continue to flow, and business as usual continues.

Another Financial Crisis “More Than Predictable, It’s Inevitable”

04 Thursday Mar 2010

Posted by in bailout, Congress, economy, Financial Crisis, Goldman Sachs, Obama, Politics, Wall Street

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Remember the economy and that little thing we had not too long ago called…what was it…oh yeah, the financial crisis. While Congress and the White House spend “the next few weeks” mired in the never-ending saga of health care reform, there are some potential problems which could affect us a lot sooner than 2014. If legislators have some spare time they might want to give it a glance:

“Even as many Americans still struggle to recover from the country’s worst economic downturn since the Great Depression, another crisis – one that will be even worse than the current one – is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.

…Without more stringent reforms, “another crisis – a bigger crisis that weakens both our financial sector and our larger economy – is more than predictable, it is inevitable,” Johnson says in the report, commissioned by the nonpartisan Roosevelt Institute.”

In the report, the panel, which includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high-risk investing that precipitated the near-collapse of the U.S. economy in 2008.

But in typical Congressional fashion, “beefing up” financial regulations and “stringent reforms” aren’t on the agenda:

“The proposal” [that would ban the banks receiving federally insured deposits from engaging in trading which benefits the banks and not their customers] “faces strong resistance in Congress, where lawmakers have shown little appetite for adding to the prolonged debate on overhauling financial regulations.”

The reason for Congress’ “little appetite” should come as no great surprise:

“Goldman Sachs and Morgan Stanley would probably be the Wall Street firms most affected by the ban, known informally as the Volcker Rule…”

Goldman most affected? We can’t have any of that. Chris Dodd needs a job starting in January.

Happy Days Are Here Again…on Wall Street Anyway

03 Wednesday Mar 2010

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Wall Street’s return on their Washington investment:

“In fall 2008, after Lehman Brothers collapsed and other Wall Street firms seemed ready to topple, New York appeared to be headed for a brutal recession, one that would rival the worst downturns in the city’s history.

Now city officials and private economists are revising their forecasts with a drastic change in tone. The gathering consensus is that the recession is nearly over in the city and, largely because of the enormous amount of federal aid poured into the big banks, the toll on New York will be much less severe than most had feared.”

You’re welcome, banksters.

Treasury Official Leaves to Begin Lobbying

02 Tuesday Mar 2010

Posted by in lobbyists, Obama, Politics, special interests, Wall Street

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This is a recording. Some things never change:

“Barack Obama has made cracking down on K Street a signature cause of his presidency. But a year into his tenure, the executive branch’s revolving door has already started to turn with one senior official making the exodus from administration insider to hired gun.

Munchus will be a test case for Obama’s tightened revolving-door policy, which prohibits former administration officials from lobbying the executive branch for the remainder of his administration.”

Damon Munchus, the principal liaison between the Treasury Department and Congress regarding financial institutions and capital markets, signed on Monday as a managing director with financial services lobbying boutique the Cypress Group, whose clients include some of the nation’s biggest banks [Citigroup, Freddie Mac, and Bank of America to name three].

What happened to this:

“President Obama has consistently made clear that he will strive to lead the most open, transparent, and accountable government in history.  Whether it is reigning in the influence of lobbyists in Washington, bringing unprecedented accountability to federal spending, opening doors to engagement with the American public, or shutting down the “revolving door” that carries special interest influence in and out of the government, the highest standards will be sought in every thing the federal government does.”

And this portion of the “pledge” all incoming members of the administration, including Mr. Munchus, signed:

“5.Revolving Door Ban — Appointees Leaving Government to Lobby… I also agree, upon leaving Government service, not to lobby any covered executive branch official or non-career Senior Executive Service appointee for the remainder of the Administration.”

Did you catch the loophole? “I agree not to lobby any executive branch official.” No mention of lobbying Congress, which falls into Mr. Munchus’ area of expertise:

“Munchus worked in the Office of Legislative Affairs, which deals directly with the Hill. His position as Deputy Assistant Secretary for Banking and Finance gave him intimate knowledge not just of the process but of key lawmakers…That’s invaluable information to investors.”

But in the spirit of bi-partisanship:

“Munchus’ arrival at Cypress Group comes on the heels of another addition to the firm, Republican Jeb Mason. Mason, former deputy assistant secretary for business affairs under then-Treasury Secretary Henry Paulson, was tasked with business outreach and coalition building in the Bush administration.”

In fact:

“With the acquisition of Munchus, Cypress can now boast to employ high-level officials from four straight Treasury Secretaries.”

And the band plays on….

The Great American Kabuki Dance

28 Sunday Feb 2010

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“Politics is not about ideology – it’s little more than an over dramatic stage play  .  After the first year of the Obama administration the change he talked about has not occurred.  The reason is simple, policy is not made in the White House or the halls of congress – it’s made in the boardrooms of a few large corporations and those boardrooms are occupied by sociopaths who don’t care about anything but their own power and wealth.”

Those Who Profit from Foreclosures In Charge of Anti-Foreclosure Program

27 Saturday Feb 2010

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From the Washington Independent (emphasis added):

“One year after the Obama administration launched its $75 billion anti-foreclosure program the housing market remains volatile, loan modifications have been scant, foreclosures are still sky-high — and more and more lawmakers are wondering why the White House hasn’t been more aggressive in tackling the crisis.”

White House? Aggressive? Surely you jest.

“Administration efforts to stabilize the troubled housing market have prioritized lenders above struggling homeowners, a number of House Democrats charged Thursday, leading to thousands of foreclosures that might otherwise have been prevented — and threatening thousands more in the months to come.

Although the Obama White House has offered billions of dollars to banks that successfully alter loans to make them more affordable, only 116,00 of those modifications have been made permanent, the Treasury Department reported The reason for the discrepancy, some Democrats contend, is clear: The decision to modify loans, under Obama’s programs, has been left in the hands of the same mortgage servicing companies that often stand to profit more from foreclosures. That conflict of interest, critics say, all but ensures that the administration’s voluntary modification program will fail.”

But why would the administration want to see the program fail?

“Despite the fact that the free-falling housing market was at the root of the global economic collapse, Washington policymakers have dedicated more attention — not to mention dollars — to the bankers of Wall Street than the homeowners of Main Street.”

Yep, that explains it. The Golden Rule: Those who have the gold buy those who make the rules.