William Black, testifying before the House Financial Services Committee, on the fraud at Lehman Brothers. From Jesse’s Café Americain via Firedoglake:
William Black on Lehman Fraud
22 Thursday Apr 2010
Tag Archives: Lehman Brothers
Jail the Banksters!
14 Wednesday Apr 2010
Posted in bailout, economy, Financial Crisis, financial reform, Politics, too big to fail, Wall Street
Tags
antitrust case, co-conspirators, Enron, Fastow, fraud, fraudulent loans, Hudson Castle, JPMorgan Chase, Karl Denninger, Lay, Lehman Brothers, Levin, Market Ticker, Skilling, Washington Mutual
The recent revelations about the goings-on at Washington Mutual bring back an old question about our friends the banksters. When is somebody going to jail? How about just charged and indicted? Something.
“Officials at the failed banking operations of Washington Mutual Inc. securitized substantial volumes of risky, fraudulent loans in the run-up to the financial meltdown despite repeated internal warning signs, according to a Senate probe.
The subcommittee has obtained documents showing that “at a critical point Washington Mutual included loans in its securities because they were likely to suffer a high rate of default, and they failed to disclose that to the buyers,” Sen. Levin said. “They also allowed loans that had been identified as fraudulent to be sold to buyers, again without alerting buyers when the fraud was discovered.”
Isn’t fraud a crime? Why are these executives testifying before Congress and not in a court of law? But then again, where else but the Wall Street bizarro world is this possible ?:
“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.
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.
…None of the firms or individuals named on the list has been charged with wrongdoing.”
Or what about this at Lehman Brothers?
“In the years before its collapse, Lehman used a small company — its “alter ego,” in the words of a former Lehman trader — to shift investments off its books.
The firm, called Hudson Castle, played a crucial, behind-the-scenes role at Lehman, according to an internal Lehman document and interviews with former employees. The relationship raises new questions about the extent to which Lehman obscured its financial condition before it plunged into bankruptcy.”
Isn’t that pretty much what Lay, Skilling, and Fastow were doing at Enron? So why no perp walks yet for the former execs at Lehman?
In the JPMorgan–Jefferson County scam, the crooked politicians went to jail, the banksters took the money and ran. Somebody say double standard?
Karl Denninger at Market Ticker nails it:
“The only deterrent available is to start throwing the scammers in prison. All of them. We can start with the people at WaMu and Lehman, then go down the list and for each and every firm that cooked its balance sheet, nailing them under SarBox [Sarbanes-Oxley] as well. While we’re at it jail every bank executive involved in crooked derivatives deals with municipal and state governments, starting with Jefferson County in Alabama.”
Amen.
The “Secret Channel” at Lehman Brothers
13 Tuesday Apr 2010
Posted in bailout, economy, Financial Crisis, Politics, Wall Street
Today’s New York Times has an account of a Lehman Brothers “alter ego” firm, Hudson Castle, part of the “vast financial system that operates in the shadows of Wall Street”:
“It was like a hidden passage on Wall Street, a secret channel that enabled billions of dollars to flow through Lehman Brothers.
In the years before its collapse, Lehman used a small company — its “alter ego,” in the words of a former Lehman trader — to shift investments off its books.
“Entities like Hudson Castle are part of a vast financial system that operates in the shadows of Wall Street, largely beyond the reach of banking regulators. These entities enable banks to exchange investments for cash to finance their operations and, at times, make their finances look stronger than they are.”
The firm, called Hudson Castle, played a crucial, behind-the-scenes role at Lehman, according to an internal Lehman document and interviews with former employees. The relationship raises new questions about the extent to which Lehman obscured its financial condition before it plunged into bankruptcy.
[…]
And sadly, it’s still going on:
“Even now, a year and a half after Lehman’s collapse, major banks still undertake such transactions with businesses whose names, like Hudson Castle’s, are rarely mentioned outside of footnotes in financial statements, if at all.”
Alan Greenspan and the “Everybody Missed It” Myth
05 Monday Apr 2010
Tags
Alan Greenspan, ARM, Bernanke, Bruce Bartlett, Geithner, home prices, housing bubble, Lehman Brothers, Long Term Capital Management, missed it, Paul Krugman, This Week
On ABC’s This Week yesterday former Fed Chairman Alan Greenspan once again pulled out the “nobody saw it coming” excuse for missing the conditions which led to the financial meltdown in 2008:
“…the reason it was missed is we have had no experience of the type of risks that arose following the default of Lehman Brothers in September 2008.That’s the critical mistake. And I made it. Everybody that I know who works in this business made it.”
False on many fronts. First, the “no experience” myth. The collapse of Lehman Brothers in 2008 was predictable, or should have been, by the failure of Long Term Capital Management in 1998 because both were brought about by similar business practices. Both had debt that far exceeded their assets and both were major players in the mortgage backed securities “shadow market.”
The other thing that “everyone” missed, according to Greenspan and his fellow revisionists anyway, and what was driving the mortgage backed securities explosion, was the housing bubble. Again false. Economists from Paul Krugman on the left to Reagan administration Treasury Department official Bruce Bartlett on the right were warning of the impending disaster in the housing market.
But putting aside economists for a minute, it shouldn’t have taken a Nobel Prize in economics to see that a 50% increase in home prices from 1995-2005 was unsustainable. Or that giving a $500,000 loan to someone with no documented income was not a good idea. Or that adjustable rate mortgages, 100% financing, interest-only loans, and all the other exotic mortgage variations were an accident looking for a time to happen. What was Greenspan saying at the time?
“Federal Reserve Chairman Alan Greenspan said Monday that Americans’ preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives…He said a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs.”
No, Mr. Greenspan, not “everybody” missed it. YOU missed it. You and the disciples of the group-think mentality in Washington who were afraid to buck you because of your position as the alleged “Maestro” and “Wizard” who was responsible for the supposedly booming economy which was in reality a house of cards. Unfortunately two of those disciples, Ben Bernanke and Timothy Geithner, are still in decision-making positions.
Just as a side note, there could be some fireworks at the Financial Crisis Commission hearings this week. Greenspan is set to testify on Wednesday and Don Robert Rubin-leone is up on Thursday.
Too Big To Jail?
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.”
Geithner and Dodd Oppose Fed Audit Which Could Reveal Billions in Toxic Assets
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.
Dodd’s Toothless Consumer Protection “Watchdog”
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.
Geithner and the Lehman “Stress Tests”
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.”
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