by Andrew Freiburghouse
The home loan that has become the poster child for mortgage finance excess and error, the so-called "Option ARM," is starting to wedge its way back into the home refinance news cycle. Fiv
e-year Option Adjustable Rate Mortgages taken out in 2005, that is, are due to reset in 2010.
An Option ARM loan customarily begins with a low teaser rate for a fixed period of time, in this case five years, but the borrower has an "option" to either pay the full payment or a lower payment. The difference between the full payment and the lower payment, if the full is not paid, is added onto the mortgage balance.
"Negative amortization," it's called.
How Many 5-Year Option ARMs Will Re-Set in 2010?
It's hard to get perfect statistics on how many Option ARMs are out there, because banks were not required to report this product specifically. According to BusinessWeek, approximately 1.3 billion borrowers took out approximately $389 billion in Option ARM home loans during 2004 and 2005.
According to Fitch Ratings, up to 80 percent of Option ARM borrowers only pay the minimum payment. Added, then, to the overall decline of the housing market, is the negative amortization problem.
The batch of 5-year Option ARMs taken out in 2005 includes hundreds of thousands of severely underwater homeowners.
The Time to Refinance that Option ARM Is Now or Soon
Mortgage refinance rates remain low and, although refinancing is still not easy, credit appears to have eased at least somewhat. If there ever was a time to refinance that Option ARM, that time is now or soon.
Now or soon because the housing market appears to be stabilizing, with house prices rising over the past few months. Rising house prices, combined with government insistence that banks at least try to refi struggling borrowers, must be counted as the best hope for those wishing to refinance out of Option ARM mortgages. Conventional refinance deals are not usually possible due to loan-to-value concerns.
Refinance at Any Cost? Not Necessarily
Definitely, borrowers with Option ARMs due to reset in 2010 must be actively looking at refinance options. However, that does not necessarily mean such borrowers should refinance at any price.
No doubt, dealing with a troubled home loan can be a frightening experience, but borrowers must still strive to be rational about what's best to do in this situation. Certainly it's not worth refinancing out of one unaffordable loan into another unaffordable loan, for example.
Finding an honest, competent mortgage pro to help with these complexities is a wise choice in these trying refinance times.
About Author:
Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.
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Saturday, October 31, 2009
Friday, October 30, 2009
Obama lifts ban on HIV / AIDS emmigrants and entry to US
WASHINGTON (Reuters) - President Barack Obama announced on Friday that a 22-year-old ban on allowing people infected with the AIDS virus into the United States will be lifted on Monday.
Obama made the announcement in signing an extension of the Ryan White HIV/AIDS Treatment Act, which provides for education, prevention and treatment programs for U.S. HIV patients
. immigrants
Obama said the ban was imposed 22 years ago when visitors to the United States were treated as a threat.
"We lead the world when it comes to helping stem the AIDS pandemic -- yet we are one of only a dozen countries that still bar people from HIV from entering our own country," he said.
"If we want to be the global leader in combating HIV/AIDS, we need to act like it," he said.
He said on Monday his administration will publish a final rule that eliminates the travel ban effective just after the first of 2010.
The AIDS virus infects 33 million people globally and around a million in the United States.
(Reporting by Steve Holland, editing by Jackie Frank)
Obama made the announcement in signing an extension of the Ryan White HIV/AIDS Treatment Act, which provides for education, prevention and treatment programs for U.S. HIV patients
. immigrants
Obama said the ban was imposed 22 years ago when visitors to the United States were treated as a threat.
"We lead the world when it comes to helping stem the AIDS pandemic -- yet we are one of only a dozen countries that still bar people from HIV from entering our own country," he said.
"If we want to be the global leader in combating HIV/AIDS, we need to act like it," he said.
He said on Monday his administration will publish a final rule that eliminates the travel ban effective just after the first of 2010.
The AIDS virus infects 33 million people globally and around a million in the United States.
(Reporting by Steve Holland, editing by Jackie Frank)
Thursday, October 29, 2009
Why the Goldman Sachs-AIG Story Won’t Go Away: Bloomberg
I'm glad to see that there are concerned individuals that will keep digging into the relationship that Goldman Sachs has to the US government, especially the Treasury. This is a nice follow up piece to several posts on this subject that I've made here over the last year. My thanks to Jonathan Weil and to Bloomberg.com. / GB
Commentary by Jonathan Weil
Oct. 29 (Bloomberg) -- How did so much taxpayer money end up in the coffers of American International Group Inc.’s too- big-to-fail customers? The more we find out, the more it becomes obvious we still don’t know the half of it.
It’s the story that won’t go away: Was last year’s federal rescue of AIG a back-door bailout for the likes of Goldman Sachs Group Inc., Societe Generale SA, Deutsche Bank AG, Merrill Lynch & Co. and other large banks? And who exactly were the regulators trying to protect when they seized control of the insurance giant in September 2008? The banks? Or the rest of us?
To believe AIG’s disclosures, you’d have thought its executives decided on their own last year to pay 100 cents on the dollar to the various banks that had bought $62 billion of credit-default swaps from the company. Now, thanks to an Oct. 27 story by Bloomberg News reporters Richard Teitelbaum and Hugh Son, we know otherwise.
It turns out the decision to make the banks whole wasn’t AIG’s. It was made by the Federal Reserve Bank of New York, back when its president was the current U.S. Treasury secretary, Timothy Geithner, and its chairman was Goldman Sachs director Stephen Friedman. (Friedman resigned from the New York Fed in May, after the Wall Street Journal reported he had bought more than 50,000 shares of Goldman stock following AIG’s takeover.)
Before AIG was seized, its executives had been negotiating for months with the banks, trying to get them to accept discounts of as much as 40 cents on the dollar, Bloomberg reported, citing people familiar with the matter.
Taking Over
Then, late in the week of Nov. 3, the New York Fed took over the negotiations with the banks from AIG, together with the Treasury Department (at the time run by former Goldman boss Henry Paulson) and Chairman Ben Bernanke’s Federal Reserve Board. Less than a week later, the New York Fed instructed AIG to pay the counterparties in full, Bloomberg reported.
Judging by the result, you might think Geithner’s team was on the banks’ side, rather than AIG’s.
AIG wound up paying $32.5 billion to retire the swaps, $13 billion more than if it had paid, say, 60 cents on the dollar. The New York Fed also arranged to pay the banks $29.6 billion for collateralized-debt obligations backed by subprime mortgages and other loans, a tad less than half their face value. (The swaps were side bets by the banks that rose in value as the CDOs fell.)
It probably made sense for the counterparties to reject AIG’s initial settlement offers. They had their own investors to look after. And once the government took control of AIG, it couldn’t credibly threaten to force the company into bankruptcy proceedings. The premise of the government’s seizure, after all, was that AIG was too big to fail.
Rush to Pay
But why the rush to pay the banks in full once Geithner’s team took over the talks? The public has never gotten satisfactory answers, notwithstanding that the government’s commitment to AIG now stands at about $182 billion.
In a story published yesterday in response to Bloomberg’s scoop, the New York Fed’s general counsel, Thomas Baxter, told the Washington Post that officials were racing to prevent AIG’s collapse and didn’t have time for protracted negotiations with each creditor. That won’t put to rest suspicions that regulators used AIG as a slush fund to shield some of the banks from losses, using taxpayer money.
Nor has anyone from AIG or the government explained why there was such a hurry to buy the CDOs. While the banks supposedly received market prices, that deal has since turned sour for taxpayers. The value of the securities, now held by a Fed-run entity called Maiden Lane III, was down by about $7 billion as of June 30, according to the New York Fed.
The public might get some answers soon. Next month, the inspector general for the government’s Troubled Asset Relief Program, Neil Barofsky, is scheduled to release a report on whether AIG overpaid the banks, and the extent to which the counterparties’ own financial problems may have been at issue.
Goldman Sachs Untouched
Goldman, for one, has long said it wouldn’t have incurred any material losses even if AIG had gone under.
“We limited our overall credit exposure to AIG through a combination of collateral and market hedges,” Goldman’s chief financial officer, David Viniar, said in March. “There would have been no credit losses if AIG had failed.”
Then again, Viniar is the same guy who this month made the ridiculous claim that Goldman doesn’t have a too-big-to-fail guarantee from the government. Goldman has refused to identify who the counterparties were on the other side of its hedges, rendering Viniar’s statement in March unverifiable.
Even if Goldman was fully hedged, it’s reasonable to assume that not all the other banks were. We shouldn’t have to guess anymore, though. It’s long past time for the government to start telling us the whole truth about what happened at AIG.
We’ve had too many secrets in this financial crisis already.
(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)
Click on “Send Comment” in the sidebar display to send a letter to the editor.
To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net
Last Updated: October 28, 2009 21:00 EDT
Commentary by Jonathan Weil
Oct. 29 (Bloomberg) -- How did so much taxpayer money end up in the coffers of American International Group Inc.’s too- big-to-fail customers? The more we find out, the more it becomes obvious we still don’t know the half of it.
It’s the story that won’t go away: Was last year’s federal rescue of AIG a back-door bailout for the likes of Goldman Sachs Group Inc., Societe Generale SA, Deutsche Bank AG, Merrill Lynch & Co. and other large banks? And who exactly were the regulators trying to protect when they seized control of the insurance giant in September 2008? The banks? Or the rest of us?
To believe AIG’s disclosures, you’d have thought its executives decided on their own last year to pay 100 cents on the dollar to the various banks that had bought $62 billion of credit-default swaps from the company. Now, thanks to an Oct. 27 story by Bloomberg News reporters Richard Teitelbaum and Hugh Son, we know otherwise.
It turns out the decision to make the banks whole wasn’t AIG’s. It was made by the Federal Reserve Bank of New York, back when its president was the current U.S. Treasury secretary, Timothy Geithner, and its chairman was Goldman Sachs director Stephen Friedman. (Friedman resigned from the New York Fed in May, after the Wall Street Journal reported he had bought more than 50,000 shares of Goldman stock following AIG’s takeover.)
Before AIG was seized, its executives had been negotiating for months with the banks, trying to get them to accept discounts of as much as 40 cents on the dollar, Bloomberg reported, citing people familiar with the matter.
Taking Over
Then, late in the week of Nov. 3, the New York Fed took over the negotiations with the banks from AIG, together with the Treasury Department (at the time run by former Goldman boss Henry Paulson) and Chairman Ben Bernanke’s Federal Reserve Board. Less than a week later, the New York Fed instructed AIG to pay the counterparties in full, Bloomberg reported.
Judging by the result, you might think Geithner’s team was on the banks’ side, rather than AIG’s.
AIG wound up paying $32.5 billion to retire the swaps, $13 billion more than if it had paid, say, 60 cents on the dollar. The New York Fed also arranged to pay the banks $29.6 billion for collateralized-debt obligations backed by subprime mortgages and other loans, a tad less than half their face value. (The swaps were side bets by the banks that rose in value as the CDOs fell.)
It probably made sense for the counterparties to reject AIG’s initial settlement offers. They had their own investors to look after. And once the government took control of AIG, it couldn’t credibly threaten to force the company into bankruptcy proceedings. The premise of the government’s seizure, after all, was that AIG was too big to fail.
Rush to Pay
But why the rush to pay the banks in full once Geithner’s team took over the talks? The public has never gotten satisfactory answers, notwithstanding that the government’s commitment to AIG now stands at about $182 billion.
In a story published yesterday in response to Bloomberg’s scoop, the New York Fed’s general counsel, Thomas Baxter, told the Washington Post that officials were racing to prevent AIG’s collapse and didn’t have time for protracted negotiations with each creditor. That won’t put to rest suspicions that regulators used AIG as a slush fund to shield some of the banks from losses, using taxpayer money.
Nor has anyone from AIG or the government explained why there was such a hurry to buy the CDOs. While the banks supposedly received market prices, that deal has since turned sour for taxpayers. The value of the securities, now held by a Fed-run entity called Maiden Lane III, was down by about $7 billion as of June 30, according to the New York Fed.
The public might get some answers soon. Next month, the inspector general for the government’s Troubled Asset Relief Program, Neil Barofsky, is scheduled to release a report on whether AIG overpaid the banks, and the extent to which the counterparties’ own financial problems may have been at issue.
Goldman Sachs Untouched
Goldman, for one, has long said it wouldn’t have incurred any material losses even if AIG had gone under.
“We limited our overall credit exposure to AIG through a combination of collateral and market hedges,” Goldman’s chief financial officer, David Viniar, said in March. “There would have been no credit losses if AIG had failed.”
Then again, Viniar is the same guy who this month made the ridiculous claim that Goldman doesn’t have a too-big-to-fail guarantee from the government. Goldman has refused to identify who the counterparties were on the other side of its hedges, rendering Viniar’s statement in March unverifiable.
Even if Goldman was fully hedged, it’s reasonable to assume that not all the other banks were. We shouldn’t have to guess anymore, though. It’s long past time for the government to start telling us the whole truth about what happened at AIG.
We’ve had too many secrets in this financial crisis already.
(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)
Click on “Send Comment” in the sidebar display to send a letter to the editor.
To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net
Last Updated: October 28, 2009 21:00 EDT
Sunday, October 25, 2009
Be afraid! A year after AIG, derivatives remain big risk
12.10.09
The global financial crisis has introduced ordinary people to the extraordinary and arcane world of “derivative product” — a gigantic system of commercial bets in financial markets where the total outstanding amount of derivatives adds up to a mere $600 trillion (some 10 times the value of global production).
The City is one of the leading centres of this trading activity.
Volatile equity and currency markets caused problems with exotic option “accumulators” and now numerous investors and corporations are hunkered down with their lawyers hoping to litigate their way out of significant losses on “hedges” pleading such familiar defences as “I did not understand the risks” or “I was misled about the risks by the bank”.
If you thought this would lead regulators such as the Financial Services Authority, the Bank of England and America's Federal Reserve to tame the wild beast of derivatives, then you would be wrong. History tells us that there will be cosmetic changes to the functioning of the market but business as usual will resume in the not too distant future.
Previous episodes of derivative problems — portfolio insurance in 1987 and long-term capital management in 1998 — never led to changes in fundamental issues such as using derivatives for speculation, mis-selling instruments to less-sophisticated market participants and excessive complexity.
The industry and its key lobby group, the International Swaps & Derivatives Association, are well-practised in the art of playing the regulatory game.
Derivatives, it will be argued, are so complicated that only derivative traders themselves can properly “regulate” them. The new centralised counterparty to reduce the risk of a major dealer failing is only for “standardised” derivatives and already there are impassioned debates about what is meant by “standard derivatives”.
On 17 September, the chief executive of the derivatives association, Robert Pickel, told the House Agriculture Committee in America: “Not all standardised contracts can be cleared,” because even if they have standardised economic terms, many derivatives contracts will be “difficult if not impossible to clear” since the counterparty depends on liquidity, trading volume and daily pricing. This would, Pickel said, make “it difficult for a clearing house to calculate collateral requirements consistent with prudent risk management.”
Dan Budofsky, a partner at legal firm Davis Polk & Wardwell, who testified on behalf of the Securities Industry and Financial Markets Association, agreed that “it may be more appropriate for products that trade less frequently to trade over-the-counter”. The industry will argue for self-regulation, which is about as close to regulation as self-importance is to importance.
The reasons for policy inaction are complex. Derivatives do perform important risk-transfer functions within modern capital markets — their Dr Jekyll side — and Pickel eloquently made the point that standardisation and the centralised counterparty “would undercut [derivatives'] very purpose: the ability to customise risk-management solutions to meet the needs of end-users”.
But derivatives also have a Mr Hyde side: they are used to speculate, keep dealings off-balance sheet and out of sight, increase leverage, arbitrage regulatory and tax rules and manufacture exotic risk cocktails.
What industry participants will not acknowledge is that the Dr Jekyll side of derivative trading has taken second place to the Mr Hyde side.
For companies, the ability to use derivative trading to supplement traditional earnings, which are under increased pressure, is irresistible.
The complexity of modern derivatives has little to do with risk transfer and everything to do with profits.
As new products are immediately copied by competitors, traders must “innovate” to maintain revenue by increasing volumes or creating new structures.
Complexity delays competition, prevents clients from unbundling products and generally reduces transparency. Frequently, the models used to price, hedge and determine the profitability also manage to confuse managers and controllers within banks themselves allowing traders to book large fictitious “profits” that their bonuses are based on.
The scary part is that regulators on both sides of the Atlantic seem unable to marshal the knowledge, skill, gumption, political will and backbone to be able to implement the changes that are called for.
Warren Buffet once described bankers in the following terms: “Wall Street never voluntarily abandons a highly profitable field. Years ago … a fellow on Wall Street was talking about the evils of drugs.
“He ranted on for between 15 and 20 minutes to a small crowd and then asked, Do you have any questions?' An investment banker instantly shot his hand up and said: Could you tell me who makes the needles?'”
Derivatives and debt are the needles of finance and bankers will continue to supply them to all the Dr Jekylls and Mr Hydes alike for the foreseeable future as long as there is money to be made in the trade.
Taxpayers should just start saving for the future losses that they will have cover to bail out the banks at a time to be arranged in the future.
* Satyajit Das is a risk consultant and the author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006, FT-Prentice Hall)
Saturday, October 24, 2009
THE ROLE OF DERIVATIVES
During the recent financial crises, you may have heard some talk about the role of derivatives. These mysterious financial instruments are understood by practically nobody. Not by those who sell them and not by those who buy them. Yet the survival of banking system and, ironically, the destruction of our entire economy may be the result of their trading. The following brief essay by Chris Temple gives us a basic understanding of derivatives and an explanation of their importance. / GB
THE ROLE OF DERIVATIVES
The issue of derivatives is one which has received occasional mention in the mainstream media. Derivatives have also received more widespread attention among certain pundits purporting to know a thing or two about economics; the trouble here, though, is we hear little more than hysterical ravings about how derivatives are about to cause the end of the world. Little in the way of helpful or explanatory information is offered by these types to explain exactly what derivatives are, how they work, and what the benefits (and dangers) are to the economy.
Two preliminary things here, before I defer to a more qualified expert than I. First, we can simplify things by defining this important term. The root word of derivative is derive. Derivatives are financial instruments which are derived from some underlying commodity or asset. Most all of you have heard of an option before; this is a financial instrument giving you the option to buy or sell a certain security at a certain price, and by a certain date. Technically, an option itself is a derivative, as it is derived from and dependent on the fate of an underlying asset. So, if you keep this in mind, you’ll have an easier time in general understanding derivatives as just what they are; sophisticated "bets" on the fate of underlying stocks, bonds, interest rate levels, currencies, commodities and such.
The second thing to understand about derivatives is that their use has been critical to the continued life of our fractional reserve banking/credit system, and to the broader economy. All of you have read at least one version of my "signature" essay entitled Understanding the Game. In it, I explain how, over time, it has become necessary for the financial system to create ever more intricate--and inherently risky--devices to "create" wealth. Through the multiplication of these derivative contracts, as you’ll read in a moment, prices for many of the underlying assets have been artificially increased. This new "wealth" has served as the basis for ever more credit creation, merger deals and other means for keeping the rubber band stretching even more.
The trouble is, as even Fed Chairman Alan Greenspan (generally a fan of derivatives) has implied before, the wonderful wealth-creating attributes of derivatives could reverse one day. These very same instruments that have been responsible for the creation of trillions of dollars worth of enhanced values of underlying assets could indeed end up being indiscriminate destroyers of capital, were they to "unwind" in a significant way. This happened with Long Term Capital Management, a hedge fund collapse that nearly brought down the entire system. It happened with Enron; but regulators were on top of things sufficiently ahead of time to limit, for now, the ripple effects. They might not be so lucky next time.
For those of you who want to take the time to study the derivative issue further, I would strongly suggest visiting www.econstrat.com, which is the web site for the Derivatives Study Center. In scouring the Web myself for the most understandable explanations to pass along to you, the commentaries and "primer" by the Center’s Randall Dodd truly stood out.
In his "Derivatives Primer," Dodd--after discussing how these kinds of contracts in a broad sense aren’t exactly new--discusses the risks inherent in derivatives:
"The first danger posed by derivatives comes from the leverage they provide to both hedgers and speculators," he writes. "Derivatives allow investors to take a large price position in the market while committing only a small amount of capital--thus the use of their capital is leveraged. . ."
Back to the Long Term Capital story: some of you remember that this hedge fund had raised approximately $3 billion from investors. Yet, when LTCM blew up, it had "notional" (presumed face) value of derivatives of an astounding $1.4 trillion. This happened because LTCM milked derivative contracts’ ability to create artificial wealth for all they were worth. In the process--and this is one of the inflationary components of what derivatives do--the placing/creating of all these fancy "bets" skewed the values of underlying assets considerably.
Many of you know that if all of a sudden there is unusually large activity, let’s say, in the options for XYZ Company, the share price of that same company will be affected. If a number of options are suddenly being either created or bought betting that XYZ is going up, then the share price of the stock itself will usually go up, as investors think that "somebody knows something good is going to happen." Yet, this might not really be true; and it could be nothing more than the (at its core) unnatural effect of these kinds of derivative activity that give XYZ a falsely inflated value, and give investors similarly wrong expectations.
Using the LTCM example above, you can imagine the magnitude even now of still-inflated values in the financial markets courtesy of derivatives.
In his Primer, Dodd also bemoans the fact that further risks are presented due to the fact that many derivatives traded Over the Counter are mysterious. They are not regulated, nor is there much information available as to their quantity and character. Recently, Sen. Dianne Feinstein (D-CA) attempted to get legislation acted upon which would regulate these, the very same types of deals, it should be remembered, were engaged in by Enron. However, everyone from Fed Chairman Greenspan to Wall Street turned on the lobbying offensive, and her move was defeated. Thus, even after all the hand-wringing over Enron, it appears that the majority of legislators are perfectly willing to allow this ticking time bomb to exist.
Finishing up the commentary section of his primer, Dodd states, "In sum, the enormous derivatives markets are both useful and dangerous. Current methods of regulating these markets are not adequate to assure that the markets are safe and sound and that disruptions from these markets do not spill over into the broad economy."
No doubt this is an understatement; and the fact that Alan Greenspan, for his part, is unwilling to see this huge inflationary mechanism regulated--in spite of the risks--underscores just how unable he is without derivatives to keep the overall credit bubble and the dollar from deflating much further.
by Chris Temple / NationalInvestor.com
THE ROLE OF DERIVATIVES
The issue of derivatives is one which has received occasional mention in the mainstream media. Derivatives have also received more widespread attention among certain pundits purporting to know a thing or two about economics; the trouble here, though, is we hear little more than hysterical ravings about how derivatives are about to cause the end of the world. Little in the way of helpful or explanatory information is offered by these types to explain exactly what derivatives are, how they work, and what the benefits (and dangers) are to the economy.
Two preliminary things here, before I defer to a more qualified expert than I. First, we can simplify things by defining this important term. The root word of derivative is derive. Derivatives are financial instruments which are derived from some underlying commodity or asset. Most all of you have heard of an option before; this is a financial instrument giving you the option to buy or sell a certain security at a certain price, and by a certain date. Technically, an option itself is a derivative, as it is derived from and dependent on the fate of an underlying asset. So, if you keep this in mind, you’ll have an easier time in general understanding derivatives as just what they are; sophisticated "bets" on the fate of underlying stocks, bonds, interest rate levels, currencies, commodities and such.
The second thing to understand about derivatives is that their use has been critical to the continued life of our fractional reserve banking/credit system, and to the broader economy. All of you have read at least one version of my "signature" essay entitled Understanding the Game. In it, I explain how, over time, it has become necessary for the financial system to create ever more intricate--and inherently risky--devices to "create" wealth. Through the multiplication of these derivative contracts, as you’ll read in a moment, prices for many of the underlying assets have been artificially increased. This new "wealth" has served as the basis for ever more credit creation, merger deals and other means for keeping the rubber band stretching even more.
The trouble is, as even Fed Chairman Alan Greenspan (generally a fan of derivatives) has implied before, the wonderful wealth-creating attributes of derivatives could reverse one day. These very same instruments that have been responsible for the creation of trillions of dollars worth of enhanced values of underlying assets could indeed end up being indiscriminate destroyers of capital, were they to "unwind" in a significant way. This happened with Long Term Capital Management, a hedge fund collapse that nearly brought down the entire system. It happened with Enron; but regulators were on top of things sufficiently ahead of time to limit, for now, the ripple effects. They might not be so lucky next time.
For those of you who want to take the time to study the derivative issue further, I would strongly suggest visiting www.econstrat.com, which is the web site for the Derivatives Study Center. In scouring the Web myself for the most understandable explanations to pass along to you, the commentaries and "primer" by the Center’s Randall Dodd truly stood out.
In his "Derivatives Primer," Dodd--after discussing how these kinds of contracts in a broad sense aren’t exactly new--discusses the risks inherent in derivatives:
"The first danger posed by derivatives comes from the leverage they provide to both hedgers and speculators," he writes. "Derivatives allow investors to take a large price position in the market while committing only a small amount of capital--thus the use of their capital is leveraged. . ."
Back to the Long Term Capital story: some of you remember that this hedge fund had raised approximately $3 billion from investors. Yet, when LTCM blew up, it had "notional" (presumed face) value of derivatives of an astounding $1.4 trillion. This happened because LTCM milked derivative contracts’ ability to create artificial wealth for all they were worth. In the process--and this is one of the inflationary components of what derivatives do--the placing/creating of all these fancy "bets" skewed the values of underlying assets considerably.
Many of you know that if all of a sudden there is unusually large activity, let’s say, in the options for XYZ Company, the share price of that same company will be affected. If a number of options are suddenly being either created or bought betting that XYZ is going up, then the share price of the stock itself will usually go up, as investors think that "somebody knows something good is going to happen." Yet, this might not really be true; and it could be nothing more than the (at its core) unnatural effect of these kinds of derivative activity that give XYZ a falsely inflated value, and give investors similarly wrong expectations.
Using the LTCM example above, you can imagine the magnitude even now of still-inflated values in the financial markets courtesy of derivatives.
In his Primer, Dodd also bemoans the fact that further risks are presented due to the fact that many derivatives traded Over the Counter are mysterious. They are not regulated, nor is there much information available as to their quantity and character. Recently, Sen. Dianne Feinstein (D-CA) attempted to get legislation acted upon which would regulate these, the very same types of deals, it should be remembered, were engaged in by Enron. However, everyone from Fed Chairman Greenspan to Wall Street turned on the lobbying offensive, and her move was defeated. Thus, even after all the hand-wringing over Enron, it appears that the majority of legislators are perfectly willing to allow this ticking time bomb to exist.
Finishing up the commentary section of his primer, Dodd states, "In sum, the enormous derivatives markets are both useful and dangerous. Current methods of regulating these markets are not adequate to assure that the markets are safe and sound and that disruptions from these markets do not spill over into the broad economy."
No doubt this is an understatement; and the fact that Alan Greenspan, for his part, is unwilling to see this huge inflationary mechanism regulated--in spite of the risks--underscores just how unable he is without derivatives to keep the overall credit bubble and the dollar from deflating much further.
by Chris Temple / NationalInvestor.com
Tuesday, October 20, 2009
Listen as Obama speaks of Cap and Trade and explains how it will be necessary for the electric suppliers to pass on the the cost of retrofitting to consumers. The upshot is that there is no way to avoid higher electricity costs to consumers if the bill is passed. In this case, I believe that Obama is telling the truth. Ironically I heard about it first from FOX news. But I just thought it was part of their agenda driven programing so I disregarded it. : ) / GB
Sunday, October 18, 2009
Harry Truman's Excellent Adventure or America's Last Citizen President
Author: Unknown
Source: Forwarded Email (but researched and verified)
Harry Truman: Harry Truman was a different kind of President. He probably made as many, or more important decisions regarding our nation's history as any of the other 32 Presidents preceding him. However, a measure of his greatness may rest on what he did after he left the White House.
The only asset he had when he died was the house he lived in, which was in Independence Missouri. His wife had inherited the house from her mother and father and other than their years in the White House, they lived their entire lives there.
When he retired from office in 1952, his income was a U.S. Army pension reported to have been $13,507.72 a year. Congress, noting that he was paying for his stamps and personally licking them, granted him an 'allowance' and, later, a retroactive pension of $25,000 per year..
After President Eisenhower was inaugurated, Harry and Bess drove home to Missouri by themselves. There was no Secret Service following them.
When offered corporate positions at large salaries, he declined, stating, "You don't want me. You want the office of the President, and that doesn't belong to me. It belongs to the American people and it's not for sale."
Even later, on May 6, 1971, when Congress was preparing to award him the Medal of Honor on his 87th birthday, he refused to accept it, writing, "I don't consider that I have done anything which should be the reason for any award, Congressional or otherwise."
As president he paid for all of his own travel expenses and food.
Modern politicians have found a new level of success in cashing in on the Presidency, resulting in untold wealth. Today, many in Congress also have found a way to become quite wealthy while enjoying the fruits of their offices. Political offices are now for sale. (sic. Illinois )
Good old Harry Truman was correct when he observed, "My choices in life were either to be a piano player in a whore house or a politician. And to tell the truth, there's hardly any difference!
I hope you enjoyed the above story about Harry Truman. When I was verifying the story I found that it actually came from what looks to be a pretty cool book. Here's a link to the book: Harry Truman's Excellent Adventure
Source: Forwarded Email (but researched and verified)
Harry Truman: Harry Truman was a different kind of President. He probably made as many, or more important decisions regarding our nation's history as any of the other 32 Presidents preceding him. However, a measure of his greatness may rest on what he did after he left the White House.
The only asset he had when he died was the house he lived in, which was in Independence Missouri. His wife had inherited the house from her mother and father and other than their years in the White House, they lived their entire lives there.
When he retired from office in 1952, his income was a U.S. Army pension reported to have been $13,507.72 a year. Congress, noting that he was paying for his stamps and personally licking them, granted him an 'allowance' and, later, a retroactive pension of $25,000 per year..
After President Eisenhower was inaugurated, Harry and Bess drove home to Missouri by themselves. There was no Secret Service following them.
When offered corporate positions at large salaries, he declined, stating, "You don't want me. You want the office of the President, and that doesn't belong to me. It belongs to the American people and it's not for sale."
Even later, on May 6, 1971, when Congress was preparing to award him the Medal of Honor on his 87th birthday, he refused to accept it, writing, "I don't consider that I have done anything which should be the reason for any award, Congressional or otherwise."
As president he paid for all of his own travel expenses and food.
Modern politicians have found a new level of success in cashing in on the Presidency, resulting in untold wealth. Today, many in Congress also have found a way to become quite wealthy while enjoying the fruits of their offices. Political offices are now for sale. (sic. Illinois )
Good old Harry Truman was correct when he observed, "My choices in life were either to be a piano player in a whore house or a politician. And to tell the truth, there's hardly any difference!
I hope you enjoyed the above story about Harry Truman. When I was verifying the story I found that it actually came from what looks to be a pretty cool book. Here's a link to the book: Harry Truman's Excellent Adventure
Wednesday, October 14, 2009
The Crime of Our Time: Was the Economic Collapse "Indeed, Criminal?"
"Over the past quarter century, we have lived through the greatest looting of wealth in human history." While an elite few profited hugely, "the vast majority of citizens have lived through a period of falling wages, disappearing pensions, and dwindling bank accounts, all of which led to the personal debt crisis that lies at the root of the current financial meltdown." (Jonathan Tasini )
The fallout cost millions of Americans their jobs, homes, savings, and futures, the result of a Washington - Wall Street criminal cabal and their scandalous conspiracy against the US public.
Below is a review of Danny Schechtner's revealing book, Crime of Our Time. It was written by Stephen Lendman and posted on The Market Oracle.
(1) In Wall Street We Trust
Once again, the major media betrayed the public by cheerleading the inflating market bubbles, ignoring the cause and Wall Street/Washington's role, then downplaying the severity of the crisis that has a long way to run. Instead their reasoning goes: "we are all to blame, guilty of greed, over-spending and under-saving," so "when everyone's at fault, no one can be held responsible."
Yet capitalism's internal contradictions make it crisis-prone, unstable, ungovernable, and self-destructive because of its repeated cycles of booms creating bubbles, creating busts, then depressions, and inevitably decay and demise.
Initially, The New Times deflected attention by focusing on human errors like "wild derivatives, sky-high leverage, (and) a subprime surge," but avoided the core issue of white collar crime and Washington's complicity in it. When it was too late to matter, columnists like Bob Herbert wrote about financial "malefactors" who walk away "with a suspended sentence, and can't wait to get back to their nefarious activities." Where were they when it mattered most?
Still today, the corporate media ignores the crime scene, instead calling criminal bankers "egotistical jerk(s) as trapped as anyone" in their own mess, as much victims as their prey.
(2) Former Bank Regulator William Black Speaks Out
Economics Professor William Black is a former senior bank regulator and Savings and Loan prosecutor. In April 2009 interviews in Barrons and with Bill Moyers on public television, he referred to "failed bankers (advising) failed regulators on how to deal with failed assets" they all conspired to create, proliferate, and use to defraud unwary buyers. He explained that many failed banks were deliberately brought down, and:
"The way that you do it is to make really bad loans, because they pay better. Then you grow extremely rapidly, in other words, you're a Ponzi-like scheme. And the third thing you do is" leverage up. It's hugely profitable and "inevitable that there's going to be a disaster down the road."
Black explained it in his book, The Best Way To Rob A Bank Is To Own One, especially in a lax regulatory environment under the privately owned Federal Reserve and powerful financial giants that run the government, not the other way around. They write the laws, make the rules, install their people in top Washington posts, and get open-ended bailouts and absolution when their scam implodes.
In the 1930s, the Pecora Commission's Chief Counsel Ferdinand Pecora noted how "Legal chicanery and pitch darkness were the banker's stoutest allies." So weren't complicit government officials as well as media commentators turning a blind eye to their crimes.
(3) The Crime Wave Is Still With Us
In an environment of lax regulation, a Wall Street owned and operated Fed, the Treasury as their private piggy bank, a bipartisan criminal culture in Washington, and corporate lobbyists taking full advantage to get the best democracy their money can buy, it's little wonder that the same dirty game persists because who cares enough to stop it.
At the same time, millions of jobs are being lost. Home foreclosures are at record highs. Next year's 2010 mortgage resets will unleash a greater number, and ahead is the full impact of nationwide commercial real estate defaults plus any number of new unpleasant surprises.
Even so, little relief is in sight for beleaguered households or for 48 of the 50 states under water from their budget crises. But according to Fed Chairman Ben Bernanke, "the recession is very likely over at this point (even though) it's still going to feel like a weak economy for some time."
(4) "The Biggest Crime In The World"
That's what former Wall Street banker Nomi Prins told Schechter when he interviewed her last December. "You're talking double-digit trillions of dollars - minimum - already in the beginning of 2009, and we are nowhere near done with finding out how much loss there really is.
"One estimate was $197.4 trillion, including "monies lost, value depreciated, and money spent to try to stabilize the system....and that (figure) may be low," yet it's incomprehensible. And getting to the bottom of it through a modern-day Pecora Commission may duplicate the 9/11 whitewash. According to economist Dean Baker:
"Instead of striving to uncover the truth, (an investigation) may seek to conceal it" and tell banksters they're free to steal again.
(5) Insiders WantedAccording to Schechter:
"We need investigations by insiders who know where the bodies are buried, and in many cases, not yet" interred. We need more State Attorneys like Eliot Spitzer and enough honest politicians to embrace them. We need proof of who's on the take followed by "a jailout, not (another) bailout. We need to remember Balzac's insight (that) 'Behind every great fortune lies a great crime,' " in a culture where the only one is getting caught.
The Madoff Moment
In business since 1960, Bernard L. Madoff Investment Securities LLC provided executions for broker-dealers, banks, and financial institutions, and was one of the world's largest hedge fund managers, handling billions of dollars for a select clientele that included banks, insurance companies, other hedge funds, universities, charities, and numerous prominent wealthy individuals.
Madoff served as vice-chairman of the NASD, was a member of its board of governors, and chairman of its New York region. He also chaired the Nasdaq's board of governors, served on its executive committee, and was chairman of its trading committee.In addition, he was chief of the Securities Industry Association's trading committee in the 1990s and earlier this decade in the same capacity when he represented brokerage firms in discussions with regulators about new stock market trading rules. He was highly respected and a pillar among his peers until the scam he created imploded.
On December 11, 2008, he was revealed as a world class swindler when federal agents arrested him for running a giant Ponzi scheme. According to the FBI's Theodore Cacioppi:
Madoff "deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of billions of dollars."
He was tried in federal court on charges of criminal securities fraud, convicted, and, on June 29, 2009, sentenced to 150 years in prison, the maximum under the law. In fact, his real crime was getting caught, and for ripping off the rich and famous, his own kind, who welcomed the steady high returns until what seemed too good to be true turned out to be a scam.
Section 4 of the Securities Exchange Act of 1934 established the SEC to prevent them. It's mandated to enforce the Securities Act of 1933, the Trust Indenture Act of 1939, the 1940 Investment Company Act and Investment Advisers Act, Sarbanes-Oxley of 2002, and the Credit Rating Agency Reform Act of 2006. Overall, it's responsible for enforcing federal securities laws, the securities industry, the nation's stock and options exchanges, and other electronic securities markets. It's charged with uncovering wrongdoing, assuring investors aren't swindled, and keeping the nation's financial markets free from fraud.
For years, there were suspicions about Madoff because no one understood how his strategy produced annual double-digit returns. The SEC was alerted but didn't act. Derivatives expert Harry Markopolos wrote a report for internal SEC use listing 29 Red Flags and accused Madoff of running a giant Ponzi scheme, to no avail.
Wall Street takes care of its own, and even internal SEC documents suggest that the agency is notorious for being lax, preferring wrist-slaps alone, and nearly always against lesser players, not prominent ones like Madoff or major Wall Street banks and investment firms.
As a result, the agency doesn't regulate. Investigations aren't conducted or are whitewashed. Criminal fraud goes undetected or is swept under the rug. Little is done to prevent it, and only rarely are figures like Madoff caught. Wall Street's criminal culture is in safe hands under its new head, Mary Schapiro, a consummate insider with close ties to the Street's rich and powerful, which is why she was chosen in the first place.
The White-Collar Prison Gang
Even though felons like Enron's Jeffrey Skilling, Worldcom's Bernie Ebbers, and Tyco's Dennis Kozlowski are in prison, corporate America's criminal class is thriving, untouched, and mindful that very few of their kind get caught.
So far during the current economic crisis, not only are most banksters unscathed, but they've been rewarded with trillions of taxpayer dollars, interest-free Federal Reserve money, and an open-ended checkbook for as much more as they want. Who said crime doesn't pay?
The Crimes of Wall Street
Schechter names many, including:
-- "Fraud and control frauds;
-- Insider trading;
-- Theft and conspiracy;
-- Misrepresentation;
-- Ponzi schemes;
-- False accounting;
-- Embezzling;
-- Diverting funds into obscenely high salaries and obscene bonuses;
-- Bilking investors, customers and homeowners;
-- Conflicts of interest;
-- Mesmerizing regulators;
-- Manipulating markets;
-- Tax frauds;
-- Making loans and then arranging that they fail;
-- Engineering phony financial products; (and)
-- Misleading the public."
Add to these:
-- buying a controlling stake in Washington;
-- assuring their own officials run the Treasury, Fed, and all functions related to the economy and finance, including the regulatory bodies; and
-- writing laws and regulations that govern their industry and activities.
In Washington, what Wall Street wants, it gets. As a result, financial fraud and other scams are thriving. According to the Treasury Department's Financial Crimes Enforcement Network, over 730,000 instances of suspected wrongdoing, or 13% more than in 2007, including a 23% rise in mortgage fraud to almost 65,000 incidents.
By the numbers, they amount to:
-- $994 billion in 2008 losses or a median loss of $175,000;
-- financial institutions or government agencies accounting for 27% of the total; and
-- an estimated 17 - 30 months elapse before a typical scheme is detected.Examples include "shady lending practices....deepening debt, exploiting customers, overcharging borrowers with arbitrary late fees, and imposing other hidden costs that bilk consumers.
"Most getting caught get off with mere wrist slaps or occasional fines amounting to a tiny fraction of the crimes, so it pays to keep committing them. According to Law Professor and corporate crime specialist John Coffee:
"Any criminal prosecution....must show either a specific intent to defraud or, what federal law calls, willfulness which means a real intent to deliberately defraud someone and engage in misconduct that you realize was causing injury.
"So if fraud is committed with good intentions, criminal prosecutions won't follow, only civil ones can to redeem losses, and during the Bush administration, the Justice Department sought cash settlements most often to keep plaintiffs out of court. And over 60% of the relatively few tried and convicted served only about two years on average in country club prisons, and over one-fourth of them were never incarcerated.
It's why year after year, "The beat goes on (as) new scandals seem to surface daily....(yet) no sooner does one scandal erupt (when) another threatens to push it out of the public eye," or another unrelated issue is manufactured like the phony Swine Flu crisis tries to sweep them under the rug altogether. Sadly, it works because the public is none the wiser and never catches on to what investigative journalist IF Stone once explained:
"All governments are run by liars, and nothing they say should be believed." Or he simply said: "All governments lie," usually about the most important issues affecting everyone.
The Criminal Mind
The new Con Artist Hall of Infamy web site explains the art of the con, has a con watch, and lists current inductees, including many prominent past and more recent figures like Bernie Madoff, Jeff Skilling, Bernie Ebbers, and Conrad Black. But for everyone exposed, dozens more get away with cooking the books, manipulating markets, profiting from insider deals, selling toxic junk to unwary investors, and pocketing multi-millions as their legitimate right. Why not, when regulators and law enforcement are complicit in letting them.
They use "every angle to persuade people to believe" that their integrity is impeccable, their financial skills unmatched, and their strengths include:
-- "power & influence" because of friends in high places;
-- "charisma" to attract broad appeal; and
-- "strong cover" for being a respected financial community member.
They flourish best free from regulatory oversight during periods of economic prosperity and bull markets, or at least the illusion that these conditions exist. Former convicted felon Sam Antar explained:
"White-collar criminals are economic predators. We consider you, humanity, as a weakness to be exploited in the execution of our crimes. In order to commit (them), we have to increase your comfort level (by) build(ing) walls of false integrity around us....We have no respect for the laws. We consider your codes of ethics, your laws, weaknesses to be exploited in the execution of our crimes."
"You can't be prosecuted for being stupid. So all white-collar criminals always try to play stupid. They don't want to show intent. It's easier to say that this was a result of a mistake or an error of judgment, than to say that I intended to, to victimize or defraud somebody. It's relatively easy (and) the criminal element today is figuring out a way to exploit it" because of so much easy money around for the taking.
The Crime at the Heart of the Crime
Embracing fraud is simple when so many people in high places commit it, get away with it, and the few caught keep most of their gains and pay a small price for them. Further, "The line between legal and illegal can be a thin one or no line at all. It can also be complicated, even hard for government to investigate and prosecute.
"Also, no widely accepted definition of economic crime exists because intent is so hard to prove, and in a lax regulatory environment no incentive to either, especially since unelected officials come from sectors they administer, then recycle themselves back to high-paying jobs.Who Should Be Prosecuted?
Considering the extensive amount of fraud and harm caused, tough RICO prosecutions should be used the same as against organized crime that call for harsh sentencing penalties for the guilty.
More than ever today, the problem is endemic, the way William Black explains about the pressures on CEOs to keep up with their peers and generate impressive profits even if getting them means cooking the books and committing fraud.
He presented this paradigm in a public lecture:-- "Corporate governance fails. Power is delegated to CEOs and collaborating members of management;
-- External controls fail through the manipulation of outside auditors and accounting firms as happened in the Enron and WorldCom frauds;
-- Rating agencies are co-opted and suborned through conflicts of interest; (and)
-- Regulation fails or is defanged with rules softened or changed (through)
(a) Deregulation
(b) No regulation
(c) Desupervision
(d) Lobbying by Companies to undercut regulators which is justified on ideological grounds as support for free markets (and)
(e) Capture - What regulators there are (are) drawn from the industry and share its outlook.
"The result has been the greatest ever transfer of wealth from the many to an elite few that continues without missing a beat, and why not. No one stops them. In fact, the current environment under Democrats or Republicans lets them flourish.
Whenever a systemic collapse occurs, old scams continue and new ones emerge, always aimed at fleecing as much as possible from the unwary
Investigating Financial Criminals
Given the unprecedented amount of financial fraud, a new independent Pecora Commission with teeth more than ever is needed to root it out and hold the guilty accountable. But getting one is another matter at a time Washington and Wall Street are co-conspirators with every incentive to facilitate criminality and whitewash attempts to expose it.
Nonetheless, economist Dean Baker lists questions needing answers:
-- asking financial executives under oath how they missed the inflating housing bubble; and
-- how they justify millions in compensation given the crisis they were complicit in creating.
However, getting straight answers will prove daunting at best, and what government authority will demand them. Perhaps a "People's Inquiry" can do better even with no teeth and no coverage by the dominant media.
Progressive web sites and online radio and television can feature the results and get them to growing audiences. Not millions but enough to spread the word and hope others pass it on.
If economic deterioration deepens over an extended period with millions more out of jobs, homes, savings and hope, then a public outcry for prosecutions might be unstoppable. Even then, it's a long shot but something worth watching.
Predatory Subprime Lending
According to Schechter, "subcrime over the years got millions of families into mortgages they couldn't afford, and that the lenders knew they couldn't sustain." Low teaser rates and financial institutions' collusion facilitated it to cash in on the enormous profits, then hang fleeced homeowners out to dry by unaffordable mortgage resets and eventual foreclosures.
According to the Center for Public Integrity, the largest Wall Street banks backed 25 of "the sleaziest subprime lenders," including CitiGroup, Wells Fargo, JP Morgan Chase, and Bank of America. Combined, they originated $1 trillion in toxic mortgages from 2005 - 2007, nearly three-fourths of the total.Even worse, warnings a decade ago went unheeded, and former insider Catherine Austin Fitts saw an earlier scam unfolding, brought it to the attention of her GHW Bush administration superiors, and was told to shut up and mind her own business.
The idea was to pump as much money into the housing market to scam buyers with fraudulent mortgages designed to fail. It was predatory lending across the board with corporate CEOs of the top Wall Street firms involved. In 2004, the FBI first warned of a "fraud epidemic," then later launched "Operation Malicious Mortgage" that charged over 400 defendants, convicted 173 of crimes, but only accounted for around $1 billion in losses, a tiny fraction of the total fraud, none committed by major players, and that's the problem.
A Financial Crimes Enforcement Network (FinCEN) April 2008 study mortgage fraud study found that "the total for mortgage fraud SARs (suspicious activity report) filed reached nearly 53,000, an increase of 42 percent" over 2007. The February 2009 report is even worse at over 62,000 SARs, and filings increased 44% from the previous year.
Suspected crimes included:
-- falsifying financial information, including fake accounting entries, bogus trades to inflate profits or hide losses, and false transactions to evade regulatory oversight;
-- "self-dealing" through insider trading, kickbacks, backdating executive stock options, misusing corporate property for personal gain, and violating tax laws relating to "self-dealing" that amounts to illegally taking advantage of insider positions; and
-- obstruction of justice to conceal criminal conduct.
According to the Center for Public Integrity (based on the FBI's Mortgage Fraud Report), the same parties allegedly involved in fraud also created the housing crisis. On July 30, the Wall Street Journal reported that the Senate launched an investigation and subpoenaed leading financial institutions believed to be involved. But given how these investigations go, it's unlikely to expect much, let alone top executives publicly exposed and later prosecuted.
The Victims Are Everywhere
Besides millions of defrauded homeowners, the big money, according to former insider Nomi Prins, came from leveraging. She explained:
"The (big) money was made because several layers up a pyramid, Wall Street investment firms and commercial bank investment groups decided to repackage these mortgages, create layers of them, that they then resold to investors." They leveraged up 30 times or more "against those (toxic) layers, which is the real crime" and sold the junk to unwary buyers knowing that most of it would default. Adding layers of high-risk credit default swaps greatly compounded the problem that ballooned into many trillions of dollars of bad assets.
Witnesses for the Prosecution
Schechter interviewed many homeowners who explained how they were conned and the devastating effect on their lives. According to one:
"I'm a person (who's) trying to save my house. I'm in foreclosure right now. I feel like someone's hand is in my pocket, and I just want a fair break, a fair shake at the American dream.
"Millions had it stolen by willful fraud and deception, capitalizing on their "low level of financial literacy" to pull off the most egregious mortgage abuses, and most often get away with them.
Wall Street Complicity
The big players are the smartest, most devious, and best able to reap the greatest profits knowing that regulators and prosecutors won't touch them, so why worry.
According to economist Max Wolff:
The securitization process worked by "packag(ing), sell(ing), repack(aging) and resell(ing) mortages making what was a small housing bubble, a gigantic (one) and making what became an American financial problem very much a global" one by selling mortgage bundles worldwide "without full disclosure of the lack of underlying assets or risks.
"Buyers accepted them on good faith, failed in their due diligence, and rating agencies were negligent, even criminal, in overvaluing and endorsing junk assets that they knew were high-risk or toxic. "The whole process was corrupt at its core.
"According to political scientist Ben Barber:
"Capitalism has sort of gone off the rails. It ceased to be capitalism - it's financialization. The fact that it's now all about speculation, the fact that it's about Ponzi schemes, the fact that it's about selling and buying paper," not producing real products with real worth for a real purpose, the essence of industrial capitalism.
The Insurers
AIG was the most prominent, but the industry was complicit overall, including through "credit default swaps to protect themselves against defaults" they knew were most likely would happen because the assets they insured were junk. In addition, hedge funds were "also a pit of fraud," and according to William Black:
Toxic junk "was created out of things like liars' loans, which were known to be extraordinarily bad. And now it was getting triple-A ratings....mean(ing) there is zero risk. So you take something that not only has significant risk, it has crushing risk. That's why it's toxic. And you create this fiction that is has zero risk. That itself, of course, is a fraudulent exercise. Again, there was nobody looking during the Bush years.
"The result was "a 50-state-Katrina blast(ing) through America" causing millions of homeowner defaults, while criminal financiers prospered through massive securities fraud and racketeering.
According to economist Michael Hudson, it let the top 1% of the population raise their wealth level from 30% 10 years ago to 57% five years ago to almost 70% today. "It's unprecedented," he said (and) makes America look like a third world banana republic."
The Conspiratorial Role of the Media
They profit mainly through advertising revenue, and much of it comes from the FIRE industry (finance, insurance, and real estate). Newspapers especially depend heavily on real estate ads in weekend supplements and daily classified sections. In some communities, local broadsheets are the virtual "marketing arm of the real estate industry" so they have every incentive to ignore practices easily identified as fraudulent.
Overall, the media "politicized the problem....rarely acknowledging their laziness and superficial coverage." When it was too late to matter, they admitted irresponsibility but only asked questions like why didn't we see this coming. They did but failed to report it. As long as the economy appeared prosperous and big profits continued, why rock the boat? Why ask tough questions when it's easier saying nothing? Why risk offending bosses and jeopardizing careers? Why practice real journalism when the fake kind is demanded and rewards for it much greater?
Warnings Ignored
According to Washington Post columnist Robert Samuelson and others, most economists as well as journalists got it wrong, or more accurately didn't try to get it right.
Law Professor Linda Beale was unsympathetic in saying professional economists helped cause the crisis, didn't see it coming, and don't know how to fix it. Too few even try because they're paid by the industry, (or related ones), that engineered the fraud, profited hugely from it, and need professionals to trumpet successes and hide scams.
As a result, dissenting voices were silenced. Denial was the order of the day, and as long an emerging crisis wasn't evident, why sound the alarm when it's much easier and safer playing along.
Yet "One didn't have to be an expert to see the warning signs (that) led to a massive market meltdown, a collapse of the subprime mortgage market, bankruptcies by the leading financial lenders, billions of dollars in losses by top banks and financial lenders, and prediction of more pain to come for millions of Americans facing foreclosures" plus more job losses than at any time since the 1930s.
But you'd never know it from the public media discourse that cheerlead the scam until it imploded. Or as former activist and academic Alex Carey might have said - corporate propaganda protected Wall Street predators from the truth.
The Bear Stearns "Bleed Out"
The 85-year old Wall Street firm was the first major one to fail, and "Its stockholders would eventually be wiped out in what was described as the first government bailout." Many others, of course, followed with perhaps more to come once the next leg of the crisis begins.Writing in Vanity Fair about Bear Stearns, Bryan Burroughs said there was never "anything on Wall Street to compare to it: a 'run' on a major investment bank, caused in large part not by a criminal indictment or some mammoth quarterly loss but by rumor and innuendo (that) had little basis in fact.
"The questions are why, cui bono, and did the firm fall or was it pushed, even though like others on the Street it took huge risks that could backfire in hard times. But there was more going on than reported. "There were forces at work here that suggest illegal activities on a number of levels."
The firm was also independent enough to rile competitors, perhaps some arranging for it to fail, and if it did, they'd profit hugely through greater consolidation for larger market shares. So by some accounts, it was targeted by naked short selling, rumors of a liquidity problem at a time it was adequately capitalized, and heavy put option buying to sink its stock price and drive the company to the wall in a matter of days. It gave JP Morgan Chase a chance to buy it at a tiny fraction of its peak valuation, or in other words, profit hugely from a vulture purchase arranged by the Fed.
In short order, Lehman Bros., Merrill Lynch, and other noted firms failed, giving Wall Street survivors like Goldman Sachs, JP Morgan Chase, Citigroup, and Bank of America more power than ever.
The Lehman Liquidation
In asking "Did Lehman Brothers Fall or Was It Pushed," Ellen Brown quoted author Lawrence MacDonald saying the company was in no worse shape than other major Wall Street banks, so he concluded that Lehman was "put to sleep. They put the pillow over (its) face and they put her to sleep." But why is key.
Schechter quoted economist Michael Hudson blaming CEO Dick Fuld saying:
"Lehman Brothers essentially committed suicide. Its head, Mr. Fuld, had many offers from Korea and from investment banks in the US to take it over. He tried to bluff them. He tried to say, "Crisis? What crisis? Our loans are perfectly good. We haven't lost a penny. We want you to pay at the book value of what we say our loans are worth.
"But no one believed it, and why should they. "These are guys who like to wipe out their partners, like to wipe out people they are doing business with. He (f'd) the whole firm and wiped out the shareholders (saying) 'We're too big to fail.' " Was Fuld complicit in a deliberate scheme to bring down Lehman, and if so why?
Apparently, he profited hugely, and so did the Street by removing a key competitor. First Bear Stearns, then Lehman. According to Brown:
"Although Lehman Brothers filed for bankruptcy on Monday, September 15, 2008, it was actually 'bombed' on September 11" when it was hit by the "biggest one-day drop in its stock" the result of manipulative naked short-selling and apparent sabotage to prevent the company from negotiating a deal to be bought. The UK-based Barclays Bank was interested and was willing to underwrite Lehman's debt.
But as Brown explained:
It "needed a waiver from British regulators of a rule requiring shareholder approval. (However,) UK Chancellor of the Exchequer Alistair Darling" stonewalled long enough to prevent it. He did the same thing with Britain's Northern Rock and "changed the rules of the game" by opening the spigot in both countries for open-ended bailouts for banks too big to fail.
Again, why so and cui bono? It "suggests that Lehman Brothers (Northern Rock and others) did not just fall over the brink but (were) pushed." The likely reasons were to engineer the financial crisis, create an emergency, pressure Congress (and the UK government) to provide billions in rescue funding, give selected major banks in both countries more power to consolidate, then use bailout proceeds to buy choice assets on the cheap plus reward themselves handsomely for their cleverness.
It's not new with numerous past examples of predatory bankers, including JP Morgan, engineering financial crises for profit. The difference is that today the stakes far higher and global with US giants Goldman Sachs, JP Morgan Chase, Citigroup, Bank of America, Wells Fargo, and Morgan Stanley the major survivors - bigger and more powerful than ever, and so far thriving with open-ended bailouts.
Ellen Brown adds:"The international bankers who caused the financial crisis are indeed capitalizing on it, consolidating their power in 'a new global financial order' that gives them (more) top-down global control" than ever with the public exploited and stuck with the bill.
Are Our Markets Manipulated?
Forget about "animal spirits," random movements, and asset prices reflecting true values, and understand that all markets are manipulated up and down for profit with insiders profiting hugely both ways.Catherine Austin Fitts calls it a "pump and dump" scheme to artificially inflate valuations, then profit more on the downside by short-selling.
"The practice is illegal under securities law, yet it is particularly common" because the gains are enormous, in good and bad times. When carried to extremes, Fitts calls it "pump(ing) and dump(ing) of the entire American economy," duping the public, fleecing trillions, and it's more than just "a process designed to wipe out the middle class. This is genocide (by other means) - a much more subtle and lethal version than ever before perpetrated by the scoundrels of our history texts.
"The so-called Plunge Protection Team is one of the tools, authorized on March 18, 1989 under Ronald Reagan's Executive Order 12631 creating the Working Group on Financial Markets (WGFM) with top government officials, including the President, Treasury Secretary and Fed chairman in charge.
It subverts market forces by theoretically intervening to avoid crises. In fact, it works both ways to drive valuations up or down along with active insider participation for huge profits with the public none the wiser.
Schechter explains that "this secret branch of government has a sophisticated war room, using every state of the art technology to monitor markets worldwide. It has emergency powers. It doesn't keep minutes. There is no freedom of information access to its deliberations."
Google has 147,000 entries about it, but only 10 can be accessed, so the most secretive shenanigans are hidden along with the role of the Fed, the Treasury, and the White House.
Established by the 1934 Gold Reserve Act, the Treasury-run Exchange Stabilization Fund (ESF) originally operated free from congressional oversight "to keep sharp swings in the dollar's exchange rate from (disrupting) financial markets" through manipulation.
Its operations now include stabilizing foreign currencies, extending credit lines to foreign governments, and more recently guaranteeing money market funds against losses of up to $50 billion. Overall, the ESF is a slush fund for Treasury officials to use as they wish and manipulate markets freely.
Established in 1999 after the Long Term Capital Management (LTCM) crisis, the Counterparty Risk Management Policy Group (CRMPG) manipulates markets to benefit giant Wall Street firms and their high-level insiders. It lets financial giants collude through large-scale program trading to move markets up or down. It bails out members in financial trouble, and manipulates markets short or longer-term with government complicity and approval to go either way for huge profits on stocks, bonds, commodities, currencies, futures, options, and an array of speculative vehicles like structured assets and derivatives. Market manipulation enriches insiders at the expense of the unwary, often fleeced by their chicanery.
The Testosterone Factor
Schechter wonders how different things might have been if "the Sheriff of the Street," Eliot Spitzer, hadn't been caught in a sex scandal and forced to resign as Governor. Two days before being outed in testimony before Congress and in a Washington Post op-ed, he accused the Bush administration of being a "partner in crime" with predatory lenders. He wrote:
"Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders."
"Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
"However, his comments were quickly buried, then forgotten after his sex scandal erupted, even though it's widely known that well-healed Wall Street and other corporate types have "kept a vibrant, upscale sex industry" thriving. What Schechter calls the "testosterone factor" is brought on by what experts call a sense of exuberance, a feeling of infallibility, and a sense of entitlement to engage in risky behavior, including with high-paid prostitutes. It's the same euphoria gamblers feel when winning. They get addicted to the action and can't stop.
The Role of Regulators and Politicians
Wall Street predators profited hugely with complicit help from regulators, politicians, and prosecutors. Further, "The financialization (of the economy) did not just happen; it was engineered, projected as socially beneficial 'modernization' and innovation" at the same time industrial capitalism was eroding because operations were offshored to cheap labor markets.
Financialization is ripe for plunder and fraud under a system favoring bigness, lax regulations, prosecutorial weakness, and FIRE sector companies and high-powered lobbyists' influence buying from criminally complicit politicians.They got:
-- Glass-Steagall repealed;
-- the Commodity Futures Modernization Act that licensed high-risk derivatives speculation;
-- off-balance sheet accounting chicanery to hide financial liabilities;
-- the SEC letting investment banks be self-regulating;
-- an overall regulatory climate conducive to widespread fraud and abuse;
-- new rules to let commercial banks determine their own capital reserve requirements;
-- federal bank regulators empowered to supersede state consumer protection laws, thus facilitating predatory lending;
-- new federal rules preventing victims of abusive loans from suing firms that bought them from issuing banks;
-- antitrust laws weakened or abandoned and the door opened to "too-big-to-fail megabanks," and
-- much more, creating opportunities for the worst kinds of fraud and abuse with virtually no government oversight to stop it.
Worse still, it persists under Obama in more extreme forms with plans for greater global reach and dominance creating new opportunities for plunder. According to Michael Hudson, "It looks as if as little will be done to (curb) financial fraud as will be done to the Guantanamo torturers and the high-ups who condoned their actions.
"Or as Schechter explains:"Is economic justice even possible under circumstances riddled with so many banksters still in charge and tangled up in so many conflicts of interest? In this environment, can we look forward to any serious fraud or prevention effort, much less a mass prosecution?"
That said, can reckless speculation be halted or will it continue unabated, followed by greater boom and bust cycles until the entire system implodes in an inevitable collapse after which no recovery is possible and most people are left impoverished and on their own because government did nothing to stop it.
Judgment Day
On September 15, Bloomberg News quoted Fed chairman Ben Bernanke saying "....from a technical perspective the recession is very likely over at this point...." The dominant media agree, with commentators like CNN's Lou Dobbs stating months ago that the economy was improving and the recession would soon end. Others disagree, including former insider Nomi Prins saying:
"This economic cycle is not finished going downward. We are in the beginning of 2009. We've seen a decimated 2008. It's not getting better anytime soon."
According to economist Max Wolff:"Sadly there is evidence that we're going to flush our tax dollars and our opportunity down the toilet to rebuild an unfair system that rewarded only the top at the expense of everybody and was fundamentally unsound.
"Longtime market analyst Bob Chapman sees no recovery ahead "even with an official $23.7 trillion committed by the Treasury and the Fed....(Yet) we hear fairy tales of recovery in the US, Europe and Asia." Chapman sees the worst of times ahead and many dark years before returning to normality.
Leading monetary analyst Professor Tim Congdon explains that money and credit in America have been contracting at a pace comparable to the Great Depression. "There has been nothing like this in the USA since the 1930s. The rapid destruction of money balances is madness.
"Economist David Rosenberg is also worried because "For the first time in the post-WW2 era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew."Worse still, Wall Street is more powerful and rapacious than ever. Speculation remains unabated. New bubbles are being inflated with a "whole new wave of criminal" fraud, according to investigative journalist Gary Weiss.
Even so, top financial officials have escaped prosecution. Instead, beleaguered households have been hung out to dry, while meaningful reforms aren't coming because "financial sector lobbies appear stronger than ever."
As a result, business as usual continues accompanied by the kind of Washington and media cheerleading we've grown accustomed to hearing.Absent is any concern for the common good when more than ever the business of America is big business with a strategic long-term plan for co-opting world governments, waging permanent wars for profit, dominating everywhere militarily, ending social safety net protections, crushing civil liberties and freedom, tolerating no concern for human rights, controlling global markets and resources, turning workers everywhere into serfs, and extracting, unimpeded, as much public wealth as possible.
That's America's future with no simple solutions in sight. Yet more than ever the old order must be stopped or a far greater calamity is coming than The Crime of Our Time.
By Stephen Lendman http://sjlendman.blogspot.com
Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached in Chicago at lendmanstephen@sbcglobal.net. Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Monday through Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national topics. All programs are archived for easy listening.
The fallout cost millions of Americans their jobs, homes, savings, and futures, the result of a Washington - Wall Street criminal cabal and their scandalous conspiracy against the US public.
Below is a review of Danny Schechtner's revealing book, Crime of Our Time. It was written by Stephen Lendman and posted on The Market Oracle.
(1) In Wall Street We Trust
Once again, the major media betrayed the public by cheerleading the inflating market bubbles, ignoring the cause and Wall Street/Washington's role, then downplaying the severity of the crisis that has a long way to run. Instead their reasoning goes: "we are all to blame, guilty of greed, over-spending and under-saving," so "when everyone's at fault, no one can be held responsible."
Yet capitalism's internal contradictions make it crisis-prone, unstable, ungovernable, and self-destructive because of its repeated cycles of booms creating bubbles, creating busts, then depressions, and inevitably decay and demise.
Initially, The New Times deflected attention by focusing on human errors like "wild derivatives, sky-high leverage, (and) a subprime surge," but avoided the core issue of white collar crime and Washington's complicity in it. When it was too late to matter, columnists like Bob Herbert wrote about financial "malefactors" who walk away "with a suspended sentence, and can't wait to get back to their nefarious activities." Where were they when it mattered most?
Still today, the corporate media ignores the crime scene, instead calling criminal bankers "egotistical jerk(s) as trapped as anyone" in their own mess, as much victims as their prey.
(2) Former Bank Regulator William Black Speaks Out
Economics Professor William Black is a former senior bank regulator and Savings and Loan prosecutor. In April 2009 interviews in Barrons and with Bill Moyers on public television, he referred to "failed bankers (advising) failed regulators on how to deal with failed assets" they all conspired to create, proliferate, and use to defraud unwary buyers. He explained that many failed banks were deliberately brought down, and:
"The way that you do it is to make really bad loans, because they pay better. Then you grow extremely rapidly, in other words, you're a Ponzi-like scheme. And the third thing you do is" leverage up. It's hugely profitable and "inevitable that there's going to be a disaster down the road."
Black explained it in his book, The Best Way To Rob A Bank Is To Own One, especially in a lax regulatory environment under the privately owned Federal Reserve and powerful financial giants that run the government, not the other way around. They write the laws, make the rules, install their people in top Washington posts, and get open-ended bailouts and absolution when their scam implodes.
In the 1930s, the Pecora Commission's Chief Counsel Ferdinand Pecora noted how "Legal chicanery and pitch darkness were the banker's stoutest allies." So weren't complicit government officials as well as media commentators turning a blind eye to their crimes.
(3) The Crime Wave Is Still With Us
In an environment of lax regulation, a Wall Street owned and operated Fed, the Treasury as their private piggy bank, a bipartisan criminal culture in Washington, and corporate lobbyists taking full advantage to get the best democracy their money can buy, it's little wonder that the same dirty game persists because who cares enough to stop it.
At the same time, millions of jobs are being lost. Home foreclosures are at record highs. Next year's 2010 mortgage resets will unleash a greater number, and ahead is the full impact of nationwide commercial real estate defaults plus any number of new unpleasant surprises.
Even so, little relief is in sight for beleaguered households or for 48 of the 50 states under water from their budget crises. But according to Fed Chairman Ben Bernanke, "the recession is very likely over at this point (even though) it's still going to feel like a weak economy for some time."
(4) "The Biggest Crime In The World"
That's what former Wall Street banker Nomi Prins told Schechter when he interviewed her last December. "You're talking double-digit trillions of dollars - minimum - already in the beginning of 2009, and we are nowhere near done with finding out how much loss there really is.
"One estimate was $197.4 trillion, including "monies lost, value depreciated, and money spent to try to stabilize the system....and that (figure) may be low," yet it's incomprehensible. And getting to the bottom of it through a modern-day Pecora Commission may duplicate the 9/11 whitewash. According to economist Dean Baker:
"Instead of striving to uncover the truth, (an investigation) may seek to conceal it" and tell banksters they're free to steal again.
(5) Insiders WantedAccording to Schechter:
"We need investigations by insiders who know where the bodies are buried, and in many cases, not yet" interred. We need more State Attorneys like Eliot Spitzer and enough honest politicians to embrace them. We need proof of who's on the take followed by "a jailout, not (another) bailout. We need to remember Balzac's insight (that) 'Behind every great fortune lies a great crime,' " in a culture where the only one is getting caught.
The Madoff Moment
In business since 1960, Bernard L. Madoff Investment Securities LLC provided executions for broker-dealers, banks, and financial institutions, and was one of the world's largest hedge fund managers, handling billions of dollars for a select clientele that included banks, insurance companies, other hedge funds, universities, charities, and numerous prominent wealthy individuals.
Madoff served as vice-chairman of the NASD, was a member of its board of governors, and chairman of its New York region. He also chaired the Nasdaq's board of governors, served on its executive committee, and was chairman of its trading committee.In addition, he was chief of the Securities Industry Association's trading committee in the 1990s and earlier this decade in the same capacity when he represented brokerage firms in discussions with regulators about new stock market trading rules. He was highly respected and a pillar among his peers until the scam he created imploded.
On December 11, 2008, he was revealed as a world class swindler when federal agents arrested him for running a giant Ponzi scheme. According to the FBI's Theodore Cacioppi:
Madoff "deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of billions of dollars."
He was tried in federal court on charges of criminal securities fraud, convicted, and, on June 29, 2009, sentenced to 150 years in prison, the maximum under the law. In fact, his real crime was getting caught, and for ripping off the rich and famous, his own kind, who welcomed the steady high returns until what seemed too good to be true turned out to be a scam.
Section 4 of the Securities Exchange Act of 1934 established the SEC to prevent them. It's mandated to enforce the Securities Act of 1933, the Trust Indenture Act of 1939, the 1940 Investment Company Act and Investment Advisers Act, Sarbanes-Oxley of 2002, and the Credit Rating Agency Reform Act of 2006. Overall, it's responsible for enforcing federal securities laws, the securities industry, the nation's stock and options exchanges, and other electronic securities markets. It's charged with uncovering wrongdoing, assuring investors aren't swindled, and keeping the nation's financial markets free from fraud.
For years, there were suspicions about Madoff because no one understood how his strategy produced annual double-digit returns. The SEC was alerted but didn't act. Derivatives expert Harry Markopolos wrote a report for internal SEC use listing 29 Red Flags and accused Madoff of running a giant Ponzi scheme, to no avail.
Wall Street takes care of its own, and even internal SEC documents suggest that the agency is notorious for being lax, preferring wrist-slaps alone, and nearly always against lesser players, not prominent ones like Madoff or major Wall Street banks and investment firms.
As a result, the agency doesn't regulate. Investigations aren't conducted or are whitewashed. Criminal fraud goes undetected or is swept under the rug. Little is done to prevent it, and only rarely are figures like Madoff caught. Wall Street's criminal culture is in safe hands under its new head, Mary Schapiro, a consummate insider with close ties to the Street's rich and powerful, which is why she was chosen in the first place.
The White-Collar Prison Gang
Even though felons like Enron's Jeffrey Skilling, Worldcom's Bernie Ebbers, and Tyco's Dennis Kozlowski are in prison, corporate America's criminal class is thriving, untouched, and mindful that very few of their kind get caught.
So far during the current economic crisis, not only are most banksters unscathed, but they've been rewarded with trillions of taxpayer dollars, interest-free Federal Reserve money, and an open-ended checkbook for as much more as they want. Who said crime doesn't pay?
The Crimes of Wall Street
Schechter names many, including:
-- "Fraud and control frauds;
-- Insider trading;
-- Theft and conspiracy;
-- Misrepresentation;
-- Ponzi schemes;
-- False accounting;
-- Embezzling;
-- Diverting funds into obscenely high salaries and obscene bonuses;
-- Bilking investors, customers and homeowners;
-- Conflicts of interest;
-- Mesmerizing regulators;
-- Manipulating markets;
-- Tax frauds;
-- Making loans and then arranging that they fail;
-- Engineering phony financial products; (and)
-- Misleading the public."
Add to these:
-- buying a controlling stake in Washington;
-- assuring their own officials run the Treasury, Fed, and all functions related to the economy and finance, including the regulatory bodies; and
-- writing laws and regulations that govern their industry and activities.
In Washington, what Wall Street wants, it gets. As a result, financial fraud and other scams are thriving. According to the Treasury Department's Financial Crimes Enforcement Network, over 730,000 instances of suspected wrongdoing, or 13% more than in 2007, including a 23% rise in mortgage fraud to almost 65,000 incidents.
By the numbers, they amount to:
-- $994 billion in 2008 losses or a median loss of $175,000;
-- financial institutions or government agencies accounting for 27% of the total; and
-- an estimated 17 - 30 months elapse before a typical scheme is detected.Examples include "shady lending practices....deepening debt, exploiting customers, overcharging borrowers with arbitrary late fees, and imposing other hidden costs that bilk consumers.
"Most getting caught get off with mere wrist slaps or occasional fines amounting to a tiny fraction of the crimes, so it pays to keep committing them. According to Law Professor and corporate crime specialist John Coffee:
"Any criminal prosecution....must show either a specific intent to defraud or, what federal law calls, willfulness which means a real intent to deliberately defraud someone and engage in misconduct that you realize was causing injury.
"So if fraud is committed with good intentions, criminal prosecutions won't follow, only civil ones can to redeem losses, and during the Bush administration, the Justice Department sought cash settlements most often to keep plaintiffs out of court. And over 60% of the relatively few tried and convicted served only about two years on average in country club prisons, and over one-fourth of them were never incarcerated.
It's why year after year, "The beat goes on (as) new scandals seem to surface daily....(yet) no sooner does one scandal erupt (when) another threatens to push it out of the public eye," or another unrelated issue is manufactured like the phony Swine Flu crisis tries to sweep them under the rug altogether. Sadly, it works because the public is none the wiser and never catches on to what investigative journalist IF Stone once explained:
"All governments are run by liars, and nothing they say should be believed." Or he simply said: "All governments lie," usually about the most important issues affecting everyone.
The Criminal Mind
The new Con Artist Hall of Infamy web site explains the art of the con, has a con watch, and lists current inductees, including many prominent past and more recent figures like Bernie Madoff, Jeff Skilling, Bernie Ebbers, and Conrad Black. But for everyone exposed, dozens more get away with cooking the books, manipulating markets, profiting from insider deals, selling toxic junk to unwary investors, and pocketing multi-millions as their legitimate right. Why not, when regulators and law enforcement are complicit in letting them.
They use "every angle to persuade people to believe" that their integrity is impeccable, their financial skills unmatched, and their strengths include:
-- "power & influence" because of friends in high places;
-- "charisma" to attract broad appeal; and
-- "strong cover" for being a respected financial community member.
They flourish best free from regulatory oversight during periods of economic prosperity and bull markets, or at least the illusion that these conditions exist. Former convicted felon Sam Antar explained:
"White-collar criminals are economic predators. We consider you, humanity, as a weakness to be exploited in the execution of our crimes. In order to commit (them), we have to increase your comfort level (by) build(ing) walls of false integrity around us....We have no respect for the laws. We consider your codes of ethics, your laws, weaknesses to be exploited in the execution of our crimes."
"You can't be prosecuted for being stupid. So all white-collar criminals always try to play stupid. They don't want to show intent. It's easier to say that this was a result of a mistake or an error of judgment, than to say that I intended to, to victimize or defraud somebody. It's relatively easy (and) the criminal element today is figuring out a way to exploit it" because of so much easy money around for the taking.
The Crime at the Heart of the Crime
Embracing fraud is simple when so many people in high places commit it, get away with it, and the few caught keep most of their gains and pay a small price for them. Further, "The line between legal and illegal can be a thin one or no line at all. It can also be complicated, even hard for government to investigate and prosecute.
"Also, no widely accepted definition of economic crime exists because intent is so hard to prove, and in a lax regulatory environment no incentive to either, especially since unelected officials come from sectors they administer, then recycle themselves back to high-paying jobs.Who Should Be Prosecuted?
Considering the extensive amount of fraud and harm caused, tough RICO prosecutions should be used the same as against organized crime that call for harsh sentencing penalties for the guilty.
More than ever today, the problem is endemic, the way William Black explains about the pressures on CEOs to keep up with their peers and generate impressive profits even if getting them means cooking the books and committing fraud.
He presented this paradigm in a public lecture:-- "Corporate governance fails. Power is delegated to CEOs and collaborating members of management;
-- External controls fail through the manipulation of outside auditors and accounting firms as happened in the Enron and WorldCom frauds;
-- Rating agencies are co-opted and suborned through conflicts of interest; (and)
-- Regulation fails or is defanged with rules softened or changed (through)
(a) Deregulation
(b) No regulation
(c) Desupervision
(d) Lobbying by Companies to undercut regulators which is justified on ideological grounds as support for free markets (and)
(e) Capture - What regulators there are (are) drawn from the industry and share its outlook.
"The result has been the greatest ever transfer of wealth from the many to an elite few that continues without missing a beat, and why not. No one stops them. In fact, the current environment under Democrats or Republicans lets them flourish.
Whenever a systemic collapse occurs, old scams continue and new ones emerge, always aimed at fleecing as much as possible from the unwary
Investigating Financial Criminals
Given the unprecedented amount of financial fraud, a new independent Pecora Commission with teeth more than ever is needed to root it out and hold the guilty accountable. But getting one is another matter at a time Washington and Wall Street are co-conspirators with every incentive to facilitate criminality and whitewash attempts to expose it.
Nonetheless, economist Dean Baker lists questions needing answers:
-- asking financial executives under oath how they missed the inflating housing bubble; and
-- how they justify millions in compensation given the crisis they were complicit in creating.
However, getting straight answers will prove daunting at best, and what government authority will demand them. Perhaps a "People's Inquiry" can do better even with no teeth and no coverage by the dominant media.
Progressive web sites and online radio and television can feature the results and get them to growing audiences. Not millions but enough to spread the word and hope others pass it on.
If economic deterioration deepens over an extended period with millions more out of jobs, homes, savings and hope, then a public outcry for prosecutions might be unstoppable. Even then, it's a long shot but something worth watching.
Predatory Subprime Lending
According to Schechter, "subcrime over the years got millions of families into mortgages they couldn't afford, and that the lenders knew they couldn't sustain." Low teaser rates and financial institutions' collusion facilitated it to cash in on the enormous profits, then hang fleeced homeowners out to dry by unaffordable mortgage resets and eventual foreclosures.
According to the Center for Public Integrity, the largest Wall Street banks backed 25 of "the sleaziest subprime lenders," including CitiGroup, Wells Fargo, JP Morgan Chase, and Bank of America. Combined, they originated $1 trillion in toxic mortgages from 2005 - 2007, nearly three-fourths of the total.Even worse, warnings a decade ago went unheeded, and former insider Catherine Austin Fitts saw an earlier scam unfolding, brought it to the attention of her GHW Bush administration superiors, and was told to shut up and mind her own business.
The idea was to pump as much money into the housing market to scam buyers with fraudulent mortgages designed to fail. It was predatory lending across the board with corporate CEOs of the top Wall Street firms involved. In 2004, the FBI first warned of a "fraud epidemic," then later launched "Operation Malicious Mortgage" that charged over 400 defendants, convicted 173 of crimes, but only accounted for around $1 billion in losses, a tiny fraction of the total fraud, none committed by major players, and that's the problem.
A Financial Crimes Enforcement Network (FinCEN) April 2008 study mortgage fraud study found that "the total for mortgage fraud SARs (suspicious activity report) filed reached nearly 53,000, an increase of 42 percent" over 2007. The February 2009 report is even worse at over 62,000 SARs, and filings increased 44% from the previous year.
Suspected crimes included:
-- falsifying financial information, including fake accounting entries, bogus trades to inflate profits or hide losses, and false transactions to evade regulatory oversight;
-- "self-dealing" through insider trading, kickbacks, backdating executive stock options, misusing corporate property for personal gain, and violating tax laws relating to "self-dealing" that amounts to illegally taking advantage of insider positions; and
-- obstruction of justice to conceal criminal conduct.
According to the Center for Public Integrity (based on the FBI's Mortgage Fraud Report), the same parties allegedly involved in fraud also created the housing crisis. On July 30, the Wall Street Journal reported that the Senate launched an investigation and subpoenaed leading financial institutions believed to be involved. But given how these investigations go, it's unlikely to expect much, let alone top executives publicly exposed and later prosecuted.
The Victims Are Everywhere
Besides millions of defrauded homeowners, the big money, according to former insider Nomi Prins, came from leveraging. She explained:
"The (big) money was made because several layers up a pyramid, Wall Street investment firms and commercial bank investment groups decided to repackage these mortgages, create layers of them, that they then resold to investors." They leveraged up 30 times or more "against those (toxic) layers, which is the real crime" and sold the junk to unwary buyers knowing that most of it would default. Adding layers of high-risk credit default swaps greatly compounded the problem that ballooned into many trillions of dollars of bad assets.
Witnesses for the Prosecution
Schechter interviewed many homeowners who explained how they were conned and the devastating effect on their lives. According to one:
"I'm a person (who's) trying to save my house. I'm in foreclosure right now. I feel like someone's hand is in my pocket, and I just want a fair break, a fair shake at the American dream.
"Millions had it stolen by willful fraud and deception, capitalizing on their "low level of financial literacy" to pull off the most egregious mortgage abuses, and most often get away with them.
Wall Street Complicity
The big players are the smartest, most devious, and best able to reap the greatest profits knowing that regulators and prosecutors won't touch them, so why worry.
According to economist Max Wolff:
The securitization process worked by "packag(ing), sell(ing), repack(aging) and resell(ing) mortages making what was a small housing bubble, a gigantic (one) and making what became an American financial problem very much a global" one by selling mortgage bundles worldwide "without full disclosure of the lack of underlying assets or risks.
"Buyers accepted them on good faith, failed in their due diligence, and rating agencies were negligent, even criminal, in overvaluing and endorsing junk assets that they knew were high-risk or toxic. "The whole process was corrupt at its core.
"According to political scientist Ben Barber:
"Capitalism has sort of gone off the rails. It ceased to be capitalism - it's financialization. The fact that it's now all about speculation, the fact that it's about Ponzi schemes, the fact that it's about selling and buying paper," not producing real products with real worth for a real purpose, the essence of industrial capitalism.
The Insurers
AIG was the most prominent, but the industry was complicit overall, including through "credit default swaps to protect themselves against defaults" they knew were most likely would happen because the assets they insured were junk. In addition, hedge funds were "also a pit of fraud," and according to William Black:
Toxic junk "was created out of things like liars' loans, which were known to be extraordinarily bad. And now it was getting triple-A ratings....mean(ing) there is zero risk. So you take something that not only has significant risk, it has crushing risk. That's why it's toxic. And you create this fiction that is has zero risk. That itself, of course, is a fraudulent exercise. Again, there was nobody looking during the Bush years.
"The result was "a 50-state-Katrina blast(ing) through America" causing millions of homeowner defaults, while criminal financiers prospered through massive securities fraud and racketeering.
According to economist Michael Hudson, it let the top 1% of the population raise their wealth level from 30% 10 years ago to 57% five years ago to almost 70% today. "It's unprecedented," he said (and) makes America look like a third world banana republic."
The Conspiratorial Role of the Media
They profit mainly through advertising revenue, and much of it comes from the FIRE industry (finance, insurance, and real estate). Newspapers especially depend heavily on real estate ads in weekend supplements and daily classified sections. In some communities, local broadsheets are the virtual "marketing arm of the real estate industry" so they have every incentive to ignore practices easily identified as fraudulent.
Overall, the media "politicized the problem....rarely acknowledging their laziness and superficial coverage." When it was too late to matter, they admitted irresponsibility but only asked questions like why didn't we see this coming. They did but failed to report it. As long as the economy appeared prosperous and big profits continued, why rock the boat? Why ask tough questions when it's easier saying nothing? Why risk offending bosses and jeopardizing careers? Why practice real journalism when the fake kind is demanded and rewards for it much greater?
Warnings Ignored
According to Washington Post columnist Robert Samuelson and others, most economists as well as journalists got it wrong, or more accurately didn't try to get it right.
Law Professor Linda Beale was unsympathetic in saying professional economists helped cause the crisis, didn't see it coming, and don't know how to fix it. Too few even try because they're paid by the industry, (or related ones), that engineered the fraud, profited hugely from it, and need professionals to trumpet successes and hide scams.
As a result, dissenting voices were silenced. Denial was the order of the day, and as long an emerging crisis wasn't evident, why sound the alarm when it's much easier and safer playing along.
Yet "One didn't have to be an expert to see the warning signs (that) led to a massive market meltdown, a collapse of the subprime mortgage market, bankruptcies by the leading financial lenders, billions of dollars in losses by top banks and financial lenders, and prediction of more pain to come for millions of Americans facing foreclosures" plus more job losses than at any time since the 1930s.
But you'd never know it from the public media discourse that cheerlead the scam until it imploded. Or as former activist and academic Alex Carey might have said - corporate propaganda protected Wall Street predators from the truth.
The Bear Stearns "Bleed Out"
The 85-year old Wall Street firm was the first major one to fail, and "Its stockholders would eventually be wiped out in what was described as the first government bailout." Many others, of course, followed with perhaps more to come once the next leg of the crisis begins.Writing in Vanity Fair about Bear Stearns, Bryan Burroughs said there was never "anything on Wall Street to compare to it: a 'run' on a major investment bank, caused in large part not by a criminal indictment or some mammoth quarterly loss but by rumor and innuendo (that) had little basis in fact.
"The questions are why, cui bono, and did the firm fall or was it pushed, even though like others on the Street it took huge risks that could backfire in hard times. But there was more going on than reported. "There were forces at work here that suggest illegal activities on a number of levels."
The firm was also independent enough to rile competitors, perhaps some arranging for it to fail, and if it did, they'd profit hugely through greater consolidation for larger market shares. So by some accounts, it was targeted by naked short selling, rumors of a liquidity problem at a time it was adequately capitalized, and heavy put option buying to sink its stock price and drive the company to the wall in a matter of days. It gave JP Morgan Chase a chance to buy it at a tiny fraction of its peak valuation, or in other words, profit hugely from a vulture purchase arranged by the Fed.
In short order, Lehman Bros., Merrill Lynch, and other noted firms failed, giving Wall Street survivors like Goldman Sachs, JP Morgan Chase, Citigroup, and Bank of America more power than ever.
The Lehman Liquidation
In asking "Did Lehman Brothers Fall or Was It Pushed," Ellen Brown quoted author Lawrence MacDonald saying the company was in no worse shape than other major Wall Street banks, so he concluded that Lehman was "put to sleep. They put the pillow over (its) face and they put her to sleep." But why is key.
Schechter quoted economist Michael Hudson blaming CEO Dick Fuld saying:
"Lehman Brothers essentially committed suicide. Its head, Mr. Fuld, had many offers from Korea and from investment banks in the US to take it over. He tried to bluff them. He tried to say, "Crisis? What crisis? Our loans are perfectly good. We haven't lost a penny. We want you to pay at the book value of what we say our loans are worth.
"But no one believed it, and why should they. "These are guys who like to wipe out their partners, like to wipe out people they are doing business with. He (f'd) the whole firm and wiped out the shareholders (saying) 'We're too big to fail.' " Was Fuld complicit in a deliberate scheme to bring down Lehman, and if so why?
Apparently, he profited hugely, and so did the Street by removing a key competitor. First Bear Stearns, then Lehman. According to Brown:
"Although Lehman Brothers filed for bankruptcy on Monday, September 15, 2008, it was actually 'bombed' on September 11" when it was hit by the "biggest one-day drop in its stock" the result of manipulative naked short-selling and apparent sabotage to prevent the company from negotiating a deal to be bought. The UK-based Barclays Bank was interested and was willing to underwrite Lehman's debt.
But as Brown explained:
It "needed a waiver from British regulators of a rule requiring shareholder approval. (However,) UK Chancellor of the Exchequer Alistair Darling" stonewalled long enough to prevent it. He did the same thing with Britain's Northern Rock and "changed the rules of the game" by opening the spigot in both countries for open-ended bailouts for banks too big to fail.
Again, why so and cui bono? It "suggests that Lehman Brothers (Northern Rock and others) did not just fall over the brink but (were) pushed." The likely reasons were to engineer the financial crisis, create an emergency, pressure Congress (and the UK government) to provide billions in rescue funding, give selected major banks in both countries more power to consolidate, then use bailout proceeds to buy choice assets on the cheap plus reward themselves handsomely for their cleverness.
It's not new with numerous past examples of predatory bankers, including JP Morgan, engineering financial crises for profit. The difference is that today the stakes far higher and global with US giants Goldman Sachs, JP Morgan Chase, Citigroup, Bank of America, Wells Fargo, and Morgan Stanley the major survivors - bigger and more powerful than ever, and so far thriving with open-ended bailouts.
Ellen Brown adds:"The international bankers who caused the financial crisis are indeed capitalizing on it, consolidating their power in 'a new global financial order' that gives them (more) top-down global control" than ever with the public exploited and stuck with the bill.
Are Our Markets Manipulated?
Forget about "animal spirits," random movements, and asset prices reflecting true values, and understand that all markets are manipulated up and down for profit with insiders profiting hugely both ways.Catherine Austin Fitts calls it a "pump and dump" scheme to artificially inflate valuations, then profit more on the downside by short-selling.
"The practice is illegal under securities law, yet it is particularly common" because the gains are enormous, in good and bad times. When carried to extremes, Fitts calls it "pump(ing) and dump(ing) of the entire American economy," duping the public, fleecing trillions, and it's more than just "a process designed to wipe out the middle class. This is genocide (by other means) - a much more subtle and lethal version than ever before perpetrated by the scoundrels of our history texts.
"The so-called Plunge Protection Team is one of the tools, authorized on March 18, 1989 under Ronald Reagan's Executive Order 12631 creating the Working Group on Financial Markets (WGFM) with top government officials, including the President, Treasury Secretary and Fed chairman in charge.
It subverts market forces by theoretically intervening to avoid crises. In fact, it works both ways to drive valuations up or down along with active insider participation for huge profits with the public none the wiser.
Schechter explains that "this secret branch of government has a sophisticated war room, using every state of the art technology to monitor markets worldwide. It has emergency powers. It doesn't keep minutes. There is no freedom of information access to its deliberations."
Google has 147,000 entries about it, but only 10 can be accessed, so the most secretive shenanigans are hidden along with the role of the Fed, the Treasury, and the White House.
Established by the 1934 Gold Reserve Act, the Treasury-run Exchange Stabilization Fund (ESF) originally operated free from congressional oversight "to keep sharp swings in the dollar's exchange rate from (disrupting) financial markets" through manipulation.
Its operations now include stabilizing foreign currencies, extending credit lines to foreign governments, and more recently guaranteeing money market funds against losses of up to $50 billion. Overall, the ESF is a slush fund for Treasury officials to use as they wish and manipulate markets freely.
Established in 1999 after the Long Term Capital Management (LTCM) crisis, the Counterparty Risk Management Policy Group (CRMPG) manipulates markets to benefit giant Wall Street firms and their high-level insiders. It lets financial giants collude through large-scale program trading to move markets up or down. It bails out members in financial trouble, and manipulates markets short or longer-term with government complicity and approval to go either way for huge profits on stocks, bonds, commodities, currencies, futures, options, and an array of speculative vehicles like structured assets and derivatives. Market manipulation enriches insiders at the expense of the unwary, often fleeced by their chicanery.
The Testosterone Factor
Schechter wonders how different things might have been if "the Sheriff of the Street," Eliot Spitzer, hadn't been caught in a sex scandal and forced to resign as Governor. Two days before being outed in testimony before Congress and in a Washington Post op-ed, he accused the Bush administration of being a "partner in crime" with predatory lenders. He wrote:
"Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders."
"Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
"However, his comments were quickly buried, then forgotten after his sex scandal erupted, even though it's widely known that well-healed Wall Street and other corporate types have "kept a vibrant, upscale sex industry" thriving. What Schechter calls the "testosterone factor" is brought on by what experts call a sense of exuberance, a feeling of infallibility, and a sense of entitlement to engage in risky behavior, including with high-paid prostitutes. It's the same euphoria gamblers feel when winning. They get addicted to the action and can't stop.
The Role of Regulators and Politicians
Wall Street predators profited hugely with complicit help from regulators, politicians, and prosecutors. Further, "The financialization (of the economy) did not just happen; it was engineered, projected as socially beneficial 'modernization' and innovation" at the same time industrial capitalism was eroding because operations were offshored to cheap labor markets.
Financialization is ripe for plunder and fraud under a system favoring bigness, lax regulations, prosecutorial weakness, and FIRE sector companies and high-powered lobbyists' influence buying from criminally complicit politicians.They got:
-- Glass-Steagall repealed;
-- the Commodity Futures Modernization Act that licensed high-risk derivatives speculation;
-- off-balance sheet accounting chicanery to hide financial liabilities;
-- the SEC letting investment banks be self-regulating;
-- an overall regulatory climate conducive to widespread fraud and abuse;
-- new rules to let commercial banks determine their own capital reserve requirements;
-- federal bank regulators empowered to supersede state consumer protection laws, thus facilitating predatory lending;
-- new federal rules preventing victims of abusive loans from suing firms that bought them from issuing banks;
-- antitrust laws weakened or abandoned and the door opened to "too-big-to-fail megabanks," and
-- much more, creating opportunities for the worst kinds of fraud and abuse with virtually no government oversight to stop it.
Worse still, it persists under Obama in more extreme forms with plans for greater global reach and dominance creating new opportunities for plunder. According to Michael Hudson, "It looks as if as little will be done to (curb) financial fraud as will be done to the Guantanamo torturers and the high-ups who condoned their actions.
"Or as Schechter explains:"Is economic justice even possible under circumstances riddled with so many banksters still in charge and tangled up in so many conflicts of interest? In this environment, can we look forward to any serious fraud or prevention effort, much less a mass prosecution?"
That said, can reckless speculation be halted or will it continue unabated, followed by greater boom and bust cycles until the entire system implodes in an inevitable collapse after which no recovery is possible and most people are left impoverished and on their own because government did nothing to stop it.
Judgment Day
On September 15, Bloomberg News quoted Fed chairman Ben Bernanke saying "....from a technical perspective the recession is very likely over at this point...." The dominant media agree, with commentators like CNN's Lou Dobbs stating months ago that the economy was improving and the recession would soon end. Others disagree, including former insider Nomi Prins saying:
"This economic cycle is not finished going downward. We are in the beginning of 2009. We've seen a decimated 2008. It's not getting better anytime soon."
According to economist Max Wolff:"Sadly there is evidence that we're going to flush our tax dollars and our opportunity down the toilet to rebuild an unfair system that rewarded only the top at the expense of everybody and was fundamentally unsound.
"Longtime market analyst Bob Chapman sees no recovery ahead "even with an official $23.7 trillion committed by the Treasury and the Fed....(Yet) we hear fairy tales of recovery in the US, Europe and Asia." Chapman sees the worst of times ahead and many dark years before returning to normality.
Leading monetary analyst Professor Tim Congdon explains that money and credit in America have been contracting at a pace comparable to the Great Depression. "There has been nothing like this in the USA since the 1930s. The rapid destruction of money balances is madness.
"Economist David Rosenberg is also worried because "For the first time in the post-WW2 era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew."Worse still, Wall Street is more powerful and rapacious than ever. Speculation remains unabated. New bubbles are being inflated with a "whole new wave of criminal" fraud, according to investigative journalist Gary Weiss.
Even so, top financial officials have escaped prosecution. Instead, beleaguered households have been hung out to dry, while meaningful reforms aren't coming because "financial sector lobbies appear stronger than ever."
As a result, business as usual continues accompanied by the kind of Washington and media cheerleading we've grown accustomed to hearing.Absent is any concern for the common good when more than ever the business of America is big business with a strategic long-term plan for co-opting world governments, waging permanent wars for profit, dominating everywhere militarily, ending social safety net protections, crushing civil liberties and freedom, tolerating no concern for human rights, controlling global markets and resources, turning workers everywhere into serfs, and extracting, unimpeded, as much public wealth as possible.
That's America's future with no simple solutions in sight. Yet more than ever the old order must be stopped or a far greater calamity is coming than The Crime of Our Time.
By Stephen Lendman http://sjlendman.blogspot.com
Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached in Chicago at lendmanstephen@sbcglobal.net. Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Monday through Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national topics. All programs are archived for easy listening.
Venezuela takes over Hilton Hotel on Margarita Island
Hugo Chavez is at it again as his government takes aim at more private industry. Once again, his actions illustrate how leftist governments, under the lie of looking out for the people, are simply after the money that the private sector creates.
By THE ASSOCIATED PRESS (CP)CARACAS, Venezuela —
President Hugo Chavez's government began taking over management of a Hilton-run hotel on Venezuela's Margarita Island on Wednesday.
Tourism Minister Pedro Morejon said a 20-year concession granted to the company has expired and the government "has taken legitimate control of an asset that belongs to all the people of Venezuela."
Chavez issued a decree last week ordering the "forced acquisition" of the Margarita Hilton&Suites and its marina, though news of the edict did not surface until Tuesday.
Morejon said the government has held majority ownership of the hotel since 1995, when a banking crisis forced many of the hotel's shareholders to sell their assets to the state.
It was not immediately clear what assets Hilton owns within the hotel complex, but the decree forces it to sell whatever it has. Officials have not said how much Venezuela will pay in compensation, or when.
Representatives for Hilton Worldwide did not immediately respond to a request for comment on Wednesday. A spokeswoman said Tuesday that the company was analyzing the move to determine how its interest in the hotel will be affected.
Margarita Island is one of Venezuela's main tourist destinations, and the hotel has more than 300 rooms and about 150 timeshares, plus restaurants, a casino, souvenir shops and a marina.
Chavez's decree said the Tourism Ministry will be responsible for running the resort.
By THE ASSOCIATED PRESS (CP)CARACAS, Venezuela —
President Hugo Chavez's government began taking over management of a Hilton-run hotel on Venezuela's Margarita Island on Wednesday.
Tourism Minister Pedro Morejon said a 20-year concession granted to the company has expired and the government "has taken legitimate control of an asset that belongs to all the people of Venezuela."
Chavez issued a decree last week ordering the "forced acquisition" of the Margarita Hilton&Suites and its marina, though news of the edict did not surface until Tuesday.
Morejon said the government has held majority ownership of the hotel since 1995, when a banking crisis forced many of the hotel's shareholders to sell their assets to the state.
It was not immediately clear what assets Hilton owns within the hotel complex, but the decree forces it to sell whatever it has. Officials have not said how much Venezuela will pay in compensation, or when.
Representatives for Hilton Worldwide did not immediately respond to a request for comment on Wednesday. A spokeswoman said Tuesday that the company was analyzing the move to determine how its interest in the hotel will be affected.
Margarita Island is one of Venezuela's main tourist destinations, and the hotel has more than 300 rooms and about 150 timeshares, plus restaurants, a casino, souvenir shops and a marina.
Chavez's decree said the Tourism Ministry will be responsible for running the resort.
Tuesday, October 13, 2009
FDIC Chairman issues warning
Through the financial mess of the past 18 months, Sheila Bair has been a voice of common sense and reason. Her seamless handling of failing banks and restructuring of equities has been nothing short of steller. But more than that, she is a straight shooter, seamingly uninfluenced by the political posturing of our idiot representatives in congress. For those resons and others, what she will be saying to the Senate Banking System will be something that you can, well ... take to the bank. / GB
submitted by Rich Edson, Fox Business News
FDIC Chairman Sheila Bair will tell the Senate Banking Committee Wednesday that recovery may be less robust than expected, commercial real estate loans continue to be worrisome and that banks need to increase lending.
Just days after a survey from the National Association for Business Economics showed the recession to be over, Bair warned recovery might be "less robust."
"While we are encouraged by recent indications of the beginnings of an economic recovery, growth may still lag behind historical norms. There are several reasons why the recovery may be less robust than was the case in the past. Most important are the dislocations that have occurred in the balance sheets of the household sector and the financial sector, which will take time to repair," she is set to say in her testimony.
Bair also warned credit distress has spread beyond non-prime mortgages and warned about the looming problems from the commercial real estate market.
"However, the greatest exposures faced by community banks may relate to construction loans and other CRE loans. These loans made up over 43 percent of community bank portfolios, and the average ratio of CRE loans to total capital was above 280 percent." She continues to say the scale of losses in the CRE loan portfolio will depend on the pace of recovery and financial markets during that time.
Bair will tell lawmakers that the regulators are not instructing banks to shy away from lending and that the The FDIC provides banks with considerable flexibility in dealing with customer relationships and managing loan portfolios. "I can assure you that we do not instruct banks to curtail prudently managed lending activities, restrict lines of credit to strong borrowers, or require appraisals on performing loans unless an advance of new funds is being contemplated."
Bair also provided details on the Reserve Fund's negative balance.
"The FDIC estimates that as of September 30, 2009, both the fund balance and the reserve ratio were negative after reserving for projected losses over the next 12 months, though our cash position remained positive. This is not the first time that a fund balance has been negative. The FDIC reported a negative fund balance during the last banking crisis in the late 1980s and early 1990s. Because the FDIC has many potential sources of cash, a negative fund balance does not affect the FDIC’s ability to protect insured depositors or promptly resolve failed institutions.
submitted by Rich Edson, Fox Business News
FDIC Chairman Sheila Bair will tell the Senate Banking Committee Wednesday that recovery may be less robust than expected, commercial real estate loans continue to be worrisome and that banks need to increase lending.
Just days after a survey from the National Association for Business Economics showed the recession to be over, Bair warned recovery might be "less robust."
"While we are encouraged by recent indications of the beginnings of an economic recovery, growth may still lag behind historical norms. There are several reasons why the recovery may be less robust than was the case in the past. Most important are the dislocations that have occurred in the balance sheets of the household sector and the financial sector, which will take time to repair," she is set to say in her testimony.
Bair also warned credit distress has spread beyond non-prime mortgages and warned about the looming problems from the commercial real estate market.
"However, the greatest exposures faced by community banks may relate to construction loans and other CRE loans. These loans made up over 43 percent of community bank portfolios, and the average ratio of CRE loans to total capital was above 280 percent." She continues to say the scale of losses in the CRE loan portfolio will depend on the pace of recovery and financial markets during that time.
Bair will tell lawmakers that the regulators are not instructing banks to shy away from lending and that the The FDIC provides banks with considerable flexibility in dealing with customer relationships and managing loan portfolios. "I can assure you that we do not instruct banks to curtail prudently managed lending activities, restrict lines of credit to strong borrowers, or require appraisals on performing loans unless an advance of new funds is being contemplated."
Bair also provided details on the Reserve Fund's negative balance.
"The FDIC estimates that as of September 30, 2009, both the fund balance and the reserve ratio were negative after reserving for projected losses over the next 12 months, though our cash position remained positive. This is not the first time that a fund balance has been negative. The FDIC reported a negative fund balance during the last banking crisis in the late 1980s and early 1990s. Because the FDIC has many potential sources of cash, a negative fund balance does not affect the FDIC’s ability to protect insured depositors or promptly resolve failed institutions.
Sunday, October 11, 2009
Bloomberg: Dollar reaches breaking point
This problem with the US currency is just not going away. The world is coming at us from many angles and it should be a wakeup call for our government to show a little fiscal responsibility ... but don't hold your breath! Look, if you don't want to read the article, it's simple, the dollar is rapidly becoming a worthless piece of paper. It may take a year or two but it's coming like a freight train. And Europe can't wait! Once the euro is accepted payment for oil purchases it's all over. / GB
By Ye Xie and Anchalee Worrachate
Oct. 12 (Bloomberg) -- Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.
Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.
World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.
“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”
Sliding Share
The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Englander concluded in a report that the trend “accelerated” in the third quarter. He said in an interview that “for the next couple of months, the forces are still in place” for continued diversification.
America’s currency has been under siege as the Treasury sells a record amount of debt to finance a budget deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30.
Intercontinental Exchange Inc.’s Dollar Index, which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 75.77 last week, the lowest level since August 2008 and down from the high this year of 89.624 on March 4. The index, trading at 76.489 today, is within six points of its record low reached in March 2008.
Foreign companies and officials are starting to say their economies are getting hurt because of the dollar’s weakness.
Toyota’s ‘Pain’
Yukitoshi Funo, executive vice president of Toyota City, Japan-based Toyota Motor Corp., the nation’s biggest automaker, called the yen’s strength “painful.” Fabrice Bregier, chief operating officer of Toulouse, France-based Airbus SAS, the world’s largest commercial planemaker, said on Oct. 8 the euro’s 11 percent rise since April was “challenging.”
The economies of both Japan and Europe depend on exports that get more expensive whenever the greenback slumps. European Central Bank President Jean-Claude Trichet said in Venice on Oct. 8 that U.S. policy makers’ preference for a strong dollar is “extremely important in the present circumstances.”
“Major reserve-currency issuing countries should take into account and balance the implications of their monetary policies for both their own economies and the world economy with a view to upholding stability of international financial markets,” China President Hu Jintao told the Group of 20 leaders in Pittsburgh on Sept. 25, according to an English translation of his prepared remarks. China is America’s largest creditor.
Dollar’s Weighting
Developing countries have likely sold about $30 billion for euros, yen and other currencies each month since March, according to strategists at Bank of America-Merrill Lynch.
That helped reduce the dollar’s weight at central banks that report currency holdings to 62.8 percent as of June 30, the lowest on record, the latest International Monetary Fund data show. The quarter’s 2.2 percentage point decline was the biggest since falling 2.5 percentage points to 69.1 percent in the period ended June 30, 2002.
“The diversification out of the dollar will accelerate,” said Fabrizio Fiorini, a money manager who helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People are buying the euro not because they want that currency, but because they want to get rid of the dollar. In the long run, the U.S. will not be the same powerful country that it once was.”
Central banks’ moves away from the dollar are a temporary trend that will reverse once the Fed starts raising interest rates from near zero, according to Christoph Kind, who helps manage $20 billion as head of asset allocation at Frankfurt Trust in Germany.
‘Flush’ With Dollars
“The world is currently flush with the U.S. dollar, which is available at no cost,” Kind said. “If there’s a turnaround in U.S. monetary policy, there will be a change of perception about the dollar as a reserve currency. The diversification has more to do with reduction of concentration risks rather than a dim view of the U.S. or its currency.”
The median forecast in a Bloomberg survey of 54 economists is for the Fed to lift its target rate for overnight loans between banks to 1.25 percent by the end of 2010. The European Central Bank will boost its benchmark a half percentage point to 1.5 percent, a separate poll shows.
America’s economy will grow 2.4 percent in 2010, compared with 0.95 percent in the euro-zone, and 1 percent in Japan, median predictions show. Japan is seen keeping its rate at 0.1 percent through 2010.
Central bank diversification is helping push the relative worth of the euro and the yen above what differences in interest rates, cost of living and other data indicate they should be. The euro is 16 percent more expensive than its fair value of $1.22, according to economic models used by Credit Suisse AG. Morgan Stanley says the yen is 10 percent overvalued.
Reminders of 1995
Sentiment toward the dollar reminds John Taylor, chairman of New York-based FX Concepts Inc., the world’s largest currency hedge fund, of the mid-1990s. That’s when the greenback tumbled to a post-World War II low of 79.75 against the yen on April 19, 1995, on concern that the Fed wasn’t raising rates fast enough to contain inflation. Like now, speculation about central bank diversification and the demise of the dollar’s primacy rose.
The currency then gained 26 percent versus the yen and 25 percent against the deutsche mark in the following two years as technology innovation increased U.S. productivity and attracted foreign capital.
“People didn’t like the dollar in 1995,” said Taylor, whose firm has $9 billion under management. “That was very stupid and turned out to be wrong. Now, we are getting to the point that people’s attitude toward the dollar becomes ridiculously negative.”
Dollar Forecasts
The median estimate of more than 40 economists and strategists is for the dollar to end the year little changed at $1.47 per euro, and appreciate to 92 yen from 90.13 today.
Englander at London-based Barclays, the world’s third- largest foreign-exchange trader, predicts the U.S. currency will weaken 3.3 percent against the euro to $1.52 in three months. He advised in March, when the dollar peaked this year, to sell the currency. Standard Chartered, the most accurate dollar-euro forecaster in Bloomberg surveys for the six quarters that ended June 30, sees the greenback declining to $1.55 by year-end.
The dollar’s reduced share of new reserves is also a reflection of U.S. assets’ lagging performance as the country struggles to recover from the worst recession since World War II.
Lagging Behind
Since Jan. 1, 61 of 82 country equity indexes tracked by Bloomberg have outperformed the Standard & Poor’s 500 Index of U.S. stocks, which has gained 18.6 percent. That compares with 70.6 percent for Brazil’s Bovespa Stock Index and 49.4 percent for Hong Kong’s Hang Seng Index.
Treasuries have lost 2.4 percent, after reinvested interest, versus a return of 27.4 percent in emerging economies’ dollar- denominated bonds, Merrill Lynch & Co. indexes show.
The growth of global reserves is accelerating, with Taiwan’s and South Korea’s, the fifth- and sixth-largest in the world, rising 2.1 percent to $332.2 billion and 3.6 percent to $254.3 billion in September, the fastest since May. The four biggest pools of reserves are held by China, Japan, Russia and India.
China, which controlled $2.1 trillion in foreign reserves as of June 30 and owns $800 billion of U.S. debt, is among the countries that don’t report allocations.
“Unless you think China does things significantly differently from others,” the anti-dollar trend is unmistakable, Englander said.
Follow the Money
Englander’s conclusions are based on IMF data from central banks that report their currency allocations, which account for 63 percent of total global reserves. Barclays adjusted the IMF data for changes in exchange rates after the reserves were amassed to get an accurate snapshot of allocations at the time they were acquired.
Investors can make money by following central banks’ moves, according to Barclays, which created a trading model that flashes signals to buy or sell the dollar based on global reserve shifts and other variables. Each trade triggered by the system has average returns of more than 1 percent.
Bill Gross, who runs the $186 billion Pimco Total Return Fund, the world’s largest bond fund, said in June that dollar investors should diversify before central banks do the same on concern that the U.S.’s budget deficit will deepen.
“The world is changing, and the dollar is losing its status,” said Aletti Gestielle’s Fiorini. “If you have a 5- year or 10-year view about the dollar, it should be for a weaker currency.”
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net Last Updated: October 12, 2009 00:40 EDT
By Ye Xie and Anchalee Worrachate
Oct. 12 (Bloomberg) -- Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.
Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.
World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.
“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”
Sliding Share
The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Englander concluded in a report that the trend “accelerated” in the third quarter. He said in an interview that “for the next couple of months, the forces are still in place” for continued diversification.
America’s currency has been under siege as the Treasury sells a record amount of debt to finance a budget deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30.
Intercontinental Exchange Inc.’s Dollar Index, which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 75.77 last week, the lowest level since August 2008 and down from the high this year of 89.624 on March 4. The index, trading at 76.489 today, is within six points of its record low reached in March 2008.
Foreign companies and officials are starting to say their economies are getting hurt because of the dollar’s weakness.
Toyota’s ‘Pain’
Yukitoshi Funo, executive vice president of Toyota City, Japan-based Toyota Motor Corp., the nation’s biggest automaker, called the yen’s strength “painful.” Fabrice Bregier, chief operating officer of Toulouse, France-based Airbus SAS, the world’s largest commercial planemaker, said on Oct. 8 the euro’s 11 percent rise since April was “challenging.”
The economies of both Japan and Europe depend on exports that get more expensive whenever the greenback slumps. European Central Bank President Jean-Claude Trichet said in Venice on Oct. 8 that U.S. policy makers’ preference for a strong dollar is “extremely important in the present circumstances.”
“Major reserve-currency issuing countries should take into account and balance the implications of their monetary policies for both their own economies and the world economy with a view to upholding stability of international financial markets,” China President Hu Jintao told the Group of 20 leaders in Pittsburgh on Sept. 25, according to an English translation of his prepared remarks. China is America’s largest creditor.
Dollar’s Weighting
Developing countries have likely sold about $30 billion for euros, yen and other currencies each month since March, according to strategists at Bank of America-Merrill Lynch.
That helped reduce the dollar’s weight at central banks that report currency holdings to 62.8 percent as of June 30, the lowest on record, the latest International Monetary Fund data show. The quarter’s 2.2 percentage point decline was the biggest since falling 2.5 percentage points to 69.1 percent in the period ended June 30, 2002.
“The diversification out of the dollar will accelerate,” said Fabrizio Fiorini, a money manager who helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People are buying the euro not because they want that currency, but because they want to get rid of the dollar. In the long run, the U.S. will not be the same powerful country that it once was.”
Central banks’ moves away from the dollar are a temporary trend that will reverse once the Fed starts raising interest rates from near zero, according to Christoph Kind, who helps manage $20 billion as head of asset allocation at Frankfurt Trust in Germany.
‘Flush’ With Dollars
“The world is currently flush with the U.S. dollar, which is available at no cost,” Kind said. “If there’s a turnaround in U.S. monetary policy, there will be a change of perception about the dollar as a reserve currency. The diversification has more to do with reduction of concentration risks rather than a dim view of the U.S. or its currency.”
The median forecast in a Bloomberg survey of 54 economists is for the Fed to lift its target rate for overnight loans between banks to 1.25 percent by the end of 2010. The European Central Bank will boost its benchmark a half percentage point to 1.5 percent, a separate poll shows.
America’s economy will grow 2.4 percent in 2010, compared with 0.95 percent in the euro-zone, and 1 percent in Japan, median predictions show. Japan is seen keeping its rate at 0.1 percent through 2010.
Central bank diversification is helping push the relative worth of the euro and the yen above what differences in interest rates, cost of living and other data indicate they should be. The euro is 16 percent more expensive than its fair value of $1.22, according to economic models used by Credit Suisse AG. Morgan Stanley says the yen is 10 percent overvalued.
Reminders of 1995
Sentiment toward the dollar reminds John Taylor, chairman of New York-based FX Concepts Inc., the world’s largest currency hedge fund, of the mid-1990s. That’s when the greenback tumbled to a post-World War II low of 79.75 against the yen on April 19, 1995, on concern that the Fed wasn’t raising rates fast enough to contain inflation. Like now, speculation about central bank diversification and the demise of the dollar’s primacy rose.
The currency then gained 26 percent versus the yen and 25 percent against the deutsche mark in the following two years as technology innovation increased U.S. productivity and attracted foreign capital.
“People didn’t like the dollar in 1995,” said Taylor, whose firm has $9 billion under management. “That was very stupid and turned out to be wrong. Now, we are getting to the point that people’s attitude toward the dollar becomes ridiculously negative.”
Dollar Forecasts
The median estimate of more than 40 economists and strategists is for the dollar to end the year little changed at $1.47 per euro, and appreciate to 92 yen from 90.13 today.
Englander at London-based Barclays, the world’s third- largest foreign-exchange trader, predicts the U.S. currency will weaken 3.3 percent against the euro to $1.52 in three months. He advised in March, when the dollar peaked this year, to sell the currency. Standard Chartered, the most accurate dollar-euro forecaster in Bloomberg surveys for the six quarters that ended June 30, sees the greenback declining to $1.55 by year-end.
The dollar’s reduced share of new reserves is also a reflection of U.S. assets’ lagging performance as the country struggles to recover from the worst recession since World War II.
Lagging Behind
Since Jan. 1, 61 of 82 country equity indexes tracked by Bloomberg have outperformed the Standard & Poor’s 500 Index of U.S. stocks, which has gained 18.6 percent. That compares with 70.6 percent for Brazil’s Bovespa Stock Index and 49.4 percent for Hong Kong’s Hang Seng Index.
Treasuries have lost 2.4 percent, after reinvested interest, versus a return of 27.4 percent in emerging economies’ dollar- denominated bonds, Merrill Lynch & Co. indexes show.
The growth of global reserves is accelerating, with Taiwan’s and South Korea’s, the fifth- and sixth-largest in the world, rising 2.1 percent to $332.2 billion and 3.6 percent to $254.3 billion in September, the fastest since May. The four biggest pools of reserves are held by China, Japan, Russia and India.
China, which controlled $2.1 trillion in foreign reserves as of June 30 and owns $800 billion of U.S. debt, is among the countries that don’t report allocations.
“Unless you think China does things significantly differently from others,” the anti-dollar trend is unmistakable, Englander said.
Follow the Money
Englander’s conclusions are based on IMF data from central banks that report their currency allocations, which account for 63 percent of total global reserves. Barclays adjusted the IMF data for changes in exchange rates after the reserves were amassed to get an accurate snapshot of allocations at the time they were acquired.
Investors can make money by following central banks’ moves, according to Barclays, which created a trading model that flashes signals to buy or sell the dollar based on global reserve shifts and other variables. Each trade triggered by the system has average returns of more than 1 percent.
Bill Gross, who runs the $186 billion Pimco Total Return Fund, the world’s largest bond fund, said in June that dollar investors should diversify before central banks do the same on concern that the U.S.’s budget deficit will deepen.
“The world is changing, and the dollar is losing its status,” said Aletti Gestielle’s Fiorini. “If you have a 5- year or 10-year view about the dollar, it should be for a weaker currency.”
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net Last Updated: October 12, 2009 00:40 EDT
Friday, October 9, 2009
Was Obama's Nobel Prize racially motivated?
In the absence of any notable achievements at the time of his nomination, Democrats and the liberal media must ask the question; Did race have anything to do with President Obama being chosen for the Nobel Peace Prize? Since most disagreements with the Obama administration have been countered with accusations of racism from the left, I think it's a fair question to ask.
Of course it's impossible to know the answer. Just as it's impossible for liberals to know a conservative's true motivation when being critical of Obama. But it's the game that liberals play. I'm just going with it. So, can you think of any white person, living or dead, that could have won such an honor under the same circumstances? That is, holding the office of the presidency for only 11 days and having done nothing much beyond rescinding a few executive orders.
Of course it's impossible to know the answer. Just as it's impossible for liberals to know a conservative's true motivation when being critical of Obama. But it's the game that liberals play. I'm just going with it. So, can you think of any white person, living or dead, that could have won such an honor under the same circumstances? That is, holding the office of the presidency for only 11 days and having done nothing much beyond rescinding a few executive orders.
If you find it difficult to think of somebody, you might consider that at least a point in Obama's favor may have been the fact that he is the first black American President. And if that fact was weighted into the decision of the Nobel Prize committee, it could be argued that the decision was somewhat racially motivated. Affirmative action, if you will. As is so often the case with affirmative action, the best man for the position may not have been selected.
/ GB
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