Bank Fraud News: The reason why banks and servicers should receive no presumption of reliability

The following is but a short sampling supporting the argument that any document coming from the banks and servicers is suspect and unworthy of any legal presumption of authenticity or validity. Judges are looking into self-serving fabricated documentation and coming to the wrong conclusion about the facts.

Chase following bank playbook: screw the customer

“Chase provided no prior notice to its cardholders that their crypto ‘purchases’ would be treated as ‘cash advances’ on a going forward basis,” according to the suit.

Tucker claims he was hit with about $140 in fees and a “sky-high” interest rate of 26 percent without warning after Chase reclassified his purchases as cash advances, a violation of the Truth in Lending act.

Fannie Mae and Freddie Mac Stealth: Hiding the elephant in the living room

Its never been a secret that Freddie Mac’s business policy is to remain stealth in any chain of title if possible, and to rely on the servicers to keep its presence a secret in foreclosure proceedings. In fact, this PNC case which was overturned against PNC, involved the Defendant’s assertion that PNC was concealing Freddie Mac’s interest in the loan. Freddie Mac’s business policy appears to rely upon nothing more than handshakes with the originators and servicers. Here is some verbiage from a “Freddie Mac – Mortgage Participation Certificates” disclosure (See: Freddie Mac – Mortgage Participation Certificates):

Deutsch files lawsuit against private mailbox troller following the Deutsch playbook of foreclosure

“Defendants, and each of them initiated a malicious campaign to disrupt the chain of title to prevent Plaintiff from enforcing its contractual rights in the 2006 DOT by way of recording fraudulent documents to purportedly assign the rights under the 2006 DOT without the consent of Plaintiff, and otherwise thereafter fraudulently transfer all rights via a trustee deed upon sale, even though no trustee sale was ever conducted. All subsequently recorded or unrecorded transactions are therefore null, void, and of no effect.”

EDITOR COMMENT: So Deutsch is admitting that its practice of recording fraudulent documents are “null, void and of not effect.” In order to get to that point Deutsch is going to be required to prove standing — i.e., definitive proof that it paid for the debt, which it did not. Deutsch is on dangerous ground here and might deliver a bonus for homeowners. As for the defense, is it really a crime to steal a fraudulent deed of trust supported by fraudulent assignments and endorsements?

Barclays Bank settles for $2,000,000,000 for fraud on investors

Barclays’ offering documents “systematically and intentionally misrepresented key characteristics of the loans,” and more than half of the loans defaulted, federal officials said.

Additionally, the Department of Justice reached similar settlements with two Barclays’ employees involved with subprime residential mortgage-backed securities. They will pay $2 million collectively.

The agreements mark the latest in a string of U.S. settlements with major banks over sales of tainted mortgage securities from 2005 to 2007 that helped set the stage for the real estate crash that contributed to the financial crisis.

Deutsch Pays $7.2 Billion for Fraudulent securitizations

Confirming settlement details the bank disclosed in late December, federal investigators said Deutsche Bank will pay a $3.1 billion civil penalty and provide $4.1 billion in consumer relief to homeowners, borrowers, and communities that were harmed.

The federal penalty is the highest ever for a single entity involved in selling residential mortgage-backed securities that proved to be far more risky than Deutsche Bank led investors to believe. Nonetheless, the agreement represents relief of sorts for the bank and its shareholders, because federal investigators initially sought penalties twice as costly.

Credit Suisse‘s announcement said it would pay the Department of Justice a $2.48 billion civil monetary penalty. The bank will also provide $2.8 billion in consumer relief over five years as part of the deal, which is subject to negotiations over final documentation and approval by Credit Suisse’s board of directors. [Credit Suisse owns SPS Portfolio Servicing.]

Ocwen Settles with 10 States for Illegal Servicing

“The consent order provides that Ocwen will transition its servicing portfolio off of its current servicing platform to a platform better able to manage escrow accounts and establish a new complaint resolution process,” the Georgia Department of Banking and Finance said in a press release. “Ocwen shall hire a third-party firm to audit a statistically significant number of escrow accounts in high-risk areas of the portfolio to determine whether problems continue to exist around the management of escrow accounts and to identify the root cause of those problems.

“Ocwen has faced many legal and regulatory challenges in recent years. In December 2013 it reached a settlement over foreclosure and modification processes with the CFPB and state regulators. A year later, it made a separate agreement with New York regulators that removed company founder William Erbey as CEO.

Wells Fargo Whistleblower is Fired Among Others Who refused to Lie to Customers

In 2014, according to Mr. Tran, his boss ordered him to lie to customers who were facing foreclosure. When Mr. Tran refused, he said, he was fired. He worried that he wouldn’t be able to make his monthly mortgage payments and that he was about to become homeless.

Joining a cadre of former employees claiming they were mistreated for speaking out about problems at the bank, Mr. Tran sued. He argued in court filings that he had been fired in retaliation for blowing the whistle on misconduct at the giant San Francisco-based bank. Mr. Tran said he didn’t want his job back — he wanted Wells Fargo to admit that it had been wrong to fire him and wrong to mislead customers who were facing foreclosure.

 

 

 

Whistleblower Richard Bowen: Barclays Bank Gets Its Hands Slapped… and What Does That Change!!!??

By Richard Bowen
http://www.richardmbowen.com/barclays-bank-gets-its-hands-slapped-and-what-does-that-change/

Is getting its hands slapped a strong enough message? The latest in the bad bank sagas has the British bank, Barclays, red-faced. As it should.

CEO Jes Staley has been reprimanded for attempting to discover the identity of an internal company whistleblower. Mr. Staley stated that he was trying to protect a colleague from what he considered an unfair attack.

Mr. Staley took his inquiry so far he had Barclay employees reach out to postal inspectors in his attempt to discover who had anonymously mailed two letters to the Barclays board, which complained about the bank hiring a mid-level executive. 

The resulting fallout will see Mr. Staley facing a significant pay cut plus regulatory probes. The U.K. Financial Conduct Authority (FCA) has him under investigation which could result in a fine and a possible ban from the financial services industry if the FCA does not find him “fit and proper to lead the firm.”

The Department of Justice (DOJ) is also investigating whether any officials at Barclays or even the USPS may have violated civil Dodd-Frank Whistleblower protections; as well as criminal law in its attempts to uncover the whistleblower’s identity.

Mr. Staley has apologized to Barclays’ board and he states, “accepted its conclusion that my personal actions in this matter were errors on my part.”  However, he’d previously told the Barclays board “that he thought it was legal to unmask a whistleblower.” 

In the NY Post article, Jordan Thomas, Chair of the Whistleblower committee at Labaton Sucharow, the New York law firm responsible for the survey of 1200 plus U.S. and U.K. based financial services professionals on workplace ethics, principles, profits, leadership and confidence (re bank and bankers) asks, of the Barclays fiasco, “Under what circumstances do government agencies work for corporations?“

“Unfortunately” he points out, “you regularly see leaders within corporate America wanting to hunt down whistleblowers within their organization.” The survey’s findings pointed out a continued disregard for ethical engagement as well as alarming new tactics being attempted to silence potential whistleblowers.

In an earlier article, I’d posted New York Federal Reserve President William Dudley’s comment about ”an apparent lack of respect for law, regulation, and public trust that persists within some large financial institutions.”

Yes, absolutely there is cause for concern; the issues are ongoing. I continued that the article goes on to say that the Labaton Sucharow survey said “that one in four bankers said they knew co-workers who had run afoul of the law.” And nearly a third of those surveyed said bonus and compensation incentives encouraged malfeasance.

Profits continue to hold sway over principles no matter how many regulations or checks and balances large banks and their officials, employees and boards are accountable for. Accountable! Did I actually use that word as it regards the big banks?

As Marianne Jennings, professor emeritus of legal and ethical studies from the W.P. Carey School of Business at Arizona State says in her recent article about the Barclays situation, Barclays has been sending mixed messages for a long time.

She says, “Antony Jenkins was named Barclays’ CEO in December 2012 following the LIBOR rate-fixing problems at the bank, a serious misstep that cost the bank almost one-half billion in fines. Mr. Jenkins, by all accounts, worked diligently to change the Barclay’s culture.”

She points out, Mr. Jenkins did indeed try to change the culture, yet he was fired in July 2015 for not “doing enough shareholder-wise”. The message? Forget culture change, stick to earnings and profits! … “In the world of ethics and compliance, one of the keys to anonymous reporting is anonymity. However, Mr. Staley insists that he did not know such a request was wrong.” Yet he was told at the time he made the request that in fact “he could not unmask the identity of whistleblowers.”

He tried anyway, admitted such and now will reap the consequences.  Ironic, as she points out, that the media is lauding the board’s actions yet they fired the last CEO for trying to build a much-needed culture of accountability. Ms. Jennings says, and I agree, “This guy needs to go if the board expects to ever hear about any issue.”

We may not expect bankers to be girl and boy scouts any longer. But what’s it going to take to assure accountability? What is it about the makeup of big banks that has built a culture of profits at any cost even though this has resulted in such egregious malfeasance?

Is there any solution? If so, let me know.

It’s Not Even a Bubble: Foreclosures on the Rise

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Editor’s Comment: Realtors and Banks want you to think that you need to buy now before the  market takes off and prices spiral upward. I say don’t believe a word of it.

If you are buying to live in a house, you should know that the actual and shadow inventory of foreclosures will keep intense downward pressure on housing prices for many years to come. Some estimates, including mine, are that the housing market might take more than 10 years to recover and that it could be as much as 20 years. This is why so many people are renting rather than buying. Rental values are going up because there is actual demand for renting.

If you are buying for investment, see the above paragraph. You might have a viable investment if you are willing to stay in for the long pull and you are willing to take on the duties and obligations of a landlord.

If you are selling and you are waiting for the market to bottom out, or maybe you see a spike and you think you’ll wait just a little bit longer to get a higher price, forget it. Sellers, as realtors will even tell you, are mostly unrealistic about the sales price of their property. This is because they bought or once saw the price of their property at twice the price as the offers now. The reason is simple — prices went up but values stayed the same or even declined. The difference between prices and values has never been as big a deal as it is now.

Prices can be forced up by actual demand but never as much as we saw from the late 90’s to the peak at 2006. The prices went up because the payments went down or appeared to go down.

Free money was everywhere and nobody was reading the fine print or even questioning why Banks would offer such deals as teaser rates and other nonsensical things to entice people into signing up for mortgages, whose payment would eventually rise above their household income or where the payment was the equivalent of doubling the interest rate because they were going to be sitting with a home that declined to its real value.

The truth is that even if a recovery eventually occurs, it will be 20+ years before we see those prices again. And that will only result from inflation which eventually will pick up steam.

And by all means remember what I have been writing about these last few weeks. The title they are offering you, with a deed signed by a bank, or even a satisfaction of mortgage signed by a bank may not be worth the paper it is written on and the title policy normally excludes that sort of risk from what they  are covering in title insurance. So if you don’t pose the hard questions and negotiate a real title policy that covers all the known risks, you could be the angry owner of a white elephant that cannot be sold later nor refinanced.

From CNBC:

Home prices rose, just barely, in the second quarter of this year annually for the first time since 2007, according to online real estate firm Zillow. That prompted the popular site to call a “bottom” to home prices nationally. The increase was a mere 0.2 percent, but in today’s touch and go housing recovery, that was enough.

Nearly one third of the 167 markets Zillow tracks in this survey saw annual price gains from a year ago.

“After four months with rising home values and increasingly positive forecast data, it seems clear that the country has hit a bottom in home values,” said Zillow Chief Economist Dr. Stan Humphries. “The housing recovery is holding together despite lower-than-expected job growth, indicating that it has some organic strength of its own.”

Zillow’s report, which compares prices of homes sold in the same neighborhood, also showed a stronger 2.1 percent gain quarter to quarter, which is the biggest uptick since 2005. The biggest price gains, however, are in the markets that saw the biggest price drops during the latest housing crash. Phoenix, for example, saw a 12 percent annual price gain on the Zillow index.

That has other analysts claiming that the overall surge in national prices is due to price bubbles in certain markets.

“Strong demand, particularly in areas of California, Arizona and Nevada, are pushing up home prices very quickly in the short-term. And because many of the home purchases in these areas are cash transactions, there appears to be less braking of prices by our current appraisal system than seen in other parts of the country,” noted Thomas Popik, research director for Campbell Surveys and chief analyst for HousingPulse. “The trend raises the distinct possibility of housing price bubbles emerging in some of these hot housing markets.”

The supply of foreclosed properties for sale has been dropping steadily, as lenders try to modify more loans or actively pursue foreclosure alternatives, like short sales (where the home is sold for less than the value of the mortgage). Investors, eager to take advantage of the hot rental market, are having to spread out to more markets in order to find the best deals.

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“We were heavily into Phoenix early in the cycle. Those markets are heating up,” said James Breitenstein, CEO of investment firm Landsmith in an interview on CNBC Monday. “We see a shift more to the east, states like North Carolina, Michigan, Florida.”

While home prices on the Zillow index are improving most in formerly distressed markets, like Miami, Orlando and much of California, they are still dropping in other non-distressed markets, like St. Louis (down 4 percent annually) Chicago (down 5.8 percent annually) and Philadelphia (down 3.5 percent annually).

“Those people looking at current results and calling a bottom are being dangerously short-sighted,” said Michael Feder, CEO of Radar Logic, a real estate data and analytics company. “Not only are the immediate signs inconclusive, but the broad dynamics are still quite scary. We think housing is still a short.”

Radar Logic sees price increases as well, but blames that on mild winter weather that temporarily boosted demand. This means there will be payback, or weakness in prices during the latter half of this year. And even without the weather hypothesis, they see further trouble ahead:

“On the supply side, higher prices will entice financial institutions to sell more of their inventories of foreclosed homes and allow households that were previously unable to sell due to negative equity to put their homes on the market. As a result, the supply of homes for sale will increase, placing downward pressure on prices. On the demand side, rising prices could reduce investment buying,” according to the Radar Logic report.

Investors are driving much of the housing market today, anywhere from one third to one quarter of home sales. That makes these supposedly national price gains more precarious than ever, because they are based on a finite supply of distressed homes and that supply is dependent on the nation’s big banks. First time home buyers, who should be 40 percent of the market, are barely making up one third, and millions of potential move-up buyers are trapped in their homes due to negative and near negative equity.

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Homeowner Associations On the Attack, As Predicted Here

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Editor’s Comment:  Thousands of homeowner associations are filing foreclosure actions on banks owning property that are not paying the monthly assessments or special assessments. We’ve written about this before and encouraged the associations to do so.

The irony is very interesting here. The Banks, having never funded a loan and never purchased a loan, managed to foreclose a loan they never had and get title, possession and even eviction if the rightful homeowner failed to leave as ordered by the bogus pretender lender. Now they must pay the taxes, insurance, and maintain the place as it is written in the Declaration of Condominium, or Community restrictions. AND they must pay monthly “Dues” or assessments as well as special assessments.

So that free house the bank got by submitting a credit bid even though they were never the creditor and never had the right to call themselves a creditor, and even though the debt was either unsecured or paid off, now they re suddenly required to pay the piper.

After all, they say they are the homeowner now. So the banks, knowing this would happen have transferred title into “bankruptcy remote vehicles” which are in fact vehicles for avoiding creditors. A transfer in fraud of creditors is intended to be prosecuted by the Association or any other person effected and the association this time is neither intimidated nor unwilling to press their claim. These are the same banks that decimated their neighborhood. The battle is on.

I wonder how this disclosed to Canadian and other investors who think they are getting clear title? This is only one of several reasons why they are getting clouded title — the pendency of assessments.

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Pensions to Be Slashed By Fake Losses on Mortgage Bonds

 

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Editor’s Comment:  

Many of the most conservative, pro-business people who think they escaped the travesty of the mortgage scam and meltdown are in for a big surprise starting this year. Pension funds were the investors. And they lost big. In some cases the fund managers were in bed with the investment bankers who were peddling this crap.

If you read the Wall Street Journal they explain how the already underfunded pension funds (due to accounting tricks that were illegal and then made legal) are now unable to escape the reality admitting the losses being pitched over the fence at them by investment bankers who are rolling in money from bailouts, insurance (that should have paid the pension fund), credit default swaps (that should have paid the pension fund).

Deep in the articles is a description of exactly what is happening in simple math terms. That description applies equally to the intentionally manipulated underwriting standards to assure the loans would fail. If you or I did this, we would be in jail. Instead Jamie Dimon sits on the Board of the New York Fed. what a country. Millions of people are thrown out of their homes, cities and counties go bankrupt, most from mythical losses they don’t understand.

It all comes from what are called yield spreads, premiums and losses from changes in yield. Under normal protocol investors protect themselves by using various hedge products.

But the investment bankers didn’t make the investors the beneficiary of those hedges, they made themselves the beneficiaries instead. Since they were the agents of the investors they should and still can be forced to apply those proceeds, and pay them to the pension funds, which in turn will reduce the amount due under each loan that was funded.

Sources tell me that not only are the pension funds being forced to accept losses on loans they never owned until it was time to foreclose, but that some of the “bets” that went bad are being tacked on as additional fees or losses.

The pension funds are therefore suffering from two huge write-downs — one from the change in accounting rules that allowed them to kick the can down the road (passed 30+ Years ago), and the other from losses that don’t actually exist but were convenient for the banks to assert when they asked for bailouts.

Pension funds become underfunded automatically when the interest and dividends they get paid shrink. In order to bring up income they need to invest more. Neither the companies nor the pensioners are doing that so there is a shortfall. So when interest rates go down, someone must invest more money to earn the interest required to pay to the pensioners. Nobody is making that investment.

Example: If interest rates were 6% when the pension funds made commitments to retiring employees and the amount of money promised those retiring employees just happened to be $60,000, the pension fund would need $1 million invested (over simplifying by taking out amortization of principal). If interest rates fall to 3%, then the $1 million fund is only getting $30,000 per year. In order to raise it back up to $60,000 per year, the fund needs $2 million invested at 3% to stay fully funded. Without additional contribution, there is a $1 million shortfall.

Right now interest rates, manipulated as they are have never been lower which means that pension funds are getting less income than they were getting before, and since nobody is putting in more money to cover the difference the pension fund is underfunded.

When pension funds must declare the losses on mortgage bonds they will be far more underfunded than currently appears and the amount received by each pensioner will be slashed. Say thank you to Wall Street for that.

Curious coincidence: This same analysis applies to the tier 2 yield spread premium grabbed by the investment bank under false pretenses from investors. For purposes of this article you can spell investor as “Pension Fund.”

When the fund manager for the pension fund gave the investment banker $1 million in our example above, he was expecting a 6% return on investment.

But in the most unbridled breach of trust ever recorded in Wall Street history, the investment banker instead invested half the money at twice the rate.

So they only funded $500,000 in “mortgage” loans carrying a nominal interest rate of 12%, even though they had received $1 million and they pocketed the other $500,000 as “trading profits.”Anyone with any investment knowledge understands that this was (1) an immediate loss of $500,000 to the investor (Pension Fund) and (2) a probable loss of the other $500,000 or most of it after the obvious market crash this would cause.

Of course the people accepting those 12% loans were extremely poor credit risks and were literally guaranteed to default.

So Wall Street took the other half of the money they stole from the pension fund, unknown to the pension fund manager, and bet against the mortgages that were underwritten.

Instead of making the pension fund the beneficiary of that protection the investment banker made himself the beneficiary of the insurance, hedge or credit default swap.

And instead of informing the pension fund manager of the loss in a report in which the fund manager could detect what was really happening, the banks announced that the BANKS had suffered trillions of dollars in losses that never happened except in the mythical world of “cash equivalent” derivatives.

So if you are looking for the rest of your pension income you were promised, you can find it on Wall Street.

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Local Governments on Rampage Against Banks’ Manipulation of Credit Markets

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“When both government and the citizens start acting together, things are likely to change in a big way. There appears to be a unity of interests — the investors who thought they were buying bonds from a REMIC pool, the homeowners who thought they were buying a properly verified and underwritten loan from a pretender lender, and the local governments who were tricked into believing that their loans were viable and trustworthy based upon the gold standard of rate indexes. In many cases, the only reason for the municipal loan, was the illusion of growing demographics requiring greater infrastructure, instead of repairing the existing the infrastructure. As a result, the cities ended up with loans on unneeded products just like homeowners ended up with loans on houses that were always worth far less than the appraisal used.” — Neil F Garfield, www.livinglies.me

Editors Note: Hundreds of government agencies and local governments are on the rampage realizing that they were duped by Wall Street into buying into defective loan products. This puts them in the same class as homeowners who bought such loan products, investors who believed they were buying Mortgage Bonds to fund the loans, and dozens of other institutions who relied upon the lies told by the banks who were having a merry old time creating “trading profits” that were the direct result of stealing money and homes, and misleading the financial world on the status of the interest rates in the financial world. All loans tied to Libor (London Interbank Offered Rate), which was the gold standard,  are now in question as to whether the reset on those loans was true, correct or simply faked.

The repercussions of this will grow as the realization hits the victims of this gigantic fraud broadens into a general inquiry about most of the major practices in use — especially those in which claims of securitization were offered. It is now obvious that the deal proposed to pension funds and other investors was simply ignored by the banks who used the money to create faked trading profits, removing from the pool of investments money intended for funding loans that were properly originated and dutifully underwritten.

Cities, Counties, Homeowners and Investors are all victims of being tricked into loans that were simply unsustainable and were being manipulated to the advantage of the banks they trusted to act responsibly and who instead acted reprehensibly.

The ramifications for the mortgage and foreclosure markets could not be larger. If the banks were lying about the basics of the rate and the terms then what else did they do? As the Governor or of the Bank of England said, the business model of the banks appears to have been “lie More” rather than living up to the trust reposed in them by those who dealt with them as “customers.” Specifically, the evidence suggests that while the funding of the loan and the closing documents were coincidentally related in time, they specifically excluded any reference to each other, which means that the financial transaction as it actually occurred is undocumented and the document trail refers to financial transactions that did not involve money exchanging hands.

The natural conclusion created by the coincidence of the funding and the documents was to conclude that the two were related. But the actual instructions and wire transfers tell another story. This debunks the myth of securitization and more particularly the mortgage lien. How can the mortgage apply to a transaction described in the note that never took place and where the terms of the loan were different than what was expected by the creditors (investors, like pension and other managed funds) in the mortgage bond. The parties are different too. The wires funding the transaction are devoid of any reference to the supposed lender in the closing documents presented to borrowers. Thus you have different parties and different terms — one in the money trail, which was undocumented, and the other in the document trail which refers to transactions in which no money exchanged hands.

When the municipalities like Baltimore start digging they are going to find that manipulation of Libor was only one of several issues about which the Banks lied.

Rate Scandal Stirs Scramble for Damages

BY NATHANIEL POPPER

As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.

Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate, the London interbank offered rate, or Libor, which serves as a benchmark for global borrowing and stands at the center of the latest banking scandal. Now cities, states and municipal agencies nationwide, including Massachusetts, Nassau County on Long Island, and California’s public pension system, are looking at whether they suffered similar losses and are weighing legal action.

Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase, Deutsche Bank and Barclays. Last month, Barclays admitted to regulators that it tried to manipulate Libor before and during the financial crisis in 2008, and paid $450 million to settle the charges. It said other banks were doing the same, but none of them have been accused of wrongdoing. Libor, a measure of how much banks must pay to borrow money from one another in the short term, is set through a daily poll of the banks.

The rate influences what consumers, businesses and investors pay on a wide range of financial contracts, as varied as mortgages and interest rate swaps. Barclays has said it and other banks understated the rate during the financial crisis to make themselves look healthier to the public, rather than to make more money from clients. As regulators and lawmakers in Washington and Europe assess the depth of the Libor abuse and the failure to address it, economists and analysts are already predicting it could be one of the most expensive scandals to hit Wall Street since the financial crisis.

Governments and other investors may face many hurdles in proving damages. But Darrell Duffie, a professor of finance at Stanford, said he expected that their lawsuits alone could lead to the banks’ paying out tens of billions of dollars, echoing numbers from a recent report by analysts at Nomura Equity Research.

American municipalities have been among the first to claim losses from the supposed rate-rigging, because many of them borrow money through investment vehicles that directly derive their value from Libor. Peter Shapiro, who advises Baltimore and other cities on their use of these investments, said that “about 75 percent of major cities have contracts linked to this.”

If the banks submitted artificially low Libor rates during the financial crisis in 2008, as Barclays has admitted, it would have led cities and states to receive smaller payments from financial contracts they had entered with their banks, Mr. Shapiro said.

“Unambiguously, state and local government agencies lost money because of the manipulation of Libor,” said Mr. Shapiro, who is managing director of the Swap Financial Group and is not involved in any of the lawsuits. “The number is likely to be very, very big.”

The banks have declined to comment on the lawsuits, but their lawyers have asked for the cases to be dismissed in court filings, pointing to the many unusual factors that influenced Libor during the crisis.

The efforts to calculate potential losses are complicated by the fact that Libor is used to determine the cost of thousands of financial products around the globe each day. If Libor was artificially pushed down on a particular day, it would help people involved in some types of contracts and hurt people involved in others.

Securities lawyers say the lawsuits will not be easy to win because the investors will first have to prove that the banks successfully pushed down Libor for an extended period during the crisis, and then will have to demonstrate that it was down on the day when the bank calculated particular payments. In addition, investors may have to prove that the specific bank from which they were receiving their payment was involved in the manipulation. Before it even reaches the point of proving such subtleties, however, the banks could be compelled to settle the cases.

One of the major complaints was filed by several traders and hedge funds that entered into futures contracts that are traded through the Chicago Mercantile Exchange and that pay out based on Libor. These contracts were a popular way to protect against spikes in interest rates, but they would not have paid off as expected if Libor had been artificially lowered.

A 2010 study cited in the suit — conducted by professors at the University of California, Los Angeles and the University of Minnesota — indicated that Libor was significantly lower than it should have been throughout 2008 and was particularly skewed around the bankruptcy of Lehman Brothers.

A separate complaint filed in 2010 by the investment firm Charles Schwab asserts that some of its mutual funds, including popular ones like the Schwab Total Bond Market Fund, lost money on similar investments.

The complaints being voiced by municipalities are mostly related to their use of a popular financial contract known as an interest rate swap. States and cities generally enter into these swaps with specific banks so that they can borrow money in the bond market. They pay bondholders based on a floating interest rate — like an adjustable-rate mortgage — but end up paying their bankers a fixed rate through a swap. If Libor is artificially lowered, the municipality is stuck paying the same fixed rate, but it receives a smaller variable payment from its bank.

Even before the current controversy, some municipal activists have said that banks took advantage of the financial inexperience of municipal officials to sell them billions of dollars of interest rate swaps. Experts in municipal finance say that because of the particular way that cities and states borrow money, they are especially liable to lose out on their swaps if Libor drops.

Mr. Shapiro, who helps cities, states and companies negotiate these contracts, said that if a city had interest rate swaps on bonds worth $1 billion and Libor was artificially pushed down by 0.30 percent, which is what the lawsuits contend, that city would have lost $3 million a year. The lawsuit claims the manipulation occurred over three years. Barclays’ settlement with regulators did not specify how much the banks’ actions may have moved Libor.

In Nassau County, the comptroller, George Maragos, said in a statement that according to his own calculations, Libor manipulation may have cost the county $13 million on swaps related to $600 million of outstanding bonds.

A Massachusetts state official who spoke on the condition of anonymity because of potential future legal actions, said the state was calculating its potential losses.

“We are deeply concerned and we are carefully analyzing all of our options,” the official said.

Anne Simpson, a portfolio manager at the California Public Employees’ Retirement System — the nation’s largest pension fund — said that the fund’s officials “are sifting through the impact, but there certainly is an impact.”

In Baltimore, the city had Libor-based interest rate swaps on about $550 million of bonds, according to the city’s financial report from 2008, the central year discussed in the lawsuit. The city’s lawyers have declined to specify what they think Baltimore’s losses were.

The city solicitor, George Nilson, said that the rate manipulation claims meant that the city lost out on money when it needed it the most.

“The injury we suffered during the time we suffered it hurt more because we were challenged budgetarily,” Mr. Nilson said. “Every dollar we lost due to illegal conduct was a dollar we couldn’t pay to keep open recreation centers or to pay police officers.”


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Simon Johnson on Business Model of Lie More

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Editor’s Comment:  

Anyone who is curious why I named this blog LivingLies will have all their questions answered by this well-articulated article by Simon Johnson, Chief economist of the World Bank, author of 13 Bankers, and the main writer for www.baseline scenario.com. Johnson is first among the world of economists who instantly knew the severity of the culture of lying and deception at the TBTF banks. He is joined in these views by the Financial Times, normally rabidly pro-bank and no less than the Governor of the Bank of England who apparently coined the phrase “Lie More” to replace what was the only index that mattered in the world of finance and bond trading.

The consequences of this culture of lying will be laid bare in the weeks and months and years to come. But as Johnson points out, the days are over when anyone trusts a bank or bank statement. Representations of bank officials once considered as good as gold or what used to be called good as Libor, are now going to be subject of scrutiny and will no doubt reveal a pattern of deceit even deeper than thes we already know about the mortgage meltdown and the trading scam resulting from intentionally manipulating Libor — the gold standard of all indexes.

Lie-More As A Business Model

By Simon Johnson

On Monday, Bob Diamond – the CEO of Barclays, one of the largest banks in the world – was supposedly the indispensable man, with his supporters claiming he was the only person who could see that global megabank through a growing scandal.  On Tuesday morning Mr. Diamond resigned and the stock market barely blinked – in fact, Barclays’ stock was up 0.3 percent.  As Charles de Gaulle supposedly remarked, “the cemeteries are full of indispensable men.”

Mr. Diamond’s fall was spectacular and complete.  It was also entirely appropriate.

Dennis Kelleher of Better Markets – a financial reform advocacy group – summarized the situation nicely in an interview with the BBC World Service on Tuesday.  The controversy that brought down Mr. Diamond had to do with deliberate and now acknowledged deception by Barclays’ staff with regard to the data they reported for Libor – the London Interbank Offered Rate (with the abbreviation pronounced Lie-Bore).  Mr. Kelleher was blunt: the issue in question is “Lie More” not Libor.  (See also this post on his blog, making the point that this impacts credit transactions with a face value of at least $800 trillion.)

Mr. Kelleher’s words may seem harsh, but they are exactly in line with the recently articulated editorial position of the Financial Times (FT) – not a publication that is generally hostile to the banking sector.  In a scathing editorial last weekend (“Shaming the banks into better ways,” June 28th), the typically nuanced FT editorial writers blasted behavior at Barclays and nailed the broader issue in what it called “a long-running confidence trick”:

“The Barclays affair may lack the spice of some recent banking scandals, involving as it does the rather dry “crime” of misreporting interest rates.  But few have shone such an unsparing light on the rotten heart of the financial system.”

The editorial was exactly right with regard to the cultural problem – within that Barclays it had become acceptable or perhaps even encouraged to provide false information.  It underemphasized, however, the importance of incentives in creating that culture.  The employees of Barclays were doing what they were paid to do – and the latest indications from the company are that none of their bonuses will now be “clawed back”.

Martin Wolf, senior economics columnist at the FT and formerly a member of the UK’s Independent Banking Commission, sees to the core issue:

“banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with.”

This matters because, “Trust is not an optional extra in banking, it is, as the salience of the word “credit” to this industry implies, of the essence.”

As the FT editorial put it, “The bankers involved have betrayed an important public trust – that of keeping an accurate public record of the key market rates that are used to value contracts worth trillions of dollars”.

In the words of Mervyn King, governor of the Bank of England, “the idea that my word is my Libor is dead.”  Translation: No one will believe large banks again when their executives claim they could have borrowed at a particular interest rate – we will need to see actual transaction data, i.e., what they actually paid.  Presumably there should be similar skepticism about other claims made by global megabanks, including whenever they plead that this or that financial reform – limiting their ability to take excessive risk and impose inordinate costs on society – will bring the economy to its knees.  It is all special pleading of one or another, mostly intended to rip off customers or taxpayers or, ideally perhaps, both.

Mr. Kelleher has the economics exactly right.  Global megabanks have an incentive to deceive customers, including both individuals and nonfinancial corporations.  Their size confers both market power and the political power needed to conceal the extent to which they are engage in economic fraud.  The lack of transparency in derivatives markets provides them with an opportunity to cheat, but the abuses are much wider – as the Libor scandal demonstrates.

The rip-off is not just for retail investors; chief financial officers of major corporations who should be up in arms.  Boards of directors and shareholders of companies that buy services from big banks should be asking much harder questions about all kinds of derivatives transactions – and who exactly is served by the terms of such agreements.

As Mr. Kelleher puts it on his blog,

“They like to call themselves “banks,” but they aren’t banks in any traditional sense. They are global behemoths that are not just too-big-to-fail, but also too-big-to-regulate and too-big-to-manage. Take JP Morgan Chase for example. It has a $2.35 trillion balance sheet, more than 270,000 employees worldwide, thousands of legal entities, 554 subsidiaries and, as proved by the recent trading losses in London, a CEO, CFO and management team that has no idea what is going on in their own bank.”

“Let’s hope for the sake of the global financial system, the global economy and taxpayers worldwide that Mr. Diamond’s resignation is the first of many. What is needed is a clean sweep of the executive offices of these too-big-to-fail banks, which are still being governed by the same business model as before the crisis: do whatever they can get away with to get the biggest paychecks as possible. (Remember, CEO Diamond paid himself 20 million pounds last year and was the UK banking leader insisting that everyone stop picking on the banks.)

Lie-more is just the latest example of why that all has to change and the sooner the better”


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Cities, Counties Realize They Have Common Interests With Homeowners

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One More Windfall for the Banks

Editor’s Comment:  

If it is any comfort, the chief financial officers and treasury management officers of cities and counties are starting to realize that they are victims of the banks and that most of these bankruptcies (Stockton CA for example) or near bankruptcy were completely avoidable. Their complaints are sounding more and more like the complaints of homeowners. And they are both right. Those debts should not be paid at all until the amount of the debt can be ascertained in real dollars and the identity of the actual losing party — whether they are defined as creditor or not —- can be ascertained. I don’t think any of the cities, counties or the homeowners and businesses whose debts were subject to false claims of securitization should pay anything to anyone until the governments and law enforcement figures it out. 

The federal government is the only one with the resources to go through all the data  and come up with at least an approximation of the truth of the path of the money. The Courts, Judges and Lawyers are woefully under-resourced to take this mess apart. The only reason that Too Big to Fail is believed by anyone is that nobody fully understands the consequences and actual money impact of the false cloud of derivatives created by the banks exceeding all the money in the word by a wide margin. We have let the Banks minimize the actual currency in favor of looking at a cloud of illusions created by the banks which they and only they want treated as real. We will find the same things operating on student loans where the intermediated banks actually never funded the loans but claim a guarantee from the Federal government. 

These debts should fall squarely on the banks, whether they fail or not, until we get a real accounting of the real transactions in which real money exchanged hands. And that is the mantra of my seminars for lawyers, paralegals, homeowners, city and county officials coming up at the end of this month as I travel through Phoenix, Stockton,  Anaheim etc. 

There is no possibility that  actual debt is $800 Trillion because all the money we have in the world amounts to only $70 trillion. So the loans were part of a chaotic, complex series of dots on a scatter diagram wherein all the data was an illusion except perhaps one of the hundreds of dots on each loan, bond or mortgage. And they certainly were not secured because the terms of repayment and the amount of the loan were off from the beginning as was the index from which they took data to change the so-called payments dude on loans that perhaps never existed but certainly do not exist now. 

The door that opened just a crack has been the Libor rate scandal in which the banks, led by Barclay’s, set interest rates based upon actual and perceived movement of interest rates in the markets. As in other things, these rates were as bogus, since 2008 as the Triple AAA ratings offered to investors in Mortgage-Backed Bonds and the appraisals offered to homeowners. 

City and County officials, once completely blind to the realities of the situation and skeptical of homeowner claims that the mortgages, foreclosures and auctions were rigged, are now realizing that their loans, interest rates, and terms were rigged just like homeowners’ were and that the trap they supposedly are in is an illusion just like the premises upon which Wall Street convinced them (city and County officials) that these loan products were viable and correct implementation of sound fiscal policy.

It wasn’t sound fiscal policy, they weren’t good loans and had the officials actually understood what Wall Street was doing —- creating false demands for services and infrastructure as well as complex financial products that were doomed from the start, they would never have gone ahead with these bonds or loans. Now the whole municipal market is as screwed up as the mortgage and housing markets and we know the banks are to blame because they have already admitted everything necessary to blame them. 

Besides prosecuting claims against the banks for civil and criminal penalties, everyone needs to contemplate the consequences of the status quo and whether they want to change it. One such game changer is eminent domain takeovers of  those toxic mortgages that “seemed right at the time.” But more than that, the cities and counties must look to experts who understand the derivative market (as well as anyone can) and realize that their debt, like everyone else’s debt is an illusion created in the cloud of credit derivatives now estimated at $800 trillion while the total amount of real credit and currency is only $70 trillion. 

Like Homeowners, they must realize that while they borrowed the money, the loan or liability created by the loan or bond was an illusion already paid in full at the time they incurred the obligation. That seems impossible but so does the news on these subjects as one digs deeper and deeper. The banks collected up all the money made under these circumstances and gave their people bonuses amounting to 50% of the profit of each financial institution. Inside that “profit”were trading profits claims by trading fake paper claimed to be owned by the banks while the paper was in the cloud of derivatives that is 10-12 times all the money in the world. 

That debt has long since been paid in full. The only question remaining is whether we can identify the actual people who have lost actual money and what we are going to do for them. But paying the banks on the loan or bonds is certainly not one of the alternatives that should be considered because, like the bailout, it just gives them one more windfall.

Rate Scandal Stirs Scramble for Damages

As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.

Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate, the London interbank offered rate, or Libor, which serves as a benchmark for global borrowing and stands at the center of the latest banking scandal. Now cities, states and municipal agencies nationwide, including Massachusetts, Nassau County on Long Island, and California’s public pension system, are looking at whether they suffered similar losses and are weighing legal action.

Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase, Deutsche Bank and Barclays. Last month, Barclays admitted to regulators that it tried to manipulate Libor before and during the financial crisis in 2008, and paid $450 million to settle the charges. It said other banks were doing the same, but none of them have been accused of wrongdoing.

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Public outrage turns spotlight on bank regulators

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Editor’s Comment:  

It has taken six years for the public to absorb the enormity of the bank scandal, the lying, cheating and stealing. Now the spotlight is finally turned on the regulatory agencies whose employees shuttle back and forth between the agencies and the banks. They work for the banks, then they work for the agency that is supposedly regulating the bank. They work for the agency, then they work for one of the banks or bank associations regulated by that agency.

It isn’t the fault of the public, and it is only partly right to blame the press. The enormity was made possible by making the crimes so complex and hidden in the shadow banking system that the information and explanation took six years to come out. If the regulators were truly regulating instead of setting up their next job, the shadow banking system would not exist and there would be nonsuch thing as an off-balance sheet transaction.

If regulators were doing their job the shadow banking system could never have grown to ten times the real money banking system which is now scaring the crap out of everyone. The transparency required by existing law would have been enforced, which would have made it impossible to take the money of investors (depositors) and apply it on the Bank’s whim for the benefit of the bank instead of for the benefit of the investors. They couldn’t have sold the loan products multiple times without everyone knowing about it. They couldn’t have claimed the losses of the investors as their own for insurance bailouts, and then make the investor absorb the losses created by an intentionally corrupt system of loan underwriting.

Using industry standards as they existed for centuries, we would not be staring down the barrels of a shotgun, with one barrel containing the documentation of a transactions that never occurred and the other barrel carrying financial transactions that did occur but were never documented. The gap was a playground for bank criminals, as we are now seeing with increased clarity each week.

So who is to blame? There is plenty to go around. But those who make laws could fix the problem in a moment by prohibiting employment shuttling, in addition to the standard payoff or bribe. The promise of employment is a bribe. And that is why under current laws the banks and the individuals employed by the regulatory agencies who conspired with them can be sanctioned, indicted, tried, convicted and sentenced torsion and required to disgorge I’ll-gotten gains. This would release more than enough money to reduce all household debt including mortgages at the expense of the culprits who fixed the appraisal prices and suckered innocent people into really bad deals.

And just like Iceland, we could be enjoying renewed Economic growth, increased spending, decreased unemployment and restoration of a market that is free and fair. If you take the referees off the playing field and leave it to each player to make and change the rules as they go along, you can ALWAYS expect chaos and criminal conduct. The cry for less government interference or less government regulation can fairly be translated as PLEASE KEEP US OUT OF JAIL.

Bank Scandal Turns Spotlight to Regulators As big banks face the fallout from a global investigation into interest rate manipulation, American and British lawmakers are scrutinizing regulators who failed to take action that might have prevented years of illegal activity. 

Politicians in both London and Washington are questioning whether regulators allowed banks to report false rates in the run-up to the 2008 financial crisis and afterward. On Monday, Congress stepped into the fray, requesting information about the role of the Federal Reserve Bank of New York, according to people close to the matter. 

The focus on regulators and other financial institutions has intensified in the last two weeks after the British bank Barclays agreed to pay $450 million to resolve its case. British and American authorities accused the bank of improperly influencing key interest rates to deflect concerns about its health and bolster profits. 

The Barclays settlement is the first action stemming from a broad investigation into how banks set key benchmarks, including the London interbank offered rate, or Libor. The pricing of $350 trillion of financial products, including credit cards, mortgages and student loans, is pegged to Libor and other such rates.

Barclays Chairman Criticized in Parliament Over Rate Scandal During tense parliamentary testimony, Marcus Agius, Barclays’ chairman, was repeatedly questioned about the leadership and culture at the bank in the wake of the Libor scandal.

Diamond to Forgo Up to $31 Million in Bonuses From Barclays Robert E. Diamond Jr., the former chief executive of Barclays, will forgo deferred bonuses of up to $31 million, as the British lender looks to quell public anger over an interest rate-rigging scandal.


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Eating the Potato Stops the Game

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“We could have lower inequality, a more balanced financial system, and higher economic growth. But if we allow things to carry on the way they are, we are going to have not only an unbalanced economy, but unbalanced politics, with the financial sector really distorting both our economy and our democracy,” he said.  Stiglitz is a former chief economist of the World Bank, and won the Nobel Prize in 2001. He has recently written a new book, ‘The Price of Inequality’. 

Editor’s Notes:  

The principle is so simple that it is hard to imagine why our national leaders and even the top 1% don’t get it. They continue to bully and intimidate the other 99% into near poverty in a form of economic slavery — and then expect the same people to support an economy that is 70% driven by consumer spending. This proves the assertion that you don’t have to be smart to have money and the corollary that even if you have money, it doesn’t make you smart.

There is simply no doubt amongst any historians or economists or even anthropologists that when income and wealth inequality gets too large, the society converts from being a world of opportunity to a world of slavery and crashes because while there is plenty of capital around to build  and make things, nobody has any money left to buy what the Holders of capital want to sell.

All ideological misrepresentations aside, there is an inescapable fact of history that the economy and the stock market tend to do better under the anti-business pro union administrations than they do under the pro-business anti union administrations. Look it up yourself. You can rationalize the facts but you can’t change them.

And again, the principle is so simple that even a young child gets it. It’s like the old game “Hot Potato.” It keeps going as long as the potato is hot and it gets passed around. The game abruptly ends if someone eats the potato. The 1% ate the potato and have closed their eyes to the consequences of their own actions. If you want money circulating making money for lots of people then make sure the people at  the bottom get a fair share of it by whatever means are necessary to get money into their hands. They spend every cent they get and they spend it with people, stores and companies that spend most of the money they get from the consumers. This makes rich people richer while at the same time maintaining a society is that is stable. Pushing money into the lower strata of the society is simply good business and good politics.

The United States and other countries have turned these simple principles and facts on their head. The result is stalled economies, crashing societies and arguments over ideology that is classically rearranging chairs on the deck of the Titanic. The ship is going down and all this needed is a little more air at the bottom so it won’t sink.

The massive theft of wealth from the middle class pushed those families down from middle class to lower classes. Debt was substituted for income which has been flat for more than 30 years. Exactly why is anyone surprised that the economy crashed when the borrowers couldn’t borrow any more money because they simply didn’t have the income to even make the first payment on the debt. The Banks answer we need more debt. It isn’t enough that their debt derivative instruments amount to ten times all the actual money in the world, they want more. Who do they think is going to pay this debt?

And where are the referees in this “game.” Why were they pulled of the playing field and why are they not swarming all over all the players making sure the play is fair? Oh right, that would be government regulation and everyone knows government regulation is a bad thing. So let’s get rid of all government regulation. Start with murder and work your way down. See where that gets you.

Banks Risk Distorting Our Democracy: Stiglitz

By Kathy Barnato

Under-regulated and over-powerful banks weaken the global economy and lead to higher inequality, Nobel prize-winning economist Joseph Stiglitz told CNBC.

Joseph Stiglitz
Franco Origlia | Getty Images
Joseph Stiglitz, the Nobel prize-winning economist and former chief economist at the World Bank.

Highlighting the Libor [cnbc explains] -fixingscandal that has hit UK banks Barclays[BARC-GB  162.85    -2.75  (-1.66%)   ] and Royal Bank of Scotland [RBS  6.771    0.171  (+2.59%)  ], Stiglitz said reforming financial markets was the single most pressing issue facing the global economy.

“A lot of inequality, especially at the top, does not come from people really making the size of the pie bigger, making our economy work better, it comes from what we call rent seeking, trying to seize a bigger slice of that pie through things that actually make our economy weaker,” Stiglitz told CNBC’s ‘Worldwide Exchange‘ on Friday.

Stiglitz said he supported a “much stronger version” of current financial market regulation, with the sector forced to focus on its core purpose of providing credit. He said banks [.DJUSBK  194.95    3.81  (+1.99%)   ] should be told: “You can’t engage in these kinds of speculative activities, these non-transparent CDS[cnbc explains] , these gambles on the market — they are not your business.”

He added that over-mighty banks not only distort the economy, but also distort politics. He said the 1999 repeal of the U.S. Glass–Steagall Act, which enforced the separation of investment bank activity from commercial bank activity, was due to lobbying by the financial sector.

“That was the influence of the banks again… They lost money on a lot of their real financial investments, but their political investments really paid off! Not for shareholders and bondholders, but for the bank managers, who have done very well in the last few years,” he said.

Without reform, both Europe and the global economy will be “weak” in five to 10 years’ time, said Stiglitz.

“If we continue on the current course, the financial system will not be serving the rest of our economy, the economy will be weak. Inequality will be greater, and we are paying a very high price for this inequality.

“We could have lower inequality, a more balanced financial system, and higher economic growth. But if we allow things to carry on the way they are, we are going to have not only an unbalanced economy, but unbalanced politics, with the financial sector really distorting both our economy and our democracy,” he said.

Stiglitz is a former chief economist of the World Bank, and won the Nobel Prize in 2001. He has recently written a new book, ‘The price of inequality’.

To view Joseph Stiglitz’s appearance on CNBC, click here

— By CNBC.com’s Katy Barnato

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MERS: A FAILED ATTEMPT AT BYPASSING STATE AND FEDERAL AUTHORITY

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Fannie-Freddie’s Hypocritical Suit Against Banks Making Loans that GSEs Helped Create

Fannie-Freddie’s Hypocritical Suit Against Banks Making Loans that GSEs Helped Create

EDITOR’S NOTE:  Practically everything that the government is doing with respect to the economy and the housing market in particular is hypocritical. If we look to the result to determine the intent of the government you can see why nothing is being done to improve DOMESTIC market conditions. By removing the American consumer from the marketplace (through elimination of available funds in equity, savings or credit) the economic prospects for virtually every marketplace in the world is correspondingly diminished. The downward pressure on economic performance worldwide creates a panic regarding debt and currency. By default (and partially because of the military strength of the United States) people are ironically finding the dollar to be the safest haven during a bad storm.

 The result is that the federal government is able to borrow funds at interest rates that are so low that the investor is guaranteed to lose money after adjusting for inflation. The climate that has been created is one in which investors are far more concerned with preservation of capital than return on capital. In a nutshell, this is why the credit markets are virtually frozen with respect to the average potential consumer, the average small business owner, and the average entrepreneur or innovator who would otherwise start a new business and fuel rising employment.

 While it is true that the lawsuits by Fannie and Freddie are appropriate regardless of their past hypocritical behavior, they are really only rearranging the deck chairs on the Titanic. Ultimately there must be a resolution to our current economic problems that is based in reality rather than the power to manipulate events. The scenario we all seek  would cleanup the rising title crisis, end the foreclosure crisis, and restore a true marketplace in the purchase and sale of real estate. We have all known for decades that the housing market drives the economy.

 There is obviously very little confidence that the government and market makers in the United States are going to seek any resolution based in reality. Therefore while investors are parking their money in dollars they are also driving up the price of gold and finding other innovative ways to preserve their wealth. As these innovations evolve it is almost certain that an alternative to the United States dollar will emerge. The driving force behind this innovation is the stagnation of the credit markets and the world marketplace. My opinion is that the United States is pursuing a policy that virtually guarantees the creation of a new world reserve currency.

 The creation of MERS was a private attempt to substitute private business plans for public laws. It didn’t work. The lawsuits by the government-sponsored entities together with lawsuits from investors who were duped into being lenders and homeowners who were duped into being borrowers in a rigged market are only going to result in money judgments and money settlements. With a nominal value of credit derivatives at over $600 trillion and the actual money supply at under $50 trillion there is literally not enough money in the world to fix this problem. The problem can only be fixed by recognizing and applying existing law to existing transactions.

 This means that MERS, already discredited, must be treated as a nonexistent entity in the world of real estate transactions. Nobody wants to do that because the failure to disclose an actual creditor on the face of a purported lean or encumbrance on land is a fatal defect in perfecting the lien. This is true throughout the country and it is obvious to anyone who has studied real property transactions and mortgages. If you don’t have the name and address of the creditor from whom you can obtain a satisfaction of mortgage, then you don’t have a mortgage that attaches to the land as a lien. It is this realization that is forming a number of lawsuits from the investors who advanced money for mortgage bonds. Those advances were the funds that were used to finance pornographic Wall Street profits with the balance used to fund absurd mortgage products.

 This is basic property law and public policy. There can be no confidence or consistency in the marketplace without a buyer or a lender knowing that they can rely upon the information contained in a government title Registry at the county recording office. Any other method requires them to take the word of someone without the authority of the government. This is a fact and it is the law. But the banks are successfully using politics to sidestep the basic essential elements of law. Under their theory the fact that the mortgage lien was never perfected would be ignored so that bank and non-bank institutions could become the largest landholders in the country without ever having spent a dime on loaning any money or purchasing the receivables. Politics is trumping law.

 The narrative and the debate are being absolutely controlled by Wall Street interests. We say we don’t like what the banks did and many say they don’t like banks at all. But it is also true that the same people who say they don’t like banks are willing to let the banks keep their windfall and make even more money at the expense of the taxpayer, the consumer and the homeowner. There are trillions of dollars available for investment in business expansion, government projects, and good old American innovation to drive a healthy economy. It won’t happen until we begin to drive the debate ourselves and force government and banking to conform to rules and laws that have been in existence for centuries.

from STOP FORECLOSURE FRAUD…………….

Lets NOT forget both Fannie and Freddie, like most of the named banks they are suing, each are shareholders of MERS.

Again, who gave the green light to eliminate the need for assignments and to realize the greatest savings, lenders should close loans using standard security instruments containing “MOM” language back in April 26, 1999?

This was approved by Fannie Mae and Freddie Mac which named MERS as Original Mortgagee (MOM)!

Open Market-

“U.S. is set to sue dozen big banks over mortgages,” reads the front-page headline in today’s New York Times. The “deck” below the headline explains that that the Federal Housing Finance Agency, which oversees the government-sponsored enterprises Fannie Mae and Freddie Mac, is “seen as arguing that lenders lacked due diligence” in the loans they made.

A more apt description would probably be that Fannie and Freddie are suing the banks for selling them the very loans the GSEs helped designed and that government mandates encourage — and are still encouraging them to make. These conflicted actions are just one more of the government’s contributions to the uncertainty that is helping to keep unemployment at 9 percent.

Strangely the author of the Times piece, Nelson Schwartz, ignores the findings of a recent blockbuster

[OPEN MARKET]

Bankruptcy Trustee Accuses banks of Manipulating “Margin Calls” on Mortgage Bonds

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

COLLUSIVE SCHEME ALLEGED

EDITORIAL COMMENT: WELL it looks like this is not over yet. The accusations are right on target — the more they drill down the more they find which is what we have been saying on Livinglies for 3 1/2 years. That’s what we keep doing in our COMBO title and securitization analysis and what we are teaching lawyers in our seminars.

Maybe the judiciary will wake up and realize that all these title and securitization reports should not be the burden of homeowners to produce. Maybe they should realize, in line with existing law, that the party seeking affirmative relief is the pretender lender who wants to forcibly take a home away from otherwise good citizens. Maybe Judges will realize that the party seeking affirmative relief is the plaintiff no matter what foreclosure procedure is invoked and that party must plead and prove a foreclosure case just like banks have been doing for centuries.

Maybe everyone will realize that just because the borrower stops paying doesn’t mean the payment was due or that the creditor didn’t get the money and that the declaration of default and all that comes after that is a farce without the laughs. Deutsch was Trustee for most of these pools, followed by US Bank. We already know they lied, cheated and stole at all levels of the fake securitization that was never backed up by actual transfers, and that that the original mortgages were fatally defective. Acknowledging that fact will cause pain only to Wall Street which in all events MUST go through the pain of shrinking back down to a proper size of 12-14% of GDP instead of its current reign of 50% of all measured services and products produced by the United States.

Maybe the narrative wil finally shift to the truth. It isn’t borrowers who are delaying the inevitable foreclosure. It is the banks that are delaying the inevitable collapse of the entire foreclosure and mortgage structure and the reduction not just of principal due on the mortgages, but a reduction in the real value of assets on their balance sheets and hence their power and market-share in what SHOULD be a free market.

Banks Sued in Thornburg Bankruptcy

By REUTERS

WILMINGTON, Del. (Reuters) — The bankruptcy trustee for Thornburg Mortgage has sued Goldman Sachs, Barclays and other big banks for a combined $2.2 billion, blaming them for its bankruptcy.

The trustee filed four separate lawsuits, the most extensive of which blames a “collusive scheme” by units of JPMorgan Chase & Company, Citigroup, the Royal Bank of Scotland, Credit Suisse and UBS for driving the company into bankruptcy.

The trustee, Joel Sher, accused the five banks of acting together to use a series of unjustified margin calls to extend their control over Thornburg, which was once a leading provider of “jumbo” home loans.

The lawsuit seeks to recover $2 billon for fraudulent conveyances and transfers by the banks, which had financed Thornburg’s mortgage-backed securities.

The trustee said the banks eventually drove Thornburg into Chapter 11 in May 2009. It sought protection from creditors with $36.5 billion in assets, making it one of the largest bankruptcies during the financial crisis.

Citigroup said the lawsuit was without merit. Credit Suisse and UBS declined to comment. JPMorgan and RBS did not immediately return a call for comment.

Mr. Sher was appointed to run Thornburg after the company’s executives were accused of using Thornburg’s staff and offices, without creditors’ approval, to start a new company.

The trustee also sued Barclays, claiming it improperly seized mortgage bonds from Thornburg in 2007 by undervaluing the securities in a series of margin calls. The trustee is seeking at least $94 million.

Barclays declined to comment.

Mr. Sher sued Goldman Sachs, seeking at least $71 million and accusing the bank of scheming to seize hundreds of millions of dollars of investment-grade mortgage bonds that Thornburg had pledged as collateral.

Goldman Sachs declined to comment.

The final lawsuit claims Countrywide Home Loans, which was acquired by Bank of America, breached representations and warranties on the loans it sold to a unit of Thornburg.

That lawsuit was also brought on behalf of a group of investors known as the Zuni Investors, who were represented by David Grais of Grais & Ellsworth.

Mr. Grais has brought numerous “putback” lawsuits that seek to have originators like Countrywide repurchase mortgages that fell short of promised standards.

Bank of America did not immediately return a call for comment.

SECRET BANKING ELITE: WHERE THE REAL DECISIONS ARE MADE

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

Notable Quotes:

“The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.”

“big banks influence the rules governing derivatives through a variety of industry groups. The banks’ latest point of influence are clearinghouses like ICE Trust, which holds the monthly meetings with the nine bankers in New York.”

“The banks also required ICE to provide market data exclusively to Markit, a little-known company that plays a pivotal role in derivatives. Backed by Goldman, JPMorgan and several other banks, Markit provides crucial information about derivatives, like prices.”

“None of the three clearinghouses would divulge the members of their risk committees when asked by a reporter. But two people with direct knowledge of ICE’s committee said the bank members are:

  • Thomas J. Benison of JPMorgan Chase & Company;
  • James J. Hill of Morgan Stanley;
  • Athanassios Diplas of Deutsche Bank;
  • Paul Hamill of UBS;
  • Paul Mitrokostas of Barclays;
  • Andy Hubbard of Credit Suisse;
  • Oliver Frankel of Goldman Sachs;
  • Ali Balali of Bank of America; and
  • Biswarup Chatterjee of Citigroup.”

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EDITOR’S ANALYSIS: For those of us tracking the strategies employed in courtrooms across the country and various foreclosure tactics, it has been obvious that there has been a single governing hand that is controlling the action. Hidden under the rubric of a risk control committee, this group actually makes all key decisions that affect the largest segment of the marketplace and thus the rest of the markets. These banks are operating for themselves, not in the interests of performing the service that Wall Street was always intended to do — create increasingly fluid access to the capital markets for businesses to innovate, start, grow, finance and merge.

They operate without any regulation. Quite the contrary. The decisions from this group actually effect both legislation that is proposed and passed and the rules and regulations of agencies that are supposed to be acting as referees to make sure the players don’t run amok. They dictate to government rather than the other way around and they create the strategies affect every individual in this country and many other countries. They are in essence a single virtual bank acting as though they are separate, each with profit centers that are strictly controlled by this elite group.

The upcoming WikiLeaks disclosures may have some references to this group which is comprised of the largest banks in the world and which exclude other large banks from membership, like Bank of New York/Mellon. Together they control the direction of the recession and how power is exercised by governments and central bankers around the world. That is because together they control nominal wealth many times the total currency in the world and “market value” that is roughly equal, at a minimum, to 2/3 of the GDP of the entire world.

We are at a crossroad whether we want to admit it or not. Either we simply give up and let bankers rule the world, or we stop them, disassemble them and bring them down to a size where they can be and are in fact regulated. But the choice is not up to government which now is owned by them as well. The choice is entirely up to the people — all the people — who ultimately, for the moment, have the power to dismiss the exercise of this kind of ultra vires power and bring things back to normal. Whatever we do, we are headed for turbulent times. The only real question is whether those turbulent times will be leading us down a path of abandoning our nation of laws or whether it will be as Teddy Roosevelt did, devoted to taking back the power for the people, by the people.

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A Secretive Banking Elite Rules Trading in Derivatives

By LOUISE STORY

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.

In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.

Banks’ influence over this market, and over clearinghouses like the one this select group advises, has costly implications for businesses large and small, like Dan Singer’s home heating-oil company in Westchester County, north of New York City.

This fall, many of Mr. Singer’s customers purchased fixed-rate plans to lock in winter heating oil at around $3 a gallon. While that price was above the prevailing $2.80 a gallon then, the contracts will protect homeowners if bitterly cold weather pushes the price higher.

But Mr. Singer wonders if his company, Robison Oil, should be getting a better deal. He uses derivatives like swaps and options to create his fixed plans. But he has no idea how much lower his prices — and his customers’ prices — could be, he says, because banks don’t disclose fees associated with the derivatives.

“At the end of the day, I don’t know if I got a fair price, or what they’re charging me,” Mr. Singer said.

Derivatives shift risk from one party to another, and they offer many benefits, like enabling Mr. Singer to sell his fixed plans without having to bear all the risk that oil prices could suddenly rise. Derivatives are also big business on Wall Street. Banks collect many billions of dollars annually in undisclosed fees associated with these instruments — an amount that almost certainly would be lower if there were more competition and transparent prices.

Just how much derivatives trading costs ordinary Americans is uncertain. The size and reach of this market has grown rapidly over the past two decades. Pension funds today use derivatives to hedge investments. States and cities use them to try to hold down borrowing costs. Airlines use them to secure steady fuel prices. Food companies use them to lock in prices of commodities like wheat or beef.

The marketplace as it functions now “adds up to higher costs to all Americans,” said Gary Gensler, the chairman of the Commodity Futures Trading Commission, which regulates most derivatives. More oversight of the banks in this market is needed, he said.

But big banks influence the rules governing derivatives through a variety of industry groups. The banks’ latest point of influence are clearinghouses like ICE Trust, which holds the monthly meetings with the nine bankers in New York.

Under the Dodd-Frank financial overhaul, many derivatives will be traded via such clearinghouses. Mr. Gensler wants to lessen banks’ control over these new institutions. But Republican lawmakers, many of whom received large campaign contributions from bankers who want to influence how the derivatives rules are written, say they plan to push back against much of the coming reform. On Thursday, the commission canceled a vote over a proposal to make prices more transparent, raising speculation that Mr. Gensler did not have enough support from his fellow commissioners.

The Department of Justice is looking into derivatives, too. The department’s antitrust unit is actively investigating “the possibility of anticompetitive practices in the credit derivatives clearing, trading and information services industries,” according to a department spokeswoman.

Indeed, the derivatives market today reminds some experts of the Nasdaq stock market in the 1990s. Back then, the Justice Department discovered that Nasdaq market makers were secretly colluding to protect their own profits. Following that scandal, reforms and electronic trading systems cut Nasdaq stock trading costs to 1/20th of their former level — an enormous savings for investors.

“When you limit participation in the governance of an entity to a few like-minded institutions or individuals who have an interest in keeping competitors out, you have the potential for bad things to happen. It’s antitrust 101,” said Robert E. Litan, who helped oversee the Justice Department’s Nasdaq investigation as deputy assistant attorney general and is now a fellow at the Kauffman Foundation. “The history of derivatives trading is it has grown up as a very concentrated industry, and old habits are hard to break.”

Representatives from the nine banks that dominate the market declined to comment on the Department of Justice investigation.

Clearing involves keeping track of trades and providing a central repository for money backing those wagers. A spokeswoman for Deutsche Bank, which is among the most influential of the group, said this system will reduce the risks in the market. She said that Deutsche is focused on ensuring this process is put in place without disrupting the marketplace.

The Deutsche spokeswoman also said the banks’ role in this process has been a success, saying in a statement that the effort “is one of the best examples of public-private partnerships.”

Established, But Can’t Get In

The Bank of New York Mellon’s origins go back to 1784, when it was founded by Alexander Hamilton. Today, it provides administrative services on more than $23 trillion of institutional money.

Recently, the bank has been seeking to enter the inner circle of the derivatives market, but so far, it has been rebuffed.

Bank of New York officials say they have been thwarted by competitors who control important committees at the new clearinghouses, which were set up in the wake of the financial crisis.

Bank of New York Mellon has been trying to become a so-called clearing member since early this year. But three of the four main clearinghouses told the bank that its derivatives operation has too little capital, and thus potentially poses too much risk to the overall market.

The bank dismisses that explanation as absurd. “We are not a nobody,” said Sanjay Kannambadi, chief executive of BNY Mellon Clearing, a subsidiary created to get into the business. “But we don’t qualify. We certainly think that’s kind of crazy.”

The real reason the bank is being shut out, he said, is that rivals want to preserve their profit margins, and they are the ones who helped write the membership rules.

Mr. Kannambadi said Bank of New York’s clients asked it to enter the derivatives business because they believe they are being charged too much by big banks. Its entry could lower fees. Others that have yet to gain full entry to the derivatives trading club are the State Street Corporation, and small brokerage firms like MF Global and Newedge.

The criteria seem arbitrary, said Marcus Katz, a senior vice president at Newedge, which is owned by two big French banks.

“It appears that the membership criteria were set so that a certain group of market participants could meet that, and everyone else would have to jump through hoops,” Mr. Katz said.

The one new derivatives clearinghouse that has welcomed Newedge, Bank of New York and the others — Nasdaq — has been avoided by the big derivatives banks.

Only the Insiders Know

How did big banks come to have such influence that they can decide who can compete with them?

Ironically, this development grew in part out of worries during the height of the financial crisis in 2008. A major concern during the meltdown was that no one — not even government regulators — fully understood the size and interconnections of the derivatives market, especially the market in credit default swaps, which insure against defaults of companies or mortgages bonds. The panic led to the need to bail out the American International Group, for instance, which had C.D.S. contracts with many large banks.

In the midst of the turmoil, regulators ordered banks to speed up plans — long in the making — to set up a clearinghouse to handle derivatives trading. The intent was to reduce risk and increase stability in the market.

Two established exchanges that trade commodities and futures, the InterContinentalExchange, or ICE, and the Chicago Mercantile Exchange, set up clearinghouses, and, so did Nasdaq.

Each of these new clearinghouses had to persuade big banks to join their efforts, and they doled out membership on their risk committees, which is where trading rules are written, as an incentive.

None of the three clearinghouses would divulge the members of their risk committees when asked by a reporter. But two people with direct knowledge of ICE’s committee said the bank members are: Thomas J. Benison of JPMorgan Chase & Company; James J. Hill of Morgan Stanley; Athanassios Diplas of Deutsche Bank; Paul Hamill of UBS; Paul Mitrokostas of Barclays; Andy Hubbard of Credit Suisse; Oliver Frankel of Goldman Sachs; Ali Balali of Bank of America; and Biswarup Chatterjee of Citigroup.

Through representatives, these bankers declined to discuss the committee or the derivatives market. Some of the spokesmen noted that the bankers have expertise that helps the clearinghouse.

Many of these same people hold influential positions at other clearinghouses, or on committees at the powerful International Swaps and Derivatives Association, which helps govern the market.

Critics have called these banks the “derivatives dealers club,” and they warn that the club is unlikely to give up ground easily.

“The revenue these dealers make on derivatives is very large and so the incentive they have to protect those revenues is extremely large,” said Darrell Duffie, a professor at the Graduate School of Business at Stanford University, who studied the derivatives market earlier this year with Federal Reserve researchers. “It will be hard for the dealers to keep their market share if everybody who can prove their creditworthiness is allowed into the clearinghouses. So they are making arguments that others shouldn’t be allowed in.”

Perhaps no business in finance is as profitable today as derivatives. Not making loans. Not offering credit cards. Not advising on mergers and acquisitions. Not managing money for the wealthy.

The precise amount that banks make trading derivatives isn’t known, but there is anecdotal evidence of their profitability. Former bank traders who spoke on condition of anonymity because of confidentiality agreements with their former employers said their banks typically earned $25,000 for providing $25 million of insurance against the risk that a corporation might default on its debt via the swaps market. These traders turn over millions of dollars in these trades every day, and credit default swaps are just one of many kinds of derivatives.

The secrecy surrounding derivatives trading is a key factor enabling banks to make such large profits.

If an investor trades shares of Google or Coca-Cola or any other company on a stock exchange, the price — and the commission, or fee — are known. Electronic trading has made this information available to anyone with a computer, while also increasing competition — and sharply lowering the cost of trading. Even corporate bonds have become more transparent recently. Trading costs dropped there almost immediately after prices became more visible in 2002.

Not so with derivatives. For many, there is no central exchange, like the New York Stock Exchange or Nasdaq, where the prices of derivatives are listed. Instead, when a company or an investor wants to buy a derivative contract for, say, oil or wheat or securitized mortgages, an order is placed with a trader at a bank. The trader matches that order with someone selling the same type of derivative.

Banks explain that many derivatives trades have to work this way because they are often customized, unlike shares of stock. One share of Google is the same as any other. But the terms of an oil derivatives contract can vary greatly.

And the profits on most derivatives are masked. In most cases, buyers are told only what they have to pay for the derivative contract, say $25 million. That amount is more than the seller gets, but how much more — $5,000, $25,000 or $50,000 more — is unknown. That’s because the seller also is told only the amount he will receive. The difference between the two is the bank’s fee and profit. So, the bigger the difference, the better for the bank — and the worse for the customers.

It would be like a real estate agent selling a house, but the buyer knowing only what he paid and the seller knowing only what he received. The agent would pocket the difference as his fee, rather than disclose it. Moreover, only the real estate agent — and neither buyer nor seller — would have easy access to the prices paid recently for other homes on the same block.

An Electronic Exchange?

Two years ago, Kenneth C. Griffin, owner of the giant hedge fund Citadel Group, which is based in Chicago, proposed open pricing for commonly traded derivatives, by quoting their prices electronically. Citadel oversees $11 billion in assets, so saving even a few percentage points in costs on each trade could add up to tens or even hundreds of millions of dollars a year.

But Mr. Griffin’s proposal for an electronic exchange quickly ran into opposition, and what happened is a window into how banks have fiercely fought competition and open pricing. To get a transparent exchange going, Citadel offered the use of its technological prowess for a joint venture with the Chicago Mercantile Exchange, which is best-known as a trading outpost for contracts on commodities like coffee and cotton. The goal was to set up a clearinghouse as well as an electronic trading system that would display prices for credit default swaps.

Big banks that handle most derivatives trades, including Citadel’s, didn’t like Citadel’s idea. Electronic trading might connect customers directly with each other, cutting out the banks as middlemen.

So the banks responded in the fall of 2008 by pairing with ICE, one of the Chicago Mercantile Exchange’s rivals, which was setting up its own clearinghouse. The banks attached a number of conditions on that partnership, which came in the form of a merger between ICE’s clearinghouse and a nascent clearinghouse that the banks were establishing. These conditions gave the banks significant power at ICE’s clearinghouse, according to two people with knowledge of the deal. For instance, the banks insisted that ICE install the chief executive of their effort as the head of the joint effort. That executive, Dirk Pruis, left after about a year and now works at Goldman Sachs. Through a spokesman, he declined to comment.

The banks also refused to allow the deal with ICE to close until the clearinghouse’s rulebook was established, with provisions in the banks’ favor. Key among those were the membership rules, which required members to hold large amounts of capital in derivatives units, a condition that was prohibitive even for some large banks like the Bank of New York.

The banks also required ICE to provide market data exclusively to Markit, a little-known company that plays a pivotal role in derivatives. Backed by Goldman, JPMorgan and several other banks, Markit provides crucial information about derivatives, like prices.

Kevin Gould, who is the president of Markit and was involved in the clearinghouse merger, said the banks were simply being prudent and wanted rules that protected the market and themselves.

“The one thing I know the banks are concerned about is their risk capital,” he said. “You really are going to get some comfort that the way the entity operates isn’t going to put you at undue risk.”

Even though the banks were working with ICE, Citadel and the C.M.E. continued to move forward with their exchange. They, too, needed to work with Markit, because it owns the rights to certain derivatives indexes. But Markit put them in a tough spot by basically insisting that every trade involve at least one bank, since the banks are the main parties that have licenses with Markit.

This demand from Markit effectively secured a permanent role for the big derivatives banks since Citadel and the C.M.E. could not move forward without Markit’s agreement. And so, essentially boxed in, they agreed to the terms, according to the two people with knowledge of the matter. (A spokesman for C.M.E. said last week that the exchange did not cave to Markit’s terms.)

Still, even after that deal was complete, the Chicago Mercantile Exchange soon had second thoughts about working with Citadel and about introducing electronic screens at all. The C.M.E. backed out of the deal in mid-2009, ending Mr. Griffin’s dream of a new, electronic trading system.

With Citadel out of the picture, the banks agreed to join the Chicago Mercantile Exchange’s clearinghouse effort. The exchange set up a risk committee that, like ICE’s committee, was mainly populated by bankers.

It remains unclear why the C.M.E. ended its electronic trading initiative. Two people with knowledge of the Chicago Mercantile Exchange’s clearinghouse said the banks refused to get involved unless the exchange dropped Citadel and the entire plan for electronic trading.

Kim Taylor, the president of Chicago Mercantile Exchange’s clearing division, said “the market” simply wasn’t interested in Mr. Griffin’s idea.

Critics now say the banks have an edge because they have had early control of the new clearinghouses’ risk committees. Ms. Taylor at the Chicago Mercantile Exchange said the people on those committees are supposed to look out for the interest of the broad market, rather than their own narrow interests. She likened the banks’ role to that of Washington lawmakers who look out for the interests of the nation, not just their constituencies.

“It’s not like the sort of representation where if I’m elected to be the representative from the state of Illinois, I go there to represent the state of Illinois,” Ms. Taylor said in an interview.

Officials at ICE, meantime, said they solicit views from customers through a committee that is separate from the bank-dominated risk committee.

“We spent and we still continue to spend a lot of time on thinking about governance,” said Peter Barsoom, the chief operating officer of ICE Trust. “We want to be sure that we have all the right stakeholders appropriately represented.”

Mr. Griffin said last week that customers have so far paid the price for not yet having electronic trading. He puts the toll, by a rough estimate, in the tens of billions of dollars, saying that electronic trading would remove much of this “economic rent the dealers enjoy from a market that is so opaque.”

“It’s a stunning amount of money,” Mr. Griffin said. “The key players today in the derivatives market are very apprehensive about whether or not they will be winners or losers as we move towards more transparent, fairer markets, and since they’re not sure if they’ll be winners or losers, their basic instinct is to resist change.”

In, Out and Around Henhouse

The result of the maneuvering of the past couple years is that big banks dominate the risk committees of not one, but two of the most prominent new clearinghouses in the United States.

That puts them in a pivotal position to determine how derivatives are traded.

Under the Dodd-Frank bill, the clearinghouses were given broad authority. The risk committees there will help decide what prices will be charged for clearing trades, on top of fees banks collect for matching buyers and sellers, and how much money customers must put up as collateral to cover potential losses.

Perhaps more important, the risk committees will recommend which derivatives should be handled through clearinghouses, and which should be exempt.

Regulators will have the final say. But banks, which lobbied heavily to limit derivatives regulation in the Dodd-Frank bill, are likely to argue that few types of derivatives should have to go through clearinghouses. Critics contend that the bankers will try to keep many types of derivatives away from the clearinghouses, since clearinghouses represent a step towards broad electronic trading that could decimate profits.

The banks already have a head start. Even a newly proposed rule to limit the banks’ influence over clearing allows them to retain majorities on risk committees. It remains unclear whether regulators creating the new rules — on topics like transparency and possible electronic trading — will drastically change derivatives trading, or leave the bankers with great control.

One former regulator warned against deferring to the banks. Theo Lubke, who until this fall oversaw the derivatives reforms at the Federal Reserve Bank of New York, said banks do not always think of the market as a whole as they help write rules.

“Fundamentally, the banks are not good at self-regulation,” Mr. Lubke said in a panel last March at Columbia University. “That’s not their expertise, that’s not their primary interest.”

Lehman-Barclay Deal Hid Windfall of $11 Billion

“relief from the sale order is warranted by law whether there was an innocent mistake or deliberate concealment.”

Editor’s Note: When you watch these events unfold, you might begin to realize that the windfall is not to the homeowner who gets the foreclosure thrown out of court, it already happened for the financial players who continue to reap their rewards.

Now if some enterprising soul would help us out by getting hold of the transcripts and exhibits used in those depositions and discovery tools, it would probably contain a wealth of information we could post on here to help others dealing with Lehman, Aurora, BNC, Barclay, etc.

Judge Rules for Lehman in Sale Case

By BLOOMBERG NEWS

A federal judge on Friday rejected a bid by Barclays to throw out a motion by Lehman Brothers Holdings to recover an $11 billion “windfall” the bank supposedly made on the purchase of the bankrupt firm’s North American brokerage.

The case pits creditors and customers of Lehman, which an examiner said used accounting methods that concealed billions of dollars of risks, against Britain’s second-biggest bank. Barclays doubled its profit last year and reported a $4 billion gain on the brokerage in 2008.

Judge James Peck of United States District Court in New York threw out Barclays’ request at the outset of a court hearing, instead ordering immediate opening statements in the case.

The court was never told of the $11 billion gain for Barclays which was known before the sale hearing,” a Lehman lawyer, Robert Gaffey, said at the hearing. “Barclays sat silent in court while Lehman’s lawyers described the deal to the court as a wash.”

Barclays argued that if the judge reopened the sale contract, buyers of distressed bank assets would become scarce. Lehman, which filed for bankruptcy in 2008, said new evidence from 60 depositions and 100,000 documents justify forcing Barclays to give back its gains.

A court victory for Lehman would add money for creditors with claims estimated at $260 billion, augmenting the $50 billion that Bryan Marsal, the chief executive, has said he intends to raise within five years.

Mr. Gaffey, of the New York office of Jones Day, said “relief from the sale order is warranted by law whether there was an innocent mistake or deliberate concealment.

Lehman Execs and Auditors Face Civil and Criminal Inquiries and Lawsuits

This is pretty aggressive and pretty abusive. I don’t know how under GAAP this follows the rules whatsoever,” he said, referring to Generally Accepted Accounting Principles.“That reeks of an auditor who, rather than being really truly independent, is beholden to management,” he said, adding that the S.E.C. and the Justice Department should follow up on Mr. Valukas’s findings.

Executives at other Wall Street banks professed surprise at Lehman’s accounting maneuvers. Goldman Sachs, Barclays Capital and other banks said on Friday they did not use repos to hide liabilities on their balance sheets.

EDITOR’S NOTE: Surprised? Other than the people who thought they would not get caught, who is surprised by the fact that upon close scrutiny Lehman’s books were cooked and Ernst and Young “auditors” went along with it? Ask any “Joe” or “Jane” in the street if they are surprised.

So a few scapegoats are going to jail in the usual perp walk while most of the “masterminds” walk away with taxpayer money jingling in their pocket, with homeowners being bounced from their homes, with the economy in a death spin, and while their wallets bursting with cash, are replaced with more wallets in more places with more pockets.

Let’s put it very simply: If the experts are surprised they are not experts. Or, if they are experts, they are co-conspirators. To paraphrase Brad in the survey workshops they were either stupid or just plain lying.

But I didn’t post this because I am angry and outraged over the behavior of Wall Street, regulators, congress and the Obama administration. The reason I write this is to highlight the fact that persistence pays off. What was unthinkable, crazy, conspiratorial 3 years ago when i first started writing on this subject is now being accepted as axiomatically true.

If you persist in challenging the pretender lenders and demanding that the real creditor step forward, if you persist in getting a full accounting from the creditor (investor) down to the the debtor (borrower, homeowner), then you will magnify your chances of prevailing against a fraudulent foreclosure. Nearly all of the foreclosures during the past 3 years were fraudulent. Millions of people are thinking of their old homestead while they probably still own it, even though they left or were evicted.

Get your facts together, get that forensic analysis, get an expert to declare the truth, and get a lawyer who either understands securitized mortgage loans or is willing to learn. And don’t stop, don’t give and don’t leave until the last option of the last move has been played — because it is only THEN that the other side will cave in and offer you a reasonable settlement. And even then you still need to go to court with a quiet title action because the people offering you the deal are NOT your creditor and don’t know the name(s) of your creditor much less represent them.

March 12, 2010

Findings on Lehman Take Even Experts by Surprise

By MICHAEL J. de la MERCED

For the year that it took the court-appointed examiner to complete his report on the demise of Lehman Brothers, officials from Wall Street to Washington were anticipating it as the definitive account of the largest bankruptcy in American history.

And the report did just that when it was unveiled on Thursday, riveting readers with the exhaustive detail contained in its nine volumes and 2,200 pages. Yet almost immediately, it raised a host of new questions.

Now government regulators have what some lawyers call a road map for further inquiry into former Lehman executives like Richard S. Fuld Jr. and the auditing firm Ernst & Young.

Whether the Justice Department and the Securities and Exchange Commission will actually pursue their own legal actions is unclear. But legal experts said on Friday that the examiner, Anton R. Valukas, had provided plenty of material for civil regulatory action at the least with his findings of “materially misleading” accounting and “actionable balance sheet manipulation.”

“It’s certainly not helpful to any of them,” Michael J. Missal, a partner at the law firm K&L Gates and the examiner in the bankruptcy case of New Century Financial, said of some individuals accused of impropriety in the report. “It certainly assists private litigants and probably increases the pressure on the government to take some kind of action here.”

Representatives for the S.E.C. and the United States attorneys offices in Manhattan and Brooklyn declined to comment.

While Mr. Fuld and other former top Lehman officials are already defendants in a number of civil lawsuits, the new discoveries by Mr. Valukas have taken even veteran observers by surprise. Chief among these was the revelation of a particularly aggressive accounting practice, known internally as Repo 105, that Mr. Valukas said helped the investment bank mask the true depths of its financial woes.

Examiners in bankruptcy cases are appointed by the Justice Department to investigate accusations of wrongdoing or misconduct. Their job is to determine whether creditors can recover more money in these cases, and their findings often serve as guides for more lawsuits and even regulatory action.

What examiners are not asked to do is play judge and jury. Though the report contains strong language — Mr. Valukas deems Mr. Fuld “at least grossly negligent” in his role overseeing Lehman — it stops short of accusing anyone of criminal conduct or of violating securities law.

Patricia Hynes, a lawyer for Mr. Fuld, said on Thursday that her client “did not know what those transactions were — he didn’t structure or negotiate them, nor was he aware of their accounting treatment.” She did not return an e-mail seeking additional comment on Friday.

Mr. Valukas’s findings have stirred loud discussion among legal and accounting experts over the ways Lehman sought to improve its quarterly results months before it collapsed.

Over hundreds of pages, Mr. Valukas details the genesis of and the process behind Repo 105. Based on standard repurchase agreements — short-term loans commonly used by many firms for daily financing needs, in which borrowers temporarily exchange assets in return for cash up front — Lehman took a particularly aggressive accounting approach to these transactions.

Here, the investment bank used repos to temporarily park assets off its books to make its end-of-quarter debt levels look better than they did — while calling them sales instead of loans.

The accounting tactic, first used by Lehman in 2001, had one catch, according to Mr. Valukas: no American law firm would sign off on its use.

Enter Linklaters, a highly respected British law firm that gave Lehman the answer it wanted. So long as the repos were conducted in London through the bank’s European arm, and so long as the company took other cosmetic steps to make these transactions appear to be sales instead of financings, Linklaters determined that they would pass regulatory muster.

A spokeswoman for Linklaters said on Friday that the firm was not contacted by Mr. Valukas and that its legal opinions were not criticized in the examiner’s report as wrong or improper.

Lehman also had the backing of Ernst & Young, which certified the bank’s financial statements despite receiving warnings from a whistle-blower who said there were accounting improprieties. An Ernst & Young spokesman said on Thursday that the firm stood by its work for 2007, the last year it conducted an audit of Lehman’s financial results.

But Lynn E. Turner, a former chief accountant for the S.E.C., accused Ernst & Young of abdicating its responsibility to the audit committee of Lehman’s board by not presenting the concerns.

“This is pretty aggressive and pretty abusive. I don’t know how under GAAP this follows the rules whatsoever,” he said, referring to Generally Accepted Accounting Principles.

“That reeks of an auditor who, rather than being really truly independent, is beholden to management,” he said, adding that the S.E.C. and the Justice Department should follow up on Mr. Valukas’s findings.

Executives at other Wall Street banks professed surprise at Lehman’s accounting maneuvers. Goldman Sachs, Barclays Capital and other banks said on Friday they did not use repos to hide liabilities on their balance sheets.

Foreclosure Defense and Mortgage Meltdown: Worse than you think

Take a look at the article (link below) which highlights the essential issues. It’s a bit choppy in reading but it makes the points you should consider as you plan your strategy for dealing with life over the next 10 years.

Despite assurances from the administration and those on Wall Street who are trying to bolster confidence in U.S. financial markets, the trust level between bankers, the key indicator of our economic future, has never been lower. Even Libor which is the holy grail of indexes has been manipulated during the last 4 years. Moody’s admitted yesterday that a computer “mistake” caused it to miss the “downturn” in the value  and rating of certain securities — the very same ones they overrated in the first place because the analysts were literally given fishing trips and pressured from the top to keep the “client” through “negotiation” of the rating that Moody’s would apply. 

What you have is a picture of obfuscation.

Imagine on the right side,  an opaque cloud of misrepresentations, ratings and false insurance protection on a securities that are so complex the number of variables rose to as high as 125 and it took a modern computer an entire weekend to come up with a price that, like election results from an entirely electronic system, cannot be audited for integrity or credibility.

  • Imagine the AAA ratings that investors believed, because the rating agencies were reasonably trustworthy and accurate in the past. Imagine insurers putting their stamp of approval based upon negotiation and the false credit ratings. 
  • And know that the entire class of securities that are “asset-backed” consists of extremely high risk predatory lending practices including but not limited to originating loans to people with interest only negative amortization for sometimes over a million dollars where the borrower is out of work and disabled.
  • These are the “cash equivalent” securities that unsuspecting managers of pension funds, government funds, mutual funds, hedge funds and others were buying. 
  • Imagine them buying derivatives on derivatives thinking they were hedging their losses when in fact they were multiplying them.
  • And now imagine that investors bought $62 trillion dollars (yes that IS the figure — 4 times our GDP) of this garbage backed by unpayable mortgages, auto loans, credit cards, student loans, and other consumer and small business debt.

Now on the left side imagine the same kind of opaque cloud of misrepresentations, pressure tactics to close, and outright fraudulent misrepresentation of “appraised” value (just like the rating agencies on securities), only less regulated and more decentralized). A subsequent TILA audit reflects the following facts:

  • Imagine a person who speaks no English, or a person who is totally unsophisticated in finance.
  • A builder with a criminal record makes deals with people at the local fronts for bigger players like Countrywide, Barclays, Wells Fargo etc. The people at these front organizations are now in prison, fired or both — a very typical story.
  • The builder finds our unsuspecting buyer and tells them that for only $2,000 per month they can get a 5 acre piece of land and build a $400,000 house on it. 
  • He gets them to pony up all the money they have — $250,000.
  • They even pony up another $150,000 borrowed from the trust fund for their disabled child, injured in an accident. Nobody cares about the personal stories here because they were all out to make a buck.
  • When the prospective borrowers start asking questions about how this could possibly work they are told: “Look, it is true you are not making the whole payment. But the way things work, housing prices always go up and down the road you either refinance and get money out of the house or you can sell at a handsome profit. Housing prices have never been steadier, growth is enormous. The lender has approved this and you know it is their money they are risking and they know a lot more then either of us, so if they are willing to take the risk, why wouldn’t you?”
  • NOT DISCLOSED: (1) the lender had no stake in the outcome of the loan except to close it and collect pass through fees. (2) The mortgage and note and servicing rights were all transferred around to mortgage aggregators, and investment banks who in turn sold derivative securities based upon this garbage loan. (3) Thus the lender was not taking on a risk and neither was anyone who handled this hot potato until it landed in the hands of an unsuspecting investor. (4) And the appraiser, eager to do more appraisals and earn more fees is allowed to know the amount of the mortgage and the contract price and conveniently and always comes in with an appraisal a few percentage points higher than the contract, so it looks good to the borrowers, and even to auditors at least at the beginning of this wild free money lending cycle. Unknown tot he borrower the “bank” is actually an unscrupulous mortgage broker steering the borrower to the worst possible deal because it nets him the highest fees, and submitting falsified income information sometimes without even the knowledge of the borrower, and sometimes with a statement to the borrower (“don’t worry” this is a no-doc loan, nothing will be checked and you won’t get into trouble because everyone wants this loan to close. (the only true statement in the entire affair). 
  • LATER THE LENDER WILL TAKE THE POSITION WITH THE FBI AND OTHER LAW ENFORCEMENT THAT IT WAS DEFRAUDED EVEN THOUGH IT DEFRAUDED ITSELF” BY HAVING ITS OWN AGENTS FALSIFY THE INCOME AND APPRAISAL INFORMATION.

NOW IMAGINE BETWEEN THE OPAQUE CLOUD ON THE LEFT (defrauding the borrower) AND THE OPAQUE CLOUD ON THE RIGHT (defrauding the investor) GOSSAMER THREADS REPRESENTING PLAUSIBLE DENIABILITY. All the people that were represented as principals and were in fact just sales people earning a commission on a sale. 

With nobody at risk but the least suspecting people who heard and read representations that were outright lies, misleading or only partial truths, lending standards when down the toilet. Nobody cared or had a stake in the outcome of the loan transaction except the borrower and the investor. The name of the game was “close as many loans as possible” because these investors are being offered just enough yield to be a little higher than other investments and were convinced by fraud that the perceived risk was much lower than the actual risk — after all Moody’s rated it AAA. 

The standard relationship between borrower and lender in which BOTH had  stake in a successful transaction was gone, but the borrower didn’t know it. How many people would have closed on their loans if they had known the truth? How many people would have bought these securities if they had known the truth. The answer is that the mortgage meltdown and general credit crisis would never have happened. Inflation would not be rising out of control.

Confidence in the the U.S. dollar and U.S. financial markets would not have sunk below zero. Borrowers and investors would still have their money and their lives and their credit ratings. Money managers would still have their jobs and the performance of the funds they managed would still be within acceptable bounds. And banks and investment banks would not be threatened with failure.

1,300,000 people would not be in foreclosure and 9 million people would not be “upside down” on the equity-loan ratio of their homes. 

Now  you can read the article I found on op-ed.

http://www.opednews.com/articles/1/opedne_stephen__080522__22immoral_hazard_22.htm

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