If the Bank of England wants this information, how can this court deem it irrelevant?

Posted on March 21, 2010 by Neil Garfield

SEE ALSO BOE PAPER ON ABS DISCLOSURE condocmar10

If the Bank of England wants this information, how can this court deem it irrelevant? NOTE: BOE defines investors as note-holders.
information on the remaining life, balance and prepayments on a loan; data on the current valuation and loan-to-value ratios on underlying property and collateral; and interest rate details, like the current rate and reset levels. In addition, the central bank said it wants to see loan performance information like the number and value of payments in arrears and details on bankruptcy, default or foreclosure actions.
Editor’s Note: As Gretchen Morgenstern points out in her NY Times article below, the Bank of England is paving the way to transparent disclosures in mortgage backed securities. This in turn is a guide to discovery in American litigation. It is also a guide for questions in a Qualified Written Request and the content of a forensic analysis.
What we are all dealing with here is asymmetry of information, which is another way of saying that one side has information and the other side doesn’t. The use of the phrase is generally confined to situations where the unequal access to information is intentional in order to force the party with less information to rely upon the party with greater information. The party with greater information is always the seller. The party with less information is the buyer. The phrase is most often used much like “moral hazard” is used as a substitute for lying and cheating.
Quoting from the Bank of England’s “consultative paper”: ” [NOTE THAT THE BANK OF ENGLAND ASSUMES ASYMMETRY OF INFORMATION AND, SEE BELOW, THAT THE INVESTORS ARE CONSIDERED “NOTE-HOLDERS” WITHOUT ANY CAVEATS.] THE BANK IS SEEKING TO ENFORCE RULES THAT WOULD REQUIRE DISCLOSURE OF
borrower details (unique loan identifiers); nominal loan amounts; accrued interest; loan maturity dates; loan interest rates; and other reporting line items that are relevant to the underlying loan portfolio (ie borrower location, loan to value ratios, payment rates, industry code). The initial loan portfolio information reporting requirements would be consistent with the ABS loan-level reporting requirements detailed in paragraph 42 in this consultative document. Data would need to be regularly updated, it is suggested on a weekly basis, given the possibility of unexpected loan repayments.
42 The Bank has considered the loan-level data fields which
it considers would be most relevant for residential mortgage- backed securities (RMBS) and covered bonds and sets out a high-level indication of some of those fields in the list below:
• Portfolio, subportfolio, loan and borrower unique identifiers.
• Loan information (remaining life, balance, prepayments).
• Property and collateral (current valuation, loan to value ratio
and type of valuation). Interest rate information (current reference rate, current rate/margin, reset interval).
• Performance information (performing/delinquent, number and value of payments in arrears, arrangement, litigation or
bankruptcy in process, default or foreclosure, date of default,
sale price, profit/loss on sale, total recoveries).
• Credit bureau score information (bankruptcy or IVA flags,
bureau scores and dates, other relevant indicators (eg in respect of fraudulent activity)).

The Bank is also considering making it an eligibility requirement that each issuer provides a summary of the key features of the transaction structure in a standardised format.
This summary would include:
• Clear diagrams of the deal structure.
• Description of which classes of notes hold the voting rights and what proportion of noteholders are required to pass a resolution.
• Description of all the triggers in the transaction and the consequences of them being breached.
• What defines an event of default.
• Diagramatic cash-flow waterfalls, making clear the priority
of payments of principal and interest, including how these
can change in consequence to any trigger breaches.
52 The Bank is also considering making it an eligibility
requirement that cash-flow models be made available that
accurately reflect the legal structure of an asset-backed security.
The Bank believes that for each transaction a cash-flow model
verified by the issuer/arranger should be available publicly.
Currently, it can be unclear as to how a transaction would
behave in different scenarios, including events of default or
other trigger events. The availability of cash-flow models, that
accurately reflect the underlying legal structure of the
transaction, would enable accurate modelling and stress
testing of securities under various assumptions.

March 19, 2010, NY Times

Pools That Need Some Sun

By GRETCHEN MORGENSON

LAST week, the Federal Home Loan Bank of San Francisco sued a throng of Wall Street companies that sold the agency $5.4 billion in residential mortgage-backed securities during the height of the mortgage melee. The suit, filed March 15 in state court in California, seeks the return of the $5.4 billion as well as broader financial damages.

The case also provides interesting details on what the Federal Home Loan Bank said were misrepresentations made by those companies about the loans underlying the securities it bought.

It is not surprising, given the complexity of the instruments at the heart of this credit crisis, that it will require court battles for us to learn how so many of these loans could have gone so bad. The recent examiner’s report on the Lehman Brothers failure is a fine example of the in-depth investigation required to get to the bottom of this debacle.

The defendants in the Federal Home Loan Bank case were among the biggest sellers of mortgage-backed securities back in the day; among those named are Deutsche Bank; Bear Stearns; Countrywide Securities, a division of Countrywide Financial; Credit Suisse Securities; and Merrill Lynch. The securities at the heart of the lawsuit were sold from mid-2004 into 2008 — a period that certainly encompasses those giddy, anything-goes years in the home loan business.

None of the banks would comment on the litigation.

In the complaint, the Federal Home Loan Bank recites a list of what it calls untrue or misleading statements about the mortgages in 33 securitization trusts it bought. The alleged inaccuracies involve disclosures of the mortgages’ loan-to-value ratios (a measure of a loan’s size compared with the underlying property’s value), as well as the occupancy status of the properties securing the loans. Mortgages are considered less risky if they are written against primary residences; loans on second homes or investment properties are deemed to be more of a gamble.

Finally, the complaint said, the sellers of the securities made inaccurate claims about how closely the loan originators adhered to their underwriting guidelines. For example, the Federal Home Loan Bank asserts that the companies selling these securities failed to disclose that the originators made frequent exceptions to their own lending standards.

DAVID J. GRAIS, a partner at Grais & Ellsworth, represents the plaintiff. He said the Federal Home Loan Bank is not alleging that the firms intended to mislead investors. Rather, the case is trying to determine if the firms conformed to state laws requiring accurate disclosure to investors.

“Did they or did they not correspond with the real world at the time of the sale of these securities? That is the question,” Mr. Grais said.

Time will tell which side will prevail in this suit. But in the meantime, the accusations illustrate a significant unsolved problem with securitization: a lack of transparency regarding the loans that are bundled into mortgage securities. Until sunlight shines on these loan pools, the securitization market, a hugely important financing mechanism that augments bank lending, will remain frozen and unworkable.

It goes without saying that after swallowing billions in losses in such securities, investors no longer trust what sellers say is inside them. Investors need detailed information about these loans, and that data needs to be publicly available and updated regularly.

“The goose that lays the golden eggs for Wall Street is in the information gaps created by financial innovation,” said Richard Field, managing director at TYI, which develops transparency, trading and risk management information systems. “Naturally, Wall Street opposes closing these gaps.”

But the elimination of such information gaps is necessary, Mr. Field said, if investors are to return to the securitization market and if global regulators can be expected to prevent future crises.

While United States policy makers have done little to resolve this problem, the Bank of England, Britain’s central bank, is forging ahead on it. In a “consultative paper” this month, the central bank argued for significantly increased disclosure in asset-backed securities, including mortgage pools.

The central bank is interested in this debate because it accepts such securities in exchange for providing liquidity to the banking system.

“It is the bank’s view that more comprehensive and consistent information, in a format which is easier to use, is required to allow the effective risk management of securities,” the report stated. One recommendation is to include far more data than available now.

Among the data on its wish list: information on the remaining life, balance and prepayments on a loan; data on the current valuation and loan-to-value ratios on underlying property and collateral; and interest rate details, like the current rate and reset levels. In addition, the central bank said it wants to see loan performance information like the number and value of payments in arrears and details on bankruptcy, default or foreclosure actions.

The Bank of England recommended that investor reports be provided on “at least a monthly basis” and said it was considering making such reports an eligibility requirement for securities it accepts in its transactions.

The American Securitization Forum, the advocacy group for the securitization industry, has been working for two years on disclosure recommendations it sees as necessary to restart this market. But its ideas do not go as far as the Bank of England’s.

A group of United States mortgage investors is also agitating for increased disclosures. In a soon-to-be-published working paper, the Association of Mortgage Investors outlined ways to increase transparency in these instruments.

Among its suggestions: reduce the reliance on credit rating agencies by providing detailed data on loans well before a deal is brought to market, perhaps two weeks in advance. That would allow investors to analyze the loans thoroughly, then decide whether they want to buy in.

THE investors are also urging that loan-level data offered by issuers, underwriters or loan servicers be “accompanied by an auditor attestation” verifying it has been properly aggregated and calculated. In other words, trust but verify.

Confidence in the securitization market has been crushed by the credit mess. Only greater transparency will lure investors back into these securities pools. The sooner that happens, the better.

Filed under: brad keiser, bubble, CDO, CORRUPTION, currency, Eviction, expert witness, foreclosure, Forensic Analysis Workshop, GTC | Honor, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, workshop | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 5 Comments »

Swaps as Breach of Fiduciary Duties

Posted on March 9, 2010 by Neil Garfield

“That’s right. Issuers are essentially paying twice for flawed deals that bestowed great riches on the bankers and advisers who sold them. Taxpayers should be outraged, but to be angry you have to be informed — and few taxpayers may even know that the complicated arrangements exist.”

Editor’s Note: At some point, it will become obvious and axiomatic that Wall Street works for itself and their pattern of selling is devoted to making money whether the investment sold goes up, down or sideways. As long as money moves Wall Street makes money. One of the crazier aspects of their hold on Government is that while they make all this money, they don’t get taxes, because they usually pick and choose when they report the income even as it is sitting safely in off-shore havens or buried in holding or contingency accounts. Much of the federal and State deficits would be partially or completely offset if they just enforced their tax laws — collecting taxes owed to them by Wall Street players.
Meanwhile, back at the ranch, everyone and everything is dying, drained of all lifeblood in what is left of our “free market” economy. The current case in point, deftly pointed out and explained by Gretchen Morgenstern of the New York Times, is local government officials who were misled into buying into a credit default swap program without knowing the risks. They thought they were increasing income and decreasing risk. Instead they were , like the borrowers on teaser rates, drawn into complicated instruments, relying upon the advice of the people who sold it to them. These isntruments gave them the initial appearance of something beneficial while in the end it wrecked them.
Sound familiar? Whether it is simply outright fraud, or breach of fiduciary duty there is no doubt that the public officers who bought into this plan thought that it would be good for them politically because it would be haled as a smart move.
They bought into this program because the investment bankers who sold it to them had knowledge so far superior to the public officials that there was no choice but to rely on the investment banker on the issues of value and risk. Most authorities claim that when that situation arises, a fiduciary relationship arises whether it was intended or not. And when a party has knowledge and skills far superior to the counter-party in a transaction, they have a duty to use those skills and inform the customer accordingly.
The same holds true in mortgage financing. In the last 10 years, underwriters tell me that the number of loan products grew from 4 to 400. The huge array of potential loan products alone made the choice out of the reach of knowledge and experience of most borrowers. Add the complexity of securitization and we were all sitting ducks, relying on the mortgage broker, appraiser, the party originating the loan (who often was confused as being a bank or acting as bank when they were acting as a broker or conduit), the closing agent, the real estate broker, developer, insurance companies (title and property) to assess the value and risks of each transaction. In truth no underwriting was being done because no bank would have approved the loan in most cases.
Investment bankers created a chain of participants to create layers and plausible deniability, in the process, millions of homeowners are losing their homes to companies they never knew existed and thousands of municipalities and local government projects are going broke.
March 5, 2010 NY Times

The Swaps That Swallowed Your Town

By GRETCHEN MORGENSON

AS more details surface about how derivatives helped Greece and perhaps other countries mask their debt loads, let’s not forget that the wonders of these complex products aren’t on display only overseas. Across our very own country, municipalities, school districts, sewer systems and other tax-exempt debt issuers are ensnared in the derivatives mess.

Like the credit default swaps that hid Greece’s obligations, the instruments weighing on our municipalities were brought to us by the creative minds of Wall Street. The rocket scientists crafting the products got backup from swap advisers, a group of conflicted promoters who consulted municipalities and other issuers. Both of these camps peddled swaps as a way for tax-exempt debt issuers to reduce their financing costs.

Now, however, the promised benefits of these swaps have mutated into enormous, and sometimes smothering, expenses. Making matters worse, issuers who want out of the arrangements — swap contracts typically run for 30 years — must pay up in order to escape.

That’s right. Issuers are essentially paying twice for flawed deals that bestowed great riches on the bankers and advisers who sold them. Taxpayers should be outraged, but to be angry you have to be informed — and few taxpayers may even know that the complicated arrangements exist.

Here’s how municipal swaps worked (in theory): Say an issuer needed to raise money and prevailing rates for fixed-rate debt were 5 percent. A swap allowed issuers to reduce the interest rate they paid on their debt to, say, 4.5 percent, while still paying what was effectively a fixed rate.

Nothing wrong with that, right?

Sales presentations for these instruments, no surprise, accentuated the positives in them. “Derivative products are unique in the history of financial innovation,” gushed a pitch from Citigroup in November 2007 about a deal entered into by the Florida Keys Aqueduct Authority. Another selling point: “Swaps have become widely accepted by the rating agencies as an appropriate financial tool.” And, the presentation said, they can be easily unwound (for a fee, of course).

But these arrangements were riddled with risks, as issuers are finding out. The swaps were structured to generate a stream of income to the issuer — like your hometown — that was tethered to a variable interest rate. Variable rates can rise or fall wildly if economic circumstances change. Banks that executed the swaps received fixed payments from the issuers.

The contracts, however, assumed that economic and financial circumstances would be relatively stable and that interest rates used in the deals would stay in a narrow range. The exact opposite occurred: the financial system went into a tailspin two years ago, and rates plummeted. The auction-rate securities market, used by issuers to set their interest payments to bondholders, froze up. As a result, these rates rose.

For municipalities, that meant they were stuck with contracts that forced them to pay out a much higher interest rate than they were receiving in return. Sure, the rate plunge was unforeseen, but it was not an impossibility. And the impact of such a possible decline was rarely highlighted in sales presentations, municipal experts say.

Another aspect to these swaps’ designs made them especially ill-suited for municipal issuers. Almost all tax-exempt debt is structured so that after 10 years, it can be called or retired by the city, school district or highway authority that floated it. But by locking in the swap for 30 years, the municipality or school district is essentially giving up the option to call its debt and issue lower-cost bonds, without penalty, if interest rates have declined.

Imagine a homeowner who has a mortgage allowing her to refinance without a penalty if interest rates drop, as many do. Then she inexplicably agrees to give up that opportunity and not be compensated for doing so. Well, some towns did exactly that when they signed derivatives contracts that locked them in for 30 years.

Then there are the counterparty risks associated with municipal swaps. If the banks in the midst of these deals falter, the municipality is at peril, because getting out of a contract with a failed bank is also costly. For example, closing out swaps in which Lehman Brothers was the counterparty cost various New York State debt issuers $12 million, according to state filings.

Termination fees also kick in when a municipal issuer wants out of its swap agreement. They can be significant.

New York State provides a good example. An Oct. 30, 2009, filing describing its swaps shows that for the most recent fiscal year, April 2008 to March 2009, the state paid $103 million to terminate roughly $2 billion worth of swaps — more than a quarter of which resulted from the Lehman bankruptcy in September 2008.

(You can find this report online at bit.ly/cS8ZFV.)

As of Nov. 30, 2009, New York had $3.74 billion worth of swaps outstanding. Even so, New York doesn’t have as much of a problem with swaps as other jurisdictions. Still, New York could have spent that $103 million on many other things that the state needs.

The prime example, of course, of a swap-imperiled issuer is Jefferson County, Ala. Its swaps were supposed to lower the county’s costs, but instead they wound up increasing its indebtedness. Groaning under a $3 billion debt load, the county is facing the possibility of bankruptcy.

Critics of swaps hope that increased taxpayer awareness of these souring deals will force municipalities to think twice. “When municipalities enter into these swaps they end up paying more and receiving much less,” said Andy Kalotay, an expert in fixed income.

Why is that? One reason, Mr. Kalotay said, is the use of swap advisers.

“The basic problem is the swap adviser gets paid only if there is a transaction — an unbelievable conflict of interest,” he said. “It’s the adviser who is supposed to protect you, but the swap adviser has a vested interest in seeing something happen.”

WHAT is especially maddening to many in the municipal securities market is that issuers are now relying on the same investment banks that put them into swaps-embedded debt to restructure their obligations. According to those who travel this world, issuers are afraid to upset their relationships with their bankers and are not holding them accountable for placing them in these costly trades.

“We need transparency where Wall Street discloses not only the risks but also calculates the potential costs associated with those risks,” said Joseph Fichera, chief executive at Saber Partners, an advisory firm. “If you just ask issuers to disclose, even in a footnote, the maximum possible loss or gain from the swap they probably wouldn’t do it. And if they did that, then investors and taxpayers would know what the risks are, in plain English.”

Mr. Fichera is right. At this intersection of two huge and extremely opaque arenas — the municipal debt market and derivatives trading — sunlight is sorely needed.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , | 4 Comments »

The Other Plot to Wreck America

Posted on January 10, 2010 by Neil Garfield

“Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed. Now that it can count on government bailouts, Wall Street has more incentive than ever to pump up its risks — secure that it can keep the bonanzas while we get stuck with the losses.”

Editor’s Note: Frank Rich, along with Gretchen Morgenstern (see Why All Earnings Are Not Equal) have been doing a fabulous job as the fourth estate in our society. Combined with the latest Mother Jones articles (see The REAL Bailout: $14 Trillion), the truth is not only coming out, it is becoming understandable.

Despite the complexity of the securitization chain applied to residential mortgage loans, it is now clear how and why Wall Street stole from investors, stole from homeowners and ran away with the money.

It is getting equally clear that the losses and the profits are illusory IF the companies that screwed the American citizens are held accountable for their actions. It is also clear that Paul Volcker, although marginalized by the the economic team in the Obama administration is speaking the truth. Obama would do well to take stock of what is REALLY happening out there because this time the country is far ahead of its leaders.

January 10, 2010 New York Times
Op-Ed Columnist

The Other Plot to Wreck America

THERE may not be a person in America without a strong opinion about what coulda, shoulda been done to prevent the underwear bomber from boarding that Christmas flight to Detroit. In the years since 9/11, we’ve all become counterterrorists. But in the 16 months since that other calamity in downtown New York — the crash precipitated by the 9/15 failure of Lehman Brothers — most of us are still ignorant about what Warren Buffett called the “financial weapons of mass destruction” that wrecked our economy. Fluent as we are in Al Qaeda and body scanners, when it comes to synthetic C.D.O.’s and credit-default swaps, not so much.

What we don’t know will hurt us, and quite possibly on a more devastating scale than any Qaeda attack. Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed. Now that it can count on government bailouts, Wall Street has more incentive than ever to pump up its risks — secure that it can keep the bonanzas while we get stuck with the losses.

The window for change is rapidly closing. Health care, Afghanistan and the terrorism panic may have exhausted Washington’s already limited capacity for heavy lifting, especially in an election year. The White House’s chief economic hand, Lawrence Summers, has repeatedly announced that “everybody agrees that the recession is over” — which is technically true from an economist’s perspective and certainly true on Wall Street, where bailed-out banks are reporting record profits and bonuses. The contrary voices of Americans who have lost pay, jobs, homes and savings are either patronized or drowned out entirely by a political system where the banking lobby rules in both parties and the revolving door between finance and government never stops spinning.

It’s against this backdrop that this week’s long-awaited initial public hearings of the Financial Crisis Inquiry Commission are so critical. This is the bipartisan panel that Congress mandated last spring to investigate the still murky story of what happened in the meltdown. Phil Angelides, the former California treasurer who is the inquiry’s chairman, told me in interviews late last year that he has been busy deploying a tough investigative staff and will not allow the proceedings to devolve into a typical blue-ribbon Beltway exercise in toothless bloviation.

He wants to examine the financial sector’s “greed, stupidity, hubris and outright corruption” — from traders on the ground to the board room. “It’s important that we deliver new information,” he said. “We can’t just rehash what we’ve known to date.” He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened.

Angelides gets it. But he has a tough act to follow: Ferdinand Pecora, the legendary prosecutor who served as chief counsel to the Senate committee that investigated the 1929 crash as F.D.R. took office. Pecora was a master of detail and drama. He riveted America even without the aid of television. His investigation led to indictments, jail sentences and, ultimately, key New Deal reforms — the creation of the Securities and Exchange Commission and the Glass-Steagall Act, designed to prevent the formation of banks too big to fail.

As it happened, a major Pecora target was the chief executive of National City Bank, the institution that would grow up to be Citigroup. Among other transgressions, National City had repackaged bad Latin American debt as new securities that it then sold to easily suckered investors during the frenzied 1920s boom. Once disaster struck, the bank’s executives helped themselves to millions of dollars in interest-free loans. Yet their own employees had to keep ponying up salary deductions for decimated National City stock purchased at a heady precrash price.

Trade bad Latin American debt for bad mortgage debt, and you have a partial portrait of Citigroup at the height of the housing bubble. The reckless Citi executives of our day may not have given themselves interest-free loans, but they often walked away with the short-term, illusionary profits while their employees were left with shredded jobs and 401(k)’s. Among those Citi executives was Robert Rubin, who, as the Clinton Treasury secretary, helped repeal the last vestiges of Glass-Steagall after years of Wall Street assault. Somewhere Pecora is turning in his grave

Rubin has never apologized, let alone been held accountable. But he’s hardly alone. Even after all the country has gone through, the titans who fueled the bubble are heedless. In last Sunday’s Times, Sandy Weill, the former chief executive who built Citigroup (and recruited Rubin to its ranks), gave a remarkable interview to Katrina Brooker blaming his own hand-picked successor, Charles Prince, for his bank’s implosion. Weill said he preferred to be remembered for his philanthropy. Good luck with that.

Among his causes is Carnegie Hall, where he is chairman of the board. To see how far American capitalism has fallen, contrast Weill with the giant who built Carnegie Hall. Not only is Andrew Carnegie remembered for far more epic and generous philanthropy than Weill’s — some 1,600 public libraries, just for starters — but also for creating a steel empire that actually helped build America’s industrial infrastructure in the late 19th century. At Citi, Weill built little more than a bloated gambling casino. As Paul Volcker, the regrettably powerless chairman of Obama’s Economic Recovery Advisory Board, said recently, there is not “one shred of neutral evidence” that any financial innovation of the past 20 years has led to economic growth. Citi, that “innovative” banking supermarket, destroyed far more wealth than Weill can or will ever give away.

Even now — despite its near-death experience, despite the departures of Weill, Prince and Rubin — Citi remains as imperious as it was before 9/15. Its current chairman, Richard Parsons, was one of three executives (along with Lloyd Blankfein of Goldman Sachs and John Mack of Morgan Stanley) who failed to show up at the mid-December White House meeting where President Obama implored bankers to increase lending. (The trio blamed fog for forcing them to participate by speakerphone, but the weather hadn’t grounded their peers or Amtrak.) Last week, ABC World News was also stiffed by Citi, which refused to answer questions about its latest round of outrageous credit card rate increases and instead e-mailed a statement blaming its customers for “not paying back their loans.” This from a bank that still owes taxpayers $25 billion of its $45 billion handout!

If Citi, among the most egregious of Wall Street reprobates, feels it can get away with business as usual, it’s because it fears no retribution. And it got more good news last week. Now that Chris Dodd is vacating the Senate, his chairmanship of the Banking Committee may fall next year to Tim Johnson of South Dakota, home to Citi’s credit card operation. Johnson was the only Senate Democrat to vote against Congress’s recent bill policing credit card abuses.

Though bad history shows every sign of repeating itself on Wall Street, it will take a near-miracle for Angelides to repeat Pecora’s triumph. Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesn’t even match the lobbying expenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009. The firms under scrutiny can pay for as many lawyers as they need to stall between now and Dec. 15, deadline day for the commission’s report.

More daunting still is the inquiry’s duty to reach into high places in the public sector as well as the private. The mystery of exactly what happened as TARP fell into place in the fateful fall of 2008 thickens by the day — especially the behind-closed-door machinations surrounding the government rescue of A.I.G. and its counterparties. Last week, a Republican congressman, Darrell Issa of California, released e-mail showing that officials at the New York Fed, then led by Timothy Geithner, pressured A.I.G. to delay disclosing to the S.E.C. and the public the details on the billions of bailout dollars it was funneling to its trading partners. In this backdoor rescue, taxpayers unknowingly awarded banks like Goldman 100 cents on the dollar for their bets on mortgage-backed securities.

Why was our money used to make these high-flying gamblers whole while ordinary Americans received no such beneficence? Nothing less than complete transparency will connect the dots. Among the big-name witnesses that the Angelides commission has called for next week is Goldman’s Blankfein. Geithner, Henry Paulson and Ben Bernanke should be next.

If they all skate away yet again by deflecting blame or mouthing pro forma mea culpas, it will be a sign that this inquiry, like so many other promises of reform since 9/15, is likely to leave Wall Street’s status quo largely intact. That’s the ticking-bomb scenario that truly imperils us all.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , | 8 Comments »

%d bloggers like this: