Corrupt Bank Leaders Call Out for Ethics and Accountability

Posted on July 6, 2017 by Neil Garfield
Update 7/7/2017 2:48 Eastern: Governanceprinciples.com website is down.  It appears that the website lasted as long as the members commitment to ethics and accountability.

See:  http://www.governanceprinciples.org has expired and is pending renewal or deletion.
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By K.K. MacKinstry/LendingLies
Editor’s Note:  Jamie Dimon of JPMorgan Chase demanding that banks act ethically and with accountability is the equivalent of El Chapo Guzman advocating for drug education programs and stronger drug laws. 
Big banks, Big media, Big pharma, Big chemical/oil, and Big Gov are well aware that stakeholders are beyond furious.  If Mr. Dimon is concerned about acting ethically, I suggest homeowners victimized by JPMorgan Chase organize and present him with a letter demanding an explanation for knowingly foreclosing on loans that were never transferred from WaMu. 

These “esteemed” CEOs may pay lip service to transparency, long-term value creation, and ethical policies but the corporations they represent are the antithesis of ethical behavior.  This is nothing but a public relations stunt designed to create the appearance of giving a damn while the unethical, fraudulent and illegal practices continue.  The Germans rioting in Hamburg at the G20 Summit are doing so because western governments (globalist corporations) are no longer listening to their citizens, but catering to corporate interests.

By Richard Bowen/CitiBank Whistleblower
And it’s about time…principles matter; in business and in our personal lives. For some time you’ve heard me rant on the lack of principles exhibited by many companies and the TBTF banks that endangered our economy in 2008; the lack of principles that eroded our financial systems and the fraud that resulted because of the lack of ethics and accompanying greed. Companies pay lip service to governance, principles and ethics and often pay them no heed in their relentless pursuit of profit.

Principles matter, yet they cannot be just words on paper, mandated from the top and not followed by a company’s leaders which is what occurred with the ethics policies that Enron, Citigroup, Wells Fargo and countless others proclaimed they had. 

So it was with some surprise that I read about a group of thirteen or so well known CEO’s and heads of investment firms which had teamed up last year to develop “common sense standards for corporate governance.” The venture, which was kept quiet for some time included JP Morgan Chase CEO Jamie Dimon, Berkshire Hathaway CEO Warren Buffet, General Motors CEO Mary Barra, and the CEO’s of Verizon, General Electric, Vanguard, Blackrock, and others.

It may be just a little and too late, still, it’s worth paying attention to see what if any changes this group and their initiative can make on the present sad state of corporate values, shareholder and director policies and overall corporate governance. In an open letter and nine-page document on the group’s website they state, “Corporate governance in recent years has often been an area of intense debate among investors, corporate leaders and other stakeholders. Yet, too often, that debate has generated more heat than light.” 

Among other items, the group is behind “clawback provisions,” board diversity, and fair director compensation models designed to keep director goals more in line with those of company investors.

Several governance experts and institutional investors have applauded the effort as a “call to action for U.S. companies, large and small.” Ken Daly, CEO, National Association of Corporate Directors, is one of them, and says, “We are pleased to see that the principles supported by this esteemed group promote the same concepts of transparency, long-term value creation, and independent board leadership that NACD champions. … Our robust portfolio of governance resources—developed for directors, by directors—can assist boards in implementing these practices.”

Yet, some believe as do I that this group, which wields tremendous power, can go even further on several issues that have proved contentious to effective governance, such as splitting the CEO’s and Chairman’s roles, proxy access and director retirement age. I was glad to see the group was by and large not in favor of dual-class voting (in which people with a privileged category of shares get more say than the average investor). The group said, “If a company has dual-class voting, which sometimes is intended to protect the company from short-term behavior, the company should consider having specific sunset provisions based upon time or a triggering event, which eliminate dual-class voting.”

One recommendation which obviously met with my approval was, “that the board of a public company should be able to meet with any employees outside of the presence of the chief executive to get an unvarnished view of the way the company is being run.”

 

In their open letter, they state:

The health of America’s public corporations and financial markets — and public trust in both — is critical to economic growth and a better financial future for American workers, retirees and investors.

Millions of American families depend on these companies for work — our 5,000 public companies account for a third of the nation’s private sector jobs.

Our future depends on these companies being managed effectively for long-term prosperity, which is why the governance of American companies is so important to every American. Corporate governance in recent years has often been an area of intense debate among investors, corporate leaders and other stakeholders

We represent some of America’s largest corporations, as well as investment managers, that, as fiduciaries, represent millions of individual savers and pension beneficiaries.

This diverse group certainly holds varied opinions on corporate governance. But we share the view that constructive dialogue requires finding common ground — a starting point to foster the economic growth that benefits shareholders, employees and the economy as a whole. To that end, we have worked to find commonsense principles.

We offer these principles, which can be found at http://www.governanceprinciples.org, in the hope that they will promote further conversation on corporate governance.

While some of the companies represented have been humbled by their own ethical lapses resulting in high-profile whistleblowing (e.g., Alayne Fleishmann with Chase mortgage securitizations and Courtland Kelley with GM safety issues), the group nonetheless does have the capacity to implement much more on the issues of ethics and sound corporate governance, and I still give them credit and respect for this beginning. If other corporate leaders stood their ground and actually followed the high road and embraced it in their culture, we would all benefit.

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F-Bomb on Display on PBS Piece on Fraud by the Banks

Posted on January 23, 2013 by Neil Garfield

http://www.pbs.org/wgbh/pages/frontline/untouchables/

“To hear some on Wall Street tell it, no one saw the financial crisis coming. As Jamie Dimon, the chairman and CEO of JPMorgan Chase, explained to the Financial Crisis Inquiry Commission, “In mortgage underwriting, somehow we just missed … that home prices don’t go up forever.”

Others were less confident. In fact, well before the housing bubble burst, alarm bells were starting  to sound among key players in the mortgage industry: due diligence underwriters.

Due diligence underwriters are paid by banks to assess the risk of buying mortgage portfolios. In the run-up to the crisis, they were among the first to suspect that loosening loan standards could pose a potentially catastrophic threat to the economy.

Several due diligence underwriters — most speaking publicly for the first time — told FRONTLINE correspondent Martin Smith that it wasn’t uncommon to see school teachers claiming salaries of $12,000 a month on their mortgage applications, or electricians moving from $500 a month in rent to homes worth $650,000. The only problem — their supervisors didn’t seem to want to hear about it.

“Fraud in the due diligence world, fraud was the F-word or the F-bomb,” said Tom Leonard. “You didn’t use that word,” — Jason Breslow, PBS

VIDEO: Fraud Was the F-Word as Contract Hourly Workers Toiled into the Night

Editor’s Comment: Most of the questions and answers are over and they lead straight to the top of the mega banks. If there was any actual risk of loss as opposed to the illusion of a risk of loss, most of the loans would not have been approved.

Since the banks were playing with investor money and essentially stealing it they had created a labyrinth of paperwork that was vague enough to enable them to claim plausible deniability and even the outright lie that Jamie Dimon told when he said that they never saw the meltdown coming because they too thought the market would always go up.

They stacked and compounded the risk elements such that the banks would be paid, the investors would lose their entire investment and the homeowners would be lured into deals that could not possibly work — especially when you factor in the known fact that the prices were spiked higher than anytime in the history of record keeping relative to actual value and the median income required to pay the mortgages. At the heart was fraud: fraud in the appraisal, fraud in the “underwriting,” fraud in the ratings, and fraud in the way the money chain and document chains were handled.

What has escaped most media analysts is that the higher the risk, the more money the banks made. By increasing the risk elements as high as they could go, the nominal interest rate on the loan was as high as it could go. By increasing the interest rate, less money was funded for loans than what was expected by the investors.

In order to achieve the expected return of $50,000 per year, the loan could have been a 5% loan, which is what the investors expected, and the Principal funded would be $1 million. If the interest rate was 10%, meaning the probability of repayment was low at best, then the funding goes down to $500,000 creating the illusion of satisfying the goal of $50,000 per year. If the interest rate was 15%, meaning there was no likelihood at all that the loan would survive, then the funding would have been $333,000.

But in both the 10% loan and the 15% loan, the investor advanced $1 million expecting the loan to be a safe loan to a credit worthy person on a piece of property that was truly worth more than the loan.  Thus a yield spread was created and the premium on that yield spread would have been $500,000 for the 10% loan, and $667,000 for the 15% loan. Where did the money go? Into the profits of the banks as proprietary trading activity that were all fictitious transactions.

The banks were supposed to provide triple-A rated bonds backed by good performing loans in which the viability of the deal had been underwritten, verified and confirmed as to income, value of the property etc. — and not just on the first day of the loan where the borrower paid a teaser rate.

Ask any banker doing conventional loans whether he or she would have approved any of the loans taken at random from the piles at Countrywide or WAMU. The answer is NO. I know because I did ask. Real loans have real risk. These were neither real loans nor did they carry any risk of loss to the purported players who were mere intermediaries violating the blueprint set forth in the prospectus and pooling and servicing agreement.

The mega banks, knowing that the loans were completely void for a variety of reasons, and knowing that the banks would some day need to create the illusion of an accounting, needed a state document (deed on foreclosure) to close the book or else the investors and borrowers would end up owning the bank.

But they went further. Having tasted the red meat of astonishing profit  margins they sought to increase their gains to astrophysical levels. They bought insurance and credit default swaps betting against the the very same loans they had underwritten and the very same bogus mortgage bonds they had underwritten and sold.

The results are well known. Banks collected 100% on the dollar repeatedly on the same loans and bonds even though none of the loans or bonds confirmed to the requirements of the disclosures to both the investors and the borrowers.

From http://www.pbs.org—–by Jason M. Breslow

One of Leonard’s peers, Eileen Loiacono, saw much of the same.

“You couldn’t say the word ‘fraud’ because we couldn’t prove that it was fraud. … Even if we suspected, we had to say, ‘This appears to be incorrect.’ You would never say, ‘This looks fraudulent.’”

In The Untouchables, premiering tonight, FRONTLINE examines why not one Wall Street executive has been prosecuted for fraud tied to the sale of bad mortgages. Through interviews with prosecutors, government officials and industry whistleblowers, the film raises new questions over whether senior bankers either ignored or contributed to fraud while inflating the bubble through the purchase and securitization of shoddy loans.

The Untouchables airs tonight on most PBS stations, (check your local listings here) or you can watch it online, starting at 10 pm EST.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , | 33 Comments »

Wrong Bailout

Posted on June 7, 2012 by Neil Garfield

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Editor’s Comment:

It isn’t in our own mainstream media but the fact is that Europe is verging on  collapse. They are bailing out banks and taking them apart (something which our regulators refuse to do). The very same banks that caused the crisis are the ones that are going to claim they too need another bailout because of international defaults. The article below seems extreme but it might be right on target.

From the start the treatment of the banks had been wrong-headed and controlled by of course the banks themselves. With Jamie Dimon sitting on the Board of Directors of the NY FED, which is the dominatrix in the Federal Reserve system, what else would you expect?

The fact is that, as Iceland and other countries have proven beyond any reasonable doubt, the bailout of the banks is dead wrong and it is equally wrong-headed to give them the continued blank check to pursue business strategies that drain rather than infuse liquidity in economies that are ailing because of intentional acts of the banks to enrich themselves rather than the countries that give them license to exist.

The bailout we proposed every year and every month and practically every day on this blog is the only one that will work: reduce household debt, return things to normalcy (before the fake securitization of mortgages and other consumer and government debt) and without spending a dime of taxpayer money.  The right people will pay for this and the victims will get some measure of relief — enough to jump start economies that are in a death spiral.

Just look at home mortgages. They were based upon layers of lies that are almost endless and that continue through the present. But the principal lie, the one that made all the difference, was that the mortgage bonds were worth something and the real property was worth more than the supposed loans. With only a few exceptions those were blatant lies that are not legal or permissible under any exemption claimed by Wall Street. Our system of laws says that if you steal from someone you pay for it with your liberty and whatever it is you stole is returned to the victim if it still exists. And what exists, is millions of falsely created invalid illegal instruments recorded in title registries all over the country affecting the title of more than 20 million households.

All we need to do is admit it. The loans are unsecured and the only fair way of handling things is to bring all the parties to the table, work out a deal and stop the foreclosures. This isn’t going to happen unless the chief law enforcement officers of each state and the clerks of the title registry offices wake up to the fact that they are part of the problem. It takes guts to audit the title registry like they did in San Francisco and other states, cities and counties. But the reward is that the truth is known and only by knowing the truth will we correct the problem.

The housing market is continuing to suffer because we are living a series of lies. The government, realtors and the banks and servicers all need us to believe these lies because they say that if we admit them, the entire financial system will dissolve. Ask any Joe or Josephine on the street — the financial system has already failed for them. Income inequality has never been worse and history shows that (1) the more the inequality the more power those with wealth possess to keep things going their way and (2) this eventually leads to chaos and violence. As Jefferson said in the Declaration of Independence, people will endure almost anything until they just cannot endure it any longer. That time is coming closer than anyone realizes.

Only weeks before France erupted into a bloody revolution with gruesome dispatch of aristocrats, the upper class thought that the masses could be kept in line as long as they were thrown a few crumbs now and then. That behavior of the masses grew from small measures exacted from a resisting government infrastructure to simply taking what they wanted. Out of sheer numbers the aristocracy was unable to fight back against an entire country that was literally up in arms about the unfairness of the system. But even the leaders of the French Revolution and the Merican revolution understood that someone must be in charge and that an infrastructure of laws and enfrocement, confidence in the marketplace and fair dealing must be the status quo. Disturb that and you end up with overthrow of existing authority replaced by nothing of any power or consequence.

Both human nature and history are clear. We can all agree that the those who possess the right stuff should be rich and the rest of us should have a fair shot at getting rich. There is no punishment of the rich or even wealth redistribution. The problem is not wealth inequality. And “class warfare” is not the right word for what is going on — but it might well be the right words if the upper class continue to step on the rest of the people. The problem is that there is no solution to wealth inequality unless the upper class cooperates in bringing order and a fair playing field to the marketplace —- or face the consequences of what people do when they can’t feed, house, educate or protect their children.

LaRouche: The Glass-Steagall Moment Is Upon Us

Spanish collapse can bring down the Trans-Atlantic system this weekend

Abruptly, but lawfully, the Spanish debt crisis has erupted over the past 48 hours into a systemic rupture in the entire trans-Atlantic financial and monetary facade, posing the immediate question: Will the European Monetary Union and the entire trans-Atlantic financial system survive to the end of this holiday weekend?



Late on Friday afternoon, the Spanish government revealed that the cost of bailing out the Bankia bank, which was nationalized on May 9, will now cost Spanish taxpayers nearly 24 billion euro—and rising. Many other Spanish banks are facing imminent collapse or bailout; the autonomous Spanish regions, with gigantic debts of their own, are all now bankrupt and desperate for their own bailout. Over the last week, Spanish and foreign depositors have been pulling their money out of the weakest Spanish banks in a panic, in a repeat of the capital flight out of the Greek banks months ago. 



The situations in Greece, Italy, Portugal, and Ireland are equally on the edge of total disintegration—and the exposure of the big Wall Street banks to this European disintegration is so enormous that there is no portion of the trans-Atlantic system that is exempt from the sudden, crushing reality of this collapse.



Whether or not the system holds together for a few days or weeks more, or whether it literally goes into total meltdown in the coming hours, the moment of truth has arrived, when all options to hold the current system together have run out.

Today, in response to this immediate crisis, American political economist Lyndon LaRouche issued a clarion call to action. Referring to the overall trans-Atlantic financial bubble, in light of the Spanish debt explosion of the past 48 hours, LaRouche pinpointed its significance as follows:

“The rate of collapse now exceeds the rate of the attempts to overtake the collapse. That means that, essentially, the entire European system, in its present form, is in the process of a hopeless degeneration. Now, this is something comparable to what happened in Germany in 1923, and they’ve caught themselves in a trap, where a rate of collapse exceeds the rate of their attempt to overtake yesterday.

“So therefore, we’re in a new situation, and the only solution in Europe, in particular, is Glass-Steagall, or the Glass-Steagall equivalent, with no fooling around. Straight Glass-Steagall — no bailouts! None! In other words, you have to collapse the entire euro system. The entirety of the euro system has to collapse. But it has to collapse in the right way; it has to be a voluntary collapse, which is like a Glass-Steagall process. This means the end of the euro, really. The euro system is about to end, because you can’t sustain it.

“Everything is disintegrating now in Europe. It can be rescued very simply, by a Glass-Steagall type of operation, and then going back to the currencies which existed before. In other words, you need a stable system of currencies, or you can’t have a recovery at all! In other words, if the rate of inflation is higher than the rate of your bailout, then what happens when you try to increase the bailout, you increase the hysteria. You increase the rate of collapse. In other words, the rate of collapse exceeds the rate of bailout.

“And now, you have Spain, and Portugal implicitly, and the situation in Greece. Italy’s going to go in the same direction. So the present system, which Obama’s trying to sustain, in his own peculiar way, is not going to work. There’s no hope for the system. Nor is there any hope for the U.S. system in its present form. The remedies, the problems, are somewhat different between Europe and the United States, but the nature of the disease is the same. They both have the same disease: It’s called the British disease. It’s hyperinflation.

“So, now you’re in a situation where the only way you can avoid a rate of hyperinflation beyond the rate of hyper-collapse is Glass-Steagall, or the equivalent. You have to save something, you have to save the essentials. Well, the essentials are: You take all the things that go into the bailout category, and you cancel them. How do you cancel them? Very simple: Glass-Steagall. Anything that is not fungible in terms of Glass-Steagall categories doesn’t get paid! It doesn’t get unpaid either; it just doesn’t get paid. Because you remove these things from the categories of things that you’re responsible to pay. You’re not responsible to bail out gambling, you’re not responsible to pay out gambling debts.

“Now, the gambling debts are the hyperinflation. So now, we might as well say it: The United States, among other nations, is hopelessly bankrupt.

“But this is the situation! This is what reality is! And what happens, is the entire U.S. government operation is beyond reckoning. It is collapsing! And there’s only one thing you can do: The equivalent of Glass-Steagall: You take those accounts, which are accounts which are worthy, which are essential to society, you freeze the currencies, their prices, and no bailout. And you don’t pay anything that does not correspond to a real credit. It’s the only solution. The point has been reached—it’s here! You’re in a bottomless pit, very much like Germany 1923, Weimar.

“And in any kind of hyperinflation, this is something you come to. And there’s only one way to do it: Get rid of the bad debt! It’s going to have to happen.

“The entire world system is in a crisis. It’s a general breakdown crisis which is centered in the trans-Atlantic community. That’s where the center of the crisis is. So, in the United States, we’re on the verge of a breakdown, a blowout; it can happen at any time. When will it happen, we don’t know, because we’ve seen this kind of thing before, as in 1923 Germany, November-December 1923, this was the situation. And it went on after that, but it’s a breakdown crisis. And that’s it.

“Those who thought there could be a bailout, or they had some recipe that things were going to be fine, that things would be manageable, that’s all gone! You’re now relieved of that great burden. You need have no anxiety about the U.S. dollar. Why worry about it? Either it’s dead or it’s not! And the only way it’s not going to be dead, is by an end of bailout. That’s the situation.

“We don’t know exactly where the breakdown point comes. But it’s coming, because we’re already in a system in which the rate of breakdown is greater than the rate of any bailout possible! And there’s only one way you can do that: Cancel a whole category of obligations! Those that don’t fit the Glass-Steagall standard, or the equivalent of Glass-Steagall standard: Cancel it, immediately! We don’t pay anything on gambling debts. Present us something that’s not a gambling debt, and we may be able to deal with that.”

LaRouche concluded with a stark warning:

“If you think that this system is going to continue, and you can find some way to get out of this problem, you can not get out of this problem, because you are the problem! Your failure to do Glass-Steagall, is the problem. And it’s your failure! Don’t blame somebody else: If you didn’t force through Glass-Steagall, it’s your fault, and it continues to be your fault! It’s your mistake, which is continuing!

“And that’s the situation we have in Europe, and that, really, is also the situation in the United States.

“But that’s where we are! It’s exactly the situation we face now, and there’s no other discussion that really means much, until we can decide to end the bailout, and to absolutely cancel all illegitimate debt—that is, bailout debt!

“There’s only one solution: The solution is, get rid of the illegitimate disease, the hyperinflation! Get rid of the hyperinflationary factor. Cancel the hyperinflation! Don’t pay those debts! Don’t cancel them, just don’t pay them! You declare them outside the economy, outside the responsibility of government: We can no longer afford to sustain you, therefore, you’ll have to find other remedies of your own. That’s where you are. It had to come, it has been coming.”


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Turning the Tide Toward Borrowers

Posted on June 4, 2012 by Neil Garfield

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Editor’s Comment:

Nocera and several other responsible journalists have finally reached the point of taking a larger perspective than the narrow myths perpetuated by Wall Street. Wall Street would have us believe that they took bad risks and “made mistakes” causing the financial collapse. His point is the Justice Department has taken after “the smallest of smallest” and he believes that those prosecutions are in lieu of the prosecutions that ought to occur against those who are responsible for setting up a criminal enterprise with the appearance of a conventional business structure.

The problem is easy to describe and difficult to solve.  It is simply true that prosecutions of “small fry” are easier because they don’t have the resources or knowledge necessary to properly defend themselves.  It is equally true that the successful prosecution can be used for public relations purposes to show that a regulating agency or law enforcement is doing its job.

On the other hand prosecution of Jamie Dimon or Lloyd Blankfein would provoke a vigorous defense conducted by dozens of lawyers whose purpose would be to merely poke holes in the prosecutions case rather than proving their clients innocence.  In order to prosecute such people and those close to them, it would be necessary for the regulating agencies and law enforcement to acquire specialized knowledge so that they would know what to investigate and arrive at conclusions as to which violations to prosecute based upon their likelihood of success. 

The solution is obvious.  Since there is no likelihood that most regulatory agencies and most law enforcement agencies would ever be able to mount such a challenge to the Titans of Wall Street, and the political risk of losing such a case would be devastating, they simply must maintain the status quo, which is to say that they should continue the policy of going after “small fry”.  On the other hand if they really want to represent the citizens of their country or their state (or their county), they could appoint a special prosecutor whose payment would be relatively minimal in terms of getting the case started and largely dependent upon the actual payment of fines, penalties, interests, and restitution.  There are at present at least a dozen law firms in the country (including our very own GarfieldFirm.com) who could perform this service under the direction of the Attorney General or county attorney or both.

The only thing that the state would need to provide is space and facilities and perhaps some minimal capital.  To put this in perspective, I made an approach to the appropriate people in government in the state of Arizona in 2008 in that proposal it was my naïvely idealistic presumption that the state would be more than happy to collect taxes, fees, fines, penalties interest etc that were due from out of state residence residing on Wall Street in the state of New York.  Based upon existing AZ law I projected a 10 billion dollar recovery.  Their finance department looked over my analysis and decided I was wrong.  They projected a recovery of 3 billion dollars which as it turns out is exactly the amount of the budget deficit of the state. 

At this point it is fair to say that the risk reward ratio of prosecuting the Titans of Wall Street has reached a point where it is irresistible if it is performed by a special prosecutor who has no ambitions for public office.  In the process, the state would recover not only the taxes, fees, fines, penalties and interest, but the homeowners would be virtually guaranteed some form of restitution based upon the wrongful foreclosures and the trading of their loans and securities whose value was derived from their loans. 

It is well understood and known that we are only halfway through a contest of enormous consequence.  Without appropriate restraints on banking and financial service companies most of the liberties and rights set forth in the founding documents of our country will become meaningless.   Until now the investment banks have been able to control the narrative.  But the facts about their misdeeds and malfeasance are starting to drown out the gigantic Wall Street machine.  I’m not saying that the tide has already turned.  But with the help of readers like you who become proactive and write letters to their attorney generals, county attorneys, and the regulatory agencies demanding such action, the tide will turn earlier rather than later. 

The Mortgage Fraud Fraud

By JOE NOCERA

I got an e-mail the other day from Richard Engle telling me that his son Charlie would be getting out of prison this month. I was happy to hear it.

Charlie’s ordeal isn’t over yet, of course. When he leaves prison on June 20, Charlie, 49, will move temporarily to a halfway house, after which he will be on probation for another five years. And unless he can get the verdict overturned, he will have to spend the rest of his life with a felony on his record.

Perhaps you remember Charlie Engle. I wrote about him not long after he entered a minimum-security facility in Beaver, W.Va., 16 months ago. He’s the poor guy who went to jail for lying on a liar loan during the housing bubble.

There were two things about Charlie’s prosecution that really bothered me. First, he’d clearly been targeted by an agent of the Internal Revenue Service who seemed offended that Charlie was an ultramarathoner without a steady day job. The I.R.S. conducted “Dumpster dives” into his garbage and put a wire on a female undercover agent hoping to find some dirt on him. Unable to unearth any wrongdoing on his tax returns, the I.R.S. discovered he had taken out several subprime mortgages that didn’t require income verification. His income on one of them was wildly inflated. They don’t call them liar loans for nothing.

Charlie has always insisted that he never filled out the loan document — his mortgage broker did it, and he was actually a victim of mortgage fraud. (The broker later pleaded guilty to another mortgage fraud.) Indeed, according to a recent court filing by Charlie’s lawyer, the government failed to turn over exculpatory evidence that could have helped Charlie prove his innocence. For whatever inexplicable reason, prosecutors really wanted to nail Charlie Engle. And they did.

Second, though, it seemed incredible to me that with all the fraud that took place during the housing bubble, the Justice Department was focusing not on the banks that had issued the fraudulent loans, but rather on those who had taken out the loans, which invariably went sour when housing prices fell.

As I would later learn, Charlie Engle was no aberration. The current meme — argued most recently by Charles Ferguson, in his new book “Predator Nation” — is that not a single top executive at any of the firms that nearly brought down the financial system has spent so much as a day in jail. And that is true enough.

But what is also true, and which is every bit as corrosive to our belief in the rule of law, is that the Justice Department has instead taken after the smallest of small fry — and then trumpeted those prosecutions as proof of how tough it is on mortgage fraud. It is a shameful way for the government to act.

“These people thought they were pursuing the American dream,” says Mark Pennington, a lawyer in Des Moines who regularly defends home buyers being prosecuted by the local United States attorney. “Right here in Des Moines,” he said, “there was a big subprime outfit, Wells Fargo Financial. No one there has been prosecuted. They are only going after people who lost their homes after the bubble burst. It’s a scandal.”

The Justice Department has had a tough run recently. Last week, Eric Schneiderman, the New York attorney general — who was recently given a role by President Obama to investigate the mortgage-backed securities issued during the bubble — complained publicly that he wasn’t getting the resources he needed from the Justice Department. And, of course, on Thursday, a federal judge declared a mistrial on five charges of campaign finance fraud and conspiracy in the trial of the former presidential candidate John Edwards.

In the Edwards case, the Justice Department spent tens of millions of dollars, and trotted out novel legal theories, to prosecute a man who was essentially trying to keep people from discovering that he had had a mistress and an out-of-wedlock child. Salacious though it was, the case has zero public import. Yet this same Justice Department isn’t willing to use similar resources — and perhaps even trot out some novel legal theories — to go after the pervasive corporate wrongdoing that gave us the financial crisis and the Great Recession. (I should note that the Justice Department claims that it “will not hesitate” to prosecute any “institution where there is evidence of a crime.”)

Think back to the last time the federal government went after corporate crooks. It was after the Internet bubble. Jeffrey Skilling and Kenneth Lay of Enron were prosecuted and found guilty. Bernard Ebbers, the former chief executive of WorldCom, went to jail. Dennis Kozlowski of Tyco was prosecuted and given a lengthy prison sentence. Now recall which Justice Department prosecuted those men.

Amazing, isn’t it? George W. Bush has turned out to be tougher on corporate crooks than Barack Obama.

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Bribery or Business as Usual?

Posted on May 31, 2012 by Neil Garfield

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Editor’s Comment and Analysis:

There is only one way this isn’t an outright bribe that should land the senator in jail — and that is proving that he received nothing of value. Stories abound in the media about haircut rates given to members of government particularly by Countrywide, now owned by Bank of America. Now we see it on the way down where others go through hoops and ladders to get a modification of short-sale but members of Congress get special treatment.

The only way this could be considered nothing of value is if the banks that gave this favor knew that they didn’t lend the money, didn’t purchase the loan and didn’t have a dime in the deal. They can prove it but they won’t because the fallout would be that there are no loans in print and that there are no perfected mortgage loans. The consequence is that there can be no foreclosures. And it would mean that the values carried on the books of these banks are eihter overstated or entirely fictiouos. The general consensus is that capital requirments for the banks should be higher. But what if the capital they are reporting doesn’t exist?

We are seeing practically everyday how Congress is bought off by the Banks and yet we do nothing. How can you expect to be taken seriously by the executive branch and the judicial branch of goveornment charged with enforcing the laws? If you are doing nothing and complaining, it’s time to get off the couch and do something with the Occupy Movement or your own private war with the banks. If you are not complaining, you should be — because this tsunami is about to hit the front door of your house too whether you are making the payments or not.

The power of the new aristocracy in American and European politics is felt around the globe. People are suffering in the U.S., Ireland, France, Spain, Italy, Greece and other places because the smaller banks in all those countries got taken to the cleaners by huge conglomerate Wall Street Banks. Ireland is reporting foreclosures and defaults at record rates. It was fraud with an effect far greater than any other act of domestic or international terrorism. And it isn’t just about money either. Suicides, domestic violence ending in death and mental illness are pandemic. And nobody cares about the little guy because the little guy is just fuel for the endless appetite of Wall Street. 

If Obama rreally wants to galvanize the electorate, he must be proactive on the fierce urgency of NOW! Those were his words when he was a candidate and he owes us action because that urgency was felt in 2008 and is a vice around everyone’s neck now.

JPMorgan Chase & the Senator’s Short Sale:

It’s Hypocritical –But Is It Corrupt?

By Richard (RJ) Eskow

There’s a lot we have yet to learn about the story of Sen. Mike Lee, Tea Party Republican of Utah, and America’s largest bank. But we already know something’s very, very wrong:

Why is it that most Americans can’t get a principal reduction from Chase or any other bank, but JPMorgan Chase was so very flexible with a sitting member of the United States Senate?

The hypocrisy from Sen. Lee and JPMorgan Chase CEO Jamie Dimon overfloweth. But does the Case of the Senator’s Short Sale rise to the level of full-blown corruption? We won’t know until we get some answers.

People should be demanding those answers now.

When Jamie Met Mike

It’s not a pretty picture: In one corner is the Senator who wants to strike down Federal child labor laws and offer American residency to any non-citizen who buys a home with cash. In the other is the bank whose CEO said that the best way to relieve the crushing burden of debt on homeowners is by seizing their homes.

“Giving debt relief to people that really need it,” said Dimon, “that’s what foreclosure is.” That comment is Dickensian in its insensitivity – and Dimon’s bank offered real relief to the Senator from Utah.

The story of the short sale on Sen. Mike Lee’s home broke broke shortly not long after the world learned that JPM lost billions of dollars through trading that might have been illegal, and about which it certainly misled investors.

A Senator who doesn’t believe in child labor laws, and a crime-plagued bank that was just plunged into a trading scandal after losing billions in the London markets.

Why, they were practically made for one another.

Here in the Real World

This was also the week we learned from Zillow, one of the nation’s leading real estate data companies, that there are far more underwater homeowners than previously thought. Zillow collated all the information on home loans, including second mortgages, in order to develop this larger and more accurate number.

The new estimated amount of negative equity – money owed to the banks for non-existent home value – is $1.2 trillion.

Zillow found that nearly 16 million homeowners, representing roughly a third of all homes with a mortgage, were “underwater” (meaning they owe more than the home is now worth). That’s about 50 percent more than had been previously believed. Many of these homeowners are desperate for principal reduction, which would allow them to get back on their feet.

Banks can reduce the amount owed to reflect the current value of the house, which would lower monthly payments for many struggling homeowners. Another option is the “short sale,” in which the bank lets them sell the house for its current value and walk away. That would allow many of them to relocate in search of work.

But the banks, along with their allies in Washington DC, have been fighting principal reduction and resisting any attempts to increase the number of short sales. They remain out of reach for most struggling homeowners.

Mike’s Deal

But Mike Lee didn’t have that problem. Lee was elected to the Senate after buying his luxury home in Alpine, Utah at the height of the real estate boom. JPMorgan Chase agreed to a short sale, and it sold for nearly $400,000 less than the price Lee paid for it four years ago.

Sen. Lee says that he made a down payment on the home, although he hasn’t said how much was involved. But if he paid 15 percent down and put it $150,000, for example, then the Senator from Utah was just allowed to walk away from a quarter of a million dollars in debt obligations to JPMorgan Chase.

Let’s see: A troubled bank gives a sitting member of the United States Senate an advantageous deal worth hundreds of thousands of dollars? You’d think a story like that would get a little more attention than it has so far.

The Right’s Outrageous Hypocrisy

We haven’t seen this much hypocrisy in the real estate world since the Mortgage Bankers Association walked away from loans on its own headquarters even as its CEO, John Courson, was lecturing Americans their “legal obligation” and the terrible “message they would send” by walking away from their mortgages.

Then he did a short sale on the MBA’s headquarters. It sold for a reported $41 million, just three years after the MBA – those captains of real estate – paid $74 million for it.

The MBA calls itself “the voice of the mortgage banking industry.”

The hypocrisy may be even greater in this case. Sen. Mike Lee is a member in good standing of the Tea Party, a movement which began on the floor of Chicago Mercantile Exchange as a protest against the idea that the government might help underwater homeowners, even though many of the angry traders had enriched themselves thanks to government bailouts.

When their ringleader mentioned households struggling with negative equity, these first members of the Tea Party broke into a chant: “Losers! Losers! Losers!”

Mike Lee’s Outrageous Hypocrisy

Which gets us to Mike Lee. Lee accepted a handout of JPMorgan Chase after voting to end unemployment for jobless Americans. Lee also argued against Federal child labor laws, although he did acknowledge that child labor is “reprehensible.”

How big a hypocrite is Mike Lee? His website (which, curiously enough, went down as we wrote these words) says he believes “the federal government’s out-of-control spending has evolved into a major threat to our economic prosperity and job creation” and that he came to Washington to, among other things, “properly manage our finances”. Lee’s website also scolds Congress because, he says, it “cannot live within its means.”

As Ed McMahon used to say, “Write your own joke.”

Needless to say, Lee also advocates drastic cuts to Social Security and Medicare while pushing lower taxes for the wealthy – and plumping for exactly the same kind of deregulation which let bankers to run amok and wreck the economy in 2008 by doing things like … well, like what JPMorgan Chase just did in London.

“Give Me Your Wired, Your Wealthy, Your Upper Classes Yearning to Buy Cheap”

Lee has also co-sponsored a bill with Chuck Schumer, the Democratic Senator from Wall Street New York, that would grant US residency to foreigners who purchase a home worth at least $500,000 – as long as they paid cash.

The Lee/Schumer bill would be a big boon to US banks – banks, in fact, like JPMorgan Chase. If it passes, the Statue of Liberty may need to be reshaped so that Lady Liberty is holding a book of real estate listings in her right hand while wearing a hat that reads “Million Dollar Sellers’ Club.”

Mike Lee’s bill would also have propped up the luxury home market, offering a big financial boost to people who are struggling to hold to the equity they’ve put into high-end homes, people like … well, like Mike Lee.

Jamie Dimon’s Outrageous Hypocrisy

Then there’s Jamie Dimon, who spoke for his fellow bankers during negotiations that led up to the very cushy $25 billion settlement that let banks like his off the hook for widespread lawbreaking in their foreclosure fraud crime wave.

“Yeah,” Dimon said of principal reductions for homeowners like Sen. Lee, “that’s off the table.”

Dimon’s been resisting global solutions to the negative equity problems for years. He said in 2010 that he preferred to make decisions about homeowners on a “loan by loan” basis.

The Rich Are Different – They Have More Mortgage Relief

“The rich are different,” wrote F. Scott Fitzgerald, and (in a quote often misattributed to Ernest Hemingway) literary critic Mary Colum observed that ” the only difference between the rich and other people is that the rich have more money.”

And they apparently find it a lot easier to walk away from their underwater homes.There’s been a dramatic increase in short sales lately, and the evidence suggests that most of the deals have been going to luxury homeowners. Among other things, this trend toward high-end short sales the lie to the popular idea that bankers and their allies don’t want to “reward the underserving,” since hedge fund traders who overestimated next year’s bonus are clearly less deserving than working families who purchased a modest home for themselves.

Nevertheless, that’s where most of the debt relief seems to be going: to the wealthy, and not to the middle class.

Guess that’s what happens when loan officers working for Dimon and other Wall Street CEOs handle these matters on a “loan by loan” basis.

Immoral Logic

While this “loan by loan” approach lacks morality, there’s some financial logic to it. Banks typically have a lot more money at risk in an underwater luxury home than they do in more modest houses. A short sale provides them with a way to clear things up, recoup what they can, and get their books in a little more order than before. That’s why JPMorgan Chase has been offering selected borrowers up to $35,000 to accept short sales. You can bet they’re not offering that deal to middle class families.

There are other reasons to offer short sales to the wealthy: JPM, like all big banks, is pursuing very-high-end banking clients more aggressively than ever. That’s where the profits are. So why alienate a high-value client when they may offer you the opportunity to recoup losses elsewhere?

(“Sorry to interrupt, Mr. Dimon, but it’s London calling.”)

Corruption Or Not: The Questions

Both the bank and the Senator need to answer some questions about this deal. Here’s what the public deserves to know:

Could the writedown on the home’s value be considered an in-kind gift to a sitting Senator?

If so, then we have a very real scandal on our hands. But we don’t know enough to answer that question yet.

What are JPMorgan Chase’s procedures for deciding who receives mortgage relief and who doesn’t?

Dimon may prefer to handle these matters on a “loan by loan” basis, but there must be guidelines that bank officers can follow. And presumably they’ve been written down somewhere. Were they followed in Mike Lee’s case?

Who was involved in the decision to offer this deal to Mike Lee?

Offering mortgage relief to a sitting Senator is, to borrow a phrase, “a big elfin’ deal.” A mid-level bank officer isn’t likely to handle a case like this without taking it up the chain of command. So who made the final decision on Mike Lee’s mortgage?

It wouldn’t be unheard of if a a sensitive matter like this one was escalated to all the way to the company’s most senior executive – especially if that executive has eliminated any checks on his power, much less any independent input from shareholders, by serving as both the Chair(man) of the Board and the CEO.

In this, as in so many of JPM’s scandals, the question must be asked: What did Jamie know, and when did he know it?

Is Mike Lee a “Friend of Jamie”?

Which raises a related question: Is there is a formal or informal list of people for whom JPM employees are directed to give preferential treatment?

Everybody remembers the scandal that surrounded Sen. Chris Dodd when it was learned that his mortgage was given favorable treatment by Countrywide – even though the Senator apparently knew nothing about it at the time. The world soon learned then that Countrywide had a VIP program called “Friends of Angelo,” named for CEO Angelo Mozilo, and those who were on the list got special treatment.

Is there a “Friends of Jamie” list at JPMorgan Chase – and is Mike Lee’s name on it?

Were there any discussions between the bank’s executives and the Senator regarding the foreign home buyer’s bill or any other legislation that affected Wall Street?

Until this question is answered the issue of a possible quid pro quo will hang over both the Senator and JPMorgan Chase.

Seriously, guys – this doesn’t look good.

Was MERS used to evade state taxes and recording requirements on Sen. Lee’s home? 

JPMorgan Chase funded, and was an active participant, in the “MERS” program which was used, among other things, to bypass local taxes and legal requirements for recording titles.

As we wrote when we reviewed hundreds of internal MERS documents, MERS was instrumental in allowing banks to bundle and sell mortgage-backed securities in a way that led directly to the financial crisis of 2008. It also helped bankers artificially inflate real estate prices, encourage homeowners to take out loans at bubble prices, and then leave them holding the note (as underwater homeowners) after the collapse of national real estate values that they had artificially pumped up.

“Today’s Wall Street Corruption Fun Fact”: MERS was operated by the Mortgage Bankers Association – the same group of real estate geniuses who lost $30 million on a single building in three years, then gave a little lecture on morality to the homeowners they’d been so instrumental in shafting.

Q&A

I was also asked some very reasonable questions by a policy advocacy group. Here they are, with my answers:

If this happened to the average American, would they be able to walk away from the mortgage as well?

If by “average American” you mean “most homeowners,” then the answer is: No. Although short sales are on the rise, most underwater homeowners have not been given the option of going through a short sale. Mike Lee was. The question is, why?

Will Mike Lee’s credit rating be adversely affected?

This is a very important question. The credit rating industry serves banks, not consumers, and it operates at their beck and call.

The answer to this question depends on how JPM handled the paperwork. Many (and probably most) homeowners involved in a short sale take a hit to their credit rating. If Lee did not, it smacks of special treatment.

Given the fact that it was JPMorgan who financed the loss, does that mean, indirectly through the bailout, that the taxpayers paid for Lee’s mortgage write-off?

That gets tricky – but in a moral sense, you could certainly say that.

Short Selling Democracy

There’s no question that this deal is hypocritical and ugly, and that it reflects much of what’s still broken about both our politics and Wall Street. Is it a scandal? Without these answers we can’t know. This was either a case of the special treatment that is so often reserved for the wealthy, or it’s something even worse: influence peddling and political corruption.

it’s time for JPMorgan Chase and Sen. Mike Lee to come clean about this deal. If they did nothing wrong, they have nothing to hide. Either way the public’s entitled to some answers.


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Everything Built on Myth Eventually Fails

Posted on May 15, 2012 by Neil Garfield

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Editor’s Comment:

The good news is that the myth of Jamie Dimon’s infallaibility is at least called into question. Perhaps better news is that, as pointed out by Simon Johnson’s article below, the mega banks are not only Too Big to Fail, they are Too Big to Manage, which leads to the question, of why it has taken this long for Congress and the Obama administration to conclude that these Banks are Too Big to Regulate. So the answer, now introduced by Senator Brown, is to make the banks smaller and  put caps on them as to what they can and cannot do with their risk management.

But the real question that will come to fore is whether lawmakers in Dimon’s pocket will start feeling a bit squeamish about doing whatever Dimon asks. He is now becoming a political and financial liability. The $2.3 billion loss (and still counting) that has been reported seems to be traced to the improper trading in credit default swaps, an old enemy of ours from the mortgage battle that continues to rage throughout the land.  The problem is that the JPM people came to believe in their own myth which is sometimes referred to as sucking on your own exhaust. They obviously felt that their “risk management” was impregnable because in the end Jamie would save the day.

This time, Jamie can’t turn to investors to dump the loss on, thus drying up liquidity all over the world. This time he can’t go to government for a bailout, and this time the traction to bring the mega banks under control is getting larger. The last vote received only 33 votes from the Senate floor, indicating that Dimon and the wall Street lobby had control of 2/3 of the senate. So let ius bask in the possibility that this is the the beginning of the end for the mega banks, whose balance sheets, business practices and public announcements have all been based upon lies and half truths.

This time the regulators are being forced by public opinion to actually peak under the hood and see what is going on there. And what they will find is that the assets booked on the balance sheet of Dimon’s monolith are largely fictitious. This time the regulators must look at what assets were presented to the Federal Reserve window in exchange for interest free loans. The narrative is shifting from the “free house” myth to the reality of free money. And that will lead to the question of who is the creditor in each of the transactions in which a mortgage loan is said to exist.

Those mortgage loans are thought to exist because of a number of incorrect presumptions. One of them is that the obligation remains unpaid and is secured. Neither is true. Some loans might still have a balance due but even they have had their balances reduced by the receipt of insurance proceeds and the payoff from credit default swaps and other credit enhancements, not to speak of the taxpayer bailout.

This money was diverted from investor lenders who were entitled to that money because their contracts and the representations inducing them to purchase bogus mortgage bonds, stated that the investment was investment grade (Triple A) and because they thought they were insured several times over. It is true that the insurance was several layers thick and it is equally true that the insurance payoff covered most if not all the balances of all the mortgages that were funded between 1996 and the present. The investor lenders should have received at least enough of that money to make them whole — i.e., all principal and interest as promissed.

Instead the Banks did the unthinkable and that is what is about to come to light. They kept the money for themselves and then claimed the loss of investors on the toxic loans and tranches that were created in pools of money and mortgages — pools that in fact never came into existence, leaving the investors with a loose partnership with other investors, no manager, and no accounting. Every creditor is entitled to payment in full — ONCE, not multiple times unless they have separate contracts (bets) with parties other than the borrower. In this case, with the money received by the investment banks diverted from the investors, the creditors thought they had a loss when in fact they had a claim against deep pocket mega banks to receive their share of the proceeds of insurance, CDS payoffs and taxpayer bailouts.

What the banks were banking on was the stupidity of government regulators and the stupidity of the American public. But it wasn’t stupidity. it was ignorance of the intentional flipping of mortgage lending onto its head, resulting in loan portfolios whose main characteristic was that they would fail. And fail they did because the investment banks “declared” through the Master servicer that they had failed regardless of whether people were making payments on their mortgage loans or not. But the only parties with an actual receivable wherein they were expecting to be paid in real money were the investor lenders.

Had the investor lenders received the money that was taken by their agents, they would have been required to reduce the balances due from borrowers. Any other position would negate their claim to status as a REMIC. But the banks and servicers take the position that there exists an entitlement to get paid in full on the loan AND to take the house because the payment didn’t come from the borrower.

This reduction in the balance owed from borrowers would in and of itself have resulted in the equivalent of “principal reduction” which in many cases was to zero and quite possibly resulting in a claim against the participants in the securitization chain for all of the ill-gotten gains. remember that the Truth In Lending Law states unequivocally that the undisclosed profits and compensation of ANYONE involved in the origination of the loan must be paid, with interest to the borrower. Crazy you say? Is it any crazier than the banks getting $15 million for a $300,000 loan. Somebody needs to win here and I see no reason why it should be the megabanks who created, incited, encouraged and covered up outright fraud on investor lenders and homeowner borrowers.

Making Banks Small Enough And Simple Enough To Fail

By Simon Johnson

Almost exactly two years ago, at the height of the Senate debate on financial reform, a serious attempt was made to impose a binding size constraint on our largest banks. That effort – sometimes referred to as the Brown-Kaufman amendment – received the support of 33 senators and failed on the floor of the Senate. (Here is some of my Economix coverage from the time.)

On Wednesday, Senator Sherrod Brown, Democrat of Ohio, introduced the Safe, Accountable, Fair and Efficient Banking Act, or SAFE, which would force the largest four banks in the country to shrink. (Details of this proposal, similar in name to the original Brown-Kaufman plan, are in this briefing memo for a Senate banking subcommittee hearing on Wednesday, available through Politico; see also these press release materials).

His proposal, while not likely to immediately become law, is garnering support from across the political spectrum – and more support than essentially the same ideas received two years ago.  This week’s debacle at JP Morgan only strengthens the case for this kind of legislative action in the near future.

The proposition is simple: Too-big-to-fail banks should be made smaller, and preferably small enough to fail without causing global panic. This idea had been gathering momentum since the fall of 2008 and, while the Brown-Kaufman amendment originated on the Democratic side, support was beginning to appear across the aisle. But big banks and the Treasury Department both opposed it, parliamentary maneuvers ensured there was little real debate. (For a compelling account of how the financial lobby works, both in general and in this instance, look for an upcoming book by Jeff Connaughton, former chief of staff to former Senator Ted Kaufman of Delaware.)

The issue has not gone away. And while the financial sector has pushed back with some success against various components of the Dodd-Frank reform legislation, the idea of breaking up very large banks has gained momentum.

In particular, informed sentiment has shifted against continuing to allow very large banks to operate in their current highly leveraged form, with a great deal of debt and very little equity.  There is increasing recognition of the massive and unfair costs that these structures impose on the rest of the economy.  The implicit subsidies provided to “too big to fail” companies allow them to boost compensation over the cycle by hundreds of millions of dollars.  But the costs imposed on the rest of us are in the trillions of dollars.  This is a monstrously unfair and inefficient system – and sensible public figures are increasingly pointing this out (including Jamie Dimon, however inadvertently).

American Banker, a leading trade publication, recently posted a slide show, “Who Wants to Break Up the Big Banks?” Its gallery included people from across the political spectrum, with a great deal of financial sector and public policy experience, along with quotations that appear to support either Senator Brown’s approach or a similar shift in philosophy with regard to big banks in the United States. (The slide show is available only to subscribers.)

According to American Banker, we now have in the “break up the banks” corner (in order of appearance in that feature): Richard Fisher, president of the Federal Reserve Bank of Dallas; Sheila Bair, former chairman of the Federal Deposit Insurance Corporation; Tom Hoenig, a board member of the Federal Deposit Insurance Corporation and former president of the Federal Reserve Bank of Kansas City; Jon Huntsman, former Republican presidential candidate and former governor of Utah; Senator Brown; Mervyn King, governor of the Bank of England; Senator Bernie Sanders of Vermont; and Camden Fine, president of the Independent Community Bankers of America. (I am also on the American Banker list).

Anat Admati of Stanford and her colleagues have led the push for much higher capital requirements – emphasizing the particular dangers around allowing our largest banks to operate in their current highly leveraged fashion. This position has also been gaining support in the policy and media mainstream, most recently in the form of a powerful Bloomberg View editorial.

(You can follow her work and related discussion on this Web site; on twitter she is @anatadmati.)

Senator Brown’s legislation reflects also the idea that banks should fund themselves more with equity and less with debt. Professor Admati and I submitted a letter of support, together with 11 colleagues whose expertise spans almost all dimensions of how the financial sector really operates.

We particularly stress the appeal of having a binding “leverage ratio” for the largest banks. This would require them to have at least 10 percent equity relative to their total assets, using a simple measure of assets not adjusted for any of the complicated “risk weights” that banks can game.

We also agree with the SAFE Banking Act that to limit the risk and potential cost to taxpayers, caps on the size of an individual bank’s liabilities relative to the economy can also serve a useful role (and the same kind of rule should apply to non-bank financial institutions).

Under the proposed law, no bank-holding company could have more than $1.3 trillion in total liabilities (i.e., that would be the maximum size). This would affect our largest banks, which are $2 trillion or more in total size, but in no way undermine their global competitiveness. This is a moderate and entirely reasonable proposal.

No one is suggesting that making JPMorgan Chase, Bank of America, Citigroup and Wells Fargo smaller would be sufficient to ensure financial stability.

But this idea continues to gain traction, as a measure complementary to further strengthening and simplifying capital requirements and generally in support of other efforts to make it easier to handle the failure of financial institutions.

Watch for the SAFE Banking Act to gain further support over time.

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Greek Banker Gets 8 Years

Posted on May 1, 2012 by Neil Garfield

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Editor’s Comment: 

This former chief of Aspis was convicted of having the unmitigated temerity to forge and fabricate documents. Of course this guy only forged a handful of documents and only created a few documents out of whole cloth. He apparently had not read the Wall Street playbook all the way through — where they have each act committed by a person or company that doesn’t know anything or at least can claim “plausible deniability.” Wall Street causes hundreds of thousands of documents to be forged, fabricated, robosigned and misrepresented in court every day. But here we leave them (Jamie Dimon) on the Board of the NY Federal Reserve which essentially sets all standards in the Federal Reserve system.

8 years. If we multiply the size of the crime, Dimon and others should collectively get around 8 million years of jail, which could, if we changed the law, include his progeny after additional human evolution had taken place. Where is your outrage?

Former Greek Bank Chief Jailed in Anti-Fraud Drive

(Reuters) – A former bank chief was sentenced to eight years jail on Monday for fraud and forgery, court officials said, the first major conviction resulting from an anti-corruption drive ahead of a parliamentary election on Sunday. An Athens court convicted Pavlos Psomiadis, former chief of small banking and insurance group Aspis, on charges of forging documents to keep his business afloat.

Corruption and cronyism are endemic in Greece. But no politician or senior businessman had been convicted in recent years, fuelling popular frustration with mainstream parties that pledge to uphold the debt-laden country’s international bailout and remain in the euro zone.

“He was found guilty of fraud and forgery,” a court official said. The conviction stemmed from a forged letter of credit for over 550 million euros ($729 million) that Psomiadis submitted to regulators in 2009.

Aspis was one of the first business groups to fall prey to the country’s economic crisis. T-bank (AMBr.AT), a small lender that emerged from the wreckage of the group, was nationalized late last year under the terms of the country’s EU/IMF bailout.

Monday’s decision was the latest in a string of judicial moves as angry voters turn to smaller parties to punish the main conservatives and socialists whom they blame for the economic crisis and chronic corruption.

Earlier in April, a former defense minister was jailed pending trial on money laundering and bribery charges.

Last month, a Greek prosecutor filed felony charges against a prominent banker over a financial scandal that led to the EU/IMF-funded nationalization of small lender Proton Bank (PRBr.AT).

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TBTF Banks Bigger than Ever — How is that possible in a recession?

Posted on April 25, 2012 by Neil Garfield

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Editor’s Comment: 

The pernicious effect of the banks and the difficulty of regulating them across transnational and state borders has led to a growing nightmare that history will repeat itself sooner than later.

This is to rocket science — it is recognition. We have median income still declining in what is still by most measures a recession that is about to get worse. Yet the largest banks are reporting record profits. What that means is that Wall Street is making more money “trading paper” than the rest of the country is making doing actual commerce — i.,e. the making and selling of goods of services.

This is another inversion of common sense. But it is explainable. 4 years ago I predicted that as the recession depressed the earnings of most companies the banks would nonetheless show increased profits. The reason was simply that using Bermuda, Bahamas, Cayman Islands the banks siphoned off most of the credit market liquidity through the tier 2 yield spread premium. The tier 2 YSP was really the money the banks made by selling crappy loans as good loans from aggregators to the investors — and then failed to document any part of the real transactions where money exchanged hands. In some case the YSP “trading profit” exceed the amount of the loan.

So now they are able to feed those “trading profits” back into their system a little at a time reporting ever increasing profits while the the real world goes to hell. So tell, me, what is it going to take to get you to to go to the streets, write the letters and demand that justice be done and allow, for the first time, investors and borrowers to get together and reach settlements in lieu of foreclosures? Don’t you see that whether you are rich or poor, renting or owning, that all of this is going to bring down your wealth and buying power. The Federal Reserve has already tripled the U.S. Currency money supply giving all the benefit to the TBTF banks. It seems to me that as group the American citizens are far more too big to fail than any industry or company.

Evil prospers when good people do nothing. 

Big Five Banks larger than before crisis, bailout

WASHINGTON —

Two years after President Barack Obama vowed to eliminate the danger of financial institutions becoming “too big to fail,” the nation’s largest banks are bigger than they were before the credit crisis.

Five banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs — held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to the Federal Reserve.

Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did during the 2008 crunch.

“Market participants believe that nothing has changed, that too-big-to-fail is fully intact,” said Gary Stern, former president of the Federal Reserve Bank of Minneapolis.

That specter is eroding faith in Obama’s pledge that taxpayer-funded bailouts are a thing of the past. It also is exposing him to criticism from Federal Reserve officials, Republicans and Occupy Wall Street supporters, who see the concentration of bank power as a threat to economic stability.

As weaker firms collapsed or were acquired, a handful of financial giants emerged from the crisis and have thrived. Since then, JPMorgan, Goldman Sachs and Wells Fargo have continued to swell, if less dramatically, thanks to internal growth and acquisitions from European banks shedding assets amid the euro crisis.

The industry’s evolution defies the president’s January 2010 call to “prevent the further consolidation of our financial system.” Embracing new limits on banks’ trading operations, Obama said then that taxpayers wouldn’t be well “served by a financial system that comprises just a few massive firms.”

Simon Johnson, a former chief economist of the International Monetary Fund, blames a “lack of leadership at Treasury and the White House” for the failure to fulfill that promise. “It’d be safer to break them up,” he said.

The Obama administration rejects the criticism, citing new safeguards to head off further turmoil in the banking system. Treasury Secretary Timothy Geithner says the U.S. “financial system is significantly stronger than it was before the crisis.” He credits a flurry of new regulations, including tougher capital and liquidity requirements that limit risk-taking by the biggest banks, authority to take over failing big institutions, and prohibitions on the largest banks acquiring competitors.

The government’s financial system rescue, beginning with the 2008 Troubled Asset Relief Program, angered millions of taxpayers and helped give rise to the tea-party movement. Banks and bailouts remain unpopular: By a margin of 52 to 39 percent, respondents in a February Pew Research Center poll called the bailouts “wrong” and 68 percent said banks have a mostly negative effect on the country.

The banks say they have increased their capital backstops in response to regulators’ demands, making them better able to ride out unexpected turbulence. JPMorgan, whose chief executive officer, Jamie Dimon, this month acknowledged public “hostility” toward bankers, boasts of a “fortress balance sheet.” Bank of America, which was about 50 percent larger at the end of 2011 than five years earlier, says it has boosted capital and liquidity while increasing to 29 months the amount of time the bank could operate without external funding.

“We’re a much stronger company than we were heading into the crisis,” said Jerry Dubrowski, a Bank of America spokesman. The bank, based in Charlotte, says it plans to shrink by year-end to $1.75 trillion in risk-weighted assets, a measure regulators use to calculate how much capital individual banks must hold.

Still, the banking industry has become increasingly concentrated since the 1980s. Today’s 6,291 commercial banks are less than half the number that existed in 1984, according to the Federal Deposit Insurance Corp. The trend intensified during the crisis as JPMorgan acquired Bear Stearns and Washington Mutual; Bank of America bought Merrill Lynch; and Wells Fargo took over Wachovia in deals encouraged by the government.

“One of the bad outcomes, the adverse outcomes of the crisis, was the mergers that were of necessity undertaken when large banks were at-risk,” said Donald Kohn, vice chairman of the Federal Reserve from 2006-2010. “Some of the biggest banks got a lot bigger, and the market got more concentrated.”

In recent weeks, at least four current Fed presidents — Esther George of Kansas City, Charles Plosser of Philadelphia, Jeffrey Lacker of Richmond and Richard Fisher of Dallas — have voiced similar worries about the risk of a renewed crisis.

The annual report of the Federal Reserve Bank of Dallas was devoted to an essay by Harvey Rosenblum, head of the bank’s research department, “Why We Must End Too Big to Fail — Now.”

A 40-year Fed veteran, Rosenblum wrote in the report released last month: “TBTF institutions were at the center of the financial crisis and the sluggish recovery that followed. If allowed to remain unchecked, these entities will continue posing a clear and present danger to the U.S. economy.”

The alarms come almost two years after Obama signed into law the Dodd-Frank financial-regulation act. The law required the largest banks to draft contingency plans or “living wills” detailing how they would be unwound in a crisis. It also created a financial-stability council headed by the Treasury secretary, charged with monitoring the system for excessive risk-taking.

The new protections represent an effort to avoid a repeat of the crisis and subsequent recession in which almost 9 million workers lost their jobs and the U.S. government committed $245 billion to save the financial system from collapse.

The goal of policy makers is to ensure that if one of the largest financial institutions fails in the next crisis, shareholders and creditors will pay the tab, not taxpayers.

“Two or three years from now, Goldman Sachs should be like MF Global,” said Dennis Kelleher, president of the nonprofit group Better Markets, who doubts the government would allow a company such as Goldman to repeat MF Global’s Oct. 31 collapse.

Dodd-Frank, the most comprehensive rewriting of financial regulation since the 1930s, subjected the largest banks to higher capital requirements and closer scrutiny. The law also barred federal officials from providing specific types of assistance that were used to prevent such firms from failing in 2008. Instead, the Fed will work with the FDIC to put major banks and other large institutions through the equivalent of bankruptcy.

“If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy,” Obama said before signing the act on July 21, 2010. “And there will be new rules to make clear that no firm is somehow protected because it is too big to fail.”

Officials at the Treasury Department, the Fed and other agencies have spent the past two years drafting detailed regulations to make that vision a reality.

Yet the big banks stayed big or, in some cases, grew larger. JPMorgan, which held $2 trillion in total assets when Dodd-Frank was signed, reached $2.3 trillion by the end of 2011, according to Federal Reserve data.

For Lacker, the banks’ living wills are the key to placing the financial system on sounder footing. Done right, they may require institutions to restructure to make their orderly resolution during a crisis easier to accomplish, he said.

Neil Barofsky, Treasury’s former special inspector general for the Troubled Asset Relief Program, calls the idea of winding down institutions with more than $2 trillion in assets “completely unrealistic.”

It’s likely that more than one bank would face potential failure during any crisis, he said, which would further complicate efforts to gracefully collapse a giant bank. “We’ve made almost no progress on ending too big to fail,” he said.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 13 Comments »

Student Loans Are The Next Major Crack in Our Finance

Posted on April 9, 2012 by Neil Garfield

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Disclosure to Student Borrowers: www.nytimes.com/2012/04/08/opinion/sunday/disclosure-to-student-borrowers.html?_r=1&ref=todayspaper

Editor’s Comment: 

“We have created a world of finance in which it is more lucrative to lose money and get paid by the government, than to make money and contribute to society.  In the Soviet Union the government ostensibly owned everything; in America the government is a vehicle for the banks to own everything.”—Neil F Garfield LivingLies.me

While the story below is far too kind to both Dimon and JPMorgan, it hits the bulls-eye on the current trends. And if we think that it will stop at student loans we are kidding ourselves or worse. The entire student loan mess, totaling more than $1 trillion now, was again caused by the false use of Securitzation, the abuse of government guaranteed loans, and the misinterpretation of the rules governing discharge ability of debt in bankruptcy.

First we had student loans in which the government provided financing so that our population would maintain its superior position of education, innovation and the brains of the world in getting technological and mechanical things to work right, work well and create new opportunities.

Then the banks moved in and said we will provide the loans. But there was a catch. Instead of the “private student” loan being low interest, it became a vehicle for raising rates to credit card levels — meaning the chance of anyone being able to repay the loan principal was correspondingly diminished by the increase in the payments of interest.

So the banks made sure that they couldn’t lose money by (a) selling off the debt in securitization packages and (b) passing along the government guarantee of the debt.  This was combined with the nondischargability of the debt in bankruptcy to the investors who purchased these seemingly high value high yielding bonds from noncapitalized entities that had absolutely no capacity to pay off the bonds.  The only way these issuers of student debt bonds could even hope to pay the interest or the principal was by using the investors’ own money, or by receiving the money from one of several sources — only one of which was the student borrower.

The fact that the banks managed to buy congressional support to insert themselves into the student loan process is stupid enough. But things got worse than that for the students, their families and the taxpayers. It’s as though the courts got stupid when these exotic forms of finance hit the market.

Here is the bottom line: students who took private loans were encouraged and sold on an aggressive basis to borrow money not only for tuition and books, but for housing and living expenses that could have been covered in part by part-time work. So, like the housing mess, Wall Street was aggressively selling money based upon eventual taxpayer bailouts.

Next, the banks, disregarding the reason for government guaranteed loans or exemption from discharge ability of student loan debt, elected to change the risk through securitization. Not only were the banks not on the hook, but they were once again betting on what they already knew — there was no way these loans were going to get repaid because the amount of the loans far exceeded the value of the potential jobs. In short, the same story as appraisal fraud of the homes, where the prices of homes and loans were artificially inflated while the values were declining at precipitous rate.

Like the housing fraud, the securitization was merely trick accounting without any real documentation or justification.  There are two final results that should happen but can’t because Congress is virtually owned by the banks. First, the guarantee should not apply if the risk intended to be protected is no longer present or has significantly changed. And second, with the guarantee gone, there is no reason to maintain the exemption by which student loans cannot be discharged in bankruptcy. Based on current law and cases, these are obvious conclusions that will be probably never happen. Instead, the banks will claim losses that are not their own, collect taxpayer guarantees or bailouts, and receive proceeds of insurance, credit default swaps and other credit enhancements.

Congratulations. We have created a world of finance in which it is more lucrative to lose money and get paid by the government, than to make money and contribute to the society for which these banks are allowed to exist ostensibly for the purpose of providing capital to a growing economy. So the economy is in the toilet and the government keeps paying the banks to slap us.

Did JPMorgan Pop The Student Loan Bubble?

Back in 2006, contrary to conventional wisdom, many financial professionals were well aware of the subprime bubble, and that the trajectory of home prices was unsustainable. However, because there was no way to know just when it would pop, few if any dared to bet against the herd (those who did, and did so early despite all odds, made greater than 100-1 returns). Fast forward to today, when the most comparable to subprime, cheap credit-induced bubble, is that of student loans (for extended literature on why the non-dischargeable student loan bubble will “create a generation of wage slavery” read this and much of the easily accessible literature on the topic elsewhere) which have now surpassed $1 trillion in notional. Yet oddly enough, just like in the case of the subprime bubble, so in the ongoing expansion of the credit bubble manifested in this case by student loans, we have an early warning that the party is almost over, coming from the most unexpected of sources: JPMorgan.

Recall that in October 2006, 5 months before New Century started the March 2007 collapsing dominoes that ultimately translated to the bursting of both the housing and credit bubbles several short months later, culminating with the failure of Bear, Lehman, AIG, The Reserve Fund, and the near end of capitalism ‘we know it’, it was JPMorgan who sounded a red alert, and proceeded to pull entirely out of the Subprime space. From Fortune, two weeks before the Lehman failure: “It was the second week of October 2006. William King, then J.P. Morgan’s chief of securitized products, was vacationing in Rwanda. One evening CEO Jamie Dimon tracked him down to fire a red alert. “Billy, I really want you to watch out for subprime!” Dimon’s voice crackled over King’s hotel phone. “We need to sell a lot of our positions. I’ve seen it before. This stuff could go up in smoke!” Dimon was right (as was Goldman, but that’s another story), while most of his competitors piled on into this latest ponzi scheme of epic greed, whose only resolution would be a wholesale taxpayer bailout. We all know how that chapter ended (or hasn’t – after all everyone is still demanding another $1 trillion from the Fed at least to get their S&P limit up fix, and then another, and another). And now, over 5 years later, history repeats itself: JPM is officially getting out of student loans. If history serves, what happens next will not be pretty.

American Banker brings us the full story:

U.S. Bancorp (USB) is pulling out of the private student loans market and JPMorgan Chase (JPM) is sharply reducing its lending, as banking regulators step up their scrutiny of the products.

JPMorgan Chase will limit student lending to existing customers starting in July, a bank spokesman told American Banker on Friday. The bank laid off 24 employees who make sales calls to colleges as part of its decision.

The official reason:

“The private student loan market is continuing to decline, so we decided to focus on Chase customers,” spokesman Thomas Kelly says.

Ah yes, focusing on customers, and providing liquidity no doubt, courtesy of Blythe Masters. Joking aside, what JPMorgan is explicitly telling us is that it can’t make money lending out to the one group of the population where demand for credit money is virtually infinite (after all 46% of America’s 16-24 year olds are out of a job: what else are they going to?), and furthermore, with debt being non-dischargable, this is about as safe a carry trade as any, even when faced with the prospect of bankruptcy. What JPM is implicitly saying, is that the party is over, and all private sector originators are hunkering down, in anticipation of the hammer falling. Or if they aren’t, they should be.

JPM is not alone:

Minneapolis-based U.S. Bank sent a letter to participating colleges and universities saying that it would no longer be accepting student loan applications as of March 29, a spokesman told American Banker on Friday.

“We are in fact exiting the private student lending business,” U.S. Bank spokesman Thomas Joyce said, adding that the bank’s business was too small to be worthwhile.

“The reasoning is we’re a very small player, less than 1.5% of market share,” Joyce adds. “It’s a very small business for the bank, and we’ve decided to make a strategic shift and move resources.”

Which, however, is not to say that there will be no source of student loans. On Friday alone we found out that in February the US government added another $11 billion in student debt to the Federal tally, a run-rate which is now well over $10 billion a month an accelerating: a rate of change which is almost as great as the increase in Apple market cap. So who will be left picking up the pieces? Why the Consumer Financial Protection Bureau, funded by none other than Ben Bernanke, and headed by the same Richard Cordray that Obama shoved into his spot over Republican protests, when taking advantage of a recessed Congress.

“What we are likely to see over the next few months is a lot of private education lenders rethinking the product, particularly if it appears that the CFPB is going to become more activist,” says Kevin Petrasic, a partner with law firm Paul Hastings.

“Historically there’s been a patchwork of regulation towards private student lenders,” he adds. “The CFPB allows for a more uniform and consistent approach and identification of the issues. It also provides a network, effectively a data-gathering base that is going to enable the agency to get all the stories that are out there.”

The CFPB recently began accepting student loan complaints on its website.

“I think there’s going to be a lot of emphasis and focus … in terms of what is deemed to be fair and what is over the line with collections and marketing,” Petrasic says, warning that “the challenge for the CFPB in this area is going to be trying to figure out how to set consumer protection standards without essentially eviscerating availability of the product.”

And with all private players stepping out very actively, it only leaves the government, with its extensive system of ‘checks and balances’, to hand out loans to America’s ever more destitute students, with the reckless abandon of a Wells Fargo NINJA-specialized loan officer in 2005. What will be hilarious in 2014, when taxpayers are fuming at the latest multi-trillion bailout, now that we know that $270 billion in student loans are at least 30 days delinquent which can only have one very sad ending, is that the government will have no evil banker scapegoats to blame loose lending standards on. And why would they: after all it is this administration’s sworn Keynesian duty to make every student a debt slave in perpetuity, but only after they buy a lifetime supply of iPads. Then again by 2014 we will have far greater problems (and for most in the administration, it will be “someone else’s problem”).

For now, our advice – just do what Jamie Dimon is doing: duck and hide for cover.

Oh, and if there is a cheap student loan synthetic short out there, which has the same upside potential as the ABX did in late 2006, please advise.

Filed under: bubble, CDO, CORRUPTION, currency, education, Eviction, foreclosure, GTC | Honor, interest rates, Investor, Mortgage, securities fraud, Student Loans | Tagged: , , , , , , , , , , , , , , , , , , , , , | 29 Comments »

COMFORTABLY NUMB

Posted on December 1, 2011 by Neil Garfield

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SEE WWW.THE BURNINGPLATFORM.COM

Hello?
Is there anybody in there?
Just nod if you can hear me.
Is there anyone at home?
Come on, now,
I hear you’re feeling down.
Well I can ease your pain
And get you on your feet again.
Relax.
I need some information first.
Just the basic facts
Can you show me where it hurts?

Pink Floyd – Comfortably Numb

As I observe the zombie like reactions of Americans to our catastrophic economic highway to collapse, the continued plundering and pillaging of the national treasury by criminal Wall Street bankers, non-enforcement of existing laws against those who committed the largest crime in history, and reaction to young people across the country getting beaten, bludgeoned, shot with tear gas and pepper sprayed by police, I can’t help but wonder whether there is anyone home. Why are most Americans so passively accepting of these calamitous conditions? How did we become so comfortably numb? I’ve concluded Americans have chosen willful ignorance over thoughtful critical thinking due to their own intellectual laziness and overpowering mind manipulation by the elite through their propaganda emitting media machines. Some people are awaking from their trance, but the vast majority is still slumbering or fuming at erroneous perpetrators.

Both the Tea Party movement and the Occupy Wall Street movement are a reflection of the mood change in the country, which is a result of government overreach, political corruption, dysfunctional economic policies, and a financial system designed to enrich the few while defrauding the many. The common theme is anger, frustration and disillusionment with a system so badly broken it appears unfixable through the existing supposedly democratic methods. The system has been captured by an oligarchy of moneyed interests from the financial industry, mega-corporations, and military industrial complex, protected by their captured puppets in Washington DC and sustained by the propaganda peddling corporate media. The differences in political parties are meaningless as they each advocate big government solutions to all social, economic, foreign relations, and monetary issues.

There is confusion and misunderstanding regarding the culprits in this drama. It was plain to me last week when I read about a small group of concerned citizens in the next town over who decided to support the Occupy movement by holding a nightly peaceful march to protest the criminal syndicate that is Wall Street and a political system designed to protect them. My local paper asked for people’s reaction to this Constitutional exercising of freedom of speech and freedom of assembly. Here is a sampling of the comments:

“What are those Occupy people thinking?! The whole concept is foreign to me. There are always going to be the haves and the have nots. Get over it. Blame yourself for not paying more attention in school or not working hard enough. Just wish people would take responsibility.”

“If they worked half as hard actually working as they do being a pain in everyone else’s ass, they’d be rich! Being born does not guarantee success or wealth. Only hard work does. Maybe we should let them all occupy a jail cell or two.”

“If the goal is to irritate hardworking suburban commuters on their way home, that sounds like the perfect time and location.”

“Let’s hope they don’t pitch tents and trash Lansdale. They need to look for a job, not occupy the streets.”

“I work, and even if I wasn’t working I wouldn’t (march); I would be out looking for a JOB!”

I was dumbfounded at the rage directed towards mostly young people who haven’t even begun their working careers and have played no part in the destruction of our economic system underway for the last 30 years. The people making these statements are middle aged, middle class suburbanites. They seem to be just as livid as the OWS protestors, but their ire is being directed towards the only people who have taken a stand against Wall Street greed and Washington D.C. malfeasance. I’m left scratching my head trying to understand their animosity towards people drawing attention to the enormous debt based ponzi scheme that is our country, versus their silent acquiescence to the transfer of trillions in taxpayer dollars to the criminal bankers that have destroyed the worldwide financial system. I can only come to the conclusion the average American has become so apathetic, willfully ignorant of facts and reality, distracted by the techno-gadgets that run their lives, uninterested in anything beyond next week’s episode of Dancing with the Stars or Jersey Shore, and willing to let the corporate media moguls form their opinions for them through relentless propaganda, the only thing that will get their attention is an absolute collapse of our economic scheme. Uninformed, unconcerned, intellectually vacant Americans will get exactly that in the not too distant future.

Greater Depression Hidden from View

“Look at the orators in our republics; as long as they are poor, both state and people can only praise their uprightness; but once they are fattened on the public funds, they conceive a hatred for justice, plan intrigues against the people and attack the democracy.” – Aristophanes, Plutus

 

The anger and vitriol directed at OWS protestors by middle class Americans is a misdirected reaction to a quandary they can’t quite comprehend. They know their lives are getting more difficult but aren’t sure why. They are paying more for energy, food, tuition, and real estate taxes, while the price of their houses decline and their wages stagnate. More than a quarter of all homeowners are underwater on their mortgage and many are drowning in credit card and student loan debt. At the same time, government drones tell them the economy is in its second year of recovery and corporate profits are at all-time highs. Government statistics, false storylines, and entitlement programs are designed to confuse the public and obscure the fact we are in the midst of another Depression. Everyone has seen the pictures of the Great Depression breadlines, farmers forced off their land during the dustbowl, and downtrodden Americans in soup kitchens. The economic conditions today are as bad as or worse than the Great Depression. This Depression is hidden from plain view because there are no unemployment lines, bread lines, or soup lines. We are experiencing an electronic Great Depression, as food stamps, unemployment compensation, Social security payments and welfare benefits are electronically delivered to millions of recipients.

There have been over 12 million foreclosure actions since 2007, with millions of Americans losing their homes. Another 16 million homeowners are underwater on their mortgages as home prices continue to fall and the economy sinks further by the day. The value of household real estate has fallen from $22.7 trillion in 2006 to $16.2 trillion today, a loss of $6.5 trillion concentrated among the middle class. In contrast, mortgage debt has only decreased by $600 billion mostly due to write-offs by the banks that created fraudulent mortgage products to lure Americans into debt.

The unemployment rate in the United States reached 25% during the Great Depression. The government manipulated fictional unemployment rate reported to the public by drones at the BLS is currently 9.0%. They conveniently ignore the millions of people who have given up looking for work and those who have taken jobs as part-time pickle ploppers at McDonalds, when they previously assembled automobiles at GM. The true number of unemployed/underemployed is 23%.

Since 2007, unemployment has officially gone up by 7 million. In reality, the same percentage of the working age population should be employed today as in 2007 (63%). Since only 58.4% of the working age population is employed today (lowest since 1983), another 4 million needs to be added to the official unemployment tally. The fact is there are 240 million working age Americans and only 140 million are employed. This means there are 100 million working age Americans not working, but our government only classifies 14 million of them as unemployed. There is certainly millions of stay at home moms, students, and legitimately disabled among the 86 million people classified as not in the labor force, but you can’t tell me that another 20 to 30 million of these people couldn’t or wouldn’t work if given the opportunity.

The deception in government reported figures is borne out by the most successful government program of the Obama administration, which has been adding participants at an astounding rate. The Food Stamp program has been a smashing success as we’ve added 13.8 million Americans to this fine program since Obama’s inauguration, a mere 43% increase in less than three years. There are now 45.8 million Americans dependent upon food stamps for survival, 14.7% of the U.S. population. This program began in 1969 and enrollment always surges during recessions and declines during recoveries. But a funny thing happened during our current “recovery”. The government reported our recession over in December 2009. It was certainly over for the Wall Street psychopaths as they rewarded themselves with $43 billion of bonuses in 2009/2010. The number of Americans on food stamps has risen by 6.8 million during this government sponsored “recovery”. You’ll be happy to know that Obama’s good buddy – Jamie Dimon – and his well run machine at JP Morgan earns hundreds of millions administering the SNAP program.

Since 2007, Federal government transfer payments have increased from $1.7 trillion annually to $2.3 trillion, a 35% increase in four years. This is surely a sign of a recovering economy. Bernanke’s zero interest rate policy has stolen $400 billion per year from senior citizens and savers and handed it to the very bankers who caused the pain and suffering of millions. Personal interest income has declined from $1.4 trillion to $1.0 trillion, while Wall Street faux profits have soared. The game plan of the oligarchy has been to transfer hundreds of billions from taxpayers to bankers, report profits through accounting entries reducing loan loss reserves, pump up their stock prices and convince clueless lemming investors to buy newly issued shares at inflated valuations. The plan has failed. The zero interest rate policy’s unintended consequences have caused revolutions throughout the Middle East and massive food inflation across the developing world.

The single biggest reason the middle class feel frustrated, angry and like they are falling behind is due to the Federal Reserve and the relentless never ending inflation they produce in order to support their masters on Wall Street and provide cover for the trillions in debt spending by politicians in Washington DC. It is no surprise that beginning in 1980 when government spending began to accelerate much more rapidly than government revenues, the government decided to “tweak” how it measured inflation. The government reports inflation at 3.5% today. The truth is inflation is running in excess of 10% if measured exactly as it was in 1980. That’s right, we have a recession and we have inflation in double digits. No wonder the masses are restless.

  

The reason middle class Americans are being methodically exterminated and driven into poverty is the monetary policies of the Federal Reserve. Since 1971, when Nixon extinguished the last vestiges of the gold standard and unleashed politicians to spend borrowed money without immediate consequence, the U.S. dollar has lost 82% of its purchasing power using the government manipulated CPI. In reality, it has lost over 90% of its purchasing power. The average American, after decades of being dumbed down by government sanctioned education, is incapable of understanding the impact of inflation on their lives. As their wages rise 2% to 3% per year and inflation rises 5% to 10% per year, they get poorer day by day. The Wall Street banks, who own the Federal Reserve, step in and convince the average American to substitute debt for real wealth in order to keep living the modern techno-lifestyle sold to them by mainstream corporate media.

The oligarchy of moneyed interests have done a spectacular job convincing the working middle class they should be angry at 20 year old OWS protestors, illegal immigrants and the inner city welfare class, rather than the true culprits – the Federal Reserve, Wall Street banks and mega-corporations. This is a testament to the power of propaganda and the intellectual slothfulness of the average American. U.S. based mega-corporations fired 864,000 higher wage American workers between 2000 and 2010, while hiring almost 3 million workers in low wage foreign countries, using their billions in cash to buy back their own stocks, and paying corporate executives shamefully excessive compensation. The corporate mainstream media treats corporate CEO’s like rock stars as if they deserve to be compensated at a level 243 times the average worker. The S&P 500 consists of the 500 biggest companies in America and while the executives of these companies have reaped millions in compensation, the stock index for these companies is at the exact level it was on July 9, 1998. Over the last thirteen years workers were fired by the thousands, shareholders earned 0% (negative 39% on an inflation adjusted basis), and executives got fabulously rich.

Man made inflation has stealthily devastated millions of lives over the last four decades. When the weekly wages of the average worker are adjusted for inflation, they are making 12% less than they did in 1971. Using a real non-manipulated measure of inflation, the average worker is making 30% less than they did in 1971. Sadly, our math challenged populace only comprehend their wages have doubled in the last forty years, without understanding the true impact of inflation. Thankfully, the Wall Street debt dealers with a helping hand from Madison Avenue propaganda peddlers stepped up to the plate and imprisoned the middle class with the shackles of $2.5 trillion in consumer debt. So, while real wages have fallen 30% since 1971, consumer debt has increased by 1,700%.

 

Americans have been snookered into renouncing their citizenship and converting to being mindless consumers. Citizenship requires a person to be actively engaged in the community with obligations to fellow citizens and future generations. Consumerism requires people to love things, embrace debt, worry about what others have, and become driven by the accumulation of possessions and the appearance of wealth. The disgusting exhibition that Madison Avenue maggots have coined Black Friday is the ultimate display of consumerism. In a nauseating display of senseless spending driven by retail conglomerates, Americans act like Pavlov’s salivating dogs by lining up for hours to stampede over and pepper spray other consumers to get the ultimate deal on that Chinese made toaster oven, Vietnamese made laptop, Korean made HDTV, or Mexican made tortilla maker. They don’t seem to grasp the irony of going deeper into debt buying cheap crap made in foreign countries by the workers who took their jobs. The mainstream media proclaims a hugely successful Black Friday as millions bought crap they didn’t need with money they don’t have, while millions more ate their Thanksgiving meals in food shelters – unreported by the media.This repulsive manifestation of consumerism is applauded and encouraged by our government, as described by George Monbiot:

“Governments are deemed to succeed or fail by how well they make money go round, regardless of whether it serves any useful purpose. They regard it as a sacred duty to encourage the country’s most revolting spectacle: the annual feeding frenzy in which shoppers queue all night, then stampede into the shops, elbow, trample and sometimes fight to be the first to carry off some designer junk which will go into landfill before the sales next year. The madder the orgy, the greater the triumph of economic management.”

The masses have been brainwashed by those in power into thinking consumer spending utilizing debt is essential for a strong economy, when the exact opposite is the truth. Saving and investment are the essential ingredients to a strong economy. Debt based spending only benefits bankers, mega-corporations, and politicians.

Mass Manipulation through Propaganda

“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of. This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons…who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind.” – Edward Bernays, Propaganda, 1928 

Edward Bernays, the father of propaganda to control the masses, would be so proud of his disciples running our country today. He clearly believed only an elite few were intellectually capable of running the show. Essentially, he hit upon the concept of the 1% telling the 99% what they should think and believe over eighty years ago. The mechanisms for controlling the thoughts, beliefs, and actions of the population are so much more efficient today. The conditioning begins when we are children, as every child will be bombarded with at least 30,000 hours of propaganda broadcast by media corporations by the time they reach adulthood. Their minds are molded and they are instructed what to believe and what to value. Those in control of society want to keep the masses entertained at an infantile level, with instant gratification and satisfying desires as their only considerations. The elite have achieved their Alpha status through intellectual superiority, control of the money system, and control of the political process. Their power emanates from eliminating choices, while giving the illusion of choice to the masses. People think they are free, when in reality they are slaves to a two party political system, a few Wall Street banks, and whatever our TVs tell us to buy.

Our entire system is designed to control the thoughts and actions of the masses. In many ways it is done subtly, while recently it has become more bold and blatant. It is essential for the ruling elite to keep control of our minds through media messages and the educational system. It is not a surprise that our public education system has methodically deteriorated over the last four decades. The government gained control over education and purposely teaches our children selected historical myths, social engineering gibberish and only the bare essentials of math and science. The government creates the standardized tests and approves the textbooks. We are left with millions of functionally illiterate children that grow into non-critical thinking adults. This is the exact result desired by the 1%. If too many of the 99% were able to ignore the media propaganda and think for themselves, revolution would result. This is why the moneyed interests have circled the wagons, invoked police state thug tactics, and used all the powers of their media machine to squash the OWS movement. It threatens their power and control.

“Experience has shown that even under the best forms of government those entrusted with power have, in time, and by slow operations, perverted it into tyranny.” – Thomas Jefferson

A highly educated engaged citizenry would be a danger to the existing social order. The 1%, educated at our finest universities, does not want average Americans to obtain a great education for a reasonable price. They want them to get a worthless diploma at an excessively high price tag and become debt slaves to the Wall Street 1%. They want uneducated, indebted consumers, not educated productive citizens. Our republic has been slowly perverted since the time of its inception. The insidious process had been slow and methodical until 1913. The establishment of the Federal Reserve by an elite group of bankers and their politician friends and the establishment of a personal income tax created the conditions that have allowed a small cabal of powerful men to dictate the course of our economic, political, social, and military policies for the last 98 years. Anyone that chooses to open their eyes and awake from the propaganda induced stupor can see the result of allowing a small group of corrupt authoritarian men using their power to pervert our government into tyranny. The majority remains oppressed, buried under trillions of debt, while the shysters reap obscene profits, poison the worldwide economic system, and walk away unscathed in the aftermath of their crimes.

The ruling oligarchy has become so brazen in the last few years that it has attracted the attention of the critical thinking minority. The advent of the internet has allowed these critical thinking few to analyze the un-sanitized facts, discuss the issues, and provide truth amidst a blizzard of lies. The proliferation of truth telling websites (Zero Hedge, Mish, Financial Sense, Naked Capitalism) has allowed truth seekers to bypass the government sanctioned corporate media. The pillaging of society by the politically powerful, corrupt 1% is plain to see in the graphs below.

 

The divergence in household income was not the result of hard work, superior intellectual firepower, or the media touted entrepreneurial spirit of the rich. It was the result of the 1% capturing the economic and political system of the United States and using it to ransack the wealth of the formerly working middle class. The fatal flaw which will ultimately result in a fitting end for the powerful elitists is their egos. They are psychopaths, unable to feel empathy for their fellow man. Enough is never enough. They always want more. Life is a game to them. They truly believe they can pull the right strings and continue to accumulate more riches. But they are wrong. They are blinded by their hubris. There are limits to growth based solely on debt and we’ve reached that limit. The world is crumbling under the weight of crippling debt created by these Wall Street psychopaths, while the corrupted bought off politicians try to shift the losses from the bankers who incurred them to the citizens who have already been fleeced. Nomi Prins captures the essence of our current situation:

“Today, the stock prices of the largest US banks are about as low as they were in the early part of 2009, not because of euro-contagion or Super-committee super-incompetence (a useless distraction anyway) but because of the ongoing transparency void surrounding the biggest banks amidst their central-bank-covered risks, and the political hot potato of how many emergency loans are required to keep them afloat at any given moment.  Because investors don’t know their true exposures, any more than in early 2009. Because US banks catalyzed the global crisis that is currently manifesting itself in Europe. Because there never was a separate US housing crisis and European debt crisis. Instead, there is a worldwide, systemic, unregulated, uncontained, rapacious need for the most powerful banks and financial institutions to leverage whatever could be leveraged in whatever forms it could be leveraged in. So, now we’re just barely in the second quarter of the game of thrones, where the big banks are the kings, the ECB, IMF and the Fed are the money supply, and the populations are the powerless serfs. Yeah, let’s play the ECB inflation game, while the world crumbles.”

Those in power are beginning to lose control. You can sense their desperation. Their propaganda is losing its impact as the pain for millions of Americans has become acute. The outrage and anger flaring across the country on a daily basis, reflected in the OWS movement, is just the beginning of a revolutionary period descending upon this nation. The existing social order will be swept away, but they will not go without a fight. They will use their control of the police, military and media to try and crush the coming rebellion.

 The Dream is Gone

“The more corrupt the state, the more numerous the laws.” – Tacitus, The Annals of Imperial Rome

In addition to controlling the monetary system and brainwashing the inhabitants with relentless propaganda, the ruling class has used their control of the political process to impose thousands of laws, statutes, rules, and regulations upon the citizens. Again, an apathetic, distracted, trusting populace has been easily convinced that more laws will make them safe and secure. They have willingly sacrificed liberty, freedom and self reliance for the façade of safety, security and protection. The overwhelming number of government rules and regulations are designed to control you and insure your compliance and obedience to those in power. In a non-corrupt society inhabited by citizens willing to honor their obligations, government’s function is to insure property rights and defend the country from foreign invaders. Citizens don’t need to be herded like sheep with threats of imprisonment to do what is right. We don’t need 90,000 pages of regulations telling us the difference between right and wrong.

  

There were 400 pages of Federal Tax rules when the 1% personal income tax was implemented in 1913. Did the 18,000% increase in tax rules since 1913 benefit the average American or did they benefit the 1% who hires the lobbyists to write the rules which are passed into law by the politicians who receive their campaign contributions from the 1%? Do you ever wonder why you pay more taxes than a billionaire Wall Street hedge fund manager? Do you think our tax system is designed to benefit billionaires and mega-corporations when corporations with billions of income pay little or no taxes? Complexity and confusion benefits those who can create and take advantage of the complexity and confusion. Corporations and special interests have used their wealth to bribe politicians to design loopholes, credits, and exemptions that benefit their interests. The corruption of the system is terminal.

 

“The mistake you make, don’t you see, is in thinking one can live in a corrupt society without being corrupt oneself. After all, what do you achieve by refusing to make money? You’re trying to behave as though one could stand right outside our economic system. But one can’t. One’s got to change the system, or one changes nothing. One can’t put things right in a hole-and-corner way, if you take my meaning.” – George Orwell

The American people are paying the price for allowing a few evil men to gain control of our government. The American people cowered in fear as the 342 page Patriot Act was somehow written in a few weeks after 9/11, introduced in Congress on October 23, passed the House on October 24 with no debate, passed the Senate on October 25 with no debate, and signed into law on October 26 by George Bush. A law passed by the ruling elite that stripped Americans of their freedoms and liberties was passed using fear mongering false patriotism propaganda to squelch dissent and the American people had no say in the matter. The government has used fear to keep the American people under control. We now unquestioningly accept being molested in airports. We shrug as our intelligence agencies eavesdrop on our telephone conversations and emails without the need for a court order. It is now taken for granted that we imprison people without charging them with a crime and assassinate suspected terrorists in foreign countries with predator drones. Invading countries and going to war no longer requires a declaration of war by Congress as required by the Constitution. The State grows ever more powerful.

Therefore, it is no surprise that Americans sit idly by, watching their 52 inch HDTVs,  as young people across the country are beaten, pepper sprayed, shot with rubber bullets and tear gas, and scorned and ridiculed by corporate media pundits for exercising their free speech rights to peacefully protest our corrupt system. The American tradition of civil disobedience is considered domestic terrorism by those in authority. Our beloved protectors in the Orwellian named Department of Homeland Security write reports classifying Ron Paul supporters and returning Iraq veterans as potential terrorists. If the powers that be get their way, the internet will be locked down and controlled, as it poses a huge threat to their thought control endeavors. Freedom to think, learn, question and organize resistance is unacceptable in the eyes of the elite. The country has reached a tipping point. Will enough right thinking Americans stand up and fight to bring down this corrupt system, or will we be herded silently to slaughter. The truth is there is something terribly wrong in this country. We are facing a myriad of problems that will require courage and common sense to overcome. We need only look in the mirror to find the guilty party. It is time to stop letting fear dictate our actions. Conflict is coming to this country due to the evil sanctioned by our corrupt leaders and the upright men and women who will bear the burden of destroying that evil.

Our civilization has adopted the worst aspects of the two most famous dystopian novels in history – Orwell’s 1984 and Huxley’s Brave New World. The question is whether the population of this country is too far gone to recover. The answer to that question will determine whether the country chooses authoritarian dictatorship or a renewal of our founding principles. Aldous Huxley understood the three pillars of Western civilization fifty years ago and that their destruction would result in a collapse of our economic system:

“Armaments, universal debt, and planned obsolescence – those are the three pillars of Western prosperity. If war, waste, and moneylenders were abolished, you’d collapse. And while you people are over-consuming the rest of the world sinks more and more deeply into chronic disaster.”

The three pillars sustaining the American empire edifice of never ending war, ever accumulating debt and excessive consumerism are crumbling. The growing corruption and weight of un-payable debt have weakened the very foundation of our grand experiment. The existing structure will surely collapse. My entire adult life has tracked the decline of the American empire. I had become comfortably numb. I came to my senses and began to question all the Federal government/Wall Street/Corporate Media sponsored truths about eight years ago. Many others have also awoken and begun to challenge the false storylines dictated by those in power.

The young people leading the protests across this land are showing tremendous courage and a tenacity of spirit that has been dormant for decades among the lethargic, distracted, over-medicated public. Despite being subjected to government education conditioning, these young people have zeroed in on the enemy. They may not have all the solutions, but they have correctly identified the corrupt banking system as the central nervous system of this vampire squid sucking the life out of our nation. I will support any effort to shine a light on our crooked system. My three young sons deserve a chance at a better life than they will get under the thumb of this oligarchic criminal enterprise. As a child I caught a fleeting glimpse of the American Dream. I turned to look, but it was gone. I choose not to become comfortably numb. I choose to do whatever it will take to renew the opportunity for my sons to achieve the American Dream.

When I was a child
I caught a fleeting glimpse
Out of the corner of my eye
I turned to look but it was gone
I cannot put my finger on it now
The child is grown,
The dream is gone.
I have become comfortably numb.

Pink Floyd – Comfortably Numb

E

 

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JAMIE DIMON: WHEN DID HE KNOW THAT JPM WAS STICKING IT TO CUSTOMERS AND MAKING A PROFIT?

Posted on April 12, 2011 by Neil Garfield

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EDITOR’S NOTE: If the press can ask the questions leading right up to the top of the megabanks, why can’t the government? You have to remember that these people practically invented the term “due diligence” and before the securitization scam, it was very challenging to get a deal through where all the i’s were not dotted. The point here is not whether Jamie Dimon belongs in jail. The point is that the securitization scam was intentional and there are civil remedies for everyone who was hurt by it.

JPM set up an investment that they knew at the highest levels was going to fail, didn’t tell their investor (of course) because they were going to  make a lot of money BECAUSE the investor was going to lose money. This is what was done to investors in mortgage-backed bonds and what was done to homeowners who put up their house for an “investment” that was already doomed. Facts like these help make the case for appraisal fraud and other deceptive lending practices. And it shows how the megabanks were pulling the strings through remote vehicles and then defending with plausible deniability.

My answer is that their denial is not plausible and not even possible. Nobody accidentally makes $2 billion on a client’s loss of $500 million. We’re not talking the lottery here. We are talking high finance where the controls and command centers are limited to a few rooms with very few people in those rooms.

Investing in the Dark

NY Times Editorial

So what did Jamie Dimon know and when did he know it?

New documents unsealed recently in a class-action lawsuit against JPMorgan Chase — some of which name Mr. Dimon, the chief executive — paint yet another picture of a bank profiting while its clients suffer. At issue is a precrash investment vehicle, named Sigma, in which the bank had invested $500 million in assets from pension funds and other clients, nearly all of which the clients say was lost when the investment tanked in 2008.

The clients were blindsided because they believed that Sigma was a safe way to invest. JPMorgan was not taken by surprise. As Louise Story reported in The Times on Monday, court documents show that warnings by top bank officials about Sigma and similar investments went all the way up to Mr. Dimon’s office.

The gist of the warnings was not how to protect clients, but how the ailing Sigma presented the bank with what one e-mail described as “very big moneymaking opportunities as the market deteriorates.”

When Sigma did indeed collapse, JPMorgan collected nearly $1.9 billion, according to the suit, a figure the bank disputes, without providing any alternative figure.

It is possible that JPMorgan did nothing wrong legally — and that is precisely the problem. It clearly stinks to withhold information that may well have caused clients to change their minds — in effect, for the bank to treat clients’ money with less care than it treats its own. As long as banks operate that way, there is no restoring trust in the financial system, or, by extension, in the political system that props it up.

But is it illegal? JPMorgan has said that the unit of the bank that handled the clients’ investments in Sigma was not, by law, allowed to confer with the unit of the bank that benefited from Sigma’s demise. That may be true, but as Ms. Story pointed out, in this case, the information rose to executives who oversee the entire company and were in a position to intervene. That they did not is a failure to do the right thing, even if the court decides that the bank did not break the law.

In the meantime, efforts to write new rules to try to curb such conflicts is hamstrung by a Republican backlash against the Dodd-Frank financial reform law that was passed last year. There is proposed legislation to repeal provisions of the law, and the agencies that have to implement the law are in danger of not getting enough money to do the job. As the pension funds in the class-action suit against JPMorgan can certainly attest, only the banks will benefit from business as usual.

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JPM Makes $2 BILLION While Investors Lose $500 MILLION

Posted on April 11, 2011 by Neil Garfield

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“The investment bank through a myriad of bankruptcy-remote controlled vehicles steps in and says WE ARE THE AGENT FOR THE LENDER AND WE WANT TO FORECLOSE. And then in the suit with investors says WE ARE NOT YOUR AGENT OR FIDUCIARY AND THIS MONEY WE COLLECTED IS OURS. In plain language the investment banks are claiming the full value of the original investment, the profit they made from the “failure of the investment,” and the house from the borrower. Somehow this has been translated into a free house for the borrower if the borrower successfully challenges this scenario. Considering that the investment bank and its remote vehicles never loaned a dime of their own money and never bought the receivable from the homeowner, it is an inescapable conclusion that under current conditions IT IS THE BANK THAT IS GETTING A FREE HOUSE.” — NEIL GARFIELD

HOW TO TURN A CLIENT LOSS INTO YOUR PROFIT TIMES FOUR

EDITORIAL NOTE: The idea that the banks could take $500 million from investors, turn the investment into a loss, and than make $2 Billion for themselves leaving the investors empty handed has been openly dismissed as ridiculous conspiracy theorizing. Nonetheless, I have consistently maintained on these pages that this is exactly what was done, that there were no losses to WALL STREET on mortgages, and that the bailout increased their profits instead of decreasing their alleged losses. It seems, as Renaldo Reyes of Deutsch Bank put it, “counter-intuitive.” If you put $500 into an investment how can anyone make any more than the $500 you invested. Enter the magic of Wall Street.

The unfairness of this turn of events is obvious and the subject of the lawsuit against JPM described below in the article from the NY Times. And the fact that JPM had direct knowledge of every part of this all the way up to Jamie Dimon doesn’t come as any surprise either. What is important here is that Wall Street found a way to create lousy investments in which investors would lose all their money and to multiply that loss into a grand windfall for the Wall Street firm that created or sold the investment in the first place.

It doesn’t take a rocket scientist to see where the incentive is. If you were the broker and you sold $500 million worth of securities to an investor you would get a fee. Fair enough. And you wouldn’t see another fee until the investor sold it, hopefully using your services. Fair enough. That is how Wall Street is supposed to work — putting buyers and sellers of various types of securities together and taking a fee for their services. This is the purpose of Wall Street which enables the marketplace to have liquidity — i.e., people can get money when they need it and can get a return on their investment when they have extra money.

Wall Street shifted the paradigm starting around 10 years ago when they essentially decided that neither their clients nor the people who were affected by investments made through Wall Street should get to keep any of the money or wealth they had at stake. They wanted it all and they set out to get it, quite successfully as it turned out. The current paradigm is to get investors to put their money into failures, create vehicles that essentially bet on the failure, put provisions in the documents that guarantees that you can call it a failure even if it isn’t, and then collect all the money back that SHOULD go to the investors, because that’s what it says in the fine print of what the investors bought.

Once you have a sure thing — a failure even if nothing failed — you can now place a bet, comfortably knowing that it will pay off because control over the “failure” is completely in your hands. I am of course referring to Credit Default Swaps and other more ornate synthetic collateralized debt obligation derivative instruments.

Back to the broker. If you were that broker, would you (a) wait until the investor decided to sell the investment and take a fee of 1% or (b) pull the plug on the client’s investment and earn 400% of the client’s money without any of your own money at risk? You might think that JPM would have at least offered the money back on the investment, but no, like I said, they want it all. You might say that the investment bank’s receipt of $2 Billion on the client’s $500 million investment was as a fiduciary for the client and not for themselves and you’d be wrong under the current rules. You might say this stupid — because it is. But I can’t see a scenario in which pension fund managers are going to keep buying failed investments, even if they are bribed. This is like any other PONZI scheme or house cards. They all come to an end and people get hurt.

Now move over to the homeowner who “borrower” money from a fund that came from many investors like the pension fund above. He borrowed $100,000 and owes it to somebody, but who? The investor has written off the investment and expects to get their money back from the investment bank because the loan was not what they were told they would be getting. The investor wants no part of the homeowner’s house of obligation and doesn’t care if the homeowner has any obligation.

The investment bank through a myriad of bankruptcy-remote controlled vehicles steps in and says WE ARE THE AGENT FOR THE LENDER AND WE WANT TO FORECLOSE. And then in the suit with investors says WE ARE NOT YOUR AGENT OR FIDUCIARY AND THIS MONEY WE COLLECTED IS OURS. In plain language the investment banks are claiming the full value of the original investment, the profit they made from the “failure of the investment,” and the house from the borrower. Somehow this has been translated into a free house for the borrower if the borrower successfully challenges this scenario. Considering that the investment bank and its remote vehicles never loaned a dime of their own money and never bought the receivable from the homeowner, it is an inescapable conclusion that under current conditions IT IS THE BANK THAT IS GETTING A FREE HOUSE.

JPMorgan Accused of Breaking Its Duty to Clients

By LOUISE STORY

In the summer of 2007, as the first tremors of the coming financial crisis were being felt on Wall Street, top executives of JPMorgan Chase were raising red flags about a troubled investment vehicle called Sigma, which was based in London. But the bank chose not to move out $500 million in client assets that it had put into Sigma two months earlier.

Sigma collapsed a year later. Now, new documents unsealed late last month as part of a lawsuit by bank clients against JPMorgan show for the first time just how high the warnings about Sigma went — all the way to the office of the bank’s chief executive, Jamie Dimon.

While the clients lost nearly all their money, JPMorgan collected nearly $1.9 billion from Sigma’s demise, according to the suit. That’s because as Sigma’s troubles worsened, JPMorgan lent the vehicle billions of dollars and received valuable assets in the form of a security deposit.

After Sigma came undone in September 2008, many of those assets ultimately became JPMorgan’s and eventually appreciated in value, giving the bank a large profit, the suit says.

The case, which is filed as a class action and includes several pension funds as named plaintiffs, accuses JPMorgan of breaching its responsibility to keep its clients in safe investments, and it sheds new light on one of Wall Street’s oldest problems — whether banks treat their clients’ money with the same care that they treat their own.

Joseph Evangelisti, a spokesman for JPMorgan, called some of the suit’s accusations “ludicrous” and said the bank lent more than $8 billion to Sigma to try to help the vehicle survive, not to profit from its failure. He said the bank did its best to protect its clients’ money and that its dealings with Sigma were to the clients’ benefit.

The suit, however, asserts that JPMorgan workers developed a “grand scheme” to profit from Sigma in the event of a collapse, even though employees at another part of the bank left client money invested in the vehicle.

One internal e-mail between top executives, for instance, states that the firm needed to protect its own interests in its dealings with Sigma, without taking into account the clients’ position. The suit also contends that the bank’s loans to Sigma gave it access to the vehicle’s best assets, at a discount, which proved to be a profitable trade for the bank.

JPMorgan has said in a court filing that no such scheme existed and that it acted properly in the way it managed client money.

The bank argues that by law, different units of the company that dealt with Sigma could not share information, because of so-called Chinese walls, which are meant to prevent the spread of nonpublic information within the firm. According to this argument, the unit that invested client money in Sigma could not confer with the arm that lent the vehicle money.

But because the information rose to executives who oversee the entire company and were in a position to intervene, analysts say the issue is trickier.

“In one sense, I don’t think it’s good enough to say, ‘We’re a large organization, we can’t relay information.’ That, in many respects, is a cop-out,” said William Fitzpatrick, a banking analyst at Manulife Asset Management, a Canadian insurance company that is not party to the case. “Does Jamie Dimon have some sort of veto power where he can overrule it? That gets very gray.”

But he added, “I can see where the banks would come back and say, ‘The Chinese walls are there for a reason. We don’t want to put in manual overrides.’ ”

In many cases, the rules and practices banks follow are based on nonpublic information they receive.

It’s not as clear what a bank’s obligations are with insights that are based on public information, like some of the information related to Sigma.

Within the financial services industry, the case is being closely watched. A victory by JPMorgan’s clients may mean that banks will have to be more careful about deciding whether to share — or silo — information that affects their clients’ investments. The Securities Industry and Financial Markets Association, a prominent trade group, wrote a brief in support of JPMorgan last month saying that the pension funds that are suing had an “unprecedented and novel theory” that “contradicts decades of Congressional and regulatory guidance.” The trade group said that if the plaintiffs won, it would impose greater costs on banks.

Whatever the legal outcome, the new documents paint a picture of how one of Wall Street’s strongest players profited in its deals with the weak.

The events described in the suit, which was filed in Federal District Court for the Southern District in New York, began in the summer of 2007. That June, JPMorgan’s unit put about $500 million from pension funds and other clients into notes issued by Sigma, meaning those clients would be repaid based on how Sigma’s financial bets performed.

The investments were made by the bank’s securities lending unit, which stood to share in profits if the bet was successful but would not share in losses if it wasn’t.

According to the new documents, by that August, JPMorgan executives elsewhere in the bank began to worry about Sigma and other similar entities called structured investment vehicles, or SIVs.

Mr. Dimon is named in several documents related to these vehicles.

One e-mail in August 2007 said Mr. Dimon was interested in hearing about “the systemic risk of a complete unwind of all SIVs,” according to the suit. Another e-mail told a bank worker to prepare “a very real picture of the assets that will be unwound with particular focus on Sigma.” At the end of August, Mr. Dimon received a memo on the SIV market, with a note about Sigma in the cover sheet, according to the lawsuit.

That same month, a fixed-income executive, John Kodweis, wrote in an e-mail that he believed it was probable the entire sector would run into trouble.

If that were to happen, the SIVs might have to unload $400 billion in valuable assets at fire-sale prices, he wrote. He suggested the bank create a team, which the suit says it did, to take advantage of the forced selling.

In the same e-mail, Mr. Kodweis noted that the block of SIV investments that JPMorgan had made on behalf of its clients was among the top 12 investors in all SIVs.

Other top officials at the bank were also aware of the conflict. In September that year, as the bank’s top brass considered lending money to Sigma, the bank’s chief credit officer, Andrew Cox, wrote that “I have heard JPM Asset Mgmt are large buyers of SIV and Sigma CP,” referring to short-term debt called commercial paper. “Do we need to consider the firmwide position?”

The bank’s chief risk officer, John Hogan, wrote back that JPMorgan needed to protect its own position and not worry about what its clients were invested in.

By February 2008, credit continued to tighten, and Sigma was desperate for cash to finance its operations. An executive in JPMorgan’s London office, Mark Crawley, wrote that it was “unlikely” that Sigma would survive. He also said there could be risks to the bank’s reputation if it went ahead with the loan. Still, JPMorgan proceeded.

As time passed in 2008, bank executives did more trades with Sigma.

Mr. Crawley e-mailed Mr. Cox to say that the bank was treating its loans to Sigma as a “trade,” rather than as support for Sigma and that there were “very big moneymaking opportunities as the market deteriorates” because Sigma had what he called high-quality assets.

Mr. Cox described Sigma’s health as “a race against time” in a note to Bill Winters, then co-head of the investment bank, and Mr. Crawley.

By September 2008, when Sigma defaulted, JPMorgan had lent it a total of $8.4 billion and had received $9.3 billion of assets as a security deposit, according to the suit. The value of the collateral was dubious at that point, given the panic of the financial crisis, and it was unknown if the assets would decrease in value.

But a year later, many investments had risen in value, the suit says. JPMorgan made over $470 million in profit within a year of the default by selling off some of the collateral and had recorded a paper gain of $1.2 billion on assets it still held, according to the suit. The bank had also made $228 million in fees from Sigma in exchange for the loans. The total gain was nearly $1.9 billion, the suit says.

The pension funds whose money JPMorgan had put into Sigma lost nearly all of their investment. The suit said their $500 million became worth 6 cents on the dollar.

Mr. Evangelisti, the JPMorgan spokesman, said the bank disputed the profit figures but he would not say how much the bank believed it made on the Sigma transactions.

He also said the unit that put the client money in Sigma “closely monitored” the investment and did its best to decide whether to sell it early. He said a different client investment in Sigma was repaid in full to JPMorgan clients just weeks before Sigma collapsed.

The bank also said in a court filing that it would have been irrational for its executives and traders to try to obtain Sigma’s assets by lending money to the vehicle. The bank could have instead just purchased some of those assets, though they might have come at a higher price.

In addition, Mr. Evangelisti said it was Sigma that approached JPMorgan about the loans, and Sigma executives told the bank the loans would help the JPMorgan clients who were Sigma investors.

He added that in the fall of 2008, when it came time for the bank to auction off some of the assets JPMorgan had received from the failed vehicles, “in many cases there were no takers.”

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Goldman and JPM Still Playing with Other People’s Money

Posted on March 20, 2010 by Neil Garfield

The five biggest U.S. commercial banks in the derivatives market — JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup and Wells Fargo & Co. — account for 97 percent of the notional value of derivatives held in the banking industry [$605 trillion], according to the Office of the Comptroller of the Currency.

Goldman Sachs Demands Collateral It Won’t Dish Out

By Michael J. Moore and Christine Harper

March 15 (Bloomberg) — Goldman Sachs Group Inc. and JPMorgan Chase & Co., two of the biggest traders of over-the- counter derivatives, are exploiting their growing clout in that market to secure cheap funding in addition to billions in revenue from the business.

Both New York-based banks are demanding unequal arrangements with hedge-fund firms, forcing them to post more cash collateral to offset risks on trades while putting up less on their own wagers. At the end of December this imbalance furnished Goldman Sachs with $110 billion, according to a filing. That’s money it can reinvest in higher-yielding assets.

“If you’re seen as a major player and you have a product that people can’t get elsewhere, you have the negotiating power,” said Richard Lindsey, a former director of market regulation at the U.S. Securities and Exchange Commission who ran the prime brokerage unit at Bear Stearns Cos. from 1999 to 2006. “Goldman and a handful of other banks are the places where people can get over-the-counter products today.”

The collapse of American International Group Inc. in 2008 was hastened by the insurer’s inability to meet $20 billion in collateral demands after its credit-default swaps lost value and its credit rating was lowered, Treasury Secretary Timothy F. Geithner, president of the Federal Reserve Bank of New York at the time of the bailout, testified on Jan. 27. Goldman Sachs was among AIG’s biggest counterparties.

AIG Protection

Goldman Sachs Chief Financial Officer David Viniar has said that his firm’s stringent collateral agreements would have helped protect the firm against a default by AIG. Instead, a $182.3 billion taxpayer bailout of AIG ensured that Goldman Sachs and others were repaid in full.

Over the last three years, Goldman Sachs has extracted more collateral from counterparties in the $605 trillion over-the- counter derivatives markets, according to filings with the SEC.

The firm led by Chief Executive Officer Lloyd C. Blankfein collected cash collateral that represented 57 percent of outstanding over-the-counter derivatives assets as of December 2009, while it posted just 16 percent on liabilities, the firm said in a filing this month. That gap has widened from rates of 45 percent versus 18 percent in 2008 and 32 percent versus 19 percent in 2007, company filings show.

“That’s classic collateral arbitrage,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who previously worked as treasurer at Morgan Stanley and chief financial officer at Lehman Brothers Holdings Inc. “You always want to enter into something where you’re getting more collateral in than what you’re putting out.”

Using the Cash

The banks get to use the cash collateral, said Robert Claassen, a Palo Alto, California-based partner in the corporate and capital markets practice at law firm Paul, Hastings, Janofsky & Walker LLP.

“They do have to pay interest on it, usually at the fed funds rate, but that’s a low rate,” Claassen said.

Goldman Sachs’s $110 billion net collateral balance in December was almost three times the amount it had attracted from depositors at its regulated bank subsidiaries. The collateral could earn the bank an annual return of $439 million, assuming it’s financed at the current fed funds effective rate of 0.15 percent and that half is reinvested at the same rate and half in two-year Treasury notes yielding 0.948 percent.

“We manage our collateral arrangements as part of our overall risk-management discipline and not as a driver of profits,” said Michael DuVally, a spokesman for Goldman Sachs. He said that Bloomberg’s estimates of the firm’s potential returns on collateral were “flawed” and declined to provide further explanation.

JPMorgan, Citigroup

JPMorgan received cash collateral equal to 57 percent of the fair value of its derivatives receivables after accounting for offsetting positions, according to data contained in the firm’s most recent annual filing. It posted collateral equal to 45 percent of the comparable payables, leaving it with a $37 billion net cash collateral balance, the filing shows.

In 2008 the cash collateral received by JPMorgan made up 47 percent of derivative assets, while the amount posted was 37 percent of liabilities. The percentages were 47 percent and 26 percent in 2007, according to data in company filings.

“JPMorgan now requires more collateral from its counterparties” on derivatives, David Trone, an analyst at Macquarie Group Ltd., wrote in a note to investors following a meeting with Jes Staley, chief executive officer of JPMorgan’s investment bank.

Citigroup Collateral

By contrast, New York-based Citigroup Inc., a bank that’s 27 percent owned by the U.S. government, paid out $11 billion more in collateral on over-the-counter derivatives than it collected at the end of 2009, a company filing shows.

Brian Marchiony, a spokesman for JPMorgan, and Alexander Samuelson, a spokesman for Citigroup, both declined to comment.

The five biggest U.S. commercial banks in the derivatives market — JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup and Wells Fargo & Co. — account for 97 percent of the notional value of derivatives held in the banking industry, according to the Office of the Comptroller of the Currency.

In credit-default swaps, the world’s five biggest dealers are JPMorgan, Goldman Sachs, Morgan Stanley, Frankfurt-based Deutsche Bank AG and London-based Barclays Plc, according to a report by Deutsche Bank Research that cited the European Central Bank and filings with the SEC.

Goldman Sachs

Goldman Sachs and JPMorgan had combined revenue of $29.1 billion from trading derivatives and cash securities in the first nine months of 2009, according to Federal Reserve reports.

The U.S. Congress is considering bills that would require more derivatives deals be processed through clearinghouses, privately owned third parties that guarantee transactions and keep track of collateral and margin. A clearinghouse that includes both banks and hedge funds would erode the banks’ collateral balances, said Kevin McPartland, a senior analyst at research firm Tabb Group in New York.

When contracts are negotiated between two parties, collateral arrangements are determined by the relative credit ratings of the two companies and other factors in the relationship, such as how much trading a fund does with a bank, McPartland said. When trades are cleared, the requirements have “nothing to do with credit so much as the mark-to-market value of your current net position.”

“Once you’re able to use a clearinghouse, presumably everyone’s on a level playing field,” he said.

Dimon, Blankfein

Still, banks may maintain their advantage in parts of the market that aren’t standardized or liquid enough for clearing, McPartland said. JPMorgan CEO Jamie Dimon and Goldman Sachs’s Blankfein both told the Financial Crisis Inquiry Commission in January that they support central clearing for all standardized over-the-counter derivatives.

“The percentage of products that are suitable for central clearing is relatively small in comparison to the entire OTC derivatives market,” McPartland said.

A report this month by the New York-based International Swaps & Derivatives Association found that 84 percent of collateral agreements are bilateral, meaning collateral is exchanged in two directions.

Banks have an advantage in dealing with asset managers because they can require collateral when initiating a trade, sometimes amounting to as much as 20 percent of the notional value, said Craig Stein, a partner at law firm Schulte Roth & Zabel LLP in New York who represents hedge-fund clients.

JPMorgan Collateral

JPMorgan’s filing shows that these initiation amounts provided the firm with about $11 billion of its $37.4 billion net collateral balance at the end of December, down from about $22 billion a year earlier and $17 billion at the end of 2007. Goldman Sachs doesn’t break out that category.

A bank’s net collateral balance doesn’t get included in its capital calculations and has to be held in liquid products because it can change quickly, according to an executive at one of the biggest U.S. banks who declined to be identified because he wasn’t authorized to speak publicly.

Counterparties demanding collateral helped speed the collapse of Bear Stearns and Lehman Brothers, according to a New York Fed report published in January. Those that had posted collateral with Lehman were often in the same position as unsecured creditors when they tried to recover funds from the bankrupt firm, the report said.

“When the collateral is posted to a derivatives dealer like Goldman or any of the others, those funds are not segregated, which means that the dealer bank gets to use them to finance itself,” said Darrell Duffie, a professor of finance at Stanford University in Palo Alto. “That’s all fine until a crisis comes along and counterparties pull back and the money that dealer banks thought they had disappears.”

‘Greater Push Back’

While some hedge-fund firms have pushed for banks to put up more cash after the collapse of Lehman Brothers, Goldman Sachs and other survivors of the credit crisis have benefited from the drop in competition.

“When the crisis started developing, I definitely thought it was going to be an opportunity for our fund clients to make some headway in negotiating, and actually the exact opposite has happened,” said Schulte Roth’s Stein. “Post-financial crisis, I’ve definitely seen a greater push back on their side.”

Hedge-fund firms that don’t have the negotiating power to strike two-way collateral agreements with banks have more to gain from a clearinghouse than those that do, said Stein.

Regulators should encourage banks to post more collateral to their counterparties to lower the impact of a single bank’s failure, according to the January New York Fed report. Pressure from regulators and a move to greater use of clearinghouses may mean the banks’ advantage has peaked.

“Before the financial crisis, collateral was very unevenly demanded and somewhat insufficiently demanded,” Stanford’s Duffie said. A clearinghouse “should reduce the asymmetry and raise the total amount of collateral.”

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.

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Bully Bonus: $11.7 Billion JPM

Posted on January 16, 2010 by Neil Garfield

“Each year they will launder more money back into the system and back onto the books so it becomes “on balance sheet” but the explanation of where the profits came from will be double-talk. But as long as we let them do it, they will be using the proceeds of purse snatching from the little people and wholesale robbery from the the taxpayers to pretend that they have higher and higher earnings, make their stock more and more valuable.

QUESTION FOR THE INVESTORS HOLDING CERTIFICATES OF MORTGAGE BACKED SECURITIES: HOW MUCH OF THIS DECLARED PROFIT AND THE BONUSES ACTUALLY SHOULD HAVE GONE TO YOU AS THE CREDITOR WHOSE INVESTMENT WENT SOUR? IS THERE A CONSTRUCTIVE TRUST HERE CREATED BY LAW? COULD IT BE THAT THE BENEFICIARIES INCLUDE YOURSELF, THE HOMEOWNERS AND THE TAXPAYERS THROUGH THEIR GOVERNMENT. ISN’T IT POSSIBLE THAT THESE ALLEGED PROFITS AND BONUSES WOULD COVER MUCH OF YOUR LOSSES?

  1. ISN’T IT POSSIBLE THAT THE INVESTORS CONTINUE TO BE PLAYED AS FOOLS AS THESE BANKS AND OTHER INTERMEDIARIES SPLIT UP THE MONEY YOU INVESTED?
  2. ISN’T IT POSSIBLE THAT THE SERVICERS AND OTHER INTERMEDIARIES ARE ACTING IN THEIR OWN INTERESTS AND NOT THE INTERESTS OF THE INVESTORS.?
  3. ISN’T IT POSSIBLE THAT YOU HAVE THE RIGHTS OF A MINORITY SHAREHOLDER OR MINORITY PARTNER FOR ACCESS TO THE REAL INFORMATION ON WHAT IS BEING COLLECTED AND WHERE THE MONEY IS GOING?

“This is the start of the REST of the scheme. Gradually repatriating income that was previously undeclared. $23.7 trillion was skimmed largely by the four horsemen of the Apocalypse. All that taxpayer money, in cash, obligations and guarantees went out because these banks were “too big to fail” and we accepted the proposition that they were failing when in fact they were sitting on more money than the government had. The “loss” was an accounting loss allowable by changes to generally accepted accounting principles (GAAP), deregulation and failure of the SEC to enforce the most basic elements of disclosure. They called it “off-balance sheet” transactions.

Now they they are laundering the money back in and giving themselves bonuses out of the taxpayer money they obtained through misrepresentation of their REAL financial status.

Each year they will launder more money back into the system and back on the books so it becomes “on balance sheet” but the explanation of where the profits came from will be double-talk. But as long as we let them do it, they will be using the proceeds of purse snatching from the little people and wholesale robbery from the the taxpayers to pretend that they have higher and higher earnings, make their stock more and more valuable.

They have no trouble taking their bonuses in stock. They know the stock will be ever higher and higher and the price earnings ratios will go up, multiplying the effect of the higher earnings. They know it just as surely as they knew the loans would fail, that their influence in Washington was strong enough with the Bush administration to get free money for fake losses, and that their tacit agreement to let non-creditors sue on defective loans as hush money would keep the cycle going.

President Obama told the big four that the only thing between them and pitchforks from the populace was him and he was doing his best to maintain order. But they don’t get it and they won’t get it because they think, perhaps correctly, that they will get away with the multiple phase scheme to drain America dry. Get out the pitchforks or watch your country dry up into a memory.

What does this mean for litigation and discovery. Plenty. The offshore SIV’s are the vehicle through which this money was sequestered and they are the vehicles through which the money is being laundered back in. That is why you must emphasize that you want the WHOLE accounting and not just the part about the records of the servicer, master servicer or some other intermediary in the securitization chain. They will try to keep the court’s attention on the non-payment of the borrower while you are trying to get a full accounting of the money from the start of the transaction all the way from debtor through creditor.

To use a simple analogy, suppose you had a five year loan and you prepaid the principal at the rate of $1,000 per month for the first three years.

Now they come in and want the court only to look at the total obligation and the fact that you missed the last three payments but they refuse to allow you access to an accounting that would prove the total principal has been reduced by your previous prepayments of $36,00 in addition to the regular amortization contained in your regular monthly payments.

Now add the fact that after the closing they realized that they had overcharged you on points for the loan and other charges, and they sent you a letter to that effect but the credit doesn’t show up in the demand, their notice of default of their foreclosure.

You have a right to demand discovery based upon your allegation that there were was money paid and that there are adjustments due in the accounting and that they have only offered a partial accounting, their demand letter was incorrect and so was their notice of default. What I am suggesting is that all of the above may be true PLUS there may have been debits and credits arising from third party transactions with participants in the securitization chain that you are only just learning about and you have a  right to discovery about that too.

REMEMBER: At this stage you are RAISING the question of fact, not proving it. You don’t have to be right to be entitled to discovery. You only have to make an allegation and it helps to have an expert declaration to go with it. Your goal is not to get the Judge to agree that these people can’t foreclose. Your goal is to get to the truth about your loan, the parties and all the money that exchanged hands. At the conclusion of discovery, properly conducted, and with the help of an expert, the case could very well be over.

New York Times

January 16, 2010

JPMorgan Chase Earns $11.7 Billion

JPMorgan Chase kicked off what is expected to be a robust — and controversial — reporting season for the nation’s banks on Friday with news that its profit and pay for 2009 soared.

In a remarkable rebound from the depths of the financial crisis, JPMorgan earned $11.7 billion last year, more than double its profit in 2008, and generated record revenue. The bank earned $3.3 billion in the fourth quarter alone.

Those cheery figures were accompanied by news that JPMorgan had earmarked $26.9 billion to compensate its workers, much of which will be paid out as bonuses. That is up about 18 percent, with employees, on average, earning about $129,000.

Workers in JPMorgan’s investment bank, on average, earned roughly $380,000 each. Top producers, however, expect to collect multimillion-dollar paychecks.

The strong results — coming a day after the Obama administration, to howls from Wall Street, announced plans to tax big banks to recoup some of the money the government expects to lose from bailing out the financial system — underscored the gaping divide between the financial industry and the many ordinary Americans who are still waiting for an economic recovery.

Over the next week or so, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley are expected to report similar surges in pay when they release their year-end numbers.

But not all the news from JPMorgan Chase was good. Signs of lingering weakness in its consumer banking business unnerved Wall Street and drove down its share price along with those of other banks.

Chase’s consumer businesses are still hemorrhaging money. Chase Card Services, its big credit card unit, lost $2.23 billion in 2009 and is unlikely to turn a profit this year. Chase retail services eked out a $97 million profit for 2009, though it posted a $399 million loss in the fourth quarter. To try to stop the bleeding, the bank agreed to temporarily modify about 600,000 mortgages. Only about 89,000 of those adjustments have been made permanent. In a statementon Friday, Jamie Dimon, the chairman and chief executive of JPMorgan, said that bank “fell short” of its earnings potential and remained cautious about 2010 considering that the job and housing markets continued to be weak.

“We don’t have visibility much beyond the middle of this year and much will depend on how the economy behaves,” Michael J. Cavanagh, the bank’s finance chief, said in a conference call with journalists. Across the industry, analysts expect investment banking revenue to moderate this year and tighter regulations to dampen profit. As consumers and businesses continue to hunker down, lending has also fallen.

Just as it did throughout 2009, JPMorgan Chase pulled off a quarterly profit after the strong performance of its investment bank helped offset large losses on mortgages and credit cards. The bank set aside another $1.9 billion for its consumer loan loss reserves — a hefty sum, but less than in previous periods.

That could be a sign that bank executives are more comfortable that the economy may be turning a corner. The bank has now stockpiled more than $32.5 billion to cover future losses. Still, Mr. Dimon warned that the economy was still too fragile to declare that the worst was over, though he hinted that things might stabilize toward the middle of the year. “We want to see a real recovery, just in case you have another dip down,” he said in a conference call with investors. Earlier, Mr. Cavanagh said that the bank hoped to restore the dividend to 75 cents or $1 by the middle of 2010, from 20 cents at present.

Over all, JPMorgan said 2009 net income rose to $11.7 billion, or $2.26 a share. That compares with a profit of $5.6 billion, or $1.35 a share, during 2008, when panic gripped the industry. Revenue grew to a record $108.6 billion, up 49 percent.

JPMorgan has emerged from the financial crisis with renewed swagger. Unlike several other banking chiefs, Mr. Dimon has entered 2010 with his reputation relatively unscathed. Indeed, he is regarded on Wall Street and in Washington as a pillar of the industry. On Wednesday on Capitol Hill, during a hearing of the government panel charged with examining the causes of the financial crisis, Mr. Dimon avoided the grilling given to Lloyd C. Blankfein, the head of Goldman Sachs. Mr. Dimon was also the only banker to publicly oppose the administration’s proposed tax on the largest financial companies.

Moreover, JPMorgan appears have taken advantage of the financial crisis to expand its consumer lending business and vault to the top of the investment banking charts, including a top-flight ranking as a fee-earner. Over all, the investment bank posted a $6.9 billion profit for 2009 after a $1.2 billion loss in 2008 when the bank took huge charges on soured mortgage investments and buyout loans.

The division posted strong trading revenue, though well short of the blow-out profits during the first half of the year when the markets were in constant flux. The business of arranging financing for corporations and advising on deals fell off in the last part of the year, though Mr. Cavanagh said there were signs of a rebound in the first two weeks of January.

As the investment bank’s income surged, the amount of money set aside for compensation in that division rose by almost one-third, to about $9.3 billion for 2009. But JPMorgan officials cut the portion of revenue they put in the bonus pool by almost half from last year.

The division, which employs about 25,000 people, reduced the share of revenue going to the compensation pool, to 37 percent by midyear, from 40 percent in the first quarter. The share fell to 11 percent in the fourth quarter because of the impact of the British bonus tax and the greater use of stock awards.

Bank officials have said that they needed to reward the firm’s standout performance, but to show restraint before a public outraged over banker pay. Other Wall Street firms may make similarly large adjustments.

Chase’s corporate bank, meanwhile, booked a $1.3 billion profit this year, even as it recorded losses on commercial real estate loans. Still, that represents a smaller portion of the bank’s overall balance sheet compared with many regional and community lenders. JPMorgan’s asset management business and treasury services units each booked similar profits for 2009.

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FCIC Calm Before the Storm: Bankers Still Basking in Their Own Glory

Posted on January 14, 2010 by Neil Garfield

Phil Angelides, the former state treasurer of California who is the commission’s chairman, told Mr. Blankfein “it sounds more like you were selling cars with faulty brakes and then buying insurance on the driver.”

Mr. Angelides, who lost the governor’s race in California to Gov. Arnold Schwarzenegger in 2006, pointedly compared some Wall Street chief executives to blackjack players who could win huge amounts of cash but not lose anything.

The only thing about the current situation that gives me some comfort is the eerie similarity with similar hearings that took place after the the 1929 crash. Stuffed with arrogance and hubris, these bankers have always regarded themselves as the fourth branch of government. As Rothschild said, if you have the purse strings you have the power (paraphrasing). But every so often the bankers get a spanking and some even go to jail.

It is difficult to understand the magnitude of their destruction even now. We know a lot of people lost money, income, savings, wealth and dignity over the course of this mess. But we still have yet to feel the pain of title defects when the title insurers and lawyers start balking at supposedly clear or marketable title created at the inception and during transfers of interests in these loans. And the full loss in taxes on reported income has not been explored, which might (if governments do anything about it) be a positive offset to some of our problems.

And of course the final recognition that there is no where to hide on principal reduction. The only question, which I asked two years ago before this exploded, is how to share the losses so that nobody gets destroyed. (My solution was “amnesty for everyone”, but nobody paid attention). Right now we have fewer TITANS controlling more wealth and the rest of us sucking wind where there was money. That is our money they are controlling. They didn’t earn it, and they didn’t obtain it through normal commerce. They got it through fraud.

So at some point we are going to be required to accept one of two things: (1) the perpetrators get to keep their bounty or (2) the victims are restored, as much as possible, to the condition they were in before the fraud. If we choose option 1 then we are headed down the same rabbit hole that deceived everyone into thinking everything was all right while the banks siphoned the life out of our economy. If we choose option 2, then we start on the road to recovery, regeneration and rejuvenation of a nation that for the sake of everyone needs to succeed.

January 14, 2010 New York Times

Few Burns for Four Bankers on the Hot Seat

WASHINGTON — The four bankers of the apocalypse strode into the Congressional hearing room and formed a crooked line. They raised their hands haltingly, looking at one another as if to see whether the other guys were going to do it, too. It was one of the more indecisive swearings-in you will ever see on Capitol Hill.

As cameras clacked Wednesday, four of the nation’s highest financial fliers took their places before the 10-member Financial Crisis Inquiry Commission charged with determining the causes of the nation’s financial debacle.

The bankers — Lloyd C. Blankfein of Goldman Sachs, Jamie Dimon of JPMorgan Chase, John J. Mack of Morgan Stanley and Brian T. Moynihan of Bank of America — joined a gallery of titans who have suffered through this ritual: tobacco executives, automakers and baseball’s steroid users, among others. Few Americans remember what they said, but the images endure as cultural mug shots.

Mr. Dimon (the silver-haired one) arrived first Wednesday morning, standing with his arms folded behind his witness chair, smiling for the cameras. He accepted a small packet of peanut butter cookies from a woman in the audience who rushed up to him. He was joined in chit-chat by Mr. Blankfein (the bald one), then Mr. Moynihan (the baby-faced one).

Mr. Mack (the bushy-eyebrowed one) stood apart from the others in the back of the hearing room. “I’m not going up there,” he said to no one in particular, resisting the photographic firing squad until the last possible second.

Then the gang that couldn’t oath straight mumbled its “I do’s.”

For those anticipating a cathartic ceremony of dressing-downs, apologies or verbal brawling, there was little of it during the three-and-a-half-hour hearing. Nor did the circular House hearing room resemble anyone’s idea of a circus tent; it was packed but quiet, scattered with a few innocuous protesters. The 10 commissioners pressed the bankers on executive compensation, on managing risks and on lending practices, keeping up a brisk pace while the witnesses fidgeted like busy people who all had planes or trains to catch.

The initial round of questions and responses provoked disapproval, a few pointed fingers and sporadic shows of humility from the witnesses. “If you do everything right in business, you’re going to make mistakes,” said Mr. Dimon.

Labored metaphors abounded. Phil Angelides, the former state treasurer of California who is the commission’s chairman, told Mr. Blankfein that he sounded like he was selling cars with faulty brakes and then buying insurance on the driver.

Bill Thomas, the panel’s vice chairman and a cantankerous former congressman from California, compared the work of the commission to an iceberg that was only one-eighth visible over the water.

Commissioner Byron S. Georgiou noted that the banks had “eaten their own cooking” (sort of a gastronomic version of the “made their own bed” cliché). Mr. Mack heartily agreed.

“We did eat our own cooking,” he said. “And we choked on it.”

After Mr. Angelides called for a quick break, the chief executives bolted — except for Mr. Mack, who stayed behind at the witness table. “What are people supposed to think when they see these bankers taking big bonuses?” one reporter asked Mr. Mack, who began his answer by noting that he did not get a bonus. Behind him, a woman wearing a Washington Nationals baseball cap was scurrying around, trying to get people to take her homemade fliers denouncing the Bank of America. She wore a “Fire Kenneth Lewis” T-shirt (Mr. Lewis was until recently the bank’s chief executive).

“I’m here because I want to put these guys in jail,” said the woman, Judy Koenick, of Chevy Chase, Md.

No stranger to muscular but diminished adversaries, Mr. Angelides, who lost the governor’s race in California to Gov. Arnold Schwarzenegger in 2006, pointedly compared some Wall Street chief executives to blackjack players who could win huge amounts of cash but not lose anything. Mr. Dimon responded, “You can lose your job, and your reputation.”

Finally, before lunchtime, Mr. Angelides dismissed the executives.

A reporter asked Mr. Mack if the experience had been fun. “Well,” he said, making his way to the exit, “it’s just something that we had to do.”

Following a few feet behind, Mr. Dimon made the mistake of stopping to chat with someone and found himself gridlocked in a solo press conference.

Why were the chief executives not more apologetic? a reporter asked.

People “have to be very specific” when asking for apologies, Mr. Dimon cautioned.

He squared his shoulders and headed for the back door, only to meet an insistent question from Jonathan Karl of ABC.

“Mr. Dimon, does Wall Street get it?” Mr. Karl asked the banker, who kept walking and had nothing more to say.

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