Category: Corruption

Remember That Justice Department Crackdown of Financial Fraud?

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Round up the usual suspects

It’s all theater, with a bunch of run of the mill low level grifters being rounded up being sold as real law enforcement:

The “Broken Trust” target list resembles that of the President’s “Interagency Financial Task Force,” which has concentrated on minor criminals while studiously avoiding the big (and still deadly) fish (see “A Banker Can’t Get Arrested In This Town”). Most of the Task Force’s indictments involved a category of financial criminal we call “ABB” — “anybody but bankers.” There were software entrepreneurs, family investment firms, some Florida retirement advisors … even a fraudulent psychic who claimed he could predict stock performance! (And no, it wasn’t Jim Cramer.)

Holder’s list of alleged “Broken Trust” victories is a similarly Faginesque assemblage of small-time grifters. It would make an ideal cast of characters for a Damon Runyon story or a Bertolt Brecht musical: There’s a Miami-based Ponzi schemer who used his loot to buy basketball tickets and make yacht payments, a retired Ohio cop who scammed fellow police officers and some firefighters, and the New Jersey hustler who scammed people so he could buy three luxury cars and two country club memberships.

This is clearly top down policy.

You see it from Treasury, you see it from the Department of Justice, you see it from Obama’s entire domestic policy team.

The Cossacks Work for the Czar

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After spending trillions bailing out banks, and billions paying the banks to pretend not to foreclose on people under the HAMP program, it now turns out that the Treasury Department is refusing to cut loose any money for legal aid for people facing foreclosure:

Treasury Secretary Timothy Geithner has authorized big payouts to banks in an effort to encourage mortgage modifications, but is preventing borrowers in danger of losing their homes from accessing legal assistance under the Obama administration’s foreclosure relief plan — even when banks are wrongfully or fraudulently attempting evictions.

As of August, the administration’s foreclosure prevention program — which had paid a total of $231.5 million to banks — had paid nothing specifically for borrower’s legal fees, despite the urging of congressional Democrats who say legal funding is critical to easing the crisis.

Democrats from foreclosure-battered states are pushing new legislation that would overrule Geithner’s edict, but the legislation is doomed this session with apathy from leadership in both parties and a packed lame duck calendar.

It’s easy to blame Timothy “Eddie Haskell” Geithner for all of this, but the reality is that he is Barack Obama’s man, and he is where he is because Barack Obama wants him there, coddling bankers and defrauding homeowners.

How to get a Nobel in Prize Economics

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You have to cover an area of economics that has not been studied in detail before, and is relevant.

Even better if you create a new field of study.

And commenter Hugh at Corrente Wire finds just such an area, though I am unsure if he is aware of this:

… This is my primary criticism of virtually all current economists. None of them write on, or try to construct an economic theory for, kleptocracy either because they are still in denial or because the sheer notion undercuts almost everything they believe and were taught. …

The economics of kleptocracy, whether it be Afghanistan, Zimbabwe, or the United States, tremendously relvant and almost completely unexamined, at least by economists.

Certainly, it does lend itself quite as well to neat equations as do, for example, monetarism or the efficient markets hypothesis, but there is clearly gold, or at least academic glory, in “them thar hillls.”

Interestingly enough, I do think that a lot of the framework has already been laid with the fields of behavioral economics (already Nobels there, Allais, Becker, and Simon) and the the theory of asymmetric information in markets (Stiglitz, Akerlof, and Spence won their Nobel for this).

It seems to me that in the intersection of these two fields, we can find the makings of a rigorous, and relatively quantitative, study of the operations of the economy of a kleptocracy, though I am neither an economist or an Academician, I am an engineer, dammit,* so your mileage may vary.

Even if this does not result in a Nobel, it would certainly generate a buzz, leading to tenure, and the inevitable academic economist groupies.†

*I LOVE IT when I get to go all Doctor McCoy!!!
†I’m not certain about the groupies, but that is what classic economic theory seems to imply.

Your Corruption Update

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Pedro Espade, who switched parties in the New York State Senate and switched control of the body back to the Republican before being tossed out in the primary, has now been charged with embezzling over $½ million from the charity that he ran.

And in the “if you are going to be corrupt, be sure that you are too big to prosecute” category, the winner is Dick Cheney and Halliburton, who are bribing Nigeria to get out from under charges of bribery.

Julian Assange Granted Bail

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We are all Julian Assange

But the Swedish prosecutors promptly appealed the decision, meaning that he spends at least another 48 hours in custody, which in his case means rather harsh isolation.

On the other hand, it appears that reports of a grand jury investigating an indictment under the 1917 espionage act may be baseless.

Truth be told, a good prosecutor can find an sitting already sitting grand jury, and Mr. Assange from a legal perspective is certainly a ham sandwich.

Were I a prosecutor, I would not begin any process until Assange were in Sweden, where extraditions appears to be more likely than in the UK.

Of course, while this is going on, the internet is still being roiled by attacks on both sides of the issue, with Anonymous emerging from 4chan to hit the financial and IT companies that cut Wikileaks off, and other hackers going after Wikileaks, in a game of dueling DDOS attacks.

Hanging over all this is Assange’s poison pill file, which has been distributed to tens, if not hundreds, of thousands of people, waiting for the decryption key that will be distributed if anything happens to him or Wikileaks by a dozen or so of his colleagues.

And then there is the absurdity that Amazon, after tossing Wikileaks from their servers, is now selling copies of the cables for the Kindles.

In the mean time, here are the crucial government secrets that we now know as a result of the cables:

Of course there is some truly sensitive and shocking information out there, specifically that, the DPRK (North Korea) was willing to take significant steps to  reassure the US and the ROK (South Korea) in exchange for an Eric Clapton concert in Pyongyang.

Merciful heavens, we can’t let the citizenry know about that.

The final word on this is Pentagon Papers leaker Daniel Ellsberg’s, “EVERY attack now made on WikiLeaks and Julian Assange was made against me and the release of the Pentagon Papers at the time.“

Assange Jailed

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Note that he has not been charged, and the warrant is for an interview, a British magistrate has ordered Julian Assange held without bail after he turned himself in voluntarily.

Tell me that the fix is not in here.

Of course, the fact that hundreds, perhaps thousands of people, have his ITEOD* file, and some number probably greater than 10 people have the code to decrypt those unredacted files has got to give the people pursuing him cause to pause.

*In The Event Of Death.

Don’t Audit the Fed

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Waterboard their lily white flabby asses until they release the data that they are required to!

Even though the (weak tea) Dodd-Frank financial reform bill requires the Federal Reserve to release data on the collateral that they received for loans during the crises, the “sh%$pile for cash” program, so that people can see the risks that they took, the Fed is withholding this data:

The Federal Reserve withheld details on individual securities pledged as collateral by recipients of $885 billion in central bank loans, denying taxpayers a measure of the risks they faced from its emergency aid.

The central bank yesterday released data on 21,000 transactions from $3.3 trillion in emergency lending to stem the financial crisis. July’s Dodd-Frank law required the Fed to disclose the names of borrowers, the size and interest rates of loans, and “information identifying the types and amounts of collateral pledged or assets transferred.”

What is going on here is that the Fed is trying to cover its ass, and the only question is whether what they did was merely myopic, or actually illegal.

My money is on the latter.

H/t Yves Smith.

The Wheels of Justice Turn Slowly

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In Nigeria, where they intend to charge Dick Cheney for bribery for his activities as head of Halliburton:

Nigeria will file charges against former U.S. Vice President Dick Cheney and officials from five foreign companies including Halliburton Co. over a $180 million bribery scandal, a prosecutor at the anti-graft agency said.

Indictments will be lodged in a Nigerian court “in the next three days,” Godwin Obla, prosecuting counsel at the Economic and Financial Crimes Commission, said in an interview today at his office in Abuja, the capital. An arrest warrant for Cheney “will be issued and transmitted through Interpol,” the world’s biggest international police organization, he said.

And the Wikileaks tapes reveal that the Obama administration went hammers and tongs against Spanish judicial investigations of torture by Bush administration officials.

So it appears that the rich and powerful evil-doers are more likely to be prosecuted in Nigeria, and more likely to be protected in the United States.

H/t emptywheel.

Federal Reserve Releases Dodd-Frank Audit Results

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So they are out, they are voluminous, and I have neither the time nor the expertise to to review them all, I here is what I’ve seen in other people’s commentaries.

We see loans at absurdly low rates and self dealing, the Fed’s commercial paper program was dominated by European banks, and surprise, surprise, Goldman Sachs actually needed the aid that it claimed to only grudgingly accept.

The full Federal Reserve press release is after the break:

Press Release

Release Date: December 1, 2010

For immediate release

The Federal Reserve Board on Wednesday posted detailed information on its public website about more than 21,000 individual credit and other transactions conducted to stabilize markets during the recent financial crisis, restore the flow of credit to American families and businesses, and support economic recovery and job creation in the aftermath of the crisis.

Many of the transactions, conducted through a variety of broad-based lending facilities, provided liquidity to financial institutions and markets through fully secured, mostly short-term loans. Purchases of agency mortgage-backed securities (MBS) supported mortgage and housing markets, lowered longer-term interest rates, and fostered economic growth. Dollar liquidity swap lines with foreign central banks helped stabilize dollar funding markets abroad, thus contributing to the restoration of stability in U.S. markets. Other transactions provided liquidity to particular institutions whose disorderly failure could have severely stressed an already fragile financial system.

As financial conditions have improved, the need for the broad-based facilities has dissipated, and most were closed earlier this year. The Federal Reserve followed sound risk-management practices in administering all of these programs, incurred no credit losses on programs that have been wound down, and expects to incur no credit losses on the few remaining programs. These facilities were open to participants that met clearly outlined eligibility criteria; participation in them reflected the severe market disruptions during the financial crisis and generally did not reflect participants’ financial weakness.

The Federal Reserve is committed to transparency and has previously provided extensive aggregate information on its facilities in weekly and monthly reports. As provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, transaction-level details now are posted from December 1, 2007, to July 21, 2010, in the following programs:

  • Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)
  • Term Asset-Backed Securities Loan Facility (TALF)
  • Primary Dealer Credit Facility (PDCF)
  • Commercial Paper Funding Facility (CPFF)
  • Term Securities Lending Facility (TSLF)
  • TSLF Options Program (TOP)
  • Term Auction Facility (TAF)
  • Agency MBS purchases
  • Dollar liquidity swap lines with foreign central banks
  • Assistance to Bear Stearns, including Maiden Lane
  • Assistance to American International Group, including Maiden Lane II and III

Additionally, discount window and open market operation transactions after July 21, 2010, will be posted with a two-year lag.

The data made available Wednesday can be downloaded in multiple formats, including Excel, at www.federalreserve.gov/newsevents/reform_transaction.htm. The Excel files allow users to search, sort, and filter the data for each program in multiple categories. The site also provides explanations of each program as well as definitions for the data elements.

In the case of broad-based facilities, details provided include the name of the borrower, the amount borrowed, the date the credit was extended, the interest rate charged, information about collateral, and other relevant credit terms. Similar information is provided for the draws of foreign central banks on their dollar liquidity swap lines with the Federal Reserve. For agency MBS transactions, details include the name of the counterparty, the security purchased or sold, and the date, amount, and price of the transaction.

Yeah, Barack Obama is Shutting Down the Revolving Door……

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Former White House Budget Director Peter Orzag is going to work for Citi’s investment banking income:

Citigroup Inc., recovering from its $45 billion bailout in 2008, is in advanced talks to hire former White House Budget Director Peter Orszag, people with knowledge of the matter said.

Orszag, 41, may take a job in the New York-based firm’s investment-banking division, the people said, declining to be identified because the discussions are private. An announcement may come as early as today, one of the people said.

I wonder what he did at the White House to get the back end payoff from Wall Street now, and I am not feeling hopey changey right now.

Quote of the Day

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Courtesy of Zach Carter:

So Paul Krugman’s prediction of zombie banks creating a drag on the economy has not come true. The reality is, in fact, much worse. Krugman foresaw zombie banks that didn’t lend due to capital concerns, preventing the recovery from getting off the ground. We’re seeing plenty of that, but we’re also seeing zombie banks actively prey on the economy through the foreclosure process in an effort to repair their balance sheets. The zombie banks aren’t just failing to boost the economy, they’re actively sabotaging it.

Go read the rest.

F%$# the Federal Reserve

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The Federal Reserve, in response to repeated instances of wrongdoing and fraud by banks against mortgage owners, has decided to issue a new regulation gutting the right of rescission for fraudulent activities, citing “compliance costs”:

Hundreds of consumer, civil rights, legal services, community and labor groups and private and public interest attorneys representing homeowners, along with the coalition Americans for Financial Reform, urged the Federal Reserve Board to withdraw a proposed rule that would destroy a key legal tool to unwind illegal loans and avoid foreclosure.

“We are astonished that, with the nation facing its greatest foreclosure crisis since the Great Depression, the Board’s proposal would eliminate the single most powerful legal tool that homeowners currently have to stop wrongful foreclosures, the federal right to rescind an illegal loan,” said Margot Saunders, Counsel to the National Consumer Law Center.

Basically, what rescission says is that if the loan was fraudulent, then the contract is broken, the lender cannot foreclose, and all interest, penalties, and fees revert to the homeowner, though the lender is still due his principal………Eventually.

The Fed’s proposed new rule says that you can get rescission only after the principal has been repaid in full, essentially gutting that right, it allows for much larger misstatements by the bank as to the estimated monthly payments and in the total amount of the loan.

Additionally, they are proposing changed the rule on reverse mortgages that forbade issuers to require the purchase of another product as a condition for that loan, so now, so long as it is at least 10 days from the issuance of the reverse mortgage, it will be hunky dory, which has the AARP seriously pissed off.

This is egregious enough that the New York Times inveighed against this change in regulation.

I’m mad enough to agree with Ron Paul, and suggest that we shutter the Federal Reserve completely, or at least transform it from a quasi-private entity into one that is more responsive to politics.

Actually, my preferred position is to leave it in charge of monetary policy and money supply, and strip all regulatory powers from it, since it has shown itself to be completely unwilling and unable to create or enforce balanced regulations on the banks.

Our Man in Kandahar

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So, we have been holding high level talks with a high ranking representative of the Taliban, Mullah Akhtar Muhammad Mansour, and they plied him with many inducements, including no small amount of cash, only he turned out to be a con man scamming American negotiators:

For months, the secret talks unfolding between Taliban and Afghan leaders to end the war appeared to be showing promise, if only because of the appearance of a certain insurgent leader at one end of the table: Mullah Akhtar Muhammad Mansour, one of the most senior commanders in the Taliban movement.

But now, it turns out, Mr. Mansour was apparently not Mr. Mansour at all. In an episode that could have been lifted from a spy novel, United States and Afghan officials now say the Afghan man was an impostor, and high-level discussions conducted with the assistance of NATO appear to have achieved little.

“It’s not him,” said a Western diplomat in Kabul intimately involved in the discussions. “And we gave him a lot of money.”

American officials confirmed Monday that they had given up hope that the Afghan was Mr. Mansour, or even a member of the Taliban leadership.

We are not just non winning in Afghanistan, we are actively, and aggressively, losing there.

Things like this are a sign of a failed policy being pursued by desperate people.

H/t Atrios.

The Insider Trading Arrests Have Begun

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We now have the first arrest as a result of the Department of Justice’s investigation of insider trading facilitated by “research firms”:

The government made the first arrest in a broad investigation of alleged insider trading on Wall Street, charging an employee of a California research firm used by hedge funds.

Don Ching Trang Chu was arrested at his home in Somerset, N.J., and charged in federal court in New York with two counts of conspiracy to commit fraud. He was released on a $1-million bond.

A complaint filed by prosecutors says Chu helped hedge funds get inside information on publicly traded companies by connecting the funds with employees of the firms. 

One interesting thing to note is that, like Tamil financier Raj Rajaratnam of Galleon, once again they have arrested someone who isn’t a member of the Wall Street white boy’s club.

The real question here is whether this will be pursued up the chain.

My guess is no, because both Obama and Eric “Place” Holder have sold their genitals to the finance industry have decided to look forward, and not backward.

In a related note, a judge has said that the wiretaps in the Galleon case are admissible, which implies that this will increasingly be used as a tool by prosecutors in financial corruption.

That’s Guilty, Guilty, Guilty, Guilty!!

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Tom Delay was convicted of one count of money laundering and one count of conspiracy to launder money.

Basically, he used the Republican national committee to funnel illegal corporate money to state races for the the Texas legislature.

While the charges typically carry a sentence of 5 to 99 years in prison, the judge can also sentence him to probation.

First, Delay his lawyer, Dick DeGuerin, is very good, so there promises to be years of appeals, and there is a very real chance that he will find a judge or judges who owe him some sort of favor.

This is Texas, after all.

Call me a cynic, but I would be very surprised if he spends more than 18 months in a minimum security prison.

When one considers the degree to which he made pay to play a part of the Washington, DC political scene, he deserves a lot more than that.

He is a truly contemptible human being, and the most evil contestant on Dancing With the Stars ever, which is saying a lot.

Tom Delay, Felon…You know, I REALLY like the sound of that, and for today, at least, that is the truth.

Of course, he could go the way of Kenneth Lay, and die while the appeal is going on, which would be very convenient for people who are concerned that he might cooperate with authorities.

This is Texas, after all.

About Damn Time

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The FBI has raided at least 3 hedge funds on suspicion of insider trading:

The FBI has begun what is expected to be a far-reaching probe into insider trading with raids on hedge funds linked to some of Wall Street’s most high-profile and wealthiest players.

The sweep – which began with armed agents raiding the Connecticut offices of Level Global Investors and Diamondback Capital Management, both multibillion dollar hedge funds set up by former managers at Steve Cohen’s SAC Capital Advisors – is already affecting stocks: a collective $15bn was wiped off the valuations of Goldman Sachs, Morgan Stanley, Citigroup, Bank of America and JP Morgan Chase. Goldman Sachs, Morgan Stanley, Citigroup, Bank of America and JP Morgan Chase.

According to reports published in the Wall Street Journal, investigators from several law enforcement and regulatory agencies are looking into multiple insider-trading rings that reaped millions in illegal profits. An FBI spokesman confirmed last night that the agency was executing “court-ordered search warrants”, but declined to elaborate.

One focus is whether proprietary information is being passed from companies to hedge funds by network of independent analysts and consultants.

Well, this is refreshing: It appears that someone is beginning to look at “business as usual” on Wall Street, and they have noticed that it’s corrupt.

I also have to note that the coverage on the Marketplace radio program was repulsive.

They had an apologist fow wall street on, and he wrung his hands about how fuzzy the lines were, and how no one was really hurt.

This is bovine scatology. Just because they are robbing millions of.investors a few bucks at a time does not diminish the crime.

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Speaking of Saroff’s Rule

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Click for full (honking big) size

If a financial transaction is complex enough to require that a news organization use a cartoon to explain it, its purpose is to deceive.

Williambanzai7 at zero hedge finds this description of how mortgage securitization works from an auditor by the name of Dan Edstrom.

The gentleman, “Performs securitization audits (Reverse Engineering and Failure Analysis) for a company called DTC-Systems.”

Of course, Saroff’s Rule does not strictly apply here.

This is not the product of a publication that is generating graphics for the edification of the reading public.

This is a visual aid to a Securitization Workshop for Attorneys, and it is what happened to his own mortgage.

This is not some theoretical mortgage that he looked at. This is his mortgage.

It took him a full year to track it all down, and his business is to do mortgage securitizations.

This happens because complexity is the enemy of transparency, and without transparency, the opportunities to profit by cheating and defrauding your counter-parties increases.