Category: Finance

Hoocoodanode? The Frogs, That’s Hoocoodanode

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Yes, Wikileaks, the gift that keeps on giving,™ has yet more beneath the rocks information on just how f%$#ed up Wall Street was.

It turns out that the French were desperately warning the US Treasury Department that a crash was inevitable, because of endemic fraud in our financial system:

In 2007 top US and France officials knew rampant fraud being committed by regulators, rating agencies and Wall Street Banks would soon cause a global financial collapse.

While investors and nations around the world were happily giving trillions of dollars away to crooked Wall Street bankers top officials in the United States and France knew the market would soon collapse and people would be robbed of millions.

While raising the issue that the role of government regulators and rating agencies needed to be reviewed in the wake of the upcoming crisis, US officials ignored calls from the French government to enact necessary regulation to stop the rampant fraud that would soon result in investors losing tens of trillions of dollars they had invested into the markets.

The cable reveals that while discussing the ability of the French banks to survive the crisis, French President Sarkozy was pushing the US to enact regulations to forestall the crisis. Instead, Henry Paulson responded by telling Sarkozy not to overreacted because the” it would take months, not weeks, for credit to be re-priced” telling France this is “not a major crisis.”

Paulson went on to warn that the major problem was with the German banks and which would require a bailout from the taxpayer while warning that the assets held by banks but covered up from investors by being held off-balance sheet presented systematic risk to banks and to sovereign wealth.

The cable clearly reveals that taxpayer bailouts would be needed. Paulson further up sticks up for the Wall Street hedge fund saying they were not to blame for the crisis while acknowledging there were major Wall Street transparency issues.

To summarize, the cable reveals that top government officials in France and the US knew Wall street banks were committing fraud in the origination and packaging of sub-prime mortgage and lying to investors about the resulting securities they were creating and selling. Officials knew banks were also lying about their own liabilities and hiding them from investors by keeping the assets off their balance sheets. The government also knew that both regulators and ratings agencies were participating in the scheme.

So our regulatory apparatus was aware of deep and systemic control fraud on the part of our largest financial institutions over a year before the house of cards collapsed, but decided to do nothing.

This was no Black Swan.  This was a blatant and systemic looting of the system, with implicit taxpayer backstop.

Where are the prosecutions?

As an aside, the most tightly held secrets held by our state security apparatus are not about protecting the nation and its citizens, but rather about protecting the most powerful amongst us from embarrassment and ridicule.

We really need to embed the Swedish concept of Offentlighetsprincipen (openness) into our constitution.

H/t DC on the Stellar Parthenon BBS.

Labor Day News that Will Be Thoroughly Buried

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Did you see the story on the news about thousands of nurses lobbying congressmen for a tax on financial transactions fund essential services and infrastructure:

From the Atlantic to the Pacific, an estimated 10,000 nurses and community participants joined actions in 21 states today demanding immediate attention to the economic crisis to heal America.

They called on Senators and Congress members in their local district offices to pledge to “support a Wall Street transaction tax that will raise sufficient revenue to make Wall Street pay for the devastation it has caused on Main Street.”

Did you hear about that on the news?

Neither did I.

(rest of press release after the break)

Events from soup kitchens to feeding the hungry, to community speak outs, to street theater took place from urban centers including Boston, Chicago, San Francisco, and Orlando, to smaller towns, such as Corpus Christi, TX, Marquette, MI, and Dayton, OH. National Nurses United, the largest U.S. union of nurses with 170,000 members, sponsored the actions.

In Richmond, VA, 120 RNs and allies descended on the office of House Majority Leader Eric Cantor and were greeted by a squadron of police. The RNs responded with singing and a large picket line. Cantor’s office invited a delegation to meet with his chief of staff. Fifteen constituents lead by NNU nurses held the meeting.. Cantor’s staff heard moving testimony and said the congressman would “respond.” The local CBS and NBC stations filmed outside, as they were not allowed in. A “Lady Liberty” character greeted the delegation on Cantor’s office lawn as it exited the meeting, and heard stories of the pain caused on Main Street by Wall Street.

“America’s nurses every day see broad declines in health and living standards that are a direct result of patients and families struggling with lack of jobs, un-payable medical bills, hunger and homelessness. We know where to find the resources to bring them hope and real solutions,” said NNU Co-president Karen Higgins, RN, outside Cantor’s office.

Ringing a bell and shouting “Oye Oye,” a town crier dressed in colonial attire drew a crowd of nearly 200 nurses, activists and passersby as he decried the reckless actions of Wall Street and its impact on the working people of Boston’s Main Street in front of the office of Senator Scott Brown.

Watch a video of the Boston event at this link http://www.youtube.com/watch?v=ejgeLElHVkI and see a photo below.

In Pueblo, CO, a pledge delivered to Senator Udall asked “which side is the senator on: Wall Street or Main Street?”

One hundred people attempted to enter Senator Toomey’s office near Philadelphia but were blocked by security guards. At Rep. Peter King’s Long Island, New York office, 50 nurses and supporters entered his office to serve up the pledge but were kept out. See photo below.

Chicago’s nurses sang the blues as hundreds of nurses and others gathered in support of the pledge. See photo below.

The staff of Senator Rubio in Orlando, FL is accompanying nurses to feed local homeless. In downtown San Francisco a soup kitchen was assembled to feed the hungry and drew more than 500.

And outside the office of Rep. Darryl Issa, north of San Diego, a crowd of 300 nurses, including members of other unions and area residents, expressed outrage at allegations of self dealing by the congressman. An RN delegation entered his office and delivered the pledge. Outside, community members shared stories of enduring economic hardships. See picture below.

Nurses visited home offices of Republicans and Democrats throughout the day with a common message – American families are hurting, and they need jobs, healthcare, housing, quality education, nutrition, and a secure retirement.

In addition, the RNs are releasing data where available contrasting contributions the legislators have received from Wall Street with the plummeting economic conditions in their districts that has left substantial numbers of their constituents in crisis.

Rep. Paul Ryan, for example, a Wisconsin Republican, has accepted $2,417,672 in campaign contributions from Wall Street financial institutions the past 12 years, as a champion for Wall Street interests. But the payoff has been small for his district where 69,241 people are uninsured, 22,884 are dependent on food stamps, and 20,394 children and 7,939 seniors live in poverty.

Similarly, Sen. Michael Bennett of Colorado, a Democrat, has collected $2,409,806 in campaign contributions from Wall Street interests while his state languishes in the top 10 in foreclosures, has 184,689 children in poverty, 116,941 people dependent on food stamps, and 13,390 homeless.

NNU will also be calling for the establishment of Main Street commissions to push real solutions for Main Street communities, such as the Wall Street financial tax, in comparison to what NNU Executive Director RoseAnn DeMoro calls “the Wall Street ‘super committee’ set up in the recent debt ceiling deal whose main goal seems to be more cuts in programs that help people to funnel more resources to Wall Street and foreign banks and investors.”

A tax on Wall Street trading of stocks, derivatives, currencies, credit default swaps, and futures – which many other nations have now adopted – could raise hundreds of billions of dollars to pay for programs that “are desperately needed to reduce the pain and suffering felt by so many who feel abandoned across this nation,” says NNU Co-President Deborah Burger, RN.

“It’s time for Wall Street financiers, who created this crisis and continue to hold much of the nation’s wealth, to start contributing to rebuild this country, and for the American people to reclaim our future,” says DeMoro.

The $2.4 trillion in government bailouts to financial and other institutions already spent, noted DeMoro, alone would have funded 63 million jobs at the national median level of about $39,000 a year. “Instead we have over 25 million people who are unemployed or underemployed, and in the past decade U.S. based corporations added 2.4 million jobs in foreign countries while divesting in America, cutting 2.9 million jobs in the U.S.”

“We need to reallocate the money back to our communities, and our actions on September 1 are going to raise the demand to a new level to heal our nation,” said NNU Co-president Jean Ross.

Learn More About the Main Street Contract for America and Get Involved Here

Click here for information on the National Nurses United

Yes, that Acquisition of Countrywide was So Good for BoA

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I probably haven’t been writing about this as much as I should, but it’s beginning to look like Bank of America’s ill-advised takeover of Countrywide Financial, and it’s portfolio of fraudulent mortgages, is beginning to cause some real problems.

Basically, the sweetheart deal that they negotiated with the trustee, Bank of New York Mellon, would have them paying out pennies on the dollar for misrepresented and mis-documented mortgages.

First, New York Attorney General Eric Schneiderman opposed the settlement saying that it was unfair to investors.

Of course, the unfairness was a feature, not a bug, since BNY Mellon is desperate to reduce its exposure from their deliberate lack of due diligence.

Then, the FDIC opposed the deal, saying that they did not have enough information to evaluate the deal on its merits.

And if we know anything about the world of securitized mortgages and trusts, we know that more information means more bad news, as we have seen every time another rock gets overturned.

Well, now we have individual homeowners filing to block the settlement, because, as a sop to investors, the deal would have established a “rocket docket” for foreclosures:

Lawyers for the National Consumer Law Center said in a report prepared as part of the case that the proposed settlement “will speed up foreclosures, perpetuate existing servicing abuses in the system, and undermine federal programs designed to stabilize the housing market.”

Bank of America had hoped the $8.5 billion settlement would finally put much of this potential liability behind it, but the challenges have raised investor fears that the ultimate cost of the settlement could rise sharply. Anxiety about the extent of Bank of America’s legal woes has also weighed on the bank’s stock, with some estimates suggesting the ultimate cost could be in the tens of billions.

First, I think that the penalties, including tax penalties for improperly conveying the mortgages to the trust, are almost certainly in the hundreds of billions of dollars, and second, when an $8.5 billion payout is a sweetheart deal, it means that the banks are too big.

Oh, yeah, and I almost forgot: The FHFA filed a similar objection to the FDIC’s and U.S. Bancorp is suing to get BOA to buyback the mortgages in yet another trust.

BoA would be, in a fair and just world, toast, and its executives would be facing criminal investigations.

In this world, however, it means that Obama and Geithner and Bernanke will be setting up someway to bail them out in order to insure executive bonuses “protect the banking system” with our money.

H/t Naked capitalism.

On edit:

It looks like the Nevada is claimed that BoA reneged on its loan modification agreement with the state, and so they are filing to abrogate the agreement so that they can sue:

The attorney general of Nevada is accusing Bank of America of repeatedly violating a broad loan modification agreement it struck with state officials in October 2008 and is seeking to rip up the deal so that the state can proceed with a suit against the bank over allegations of deceptive lending, marketing and loan servicing practices.

In a complaint filed Tuesday in United States District Court in Reno, Catherine Cortez Masto, the Nevada attorney general, asked a judge for permission to end Nevada’s participation in the settlement agreement. This would allow her to sue the bank over what the complaint says were dubious practices uncovered by her office in an investigation that began in 2009.
In her filing, Ms. Masto contends that Bank of America raised interest rates on troubled borrowers when modifying their loans even though the bank had promised in the settlement to lower them. The bank also failed to provide loan modifications to qualified homeowners as required under the deal, improperly proceeded with foreclosures even as borrowers’ modification requests were pending and failed to meet the settlement’s 60-day requirement on granting new loan terms, instead allowing months and in some cases more than a year to go by with no resolution, the filing says.
The complaint says such practices violated an agreement Bank of America reached in the fall of 2008 with several states and later, in 2009, with Nevada, to settle lawsuits that accused its Countrywide unit of predatory lending. As the credit crisis grew, the settlement was heralded as a victory by state offices eager to help keep troubled borrowers in their homes and reduce their costs. Bank of America set aside $8.4 billion in the deal and agreed to help 400,000 troubled borrowers with loan modifications and other financial relief, such as lowering interest rates on mortgages.

I wish that I knew of a way to go short on the bad news piling up, and long on the eventual bailout.

While We Are On the Subject of Bank of America

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When you offer a bribe, make sure that the mic is not live

Look at the video for this gem. A representative of Bank of America walks up to Rick Perry, and says, “Bank of America… We will help you out”.

It turns out that be Bank Of America’s director of public policy, James Mahoney.

Nope, no quid pro quo here, BoA has released a statement saying that, “Bank of America does not endorse Presidential candidates. The reference was about following up on the substance of the speech about job creation and economic growth.”

Yeah, we believe you, and we believe it when you say that MERS properly recorded mortgages, and that you f%$#s didn’t pay off the ratings agencies to rate your garbage as AAA,

H/t Cthulhu.*

*No, not the unspeakably malevolent super-being, the contributor to the Stellar Parthenon BBS.†
†OK, I’ve never seen the two of them together, so Cthulhu might actually be the Cthulhu, but the mere fact that he is on a BBS, interacting with humans‡ would seem to mitigate against this.
‡Yes, I know, this is the internet, where no one knows if you are a dog.

Obama Admin Pressuring NY AG Schneiderman to Drop Bank Investigations

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We are getting leaks that the Obama administration is going full bore to prevent New York State Attorney General from doing a thorough and diligent investigation of the banksters mortgage fraud:

Eric T. Schneiderman, the attorney general of New York, has come under increasing pressure from the Obama administration to drop his opposition to a wide-ranging state settlement with banks over dubious foreclosure practices, according to people briefed on discussions about the deal.

In recent weeks, Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade the attorney general to support the settlement, said the people briefed on the talks.

Mr. Schneiderman and top prosecutors in some other states have objected to the proposed settlement with major banks, saying it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.

But Mr. Donovan and others in the administration have been contacting not only Mr. Schneiderman but his allies, including consumer groups and advocates for borrowers, seeking help to secure the attorney general’s participation in the deal, these people said. One recipient described the calls from Mr. Donovan, but asked not to be identified for fear of retaliation.

So, not only are they pressuring Schneiderman, but they are trying to gin up an AstroTurf response to further intimidate him.

I’m with what Yves Smith said, “It is high time to describe the Obama Administration by its proper name: corrupt.” (emphasis mine)

What’s more, he’s also catching flack from the in the person of Kathryn Wylde, Deputy Chair of the New York Bank of the Federal Reserve, who accosted him at a memorial service

Representatives for the four big banks declined to comment. Mr. Schneiderman has also come under criticism for objecting to a settlement proposed by Bank of New York Mellon and Bank of America that would cover 530 mortgage-backed securities containing Countrywide Financial loans that investors say were mischaracterized when they were sold.

The deal would require Bank of America to pay $8.5 billion to investors holding the securities; the unpaid principal amount of the mortgages remaining in the pools totals $174 billion. Lawyers representing 22 institutional investors, including the Federal Reserve Bank of New York, BlackRock and Pimco, contended that the deal was favorable.

This month, Mr. Schneiderman sued to block that deal, which had been negotiated by Bank of New York Mellon as trustee for the holders of the securities. The lawsuit contends that the deal could “compromise investors’ claims in exchange for a payment representing a fraction of the losses” experienced by investors and that it had been negotiated without the knowledge of all of the holders of the securities.

The lawsuit angered Bank of New York Mellon, and as Mr. Schneiderman was leaving the memorial service last week for Hugh Carey, the former New York governor who died Aug. 7, an attendee said Mr. Schneiderman became embroiled in a contentious conversation with Kathryn S. Wylde, a member of the board of the Federal Reserve Bank of New York who represents the public. Ms. Wylde, who has criticized Mr. Schneiderman for bringing the lawsuit, is also chief executive of the Partnership for New York City. The New York Fed has supported the proposed $8.5 billion settlement.

Other investors in the Countrywide mortgage pools who were not part of the settlement talks between Bank of New York Mellon and Bank of America have called the terms inadequate.

Characterizing her conversation with Mr. Schneiderman that day as “not unpleasant,” Ms. Wylde said in an interview on Thursday that she had told the attorney general “it is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

(emphasis mine)

Defrauding investors and home buyers is defensible?

I’m with Barry Ritholtz, who has called for Wylds’s resignation:

If the Times report is accurate, and the quote below [it;s the last paragraph above quote] represents Ms. Wylde’s comments, than that position is a laughable mockery, and Ms. Wylde should resign effective immediately.

…………

But what is surprising is the utterly inappropriate behavior of Kathryn S. Wylde. She is not only a member of the board of the Federal Reserve Bank of New York, but occupies the seat supposedly reserved for the representing the public.

If the Times report is accurate, and the quote below represents Ms. Wylde’s comments, than that position is a laughable mockery, and Ms. Wylde should resign effective immediately.

(emphasis mine)

In any case, if you want to contact the AG and tell him not to back off, you can call (800) 771-7755 or at (212) 416-8000) or use his e-mail form.

This is particularly recommended.

BTW, if you live in Delaware, you might want to drop a dime on Beau Biden, the VP’s son, and Delaware’s AG, who has joined with Schneiderman in opposing the BoA deal.

If the Fed and the Obama administration are dead set on any sort of meaningful reform or accountability for the banks, then we need back up the State Attorneys General to pursue the banksters.

[on edit]

The AGs or Massachusetts and Nevada are also balking on the settlement offer, and considering that Nevada has probably the worst foreclosure problems in the nation, it makes any settlement even more problematic.

Unsurprising News About the Ratings Agencies

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I’m shocked, shocked to find that gambling is going on here!

A former senior VP at Moody’s has written a detailed layer to the SEC alleging that the ratings agency systematically pressured analysts to uprate crappy derivatives:

A former senior analyst at Moody’s has gone public with his story of how one of the country’s most important rating agencies is corrupted to the core.

The analyst, William J. Harrington, worked for Moody’s for 11 years, from 1999 until his resignation last year.

From 2006 to 2010, Harrington was a Senior Vice President in the derivative products group, which was responsible for producing many of the disastrous ratings Moody’s issued during the housing bubble.

Harrington has made his story public in the form of a 78-page “comment” to the SEC’s proposed rules about rating agency reform, which he submitted to the agency on August 8th. The comment is a scathing indictment of Moody’s processes, conflicts of interests, and management, and it will likely make Harrington a star witness at any future litigation or hearings on this topic.

His specific allegations:

  • Moody’s ratings often do not reflect its analysts’ private conclusions. Instead, rating committees privately conclude that certain securities deserve certain ratings–but then vote with management to give the securities the higher ratings that issuer clients want.
  • Moody’s management and “compliance” officers do everything possible to make issuer clients happy–and they view analysts who do not do the same as “troublesome.” Management employs a variety of tactics to transform these troublesome analysts into “pliant corporate citizens” who have Moody’s best interests at heart.
  • Moody’s product managers participate in–and vote on–ratings decisions. These product managers are the same people who are directly responsible for keeping clients happy and growing Moody’s business.
  • At least one senior executive lied under oath at the hearings into rating agency conduct. Another executive, who Harrington says exemplified management’s emphasis on giving issuers what they wanted, skipped the hearings altogether.

(emphasis original)

The fact that no senior manager on Wall Street has been indicted over this sort of behavior, and they continue to work, and continue to be criminally overpaid, fills me with despair.

It’s Bank Failure Friday!!!! (I Smell a Felony Indictment Edition)

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Something odd on the FDIC failed bank page, do you notice it?

Do you see it? Public Savings Bank, of Huntingdon Valley, PA was closed yesterday, a Thursday.

The only other time I remember the FDIC closing a bank on a not-Friday, it was when senior bank executives were facing a criminal indictment as well.

That’s my guess anyway.  These non-Friday closings tend to be associated with breaking news of some sort of criminality.

In any case, here are the bank failures, ordered, and numbered for the year so far.

  1. Public Savings Bank, Huntingdon Valley, PA
  2. Lydian Private Bank, Palm Beach, FL
  3. First Southern National Bank, Statesboro, GA
  4. First Choice Bank, Geneva, IL

Full FDIC list

So, here is the graph pr0n with last years numbers for comparison (FDIC only):

DOJ, SEC Investigate S&P, EE-I-EE-I-O

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It’s not just S&P, it’s Moody’s too:

The U.S. Justice Department is probing Moody’s Investors Service and Standard & Poor’s over ratings of mortgage-backed securities, according to three former employees who said they were interviewed by investigators.

Washington-based lawyers from the Justice Department spoke to former employees as recently as last month about whether the companies raised their grades for the complex investments in order to win business, said the former employees, who asked for anonymity because the investigation is ongoing. The inquiry is a civil matter, two of them said.

The probe is the latest of dozens of government investigations and investor lawsuits targeting Moody’s and S&P, a unit of McGraw-Hill Cos., all based in New York, over the top grades they assigned to bonds backed by subprime mortgages. Even as the Financial Crisis Inquiry Commission called them “key enablers of the financial meltdown,” the raters avoided legal liability, according to Benchmark Co.’s Edward Atorino.

Note there that the DoJ being involved means that this is some sort of criminal investigation.

Here’s hoping that Eric “Place” Holder doesn’t decide to look forward instead of backward.

It’s Probably Just a Bait and Switch…

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But as a part of the joint announcement by Sarkosy and Merkel on greater EU integration to fix the current series of debt crises they have proposed to impliment a Tobin tax on financial transactions:

The French president, Nicolas Sarkozy, and German chancellor, Angela Merkel, announced the dramatic proposals after a two-hour mini-summit. They also called for the imposition of tighter restrictions on member country’s deficits and announced a synchronising of the tax policies of their own two countries. Sarkozy has also secured the support of Merkel for a Tobin tax – a financial tax on all international transactions – to raise funds to ease the crisis engulfing the European economy.

The amount of money generated by a Tobin tax would actually be smaller than generally anticipated, because much of the financial activity is pure short speculation, where extremely short term bets with payoffs of a fraction of a percent, create profits for doing nothing.

The banks suggest that such a tax is a bad idea because it would discourage such activity, but I consider it to be an even more valuable feature than any potential revenue raised.

Much of the unproductive rent seeking that occurs in our economy is an artifact of just such a behavior.

So, to paraphrase this xkcd cartoon, Mission F%$#ing Accomplished:

Of course, in reality, it’s just smoke and mirrors:  The Tobin Tax proposal is just a way to sell their idea for a European balanced budget amendment, and at the end of the day, the Tobin Tax will go away, and the Banksters will get what they want, because that’s how the game is played.

Mark Thoma has a good analysis of the tax, and you can also check out the Wiki page.

Have I Mentioned that I Love Matt Taibbi?*

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He just uncovered another bit of regulatory capture, specifically he is reporting on allegations that the SEC routinely destroyed all records of its investigations:

Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – “Hey, chief, didja know this guy had two wives die falling down the stairs?” No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.

That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – “18,000 … including Madoff,” as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.

Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency’s records – “including case files relating to preliminary investigations” – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term “Orwellian,” devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or “Matters Under Inquiry” – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission’s internal website. “After you have closed a MUI that has not become an investigation,” the site advised staffers, “you should dispose of any documents obtained in connection with the MUI.”

Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.

The widespread destruction of records was brought to the attention of Congress in July, when an SEC attorney named Darcy Flynn decided to blow the whistle. According to Flynn, who was responsible for helping to manage the commission’s records, the SEC has been destroying records of preliminary investigations since at least 1993. After he alerted NARA to the problem, Flynn reports, senior staff at the SEC scrambled to hide the commission’s improprieties.

And that’s just his first 5 paragraphs.

What’s also in the article is the pattern of what can only be described as a patterned of end loaded bribery, where SEC senior bureaucrats spiked investigations, destroyed all evidence collected, and then found well remunerated positions with firms that they had “exonerated.”

There should be hundreds of people on Wall Street, and regulating Wall Street, who should have been frog marched out of the places of work in hand cuffs.

*In a 110% purely heterosexual kind of way, of course, as the General would say.

Economics Update

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It’s been a busy economic news day, with the Federal Reserve declaring that  it will keep its benchmark interest rates low for the next two year:

The stock market staged a dramatic rebound Tuesday, recording the biggest gains after the Federal Reserve announced it would keep its ultra-low interest rate policies in place for two more years.

The surge ended a wild day of trading in which the Dow Jones industrial average dipped in and out of negative territory four times, giving back hundreds of points in early gains before finishing the session up 429 points. That represented a nearly 4 percent rise, the largest increase in two years.

Investors seemed uncertain about what to make of the announcement by the Fed’s main policymaking board, which for the first time set a firm date for maintaining its near-zero target for short-term interest rates. This move could provide businesses and consumers with greater certainty about the availability of low-cost borrowing as they consider making investments or major purchases, such as homes or autos.

At the same time, the Fed declined to make any significant new efforts to bolster the nation’s flagging recovery. A rare dissent by three of the policy committee members to the interest rate decision signaled that it could prove hard for the central bank to take more dramatic steps in the coming months to lift the economy and prop up the financial system.

When one considers the fact that the interest is effectively 0%, this is not a ringing endorsement of where the economy is going, and the markets were hoping for more.  (Full Fed Statement below the fold)

Why are the markets expecting more, perhaps because productivity fell for the 2nd straight quarter, and small business optimism for the 5th straight month.

Between Democrats who believe in the austerity fairy, and Republicans who are deliberately tanking the economy for political advantage, the Fed is all we have to fix things.

Release Date: August 9, 2011
For immediate release
Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity. Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities and imported goods, as well as the supply chain disruptions. More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.
Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period.

Advice to the Yids* Out There

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Yes, the market tanked today, so there is likely a bounce tomorrow, but if you are Jewish, don’t invest on Tisha B’av, which starts this sun down.

I’m not particularly superstitious, but when you consicer that this date gave us:

  • The reports of the spies, which led the Jews to spend 40 years in the desert.
  • The destruction of the 1st temple.
  • The destruction of the 2nd temple.
  • The crushing of the Bar Kokhba rebellion.
  • The first crusade, which set of an orgy of pogroms and murder.
  • The expulsion of the Jews from Spain.
  • The expulsion of the Jews from England.
  • The start of WWI.

So, seriously, not a good day for Jews to invest.  I’m just saying. 

*I’m a Yid myself, so I can use the term.

Busy Day at the Casino

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All the major stock indices fell over 5%.

The term here is “Bloodbath”.

The standard meme is that Standard & Poor’s downgrade of US debt had investors fleeing the stock market and buying US debt.

So, standard wisdom is that because people are worried about the credit worthiness of the USA, they are buying debt from the the USA.

Me, I just think that they are realizing that we are heading to a double dip recession.

S&P Downgrades the US, Well, Isn’t That Special

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Well, Isn’t that Special!!

Standard and Poors has just downgraded the United States from AAA to AA+.

I think that Jane Hamsher and Scarecrow have nailed what is going on here. This is a shakedown by the credit ratings agencies:

On July 21, 2010 President Obama signs Dodd-Frank into law. Prior to Dodd-Frank, the courts found that credit ratings are expressions of opinion that were protected under the first amendment, subject to a demonstration of actual malice:

The Dodd-Frank Financial Reform Act stripped away those protections, so that CRA’s were now subject to the same expert liability as an auditor or securities analyst, and required only a “knowing” or “reckless” state of mind for liability, rather than proof of scienter. It also repealed Section 436 of the Securities Act of 1933, which granted “safe harbor” for ratings, which were part of a prospectus.

Which, for obvious reasons, made the ratings agencies extremely nervous.

In October 2010 S&P issued its first threat to downgrade US debt: “If the U.S. government maintains its current policies for the next 40 years in the face of rising health care and pension spending pressure, it is unlikely that Standard & Poor’s Ratings Services would maintain its ‘AAA’ rating on the U.S.” The report paints a target on the back of Social Security and Medicare, says nothing about the wars, the Bush tax cuts, private health care costs or the absurdity of 40 year projections.

………

It’s becoming more and more obvious that Standard and Poor’s has a political agenda riding on the notion that the US is at risk of default on its debt based on some arbitrary limit to the debt-to-GDP ratio. There is no sound basis for that limit, or for S&P’s insistence on at least a $4 trillion down payment on debt reduction, any more than there is for the crackpot notion that a non-crazy US can be forced to default on its debt.

Whatever S&P’s agenda, it has nothing to do with avoiding default risks or putting the US on sound fiscal footing. It appears to be intertwined with their attempts to absolve themselves from responsibility for their role in the 2008 financial crisis, and they are willing to manipulate not only the 2012 election but the world economy to escape the SEC’s attempts to regulate them.

It’s time the media and Congress started asking Standard and Poors what their political agenda is and whom it serves.

Note that Dodd-Frank also lifted some statutory requirements mandating the use of  ratings from accredited agencies as well, so the big 3 (S&P, Moodys, Fitch’s) have even more reason to hate the bill, and are trying to sabotage them at the rule-making stage.

Note that this was written a week ago, and a quick read of the S&P statement (first link) sounds like a hit job, some to the effect of, “That Dodd-Frank thing displeases us, it would be a shame for anything to happen to your credit rating.”

ECB Concludes that Gasoline is not the Best Way to Put Out a Fire

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David Bowie Says the Same

The European Central Bank has caught a clue, and realized, for this month at least, that there is no threat of inflation, so they are buying bonds and not raising their interest rates.

So, after pointless and stupid rate hikes in the teeth of a recession, they have decided that perhaps they were being stupid with their focus on non-existent inflation.

Seriously, if there has been a central bank that a greater record of rank incompetence on dealing with a recession, I’d be hard pressed to name it.

In all fairness, I would note that ECB is very limited in its charter.  Unlike the Federal Reserve, for example, is has no duty to maintain stable employment, just to forestall inflation, and so it’s all that they look for.

Looks Like Someone Was Bankrolling the Christofascist Terrorist in Norway

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I would note that the source is not the most reliable, Justin Raimondo has a a truly peculiar history, he’s an antiwar activist who is gay and who endorsed Pat Buchanan, but he has followed the money on Anders Behring Breivik, and it indicates that Mr. Behring Breivik:

  • Accumulated well over 100 Grand in savings.
  • Never held down a real job that would imply that level of savings.
  • Lived a lavish lifestyle.
  • Had his money in opaque offshore accounts.

Assuming that Raimondo’s thesis bears up to scrutiny, and it did to my 10 minutes of Goggling, then there are really just two possibilities here, either he was a relatively successful professional criminal, or he was being bankrolled by the Christofascist right in the same way that Scott Roeder was by Operation Rescue and their ilk.

Needless to say there was some fairly explicit support of these fanatics on our side of the pond, Pam “I Would Be in Jail If I Were Muslim” Geller, for instance, published a letter from Norway that sounds suspiciously like Breivik’s manifesto, while scrupulously preserving the author’s anonymity a few years back.

One hopes that the Norwegian authorities are more diligent in their pursuit of right wing terrorists than Barack Obama and Eric “Place” Holder have been, because the ties between Operation Rescue and the Tiller assassination have at this point elicited nothing by way of a credible investigation.