Category: Finance

Obscurity is not Security

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But this isn’t stopping banks from trying to suppress security research showing that their cards are insecure, as opposed to manning up and fixing the problem:

Cambridge computer scientists have become embroiled in angry exchanges with Britain’s banks and credit card lenders, accusing them of bullying and trying to “censor” a PhD student who was exposing flaws in chip-and-pin machines.

A leading Cambridge academic has now written to bankers’ representatives demanding that they stop pressing for the removal of a student’s doctorate work from the web.

Professor Ross Anderson, from Cambridge University’s Computer Laboratory, has previously researched glitches in chip-and-pin banking that allow withdrawals to be made from accounts without needing to know the holder’s PIN. As part of his thesis work, one of his students, Omar Choudary, exposed how easy it was to make such a withdrawal.

Then the UK Cards Association, a trade body representing leading banking organisations, approached the university asking it to remove the thesis from his website, which is accessible through a university site.

So, the knowledge is out there, and it is public, it has actually been discussed on the BBC, and the banks want to pretend that it never happened.

This is why you cannot rely on market mechanisms for this kind of stuff.

Brought to You by Leonard Pinth-Garnell

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Adventures in bad corporate damage control.

Specifically, because Wikileaks has said that they have a document dump from a Bank of Bank of America, Bank of America has started to buy up hundreds of nasty domain names in the hope of preventing the airing of criticism:

Bank of America has snapped up hundreds of abusive domain names for its senior executives and board members in what is being perceived as a defensive strategy against the future publication of damaging insider info from whistleblowing Website WikiLeaks.

According to Domain Name Wire, the US bank has been aggressively registering domain names including its board of Directors’ and senior executives’ names followed by “sucks” and “blows”.

For example, the company registered a number of domains for CEO Brian Moynihan: BrianMoynihanBlows.com, BrianMoynihanSucks.com, BrianTMoynihanBlows.com, and BrianTMoynihanSucks.com.

You know, I REALLY don’t think that this is going to help when people realize that you were smoking cigars lit from the original notes of mortgages that you have foreclosed on, and that you used homeless orphans as ash trays.

More seriously, if Wikileaks has your documents, then people will go there, or to one of its legion of mirrors, to get that information.

Just When You Thought that Mortgage Servicers Could Not Get Any More Evil…

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Now we have reports of them sending in crews to break into houses and change locks when they have not foreclosed on the property, in one case stealing electronics, wine, and beer, and in another, throwing out the ashes of the homeowner’s husband. (surprise, there is now a lawsuit)

It’s clear that something needs to be done about the criminal (breaking and entering and theft) activities of the mortgage services, but it appears that if you are the Federal Reserve, what needs to be done is to fight the rest of the government to protect the people who are breaking the law:

Top policymakers at the Federal Reserve are fighting efforts to rein in widely reported bank abuses, sparking an inter-agency feud with the FDIC and the Treasury Department. The Fed, along with the more bank-friendly Office of the Comptroller of the Currency, is resisting moves to craft rules cracking down on banks that charge illegal fees and carry out improper foreclosures. The FDIC supports such rules, according to an FDIC official involved in the dispute.

The new regulations would rein in debt collection, loan modification and foreclosure proceedings at bank divisions called “mortgage servicers.” Servicers have committed widespread fraud in the foreclosure process. While the recent robo-signing of fraudulent documents has received the most attention, consumer advocates have complained about improper fees and servicer mistakes that lead to foreclosure for years.

This is what happens when you put an organization that is chartered to protect and support banks in charge of regulating them.

Instead of reigning in excesses, they validate those excesses, so the Fed is attempting to throw away something like 300 years of established property law so that the banksters can take you house for no reason at all.

Cuomo Files Suit Against Ernst and Young Over Lehman Collapse

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Matt Taibbi is all over this, and while the suit is civil and not criminal, and so a loss would not put the accounting firm in the same position as Arthur Anderson, which was shut down as a result of a criminal conviction stemming from the collapse of Enron. (Since reversed, but they are still dead)

Basically, it comes down to a way that Lehman used an arcane financial instrument called a “Repo 105″ to conceal its debt, and his example is spot on”

These Repo 105 transactions are just loans that Ernst and Young and Lehman Brothers conspired to book as revenue from sales. If I go to you and I ask you to lend me a hundred bucks to pay for Knicks tickets, that’s a loan, and you and I and the SEC and every investor on Wall Street all know I’m in debt to you, that I owe you a hundred bucks.

Here’s how Lehman Brothers paid for their Knicks tickets: a week before the game, they went to you and offered to you “sell” you their worthless puke-stained lava lamp for a hundred bucks, with the understanding that two days after the Knicks game, it would come back and “buy” the lamp back for the same $100 (plus a small commission for your trouble). And when Lehman pocketed that $100 from the initial transaction, they decided to call that not borrowing but a true sale, i.e. they booked that hundred bucks as revenue from an honest sale of a worthless piece-of-sh%$ lava lamp.

In 2007 and 2008 Lehman would do this before the end of every quarter. They would “sell” billions of dollars of assets, typically bonds, to various companies, and use that money to pay down debt before the quarter’s end, so that they didn’t look so flat-ass broke to investors. Then, a week or so after the end of the quarter, they would go out and borrow more money, and then “buy” the assets back. The reasons they did this were myriad, but in most cases the assets they were “selling” were depressed in value at the time and could not have been sold at anything like face value had they really gone out on the market and tried. So instead of really “selling” these items on their balance sheet, they worked together with other companies to jury-rig these “repurchase” agreements that looked like sales but were actually loans.

(%$ mine)

There are two possibilities here for Ernst & Young:  Either they were negligent, and hence they owe damages, or they complicit, in which case they are criminally liable, and could suffer the same fate as Anderson .

My hope is that the accounting firm will turn on former Lehman executives, most notably Dick Fuld, to get out from under, and we may see our first big banker criminal case as a result.

My fear is that this will be another 8 figure fine with no criminal prosecutions.

It’s Bank Failure Friday!!!! (on Saturday)

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And here they are, ordered, and numbered for the year so far.

  1. The Bank of Miami,N.A., Coral Gables, FL
  2. Chestatee State Bank, Dawsonville, GA
  3. Appalachian Community Bank, FSB, McCaysville, GA
  4. United Americas Bank, N.A.,Atlanta, GA
  5. First Southern Bank, Batesville, AR
  6. Community National Bank, Lino Lakes, MN

Full FDIC list And here are the credit union closings:

  1. Beehive Credit Union, Salt Lake City, UT

Full NCUA list

So, 6 banks this Friday, and one credit union on the 14th.

That’s a pretty busy week, though part of this might be that the regulators are closing banks this week because they do not want do do closings over the Christmas or New Years holidays.

So, here is the graph pr0n with trendline (FDIC only):

I would note that are now at the point where the utility of the least squares trendline is diminishing, but I’m keeping it here for historical purposes.

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.

My Faith is Restored in Ron Paul

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While I am in favor of clipping the Federal Reserve’s wings, limiting its scope to monetary issues, and taking regulation largely out of their hands, along with reducing the role of private banks in staffing the boards of the regional Fed banks, Ron Paul just went off the rails again, arguing that the Federal Reserve is an illegal cartel:

Rep. Ron Paul, (R-Texas), who will head a subcommittee overseeing the Federal Reserve in the new Congress, called the central bank a “cartel” and said it had “monopoly control” over the US dollar. “I think we should start ending the Fed by allowing competition. I don’t like the idea that they have monopoly control. It’s a cartel: They get to print the money,” said Paul, who wrote a book called End the Fed.

Paul said that he wanted to “legalize competition,” so that Americans can use gold and silver as legal tender.

The idea that the government, which is what the Federal Reserve is, in a completely f%$#ed up kind of way, should not have a monopoly on the idea of coining money is completely nuts.

I am so over agreeing with him yesterday.

The world is back to normal, though I do rather relish the idea of seeing Dr. Paul grill Bernanke on CSPAN.

Now I Wish I Were Irish

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And it has nothing to do with harps, beer in its various forms, the natural beauty of the land, or the stunning red heads with milky white skins.

Instead, I envy them their banking regulators:

Allied Irish Banks, the lender that is being bailed out by the government, has decided not to award senior staff about 40 million euros ($53 million) in bonuses for 2008 after the country’s finance ministry intervened late Monday.

Ireland’s finance minister, Brian Lenihan, told RTE radio on Tuesday that it was “galling to think” that at a time when taxpayers were investing in the bank, 36 million to 40 million euros “would be paid out of that bank to employees in respect to bonuses during a period that the bank got itself into the difficulties it is now in.”

The bank has already received 3.5 billion euros in government aid.

The ministry acted after months of public outrage over the bonuses to be paid to 2,400 senior bank managers at a time when Ireland was seeking an international bailout of 85 billion euros, largely because of weaknesses in its banking sector. In a letter Monday to the Allied Irish board, Mr. Lenihan said that further cash injections by the government — which the bank desperately needs — were dependent on the condition that no bonuses be paid.

“The provision of further state funding to A.I.B. will be conditional, inter alia, on the nonpayment of any bonuses, no matter when they may have been earned,” Mr. Lenihan wrote. He told the cabinet at a meeting Tuesday that the provision on the bonuses would be added to a bank restructuring bill being discussed.

I wish I lived in a country that regulated its banking sector as honestly and effectively as the Irish.

If you are uncertain as to whether that last sentence is serious of sarcastic, well so am I.

Sergey Aleynikov Guilty

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He is the computer programmer who was charged with stealing Goldman Sach’s high frequency trading software.

Here are the New York Times and Wall Street Journal stories.

The Times version has a video (unfortunately not embeddable) of Fordham University law professor Joel Reidenbert, who basically says that what would ordinarily be a civil matter, a potential breach of confidentiality agreements, was made into a criminal case to make an example of the “US Attorney doing the heavy lifting for Goldman.”

He doesn’t come out and say it, but I infer from his that this was a hit by the US Department of Justice, with the active and aggressive collusion of federal judge Denise Cote, to do the Vampire Squid’s* bidding, as the article notes, “During the two-week trial, Judge Denise L. Cote closed the courtroom to the public several times to protect Goldman’s proprietary source code,” and “Before dismissing the panel, Judge Cote warned them that if they were going to speak about the case, they must not discuss anything related to Goldman’s code.”

It stinks to high heaven.

*Alas, I cannot claim credit for the bon mot describing Goldman Sachs as a, “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” This was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.

It’s Bank Failure Friday!!!!

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And here they are, ordered, and numbered for the year so far.

We broke 150 failed banks for the year.

  1. Paramount Bank, Farmington Hills, MI
  2. Earthstar Bank, Southampton, PA

Around July, it looked like there would be about 190 failed banks for the year around July, but the pace has slackened significantly.

For historical reference, here is the Full FDIC list for banks, and the Full NCUA list for credit unions.

So, here is the graph pr0n with trendline (FDIC only):

More Invisible Bond Vigilantes

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Treasury yields fell today, after rising sharply on news of the Obama-Republican tax deal:

Treasuries rose, following the biggest two-day slump in two years, as yields at the highest level in six months lured investors on prospects the Federal Reserve will discuss a possible extension of purchases.

Ten-year notes rallied before the Fed meets next week to review its program to buy $600 billion of U.S. debt through June. The yield advantage of 10-year Treasuries over Japanese bonds increased to the widest in five months, boosting the allure of U.S. assets. Treasuries tumbled the past two days, pushing 10- year yields up by 35 basis points, the most since Sept. 19, 2008, when they fluctuated following the bankruptcy of Lehman Brothers Holdings Inc.

Those invisible bond vigilantes are a fickle lot.

Iceland Out of Recession

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Unlike Portugal, Ireland, Greece, and Spain, the PIGS, Iceland has a currency, which it has allowed to devalue, and it has largely defaulted on its banks debts, though its government had to be dragged into this kicking and screaming through a plebiscite, but now Iceland’s economy grew sharply in the 3rd quarter:

Iceland’s decision two years ago to force bondholders to pay for the banking system’s collapse appeared to pay off after official figures showed the country exited recession in the third quarter.

The Icelandic economy, which contracted for seven consecutive quarters until the summer, grew by 1.2% in the three months to the end of September.

Iceland famously agreed in a referendum to reject a scheme to repay most of its debts that were once worth 11 times its total national income.

In contrast to Ireland, Iceland’s taxpayers refused to foot the bill for the debts accumulated by the banking sector. Bondholders were told to accept dramatic reductions in the value of repayments on bank debt after the sector borrowed beyond its means to fund ambitious investments abroad.

By contrast, Ireland guaranteed all depositors and all bond holders, and will be crushed by that debt for years.

Rule number one of these sorts of meltdowns is that the bond holders are professionals, and they get interest because they are taking a risk, and risk means a chance of default.

The argument that is made against Greece, or Ireland, or the rest of the PIGS taking a similar approach is that it they need to maintain the confidence of the markets in order to prosper economically.

This is wrong.  It is literally a confidence game.

And Here’s Another Shocker from Barack Obama

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It turns out that his pay freeze proposal will cripple the staffing of the Consumer Financial Protection Bureau:

Rep. Barney Frank (D-Mass.) said this week that exceptions may have to be made to President Barack Obama’s proposed pay freeze in order to effectively implement the Wall Street reform bill.

………

Frank said on Thursday he would support providing exemptions to the pay freeze if regulatory agencies, including the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CTFC), can show they are needed to hire the appropriate talent.

………

In July, SEC Chairman Mary Schapiro announced that her agency intends to hire 374 new employees in 2011. She also indicated that to meet the requirements set out in the Dodd-Frank bill, the agency will need to hire up to 800 staff in total.

Mr. Frank, you are being naive. The fact that the pay freeze cripples agencies that regulate the big banks is not a bug, it’s a feature.

Surely, after all he has done to protect the big banks, you can’t think that he will allow the regulatory agencies to staff up with competent and motivated people to actually reign them in?

Silly Congressman, don’t you know that laws are for whistle-blowers, not bankers!

It’s Bank Failure Friday!!!! (on Saturday)

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There were no failures of FDA insured institutions, so the count remains at 149, but we did see a credit union closing:

  1. Constitution Corporate Federal Credit Union, Wallingford, CT

My bad, I am a couple of weeks late on this, the credit union was actually closed on November 19, so I am 2 weeks late.  Here is the full NCUA list

This is the longest stretch so far this year, 2 weeks, without a bank or credit union closure, just so you know.

So, here is the graph pr0n with trendline (FDIC only):

I would note that are now at the point where the utility of the least squares trendline is diminishing, but I’m keeping it here for historical purposes.

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.

Economics Update

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It’s jobless Thursday, and unemployment rose, but it remains below the 450,000 range that I have been harping on,with new claims rising by 26,000 to 436,000, the 4-week moving average falling by 5,750 to 431,000, continuing claims rising by 53,000 4.27 million, and extended benefits rising by 377,000 to 8,91 million.

Truth be told, since this is reporting from a short week because of the Thanksgiving holiday, I’m not sure if it means much.

In real estate, pending sales for existing homes jumped by 10% in October, which is surprisingly good news, though it may not translate in to quite so many closing, since mortgage rates are rising, which may complicate the life of your average home buyer.

We are Unbelievably Screwed

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“March of 2000, of course, was the peak of the internet bubble.”

Small investors are holding less cash than at any time since March 2000.

This means that small investors are pulling money out of bank accounts, where returns are low, but the accounts are guaranteed, and putting the money in the stock market seeking greater returns.

Time for another crash in the market, because as a group, small investors are the idiots who enter the market just before they run out of idiots.

Person writing this, Joe Weisenthal, clearly thinks so too, or he would not have referenced the dotbomb bust in the last line of the article (reproduced as a caption to the chart pr0n).