Busted: Bankers and The Global Economy

October 16, 2008

Financial Crime of the Century

Today at the Senate Banking and Housing Committee meeting “Turmoil in the Credit Markets”, Senator Chris Dodd, now the “Congressional champion” for the American consumer against foreclosures along with others, aptly pointed out a fact that most of us have overlooked or conveniently forgotten. President Clinton assigned the Federal Reserve the full duty as regulatory policeman over the nation. The Federal Reserve, in the words of Dodd, ignored the assignment by doing nothing for years. Senators are seeking reelection this year and U.S. citizens would do well to remember that Senators are now trying to cover their lack of action and regulatory oversight for the last eight years. Now, hearings are in order to find the right degree of blame and then an effort made so that another economic tsunami never happens again.

Dodd’s words were perhaps among the most pointed opening comments of a recent hearing. He simply stated that bankers shifted risk through exploitation. You can hear the politics and excuses too. A mandate of Congress doesn’t mean anything with regulation. That has been the flaw behind the entire federal government for the last decade at a minimum. Interestingly, Dodd sees himself as doing a “post-mortem” examination on the U.S. economy. By that definition, the economy is dead. That is not a good comparison unless he knows something most Americans don’t. ~ E. Manning

Senator Dodd’s opening remarks

August 27, 2008

Desperate Bankers, Desperate Times

witless regulation

witless regulation

To listen to the tone of regulators and lawmakers, you would think that bankers would be on their best behavior, especially with all the arrests early this summer for mortgage and banking fraud. “Crackdown efforts” are apparently failing as desperate bankers continue to commit banking fraud to keep surviving.

Mortgage Asset Research Institute (MARI), the mortgage information gathering arm of information monger Choicepoint is reporting that mortgage fraud is on the rise despite record lows in the number of loans issued. This makes the situation all the more alarming.

The study found that the number of fraudulent loans issued during the first three months of 2008 skyrocketed 42% compared with the same period in 2007. This is true, even considering a much lower loan rate to consumers.

The credit histories of many applicants are no longer good enough to get approved for mortgages in the declining economy, except through the creativity of brokers and loan officers. An identity theft level of as much as 6 percent is also playing a role in the banking chicanery, as the criminal element gets involved in shady and predatory banking.

witless lawmakers

witless lawmakers

Apparently many bankers haven’t learned a thing. Why bother, especially with idea of massive bailout protection by the Federal Government. The number of arrests for banking fraud hasn’t been huge in the banking community itself and many bankers appear to be escaping the net of the Feds. With that in mind, many bankers are willing to keep up the faith in bad banking.

Despite the press, the reality is that the structure of the banking industry has changed not one whit. Commission and loan volume are still the hallmarks of the mortgage banking industry. Overwhelmed regulatory agencies and legal eagles aren’t making a dent in the huge problem. Apparently, the government isn’t up to the task.

If a private institution like Choicepoint can query and discern the truth behind a continued banking and mortgage debacle, surely a public institution like the Federal Government can move in and close down immoral banking with all the subpoena and legal power at its control. Instead, government regulators show that they don’t have the will to deal with the national blight effectively. Bankers are going to continue to practice what they have learned to depend on. The poison must be rooted out of the system in order for the system to continue. In the meantime, “Wild West Mortgage Banking” is on the rise, with a stupified witless government on hand, unwilling or unable to quickly take corrective action.

May 31, 2008

Does FDIC Cover Brokered Deposits?

In today’s banking industry, looking carefully before you leap is an important part of any decision-making process, especially where your money is involved. You might assume that any deposit that you make in a United States banking institution is FDIC insured. Nothing could be further from the truth! Assuming that the FDIC is automatically going to cover your loss when investing in banking instruments could prove to be a mistake. In any event, brokering a deposit in a failed bank is likely to result in a loss of access to your money.

Putting money into an FDIC-insured certificate of deposit called a brokered CD could seem like a no-brainer in the cash department. Some consumer investors have discovered hurdles with so-called brokered CDs issued through one distressed Arkansas bank. The third bank closed by the FDIC this year on May was ANB Financial in Bentonville, Arkansas.

ANB has been the largest U.S. bank closed so far this year. Pulaski Bank and Trust Co. in Little Rock assumed control of the bank’s locations and deposits were quickly insured. ANB Financial had a large amount of brokered deposits in the neighborhood of $1.6 billion. These brokered deposits were not part of the FDIC deal. Why?

Brokered CDs are not the same as an ordinary CD (certificate of deposit) opened directly through a local or out-of-state bank. Brokerage firms offer CDs, too. The deposit brokers often negotiate (more…)

April 16, 2008

The Politics of Selling Short

Filed under: banking, investment, money — Tags: , , , , , — digitaleconomy @ 11:10 am

Doubtless, hedge funds and mutual funds are going to be one of the future pivot points in investment banking, but in a different way from the past.

Goldman Sachs made billions of dollars last year by shorting the sub-prime mortgage bonds that its bankers were selling out in to investors in large volume. WaMu (Washington Mutual), Fannie-Mae and Freddie-Mac short calls made their investors money since all of the short calls made money for those that listened. Shares in these companies has fallen since the short calls.

Goldman Sachs has been perfectly willing to play both sides (more…)

February 1, 2008

Make Bankers Pay?

Imagine a world that wasn’t threatened by greedy bankers and financial institutions. Imagine a world where financial institutions were actually responsible for what they did and could be held to a standard besides thievery. The repeated occurrences of financial tsunamis is a true indicator that bankers and financial institutions cannot be trusted and shouldn’t be.

brokenbank.jpgThe problem lies in the fact that the finance and banking industry is full of “commissioned salesmen” that have the promise of wealth in front of them every single day if they push more “banking products”. You’ve heard that power corrupts and that absolute power corrupts absolutely. For years, the banking system has been allowed to monitor itself without restraint with the blessing of the current administration. President Bush wanted the “free market” to work and the market certainly has to the embarassment of all. I remember back in 2004 when I heard President Bush glow with pride and confidence in the self-regulation of the finance industry. Remember “Bad Credit? No Problem!” “Zero Percent Down Payment!” just a few years ago? Enter the mortgage broker. Mortgage brokers occupy an unregulated niche of the lending world making a commission for every borrower they refer to a mortgage lender. These brokers became financial drug dealers as they farmed the nation for fresh prospects in a financial meat market.

Then we have world-wise bankers that create investment vehicles out of risky investments to remove the investments from the bank ledgers. Unfortunately, this strategy only conceals the risk for a time. When the money stops flowing, the game is up. Can you imagine having a license to steal and the guarantee that you will be bailed out by the government? There is little incentive for honesty or accountability when you are going to pay for that lack with funding from the Federal Reserve and further increase the national debt.

Wealthy banking chiefs have plundered the country while making millions for themselves as they bend the regulations and laws any way they are able. The fractional reserve that is required for banks is not enough capital to insure liquidity during downturns and reverses in the lending market. The finance industry is no longer interested in the long-term success of any venture, but rather the short-term commissions and profitability. The turnover of employees and managers within the industry virtually insures the worst kind of corruption. The rich commissions made from the “subprime mortgage bubble” have already been made and spent. The banking industry has been caught red-handed once again. What is really being done about it? ~ E. Manning

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