Busted: Bankers and The Global Economy

December 22, 2010

Federal Reserve Contributed to Economic Crash

Filed under: banking, central bank, economy, federal reserve — Tags: , , , , , , , — digitaleconomy @ 1:19 pm

Back in early 2005, President George Bush excitedly told the nation how great the country was doing. Behind the scenes was another matter.  The housing market was overheated. Economic danger signs were in the air. The Fed had an opportunity to reduce the risk among banks, notably smaller ones. The Federal Reserve Board is also guilty of regulatory inaction that directed contributed to the mortgage meltdown.

The leadership of the Federal Reserve rejected advice from one of the nation’s top banking regulators, a professional accounting board and the Fed’s own staff for restrictions on commercial bankers use of special debt securities to raise capital. The exponential growth and lack of tracking ability for these securities threatened the fabric of banking operations.

Chairman Alan Greenspan and the other six Fed governors voted unanimously to reaffirm a nine-year-old rule allowing liberal use of what are called trust-preferred securities. Previous to that time community banks had few ways to raise capital without issuing more common stock and diluting share price. The Fed allowed the banks to count the securities as debt that they could loan against, even while counting the proceeds as reserves. Through the fractional reserve, banks were then free to borrow and lend in amounts 10 times or more than the value of the securities being issued. This kind of leveraging became the norm. The Fed enabled Wall Street bankers to encourage community banks to take on huge debt and to plunge the borrowings into real estate loans.

Institutions relying on these instruments took more risks and failed more often than those that did not include the use of these trust-preferred securities. Investment banks on Wall Street aggressively pooled these community-bank securities into complex bonds, much like the complex mortgage bonds that nearly brought down the financial system in 2008.

The consequences have continued to build for small bankers. More and more banks are defaulting, requiring intervention by the FDIC. The bank failures have already left more than $1 billion of the complex bonds on the books of the FDIC bank rescue fund.

The Securities and Exchange Commission is now investigating how securities firms promoted the sale of these complex bonds in a poorly understood,  billion dollar offshore market for debt issued by banks, insurers and real estate trusts without checking their greed. Everyone was making money and delighted by the results. As the market became saturated, bankers refused to conduct business, becoming sitting ducks in a frozen banking system. Eventually, in October 2008, the system faced a complete collapse.

McClatchy Newspapers Article

FDIC report

Fed’s mysterious policy: How do we know if it’s working?

July 31, 2010

SEC Lets Citi Execs Go Free After $40 Billion Subprime Lie

The following news analysis was written by AlterNet.org’s economics editor Zach Carter.

What is the penalty for bankers who tell $40 billion lies? Somewhere between nothing and a rounding-error on your bonus.

The SEC just hit two Citigroup executives with fines for concealing $40 billion in subprime mortgage debt from investors back in 2007. The biggest fine is going to Citi CFO Gary Crittenden, who will pay $100,000 to settle allegations that he screwed over his own investors. The year of the alleged wrongdoing, Crittenden took home $19.4 million. That’s right. Crittenden will lose one-half of one percent of his income from the year he hid a quagmire of bailout-inducing insanity from his own investors. That’s it. No indictment. No prison time. Crittenden doesn’t even have to formally acknowledge any wrongdoing.

In 2007, as financial markets were freaking out about the subprime situation, Citi repeatedly told its investors that it owned just $13 billion in subprime mortgage debt. It was true – if you didn’t count an additional $40 billion in subprime debt that the company was also holding onto.

Citi’s CEO at the time, Chuck Prince, has not been charged with anything. As Yves Smith emphasizes, all of the top financial officers of every major corporation are responsible for the accuracy of their quarterly financial statements. Lying on those statements is a federal crime. This is the sort of thing that securities fraud cases are built around.

The SEC’s own statements about what went on at Citi are damning. If the agency can make this kind of information public, they ought to be pursuing criminal prosecutions. The SEC says that senior Citi management had been collecting information about the company’s subprime situation as early as April 2007, but repeatedly cited the $13 billion figure to investors over the next six months, waiting to acknowledge the additional $40 billion in subprime debt until November 2007. The SEC also says that Crittenden knew the “full extent” of Citi’s subprime situation by September at the latest, but the company continued to cite $13 billion in earnings reports through October.

Citi’s subprime shenanigans had consequences for taxpayers, pushing the company to the brink of total collapse and prompting one of the biggest bailouts of 2008.

Phil Angelides and the Financial Crisis Inquiry Commission deserve a lot of credit for highlighting the absurdity of Citi’s actions in a hearing on April 7 of this year (the key passage starts on page 368 of this pdf transcript). Angelides’ line of questioning revealed that even Citi’s board knew that the subprime exposure was much greater than what the company was claiming in public. Citi’s board at the time included Robert Rubin, former Treasury Secretary and architect of much of the deregulation that lead to the current crisis who took home $120 million for his work at Citi.

Either the SEC or the Justice Department could be pursuing criminal cases against Citi executives. What does it take to get the Justice Department’s attention on a financial fraud case? You have to launder $380 billion in drug money, and even then, DOJ lets you off with a slap on the wrist. The DOJ caught Wachovia doing just that, and the bank is getting off with a minor fine that won’t even make a dent in it’s second-quarter profits.

The Citi settlement is worse than a get-out-of-jail free card for Crittenden, Prince and their cohorts. The SEC actually fined Citi’s shareholders $75 million for the alleged wrongdoing of their executives. For some varieties of corporate misconduct, like Wachovia’s drug money laundering, hitting shareholders with the fine is appropriate. Wachovia’s money laundering operations directly enriched the company and its shareholders. This was not the case with Citi’s subprime scandal. Citi’s executives were hurting their own shareholders. Instead of meting out serious punishment to those executives, the SEC is fining Citi’s shareholders, the very people wronged in the incident.

This deference to the elites who wrecked the economy just keeps playing out. When Bank of America lied to its shareholders about billions of dollars in bonus payments it was about to make, the SEC decided to fine BofA shareholders and let the firm’s executives off the hook. The decision-makers at Wachovia, who allowed the firm to funnel drug money despite repeated warnings by whistleblowers, have not been indicted. Nobody at Washington Mutual has been indicted despite clear evidence of rampant mortgage fraud at the firm. Lehman Brothers’ repo 105 accounting scam is going unpunished, as are similar schemes at other banks including Bank of America. After much public relations flogging, the SEC let Goldman Sachs off easy.

More than 1,100 bankers went to jail in the aftermath of the savings and loan crisis. Massive financial crises simply do not occur without widespread fraud. The failure to prosecute that fraud poses systemic risks for the global economy. With too-big-to-fail behemoths dominating the financial landscape, the prospect of prison is the only serious check on executives interested in cannibalizing the economy for personal gain. If the SEC and the Department of Justice continue to let executives get away with outrageous acts without even taking the case to court, our financial system is doomed to repeat the same excesses and abuses we’ve seen over the past decade. If Crittenden did what the SEC claims he did, he screwed over his own investors and scored a huge bonus in the process. Everybody on Wall Street understands the implications: breaking the law is a great way to make a lot of money. When a class of elites can thumb its nose at the law with impunity, the result is not only a threat to the efficiency of our economy, but a threat to the basic functioning of our democracy.

You can read Mr. Carter’s news analysis in context here: blogs.alternet.org/speakeasy/2010/07/30/where-are-the-prosecutions-sec-lets-citi-execs-go-free-after-40-billion-subprime-lie/ Mr. Carter is a fellow at Campaign for America’s Future, and a frequent contributed to The Nation magazine.

November 7, 2009

Wall Street Justice Obama Style

corrupt bankers prisonOver and over again, Americans see the same debacle unroll before their eyes, that is, if they are paying any attention. Earlier this year, billions in bonuses were paid to Merrill Lynch executives as the firm was failing. An agreement was made that Bank of America would pick up the pieces of Merrill Lynch with the support of the American taxpayer and later, BofA was bailed out as well. After a dance with the SEC, no wrongdoing was admitted.

After an investigation by the Securities and Exchange Commission, Banking wunderkind JPMorgan agreed to a $722 million settlement. Why? It all rises from a risky derivatives deal that drove Alabama politics to the brink of bankruptcy. As part of the settlement, JPMorgan neither admitted nor denied wrongdoing despite overwhelming evidence that the financial group did actually engage in acute wrongdoing.

What passes for justice on Wall Street? Regulators give a banking institution that they back a fine that taps the corporate bottom line for wrongdoing. The banks are eager to quickly forget the whole thing by paying a modest fine and getting on with business as usual. There is no admission to wrongdoing and business continues. The government gets a fine to pad their already overbloated budgets that the American taxpayer is already floating. We must be stupid because we keep doing the same thing over and over.

No one admits to corruption, much less to making a mistake. Meanwhile, nobody pays back the taxpayer, much less actually pays off a debt of any kind.  Reality is a round robin of funny money, usury and blatant dishonesty. Where is the outrage? Nowhere, because we are too wrapped in our small lives and/or afraid of reprisals or perhaps the boogeyman. Perhaps by our collective refusal to stand up against politicians and bankers, we are admitting that any American would do exactly the same thing; that not one American is any better. What do you say? Probably very little.

January 5, 2009

The SEC, Madoff and Investment

investment-ponzi-madoffU.S. authorities allege that Bernie Madoff delivered consistently strong returns to clients by secretly using the principal investment from new investors for payments to previous investors, in what is known as a ‘pyramid fraud.’ The Securities and Exchange Commission has known about irregularities for nearly a decade and declined to do anything beyond ignoring the likelihood of fraud.

Laura Cohn of Kiplinger’s, in typical elitist style, asks the question that bears asking. In light of Bernard Madoff’s alleged Ponzi scheme, are you taking steps to ensure that your financial adviser is on the up and up?

The good news is that if you are asking that question, you are still financially solvent (probably) and have still have money concerns like investing. That is good, especially for you. However, all this drama must have you asking the question about why you need to trust all these high-powered frauds with your hard-earned cash rather than gaining investing knowledge yourself. That would be bad for the industry because you wouldn’t need them. Ultimately, that is the economic solution for the fraudsters that put this economy where it is today coupled with the plight of government regulators that couldn’t find their way out of a paper shopping bag.  Do it yourself.

bush-and-sec-coxTo be certain, hundreds of blogs have already been consumed with the utter stupidity of government entities that need to be eradicated entirely because they don’t have a real purpose beyond squandering taxpayer dollars.  Perhaps we can look to President Obama to take some meaningful swipes toward ineffective and largely useless government agencies. The fascinating preponderance of economic, investment and banking fraud that has come to a head should have your head spinning. The fact that these overeducated opportunists and complacent politicians have brought this nation to its’ knees bears repeating.

For years we have been gleefully taught that we can trust others with our money: our blood, sweat and tears. Could we have been duped?  Whom do you trust? You’d better think twice bright eyes. The new President of the United States will be setting the tone for cleaning up the fraud on all fronts. What tone Barack Obama chooses has great importance for anyone that cares about this nation. ~ E. Manning

September 27, 2008

U.S. Sovereignty Lost to Federal Reserve

a corporate nation

United States now a multinational corporate nation

For a long time the U.S. Securities and Exchange Commission has been committed to deregulation and a proponent of voluntary regulation. The head of the SEC, Christopher Cox admits that voluntary regulation has been a major contributor to the market and economic collapse. By his admission, the government regulatory oversight program was fundamentally flawed from the beginning.

The reality is that the SEC is out of a job because investment banks in the strict sense no longer exist. The SEC will still have primary responsibility for regulating securities brokers and dealers. However, the interesting prospect is that all future oversight will be turned over to the quasi-governmental Federal Reserve under Ben Bernanke. All the government players have agreed that government regulatory failures brought on the economic collapse.

A grand attempt to extort the nation has been made by Henry Paulson as he claims that the United States must rush into a solution that has been evolving for the last twenty years. His reputation is on the line. The reputation of the Bush administration is on the line if they still have one. The reality behind the immediate panic of the crisis rests firmly on the loss of jobs in America as bad mortgage securities continue to implode on nation. Trust across the board has been diminished and lost. The crisis of confidence reigns supreme.

The Federal Reserve continues to attempt to suck up more and more control and power. And why not? They hold the purse strings and ultimately the support required to run the nation. The United States has lost its sovereignty to what is effectively a multinational corporation courtesy of the mindless politicians that citizens elected to man the helm of the United States. They have lost the will to manage money, turning the nation into a den of slavery. The United States is effectively a corporation that belongs to International Bankers, a fascist state of sorts.

corporate slaves

corporate slaves

The Federal Reserve cannot be audited even though there have been some moves by Congress to make the attempt. The Fed has resisted responsibility for national accountability, instead using economic theory and global banking governance to bolster its position and control over the dollar. The world is now effectively run by an International Banking Cartel that on this website is referred to as the International Society of Bankers. ~ E. Manning

For more information on this topic including the hierarchy of the global banking system, review this website.

 

August 10, 2008

Banks Eat Billions; Credit Crunch Expands

paranoid banking firms gamble on their importance

paranoid banking firms gamble on their importance

The Securities and Exchange Commission stepped in and decided that auction-rate securities have been improperly sold to the public. They haven’t said much else as they carefully watch over the fold of now paranoid bankers. Investment bankers have plenty of egg on their face with punitive action in the immediate future by the Feds.

Citigroup and Merrill Lynch have decided to buy back billions of dollars of securities without admitting liability officially because of state regulator pressure. Bank of America and Countrywide are firmly ensconced in trouble. Swiss giant UBS is in the throes of negotiating a payout that could be in the 25 billion dollar region. As private citizens and investors, we know the reality of the situation. Bankers have tried to play us for fools for the almighty dollar and perhaps investors bit off too much, too soon in the haste for profit.

In theory, when times get better larger investors and even banks should be able to sell off the securities once the markets ease and there’s more credit in the system. That is the public line, but the truth is probably altogether different. Selling off investments with major liquidity issues is a big maybe considering the quantity of these beleaguered banking instruments. Following the aftermath of the subprime mortgage debacle, this is yet another blow to the reputation of investment banks, who may struggle to sell such “sweet deals” in future times even at fire sale prices.

British banks are taking huge hits as a result of the credit crunch with increased pressure to perform for stockholders. Lloyds, Halifax and Alliance & Leicester have been fairly decimated profit-wise. Now RBS and Barclays are taking turns with profit thrashing. British banks haven’t found the credit crunch much easier than U.S. banks. Housing prices continue to drop in the U.S. and the United Kingdom. Foreclosures are a uniform blight in both economies while bankers and economies struggle to adjust. The U.S. market has lost nearly a million homes to foreclosure with more on the way: the worst since the Great Depression.

July 21, 2008

FDIC: Let the Innocent Cast the First Stone

Back in 2001, FDIC employees supervising day-to-day operations of failed bank Superior FSB funded more more than $550 million in subprime loans. According to a recent lawsuit by Beal Bank, who eventually purchased Superior FSB, a significant portion of 5,315 subprime mortgages are non-performing. The FDIC has even bought back 247 of the original loans, priming the pump for their blame. The problem is that the FDIC made the decision to continue to operate the failed bank under the banking monikker, churning out an additional 6,700 subprime loans.

Based on the FDIC’s own report, at least 19% of the loans are fully fraudulent or “contained significant (more…)

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