Stocks and Precious Metals Charts - Blues En Mineur - Obvious Wash and Rinse De Luxe

 

"I write to you from a disgraced profession.  Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis. Concepts including 'rational expectations,' 'market discipline,' and the 'efficient markets hypothesis' led economists to argue that speculation would stabilize prices, that sellers would act to protect their reputations, that caveat emptor could be relied on, and that widespread fraud therefore could not occur.  Not all economists believed this – but most did.

Thus the study of financial fraud received little attention.  Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students.  Economists have soft-pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble.

They continue to do so now.  At a conference sponsored by the Levy Economics Institute in New York on April 17, the closest a former Under Secretary of the Treasury, Peter Fisher, got to this question was to use the word 'naughtiness.' This was on the day that the SEC charged Goldman Sachs with fraud."

James K. Galbraith, Why the 'Experts' Failed to See How Financial Fraud Collapsed the Economy, May 16, 2010

"Education without values, as useful as it is, seems rather to make a man a more clever devil."

C. S. Lewis

"The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil. Perhaps this is inherent. In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves. None rebukes them."

John Kenneth Galbraith, The Great Crash of 1929



Today was a classic 'wash and rinse' on Wall Street, an operation about as simple and obvious as a street game of 'three card monte.'

It is a waste of time and a kind of complicity to try and rationalize it.  

And on the surface many people seem to be asking for it.  

They can't get enough of con men and quackery.

Whacko-ness and hysteria drive out rational judgement.  By design.

Plus ça change, plus c'est la même chose.

Have a pleasant evening.

Stocks and Precious Metals Charts - Blue Skies - Forget 'Plastics' Wall Street Says 'Pivot'

 

"J. P. Morgan and Andrew Mellon made their billions through inter locking directorates and outright ownership of hundreds of nationally prominent enterprises.  Glass-Steagall is one crucial piece of a litany of legislation designed to place checks and balances on the concentration of financial resources. To repeal it would be tantamount to bringing back the days of the robber barons.   The unbridled activities of those gifted financiers crumbled under the dynamic forces of the capital marketplace.  If you take away the checks, the market forces will eventually knock the system off balance."

Mark D. Samber, End Bank Law and Robber Barons Ride Again, NY Times, March 5, 1995


"In 1999, on signing Gramm-Leach-Bliley into law, Clinton said, 'This is a day we can celebrate as an American day' and that 'the Glass-Steagall law is no longer appropriate for the economy in which we live' and 'today what we are doing is modernizing the financial services industry, tearing down these antiquated laws and granting banks significant new authority' and 'This is a very good day for the United States.'"

Columbia Journalism Review, Bill Clinton on Deregulation


"There is no reason to believe either equity swaps or credit derivatives can influence the price of the underlying assets any more than conventional securities trading does."

Alan Greenspan, July 24, 1998, Testimony on the Regulation of OTC Derivatives


"But bad economics was only a symptom of the real problem: secrecy. Smart people are more likely to do stupid things when they close themselves off from outside criticism and advice."

Joseph Stiglitz, What I Learned at the World Economic Crisis, April 17, 2000


"It is no exaggeration to say that since the 1980s, much of the global financial sector has become criminalised, creating an industry culture that tolerates or even encourages systematic fraud.   The behaviour that caused the mortgage bubble and financial crisis of 2008 was a natural outcome and continuation of this pattern, rather than some kind of economic accident."

Charles H. Ferguson


“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Upton Sinclair


"We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices."

Goodbody and Company, The New York Times, October 25, 1929

The market read between the lines of the FOMC decision and in particular Chairman Powell's remarks and assumed that the Fed is in a pivot to a less hawkish stance on interest rates.

And so gold and particularly silver rallied.

Stocks went stratospheric.

The Dollar dumped back to the 106 handle.

Whether this interpretation of the Fed's intentions is valid or not remains to be seen.  

Certainly eyes will be on the data,  

After hours the corporate earnings reports were a very mixed bag.

Tomorrow we will be getting an advance look at 2Q GDP.

Regardless of this backward look, history suggests that we are heading into a recession. 

Unless this time is different.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Non-Farm Payrolls Tomorrow

"As flies to wanton boys are we to the gods.

They kill us for their sport."

William Shakespeare, King Lear

It is easier for those who would be as a god to display their godly powers by crafting the simulacrums of life without vitality, such as asset bubbles. 

 

They lack that which is essential to create organic life and growth, which is the wisdom of love.

 

I suspect that we will see a fairly painful reckoning in the markets, probably within the next twelve months, but maybe not just yet.

While the lines of 'support' hold, the Fed has the wind at the back of the financial paper markets.

 

If you wish to know why there is no organic, broad-based recovery in the US, and probably the UK and Europe, listen to this short explanation from Elizabeth Warren here.

As you might have gathered from some of the quotes, I was rereading portions of Chesterton's book  Eugenics and Other Evils, what was then called 'scientific government.'    

I was particularly struck by one of his observations. 

“Evil always wins through the strength of its splendid dupes; and there has in all ages been a disastrous alliance between abnormal innocence and abnormal sin.”

 

What Chesterton refers to as 'abnormal innocence' is the willing naïveté of an ideology or theorists who suspend their experience and common sense to promote a particular ideal as the basis of a solution.  And of course the abnormal sin is evil, and not of the ordinary kind.  And the dupes are its deceptions.

 

In retrospect it is remarkable that he so deftly gets to the bottom of the social movements of his day, and almost predicts with stunning accuracy the adoption of mass sterilization and eventually mass euthanasia of 1930s and 1940s.

 

But we see similar examples even in our own time, if not of the same degree.  

 

The notion that people will act in perfectly good and rational ways is absurd when you say it that way.   But it is at the heart of so many of the economic theories that have plagued us in the deification of the modern markets and money in the past twenty to thirty years. 

 

This includes the massive confiscation and transfers of wealth through the abuse of financial paper, and the persecution and abuse of whole peoples and even nations through the tyranny of debts.

 

Dangerously willful delusions often open the door for great suffering and injustice.  And the irony is that they are so often enabled by the well-meaning sophistry of idealists, who would crush reality into meaningless to enable their models to roll forward with the greatest expediency.  

“I had thought of calling the next sort of superficial people the Idealists; but I think this implies a humility towards impersonal good they hardly show; so I call them the Autocrats. They are those who give us generally to understand that every modern reform will 'work' all right, because they will be there to see... And these people most certainly propose to be responsible for a whole movement after it has left their hands. Each man promises to be about a thousand policemen. If you ask them how this or that will work, they will answer, “Oh, I would certainly insist on this”; or “I would never go so far as that”; as if they could return to this earth and do what no ghost has ever done quite successfully—force men to forsake their sins. Of these it is enough to say that they do not understand the nature of a law any more than the nature of a dog. If you let loose a law, it will do as a dog does. It will obey its own nature, not yours. Such sense as you have put into the law (or the dog) will be fulfilled. But you will not be able to fulfil a fragment of anything you have forgotten to put into it.”  

G. K. Chesterton, Eugenics and Other Evils

Have a pleasant evening.

 

 

 

Wm. K. Black: JP Morgan's Frauds Are Epic, Unprecedented, NSA Scandal a PR Disaster

"It turns out we were not just spying on terrorists, we were spying on the general population of the world...They decided they had to do something politically to curtail this because they are getting terrible publicity, and they’re getting terrible publicity not just in the United States...This turned into disaster in terms of public relations for the United States and in terms of diplomatic relations...

CEO Jamie Dimon has presided over the largest financial crime spree in world history. . . . It depends on how you count it, but it is more than a dozen, and more in the range of 15 major felonies that either the United States investigators have found, state investigators have found or foreign governments have found...JP Morgan’s frauds are epic in scale, unprecedented in world history...

The system is ungovernable... It has already largely imploded.”

William K. Black

Read the excerpts and see original interview here.

It is not that the system is ungovernable. It is that the system is ungovernable by morally ambivalent politicians, all of whom are caught in a credibility trap.

And the world is watching.

Financial Fukushima: US Big Bank Derivative Bets Double in Six Years To $236 Trillion

Well, the derivatives market is like Fukushima Daiichi before it failed and melted down, when the utility company and the Japanese government were blithely assuring themselves and everyone else that nothing could go wrong. Just as Greenspan and other very important people said nothing could go wrong with the US housing market and the wholesale collateralization of debt. Nothing to see here, move along.

I was working on my own update, between the usual distractions, of the Sept 2012 BIS information, when Peter Miller sent this nice summary of the situation my way. A relatively small number of very large banks represent enormous counterparty risk to the world financial system because of the almost geometric growth of the largely unregulated and historically unprecedented derivatives market.

The distortions caused by such massive leverage ripple through the financial system, with both intended and unintended consequences, including the distortion of real markets and the transfer to and concentration of wealth in the money manipulation sector. And the marriage that the financial sector has made with politics is particularly dangerous to the average person.

This affects every country through the transmission power of the US Dollar and its pre-eminent role in decision making in our financialized world economy.

OurBroker
Big Bank Derivative Bets Nearly Double In Six Years
By Peter G. Miller
October 4th, 2012

America’s major banks now hold derivatives with a notational worth of $225 trillion – about a third of the world total. No kidding. Trillion.

And that’s up from a mere $120 trillion six years ago. Rather than being weened off derivatives, America’s big banks are more deeply entrenched then ever.

Hopefully Wall Street has it figured out just right and there won’t be any major losses, say a few billion here or there. After all, when has Wall Street ever been wrong about financial instruments?

“Derivatives are dangerous,” says Warren Buffett. “They have dramatically increased the leverage and risks in our financial system. They have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks.”

While many in Washington would like to limit derivatives trading, make such trades open to public scrutiny or both, Wall Street is vehemently against regulation.

In fact, there’s a simple way to resolve derivative worries. Allow unlimited derivatives trading — but only by individuals and partnerships willing to personally take the risk of profits and losses...

According to the Bank for International Settlements (BIS), the notational value of derivatives at the end of 2011 was $648 trillion.

The gross credit exposure from these securities was believed to be $3.912 trillion according to the BIS — that’s up from $3.5 trillion at the end of 2009.

But what if the estimates are wrong? For instance, let’s say losses are just one tenth of one percent bigger than expected. Not a big deal, except in the context of international derivative levels that’s more than $640 billion.

Do taxpayers have exposure? You bet. According to the FDIC, at the end of June 2012 all depository institutions held derivatives with a notational value of $224,998 trillion. However, such bets are not spread across the entire banking system. Banks with at least $10 billion in assets hold virtually all derivatives, securities with a notational value of $224.803 trillion. While the FDIC insures deposits in some 7,200 banks and savings associations, only 59 FDIC-insured institutions have deposits of more than $10 billion. Your little community bank, savings association or credit union likely has no derivatives department.

Derivatives are simply bets. They finance no factories, no research, no colleges, no homes and no cars. Any jobs they produce are incidental and inconsequential relative to the potential risk they represent, the risk that credit exposure has been incorrectly figured by hundreds of billions of dollars if not more. Since big banks hold virtually all derivatives, and since taxpayers can face massive costs if big banks fail, it follows that something should be done to limit taxpayer risk....

Read the entire story with an explanation of derivatives here.

Here is a glossary of terms which you might wish to keep.

LIBOR and the Mispricing of Risk: The Dark Heart of the Systemic Fraud - Do Something

"Price discovery is not a sexy function of markets, but it is critical to the efficient allocation of scarce capital and resources, and to the preservation of the long term wealth of investors and the economy as a whole. If price discovery is compromised by manipulation, then we will all be gradually impoverished and the economy will be imbalanced and unstable."

The blogger London Banker writes an extraordinarily insightful piece today that perfectly captures what I have said for some time now, and probably phrased more elegantly and persuasively than I have been able in my own efforts.

Fraud is the mispricing of risk and misreprenting the value of transactions for private benefit. And the fraud we are seeing exposed in the Anglo-American financial system is not incidental, it is not a lapse in safeguards, it is not a rogue operation, not a one-off, but rather it is a 'feature' of the system itself.

The financial system has become, through misplaced ideology and regulatory capture, and most importantly the corrupting influence of easy money on the morally weak and ambivalent, a gigantic con game run for the benefit of a few elite insiders who have been systemically looting the real economy for the past twenty years.

July 14 is Bastille Day. This might be a good time to resolve to do something peaceful but firm to let those around us know that this will not be tolerated any further, that it has gone on long enough, and that people are aware of it and care about it.

Write a letter, forward an article to friends, make comments on sites, stop doing business with bad actors, take your money out of Wall Street and the City of London, make some quiet gesture, and that little action will combine with other actions to form a swell of opinion that cannot be ignored.

If you don't like your choice in politicians, don't take it quietly. Boot them all out if you have to. Let them know that second rate is not good enough.  Refuse to be used.  Refuse to do business with them.  What they cannot take away from you is your refusal.

If you act like a sheep or a cockroach, then they will treat you like a sheep and a cockroach.

The most important thing is to do something, if only for yourself, so that you will not feel powerless and disconnected from your fellows, many of whom feel the same as you do. Then no one can you have done nothing. And if you can, get into the habit of doing something little every chance you get, every day, to assert your humanity as a small act of defiance. Sometimes its the little things that make life worth living.

And above all, stop passing the lies around, and listening to those who put them out there to trick and confuse you.  You can spot them by their ugliness and mean-spiritedness.   Do not be a part of the problem.  Reject the naysayers, the cynics, and those who sap the life and energy from you with their negativity and fatalism.  They may be dead to life, but you do not have to join them.

'Thou shalt not be a victim, thou shalt not be a perpetrator, but, above all, thou shalt not be a bystander.'

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained growth and recovery.

Lies, Damn Lies and LIBOR
By London Banker

I've been hesitant to write about the LIBOR scandal because what I want to say goes so much further. We now know that Barclays and other major global banks have been manipulating the calculation of LIBOR through the quotation data they provided to the British Bankers Association. What I suspect is that this is not a flaw but a feature of modern financial markets. And if it was happening in LIBOR for between 5 and 15 years, then the business model has been profitably replicated to many other quotation-based reference prices.

Price discovery is not a sexy function of markets, but it is critical to the efficient allocation of scarce capital and resources, and to the preservation of the long term wealth of investors and the economy as a whole. If price discovery is compromised by manipulation, then we will all be gradually impoverished and the economy will be imbalanced and unstable.

Over the past 25 years the forces of regulatory liberalisation and demutualisation of markets have allowed the largest global banks to set the rules, processes and infrastructure of global markets to their own self-interested requirements. Regulatory complexity and harmonisation benefit the biggest banks disproportionately, eroding the competitive stance of smaller, local banks and market participants. This has led to a very high degree of concentration in a very few banks in most markets that determine global reference rates for interest rates, currencies, commodities and investments. If those few collude with each other - as Adam Smith warned was always the result - then they impoverish us all.

We have allowed markets to evolve in ways that make supervision of markets almost impossible. Many instruments trade off-exchange or in multiple venues, making it nearly impossible for any single investor or regulator to supervise trading to prevent or detect manipulation or abuse. Many financial instruments are now synthetic compilations of underlying assets and derivatives, with multiple pricing components determined by reference to other prices or rates. Demutualisation and regualtory reforms stripped exchanges of the self-regulating interest in preventing manipulation and abuse by their members as mergers, profits and market share came to dominate governance objectives.

Off-exchange trading has been allowed to proliferate, creating massive ill-transparent and largely illiquid markets in almost every sector of finance. Pricing in these markets is based around calculated reference rates which, like LIBOR, are open to abusive quotation and data input practices. Many OTC derivatives are priced and margined using reference rates calculated against quotations unrelated to actual reported transactions. Synthetic securities such as ETFs are another example of an instrument that prices off a reference rate rather than the actual contents of an underlying asset portfolio. These instruments are open to consistent abusive pricing as a means of incrementally impoverishing those market participants who are the krill on which the global banks thrive.

How has it been possible for banks to grow from less than 4 per cent of the global economy to more than 12 per cent of the global economy without impoverishing others? How has it been possible for profits in the financial sector to be consistently higher than profits from other human endeavors with more tangible products or impacts on our daily lives - such as agriculture, transport, health care or utilities? How has it been possible that banks derive their profits not from the protected and regulated activities of deposit-taking and lending, but from the unsupervised and often unknowable escalation of off-balance sheet assets and liabilities? How has it been possible that pension savings have increased while pension returns have declined to the point where only bankers can expect a comfortable old age? Global banks have built the casinos and tilted the odds in the house's favour by rigging the data that determines the outcomes of most of the bets on the table. Every one of us that sits at the table long enough - whether saver, investor, borrower, taxpayer or pensioner - will be a loser. It is not a flaw; it is feature...

Read the rest here.

Lords of Finance: The Bankers Who Broke the World

Liaquat Ahamed, author of Lords of Finance, The Bankers Who Broke the World, discusses the parallels between the Great Depression and the Financial Crisis of today at The American Academy of Berlin.

I concur heartily with Mr. Ahamed on the primary causes of the bubble and collapse, especially with regard to the enormous policy errors of the Greenspan Fed.

But I always find it annoying that the conscious, widespread fraud that was promoted by Wall Street, both in 1929 and in the most recent crisis, is rarely discussed as the major corrupting influence that distorted both economic and monetary policy and the real economy.

I cannot speak to the 1920s, but there is little doubt in my mind that there was a concerted effort to game and corrupt the financial system that gained a major momentum in the 1990s, and that culminated in the financial collapse and economic malaise and instability that is plaguing the world today.

One needs look at the actions of Messrs. Greenspan, Rubin, and Weil, and the political administrations during Clinton and Bush and Obama, to begin to penetrate the veil of secrecy.

The only mania and madness of the people was in trusting the words of demagogues and conmen, and their associated supporters and enablers. And even today people continue to mouth their false slogans and fatal prescriptions.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained growth and recovery.

The Bi-Partisan Criminogenic Fraudulent JOBS Bill

When the Republicans and the Democrats agree wholeheartedly about something these days hold on to your wallets.

Chris Hayes needs to cut down on his caffeine intake a bit, otherwise an excellent discussion. And of course please ignore any obnoxious commercial that precedes it.

I wanted to highlight this because it is Obama's bill. If and when it enables a new round of financial fraud his apologists may attempt to disown it.

But it originated in his Whitehouse and he will put his signature to it before it comes to law.

To say that Obama chose his economic advisors badly is an understatement.

JP Morgan Chase Accused of 'Brazen Bankruptcy Fraud'

Maybe this was their warm up for the shenanigans in the MF Global bankruptcy case. Or their long term manipulation of the silver market. 

If these allegations are true, why doesn't the California Attorney General or the Justice Department investigate this criminal conspiracy to abuse the legal system? (rhetorical question).

The only presidential candidate that the bankers fear and respect is Ron Paul.

Courthouse News Service
Chase Accused of Brazen Bankruptcy Fraud
By MATT REYNOLDS
January 17, 2012

LOS ANGELES (CN) - JPMorgan Chase routinely fabricated documents to deceive bankruptcy judges, going so far as to Photoshop documents to "create the illusion" of standing "in tens of thousands of bankruptcy cases," according to a federal class action.

Lead plaintiff Ernest Michael Bakenie claims that Chase's "pattern and practice of playing 'hide-and-seek' with debtors, judges and other bankruptcy players" bore rich fruit: that Chase secured motions for relief of stay and proofs of claim in 95 percent of its cases.

"Through the use of fabricated assignments, endorsements and affidavits that purport to transfer deeds of trust, notes and the rights to all monies due under the terms of tens of thousands of non-negotiable promissory notes (the 'MLNs'); Chase has demonstrated a pattern and practice of playing 'hide-and-seek' with debtors, judges and other bankruptcy players," the complaint states.

"Chase intentionally conceals the identity of the true parties in interest entitled to enforce the tens of tens of thousands of residential non-negotiable promissory notes (the 'MLNs') for its own financial benefit, at the expense of the class and to the detriment of the integrity of the bankruptcy system."

Bakenie says Chase used a network of attorneys to file more than 7,000 motions for relief from automatic stay in bankruptcy cases in the Central District of California, "wherein they falsely claim to be the party entitled to monies due under the terms of MLNs."

Chase rewards attorneys based on how quickly they can secure the stays, and uses fabricated documents to establish chain of title on loans, according to the complaint...

Read the rest here.

US Federal Prosecutions For Financial Fraud In the Obama Administration Fall to 20 Year Lows

The declines in US Federal prosecutions for financial fraud  that began under G.W. Bush have followed that down trend that in the first three years of the Obama Administration. That might make more sense if Obama had not been elected as a reform president in response to one of the greatest financial frauds in American history. 

In the first three years of the Obama Administration, federal prosecutions have been running at new highs. Over half of the prosecutions involve illegal immigration. Another 17% are drug related.

Illegal immigrants and drug dealers have the reputation for being notoriously cheap in providing campaign contributions.

Prosecutions for financial fraud however have dropped to the lowest levels in over 20 years.

According to the original study, the primary charges for Federal crimes in the latest figures are as follows.

"The single largest number of prosecutions of these matters through August 2011 was for Immigration, accounting for 50.7 percent of prosecutions.  The second largest number of matters were Prosecutions filed under the program area of Narcotics/Drugs  (17.3%)."

In defense of Obama, GW Bush had the unearned benefit of Eliot Spitzer leading the charge for the Feds on financial fraud from his office as the Democratic NY Attorney General. Of course Eliot got taken out by the Feds himself in 2008 as the result of an intensive ad hoc investigation into $5,000-a-night hookers from New Jersey named Ashley. I wonder what category that falls under.  She should have waited for the reality show - it has better residuals.

Don't get me wrong.  I am not trying to pick on BHO.  I am disappointed with his performance to say the least, and that set in around day 50 when he unrolled his appointments, so you can't blame it all on the obviously obstructionist opposition.  The people voted for Franklin Roosevelt and they got a Herbert Hoover.

Whenever you might say, "I don't really like Obama's ineffectiveness as a reformer" or "Although he seems decent and has many effective postions, I am uncomfortable with Ron Paul because of his ideological opposition to civil rights legislation and equal protection laws" at some point you usually hear: "Well who do YOU like?" Life imitates high school.

I don' t like any of them, or should I say like like? And a few are borderline frightening. And most people seem to feel the same way. I cannot believe that in the world's superpower, with about 300 million residents, this motley collection has risen as the cream of the crop.

NY Times
Prosecutions for Bank Fraud Fall Sharply
By CATHERINE RAMPELL

Federal prosecutions for financial institution fraud have tumbled over the last decade, despite the recent troubles in the banking sector, according to a new analysis of Justice Department data by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University.

This category can refer to crimes committed both within and against banks. Defendants include bank executives who mislead regulators, mortgage brokers who falsify loan documents, and consumers who write bad checks.

During the first 11 months of the 2011 fiscal year, the federal government filed 1,251 new prosecutions for financial institution fraud. If that pace continues, TRAC projects a total of 1,365 prosecutions for the fiscal year. That’s less than half the total a decade ago.

The decline in these new cases stands in contrast to the government’s broader approach to federal criminal prosecutions. Federal prosecutions for other crimes have grown tremendously, with the number of total new prosecutions filed for all federal crimes nearly doubling over the last decade.

Read the rest of the NY Times article here.

All Federal Prosecutions



Federal Prosecutions for Financial Fraud

FBI Raids Two Hedge Funds In Insider Trading Case: Plus Ça Change?

Genuine enforcement or bread and circuses?

Only time will tell.

The fish seems to be getting a little bigger. But only a little, and still on the relative periphery of the school.

What will be most interesting to watch is how the investigations and settlements, if any, unfold. Will they be 'cost of business as usual with no admission of guilt' fines, or will serious federal prosecutors get involved and start turning over the small fry to get to the heart of the scandals. Will they merely rustle the branches or strike to the roots? That is the difference between the appearance and the reality of reform.

However it turns out, be aware that fraud is still pervasive on Wall Street and in the US markets, and the status quo has been maintained by both political parties who receive enormous funds from the corporations in the FIRE sector.

Connecticut is to financial racketeering what Chicago was to the Mob and Prohibition. But always the real power is headquartered in New York.

Massive Insider Trading Investigation Could Nail Wall Street's Biggest Names

I would be quite a bit more impressed if the raids were on a few of the TBTF banks who make these hedge funds look like small time street dealers by comparison. But that would expand the investigation uncomfortably close to the inner warrens of the Washington Beltway, and the real seats of power and corruption, the old powers and monied interests.

WSJ
FBI Raids Two Hedge Funds Amid Insider-Trading Case
By SUSAN PULLIAM, JENNY STRASBURG And MICHAEL ROTHFELD

Federal Bureau of Investigation agents raided the Connecticut offices of hedge funds Diamondback Capital Management LLC and Level Global Investors LP amid a far-reaching insider-trading investigation.

"The FBI is executing court-authorized search warrants in an ongoing investigation," said Richard Kolko, an FBI spokesman, who declined to comment further.

Both hedge funds are run by former managers of Steve Cohen's SAC Capital Advisors. Level Global Investors LP is a Greenwich, Conn., hedge-fund firm run by David Ganek, a former SAC Capital trader and art collector. He started Level Global in 2003 and earlier this year reported managing about $4 billion in assets.

Diamondback Capital Management LLC is based in Stamford, Conn., and was started in 2005. It oversees more than $5 billion in assets, according to SEC filings.

The move by the FBI follows an article by The Wall Street Journal describing an insider-trading investigation that is expected to encompass consultants, investment bankers, hedge-fund and mutual-fund traders. The investigation is said by people close to the situation to eclipse in size and magnitude past insider-trading probes..."

Tavakoli: Biggest Fraud in the History of the Capital Markets

Washington Post
'This is the biggest fraud in the history of the capital markets'
By Ezra Klein
10/8/2010

Janet Tavakoli is the founder and president of Tavakoli Structured Finance Inc. She sounded some of the earliest warnings on the structured finance market, leading the University of Chicago to profile her as a "Structured Success," and Business Week to call her "The Cassandra of Credit Derivatives." We spoke this afternoon about the turmoil in the housing market, and an edited transcript of our conversation follows.

Ezra Klein: What’s happening here? Why are we suddenly faced with a crisis that wasn’t apparent two weeks ago?

Janet Tavakoli: This is the biggest fraud in the history of the capital markets. And it’s not something that happened last week. It happened when these loans were originated, in some cases years ago. Loans have representations and warranties that have to be met. In the past, you had a certain period of time, 60 to 90 days, where you sort through these loans and, if they’re bad, you kick them back. If the documentation wasn’t correct, you’d kick it back. If you found the incomes of the buyers had been overstated, or the houses had been appraised at twice their worth, you’d kick it back. But that didn’t happen here. And it turned out there were loan files that were missing required documentation. Part of putting the deal together is that the securitization professional, and in this case that’s banks like Goldman Sachs and JP Morgan, has to watch for this stuff. It’s called perfecting the security interest, and it’s not optional.

EK: And how much danger are the banks themselves in?

JT: When we had the financial crisis, the first thing the banks did was run to Congress and ask for accounting relief. They asked to be able to avoid pricing this stuff at the price where people would buy them. So no one can tell you the size of the hole in these balance sheets. We’ve thrown a lot of money at it. TARP was just the tip of the iceberg. We’ve given them guarantees on debts, low-cost funding from the Fed. But a lot of these mortgages just cannot be saved. Had we acknowledged this problem in 2005, we could’ve cleaned it up for a few hundred billion dollars. But we didn’t. Banks were lying and committing fraud, and our regulators were covering them and so a bad problem has become a hellacious one.

EK: My understanding is that this now pits the banks against the investors they sold these products too. The investors are going to court to argue that the products were flawed and the banks need to take them back.

JT: Many investors now are waking up to the fact that they were defrauded. Even sophisticated investors. If you did your due diligence but material information was withheld, you can recover. It’ll be a case-by-by-case basis.

EK: Given that our financial system is still fragile, isn’t that a disaster for the economy? Will credit freeze again?

JT: I disagree. In order to make the financial system healthy, we need to recognize the extent of our losses and begin facing the fraud. Then the market will be trustworthy again and people will start to participate.

EK: It sounds almost like you’re saying we still need to go through the end of our financial crisis.

JT: Yes, but I wouldn’t say crisis. This can be done with a resolution trust corporation, the way we cleaned up the S&Ls. The system got back on its feet faster because we grappled with the problems. The shareholders would be wiped out and the debt holders would have to take a discount on their debt and they’d get a debt-for-equity swap. Instead we poured TARP money into a pit and meanwhile the banks are paying huge bonuses to some people who should be made accountable for fraud. The financial crisis was a product of our irrational reaction, which protected crony capitalism rather than capitalism. In capitalism, the shareholders who took the risk would be wiped out and the debt holders would take a discount but banking would go on.

China: The US Is "Insolvent and Faces Bankruptcy"

The common thought amongst even reasonably educated and economically literate Americans is that China is 'stuck with US Treasuries' and has no choice, so it must perform within the status quo and do as the US wishes, or face a ruinous decline in their reserve holdings of US Treasuries.

And with real short term US Treasury interest rates decidedly negative, meaning that it is costing you money to hold dollars, there is a case to be made that there are a lot of 'price takers' out there in this world. Wow, they are just that good, aren't they. Having their heyday in a genuine deflation. A subtle tax levied on all holders of US dollars, probably more significant because of the official understatement of inflation. Yo, come git some.

I think China is already diversifying their reserve portfolio, and more stealthily and effectively than one would imagine into 'real goods.'

Further, I suspect that through the use of hedging short positions and derivatives such as Credit Default Swaps, China would be able to cover a greater portion of its reserves than the common mind might allow, which is 'none' because of the obvious counter party risk in the event of a total collapse, a typical Western reaction, never seeing the gradations of outcomes.

And if this is in reality one theater in a global struggle for power, sacrificing a pawn or two, and even a bishop, would be a small price to pay to bring down the world's remaining superpower, as indirectly and gracefully as is possible. War is never cheaply waged.

It would most certainly be a nuclear option to outright dump Treasuries outright, and would raise the ire of what is still a formidable military power. But it is the Western mind that is so incapable of seeing the many shades of gray in every situation, the subtle gradations in a range of choices that I believe China not only sees but is already actively pursuing.

China is not the only country that resents the devastating frauds that the US has perpetrated on not only its own people but the rest of the world through its Wall Street banks and ratings agencies.

Most Americans overlook this developing estrangement that is beginning to isolate the US and UK from even their traditional allies in Europe and South America and Asia. This is a serious error, but so typical of the short term mentality dominated by greed, dishonesty, and self-delusion that captured the American psyche in the latter part of The New American Century. But what choice does Europe have except to take what the Anglo-Americans serve them. Take it or leave it. And ain't currency war hell?

It never pays to have a 'checkerboard mentality' when your opponent is playing Go."

Financial Times
China rating agency condemns rivals
By Jamil Anderlini in Beijing
July 21 2010 16:22

The head of China’s largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.

“The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview. “China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.”

He specifically criticised the practice of “rating shopping” by companies who offer their business to the agency that provides the most favourable rating.

In the aftermath of the financial crisis “rating shopping” has been one of the key complaints from western regulators , who have heavily criticised the big three agencies for handing top ratings to mortgage-linked securities that turned toxic when the US housing market collapsed in 2007.

“The financial crisis was caused because rating agencies didn’t properly disclose risk and this brought the entire US financial system to the verge of collapse, causing huge damage to the US and its strategic interests,” Mr Guan said.

Recently, the rating agencies have been criticised for being too slow to downgrade some of the heavily indebted peripheral eurozone economies, most notably Spain, which still holds triple A ratings from Moody’s.

There is also a view among many investors that the agencies would shy away from withdrawing triple A ratings to countries such as the US and UK because of the political pressure that would bear down on them in the event of such actions.

Last week, privately-owned Dagong published its own sovereign credit ranking in what it said was a first for a non-western credit rating agency.

The results were very different from those published by Moody’s, Standard & Poor’s and Fitch, with China ranking higher than the United States, Britain, Japan, France and most other major economies, reflecting Dagong’s belief that China is more politically and economically stable than all of these countries.

Mr Guan said his company’s methodology has been developed over the last five years and reflects a more objective assessment of a government’s fiscal position, ability to govern, economic power, foreign reserves, debt burden and ability to create future wealth.

“The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings ,” Mr Guan said. “Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.”

A wildly enthusiastic editorial published by Xinhua , China’s official state newswire, lauded Dagong’s report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a “victim”.

“Compared with the US’ conquest of the world by means of force, Moody’s has controlled the world through its dominance in credit ratings,” the editorial said...

US Housing Crash; If It Bleeds, It's Buried; Congress Fiddles While the Economy Burns

Rumours of an economic recovery in the US seem to be greatly exaggerated.

The mainstream media, Wall Street, and Washington have expanded their policy of 'extend and pretend' to 'if it bleeds, it's buried.'







h/t to Michael David White's Housing Story for the charts and the tag line.

The Financial Crisis Is Everywhere a Fraud, and Official Complacency Inevitably Leads to a Crisis

"A revolution is coming — a revolution which will be peaceful if we are wise enough; compassionate if we care enough; successful if we are fortunate enough — But a revolution which is coming whether we will it or not. We can affect its character; we cannot alter its inevitability." Robert F. Kennedy, 9 May 1966

The Fed is now engaged in a control fraud, and what appears to be racketeering in conjunction with a few big investment banks. They may have entered into it with good intentions, but they seem to have been turned towards deceit and corruption.

This is not an historical event, but an ongoing theft in conjunction with a number of Wall Street banks, and politicians whom they have paid off through a corrupt system of campaign financing and influence peddling.

This is nothing new in history if one reads the unsanitized version. But people never think it can happen today, that somehow yesterday things were different, as if one is looking at some distant, foreign land. This is a facet of the illusion of general progress.

Audit the Fed. Vote out incumbents until they give you what you demand. Take back the billions stolen through millionaire's taxes similar to those in place before the 'Reagan Revolution.' If there is no profit in theft, it will not happen. EU Puts Tough Restrictions on Banker's Bonuses.

The individuals in government are not a ruling class, and were never intended to be, although after a second term they start to feel themselves to be privileged, with better pensions and benefits and pay raises than the people whom they serve. These are your chosen representatives, sworn to uphold the law and governing with your consent. The United States is not the Congress, the Supreme Court and the Executive in Washington, it is the people joined freely by their mutual consent under the Constitution. It is of the people, by the people, and for the people.

Goldman Sachs, AIG, and the NY Fed are at the heart of it. Everyone in the government, the media, and on the Street knows this. We are now in the coverup stage of a scandal, similar to Watergate when the White House was stone-walling. The difference is that the corruption and capture of the government is much more pervasive now, and includes a significant portion of the mainstream media, so meaningful reform is difficult. Most of what has transpired so far has been designed to distract and placate the people in their righteous anger.

Here is a commentary from one of my favorite analysts, Howard Davidowitz, and then the story from Bloomberg on how the Fed deceives the Congress and the public, turns a blind eye to glaring conflicts of interest, and is essentially debasing the currency while transferring the wealth of the nation to their cronies. Janet Tavakoli has been articulate and outspoken on recent financial developments, identifying the fraud and its specifics while taking on the apologists in open forums, for quite some time. And still the regulators do not enforce the laws they have, and Washington drags its feet while accepting buckets of cash from the perpetrators.

The longer reform is delayed and the peaceful protestations of the public are ignored, the worse it will be if the people actually rise and put a stop to this. The Fed could conceivably become a latter day Bastille, one would advise and hope, in a figurative manner.

One of the things I like about the English form of government is that if they behave badly enough, a prime minister can face a vote of no confidence and trigger an election. In the US, it appears that politicians scramble to be elected, and then stay safely in office barring the high hurdle of impeachment, and do what they will, breaking promises and behaving badly, with significant short term impunity. And when the next election comes over the horizon, they start behaving again, and playing the short term memory game. If the US had the British system, there is little doubt that the current Administration would be facing a general election now.

But have no doubt, change is coming, and it is still an open question if hell is also coming with it.

"Federal Reserve Chairman Ben S. Bernanke and then-New York Fed President Timothy Geithner told senators on April 3, 2008, that the tens of billions of dollars in “assets” the government agreed to purchase in the rescue of Bear Stearns Cos. were “investment-grade.” They didn’t share everything the Fed knew about the money.

The so-called assets included collateralized debt obligations and mortgage-backed bonds with names like HG-Coll Ltd. 2007-1A that were so distressed, more than $40 million already had been reduced to less than investment-grade by the time the central bankers testified. The government also became the owner of $16 billion of credit-default swaps, and taxpayers wound up guaranteeing high-yield, high-risk junk bonds.

By using its balance sheet to protect an investment bank against failure, the Fed took on the most credit risk in its 96- year history and increased the chance that Americans would be on the hook for billions of dollars as the central bank began insuring Wall Street firms against collapse. The Fed’s secrecy spurred legislation that will require government audits of the Fed bailouts and force the central bank to reveal recipients of emergency credit.

“Either the Fed did not understand the distressed state of some of the assets that it was purchasing from banks and is only now discovering their true value, or it understood that it was buying weak assets and attempted to obscure that fact,” Senator Sherrod Brown, an Ohio Democrat and member of the Senate Banking Committee, said in an e-mail when informed about the credit quality of holdings in the Maiden Lane LLC portfolio. The committee held the April 3 hearing."

Fed Made Taxpayers Unwitting Junk Bond Buyers - Bloomberg

Class War and the Decline of the West

Before he rediscovered his self interest, ignoring the outrageous financial frauds perpetrated by his own ratings agency, Warren Buffett famously said, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

I find it remarkable that there is so little meaningful discussion of this in mainstream circles. Well perhaps not, considering that most of them are now owned by a few major corporations.

The key to stopping this theft of your freedom is purging the political system of the corruption of paid influence, campaign contributions by non-persons like corporations, special interest groups, and unions, the breaking up of the media conglomerates that seek to control the news, and the implementation of a system of sound money for international trade at least, using a standard that resists the manipulation of the financial system as outlined in Hugo Salinas-Price's quietly brilliant and remarkably insightful essay, Gold Standard: Protector and Generator of Jobs.

The powers that be will fight reform every step of the way, using propaganda and your prejudices and emotions against you. The best way to conquer a people is to persuade them to enslave themselves using slogans and simplistic views of the world that play on their fears and hatreds. The neo-liberal economic fraud that was scripted by the monied interests is played out daily to vast audiences using actors and actresses masquerading as politicians, analysts, and commentators.

I receive at least ten emails per day from the self-enslaving, sadly to say mostly older men like myself, that repeat the slogans and urban myths like faithful party members, seasoned with hateful prejudice and mindless propaganda, so I know that the influence peddlers and indoctrinators are doing a good job of it, subverting the middle class.

It is a little remembered fact that the greatest boost in support for the rise of the National Socialist party came not from the underclasses which had always been a minority player on the political stage, but from the more influential professional class, the petit-bourgeois: doctors, dentists, accountants, shop owners, and small business owners. They added their force to the earliest supporters , the industrialists and the monied interests, the bankers and the industrialists.

This is how the National Socialists were able to so easily co-opt the medical profession and educated classes into the early horrors of euthanasia, sterilization, and then finally extermination of whole categories of 'undesirables.' The middle class thought they could ride the wave, the will to power, in their greed and hate and revenge, but they soon learned that madness has no master, consuming all with fire.

This is how your freedom, your wealth, will be taken from you and your children, their futures devastated. So it is something with which you might wish to be familiar, so you can at least explain it to them when they are homeless in the land their forefathers gave you.

"For we wrestle not against flesh and blood, but against principalities, against powers, against the rulers of the darkness of this world, against spiritual wickedness in high places." Ephesians 6:12

Here is a recent essay by Professor Ismael Hossein-zadeh that is worth reading.

"Never before has so much debt been imposed on so many people by so few financial operatives--operatives who work from Wall Street, the largest casino in history, and a handful of its junior counterparts around the world, especially Europe.

External sovereign debt, as well as occasional default on such debt, is not unprecedented [1]. What is rather unique in the case of the current global sovereign debt is that it is largely private debt billed as public debt; that is, debt that was accumulated by financial speculators and, then, offloaded onto governments to be paid by taxpayers as national debt. Having thus bailed out the insolvent banksters, many governments have now become insolvent or nearly insolvent themselves, and are asking the public to skimp on their bread and butter in order to service the debt that is not their responsibility.

After transferring trillions of dollars of bad debt or toxic assets from the books of financial speculators to those of governments, global financial moguls, their representatives in the State apparatus and corporate media are now blaming social spending (in effect, the people) as responsible for debt and deficit!

President Obama's recent motto of "fiscal responsibility" and his frequent grumbles about "out of control government spending" are reflections of this insidious strategy of blaming victims for the crimes of perpetrators. They also reflect the fact that the powerful financial interests that received trillions of taxpayers' dollars, which saved them from bankruptcy, are now dictating debt-collecting strategies through which governments can recoup those dollars from taxpayers. In effect, governments and multilateral institutions such as the IMF are acting as bailiffs or tax collectors on behalf of banksters and other financial wizards.

Not only is this unfair (it is, indeed, tantamount to robbery, and therefore criminal), it is also recessionary as it can increase unemployment and undermine economic growth. It is reminiscent of President Herbert Hoover's notorious economic policy of cutting spending during a recession, a contractionary fiscal policy that is bound to worsen the recession. It is, indeed, a recipe for a vicious circle of debt and depression: as spending is cut to pay debt, the economy and (therefore) tax revenues will shrink, which would then increase debt and deficit, and call for more spending cuts.

Spending on national infrastructure, both physical (such as roads and schools) and social infrastructure (such as health and education) is key to the long-term socioeconomic developments. Cutting public spending to pay for the sins of Wall Street gamblers is bound to undermine the long-term health of a society in terms of productivity enhancement and sustained growth.

But the powerful financial interests and their debt collectors seem to be more interested in collecting debt claims than investing in economic recovery, job creation or long-term socioeconomic development. Like most debt-collecting agencies, the IMF and the states serving as banksters' bailiffs through their austerity programs may shed a few crocodile tears in sympathy with the victims' of their belt-tightening policies; but, again like any other debt-collecting agents, they seem to be saying: "sorry for the loss of your job or your house, but debt must be collected--regardless."

A most outrageous aspect of the debt burden that is placed on the taxpayers' shoulders since 2008 is that most of the underlying debt claims are fictitious and illegitimate: they are largely due to manipulated asset price bubbles, dubious or illegal financial speculations, and scandalous conversion of financial gamblers' losses into public liability.

As noted earlier, onerous austerity measures to force the public to pay the largely fraudulent external debt is not new. Benignly calling such oppressive measures "Structural Adjustment Programs," the International Monetary Fund and the World Bank have for decades imposed them on many less developed countries to collect debt on behalf of international financial titans.

To "help" the indebted nations craft debt-servicing arrangements with external creditors, the IMF imposed severe conditions on the way they managed their economies--just as it is now imposing (in collaboration with the European and American bankers) those austerity policies on the debtor nations in Europe. The primary purpose of such restrictive conditions is to divert or transfer national resources from domestic use to external creditors. These include not only belt-tightening measures to cut social spending and/or raise taxes, but also selling-off public enterprises, national industries, and future tax revenues.

Calling such fire-sale privatization deals "briberization," the ex-World Bank chief economist Joseph Stiglitz revealed (in an interview with the renowned investigative reporter Greg Palast) how finance ministers and other bureaucratic authorities in the debtor countries often carried out the Bank's demand to sell off their electricity, water, transportation and communication companies in return for some apparently irresistible sweetener. "You could see their eyes widen" at the prospect of 10% commissions paid to Swiss bank accounts for simply shaving a few billions off the sale price of national assets..."

Ismael Hossein-zadeh, The Vicious Circle of Debt and Depression: It Is a Class War

Here is a lengthier history of the undermining of the US political system using financial fraud from Renaissance 2.0.

The bailout of AIG is near the core of the great fraud. Crack that nut, and we may learn something about financial fascism and the Fed. That is why they may dance around it, but they will never take down the principals and bring the truth out into the light of day.

Le monde est sourd. The world is deaf, and the truth has no place to lay his head in their hearts.



I am a citizen of the world, and nothing is alien to me except sin.