Blatant Market Manipulation Is a Distinct Moral Hazard

Our personal view is that one or two big trading desks just gave the futures markets a broad 'gut check' in commodities and stocks, selling oil and gold and silver, and buying equities.

Anyone who says that such things do not occur, often with an air of feigned sophistication and objectivity, is either naive or a poseur.

The 'game' is to dump a huge position into a particular market, driving down the price and running stop loss orders and small speculators and funds out, creating a short term drop in price and then buying back the positions at a cheaper price and pocketing the gain.

This scheme can be used over both short and long periods of time. Its is an old game, going back before even the great market 'pools' of the 1920's that set up the environment for the Crash of 1929 and the Great Depression.

The SEC remains blissfully asleep at the switch during the general looting of the country by the financial interests. The state of the silver market in the US under the guidance of the CFTC is a disgrace.

As traders we can live with it, but as citizens and parents we are appalled. It creates a general atmosphere of lawlessness and cynicism and amorality. It spawns larger and more sophisticated con games like Enron and collateralized debt, as the big financial houses become more greedy and emboldened. It is a source of corruption and decay in the politicial system. It corrupts regulators, politicians, and even the media.

It is one of the reasons why Glass-Steagall was enacted back in the 1930s, to prevent this predation by the large national banks using federally insured depositors funds and privileged access to cheap Federal Reserve funds as the instruments of their common cheats and frauds.

PBS: the RCA Stock Pool

The New York Times
Citigroup Regrets Bond Trades in Europe
By HEATHER TIMMONS
September 15, 2004

Citigroup told employees on Tuesday that it regretted executing a $13.5 billion bond trade that has raised the ire of rival traders in Europe and led to an investigation by regulators in Britain.

In an memorandum to all 40,000 employees of Citigroup's global corporate and investment bank, the chief executive for global capital markets, Thomas G. Maheras, said the trade was an "innovative transaction, that sought to access the liquidity in the European bond markets," but that it "did not meet our standards."

As a result, "we regret having executed this transaction," he said.

The bond sale, executed Aug. 2, caused widespread concern in Europe's markets. Citigroup sold 11 billion euros ($13.5 billion) of European government debt within minutes, mainly through electronic trades, then bought some of it back at lower prices less than an hour later, rival traders say.

Though the trades were not illegal, they angered other bond houses, which said the bank violated an unspoken agreement not to flood the market to drive down prices.

Citigroup "failed to fully consider its impact on our clients, other market participants and our regulators," Mr. Maheras said in the memo...

Citigroup Regrets Bond Trades in Europe

Net Asset Value of Certain Gold and Silver Funds and Trusts

IndyMac Second Largest Failure - 10,000 Depositors Uninsured for $1 Billion

"Some 10,000 depositors had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds," the FDIC said.

Government shuts down mortgage lender IndyMac
By Alex Veiga
Associated Press

IndyMac Bank's assets were seized by federal regulators on Friday after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures.

The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said.

The Office of Thrift Supervision said it transferred IndyMac's operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors' demands.

IndyMac customers with funds in the bank were limited to taking out money via automated teller machines over the weekend, debit card transactions or checks, regulators said.

Other bank services, such as online banking and phone banking were scheduled to be made available on Monday.

"This institution failed today due to a liquidity crisis," OTS Director John Reich said.

The lender's failure came the same day that financial markets plunged when investors tried to gauge whether the government would have to save mortgage giants Fannie Mae and Freddie Mac.

Shares of Fannie and Freddie dropped to 17-year lows before the stocks recovered somewhat. Wall Street is growing more convinced that the government will have to bail out the country's biggest mortgage financiers, whose failure could deal a tremendous blow to the already staggering economy.

The FDIC estimated that its takeover of IndyMac would cost between $4 billion and $8 billion.

IndyMac's collapse is second only to that of Continental Illinois National Bank, which had nearly $40 billion in assets when it failed in 1984, according to the FDIC.

News of the takeover distressed Alan Sands, who showed up at the company's headquarters in Pasadena, Calif., to find out when he could withdraw his funds.

"Hopefully the FDIC insurance will take care of it," said Sands, of El Monte, Calif. "I'm also kind of kicking myself for not taking care of this sooner, sooner as in the last couple of days."

A couple of dozen customers could be seen outside the building, reading fliers handed out by FDIC staff. The agency set up a toll-free number for bank customers to call.

IndyMac Bancorp Inc., the holding company for IndyMac Bank, has been struggling to raise capital as the housing slump deepens.

IndyMac had $32.01 billion in assets as of March 31.

A spokesman for the lender referred media queries to the FDIC.

The banking regulator said it closed IndyMac after customers began a run on the lender following the June 26 release of a letter by Sen. Charles Schumer, D-N.Y., urging several bank regulatory agencies that they take steps to prevent IndyMac's collapse.

In the 11 days that followed the letter's release, depositors took out more than $1.3 billion, regulators said.

In a statement Friday, Schumer said IndyMac's failure was due to long-standing practices by the bank, not recent events.

"If OTS had done its job as regulator and not let IndyMac's poor and loose lending practices continue, we wouldn't be where we are today," Schumer said. "Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs."

The FDIC planned to reopen the bank on Monday as IndyMac Federal Bank, FSB.

Deposits are insured up to $100,000 per depositor.

As of March 31, IndyMac had total deposits of $19.06 billion.

Some 10,000 depositors had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds, the FDIC said.

Customers with uninsured deposits could begin making appointments to file a claim with the FDIC on Monday. The agency said it would pay unsecured depositors an advance dividend equal to half of the uninsured amount.

During a conference call with reporters, FDIC Chairman Sheila C. Bair said the agency would cover all insured deposits and then try to recover its costs by selling IndyMac's assets.

"We anticipate trying to market the institution as a whole bank," Bair said. "How much money we derive from that will depend on who gets paid what."

Holders of unsecured IndyMac debt may not fully recover their investment, Bair said.

"Generally if a creditor is secured, they are at the top of the claims priority," she said. "If they are unsecured, they're pretty low on the claims priority and probably will take some type of haircut with this, but we have not had a chance to do a thorough analysis to know ... how extensive those losses will be."

IndyMac spent the last two weeks trying to reassure customers that it was not near default.

On Monday, IndyMac announced it had stopped accepting new loan submissions and planned to slash 3,800 jobs, or more than half of its work force - the largest employee cuts in company history.

In the letter to shareholders, IndyMac Chairman and Chief Executive Michael W. Perry said the drastic measures were made in conjunction with banking regulators to improve the company's financial footing and "meet our mutual goal of keeping Indymac safe and sound through this crisis period."

The plan was supposed to generate roughly $5 billion to $10 billion per year of new loans backed by government-sponsored mortgage companies, Perry said at the time.

But the run on its deposits ultimately short-circuited the strategy, prompting regulators to take action Friday.

Associated Press writer Raquel Maria Dillon in Pasadena contributed to this report.

Treasury Proposes 'Unlimited Stake' in Freddie and Fannie

Paulson Seeks Authority to Shore Up Fannie, Freddie
By Brendan Murray and Dawn Kopecki

July 13 (Bloomberg) -- Treasury Secretary Henry Paulson sought authority from Congress to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, aiming to stem the collapse of confidence in the largest sources of U.S. mortgage financing.

Paulson proposed that Congress enact legislation giving the Treasury temporary authority to buy equity ``if needed'' in the firms, and to increase their lines of credit with the department from $2.25 billion each. The Federal Reserve authorized the companies to borrow directly from the New York Fed, in a step that could provide funding before the bill is passed.

Today's announcement followed crisis talks between the firms, government officials, lawmakers and regulators, after Fannie Mae and Freddie Mac lost about half their value last week. Paulson and Fed Chairman Ben S. Bernanke are trying to prevent a collapse in the firms that would exacerbate the worst housing recession in 25 years and deepen the economic slowdown.

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac own or guarantee almost half the $12 trillion in outstanding U.S. mortgages. As lenders retreated from the housing market, they have grown to account for more than 80 percent of the home loans packaged into securities.

Freddie Mac is scheduled to sell $3 billion in short-term notes tomorrow, and Paulson's comments indicate a growing concern that a crisis of confidence may take hold if investors balk. The companies issue debt to raise money for their purchases of mortgage securities.

Action This Week

Paulson spoke with congressional leaders and is confident that lawmakers will be able to add the measures in an existing housing bill and enact the package this week, a Treasury official told reporters on a conference call. The temporary authority granted to the Treasury may be for 18 months, the official said on condition of anonymity.

The plan would give Paulson power to buy an unspecified amount of stock in Fannie Mae and Freddie Mac, the official said. He also said he didn't recall any time in the past when the government has taken an equity stake in either company.

Paulson also proposed that the Fed get a ``consultative role'' overseeing the companies' capital requirements. The Fed said in a separate statement that the New York Fed was approved to make direct loans to Fannie Mae and Freddie Mac at the discount rate, currently 2.25 percent, charged to commercial banks.

Facing White House

The Treasury chief read his statement before cameras on the Bell Entrance of the department's building in Washington, facing the White House. The unusual step illustrated the significance of today's proposals.

Debt sold by Fannie Mae and Freddie Mac ``is held by financial institutions around the world,'' Paulson said in the statement. ``Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets.''

Freddie Mac shares tumbled 47 percent in New York Stock Exchange composite trading last week and Washington-based Fannie Mae lost 45 percent of its value, forcing Paulson two days ago to issue a statement of support for the companies in their ``current form.''

``Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer,'' Paulson said.

The government-chartered, publicly traded companies have already raised $20 billion to cover losses amid the highest delinquency rates in at least 29 years. Freddie Mac said earlier this month it planned to sell $5.5 billion of equity after it reports earnings next month.

To contact the reporter on this story: Brendan Murray at brmurray@bloomberg.netDawn Kopecki in Washington at dkopecki@bloomberg.net

Last Updated: July 13, 2008 18:29 EDT

Paulson Statement on Freddie and Fannie