FedUpUSA

Archive for April 28th, 2010

Fed Facing Lawsuits, Criminal Complaints Over Market Manipulation

Written by Alex Newman

In addition to valiant congressional efforts for increased transparency, the Federal Reserve System and its cohorts are being targeted with criminal complaints and multiple lawsuits that attempt to shed to light on the central bank’s “bailouts” and its manipulation of the stock market, the precious-metals market, and more.

Some startling revelations have already surfaced, like the fact that under Timothy Geithner, the Federal Reserve Bank of New York set up front companies to purchase toxic assets from various firms. It has also become public knowledge that the Fed handed out hundreds of billions to foreign central banks and trillions to financial institutions. But there is still much more hidden in the shadows, and efforts to expose the secrets are growing.  

Fox Business Network announced on April 20 that it was expanding its lawsuit against the Federal Reserve’s secret bailouts. And “The New American” has provided extensive coverage of Bloomberg’s lawsuit, which aims to force the banking cartel to disclose information about its so-called “emergency” lending program, which unconstitutionally and without appropriations from Congress provided trillions of dollars to various financial institutions.

Bloomberg won its original Freedom of Information suit, but the Fed obtained permission to delay disclosure while it appealed the ruling. The Fed lost again on appeal, arguing it was not subject to FOIA requests as a private entity and that disclosure would “harm” the institutions receiving bailouts. But despite the two court rulings, it has not yet given up and may even take the case all the way to the U.S. Supreme Court.

But while the Bloomberg lawsuit proceeds, investors who lost money because of the Fed’s market manipulations are exploring other options. A Florida investor who lost money after deciding to “short” financial institutions based on publicly available data has recently filed three felony criminal complaints with the Federal Bureau of Investigation and the Securities and Exchange Commission against the Fed, the Treasury, and various banks.

“Investors who had short positions or purchased ‘put options’ were defrauded of billions. I purchased short positions and was defrauded. I want to prosecute,” wrote investor, developer, and Republican Liberty Caucus of Florida chairman Will Pitts in his criminal complaint filed with the SEC. “Those guilty by their own admission should be arrested. Those who lost because of this fraud should be compensated for their loss.”

He is also working on initiating a class-action lawsuit to recover damages. “We’re assembling persons who were impacted as a result of these fraudulent activities and have spoken with a number of attorneys,” he told “The New American” in a telephone interview. “For [the Fed] to take action in the market to increase the value of the stocks, they’re directly defrauding everyone who’s on the other side of that trade.”

The efforts revolve around various actions taken by the Fed during the economic crisis under the guise of “stabilizing” the economy. In early-to-mid 2008, well-respected financial analysts evaluating the health of large banks and the real-estate market concluded that they were in bad shape, explained Pitts. Examining the publicly disclosed financial statements of the big financial institutions also revealed trouble ahead.

Based on that information, Pitts first sold his stock in large financial firms like Citibank and Bank of America while taking a short position, essentially betting that their value would go down. Along with countless others, he also decided to purchase various financial products using exchange traded funds (ETFs) that would increase in value as real-estate and the big banks’ fates declined. “But then, a strange thing started happening,” he explained: massive cash infusions and major purchases of equities and stocks in both financials and real-estate.

“When we begin looking at this — and it’s pretty common knowledge now — the central banks were loaning these large financial institutions huge sums of money at virtually zero percent interest,” Pitts recounted. “So they’re taking this huge amount of money that’s being borrowed from the Fed, and really making money doing two things: one is all of the banks buying each others’ stock and running up the value of it to increase their net worth on the books … and then they’re also borrowing huge amounts of money from the Federal Reserve and buying U.S. Treasuries … which means guaranteed returns from the U.S. taxpayer.” 

Like countless others who were not privy to inside information about the Fed’s market manipulations, Pitts “absolutely” would have invested differently if the actions had been disclosed. And even if the Fed can successfully argue that it was not required to divulge the information, “those companies that had these material transactions all had an obligation to disclose these transactions that were occurring, and they didn’t,” he alleged.

The accusations being made in the criminal complaints have already been admitted by the Fed itself in some form or another. For example, in mid-2009, Fed boss Ben Bernanke acknowledged before Congress that the Fed had distributed over $500 billion to 14 foreign central banks from 2007 to the end of 2008 — so-called “liquidity” swaps. The money was then handed out to foreign financial institutions without being disclosed to the public. These actions obviously caused massive losses for otherwise-savvy investors who bet against the bailed-out banks without knowing that the failing firms would be rescued (using fiat money printed by central bankers at citizens’ expense).  

There’s also the acknowledged “emergency” lending totaling more than $2 trillion that the Fed has refused to disclose details about, even after being ordered to do so by federal courts. Another startling example of blatant market manipulation by the Fed came to light earlier this month. Even before the congressionally approved “bankster bailouts” of 2008, the New York Fed — owned by private banks and led at the time by tax dodger and current Treasury Secretary Timothy Geithner — “extended credit” to three limited liability companies it created.

The fake firms then began to openly intervene in the market to help certain firms. Incorporated in Delaware, Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC used the Fed loans to purchase a variety of toxic assets from AIG and Bear Stearns, helping JP Morgan and Goldman Sachs, among others. These asset purchases included residential mortgage-backed securities, multi-sector collateralized debt obligations, and more. The New York Fed admitted to all of this on its website in April, justifying the measures by citing section 13(3) of the unconstitutional Federal Reserve Act.

Using available data, a Bloomberg analysis found that assets purchased by the Fed’s front companies have lost over half of their value. Some of the assets were garbage from the start, despite Fed reassurances. Ben Bernanke told Congress in April of 2008 that all of the Bear Sterns assets unloaded on the Fed (or more accurately, the American people) were “entirely investment grade.” But that was a lie. “After a brief glance at a few bonds, we now know that’s not true,” noted the Financial Times after crunching the numbers.     

But stocks, bonds, and real-estate are not the only markets being manipulated by America’s central bank. Another recently filed lawsuit, which will be the topic of a related article, involves the Fed’s manipulation of the precious-metals market. Once again, average Americans lose while insiders profit.

Despite recent revelations, most of the Fed’s activities remain shrouded in mystery. It continues to fight court rulings ordering it to disclose lending information, but what has already come to light is troubling, to say the least. The Fed’s actions amount to — at minimum — a usurpation of the House of Representative’s constitutional authority to appropriate money, with countless investors suffering as a result. It is to be hoped that as investors, legislators, and taxpayers continue to demand answers, the truth will finally come out and, if warranted, the prosecutions can begin.

Governing class tightens its grasp on the levers of power

By Richard W. Rahn

The “Dodd financial reform” bill being considered by the Senate will make it illegal for 99.6 percent of the population to invest in needed new and promising start-up companies while at the same time ensuring that the 33 largest banks, which control 92 percent of all bank assets, will be required to purchase more federal government debt before giving loans to businesses and individuals. Quite simply, the government is continuing to practice financial fascism.

The new health care bill will require us to buy specified health insurance, whether it is appropriate for us or not. Government-run ads encourage people to buy tickets in government-run lotteries, where the expected value can be less than one-sixth of the ticket price. Yet the new financial reform bill will make it illegal to invest in a new venture or start-up company for anyone who does not have a liquid net worth of $2.2 million or an annual income of roughly $450,000 if single or $675,000 if married – which rules out all but fewer than 1 percent of the population. If this passes and is signed into law, Congress and the president will be saying to the American people, “Ninety-nine-plus percent of you are too stupid to know how to invest your own money.” (They think the rest of us are as irresponsible as they are.)

A major reason the American economy has prospered is that traditionally it has been easy to start a new business, and new businesses account for much of the innovation and job growth in the American economy. Inventors, from Thomas Edison (who started GE, among other companies) to the modern-day whizzes behind Apple, Google and all the rest, have relied on their ability to get “angel” investors to begin their companies. An angel investor is one who is willing to invest in a new and untried business with the hope of a very large return.

It is well known that there is a very high rate of failure among new businesses. For instance, more than 90 percent of all new restaurants fail within three years – but many of the ones that don’t fail become very profitable. For every new Apple, there are hundreds of failures. In the name of “investor protection,” the Securities and Exchange Commission (SEC) makes it almost mandatory that entrepreneurs approach only “accredited investors” when seeking investment capital. Currently, an accredited investor is a person who has a net worth of $1 million or an income of $200,000 per year. The SEC will argue that such a rule protects “widows and orphans” from unscrupulous promoters. This is the same SEC that failed to see the Madoff Ponzi scheme when it was dumped in its lap.

In fact, the rule makes little sense and strongly discriminates against knowledgeable people who are not yet wealthy but are quite capable of making good investment decisions while doing nothing to protect the medical doctor or professional basketball player who easily might meet the definition of an accredited investor but knows little about the risks of new ventures. Under the current rule, a young finance professor at a good university business school who makes $120,000 a year and has a net worth of just $500,000 would not be considered competent to invest in a promising new high-tech start-up, while a successful country-and-Western singer with an eighth-grade education and no experience in or knowledge of business or finance would be considered competent. The proposed rule in the financial reform bill will make this absurdity and loss of financial freedom far worse.

What right do the financial fascists in Washington, who created the world’s biggest financial Ponzi schemes (i.e., Social Security and Medicare) and the largest unsustainable debt in history, have to tell more than 99 percent of the rest of us what we can and cannot invest in?

Those in the same political class are ardent proponents of state lotteries, which typically give a ticket buyer one chance in 15 million of winning, with a payout of less than 50 percent of the ticket price. If one does win and decides to take a lump sum rather than a 30-year payout, the normal payment is one-third of the face amount, upon which the recipient will have to pay full federal and state income tax. Given President Obama’s new tax-increase proposals, a lottery winner in a high-tax state such as California would be paying about 50 percent of the winnings in tax. Thus, a person who buys a $1 ticket can expect to receive only about 7.5 cents in return. If this is not financial fraud, there is no such thing as financial fraud, but because it is practiced by government, it is deemed OK even though any private party doing the same thing would go jail.

At the same time the government class is doing its best to fleece the poor and math-challenged by promoting state lotteries, it is doing its best to prevent middle-class Americans from investing in new businesses that might become productive. Could this possibly have anything to do with who were the big financial givers to the Obama campaign and to the campaigns of the Democratic congressional committee chairmen?

The 1,300-page financial reform bill going through the Senate will, in essence, make the biggest banks (those considered too big to fail) wards of the state – which is classic financial fascism. The Obama Treasury, not the semi-independent Federal Reserve, will decide what these banks are allowed to invest in, in exchange for an unlimited U.S. government guarantee. Since September 2009, banks have been lending more to the government than to private industry. One does not have to be a rocket scientist to see where all this is headed.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

Geithner May Be CRIMINALLY Charged?

Posted by Karl Denninger

Tickerguy’s commentary on yesterday’s Senate testimony by various executives from Goldman Sachs, and why we need Glass Steagall reinstated – now.

Watch The Birdie (Greece .et.al.)

Posted by Karl Denninger

Don’t believe the carnival barkers.

This morning we were treated to a nice rocket shot at about 4:00 (Central) in the Euro – an extraordinarily violent move that initiated when it was rumored that Greece had secured the terms of their “bailout.”

But then the TV cameras rolled, and there was no actual firm announcement.

Remember folks, this is the same procedure that everyone tried to run on you two years ago – first with “Subprime is contained”, then after Bear Stearns when “we have stabilized the situation”, then with Paulson’s “Bazooka” for Fannie and Freddie, and finally with the incessant, daily catcalls from Gasparino on the monoline insurers being bailed out, rescued, and being “well-capitalized.”

All these pronouncements did was pump the market higher than it should have been at the time and make the damage worse when recognition of mass insolvencies was forced to the forefront.

The insolvency itself happened long before, but by allowing people to lie investors were severely damaged instead of being properly concerned and acting to protect themselves.

So it is occurring again, this time in the sovereign debt realm.  Greece is not a €30 billion problem it is more like €200 billion.

Worse is the fact that if Greece is bailed out with some sort of rescue package of new loans they will have simply made the situation worse by loading up more debt on an overlevered nation.

And finally, Greece is just the first of many – Spain, Portugal, Italy and even Great Britain anyone?

How’s that all going to work out?

Here’s the truth – it’s not.

Extreme caution is mandatory here folks.  You’re not going to be told the truth – not by our government or anyone else’s.  If a dislocation and “disorderly” bond market collapse gets going you will not be told in advance, but large players will be, and be position to profit significantly – at your expense.

There are no promises here, other than one absolute – you will be lied to by the governments of the world.

Trade and invest accordingly.