Archive for April 22nd, 2011
Iowa’s Democratic Attorney General Tom Miller is known for taking on big business. Elected to eight four-year terms, he led a multi-state anti-trust case against Microsoft in 2001 and filed a suit against 79 drug companies in 2007, alleging they illegally profited by inflating prices for drugs purchased through Medicaid.
Most recently, Miller took the lead on the investigation by all 50 state attorneys general into the “robo-signing” foreclosure scandal, where several big banks allegedly approved taking away people’s homes without adequately verifying the facts in court, as required by law in some states.
Last fall, just after he made the announcement that he would look into the foreclosure mess, contributions to Miller’s campaign coffers for November’s election soared, thanks in large part to out-of-state lawyers who make a living representing big banks, a new report from the National Institute for Money in State Politics finds. “Nearly half of the money Miller raised in 2010,” NIMSP reports, “was donated after the October 13 announcement that he would be coordinating the 50-state attorneys general investigation.”
Two Miller contributors have become directly involved in defending the banks in the probe. One, Meyer Koplow of Wachtell Lipton in New York, gave Miller $5,000 and is representing Bank of America in direct negotiations with Miller, the attorney general tells TIME. Another, Elizabeth McCaul of Promontory Financial Group, gave Miller $10,000 and is consulting Bank of America in the negotiations, Miller says. Bank of America was one of the first and most prominent institutions accused in the foreclosure investigation. It gave more than $80,000 to the Democratic Attorney Generals Association, which spent more than $200,000 on Miller’s campaign, Miller says.
Miller says Kaplow and McCaul are old friends and professional associates, and that they were not working for Bank of America before election day. He says neither has discussed the campaign contributions with him since they began work for the bank.
The NIMSP report and revelations of campaign contributions by those working for Bank of America come at a sensitive moment, as Miller is in the thick of far-reaching negotiations with the banks. Though the case started as an investigation into robo-signing, it has broadened. The talks are aimed at a settlement that could set the terms by which banks service current and future home loans, and determine how they foreclose on properties. That could complement, or supercede, a settlement between banks and federal regulators reached earlier this year.
Talks over monetary aspects of a potential settlement between the AGs and the banks are just getting under way. New rules for banks writing down mortgage principal and the establishment of a bank-paid fund to help with loan modification are on the table. Some reports have potential bank payments reaching $20 billion but sources on both sides suggest that number is high. The breadth of the negotiations has caused seven Republican attorneys general to split with the 43 other AGs.
In early March, American Banker published a 27-page term sheet that Miller and the other attorneys general had presented to the banks in the talks. “We’ve had negotiations and have agreement on some of the terms but no overall agreement,” Miller says.
Miller objects strongly to the NIMSP report. “It is extremely false and misleading,” Miller says. He disputes the report’s assertion that many of his campaign contributors have a “vested interest in the final terms of the settlement.” Other than Koplow and McCaul, none of the other lawyers named as campaign contributors in the report are involved in the case and none has an interest in the settlement, Miller says.
Miller also says the report commits “an omission of material fact” in its description of his fundraising by comparing 2010 fundraising to prior races. “This race was unlike any race I’d been in before,” Miller says. “It was a race where the other side had $2.2 million. The most any of us ever spent in this race before was $300,000 or $350,000,” he says. Miller says he didn’t have a competitor in 2006 and that in 2010 he and his supporters eventually raised and spent around $1 million.
Kevin McNellis, the author of the report, says the fact that he compared 2010 to 2006 without mentioning that there was no competitor in that race was “an oversight on my part.” Though the report argues that the campaign contributors’ interest in the outcome of the settlement of the foreclosure investigation is “vested,” which means “guaranteed” or “unconditional,” McNellis says he does not know which individuals or firms are directly involved in negotiations.
But McNellis asserts that, “When they were contributing last fall, I’m sure that it was something they were very keenly aware of, that Miller was leading the investigation.” They would have an interest in the outcome, McNellis says, “even if they weren’t directly involved in the negotiations.”
Neither McCaul nor Koplow would comment for this story.
It’s one or the other, Ben: you either push the real economy over the edge or you push stocks and the risk trade off the cliff.
Now that you’ve pushed the dollar down, Ben, it’s your pick on what to push off the cliff: your beloved risk trade or the real economy. Here’s a chart of the U.S. dollar and crude oil. Notice they’re on a see-saw: when the dollar tanks, oil skyrockets. When the dollar recovers a bit, oil declines.
Ben Bernanke and the Fed are replaying their 2008 game plan: drive the dollar down to goose the risk trade in stocks. But a funny thing happened on the way to blowing another equity bubble: oil bubbled up, too, and that killed the real economy.
For the past three years, Ben has been trying to resuscitate the real economy via “the wealth effect”: if your portfolio of stocks is rising, then you’ll feel richer and your “animal spirits” of borrowing and spending will be aroused. The only proven way to goose stocks is to crush the dollar so overseas corporate earnings will be boosted by the currency depreciation (when transferred back into dollars, even flat profits look like they’re rising), and U.S. exports will be cheaper to our trading partners.
Flooding the U.S. market with liquidity and keeping interest rates at zero had another consequence, one adamantly denied by the Ministry of Truth: it sparked a carry trade in which cheap dollars could be borrowed for next to nothing and exported around the world to seek higher returns.
Unsurprisingly, much of this free money flowed into commodities, which retained their value as the Fed pushed the dollar down. Also unsurprisingly, oil exporters raised the price of their oil in dollars as the dollar tanked.
Ben and his motley crew at the Fed reckoned that the financialized U.S. economy would respond positively to the lower dollar and the goosing of the risk trade in stocks. But the guys and gals seem to have forgotten that the real economy is dependent on oil. All the folks at the cocktail parties attended by Yellen et al. may be gushing over their hefty stock gains, but in the kitchen and carpark the workers are grousing about the rising prices of food and gasoline.
Now the cost of oil–the lifeblood of the real economy–is close to the point that it will push the real economy into recession. This sets up a difficult choice for Ben: if he pushes the dollar down to new lows, then oil leaps up and pushes the real economy off the cliff.
Alternatively, Ben renounces QE3 and “surprises” the markets with a rate increase, thus rescuing the dollar from freefall and pushing oil down. But that will send his precious risk trade and equity Bull off the cliff.
The politicos won’t like either choice, but sacrificing the real economy will cost them their seat. All the fatcats who’ve raked in tens of billions from the risk trade Bull will be demanding that Ben “save” the financialized economy, but the politicos will see their political obituaries being written. Yes, the fatcats will shower them with millions in campaign contributions, but even those millions won’t change the fact that Americans reliably vote their pocketbooks.
If rising oil pushes the real economy over the cliff, voters will not be re-electing incumbents in 2012.
Welcome to reality, Ben. Your “let’s pretend the recovery is real” game is nearing an end. If you push the dollar down any more, then oil will go up and tip the real economy into a recession that QE3 will only make worse as you send the dollar into freefall. If the dollar rises, then your beloved “wealth effect” dies a horrible death on the rocks below.
Take your pick, but choose wisely.
Consider this post one of MANY to follow yesterday’s post about the greatest theft in the History of mankind. For those who haven’t yet read it, please take a moment to read “The Real Housewives of Wall Street” at the Rolling Stone. (Hard to believe I’m linking to an RS article…)
But if you want to get a true sense of what the “shadow budget” is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. At first glance, Waterfall’s haul doesn’t seem all that huge — just nine loans totaling some $220 million, made through a Fed bailout program. That doesn’t seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.
Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley’s investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.
Those of you wondering where your social security benefits went, along with how the coming collapse of Medicare and Medicaid is happening… this post should shed some light on the outcome.
The bottom line is that big corporate bankers not only stole your money, they did it through the U.S. Treasury. What’s worse is they did it through legal means. In fact, they did it with the blessing and blank check of the U.S. government.
The case of Christy Mack is significant, but only a very small part of the pie. It’s important to study what happened with Mack, though, because when you consider that she’s just one of MANY who are in on this scam, you start to see where all the money went.
TALF, or “Term Asset-Backed Securities Loan Facility,” is a program run out of the Federal Reserve Bank of New York and has the following definition on its website:
The Federal Reserve created the Term Asset-Backed Securities Loan Facility (TALF), to help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by auto loans, student loans, credit card loans, equipment loans, floorplan loans, insurance premium finance loans, loans guaranteed by the Small Business Administration, residential mortgage servicing advances or commercial mortgage loans. The facility was closed for new loan extensions against newly issued commercial mortgage-backed securities (CMBS) on June 30, 2010, and for new loan extensions against all other types of collateral on March 31, 2010.
The scam was set up with virtually zero accountability. According to WikiPedia:
Under TALF, the Fed lent $1 trillion to banks and hedge funds at nearly interest-free rates. Because the money came from the Fed and not the Treasury, there was no congressional oversight of how the funds were disbursed, until an act of Congress forced the Fed to open its books. Congressional staffers are examining more than 21,000 transactions.
The TALF program was launched on March 3, 2009, just after Barack Obama took office. Christy Mack, who’s husband is Chairman of Morgan Stanley, and close friend Susan Karches launched “Waterfall TALF Opportunity” in 2009.
As pointed out in the Rolling Stone piece, Mack and Karches had virtually no experience or History in business. Outside of their obvious connections to the financial industry, there was no reason for risks to be taken on them and their business plans.
Furthermore, TALF appears to have been set up to assist small businesses with credit and loans to help “stimulate” the economy. With this in mind, how in the hell did Mack and Karches move to the front of the line and secure almost a quarter of a BILLION dollars in no-interest taxpayer funded loans that had zero Congressional oversight?
The loans were given to Mack and Karches in or around June of 2009. Two months later Mack and her husband started making some interesting purchases.
a 107-year-old limestone carriage house on the Upper East Side of New York, complete with an indoor 12-car garage, that had just been sold by the prestigious Mellon family for $13.5 million.
Now keep in mind this is the same Federal Reserve Bank of New York that criminal (now Secretary of the U.S. Treasury) Timothy Geithner was in charge of when the rich bankers got their $700 BILLION dollar “bailout.” And remember, that bailout was “needed” because the bankers scammed America out of billions through the mortgage bubble and watched their companies crumble under an unsustainable outcome.
In other words, they ripped us off for billions, then when the money ran out they came back and robbed us again through TARP. Then, when that wasn’t enough, they once came back and started robbing us through TALF.
The bailout theft happened very quickly. In a matter of years Americans were robbed of everything, leading to a depression (yes, we’re in a depression and government is printing money to hide it). The steps are pretty easy to see.
They started out small, with the government throwing a few hundred billion in public money to prop up genuinely insolvent firms like Bear Stearns and AIG. Then came TARP and a few other programs that were designed to stave off bank failures and dispose of the toxic mortgage-backed securities that were a root cause of the financial crisis. But before long, the Fed began buying up every distressed investment on Wall Street, even those that were in no danger of widespread defaults: commercial real estate loans, credit- card loans, auto loans, student loans, even loans backed by the Small Business Administration. What started off as a targeted effort to stop the bleeding in a few specific trouble spots became a gigantic feeding frenzy. It was “free money for shit,” says Barry Ritholtz, author of Bailout Nation. “It turned into ‘Give us your crap that you can’t get rid of otherwise.’ “
If someone came to you with a Chevy Corvette that was gutted, had no engine and the frame was bent up in an unrepairable manner, would you buy it? Not only did the government buy it, they paid an amount that would have been accurate if the car was in perfect condition.
That my friends is insanity. Well, it appears to be insane, but it would only be insane if it wasn’t intentional. Don’t forget, Henry Paulson, Ben Benanke, Timothy Geithner and the rest of the thugs running the game are all in on it.
Their circle of friends include all the people running the big financial institutions in New York. And those friends are now once again stealing taxpayer dollars through programs like TALF.
Before you stand up and walk away from your computer in disbelief, there is more… and it’s much, much worse.
A key aspect of TALF is that the Fed doles out the money through what are known as non-recourse loans. Essentially, this means that if you don’t pay the Fed back, it’s no big deal. The mechanism works like this: Hedge Fund Goon borrows, say, $100 million from the Fed to buy crappy loans, which are then transferred to the Fed as collateral. If Hedge Fund Goon decides not to repay that $100 million, the Fed simply keeps its pile of crappy securities and calls everything even.
You see how it’s all a set up? Come on… these guys aren’t idiots. When they created this beast they knew full well there was no incentive to actually pay back the money.
Going back to the Chevy Corvette analogy… If instead of purchasing that car, you asked me for a loan at the “perfect condition” value and I gave it to you, what incentive is there for you to pay me back? In fact, you would be stupid to buy back the car. And I would be an absolute idiot for giving you the loan in the first place.
Unless, of course, the money I used to give you the loan was not my money. In that scenario, nether of us really lose anything. The only party that loses is the party the money originally belonged to.
And that party is the American taxpayers.
Christy Mack is still sitting on some $150 MILLION of that initial “loan.” Again, there is no incentive to ever pay it back. And there is no oversight to ensure it’s all being used for its intended purpose.
Meanwhile, how is Christy’s husband doing over at the bank?
Those kinds of deals were the essence of the bailout — and the vast mountains of near-zero government cash turned companies facing bankruptcy into monstrous profit machines. In 2008 and 2009, while Christy Mack was busy getting her little TALF loans for $220 million, her husband’s bank hauled in $2 trillion in emergency Fed loans. During the same period, Goldman borrowed nearly $800 billion. Shortly afterward, the two banks reported a combined annual profit of $14.5 billion.
The Rolling Stones article should be damning and should have Congressional hearings happening right this second. Someone should be in handcuffs and the entire mob should stand trial.
But where is the outrage? Where is Michele Bachmann and all the other “tea party” members of Congress?
Wake up, America. Your future and the future of your entire family is being stolen right in front of you. And our Congress isn’t doing a damn thing about it.