FedUpUSA

Why should I believe anything the government tells me?

Why should I obey the law, other than because I’m scared of the guns the government can point at me?

Why should I build or expand a business when anyone who has government favor can come steal anything — or everything — I build, and there isn’t jack and crap I can do about it as they won’t be prosecuted or punished in any way?  In fact, they’ll be rewarded!

If you want to know how a nation dies without being conquered by war, pestilence or famine, this is how.  The good, honest, industrious people simply say “screw you” and refuse to effort to move the economy and nation forward.

We are there folks, and these two stories explain why.

First, JP Morgan:

Government investigators have found that JPMorgan Chase devised “manipulative schemes” that transformed “money-losing power plants into powerful profit centers,” and that one of its most senior executives gave “false and misleading statements” under oath.

The findings appear in a confidential government document, reviewed by The New York Times, that was sent to the bank in March, warning of a potential crackdown by the regulator of the nation’s energy markets.

The possible action comes amid showdowns with other agencies. One of the bank’s chief regulators, the Office of the Comptroller of the Currency, is weighing new enforcement actions against JPMorgan over the way the bank collected credit card debt and its possible failure to alert authorities to suspicions about Bernard L. Madoff, according to people who were not authorized to discuss the cases publicly.

A confidential government document?  Why should any document of this sort be confidential when it bears on conduct that a regulated institution has taken toward the public?

There’s part of your problem right there.  This isn’t a single incident or issue either; it claims a pattern of conduct as do the other “showdowns.”  Nor is this limited to JP Morgan — there is a long litany of financial institutions coming under “scrutiny” for various illegal and unethical acts and yet what’s missing is prosecutions.

It doesn’t end there.

President Obama’s nominee for Commerce secretary was embroiled in a massive bank failure more than a decade ago, in a collapse that cost depositors and federal insurers millions of dollars.

The 2001 collapse of Superior Bank FSB now appears likely to re-emerge, more than a decade later, as Commerce nominee Penny Pritzker prepares for a confirmation hearing and Republicans already draw attention to the bank implosion.

Tangled?  Like Hell.

This was an all-on scandal and cost the FDIC over $300 million.  Those who were over deposit limits were screwed out of $10 million they have yet to recover, and probably never will recover.  The bank had insufficient if not outright missing risk controls with subprime auto and home lending.

Being a bad businessperson though isn’t an exercise of privilege — that’s just being stupid.

But being able to cut in line before depositors is another matter, and the Prizkers did.

The FDIC “defended” their decision, but again we’re back to the same problem we had with GM and Chrysler, where the rule of law is changed ex-post-facto to benefit wealthy and powerful people and screw the ordinary citizen.

Until this crap stops my entrepreneurial efforts are going to remain on the shelf, and I suspect I’m not alone in this regard.

The Senate Permanent Subcommittee on Investigations has issued a report on the “London Whale”  trades and JP Morgan detailing what it titles “A case history of derivatives risks and abuses.”

I could go through the entire report (and have read it) and detail each and every point of abuse and intentional obfuscation, but it’s not necessary to do so.

The key point take from this report, and the hearing that will be held today, is singular:

The conduct detailed therein is a criminal federal offense.  So says Sarbanes-Oxley, a law passed after myriad false statements made by corporate executives in the 1990s left investors with big losses and the only retribution available was through civil suit for various alleged torts, including the collapse of both Worldcom and Enron.

Congress responded with a law that requires the CEO of a public company to certify that the financial reports issued by the company be truthful in all material respects and imposes criminal penalties for false statements.

This report, and the hearing to be held today, leave me with only one question: Where are the damned indictments and why should I or anyone else obey the law if our government will not prosecute behavior that it facially and clearly documents has breached these requirements?

Let me remind those in Congress and elsewhere who are commenting on this, including Cramer right now on CNBS claiming that there was “nothing criminal” — and are in doing so willfully ignoring SarbBox, which makes such conduct explicit crimes:

When there is no justice available through the courts there comes a point where the people will resolve the problem. It will be far messier and much less fair, but at its core it happens because those who are charged with meting out justice have refused to do so.

When that happens, and it will, I will charge the outcome against every media pundit who is claiming that there were “no crimes” along with every politician who has echoed that sentiment rather than demanding immediate and vigorous prosecution.

Heh heh heh….

What is really interesting is that the legal complaint filed by Schneiderman talks about sloppy procedures for loan selection, but still does not get to the real fun, namely multiple pledges of loans for different RMBS. And you can be sure that Schneiderman does not really want to go that far because it might force him to ask the same question about the other, far larger issuers of RMBS.

Remember, the whole point of the Robo-signing settlement is not consumer protection, but rather fraud. The key question: Who’s got the note? If you don’t have to deliver the note into an RMBS trust, then the door is wide open for securities fraud.

What’s being talked about here is the NY lawsuit against JPM (really Bear Stearns, but now JPM since they bought it) for securities fraud.

I have long maintained (since this crap begain to become public in 2007 and 2008) that the 900lb Gorilla in the room was going to come about when someone managed to bring the following argument before a Judge in a foreclosure action:

Your Honor, defendant moves that the plaintiff be required to show a full and complete accounting of all activity of the subject claimed note, including but not limited to:

• • Where the actual funds came from to fund the loan he entered into, and whether they ever actually existed or were fabricated out of thin air. 
  • The chain of custody of the note he signed, including the consideration paid for its negotiation each time it was negotiated, and that it was pledged and negotiated exactly once into one trust, and that this occurred in a lawful manner on or prior to the closing date of said trust. 
  • All financial events at a line-item level of detail, identifying each payee and payor along with each event from the date of origination to the averred default being sued under, including not only payments made and alleged payments missed along with penalties and interest but alsoany and all swaps collected upon or other transactions that acted as insurance or in any other way mitigated the plaintiff’s or any other party at interest’s damages.

The intent here is quite simple — not only is there a judicial interest in guaranteeing that the person who is standing before the judge is really the assignee of the note (or his lawful agent) and there is only one of them out there (who is the one standing before the bar) in addition you can only collect on a loss via lawsuit or other payment once!

If you get into a car accident and your auto insurance pays your $20,000 in damage you cannot then sue the person who hit you, as you were made whole and you can only collect once.  In point of fact the insurance company will almost-certainly force you to sign over your right to sue to them before they pay you,but if they don’t you still can’t sue the person who hit you as you have no economic harm as you were already paid!

Recovery by lawsuit, including foreclosure, requires economic harm.  If there was no economic harm there is no foul and your judgment, which you may well be entitled to, is for $0.00.  Further, if the person who actually suffered the harm isn’t the one in court he can’t recover anything because the wrong person is suing and only a real party at interest with economic harm can sue.

So if the bondholder was made whole via a credit default swap or any other act, including rescission, his claim on you is extinguished.  The person who sold him the swap may have a legal claim via lawsuit or the person who was forced to buy back the bogus loan may have a right of recovery but he cannot foreclose unless he obtained possession of the defaulted instrument through that process of payment and if he does then he had better be the person standing in the courtroom before the judge.

This is really basic stuff here folks — you don’t get sue because you’re “butt-hurt” by someone’s acts; you can only sue to recover actual economic injury,whether your requested remedy is foreclosure or simple money damages.

Chris is onto this but this rabbit hole goes a lot further than many people think it does.

If — and this is a big if — we can get just one honest judge to hear these arguments and force that accounting to take place in his courtroom then the game is up.