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Congress Threatens To Sow The Seeds Of Our Next Banking Crisis
December 20th, 2010 | 
Author: I wrote recently about the Bank of England sowing the seeds of their next banking crisis by deciding to reduce bank examinations. Spencer Bachus (R. Ala.), the incoming Chair of the House Financial Services Committee, told the Birmingham News: “In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.”
Ron Paul (R. Tex.), asked to comment on Bachus’ statement, said: “I don’t think we need regulators. We need law and order. We need people to fulfill their contracts. The market is a great regulator, and we’ve lost understanding and confidence that the market is probably a much stricter regulator.”
These comments share several characteristics. First, they demonstrate that many people in positions of power have not only learned the necessary lessons from the ongoing crisis – they have learned the worst possible lessons. Second, the comments reprise disastrous approaches that allowed the crisis to occur. Third, the comments represent the continuing triumph of ideology over facts. Fourth, the comments rely on false dichotomies that are the enemy of reasoning and good policy.
1. The U.S. and much of Europe have suffered a crisis of great proportions after they adopted deregulation, desupervison, and the de facto decriminalization of financial firms. For the U.S., this is our third major financial crisis in 20 years brought on by those triple “de’s.” The incoming chairs’ response to these crises is increased deregulation and desupervision (and no mention of prosecuting the control frauds driving the crises). What would it take to discredit policies that produce recurrent, intensifying crises?
2. The bipartisan “Reinventing Government” movement of the 1990s (championed by then Texas Governor Bush and Vice President Gore) led the senior leaders of the banking regulatory agencies to order their staff to refer to the industry as their “clients” or “customers.” It became a major agency priority to make those clients happy with the regulators. That policy became even more destructive during the Bush administration, which chose regulatory leaders based on the intensity of their opposition to vigorous supervision. SEC Chairman Pitt’s first major speech was before a group of accountants. He expressed his regret that the SEC had not always been a “kinder and gentler” place for accountants and blamed his agency for not showing accountants more love. The Office of Thrift Supervision’s (OTS) head, “Chainsaw” Gilleran, posed with the three major banking lobbyists and the number two guy at the FDIC (who was Gilleran’s successor) over a pile of federal regulations. Everyone held pruning shears, except Gilleran, who demonstrated the indiscriminate nature of his hate for regulation by holding a chainsaw. It is no surprise that among insured depositories the largest accounting control frauds were regulated by the OTS (where “regulated by” translated into “not regulated by”). The OTS went so far in its efforts to “serve the banks” that it encouraged or knowingly permitted several insolvent banks to file false financial statements relying on backdated entries.
The federal banking regulatory agencies “serve[d] the banks” by preempting state efforts to regulate abusive, predatory, and fraudulent lending. The federal banking regulatory agencies even tried to preempt State Attorney General lawsuits against the leading mortgage frauds.
Similarly, the SEC “serve[d] the [investment] banks” by creating the Consolidated Supervised Entities (CSE) program for the purpose of protecting them from serious regulation by the European Union. The CSE program was a sham. The SEC staff assigned to examine the largest investment banks in the U.S. were not examiners and did not examine the investment banks. No one believed they could because the staffing level was farcical.
Banks do not need regulators to “serve” them? There is no appropriate function in which we serve banks. There are many destructive ways in which anti-regulators would serve the interest of fraudulent banks.
3. Representative Paul’s claims epitomize the triumph of ideology over fact: “The market is a great regulator, and we’ve lost understanding and confidence that the market is probably a much stricter regulator.” No, the “market” is not a “great regulator” and the ongoing crisis is only the latest example of that point. Efficient, non-fraudulent markets would be a very good thing. Inefficient, markets with fraudulent participants can be a catastrophically bad thing. The “market” also does not deal effectively with externalities (and they can be lethal) and with market power. The neoclassical claim that cartels cannot persist and that potential entry solves prevents all serious ills proved false in the real world. Here, however, I will discuss only why control fraud turns “markets” perverse. Accounting control frauds are guaranteed to report high profits in the early years. This is why Akerlof & Romer (1993) agreed with white-collar criminologists that such frauds were a “sure thing.” I’ve explained why the four-part recipe for optimizing fictional accounting income maximizes executive bonuses – and real losses. In the interest of brevity I will merely mention four ways in which accounting control frauds make markets, and “private market discipline” perverse.
a. The fictional profits fool creditors and shareholders – they are eager to lend to and invest in firms reporting record profits. Rather than discipline accounting control frauds, creditors and shareholders fund their massive growth.
b. The fictional profits and the large bonuses they drive create a “Gresham’s” dynamic in which bad ethics tends to drive good ethics out of the marketplace. The CFO that fails to emulate the fraud recipe will report far lower profits in the near term and will fear losing his job. More junior executives whose compensation is based on the firm’s reported income have perverse incentives to engage in accounting fraud to ensure that the firm “hits the number” and have reduced incentives to blow the whistle on frauds.
c. Lenders engaged in accounting control fraud create “echo” epidemics of fraud. They use their powers to hire and fire and create compensation systems to create perverse incentives in other fields: among their employees, “independent” professionals, and agents (e.g., loan brokers).
d. When several large lenders follow similar fraud strategies they can hyper-inflate financial bubbles.
Anti-consumer control frauds can also turn markets perverse by creating Gresham’s dynamics. Chinese infant formula provides a good example. Dishonest firms drove honest firms from the market – maiming hundreds of thousands of infants’ health.
In the case of nonprime loans, for example, both principals (the borrower and the lender) typically lost utility as a result of the loan – reverse Pareto optimality. The unfaithful and fraudulent agents, however, won big.
Even when private market discipline did finally kick in it did not perform as advertised. Instead of differentiating between good and poor credit risks and honest v. fraudulent actors it simply shut down hundreds of markets.
Rep. Paul’s comparative statement – implying that the markets were tougher regulators than the regulators – fails on two bases. One, as pathetic as the anti-regulators were, they were commonly better than the market, e.g., warning about concentrations in commercial real estate well before the crash. Two, claiming that regulation is a failure because the ideological foes of regulation controlled the agencies and so completely desupervised the financial sector so completely that they created a self-fulfilling prophecy of regulatory failure is an act of chutzpah.
4. Rep. Paul’s other remark, however, illustrates the false dichotomies that underlie the ideological assault on regulation. He notes that we “need law and order.” He thinks that proves we don’t need regulation, but it proves the opposite. The banking regulators are the “cops on the beat.” We have nearly a million police and guards that deal almost exclusively with blue collar criminals. Control fraud creates a Gresham’s dynamic because it means that cheaters prosper. As regulators, we do “serve the [honest] banks” by taking away the ability of the cheaters to prosper – when we regulate effectively. The OCC and the OTS did zero criminal referrals during the current crisis. We did thousands as regulators during the S&L debacle. We prioritized the most severe frauds (the large control frauds) and made the support of criminal prosecutions a top agency priority. The result was over 1000 priority felony convictions of S&L elites. Without the regulators’ expertise the FBI cannot possibly stop an “epidemic” of mortgage (FBI House testimony, September 2004).
In the ongoing crisis, the Department of Justice, denied regulatory support and relying instead on the Mortgage Bankers Association – the trade association of the “perps” – has secured zero convictions of any senior officers of the large lenders specializing in nonprime lending/securitization. Effective regulations and regulators are not the enemy of private markets or private market discipline, but rather one of the essential requirements for efficient, honest markets in a modern economy.
Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Financial System, Fraud, Government, Money, reform, Regulation, regulatory capture, Ron Paul, Spencer Bachus, William Black | 
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Rant of the Day: No Ethics, No Fiduciary Responsibility, No Separation of Duty; Complete Ethics Overhaul Needed
Goldman Sachs Shares Drop After Goldman Sachs Accused of Fraud in Mortgage Deals
Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.
The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.
The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment.
The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market. As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars.
“The product was new and complex, but the deception and conflicts are old and simple,” Robert Khuzami, the director of the S.E.C.’s division of enforcement, said in a statement. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”
In recent months, Goldman has repeatedly defended its actions in the mortgage market, including its own bets against it. “We certainly did not know the future of the residential housing market in the first half of 2007 anymore than we can predict the future of markets today,” Goldman wrote. “We also did not know whether the value of the instruments we sold would increase or decrease.”
No One “Knows” Anything
While Goldman can claim it did not “know” anything, the statement rings as hollow as saying we do not “know” if the sun will come up tomorrow.
Goldman is nothing more than a giant hedge fund that front runs trades and bets against advice it gives clients, with one important exception. Goldman is a bank holding company deemed “too big to fail” with the explicit backing of the Fed.
There is no fiduciary responsibility in any of the large corporations in my opinion.
I gave an example a while back where fund managers at two large broker dealers told me they do not collect fees if client positions are in cash.
Thus, whether or not those managers I spoke with thought that being invested was the correct thing to do, there was intense pressure to invest client money not only from the manager holding cash, but also from upper management at these firms.
That my friends is the origin of “you can’t time the market, so be 100% in 100% of the time, for the long haul.” Over the long haul, Wall Street wants you all in all the time so it can collect fees.
Worse yet, clients are steered to speculative products because those are the ones that make the broker dealers the most money.
Corruption, Greed, Lack of Ethics
The corruption, greed, and lack of ethics in the industry is appalling. I still want to know Where is The Indictment of Ex-CEO Dick Fuld? over fraudulent action Lehman made.
Here is a list of some of the things the SEC has ignored.
March 2, 2010: Geithner’s Illegal Money-Laundering Scheme Exposed; Harry Markopolos Says “Don’t Trust Your Government”
January 31, 2010: 77 Fraud, Money Laundering, Insider Trading, and Tax Evasion Investigations Underway Regarding TARP
January 28, 2010: Secret Deals Involving No One; AIG Coverup Conspiracy Unravels
January 26, 2010: Questions Geithner Cannot Escape
January 07, 2010: Time To Indict Geithner For Securities Fraud
October 20, 2009: Bernanke Guilty of Coercion and Market Manipulation
July 17, 2009: Paulson Admits Coercion; Where are the Indictments?
June 26, 2009: Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America “Turd in the Punchbowl”
April 24, 2009: Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis
Where is the Fiduciary Responsibility?
I am tired of ethics (or lack thereof) that allows front running and betting against clients whether legal or not. I am tired of corporations talking about “walls” between their proprietary trading units and their investment groups. In practice the walls are invisible, if they exist at all.
Moreover, I am tired of accounting rules that allow hundreds of billions of dollars of assets to be held off balance sheets (Citigroup had $1 trillion in off balance sheet assets at one point), and I am tired of mark-to-fantasy pricing (Goldman has more level 3 assets than anyone else).
In client relationships, the first and most important thing is to never do or advise a client in any way that is not in their best interest. Instead, we have ethics that allow (even encourage), making profits at client expense.
Don’t expect anything to come from this SEC investigation. If there is a fine it will be with a nudge and a wink and trivial to the amount of money Goldman Sachs clients lost.
Complete Ethics Overhaul Needed
We need a complete ethics overhaul but we will not see it until people are thrown into prison and corporations have to choose which business they want to be in as opposed to the current state of affairs where anything for a profit is acceptable.
- Firms give advice based on how much profit the firms will make on it
- Firms trade their own books to the detriment of clients
- Firms make upgrades and downgrades after they take positions themselves
- Firms front-run trades
- Firms engage in dark pools
- Firms deemed too big to fail take advantage by upping leverage
- Firms like Goldman Sachs (which is nothing more than a giant hedge fund with no ethics) have access to Fed funds at low interest rates to do whatever the hell they please
Sadly, this business screws the client for a fee time and time again because there is no ethics, no sense of fiduciary responsibility, and no walls on separation of duty to prevent fraud.
Some misguided souls will blame the free market for this.
Nothing could be further from the truth. One of the legitimate roles of government is to protect property rights, prevent fraud, and level the playing field so that everyone has an equal chance and equal protection under the law.
Instead, we have rules, procedures, and taxpayer bailouts specifically designed to make sure the playing field is not level. This is not a free-market concept and desperately needs to change.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Financial System, Fraud, Goldman Sachs, Government, Money, reform, regulatory capture, Regulatory Reform |
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How the Bankers Stole Christmas
I hate bankers and so should you. Why? Because bankers steal a little bit of Christmas cheer
every year. For the past several
years, bankers have stolen a lot of Christmas
cheer. Like the Grinch from Dr. Seuss’s famous children’s tale, How the Grinch
Stole Christmas, bankers have hearts two sizes too small, and by means of
burglary, they do their best to deprive everyone of Christmas every year. Only
unlike the Grinch, despite stealing from people every year, bankers never learn
and never reform, they never return to the people the vast amounts of money
they stole from them, and they are cold-hearted and arrogant enough to claim
that they are doing “God’s work” (as stated by Goldman Sachs Chairman and CEO
Lloyd Blankfein, when in reality, they do much more harm to society as a whole
than good. And this makes the majority of bankers worse than the even the
loathed Grinch himself.
Since the institution of banking was founded, bankers have
been guilty of deceit, fraud and theft. During Biblical times, “Jesus went into
the temple, and began to cast out them that sold and bought in the temple, and
overthrew the tables of the moneychangers [bankers]..And he taught, saying unto
them, Is it not written, my house shall be called of all nations the house of
prayer? But ye have made it a den of thieves.” (Mark 11:15-17)
Fast forward almost a couple thousand years later, and
bankers were still committing the same theft. In fact, over a period of
eighteen hundred years, bankers learned nothing from being cast out by Jesus
from the temples, and they continued to commit such questionable acts of
morality that even a man of very questionable character himself showed nothing
but contempt for them. Though historians noted that former US President Jackson
committed numerous hateful acts against Choctaw, Chikasaw, and Cherokee
American Indians, Jackson despised bankers so much, that in front of a
delegation of bankers, he stated the following:
“Gentlemen, I have had men watching you for a long time, and
I am convinced that you have used the funds of the bank to speculate in the
breadstuffs of the country. When you won, you divided the profits amongst you,
and when you lost, you charged it to the bank. You tell me that if I take the
deposits from the bank and annul its charter, I shall ruin ten thousand
families. That may be true, gentlemen, but that is your sin! Should I let you
go on, you will ruin fifty thousand families, and that would be my sin! You are
a den of vipers and thieves. I intend to rout you out, and by the eternal God,
I will rout you out.”
Fast forward another one hundred and eighty years, and we
discover that bankers have failed to evolve even a tiny iota from their
deceitful nature. When ex-CEO and former US Secretary Henry Paulson lied to the
American people and to US Congress by asking for more than $800 billion of
funds for the purposes of helping American home owners and then committed the
ultimate bait-and-switch fraud by handing this money to his banking friends, he
epitomized the very warning Andrew Jackson levied against bankers in the
1800’s: “When you won, you divided the profits amongst you, and when you lost,
you charged it to the bank.” In this case, Paulson acted beyond the normal
level of immorality of bankers, and charged the banks’ losses to every single
American citizen. Unlike the
Grinch, who repented from the error of his ways over a period of a few days,
bankers have refused to repent for the unsound monetary system they have
created for more than two thousand years!
To understand why Jesus threw bankers out of the temple, why
a former governor of the Bank of England stated that banking “was born in sin”,
and why Andrew Jackson, a focus of much hatred and contempt among American
Indians, viewed bankers as so immoral, that despite his own immense character
flaws, he made it his own personal crusade to throw out all bankers from US
government, one must understand how bankers continually rob all citizens of
their wealth every day. To state that bankers lie, deceive, rob and steal from
all citizens every day is not an exaggeration. The means by which they do so
today has drastically changed from the means they employed centuries ago, so
this is why so few people understand that bankers continually rob them. Most people don’t understand that
bankers ensure the continual devaluation of the purchasing power of all money
in the system by not only literally creating money out of nothing but also by
creating money as debt.
This process, to which they cleverly assign the word
“inflation” is in reality a tax that constitutes a direct theft of your
savings, and no different than the tax British monarch King George imposed upon
the American colonists that triggered the American Revolution. The bankers have
only changed the mechanism by which they collect this tax, and the word that
they use to describe this mechanism. In America, this hidden tax of inflation,
which is a euphemism for the devaluation of the currency that sits in your
savings account, is directly responsible for the following situation that Eric
Schlosser described in his national bestseller, Fast Food Nation:
“It used to be, even in low income families, that the father
worked and the mother stayed home to raise the children. Now it seems that no
one’s home and that both parents work just to make ends meet, often holding
down two or three jobs. Parents increasingly turn to the school for help,
asking teachers to supply discipline and direction.”
The above paragraph described the family life of many
families that lived in Middle America almost a decade ago. Due to an unsound
monetary system that has led to relentless devaluation of the US dollar, the
situation described above will explode in intensity and magnitude over the next
five years, and affect everyone in America, no matter your income level and
socio-economic status. As the US dollar continues to lose purchasing power,
despite a current possible extended rally against the pound and Euro,
middle-class America will sink into the ranks of the poor. If the world operated on a sound monetary system, even in low-income families, the mother could still stay home to raise the children. Today, even in middle-class families, thanks to bankers, the mother does not have the option to stay home and raise the children. When the situation
of both parents working two or three jobs and their kids attending high school
while working 20+ hours a week is still not enough to make ends meet, crime
will explode in America during the next five years. It is the critical problems
of these very families that the bankers are creating through their monetary
policies that will come home to roost in America.
In reality, I don’t hold hatred in my heart for anyone.
Christmas is a time for forgiveness and none among us are infallible and none
among us are without sin. Yet, to be forgiven, those that continually do wrong
must repent, and bankers have yet to do anything that demonstrates that they
have even the slightest amount of regret and remorse for the economic upheaval
and chaos that they have created throughout the world in recent years. The
rich, though they may not care to understand the tale of How the Bankers Stole
Christmas now, should make it their prerogative to understand this as soon as
possible. Why? The current course the bankers have set us on has ensured that
the rich will soon become victims of desperate masses of people in their
country that will see a huge degradation in their quality of life due to the
recent monetary policies bankers have elected to impose upon their
citizens. When large portions of
the middle class are destroyed, masses of people that never considered stealing
before, will steal and loot due to the simple instinct of survival, and a great
battle between “the haves” and the “have nots” will ensue in future years in
many developed countries, as crazy as this concept sounds today. Should the
people choose to understand “How the Bankers Stole Christmas”, the
inevitable massive increase in crime that will accompany the sinking of the
middle class into poverty can be avoided.
If instead, everyone chooses to buy into the propaganda of
the bankers, then this same scenario, as crazy as it sounds today, will come
true in the future just as the “crazy” stock market crashes I predicted in 2006
eventually materialized in 2008.
And the biggest culprit of this shameful scenario, should it
materialize, will embarrassingly be our own refusal to see the truth about how
bankers have commandeered today’s “modern” monetary system for their own
benefit, and their own benefit only, to the detriment of every single citizen
they claim to be helping. If one doubts the enormous reach of banker’s
tentacles into governments, then perhaps now is a good time to review former
IMF Chief Economist’s Simon Johnson’s brilliant article, “The Quiet Coup”.
Posted in America, Bank of England, banking fraud, Banks, Citizens, Congress, Corruption, Debt, Devaluation, Dollar, Economy, Euro, Financial System, Fraud, Goldman Sachs, Henry Paulson, IMF, Inflation, International Monetary Fund, Jobs, Lloyd Blankfein, losses, Money, Propaganda, Purchasing Power, Reality, reform, Simon Johnson, Stock Market, Tax, US Dollar, Wrong |
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Dear Santa, Here's My Xmas List
From The Daily Capitalist.
Dear Santa:
Since you give away stuff for free, I hope you aren’t a socialist and ignore my wish list during the annual potlach. By the way, it seems that the Obama Administration is way ahead of you in giving out free stuff to everyone. I hope you can catch up.
I think I’ve been a pretty good boy this year. I have regularly bitten my tongue in my commentary so as not to be accused of being a flamer. I don’t think I’ve defamed anyone. And I try to write as much original material as possible to avoid being labeled a “scraper” (lifting stuff off the Net and publishing it under my own name). And, I haven’t sold out my opinions for mere money. For a blogger, that’s a pretty good record.
Here’s my wish list. I couldn’t find where to post it on Amazon, so here goes:
1. Kill The Bill
No, not the Uma Thurman thing. I’m talking about the health care “reform” bill going through Congress right now. If your magical powers extend that far, please put economic sense into our politicians’ collective heads that government control over the system is not a way to “save money” or create “efficiency.”
2. Put in the Fix
Instead of eliminating market forces in health care, please convince Congress to fix it by peeling back the convoluted rules and regulations that have screwed it up in the first place. Suggest these four little things we could try first that actually would work, save billions, and cover more people:
Give Medicare enrollees a voucher and the freedom to choose any health plan on the market;
Give workers control over their health care dollars with “large” health savings accounts which would allow them to purchase secure health coverage from any source;
Break up state monopolies on insurance and allow insurance companies to compete across state lines; and
Block-grant Medicaid and the State Children’s Health Insurance Program to prevent massive waste and encourage states to target resources to the truly needy.
3. Turn the Sausage Makers into Sausage
I understand it’s Christmas and it would be kind of negative to wish political ill fortune on someone, but, there’s this especially despicable sentator, Ben Nelson, that I would like for you to arrange to catch him with a hooker or taking a bribe. Whatever you think would work, Santa. Make sure there are tapes. I have lots more names, but I’d be happy with Ben.
4. Firing Suggestions
Please arrange for Obama to fire Ben Bernanke, Larry Summers, Timmy Geithner, and Christina Romer.
5. Hiring Suggestions
To replace the above, how about Ron Paul at the Fed, and the following economic advisers: Walter Block, Russ Roberts, and Joseph Salerno. They are all fine economic scholars and would steer our President in the right direction.
6. Freeze Congress
Don’t let Congress pass any more bills until they’ve all read, and discussed with the No. 5 guys, Economics in One Lesson by Henry Hazlitt, the best little book on economics, ever. Televise it.
7. Bring Back the Real Constitution
Please have Obama appoint strict constructionists to the Supreme Court. Nominees who understand natural law, and that the Ninth and Tenth Amendments actually mean something. Maybe we’d get our individual sovereignty back.
8. Make Work is No Work
Let Mrs. Pelosi and Mr. Reid see the folly of the American American Recovery and Reinvestment Act of 2009, a useless $787 billion bill that is nothing other than intergenerational theft. Someone has to pay for it and I’m afraid it will be my children, grandchildren, and ten generations of my great-grandchildren.
9. Beautiful Sunsets
Require Congress to sunset every spending law they pass. You know how they promise that a program will be very effective and that it will only cost so much? Make them prove it, say every two years. If the bill fails to cure the perceived ill, get rid of it. If the program exceeds its budget, get rid of it. It will also provide us with a handy voting guide at election time.
10. Let a Thousand Flowers Bloom
Sprinkle some free market magic dust on the economics departments of our major universities. Maybe that will help the sheep break from Keynesian orthodoxy and actually begin to think.
Thank you, Dear Santa. I’m forever hopeful.
Econophile
Posted in Administration, Austrian economics, Ben Bernanke, Capitalism, Christina Romer, Congress, Corruption, Economic Crisis, Economic Recovery, Economics, Economy, Financial System, Fiscal stimulus, free market economics, health care reform, Insurance Companies, Keynesian economics, Keynesian Stimulus, larry summers, Medicare, Money, Obama Administration, reform, Ron Paul, spending |
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Bank Of America's Fraudulent Acquisition Of ML Back In The Congressional Spotlight Tomorrow
Tomorrow at 10 am the House Oversight Committee will hold a hearing with SEC’s Robert Khuzami (oddly Mary Schapiro, together with Chris Cox, had been scheduled to appear initially, however “in a series of last minute negotiations, members settled on Khuzami”) to discuss what the SEC has already found to be a criminal transaction (and attempted to promptly bury under the rug if only if it weren’t for one Judge Jef Rakoff). Details of the hearing below:
Washington, DC – House Oversight and Government Reform Committee
Chairman Edolphus “Ed” Towns (D-NY) and Domestic Policy Subcommittee
Chairman Dennis Kucinich (D-OH) will convene a joint hearing entitled:
“Bank of America and Merrill Lynch: How Did a Private Deal Turn Into a
Federal Bailout? Part V?” The hearing will examine the events
surrounding Bank of America’s acquisition of Merrill Lynch and its
receipt of Federal financial assistance.The hearing will
take place at 10:00 a.m. on Friday, December 11, 2009 in room 2154
Rayburn House Office Building. A webcast of the hearing will be
available on the Committee’s website: http://oversight.house.gov.
As for the actual hearing, Dow Jones presents this advance look of how Dennis Kucinich will approach the interrogation:
[Kucinich] plans to present Khuzami with a financial forecast
that had been prepared by Merrill Lynch a few weeks ahead of the December 2008
shareholder vote on the merger, according to subcommittee documents obtained
by Dow Jones.
The forecast omits projected losses from Merrill Lynch’s illiquid assets for
the month of December and underestimates by almost half the roughly $15
billion after-tax fourth quarter loss, the documents say.
Based on the subcommittee’s investigations, Kucinich says he believes Bank
of America executives were aware of the red flags raised by Merrill Lynch’s
forecast. But that didn’t stop them from presenting the document to their
lawyers at Wachtell, Lipton, Rosen & Katz.
Kucinich says Bank of America’s decision not to investigate the Merrill
Lynch document and notify shareholders of any change in expectations amounts
to “an egregious violation of securities laws.”
Referring specifically to the Merrill Lynch forecast, [BofA spokesman Lawrence] Di Rita said, “The
matter of Merrill’s projected fourth-quarter 2008 losses was considered
carefully and the decisions were made in good faith at a time of unprecedented
economic and market upheaval.”
And while committtee chairman Edolphus Towns is allegedly satisfied with BofA’s behavior in the last year, “since it paid the last of its $45 billion debt to taxpayers” even though it does not have the ready sources for this outflow, and even though the deal was merely a front to allow BofA traders to scalp exorbitant bonuses one last time before everything collapses, Judge Rakoff may not share Towns’ utter lack of interest with due process and punsihment of criminal behavior, especially where said criminal behavior has already been proven.
Posted in America, Bailout, Bank of America, Bonuses, Corruption, Debt, Dow, Economy, Edolphus Towns, Financial System, House Oversight Committee, Ken Lewis, laws, Lawyers, losses, Mary Schapiro, Merrill Lynch, policy, reform, SEC, securities |
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Republican On Senate Banking Committee Rumored To Follow Sanders, Place Hold On Bernanke Reconfirmation
This exciting development from Firedoglake:
As Ben Bernanke’s confirmation hearing begins in the Senate Banking
Committee, a source tells FDL News that one Senate staffer and an
outside source confirmed to him that at least one Republican on the
committee will also place a hold on the Federal Reserve chairman,
throwing the process into potential turmoil and giving Chris Dodd a
difficult series of choices to make.
Dodd, who just announced his intention to vote for Bernanke’s
confirmation in the Banking Committee and on the floor of the Senate,
would be in charge of the decision to honor or ignore that hold. The
fact that Dodd tried to place a hold on the FISA Amendments Act in
2007-08, and was generally ignored by Harry Reid, just adds a layer of
irony to the process.
The source, speaking on condition of anonymity because of his work
behind the scenes on the Bernanke confirmation, told me that two
separate sources assured him that the Republican hold would be made
public after today’s hearing. One staffer said that two Republicans
would place the hold, while the other said it would just be one. The
source said that the trans-partisan nature of opposition to Bernanke,
with a conservative Republican and a socialist independent uniting to
block the appointment, shows the intensity of the feelings on the
issue. “It’s great to see everyone come together – Democrats,
Republicans, progressives and libertarians, against this Federal
Reserve, which is not federal, and not a reserve, just a group printing
money and giving it to their buddies,” the source said.
While most people think that the multiple holds would delay the
process, it’s unclear whether or not it would succeed. Dodd would
probably have the discretion to roll over the hold in committee, though
he may be reluctant to do so, experts in Senate procedure said. Harry
Reid could also seek cloture on the motion to proceed on Bernanke’s
nomination on the floor, which would require 60 votes.
At the very least, this delay and the publicity surrounding
bipartisan opposition to Bernanke would bring attention to the issue of
the Federal Reserve and the desire for transparency, like the movement
to audit the Fed. That provision has already passed in the large
financial reform bill in the House Financial Services Committee, and Barney Frank said yesterday
that he didn’t expect any changes to the bill as it passed the House,
citing the public anger over the issue of transparency. There is
language on Fed audits in the draft financial reform bill written by
Sen. Dodd, which also strips the Fed of some of its power, but it is
not the same as Bernie Sanders’ audit the Fed bill, which has as many
as 30 cosponsors.
The source, who has been working on the Federal Reserve issue for
five years, marveled at how the issue has gained so much new attention
during the financial crisis. “Up until last year, nobody knew what the
Fed was. Ron Paul got 5 co-sponsors on his audit bill when he first
introduced it, and now we have 300.”
Sen. Dodd’s office has not yet responded with a comment.
Posted in Anonymity, Audit, Audit the Fed, Audits, Barney Frank, Ben Bernanke, Bernie Sanders, Chris Dodd, Confirmation, Corruption, Democrats, Economy, Federal Reserve, Financial Crisis, Financial System, House Financial Services Committee, Irony, Money, Publicity, reform, Republicans, Ron Paul, Senate, Transparency |
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proudly supports:
Bill Still For President
for Congress
Michigan 11th District
By Bill Still
There is only one answer for the world economic situation; monetary reform.
1. No More National Debt
2. No More Fractional Lending
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