FedUpUSA

Archive for the ‘Transparency’ Category

Ben Bernanke and his Fed mates’ secret letterhead: “destroying capitalism from within.”

After four years of disastrously wrong policies, let’s declare stubborn, hubris-soaked wrongheadedness a virtue and saint Ben Bernanke and his Federal Reserve mates.  If we had to distill down the Fed Chairman and the Federal Reserve’s policies since the wheels came off the Fed’s “shadow banking” system of fraud, collusion, embezzlement  and free-floating leverage, we’d have to start with a systems-analysis perspective.

Any system which separates risk from results (gain/loss) is doomed to implode,as the lack of feedback from the real world (also known as consequences) enables the self-reinforcing feedback known as “moral hazard”: losses by those who took the risk to reap a gain are made good by those who did not take the risk and who do not stand to gain from the risk they are covering.

In this case, the  mortgage origination and  packaging “industry” and the investment banks’ origination and marketing of fraudulent-from-inception derivatives “industry” took the risks to reap outsized gains from the financialization of mortgages and other debt instruments via leverage, commodifying debt and  arcane derivatives, all of which were sold as “low-risk.”

Capitalism’s primary characteristic is that capital is put at risk for a gain/loss.If risk is off-loaded onto the Fed’s bottomless balance sheet and the taxpayer via government-funded bailouts and guarantees, then capital is not actually at risk. Thus what we have isn’t capitalism, but cartel crony-capitalism, a phony version of the real thing which guarantees private banking profits and socializes banking losses.

The Fed was recently revealed as having arranged billions in private gain via secretly backstopping the banks with $7.7 trillion.This highlights Bernanke and his buds’ second catastrophically wrong policy, that of systemic opacity.

The acme of open markets is transparency. Without transparency, markets are not free or open, they are manipulated–both to hide those who are benefitting from the destruction of transparency (monopolies, cartels, fiefdoms, kleptocracies, oligarchies, etc.) and to manipulate the market as part of a permanent propaganda campaign to  “manage perceptions:” the market’s up, everything’s dandy.

Bernanke and his faithful banking-sector lackeys have destroyed transparency at every turn, refusing an audit (an audit smacks of–sniff–democracy–how distasteful), masking the $7.7 trillion in backstopping, and hiding the toxicity of the Fed balance sheet, which is loaded with over $1 trillion in distressed mortgage securities that the Fed lovingly took off the bankrupt balance sheets of its craven masters, the banks.

In other words, the Fed has massively rewarded the reckless and rescued the incompetent from the consequences of their actions.If that isn’t the perfection of wrongheadedness, what is?

Then there’s the disastrously destructive ZIRP–zero interest rate policy.The Fed’s idea here is childishly simple, and childishly ignorant: if we lower interest rates to zero, then everyone who is over-leveraged and over-indebted will be able to borrow more, but for less interest, and that will buy the system time to magically heal itself.

The Fed cannot dare grasp that “healing” in capitalism means writing off uncollectable debt and sending insolvent lenders and debtors to bankruptcy court. Capitalism would quickly dispense with their cronies in the banking sector, and so capitalism must be destroyed. That is the Fed’s raison-d’etre: destroying capitalism from within.Lenin would be envious.

ZIRP has myriad pernicious consequences.  Let’s say you have some capital that you want to apply such that it earns a fair return. If interest rates are near-zero, then a fair return has been rendered impossible by Fed policy.

The Fed leaves you only two choices:either put your capital into “risk-on” assets that are inherently risk-laden, or loan the capital out at low rates in an opaque market  and hope you’ll actually get the principal back.

Imagine being in charge of issuing mortgages which weren’t guaranteed by the Federal government agencies of Fannie Mae, Freddie Mac and FHA–that is, imagine you actually lived and worked in a capitalist system, instead of a kleptocratic crony-capital haven.

You might hesitate to loan out large sums of money (jumbo mortgages) in a market where the  risk of a decline in the asset (real estate) is obvious but official manipulation means you can only receive a very paltry return on the capital you’re putting at risk.

Since the market isn’t able to price real estate, risk or credit transparently, then prudent investors would be forced to shun the market: how can you invest wisely when assets, debt and risk can’t be priced by the market?

Prudent lenders would withdraw from such a rigged, risky market, which is precisely what has happened.Literally 99% of the mortgage market is now guaranteed by the Federal fiefdoms, all of which are losing tens of billions of dollars and require monumental taxpayer bailouts to keep underwriting the banking sectors’ private profits.

Private mortgage lending has simply vanished, and no wonder: if you can’t price assets, risk or debt, then only the reckless would enter the market, and even they would only do so if the Fed guaranteed the profits would be theirs to keep but losses could be transferred to the Fed or taxpayers.

The only way to restore trust and clear the market of uncollectable debt is to let the market transparently price, risk and credit–precisely what the Fed’s policies are designed to stop.  The Fed’s knees are chafed from kow-towing to their banker masters, and worshipping the “magic” of their Keynesian Cargo  Cult and  Lenin (“destroying capitalism from within” should be stenciled on the Fed letterhead).

Separate risk from gain, obliterate transparency and choke the market  with zero interest rates, and you’ve not only destroyed capitalism, you’ve also destroyed the economy by rewarding the most venal, corrupt, fraudulent and  capital-destroying players while stranding the prudent on an island of opacity where the true price of assets, credit and risk cannot be discovered.

Charles Hugh Smith – Of Two Minds

It looks like there are some real reporters that exist in Arizona.  Although this outrage ocurred a month ago, it seems as though at least one media outlet was paying attention to our recent expose on State Representative Nancy McLain’s acsension to monarch.  Time to turn up the heat!

From KPHO CBS 5, Phoenix

PHOENIX — Senate Bill 1259 was supposed to be all about transparency, making sure homeowners could always have access to a copy of their home’s deed.

 But it ended up having nothing to do with housing.

• Video: Homeowner Transparency Bill Gutted

 

CBS 5 News wanted to know what happened so we sent our crew to the source to find out.

“The bill was very simple, this bill was to show people where your note is at,” said state Sen. Michele Reagan.

What started out as a half a page homeowner bill ended up anything but. When Reagan sponsored SB 1259, she never anticipated any problems.

“It sailed through the Senate, 28 I believe to 2, which is a good vote,” Reagan said.

The next step was the House Banking and Insurance committee, where Reagan expected a similar reaction.

Instead committee chair Nancy McLain moved to strike the bill before it even had a chance to be read.

CBS 5 News wanted to know why.

“Just to be clear, representative, it was solely your decision to not hear the original bill in committee, right?” asked reporter Elizabeth Erwin.

“That is correct, yes,” McLain answered.

McLain said the bill would have given folks in foreclosure false hope and given those who just don’t want to pay their mortgage a loophole to get out of forking over the cash.

How did she come to that conclusion?

“I call it the ‘lobbyists employment act’ because I had banker lobbyists, down (at the capitol) like crazy trying to kill this bill in the house,” said Reagan.

“I’ve got to ask, did lobbyists have anything to do with your decision?” Erwin asked McLain.

“Well, there were people that came and talked to me about it,” she responded.

“Representative, of course the bankers aren’t going to like this bill, it doesn’t help them. But have you talked to the constituents, the folks in foreclosure who could have been assisted by this?” Erwin questioned.

“No, believe me, I have talked to many people, many constituents,” McLain said.

But she said her information on this bill came from the bankers.

Reagan said she was told the bill didn’t have a shot, so she agreed to strike it and replace it with one that would help fire districts.

“I think as a homeowner, you deserve that information. Apparently the House disagreed with me, so we turned it into something to help the folks,” Reagan said.

Reagan said she agrees with McLain on one thing, that as a committee chair she does have the right to hear or not hear any bills she wants.

McLain says if a similar bill that fixes the problems she and the bankers saw pops up next year she might be willing to consider it. 

By Karl Denninger

More Intentional Media Misdirection (Wall Street)

Posted by Karl Denninger

The headline screams:

Feds find little fraud at big Wall Street firms

While the American public and Capitol Hill lawmakers appear to blame wrongdoing on Wall Street as the primary cause of the global financial crisis, federal law enforcement agencies have had little success in finding and prosecuting instances of fraud at the nation’s major investment firms.

That’s because they’re not looking – that is, they’re willfully blind.

The article goes on to assert:

“Originating risky mortgages on its own does not violate the federal securities law,” Ms. Shapiro said

That’s true.

But lying about the quality of what you’re selling both violates Federal Securities Law and in addition violates ordinary fraud statutes.  When such solicitations are sent over wires (e.g. electronically) or via the mail both wire and mail fraud statutes are violated.  If and when two or more people collude to take such an action federal racketeering statutes may be violated as well.

Ms. Shapiro testified that the SEC had reached settlements with six Wall Street dealers to settle charges of fraud in connection with the auction-rate securities. The SEC secured $60 billion through the settlements to provide full refunds for investors in the securities.

But Ms. Shapiro (and Eric Holder of the Department of Justice) didn’t and still won’t pursue the larger issue, which was the issuance of literal trillions in securitized debt in 2004, 2005, 2006, 2007 and 2008 following FBI and HUD warnings that very high percentages of mortgages contained in these securities were rife with fraud – yet the offering circulars omitted any mention of these findings and warnings.

Indeed, the “auction rate security” issue – and the “pursuit” of Wall Street on these securities – rests on the precise same issue as does the above – that is, the willful and intentional misrepresentation of risks in the offering circulars for these securities in which self-dealing and the understatement of risk associated with same was intentionally omitted from the prospectuses.

The simple fact of the matter is that there’s no crime in speculating and being wrong. 

But there are multiple crimes committed when one intentionally obscures, either through omission or commission, risks that one knows of and/or has been explicitly warned about.

Henry Boerner, chairman of the Governance and Accountability Institute, said the publics rage against Wall Street is focused not so much on suspected criminal activity as on the unfairness, lack of ethics and irresponsibility of bankers. However, he said, it is the regulators who should be faulted for allowing Wall Street bankers to take risks, shatter the economy and walk away with big bonuses.

“Voters, constituents, investors, employees, borrowers, homeowners, public officials, entrepreneurs — all have been impacted by the risky and at times reckless behavior of the leaders of the nations largest financial services organizations,” he said.

Those who choose to accept risk, knowing fully what they’re doing, are not now and never have been the issue.  Such people deserve what they get – either for good or bad.

Attention is, has been, and should be focused on the willful and intentional lack of disclosure of known risks.  Given the fact that The FBI was warning of an epidemic of fraud in “alternative” mortgage loan products as far back as 2004 and there were multiple investigations and disclosures in both the media and by HUD in 2006 and 2007 there is absolutely no excuse for the lack of full, fair and proper disclosure in the “products” that Wall Street created and sold on in the years 2004, 2005, 2006, and 2007 – without which neither the bubble or collapse would have occurred.

It has been and is my assertion that massive violations of the law were in fact committed during this faux “boom” and the ensuing bust, that the so-called “earnings” reported during that period in fact were not earned, and that buyers of this “debt” were in fact sold securities that, had the actual known characteristics of the loans contained in them been disclosed, were utterly unmarketable.

WE THE PEOPLE (Have Had Enough)

STARVE THE BEAST!!!!!!!!

Posted by Karl Denninger

THE seminal question for this year – coming into the mid-term elections – is exactly that.

Have you had it?

Are you tired of being bent over the table with 29.9% credit card interest rates while these big banks borrow at zero from The Fed and use that money to speculate in the markets?

Are you tired of “too big to fail” – better stated as heads we (the banksters) win, tails you (the taxpayer) lose?

Are you enraged beyond words with the fact that this economic mess was not an accident – it was an intentional act of willful blindness and perhaps even fraud?

Do you feel helpless to do anything about the fact that Government has willfully and intentionally refused to both clean up the mess and prevent it from happening again due to the presence of huge lobbying interests in Washington DC – paid for by the very same banksters who nearly destroyed this nation?

Do you realize that we have fixed nothing – the bad loans are still there, they are still bad, that millions of Americans have lost their jobs, that the economy is not actually recovering (despite what they say) and that without resolving the actual problems odds are that within a few years, and perhaps within a few months, we will face another crash – this one likely bad enough to destroy our economy and perhaps our government?

Let’s look at the facts.

• The testimony being put before the FCIC – the investigatory panel charged with looking into how the housing and foreclosure mess came about, and how our economy was stripped clean by the vultures that infest the banking business in this nation is a matter of record.  I, and others, have been documenting this for more than two years.  READ THE MISSION STATEMENT AND TESTIMONY OF PEOPLE LIKE MIKE MAYO.
• THE FBI has been warning of an “epidemic” of mortgage fraud since 2004.  The banks knew this.  Indeed, in 2004 their lobbyists convinced The Bush Administration to SUE to prevent state regulators from protecting YOU, THE CONSUMER, from predatory and unfair loans.
• Since 2006 there have been published stories that stated income loans were laced through-and-through with fraud:
  

  One lender recently compared 100 stated-income loans with the borrowers’ tax returns and found that only 10 of the borrowers were telling the truth about their wages, according to Mortgage Asset Research Institute, a division of data firm ChoicePoint Inc.  (September 2006)

• The Wall Street and large commercial banks did not include these disclosures in their offering circulars for securitized debt. 

• Wall Street entities knew they were at risk but bought “protection” (CDS, or “credit default swaps”) from firms who they knew or should have known could not pay, including but not limited to AIG.  This “allowed” them to consider assets they knew or should have known were rife with fraud as “money good”.

• Wall Street and “big lender” loan programs in the housing market during the years 2000-2007 all “assumed” that house prices would rise forever at a rate higher than inflation.  The key point is that even if they had, which is mathematically impossible, it doesn’t change the fact that the borrower, that is you the citizen, still was going to lose their house when they reached the limit of their borrowing capacity.  The bank’s only concern was designing a program that they would be protected by – not whether it was suitable for you nor whether you would have (or continue to have) a home.

None of this was a “mistake” or an “accident”.  It was not an “unforseen event.”

Government agencies were aware of and sounded the alarm as early as 2004.  Brooksley Born, chair of a federal regulatory agency (the CFTC) raised hell on complex derivatives (“CDS” and similar instruments) in 1999.  She was attacked by everyone in the banking industry including Alan Greenspan and literally run out of town.  She was right.

The banking and Wall Street institutions, through a combination of the above, “made” billions of profits that never really existed.  They then paid that money – money that didn’t actually exist AND NEVER WOULD – out in bonuses, dividends and stock price appreciation.

Starting in 2007, it all came apart, first with two hedge funds at Bear Stearns, then Bear Stearns itself, then Fannie Mae, Freddie Mac, Lehman Brothers and AIG.

In the fall of 2008 Ben Bernanke and Henry Paulson, Chairman of The Fed and Treasury Secretary (who had refused to heed the warnings of the FBI and others for the previous four years) corralled a bunch of Representatives and Senators in The Capitol.  We were told that the government “had to bail out the banks” to prevent the financial system from collapsing.  By anywhere from 100:1 to 300:1, the American People said “let ‘em burn.”  The government refused once again to listen, and together with The Federal Reserve propped up the banks instead of forcing them to eat their own cooking.  Rather than use the money appropriated to force these institutions through bankruptcy and shut them down, paying off the depositors that were insured, these failed institutions were instead mish-mashed together into even bigger financial companies and then given government backstops.

Nothing has been fixed.

The bad debt is still there.

Unemployment has skyrocketed, the banks have cranked up credit card interest rates to 29.9% and are feasting on zero interest Federal Reserve money which they use to speculate in the financial markets, paying out well over $100 billion in aggregate in bonuses for the last year.

We are told this is and was “necessary.”

I might accept that – if it came with the closing of all of these institutions.  Each and every one of them.  If it came with the permanent barring of every executive involved from ever serving as so much as a janitor in any financial institution – worldwide – ever again.  If it came with a full forensic audit of each and every one of these institutions and officials by the FBI, with every instance of fraud that was uncovered presented to a grand jury.

But it has not.

Instead, firms like Countrywide Financial and Washington Mutual were absorbed into Bank of America and JP Morgan/Chase.  Those who were “too big to fail” not only were not dismantled, they were made bigger and more powerful.

Wall Street may effectively own Washington DC and the politicians but they do not own us.

WE THE PEOPLE ARE UNDER NO OBLIGATION TO ACCEPT THIS.

WE HAVE RIGHTS.

WE THE PEOPLE have the freedom to associate – or not.

WE THE PEOPLE have the right to demand legal tender in payment of debts owed us.

WE THE PEOPLE have the right to demand that these institutions eat their own cooking on each and every one of the loans they securitized and peddled during these years without fair and full disclosure to the buyers that these loans were rife with fraud.

WE THE PEOPLE have the right – and the ability – to take personal, lawful action with specific, lawful political and business-oriented goals, including permanent structural changes that will end “too big to fail” and “rip off the consumer on demand” policies, including the full reinstatement of Glass-Steagall which will END financial speculation and dealing in all of its forms by firms that have access to Federal Reserve credit and/or any sort of public backstop.

In the coming days and weeks I will outline specific, lawful actions that I hope each and every financial blogger, writer and columnist will take up and push as the key item for the remainder of this year and, if necessary, beyond – all with the intent of accomplishing these goals.

I invite all financial bloggers, mainstream media writing or broadcasting on the financial markets and products and interested politicians to contact me at “karl <at> starve-the-beast <dot> org” with the explicit purpose of joining an effort to formulate cogent and real, tangible yet lawful actions that can effect positive and necessary change.  Further posts to The Market Ticker will be made under the Category ”Starve The Beast” – so you can find them all in one place.

Make this message – this post – viral.  Send it to your associates.  Send it to the media.  Send it to politicians.  Get involved and do it now.

The opportunity is now and our responsibility is clear.  We either accept that responsibility and act or we are consenting to serial asset bubbles and ever-larger detonations, with the very real risk that the next one destroys our political and economic system both in the United States and beyond.