Too Big To Jail? DoJ: Wall St. Bailout Buds 'Co-Conspirators'

Too Big To Jail? DoJ: Wall St. Bailout Buds 'Co-Conspirators' In Plot To Rip Off State, Local Governments

Monday, 29 March 2010 03:15 Susie Madrak

afrikaans albanian arabic belarusian bulgarian catalan chinese chinese simplified chinese traditional croatian czech danish dutch english estonian finnish french galician german greek hindi hungarian icelandic indonesian irish italian japanese korean latvian lithuanian macedonian malay maltese norwegian persian polish portuguese romanian russian serbian slovak slovenian spanish swahili swedish tagalog thai turkish ukrainian vietnamese welsh

Too Big To Jail? DoJ: Wall St. Bailout Buds 'Co-Conspirators' In Plot To Rip Off State, Local Governments

Municipal bonds are where a lot of the political kickbacks and corrupt deals are typically hidden, so I can't say I'm surprised. In fact, it's sort of funny that the governments dealing with these guys apparently thought they could trust them, considering how crooked the business is. Lie down with dogs, rise up with fleas, as the nuns used to say:

March 26 (Bloomberg) -- JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and UBS AG were among more than a dozen Wall Street firms involved in a conspiracy to pay below-market interest rates to U.S. state and local governments on investments, according to documents filed in a U.S. Justice Department criminal antitrust case.

A government list of previously unidentified “co-conspirators” contains more than two dozen bankers at firms also including Bank of America Corp., Bear Stearns Cos., Societe Generale, two of General Electric Co.’s financial businesses and Salomon Smith Barney, the former unit of Citigroup Inc., according to documents filed in U.S. District Court in Manhattan on March 24.

Gee, look how many were firms that were already taking money from us on the front end. They wanted the back end, too?

The papers were filed by attorneys for a former employee of CDR Financial Products Inc., an advisory firm indicted in October. The attorneys, as part of their legal filing, identified the roster as being provided by the government. The document is labeled “list of co-conspirators.”

None of the firms or individuals named on the list has been charged with wrongdoing. The court records mark the first time these companies have been identified as co-conspirators. They provide the broadest look yet at alleged collusion in the $2.8 trillion municipal securities market that the government says delivered profits to Wall Street at taxpayers’ expense.

Excuse me while I rush to my fainting couch. I'm a little dizzy from the shock.

“If the government is saying they are co-conspirators, the government believes they have sufficient evidence that they can show they were part of the conspiracy,” said Richard Donovan, a partner at New York-based law firm Kelley Drye & Warren LLP and co-chair of its antitrust practice. Donovan isn’t involved in the case.

The government’s case centers on investments known as guaranteed investment contracts that cities, states and school districts buy with the money they receive through municipal bond sales. Some $400 billion of municipal bonds are issued each year, and localities use the contracts to earn a return on some of the money until they need it for construction or other projects.

The Internal Revenue Service sometimes collects earnings on those investments and requires that they be awarded by competitive bidding to ensure that governments receive a fair return. The government charges that CDR ran sham auctions that allowed the banks to pay below-market interest rates to local governments.

[...] Banks may choose to cooperate with prosecutors because in light of the government bailout funds they’ve received “a guilty plea would just be an absolute disaster for some of these companies,” said Nathan Muyskens, a partner at Shook, Hardy & Bacon in Washington and former trial attorney with the Federal Trade Commission’s Bureau of Competition.

“There have been antitrust investigations where there have been companies involved that were just never indicted,” he said in a phone interview.

Yes, this is what's now known as "too big to jail." Why, they're too big for just about anything!

At the same time, the government will probably focus on seeking to convict individual bankers, he said.

“When someone goes to jail for five years, that resonates,” he said. “When a company pays $200 million, it’s simply a balance sheet issue. Jail time is what captures corporate America’s attention.”

Banks Could Be Biggest Winners in Obama's New Plan

Democracy Now! / By Amy Goodman and Dean Baker

Banks Could Be Biggest Winners in Obama's New Foreclosure Plan

The biggest winners in Obama's latest foreclosure prevention plan are the banks that created this mess.

AlterNet, April 1, 2010 |

Photo: Mike Licht, Flickr Creative Commons

Photo Credit: Flickr Creative Commons

AMY GOODMAN: The Obama administration has announced changes to its signature foreclosure prevention program, Making Home Affordable. The initial foreclosure relief program unveiled a year ago was supposed to help up to four million struggling homeowners. So far fewer than 200,000 borrowers have been granted permanent loan modifications. Meanwhile, a record 2.8 million properties with mortgages received foreclosure notices last year, this according to RealtyTrac.

The steps announced Friday would broaden the program to include people who’ve lost jobs, encourage lenders to reduce the principal balances on problem mortgages, and help refinance borrowers who are “underwater,” or owe more than their homes are worth. But will these changes help stem the tide of foreclosures?

In a statement this weekend, economist Dean Baker said the plan was well-intentioned, but the winners are likely once again to be the banks. Baker is the co-director of the Center for Economic and Policy Research and the author of a number of books, his latest called False Profits: Recovering from the Bubble Economy.

He joins us now from Washington, DC, and then we’ll go to Tavis Smiley in Burbank, California, to talk about President Obama’s trip to Afghanistan.

But Dean Baker, one in five American homeowners are now underwater? What does that mean? And talk about what the Obama administration plans to do about it.

DEAN BAKER: Well, the basic story is, we had a housing bubble, prices have fallen, they’re continuing to fall, and we had a situation where people were borrowing very heavily both to buy their homes and also, in many cases, they were taking equity out of their homes. That was a reasonable thing to do if the bubble was real, in other words, if prices were going to continue to rise, as people like Alan Greenspan and Ben Bernanke were telling them. So now that prices have reversed, we have this situation where all these people owe more than the value of their house.

And the important thing, and this is just amazing to me, that no one seems to want to talk about the bubble, even after it’s wrecked the economy, put us in this situation. And they design a housing plan that acts as though there was no bubble, there is no bubble, there’s no problem with house prices falling. Now, house prices are virtually certain to continue to fall, not everywhere, but in very many of these markets. So, if we have a homeowner who’s underwater, their house price is going to fall further, we get the federal government to give some money to the banks to allow them to stay in their home another year or two years. Well, odds are that we aren’t really helping that person. They’re paying more on their mortgage than they would to rent the same house. And on top of that, at the end of the day, they’re going to end up with no equity in their home anyhow. So I don’t quite understand what’s wrong with people in this town, that you had an $8 trillion bubble, it wrecked the economy, the worst downturn since the Great Depression, and people still can’t talk about the bubble. It’s bizarre.

AMY GOODMAN: So talk about exactly what the plan is, who it will help and who it won’t help.

DEAN BAKER: Well, it’s a—first off, I mean, the important thing to understand is everything here is voluntary on the part of lenders, so it sets up a formula where, if lenders reduce principal, in some cases, that the government will issue a new mortgage, or I should say guarantee a new mortgage, at a lower principal. So say someone currently owes $300,000 on a home that we’ll say is worth $250,000. If the bank is willing to issue a new mortgage at, let’s say, $250,000—it’d be a little less, say $240,000—then the Federal Housing Authority will guarantee that new mortgage. So that would mean the person will be paying less than their mortgage each month. In principle, they could come out ahead. But again, in many of these markets, prices are still falling. So let’s say the home’s worth $250,000 today. A year from now it might be worth $225,000. And at that point, the person is again underwater, and the taxpayers are on the hook for the difference. Haven’t helped the person, you’ve helped the bank.

AMY GOODMAN: Who is weighing in? Who has the President’s ear on this?

DEAN BAKER: I can’t really say. I mean, the fact is there are easy things you could do if you wanted to help homeowners. The policy I’ve been advocating for over two years, almost three years now, is simply give people the right to stay in their home as renters paying the market rent for five to ten years, some substantial period of time. That will also give banks an incentive to renegotiate mortgages, if they can’t just throw people on the street. But the key thing there is that that would give people stability in their housing that this plan doesn’t give them.

So, why President Obama’s team is not looking in that direction, obviously, the banks don’t like that, because, again, everything—it’s important to understand—everything been proposed to date, entirely optional on the part of the banks. If you said that people had the right to stay in their homes, they couldn’t just be thrown out following the foreclosure, well, you’ve given a big bargaining chip to homeowners. And for whatever reason, President Obama’s not looking in that direction.

AMY GOODMAN: The Republicans, at least until this point, have stopped the extension of unemployment benefits and COBRA, healthcare for those who are unemployed. About a million people are affected as the congressmen and senators are on break. Can you talk about the significance of this, Dean Baker?

DEAN BAKER: Well, since we’ve had the recession, I mean, part of the stimulus package was that we’ve had extended benefits now up to—I think it’s ninety-six weeks in some states. Ordinarily it would just be twenty-six weeks, but recognizing the severity of the recession, we’ve extended benefits. We’ve also provided—for the first time, the unemployment system will pay 65 percent of people’s healthcare costs if they stay on their plan. The COBRA allows people to stay on their employer’s plan after they’ve lost their job. Typically, people can’t afford that. But now with the government picking up 65 percent of that cost, people are able to afford that.

Now, it has to be renewed periodically. They did it just as a temporary measure. And now the Republicans are trying to obstruct this. So, for some period of time, people are going to lose their benefits. Presumably they will work this out, people will get benefits. But it’s a rather cynical game, because obviously people who are unemployed need this money, and the Republicans—I’m not even sure what specific point they’re hoping to score on this one. They were saying they want it paid for—it’s kind of silly, you know, want to have cuts in the middle of a recession. But I’m not really sure. I think basically they’re just being obstructionists for the sake of obstructing.

AMY GOODMAN: And it means a tremendous amount in this time of recession to the people who could lose their benefits and healthcare.

DEAN BAKER: Yeah, you’re talking about millions of people are—exactly. And, you know, again, everyone’s assuming, you know, they will get it fixed, and in a week or two weeks, I don’t know exactly a time frame, I guess after Congress gets back into session, they’ll presumably pass this. But you’re playing with people’s lives. You know, they don’t know—people don’t know the Congress—and who knows? Maybe they won’t. I mean, there’s no guarantee. Get them back here, and maybe the Republicans will find new ways to obstruct, and, you know, it could be weeks. So, you know, for people who are unemployed, the millions of people who are facing loss of benefits, loss of healthcare, it’s a really big deal.

AMY GOODMAN: Dean Baker, I want to thank you for being with us, economist and co-director of the Center for Economic and Policy Research. His book, False Profits: Recovering from the Bubble Economy.

Amy Goodman is the host of the nationally syndicated radio news program, Democracy Now!.

Dean Baker is co-director of the Center for Economic and Policy Research and author of the new book, False Profits: Recovering from the Bubble Economy (PoliPointPress, 2010).

A SILVER MANIPULATION IN ADVANCE

A LONDON TRADER WALKS THE ‘CFTC’ THROUGH A SILVER MANIPULATION IN ADVANCE

By Andrew Maguire, KingWorldNews

There's Plenty of Fraud on Wall Street

Robert Reich's Blog / By Robert Reich

There's Plenty of Fraud on Wall Street to Be Investigated Right Now

While financial reform is needed, there's no reason to wait for it. The laws are already on the books.

AlterNet, March 31, 2010 |

The Securities and Exchange Commission announced Monday that it had begun an inquiry into two dozen financial companies to determine whether they followed accounting practices similar to those recently disclosed in an investigation of Lehman Brothers.

Where on earth has the SEC been?

It's now clear Lehman Brothers' balance sheet was bogus before the bank collapsed in 2008, catapulting the Street and the world into the worse financial crisis since 1929. The Lehman bankruptcy examiner's recent report details what just about everyone on the Street has known since the firm imploded -- that Lehman defrauded its investors. Even Hank Paulson, in his recent memoir, referred to Lehman's balance sheet as bogus.

In order to look like it could borrow $30 for every dollar of its own money, Lehman shifted liabilities off its books at the end of each quarter. Its CPA, Ernst and Young, approved of this fraud against the advice of its own whistle blower, whom Ernst and Young fired.

Lehman's practices couldn't have been all that different from those of every other big bank on the Street. After all, they were all competing for the same business, and using many of the same techniques. Lehman was just the first to go under, causing a financial run that led George W. to warn "this sucker could go down" unless the federal government came up with hundreds of billions to bail out the others.

In other words, the TARP covered the other bankers' assets and asses.

We now know, for example, Goldman Sachs helped Greece hide its public debt and then placed financial bets that Greece would default, using credit-default swaps to avoid risking its own capital. It's the same tactic Goldman used for (and against) American International Group (AIG): Hide the ball, and then bet against the ball and fob off the risk to investors and taxpayers, using derivatives to remove the risky tactics from the balance sheets. Even today no one knows the fair value of the complex derivatives underlying these and related maneuvers, which is exactly the point.

Congress is now struggling to come up with legislation to stop this from happening again. And the Street is struggling to stop Congress. As of now, the Street's political payoffs seem to be working. Proposed legislation still allows secret derivative trading in foreign-exchange swaps (similar to what Goldman used to help Greece hide its debt) and in transactions between big banks and many of their corporate clients (as with AIG).

But wait. We already have a law designed to stop this sort of fraud. It's called the Sarbanes-Oxley Act of 2002.

Think back to the corporate looting scandals that came to light almost a decade ago when the balance sheets of Enron, WorldCom, and others were shown to be fake, causing their investors to lose their shirts. Nearly every major investment bank played a part in the fraud -- not only advising the companies but also urging investors to buy their stocks when the banks' own analysts privately described them as junk.

Sarbanes-Oxley -- Sarbox, as it's come to be known -- was designed to stop this. It requires CEOs and other senior executives to take personal responsibility for the accuracy and completeness of their companies' financial reports and to set up internal controls to assure the accuracy and completeness of the reports. If they don't, they're subject to fines and criminal penalties.

Sarbox is directly relevant to the off-the-balance-sheet derivative games the Street played and continues to play. No bank CEO can faithfully attest to the accuracy and completeness of its financial reports when derivatives guarantee that the reports are incomplete and deceptive.

So where has the SEC been?

I was on a panel a few weeks ago with a former chair of the Securities and Exchange Commission who was asked why the commission has so far failed to enforce Sarbox against Wall Street. He had no response except to mumble that legislation is meaningless unless adequately enforced. Exactly.

Bottom line: While financial reform is needed, there's no reason to wait for it. Sarbox is already there. And even if financial reform is enacted without loopholes, there's no reason to think it will be enforced if laws already on the books, such as Sarbox, aren't.

Robert B. Reich has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He also served on President Obama's transition advisory board. His latest book is Supercapitalism.

Labor market faces threat of prolonged jobless

April 1, 2010

Labor market faces threat of a prolonged jobless recovery

The March unemployment report being released on Friday is widely expected to show the most job growth in three years, in large part due to the hiring of temporary Census workers. While news of job growth will be welcome, it will not diminish the risk of a largely jobless recovery.

In their new paper, For Job Seekers, No Recovery in Sight, economists Josh Bivens and Heidi Shierholz explore the recent trend of jobless recoveries and explain why unemployment will probably remain high for years, even though the official end of the recession most likely occurred in the middle of 2009.

The authors outline what they describe as “an excruciatingly long lag time” between economic recovery and improved job prospects, which has characterized some of the most recent periods of so-called economic recovery. While it took 12 months after the recession of 1981 to return to pre-recession levels of employment, that time span almost doubled -- to 23 months -- after the 1990 recession, and rose again -- to 39 months -- after the recession of 2001.

Using those three past recessions to project job growth in the current recovery, Bivens and Shierholz conclude that even under the most hopeful scenario -- a 1981-style recovery -- employment will not return to pre-recession levels until September 2011. And if the current recovery looks more like the past two periods of slow post-recession job growth, it could take until 2013 or 2014 to get employment levels back to where they were before the Great Recession began. The paper recommends strong policy interventions to help ensure that GDP growth corresponds with job growth.

Good for workers, good for business

Many American workers who manage to form unions remain unable to bargain for a first contract in a timely manner, often because employers fail to bargain in good faith or use stalling tactics to preserve the status quo. One key tool to help workers avoid this impasse is first contract arbitration, which gives both the union and the employer the option of entering binding arbitration after 90 days of unsuccessful contract talks and 30 days of mediation.

A new analysis by EPI Vice President Ross Eisenbrey looks at collective bargaining over a seven-year period in the Canadian province of Manitoba, where first contract arbitration has been used regularly. Eisenbrey found that first contract arbitration had no effect on business success or survival. His findings run contrary to the claims of business lobbyists and conservative critics that first contract arbitration would cause businesses to close. Even in places where first contract arbitration is law, Eisenbrey found it is rarely used, but serves a valuable purpose of deterring both workers and employers from bargaining in bad faith. First contract arbitration is a key provision of the Employee Free Choice Act.

BLS follows EPI’s lead in highlighting ratio of job seekers to job openings

Last month, the Bureau of Labor Statistics (BLS) published a report showing that during the current recession, the ratio between unemployed job seekers and job openings had reached its highest level since BLS began the Job Openings and Labor Turnover Survey (JOLTS) in 2000. The ratio peaked last November with 6.2 unemployed workers per job opening, and then slipped to 5.4 in January, the latest month for which data are available.

EPI has been far ahead in calculating this ratio. In August 2002, EPI issued its first analysis of the ratio, which is based on the seasonally adjusted employment level from the Current Population Survey and the seasonally adjusted job openings data from the JOLTS survey.

Our monthly tracking of these data has provided key evidence showing that jobs are not always readily available, even to persistent job seekers. During the current jobs crisis, EPI economist Heidi Shierholz’ regular analysis of the monthly JOLTS data provided an early indication of the severity of this downturn. As EPI President Lawrence Mishel has said on numerous occasions, the current situation for the unemployed “is a cruel game of musical chairs with at least five unemployed workers circling each job opening.”

EPI in the News

National Public Radio quoted EPI Research and Policy Director John Irons in a story about the difficulty that even highly educated workers face finding jobs. Irons explained that many recent graduates will be forced to settle for work beneath their experience level, which could depress their wages for years to come.

Earlier this month, EPI Economist Monique Morrissey explained why reports that Social Security was tapping its trust funds were inaccurate. The Huffington Post this week quoted Morrissey in a piece that explains that Social Security’s total receipts are still greater than payments. The story said that these misplaced attacks threatened to undermine a key social program that enabled Americans to age with dignity.

Senior Trade Economist Robert Scott’s paper, Unfair China Trade Costs Jobs, highlighting the widespread U.S. job loss that has occurred since China joined the World Trade Organization in 2001, continues to receive extensive nationwide press attention, from The Seattle Times to The Cincinnati Enquirer and The Burlington Times News in North Carolina. Daily Kos said pressure is mounting for the Treasury Department to name China as a currency manipulator when it issues a report on April 15.

---

The Mission of EPI
To inform and empower people to seek solutions that will ensure broadly shared prosperity and opportunity.

WHISTLEBLOWER Andrew Maguire & Adrian Douglas

EXCLUSIVE KWN INTERVIEW:
WHISTLEBLOWER Andrew Maguire & Adrian Douglas: Discuss What Could Be the Largest Fraud in History - Andrew is an independent metals trader turned whistleblower at the center of a storm for exposing what could be the largest fraud in history involving countries, banks and government leaders. Adrian Douglas Board of Director from GATA, the man who Andrew reached out to joins in this interview where they discuss a fraud so extraordinary and so unimaginable that it is the kind of thing that only happens in hollywood thrillers. They also discuss the CFTC sponsored meeting on metals which was an unmitigated disaster because it additionally exposed the fraud on a grander scale.

GATA: Gold Anti-Trust Action Committee - In this interview with GATA we continue the saga after just having interviewed Andrew Maguire, the whistleblower out of London. This gives a short and long-term view down the rabbit hole through the eyes of GATA board members. GATA was so heavily involved not only in breaking the news at the CFTC meeting about metals manipulation but quite possibly uncovered the largest fraud in history. This GATA Roundtable features Bill Murphy, Chris Powell & Adrian Douglas.