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Jun
11
Written by:
bobo
6/11/2009 4:49 AM
IMPORTANT UPDATE: DEEPCAPTURE.COM IS CURRENTLY RUNNING THE FIRST IN A SERIES OF ARTICLES THAT PUT NAMES TO SOME OF THE CRIMINALS WHO'VE TAKEN DOWN THE SYSTEM, PROFITING ALL THE WHILE. IT IS ABSOLUTELY MUST READ STUFF, AND CONNECTS OUR OLD FRIENDS THE RUSSIAN AND ITALIAN MOB WITH A GROUP OF HEDGE FUNDS (ALL FAMILIAR NAMES TO MY READERS) WHO ARE ALL ONE DEGREE OR SO OF SEPARATION FROM....MICHAEL MILKEN.
GO READ IT. THEN FOR THE MORE MACRO DESCRIPTION OF WHAT'S BEEN DONE, CONSIDER MY LITTLE TREATISE BELOW...
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It's ugly, folks. About as ugly as one could imagine.
For starters, the entire global meltdown looks like it was engineered by the large mercantilist influences on Wall Street. That's correct. The whole thing, engineered, as in deliberate.
Remember that predatory interests don't really care whether economies or currencies get wrecked or not - they benefit mainly by massive volatility, in either direction, caused by their actions. They know the timing as they engineer the swings, thus are perfectly positioned to profit from everyone elses's loss.
An example of how the current calamity played out:
1) The Fed loosens and Greenspan encourages everyone to get into adjustable rate mortgages. The government encourages riskier lending, under the guise of enabling minority or low income home ownership. This feeds a speculative frenzy and drives asset values up, as do all easy money policies.
2) The Fed tightens, crunching all the borrowers as the rates start adjusting up, as well as driving unemployment higher as easy money shuts off and jobs are cut as credit tightens. The jobs lost are usually the most expendable, i.e. the subprime type of job.
3) Wall Street innovates the ABX index in 2007. That index is used to value mortgage paper. A little known but extremely important aspect of it is that the entire index is based upon the value of 24 bonds. If you know (because you are GS or another big Wall Street player), or can guess those 24 bonds, you can then go out and buy massive CDS bets against those 24 bonds, driving the market into the cellar for the entire index. Easy as pie. Anyone plugged in will get wind of the big CDS purchases of those bonds and dump the bonds ASAP, understanding that they have been targeted or are unexplainably going to crash, further accelerating the downward spiral. That's how the entire mortgage paper market tunneled when only a fraction of it was composed of sub-prime paper that was actually defaulting. As with naked short selling, you could create the appearance of an asset in sharp decline just by playing the CDS game with the right bonds, generating massive drops in asset values. That's what happened.
4) FASB 157 requires quarterly mark to market of assets, including mortgage backed securities. FASB 157 was introduced in 2007. The benchmark to establish value of the assets was, you guessed it, the ABX index, as well as ratings by agencies whose ownership ultimately leads back to, well, Wall Street.
5) Goldman and the like made massive money shorting the MBS they were selling globally. So they were betting on a big decline in the value of those assets, even as they sold tens of billions of them. GS is also key in creating the ABX index, putting them in a unique position to ensure their bets pay off handsomely from a crash in that index driven by, well, CDS purchases against the 24 bonds that literally price the index.
6) Global oil goes to $147 in a wildly manipulated dark market whose main movers are, you guessed it, Wall Street's biggest names. That additional load on the global economy, the skyrocketing cost of the price of oil coupled with asset values dropping through the floor, causes banks to stop writing things like letters of credit, which are used to enable shipping internationally. Ports sit clogged with empty container ships as nobody can get paper with which to ship things. This makes a bad crisis a disaster of magnified proportions.
7) Paulson leaves GS, and abandons his almost billion dollar worth, to run Treasury, ensuring a strong GS hand at the tiller to decide who will benefit from government handouts, as well as which policies will be enacted to amplify and sustain the disaster, as opposed to stopping it. Remember that GS under Paulson was huge in the CDS game with AIG as the contra-party, and was busy under Paulson shorting their own paper they were selling to clients all over the world. He also was critical in keeping CDS unregulated, as well as subsequently deciding which entities survived the crisis, and which ones didn't. He played a major role, some would say godlike, in nationalizing banks like Fannie and Freddie even as analysts came out saying things at the banks weren't as bad as thought. As treasury secretary, he could just pronounce them DOA and the markets would make them so, making any massive short positions wildly profitable for those on the inside of the loop. Same for deciding Lehman would fail, but AIG wouldn't. And the list goes on.
8) The SEC removes virtually all safeguards against illegal delivery failure, i.e. naked short selling. They roll out the red carpet to market makers to just print as much stock as they like, ensuring those market makers would be used by those wishing to manipulate stocks down. We witness time and time again, massive dislocations in companies like Bear, Wachovia, Indymac, Lehman, etc. Much hand wringing and fist shaking goes on at the Congressional level about investigations, but like the investigations into oil price manipulation, nothing ever actually happens. Oh, but the SEC also removes the uptick rule, and then pretends to be mystified as bear raids accelerate and the market loses half its value. Some spurious media questions whether too little, too late anti-NSS measures were effective, yet somehow manages to miss that during the shorting ban shorting tripled year over year - so the ban wasn't enforced, and amounted to more placating media soundbites from a compromised regulator running interference for Wall Street. Additionally, naked shorting of Treasuries increases to record levels, creating a double-whammy where Wall Street fails to deliver Treasuries, thereby artificially creating supply and ensuring that the country gets lower prices for its bonds. Again, regulators refuse to do anything of note. Anyone see a pattern?
9) Instead of declaring CDS a scam form of insurance fraud, where those without any interest in the asset can bet on the decline of its value even as they force its decline, Congress and Treasury studiously pretend that CDS are sacrosanct. Not surprisingly, it later turns out that much of the money going from taxpayers to AIG made its way into large Wall Street firms like GS as payoffs on these CDS bets. Congress could render CDS illegal tomorrow, ending this looting of the treasury, but won't. So it continues.
10) Once Paulson gets TARP passed against the majority of the populace's wishes, Treasury and the Fed then circumvent Congress and the taxpayers by simply doing multi-trillion dollar loans out the back door. The Fed then refuses to discuss those loans, any collateral associated with them, or the recipients. The total tab now is being estimated in the $14 trillion dollar range. In a little over a year. You are reading that correctly. Nobody actually knows the number, because nobody is talking.
11) The Fed is Wall Street friendly, and inevitably does things that favor Wall Street. The current Treasury Sec used to run the NY Fed, which is why all Treasury's "fixes" amount to little more than keeping CDS legal while funneling the wealth of the nation to Wall Street.
This is a deliberate, systematic, studied crash of the system and subsequent looting of it by Wall Street's most powerful interests, nothing more. Like the Great Depression, where millions lived in misery as the rich got much, much richer, the globe is experiencing a massive value drain so that a few interests on Wall Street can build dynastic wealth in a few short years.
I could go on, and cite many other contributing deliberate manipulations. I won't bother. You probably know most of them. A friend of mine has written a stunning book outlining the history of all this, as well as defining in detail the manipulation - it is a masterwork, and hopefully will soon find a publisher.
But the truth is that we are witnessing a nation whose policy is being run so special interests can profit at unprecedented levels while the standard of living of the populace inevitably declines to accommodate the transfer of wealth. It is completely deliberate, and not a bit of it is accidental. The smartest guys in the financial world didn't all just get stupid and blow it - that's a facile cover story being propagated by the captured press. They knew exactly what they were doing, they crashed the system to profit at levels it would normally take 50 years of stability to see, and they could give a rat's ass whether you work at Burger King during your retirement as a result.
They win. You lose.
But don't expect to see it in the WSJ or NY Times - those rags are devoted to broadcasting Wall Street's spin on things. That's why you keep hearing about how the heads of the big banks are morons, and how outraged everyone is that they kept their jobs, etc. They aren't morons. They, and their buds in hedge funds and trading desks, made trillions from being "morons." And the reason they are declared idiots over and over, is because there's no prosecuting a guy for being a retard. The smartest guys in the room always pretend to be fools when the prosecutor is around, however they don't have to worry - they long ago bought off the establishment, including the regulators and prosecutors. Nobody but a few token outsider fall guys will see any prosecution - like Countrywide's CEO. But not the head of BofA or Goldman or JP Morgan. They got away with it. And they now are so rich they will never be touched.
Welcome to the Banana Republic of America, brought to you by 300 rich white guys on Wall Street. Game over.
As always, Digg it if you think it deserves more readership.
Copyright ©2009 Bob O'Brien
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37 comment(s) so far...
Re: What's Next For The US Economy, or What's Left of It?
Bobo, please keep us posted about your friends book. Thanks.
By Paul on
6/11/2009 1:51 PM
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Re: What's Next For The US Economy, or What's Left of It?
Will do. It is scholarly, but is as or more important in understanding the money trust that runs and has ruined the country than Creature From Jeckyll Island. It turns Keynesian theory on its head, disproving it effectively, and chronicles the history of the whole mess, through today's events. It is a profound, if disturbing, read.
By bobo on
6/11/2009 1:54 PM
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Re: What's Next For The US Economy, or What's Left of It?
I think the fact that this meltdown takes place just as America's largest generation is reaching retirement supports your analysis in a very disturbing way. When I see the talking heads now on CNBC it just makes me sick - the slick earnestness and the disingenuous carnival atmosphere - they're trying to crank everything up again. It's really disheartening.
By Binzer on
6/11/2009 9:31 PM
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Re: What's Next For The US Economy, or What's Left of It?
Bobo, the shareholders of USXP got rattled big time . everybody got shafted ..the only people who made money were the lawyers .Management fought the SEC(3500 lawyers) in the courts and got destroyed, no discovery , no jury trial ..nothing.
By tkalantzis on
6/11/2009 9:31 PM
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Re: What's Next For The US Economy, or What's Left of It?
The not so funny part of this is that in third world countries nobody is surprised when the government is bent. The populace gets it - just the way it is, absolute power corrupting and so on. Here, billions are spent on convincing everyone that it just ain't the same here. Guess what? Wrong. Human nature prevails.
Tough lesson, but better to learn it now.
By bobo on
6/11/2009 9:50 PM
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Re: What's Next For The US Economy, or What's Left of It?
So the question is, is how can we profit from this - invest in GS and be done with it?
By io on
6/12/2009 6:08 AM
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Re: What's Next For The US Economy, or What's Left of It?
who exactly are these 300 white guys? Names would help.
By captdale on
6/12/2009 2:18 PM
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Re: What's Next For The US Economy, or What's Left of It?
Compelling analysis. The critical questions raised by it for us, mortals are:
1. How does one limit the damage to one's assets, cash, etc. ?
2. When is this crisis likely to be brought to an end by the gods to be?
By cb on
6/12/2009 8:40 PM
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Re: What's Next For The US Economy, or What's Left of It?
Fair questions, cb.
1) I have no idea how to best avoid a global drain of value through trickery and theft. I think ultimately physical gold isn't a bad hedge to currency risk, as is owning a basket of currencies that aren't linked to dependency on exporting to the US - the swiss franc comes to mind. Make no mistake, this is a shitstorm, and my hunch is that by the end of it most will be wiped out, as happened in the Great Depression. Or maybe more likely, as happened between 1971 and 1980, when going off the gold standard took the dollar down about 96% in buying power. Think about it - in 1971, an ounce of gold cost exactly what it did in 1937 - the dollar bought as much 45 years later, so you could have stuffed your money into your mattress and suffered no negative effect. Then, within 9 years, it took 2 earners to own the same house as one could buy earlier, and the national buying power lost most of its oomph. True story. And now here we are. So what to do? Dunno.
2) If the Depression is any sort of lesson, expect a decade of extended "stupid" moves that further shift wealth from you, to them. You can't break the back of a 70 year run overnight. It takes a decade to create the sort of desperation that has main street selling assets just to feed the family. That doesn't happen in a couple of years. It will take a steady ratcheting up of taxes, and consolidation of federal government power, along with creation and solidification of monopolies for preferred cronies, to achieve the desired result, and that won't be over anytime soon.
Why not just enforce common sense property rights, and force settlement in the market before payment is made? Why funnel trillions to businesses that created the current calamity? Why protect the failed model that screwed the pooch, while avoiding any real change?
Because that isn't in your agenda. Really rather simple, really. The reason the SEC will create an "investor protection board" populated by hand-chosen choagies uninterested in any real protection, rather than simply enforcing the laws on the books, is for show. It's all to appear to be doing something under the new regime, while business as usual continues. More smoke and mirrors. More talk versus action.
I'll believe change is in the air when Dave Patch is sitting on that board, and prosecutions are being handed down to SEC personnel that committed treason. It won't happen. You won't see it in your lifetime. Just won't.
This has been going on for longer than anyone reading this blog has been alive. I fully expect it to continue. My personal feeling is that we are in the 9th inning.
We shall see. Sorry to be such a wet blanket. But them's the facts.
By bobo on
6/12/2009 8:56 PM
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Re: What's Next For The US Economy, or What's Left of It?
The unfortunate matter of fact is that the government is corrupt....from the White House to the State and local governments...totaly #$#$@& CORRUPT...and until that is addressed it's business as usual...just look at Albany New York....
By stryker-ny on
6/13/2009 4:23 PM
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Re: What's Next For The US Economy, or What's Left of It?
Reminiscent of Naomi Klein's, Shock Doctrine. Caution: may lead to despair. Thanks for the post.
By polar bear on
6/14/2009 12:57 PM
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Re: What's Next For The US Economy, or What's Left of It?
Thanks bobo. That helps heaps. Must say, your analysis is the only one that seems to fit the observable facts. As you say, the real agenda cannot be what the establishment claims it to be. People are not being helped, but instead, for all the efforts of the bankers and politicians to fix the problem, the population is being more and more squeezed. For all the talk and scaremongering we are seeing about money printing and hyperinflation, rather than being flooded, the real economy continues to be drained of liquidity. Not only are wages disappearing and falling, but even borrowing is becoming impossible.
If this continues, and signs are that it will, it will be a desperate and sorry world. Adding insult to injury is that the people who are being starved of liquidity now, are being saddled at the same time with trillions in debt for generations to come.
I will lose all faith in humanity if the architects of this travesty are going to get away with it.
By cb on
6/15/2009 6:39 AM
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Re: What's Next For The US Economy, or What's Left of It?
cb: You absolutely have to starve the populace of liquidity in order to force the sale of the plum assets for next to nothing. As I've said before, the real bargains don't happen until the populace has been literally starving for a decade. We aren't even close. Of course, we saw some early fire sales in the banking sector, when the largest retail bank presence in the country was bought for a giveaway in a "crisis". Expect far more of these sorts of, "huh?" moments over the next few years, as the rhetoric is all about stimulus, but the reality is tightening.
The way it was done in the depression was higher taxes, protectionist tariffs, and devaluation of the dollar, coupled with increasing margin requirements at banks (thereby draining circulation of yet more dollars) and the government hoarding tax revenues as opposed to redeploying them into circulation.
Today, we have the Fed secretly, and for the first time in history, paying interest on deposits, thereby eliminating any real reason for banks to deploy capital, except maybe by investing in T-bills for a sweet risk-free arbitrage. The system is now set up to keep money out of circulation. It's working, far as I can tell. Next come higher taxes, and then protectionist/nationalistic trade wars designed to strengthen domestic monopolies at the expense of free trade and general prosperity.
Wouldn't entirely surprise me if they made physical gold illegal again, although there isn't much basis for doing so, and they can accomplish the destruction of commodities values much more effectively via derivatives, which is how it's all done these days.
So look for continued and rising unemployment, deflation in assets even as the Fed prints more money but the banks hoard it, tightening credit for the same reason, and the entire media/government apparatus to pretend to not understand what is happening, even though the government and its banking masters engineered it.
And don't hold your breath for any investigations into Bear or Lehman or Fanny or Freddy or Wachovia trading to ever surface, nor any into oil manipulation. That's off limits, clearly.
Pretty F-d up world, but there you have it.
By bobo on
6/15/2009 6:51 AM
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Re: What's Next For The US Economy, or What's Left of It?
That's it, bobo, you said it. While all the talk is about stimulus and money printing, the actual setup is for the direct opposite: to drain and starve the broader economy of money.
And, I suppose, with all that hoarded money, if and when it suits the claptocracy, they can create massive price inflation by flooding the economy once again with cash, front running the hapless populace yet once again by having grabbed all the choicest assets, as you say, for pennies on the dollar.
Incidentally, I have just watched this video again. It pretty much confirms everything we have been discussing, and it is well worth watching.
http://www.youtube.com/watch?v=3pwAFohWBL4&NR=1
By cb on
6/15/2009 9:18 AM
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Re: What's Next For The US Economy, or What's Left of It?
This must be very bad for the SEC.. No? The heat is on and on evrybody related to the SEC!!!
6/15/09: Kanjorski Demands Immediate Update from SEC Inspector General on Madoff Investigation | Print |
Capital Markets Subcommittee Chairman Says: “The Time Has Come for You to Act”
WASHINGTON – Today, Congressman Paul E. Kanjorski (D-PA), the Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, sent a letter to U.S. Securities and Exchange Commission Inspector General H. David Kotz in which he strongly urges the inspector general to immediately provide a public update about his investigations into the failure of the Commission to detect Bernard Madoff’s Ponzi scheme and to offer recommendations for improving enforcement and closing legal loopholes that became apparent as a result of the $65 billion fraud. While Mr. Kotz previously pledged in testimony before the House Financial Services Committee that he would try to issue reports on a timely basis and move quickly on his investigations into these matters, five months have passed, and the SEC Office of the Inspector General has released very little information on these matters.
The text of Chairman Kanjorski’s letter to SEC Inspector General Kotz from June 15 follows:
Dear Mr. Kotz:
When the Obama Administration reveals its much-anticipated proposal for restructuring the financial services industry later this week, the debate in Congress on regulatory reform will begin in earnest. As part of one of our hearings on the fraud perpetrated by Mr. Bernard Madoff, you have publicly committed to provide us with your recommendations, based on your findings, for closing statutory loopholes and fixing our securities laws. Additionally, you pledged to act expeditiously in your investigations into the Madoff matter and to make public your results as they become available. Accordingly, please provide me at once with an update on your examinations on the failure of the U.S. Securities and Exchange Commission to detect the Madoff fraud and your suggestions for modifying our federal securities laws.
In your written testimony at the meeting of the Financial Services Committee in early January, you noted that the Office of Inspector General at the U.S. Securities and Exchange Commission opened an official investigation into the Madoff matter on December 17, 2008. You also said that you understood “that it is critical that our investigative efforts be conducted expeditiously.” Moreover, you noted that you were “considering preparing reports on a ‘rolling basis’ – assuming that we can identify discrete issues that may be resolved separately and expeditiously – so that some conclusions may be provided very shortly.” At these proceedings, you further testified that you were mobilizing additional resources to ensure that your office made “every possible effort” to complete “as soon as possible” its investigations and reviews.
Additionally, in response to one of my questions you indicated that you hoped to “be able to get something out in a matter of months, certainly not years.” When replying to yet another one of my questions, you also said “this is not something that we can sit and we can work on for years and years and years and then issue some 500-page report many years down the road.” You then added that you understood “absolutely” that this was “a matter that has to be dealt with immediately.”
Moreover, in the ongoing series of hearings of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises on these matters, I have sought to use the Madoff fraud as a case study for determining how to improve oversight of and investor protection in our securities markets going forward. In my questioning, I therefore specifically asked you expeditiously to provide information about your findings so that Congress could act to close loopholes and fix enforcement problems. In response, you said: “I agree with you, absolutely. … So, absolutely, as we can identify issues and we can thoroughly investigate them and come to a conclusion, we will absolutely issue a report.”
Six months have now passed since you began your investigations into the $65 billion Madoff Ponzi scheme. In addition, more than five months have ensued since you testified and made public commitments regarding these matters. To the best of my knowledge, the only information that your office has made public during these timeframes is a one-page summary of your Madoff investigations, as found in your most recent semiannual report to Congress for the period ending on March 31. While this brief discussion provided some helpful insights, I found it an inadequate response to my earlier requests and your prior public commitments.
In short, the time has come for you to act. Consistent with all applicable law and regulation, I therefore ask that you inform me of the progress your office has made in examining the shortfalls of the Commission in detecting the Madoff fraud and your expected timeframes for issuing reports on these matters. Additionally, I request that you provide your current recommendations for legislative action resulting from your Madoff investigations or your other examinations, as I am now actively working to develop legislation to modify our securities laws and build upon the reforms contained in H.R. 6513, the Securities Act of 2008, which passed the House last year.
In closing, I look forward to hearing from you on these issues no later June 30, 2009. Please also contact me if you should have any questions regarding these matters.
Sincerely,
Paul E. Kanjorski
Chairman, Subcommittee on Capital Markets,
Insurance, and Government Sponsored Enterprises
cc: Ms. Mary Schapiro
Chairman, U.S. Securities and Exchange Commission
http://kanjorski.house.gov/index.php?option=com_content&task=view&id=1558&Itemid=114
http://online.wsj.com/article/BT-CO-20090615-712361.html
By Sean on
6/15/2009 11:39 PM
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Re: What's Next For The US Economy, or What's Left of It?
Sean: Blah, blah, blah....
By bobo on
6/15/2009 11:40 PM
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Re: What's Next For The US Economy, or What's Left of It?
"Bob" I do happen to think we will have periods of relief, so more people will flood their remaining wealth into the scam. It is possible to chisel a few bucks out of the money grab, before the scamsters get it all. What else. Hang onto worthless dollars? Overpay for gold that probably wont be delivered? My favorite.. Escape to the south seas, while we can? There are several commodity producing spots left in the world.
By huck on
6/17/2009 11:40 AM
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Re: What's Next For The US Economy, or What's Left of It?
Bobo, I can have some hope can't I? LOL!!!
By Sean on
6/17/2009 11:41 AM
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Re: What's Next For The US Economy, or What's Left of It?
I will second that. All this argy-bargy among politicians and bureaucrats is nothing but a distraction. They are the trees that can block one's view of the forest. Behind all that is being said and done by the busybodies lies the critical reality that the real economy is being drained of its lifeblood, its means of exchange, its currency and money. Fresh supply is being choked off at every pass, and existing liquidity is being sucked out of the system at an accellarating pace. To assume that this is a mere accident, or just bumbling incompetence, would be too generous and naive. It is far safer to assume that the show is being run by the smartest crooks money can buy, and take whatever protective action you can, based on this premise, to lessen the impact on yourself and those you care about. That's my penny's worth.
By cb on
6/17/2009 11:41 AM
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Re: What's Next For The US Economy, or What's Left of It?
Fantastic summary, bobo.
My only confusion is the way in which Goldman and JP Morgan also nearly got wiped out by the crisis last year. Was that all just show too? Didn't they also nearly take themselves beyond the brink?
By Bob on
6/17/2009 11:42 AM
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Re: What's Next For The US Economy, or What's Left of It?
Bob. With Hank P at the helm of Treasury, there was basically exactly zero chance of JPM or Goldman going down. So yes, it was mostly for show. Just as some of the hedge fund guys who are boo-hooing over their big down year, while not discussing their shadow funds offshore that are up hundreds of percent. It's all lies and distraction. You can't believe an iota of what is said by Wall Street, ever, under any circumstances.
And that is the tame version.
By bobo on
6/17/2009 11:45 AM
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Re: What's Next For The US Economy, or What's Left of It?
Thanks again, bobo. I appreciate you taking the time to answer these questions. I thought I already distrusted everything out of Wall Street but it seems that I need to lower my expectations further ("he's reached rock-bottom and begun to dig").
My other point of confusion is the "300 white guys" idea. I've read up on the CFR, Bilderberg, etc. and I'm open to the idea of how much influence they wield. However, Russia and China are really starting to jockey for a greater slice of power and yet they do not appear to be part of those insider clubs, at least not in the inner inner inner circles.
Perhaps the Russian oligarchs are happy to buy bigger yauchts but how does China fit into all of this in your opinion? The USD looks to be toast and it's decline will surely reduce the power of the money trust led by the insiders controlling the US Fed. I know the insiders consider themselves to be international and have the IMF, World Bank, virtually all of the central banks, all media and enormous armies to back them up but what do they do when China becomes more powerful? I know that the insiders bankrolled China's development financially and more importantly transferred the rights to use western technology but I just can't see China being anyone's bitch too much further into the future. Where does this leave the "300 white guys" in 10 years?
Thanks again.
By Bob on
6/17/2009 7:03 PM
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Re: What's Next For The US Economy, or What's Left of It?
Bobo, becareful what you ask for...LOL
Commentary: Awaiting the Next Pecora Commission
By Stephen J Nelson; The Nelson Law Firm, LLC
June 13, 2009
On May 20, 2009, President Obama signed into law the "Fraud Enforcement and Recovery Act of 2009 (FERA)," legislation enacted in response to the financial crisis by an overwhelming vote of both houses of Congress.
As one might expect, the Act raises penalties for financial fraud, expands the reach of government agencies, including the SEC, to investigate fraud, and expands the type of instruments that would be covered by existing prohibitions on fraudulent activities. It is a typical legislative response to ramp up enforcement resources in response to notorious criminal behavior. Old movie buffs will recall that the good citizens of Dodge City hired Wyatt Earp when things had gotten out of hand.
FERA also creates, within the legislative branch, the Financial Crisis Inquiry Commission to determine what caused the current financial crisis. The establishment of the Commission is intended to recreate the success of the famous Pecora Investigation, which examined the causes of the First Great Depression.
There actually was no "Pecora Commission."
On March 4, 1932, the Senate Committee on Banking and Currency launched an investigation into the causes of the 1929 Market Crash. The Senate at the time was Republican controlled, and Democrats charged that the whole thing was a white wash. In 1933, the now Democratic controlled Senate hired Ferdinand Pecora, a New York assistant district attorney, to write the final committee's report. He found the investigation was incomplete, and asked for an additional month of hearings.
Pecora conducted the hearings loaded for bear. His expose of National City Bank (now Citibank) caused the resignation of its president. Under Pecora's grilling, JP Morgan admitted that he, and many of his partners, had paid no income taxes in 1931 and 1932, resulting in a huge public outcry.
But the greatest success of the Pecora investigation was its public exposure of a wide range of abusive practices by banks and their affiliates. Among other things, Pecora was able to place on the public record evidence of banks underwriting unsound securities to pay off bad bank loans and pools created to support market prices of bank stocks.
The hearings resulted in massive public support for new regulations. Congress responded by passing in rapid fire order the Glass-Steagall Banking Act of 1933 to separate commercial and investment banking, the Securities Act of 1933 to set penalties for filing false information about stock offerings, and the Securities Exchange Act of 1934, which formed the SEC to regulate the stock exchanges.
The FERA Commission has been charged to examine a list of twenty-two potential causes of the financial crisis. Among other things, these include the failures of federal and state regulators, monetary policies, global imbalances in savings, trade flows and fiscal imbalances of various governments, accounting practices, tax treatment of financial products, lending practices and securitization, derivatives and short selling. Compensation is on the list twice, as compensation structures generally and compensation for employees of financial services firms in particular. Finally, the Commission is required to examine the causes of each major financial institution that failed, or would have failed without exceptional governmental assistance.
To accomplish all of this, the Commission is empowered to hold hearings, subpoena witnesses, and retain staff, including consultants. I expect the Commission will seek outside legal help, and if so, we will submit our application to assist the Commission in its work.
Will the FERA Commission match the success of the Pecora Investigation? If so, we should see a substantial change in financial services regulation in the wake of its final report.
One thing that makes this seem unlikely is that the Commission's report is due on December 15, 2010. The Obama administration, as well as the relevant Committees in the House and Senate, seemed determine to introduce legislation later this year, a full year before the Commission's work is complete. If this effort succeeds, the FERA Commission's report will be anticlimactic.
Rumors emanating from the House and Senate, as well as the White House, suggest that the zeal for regulatory reform has diminished, as the economic outlook appears to be brightening. The legislation developed this year will reflect economic conditions. If the favorable economic trend continues, the vaunted reforms that result from the crisis are likely to be fairly modest.
On the other hand, if the current improvement in financial conditions is temporary, we may be knee-deep in financial tragedy next year. The FERA Commission's report in 2010 would then be very timely and result in a regulatory upheaval. As is so often the case, events on the ground will determine the outcome.
*****
Stephen J. Nelson is a principal of The Nelson Law Firm in White Plains, N.Y. Nelson is a weekly contributor and columnist to Traders Magazine's online edition. He can be reached at sjnelson@nelsonlf.com
By Sean on
6/17/2009 7:05 PM
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Re: What's Next For The US Economy, or What's Left of It?
I got a feeling that this ain't gonna pretty for the bad guys....
Preview of a Coming Attraction: Michael Milken, 60,000 Deaths, and The Story of Dendreon
Posted on 18 June 2009 by Patrick Byrne
For some months Mark Mitchell has been working on his next piece. It has grown into something massive, about the length of The Story of Deep Capture. It concerns Dendreon. I read it for the first time a few days ago. It is semi-infuriating. Deep Capture is going to serialize it. The first piece will be going up within hours.
Normally we encourage people to quote any DeepCapture piece in full anywhere on the Internet. This time, however, I would appreciate it if people would show Mark Mitchell a little courtesy by not quoting his piece in full. Fair Use, and all that. If you like what you read, try to drive others to DeepCapture to read it. Mark has gone way down the rabbit hole, and I think it only fair to thank him by showing him this respect.
Incidentally, I feel it only prudent to mention that, on the remote chance that anything happened to interrupt the serialization of this piece on DeepCapture (say, for example, a power failure), then arrangements have been made for it to receive immediate publication in a way that would reach many millions of people, instantly. The whole package is already in the hands of some politicians who care. The reader who gets but a few pages into it will understand why I make this cautionary mention.
And lastly, to the supporters of Dendreon, including the Care to Live organization, I say: Much honor to you. This piece is much like The Story of Deep Capture, only even better, as it concerns not the travails of some guy in Utah who sells toasters, but those of people trying to cure cancer. It is, you will see, uber-complicated: I hope you print it out, take your time, and enjoy it (if that is possible with so infuriating a tale). It is, I think, the investigative journalism for which you have been waiting, of which our MSM is, by all appearances, no longer capable.
Regards to all,
Patrick M. Byrne
http://www.deepcapture.com/preview-of-a-coming-attraction-michael-milken-60000-deaths-and-the-story-of-dendreon/
By Sean on
6/19/2009 7:22 AM
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Re: What's Next For The US Economy, or What's Left of It?
A sign of things to come!!!
Breaking News: Stanford Surrenders to FBI...
http://online.wsj.com/home-page
Breaking News: Financier R. Allen Stanford surrenders to FBI; Stanford, who faces federal criminal charges, expected in court Friday
By Sean on
6/19/2009 7:23 AM
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Re: What's Next For The US Economy, or What's Left of It?
Bobo - Thank you once again for a concise exhaustive treatise on the truth of the matter. Disheartening to say the least. I do believe I will not see any real change in my lifetime. Just not going to happen. I thought that a meltdown would have the effect of fixing it so I actually hoped for it but it just is not so. The apathy is even more than before if thats possible. The public is still in love with the administration which can do no evil so its same-o same-o. Until that love affair changes nothing will change. At this point I have no idea what it will take to "make it all better" but whatever that is , I fear it will not be pretty. World domination of the masses, ruled by a chosen few is my guess. It is past the tipping point......
By captdale on
6/19/2009 7:24 AM
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Re: What's Next For The US Economy, or What's Left of It?
Sean, I reckon this is just more blah, blah, blah. You can have all the best laws in the land and see no change for the better if, and while, crooks continue to run the show. All these laws and regulations that they are proposing and are going to introduce will likely be used to further tighten the noose where the fat cats want it to be tightened -- nothing more.
In the name of a newfound financial prudence, borrowing by increasingly desperate people and businesses will be choked off with seemingly sensible justification. But the bigger picture is that a debt-based system of monetary origination, if the banks don't lend, then there will be less and less money left in the economy, starving it of its very lifeblood, its means of exchange and trade.
Would love to be proven wrong, but don't think so. At least this is how it should play out, if bobo's analysis is anywhere near the mark. So far, all signs are that while all the talk points up, up, up, all the action is down, down, down.
By cb on
6/19/2009 7:21 AM
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Re: What's Next For The US Economy, or What's Left of It?
Here is a link to a booklet that the Federal Reserve out of Chicago published some time ago and took off the shelf as they did not think the general public should be reading it. The name of the booklet is "Modern Money Mechanics".
http://www.rayservers.com/images/ModernMoneyMechanics.pdf
By captdale on
6/20/2009 11:54 AM
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Re: What's Next For The US Economy, or What's Left of It?
Not being a US citizen, If you are unhappy about what has gone on, might I suggest doing something about it. Get together with as many sites as you can and organise a national day of protest. Then march on Washington and demand action. From an outsiders view it's pretty clear to me that regardless of what side of politics you're on you all appear to be P***ed off.
What's happened in the US, what's happened to that can do attitude you have. You've done it before and you can do it again.
You can do it just use some of that Yankee Ingenuity that the rest of the world admires so much. Imagine 30 or 40 million peaceful marchers descending on Washington just takes someone with enough initiative to organise it.
By Clive on
6/20/2009 11:54 AM
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Re: What's Next For The US Economy, or What's Left of It?
How bizarre...someone who actually tells the truth.Thank you for your hard work.
Personally, I am hoping the criminals go to jail...but they are so well connected it seems impossible.The giant transfer of wealth has been going on for a long time, and it needs to be stopped.If only more people would listen!And act.
By Cistercian on
6/20/2009 11:55 AM
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Re: What's Next For The US Economy, or What's Left of It?
http://www.scribd.com/doc/16750352/Goldman-Sachs
This article explains the history of the manipulation and how things are done...excellent article.
By mhelburn on
6/25/2009 3:50 PM
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Re: What's Next For The US Economy, or What's Left of It?
The Goldman Sachs piece cited by MHelburn on 6/25 is no longer there-- but I think it is still here: http://www.alternet.org/story/140806/
"This isn't really commerce, but much more like organized crime: it was a gigantic fraud perpetrated on the economy that wouldn't have been possible without accomplices in the ratings agencies and regulators willing to turn a blind eye. Imagine a meat company that bred ten billion rats, fattened them on trash and sewage, ground their bodies into chuck, and then sold it all as grade-A ground beef to McDonald's and Burger King, right under the noses of the USDA: this is exactly the same thing, only with debt instead of food. We're eating it, they're counting the money."
"Suck on Our Yachts": Goldman Sachs Issues Non-Apology for Destroying the World Economy
By Matt Taibbi, True/Slant
By CALL TO ACCOUNT on
6/26/2009 11:43 AM
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Re: What's Next For The US Economy, or What's Left of It?
Well, we now have higher taxes disguised as enviro-friendly planet stewardship, as well as de facto tariffs - remember that to achieve and extend the Great Depression for a decade, the government had to raise taxes, impose stiff tariffs, allow naked short selling to destroy the market, raise margin requirements at banks (thereby taking far more dollars out of actual circulation), and recycle the new higher tax revenues into buying gold overseas then hording it, as opposed to putting it back into the economy.
Any of these now not replaying? I enjoyed one newsletter from an inveterate gold bug, who correctly pointed out that the US had the largest supply of gold at the end of WW2 - he just skipped the step where he could have wondered aloud as to how that happened after a devastating 10 year depression, and destruction of most of the planet's industry.
History of course repeats, especially if most are ignorant of it.
By bobo on
6/26/2009 9:06 PM
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Re: What's Next For The US Economy, or What's Left of It?
bobo: what is your take on this carbon trading idea now being pushed so heavily by the establishment? If you look beyond the argy-bargy and the spin, and consider instead its overall effect, isn't it just another platform for sucking liquidity from the economy?
If it is, its time frame would seem to point to the slow-motion train wreck scenario, the longer-term, patient plan and trend you have been suggesting.
And, come to think of it, the process has to be slow, so that individuals and various sections of society can adjust and bit by bit accept the new status quo. Too rapid a change would run a fairly high risk of rebellion from the people, but if you cook them slow, they are less likely to fight back, or jump, for their lives.
On Deep Capture: I have just finished reading the Intro. Incredible stuff, and should I say, pretty depressing. And especially when you think of it this way, that the larger picture we are facing is entirely analogous:
OUR WEALTH AND WELLBEING FOR GENERATIONS TO COME IS BEING NAKED SHORTED BY THE CLAPTOCRACY BEFORE OUR VERY EYES.
So much for our freedoms and democracy.
Finally, back to carbon trading: The trading method seems to be pushed, rather than a simple carbon tax, which would come with much cheaper overheads. It will be good for the brokers and the traders, I suppose, and will open another market for the crooks, who will have an additional market to loot through naked short selling.
By cb on
6/27/2009 6:37 AM
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Re: What's Next For The US Economy, or What's Left of It?
Want to know who was the biggest benefactor of Bernie Madoffs ponzi scheme? Read this..
MSM is now on this, somewhat…
http://www.msnbc.msn.com/id/31510209/ns/business-small_business//
“Between December 1995 and December 2008, Picower and his family withdrew from their various Madoff accounts $5.1 billion more than they invested with the self-confessed swindler, according to a lawsuit filed by the trustee who is trying to recover money for those Madoff defrauded.”
Reply
By Sean on
6/29/2009 10:56 AM
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Re: What's Next For The US Economy, or What's Left of It?
I can't figure out how to get this to Bud Burrell - he should read this - especially the ending
http://www.scribd.com/doc/16752803/The-Great-American-Bubble-Machine
By Paul on
6/29/2009 10:57 AM
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Re: What's Next For The US Economy, or What's Left of It?
What's it gonna take. An act of God to get these "other " policians to do their job and represent we the people and not the people of Wall Street?
Than Heavens for this man..
Sen. Kaufman again zaps SEC
Kaufman: SEC Decision to Ignore Madoff Signs Latest Example of Culture in Need of Change
July 2, 2009
Sen. Ted Kaufman (D-DE) released the following statement following reports of an internal Securities and Exchange Commission (SEC) decision to disregard suspicions surrounding Bernie Madoff's business practices as early as 2004:
"This is just more evidence of the serious mistakes made by the SEC in recent years. From the flawed decisions to permit massive increases in leverage at banks to the repeal of the uptick rule to failures to regulate rating agencies or stop abusive short selling - this is the latest example of a culture at the SEC to treat those it's intended to regulate as clients rather than protect investors.
The five current commissioners need to admit the mistakes in the past and act decisively to change the SEC. I've yet to see them reevaluate these bad decisions in an objective manner and establish clearly that a new day has arrived. The first thing the SEC can and should do is properly deal with abusive short selling by reinstating some form of the uptick rule and a pre-borrow requirement on short sales. I will continue to push the SEC to stand up for investors by adopting clear rules and enforcing them aggressively."
http://kaufman.senate.gov/press/press_releases/release/?id=9289c780-a17a-4ddb-af18-d8cd731e1806
By Sean on
7/5/2009 12:34 PM
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