E-mails Suggest Bear Stearns Cheated Clients Out of Billions

Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering. Last week a lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was unsealed. The lawsuit’s supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a “sack of shit.”

Link to full article.

Fraud? What fraud?

Professor von Braun
The Rocket School of Economics
October 16, 2010

It is of interest to see references to the current mortgage foreclosure debacle as “the greatest fraud of capital markets ever perpetrated.” There may be little doubt that within the US, a breakdown in the securitization of title for the purposes of debt issuance has taken place. Who owns what, one might well ask?

But to suggest that this is the greatest fraud of capital markets “ever perpetrated” does show a lack of understanding of two things, one being what is “capital” and the other being the term “ever perpetrated.”

Today’s financial system had its beginnings way back in 1913, when Congress passed the Underwood/Simmons Tariff Act on October 3, and then, on December 23rd, voted and passed the Federal Reserve Act, which created the Federal Reserve. Income tax was introduced along with central banking.

Gold remained as the anchor of this new system, valued at $20.67 per ounce and the new Federal Reserve notes were exchangeable for gold. But gold was there first and as J P Morgan has been quoted as saying “gold is capital, all else is credit.”

The seeds of the chaos that we are seeing today within the global central banking system were planted in that last quarter of 1913. That was the beginnings of the expansion of the fractional reserve banking system and of the removal of actual capital from within the banking system itself.

Now we all know what happened in 1929 when the stock market collapsed and the “Great Depression” began. Mr. Fiat took a tumble, banks went broke, lots of undocumented loans, real estate prices collapsed, etc, etc. Sound familiar?

But throughout this period gold remained as the basis of the monetary system, and $20.67 would still get you an ounce of gold. There was a tangible aspect to the paper that was issued, but not for long.

On April 5, 1933, then President Roosevelt issued an executive order confiscating all privately held gold within the United States. Penalties for non-compliance included an up to $10,000 fine or 10 years in jail or both. Shortly afterwards FDR raised the price of gold to $35 per ounce and only other central banks could swap US $’s for real capital, gold.

Then in 1944 the Bretton Woods agreement foisted the idea upon the general public that the US $, should become the world’s reserve currency as the US had the gold to back it up and surplus trade generated US $’s could be converted into physical metal by other central banks.

This ‘sort of’ worked through to August 1971, when then President Nixon closed the gold window completely, following a run on the US gold, predominately by European Central banks, such as France, Italy, Germany & Switzerland. The US ‘official’ gold holdings were reduced from a peak of 20,000 ton to today’s reported levels of 8000 ton. The Europeans were doing the same thing to the US that FDR did to the citizens of the US when he confiscated gold in 1933, as in they were after capital rather than holding promises to pay. Once the gold window closed then ‘officially’ these promises in the form of US $ notes became promises to pay promises.

Over a 58 year period,(1913-1971), gold was ‘officially’ squeezed out of its role as the underlying ‘asset’ of the monetary system, to such a degree that not even other central banks could ‘officially’ redeem their US $ ‘reserves’ for anything other than nothing. Now if that is not a gigantic fraud then what is?

By the end of 1979 the gold price was nearing $850 per ounce, which was a 24 fold increase from the ‘official’ 1933 price of $35. As JP Morgan said, gold is capital and the ‘price’ of capital had increased, which is of course what we are seeing today with gold at $1350 per ounce.

Things seem to move slowly in the central bankers world and it was not until 1999 that the European central bankers introduced their very own version of the non redeemable currency unit, the Euro. While the Euro was deemed to have a gold component the majority of its ‘asset’ backing was US $ reserves, the same reserves that really are not reserves at all.

Japan of course had gone through its own peculiar set of circumstances with the 1989 collapse of the Nikkei, followed by a banking collapse which saw the BOJ prop up its economy via the issuance of as many yen as was required. The BOJ is of course still doing this 21 years later, nothing in Japan has been settled and now the citizens of Japan are about depleted when it comes to their savings. Sound familiar?

The global collapse of 2008, the ‘event’ that removed many old name US investment banks from the financial scene, the Lehman’s, Bear Sterns of the world, also hit the ECB member states and the ECB too had to turn on the central bank spigot, as did the Bank of England.

The financial news services seem to be an ongoing source for the dissemination of untruths when it comes to monetary matters. They talk about the recapitalization of the banking system but with what is the banking system going to use to ‘recapitalize’ anything when they have no capital? Any good accountant will or should, tell you that you can’t have liabilities on both sides of a balance sheet. If you do then it is an out of balance ‘balance’ sheet.

Today the wild card in all of this is China. China has become the largest ‘official’ holder of US $ denominated reserves in the central bankers world of worthless paper and what are they going to do with this stash? To some degree they followed Japan and have made the same set of mistakes, building an industrial base, targeting the US market, creating ‘cheap’ goods and swapping the proceeds for debt.

Now of course the US consumer is also tapped out, as rising real estate prices due to the over inflation of paper ‘assets’ appears to have ended, which brings us back to the US foreclosure debacle.

Mr. Bernanke can talk quantitative easing as often as he needs to, but from a practical point of view he is whistling in the wind. Where the money needs to go, back in to the hands of the consumer, is no longer accessible, via the traditional means of home equity loans and credit card issuance and limit extensions. Now we are seeing what is being referred to as ‘credit contraction.’

What this means is that the tide is going out and Mr. Fiat is now stuck high and dry. He has no capital!

It could be said that, since 1913, the role of global central banks has been to steal the capital of its citizens and to this degree they appear to have been very successful, but their enthusiasm may have outstretched the practicality of their politically assisted endeavors to such a degree that all fiat banking systems are about to fail. Another way to put it is that the trillions in debts can never be repaid because there is nothing to repay it with!

Personally I would categorize this ongoing systemic theft of capital as the greatest fraud of capital markets ever perpetrated upon any local populace, anywhere.

The JP Morgan Effect

by Bill Bonner
London, England

What a marvelous flimflam! So obvious…and yet so effective! It’s a pleasure to watch.

Yesterday, the Dow soared over they 10,000 mark. If it keeps going at this rate – up 144 points yesterday – it will soon equal the post-’29 bounce. All we need is two more days and we’re there.

Oil rose over $75. Gold closed the day at $1,064, after a big move to the upside over the last few days. And the dollar fell – to just $1.49 per euro.

The reason for yesterday’s big move is announced on the front page of almost every financial rag this morning:

“JPMorgan profits lift the Dow.”

JPMorgan, the Wall Street firm that was bailed out by the feds a year ago, reported income of $3.6 billion in the 3rd quarter. With that kind of profit in the financial sector, it won’t be long before the whole economy is running red hot, right?

That’s what the papers seem to think. The International Herald Tribune says the bank’s profits are just another sign that a major recovery is underway. Investors seem to believe it, too. “Earnings optimism,” is behind the buying, says a broker.

But is it true? Is the real economy growing, expanding, and making money? Let’s look:

“Still on the job, at half the pay,” is a headline in The New York Times. It tells the story of an airline pilot whose position has been downgraded and whose pay has been cut in half. The fellow is now earning $30,000 a year rather than $60,000. He is not counted in the unemployment statistics but he has much less spending power than he had a year ago. Practically all his discretionary spending power has been wiped out.

The NYT:

“The Bureau of Labor Statistics does not track pay cuts, but it suggests they are reflected in the steep decline of another statistic: total weekly pay for production workers, pilots among them, representing 80 percent of the work force. That index has fallen for nine consecutive months, an unprecedented string over the 44 years the bureau has calculated weekly pay, capturing the large number of people out of work, those working fewer hours and those whose wages have been cut. The old record was a two-month decline, during the 1981-1982 recession.

“What this means,” said Thomas J. Nardone, an assistant commissioner at the bureau, “is that the amount of money people are paid has taken a big hit; not just those who have lost their jobs, but those who are still employed.”

All over the country incomes are falling. Officially, about 15 million people have no jobs. Many others have given up looking for jobs. And now, for the first time ever, more than half of those who lose their jobs run out of unemployment benefits before they find another one. Many others never get any benefits at all, because their jobs are not eliminated, they are merely cut back…either in the number of hours they can work or in the compensation itself.

Yesterday, we reported that Baby Boomers are actually working longer hours…but earning less. The boomers are in an especially tight spot. They’ve got only a few years to save money for their retirements…and it won’t be easy in this slumpy economy.

And we reported the plight of the callow youths…whom BusinessWeek has called the “Lost Generation.” Their unemployment rate is twice the national average. They’re at the bottom of the labor pool, and unless the economy begins to expand they’ll have a very hard time finding the bottom rung of the ladder.

Take all the people who are unemployed…who are working fewer hours…who have given up looking for work…whose positions have been downgraded…and add the family members who depend on them for their daily bread…and you have nearly a quarter of the population. How can companies expect to increase sales and profits with a quarter of the population forced to cut back severely?

They can’t. The earnings numbers are misleading. Most of the earnings that we’ve seen come from cost cutting, not growing top-line sales. How do businesses cut costs? By trimming employees! In other words, the earnings figures we’re seeing are contributing to the slump…not alleviating it.

You can see how, in the short run this can lead to increased profits. But it can’t go on for long. The more businesses cut costs the more their sales go down, because consumers (who are also their employees) have less money to spend.

And according to a Wall Street Journal report, with too much capacity…and falling sales, businesses “are hesitant to reinvest such profits into their businesses.”

That’s why business investment, as we reported two days ago, is falling even faster than sales. And it’s why people who are looking for a job are going to have a hard time finding one.

But let’s return to JPMorgan…after the news:

“US foreclosures jumped to an all-time high of 937,840 in the third quarter,” writes Ian Mathias in today’s issue of The 5 Min. Forecast. “That’s a 23% rise from the same time last year, says a report from RealtyTrac today. One in every 136 households received a filing – also a record. Once again Nevada takes the cake… An incredible one in every 23 households was in some form of foreclosure last quarter.

“And they tell us the economy is recovering?

“But here’s the kicker – a theme that should be no surprise to 5 Min. loyalists: This isn’t about subprime anymore. The most recent data from the Mortgage Banker’s Association claims subprime mortgages currently account for hardly a third of foreclosure starts, down from 50% last year. Prime loans – the gold standard of the mortgage biz – now take up a 58% share.

“Even the foreclosure scene in terms of home prices has been turned on its head. Check it out:

“About 35% of home foreclosures occur in the bottom third of the housing market, says zillow.com, down from 55% in 2006. In June, the most recent data available, 30% of foreclosures were in the top tier – nearly double the rate from the year before.

“And the icing on this rotten cake: Option ARMs. This pending rate reset crisis – which just about everyone ‘in the know’ saw coming in early 2008 – looks like its really going to happen. 46% of option ARMs are currently 30 days past due, despite the fact that just 12% have reset to higher payments. Resets for the rest of those ARMs are right around the corner.”

And back to the House of Morgan:

How did JPMorgan earn so much money in such a bad economy?

We begin with a bit of skepticism. After all, we know consumers aren’t borrowing. Consumer credit is going down. So they can’t be making money there. And we know businesses aren’t expanding, so they can’t be making money by lending to corporations either.

Wait a minute. JPMorgan is a bank, right? Don’t banks make money by lending money? Yes…that’s what we thought. Then who is JPMorgan lending to?

The only net borrower is the government.

The Financial Times confirms that Morgan’s “US consumer businesses continued to bleed, with its credit card unit losing $700 million in the quarter and its retail bank…barely breaking even.” It wrote off $7 billion in uncollectible consumer loans – more than twice as much as last year.

Its mortgage group lost money too. And it surely didn’t make any money helping US business build new factories and expand payrolls.

So what does that leave? All the components of the business that have to do with the real economy are losing money or barely breaking even. What’s left?

The news reports attribute the huge profits to “trading.” But trading is a broad category. And our guess is that if you look more closely you will find that JPMorgan made its money the old fashioned way – by ripping off the government.

‘You mean, JPMorgan took the feds’ money and now is showing huge profits because it is just lending money back to the people they got it from? ‘

Yes. But not only that. They’re also probably speculating on gold, oil and stocks…along with everyone else. The feds’ money has pushed all these speculative trades into profit.

‘And now, they’re going to pay themselves big bonuses, aren’t they?’

Yes. The papers tell us, “bonuses explode on Wall Street to a new record.”

‘So, then…when the next crisis comes…they won’t have any money in the banks, will they?’

Nope.

‘So they’ll have to get bailed out again.’

Yep.

‘But maybe the next time the feds will wise up and just let them go broke.’

Not a chance. Wall Street has plenty of friends in the highest places in Washington. A report in today’s media tells us that “Geithner Aides Reaped Millions Working for Banks, Hedge Funds.” The aides earn about $150,000 for their government work. On the side, they advise the financial firms they’re supposed to be regulating, and get paid millions.

Such a nice relationship. They make sure Wall Street prospers – even when it does stupid things. Wall Street makes sure they prosper – even when they advise the government to do stupid things. And when their gig is over in Washington they go back to Wall Street where they earn millions more. America’s centers of political and financial power have a cozy little game going. It won’t end any time soon. It’s too profitable for both of them.

Blair bank targeted in £8.5bn FSA probe

JP Morgan Chase, whose chief executive Jamie Dimon last year recruited the former prime minister as an adviser, is being investigated by the City’s watchdog, the Financial Services Authority for allegedly failing to keep track of £8.5bn of clients’ money.

The FSA has called in a top firm of accountants to examine the bank’s London activities after evidence emerged that JP Morgan had mixed customers’ funds with its own.

Banks are meant to maintain a strict segregation of their own money from that which is held on behalf of clients.

But JP Morgan managers in London discovered last month that client and bank money used for trading futures and options – a way of speculating on movements in currencies, share prices and commodities – had apparently been put into a single pool.

Link to article:

http://www.thisismoney.co.uk/markets/article.html?in_article_id=489457&in_page_id=3

One Man’s Take on Obama and the Economy

U.S. Economy: The Cancer is Still There

By Glen Ford

May 19, 2009  — “Obama will be remembered more for his massive transfers of national wealth to the finance capitalist class, than as the first Black president of the United States.”

How does one restore the Lords of Capital to their former positions as dictators of the U.S. and global economies, while keeping their seats warm as de facto political rulers of the American state? Saving the finance capital oligarchy has emerged as President Obama’s central mission – the guiding focus of his young administration. Obama has found new and myriad ways to go where no American president has ever gone before, in funneling somewhere around $13 trillion of national treasure to the parasitical class that goes by the shorthand, Wall Street. By March of this year, the federal government and the Federal Reserve had “spent, lent or committed” $12.8 trillion to the banksters, according to the Bloomberg financial news service. That amounts to 90 percent of the Gross Domestic Product of the entire United States economy for last year. Let us put it another way: Mostly under the auspices of Barack Obama’s administration, the value of nearly every good and service produced in the United States in 2008 has been, in one way or another, put at the disposal of a tiny financial oligarchy.

This is the kind of overarching reality that defines, not just presidencies, but eras. In the cold assessment of history, Barack Obama will be remembered more for his massive transfers of national wealth to the finance capitalist class, than as the first Black president of the United States.

President Obama has chosen to use the limited resources of the current and future United States – $13 trillion so far – to prop up a criminal class.

The primary beneficiaries of this history-shaking generosity are the same banksters that brought about the economic meltdown through their monstrous invention, the derivative. This fictitious capital – derivatives – created to facilitate gambling on a scale that far exceeds the productive capacity of the entire planet Earth, is a cancer that Barack Obama has chosen to feed, rather than cut out. As F. William Engdahl points out in a recent article, five U.S. banks are the biggest repositories of toxic derivatives: JP Morgan Chase, Bank of America, Citibank, Goldman Sachs and Wells Fargo-Wachovia Bank. Together, these five Banksters of the Apocalypse hold derivatives with the notional value of $193 trillion. That is more than three times the value of the real economy of the whole world – which is about $60 trillion.

These deadly derivatives continue to sit there, immovable, in these five fatally stricken institutions. There are not enough trillions existent in the national or world economies to absorb these fatal instruments. There is nothing rational to do but to wipe the obligations, and their holders, off the face of the Earth, in order to save the real economy. Instead of feeding the cancer, a rational government would use the people’s wealth to create public institutions to dispense credit and guide economic development. The bankster gamblers would be consigned to the dustbin of history – and good riddance. But President Obama has chosen to use the limited resources of the current and future United States – $13 trillion so far – to prop up a criminal class. All the manufactured hoopla about stock market rallies and phony stress tests is intended to mask the central truth of our time: the derivatives cancer will eat away at the real economy until the class that spawned it is cut away, and flushed out of existence.

It’s All About The Money!

As I listen to the Wall Street pundits today, their latest line is about “the inevitable rally” that they claim is coming.  One guy went so far as to pronounce on TV that “the market is severely oversold”. Anything is possible in the stock market, because it’s driven as much by emotion as fundamentals, but I wouldn’t count on seeing a substantial uptick anytime soon.  Mostly I expect that recovery will be snail-slow, after further decline, and we’ll see DOW 4000 or 5000 much sooner than 8000. I also expect that there will be many more “surprises”.  Sure hope I’m wrong – but don’t think so.

 

With all the talk about the RESULTS of the economic downturn – manufacturing drops, real estate contraction, lost jobs, etc. – it’s hard to keep track of the CAUSE.  It’s all about the money!

 

The mess the financial institutions created has frozen liquidity.  Economies run on money.  Without credit, the whole thing comes to a screeching halt.  That’s where we are now.

 

I talked in an earlier article about one analysis which has 700 US banks in trouble, with 150 in danger of failing this year.  It’s common knowledge that Citi is in deep trouble, and apparently sliding by the day.  GE’s a mess. The rumor mill has JP Morgan in deep, deep trouble.  Who knows which finance house is next?  We can’t measure the full extent of the problem because it’s a state secret – the banks, the Fed & the government aren’t talking.  We can’t even find out who already got bailouts, or how much; because the government in its infinite wisdom has decided that the info. should be confidential.  We also know that overseas banks are in trouble, and the forex/derivatives/debt mess in Eastern Europe is threatening to spill over, bringing a whole new set of problems measurable in $ Trillions.  All these banks are intertwined.  If a big foreign bank goes, what will be the effect here in the US?

 

Here’s the problem.  Without credit we can’t do business and we’ll just continue to slide.  In order to get credit moving again, the government has to spend more money bailing-out the finance houses (the bailouts so far have had little positive effect).  I strongly suspect the problem is much bigger than the public is allowed to know, and it will really come down to a question of whether the government can “print” enough dollars to break the logjam without destroying the dollar in the process.  Then there’s the little problem of getting someone to buy all the government debt created in the process.  The foreign governments that have been financing us for years are in trouble too.  Even though our economies are all intertwined, someone might decide to follow a different path of self-interest.  If that happens, we’re in big trouble.  I can’t remember a time when our country was more vulnerable to foreign “blackmail” than now.

 

Until the credit logjam is resolved, all other questions of economic health are on hold.  We, and the world at large, will continue to decline.  Obama’s plans won’t do squat without a credit thaw.  The portion of his package dedicated to the finance mess is just a drop in the bucket – barely an opening gambit.

 

There are always business opportunities; in any economy.  I mentioned one I like in my last article.  But now is not a good time to buy into the “Wall Street propaganda”.  It’s dangerous out there, and declining daily.  Be very, very careful.

 

We just need to hope that our secretive government & Fed can get a handle on the liquidity freeze.  Once they do, we need to hope that inflation & taxes don’t eat up our remaining wealth.

 

Buy Gold.