Why Aren't These Wall Street Crooks in Jail?

Another Brick in the Wall:
Why Aren't These Wall Street Crooks in Jail? 
Ed Pawelec 


Imagine if you will that you are walking down the street flush with pay day cash when a mugger steals your wallet.  Several people witness this theft, and all are willing to testify on your behalf.  Unfortunately, the cop who apprehends our felon, rather than slap cuffs on him, suggests that he take the cash and the credit cards and pop into a nearby Tiffany's to see if there is anything the wife might like.  With a bagful of blue boxes in hand, the thief returns the cash empty wallet with maxed out credit cards to the cop.  Our protector then turns to us and hands us a newly minted financial burden with a shrug.

A seemingly ridiculous scenario, but one that has occurred repeatedly in the last decade.  Some thieves didn't get away.  Jeff Skilling, Dennis Kozloski, and Bernie Madoff, to name a few, are all doing time for their frauds.  While their crimes hurt a lot of people, none participated in the near collapse of the financial system we experienced just a few short years ago.  Those particular bandits have mostly escaped without prosecution and with a boat load of cash.

The following three crooks had an impact on your life, whether as a victim of deceptive lending practices, falling portfolio values, or by losing your job as a result of an economy that spiraled out of control when the methods they used to enrich themselves imploded ...

Angelo Mozilo

"Listen, suckers were throwing money at us from both sides, you think I would turn a blind eye to that?"

Remember how the whole mess started in sub-prime mortgages, a large chuck of which were originated at Countrywide Financial (now owned by Bank of America) under the leadership of Angelo Mozilo.  Mozilo co-founded Countrywide in 1969 along with the now defunct IndyMac Bank, both of which, for the most part, were standard mortgage originators until the housing bubble started inflating.

Mozilo and Countrywide did not create products like the option ARM, the 80-20 product, FlexPay, or any of the other dubious mortgage products that were developed in the early 2000s, but they swooped into the fray when it was clear that there was money to be made.  In fact, according to the Center for Public Integrity, Countrywide was the top subprime lender between 2005 and 2007, originating $97 billion in loans at the peak of the housing market.

From 2001-2006, Mozilo is estimated to have received total compensation of $470 million.  That includes $140 million in stock he sold prior to Countrywide's demise.  In fact, in a 2006 e-mail written just days after the massive sale, Mozilo is quoted as saying, "We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet."

During the period that Mozilo disposed of chunks of his shares, Countrywide was engaged in an aggressive share buyback program.  How can a CEO possibly justify a share buyback while unceremoniously dumping the stock?

Publicly, while reducing guidance for 2006 in October of that year, Mozilo continued to tout the strength of Countrywide and cited expected improvement of results from refinancing activity, while downplaying the real risk to the balance sheet.

For not disclosing the full extent of the risks a declining housing market posed to Countrywide's portfolio, and for selling the stock while clearly in possession on material non-public information, Mozilo paid $67.5 million in fines, and the criminal investigation has been recently dropped.  Not only is that a paltry sum for a man purportedly worth as much as $600 million, but $45 million of that is being paid by Bank of America as part of its obligations in the takeover of Countrywide.

It simply makes your head spin.

Joe Cassano

"I can't hide myself very well, so how could I be hiding anything else?"

Cassano, former head of AIG Financial Products, is the man "credited" with the collapse of the insurance giant.  Cassano amassed large returns for his division and AIG by writing insurance on bond portfolios in the form of Credit Default Swaps (CDS)-- and that was fine, when he was winning.  He bragged about his large, unhedged positions, fought internal audits that valued the swaps far below Cassano's claims, and claimed that his products were so safe that investors would not lose as much as $1.

For a time the con was successful, but as the housing market began to crumble and the mortgages insured by Cassano's CDS began to default, write offs began to mount.  As late as December of 2007, Cassano still had AIG CEO Martin Sullivan convinced.  Sullivan commented at the time that the probability of the housing crisis causing losses at AIG were "close to zero," despite the fact that the company was witting off $1.1 billion as a result of CDS covering American mortgages.  Two months later, that number became $11.1 billion, and the death spiral began.

For the eight year period from 2000-2008, Cassano earned roughly $315 million, including a $35 million bonus received after the collapse of the insurance giant and the $182 billion tax payer funded bailout.  Despite clear evidence that he sought to conceal the massive problems in his division, no criminal charges have been filed.

How this cannot be considered fraud raises serious questions about the effectiveness of our legal system when it comes to financial crimes.

Dick Fuld


"If you look over here I will distract you from everything that is relevant."

Fuld headed Lehman Brothers from 1994 until its collapse in 2008, and received total compensation in excess of $500 million, although he claims it was only $310 million.  Under Fuld, Lehman engaged in some serious financial chicanery using what is known as "Repo 105".

Repos, or Repurchase agreements, are used throughout the financial sector as a means of balancing the books for short periods.  The Federal Reserve is active in the repo market, providing temporary funds collateralized by some securities (usually Treasuries) with an agreement that the receiver of the funds will repurchase the securities at a later date for a specified amount.  All part of normal business, and the process basically amounts to a secured loan.

The thing that Lehman discovered is that, if you over collateralize a loan, you can treat it as a sale of assets, not a loan, despite the fact that you are contractually bound to repurchase your collateral.  The name "Repo 105" stems from the loop hole that allowed Lehman to use $105 of collateral for $100 in cash.

So at quarter end, when the company's financials would come under scrutiny in coincidence with its earnings release, Lehman routinely "sold" assets under the repo agreement and used the proceeds to pay off some debt, thereby reducing leverage and "improving" its financial condition.  A few weeks after earnings, Lehman would releverage by borrowing to repurchase the assets.

Fuld claims that he had no knowledge of the Repo 105 transactions, despite the fact that in one quarter Lehman used the transactions to "remove" as much as $50 billion of assets and debt from its balance sheet.

Now I am not the CEO of a large securities firm, but if I were, and my numbers changed for a few days by $50 billion, I think I might notice.  So either Fuld is a complete idiot and should never have been doing anything more mentally strenuous than finger painting, or he is complicit in what amounts to fraudulent reporting.

As yet, no charges or penalties have been levied against Fuld.

Each of these three men -- and I use the term loosely, as they may indeed be something less than human -- was involved in one way or another in reaping ill-gotten gains at the expense of millions of people.  While it was a confluence of events originating from the housing crisis that led to the "Great Recession", the failures and/or bailouts of these firms clearly made the crisis worse, and we are still paying the price while they rest comfortably on their millions.

Additionally, Mozilo and Fuld plead that whatever actions they took were, to the best of their abilities, in the interest of their companies -- Cassano just doesn't care what anybody thinks.  Clearly, the end result was not in the best interest of shareholders or their companies.  Amazingly, there are some defenders of these thieves who suggest that, because they intended the best for their companies, they shouldn't be prosecuted.

Give me a break!

If I purposely attempt to hide risks, fudge disclosure of leverage, and generally manipulate the numbers, this is a crime, particularly when it jeopardizes the very structure of our capitalistic society in a way that Jeff Skilling or Bernie Ebbers could never achieve.

Until financial criminals are pursued and prosecuted with consistency like any other criminal, the incentives for malfeasance, theft, and general financial shenanigans will far outweigh the potential for punishment.  So while politcos in Washington shout and point fingers, they don't really accomplish anything, and it's only a matter of time before another financial felon is captured, patted on the back, and released to enjoy your money

Amerikan Intervention

Amerikan Intervention


Oil was once again in the news today, but this time not for another price spike.

Yesterday I wrote, “While speaking at a Bloomberg breakfast in Washington Wednesday, Tax-Cheatin-Timmy of the Treasury admitted to central banking manipulation when he said, ‘The economy is in a much stronger position to handle’ higher oil prices. ‘Central banks have a lot of experience in managing these things.’ If anyone outside the Federal Reserve would have deep knowledge of how the ANTI-free market central banksters operate, it would be the head of the US Treasury. Moreover, Benron Bernanke has already admitted numerous times that his QE policy was designed to manipulate the stock market higher. Add oil to the list now, and soon the destruction of the gold and silver markets.”


From its high today, oil plummeted 8%. Tax-Cheatin-Timmy wasn’t bluffing, but I didn’t think he was anyway.


What got the oil market falling today was a rumor that the Libyan dictator Gaddafi had been shot and killed. With this news the initial reaction of the market was, “Great, now that that’s over relative calm will put Libyan oil back on the market.” My initial reaction was, “Wow, the central bankers just murdered Gaddafi.” It wouldn’t really be the first time that the global banking cartel put a hit on someone that interfered with its interventionist plans – would it?



The real news of what was slamming the oil market come out later: margins. The ICE exchange increased margins for both WTI and Brent crude oil contracts, while the NYMEX (now owned by the CME) increased the overnight margins for its WTI crude oil contract. Overnight margins were increased for speculators and hedgers alike.



With this news the reaction of the market was, “Damn it! I can’t afford to carry all of these long positions and this announcement will keep a lot of new traders from getting long and helping my current positions. SELL!” My reaction was, “Oh, so that’s how Tax-Cheatin-Timmy and Benron Bernanke manipulated the market – with a phone call. With one call from the Chairman of Intervention, the head of the CFTC was given his marching orders to bring oil down who in turn called the exchanges.”



Why didn’t EZ-Al Greenspin do the same with Nasdaq margins in 1999 and 2000? Oh yeah, because that would have brought sanity to the EQUITY bubble and we can’t have that. What was I thinking? My bad.



Trade well and follow the trend, not the so-called “experts.”



Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in
favor of deceitful accounting for the TBTF banksters.
 
Larry Levin (888) 755-3846 http://www.tradingadvantage.com/

Invest 20k, make 10k annually (50% cash flow)‏?

An Answer to the Most Popular "End of America" Question

An Answer to the Most Popular "End of America" Question


By Porter Stansberry with Braden Copeland

Saturday, February 5, 2011


I've been on the radio a few times in the last month.


Producers are contacting us with interview requests because of our new promotional video, "The End of America."



I imagine most DailyWealth readers have seen this video already. You know the core components of our argument: The debts assumed by the Western democracies will overwhelm their economies and lead to the end of our current dollar-denominated, global currency regime. This has profound implications for Americans' standard of living and our empire's role in the world.



During these interviews and taking call-in questions from people around the country reminds me of why we made the video: People suffer from a shocking lack of knowledge about the serious financial problems facing our country. For example, the most popular question is: "When will the crisis begin?"



The question assumes we ought to ignore the collapse of the automakers, the complete destruction of America's investment banks, and the receivership of the world's largest mortgage firms (Fannie and Freddie), and the world's biggest insurance company (AIG)…



The question implies nothing unusual has taken place with housing prices… or in the markets for strategic commodities like lithium, copper, oil, coal, and corn – all of which are soaring in the face of the moribund U.S. economy. The question assumes nothing is going on with the value of our dollar, despite silver trading near $30 and gold trading close to $1,500 – up 100% in only two years.



We respond to the popular question with a question of our own: What will have to happen before you'll say we're in a crisis right now?



How high will gas prices have to get before your neighbors notice something is wrong? How high will gold have to get? Or silver? How many banks will have to go under? How high will unemployment have to rise? How many cities will have to go bankrupt? Where's your threshold? How bad will things have to be before you begin to see what's really happening?



In addition to raising these questions, I've compiled a list of seven key facts that might spring people into taking action to protect themselves. They are the factors I believe MUST lead to the end of the global U.S. dollar standard – what we call "The End of America."



1) The price of gold has gone up 10 years in a row. We can't think of another market that's ever risen for 10 consecutive years. This is a historical anomaly, and it means something has gone badly wrong with the world's reserve currency (the U.S. dollar). Markets, if left to find their own equilibrium, will naturally fluctuate. Gold isn't fluctuating. Its steady move up proves something strange is happening to our money.



2) Our government's deficits are out of control. The government's annual deficits now routinely surpass $1 trillion. The first $1 trillion deficit came in 2008 – and the government explained it away as the consequence of the financial crisis. But we racked up another $1 trillion deficit in 2009 and yet another in 2010.



We'll have another in 2011 and so on. Our national debt has doubled since 2005. We've borrowed more money in the last five years than we had in the entire history of our government until then. This isn't sustainable.



3) The government cannot increase tax revenues enough to cover our spending or repay our debts – ever. Our annual deficits have become completely unlinked to taxes. Total federal income taxes and corporate taxes generate $1.1 trillion a year in revenue, and we still ran a $1.3 trillion federal deficit last year. So even if we increased tax revenues by 100%, we would still have fallen $200 million short. This is totally unsustainable.



4) Special-interest groups – particularly government unions – are looting our Treasury. Self-serving special-interest groups have completely hijacked government spending. We now spend $200 billion a year on federal pensions. We're spending another $450 billion on welfare. This spending, combined with our defense spending ($700 billion), exceeds total federal tax revenue and leaves nothing to pay the $200 billion in interest on our debt, nothing to pay for actual government services (like roads), and nothing to pay towards the inevitable Social Security/Medicare shortfall.



Remember… most voters do not pay taxes. It's politically impossible to reform this interest group-based spending. These people are robbing the Treasury. They will cause our currency and eventually our government itself to collapse.



5) We're printing money just like the banana republics we used to mock. To support the government's runaway spending, the Federal Reserve is now continuously buying government debt. This process was commonly called "monetizing the debt" or, more simply, "printing money."



In addition to the inevitable economic consequences of monetizing debt (massive inflation), there's another, even more serious problem: a lack of confidence in the leadership of the Fed. We would support an audit of the Fed. We would support replacing Fed Chairman Ben Bernanke. After all, Bernanke has alternately defended his decision to print massive quantities of new money and denied ever doing it. However, we are certainly aware that as people (rightly) lose confidence in the Fed and in the dollar, there will be serious consequences for our economy.



6) We can't repay our debts. Total debt outstanding in the U.S. currently exceeds $55 trillion. That's $681,165 in debt per U.S. family. There is simply no way to repay (or even maintain) debt of this magnitude using the income of the average American family, which is slightly less than $50,000 per family per year. Interest alone on these debts (based on a 5% rate) would total $34,000 per family every year. Total debt in the U.S. economy is unsustainable and can't be financed without printing vast new sums of money.



7) Shockingly, new debt issuance in the U.S. is soaring, with the lowest-quality debtors borrowing record amounts. Despite all the evidence that the U.S. economy carries far too much debt, both public and private debt issuance soared to new record levels in 2010. Overall, more than $3 trillion in new corporate debt was issued last year – the second record year in a row.



And junk-bond issuance set a new, vastly higher record. In 2010, 509 speculative-grade corporate borrowers sold $287 billion worth of new debt. That compares to the previous record (2009) of $167 billion. Our economy has become so warped by its debt load, it cannot function without ever-larger amounts of debt.



In summary, anyone who carefully looks at these numbers must realize this is not safe and will not last long. That's why I'm telling everyone: Don't ask, "When will the crisis begin?" Instead, ask, "Where can I get the best deal on gold and silver bullion to protect my family's finances?"



Good investing,



Porter Stansberry