Editorial

You have to love the "moral outrage" expressed in articles like this:

The information that flowed from the banks, the ratings agencies, the regulatory agencies, and the mainstream media—the bedrock of the financial markets, in a sense—was viewed with great suspicion, and that created an opportunity for financial bloggers: a motley assortment of amateurs and professionals from all over the map. There are traders, economists, venture capitalists, financial advisers, and pajama-clad cranks all vying to explain the complex machinations that got us into this mess and to critique governmental solutions.

Complex machinations?  On the contrary.

The only thing that is complex is the web of lies put forward to cover up what is simple mathematical reality: You cannot expand credit at a rate faster than GDP forever without suffering a financial panic and collapse.

This isn't something from a "pajama-clad crank" - it is a mathematical fact.  The sort of fact that you were supposed to learn in sixth grade.

Really.

Sixth grade.

Yet our so-called "mainstream media", New York Magazine included, dropped math in the 5th grade and thus never participated in class.  The editor and financial page folks, along with those in ToutTV either never attended that class or are intentionally lying about what the math says must happen.

Take your pick: either we have "writers" and "reporters" in the mainstream media who lack a sixth-grade education or we have those who are willing to lie for money - on purpose - to the population.

Neither explanation is very complimentary.

Willful suspension of disbelief - and mathematical fact - is necessary for all financial frauds to be sustained for any length of time.  As soon as someone pulls back the curtain on that fraud they must be immediately savaged and called names, lest someone remember their sixth grade math class.

In the 1990s I read through literal dozens of S-1s from nascent Internet Companies that later failed.  Rhythms, Northpoint, Covad, Pets.Com, Infospace, Digital Island, 724 Solutions and many more.  Jim Cramer wrote a famous piece on "Winners of The New World" which, if you followed him, cost you nearly all of your money in just a couple of years' time.

Why?

Because of willful suspension of mathematical review and fact.

A read through those S-1s disclosed that these firms had laid claim to literally more than one hundred times the world's GDP. 

At best 99 of 100 of those firms were destined to blow up.  It was a mathematical certainty. 

In reality 999 out of 1000 blew up, because the "old world" - the WalMarts of the world - didn't give up their share willingly, or at all.

After the tech market cracked I gave one of the few interviews that was published in a "durable" media you can still find in which I said:

"I refused to take any stake in the acquiring firm. The shell game being played by these corporations is astounding," he said.

Denninger has also steadfastly avoided investing any of his personal fortune in the Internet: "I refuse to have anything to do with the Nasdaq 100. There will be a shake-out, and when it comes, it will be ugly and it will happen fast."

He might as well have been speaking of Black Week, April 10 through April 14, when the Nasdaq crashed.

The volatility of Net stocks in the past few weeks makes Denninger seem prescient, but his dislike for the unseemly marriage of breathless hype and dubious business plans is visceral.

"Amazon.com has proven there is a race to zero in margins. It should be a US$2 stock," he said.

Amazon bottomed in the $5s - from a high of $113.

More importantly, what changed from 2000 to now in this regard?  Margin improvement?  Not really.  Competitors went bankrupt?  Yes.  GDP expanded?  Yes, or did it?  Did we really see expansion of output or did we lie about it by expanding leverage (credit), borrowing more and immediately consuming it, calling this "GDP"?

Technically that is GDP, but it's not sustainable.  You can only press such a bet as long as you have available margin to pick up more and more debt against something that people consider "collateral." 

But when you do so to consume the steak dinner you ate this evening has turned into fertilizer within 48 hours while the debt you took on remains and demands to be serviced.  You've not advanced actual output in the economy in terms of sustainable growth one iota - all you've done is pulled forward tomorrow's earned dinner into today.  When tomorrow comes you can't buy that same dinner again, unless you once again pull forward yet more demand.

The reality of compound growth eventually derails all such plans.  All we argue over in that regard is timing - something that the mavens of Wall Street never bother to talk about in public.

Even as the market has improved, the economy has shown glimmers of stability, and many of his fellow bears have capitulated, Ivandjiiski has clung ever more tightly to his convictions.

"The market"?  Oh, you mean fraud street?  Well sure, when The Fed buys up a trillion dollars of questionable assets, including those that have a near-certainty of monstrous losses, thereby overpaying for them and spitting out printed money, you can expect some of it will go into the stock market - and it did.

Speaking of the market, what part of a P/E of 129 sounds reasonable?  Yes, I know, that includes the nasty earnings quarters that will roll off next year.  But even disregarding those and looking at rosy estimates for the next year the market (given its low yield) is pricing in GDP growth of 5-7% for the next 4 sequential quarters.  No economist with any shred of credibility has such a rosy forecast for actual economic growth, and with good reason - there is absolutely nothing in the employment and industrial capacity numbers to suggest that such an outcome is remotely possible.

"The economy is showing glimmers of stability?"  Where?  Jobs?  No - employment is not only still falling but we need to add more than 250,000 jobs a month just to keep even with immigration and the birth rate.  Never mind that while the government said we lost 200,000-some jobs last month, the household survey - that is, the actual count of people who aren't working - disclosed nearly a million fewer people in the workforce than the month before.  The difference?  Government doesn't count you as "unemployed" if you give up looking, and further government is counting tens of thousands of "new small businesses starting" (in excess of those closing.)  Do you believe the latter, and why would you omit the former?  Let me guess - someone who gave up looking for work magically has gained the ability to spend money at the store and foreclosed homeowners will set up shop selling gas and sodas on the nearest corner?

I think not.

"Fellow bears capitulating?"  Yep.  Lots of people have capitulated.  They've bought into the Fraud Street and DC pontifications that "math doesn't matter", just like Dick Cheney's famous screed that "deficits don't matter."

In the short term, perhaps.  One can lie, cheat and steal for quite some time, and the famous saying "the market can remain illogical for longer than you can remain solvent" is absolutely true.  If you're a short-term trader there's money to be made there - I made a nice wad of it from close to the 666 lows up into the upper 800s on the S&P, simply because bets on the end of the world can only win once - and if you do win, you're not around to collect.  As such I'll take the other side of that bet - when Hell's Gate beckons.

But in the end the math always wins and fraud is always exposed. 

It may take years to happen, but it always does.

Daytraders and speculators can make a lot of money on speculative froth and lies, but investors - those who are in the market for decades as a method of building wealth for retirement - have a more-pressing problem - they have no control of or way of knowing in advance when the fraud-laced games will fail.  As many boomers have discovered in the last year these games have a habit of coming apart at the seams right about the time you think you'd like to retire, blowing your carefully-laid plans that have spanned decades into dust.

The impact on the real economy that inevitably must filter down from boomers losing half or more of their retirement along with their house cannot be overstated.  While their combined wealth remains formidable the fact that they've taken horrific losses in the last two years is a fact - and one that the mainstream media would prefer to ignore.

That willful ignorance becomes perversion, however, when that very same media prints derisive articles like this one, as it is likely to lure a not-insignificant number of those boomers, already kicked and bloodied, back into the ring of fraud at the top - just in time to lose yet more money - and perhaps enough this time to drive them to destitution.

For the long-term investor there is no argument to be made for returning to a froth-driven market until and unless the fraudulently-granted credit is flushed from the system and one can once again read a balance sheet with some reasonable expectation that it reflects reality.

Given the proclivities of the government and media that day appears to be merely a glimmer on the horizon - a glimmer that in fact may be nothing more than a mirage.

Proceed at your own risk.

From the UN speech today (which, incidentally, got lots of press coverage while Geithner's dissembling in front of Congress got none):

Developing nations must root out the corruption that is an obstacle to progress – for opportunity cannot thrive where individuals are oppressed and business have to pay bribes. That's why we will support honest police and independent judges; civil society and a vibrant private sector.

How about developed nations?  Let's run a short list right here:

• Congressfolk who got "Friends of Angelo" mortgages - even the name of the program was a statement of special privilege - while Countrywide Financial literally looted the hopes and dreams of millions of Americans through intentional and willful blindness to anything that could reasonably be called a credit standard.  Countrywide was subsequently forcibly merged into Bank of America and the homeowners involved lost their homes - and dreams.

• Our former Treasury Secretary who came to the SEC in 2004 to ask (for a second time) for leverage limits to be removed from investment banks - backed by literal millions in campaign donations and lobbying over the previous years - and got it.  The consequence?  Detonation of both Lehman and Bear Stearns, neither of which would have blown up but for the leverage that they were legally forbidden to take on prior to 2004.

• A banking system that has Congress so far in its pocket that it persuaded Congress to threaten FASB in open Congressional hearings this spring if they did not change accounting standards to effectively legalize accounting fraud through "mark to make-believe."  This scam that Congress shoved down everyone's throat at the behest of the banking lobby continues to this day.

• A banking system that has Congress, The SEC, OTS and OCC so far in its pocket that despite over eighty examples of hard proof of falsely-inflated asset valuations and willful misfeasance by OTS and OCC in seizing insolvent banks before they result in FDIC loss the willful blindness continues to this day, causing the FDIC to teeter on the edge of running out of cash and begging the obvious question: Are all the large banks as far beyond insolvent as these regional and local banks have been proved to be once seized?

• A blatantly-corrupt OTS (banking regulatory body) that was caught conspiring with IndyMac to "backdate" deposits so as to falsely present a better financial picture than really existed at the time.  The person at OTS involved had previously been caught doing the same thing during the S&L crisis BUT WAS NOT FIRED AND BARRED FROM FUTURE BANKING REGULATORY WORK!  Nobody has been indicted in connection with this outrageous "in your face" fraud.  Worse, the OIG's office said there were other examples - but refused to name them; are those institutions still operating?

• A Federal Reserve that has openly threatened Congress with the destruction of the economy and the dollar, under oath, in open Congressional Hearings, should Congress pass and enforce an audit of The Fed's activities, and yet The Fed continues to enjoy authorization to run monetary policy.

• A Federal Reserve Chair who denied under oath that The Fed would monetize the nation's debt - while it had and was doing exactly that.  Isn't that the definition of perjury?

• An SEC and Congress that is so embedded in the financial system via its revolving door policies that despite multiple reports both Stanford Financial and Bernie Madoff were permitted to continue to operate even after multiple reports of suspicions that they were outright frauds.  Investors lost billions as a consequence of the purchased willful blindness of our regulators.

• An international bank that was caught advising customers to smuggle diamonds in toothpaste tubes to illegally evade taxes, and was permitted to keep their banking charter even after this became known.

• Over a dozen "in your face" examples of clearly illegal insider trading over the last two and a half years, including August 2007, the "shorting ban", Bear Stearns collapse and more.  All are trivially visible in price and volume action before the announcements were made. None have been investigated or resulted in indictments.

• The government's CPI and other statistics are intentional lies promoted by the banking, finance and credit industries to support their issuance of debt which they know cannot be paid back.

ALL OF THIS and much more (there are well north of 1,000 posts here documenting it all) has been undertaken for one singular purpose - to intentionally misrepresent to consumers, businesses and investors worldwide that the level of debt in the economy was supportable when in fact it was not.

This in turn allowed these financial entities to issue credit that they knew full well could never be paid back by the debtors, syndicate it, slice it, dice it, and sell it to suckers worldwide, extracting their fees from the process and guaranteeing that those who bought this garbage would suffer enormous losses.

Our government conspired with these people in allowing and enabling this fraud, and when it started to unravel government was then bribed (or was it blackmailed?) into attempting to offload all of the remaining undistributed trash to the US Taxpayer via transferring it to "sovereign credit" - that is, Federal Debt.  This attempt is still ongoing, with Ben Bernanke buying hundreds of billions of dollars of likely-impaired (if not worthless) mortgage-backed paper from two companies that in fact went bankrupt (and were "taken into conservatorship") last year - Fannie and Freddie.  But for the nearly $100 billion dollars that Taxpayers have forked over thus far to prevent their collapse this paper would have been discounted and sold into the market at its recovery value - a process that has been intentionally hidden from view by the actions of The Fed and Treasury.

President Obama, you're a hypocrite of the highest order and have absolutely no right to lecture any third-world banana republic while your administration practices every form of public and private corruption seen in such back waters of humanity - plus dozens they aren't sophisticated enough to figure out.

Paul Crudele asks: "What did Hank know and when did he know it?"

If Bernanke gave Paulson the slightest hint of what he was thinking, Paulson would have been in possession of very valuable information. If Paulson passed any of those thoughts on to people who could (and did) profit from it, then that would have been very illegal inside information.

I've written before that Paulson had lunch on Aug. 16, 2007, with Federal Reserve Chairman Ben Bernanke. The two men met from noon to 12:40 p.m. in the "small conference room," according to Paulson's records.

......

So Paulson's admission that he spoke with people on Wall Street regularly is fraught with inherent danger. That's especially a valid question after Paulson meets with the Fed chief, as he did on Aug. 16, 2007, when a crucial decision needed to be made.

The Fed indeed did surprise the markets by cutting interest rates by half a percentage point the next morning -- Aug. 17. And since it was the first of what turned out to be a long series of rate cuts, knowledge of what was about to occur did turn out to be extremely valuable.

No, really?

I have often raised hell about this little charade.  It was blatantly obvious that "certain inside people" had knowledge of what was to come the next morning - Options Expiration morning.

A huge number of people who were (correctly, based on the economic fundamentals) short, myself included, got literally corn-holed that morning - to the benefit of those certain "favored few" who were clearly told in advance and traded in front of it.

This sort of "very illegal" inside information trading has been part and parcel of this entire mess.  It is part and parcel of how we have a couple of firms, one in particular (cough-Goldman-cough!) who manage to make money on their "proprietary trading" virtually every day in a quarter, a statistically-improbable outcome akin to that of getting hit in the head by a meteorite when one goes to get their mail.

This, of course, is not the only example.  We had a similar event occur when the SEC announced the ban on short-selling of certain financial names.  Indeed, these "magical" reversals in the market (in both directions) have happened over the last two years more times than I can count.

The trading patterns make crystal clear that certain market participants knew in front of the announcement what was to come in each and every case.  The bets placed were enormous and one-sided - that is, the bet was not "something is going to be announced" (which might be good or bad) but "XXX is going to happen and it will cause YYY" with sufficient specificity for those "favored sons" to pile in on one side of a trade to their benefit (and everyone else's loss.)

What is also crystal-clear is that nobody in the government gives a good damn about the laws that are broken by this insider-trading; these are not small, random people that were making illegal profits, it is some of the biggest and best-connected names on Wall Street.

It is trivially-simple to trace these trades - if anyone cares to do so - and bring charges.

Paul is to be commended for running this down, but the obvious questions that arise are "why now" and "what took you so damn long?"

All one has to do is watch the trading patterns. Government official call logs can be - and if we had any hint of an honest government would have been - subpoenaed, along with the trading records.  Phone call + trading record = a nice long stint in the greybar motel.

But when the law only applies to "the little people" we indict Martha Stewart while some of the biggest firms on Wall Street do the same sort of thing literally every day - with impunity.

Ellen Brown penned an article over at HuffPo that sounds much more definitive than it really is, yet outlines a potential major problem for the secutized loan industry:

In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure.

Well, kinda.  The entire decision is found here and isn't quite as represented in that article.  Nonetheless, it is significant.

A bit of background is in order.

A mortgage is a combination of a promissory note (that is, a promise to pay) and a security instrument.  That is, there's a deed of trust and a debt (the promissory note.)

State law governs foreclosure and most states require as a matter of statute that these two items remain intact.  Further, most states require as a matter of statute (that is, law!) that to foreclose you must present proof that you actually have an enforceable interest.  In many cases this requires what is known as a "wet signature" - that is, the actual original signed document from the debtor confirming agreement to be bound to the terms.  In addition you must establish ownership of that document - that is, you must show an unbroken chain of assignments from the originating bank to your hand.

This is where the problem comes in - the originating lender has no standing to foreclose once he sells off the mortgage.  He was paid in full and thus has no standing to appear in court.

MERS' web page says this:

MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.

They may as well have said "we have decided that we can abrogate state law with impunity."  Oh wait - they did, didn't they?

Sorry folks, life doesn't work that way. 

If state law requires an unbroken chain of recorded assignments in order to document ownership of a mortgage and thus standing to foreclose, MERS cannot override this state law by fiat.

Many judges, including some Florida, have held repeatedly that despite the lack of an actual chain of assignments and often despite a lack of actual "wet signatures" on an original promissory note they will evict people from their homes regardless!  You have to wonder how many of those judges have been bought, bribed or cajoled by banking interests, given that the purpose of a Judge is to do just that - judge - not write law.  If the legislature says you need an unbroken chain of assignments and an original document for it to be enforceable, then it does.

But in other states banks have run into a problem - judges, rather tired of the "fast and loose" way banks have played with the law for the last decade, have put their foot down and actually done their job - that is, they have judged the facts and enforced the law as written.

In those locales MERS has run into trouble.

The underlying issue is that many of these so-called "securities" (MBS, CDOs, etc) were issued "light" of the required legal mandates to keep the chain of assignments and actual consent signatures required for enforcement.  Many people charge that the reason behind this was simple volume.  I disagree.

I believe that a large part of the root cause of these "lost" documents is to cover up blatant and in many cases outrageous fraud.  It is difficult to prove that a bank or other lender knew and ignored stated-income fraud (or allegedly "investigated" and "underwrote" a file when it did not) when the original file has been turned into ticker-tape confetti courtesy of the closest paper shredder!

MERS has thus given cover to a tremendous amount of fraudulent conduct - the very conduct that predatory lending statutes, "wet signature" and "chain of title" laws are supposed to prevent.

The real bottom line here is that securitized bondholders may in fact be holding worthless pieces of paper.  My hollering about this began in April of 2007, right when The Ticker began publication, and continued all through 2007.

The shocker to me is that the bondholders have sat still for this as long as they have.  The "delay, extend and pretend" game is all fine and well but all making coupon payments by playing "hot potato" does is hold off on the inevitable.  It doesn't change a thing in terms of the final outcome, because the cash flow to maturity on these notes doesn't exist!

There's liability in silent consent to getting screwed by so-called "technical" legal defects; you can find yourself on the wrong end of a legal principle called "estoppel."  Sucks to be you if that happens, and the "you" in many of these cases are pension funds and others who have a fiduciary responsibility to the final alleged beneficiaries of these "investments."

In point of fact all of these fraudulently-securitized instruments - where the inducement to enter into the transaction included representations about credit quality flowing from the alleged original borrowers and security structure are now known to be false - can be "put back" on the originators and securitizers.  That bomb winds up coming to rest square on the balance sheet of the big banks as either principals or the "funding and bundling" sources for the gazillions of small "boutique" mortgage shops that have closed over the last two years.

How long will it be before an enterprising attorney or firm decides to put together a class action with all of the bondholders who are certain to get hosed down the road?  Good question.  It is in fact one of the mysteries of the present mess that we haven't seen a significant push in this direction as of yet.

I still expect that we will, as the potential recovery (and thus the potential legal fees) are literally in the hundreds of billions of dollars.

Be afraid.

Be very, very afraid:

If you haven't figured it out yet (or just don't want to watch the clips) I'll help you out.

Glenn Beck seems to be implying that he has a lot more footage than you've seen thus far with three ACORN offices in a sting.

In fact, there are rumors floating around that he has more than forty hours of video and audio.

He offered you a carrot - a room where you can confess (to your sins or those of others, both in your party and the other guy's), with your face blurred and your voice scrambled.

But I also sensed he had a stick behind his back. 

Or is it a can of gasoline?

Your house is on fire Congress.  But that house belongs to the people, not you.  You're there with our explicit permission and we reserve the right to eject you at any time.

Yet you're the arsonists trying to destroy freedom and indeed this Republic with your lies, cheating, grift and games.

Bailouts, handouts, frauds of all sorts.  Voter fraud, lending fraud, banking fraud, securitization fraud, bribery of Congressional officials with "special" mortgages, who knows.  The key word is corruption and Glenn believes, as do I, that it is endemic throughout your body.  And while Glenn's tapes thus far have focused on ACORN I am even more interested in financial corruption related to the last years in the financial industry and their intertwined "relationship" with Washington DC.

In fact, last year I was told in confidence (and no, I won't name my source) by someone who was part of the ABSCAM investigation that he believed that over one hundred sitting Congressfolk could be indicted - right here, right now - given the desire.

Well, it looks like Glenn has given you a choice.

You can either help take this country back and expose the frauds or he'll block your exit and then spray gasoline on the conflagration you lit with all the lying, cheating and stealing.

Why do I suspect there will be one more segment of video released a day until the trash is taken out?

All of it.

My hat's off to Mr. Beck.

When I first heard his build-up to these tapes I thought he was going to pull a Geraldo with the famous safe that had nothing of value in it. 

On the contrary.

This safe is full of pure gold, and I've seen enough to have reasonable confidence that there's plenty more behind the tiny glimpse I've already seen.

You're a patriot Mr. Beck, and if you ever find yourself in this part of the nation dinner and drinks are on me - five star.

Hint to Mr. Beck: Don't take any private planes, employ a taster, and live, at least temporarily, somewhere you can own and carry firearms for your own self-defense.  I don't want to read about someone finding you "dead cold" under a bridge.......