Corruption

Sarbanes-Oxley was supposed to prevent crap like this:

From the paper:

Lehman employed off-balance sheet devices, known within Lehman as “Repo 105” and “Repo 108” transactions, to temporarily remove securities inventory from its balance sheet, usually for a period of seven to ten days, and to create a materially misleading picture of the firm’s financial condition in late 2007 and 2008.2847

Oh yeah, that's legal?  It's not supposed to be!

Lehman regularly increased its use of Repo 105 transactions in the days prior to reporting periods to reduce its publicly reported net leverage and balance sheet.2850  Lehman’s periodic reports did not disclose the cash borrowing from the Repo 105 transaction – i.e., although Lehman had in effect borrowed tens of billions of dollars in these transactions, Lehman did not disclose the known obligation to repay the debt.2851  Lehman used the cash from the Repo 105 transaction to pay down other liabilities, thereby reducing both the total liabilities and the total assets reported on its balance sheet and lowering its leverage ratios.

Isn't that special?

It gets better, as you might expect.

The Examiner concludes that colorable claims of breach of fiduciary duty exist against Richard Fuld, Chris O’Meara, Erin Callan, and Ian Lowitt, and that a colorable claim of professional malpractice exists against Arthur Anderson Ernst & Young.2915  (strikethrough mine, not in the original)

It is stated that Government Regulators (FRBNY and The SEC) had "no knowledge" of these practices.  Perhaps true.  But this calls into question why we're hearing of this just now, and whether other firms have or are at present doing the same sort of thing.

There also appears to be a colorable claim that Lehman Management was fully-aware of what was going on:

Although interview statements given to the Examiner were inconsistent at times, no reasonable dispute exists that each of Lehman’s Chief Financial Officers from late 2007 to September 2008 possessed some knowledge of and/or involvement with multiple aspects of Lehman’s Repo 105 program, including the existence of firm-wide Repo 105 limits, the volume of Repo 105 activity Lehman engaged in at quarter‐end, and Lehman’s efforts to manage its balance sheet using Repo 105 transactions.

Well that's special.

But we're just getting warmed up.

Remember, The Feral Reserve is supposed to by the "uber-regulator" and the "safety and soundness" manager for the financial system.

They did a great job, right?  Well...

Remember this Ticker from a few days ago?

I am constantly amused by those people who claim there is some vast "conspiracy" in this country when it comes to banks, balance sheets, and fraudulent lending and accounting.

There is no conspiracy.

It is, in fact, "in your face" fraud.

Well, one of the people on the forum emailed The FDIC to ask about what I had alleged.  This was their response:

That’s the value the bank had them on their books on their year-end financials, but the true value is much less. It is similar to someone in Las Vegas saying that their house is worth $300,000 because that’s what they paid for it three years ago, but the reality is, if they had to sell it in today’s market, they’d only get $250,000 for it. The FDIC has to sell assets in today’s market.

--db

Or tomorrow's market.

The simple fact of the matter is that there it is, right in front of you.

A raw admission that the banks are carrying these loans at dramatically above their actual value.

Yes, this means that essentially all balance sheets must now be considered fraudulent, and thus the valuations assigned by the market to them are also fraudulent.

Extending this to the stock market as a whole you now have a market that is intentionally overvalued as a direct and proximate consequence of fraud, permitted and endorsed by the government, of somewhere between 25-40%.

Now you know why the market rallied off the SPX 666 lows to where it is now.  1139 (where we are now) * .60 (a 40% haircut) = 683.40, or awfully close to that 666 bottom.

Of course this "valuation" expressed in the market can only be maintained for as long as the fraud is.  If the ability to maintain that fraud is lost for any reason then values will instantly collapse back to reflect reality.

Still sleeping well with your investments?

I did, I did tee a jumpsuit!

TUSCALOOSA, Ala.—Former Birmingham Mayor Larry Langford was sentenced Friday to 15 years in federal prison for taking some $235,000 in bribes in return for lucrative bond work.

But investment banker Bill Blount pleaded guilty to making the payments, and lobbyist Al LaPierre admitted being the middleman. Mr. Blount, the former state Democratic Party chairman, last week was sentenced to more than four years in prison. Mr. LaPierre, the former executive director of the state Democratic Party, got four years. Mr. Blount also was ordered to pay $1 million to the government, and LaPierre $470,000.

Wait a second....

How come Blount and LaPierre only got four years?

And how much did these guys - and these banks - get?

Mr. Langford was accused of telling major Wall Street banks J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp. and the now-bankrupt Lehman Brothers to include Blount's investment banking firm if they wanted to handle the county's bond work.

They just got sued, right?

Yep.

Just a "cost of doing business"? 

Kinda like Pfizer and the Federal Reserve Board of NY?

No wonder these banksters keep at this crap - we prosecute and lock up the people they screw around with, but the banks themselves, just like the big drug companies, get fined in tiny amounts that amount to one percent or less of their market cap.

Yeah, that's a deterrent against criminality.

If you remember just a short while ago I reported on what certainly appears to be a very clumsy scam pulled by the BLS in their so-called "inflation" reading published on the 19th of February - where the numbers they presented simply didn't add up, and as a consequence put forward a false CPI, or inflation number.

Curiously, we haven't heard anything from the BLS on this "error".

This, of course, is only an "error" in that it is not the actual means by which the BLS is "supposed" to report "inflation."

But the BLS has twice in the last 30 years revised their methodology, both times with the intent of understating "inflation."

Why?  Well, a big part of the reason is that the law says that various benefit programs are supposed to be indexed to inflation.  By intentionally understating inflation Senior Citizens and others on various fixed-income entitlement programs funded by government get intentionally screwed.

The Senate yesterday rejected a $250 one-time check to Seniors and others who have been so-screwed for the last two decades:

President Barack Obama has called for Congress to approve the payments to make up for their benefits not increasing this year, but the Senate defeated it 50 to 47.

....

Social Security payments for the elderly and disabled will stay flat this year for the first time since 1975 because they are tied to consumer prices, which decreased amid the worst economic recession in 70 years.

Of course the real problem doesn't lie here.  As is usually the case the media won't talk about the fact that the current inflation rate, if measured under the "old" methodology, never went anywhere near zero.

How much does this "count"?  Tremendously so.  Over a ten year time frame understating inflation by 7% results in your Social Security payments being half of what they would otherwise be.  If the understatement is by just 3% you get a 35% underpayment at the end of a ten year period.

Of course what the media reports is the "one time" payment was rejected, but what they don't report is that seniors have been screwed for three decades by intentional book-cooking in the government.

And by the way - no, there is no possibility of the government "fixing this" and paying what the law says they should.  The money doesn't exist.

But this scam, along with dozens of others, is how our fabulous government managed to run its Ponzi Scheme for as long as it has - a Ponzi that is now collapsing, irrespective of what you're being told by the vacuous bobbing heads on national television.

If you're a senior and been paying "membership dues" to AARP, you might want to ask them why their much-vaunted "lobbying" and "public education" campaigns haven't focused on this for the previous 20 years - and why they sold you down the river.

Hope you like your kids (and they like you) Seniors, because the government tit is rapidly running dry.

Gee, how come all this didn't happen a year ago - or two?

“News has surfaced that investment banks based in the United States have funded firms that created the financial indexes and other information needed to trade against the possibility of a sovereign default overseas—after selling debt to those countries in a way that kept that debt secret from the public,” Rep. Maloney said. “These reports, if true, are a shocking echo of the financial crisis that faced the U.S. in 2008—whose reverberations are still being felt today, in the worst recession in decades.”

No really?

You mean just like those wonderful "CDOs" that Goldman (and others) created that were in fact fully synthetic instruments and which came into being ONLY because someone wanted to SHORT your house?

Exactly why weren't these instruments banned when traded "in the dark"?

Off-balance sheet?  ENRON didn't make clear what happens when people hide things?  After all, nobody ever hides good news, right?

Carolyn, it's nice to hear you come out for this sort of hearing.

But this leaves open the question about the raw theft and blatant destruction that the fine "firms" headquartered and operating in New York - right up your back yard - are and have been promulgating, and why it is that there hasn't been any serious attempt to put a stop to it - until now.

Indeed, the same BS games are still going on today.  Wells Fargo and Citibank both have well over one trillion dollars off balance sheet in "God knows whats", worth God knows even less, and investors have exactly no knowledge of precisely what sort of trash is in there.

Municipal governments?  Jefferson County Alabama anyone?  How many more Jefferson County's are there?  We know these sorts of "deals" were written literally everywhere, and that in at least one case the underlying bond issue allegedly "protected" was never made, so this deal was nothing other than a raw bet on interest rates - made by a municipal government that was goaded into it by these very same banks.

“It’s like buying fire insurance on your neighbor’s house—you create an incentive to burn down the house.”

It's only insurance Carolyn if the person who wrote the policy can pay and the buyer has an insurable interest.

If the seller can't pay because they don't have the money or the buyer doesn't have an insurable interest, it's either a garden-variety scam or an inducement to commit financial arson.  When the latter is done "off exchange" where the trades are not made public and accessible then the incentives for someone to run around with a can of gasoline become nearly insurmountable.

Perhaps the fine Congresswoman can explain why is it that nobody's in jail for this yet - and why our government still allows this BS to continue.