Corruption

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.

Now that I've had to time to read the entire AIG 10Q there's a nasty ditty in here that in my opinion goes materially beyond the "going concern" language.  It's here:

A deterioration in the credit markets may cause AIG to recognize unrealized market valuation losses in AIGFP's regulatory capital super senior credit default swap portfolio in future periods which could have a material adverse effect on AIG's consolidated financial condition or consolidated results of operations. Moreover, depending on how the extension of the Basel I capital floors is implemented, the period of time that AIGFP remains at risk for such deterioration could be significantly longer than anticipated by AIGFP.

A total of $150.0 billion in net notional amount of the super senior credit default swap (CDS) portfolio of AIGFP as of December 31, 2009, represented derivatives written for financial institutions, principally in Europe, which AIG understands to have been originally written primarily for the purpose of providing regulatory capital relief rather than for arbitrage purposes. The net fair value of the net derivative asset for these CDS transactions was $116 million at December 31, 2009.

So AIG "understands" that $150 billion of credit-default swaps were written by AIGFP to European Institutions (no note by the way as to exactly what's in there - or who owns them) for the explicit purpose of getting around capital requirements - either by banking regulators or (possibly worse) EU sovereign regulations.

When did they come to "understand" this?  Did they write these swaps originally knowing that their essential purpose was to evade capital requirements, or was this a "recent" revelation of some sort?

Indeed, the section goes on to say:

In addition, although AIGFP receives periodic reports on the underlying asset pools, virtually all of the regulatory capital CDS transactions contain confidentiality restrictions that preclude AIGFP's public disclosure of information relating to the underlying referenced assets.

Isn't that nice?  So AIG insists that we trust them, and in addition, that everyone else trust them, as to the precise composition of these "assets", their performance, and who is on the other side of the transaction.

Oh, it gets better.  The weighted average maturity of these transactions is 1.35 years, we can't tell what's left in there, and we also can't know who's on the other side of the transaction, but what we are told is that the essential financial purpose of these transactions was to evade regulatory capital requirements.

Net notional?  Oh, that's nice.  Since the claimed underlying "net derivative asset" is essentially nil against this "notional", one wonders what the real risk is on the table here in terms of the firm.  Seeing as it's in the "risks" section of the 10Q, it has to be material to results, right?

Why do I smell sulfur?

Heh, Bloomberg is blowing a whistle!

A potentially more important development slipped by with less notice, Bloomberg Markets reports in its April issue. Representative Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform, placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.

Yeah.  But that 62.1 billion is just part of the problem.  See, we seem to be into these clowns for $180 billion.  How come, if there was "just" $62 billion in bad paper out there?

“It’s almost too uncanny,” Calacci says. “If these banks had insight into the underlying loans because they had relationships with banks, originators or servicers, that’s at the least unethical.”

The identification of securities in the document, known as Schedule A, and data compiled by Bloomberg show that Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured -- more than any other investment bank. Merrill Lynch & Co., now part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche Bank AG underwrote $9.5 billion.

I don't think there's anything uncanny about it.  Look, this wasn't so simple as "someone placed a bet."  That goes on every day, and there's nothing wrong with it.

No, this has more nefarious overtones.

They met with bankers at Bear Stearns, Deutsche Bank, Goldman Sachs, and other firms to ask if they would create securities—packages of mortgages called collateralized debt obligations, or CDOs—that Paulson & Co. could wager against.

The investment banks would sell the CDOs to clients who believed the value of the mortgages would hold up. Mr. Paulson would buy CDS insurance on the CDO mortgage investments—a bet that they would fall in value. This way, Mr. Paulson could wager against $1 billion or so of mortgage debt in one fell swoop.

At Bear Stearns, however, Scott Eichel, a senior trader, and others met with Mr. Paulson and later turned him down. Mr. Eichel said he felt it would look improper for his firm. "On the one hand, we'd be selling the deals" to investors, without telling them that a bearish hedge fund was the impetus for the transaction, Mr. Eichel told a colleague; on the other hand, Bear Stearns would be helping Mr. Paulson wager against the deals.

Some investors later would argue that Mr. Paulson's actions indirectly led to the creation of additional dangerous CDO investments, resulting in billions of dollars of additional losses for those who owned the CDO slices.

Please go read "The Audacity of Synthetics" again, which I wrote a couple of weeks ago.  The problem with these things is simple - they existed only because someone wanted to make a bet that the person who bought them would lose all their money!

As I have repeatedly said I don't give a damn what people bet on or what they want to do in the markets.  We have a huge casino here on Wall Street and always have, and trying to make that "go away" is a waste of time.  It won't.

No, the problem is lack of disclosure and the "I'm just the bookkeeper" defense, which is the essence of the investment (and commercial) bank perspective.

Speaking of the latter, how's that work out for the bookie's "accountant" when the FBI comes in and raids a wire room that's running ponies or whatever?  Not so good, right?

So how come the "bookkeepers" are still operating in this case?

Now there's something to think about.