I think the best way to explain SEC's Goldman Sach's lawsuit for fraud is valid, but I'm not exactly sure if this is a true lawsuit or just leverage so that GS does not stand in the way of Financial Regulatory Reform. After all, the last thing Obama wants is any delay on another bill that has to go through Congress.
Did GS (don't forget, we should still call it Government Sachs) commit fraud. Did Zero Mostel and Gene Wilder try to commit fraud by putting on the absurd musical "Springtime for Hitler" in the film The Producers? The only difference is that the show was a success--not a failure--so Mostel and Wilder could not get the insurance on a failed Broadway show.
Not the same with mortgage-filled collateralized debt obligations (CDOs).
Here's the fraud GS did--they sold a group of AAA-rated mortgages to investors that were not really AAA-rated mortgages. They were some--well, maybe a few--really good mortgages that would always be paid back. Then there were a bunch of crappy, subprime loans (interest only, no-income, no-asset loans) that might or might not be paid back and they added credit insurance so that they made it look like it was the best of the best in mortgage loans.
The investors, like pension funds all over the world (Norway, ICELAND, U.S.), invested in those CDOs because they thought those bonds were "safe" AAA-rated bonds that were provide a good yield or payback. Besides pension funds, of course, there are mutual funds and other people's retirement funds that lost money from these collapsed home loans that are worth nothing because they will never be paid back. Meanwhile, the investor banks made alot of money and so did the investment bank traders who made the trades.
So, was it fraud? Well, when a third-party who, coincidentally, was named Paulson "shorted" these CDOs, he was honest with his investors. He said these things suck and, indeed, he was right and made a ridiculous amount of money. The question is whether GS actually shorted their own CDO fund--which they sold to other investors as AAA. Did GS say that these things suck and, therefore, let's take out AIG insurance against it to insure ourselves and then short it so we make alot of money on these crappy loans, too?
Well, they did buy enough AIG insurance to help that company go bankrupt, which was bailed out because AIG owns a bunch of other insurance companies all around the world.
If you have time, go to AIG and look around. After all, as a taxpayer, you're one of the involuntary stockholders of the company. See how many of trillions of dollars they sold in insurance against derivatives or "bets" that these loans would fail.
So, a guy named Paulson is rich beyond the "dreams of avarice," Lloyd Blankfein, CEO of Government Sachs is rich with a $9 million salary last year and a bunch of investment bank traders made a heck of alot of money (six figures or more).
Now, why don't we bring back Glass-Steagall to split up investment banks like Goldman Sachs (which is now a commercial bank doing investment trading) with Main Street banks? Because nobody up on Capitol Hill wants it because nobody on the financial mountain top wants it. Wealth gets its way again, right?
Meanwhile, all those unemployed Republican teaparty participants don't like the current reform. Well, it's not like Republicans are going to bring back Glass-Steagall either.
Here's a little hint: Democrats and Republicans are both wholly-owned subsidiaries to Wall Street bankers (watch Dylan Ratigan's Friday show) and unless we elect Alan Grayson, Elizabeth Warren, Bernie Sanders or Ron Paul, don't expect anything to change.
More important, expect Goldman (Government) Sachs to get back up after SEC's little push today, dust itself off, and go back to business-as-usual on Monday. We the people, who think our Federal Government is finally getting tough, will soon forget about all this as we find out who wins American Idol and argue between those darn Republican/Democrat policies and we'll vote for and against in November.
I'm sure Congress is quaking in their boots.
Friday, April 16, 2010
Tuesday, April 13, 2010
Greed is Good or Greece is Good?
More and more, we discover our leaders--politicians, CEOs and some clergy--disappoint us. They disappoint us in the United States but also around the world.
Because of these people, our institutions--government, financial and religious institutions--insult decent, working (and non-working) people's sense of ethics and morality.
Who put these people in charge and why are they still there?
The guy in charge of "checking off" the Lesbian bondage fiasco for the Republican National Committee is still there and making money; Jaime Dimon is still CEO and still making millions; the Pope makes a horrible PR move, priests still have to remain celibate and a pedophile Cardinal runs free; Alan Greenspan still gets attention and people actually still care about his opinions. Why?
One of the few times I was on a panel several years ago during the "halcyon" days of housing, I said that whoever had the idea of making Fannie Mae and Freddie Mac public AND private institutions created an inherent conflict of interest, which just doesn't work. Daniel Mudd finally admitted to that the other day. If they only would have listened to me a few years ago.
When I asked Franklin Raines if Fannie Mae is doing anything to put financial literacy programs into secondary education, he said they were working on it. Sure. And, Angelo Mozilo, CEO of Countrywide, shrugged the idea off saying students "would probably cut class anyway."
But that's besides the point.
It's pretty obvious by now that Geithner-Bernanke-Summers will save the too-big-to-fail bank model if it means destroying the U.S. and any certainty-in-value there may be for currency, housing and commercial real estate. Right now, it looks like they'll succeed in their never-ending pursuit of a credit-driven, material wealth, Reaganomics society.
Regulatory reform will likely turn into 2000 pages of laws that TBTF bank lawyers can figure out ways to get around. Rather than bring back Glass-Steagall, we have to sit through months of stupid regulatory reform legislation, created by a paid-for Congressman, owned and/or rented by bank lobbyists. (That's Sen. Christopher Dodd, D-Conn. for those watching).
Speaking of conflict of interests, Greenspan said he does not want to see investors making dangerous bets with consumer deposits, but he doesn't see why we need to bring back Glass-Steagall. It's also amazing the "selective memory" that man has. Why was I and a million other people able to see that Interest Only mortgages and No Interest No Job or Asset loans would be a disaster for non-sophisticated homebuyers and destroy the mortgage market.
Greenspan said nobody could see it? Either we had a total imbecile at the Federal Reserve (and Andrea Mitchell married a total imbecile) or when times are good, nobody wants to stop the music.
Thinking of "when times are good, nobody wants to stop the music," I understand that the U.S. will be contributing $100 billion to a $500 billion International Monetary Fund that will, in turn, bail out Greece and other European countries (when they end up needing bailouts). It's just another $100 billion--a small fraction of the $3 trillion to $4 trillion in debt we've built up.
This is why I said the catastrophic economic collapse will happen in 12 to 18 months...it takes a long time to destroy the country if you use all the tools available to do it. Besides, it took three years after 1929 for the second collapse. And, please, quit this "Great Recession" stuff. It's the "Great Depression II" and history will certainly show that.
So, will there be any community or regional banks after all is said and done? Well, when the smoke clears, there will be the large too-big-to-fail banks, the very small community banks and a few credit unions added to the too-big-to-fail Navy Federal Credit Union.
Not sure about the FDIC and where they plan to get the money to close all these banks. What a joke. Meanwhile, we're more in debt than Greece will ever be and nobody will dare cut our ratings. Plus, Government Sachs will keep buying up bonds and feeding the stock market until it shorts everything, everywhere and all hell breaks loose.
And, it amazes me when I watch McNeill-Lehrer and these "experts" can't say why mortgage modification programs don't work. It's pretty simple--banks have to answer to residential mortgage-backed securities bondholders. Those are contracts that will cost those big banks lots of money if they break them because the lawsuits will flood in. They probably already have. If they break those contracts, then they won't be too big to fail. Their hands are tied.
I've said it before and I'll say it again. There needs to be "investor confidence" to bring liquidity back into the real estate market. Investor confidence comes from value certainty. Value certainty can only be attained through market corrections. Market corrections cannot happen while the U.S. Federal Government bails out homeowners who will not be able to pay off their mortgages and insolvent financial institutions.
The world will not have investor certainty if the U.S. Federal Government does the same thing with other countries either--like Greece. Because, if you haven't looked lately, the U.S. is Greece.
Because of these people, our institutions--government, financial and religious institutions--insult decent, working (and non-working) people's sense of ethics and morality.
Who put these people in charge and why are they still there?
The guy in charge of "checking off" the Lesbian bondage fiasco for the Republican National Committee is still there and making money; Jaime Dimon is still CEO and still making millions; the Pope makes a horrible PR move, priests still have to remain celibate and a pedophile Cardinal runs free; Alan Greenspan still gets attention and people actually still care about his opinions. Why?
One of the few times I was on a panel several years ago during the "halcyon" days of housing, I said that whoever had the idea of making Fannie Mae and Freddie Mac public AND private institutions created an inherent conflict of interest, which just doesn't work. Daniel Mudd finally admitted to that the other day. If they only would have listened to me a few years ago.
When I asked Franklin Raines if Fannie Mae is doing anything to put financial literacy programs into secondary education, he said they were working on it. Sure. And, Angelo Mozilo, CEO of Countrywide, shrugged the idea off saying students "would probably cut class anyway."
But that's besides the point.
It's pretty obvious by now that Geithner-Bernanke-Summers will save the too-big-to-fail bank model if it means destroying the U.S. and any certainty-in-value there may be for currency, housing and commercial real estate. Right now, it looks like they'll succeed in their never-ending pursuit of a credit-driven, material wealth, Reaganomics society.
Regulatory reform will likely turn into 2000 pages of laws that TBTF bank lawyers can figure out ways to get around. Rather than bring back Glass-Steagall, we have to sit through months of stupid regulatory reform legislation, created by a paid-for Congressman, owned and/or rented by bank lobbyists. (That's Sen. Christopher Dodd, D-Conn. for those watching).
Speaking of conflict of interests, Greenspan said he does not want to see investors making dangerous bets with consumer deposits, but he doesn't see why we need to bring back Glass-Steagall. It's also amazing the "selective memory" that man has. Why was I and a million other people able to see that Interest Only mortgages and No Interest No Job or Asset loans would be a disaster for non-sophisticated homebuyers and destroy the mortgage market.
Greenspan said nobody could see it? Either we had a total imbecile at the Federal Reserve (and Andrea Mitchell married a total imbecile) or when times are good, nobody wants to stop the music.
Thinking of "when times are good, nobody wants to stop the music," I understand that the U.S. will be contributing $100 billion to a $500 billion International Monetary Fund that will, in turn, bail out Greece and other European countries (when they end up needing bailouts). It's just another $100 billion--a small fraction of the $3 trillion to $4 trillion in debt we've built up.
This is why I said the catastrophic economic collapse will happen in 12 to 18 months...it takes a long time to destroy the country if you use all the tools available to do it. Besides, it took three years after 1929 for the second collapse. And, please, quit this "Great Recession" stuff. It's the "Great Depression II" and history will certainly show that.
So, will there be any community or regional banks after all is said and done? Well, when the smoke clears, there will be the large too-big-to-fail banks, the very small community banks and a few credit unions added to the too-big-to-fail Navy Federal Credit Union.
Not sure about the FDIC and where they plan to get the money to close all these banks. What a joke. Meanwhile, we're more in debt than Greece will ever be and nobody will dare cut our ratings. Plus, Government Sachs will keep buying up bonds and feeding the stock market until it shorts everything, everywhere and all hell breaks loose.
And, it amazes me when I watch McNeill-Lehrer and these "experts" can't say why mortgage modification programs don't work. It's pretty simple--banks have to answer to residential mortgage-backed securities bondholders. Those are contracts that will cost those big banks lots of money if they break them because the lawsuits will flood in. They probably already have. If they break those contracts, then they won't be too big to fail. Their hands are tied.
I've said it before and I'll say it again. There needs to be "investor confidence" to bring liquidity back into the real estate market. Investor confidence comes from value certainty. Value certainty can only be attained through market corrections. Market corrections cannot happen while the U.S. Federal Government bails out homeowners who will not be able to pay off their mortgages and insolvent financial institutions.
The world will not have investor certainty if the U.S. Federal Government does the same thing with other countries either--like Greece. Because, if you haven't looked lately, the U.S. is Greece.
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