Bank Fail Friday Terror Spree Continues, 9 Banks Go Down



I have an issue with the FDIC that I will air here.

The Bank Fail Friday team monitors and reports on Friday bank failures as well as issues in bank regulation and supervision from across the country. As the only West Coast member of the team, it's generally my duty to call all clear as I sneak out of the office just after 6p Pacific time (ok, make that 6:30 or 6:45, I'm a workaholic...) from my BlackBerry at the bus stop home. And yesterday, like most Fridays, I did exactly that after holding on a bit later for just one bank failure. Nothing. Suspicious quiet but alright, maybe we'd had a rough week previous and needed a break.

No sooner did I call all clear than Twitter informed me the FDIC had announced 9 failed banks - count 'em, 9! - absorbed by Minneapolis-based US Bancorp (as in US Bank). Fooled by the FDIC once before I swore I'd never let that happen after they got me just before 7p some other Friday. 9!

Knock off the funny stuff, FDIC, you're not slick by waiting until long after business hours on a Friday with this, especially if a Minneapolis-based bank was lined up to take these failures on, this should have been addressed and announced by 2p, not 6:45p Pacific time. That's nearly 10 at night on a Friday in NY, are you trying to hide something or what?

"For immediate release" obviously doesn't mean for immediate release and I call bullshit. U.S. Bank, NA, of Minneapolis, Minnesota, Assumes All of the Deposits of Nine Failed Banks in Arizona, California, Illinois and Texas:

The Federal Deposit Insurance Corporation (FDIC) entered into a purchase and assumption agreement with U.S. Bank, NA, of Minneapolis, Minnesota, a wholly-owned subsidiary of U.S. Bancorp, to assume all of the deposits and essentially all of the assets of nine failed banks. The nine banks were closed this evening by federal and state bank regulators, which appointed the FDIC as receiver.

The nine banks involved in today's transaction are: Bank USA, National Association, Phoenix, Arizona; California National Bank, Los Angeles, California; San Diego National Bank, San Diego, California; Pacific National Bank, San Francisco, California; Park National Bank, Chicago, Illinois; Community Bank of Lemont, Lemont, Illinois; North Houston Bank, Houston, Texas; Madisonville State Bank, Madisonville, Texas; and Citizens National Bank, Teague, Texas. As of September 30, 2009, the banks had combined assets of $19.4 billion and deposits of $15.4 billion.

(ouch, PNB San Francisco, sorry to hear that... not!)

Bloomberg:

U.S. Bancorp, the Minneapolis-based lender expanding amid the financial crisis, agreed to acquire nine failed banks owned by closely held FBOP Corp. and seized by regulators yesterday.

The nine banks will cost the Federal Deposit Insurance Corp. a combined $2.5 billion, the agency said. So far this year, 115 banks have failed, sending the insurance fund into a deficit in September and prompting the agency to propose that banks prepay three years of premiums to raise $45 billion.

U.S. Bancorp agreed to assume all the deposits and essentially all the assets of the banks, in California, Texas, Arizona and Illinois, that were seized yesterday by regulators, the FDIC said. The lender is adding branches, acquiring deposits and seeking to gain share in the mortgage market.

“This transaction is consistent with the growth strategy that we have outlined many times in the past,” Rick Hartnack, vice chairman of consumer banking for U.S. Bancorp, said yesterday in a statement. “We also view this type of acquisition as an efficient means of leveraging” the company’s capital base.

The company, which in June repaid $6.6 billion from the Treasury’s Troubled Asset Relief Program, said earlier this month that third-quarter profit rose 4.7 percent on higher net interest margins and fees from mortgage banking and transactions at automated teller machines.

U.S. Bancorp fell 99 cents, or 4 percent, to $23.22 yesterday in New York Stock Exchange composite trading, and has dropped 19 percent in the past 12 months.

Earlier this month, the lender purchased Nevada bank branches and $800 million in deposits from BB&T Corp.


US Bank is probably the only other bank in California that I would recommend to California depositors besides Bank of the West. But hey, maybe you enjoy that thrilling feeling you get from not knowing if your money is safe.

Happy Halloween, Sheila Bair, going as an axe murder this year are we?

Death and Taxes




The lesson here? Don't die.

WSJ:

With the federal estate tax disappearing for most people, state death taxes have emerged as a surprise new worry.

This year, the federal exemption rose to $3.5 million per individual, or as much as $7 million per married couple. At the current level, only 5,500 estates a year are federally taxable.

That is down from the 17,500 estates that would have faced death taxes under the previous $2 million limit, the Urban-Brookings Tax Policy Center estimates.

The problem is that most states with estate or inheritance taxes haven't raised exemptions to match the federal limits. That means thousands of taxpayers who now escape the federal levy could still get hit with a state death tax.

As a result, tax advisers are tweaking bypass trusts that allow married couples to maximize exemptions from state taxes. They are advising taxpayers where to retire in order to pare or eliminate estate taxes. And they are counseling out-of-state taxpayers so that they don't get dinged for property they own in a state with a tough death tax.

"In the past, many people hardly gave state death taxes a thought," says veteran estate attorney Sidney Kess in New York. "Now they are shocked at how expensive mistakes can be."


Squeeeeeeeeeeeeeze.

Less Than 700 Days Until We Run Out of IP Addresses, I Guess


as a parent who works on the internet, I find this offensive
not really.



See, I live off seeing what you did there. If we run out of IPs, I'll be terribly disappointed.

In a recent interview, John Curran, president and CEO of the American Registry for Internet Numbers, explained why businesses need to sit up and take notice of the impending shift that is taking place as we move from Internet Protocol version 4 (IPv4) to the more expansive IP version 6.

What’s happening is the original Internet numbering system — which assigns addresses such as 192.168.1.1 — is running out of numbers. IPv4 is a 32-bit system with four billion possible combinations. “That sounds like a lot of numbers [oh no, anything but a lot of fucking numbers!], but it really isn’t when you think about the size of the globe and the number of devices being connected these days,” Curran says. In fact, we’re due to run out of numbers within 700 days, he warns. IPv6, with 128-bit addressing space, enables “numbering of all of the molecules in the galaxy,” he says.

As soon as the last IPv4 number is used up, every new device or site that comes along after that uses IPv6. Don’t loose [sic] too much sleep over your systems, however. Industry planners have been aware of this matter since the 1990s. Most hardware and software has been ready for IPv6 for some time.

However, Curran advises businesses to check their configurations before the changeover takes place, as glitches may come up. “We can’t actually get an IPv6 host and an IPv4 server to talk to each other, because the IPv4 server only knows 32 bits. It’s much like if your telephone was set up to only ever dial seven digits, and it wouldn’t let you dial 10. Sure you could almost have a conversation, but you couldn’t call most of the world.”

When the changeover occurs, “ISPs are going to have to start using IPv6 to connect customers,” he explains. “Then, they’re going to have to put IPv6 gateways in, boxes that work like network address boxes, to translate IPv6-connected customers to the IPv4 websites on the Internet. That will work, but that’s going to be suboptimal, because those are gateways doing the translation.” This may slow down online applications such as Skype, Voice over IP, real-time video games, which “won’t necessarily run smoothly going through those translators.”

Curran points out that the Internet will be running on two protocols for some time. “If you really want to start a business that’s Internet based, you’re going to want to take your equipment, and make it connected by both IPv4 and IPv6.”


Just let me keep all of these (trust me, they are fun as hell to watch) and I'll be happy if they change the Internet as long as it's better. I'm reluctant to see how this turns out, as I recall rural broadband was an early Stimulus goal. Who can trust what they say about the Stimulus anymore?

Mandelman Matters gets into the other Stimulus distortions in further detail. Personally I can't stand to look at it.

Also, bust out the Schedule Fs, Internet accountants, farmers use the Internet too. Maybe that rural broadband plan is working, I'd actually love to see that.

Ethics (LMFAO)




I mean really.

LA Times (the source is the irony):

Ethics inquiry looks into several House panel members

Seven lawmakers on the defense appropriations subcommittee got donations from PMA Group clients while sponsoring spending on beneficial projects. The investigation was revealed in a 'data breach.'

Reporting from Washington - Nearly half the members of the House subcommittee that oversees more than $600 billion in Pentagon spending have been targeted by ethics investigators who are probing the conduct of a once-influential Washington lobbying firm, according to a confidential document that the House Ethics Committee says was inadvertently exposed.

The seven members -- five Democrats and two Republicans -- received campaign donations from the clients of the firm while sponsoring federal spending on projects that benefited the clients. The revelations from the highly secretive ethics committee could have serious consequences for the members named. Republicans quickly indicated that they would use the disclosures as a weapon in their effort to retake control of the House in next year's congressional elections.

The document, which was prepared by the ethics committee in July, reportedly detailed a number of active ethics inquiries into House members.

I repeat: ethics LMFAO!!!!!!

Craigslist makes my point:

Originally Posted: Thu, 3 Jan 22:08 PST

I need someone to take CPA Ethics test for me


Date: 2002-01-03, 10:08PM PST


Local CPA candidate has no time to study; will PAY you to take the ethics exam for me! Serious replies, only. You must have passed test in California within last two years.


I don't have to repeat myself I hope.

Accounting "Irregularities" on the Rise in the Recession



Reuters is reporting accounting fudging and fraud are on the rise in the US as a result of "pressures" for companies to perform despite the hostile economic environment.

Sure, there's that and then there are also the auditors but we'll leave them be for now, it's Friday and we're feeling nice.

Reuters:

Corporate balance sheets may be showing signs of the wear and tear from the prolonged U.S. recession as accounting irregularities are starting to surface at growing numbers of U.S. companies.

"When things get difficult companies tend to stretch even further and utilize whatever games that they can get away with and sometimes they don't get away with them," David Tice, chief portfolio strategist for bear markets at Federated Investors, said in an interview with Reuters television on Wednesday.

Accounting irregularities are increasingly showing up in U.S. regulatory filings and corporate announcements.

Shares of Apollo Group Inc (APOL) sank 18 percent on Wednesday after the parent of University of Phoenix said the U.S. Securities and Exchange Commission had launched an informal inquiry into its revenue recognition practices.

Apollo is just one of several big name companies that have disclosed they have accounting issues over the last few weeks.

Internet retailer Overstock.com (OSTK) said last month that it was under scrutiny from government regulators over the way it accounted for some expenses. The company restated financial results in 2006 and 2008.

New York Sports Clubs owner Town Sports International Holdings Inc (CLUB) said last month that the SEC was formally investigating its deferral of certain payroll costs related to membership sales.

And jewelry chain Zale Corp (ZLC) said it will report fourth-quarter financial results on Thursday, after it twice-delayed its earnings results due to an accounting review of prepaid advertising costs.

"Statistically you can show any time you have a recession or some type of tremendous decline in an economy you're going to see financial pressures on companies," said Bruce Dorris, program director at the Association of Certified Fraud Examiners, noting that corporate employees can sometimes be motivated to be overly aggressive with accounting or commit outright fraud to meet targets, particularly in difficult economic times.


Fraud in non-financial sectors? Say it ain't so. Well why should auditors and management be committed to truthful accounting if the example set by our powers that be is to deny, deny, deny?

Professor of Economics and Law at the University of Missouri and senior regulator during the S&L crisis of the 1980s, William Black blamed "a massive fraud" for the economic crisis on Bill Moyers earlier this year:

[They] don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up....

Geithner is ... covering up. Just like Paulson did before him....

These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed....

Until you get the facts, it's harder to blow all this up. And, of course, the entire strategy is to keep people from getting the facts....

[Question] Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?

[Black] Absolutely....

They're deliberately leaving in place the people that caused the problem, because they don't want the facts. And this is not new. The Reagan Administration's central priority, at all times, during the Savings and Loan crisis, was covering up the losses.

[Question] So, you're saying that people in power, political power, and financial power, act in concert when their own behinds are in the ringer, right?

That's right. And it's particularly a crisis that brings this out, because then the class of the banker says, "You've got to keep the information away from the public or everything will collapse."


Move along now, nothing to see on these cash flows...

SunTrust: Probably Still Discriminatory but Definitely About to Go Bust




Earlier today, we discussed Regions Financial extending loans to bankrupt municipalities (red flag!) and regulatory mishaps in the 6th District. The cool part is that this is nothing new. Read on, let's talk about SunTrust (we also know SunTrust as the bank who entered into sheisty ARS agreements with LandAmerica but we'll let that one go. For now) and why it should have already been taken out back and put out of its misery.

The Atlanta Journal-Constitution May 3, 1988:

Trust Company Bank is an Atlanta institution.

The bank is proud of its historic role in promoting the city's economic health. Known as the "Coca-Cola Bank," Trust Company was led by the late Robert W. Woodruff, the Coke magnate remembered as the city's greatest philanthropist.

And the bank is proud of its historic role in promoting racial harmony. The late John A. Sibley, then retired chairman of Trust Company, was credited with holding Georgia's black and white leadership together in 1960-61 as public schools began desegregation, and he provided seed money for single-family housing for blacks in southwest Atlanta during tense times in 1962.

"Trust Company Bank has contributed to the shaping of Atlanta like few other institutions," the bank's literature says.

That's all true, say the leaders of an Atlanta neighborhood coalition. The Atlanta Community Reinvestment Alliance also says Trust Company doesn't lend much money to black people.

"I'm not going to try to tell you the bank's motives," said Dennis Goldstein, the Atlanta Legal Aid Society lawyer representing members of the coalition. "But the bank's policies have a racially discriminatory effect in the extreme."

The coalition filed a complaint with federal regulators last year against Trust Company's parent, SunTrust Banks. After negotiating unsuccessfully with the bank for a year, the group asked the Federal Reserve Board to stop a SunTrust merger. The group claimed Trust Company was redlining -- not lending in working-class and minority neighborhoods -- in violation of the federal Community Reinvestment Act.

SunTrust won, as has every other bank challenged through complaints to the Federal Reserve Board.Last April, Trust Company's corporate counsel, J. David Webb, wrote to the executive director of Atlanta Legal Aid, Steve Gottlieb, asking if Legal Aid was soliciting clients to challenge SunTrust. If the lawyers were soliciting clients, Webb said, Trust Company would be unable to give its annual $100-per-attorney donation to Legal Aid. After Legal Aid gave assurances that the clients had come forward on their own, Trust Company made its usual donation.

Trust Company's arguments and information persuaded the federal regulators.
After one negotiating session, the chief regulator on the case, William Estes III, examining officer for the Federal Reserve Bank of Atlanta, wondered aloud why the group bothered to file a challenge. "He said he was impressed by the communication between the bank and the community group," said lawyer Goldstein. "This was shocking to us, because the focus of the meeting was our complaint about the bank's lack of communication."

The coalition asked the Atlanta Fed to hold a public hearing. The request was denied.

In the end, the Federal Reserve Board in Washington refused to hear the challenge.

The coalition was not surprised, but it was angered that the regulator made a point of praising Trust Company.


Well wait a minute, we know Bill Estes (he actually just got the hell out of the 6th District as head of their bank supervision but most definitely not because Atlanta failed miserably or anything *cough*) and we know Atlanta Fed and we definitely know the Board. But we also know SunTrust - and I'm sort of shocked they aren't getting in on the hot broke municipality action with Regions. Why not?

Atlanta bank supervision might have to hire me as a consultant if I keep doing their footwork for them and finding all these bloody gloves, Christ.

Reuters:

Many U.S. regional banks, including Fifth Third Bancorp (FITB) and SunTrust Banks Inc (STI), may not show a profit until 2011, veteran banking analyst Richard Bove said, and downgraded both the stocks to "sell" from "neutral."

For SunTrust too, loan losses from its Florida and housing markets may keep the Southeastern regional bank in a loss position until the start of 2011 despite management's efforts to address problem areas, Bove said.

Last week, SunTrust posted its fourth straight quarterly loss, hurt by hefty loan loss provisions and an accounting change.

SunTrust is still suffering relatively high losses from home construction and mortgage-related lending, while its rivals have reported an easing of such problems. Analyst Bove also revised his price targets and outlook for Fifth Third, U.S. Bancorp and SunTrust.

SunTrust blames part of its issues on the fact that it's paying so much out to that loan shark the United States government:

SunTrust Banks Inc (STI) will repay its $4.9 billion government bailout as soon as regulators allow and its credit problems stabilize, CEO James Wells said on Tuesday.

Wells, speaking at the Barclays Global Financial Services Conference in New York, said the bank will not raise capital through a stock offering to repay the money borrowed under the Troubled Asset Relief Program. Instead, the bank will build capital through its earnings, he said.

Wells compared the bailout funds to "very expensive debt."

"I think anybody in their right mind would want to do something with debt this expensive," he added. The bank pays an 8 percent dividend rate on the preferred shares it sold to the U.S. government.

Wells said that before allowing the bank to repay the funds, he expects regulators will first need to see the bank's loan losses are well below the levels assumed in a May "stress test."

The stress test projected SunTrust's loan losses could reach $11.8 billion under a worst-case scenario for 2009 and 2010.

Psst, Atlanta Fed, a bank you supervise announced that it plans to RAISE capital (despite posting its fourth quarterly loss with no end in sight) to pay off these 8% loan sharks, that might be a tad disconcerting. Perhaps you can have a talk with them and see if you have some other suggestions? Like a yard sale?

By the second quarter of 2009, SunTrust had expanded its loan loss reserve 5.3% to $2.9 billion.

Somehow SunTrust passed the stress tests last May (anyone remember those?) despite regulators declaring they needed to come up with $2.2 billion in capital. GMAC also apparently passed so that tells you something. Now I'm no mathlete but weighing those write-downs against the pending commercial real estate implosion waiting on STI's books, I might be inclined to declare this bank is pretty much DOA.

Hopefully someone gets that memo and does something about it. Or do we wipe out the depositors but keep the beast alive so the government can get its TARP kickback? Whatever. It is my understanding that SunTrust is still waiting patiently to get the green light from regulators to pay back TARP which, you know, I wouldn't hold my breath for if I were them, those write-downs are a bitch.

I will throw SunTrust a bone here and say it appears as though they understand the concept of write-downs better than most banks but that certainly isn't going to save their asses.

Good luck with all that and sorry to Atlanta Fed, sucks that you have all the crappy banks. Think about it, it could be worse, you could be Richmond and they have Bank of America. Seriously. Then again, BB&T could totally take Regions in a fight any damn day but... Whatever. Your banks are screwed.

Also, SunTrust is about to get its ass pounded again when former LandAmerica execs try to restore their good name (bwhahahahahahaha LOL j/k bwhahahahaha some more) and their former clients' money that somehow got squandered away in SunTrust's ARSs. But that tale is for another day too, we're tired of this crap.

Speaking of screwed banks, don't forget to follow all the hot bank fail action over at Bank Fail Friday.

Prove That Paper is Something Other than Paper and Atlanta Fed Gathers Intelligence But Not Much Else




Remember what it felt like when you watched OJ not speeding down the freeway? This is sort of like that but with more bodies.

Governing.com:

These days, Bettye Fine Collins doesn’t talk like a power politician. “It’s not easy being me,” she complains. It’s not hard to understand why. As president of the County Commission in Jefferson County, Alabama, she’s the top elected official in one of the nation’s most financially troubled jurisdictions. The county of 660,000, anchored by Birmingham, has teetered on the brink of bankruptcy since April 2008. That’s when Jefferson County ceased making payments to creditors holding bonds that paid for its sewer system. “It’s a long, terrible situation,” Collins says. “I don’t think there’s another situation in this country that would compare.”

Jefferson County’s problems stem from a noxious mix of incompetence, political paralysis, corruption and bad luck. While a possible solution is in the offing, the tale is a cautionary one—for municipalities across the country, as well as anyone who is owed money by a local government.

Jefferson County’s saga began in 1993, when members of the Cahaba River Society complained that the county’s sewer system was discharging raw sewage into waterways. Federal officials issued a consent decree in which Jefferson County promised to upgrade the system.

To do so, the county issued $3 billion in bonds, an incredible amount for a sewer system with only 150,000 customers. As sewer rates rose to meet those costs and Jefferson County struggled under its debt, county officials looked for a way to lessen its loan payments. In 2002 and 2003, they refinanced their bonds with variable-rate and auction-rate securities. Auction-rate securities are bonds where the interest rate is reset by auctions conducted by brokerage firms every few weeks. “It’s a little like someone buying a house and getting a pretty good 30-year fixed-rate mortgage,” says Christopher “Kit” Taylor, former executive director of the Municipal Securities Rulemaking Board. “Then somebody says, ‘Why don’t you get an adjustable-rate mortgage?’”

Auction-rate securities were supposed to be safe, but the auction-rate market collapsed in February 2008. That wasn’t the county’s only misfortune. The bond insurance companies that were backing the county’s debt suffered their own fiscal problems and their credit was downgraded. All of which caused the county’s interest rates to skyrocket, much like a homeowner whose subprime mortgage has just reset. Revenue from sewer fees could not keep up with the borrowing costs. On April Fool’s Day 2008, Jefferson County couldn’t make its payment on its debt. Instead, it reached an agreement with its creditors to pay the interest and get an extension on the principal.

These forbearance agreements have continued ever since. Last September, creditors took the case to federal court, hoping a judge would appoint a receiver to force the county to pay the nearly $4 billion it now owes. It wasn’t until this June that the judge ruled that federal law prevented him from appointing a receiver. In other words, Alabama’s most populous county simply hasn’t been paying its sewer debt for the past 16 months.


So I guess the answer really is to stop paying. What else can you do at that point?

+1 for the irony of "April Fools Day" in that particular tale.

Or you can make them prove whatever they are trying to hold over your head:

Kathy Lovelace lost her job and was about to lose her house, too. But then she made a seemingly simple request of the bank: Show me the original mortgage paperwork.

And just like that, the foreclosure proceedings came to a standstill.

Lovelace and other homeowners around the country are managing to stave off foreclosure by employing a strategy that goes to the heart of the whole nationwide mess.

During the real estate frenzy of the past decade, mortgages were sold and resold, bundled into securities and peddled to investors. In many cases, the original note signed by the homeowner was lost, stored away in a distant warehouse or destroyed.

Persuading a judge to compel production of hard-to-find or nonexistent documents can, at the very least, delay foreclosure, buying the homeowner some time and turning up the pressure on the lender to renegotiate the mortgage.

"I'm going to hang on for dear life until they can prove to me it belongs to them," said Lovelace, a 50-year-old divorced mother who owns a $200,000 home in Zephyrhills, near Tampa. "I'll try everything I can because it's all I have left."

In interviews with The Associated Press, lawyers, homeowners and advocates outlined the produce-the-note strategy. Exactly how many homeowners have employed it is unknown. Nor is it clear how successful it has been; some judges are more sympathetic than others.

Hopefully more homeowners employ this than getting pissed off waiting for a Bank of America loan modification.

It must be some consolation that others got pounded by ARSs as well?

Well speaking of Alabama, Atlanta Fed has a branch there and it has confused the Internet:

Federal Reserve Bank Business Information

Federal Reserve Bank is a private company categorized under Federal Reserve Banks and located in Birmingham, AL. Current estimates show this company has an annual revenue of unknown and employs a staff of approximately 1 to 4.

4 people?

The Birmingham branch no longer conducts tours. They probably really need that 4th person most days to cover the bank failures in Florida I'm sure.

Actually Atlanta tells you what its plans are for the branch so you don't really need a tour:

As it has in the past, the Atlanta Fed also will continue to gather economic intelligence on Alabama’s economy through its Birmingham board of directors for use in formulating national monetary policy.


Freaky. What do you think they have on Jefferson County?

Regions (RF) wants to help:

Banking experts Wednesday struggled to digest the news. How, they asked, is it possible for a lender to extend loans to an entity that is pondering bankruptcy? While civic goodwill has value, they say, banks have a responsibility to regulators and shareholders to make responsible loans.

"Unless we are all missing something in the county's finances, I can't imagine it," said John Kottmeyer, a banking professor at Samford University who spent 32 years as a commercial lender. "It's a loan to a defaulted entity, and not doing that is beyond Banking 101, it's basic common sense."...


Well what would pressure Regions to make a move like that?

And why was Jefferson County redoing its website in July (that's not cheap) when it hasn't even paid its sewer bills? Responsible lending, Regions, srsly. Oddly enough, the largest item on Jefferson County's FY 2010 budget is the "Environmental Services Fund", where "Environmental Services" covers their sewer system... that hasn't been paid for in 16 months. A $265,634,864 item would certainly catch anyone's eye with nearly every other item in the single millions. With an m, we're talking state not federal.

I sincerely hope Atlanta Fed's Alabama arm gathered that particular bit of economic intelligence. There's a lot more of that out there but somehow I get the feeling they're missing it. Hell, this isn't even my job and I figured it out.

Economic Populist shows us why no one trusts bank regulators any longer. That's assuming that anyone ever did.

Commercial Real Estate Is Totally Cool, Says Timmy




Bloomberg:

U.S. Treasury Secretary Timothy Geithner said commercial real estate woes won’t set off a new banking crisis, in remarks to the Economic Club of Chicago.

“I don’t think so,” Geithner said, when asked whether commercial real estate could set off another banking meltdown. “That’s a problem the economy can manage through even though it’s going to be still exceptionally difficult.”

The global economy has accelerated since the worst of the recession and banking crisis last year, Geithner said, noting a U.S. Commerce Department report today showing the economy expanded 3.5 percent in the third quarter.

“You can say now with confidence that the financial system is stable, the economy is stabilized,” Geithner said. “You can see the first signs of growth here and around the world.”

Going forward, the U.S. economy will need to be sustained with private demand without relying on government support, he said. In the meantime, he said, the existing bank rescue and fiscal stimulus programs will help the rebound gain momentum.

“This is going to have to come from private demand, private investment, for it to work and be sustained over time,” Geithner said.

The U.S. needs to bring its budget deficits down “dramatically” because they are too high in the medium term and “unsustainable” in the long run, Geithner said. Investors need confidence that the U.S. that is “going to have the will to do that as the economy recovers,” he said.


"Going forward, the U.S. economy will need to be sustained with private demand without relying on government support, he said. In the meantime, he said, the existing bank rescue and fiscal stimulus programs will help the rebound gain momentum."

Going forward when? Can we have a date please? How about Halloween? April Fools Day? December 21st, 2012? Give me a date or I don't buy it.

Maybe NY Fed Wasn't Evil with AIG, Just Really Stupid


I have nightmares about this kind of shit
who the hell is that guy in the back sneaking away??



Bank Lawyer's Blog does Unintended Consequences And Potshots From The Peanut Gallery and basically implies that there was nothing sinister about AIG. I could read between the lines a bit deeper and infer that he is also saying no one actually thought about the consequences of what they were doing at the time within the NY Fed but I can't read lawyers.

Can someone translate?

I hate peanuts, I prefer throwing F bombs, jabs via Google, vicious tweets, and protests (in no particular order) but that's just me. I get BLB's point, even if he is a lawyer:

A post today by John Carney at Clusterstock, and some of the comments to that post, reminded me of my preference to apply "Occam's Razor" to most of life's problems. Simply put (because I'm not bright enough to put it more complexly), Occam's Razor is a principle that states "when you have two competing theories that make exactly the same predictions, the simpler one is the better."

Carney's post discusses statements by the Federal Reserve Bank of New York's general counsel that when the Treasury Department stepped in last year to bail out AIG, the ability of negotiators to make counterparties of AIG (like Goldman Sachs, for instance) on credit default swaps take a "haircut" on what they were owed by AIG went the way of the Dodo bird. A Washington Post article elaborates.

New York Fed officials explained that the main reason creditors were willing for a time to accept less than full reimbursement was their fear of an AIG bankruptcy. The government's rescue of the company removed that threat and left the company with virtually no way to wrestle concessions from the banks.

"In its negotiations with its counterparties, AIG just didn't have the same bargaining power that it did with the Federal Reserve standing in the background," said Thomas C. Baxter, New York Fed's general counsel. "The only sensible outcome was to give them what they were legally entitled to."



Carney alleges that the Fed's bailout of AIG, rather than allowing AIG to go bankrupt, had the "unintended consequence" of giving the counterparties enough spine that they would settle for nothing less than 100 cents on the dollar, which AIG paid. This, according to Carney, will cost the US taxpayers much more than they would have from the AIG bailout if the US government had simply stepped out of the way and allowed AIG to file bankruptcy or, at the very least, not taken any action to bail out AIG until the crisis reached its eleventh hour, fifty-ninth minute and the screws were put to the counterparties to take less than par.

Some commenters disagree strongly with the underlying contention, arguing that the government bailouts of GM and Chrysler resulted in the government strong-arming secured and senior unsecured creditors to take much less than they'd have been entitled to under bankruptcy, and that the government could have chosen to do so in the case of AIG but chose not to do so for some undisclosed reason. Others argue a more nefarious plot, one in which Hank Paulson and Tim Geithner rewarded their Wall Street cronies with plenty of taxpayer dollars because that's what good old boys do for one another. Another commenter alleges that its premature to raise the issue because AIG might pay back its loans from the Treasury and no taxpayer will suffer a loss on AIG.

I'll take nefarious plot for $1,000, Alex.

Advanced players might choose "What Didn't Happen"

Economist Who Didn't Want to Audit the Fed Says We Better Audit the Fed




"My view has changed because the Fed has changed." Word, Doctor, word.

Monetary Freedom teaches us about how the Fed works (sort of - I do disagree with some of this article, thought it was 6% return to Federal Reserve shareholders not 8% and would love to see sources for some of the numbers but whatever) and that you need not wear a tin foil hat to think a Fed audit might be a good idea.

The article actually made me think about a recent exchange which I will totally get into here on JDA because what happens on the Internet stays on the Internet and it's absolutely fodder for the conversation.

I will not refer to the actual tweets as that would be free publicity and Jr Deputy Accountant just doesn't get down like that. I'll remember to hashtag that shit for you stalkery folks next Internet argument I get into, I swear.

So over the weekend, I see this:

@RichmondFed The Fed has never been audited! Ask yourselves why. Watch Fall of the Republic to get the answers: http://tinyurl.com/yhetrxw


First of all, why would Richmond ask itself why it has never been audited? More importantly, why would it ask this if it is actually audited?

So when someone who actually gets the story thus far talks about a Fed audit and says that he's changed his mind along the way, you sort of want to pay attention.

Congressman Ron Paul has been trying to have Congress audit the Federal Reserve for years. In the past, few other Congressmen were interested. However, during the current session, he found 282 co-sponsors for HR 1207. While I have never been opposed to having Congress audit the Fed, I shared the past apathy of most members of Congress. The Fed is regularly audited by leading accounting firms. For example, Deloitte did the 2008 audit. What is the point of having an additional audit by Congress?

Worse, I worried that Congressman Paul was pandering to some of his more conspiracy-minded supporters. If you search the web for “Fed ownership,” more nine million hits return. Most claim that the Fed is a privately-owned corporation. They further claim that the Fed pays a few cents for printing a dollar bill. Then, according to this tale, the Fed lends out the newly-created money at interest, recovering the printing cost. The secret cabal of international bankers rake in one dollar of profit on each dollar bill. How can they get away with it? Supposedly, the Fed has never been audited. Once the Fed is audited, the “banksters’” will no longer be able to siphon off these supposedly vast profits.

This conspiracy theory is a confused mess. The Federal Reserve system is made up of twelve Federal Reserve banks. For example, Charleston is located in the district of the Federal Reserve bank of Richmond. Each Federal Reserve bank is organized as a corporation. The member banks, ordinary commercial banks located in the district, are the stockholders. For example, BB&T (BBT) is part owner of the Federal Reserve bank of Richmond. Each member bank must buy stock equal to three percent of its capital, or net worth. The stock always has a price of $100, and the Federal Reserve banks issue or retire stock according to the amount each member bank is required to own. The Fed pays the banks an 8 percent dividend on that stock-- $8 per $100 share of stock.


He's right! It IS a confused mess. But how does that happen?

So why have Congress audit the Fed? My view has changed because the Fed has changed. The Fed still issues currency, more than $900 billion in September, but banks now hold $884 billion in reserve accounts in the Fed, perhaps because the Fed now pays .2 percent interest on those balances. The Fed has nearly $1.8 trillion to “invest.”

More importantly, the Fed has greatly reduced its holdings of government bonds. In December 2008, Fed holdings of government bonds had fallen to $475 billion, though they increased back to $656 billion as of June. Rather than making a small amount of short term loans to depository institutions secured by government bonds, the Fed has vastly increased its lending to a variety of financial institutions. The Fed was lending $650 billion to depository institutions in December 2008 and the September figure is still $300 billion. They have accepted various sorts of collateral, including mortgage backed securities—so called toxic assets. The Fed current holds $766 billion in mortgage-backed securities.

Which financial institutions borrowed exactly how much from the Fed? The Fed refuses to say. No longer is the Fed just issuing currency and buying government bonds. It is instead directing credit to favored sectors of the economy. Is it directing credit to favored financial institutions as well? Yes Dr. Paul, is past time for an audit of the Federal Reserve.


Whoa. He turned.

Anyway, I'm still gnawing on the bone trying to point out that there is no way any auditor can go into that mess and come out alive. A bad auditor knows a bunch of rules but doesn't feel his way through it. Here, watch my boss on the standards of auditing. He should know, his ex firm signs off on Richmond Fed audits.

Monetary Freedom is like Fedbashing porn, read it.

Also, the Fed is done buying Treasurys. I'm not sure what happens now, I'm fairly sure it involves them still buying Treasurys. Who else would?

California Borrows from Peter to Pay Peter Then Robs Paul at Gunpoint




I just received an email from my office manager that the lovely state of California will be taking an extra 10% from every paycheck simply because they can. The California tax increase is not, in fact, a tax increase at all but a pay day loan to the state from residents. But we'll be in full-on default mode by then so I wouldn't hold my breath. Or have we already forgotten what they tried to pull with our tax refund checks?

Guess that yard sale didn't work out after all, eh?

I would like to personally inform the Taxinator that he is an asshat if he thinks this will save our state. You thought we were leaving in droves before? Just wait.

Sacramento's News10:

Come November, you may notice your paycheck is a bit smaller. As part of the state budget fix, lawmakers are "borrowing" future income withholding taxes in order to raise $1.7 billion for this fiscal year.

"It's not raising taxes. It's just getting the money, borrowing from you for a short period, non-interest bearing, and you'll get it back later," explained Sacramento accountant Ken Astle.

Astle said that taxpayers can file a DE-4 form to change withholdings and increase exemptions to compensate for the extra withholdings.

Taxpayers will get their money back come tax time in 2011, unless they underpaid their withholdings.

In addition, the state is also requiring individuals and business that make estimated tax payments to pay more earlier - another accounting move that is designed to help the state balance its budget this year.

Critics charge that the state is only delaying the task of balancing the budget without accounting gimmicks.

Accounting magic, eh? That's brilliant. So what the fuck does Mr Governator plan to do for 2011? Who is still going to be here to tax?

Idiots. See you bitches in Texas or something, I can't take much more of this.

Oh and Schwarzenegger, I want my 425% in interest just like Western Union gets for payday loans. Compounded daily. Suck it.

Cash for Clunkers Cracked Out GDP



Distortions, distortions, distortions.

But this is good news, it means they didn't just make up the GDP number or pull it directly out of their asses, they just manipulated it to look better than it was. I'm really glad that $24,000 per clunker worked out well for everyone.

Clusterstock
:




If anyone mentions the just-released 3.5% U.S. third quarter GDP growth, just throw this chart in their face. Cash for Clunkers clearly distorted the U.S. economic figures in an unsustainable fashion.

According to the Bureau of Economic Analysis (BEA), motor vehicle output spiked a seasonally-adjusted 157.6% quarter on quarter. This is completely unprecedented. Vehicle output is clearly going off a cliff next quarter. The question will be how low can the blue line below go.

Next quarter, we won't just be returning to business as usual for auto output. Don't forget that Cash for Clunkers pulled future auto demand, ie. some of Q4 demand, into Q3. Thus Q4 is likely to be very weak since many people who planned to buy a car in Q4 probably took advantage of Clunkers and bought in Q3.

To put this into GDP terms, according to the BEA, the spike you see below added 1.66% to the U.S. GDP growth figure reported. Thus without it, GDP growth would have been only 1.89% (3.5% - 1.66%) in Q3.

And Wall Street totally fell for it. That's just sad.

Timmy Takes on the Fed's Massive Monetary Fire Hose


the warning signs are there
now if only they'll pay attention...


What happened, Timmy? I thought you and the Fed were cuddly and cozy, is this move because they wouldn't show you their diabolical schemes? Terrible.

WaPo:

Geithner said a bill by the Financial Services Committee's chairman, Representative Barney Frank, meets the tests for key elements of a resolution authority that the Obama administration would like to see passed.

It is a "comprehensive coordinated answer to the moral hazard problem" and does not provide any implicit guarantees for financial institutions, he said.

"We cannot put taxpayers in the position of paying for the losses of large private financial institutions," Geithner said. "We must build a system in which individual firms, no matter how large or important, can fail without risking catastrophic damage to the economy."

Geithner said large failing firms should be put into a receivership managed by the Federal Deposit Insurance Corp that would seek to "unwind, dismantle, sell or liquidate the firm in an orderly way" where losses would be borne by shareholders and creditors of the firms.


Enough of that moron, what's Daniel "The Bruiser" Tarullo say about all of this?

Tarullo would like some oversight with his oversight. Sounds dangerous:

For purposes of both effectiveness and accountability, the consolidated supervision of an individual firm, whether or not it is systemically important, is best vested with a single agency. However, the broader task of monitoring and identifying systemic risks that might arise from the interaction of different types of financial institutions and markets--both regulated and unregulated--may exceed the capacity of any individual supervisor. Instead, we should seek to marshal the collective expertise and information of all financial supervisors to identify and respond to developments that threaten the stability of the system as a whole.


So Geithner says take away the Fed's precious 13(3) that extends it the power to call a State of Economic Emergency and pull out the monetary fire hose as it sees fit and Tarullo says let's just regulate everything and then regulate the regulation too?

Just in case you need a quick primer on the Fed's magic hose, Market Oracle provides one:

Section 13(3) Explored

Inquiring minds not satisfied with the above press release are looking into Section 13. Powers of Federal Reserve Banks

3. Discounts for Individuals, Partnerships, and Corporations

In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.

[12 USC 343. As added by act of July 21, 1932 (47 Stat. 715); and amended by acts of Aug. 23, 1935 (49 Stat. 714) and Dec. 19, 1991 (105 Stat. 2386.]

Two positions on the board are vacant. It's too bad another one isn't. Although I strongly question the actual intention of section 13(3), a literal interpretation allows the Fed to lend to insurance companies, pizza parlors, casinos, houses of ill repute, or to anyone else the Fed damn well pleases as long as it can muster five votes. Was this really the intent of the bill?


I argue here that Geithner's comments, in fact, mention nothing about this Federal Reserve power. "Any firm that puts itself in a position where it cannot survive without special assistance from the government must face the consequences of failure. The proposed resolution authority would not authorize the government to provide open-bank assistance to any failing firm."

Where in that does it mention the Fed? Surely Geithner's speechwriters know how to choose words carefully. AIG wasn't assistance from the government, it was assistance from the Zimbabwe Ben's PPOTUS and technically we're only borrowing that press (plus interest).

Misbehaving Accountants, You've Been Warned



Take notice, misbehaving accountants, the courts want to give you some circus to go with your bread and teach you a lesson.

NYT:

A wealthy accountant who provided extensive help in the tax evasion inquiry of the Swiss bank UBS was sentenced to a year of house arrest Wednesday after admitting he concealed about $6 million in assets from the Internal Revenue Service.

Steven Michael Rubinstein, 55, was the first United States citizen charged in the investigation. Federal District Judge Marcia Cooke said his prosecution sent a message around the globe about the risks of hiding assets in offshore accounts — and that he deserved credit for helping federal investigators find more tax cheats and crooked bankers within UBS and other institutions in Switzerland and elsewhere.

“Thousands, if not millions, of taxpayers now know what the legal landscape is,” Judge Cooke said. “Now, we will not tolerate offshore tax evasion.”

Mr. Rubinstein will be on probation for three years, including the year of house arrest with electronic monitoring and travel restrictions. He also must pay a $40,000 fine. Prosecutors had sought a year of prison time, even as they stressed Mr. Rubinstein’s continuing importance to the broader UBS investigation.


Maybe house arrest is a good idea, surely there'd be a hit out him if he wasn't or he'd suffer some tragic yet perfectly-timed heart attack (*cough*).

Great, so they tossed one virgin into the flaming volcano, so what?

I'm Obligated to Report This


The true sign of your economic condition isn't what CNBC tells you it is,
it's the infrastructure. Duh.


Because if I don't, someone might pull my card and say I'm asleep at the wheel. #3. It is too big to fail, could be neatly dismantled but will not be, and does not necessarily pose a risk to the system if contained properly.

And it's still getting a bailout.

NYT:

GMAC, which lends money to buyers of G.M. and Chrysler vehicles, is racing to shore up its finances before a crucial Nov. 9 deadline, when federal regulators will evaluate its financial health.

In a prelude to what is likely to be another direct government rescue, GMAC borrowed $2.9 billion in the bond market on Wednesday with the backing of the Federal Deposit Insurance Corporation.

But that money probably will not be enough to plug all the holes at GMAC, whose disastrous foray into subprime mortgages pushed the company to the brink of bankruptcy. GMAC is seeking as much as $5.6 billion in taxpayer money, on top of the $12.5 billion it received in two previous installments along with the growth in its lending responsibilities.

The government has already pumped more into GMAC than it did into Chrysler’s car business. If the third rescue goes through — the terms were still being negotiated — the government could wind up with a majority stake in GMAC. It currently owns 35 percent.

Some analysts suggest other, more radical steps — like cleaving the company in two — might be needed to deal with GMAC’s problems, but no such plans appear imminent.

No other financial company has gone cap in hand to the government three times. The two giants of the bailout era, Citigroup and Bank of America, were rescued twice, although they received many billions more than GMAC.

Why rescue GMAC again? The federal government has committed more than $60 billion to prop up G.M. and Chrysler, and letting GMAC fail, the thinking goes, would threaten a recovery in the broader car industry.

“We are in too deep for us to sensibly back out now,” said Douglas Elliott, a former investment banker who is now a fellow at the Brookings Institution. “We will probably lose less money by putting in more now.”


In totally related news, our friends from up North tell us "the United States Government is on a trajectory to default on their obligations." (h/t Krupo)

There simply isn’t enough taxing power, value creation or outside capital willing to support its egregious spending. Stating the obvious may be construed by some as fear mongering, ‘talking up our book’ or worse, but our view is not as severe as you might think. In the Federal Reserve Bank of St. Louis’ Review from July/August 2006, Lawrence Kotlikoff stated that “partial-equilibrium analysis strongly suggests that the U.S. government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds.” He went on to suggest that the US should immediately close the Social Security program to reduce future liabilities (could you imagine?), use a voucher system for Medicare to limit costs, and replace personal, corporate, payroll and estate taxes with a single federal sales tax. All this, published in an article from 2006, well before the credit crisis and subsequent meltdown had even begun!

Three years later, the financial condition of the US government is completely untenable.


Disclaimer: this blog is not backed by the full faith and credit of the United States

That's probably a good thing.

Richmond Fed Teaches Us a Lesson in the Importance of Google in the Hiring Process




There's about to be some new LandAmerica news so in the meantime I figured I'd offer a little bit of background on our favorite character in this drama, Richmond Fed's not-that-new-anymore General Counsel Michelle Gluck.

“Problems and Concerns Regarding the Marketing and Sales of Title Insurance and LandAmerica Financial Group, Inc.’s Conduct Regarding Federal and State Examinations of Title Insurance" via the House Financial Services Committee, December 2006:

According to documents made available to the Committee on Financial Services, LandAmerica Financial Group, Inc. allegedly engaged in a deliberate effort to negatively influence state and federal examinations into the company’s captive title reinsurance agreements. Senior company management, including CEO Ted Chandler and General Counsel Michelle Gluck, in internal correspondence, authorized LandAmerica Senior Vice President Peter Kolbe to use personal background information obtained on Colorado Deputy Commissioner Erin Toll to raise conflict of interest charges in an effort to limit her investigation into LandAmerica’s Colorado operations, undermine her efforts to lead a multi-state settlement on captive reinsurance, and, in the opinion of Ms. Toll, to discourage her from testifying at a hearing before a subcommittee of the Committee. The company had personal information regarding Ms. Toll’s family background and relationships and raised it with several other state insurance regulators, threatening to “go public” and get “real stinky real quick” if Ms. Toll continued her efforts. The company’s officials also used their contacts in state insurance departments and at the National Association of Insurance Commissioners (NAIC) to obtain information about, and reduce support for, Ms. Toll’s negotiations towards a multi-state settlement, and to remove her from the process.

...

According to state insurance regulators, the captive reinsurance arrangements are merely a sophisticated form of kickback. Real estate brokers and agents, lenders, and home builders formed the captive reinsurance companies and referred all of their title insurance business to a specific title insurance company if that firm agreed to reinsure the title policy to the captive reinsurance company owned by the real estate broker or agent, lender, or home builder.

Several large title insurance companies have now been implicated in the captive reinsurance arrangements. Most title insurers, including LandAmerica, have agreed to immediately terminate their captive reinsurance programs, and several companies settled with state regulators, resulting in millions of dollars in fines. In fact, after investigations shed light on the frequency of these arrangements, it was revealed that many title insurance companies felt it was necessary to offer improper inducements in order to stay afloat in the marketplace.

At the Committee’s April 26, 2006 hearing on title insurance, Douglas Miller, President and CEO of Title One, Inc., a title insurer located in Minneapolis, Minnesota, testified that his company lost a huge amount of market share because he refused to participate in referral incentive schemes. According to Mr. Miller:

“I’ve had many real estate professionals who are involved in these schemes tell me that they miss my company because our service was better and our fees were lower, but that they are now locked into the partnership and feel that they have no choice but to continue to refer ‘their’ business to these shams.”


Seriously, someone should have Googled this lady before they hired her over there, there's all kinds of good stuff just like this.

I wonder how closely Richmond Fed is watching the decomposition of the LandAmerica corpse?

At least Richmond BizSense is:

LandAmerica’s former 1031 exchange customers can either battle themselves for the shrinking scraps of the bankrupt company or collect some money now and hope two other lawsuits recover the rest of their money.

And that second part could take years.

Around 350 customers who used the Richmond-based company have until Nov. 10 to vote on a plan that divides the bankrupt company’s current assets and lays out how future proceeds will be divided.

And while some victims abhor the settlement and feel robbed, legal fees will keep eating into that dwindling sum – by the millions – if the plan is not approved.


Tick tick tick is either the sound of the time left for LandAmerica exchange victims to make their decision or of the PR nightmare lurking in the Richmond bunker about to go boom. Perhaps if someone had done their due diligence beforehand this wouldn't even be an issue. Lucky for me at least I will always have something scandalous to write about (if everyone behaves, where would I get my material??).

Now I have promised not to get catty about this but are these the kind of people we want working at the Fed, and more importantly at our favorite Fed bank? Pffft.

LandAm exchange victims have until November 10th to take this crap or go back in there swinging. I'm hoping they take what's behind Door #2 and no one tries to get "real stinky real quick."

My last LandAm update may be found here.

Please figure this one out, Richmond, I still expect better out of you.

Whoa, I Guess Jamie Dimon *is* Sexy After All



At last, proof that Jamie Dimon is as sexy as Googlers suspect. (via Dealbreaker by way of Gawker)

Bank of America: Free Checking, Loan Modifications and.. Ponzi Schemes?



I'm shocked this isn't on the front page of every newspaper yet, hell, it's been out since yesterday.


Courthouse News:

Bank of America aided and abetted a $37 million Ponzi scheme disguised as an "investment club" called Diamond Ventures, a class action claims in Federal Court. The class claims the bank knew or should have known that 27-year-old Beau Diamond was running a scam.

The class claims that if BofA followed its own policies of discovery, monitoring, tracking and evaluating of financial activities it would have discovered the scam.

Diamond allegedly stuffed his BofA bank account more than $37 million from April 2006 through December 2008. Diamond holds no securities or commodities license, had no management team or employees and no legitimate business model, his banking activities reflect no investment business or business-generated revenue, only payouts to clients made from new clients' deposits - a classic Ponzi scheme, according to the complaint. Many of the investors lost their life's savings.

They say BofA facilitated the fraud by allowing offshore wire transfers, commingling of accounts, access to unlicensed trading in foreign exchange markets, and a banking platform that facilitated conversion of investors' funds.

BofA's "Premier Bankers" authorized wire transfers of more than $700,000 to Diamond's personal account, according to the complaint, including charges at the MGM Grand Hotel and the Wynn Las Vegas.


My question is this: who in the hell were Diamond's clients? You have to wonder about the sort of person who might invest their life savings with a 27 year old shmuck off the street. If anyone can put me in touch with them, I have a business venture they might be interested in. Cash only.

Anyway, Bank of America obviously broke a few mirrors, walked under a few ladders, and apparently inappropriately violated an entire family of black cats and put the footage on some bizarre Russian animal sex website because it just can't get a break from anyone.

This is but a dent for the old BAC, I'm sure they'll figure out a good excuse. Like "we didn't realize the money coming in from multiple accounts was being commingled, nor did we see anything wrong with a $700,000 money transfer to Vegas." Hell, technically there's nothing illegal about that (though I question Mr Diamond's taste in accommodations).

Also Beau Diamond? At least he's got a backup career in porn since this ponzi thing doesn't seem to be working out.

Free Money! Act Now Before It's Gone! (Literally)



I would like to ask one simple question: where in the hell do we think we're going to get the money to cover this from?

Bloomberg:

A proposal to extend the $8,000 tax credit for first-time homebuyers as part of an unemployment- benefits measure has significant support, Senate Majority Leader Harry Reid said.

“There’s general agreement by a significant number of senators, Democrats and Republicans” for adding the tax credit to the measure extending unemployment benefits, Reid said today. The measure is being held up by Republican demands for votes on unrelated amendments, the Nevada Democrat said.

“Let’s get this done and we’ll move on,” Reid said.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, called the dispute an “unnecessary impasse.” Most lawmakers support the unemployment measure as well as the homebuyers’ credit, he said.

“We’re not that far away from an agreement that would allow us to expedite consideration of the bill,” McConnell said. “It is routine for there to be amendments offered by both sides that are not directly related to the bill.”

Lawmakers are considering a $2.4 billion measure that would extend unemployment benefits by 14 weeks in all states and provide another six weeks of benefits in states with the highest unemployment rates.

A number of lawmakers have been pushing to attach an extension of the homebuyer tax credit beyond its Nov. 30 expiration date. Reid said lawmakers also agree on another proposed amendment providing a tax break to money-losing companies.


Oh wait, I have another question that I would really love an answer to: when does the madness end?

Thanks in advance for your attention to this matter, you money-printing maniacs.

Update: Thanks to our friend Negocios Loucos, we see that Bloomberg has given the original article a really awesome edit reflecting a larger part of the free money picture.

Senate Democrats plan to extend an $8,000 tax credit for first-time homebuyers and allow benefits for some people who already own residences, a spokeswoman for Majority Leader Harry Reid said.

The proposal would let homeowners qualify for a $6,500 credit if they have lived in their residence for five years, said Reid aide Regan Lachapelle. Lawmakers expect to consider the measure as part of a bill to extend unemployment benefits, she said. That measure has been held up by a disagreement with Republicans over other proposed amendments.

The homebuyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law, Lachapelle said.

Lawmakers want to keep home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression.

“The compromise we have now would expand the credit beyond first-time homebuyers,” Lachapelle said.

The plan would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.


And as WC Varones also so astutely pointed out, this does not even touch on the next GMAC bailout (and no, we're not talking about Cash for Clunkers Part 2, that was merely a Japanese car company bailout).

Isn't this exciting, you guys?! I'm so thrilled! When do I get my next stimulus check? I mean hell, I might as well just quit my job and go buy a house I can't afford and drive a Chrysler. Or maybe a Hummer just for kicks. Whatevs. Viva Armageddon!

Jamie Dimon Is Not Going to Pay Your Tricks More Than You, Bank of America


Pic translation for the uninitiated:
Bank of America, the bull is JP Morgan and the balls are you.
You're welcome.


Jamie Dimon saying he won't steal talent from Citi and Bank of America is like Atlanta Fed's ex head of bank supervision saying he didn't leave because Atlanta Fed dropped the regulatory ball. LMFAO!

There's a new pimp in town and if the little bankers are smart, they'll take Jamie Dimon's hint and go get that big fat bonus. It's practically dangling right in front of their noses, It's out, he says, so come get it.

WaPo:

JPMorgan CEO Jamie Dimon said Tuesday his bank won't try to hire top performers at Citigroup and Bank of America, days after the government's "pay czar" slashed pay for the biggest earners at JPMorgan's troubled rivals.

"I morally have an issue with people going against these companies that are hamstrung and making it worse," Dimon told a conference of financial professionals in New York.

...

Bank of America, which has received $45 billion in federal bailout money, said the pay caps will hurt its ability to offer competitive salaries and that rivals unencumbered by the restrictions already were wooing away its employees.

Dimon said that's not the case at JPMorgan & Chase Co., which repaid its $25 billion in bailout funds earlier this year and has emerged from the financial crisis as one of the nation's strongest banks.

"It would be wrong for us to say, 'Let's go hire their best people.' I think that would be a terrible thing to do, so we're not going to do that," he said.

Dude, if you have to point it out...

How the NY Fed Pimped Out the American Taxpayer (at Par!) and Totally Got Away With It




Damnit, America, you let them assrape you for 100 pennies on the dollar and didn't even get a greasy $20 bill left on the nightstand. Shame, shame. Whenever you people are ready to revolt just let me know, I'll be standing by with my flaming pitchfork.

It sounds like a bad telethon, an AIG CFO calling around to see if "hey, can we get you 40 cents on that CDO instead of 100?" but this is reality. This happened and you had absolutely no idea it was going on. The rats made off with the loot, AIG is still a vegetable and you, silly taxpayer, are still on the hook for the NY Fed's shenanigans.

Like I said, grab the damn pitchforks already you lazy bastards.

Bloomberg
:

In the months leading up to the September 2008 collapse of giant insurer American International Group Inc., Elias Habayeb and his colleagues worked nights and weekends negotiating with banks that had bought $62 billion of credit-default swaps from AIG, according to a person who has worked with Habayeb.

Habayeb, 37, was chief financial officer for the AIG division that oversaw AIG Financial Products, the unit that had sold the swaps to the banks. One of his goals was to persuade the banks to accept discounts of as much as 40 cents on the dollar, according to people familiar with the matter.

Among AIG’s bank counterparties were New York-based Goldman Sachs Group Inc. and Merrill Lynch & Co., Paris-based Societe Generale SA and Frankfurt-based Deutsche Bank AG.

By Sept. 16, 2008, AIG, once the world’s largest insurer, was running out of cash, and the U.S. government stepped in with a rescue plan. The Federal Reserve Bank of New York, the regional Fed office with special responsibility for Wall Street, opened an $85 billion credit line for New York-based AIG. That bought it 77.9 percent of AIG and effective control of the insurer.

The government’s commitment to AIG through credit facilities and investments would eventually add up to $182.3 billion.

Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps -- insurance-like contracts that backed soured collateralized-debt obligations.


See, I don't even need to know the rest of the story to know that this is the part where it goes horribly, horribly awry. I know Tim Geithner well enough to know that his intention was not to leave the taxpayer in a position of safety, nor was it to save the global financial system. His intention was, as it always has been, to confuse, obfuscate, distract, and rob. Pure and simple. He obviously learned well from his days at the helm of the NY Fed (if that isn't the premiere training ground for future economic dictators, I'm not sure what is).

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.

Nor will it ever be unless someone storms the Fed and demands it. I don't care how many wrinkled old FRNs Dallas Fed has in the vault, nor do I care about how Richmond Fed depreciates its PP&E, I want to know who NY Fed pimped us out to, for how much, when, and whose signature authorized the transaction. That's it. THAT is the part that is not audited every year and why I laugh at the very idea of a Fed audit - as if you think NY Fed is sloppy enough to leave bloody gloves lying around in the damn vault with the gold. Who do you think we are dealing with here? Just because Geithner acts like an idiot doesn't mean the prick isn't groomed to assrape the last penny you've got if that's what his keepers dictate he is to do. Come on, America, keep the fuck up or get the fuck out. If Citigroup can pass an audit every year and actually has to stick to GAAP, what in the hell makes you delusional enough to believe you will find anything on the Fed balance sheet that you didn't already know was there? Bwhahahahahahaha LMFAO!

So you tell me why NY Fed paid for this garbage at par. If you need help finding an answer, bend over in front of a mirror and ask yourself why your ass is so red and raw.

You're welcome.

Whose Mortgage is This?



The problem here is that the real loan came from someone - or rather something - that will not show its face for fear that it may be accused of predatory lending outside of the parameters of whatever charter said loan shark may have.

And this is but the beginning.

NYT:

One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.

So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free.

The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some of the nuts and bolts of the mortgage game — notes, for example — were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what.

To be sure, many legal hurdles mean that the initial outcome of the White Plains case may not be repeated elsewhere. Nevertheless, the ruling — by a federal judge, no less — is bound to bring a smile to anyone who has been subjected to rough treatment by a lender. Methinks a few of those people still exist.

More important, the case is an alert to lenders that dubious proof-of-ownership tactics may no longer be accepted practice. They may even be viewed as a fraud on the court.

The United States Trustee, a division of the Justice Department charged with monitoring the nation’s bankruptcy courts, has also taken an interest in the White Plains case. Its representative has attended hearings in the matter, and it has registered with the court as an interested party.

THE case involves a borrower, who declined to be named, living in a home with her daughter and son-in-law. According to court documents, the borrower bought the house in 2001 with a mortgage from Wells Fargo; four and a half years later she refinanced with Mortgage World Bankers Inc.

She fell behind in her payments, and David B. Shaev, a consumer bankruptcy lawyer in Manhattan, filed a Chapter 13 bankruptcy plan on her behalf in late February in an effort to save her home from foreclosure.

A proof of claim to the debt was filed in March by PHH, a company based in Mount Laurel, N.J. The $461,263 that PHH said was owed included $33,545 in arrears.

Mr. Shaev said that when he filed the case, he had simply hoped to persuade PHH to modify his client’s loan. But after months of what he described as foot-dragging by PHH and its lawyers, he asked for proof of PHH’s standing in the case.

“If you want to take someone’s house away, you’d better make sure you have the right to do it,” Mr. Shaev said in an interview last week.

In answer, Mr. Shaev received a letter stating that PHH was the servicer of the loan but that the holder of the note was U.S. Bank, as trustee of a securitization pool. But U.S. Bank was not a party to the action.

Mr. Shaev then asked for proof that U.S. Bank was indeed the holder of the note. All that was provided, however, was an affidavit from Tracy Johnson, a vice president at PHH Mortgage, saying that PHH was the servicer and U.S. Bank the holder.

Among the filings supplied to support Ms. Johnson’s assertion was a copy of the assignment of the mortgage. But this, too, was signed by Ms. Johnson, only this time she was identified as an assistant vice president of MERS, the Mortgage Electronic Registration System. This bank-owned registry eliminates the need to record changes in property ownership in local land records.

Another problem was that the document showed the note was assigned on March 26, 2009, well after the bankruptcy had been filed.

Mr. Shaev’s questions about ownership also led to an admission by PHH that, along the way, it had levied an improper $450 foreclosure fee on the borrower and had overcharged interest by an unstated amount.

John DiCaro, a lawyer representing PHH at the hearing, was in the uncomfortable position of having to explain why there was no documentation of an assignment to U.S. Bank. He did not return a phone call seeking comment last week. Ms. Johnson, who couldn’t be reached for comment, did not attend the hearing.

Walk away, America, just walk away. Look, they can't even figure out whose mortgage it is, why should it be a thorn in your ass or a blight on your credit score?

Anyone remember the days when securities were regulated and monitored by federal agencies just so this sort of thing wouldn't happen? Oh those were the days.

Oh and in case you are interested, here is a wonderful lesson on how mortgage securitization works and why we're fucked now as a result from Econbrowser. In a time when yesterday's news is already old and soggy, a piece from January of 2008 might seem ancient but it's still relevant (featuring our friends at the NY Fed none the less). We know this story all too well but now might be a good time for a reminder.

Federal Reserve Bank of New York economists Adam Ashcraft and Til Schuermann have a very interesting new paper (hat tip: CR) in which they describe this process and what went wrong. Among other contributions, the paper investigates details of the securitization of a pool of about 4,000 subprime mortgage loans whose principal value came to a little under $900 million and which were originated by New Century Financial in the second quarter of 2006, a small part of the $51.6 billion in loans that the company originated in 2006 before declaring bankruptcy in early 2007.

A striking feature of this pool of loans is the magnitude of the increase in monthly payments to which borrowers were agreeing even if there had been no change in the LIBOR rates to which the "adjustable rate" mortgages were keyed. This increase would result from the 2/28 or 3/27 "teaser rate" feature of the vast majority of these mortgage contracts, according to which the borrower would be virtually certain to need to make a huge increase in the monthly payments within two or three years. Ashcraft and Schuermann calculate that the monthly payments that the recipient of the loan is supposed to pay were scheduled to increase by 26-45% (depending on other details) within 2-1/2 years of the loan being issued, even if LIBOR rates held steady at their values at the time the loan was originated, and by which time the total principal owed would have increased substantially relative to the sum that had originally been borrowed. One has to wonder what circumstances one would be counting on to expect such payments to be made on schedule from a pool of borrowers with a history of other credit problems.

A second remarkable feature of this pool is the high credit rating assigned to all but the most junior tranches. Out of the $881 million in original mortgage loans, there were created $699 million (or 79% of the total) in "senior-tranche" mortgage-backed securities that received the highest possible credit rating (AAA from Standard & Poor's or Aaa from Moody's). Only $58 million (or 6-1/2% of the total) received a rating as low as BBB or Baa. There is no reason to believe this is unrepresentative of the nearly half trillion dollars in subprime mortgages that were securitized in the U.S. in 2006.

It's now clear to everybody that most of these loans should never have been made at the terms that they were, and that a good deal of money is going to be lost by a good number of people. As the multiple arrows in the above diagram attest, there were plenty of individuals who could (and did) make some serious mistakes in this whole process. Ashcraft and Schuermann catalog these and inquire how we might prevent these problems in the future. At the top of their list of "informational frictions" that contributed to the subprime debacle is the one that so far has received the most attention from the media and legislators, namely that between the originator and the borrower. To the extent that the originators just resold the loans before the problems came home to roost, the originator had an incentive to misrepresent overly complex instruments to financially unsophisticated borrowers. The authors' proposed resolution of this problem is "federal, state, and local laws prohibiting certain lending practices, as well as the recent regulatory guidance on subprime lending".

Second on their list of the most important frictions is one we have long been emphasizing here, namely that between the investor and the fund manager. To the extent that fund managers are evaluated on the basis of recent performance subject only to ratings guidelines, there is an incentive for managers to invest the funds in the riskiest vehicles that somehow manage to get a AAA rating. Ashcraft and Schuermann recommend that the investment mandates of any managed funds be rewritten to note the distinction between the ratings on corporate debt and those on artificially structured securities.

Ashford and Schuermann discuss a great many other informational frictions in the whole process that have also been widely discussed elsewhere, including inadequate equity stakes on the part of the originator and arranger, and need for different guidelines and procedures for the rating process. The authors nevertheless note:

We suggest some improvements to the existing process, though it is not clear that any additional regulation is warranted as the market is already taking remedial steps in the right direction.


Still, it's useful to have Ashcraft and Schuermann's careful summary of exactly what wrong, perhaps not so much in order to tell us to close the barn door as to understand just how all those cows got of the barn.

Or how about we just have a BBQ instead?

Naked Capitalism also covered this sordid tale, check it out.