XMFSinchiruna (28.57)

Challenges to the "Mission Accomplished" Mindset

January 27, 2011 – Comments (9) | RELATED TICKERS: BAC , JPM , GS

Everywhere I look in the financial world today, I see folks voluntarily re-entering the business-as-usual mindset within which they operated prior to the financial crisis. Economists and analysts are busy snapping a "mission accomplished" photo shoot like GW on the aircraft carrier. As with GW's ridiculous gaffe, however, a return to suppositions of normalcy today is as premature as a dinghy setting sail in the eye of a hurricane.

"The DOW's at 12,000 ... it must be safer out here!", they'll say.

Let's take a little survey of some of the less circulated headlines to gauge how much of the underlying illness in our financial system has actually been cured at this stage:

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http://www.nytimes.com/2011/01/27/nyregion/27nassau.html?_r=1

A state oversight board on Wednesday seized control of Nassau County’s finances, saying the county, one of the nation’s wealthiest and most heavily taxed, had nonetheless failed to balance its $2.7 billion budget.

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http://www.theatlantic.com/business/archive/2011/01/e-mails-suggest-bear-stearns-cheated-clients-out-of-billions/70128/

Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering. Last week a lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was unsealed. The lawsuit's supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a "sack of [bleep]".

[So not only were they 100% aware of what they were doing it as they were doing it, now they've been given similar jobs at the remaining banks so they can do it all over again. If you fail to hold criminals accountable for their actions, guess what ... they will commit their heinous acts again! How is this not a massive story with universal coverage in the media? The answer to that question is another part of the problem. The media is too busy running forward with the positive "everything's a-ok" message put forth by the President in his SOU speech.]

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http://www.msnbc.msn.com/id/41262036/ns/business-us_business/

NEW YORK — Bank of America Corp's Countrywide mortgage unit has been sued by investors claiming they were victimized in a "massive fraud" when they bought mortgage-backed securities.

The lawsuit was filed on Monday in a New York state court by 12 plaintiffs including the TIAA-CREF fund family, New York Life Insurance Co and Dexia Holdings Inc.

According to the complaint, the investors bought hundreds of millions of dollars of Countrywide securities from 2005 to 2007 that they thought were "conservative, low-risk investments."

The investors said Countrywide misrepresented the securities' safety in offering documents and elsewhere, and compromised their investments by ignoring its underwriting guidelines.

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Here is at the heart of the deception:

http://www.bloomberg.com/news/2011-01-25/financial-panel-scraps-plan-requiring-banks-to-mark-assets-to-market-value.html

The Financial Accounting Standards Board backed off from its plan to make banks use market values to calculate how much the loans on their books are worth. 

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http://www.reuters.com/article/idUSTRE70P5U220110126

The CBO said the fiscal 2011 deficit will hit $1.48 trillion, up from last August's $1.07 trillion estimate, which was crafted before Bush-era tax rates were extended at a cost of $858 billion over 10 years.

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J.P. Morgan is giving BAC and Golden Sacks a run for their money as the most crooked firm on Wall St.

http://www.businessweek.com/news/2011-01-25/ambac-says-jpmorgan-refused-mortgage-repurchases-it-also-sought.html

JPMorgan Chase & Co. demanded that a lender repurchase bad mortgages even as it resisted calls to buy back the loans from bonds created by Bear Stearns Cos., an insurer said in court papers.

“That would be pretty bad” if true, said Joshua Rosner, an analyst at New York-based research firm Graham Fisher & Co. He said such allegations show why “investors and consumers have a right to be distrustful of the banks’ statements.”

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http://www.pimco.com/Pages/OffWithOurHeads.aspx

PIMCO's Bill Gross:

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Hmmmm... gold as currency ... what a novel concept!

http://economictimes.indiatimes.com/news/news-by-industry/energy/oil--gas/india-iran-mull-over-gold-for-oil-for-now/articleshow/7238760.cms

NEW DELHI: India is determined to ensure steady crude oil supplies from Iran and is even considering settling payments with gold in the short term before the two countries agree on a mutually accepted currency and a bank to clear the transactions. 

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http://abcnews.go.com/Business/wireStory?id=12547488

"The gold standard is a very legitimate monetary system," Hoenig said, adding: "We're not going to have fewer crises necessarily. You will have a longer of period of price stability or price level stability, but I don't know that you'll have lower unemployment, I don't know that you'll have fewer bank failures."

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http://abclocal.go.com/wls/story?section=news/politics&id=7872529

In a statement Thursday night, Daley said, "the direct result of the governor's actions will be a massive property tax hike for Chicago residents of at least $550 million, or about a 60 percent increase."

Daley previously said that this would be the largest property tax increase in city history.

The new law forces municipalities to raise contributions to their currently under-funded pension systems. In exchange, benefits will be decreased for officers and firefighters hired on or after January 1st.

The law also pushes back the full benefits retirement age from 50 to 55, limits the maximum salary on which a pension amount is based, and stops the practice of promotions and raises in the last year of service for the purpose of increasing benefits.

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http://www.nytimes.com/2010/12/12/business/12advantage.html

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan. 

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.

In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.

Banks’ influence over this market, and over clearinghouses like the one this select group advises, has costly implications for businesses large and small, like Dan Singer’s home heating-oil company in Westchester County, north of New York City.

This fall, many of Mr. Singer’s customers purchased fixed-rate plans to lock in winter heating oil at around $3 a gallon. While that price was above the prevailing $2.80 a gallon then, the contracts will protect homeowners if bitterly cold weather pushes the price higher.

But Mr. Singer wonders if his company, Robison Oil, should be getting a better deal. He uses derivatives like swaps and options to create his fixed plans. But he has no idea how much lower his prices — and his customers’ prices — could be, he says, because banks don’t disclose fees associated with the derivatives.

“At the end of the day, I don’t know if I got a fair price, or what they’re charging me,” Mr. Singer said.

Derivatives shift risk from one party to another, and they offer many benefits, like enabling Mr. Singer to sell his fixed plans without having to bear all the risk that oil prices could suddenly rise. Derivatives are also big business on Wall Street. Banks collect many billions of dollars annually in undisclosed fees associated with these instruments — an amount that almost certainly would be lower if there were more competition and transparent prices.

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http://www.bloomberg.com/news/2010-12-07/bank-of-america-agrees-to-pay-137-million-in-sec-muni-bond-fraud-cases.html?cmpid=yhoo

Bank of America Corp. agreed to pay $137 million in restitution for its involvement in a conspiracy [what?] to rig bids on 88 municipal bond contracts, the U.S. Securities and Exchange Commission and Justice Department Bank of America has been aiding a nationwide Justice Department antitrust probe of the $2.8 trillion municipal market since at least 2007 in return for leniency. The investigation has ensnared more than a dozen banks, including JPMorgan Chase & Co., UBS AG, and Wachovia Corp, which was acquired by Wells Fargo & Co. in 2008, according to documents filed in federal court. said. 

In a case against one broker, CDR Financial Products Inc. of Los Angeles, prosecutors say the conspiracy included more than 200 deals involving state agencies, local governments and nonprofit groups from California to Massachusetts, according to documents filed in federal court. The scheme may have cost taxpayers more than $1 billion, according to Steven Feinstein, a finance professor at Babson College in Wellesley, Massachusetts.

Former JPMorgan banker James L. Hertz on Nov. 30 admitted to participating in bid-rigging and fraud conspiracies and agreed to cooperate with prosecutors. 

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And what is the House of Morgan up to now? Why pushing up your costs for everything from electric cable to alternative energy. Thanks a billion, guys!

http://www.telegraph.co.uk/finance/newsbysector/industry/8180304/JP-Morgan-revealed-as-mystery-trader-that-bought-1bn-worth-of-copper-on-LME.html

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http://gata.org/node/9332

The US Federal Reserve considered a radical change to its monetary policy at an unannounced meeting in mid-October that could have committed it to buying an unlimited amount of securities, according to the minutes of its November meeting.

At the October 15 meeting, held by video conference, the Fed discussed whether it should target a long-term interest rate, suggesting this could be an option if inflation continued to fall in the face of the central bank's new $600 billion round of quantitative easing, nicknamed QE2. But the meeting rejected the policy change.

Targeting a long-term interest rate -- fixing the 10-year yield at 2.5 per cent, for example -- would commit the Fed to buying an unlimited amount of Treasury securities if the public wanted to sell them at that price. At the moment, the Fed can choose to buy more or less than $600 billion, but with a long-term rate target it might lose control of the size of its balance sheet.

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http://finance.fortune.cnn.com/2010/11/23/whitney-sees-5000-bank-branches-closing/?source=yahoo_quote

The bank shakeout is about to pick up steam.

So says Meredith Whitney, the analyst who made headlines around this time three years ago by predicting the demise of Citi's (C) dividend. Whitney predicts in a report released Monday afternoon that profit-strapped U.S. banks will close 5,000 branches over 18 months.