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XMFSinchiruna (26.55)

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:


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.


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.]


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.


Here is at the heart of the deception:

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. 


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.


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

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.”


PIMCO's Bill Gross:

American politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion-dollar annual deficit.Policy stimulus is focused on maintaining current consumption as opposed to making the United States more competitive in the global marketplace.Dollar depreciation will sap the purchasing power of U.S. consumers, as well as the global valuation of dollar denominated assets.


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

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


"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."


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.


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.


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. 


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!


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.


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.






9 Comments – Post Your Own

#1) On January 27, 2011 at 11:54 AM, brickcityman (< 20) wrote:

Better watch out there Sinchy...  Some of our more bullish comrades might start calling you Alstry (since Alstry after-all said he was going to don the Rose-colored-glasses).


I've given up trying to remind people of facts like those you listed above...  There seems to be too much of a willingness to let the ends justify the means. It's hard for the common man, and the retail investor, to maintain any level of anger when they see indexes at pre-crisis levels and 401K balances with a few more favorable digits in them. 


If anything this is just the sort of thing that the Fed's "extend and pretend" policy is intended to bring about.


I'm not a great student of history but I do wonder if similar periods have existed in other bygone periods and what the outcomes of each was?  ... Is it the eye of a storm?  The beginning of a prolonged comatic decline?


... I guess not many care so long as the majority can remain "Comfortably Numb".

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#2) On January 27, 2011 at 12:06 PM, Jbay76 (< 20) wrote:

Definitely not your normal thread Chris, but very informative and well appreciated.

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#3) On January 27, 2011 at 1:56 PM, jesusfreakinco (28.27) wrote:

The FASB has given cover to corporations to commit fraud!  Sarbanes-Oxley was passed to prevent accounting fraud and throw execs in jail who lie to the public.  Shame on the SEC, FASB and the PCAOB for looking the other way.  Anyone working at these three agencies are complicit with the fleecing of the American middle class.

BTW - any comment on the USD breaking critical support - 78.50?  Richard Russell recommending getting out of all USD-denominated assets.  Interesting call.  

At some point, I am thinking about shifting all g/s miners to physically backed  funds like CEF, PHYS, PSLV, and GTU.  Have you considered this in TEOTWAWKI scenario?

Keep the good work Chris...


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#4) On January 27, 2011 at 7:21 PM, t0bes (< 20) wrote:

Thanks for the excellent post Chris. I followed many of your recommendations last year and most turned out very well. Having previously been skeptical of the rise in price of gold, I'm glad you educated me on that as well as silver, etc.

I've been an investor for twenty years and it seems every time my stocks are starting to look healthy there's a crash!  How do we break the cycle and lock in gains before the profits evaporate again?

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#5) On January 28, 2011 at 12:50 PM, AvianFlu (< 20) wrote:

Personally, I think the general public is burned out on reporting of negative economic news. Sadly, I'm afraid we won't see the end of the negative news stories. In fact, the bad news is likely to get much worse this year...especially inflation. In their current weakened state I don't think typical Americans are able to absorb any significant increases in energy and food prices....but our little party is just beginning.

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#6) On January 28, 2011 at 5:38 PM, Dzam (< 20) wrote:

Peoples perception are their reality...when the hundredth monkey boards the bus the status quo will begin to unravel...this scenario is just too uncomfortable and unimaginable for folks to acknowledge..after all,we just had a near miss of another great depression...or is this act 2?

I am curious what happens at the water cooler at The Fool...Do you have your colleagues ears?...Is there a collective shift in asset allocation as more  paper money gets printed and the unraveling continues or is it business as usual...? 

Thanks so much for your posts...very helpful, informative, and scary...Dzam 

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#7) On January 29, 2011 at 12:42 PM, silverminer (30.14) wrote:


How's it going Dzam? Not sure if I've seen you post before, so it's nice to meet you here. :)

I am curious about the very same thing. Many of us writers are not physically located at Fool headquarters (though many are), and I am one who works from another location. I wish I had fellow Fools around me ... I would enjoy the ability to bounce ideas around.

My general sense is that most in the financial world, not just at the Fool but everywhere, are beginning to pack the financial crisis into a box inside their memory banks and move forward in much the same way as they did before the crisis.

Many, though certainly not all, remain dismissive of gold, and harbor a surprising amount of disdain and resentment toward the idea that the crisis opened up a fault line in a financial system that was/is structurally broken at the core. Most seem content to rebuild the same sort of debt-based, consumption-driven paradigm we employed before the mess, while I maintain that we assured of a repeat performance (and then some) unless we fundamentally alter the approach.

I did happen to be at Fool headquarters in October 2008, right on the eve of Congress' vote for TARP, and the question was posed to a room full of us asking what we thought of the multiple interventions by the Fed and the Treasury. If memory serves, I was the only person who raised my hand in opposition to the measures, arguing that they may provide momentary relief, but that they would accomplish nothing in preventing the broader problem ... an obscenely bloated global market for derivatives that will find a means of delevering sooner or later.

Until as a nation we begin to address the root causes of our predicament rather than treating the symptoms, I will remain long gold and silver. Until theinevitable flight from U.S. Treasuries takes hold, I will remain long gold and silver. Until the world transitions to an alternate reserve currency regime, I will remain long gold and silver.

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#8) On January 29, 2011 at 4:13 PM, AvianFlu (< 20) wrote:

I'm with you. There will be a time to get out of metals and other commodities. That time is NOT now.

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#9) On January 30, 2011 at 11:54 PM, hdotmom (< 20) wrote:

I have been feeling this way for awhile.  I am a SA member and  feel like they are paying no attention to what is going on in the real world.  I would love to know what they talk about too.  Can they really all have their heads in the sand?  If you ignore it ... it will go away???

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