Monday, April 18, 2011

the CFTC is guilty of obstruction of justice, Wendy Gramm, Judge Levine, Summers, Rubin...violation of Title 18 USC

The CFTC & Wendy Gramm Violate 18 U.S.C. 1503, general obstruction of justice proceedings-& TARP Unnecessary.

The CFTC and Wendy Gramm, (the former wife of Phil Gramm, the neocon who wrote up Deregulation putting the CFTC in charge of the subprime market in place of the SEC) --- both violated 18 U.S.C. 1503, obstruction of judicial proceedings.

"Obstruction of justice is the impediment of governmental activities. There are

a host of federal criminal laws that prohibit obstructions of justice. The six most

general outlaw obstruction of judicial proceedings (18 U.S.C. 1503), witness

tampering (18 U.S.C. 1512), witness retaliation (18 U.S.C. 1513), obstruction of

Congressional or administrative proceedings (18 U.S.C. 1505), conspiracy to defraud

the United States (18 U.S.C. 371), and contempt (a creature of statute, rule and

common law)."

Traditionally, obtaining or extorting money illegally or carrying on illegal business activities, usually by Organized Crime . A pattern of illegal activity carried out as part of an enterprise that is owned or controlled by those who are engaged in the illegal activity. The latter definition derives from the federal Racketeer Influenced and Corruption Organizations Act (RICO), a set of laws (18 U.S.C.A. § 1961 et seq. [1970]) specifically designed to punish racketeering by business enterprises.

Preface: I personally know of a hedgefund that tried to report the sale of UNCOLLATERALIZED "collateralized" debt obligations by subprime dealers to the Commodities Futures Trading Commission (CFTC). They "never picked up their phone" to take the complaints. Financial institutions are competative, they need to make their clients money as well as protect it; and their business. So it is in the best interest of institutions to report grievances if they want to retain their clients.

It was a loophole in Deregulation, aka. the Gramm Leach Bliley Act that removed the SEC from authority of the Subprime (or "commodities") market and placed the CFTC in charge of it instead. It's very interesting that conversations between Gramm's wife and the officials of the agency come up.

Wednesday, October 20, 2010

Retiring CFTC Judge: We Covered Up Market Manipulation

NEW DEVELOPMENTS IN THE CFTC SCANDAL: On September 17, 2010, CFTC Administrative Law Judge, George H Painter, issued a "Notice and Order" announcing his retirement from his position. In this notice Judge Painter wrote of a conspiracy at the highest levels of the CFTC (within the ENFORCEMENT DIVISION) where a long time judge of 20 years has been conspiring with past CFTC Chairs to RIG THE ENFORCEMENT OF THE LAW by NOT finding ANYONE guilty of market manipulation. Here are Judge Painter's own words:

"There are two administrative law judges at the Commodity Futures Trading Commission: myself and the Honorable Bruce Levine.

***On Judge Levine's first week on the job, nearly twenty years ago, he came into my office and stated that he had promised Wendy Gramm, then Chairwoman of the Commission, that we would never rule in a complainant's favor.***

A review of his rulings will confirm that he has fulfilled his vow. Judge Levine, in the cynical guise of enforcing the rules, forces pro se complaints to run a hostile procedural gauntlet until they lose hope, and either withdraw their complaint or settle for a pittance, regardless of the merits of the case"

Seeking WSJ's Dec 2000 article: December 2000 Wall Street Journal story by Michael Schroeder titled, “If you got a beef with a futures broker, This Judge Isn’t for You—In Eight Years at the CFTC, Levine Has Never Ruled In Favor of an Investor” that details Levine’s penchant for favoring brokers over investors seeking reparations.

There have been perfectly legitimate cases against the subprime dealers of fraud by investors, etc. that were dismissed by the judges, erroneously citing the Securities Act of 1933 (which was enacted to protect investors).

Prevalence of Subprime Securities Class Actions Cornerstone Research's review of 2008 securities class actions reported that.

In 2008, nearly one-third of the companies in Although total new filings dropped in the first half of 2009, the rate of securities class actions against companies in the financial sector of the S&P 500 was over five times the rate for companies in the next highest sued sector. become an important source for information on securities class actions, reports that every subprime securities class action against a financial firm.

Kevin LaCroix, whose blog has approximately 200 subprime and other credit crisis-related securities class actions have been filed since February 2007.

Executives are named as defendants in almost "litigation against the firms closest to the ongoing subprime/liquidity crisis was the dominant force in federal class action securities litigation in 2008" and that financial firms represented 46% of the $856 billion maximum dollar loss attributed to securities class action filings in 2008. the financial sector of the S&P 500 were sued in securities class actions, which was nearly five times the rate for the next highest sued sector of the S&P 500.



Goldman Sachs pleaded innocence and the public officials pleaded ignorance. To sum up the subprime scandal, the subprimes were sold as naked positions and probably not disclosed that way to their investors.


The subprime dealers wrote naked (uncollateralized) subprimes which is a very risky position, just like writing naked call options. The Repo 105 issue Lehman Brothers' trial proves that the collateral was not with the subprime dealers but at another bank when these subprimes were sold to investors. (the SFAS 140 made this legal, Sarbanes Oxley allowed this loophole to exist). If you don't understand what REPO 105 is, Paddy Hirsch from Market place videos does an excellent job of explaining it.

Here's another article on the REPO 105.


The subprime market is valued at $600 trillion. The PPP of the world is "only" $70 trillion? $600 trillion probably does not exist yet on the Planet Earth, there is definately not enough bonds to collateralize that many subprimes. Infact, to get this many subprimes, the subprime writer would have to sell several subprimes that were supposed to be collateralized by the same bond.

If someone wrote a "naked" (uncollateralized) call option, the CBOE and their respective brokerage would not allow this unless they had enough experience and net worth to cover themselves because this trade is considered high risk. And yes the lack of collateral is definately disclosed.

So why did I bother mentioning the block in court cases?


First, let's discuss what would've happened if the courts were to rule in the plaintiff's (subprime investor's) favor.

Since taxpayers will be gouged for TARP, we all need to understand the relationship between hedge fund investors, subprime dealers and ARM borrowers.

When these ARM borrowers foreclose, isn't the house the unintended property of these hedge fund investors?

Please allow me to elaborate.

The Subprime Dealers (Countrywide, Wamu, Bear Stearns, etc..) sold subprime derivatives to subprime investors (most investors were at hedge funds) to come up with financial inventory/capital to sell ARMs with. These subprimes were known as "collateralized" debt obligations (CDO's), "collaterlized" mortgages obligations (CMO's) or Mortgage Backed Securities (MBS).

Every financial instrument is a loan that is collateralized to secure the value of a loan. A mortgage is bank loan to borrower secured/collateralized with a house, an auto loan is a bank loan to borrowersecured/collateralized with a car. A stock is an investor's loan to a company secured/collateralized by ownership of a company.

A derivative is simply any financial instrument that is collateralized/secured by another financial instrument.

ie. Options are collatearlized by 100 shares of underlying stock.

Subprimes are collateralized by a bond.

Futures are collateralized by commodities.

How derivatives work:

If any option seller writes a "naked" or uncollatearlized call option, according to the SEC/CBOE/Brokerage, it's considered risky(unlimited). They can't open the position unless they have $25,000 in net worth and the highest option approval rating. If the trade falls through, the buyer of the call can go after the writer for everything they have.

If a subprime dealer (ie. Countrywide) writes a "naked" or uncollateralized subprime, the same exact thing happens and they take the same unlimited risk. Since they did not collateralize the subprime with a bond, the subprime investors are entitled to go after the subprime dealer for everything they own (including the foreclosures). That's how the courts should have ruled, except that the courts are blocked thanks to the corruption that is the CFTC and Wendy Gramm.

Therefore, the subprime investors should have 100% control over the foreclosures. Period.

TARP wouldn't be necessary to make this exchange. The politicians/taxpayers/banks should not have a say in how these foreclosures are handled. This should be directly between the investor and the borrower (without the failed banks).

The subprime investor should be free to do as they please with that use a property manager, rent it out, negotiate terms on how the borrower can keep the house, etc.

The banks purposely exposed themselves, they lose. If a call writer loses his shirt, nobody bails him/her out. Nobody should bail out the subprime dealers. They KNEW what they were doing.

This would eliminate the need for TARP.

Also TARP wasn't necessary to make the banks liquid.

source two:

So how do we fix the financial engine? The answer is that we need to restructure the balance sheets of the main financial institutions. And, as we all know, these balance sheets are best understood using the medium of — poetry:

A balance sheet has two sides.

A right-hand side and a left-hand side.

On the right, nothing is left.

And on the left, nothing is right.

The right-hand side shows the bank's assets, which move up and down in value depending on whether the bank makes profits or losses. The left-hand side shows the claims on those assets, the liabilities. These liabilities consist of the bank's deposits and its share capital. This share capital is also a buffer that protects the value of the deposits and reassures depositors that their money is safe. So, for example, if the bank takes a loss, the loss is usually borne by the shareholders, but if the buffer is big enough, then the bank can absorb any reasonable loss and still have enough share capital left to be safe.

The bank makes a small loss, but can absorb it and still be safe.

However, if the bank takes a very big loss,

The problem now is how to get the bank back on its feet and operating again on a solvent, going-concern basis.

The answer is to rebuild the banks' balance sheets. There are good and bad ways of doing this.

The authorities chose the bad way. They panicked — what else could we have expected? And in their panic they injected massive amounts of taxpayer money into the banks, and in so doing threw our money into a virtually bottomless hole.

A much better way, by contrast, is to rebuild the banks' balance sheets following the precedents of traditional bankruptcy law. The bank would go into some form of temporary receivership, and three things would happen:

1. Its assets would be marked down in value to reflect the losses.

2. The liabilities would be marked down by the same amount.

3. The liabilities would be reorganized so that the bank would have a decent capital base again. This new share capital would come from the depositors, some of whose deposits would be converted into shares.

We might also wish to ring fence the smaller depositors to protect them — this would make the package easier to sell politically, but this is a detail.

The bank's loss is now so high that the value of the bank's assets is not enough to pay off the depositors in full. In this case, the shareholders are wiped out completely, and depositors take a loss too. The bank is now insolvent — it can't meet its debts.

The problem now is how to get the bank back on its feet and operating again on a solvent, going-concern basis.

The answer is to rebuild the banks' balance sheets. There are good and bad ways of doing this.

The authorities chose the bad way. They panicked — what else could we have expected? And in their panic they injected massive amounts of taxpayer money into the banks, and in so doing threw our money into a virtually bottomless hole.

A much better way, by contrast, is to rebuild the banks' balance sheets following the precedents of traditional bankruptcy law. The bank would go into some form of temporary receivership, and three things would happen:

1. Its assets would be marked down in value to reflect the losses.

2. The liabilities would be marked down by the same amount.

3. The liabilities would be reorganized so that the bank would have a decent capital base again. This new share capital would come from the depositors, some of whose deposits would be converted into shares.

We might also wish to ring fence the smaller depositors to protect them — this would make the package easier to sell politically, but this is a detail.

First, we should consider reforms of bankruptcy and insolvency laws to get the ER treatment "right" in the future: should any bank ever need emergency surgery again, this should be a straightforward, by-the-book process anticipated and thought through in advance, not some battlefield-surgery hatchet job.

Second, the financial-services industry needs serious reform. Hard to believe as it might be, there was once a time when the industry was conservative and respected, when it focused on providing straightforward financial "products" to its customers and did so well. We have got to get back to that. No more financial hydrogen bombs blowing up the financial system.

The key to this is corporate-governance reform. I am talking, not about tinkering with the number of nonexecutive directors or a new Sarbanes-Oxley, but radical reform to make the banks accountable and to rein in the moral hazards that have run rampant. And the key to good corporate governance is to remove limited liability: we should abolish the limited-liability statutes and give the bankers the strongest possible incentives to look after our money properly.

And, of course, there is our old enemy, the state. If I had my way, the state would be rolled back right: no deposit insurance, no capital adequacy rules, no financial regulation, no central bank, no monetary policy — in short, the restoration of a sound monetary standard.

Short- and Medium-Term Economic Prospects

I could easily spend the rest of my talk drooling over these wish-lists. But rather than do that, I would like to spend the rest of my time looking at our economic prospects. And our prospects are not too good. To save time, I will focus on the US, but much of what I say applies to some extent to other countries too.

Let's start with inflation.

If we look over the period 2006–2008, we see inflation of between 2% and 4% on a year-on-year basis, and the broader monetary aggregates expanding quite rapidly and growing at double-digit rates by the end of 2008. We also see an extraordinary growth in the narrowest aggregate, the monetary base, which grew 100% over 2008, a consequence of the highly dangerous and irresponsible policy of "quantitative easing."

From early this year, admittedly, we see monetary growth halting and prices falling a little. However, I wouldn't put too much emphasis in such a short downturn in the monetary growth rates, especially in a period where the demand for money is clearly falling due to the impact of the recession. Instead, we need to look over the broad period and consider the likely impact of the large amount of excess money that is already in the system. So, overall, combined with still-low interest rates, these figures indicate a loose monetary policy and the prospect of resurgent inflation once economic activity returns to normal.

Interest rates are low, due in part to "soft" monetary policy, but also due to a flood of hot money pouring into the allegedly safe US Treasury bond market. Low interest rates mean high bond prices, and there are signs that the T-bill market is undergoing a fair-sized speculative bubble. This bubble would seem to be very vulnerable — even a small rise in inflation could easily trigger a loss of confidence and a massive exit from the market. If that happens, market interest rates could rise sharply. And of course, we shouldn't forget that the prospect of massive federal deficits for years to come will also put upward pressure on interest rates. So interest rates are set to rise.

At the same time, the Fed faces a difficult dilemma: If it continues with its current monetary policy, then inflation will return, and probably with a vengeance. The worst thing that the Fed can then do is to put its foot down even harder on the monetary accelerator. This would push interest rates back down temporarily but lead to higher inflation and higher interest rates down the road — and, in all likelihood, to the return of stagflation and yet another massive boom–bust cycle.

But on the other hand, the best thing that the Fed can do is also the hardest thing for it to do: bite the bullet and put its foot on the monetary brakes. Such a policy would encounter massive political resistance — and risk pricking the bond-market bubble and stalling the nascent economic recovery.

In effect, the Fed now risks being hoist by its own petard, a consequence of its own past profligacy.

So the near-term outlook is not too good: the prospect of renewed inflation, even hyperinflation; higher interests rates; a bond-market crash; an uncertain and possibly stalled economic recovery; and the danger of a dollar crisis.

And for those of you who want any investment advice, my advice boils down to a choice between two positions: a cash position and a fetal one.

Long-Term Prospects: Deficits + Entitlements

But all these shorter-term worries pale compared to the long-term outlook.

Federal deficits will be more than 10% of GDP for years to come — these are extremely high.

But this is only the tip of the iceberg. We also have to take account of the unfunded entitlements to which the federal government has committed itself: Medicare and Medicaid entitlements; and pay-as-you-go funding of Social Security, that is, state pensions paid for through current tax revenue, not funded in advance.

These are set to grow massively due to there being more retirees relative to workers, retirees being set to live longer, and old-age entitlements growing higher.

Let's look at some figures:

The cost of unfunded Social Security and Medicaid is over $100 trillion — and rising. This is about ten times bigger than the total existing debt of the United States, and it is about $330,000 per man, woman and child in the United States — or about $1.3m for a family of four. And rising.

So your average US family of four is facing a government-imposed bill of $1.3m on top of existing taxes! Change the sign around and they'd all be millionaires! Welcome to the age of the negative millionaire.

It is not surprising, then, that leading experts are now openly asking if the United States is bankrupt, and they are anticipating possible futures in which young, educated Americans flee the country in large numbers to escape crippling taxes — and, of course, in so doing, leave their fellow citizens with even greater per capita burdens to bear. A real case of "last one to leave please switch off the lights."

To quote one leading authority, the president of the Federal Reserve Bank of Dallas:

I see a frightful storm brewing in the form of untethered government debt.… Unless we take steps to deal with it, the long-term fiscal situation of the federal government will be unimaginably more devastating to our economic prosperity than the subprime debacle and the recent debauching of credit markets. (Richard W. Fisher, 2008)[2]

For those of you who are young, the implications are personal. You have your college debts to pay off. It's hard to get a job, let alone a well-paying one. You can't get on the housing ladder because property is too expensive. Taxes are likely to be high and rising throughout your working life.

Now we all know that Goldman Sachs was behind Greece's debt troubles!

Back in March 2010, Gary Gensler (former Goldmanite and head of the CFTC) argued that "Derivative Reform would have dissuated Greece"

"In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.

The 2001 transaction involved a type of derivative known as a swap. One such instrument, called an interest-rate swap, can help companies and countries cope with swings in their borrowing costs by exchanging fixed-rate payments for floating-rate ones, or vice versa. Another kind, a currency swap, can minimize the impact of volatile foreign exchange rates."

Aeolos, a legal entity created in 2001, helped Greece reduce the debt on its balance sheet that year. As part of the deal, Greece got cash upfront in return for pledging future landing fees at the country’s airports. A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans, despite doubts by many critics."

The INTEREST RATE SWAP is the same financial instrument used by Goldman Sachs which costs New Jersey $1 million/month.

TARP recipients/subprime dealers played the Interest Rate Swap game too, with munis in Los Angeles and Philadelphia:

"Hundreds of U.S. municipalities are losing money on interest-rate bets they made during the bull market in hopes of protecting themselves from higher rates. The deals backfired when rates fell, shriveling the sums paid to municipalities. Now some are criticizing Wall Street and trying to exit the contracts.

The Los Angeles city council approved a measure this month instructing city officials to try to renegotiate an interest-rate deal with Bank of New York Mellon Corp. and Belgian-French bank Dexia SA. The pact, reached in 2006 to help fund the city's wastewater system, currently is costing the city about $20 million a year. The banks declined to say how they would respond to a request to renegotiate.

In Pennsylvania, 107 school districts entered into interest-rate swap agreements from October 2003 to last June. At least three have terminated them. Under one deal, the Bethlehem, Pa., school district had to pay $12.3 million to terminate a swap with J.P Morgan Chase & Co., according to state auditor general Jack Wagner. J.P. Morgan declined to comment. ...

... Under a transaction between Oakland, Calif., and a Goldman Sachs Group-backed venture, Goldman paid the city $15 million in 1997 and $6 million in 2003, according to Oakland financial reports. But now, the city stands to lose about $5 million this year.

That money "is coming out of taxpayers' pockets and could be used for other things," said Rebecca Kaplan, a city council member. She wants the city to renegotiate. But the city faces a $19 million termination payment. Oakland officials didn't respond to requests for comment.

Some deals have led to court. Last August, a unit of bond insurer Ambac Financial Group sued the Bay Area Toll Authority for payments it said it was owed under various swap agreements. The authority paid Ambac $104.6 million to terminate the swaps after the insurer's credit ratings were downgraded and bonds associated with the swaps were retired. Ambac claims it is owed $156.6 million under the agreements.

The toll authority, which is fighting the claim, said it made the payment, and Ambac sued for the other part of what it says it is owed.

Now here's the age old question. Had TARP not happened, if these banks were left on their own to regain liquidity or fail, would they be able to collect on bad bets made with municipalities? How many bailouts did we give these localities?

Here are a few other notes about regulatory agencies;

Deregulation aka. the Gramm Leach Bliley Act put the inept Commodities Futures Trading Commission in charge of the subprime market in place of the SEC. the SEC can only do so much to prosecute

Around that time, Maria Bartiromo interviewed Slick Willie about deregulations.

"We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure," he said. "I thought at the time that repealing Glass-Steagall might lead to more stable investments and a reduced pressure on Wall STreet to produce quarterly profits that we were always bigger than the previous quarter. But I have really thought abuot this a lot. I don't see that signing that bill had anything to do with the current crisis.

"I pushed him". Phil Gramm, who was then head of the Senate Banking Committee, and until recently a close economic adviser of Senator McCain's, was a fierce proponent of banking deregulation. Did he sell you a bill of goods?"

Clinton shook his head. "Not on this bill, I don't think he did. On Glass-Stegall, like I said if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence. This wasn't something the Republicans forced me into".

(The Weekend that Changed Wall Street - Maria Bartiromo page 138)


What good is any reform going to do if these government backed, subsidized agencies do not do their job?

CLINTON OWNS DEREGULATION. Lawyers are trained to talk. Literally. He is either ignorant or he's flat out lying.

For those of us who understand, the collapse of the real estate market and the subprime market was inevitable. These bankers KNEW how the market was going to turn out (Goldman Sachs bet against itself). During foreclosures and high unemployment, municipalities lose revenue. Which makes their ratings go down. When the bond ratings go down, yields go up to give buyers incentive to hold onto that debt. How many city workers lost their jobs as a result of the subprime collapse?

So the banks created the problem, then banked on the rewards for tricking people out of their money.

Let's look at the figures.

To "liquidate" the banks:


-Quantitative Easing= $30 TRILLION (The devaluation of the dollar is going to cost us in reduced tax brackets for real rates, oil imports and the cost of food.)

"The current fed funds rate is between 0% and 0.25%. Essentially banks can "borrow" at a very low rate of 0 – 0.25%, making their cost of funds very low. Theoretically, this should encourage banks to lend funds to individuals and businesses at higher rates -- if they can borrow at 0% and lend to someone else at more than 0%, they make money.

The second tool the Fed uses is the open market operation (OMO). The Fed uses OMOs to buy or sell securities that banks generally own -- mortgages, Treasury bonds, and corporate bonds. When the Federal Reserve buys securities, they trade the security for cash and increase the money supply. When they sell securities back to banks, they decrease the money supply.

In the past, the Federal Reserve has not resorted to this approach to manage the supply of money in the economy. But starting in 2008, it started buying large amounts of mortgage-backed securities (MBS) and Treasuries in order to add more money to the economy and help stabilize the banks.

Where We Are TodaySince the Federal Reserve has lowered the fed funds rate to 0 – 0.25%, banks have access to cheap money. The Fed was hoping that access to cheap money would encourage the banks to lend to their customers at reasonable rates. But it hasn't been that easy. The Fed has run into two problems."

The banks also use these free loans with their high frequency trading platforms to manipulate the thinly traded markets with.

The banks also use these free loans for CARRY TRADE (borrowing at 0% and investing in China at 5.29%)

The banks used the free loans from the Federal Reserve to "pay back TARP"-notice it was only the large banks who paid it back because they were considered "Bank Holding Companies". The smaller banks don't have access to the free loans from the Federal Reserve.

The Federal Reserve uses interest on Treasuries to make these loans with. That money comes directly from the taxpayers. What are we getting in return for letting them use public funds?

-Maiden Lane (to buy up these toxic assets)-$150 BILLION

Maiden Lane I=$30 billion

Maiden Lane II&III=$120 billion

-PPIP (to enable banks to make ARM loans to realtors to speculate in Real Estate Market)=$40 BILLON

Maiden Lane and PPIP cost us $200 billion? Plus whatever else we lose on TARP & QE.

The 99 week unemployment extention "only" cost us $100 billion. Most of the people who lost jobs as a result of the collapse are not guilty of the corruption.

This "bailout" and "economic recovery" is too expensive. Especially considering that we need to cut taxes and restrictions to enable investments in wealth creation and to balance trade in lieu of globalization. Nobody is batting on behalf of the U.S.

Government is the problem. The number of regulatory agencies, the increase in government proved to enable more corruption.

Other notes on the financial reform.

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Why are legitimate cases of fraud against subprime dealers dismissed in court?

An Updated Analysis of Subprime Securities Suit Dismissal Motions

Posted on June 23, 2010 by Kevin LaCroix

While many courts are showing a greater willingness to grant motions to dismiss in subprime-related securities class action lawsuits, some cases are surviving dismissal motions and others are settling for hundreds of millions of dollars, as a result of which the "watchword is uncertainty until a more consistent and predictable pattern emerges," according to a recent study.

In a June 2010 report entitled "Subprime Class Actions Revisited," Jonathan Eisenberg of the Skadden law firm examines 14 new subprime-related securities lawsuit rulings issued during the first five months of 2010. This report updates Eisenberg’s prior analysis of 16 dismissal motion rulings entered in 2009.

Eisenberg’s overall conclusions are that "courts are showing more evidence of subprime fatigue and a greater willingness to grant motions to dismiss even in cases that do not require proof of scienter," but while "recent trends have been more favorable for defendants, the results are by no means one-sided, and the final chapters of the subprime class action story have yet to be written."

Eisenberg notes that, by contrast to his earlier study, "more than half of the recent dismissals occurred in non-scienter Securities Act claims." Eisenberg also notes that courts continue to dismiss many of the Section 10(b) claims asserted in the subprime securities class action, "principally, but not exclusively, on the ground that the allegations of scienter are inadequate." Court has also found a number of the allegedly fraudulent statements immaterial as a matter of law.


With respect to the cases that have survived dismissal motions, the basis "overwhelmingly" are allegations related to "declining underwriting standards." In light of the numbers of cases that have survived the dismissal motions, as well as the significant dollar figures involved in some of the settlements, "while the story in the aggregate is positive for defendants, much risk remains in these cases." Overall, Eisenberg finds that he has "not found a single factor that explains the outcomes across all cases."

My running tally, listing (with links) dismissal motions rulings and settlements in all subprime and credit crisis-related lawsuits, can be accessed here. All of the decisions referenced in Eisenberg’s article are listed with links in my tally.

One interesting aspect of Eisenberg’s paper is with respect to his discussion of the difficulties plaintiffs face in trying to allege that defendants were "slow to recognize the enormity of the subprime crisis." He recites data from Bloomberg’s tally of subprime-related write downs showing that "less than three-tenths of one percent of the more than $1.75 trillion of global write-downs between 2007 and 2009 occurred prior to the third quarter of 2007." The rest occurred incrementally from the third quarter from the 2009.

Eisenberg suggests these data show that Judges "are and should be skeptical of the types of claims that could be made against virtually any financial institution that was late to recognize the damages ultimately inflicted by the subprim tsunami."

Special thanks to Jon Eisenberg for providing a copy of his article.

The List: Subprime Lawsuit Dismissals and Denials

Posted on June 10, 2008 by Kevin LaCroix

The subprime and credit crisis-related litigation wave has come a long way since the first of the subprime lawsuits was filed in February 2007. Now that the litigation phenomenon is now nearly a year and a half old, the rulings on the motions to dismiss are finally starting to accumulate. It appears to be time for The D&O Diary to initiate the latest in its ongoing and ever-popular series of lists, this most recently created one to track the accumulated subprime and credit-crisis related lawsuit dismissals and dismissal motion denials.

The D&O Diary’s newly created list of subprime and credit crisis-related dismissals and motion denials can be found here.

As befits the relatively early stages of most of this litigation, the list of case dispositions is, as of the time of the list’s initial creation, pretty sparse. I will endeavor to update the list as new dismissal motion rulings emerge, and wherever possible I will provide a link to the actual ruling. As I update the list, I will indicate at the top of the list the date of the list’s most recent revision.

The more complete the list is, the more useful it will be for everyone, so all readers are strongly invited and encouraged to let me know about any subprime and credit crisis related lawsuit dismissal motion rulings that are not already on the list.

As of the date of the creation of this post, I am not aware of any subprime or credit-crisis related lawsuit settlements. The settlements will emerge sooner or later, and when the do, I will created a supplemental document tracking the settlements.

Readers who may be unaware of the other lists that I am maintaining may be interested to know about the following lists:

1. The List of Subprime and Credit Crisis-Related Securities Class Action Lawsuit Filings (which may be accessed here).

2. The List of Subprime and Credit Crisis-Related Derivative Lawsuits (here).

3. The List of Options Backdating-Related Lawsuit Filings (here)

4. The List of Options Backdating-Related Dismissals, Denials and Settlements (here).

5. The List of Securities Class Action Opt-Out Settlements (here).

I am always interested in any additional information or correcting information that is required to make these lists more accurate or complete. I am also always interested in readers’ thoughts and comments, about these lists or anything else.

Welcome Back: Serial blogger Bruce Carton is back at it again, with his new blog, Unusual Activity, which can be found here. The blog describes itself as "The Securities Litigation and Enforcement Reporter." Many readers will recall that Bruce is the founder and long-time author of the Securities Litigation Watch blog. Bruce more recently wrote the Best in Class blog. Everyone here welcomes Bruce back to the blogging circuit, and we look forward to reading his new blog.

Speakers's Corner: On June 19 and 20, 2008, I will be co-Chairing the Mealey's Subprime Mortgage & Insurance Coverage Litigation Conference at the Ritz-Carlton in Pentagon CIty, Virginia, with my good friend, Matt Jacobs, of Jenner & Block.

The agenda (which can be found here), includes many distinguished speakers and panelists, such as Andrew Carron of NERA Economic Consulting, Adel Turki of Cornerstone Research, Robert Rothman of the Lerach Coughlin firm, Dan Bailey of Bailey & Cavalieri, John McCarrick of Edwards Angell Palmer & Dodge, David Hensler of Hogan & Hartson, and Mitchell Dolin of Covington & Burling.

Registration instructions and other intormation about the conference can be found here.

And Finally: If you have never heard of the Social Science Research Network (SSRN), then you will want to review the article yesterday's New York TImes (here) discussing the latest in academic anxieties. It used to be all publish or perish, but it is now all about the downloads and links. And you thought your job was competitive.

Prevalence of Subprime Securities Class Actions

Cornerstone Research's review of 2008 securities class actions reported that In 2008, nearly one-third of the companies in

Although total new filings dropped in the first half of 2009, the rate of securities class actions

against companies in the financial sector of the S&P 500 was over five times the rate

for companies in the next highest sued sector.

become an important source for information on securities class actions, reports that

every subprime securities class action against a financial firm.

Kevin LaCroix, whose blog has approximately 200 subprime and other credit crisis-related securities class actions

have been filed since February 2007.

Executives are named as defendants in almost "litigation against the firms closest to the ongoing subprime/liquidity crisis was the dominant force in federal class action securities litigation in 2008" and that financial firms represented 46% of the $856 billion maximum dollar loss attributed to securities class action filings in 2008. The financial sector of the S&P 500 were sued in securities class actions, which was nearly five times the rate for the next highest sued sector of the S&P 500.

"Financial Reform", Permanent TARP, the SEC and the CFTC.

by on Wednesday, December 2, 2009 at 10:56am

The government backed agencies were the accomplice to the subprime scandals.

Sept 22, 2010

SEC Blasted on Goldman

Suit's Timing 'Suspicious,' Watchdog Says; Heat on Agencies as Crisis Cases Lag


WASHINGTON—The Securities and Exchange Commission's internal watchdog said the timing of a fraud lawsuit against Goldman Sachs Group Inc. filed by the SEC was "suspicious," suggesting agency officials tried to distract attention from a report criticizing the SEC for failing to detect an alleged Ponzi scheme.

Republican lawmakers asked SEC Inspector General H. David Kotz earlier this year to investigate how the SEC decided to file its April suit against Goldman, which settled the case in July for $550 million. The federal lawsuit alleged wrongdoing in a sale of mortgage securities called Abacus 2007 AC-1, and was filed as Senate Democrats were taking up the financial-regulation bill.

On the same day, the SEC released a scathing report by Mr. Kotz that concluded the agency had repeatedly missed chances to detect an alleged $7 billion fraud run by R. Stanford, a money manager indicted by a federal grand jury last year. Mr. Stanford denies wrongdoing.

At a Senate Banking Committee hearing Wednesday, Mr. Kotz was questioned about the timing of the Goldman suit. He responded: "It would strain credulity to think it was coincidental." He added: "I can't give you a conclusion right now, but it was suspicious."

At the time of the Goldman case, the SEC denied any political connection and said the timing wasn't swayed by factors unrelated to the case. The SEC declined comment Wednesday. Goldman also declined comment.

The comments by Mr. Kotz, echoing his previous findings on the agency's oversight of Mr. Stanford, cast an unflattering spotlight on the SEC just as it has been showing signs of progress in revamping its embattled enforcement unit.

Still, the ghost of the agency's spotty record at uncovering investment schemes was raised again Wednesday. And some frustrated lawmakers prodded financial regulators to rev up prosecutions of top executives and directors for criminal wrongdoing, complaining that it is taking too long to punish those responsible for causing or deepening the financial crisis.

"I know that the Justice Department, the FBI, and the SEC have all been working incredibly hard, reviewing countless transactions, interviewing myriad witnesses, poring over literally millions of pages of documents," said Sen. Edward Kaufman (D., Del.). "And yet we have seen very little in the way of senior officer or boardroom-level prosecutions of the people on Wall Street who brought this country to the brink of financial ruin. Why is that?"

Officials from the Justice Department, SEC and Federal Bureau of Investigation defended their track record, ticking off numerous cases they've brought against low-level mortgage brokers, chief executives of mortgage companies, and Wall Street investment banks.

The SEC also has pursued insider-trading cases, including the one that ensnared Galleon Group founder Raj Rajaratnam. About a dozen people have pled guilty in the case. Mr. Rajaratnam has denied wrongdoing.

Lanny Breuer, head of the Justice Department's criminal division, said the real chge is public perception.

The agency has committed resources to complicated investigations that take a long time to review but are being doggedly pursued, he said. All criminal cases brought so far involve bad public disclosures, he said. "At the end of the day, that's the difference," he said at Wednesday's hearing.

Robert Khuzami, the SEC's enforcement director, said that in complex areas such as mortgage securities, one hurdle in bringing cases is that the disclosures were often there in the offering documents.

According to a tally by the SEC, the agency has filed 634 civil cases since its fiscal year began last October, extracted $968 million in penalties and distributed nearly $2 billion to investors. Those figures "don't capture the breadth and complexity of cases we've filed," said Mr. Khuzami, who is shaking up the unit.

The Justice Department said nearly 3,000 defendants were sent to prison between October and June for financial fraud. The number of criminal mortgage-fraud cases filed by the agency has more than doubled so far this year compared with 2007, while new corporate-fraud cases also have surged.

Still, few criminal charges have been filed against high-ranking executives often blamed for the crisis.

After a two-year probe, the Justice Department and SEC dropped their investigation into former American International Group Inc. executive Joseph Cassano after being unable to prove misconduct. Federal prosecutors lost a jury trial against two former Bear Stearns Cos. hedge-fund managers accused of lying to investors about how they invested their assets.

The inspector general of the Federal Deposit Insurance Corp. is investigating 227 banks; its caseload is up nearly 20% from a year ago.

"There hasn't been a prosecution that's put a face on this crisis," said Fred Gibson, deputy inspector general of the FDIC, which works with the FBI to investigate crime at financial institutions. "It is proving to be a time-conng process."

One reason for the small number of criminal cases so far, according to current and former regulators: Many of the highest-profile disasters of the crisis look increasingly like they were caused by too much risk-taking and bad decisions—not criminal behavior.

"One of the chges in this environment is there were such broad systemic failures that identifying the one or two people or the six enterprises that are quote responsible, which is what we see a broader appetite for, I don't think that's doable," William McLucas, a former SEC enforcement chief, said in an interview. "There may be cases where the rules were broken. Are they all cases where you can or should put people in jail? Probably not, but that doesn't satisfy the lust for accountability."

A Justice Department official said the agency has uncovered lots of mortgage fraud and investment fraud, though it might not amount to the high-level malfeasance for which many outsiders are hoping.

U.S. prosecutors are preparing for trial against Lee Bentley Farkas, the founder of mortgage firm Taylor, Bean & Whitaker, who is accused of a $1.9 billion fraud that led to the failures of his company and Colonial Bank, based in Montgomery, Ala. Government agencies still are tallying the losses.

A lawyer for Mr. Farkas, who has denied wrongdoing, said he is getting ready for the trial.

The FDIC has brought one case alleging professional liability for a failed bank. Four former executives of IndyMac Bank, Pasadena, Calif., were accused in a July lawsuit of granting loans to borrowers they knew were unlikely to repay. The agency is seeking $300 million in damages. The former executives deny wrongdoing.

—Jessica Holzer contributed to this article.

Write to Kara Scannell at, Liz Rappaport at and Thomas Catan at

AIG was overseen by 400 agencies!!

Maria Bartiromo- The Weekend that Changed Wall Street

August 27th, 2010

It's 2010. Political gangstas still think it's okay to steal from the taxpayers to condone illegal/unethical activities by our finance sector.

Dear World, America isn't as stupid as our politicians and media make us out to be.

March 12th, 2010

Strange how the Economist is the only news source that bothered to mention SFAS 140.

Knowing that the subprime derivatives were sold as naked positions without the proper disclosures, the following will make perfect sense.

"The report’s juiciest finding relates to Lehman’s use of an accounting device called Repo 105, which allowed the bank to bring down its quarter-end leverage temporarily. Repurchase (“repo”) agreements, whereby borrowers swap collateral for cash and agree to buy the collateral back later at a small premium, are a very common form of short-term financing. They normally have no effect on a firm’s overall leverage: the borrowed cash and the obligation to repurchase the collateral balance each other out.

But Repo 105 took advantage of an accounting rule called SFAS 140, which enabled Lehman to reclassify such borrowing as a sale. Lehman would give collateral to its counterparty and receive cash in return.

Because the deal was being recorded as a sale, the collateral disappeared from Lehman’s balance-sheet and the bank used the cash it generated to pay down debt.


In fact, the obligation to buy back the collateral remained. Once the quarter-end had come and gone, Lehman borrowed money to repay the cash and buy back the collateral, and its leverage spiked back up again. "

SFAS 140


Oh by the way, the SFE's or SFAS 140 was used by Enron to mask it's debt. Wouldn't the Ernst and Young catch on by now? FASB/GAAP/Sarbanes whatever!!! that's almost as bad as the CFTC not taking complaints from investors about the sale of unsecured subprime instruments.

pg 31

The problem is huge. There's no possible way derivative dealers can sell the world's net worth amount of derivatives in one year if they secured them all with bonds.

Dick Fuld is going to prison. Do they need a motive? Did they need a motive to convict Kenneth Lay? I wonder when Goldman Sachs, JP Morgan, Countrywide and Bear Stearns will see their day in court as well. If Lehman Brothers did it, everyone else was probably doing the same thing.

I highly hope these cases are pursued BEFORE Congress starts on HR 4213-or Chri Dodd's "financial reform". Any TARP provision needs to die, these idiots are not worth $700 billion of our tax dollars to fix their cooked books.

Since Congress passed the bailout, they confirmed that the banks are a product of state sponsored corruption/anarchy. Congress needs to be impeached, the CFTC and probably the FASB needs to be investigated, these bankers need to be in jail and every government employee (Paulson, Bernanke, etc.) needs to be on trial for aiding and being an accessory to the crime.

This Lehman Brothers case just unraveled a major evidence of fraud. The devil is in the details.


Your Retirement Funds to Bail Out Failed Banks?


With this bill, the President will get access to TARP without Congress's approval; and it's rich with loopholes. It's not "reform"- it's allowing the state of TARP to be a permanent condition for lenders who sell counterfeit assets through whatever loopholes they create for themselves.


Again the actual bill

Update: 12/15/2009

We're in the middle of an economic crisis caused by the greatest financial scandal in the history of the world. And our financially illiterate and incompetant legislative and executive branches refuse to listen to our economic advisor.

He is doing the right thing.

Regulators Resist Volcker Wandering Warning of Too-Big-to-Fail

Dec. 15 (Bloomberg) -- Paul A. Volcker visited nine cities in five countries in the past eight weeks to warn that bankers and regulators “have not come anywhere close to responding with necessary vigor” to the worst economic crisis in 70 years.

“There is a lot of evidence that financial weaknesses brought us to the brink of a great depression,” Volcker, 82, said Dec. 8. at a conference in West Sussex, England. He told executives there that the changes they’ve proposed are “like a dimple.”

Our House Speaker Nancy Pelosi proves again that she hasn't even looked at the bill.

“The House of Representatives has acted to leave the age of dishonesty, recklessness and irresponsibility behind,” said Speaker Nancy Pelosi, a California Democrat, after the vote.

Update: 12/13/2009

TARP, Emergency Economic Stabilization Act of 2008 (EESA) or "the bailouts" create a lot of questions.

The Democrats argue that the US is a "Democracy". When 78% of the population opposed TARP and Congress passes it with an overwhelming majority, our elected representatvies are not pandering to a democracy.

Republicans argue that the US is a Constitutional Republic, where their powers are limited by the Constitution.

The idiot neo-cons are trying to shift the blame unfairly on poor minorities; this is inaccurate, they're trying to protect somebody and they're not trying to get the problem fixed.

Compliance Technology did a study and revealed that over 70% of the ARM borrowers were white. The HUD database has the scoop on this, they know who got a primary/secondary mortgage, the ethnicity of the borrower, the occupation/age/salary/networth/maritalstatus/etc. of the borrower. Truth be told, most of the ARM borrowers in California, Florida, Arizona, New York and Pennsylvania were realtors speculating secondary properties to purposely inflate the cost of houses.

The tragedy is that the media paints this as an argument for "evil capitalism" when this is the mess caused by "evil legislation".

Let's take a step back and look at the Constitutionality of the bailouts.

"But given the rush to push the bill through, even if Congress cobbles together some oversight language, it will almost surely be inadequate. Joshua Rosner, a managing director at Graham Fisher & Company, says TARP should stand for “Total Abdication of Responsibility to the Public.” He says it is “a clear abdication of all Congressional oversight and fiscal authorities to a secretary of Treasury that has bungled this crisis from the beginning.”

He argues that the bill grants “greater powers to the secretary of the Treasury than even the president enjoys.”

The bigger issue is that the bill effectively creates protections not just for the Treasury, but for the executives on Wall Street who created this near Armageddon. Mr. Rosner says that the draft bill “prevents judicial review that could allow the protection of decisions that create false marks, hide prior marks, or could be used to prevent civil or criminal prosecution in situations where a management knowingly provided false marks that aided the growth of this crisis of confidence.” "

George W. Will argues that the bailouts are unconstitutional because it hands legislative powers to the executive branch.

"The Vesting Clause of Article I says, "All legislative powers herein granted shall be vested in" Congress. All. Therefore, none shall be vested elsewhere"

Barney Frank's Financial Reform is handing the powers to provide bailouts (through the FDIC which comes from the Treasury) directly to the President of the United States.

"(i) the Corporation shall submit to the

17 Secretary and the President a written re18

quest for additional borrowing authority

19 subject to the limitation in subparagraph

20 (5), which shall be accompanied by a cer21

tification indicating the anticipated amount

22 needed, the basis on which such amount

23 was determined, and any such information

24 as the Secretary may deem necessary; and


•HR 4173 EH

1 (ii) the President shall transmit a re2

quest to the House of Representatives and

3 the Senate requesting the additional bor4

rowing authority, which shall include the

5 certification referred to in clause (i) and

6 which includes a repayment schedule as

7 outlined in paragraph (7). Pg. 486


•HR 4173 EH

1 (ii) the President shall transmit a re2

quest to the House of Representatives and

3 the Senate requesting the additional bor4

rowing authority, which shall include the

5 certification referred to in clause (i) and

6 which includes a repayment

Here's the trouble I'm having with this legislation altogether.


7 (a) IN GENERAL.—If any person violates a provision

8 of this title, any enumerated consumer law, any law for

9 which authorities were transferred under subtitles F and

10 H, or any regulation prescribed or order issued by the Di11

rector under this title or pursuant to any such authority,

12 the Agency may commence a civil action against such per13

son to impose a civil penalty and to seek all appropriate

14 legal and equitable relief including a permanent or tem15

porary injunction as permitted by law.

16 (b) REPRESENTATION.—The Agency may act in its

17 own name and through its own attorneys in enforcing any

18 provision of this title, regulations under this title, or any

19 other law or regulation, or in any action, suit, or pro20

ceeding to which the Agency is a party.

21 (c) COMPROMISE OF ACTIONS.—The Agency may

22 compromise or settle any action if such compromise is ap23

proved by the court.

p. 1047

If the CFTC is the "regulating agency" and the CFTC does not pick up it's phone to take complains, then what good is this provision? My argument is to take TARP out entirely, get rid of this useless bureacuracy and lose this. Why bother anyways? We're selfishly killing trees to publish "legislation" that Congress isn't going to bother reading anyways. Congress does this for vanity purposes.

There are quite a few blocks indicating that legislative/executive actions should not be held towards judicial or court review.

George F. Will sums it up:

"The Supreme Court has said: "That Congress cannot delegate legislative power to the president is a principle universally recognized as vital to the integrity and maintenance of the system of government ordained by the Constitution." And the court has said that properly delegated discretion must come with "an intelligible principle" and must "clearly delineate" a policy that limits the discretion. EESA flunks that test.

With EESA, Congress forces the country to ponder the paradox of sovereignty: If sovereign people freely choose to surrender their sovereignty, is this willed subordination really subordination?

It is. Congress has done that. A court should hear the argument that Congress cannot so divest itself of powers vested in it. "

Goldman Fueled AIG Gambles

"Goldman Sachs Group Inc. played a bigger role than has been publicly disclosed in fueling the mortgage bets that nearly felled American Insurance Group Inc.

Goldman was one of 16 banks paid off when the U.S. government last year spent billions closing out soured trades that AIG made with the financial firms. ...

...The banks wanted protection in case the housing market tanked. Many turned to Goldman, which effectively insured the securities against losses. Then, to cover its own potential losses, Goldman bought protection from AIG, in the form of credit-default swaps.

Goldman charged more than AIG for the protection, so it was able to pocket the difference, making millions while moving the default risks to AIG, according to people familiar with the trades.

The banks eventually realized they didn't need to use Goldman as a middleman.

The trades seemed prudent at the time given AIG's strong credit rating and the fact that AIG agreed to make payments to Goldman, known as collateral, if the value of the CDOs declined. The trades were also low risk for Goldman as long as AIG stayed afloat. ...

..."It seems shocking to me that Goldman would become so exposed to AIG and kept doing deals with them and laying on the risk," says Tom Savage, a former chief executive of AIG's financial products unit who left in 2001 before the explosive growth of insuring mortgage-debt pools....

...A Goldman spokesman said that between mid-2007 and early 2008, Goldman showed AIG "market price levels" at which trades could be undone, allowing AIG to decrease its risk, but "AIG refused to accept that the market was deteriorating...."

Update: 12/11/09

House Passes Sweeping Financial Oversight Bill with a 233-202 Vote

House Tightens Rules for Wall Street Over Opposition (Update1)

Unfortunately it wasn't in enough trouble.

This thing is full of loopholes.

Again, it seems like people on all sides of the fence are against this from all ends of the spectrum. So again, the House misrepresented the people.

again, Matt Taibbi of the Rolling Stones has his take on it. (Why is the political writer of an entertainment magazine giving better information on the bill than Fox, NBC and WSJ?)

"Then the committee went to work — and the loopholes started to appear.

The most notable of these came in the proposal to regulate derivatives like credit-default swaps. Even Gary Gensler, the former Goldmanite whom Obama put in charge of commodities regulation, was pushing to make these normally obscure investments more transparent, enabling regulators and investors to identify speculative bubbles sooner. But in August, a month after Gensler came out in favor of reform, Geithner slapped him down by issuing a 115-page paper called "Improvements to Regulation of Over-the-Counter Derivatives Markets" that called for a series of exemptions for "end users" — i.e., almost all of the clients who buy derivatives from banks like Goldman Sachs and Morgan Stanley. Even more stunning, Frank's bill included a blanket exception to the rules for currency swaps traded on foreign exchanges — the very instruments that had triggered the Long-Term Capital Management meltdown in the late 1990s. ...

...An even bigger loophole could do far worse damage to the economy. Under the original bill, the Securities and Exchange Commission and the Commodity Futures Trading Commission were granted the power to ban any credit swaps deemed to be "detrimental to the stability of a financial market or of participants in a financial market." By the time Frank's committee was done with the bill, however, the SEC and the CFTC were left with no authority to do anything about abusive derivatives other than to send a report to Congress. The move, in effect, would leave the kind of credit-default swaps that brought down AIG largely unregulated....

...but then again, actual people are not really part of the calculus when it comes to finance reform. According to those close to the markup process, Frank's committee inserted loopholes under pressure from "constituents" — by which they mean anyone "who can afford a lobbyist," says Michael Greenberger, the former head of trading at the CFTC under Clinton.

This pattern would repeat itself over and over again throughout the fall. Take the centerpiece of Obama's reform proposal: the much-ballyhooed creation of a Consumer Finance Protection Agency to protect the little guy from abusive bank practices. Like the derivatives bill, the debate over the CFPA ended up being dominated by horse-trading for loopholes. In the end, Frank not only agreed to exempt some 8,000 of the nation's 8,200 banks from oversight by the castrated-in-advance agency, leaving most consumers unprotected, he allowed the committee to pass the exemption by voice vote, meaning that congressmen could side with the banks without actually attaching their name to their "Aye."

To win the support of conservative Democrats, Frank also backed down on another issue that seemed like a slam-dunk: a requirement that all banks offer so-called "plain vanilla" products, such as no-frills mortgages, to give consumers an alternative to deceptive, "fully loaded" deals like adjustable-rate loans. Frank's last-minute reversal — made in consultation with Geithner — was such a transparent giveaway to the banks that even an economics writer for Reuters, hardly a far-left source, called it "the beginning of the end of meaningful regulatory reform."...

...A masterpiece of legislative chicanery, the measure would have given the White House permanent and unlimited authority to execute future bailouts of megaconglomerates like Citigroup and Bear Stearns.

Democrats pushed the move as politically uncontroversial, claiming that the bill will force Wall Street to pay for any future bailouts and "doesn't use taxpayer money." In reality, that was complete bullshit. The way the bill was written, the FDIC would basically borrow money from the Treasury — i.e., from ordinary taxpayers — to bail out any of the nation's two dozen or so largest financial companies that the president deems in need of government assistance. After the bailout is executed, the president would then levy a tax on financial firms with assets of more than $10 billion to repay the Treasury within 60 months — unless, that is, the president decides he doesn't want to! "They can wait indefinitely to repay," says Rep. Brad Sherman of California, who dubbed the early version of the bill "TARP on steroids."

The new bailout authority also mandated that future bailouts would not include an exchange of equity "in any form" — meaning that taxpayers would get nothing in return for underwriting Wall Street's mistakes.

Even more outrageous, it specifically prohibited Congress from rejecting tax giveaways to Wall Street, as it did last year, by removing all congressional oversight of future bailouts. In fact, the resolution authority proposed by Frank was such a slurpingly obvious blow job of Wall Street that it provoked a revolt among his own committee members, with junior Democrats waging a spirited fight that restored congressional oversight to future bailouts, requires equity for taxpayer money and caps assistance to troubled firms at $150 billion. Another amendment to force companies with more than $50 billion in assets to pay into a rainy-day fund for bailouts passed by a resounding vote of 52 to 17 — with the "Nays" all coming from Frank and other senior Democrats loyal to the administration...."

Sarah Bond just linked a video from Michelle Bachmann regarding Barney Frank's Financial Reform Legislation.

I wrote this up several days ago, this is a shady,shady bill and the media was very quiet about it.


In a market where there's nothing left for banks to steal, Barney Frank and Chris Dodd are busy doodling up the new bank reform. These highly educated sellouts are just crafting wordy legislation to fix, well nothing. ...

In reality, what the banks need is just a modernized Glass Stegall Act, a clearinghouse for commoditiesespecially subprime derivatives just to make sure they're secured this time and most importantly, stop putting the fox in front of the hen house. Which they refuse to do.

Of course not one of the criminals who committed the massive fraud is being put on trail, or being sent to the slammer. but instead are being bailed out with OUR tax dollars.


our legislative branch

our executive branch

the Federal Reserve

the CFTC (Commodity Futures Trading Commission)-led by Gensler

the ISDA (International Swaps and Derivatives Association)-led by Pickel

the Boomer voting base that's overlooking this krap

realtors and speculators who took up good deals to inflate real estate prices to unrealistic levels.

the media- who blows smoke and mirrors to keep the public confused on this crime


the lenders


the taxpayers

the market investors

first time primary home owners who have not been able to afford real estate with legitimate mortgages on real wages

Even back in 2005, money managers (including hedge funds) noticed that many of the subprimes they were sold were not backed by bonds- the way they were supposed to be. They attempted to report this to the CFTC, but the CFTC was not picking up their phone.

So how massive IS this fraud?

The majority of the problems are reflected not in the technicality of the product, but is made obvious as to how the process of regulation is enforced (or not).

Yes, Goldman Sachs owns the Federal Reserve. The Federal Reserve is a privately held institution that is held by several banks, only half which are American. Fine.

But as primary dealers to the Federal Reserve, they are WAY too involved in creating regulation. They have a conflict of interest; again the fox is guarding the hen house.

The institutions that should be involved with this legislation are the hedge funds, money managers and other markets for the subprime derivatives, including international investors, not sellers. Giving the lenders 100% authority with no checks and balances only weighs the law in their favor.

The lenders during the subprime trade were the same banks that owned the Federal Reserve.

the lenders who sold counterfeit subprimes in the 1st place, aka. the" ISDA Industry Governance Committee’s membership".

Does Bernanke have a conflict of interest? YES HE DOES.

But even with the Federal Reserve out of the picture, JP Morgan and Goldman Sachs- just two of the lending institutions that purposely "exposed themselves" (selling counterfeit derivatives) did not go to trial and they're being granted the authority to oversee regulation of the commodities market they just abused!

2/3rd of the ISDA Governance Committee's Membership consists of derivative dealers including but not exclusively JP Morgan, Goldman Sachs and Deutsche Bank. Only 1/3rd consists of the buy(investment) side including Hedge Fund, Insurance Co and Money Managers.

So what happens when you put the fox in front of the henhouse? LOOPHOLES!!!!

"The Crafting of a Loophole


Those who respect the law and love sausage should watch neither being made.

--Mark Twain.

AMENDMENT TO THE PETERSON SUBSTITUTE FOR H.R. 3795 (a) OFFERED BY MR. PETERSON OF MINNESOTA (b) Page 21, after line 25, insert the following:

(19) by adding at the end the following:

‘‘(50) ALTERNATIVESWAP EXECUTIONFACILITY. (c).—The term ‘alternative swap execution facility’ means a service that facilitates (d) the execution ortrading of swaps between two persons through any means of interstate commerce, but which is not a designated contract market (e), including any electronic trade execution or confirmation facility (f) or any voice brokerage facility (g).’’

Now let’s see what went into this legislative sausage.

(a) Everyone agrees that the unregulated “dark markets” of Wall Street’s trading in over-the-counter derivatives such as credit default swaps moved the financial crisis from major problem to total disaster. Currently, most trades in these “products” are privately negotiated on the phone, dealer to dealer. It’s appallingly risky – that’s why we have a multi-trillion dollar bailout. But because the dealers at major banks can quote different prices to different customers, with huge spreads between buy and sell quotes, the banks are making huge profits and want to keep it that way.

So while congress is busy working on reform legislation, Wall Street’s lawyer-lobbyists in Washington are working hard to neutralize such efforts.

Who’s winning? Over lunch across town from Capitol Hill, I recently asked that question of a very smart attorney endowed with deep experience in keeping Washington safe for Wall Street. In answer, he pointed to this seven-line paragraph buried in a 26-page amendment to “HR 3795, Over-The-Counter Derivatives Markets Act of 2009,” passed in a voice vote by the House Agriculture Committee the night before. Following the vote, the committee had issued a press release hailing their vote for “strengthening” regulation.

On the contrary, said my friend, “I guarantee you that not a single member, and almost certainly no one else, apart from the traders on Wall Street and the lobbyist who inserted it on their behalf, understood the significance of this paragraph. It means that nothing will change.”

(b) Colin Peterson (D-MN) is the Chairman of the House Committee on Agriculture. He is on record as asserting “The banks run this place…It’s huge the amount they put into politics.”

(c) An “alternative swap execution facility” is intended by the original drafters of the bill to be a new, fully regulated market for trading over-the-counter derivatives – a technologically enhanced version of the various futures exchanges currently operating, such as the Chicago Mercantile Exchange, where transactions and prices are open for all to see.

(d) A beautiful word. Now the “execution” facility doesn’t have to be an actual exchange. It has just been redefined as merely something that “facilitates” the execution of a swap trade.

(e) Reinforces the point that a “facility” does not have to be one of those transparent exchanges. But wasn’t that what the bill is meant to make happen?

(f) In 2005 the major swaps dealers, under pressure from the New York Fed, set up an electronic “confirmation facility” to keep track of trades, which the dealers control. Not much openness here.

(g) “Voice brokerage.” This means a telephone, as used by a dealer setting prices that are not publicly disclosed. That’s what the dealers were doing the last time they led our financial system over a cliff, and that’s the system that is preserved by this one little paragraph.

With H.R. 4173 – “Wall Street Reform and Consumer Protection Act of 2009.”, voice brokerages, execution facilities...

but YAY! the Government "Accountability" Office gets to audit Fed activities.


If we used the anology "fox guarding the hen house" this is exactly how it will pan out. The Fox is writing all of the rules. The fox will keep the hens for himself and secure derivatives with rubber chickens for everyone else. The fox will make up a bunch of rules so they can manipulate how many rubber chickens can be traded in a day to inflate the value of the hens, etc. Since they're writing the rules, they know too well how to manipulate this. The Fox will deem this "free market" when this is a fascist danger at the expense of the rubber chicken investors, their competition by socializing the fox's losses to the taxpayers as he keeps the "free market" manipulated gains.


Even Ed Harrison from the Huff Po is calling this out.

and Newsweek

Why don't we put the Better Business Bereau's biggest violators in charge of the Consumer Protection Act? Literally, why not have bank robbers legislate security for safe deposits? Let's not stop there! Let gang members have complete control over the 2nd Amendment and let Jeffrey Dahmer fix legislation on how to sentence convicted mass murderers? Infact, Jeffrey Dahmer was just placed on the Victim Witness Assistance Program and other institutions to push for his reform.


Under the new banking reform, a taxpayer supplied umbrella insurance policy will be the business continuity plan every time a bank purposely exposes itself and falls on it's hindquarters. Which will happen again knowing how well the CFTC didn't call out the sale of counterfeit subprime vehicles in the past when it was reported to them.

The saga doesn't end there. The CFTC legislates the entire futures market which not only consists of subprime debts, but metals and other commodities.

A cavalcade of similar letters eventually allowed bank speculators to control entire markets, even though they possessed little or none of the commodity being traded, are not engaged in any legitimate commodity related business, and earn their living by trading back and forth on the futures exchanges.

The bottom line is that CFTC has erroneously allowed hedging against hedges. Translated, they have allowed hedges against speculation, not production. This has become a toxic poison which corrupted the futures markets from their intended purpose.

“Hedging against a hedge” is the ultimate manipulative activity, because it allows the creator of speculative instruments (derivatives) to create unlimited quantities of an imaginary commodity stockpile, taking real supply and demand out of the equation.

More frightening is the fact that, when a firm hedges against a derivative, they will be leveraged on both sides of the transaction, while not being in possession of the real commodity. No rational bank, or other person, can consistently earn a profit, on such risk, especially where a futures contract is subject to a possible delivery demands, unless they are able to manipulate the market up and down.

In spite of all the chatter from CFTC about “reform”, their current concern seems limited to helping derivatives dealers to head off serious limits on speculative activity imposed directly by Congress. Were Congress to enact such limits, derivatives dealers, like Goldman Sachs, would find it impossible to use CFTC staffers to circumvent position limits.

Under the Capitol Hill Circus Tent; Congress and Obama will probably sign this with big grin on their faces, hustling bribes from K Street (lobbyist hub in Washington D.C.) with absolutely no clue or care in the world as to what they just did to the American people.

Obama has already kept Robert Pickel as head of the ISDA after he didn't do his job in the last 10 years. Obama is keeping Gensler and the CFTC around to recreate the counterfeit subprime market. Infact, Gensler helped draft the Commodities Futures Modernization Act which contained loopholes that allowed subprimes to be traded without securitization. Pickel and Gensler are two other men who need to be on trial for the subprime collapse.


Then Arianna Puffington, Paul Krugman, Michael Moore and Naomi Klein will cry that legislative incompetence is the result of capitalism. The liberals will continue to blame dissenters of this policy as redneck racists when it is THEY who fail to understand what is being boycotted.

The people to the right will continue to blame poor minorities and liberal legislation allowing the poor minorities to get screwed by the system; then pray that this will recover the overpriced real estate values.

The political theater is so predictable that one can come up with a pretty good drinking game to their reaction to the mess. Congress and our legislators are complete retards or just blatantly corrupt.

In this picture, she is signing away over $700 billion of our tax dollars to save criminals. She does so with the biggest grin on her face. How big was HER payout?

The employment/population growth dropped 60% in the last decade. (see bottom table "jobless recovery" on Wikipedia).

To the Boomers who don't get it- TARP is not bringing back the housing bubble.

Instant replay...

TARP is not bringing back the housing bubble.

Shady Banking reform is not going to help. Without a stable job market, the counterfeit subprime market is going to fail. The Cost of Living Index was at 180 nationally in recent years. A fair amount is 100. The COLI for San Diego was 220, in San Francisco it was 280 and in NYC it was over 400. The lack of job growth did not enable people to buy legitimate mortgages for these now expensive homes which also pushed many to take out ARM loans to begin with, putting many at the mercy of foreclosing when credit tightened. Also, unemployment hiked and as a result of that more people foreclosed.

Only a stable job market (steady source of income for the borrower) is going to give the real estate market a stable recovery.

TARP IS A WASTE OF MONEY. IT DOES NOT "SAVE THE ECONOMY". All it did was provide liquidity in the market (which is what the Federal Reserve is supposed to do) when the banks that own the fed purposely tossed away their own ability to maintain liquidity. Not that the markets are much more liquid than they were before. Credit lines are still tight. It's a year since TARP has passed.

Seriously, we have to pick better representatives to guard our interest since TARP will be a permanent addition. Until Barney Frank describes how the taxpayers won't be liable for the FDIC's "special fund" to take over banks, we have to assume that this money will be taken from Uncle Sam's coffers somehow. This isn't sound fiscal policy.

Frank said the taxpayer would not be placed at risk, "not according to this bill," he said. "There was some suggestion of that and I've stricken it from the bill." Republicans universally opposed the measure, describing it and the rest of the bill as a permanent bailout for banks.

Until we know where this money will come from, after the initial bailouts and no trial for these criminals; the taxpayers, without our knowledge and consent are 100% exposed to the crimes of the banks.

A blog called "New Deal" came up with great ideas on what a proper, common sense reform would look like.

"1. Prohibit regulated and protected financial institutions from trading derivatives. All financial institutions with access to the Fed’s lending as well as any financial institution with Treasury guarantees on liabilities (such as FDIC insurance) would be prohibited from selling or buying any derivatives. All assets would be carried on bank books through maturity-with full exposure to interest rate, currency, and default risk. That provides the correct incentives to protected lending institutions. Underwriting would be assured-since institutions could not shed default risk through securitization. Any institution that was foolish enough to play across exchange rates (lending in one currency while borrowing in another) would bear the risks. And any that tried to play the maturity curve would be subject to rising short-term rates. Personally, I would put tight constraints on the Fed to avoid another Paul Volcker “experiment” (he killed the thrifts by pushing overnight rates above 20%), but that is a matter for another blog. So forget the attempts to regulate derivatives markets. All that is necessary is to prohibit regulated and protected institutions from playing with them.

2. Abandon “too big to fail” and “systemically important” doctrine in favor of a “too big to save” and “systemically dangerous” approach. It is likely that all the largest financial institutions are insolvent, in spite of their machinations to manufacture imaginary trading profits. So, close them down. It’s the law. Insolvent institutions are supposed to be resolved, at the least cost to the Treasury; all we need to add is a proviso that they must be resolved in manner that does not increase industry concentration. The top 4 banks (BofA, Citi, JPMorgan-Chase, and Wells Fargo) have about half of the industry, and there is little doubt that each is massively insolvent and systemically dangerous. Shut them down. If there is collateral damage, deal with it. Leaving them open not only encourages each to “bet the bank” through excessively risky trades, but also tells all other financial institutions that their only hope is to join the “too big to fail” club through unsustainable growth that requires they adopt the same failing strategies adopted by the behemoths.

3. Forget about regulating the top 3 ratings agencies — they are beyond hope. Instead, prohibit regulated and protected institutions from using any ratings obtained by sellers of securities. Instead, they should be required to purchase ratings services from arms-length professionals, with the top 3 monopolists specifically excluded because they have demonstrated their inability to provide unbiased ratings. Further, make ratings agencies liable for improper ratings, imposing a fiduciary responsibility to actually evaluate any instruments that are rated. The top 3 never actually looked at any of the mortgages that collateralized the securities they rated-it was all too pedestrian for them. As we now know from internal emails, they did not have the loan tapes (the data provided by borrowers), the experience (they had no expertise in rating mortgages-all of their experience was in rating corporate and government debt), nor the time to assess credit risk. And they have never understood how to rate sovereign government debt (on which there is no default risk-yet the ratings agencies provided higher ratings to NINJA loans than to riskless sovereign debt) If anyone wants to purchase debt rated by these nincompoops, I wish them luck. But we must prohibit banks and other protected institutions from purchasing the garbage."

The first bailouts was larsony. It was unpopular and Congress still passed it.

The same banks that own the Federal Reserve got bailed out and they're on the ISDA Governance Committee.

This bill has to be stopped or we can consider our country an oligarchy, not a democracy.

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