Friday, April 16, 2010

The loose thread on the pin stripe suit

The first loose thread of the tapestry of Wall Street fraud was given a good tug today as the SEC filed a civil suit against Goldman Sachs. The details of this scheme are such clear cut organized crime that it would make a good script for the Sopranos. The response from Goldman Crime Family is just to say “Heey, forget about it”, but this time the G-men aren’t going to do that.

Over the past thirty years when a Wall Street crime family actually got caught running a scam like this they would just enter into a Consent Decree with the SEC. They would pay a little money, blame on some over zealous associate (they’d promise to have him whacked) and declare it would never happen again. The boss of bosses would not be touched and the SEC would not reveal any detail of the operation the street crew had been running so they could run it again and again.

Today was different, instead letting them beat the rap, the SEC is planning to go to trial. They’ve got themselves a no nonsense judge who used to be a prosecutor. The deposisition of Goldman’s employees and subpoena of their records was apparently very interesting. It seems that “Fab” Fabrice Tourre liked to refer to himself in emails in the third person as “Fab” and recount his crimes and the “take” in much detail. “Fab” was given a promotion or was “made” on this two billion dollar boost.

Oh and flat-foot at the SEC was always good experience to become a mouth piece (I mean high paid lawyer) on Wall Street. The corporate media trotted out a couple of these Wall Street mouth pieces today and they were “experts” because they used to work for the SEC. The same SEC that never really enforced the law in the past. It was their informed opinion that the SEC would have a real-hard-time proving their case. The reason was that if it was an “easy” case to prove than Goldman would have taken a settlement. There is no indication that the SEC ever offered a settlement and fraud watchers are saying this is the just tip of the iceberg. You should expect many more civil suits from the SEC. The DOJ is mum of course, but AG Holder did tell the Senate earlier this week that they might see more fraud trials.

Goldman Sachs’s stock was down 13% today and dragged the DOW down 125 points even though Goldman is not a DOW 30 component. JPMorgan which is a DOW 30 stock, dropped 5% on the news that the days of organized crime (I mean free-market capitalism) may be over. The only fly in my “hopey, changey” optimism ointment stuff is that the Obama Adm is rife with former bosses from the Goldman Sachs family.

Thursday, April 15, 2010

Ice Futures are Trading Up

It’s 98 years ago today that the Titanic struck the iceberg. It was one of the many events of its era that led to stricter government oversight of corporate activity in the Progressive Era. Everything that went wrong that night was a result of “free market” forces. The captain ordered full speed in the fog to stay on schedule. The Jr officer on watch didn’t have the experience to ignore that order as the fog worsened. He probably feared for his job and his lack of training caused him to do exactly the wrong things when the warning sounded. Water tight compartments weren’t really water tight and there was no good way to lower the lifeboats they did have. They were running the Titanic like it was a coal mine or a commuter airline.

The report on North Atlantic icebergs, I mean the Federal Reserve’s Beige book estimate of the economy was up for 11 of 12 Fed Districts. It was up largely from improvements in retail and car sales. They say industrial activity is up but then again the trade deficit is up even more sharply. You see industrial activity in the US revolves around installing Chinese parts and putting on the decals for what ever big box store ordered the product from China.

The Fed also said that most of the new hiring is only temps. To a big corporation hiring temps isn’t quite as good as using prison labor, you still have to pay them but not that much. It’s probably on a par with the cost of owning slaves. Since there are no purchase costs with temps or need to feed and house them when you’re not using them and there‘s no investment lost if you kill some temps. Initial unemployment claims surged by 24,000 last week, up for the third week and is again approaching the half million level.

As for the not quite slaves having housing; the first quarter set a new record for home foreclosures with 900,000 families served with some sort of notice. That’s 10,000 per day every day, they‘d probably leave for a better land if they could afford a steerage ticket.

The Fed’s Beige Book is really a collection of anecdotes from the advisory boards for its member banks. It can often reflect more what they would like to believe as opposed to what is really happening. The economy is unsinkable, have another drink, we have plenty of ice.

Wednesday, April 14, 2010

Gold Plated Spider Hole

JP Morgan Chase (the spider hole Jamie Dimon lives in) posted a 3.3bn first quarter profit today despite allotting 7 billion to cover losses on its consumer credit divisions. How does a bank lose that much money and still make billions? A big part of it is the “special” accounting rules and tax credits it gets from foreclosing on homes thanks to a parting shot from the Bush Crime Family. But the cash flow to keep their 17 billion in bonus checks from bouncing comes from its investment bank division.

The big banks all have investment bank divisions and are churning the markets to drive up stocks that they own so that they can in turn sell to the managed funds who have no choice but to invest. Another cash cow is high speed trading with a built in programming bias so they can buy any stock their clients want a split before the price increase is recorded and resell it at a profit.

Jamie Dimon let go with a blistering tirade last month in his annual letter to shareholders, he criticized the "demonization" of big banks and argued for the economic benefits of outsized financial institutions. But when under oath he maintains complete ignorance of the working of the economy or why the sub-prime mortgage securitization/financial derivative scheme his bank was running collapsed the world’s economy. He does seem to know enough about it to declare today that if Congress allows the Commodity Futures Trading Commission to regulate those same derivatives it will cost his bank two billion dollars.
AG Holder told the Senate Judiciary Committee that he expects more trials for the people responsible for the financial collapse. Really? The FBI warned everybody two years before the collapse that mortgage brokers were committing systemic fraud. The AG’s of all 50 states tried to curtail the practices of the big mortgage banks but the Bush Adm invoked a 1863 law to take away state oversight of nationally chartered banks. A law that had not been used since Lee surrendered to Grant. Oh, and Federal oversight of these big banks was exactly… none.

Speaking of the Confederacy; Sen. John Cornyn (R-Texas) asked AG Holders why there hadn't been more "show trials" for alleged white-collar criminals. It’s not clear if he was being dismissive of Holder (he didn’t call him “boy”) or if this is just the way a jack booted thug like him thinks the DOJ ‘should’ work. If the Republicans weren’t holding up over 200 appointments including senior positions at the DOJ there might be some of those show trials to watch.

Tuesday, April 13, 2010

A Steaming Roll of Nickels

The big four mortgage bankers appeared before Congress today and said they have no intention modifying any home loans and you can’t make us. They prefer to continue foreclosing on homes. The Census Bureau says there are 3.4 million homes currently standing empty. The best estimates are that there are upwards of four million mortgages already in the foreclosure pipeline on top of two million already processed.

There are probably another five million mortgage holders that could enter foreclosure in the next year or less. Once a community reaches a certain density of foreclosed homes it starts to feed on itself. Local tax revenue dries up as abandoned property brings in nothing but eats up increased services from the city for police, fire and so on. The increased burden shifted to remaining homeowners helps drive them under. Local businesses layoff help and eventually close. They default on their commercial loans and debts to other businesses spreading the disaster. Somebody has termed these mini-Katrinas, destroying neighborhood by neighborhood. Thousands of these little storms are brewing across the country. Mortgage holders that owe more than their house is worth are described as being under water. Millions of people who are current on their mortgages now will find they can‘t make their payments as the economy spirals down. Unable to sell or refinance, they will drown too.

The banks routinely get far less from foreclosure than the amount the current owner could pay under modification so why would why would bankers who measure margins in fractions of a percent want to foreclose? It’s simple, the bankers don’t give a steaming roll of nickels for the long term health of their own banks let alone America. Bush left behind tax and accounting rules that allow the bankers to lose money hand over fist and still look good on paper each quarter. The more foreclosures, the better the books look, after all there are billions in executive bonuses at stake.

If they run their banks into the ground in a couple of years, so what? That’s what trillion dollar bailouts are for. Even if the government seizes the big banks and liquidates them, it’s not like the bank executives have their own money invested in them. They aren’t stupid. When a hurricane comes you go to high ground. The bankers’ high ground is in gated communities behind armed guards. The rest of us are on our own.

Monday, April 12, 2010

You can drown in a trough

The National Bureau of Economic Research says they don’t think there is enough evidence to conclude that the recession is really over. These are the egg head economists that make the “official” determinations that everybody quotes on the news. They don’t think we’ve moved from the bottom “trough” (that’s the opposite of a peak on a graph). Basically they aren’t sure the GDP numbers have been reflecting what is really going on in the economy. (you think?)

Jobs continue to drain out of the country, the pace of home foreclosures is picking up and business activity is sluggish at best. US corporations are awash in cash but aren’t investing, at least not in the US. The stock market is up but only because the investment banks trade back and forth between each other (the consistently low volume gives this away). These banks are doing the same with oil futures and we’ll probably see $4.00 gas by the election.

Then you have the commercial debt bubble that is already dragging hundreds of small and medium banks under and that won’t really start getting bad for another year. And there are the big banks who used to be restricted to being leveraged only 10 to 1. Thanks to Greenspan’s insistence that credit derivatives or anything else not be regulated the big banks are leveraged thousands to one and getting worse every day. The numbers are about double what they were when they crashed in ’08 and they needed a bail out. Any payback of TARP monies banks have made is just an illusion, they are getting far beyond the ability of the government to bail them out. The bulk of their assets exist only as electrons in a computer. The only reality they deal in is the 150 billion in bonus checks they wrote to themselves.

The economy may start to look better if China adjusts the value of its currency and slows the out-sourcing of US jobs by increased regulation. This is only temporary fix however. Unless there is a comprehensive rollback of the last thirty years of Reagonomics the spiral to corporate feudalism will just pick up speed again.

Another 200,000 new serfs lost unemployment benefits today on top of the 200,000 last week. The Republicans refuse to allow funding for extended benefits claiming pay/go rules apply since people starving is not an emergency. Even if the Senate provides the funding the people who have been out of work the longest are running out of eligibility anyway. There are a lot of people falling into the “trough” of the recession.