Banks are at it again, as usual, and these latest adventures in fictional finance are off the public radar. Maybe the public has lost their outrage and why the latest news is out of earshot. Maybe people are just exhausted, watching absurdity after outrage coming from these financial institutions and the ones who are supposed to watch them. After all, nothing ever changes. We hear the same song, just a little bit louder and a little bit worse.
Case in point are some stories so absurd you don't know whether to laugh or cry, but regardless of what we think, you know now the banks will get away with it once again. The Financial Sector has carte blanche to do as they damn well please and no government will stop them. Even the obligatory slaps on the wrist from governments and regulators don't sting.
SEC Sues The One Credit Ratings Agency Not on the Wall Street Take
Wonder what regulators are doing these days? Why going after credit rating agencies that had nothing to do with the financial crisis. This was brought to light by an Op-Ed on Bloomberg:
The Securities and Exchange Commission, it seems, has finally lost its mind.
In April, motivated by what I consider pure maliciousness, the SEC initiated a “cease and desist” administrative proceeding it deemed “necessary for the protection of investors and in the public interest” against Egan-Jones Ratings Co., a privately owned, 20-person firm based...
Most interesting Egan-Jones was first to downgrade the United States.
Egan-Jones is the sole rater that the SEC has decided to attack. The trouble for the firm started on July 16, 2011, when Egan-Jones downgraded the U.S.’s sovereign debt by one notch, to AA+ from AAA. Egan-Jones cited “the relatively high level of debt and the difficulty in significantly cutting spending.” Two days later, the SEC’s Office of Compliance Inspections and Examinations contacted the firm seeking information about its rating decision. (The next month, S&P also downgraded the U.S.’s sovereign debt, but neither Moody’s nor Fitch did.)
Now note the timeline...
Then, on Oct. 12, Egan-Jones received a call from the SEC notifying the firm of a Wells Notice, an indication that it was being investigated. On April 5 of this year, Egan-Jones again downgraded the U.S. sovereign debt, to AA from AA+. On April 19, leaks started emanating from the SEC that it had voted to start an “administrative law proceeding” against the firm. And on April 24, the SEC filed its complaint.
Just what does the SEC object to so vehemently about Egan- Jones? The commission claims that on its 2008 supplemental application to be a “nationally recognized” ratings firm, Egan- Jones “falsely stated” that it had already rated the credit of 150 asset-backed securities and of 50 sovereign-debt issues. The SEC claims Egan-Jones “willfully made these misstatements and omissions to conceal the fact that it had no experience issuing ratings on ABS or government issuers.”
Supposedly these ratings in question were not made publicly available.
Banks "Forgive" Debt That Has Been Discharged in Bankruptcy
Imagine you've been foreclosed on and you have already gone through bankruptcy and lose pretty much everything. Now imagine the bank decides to forgive your debt after that terrible ordeal. Problem is bankruptcy already wiped out that debt the banks are now claiming to forgive. You don't owe it, the debt no longer exists.
Gretchen Morgenson, New York Times:
GREETINGS, unhappy homeowners! Here’s some wonderful news:
“We are canceling the remaining amount you owe Chase!” says a letter that JPMorgan Chase sent recently to thousands of home loan borrowers. “You are approved for a full principal forgiveness of your Home Equity Account,” says another, from Bank of America.
Jackie Esposito, of Guilford, Conn., got a letter like that. But she wasn’t elated — because she doesn’t owe the money anymore. She and her husband filed for bankruptcy three years ago. The roughly $64,000 they owed Chase has been legally wiped out.
What’s going on?
Morgenson makes the case these banks are doing this to get, once again, your tax dollars, this time from the ill conceived mortgage settlement.
Cast your mind back to February. Five of the nation’s big banks, including Chase and Bank of America, agreed to pay $25 billion to settle state and federal claims over questionable mortgage practices and promised to work harder to help borrowers who were in trouble. To prod the banks, the government said it would give them credits against the amounts they agreed to pay.
So, to the ire of customers who couldn’t get banks to work with them before, banks are now forgiving debts that no longer exist.
Spain is Going into Hock Up To Their Eyeballs to Bail Out the Banks
Spain plans to borrow 207.2 billion euros ($266.5 billion) next year, the Budget Ministry said today, as pressure builds for Prime Minister Mariano Rajoy to tap the European rescue fund instead of financial markets.
Spain’s debt will widen to 90.5 percent of gross domestic product in 2013 as the state absorbs the cost of bailing out its banks, the power system and euro-region partners Greece, Ireland and Portugal.
The people are in the streets protesting for the austerity to come. Why can't it be called as it is, people get their pensions cut, their jobs lost, are literally financially ruined, all to save the @&*)@! banks.
The public’s patience is running out on austerity policies demanded by the German government and European Union leaders, which have conspicuously failed in their stated goal of reducing debt burdens and paving the way for economic revival. Instead, it’s clear that these measures will accelerate depression-levels of unemployment and damage social safety net programs when they are most needed.
Banks Make Out like Bandits on QE3
Quantitative easing was all about mortgage backed securities. We warned about QE3 being a gift to banks here and in this in depth piece.
The Financial Times:
Bank profits from new mortgages have soared since the Federal Reserve began its third round of bond purchases two weeks ago, fuelling the debate over the fallout of the latest dose of quantitative easing.
“For banks which are mortgage originators this [QE3] was some of the best news they could possibly have heard,” said Steven Abrahams, mortgage strategist at Deutsche. “They will continue originating loans and selling them into the market at a significant premium.”
The interest banks pay on mortgage bonds has dropped from 2.36 per cent on September 12, the day before the Fed announced its programme, to as low as 1.65 per cent last week. It edged up to 1.85 per cent on Monday.
That means the profit, or spread, banks earn from creating new mortgages for homeowners paying around 3.4 per cent and selling the loans into the secondary market has risen to around 1.6 per cent. That is higher than the 1.44 per cent spread they pocketed before QE3 and significantly greater than the 0.5 per cent they earned on average in the decade between 2000 and 2010.
JPMorgan Chase Sued for Fraud by New York
Hopefully by now you've heard Mew York is suing JPMorgan Chase over Bear Sterns.
JPMorgan Chase & Co. (JPM), the biggest U.S. bank, was sued by New York Attorney General Eric Schneiderman, who alleged that the Bear Stearns business the bank took over in 2008 defrauded mortgage-bond investors.
Investors were deceived about the defective loans backing securities they bought, leading to “monumental losses,” Schneiderman said in a complaint filed yesterday in New York State Supreme Court.
Naked Capitalism notes even so called civil prosecutions end up being token and for show.
It looks like Eric Schneiderman is living up to his track record as an “all hat, no cattle” prosecutor. Readers may recall that he filed a lawsuit against the mortgage registry MERS just on the heels of Obama’s announcement that he was forming a mortgage fraud task force. Schneiderman’s joining forces with the Administration killed the attorney general opposition to the settlement, allowing the Administration to put that heinous deal over the finish line.
Schneiderman has churned out another lawsuit that the Obama boosters and those unfamiliar with this beat might mistakenly see as impressive. It’s a civil, not criminal suit against JP Morgan he conduct of Bear Stearns in originating and misrepresenting $87 billion of mortgage backed securities (the link takes you to the court filing). And also notice no individuals are being sued. Being a banker apparently means never having to be responsible for your actions.
Financial Engineers Construct CDS Index for CDSes That Do Not Exist
Remember derivatives and credit default swaps which were behind the financial crisis? The Financial Times reports they're at it again, creating more derivatives, this time based on a new index.
This week, the index provider, Markit, will cross a Rubicon and begin to include three companies in its North American high-yield CDX index for which no bank is offering a CDS.
A CDX is an index which tracks a basket of credit default swaps. Supposedly this move is to pressure banks to issue more CDSes on the three new companies added to the index. How absurd is that, to put into a CDS tracking index companies which do not have any underlying credit default swap associated with them?
Some people are warning that the illiquidity of the underlying market risks a repeat of debacles such as the JPMorgan “London whale” trades in which the bank lost $5bn on a trade involving a CDX index.
Did we miss anything? Probably, as the Banksters are alive and well, doing dirty tricks on a daily basis. Who feels the financial sector are simply vultures feeding off the carcass of America?
Comments
Banks just shift penalties/settlements/losses to public
It's pretty obvious that lessons simply will never be learned and taken to heart because every single bank and corporation that violates any rules can simply shift all the losses, civil penalties, etc. on to the public, customers, etc. The NY AG can sue whoever he wants, but the fact is nothing changes except the customers will simply pay more in ATM fees, or loan processing fees, or higher interest rates as a result. These actions don't even result in lower compensation for the guilty CEOs. An individual or small business that engaged in fraud, laundered money, or any number of other crimes would face stiff jail or prison time for crimes and huge fines it couldn't shift to taxpayers or shareholders. Civil and criminal forfeiture too. TBTF and other corporations don't face the same threat and that's Problem #1 - different rules because of different access and/or control of powerplayers. Now, if criminal cases were pursued, that would change the game. Because then the responsible individuals would feel the weight of the law, and could personally lose money, and would personally sit behind bars. A criminal can't shift his fines and term of incarceration on to a shareholder, or customer, or a taxpayer like TBTF does with their penalties all the time. At that point it might even be a little more difficult for felons to meet and control our democratic process (although Michael Milken seems to have bought his way into controlling powerplayers despite his felony record and history).
It really is that simple. Until those creating and approving criminal activity in these corporations (e.g., environmental crimes for other sectors, financial fraud and manipulation for banks) are held personally responsible for crimes, then business will continue as usual. If you are personally responsible enough for bonuses and mega-salaries, then you are also responsible for violating the law when that happens too - hiding behind incorporation will no longer do when criminal laws are violated. How just is it when people that had nothing to do with the malfeasance are punished with higher fees? And don't the banks and corporations always say, "Well, if what we were doing was wrong, why weren't we stopped?" We should take that as an open invitation to use the law to stop them, and those that have the US Code and state criminal laws/codes in front of them that get paid to investigate and stop such crimes should take up the invitation to hold them criminally responsible. Just think of how much smaller budget gaps would be in different jurisdictions if a few criminals' Hamptons estates, Lear jets, and bank accounts were seized. If those actions are good enough for one set of criminals, then they are good enough for all criminals, plus it would ensure those that broke the law were punished, deter others, while sparing customers and the general public from unfair burdens for things they didn't do.
Cheating has become the rule,
Cheating has become the rule, not the exception. Nobody is held accountable, not the banksters, not the hedge funds, not the politicians, not the regulators, not the lobbyists. They're all guilty of destroying this country for greed. We need to start somewhere and hold someone accountable.
How's that Deaniac leftist agenda workin' out for you now Rob?
I remember you, Robert Oak, I was an Edwards' supporter & you were part of the deranged elitist Deaniac horde, who showed up at the Edwards site after Dean embarassed himself, and started demanding Edwards kowtow to get your vote. After reading some of your articles back then, I called you on your indifference to the outsourcing of blue collar jobs, and stated that your indifference would lead to rationalizing tech jobs... you then went on to justify how unimportant blue collar, manufacturing jobs and workers were in the grand scheme of things. Just wanted to know how you feel about Obama not only outsourcing, and making us pay for it, massive amounts of jobs and how Obama increased visas from 65K per year, to 160,000 per month. How is your deranged leftist ideology working for you, Robert?
you are seriously mistaken
I never supported Dean. I'm not a Deaniac, or a Kossack and never was a Dean supporter. I never was on the "Edwards site" in 2004.
Additionally, offshore outsourcing is one of the first topics I started writing about, along with STEM labor issues. My motivation to start piping up was the outrageous spin and repression of statistics, facts on what was going on with the U.S. labor force, in particular STEM but also heavily manufacturing.
On this site, on the left column, you will see a host of others whose issue is manufacturing and I made a point to cover trade, offshore outsourcing, labor arbitrage.
This site is nonpartisan and is "all things economic and labor" only site.
I never would say manufacturing does not count or anything of the sort. We've written many articles on the importance of U.S. manufacturing. Additionally manufacturing spans advanced R&D STEM, not the other way around and if one wants to have an advanced R&D nation, they must have a strong manufacturing sector.
This site is nonpartisan. I've never supported Obama and that is from the primaries and warned his economic advisers were all for more offshore outsourcing, more foreign guest workers and more bad trade deals. I have written many posts showing the latest in lobbyist written and demanded policy as you describe, same as I do with GOP agendas. Both parties enable offshore outsourcing, more bad trade treaties, more foreign guest workers and other policies which are destroying the U.S. labor force, middle class.
You are either mistaken or confusing me with someone else. The golden rule of this site is no economic fiction, fact, statistics must be referenced, and not spun.
Normally we don't allow spam, attack comments and such, but this one has so much specifics and was clearly wrong I thought I would respond.