Clint Eastwood about Obama

What Recovery? Petroleum Deliveries Lowest Since September 2008; Weakest July Demand Since 1995

by Tyler Durden
ZeroHedge

While the Achilles heel to the endless "economic data" BS coming out of China may be its electric production and demand, both of which show a vastly different picture than what the Beijing politburo's very wide brush strokes paint, the US itself is not immune from indicators that confirm that anything the BEA dishes out should be taken with a grain of salt. One data set that we showed recently that paints a drastically different (read slowing) picture of the US economy which we noted recently is railcar loading of waste and scrap for the simple reason that "The more we demand, the more waste is generated by that production." Of course, the propaganda manipulation machinery only focuses on the "entrance" of production, and completely ignore the "exit." But an even far more important metric of the general health of the US economy may be none other than broad energy demand, in the form of petroleum deliveries and gasoline demand. If this is indeed the relevant metric to observe, then things are about to get far, far worse. As Dow Jones notes: "U.S. petroleum deliveries, a measure of demand, fell by 2.7% in July from a year earlier to the lowest level in any month since September 2008, the American Petroleum Institute, an industry group, said Friday." It gets worse: "Demand in the world's biggest oil consumer, at 18.062 million barrels a day, was the weakest for the month of July since 1995, the API said. Year-to-date demand is down 2.3% from the same period in 2011."
Did Americans forget to drive?

Demand for gasoline, the most widely used petroleum product, dropped 3.8% from a year earlier, to 8.624 million barrels a day, the lowest July level since 1997. Gasoline use in the heart of the peak summer driving season was 2.2% lower than in June. January-July gasoline demand averaged 1.1% below a year earlier, at 8.671 million barrels a day, the API said.

Oh well, maybe Americans just decided to take the peak driving period of the summer season off for some reason. Demand for other distillates would still be high... assuming the economy was chugging along. Yes. And no.

Kerosine-based jet fuel use fell 0.8% in July from a year ago, to 1.455 million barrels a day, while demand for heavy residual fuel, used in power plants and industrial burners, dropped 7.1% year-on-year, to 294,000 barrels a day.

One would think that with collapsing demand, for whatever reason, the production side would slide as well, especially since the price of WTI is soaring and is back to just shy of $100, causing the Margin Hiker-in-Chief to grumble. One would be wrong.

Production of all four major products--gasoline, distillate, jet fuel and residual fuel--was greater than demand for those products. As a result, petroleum imports decreased and exports increased. Total imports of crude and refined products fell by 9.6% to average 10.4 million barrels a day in July. Exports of refined products increased 11.1% to a record high for July of 3.244 million barrels a day, and year-to-date exports were up 14% compared with the same period in 2011.

Refineries operated at 92.7% of capacity in July, the second month in a row above 90%.

Crude oil production rose 13.6% year on year in July to 6.225 million barrels a day, the highest July level since 1998. Year-to-date output averaged near the July level and was up 11.9% from the same period in 2011.

But, how is it possible than in light of collapsing demand in the world's marginal consumer of gasoline, that crude prices are not only flat, but have in fact entered a bull market in the past 3 months? Simple: we wrote about it in "Monti's bluffing unleashes bull market in crude."
What was the bluffing? Simple - that no matter what happens, Draghi will print. At least now we know who all those 'evil speculators' are that Obama bashes every time unleaded approaches $4.00 and Brent reaches fresh record highs in EUR terms. Such as now.
As for what all this means for the economy, the API chief economists summarizes it best.

"While retail sales for July are up and housing has improved, the weak petroleum demand numbers are a strong indication the economy is still faltering," said John Felmy, API chief economist. "Unfortunately, achieving robust growth will likely continue to be an uphill climb given the nation's fiscal challenges, business uncertainty, and a European economy in jeopardy of sliding back into recession."

It also means fresh all time highs in the S&P. Why? Because.

API August 17

Oh, So It's Not Just Standard Chartered?

by Karl Denninger
market-ticker.org

Color me surprised..... not:

Deutsche Bank AG (DBK) is among four European banks being investigated by U.S. regulators for alleged money-laundering violations, according to an attorney with knowledge of the matter.
Federal regulators, including the U.S. Treasury’s Office of Foreign Assets Control, the Federal Reserve, the Justice Department and the New York District Attorney’s office are all involved in the probe of Deutsche Bank and three other European banks, said the attorney, who asked not to be identified because the investigations are confidential.

As with Standard Chartered the issue from my point of view is not whether prohibited transactions took place. Firms with huge counts of transactions will undoubtedly occasionally engage in a transaction that should not happen.

The issue should and must revolve around whether the banks in question intentionally altered data so as to evade OFAC and other regulatory controls. 

If they did then their operating license in the United States must be stripped -- period.

Nobody can be above the law or the law is meaningless. An institution that intentionally alters transaction data so as to evade detection has both admitted that it knows there's a problem with the transactions in question and becomes a willful conspirator to the underlying act. If the underlying act can be charged as a felony the willful conspirators are and should be exposed to prosecution under the Racketeering statutes.

There is no reason for any American to conform with the law so long as these banksters continue to get away with this sort of conduct with nothing more than a handslap that is then passed on to customers in the form of additional fees.

This odious practice of ignoring criminal behavior by the rich and powerful must end now.

MASSIVE 2012 MORTGAGE RELEASE FRAUD BY MORTGAGE ELECTRONIC REGISTRATION SYSTEMS

By Lynn E. Szymoniak, Esq., Ed., Fraud Digest

What do I say to potential buyers of my condo? “I promise you that U.S. Bank as Trustee for some unidentified trust has been paid off - but, no, I can’t even show you the canceled note and I have no idea why MERS filed a Mortgage Release instead of U.S. Bank.”

I bought a condo as my retirement home. Then I could not retire as planned, because I needed to care for my mom a little longer than expected. When I could sell, the market had crashed.

I defaulted, and was sued for foreclosure. It was a David Stern Law Offices foreclosure. While the original lender was Southtrust Mortgage, I was sued by “U.S. Bank as Trustee.” This was a Mortgage Electronic Registration Systems (MERS) mortgage, serviced by GMAC.

The Lis Pendens (foreclosure initiation) was filed April 2, 2010.

On May 13, 2010, an Assignment of Mortgage was filed in the county Official Records. Jeffrey Stephan signed this Assignment. Stephan was identified as Vice President, Mortgage Electronic Registration Systems, Inc. as Nominee for Southtrust Mortgage Corp. d/b/a Equibanc Mortgage. (Equibanc was a Wachovia division that has now been closed.)

The mortgage was assigned to U.S. Bank National Association as Trustee. Again, no specific trust was identified. The Assignment was dated April 15, 2010.

The Stern Law Offices filed an unverified complaint after the FL Supreme Court had amended the civil procedure rules to require that complaints be verified. I also thought that I was entitled to the full name of the plaintiff - that is, the identity of the trust, so we filed a Motion to Dismiss.

The MERS system does not identify the trust. When the MINS number is entered for this loan, a message appears onscreen to please contact the servicer for information on the owner of this loan.
The Stern law firm collapsed. The case was assigned to a new firm, Elizabeth Wellborn Law Offices.
At one point during the discussions with Wellborn lawyers, my lawyer was told that a Credit Suisse Trust had bought the loan and U.S. Bank was trustee for that trust. Although I had the MIN number and loan number, no search was ever successful in identifying the trust.

Eventually, we won our Motion to Dismiss and were even awarded attorneys fees for our efforts. Because of some good fortune, I had the funds to pay off this loan.

I got a pay-off figure from GMAC. I paid off the loan. I waited for the cancelled original note. No canceled note has ever arrived.

On July 15, 2012, GMAC Mortgage filed a “Release of Mortgage” in the county official records.
William Jensen, Assistant Secretary, Mortgage Electronic Registration Systems, Inc., signed this Release.

MERS claims on the release to be the holder of my mortgage (though we all know by now that MERS does not hold any mortgage documents.)

If I wanted to sell the condo (I do, by the way), anyone doing a title search would see that I was sued for foreclosure by U.S. Bank, a mortgage assignment was filed by MERS assigning the mortgage to U.S. Bank, and then there was never a Satisfaction or Release filed by U.S. Bank.

What do I say to potential buyers of my condo? “I promise you that U.S. Bank as Trustee for some unidentified trust has been paid off - but, no, I can’t even show you the canceled note and I have no idea why MERS filed a release instead of U.S. Bank.”

An examination of the county records shows there are tens of thousands of these MERS releases filed in 2012, prepared and filed AFTER MERS has already assigned the loan to a securitized trust.

MERS is operating under a Consent Order issued by the Federal Reserve, the FDIC, the Office of Thrift Supervision and the Federal Housing Finance Agency on April 13, 2011. These agencies need to stop MERS from this continued destruction of the country’s land records.

Barry Ritholtz on the Ghosts Haunting the Zombified US Housing Market

A Waiting Game

By Golem XIV

Governments, so they tell us, want the banks to lend into the real economy to get people working, earning, buying and paying both their taxes and their debts. Problem is, I do not think the financial industry shares this desire. They say they do. They say they are doing their bit. But they are not. The abject failure of the UK’s 2011 ‘Project Merlin’ is a good example. Project Merlin was the voluntary agreement between UK banks and government to set and meet targets for lending to small and medium businesses. The big five UK banks all agreed to lend. The data showed, however, that they all lent less in every quarter. I talked to the CEO of a UK bank which specializes in raising capital for medium sized businesses and he told me there was less and less funding around. He said the big banks and the big funds simply didn’t want to know. They had other plans.

Of course if the banks had no money to lend then the mystery would evaporate. The story would be they’re not lending because they can’t, because they have no money. But the banks do have money. Lots of it. We are so mesmerized by those banks which are close to the edge – like the Spain’s moribund Bankia and the rest of Spain’s Cajas that we forget others have lots of cash. I’m not saying the headlines aren’t correct. They are. Spain’s banks are now totally dependant on massive loans from the ECB. The amount they have to borrow from the ECB has gone up every month for the last ten. Last month they borrowed €402.19 Billion. Nearly half a trillion. The rest of Europe’s fine banking system borrows another €600 billion or so.

BUT at the same time as Europe’s banks are sitting on and dependant for their survival on over a trillion euros borrowed from the ECB they also deposited about €860 billion of that money back at the ECB. Until recently the ECB (read tax payers) actually paid the banks interest on this money. Which means we, Europe’s tax payers, have been forced to give the banks money. The banks have then refused to lend any of it back. Instead they put it in the ECB where they claim interest which we have to pay. We pay twice and get nothing.

Recently the ECB tried to ‘encourage’ the banks to move this money out and lend it by lowering the interest it pays to zero. So the banks could leave the cash in the ECB and get nothing. Or they could lend it out and earn something. The banks, all of them, chose the former. They simply shifted the money from where it was no longer welcome and put it instead in another part of the ECB which was still accommodating.

Remember not a single one of those euros was earned by any of Europe’s banks. The entire amount is tax payers money. It is bail out money. It is the money the banks were ‘given’ in order to ‘save’ them, restore their finances and allow them to once again lend in to the real economy so that ther rest of us could also get a little help. That has been the only policy allowed anywhere in America, Japan and Europe for the last 4 years and it has failed. The banks are not healed, they are not lending and the rest of us are now told we must accept a decade of austerity to off-set the levels of debt, that the bank bail outs have massively inflated.

But angry as that makes me it’s not the point. The point is to ask why all the banks are hoarding cash? Why are they willing to accept zero return rather than put it to work?

The standard answer is that the banks know they have many more bad loans and rotten ‘assets’ whose value could suddenly plunge if they are ever forced into the open and valued. So it is prudent to have cash around to cover any sudden forcible recognition of losses. Hidden losses are fine. A bit like illegal libor rates or money laundering. All in a bankers day and fine as long as it never comes to light. It is only getting caught which is frowned upon. Mea culpas are so irritating after all and some of the fines are actually large enough to nip a little out of the bonus pot!

All of the above has certainly been the case over the last 4 years and to some extent still is. The German banks in particular are still sitting on a mountain of assets they have still not marked to anything like market value. Those ‘assets’ and loans are presently sitting in off-balance sheet vehicles registered in Ireland.

How can I say this? A long conversation with a former Landesbank CEO that’s how. All banks are guilty of hiding losses by refusing to mark their ‘assets’ to market. But the person I talked to said the German Landesbanks in particular are still hiding rather large unrecognized losses in their Irish registered, off-balance sheet vehicles. Safely hidden away from the prying eyes of regulators and citizens. The joys of regulatory arbitrage! But should any of these dirty secrets be exposed to the harsh light of market pricing then the banks in question must have either cash hoarded away or feel they can cry to friends in government and the ECB will bail them out.

That is the traditional answer for why banks might hoard cash and it seems it is still partly correct. I should also say it’s not just in Europe that the big banks are hoarding cash. Recent figures from the FED estimate that US banks are hoarding about $1.6 Trillion in cash. Most of it earning interest.
But I have felt over the last few weeks that something about this on-going debacle and attack on our democracy and sovereignty has changed. I do not believe the banks and other financial entities are hoarding cash just as a safety measure.

Let’s look at where we are. According to ECB board member Benoit Coeure, speaking officially in July,

Europe may be sliding back into its second recession since 2009 and growth is also slowing in the United States and China.

“I don’t think we are moving toward a global recession; we are moving toward very low growth or no growth at all,” he said.

A masterful, mouthful of understatement. Rates have been held at close to zero for a couple of years now. The so called extra-ordinary measures have become fixtures, without which the chances of the big, debt-riddled banks surviving, is zero. The problem is, while essential for their survival, such low to zero rates are also killing them. Long periods of very low rates mean the banks can’t find a return on their money through any sort of regular lending. Thus the very measures which keep the banks alive, so they can ‘start lending again’, guarantee they won’t.

On top of which this lack of lending and general crippling of the real economy has meant real growth – as opposed to accounting ‘growth’ by means of moving numbers from one column to another column, has not only not recovered but has decreased. Having opened the public vein for on-going transfusions into the banks, the self same banks have insisted the poor slobs who are being bled for them, must also go on an austerity diet. And thus nations already crippled by private debt made public liability, are now also being starved. The Greek and Spanish people have no chance of ‘recovering’. All that awaits them is a boot stamped into their faces over and over and over.

Not that the financial class cares. What they do care about is the lack of ‘yield’ available to them on their money. No ‘yield’ means no profits. And many banks and funds are not profiting the way they would like. For example this Zerohedge article reports how 68% of Growth Funds which invest $278 billion are underperforming. For ‘underperform’ read not making a profit for their investors who will therefore soon chose to leave.

So what do you do if you can’t get no yield satisfaction? Yes, you reach for the bottle marked ‘Yield’ and ignore the warning which reads, “Caution: Use sparingly. Contains high levels of risk.”
Here is how an article in International Financing Review put it earlier this month,

The downward pressure on yields has continued, intensified by the ECB’s slashing of interest rates…. Real-money managers are returning to exotic derivatives strategies not seen since the start of the 2008 financial crisis in an effort to boost yields in an increasingly low-returning environment.

What could go wrong? The article continues,

Real-money managers in the eurozone core have all but exhausted conservative means of boosting returns and – faced with negative yields in sovereign markets – they are now ploughing money into riskier assets, often using exotic derivatives to increase value.
“Low yields have really become a big problem over the past eight months and it’s gone from bad to worse,” said Adrian Bracher, head of rates structuring for Europe at Credit Suisse. “These big investors are now opening up for more risk tolerance.”

“Over the past six months we’ve seen the return of relatively exotic structures, and we’re not talking small-fry bets. We’ve seen a number of Northern European managers taking significant views on inter-currency spreads – things we saw a lot three to four years ago but haven’t seen a lot since,” he added.

Exotic derivatives. Big bets. Sounds great.

Then let’s add in this headline from The New York Times (15.August.12),

Risk Builds as Junk Bonds Boom
The market for junk bonds, risky corporate debt that pays high interest rates, is red hot….Fueling this frenzy are investors of all stripes — including individuals, mutual funds and state pensions — who are desperate for returns in their bond portfolios and willing to take more risk to get them. Demand is insatiable, even as analysts warn that the market has become overheated and is ripe for a fall.

Exotic derivatives, big bets and junk bonds. Booyah!
Now it might seem that hoarding cash is the opposite of all this and that the renewed growth in risky investments, argues against the idea that banks are hoarding. Surely searching for return somewhere, even if not by not lending in to the real economy, is still the opposite of hoarding. Actually I don’t think it is.

I think banks and other financial institutions are, as the above quoted articles say, desperate for return. They all need cash flow to stay alive and profit to keep clients. Bank bail outs have largely taken care of cash flow for the last few years. That, and not what we were told, is what the bail outs were for. And with the cash pile they have hoarded they could continue to use this public money-mountain to pay off their debts for years to come. But that will not bring growth.

So there is a search for yield and a growing belief that risk is back on the menu. The hoarding is, I believe, part of this strategy. The hoarding is not just for safety. As this article from Bloomberg reports,

Hedge funds and private-equity firms have amassed an unprecedented 60 billion euros ($74 billion) to invest in distressed debt in anticipation that Europe’s sovereign-debt crisis will push banks into the biggest fire sale in history. The problem is few are selling.

I don’t think it is just Hedge funds and Private Equity firms that are looking forward to profiting from vast fire sales from bankruptcies and sovereign defaults. I think the big banks are waiting too.

The banks aren’t using their bail out money to help the real economy because they think there is a real chance the real economy isn’t going to recover the way our idiot politicians tell us it is going to. At least not before a wave of corporate bankruptcies and one or two huge sovereign defaults.

Look at it this way. Strategy A) the bank plays nice like the government says and lends at a pathetically low rate to a viable but cash starved business. The business gasps with relief, wins orders for more widgets and pays back the loan. This strategy provides employment and therefore a success story for the politician. The banks gets a pitiful return over the life of the loan. Strategy B) the bank quietly refuses to loan to the widget maker or any other business in the real economy. It might agree to short term funding via high yield bonds. With bonds the bank gets a higher return, can agree to a short duration bond only and can sell the bond on if necessary. All round better than ‘lending’ the money to the business. But generally strategy B) says, ‘Don’t loan. Wait.’

Wait for the struggling business to collapse and then lend the money to a buy-out fund who will buy up the bankrupt business for a fraction of what it was worth as a going concern, be able to shrug off many of the old debts in bankruptcy protection, renegotiate terms and conditions with the workforce who will be desperate and worried and sell on the ‘restructured’ company for a quick and large profit.
Which strategy would a banker chose – help the economy or help themselves? The same Bloomberg article reports,

Apollo Global Management LLC (APO), Oaktree Capital Group LLC (OAK), Avenue Capital Group LLC and Davidson Kempner Capital Management LLC are among U.S. firms that have flocked to Europe, setting up offices and raising funds to benefit from the most severe period of distress in the region. The money raised for distressed-debt funds gives the firms about 100 billion euros to spend on deals including leverage, according to PricewaterhouseCoopers LLP.

But as the article says, while the vultures are gathering the problem is that no one has yet died. The European banks and their sovereigns who hold so many of the potentially juicy bad loans and ‘assets’ that could end up in a fire-sale, have so far been propped up with endless ECB money. The article quotes Elliot Management which is significant since Elliot Management are part of Elliot Associates who are one of the world’s largest and most aggressive vulture funds.

“The troubles in Europe have not yet created the volume and types of bankruptcy and restructuring opportunities that might be expected from difficulties of such monumental proportions, most likely because the governments and banks are essentially holding each other up and keeping the private sector afloat — for now — with lots of freshly minted paper money,” Elliott Management wrote in a letter to investors in April.

And so we have a strange situation where the big banks are sitting on piles of bad assets. Should they have to sell, or should a whole sovereign be forced to sell at knock down prices in a disorderly collapse – or even in an orderly looting organized by former bankers who are now running in to the ground every austerity-wracked nation they have been given - then there will be epic fire-sales. Those with cash on hand could make the killing of a generation. Possibly by killing a generation, but why lower the tone by mentioning those who don’t really matter?

So I think the big banks are hoarding and waiting. Each hopes not to fall first. Those who do fall will be pciked clean by those still standing. This is what the bail out money is being used for.

I don’t think the banks will lend in to the real economy because they calculate that such a socially useful strategy gives low returns to them. Should they ‘defect’ from this generous strategy and chose instead the selfish strategy of ‘hoard and wait’ then they could make not just a large return but an epic one. They could emerge as owners of everything people will need in order to rebuild their lives. Water, power, rail, hospitals, you name it.

This is what the banks are waiting for. And our politicians are giving them our money so they can.

…”Shadow” & “Ghost” Inventory Quantified

by Mark
mhanson.com

Those estimating “shadow” inventory at levels inconsistent with a multi-year drag on housing are “definitionally” challenged. Moreover, they have bad data.

Bottom Line: based on the data and simple math we have at least 10 -years of distressed supply to work through based on the past two years average monthly distressed sales demand quoted by the National Association of Realtors.

Most “Shadow” inventory estimates use incorrect demand numerator assumptions and do not account for borrowers who are technically “stuck”.

Note, that the analysis below looks at two measure; 1) real “shadow” inventory and time to clear and the more important 2) “ghost” supply that traps 25 million borrowers in their houses — the prime repeat buyer cohort who must be active in order for housing to be able to reach “escape velocity one day — making them useless in the macro housing market equation.

Demand

1) Annualized Existing Home Sales 4.4mm units

a) 3.1mm units are non-distresssed

b) 1.3mm units are from the foreclosure stock or short sales

Bottom line: Demand for distressed supply is 110k per month on average.

Supply (Visible, Shadow, Ghost)

Visible Supply

1) Listed Supply – 2.4 million Nation Assoc of Realtor listings
2) REO – 300k to 400k Foreclosures

**this is where most “analysts” stop looking for supply.

“Shadow Supply”

1) 60-days late or in Foreclosure – 5 to 6 million units

2) short sales – 600k annually

3) modified legacy loans – 6 million (I call mods “new-vintage, higher-leverage, worse-than-Subprime loans). Mods redefault at a faster pace than legacy Subprime loans defaulted in 2006 to 2008. Once loans are modified everybody forgets that these borrowers remain more risky than legacy subprime borrowers…they simply forget about them. But with respect to default and short sale volume, this is an extremely important cohort track closely month to month.

Bottom line, there are 11.6mm high risk loans/borrowers. If only half liquidate over the next 3 years it means ~2mm per year in distressed supply in a market only proven to absorb 1.3mm units per year.
**Some better analysts go as far as here but they don’t grasp the “denominator effect” and try to divide total national sales of 4.4 million into the “distressed” supply. That’s not accurate because only 25% of the demand is for distressed supply.

“Ghost” Supply 20 million to 30 million borrowers/houses (not mutually exclusive meaning one borrower can belong to multiple cohorts)

1) “Effective” Negative Equity – 25 million borrowers / houses. These borrowers are dead to the housing market, as they don’t have the equity to pay a Realtor 6% to sell and put 20% down on a new house. They were once the most active participants, the repeat buyers. Now they are “zombie homeowners”.

2) Impaired Credit – 28 million borrowers. These are borrowers with “c” grade or lower credit that can’t easily qualify for a purchase money loan outside of FHA

3) Legacy Second Liens – 18 million borrowers. Legacy seconds that banks refuse to extinguish also trap millions of homeowners making them useless in the macro housing market equation.
**No analysis I have ever seen makes the case that…until these 20 to 30 million — mostly bubble years buyers/borrowers — are de-levered macro housing can never reach “escape velocity” or achieve a “durable” recovery. In a healthy housing market this is the primary demand cohort…current owners with mortgages who move every 6 to 8 years.

Bottom Line:

First timers and investors are volatile and thin cohorts that cannot sustain a “durable” recovery or push macro housing to “escape velocity”. In fact, “distressed resales” have only averaged 110k per month over the past two years. That is nowhere near enough demand to absorb all the likely supply detailed in the chart below.

The investor and first timer by and large bowed out of the market in June, as the distressed supply was all but chocked off for the election cycle. Now, the Realtors are screaming for more Foreclosures…how ironic.

This housing market will never achieve a “durable recovery” or “escape velocity” with 20 to 30 million homeowners — the prime repeat buyer cohort — trapped in their houses due to effective negative equity, poor credit, or legacy second liens. All that will continue to happen is stimulus-induced short squeezes like we saw this year and in 2010 followed by hangovers like in 2011 and will again in the back half of 2012 and 2013.

How to Beat Vulture Debt Collectors

By Yves Smith
nakedcapitalism.com

In a bit of synchronicity, last weekend I had dinner with a buddy whose sibling recently was dunned by a buyer of junk debt. For those not familiar with this dark underbelly of the credit markets, these vultures buy consumer debt from banks (mainly credit card receivables) that the bank has written off. That means they don’t think it’s worth pursuing. At best it’s too close to the statute of limitations expiring or the documentation is questionable or the amounts are all wrong. Most of the time. it’s worse than that: the debt was never owed (they are going after the wrong person), the debt was paid off or discharged in bankruptcy, the statute of limitations has long passed.

The buyers of this debt pay pennies on the dollar and treat it like a lottery ticket. They sue, but have NO intention of spending any money on the case beyond making that filing. Their fond hope is that the borrower fails to respond, and they win a default judgment. With that in hand, they can garnish wages or bank accounts.

The flip side is any minimal credible response will beat back these claims. And remember, the burden of proof is on the debt collector to demonstrate that the consumer agreed to the debt, to provide a full record of principal, interest, payments, and fees, and to prove a complete and unbroken chain of title (sound familiar?).

An article by law professor Peter Holland is a superb guide on how to beat these cases. While the intended audience for this article is lawyers, it is highly accessible, and gives a sense of what an utter swampland this area is. He also stresses that it takes diligence rather than experience to pursue these cases:

Revealing the defects in these documents does not require a deep background in consumer law. It just requires a cup of coffee, your undivided attention, a yellow highlighter, and a red pen.

The article warns, however, that fewer than 1% of the consumers who respond in court are represented by counsel, and that they are typically not treated equitably, since debt collectors have convinced many judges that borrowers are deadbeats and that the rules of evidence don’t hold in small claims (as the article stresses, that is not accurate). Holland does not intend his article to be a guide to pro se defendants, but it can serve as a great guide for newbie lawyers or even law students to take on these cases. And he also points out that in the wake of the robo-signing scandal, many judges are more sensitive to assaults on the integrity of the courts than they once were, and it’s not difficult to depict some of the issues presented by these actions as being similar to those in robosigning cases.

Nathalie Martin of Credit Slips recounts some of the recommendations Holland makes:

1. Read the complaint and supporting documents very carefully. Is the named plaintiff the same party named in the documents supporting the debt? Is there any chain of title tying the plaintiff to the debt? Is the debt collector licensed in your state? Is the contract for the debt even attached to the complaint? How is the debt supported by evidence? If there is some document attached to prove the debt, can you read it? Was it generated after the fact? By whom? Has the statute of limitations run?

2. Know the elements of an “account stated” cause of action. These include the establishment of a debtor-credit relationship, an agreement by the debtor and creditor as to the amount due, and an agreement by the debtor to pay the amount allegedly due.

3. Carefully scrutinize the affidavit. Here comes the fun. Google your affiant. Many people who have signed these affidavits have admitted under oath to singing thousands of these in one day, and many have signatures on Google that will not match the ones in your affidavit. Look at your state’s affidavit rules. Of course these rules will require affiants to have personal knowledge and likely yours will likely not qualify as evidence. If the affidavit says this is true “to the best of my knowledge” the affiant is admitting to not knowing the real facts and the affidavit can be stricken from the evidence.

4. Master the relevant rules of evidence. No personal knowledge, no recovery. No proof of debt, no recovery.

5. Tell the judge why this matters. Many of these debtors do not owe these debts.

And there’s lots more, like investigating whether the plaintiff had a checkered history (felons on staff? violations of the Fair Debt Collections Practices Act? FTC fines? evidence of past use of fraudulent affidavits?) and putting the judge on notice of any findings.
Holland concludes:

Allowing debt buyers to run roughshod over consumers and the courts is a denial of due process. It enriched junk-debt buyers at the expense of consumers, legitimate creditors, and our judicial system…Trying and winning these cases will have the systemic impact of helping restore a sense of justice and fairness which lies trapped beneath the heavy weight of the junk-debt buyer.

Is That A Sentinel -- Or A Siren?

by Karl Denninger
market-ticker.org

I've been studying the Sentinal Decision for about a week now, trying to find an analytical corner that wasn't immediately pounced on by the mainstream media and various bloggers. In short this held:

A federal appeals court on Thursday upheld a ruling that puts Bank of New York Mellon ahead of former customers of Sentinel in the line of those seeking the return of money lost in the 2007 failure of the suburban Chicago-based futures broker.
The appeals court affirmed an earlier district court ruling that the bank had a "secured position" on a $312 million loan it gave to Sentinel, which turned out to have been secured by customer money.

The problem with this decision is rather simple -- it eviscerates the general principle in the law that one cannot grant a thing one does not have.

This is why, if you buy a stolen car, you don't get to keep it when the theft is discovered. You can't be prosecuted for unwittingly buying the car, but the seller has no title to the vehicle to convey, and therefore he conveyed nothing. You thus have no claim to the property.

Back in 2009 you all sat for this very same sort of violation, because it didn't risk being your money. I'm speaking of the GM and Chrysler bailouts in which senior bondholders, who had a contractual claim on the assets of the company and thus literally owned the property (as a secured interest) were boned for the benefit of the UAW -- that is, their property was stolen.

The courts allowed it.

Now it has happened here with Sentinel, but this is not news; it is merely continuation of what began, and what you, the people, allowed to occur without retribution or recompense.

This morning we find that it's likely that those who were involved in the theft of customer funds at MF Global, including Corzine himself, are likely to not face criminal charges. And why not? That's just an extension of the Sentinel decision.

The problem, of course, is that once you ignore property rights then you've ignored them. It's the principle of the thing more than the details; whether you get personally boned with "this" particular violation isn't the question. Rather, the question is this, for each and every one of you:

"What assurance do you have that any property of yours that is not in your personal, immediate and physical possession, is actually protected by the rule of law if someone attempts to steal it?"
The answer? You have none.

Let that sink in folks, because it does not just apply to futures traders, to people daytrading stocks, or even to people with 401ks and IRAs. It applies to each and every one of us with a bank account.
That's right folks -- it applies to anyone with any property held by any person other than you, in your personal control within reach of your fingers. If it is stolen by a wealthy and powerful person they will be found to have conveyed it "within the law" and you will not get your property back.
The customers of MF Global keep being told this lie:

After 10 months of stitching together evidence on the firm’s demise, criminal investigators are concluding that chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear, according to people involved in the case.

Money doesn't disappear. The investigators know where every single penny went. They know precisely who has it. And under long-standing and essentially inviolate legal principle, they also know damn well that whoever has it does not have title to it and cannot acquire title as the entity who granted possession (MF Global) didn't have title to those funds and thus could not convey what it did not have.

No matter; your money is gone.

Your money in any brokerage account can be just as easily gone.

Your money in a bank or credit union can be just as easily gone. The FDIC, incidentally, has a tiny fraction of the total deposit base available; it cannot cover your deposits in any real failure of the system, as it doesn't have it (and neither does Treasury.)

Any property, in short, that you do not personally possess within reach of your fingers..... can be and will be, if a rich and politically powerful person steals it, gone.

Assange or Corzine?

by Aziz

Priorities are a bitch.
The United States won’t prosecute Corzine for raiding segregated customer accounts, but will happily convene a Grand Jury in preparation for prosecuting Julian Assange for exposing the truth about war crimes.

From the New York Times:

A criminal investigation into the collapse of the brokerage firm MF Global and the disappearance of about $1 billion in customer money is now heading into its final stage without charges expected against any top executives. After 10 months of stitching together evidence on the firm’s demise, criminal investigators are concluding that chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear, according to people involved in the case.

Corzine is considering opening a new hedge fund, though the notion that anyone — even a slack-jawed muppet happy to buy whatever Goldman ‘s prop traders want to sell — would seed Corzine money so he can trade or steal it away seems absurd — rather like putting a child molester in charge of a day-care.

But nobody knows how much dirt Corzine has on other Wall Street crooks. Not only may Corzine get away with corzining MF Global’s clients’ funds, he may well end up with a whole raft of seed money to play with from those former colleagues and associates who might prefer he remain silent regarding other indiscretions he may be aware of.

But the issue at hand is the sense that we have entered a phase of exponential criminality and corruption. A slavering crook like Corzine who stole $200 million of clients’ funds can walk free. Meanwhile, a man who exposed evidence of serious war crimes is for that act so keenly wanted by US authorities that Britain has threatened to throw hundreds of years of diplomatic protocol and treaties into the trash and raid the embassy of another sovereign state to deliver him to a power that seems intent not only to criminalise him, but perhaps even to summarily execute him. The Obama administration, of course, has made a habit of summary extrajudicial executions of those that it suspects of terrorism, and the detention and prosecution of whistleblowers. And the ooze of large-scale financial corruption, rate-rigging, theft and fraud goes on unpunished.

Some companies pay more to CEOs than to Uncle Sam: study

By Nanette Byrnes
reuters.com

Citigroup, Abbott Laboratories, and AT&T are among the 26 companies that paid more to their CEOs in 2011 than they did in federal taxes, according to a study released on Thursday.
Tax breaks on research and development, past losses, and foreign-held earnings were among those lightening the tax load for many companies on the list, said the Institute for Policy Studies, a left-leaning think tank in Washington, D.C.
Citi, Abbott and AT&T all took issue with the institute's methodology. All three said they paid all taxes owed in 2011.
During a presidential election cycle in which wealth and taxes are often debated, the study's authors said the U.S. tax code has become an enabler of large CEO pay, while also offering companies ways to reduce their tax bills.
Four pay-related tax breaks combined to cost taxpayers $14 billion in uncollected federal taxes, the report said.

The four included breaks dealing with performance-based chief executive pay and stock options, as well as the preferential 15 percent tax rate on carried interest enjoyed by private equity partners and other financiers, it said.
Compensation for the 26 CEOs whose pay surpassed their companies' corporate tax bills averaged $20.4 million, according to the study. That average was up 23 percent over last year.
The average was also significantly higher than pay tracked by separate studies of broader groups. For instance, $10.3 million was the average 2011 direct compensation for 300 large-company CEOs tracked by pay consultants Hay Group.
CURRENT U.S. TAXES PAID EYED
To get its list, the institute compared CEO pay to current U.S. taxes paid, excluding foreign and state and local taxes that may also have been paid, as well as deferred taxes that can often be far larger than current taxes paid.
The group's rationale was that U.S. taxes paid are the closest approximation available in public documents to what companies may have actually written in their checks for last year to the U.S. Internal Revenue Service.

Among companies topping the institute's list:
* Citigroup, the financial services giant, with a tax refund of $144 million based on prior losses, paid CEO Vikram Pandit $14.9 million in 2011, despite an advisory vote against it by 55 percent of shareholders.
* Telecoms group AT&T paid CEO Randall Stephenson $18.7 million, but was entitled to a $420 million tax refund thanks to billions in tax savings from recent rules accelerating depreciation of assets.
* Drugmaker Abbott Laboratories paid CEO Miles White $19 million, while garnering a $586 million refund. Abbott has 64 subsidiaries in 16 countries considered by authorities to be tax havens, the institute said.
ABBOTT TAKES ISSUE
"This is a blatant misrepresentation of the facts," Abbott spokesman Scott Stoffel said.
He said Abbott did not get a rebate, but paid the U.S. government $700 million in federal income taxes in 2011, and that the report's numbers reflect a non-cash accounting adjustment caused by the resolution of various tax matters.

A Citigroup spokeswoman said that, while the company did not pay federal income tax in 2011, that was due to substantial losses it recorded in 2008 and 2009, a break available to all businesses in similar straits.
She also noted that Citi paid on average $3.7 billion a year in federal income taxes from 2000 to 2006, and paid other taxes last year, including more than $3 billion in payroll taxes, and that Pandit voluntarily took a salary of just $1 in 2010.
AT&T said in a statement its CEO's pay was closely tied to performance and was fair, and that the accelerated deductions that lowered its federal taxes stemmed in part from $20 billion spent in support of the U.S. economy and jobs. The company reported paying $3.8 billion in other taxes last year, and hundreds of millions in federal income taxes in 2010.
All the tax breaks identified in the study are legal and shareholders generally expect companies to take advantage of any reasonable tax breaks they can, said David Wise, a senior principal with Hay Group.

If the tax code changed to eliminate pay-related deductions, like the stock option deduction, he said, "individual companies could navigate that fairly easily. But collectively, those dollars would add up and increase the tax base."

Is the USDA a wholly-owned subsidiary of Monsanto?

www.cornucopia.org

Neil Barofsky on the Ongoing Bailout of Wall Street and the lack Criminal Prosecutions

The Red Pill On Banking

by Karl Denninger
market-ticker.org

You know, if you've been following my writing for any length of time, that I've been advocating a "One Dollar of Capital" standard for banking.

I have also asserted that unbacked credit emission is, economically and mathematically, identical to counterfeiting of the currency.

That's a strong allegation, and one that goes against what you've been told throughout your life -- that banks take in deposits (your earned money) and then they loan that out. That this powers economic growth. And that we need the banks' involvement in this process in order to have economic prosperity.

But these assertions that you have had your head filled with are identical to those that a drug pusher who tells you that he can make you feel good -- just take one toke right here sir!

What he neglected to tell you was that the drug you are about to ingest is highly addictive, expensive, and will rot the teeth right out of your head while turning you into a mental zombie!

So imagine my surprise when the banksters to top all banksters, the IMF itself, issued a research paper that took a look at an old plan floated during The Depression that came to be known as "The Chicago Plan." It was touted at the time as ending the risk of bank runs, dramatically reducing public debt (a huge problem now), dramatically reducing private debt (also a huge problem), curtailing the boom-and-bust cycle and allowing steady-state inflation to be zero without impairing monetary policy.

That, my friends, is One Dollar of Capital plus a few more features. And academically, they validated its assertions.

But that's not the bombshell. That is found here:

In a financial system with little or no reserve backing for deposits, and with government-issued cash having a very small role relative to bank deposits, the creation of a nation’s broad monetary aggregates depends almost entirely on banks’ willingness to supply deposits. Because additional bank deposits can only be created through additional bank loans, sudden changes in the willingness of banks to extend credit must therefore not only lead to credit booms or busts, but also to an instant excess or shortage of money, and therefore of nominal aggregate demand. By contrast, under the Chicago Plan the quantity of money and the quantity of credit would become completely independent of each other. This would enable policy to control these two aggregates independently and therefore more effectively. Money growth could be controlled directly via a money growth rule. The control of credit growth would become much more straightforward because banks would no longer be able, as they are today, to generate their own funding, deposits, in the act of lending, an extraordinary privilege that is not enjoyed by any other type of business. Rather, banks would become what many erroneously believe them to be today, pure intermediaries that depend on obtaining outside funding before being able to lend. Having to obtain outside funding rather than being able to create it themselves would much reduce the ability of banks to cause business cycles due to potentially capricious changes in their attitude towards credit risk.

Read that however many times you need to until it sinks in folks, because this is what I and a few others have been saying now for a long time -- and our ideas are not only not really new, they're also factually correct.

The "extraordinarily privilege" referenced above, were you or I to engage in it, would be called what it is -- counterfeiting. "Generating their own funding, deposits", is exactly that -- creating money out of "thin air" though the unbacked emissions of credit. It is exactly identical in form and effect to you running off $100 bills on your office copier. And for every other entity other than a bank, it is a felony.

But it is Congress that has this power according to our Constitution. A commercial institution that operates for profit should never have the right to literally steal from you at its whim, but that is exactly what unbacked credit creation empowers a bank with -- the ability to take everything you have by debasing your purchasing power to the point that you are forced to hock, or even sell and abandon, any asset you possess.

This is what has happened to your standard of living. It is the strangulation of our economy, on purpose and for profit, that these institutions have imposed on us. Our political class has been bought by these jackals and turned into their minions, instead of the other way around where we empower politicians and they derive their power from the freely-given consent of the governed.
It is time to change this ladies and gentlemen.

You may have doubted that my analysis was correct when it comes to how the monetary and banking system works today, and whether One Dollar of Capital was workable and would address these issues along with being beneficial to the economy as a whole.

The paper cited here is 71 pages and will take you a bit of time to read and noodle over. But if you do, if you become awake and aware of exactly what has been taken from you, by whom, and why, perhaps you will rise and demand that it stop, backing that demand with your political power, your vote, your protest and your actions in the economy.

We do not have to put up with this outrageous activity by private firms; we have the right, and the power, to put a stop to it under the United States Constitution, and stop it we must if our economy is to clear and improve.

Credit Card Debt Lawsuits by Lenders Relying on Erroneous Documents, Incomplete Records

By Jessica Silver-Greenberg, New York Times Deal Book

The same problems that plagued the foreclosure process — and prompted a multibillion-dollar settlement with big banks — are now emerging in the debt collection practices of credit card companies.
As they work through a glut of bad loans, companies like American Express, Citigroup and Discover Financial are going to court to recoup their money. But many of the lawsuits rely on erroneous documents, incomplete records and generic testimony from witnesses, according to judges who oversee the cases.
Lenders, the judges said, are churning out lawsuits without regard for accuracy, and improperly collecting debts from consumers. The concerns echo a recent abuse in the foreclosure system, a practice known as robo-signing in which banks produced similar documents for different homeowners and did not review them.
"I would say that roughly 90 percent of the credit card lawsuits are flawed and can't prove the person owes the debt," said Noach Dear, a civil court judge in Brooklyn, who said he presided over as many as 100 such cases a day.
Last year, American Express sued Felicia Tancreto, claiming that she had stopped making payments and owed more than $16,000 on her credit card.
While Ms. Tancreto was behind on her payments, she contested owing the full amount, according to court records. In April, Judge Dear dismissed the lawsuit, citing a lack of evidence. The American Express employee who testified, the judge noted, provided generic testimony about the way the company maintained its records. The same witness gave similar evidence in other cases, which the judge said amounted to "robo-testimony."
American Express and other credit card companies defended their practices. Sonya Conway, a spokeswoman for American Express, said, "we strongly disagree with Judge Dear's comments and believe that we have a strong process in place to ensure accuracy of testimony and affidavits provided to courts."
Interviews with dozens of state judges, regulators and lawyers, however, indicated that such flaws are increasingly common in credit card suits. In certain instances, lenders are trying to collect money from consumers who have already paid their bills or increasing the size of the debts by adding erroneous fees and interest costs.
The scope of the lawsuits is vast. Some consumers dispute that they owe money at all. More commonly, borrowers are behind on their payments but contest the size of their debts.
The problem, according to judges, is that credit card companies are not always following the proper legal procedures, even when they have the right to collect money. Certain cases hinge on mass-produced documents because the lenders do not provide proof of the outstanding debts, like the original contract or payment history.
At times, lawsuits include falsified credit card statements, produced years after borrowers supposedly fell behind on their bills, according to the judges and others in the industry.
"This is robo-signing redux," Peter Holland, a lawyer who runs the Consumer Protection Clinic at the University of Maryland Francis King Carey School of Law.
Lawsuits against credit card borrowers are flooding the courts, according to the judges. While the amount of bad debt has fallen since the financial crisis, lenders are trying to work through the soured loans and clean up their books. In all, borrowers are behind on $18.7 billion of credit card debt, or roughly 3 percent of the total, according to Equifax and Moody's Analytics.
Amid the surge in lawsuits, credit card companies are facing scrutiny. The Office of the Comptroller of the Currency is investigating JPMorgan Chase after a former employee said that nearly 23,000 delinquent accounts had incorrect balances, according to people with knowledge of the investigation.
Linda Almonte, a former assistant vice president at JPMorgan, claimed in a whistle-blower complaint that she had been fired after alerting her managers to flaws in the bank's records.
The currency office, which oversees the nation's largest banks, is also broadly looking into the industry's debt collection efforts, focusing in part on the documents included with lawsuits. A spokeswoman for JPMorgan declined to comment.
The Federal Trade Commission is working with courts across the country to improve the process for pursuing borrowers who are behind on their credit card payments, mortgages and other bills. In a recent review of the consumer litigation system, the commission found that credit card issuers and other companies were basing some lawsuits on incomplete or false paperwork.
"Our concerns center on the fact that debt collection lawsuits are a pure volume business," said Tom Pahl, assistant director for the F.T.C.'s division of financial practices. "The documentation is very bare bones."
The lenders disputed the suggestion that they file lawsuits that include flawed or inaccurate documentation.
"We look at account records in our system to individually verify the accuracy of information before affidavits are filed and testimony is given," said Ms. Conway, the American Express spokeswoman, who declined to comment on specific borrowers.
The industry has faced similar criticism over practices stemming from the housing crisis. Amid a surge in foreclosures, state attorneys general accused the banks of using faulty documents without reviewing them and improperly seizing homes. In February, five big banks agreed to pay $26 billion to settle the matter.
The errors in credit card suits often go undetected, according to the judges. Unlike in foreclosures, the borrowers typically do not show up in court to defend themselves. As a result, an estimated 95 percent of lawsuits result in default judgments in favor of lenders. With a default judgment, credit card companies can garnish a consumer's wages or freeze bank accounts to get their money back.
In 2010, Discover sued Taryn Gregory for more than $7,000 in credit card debt. Ms. Gregory, of Commerce, Ga., had fallen behind on her bills, but said she had accumulated only $4,000 in debt.
After the suit was filed, Ms. Gregory, a 41-year-old child care assistant, asked Discover for proof of the balance. The resulting documents, which were reviewed by The New York Times, have inconsistencies. One statement, for example, says it was produced in 2004, but advertisements on the bottom of the document bear a 2010 date.
The lawsuit against Ms. Gregory is still pending. Discover declined to comment. Judges have also raised concerns about witnesses and affidavits.
In May, Michael A. Ciaffa, a district court judge in Nassau County, N.Y., challenged the paperwork signed by a Citigroup employee in Kansas City, Mo. He found that one document "has the look and feel of a robo-signed affidavit, prepared in advance," according to court records. The case is still pending.
Emily Collins, a spokeswoman for Citigroup, said: "We continually review the effectiveness of our controls and policies for credit card collections, and ensure that affidavits are validated for accuracy and signed by Citi employees with knowledge of the client's account. Citi Cards has a range of programs to support our clients who may be facing financial difficulty, and we make every effort to work with our clients to prevent delinquency."
A review of dozens of court records showed that the same employee signed documents in cases filed against borrowers in three other states. In one lawsuit in Seattle, the employee attested in an affidavit in May that a customer, Vickie Sawadee, owed $14,000 on her Citigroup credit card. Although Ms. Sawadee was behind on her payments, she said she does not owe the full amount. She hired a lawyer to defend her case.
Many judges said that their hands are tied. Unless a consumer shows up to contest a lawsuit, the judges cannot question the banks or comb through the lawsuits to root out suspicious documents. Instead, they are generally required to issue a summary judgment, in essence an automatic win for the bank.
"I do suspect flaws," said Harry Walsh, a superior court judge in Ventura, Calif. "But there is little I can do."

Goldman Non-Prosecution: AG Eric Holder Has No Balls

By Matt Taibbi

I’ve been on deadline in the past week or so, so I haven't had a chance to weigh in on Eric Holder’s predictable decision to not pursue criminal charges against Goldman, Sachs for any of the activities in the report prepared by Senators Carl Levin and Tom Coburn two years ago.
Last year I spent a lot of time and energy jabbering and gesticulating in public about what seemed to me the most obviously prosecutable offenses detailed in the report – the seemingly blatant perjury before congress of Lloyd Blankfein and other Goldman executives, and the almost comically long list of frauds committed by the company in its desperate effort to unload its crappy “cats and dogs” mortgage-backed inventory.
In the notorious Hudson transaction, for instance, Goldman claimed, in writing, that it was fully "aligned" with the interests of its client, Morgan Stanley, because it owned a $6 million slice of the deal. What Goldman left out is that it had a $2 billion short position against the same deal.
If that isn’t fraud, Mr. Holder, just what exactly is fraud?
Still, it wasn’t surprising that Holder didn’t pursue criminal charges against Goldman. And that’s not just because Holder has repeatedly proven himself to be a spineless bureaucrat and obsequious political creature masquerading as a cop, and not just because rumors continue to circulate that the Obama administration – supposedly in the interests of staving off market panic – made a conscious decision sometime in early 2009 to give all of Wall Street a pass on pre-crisis offenses.
No, the real reason this wasn’t surprising is that Holder’s decision followed a general pattern that has been coming into focus for years in American law enforcement. Our prosecutors and regulators have basically admitted now that they only go after the most obvious and easily prosecutable cases.
If the offense committed doesn’t fit the exact description in the relevant section of the criminal code, they pass. The only white-collar cases they will bring are absolute slam-dunk situations where some arrogant rogue commits a blatant crime for individual profit in a manner thoroughly familiar to even the non-expert portion of the jury pool/citizenry.
In other words, they’ll take on somebody like Raj Rajaratnam, who stacked his illegal insider trades so brazenly and carelessly that his case almost reads like a finance version of Jeff Dahmer tripping over bodies in his Milwaukee apartment. Or they’ll pursue Bernie Madoff on the tenth or eleventh time he crosses their desk, after years of nonaction, and after he breaks down weeping and confessing. Basically, if someone backs a dump truck up to the DOJ and unloads the entire case, gift-wrapped, a contrite and confessing criminal included, a guy like Eric Holder might, after much agonizing deliberation, decide to prosecute.
But here’s the thing: most of the crimes Wall Street people commit involve highly specific, highly individualized transactions that won’t fit Eric Holder’s bag of cookie-cutter statutory definitions. That is not the same thing as saying they’re not crimes. They are: the crimes of the crisis period were and are very basic crimes like fraud, theft, perjury, and tax evasion, only they’re dressed up in millions of pages of camouflaging verbiage.
Or, even more often, the crimes have also been sanctified in advance by “reputable” law and accounting firms, who (for huge fees) offered their clients opinions that, if X and Y are signed in accordance with Z, and A and B are stipulated by the parties, and everyone’s sitting Indian-style and facing the moon when the deal is agreed to, then it’s not fucked up and illegal when Goldman Sachs tells you it’s a co-investor in your deal when it’s actually got $2 billion bet against you.
You know that look a dog gives you when you show it something confusing, like an electric razor or a lawn sprinkler? That’s the look federal prosecutors give when companies like Goldman wave their attorneys’ sanctifying opinions at them. They scratch their heads and say: “Oh, wow, well since this was signed in Australia by three millionaire lawyers wearing magic invisibility cloaks, it really isn’t fraud! They’re right!”
As one high-profile attorney currently working on a closely-watched case involving a Wall Street bank put it to me yesterday: “With these Justice guys, everything the Wall Street lawyers say makes perfect sense to them, no matter how dumb it is.”
You can almost feel the relief emanating from Washington when these prosecutors decide against matching wits with the wizened 60 year-old legal Sith Lords from Harvard and Yale who’ve seen everything, know every judge by his or her first name, and in a trial would be basically bringing absolutely everything a lawyer can bring to the table, except consciences of course.
It’s political, sure, these decisions not to go after the Goldmans of the world, but more than that what usually rules the day is just pure intellectual fear – appropriate in many cases, since any prosecutor who buys for a second any of the high-priced excuses being shoveled at them from corporate defense firms like Davis Polk or criminal defense mercenaries like Reid Weingarten (retained to defend Blankfein against possible criminal charges) probably really is no match, intellectually, for Wall Street’s lawyers.
They’re also no match morally. Wall Street firms pay their lawyers millions of dollars for their creativity, for their willingness to fight. They say to their lawyers, as Lehman Brothers said before it crashed: “We’d like to book $50 million in loans as sales. Find a way for us to call that legal.”
As it happens Lehman couldn’t find even one American law firm to go for that one, so they went to England and got a firm called Linklaters to find a way, which they did. The Linklaters opinion was just a duller version of the, “It’s legal if we’re all sitting Indian style and facing the moon” defense. Here’s the New York Times explanation:

Enter Linklaters, which grounded its legal brief in English, rather than American, law. The firm explicitly said: “This opinion is limited to English law as applied by the English courts and is given on the basis that it will be governed by and construed in accordance with English law.”
Otherwise, Linklaters provided Lehman with exactly what it wanted to hear. The law firm decreed in its briefs, at least as outlined in the 2006 iteration obtained by Mr. Valukas, that intent matters. If two parties intend to exchange assets for cash, and then later the party receiving the assets decides to hand back “equivalent assets (such as securities of the same series and nominal value) rather than the very assets that were originally delivered,” that amounts to a sale.

That’s how law works on Wall Street. The bank walks into the room with the sordid activity, and the law firm’s partners huddle up and whip their associates – for hundreds and hundreds of billable hours straight, if necessary – until a way is found to call stealing or tax evasion or accounting fraud or whatever legal.
That’s the way it should work on the prosecutorial side, too. You should start with a simple moral premise – this group of crooks ripped off X group of victims for fifty million dollars – and then you should bury yourself in law books until you find a way to put them all in jail. If Linklaters gets paid to be creative, well, Mr. Holder, we’re paying you to be creative, too.
Again, though, Holder didn’t need to be creative in the Goldman case. Levin gift-wrapped the whole thing for him. He could have had a dozen easy convictions just on the evidence in that report, and if he had been creative, if he had used his vast power to roll up the guilty and flip them into more revelations, then he’d have had enough cases to last the AG’s office the next decade.
But the Holders of the world do not want to be creative when the targets are politically influential rich people. Instead, they use their creativity against Roger Clemens, Barry Bonds, immigrant housekeepers, and guys who knock over liquor stores. They like to flex muscles against bank robbers, celebrity tax evaders (we can’t have Wesley Snipes on the loose!), truck hijackers, and drug dealers. As Gene Wilder would say, "You know – morons."

Holder’s non-decision on Goldman is more than unsurprising. It amounts to an official announcement that the government is no longer in the business or prosecuting smart criminals. It’s pathetic. The one thing you pay any lawyer to have is balls, and our nation’s top attorney has none.

Chris Whalen: 'Bank Of America Will Split And Merrill Lynch Will Have $30 Billion+ Of Litigation Exposure For The Mortgage Mess

Bill Black Slams Bartiromo Over Goldman Non-Prosecution

Bankster Fraud Has Driven 100 Million Into Poverty, Killing Many

by WashingtonsBlog

We Are Witnessing a Financial Holocaust Brought on by the Banksters … Which Is Causing Many Deaths

Fraud caused the Great Depression and the current financial crisis, and the economy will never recover until fraud is prosecuted.

Fraud is the business model adopted by the giant banks. See this.

The Obama administration has made it official policy not to prosecute fraud. Indeed, the “watchdogs” in D.C. are so corrupt that they are as easily bribed as a policeman in a third world banana republic.

The mouthpieces in Wall Street and D.C. pretend that financial fraud (like Libor) is a “victimless crime“.
But the World Bank notes that the financial crisis – you know, the one caused by financial fraud – has driven between 64 and 100 million people into destitution.

Some estimate the figure to be much higher. For example, one 2009 study estimated that 140 million people would be driven into poverty in Asia alone.

AP reported in 2009:

The global financial crisis has pushed the ranks of the hungry to a record 1 billion people … United Nations food officials said Friday in Rome.

This is not just a matter of having less money for entertainment or luxury goods. Increased poverty leads to an earlier death.
As the Los Angeles times notes:

Poverty appears to trump smoking, obesity and education as a health burden, potentially causing a loss of 8.2 years of perfect health.

This is not an abstract concept. A lot of kids will die due to Wall Street fraud:

The global financial crisis sweeping through Wall Street and the European banking sector will touch the lives of the world’s most vulnerable, pushing millions into deeper poverty and leading to the deaths of thousands of children, according to a new United Nations study.
***
The report highlighted the prospect of an increase of between 200,000 and 400,000 in infant mortality and that child malnutrition, already rising, will be one of the main drivers of higher child death rates.

While developing countries will be hardest hit, increased poverty and hunger are hitting the U.S., Britain and other first world countries are as well. The inability of the newly-poor to pay to heat their homes also kills.

Paul Moore – former Head of Risk at HBOS – says that the financial crisis has resulted in the greatest humanitarian crisis since WWII.

Moore says that we are witnessing a “financial holocaust” brought on by the banksters … with huge numbers of potential deaths in the works unless we fundamentally change the system.

Keiser Report: Jamievilles, Cramdowns and the Cantillon Effect with Azizonomics.com

Heightened Expectations And The Collapse Of Credibility

by Charles Hugh Smith from Of Two Minds

As the Status Quo manages perceptions to maintain the illusion that lofty expectations can still be met, it widens the gap between reality and those expectations. The inevitable snapback to reality will destroy institutional credibility and fatally undermine the Status Quo.
Yesterday we outlined the interwined dynamics of credibility and expectations (The Keys To Understanding the Collapse of the Status Quo: Credibility and Expectations). To grasp the inevitability of this collapse, we need to explore the heights expectations have reached globally.
Let's begin with yesterday's observation that expectations are like debt-money claims on the real world: the claims can expand to near-infinity, but the real world remains stubbornly limited. In other words, expectations are inner states constructed by media and Central State imagery, propaganda and promises, both implicit and explicit. As such, these expectations are claims on the real world.
If the claims exceed the resources of the real world, the expectations will be crushed, and the credibility of the institutions that issued the promises will also be crushed. Once the credibility of key institutions has been lost, the Status Quo is fatally impaired.
Let's take two American examples: housing and higher education. For at least three generations (roughly 60 years), the Federal government has subsidized home mortgages via guarantees issued by the Veterans Administration (VA), The Federal Housing Administration (FHA) and other agencies, and by offering an enormous tax deduction for mortgage interest--the single largest tax deduction for most households.
The expectation fostered by the real estate industry and this government policy was that buying a house and dutifully paying vast sums of interest for 30 years would yield the foundation of middle class wealth: home equity that could be passed on to future generations.
Before the real estate bubble transformed housing into a speculative pursuit of "easy money," buying a house was a form of forced savings incentivized by government subsidies. During the bubble, building home equity via decades of payments was fuddy-duddy: wealth could be acquired in a matter of months by leveraging modest incomes into multiple home purchases and "flipping" of properties.
When the debt/leverage bubble popped, this broke the back not just of the speculative expectation of easy, quick wealth but the old model of forced savings. Anyone who buys a house now will still get a tax deduction for mortgage interest, but there is no longer an implicit expectation that the house will retain its value or be worth more than the payments made.
The housing market is in a trap of its own making. Were prices to fall to levels that were comparable to the cost of rent and the opportunity cost lost by making an illiquid and risky investment in housing, lenders and owners who lent/bought in the bubble years will be wiped out once the market "discovers" their mortgages are backed by phantom assets.
If prices are manipulated to remain at today's high levels by massive government subsidies and the artificial reduction of distressed inventory, the banks, government mortgage agencies and buyers all remain at risk of the market overcoming the manipulation and "discovering" the value is far below the one set by Central Planning.
Once the market breaks through the dam of manipulation, the real estate Status Quo will lose all credibility. How many times do we have to read that "housing is recovering" before we catch on it's all self-serving artifice?
Interest rates can't drop any more, so that manipulation has run its course. As incomes continue declining and the number of full-time jobs drops, the number of people who truly qualify for mortgages also declines. As Baby Boomers seek to cash out home equity to live on, downsize or simply surrender their underwater homes, housing inventory will swell, never mind the millions of distressed properties being held off the market by lenders hoping for a reinflation of values.
The demographics and economy simply don't support rising demand, regardless of how many mortgage guarantees the now-impaired FHA issues and how many times the real estate industry issues "now is the time to buy" bulletins.
The expectation that buying a house is a low-risk pathway to middle class wealth has been fatally undermined, and the credibility of everyone who claims otherwise is increasingly at risk. Too many players depend on this expectation being kept alive for their own income, and so the self-serving calls of "turnaround" by vested interests will continue until their credibility has been reduced to zero.
Another implicit promise was that obtaining a college degree would guarantee a good-paying secure job. Once again, a vast self-serving industry depends on this claim being accepted by the citizenry as truth. And once again, global realities are undermining this expectation.
As I noted in Money Down a Rathole: College, Healthcare, Housing, the problem isn't higher education per se, it's the model of higher education that costs as much as a house for a degree with marginal returns in the real-world job market.
Newly minted college graduates are discovering that their lofty expectations of secure, high-paying jobs are completely unrealistic, and their reaction is naturally dismay and anger: the expectation was encouraged by every level of the Status Quo, and it turned out to be a self-serving fraud.
Around the globe, expectations in the era of manic financialization have been raised. In China, the same expectations that a college degree would lead to a good job were instilled and are now being broken; hundreds of millions of workers expected steady employment, an expectation that is now under pressure.
In Europe, millions of residents expect a generous retirement and full healthcare benefits for life, explicit promises that cannot be met as the surpluses generated by the E.U. economies decline. The demographics and financial realities cannot possibly meet these long-standing expectations.
The same collision of financial reality and lofty expectations is occurring in the U.S., where State promises made on the absurd projection that financialization-fueled booms would never end are being undermined: you can issue as many claims on the national surplus as you want, but that won't increase the surplus.
If expectations, promises and guarantees had aligned with unfinancialized reality, the disconnect between inner states and financial realities would not be so great. This is the consequence of issuing promises and guarantees based on permanent exponential growth of debt and leverage and the speculative bubbles they inflate.
The Status Quo around the globe is trying to manage perceptions to foster the illusion that all the high expectations can be met; but the reassurances are increasingly hollow, and the promises increasingly threadbare. People are waking up, one at a time, to the reality that all the promises and guarantees are fantasy, and their emotional response is deeply negative: they feel betrayed by the Status Quo and its institutions, and they feel a volatile mixture of rage, distrust and resignation.
Studies have found that people (usually those in the lower social and financial tiers) with low expectations tend to be happier than those with high (and unmet) expectations. The Status Quo bought the support of the masses by raising expectations of permanently rising prosperity and security for all. Now that these near-infinite claims cannot be fulfilled, the Status Quo has no institutional ability to lower expectations to more realistic levels. It only knows how to spin artifice and fantasy, in the vain hope that managing perceptions will substitute for managing reality.
This is how credibility is lost. Managing perceptions is a dangerous game, as the perceptions are pushed ever-farther from reality, increasing the shockwave when the two snap together: it won't be reality rising to meet lofty perceptions, it will be perceptions and expectations plummeting to meet reality. This is how the Status Quo will collapse: it will lose the faith of its people, and become the target of their wrath.