Defaulting banks - where will it stop?

[Magda Hassan]

"Lehman’s failure is a story in large part of fraud"
Black's Knockout Testimony

By Mike Whitney

April 21, 2010 "Information Clearing House" -- On Tuesday, Former regulator William Black appeared before the House Committee on Financial Services and beat the living-tar out of Lehman CEO Dick Fuld for 8 full minutes. It was a moment of sheer, unalloyed pleasure that will be savored for a long time to come.

"Lehman’s failure is a story in large part of fraud," Black roared. "Lehman was the leading purveyor of liars’ loans in the world. For most of this decade, studies of liars’ loans show incidence of fraud of 90%. ... If you want to know why we have a global crisis, in large part it is before you."

When the camera shifted to Fuld, he looked confused. "Why is this bearded man saying these terrible things about me. I am a Wall Street banker," he mused. "Don't they know that I create jobs and allocate capital to enterprising entrepreneurs?"

Black again: "Let’s start with the repos. We have known since the Enron in 2001 that this is a common scam, in which every major bank that was approached by Enron agreed to help them deceive creditors and investors by doing these kind of transactions.....And so what happened? There was a proposal in 2004 to stop it. And the regulatory heads...killed it."

By now, Fuld was fidgeting in his chair; tugging at his collar and looking over his shoulder to see if the exits were still where he remembered them to be. "Repos, repos, repos," he thought angrily. "All these people think about is repos. We provided a service; liquidity for the markets, capital for new businesses. We make the system work. That's enough, isn't it? Who is this irritating fellow? I haven't seen him at the club, have I?" Fuld wondered if Black wore sandals and belonged to a food co-op.

Black again: "We have known for decades that these are frauds. We have known for a decade how to stop them. All of the major regulatory agencies were complicit in that statement, in destroying it. We have a self-fulfilling policy of regulatory failure because of the leadership in this era.

We have the Fed.. finding that this is three card monty. Well what would you do, as a regulator, if you knew that one of the largest enterprises in the world, when the nation is on the brink of economic collapse, is engaged in fraud, three card monty? Would you continue business as usual?"

Fuld was now visibly shaken. "Why won't this man stop? Can't anyone make him stop?" His eyes darted back and forth like a man trapped in a alleyway while two shadowy figures draw ever-closer.

"Lehman’s nominal corporate governance structure was a sham," Black thundered. "Lehman was deliberately out of control with regard to “risk” in its dominant operation – making “liar’s loans.” Lehman did not “manage” the risk of making liar’s loans. It engaged in massive, fraudulent transactions that were “sure things” ... Firms that loot through accounting scams will report superb (fictional) income in the short-term and catastrophic losses in the long-term."

Black was swooping in for the kill. Fuld leaned back on the ropes; his arms hung limp by his side while the bearded man delivered one savage roundhouse after another. People close by, said they heard a slight gurgling sound as Fuld dropped to his knees gasping, "No mas." In a matter of seconds, the great bank maharajah lay spread-eagle on the canvas panting heavily and staring upwards blankly.

But Black wouldn't stop: "Lehman’s underlying problem that doomed it was that it was insolvent because it made so many bad loans and investments," he crowed. "It refused to recognize its losses honestly. It could not resolve its liquidity crisis because it was insolvent and its primary source of fictional accounting income collapsed with the collapse of the secondary market in nonprime loans. Investors knew that Lehman was grossly inflating its asset values, so they were generally unwilling buy stock in Lehman or acquire it."

Fuld appeared to be slowly regaining consciousness. Looking up, he could barely make out the shape of a man beating his chest and exhorting the crowd in cheers. It was Ali-Frasier all over again; "Rumble in the Jungle".

His eyes began to flutter erratically and roll backwards into their sockets. He wondered if he'd still be able to get his prescription skin cream in prison and whether his cellmate would understand that he's happily married man.

"The Federal Reserve Bank of New York (FRBNY) knew that Lehman was engaged in fraud designed to overstate its liquidity," Black moaned...."The FRBNY remained willing to lend to a fraudulent systemically dangerous institution... The Fed wanted to maintain a fiction that toxic mortgage product were simply misunderstood assets, so it allowed Lehman to keep dealing the three card monte scam....The Fed didn’t want Lehman and other SDIs to sell their toxic assets because the sales prices would reveal that the values Lehman placed on their toxic assets were inflated with worthless hot air....."

"Of course, they were worthless", Fuld muttered scornfully. "Does he think we were selling precious gemstones here? This is Wall Street, buddy; not some sissy-ass university where they make rope-soled shoes and quote Milton. We make money here; big money. And if you can't cut the mustard, you're gone. What's this guy blabbering about, anyway?"

Black again: "Criminologists refer to entities that spread fraud epidemics as "vectors". Lehman was one of the largest vectors that spread the fraud epidemic. ... The Fed, due to its unique HOEPA authority, and the SEC, because it has jurisdiction over every publicly traded company, were the only entities that could have shut down the vectors spreading the fraud epidemic. This should have been there most important priority. They had ample warnings of the epidemic of liar's loans and the fact that it was spreading rapidly. Lehman, Citi, WaMu, Indymac, and Bear Stearns were on everyone's list of the worst vectors, yet the Fed and the SEC took no effective action until after virtually every major originator of liar's loans had failed."

"Vectors, schmectors. Spare me the sanctimony," Fuld thought sarcastically, pulling himself up into a sitting position. "Of course, the Fed was in on it. Is grass green, for chrissake? They knew everything. Everything. And what a pathetic bunch of bunglers. That sniveling wanker Geithner wouldn't last 5 minutes at Lehman. They'd eat him for lunch. He'd be better off taking a dip in shark tank, than trying to hack-it on Wall Street. Namby pamby!"

"Lehman was a 'control fraud!'" Black growled with the ferocity of an Old Testament prophet. "That is a criminology term that refers to situation in which the persons controlling a seemingly legitimate entity use it as a “weapon” of fraud . Financial control frauds’ “weapon of choice” for looting is accounting."

"Okay. I've had enough," Fuld thought as he rose to his feet. "Where are the cops? I'm ready to go. If I have to listen to this guy for another minute, I'll scream."

But before he had even straightened up, two burly police officers handcuffed Fuld, placed a black hood over his head and led him towards the door where a contingent of fully-armed prison guards waited for him. He made no attempt to resist. The assembled crowd sat in stunned silence. All that could be heard was the muffled sobs from beneath the hood.

William Black's full "must read" statement can be seen here: http://www.house.gov/apps/list/hearing/f....20.10.pdf
http://www.informationclearinghouse.info...e25284.htm

[David Guyatt]

What we have here is not a catastrophic breakdown by banking regulators, but rather the catastrophic complicity by banking regulators in an absolutely unbelievably huge fraud.

And to prove that the organized crooks who once sat on the outside looking in and drooling - are now on the inside looking out and grinning - just note that not one prosecution has ever been brought against anyone, anywhere, of this the biggest global fraud case in mankind's history.

I heartily reccommend reading black's testimony and also downloading and safely storing the above pdf file for future reference. Things have a way of disappearing - and marked records miraculously made clean these days...

[Jan Klimkowski]

Leaked comments from the Governor of the Bank of England reveal that the permanent ruling elite are indeed planning for brutal economic Shock Therapy and will sacrifice whichever bunch of puppet politicians get elected:

Mervyn King warned that election victor will be out of power for a generation, claims economist

Bank of England governor Mervyn King reportedly said austerity cuts will be so severe that general election winner will make itself unelectable

Mervyn King is warning that the victor in next week's election will be forced into austerity measures that will keep the party out of power for a generation, according to the US economist David Hale.

Dragging the Bank of England governor unwittingly into Britain's political battle, David Hale said he had been told by King at a private lunch about the likely fiscal pain ahead.

Asked about the possible contagion from Greece's sovereign debt crisis, Hale cited the high debt levels of the major developed economies, including Britain, and then went on to comment on the British election campaign.

"I saw the governor of the Bank of England [Mervyn King] last week when I was in London and he told me whoever wins this election will be out of power for a whole generation because of how tough the fiscal austerity will have to be," Hale said in an interview on Australian TV reported by Reuters.

The Bank confirmed that the governor had had a private lunch with Hale, but said it had been two months ago. It declined to comment on what had been said.

King, as is customary during an election campaign, has made no public statements or speeches in order to show his political impartiality.

Earlier this year, however, he made it clear that he saw tough decisions ahead for ministers as they attempted to reduce the budget deficit amassed during Britain's deepest and longest recession since the second world war.

The governor, speaking at the press conference to launch the last quarterly Inflation Report in February, said: "The need for a credible plan to ensure a substantial reduction in the fiscal deficit is now clear to everyone." King added the deficit would not be tackled without "significant fiscal consolidation".

http://www.guardian.co.uk/business/2010/...ion-victor

[Mark Stapleton]

Leaked comments from the Governor of the Bank of England reveal that the permanent ruling elite are indeed planning for brutal economic Shock Therapy and will sacrifice whichever bunch of puppet politicians get elected:

To make matters worse, the possibility of hyperinflation in the US and the UK is now being discussed.

The Road to Hyperinflation
by Alar Tamming, Tavex, Estonia and
Dr. Krassimir Petrov, Ahlia University, Bahrain
March 16, 2010

Inflationism is a slippery road – the road to hyperinflation. The inflationist Bernanke Fed behaves as if they would not be “dialling back” from Quantitative Easing any time soon. They talk the talk, but can’t walk the walk. The inflationary genie is out of the bottle. Taming it back will result in a crushing deflationary collapse. The Fed will never let this happen again. They did it once during the Great Depression, they won’t do it again.

The government’s reaction is typical of a crisis associated with economic collapse and social unrest. Hemingway put it so aptly: “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin."

Three years ago Äripäev, Estonia’s leading daily business newspaper, published Alar Tamming’s article “Great Economic Crisis on the Way”. The article came out during the economic euphoria and the author himself is probably the only one who still remembers the final sentence: “... this time, do not complain that you were not forewarned.”

The economic crisis is well under way. However, there are major differences in predicting how the crisis will end. Yes, “under way”, because most people still think that we will be soon coming out of the crisis, may be even within a couple of months. Economic philosophizers still prognosticate that the economic boom is about re-emerge. Many in the Establishment even declare that the crisis is over. They forecast business as usual – the resurrection of the consumption-based economy, only if the banks were to start loaning again. Unfortunately, this will be impossible.

They are mostly wrong, as suggested by history and chaos theory. Even a superficial introduction to chaos theory leads us to observe that when a self-regulating system has reached the critical point, there is no returning to the previous level. Just like a capitalistic society cannot return back to slavery, or just like slavery cannot return back to the primeval society of hunters and gatherers, so we can no longer return to the capitalistic economic model that is based on consumption.

Development of all complex systems, whether we are dealing with a society, a business, or a human being, always take place in cycles. There is a time of balance (equilibrium), then a period of confusion (disequilibrium), and afterwards the system will be re-organised at a new, higher level, so that the problems that were a source of conflicts at the previous level will be resolved. This is the essence of Hegelian dialectics.

For example, everyone can see these processes happening to their children – how teenagers are full of conflicts during their puberty and how they will grow out of them stronger and smarter than before. Similarly, one can think of the end of the Soviet Era, when the system could no longer react to the external environment, which drove it to chaos; and then a new social order emerged, a qualitatively new system, based on private capital. Every entrepreneur probably remembers the same when thinking about development of his company, and can recall how crises have helped his company improve, if he ever managed to survive. Without proper resolution of internal and external conflicts through development, every system is doomed to fail. This is a basic application of Hegelian dialectics and a basic result associated with complex systems.

However, the current situation is rather complicated. The economic system has gone critical – it has reached point from where there is no turning back. The worst part is that the system cannot self-organise. “Normal” business organisation typically means that if you are doing business and make wrong decisions in a particular economic environment, then you should also suffer the consequences. In other words – if a bank has made bad loans, then we should let it fail. Failure is part of capitalism. Individuals and businesses that have deposited their money in this bank and, therefore, made a wrong decision, should also lose their money. Simple and logical, this is what capitalism is all about.

Unfortunately, governments and central banks do not want to accept that. They think that trying to feed a dead horse will bring it back to life. And if it won’t revive, then it has to be fed even more. They can vividly remember that when the horse was running strong, it had a good appetite. So the endless bailout packages are not going to revive the economy. Unfortunately, the system can no longer recover through normal pain – the Schumpeterian “creative destruction”. Instead, the result there will be a long period of excruciating suffering – a systemic implosion.

Even worse, thanks to the human factor, an even bigger problem awaits. The economy, which is just about to tailspin on one side of the road, will probably tailspin on the other side. This represents the current inflation-deflation debate. Everyone with a racing experience who has felt the car skid off the road knows that trying to countersteer too hard will get you in the ditch on the other side of the road. While the deflationary forces exert strong deflationary pressure, the inflationist Bernanke Fed is trying hard to countersteer with inflation. Some prices are indeed dropping now, but this is just the prelude to the real opus – hyperinflation.

Financial history teaches us that every time a financial crisis has been alleviated by printing more money instead of cutting costs and prices, it has ended up with hyperinflation. Zimbabwe is the most recent example, but the list is almost endless: Bulgaria, Russia, Ukraine, Turkey, Argentina, Mexico – the list goes on and on. We don’t need to add the years behind the crises – everyone can easily find these from the Internet. We refer the reader to our good friend Mike Hewitt, who has created an impressive compilation of such historical follies in his article “Hyperinflation Around the World”.

Hyperinflation goes with economy and finance just like attachments go with e-mails. Here is how the great economist Ludwig von Mises describes it:

„But then finally the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against "real" goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.”

Currency depreciation is actually quite common. A survey including 120 countries provides evidence that over the past 7 years, the currencies of 90 countries have lost at least half of their value. The thirty countries with relatively more “stable” currencies included mostly developed countries like the USA, Western European countries, Australia, and a few others that represent the “core” of the global monetary system.

However, this time the instability of the system has reached the core. The current economic policies can only lead us to one result – the destruction of the current global monetary system through hyperinflation. The flawed mainstream remedy, based on the failed doctrine of Keynesianism, is that in difficult times the state should intervene aggressively into the economy by spending more (and bailing out everybody) in order to protect jobs. To use one of Peter Schiff’s analogies, this is like poring gasoline on a fire; it only serves to speed up the hyperinflation. If the money for the stimulus actually exists in the government coffers as a result of previous savings, as is currently the case with Saudi Arabia, then this would be all right; unfortunately for the developed world (the “core” – U.S & Europe), this is not the case. And calling the spending without actual savings with fancy terms like “Keynesian stimulus” (or whatever) can’t possibly change the essence of things. The state provides for the stimulus with freshly-printed money that modern central bankers call euphemistically “Quantitative Easing”. It is a textbook example of “monetization” that is rapidly depreciating the currency and later on rendering it practically worthless. If printing more money and providing all sorts of stimuli and bailout packages could solve economic problems, then we would have been living in endless prosperity for hundreds of years, and Zimbabwe and Argentina would have been the economic powerhouses of the world.

Hyperinflation is not yet to be seen at the core, but the internal dynamics of process has its own inner logic and necessarily requires time. When a car backs out of a garage, it first backs up in one direction, before it drives off in the other. It appears for now that the U.S. auto manufacturers are saved, but this is actually a step towards hyperinflation. Eventually, costs will have to go up, then prices, and eventually salaries. In a positive feedback loop, higher wags lead to higher costs and higher prices – the dreaded wage-price spiral begins to speed up. Typically, a shortage of money develops and the social pressure to inflate becomes insurmountable – when inflation is speeding up, the government and business would go through tough times, because the revenues for goods and services sold will never be enough to pay for rising wages and prices of raw materials.

In a normal economic cycle, a profitable business will have more money (profits) after producing goods out of raw materials, so it can buy even more raw materials and grow; however, during hyperinflation business revenues are not enough to cover the rising cost of materials. So every production cycle generates a loss and the company becomes poorer and poorer. This simple concept may be hard to grasp at the moment for those who have never lived through hyperinflation, but when the time comes, it will be perfectly understood by almost everyone in the economy.

As grim as it may sound, there is a glimmer of hope – the beginning of the hyperinflation is also the beginning of the end for the Crisis. Financial assets accumulated by individuals and businesses during the boom years have to be destroyed – the price for our financial folly today will be paid tomorrow. There is no way around it, as the scarce economic resources backing these financial assets have been consumed through the sophisticated redistribution mechanisms of innovative financial instruments and deficit spending. Unfortunately, there is no such thing as a free lunch – the Baby Boomer generation has had an extra lunch today, but will have to skip the lunch tomorrow. The economic crisis is here and hyperinflation is on the way.

In conclusion, let us reiterate: “Don’t say you haven’t been forewarned.” But of course, this warning is just as good as giving a moralizing speech about drinking in a packed bar – no one would listen anyway. However, you have been warned – protect yourself, buy gold!

© 2010 Krassimir Petrov, Ph.D.

http://www.financialsense.com/editorials.../0316.html

[David Guyatt]

Leaked comments from the Governor of the Bank of England reveal that the permanent ruling elite are indeed planning for brutal economic Shock Therapy and will sacrifice whichever bunch of puppet politicians get elected:

Mervyn King warned that election victor will be out of power for a generation, claims economist

Bank of England governor Mervyn King reportedly said austerity cuts will be so severe that general election winner will make itself unelectable

Mervyn King is warning that the victor in next week's election will be forced into austerity measures that will keep the party out of power for a generation, according to the US economist David Hale.

Dragging the Bank of England governor unwittingly into Britain's political battle, David Hale said he had been told by King at a private lunch about the likely fiscal pain ahead.

Asked about the possible contagion from Greece's sovereign debt crisis, Hale cited the high debt levels of the major developed economies, including Britain, and then went on to comment on the British election campaign.

"I saw the governor of the Bank of England [Mervyn King] last week when I was in London and he told me whoever wins this election will be out of power for a whole generation because of how tough the fiscal austerity will have to be," Hale said in an interview on Australian TV reported by Reuters.

The Bank confirmed that the governor had had a private lunch with Hale, but said it had been two months ago. It declined to comment on what had been said.

King, as is customary during an election campaign, has made no public statements or speeches in order to show his political impartiality.

Earlier this year, however, he made it clear that he saw tough decisions ahead for ministers as they attempted to reduce the budget deficit amassed during Britain's deepest and longest recession since the second world war.

The governor, speaking at the press conference to launch the last quarterly Inflation Report in February, said: "The need for a credible plan to ensure a substantial reduction in the fiscal deficit is now clear to everyone." King added the deficit would not be tackled without "significant fiscal consolidation".

http://www.guardian.co.uk/business/2010/...ion-victor

Poisoned chalice anyone?

Perhaps the media hyping up of the LibDems has an underlying purpose after all.

[Jan Klimkowski]

Leaked comments from the Governor of the Bank of England reveal that the permanent ruling elite are indeed planning for brutal economic Shock Therapy and will sacrifice whichever bunch of puppet politicians get elected:

(snip)

http://www.guardian.co.uk/business/2010/...ion-victor

Poisoned chalice anyone?

Perhaps the media hyping up of the LibDems has an underlying purpose after all.

"Quantitative Easing" (QE) was an elite phrase channelled by MSM to disguise central bank printing of money - which was effectively then exchanged for toxic trash on banker balance sheets (and fraudulent banker bonuses). MSM use of the phrase "QE" hid the truth of what was happening from ordinary people until the transfer of freshly printed money (requiring new govt bonds and treasuries) had taken place, and could no longer be stopped by popular outrage.

The new elite phrase being peddled shamelessly by MSM is "austerity measures". This is code for savage cuts in the wages and pensions of ordinary working people to keep the bond markets happy and prevent sovereign default. "Austerity measures" is a mendacious phrase to disguise the imposition of economic Shock Therapy (as per Naomi Klein) on the so-called First World, including Europe.

If ordinary people take to the streets to revolt against these "austerity measures", then the permanent elite will respond with force.

In the UK context, if the LibDems (ooh - "liberals") are seen to be losing control of the streets, then it will be far easier for the permanent elite to introduce a fascist police state.

[Jan Klimkowski]

Entities ranging from Zero Hedge and Market Ticker to the Wall Street Journal and Fox Business News are reporting that the Fed is opening credit lines of $800 billion to $1 trillion to 1100 European banks, at a rate of 1%.

This is a last desperate throw of the dice (our dice) in an attempt to prevent the Ponzi scheme of global market capitalism from collapsing.

The balance sheets of most major financial institutions are lies. Apparently, some banks are still holding Icelandic assets at 100% face value, even though Iceland has defaulted. That is merely a visible symbol for the toxic trash marked on balance sheets at face value when in reality it is worth pennies on the pound.

And who owns the trillion dollars being given to these bankrupt banks? That would be us.

http://blogs.wsj.com/economics/2010/05/0...p-program/

http://www.zerohedge.com/article/euro-su...takes-hold

http://www.foxbusiness.com/story/markets...it-window/

The ECB has opened up a Euros 70 billion credit line.

http://www.guardian.co.uk/business/2010/...ction-plan

This is no more, nor less, than one last act of looting, of gorging at the taxpayer's trough, by the financial elites before hell is unleashed......

[Jan Klimkowski]

Courtesy of Zero Hedge, eight charts revealing why the vulture speculators are about to attack European sovereign states:

http://www.zerohedge.com/article/europea...ple-charts

[Magda Hassan]

Entities ranging from Zero Hedge and Market Ticker to the Wall Street Journal and Fox Business News are reporting that the Fed is opening credit lines of $800 billion to $1 trillion to 1100 European banks, at a rate of 1%.

This is a last desperate throw of the dice (our dice) in an attempt to prevent the Ponzi scheme of global market capitalism from collapsing.

The balance sheets of most major financial institutions are lies. Apparently, some banks are still holding Icelandic assets at 100% face value, even though Iceland has defaulted. That is merely a visible symbol for the toxic trash marked on balance sheets at face value when in reality it is worth pennies on the pound.

And who owns the trillion dollars being given to these bankrupt banks? That would be us.

http://blogs.wsj.com/economics/2010/05/0...p-program/

http://www.zerohedge.com/article/euro-su...takes-hold

http://www.foxbusiness.com/story/markets...it-window/

The ECB has opened up a Euros 70 billion credit line.

http://www.guardian.co.uk/business/2010/...ction-plan

This is no more, nor less, than one last act of looting, of gorging at the taxpayer's trough, by the financial elites before hell is unleashed......

This looks rather ominous Jan. It can only be played out so long. At some stage the chickens will come home to roost. Then they'll need some really major type of distractions.

[Jan Klimkowski]

This looks rather ominous Jan. It can only be played out so long. At some stage the chickens will come home to roost. Then they'll need some really major type of distractions.

I'm expecting Moloch to make an appearance any day now:

http://www.deeppoliticsforum.com/forums/...php?t=3779

Or, to quote Berthold Brecht, channelled through the ending of Peckinpah's Cross of Iron:

http://www.youtube.com/watch?v=Ye9J4nQrz...re=related

http://www.youtube.com/watch?v=9lRwSAWpWJY

Do not rejoice in his defeat, you men. For though the world has stood up and stopped the bastard, the bitch that bore him is in heat again.

The energy is building and the mothmen are intermittently visible...