Masters of the Universe category archive

Don’t kid yourself.

When these guys get home at night, they see themselves as He-Man, Master of the Universe, and everyone else, especially their customers, as Skeletor and his minions to be subdued, not served..

This is about Iceland, but it has happened is happening here:

The report paints a picture of an uncontrollable and unsustainable financial system that had grown way above the capability of Icelandic state to back it up as a creatable lender of last resort. Newly privatised, each of the three main banks came into ownership of three nouveau-rich families in Iceland. The report graphically explains how the three business blocks then, in a kind of a testosterone-driven pissing contest, used the savings of generations of hard-working Icelanders to storm the global financial market, including the City of London.

(snip)

Then the Icelandic business Vikings headed for the high streets around Europe with their pockets full of borrowed money. Fresh out of business school Icelandic CEOs took over established companies in fields they couldn’t even pronounce. The fast decision-making and risk-seeking behaviour of this new breed was hailed in the business media around the world, boosting the already overblown egos of these young alpha-males.

Really really big poison pills. Horse capsules, actually.

They knew they were going down, so they decided to take as many persons with them as they could in the hopes of, I reckon, somehow getting off the hook.

And that is what passes for fiduciary responsibility in the parallel universe which we inhabit.

Via Atrios.

Bloomberg:

Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. may have to set aside an additional $30 billion to cover possible losses on home-equity loans, an amount almost equal to analysts’ estimates of profit at the three banks this year.

The cost of these reserves was calculated by CreditSights Inc., a New York-based research firm whose prediction almost four years ago proved prescient after banks reported unprecedented mortgage-related writedowns. Recognizing the home- equity loan losses is unfinished business from the housing bubble, CreditSights said in a March 29 report.

The grift that keeps on giving.

One of the shibboleths of modern conservative thought is that the all-powerful “market” gives a flying farsnackle about morality. The “market” cares only about money and about what persons can get away with.

In this case, persons got away with other persons’ houses.

From 2004 to 2006, the mortgage-fraud scheme entangled homeowners who were in financial trouble.

“These are not people who overextended themselves and bought McMansions,” said U.S. Attorney Ellen V. Endrizzi, one of the government prosecutors handling the case. “These are people who fell on hard times. It’s so heartbreaking because nothing can be done for them.”

Led by Charles Head of Los Angeles, there are 16 defendants remaining from two 2008 indictments. All defendants have opted for jury trials, according to documents filed March 5 in U.S. District Court for the Eastern District of California in Sacramento.

Charges against them include mail fraud and conspiracy to commit mail fraud, money laundering, and related offenses, Endrizzi said. Though some defendants already have pleaded guilty, trials for the others probably will not start until May 2011.

Only one bank disappeared over night:

Beach First National Bank, Myrtle Beach, South Carolina

Then he answers it.

Robert Reich discusses the secret bailouts of AIG and Bear Stearns–bailouts that took place before any bailouts were authorized:

Much of what Ben Bernanke and Tim Geithner did (when Geithner was at the New York Fed) in 2008 was presumably necessary. But the public has no way of knowing. The public doesn’t even know who else the Fed has bailed out, or what entities it will bail out in the future. All we know is the Fed secretly bailed out Bear Stearns and AIG and thereby subjected taxpayers to risks that remain even today, without informing the public. That’s not a record on which to build public trust.

Fitzgerald was right: The very rich are different.

And they have their own rules, which they don’t want anyone else to know about.

According to McClatchy, in the dark:

As the bottom fell out of the housing market and complex mortgage-backed securities began tanking in 2007, a strange thing happened at Moody’s Investors Service, one of the largest firms that rate bonds for the risks they pose to investors.

Moody’s blue-ribbon board of directors stopped receiving key information from an internal committee that was supposed to keep the board informed of risks to the company, a McClatchy investigation has found.

Read the whole thing to see how the ratings agency turned into a dating agency to help poor lost worthless lonely insecure securities find sugar daddies–and take their sugar.

MarketWatch looks at how the bonus babies will give us more of the same.

Shorter version: Banks must be broken up into pieces that are small enough to fail so that banksters can be pay the price in for incompetence through losing their jobs.

Bloomberg investigates the fall of AIG: amongst the factors, traders selling Credit Debt Obligations (CDOs), then changing the collateral supporting the CDOs:

Replacing good collateral with bad helped erode Davis Square III’s (a CDO fund–ed.) value. Declines in quality added to the cash AIG had to pay to holders of its insurance because its Financial Products division, headed by Cassano, made agreements with banks that included what are called collateral triggers. That was a feature other bond insurers didn’t offer, (former non-AIG trader Thomas–ed.) Adams said.

The possibility of downgrading the collateral was mentioned in the prospectus, so that made It All Okay.

Just like you know the pea is going to get switched in the old shell game.

Bringing competition to a Galt.

Royal Bank of Scotland Group Plc, the recipient of the world’s biggest bank bailout, was fined 28.6 million pounds ($43 million) by U.K. antitrust authorities for giving confidential future pricing data to Barclays Plc.

The fine was reduced from 33.6 million pounds because RBS admitted the breaches and cooperated, the Office of Fair Trading said today in statement. Barclays isn’t likely to be fined because it brought the matter to the OFT’s attention.

“Securitization” is taking debts, slicing and dicing them, then bundling them up and selling the sliced dices as assets.

In accounting, an asset (something you have, like a building or a client list or money in the bank) is the opposite of a debit (something you don’t have).

In some cases, debts, which you don’t have, can be accounted as assets, because they are expected to become assets, though they aren’t yet. In other words, you can proceed as if you have them, even though you don’t.

If the debts are good solid debts likely to be repaid, there is nothing wrong with this. The lender can take that expectation of future income and spend it to make something new, even though he doesn’t actually have it yet. That’s how markets “create money.” As long as everyone in the chain keeps repaying, the chain stays strong.

That’s why, back in the olden days when I was a young ‘un, getting a mortgage was an ordeal. The lender wanted to make sure the borrower was almost certain to repay. Back then, the lender made the money from the mortgage payments–more mortgages, more mortgage payments.

Lately, the lender has made money by “securitizing” mortgages: slices full of dices were sold almost as soon as the mortgage was signed. Consequently, the lender came not to care whether the loan was likely to be repaid. The big money was in sales commissions. They forgot that, to keep the chain strong, everyone had to keep repaying.

Persons were tricked into buying dicey adjustable rate mortgages by sales persons who told them that “real estate always goes up” so “you can always refinance when the note comes due” and “think of all the neat stuff you can buy by refinancing and taking the cash out.” (About the only bright side I’ve seen in the housing crash is the almost-disappearance of spam calls and letters urging me to remortgage so I could take the cash out.)

In the credit card biz, securitization has not been much of a problem, because each dice in a slice is so small and the slices so large that the odds of individual defaults (your or my not paying up) do not threaten the whole slice.

The housing thing was different. With “securitized” mortgages the dices in the slices were larger.

Then, when real estate did go down because prices had gone absurdly high, the buyers could not refinance because they could not sell or mortgage the houses for more than they paid for them so as refinance for more money in order to pay off the notes and keep the houses and have even bigger mortgages. No more dices for the slices.

Because the dices in the slices were larger and because the crash was, like Savoir Faire, everywere, suddenly the defaults mattered. And the securitized “securities” turned out to be, well, not secure.

It sounds complicated when you hear it explained in Wall Street-ese. The banksters like it to sound complicated, because complicated sounds serious and important and is also incomprehensible to outsiders; they like to feel serious and important while remaining incomprehensible.

But it amounts to “leave all the money on 21 because 21 is going to keep coming up.” You gotta win!

Then not 21 came up. Whoops! I just sold you the system. You placed the bets, sucka.

So statements like this give me the willies:

Brian Sack, head of the markets group at the New York Fed, said the financial system can’t operate well without leverage and signaled that he supports the return of a “properly” structured securitization market.

“Securitization is a powerful vehicle that should play an important role in the intermediation of credit in the economy,” Sack said in a speech delivered by video conference from New York to an audience in Sydney. “We should also understand that a reduction in leverage to near zero in the financial system is not desirable.”

(Aside: Catch that “intermediation” in there. So serious, so complicated, so incomprehensible. Looks like a fancy word for “middleman.”)

“Leverage” (a fancy word Wall Streeters use for “debt” because it doesn’t rhyme with “bet”) is indeed a powerful and a necessary thing. Being able to borrow money on expectations has helped persons and companies to wonderful accomplishments, from buying cars and houses to building railroads and selling computers cheap.

Historically, that debt has been called “stocks.” In London in 1606, the Virginia Company raised money to support the expedition that eventually founded the first permanent English-speaking colony in the New World by selling–wait for it–stock. It was far from a sure thing. They were borrowing money in hopes of making more money and the investors knew the risks.*

Securitization, not so much, for it is an attempt to turn a minus (someone else’s debt, not a debt owed to me) into a plus (my asset that I can therefore sell because I already have it even though I don’t have it yet but I will someday promise cross my heart hope to die) through semantic tricks. Instead of selling expectations out in the open, as the Virginia Company did, the company that sells “securitized” securities is selling risks as certainties (remember, all this junk had AAA ratings–that bankster for sure things.)

That’s why they want to call them “securities.” They are telling us they are “secure,” for Pete’s sake.

The investors (pension funds, individual persons, mutual funds, other banks) did not know the risks, because the risks were buried twice ten fathoms deep.**

And they were not secure.

They were bags of air.

Under securitization as currently practiced, I can sell you a bag of air. When you open the bag and say, “There’s nothing here!” I can say, “Ahhhhh. Oh well, nobody could have predicted . . . . You’re on your own, sucka,” then ask the guvmint to cover my asset because my asset is too big to flail.

And this bozo from the New York Fed is buying into this whole hocus-pocus-slicus-dicus thing. Too damn Wall Streety for me.

I seriously doubt that there can be such a thing as “properly structured” securitization. Just as I am sure that fire is not caused by phlogiston.

And, if such a thing as “properly structured” securitization exists, it is probably already traded on the–wait for it–blankety-blank stock market.

Bring back Glass-Steagel.

____________

*You can be damned sure that, had the Godspeed, the Susan Constant, and the Discovery not returned, King James I wouldn’t have bailed anyone out. Beheaded, maybe, but not bailed.

**Many persons saw the danger because they saw through the double-talk to recognize that the underlying premise–that real estate always goes up–was invalid. But few persons listened. There was no quick money in prudence.

. . . while appearing gratifying, is not often indicated:

Four German pensioners have been found guilty of kidnapping the financial adviser they blamed for US property investments that went awry.

The court found that the four, aged 61 to 80, abducted James Amburn and tried to force him to refund 2.5m euros (£2.25m; $3.4m) in lost investments.

Regulators continued rounding up the small fry (that’s why it’s called “small Fryday”).

Reports are that the Mr. Bigs are still at large, larger, largest.

But you can’t bank on these folks any more.

State Bank of Aurora, Aurora, Minnesota

First Lowndes Bank, Fort Deposit, Alabama

Bank of Hiawassee, Hiawassee, Georgia

Appalachian Community Bank, Ellijay, Georgia

Advanta Bank Corp., Draper, Utah

Century Security Bank, Duluth, Georgia

American National Bank, Parma, Ohio

Keeping up with the our Financial Geniuses does get tiresome.

You can bank on it:

Four major banks have been ordered to stand trial in Italy in a fraud case related to derivatives trading.

JP Morgan Chase, UBS, Deutsche Bank and Germany’s Depfa bank have been told they will be tried for aggravated fraud, along with 13 other people.

The charges relate to the sale of derivates to the city of Milan.

Why persons can’t beat off the wolves at the door.

The wolves won’t compromise.

MarketWatch:

Part of the blame lies with the federal government’s administration of HAMP, which has failed to evolve along with the changing nature of the financial crisis. But most of the problem stems from mortgage lenders and services, which tend to favor foreclosure over other options. In many cases, these firms lose less money by repossessing a home than by easing someone’s mortgage payments. That puts servicers and borrowers at odds.

As the crisis unfolds, one thing is consistent: Despite the made-for-TV promises by bank executives and government officials, when it comes to avoiding foreclosure, U.S. homeowners are almost entirely on their own.

Why should they be different (emphasis added)?

Market abuse in the UK’s financial services sector is at an “unacceptably high level”, the head of the City watchdog has said.

Hector Sants, the chief executive of the Financial Services Authority (FSA), said more needed to be done to tackle insider dealing and other manipulation.

But speaking to the Sunday Telegraph, he said there was no evidence the UK was worse than other major countries.

No longer on the pool table, not even in the pockets. No longer banks:

Statewide Bank, Covington, Louisiana

Old Southern Bank, Orlando, Florida

Park Avenue Bank, New York, New York

And this one disappeared yesterday.

LibertyPointe Bank, New York, New York

Read more »

Paul Myners in the Guardian:

Saving the world’s financial system was unquestionably the right thing to do. But in the process of saving it, we protected those very market fundamentalists whose actions caused the crisis.

The risk is now that their confidence has not been sufficiently dented; that they have not truly learned their lesson. And the danger with this moral hazard is that they could put us all at risk again.

This is why a central part of restoring true market discipline to the world financial system must be major reform globally to the way banks and financial firms are governed and regulated.

Meanwhile . . .

German Chancellor Angela Merkel and Luxembourg Prime Minister Jean-Claude Juncker called for urgent regulation of credit-default swaps to shore up the euro area and prevent a rerun of the Greek financial crisis.

The “financial industry” has demonstrated that it is incapable of learning from experience and that, in a conflict between greed and responsibility, greed wins.

Check the history of the US in the 1800s. There was a recession depression panic almost exactly every 20 years.

The only period in US history without regular recessions depressions panics was the period during which Glass-Steagel was in effect. Sure there were ups and downs, but those were hills and dales, not mountains and canyons.

Banksters gotta be watched. Carefully. Even in their little bankster hideouts.