| The term red pill and its opposite, blue pill, are pop culture terms that have become a common symbol for the choice between the blissful ignorance of illusion (blue) and embracing the sometimes painful truth of reality (red). |
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- Superior Biotechnology Leads to Superior Drugs
- The Delusion of Regulating Risk
- Talk of a Greek Exit Gets Louder
- Doug Casey on Taxes and Freedom, Part II
- Is Facebook the Rusty Hinge of the Stock Market?
- Fitch Downgrades Japan
- Doug Casey on Taxes and Freedom
- Greeks Run on Banks as Euro-Confidence Wanes
- To the Class of 2012
Gretchen Morgenson: Wall Street Really Does Enjoy a Different Set of Rules Than the Rest of Us
Gretchen Morgenson has earned a Pulitzer-winning career from exposing abuse and conflicts of interest on Wall Street. In this interview, she confirms that there is indeed a second set of rules enjoyed by our elite financial institutions, largely unfettered by the constraints that apply to the rest of us.
Consequences for failure and fraud are very different under this second set of rules — in fact, they’re practically rewarded. Accountability, by all prudent measures, has become non-existent. The extraordinary measures the U.S. deployed to deal with the great contraction in 2008 only served to exacerbate these imbalances.
What’s sorely needed now is a national dialogue on whether we’re willing to allow this to continue. What benefits are we receiving by enabling these elite to enjoy such different standards? What type of system and rules might work better for our interests?
Sadly, beyond the disorganized Occupy Wall Street outrage that has waned in visibility, there is no real cogent, organized public debate focused on this right now. A big reason is that Washington is actively avoiding such a dialogue. It was fundamentally complicit in creating the underlying factors resulting in the ’08 collapse and it doesn’t want brighter light helping the public understand that more clearly.
As a populace we have a decision to make: Are we going to get more engaged and start articulating the reform we want to see? For if not, we’re making a passive decision to allow the wealth gap to widen further.
In the meantime, Gretchen sees a lot of instability in financial markets that have been allowed to balloon further even though the underlying causes of the ’08 crash haven’t been resolved. She cautions investors to avoid risk (despite the Fed’s encouragements), pay down debt, and have a defensive plan in place should the markets suffer another serious correction in the near future.
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Edith O’Brien, MF Global Executive, Subpoenaed By Congress
WASHINGTON — A congressional panel has voted to subpoena an MF Global executive to testify about what took place at the brokerage firm before it collapsed last fall.
The House Financial Services oversight subcommittee voted Wednesday to subpoena Edith O’Brien, who was an assistant treasurer at the firm. O’Brien declined to appear voluntarily at a hearing scheduled for next week. She worked in the office charged with ensuring customer accounts were properly handled, the subcommittee says.
MF Global filed for bankruptcy protection Oct. 31. About $1.6 billion of customers’ money hasn’t been recovered.
Former Sen. Jon Corzine led the firm until last fall. He testified before three congressional panels in December.
Also scheduled to testify at the hearing are MF Global Chief Financial Officer Henri Steenkamp, General Counsel Laurie Ferber, and Christine Serwinski, chief financial officer for North America.
According to CME Group, the financial exchange operator that oversaw MF Global, O’Brien and Serwinski told an auditor that about $700 million was transferred from customer accounts to the firm’s brokerage operations to meet cash needs.
O’Brien couldn’t be reached for comment. A spokeswoman for MF Global didn’t return calls seeking comment.
Steenkamp testified in December that he didn’t authorize, approve… Continue reading
Student Loan Debt Hits $1 Trillion, Deemed ‘Too Big To Fail’ By One Federal Agency
The student loan debt market is now “too big to fail”, says Rohit Chopra, the student loan ombudsman for the newly created Consumer Finance Protection Bureau.
Speaking on Wednesday to a conference hosted by the Consumer Bankers Association in Austin, Texas, Chopra highlighted the sobering news that total student loan debt in the United States now exceeds an eye-popping $1 trillion, a record high. In prepared remarks published on the CFPB’s blog, Chopra writes:
Students borrowed $117 billion in just federal student loans last year. And students continue to borrow private student loans, which lack the income-based repayment and deferment options of federal student loans. If current trends continue, there will be consequences not just for young people, but for all of us.
If that wasn’t disturbing enough, now comes news that the interest rate on new subsidized student loans from the federal government, called Stafford loans, are set to double to 6.8 percent on July 1 if Congress does not prevent the federal program keeping those interest rates low from expiring.
If interest rates on new subsidized student loans double, the average student loan borrower on the standard 10-year plan will need to pay $2,800 more… Continue reading
J.P. Morgan Chase’s Ugly Family Secrets Revealed
In a story that should be getting lots of attention, American Banker has released an excellent and disturbing exposé of J.P. Morgan Chase’s credit card services division, relying on multiple current and former Chase employees. One of them, Linda Almonte, is a whistleblower whom I’ve known since last September; I’m working on a recount of her story for my next book.
One of the things we were promised by the lawmakers who passed the Dodd-Frank reform bill a few years back is that this would be a new era for whistleblowers who come forward to tell the world about problems in our financial infrastructure. This story now looms as a test case for that proposition. American Banker reporter Jeff Horwitz did an outstanding job in this story detailing the sweeping irregularities in-house at Chase, but his very thoroughness means the news may have ramifications for Linda, which is why I’m urging people to pay attention to this story in the upcoming weeks.
The Cliff’s Notes version of the story goes something like this: Late in 2009, Chase’s credit card services division sold a parcel of nearly $200 million worth of credit card judgments to a debt collector at a discount. This common practice in the credit-card industry is a little like a bookie selling the outstanding debts of his delinquent gamblers to a leg-breaker for 25 cents on the dollar. If the leg-breaker gets half the delinquents to pay, the deal works out for both sides — the bookie gets 25 percent of money he wasn’t going to collect, and the leg-breaker makes a 100 percent profit.
In the case of credit cards, of course, you’re selling the debts to collection agents, not leg-breakers, but aside from that unpleasantly minor distinction the process is the same. The most valuable kinds of sales in this world are sales of credit card judgments, in other words accounts in which the debtor has already been successfully brought to court. That, ostensibly, is what this bloc of accounts Chase sold in 2009 involved.
Almonte came to Chase in the summer of 2009 as a mid-level executive in the credit card services division’s offices in San Antonio, and was quickly put in charge of preparing the documentation for this enormous sale of credit card judgments. When Chase regional offices from places like southern California and Illinois began sending in the papers for these “judgments,” Almonte very soon found out that something was seriously wrong. From Horwitz’s piece:
Nearly half of the files [Linda's] team sampled were missing proofs of judgment or other essential information, she wrote to colleagues. Even more worrisome, she alleged in her wrongful-termination suit, nearly a quarter of the files misstated how much the borrower owed.
In the “vast majority” of those instances, the actual debt was “lower that what Chase was representing,” her suit stated.
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Gangster Banks Keep Winning Public Business. Why?
A friend of mine sent this article from Bloomberg, along with the simple comment: “Perfect.” What’s perfect? That the banks that have been caught repeatedly ripping off communities and munipalities — banks that have paid hefty settlements for rigging bids, bribery and other sordid misdeeds — keep winning the most public business. Apparently, our public officials aren’t concerned about whom they hire to serve as the people’s investment bankers.
From the piece, entitled “JPMorgan Claims No. 1 for Government Debt After Jefferson County”:
JPMorgan, which emerged from the worst financial crisis since the 1930s as the most profitable U.S. bank, has parlayed crisis-era loans to cities and states and a willingness to outbid other firms in local government bond auctions into becoming the top underwriter of municipal debt last year, according to data compiled by Bloomberg. It was the first time the firm held that rank.
The turnaround was a milestone for JPMorgan’s municipal- bond department, which has been marred by its involvement in two of the biggest scandals in the history of U.S. public finance: a so-called pay-to-play scheme in Jefferson County, Alabama, that contributed to the biggest-ever U.S. municipal bankruptcy, and a federal probe that… Continue reading
Another Hidden Bailout: Helping Wall Street Collect Your Rent
Here’s yet another form of hidden bailout the federal government doles out to our big banks, without the public having much of a clue.
This is from the WSJ this morning:
Some of the biggest names on Wall Street are lining up to become landlords to cash-strapped Americans by bidding on pools of foreclosed properties being sold by Fannie Mae…
While the current approach of selling homes one-by-one has its own high costs and is sometimes inefficient, selling properties in bulk to large investors could require Fannie Mae to sell at a big discount, leading to larger initial costs.
In con artistry parlance, they call this the “reload.” That’s when you hit the same mark twice – typically with a second scam designed to “fix” the damage caused by the first scam. Someone robs your house, then comes by the next day and sells you a fancy alarm system, that’s the reload.
In this case, banks pumped up the real estate market by creating huge volumes of subprime loans, then dumped a lot of them on, among others, Fannie and Freddie, the ever-ready enthusiastic state customer. Now the loans have crashed in value, yet the GSEs (Government Sponsored Enterprises) are still out there feeding the banks money through two continuous bailouts.
One, they continue to buy mortgages from the big banks (until recently, even from Bank of America, whom the GSEs were already suing for sales of toxic MBS), giving the banks a permanent market for home loans.
And secondly, they conduct these quiet bulk sales of mortgages, in which huge packets of home loans are sold to banks at a “big discount.”
By now we’ve come full circle. Banks create the loans, make money selling them off on the market at high prices, then come back and buy them again when they’re low. When the GSEs are in the middle of this transaction, it makes mortgage lending a basically risk-free proposition: Banks get paid for creating home loans and they end up owning valuable property on the cheap, but in between, they offshore the market risk to a government entity and/or to the idiot individual who bought the home mortgage in the first place.
