Should Banksters go to jail

In a word; YES! Jail time is the only thing that will serve as a big stick with these people. That and humongous fines.....like enough to replenish the treasury.

BUZZFLASH DISCUSSION

The fallout from government's civil charges against Goldman Sachs has already begun. Still, it's not clear if this is the beginning of a wider attempt to seriously punish Wall Street for its obvious role in the recession or just a show for politics.

What do you think will happen following the Goldman suit? Will the Obama Administration be encouraged to move forward against the rest of Wall Street, either with charges or regulation? Or will old money prevail in preventing the kind of regulation that would stop this reckless behavior in the future and get any suits against them dropped?
Let us know in the comments below.

Let The Sun Shine In......

Maybe Nationalizing the Banks Isn't such a bad idea

Wasn't Hoover who said that the problem with Capitalism is Capitalists?

• 
• • Will Hutton
  • The Observer, Sunday 18 April 2010
  • Article history

Goldman Sachs was in the spotlight last November when demonstrators protested outside its Washington offices against executive bonuses. Photograph: Andrew Harrer/Bloomberg via Getty Images

The global financial crisis, it is now clear, was caused not just by the bankers' colossal mismanagement. No, it was due also to the new financial complexity offering up the opportunity for widespread, systemic fraud. Friday's announcement that the world's most famous investment bank, Goldman Sachs, is to face civil charges for fraud brought by the American regulator is but the latest of a series of investigations that have been launched, arrests made and charges made against financial institutions around the world. Big Finance in the 21st century turns out to have been Big Fraud. Yet Britain, centre of the world financial system, has not yet levelled charges against any bank; all that we've seen is the allegation of a high-level insider dealing ring which, embarrassingly, involves a banker advising the government. We have to live with the fiction that our banks and bankers are whiter than white, and any attempt to investigate them and their institutions will lead to a mass exodus to the mountains of Switzerland. The politicians of the Labour and Tory party alike are Bambis amid the wolves.

Just consider the roll call beyond Goldman Sachs. In Ireland Sean FitzPatrick, the ex-chair of the Anglo Irish bank was arrested last month and questioned over alleged fraud. In Iceland last week a dossier assembled by its parliament on the Icelandic banks – huge lenders in Britain – was handed to its public prosecution service. A court-appointed examiner found that collapsed investment bank Lehman knowingly manipulated its balance sheet to make it look stronger than it was – accounts originally audited by the British firm Ernst and Young and given the legal green light by the British firm Linklaters. In Switzerland UBS has been defending itself from the US's Inland Revenue Service for allegedly running 17,000 offshore accounts to evade tax. Be sure there are more revelations to come – except in saintly Britain.

Beneath the complexity, the charges are all rooted in the same phenomenon – deception. Somebody, somewhere, was knowingly fooled by banks and bankers – sometimes governments over tax, sometimes regulators and investors over the probity of balance sheets and profits and sometimes, as the Securities and Exchange Commission (SEC) says in Goldman's case, by creating a scheme to enrich one favoured investor at the expense of others – including, via RBS, the British taxpayer. Along the way there is a long list of so-called "entrepreneurs" and "innovators" who were offered loans that should never have been made. Lloyd Blankfein, Goldman's CEO, remarked only semi-ironically that his bank was doing God's work. He must wake up every day bitterly regretting the words ever emerged from his mouth.

For the Goldmans case is in some ways the most damaging. The Icelandic banks, Anglo Irish bank and Lehman were all involved in opaque deals and rank bad lending decisions – but Goldman allegedly went one step further, according to the SEC actively creating a financial instrument that transferred wealth to one favoured client from others less favoured. If the Securities and Exchange Commission's case is proved – and it is aggressively rebutted by Goldman – the charge is that Goldman's vice-president Fabrice Tourre created a dud financial instrument packed with valueless sub- prime mortgages at the instruction of hedge fund client Paulson, sold it to investors knowing it was valueless, and then allowed Paulson to profit from the dud financial instrument. Goldman says the buyers were "among the most sophisticated mortgage investors" in the world. But this is a used car salesman flogging a broken car he's got from some wide-boy pal to some driver who can't get access to the log-book. Except it was lionised as financial innovation.

The investors who bought the collateralised debt obligation (CDO) were not complete innocents. They had asked for the bond to be validated by an independent expert into residential mortgage-backed securities – a company called ACA management. ACA gave the bond the thumbs-up on the understanding from Fabrice Tourre that the hedge fund Paulson were investing in it. But the SEC says Tourre misled them, a pivotal claim that Goldman denies. The reality was that Paulson was frantically buying credit default swaps in the CDO that would go up in price the more valueless it became – a trade that would make more than $1 billion. Worse, Paulson had identified some of the dud sub-prime mortgages that he wanted Tourre to put into the CDO. If the SEC case is true, this was a scam – nothing more, nothing less.

Tourre could see what was coming. In one email in January 2007 he wrote: "More and more leverage in the system. The whole building is about to collapse anytime now… only potential survivor, the fabulous Fab[rice Tourre] .. standing in the middle of all these complex highly leveraged exotic trades he created without necessarily understanding all of the implications of those monstrosities". Fabulous Fab, like his boss, will not be feeling very fab today.

The cases not only have a lot in common – using financial complexity allegedly to deceive and then using so-called independent experts to validate the deception (lawyers, accountants, credit rating agencies, "portfolio selection agents," etc etc ) – but they also show how interconnected the financial system is. In Iceland Citigroup and Deutsche Bank covered the margin calls of distressed Icelandic business borrowers, deepening the crisis. Lehman uses the lightly regulated London markets and two independent British experts to validate that their "Repo 105s" were "genuine" trades and not their own in-house liability. 

The American authorities pursued a Swiss bank over aiding and abetting US nationals to evade tax.

Bankers will complain these cases all involve one or two misguided individuals, but that most banking is above board and was just the victim of irrational exuberance, misguided belief in free market economics and faulty risk management techniques. Obviously that is true – but, sadly, there is much more to the crisis. Andrew Haldane, executive director of the Bank of England, highlights the remarkable reduction in the risk weighting of bank assets between 1997 and 2007. Put simply, Europe's and the US's large banks exploited the weak international agreement on bank capital requirements in the so-called Basel agreement in 2004 to reclassify the risk of their loans and trading instruments. They did not just reduce the risk by 5 or 10%. Breathtakingly, they claimed their new risk management techniques were so wonderful that the riskiness of their assets was up to half of what it had been – despite property and share prices cresting to new all-time highs.

Brutally, the banks knowingly gamed the system to grow their balance sheets ever faster and with even less capital underpinning them in the full knowledge that everything rested on the bogus claim that their lending was now much less risky. That was not all they were doing. As Michael Lewis describes in The Big Short, credit default swaps had been deliberately created as an asset class by the big investment banks to allow hedge funds to speculate against collateralised debt obligations. The banks were gaming the regulators and investors alike – and they knew full well what they were doing. Simon Johnson's 13 Bankers shows how the major American banks deployed vast political lobbying power and money to create the relaxed regulatory environment in which all this could take place. In Britain no money changed hands. Gordon Brown offered light-touch regulation for free – egged on by the Tories, who wanted to go further.

This was the context in which Goldman's Fabulous Fab created the disputed CDOs, Sean FitzPatrick allegedly moved loans between banks and Lehman created its Repo 105s along with the entire "debt mule" structure revealed this weekend of inter-related companies to shuffle debt around its empire. London and New York had become the centre of an international financial system in which the purpose of banking became making money from money – and where the complexity of the "innovations" allowed extensive fraud and deception.

Now it has all collapsed, to be bailed out by western taxpayers. The banks are resisting reform – and want to cling on to the business practices and business model that has so appallingly failed. It is obvious why: it makes them very rich. The politicians tread carefully, only proposing what the bankers say is congruent with their definition of what banking should be. Labour and Tories alike are united in opposing improved EU regulation of hedge funds, buying the propaganda those operations had nothing to do with the crisis. Perhaps Paulson's trades at Goldman, and the hedge funds' appetite for speculating in credit default swaps, may disabuse them.

It is time to reframe the question. Banks and financial institutions should do what economy and society want them to do – support enterprise, direct credit to where it is needed and be part of the system that generates investment and innovation. Andrew Haldane – and the governor of the Bank of England – are right. We need to break up our banks, limit their capacity to speculate and bring them back to earth. Britain should also launch an official investigation into what went wrong – and hand the findings to the Serious Fraud Office. This needs to become this election campaign's number one issue – not one which either a compromised Labour party or a temporising Conservative party will relish. The Lib Dems, the fiercest critics of the banks, have begun to get very lucky.

Crisis timetable

September 2007 Funding problems at Northern Rock triggers the first run on a British bank. It is nationalised in February 2008.

April 2008 Bear Stern faces bankruptcy after a run on the company wipes out cash reserves in less than two days. Backed by the Federal Reserve, JPMorgan buys up shares at far below market value.

September 2008 Lehman Brothers files for bankruptcy protection, becoming the first major bank to collapse since the start of the credit crisis.

December 2008 Bernard Madoff arrested for operating the largest Ponzi scheme in history.

January 2009 The Bank of England launches £200bn quantitative easing.

March 2010 Former chairman of Anglo Irish bank Sean Fitzpatrick is arrested in Dublin after failing to disclose details of loans worth millions from the bank.

April 2010 Northern Rock former directors, David Baker and Richard Barclay, are fined £504,000 and £140,000 for deliberately misleading analysts prior to nationalisation.

April 2010 The US Securities and Exchange Commission accuses Goldman Sachs of "defrauding investors by misstating and omitting key facts".

Joanna Aniel Bidar
• This article was amended on Monday 19 April. A reference to Anglo Irish looking after the Post Office's financial services was removed. Bank of Ireland is the Post Office's financial services provider.
Let The Sun Shine In......

The Great American Bank Heist

On the Day we Reach a Monthly Foreclosure Filing Record Banks Announce Record Profits and the Stock Market is up 80 Percent.

• Posted by mybudget360 in bailout, banks, casinos, corporate power, economy, government, i-banking, wall street
• 0 Comments

It is rather fitting that on the day we hear about banks reaching record profits once again, because after all it is so difficult to borrow at zero percent and gamble in the stock market and make a gain, that we also find out that March was the highest month of foreclosure filings ever (and we’ve had some bad months).  If there was ever a more clear indication between the split from Main Street and Wall Street this is probably the strongest indicator so far.  I’ll include the charts below but being blunt about the situation, the bailouts worked.  If we define “worked” as boosting banking profits once again while 40,000,000 Americans are on food stamps and 17 percent remain underemployed then all is well again in the economy.  Yet this isn’t what the American people bargained for in the bailouts.  In fact, they didn’t want the bailouts if you remember the massive anger from both aisles calling their representatives.  But the cronies didn’t listen since they receive millions in lobbying dollars and $13 trillion went to Wall Street in the biggest wealth transfer witnessed by the disgruntled American public.
It should be obvious the real economy is still a mess.  The latest foreclosure data is merely a reflection of failed government programs but more importantly, the absolute greed and robbery committed by Wall Street:



Just look at that chart.  We’ve had an 80 percent stock market rally in one year and today, we are at the peak of foreclosure filings.  That is, Americans getting kicked out of their homes because they are unable to pay their mortgages.  So much for banks using that money to help people stay in their homes and keeping the credit markets open as they preached.  JP Morgan announced stunning profits for the first quarter.  How did they make their money?

“(Yahoo!) NEW YORK – JPMorgan Chase & Co. reported a $3.3 billion first-quarter profit on big gains in the financial markets even as the Obama administration pressed for limits on banks’ trading of risky but lucrative investments.”

$3.3 billion is fantastic.  But how did they make that money?

“Investment banking, especially bond trading, generated the bulk of JPMorgan’s profits. The bank said that division earned $2.5 billion, up 50 percent from a year earlier.”

So their gambling division made up the bulk of their profits.  How are they helping out consumers with those billions in taxpayer dollars?

“JPMorgan said it lost $1.3 billion on its real estate portfolios, slightly more than the $1.1 billion it lost the previous year. Signaling that it expects further credit weakness, the bank set aside $3.3 billion for real estate loan losses, up from $3.1 billion a year earlier.

The bank’s losses in its credit card business fell to $303 million, while provision for future credit card losses also dropped to $3.5 billion.”

The formula is simple for these banks.  Use the taxpayer money to enrich their elite class under the guise of helping average Americans.  They have robbed the American people and much of this was all legal.  Yet we all know that there is something royally flawed in the financial system since it is the legislature that develops the laws and many are bought by the Wall Street crowd.  So this 80 percent stock market rally if we dissect it is being propelled by banks gambling:



Source:  Bloomberg

Notice how non-financials (i.e., the real economy) is only seeing a slight uptick in profits?  This probably has to do with 15 million unemployed Americans and another 9 million working part-time looking for full-time work.  But given there are 6 workers for every 1 job opening, things will be slow going.  Unless you are the corrupt banking sector.  In that case, you can borrow at zero percent and buy Treasuries, foreign currencies, stocks, or whatever it is and make money hand over fist while the real economy remains in the trough.  Why would you expect anything to be different?  We have yet to have one single piece of serious legislation hit the table for financial reform.  These banks are back to their same antics.

So what should be done?  Break the banks up.  Commercial banking should become more boring and what it once was, the lubricant to get the real economy going.  Right now it is merely a vampire sucking the blood out of the productive sectors.  Investment banking will be pushed to the edges and if banks want to gamble their own money then that is fine. 
But right now they are gambling taxpayer money trying to get back to even while shifting all the toxic credit out of their books.  Privatize gains and socialize losses.  With a system like that, is it any wonder the banks are back to record profits?

And you have to ask yourself how is it that banks while pushing a record number of foreclosure filings are back to record gains?  It is actually very simple.  They can shift the crap to taxpayers as they have through the FDIC, HAMP, suspension of mark to market, and other absurd gimmicks.  Then, they can use taxpayer money primarily funded through the Federal Reserve and U.S. Treasury and then gamble on the stock market.  But don’t be surprised when the market falls through again.  And why wouldn’t it?  The real economy isn’t really improving.  For $13 trillion we sure got bunk but add up the Wall Street market cap and profits and you can see what occurred.

It is a simple formula to understand.  And with no rules being changed, things are back to normal for the banks.  Too bad the other 95 percent of Americans are still dealing with the repercussions of the actual economy.

Let The Sun Shine In......