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Fraud*
According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Wednesday, March 23, 2011

Maybe All Those Toxic Assets That Goldman Sachs Sold are Coming Home to Roost!

Just when a person thinks that there are some insitutions that have more sense than your average Goldman Sachs bank, she finds out that even credit unions (that are not generally known as predatory firms) also were taken in by the golden-tongued Goldman Sachs.

Credit Unions are "not-for-profit cooperative institutions" where the owners and users are the same people (and the top officers do not have million dollar bonuses!) Credit Unions are more democratic than banks because the owners and users are the same people and the board is democratically elected by the members. Corporate credit unions provide services to individual credit unions.

So it is galling when we find that credit unions were also duped by Goldman Sachs who were pushing CDOs to all and sundry. As Felix Salmon (Reuters) suggests, we need more than a few individual insitutions each making a separate suit against Goldman Sachs who is quite comfortable in paying a penalty to each case separately. What is needed is a government sponsored suit that takes all those toxic CDOs into account and pushes for criminal prosecutions for all of them. Will that happen?

Below are two opinions regarding the possible suit of Credit Unions:

Bruce Krasting in Wall Street Pit in an article called "Credit Unions Want Their Money Back" states:

. . . .

Credit Unions go for blood

Interesting article at the WSJ this morning re Credit Unions. It would appear that a law suit is about to get filed against the big banks (again). Five of the nation’s biggest credit unions had their balance sheets polluted with crap CDOs. Now they want their money back. From the article:

The National Credit Union Administration, or NCUA, has threatened to sue several investment banks unless they refund over $50 billion of mortgage-backed securities sold to the five institutions, called wholesale credit unions.

The names involved?

The NCUA is accusing Goldman Sachs Group Inc., Bank of America Corp.’s Merrill LynchCitigroup Inc unit, . and J.P. Morgan Chase & Co. of misrepresenting the risks of the bonds to wholesale credit unions.

Surprised? I’m not. Goldman Sachs has commented on the pending litigation:

Goldman said the NCUA “has stated that it intends to pursue…on behalf of certain credit unions for which it acts as conservator” claims that offering documents for certain securities Goldman sold “contained untrue statements of material facts and material omissions .”

Untrue statements of material facts?? Material omissions?? I’m shocked!

Watch this case as it evolves. This may set an interesting precedent. It could very well backfire on the US Treasury Department. Way back in the spring of 2008 our good friend Hank Paulson (and former T.Sec.) forced Fannie Mae to issue a $1 billion + Preferred Stock offering. Fannie of course went bust less than six months later. The offering document on this deal was littered with material omissions and misstatements of facts. But this deal was pushed out to the public by the Treasury Secretary. All the big banks (led by Merrill) sold this swill to the public.

If the NCAU wins its fight with the banks, the lawsuit against Treasury re the garbage Fannie pref is assured.

Read the full article here

. . . . . . . . . . . . . . . . . . . . . .

The government's narrow bank suits
by Felix Salmon - Reuters

Liz Rappaport reports that the NCUA is getting tough with Goldman Sachs and other banks which sold corporate credit unions billions of dollars of toxic mortgage-backed securities:

In one of the broadest accusations that Wall Street helped cripple financial institutions during the crisis, the National Credit Union Administration, or NCUA, has threatened to sue several investment banks unless they refund over $50 billion of mortgage-backed securities sold to the five institutions, called wholesale credit unions…

Regulators seized the five wholesale credit unions in 2009 and 2010, inheriting a pile of battered bonds now worth only about $25 billion, or half of their face value.

This seems to me to be yet another form of weird selfishness on behalf of regulators who should really have the national interest, rather than their own self-interest, at heart. The FDIC’s suing WaMu directors? Yes, because the FDIC suffered losses. The NCUA’s threatening to sue Goldman? Yes, because the NCUA suffered losses. But what we’re not seeing here is any kind of government action against these banks which draws the logical conclusion: if Goldman needs to buy back all the bonds it sold to WesCorp, shouldn’t it also have to buy back all the identical bonds it sold to other investors?

What’s happening here is that Goldman is fighting a number of substantially identical claims on a case-by-case basis. Here’s its SEC filing:

Various alleged purchasers of, and counterparties involved in transactions relating to, mortgage pass-through certificates, CDOs and other mortgage-related products (including the Federal Home Loan Banks of Seattle, Chicago and Indianapolis, the Charles Schwab Corporation, Cambridge Place Investment Management Inc., Basis Yield Alpha Fund (Master) and Landesbank Baden-W├╝rttemberg, among others) have filed complaints in state and federal court against firm affiliates, generally alleging that the offering documents for the securities that they purchased contained untrue statements of material facts and material omissions and generally seeking rescission and damages. Certain of these complaints also name other firms as defendants. Additionally, the National Credit Union Administration (NCUA) has stated that it intends to pursue similar claims on behalf of certain credit unions for which it acts as conservator, and the firm and the NCUA have entered into an agreement tolling the relevant statutes of limitation. A number of other entities have threatened to assert claims against the firm in connection with various mortgage-related offerings, and the firm has entered into agreements with a number of these entities to toll the relevant statute of limitations. The firm estimates, based on currently available information, that the aggregate cumulative losses experienced by the plaintiffs with respect to the securities at issue in active cases brought against the firm where purchasers are seeking rescission of mortgage-related securities was approximately $457 million as of December 2010. This amount was calculated as the aggregate amount by which the initial purchase price for the securities allegedly purchased by the plaintiffs exceeds the estimated December 2010 value of those securities. This estimate does not include the potential NCUA claims or any claims by other purchasers in the same or other mortgage-related offerings that have not actually brought claims against the firm.

We’re given no indication, here, of the total amount of these bonds which was sold by Goldman: instead, we’re given the fraction of the bonds which are actually being litigated. And since the NCUA hasn’t filed suit (yet), that number is relatively small — less than half a billion dollars.

So long as government-run entities like the Federal Home Loan Banks and the NCUA look out only for their own self-interest here, both they and Goldman have every incentive to settle these suits out of court. But the government is meant to have a broader interest than that. Let’s say I bought one of these bonds but don’t have access to the government’s expensive lawyers. Why is it fair that the government should get Goldman’s money in an out-of-court settlement while I get nothing?

Yes, there are class actions pending against Goldman too, or at least putative class actions — they don’t seem to have been certified yet. But those class actions don’t have the extra force that comes from being brought by the government. If the government really believes that Goldman et al did something seriously wrong here, they should come down on those banks on behalf of all the victims. Not just the state-owned ones.

Read the article here

7 COMMENTS:

Anonymous said...

Do any of these guys take oaths when in office?


Fed Stress Test a Farce

Funny, I thought the bank bailout was supposed to encourage more lending. The dividend increases will fatten the paychecks of bank executives, but I don’t see lending taking off anytime soon. There was plenty of information about what went into the Fed assessment of the financial health of the banks, but “mark to market accounting” was not mentioned one single time in any release or report I read from the Fed. “Mark to market accounting” is simply valuing an asset for what you can get for it today. It has been a standard method of accounting much of the 20th century, and it is how the IRS values assets.



Economics professor and former bank regulator William Black thinks some institutions are insolvent now, like Bank of America. He wants B of A taken to receivership. B of A just announced 2 weeks ago that half of its 13.9 million mortgages are “bad.” Black also says the FASB rules are a “farce.” Late last year, he co-wrote an Op-Ed piece in the Huffington Post that said, “This accounting scam produces enormous fictional “income” and “capital” at the banks. The fictional income produces real bonuses to the CEOs that make them even wealthier. The fictional bank capital allows the regulators to evade their statutory duties under the Prompt Corrective Action (PCA) law to close the insolvent and failing banks. . . . We have made the CEOs of the largest financial firms — typically already among the 500 wealthiest Americans — even wealthier. We have rewarded fraud, incompetence, and venality by our most powerful elites.”

http://usawatchdog.com/fed-stress-test-is-a-farce/

Anonymous said...

Fed Stress Test a Farce


Funny, I thought the bank bailout was supposed to encourage more
lending. The dividend increases will fatten the paychecks of bank
executives, but I don’t see lending taking off anytime soon. There
was plenty of information about what went into the Fed assessment of
the financial health of the banks, but “mark to market accounting” was
not mentioned one single time in any release or report I read from the
Fed. “Mark to market accounting” is simply valuing an asset for what
you can get for it today. It has been a standard method of accounting
much of the 20th century, and it is how the IRS values assets.

Many of the 19 largest banks are sitting on possibly trillions of
dollars of mortgage-backed securities (MBS) and underwater real
estate. Because of an accounting rule change in April 2009 by the
Financial Accounting Standards Board (FASB), “mark to market
accounting” is largely ignored. Banks can hold diminished assets on
their books at whatever value they think they can get for them in the
future.


http://usawatchdog.com/fed-stress-test-is-a-farce/

Anonymous said...

Why don't you remove the spam instead of this article.


Fed Stress Test a Farce


Funny, I thought the bank bailout was supposed to encourage more
lending. The dividend increases will fatten the paychecks of bank
executives, but I don’t see lending taking off anytime soon. There
was plenty of information about what went into the Fed assessment of
the financial health of the banks, but “mark to market accounting” was
not mentioned one single time in any release or report I read from the
Fed. “Mark to market accounting” is simply valuing an asset for what
you can get for it today. It has been a standard method of accounting
much of the 20th century, and it is how the IRS values assets.

Many of the 19 largest banks are sitting on possibly trillions of
dollars of mortgage-backed securities (MBS) and underwater real
estate. Because of an accounting rule change in April 2009 by the
Financial Accounting Standards Board (FASB), “mark to market
accounting” is largely ignored. Banks can hold diminished assets on
their books at whatever value they think they can get for them in the
future.


http://usawatchdog.com/fed-stress-test-is-a-farce/

Anonymous said...

Fed Stress Test a Farce


Funny, I thought the bank bailout was supposed to encourage more
lending. The dividend increases will fatten the paychecks of bank
executives, but I don’t see lending taking off anytime soon. There
was plenty of information about what went into the Fed assessment of
the financial health of the banks, but “mark to market accounting” was
not mentioned one single time in any release or report I read from the
Fed. “Mark to market accounting” is simply valuing an asset for what
you can get for it today. It has been a standard method of accounting
much of the 20th century, and it is how the IRS values assets.

Many of the 19 largest banks are sitting on possibly trillions of
dollars of mortgage-backed securities (MBS) and underwater real
estate. Because of an accounting rule change in April 2009 by the
Financial Accounting Standards Board (FASB), “mark to market
accounting” is largely ignored. Banks can hold diminished assets on
their books at whatever value they think they can get for them in the
future.


http://usawatchdog.com/fed-stress-test-is-a-farce/

Anonymous said...

So this is what corruption looks like in a democracy: banks commit "errors" and make "mistakes;" they are fined a piddling amount which they happily pay as it is just petty cash; when they resort to accounting fraud to cover up their mistakes, the rules are changed in their favor; when prosecutions are demanded, no one responds and everyone in the government from the Fed Reserve, to Treasury, to the President, to the DOJ looks the other way as if nothing criminal or fraudulent has happened; the banks continue with their huge pay checks and bonuses sucking up the wealth of the nation; the poor taxpayer pays with his/her 401k, pensions, foreclosed homes and savings.

Corruption begins to look like the way things are going to be from now on.

Anonymous said...

Not fair..
"So long as government-run entities like the Federal Home Loan Banks and the NCUA look out only for their own self-interest here, both they and Goldman have every incentive to settle these suits out of court. But the government is meant to have a broader interest than that. Let’s say I bought one of these bonds but don’t have access to the government’s expensive lawyers. Why is it fair that the government should get Goldman’s money in an out-of-court settlement while I get nothing?"

But is this fair?....
"
It’s pretty ridiculous that Sergey Aleynikov, the thief who stole Goldman’s high frequency code, got 8 years and a month in jail, when his counterpart at SocGen, Samarth Agrawal, got only 3 years for doing essentially the same thing"

http://tinyurl.com/4unpu48


Lot's of questions.

Anonymous said...

I see your point. The government should be looking out for the small person, not the big banks. But money has perverted and tainted the elected representatives of the people and they have come to represent the interests of the wealthy. We need to reinvent government "of the people, by the people and for the people" instead of the present "government of the lobbied, by the wealthy for the corporate interests."

How do we get back to the fundamentals?

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