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JPMorgan Chase Engaged in Mortgage Fraud: The Securitization Scheme that Collapsed the Housing Market Washington’s Blog

JPMorgan Chase Engaged in Mortgage Fraud: The Securitization Scheme that Collapsed the Housing Market Washington’s Blog.

By Ellen Brown.

In a nearly $13 billion settlement with the US Justice Department in November 2013, JPMorganChase admitted that it, along with every other large US bank, had engaged in mortgage fraud as a routine business practice, sowing the seeds of the mortgage meltdown. JPMorgan and other megabanks have now been caught in over a dozen major frauds, including LIBOR-rigging and bid-rigging; yet no prominent banker has gone to jail. Meanwhile, nearly a quarter of all mortgages nationally remain underwater (meaning the balance owed exceeds the current value of the home), sapping homeowners’ budgets, the housing market and the economy. Since the banks, the courts and the federal government have failed to give adequate relief to homeowners, some cities are taking matters into their own hands.

Gayle McLaughlin, the bold mayor of Richmond, California, has gone where no woman dared go before, threatening to take underwater mortgages by eminent domain from Wall Street banks and renegotiate them on behalf of beleaguered homeowners. A member of the Green Party, which takes no corporate campaign money, she proved her mettle standing up to Chevron, which dominates the Richmond landscape. But the banks have signaled that if Richmond or another city tries the eminent domain gambit, they will rush to court seeking an injunction. Their grounds: an unconstitutional taking of private property and breach of contract.

How to refute those charges? There is a way; but to understand it, you first need to grasp the massive fraud perpetrated on homeowners. It is how you were duped into paying more than your house was worth; why you should not just turn in your keys or short-sell your underwater property away; why you should urge Congress not to legalize the MERS scheme; and why you should insist that your local government help you acquire title to your home at a fair price if the banks won’t. That is exactly what Richmond and other city councils are attempting to do through the tool of eminent domain.

The Securitization Fraud That Collapsed the Housing Market

One settlement after another has now been reached with investors and government agencies for the sale of “faulty mortgage bonds,” including a suit brought by Fannie and Freddie that settled in October 2013 for $5.1 billion. “Faulty” is a euphemism for “fraudulent.” It means that mortgages subject to securitization have “clouded” or “defective” titles. And that means the banks and real estate trusts claiming title as owners or nominees don’t actually have title – or have standing to enjoin the city from proceeding with eminent domain. They can’t claim an unconstitutional taking of property because they can’t prove they own the property, and they can’t claim breach of contract because they weren’t the real parties in interest to the mortgages (the parties putting up the money).

“Securitization” involves bundling mortgages into a pool, selling them to a non-bank vehicle called a “real estate trust,” and then selling “securities” (bonds) to investors (called “mortgage-backed securities” or “collateralized debt obligations”). By 2007, 75% of all mortgage originations were securitized. According to investment banker and financial analyst Christopher Whalen, the purpose of securitization was to allow banks to avoid capitalization requirements, enabling them to borrow at unregulated levels.

Since the real estate trusts were “off-balance sheet,” they did not count in the banks’ capital requirements. But under applicable accounting rules, that was true only if they were “true sales.” According to Whalen, “most of the securitizations done by banks over the past two decades were in fact secured borrowings, not true sales, and thus potential frauds on insured depositories.” He concludes, “bank abuses of non-bank vehicles to pretend to sell assets and thereby lower required capital levels was a major cause of the subprime financial crisis.”

In 1997, the FDIC gave the banks a pass on these disguised borrowings by granting them “safe harbor” status. This proved to be a colossal mistake, which led to the implosion of the housing market and the economy at large. Safe harbor status was finally withdrawn in 2011; but in the meantime, “financings” were disguised as “true sales,” permitting banks to grossly over-borrow and over-leverage. Over-leveraging allowed credit to be pumped up to bubble levels, driving up home prices. When the bubble collapsed, homeowners had to pick up the tab by paying on mortgages that far exceeded the market value of their homes. According to Whalen:

[T]he largest commercial banks became “too big to fail” in large part because they used non-bank vehicles to increase leverage without disclosure or capital backing. . . .

The failure of Lehman Brothers, Bear Stearns and most notably Citigroup all were largely attributable to deliberate acts of securities fraud whereby assets were “sold” to investors via non-bank financial vehicles.  These transactions were styled as “sales” in an effort to meet applicable accounting rules, but were in fact bank frauds that must, by GAAP and law applicable to non-banks since 1997, be reported as secured borrowings.  Under legal tests stretching from 16th Century UK law to the Uniform Fraudulent Transfer Act of the 1980s, virtually none of the mortgage backed securities deals of the 2000s met the test of a true sale.

. . . When the crisis hit, it suddenly became clear that the banks’ capital was insufficient.

Today . . . hundreds of billions in claims against banks arising from these purported “sales” of assets remain pending before the courts.

Eminent Domain as a Negotiating Tool

Investors can afford high-powered attorneys to bring investor class actions, but underwater and defaulting homeowners usually cannot; and that is where local government comes in. Eminent domain is a way to bring banks and investors to the bargaining table.

Professor Robert Hockett of Cornell University Law School is the author of the plan to use eminent domain to take underwater loans and write them down for homeowners. He writes on NewYorkFed.org:

[In] the case of privately securitized mortgages, [principal] write-downs are almost impossible to carry out, since loan modifications on the scale necessitated by the housing market crash would require collective action by a multitude of geographically dispersed security holders. The solution . . . Is for state and municipal governments to use their eminent domain powers to buy up and restructure underwater mortgages, thereby sidestepping the need to coordinate action across large numbers of security holders.

The problem is blowback from the banks, but it can be blocked by requiring them to prove title to the properties. Securities are governed by federal law, but real estate law is the domain of the states. Counties have a mandate to maintain clean title records; and legally, clean title requires a chain of “wet” signatures, from A to B to C to D. If the chain is broken, title is clouded. Properties for which title cannot be established escheat (or revert) to the state by law, allowing the government to start fresh with clean title.

New York State law governs most of the trusts involved in securitization. Under it, transfers of mortgages into a trust after the cutoff date specified in the Pooling and Servicing Agreement (PSA) governing the trust are void.

For obscure reasons, the REMICs (Real Estate Mortgage Investment Conduits) claiming to own the properties routinely received them after the closing date specified in the PSAs. The late transfers were done throu gh the fraudulent signatures-after-the-fact called “robo-signing,” which occurred so regularly that they were the basis of a $25 billion settlement between a coalition of state attorneys general and the five biggest mortgage servicers in February 2012. (Why all the robo-signing? Good question. See my earlier article here.)

Until recently, courts have precluded homeowners from raising the late transfers into the trust as a defense to foreclosure, because the homeowners were not parties to the PSAs. But in August 2013, in Glaski v. Bank of America, N.A., 218 Cal. App. 4th 1079 (July 31, 2013), a California appellate court ruled that the question whether the loan ever made it into the asset pool could be raised in determining the proper party to initiate foreclosure. And whether or not the homeowner was a party to the PSA, the city and county have a clear legal interest in seeing that the PSA’s terms were complied with, since the job of the county recorder is to maintain records establishing clean title.

Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each). Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars in recording fees. (See my earlier article here.)

Counties thus have not only a fiduciary but a financial interest in establishing clean title to the properties in their jurisdictions. If no one can establish title, the properties escheat and can be claimed free and clear. Eminent domain can be a powerful tool for negotiating loan modifications on underwater mortgages; and if the banks cannot prove title, they have no standing to complain.

The End of “Too Big to Fail”?

Richmond’s city council is only one vote short of the supermajority needed to pursue the eminent domain plan, and it is seeking partners in a Joint Powers Authority that will make the push much stronger. Grassroots efforts to pursue eminent domain are also underway in a number of other cities around the country. If Richmond pulls it off successfully, others will rush to follow.

The result could be costly for some very large banks, but they have brought it on themselves with shady dealings. Christopher Whalen predicts that the FDIC’s withdrawal of “safe harbor” status for the securitization model may herald the end of “too big to fail” for those banks, which will no longer have the power to grossly over-leverage and may have to keep their loans on their books.

Wall Street banks are deemed “too big to fail” only because there is no viable alternative – but there could be. Local governments could form their own publicly-owned banks, on the model of the state-owned Bank of North Dakota. They could then put their revenues, their savings, and their newly-acquired real estate into those public utilities, to be used to generate interest-free credit for the local government (since it would own the bank) and low-cost credit for the local community. For more on this promising option, which has been or is being explored in almost half the state legislatures in the US, see here.

Ellen Brown is an attorney, president of the Public Banking Institute, and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books including the best-selling Web of Debt and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.

JPMorgan Chase Engaged in Mortgage Fraud: The Securitization Scheme that Collapsed the Housing Market Washington's Blog

JPMorgan Chase Engaged in Mortgage Fraud: The Securitization Scheme that Collapsed the Housing Market Washington’s Blog.

By Ellen Brown.

In a nearly $13 billion settlement with the US Justice Department in November 2013, JPMorganChase admitted that it, along with every other large US bank, had engaged in mortgage fraud as a routine business practice, sowing the seeds of the mortgage meltdown. JPMorgan and other megabanks have now been caught in over a dozen major frauds, including LIBOR-rigging and bid-rigging; yet no prominent banker has gone to jail. Meanwhile, nearly a quarter of all mortgages nationally remain underwater (meaning the balance owed exceeds the current value of the home), sapping homeowners’ budgets, the housing market and the economy. Since the banks, the courts and the federal government have failed to give adequate relief to homeowners, some cities are taking matters into their own hands.

Gayle McLaughlin, the bold mayor of Richmond, California, has gone where no woman dared go before, threatening to take underwater mortgages by eminent domain from Wall Street banks and renegotiate them on behalf of beleaguered homeowners. A member of the Green Party, which takes no corporate campaign money, she proved her mettle standing up to Chevron, which dominates the Richmond landscape. But the banks have signaled that if Richmond or another city tries the eminent domain gambit, they will rush to court seeking an injunction. Their grounds: an unconstitutional taking of private property and breach of contract.

How to refute those charges? There is a way; but to understand it, you first need to grasp the massive fraud perpetrated on homeowners. It is how you were duped into paying more than your house was worth; why you should not just turn in your keys or short-sell your underwater property away; why you should urge Congress not to legalize the MERS scheme; and why you should insist that your local government help you acquire title to your home at a fair price if the banks won’t. That is exactly what Richmond and other city councils are attempting to do through the tool of eminent domain.

The Securitization Fraud That Collapsed the Housing Market

One settlement after another has now been reached with investors and government agencies for the sale of “faulty mortgage bonds,” including a suit brought by Fannie and Freddie that settled in October 2013 for $5.1 billion. “Faulty” is a euphemism for “fraudulent.” It means that mortgages subject to securitization have “clouded” or “defective” titles. And that means the banks and real estate trusts claiming title as owners or nominees don’t actually have title – or have standing to enjoin the city from proceeding with eminent domain. They can’t claim an unconstitutional taking of property because they can’t prove they own the property, and they can’t claim breach of contract because they weren’t the real parties in interest to the mortgages (the parties putting up the money).

“Securitization” involves bundling mortgages into a pool, selling them to a non-bank vehicle called a “real estate trust,” and then selling “securities” (bonds) to investors (called “mortgage-backed securities” or “collateralized debt obligations”). By 2007, 75% of all mortgage originations were securitized. According to investment banker and financial analyst Christopher Whalen, the purpose of securitization was to allow banks to avoid capitalization requirements, enabling them to borrow at unregulated levels.

Since the real estate trusts were “off-balance sheet,” they did not count in the banks’ capital requirements. But under applicable accounting rules, that was true only if they were “true sales.” According to Whalen, “most of the securitizations done by banks over the past two decades were in fact secured borrowings, not true sales, and thus potential frauds on insured depositories.” He concludes, “bank abuses of non-bank vehicles to pretend to sell assets and thereby lower required capital levels was a major cause of the subprime financial crisis.”

In 1997, the FDIC gave the banks a pass on these disguised borrowings by granting them “safe harbor” status. This proved to be a colossal mistake, which led to the implosion of the housing market and the economy at large. Safe harbor status was finally withdrawn in 2011; but in the meantime, “financings” were disguised as “true sales,” permitting banks to grossly over-borrow and over-leverage. Over-leveraging allowed credit to be pumped up to bubble levels, driving up home prices. When the bubble collapsed, homeowners had to pick up the tab by paying on mortgages that far exceeded the market value of their homes. According to Whalen:

[T]he largest commercial banks became “too big to fail” in large part because they used non-bank vehicles to increase leverage without disclosure or capital backing. . . .

The failure of Lehman Brothers, Bear Stearns and most notably Citigroup all were largely attributable to deliberate acts of securities fraud whereby assets were “sold” to investors via non-bank financial vehicles.  These transactions were styled as “sales” in an effort to meet applicable accounting rules, but were in fact bank frauds that must, by GAAP and law applicable to non-banks since 1997, be reported as secured borrowings.  Under legal tests stretching from 16th Century UK law to the Uniform Fraudulent Transfer Act of the 1980s, virtually none of the mortgage backed securities deals of the 2000s met the test of a true sale.

. . . When the crisis hit, it suddenly became clear that the banks’ capital was insufficient.

Today . . . hundreds of billions in claims against banks arising from these purported “sales” of assets remain pending before the courts.

Eminent Domain as a Negotiating Tool

Investors can afford high-powered attorneys to bring investor class actions, but underwater and defaulting homeowners usually cannot; and that is where local government comes in. Eminent domain is a way to bring banks and investors to the bargaining table.

Professor Robert Hockett of Cornell University Law School is the author of the plan to use eminent domain to take underwater loans and write them down for homeowners. He writes on NewYorkFed.org:

[In] the case of privately securitized mortgages, [principal] write-downs are almost impossible to carry out, since loan modifications on the scale necessitated by the housing market crash would require collective action by a multitude of geographically dispersed security holders. The solution . . . Is for state and municipal governments to use their eminent domain powers to buy up and restructure underwater mortgages, thereby sidestepping the need to coordinate action across large numbers of security holders.

The problem is blowback from the banks, but it can be blocked by requiring them to prove title to the properties. Securities are governed by federal law, but real estate law is the domain of the states. Counties have a mandate to maintain clean title records; and legally, clean title requires a chain of “wet” signatures, from A to B to C to D. If the chain is broken, title is clouded. Properties for which title cannot be established escheat (or revert) to the state by law, allowing the government to start fresh with clean title.

New York State law governs most of the trusts involved in securitization. Under it, transfers of mortgages into a trust after the cutoff date specified in the Pooling and Servicing Agreement (PSA) governing the trust are void.

For obscure reasons, the REMICs (Real Estate Mortgage Investment Conduits) claiming to own the properties routinely received them after the closing date specified in the PSAs. The late transfers were done throu gh the fraudulent signatures-after-the-fact called “robo-signing,” which occurred so regularly that they were the basis of a $25 billion settlement between a coalition of state attorneys general and the five biggest mortgage servicers in February 2012. (Why all the robo-signing? Good question. See my earlier article here.)

Until recently, courts have precluded homeowners from raising the late transfers into the trust as a defense to foreclosure, because the homeowners were not parties to the PSAs. But in August 2013, in Glaski v. Bank of America, N.A., 218 Cal. App. 4th 1079 (July 31, 2013), a California appellate court ruled that the question whether the loan ever made it into the asset pool could be raised in determining the proper party to initiate foreclosure. And whether or not the homeowner was a party to the PSA, the city and county have a clear legal interest in seeing that the PSA’s terms were complied with, since the job of the county recorder is to maintain records establishing clean title.

Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each). Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars in recording fees. (See my earlier article here.)

Counties thus have not only a fiduciary but a financial interest in establishing clean title to the properties in their jurisdictions. If no one can establish title, the properties escheat and can be claimed free and clear. Eminent domain can be a powerful tool for negotiating loan modifications on underwater mortgages; and if the banks cannot prove title, they have no standing to complain.

The End of “Too Big to Fail”?

Richmond’s city council is only one vote short of the supermajority needed to pursue the eminent domain plan, and it is seeking partners in a Joint Powers Authority that will make the push much stronger. Grassroots efforts to pursue eminent domain are also underway in a number of other cities around the country. If Richmond pulls it off successfully, others will rush to follow.

The result could be costly for some very large banks, but they have brought it on themselves with shady dealings. Christopher Whalen predicts that the FDIC’s withdrawal of “safe harbor” status for the securitization model may herald the end of “too big to fail” for those banks, which will no longer have the power to grossly over-leverage and may have to keep their loans on their books.

Wall Street banks are deemed “too big to fail” only because there is no viable alternative – but there could be. Local governments could form their own publicly-owned banks, on the model of the state-owned Bank of North Dakota. They could then put their revenues, their savings, and their newly-acquired real estate into those public utilities, to be used to generate interest-free credit for the local government (since it would own the bank) and low-cost credit for the local community. For more on this promising option, which has been or is being explored in almost half the state legislatures in the US, see here.

Ellen Brown is an attorney, president of the Public Banking Institute, and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books including the best-selling Web of Debt and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.

oftwominds-Charles Hugh Smith: How to Make a Million: Extortion Creates its own Antidote

oftwominds-Charles Hugh Smith: How to Make a Million: Extortion Creates its own Antidote.

The problem is its own solution. Whether we try to stop the Status Quo, or let it stop, it WILL stop.

Longtime correspondent Eric A. has a new essay describing a key dynamic of the years ahead: Extortion and skimming create their own antidotes. As the costs of skimming, extortion and corruption reach new heights, the savings to be gained by bypassing the Status Quo systems also increase.

Here are a few of Eric’s previous essays:

A Brief History of Cycles and Time, Part 1 (May 13, 2013)

A Brief History of Cycles and Time, Part 2 (May 14, 2013)

Generation X: An Inconvenient Era (May 23, 2013)

The essence of my key analytic concepts, neofeudalism and neocolonialism, is that debt and other state-cartel schemes enclose and imprison the bottom 90% while leaving the illusions of liberty, democracy and “prosperity” intact so the debt-serf inhabitants of the home-country neocolonial plantations love their servitude.

Eric’s point is that the incentives to escape the home-country plantation are rising in parallel with the skimming of the state-cartel Elites.

Here’s is Eric’s provocatively insightful essay:


Concerning the Middleman-Skimming Economy, I’m here to tell you, it’s not all bad! The oppressive system you describe of graft, fraud, theft, and extortion creates its own antidote.
Banking, for instance. Problem: they have created an enormous skimming operation, and one that puts users at personal and financial risk, as well as annoying the heck out of customers for no reason. But that means the problem, stated simply is, “they make too much money.”

But that means that ANY ONE who goes around them in ANY WAY, has enormous payoff. Also creating a solution, like micro-loans, digital clearing, etc, has enormous incentive.

Simply put, so long as the out-sized pay exists, the out-sized incentive to avoid them, ignore them, go around them, re-think them, will always exist. Every minute, to every participant. So they’re really creating the solution as fast as they can.

Same with these other issues. Health Care? The kickoff of ACA (Affordable Care Act, a.k.a. ObamaCare) was the starting gun for cash-only medical care which until now only lived in the slimmest shadows. Since basically the co-pay alone is more than paying in cash–and the entire premium is 110% of direct welfare to the health lobby (a business model usually called “extortion”)– there’s no possible incentive not to ignore the system entirely and pay cash. The penalty would have to be 2x, 3x, 5x higher to come anywhere near tipping the balance. And thanks to a decade of previous screwing, the young people don’t actually HAVE the money, so even if the penalty were raised, it would have no practical effect.

Although college, with their 3x more admins, paid 2x more is a clear example, it’s the same with military, government, all these. All we have to do to save 50%, 90% or more is ignore them and let them collapse.

What do you think Detroit is doing for their present residents? As far as I can tell, basically nothing–and that’s true for cities nationwide. All we have to do is tell them to cease existing, go bankrupt, for-the-love-of-God stop helping, and we’ll all save 50% of our money and scarcely have a lower level of service. I mean, you can hardly exceed abominable.

The NYC school system is a great example: something like 66% of students drop out, while many of the remainder are uneducated and illiterate. What possible harm would it be to close the school system and stop paying for it altogether? With rates that bad, basically only the students who would study at home and pass anyway are passing now. Teachers, administration, programs, are therefore measurably providing ZERO benefit over the baseline. So it’s easy to see that we can’t possibly do worse, BUT WE CAN SAVE 100% OF OUR MONEY.

That’s incentive. Especially when most of us haven’t got a nickel to spare. By demanding ALL THE THINGS, they have only destroyed themselves.

Unfortunately, they’ve taken most of us with them.

Just for anecdote, a friend of mine works for a group home. They had a resident with a 105-degree fever who had been to the E.R., but had returned as his heart was racing–a thing easily noticed by pre-nurses and healthcare-oriented staff.

This patient had chest pains as well, and although hard to quantify it was worrisome stuff. So they took him back to the E.R. and waited 2 hours to be seen because there were… wait for it… two patients that evening.

The doctor prescribed Motrin. … I didn’t skip over a part there, the doctor heard the healthcare employee say the patient had chest pains with an irregular heartbeat, refused to hear it, refused to examine, said they’d seen the patient yesterday and they had a cold. Yes, they’d been in already. Because they didn’t diagnose it the first time. The hospital then forgot to fill the prescription Motrin and issued an empty envelope, releasing the patient on a Sunday, presumably to DIE OF HEART ARRHYTHMIA, and/or fever, and/or whatever it was they might have had, which they didn’t know, because they never looked.

If we were in a log cabin, in 1820 Kentucky, and I spent 2 hours walking my sick Pa down to the neighboring cabin and said, “Well Billy-Joe, Pa’s been sick and now his heart sounds funny,” what do you think you would do? You’d probably say, “let me listen and see if you’re right.” We’ve descended below the level of instinctual primate behavior here, and are into some sub-basement reserved for PhD’s.

Doctors and mis-prescriptions are now a leading cause of death–26x more deadly than firearms, 800,000 vs. 30,000/yr.

Death by Medicine (Estimated Annual Mortality and Economic Cost of Medical Intervention)

Gun violence in the United States

Granted that as people see doctors when already ill, the numbers are not neatly comparable. However, medicine is considered “safe” or “exemplary”, we are encouraged to use it, while guns are often considered the standard for “unsafe” and “dangerous.” While many would die without medicine, this suggests the baseline is that 800,000/year would be saved by banning medicine altogether. In short: We’re doing it wrong. Considering we pay twice (on a per person basis) what other developed nations pay for care, net-net could we really do much worse by having no doctors or medicine whatsoever?

Not really an unusual case either. They tried to kill someone a few weeks earlier and a different patient that weekend. They have tried to kill family members several times. I’m sure most readers have a similar scare stories. But death by neglect is still fatal, the fault of just not giving a damn.

Surely I exaggerate?

800,000 people were statistically killed via paid-for quack science that incorrectly (and illegally) promoted statins in Europe.

Medicine Or Mass Murder? Guideline Based on Discredited Research May Have Caused 800,000 Deaths In Europe Over The Last 5 Years (Forbes)
The earlier paper demonstrated the potentially large and lethal consequences of the current European Society of Cardiology guideline recommending the liberal use of beta-blockers to protect the heart during surgery for people undergoing non cardiac surgery. There is, it has now become clear, a general lack of concern and response to evidence of scientific fraud and misconduct.

This was quickly followed by a few thousand probable deaths of blood clots due to a newer configuration of the Pill.

Have 800 women been killed by the Pill? The alarming dangers of taking so-called third generation contraceptives (Daily Mail, U.K.)

(Note that 800 deaths are only the U.K.) –Just two random articles in the last few days, probably hundreds of others with millions of deaths if I looked. The over 60,000 deaths from provably corrupt research authorizing Vioxx comes to mind.

I somehow feel that if I killed 800,000 people through fraud, abuse, or neglect, that the police would be –I don’t know– MAD at me or something. Or killed even one group home patient by refusing to lift a finger. There were once quite a number of laws concerning it: neglect, reckless endangerment, manslaughter–murder even.

But that’s so 20th Century. Consequences, I mean. Laws and enforcing them. Like so many, we’re now considering flying out of the country for healthcare, but unlike so many we don’t have money for 5-star hospital spas in Goa or Singapore. So we were thinking maybe the Belgian Congo for better medical care than rural NY. I hear they may have stethoscopes there.

THAT’S what I mean when I say you could close the whole system and have it be a measurable benefit to mankind.

The problem is its own solution. Whether we try to stop, or let it stop, it WILL stop.Because anything that can’t go on, won’t. When you’re at 100% costs and 0% benefits, congratulations, you’ve reached the Singularity.


Thank you, Eric, for an insightful look at the benefits of bypassing or ignoring the Status Quo systems, and the benefits that will accrue from their inevitable collapse. The idea that the next arrangement will be better, cheaper, more equitable and sustainable is not yet dominant, but that doesn’t mean it isn’t true.

New TEPCO Report Shows Damage to Unit 3 Fuel Pool MUCH Worse Than That at Unit 4 Washington’s Blog

New TEPCO Report Shows Damage to Unit 3 Fuel Pool MUCH Worse Than That at Unit 4 Washington’s Blog.

New TEPCO Report Shows Damage to Unit 3 Fuel Pool MUCH Worse Than That at Unit 4

The Smog of Fraud | KUNSTLER

The Smog of Fraud | KUNSTLER.

Team Obama pulled a cute one last week nominating Blythe Masters, JP Morgan’s commodity chief, to an advisory committee of the Commodity Futures Trading Commission (CFTC) which supposedly regulates activities on the paper trades in corn, pork bellies, cocoa, coffee, wheat, corn — oh, and gold, too, by the way, in which JP Morgan has been suspected of massive gold (and silver) market manipulations and other misconduct lately. That would include the 2011 MF Global Fiasco in which nearly a billion dollars from “segregated” customer accounts somehow ended up parked over at JP Morgan as a result of bad derivative bets on tanking Eurozone bonds. MF Global, primarily a commodities trading brokerage, was liquidated in 2011. The CFTC never issued referrals for prosecution to the Department of Justice in the matter and, of course, MF Global’s notorious CEO, Jon Corzine remains at large, enjoying caramel flan lattes in the Hamptons to this day. Such are the Teflon transactions of the Obama years: nothing sticks.

There was such a Twitter storm over Blythe Masters that she withdrew from consideration for the committee before the day was out.

JP Morgan is one of the specially privileged “primary dealer” banks said to be systemically indispensible to world finance. Supposedly, if one of them is allowed to flop, the whole global matrix of global debt obligations — and, hence, global money — would dissolve in a misty cloud of broken promises. They are primary dealers to their shadow partner, the Federal Reserve, and their main job in that relationship is buying treasury bonds, bills, and notes from the US government and then “selling” them to the Fed (earning commissions on the sales, of course). The Fed, in turn, “lends” billions of dollars at zero interest back to the primary dealers who then park the “borrowed” money in accounts at the Fed at a higher interest rate. This is, of course, money for nothing, and even small interest rate differentials add up to tidy profits when the volumes on deposit are so massive.

This “carry trade” was started because the primary dealer banks were functionally insolvent after 2008 and needed to build “reserves” up to some level that would putatively render them sound. But that was a sketchy concept anyway since accounting standards had been officially abandoned in 2009 when the Financial Accounting Standards Board (FASB) declared that banks could report the stuff on their books at any value they felt like. In short, the soundness of the biggest banks in the USA could no longer be determined, period. They were beyond accounting as they were beyond the law. At the same time, the banks began the operations of shifting all the janky debt paper, mostly mortgages and derivative instruments (i.e. made-up shit like “CDOs squared”), value unknown, from their vaults to the a vaults of the Federal Reserve, where it resides to this day, rotting away like so much forgotten ground round in the sub-basement of an abandoned warehouse of a bankrupt burger chain.

All of these nearly incomprehensible shenanigans have been going on because debt all over the world can’t be repaid. The world’s economy, as constructed emergently over the decades, can’t function without repayable debt, which is the essence of “credit” — the fundamental trust implicit in banking. You have “credit” because other persons or parties believe in your ability to repay. After a while, this becomes a mere convention in millions of transactions. What’s happened is that the conventions remain in place but the trust is gone. It’s gone in particular among the parties deemed too big to fail.

Everybody knows this now and everybody is trying desperately to work around it, led by the Federal Reserve. Trust is gone and credit is going and debt is sitting between a rock and a hard place with its grubby hands pressed together, praying that it will be forgiven, forgotten, or overlooked a little while longer. By the way, the reason trust and credit are gone is because oil is no longer cheap and world economies can’t grow anymore. They can’t afford to run the day-to-day operations of a techno-industrial society. They can only pretend to afford it. The stock markets are mere scorecards for players who can only lie and cheat now to keep the game going. Somewhere beyond all the legerdemain and fraud, however, there remains a real world that is not going away. We just don’t know what it will look like when the smog of fraud clears.

5-minute video: US ‘leaders’ JOKE about OBVIOUS War Crimes, war lies, war murders: Arrest them Washington’s Blog

5-minute video: US ‘leaders’ JOKE about OBVIOUS War Crimes, war lies, war murders: Arrest them Washington’s Blog.

5-minute video courtesy Realist Report 

In this 5-minute video, Presidents Bush and Obama, Secretary of State and presidential-hopeful Ms. Clinton, presidential-hopeful has-been John McCain, and former Secretary of State and Bush family friend James Baker all joke about:

These psychopaths mock our veterans by allowing their growing homelessness and suicides, despite obvious solutions available for everyone’s full-employment and health care.

These criminals continue a long history of lie-began US Wars of Aggression since the US invaded Mexico; despite Abraham Lincoln’s powerfully accurate rhetoric of President Polk’s lies to steal half of Mexico at the expense of US military and Mexican civilian lives. The most decorated US Marine general in his day also warned all Americans of this fact of lie-started wars for US oligarch plunder.

What can we do as American free citizens, with a tremendous heritage to speak against our own government when they violate basic lawful behavior?

Easy: arrest them for the OBVIOUS War Crimes.

Then arrest their bankster friends for crimes equally OBVIOUS for massive fraud and looting.

And then arrest their lying corporate media pals who “cover” these lies and crimes from us.

Speak now, or forever hold back from peace, justice, and truth.

Enough Is Enough: Fraud-ridden Banks Are Not L.A.’s Only Option Washington’s Blog

Enough Is Enough: Fraud-ridden Banks Are Not L.A.’s Only Option Washington’s Blog.

Guest post by Ellen Brown.

“Epic in scale, unprecedented in world history. That is how William K. Black, professor of law and economics and former bank fraud investigator, describes the frauds in which JPMorgan Chase (JPM) has now been implicated. They involve more than a dozen felonies, including bid-rigging on municipal bond debt; colluding to rig interest rates on hundreds of trillions of dollars in mortgages, derivatives and other contracts; exposing investors to excessive risk; failing to disclose known risks, including those in the Bernie Madoff scandal; and engaging in multiple forms of mortgage fraud.

So why, asks Chicago Alderwoman Leslie Hairston, are we still doing business with them? She plans to introduce a city council ordinance deleting JPM from the city’s list of designated municipal depositories. As quoted in the January 14th Chicago Sun-Times:

The bank has violated the city code by making admissions of dishonesty and deceit in the way they dealt with their investors in the mortgage securities and Bernie Madoff Ponzi scandals. . . . We use this code against city contractors and all the small companies, why wouldn’t we use this against one of the largest banks in the world?

A similar move has been recommended for the City of Los Angeles by L.A. City Councilman Gil Cedillo. But in a January 19th editorial titled “There’s No Profit in L A. Bashing JPMorgan Chase,” the L.A. Times editorial board warned against pulling the city’s money out of JPM and other mega-banks – even though the city attorney is suing them for allegedly causing an epidemic of foreclosures in minority neighborhoods.

 “L.A. relies on these banks,” says The Times, “for long-term financing to build bridges and restore lakes, and for short-term financing to pay the bills.” The editorial noted that a similar proposal brought in the fall of 2011 by then-Councilman Richard Alarcon, backed by Occupy L.A., was abandoned because it would have resulted in termination fees and higher interest payments by the city.

It seems we must bow to our oppressors because we have no viable alternative – or do we? What if there is an alternative that would not only save the city money but would be a safer place to deposit its funds than in Wall Street banks?

The Tiny State That Broke Free

There is a place where they don’t bow. Where they don’t park their assets on Wall Street and play the mega-bank game, and haven’t for almost 100 years. Where they escaped the 2008 banking crisis and have no government debt, the lowest foreclosure rate in the country, the lowest default rate on credit card debt, and the lowest unemployment rate. They also have the only publicly-owned bank.

The place is North Dakota, and their state-owned Bank of North Dakota (BND) is a model for Los Angeles and other cities, counties, and states.

Like the BND, a public bank of the City of Los Angeles would not be a commercial bank and would not compete with commercial banks. In fact, it would partner with them – using its tax revenue deposits to create credit for lending programs through the magical everyday banking practice of leveraging capital.

The BND is a major money-maker for North Dakota, returning about $30 million annually in dividends to the treasury – not bad for a state with a population that is less than one-fifth that of the City of Los Angeles. Every year since the 2008 banking crisis, the BND has reported a return on investment of 17-26%.

Like the BND, a Bank of the City of Los Angeles would provide credit for city projects – to build bridges, restore lakes, and pay bills – and this credit would essentially be interest-free, since the city would own the bank and get the interest back. Eliminating interest has been shown to reduce the cost of public projects by 35% or more.

Awesome Possibilities

 Consider what that could mean for Los Angeles. According to the current fiscal budget, the LAX Modernization project is budgeted at $4.11 billion. That’s the sticker price. But what will it cost when you add interest on revenue bonds and other funding sources? The San Francisco-Oakland Bay Bridge earthquake retrofit boondoggle was slated to cost about $6 billion. Interest and bank fees added another $6 billion. Funding through a public bank could have saved taxpayers $6 billion, or 50%.

If Los Angeles owned its own bank, it could also avoid costly “rainy day funds,” which are held by various agencies as surplus taxes. If the city had a low-cost credit line with its own bank, these funds could be released into the general fund, generating massive amounts of new revenue for the city.

The potential for the City and County of Los Angeles can be seen by examining their respective Comprehensive Annual Financial Reports (CAFRs). According to the latest CAFRs (2012), the City of Los Angeles has “cash, pooled and other investments” of $11 billion beyond what is in its pension fund (page 85), and the County of Los Angeles has $22 billion (page 66). To put these sums in perspective, the austerity crisis declared by the State of California in 2012 was the result of a declared state budget deficit of only $16 billion.

The L.A. CAFR funds are currently drawing only minimal interest. With some modest changes in regulations, they could be returned to the general fund for use in the city’s budget, or deposited or invested in the city’s own bank, to be leveraged into credit for local purposes.

Minimizing Risk

 Beyond being a money-maker, a city-owned bank can minimize the risks of interest rate manipulation, excessive fees, and dishonest dealings.

Another risk that must now be added to the list is that of confiscation in the event of a “bail in.” Public funds are secured with collateral, but they take a back seat in bankruptcy to the “super priority” of Wall Street’s own derivative claims. A major derivatives fiasco of the sort seen in 2008 could wipe out even a mega-bank’s available collateral, leaving the city with empty coffers.

The city itself could be propelled into bankruptcy by speculative derivatives dealings with Wall Street banks. The dire results can be seen in Detroit, where the emergency manager, operating on behalf of the city’s creditors, put it into bankruptcy to force payment on its debts. First in line were UBS and Bank of America, claiming speculative winnings on their interest-rate swaps, which the emergency manager paid immediately before filing for bankruptcy. Critics say the swaps were improperly entered into and were what propelled the city into bankruptcy. Their propriety is now being investigated by the bankruptcy judge.

Not Too Big to Abandon

Mega-banks might be too big to fail. According to U.S. Attorney General Eric Holder, they might even be too big to prosecute. But they are not too big to abandon as depositories for government funds.

There may indeed be no profit in bashing JPMorgan Chase, but there would be profit in pulling deposits out and putting them in Los Angeles’ own public bank. Other major cities currently exploring that possibility include San Franciscoand Philadelphia.

If North Dakota can bypass Wall Street with its own bank and declare its financial independence, so can the City of Los Angeles. And so can the County. And so can the State of California.

____________

Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of 12 books includingThe Public Bank Solution. She is currently running for California state treasurer on the Green Party ticket.

The Big Reset, Part 2 | In Gold We Trust

The Big Reset, Part 2 | In Gold We Trust.

This is part two of a Q&A with Willem Middelkoop about his new book The Big Reset. In his book a chapter on the ‘War on Gold’ takes a prominent position. Willem has been writing about the manipulation of the gold pricesince 2002 based on information collected by GATA since the late 1990’s. So part two of our interview will focus on this topic.

The War On Gold

Why does the US fight gold?

The US wants its dollar system to prevail for as long as possible. It therefore has every interest in preventing a ‘rush out of dollars into gold’. By selling (paper) gold, bankers have been trying in the last few decades to keep the price of gold under control. This war on gold has been going on for almost one hundred years, but it gained traction in the 1960’s with the forming of the London Gold Pool. Just like the London Gold Pool failed in 1969, the current manipulation scheme of gold (and silver prices) cannot be maintained for much longer.

What is the essence of the war on gold?

The survival of our current financial system depends on people preferring fiat money over gold. After the dollar was taken of the gold standard in 1971, bankers have tried to demonetize gold. One of the arguments they use to deter investors from buying gold and silver is that these metals do not deliver a direct return such as interest or dividends. But interest and dividend are payments to compensate for counterparty risk – the risk that your counterparty is unable to live up to its obligations. Gold doesn’t carry that risk. The war on gold is, in essence, an endeavor to support the dollar. But this is certainly not the only reason. According to a number of studies, the level of the gold price and the general public’s expectations of inflation are highly correlated. Central bankers work hard to influence inflation expectations. A 1988 study by Summers and Barsky confirmed that the price of gold and interest rates are highly correlated, as well with a lower gold price leading to lower interest rates.

Nixon kissinger

 

When did the war on gold start?

The first evidence of US meddling in the gold market can be found as early as 1925 when the Fed falsified information regarding the Bank of England’s possession of gold in order to influence interest rate levels. However, the war on gold only really took off in the 1960’s when trust in the dollar started to fray. Geopolitical conflicts such as the building of the Berlin Wall, the Cuban Missile Crisis and the escalation of violence in Vietnam led to increasing military spending by the US, which in turn resulted in growing US budget deficits. A memorandum from 1961 entitled ‘US Foreign Exchange Operations: Needs and Methods’ described a detailed plan to manipulate the currency and gold markets via structural interventions in order to support the dollar and maintain the gold price at $ 35 per ounce. It was vital for the US to ‘manage’ the gold market; otherwise countries could exchange their surplus dollars for gold and then sell these ounces on the free gold market for a higher price

How was the gold price managed in the 1960’s?

During meetings of the central bank presidents at the BIS in 1961, it was agreed that a pool of $ 270 million in gold would be made available by the eight participating (western) countries. This so-called ‘London Gold Pool’ was focused on preventing the gold price from rising above $ 35 per ounce by selling official gold holdings from the central banks gold vaults. The idea was that if investors attempted to flee to the safe haven of gold, the London Gold Pool would dump gold onto the market in order to keep the gold price from rising. During the Cuban Missile Crisis in 1962, for instance, at least $ 60 million in gold was sold between 22 and 24 October. The IMF provided extra gold to be sold on the market when needed. In 2010, a number of previously secret US telex reports from 1968 were made public by Wikileaks. These messages describe what had to be done in order to keep the gold price under control. The aim was to convince investors that it was completely pointless to speculate on a rise in the price of gold. One of the reports mentions a propaganda campaign to convince the public that the central banks would remain ‘the masters of gold’. Despite these efforts, in March 1968, the London Gold Pool was disbanded because France would no longer cooperate. The London gold market remained closed for two weeks. In other gold markets around the world, gold immediately rose 25% in value. This can happen again when the COMEX will default.

More evidence about this manipulation?

From the transcript of a March 1978 Fed-meeting, we know that the manipulation of the gold price was a point of discussion at that time. During the meeting Fed Chairman Miller pointed out that it was not even necessary to sell gold in order to bring the price down. According to him, it was enough to bring out a statement that the Fed was intending to sell gold.

Because the US Treasury is not legally allowed to sell its gold reserves, the Fed decided in 1995 to examine whether it was possible to set up a special construction whereby so-called ‘gold swaps’ could bring in gold from the gold reserves of Western central banks. In this construction, the gold would be ‘swapped’ with the Fed, which would then be sold by Wall Street banks in order to keep prices down. Because of the ‘swap agreement’, the gold is officially only lent out, so Western central banks could keep it on their balance sheets as ‘gold receivables’. The Fed started to informing foreign central bankers that they expected that the gold price to decline further, and large quantities of central banks’ gold became be available to sell in the open market. Logistically this was an easy operation, since the New York Fed vaults had the largest collection of foreign gold holdings. Since the 1930’s, many Western countries had chosen to store their gold safely in the US out of fears of a German or Soviet invasion.

Didn’t the British help as well by unloading gold at the bottom of the market?

Between 1999 and 2002, the UK embarked on an aggressive selling of its gold reserves, when gold prices were at their lowest in 20 years. Prior to starting, the Chancellor of the Exchequer, Gordon Brown, announced that the UK would be selling more than half of its gold reserves in a series of auctions in order to diversify the assets of the UK’s reserves. The markets’ reaction was one of shock, because sales of gold reserves by governments had until then always taken place without any advance warning to investors. Brown was following the Fed’s strategy of inducing a fall in the gold price via an announcement of possible sales. Brown’s move was therefore not intended to receive the best price for its gold but rather to bring down the price of gold as low as possible. The UK eventually sold almost 400 tons of gold over 17 auctions in just three years, just as the gold market was bottoming out. Gordon Brown’s sale of the UK’s gold reserves probably came about following a request from the US. The US supported Brown ever since.

willem middelkoop corbino 2012

How do they manipulate gold nowadays?

The transition from open outcry (where traders stand in a trading pit and shout out orders) to electronic trading gave new opportunities to control financial markets. Wall Street veteran lawyer Jim Rickards presented a paper in 2006 in which he explained how ‘derivatives could be used to manipulate underlying physical markets such as oil, copper and gold’. In his bestseller entitled Currency Wars, he explains how the prohibition of derivatives regulation in the Commodity Futures Modernization Act (2000) had ‘opened the door to exponentially greater size and variety in these instruments that are now hidden off the balance sheets of the major banks, making them almost impossible to monitor’. These changes made it much easier to manipulate financial markets, especially because prices for metals such as gold and silver are set by trading future contracts on the global markets. Because up to 99% of these transactions are conducted on behalf of speculators who do not aim for physical delivery and are content with paper profits, markets can be manipulated by selling large amounts of contracts in gold, silver or other commodities (on paper). The $200 crash of the gold price April 12 and 15, 2013 is a perfect example of this strategy. The crash after silver reached $50 on May 1, 2011 is another textbook example.

For how long can this paper-gold game continue?

As you have been reporting yourself we can witness several indications pointing towards great stress in the physical gold market. I would be very surprised when the current paper gold game can be continued for another two years. This system might even fall apart in 2014. A default in gold and/or silver futures on the COMEX is a real possibility. It happened to the potato market in 1976 when a potato-futures default happened on the NYMEX. An Idaho potato magnate went short potatoes in huge numbers, leaving a large amount of contracts unsettled at the expiration date, resulting in a large number of defaulted delivery contracts.  So it has happened before. In such a scenario futures contracts holders will be cash settled. So I expect the Comex will have to move to cash settlement rather than gold delivery at a certain point in the not too distant future. After such an event the price of gold will be set in Asian markets, like the Shanghai Gold Exchange. I expect gold to jump $1000 in a short period of time and silver prices could easily double overnight. That’s one of the reasons our Commodity Discovery Fund invests in undervalued precious metal companies with large gold/silver reserves. They all have huge up-side potential in the next few years when this scenario will play out.

In Gold We Trust

Synopsis of The Big Reset: Now five years after the near fatal collapse of world’s financial system we have to conclude central bankers and politicians have merely been buying time by trying to solve a credit crisis by creating even more debt. As a result worldwide central bank’s balance sheets expanded by $10 trillion. With this newly created money central banks have been buying up national bonds so long term interest rates and bond yields have collapsed. But ‘parking’ debt at national banks is no structural solution. The idea we can grow our way back out of this mountain of debt is a little naïve. In a recent working paper by the IMF titled ‘Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten’ the economist Reinhart and Rogoff point to this ‘denial problem’. According to them future economic growth will ‘not be sufficient to cope with the sheer magnitude of public and private debt overhangs. Rogoff and Reinhart conclude the size of the debt problems suggests that debt restructurings will be needed ‘far beyond anything discussed in public to this point.’ The endgame to the global financial crisis is likely to require restructuring of debt on a broad scale.

About the author: Willem Middelkoop (1962) is founder of the Commodity Discovery Fund and a bestselling Dutch author, who has been writing about the world’s financial system since the early 2000s. Between 2001 and 2008 he was a market commentator for RTL Television in the Netherlands and also appeared on CNBC. He predicted the credit crisis in his first bestseller in 2007.

oftwominds-Charles Hugh Smith: Two Powder Kegs Ready to Blow: China & India

oftwominds-Charles Hugh Smith: Two Powder Kegs Ready to Blow: China & India.

China and India are both powder kegs awaiting a spark for the same reason: systemic corruption.

The conventional view of China and India sports not one but two pair of rose-colored glasses: Chindia (even the portmanteau word is chirpy) is the world’s engine of growth, and this rapid economic growth is chipping away at structural political and social problems.

Nice, especially from a distance. But on the ground, China and India (not Chindia–there is no such entity) are both powder kegs awaiting a spark for the same reason: systemic corruption in every nook and cranny of both nations. The conventional rose-colored view is that corruption will inevitably decline with modernization and economic growth.

This is simply wrong on multiple levels: as the opportunities for crony/neofeudal skimming increase, so does corruption. As the scale of the economy increases, so does the scale of corruption.

China’s “princelings” (offspring and family of the inner political circle and top apparatchiks of the Communist Party) are billionaires, not mere millionaires. A recent expose of offshore accounts held by various Chinese billionaires estimated the wealth skimmed and transferred our of China at between $1 trillion and $4 trillion: China’s Epic Offshore Wealth Revealed: How Chinese Oligarchs Quietly Parked Up To $4 Trillion In The Caribbean.

Even the top number is a gross underestimate, as $4 trillion only accounts for the skim of the top layer; beneath that 1/10th of 1% is the rest of the top 1%, tens of thousands of lower-level political functionaries who skimmed billions of dollars forcing peasants off their land and selling development rights to crony developers–to name but one common skim of many.

A more realistic estimate might be $6 trillion–half of China’s gross domestic product (GDP). Consider the ramifications of the many models of systemic corruption at the top: How a PLA General Built a Web of Corruption to Amass a Fortune.

I know from confidential on-the-ground sources that a significant percentage of the entire top political layer of 3rd, 4th and 5th tier cities have left China for well-padded nests in the West: Australia and Canada are popular choices, as the right to immigrate can be purchased–just bring in the requisite sum of cash looted from peasants. (The U.S. also grants special immigration status to those bringing in major capital and declaring their intent to hire Americans: easy enough with looted millions.)

(Sidebar on how even the lowly functionary skimmer can get huge sums out of China: take a “vacation” to Macau. Buy $1 million in casino chips with your looted yuan. Lose $50,000 at the tables and then go cash in your remaining chips in U.S. dollars. Deposit the dollars in a Hong Kong or other Asian bank and then transfer the cash to L.A. or Vancouver to buy a house for cash. Repeat as necessary.)

All this systemic corruption is accepted as long as the conveyor belt of wealth is moving: that the previous political Plutocracy skimmed their $4 trillion and absconded with their ill-gotten gains is OK to their replacements, as long as there is another $6 trillion to be skimmed.

The problem is there isn’t another $6 trillion to be skimmed. It has taken an enormous credit bubble of $23 trillion (The $23 Trillion Credit Bubble In China Is Starting To Collapse – What Next?) plus the monumental credit expansion of the shadow banking system in China to enable the skimming of $6 trillion by the political/financial Plutocracy.

This $23 trillion credit bubble is roughly twice the size of China’s entire GDP ($12 trillion). That this credit bubble is generating less return in the real economy is obvious–diminishing returns have set in with a vengeance.

The revolution never starts with the oppressed peasantry–it starts with the bourgeois who bought the fantasy of another $6 trillion to be skimmed and credit bubbles/ real estate valuations that never go down. The leadership in China has managed to create a propaganda bubble of epic proportions: Chinese leaders are supposed to have a long-term view that puts the West to shame.

Alas, the secret view of China’s leadership is considerably shorter-term: U.S. dollars in Swiss bank accounts, real estate in Vancouver, San Francisco, New York City, London, Geneva, etc. and whatever other assets can be scooped up with looted billions.

Corruption isn’t just abstract: Much of China’s building boom will not last a generation, much less a long-term timeline. This toppled tower is an apt metaphor for China’s financialized crony-capitalist credit bubble and its shoddy corruption-riddled construction:

Nine held over Shanghai building collapse
The Chinese authorities are holding nine people in connection with the collapse of a 13-storey block of flats, raising fresh questions about corruption and shoddy practices in China’s construction industry.

China’s Towers and U.S. McMansions: When Things Fall Apart (Literally) (April 14, 2010).

India’s system is different, but equally corrupt. Combine feudalism and religious tradition with a helping of modern crony capitalism and neofeudal looting, add a dash of post-Imperial flavoring and voila, corruption on every level.

The sad irony of this pervasive, systemic corruption that enriches the Plutocracy is that the average Indian and Chinese citizen is basically honest. Non-Elites will tolerate the corruption at the top as long as they believe their own prosperity is advancing. Once it becomes clear that their prosperity has been hijacked by the Plutocracy, tolerance of oppression, corruption and the vast inequalities of wealth being skimmed by the well-connected few will wear thin.

The spark that ignites the powder keg cannot be predicted or suppressed. Don’t look to the disenfranchised peasantry as the source, though they are ready enough to cast off the Powers That Be; look to those who believed the gilded promises issued by the looters and discovered that the fruits of their labor and their hopes is disillusionment on a scale as vast as the skim looted from their nation by their self-serving leadership.

Banks Aid U.S. Forex Probe, Fullfilling Libor Accords – Bloomberg

Banks Aid U.S. Forex Probe, Fullfilling Libor Accords – Bloomberg.

Photographer: Chris Ratcliffe/Bloomberg

UBS AG’s signage is displayed outside the company’s Finsbury Avenue offices in London…. Read More

Banks bound by cooperation agreements in an interest-rate rigging probe are providing a windfall of information to U.S. prosecutors investigating possible currency manipulation, according to a Justice Department official and a person familiar with the matter.

“We’ve seen tangible, real results,” Mythili Raman, the acting head of the Justice Department’s criminal division, said in an interview. The cooperation “expanded our investigations into the possible manipulation of foreign exchange and other benchmark rates,” said Raman, who declined to name the banks or comment further on the probe.

The accords have compelled some lenders to conduct internal examinations of their foreign-exchange businesses and share findings with the Justice Department, speeding the government’s criminal probe into the $5.3 trillion-a-day market, according to a person with knowledge of the investigation.

Some banks are handing over lists of potential witnesses, making employees available for interviews and giving up documents without subpoenas, said the person, who asked not to be identified because the inquiry is confidential. Investigators are holding weekly and sometimes daily phone calls with the banks, the person said.

UBS AG (UBSN)Barclays Plc (BARC) and Royal Bank of Scotland Group Plc resolved a Justice Department investigation into how the London interbank offered rate, or Libor, was set, paying more than $800 million in criminal fines and penalties and agreeing to cooperate in other inquiries. The three lenders are among the largest currency traders in the world.

Dominik von Arx, a spokesman for UBS, Nichola Sharpe at Barclays and Sarah Small at RBS, declined to comment.

Libor Probe

Rabobank Groep, which also paid the U.S. a $325 million criminal penalty to settle Libor-rigging allegations in a deferred-prosecution agreement, doesn’t rank among the top 20 currency traders in the world, according to Euromoney Institutional Investor Plc. (ERM)

“Rabobank fully cooperates with regulators pursuant to the deferred-prosecution agreement,” Roelina Bolding, a spokeswoman for the Utrecht, Netherlands-based firm, said in an e-mail. “Rabobank does not otherwise comment on pending investigations of Rabobank or of any other person or entity.”

In addition to the settlements with the four banks, the U.S. Libor probe, which is continuing, has led to criminal charges against eight individuals.

Without the cooperation agreements, the banks would have been less motivated to come forward about currency trading, said Laurie Levenson, a professor at Loyola Law School in Los Angeles.

“I don’t think they would have as much incentive and you’d have pushback from individuals at the bank who are saying ‘Why are we doing this?’” Levenson said in an interview. “‘This is our own business and we’re being overly cautious.’”

Cooperation Agreements

The cooperation agreements also allow the government to advance the probe without overtaxing law enforcement resources, which have been stretched by budget cuts, hiring freezes and furloughs in recent years. In addition to the Justice Department’s criminal and antitrust divisions, European Union antitrust regulators, the U.K. Financial Conduct Authority and the Swiss Competition Commission are probing rigging of currency benchmarks. The Federal Reserve also is examining the matter, Bloomberg reported earlier this month.

“You could be talking about potentially millions of e-mails and thousands of hours of tape,” said Douglas Tween, a former Justice Department lawyer, now at law firm Baker & McKenzie LLP in New York.

The Justice Department “doesn’t have the resources to cull through all of that times 10 banks or 20 banks. They really to a large extent rely on the banks to cooperate and essentially give them all this evidence on a silver platter.”

Financial Benchmarks

Authorities around the world are investigating alleged abuse of financial benchmarks by companies that play a central role in setting them. Other rates under investigation include the ISDAfix, used to determine the value of interest-rate derivatives. European and U.S. regulators also are reviewing allegations of collusion in crude oil and biofuels markets in scrutinizing how the Platts oil benchmark is set.

Financial institutions have paid about $6 billion so far to resolve criminal and civil claims in the U.S. and Europe that they manipulated benchmark interest rates.

To resolve the Justice Department’s charges, UBS, RBS and Barclays signed deferred-prosecution or non-prosecution agreements within the past two years that effectively put the banks on probation and obliged them to report possible misconduct and cooperate in benchmark-rigging investigations. The banks risk indictment if the government decides they aren’t being cooperative, Tween said.

‘Criminal Conduct’

“Once they’ve got you on one thing, they’ve really got you,” said Tween. “They’ll say ‘You haven’t been cooperative and haven’t lived up to the terms of your deferred-prosecution agreement, and we’re going to pull the plug on that and indict you.’”

Barclays, based in London, agreed to notify the Justice Department of “all potentially criminal conduct by Barclays or any of its employees that relates to fraud or violations of the laws governing securities and commodities markets.” Zurich-based UBS agreed to similar terms.

Edinburgh-based RBS promised to cooperate in “any and all matters” related to “manipulation, attempted manipulation, or interbank coordination of benchmark rate submissions.”

Front-Running

Bloomberg News reported in June that currency dealers said they had been front-running client orders and attempting to rig foreign-exchange rates for at least a decade by colluding with counterparts and pushing through trades before and during the 60-second windows when the benchmarks are set.

The world’s seven biggest foreign-exchange dealers have now all taken action against their employees: at least 17 traders have been suspended, put on leave or fired.

The Justice Department’s use of deferred- and non-prosecution agreements has been rising over the past decade from an average of four per year between 2000 and 2004 to 27 in 2013, according to data compiled by the law firm Gibson, Dunn & Crutcher LLP. Last year was the fifth consecutive year with at least 20 such settlements, the firm said.

Broader Investigations

“These agreements are now a fixture in the federal corporate law enforcement regime, and all indications point to their use holding steady for the foreseeable future,” the firm said.

The agreements help the government conduct broader investigations faster, said Robertson Park, a former federal prosecutor who worked on the Libor investigation.

“If suddenly you have an institution that is effectively giving you the information and documents and data you need, if they’re motivated to provide it in formats that are immediately available and useful to you and if they’re making witnesses available, that can be a significant time savings,” said Park, a lawyer at Murphy & McGonigle in Washington.

To contact the reporters on this story: David McLaughlin in Washington atdmclaughlin9@bloomberg.net; Tom Schoenberg in Washington attschoenberg@bloomberg.net

To contact the editor responsible for this story: Sara Forden at sforden@bloomberg.net

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