Tuesday, March 23, 2010

Ignoring systemic risk and financial collapse will not make them go away.

Once again this morning Gold appears to be taken in and capped on the fanning of the flames of fear of Greek Debt Collapse. Nary a peep about California debt default, or New York state, or Illinois, or Kansas, or...well you get the picture. Better to focus on the pimple on the elephants ass, than the tumor between his ears.

Of course we know better. Gold is being bottled up below 1100 because of Thursday's options expiration in the April contract. Seen it before, probably see it again. Coincidentally, options expire on the exact same day as the CFTC hearings on position limits in Precious Metals. How convenient.

The Dollar on the other hand appears to be capped at 81.50. God bless anybody dumb enough to buy this Mother Of All Toxic Assets. Is there any better currency then? Yes, that's easy...GOLD!
A Ruinous Meltdown
A story that is not getting nearly enough attention is the ruinous fiscal meltdown occurring in state after state, all across the country.

Taxes are being raised. Draconian cuts in services are being made. Public employees are being fired. The tissue-thin national economic recovery is being undermined. And in many cases, the most vulnerable populations — the sick, the elderly, the young and the poor — are getting badly hurt.

Arizona, struggling with a projected $2.6 billion budget shortfall, took the drastic step of scrapping its Children’s Health Insurance Program. That left nearly 47,000 low-income children with no coverage at all.

In New Jersey, the newly elected governor, Chris Christie, has proposed a series of budget cuts that, among other things, would result in public schools receiving $820 million less in state aid than they had received in the prior school year. Some well-off districts would have their direct school aid cut off altogether.

“We’ve talked in the past about revenue declines in a recession,” said Jon Shure of the Center on Budget and Policy Priorities, “but I think you have to call this one a revenue collapse. In proportional terms, there has never been a drop in state revenues like we’re seeing now since people started to keep track of state revenues. We’re in unchartered territory when it comes to the magnitude of the impact.”

Massachusetts, which has made a series of painful cuts over the past two years, is gearing up for more. Michael Widmer, president of the Massachusetts Taxpayers Foundation, told The Boston Globe: “There’s no end to the bad news here. The state fiscal situation is already so dire that any additional bad news is magnified.”

California has cut billions of dollars from its education system, including its renowned network of public colleges and universities. Many thousands of teachers have been let go.

In the first two months of this year, state and local governments across the U.S. cut 45,000 jobs. Additional layoffs are expected as states move ahead with their budgets for fiscal 2011. Increasingly these budgets, instead of helping people, are hurting them, undermining the quality of their lives, depriving them of educational opportunities, preventing them from accessing desperately needed medical care, and so on.

As Mr. Shure of the Center on Budget noted, “The cruel irony is that in a recession like this, the people’s needs go up at the same time that the states’ ability to meet those needs goes down.”

Budget cuts also tend to weaken rather than strengthen a state’s economy, especially when they entail furloughs or layoffs. Government spending stimulates an economy in recession. And wise spending is an investment in everyone’s quality of life.

All states have been rocked by the Great Recession. And most have tried to cope with a reasonable mix of budget cuts and tax increases, or other revenue-raising measures. Those that rely too heavily on cuts are making guaranteed investments in human misery.

Yeah, bad scene across the nation... But man, Greece is about to default on it's nations debt, how can you be worried about budget shortfalls in the United States of America? WAKE UP! The crisis is here at home in your own backyard. This is big trouble, real trouble... And the US Dollar is not going to save the day...it is going to be the goat.

Bubbling on the sidelines, ignored almost completely by the financial media [of course] are the recent revelations regarding the demise of Lehman Brothers and subsequent threat to the "entire financial system". Revelations indeed. Dave Kranzler at The Golden Truth has done a small series of essays encapsulating these revelations. Our seated Treasury Secretary, Turbo-tax Tim Geithner has a lot to answer for. Our seated President, Mr. Obama, and his administration, The Oracle Of Orwell have a lot to worry about:

Tuesday, March 16, 2010
Repo 105 is LEHMANGATE: Systematic Fraud and Geithner Knew About It

(Note: I'm going to post two parts to this post. I think it's important for all who are interested to really understand what happened, why and who's to blame. It's easier to eat an elephant one bite at a time).

You'll see that Geithner was unequivocally involved with knowledge about Repo 105, LEHMANGATE. But the real question is, at what point in time did Obama know? And if Obama did not know, then he's unworthy to be President because it means he lacks the political strength, depth and experience demanded by the job (what did he run before being elected?). I believe we are watching another "Watergate" unfold. The difference between then and now is that we may not have political leaders in Congress who are willing to do what's required to make the full truth known.

I finally spent some time dissecting exactly what Lehman did and how they got away with what they were doing. Let me say this: If all of Lehman's upper management PLUS the relevant Ernst&Young people PLUS the relevant people at the NY Fed - including Tim Geithner - do not do jail time over this, it's time to either start organizing a revolution or move out of the country. If these guys get away with this without serious legal and financial punishment, it is the clearest indication that our country is no longer held accountable by the Constitution OR Rule of Law in any respect. It means that full-scale mob-style criminality has invaded every aspect of our Banking, Corporate and Government systems, starting at the top with the White House and Congress.

Just to summarize briefly and coherently what Lehman did: Lehman engaged in repo transactions which, at the surface appeared to be standard repo maneuvers used by banks to raise short term financing by taking Treasury securities and sending them to a counterparty, who takes the Treasuries as collateral and gives Lehman cash to use on a short term basis - usually overnight to two weeks. Lehman then unwinds the repo by sending the cash plus a little more - representing interest paid on the transaction - back to the lending entity and the lender sends back the Treasury collateral back to Lehman. The transaction is accounted in a way which does not change any aspects of Lehman's balance sheet for accounting, regulatory and financial purposes.

What Lehman did is exploit a rule that says if Lehman sends collateral representing 105% of the cash they borrow, under accounting regulations, Lehman can account for the transaction as a "sale of securities" and use the cash taken in to repay other short term debt, making Lehman's balance sheet looking less leveraged - i.e. of much higher quality - to regulators and investors at the end of each quarter. As Lehman approached bankruptcy, it started including risky, worthless securities as part of the "repo" collateral package - toxic assets that Lehman could not get off its balance sheet at any price. Using this type of collateral is unconventional in the extreme and could NEVER be considered a "sale" of securities under any non-fraudulent accounting ruling. NEVER.

The Treaury collateral Repo 105 would be okay if it were done once or twice, but Lehman did it repeatedly and systematically every quarter since at least 2007. Anyone with an accounting 101 background from a good school knows that Ernst&Young should have raised a red flag and disallowed the treatment of the transaction as a "sale" the second time Lehman used it. Afterall, doing this once without reversing the transaction could for sure be considered a bona fide sale. Maybe even with the reversal (the unwind of the repo). But to engage in this systematically and serially every quarter would raise an objection over the accounting treatment as "sale" and any accounting firm doing its job properly and ethically would not sign off on the accounting treatment. This is especially true once Lehman started using toxic waste as collateral. Clearly pure manipulative fraud.

To think that E&Y did not know any better is to ask us to believe that the E&Y people either are complete idiots or do not know accounting rules. Stupidity and ignorance notwithstanding, we can only conclude this situation was pure nefarious intent to fraud in which E&Y participated. Remember Arthur Anderson/Enron if you think this is not probable.

In fact, just this morning, clusterstock.com has posted an article from Andrew Ross Sorkin who says that the SEC and the Federal Reserve Bank of NY (Tim Geithner's NY Fed) were all over Lehman during the heart of the "Repo 105" period (here's the link: Geithner knew about Repo 105).

Almost two years ago to the day, a team of officials from the Securities and Exchange Commission and the Federal Reserve Bank of New York quietly moved into the headquarters of Lehman Brothers. They were provided desks, phones, computers — and access to all of Lehman’s books and records. At any given moment, there were as many as a dozen government officials buzzing around Lehman’s offices.

These officials, whose work was kept under wraps at the time, were assigned by Timothy Geithner,then president of the New York Fed, and Christopher Cox, then the S.E.C. chairman, to monitor Lehman in light of the near collapse of Bear Stearns.

What this tells us is that not only are all of the Lehman's upper management AND the E&Y people involved are guilty of direct fraud and corruption, but that everyone from the NY Fed and the SEC who were involved either were complete idiots with respect to basic accounting rules and reguations (and should be fired immediately with no pension benefits) OR that they enabled the fraud to persist by looking the other way. This would include Tim Geithner, who should no longer be given the benefit of using the "I can't recall" or the "I had no idea" defense. He is clearly knee-deep in this. Geithner's motivation to look the other way would be to keep the market from seeing the extent of Lehman's insolvency.


For starters I would call on Obama to force Geithner to either resign from his Treasury position or outright fire him. Fool us twice - cheating on taxes and getting away with it plus his story about not knowing about AIG/Goldman - shame on us. Fool us again, time to impeach Obama unless he gets rid of Geithner immediately.

Wednesday, March 17, 2010
Lehmangate Part 2: What Is the Rest of Wall Street Hiding?
THAT is the question that should be investigated at this point. What other kinds of frauds are being perpetrated by the thieves on Wall Street and which highly placed public officials are enabling that fraud to continue?

Clearly, upon examing all of the evidence and connecting the dotted lines, Lehman committed Enron-esque fraud with its Repo 105 maneuvers and was aided and abetted by its accountant, Ernst & Young and by Federal Reserve officials, at the time, specifically Tim Geithner. At the very least all of the upper executive management team at Lehman, the board of directors at Lehman, all relevant professionals and senior management at E&Y should eventually be under indictment. I would settle for the forced resignation of Geithner, but he should be thoroughly investigated and indicted as well. Don't hold your breath for this, recall that current Attorney General Eric Holder is the guy who wrote the pardon letter for Marc Rich that Bill Clinton signed just before leaving the White House. Holder is no stranger to the enablement of criminal activity and tax evasion.

I'm starting to wonder if gold's unusual relative strength in the face of the aggressive, unmitigated manipulation attempts to get it lower over the past month is a signal that Lehman's fraud is just the tip of the iceberg. Ernst & Young signed off on a balance sheet accounting maneuver that was clearly and unequivocally illegal. Even an accounting 101 student could make that determination. It leads one to wonder "what the hell else is hiding in Wall Street's accounting closet that is being approved by our "trusted" accounting firms and ignored or enabled by the Fed? We know that Goldman is involved in all kinds of non-transparent, at a minimum unethical, and likely fraudulent OTC derivatives activities. They roll out their 10-K every quarter with their accountant's stamp of approval and Lloyd "I'm God" Blankfein smiling and pontificating at how great Goldman is at making profits and managing risk. But what is really going on behind the curtain. And even worse, to what extent are Bernanke, Geithner and even Obama aware of just how fraudulent and corrupt everything is on Wall Street - and the manner of accounting for it?

And now we have Banana Ben begging Congress, and the public, to sign-off on handing even MORE oversight and regulatory responsibilities to the Fed. Just today Bernanke is making the case that "the Fed’s 'wide range of expertise' makes it 'uniquely suited to supervise large, complex financial organizations and to address both safety and soundness risks and risks to the stability of the financial system as a whole'” Bloomberg link.

Set aside the fact that Bernanke never saw the housing bubble, mortgage bubble, toxic asset bubble, banking system collapse - his "uniquely suited" oversight abilities cost the Taxpayers of this country trillions. Let's examine Bernanke's statement in the context of Lehmangate and Repo 105.

Where was Bernanke's oversight abilities while his team was in Lehman's office for two years with full access to all books and records? Let me quote again from Andrew Ross Sorkin's statement yesterday:

Almost two years ago to the day, a team of officials from the Securities and Exchange Commission and the Federal Reserve Bank of New York quietly moved into the headquarters of Lehman Brothers. They were provided desks, phones, computers — and access to all of Lehman’s books and records. At any given moment, there were as many as a dozen government officials buzzing around Lehman’s offices (link in the post below).

The Fed WAS in a position of unfettered and direct oversight at Lehman for two years leading up to Lehman's collapse and yet Lehman still pulled off massive fraud - right under your nose, Ben. Either you are a complete moron or you are a psychopathic liar. Which one is it Ben?

Now that Lehman has collapsed under a massive weight of fraud and corruption - and all of surviving Wall Street was allowed to feed greedily, with the help of TARP, off the carcass, the real question is just how much fraud is being currently covered up and papered over? It would seem to me that after Enron, and the ensuing series of massive, ever-larger financial collapses that have occurred (Refco,Bear Stearns, AIG, Fannie Mae, Freddie Mac, GMAC, etc), that our political leaders and those charged with regulations and oversight, including the Fed, would be interested in cleaning up this mess and putting those who created and participated in this mess in jail.

Will this ever happen? Not if the Fed is given greater powers, not if Geithner and Larry Summers remain in the White House and not if the current crooks leading Congress are allowed to remain in power. At the margin, it's up to the public to do something about this. If we allow this to continue, the problems will only grow larger and the U.S. will eventually collapse under the sheer weight of too much debt and fraud. Otherwise, I hope everyone who understands this is accumulating as much gold and silver as they can.

Friday, March 19, 2010
A Smoking Gun Emerges in Lehmangate
In a development that is reminiscent of the whistleblower and star witness that emerged in the Enron collapse, AP is reporting that a a former Lehman Sr. VP had alerted upper management that Lehman was underreporting its amount of outstanding debt each month by billions. He was promptly fired and reached a termination agreement which stopped paying after Lehman collapsed. He is now a creditor in the liquidation proceedings.

"A Lehman Brothers whistleblower warned his bosses that accounting gimmicks the bank used before its collapse may have been illegal, his lawyer said Friday." Here's the Yahoo News link: LINK

Lee wrote in his letter that "I believe the manner in which the firm is reporting these assets is potentially misleading to the public and various governmental agencies," Lee wrote. "If so, I believe the firm may be in violation of the code."

Clearly there is a huge scandal/cover-up here that goes all the way up at least to then NY Fed Chairthief, Tim Geithner, and probably all the way up to Bernanke. Chris Dodd has called on Attorney General Eric Holder to investigate. As per my post below "Lehmangate Part 2," I explain that Holder is no stranger to enabling fraud and corruption as a public official, so I'm not holding my breath that he will do anything. Please email your relevant House Rep and both Senators if you are angered by this and want to see justice.

BUT, there is a smoking gun, it's still smoking and there can now be NO QUESTION in the minds of skeptics that this is a huge scandal unfolding.

Monday, March 22, 2010
Geithner Caught Breaking the Law Again at the NY Fed
Tax-evasion, covering up the fraudulent accounting of the banks he was supposed to be overseeing, lying under oath in front of Congress, and now warehousing junk loans at the NY Fed for Lehman - WHERE DOES IT END? Here's the latest from the HuffPo:

As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn't sell in the market, according to a report from court-appointed examiner Anton R. Valukas. The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a "warehouse" for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds. (HuffPo Link)

There you have it. Geithner was aiding and abetting illegal activity and assisting Richard Fuld - who was a on the board of directors of the NY Fed at the time - in hiding the full extent of Lehman's insolvency. Geithner should immediately be fired and all of his email accounts, phone records and files from the NY Fed and his office at the Treasury should be seized. He needs to be investigated.

The other, bigger issue, as raised by the HuffPo article, is to what extent is the entire Federal Reserve system hiding toxic assets. This isn't just related to Lehman and this is one of the main reasons that Bernanke and Geithner vigorously oppose all Congressional attempts to force an audit of the Fed (Bernanke's Fed is spending millions to fight this):

Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books. "The Fed legally is forbidden from taking such assets. There's a legal requirement that the Fed's assets be investment grade," Rep. Alan Grayson (D-Fla.) told HuffPost.
This will continue and get worse until either the system collapses under the sheer weight of the fraud and corruption or the Fed continues to cover-up the fraud by hyperinflating the currency. I guess we ultimately collapse either way. The least Obama could do is throw us a bone and get rid of Geithner.

And all the financial press wants to blather about is Obamacare and Greek debt? Can you say smoke screen? Ignoring systemic risk and financial collapse will not make them go away.

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