Guest Post: The Federal Reserve - A Study In Fraud

Originally posted at Monty Pelerin's World blog,
In a previous article entitled “Government: ‘A Seedy Circus … Perpetually In Debt’,” government was likened to Larsen E. Whipsnade, the character played by the one-of-a-kind W. C. Fields in the 1939 movie “You Can’t Cheat An Honest Man.” Characterizing Leviathan government as an individual, even one as large as Whipsnade,  was a stretch. Fields’ fans objected because he was reasonably harmless, likeable and entertaining, certainly not adjectives one would apply to our modern-day State.
Ben Bernanke as Larsen E. Whipsnade
If comparing government to Fields’ character is improper, then why not compare individuals in that institution to Whipsnade. Surely there is no shortage of characters (clowns?) that could qualify as circus employees. The commonality between the Fields’ character and most high government officials is that both are out to dupe the people.
Barack Obama doesn’t make the cut, only because he is unlikeable and a genuine fool rather than pretending. Jay Carney is bumbling enough, but only haplessly acting on the orders of others. Eric Holder is too unlikeable and probably too devious to be a carnival barker. His aspirations could not be satisfied in small circus towns. Additionally he is too easy to see through. Timmy Geithner might have qualified, but he’s gone now.That leaves Ben Bernanke.
Mr. Bernanke fits the role quite nicely. He is bumbling, likeable and reasonably harmless, at least as a person. He seems a victim of circumstances, a man out of his comfort zone. But his clinching qualification is his modus operandi which is identical to that of a “carnie.” [For those unfamiliar with the term "carnie," Wikipedia defines it as follows: "Carny or carnie is a slang term used in North America and, with showie, in Australia for a carnival (funfair) employee, and the language they use, who runs a "joint" (booth), "grab joint" (food stand), game, or ride at a carnival, boardwalk or amusement park."]
Like a carnie, everything Mr. Bernanke says and does is aimed at deception. A modern day Federal Reserve Chairman must be like a carnie. The primary difference between a carnie and a Fed Chairman is the veneer of sophistication and false omniscience. Gary Dorsch contrasts what the Fed used to do with what it has become:

It all seems so surreal. After being mesmerized by the Fed’s hallucinogenic “Quantitative Easing,” (QE) drug, and seduced by the Fed’s Zero Interest Rate Policy (ZIRP), and rescued by the Fed’s clandestine intervention in the stock index futures market, for the past 4-½-years, it’s easy to forget that there was once a time when the Fed’s main policy tool was simply adjusting the federal funds rate. It’s even harder to recall that two decades ago, the Fed’s raison d’être was combating inflation, whereas today, the Fed’s main mission is rigging the stock market, and inflating the fortunes of the wealthiest 10% of Americans.

To be Fed Chairman these days, you must be adept at charlatanism.

Like the Wizard of Oz, you must pretend you are in control of things that no one possibly can control. You must, as the Platters sung, be “The Great Pretender.” You must pretend that you know the future and can overcome it if it is not promising.
An entire industry has developed devoted to interpreting Fedspeak. Nothing the Fed says is definitive, despite being said in serious tone. The reason for that is the Fed has no better idea of what is happening in the economy than you or me. All of their messages contain wiggle-words so that they can backtrack without being declared in error. When you don’t know what to say, you say nothing but in a way that it can mean anything.
The pretense of confidence and control are your primary strategic tools, as is the ability to maintain these pretensions despite a series of embarrassing forecasts. Your operating tools — quantitative easing, ZIRP and various market interventions — are all carnie tools, designed to deceive people into doing things they otherwise wouldn’t and shouldn’t.
The Great Coordinating Mechanism
The Fed’s role today is to distort prices, a fraud on the grandest scale. Free markets and free prices are the guidance system that produce the marvelous results that Adam Smith described as an “invisible hand.” Prices encourage cooperation and harmony. They provide guides for tens of millions of economic actors. They signal when to conserve and when to splurge. Prices direct scarce resources to their best uses. They influence career choices. Prices literally provide the signals by which we lead every aspect of our lives. Every decision we make, including the emotional ones such as children, love and marriage, are influenced by prices (see Gary Becker among others).
The modern-day role of the Fed is to distort these prices, effectively to disrupt the economy’s guidance system. The purpose is to fool you into making improper decisions. This deception threatens social harmony and individual well-being. Distorting prices, especially systematically, is the equivalent of drugging a person and then having him make major life or financial decisions. Drugs and price distortions have the same effect on decision-making — the mind is unable to properly receive and process information.
Ben Bernanke is on record hoping to manipulate the following three prices:

• Interest Rates
• Housing Prices
• Financial Assets

Blatant Fraud
Mr. Bernanke deliberately suppresses interest rates in order to raise home prices and stock prices. His stated purpose is to create a “wealth effect.” When people feel wealthier, it is thought they borrow and spend more. Mr. Bernanke’s program is pure deception. It is designed to produce a false and fictitious sense of security (wealth). His policies are the same as those that caused the original bubbles. They will produce another dramatic collapse. Deliberate fraud is being imposed on the American public. The fraud will ultimately end in tragedy and great personal suffering.
The rest of the government supports Bernanke’s scheme by issuing false economic statistics and claims of economic recovery. There is no recovery; nor will there be one until the massive misallocations of resources resulting from the price manipulations are corrected (see more here). That cannot happen without a massive recession/depression. As expressed by Zerohedge:

...the American economy faces a long twilight of no growth, rising taxes, and brutally intensifying fiscal conflict. These are the wages of five decades of Keynesian sin – the price of abandoning financial discipline.

That is the most optimistic case. A depression is both necessary, and probably inevitable, to break the legacy of decline that Keynesian economics has created. All government agencies act in concert to postpone this event, ensuring greater calamity when it eventually occurs.
The use of the term “fraud” is no overstatement. Fraud, in a legal sense, is defined in strict terms:

Fraud must be proved by showing that the defendant’s actions involved five separate elements: (1) a false statement of a material fact, (2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.

Which one of these conditions does not fit Fed behavior? My opinion is that they meet every condition.
If a private company or individual engaged in similar actions regarding the price or misrepresentation of a single product, fines and jail sentences would be sought. The Fed, however, engages in fraud with impunity. They are encouraged to do so by the political class. Bernie Madoff appears ethical in comparison with government and its agencies. The Fed gets to call their deliberate fraud “economic policy.”  Government supports the fraud by claiming that an economic recovery is underway.
Markets are arguably the greatest “invention” of mankind. They enable social cooperation and harmony while allowing maximum increases in living standards. Markets are the very foundation of modern civilization, allowing many billions of people to survive on our planet. Distorting markets is no small matter. Doing so literally threatens peace and economic well-being.
The Fed’s behavior of distorting prices is deliberate dishonesty calculated for government advantage. The policy is designed to deceive others to behave in a manner which is ultimately harmful to these individuals. It is outright fraud!
Concluding Remarks
In hindsight, apologies are in order. There was no need to insult “carnies” by comparing them to government. Bernie Madoff’s crimes should not be compared to those of the government. He was a small fry and he could not force people to participate in his Ponzi scheme. Government is in a class by itself. The Mafia, in comparison, looks like Mother Theresa.
A government that can only survive via fraud has reached the desperate stage. It can create great harm in its death throes but its survival is unlikely.

Fed Continues Printing Money until it Implodes-Fabian Calvo

By Greg Hunter’s USAWatchdog.com 
Real estate expert Fabian Calvo says, “If Bernanke stops printing money, the housing market completely falls apart. . . . They’re just going to continue printing money until there is some sort of end-of-the-road event where this implodes.”  Calvo contends, “People all over the world, really at an unprecedented rate . . . are coming to the U.S and buying real estate because there’s a global rush for hard assets.”  Calvo says the bankers have really screwed up the property titles.  Calvo predicts, “There are going to be a lot of people fighting over the same piece of property, same as the gold market.  People are going to fight over that same bar of gold, claiming they own it.”  Calvo predicts the current real estate boom will go on for 6 to 24 months, but also says, “We’re going to have a real estate collapse that is centered around some sort of bond crisis or dollar crisis, and those will happen simultaneously.”  Join Greg Hunter as he goes One-on-One with Fabian Calvo from TheNotehouse.us.  

Survey Shows Americans on the Financial Brink

Photo: Chris Devers/cc/flickrResults of a new survey show just how close to the financial edge the majority of Americans are.
76% of respondents don’t have enough savings to cover six months of expenses in case of an emergency, financial news site Bankrate.com reported Monday its monthly survey which forms its Financial Security Index.
27% of the respondents reported having no emergency savings at all.
In terms of comfort level of savings, the findings show that those who feel less comfortable outnumber those who feel more comfortable two to one.
With millions of Americans lacking healthcare, the chance that a health emergency could wipe out any possible savings and bring financial catastrophe may seem all too real. Even with some level of healthcare coverage, exorbitant costs can crush any savings, or force people to add to credit card debt.

Also, a report this month from the Economic Policy Institute highlighting the devastation cuts to Social Security and Medicare would bring found that “Many of America’s 41 million seniors are just one bad economic shock away from significant material hardship.”

______________________

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License
This article originally appeared on: Common Dreams

The Trigger Has Been Pulled And The Slaughter Of The Bonds Has Begun

by Michael

What does it look like when a 30 year bull market ends abruptly?  What happens when bond yields start doing things that they haven’t done in 50 years?  If your answer to those questions involves the word “slaughter”, you are probably on the right track.  Right now, bonds are being absolutely slaughtered, and this is only just the beginning.  Over the last several years, reckless bond buying by the Federal Reserve has forced yields down to absolutely ridiculous levels.  For example, it simply is not rational to lend the U.S. government money at less than 3 percent when the real rate of inflation is somewhere up around 8 to 10 percent.  But when he originally announced the quantitative easing program, Federal Reserve Chairman Ben Bernanke said that he intended to force interest rates to go down, and lots of bond investors made a lot of money riding the bubble that Bernanke created.  But now that Bernanke has indicated that the bond buying will be coming to an end, investors are going into panic mode and the bond bubble is starting to burst.  One hedge fund executive told CNBC that the “feeling you are getting out there is that people are selling first and asking questions later”.  And the yield on 10 year U.S. Treasuries just keeps going up.  Today it closed at 2.59 percent, and many believe that it is going to go much higher unless the Fed intervenes.  If the Fed does not intervene and allows the bubble that it has created to burst, we are going to see unprecedented carnage.
Markets tend to fall faster than they rise.  And now that Bernanke has triggered a sell-off in bonds, things are moving much faster than just about anyone anticipated…

Wall Street never thought it would be this bad.
Over the last two months, and particularly over the last two weeks, investors have been exiting their bond investments with unexpected ferocity, moves that continued through Monday.
A bond sell-off has been anticipated for years, given the long run of popularity that corporate and government bonds have enjoyed. But most strategists expected that investors would slowly transfer out of bonds, allowing interest rates to slowly drift up.
Instead, since the Federal Reserve chairman, Ben S. Bernanke, recently suggested that the strength of the economic recovery might allow the Fed to slow down its bond-buying program, waves of selling have convulsed the markets.

In particular, junk bonds are getting absolutely hammered.  Money is flowing out of high risk corporate debt at an astounding pace…

The SPDR Barclays High Yield Bond exchange-traded fund has declined 5 percent over the past month, though it rose in Tuesday trading. The fund has seen $2.7 billion in outflows year to date, according to IndexUniverse.
Another popular junk ETF, the iShares iBoxx $ High Yield Corporate Bond, has seen nearly $2 billion in outflows this year and is off 3.4 percent over the past five days alone.
Investors pulled $333 million from high-yield funds last week, according to Lipper.
While correlating to the general trend in fixed income, the slowdown in the junk bond business bodes especially troubling signs for investment banks, which have relied on the debt markets for fully one-third of their business this year, the highest percentage in 10 years.

The chart posted below comes from the Federal Reserve, and it “represents the effective yield of the BofA Merrill Lynch US High Yield Master II Index, which tracks the performance of US dollar denominated below investment grade rated corporate debt publically issued in the US domestic market.”  In other words, it is a measure of the yield on junk bonds.  As you can see, the yield on junk bonds sank to ridiculous lows in May, but since then it has been absolutely skyrocketing…

So why should the average American care about this?
Well, if the era of “cheap money” is over and businesses have to pay more to borrow, that is going to cause economic activity to slow down.
There won’t be as many jobs, part-time workers will get less hours, and raises will become more infrequent.
Those are just some of the reasons why you should care about this stuff.
Municipal bonds are being absolutely crushed right now too.  You see, when yields on U.S. government debt rise, they also rise on state and local government debt.
In fact, things have been so bad that hundreds of millions of dollars of municipal bond sales have been postponed in recent days…

With yields on the U.S. municipal bond market rising, local issuers on Monday postponed another six bond sales, totaling $331 million, that were originally scheduled to price later this week.
Since mid-June, on the prospect that the Federal Reserve could change course on its easy monetary policy as the economy improves, the municipal bond market has seen a total of $2.6 billion in sales either canceled or delayed.

If borrowing costs for state and local governments rise, they won’t be able to spend as much money, they won’t be able to hire as many workers, they will need to find more revenue (tax increases), and more of them will go bankrupt.
And what we are witnessing right now is just the beginning.  Things are going to get MUCH worse.  The following is what Robert Wenzel recently had to say about the municipal bond market…

Thus, there is only one direction for rates: UP, with muni bonds leading the decline, given that the financial structures of many municipalities are teetering. There is absolutely no good reason to be in municipal bonds now. And muni ETFs will be a worse place to be, given this is relatively HOT money that will try to get out of the exit door all at once.

But, as I wrote about yesterday, the worst part of the slaughter is going to be when the 441 trillion dollar interest rate derivatives time bomb starts exploding.  If bond yields continue to soar, eventually it will take down some very large financial institutions.  The following is from a recent article by Bill Holter…

Please understand how many of these interest rate derivatives work.  When the rates go against you, “margin” must be posted.  By “margin” I mean collateral.  Collateral must be shifted from the losing institution to the one on the winning side.  When the loser “runs out” of collateral…that is when you get a situation similar to MF Global or Lehman Bros., they are forced to shut down and the vultures then come in and pick the bones clean…normally.  Now it is no longer “normal,” now a Lehman Bros will take the whole tent down.

Most people have no idea how vulnerable our financial system is.  It is a house of cards of risk, debt and leverage.  Wall Street has become the largest casino in the history of the planet, and the wheels could come off literally at any time.
And it certainly does not help that a whole host of cyclical trends appear to be working against us.  Posted below is an extended excerpt from a recent article by Taki Tsaklanos and GE Christenson…
**********
Charles Nenner Research (source)
Stocks should peak in mid-2013 and fall until about 2020.  Similarly, bonds should peak in the summer of 2013 and fall thereafter for 20 years.  He bases his conclusions entirely on cycle research.  He expects the Dow to fall to around 5,000 by 2018 – 2020.
Kress Cycles by Clif Droke (source)
The major 120 year cycle plus all minor cycles trend down into late 2014.  The stock market should decline hard into late 2014.
Elliott Wave Cycles by Robert Prechter (source)
He believes that the stock market has peaked and has entered a generational bear-market.  He anticipates a crash low in the market around 2016 – 2017.
Market Energy Wave (source)
He sees a 36 year cycle in stock markets that is peaking in mid-2013 and down 2013 – 2016.  “… the controlling energy wave is scheduled to flip back to negative on July 19 of this year.”  Equity markets should drop 25 – 50%.
Armstrong Economics (source)
His economic confidence model projects a peak in confidence in August 2013, a bottom in September 2014, and another peak in October 2015.  The decline into January 2020 should be severe.  He expects a world-wide crash and contraction in economies from 2015 – 2020.
Cycles per Charles Hugh Smith (source)
He discusses four long-term cycles that bottom roughly in the 2010 – 2020 period.  They are:  Credit expansion/contraction cycle;  Price inflation/wage cycle; Generational cycle;  and Peak oil extraction cycle.
Harry Dent – Demographics (source)
Stock prices should drop, on average for the balance of this decade.  Demographic cycles in the United States (and elsewhere) indicate a contraction in real terms for most of this decade.
**********
I was stunned when I originally read through that list.
Is it just a coincidence that so many researchers have come to such a similar conclusion?
The central banks of the world could attempt to “kick the can down the road” by buying up lots and lots of bonds, but it does not appear that is going to happen.
The Federal Reserve may not listen to the American people, but there is one institution that the Fed listens to very carefully - the Bank for International Settlements.  It is the central bank of central banks, and today 58 global central banks belong to the BIS.  Every two months, the central bankers of the world (including Bernanke) gather in Basel, Switzerland for a “Global Economy Meeting”.  At those meetings, decisions are made which affect every man, woman and child on the planet.
And the BIS has just come out with its annual report.  In that annual report, the BIS says that central banks “cannot do more without compounding the risks they have already created”, and that central banks should “encourage needed adjustments” in the financial markets.  In other words, the BIS is saying that it is time to end the bond buying…

The Basel-based BIS – known as the central bank of central banks – said in its annual report that using current monetary policy employed in the euro zone, the U.K., Japan and the U.S. will not bring about much-needed labor and product market reforms and is a recipe for failure.
“Central banks cannot do more without compounding the risks they have already created,” it said in its latest annual report released on Sunday. “[They must] encourage needed adjustments rather than retard them with near-zero interest rates and purchases of ever-larger quantities of government securities.”

So expect central banks to start scaling back their intervention in the marketplace.
Yes, this is probably going to cause interest rates to rise dramatically and cause all sorts of chaos as the bubble that they created implodes.
It could even potentially cause a worse financial crisis than we saw back in 2008.
If that happens, the central banks of the world can swoop in and try to save us with their bond buying once again.
Isn’t our system wonderful?

17 Signs That Most Americans Will Be Wiped Out By The Coming Economic Collapse

By Michael Snyder of The Economic Collapse blog
The vast majority of Americans are going to be absolutely blindsided by what is coming.  They don't understand how our financial system works, they don't understand how vulnerable it is, and most of them blindly trust that our leaders know exactly what they are doing and that they will be able to fix our problems.  As a result, most Americans are simply not prepared for the massive storm that is heading our way.  Most American families are living paycheck to paycheck, most of them are not storing up emergency food and supplies, and only a very small percentage of them are buying gold and silver for investment purposes.   They seem to have forgotten what happened back in 2008. 
When the financial markets crashed, millions of Americans lost their jobs.  Because most of them were living on the financial edge, millions of them also lost their homes.  Unfortunately, most Americans seem convinced that it will not happen again.  Right now we seem to be living in a "hope bubble" and people have become very complacent.  For a while there, being a "prepper" was very trendy, but now concern about a coming economic crisis seems to have subsided.  What a tragic mistake.  As I pointed out yesterday, our entire financial system is a giant Ponzi scheme, and there are already signs that our financial markets are about to implode once again.
Those that have not made any preparations for what is coming are going to regret it bitterly.  The following are 17 signs that most Americans will be wiped out by the coming economic collapse...
#1 According to a survey that was just released, 76 percent of all Americans are living paycheck to paycheck.  But most Americans are acting as if their jobs will always be there.  But the truth is that mass layoffs can occur at any time.  In fact, it just happened at one of the largest law firms in New York City.
#2 27 percent of all Americans do not have even a single penny saved up.
#3 46 percent of all Americans have $800 or less saved up.
#4 Less than one out of every four Americans has enough money stored away to cover six months of expenses.
#5 Wages continue to fall even as the cost of living continues to go up.  Today, the average income for the bottom 90 percent of all income earners in America is just $31,244.  An increasing percentage of American families are just trying to find a way to survive from month to month.
#6 62 percent of all middle class Americans say that they have had to reduce household spending over the past year.
#7 Small business is becoming an endangered species in America.  In fact, only about 7 percent of all non-farm workers in the United States are self-employed at this point.  That means that the vast majority of Americans are depending on someone else to provide them with an income.  But what is going to happen as those jobs disappear?
#8 In 1989, the debt to income ratio of the average American family was about 58 percent.  Today it is up to 154 percent.
#9 Today, a higher percentage of Americans are dependent on the government than ever before.  In fact, according to the U.S. Census Bureau 49 percent of all Americans live in a home that gets direct monetary benefits from the federal government.  So what is going to happen when the government handout gravy train comes to an end?
#10 Back in the 1970s, about one out of every 50 Americans was on food stamps.  Today, about one out of every 6.5 Americans is on food stamps.
#11 It is estimated that less than 10 percent of the U.S. population owns any gold or silver for investment purposes.
#12 It has been estimated that there are approximately 3 million "preppers" in the United States.  But that means that almost everyone else is not prepping.
#13 44 percent of all Americans do not have first-aid kits in their homes.
#14 48 percent of all Americans do not have any emergency supplies stored up.
#15 53 percent of all Americans do not have a 3 day supply of nonperishable food and water in their homes.
#16 One survey asked Americans how long they thought they would survive if the electrical grid went down for an extended period of time.  Incredibly, 21 percent said that they would survive for less than a week, an additional 28 percent said that they would survive for less than two weeks, and nearly 75 percent said that they would be dead before the two month mark.
#17 According to a survey conducted by the Adelphi University Center for Health Innovation, 55 percent of Americans believe that the government will come to their rescue when disaster strikes.
Just because you are living a comfortable middle class lifestyle today does not mean that it will always be that way.
If you doubt this, take a look at what is going on in Greece.  Many formerly middle class parents in Greece have become so impoverished that they are actually dumping their children at orphanages so that they won't starve...

Scores of children have been put in orphanages and care homes for economic reasons; one charity said 80 of the 100 children in its residential centres were there because their families can no longer provide for them.
Ten percent of Greek children are said to be at risk of hunger. Teachers talk of cancelling PE lessons because children are underfed and of seeing pupils pick through bins for food.

If the U.S. economy crashes and you lose your job, how will you and your family survive?
Will you and your family end up homeless and totally dependent on the government for your survival?
Get prepared while there is still time.  If you do not know how to get prepared, my article entitled "25 Things That You Should Do To Get Prepared For The Coming Economic Collapse" has some basic tips, and there are dozens of excellent websites out there that teach people advanced prepping techniques for free.
So there is no excuse.  You can trust that Ben Bernanke and Barack Obama have everything under control, but as for me and my family we are going to prepare for the giant economic storm that is coming.
I hope that you will be getting prepared too.

Revolt Against Mongressanto GMO Crops Torched in America

Not one media outlet outside of local circles has dared to mention it, perhaps because government fears that if the public learns that other people are getting fighting mad (literally), they might join in, and become an actual revolution. It was only reported locally live on KXL Radio and echoed by the Oregonian, where the ONLY Web mention exists, hard to find because the headline wording is carefully avoids the most likely keywords for a search — took me rather a while to find it. Here’s the scoop — PASS IT ON!
40 Tons of GMO Sugar Beets were set ablaze in Eastern Oregon, yesterday. FORTY TONS — the entire acreage of two full fields of crops IN THE GROUND were set ablaze over a THREE NIGHT PERIOD OF TIME. That means ARSON. And I have to say I am cheering! The only way could feel better about it is if I had dared to do it myself — which to be clear, I would not: I don’t look good in prison orange, and would be too worried about possible loss of life if things went terribly wrong.
Evidence is that 6,500 plants were destroyed BY HAND, ONE PLANT AT A TIME. That, in turn, implies A LOT OF PEOPLE were involved: would you want to stick around once a fire was going and wait to be discovered? No, someone (many someones) probably wanted to move as quickly as possible. WE ARE TALKING ABOUT A MOVEMENT, a kind of ORGANIZED REVOLT — and this is exactly the kind of retribution I’ve warned was coming; when lawmakers and corporations refuse to honor the Constitution and instead engage in ‘legalized’ criminal acts such as enabled by the ‘Monsanto Protection Act.’
This is all shades of… well, the BOSTON TEA PARTY. Instead of throwing tea into the harbor to protest taxes, someone was throwing flames onto crops in the ground to protest New World Order shenanigans. We are a long ways from Boston, but more recently we have the Earth Liberation Front, a group which also had its roots in Oregon (I love my State and our people; we have core beliefs and fight for them). The ELF, in 2000,  burned the offices of a GMO research project at the University of Michigan, a project funded by the Federal government and Monsanto at the time.
The ELF, or ‘Elves’ as they are sometimes called, is an ad-hoc group with its actual origins in the U.K. But forest mismanagement caused splinter cells to be established in Oregon, and subsequently, Michigan and elsewhere as new corporate wrongdoings became evident. Like the IRA, they have an official,public side, one not associated with criminal adventure, and instead focused on educating the public on the issues, such as the Gulf oil spill. They are a kind of militant Green Peace, perhaps.
But ELF cells normally come forward immediately to claim responsibility, because to them, its all about publicity to educate the public. Since there has been no statement, I’m deducing it is simply Oregon Farmers who have said, ‘Enough!’ Another clue that may be the case is that this comes on the heels (two weeks) of Japan’s rejection of the entire Oregon Wheat crop for the year (a tremendous financial blow because over 80% of Oregon Wheat is exported) because ONE report said ONE field was contaminated with at least ONE GMO plant.
The rightful fear is, because of pollination processes, once you introduce a GMO crop of a given variety ANYWHERE, the wind and insects will spread its genetic contamination to non GMO fields, and thereby ruin the ENTIRE INDUSTRY for a region. In fact, Oregon farmers have tendered a multi-billion dollar class action law suite against Monsanto, joining a long list of states doing so. Monsanto has experimented with GMO crops before they were approved in 16 states. They were supposedly all destroyed, but state after state is finding out the hard way, that Pandora’s box has been deliberately left open.
But while other governments in Europe and elsewhere are passing laws to ban GMO crops, and burning entire crops themselves, in America, our government is passing laws protecting Monsanto from legal repercussions, and therefore, it seems, farmers are forced to burn the crops, themselves. This means that where in other countries, citizens are being protected from corporate crimes, in America, citizens are forced to become ‘terrorists’ to survive. That’s how blatantly corrupt our corporate police state has become, I’m afraid.
Can GMO spark an armed revolution?

FIRST BLOW FOR THE REVOLUTION?

In this case, both fields belonged to the same Corporate Agricultural giant known for embracing GMO, though trying to do so quietly, another reason perhaps big media has kept the story from reaching the Internet. We are talking about Syngenta. Nowhere on their US Web site will you find mention of GMO, but that is exactly what the company is about. They have even lied publicly in writing on this issue with a public declaration. Yet their very corporate name shouts GMO.
But the FBI, and local media knows better (and now, you)… because apparently someone from the Syngenta operated farms mentioned the fact as a possible motive for the arson. This is a serious matter in many respects. It throws down the gauntlet and says, we are mad as hell and are not going to let you get away with this bullsh*t anymore! But it also raises the stakes and put lives and property at risk, and if it goes wrong, could end up sparking an armed revolution.
Imagine the likely scenario: the FBI identifies a particular non GMO farmer as being participant and puts together a 100 man assault team to surround their homestead, land they’ve been farming for generations. What do you suppose would happen if they stood their ground? You would have another WACO standoff, another Ruby Ridge. Do you suppose that the other several dozen participants in the crop burning would stand by and let them pick them all off like that, one by one? I doubt it.
They would muster every rifle their families could carry, and call in farmers from adjacent counties, and likely be joined by some number of citizens from the local communities, and surround the FBI and other local authorities. They might even be joined by local Sheriffs, if not out of sympathetic understanding and general GMO angst, then in hopes of defusing the situation. I’m telling you, this can easily get out of hand.
And in a way, I’m hoping it does. Because I think we need a definitive event to send aclear message and draw a line in the sand: not one inch more — BACK OFF! It would rally the informed to action, stir the Sheeple to understanding, and force them to take a side, lest they end up in a possible cross fire if shooting breaks out everywhere GMO crops and corporate properties exist, and their executives live.
Even though it could easily spark a full-scale revolution, I’m still for it. That threat is not lightweight, either — it is incredibly easy to start and carry out a successful revolution. I’d be tickled pink to live in America, once more, a country based on a social contract called the Constitution and Bill of Rights, where government was by the people, for the people, of the people, and not a fascist police state in the making by corporations, for the new world order.
GMO? Burn, baby, burn…
Mongressanto? You may just be next.
Who are Oregonians for Food and Shelter?

Update: The Who and Why of the $10,000 Reward

‘Oregonians’ for ‘Food and Shelter’ sounds like a charity that provides food and shelter, but that’s not right. Their Web site describes themselves in terms which, after thoughtful consideration, would leave you believing them a non profit NGO, a special interest group (SIG) of professionals seeking to educate their peers in the latest timber and agriculture technologies. Closer to the truth, is that they are a Political Action PAC, putting out their own Voter’s Guide, and involving themselves in political matters impacting timber and farming.
Their members are a who’s who of AG and Timber, but with a specific bent toward biotech… specific biotech. Their Boards and Chairs are well peppered with people from Monsanto, Syngenta, and other firms with a vested interest in GMO, and firms they do business with. In fact, there are even two firms represented who have had consensual dealings with Central Intelligence Agency fronts. One of these was harmless and related to fire-fighting, but the other (Portland General Electric) was tied to much darker matters, though I’m sure they were not quite aware of such details. But then, those same folks also went to bed with ENRON (also a CIA operation), didn’t they?
The OFS founder is one Terry L. Witt, who cites himself as a professional Manager of Non Profit Groups, as though you should go see him if you have one in need of management. Really? The Web site was founded in 1999. Within a few months, Terry was writing in support of Monsanto’s patent infringement suit against a farmer over GMO crop migration (contamination) such as faced by Oregon Wheat growers. It would not be the first time he would play hatchet man for GMO, additionally using op-ed in the Oregonian to disinform on behalf of (again) Monsanto.
Indeed, if you look at the one and only truly informational page at the Web site (despite the fact they list three topics to choose from – the other two have no links provided), the topic is… you guessed it; pro GMO. So what is the real agenda, again? But perhaps we should overlook this narrow view, because they do point out their Web site is still under construction. What?
Established in 1999, and still under construction? Could it be because the Web designer is (whois information) Troy, Terry’s son, operating out of their $700,000 home in Tigard? Hmmm. Troy has his own business (he is a photographer and ‘lead designer’ at a ‘design studio’), and his Web site is even more under construction: it consists ONLY of a logo (ergo, my use of quotes). There is not even a statement on being under construction since created in 2005.  ”Focused Marketing, Messaging, and Design,” the logo claims.
This could be the trait of (choose one):

a) someone not very good at what they do;

b) a CIA front;

c) a corporate front for money laundering (e.g., payments from Monsanto);

d) a front or over billing a client (e.g., Monsanto);

e) a clever ploy to distract conspiracy theorists and waste blog reader’s time;

f) all of the above.

I’m sorry, but I come away with the distance impression OFS is nothing but a surrogate for GMO interests, and thinly veneered, at that.
That’s the WHO and the WHY of the $10K reward.
Frankly, given these facts, I’d rather someone  offer a $100K reward if they would all simply go away.

Negative interest rates could kill off savings returns, encourage cash hoarding and spell end of free banking... but Bank admits they're still an option

• High Street banks would have to pay the BoE to hold their money
• Negative rates could see cash-strapped savers facing even lower interest
• Savers could hoard cash if rates were held below zero for a significant amount of time, it warned
• Bank admits rates have effectively been in negative territory for some time now

Negative interest rates are still being considered, despite a host of risks to millions of savers, the Bank of England admitted today.
‘There is nothing special about going into negative territory,’ Charlie Bean, the out-going deputy governor of monetary policy at the Bank, said in a report to the Treasury Select Committee.
The move could see cash-strapped savers facing the prospect of even lower savings rates than the pitiful levels currently on offer.

Exploring options: Negative interest rates have been considered by the Bank of England's rate setting committee

Banks could also think up other ways of making customers cover the cost of negative rates, such as introducing charges on current accounts, the report admitted.
If interest rates were held in negative territory for a significant amount of time, savers may even be driven to removing their money from the banks and holding it in cash, causing a worrying security risk.

 

‘Banks might be more inclined to introduce or raise charges for running current accounts if Bank Rate were significantly negative for a long period,’ the report warned.

WHAT DOES NEGATIVE INTEREST RATES MEAN?

Negative interest rates would mean that the Bank of England would start to charge high street banks for looking after their money.
It is considering charging interest on the funds that commercial banks hold on deposit at the central bank in order to encourage these high street lenders to do other things with the money.
The move would be intended to encourage more lending to businesses and households, rather than letting it sit in bank vaults.
If the interest rate was -1 per cent, they would have to pay the BoE a 1 per cent rate each year to hold money with it.

It is hoped that small businesses and house-buyers that have complained that banks are not lending would benefit from the cash injection and it would be easier to get a loan.
But savers could be hit as it is yet more pressure on rates and banks may pass on that pain to customers and slash interest rates.

‘In turn, that could mean that customers might prefer to hold cash rather than leave it with their bank so as to avoid the associated charges; such an increase in cash holdings by the public might well increase security risks.’
It added that if a substantial amount of money was taken out of the banking system as cash, it could undermine the whole system’s ability to deliver the basic banking functions, including secure payments transfer.
However, the report suggested that banks may face such an outcry from savers if they increased charges that they choose instead to take a hit to their profit margins.  
Reducing interest rates would discourage banks from holding on to money in the hope that they would instead choose to lend to businesses or households, stimulating the economy.
A sub zero rate could also drive down the cost of mortgages for millions of borrowers – although it is highly unlikely that mortgage rates would also turn negative.
But it would spell further pain for savers, who have been crippled by rock bottom rates since the Bank of England dramatically cut the base rate to its record low of 0.5 per cent in March 2009.
There is currently not a single Isa or savings account on the market that pays out a rate of interest that beats inflation. This means prudent savers are seeing their nest eggs gnawed away simply by leaving them in a savings account.
Cutting the bank rate further to below zero would spell even more catastrophe, with the possibility interest rates could fall even lower.

The Bank of England's base rate has been at a record low of 0.5 per cent since March 2009 (Source: Bank of England)

'NORMAL' INTEREST RATES A LONG WAY AWAY, SAYS SIR MERVYN

World economies are ‘nowhere near’ a return to ‘normal’ interest rates, the Bank of England governor Sir Mervyn King said today.

Measures to stimulate the economy – such as low interest rates and quantitative easing – could only be wound up after significant economic improvement, he added.

He also criticised governments for failing to do enough.

'Until markets see in place policies to bring about that return to normal economic conditions, there is no prospect for sustainable recovery and without that prospect for sustainable recovery, markets understand that it will not be sensible to return interest rates to normal levels,’ he said.

Sir Mervyn also fired his final parting shot at the banks today as he laid into lender for their intense political lobbying against tougher balance sheet rules.

The Bank of England also admitted that bank rates have effectively been in negative territory for some years now.
The bank rate remains at a pitiful 0.5 per cent, while inflation is soaring to nearly three per cent. This means that money is losing value just be being held in a bank account.
‘The real level of Bank Rate – Bank Rate less the expected rate of CPI inflation – has therefore been below zero since late 2008 and is likely to remain so for some time to come,’ the report said.
The bank’s rate setting committee has discussed the possibility of negative rates on several occasions, the report reveals. However the committee has until now chosen to stick to other more tried and tested strategies such as quantitative easing or the Funding for Lending scheme to increase bank lending.
‘But a reduction in Bank Rate, including to below zero, remains an option which the Monetary
Policy Committee will keep under review lest circumstances change in the future,’ the report said.
Should it choose to cut rates to below zero, the Bank would be likely to raise them again within a year or two to reduce risks, it added.
While the Bank of England is still considering negative rates, signs of improvement in the UK economy suggest this dramatic step may never have to be taken.
Money market indicators are now pricing in a base rate rise to 0.75 per cent in two years’ time rather than three.

'Get them to write a big check:' Irish banker pulls bailout figure from 'arse' in leaked tapes

Executives at the Anglo Irish Bank were recorded joking about how they lied to Dublin about the bank’s financial future in 2008, convincing lawmakers to invest in the failing bank with figures “picked out of my arse” - with no plans to pay them back.
John Bowe, the head of capital markets for Anglo Irish, was recorded laughing as he explained to Peter Fitzgerald, the former head of banking, how Anglo Irish had fleeced the Irish government into providing billions of euro to keep the bank solvent.
The 2008 conversation was captured by the bank’s internal recording system and published by the Irish Independent. Ireland still has yet to fully recover from the financial crisis, despite attempts to bring the country back to normalcy by way of a drastic austerity program set in motion in the four years since. 
In the September 2008 conversation caught on the tape, Bowe admits he knew the €7 billion he initially asked for would not be enough to spare the bank, which was within mere days of a complete meltdown. When asked about the origin of that figure, Bowe referred to then-Anglo Irish CEO David Drumm.

“Just as Drummer would say, ‘picked it out of my arse,’ you know,” he said. “I mean, look, what we did was we basically said: ‘What is the amount we can securitize over the next six months? And basically say to them: ‘Look our problem here is time, it’s not our ability to create the liquidity, the enemy is time here.’”
Both Bowe and Fitzgerald can be heard laughing through the discussion. The tapes’ release also confirms the long-held suspicion that Irish bankers knew the initial government investments were far too small. 
“Yeah and that number is seven, but the reality is that actually we need more than that,” Bowe said. “But you know, the strategy here is you pull them in, you get them to write a big check and they have to keep – they have to support their money.” 
Anglo Irish has since been renamed the Irish Bank Resolution Corporation, and is still in the process of being liquidated, as the austerity-hit country awaits a high-profile court case into the collapse of the bank.   
Recent estimates indicate that, all told, Irish taxpayers will have supplied Anglo Irish Bank alone with €30 billion - a massive sum for the small island nation of just over 4.5 million people.
“If they (the Central Bank) saw the enormity of it up front, they might decide they have a choice. You know what I mean? They might say the cost to the taxpayer is too high,” Bowe went on. “If it doesn’t look too big at the outset – if it looks big enough to be important, but not too big that it kind of spoils everything, then, I think you have a chance.”
“So, so it’s bridged until we can pay you back. Which is never.”
Fitzgerald is heard saying, “Yeah. They’ve got skin in the game and that is the key.” 

In statements to national broadcaster RTE, the two executives denied any wrongdoing and any “strategy or intention on the part of Anglo Irish Bank to mislead the authorities.” The two men did not deny the conversation in the excerpts of the statements that RTE read out, Reuters reports.
Bowe excused his comments as “off-the-cuff” when questioned by reporters over the weekend.
Irish opposition parties called for a new probe into the banking crisis, calling the conversation “shocking to the core.” 
Government officials have previously blamed an inability to establish a parliamentary committee as the reason for Dublin's failure to hold a public inquiry. 
“Any suggestion that the taxpayer was lured into bailing out Anglo Irish Bank under a false impression about the state of the bank’s financial condition is deeply disturbing and has to be fully investigated by the authorities,” said Michael McGrath, finance spokesman of Fianna Fail (The Republican Party).

Ireland has yet to criminally prosecute a single banker who helped gamble the country into an economic tailspin. Pearse Doherty, a finance spokesman for the Irish party Sinn Fein, told the Financial Times the new revelations are a perfect opportunity to reverse that trend. 
“They prove conclusively that an investigation is needed into the events surrounding the bank guarantee and subsequently that the people must be prosecuted for their roles in collapsing the Irish economy,” he said.

Turmoil on Financial Markets: Share Selloff Points to New Economic Crisis

The renewed turmoil on global financial markets, which saw major falls on Asian markets and a one percent downturn on Wall Street yesterday, underscores the fact that none of the problems that erupted in the 2008 meltdown have been overcome. On the contrary, the latest gyrations are a sure sign that a new crisis is in the making—one set in motion by the very policies put in place by central banks over the past five years.
The initial spark for the selloff was the announcement by Federal Reserve Chairman Ben Bernanke that if economic conditions in the US improved, the Fed would consider easing back on its purchases of bonds under its policy of “quantitative easing”. The panicky response on the markets to this statement has been since compounded by fears of a credit crunch in China due to the tightening of money policy by financial authorities.
Since the third round of quantitative easing (QE3) was announced last September, the Fed has been spending $85 billion per month on purchases of Treasury bonds and mortgage-backed securities, expanding its balance sheet at the rate of $1 trillion per year.
At his press conference last Wednesday, Bernanke issued repeated assurances to the financial markets that the Fed was not tightening monetary policy, but merely easing pressure on the accelerator, and that should economic conditions worsen, even more monetary easing would be carried out.
But such has become the extreme dependence of financial capital on continuous injections of ultra-cheap liquidity from the Fed that even the hint of a future cutback in the flow of funds brought an instant paroxysm on the markets. Bond prices fell, bringing a rise in bond yields (interest rates). On Wall Street, the Dow fell, losing some 200 points in the period immediately following Bernanke’s press conference and dropping a further 350 points the next day before recovering slightly on Friday.

The selloff has had a major impact around the world, especially in so-called emerging markets, where currencies that had been rising against the dollar have suffered significant falls. The Turkish lira and the Indian rupee hit record lows last week.
Fund managers reported major withdrawals from debt funds in response to fears that many of these countries have become too dependent on the outflow of money from the United States under the quantitative easing program, and that a reversal of the money flow could lead to serious economic problems. Turkey and India were both seen as vulnerable because they have deficits on their current accounts.
But the economic difficulties of these regions are only a graphic expression of the deepening crisis at the very centre of the global capitalist economy.
Since the global financial crisis erupted in 2008, central banks around the world, with the US Fed leading the way, are estimated to have shovelled at least $10 trillion into financial markets. The initial assistance took the form of bailouts. Now it is being delivered in the form of quantitative easing, in which hundreds of billions of dollars at ultra-cheap rates is made available to banks and finance houses through central bank purchases of bonds.
The official rationale for this policy is that purchasing bonds and driving down the yields on the safest financial assets will eventually lead to greater risk-taking by investors, including the injection of money into the real economy.
That has not taken place. Rather, quantitative easing has promoted unprecedented financial speculation, leading to a situation in which share markets have risen sharply while the real economy has either grown very slowly, stagnated or contracted.
Even before the latest selloff it was clear that a new phase of financial turbulence had begun, with growing signs of instability in the wake of Bernanke’s comments on May 22 that the Fed could consider a “taper” in quantitative easing, sparking fears of a fall in bond prices and a consequent rise interest rates.
Speaking to a group of British MPs earlier this month, the Bank of England’s director of financial stability, Andy Haldane, pointed to the potential for a new crisis. “Let’s be clear,” he said. “We’ve intentionally blown the biggest government bond bubble in history.” The biggest risk to the financial system, he added, was a “disorderly reversion”, that is, a rapid fall in the bond market.
There could hardly be a clearer admission of the utter bankruptcy of the present capitalist economic order.
The very policies enacted by governments and financial authorities on behalf of the ruling classes around the world have now created the conditions for the development of a new economic catastrophe on top of the social and economic devastation already resulting from the meltdown of 2008.
The form in which the latest round of turbulence has emerged indicates that the crisis is rooted in a malignancy at the very centre of the capitalist profit system itself.
Bernanke declared that the QE program would start to be pulled back only if there was an improvement in real economic conditions. But the reaction of the markets to this suggestion indicates that were it actually carried out there would be a full-scale collapse. In other words, financial markets can no longer survive under what were once considered “normal” conditions.
This is the expression of a profound disintegration in the very process of capitalist production itself. In so-called “normal” conditions, money is invested in the means of production and used to employ labour to produce commodities which are then sold to generate a profit. At least part of this profit is then used to finance further investment, generating further production and economic growth.
However, this process has broken down. Profits are being accumulated, but increasingly they do not result from an expansion of the economy as a whole, but rather from cost-cutting, wage reductions, such as in the US auto industry, or the development of new technologies that drive competitors out of the market.
Economic stagnation and contracting markets mean that profits are not reinvested, but lead to the accumulation of large cash balances on the books of corporations—estimated to be as much as $2 trillion in the US economy—which are then used for speculative operations in financial markets.
The violent reaction to the possibility that quantitative easing might be cut back shows the extreme dependence of the capitalist economy on this form of economic parasitism.
It is, of course, not possible to predict the exact form the next stage of the breakdown of the global capitalist economy will assume. But the perverse logic of the market gyrations is very revealing.
The panicked response to the suggestion of even a partial return to what were once were considered “normal” economic conditions signifies that the “health” of the financial markets depends on the continued impoverishment of the working class and the mass of the population.
This article originally appeared on: Global Research

Big Brother Bank Tracks Customers Phones

Mick Meaney
RINF Alternative News
Millions of Barclays bank account holders will have their mobile devices tracked from October this year.  The banking giant also plans to sell customer’s purchasing information to third party companies or government departments, it has been revealed.
Barclays will make this level of big brother surveillance mandatory for all customers and have refused to let account holders ‘opt-out’ of the invasive scheme. If you don’t like it, your only option is to close your account.
The bank has written to customers informing them that ‘information about the transactions on your account’ will be used to compile reports about spending trends across Britain. They also claim that the Orwellian-style tracking of mobile devices will help them to combat fraud.
Speaking to ComputerworldUK, a Barclays spokesperson defended the bank:

“We only use information in a numerical, anonymised and aggregated way as is standard practice at many companies.
“It is not about providing information for sales or marketing use and does not include any personal data.
“This is all in accordance with industry guidance from the Information Commissioner’s Office and the law.”

This is perhaps a result of massive EU lobbying by Barclays and other companies, according to Jim Killock of the Open Rights Group:

“Users need control of their data. Barclays should be asking people to opt in, rather than opt out, of data collection. Barclays’ privacy changes are just one more reason why new strong data protection needs to be implemented in Europe.
“As Barclays has been part of the massive lobby effort tabling 4,000 amendments to water the EU regulation down, MEPs should trust Barclays’ motives to change the law even less now they can see what the bank thinks meaningful consent and control really means for its customers.”

Bank Analysts Cut Gold Forecasts Again as US Fed Tries to Temper “Taper Talk”

Bank Analysts Cut Gold Forecasts Again as US Fed Tries to Temper “Taper Talk”

PRECIOUS METALS rallied in London on Tuesday morning as European stock markets also bounced with commodity prices.

Gold and silver recovered half of yesterday’s 1.7% and 3.1% drops respectively.

The US Dollar eased back on the currency market, as did major government bond yields.

“The gold price [is] trad[ing] erratically without any clear direction,” say London bullion dealers Standard Bank in their daily note, “due to residual concerns over the Fed’s likely reduction in monetary stimulus, coupled with growing concerns over Chinese banking liquidity.”

The People’s Bank of China said today it has lent short-term money to some institutions to keep money-market interest rates at a “reasonable level” – its first statement of action since short-term rates in Shanghai spiked above 10% earlier this month.

“There’s room for further [gold] price declines before a meaningful consolidation,” writes bullion market-maker Scotia Mocatta’s strategist Russell Browne.

“Our target for the move is $1155-1156, and there are no big levels of support between here and there.”

After major bank analysts last week cut their silver price forecasts, London bullion bank HSBC yesterday cut both its 2013 and 2014 gold price forecasts by 10%, down to $1396 and $1435 per ounce respectively.

“Clearly, recent market events show we did not cut [forecasts] enough” in previous revisions, HSBC added.

Fellow market-maker Deutsche Bank meantime cut its 2013 gold price forecast by 7% to $1431 per ounce, while Morgan Stanley cut its forecast by 5% to $1409.

“This year has seen a significant change in fortunes for the gold market,” says Deutsche, “driven by a turn in the US interest rate cycle, an increasingly bullish outlook for the US Dollar and a reallocation among global investors from fixed income into equities.”

With foreign money being pulled from investments in India – the world’s No.1 market for physical gold – the possible end of US quantitative easing “[is a] big negative for the Rupee as flows dwindle further,” says Religare Capital Markets in a note from Mumbai.

Russian government debt today rallied from a sell-off which drove interest rates up to an 18-month high.

Russia added to its gold reserves for the 8th month running in May, new data from the International Monetary Fund showed Tuesday, taking it 996 tonnes – the 7th largest national hoard, ahead of Japan and behind Switzerland.

Gold buying by emerging-market central banks “is one of the underpinnings for gold in the long term,” reckons ANZ analyst Victor Thianpiriya.

Amongst Asian households and investors, however, “There is only a slight improvement in demand right now due to the price drop,” Reuters today quotes Dick Poon at German refining group Heraeus’ Hong Kong office.

“It’s definitely not up to April levels. Part of the reason is weak seasonal [gold] demand. But economic factors and China growth are also hurting.”

Longer-term says new analysis from Barclays bank, “The US cyclical position continues to look relatively healthy versus other developed market countries, where central banks are either in easing mode or are not expected to tighten policy any time soon.”

“We expect the Dollar rally to broaden as the second half of 2013 progresses,” writes the New York head of FX research at Barclays, Jose Wynne.

“Anybody who holds gold in Dollar terms,” said trader and newsletter advisor Dennis Gartman to CNBC Monday, “finds himself in a very uncomfortable position.”

“Gold needs fuel, [it] needs monetary aggressiveness to push it up.”

US Fed chairman Ben Bernanke said last week that the central bank may start ‘tapering’ its quantitative easing, and perhaps end the program by mid-2014.

Provided that inflation stays low and the US Dollar is strong, says Swiss bank UBS in a note, “Investors are likely to regard QE-insurance [meaning gold] as obsolete.”

“You don’t walk up to a lion and flinch,” said Dallas Fed president Richard Fisher in a speech in London on Monday, commenting on the sell-off in all asset classes following Fed chairman Bernanke’s comments.

“Big money does organise itself somewhat like feral hogs,” said Fisher. “If they detect a weakness or a bad scent, they’ll go after it.”

Fisher added, however, that the word “exit” is “not appropriate.”

Speaking at a separate event Monday, non-voting Fed member Narayana Kocherlakota of the Minneapolis Fed said the US central bank “[has to] hammer it every time we talk about policy” that interest rates will stay “highly accommodative…for a considerable time after the asset purchase program ends and the economic recovery strengthens” – a key phrase from recent Federal Reserve statements.

Although interest rates and central-bank asset purchases “must return to more normal conditions at some point,” said outgoing Bank of England governor Mervyn King to the UK parliament today, “that point is not today.”

Adrian Ash

Irish Bankers secretly recorded planning how to screw over Irish Taxpayers during 2008 bailout

"Time Is Running Out Fast" For Italy

Everyone knows Europe is insolvent; the only question is "when" will Europe be forced to finally admit this truism. The long overdue house of cards may start toppling in as little as 6 months, as The Telegraph reports, Mediobanca's 'index of solvency risk' suggests "time is running out fast" for Italy. With the breakdown in Eurozone talks on a banking union and the Fed's shift in policy, Europe "has become a dangerous place," warns RBS. Unless Italy can count on low borrowing costs and a broad recovery, it will "inevitably end up in an EU bailout." The current situation is as bad as when the country was blown out of the ERM in 1992 as "the Italian macro situation has not improved...rather the contrary; with 160 large corporates in Italy now in special crisis administration." If the ECB doesn’t act, one analyst warns (pleads) it could see all the gains of the past nine months vanish in two weeks. Mediobanca said the trigger for a blow-up in Italy could be a bail-out crisis for Slovenia or an ugly turn of events in Argentina, which has close links to Italian business. "Argentina in particular worries us, as a new default seems likely."

Via The Telegraph,

“Time is running out fast,” said Mediobanca’s top analyst, Antonio Guglielmi, in a confidential client note. “The Italian macro situation has not improved over the last quarter, rather the contrary. Some 160 large corporates in Italy are now in special crisis administration.”

The report warned that Italy will “inevitably end up in an EU bail-out request” over the next six months, unless it can count on low borrowing costs and a broader recovery.

Emphasising the gravity of the situation, it compared the crisis with when the country was blown out of the Exchange Rate Mechanism in 1992 despite drastic austerity measures.

...

“The European Central Bank needs to take very aggressive steps to offset this,” said Marchel Alexandrovich from Jefferies Fixed Income. “We have a sell-off across the board. If the ECB doesn’t act, it could see all the gains of the past nine months vanish in two weeks, taking the eurozone back to square one.”

...

“We have clear signs in global finance of a generalised meltdown in assets right now.”

...

Mediobanca said the trigger for a blow-up in Italy could be a bail-out crisis for Slovenia or an ugly turn of events in Argentina, which has close links to Italian business. “Argentina in particular worries us, as a new default seems likely.”

Mr Guglielmi said Italy’s industrial output has slumped 25pc from its peak in the past decade, while disposable income has dropped 9pc and house sales have dropped to 1985 levels.

The 1992 crisis was defused by a large devaluation, allowing Italy to restore trade competitiveness at a stroke. Mediobanca said: “The euro straitjacket is clearly not providing a similar currency flexibility today. With the lira devaluation Italy managed to inflate debt away, which it cannot do today. It could take more than 10 years to revert to pre-crisis output levels.

Axel Merk to Moneynews: US Dollar Is the 'Last Domino Standing'

The dollar is one of the few financial assets to thrive since Federal Reserve Chairman Ben Bernanke indicated last Wednesday that the Fed may taper its quantitative easing soon.

But the dollar's strength won't last long, Axel Merk, chief investment officer of Merk Investments, told Newsmax TV in an exclusive interview.

The Dollar Index, which measures the greenback against six major currencies, gained 2 percent from Tuesday's low through Friday.

Story continues below video.




"In many ways, the dollar is like the last domino standing," Merk said. "Remember, in 2008, there was a flight to the dollar as well. But the other asset class that did well was Treasurys. Well, this time around, there is no hiding in Treasurys."

The yield on the 10-year Treasury note rose from 2.54 percent Friday to 2.59 percent Monday, the highest level in almost two years.

"Some people are saying the dollar's going to be doing great; we have all of this tightening happening at the Fed and what-not," he noted. "Well, guess what? We just think that is the last bubble out there."

While Bernanke sees a smooth exit from quantitative easing, "we also like to have cupcakes for dessert," he quipped. "The challenge is, of course, his exit won't happen. The market says we don’t want this exit because, guess what? We are addicted to this easy money."

Editor’s Note: Put the World’s Top Financial Minds to Work for You

The dollar is benefiting from "liquidity" now, not "quality," Merk explained. "In the U.S., the great thing is you can take your money out. That's why people are putting money in in times of crisis."

Still, the euro has held its own against the dollar over the last year, he stated. Indeed, it gained 4.8 percent against the greenback during that period.

And the dollar's recent strength doesn't help most U.S. investors anyway because their investments are always denominated in dollars.

Meanwhile, the recent severe correction in gold represents an attractive buying opportunity, Merk suggested. Gold has plunged more than 20 percent so far this year, trading at $1,275 Monday.

"We like it when volatility is up," he said. "When gold goes up for 12 years in a row ... at some point, somebody's going to sell, and then everybody piles in with a vengeance. It's more symptomatic of the markets in general that when liquidity dries up, we can plunge."

As for the long term, "we're quite bullish on gold simply because there's too much debt in the world," Merk explained. "Europeans may try austerity, but in the rest of world, we'll use the printing press."

And it's not as if there's a more attractive and secure investment. "You've got to realize there is no safe haven in the world left," he stressed.

"And that's one of the reasons we argue you've got to diversify to purchase something as mundane as cash. If you hold cash, dollar cash, your purchasing power is at risk. So gold is one of the tools you may want to have in your toolbox."

Editor’s Note: Put the World’s Top Financial Minds to Work for You


© 2013 Moneynews. All rights reserved.

Moody’s downgrades Hong Kong over Snowden: Is ratings agency a political arm of US?

BREAKING: Our Man In Iceland: ‘Snowden was bound for Reykjavik’

21st Century Wire says…

Yesterday the world made some sense, but then you wake up today and realise how far-reaching the international white collar mafia truly is…
International financial ratings agency Moody’s is not known for being a political enforcement arm of Washington DC… until now that is.
In a move which sets a dangerous precedent of politicizing the world’s markets, Moody’s just made an aggressive move towards global financial warfare between Washington and China, and perhaps the rest of the world as well – by downgrading 9 major Hong Kong banks today.

That will wipe a lot off money off a lot of wealthy investors’ balance sheets.
So Hong Kong authorities would not to honor U.S. requests to arrest the fugitive Snowden, and then this happens.

Just a coincidence? Hardly. Ratings agents appear to have gotten the call from upstairs. This, it seems, is Washington’s last desperate effort to flush out its latest public relations nemesis – the 29 year old NSA whistleblower Ed Snowden.

Hong Kong’s economy is booming at present and its banks remain among the highest-rated banks globally, backed by solid levels of capitalization. Hong Kong’s financial wealth is historically linked to Great Britain, so this latest spat reinforces the narrative that the British-hatched Snowden crisis could be a behind the scenes battle between elites in the UK who want intervention in Syria and those in the US who don’t.


IMAGE: Snowden’s limited hangout in Hong Kong has come at a price to investors there.

The Snowden affair is being used to set a whole new raft of measures not seen before – which makes us us all the suspicious about the timing and the nature of of this latest international whistleblower – who, like Bradley Manning, hasn’t leaked anything that we didn’t already know.

Many already know that Moody’s and the rating gangs are corrupt and work hand in hand – as they did in the subprime mortgage theft, with their partners in crime at the major banks. What happens when international finance goes fully political? History tells us that a world war beckons.

Regardless, it’s just another reason for the rest of the world to lose faith in the a highly rigged global financial system run out of New York and London… 
.

Rating Action: Moody’s takes rating actions on nine Hong Kong banks

.
Global Credit Research – 24 Jun 2013

Hong Kong, June 24, 2013 - Moody’s Investors Service has changed the outlooks for the bank financial strength ratings (BFSRs)/Baseline Credit Assessments (BCAs) of eight Hong Kong banks to negative from stable, and one bank’s BFSR outlook to stable from positive.
In addition, Moody’s has lowered Wing Lung Bank’s BFSR by one notch, and affirmed all other ratings of the nine banks.
Moody’s has affirmed the deposit ratings of all the nine banks involved in this rating action. However, it has changed the outlooks on the deposit ratings for five of the nine banks concerned to negative from stable, while those for the other four banks are unchanged at stable. Please click here for a list of the affected credit ratings. http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_155742. This list is an integral part of this press release and identifies each affected issuer.
RATINGS RATIONALE
The rating actions follow Moody’s decision to revise the outlook for Hong Kong’s banking system to negative from stable.
The change in the banking system outlook reflects the agency’s concerns regarding persistent negative real interest rates and potential property bubbles in Hong Kong, as well as Hong Kong banks’ growing exposures to Mainland China. These factors could result in adverse operating conditions for Hong Kong banks over the outlook horizon…

Read more

How defence firms got the taxpayer to pay for magicians, flowers, souvenir mugs and non-existent accidents

Defence firms have been caught trying to charge the taxpayer hundreds of thousands of pounds for Christmas parties, magicians and even ‘anticipated car accidents’.
Defence Secretary Philip Hammond has uncovered a string of startling claims submitted as part of multi-million-pound defence contracts.
He said firms had got away with billing the Ministry of Defence for ‘inappropriate activities’ because they did not have to provide a breakdown of what their charges were for.

Leaked e-mails reveal that Standard and Poors and Moodys accepted money for higher ratings before the financial crisis

What about the ratings agencies?

That's what "they" always say about the financial crisis and the teeming rat's nest of corruption it left behind. Everybody else got plenty of blame: the greed-fattened banks, the sleeping regulators, the unscrupulous mortgage hucksters like spray-tanned Countrywide ex-CEO Angelo Mozilo.

But what about the ratings agencies? Isn't it true that almost none of the fraud that's swallowed Wall Street in the past decade could have taken place without companies like Moody's and Standard & Poor's rubber-stamping it? Aren't they guilty, too?

Man, are they ever. And a lot more than even the least generous of us suspected.

Thanks to a mountain of evidence gathered for a pair of major lawsuits by the San Diego-based law firm Robbins Geller Rudman & Dowd, documents that for the most part have never been seen by the general public, we now know that the nation's two top ratings companies, Moody's and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash. 

In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.

"Lord help our [expletive] scam . . . this has to be the stupidest place I have worked at," writes one Standard & Poor's executive. "As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst. "If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value," complains another senior S&P man. "Let's hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more.

Ratings agencies are the glue that ostensibly holds the entire financial industry together. These gigantic companies – also known as Nationally Recognized Statistical Rating Organizations, or NRSROs – have teams of examiners who analyze companies, cities, towns, countries, mortgage borrowers, anybody or anything that takes on debt or creates an investment vehicle.

Their primary function is to help define what's safe to buy, and what isn't. A triple-A rating is to the financial world what the USDA seal of approval is to a meat-eater, or virginity is to a Catholic. It's supposed to be sacrosanct, inviolable: According to Moody's own reports, AAA investments "should survive the equivalent of the U.S. Great Depression."

It's not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.

That this happened is even more amazing because these companies naturally have powerful leverage over their clients, as they are part of a quasi-protected industry that enjoys massive de facto state subsidies. Largely that's because government agencies like the Securities and Exchange Commission often force private companies to fulfill regulatory requirements by retaining or keeping in reserve certain fixed quantities of assets – bonds, securities, whatever – that have been rated highly by a "Nationally Recognized" ratings agency, like the "Big Three" of Moody's, S&P and Fitch. So while they're not quite part of the official regulatory infrastructure, they might as well be. 

It's not like the iniquity of the ratings agencies had gone completely unnoticed before. The Financial Crisis Inquiry Commission published a case study in 2011 of Moody's in particular and discovered that between 2000 and 2007, the agency gave nearly 45,000 mortgage-backed securities AAA ratings. One year Moody's doled out AAA ratings to 30 mortgage-backed securities every day, 83 percent of which were ultimately downgraded. "This crisis could not have happened without the rating agencies," the commission concluded.

Thanks to these documents, we now know how that happened. And showing as they do the back-and-forth between the country's top ratings agencies and one of America's biggest investment banks (Morgan Stanley) in advance of two major subprime deals, they also lay out in detail the evolution of the industrywide fraud that led to implosion of the world economy – how banks, hedge funds, mortgage lenders and ratings agencies, working at an extraordinary level of cooperation, teamed up to disguise and then sell near-worthless loans as AAA securities. It's the black box in the American financial airplane.

In April, Moody's and Standard & Poor's settled the lawsuits for a reported $225 million. Brought by a diverse group of institutional plaintiffs with King County, Washington, and the Abu Dhabi Commercial Bank taking the lead, the suits accused the ratings agencies of conspiring in the mid-to-late 2000s with Morgan Stanley to fraudulently induce heavy investment into a pair of doomed-to-implode subprime-laden deals, called Cheyne and Rhinebridge.

Stock prices for both companies soared at the settlement, with markets believing the firms would be spared the hell of reams of embarrassing evidence thrust into public view at trial. But in a quirk, an earlier judge's ruling had already made most of the documents in the case public. Although a few news outlets, including The New York Times, took note at the time, the vast majority of the material was never reported, and some was never seen by reporters at all. The cases revolved around a highly exotic and complex financial instrument called a SIV, or structured investment vehicle.

The SIV is a not-so-distant cousin of the special purpose entity, or SPE, which was the main weapon of destruction in the Enron scandal. The corporate scam du jour in those days was mass accounting fraud, in which a company would create an ostensibly independent corporate structure that would actually be controlled by its own executives, who would then move their company's liabilities off their own books and onto the remote-controlled SPE, hiding the firm's losses.

The SIV is a similar concept. They first started showing up in the late Eighties after banks discovered a loophole in international banking standards that allowed them to create SPE-like repositories full of assets like mortgage-backed securities and keep them off their own books.

These behemoths operated on the same basic concept as an ordinary bank, which borrows short-term cash from depositors and then lends money long-term in the form of things like mortgages, business loans, etc. The SIV did the same thing, borrowing short-term from investors and then investing long-term on things like student loans, car loans, subprime mortgages. Like banks, a SIV made money on the spread between its short-term debt and long-term investments. If a SIV borrowed on the commercial paper market at 3 percent but earned 6.5 percent on subprime mortgages, that was an easy 3.5 percent profit.

The big difference is a bank has regulatory capital requirements. A SIV doesn't, and being technically independent, its potential liabilities don't show up on the books of the megabank that created it. So the SIV structure allowed investment banks to create and take advantage of, without risk, billions of dollars of things like subprime loans, which became the centerpiece of the new trendy corporate scam – creating and then selling masses of risky mortgage-backed securities as AAA investments to institutional suckers.

Ratings agencies helped this game along in two ways. First, banks needed them to sign off on the bogus math of the subprime era – the math that allowed banks to turn pools of home loans belonging to people so broke they couldn't even afford down payments into securities with higher credit ratings than corporations with billions of dollars in assets. But banks also needed the ratings agencies to sign off on the safety and reliability of these off-balance-sheet SIV structures.

The first of the two SIVs in question was dreamed up by a London-based hedge fund called Cheyne Capital Management (pronounced like Dick "Cheney"), run by an ex-Morgan Stanley banker duo who hired their old firm to build and stock this vast floating Death Star of subprime loans.

Morgan Stanley had multiple motives for putting together the Cheyne deal. For one thing, it earned what the bank's lead structurer affectionately called "big fat upfront fees," which bank executives estimated would eventually add up to $25 million or $30 million. It was a lucrative business, and the top dogs wanted the deal badly. "I am very focused on . . . getting this deal done to get NY to stop freaking out" and "to make our money," said Robert Rooney, the senior Morgan Stanley executive on the deal. A spokesman for Morgan Stanley, however, told Rolling Stone, "Our sole economic interest was in the ongoing success of the SIV."

But that wasn't Morgan Stanley's only motive. Not only could the bank make the "big fat upfront fees" for structuring the deal, they could also turn around and sell scads of their own mortgage-backed securities to the SIV, which in turn would be marketed to investors like Abu Dhabi and King County. In Cheyne, 25 percent of the original assets in the deal came from Morgan Stanley – over time, $2 billion of the SIV's $9 billion to $10 billion portfolio of assets came from the bank as well.

Internal Morgan Stanley memorandums show that the bank knowingly stuffed mortgages in the SIV whose borrowers were, to say the least, highly suspect. "The real issue is that the loan requests do not make sense," complained a Morgan Stanley employee back in 2005. He noted loans had been made to a "tarot reading house" operator who claimed to make $12,000 a month, and a "knock off gold club distributor" who claimed to make $16,000 a month. "Compound these issues," he groaned, "with the fact that we are seeing what I would call a lot of this type of profile."

No matter – into the soup it went! Morgan sold mountains of this crap into Cheyne's SIV, where it was destined to be sold off to other suckers down the line. The only thing that could possibly get in the way of the scam was some pesky ratings agency.

Fortunately for the bank and the hedge fund, these subprime SIVs were a relatively new kind of investment product, so the ratings agencies had little to go on in the area of historical data to measure these products. One might think this would make the ratings agencies more conservative. In fact, caution in the face of the unknown was supposed to be a core value for these companies. As Moody's put it, "Triple-A structures should not be highly dependent on untestable assumptions."

But when it came to the Cheyne SIV, Moody's punted on caution. In an e-mail sent to executives from both Morgan Stanley and Cheyne in May 2005, David Rosa, a Moody's senior analyst, admitted that when it came to this SIV, he had nothing to go on.

"Please note that in relation to assumed spread [volatility] for the Aa and A there is no actual data backing up the current model assumptions," he wrote. In lieu of such data, he went on, "We will for now accept the proposal to use the same levels as [residential mortgage-backed securities] given that this assumption is supported by the analysis of the Aaa data . . . and Cheyne's comments on their views of this asset class."

Translation: We have no historical data, so we'll just accept your reasoning for the time being, even though you have every incentive in the world to lie about the quality of your product.

At one point, a Morgan Stanley analyst even claimed that the bank had written, in Moody's name, an entire 12-page "New Issue Report" for the Cheyne SIV – a kind of ratings summary in which Morgan Stanley appears to have given itself AAA ratings for large chunks of the deal. "I attach the Moody's NIR (that we ended up writing)," yawns Morgan Stanley fixed-income employee Rany Moubarak in a March 2006 e-mail. The attached document came proudly affixed with the "Moody's Investors Service" logo. (Both Moody's and Morgan Stanley deny that anyone other than Moody's wrote that report.)

Morgan Stanley ended up getting both Moody's and S&P to rate the deal, and that was not only common, it was basically industry practice. There were many reasons for this, but a big one was a concept called "notching," in which the agencies gave ratings penalties to any instrument that had not been rated by their own company. If a SIV contained a basket of mortgage-backed securities rated AA by Standard & Poor's, Moody's might "notch" those underlying securities down to A, or even lower. This incentivized the banks to hire as many ratings agencies as possible to rate every investment vehicle they created.

Again, despite the fact that the ratings agencies enjoyed broad quasi-official subsidies, and despite the powerful market leverage that techniques like "notching" gave them, they still routinely chose to roll over for banks. And the biggest companies were equally guilty. In the case of the Cheyne deal, Standard & Poor's was every bit as craven as Moody's.

In September 2004, an S&P analyst named Lapo Guadagnuolo sent an e-mail to Stephen McCabe, the agency's lead "quant" on the Cheyne deal, who apparently was on vacation. The e-mail chain was mostly a bunch of office gossip, where the two men e-whispered about an employee who was about to quit. But sandwiched in the office banter was an offhand line about the Cheyne deal and how full of shit it was. "Hi Steve!" Guadagnuolo wrote cheerily, adding, "How is Australia and how was Thailand????Back to [Cheyne] . . . As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it . . .

"Thanks and regards . . . have you heard that [redacted] has resigned . . . and somebody else will follow suit today!!"

McCabe, blowing off the "no science behind it" comment, answered eagerly, "Who, Who, Who????" The quadruple question mark must be an S&P-ism.

A month later, McCabe seemed more concerned about the lack of science in the Cheyne deal. He complained in an e-mail to his boss, Kai Gilkes, who was the agency's senior quantitative analyst in Europe.

"From looking at the numbers it is quite obvious that we have just stuck our preverbal [sic] finger in the air!!" he fumed.

Gilkes was experiencing his own crisis of conscience by mid-2005, complaining in an oddly wistful e-mail to another S&P employee that the good old days of just giving things the ratings they deserved were disappearing. "Remember the dream of being able to defend the model with sound empirical research?" he wrote on June 17th, 2005. "If we are just going to make it up in order to rate deals, then quants are of precious little value."

Frank Parisi, Standard & Poor's chief credit officer for structured finance, was even more downtrodden, saying that the model that his company used to rate residential mortgage-backed securities in 2005 and 2006 was only marginally more accurate than "if you just simply flipped a coin."

Given all of this, why would top analysts from both Moody's and Standard & Poor's rate such a massive deal like Cheyne without any science to back it up? The answer was simple: money. In the old days, ratings agencies lived on subscriptions sold to investors, meaning they were compensated – indirectly, incidentally – by the people buying the financial products.

But over time, that model morphed into the current "issuer pays" model, in which a company like Moody's or Standard & Poor's is paid directly by the "issuer" – i.e., the company that is actually making the financial product.

For Cheyne, for instance, the agencies were paid in the area of $1 million to $1.5 million to rate the deal by Morgan Stanley, the very company with an interest in getting a high rating. It's the ultimate in negative incentives, and was and continues to be a major impediment to honest analysis on Wall Street. Michigan Sen. Carl Levin, one of the few lawmakers to focus on reforming the ratings agencies after the crash, put it this way: "It's like one of the parties in court paying the judge's salary."

Thanks to this model, ratings-agency business soared during the bubble era. A Senate report found that fees for the "Big Three" doubled between 2002 and 2007, from $3 billion to $6 billion. Fees for rating mortgage-backed securities at both Moody's and S&P nearly quadrupled.

So there were powerful incentives to whitewash deals like Cheyne. The eventual president of Moody's, Brian Clarkson, actually copped to this awful truth in writing, in a 2004 internal e-mail. "To put it bluntly," he wrote, "the issuer could take its business elsewhere unless the rating agency provides a higher rating." 

Both Moody's and Standard & Poor's employees described complex/exotic new financial products like CDOs and SIVs as "cash cows," and behind closed doors, executives talked openly about the financial pressure to give scientifically unfounded analysis to products the banks wanted to sell.

The minutes from a 2007 conference of Standard & Poor's executives show that the raters knew they were in way over their heads. Admitting that it was virtually impossible to accurately rate, say, a synthetic derivative loan deal with underlying assets in China and Russia, one executive candidly admits, "We do not have the capacity nor the skills in house to rate something like this." Another counters, "Market pressures have significantly risen due to 'hot money.'" The first retorts that bankers are pushing boundaries, asking the raters to help them play the highly cynical hot-potato game, in which bad loans are originated en masse and then instantly passed off to suckers who will take on all the risk. "Bankers say why not originate bad loans, there is no penalty," the executive muses.

Hilariously – or tragically, depending on your point of view – an S&P executive at the conference even tossed off a quick visual sketch of their company's moral quandary. The picture is atrociously drawn (it looks like a junior high school student's rendering of a ganglion cell) and comes across like the Wall Street version of Hamlet, showing the industry traveling down a road and reaching a "Choice Point" crossroads, where the two options are "To Rate" and "Not Rate."

The former – basically taking the money and just rating whatever crap the banks toss their way – is crudely depicted as a wide, "well marked super highway." Meanwhile the honorable thing, not rating shitty investments, is shown to be a skinny little roadlet, marked "Dark and narrow path less traveled."

Obviously, the ratings agencies like S&P ultimately decided to take the road more traveled, choosing profits over scruples. Not that there wasn't some token resistance at first. For instance, some at S&P hesitated to allow the use of a questionable technique called "grandfathering," in which old and outdated rating models were used to rate newly issued investments.

In one damning e-mail chain in November 2005, a Morgan Stanley banker complains to an S&P executive named Elwyn Wong that S&P was preventing him from putting S&P ratings on Morgan Stanley deals that used this grandfathering technique. "My business is on 'pause' right now," the banker complains.

Wong took the news that S&P was holding up deals over the grandfathering issue badly. "Lord help our fucking scam," he said. "This has to be the stupidest place I have worked at." Wong, incidentally, was later hired by the U.S. Office of the Comptroller Currency, our top federal banking regulator.

The purists, however, couldn't hold out for long. In the Cheyne case, when one of the "quants" tried to hold the line, Morgan Stanley went over their heads to someone on the business side at the company to get the rating it wanted.

In July 2004, for instance, analyst Lapo Guadagnuolo sent an e-mail to Morgan Stanley's point man on the Cheyne deal, Gregg Drennan, and told him that the best he could do for the "mezzanine capital notes" or "MCN" piece of the SIV – a piece that Drennan wanted at least an A rating for – was BBB-plus. Drennan responded in an e-mail that CC'd Guadagnuolo's boss, Perry Inglis, telling him that Morgan Stanley "believe[s] the position the committee is taking is very inappropriate."

Ultimately, the analyst committee agreed to give the dubious Mezzanine Notes an A rating, marking the first time these middle-tier investments in a SIV ever received a public A rating. For Wall Street, this was occasion to par-tay. In the summer of 2005, one of the Cheyne hedge-funders sent out a celebratory e-mail to Morgan Stanley execs, bragging about getting the ratings companies to cave. "It is an amazing set of feats to move the rating agencies so far," the hedgie wrote. "We all do all this for one thing and I hope promotions are a given. Let's hope big bonuses are to follow."

Later on, S&P caved even further, agreeing to allow Morgan Stanley to lower the "capital buffer" in the deal protecting investors without suffering a ratings penalty. As late as February 1st, 2006, Guadagnuolo was defiantly telling Morgan Stanley that the one-percent buffer was a "pillar of our analysis." But by the next day, Morgan Stanley executive Moubarak had chopped Guadagnuolo's knees out. He cheerfully announced in a group e-mail that the bank had managed to remove this "pillar" and get the buffer knocked down to .75 percent.

Tina Sprinz, who worked for the Cheyne hedge fund, sent an e-mail that very day to Moubarak, thanking him for straightening out the pesky analysts. "Thanks for negotiating that," she says. The ratings process shouldn't be a "negotiation," yet this word appears throughout these documents.

In the Cheyne deal, just the plaintiffs in the lawsuit invested a total of $980 million in "rated notes," and those who invested in these "MCNs" were completely wiped out. Analysts from both agencies would express regret and/or trepidation about their roles in unleashing the monster deals and their failure to stop the business-side suits running the companies from selling them out. Gilkes, the S&P analyst who worried about shunning real science in favor of just making things up, later testified that the subprime assets in such SIVs were "not appropriate."

"They should not have been rated," he said.

If the significance of Cheyne is that it showed how the ratings agencies sold out in an effort to get business, the significance of the next deal, Rhinebridge, is that it showed how low they were willing to stoop to keep that business.

Rhinebridge was a subprime-packed SIV structured very much like Cheyne, only both the quality of the underlying crap in the SIV and the timing of the SIV's launch were significantly more horrible than even Cheyne's.

Not only did Morgan Stanley insist that the ratings agencies allow the bank to pack Rhinebridge full of a much higher quantity of subprime than in the Cheyne deal, they were also pushing this massive blob of toxic mortgages at a time when the subprime market was already approaching full collapse.

In fact, the Rhinebridge deal would launch with high ratings from both agencies on June 27th, 2007, less than two weeks before both Moody's and S&P would downgrade hundreds of subprime mortgage-backed securities. In other words, both Moody's and S&P were almost certainly in the process of downgrading the underlying assets in the Rhinebridge SIV even as they were preparing to launch Rhinebridge with AAA-rated notes.

"It was the briefest AAA rating in history," says the plaintiffs' lawyer Dan Drosman. "Rhinebridge went from AAA to junk in a matter of months."

There is an enormous documentary record in both agencies showing that analysts and executives knew a bust was coming long before they sent Rhinebridge out into the world with a AAA label. As early as 2005, S&P was talking in internal memorandums about a "bubble" in the real-estate markets, and in 2006 it knew that there had been "rampant appraisal and underwriting fraud for quite some time," causing "rising delinquencies" and "nightmare mortgages."

In June 2007, the same month Rhinebridge was launched, S&P's Board of Directors Report talked about a total collapse of the market. "The meltdown of the subprime-mortgage market will increase both foreclosures and the overhang of homes for sale."

It was no better at Moody's, where in June 2007, executives were internally discussing "increased amounts of lying on income" and "increased amounts of occupancy misstatements" in mortgage applications. Clarkson, who would become president two months later, was told the week before Rhinebridge launched that "most players in the market" believed subprime would "perform extremely poorly," and that the problems were "quite serious."

Yet the two ratings agencies not only kept those concerns private, they both took outlandish steps to declare just the opposite.

In a pair of matching public papers, both Moody's and S&P proclaimed that summer that while subprime might be going to hell, subprime-packed investments like SIVs might be just fine. The Moody's report on July 18th read "SIVs: An Oasis of Calm in the Sub-prime Maelstrom," while an S&P report on August 14th, 2007, was titled "Report Says SIV Ratings Are Weathering Current Market Disruptions."

The S&P report was so brazen that it even shocked a Morgan Stanley banker involved in the SIV deals. "I cannot believe these morons would reaffirm in this market," chortled the banker in an e-mail the day after the paper was released.

Rhinebridge, cheyne and a hell of a lot of other subprime investments ultimately blew to smithereens, taking with them vast amounts of cash – 40 percent of the world's wealth was wiped out in the aftermath of the mortgage bubble, according to some estimates. 2008 was to the American economy what 9/11 was to national security. Yet while 9/11 prompted the U.S. government to tear up half the Constitution in the name of public safety, after 2008, authorities went in the other direction. If you can imagine a post-9/11 scenario where there were no metal detectors at airports and people could walk on carrying chain saws and meat cleavers, you get a rough idea of what was done to reform the ratings process.

Specifically, very little was done to change the way AAA ratings are created – the "issuer pays" model still exists, and the "Big Three" retain roughly the same market share. An effort by Minnesota Sen. Al Franken to change the compensation model through a new approach under which agencies would be assigned randomly to rate new issues through a government agency passed overwhelmingly in the Senate, but in the House it was relegated to a study by the SEC – which released its findings last year, calling for . . . more study. "The conflict of interest still exists in the exact same way," says a frustrated Franken.

The companies by now are all the way back in black. In 2012, for instance, Moody's profits soared 22 percent, to $1.18 billion. McGraw-Hill, the parent company of Standard & Poor's, scored $437 million in profits last year, with the rating business accounting for 70 percent of the company's profits.

In February, the Obama Justice Department, in an action that seems belated, filed a $5 billion civil suit against Standard & Poor's, drawing upon some of the same data and documents that were part of the Cheyne and Rhinebridge suits. As part of that action, high-ranking officials at S&P were interviewed by government investigators and admitted that they had shaded their ratings methodologies to protect market share. In this deposition of Richard Gugliada, head of S&P's CDO operations, the government asks why the company was slow to implement updates to its model for evaluating CDOs:

Q: Is it fair to say that Standard & Poor's goal of preserving an increasing market share and profits from ratings fees influence the development of the updates to the CDO evaluator?

A: In part, correct.

Q: The main reason to avoid a reduction in the noninvestment grade ratings business was to preserve S&P's market share in that category, correct?

A: Correct.

Years after the crash, it's a little insulting to see industry analysts blithely copping under oath to having traded science for market share, especially since the companies continue to protest to the contrary in public. Contacted for this story, Moody's and S&P insisted many of the documents in this case were simply taken out of context, and that their analysis throughout has been rigorous, objective and independent.

It's a thin defense, but it's holding – for now. McGraw-Hill stock plunged nearly 14 percent when news of the Justice Department suit leaked, and dropped nearly 19 percent for February, but has since regained much of its value – its stock rose nearly 16 percent in March and April, as markets reacted favorably to, among other things, its recent settlement of the Cheyne and Rhinebridge suits. The markets clearly think the ratings agencies will survive.

What's amazing about this is that even without a mass of ugly documentary evidence proving their incompetence and corruption, these firms ought to be out of business. Even if they just accidentally sucked this badly, that should be enough to persuade the markets to look to a different model, different companies, different ratings methodologies.

But we know now that it was no accident. What happened to the ratings agencies during the financial crisis, and what is likely still happening within their walls, is a phenomenon as old as business itself. Given a choice between money and integrity, they took the money. Which wouldn't be quite so bad if they weren't in the integrity business.

This story is from the July 4 - July 18, 2013 issue of Rolling Stone