Wednesday, January 26, 2011

FDIC Takes $455 Million Weekend Hit; 2010 Worst Year For Bank Failures Since '92; CEO 'Shocked' At Western United Closure; Updated 'Problem Banks List

Several FDIC bank-related links and updates to pass along, and a chart...


WSJ - Tracking Bank Failures: Regulators Close Banks in Four States

Regulators closed four banks on Friday.

The biggest? The banking subsidiary of United Western Bancorp. Denver-based United Western Bank had about $2.05 billion in total assets and $1.65 billion in total deposits with eight branches as of Sept. 30. First-Citizen Bank & Trust Co. agreed to assume all the deposits and entered a loss-share deal with the FDIC on $1.11 billion of the assets. The acquiring company started in North Carolina but now has 370 branches in the Southeast as well as California, Colorado—where it will now have 11 branches—and Washington state.


Four Banking Failures In Four States Cost FDIC $455 Million


2010 worst year for bank failures since 1992

More banks failed in the United States this year than in any year since 1992, during the savings-and-loan crisis, according to the Federal Deposit Insurance Corp.

Amid high unemployment, a struggling economy and a still-devastated real estate market, the nation is closing out the year with 157 bank failures, up from 140 in 2009. As recently as 2006, before the bubble burst, there were none.

Now, there are more on the horizon.

The FDIC's list of "problem" banks - those whose weaknesses "threaten their continued financial viability"- stood at 860 as of Sept. 30, the highest since 1993. Historically, about a fifth of banks on the watch list end up failing.

Bank failures have left the FDIC insurance fund in the red, but the agency predicts that it will have more than enough money to meet the anticipated cost of failures through 2014.


157 Failures In '10 Highest Since '92 – Why Next Year Will Be Worse


Bank Chairman "shocked" at United Western closure

United Western Bancorp chairman Guy Gibson insisted Monday that regulators prematurely pulled the plug on the company's chief holding, United Western Bank.

"We had actually given the regulators in writing the commitments that we had in place," Gibson said. "We don't know why they took this precipitous action. We were shocked."

The company had written commitments from investors for $149 million in capital from a high-profile group that included Lovell Minnick Partners, Oak Hill Capital Management and former First Data chief executive and chairman Ric Duques, he said.

United Western had also received strong indications of interest to provide another $70 million or more, Gibson said.

The Office of Thrift Supervision closed the $2.05 billion bank late Friday afternoon and handed it over to the Federal Deposit Insurance Corp., which had arranged a sale to First-Citizens Bank & Trust Co. of Raleigh, N.C.


FDIC Official Failed Bank List

The FDIC is often appointed as receiver for failed banks. This page contains useful information for the customers and vendors of these banks. This includes information on the acquiring bank (if applicable), how your accounts and loans are affected, and how vendors can file claims against the receivership. Failed Financial Institution Contact Search displays point of contact information related to failed banks.

This list includes banks which have failed since October 1, 2000.


And Calculated Risk's newest unofficial list of problem banks....

Blueberries faked in cereals, muffins, bagels and other food products - ...

Bank of America sued by mortgage investors for “massive fraud

Bank of America’s Countrywide mortgage operation was accused of “massive fraud” in a suit by big investors who say they were misled about the quality of mortgage-backed securities.

A dozen institutional investors, including TIAA-CREF Life Insurance Co. and New York Life Insurance Co., filed the complaint Jan. 24 in New York State Supreme Court, according to Bloomberg News.

The litigation is the latest salvo in a battle between BofA and institutional investors over mortgage-backed securities and the quality of the loans backing those investments.

“We will review the suit, but on first glance these sound like large, sophisticated investors who now want to blame someone for the fact that the declining economy caused their investment to lose value,” said BofA (NYSE: BAC) spokeswoman Shirley Norton.

In the suit, the investors say they purchased Countryside’s mortgage-backed securities, seeking a low-risk investment. But the plaintiffs allege that Countrywide’s documentation on the mortgage-backed securities was knowingly false. BofA acquired Countrywide in 2008.

“Countrywide was an enterprise driven by only one purpose – to originate and securitize as many mortgage loans as possible into MBS to generate profits for the Countrywide defendants without regard to the investors that relied on the critical, false information provided to them with respect to the related certificates,” according to the suit.

BofA is ranked first on the Tampa Bay Business Journal's list of largest banks with $13.5 billion in deposits and 154 locations.

China puts Urumqi under 'full surveillance'

Xinjiang city which saw ethnic violence in 2009 now watched by tens of thousands of cameras, says state media

A Uighur woman and child walk past a charred car in Urumqi after riots exploded in July 2009
A Uighur woman and child walk past a charred car in Urumqi after ethnic violence exploded in the city in July 2009. Photograph: Eugene Hoshiko/AP

China is putting Urumqi, where deadly ethnic violence broke out in 2009, under full surveillance, with tens of thousands of cameras positioned across sensitive areas of the city, state media reported today.

Security has been tight in the western city since tensions between the area's largely Muslim Uighurs and members of China's Han majority flared into open violence in 2009. Uighurs have long resented what they see as an incursion by Han migrants into their ancestral homeland, the Xinjiang region.

The government says 197 people were killed during the violence, the deadliest in Xinjiang in years. Dozens of people have been imprisoned for their involvement in the riots, most of them Uighurs. Beijing blamed overseas Uighur groups of plotting the violence, but exile groups denied it.

Just before the one-year anniversary of the violence last year, officials said about 40,000 high-definition surveillance cameras with riot-proof protective shells had been installed throughout the region. Nearly 17,000 were installed in Urumqi last year, the state-run Xinhua news agency reported today. It was not clear if that figure was in addition to the one reported last year.

The surveillance coverage will continue to grow this year, according to the mayor of Urumqi, Jerla Isamudinhe, who spoke to the city's legislature over the weekend, Xinhua reported.

Surveillance is "seamless" – meaning there are no blind spots – in sensitive areas of Urumqi, the report quoted Wang Yannian, head of the city's information technology office, as saying.

It is not unusual to see thousands of surveillance cameras in China's cites, and authorities have been known to install them around mosques in Xinjiang and in temples in Tibet, which saw its own of ethnic violence in early 2008.

Beijing is wary of anything that looks like separatism and has branded as "terrorists" those who oppose China's authority over Xinjiang, a strategically vital region with oil and gas deposits.

Last autumn, the UK-based consultancy IMS Research said more than 10m surveillance cameras would be installed in China in 2010. Beijing has more than 400,000, the China Daily newspaper reported last April.

Civil rights activists have objected to the widespread use of surveillance cameras, pointing out that China has very little in the way of privacy protections.

Today's report said 3,400 buses, 4,400 streets, 270 schools and 100 shopping centres in Xinjiang.

The increase in surveillance is part of a pattern of tightening Beijing's control over the region. After the 2009 violence, the region's internet and international telephone links were blocked for more than six months. Officials last year also reported hiring an extra 5,000 police officers in Xinjiang.

Uighur exile groups have asked for an independent investigation of the violence and the crackdown.

Chinese authorities have long been accused of alienating the largely Muslim Uighurs with tight restrictions on cultural and religious expression and nonviolent dissent.

China's leaders say all ethnic groups are treated equally and point to the billions of dollars in investment that has modernised the region.

Financial Cartoons & Funny Photos

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Lowe’s to Cut 1,700 Management Jobs, Add Weekend Staff

Lowe’s Cos., the second-biggest U.S. home-improvement retailer, plans to eliminate 1,700 middle- management jobs in stores as profit growth trails that of larger Home Depot Inc.

Brent Kirby, Lowe’s senior vice president of store operations for the North Central division, declined to say how much the moves will save the company. Lowe’s also plans to add 8,000 to 10,000 weekend sales positions to improve staffing at the chain’s busiest time of the week, he said in an interview. The change takes effect Jan. 29.

Lowe’s, led by Chief Executive Officer Robert Niblock, is cutting managers responsible for store operations, sales and administration while creating a new assistant store manager position. These managers will oversee such merchandise categories as paint, hardware and flooring, said Kirby, 42.

Some shoppers remain reluctant to spend on household improvements amid sinking home prices and mounting foreclosures.

The part-time weekend staff will try to get customers to buy more, said Joseph Feldman, an analyst at Telsey Advisory Group in New York.

“It sounds like middle managers weren’t driving incremental sales,” Feldman said in an interview.

Lowe’s had about 239,000 employees as of Jan. 29, 2010, compared with Atlanta-based Home Depot’s 317,000. Profit growth at Lowe’s trailed Home Depot’s last quarter, and analysts surveyed by Bloomberg project that trend to repeat this period, with an increase of 40 percent at Home Depot and 17 percent at its smaller counterpart.

Controlling Labor Expenses

As store openings have slowed, controlling labor expenses has helped Lowe’s improve gross profit margin. The company’s margin widened to 35.05 percent in the third quarter ended Oct. 29 from 34.20 percent a year earlier, helped by the hiring of more part-time seasonal workers and using employees instead of outside contractors for plumbing and electrical repairs in stores. In the same quarter, Home Depot’s margin, the percentage of sales remaining after subtracting the cost of goods sold, improved to 34.3 percent from 34 percent a year earlier.

Mooresville, North Carolina-based Lowe’s rose 49 cents, or 2 percent, to $25.56 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 16 percent in the past year.

Learn this Word: "Stagflation"

Anthony Migchels

Since the start of the Credit Crunch in Sept. 2008, a fierce debate has raged over whether we will face deflation or inflation. We can now conclude we will have a toxic combination of both, known as stagflation.

Stagflation is the phenomenon of rising prices and falling demand and production. It was first experienced in the late seventies and although it eventually disappeared, there was never a good explanation for it.

Proponents of both sides of the aforementioned debate had strong arguments.

Deflationists said the banks were insolvent and would not be able to provide credit, leading to a diminishing money supply and declining prices.

Inflationists said Central Banking and Governmental policies of bail outs, QE1,2,x and stimulus would lead to more money in circulation, with rising prices as a result.

Both were right, but they missed a crucial point. There are two economies. One is the real economy, where you and I operate. We work and make stuff. Cars, food, all sorts of services.

And there is also the financial economy. This is the shadowy world of finance, FOREX, stock exchanges, commodity exchanges. The graph below shows the vast scale of this financial economy, which is many times bigger than the real economy.

Graph by Margrit Kennedy and Bernard Lietaer, based on BIS figures

The transaction volume for the financial economy is in red and the real economy is in green. At this point we are talking about 5 trillion worth of transactions per day in the financial economy, many times more than in the real economy. We can also see that while the real economy grows in linear fashion, the financial economy grows exponentially. The unexpected decline we see around 2000 is explained by the introduction of the euro, which diminished FOREX speculation. A small price to pay for that giant leap towards World Currency.

It also shows that the financial sector began only in the early seventies. This is explained by the rise of the computer. Most people don't realize that even in the early sixties, most wages were paid cash. It is the computer that made it possible for banks to connect everybody to their system. It also explains why stagflation had not been around before the late seventies.

The financial and real economies to some extent interact, primarily via commodity exchanges. But the financial economy is largely isolated. Most of the hot money never reaches the real economy.

Thankfully, otherwise the dollar wouldn't even be worth the 1% of its 1913 purchasing power it has now. This is so, because for instance, FOREX is just an eternal ping pong of transactions within the banking sector, leading to an eternal wealth transfer from the not-so-savvy to the "usual suspects."

The two parallel economies also explain why price rises have not kept up with the expansion of credit. A lot of the newly created money was siphoned off to the financial economy.

We have a deflation in the real economy but a massive inflation in the financial economy. Stagflation is coming because a portion of this hot money is now entering the commodity markets, leading to inflation in the primary sector (agriculture and mining). These rising prices will be passed on by producers in the secondary and tertiary sectors (industry and services.)

An example of this process were the skyrocketing oil prices in 2009. It has been established that Goldman Sachs was using TAARP funds to drive up prices.

Another example is the current rise in food prices. Or what do we think of JPM cornering the copper market?

The deflation in the real economy is caused by the credit crunch, and by the new Capital Reserve Requirements that were foisted upon the banking system by the Bank of International Settlements.

Meanwhile corporations are choked by lack of credit and going out of production, resulting in rising unemployment.

So what does the future look like? We will be facing rising prices while the economy will be depressed, i.e. declining production and high levels of unemployment. This will result in volatility in the commodity markets, something we are now seeing with commodity stocks correcting by as much as one third.

I would like to express my appreciation for Dick Eastman's courageous and groundbreaking thoughts on the parallel economies and its implications.

Just 47% of Working Age Americans Have Full Time Jobs

Charts - Duration of U.S. Unemployment


Source - Automatic Earth

VK, roving reporter for The Automatic Earth, has been playing with the numbers from the January 7 employment report issued by the U.S. Bureau of Labor Statistics. It seems valuable to look at unemployment from this, a different, angle. Some of it may even surprise you.

The total non institutional civilian labor force (Americans 16 years and older who are not in a institution -criminal, mental, or other types of facilities- or an active military duty) is reported as 238.889 million. Of these, we see:

  • Employed: 139.206 million people (58.3% of labor force)

  • Unemployed: 14.485 million people (6.1% of labor force)

Obviously, that can't be the total picture, we're only at 64.4%. This is why:

  • Part time employed for economic reasons: 8.931 million people. This concerns people who want a full-time job but can't get one.

  • Part time employed for non-economic reasons: 18.184 million people. Non-economic reasons include school or training, retirement or Social Security limits on earnings, but also childcare problems and family or personal obligations.

But the by far largest category "missing" from both the Employed and Unemployed statistics is the "Not In Labor Force": 85.2 Million people.

The BLS definition states: "Not in the labor force (NILF). A person who did not work last week, was not temporarily absent from a job, did not actively look for work in the previous 4 weeks, or looked but was unavailable for work during the reference week; in other words, a person who was neither employed nor unemployed." (Clearly, this does include lot of unemployed people).

To summarize: 108.616 million people in America are either unemployed, underemployed or "Not in the labor force". This represents 45.5% of working age Americans.

If you count the "Part time employed for non-economic reasons", you get 126.8 million Americans who are unemployed, underemployed, working part time or "Not in the labor force". That represents 53% of working age Americans.

So less than half of U.S. residents have full time jobs, while the official jobless rate is 9.4%. Something's missing somewhere.


Further reading...



Bank Of America Stops Issuing Notices Of Default In Non-Judicial States

And so the latest shoe to drop in robosigning falls. Diana Olick reports that BofA has stopped its issuing notices of default in non-judicial states, such as the all critical California and Arizona, which explains the dramatic drop off in NODs in January. Previously explained by Koolaid guzzlers as an indication of economic improvement, it turns out this was merely yet more fraud being perpetrated by the big banks, which are now trying to cover up their slime trail. According to Bank of America's Dan Frahm, "We did conduct a review of the Notice of Default process. As a result we stopped the NOD process in non-judicial states." And so the double dip just got far worse.

In very parallel news, stay tuned for a blockbuster release on the Ambac-JPM lawsuit escalation.

Treasuries Climb as Official Says Obama to Seek Spending Freeze

Jan. 25 (Bloomberg) -- Treasuries climbed, pushing yields on 10- and 30-year debt down the most this year, as an official said President Barack Obama will propose a five-year freeze of non-security discretionary spending to help cap deficits.

The government’s sale of $35 billion of two-year notes attracted more demand than the average of the last 10 auctions of the securities. Obama will call in his State of the Union speech for the spending freeze as a way to reduce the federal government’s budget shortfall, according to Melody Barnes, director of the president’s domestic policy council. The Federal Reserve bought $7.7 billion of Treasuries to help spur growth.

“It’s too early to tell whether words will turn into action, but the market is romancing the concept,” said Russ Certo, a managing director and co-head of rates trading at Gleacher and Co. in New York. “In a risk-off day with equities low, the auction coming in on the screws, aggressive buying from the Fed and a preamble to the State of the Union news, Treasuries have responded with a bid.”

Thirty-year bond yields tumbled as much as nine basis points, the most on an intraday basis since Dec. 31, before trading at 4.49 percent at 5:15 p.m. in New York, down seven basis points, according to BGCantor Market Data. The price of the 4.25 percent security due in November 2040 rose 31/32, or $9.69 per $1,000 face amount, to 96 1/32. One basis point is 0.01 percentage point.

The benchmark 10-year note yield dropped as much as 10 basis points, the most since Dec. 29, to 3.31 percent. The current two-year yield fell five basis points to 0.58 percent.

Obama Proposal

Obama’s freeze wouldn’t apply to spending for Social Security, Medicare, Medicaid, Homeland Security, the Defense Department or interest payments on the national debt. In his address last year, he proposed a three-year freeze on most domestic spending, not including national security or defense.

The president also will look for savings in security and defense spending, and will endorse a proposal by Defense Secretary Robert Gates to cut $78 billion from the Pentagon budget over five years, Barnes said in a Bloomberg TV interview.

The fiscal 2011 budget Obama proposed last year totaled $3.8 trillion, and the administration forecast the deficit would be $1.4 trillion, compared with the $1.3 trillion shortfall for fiscal 2010.

“There are concerns about long-term deficits, and there is a big difference between talking about it and the policies getting done -- but the tone change is positive for Treasuries,” said John Briggs, a U.S. government bond strategist at Royal Bank of Scotland Group Plc’s RBS Securities Inc. in Stamford, Connecticut.

Tax Cut Extension

The proposal will come seven weeks after Obama and congressional Republicans agreed on an $858 billion deal, later passed by Congress, to extend Bush-era tax cuts for two years.

The Treasury two-year note auction drew a yield of 0.65 percent, compared with a forecast of 0.663 percent in a Bloomberg News survey of 7 of the Fed’s 18 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.47, compared with an average of 3.35 at the previous 10 sales.

Indirect bidders, an investor class that includes foreign central banks, purchased 27 percent of the notes, compared with an average of 34.5 percent for the past 10 sales.

“It was a fine, unexciting auction -- it was ham on rye, and we are on to the five-year auction,” said RBS’s Briggs, whose firm is obligated as a primary dealer to bid at Treasury offerings.

More Auctions

The Treasury will sell $35 billion in five-year notes tomorrow and $29 billion of seven-year debt on Jan. 27.

Last month’s two-year note sale drew a yield of 0.74 percent, the highest level since May. The record low yield of 0.40 percent was reached in the October sale.

Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, bought 14.9 percent of the notes, compared with an average of 15.8 percent at the past 10 offerings.

The Fed bought today Treasuries due from February 2015 to June 2016. The amount was 27.6 percent of what holders offered, compared with an average of 34.2 percent at the past 10 buys. The purchases are part of the central bank’s program to buy up to $600 billion in U.S. debt through June to spur economic growth and employment.

The Standard & Poor’s 500 Index was little changed after falling 0.8 percent.

Confidence Rises

Treasuries earlier erased gains as U.S. consumer confidence rose in January to the highest level in eight months, more than economists forecast. The Conference Board’s index of sentiment increased to 60.6, from a revised 53.3, figures from the New York-based private research group showed today. Economists in a Bloomberg News survey projected a rise to 54.

The International Monetary Fund raised its forecast for global economic growth this year, reflecting stronger U.S. output based on tax-cut extensions, while emerging nations lead the recovery.

The world economy will grow 4.4 percent, more than the 4.2 percent expected in October, it said. Expansion next year is projected to reach 4.5 percent, unchanged from October, the IMF said in an update to its World Economic Outlook report.

CHART SHOCK - The Real National Debt Is $202 Trillion

Graphing the national debt and unfunded liabilities thru 2009. Dr. Kotlikoff, economics professor at Boston University, has the 2010 numbers below.


Dr. Lawrence Kotlikoff - National debt truth teller...

Kotlikoff: "The U.S. is bankrupt and we don't even know it..."


Bloomberg Video: Dr. Laurence Kotlikoff economics professor at Boston University, discusses the national debt and unfunded liabilities - Aug. 11, 2010

Using CBO data, Kotlikoff says the real national debt is $202 trillion.

Compare the official deficit numbers for July - $165 billion - with the numbers for all of 2002 - where $165 billion covered the deficit for the entire fiscal year.



The Congressional Budget Office whose Long-Term Budget Outlook, released in June, shows an even larger problem.

‘Unofficial’ Liabilities

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.


Check out the pics from the Greek riots - 27 total...


Wall Street Partying in Davos as Bankers Overcome Crisis Angst

As Wall Street chief executive officers flock to the World Economic Forum, they’ll be breathing a sigh of relief along with the Swiss mountain air: There are no panels on compensation or redesigning financial regulation.

After spending much of last year’s meeting defending the industry and debating proposed rules, bankers plan to focus on wooing clients and winning business, according to executives at three Wall Street companies, who spoke anonymously because they weren’t authorized to comment publicly.

The bankers will be coming to Davos, Switzerland, with a renewed sense of confidence. JPMorgan Chase & Co.’s profits last year were the highest in the bank’s history, and Citigroup Inc. returned money to the U.S. Treasury and reported its first full- year profit since 2007. Governments have so far opted against breaking up or levying extra taxes on banks deemed too big to fail, and the Basel Committee on Banking Supervision, which sets global financial-regulatory guidelines, isn’t requiring lenders to meet new capital standards until 2015.

“It will feel less acute,” said Anne M. Finucane, Bank of America Corp.’s chief strategy and marketing officer, who attended with CEO Brian T. Moynihan for the first time last year and is returning this week. “The level of angst should have dissipated some given that there is movement in the economy.”

Goldman, Morgan Stanley

Two years ago, after the 2008 financial crisis, the CEOs of Bank of America, Citigroup and Morgan Stanley stayed away from the annual forum. This year the only major Wall Street banks that aren’t sending CEOs are Goldman Sachs Group Inc. and Morgan Stanley, instead represented by President Gary D. Cohn, 50, and Chairman John J. Mack, 66, respectively.

That means banks will be spending on parties. JPMorgan upgraded its cocktail reception to the Kirchner Museum from last year’s event at the Tonic Piano Bar at Hotel Europe Davos. Bank of America’s Moynihan and the firm’s other top executives will meet clients for drinks on Jan. 27 at the Steigenberger Grandhotel Belvedere -- the same night Morgan Stanley’s Mack is hosting a private dinner at restaurant Gasthaus in den Islen. Standard Chartered Plc and Deutsche Bank AG are both hosting events at the Belvedere the following night.

Nomura Holdings Inc. is having a British journalist and a newspaper editor speak at a dinner for clients, the first such event the Tokyo-based bank has held in Davos, according to a person familiar with the planning. Barclays Plc will again hold its annual client dinner at the Hotel Schatzalp, and Credit Suisse Group AG is hosting two client lunches, one discussing financial regulation and the other focused on emerging markets.

‘Cup of Coffee’

As always, much of the action at Davos will happen at meetings and parties that aren’t on the official program.

“The most useful thing for us is really just to spend time with key clients over there, even if it’s just a cup of coffee for 20 minutes or so,” said William Vereker, the London-based joint global head of Nomura’s investment banking division.

For bankers like Vereker, in contrast with this year’s Davos theme of “Shared Norms for a New Reality,” the old reality is back.

“They’re out there to make money for shareholders and trying to do that the best way they can under a system they helped design,” said Simon Johnson, a professor at the Massachusetts Institute of Technology’s Sloan School of Management and a Bloomberg News columnist. “We’re just going through the same cycle again with pretty much the same incentives and power structures. Why would one expect anything different?”

Co-Chair Kochhar

One thing different this year is that none of the heads of big western banks is among the event’s six co-chairs. Chanda D. Kochhar, the 49-year-old CEO of ICICI Bank Ltd., India’s second- biggest lender, is replacing Deutsche Bank CEO Josef Ackermann and Standard Chartered CEO Peter A. Sands, who represented the industry last year.

Kochhar’s bank, unlike many of its western counterparts, remained profitable throughout the financial crisis and this week reported a record profit for the three months ending Dec. 31. Her salary, bonus, expenses and pension contributions for the year ending March 31, 2010, totaled 20.9 million rupees ($457,500), the Mumbai-based bank’s annual report showed, less than half the $1 million base salary paid to JPMorgan CEO Jamie Dimon, who is returning to Davos after skipping last year.

A survey released today by New York-based public relations firm Edelman showed the percentage of respondents in India who said they trusted banks rose to 87 percent, while in Germany, Ireland, the U.K. and U.S., trust in banks tumbled to 25 percent or less. In China, trust in banks soared to 90 percent, the study showed.

Lessons Learned

Finucane and other senior bankers said the lessons learned from the financial crisis aren’t forgotten. They also said the reform process isn’t finished. Many of the rules required by the U.S.’s Dodd-Frank financial legislation have yet to be written, and Basel still has to craft rules for too-big-to-fail banks and capital requirements for trading units.

“The way that Dodd-Frank is implemented is still up for grabs,” said Jane R. Gladstone, who leads the financial- services corporate advisory practice at New York-based investment bank Evercore Partners Inc. and is going to Davos for the third time. “There is a chance that we still have some important sessions and regulatory meetings at Davos.”

This year the discussion at Davos will probably move to different topics such as economic stimulus, monetary policy and the role played by emerging markets, Finucane said.

Geithner, Cantor

Timothy F. Geithner is scheduled to be in Davos, the first time in more than a decade that a sitting U.S. Treasury secretary has flown to Switzerland for the conference. The leaders of France, Germany and the U.K. will also appear, as will seven members of the U.S. Congress, including Republican Majority Leader Eric I. Cantor and Massachusetts Democratic Congressman Barney Frank.

None of the U.S.’s main financial regulators, such as Securities and Exchange Commission Chairman Mary L. Schapiro or U.S. Commodity Futures Trading Commission Chairman Gary Gensler are on the list of participants.

“Last year there were a lot of conversations about who to blame, how to blame them, and how to re-jigger the industry,” said Yury Spektorov, a Moscow-based partner in Bain & Co.’s mergers and acquisitions practice. “It’s not a hot topic anymore. Some people probably learned their lessons, some probably didn’t, but they will discuss how to move forward.”

Back on Track

Goldman Sachs’s Cohn and Standard Chartered’s Sands are scheduled to participate in one of the first panels tomorrow, discussing “The International Financial System: Back on Track?” The discussion will also include Liu Mingkang, chairman of the China Banking Regulatory Commission, as well as London- based lawyer David R. Childs and hedge-fund manager Frank P. Brosens. That session is closed to the press.

JPMorgan’s Dimon, 54, will make a more public appearance the following morning on a panel titled “The Next Shock: Are We Better Prepared?” Dimon is the only financial-industry participant in that discussion, which also includes Israeli President Shimon Peres and the leaders of consulting firm McKinsey & Co., Alcoa Inc. and Paris-based advertising company Publicis Groupe SA.

Pandit, Diamond

Other appearances by top bank executives are less likely to focus on Wall Street and regulation. Citigroup’s Vikram S. Pandit is on a panel about expanding financial services to the poor; Bank of America’s Moynihan will talk about currency devaluations; and Barclays’s Robert E. Diamond Jr. will discuss the global economy in a session that features World Bank President Robert B. Zoellick and the finance or economy ministers from three countries.

Jonathan Chenevix-Trench, who spent 23 years at Morgan Stanley and went to Davos in 2006 and 2007, said the event could be more useful than ever if executives used the time with politicians and regulators to address unsolved problems in the financial system.

“There will always be client meetings, that’s what they’re there to do, so absolutely they’ll be doing that,” said Chenevix-Trench, 59, who co-founded London-based African Century Group, which invests in sub-Saharan Africa. Still, “we’ve not solved this conundrum of bankers making hay when the times are good and taxpayers picking up the tab when times are bad, and that model, everyone’s got to look at it very carefully.”

The Good News: The Banks have NO DOCUMENTATION on MILLIONS of loans!

more from Taibbi:

... in fact, almost no bank currently foreclosing on homeowners has a reliable record of who owns the loan; in some cases, they have even intentionally shredded the actual mortgage notes. That's where the robo-signers come in. To create the appearance of paperwork where none exists, the banks drag in these pimply entry-level types — an infamous example is GMAC's notorious robo-signer Jeffrey Stephan, who appears online looking like an age-advanced photo of Beavis or Butt-Head — and get them to sign thousands of documents a month attesting to the banks' proper ownership of the mortgages.

This isn't some rare goof-up by a low-level cubicle slave: Virtually every case of foreclosure in this country involves some form of screwed-up paperwork. "I would say it's pretty close to 100 percent," says Kowalski. An attorney for Jacksonville Area Legal Aid tells me that out of the hundreds of cases she has handled, fewer than five involved no phony paperwork. "The fraud is the norm," she says.

"The fraud is the norm." Hey Obama, how about halting all foreclosures until this paperwork debacle is straightened out? His response: No, that would be bad for the economy (banks). That's really funny, because during the 2008 campaign, Obama called for a Foreclosure Moratorium. But now that he's in office, he does the opposite. Shouldn't there be a law against that?

More Good News: It may well be that the banks lost 100% of the paperwork!
MERS intended to provide an electronic registry of all mortgages. By appointing a "vice president" in every financial firm, it believed that all transfers of lien rights among these firms were "in house". Hence it operated on the belief that no subsequent public recording was necessary, and no further endorsement of the mortgage note was necessary for in-house transfers of the payment intangible as it kept a record of transfers of the mortgage. It claimed to be a nominee of these firms (purported to hold the mortgage) but also to be the holder of the mortgages including the "Unidentified Indorsees In Blank" -- mortgages that were never properly endorsed over to purchasers. We know, however, that MERS recommended that mortgage servicers retain notes, so MERS's claim to be the holder rests on its claim that appointed VPs are employees. But these employees are not an agent/employee of the "Unidentified Indorsee In Blank", nor are they paid by MERS or in any way supervised by MERS.

This practice is in violation of numerous laws. Property law requires filing sales in the public record. Notes must be affixed (permanently) to the security instrument -- a mortgage without the note has been ruled a "nullity" by the Supreme Court. MERS's recommended business practice (with the servicer retaining the note) would make the mortgages a "nullity". A complete chain of title is required to foreclose on property -- every sale of a mortgage must be endorsed over to the purchaser, and properly recorded. Without this, it is illegal to foreclose on property -- no matter how many payments the homeowner has missed.
In other words, the banks set up this MERS agency to help them bundle the mortgages and sell them as AAA securities as fast as possible. But in their need for speed, they just skipped out on all the important paperwork. Ooops!

And now it's coming back to haunt them.

The Great Looting: Homeowners, Pensioners Robbed by Wall Street; Congress MIA

What would you do if you discovered the entire "foreclosure crisis" was nothing more than a Huge SCAM. And upon learning this can be proven - in simple, easy to understand terms - and the President and 99% of our "Representatives" continue to look the other way.

The government is openly bought and owned by the bankers.

The news readers will that tell us robo-signers were hired by the banks to sign hundreds if foreclosures per day, without reading the documents, without any training whatsoever.
"It is difficult to get a man to understand something when his job depends on not understanding it.
-- Upton Sinclair
A deliberate fraud to steal millions of homes from American families, and the corporate news readers on tv smile and tell us it's alright, this kind of thing happens all the time. They should be mad as hell. Politicians should be on tv telling us they're going to fight have have Americans returned to their homes. But they don't, the banks are great campaign contributors. The politicians and news readers don't want to know the truth, as it would mean the end of the career and luxurious lifestyle.

It's important to realise that the bank bailout and mortgage crisis was all a fraud.This was a ponzi scheme set up by the banks for the banks, and the government went right along with it because they ARE the bankers and/or completely supported and co-opted by bankers.

Literally, there is no doubt, that the 'foreclosure crisis' was an engineered scam enabling the fraudsters to scam money on both sides of the equation.
Related: New Banking Chairman says Washington is there "to serve the banks".

Rep. wants foreclosure investigation to ignore robo-signer controversy.
They used predatory lending practices to encourage people to get loans they couldn't afford. They even cold-called people to get them to refinance a house that was already paid in full. Now a few years later they are trying to snatch that house out from under the family that has lived there for generations. And they did it on purpose! This happened over and over again. Why? The "securitization of loans" deal that allow the banks to bundle the bad loans, intentionally mislabel them AAA, then sell them to pension funds and other duped investors. Millions have lost big money in their pension funds because these fraudsters blatantly stole their money and the government did nothing about it. More on that below, but first an example of how one guy was screwed by the bank, with a little help from the gov't.

Bank uses Obama's Loan Modification program to steal home. Think this happened only once?

Graham said his trial dragged on for 18 months. He said he made every payment until Bank of America told him in May that he didn't qualify for HAMP, and that he'd lose his home unless he paid about $7,000 to make up the difference between his normal monthly payments and the reduced payments he made during the trial period.

"Each month when I did talk to them I was informed it's still under review -- as long as you keep making this trial payment everything will be fine," said Graham, 53. "At some point I started receiving notices from my credit cards that they were reducing my credit amount due to recent problems making my mortgage payment on time."

Graham, who faces reduced income after retiring from his job as a shift foreman at a grocery distribution center, said he never would have bothered with HAMP had the bank not sent him a packet saying he should apply. "I would have found some way to [make my payments] if I had to," he said. "It may even been that we'd have fallen behind a month or two. I certainly wouldn't have been in this sort of shape."

It's the classic HAMP bait-and-switch: Homeowners are told they're eligible for the program but eventually discover the foreclosure process, triggered by the reduced payments, moved faster than the modification process.

It's so blatantly corrupt, people just refuse to believe, it's easier take the blue pill and go back to sleep.

Bleep that! Don't go back to sleep. Instead, check this out from Matt Taibbi's Invasion of the Home Snatchers:

...when the banks put these pools together, they were telling their investors that they were putting their money into tidy collections of real, performing home loans. But frequently, the loans in the trust were complete shit. Or sometimes, the banks didn't even have all the loans they said they had. But the banks sold the securities based on these pools of mortgages as AAA-rated gold anyway.

In short, all of this was a scam — and that's why so many of these mortgages lack a true paper trail. Had these transfers been done legally, the actual mortgage note and detailed information about all of these transactions would have been passed from entity to entity each time the mortgage was sold. But in actual practice, the banks were often committing securities fraud (because many of the mortgages did not match the information in the prospectuses given to investors) and tax fraud (because the way the mortgages were collected and serviced often violated the strict procedures governing such investments). Having unloaded this diseased cargo onto their unsuspecting customers, the banks had no incentive to waste money keeping "proper" documentation of all these dubious transactions.

Food Speculation: 'People Die From Hunger While Banks Make a Killing on Food'

It's not just bad harvests and climate change, speculators are also behind record prices. And it's the planet's poorest who pay

Just under three years ago, people in the village of Gumbi in western Malawi went unexpectedly hungry. Not like Europeans do if they miss a meal or two, but that deep, gnawing hunger that prevents sleep and dulls the senses when there has been no food for weeks.

Oddly, there had been no drought, the usual cause of malnutrition and hunger in southern Africa, and there was plenty of food in the markets. For no obvious reason the price of staple foods such as maize and rice nearly doubled in a few months. Unusually, too, there was no evidence that the local merchants were hoarding food. It was the same story in 100 other developing countries. There were food riots in more than 20 countries and governments had to ban food exports and subsidise staples heavily.

The explanation offered by the UN and food experts was that a "perfect storm" of natural and human factors had combined to hyper-inflate prices. US farmers, UN agencies said, had taken millions of acres of land out of production to grow biofuels for vehicles, oil and fertiliser prices had risen steeply, the Chinese were shifting to meat-eating from a vegetarian diet, and climate-change linked droughts were affecting major crop-growing areas. The UN said that an extra 75m people became malnourished because of the price rises.

But a new theory is emerging among traders and economists. The same banks, hedge funds and financiers whose speculation on the global money markets caused the sub-prime mortgage crisis are thought to be causing food prices to yo-yo and inflate. The charge against them is that by taking advantage of the deregulation of global commodity markets they are making billions from speculating on food and causing misery around the world.

As food prices soar again to beyond 2008 levels, it becomes clear that everyone is now being affected. Food prices are now rising by up to 10% a year in Britain and Europe. What is more, says the UN, prices can be expected to rise at least 40% in the next decade.

There has always been modest, even welcome, speculation in food prices and it traditionally worked like this. Farmer X protected himself against climatic or other risks by "hedging", or agreeing to sell his crop in advance of the harvest to Trader Y. This guaranteed him a price, and allowed him to plan ahead and invest further, and it allowed Trader Y to profit, too. In a bad year, Farmer X got a good return but in a good year Trader Y did better.

When this process of "hedging" was tightly regulated, it worked well enough. The price of real food on the real world market was still set by the real forces of supply and demand.

But all that changed in the mid-1990s. Then, following heavy lobbying by banks, hedge funds and free market politicians in the US and Britain, the regulations on commodity markets were steadily abolished. Contracts to buy and sell foods were turned into "derivatives" that could be bought and sold among traders who had nothing to do with agriculture. In effect a new, unreal market in "food speculation" was born. Cocoa, fruit juices, sugar, staples, meat and coffee are all now global commodities, along with oil, gold and metals. Then in 2006 came the US sub-prime disaster and banks and traders stampeded to move billions of dollars in pension funds and equities into safe commodities, and especially foods.

"We first became aware of this [food speculation] in 2006. It didn't seem like a big factor then. But in 2007/8 it really spiked up," said Mike Masters, fund manager at Masters Capital Management, who testified to the US Senate in 2008 that speculation was driving up global food prices. "When you looked at the flows there was strong evidence. I know a lot of traders and they confirmed what was happening. Most of the business is now speculation – I would say 70-80%."

Masters says the markets are now heavily distorted by investment banks: "Let's say news comes about bad crops and rain somewhere. Normally the price would rise about $1 [a bushel]. [But] when you have a 70-80% speculative market it goes up $2-3 to account for the extra costs. It adds to the volatility. It will end badly as all Wall Street fads do. It's going to blow up."

The speculative food market is truly vast, agrees Hilda Ochoa-Brillembourg, president of the Strategic Investment Group in New York. She estimates speculative demand for commodity futures has increased since 2008 by 40-80% in agricultural futures.

But the speculation is not just in staple foods. Last year, London hedge fund Armajaro bought 240,000 tonnes, or more than 7%, of the world's stocks of cocoa beans, helping to drive chocolate to its highest price in 33 years. Meanwhile, the price of coffee shot up 20% in just three days as a direct result of hedge funds betting on the price of coffee falling.

Olivier de Schutter, UN rapporteur on the right to food, is in no doubt that speculators are behind the surging prices. "Prices of wheat, maize and rice have increased very significantly but this is not linked to low stock levels or harvests, but rather to traders reacting to information and speculating on the markets," he says.

"People die from hunger while the banks make a killing from betting on food," says Deborah Doane, director of the World Development Movement in London.

The UN Food and Agriculture Organisation remains diplomatically non-committal,saying, in June, that: "Apart from actual changes in supply and demand of some commodities, the upward swing might also have been amplified by speculation in organised future markets."

The UN is backed by Ann Berg, one of the world's most experienced futures traders. She argues that differentiating between commodities futures markets and commodity-related investments in agriculture is impossible.

"There is no way of knowing exactly [what is happening]. We had the housing bubble and the credit default. The commodities market is another lucrative playing field [where] traders take a fee. It's a sensitive issue. [Some] countries buy direct from the markets. As a friend of mine says: 'What for a poor man is a crust, for a rich man is a securitised asset class.'"

John Vidal is a frequent contributor to Global Research. Global Research Articles by John Vidal

The Most Predictable Financial Calamity in History

In November 2010, the Federal Reserve announced a second round of economic stimulus commonly referred to as Quantitative Easing (QE2). The reason, according to the Fed, was “progress toward its objectives has been disappointingly slow.” So, to try and turn the economy around, the Fed said, “. . . the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter (June) of 2011, a pace of about $75 billion per month.” (Click here to read the complete announcement from the Fed.) QE means the Fed basically creates money out of thin air to buy debt. The current money printing orgy is financing more than half of U.S. government right now. The first round of QE bought toxic mortgage debt and bailed out the bankers.

What was not said in the press release was much more important and may go down as one of the biggest turning points in the history of America. Bringing on QE2 meant QE1 ($1.75 trillion) failed to provide a sustained recovery. It also exposed the $12.3 trillion total spent or loaned by the Fed since the meltdown of 2008 failed to give the economy a lasting boost. The Fed did save some businesses and all the big Wall Street Banks from bankruptcy, but we now know nothing has really been fixed.

This brings me to one really important question. I put this question to a group of well-known market experts, economists, investment bankers and big thinkers. The five guys you are about to hear from have at least one major thing in common. They all predicted tough times for America when most didn’t see it coming. So, I asked them all last week to peer into the not-so-distant future for their take on “What happens when QE2 ends?”

World renowned gold expert Jim Sinclair said, States and Municipalities can and will go broke. The economic impact will act to foil QE. That will result in QE to Infinity regardless of MOPE. (Management of Perception Economics) Therefore, Washington and the Fed will backdoor rescues by buying State & Municipal debt, a form of QE.”

Next is prolific writer and author James Howard Kunstler. He specializes in novels about fictional depictions of the post-oil American future. Here’s what Kunstler says about the end of QE2, My guess is the Fed will find some other way to buy distressed securities or “investment-like” things. The models for that are the Maiden Lane portfolios (there’s more than one) which are stuffed with crap like bankrupt hotels. Yes, the Fed owns bankrupt hotels! If they don’t buy up what are essentially loans gone bad, the system sucks itself into a black hole of compressive deflation. That outcome is likely anyway, because the Fed won’t be able to keep up with loans gone bad.”

Rick Ackerman, professional trader and founder of the website and newsletter called “Ricks Picks,” says, “I don’t think there’s a snowball’s chance in hell that promiscuous easing will end, regardless of what the fraudulent successor to QE2 is called. The commentary running right now at Rick’s Picks says that easing in the form of a U.S. bailout of cities and states could become politically necessary as early as this year, although a decision to do so would trigger the worst run on the dollar in history. Look for the bailout to happen anyway, but in a way that tries to obscure the fact that it is being done with funny money. The subterfuge won’t work for long, since public workers will figure out quickly that unless their retirement benefits are indexed to inflation, they’re going to get paid in confetti.”

James Rickards is a heavyweight in the world of finance. He is an expert in Threat Finance & Market Intelligence. “What happens when QE2 ends?” Rickards says, “The Fed never said that QE2 would end; that’s a popular misconception but they never said it. What they said was that they would buy $600 billion of intermediate term Treasury securities by June 2011. They never said that was all they would buy. They never said they would stop. The comments were carefully worded so that $600 billion by June was a targeted minimum but they never said anything about a maximum; technically there is no maximum. The first QE program ended in 2010 and the economy immediately began to fall into a double dip. QE2 was hastily put together to truncate the double dip. If they end QE2 the double dip scenario is back on the table. Therefore they will not end it. They will keep monetizing debt, whatever it takes, as long as it takes until there is a self-sustaining recovery. However, none of the predicates of a self-sustaining recovery are in place, therefore they will just keep printing money as far as the eye can see until the process becomes dynamically unstable and the dollar begins to collapse. So, bottom line, it is a mistake to talk about the “end” of QE2 because there is no end in sight.

Finally, economist John Williams of predicts a financial meltdown even if QE2 is extended. Williams told me, “I think you will see much greater economic and systemic-solvency troubles ahead than commonly are expected. Accordingly, I would expect a QE3, or an expansion of QE2 before it is scheduled to have been run through.”

I can’t imagine how the U.S. could stop printing money in June and then turn around and ask the world to start buying our debt again at a rate of $75 billion a month. Of course, we would want to pay discount rates in order to keep mortgages affordable and real estate prices from crashing. There would be no legitimate buyers unless we were paying much higher interest rates. Higher rates are the last thing the Fed wants to see because it would kill what little is left of this so-called “recovery.”

In summary, all the experts I polled think QE Will Not End. That will surely mean an imploding U.S. dollar and exploding inflation. This is scheduled to happen by the end of June, making this the most predictable financial calamity in history.

Ever wonder why European banks were so angry with us: Something about not making good on some toxic garbage we sold them - until 'The Bailout'?

NEW YORK -- The Federal Reserve on Wednesday reluctantly opened the books on its monumental campaign to save the financial system in the midst of the recent crisis, revealing how it distributed some $3.3 trillion in relief.

[Federal Reserve Chairman Ben Bernanke. The data revealed that the Fed's aid was scattered much more widely than previously understood.]Federal Reserve Chairman Ben Bernanke. The data revealed that the Fed's aid was scattered much more widely than previously understood (to cover fraudulent derivative sales? - ed.)

The data revealed that the Fed's aid was scattered much more widely than previously understood. Two European megabanks -- Deutsche Bank and Credit Suisse -- were the largest beneficiaries of the Fed's purchase of mortgage-backed securities (also known as "toxic derivatives" - ed.)

The Fed's dollars also flowed to major American companies that are not financial players, including McDonald's and Harley-Davidson, through unsecured short-term loans.

The measure, initiated in Jan. 2009 to stimulate the flow of credit and keep household borrowing costs low, led the nation's central bank to purchase more than $1.1 trillion in mortgages packaged into the form of securities. The mortgage bonds are backed by Fannie Mae and Freddie Mac, the twin mortgage giants now owned by taxpayers.

Deutsche Bank, a German lender, has sold the Fed more than $290 billion worth of mortgage securities, Fed data through July shows. Credit Suisse, a Swiss bank, sold the Fed more than $287 billion in mortgage bonds.

The data had previously been secret. It was released Wednesday per the recently-enacted law overhauling the federal financial regulation. The Fed, ferociously backed by the Obama administration, fought lawmakers' desire for full disclosure throughout the financial reform debate.

Source: Every news feed on the planet ...

E-mails Suggest Bear Stearns Cheated Clients Out of Billions

590 bear getty.jpg

Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering. Last week a lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was unsealed. The lawsuit's supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a "sack of shit."

News of internal whistleblowers coming forward from Bear's mortgage servicing division, EMC, was first reported by The Atlantic in May of last year. Ex-EMC analysts admitted they were sometimes told to falsify loan-level performance data provided to the ratings agencies who blessed Bear's billion-dollar deals. But according to depositions and documents in the Ambac lawsuit, Bear's misdeeds went even deeper. They say senior traders under Tom Marano, who was a Senior Managing Director and Global Head of Mortgages for Bear and is now CEO of Ally's mortgage operations, were pocketing cash that should have gone to securities holders after Bear had already sold them bonds and moved the loans off its books.

Mike Nierenberg, who ran the adjustable-rate mortgage trading desk at Bear and is now the head of mortgages and securitization for Bank of America, was a key player ensuring the defaulting loans Bear was buying would move off their books right after they bought them, with little concern for the firm's due diligence standards. He was joined in this scheme by Jeff Verschleiser, his peer and Senior Managing Director on the mortgage and asset-backed securities trading desk and head of whole loan trading. He is now an executive in Goldman Sachs' mortgage division.

According to the lawsuit, the Bear traders would sell toxic mortgage securities to investors and then sell back the bad loans with early payment defaults to the banks that originated them at a discount. The traders would pocket the refund, and would not pass it on to the mortgage trust, which was where it should have gone to be distributed to the investors who owned the bonds. The Marano-led traders also cut the time allowed for early payment defaults, without telling the bond investors. That way, Bear could quickly securitize defective loans, without leaving enough time for investors to do their own due diligence after the bonds were sold and put-back any bad loans to Bear.

The traders were essentially double-dipping -- getting paid twice on the deal. How was this possible? Once the security was sold, they didn't have a legal claim to get cash back from the bad loans -- that claim belonged to bond investors -- but they did so anyway and kept the money. Thus, Bear was cheating the investors they promised to have sold a safe product out of their cash. According to former Bear Stearns and EMC traders and analysts who spoke with The Atlantic, Nierenberg and Verschleiser were the decision-makers for the double dipping scheme, and thus, are named as individual defendants in the suit.

Bear deal manager Nicolas Smith wrote an e-mail on August 11th, 2006 to Keith Lind, a Managing Director on the trading desk, referring to a particular bond, SACO 2006-8, as "SACK OF SHIT [2006-]8" and said, "I hope your [sic] making a lot of money off this trade."

It's this blatant internal awareness inside the Bear mortgage trading division that the Ambac suits says led Bear to implement an across-the-board strategy to disregard its contractual promises and conceal the defective loans. By JPMorgan taking over Bear, it became the successor of interest in Bear Stearns. As the lawsuit lays out, JPMorgan is responsible for the flagrant accounting fraud started by Bear designed to avoid, and has continued to avoid, recognition of vast off-balance sheet exposure relating to its contractual repurchase agreements. This allowed executives to reap tens of millions of dollars in compensation from a bank that wouldn't have been able to buy Bear without tax payer assistance.

80% of Loans Went Bad Almost Immediately

In 2007, when Ambac started to realize something was very wrong with its high-rated bonds, it demanded Bear provide loan-level detail and reviewed 695 non-performing loans in its portfolio. Ambac's audit concluded that 80 percent of the loans showed an early payment default. This meant they should have never have been packed in the bonds Bear sold and were required to be repurchased. Bear refused, and of course had already been pocketing buyback money for itself from the originators. Bear also never told investors that its auditor Price Waterhouse and Coopers submitted an internal review in August 2006 that this repurchase process was not in-line with its due diligence standards and not typical for the industry. By January 2007, a Bear internal audit also reported the firm had collected $1.7 billion in repurchase claims -- a 227% increase over the previous year. Yet Marano's group of traders continued their double-dip payment scheme and kept selling the toxic loans with full awareness of the poor quality of the due diligence.

Jeffrey Verschleiser even said in an e-mail that he knew this was an issue. He wrote to his peer Mike Nierenberg in March 2006, "[we] are wasting way too much money on Bad Due Diligence." Yet a year later nothing had changed. In March 2007, Verschleiser wrote to Nierenberg again about the same due diligence firm, "[w]e are just burning money hiring them."

Then in November 2007, Verschleiser wrote to his risk committee that he knew insurers for mortgage securities were going to have big financial problems. He suggested they multiply by ten times the short bet he'd just made against stocks like Ambac. These e-mails show Verschleiser's trading desk bragging to firm leadership that he made $55 million off shorting insurers' stock in just three weeks.

Eventually, as Ambac kept demanding a repurchase of the bad loans, Bear acknowledged in late 2007 it would have to buy some back. The lawsuit lists over $600 million in claims with $1.2 billion in damages from the soured mortgage securities it invested in and insured against. But according to the lawsuit, in the spring of 2008, JPMorgan dismissed an outside audit review of the loans' need to be repurchased and once again refused to pay Ambac. The suit asserts JPMorgan knew a repurchase would result in a huge accounting liability that would put their balance sheet in serious trouble at that time.
The [put-back] issue is "not that material" for JPMorgan. -CEO Jamie Dimon

Last week, JPMorgan CEO Jamie Dimon said it will take years to get through mortgage litigation risk the bank inherited and had set aside around $9 billion for litigation-related risk. Yet in the bank's January earnings call, Dimon suggested that the bank may not have to buy back any soured mortgages from private investors and said that the issue is "not that material" for JPMorgan. Still, Ambac recently won a court order in December to add accounting fraud against JPMorgan to its suit, which can double or triple lawsuit awards. So it's hard to tell whether America's largest bank is prepared to pay for the sins of Bear. JPMorgan did fight tooth and nail for the Ambac suit not to be made public, however, because the firm argued it could damage the reputations of senior bank executives currently working in the industry. Individuals named as defendants in the amended complaint include: Jimmy Cayne, Alan "ACE" Greenberg, Warren Spector, Alan Schwartz, Thomas Marano, Jeffrey Mayer, Mary Haggerty, Baron Silverstein, Jeffrey Verschleiser, and Michael Nierenberg. But the court chose to fold these individuals into the charges against JPMorgan as the case goes through appeal.

Ambac's lawsuit is led by Eric Haas of Patterson Belknap Webb & Tyler LLP. Depositions show internal Bear executives saying Nierenberg and Verschleiser were responsible for deciding how much risk to take when acquiring loans and for aspects of the securitization process. They reported up to Marano. Testimony shows Marano would have known about the decisions his head traders were making. When asked about these accusations, Nierenberg's, Marano's, and Verschleiser's current employers had no comment. The defendants' lawyers at Greenberg Traurig LLP failed to respond to calls for comment.

A public hearing is currently scheduled to be held by the New York State assembly regarding whether legal action should be brought against banks for misleading insurers about mortgage related securities. If approved, the New York Attorney General will likely be asked to bring criminal fraud charges against these banks. Now we must wait and see if JPMorgan will settle or go to trial -- or if the bank tries to claw back tens of millions of dollars in pay from the former Bear executives.

Note: This post was updated to reflect the fact that, as this case goes through appeal, the individuals named in the 12th paragraph have not currently been accepted by the court as individual defendants so are folded into the charges against JPMorgan. However, on Tuesday afternoon sources told The Atlantic that the Denver office of the SEC is now looking into the individuals involved in these charges.