Thursday, December 20, 2012

How Obama Is Guaranteeing The Next Financial Crisis Will Be MUCH Worse

An empirical look at the DOJ’s policy of non-prosecution.
By John Titus, creator of the new documentary Bailout.
Obama Guarantees Next Crisis by Refusing to Prosecute Recidivist Financial Criminals
Bailout is the first documentary to demonstrate the tight linkage between the financial frauds that caused the crisis and the resulting harm to Main Street. The Department of Justice recently ensured that many more will follow.
By announcing that it will not prosecute “systemic” criminal banking enterprises like HSBC, the DOJ has guaranteed (and likely hastened) the arrival of the next fraud-driven crisis.
The DOJ did not even attempt to back up its claim that prosecuting HSBC would "destabilize the global financial system." Indeed, Lanny Breuer, the head of the DOJ's criminal division, said that prosecuting HSBC "could have cost thousands of jobs"--betraying the fact that the DOJ's real concern was the corporate perpetrator rather than its Main Street victims.
Someone should let Breuer in on the fact that white collar criminal prosecutions have a direct and immediate impact on corporate behavior. The only "systemic" risk at work here is the one created by the DOJ itself--by giving financial criminals a free pass.
This is at once apparent from a comparison of the 25-year pattern of criminal financial prosecutions from 1985-2010 with accouting deviancy in reported financial data over the same period. The historical data buttress what common sense tells us: that responding to criminal financial enterprises with a formal regime of non-prosecution is guaranteed to end in disaster.
The 25-year period reaching back to the mid-1980s includes the savings and loan crisis, so that the effect of criminal prosecutions can be highlighted in connection with two separate financial crises. It is a tale of two very different law enforcement regimes.
In the S&L crisis, financial criminals across the U.S. engaged in wholesale looting of thrifts, which set off that crisis. In response, banking regulators built cases for criminal prosecutions and referred them to federal prosecutors. The S&L crisis ended with the criminal convictions of over 1000 high-ranking financial executives, which limited losses to American taxpayers to about $125 billion.
In the current crisis, losses to American taxpayers have--thus far--reached $13 trillion. In response, the DOJ has not criminally prosecuted even a single major financial executive for the fraudulent acts and financial transactions that set off the crisis.
The scale of this anomaly is breathtaking: had prosecutors answered the current crisis with the same legal force they mustered in response to the S&L crisis, well over 100,000 senior level financial executives would be in prison. The actual number is zero (0).
The problem is that U.S. law enforcers are obedient to bankers rather than hornbooks.
When confronted with concerns over its prior bad acts, the financial class inevitably responds with some variation of “we swear we’ll never do it again” or “that just won’t happen again.” Neil Barofsky’s Bailout is replete with such accounts:
  • On why TARP didn’t need any anti-fraud provisions: “the biggest players in these programs—the big banks and investment firms—would never risk their reputations by trying to rip off the government. The reputational damage they’d suffer would be far greater than any potential profit, they argued, so it just wouldn’t happen.” (p. 88)
  • William Dudley, the NY Fed chief, on why the Fed was justified in relying on AAA ratings to support its TALF program, even though they came from the same ratings agencies that put AAA ratings on junk leading into the crisis: “we’re confident they won’t risk being embarrassed again.” (p. 94)
  • Tim Geithner and other Treasury officials on why wouldn’t game the many holes in TALF: “they seemed to honestly believe that their Wall Street brothers wouldn’t take advantage of the flaws in the program to profit at the government’s expense.” (p. 131)
While that nudge-and-wink "just trust us" mentality is not surprising from bankers, it is shocking to see law enforcers adopt the same blind trust in the good word of Wall Street as a matter of policy, but that is exactly what has happened throughout the U.S. financial regulatory apparatus.
Both the S.E.C. (which settles cases with an agreement by the offending firm not to violate the law again) and the DOJ (which enters into non-prosecution agreements to the same effect) bargain away justice by halting cases before a public record of banking improprieties and crimes can ever be made.
But what of it? Does the complete absence of meaningful prosecution (aside from depriving the public of knowledge and information gained from litigation) have any "systemic" effects on corporate malfeasance?
The clear cut answer comes in the form of the chart above, which demonstrates the starkly inverse relationship between the number of criminal referrals by banking regulators and system-wide accounting deviations—a proxy for accounting fraud—from 1985 to 2010.
By “accounting deviations,” we mean deviations by reported corporate financial data from Benford’s law, which is an efficient way to detect prima facie accounting fraud.
According to Benford’s law, the first digit of numbers taken from real-life data sources is not at all a random affair. If it were, the probability of a first-digit 9 would be the same as that for a first-digit 1. In real life (and real data), that’s simply not the case.
Rather, the first digit is 3 times as likely to be 1 than if randomly selected, with 2 slightly less likely, and so on:

Someone trying to cook a company’s books by coming up with numbers out of thin air is highly unlikely to do so in accordance with their natural distribution as taught by Benford. Cooked books, then, can be detected by assessing financial data to the extent they deviate from Benford’s law.
Jialan Wang did exactly this for three decades’ worth of financial data from 20,000 corporations reporting to the S.E.C., which is reflected by the blue line in the graph above.
Wang’s findings are fully consistent with the S&L experience: federal deregulation of savings and loans, which began in 1981, occasioned a massive wave of accounting fraud that set off the S&L crisis—and a massive ramp upward in accounting deviancy as measured by Benford’s law:

Accounting deviancy—and the fraud giving rise to much of it—has continued its ascendancy throughout the current crisis.
The danger inherent in accounting fraud should be obvious enough, but it's worth mentioning with the sudden collapse in 2008 in mind: fraudulent financial data can mask fatally serious problems until reality explodes out from under the surface. It is akin to doctors manipulating their charts to conceal the cancer eating away their patients.
Congress should ask Eric Holder what objective he's serving by encouraging banks like HSBC to engage in and continue their criminal rampages. Like Lanny Breuer and Tim Geithner, of course, Holder will emit a plume of verbiage filled with terms like "systemic."
For once, someone should then ask the real question crackling beneath the surface every story like HSBC: Might it possibly be a very bad mistake to sacrifice the rule of law to appease admitted criminals?
John Titus has practiced law in federal courts for more than 15 years.

Watch a Trailer for BAILOUT

Photos by William Banzai7...

Judge Napolitano on Federal Reserve's Quantiative Easing: 'I Believe It Is Theft, Pure and Simple'

Watch this link .....

REPORT: U.S. War Machine Fights For Every Last Billion

Dec. 17 (Bloomberg) -- Without a fiscal cliff deal, defense contractors like Lockheed Martin could be hit hard by the budget axe.  Peter Cook talks with Bloomberg Government defense analyst Rob Levinson on which programs and companies are most at risk.
"It's a new world for defense contractors.  They're going to have to work a lot harder to get that Pentagon dollar."


How To Waste A Trillion Dollars On Defense

F-35: A Short History Of The Costliest Fighter Ever

What's Wrong with McDonald's?

Following a great 2011, McDonald's (NYSE: MCD [FREE Stock Trend Analysis]) has been one of the Dow's worst performers of 2012. Year-to-date, shares of McDonald's are down over 9.7 percent.
The shares are off their recent lows, but remain down significantly from the 52-week high of $102.22. A number of factors seem to weighing on the fast food giant.
Most recently, on Wednesday, McDonald's was forced to respond to a report by China Central that chicken it sold in its Chinese stores may have been fed indiscriminate amounts of antibiotics and growth hormone.
On Monday, Reuters reported that McDonald's leadership was urging its franchisees to keep their stores open on Christmas Day. This is a break from the company's traditional policy of closing on major holidays.
In a company memo Reuters obtained, management notes that McDonald's stores that remained open on Christmas averaged sales of $5,500. Given that most restaurants are closed for the holiday, impressive Christmas sales seem intuitive given the lack of competition.
Is it a sign of desperation, or just a part of a greater business trend? Walmart (NYSE: WMT) drew the ire of some employees in November, when it moved up the time it would open to 8pm Thanksgiving night.
Analysts at Bank of America don't see the push as cause for concern, noting, “We do not view incremental openings on Thanksgiving this year as a primary factor behind a surprisingly good 2.5% U.S. same store sales increase for the month of November. Likewise, we are not anticipating that more Christmas restaurant openings this year will have much impact on December results.”
The biggest issue with McDonald's is likely the company's exposure to Europe, which is significant. As Europe has struggled, McDonald's performance in the region has been weak. Yet, should the European economy begin to recover next year, that could create a tailwind helping to support shares of McDonald's in 2013.
Shares of McDonald's traded at $90.41 on Wednesday, down about 0.12 percent.

Bob Rice Explains: 'How Central Banks Lease Their Gold'

Excellent clip.
Explaining 'Gold Lease' - How central banks monetize gold reserves.
Dec. 5, 2012 -- Bob Rice of Tangent Capital Partners speaks with Bloomberg's Sara Eisen.

Fitch says 'fiscal cliff' may cost US 'AAA' rating

NEW YORK (AP) -- Fitch warned that the U.S. is more likely to lose its top-notch "AAA" rating if lawmakers cannot agree on how to cut the deficit and avoid the broad government spending cuts and tax increases that go into effect next year if no deal is reached.
But the credit ratings agency said in a report Wednesday that if lawmakers can agree on a deficit-cutting plan, the U.S. would likely keep its "AAA" debt rating. Fitch would then raise its outlook to stable from negative.
"Resolution of the fiscal cliff and an increase in the debt ceiling are pressing issues that the President and Congress must address if the U.S. is to avoid a fiscal and economic crisis," the report said.
In November Fitch Ratings said that President Barack Obama must work toward a credible plan to avoid the fiscal cliff or risk losing its "AAA" rating. Fitch changed its outlook for the U.S. rating to negative last year after Congress and the Obama administration failed to meet a deadline for a plan.
In the first-ever downgrade of U.S. government debt, Standard & Poor's last year cut its rating from "`AAA" to "AA+" after the government failed to come up with a plan to reduce the deficit.
The U.S. has never failed to meet its debt obligations. The battle over raising the debt limit in August 2011 went right to the last minute before a compromise was reached.

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Treasury announces GM exit strategy; automaker buying 200 million shares from U.S.

Washington — The Obama administration said Wednesday it will sell 200 million shares — or 40 percent of its remaining stake in General Motors Co. — back to the automaker and announced plans to completely exit the Detroit automaker by March 2014.
The Detroit automaker said it will purchase 200 million shares of GM stock held by Treasury for $5.5 billion — or $27.50 per share — nearly $2 above the stock's closing price on Tuesday. GM shares jumped sharply on the news and were up 7.5 percent to $27.36, or $1.90, early afternoon in very heavy trading.
The U.S. Treasury, after more than a year of refusing to say when it might start selling its remaining stake in GM, said it willannounce a written plan in January to shed its remaining 300 million shares over the next 12 to 15 months, likely in a series of small stock sales.
The Treasury's move is intended to minimize the impact of the stock sale on the share price — and the government's state will shrink from 26.5 percent to less than 19 percent — but the exit could be completed far more quickly.
The exit plan may prove to be a boost to GM's lagging stock price and to some car buyers, who have avoided GM because of the "Government Motors" label.
The exit timetable signals the end of one of the most extraordinary government interventions in the U.S. economy in history — the rescue and partial nationalization of two U.S. automakers and their finance arms supported by two U.S. presidents.
Still, taxpayers will almost certainly lose billions of dollars in the $49.5 billion GM bailout - and the government would need to sell its remaining shares for about $70 each to break even. If the government sold the rest of its stock at current prices, taxpayers would lose more than $13 billion. But profits from the bank and AIG bailouts will largely offset the auto bailout losses.
"The government should not be in the business of owning stakes in private companies for an indefinite period of time," Assistant Treasury Secretary Tim Massad said in a statement who oversees the $700 billion Troubled Asset Relief Program. "Moving to exit our investment in GM within the next 12 to 15 months is consistent with our dual goals of winding down TARP as soon as practicable and protecting taxpayer interests."
The Treasury has also agreed to waive its ban on GM using corporate aircraft — a condition it imposed on a few companies that got large bailouts in 2008 and 2009 — but government pay restrictions on top executives remain in force.
The restrictions limit most GM executives to no more than $500,000 a year in cash salaries. GM chief financial officer Dan Ammann said the issue is one of "ongoing discussions" between GM and Treasury.
The Treasury is also waiving a "vitality commitment" that required certain U.S. manufacturing volumes — but GM is already exceeding it and expects to continue, the company said.
Despite the government ownership, White House officials insisted they would have no role in GM's management, though there were some exceptions. In one notable move, the Obama administration vetoed a proposal by GM in 2009 to move its corporate headquarters from Detroit to Warren.
Ammann said the company has "no current plans" to buy or lease corporate aircraft - but company executives have long chafed at the fact they are forced to fly commercial - unlike other top corporate executives.
Ammann declined to discuss when the automaker and Treasury began negotiations about the sale or how it settled on the price. Ammann said GM doesn't expect to buy the remaining Treasury shares.
GM CEO Dan Akerson told company executives in an email that the move would help end a painful chapter in the automaker's life that nearly saw the company collapse in late 2008 without emergency government assistance.
"Today, GM and the U.S. Treasury are putting in motion a plan that will begin to close the books on the extraordinary government assistance that saved the company and our industry," Akerson wrote. "It has never been far from my mind that taxpayers rightfully expected us to change the way we do business in exchange for a second chance."
GM — which was criticized for corporate arrogance and for a moribund culture — has reshuffled its entire executive lineup since 2009 and made dramatic changes in how it does business.
"We are learning to be humble and to genuinely appreciate every customer," Akerson wrote.
In a Detroit News interview in 2011, Akerson said GM wasn't changing fast enough.
"Whoever comes after me; it's going to be a more important appointment than mine because he or she will have to carry on a cultural revolution here. It's just like the Communist Party in China in the 1960s, there has to be a cultural revolution here," he said.
GM — which last month obtained a new $5.5 billion line of credit — said its balance sheet will remain strong, with estimated liquidity of $38 billion at the end of 2012, following the closing of the share buyback.
Several analysts have suggested the company would use some of its liquidity to buy back shares.
"A U.S. Treasury sell-down was increasingly anticipated, although the actions were earlier than we expected and at a lower price," Peter Nesvold, an analyst with Jefferies & Co. wrote in a research note Wednesday. "The structure was probably more surprising, as it affords a premium to market price for a control stakeholder."
David Whiston, a senior equity analyst for Morningstar, said he was surprised the government didn't wait for a $33 a share price, but said investors likely were expecting an announcement following the quick AIG sale.
"This helps with the ("government motors") stigma, but there will always be a few hard line consumers who will never forgive GM," he wrote in an email Wednesday. "That doesn't bother me, as GM still sells plenty of cars and has great product. Some taxpayers will be upset by the loss, but I think those people will never be happy about the situation. Even if the sale had happened at $33 (the IPO price) those same consumers would have criticized Obama and GM."
The Canadian federal and Ontario governments — which gave GM a separate $10 billion bailout — still hold about 9 percent of GM's shares. Canadian officials said in Toronto they have no immediate plans to sell.
The announcement comes exactly four years to the day that President George W. Bush announced he would rescue GM and Chrysler with a $17.4 billion bailout in December 2008 using the $700 billion Troubled Asset Relief Program.
Bush stepped in after Congress failed to act. He added $7.5 billion for GM and Chrysler's auto finance arms and President Obama added $60 billion to the $85 billion auto bailout.
"The auto industry rescue helped save more than a million jobs during a severe economic crisis, but TARP was always meant to be a temporary, emergency program," Massad said.
Last week, the Treasury exited another major TARP recipient AIG.
GM stock is still trading far below its November 2010 initial public offering at $33 a share.
The repurchase price of $27.50 per share represents a 7.9 percent premium. The share buyback is expected to close by the end of the year.
The Treasury initially owned nearly 61 percent of GM as part of the bailout as it swapped about $42 billion of the loans for stock in the reorganized company after it exited bankruptcy in July 2009.
The Obama administration forced GM and Chrysler into bankruptcy as a condition of getting additional government aid. The administration forced out GM CEO Rick Wagoner and forced a tie-up with Fiat SpA.
The Treasury has said it expects to lose $24.3 billion on the $85 billion auto bailout.
Treasury also holds a 74 percent stake in Ally Financial Inc., the Detroit-based auto lender, as part of a $17.2 billion bailout.
Last year, the government exited Chrysler Group LLC and booked a $1.3 billion loss on its $12.5 billion bailout.
The government had planned an initial public offering of Ally in 2011 but put it on hold because of market conditions. Any IPO won't occur until after Ally's troubled mortgage unit ResCap completes its bankruptcy restructuring.
(202) 662-8735
Staff Writer Melissa Burden contributed.

Solar Firms Under Investigation For Stimulus Swindle

A new regular feature on the Bail, John provides a weekly update on corruption, graft and waste in the green energy sector.
Report: Solar firms under investigation for stimulus swindle
The nation’s three most productive solar installation firms are under investigation for allegedly exaggerating business costs to get larger cash payments through a federal stimulus program.The Treasury Department’s inspector general is asking SolarCity, SunRun and Sungevity to justify the more than $500 million in federal grants and tax credits they got for their work, according to The Washington Post.  The companies in question received payments through Treasury’s 1603 program, which was designed to increase renewable energy use.


 The side that supports the occupation of Palestine …. Wall Street’s 1% donates million$ to Israel
New dollar (1)
Wall Street leaders raise $23M at UJA event
BlackRock President Robert S. Kapito, Saba Capital founder Boaz Weinstein honored for philanthropic leadership during UJA-Federation of New York’s Wall Street Dinner
UJA-Federation of New York’s Wall Street & Financial Services Division raised a record breaking $23 million at The Wall Street Dinner on December 10 at the Hilton New York, surpassing last year by $1 million.

The Wall Street Dinner continues to be one of New York City’s leading philanthropic events and this year had a record turnout of more than 1,500 financial professionals, prominent business leaders, and philanthropists in attendance.

The event honored Robert S. Kapito, president of BlackRock, and Boaz Weinstein, founder of Saba Capital.

Robert S. Kapito received the Gustave L. Levy Award. Considered a preeminent honor in the industry, this award recognizes a leader in the Wall Street community for both exceptional professional achievements and an enduring commitment to UJA-Federation.

Previous honorees of the Gustave L. Levy Award include Paul J. Taubman, Peter W. May, John A. Paulson, Gary D. Cohn, Richard A. Friedman, Daniel S. Och, Morris W. Offit, Michael Minikes, Leon M. Wagner, and Jeffrey B. Lane.

Boaz Weinstein received the Wall Street Young Leadership Award, which recognizes a professional who demonstrates exemplary leadership, steadfast commitment to the community, and continued generosity to UJA-Federation.

Previous honorees of the Wall Street Young Leadership Award include Scott L. Shleifer, Michael B. Nierenberg, Marc S. Lipschultz, Jonathan M Harris, Larry Robbins, Scott S. Prince, Alexandra Lebenthal, and Ricky Sandler.

Unshakable foundation for community

Mayor Michael R. Bloomberg provided the keynote address, acknowledging UJA-Federation of New York and its beneficiary agencies for their work providing relief during the natural disaster that hit New York City.

“The support and philanthropic leadership of Wall Street has built an unshakable foundation for our community,” said John S. Ruskay, CEO of UJA-Federation of New York.

“Because of the kind of generosity on display in this room tonight, we were able to respond boldly, compassionately, and effectively to two crises on two fronts, Hurricane Sandy in New York and the violence in southern Israel.”

During The Wall Street Dinner, which took place on the third night of the Jewish holiday of Hanukkah, Rabbi Haskel Lookstein gave an invocation. Cantor Angela Buchdahl led guests in traditional prayers over the lighting of the Hanukkah menorah, followed by “Maoz Tzur,” a traditional Hanukkah song.

“As we celebrate Hanukkah and the great miracle of light, we are also celebrating another miracle that happened this year – the resiliency of our community and the ability to come together and rebuild after the devastation of two crises,” said Jerry W. Levin, president of UJA-Federation of New York.

“With funds raised by the Wall Street community, we strengthen our network of nearly 100 agencies reaching 4.5 million people in New York, in Israel, and across the country.”

“For nearly 100 years, UJA-Federation has responded effectively to global and local crises,” said Alisa R. Doctoroff, chair of the Board of Directors of UJA-Federation of New York.
“The preparedness of our network agencies, along with the emergency funds, enabled us to respond quickly to urgent needs here in New York and in Israel. Your generosity, your support of our annual campaign and endowment, is what makes it all possible.”

A casino-themed Closing Bell After-Party provided an opportunity to engage young Wall Street professionals in the work of UJA-Federation and encourage additional support for the annual campaign.

David Walker: "There Is No Party Of Fiscal Responsibility In Washington"

David Walker on Bloomberg yesterday.
'Time is running out and the future of the country is at stake.'
The original budgetary truth teller.  David Walker is the former Comptroller General of the United States (the nation's top independent accountant) and is the current President of the non-partisan Comeback America Initiative.
Walker wrote a deficit op-ed for Reuters yesterday:
David Walker - U.S. Unfunded Liability Increases $100 BILLION Per Week 
"It is alarming enough that our federal debt has surpassed $16 trillion.  But we have actually dug a fiscal hole of more than $71 trillion when you consider our unfunded Medicare, Social Security and other retirement obligations.  This amount goes up more than $100 billion a week on autopilot."
Dallas Fed President Richard Fisher calculated that the government's unfunded liability for Social Security and Medicare alone comes to a staggering $99.2 trillion, or $330,000 for every man, woman, and child in the United States.
It's an impossible figure, but still on the low side compared to this estimate of $222 trillion published at Bloomberg.
The national debt has grown by $6 trillion since the Spender-In-Chief took office, and four more $1 trillion deficits are on the way before Obankster leaves Washington in 2016.
Check the debt clock and decide for yourself.  Is there anything, anything at all, that appears 'under control' to you?
Here's a bonus - David Walker with Jon Stewart.
"There is no party of fiscal responsibility in Washington."
"When the statutory budget controls expired in 2002, Washington lost total control.  Unfunded tax cuts, unfunded war costs, expansion of entitlement benefits.  And we are where we are today."

Gold Bullion Vault - Periodic Table of Videos

Reserve Bank of Australia
After a campaign throughout 2012 to seek clarity in regards to the location of Australia’s Gold Reserves the Reserve Bank of Australia (RBA) has confirmed today in an email to me that 99.9% of their Gold Reserves are held in the gold vault of the Bank of England.
Please read below for the text of the RBA’s email response to me dated 19/12/12:
Thank you for your email.
As at end-June 2011 the Reserve Bank of Australia held 80 tonnes of gold in London Good Delivery bars. The Reserve Bank holds 99.9 per cent of its gold reserves in the United Kingdom at the Bank of England. The remaining 0.1 per cent is held at the Reserve Bank’s Head Office in Sydney.
London is a major global gold trading market and the Bank of England provides a secure and cost-effective storage location for central banks and market participants. The Reserve Bank has processes in place to ensure that the gold reserves are maintained appropriately. It is not considered necessary from management, security or operational  perspectives to relocate the gold bars to a facility in Australia.
The Reserve Bank has reviewed its approach to releasing details about its management of the physical reserves of gold and decided to release the above information.
Please note that we answered your previous questions as a routine public enquiry.  The FOI Act concerns itself with the release of documents, rather than answering questions, so a request must seek documents to be valid.
Chris Collins | Manager | Media & Public Relations Office
RESERVE BANK OF AUSTRALIA | 65 Martin Place, Sydney NSW 2000
p: +61 2 9551 9830 | f: +61 2 9551 8033 | w:

I would like to thank Bullion Baron for their assistance in this matter and the encouragement and support of management and several clients of ABC Bullion, Sydney.
If you wish to view some of the gold stored in the Bank of England gold vault and see probably one of Australia’s gold bars watch this recent video tour of the vault.