Banks are at it again, as usual, and these latest adventures in fictional finance are off the public radar. Maybe the public has lost their outrage and why the latest news is out of earshot. Maybe people are just exhausted, watching absurdity after outrage coming from these financial institutions and the ones who are supposed to watch them. After all, nothing ever changes. We hear the same song, just a little bit louder and a little bit worse.
Case in point are some stories so absurd you don't know whether to laugh or cry, but regardless of what we think, you know now the banks will get away with it once again. The Financial Sector has carte blanche to do as they damn well please and no government will stop them. Even the obligatory slaps on the wrist from governments and regulators don't sting.
SEC Sues The One Credit Ratings Agency Not on the Wall Street Take
Wonder what regulators are doing these days? Why going after credit rating agencies that had nothing to do with the financial crisis. This was brought to light by an Op-Ed on Bloomberg:
The Securities and Exchange Commission, it seems, has finally lost its mind.
In April, motivated by what I consider pure maliciousness, the SEC initiated a “cease and desist” administrative proceeding it deemed “necessary for the protection of investors and in the public interest” against Egan-Jones Ratings Co., a privately owned, 20-person firm based...
Most interesting Egan-Jones was first to downgrade the United States.
Egan-Jones is the sole rater that the SEC has decided to attack. The trouble for the firm started on July 16, 2011, when Egan-Jones downgraded the U.S.’s sovereign debt by one notch, to AA+ from AAA. Egan-Jones cited “the relatively high level of debt and the difficulty in significantly cutting spending.” Two days later, the SEC’s Office of Compliance Inspections and Examinations contacted the firm seeking information about its rating decision. (The next month, S&P also downgraded the U.S.’s sovereign debt, but neither Moody’s nor Fitch did.)
Now note the timeline...
Then, on Oct. 12, Egan-Jones received a call from the SEC notifying the firm of a Wells Notice, an indication that it was being investigated. On April 5 of this year, Egan-Jones again downgraded the U.S. sovereign debt, to AA from AA+. On April 19, leaks started emanating from the SEC that it had voted to start an “administrative law proceeding” against the firm. And on April 24, the SEC filed its complaint.
Just what does the SEC object to so vehemently about Egan- Jones? The commission claims that on its 2008 supplemental application to be a “nationally recognized” ratings firm, Egan- Jones “falsely stated” that it had already rated the credit of 150 asset-backed securities and of 50 sovereign-debt issues. The SEC claims Egan-Jones “willfully made these misstatements and omissions to conceal the fact that it had no experience issuing ratings on ABS or government issuers.”
Supposedly these ratings in question were not made publicly available.
Banks "Forgive" Debt That Has Been Discharged in Bankruptcy
Imagine you've been foreclosed on and you have already gone through bankruptcy and lose pretty much everything. Now imagine the bank decides to forgive your debt after that terrible ordeal. Problem is bankruptcy already wiped out that debt the banks are now claiming to forgive. You don't owe it, the debt no longer exists.
Gretchen Morgenson, New York Times:
GREETINGS, unhappy homeowners! Here’s some wonderful news:
“We are canceling the remaining amount you owe Chase!” says a letter that JPMorgan Chase sent recently to thousands of home loan borrowers. “You are approved for a full principal forgiveness of your Home Equity Account,” says another, from Bank of America.
Jackie Esposito, of Guilford, Conn., got a letter like that. But she wasn’t elated — because she doesn’t owe the money anymore. She and her husband filed for bankruptcy three years ago. The roughly $64,000 they owed Chase has been legally wiped out.
What’s going on?
Morgenson makes the case these banks are doing this to get, once again, your tax dollars, this time from the ill conceived mortgage settlement.
Cast your mind back to February. Five of the nation’s big banks, including Chase and Bank of America, agreed to pay $25 billion to settle state and federal claims over questionable mortgage practices and promised to work harder to help borrowers who were in trouble. To prod the banks, the government said it would give them credits against the amounts they agreed to pay.
So, to the ire of customers who couldn’t get banks to work with them before, banks are now forgiving debts that no longer exist.
Spain is Going into Hock Up To Their Eyeballs to Bail Out the Banks
Spain plans to borrow 207.2 billion euros ($266.5 billion) next year, the Budget Ministry said today, as pressure builds for Prime Minister Mariano Rajoy to tap the European rescue fund instead of financial markets.
Spain’s debt will widen to 90.5 percent of gross domestic product in 2013 as the state absorbs the cost of bailing out its banks, the power system and euro-region partners Greece, Ireland and Portugal.
The people are in the streets protesting for the austerity to come. Why can't it be called as it is, people get their pensions cut, their jobs lost, are literally financially ruined, all to save the @&*)@! banks.
The public’s patience is running out on austerity policies demanded by the German government and European Union leaders, which have conspicuously failed in their stated goal of reducing debt burdens and paving the way for economic revival. Instead, it’s clear that these measures will accelerate depression-levels of unemployment and damage social safety net programs when they are most needed.
Banks Make Out like Bandits on QE3
The Financial Times:
Bank profits from new mortgages have soared since the Federal Reserve began its third round of bond purchases two weeks ago, fuelling the debate over the fallout of the latest dose of quantitative easing.
“For banks which are mortgage originators this [QE3] was some of the best news they could possibly have heard,” said Steven Abrahams, mortgage strategist at Deutsche. “They will continue originating loans and selling them into the market at a significant premium.”
The interest banks pay on mortgage bonds has dropped from 2.36 per cent on September 12, the day before the Fed announced its programme, to as low as 1.65 per cent last week. It edged up to 1.85 per cent on Monday.
That means the profit, or spread, banks earn from creating new mortgages for homeowners paying around 3.4 per cent and selling the loans into the secondary market has risen to around 1.6 per cent. That is higher than the 1.44 per cent spread they pocketed before QE3 and significantly greater than the 0.5 per cent they earned on average in the decade between 2000 and 2010.
JPMorgan Chase Sued for Fraud by New York
Hopefully by now you've heard Mew York is suing JPMorgan Chase over Bear Sterns.
JPMorgan Chase & Co. (JPM), the biggest U.S. bank, was sued by New York Attorney General Eric Schneiderman, who alleged that the Bear Stearns business the bank took over in 2008 defrauded mortgage-bond investors.
Investors were deceived about the defective loans backing securities they bought, leading to “monumental losses,” Schneiderman said in a complaint filed yesterday in New York State Supreme Court.
Naked Capitalism notes even so called civil prosecutions end up being token and for show.
It looks like Eric Schneiderman is living up to his track record as an “all hat, no cattle” prosecutor. Readers may recall that he filed a lawsuit against the mortgage registry MERS just on the heels of Obama’s announcement that he was forming a mortgage fraud task force. Schneiderman’s joining forces with the Administration killed the attorney general opposition to the settlement, allowing the Administration to put that heinous deal over the finish line.
Schneiderman has churned out another lawsuit that the Obama boosters and those unfamiliar with this beat might mistakenly see as impressive. It’s a civil, not criminal suit against JP Morgan he conduct of Bear Stearns in originating and misrepresenting $87 billion of mortgage backed securities (the link takes you to the court filing). And also notice no individuals are being sued. Being a banker apparently means never having to be responsible for your actions.
Financial Engineers Construct CDS Index for CDSes That Do Not Exist
Remember derivatives and credit default swaps which were behind the financial crisis? The Financial Times reports they're at it again, creating more derivatives, this time based on a new index.
This week, the index provider, Markit, will cross a Rubicon and begin to include three companies in its North American high-yield CDX index for which no bank is offering a CDS.
A CDX is an index which tracks a basket of credit default swaps. Supposedly this move is to pressure banks to issue more CDSes on the three new companies added to the index. How absurd is that, to put into a CDS tracking index companies which do not have any underlying credit default swap associated with them?
Some people are warning that the illiquidity of the underlying market risks a repeat of debacles such as the JPMorgan “London whale” trades in which the bank lost $5bn on a trade involving a CDX index.
Did we miss anything? Probably, as the Banksters are alive and well, doing dirty tricks on a daily basis. Who feels the financial sector are simply vultures feeding off the carcass of America?