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Not shocking: the Bush White House and Tim Geithner and The Fed had no idea what was happening when they paid off bad paper at AIG.

NYFRB paid off casino bets -- fraudulently titled/listed/sold as "Consumer Credit" paper.

SNAFU.

-- From 2004 to 2007 Wall Street created a casino taking bets for and against Sub-Prime mortgages.

-- "Consumer Credit" "securities" were the tools for setting up the "house" side of this casino. Proceeds went to side bets, not bonds.

-- This "house" side dropped at least $2.4-trillion when the housing "bubble" burst.

-- Deutsche Bank and Goldman, Sachs ran the casino.

How's about collusion? "Bettors" getting insider scam-info?

Who were the winning "bettors" ?

IRS summarizes 2008-2009 with no taxes paid on the bulk of it.

At the 35% corporate tax rate that's $700-billion.

Mike Burry's Scion went "bettor" honestly, won $780-million, and did pay the taxes.

MSM... The Fed... Treasury... DoJ.... All are MIA/chickensh*t. No Organized Crime Strike Force. No RICO investigation and recovery....

Links & MBTF :::

Today, $1,199-billion sits there in the Over the Counter OTC credit default casino, covering large-scale bets. These are the open/registered Credit Default Swap contracts. None of the current "book" at OTC is related to Sub-Prime mortgages.

Additional hidden/closed/secret CDSs and other "derivatives" deals are unknown and apparently unknowable under current law.

Reform/regulation ??? So far, no-no-no.

The least we can do is cement the 35% corporate tax rate for these casino winnings. Apply that to the $2.4-trillion, less pseudo-interest payments, and it is $2-trillion times 35% for a tax bill at $700-billion.

I like that.

Geithner's Dilemma.

Back in October 2008, Geithner was advised that he had no statutory authority to negotiate reduced payments on the casino bets -- wrapped up as Credit Default Swap contracts. What Geithner and his crew did not know then was that these CDSs had been titled/listed/sold fraudulently.

Sure thing, AIG had been incompetent at evaluating these "securities" up until 2006. Joseph Cassano and AIG London Financial Products had signed on for $500-billion in fraudulent "securities." It took until 2006 for specialists inside AIG to unravel just what had been happening.

Goldman, Sachs particularly had gone out of its way to conceal what it was doing. Their scam was made easier by the so-called "privatization" of information flows in the mortgage industry. One effort to identify the actual mortgages in one bond in the spring of 2006 took 2 months effort from a team of analysts. Investors were then and remain now dependent... dependent on the rating agencies: Fitch, Moodys, S&P. These were the guys who took 10 times the normal fees to apply AAA ratings to the DB and GS "house" offerings.

Bribery: the offering, giving, receiving, or soliciting  of any item of value to influence the actions of an official or other person in charge of a public or legal duty. The bribe is the gift bestowed to influence the recipient's conduct. It may be any money, good, right in action, property, preferment, privilege, emolument, object of value, advantage, or merely a promise or undertaking to induce or influence the action, vote, or influence of a person in an official or public capacity.

-- Black's Law Dictionary

Tim Geithner had no in-house access to law enforcement or prosecutorial resources. His banking bureaucrats had no experience with RICO. They had no way to seek subpoenas, at least within their working time frame. They had no work desk for Interpol cooperation. They had no liaison point for work with The Met or Scotland Yard. They had no idea how to do it, nor any substantial part of the time needed to institute an Organized Crime Strike Force.

Pay off on illegal contracts ??? This RICO scam-casino could have been smacked down as a simple bait-and-switch crime spree.

There are laws.

One additional problem is that there aren't a whole lot of people who understand this sh*t -- including the Normal Banking guys at The Fed. You are unlikely to find a Mike Burry or somebody like me inside one of these organizations. Investigating strange contracts, just for the hell of it... not likely.

Willy Sutton, by way of Ohio.

The following appeared as a comment to a David Brooks farce-column.

Darrell Hampton, Dayton Ohio:

Mr. (David) Brooks if I go to my grave with any regrets it will be that I never took the time to get a formal education. I'm a self-educated man, some would argue that I didn't do too good of a job. One of the reasons I shied away from formal education is because all of the so-called scholars and teachers think like you do. As a younger man I could never reconcile how people so educated could be so naïve and lacking commonsense.

You spend an entire column ruminating about the cause of the recent financial collapse and you conclude that nobody really knows what happened.

I do! Another self-educated man named Willie Sutton could tell you what happened. When the infamous bank robber was arrested, some dumb scholarly reporter asked him "Willie, why do you rob banks"? Mr. Sutton's reply was simple "Ain't that where the money is ?"

Why is it so difficult for the Masters of The Universe to simply admit that these people simply stole all the money? That Ronald Reagan began a mind numbing school of thought that government and regulations were holding progress back and provided the road to thievery that we all witnessed the past two years?

What is so wrong with admitting "We made a mistake"? It is hard to expect anyone to give you any respect or credence for your thoughts if you can't even recognize a simple bank robbery when you see one.

They stole the money from Wall Street and the pension plans and the mortgages because regulations had been removed and "That's where the money was"!

And they need to be prosecuted. That's simple too!

Perfect. I'd love to see Mr. Hampton come over and apply his understanding at DKOS.

Corporate Media Never Change

WSJ and TTOL still do their damnedest to cover up the casino that Deutsche Bank and Goldman, Sachs created in 2005, selling "Customer Credit" instruments and applying the money to "house" side Credit Default Swap contracts.

You will never read a word of it.

This Credit Default Swap casino was twice the size of the Sand State mortgage pools. The "house" losses in this casino were easily four times the total losses from the Sand State bad mortgages.

You will also never read that these casino bets were titled, listed and marketed as "Consumer Credit" instruments.

Or that DB and GS paid the Fitch/Moddys/S&P people 10 times the usual rating fees. Or that the special bonuses paid to managers in DB/GS/Fitch/Moodys/S&P greatly exceeded the asking prices for these peoples' souls.

Bad Mortgages and Ben Bernanke.

We know that an estimated $1.2-trillion from the worse of the mortgages -- bundled into Sub-Prime Collateralized Debt Obligation (CDO) bonds -- went to the actual house contracts. Most of that ended up in the hands of land speculators and packagers. Much less of it went to the gross costs of building and refurbishing these particular houses.

Testimony from Bernanke and from the Freddie and Fanny experts started at $1.2-trillion for 2004-2007 including private mortgages. Other sources range up to a $1.6-trillion figure. To be conservative on the estimates for the CDS casino, we can use the $1.6-trillion figure.

Where things got interesting was when Bernanke allowed as how the impact of the Sub-Primes in these "battleground" "Sand" states had been a loss of liquidity totaling $4-trillion.

Bernanke, in fall of 2008, was still routinely referring to all of the Sub-Prime related bonds and casino_bets as one homogeneous pool. Bernanke never, ever differentiated the CDS casino scam from the normal packaging of the mortgages into Collateralized Debt Obligation bonds.

Collateralized Debt Obligations are the packets of real mortgages. Each of these packets/bonds has gone through an auction system. Federally guaranteed packets such as Freddie and Fannie go through auctions that The Fed runs.

The way Bernanke presented the banking system liquidity problems, the Deutsche Bank/Goldman Sachs casino-style bets -- the synthetic "derivatives" -- were treated as equivalent to real-world bonds.

Bernanke carried on like this, rather oddly for a Central Banker. He had bought on to how the sell-side/brokerage houses listed these CDS casino bets and how the rating agencies listed them and how he was told to think about them by the Goldman, Sachs ex-CEO name of Paulson sitting in the seat as U.S. Secretary of the Treasury.

Sorry Ben.

Casino bets are not the same as mortgages.

RICOing the Pensions and Safety First Funds.

Similar to Bernanke, the funds that put $2.4-trillion into these "AAA"-rated synthetic "derivatives" had no idea that they were buying a steam of casino bets. The most of them saw titles and listings for "Consumer Credit," not even showing that these related to mortgage payments.

None of them were warned that they were playing "house" to back Sub-Prime junk bonds. Everything was concealed. None of them realized that they would lose their investments when Sub-Prime junk bonds from sand State "balloon" mortgages went toes-up.

Of course, the direst CDO mortgage-packages buyers got hurt.

The CDS casino buyers with "Mezzanine" and similar mid-range slice/tranche yields lost everything.

The dumbest of Dumb Money -- at AIG -- only got into it because these "financial instruments" were indeed titled as "Consumer Debt." AIG's Joseph Cassano bit on $500-billion of sign-offs because he believed that the rating agencies had done Due Diligence and verified/validated the underlying assets and streams of returns.

A Very Few Honest Investors Played "Bettor."

Let's consider an honest bettor, Mike Burry.

Burry ran a betting fund, Scion, in California and cleared $780-million. His story is a large part of Mike Lewis's book "Big Short." That $780-million came from people who thought they had bought AAA-quality new/high_tech/21st Century hot stuff.

Mike "hit" at the slots.

This parallel to the slots. The Sub-Prime CDO bonds that he targeted went belly up. Basically, the "house" players had to forfeit their capital and pay up.

Most Dumb Money paid up front. They bought the synthetic "derivatives" with the phony AAA ratings. That is what Merrill did. And Lehman and Bear.

There was one major exception to this pattern. AIG signed on as an insurer. AIG FP took tiny insurance payments in 2004/2005/early 2006, not realizing that they were on the hook for the whole of $500 billion.

Even when AIG HQ in Connecticut got full knowledge of what these deals involved, spring of 2006, they did nothing to unwind their exposure. Willful incompetence -- serving the bonus structure of the company's managers. These top managers hid the information from the AIG Board of Directors and from stockholders. Of course, from the public.

The bad buys at Merrill and Lehman and Bear led to strange manipulations.
$50-billion in phony reporting was committed at Lehman.

***********************************

Here is The Times of London piece presenting "Repo 105" transactions as related to Lehman and their faked statements:

Q&A: What is Repo 105?

That follows prettily along the party line -- denying any and all criminality -- set at corporate media:

British firm cleared the way for Lehman cover-up

And how, exactly, did this British law firm change American law ???

Undo basic regulatory and tax law ?

"Cleared the way" -- really ?

(Writing off the costs of a fraudulent and/or off-books ENRON-style transaction -- that's illegal under U.S. tax law. Lehman and the other Wall Street firms using these "Repo 105" transactions for regulatory frauds misfiled their tax reports.)

And surprise, surprise... after two years of out and out obfuscation, WSJ 'fesses up that there might have been something odd going on:

Repos Played a Key Role in Lehman's Demise

Repos delayed the Lehman demise. Tech explanation in Yves's Naked Capitalism article. The repos delayed the Lehman collapse, but that's all.

Lehman went down because they got stuck with a combination of AAA fraud-paper CDOs and the synthetic AAA "derivative" CDSs that were really casino bets.

************************************

Perspective

Let's put this mess in historical perspective. The basic story boards for our recent financial unpleasantness begin with The Fed generating a housing bubble in 2002-2007.

Americans have a net worth, today, approaching $55-trillion. Losing $2.4-trillion was not the end of the world, except for a few and none of the hardest-hit victims were individuals.

Contrast this scam with Bernie Madoff: he scammed $30-billion in direct investments. But you see and hear about Madoff because he impoverished thousands of elderly individuals and bankrupted charitable foundations. There is still some issue with what Bernie did with the money.

Also, after the Popzi scam became known, Madoff lost all political influence. Not so for DB and GS.

In the middle of the "bubble," in 2004, the so-called "balloon" loans were introduced. These contracts sucked home buyers in with a low-to-negligible "teaser" start-up rate, followed by a "balloon" to either much higher payments or a requirement to pay off the whole loan in a single payment. Getting refinancing down the road was necessary -- but in some cases prevented by the very terms of the mortgage contracts.

When the worst "balloon" mortgages came due in large numbers in 2007 and 2008, the defaults skyrocketed. Rational behavior by home buyers meant defaulting, particularly in California, Arizona, Florida, and Nevada.

Nothing has changed. Defaults are increasing.

Foreclosures are projected to run into the millions. Houses are "underwater" and banks have done nothing to adjust the loans. We will see whether the White House can make something happen. The banks are spending hundreds of millions of dollars to kill mortgage-rewrite legislation. They pray for miracles and do whatever to maintain their managers' bonuses.

The craziest part of this whole mess was that DB and GS were able to take dead aim on the performance of the "balloon" mortgage packets (CDO bonds) without taking one dime of money in or out of the mortgage bond CDO system. It was all run as side bets and no one questioned it publicly.  

PIIGS.

A similar bubble was generated 2000-2007 in Europe. The Germans had a nasty recession 2000-2005, so they worked to have the quantity of EUROs increased. This strategy worked for them.

Unfortunately for Portugal, Italy, Ireland, Greece, and Spain, the most of the newly minted EUROs went south. EURO circulation in Germany went up 50%.

100% and more in the PIIGS.

So the inflation pressure down south overwhelmed their normal economies and there were housing bubbles, similar to the U.S.

Same for easy money tax revenues. It was all a central bank scam, generated for political reasons. Same as the U.S.

Republicanism

Republican faith in Ayn Rand, laissez faire, and simple greed had triumphed. The shrines to St. Ronnie spoke, telling their acolytes that applying law was no longer necessary. "Speak no ill of a fellow Republican" -- that ditty spread out to cover Wall Street.

And the CDSs had been invented so's to turn two to three times the scams at Wall Street that was being turned at all of the fraudulent mortgages.

Mike Lewis thinks this is $1.75-trillion. He also gets numbers out of the sell-side brokerages that he still trusts. He uses numbers out of Moody's and S&P, which he still trusts. I'm using the Bernanke Renegades in the regionals and Bloomberg.

Take Lewis's numbers, add AIG, add the "inside" CDS contracts with the likes of Merrill, Lehman and Bear and we're getting totals higher than the $2.4-trillion that came out from Bernanke's testimony.

What all this tells us is that Wall Street concocted at least $2.4-trillion in so-called "derivatives" that were, in fact, gaming products that lost the most of their clients' money.

******************

The Big Mystery from a slightly different view.

Who was holding the "bettor"/Gambler side of the CDS paper, betting enormous sums against the criminalized Sand State Sub-Prime shyte paper ?

Deutsche Bank and Goldman, Sachs had relabeled slices/tranches/pay-out-segments of junk bond shyte-paper as "Consumer Credit." That is what the buyers thought they were getting -- not CDS casino "house" bets.

Still, the buyers of these "securities" had to be paid something that walked/sounded/looked/got_banked like interest until the "balloon" mortgages popped.

Credit Default Swap bets and carrying charges, s'il vous plaît.

Based on $2.4-trillion over a couple of years, the sources for these apparent "interest" payments had to put up high side of $100-billion.

This means that the "bettor"/Gambler players had $100-billion on hand for whatever presented as targets of opportunity. First thought ties that problem to either the Oil Biz or to drugs. The Fed would know.

We do need an audit, a real accounting.

We know something about the losers. De facto bankrupt Merrill as it fell into the unwilling arms of Bank of America, contributing a major chunk to BofA's $600-billion in losses. Same for Morgan Stanley with $720-billion in losses and Citi.

Them's losses.

Only The Fed has the exact information on who profited and when and exactly how. The Fed and the criminals. If Department of Justice kick starts an Organized Crime Strike Force, this info can be assembled without a Fed audit. That is the only alternative I can see.

Of course, we can just let the crooks keep the money and avoid paying taxes. That'll put a smile on Larry Summers.

Originally posted to vets74 on Sun Mar 28, 2010 at 12:50 PM PDT.

Poll

$2.4-trillion got scammed selling CDS casino bets as "Consumer Credit."

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Comment Preferences

  •  T J -- Pulling a $2.4-trillion scam sets a record (7+ / 0-)

    along with not paying taxes on the loot.

    At the current 35% corporate tax rate, that's $700-billion due on the core $2-trillion.

    Make for one helluva jobs bill. Drive unemployment down to the 7% - 8% level.

    How's that sound to ya'll ???

    Angry White Males + Personality Disorder delusionals + Pro-Life Christians

    =EQ=

    The GOPer Base

    by vets74 on Sun Mar 28, 2010 at 12:48:13 PM PDT

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