Matt Taibbi has a feature article in The Guardian which parodies the Gordon Gecko “Greed is good” statement from the film “Wall Street”. He carries the subject forward to develop a picture of Ayn Rand Objectivism taking over the world.
This is an article that will make some readers scream in disgust at the position Matt espouses and others scream in disgust at the Randian world he rants against. He concludes the article:
This debate is going to be crystallised in the Goldman case. Much of America is going to reflexively insist that Goldman’s only crime was being smarter and better at making money than IKB and ABN-Amro, and that the intrusive, meddling government (in the American narrative, always the bad guy!) should get off Goldman’s Armani-clad back. Another side is going to argue that Goldman winning this case would be a rebuke to the whole idea of civilisation – which, after all, is really just a collective decision by all of us not to screw each other over even when we can. It’s an important moment in the history of modern global capitalism: whether or not to move forward into a world of greed with out limits.
Taibbi’s conclusion is similar to my repeated belief that it is important for the SEC vs. Goldman Sachs case to go to trial so the convoluted financial processes involved can be presented and reviewed by both plaintiff and defendant. The nature of the machinations must be understood by the masses and the limits of current law must be defined in order to have a rational debate. We need a complete expose so we can make logical decisions about where the financial system should go from here.
Absent the trial or some other process of discovery we risk being doomed to divide into three camps:
The Randians’ anything goes credo.
Those who want to regulate everything to death.
The vast majority who abandon hope of ever understanding enough to have an opinion.
We need a citizenry that understands what has happened to a sufficient extent to support some rational middle ground between the law of the jungle and all animals in zoo cages.
What just happened to Wall Street, with the announcement that the Securities Exchange Commission has filed fraud charges against Goldman Sachs Group, Inc., is so damning that its impact had to be blunted by its late Friday afternoon release. It’s what government does when it doesn’t want the stock market to plunge. But government DOES want to play up to the public’s infuriation over continuing revelations of greed and fraud on Wall Street.
A Monday morning release of this story might have sent the entire stock market into a crash (Goldman Sachs Group Inc, stock is down 23.57 points, erasing ~$12 billion of market capitalization), and that’s because there are likely more fraudulent billion-dollar investments to be revealed.
The American public needs to first grasp a broader view of this event. The Administration in Washington DC, heading for an election in November that will surely be fueled with voter outrage, has decided to strike a seeming blow to Wall Street to strengthen its hand in pushing for financial reform. Yet it is so odd that politicians were the ones who allowed all this to happen (more on this below). Does anyone have an explanation why the SEC has only now decided to file charges involving a 2007 billion-dollar investment? Or why the investor who most benefited financially and who assembled this mortgage-backed investment, John Paulson, has yet to be charged with any wrongdoing?
The smoking gun: an e-mail
John Paulson, the billionaire
Another piece of the intrigue here is that the primary provider of evidence in the case is a star Goldman Sachs trader, a Frenchman by birth, who has suddenly left the U.S. for Europe as this story hits the news outlets. Fabrice Tourre, a GS vice president, wrote an email in 2007 that is the smoking gun in this case. Did he leave the U.S. in fear for his life?
Mr. Tourre’s 2007 email, which said “the whole building is about to collapse now,” shortly before the bonds were sold, and which said he would be the only potential survivor, provides foreknowledge of the billion-dollar investment that was sure to fail. Tourre was “principally responsible” for piecing together this novel and new type of investment at GS. He was the point man for Paulson.
When Tourre produced a 65-page “flip book” that contained details of the billion-dollar investment, to be provided to potential investors, this provided the evidence that SEC needed for its case.
Fabrice Tourre, 31-year-old Goldman Sachs vice president, who is reported to have fled the country with the announcement that a 2007 email he wrote is the “smoking gun” in the SECs case against GS.
Don’t get the false impression that Mr. Tourre is a whistleblower here. The SEC alleges Mr. Tourre misled investors about Paulson’s role, saying Paulson had invested millions of dollars in hopes the packaged mortgage bonds would rise in value. Of course, Mr. Tourre is not the target of the SEC complaint, Goldman Sachs is. Its senior management had full knowledge of this deal. From 2004 to 2007, Goldman Sachs had arranged about two dozen similar deals.
Nor should anyone get the false notion that Paulson let others do all his bidding. He was actively raising funds and selling investment groups on this kind of instrument for some time, going back to 2006. Paulson wanted to invent the invincible wager.
An article in The Wall Street Journal documents that a senior banker at Bear Stearns Companies turned down this trade, questioning the propriety of selling deals to investors that a bearish client had assembled. (Bear market traders bet that an investment will fall in value, while bull-market traders bet than an investment will rise in value.)
Throw the book at them
Believe it or not, an entire book was written of this now infamous investment before the SEC took action.
Of interest is Greg Zuckerman, The Wall Street Journal’s senior reporter in this case, who wrote The Greatest Trade Ever, about this trade and others like it, long before the SEC took action. The jacket on this book says: “The behind-the-scenes story of how John Paulson defied Wall Street and made financial history.” The book, published in November of 2009, hardly made ripples on Wall Street or in the financial news press. The SEC was sitting on all this information for over two years and did nothing. It was waiting for the right political moment to strike.
Zuckerman’s book outlines how John Paulson assembled risky mortgage investments with another party, Goldman Sachs, investments that were sure to fail, and then bet against them. Goldman Sachs used its reputation to promote the packaged mortgage investment to an overseas investor without revealing it was in cahoots with Paulson. In fact, the overseas bank involved specifically said it would not proceed if the packaged mortgages had been assembled by Paulson.
Paulson made a killing – a billion dollars, and Goldman Sachs made millions assembling the deal from both sides. Paulson’s defense is that he made no misrepresentations, only Goldman Sachs did, but what of the ethics of this deal?
Yves Smith, author of Naked Capitalism, and head of Aurora Advisors, a management consulting group, and the author of the new book,Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism, calls the investment that John Paulson sponsored a “Trojan horse for Mr. Paulson to take a short position, betting against the very same investment he was creating, but his intent was not disclosed…. at the expense of investors who had been kept in the dark and would almost certainly have turned down the deal if they had had the full picture.”
Goldman Sachs living up to its now infamous reputation
It’s obvious now that Goldman Sachs will be the pin cushion for the Administration’s attempt to regain public credibility before the November election. Goldman Sachs is the villain, and it is doing a good job of playing this role.
Just prior to the revelations about the alleged Paulson/Goldman Sachs scandal, the SEC launched other charges against a Goldman Sachs director. Various news sources reported that Rajat Gupta of GS is being investigated on suspicion that he provided inside information to the Galleon Group, a hedge fund founded by Raj Rajaratnam that has now become the biggest insider-trading probe in many years. So the SEC could mire Goldman Sachs with even more allegations in an effort to bring the billion-dollar company to its knees.
This publicly-staged legal action resembles that of President Bill Clinton’s 1995 assault against the tobacco companies, which was launched under the guise of a threat to public health, but really had a political agenda – that of taking away millions of dollars of campaign funds that the tobacco industry was donating to the Republican Party at the time.
If you are as confused as everyone else what the SEC is fussing about, you might click here to take a peek at a graphic created by The Wall Street Journal which visually displays how the deal between John Paulson and Goldman Sachs was prearranged and marketed.
Of course, GS sees nothing wrong with this trade, which should ignite even further public outrage. GS needs a good public relations man at the moment as it digs an even deeper hole every time it attempts to defend its own actions. (Recall GS’ CEO Lloyd Blankfein who recently said he’s “doing God’s work.”)
Congress opened the door
To return to the government’s culpability in this case, the Commodities Futures Modernization Act which Congress passed a decade ago, opened the door for trades like John Paulson’s. This legislation eliminated the long-standing rule that derivatives bets made outside regulated exchanges are legally enforceable only if one the parties involved in the bet were hedging against a pre-existing risk. Prior regulations said the only people who can bet against an investment actually have to own shares in it. Here is Paulson betting against an investment he had no ownership in.
Or like Rick Edelson, an online blogger speaking out in the New York Times, says: “Like the arsonist who buys insurance on another man’s house, Goldman and Paulson did everything they could to burn down the American economy, because it was only by destroying others’ wealth that they could maximize their own profit.”
Good God, do these men see in their greed they have scuttled the American economy, as well as faith in Wall Street investments that fund most pension plans?
When Paulson made billions, Wall Street was not quick to condemn. He got away with it, and that was to be applauded. Some investment bloggers said “well done.” Another said Paulson is “an investing stud. He is to be hailed for his moxie and superior forecasting.”
Other defenders of Wall Street claim Paulson didn’t create a real estate market with collapsing home values. But to package non-performing mortgages and then bet against them is like a rigged horse race.
Scripting for a thrilling end
For sure, the Administration in Washington DC will be portrayed in coming months as the hero, rescuing the public from the blood-suckers on Wall Street. Be it government to save us all from problems it created and then pin a badge of honor on itself. The current and former administrations in Washington DC are, and have been, so tightly controlled and managed by Wall Street, even with its ex-CEOs strategically implanted within the Executive Branch, as to call all alleged reforms and sanctions into question. These are just for show.
Goldman Sachs and its billions will face off against the might of US prosecutors with the President’s credibility on the line. Will a publicized trial be showcased on TV? It could become the high drama that the government wants to keep before the public’s eyes, all the way up to the November election.
Will Paulson squirm out of any legal consequences in the same manner as O.J. Simpson when he was asked to put an ill-fitting glove on his hand in a televised hearing? Will the President be able to control himself and not chime in like he did when he said Cambridge, Massachusetts police officers “acted stupidly” when they arrested a renowned black scholar at his home?
Goldman Sachs knows it has to make the President look good or there will be unending SEC prosecution. The public wants to know whose side is the President is on, the financial titans on Wall Street or the unemployed on Main Street? It will be scripted from the beginning.
And now a final question – will Goldman Sachs be the fall guy in exchange for future favors from the government? If fines are handed out and nobody goes to jail, you will know this was likely preplanned. Will Fabrice Tourre serve as the scapegoat? He’s sure to stay outside the country for his own good. Don’t be so naïve as to not believe much of what you see happening is being staged. That’s how politics works. It’s all about political advantage, not law and order, not right and wrong.
This is going to unleash a domino effect! Come one, Come all! Anyone buying these CDO’s from these fraudsters need to get examined!
Interested to see their stock this week??
Merrill Used Same Alleged Fraud as Goldman, Bank Says (Update1)
By William McQuillen
April 17 (Bloomberg) — Merrill Lynch & Co. engaged in the same investor fraud that the U.S. Securities and Exchange Commission accused Goldman Sachs Group Inc. of committing, according to a bank that sued the firm in New York last year.
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, known as Rabobank, claims Merrill, now a unit of Bank of America Corp., failed to tell it a key fact in advising on a synthetic collateralized debt obligation. Omitted was Merrill’s relationship with another client betting against the investment, which resulted in a loss of $45 million, Rabobank claims.
Merrill’s handling of the CDO, a security tied to the performance of subprime residential mortgage-backed securities, mirrors Goldman Sachs conduct that the SEC details in the civil complaint the agency filed yesterday. It claimed Goldman omitted the same key fact about a financial product tied to subprime mortgages as the U.S. housing market was starting to falter.
“This is the tip of the iceberg in regard to Goldman Sachs and certain other banks who were stacking the deck against CDO investors,” said Jon Pickhardt, an attorney with Quinn Emanuel Urquhart Oliver & Hedges, who is representing Netherlands-based Rabobank.
“The two matters are unrelated and the claims today are not only unfounded but weren’t included in the Rabobank lawsuit filed nearly a year ago,” Bill Halldin, a Merrill spokesman, said yesterday of the Dutch bank’s claims.
Kenneth Lench, head of the SEC’s Structured and New Products unit, said yesterday that the agency “continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress.”
Failed to Disclose
In its complaint, the SEC said New York-based Goldman Sachs, which had a record $13.4 billion profit last year, failed to disclose to investors that hedge fund Paulson & Co. was betting against the CDO, known as Abacus, and influenced the selection of securities for the portfolio. Paulson, which oversees $32 billion and didn’t market the CDO, wasn’t accused of wrongdoing by the SEC.
Goldman Sachs, the most profitable securities firm in Wall Street history, created and sold CDOs tied to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that Paulson helped pick the underlying securities and bet against them, the SEC said in a statement yesterday.
The SEC allegations are “unfounded in law and fact, and we will vigorously contest them,” Goldman said in a statement.
Merrill Lynch’s arrangement involved Magnetar, a hedge fund that bet against a CDO known as Norma, Rabobank claimed.
Effort to Replicate
“When one major firm becomes aware of the creative instrument of others, there is historically an effort to replicate them,” said Jacob Frenkel, a former SEC lawyer now in private practice in Potomac, Maryland.
SEC spokesman John Heine declined to comment on whether it is investigating Merrill’s actions.
Norma’s largest investor was investment bank Cohen & Co, with more than $100 million in notes, according to Rabobank’s complaint.
Merrill loaded the Norma CDO with bad assets, Rabobank claims. Rabobank seeks $45 million in damages, according to a complaint filed in state court in June 2009. Rabobank initially provided a secured loan of almost $60 million to Merrill, according to its complaint.
Risks Disclosed
Merrill countered in court papers that Rabobank was aware of the risks, which were disclosed in the transaction documents. The bank should have been responsible for conducting its own due diligence, and shouldn’t have relied on Merrill, it said in a court filing last year seeking to dismiss the case.
Steve Lipin, an outside spokesman for Magnetar, didn’t immediately comment.
The case is Cooperatieve Centrale Raiffeisen- Boerenleenbank, B.A. v. Merrill Lynch & Co, 09-601832, New York State Supreme Court (New York County).
Action Date: April 16, 2010 Location: New York, NY
On April 16, 2010, the SEC filed securities fraud charges against Goldman, Sachs & Co. (“GS&Co”) and a GS&Co employee, Fabrice Tourre (“Tourre”), for making material misstatements and omissions in connection with a collateralized debt obligation (“CDO”) GS&Co made and marketed to investors. ABACUS 2007-AC1, a mortgage-backed trust, was tied to the performance of subprime residential mortgage-backed securities. Abacus was made and marketed in early 2007 when the United States housing market was beginning to show signs of distress. Mortgage-backed trusts like ABACUS 2007-AC1 contributed to the financial crisis. According to the Commission’s complaint, the marketing materials for ABACUS 2007-AC1 all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC (“ACA”), a third party with expertise in analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. (“Paulson”), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (“CDS”) with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future. GS&Co did not disclose Paulson’s adverse economic interest or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials. The Commission alleges that Tourre was principally responsible for ABACUS 2007-AC1. According to the Commission’s complaint, Tourre devised the transaction, prepared the marketing materials and communicated directly with investors. Tourre is alleged to have known of Paulson’s undisclosed short interest and its role in the collateral selection process. He is also alleged to have misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson’s interests in the collateral section process were aligned with ACA’s when in reality Paulson’s interests were sharply conflicting. The deal closed on April 26, 2007. Paulson paid GS&Co approximately $15 million for structuring and marketing ABACUS 2007-AC1. By October 24, 2007, 83% of the RMBS in the ABACUS 2007-AC1 portfolio had been downgraded and 17% was on negative watch. By January 29, 2008, 99% of the portfolio had allegedly been downgraded. Investors in the liabilities of ABACUS 2007-AC1 are alleged to have lost over $1 billion. Paulson’s opposite CDS positions yielded a profit of approximately $1 billion. The Commission’s complaint, which was filed in the United States District Court for the Southern District of New York, charges GS&Co and Tourre with violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. §77q(a), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b) and Exchange Act Rule 10b-5, 17 C.F.R. §240.10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest and civil penalties from both defendants.
The SEC’s complaint charges Goldman Sachs and Tourre with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties.
“The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest and civil penalties from both defendants.” Editor’s Note: Here is where the rubber meets the road. This same pool of illegal fraudulent profit is also subject to being defined as an undisclosed yield spread premium due to the borrowers. Some enterprising class action lawyer has some low hanging fruit here — the class is already defined for you by the SEC — all those homeowners subject to loan documents that were pledged or transferred into a pool which was received or incorporated by reference into this Abacus vehicle)
SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21489 / April 16, 2010
Securities and Exchange Commission v. Goldman, Sachs & Co. and Fabrice Tourre, 10 Civ. 3229 (BJ) (S.D.N.Y. filed April 16, 2010)
The SEC Charges Goldman Sachs With Fraud In Connection With The Structuring And Marketing of A Synthetic CDO
The Securities and Exchange Commission today filed securities fraud charges against Goldman, Sachs & Co. (“GS&Co”) and a GS&Co employee, Fabrice Tourre (“Tourre”), for making material misstatements and omissions in connection with a synthetic collateralized debt obligation (“CDO”) GS&Co structured and marketed to investors. This synthetic CDO, ABACUS 2007-AC1, was tied to the performance of subprime residential mortgage-backed securities (“RMBS”) and was structured and marketed in early 2007 when the United States housing market and the securities referencing it were beginning to show signs of distress. Synthetic CDOs like ABACUS 2007-AC1 contributed to the recent financial crisis by magnifying losses associated with the downturn in the United States housing market.
According to the Commission’s complaint, themarketing materials for ABACUS 2007-AC1 — including the term sheet, flip book and offering memorandum for the CDO — all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC (“ACA”), a third party with expertise in analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. (“Paulson”) [Editor’s Note: Brad Keiser in his forensic analyses has reported that Paulson may have been a principal in OneWest which took over Indymac and may have ties with former Secretary of Treasury Henry Paulson, former GS CEO], with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO played a significant role in the portfolio selection process.After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (“CDS”) with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future. GS&Co did not disclose Paulson’s adverse economic interest or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials. The Commission alleges that Tourre was principally responsible for ABACUS 2007-AC1. According to the Commission’s complaint, Tourre devised the transaction, prepared the marketing materials and communicated directly with investors. Tourre is alleged to have known of Paulson’s undisclosed short interest and its role in the collateral selection process. He is also alleged to have misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson’s interests in the collateral section process were aligned with ACA’s when in reality Paulson’s interests were sharply conflicting. The deal closed on April 26, 2007. Paulson paid GS&Co approximately $15 million for structuring and marketing ABACUS 2007-AC1. By October 24, 2007, 83% of the RMBS in the ABACUS 2007-AC1 portfolio had been downgraded and 17% was on negative watch. By January 29, 2008, 99% of the portfolio had allegedly been downgraded. Investors in the liabilities of ABACUS 2007-AC1 are alleged to have lost over $1 billion. Paulson’s opposite CDS positions yielded a profit of approximately $1 billion.
The Commission’s complaint, which was filed in the United States District Court for the Southern District of New York, charges GS&Co and Tourre with violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. §77q(a), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b) and Exchange Act Rule 10b-5, 17 C.F.R. §240.10b-5.The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest and civil penalties from both defendants.
The Commission’s investigation is continuing into the practices of investment banks and others that purchased and securitized pools of subprime mortgages and the resecuritized CDO market with a focus on products structured and marketed in late 2006 and early 2007 as the U.S. housing market was beginning to show signs of distress.
Comprehensive Bailout Tally: $4.6 Trillion Spent on the Bailout to Date
Submitted by Mary Bottari on April 1, 2010 – 7:05am. PRWATCH.org
Today, the Real Economy Project of the Center for Media and Democracy (CMD) released an assessment of the total cost to taxpayers of the Wall Street bailout. CMD concludes that multiple federal agencies have disbursed $4.6 trillion dollars in supporting the financial sector since the meltdown in 2007-2008. Of that, $2 trillion is still outstanding. Our tally shows that the Federal Reserve is the real source of the bailout funds.
CMD’s assessment demonstrates that while the press has focused its attention on the $700 billion TARP bill passed by Congress, the Federal Reserve has provided by far the bulk of the funding for the bailout in the form of loans amounting to $3.8 trillion. Little information has been disclosed about what collateral taxpayers have received in return for these loans, sparking the Bloomberg News lawsuit covered earlier. CMD also concludes that the bailout is far from over as the government has active programs authorized to cost up to $2.9 trillion and still has $2 trillion in outstanding investments and loans.
Learn more about the 35 programs included in the CMD tally by visiting our Total Wall Street Bailout Cost Table, which contains links to pages on each bailout program with details including the current balance sheet for each program.
Treasury Department Self-Congratulations Premature
While the Treasury Department has been patting itself on the back for recouping some of the Troubled Asset Relief Program (TARP) funds and allegedly making money off of its aid to Citigroup, the CMD accounting shows that TARP is only a small fraction of the federal funds that have gone out the door in support of the financial sector. Far more has been done to aid Wall Street through the back door of the Federal Reserve than through the front door of Congressional appropriations.
The tally shows that more scrutiny needs to be given by policymakers and the media to the role of the Federal Reserve especially as the Fed has accounted for the vast majority of the bailout funds, yet provides far less disclosure and is far less directly accountable than the Treasury.
Download the Financial Crisis Tracker
In addition to a comprehensive here Wall Street Bailout Table which will be updated monthly as a resource for press and the public, CMD is also making available a Financial Crisis Tracker, a widget that links to the table that can be downloaded to websites and provides up–to-date numbers on the financial crisis and the bailout. The Financial Crisis Tracker shows unemployment rates, housing foreclosure rates and the bailout total on a monthly basis. It is a more accurate measure of how we are doing as a nation than any Wall Street ticker.
1) $4.6 Trillion in Taxpayer Funds Have Been Disbursed
All together, $4.6 trillion of taxpayer funds have been disbursed in the form of direct loans to Wall Street companies and banks, purchases of toxic assets, and support for the mortgage and mortgage-backed securities markets through federal housing agencies. This is an astonishing 32% of our GDP (2008) 130% of the federal budget (FY 2009).
2) TARP vs. Non-TARP Funding
Most accountings of the financial bailout focus on the Troubled Asset Relief Program (TARP), enacted by Congress with the Emergency Economic Stabilization Act of 2008. However, a complete analysis of the activities of all the agencies involved in the bailout including the FDIC, Federal Reserve and the Treasury reveals that TARP, which ended up disbursing about $410 billion was less than a tenth of the total U.S. government effort to contain the financial crisis. TARP funds only account for about 20% of the maximum commitments made through the bailout and less than 10% of the actual funds disbursed.
3) The Federal Reserve has Played the Primary Role in the Bailout
The Federal Reserve has provided by far the bulk of the funding for the bailout in the form of loans — $3.8 trillion in total. Little information has been disclosed about what collateral taxpayers have received in return for many of these loans. Bloomberg News is suing the Federal Reserve to make this information public. On March 19, 2010 Bloomberg won its suit in the Second Circuit Court of Appeals, but it is not clear if this case will continue to be litigated to the Supreme Court.
4) Federal Support for the Housing Market is on the Rise
A key component of the bailout has been the federal support for mortgages and mortgage-backed securities, primarily through the Federal Reserve. All together, the government has disbursed more than $1.5 trillion in non-TARP funds to directly support the mortgage and housing market since 2007.
I wonder if wifey Andrea Mitchell will report? NBC?
March 31, 2010, 9:29 PM EDT
By Jesse Westbrook
March 31 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan, ex-U.S. Treasury Secretary Robert Rubin and Charles Prince, who stepped down as Citigroup Inc. chief executive officer in 2007, will testify next week before the panel probing the financial crisis.
The Financial Crisis Inquiry Commission will hear from Greenspan on April 7, the panel said in a statement today. Rubin and Prince will testify the following day.
The FCIC, charged with determining what caused the worst U.S. economic slump since the Great Depression, is investigating the roles banks and regulators played in spurring or failing to prevent a crisis that led to more than $1.7 trillion in writedowns and credit losses at financial companies worldwide.
Testimony from Greenspan, Rubin and Prince shows the panel is shifting its focus to the Fed, where Greenspan served until 2006, and Citigroup, where Rubin became a senior adviser after serving in the Treasury post under President Bill Clinton. Citigroup got $45 billion in U.S. government bailout funds in 2008 after the collapse of the mortgage market froze credit.
U.S. Comptroller of the Currency John Dugan, whose agency oversees national banks, will also testify on April 8. Former Fannie Mae Chief Executive officer Daniel Mudd will appear April 9 along with former directors of the Office of the Federal Housing Enterprise Oversight.
The U.S. government rescued Fannie Mae in August 2008 after the housing slump threatened the survival of the government- sponsored company.
The FCIC, whose members were appointed by Congress, has been investigating the financial crisis since last year. It is supposed to deliver its findings to lawmakers in December.
–Editors: Gregory Mott, William Ahearn
To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
To contact the editor responsible for this story: Alec McCabe at amccabe@bloomberg.net.
(Reuters) – A major crisis is building in the derivatives market yet a cabal on Wall Street is blocking the formation of a clearing house that could stop the next financial meltdown, a senior official with the Kauffman Foundation said on Tuesday.
The need for disclosure in the swap markets is enormous, yet the will to act is missing because of a small cadre of special interests, said Harold Bradley, who oversees almost $2 billion in assets as chief investment officer at Kauffman.
“There is no incentive from the moneyed interests in either Washington or New York to change it,” Bradley told the Reuters Global Exchanges and Trading Summit in New York.
“I believe we are in a cabal. There are five or six players only who are engaged and dominant in this marketplace and apparently they own the regulatory apparatus,” he said. “Everybody is afraid to regulate them.”
U.S. and European officials are trying to craft new rules to regulate the $450 trillion private derivatives market in broad efforts to avoid another financial crisis.
Policy-makers generally agree that most standardized derivatives should be traded on exchanges or cleared through a clearinghouse, which would assume the risk of a default.
Bradley said those efforts fall short. There needs to be a national market system for fixed income and credit with displayed prices and the posting of open interest and market positions, he said.
Instead, he said regulators have found a boogeyman in high-frequency trading, which has taken the focus off the highly levered derivatives market. After falling in 2008, the nominal value of derivatives is now greater than ever at about $204.3 trillion, according to Ned Davis Research Inc.
The U.S. Securities and Exchange Commission is conducting a broad review of equity market structure, centered on high-frequency trading, often referred to by the initials HFT.
High-frequency traders, who account for an estimated 60 percent of trading on U.S. equity markets, use rapid-fire trading software to buy and sell stocks.
Fears that high-frequency trading could spark the next market meltdown are unfounded, Bradley and other speakers at the summit said.
“We’re going to talk about high-frequency trading instead of the flash points that set off nuclear bombs around our financial markets,” Bradley said, referring to the ever-expanding and loosely regulated market for derivatives.
Complaints about electronic trade are coming from the largest U.S. asset management firms and the investment banks that have lost business to these new operations, Bradley said.
“This is a classic Wall Street land grab. You create an acronym, you basically castigate somebody as villainous and then you regulate them because they’re taking somebody’s profits away,” he said.
Scrutiny of high frequency trading is unwarranted because the U.S. stock market functioned “unbelievably well” during the height of investor panic in late 2008 and early 2009, he said.
“I’d like anyone to show me what didn’t work. (The market) never seized, costs stayed really low,” Bradley said.
“The money that the high frequency traders are taking is coming right out of the old investment banks’ dealing desks’ pockets,” he said.
(Reporting by Herbert Lash; Editing by Richard Chang)
COMPLAINT FOR VIOLATION OF
19 ^§11, 12 AND 15 OF THE DEMAND FOR JURY TRIAL,
SECURITIES ACT OF 1933
MAINE STATE RETIREMENT Individually and On Behalf
of All Others Similarly Situated,
Plaintiffs,
vs.
COUNTRYWIDE FINANCIAL CORPORATION, a Delaware corporation; COUNTRYWIDE HOME LOANS, INC.; CWALT, INC., a Delaware corporation; CWMBS, INC., a Delaware corporation; CWABS, INC., a Delaware corporation; CWHEQ, INC., a Delaware corporation; COUNTRYWIDE CAPITAL MARKETS, COUNTRYWIDE SECURITIES CORPORATION-J.P. MORGAN SECURITIES If4c; DEUTSCHE BANK SECURITIES INC., BEAR, STEARNS & CO. INC., BANC OF AMERICA SECURITIES LLC; UBS SECURITIES, LLC; MORGAN STANLEY & CO. INCORPORATED; EDWARD D. JONES & CO., L.P.; CITIGROUP GLOBAL MARKETS INC.; GOLDMAN, SACHS & CO.; CREDIT SUISSE SECURITIES (USA) LLC; GREENWICH CAPITAL MARKETS, INC. A.K.A. RBS GREENWICH CAPITAL; BARCLAYS CAPITAL INC.; HSBC SECURITIES (USA); BNP PARIBAS SECURITIES CORP.; MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED; STANFORD L. KURLAND; DAVID A. SPECTOR; ERIC P. SIERACKI; N. JOSHUA ADLER; RANJIT KRIPALANI; JENNIFER S. SANDEFUR; DAVID A. SAMBOL,
Defendants
This Complaint is brought pursuant to the Securities Act of 1933 (the “Securities Act”) by plaintiff Maine Public Employees State Retirement System, individually, and as a class action on behalf of all persons or entities (“plaintiffs” or the “Class”) who purchased or otherwise acquired (1) Alternative Loan Trust Certificates issued by, inter alia, Defendant CWALT, Inc. (“CWALT”); (2) CWABS Asset-Backed Trust Certificates issued by, inter alia, Defendant CWABS, Inc. (“CWABS”); (3) CHL Mortgage Pass-Through Trust Certificates issued by, inter alia, Defendant CWMBS, Inc. (“CWMBS”); and (4) CWHEQ Revolving Home Equity Loan Trusts and Home Equity Loan Trusts issued by, inter alia, Defendant CWHEQ, Inc. (“CWHEQ”) (collectively referred to as the “Certificates”).
Courtesy of John Lounsbury
Of interest is 
For sure, the Administration in Washington DC will be portrayed in coming months as the hero, rescuing the public from the blood-suckers on Wall Street. Be it government to save us all from problems it created and then pin a badge of honor on itself. The current and former administrations in Washington DC are, and have been, so tightly controlled and managed by Wall Street, even with its ex-CEOs strategically implanted within the Executive Branch, as to call all alleged reforms and sanctions into question. These are just for show.
Merrill Used Same Alleged Fraud as Goldman, Bank Says (Update1)
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