12/28/2010 archive

Evening Edition is an Open Thread

1 Ivory Coast’s Gbagbo faces West African ultimatum

by Christophe Koffi, AFP

58 mins ago

During an interview on CNN, Glenn Greenwald, Salon contributor and Constitutional lawyer, takes to task CNN’s Jessica Yellin and former George W. Bush Homeland Security advisor now a CNN contributor, Fran Townsend, for the misinformation about the release of classified information and the accusations that are being made about Julian Assange. Greenwald makes deeper observations regarding the exchange.

The lack of journalistic neutrality and questioning of government and political figures makes the them “indistinguishable”:

It’s not news that establishment journalists identify with, are merged into, serve as spokespeople for, the political class:  that’s what makes them establishment journalists.

Fran Townsend was everything you would expect from a former Bush apologist and Jessica Yellin may well have been a government plant. Neither was a match for Greenwald.

The transcript is now available thank to an ambitious blogger, hotdog, at FDL

Bill Black-

Black: the dominance of unethical banking

Posted by: Jay Kernis – Senior Producer, Parker/Spitzer

December 20th, 2010, 06:17 PM ET

A credit ratings firm couldn’t give a “AAA” rating (the highest possible – the rating that virtually all these toxic derivatives were given) if it looked at a sample of the loans – so they religiously did not kick the tires on the liar’s loans. So we had the farce of “credit rating” agencies whose expertise was supposedly in reviewing credit quality never looking at that credit quality so that they could make enormous fees by giving toxic waste pristine “AAA” ratings.

The investment banks couldn’t sell the financial derivatives loans to others if the investment bankers (whose supposed expertise was evaluating credit risk) were to actually look at credit quality of the underlying liar’s loans. If they looked, they’d document that the loans were overwhelmingly fraudulent. They’d then have three options.

A. They could sell the CDOs to others by calling them wonderful “AAA” investments – while having files proving that they knew this was a lie. This option is the prosecutor’s dream.

B. They could have sued the lenders that sold them the fraudulent liar’s loans. The investment banks typically had a clear contractual right to force the fraudulent loans to buy back the liar’s loans. But there were fatal problems with that option. The lenders that made liar’s loans typically had minimal capital (net worth). If the investment banks had demanded that they repurchase the loans they would have been unable to do so – and the demand would have exposed the investment banks’ bright shining lie that by pooling liar’s loans they could create “AAA” CDOs. Every CDO purchaser from the investment banks would then demand that the investment banks repurchased their CDOs – which would have caused virtually every large U.S. investment bank to fail.

C. They could have gone to the Justice Department and expose the massive fraud that was destroying the American economy and help the FBI investigate the lenders specializing in making liar’s loans, the corrupt appraisers, and the credit rating agencies. But that would have caused the CDO bubble to burst and the investment banks to fail.

That’s why the industry went with the fourth option – “don’t ask; don’t tell.” It’s like the famous fable of the emperor and the fraudulent designer. The designer tells everyone that he has created clothes for the emperor of such beauty that only the most sophisticated people can even see the clothes. The emperor and his cronies all agree that the clothes are glorious. The fraud only collapses when a boy blurts out: “the emperor is naked.” As long as no one engaged in the frauds pointed out that you can’t make a “AAA” rating out of a pool of massively overvalued fraudulent loans the housing bubble could hyper-inflate and the officers of the investment banks and credit rating agencies could become wealthy beyond their dreams.

…

The federal government has permitted banks to inflate their reported incomes and “net worth” for the purpose of evading the mandatory statutory duty under the Prompt Corrective Action (PCA) law to close deeply insolvent banks. Congress, at the behest of the Chamber of Commerce, the banking trade associations, and Chairman Bernanke, successfully extorted the Financial Accounting Standards Board (FASB) to scam the accounting rules so that the banks could fail to recognize on their accounting reports over a trillion dollars in losses.

When banks understate their losses massively they, by definition, overstate their net worth massively. The PCA’s provisions kick in when net worth falls, so the accounting lies have gutted the PCA. The accounting lies also allow the banks to (once again) report high fictional income when they are experiencing large, real losses. This accounting scam allows the bank executives to collect hundreds of billions of dollars in bonuses. We should end the accounting scam and enforce the PCA.

Congress Threatens to Sow the Seeds of Our Next Banking Crisis

William K. Black, Huffington Post

December 20, 2010 09:29 AM

Representative Paul’s claims epitomize the triumph of ideology over fact: “The market is a great regulator, and we’ve lost understanding and confidence that the market is probably a much stricter regulator.” No, the “market” is not a “great regulator” and the ongoing crisis is only the latest example of that point. Efficient, non-fraudulent markets would be a very good thing. Inefficient, markets with fraudulent participants can be a catastrophically bad thing.

The “market” also does not deal effectively with externalities (and they can be lethal) and with market power. The neoclassical claim that cartels cannot persist and that potential entry solves prevents all serious ills proved false in the real world. Here, however, I will discuss only why control fraud turns “markets” perverse. Accounting control frauds are guaranteed to report high profits in the early years. This is why Akerlof & Romer (1993) agreed with white-collar criminologists that such frauds were a “sure thing.” I’ve explained why the four-part recipe for optimizing fictional accounting income maximizes executive bonuses — and real losses. In the interest of brevity I will merely mention four ways in which accounting control frauds make markets, and “private market discipline” perverse.

1. The fictional profits fool creditors and shareholders — they are eager to lend to and invest in firms reporting record profits. Rather than discipline accounting control frauds, creditors and shareholders fund their massive growth.
2. The fictional profits and the large bonuses they drive create a “Gresham’s” dynamic in which bad ethics tends to drive good ethics out of the marketplace. The CFO that fails to emulate the fraud recipe will report far lower profits in the near term and will fear losing his job. More junior executives whose compensation is based on the firm’s reported income have perverse incentives to engage in accounting fraud to ensure that the firm “hits the number” and have reduced incentives to blow the whistle on frauds.
3. Lenders engaged in accounting control fraud create “echo” epidemics of fraud. They use their powers to hire and fire and create compensation systems to create perverse incentives in other fields: among their employees, “independent” professionals, and agents (e.g., loan brokers).
4. When several large lenders follow similar fraud strategies they can hyper-inflate financial bubbles.

Anti-consumer control frauds can also turn markets perverse by creating Gresham’s dynamics. Chinese infant formula provides a good example. Dishonest firms drove honest firms from the market — maiming hundreds of thousands of infants’ health.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Bob Herbert The Data and the Reality

I keep hearing from the data zealots that holiday sales were impressive and the outlook for the economy in 2011 is not bad.

Maybe they’ve stumbled onto something in their windowless rooms. Maybe the economy really is gathering steam. But in the rough and tumble of the real world, where families have to feed themselves and pay their bills, there are an awful lot of Americans being left behind.

A continuing national survey of workers who lost their jobs during the Great Recession, conducted by two professors at Rutgers University, offers anything but a rosy view of the economic prospects for ordinary Americans. It paints, instead, a portrait filled with gloom.

Thom Hartman: Cool Our Fever

We live in a democracy and policies represent our collective will. We cannot blame others. If we allow the planet to pass tipping points…it will be hard to explain our role to our children. We cannot claim…that “we didn’t know.”

– Jim Hansen, Director, NASA Goddard Institute for Space Studies1

But during the past decade, as the train rolls along eastward from Frankfurt, I’ve seen a dramatic change in the scenery and the landscape. First there were just a few: purplish-blue reflections, almost like deep, still water, covering large parts of the south-facing roofs as I looked north out the window of the train. Solar panels.

Then, over the next few years, the purplish-blue chunks began to spread all over, so now when I travel that route it seems like about a third-and in many towns even more-of all the roofs are covered with photovoltaic solar panels.

Eugene Robinson Danger ahead for the GOP

It’s been not quite two months since Republicans won a sweeping midterm victory, and already they seem divided, embattled and – not to mince words – freaked out. For good reason, I might add.

Sen. Lindsey Graham captured the mood with his mordant assessment of the lame-duck Congress: “Harry Reid has eaten our lunch.” Graham’s complaint was that the GOP acquiesced to a host of Democratic initiatives – giving President Obama a better-than-expected deal on taxes, eliminating “don’t ask, don’t tell,” ratifying the New START treaty – rather than wait for the new, more conservative Congress to arrive.

It was a “capitulation . . . of dramatic proportions,” Graham said in a radio interview last week. “I can understand the Democrats being afraid of the new Republicans. I can’t understand Republicans being afraid of the new Republicans.”

Oh, but there’s reason to be very afraid.

I told you we would be revisiting L. Randall Wray’s third piece on Title Fraud, well he’s written a new piece for Bezinga that kind of concisely summarizes the problem-

Time to Audit the Remic Trusts

By L. Randall Wray, Benzinga Columnist

December 23, 2010 12:43 PM

We now know that the “mortgage backed” securities were not backed by mortgages. In reality they are unsecured debt. The “pooling and servicing agreements” (PSAs) that govern securitization require that the mortgage documents (including the wet ink notes as well as a clean chain of title) are transferred in a timely manner to the trustees. This was rarely and perhaps never done, because it was counter to the recommendation made by MERS (Mortgage Electronic Registry System). Instead, notes were either destroyed or held by the servicers to speed the foreclosures that were always envisioned as the end result of the mortgage origination process. Not only does this practice render the securities fraudulent but it also violates the federal tax laws that govern the REMICs-meaning back taxes are due.

But worse than all that, by breaking the chain of title and by destruction of documents, MERS and the servicers have jeopardized the entire system of property rights. Most, perhaps all, foreclosures have been fraudulent, which means that resales of the homes are also frauds. It goes without saying that the original mortgages were frauds from the very beginning-to complete the transformation to the ownership society it was necessary to ensure that by construction, default was inevitable. Either the homeowner would be unable to pay, or the servicer would “lose” the payments. By obscuring the chain of title, it would be impossible for the debtors or the courts to sort things out. Separating home owners from their property was necessary to ensure that we can create Bush’s ownership society. It is the modern form of the feudal foreclosures and seizures of peasant lands that concentrated ownership in the hands of agricultural capitalists-creating the first ownership society.

The scale of the problem is huge. Some estimate that as many as $6.4 trillion worth of home mortgages (33 million of them) are frauds, with destroyed or doctored documents. Probably all of the $1.4 trillion worth of private label residential mortgage “backed” securities violate the PSAs-so are actually unsecured debt. Three state supreme courts have already ruled that MERS cannot be the owner of mortgages, hence, has no standing in foreclosures. MERS contaminated 65 million mortgages-decoupling the mortgages from the notes and destroying the chain of title. A consortium of investors (including PIMCO, Black Rock, and Fannie and Freddie) that owns $600 billion of the private label securities are suing the banks to take them back. One investor action alone against Bank of America concerns $47 billion in fraudulent mortgages-enough to put a serious dent in its purported net worth of $230 billion (which is probably a vast overstatement resulting from cooking the books). A suit in California seeks $60-$120 billion in lost recording fees alone. All 50 states are investigating the servicers for fraud. The top five servicers (Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, GMAC-Ally) have 60% of the business and include the top four banks that account for 40% of the banking business.

REMICs–

Real Estate Mortgage Investment Conduits, or “REMICs,” (sometimes also called Collateralized mortgage obligations) are a type of special purpose vehicle used for the pooling of mortgage loans and issuance of mortgage-backed securities. They were introduced in 1987 and are defined under the United States Internal Revenue Code (Tax Reform Act of 1986), and are the typical vehicle of choice for the securitization of residential mortgages in the US.

More Wray-

Anatomy of Mortgage Fraud, Part III: MERS’S Role in Facilitating the Mother of All Frauds

L. Randall Wray, Huffington Post

Posted: December 16, 2010 09:29 AM

Enter MERS — another link in the food chain — created by the banks in 1997 in preparation for the boom and bust. MERS was set up to be a foreclosure mill. It would break the centuries-old custom that protected property rights by requiring every sale of property to be publicly recorded, and requiring that any creditor claiming a right to foreclose to demonstrate clear title, with an endorsed note in the creditor’s name and a record at the county office showing transfer of the property.

The banksters did not want to go through all that paperwork, and needed to subvert the transparency that would shine light on their crimes. Hence, they set up a fraudulent shell corporation that claimed to be the mortgagee; while the original sale would be recorded at the county office, subsequent sales and purchases of the mortgage would be recorded only by an “electronic handshake” between two “members” of MERS. Even that record was considered by the banksters to be purely voluntary — MERS did not require members to actually record transactions. If they found it more convenient to conceal the transfers, that was permitted.

…

MERS deliberately undermined the legality of the loans and the records. Homeowners could no longer search the public records to find out who actually held their mortgage — the record would show MERS as owner, but MERS was a shell corporation with no real employees. It was not a servicer, so the homeowner could not make mortgage payments to the purported owner. As a result, checks were sent to the wrong servicers; servicers credited the wrong accounts; servicers claimed delinquencies on homeowners who never missed a payment, and piled late fees and delinquencies on the wrong borrowers; sheriffs were sent to break down the doors of the wrong houses, and threw belongings out on the street in front of homes on which there was no mortgage at all. MERS purposely created the mess, at the behest of banksters who do not want mere legal technicalities to get in the way of stealing homes. The undermining of the public records was not a mistake — it was MERS’s business model, created by the member banks.

And MERS helped banksters to defraud securities holders. Banks not only separated the mortgages from the notes, but they even destroyed the notes as they entered the mortgages into MERS’s electronic data base. MERS told servicers that it is “customary” practice to retain notes, not to endorse them over to REMIC trustees as required both by federal tax law and by the PSAs that govern the trusts. This made the securities a “nullity” — as the Supreme Court ruled over a hundred years ago — because a mortgage without a note is unenforceable in foreclosure. At best, the securities are unsecured debt, with no real property behind them.

In any case, the mortgages put into the trusts did not meet the representations made to investors — so even if the notes had been properly endorsed over to the trusts, the securities could be turned back to the banks. By creating a completely fraudulent electronic registry system — in which data would be entered only if banks found it convenient to do so, and in which data could be modified at any time by any member of MERS — MERS made it easy to conceal the securities frauds. Destruction or forgery of the paperwork was absolutely necessary to cover the trail of fraud from origination of the mortgage to securitization and finally to the inevitable foreclosure. Again, destruction of documents was not a mistake. It was the business model.

L. Randall Wray-

• Anatomy of Mortgage Fraud, Part I: MERS’s Smoking Gun 12/9/10
• Anatomy of Mortgage Fraud, Part II: The Mother of All Frauds 12/13/10
• Anatomy of Mortgage Fraud, Part III: MERS’S Role in Facilitating the Mother of All Frauds 12/16/10

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

December 28 is the 362nd day of the year (363rd in leap years) in the Gregorian calendar. There are three days remaining until the end of the year.

On this day in 1895, the first commercial movie is screened in Paris.

On this day in 1895, the world’s first commercial movie screening takes place at the Grand Cafe in Paris. The film was made by Louis and Auguste Lumiere, two French brothers who developed a camera-projector called the Cinematographe. The Lumiere brothers unveiled their invention to the public in March 1895 with a brief film showing workers leaving the Lumiere factory. On December 28, the entrepreneurial siblings screened a series of short scenes from everyday French life and charged admission for the first time.

Movie technology has its roots in the early 1830s, when Joseph Plateau of Belgium and Simon Stampfer of Austria simultaneously developed a device called the phenakistoscope, which incorporated a spinning disc with slots through which a series of drawings could be viewed, creating the effect of a single moving image. The phenakistoscope, considered the precursor of modern motion pictures, was followed by decades of advances and in 1890, Thomas Edison and his assistant William Dickson developed the first motion-picture camera, called the Kinetograph. The next year, 1891, Edison invented the Kinetoscope, a machine with a peephole viewer that allowed one person to watch a strip of film as it moved past a light.

In 1894, Antoine Lumiere, the father of Auguste (1862-1954) and Louis (1864-1948), saw a demonstration of Edison’s Kinetoscope. The elder Lumiere was impressed, but reportedly told his sons, who ran a successful photographic plate factory in Lyon, France, that they could come up with something better. Louis Lumiere’s Cinematographe, which was patented in 1895, was a combination movie camera and projector that could display moving images on a screen for an audience. The Cinematographe was also smaller, lighter and used less film than Edison’s technology

The Lumière brothers, Auguste Marie Louis Nicolas (19 October 1862, Besancon, France – 10 April 1954, Lyon) and Louis Jean (5 October 1864, Besancon, France – 6 June 1948, Bandol), were among the earliest filmmakers in history. (Appropriately, “lumière” translates as “light” in English.)

(In) 1862 and 1864, and moved to Lyon in 1870, where both attended La Martiniere, the largest technical school in Lyon. Their father, Claude-Antoine Lumière (1840-1911), ran a photographic firm and both brothers worked for him: Louis as a physicist and Auguste as a manager. Louis had made some improvements to the still-photograph process, the most notable being the dry-plate process, which was a major step towards moving images.

It was not until their father retired in 1892 that the brothers began to create moving pictures. They patented a number of significant processes leading up to their film camera – most notably film perforations (originally implemented by Emile Reynaud) as a means of advancing the film through the camera and projector. The cinèmatographe itself was patented on 13 February 1895 and the first footage ever to be recorded using it was recorded on March 19, 1895.

Their first public screening of films at which admission was charged was held on December 28, 1895, at Salon Indien du Grand Cafè in Paris. This history-making presentation featured ten short films, including their first film, Sortie des Usines Lumière a Lyon (Workers Leaving the Lumière Factory). Each film is 17 meters long, which, when hand cranked through a projector, runs approximately 50 seconds.

Yes, Republicans Are And Always Have Been Hypocritical      



Earmarks Are Pork Barrel Spending So Let Us Pursue Them With Gutso

No one was more critical than Representative Mark Steven Kirk when President Obama and the Democratic majority in the Congress sought passage last year of a $787 billion spending bill intended to stimulate the economy. And during his campaign for the Illinois Senate seat once held by Mr. Obama, Mr. Kirk, a Republican, boasted of his vote against “Speaker Pelosi’s trillion-dollar stimulus plan.”

Though Mr. Kirk and other Republicans thundered against pork-barrel spending and lawmakers’ practice of designating money for special projects through earmarks, they have not shied from using a less-well-known process called lettermarking to try to direct money to projects in their home districts.

Mr. Kirk, for example, sent a letter to the Department of Education dated Sept. 10, 2009, asking it to release money “needed to support students and educational programs” in a local school district. The letter was obtained under the Freedom of Information Act by the group Citizens Against Government Waste, which shared it with The New York Times.

Charlie and the Chocolate Factory.  Glenn Gould on American Masters (he was Canadian dudes), other than that not a lot of premiers.  No Keith this week (nor Jon or Stephen).  No Lawrence! (I never thought I’d be glad for Prison Porn, but some things are worse).  Adult Swim gets an extra hour at 9 pm which they are using for King of the Hill and replacing it at 10 pm with American Dad.

Sure’n I hope that your considerin’ the future Mr. Eastwood.

I think about it all the time.

• ABC Family– Home Alone 2: Lost in New York
• AMC– Back to the Future, Back to the Future Part II
• Disney– Legally Blondes
• Discovery– Sr. v. Jr. (premier)
• ESPN– Throwball Saints @ Falcons
• ESPN2– College Throwball, Independence Bowl: Air Force v. Georgia Tech; College Hoopies, Connecticut @ Pittsburgh
• FX– White Chicks x 2
• History– Pawn Stars, American Pickers (premier)
• Lifetime– Acceptance, Nora Roberts’ Angels Fall
• National Geographic– Dog Whisperer marathon (with premier)
• Oxygen– Barbershop x 2, Something New
• Sci Fi– Elf (aren’t we done with this already?), Ice Quake
• Spike– Band of Brothers marathon
• TBS– Family Guy night
• Turner Classic– Breakfast at Tiffany’s, Days of Wine and Roses
• TLC– Cake Boss (last week’s and new), Chocolate (premier)
• TNT– The Closer (last week’s and new), Men of a Certain Age (premier)
• Travel– Dining with Death (premier)
• TV Land– Independence Day
• Vs.– Wild @ Blue Jackets

Later-

• AMC– Back to the Future Part III, Life
• FX– Just Married
• Sci Fi– Street Fighter Alpha
• Style– The Bridges of Madison County
• Turner Classic– The Pink Panther

Dave in repeats, 12/7.  Alton has a hour long special, Down & Out in Paradise.  Conan in repeats from 11/9

Marty, the future isn’t written. It can be changed, you know that. Anyone can make their future whatever they want it to be. I can’t let this one little photograph determine my entire destiny. I have to live my life according to what I believe is right in my heart.

Evening Edition is an Open Thread

1 Russia finds Khodorkovsky guilty in second trial

by Olga Rotenberg, AFP

1 hr 50 mins ago