Culture of Deceit: Why Dick Fuld So Needlessly and Recklessly Perjured Himself Before Congress
by ilene - April 30th, 2010 2:59 pm
Culture of Deceit: Why Dick Fuld So Needlessly and Recklessly Perjured Himself Before Congress
Courtesy of JESSE’S CAFÉ AMÉRICAIN
"Truth is not only violated by falsehood; it may be equally outraged by silence."
Henri-Frederic Amiel
Yet another whistle blower who had been completely ignored by the SEC just stepped forward.
A Bloomberg analyst reported around noon NY time that they had verified Mr. Budde’s story, and that indeed Dick Fuld easily had received cash in excess of $500 million in compensation for the period in question, higher than even Henry Waxman had asserted in his charts during Dick Fuld’s testimony.
Mr. Budde, a former counsel who was frustrated and plain fed up with the culture of personal greed and deceit among the Lehman executives stepped forward again to tell his story after being completely ignored by the SEC and the Lehman Board of Directors.
Now, I have some sympathy for Dick Fuld. I mean, when you are making the big bucks owed to a master of the universe, and you eat widows and orphans for breakfast, what does it really matter if it is $300 million, or $550 million, or even the one billion that some estimate was the true total compensation? What is a few hundred millions when you wipe your behind with Cohiba cigars, and gargle with Cristal Brut 1990?(Oh yeah, that’s class, real class. I must finally be somebody, and not just some schmuck from the Bronx. I’ll show them, show them all.)
I know I have trouble keeping track of what I have exactly in my own wallet at times, especially after paying the kids a couple of quid to walk the dog. And $200 million is hardly a significant sum anymore in the rapidly expanding compensation universe change on Wall Street. There is the locus of Bernanke’s inflation, the FIRE sector, where the liquidity has been channeled, for years.
But what interests me most is why did Dick Fuld perjure himself over something so obviously verifiable, and largely irrelevant? Doesn’t he file tax returns? Did he mess up using Turbo Tax like other board members of the NY Fed are said to have done? Or was he just a little bit ashamed of taking huge sums from a company that he ran into the ground in a Ponzi scheme? On the other hand Goldman execs…
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DiggGoldman Sachs Charged With Fraud: Who Could Have Guessed? Part III
by ilene - April 25th, 2010 9:15 am
Goldman Sachs Charged With Fraud: Who Could Have Guessed? Part III
The firm’s history suggests its vulnerability in periods of negative social mood.
By Elliott Wave International
For the full GS/Fraud article, parts I-III, click here.>>
In the November 2009 issue of Elliott Wave International’s monthly Elliott Wave Financial Forecast, co-editors Steven Hochberg and Peter Kendall published a careful study of Goldman Sachs history — and made a sobering forecast for its future. Here is our special report, Part III.
Special Section: A Flickering Financial Star, Part III
With the market’s downtrend recently in abeyance, these transgressions failed to capture the imagination of the public or the scrutiny of law enforcement. But the extreme recriminatory power of the next leg down in social mood suggests that Goldman’s dealings will become a lighting rod for public discontent.
In January 2008, Elliott Wave Financial Forecast noted that Goldman’s success relative to the rest of Wall Street pointed “to the eventual appearance of a much larger public relations problem in the future. In the negative-mood times that accompany bear markets, conflict of interest charges will come pouring out.” The recent revelations about Paulson’s and Friedman’s actions are exactly that to which we were referring. Additional claims against Goldman — including front-running its clients and profiting from inside information — are already too numerous to mention. As the bear market intensifies, the firm will attract scrutiny as easily as it brushed it off in the mid-2000s.
Based strictly on the form of its advance, a July 2007 issue of The Short Term Update called for a peak in Goldman shares at $234. Goldman managed one more new high to $250 in October 2007; it then fell 81 percent to a low of $47 in November 2008. The stock market’s wave 2 rise brought Goldman back to $193 on October 14. Its affinity for marching in lock-step with the DJIA strongly suggests that Goldman will decline to below its November 2008 low.
Another key socionomic trait is for the most successful recipients of bull-market goodwill to be singled out for special treatment in the ensuing decline. Even fellow financiers are taking aim. In a not-so-veiled reference to Goldman, one Wall Street titan said that big profits made by investment banks are “hidden gifts” from the state, and resentment of such firms is “justified.” Let the bloodletting begin.
Let the Buyers (of Stock) Beware
Goldman’s heavy involvement in the hedge fund…
Lehman’s Liar’s Loans and Other Cons
by ilene - April 24th, 2010 2:04 am
Lehman’s Liar’s Loans and Other Cons
Courtesy of MIKE WHITNEY at CounterPunch
Prof. William Black submitted a 24-page report on the Lehman bankruptcy to the House Committee on Financial Services on Tuesday. It is the best analysis of the underlying causes of the financial crisis to date. Black, who is a former government regulator and white-collar criminologist, shows that the crisis was not an unavoidable disaster, as Wall Street apologists suggest, but the result of large-scale fraud perpetrated by financial institutions like Lehman Brothers. The incidents of fraud were numerous, blatant, extreme and premeditated. In making his case against Lehman, Black exposes the omissions, failures and negligence of the primary regulators, particularly the Fed. Had the Fed not been derelict in its duties, the cyclical downturn would not have turned into a near-Depression.
"Lehman’s failure is a story in large part of fraud," Black said in his testimony before the House. "Lehman was the leading purveyor of liars’ loans in the world. For most of this decade, studies of liars’ loans show incidence of fraud of 90per cent. … If you want to know why we have a global crisis, in large part it is before you."
As the Litigation Director of the Federal Home Loan Bank Board during the S&L crisis, Black knows what he’s talking about. He was so dogged in his investigation that Charles Keating "directed his chief political fixer that his ‘Highest Priority’ was to ‘Get Black … Kill him Dead.’” But Black didn’t buckle or give ground. He shrugged off the threats and continued to expose unsound practices and illegal activity. His team faced the same challenges that regulators face today, "elite frauds" by powerful institutions that wield tremendous political power.
Black’s statement cuts through much of the ideological claptrap surrounding the crisis and shows that deregulation is really the decriminalization of fraud. The notion that the market can "regulate itself" has been jettisoned altogether and public support for reform is gaining momentum.
"It is insane to withdraw accountability for negligence," says Black. "Doing so encourages negligence."
Financial institutions have used "laisser faire" dogma for their own aims. It’s the mask behind which the voracity and predations remain hidden. To a large extent, that’s the story of Lehman, an institution that paid no attention to rules and regulations. Anything went. It’s a philosophy that was embraced by the nation’s chief regulator,…
Bill Black: Lehman’s demise is “a story of fraud”
by ilene - April 21st, 2010 1:27 pm
Bill Black: Lehman’s demise is "a story of fraud"
Courtesy of Edward Harrison at Credit Writedowns
Veteran regulator believes Lehman Brothers is a case of fraud and believes the Feds need to bring charges.
But, more than that, Black hones in one the mortgage fraud which underlies much of the speculative fervour in the market by citing the 60% of GSE eligible Citi loans which Citigroup executives indicated did not conform to Freddie and Fannie’s standards.
Very short interview. I would like to have heard more.
Update: Below Black goes into some detail in his later testimony before Congress. Good stuff.
Geithner and the NY Fed Accused of Willfully Ignoring Fraud and Covering Up Lehman’s Bad Assets
by ilene - April 21st, 2010 12:32 pm
Important (i.e. share it) article by Mish on William Black’s account of how Tim Geithner and the NY Fed covered up Lehman’s inflated asset values and lack of liquidity, long before the financial meltdown in 2008. – Ilene
Geithner and the NY Fed Accused of Willfully Ignoring Fraud and Covering Up Lehman’s Bad Assets, by Senior Regulator During the S&L Crisis
Courtesy of Mish
Inquiring minds are digging into a 27 page statement made by William Black before the Financial Services committee. Black is an Associate Professor of Economics and Law, at the University of Missouri.
Professor Black’s statements regarding the collapse of Lehman and the role the Fed played in that collapse are refreshingly candid.
Please consider "Public Policy Issues Raised by the Report of the Lehman Bankruptcy Examiner". Emphasis, highlighting, and subtitles are mine.
I begin with a short description of my background that is relevant to your questions. My primary appointment is in economics. I have a joint appointment in law. I am a white-collar criminologist. My research specialization is financial fraud by elites and financial regulation. I was a senior regulator during the S&L debacle (and had the honor of testifying many times before this Committee).
Valukas Report Documents Three Major Deficiencies In Lehman Governance
The [Valukas] Report documents at least three major deficiencies in Lehman’s corporate governance that need to be addressed globally. First, it points out that Lehman, and many other Delaware corporations, have eliminated the fiduciary duty of “care.”
… Alan Greenspan has admitted that he had a similar view and that events have falsified this naïve account. It is insane to withdraw accountability for negligence. Doing so encourages negligence. Congress should mandate that corporate officers and directors be subject to the fiduciary duties of care and loyalty. They will still, of course, have the very substantial protection of the business judgment rule.
Second, the same individual should not serve as the CEO and Chair of the Board of Directors of a large corporation. The imperial CEO is a consistent problem in this and prior crises.
Third, Lehman ignored its stated risk “limits” and simply increased its limits retroactively to accommodate its violations of its risk limits. In plain English, that means it had no meaningful limits. ….
I have a different view than Mr. Valukas about the overall state of Lehman’s
…
Death-Spiral Intercept
by Chart School - April 15th, 2010 3:53 pm
Death-Spiral Intercept
Courtesy of Karl Denninger at The Market Ticker
In essence, White was saying: "it’s the debt, stupid." When aggregate debt levels build up across business cycles, economists focused on managingwithin business cycles miss the key ingredient that leads to systemic crisis. It should be expected that politicians or private sector participants worried about the day-to-day exhibit short-termism. But White says it is particularly troubling that economists and their models exhibit the same tendency because it means there is no long-term oriented systemic counterweight guiding the economy.
This short-termism that White refers to is what I call the asset-based economic model. And, quite frankly, it works – especially when interest rates are declining as they have over the past quarter century. The problem, however, is that you reach a critical state when the accumulation of debt and the misallocation of resources is so large that the same old policies just don’t work anymore. And that’s when the next crisis occurs.
It seems that Mr. [Edward] Harrison has it figured out. He goes on to spend a lot of digital ink on the periphery of the bottom line, which is that we continue to think of debt in terms of service costs (indeed, you’ll hear Bernanke talk about it, but never about the actual gross financial system debt outstanding.)
When you boil all this down, however, you get to the following chart (trendline added by moi):
You can see what’s going on here – each "crisis" leads to lower lows and lower highs.
This presents two problems:
-
Lower lows have run into the zero boundary. That wasn’t sufficient this time, which of course is why we got "Quantitative Easing" and other similar abortions intended to distort market rates – like guarantees on bank debt, for example. Ultimately this devolves into The Fed or The Government (as if there’s a real difference) guaranteeing everything to prevent spreads from blowing out.
-
Far more sinister, however, is what happens to the top line. The top line – that is, the maximum rate between crises, declines because it becomes impossible to normalize rates - nobody can afford to pay "normal" rates with the amount of leverage they have.
This is where the ultimate failure in policy arrives, and it…
Lehman’s Alter Ego – How Lehman Hid Risk In Shell Corporations; Where is The Indictment of Ex-CEO Dick Fuld?
by ilene - April 14th, 2010 2:43 pm
Lehman’s Alter Ego – How Lehman Hid Risk In Shell Corporations; Where is The Indictment of Ex-CEO Dick Fuld?
Courtesy of Mish
Inquiring minds are reading additional details involving Lehman’s bankruptcy. Please consider Lehman Channeled Risks Through ‘Alter Ego’ Firm
In the years before its collapse, Lehman used a small company — its “alter ego,” in the words of a former Lehman trader — to shift investments off its books.
The firm, called Hudson Castle, played a crucial, behind-the-scenes role at Lehman, according to an internal Lehman document and interviews with former employees. The relationship raises new questions about the extent to which Lehman obscured its financial condition before it plunged into bankruptcy.
Entities like Hudson Castle are part of a vast financial system that operates in the shadows of Wall Street, largely beyond the reach of banking regulators. These entities enable banks to exchange investments for cash to finance their operations and, at times, make their finances look stronger than they are.
The Securities and Exchange Commission is examining various creative borrowing tactics used by some 20 financial companies. A Congressional panel investigating the financial crisis also plans to examine such deals at a hearing in May to focus on Lehman and Bear Stearns, according to two people knowledgeable about the panel’s plans.
Most of these deals are legal. But certain Lehman transactions crossed the line, according to the account of the bank’s demise prepared by an examiner of the bank. Hudson Castle was not mentioned in that report, released last month, which concluded that some of Lehman’s bookkeeping was “materially misleading.” The report did not say that Hudson was involved in the misleading accounting.
Hudson Castle created at least four separate legal entities to borrow money in the markets by issuing short-term i.o.u.’s to investors. It then used that money to make loans to Lehman and other financial companies, often via repurchase agreements, or repos. In repos, banks typically sell assets and promise to buy them back at a set price in the future.
One of the vehicles that Hudson Castle created was called Fenway, which was often used to lend to Lehman, including in the summer of 2008, as the investment bank foundered.
Hudson Castle might have walked away earlier if not for Fenway’s ties to Lehman. Lehman itself bought $3 billion of Fenway notes just before its bankruptcy that, in turn,
…
Most Wall Street Banks Using Lehman Style Accounting Trickery Enabled by the Fed to Hide Their Risk
by ilene - April 9th, 2010 12:27 pm
Most Wall Street Banks Using Lehman Style Accounting Trickery Enabled by the Fed to Hide Their Risk
Courtesy of JESSE’S CAFÉ AMÉRICAIN
This analysis from the Wall Street Journal indicates that most of the big US Banks are engaging in the same kind of repo accounting at the end of the quarter that Lehman Brothers was doing to hide their financial instability until deteriorating credit conditions and liquidity problems made them precipitously collapse, as all ponzi schemes and financial frauds do when the truth becomes known.
The basic exercise is to hold big leverage and dodgy debt, but swap it off your books with the Fed at the end of each quarter for a short period of time when you have to report your holdings.
This could easily be corrected by requiring banks to report four week averages of their holdings for example, rather than a snapshot when they can hide their true risk profiles so easily, compliments of that protector of consumers and investors, the Fed.
This is nothing new to us. Many of us have noted this sort of accounting trickery and market manipulation at key events especially at end of quarter.
It is facilitated by the Federal Reserve, and FASB, and the agencies.
"Their Fraud doth rarely falter, and is subsidized, instead,
for none dare call it bank fraud, if it’s sanctioned by the Fed."
(apologies to Ovid)
The US is Lehman Brothers on a scale writ large. And when it is exposed by some series of events, the implosion could be more sudden than any can imagine. But in the meantime the US is still the ‘superpower’ of the world’s financial system, through its currency, its banks, and its ratings agencies.
WSJ
Big Banks Mask Risk Levels
By KATE KELLY, TOM MCGINTY and DAN FITZPATRICK
April 9, 2010Quarter-End Loan Figures Sit 42% Below Peak, Then Rise as New Period Progresses; SEC Review
Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.A group of 18 banks—which includes Goldman Sachs
…
Has Bernanke Perjured Himself?
by ilene - March 19th, 2010 2:04 pm
Has Bernanke Perjured Himself?
Courtesy of Karl Denninger at The Market Ticker
Remember, Bernanke said under questioning the other day that "they hid it" in response to a question about whether or not The Fed knew about the Lehman "105" repo arrangements, which appear to have been structured to intentionally mislead the public (and investors) about its liquidity position.
But in the deep of the night Financial Times published an article that resoundingly calls "BS" on that claim:
Securities and Exchange Commission and Federal Reserve officials were warned by a leading Wall Street rival that Lehman Brothers was incorrectly calculating a key measure of its financial health months before its collapse in 2008, people familiar with the matter say.
Former Merrill Lynch officials said they contacted regulators about the way Lehman measured its liquidity position for competitive reasons. The Merrill officials said they were coming under pressure from their trading partners and investors, who feared that Merrill was less liquid than Lehman.
Beyond the apparent perjury (which our Congress seems to ignore any time a "powerful" person commits it) there is the larger problem in that if the Chairman of The Fed has lied about this, what else has he lied about?
Most critically, what about all those other banks out there with HELOC exposure behind underwater first mortgages that are not being paid on time?
The Market Ticker has reported on the wildly inaccurate and ridiculous treatment of firsts in this environment – people being "allowed" to remain in a home even though they haven’t made a payment in a year – and sometimes two, loans that are reported to credit bureaus as having payments made on them "by agreement" when the consumer is not only not paying but has never talked with the financial institution involved about it. A quick look at the 10Qs and 10Ks filed by the big financial institutions discloses that these institutions have literal hundreds of…
Excessive Use of Repo 105 is White Collar Crime
by ilene - March 13th, 2010 8:40 pm
Excessive Use of Repo 105 is White Collar Crime
Courtesy of Joshua M Brown, The Reformed Broker
I won’t bore anyone with a two page dissembling of Lehman‘s use of Repo 105 which we learned about from the report on its demise this week. Rather, this post will simply be a sledgehammer that slams the obvious into the side of the blogosphere.
For the uninitiated, the scam that was being perpetrated by Lehman Bros senior execs and their auditors isn’t a new one, it was just pulled off on a massive scale, costing investors and the economy dearly.
Repo 105 was an accounting trick that allowed Lehman to temporarily shift $50 billion in liability off of their balance sheet just in time to show investors a quarterly report demonstrating reduced leverage. Once the quarter was closed, Lehman would then repurchase (repo) that debt back onto its balance sheet. And they did this several times.
This window dressing allowed the company to fake solvency and sucker in investors, both in the stock market and, the company had hoped, from the sovereign wealth funds it was flirting with.
They would hide tens of billions of dollars temporarily and then trot out "Rock Star CFO" Erin Callan to lie to the world on television about how everything in Lehmanland was just fine.
Auditors Ernst & Young, the Lehman Bros Board of Directors and especially the Senior Executives who signed off on this practice have committed a crime. This is securities fraud. Their culpability ranges from negligence to outright thievery. It may be Ivy League caliber securities fraud, but it is fraud nonetheless. And if technology or industrial executives had engaged in this exact same behavior, they’d be in court defending themselves right now.
Not much more to it.
Now we’ll see if Sarbanes-Oxley has any actual teeth or if it turns out to have only been an Enron band-aid all along.
Read Also:
Lehman Report May Point Way For Criminal Charges (Reuters)
Lehman Report Points Way To Plaintiffs, Not Prison (BusinessWeek)
Accounting Fraud, Short-Sellers & The SEC (TBP)
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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