Several financial writers speculating that the Morgan bailout of Bear Stearns was really about preventing Bear Sterns' books being exposed in bankruptcy proceedings. The Fed funded a marriage between Morgan and BS to stall for time, but all they did was shift more toxic paper onto a bigger domino.
bob o'brien wrote:So, the government has stepped in and orchestrated a bailout of a for-profit broker/investment bank that is not a member of the Fed, nor a bank - and yet the Fed is now acting as though they are. This sort of brings us full circle to where we were several years ago, when I predicted that the dangerous risks and illegal behavior of the Wall Street predators gets passed off to the taxpayer, at a level that makes the S&L crisis look like jaywalking.
And here we are.
But what is significant is not so much that, but that JP Morgan is in the mix. Why is that significant? Because JP Morgan does a lot of clearing for Bear, which means that the massive NSS exposure Bear has would then likely take down JP Morgan, in a heartbeat, as it became obvious that Morgan's assets were also dwarfed by off balance sheet liabilities (if I'm right, which I believe I am). Because if BS went onto the auction block, then potential buyers would get a good look at all its assets and liabilities, which would then give visibility to JP Morgan's exposure, which I'm guessing is considerable.
You think a $500 billion or so drop in asset value is bad? Try what I'm guessing could be multiples of that number in off balance sheet liabilities arising from massive counterfeiting of securities, spanning decades. How would you like that to come out? Nope, best to bring in the government, circle the wagons, and prop up a for-profit player who got caught with vapor assets.
In the real world, if you take outsized risks, you get slammed when you lose. On Wall Street, you pocket billions in bonuses every year, even as you're aware that your paper is worthless crap, and then call in the cavalry when you get caught - because you are too important to fail.
This is the first of the events I predicted, as to how this plays out. The cover-up continues, any discussion of the actual crimes gets sidetracked by arguments about the importance of stability in the financial markets. and the next 3 generations get to pay for the cover-up.
Here's an idea that will never be discussed in the mainstream press: If you and I have to work for the next decades to pay for the Bears of the world, how about now that we are sponsoring them, we get a look at how our newly-subsidized wunderkind have run their business, specifically, what are the level of fails, ex clearing fails, repo-agreement fails, etc.? We still were never told what the size of the Refco fails were - that just sort of got swept under the rug. Hey, if you can kill all the companies shorted, problem solved, right? But now that we are footing the bill for Bear's mismanagement or larceny, how about we get some scrutiny of what it is we're sponsoring?
That will never happen. JP Morgan can't afford it. The political system can't afford it. The financial system can't afford it. Byrne and I have been talking systemic meltdown arising out of this sort of arrogant trampling of the 1934 Act for years, and here we start seeing it, in slow motion.
You think lying about what your paper is worth sucks? How about carrying a liability that is so large that there isn't enough money in the system to cover all the counterfeited stock?
Which is why the country will now have its standard of living reduced by a significant amount, to protect the criminals who operate the system. That's how it played in 1929 - we got a paper tiger regulator created to appease the outrage of a country, run by one of the biggest crooks of the era as his personal retribution machine, and the rest of the population got the dust bowl. History has a way of repeating.
Kiss any value of the dollar goodbye as the printing presses go into maximum overdrive. Kiss confidence in the markets goodbye. Kiss the housing values of the nation goodbye. Start scouting good locations for soup kitchens and public works projects, because that's where this is headed now that the country pays the chit for the worst offenders, just as it did in the S&L crisis. Not surprisingly, many of the guys now running the system made fortunes stuffing junk down the S&L throats, and trading on inside info, lo, 20 years or so ago. So they know the trick - when the jig is up, foist it off on the country, keep the bonuses, and buy assets for pennies on the dollar.
Why is JP Morgan bailing out Bear with the Fed? Because the cancer Bear has is rotting Morgan, and it can't afford the size of the decay to be known, or tomorrow morning, there won't be any market. .............
This next article is over my head but it reads like a crime novel. Big John will probably enjoy it:
bud burrell wrote:The modern history of counterfeiting of commercial securities began over 80 years ago. It started with the wholesale traditional counterfeiting of stock certificates to support the short selling activities of more than 500 pools comprised of the assets of the
wealthiest individuals in this country at the time, over a 3 year period leading to the October, 1929 Raid-related Crash.
The refinement of the earliest photo lithography made it possible to produce reasonably high quality counterfeit stock certificates
duplicating the real ones. These certificates could then be loaned to short sellers to create a required "borrow" to secure the
margined short, especially useful when stocks were tightly held. The manual back offices of the brokerage firms never knew the
difference, and they never saw what hit their companies until it was too late.
These unregistered counterfeit securities sold above were never registered by the true underlying company. They were never entered
into the stock record book of the corporation, nor were any proceeds ever given to the underlying Company, nor were they ever accounted for in any audit process or financial reports of the Company. The frauds/criminals here knew they would force de-registration or bankruptcy of the targets, and subsequent loss of the books and records of the companies they broke. There was noFederal Record Keeping requirement back then.
In most cases, if not all, the people doing the counterfeiting were directly linked to the very same Pools (we call their modern analog Hedge Funds) referred to above, most of whom coordinated their efforts to act in concert at the direction of what might today be called in Chinese organized crime a "Snakehead". The largest short of the Crash was to become the first head of the SEC, Joe Kennedy Sr. He would accumulate a personal cash net worth of over $500 Million in 1933.
This counterfeiting practice was so widespread, it was one of the earliest to acquire a name for its practitioners, PAPER HANGERS.
The counterfeit securities also were named: They were called “WATERED STOCK.”
President Roosevelt chose Joe Sr. as the head of the SEC, only to face a firestorm of criticism. This was a tough period for FDR, as it was well known and believed that Kennedy and his key associates (Bernard Baruch was rumored to be the other key) had actually manipulated the 1929 Crash and subsequent bank failure in 1933 to their own profit.
FDR responded to the criticisms of his selection of Joe Sr. with the statement "I needed one of their own kind, who understood their
criminal methods, to have any hope of controlling them." Controlling them was a pipe dream. They ran the same identical scam again in 1937, another Raid, with similar results.
Joe Sr. created an SEC that was little more than an enforcement and extortion racket he used to protect his friends, to attack his enemies and economic targets, and to further fill his pockets. The legendary investment banker and trader Charlie Allen would later say that Joe Sr. started the SEC to make sure no one else could ever have real money again.
Basic organizational theory dictates that the original culture of an institution can never be completely stamped out, and it further predicts that that culture will always re-surface, even if it is decades later. Remember this.
Laws were created to control the sale of unregistered securities, to prohibit the counterfeiting of commercial securities, and to federally criminalize as conspiracy any act done in concert to manipulate financial assets of the United States. I refer you all to Sections 5 and 6 of the Securities Act of 1933, to USC Title 18, Sections 513 and 514, and finally, to CJS Sections 22, 22A and 46, the latter being the supporting law behind the Sherman Anti-Trust Act, the Holding Company Act, the Investment Company Act of 1940, and more recently, the RICO statutes.
Sections 5 and 6 made such causes the basis for civil and limited criminal complaints for enforcement penalties, while Title 18 was used to attack the counterfeiting of commercial securities by making it a Class B Federal Felony, and finally, the CJS sections caused such conspiracy conduct between two or more parties to be judged as Insurrection and Sedition, a form of Treason.
During the 16 years I was on the street, I never worked in a firm that would begin to allow any form of unregistered security to be sold.
Only two firms allowed the creation of synthetic securities from registered securities assemblages, specifically for Down and Outs, a form of synthetic put made up of a short of the stock, and the short of the call, a variant of the old Reverse Conversion arbitrage from options.
One firm would do it for client hedge funds, while the other firm told its clients it didn't do them, so their clients would not compete with their house trading accounts’ activities in this space. In 1979, I was offered job working on this very account at the second firm, an A list bulge bracket underwriter. I passed.
There were many professional short sellers throughout my time on the street, who tried to manipulate their target companies just as today. They operated at first without many of the tools and opportunities created by the ERISA Act of 1974, and the letter ruling of 1993 which dropped the word "Borrow" from the short seller's lexicon, and substituted word "Locate". This same letter ruling created exemptions from even this rule for three kinds of traders: Market Makers, Arbitrageurs, and Hedged Accounts (read funds).
During the Oil and Gas boom of the late 1970's and 1980's, one short seller in Texas in particular cut such a swath through the Oil Patch it was rumored someone finally put a high caliber bullet through the window of his Rolls Royce. This same dirt sandwich would call up a friend of mine who was a NASD Senior Supervisor and scream at him, saying "You got to stop this insider buying!!!" This bozo was INSANE, a stone sociopath. This is but one small example of the mentality of this type.
As the market makers realized what they had been given, they levied an economic assault matching the coordinated attacks the equal of any in the history of modern warfare. They determined how to drag the clearing business in by giving them a piece of the action on their shorting, and invented numerous ways to use offshore brokers and jurisdictions to leverage their power.
This was done so dramatically, that for a 7 to10 year period, it would be said that 80% of NASD member firm profits came from shorting, particularly the development stage small public companies of the OTC Bulletin Board, nearly annihilated in six years. By the end of that period, they were attacking any company with an alpha, or "excess return". This included stocks on the NASDAQ NMS, the AMEX (leading to its ultimate acquisition), and even the NYSE. Acting in concert in large syndicates (remember the word"Conspiracy" above?!), NO company could stand up to them in any attempt to maintain orderly markets.
In 2002, one of the largest of these syndicates' (650 members including many large hedge funds) operator, one Amir “Anthony” Elgindy, was arrested in connection with investigation into his activities surrounding terrorism, subornation of FBI agents, and money laundering issues. He was later convicted of securities fraud and more, and was sentenced to 11 Years in Federal Prison, from where he continues to run his web site.
It is believed his syndicate killed well over 2000 target companies. His conduct was the direct link of shorting as a tactical approach to the strategic objective of money laundering for organized crime and other nasty global entities.
Experts at first talked much about naked short selling, not focusing on its real character, which was from the imputed contra account effect. Every time a share was naked shorted, a counterfeit long was created never registered by, known to, or accounted for by the underlying company. This should start to sound familiar. Some interesting twists in FASB also entered into their tactical equation. If the short sellers could bankrupt a target company, they could avoid a revenue recognition event under GAAP. No revenue recognition event, no taxable event. Ergo, they pursued their targets with "unbridled aggression", always hoping for either an involuntary deregistration of the Company, or its actual bankruptcy.
In another twist of the SEC rules, if a company did either, the shorts never had to cover, not ever. Again, they had laundered money without tax consequence. I have explained this to every one I have worked with and talked to, and universally, it leaves them stunned.
The SEC came under so much pressure to clean up this disgrace, that finally, they issued a piece of window dressing rule making called Regulation SHO. After doing it, they realized the market could not clean up its past without wiping the operators out, so they initiated a "Grandfathering" proviso, saying that shorts existing prior to SHO would be exempted from immediate settlement, the latter which was highly cushioned.
Then came another wave of indignation from investors, and the SEC had to switch its position from there being no such thing, to it not having any effect on markets, to now, that it is really negative for the market, and adversely affects capital formation. They have said so many things about so many positions, that they have now said everything and taken every position so well that they can refer back to being right, and having acted prudently, no matter what happens.
In the late 1990's and early 2000’s, market makers at broker-dealers had a 10 day fail rule, which mandated a charge to their net capital for any fail over 10 days. They would roll their positions within the system by kiting trades known by several names, including whip calls, and rolls. Reg SHO changed that effectively to 13 days. Re-enter rolls/whip calls, but now, not put through the clearing system, but rather done directly broker to broker in what is called Ex-Clearing.
Shorts and their related counterfeit longs would sit in Ex-clearing, invisible and unreported anywhere. Taking things a step further, the short players would take to intentionally miss-marking tickets to reflect short sales as actually "Long Sales" when they weren't, and no one was the wiser. Well, not exactly no one.
Everyone needs to realize that calling naked shorting anything other than counterfeiting, albeit by virtual electronic journal entries rather than a printing process, is simply WRONG. It is the intent of the perpetrators to delude the longs into thinking that they have bought real shares from a real seller, when in fact, the longs only know this when they themselves are dirty, such as when a manipulator wants the counterfeit proxies attached to the counterfeit longs to manipulate actions at a target company.
One well known company would call for a Proxy vote at their annual board meeting. They had a legally outstanding number of shares according to their stock record book of 60 Million shares. How many proxies showed up? 80 MILLION. I am shocked, SHOCKED, that such a thing could happen in America. Counterfeit proxies are the most serious corporate governance issue coming out of this scandal, a concern to every major corporate counsel in this country and overseas.
This is the longest piece I have ever posted. It re-covers many points in my previous writings. The SEC recently declared that the naked shorting selling of securities was NOT the sale of an unregistered security, in a completely illogical and self serving regulatory statement designed to feed key vested interests with their hands in the guts of the SEC.
Illegal naked short selling is MOST CERTAINLY not only the sale of an unregistered security, it is by intent and practical impact the COUNTERFEITING OF COMMERCIAL SECURITIES BY SYNDICATES. What the SEC says as a bureaucracy is meaningless to true honesty. It is very interesting that in making this declaration, the SEC specifically did NOT exempt such players from insider trading rules, particularly where they had previous knowledge of a pending PIPE deal.
After a scathing set of Euromoney articles in April and June, 2005, the UK and EU went to a mandatory three (3) day settlement on all their exchanges, effectively stopping their shorting scandals mirroring those here. They gave no grace period. It was hard, but their markets are now much cleaner than here. It is no accident that London has now trumped New York.
The markets are rigged crooked insider bullshit, and anyone who tells you otherwise is likely on the inside with them.
Maybe they should wrap all the pipes tightly with duct tape.