Transcripts Expose Rate-Rigging at Libor, the Benchmark for Over $300 Trillion in Global Contracts

The Ledger
Liam Vaughan
Gavin Finch

LONDON | Every morning, from his desk by the bathroom at the far end of Royal Bank of Scotland Group's trading floor overlooking London's Liverpool Street station, Paul White punched a series of numbers into his computer.

White, who joined RBS in 1984, was one of the employees responsible for the firm's submissions to the London interbank offered rate, or Libor, the global benchmark for more than $300 trillion of contracts, from mortgages and student loans to interest-rate swaps. Behind him sat Neil Danziger, a derivatives trader at the bank since 2002. On the morning of March 27, 2008, Tan Chi Min, Danziger's boss in Tokyo, told him to make sure the next day's submission in yen would increase.

"We need to bump it way up high, highest among all if possible," Tan, known by colleagues as "Jimmy," wrote in an instant message to Danziger, according to a transcript made public by a Singapore court and reviewed by Bloomberg before being sealed by a judge at RBS's request.

The trader typically would have swiveled in his chair, tapped White on the shoulder and relayed the request, people who worked on the trading floor said. Instead, as White was away that day, Danziger input the rate himself.

The next morning RBS said it paid 0.97 percent to borrow in yen for three months, up from 0.94 percent the previous day. The Edinburgh-based bank was the only one of 16 surveyed to raise its rate. If it had lowered its submission in line with others, the cost of borrowing in yen would have fallen one-fifth of a basis point, or 0.002 percent, according to data compiled by Bloomberg. Even that small a move could mean a gain of $250,000 on a position of $50 billion.

Events like those that took place on RBS's trading floor, across the road from Bishopsgate police station and Dirty Dicks, a 267-year-old public house, are at the heart of the biggest and longest-running scandal in banking history.

For years, traders at RBS, Barclays, UBS, Deutsche Bank, Rabobank Groep and other firms that stood to profit worked with employees responsible for setting the benchmark to rig the price of money, according to documents obtained by Bloomberg and interviews with two dozen current and former traders, lawyers and regulators. Those interviews reveal how the manipulation flourished for years, even after bank supervisors were made aware of the system's flaws.

The conspiracy wasn't confined to low-level employees. Senior managers at RBS, Britain's largest publicly owned lender, knew banks were systematically rigging Libor as early as August 2007, transcripts of phone conversations obtained by Bloomberg show. Some traders colluded with counterparts at other banks to boost profits from interest-rate futures by aligning their submissions. Members of the close-knit group knew each other from working at the same firms or going on trips organized by interdealer brokers such as ICAP to Chamonix, a French ski resort, or the Monaco Grand Prix.

"We will never know the amounts of money involved, but it has to be the biggest financial fraud of all time," said Adrian Blundell-Wignall, a special adviser to the secretary general of the Organization for Economic Cooperation and Development in Paris. "Libor is the basis for calculating practically every derivative known to man."

HSBC, too big to jail, is the new poster child for US two-tiered justice system

Guardian
Glenn Greenwald

Assistant attorney general Lanny Breuer said taking away HSBC's US banking licence could have cost thousands of jobs. Photograph: Richard Drew/AP

(updated below)

The US is the world's largest prison state, imprisoning more of its citizens than any nation on earth, both in absolute numbers and proportionally. It imprisons people for longer periods of time, more mercilessly, and for more trivial transgressions than any nation in the west. This sprawling penal state has been constructed over decades, by both political parties, and it punishes the poor and racial minorities at overwhelmingly disproportionate rates.

But not everyone is subjected to that system of penal harshness. It all changes radically when the nation's most powerful actors are caught breaking the law. With few exceptions, they are gifted not merely with leniency, but full-scale immunity from criminal punishment. Thus have the most egregious crimes of the last decade been fully shielded from prosecution when committed by those with the greatest political and economic power: the construction of a worldwide torture regime, spying on Americans' communications without the warrants required by criminal law by government agencies and the telecom industry, an aggressive war launched on false pretenses, and massive, systemic financial fraud in the banking and credit industry that triggered the 2008 financial crisis.

This two-tiered justice system was the subject of my last book, "With Liberty and Justice for Some", and what was most striking to me as I traced the recent history of this phenomenon is how explicit it has become. Obviously, those with money and power always enjoyed substantial advantages in the US justice system, but lip service was at least always paid to the core precept of the rule of law: that - regardless of power, position and prestige - all stand equal before the blindness of Lady Justice.

It really is the case that this principle is now not only routinely violated, as was always true, but explicitly repudiated, right out in the open. It is commonplace to hear US elites unblinkingly insisting that those who become sufficiently important and influential are - and should be - immunized from the system of criminal punishment to which everyone else is subjected.

Worse, we are constantly told that immunizing those with the greatest power is not for their good, but for our good, for our collective good: because it's better for all of us if society is free of the disruptions that come from trying to punish the most powerful, if we're free of the deprivations that we would collectively experience if we lose their extraordinary value and contributions by prosecuting them.

This rationale was popularized in 1974 when Gerald Ford explained why Richard Nixon - who built his career as a "law-and-order" politician demanding harsh punishments and unforgiving prosecutions for ordinary criminals - would never see the inside of a courtroom after being caught committing multiple felonies; his pardon was for the good not of Nixon, but of all of us. That was the same reasoning hauled out to justify immunity for officials of the National Security State who tortured and telecom giants who illegally spied on Americans (we need them to keep us safe and can't disrupt them with prosecutions), as well as the refusal to prosecute any Wall Street criminals for their fraud (prosecutions for these financial crimes would disrupt our collective economic recovery).

A new episode unveiled on Tuesday is one of the most vivid examples yet of this mentality. Over the last year, federal investigators found that one of the world's largest banks, HSBC, spent years committing serious crimes, involving money laundering for terrorists; "facilitat[ing] money laundering by Mexican drug cartels"; and "mov[ing] tainted money for Saudi banks tied to terrorist groups". Those investigations uncovered substantial evidence "that senior bank officials were complicit in the illegal activity." As but one example, "an HSBC executive at one point argued that the bank should continue working with the Saudi Al Rajhi bank, which has supported Al Qaeda."

The Palin-Bachman-George W. Syndrome of Celebrity Stupid Re-Emerges in Rep. Nan Hayworth

Why Is The S.E.C. Concealing Massive Citigroup Fraud?

Citigroup, the most insolvent bank ever to foul the earth, is being protected by the S.E.C.  We want to know why.

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Guest post submitted by Cheyenne, writer and producer of the soon to be released documentary, Bailout. Watch a trailer for Bailout here.

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What is the SEC hiding?

Part One

William Cohan of Bloomberg wrote a curious story last week, "Why does the SEC protect banks’ dirty secrets?"

It's a really good question.

Standing alone, however, Cohan's article is just another electric tile in a giant mosaic that flashes intermittently in a news cycle, briefly illuminating another piston or grommet in the Wall Street-Washington corruption machine before fading without impact.

But when coupled with other evidence, Cohan's piece, concerning the S.E.C.'s wholesale expungement of information from Citigroup documents in response to a Freedom of Inforation Act (FOIA) request, leads to what looks very much like a criminal conspiracy by Citigroup executives, up to and including Robert Rubin, to defraud the company's investor-clients on a scale that is nothing short of colossal.

In this light, the S.E.C.'s concealment effort on behalf of Citigroup--not its first, as we shall see--poses issues about the exact nature of the S.E.C.'s role with respect to financial crime, because neither "regulator" nor "crime fighter" applies under any reasonable interpretation of the evidence.

The questions raised here are both fair and viable. They’re fair because the S.E.C. elected to make a mockery of both the law it's supposed to follow and the public it's supposed to serve by redacting in their totality documents sought under the FOIA, leaving the inference of criminality to waft plume-like through its own stench. They’re viable because while the statute of limitations for criminal fraud may have run, the statute of limitations for conspiracy to commit fraud—a crime whose very essence, secrecy, precludes the statute from running in the first place—presents no such legal obstacle.

Part One examines the available evidence, which includes Cohan's article, the congressional testimony of former Citigroup risk officer Richard Bowen, and a lawsuit against Citigroup that the S.E.C. filed and immediately tried to settle--unsuccessfully--a year ago. Along the way, we'll see just how pernicious bailouts are to a functioning democracy.

Part Two will explore the potential ramifications of the S.E.C.'s failure to sweep its suit against Citigroup under the rug. The S.E.C.'s failure was due, almost laughably, to the random assignment of its case to Judge Jed Rakoff, a jurist whose revulsion at the S.E.C.'s corruption, already legendary, may well carry everyone involved into unchartered territory.

Cohan's Article About The S.E.C.'s Response to FOIA Requests Involving Citigroup Mortgages

Cohan’s particular focus was on documents that the S.E.C. produced relating to congressional testimony given by Richard Bowen. Bowen is the former Citi risk officer who told the Financial Crisis Inquiry Commission, among other things, that Citi sold MBS products despite knowing—based on information that Bowen provided to the top ranks of the company, including ex-CEO Robert Rubin himself—that huge swaths of mortgages owned by Citi were defective to the tune of between 60 and 80%.

To pursue Bowen’s revelations further, another Bloomberg reporter, Bob Ivry, filed FOIA requests with the S.E.C. seeking documents related to Bowen’s potent disclosures.

What Ivry likely hoped to discover was additional documentary evidence (beyond Bowen’s email to Rubin included with his testimony) that Citigroup officers, including Rubin, had defrauded purchasers of Citi’s MBS products by intentionally selling investments that Citi executives knew to be dogshit. (The term “dogshit” is used in accordance with Citigroup technical parameters for its investment products, which we’ll come to in a minute.)

What Ivry received in response, after a bit of wrangling, was a pile of documents notable only for their extensive redactions, i.e., blacked out content. The S.E.C. contends that the information that it’s concealing on Citi’s behalf qualifies as trade secrets.

The rub here isn’t whether or not the information satisfies the legal criteria for trade secret status. A bit of it probably does while the heft undoubtedly does not. What carries the trade secret assertion into the theater of absurd moral hazard isn't the nature of the information itself, but rather the fact that Citi is able to make the claim at all.

How Bailouts Cover Up Ineptitude and Potential Crime

Citigroup is the most pathetic TBTF bank in business, no mean feat among a herd of behemoths that is deathly ill. Citi exceeds its peers in just about every category you can think of associating with “broke bank” since the crisis began in 2008:

• Citigroup received the most TARP money, $45 billion, tying it with Bank of America as Wall Street's top welfare recipient known at the time
• Citigroup was alone among its peers in having its toxic assets, $306 billion of them, ring-fenced at taxpayers’ expense
• Citigroup received more secret loans from the Federal Reserve--$2.5 trillion—than any other bank, $500 billion more than Morgan Stanley, which Neil Barofsky informs us (via Ben Bernanke) in Bailout (the book, not the film) would have been the next domino to topple in the Fall of 2008
• Citigroup is the only bank that resorted to a reverse stock split, at 1-to-10, to put its share price back over $5, the low watermark for purchase eligibility among many institutional funds

When the crisis hit in 2008, Citigroup should have followed Lehman Brothers—or perhaps led it—into the morgue of corporate obesity. Citigroup posted losses that year of $27.7 billion, more than four times Lehman’s losses before it collapsed into dust during the third quarter, and yet Citi paid out $32.4 billion in compensation—the bulk of it in bonusesafter receiving the $45 billion welfare check.

And Citigroup’s figures that year, as pustulent as they appear, in all likelihood mask even deeper rot within the company. Compare Citigroup's valuations of its MBS holdings with those of another sick TBTF firm at the time, Merrill Lynch.

Merrill matched Citi’s loss with a $27.7 billion loss of its own, and its deteriorating corpus had to be kept alive by Hank “The Hammer” Paulson, who shoved it snugly within a warm Bank of America cavity.

Merrill's troubles reltated in no small part to MBS. In July 2008, Merrill sold $31 billion in mortgage-backed securities at 22 cents on the dollar. A 78% discount, while huge, was not at all unusual as the darkling reality of MBS assets materialized before a market that was sobering up after a very long binge. A few months earlier, Citadel had bought MBS at 27 cents on the dollar. And yet in this very market decline, Citi was marking equivalent investments at the imperial rate of 61 cents.

Of course, when Citi was appraising its MBS assets at nearly 3 times as valuable as those of the soon-to-be-ambulance-bound Merrill, and regulators were looking the other way (often at pornography rather than the raging crisis), no one knew that Richard Bowen would come before Congress and testify that Citigroup mortgages were 60% defective in 2006 and 80% defective in 2007, casting further doubt—this time from within the company itself—on Citi’s 61-cent MBS valuation.

Were Citi's incredibly rich valuations the product of accounting fraud? After all, the congressional repeal of mark-to-market accounting rules wouldn't occur until the following year. Or did Citi have some foresight about that event?

HSBC’s money laundering fines to top US$1.5-billion, criminal charges likely

FP Street
Steve Slater
Matt Scuffham

HSBC said the U.S. investigation into anti-money laundering 
rule breaches had damaged the bank’s reputation.

The report undoubtedly caused considerable reputational damage to HSBC. The extent to which that has resulted in loss of business is hard to measure, but it has undoubtedly damaged our brand

LONDON — A U.S. fine for anti-money laundering rule breaches could cost HSBC significantly more than US$1.5 billion and is likely to lead to criminal charges, Europe’s biggest bank said on Monday.

HSBC said the U.S. investigation had damaged the bank’s reputation and forced it to set aside a further US$800 million to cover a potential fine for breaches in anti-money laundering controls in Mexico, adding to US$700 million put aside in July.

“It could be significantly higher,” Chief Executive Stuart Gulliver told reporters on a conference call, saying the latest provision was based on discussions with the various U.S. authorities involved in the probe.

The timing of any settlement is in the hands of regulators and is likely to involve the filing of corporate criminal and civil charges, the bank said.

A U.S. Senate report in July slammed HSBC for letting clients shift potentially illicit funds from countries such as Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria. HSBC had warned earlier in the year it could face criminal or civil charges as part of the investigation.

The London-based bank has said the issue was “shameful and embarrassing” after the report criticised a “pervasively polluted” culture at the bank and said HSBC’s Mexican operations had moved US$7 billion into its U.S. operations between 2007 and 2008.

“The report undoubtedly caused considerable reputational damage to HSBC. The extent to which that has resulted in loss of business is hard to measure, but it has undoubtedly damaged our brand,” Gulliver said.

He said a number of staff had left the firm as a result of the investigation and a number had had pay clawed back.

Shares in HSBC were down 1.4% at 617.5 pence by 1130 GMT, slightly weaker than a fall in the European bank index.

“The money laundering provision is a concern, particularly given the uncertainty on what the final figure might be,” said Richard Hunter, head of equities at stockbroker Hargreaves Lansdown.

The issue is another blow for the reputation of British banks, after rival Barclays was fined US$450 million in June for rigging Libor interest rates and the industry has had to set aside more than 12 billion pounds to compensate UK customers for mis-selling insurance products.

Gulliver said it would take time to clean up the mess.

“There’s a whole series of things that came from probably a decade in the 2000 to 2008-09 period that have surfaced now that the industry needs to sort out, remediate, and make sure doesn’t happen again.

”It will take a chunk of time to clean the system and then it will take a little bit longer than that for trust to be restored more fully,“ he said, adding that it was his job to get HSBC back to a position ”where it’s regarded as the best of the bunch“.

HSBC Chairman Douglas Flint will appear before UK lawmakers investigating culture and standards later on Monday. He will be quizzed alongside new Barclays CEO Antony Jenkins and Santander UK boss Ana Botin at 1600 GMT.

COST CUTS, JOB CUT

S HSBC reported an underlying profit – after stripping out the impact of disposals and changes in the value of its own debt – in the July-September quarter of US$5.0 billion, up from a revised US$2.2 billion a year earlier.

It was helped by a bigger-than-expected drop in losses from bad debts and a solid performance by its investment bank arm.

Underlying operating expenses rose by 16% during the quarter from a year ago due to higher compliance and regulatory costs, which the bank said amounted to US$200 million to US$300 million.

Gulliver is well into a three-year restructuring plan to streamline the bank and he said he expects to surpass his target of cutting annual costs by US$3.5 billion, after driving through US$3.1 billion of savings already.

But subdued revenue growth and the higher compliance costs left its underlying cost/income ratio at 63.7% in the third quarter, well above his 48-52% target. Gulliver admitted hitting that was ”proving challenging“, but said he remained committed to delivering it by the end of 2013.

HSBC took another US$357 million charge for mis-selling payment protection insurance in Britain, lifting the total amount set aside to US$2.1 billion. The bank said it paid out US$1 billion in compensation.

Gulliver said more job cuts were likely before the end of 2013 at his bank, whose origins date back to 1865 as a financier of trade between Europe and Asia and operates in 84 countries.

HSBC has cut almost 30,000 jobs in the last two years – close to what Gulliver had predicted under his revamp – although about half of those have been due to disposals. ”In terms of the organic reduction, there’s still some way to go,“ he said.

He has sold or closed 41 businesses as part of that plan, including including selling its U.S. credit card arm and half of its U.S. branches, and said he was about three quarters of the way through that plan.

What happens when you can’t trust the state

Le Monde Diplomatic
Serge Halimi

There would seem to be no chance that a man who made a fortune out of financial speculation might reach the White House just four years after private banks caused a crisis and had to be bailed out by taxpayers. The uncertainty to the very last minute about the outcome of the US election was probably due to worsening distrust of the state, and everything it does.

The problem of public debt is now at the very heart of US political life, thanks to the dramatic increase in budget deficits caused by the cost of two simultaneous wars (Afghanistan and Iraq), the bank bailouts and new enormous tax cuts (1). Some people claim that “we would love to help but we can no longer afford it.” Others also look to the incestuous links between government and private enterprise, the dubious process that transforms former heads of government into lobbyists or highly paid public speakers (see Blair Inc). The old fear of bureaucratic waste, parasitic middlemen and huge projects that come to nothing, is increasingly exacerbated by suspicions of venality.

The justification that “it costs too much and it won’t work” was already a powerful deterrent against any social action by the state. But perhaps there is now also a conviction that elected representatives have become too remote, too corrupt and too closely associated with the interests of an oligarchy to serve the common good. The right, claiming to be liberal, takes advantage of this lack of confidence and suggests (as with Mitt Romney) that if you want to run a country you might as well first prove yourself by managing a company or a hedge fund.

Yet fraud and waste are rife in the private sector, too. Unknown numbers of engineers, accountants and sociologists, trained at public expense, squander their talents on perfecting the lines of a car bonnet, a new packaging material or a cigarette filter, or on designing outlandish insurance contracts and tax-free investment schemes. Financial success is almost always more important to a company than the social value of its products.
A scandal may occasionally damage or destroy the head of a corporation; it generally does so without questioning the structures on which their activities and power are based. But prevarication by a mayor or a minister, supposed government capitulation to a lobby, or doubts about the funding of an election campaign have immediate repercussions for the state. They undermine its right to raise taxes, organise the country and mobilise the nation.

Almost everywhere people are eager for change. But without the proper instruments to achieve their aims, new or old, all they can do is feel their way, mark time, and sometimes — against all their hopes — go into reverse.

CNBC Exec’s Children Murdered, 1 Day After CNBC Reports $43 Trillion Bankster Lawsuit

IntelHub
JG Vibes

This week financial news organization CNBC gave some mainstream attention to the largest money laundering and racketeering lawsuit in United States History, in which “Banksters” and their U.S. racketeering partners are being accused of laundering of 43 trillion dollars worth of ill gotten gains.

The lawsuit is said to involve officials located in the highest offices of government and the financial sector.

Since this information was surprisingly revealed by the mainstream news organization there has been a very suspicious and deadly fallout at the CNBC headquarters.

Within hours the original page for the article was taken down, and CNBC senior vice president Kevin Krim received news that his children were killed under very suspicious circumstances.

It seems that the murder happened first and then the page was removed later.

According to mainstream accounts the children’s nanny is responsible for the murders, allegedly stabbing both children.

However, those same mainstream news sources report the highly unlikely story that the nanny slit her own throat just after committing the homicides.

Police have released very little information and although a wider plot has not been officially implicated, it seems very possible that these murders are a show of force against the press organization for releasing such damning information about the most powerful people in the world.

Here is some more information about the lawsuit from the Wall Street Journal:

“In the District Court lawsuit, Spire Law Group, LLP — on behalf of home owner across the Country and New York taxpayers, as well as under other taxpayer recompense laws — has expanded its mass tort action into federal court in Brooklyn, New York, seeking to halt all foreclosures nationwide pending the return of the $43 trillion ($43,000,000,000.00) by the “Banksters” and their co-conspirators, seeking an audit of the Fed and audits of all the “bailout programs” by an independent receiver such as Neil Barofsky, former Inspector General of the TARP program who has stated that none of the TARP money and other “bailout money” advanced from the Treasury has ever been repaid despite protestations to the contrary by the Defendants as well as similar protestations by President Obama and the Obama Administration both publicly on national television and more privately to the United States Congress.

Because the Obama Administration has failed to pursue any of the “Banksters” criminally, and indeed is actively borrowing monies for Mr. Obama’s campaign from these same “Banksters” to finance its political aspirations, the national group of plaintiff home owners has been forced to now expand its lawsuit to include racketeering, money laundering and intentional violations of the Iranian Nations Sanctions and Embargo Act by the national banks included among the “Bankster” Defendants. “

Some of the alleged conspirators are Attorney General Holder, Assistant Attorney General Tony West, the brother in law of Defendant California Attorney General Kamala Harris, Jon Corzine (former New Jersey Governor), Robert Rubin (former Treasury Secretary and Bankster), Timothy Geitner, Treasury Secretary, Vikram Pandit (recently resigned and disgraced Chairman of the Board of Citigroup), Valerie Jarrett (a Senior White House Advisor), Anita Dunn (a former “communications director” for the Obama Administration), Robert Bauer (husband of Anita Dunn and Chief Legal Counsel for the Obama Re-election Campaign), as well as the “Banksters” themselves, and their affiliates and conduits.

It is expected that all news on this subject will be removed from CNBC, and that other news organizations will be discouraged from covering such information.

However, screen shots of the original CNBC article were taken to verify the authenticity of this story.

Assassination and brute intimidation are common strategies for the ruling class to use on people who may threaten their agenda.

This is the second situation this week in which a high level executive was the victim of a suspicious attack that seemed very much like an assassination.

The Intel Hub just reported that Nicholas Mockford, a 60 year old British executive for the oil company ExxonMobil was shot dead in front of his wife in an assassination-style killing in Brussels.

We will be keeping a close eye on both of these stories and provide more details as they become available.

German Parliament Denied Access To Inspect German Gold Reserves Due To ‘Lack Of Visiting Rooms’

Silver Doctors

German Federal auditors handed in a report slamming the Bundesbank for not inspecting their foreign held gold reserves to verify their book value. The report says the gold bars “have never been physically checked by the Bundesbank itself or other independent auditors regarding their authenticity or weight.” Instead, it relies on “written confirmations by the storage sites.”  The lion’s share of Germany’s gold reserves (nearly 3,400 tons estimated at $190 billion) are housed in vaults of the US Federal Reserve, the Bank of England and the Bank of France since the post-war days, when they were worried about a Cold War Soviet invasion. The Bundesbank stated, “There is no doubt about the integrity of the foreign storage sites in this regard”. In contrast with best industry practices Germany’s gold reserves do not seem to be independently verified by a third party. Philipp Missfelder, a politician from Merkel’s own party, has asked the Bundesbank for the right to view the gold bars in Paris and London, but the central bank has denied the request, citing the lack of visitor rooms in those facilities, German’s daily Bild reported. The Bundesbank won’t let German parliament members inspect the German gold vaulted abroad because the central bank vaulting facilities supposedly lack “visiting rooms.“ And yet one of those vaults, the Federal Reserve Bank of New York, offers the public tours that include “an exclusive visit to the gold vault”.

From Goldcore:

Today’s AM fix was USD 1,717.00, EUR 1,317.22, and GBP 1,072.12 per ounce.
Yesterday’s AM fix was USD 1,725.00, EUR 1,321.03, and GBP 1,075.10 per ounce.

Silver is trading at $31.80/oz, €24.52/oz and £19.95/oz. Platinum is trading at $1,590.25/oz, palladium at $605.25/oz and rhodium at $1,125/oz.

Gold climbed $6.40 or 0.37% in New York yesterday and closed at $1,728.50. Silver hit a high of $32.434 and finished trading with a gain of 1%.

Gold edged down on Tuesday, in tandem with equities that relinquished gains, however demand from jewellers supported prices as investors await the policy statement from the US Federal Reserve meeting to be released on Wednesday at 18:15 GMT.

No major announcements are expected to come out of the meeting.  Last month the Fed committed to hold rates low even after the economic recovery has strengthened. This was the signal that indicated it will continue intervening until the economy grows fast enough to decrease US unemployment sharply.

XAU/EUR Currency 3 Days – (Bloomberg)

The euro remained firm against the dollar as the market expects Spain to apply for a bailout within the next month.  Now that Spain’s regional elections are complete and with Spain’s Prime Minister Rajoy’s People’s Party winning 41 out of 75 seats in the Galician assembly this affirmed the approval of financial austerity measures and paves the way for a formal bailout from the EU.

Spain’s central bank announced this morning that the Spanish economy contracted at a faster pace in Q3 (1.7% vs. 1.3%) and that the country may miss its budget-deficit target because of tax-revenue shortfalls.

In India, demand for the yellow metal climbed overnight after a rebound in the rupee discounted prices by 1%.

German Federal auditors handed in a report slamming the Bundesbank for not inspecting their foreign held gold reserves to verify their book value.

The report says the gold bars “have never been physically checked by the Bundesbank itself or other independent auditors regarding their authenticity or weight.” Instead, it relies on “written confirmations by the storage sites.”

The lion’s share of Germany’s gold reserves (nearly 3,400 tons estimated at $190 billion) are housed in vaults of the US Federal Reserve, the Bank of England and the Bank of France since the post-war days, when they were worried about a Cold War Soviet invasion.

"Legalized Plunder of the American People" - G. Edward Griffin

Max Keiser: Check To See If You're A Terrorist

U.S. sues Wells Fargo in mortgage fraud case

Reuters

The U.S. government filed a civil mortgage fraud lawsuit on Tuesday against Wells Fargo & Co, the latest legal volley against big banks for their lending during the housing boom.

The complaint, brought by the U.S. Attorney in Manhattan, seeks damages and civil penalties from Wells Fargo for more than 10 years of alleged misconduct related to government-insured Federal Housing Administration loans.

The lawsuit alleges the FHA paid hundreds of millions of dollars on insurance claims on thousands of defaulted mortgages as a result of false certifications by Wells Fargo, the fourth-biggest U.S. bank as measured by assets.

"As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," said Manhattan U.S. Attorney Preet Bharara.

Wells, the largest U.S. mortgage lender, denied the allegations and said in a statement it believes it acted in good faith and in compliance with FHA and U.S. Department of Housing and Urban Development rules. The bank said many of the allegations have been previously addressed with HUD and added that its FHA delinquency rates have been as low as half the industry average.

In a regulatory filing in August, the bank said it was being investigated for possible violations of laws and regulations relating to mortgage origination practices, including FHA loans. Wells said it will vigorously defend itself against the suit.

Bharara's office has brought similar cases in the past few years, including one against Citigroup Inc unit CitiMortgage Inc, which settled the case for $158.3 million in February, and against Deutsche Bank, which paid $202.3 million in May to resolve its case.

The U.S. Attorney's office in Brooklyn brought the biggest such case, against Bank of America Corp's Countrywide unit, which agreed in February to pay $1 billion to resolve the allegations.

The Wells Fargo case is brought under the False Claims Act, which provides penalties for fraud against the government, and under the Financial Institutions Reform, Recovery, and Enforcement Act, or FIRREA for short, a little-used statute that has grown in popularity in the past year.

The law requires a lower burden of proof than criminal charges, has a longer statute of limitations than other financial laws and potentially could bring big fines.

A civil fraud unit that Bharara created in March 2010 filed its first lawsuit under FIRREA in December of that year.

DAMAGES AND PENALTIES

At issue In Tuesday's suit are loans Wells Fargo made through a program that allows banks to originate, underwrite and certify mortgages for FHA insurance, according to the complaint. Under the so-called Direct Endorsement Lender program, neither the FHA nor HUD reviews a loan before it is approved for FHA insurance, but lenders are supposed to follow program rules.

Between May 2001 and October 2005, according to the complaint, Wells certified more than 100,000 loans for FHA insurance, even though the bank knew its underwriters had failed to verify information that was directly related to the borrower's ability to make payments.

"The extreme poor quality of Wells Fargo's loans was a function of management's singular focus on increasing the volume of FHA originations (and the bank's profits), rather than the quality of the loans being originated," the complaint said.

The bank also failed to properly train its staff, hired temporary workers and paid improper bonuses to its underwriters to encourage them to approve as many loans as possible, the complaint said.

During a 7-month stretch in 2002, at least 42 percent of the bank's FHA loans failed to actual qualify for the insurance they were submitted for, even though the bank's internal benchmark for such violations was set at 5 percent.

Wells also kept its defective loans secret from HUD, the complaint said. From January 2002 to December 2010, the bank internally identified more than 6,000 "materially deficient" loans, including 3,000 that had defaulted in the first six months, but did not comply with its self-reporting obligations, the complaint said.

Prior to October 2005, the bank did not self-report a single bad loan, and the inadequate reporting continued even after a HUD inquiry that year, the suit states. All told, from 2002 through 2010 the bank self-reported only 238 loans, according to the complaint.

Some of the mortgages Wells Fargo suspected of fraud but declined to report to HUD include loans it separately reported as suspicious activity to the U.S. Treasury Department, according to the suit.

The complaint seeks treble damages and penalties for hundreds of millions of dollars in insurance claims already paid to Wells Fargo, as well as penalties on claims HUD may pay in the future.

Citi, in its settlement, paid $158 million to resolve allegations that a "substantial percentage" of around $200 million in insurance claims failed to meet FHA requirements.

The Wells Fargo complaint also includes specific allegations that the lender failed to report another $190 million in loans it should have flagged as potentially problematic to HUD, which potentially adds to any eventual payout from the bank.

The lawsuit adds to the growing number of civil cases the government has filed targeting conduct that allegedly contributed to the financial crisis.

The Justice Department has indicted few individuals and institutions on criminal charges for roles in the collapse, and officials have said prosecutors determined much of the conduct amounted to greed but not crimes.

A joint federal-state task force set up earlier this year to continue to probe conduct tied to the 2007-2009 crisis has also acknowledged the bulk of its inquiries are under civil law.

(Reporting by Rick Rothacker in Charlotte, N.C. and Aruna Viswanatha in Washington; Editing by Matthew Lewis and Tim Dobbyn)

State court ruling deals blow to U.S. bank mortgage system

Reuters
Michelle Conlin

The highest court in the state of Washington recently ruled that a company that has foreclosed on millions of mortgages nationwide can be sued for fraud, a decision that could cause a new round of trouble for the nation's banks.

The ruling is one of the first to allow consumers to seek damages from Mortgage Electronic Registration Systems, a company set up by the nation's major banks, if they can prove they were harmed.

Legal experts said last month's decision from the Washington Supreme Court could become a precedent for courts in other states. The case also endorsed the view of other state courts that MERS does not have the legal authority to foreclose on a home.

"This is a body blow," said consumer law attorney Ira Rheingold. "Ultimately the MERS business model cannot work and should not work and needs to be changed."

Banks set up MERS in the 1990s to help speed the process of packaging loans into mortgage-backed bonds by easing the process of transferring mortgages from one party to another. But ever since the housing crash, MERS has been besieged by litigation from state attorneys general, local government officials and homeowners who have challenged the company's authority to pursue foreclosure actions.

A spokeswoman for MERS said the company is confident its role in the financial system will withstand legal challenges.

The Washington Supreme Court held that MERS' business practices had the "capacity to deceive" a substantial portion of the public because MERS claimed it was the beneficiary of the mortgage when it was not.

This finding means that in actions where a bank used MERS to foreclose, the consumer can sue it for fraud. If the foreclosure can be challenged, MERS' involvement would make repossession more complicated.

On top of that, virtually any foreclosed homeowner in the state in the past 15 years who feels they have been harmed in some way could file a consumer fraud suit.

"This may be the beginning of a trend," says Elizabeth Renuart, a professor at Albany Law School focusing on consumer credit law.

The company's history dates back to the 1990s, when banks began aggressively bundling home loans into mortgage-backed securities. The banks formed MERS to speed up the handling of all the paperwork associated with recording the filing of a deed and the subsequent inclusion of a mortgage in an entity that issues a mortgage-backed security.

MERS allowed the banks to save time and money because it permitted lenders to bypass the process of filing paperwork with the local recorder of deeds every time a mortgage was sold.

Instead, banks put MERS' name on the deed. And when they bought and sold mortgages, they just recorded the transfer of ownership of the note in the MERS system.

The MERS' database was supposed to keep track of where those loans went. The company's motto: "Process loans, not paperwork."

But the foreclosure crisis revealed major flaws with the MERS database.

The plaintiffs in the Washington case, homeowners Kristin Bain and Kevin Selkowitz, argued that the problems with the MERS database made it difficult, if not impossible, to determine who really owned their loan. It's an argument that has been raised in numerous other lawsuits challenging the ability of MERS to foreclose on a home.

"It's going to be very easy for consumers to say they were harmed because it's inherently misleading," says Geoff Walsh, an attorney with the National Consumer Law Center. If consumers can't identify who owns their loan, then they don't know whom to negotiate with, and can't even be certain of the legitimacy of the foreclosure.

In a statement, MERS spokeswoman Janis Smith noted that banks stopped using MERS' name to foreclose last year. She added that the opinion will "create confusion" for homeowners in the state of Washington while the trial courts consider its effect on pending cases.

Meanwhile, MERS is attempting to remake itself. The company has a new chief executive and a new branding campaign. In Washington D.C. federal lawmakers have recognized the need to create a national mortgage-recording database that would track all U.S. mortgages. MERS is lobbying to build it.

The case is Bain (Kristin), et al. v. Mortg. Elec. Registration Sys., et al., Washington Supreme Court, No. 86206-1.

(Editing by Dan Wilchins and Prudence Crowther)

Confidential Study Reveals Global Finance Is One Big Guesstimate

NYMag

Sadly it is probably too late for
Diamond's "but all the other
rate submitters are doing it!" defense.

A few months ago, when the Libor-rigging scandal hit, casual finance-watchers were aghast at the idea that an interest rate that was used to set rates on trillions of dollars of mortgages, car loans, and other financial products was essentially calculated by polling a few banks and expecting them not to lie to everyone. The most important number in global finance run on the honor system? Couldn't be.

But it was, and Libor was in fact undone by its own trusting nature. As we now know, a coalition of overgrown frat boys conspired to rig the rate, jettisoning the gentleman's honor of Wall Street past and paving the way for Bob Diamond's ouster.

Surely, that was it, though, and replacing Libor with a transaction-based rate that took the prices of actual securities into account would solve the problem. There couldn't be more incredibly important financial numbers out there based on nothing more than a wink and a handshake, right?

Wrong, says Bloomberg, which obtained a confidential memo that revealed that Libor has lots of company when it comes to being easily manipulable:

Fewer than half of the benchmark interest rates surveyed in the U.S., Europe and Asia were based on actual transactions, according to a confidential International Organization of Securities Commissions discussion paper obtained by Bloomberg News. Instead, the rates were calculated by methodologies that were unclear, not transparent and only rarely subject to specific regulatory standards or obligations, the group said.

[...] 

According to the discussion paper, about 80 percent of benchmarks were either compiled by associations or private entities. For survey-based benchmarks like Libor, the criteria for submitting data was not always objective and called for judgments about rates and prices, according to the discussion paper. Even in benchmarks that are based on actual transaction data, the compiling bodies retain discretion in producing the actual rates or prices.

Manipulation potential in 80 percent of the world's benchmark rates? That's a lot of Bollinger.

INTERPOL: Judge Orders Extradition And Arrest Of Former U.S. Treasury Undersecretary David Mulford

Daily Bail

Argentina hasn't forgotten Mulford's role in the 2001 crisis.

A judge in Argentina has ordered the arrest of CreditSuisse executive and former U.S. Treasury Undersecretary David Mulford because he failed to testify over a 2001 Argentine debt swap, the state news agency reported on Monday.

Federal Judge Marcelo Martinez de Giorgi will ask Interpol to issue an international arrest warrant seeking Mulford's extradition for questioning over the bond exchange carried out by the government in an unsuccessful bid to avoid default.

Mulford, who currently serves as vice chairman international of Credit Suisse Investment Bank, was seen as one of the debt swap's architects when he served as a senior official at Credit Suisse First Boston (CSFB).

Argentina's government swapped about $30 billion in debt for new, longer-maturity issues in June 2001. But it stopped paying most of its debts six months later as the economy collapsed.

A local court has been investigating the swap for more than 10 years to see if Argentine officials committed any crime when they hired banks to carry out the swap. Former Economy Minister Domingo Cavallo and former Finance Secretary Daniel Marx have been charged in the case, which has yet to go to trial.

Mulford was first called to testify in the probe in 2002 but he has never done so, according to court documents cited by the Telam news agency.

Argentine officials have "made numerous attempts by all possible legal means to achieve David Mulford's compliance, in this country's territory as well as through U.S. authorities, and all of these have invariably failed," the documents stated.

Cavallo said that Mulford was one of the main engineers of the swap.

Mulford worked at the U.S. Treasury from 1984 to 1992 and was at the center of international economic negotiations under former U.S. Presidents Ronald Reagan and George H.W. Bush.

He later served as the U.S. ambassador to India.

---

Here's Mulford on the 2008 crisis:

Debt-swap fraud is not forgiven in 3, 2, 1...

Audit of the Federal Reserve Reveals $16 Trillion in Secret Bailouts

BeforeIt'sNews

The first ever GAO(Government Accountability Office) audit of the Federal Reserve was carried out in the past few months due to the Ron Paul, Alan Grayson Amendment to the Dodd-Frank bill, which passed last year. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, led the charge for a Federal Reserve audit in the Senate, but watered down the original language of the house bill(HR1207), so that a complete audit would not be carried out. Ben Bernanke(pictured to the left), Alan Greenspan, and various other bankers vehemently opposed the audit and lied to Congress about the effects an audit would have on markets. Nevertheless, the results of the first audit in the Federal Reserve’s nearly 100 year history were posted on Senator Sander’s webpage earlier this morning:  http://sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3

What was revealed in the audit was startling: $16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest. Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious — the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.

To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is “only” $14.5 trillion. The budget that is being debated so heavily in Congress and the Senate is “only” $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world.

In late 2008, the TARP Bailout bill was passed and loans of $800 billion were given to failing banks and companies. That was a blatant lie considering the fact that Goldman Sachs alone received 814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion.

“This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.” – Bernie Sanders(I-VT)

When you have conservative Republican stalwarts like Jim DeMint(R-SC) and Ron Paul(R-TX) as well as self identified Democratic socialists like Bernie Sanders all fighting against the Federal Reserve, you know that it is no longer an issue of Right versus Left. When you have every single member of the Republican Party in Congress and progressive Congressmen like Dennis Kucinich sponsoring a bill to audit the Federal Reserve, you realize that the Federal Reserve is an entity onto itself, which has no oversight and no accountability.

Americans should be swelled with anger and outrage at the abysmal state of affairs when an unelected group of bankers can create money out of thin air and give it out to megabanks and supercorporations like Halloween candy. If the Federal Reserve and the bankers who control it believe that they can continue to devalue the savings of Americans and continue to destroy the US economy, they will have to face the realization that their trillion dollar printing presses will eventually plunder the world economy.

The list of institutions that received the most money from the Federal Reserve can be found on page 131 of the GAO Audit and are as follows..

Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
and many many more including banks in Belgium of all places

View the 266-page GAO audit of the Federal Reserve(July 21st, 2011): http://www.scribd.com/doc/60553686/GAO-Fed-Investigation

Source: http://www.gao.gov/products/GAO-11-696

FULL PDF on GAO server: http://www.gao.gov/new.items/d11696.pdf

Senator Sander’s Article: http://sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3

Germans Fret about Their Foreign Gold Reserves

Der Spiegel

A large portion of Germany's massive gold reserves are stored abroad, mainly in the Federal Reserve in New York. But are the bars really where they are supposed to be? A dispute has broken out over whether the central bank needs to check on its gold, or if Germany can trust its international partners.

Germany has gold reserves of just under 3,400 tons, the second-largest reserves in the world after the United States. Much of that is in the safekeeping of central banks outside Germany, especially in the US Federal Reserve in New York. One would think that with such a valuable stash, worth around €133 billion ($170 billion), the German government would want to keep a close eye on its whereabouts. But now a bizarre dispute has broken out between different German institutions over how closely the reserves should be checked.

Germany's federal audit office, the Bundesrechnungshof, which monitors the German government's financial management, is unhappy with how Germany's central bank, the Bundesbank, keeps tabs on its gold. According to media reports, the auditors are dissatisfied with the fact that gold reserves in Frankfurt are more closely monitored than those held abroad.

In Germany, spot checks are carried out to make sure that the gold bars are in the right place. But for the German gold that is stored on the Bundesbank's behalf by the US Federal Reserve in New York, the Bank of England in London and the Banque de France in France, the German central bank relies on the assurances of its foreign counterparts that the gold is where it should be. The three foreign central banks give the Bundesbank annual statements confirming the size of the reserves, but the Germans do not usually carry out physical inspections of the bars.

'No Doubts'

According to German media reports, the Bundesrechnungshof has now recommended in its confidential annual audit of the Bundesbank for 2011 that Germany's central bank check its foreign gold reserves with yearly spot checks.

The Bundesbank has rejected the demand, arguing that central banks do not usually check each others' reserves. "The scope of the checks that the Bundesrechnungshof wants does not correspond to the usual practices among central banks," the Bundesbank said in a statement quoted by the Frankfurter Allgemeine Zeitungnewspaper. "There are no doubts about the integrity and the reputation of these foreign depositories."

Now the finance committee of the German parliament, the Bundestag, has gotten involved. Parliamentarians apparently demanded to see the Bundesrechnungshof's audit report on the Bundesbank after they were alarmed by a report in the influential tabloid daily Bild, which claimed that the central bank had not checked its gold reserves in five years.. The Bundesrechnungshof will now provide the committee with its report, a spokesman for the federal auditors confirmed on Monday.

Germany moved some of its gold reserves abroad during the Cold War to protect them from a possible Soviet attack. Some of the gold was moved back to Frankfurt after the collapse of communism. But the Bundesbank argues that it still makes sense to store some gold in major financial centers so that it can be sold quickly if necessary. Although the Bundesbank does not provide exact details about the distribution, it has revealed that the largest share of Germany's gold is held in New York, followed by Frankfurt, London and Paris.

Skeptical about the Reserves

In times of uncertainty about the future of Europe's common currency, gold is a hot topic, and some Germans take a dim view of the fact that much of the country's gold -- which theoretically belongs to the people -- is held abroad. Some members of parliament have even expressed doubts as to whether the foreign gold reserves really exist. Philipp Missfelder, a member of the conservative Christian Democratic Union (CDU), wanted to see the gold for himself and traveled to New York in person to inspect the holdings, according to the newspaper Frankfurter Rundschau. His trip was apparently unsuccessful, though. When he visited the Fed's safes in New York, staff were either unable or unwilling to show him exactly which bars belonged to Germany.

Peter Gauweiler, a Bundestag member with the CDU's Bavarian sister party, the Christian Social Union (CSU), is also skeptical about the foreign gold reserves. In recent years he has attempted to gain more information about Germany's gold through parliamentary questions. Last year, he had an economics professor prepare an expert report on the subject, which concluded that the Bundesbank was not fulfilling its inventory regulations by failing to physically inspect the gold.

In July 2011, SPIEGEL reported that Bundesbank employees had physically seen the gold in New York within the previous six months. However, the last time it had been checked before that was in June 2007.

Gauweiler doubts that the Bundesbank would have immediate access to all its gold if necessary, suggesting that part of the gold may have even been lent out -- a claim that the Bundesbank rejects.

Bringing Back Home

Some Germans even want to bring the gold reserves back to Germany. An initiative called "Gold Action" is campaigning under the slogan: "Repatriate Our Gold!" Its petition has been signed by prominent industrialist Hans-Olaf Henkel and Frank Schäffler, a parliamentarian with the business-friendly Free Democrats who is known for his euroskeptic views.

The initiative alleges that there is an "acute" danger that the German gold could be expropriated as a result of the financial and debt crisis. They argue that the German government could soon be forced to sell gold to cover the costs of the crisis.

But the Bundesbank wants to leave the gold where it is. Observers point out that apart from the high cost of transporting the gold back to Frankfurt, the symbolic effect of Germany repatriating its gold reserves might unsettle the nervous financial markets, who could see it as a sign of an impending collapse of the euro.

dgs - with wire reports