Category Archives: Legal

Jamie Dimon: U.S. Must Create a “Safe Harbor” Where JPM’s Corruption Is Not “Punished”

Yves here. The irony is delicious. Chief bank apologist Andrew Ross Sorkin accidentally elicited a damning admission from JP Morgan chieftan Jamie Dimon. But that also reveals Dimon’s confidence that he is a member of a protected class, which sadly happens to be true.

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Matt Stoller: Why Is Alan Greenspan’s Lawyer, Scott Alvarez, Still Controlling the Federal Reserve? (AIG Bailout Trial)

Yves here. This important post explains why Scott Alvarez, the general counsel of the Federal Reserve Board of Governors, needs to be fired. His responses to the plaintiffs’ questions at the AIG bailout trial weren’t simply evasive; they reveal a deep, almost visceral, dedication to defending the very policies that nearly destroyed the world economy as well as a salvage operation that favored financial firms over the real economy. We have embedded the transcripts from the first three days of the AIG bailout trial, which cover Alvarez’s performance on the stand, at the end of this post.

Alvarez was brought to the Fed by Alan Greenspan. As a staff lawyer, he helped implement bank deregulation policies such as ending supervision of primary dealers in 1992, refusing to regulate derivatives in 1996 (I recall gasping out loud when I first read about the Fed’s hands off policy), and implementing the rules that shot holes through Glass Stegall before it was formally repealed in 1999. Among those measures was giving a commercial bank, Credit Suisse, waivers to take a 44% stake one of the biggest investment banks, First Boston, in 1988 and assume control in 1990.

Alvarez also has a poor record as far as representing broad public interest in his tenure as General Counsel, which started in 2004. The Fed did an even worse job than the bank-cronyistic Office of the Comptroller of the Currency in enforcing Home Ownership and Equity Protection Act, a law that put restrictions on high-cost mortgage lenders. The Fed was also one of the two major moving forces behind the disastrous Independent Foreclosure Review, an exercise that promised borrowers who were foreclosed on in 2009 and 2010. The result instead was a fee orgy by the supposedly independent consultants, capricious and inadequate payments to former homeowners, and virtually no disclosure of what was unearthed during the reviews.

Yellen has said she wants to make financial stability as important a priority of the Fed as monetary policy. That means, among other things, being willing to regulate banks. Scott Alvarez is too deeply invested in an out-of-date world view to carry that vision forward. If Yellen intends to live up to her word, Alvarez has to go.

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Bill Black: DOJ Says it Cannot Prosecute “Rocket Science” Frauds

ves here. The excuse that Deputy Attorney General Juan Cole offered for DoJ’s failure to prosecute financial fraud, that they were overmatched by “rocket science” isn’t just pathetic, it’s a flat out lie. I know people personally who were experts in mortgage backed securities and collateralized debt obligations who offered not just their expertise, but specific legal theories to state attorneys general, as well as members of the famed Mortgage Fraud Task Force and were ignored. Individuals with similar skills offered to train the SEC and were also turned down. The idea that prosecutors and regulators were up against complicated technology above their pay grade is a self-serving canard. They were repeatedly offered ways to get down the learning curve and rejected them.

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Tom Englehardt Interviews Laura Poitras on Snowden and the Total Information Capture Approach to Surveillance

Yves here. This interview with Laura Poitras is a reminder of how the world has, and more important, hasn’t changed since the explosive revelations made by Edward Snowden less than a year and a half ago. Even though his disclosures produced a great uproar, with demands in the US, UK, and Europe for explanations and […]

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Gretchen Morgenson on the Damage of Private Equity Secrecy (and a Mention of Our CalPERS Suit)

Gretchen Morgenson filed a must-read story on the range and some of the consequences of the private equity fetish for secrecy. The short version is that if the private equity industry had nothing to hide, they wouldn’t be hiding it.

Even so, Morgenson’s story is certain to be an eye-opener to readers fresh to this topic and has important revelations for even those who’ve been on this beat for a while.

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How Oil and Gas Leases for Fracking Rip Off Homeowners

Yves here. This post by Steven Horn about that shows the typical terms of an oil and gas rights lease for American Energy Partners buries the lead, in that Steve needs to give the context of how the lease came to be public before he turns to explaining how the lease rips off the party who signs it. Among other things, it requires the homeowner to have any mortgage made subordinate to the royalty agreement, something no lender will agree to. If the homeowner can’t get the subordination (a given), no royalties will be paid! As you’ll see, there are other “heads I win, tails you lose” terms in these agreement.

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Matt Stoller: Why We Need to Break Up Amazon – and How to Do It

Yves here. The main way that those of the left-leaning persuasion see Amazon as a bad guy is for its treatment of warehouse workers, who work in physically-taxing conditions and are paid what is barely a living wage for a single person.

As Matt Stoller describes in this piece, Amazon’s ambitions are monopolistic, and they’ve already gone a long way towards achieving that ambition in a large number of markets. They regularly engage in predatory pricing to crush competitors and gain market share. Their dominant position then allows them to chose how to extract more profit, which is usually a combination of squeezing suppliers and raising prices.

Antitrust has become close to a dead letter in the US. Amazon makes for a worthy object for reviving it.

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Invitation Homes Tenant Abuse Shows Incompetence as Well as Malfeasance

Readers may recall that we’ve been writing regularly about the single family home land grab by private equity firms. Blackstone has been far and away the biggest, though its Invitation Homes business. Readers and many institutional investors have been skeptical of PE landlords’ claims that they can manage single family homes cost effectively; it’s hard enough for mom and pop landlords, who often have some relevant maintenance skills, like plumbing or construction, to make a go of it.

But as reports come in from abused tenants, Blackstone looks not only venal in its efforts to shift costs on to tenants, but positively incompetent.

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DealBook Says Citi “Cannot Afford” to Run an Honest Bank in Mexico

Yves here. In our ongoing efforts to thrash Andrew Ross Sorkin when he shills shamelessly for banks (admittedly a Sisyphean task), we are turning the mike over to Bill Black, who also sees Sorkin as a pet project. We trust you’ll enjoy his shredding of another defense of financial firm misconduct in the New York Times’ DealBook.

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AIG Bailout Trial and the Deadbeat Borrower Defense

It’s déjà vu all over again.

I’m only starting to dig into the AIG bailout trial by reading the transcripts and related exhibits. That means I am behind where the trial is now. However, that gives me the advantage of contrasting what is in the documents with the media reporting to date. And what is really striking is the near silence on the core argument in this case.

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Gretchen Morgenson Collects a Scalp: Blackstone Ditches Private Equity “Termination Fees”

There’s nothing like seeing the good guys score a goal. We have two this evening. One is a win by David Sirota, whose reporting on San Francisco’s plan to shift up to 15% of retiree funds into hedge funds appears to have led to a climbdown by the city. Sirota uncovered an unreported conflict of interest by the consultant recommending the change, who also operates a hedge fund of funds. Admittedly, CalPERS’ recent announcement that it was exiting hedge funds entirely also put pressure on the city to reverse course.

But Gretchen Morgenson collected an even bigger scalp in the form of Blackstone halting a practice that she highlighted in a May article: that of taking “termination fees” when portfolio companies are sold. However, as we discuss later, as positive as this move appears, this is almost certainly Blackstone throwing a big, visible bone to investors in the hope of deterring an SEC enforcement action.

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AIG Bailout Trial Bombshell II: Fed and Treasury Cornered AIG’s Board into Taking a Legally-Dubious Bailout

As we said in our companion post today on the AIG bailout trial, former AIG CEO Hank Greenberg may have a case after all. Mind you, we are not fans of Greenberg. But far too much of what happened during the crisis has been swept under the rug, in the interest of preserving the officialdom-flattering story that the way the bailouts were handled was necessary, or at least reasonable, and any errors were good faith mistakes, resulting from the enormity of the deluge.

Needless to say, the picture that emerges from the Greenberg camp, as presented in the “Corrected Plaintiff’s Proposed Findings of Fact,” filed in Federal Court on August 22, is radically different. I strongly urge readers, particularly those with transaction experience, to read the document, attached at the end, in full. It makes a surprisingly credible and detailed case that AIG’s board was muscled into a rescue that was punitive, when that was neither necessary nor warranted. And the tactics used to corner the board were remarkably heavy-handed.

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Bill Black Discusses “Too Big to Jail” on Bill Moyers

Bill Black gives one of his best recaps ever of the “too big to jail” syndrome on Bill Moyers. For readers who missed the story, Black gave critical testimony in a Federal prosecution of small fry mortgage fraudsters. He helped persuaded the jury that in fact no fraud took place because the banks were willing to underwrite any predatory, poorly underwritten loan in the runup to the crisis. Black savages the posture of the Department of Justice in this case and in general.

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