Category Archives: Legal

Why Greenberg May Win the AIG Bailout Trial

Due to the hour, and the fact that I want to work up the argument longer-form over a series of posts, I’ll give only an overview now as to why the popular handicapping on the AIG bailout trial, that the suit is ridiculous and not worthy of attention, is wrong.

While this case by any logic should be ridiculous, the Fed so egregiously overstepped its authority in the way it handled AIG (and for that matter, its other bailouts) that they handed Greenberg a decent legal argument. And to add to the government’s self-inflicted woes, all of its bailout cheerleading also plays straight into Greenberg’s hands.

Probably the biggest relief to the government so far is that the media has virtually ignored the trial. The only major news organization that has a reporter there daily is Bloomberg. Their reporter, Andrew Zajac, concurs with our view (and quoted us) that David Boies, the Greenberg attorney, has decent odds of winning the case. If Boies does prevail, you can expect an Administration-led firestorm of outrage, with the arguments previewed in a Steve Rattner op-ed in the New York Times.

But the grandstanding serves to obscure the legal argument, which when you get past the technicalities, has real significance politically. That is why the officialdom would rather distract the public by hammering on “That ungrateful deadbeat Greenberg. Who is he to want more money when by all rights he should have been wiped out?” If anyone bothered to look at what is really at stake here, it is that the Fed, with the help of the Paulson Treasury, greatly abused its powers. And that matters because as a practical matter, the Fed is unaccountable for its actions.

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JP Morgan Under Criminal Investigation for Foreign Exchange Trading Abuses

Regulators look to be getting more serious about financial firm misconduct, as witness their new-found willingness to file criminal charges against banks. Not that has happened yet as regards JP Morgan, the US bank with far and away the biggest rap sheet of all US financial firms. But as we’ll discuss, while it is good to see regulators getting tougher with banks, this move still falls in the category of “too little, too late,” particularly since it looks to a last-ditch effort to improve departing attorney general Eric Holder’s file of media clips.

Here is an overview of the JP Morgan investigation from the Wall Street Journal:

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Prosecutors Reopening Cases Against Bank Recidivists; Change or “Change You Can Believe in”?

The New York Times yesterday published a new story by Ben Protess and Jessica Silver-Greenberg on how Federal prosecutors are investigating reopening cases against big banks and hitting them with additional charges. Reader Richard D, who was curious about the story, wrote, “It is hard for me to know whether this is a momentous event, or a nothingburger.”

It’s actually somewhere in the middle. While it represents prosecutors starting to use muscles that had atrophied, at least as far as financial firms are concerned, as readers will no doubt suspect, the shift falls well short of the levels of official zeal needed.

But there’s actually an important shift discussed at some length in the article that may have bigger ramifications: that powerful bank consultants and lawyers are no longer being taken at their word.

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Germany Turning Sour on the Transatlantic Trade and Investment Partnership

Yves here. The US media has given considerably more attention to the TransPacific Partnership, the western sister of an ugly multinational-enrichment-scheme-billed-as-a-trade-deal called the Transatlantic Trade and Investment Partnership. The comparative silence about the US-European deal has led many observers to assume that it is more or less on track.

Maybe not.

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SEC Commissioner Kara Stein Fighting for Tougher Bank Sanctions, Stymies Bank of America Settlement

One of the things that continue to be a source of anger in the American public is the way that banks were rescued en masse without the perps, the managers and producers in the businesses that produced toxic product facing much if anything in the way of consequences. Another is that the banks pay fines that are inadequate relative to the amount of damage that they did.

SEC commissioner Kara Stein has been using her post as a surprisingly effective bully pulpit to pressure the agency and other regulators into upping their game. It’s unusual for an SEC commissioner to play that role; the post is typically a runway for becoming either a lobbyist or a director on financial services company boards. Even more rare is that Stein is regularly crossing swords with SEC chairman Mary Jo White, who is taking a much more industry-friendly line than she promised at the time of her confirmation. It’s virtually never done to have a commissioner from the same party buck the chairman.

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Tech Underbelly: Indentured Servitude and Bonded Labor in the US

A labor collusion pact with the aim of suppressing pay levels among Apple, Google, Microsoft, Pixar, and others, demonstrated that the idea that Silicon Valley plays fairly is an illusion. But even more unsavory abuses occur further down the food chain. H1-B visa workers, who are generally held in low esteem in the US since they compete with Americans, take a risk when they sign up with labor brokers, even seemingly legitimate ones like Tata Consultancy, part of the giant Tata Group in India.

As the NBC video below, part of a joint investigation with the Center for Investigative Reporting, explains, the most abusive recruiters are body shops, who abuse the H1-B program by bringing in technology graduates when the firm in fact has no job lined up. The Indian immigrants are hostage, kept in guest houses where they are told not to go outside until they find work.

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Bob Goodwin: ‘Drug’ is a Teetering Social Concept

Yves here. Bob Goodwin discusses how the idea of legal versus illegal drugs has become a more obviously porous barrier than it was in his youth, even given the differences in how those differences are enforced across income/racial groups.

One thing that Bob may have deemed to be so obvious as to not be worth discussing is the casualness of prescribing what amount to performance-enhancing drugs to children, such as Ritalin and Adderall, along with troublingly frequent dispensing of antidepressants. Studies on safety are all short term; the idea of messing with the chemistry of developing brains, save in circumstances when the child is in acute distress, is heinous. Yet in parallel, kids have wised up and use various prescription stimulants, most notably Adderall, as study and test aids. I recall reading a New Yorker article on it at least a decade and maybe even more than a dozen years ago, on how utterly routine it was for kids in elite private schools to get these drugs prescribed, or filch their parents’ supplies, and trade them among their peers. My understanding is that the use of these drugs during exams, and for some students, on an ongoing basis, is routine.

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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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