Quelle Surprise! SEC Worked Hard to Ignore Warnings of Subprime Fraud

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Saying that regulators ignored danger signs in the run up to the financial crisis now verges on being a “dog bites man” account. But the New York Times excerpt from the new book Reckless Endangerment by Gretchen Morgenson and Josh Rosner show that the SEC was not merely asleep at the switch, but apparently peopled with higher ups who were looking hard for reasons not to pursue suspicious conduct.

The extract is about a particularly rancid case, that of subprime originator NovaStar, which was one of the twenty biggest. Not only did it issue the drecky mortgages in impressive volumes, but it engaged in obvious financial misreporting. While the frauds it foisted on borrowers fell largely between regulatory cracks, since NovaStar as a non-bank mortgage broker was regulated only at the state level, and those offices are chronically understaffed, misstatements in public reports reside squarely in the SEC’s beat.

Morgenson’s and Rosner’s account follows the efforts of short seller Marc Cohodes. Admittedly, the SEC has reason to take the claims of short-sellers with a grain of salt, but the evidence that Cohodes provided over time was extensive and troubling, including:

¶ Extremely aggressive accounting (no loan loss reserves, overvaluation of loans in inventory, acceleration of future income)

¶ Failure to report regulatory sanctions (cease and desist orders in Massachusetts and Nevada; a HUD inspector general report that determined that NovaStar branch system and use of contractors violated federal regulations)

¶ Failure to report loss of important business relationships, such as with its mortgage insurer, PMI, or one of its main loan buyers, Lehman

¶ Frequent deceptive and inaccurate statements in analyst conference calls

¶ Obvious false statements in SEC reports (for instance, phantom branches, with addresses that corresponded to unrelated businesses, like massage parlors)

The damage to investors wasn’t simply that NovaStar shares were overvalued in the secondary market (they went from over $30 at their peak to below $0.50). The company was able to do more damage via floating new shares during the time frame in which Cohodes was trying to get the SEC to take action.

The remarkable bit is not that the SEC ignored him. Lower level staff appeared to take his charges seriously. But it appears the more senior officials were more interested in finding excuses to do nothing than do their jobs and take the matter seriously. From the book:

Mr. Cohodes reckons that over roughly four years, he conducted hundreds of phone calls with the S.E.C. about NovaStar. Each time, he would walk them through his points. Sometimes, a higher-up would get on the phone and contend that while NovaStar’s practices were indeed aggressive, the company did not appear to be breaking the law. NovaStar’s selective disclosures — it was quick to report good news but failed to own up to problems on many occasions — seemed to be infractions that the S.E.C. should have dealt with. But its investigation went nowhere….

NovaStar’s shares collapsed, wiping out roughly $1 billion in market value from the peak of the stock price. Despite the implosion, between 2003 and 2008, [founders] Mr. [Scott] Anderson and Mr. [Lance] Hartman each made about $8 million in salary, bonuses and stock grants.

Neither man was ever sued by the S.E.C. or any other regulator. As is its custom, the S.E.C. declined to comment on the NovaStar inquiry or the agency’s discussions with short-sellers. But documents supplied by the S.E.C. under the Freedom of Information Act show the extensive communications between Mr. Cohodes and the agency. Ms. Miller, still at the S.E.C., declined to comment.

Even though the public has become accustomed to complacent regulators, the fact that staff interest in the NovaStar case appears to have been stymied at higher levels signals how deep the rot at the SEC is. And with coddling of banksters now the order of the day in Washington, there’s no reason to expect any meaningful change.

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  1. Mogden

    But they are going to try really hard to do better next time, despite the fact that the institutional imperatives that lead to regulatory capture are working more effectively than ever. I know I’m confident.

  2. psychohistorian

    It really was refreshing to get away for a week and not think about how corrupt our government has become and then to have those same folks that corrupted the government pay other people to scream pointless shit about how bad government is and we ought to do away with all of it.

    But it was interesting to note that while a big chunk of America is partying like the Roaring 20’s there is a definite undercurrent of fear of the future and hunkering down.

    Speaking, excuse me, texting entirely for myself I consider the textual white noise that I share here to be an exercise in futility. I am amazed at past “success” of Yves and others poking sticks at the beast we confront but I harbor no illusions that it is being brought under any sort of societal control. That said, I missed the interesting “sense of community” that I have on this and a few other sites this past week.

    1. Joe Rebholz

      “…I consider the ttextual white noise that I share here o be an exercise in futility. I am amazed at past “success” of Yves and others poking sticks at the beast we confront but I harbor no illusions that it is being brought under any sort of societal control. That said, I missed the interesting “sense of community” that I have on this and a few other sites this past week.” — Psychohistorian.

      The sense of community here is real because most people who read this blog have shared goals. We want a just societty. We want a system that takes care of all of humanity and our only home, the earth. This may seem too grand, but this is what most of us want. So considering the present situation, it is easy to become depressed. I see the words “depression” and “dispair” in these comments often. You speak of white noise and futility, of “poking sticks at the beast”. It’s not white noise and it’s not futile. And I think of the lesson selfish economic theories never took from evolution: That a few puny humans cooperating, using their sharpened physical and mental tools easily took down mighty beasts. Don’t disp[air. What Yves and the commenters are doing here is just the beginning. It’s the beginning of the revolutions we will have if we are to progress toward our goals. We need revolutions in each of the following areas. Economics. The financial system. Money. Mass media information transmission. Our political system — voting and other aspects of our election systems must be changed so that money does not influence votes. These can be a start. We can work towards these specific goals or other goals that seem like they would get us closer to a just society. We don’t have to plan a just society in every detail. That’s impossible anyuway. There is no perfection so don’t get distracted by the idea of a perfect system. Improvement is possible. No matter what, the present system will change. It cannot stay the same. The “texting” we are doing here will have some effects outside the group of readers of this blog. Texts spread. Information leaks. Always. Information can be drowned out too. That’s what right wing mass media does. That’s why a revolution of the mass media needs to be one of the first.

      Don’t dispair. Too many commenters here, after reading about some snippet, some horror, of the present system, express a seemingly smug cynicism that nothing will ever change, that nothing can be done, or that they don’t know what could be done. Yves Smith didn’t say nothing could be done.

      The first step of a revolution is to realize you need one. Many commenters here are on the threshold. They don’t use the word yet. Step over that line. Maybe there is reluctance to use the word revolution because it suggests violence. But violence can’t be part of the revolutions we need because violence will only make things worse. The revolutions we need must be information revolutions, knowledge revolutions, beliewf revolutions, institutional revolutions.

      If you realize that what we really need are wholesale changes and/or replacements of central parts of our present systems, then you realize we need some revolutions. So use the correct word for what has to happen. Then we can clarify our goals and work towards those goals realizing that this will take some number of years, that change will occur anayway and we may as well add any expertise, knowledge, wisdom we may have to the process. This will help get rid of dispair, depression, cynicism, ignorance, fear, and anger.

      This comment went longer than I planned. I like your comments. Welcome back.

      1. psychohistorian

        It is hard to maintain the revolution fervor for 40+ years but I have tried. I am way more than ready for structural change in our society toward humanism but mostly see fear based reactions and not much critical thinking which bodes ill for us that want us to remove global policy decision making from the inherited rich oligarchy that runs the world.

        I held a NO BAILOUT sign over Interstate 5 in Portland, OR in 2008 and am ready to join any respectable movement to bring the current system to an end.

        I fear that the Spring fever felt by many is potentially delusional at this point without some way to counter the propaganda force of the worldwide MSM. A revolution that is co-opted and destroys the emerging humanistic leadership is just what they want to consolidate their power further and make the “cost” of revolution too high.

        1. Starr Piere

          My fear is that ranting or releasing momentary frustration on blogs is watering down any effective motivation to organize and communicate our in-common ideas for revolution. I grow more concerned that hiding behind a screen name shows insidious fear of our government. The U.S. government should fear the people–not for any potential violence, but because together we could force change and demand prosecution for those who commit criminal acts.

          Some sites advise changing screen names, as government entities visit the sites; but when we do that, we essentially leave Yves and others like her twisting in the wind.

          Thank you, Yves, for what I see as relentless courage. May we all be more like you … fearless and focused, working toward common good.

          Revolution should gather and become strong before it HAS to.

          1. Starr Piere

            Oops. I did not mean to imply that this site advises using changing screen names…but others do.


  3. ambrit

    Good Ser Psychohistorian;
    Glad to see you enjoyed your vacation on Terminus.
    You are correct in citing the “sense of community” as part of the charm of this site. Even the putatative Trolls here seem to take their tasks more seriously. Most posting here show a tolerance and general civility sadly lacking at most other sites I’ve visited. I learn a lot just reading the posts and commentary, and, yes, the pushback I get on some of my more idiotic utterings. Thank you Mz Smith and company. As I’ve said before: You really are running a public utility here .

  4. financial matters

    “””Constructivists offer a different model for understanding international politics. They have a broader, more malleable understanding of interest, which includes non-material concerns. As Ruggie states, ideas, which are also a part of our objective identity, can also shape decision-making. Wendt says that when people have ideas about how reality should exist, they communicate these ideas through a constant process of signaling, interpreting and responding. With time, this process helps develop concrete inter-subjective understandings within societies. Through a constant process of communication and signaling, societies have developed intersubjective understandings for how to behave in relation to other states.
    Constructivists would not necessarily disagree that interest has historically been defined in terms of power or that power has tended to drive international politics. However, they do not see this as objective reality, rooted in human nature. As Dessler put it, Hobbessian culture has been reproduced by actors. Because actors and their neighbors have behaved with their interests defined in terms of power, they have an intersubjective understanding which reflects this and perpetuates itself. Although constructivists believe this type of cycle is usually long-lasting and sticky, actors are not ultimately bound by a particular type of thinking.”””

    Lifted by permission from my son’s answer to an exam question in international studies…

    1. DownSouth

      ► “With time, this process helps develop concrete inter-subjective understandings within societies. Through a constant process of communication and signaling, societies have developed intersubjective understandings for how to behave in relation to other states.”

      This topic came up yesterday in response to the following quote by Robert D. Hare:

      Sociopathy is not a formal psychiatric condition. It refers to a pattern of attitudes, values, and behaviors that is considered antisocial and criminal by society at large, but seen as normal or necessary by the subculture or social environment in which it developed.

      But what happens when a society becomes what Andrew M. Lobaczewski, writing in Political Ponerology: A Science on the Nature of Evil Adjusted for Political Purposes, calls a “pathocracy,” such as Nazi Germany? As Eric Hoffer put it: “It colors my thinking and shapes my attitude toward events. I can never forget that one of the most gifted, best educated nations in the world, of its own free will, surrendered its fate into the hands of a maniac.” Or as Hannah Arendt put it, writing in Eichmann in Jerusalem: A Report on the Banality of Evil:

      Now and then, the comedy breaks into the horror itself, and results in stories, presumably true enough, whose macabre humor easily surpasses that of any Surrealist invention. Such was the story told by Eichmann during the police examination about the unlucky Kommerzialrat Storfer of Vienna, one of the representatives of the Jewish community. Eichmann had received a telegram from Rudolf Hoss, Commandant of Auschwitz, telling him that Storfer had arrived and had urgently requested to see Eichmann. “I said to myself: O.K., this man has always behaved well, that is worth my while… I’ll go there myself and see what is the matter with him… It was a great inner joy to me that I could at least see the man with whom I had worked for so many long years, and that we could speak with each other.” Six weeks after this normal human encounter, Storfer was dead—-not gassed, apparently, but shot.

      Is this a textbook case of bad faith, of lying self-deception combined with outrageous stupidity? Or is it simply the case of the eternally unrepentant criminal (Dostoevski once mentions in his diaries that in Siberia, among scores of murderers, rapists, and burglars, he never met a single man who would admit that he had done wrong) who cannot afford to fact reality because his crime has become part and parcel of it? Yet Eichmann’s case is different from that of the ordinary criminal, who can shield himself effectively against the reality of a non-criminal world only within the narrow limits of a gang. Eichmann needed only to recall the past in order to feel assured that he was not lying and that he was not deceiving himself, for he and the world he lived in had once been in perfect harmony. And that German society of eighty million people had been shielded against reality and factuality by exactly the same means, the same self-deception, lies, and stupidity that had now become ingrained in Eichmann’s mentality. These lies changed from year to year, and they frequently contradicted each other; moreover, they were not necessarily the same for the various branches of the Party hierarchy or the people at large. But the practice of self-deception had become so common, almost a moral prerequisite for survival, that even now, eighteen years after the collapse of the Nazi regime, when most of the specific content of its lies has been forgotten, it is sometimes difficult not to believe that mendacity has become an integral part of the German national character.

      I’m not sure I agree, but Lobaczewski believes that the United States has followed in Nazi Germany’s footsteps in becoming a pathocracy:

      [A]merica, especially the U.S.A, has reached a nadir for the first time in its short history. Grey-haired Europeans living in the U.S. today are struck by the similarity between these phenomena and the ones dominating Europe at the times of their youth. The emotionalism dominating individual, collective and political life, as well as the subconscious selection and substitution of data in reasoning, are impoverishing the development of a psychological world view and leading to individual and national egotism. The mania for taking offense at the drop of a hat provokes constant retaliation, taking advantage of hyper-irritability and hypo-criticality on the part of others… Turn-of-the-century Freudian psychology finds fertile soil in this country because of the similarity in social and psychological conditions.

      America’s psychological recession drags in its wake an impaired socio-professional adaptation of this country’s people, leading to a waste of human talent and an involution of social structure. If we were to calculate this country’s adaptation correlation index, as suggested in the prior chapter, it would probably be lower than the great majority of the free and civilized nations of this world, and possibly lower than some countries which have lost their freedom.

      A highly talented individual in the USA finds it ever more difficult to fight his way through to self-realization and a socially creative position. Universities, politics, and businesses ever more frequently demonstrate a united front of relatively untalented persons and even incompetent persons. The word “overeducated” is heard more and more often. Such “overqualified” individuals finally hide out in some foundation laboratory where they are allowed to earn the Nobel prize as long as they do not do anything really useful. In the meantime, the country as whole suffers due to a deficit in the inspirational role of highly gifted individuals.

      As a result, America is stifling progress in all areas of life, from culture to technology and economics, not excluding political incompetence. When linked to other deficiencies, an egoist’s incapability of understanding other people and nations leads to political error and the scapegoating of outsiders.

      ► “Constructivists would not necessarily disagree that interest has historically been defined in terms of power or that power has tended to drive international politics.”

      But he doesn’t define what he means by “power,” and there exist two distinct and totally conflicting traditions, equally ancient, of what “power” means. Is power violence? Or is power “people power”? He seems to assume that the only type of power is violence, and that the constructivist critique of this notion of power is something novel. It isn’t.

      1. DownSouth

        One of the most intriguing things about Nazi Germany is that even the Jews joined in the pathocracy. Oddly enough, or perhaps not odd at all, they had no special immunities to the mass insanity, no special prescience as to where it was all leading. Granted, pathocracy wasn’t as ubiquitous amongst the Jews as it was the non-Jews, because it seems to have limited itself to only the elite Jews. As one former inmate of Theresienstadt testified at the trial: “The Jewish people as a whole behaved magnificently. Only the leadership failed.” And, as Arednt goes on to lament, “To a Jew this role of the Jewish leaders in the destruciton of their own people is undoubtedly the darkest chapter of the whole dark story.”

        For this reason Arendt took great umbrage at the prosecution which, during the trial, put a number of peole on the stand as witnesses for the prosecution that had no moral authority to be there. “The procession started, in a futile attempt to proceed according to chronoligial order, with eight witnesses from Germany, all of them sober enough, but they were not “survivors”; they ahd been high-ranking Jewish officials in Germany and were now promient in Israeli public life, and they had all left Germany prior to the outbreak of war.”

  5. Matt

    Perhaps Nova Star was a bust out like Indy-Mac where the short sellers where as busy generating fraud inside the company at the same time they where complaining to the SEC and their co conspirators in the press. Marc Cohodes is alleged to be a friend of NY Times reporter Joe Nocera and sub prime MBS shortseller David Einhorn. Marc Cohodes was the co-manager at Rocker Partners which paid a 5 million dollar settlement to overstock.com.

    From what I read the NY Times and their reporters Nocera, Morgenson, and Rosner are a big part of the financial rip off of America when they are giving cover.

    As Yves has pointed out in the past, the real money was in creating the garbage securities or garbaging the companies while at the same time creating the leveraged/covered short position.


  6. Andrew

    What is interesting is that this ‘failure to regulate’ occurred at the very same time that the SEC was greatly failing the public in another case. Can anyone say Madoff?

    Either the Bush administration truly told the SEC to put the brakes on all enforcement actions or the problem goes much deeper. Perhaps the prior decades saw the financial sector sending it’s young to the SEC for jobs, telling them that they would be re-hired once they left their years of ‘public service’. This resulted in an agency that was chock full of comrades of the financial world. Combine this with a much-published focus on de-regulation by the Bush administration and you can have a Madoff and also a situation where the SEC was asleep at the wheel as our nation’s housing fraud scam was being committed.

    1. Jimbo

      Bush at least had the b—- to go after one of his pals, Kenny Boy, of Enron.

      President Obama should have gone after Steven Rattner. Instead, he tapped him to be Car Czar.

      Joe Klein of Time Magazine, a friend of Steven Rattner, has gone on the record stating that Steven Rattner is lucky to not be in jail.

  7. Skippy

    Régulateur échoue[?], nay they did just as they were supposed too.

    Skippy…realize that and it all make sense.

  8. RightToReply

    Clearly despite the many benefits money’s invention has given us it has been at the price of encouraging selfishness amongst many individuals as the financial chicanery on Wall Street supported by wealth’s corruption of democracy indicates. We can only hope the recognition that our freedom to choose needs to be restrained within a framework of the common good receives increasing support.

  9. Transparency Now!

    2002 –
    “Harvey Pitt, the chairman of the Securities and Exchange Commission recently pledged to aggressively enforce the regulations and laws against corruption in corporate financing and accounting. Pitt is a lawyer who previously represented some of the same corrupt corporations, accounting firms, stock brokerages and exchanges.”

    1. anon48@verzion.net

      And then Harvey Pitt refused to lift a finger to pursue those responsible for the largest accounting frauds in the history of the country up to that time (circa 2000)… At least, not until he was embarrassed into taking action by the success of the separate independent investigations being conducted at the same time by NY AG Eliot Spitzer.

      Those financial reporting frauds were massive (tens of billions of dollars) and there has been ample time since to complete thorough investigations. BUT…can you name a single accountant other than Andersen’s David Duncan who has since been prosecuted(btw – even he was eventually able settle the case while serving no jail time)?

    2. brian

      And if you look at Chris Cox’s legal career and clients before being elected to congress it should come as no surprise

  10. Chris

    I get depressed as I realize that those of us who inhabit sites like Yves are such a small percentage of voters that I wonder if anything will ever change without a meltdown so bad that 700 billion will be a drop in the bucket.

    I moved to South Carolina last year and boy has it been interesting, I could go on for hours how most the residents vote against their own interest, and when I point out this craziness to them I sometimes get a small flicker of “you know your right” then the fear of change and admitting that they have been used quickly overwhelms that flicker and we are back at square one. How we get the grotesque abuses of the financial community out of sites like this and into the viewfinders of the mobile home crowd spread across the south is something that keeps my head spinning. Fox news has shown me how incredibly vulnerable democracy is to disinformation from the press.

    Ok off for a 70mile bike ride in that deep south mobile home strewn conservative wasteland.

    1. jonboinAR

      Where I live Fox News rules, completely. Nearly every household watches it and no other cable news. I get hostility, mostly, when I tell others my views, not overt. People are polite, but a tension instantly arises. I think I’m considered unpatriotic. My wife lost several friends while sticking up for Obama. I’m no Obama fan, but that’s for reasons opposite to my neighbors. I don’t know how to handle it. Mostly I keep quiet.

    2. psychohistorian


      Watch those long bike rides and ride safe

      Rest assured (pun intended) that the bicycle industry is using the same disinformation tactics as the rest and if you get “numb down there” they will tell you it is just because your bike in not fitting you properly. This is in spite of overwhelming scientific evidence to the contrary that is suppressed.

      The rot we face is not just with any specific industry but with the underlying motivation, lack of transparency and immoral marketing/sales and associated perversion of the studies of sociology, psychiatry, etc.

      If we lived under a just God he would Rapture the rotten lot and let the rest of us pick up the pieces.

      1. ambrit

        Chris , jonboin, et cie;
        As a hybrid Euram who grew up in South Florida, (Cubas richest Province!) and ended up in Louisiana and now Mississippi, I can tell you to learn to laugh at it all. My sister, in phone conversations, often tells me to be more careful in my open Progressivism. But, I generally reply, what’s the use of living if you’re scared all of the time? It has taken me a long time to realize this, and even longer to act on the knowledge. No, I am not going to a Klan Rally wearing my Malcom X tee shirt, but then, there is a real line between bravado and circumspection. As for what has happened to the American character over the last thirty years, look up a neat article by James Fallows for the Atlantic called “Defining Down Deveiancy.”
        As for Fox News, anybody remember the Annenberg Gang? Don’t be surprised at anything that comes out of a company owned by Rupert Murdoch, a man once described publically as “That Nazi Rat B_____d from Australia.” The man lives down to his reputation, and trying mightily to pull us all down with him. Look up “It Can’t Happen Here,” for a thirties take on people like him. The more things change…

  11. Paul Tioxon



    “My intention in this article is to outline what I contend to be an emergent bottom-up model for
    reconstituting global civil society (GCS) that proves to be adaptive, decentralized and openly
    democratic. I also hope to continue the theoretical dialogue begun by many other authors in
    recent years.5 This developing reflexive and mutually responsive process guiding the Forums’
    development through its many manifestations around the globe I describe here as the ‘Porto
    Alegre Consensus’.6 This consensus is not a list of policy issues or action plans but instead
    an agreed-upon set of methods by those attending the Forums serving to guide the process by
    which this ‘globalization from below’ expands and is reconstituted to meet the threat posed
    by the global neo-liberal capitalism. Whereas the Washington Consensus guides economic
    policies such as deregulation, privatization, liberalization, fiscal discipline, tax reform and property
    rights to encourage rapid economic growth of the global economy (Williamson, 1990),
    the Porto Alegre Consensus serves to thicken linkages between GCS actors, liberate communicative
    action, and horizontally integrate the struggle for global social justice.”


    The prize is the mechanism of the nation state, its bureaucracy, the goal, to populate the democratically controlled republics with as many radical change agents as possible, and organize to do this during any opportunities, such as are being presented by the bloodied middle class, thrown out of the economy, and showing up in a state capital near you in growing numbers with greater frequency.

    NC can provide political strategy in developing policy, not meaningless reforms or call for policing the criminal behavior of Wall St execs. As you can see from the reports of the weakened SEC regulators, they were de-populated by professionals who were politically independent to enforce the law and preserve the system. You people are still not getting it. They are not corrupt because they do not enforce the laws to preserve the integrity of the system. The system, free market capitalism has been abandoned by the former capitalists them selves, because it does not work for them, to maintain their wealth, power and privilege and does not work for anyone else. In “The Predatory State”, Galbraith points out that the market system has been long abandoned. It is not the markets that need to be reformed, captured, it is the nation state bureaucracy that is the power source. If nothing else is learned from the Wall St Crisis and the bailouts, it is the power of the state to create and maintain the social order with the institutions it is constructed out of, especially The Fed. The reason why you see state AGs, DoJ and SEC law enforcement fail, is that they are populated entirely by people whose job it is to keep the social order intact in the face of collapsing profits, collapsing markets and make sure what few profitable or nation critical enterprises are preserved to fuel some profit generation, even if it breaks the letter of the law and the fundamental principles of property and the iron ideology of non government interference in the economy. You can’t make sense out of what is going on, because it is chaos, and that is not a system of thought.

    1. jonboinAR

      So what do you advocate in terms of “developing policy” as opposed to “meaningless reforms.” I’m not trying to wax sardonic or anything. I need to see this further explicated. I haven’t, in my mind, given up on what I would call “reforms”, but we have to define a difference. For example, I see one quite basic reform in advocating for a constitutional convention to formally revoke corporate personhood, to end the charade that corporations should be protected by the Bill of Rights.

      Organized activity is required desperately, I think. On this site and others, the problems are discussed in detail. This is very good. Ms. Smith has been providing a completely essential service. There is less discussion of possible solutions, and there is no talk of activity, but often a passive fatalism expressed. It may not be the purpose of this site, and a blog format may not be the best for organizing or for hashing out solutions.

      But won’t someone start something? I have mentioned this before and seen others as well. Such comments recieve fewer replies than any. I started a blog with my friend Carla, not knowing what else to do, but it’s one in millions and doesn’t seem to quite be the answer. I don’t think I have the blog-cred or depth of knowledge. Can someone here start a discussion forum?

  12. Francois T

    “Admittedly, the SEC has reason to take the claims of short-sellers with a grain of salt”


    For the life of me, I cannot understand the logic of this statement. Why should the SEC grant the claims of short-sellers with more skepticism of those of the longs? Aren’t both trying to make money?

    Aren’t there an enormous supply of longs selling us bullshit every darn day of the year, so that THEY can make money? Why should the SEC be more lenient toward these people? Patriotism perhaps?

    Don’t misread me here: I understand why the SEC handlers (read: Wall Street and the BAPFRAC**) want it that way. I just think it should be made explicit.

    I wonder how Barack and Timmy think they’re going to get away with this utter and willful neglect of this tremendous level of corruption and sleaze. They are sorely mistaken if they think the economy is going to get back on tracks faster by brushing all these colossal problems under the carpet.

    Those who know about these situations are right: as long as trust is not restored, there won’t be any semblance of a vibrant economy in this country.


    1. readerOfTeaLeaves

      Those who know about these situations are right: as long as trust is not restored, there won’t be any semblance of a vibrant economy in this country.

      Meanwhile, these people are so dumb they can’t protect the Golden Goose that’s fed them so nicely for so long?
      Stupidly self-defeating.

  13. Lloyd C. Bankster

    Team Kleptocracy, where are you??

    The comments today, on every thread, are running almost 100 percent against banksters and the SEC.

    Get out there and *do* something!!

  14. F. Beard

    Not only did it issue the drecky mortgages in impressive volumes, … Yves Smith

    Our money supply is lent into existence for interest that does not even exist in aggregate so even more debt is required to provide that interest. So unless more debt is issued then all loans are at risk of default.

    Our money system is a Ponzi Scheme that requires new borrowers to keep it going.

    Good luck with regulating that!

      1. F. Beard

        Let’s see:

        The current money system is mathematically unsustainable, forbidden by the Bible and the Koran, rooted in fraud, depends on theft of purchasing power from the entire population including and especially the poor, requires government privilege to survive and killed 50-86 million in WWII alone.

        But let’s keep trying to regulate it? We’ve been trying since 1694. When does the lesson “Thou shall not steal” sink in?

  15. Martskers

    Corruption at the SEC has not only not been
    abated, it’s been increased, thanks to the
    securities industry’s sweetheart, Mary Schapiro
    being put in charge. It was well known that
    Schapiro did the industry’s bidding when she
    was in charge of the “self-regulatory organization”
    known as the NASD (now known as FINRA). That’s why
    the Madoff whistleblower, Harry Markopolos, didn’t
    take his information to the NASD. He said, in
    his congressional testimony that, while the SEC
    was incompetent, the NASD was corrupt.

    So, how do you reward the steward of that corruption, Ms. Schapiro? Why, of course, by putting her in charge of the SEC. And anyone’s surprised about all the corruption that’s surfaced about that agency? Corruption at the SEC has been institutionalized by Mary Schapiro.

  16. raholco

    MERS loses against the IRS in MI on lien:


    (AP) RAPID CITY — It sometimes pays to check a map.

    Those are the exact words of a federal appeals court in a decision that bars a mortgage company from being first to put a lien on a property in northern Michigan.

    Mortgage Electronic Registration Systems, known as MERS, supplied a $400,000 mortgage to Tammy Church in 2006. The company filed an interest in Church’s property with the Kalkaska County recorder of deeds. But there’s a problem: The property is in Rapid City in Antrim County.

    By the time the mistake was discovered, the Internal Revenue Service had already filed liens for back taxes.

    The appeals court says the IRS deserves to stay first in line. The court says MERS is a sophisticated business and there’s no basis in law to overlook its error.

  17. Main Street Muse

    We’ve been seeing the destruction that comes when giant companies use “extremely aggressive accounting” at least since the collapse of Enron brought more turmoil to the markets than 9/11.

    And what have we done to discourage corporations from such practices? Not much apparently. Policy makers seem to think our economy can withstand multiple hits multiple times, but they’re wrong.

    And maybe there was lax regulation back when it was happening, but has the statute of limitations run out? Why aren’t any of these corrupt lenders on trial today? Where’s the change we need?

  18. ECON

    As a Canadian with several US friends, I have over a number of years been an admirer of many aspects of your country as well as being able to observe the contradictions. However it seems to me that there is more challenges ahead that will require “dumbed down” Americans to realize the real stakes for the country…that is all empires throughout history rot from within, not from the supposed enemy outside. America is sleepwalking through difficult times.

    1. Billy Bob

      And you are surprised??? Goldman was, and will be, Obama’s biggest donor. Surely you realize that Sen Schumer takes every Dem Senate candidate on a money raising circuit to the Upper East and West Sides every election cycle? Dude, the Dem party was captured long, long ago.

      The Dems exist as a collective group to extort money from the private sector to maintain their grasp on political power. 95% of the SEC bureaucrats work at the SEC in hope of landing a high-paying job at one of these big NY banks.

      And yet many people on this site seem to think that “more government” is the solution. Let’s face it: the US just isnt any good at doing government. We will never be Sweden. Get over it.

      Right now, Elizabeth Warren seems to be the darling of the left. Does anyone here want to bet that within 10 years she will take a seven-figure job at one of the big banks?

  19. Francois T

    After reading this article, it has become clear that Obama is not a President who just happen to make decisions that favor the powerful corporations. He IS a corporatist, through and through, or as Glenn Greenwald put it so aptly:

    [Obama] is a competent technocrat, a calculating imperial manager, able to rationally assess costs and benefits with a ruthless analytical stoicism.

    In other words, when comes the time to analyze the political balance sheet, Obama has no heart nor conscience: One must be like that to be able to give a SOTU address that is completely silent about the plight of millions of Americans in foreclosure while knowing full well that the great majority of them are not to blame.

    The rot from within will obliterate this country if things continue like they are now. I pity Obama’s successor.

    1. Billy Bob

      And you are surprised??? Goldman was, and will be, Obama’s biggest donor. Surely you realize that Sen Schumer takes every Dem Senate candidate on a money raising circuit to the Upper East and West Sides every election cycle? Dude, the Dem party was captured long, long ago.

      The Dems exist as a collective group to extort money from the private sector to maintain their grasp on political power. 95% of the SEC bureaucrats work at the SEC in hope of landing a high-paying job at one of these big NY banks.

      And yet many people on this site seem to think that “more government” is the solution. Let’s face it: the US just isnt any good at doing government. We will never be Sweden. Get over it.

      Right now, Elizabeth Warren seems to be the darling of the left. Does anyone here want to bet that within 10 years she will take a seven-figure job at one of the big banks?

  20. Ex-Lawyer

    And the whole securitization crowd (bankers, lawyers, sales, structurers) who rolled these loans into securities is still sitting pretty at several big banks: Bank of America, Barclays, Credit Suisse and UBS come to mind in addition to the better-known Goldman, JPM and Morgan Stanley…do they EVER get an inquiring phone call from the SEC about how these criminals can stay employed while each of these companies benefits from the tax-payer teat? Doubt it.

  21. bill o'rielly

    This reminds me of Confidence Game, Christine S Richards book about Bill Ackman.

    He was short MBIA, and complained profusely to the SEC.

    Instead, the SEC tried to sue him.

    IIRC, the NY State insurance industry’s incestuous relationship with various parties i.e. ratings agencies etc, was also involved.

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