Category Archives: Regulations and regulators

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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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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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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AIG Bailout Trial and Whoppers, Um, Crisis Revisionist History

If nothing else, the legal slugfest over whether the US government did former AIG CEO Hank Greenberg a dirty by imposing tough terms on the failed insurer and giving the kid gloves treatment to the teetering-on-the-brink banks who were certain to be engulfed by an AIG collapse will be highly entertaining. Ben Bernanke, Hank Greenberg, and Timothy Geithner are all scheduled to go on the stand next week, to be grilled by America’s top trial lawyer, David Boies.

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Bill Black: Fed Failure – A “Perfectly Legal” Scam is Perfectly Unacceptable to Real Regulators

Yves here. In this post, Bill Black does the yeoman’s work of stepping through one revelation in Fed whistleblower Carmen Segarra’s tapes from some of her discussions with more senior colleagues at the New York Fed. A critical section involves how Fed officials became aware of the fact that Goldman had slipped language into an already-closed transaction with the Spanish bank Santander that indicated that the Fed had been informed of the deal and had not objected, neither of which was the case. The staffers tried to rouse themselves to challenge Goldman on this misrepresentation, and lost their nerve.

But as bad as letting Goldman roll the Fed on the matter of non-existant non-objections is concerned, Black stresses the much more serious underlying failure: Goldman had created the impression that the Fed was kosher with Goldman helping Santander fool European bank regulators by pretending it was more solvent than it was. The effort to game banking regulations is an even bigger deal than the effort to pretend the Fed was all on board. Black blasts the clearly captured New York Fed “relationship manager” Mikel Silva in gratifying detail.

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Fed Whistleblower Carmen Segarra, Snowden, and the Closing of the Journalistic Mind

The financial press has been awash with coverage of This American Life’s broadcast of key section of 46 hours of tapes made in secret by former New York Fed bank examiner Carmen Segarra. The broadcast and related reporting at ProPublica show how utterly craven the central bank was when it came to matters Goldman.

Now you might say, isn’t this media firestorm a great thing? It’s roused Elizabeth Warren and Sherrod Brown to demand hearing. The Fed has been toadying up to Wall Street for years. Shouldn’t we be pleased that the problem is finally being taken seriously?

Actually, no.

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Mathew D. Rose: “We Need A Banking Revolution”

Yves here. Please note that Don’t Start from Here: We Need a Banking Revolution has been released in the UK and was scheduled for publication in the US in early September but apparently is not yet for sale. I hope readers will keep an eye out for it, because it appears to fill a void, that of describing in high-level accurate terms why the banking system no longer works for society at large, how post-crisis banking reforms missed the mark, and what measures need to be put in place.

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