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July 10, 2010
Issue 104  -  More Evidence of Media Corruption
 
I wrote awhile back about the "deep capture" of our media and how they are controlled by the elite.  This week I have several examples of this.  The media is predominantly owned by very large corporations, which in and of itself, is a conflict of interest.  The media is supposed to be the people's watch dog.  That's why there is a first amendment.  Instead they are now the mouth piece of controlling powers.  Exhibit A:
 
More Corruption: Bear Stearns Falsified Information as Raters Shrugged
May 14 2010, 2:25 PM ET |  Comment
   Made up FICO scores? Twenty-minute speed ratings to AAA? If government prosecutors like New York Attorney General Andrew Cuomo want answers to why the mortgage-backed securities market was so screwed up, they should talk to Matt Van Leeuwen from Bear Stearn's servicing arm EMC. 
   Reports indicated on Thursday that Cuomo is pursuing a criminal investigation surrounding banks supplying bad information to rating agencies about the quality of the mortgages they signed off on. But so far he hasn't been able to prove where in the chain of blame the due diligence for the ratings broke down.
   What Cuomo needs to establish is: whose shoulders does it fall on to verify the information lenders were selling to investment banks about the quality of their loans? And who was ultimately responsible for the due diligence on the loans that created toxic mortgage securities that were at the heart of our financial crisis?
False Information and the Grey Area
   Employed during the go-go years of 2004-2006, and speaking in an interview taped by BlueChip Films for a documentary in final production called Confidence Game, Van Leeuwen sheds some light onto the shenanigans going on during the mortgage boom that might surprise even Cuomo.     As a former mortgage analyst at Dallas-based EMC mortgage, which was wholly owned by Bear Stearns, he had first-hand experience working with Bear's mortgage-backed securitization factory. EMC was the "third-party" firm Bear was using to vet the quality of loans that would purchase from banks like Countrywide and Wells Fargo. 
   Van Leeuwen says Bear traders pushed EMC analysts to get loan analysis done in only one to three days. That way, Bear could sell them off fast to eager investors and didn't have to carry the cost of holding these loans on their books.
   According to two EMC analysts, they were encouraged to just make up data like FICO scores if the lenders they purchased loans in bulk from wouldn't get back to them promptly. Every mortgage security Bear Stearns sold emanated out of EMC. The EMC analysts had the nitty-gritty loan-level data and knew better than anyone that the quality of loans began falling off a cliff in 2006. But as the cracks in lending standards were coming more evident the Bear traders in New York were pushing them to just get the data ready for the raters by any means necessary.
In another case, as more exotic loans were being created by lenders, the EMC analyst didn't even know how to classify the documentation associated with the loan. This was a data point really important to the bonds ratings. When Bear would buy individual loans from lenders the EMC analyst said they couldn't tell if it should be labeled a no-doc or full doc loan. Van Leeuwen explains, "I wasn't allowed to make the decision for how to classify the documentation level of the loans. We'd call analysts in Bear's New York office to get guidance." Time was of the essence here. "So, a snap decision would be made up there (in NY) to code a documentation type without in-depth research of the lender's documentation standards," says Van Leeuwen. 
   Two EMC analysts said instead of spending time to go back to the lender and demand clarification, like if verification of income actually backed these loans, the executives at Bear would just make the loan type fit. Why? One EMC analyst explains, "from Bear's perspective, we didn't want to overpay for the loans, but we don't want to waste the resources on deep investigation: that's not how the company makes money. That's not our competitive advantage -- it eats into profits."
Twenty Minutes for AAA
   It's easy to paint Bear as the only villain here -- but what were the rating agencies thinking?
Susan Barnes of Standards and Poor's testified before Congress last month saying banks like Bear were responsible for due diligence in the transactions described above: "For the system to function properly, the market must rely on participants to fulfill their roles and obligations to verify and validate information before they pass it on to others, including S&P." 
   Yet, was it reasonable for agencies to stand behind ratings when due diligence was done by an affiliate of Bear? That's like buying a car from a guy whose mechanic brother said it was great, and then finding out it was a lemon.
   Equally amazing was how responsive the raters were even on the big deals. Van Leeuwen says, "The raters would provide a rating on a $1 billion security in 20-30 minutes." Describing it as "a rubber stamp," Van Leeuwen said that the ratings agencies slavish devotion to their computer models "was vital" because it allowed Bear to "cram mortgages through the process." 
   The greatest asset Bear had in its quest to squeeze every ounce of profit from the mortgage-backed securities market was the methodology of the big ratings agencies. The bankers knew what kind of loan detail was needed to get that coveted AAA rating. After they prepped the rating agencies for what they 'thought' the loans would look like, they would buy loans in bulk, and then spend a day scrubbing them. 
   Bear's decision to cut corners and to fail to take the time to make sure the raters got correct information about the quality of loans was a big no-no. But rating bonds based on fast reactions, instead of thoughtful analysis and reliable due diligence, also might place some responsibility on the agencies' shoulders.
 
Notice the date on this story.  Nearly a month old and I'll bet you didn't even hear about it.  This story basically says that the ratings agencies were in cahoots with the banks to manufacturer paper that was vastly over rated.  Just as background, any time a debt instrument is issued, often called paper, a "rating" is sought from one of the main ratings agencies.  The higher the rating, the more interest that can be charged.  The ratings agencies are given a fee to give a rating.  See a conflict of interest?  Here is a cheatsheet which shows most of the ratings for the 3 major agencies:
 
 
 
 
As you can see, AAA is the highest and obviously most sought after rating.  Some entities such as pension funds CAN'T buy anything not rated AAA.  To get this rating should require intense, detailed scrutiny, and yet, the story talks of these mortgage "products" getting a AAA in as little as twenty minutes during the housing bubble. 
 
This resulted in billions of dollars in extra profit for the banks and institutions selling them.  This also resulted in millions of dollars of profit for the ratings agencies.  See a problem there?  Oh, and lastly, it resulted in a lot of pensions getting the short end of the stick once these "AAA" investments started blowing up.  One would think that a story like this would be shouted from the roof tops, and yet it gets virtually no coverage.  Our media is captured and controlled.  Here's a video with further evidence:
 
 
Damon Vickers mentions the plunge protection team, which is basically common knowledge, and the hosts and the other guest act like he's got three heads!  The government is involved in EVERY market and it couldn't be more obvious, and yet these supposedly smart people can't see it?  I don't believe they are all that dumb.  They know it is not something you talk about, if you want to move up the corporate ladder.  They are captured, whether that want to be or not.  Their behavior makes it obvious.
 
Here's a chart from Contraryinvestor.com which you'll never hear about on any major network:
 
 
Looking at the charts here, it doesn't look like consumers are ready to start buying like crazy.  In fact, all of these levels are near, or at, new lows.  Yet the media sings a happy song of consumer recovery and other refrains of nonsense.  We are being played for dupes, but what else is new?  How big of dupes have we been played for?  Here is a very straightforward, step by step layout of the con:  From oftwominds.com:
 

1. Enable trillions of dollars in mortgages guaranteed to default by packaging unlimited quantities of them into mortgage-backed securities (MBS), creating umlimited demand for fraudulently originated loans.

2. Sell these MBS as "safe" to credulous investors, institutions, town councils in Norway, etc., i.e. "the bezzle" on a global scale.

3. Make huge "side bets" against these doomed mortgages so when they default then the short-side bets generate billions in profits.

4. Leverage each $1 of actual capital into $100 of high-risk bets.

5. Hide the utterly fraudulent bets offshore and/or off-balance sheet (not that the regulators you had muzzled would have noticed anyway).

6. When the longside bets go bad, transfer hundreds of billions of dollars in Federal guarantees, bailouts and backstops into the private hands which made the risky bets, either via direct payments or via proxies like AIG. Enable these private Power Elites to borrow hundreds of billions more from the Treasury/Fed at zero interest.

7. Deposit these funds at the Federal Reserve, where they earn 3-4%. Reap billions in guaranteed income by borrowing Federal money for free and getting paid interest by the Fed.

8. As profits pile up, start buying boatloads of short-term U.S. Treasuries. Now the taxpayers who absorbed the trillions in private losses and who transferred trillions in subsidies, backstops, guarantees, bailouts and loans to private banks and corporations, are now paying interest on the Treasuries their own money purchased for the banks/corporations.

9. Slowly acquire trillions of dollars in Treasuries--not difficult to do as the Federal government is borrowing $1.5 trillion a year.

10. Stop buying Treasuries and dump a boatload onto the market, forcing interest rates to rise as supply of new T-Bills exceeds demand (at least temporarily). Repeat as necessary to double and then triple interest rates paid on Treasuries.

11. Buy hundreds of billions in long-term Treasuries at high rates of interest. As interest rates rise, interest payments dwarf all other Federal spending, forcing extreme cuts in all other government spending.

12. Enjoy the hundreds of billions of dollars in interest payments being paid by taxpayers on Treasuries that were purchased with their money but which are safely in private hands.

 

Since the Federal government could potentially inflate away these trillions in Treasuries, buy enough elected officials to force austerity so inflation remains tame. In essence, these private banks and corporations now own the revenue stream of the Federal government and its taxpayers. Neat con, and the marks will never understand how "saving our financial system" led to their servitude to the very interests they bailed out.

The circle is now complete: in "saving our financial system," the public borrowed trillions and transferred the money to private Power Elites, who then buy the public debt with the money swindled out of the taxpayer. Then the taxpayers transfer more wealth every year to the Power Elites/Plutocracy in the form of interest on the Treasury debt. The Power Elites will own the debt that was taken on to bail them out of bad private bets: this is the culmination of privatized gains, socialized risk.

In effect, it's a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.

 
How's that for a trick?  Buy control of the country with it's own money.   I think I'm going to be ill.  And the beat goes on.  The controlled media tell us little to nothing of what's actually going on as America is plundered by rogues and thieves. 
 
Not wanting to finish this week on a downer, here's a little pick me up video, Have a great week!