Americans Pay Subprime Debt created by Hedge Fund Crooks

[Guest Macon Phillips]

Why did the federal regulators wait until June 2007 to propose warnings for consumers about subprime mortgages when they knew about the problem back in December 2005?

[Guest Rainer Roth]

The social market economy blows the wealth of this society in speculation rather than in higher wages, higher pensions or unemployment benefits. The state is handed over more and more to its financial sponsors.

 

At this point there is no democratic control of the financial markets. Thes markets consist of unknown effects of unknown decisions of an unknown number of unknown people who act on unknown private calculations. By their nature, markets are uncontrollable because they are anarchic.

[Guest danarothrock]

The repeal of the Glass-Steagall Act in 1999 (Gramm-Leach-Bliley Act) allowed commercial banks, investment banks, and insurers to merge (which would have violated antitrust laws under Glass-Steagall).

 

Result: Too Big To Fail

 

The Commodity Futures Modernization Act of 2000 deregulated derivatives trading.

 

Result: Unregulated Securities, off-balance-sheet trading, no oversight.

 

The Legal Certainty for Bank Products Act of 2000 (Title III - Legal Certainty for Swap Agreements) divorced the granters of subprime mortgage loans from any obligation to ever collect on them.

 

Result: wide array of new rip-off schemes, sub-prime mortgages, credit default swaps

 

Sum Total: Wall Street Casino, again, and the collapse of the world’s economies

[Guest Terrapin Alumnus]

"Why do world governments protect the hedge fund industry and assist criminals?"

 

That's an excellent question and astute observation LAW - I'm wondering what the answer is to that question myself - I'll do some research and post back here.

 

TA

[Guest Terrapin Alumnus]

I can't find anything... not yet ... would anyone care to help me out?

 

TA

[Guest Fedup]

Maybe this example will give you better insight.

 

http://www.nj.com/news/ledger/jersey/index.ssf?/base/news-14/1253406305116930.xml&coll=1

 

Governor's hedge fund investment questioned

Sunday, September 20, 2009

Josh Margolin and Claire Heinin

STAR-LEDGER STAFF

 

Gov. Jon Corzine has a stake in a private hedge fund related to the corporate owner of four New Jersey casinos, an investment Republican critics contend presents at least the appearance of a conflict for a multimillionaire governor who has vowed to steer clear of them.

 

Corzine and his advisers say the investment was properly reported and does not violate state regulations that bar the governor and senior state officials from business relationships with casino operators. They say the hedge fund's holdings are kept separate from those of its founding company, which bought Harrah's Entertainment in late 2006.

[Guest Tula]

We need to bring the “shadow markets” into the daylight. Most people—like Michael Moore’s Wall Street guy—probably don’t really know what hedge funds, private equity funds and derivatives are or do. You’re not supposed to—it makes them easy to manipulate. They’ve been unregulated and totally lacking in transparency. These vehicles need serious regulation and oversight before they suck more money into the black hole of convoluted transactions.

[Guest Markov]

Too bad there is not better disclosure requirements. I would like to know how the big banks did without market manipulation.

[Guest American for Progress]

President Barack Obama stepped up his campaign against Wall Street on Thursday with a far-reaching proposal for tougher regulation of the biggest banks.

 

[Guest Fedup]

This is a good step in the right direction, but will Congress pass the legislation. We know they are very corrupt. Now that our corrupt Supreme Court nullified campaign finance reform I am willing to bet the Bank CEO's will start making sizable donations to politicians that vote against financial reform.

[Guest Busy Bee]

President Obama I was not with you on Health Care, but I am on Financial Reform. Congress needs to create laws that make absolutely clear the difference between investment and gambling. It seems to me that since the early 1980's we've moved steadily from an investment model to a gambling model. The gambling model has now produced winners (GS,BoA,WF etc.. and let's not forget those bonus recipients!) and losers (small investors, taxpayers and millions of unemployed).

[Guest HUD]

Today, the average household spends more than half of its budget on housing and transportation. They have become American families' two single biggest expenses.

 

During the housing boom, real estate agents suggested to families that couldn't afford to live near job centers that they could find a more affordable home by living farther away. Lenders bought into the "Drive to Qualify" myth as well -- giving easy credit to homebuyers without accounting for how much it might cost families to live in these areas or the risk they could pose to the market.

 

And then, an odd thing happened when these families moved in -- they found themselves driving dozens of miles to work, to school, to the movies, to the grocery store, spending hours in traffic and spending nearly as much to fill their gas tank as they were to pay their mortgage -- and in some places, more.

[Guest SEC]

State Street has agreed to settle the SEC's charges by paying more than $300 million that will be distributed to investors who lost money during the subprime market meltdown in 2007. This payment is in addition to nearly $350 million that State Street previously agreed to pay to investors in State Street funds to settle private claims.

 

"State Street led investors to believe that their investments were more diversified than a typical money market portfolio, when instead they were invested almost entirely in subprime investments that ultimately caused hundreds of millions of dollars in losses," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Investigating potential securities law violations arising out of the credit crisis remains a high priority for the SEC Enforcement Division."

 

The enforcement action is the result of joint efforts by the SEC with the Massachusetts Securities Division and the Massachusetts Attorney General's office, which both announced related charges against State Street today.

 

David P. Bergers, Director of the SEC's Boston Regional Office, said, "State Street informed certain investors and left others in the dark about their subprime mortgage exposure. This global settlement will ensure that harmed investors are compensated."

 

According to the SEC's complaint filed in federal court in Boston and a related administrative order issued by the Commission, State Street established its Limited Duration Bond Fund in 2002 and marketed it as an "enhanced cash" investment strategy that was an alternative to a money market fund for certain types of investors.

 

By 2007, however, the fund was almost entirely invested in subprime residential mortgage-backed securities and derivatives that magnified its exposure to subprime securities. But State Street continued to describe the fund to prospective and current investors as having better sector diversification than a typical money market fund, and failed to disclose the extent of the fund's concentration in subprime investments.

 

According to the SEC's complaint and order, State Street sent investors a series of misleading communications beginning in July 2007 concerning the effect of the turmoil in the subprime market on the Limited Duration Bond Fund and other State Street funds that invested in it. At the same time, however, State Street provided particular investors with more complete information about the fund's subprime concentration and other problems with the fund. These other investors included clients of State Street's internal advisory groups, which provided advisory services to some investors in this fund and related funds.

 

The SEC alleges that, based on this more complete information, State Street's internal advisory groups subsequently decided to recommend that all of their clients including the pension plan of State Street's publicly-traded parent company (State Street Corporation) redeem their investments from the fund and the related funds. The SEC alleges that State Street sold the fund's most liquid holdings and used the cash it received from these sales to meet the redemption demands of better informed investors, leaving the fund and its remaining investors with largely illiquid holdings.

 

Under the terms of the settlement, State Street agreed to pay a $50 million penalty, more than $8.3 million in disgorgement and prejudgment interest, and more than $255 million in additional payments to compensate investors. Combined with nearly $350 million that State Street has already paid or agreed to pay some investors through settlements of private lawsuits, the total compensation to harmed State Street investors is approximately $663 million.

 

State Street also was ordered to cease and desist from any further violations of certain securities laws. The SEC's enforcement action took into account the company's remediation and its cooperation, including:

 

* Replacement of key senior personnel and portfolio managers.

* Conducting a review of its procedures and revised its risk controls.

* Entering into private settlements with harmed investors.

* Recent agreement — pursuant to a limited privilege waiver — to provide information it was not otherwise obligated to provide to enable the SEC to assess the potential liability of individuals with respect to certain investor communications.

 

The SEC's investigation is ongoing. The Commission appreciates the assistance of the offices of Secretary of the Commonwealth of Massachusetts William F. Galvin and Massachusetts Attorney General Martha Coakley.

[Guest LAW]

Financial Fraud Enforcement Task Force Announces Results of Broadest Mortgage Fraud Sweep in History

 

Attorney General Eric Holder, FBI Director Robert Mueller, Housing and Urban Development Inspector General (HUD-OIG) Kenneth M. Donohue, and other members of the Financial Fraud Enforcement Task Force today announced the results of a nationwide takedown, Operation Stolen Dreams, which targeted mortgage fraudsters throughout the country and is the largest collective enforcement effort ever brought to bear in confronting mortgage fraud.

 

The sweep was organized by President Obama’s interagency Financial Fraud Enforcement Task Force, which was established to lead an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. Starting on March 1, to date Operation Stolen Dreams has involved 1,215 criminal defendants nationwide, including 485 arrests, who are allegedly responsible for more than $2.3 billion in losses. Additionally, to date the operation has resulted in 191 civil enforcement actions which have resulted in the recovery of more than $147 million.

 

"Mortgage fraud ruins lives, destroys families and devastates whole communities, so attacking the problem from every possible direction is vital," said Attorney General Holder. "We will use every tool available to investigate, prosecute and prevent mortgage fraud, and we will not rest until anyone preying on vulnerable American homeowners is brought to justice."

 

"From home buyers to lenders, mortgage fraud has had a resounding impact on the nation’s economy," said FBI Director Robert S. Mueller III. "Those who prey on the housing market should know that hundreds of FBI agents on task forces and their law enforcement partners are tracking down your schemes and you will be brought to justice."

 

"The last several years have seen enormous and damaging developments in the mortgage and housing markets, and the government has stepped in to bolster unstable marketplaces and devastated communities," said Inspector General Donohue. "The HUD-OIG, in partnership with other agencies, is deeply committed to ensuring that scarce resources are not diverted to those who seek to enrich themselves at the expense of those who so desperately need assistance today."

 

Unlike previous mortgage fraud sweeps, Operation Stolen Dreams focused not only on federal criminal cases, but also on civil enforcement, recovering money for victims and increasing cooperation with state and local partners. The operation was conducted in conjunction with the Department of Justice – including the FBI, U.S. Attorneys Offices, the U.S. Trustee Program and other components – as well as the Department of Housing and Urban Development, the Department of the Treasury, the Federal Trade Commission, the Internal Revenue Service, the U.S. Postal Inspection Service, the U.S. Secret Service, the National Association of Attorneys General and the National District Attorneys Association.

 

The President’s Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

[Guest Sen. Sanders is a HERO]

"I think they're really touching a nerve," Sen. Bernie Sanders said Tuesday of protests on Wall Street that have inspired demonstrations from Burlington, Vt., to Los Angeles. "The nerve is that the average American understands that as a result of the greed and the recklessness and the illegal behavior on Wall Street, these guys plunged us into the horrendous recession that we're in right now." Even Federal Reserve Chairman Ben Bernanke allowed that there was "excessive risk taking" by Wall Street when Sanders questioned him on Tuesday about the root causes of the recession and the concerns voiced by protesters. "They blame, with some justification, the financial sector with getting us into this mess," Bernanke told another member of the Joint Economic Committee. "I can't blame them," he added.