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The Battle of the Titans: JP Morgan Versus Goldman Sachs

Posted by Admin on February 8, 2010

The Battle of the Titans: JP Morgan Versus Goldman Sachs
Or Why the Market Was Down for 7 Days in a Row
Global Research, January 29, 2010
Web of Debt – 2010-01-28

We are witnessing an epic battle between two banking giants, JPMorgan Chase (Paul Volcker) and Goldman Sachs (Geithner/Summers/Rubin). Left strewn on the battleground could be your pension fund and 401K.

The late Libertarian economist Murray Rothbard wrote that U.S. politics since 1900, when William Jennings Bryan narrowly lost the presidency, has been a struggle between two competing banking giants, the Morgans and the Rockefellers. The parties would sometimes change hands, but the puppeteers pulling the strings were always one of these two big-money players. No popular third party candidate had a real chance at winning, because the bankers had the exclusive power to create the national money supply and therefore held the winning cards.

In 2000, the Rockefellers and the Morgans joined forces, when JPMorgan and Chase Manhattan merged to become JPMorgan Chase Co. Today the battling banking titans are JPMorgan Chase and Goldman Sachs, an investment bank that gained notoriety for its speculative practices in the 1920s. In 1928, it launched the Goldman Sachs Trading Corp., a closed-end fund similar to a Ponzi scheme. The fund failed in the stock market crash of 1929, marring the firm’s reputation for years afterwards. Former Treasury Secretaries Henry Paulson, Robert Rubin, and Larry Summers all came from Goldman, and current Treasury Secretary Timothy Geithner rose through the ranks of government as a Summers/Rubin protégé. One commentator called the U.S. Treasury “Goldman Sachs South.”

Goldman’s superpower status comes from something more than just access to the money spigots of the banking system. It actually has the ability to manipulate markets. Formerly just an investment bank, in 2008 Goldman magically transformed into a bank holding company. That gave it access to the Federal Reserve’s lending window; but at the same time it remained an investment bank, aggressively speculating in the markets.  The upshot was that it can now borrow massive amounts of money at virtually 0% interest, and it can use this money not only to speculate for its own account but to bend markets to its will.

But Goldman Sachs has been caught in this blatant market manipulation so often that the JPMorgan faction of the banking empire has finally had enough. The voters too have evidently had enough, as demonstrated in the recent upset in Massachusetts that threw the late Senator Ted Kennedy’s Democratic seat to a Republican. That pivotal loss gave Paul Volcker, chairman of President Obama’s newly formed Economic Recovery Advisory Board, an opportunity to step up to the plate with some proposals for serious banking reform. Unlike the string of Treasury Secretaries who came to the government through the revolving door of Goldman Sachs, former Federal Reserve Chairman Volcker came up through Chase Manhattan Bank, where he was vice president before joining the Treasury. On January 27, market commentator Bob Chapmanwrote in his weekly investment newsletter The International Forecaster:

“A split has occurred between the paper forces of Goldman Sachs and JP Morgan Chase. Mr. Volcker represents Morgan interests. Both sides are Illuminists, but the Morgan side is tired of Goldman’s greed and arrogance. . . . Not that JP Morgan Chase was blameless, they did their looting and damage to the system as well, but not in the high handed arrogant way the others did. The recall of Volcker is an attempt to reverse the damage as much as possible. That means the influence of Geithner, Summers, Rubin, et al will be put on the back shelf at least for now, as will be the Goldman influence. It will be slowly and subtly phased out. . . . Washington needs a new face on Wall Street, not that of a criminal syndicate.”

Goldman’s crimes, says Chapman, were that it “got caught stealing. First in naked shorts, then front-running the market, both of which they are still doing, as the SEC looks the other way, and then selling MBS-CDOs to their best clients and simultaneously shorting them.”

Volcker’s proposal would rein in these abuses, either by ending the risky “proprietary trading” (trading for their own accounts) engaged in by the too-big-to-fail banks, or by forcing them to downsize by selling off those portions of their businesses engaging in it. Until recently, President Obama has declined to support Volcker’s plan, but on January 21 he finally endorsed it.

The immediate reaction of the market was to drop – and drop, day after day. At least, that appeared to be the reaction of “the market.” Financial analyst Max Keiser suggests a more sinister possibility. Goldman, which has the power to manipulate markets with its high-speed program trades, may be engaging in a Mexican standoff. The veiled threat is, “Back off on the banking reforms, or stand by and watch us continue to crash your markets.” The same manipulations were evident in the bank bailout forced on Congress by Treasury Secretary Hank Paulson in September 2008.

In Keiser’s January 23 broadcast with co-host Stacy Herbert, he explains how Goldman’s manipulations are done. Keiser is a fast talker, so this transcription is not verbatim, but it is close. He says:

“High frequency trading accounts for 70% of trading on the New York Stock Exchange. Ordinarily, a buyer and a seller show up on the floor, and a specialist determines the price of a trade that would satisfy buyer and seller, and that’s the market price. If there are too many sellers and not enough buyers, the specialist lowers the price. High frequency trading as conducted by Goldman means that before the specialist buys and sells and makes that market, Goldman will electronically flood the specialist with thousands and thousands of trades to totally disrupt that process and essentially commandeer that process, for the benefit of siphoning off nickels and dimes for themselves. Not only are they siphoning cash from the New York Stock Exchange but they are also manipulating prices. What I see as a possibility is that next week, if the bankers on Wall Street decide they don’t want to be reformed in any way, they simply set the high frequency trading algorithm to sell, creating a huge negative bias for the direction of stocks. And they’ll basically crash the market, and it will be a standoff.  The market was down three days in a row, which it hasn’t been since last summer. It’s a game of chicken, till Obama says, ‘Okay, maybe we need to rethink this.’”

But the President hasn’t knuckled under yet. In his State of the Union address on January 27, he did not dwell long on the issue of bank reform, but he held to his position. He said:

“We can’t allow financial institutions, including those that take your deposits, to take risks that threaten the whole economy. The House has already passed financial reform with many of these changes. And the lobbyists are already trying to kill it. Well, we cannot let them win this fight. And if the bill that ends up on my desk does not meet the test of real reform, I will send it back.”

What this “real reform” would look like was left to conjecture, but Bob Chapman fills in some blanks and suggests what might be needed for an effective overhaul:

“The attempt will be to bring the financial system back to brass tacks. . . . That would include little or no MBS and CDOs, the regulation of derivatives and hedge funds and the end of massive market manipulation, both by Treasury, Fed and Wall Street players. Congress has to end the ‘President’s Working Group on Financial Markets,’ or at least limit its use to real emergencies. . . . The Glass-Steagall Act should be reintroduced into the system and lobbying and campaign contributions should end. . . . No more politics in lending and banks should be limited to a lending ratio of 10 to 1. . . . It is bad enough they have the leverage that they have. State banks such as North Dakota’s are a better idea.”

On January 28, the predictable reaction of “the market” was to fall for the seventh straight day. The battle of the Titans was on.

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include Forbidden MedicineNature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.comwww.ellenbrown.com, and www.public-banking.com.

Ellen Brown is a frequent contributor to Global Research. Global Research Articles by Ellen Brown

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The Fix Is In For The Owners Of The Fed

Posted by Admin on January 28, 2010

The Fix Is In For The
Owners Of The Fed

From Joel Skousen
World Affairs Brief
3-13-9

http://www.rense.com/general85/own.htm

As the US Treasury Department continues to brag that the US has not yet been forced to make good on its guarantees of toxic debt held by the major insider banks (Citigroup, JP Morgan, Bank of America, etc) we find they have been using a back door to funnel money to their friends–AIG the world insurance giant holding the largest share of derivative contracts that guarantee those toxic debts against default.

In point of fact, those debts are defaulting in ever increasing number, and AIG is having to pay out billions. But, those billions are being replenished by additional bailout funds from the Treasury–while the rest of the nation suffers from lack of credit.

Why should the American taxpayer be bailing out gambling bets based on promises to pay that were utterly fraudulent? Now we find out that AIG is also the preferred avenue of funneling money into European banks.

Lastly, what do all these insider banks have in common? They constitute the private owners of the Federal Reserve. It all begins to make sense why only the largest banks are receiving these funds and why the regulators continue to squeeze the smaller banks with millions in new surcharges–forcing them into liquidation. The fix is in.

International law professor Richard Cummings, writing for Lew Rockwell.com, says, “Fed Chairman Ben Bernanke has resisted calls from Congress that he release the names of the banks that were recipients of the bailout money the Fed gave to AIG to prevent it from collapsing.

AIG insured its counterparties against losses from mortgage-backed derivatives. The Fed poured $85 billion into AIG, which paid out $37.3 billion of that money to counterparties that had purchased a certain type of derivative-based protection from AIG, called multi-sector credit default swaps.

“The counterparties have never been disclosed but the Wall Street Journal reported that they included Goldman Sachs, Merrill Lynch, UBS and Deutsche Bank. AIG and the Federal Reserve Bank of New York have unwound many of these contracts. To do this, they offered to buy the CDOs (collateralized debt obligations) that were originally insured by those agreements. The counterparties sold these assets at a discount, but were compensated in full in return for allowing AIG to extricate itself from the obligations. The counterparties also got to keep the $37.3 billion in collateral, according to the Wall Street Journal.

“While Bear Stearns was collapsing, Goldman Sachs boasted that it had insulated itself by buying insurance against the mortgage-backed derivatives. As it turns out, it was, in fact, rescued by the Fed when it bailed out AIG. In 2007, Lloyd Blankfein, Goldman Sachs’ CEO, received $70 million in compensation, including bonuses, $27 million in cash… At the time the New York Fed came to AIG’s assistance, Secretary of the Treasury Timothy Geithner was its head.

“Blankfein is still drawing down millions in compensation. The rationale for his compensation is the alleged profitability of Goldman Sachs, which raked in over $9 billion in 2006. It should also be noted that the bailout stopped Goldman stock from plummeting, thereby protecting not only Blankfein’s fortune, but that of Hank Paulson, the former chairman of Goldman Sachs, who was Secretary of the Treasury under George W. Bush.

“This is perhaps the greatest financial scandal in American history but most Americans are totally ignorant of it. On top of this, the AIG bailout enabled John Thain to pay out billions in bonuses while he headed Merrill Lynch, just prior to its sale to Bank of America, a recipient of billions of bailout money, this while the unemployment rate is headed towards ten percent and the market collapse has caused losses in the trillions. Were the names of the banks made officially public, there would be cries of outrage so loud as to be deafening, making any further bailouts dubious for political reasons.

“And while Bernanke has said that he would not permit the big banks to fail, the looting of America by some of the richest and most powerful people, such as Blankfein and Thain, goes on, with no end in sight. Pandit the bandit now says Citigroup is profitable, enabling its stock to rise above a dollar, generating a temporary euphoria in the market. The cheers going up on CNBC can be heard all the way to Warren Buffett’s coffers. And American tax payers are not only bailing out the American banks, they are also bailing out Europe.”

Toni Reinhold of Reuters answers “Who got AIG’s bailout billions?” “The Wall Street Journal reported… that some of the banks paid by AIG since the insurer started getting taxpayer funds were: Goldman Sachs Group Inc, Deutsche Bank AG, Merrill Lynch, Societe Generale, Calyon, Barclays Plc, Rabobank, Danske, HSBC, Royal Bank of Scotland, Banco Santander, Morgan Stanley, Wachovia, Bank of America, and Lloyds Banking Group.” I think it’s the large number of foreign banks that would be particularly irritating to the public if it knew the extent of this largess.

WHO OWNS THE FED?

Jim Quinn unravels for us the real link between all this insider dealing. Who really owns the Federal Reserve. It’s not the US government and its not you the taxpayer. “The average American does not know much about the Federal Reserve. The government and the Federal Reserve prefer to operate in the shadows. If the American public understood what their policies have done to their lives, they would be rioting in the streets. Henry Ford had a similar opinion: ‘It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.’

“Most Americans believe that the Federal Reserve is part of the government. They are wrong. It is a privately held corporation owned by stockholders. The Federal Reserve System is owned by the largest banks in the United States. There are Class A, B, and C shareholders. The owner banks and their shares in the Federal Reserve are a secret. Why is this a secret? It is likely that the biggest banks in the country are the major shareholders. Does this explain why Citicorp, Bank of America and JP Morgan, despite being insolvent, are being propped up by Ben Bernanke and Timothy Geithner?” It does, indeed.

Tony Rheinholt continues: “The U.S. Federal Reserve has refused to publicize a list of AIG’s derivative counterparties and what they have been paid since the bailout, riling the U.S. Senate Banking Committee. Federal Reserve Vice Chairman Donald Kohn testified before that committee on Thursday that revealing names risked jeopardizing AIG’s continuing business. Kohn said there were millions of counterparties around the globe, including pension funds and U.S. households.” What this means is that AIG is only paying out on SOME of its obligations, and US Pension funds are NOT on that list. In other words, the bailout monies are only going to a select few. AIG has absorbed $180B so far, with no end in sight, no transparency, and no sign of changing this pattern.

Proof that we haven’t even turned the corner yet comes from Greg Gordon and Kevin G. Hall of McClatchy Newspapers (itself a losing enterprise like dozens of other print media): “America’s five largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show. Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan Chase reported that their ‘current’ net loss risks from derivatives —- insurance-like bets tied to a loan or other underlying asset —- surged to $587 billion as of Dec. 31. Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.”

Not counted in those write downs, of course, are the funds they are getting through the back door, which are not accounted for publicly. “While the potential loss totals include risks reported by Wachovia Bank, which Wells Fargo agreed to acquire in October, they don’t reflect another Pandora’s Box: the impact of Bank of America’s Jan. 1 acquisition of tottering investment bank Merrill Lynch, a major derivatives dealer.”

SQUEEZING THE SMALL SOLVENT BANKS

The next part of the fix is the most evil, in my opinion. The Fed and the US Treasury have given trillions of paper dollars to insider banks, and yet they are letting the FDIC run short of money so that this “insurer” of the public’s deposits ($250,000 and below) can have an excuse to jack up the insurance premiums (surcharges) to member banks. These new “temporary” fees are more than most small bank profits, and will ensure that these banks fail.

As Paul Kiel writes in ProPublica, “It’s looking increasingly like the FDIC will have to turn to Treasury to help it weather the storm… FDIC’s deposit insurance fund has plummeted in the past year as a growing number of banks have failed. The fund relies on fees from member banks, and Bair held out hope that a recent bump in those feeswould provide enough cushion. But if it doesn’t, Bair said, people shouldn’t be nervous about their FDIC-insured accounts: ‘It is important for people to understand, we’re backed by the full faith and credit of the United States government. The money will always be there. We can’t run out of money.'” Then why has the fee increased? Why penalize the banks that have been conservative, and limited their growth for safety?

Bill Butler describes the “squeeze play” going on: “FDIC Chairwoman Sheila Bair announced last week that the quasi-public insurance monopoly would become insolvent in the next few months if it is not allowed to implement a one-time, draconian surcharge on all U.S. banks. This charge will, in some cases, wipe out last year’s profits. At the same time, the FDIC has requested an additional $500 billion ‘loan’ from Congress [notice that a loan requires the member banks to pay it off. A bailout would not. They choose to ask only for the loan as a justification for the surcharge].

“Small, solvent, well-run local and regional banks have objected. They rightly claim that they are not the problem. These banks have a solid and growing deposit base and many of them service their own loans and so did not get caught in the trap of originating bad loans and dumping them on the secondary mortgage market in federally-guaranteed bundles. Whether they know it or not, these banks intuit that, like Social Security, there is no FDIC “fund.” FDIC insurance, like social security, is just another government-coerced Ponzi scheme — a tax that, according to former FDIC commissioner Bill Isaac, goes immediately to the Treasury to buy “spending . . . on missiles, school lunches, water projects, and the like.”

“Rather than increasing their taxes and punishing their relatively good behavior, these small banks suggest that the FDIC look first to Bailout Banks, the Wall Street mega-banks that have received nearly a trillion dollars in unearned, government-supplied capital via the printing press, for any increased insurance premium/tax. Ms. Bair rejected these pleas by claiming that FDIC law does not allow her to ‘discriminate’ against banks based on their size. Clever [Actually, there is a basis for discrimination since the larger one’s 1) caused the problem and 2) are the recipients of taxpayer backed funds]. What is really going is that the Bailout Banks are using the government and its insurance monopoly to help them gain market share by drastically increasing the operating costs of their smaller, better-run and scrappy competitors.” We are about to see the worst banks absorb the smaller sound banks–a great injustice, and totally engineered.

(End Excerpt)

World Affairs Brief – Commentary and Insights on a Troubled World.

Copyright Joel Skousen. Partial quotations with attribution permitted.

Cite source as Joel Skousen’s World Affairs Brief http://www.worldaffairsbrief.com

World Affairs Brief, 290 West 580 South, Orem, Ut 84058, USA

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The Real AIG Scandal

Posted by Admin on January 28, 2010

The Real AIG Scandal

Tuesday 17 March 2009

by: Eliot Spitzer  |  Visit article original @ Slate Magazine

http://www.abovetopsecret.com/forum/thread446765/pg1

It’s not the bonuses. It’s that AIG’s counterparties are getting paid back in full.

Everybody is rushing to condemn AIG’s bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman’s collapse, they feared a systemic failure could be triggered by AIG’s inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

Also see below:

Hedge Funds May Be Getting a Bailout via AIG’s Payments•

It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG’s counterparties are justified with an appeal to the sanctity of contract. If AIG’s contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.

But wait a moment, aren’t we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes – income taxes to sales taxes – to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won’t be laid off. Why can’t Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn’t we already give Goldman a $25 billion capital infusion, and aren’t they sitting on more than $100 billion in cash? Haven’t we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn’t they have accepted a discount, and couldn’t they have agreed to certain conditions before the AIG dollars – that is, our dollars – flowed?

The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.

So here are several questions that should be answered, in public, under oath, to clear the air:

# What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?

# Was it already known who the counterparties were and what the exposure was for each of the counterparties?

# What did Goldman, and all the other counterparties, know about AIG’s financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn’t they bear a percentage of the risk of failure of their own counterparty?

# What is the deeper relationship between Goldman and AIG? Didn’t they almost merge a few years ago but did not because Goldman couldn’t get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG’s business model was not to pay on insurance it had issued.

# Why weren’t the counterparties immediately and fully disclosed?

Failure to answer these questions will feed the populist rage that is metastasizing very quickly. And it will raise basic questions about the competence of those who are supposedly guiding this economic policy.

——–

Eliot Spitzer is the former governor of the state of New York.

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Hedge Funds May Be Getting a Bailout via AIG’s Payments

Wednesday 18 March 2009

by: Dow Jones  |  Visit article original @ Dow Jones

New York – The fact that some payments made by American International Group Inc. (AIG) to hedge funds are coming from government bailout money raises a question: Are hedge funds receiving a de facto bailout?

If the answer is yes, it would signify the first taxpayer money yet to reach hedge funds since the financial crisis began back in late 2007. Hedge funds – investment pools made up primarily of high net worth individuals, pension funds and university endowments – have suffered like most during the crisis, but have pointed out with pride that as of yet their industry hasn’t requested any government handouts.

Officially, of course, any payments made by AIG to hedge funds wouldn’t change that fact. It was AIG that requested the bailout, not the hedge funds. The insurance giant is now simply meeting its contractual obligations.

In some cases, AIG has already paid out fairly hefty amounts to hedge funds with U.S. taxpayer funds. AIG said in a press release Sunday that it paid $200 million each in “public aid” to Citadel Investment Group and Paloma Securities. These payments were made to settle short-term trades last year in which the hedge funds loaned AIG cash in exchange for bonds.

Also, as reported Wednesday in The Wall Street Journal, AIG reportedly may be paying out many different hedge funds for bets in which the hedge funds waged that the housing market would crater against AIG’s bets that it would remain robust.

It isn’t clear how much in total that hedge funds stand to gain through the AIG payments, but the payments call into question the government’s decision, whether out of haste or for any other reason, to allow the AIG bailout money to be dispersed to any counterparties, including hedge funds.

“Taxpayer money is being paid to hedge funds by a Treasury that could have limited the payments to domestic banks but decided not to risk letting anyone big fail,” said John Coffee, a professor of securities law at Columbia University. “In short, everyone of importance is being protected.”

Not all observers see a problem.

While Edward Altman, a professor of finance at New York University’s Stern School of Business, questions the use of taxpayer funds to pay huge bonuses to AIG executives (another controversy surrounding the AIG bailout), he doesn’t see a problem with the hedge-fund payments.

“The ‘bailout’ funds are doing exactly what they were intended to…pay off [ AIG’s] bills on a timely basis so as not to cause any further harm to the system,” he said. “Otherwise, what’s the purpose of the bailout? It should have been clear that this involves [payments to] hedge funds.”

——–

By Dan Molinski, Dow Jones Newswires; 201-938-2245.

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