Economic Stories of Relevance in Today's World -- April 17, 2011

Simon Johnson Explains "What The Banks Did To Us" And Why "Seriously -- Goldman Sachs Can't Fail" - Business Insider - Courtney Comstock | Apr. 11, 2011 - "What's the public loss? Larry Summers said from this podium yesterday that the TARP money would be repaid from banks and that's probably true, but that's not the cost. Is it 8 million jobs lost? Is it a 6% fall in unemployment and we're still 5% down below the peak? Is it the increase in net federal government debt held by the private sector in the United States?


In Financial Crisis, a Dearth of Prosecutions Raises Alarms - New York Times - By GRETCHEN MORGENSON and LOUISE STORY - April 14, 2011 - It is a question asked repeatedly across America: why, in the aftermath of a financial mess that generated hundreds of billions in losses, have no high-profile participants in the disaster been prosecuted? ...

As nonprosecutions go, perhaps none is more puzzling to legal experts than the case of Countrywide, the nation’s largest mortgage lender. Last month, the office of the United States attorney for Los Angeles dropped its investigation of Mr. Mozilo after the S.E.C. extracted a settlement from him in a civil fraud case. Mr. Mozilo paid $22.5 million in penalties, without admitting or denying the accusations... Historically, Countrywide’s bank subsidiary was overseen by the comptroller, while the Federal Reserve supervised its home loans unit. But in March 2007, Countrywide switched oversight of both units to the thrift supervisor. That agency was overseen at the time by John M. Reich, a former banker and Senate staff member appointed in 2005 by President George W. Bush... Robert Gnaizda, former general counsel at the Greenlining Institute, a nonprofit consumer organization in Oakland, Calif., said he had spoken often with Mr. Reich about Countrywide’s reckless lending... “We saw that people were getting bad loans,” Mr. Gnaizda recalled. “We focused on Countrywide because they were the largest originator in California and they were the ones with the most exotic mortgages.” ... In a January 2010 memo, Brad Bondi and Martin Biegelman, two assistant directors of the commission, outlined their recommendations for investigative targets and hearings, according to Tom Krebs, another assistant director of the commission. Countrywide and Mr. Mozilo were specifically named; the memo noted that subprime mortgage executives like Mr. Mozilo received hundreds of millions of dollars in compensation even though their companies collapsed... However, the two soon received a startling message: Countrywide was off limits. In a staff meeting, deputies to Phil Angelides, the commission’s chairman, said he had told them Countrywide should not be a target or featured at any hearing, said Mr. Krebs, who said he was briefed on that meeting by Mr. Bondi and Mr. Biegelman shortly after it occurred. His account has been confirmed by two other people with direct knowledge of the situation...

A year later — with precious time lost — several lawmakers decided that the government needed more people tracking financial crimes. Congress passed a bill, providing a $165 million budget increase to the F.B.I. and Justice Department for investigations in this area. But when lawmakers got around to allocating the budget, only about $30 million in new money was provided.


Former JPMorgan Executive Llodra May Face SEC Suit Over 2007 CDO Marketing - Bloomberg - Joshua Gallu and Jody Shenn - Apr 12, 2011 - The SEC has been probing whether JPMorgan, the second biggest U.S. bank by assets, and Steffelin’s former firm, GSC Group, misled investors about hedge-fund Magnetar Capital LLC’s possible role in selecting underlying assets in the $1.1 billion Squared deal, according to a person briefed on the matter who spoke on condition of anonymity because the probe isn’t public... The probe is part of the SEC’s wider investigation of how banks packaged and sold mortgage-linked investments as the housing market unraveled in 2007. The agency has targeted firms at various stages of that process, ranging from loan originators such as Countrywide Financial Corp., to underwriters including Goldman Sachs Group Inc. (GS), which agreed to pay $550 million last year to resolve claims it misled investors in a subprime-linked CDO.



Goldman Traders Tried to Manipulate Derivatives Market in '07, Report Says - Christine Harper and Joshua Gallu - Apr 13, 2011 - Company documents show traders led by Michael J. Swenson sought to encourage a “short squeeze” by putting artificially low prices on derivatives that would gain in value as mortgage securities fell, according to the report yesterday by the Permanent Subcommittee on Investigations. The idea, abandoned after market conditions worsened, was to drive holders of such credit-default swaps to sell and help Goldman Sachs traders buy at reduced prices, according to the report...  Goldman Sachs traders abandoned the short-squeeze attempt after discovering on June 7, 2007, that two Bear Stearns Cos. hedge funds that specialized in subprime-mortgage investments were collapsing. Salem e-mailed Swenson and another colleague to suggest trying to buy short positions, known as “protection,” on collateralized debt obligations, or CDOs, from hedge fund Magnetar Capital LLC, according to the subcommittee’s report. 


IMF warns US to make a 'down payment' on deficit - Richard Blackden, US Business Editor - Apr 13, 2011 - The US should make a 'down payment' this year on tackling its budget deficit, the International Monetary Fund has warned, as it emerged that the world's biggest bond investor is shorting the country's bonds... "Without attacking entitlements - Medicare, Medicaid and Social Security - we are smelling $1 trillion deficits as far the nose can sniff," Mr Gross (Pacific Investment Management Co (Pimco)) said in the firm's monthly outlook.



More Americans leaving workforce - USA TODAY - By Dennis Cauchon - April 14, 2011 - Only 45.4% of Americans had jobs in 2010, the lowest rate since 1983 and down from a peak of 49.3% in 2000. Last year, just 66.8% of men had jobs, the lowest on record.... The bad economy, an aging population and a plateau in women working are contributing to changes that pose serious challenges for financing the nation's social programs... "What's wrong with the economy may be speeding up trends that are already happening," says Marc Goldwein, policy director of the Committee for a Responsible Federal Budget, a non-partisan group favoring smaller deficits.


Corrupted!: 5 Shocking Examples Of Government Corruption That Will Blow Your Mind - The Economic Collapse Blog - $38.5 Billion In Budget Cuts Is Really Just $352 Million In Deficit Reduction? ... The Federal Reserve Sent Billions In Bailout Aid To Millionaires and Billionaires In The Cayman Islands ... Mitt Romney Declares That He Will Not Be Going After Ben Bernanke Or The Federal Reserve ... Nancy Pelosi Declares That "Elections Shouldn't Matter" ... 6 Year Old Girl Molested By The TSA