Financial Times: Dodd Readies His Financial Reform Bill In Senate

Chris Dodd, chairman of the Senate banking committee, on Sunday called on Republicans not to block financial regulatory reform as he prepared to push forward with new legislation.

Ever since the September 2008 collapse of Lehman Brothers, members of the US Congress have been debating how to better regulate the US financial system.

• Alternet.org: The Video That Will Put Geithner Behind Bars by Mike Whitney

The NY Fed, and likely Geithner himself, undermined, perhaps even violated, laws designed to protect investors and markets.

You gotta see this! If this doesn’t convince you that Timothy Geithner knew about the securities shenanigans that were going on at Lehman, than I don’t know what will.

Keep in mind, that Geithner ran Lehman through 3 “stress tests” prior to bankruptcy; all of which Lehman failed, and yet, nothing was done. Anton R. Valukas–the examiner who wrote the 2,200 page investigative-report which was released on Thursday– has provided plenty of information detailing Lehman’s “materially misleading” accounting and “actionable balance sheet manipulation.”

In other words, they cooked the books. [More here →]

Frank Partnoy in Naked Capitalism Today on how Lehman Valued its investments etc.

“But an even more troubling section of the Lehman report is not Volume 3 on Repo 105. It is Volume 2, on Valuation. The Valuation section is 500 pages of utterly terrifying reading. It shows that, even eighteen months after Lehman’s collapse, no one – not the bankruptcy examiner, not Lehman’s internal valuation experts, not Ernst and Young, and certainly not the regulators – could figure out what many of Lehman’s assets and liabilities were worth. It shows Lehman was too complex to do anything but fail.

• Max Keiser: Lehman’s “Peekaboo” Accounting

• Findings on Lehman Take Even Experts by SurpriseNew York Times – Michael J. de la Merced

• The Fudge FactoryBy Alan Abelson – Barrons

“A hard look at how Lehman masked the horrors of its balance sheet…”

A few choice words: “HOCUS-POCUS. That, it emerges, sank Lehman Brothers and damn near the entire financial system, to say nothing of the economy as a whole. So charged a court-appointed examiner named Anton Valukas, may his tribe increase, in a 2,200-page bombshell of a report made public on Thursday by U.S. Bankruptcy Judge James Peck.”

• Telegraph: J P Morgan and Citigroup contributed to Lehman’s collapse, says US examiner

JP Morgan Chase and Citigroup helped cause the illiquidity that led to the collapse of Lehman Brothers, the bankrupt bank’s examiner said today in a report filed in Manhattan federal court.

• The Lehman Implosion: Cooking The Books Was ‘Like A Drug’

• The London Link To The Lehman Coverup

• 60 Minutes: Inside The Collapse, Part 1 [More here →] Full transcript.

RELATED:

• VanityFair.com: Betting on the Blind Side

Excerpted from The Big Short: Inside the Doomsday Machine, by Michael Lewis, to be published this month by W. W. Norton; © 2010 by the author.

In early 2004 a 32-year-old stock-market investor and hedge-fund manager, Michael Burry, immersed himself for the first time in the bond market. He learned all he could about how money got borrowed and lent in America. He didn’t talk to anyone about what became his new obsession; he just sat alone in his office, in San Jose, California, and read books and articles and financial filings. He wanted to know, especially, how subprime-mortgage bonds worked. A giant number of individual loans got piled up into a tower. The top floors got their money back first and so got the highest ratings from Moody’s and S&P, and the lowest interest rate. The low floors got their money back last, suffered the first losses, and got the lowest ratings from Moody’s and S&P. Because they were taking on more risk, the investors in the bottom floors received a higher rate of interest than investors in the top floors. Investors who bought mortgage bonds had to decide in which floor of the tower they wanted to invest, but Michael Burry wasn’t thinking about buying mortgage bonds. He was wondering how he might short, or bet against, subprime-mortgage bonds. [More here →]

• BEWARE THE DOUBLE-DIP–CHINA

BEIJING (AP) — China’s premier says the world might face a “double dip” recession due to continued high unemployment and risks in financial systems. Premier Wen Jiabao made the comments Sunday following the close of China’s annual legislative session. He cited high unemployment in some countries, risks in finance, government debt problems and instability in exchange rates and commodity prices.

Wen said: “All these may cause setbacks in the course of promoting recovery in the global economy and may even lead to a double dip.”

• NC: Yves Smith: THE LOOTING GOES ON

A year on from its brush with Armageddon, the financial services industry has resumed its reckless, self-serving ways It isn’t hard to see why this has aroused simmering rage in normally complacent, pro-capitalist Main Street America. The budget commitments to salvaging the financial sector come to nearly $3 trillion, equivalent to more than $20,000 per federal income tax payer. To add insult to injury, the miscreants have also availed themselves of more welfare programs in the form of lending facilities and guarantees, totaling nearly $12 trillion, not all of which will prove to be money well spent.

Wall Street just looted the public on a massive scale. Having found this to be a wondrously lucrative exercise, it looks set to do it all over again.

• HP: Robert Reich, The Sham Recovery

• Rolfe Winkler: Net Worth Up For Some But Risks Remain

This week was a positive one for paper wealth. Forbes reported on Wednesday that the average net worth of the world’s billionaires jumped 17 percent to $3.5 billion apiece. More mundane quarterly data from the U.S. Federal Reserve on Thursday showed that American households’ collective wealth rose 5.4 percent in 2009. Trouble is, governments everywhere are propping up markets and asset values, and recent increases in wealth could easily evaporate.

The newly accumulated wealth is more than usually vulnerable for at least two reasons. First, monetary policymakers the world over have lavished easy money on their financial sectors to limit the effects of the recent credit crunch and recession. That has helped markets and investment portfolios to recover. But inflationary pressures or bond market jitters sparked by massive government borrowing — or both — will before long force interest rates up, removing the monetary punch bowl and potentially sending some markets into reverse.

• Credit Writedowns: Elizabeth Warren: GMAC did not pose a systemic risk

So why did we rescue this institution with a massive bailout? Elizabeth Warren, who chairs the Congressional Oversight panel of the TARP program, doesn’t understand any more than taxpayers do. This is another example of the malinvestment and zombie finance which bailouts have fostered.

Here’s a question for you: if GMAC was a U.S. auto financing company, why was it speculating in mortgage finance… in Spain? That’s what I was asking back in July:

I would love to know what GMAC is doing in the Spanish mortgage market. Considering GMAC just got a second bailout in May, American taxpayers have the right to know what GMAC is doing and where. Wrong country, wrong industry segment. It’s good to see Elizabeth Warren asking similar questions about the need to bailout GMAC in the video below. It runs six minutes.

HOLLYWOOD: THE NEXT TARGET FOR SUBPRIME SPECULATION

Mother Jones has the story:

• The Wall Street wizards who gave you credit default swaps want to turn the movie industry into their next casino — By Nick Baumann

If you thought the mortgage-backed securities and other complex financial instruments that crashed the economy were risky, you’ll love Wall Street’s latest brainwave: a new financial market in which players can gamble on whether upcoming Hollywood movies will be blockbusters or bombs.

For years, Cantor Fitzgerald, a Wall Street investment firm, has been operating the “Hollywood Stock Exchange,” a fake-money game in which players trade “stocks” to bet on how films will do at the box office. Now Cantor could soon get government permission to make a real-money version of the game—a market in which players can gamble on the success or failure of, say, Pirates of the Caribbean 4. Critics are worried that this new market could be vulnerable to insider trading and create bizarre incentives for moviemakers—and that it will also enlarge the risky family of financial products that helped trigger the economic crisis. [More here →]

Last week, I carried a report that Cantor Fitzgerald, the firm that lost many people in the World Trade Center collapse, has been up to some shady business but I have been told there are many questions still unanswered about this firm. Below, a confidential report on the shenanigans, according to a source I trust:

CONFIDENTIAL

Cantor Fitzgerald has not yet paid the HSX Holdings Inc. shareholders a penny for the “deal” that transpired in 2001.

Background:

A “transaction” occurred in 2001 – that transferred HSX Holdings Inc. voting rights to Cantor – giving the hundreds of investors – who invested $40 mn. dollars into HSX from 1996 – exactly NOTHING.

When queried by lawyers, Cantor claims they lost all the paper work in the 9/11 attacks (they moved the company from Santa Monica Ca. to the top floor of the WTT during the Spring of 2001).

What I know is that a board member of HSX – Woody Knight of SBS (Scandinavian Broadcasting Service) – engaged in a pre-arranged, third party transaction that passed voting control to Howard Lutnick at Cantor – in exchange for $2 million in eSpeed stock (Cantor’s publicly listed entity at the time) that was immediately sold to ‘wash’ the sale.

Cantor is now going to launch ‘box office futures contracts’ based on intellectual property and technology they don’t have the rights to – with the blessing of the CFTC.

According to my sources who are close to this – the CFTC – run by Gary Gensler – a former Goldman guy (of course) – took 25 mn. in ‘lobbying’ fees from Cantor to get these new contracts green lit. But did they do any due diligence? Did they spot the absence of any bona fide transaction between HSX and Cantor?

Does the world really need more weapons-of-mass-financial- destruction from the sickos on Wash. and the CFTC?

Why should we assume that Cantor will operate this market honestly when the circumstances of their “ownership” including the patented “Virtual Specialist” technology used for online CDA (Continuous Double Auction) technology, are dubious at best, if not outright fraud.

Will anyone be able to resist these new products that combine tinsel with wall st.?

Is this the new bubble the CFTC hopes will take people’s mind’s off the current spate of fraud on Wall St.?

Also, can you think of a market that is any easier to manipulate by insiders?

We understand that a former CEO of HSX got calls from people like Jeffrey Katzenberg asking to move prices of their projects up to change the perception in the market place (and media) and to free up more marketing dollars.

Just one example of many, many ways to game this market.