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    This message brought to you by the vast right wing conspiracy.

  • #2
    http://www.cnn.com/2009/US/01/...explainer/index.html

    How a 'perfect storm' led to the economic crisis


    (CNN) -- The U.S. economy is clearly in terrible shape. What is less clear is how we got here.

    An index of home prices in 20 major metropolitan areas fell at a record annual pace in November of 2008, according to a recent report.

    Opinions vary on when and where to begin the story, but many experts trace the origins of the current economic situation to the housing bubble that came about earlier this decade.

    Housing prices jumped at a rate above 6 percent in 1999 and increased rapidly and steadily as the decade turned, according to a recent study by the Brookings Institution.

    "After the mid-1990s ... real house prices went on a sustained surge through 2005, making residential real estate not only a great investment, but it was also widely perceived as a very safe investment," the study said.

    The prices eventually moved "out of line with fundamentals like household income" and the bubble formed, the study said. Read the complete Brookings study

    There were two trends developing at that time that contributed to the housing bubble, experts said.

    The Federal Reserve Board, to combat the recession of 2000-01 and the economic effects of the September 11 terrorist attacks, began drastically slashing interest rates.

    Consequently, it was very easy to borrow money, especially if you wanted to buy a home.

    Meanwhile, global investors -- flush with cash from the worldwide economic boom of the 1990s and '00s -- were looking to the U.S. economy to make even more money.

    "You have a group of people growing richer by leaps and bounds," said Peter Rodriguez, an economist at the University of Virginia. "And they liked the idea of parking some cash in the biggest, safest economy in the world."

    Enter mortgage-backed securities

    Wall Street firms sought to connect the rich investors with the rapidly expanding housing market with the help of complicated financial instruments.

    These instruments -- such as mortgage-backed securities we've heard so much about -- made it easier to move the investors' funds into the housing market, which fed the extraordinary price sprial, Rodriguez said.

    "It began to really take on a life of its own when people saw how much money they could make in housing," he said. "Before long, everybody was pushing along the momentum of this train."

    So how do these mortgage-backed securities work and what role did they play?

    Let's say there are three prospective homebuyers in a neighborhood. A local bank makes mortgage loans to all three, then bundles up the mortgages and sells the bundle to a big Wall Street firm, like the now-bankrupt Lehman Brothers.

    The Wall Street firm takes its bundles of mortgages and offers them to investors. The investors make money off the interest payments from the original borrowers.

    These instruments helped minimize risk for the local bank because it was no longer responsible for the loans it made to the local homebuyers.


    It was an intoxicating era when you could make a lot of money quickly through the housing market, and you did it through the "basic idea of leverage," Rodriguez said.

    He provided an example: You take out a mortgage loan for $100,000 and make a 20 percent down payment, which would equal $20,000.

    If the price of the house goes up to $120,000, you've effectively doubled your money. If you sell at that price -- assuming there are no transaction costs -- you walk away with an extra $20,000.

    Leverage works the same way for banks. They borrow from other banks or other institutions so that they can hand out more loans and make more money.

    "This encourages all sorts of risky behavior by individuals looking to buy homes, and it encourages banks to lend because, in an environment where prices rise, they're making lots of money, too," Rodriguez said.

    The housing collapse

    Economists say not everyone can -- or should -- buy a home, but that didn't to stop many homebuyers, banks or Wall Street firms during the housing bubble, when the only way for prices and profits was up.

    Some banks and other institutions were even eager to lend money to prospective homebuyers with poor credit and a spotty financial history who would not typically qualify for loans.

    These transactions are known as "subprime" mortgage loans. They generally have interest rates that are above "prime" interest rates available to borrowers with good credit.

    On its face, there is nothing devious or illegal about a high interest "subprime" loan. Its simply a case of lender taking on a higher risk and receiving a higher interest rate in return.

    However, nearly half of the loans made in 2006 were of the subprime variety, which increased the risk of borrowers defaulting on many banks' balance sheets.

    "Prime mortgages dropped to 64 percent of the total in 2004, 56 percent in 2005 and 52 percent in 2006," the Brookings study notes.

    Even so, many banks and brokerage firms continued bundling the mortgages, many of them bad loans, and Wall Street kept buying them and selling them to investors. And the people who could have put a brake on the increasing amount of risk -- the agencies that regulate the U.S. financial sector -- weren't paying attention.

    "As long as everyone was paying their mortgage, that was fine," said Ali Velshi, CNN's chief business correspondent. "[But] we didn't take into account with these mortgages that people might lose their jobs, the interest rate might go up and the housing prices may go down.

    "Guess what? All three happened."

    Housing prices started trending downward, and by 2007 the bubble had burst.

    "You're a homeowner or a bank, and you're trying to sell your property, but everything else on the block is for sale, too," Velshi said. "Everything collapsed like we've never seen before."

    The credit crisis

    Knee-deep in bad loans, many banks and lending institutions panicked. Many of them were over-leveraged, experts say; simply put, they had borrowed beyond what was responsible and were now on the hook.

    Another way to understand it is that for every dollar a bank may have had in the vault, it had $10 to $25 floating in the market in loans, and a good bit of that money was tied up in bad loans.

    The banks sought to decrease that ratio by either getting rid of the bad loans or raising more money, Rodriguez said.

    The problem with dumping the loans on the market is that "it lowers the price, and anyone else who has them is suddenly in even worse shape," he said.

    It was a "death spiral of prices," and it spread like a virus across the financial sector, from legendary Wall Street firms like Bear Stearns and Lehman Brothers to local and regional banks and brokerage firms across the country, Rodriguez said.

    As stockholders found out about the bad loans these firms were carrying, they pulled their money out. The markets plummeted.

    Meanwhile, paralyzed by their bad assets and looking to hoard cash, banks stopped lending. It didn't matter if you were an individual with good credit, a healthy business or another bank.

    The American financial system was effectively frozen.

    "It was a perfect storm," Velshi said. "It was a lack of regulation, it was greed and creativity in the financial industry, and it was an American dream that got off track."

    Comment


    • #3
      This was bound to happen. Thanks to Dems for Community Reinvestment Act, suing Citi Corps etc. These filthy politicians are making millions and living peacefully, but it will be US - USA TAX PAYERS, who will ultimately pay the price of their dirty politics and selfishness.
      If Democrats Had Any Brains, They'd Be Republicans

      Democrats - Brave enough to KILL our unborn, just NOT our ENEMIES!

      Comment


      • #4
        Originally posted by davdah:
        You are now a renter


        WASHINGTON (Dow Jones)--Fannie Mae (FNM) and Freddie Mac (FRE) extended their freeze on evictions through the end of February and said they would begin granting month-to-month leases to tenants of foreclosed properties.

        Freddie Mac said it would go further and allow certain former homeowners to convert to renters under a new program. Freddie Mac also said it would explore whether former owners that were foreclosed upon might be able to hang onto their homes by reinstating their mortgage at modified terms.

        "In about half of foreclosure sales there is no conversation between the borrower and the mortgage servicer about workouts," Ingrid Beckles, Freddie's senior vice president of default asset management, said in a statement.

        The mortgage giants announced the moves in separate press releases Friday. Each company's moratorium on foreclosures for the loans it owns or guarantees was set to expire this coming Saturday.

        Fannie Mae said it would offer month-to-month leases only to tenants of single-family foreclosed properties. Freddie, meanwhile, did not say its policy would exclude multi-family properties.

        Freddie said tenants and former owners must demonstrate they have the income to pay the monthly rent. For tenants, the amount would be based on market rents or the amount the tenant was paying prior to foreclosure, whichever is lower. Former owner-occupants would be offered month-to-month leases based on market rates. -By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com


        Many of the owners of these foreclosed properties have been renting out to tenants and pocketing the money. Is this mont to month lease being offered to tenants living in the house or to the actual owners of the properties/ or both scenarios ?

        what a deal... eh.. First we took all your money in form of mortgage , foreclosed... when you defaulted.., but now you can stay by us reinstating your payment plan.. but this time you get no equity/ownership.

        The New american dream folks


        <span class="ev_code_RED">Oh sorry.. I read last paragraph that answered my question. Well in that case, listen to this scenario.. The homes will become section 8 qualified and then 90% of the rent will be paid from government to "new landlord" </span>

        Only in America

        Comment


        • #5
          I can easily see us printing $1 Trillion bill and it will be in circulation by the time Obama leaves office. Hey he did good and lived up to his word. He made all of us rich. Before we had $100s in our bank, now we have trillions.
          If Democrats Had Any Brains, They'd Be Republicans

          Democrats - Brave enough to KILL our unborn, just NOT our ENEMIES!

          Comment


          • #6
            I take it Davdah, you never heard of the options market. That is where the most common derivatives are used. Derivitives can be risky, just ask the former Orange County Treasurer in 1987 when Orange County defaulted. But they are used to help reduce risk from losses. Banks can have directives holding in commodities, real estate, monetary instruments, etc, as long as they do not market that same product to consumers directly through the bank.

            Again, banks are not lending because they are recouping the losses they incurred. The natural, capitalistic market response to these losses is to now have stricter lending for a while. That is the main reason why banks are not lending, whether the government helped or not. So I guess you will have to wait awhile too Davdah.
            "Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence." John Adams on Defense of the boston Massacre

            Comment


            • #7
              AP Investigation: Banks sought foreign workers


              By FRANK BASS and RITA BEAMISH, Associated Press Writers Frank Bass And Rita Beamish, Associated Press Writers – 2 hrs 9 mins ago
              In this Sept. 26, 2007, file photo Sen. Charles Grassley, R-Iowa, talks to AP – In this Sept. 26, 2007, file photo Sen. Charles Grassley, R-Iowa, talks to reporters in his Capitol Hill …
              Related Quotes Symbol.

              SANTA CLARA, Calif. – Banks collecting billions of dollars in federal bailout money sought government permission to bring thousands of foreign workers to the U.S. for high-paying jobs, according to an Associated Press review of visa applications.

              The dozen banks receiving the biggest rescue packages, totaling more than $150 billion, requested visas for more than 21,800 foreign workers over the past six years for positions that included senior vice presidents, corporate lawyers, junior investment analysts and human resources specialists. The average annual salary for those jobs was $90,721, nearly twice the median income for all American households.

              The figures are significant because they show that the bailed-out banks, being kept afloat with U.S. taxpayer money, actively sought to hire foreign workers instead of American workers. As the economic collapse worsened last year — with huge numbers of bank employees laid off — the numbers of visas sought by the dozen banks in AP's analysis increased by nearly one-third, from 3,258 in fiscal 2007 to 4,163 in fiscal 2008.

              The AP reviewed visa applications the banks filed with the Labor Department under the H-1B visa program, which allows temporary employment of foreign workers in specialized-skill and advanced-degree positions.

              It is unclear how many foreign workers the banks actually hired; the government does not release those details. The actual number is likely a fraction of the 21,800 foreign workers the banks sought to hire because the government limits the number of visas it grants to 85,000 each year among all U.S. employers.

              During the last three months of 2008, the largest banks that received taxpayer loans announced more than 100,000 layoffs. The number of foreign workers included among those laid off is unknown.

              Foreigners are attractive hires because companies have found ways to pay them less than American workers.
              USC and Legal, Honest Immigrant Alike Must Fight Against Those That Deceive and Disrupt A Place Of Desirability! All Are Victims of Fraud, Both USC and Honest Immigrant Alike! The bad can and does make it more difficult for the good! Be careful who y

              Comment


              • #8
                Originally posted by davdah:
                <BLOCKQUOTE class="ip-ubbcode-quote"><div class="ip-ubbcode-quote-title">quote:</div><div class="ip-ubbcode-quote-content">Originally posted by Hudson:
                I take it Davdah, you never heard of the options market. That is where the most common derivatives are used. Derivitives can be risky, just ask the former Orange County Treasurer in 1987 when Orange County defaulted. But they are used to help reduce risk from losses. Banks can have directives holding in commodities, real estate, monetary instruments, etc, as long as they do not market that same product to consumers directly through the bank.

                Again, banks are not lending because they are recouping the losses they incurred. The natural, capitalistic market response to these losses is to now have stricter lending for a while. That is the main reason why banks are not lending, whether the government helped or not. So I guess you will have to wait awhile too Davdah.

                Although dialog is appreciated the arrogance should be muted a bit. Yes, I've heard of options and futures. And to to say 'Again'? Didn't I comment already concerning where much of the bailout money is going? See a few posts up in the 'credit default swap' post. Thankfully and perhaps because of my prudence I don't need to borrow.

                BTW, it's derivative, not directives. </div></BLOCKQUOTE>
                Davdah,
                Part of my response was a tongue in check to your response

                To be frank, your articles and your postings about what "truly caused" the fiasco has really nothing to do with it. Again, quoting from Larry Kudlow, even thought he is an economist, is not exactly what is happeining.

                The first bailout plan of $250B was necessary by almost every economist in the banking industry. Yet, I knew the banks would still come to restricted credits. Thus, your alluding that banks holding derivatives, the FBR report, and the article about Sen Dodd, has nothing to do with why banks are not lending. The FBR report is a lagging indicator in a bearish market. Any slight of hand, any hint of negativity, and stocks will drop. That is how Wall Street operates.

                But if you truly want to know the reasons why, read the New York Fed Report on banking reports. Here is something for you to read by the FDIC Chairman. Or you can look at this.

                In either case, neither are really toward the TARP or to "poor poeple" or to "minorities" which is what Larry Kudlow wants you to believe.
                "Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence." John Adams on Defense of the boston Massacre

                Comment


                • #9
                  http://www.cnn.com/2009/POLITI...s.worries/index.html

                  updated 4:38 p.m. EST, Mon February 2, 2009

                  What GOP Leaders deem wasteful in Senate stimulus bill

                  (CNN) -- On Monday, House Republican leaders put out a list of what they call wasteful provisions in the Senate version of the nearly $900 billion stimulus bill that is being debated:

                  The Senate is currently the nearly $900 billion economic stimulus bill.

                  • $2 billion earmark to re-start FutureGen, a near-zero emissions coal power plant in Illinois that the Department of Energy defunded last year because it said the project was inefficient.

                  • A $246 million tax break for Hollywood movie producers to buy motion picture film.

                  • $650 million for the digital television converter box coupon program.

                  • $88 million for the Coast Guard to design a new polar icebreaker (arctic ship).

                  • $448 million for constructing the Department of Homeland Security headquarters.

                  • $248 million for furniture at the new Homeland Security headquarters.

                  • $600 million to buy hybrid vehicles for federal employees.

                  • $400 million for the Centers for Disease Control to screen and prevent STD's.

                  • $1.4 billion for rural waste disposal programs.

                  • $125 million for the Washington sewer system.

                  • $150 million for Smithsonian museum facilities.

                  • $1 billion for the 2010 Census, which has a projected cost overrun of $3 billion.

                  • $75 million for "smoking cessation activities."

                  • $200 million for public computer centers at community colleges.

                  • $75 million for salaries of employees at the FBI.

                  • $25 million for tribal alcohol and substance abuse reduction.

                  • $500 million for flood reduction projects on the Mississippi River.

                  • $10 million to inspect canals in urban areas.

                  • $6 billion to turn federal buildings into "green" buildings.

                  • $500 million for state and local fire stations.

                  • $650 million for wildland fire management on forest service lands.

                  • $1.2 billion for "youth activities," including youth summer job programs.

                  • $88 million for renovating the headquarters of the Public Health Service.

                  • $412 million for CDC buildings and property.

                  • $500 million for building and repairing National Institutes of Health facilities in Bethesda, Maryland.

                  • $160 million for "paid volunteers" at the Corporation for National and Community Service.

                  • $5.5 million for "energy efficiency initiatives" at the Department of Veterans Affairs National Cemetery Administration.

                  • $850 million for Amtrak.

                  • $100 million for reducing the hazard of lead-based paint.

                  • $75 million to construct a "security training" facility for State Department Security officers when they can be trained at existing facilities of other agencies.

                  • $110 million to the Farm Service Agency to upgrade computer systems.

                  • $200 million in funding for the lease of alternative energy vehicles for use on military installations.

                  Comment


                  • #10
                    Originally posted by davdah:
                    <BLOCKQUOTE class="ip-ubbcode-quote"><div class="ip-ubbcode-quote-title">quote:</div><div class="ip-ubbcode-quote-content">• $448 million for constructing the Department of Homeland Security headquarters.

                    • $248 million for furniture at the new Homeland Security headquarters.

                    Uhh Ohh. Maybe Obama isn't so keen on the idea of amnesty after all. </div></BLOCKQUOTE>



                    Posted 02-03-2009 04:03 PM Hide Post
                    My guess is the true agenda may be hidden?

                    11 million illegals waiting and 289 million Americans also waiting! choices, choices?? get slammed by 11 million or thee alternative???

                    For Obama could be Lose lose situation.


                    USC and Immigrant Alike Must Fight Against Those That Deceive and Disrupt A Place Of Desirability! All Are Victims of Fraud, Both USC and Honest Immigrant Alike! The bad can and does make it more difficult for the good! Be careful who you blame!!!
                    USC and Legal, Honest Immigrant Alike Must Fight Against Those That Deceive and Disrupt A Place Of Desirability! All Are Victims of Fraud, Both USC and Honest Immigrant Alike! The bad can and does make it more difficult for the good! Be careful who y

                    Comment


                    • #11
                      Originally posted by davdah:
                      The foreclosure mess and derivative obligations have nothing to do with it? It has everything to do with it. Those bills have to be paid by the banks. They were given huge amounts of money by Bush and now Obama. What happened to it all? Was it lent out? No, they used to pay their own obligations.
                      Derivitives are a hedge fund to assist banks with unrealized losses. They are the result, not the cause. These mortgage derivatives have been around for a long time, since the 1980's I do believe, and the foreclosure problem has been a problem since the late 1990's. Banks have this type of financial security as a straddle against the loans, whether they are good or bad. The relationship between mortgages and the financial security is that the better the mortgages and risk factor, the less likely the financial instrument. if the derivative is ata positive fair value, then there is no problem. A a positive fair value can include some bad loans. Again, bankruptcies have broken records eight times since 1997, even through the mantra of tax cuts and deficit spending. Think about that Davdah.

                      Problem is. Those obligations are more enormous than any stimulus plan DC could possibly create.
                      You need to learn the balance sheet Davdah. The derivatives are an asset to the bank, not a liability. the main concern with the derivatives is their fair market value. To assist you, click here. From the site:

                      A financial asset at fair value through profit or loss is one that either

                      a) is classified as held for trading, which means that it is (i) acquired principally for the purpose of selling it in the near term Solution 80A.14 Definition of short-term; (ii) part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or (iii) a derivative (except for one that is designated and effecting hedging instrument); or

                      b) upon initial recognition it is designated as at fair value through profit or loss. An entity may use this designation when doing so results in more relevant information, because either (i) it eliminates or significantly reduces a measurement or recognition inconsistency (an 'accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases; or (ii) a group of financial assets and/or financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy and information about the assets and/ or liabilities is provided internally to the entity's key management personnel (as defined in IAS 24).

                      An entity may also use this designation for a contract that contains one or more embedded derivatives, unless;

                      (a) that embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract, or
                      (b) it is clear with little or no analysis that separation of the embedded derivative is prohibited.

                      I read through the article you posted. It said a 20% decrease in areas affected? Really! Try more like 50% or more. Couple that with the number of defaults wrapped into those mortgage bundles and the banks re-selling foreclosed properties at 100k below loan balance. And there are lots of those. CDS is what put a lot of the big wall street institutions under. Many banks are just as deeply buried in those.
                      It depends on all home sales not the ones you are just observing. Here where I live, home prices in the suburban area, particularly in established neighborhoods, have fell about 6% to 10%, but in the downtown revitalization area where there are luxury condos and penthouses, it has fell 30% to 50% on new home sales. The issue is that for every one luxury home, there are 10 suburban, residential homes. That is why you see an average, or weighted average on home prices. They tend to be more accurate on the whole, than relevance to a particular market area. I know California is one of the states hit hardest, but not my state Davdah. And according to this article time is all we need.


                      Looking at just the real estate fiasco alone for now. A real example. The bank carried a loan for 380k. The person defaulted with a 330k balance. The home is listed for sale. It sells for 112k. What happened to the difference? Did it just vanish? No, the bank eats the loss. It becomes and obligation carried against deposits. Which is why the deposit rates show a negative balance. Which is why they can't lend any money. Its been eaten up by the losses on foreclosed property.
                      the real estate fisco started to ear its ugly head in 2005-2006. The factors include:

                      # Mortgage rates rose almost one point
                      # Affordability conditions deteriorated
                      # Speculative investors pulled out
                      # Homebuyer confidence plunged
                      # Resort buyers went to sidelines
                      # Trade-up buyers to sidelines
                      # First-time buyers priced out of market

                      Look at the last item Davdah. The housing market is hinged on first time homebuyers, not established buyers. And because the market priced first time home buyers out of the market is a major contributing factor to the problem. The people who "invested" in these get rich scheme of flipping houses during the housing bubble is one of those factors Davdah. We did it ourselves, no one else.

                      And this article from investopedia does not coincide with your predictions or even Larry Kudlow.

                      Another clue. In the second article it said the banks don't have the money to lend. That is strange. Since savings has gone way up recently. Something the banks need in order to generate loans. Capital on hand. Based on that there should be plenty to go around at the current historic low rates. There isn't. What wasn't said is the banks are paying their own debts with tarp and covering other obligations with deposits. Which is why that one chart shows a negative balance. The banks now owe the people who deposited money in them. They spent that too. Thankfully the FDIC is around to cover it. Or are they? How much do they have to cover the potential losses. Not enough I'm afraid. All that is keeping a major bank run from occurring is people's confidence their money is safe. Truth is, it isn't.
                      Davdah,
                      On a banks balance sheet, a deport is not an asset, but a liabiltiy to the bank. As liabilities increase, assets, loans that banks can give, decrease. Not the other way around. This site will help you understand the balance sheet. Now look at the securities section of the balance sheet and the demand deposits, that is savings and checking accounts,

                      Now, banks have to be creative in managing the bank's balance sheet in a historically low rate environment.
                      "Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence." John Adams on Defense of the boston Massacre

                      Comment


                      • #12
                        Originally posted by davdah:
                        ILW affects stimulus

                        WASHINGTON (Dow Jones)--The U.S. Senate voted to include a tax break for Americans buying a new car in 2009 Tuesday as debate over the Senate economic stimulus package continued.

                        The amendment would allow individuals buying a new car using financing to write down any interest payments they make during the year. It would also let people claim the state excise tax they pay on the purchase off their tax liabilities.

                        The bipartisan amendment was introduced by Sens. Barbara Mikulski, D-Md., and Sam Brownback, R-Kan.



                        In the A9 post for ideas on stimulus S12 asked for a tax break on car loans. Well, I guess someone was listening.
                        I hate to say this, but I believe they are doing this more for the auto makers than for the American car buyer. Another approach to help them out of the hole they are in.

                        Comment


                        • #13
                          [COLOR:RED]SEC ignored warnings about Madoff for 10 yrs!! He could have been shut down when it would have only been 3-7 billion. This is what happens when you have people in jobs that are not qualified because they lack expertise and do not understand/or some simply do not even know what they are doing. /COLOR]

                          Madoff tipster Harry Markopolos assails SEC.
                          AP –
                          Reuters – Harry Markopolos, a former financial executive, holds up a report by the Association of Certified Fraud … WASHINGTON – The man who waged a decade-long campaign to alert regulators to problems in the operations of fallen money manager Bernard Madoff told Congress Wednesday that he had feared for his physical safety.

                          Harry Markopolos also assailed the Securities and Exchange Commission in his first appearance before lawmakers. The SEC failed to act despite receiving credible allegations of fraud from Markopolos about Madoff's operations over a decade.

                          Because of the agency's inaction, "I became fearful for the safety of my family," Markopolos said.

                          He told a House subcommittee hearing that "the SEC is ... captive to the industry it regulates and is afraid" to bring big cases against prominent individuals. The agency "roars like a lion and bites like a flea," Markopolos said.

                          Madoff, a prominent Wall Street figure, was arrested in December after allegedly confessing to bilking investors of more than $50 billion in what the authorities say was a giant Ponzi scheme, possibly the largest ever. His repeated warnings to SEC staff that Madoff was running a massive pyramid scheme have cast Markopolos as an unheeded prophet in the scandal.

                          "The SEC was never capable of catching Mr. Madoff. He could have gone to $100 billion" without being discovered, Markopolos testified at the hearing. "It took me about five minutes to figure out he was a fraud."

                          Markopolos, a securities industry executive and fraud investigator, brought his allegations to the SEC about improprieties in Madoff's business starting in 2000. He fruitlessly pursued the quest through this decade with agency staff from Boston to New York to Washington, but the regulators never acted.

                          Now thousands of victims who lost money investing in Madoff's fund, which was separate from his securities brokerage business, have been identified. Among them are ordinary people and Hollywood celebrities — as well as big hedge funds, international banks and charities in the U.S., Europe and Asia. Life savings have evaporated, foundations have been wiped out and at least one investor apparently was pushed to commit suicide.

                          And the SEC has been sustaining volleys of criticism from lawmakers and investor advocates over its failure to discover Madoff's alleged fraud, which could be the biggest Ponzi scheme ever, despite the credible allegations brought to it over years.

                          Markopolos said he determined there was no way Madoff could have been making the consistent returns he claimed using the trading strategy he touted to prospective investors.

                          Madoff, who was at one point chairman of the Nasdaq Stock Market and sat on SEC advisory committees, was "one of the most powerful men on Wall Street and in a position to easily end our careers or worse," Markopolos said.

                          Calling the SEC "nonfunctional" and harmful to the recommended ways to revamp the agency, including replacing its senior staff and establishing a central office to receive complaints from whistleblowers.

                          Also due to testify before the House Financial Services subcommittee were five top SEC officials, including the agency's enforcement director Linda Thomsen, and the head of its inspections division Lori Richards.

                          In December, Christopher Cox, then the SEC chairman, pinned the blame on the agency's career staff for the failure over a decade to detect what Madoff was doing. He ordered the SEC's inspector general, H. David Kotz, to determine what went wrong. Kotz has expanded his inquiry to examine the operations of the divisions led by Thomsen, who has been the enforcement chief since mid-2005, and Richards, who has held that position since mid-1995.

                          Thomsen and Richards defended their actions at a Senate hearing last week over the SEC's failure to uncover Madoff's alleged fraud scheme. Members of the Senate Banking Committee were scarcely satisfied with explanations given by the two officials and by Stephen Luparello, the interim chief executive of the brokerage industry's self-policing organization.

                          That organization, the Financial Industry Regulatory Authority, was headed until December by Mary Schapiro, President Barack Obama's new SEC chief. Schapiro has said that because Madoff carried out the scheme through his investment business and FINRA was empowered to inspect only the brokerage operation, it wasn't possible for the organization to discover it

                          Comment


                          • #14
                            Could economic nationalism could hurt the US in the long term?

                            'Buy American' clause stirs up controversy
                            "What you see in the photograph isn't what you saw at the time. The real skill of photography is organized visual lying."

                            Comment


                            • #15
                              "In the end its the price that matters" which is the reason why we've been buying goods from China etc. China took on our debt and now we're gonna turn round and say F-you and default on loans?? Nice way to do business. Isn't it much like unilaterally going into Iraq "just because we could" and "who needs the UN anyway?" And the world wonders why we Americans appear arrogant??
                              "What you see in the photograph isn't what you saw at the time. The real skill of photography is organized visual lying."

                              Comment



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