Convicted Felon, Former Crazy Eddie CFO, Sam Antar, Talks to Lauren Lyster About Accounting Fraud

We first became apprised of the appliance star of Crazy Eddie in 1984, having watched Daryl Hannah breathlessly regurgitate one of the store's transfixing commercials in the movie "Splash."  While Crazy Eddie filled a major plot hole (namely, teaching a mermaid to speak English in an afternoon), the company also created a gaping hole in its financial statements, which helped to defraud investors of tens of millions of dollars in the 1980's.

In the fledgling days of the electronic retailer, one of the founders, Sam Antar, would learn the magic of double-book entry-keeping and eventually become the firm's CFO.  Cheating on taxes and embezzling funds could only go so far, however, because, according to the Net's truthiest source, "By 1983, it was becoming more and more difficult to hide the millions of illicit dollars."   What would the founders do?  In a testament to the historical prowess of the SEC, they "decided that the way to cover up their growing fraud was to take the company public."



The above is a must-see interview with Sam Antar by Lauren Lyster on RT's Capital Account, wherein the eminently quotable Sam began:

I'm happy to report, as a retired member of the criminal underworld, that fraud is good.  The fraud business is easy and fraud is getting easier.  The fraudsters have reached the top 1% of the American society....Democrats and Republicans alike are doing their best to make fraud even easier.

Sam then delved into the recently passed JOBS Act (affectionately dubbed, the "Fraud Made Easy Act"):

In the guise improving the economy, [it] peals away internal controls requirements for public companies, peals away various levels of oversight by the government, peals away at the requirements for audits, and it's going to make fraud easier.

Waxing nostalgically (and, a bit tongue in cheek [hopefully]), he said, "I might even go back to my life of crime because of the JOBS Act--because it makes fraud too easy."

Also covered was why jail time not a deterrent:

People commit crimes simply because they could and the opportunity exists.  Most criminals do not consider the consequences of their acts as far as jail time is concerned.  There's an old saying that prisons are filled with criminals who never planned on being there....Opportunity is what makes us commit the crime...if no internal controls, if no oversight, if there's nobody watching over us...

When Lauren asked, "What is the deal with these auditors--are they complicit? Are they dumb?  Do we have too-high expectations?" Sam said:

The word audit itself is a fraudulent term.  They're limited compliance reviews of GAAP which may or may not catch book keeping errors.  They're not designed to catch fraud.

Segueing to Capitol Hill, James Koutoulas, co-founder of the Commodity Customer Coalition, also weighed in:

In a sense, the regulators are almost a smoke and mirror facade of these Ponzi schemes that they fail to catch.  People feel safe when they invest in a "regulated entity," but a lot of times, I think that's a false sense of security.  These regulators clearly have proven that they can't catch these frauds, and I think that people do less due diligence on these regulated entities.  

Sam had to agree, and also highlighted the perennially understaffed SEC as not only incapable of making a dent in securities fraud, but also having very little desire to use its existing resources to do so.  Witness the vacuum of prosecution pursuant to the now decade-old Sarbanes Oxley Act.

Not to focus solely on criticism, solutions were discussed, such as management clawbacks: as in, "personal liability: you lose your house, you lose your car."  Think Corzine on a bike in Brooklyn.

When Lauren asked, "how close are we to a situation where we could have a Crazy Eddie situation again?" Sam was not shy to answer:

It's occurring right now.  It's occurring all over the place.  Firms, with impunity, manipulate numbers.  And, the SEC does nothing except--we caught you, fix your numbers, and go away.  

Sam detailed the [alleged] fraud perpetrated by one company in particular, who you will have to tune in to learn about (hint: its portmanteau neologism of a name rhymes with "poop on").

And, a few more choice quotes to close the interview...

On auditor incestuousness:

In my day, I had to fool auditors--I had to lie to auditors in order to defraud my investors.  Today you don't have to lie to auditors--you don't have to fool them.  In many ways, they're complicit with management.  They're in bed with management.  They have this incestuous relationship with management, which makes crime easy.

Responding to whether it's easier to commit fraud now or in the eightees:

In my day, I knew auditors were stupid.  I knew auditors were incompetent.  But I always thought that if they saw something wrong, they would do the right thing.  Today, you don't have to worry about them doing something wrong, because they're going to do the wrong thing.  They've gone from being enablers--they've gone from being duped--to being actual co-conspirators, in many cases...co-conspirators to financial statement manipulation.

PwC could not be reached for comment.

Again, the whole thing is here:

http://www.youtube.com/watch?v=Egfiqr8TcK8&feature=player_profilepage

Words of War Regarding Conscription and Taxes in Israel

Yesterday, Moshe Gafni, Knesset Finance Committee Chairman, made a curious statement in regards to a proposed Israeli Value Added Tax (VAT) hike, over which he just used his authority to delay for one month until September 1, 2012: "War hasn’t broken out, and we don’t need to raise the tax immediately.”  

The Israeli Finance Minister, with the backing of Bank of Israel Governor, Stanley Fischer, attempted to ramrod the 1% VAT raise through the Finance Committee to take effect today, August 1, 2012.  Apparently, Gafni took issue with the way in which the tax increase was presented to him, though sources do not reveal exactly why.

As to the clout of Gafni and his his ultra-Orthodox party, United Torah of Judaism, its leaders have headed the Knesset Finance Committee since the 1990's, which allows the small party to control the purse strings of the Israeli budget.  The party is also central to a deeply divisive issue in Israel regarding adult conscription into military and/or civil service, for which 54,000 ultra-Orthodox Jews currently enjoy legal exemption. 


Here's where the dates get interesting.

According to a May 1, 2012 article in the Jerusalem Post, Gafni told the Knesset Foreign Affairs and Defense Committee that, "Haredim (the ultra-Orthodox) will go to jail rather than get drafted into the army."  Why?  The "Tal Law," the very law protecting ultra-Orthodox Jews from the draft (and from the alternative of prison, for "draft dodgers"), expires August 1, 2012 because it is not eligible for its usual five year renewal.  It was struck down as unconstitutional by the High Court of Justice on February 21, 2012.


The issue of conscription in Israel for civil or military service and the exemptions for Haredi and Arabs is "one of the most heated disputes in Israeli society."  It has been a major source of political contention for Netanyahu in attempting to manage his coalition.  Which is likely why he dissolved the latest Tal committee on July 2, 2012 just prior to the issuance of its final report.  Committee Chairman Plesner still published the report two days later, which recommended conscription for the ultra-Orthodox Haredi.  At the time, Netanyahu said that he would convene a meeting of the leaders of the ruling coalition party members "in order to draft a proposal that would garner a majority in the Knesset."


Well, the month of July has passed, and we are today on the August 1 expiration of the Tal Law, which exempts 54,000 ultra-Orthodox from conscription.  Given Finance Committee Chairman Gafni's protector status of this group, we are again drawn to his nixing words: "War hasn’t broken out, and we don’t need to raise the tax immediately,” along with his concurrent furry at how the tax proposal was presented to him.

Was this an indication of a failed back-door deal to allow a de facto extension of the Tal Law (or similar) in return for a tax raise?  More ominously, as tensions continually escalate with Iran and Syria, was it an indication that war is imminent, perhaps a mere month away--its timing resting upon negotiations of a mere tax law?

Admittedly, this deviates from our usual areas of research and expertise.  But, our research has revealed no discussion of a connection between these events (at least in the English language).  Which is why we leave it to the astute readers of these pages to offer any suggestions and information.

#FF: A Truth-Telling Financial TV Talk Show? Lew Rockwell Interviews Lauren Lyster and Demetri Kofinas of RT's Capital Account

We've recently had the good fortune to interact with the producer and host of RT's Capital Account, a weekday financial show broadcast on cable in a few select markets and on YouTube for the rest of us.  Lew Rockwell (hopefully, no stranger to the readers of these pages) recently interviewed them individually for his twice-weekly podcast.  


Tuesday, Lew featured Capital Account's host, Lauren Lyster, wherein they discussed the "success of a truth-telling TV show."  The interview offers a rare, behind-the-scenes glimpse at the makings of one of the few TV shows available to non-main stream media darlings (many of whom, according to Ms. Lyster tend to "get it right") and, of course, their faithful followers.  


They covered such topics as, "Does watching TV news make you stupid?", why not talking down to viewers does not have to hurt ratings, Hillary Clinton's lunch-content tweets, Jon Corzine's latte preferences, and (more seriously) the production of a show that caters to entrepreneurs and the challenges facing individuals.  As Lauren concedes, "You can't do actual good work that questions the establishment and still be accepted by them."  (Sorry, Summers.)

Lew also gets into Lauren's working relationship with Capital Account producer, Demetri Kofinas, including how they began collaborating.  On that note, Lew separately interviewed Demetri several months ago in a segment titled, Finally Honest TV.  Particularly interesting is the exploration of his insights into the problems facing his homeland, Greece, and his background in radio.

A student of Austrian economics (no thanks to the NYU economics department), Demetri also discusses how true capitalism empowers the individual through savings, and how we are in a bull market in alternative media (thanks to an historical corresponding vacuum of alternative information).

Both Lauren and Demetri are quick to acknowledge those who paved the way for a show like Capital Account, such as Max Keiser and Alex Jones.  Indeed, the business model for a truth-telling TV show is being proven each day, as artificial and actual barriers to entry are lowered.


Here are the hard links to the interviews with Lew Rockwell:

Lauren: http://www.lewrockwell.com/lewrockwell-show/2012/07/24/295-the-financial-counterculture/
Demetri: http://www.lewrockwell.com/lewrockwell-show/2012/05/15/277-finally-honest-tv/

Capital Account YouTube Channel: http://www.youtube.com/user/capitalaccount


Finally, here are the #FF links:
@LewRockwell
@LaurenLyster
@CoveringDelta (Demetri)

FDIC: Bank of America Borrowed $69 Billion in Taxpayer-Guaranteed Funds at Zero Percent During Financial Panic

The FDIC just released a report titled "Issuer Reported Debt Details" for the Debt Guarantee Program (DGP) portion of its Temporary Liquidity Guarantee Program (TLGP), which shows a total of $618 billion in debt was issued by banks that was ultimately guaranteed by US taxpayers. According to the FDIC's release:

"Under the DGP, the FDIC guaranteed debt that was issued between October 2008 and October 2009 by participants in the program. The guarantee expires at the end of this year, by which time almost all debt issued under the program will have matured. The information being disclosed includes for each registered issuance of FDIC guaranteed debt the: 1) issuer name; 2) CUSIP or other identifier; 3) issue date; 4) maturity date; 5) rate type; 6) interest/discount rate at issuance; 7) amount of unsecured debt; and 8) unsecured debt total fee."

EconomicPolicyJournal.com has analyzed the more than 9,500 bank debt issues disclosed by the FDIC.  It found that Bank of America, NA and its holding company, Bank of America Corporation borrowed over $111 billion, of which $69 billion was issued at zero percent (0%), the most of any bank at that rate.  


Other banks that were able to borrow at zero percent include Citigroup Funding (through Citibank, NA), General Electric Capital, Goldman Sachs Group and HSBC USA.  Of the largest borrowers, Merrill Lynch & Co. was able to finance nearly all of its $19.8 billion in debt at zero percent.

General Electric Capital was the single entity that borrowed the most pursuant to the FDIC-guaranteed program at $130.9 billion, though Citigroup Funding (a holding company) and Citibank, NA borrowed a combined total of $162.0 billion.  JP Morgan entities borrowed $42.5 billion and Goldman Sachs Group borrowed $37.5 billion.

Following is a table compiled by EconomicPolicyJournal.com of the borrowing entities sorted by amounts borrowed:

Total	$618,413,398,408
General Electric Capital Corporation	$130,850,166,935
Citigroup Funding Inc.	$128,997,377,222
BANK OF AMERICA CORPORATION	$64,079,465,128
Bank of America, National Association	$46,976,837,903
JPMORGAN CHASE & CO.	$40,534,011,955
GOLDMAN SACHS GROUP, INC., THE	$37,652,426,455
Citibank, National Association	$33,056,511,373
MORGAN STANLEY	$30,256,932,941
Merrill Lynch & Co., Inc	$19,786,359,000
CITIGROUP INC.	$13,850,000,000
WELLS FARGO & COMPANY	$9,500,000,000
GMAC LLC	$7,400,000,000
American Express Bank,  FSB.	$5,900,000,000
John Deere Capital Corporation	$4,913,503,000
HSBC USA INC.	$4,616,910,000
U.S. Bank National Association	$4,282,285,453
Regions Bank	$4,200,000,000
PNC Funding Corp	$3,900,000,000
U.S. BANCORP	$3,001,458,750
SunTrust Bank	$3,000,000,000
STATE STREET CORPORATION	$2,839,431,500
State Street Bank and Trust Company	$2,450,000,000
Union Bank, National Association	$2,210,000,000
JPMorgan Chase Bank, National Association	$1,978,370,371
Sovereign Bank	$1,350,000,000
Bank of the West	$1,002,889,124
Keybank National Association	$1,000,000,000
KEYCORP	$937,500,000
Banco Bilbao Vizcaya  Argentaria Puerto Rico	$686,440,926
BANK OF NEW YORK MELLON CORPORATION, THE	$603,448,298
The Huntington National Bank	$600,000,000
SUNTRUST BANKS, INC.	$576,000,000
New York Community Bank	$512,000,000
Wilmington Trust Company	$460,000,000
The Bank of New York Mellon	$436,964,547
METLIFE, INC.	$397,436,000
Associated Bank, National Association	$395,000,000
Fifth Third Bank	$285,000,000
Wachovia Bank, National Association	$271,452,170
ZIONS BANCORPORATION	$254,892,500
Wells Fargo Bank, National Association	$250,868,606
Sovereign Bancorp, Inc.	$250,000,000
USAA Capital Corporation	$221,000,000
Texas Capital Bank, National Association	$149,900,656
HSBC Bank USA, National Association	$125,688,079
Oriental Bank and Trust	$105,000,000
WASHINGTON FIRST FINANCIAL GROUP, INC.	$90,638,211
NEW YORK COMMUNITY BANCORP, INC.	$90,000,000
Amalgamated Bank  (Pooled Funding Trust 1)	$85,000,000
National Consumer Cooperative Bank  (Pooled Funding Trust 1)	$75,000,000
AnchorBank, FSB  (Pooled Funding Trust 1)	$60,000,000
Provident Bank  (Pooled Funding Trust 1)	$51,500,000
Banner Bank	$50,000,000
Integra Bank National Association  (Pooled Funding Trust 2)	$50,000,000
Renasant Bank  (Pooled Funding Trust 2)	$50,000,000
The Frost National Bank	$46,936,918
Amboy Bank  (Pooled Funding Trust 1)	$46,000,000
Sterling Bank	$42,750,000
Bank of the Cascades	$41,000,000
Superior Bank  (Pooled Funding Trust 2)	$40,000,000
First Merchants Bank NA  (Pooled Funding Trust 2)	$36,352,000
American National Bank  (Pooled Funding Trust 2)	$35,000,000
Access National Bank  (Pooled Funding Trust 1)	$30,000,000
Wilmington Savings Fund Society, FSB  (Pooled Funding Trust 1)	$30,000,000
State Bank of Long Island  (Pooled Funding Trust 2)	$29,000,000
Preferred Bank  (Pooled Funding Trust 1)	$26,000,000
Manufacturers and Traders Trust Company	$24,250,000
RBS Citizens, National Association	$22,641,280
The Park Avenue Bank  (Pooled Funding Trust 1)	$20,000,000
Lafayette Bank and Trust Company, NA (Pooled Funding Trust 2)	$16,530,000
First Merchants Bank of Central Indiana, NA (Pooled Funding Trust 2)	$15,011,000
Patriot Bank  (Pooled Funding Trust 1)	$15,000,000
Carver Federal Savings Bank	$14,068,000
BAC Florida Bank	$14,000,000
NCB, FSB	$13,688,000
Comerica Bank	$13,066,197
Commerce National Bank (Pooled Funding Trust 2)	$11,107,000
Community FirstBank of Charleston  (Pooled Funding Trust 1)	$10,300,000
Crescent Bank  (Pooled Funding Trust 1)	$10,100,000
The Bank of Holland	$10,000,000
TCM Bank, National Association	$9,550,000
CHAMBERS BANCSHARES, INC.	$8,460,000
BankTrust	$7,921,779
Nara Bank	$7,281,438
Enterprise Bank & Trust	$7,250,000
CNB BANCSHARES, INC.  (Pooled Funding Trust 2)	$6,500,000
The Bank of Northern Michigan	$6,000,000
The La Porte Savings Bank  (Pooled Funding Trust 1)	$5,000,000
Premier Bank  (Pooled Funding Trust 2)	$4,000,000
1ST SOURCE CORPORATION	$3,824,457
COASTAL COMMUNITY INVESTMENTS, INC.	$3,750,000
Capital One, National Association	$2,750,000
Palm Desert National Bank	$2,605,522
STONEBRIDGE FINANCIAL CORP.	$2,075,000
Macon Bank, Inc.	$2,014,602
Bradford Mid-Tier Company	$2,000,000
D. L. Evans Bank	$1,317,490
EQUITY BANK HOLDING COMPANY, INC.	$1,250,000
FEB BANCSHARES, INC.	$1,250,000
Compass Bank	$1,000,000
Washington First International Bank	$1,000,000
FIRST HORIZON NATIONAL CORPORATION	$860,000
First Hawaiian Bank	$825,203
Alma Bank	$750,000
Meridian Bank Texas	$750,000
The University National Bank of Lawrence	$750,000
Tri-State Bank of Memphis	$750,000
Vectra Bank Colorado, National Association	$660,354
TREATY OAK BANCORP, INC.	$550,000
FIFTH THIRD BANCORP	$500,000
Patriot Bank Minnesota	$500,000
Watertown Savings Bank	$259,409
PROMERICA Bank	$245,000
Bank of Monticello	$240,000
QUEENSBOROUGH COMPANY, THE	$200,000
Community Bank of Central Wisconsin	$150,000
Colorado Mountain Bank	$50,000
First Midwest Bank	$50,000
The Bank of Commerce	$38,000
American Savings Bank, FSB	$1,922
Citizens Bank of Pennsylvania	$733
Central Bank	$0

FDIC Loaned $618 Billion to Banks During Panic; Who Got How Much?

Following up on our earlier post regarding the FDIC's guaranteed bank loan program, here are the totals, by institution (keep in mind, holding companies and the actual regulated bank might be listed as separate entities):

Total	$618,413,398,408
General Electric Capital Corporation	$130,850,166,935
Citigroup Funding Inc.	$128,997,377,222
BANK OF AMERICA CORPORATION	$64,079,465,128
Bank of America, National Association	$46,976,837,903
JPMORGAN CHASE & CO.	$40,534,011,955
GOLDMAN SACHS GROUP, INC., THE	$37,652,426,455
Citibank, National Association	$33,056,511,373
MORGAN STANLEY	$30,256,932,941
Merrill Lynch & Co., Inc	$19,786,359,000
CITIGROUP INC.	$13,850,000,000
WELLS FARGO & COMPANY	$9,500,000,000
GMAC LLC	$7,400,000,000
American Express Bank,  FSB.	$5,900,000,000
John Deere Capital Corporation	$4,913,503,000
HSBC USA INC.	$4,616,910,000
U.S. Bank National Association	$4,282,285,453
Regions Bank	$4,200,000,000
PNC Funding Corp	$3,900,000,000
U.S. BANCORP	$3,001,458,750
SunTrust Bank	$3,000,000,000
STATE STREET CORPORATION	$2,839,431,500
State Street Bank and Trust Company	$2,450,000,000
Union Bank, National Association	$2,210,000,000
JPMorgan Chase Bank, National Association	$1,978,370,371
Sovereign Bank	$1,350,000,000
Bank of the West	$1,002,889,124
Keybank National Association	$1,000,000,000
KEYCORP	$937,500,000
Banco Bilbao Vizcaya  Argentaria Puerto Rico	$686,440,926
BANK OF NEW YORK MELLON CORPORATION, THE	$603,448,298
The Huntington National Bank	$600,000,000
SUNTRUST BANKS, INC.	$576,000,000
New York Community Bank	$512,000,000
Wilmington Trust Company	$460,000,000
The Bank of New York Mellon	$436,964,547
METLIFE, INC.	$397,436,000
Associated Bank, National Association	$395,000,000
Fifth Third Bank	$285,000,000
Wachovia Bank, National Association	$271,452,170
ZIONS BANCORPORATION	$254,892,500
Wells Fargo Bank, National Association	$250,868,606
Sovereign Bancorp, Inc.	$250,000,000
USAA Capital Corporation	$221,000,000
Texas Capital Bank, National Association	$149,900,656
HSBC Bank USA, National Association	$125,688,079
Oriental Bank and Trust	$105,000,000
WASHINGTON FIRST FINANCIAL GROUP, INC.	$90,638,211
NEW YORK COMMUNITY BANCORP, INC.	$90,000,000
Amalgamated Bank  (Pooled Funding Trust 1)	$85,000,000
National Consumer Cooperative Bank  (Pooled Funding Trust 1)	$75,000,000
AnchorBank, FSB  (Pooled Funding Trust 1)	$60,000,000
Provident Bank  (Pooled Funding Trust 1)	$51,500,000
Banner Bank	$50,000,000
Integra Bank National Association  (Pooled Funding Trust 2)	$50,000,000
Renasant Bank  (Pooled Funding Trust 2)	$50,000,000
The Frost National Bank	$46,936,918
Amboy Bank  (Pooled Funding Trust 1)	$46,000,000
Sterling Bank	$42,750,000
Bank of the Cascades	$41,000,000
Superior Bank  (Pooled Funding Trust 2)	$40,000,000
First Merchants Bank NA  (Pooled Funding Trust 2)	$36,352,000
American National Bank  (Pooled Funding Trust 2)	$35,000,000
Access National Bank  (Pooled Funding Trust 1)	$30,000,000
Wilmington Savings Fund Society, FSB  (Pooled Funding Trust 1)	$30,000,000
State Bank of Long Island  (Pooled Funding Trust 2)	$29,000,000
Preferred Bank  (Pooled Funding Trust 1)	$26,000,000
Manufacturers and Traders Trust Company	$24,250,000
RBS Citizens, National Association	$22,641,280
The Park Avenue Bank  (Pooled Funding Trust 1)	$20,000,000
Lafayette Bank and Trust Company, NA (Pooled Funding Trust 2)	$16,530,000
First Merchants Bank of Central Indiana, NA (Pooled Funding Trust 2)	$15,011,000
Patriot Bank  (Pooled Funding Trust 1)	$15,000,000
Carver Federal Savings Bank	$14,068,000
BAC Florida Bank	$14,000,000
NCB, FSB	$13,688,000
Comerica Bank	$13,066,197
Commerce National Bank (Pooled Funding Trust 2)	$11,107,000
Community FirstBank of Charleston  (Pooled Funding Trust 1)	$10,300,000
Crescent Bank  (Pooled Funding Trust 1)	$10,100,000
The Bank of Holland	$10,000,000
TCM Bank, National Association	$9,550,000
CHAMBERS BANCSHARES, INC.	$8,460,000
BankTrust	$7,921,779
Nara Bank	$7,281,438
Enterprise Bank & Trust	$7,250,000
CNB BANCSHARES, INC.  (Pooled Funding Trust 2)	$6,500,000
The Bank of Northern Michigan	$6,000,000
The La Porte Savings Bank  (Pooled Funding Trust 1)	$5,000,000
Premier Bank  (Pooled Funding Trust 2)	$4,000,000
1ST SOURCE CORPORATION	$3,824,457
COASTAL COMMUNITY INVESTMENTS, INC.	$3,750,000
Capital One, National Association	$2,750,000
Palm Desert National Bank	$2,605,522
STONEBRIDGE FINANCIAL CORP.	$2,075,000
Macon Bank, Inc.	$2,014,602
Bradford Mid-Tier Company	$2,000,000
D. L. Evans Bank	$1,317,490
EQUITY BANK HOLDING COMPANY, INC.	$1,250,000
FEB BANCSHARES, INC.	$1,250,000
Compass Bank	$1,000,000
Washington First International Bank	$1,000,000
FIRST HORIZON NATIONAL CORPORATION	$860,000
First Hawaiian Bank	$825,203
Alma Bank	$750,000
Meridian Bank Texas	$750,000
The University National Bank of Lawrence	$750,000
Tri-State Bank of Memphis	$750,000
Vectra Bank Colorado, National Association	$660,354
TREATY OAK BANCORP, INC.	$550,000
FIFTH THIRD BANCORP	$500,000
Patriot Bank Minnesota	$500,000
Watertown Savings Bank	$259,409
PROMERICA Bank	$245,000
Bank of Monticello	$240,000
QUEENSBOROUGH COMPANY, THE	$200,000
Community Bank of Central Wisconsin	$150,000
Colorado Mountain Bank	$50,000
First Midwest Bank	$50,000
The Bank of Commerce	$38,000
American Savings Bank, FSB	$1,922
Citizens Bank of Pennsylvania	$733
Central Bank	$0

How did Bank of America Borrow $69 Billion at Zero Percent on the Backs of the Taxpayers?

The FDIC just released "Issuer Reported Debt Details" for the Debt Guarantee Program (DGP) of its Temporary Liquidity Guarantee Program (TLGP)--meaning a detailed list of which banks borrowed on the backs of the taxpayer during the financial panic and how juicy the terms were.  A total of $618 billion was guaranteed by the FDIC over an approximate one year period. According to the FDIC's release:

"Under the DGP, the FDIC guaranteed debt that was issued between October 2008 and October 2009 by participants in the program. The guarantee expires at the end of this year, by which time almost all debt issued under the program will have matured. The information being disclosed includes for each registered issuance of FDIC guaranteed debt the: 1) issuer name; 2) CUSIP or other identifier; 3) issue date; 4) maturity date; 5) rate type; 6) interest/discount rate at issuance; 7) amount of unsecured debt; and 8) unsecured debt total fee."

Here is a snapshot of the first page:

Immediately noticeable is that, while the interest rates at which 1st Source Corporation was able to issue the FDIC-backed commercial paper were low, they still had to pay interest.  Which brings us to Bank of America:

After the first 11 lines, the rate drops to zero...and stays there for a total of 1,352 issues totaling $69,205,303,031.[1]  

While several other institutions were able to take advantage of 0% rates on a portion of their debt funding (including Citibank, General Electric Capital, Goldman Sachs Group and HSBC), only Merrill Lynch & Co. was able to finance nearly all of its $19,786,359,000 in debt issued at 0%.

Who borrowed the most?  Preliminary analysis reveals it is General Electric (GE) Capital, with 4,328 issues totaling $130,850,166,935.

Developing...

------------------------
[1] The issued debt spans both the holding company, Bank of America Corporation (pictured above) and the actual bank, Bank of America, N.A.  Also note that total debt issued does not necessarily reflect total debt outstanding at any given time.

LIBOR 2.0: Is the Biggest Manipulation Yet to Come?

Is LIBORgate the crime of the century? Or is the real crime yet to come?  As has long been alleged at EconomicPolicyJournal.com, the biggest manipulators of short term rates are the central bankers themselves.  Yet, they (unfortunately) have been ignored by the MSM in this mess--even the Bank of England, which appears to be directly culpable.  (See also this article from Business Insider, which reveals that the Fed itself already killed the LIBOR market long ago.)

Nevertheless, the central banksters,who never let a good [appropriately planned] crisis go to waste, apparently have an even more manipulated scheme to follow.  We discussed this today on RT's Capital Account with Lauren Lyster (link below), along with a diversion into the timing of the whole LIBOR scandal, which happily coincides with the potential court-ordered release of Eliot Spitzer emails that might publicly exonerate Hank Greenberg and AIG (don't worry, CNBC is already on board).  If there were ever a moment when Wall Street and DC diverged in recent memory, it is now.

Last week, Chairman Bernanke spoke off-the-cuff to the House in a Q&A session and mentioned three potential  alternatives to LIBOR.  It seems the global central bankers have already planned a September 9th meeting this year to discuss exactly that.  And, while details are sketchy at present, whatever replaces the benchmark--to which approximately $500 trillion in notional financial products are pegged--is guaranteed to have the most powerful of influences behind it.  


According to Bloomberg, this meeting, to be headed by Bank of England Governor Mervyn King, will be conducted [behind closed doors], only to be followed up by another [semi-secretive] meeting amongst the policy-makers at the international Financial Stability Board.  


To date, the only central bankers talking are Bernanke and his Canadian (Bank of Canada Governor) counterpart, Mark Carney.  Mr. Carney, echoing Mr. Bernanke, laughably said, "There is an attraction to moving toward obviously [sic] market based rates if possible," he said.  


Market based indeed.


Both Bernanke and Carney mentioned repos (repurchase contracts, presumably of Treasurys/T-Bills) and OIS (overnight indexed swap rates) as replacements, and a third addition by Mr. Bernanke is actual T-Bill rates.  Remarkably, there have been few discussions (though see this Stone & McCarthy report at ZH) of this game changing event--which could literally decide the fate of not only money markets themselves, but the life and death of the largest financial institutions (their living wills now cemented in the Eccles Building archives).  


The principal problem with using either T-Bill or repo rates (or any secured rate, for that matter) is that a premium must be charged.  So, who gets to determine the premium? (And, if some other concoction is devised that requires a discount, who determines the discount?)  Even if algorithmic in nature, someone must write the algorithm (just as some nameless face wrote the computer program supervised by NYU interns that has bought literally trillions of dollars in securities on behalf of the Federal Reserve).


The Fed's OIS Conundrum.  


If one delves into the OIS alternative, even more decidedly non-"market based" potential for manipulation exists.  First, OIS is a derivative rate based on an average of the Federal Funds rate--the rate the Fed prefers to manipulate to "target" short term interest rates.  However, the "Fed Funds" market is drastically different than years past since the Fed committed to near-ZIRP policy (since December 2008) and since having gained the ability (in October of 2008) to pay banks interest for the money they "keep out of the system" by parking it at the Fed (so-called Interest On Excess Reserves, or IOER).  


According to the Fed itself, the largest lenders/sellers of Fed Funds are the Federal Home Loan Banks and other GSEs (principally, Freddie and Fannie).  This is because, as non-deposit taking institutions, they are not eligible to earn the 0.25% interest the Fed pays to banks.  Instead, they earn income on their extra cash by lending it to banks, which, in turn, deposit it at the Fed to collect IOER.  Further, according to an email sent by a senior Fed economist to an EPJ reader, the GSEs prefer to lend only to a few banks (presumably JP Morgan, Goldman Sachs, and the usual suspects).  Here is the quote (emphasis ours):

Anecdotal evidence suggests that all of the housing-related entities are willing to lend to the same few banks, which limits the possibility for competition to raise market rates.

Thus, a LIBOR "alternative" that uses the OIS rate as its substitute switches from an average of declared rates by 14 or so banks to an average Fed Funds rate determined by back-door dealings between the largest government sponsored failures (GSFs?) in history and the compromised TBTF banks with whom they prefer to transact.  At least the Fed (and the administration) can sleep knowing this scheme limits competition to push rates to the upside.


None of this is to discount the fact that the large banks wantonly manipulated LIBOR for their own gain on a day to day basis.  Nor are we are not attempting to mitigate their culpability for such.  Were we given the chance to indict the banksters for LIBOR or for nothing at all, guess which we would choose (though, we'd insist throwing Corzine in for good measure).  


The point is that after all the show trials and show hearings on LIBOR, all we are guaranteed is that the central planning oligarchy will have its tentacles more firmly entrenched in its manipulation scheme of the entire finance sector.  The question is only which power centers will be directing the circus.

Our Capital Account appearance begins approximately twelve minutes in (though don't miss the must-hear comments by Marc Faber regarding China and other matters):



http://youtu.be/zWcs4MZGSJU

Submitted by Stanley Haar of Haar Capital Management, LLC

7 Questions for Jamie Dimon that no Member of Congress had the Courage to Ask

"What...me worry?"

The Golden Rule of government, “Whoever has the gold makes the rules”, was on full display in Washington over the past week as JP Morgan’s Jamie Dimon appeared at hearings held in both the Senate and the House to answer questions about the bank’s recently reported trading loss.

I am in full agreement with the argument that it is actually none of the government’s business when the shareholders of a private bank lose money due to the bad decisions of management, as long as the loss was incurred legally and does not threaten the integrity of the financial system.

However, the Congressmen and Senators missed an excellent opportunity to ask Mr. Dimon about any number of financial scandals (Madoff, Jefferson County, robo-signing, etc.) in which JP Morgan Chase has been involved,  including the on-going MF Global scandal.

In our representative democracy, where Senators and Congressmen are supposed to serve the public interest, not the interests of big campaign bundlers, it is sad to report that not one member of Congress had the courage to ask Jamie Dimon the following questions:

1.  It is reassuring to hear that JP Morgan has more than enough of its own capital to cover the trading losses that triggered this hearing. But suppose for the moment that under some circumstances the size of the loss were to grow to a substantially larger amount than you now anticipate. If you didn’t have enough capital to cover the loss, would you ever consider taking money from your customers’ accounts to cover the losses? That would be illegal, wouldn’t it?

Permit me to ask your one more not-so hypothetical question: If you were standing in the lobby of a JP Morgan Chase branch, and you saw through the window that one of your customers was robbing the candy store across the street, and the customer then ran into your bank with a bag of cash, would you let that guy pay off his car loan with the cash in his bag?

Isn’t that in essence exactly what happened last October with your customer, MF Global? According to the very detailed report released on June 6 by Trustee Giddens, the infamous transfer of $175 million from MF Global to your bank on October 28 to pay off an overdraft was a transfer entirely between JP Morgan accounts: from the segregated customer trust account to the MF Global Treasury house account to a JP Morgan London account. All of these moves were completely transparent on your blotter.

Your own employees, Donna Dellosso and Barry Zubrow, witnessed those transfers and were so concerned about them that they immediately requested a letter from Jon Corzine and Laurie Ferber, basically stating that they were not stealing customer money. You never got that letter, but kept the money anyway. Weren’t you concerned about receiving stolen property, and potentially being an accessory to the looting of customer accounts? Did you call the CFTC or SEC to report your suspicions?

[Mr. Dimon told the Senate Banking Committee that his bank received verbal assurances that the transfer was legitimate; however the Giddens report directly contradicts this………see page 134: MF’s in-house attorney, Dennis Klenja, “advised that he made no assurances of any kind to JPM”.]

JP Morgan was MF’s primary banker. You knew that they were scrambling to come up with cash to stay alive, day-by-day, hour-by-hour. Did you really think that they suddenly found a couple of hundred million dollars of excess cash in the segregated account? Or did you watch them steal customer money from a JP Morgan account,  and then ask for the letter as a CYA in case they got caught?

  

2.  Last month, your bank returned approximately $168 million in funds to the MF Global estate, money that you had been holding for over 7 months. Mr. Giddens believes that JP Morgan is still holding on to money that rightfully belongs to MF Global, and stated in his report that he will be suing you if no agreement to return the money is reached within 60 days. Are you aware of that? Can you tell us here today how much MF Global money is still being held by your bank?

 Do you have systems and controls in place to identify what money belongs to you and what money belongs to your customers?

Millions of people have custodial accounts at JP Morgan for their retirement funds or their children’s education. Should they be worried about their funds being commingled with the bank’s own funds?

It seems that JP Morgan has a habit of commingling its own funds with customer segregated funds. Weren’t you fined 33 million pounds in the UK last year for failing to properly segregate 23 billion dollars in client assets? That improper commingling took place over a period of 7 years, correct? And isn’t it true that in April of this year the CFTC ordered you to pay a fine of $20 million to settle charges that JP Morgan mishandled segregated customer funds at Lehman Brothers between November 2006 and September 2008? The CFTC also stated that after Lehman Brothers filed for bankruptcy, JP Morgan improperly declined to release customer segregated funds linked to commodity accounts. 

Is that your modus operandi, Mr. Dimon, when a customer of the bank seems headed for bankruptcy: to grab onto as much cash and collateral as possible, and then only release it after being sued or ordered to return it by regulators?

3.  MF Global had many subsidiaries scattered throughout the world, but effectively operated as one company underone management. Were you surprised by the fact that in bankruptcy, MF Global was treated as two entities, with the Holding Company allowed to continue operating under Chapter 11, led by the very same executives who had blown up the company? Did your attorneys (either in-house or outside counsel) ever meet with MF Global executives and/or attorneys to discuss or plan the structuring of the bankruptcy?

As a result of the Chapter 11, you were able to continue trading with MF Global, and were involved in a sizable transaction involving European sovereign debt in early November; is that correct? According to Mr. Giddens’ report and news articles published by the Wall Street Journal, over $14 billion in MF Global fixed income positions were liquidated by the London Clearing House at below-market prices, resulting in substantial profits for the buyers.  JP Morgan bought some of those bonds, along with the George Soros Family Trust, is that correct? And JP Morgan is one of the owners of the London Clearing House, is that also correct? Did you use your influence at the LCH to increase margin requirements for MF Global?

At the time when those transactions took place, it was already an established fact that over $1 billion was missing from customer segregated accounts, and you were certainly aware that customer money had been repo-ed to support those sovereign bond positions. So didn’t it seem probable to you that you were dealing in stolen property, sometimes referred to as “fencing” or money laundering? How much money did you make from those bond purchases?

In his report, Mr. Giddens stated that “because these transactions took place at the LCH, the Trustee has not had full transparency into these transactions or the amounts that might be owed to [MF Global customers]”. Given that JP Morgan is a co-owner of the LCH, perhaps you could ask them to provide some transparency on those transactions to Mr. Giddens. Don’t you agree, Mr. Dimon?

In another transaction that took place two weeks after JP Morgan was placed on the bankruptcy committee, you purchased MF Global’s ownership share in the London Metals Exchange (LME). That stake is now worth $103 million, a gain of over 150% in 7 months. Here again, JP Morgan is making a huge profit from dealings in the remaining assets of MF Global, while customers who had segregated custodial deposits in your bank await the return of their missing $1.6 billion. Does that seem right to you, Mr. Dimon? Don’t customers have priority under the law for recovery of their stolen money?

4.   When did you first become aware that MF Global was at risk of going under, Mr. Dimon?

And which of the following choices best describes your reaction; was it:

A)    As a custodial bank, we have a legal and fiduciary duty to our customers. How can we make sure that their deposits are protected?      

or was it:

B)    Holy Crap! Those guys owe us over a BILLION dollars. What can we do to make sure we get our money back?

Trustee Giddens reports (page 131) that two employees of JP Morgan, Fernando Rivas and Barry Zubrow, called Jon Corzine regarding the $175 million they owed to JP Morgan-UK.  Are you aware of that call? Did they make it on your orders? According to Giddens, your employees threatened to stop handling MF Global’s asset sales until JP Morgan got its money back. It seems that you were willing to push MF Global over the cliff unless they wired the money to you immediately.

Is that the standard way that JP Morgan does business? Do you think that threat was a factor in MF’s decision to reach into customer segregated accounts to come up with the money?

When was the last time that you personally spoke with Mr. Corzine? Did you speak with him during the last two weeks of October, last year? Did you ever say anything to him that might be interpreted as a threat, if MF Global caused losses at JP Morgan?

Mr. Corzine told our Committee under oath last December that he never directly ordered that money be taken from customer accounts to satisfy MF’s debts to you. Given that MF Global was in a desperate battle for survival and desperately trying to raise cash during the last week of October,do you think it would have been reasonable for him to think that suddenly MF Global had hundreds of millions of dollars in excess cash sitting around that they could wire to you? The total amount of customer money that is now missing, $1.6 billion, is equal to more than one and a half times the total net worth of MF Global as reported on their last financial statements. Would it be reasonable for a CEO to lose track of 150% of the value of his entire company? If, in fact, he didn’t ask about where the money was coming from, could it be that he it was because he didn’t really want to hear the answer, or already knew the answer? Isn’t this a classic example of WILLFUL BLINDNESS?

5.   Did any JP Morgan executives or attorneys participate in any way with the discussions or process involved in structuring the MF Global bankruptcy, including the decision to allow MF Global Holdings to continue operating under Chapter 11? Did anyone from JP Morgan, or representing JP Morgan, participate in the big conference call in the early hours of the morning of October 31 where those decisions were made? Was JP Morgan represented at the November 1 hearing where the Chapter 11 petition was approved?

6.  You have been a Director of the NY Fed since 2007, is that correct Mr. Dimon? Did you find it strange that, despite its small size and undercapitalization, MF Global was suddenly given Primary Dealer status by the NY Fed shortly after the arrival of Mr. Corzine? Prior to his arrival, MF Global’s application had been rejected, isn’t that correct? Do you think that the fact that Mr. Corzine was an old friend and colleague of Fed President Dudley [EB: see our post, "Breakfast with Jamie," for just how tight this couple is], and has lots of friends in high places here in Washington, might have had any influence on that decision? Did you raise any objections to it, or warn the Fed about the weakening financial condition of MF Global in 2011? If not, didn’t you have a duty to do so in your capacity as a Fed Director?

7.  As we sit here today, MF Global’s customers, many of whom had their segregated accounts at your bank, are still waiting for restitution of the $1.6 billion illegally transferred from those accounts. Who do you think is responsible for that? Should anyone be held accountable? Mr. Corzine, you, regulators??? Do you think that prison time would act as a good deterrent to this kind of thing happening again???

* * *

EB: And, since we can't mention "Dimon" without thinking of bonuses, here's a bonus question:

Mr. Dimon, as a director of the New York Fed, you would have been required to vote on any third party contract greater than $100,000 awarded pursuant to the so-called sole-source exception of New York Fed Operating Bulletin 10.  According to a New York Fed internal email compelled by Congressman Issa, BlackRock was awarded the contract to "wind-down," Maiden Lane under this very exception, despite, apparently, some consternation amongst those involved in the decision.  As a reminder, Maiden Lane was handed over the toxic Bear Stearns portfolio when the rest of the company was gifted to your very own JP Morgan, which loaned $1.15 billion to ML and was first in line to take any losses.  Yet, amazingly, BlackRock was able to trade ML to a profit by churning its MBS portfolio while it also traded MBS securities on behalf of the Fed as part of QE1.

Q: In your role as a director of the New York Fed, did you vote on whether or not to grant the BlackRock sole-source contract for Maiden Lane or any other ML-related contracts, for that matter?  Do you think there might have been a conflict of interest in this voting process, given your firm's involvement with Bear Stearns?  

Why is it that the GAO, which audited the ML contracts, is on record stating that no ML contracts were awarded pursuant to the sole-source exception, despite the internal email that discloses the contrary?  Mr. Dimon, were you involved in the decision to cover up the fact that BlackRock was inappropriately awarded a critical contract under suspicious circumstances, and then lie about it to the GAO?  Is there any other plausible explanation for these inconsistencies?

Exhibit A

Exhibit B