8-Feb-13 World View - Libor-rigging and lying on Wall Street

[John]

8-Feb-13 World View -- Libor-rigging scandal and lying on Wall Street


The moral bankruptcy of Washington and Wall Street worsens

** 8-Feb-13 World View -- Libor-rigging scandal and lying on Wall Street
** http://www.generationaldynamics.com/cgi ... 08#e130208



Contents:
Dept. of Justice announces civil lawsuit against S&P ratings
Royal Bank of Scotland fined $612 million for Libor-rigging
The moral bankruptcy of Libor-rigging traders
Ron Baron, Baron Capital, doubles down on lying about stock valuations


Keys:
Generational Dynamics, Standard & Poors Financial Services,
Department of Justice, Royal Bank of Scotland, Libor rigging,
Alan Greenspan, Wharton School, Jeremy Siegel, Ron Baron

[Marc]

All of these amazing Generation-X financial acrobatics should provide quite a grist mill for the next Artist generation when it comes of age and starts producing the best new crop of writers, movie-makers, actors and such, huh!? But seriously, what also seems particularly relevant here with the ratings scandal is that, in regards to blessing the anointed with triple-A ratings, that S&P seems to be singled out for messing with the most important triple-A rating of all: Uncle Sam's triple-A rating that S&P took away after the recent debt-ceiling crisis. Why aren't Moody's and Fitch's asses in the sling for the same thing? But, then again, they've still got the USA rated as triple-A....

Maybe if S&P just restores that pristine rating, they can make this civil suit go away, and none of their low-level functionaries will thus risk jail time for messing with ratings during the past, present, or future.

Thanks, John, for cogently sharing the ongoing saga. —Regards, Marc

[Trevor]

All of these amazing Generation-X financial acrobatics should provide quite a grist mill for the next Artist generation when it comes of age and starts producing the best new crop of writers, movie-makers, actors and such, huh!? But seriously, what also seems particularly relevant here with the ratings scandal is that, in regards to blessing the anointed with triple-A ratings, that S&P seems to be singled out for messing with the most important triple-A rating of all: Uncle Sam's triple-A rating that S&P took away after the recent debt-ceiling crisis. Why aren't Moody's and Fitch's asses in the sling for the same thing? But, then again, they've still got the USA rated as triple-A....

Maybe if S&P just restores that pristine rating, they can make this civil suit go away, and none of their low-level functionaries will thus risk jail time for messing with ratings during the past, present, or future.

Thanks, John, for cogently sharing the ongoing saga. —Regards, Marc

That was my thought as well. S&P is the only one of the major three ratings agencies to downgrade us and yet out of the three, they're the only one being investigated. Certainly they're corrupt, but no more so than any of the others. I can't think of any other reason why it's them and them alone.

However, I don't expect serious prosecutions until everything has collapsed or after the war. The way things are headed, the latter may happen first.

[Reality Check]

"As we've been saying for a long time, the Obama administration has adamantly refused to even investigate, let alone prosecute, American bankers for the financial crisis, even where there's massive evidence of fraud. ...

Now the time ( tide ? ) seems to be turning. It's becoming overwhelmingly clear that the crimes of Gen-Xers were so egregious that blaming Boomers no longer makes sense in many cases. And the presidential campaign is over, so there'll be no more political contributions for a while anyway.

On Wednesday, the Justice Dept. filed a civil lawsuit charging Standard & Poors Financial Services with effectively colluding with banks to give invalid AAA ratings to synthetic securities backed by subprime mortgages. ...

The result of this fraud was disastrous, ... subprime mortgage-backed securities issued in 2005-2007. AAA rated securities were downgraded (equivalent to a default) 80% of the time, even though the ratings models assume that an AAA default rate of less than 0.1%. Even BBB rated securities are supposed to downgrade or default only 1% of the time, but 100% of them failed....

Would it not be great if the conclusion were actually true? The part about the tide turning.

But, alas, there are more than a few facts wrong in this post, and the errors are not only material, but correcting them points to the opposite conclusion:

Standard & Poors is not a Bank.

No person is being prosecuted.

No corporation is being prosecuted.

No serious criminal investigation of the fraud has been announced... And it has been more than six years since the whistle blowers came forward with documentation.

A civil suit does not carry the threat of 30 years in jail, that causes little fish to tell all and expand the investigations to other corporations and bigger fish.

Neither Standard & Poors nor it's employees have the kind of deep pockets, that Banks and Bankers have.

As a rating firm, Standard & Poors, is not getting the kind of on going Billions in monthly support from the Treasury Department and the Federal Reserve that the Banks and Bankers are. That is the kind of corrupt Government, corrupt financial manipulation, partnership that get's Billions, not millions of dollars in contributions and kick backs.

Obama has not stopped campaigning. Obama has officially announced he is converting his existing campaign fund raising machine and existing non-profit campaign fundraising corporations to pursue gun control and other second term political agendas; and he is creating new non-profit fund raising corporations that do not have to report the source of their funds and do not have any limits on the size of the contributions. Obama is gearing up to "legally collect" even bigger "dirty money" contributions; without the major money launder operations contributors were required to do, to convert them into small internet contributions, as was required to keep large, otherwise illegal contributions legal for Obama, during the two Presidential campaigns.

Credit Rating agencies are the low hanging fruit of financial fraud prosecutions related to the financial crisis. Whistle blowers with written evidence came forward before the financial crisis. The little fish in these corporations could provide evidence against not only their bosses, but they would indict their counter parts in all the banks. Credit Rating agencies have no conflicting fiduciary responsibilities they could confuse jury with at trial, they would have to roll over and co-operate with the government prosecutes to avoid spending the rest of the lives in jail. They would be the slam dunk of the financial fraud prosecutions and the lynch key to the banks and bankers, but they are NOT being prosecuted.

This is NOT a changing tide. It is a low caliber shot across the bow of the big banks and it reminds them who is in charge of the prosecution decision, and how easy it would be to destroy those who are not putting up the big bucks to promote Obama's agenda for America.

Recent threats by political allies of Obama to Banks regarding support for Obama's gun control agenda were not subtle. This on the other hand is very subtle. But the message to banks is also very clear. Pay up and Play ball, or else.

[John]

Someone who knows Ron Baron personally has written to tell me
that the worst about him is true, and that he's "totally duplicitous."

[Reality Check]

Someone who knows Ron Baron personally has written to tell me
that the worst about him is true, and that he's "totally duplicitous."

It is amazing that no one has sued you over your bold, and very specific, statements that these guys are liars.

The only possible reason is it would be obvious to all before, and during, the trial that you are telling the truth and they are telling lies.

Only possible defense against such a harassment suit ( designed to punish you financially with legal fees and shut you up ).

These folks do have the deep pockets that would allow them to start and maintain such a suit.

[John]

> It is amazing that no one has sued you over your bold, and very
> specific, statements that these guys are liars.

It's amazed me many times as well, especially since I've been getting
more and more explicit as time goes on.

But if I were making stuff up, I would at least get a "cease and
desist" letter, but I don't even get those. I'm just ignored, which
is the best thing for them, rather than calling attention to what I'm
doing.

I actually believe that I'm pretty safe from a lawsuit, for any
number of reasons.

First, they'd send me a "cease and desist" letter before suing,
and if things looked really bad for me, then I could remove the
statement.

Second, there's at least one lawyer who reads my site who would
help out, and probably more than one.

Third, I have no home and no assets to speak of. I have a little
money in the bank, but I owe more.

Fourth, if they filed something in a court, I would respond with a
document request that would freeze them in their tracks. By contrast,
they could have every document in my file cabinet or on my computer,
and it wouldn't help them with anything.

Fifth, they could use their deep pockets to pay millions of dollars to
lawyers to harass me, but all they'd do is lose millions of dollars.

Basically, they're better off ignoring me.

However, I should note that my column is cross-posted on the
Breitbart web site at

http://www.breitbart.com/Big-Peace/2013 ... all-Street

and they're not fleeing in terror either.

Basically, these guys really are crooks and liars, and they're not
going to sue anyone.

[mannfm11]

Good work on the stock market numbers John. I have done my own work over the years and your figures are accurate. I might add that the 4.5% you mention as long term growth also includes a 3% inflation component, thus holding the entire stock market provides a gross of 1/2% over the risk free rate of return. There is more missing in these figures, like the companies that go to zero that must be replaced with new money (WCOM, ENE, GM, AIG, C, BS, LEH......). You can go to the S&P site and get the ongoing value of a point, which is the adjusted value of the investment in the index from time to time. After the 2008 crisis, there was over $1 trillion of new money that had to be put into the index to replace what was wheeled out, thus a hidden total loss. I included C and AIG, not because they actually went to zero, but that the pre 2008 ownership was significantly diluted in the aftermath. Also, stock buybacks reduce the divisor and being dividends, even today after bottoming 13 years ago, are at historic low levels. The market won't exhibit 1982 values for at least another 15 years and probably closer to 30, at which time a dollar would have been devalued to 30 cents or so. 1982 valuations had been brought about by a tripling of the CPI between 1966 and 1982 and dividends in 1982 were over 6% on the SPX. The man making those statements should have a jackhammer used on him the next time he goes to the dentist so his words change.

The 1929 top had a dividend rate of 3%. We are 150% of top 1929 value using the only real measure of buy and hold valuation. Though your graph shows a 2.15% dividend, much of that was borrowed money paid out in advance of the tax deal in the last quarter of 2012. Stocks are open ended investments, meaning there is no maturity other than liquidation. You can't compare stocks to 10 year treasuries, because the discount risk on a stock or a portfolio of stocks is massively greater than a security that will mature in 10 years.

Here is the greatest risk in the market. Baron mentions the increase in earnings since 2000. As you stated, he is either lying, delusional or stupid. Well, dividends have roughly doubled since 2000. When you consider the amount of the index made up by CSCO, INTC and MSFT in 2000 and the fact those 3 companies paid no dividend at that time, as in ZERO, it can be assumed much of that growth has been from those 3 companies. INTC and MSFT could have both paid dividends of a decent amount then and along with CSCO, have instead focused their cash on buying back stock. Instead of enriching the remaining shareholders, this policy, more often than not, leaves them eventually holding the bag if not eventually replaced with paying growing dividends. Growth in dividends is the only real valuation component of the current valuation model of a stock, though one could look at liquidation value.

What has increased earnings in stocks? Well, the word is credit bubble and now government debt bubble. Without these 2 bubbles, we could see earnings deflate and not return to current levels for 15 to 20 years. The market was restored after 20 years around 1950 due to massive government spending inflation, not due to real growth. The 29 peak wasn't exceeded until 54 or 55, at which time, the dollar had it value halved. Massive earnings growth through government interference in the 1920's created the 1929 peak. We are seeing the same thing today. Plus, more and more capital is being tied up in the money supply, as it now has to exist.

I am sure we won't see the low levels you mention or Robert Prechters mentions, not because the valuations won't go there. I don't believe they will allow the number to shrink that much, because the very survival of the government depends on inflation. Thus, it might only fall to 6000, but the 6000 won't be worth 500.