(CFD.net.au – Contract for Difference, Share, Forex, ETFs, Commodities Traders) -

By Shobhana Chandra

The S&P/Case-Shiller home-price

Index

climbed 1 percent from the prior month, seasonally adjusted, after a 1.2 percent increase in July, the group said today in New York. From a year earlier, the gauge fell 11.3 percent, less than forecast.

Rising home sales, due in part to government programs including the first-time buyer credit and efforts to lower borrowing costs, have helped stem the slump in property values that precipitated the worst recession since the 1930s. Sustained gains in household spending, the biggest part of the economy, may be harder to come by as joblessness mounts.

“We’re nearing the bottom in home prices,” said

Patrick Newport

, an economist at IHS Global Insight in Lexington, Massachusetts. “Right now the government is helping to stabilize housing.”

Most stocks in the U.S. fell for a third day as an unexpected drop in consumer confidence spurred concern about the strength of the recovery. The

Standard & Poor’s 500 Index

closed down 0.3 percent at 1,063.41.

The home-price Index was forecast to fall 11.9 percent from August 2008, after a 13.3 percent drop in the 12 months ended in July, according to the median forecast of 33 economists surveyed by Bloomberg News. Estimates ranged from declines of 11 percent to 13.3 percent. Year-over-year records began in 2001.

Price Rebound

The gains over the last three months have been the strongest since the three months ended in December 2005.

Nineteen of the 20 cities in the S&P/Case-Shiller index showed a smaller decline year-over-year than in July. Dallas showed the smallest drop since August 2008, at 1.2 percent, while Las Vegas showed a 30 percent decrease, the most of any city.

Compared with the prior month, 15 of the 20 areas covered showed an increase while four showed a decline. The biggest month-over-month gain was in San Francisco, which showed a 2.6 percent gain. Dallas, with a 0.04 percent increase, was virtually unchanged.

“The good news about this is it really looks like a bottom,”

Karl Case

, an economics professor at Wellesley College and co-creator of the index, said today in an interview on Bloomberg Radio. “The two risks are employment is terrible and the pipeline is still full of Foreclosures. That has to be cleared out eventually for this to really turn up and produce a recovery.”

Housing Stabilizes

In the latest evidence of rising demand, existing

home sales

in September jumped to a 5.57 million annual rate, more than economists forecast and the highest in more than two years, according to data from the National Association of Realtors issued last week.

Housing and manufacturing are leading the stabilization in the economy, the Federal Reserve said in the Beige Book survey of conditions in its 12 district banks during September and early October.

“Most districts reported that housing market conditions improved in recent weeks, primarily from a pickup in sales of low- to middle-priced houses,” the Fed said.

Foreclosure Risk

One risk to the emerging stabilization is Foreclosures, which worsen the property glut. Foreclosure rates will climb through late 2010, peaking only after the unemployment rate reaches 10.2 percent in the second quarter,

Jay Brinkmann

, chief economist at the Mortgage Bankers Association, said this month.

Unemployment,

which is projected to exceed 10 percent by early 2010, according to the median estimate in a Bloomberg survey earlier this month, will also limit demand. economists and industry groups are among those projecting home sales will also cool in the absence of the $8,000 credit for first-time buyers, due to expire Nov. 30. Lawmakers are debating extending the credit.

The Standard & Poor’s

Supercomposite Homebuilding

Index has climbed 22 percent since the beginning of July on the improving outlook for housing, compared with a 16 percent increase in the S&P 500 index. The builder index fell yesterday on concern that the tax-credit program may not be extended.

“The residential housing market appears to have stabilized, but it has done so at a very low level,”

William Foote

, chief executive officer of

USG Corp.

, North America’s largest maker of gypsum wallboard, said Oct. 21 on a conference call. The Chicago-based company posted its eighth straight net loss last quarter as sales dropped 32 percent from a year ago.

Case and

Robert Shiller

, chief economist at MacroMarkets LLC and a professor at Yale University, created the home-price index based on research from the 1980s.

To contact the reporter on this story:

Shobhana Chandra

in Washington at

schandra1@bloomberg.net

Last Updated: October 27, 2009 16:27 EDT

Source: Home-Price Index of 20 U.S. Cities Up for Third Month (Update2)

First Bernanke Now Blankfein?

The grassroots good government and legal reform advocate known as POPULAR, Inc. (POPULAR) announced the year-end recipients of its bi-annual “Restore Integrity Award”. The award program administrators state “we are delighted that judges comprise half of our year-end award recipients,” noting “judges Lackey, Schack, and Spinner resisted powerful private interests without waiting for a groundswell of public support for their actions.”

Washington, DC (PRWEB) The grassroots good government and legal reform advocate known as POPULAR, Inc. (POPULAR) announced the year-end recipients of its bi-annual “Restore Integrity Award”.

Katherine Moore and Nancy Swan co-administer the award program as POPULAR’s Advisory Board President and Vice President, respectively. In June of this year they characterized the program as “an urgent measure” given a report by Transparency International that overall perception of corruption had increased 8 percent worldwide.

POPULAR’s 2009 year-end “Restore Integrity Award” recipients are as follows:

Public Sector Category:
- Judge Henry L. Lackey for reporting the bribery overture to federal authorities that derailed a seemingly invincible, corrupt segment of the Mississippi legal system led by various “Kings of Torts,” certain powerful lawyers who sullied the noble mission of the plaintiffs’ bar for personal gain.
- Judge Arthur M. Schack for his appropriately strict scrutiny of foreclosure cases before him and corresponding mantra, “(i)f you are going to take away someone’s house, everything should be legal and correct.”
- Judge Arlen Spinner for his bold step of preempting $525,000 in mortgage payments demanded by a California bank “so as to deter it from imposing further mortifying abuse” on a Long Island couple appearing before him in the underlying foreclosure dispute.

Private Sector Category:
- Retired U.S. Chief Deputy Marshal Matthew Fogg for his unique insights and public speaking on America’s failed War On Drugs, contending “(d)rug prohibition helps the U.S. maintain a racial apartheid prison industrial complex.”
- Mr. Alan Lange for his balanced expose´ on the Mississippi judicial bribery and racketeering cases of Paul Minor and Dickie Scruggs, now chronicled and published with Lange’s coauthor as the book “Kings of Torts.”

Grassroots Advocacy Category:
- Captain Dan Hanley of the “Whistleblowing Airline Employees Association” for his relentless advocacy to ultimately keep the skies safe for millions of air travelers, culminating with a recent commitment by the U.S. Securities and Exchange Commission to consider alleged improprieties attendant to the United Airlines Chapter 11 bankruptcy.

Moore and Swan add, “we are delighted that judges comprise half of our year-end award recipients.” Swan explains, “judges Lackey, Schack, and Spinner resisted powerful private interests without waiting for a groundswell of public support for their actions. Such quiet, brave displays of integrity are particularly refreshing in our society of Terri-Schiavo-Jena-6-like quests for justice.”

Moore emphasized that “all of POPULAR’s award recipients have taken or otherwise pursued one or more specific acts or measures to eliminate significant inequity, waste, fraud, abuse, or other public and/or private sector corruption in America.” POPULAR reportedly defines corruption as “any illegal or unethical conduct contributing to the systemic malfunction of government, commerce, and/or democracy in America as contemplated by the U.S. Constitution.”

POPULAR will mail its year-end award recipients an encased certificate, commemorating their award. All but the judges were emailed prior notification of and congratulated for receiving the award. POPULAR will announce its third round of award recipients in June 2010.

To learn about prior “Restore Integrity Award” recipients, visit http://www.popular4people.org/Restore_Integrity_Awards.html

POPULAR is an acronym for “Power Over Poverty Under Laws of America Restored”. The nonprofit corporation is an association of public interest attorneys and Juris Doctors, advised by a board of nonlawyer, community leaders. These good government advocates are committed to helping poor and other disadvantaged people access affordable and competent legal representation, appropriate judicial oversight, and important civil and criminal justice system reforms. See: http://www.popular4people.org/Home.html

4closureFraud
http://4closurefraud.wordpress.com/

612 BOOTH BIG BEAR CITY

3 BEDROOM 2 BATH 1200 SQ FT HOME ON A 5000 SQ FT LOT

LISTED AT $144,800

GOOD LOCATION GAMBREL STYLE MTN CABIN. NEW PAINT AND CARPET. LARGE LIVING ROOM WITH BRICK FIREPLACE AND WOOD WALLS AND CEILINGS FOR WARMTH. KITCHEN AND DINNING AREA IS EQUALLY IMPRESSIVE. SECOND FLOOR FINDS THREE BEDROOMS AND A LARGE BATHROOM FOR STORING THOSE WINTER CLOTHS. BUYER TO BE PREQUALIFIED WITH SELLER. FREE CRDT RPT AND APPRAISAL WHEN BUYER FINANCES THOUGH SELLER.

*Listing Courtesy of Parkinson Group Resort Properties

42742 Willow, Moonridge Area of Big Bear Lake

2 bedroom 2.5 bath home 1138 sq ft home on a 5000 sq ft lot

Listed fort $164,000

CHARMING MOONRIDGE CABIN NEAR SKI SLOPES. WOOD T&G WALLS AND CEILINGS GIVE THIS HOME THAT WARM MTN FEEL. DINING ROOM, LAUNDRY AND SLEEPING/STORAGE LOFT. CENTRAL FORCED AIR. BUYER TO PAY $75 DOC FEE AT CLOSING. ALL CONTRACTS ARE SUBJECT TO SELLER SR MGT APPROVAL AND ANY OFFERS OR COUNTER OFFERS BY SELLER ARE NOT BINDING UNLESS THE ENTIRE AGREEMENT IS RATIFIED BY ALL PARTIES.  

*Listing Courtesy of Keller Williams Big Bear

714 Fairway, Big Bear City

3 bedroom 2 bath home 1895 sq ft home on a 5000 sq ft lot

Listed at $189,900

WHAT A VIEW! EXTERIOR FRESHLY PAINTED, FENCED YARD W/LOTS OF PARKING. RECENTLY UPDATED WITH WOOD FLOORING,TILE FLOORING AND MARBLE COUNTERTOP IN BATHS. MASTER HAS WALKIN CLOSET. FAMILY/GAMEROOM WITH ATTACHED STORAGE AREA.ROCK FIREPLACE IS LIVING ROOM. PINE CABINETS WITH GRANITE COUNTERS. LARGE DECK AND BRICK PATIO. BUY FOR ONLY 3% DOWN! APPROVED HOMEPATH MORTAGE FINANCING.

*Listing Courtesy of MOUNTAIN TOP PRODUCERS REALTY

NY Times: “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

Mr. Lippmann made his pitch to select hedge fund clients, arguing they should short the mortgage market. He sometimes distributed a T-shirt that read “I’m Short Your House!!!” in black and red letters.

While the investigations are in the early phases, authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them,

Editor’s Note: It would be wise to pay careful attention to news reports and press releases from investigating agencies and to track the discovery in class action and other cases filed. A lot of your work might already be done, right down to the same lender you are  dealing with.

Banks Bundled Bad Debt, Bet Against It and Won

In late October 2007, as the financial markets were starting to come unglued, a Goldman Sachs trader, Jonathan M. Egol, received very good news. At 37, he was named a managing director at the firm.

Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.

Goldman’s own clients who bought them, however, were less fortunate.

Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.

Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.

How these disastrously performing securities were devised is now the subject of scrutiny by investigators in Congress, at the Securities and Exchange Commission and at the Financial Industry Regulatory Authority, Wall Street’s self-regulatory organization, according to people briefed on the investigations. Those involved with the inquiries declined to comment.

While the investigations are in the early phases, authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them, people briefed on the matter say.

One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.

Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created.

Goldman and other Wall Street firms maintain there is nothing improper about synthetic C.D.O.’s, saying that they typically employ many trading techniques to hedge investments and protect against losses. They add that many prudent investors often do the same. Goldman used these securities initially to offset any potential losses stemming from its positive bets on mortgage securities.

But Goldman and other firms eventually used the C.D.O.’s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients’ interests.

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

Investment banks were not alone in reaping rich rewards by placing trades against synthetic C.D.O.’s. Some hedge funds also benefited, including Paulson & Company, according to former Goldman workers and people at other banks familiar with that firm’s trading.

Michael DuVally, a Goldman Sachs spokesman, declined to make Mr. Egol available for comment. But Mr. DuVally said many of the C.D.O.’s created by Wall Street were made to satisfy client demand for such products, which the clients thought would produce profits because they had an optimistic view of the housing market. In addition, he said that clients knew Goldman might be betting against mortgages linked to the securities, and that the buyers of synthetic mortgage C.D.O.’s were large, sophisticated investors, he said.

The creation and sale of synthetic C.D.O.’s helped make the financial crisis worse than it might otherwise have been, effectively multiplying losses by providing more securities to bet against. Some $8 billion in these securities remain on the books at American International Group, the giant insurer rescued by the government in September 2008.

From 2005 through 2007, at least $108 billion in these securities was issued, according to Dealogic, a financial data firm. And the actual volume was much higher because synthetic C.D.O.’s and other customized trades are unregulated and often not reported to any financial exchange or market.

Goldman Saw It Coming

Before the financial crisis, many investors — large American and European banks, pension funds, insurance companies and even some hedge funds — failed to recognize that overextended borrowers would default on their mortgages, and they kept increasing their investments in mortgage-related securities. As the mortgage market collapsed, they suffered steep losses.

A handful of investors and Wall Street traders, however, anticipated the crisis. In 2006, Wall Street had introduced a new index, called the ABX, that became a way to invest in the direction of mortgage securities. The index allowed traders to bet on or against pools of mortgages with different risk characteristics, just as stock indexes enable traders to bet on whether the overall stock market, or technology stocks or bank stocks, will go up or down.

Goldman, among others on Wall Street, has said since the collapse that it made big money by using the ABX to bet against the housing market. Worried about a housing bubble, top Goldman executives decided in December 2006 to change the firm’s overall stance on the mortgage market, from positive to negative, though it did not disclose that publicly.

Even before then, however, pockets of the investment bank had also started using C.D.O.’s to place bets against mortgage securities, in some cases to hedge the firm’s mortgage investments, as protection against a fall in housing prices and an increase in defaults.

Mr. Egol was a prime mover behind these securities. Beginning in 2004, with housing prices soaring and the mortgage mania in full swing, Mr. Egol began creating the deals known as Abacus. From 2004 to 2008, Goldman issued 25 Abacus deals, according to Bloomberg, with a total value of $10.9 billion.

Abacus allowed investors to bet for or against the mortgage securities that were linked to the deal. The C.D.O.’s didn’t contain actual mortgages. Instead, they consisted of credit-default swaps, a type of insurance that pays out when a borrower defaults. These swaps made it much easier to place large bets on mortgage failures.

Rather than persuading his customers to make negative bets on Abacus, Mr. Egol kept most of these wagers for his firm, said five former Goldman employees who spoke on the condition of anonymity. On occasion, he allowed some hedge funds to take some of the short trades.

Mr. Egol and Fabrice Tourre, a French trader at Goldman, were aggressive from the start in trying to make the assets in Abacus deals look better than they were, according to notes taken by a Wall Street investor during a phone call with Mr. Tourre and another Goldman employee in May 2005.

On the call, the two traders noted that they were trying to persuade analysts at Moody’s Investors Service, a credit rating agency, to assign a higher rating to one part of an Abacus C.D.O. but were having trouble, according to the investor’s notes, which were provided by a colleague who asked for anonymity because he was not authorized to release them. Goldman declined to discuss the selection of the assets in the C.D.O.’s, but a spokesman said investors could have rejected the C.D.O. if they did not like the assets.

Goldman’s bets against the performances of the Abacus C.D.O.’s were not worth much in 2005 and 2006, but they soared in value in 2007 and 2008 when the mortgage market collapsed. The trades gave Mr. Egol a higher profile at the bank, and he was among a group promoted to managing director on Oct. 24, 2007.

“Egol and Fabrice were way ahead of their time,” said one of the former Goldman workers. “They saw the writing on the wall in this market as early as 2005.” By creating the Abacus C.D.O.’s, they helped protect Goldman against losses that others would suffer.

As early as the summer of 2006, Goldman’s sales desk began marketing short bets using the ABX index to hedge funds like Paulson & Company, Magnetar and Soros Fund Management, which invests for the billionaire George Soros. John Paulson, the founder of Paulson & Company, also would later take some of the shorts from the Abacus deals, helping him profit when mortgage bonds collapsed. He declined to comment.

A Deal Gone Bad, for Some

The woeful performance of some C.D.O.’s issued by Goldman made them ideal for betting against. As of September 2007, for example, just five months after Goldman had sold a new Abacus C.D.O., the ratings on 84 percent of the mortgages underlying it had been downgraded, indicating growing concerns about borrowers’ ability to repay the loans, according to research from UBS, the big Swiss bank. Of more than 500 C.D.O.’s analyzed by UBS, only two were worse than the Abacus deal.

Goldman created other mortgage-linked C.D.O.’s that performed poorly, too. One, in October 2006, was a $800 million C.D.O. known as Hudson Mezzanine. It included credit insurance on mortgage and subprime mortgage bonds that were in the ABX index; Hudson buyers would make money if the housing market stayed healthy — but lose money if it collapsed. Goldman kept a significant amount of the financial bets against securities in Hudson, so it would profit if they failed, according to three of the former Goldman employees.

A Goldman salesman involved in Hudson said the deal was one of the earliest in which outside investors raised questions about Goldman’s incentives. “Here we are selling this, but we think the market is going the other way,” he said.

A hedge fund investor in Hudson, who spoke on the condition of anonymity, said that because Goldman was betting against the deal, he wondered whether the bank built Hudson with “bonds they really think are going to get into trouble.”

Indeed, Hudson investors suffered large losses. In March 2008, just 18 months after Goldman created that C.D.O., so many borrowers had defaulted that holders of the security paid out about $310 million to Goldman and others who had bet against it, according to correspondence sent to Hudson investors.

The Goldman salesman said that C.D.O. buyers were not misled because they were advised that Goldman was placing large bets against the securities. “We were very open with all the risks that we thought we sold. When you’re facing a tidal wave of people who want to invest, it’s hard to stop them,” he said. The salesman added that investors could have placed bets against Abacus and similar C.D.O.’s if they had wanted to.

A Goldman spokesman said the firm’s negative bets didn’t keep it from suffering losses on its mortgage assets, taking $1.7 billion in write-downs on them in 2008; but he would not say how much the bank had since earned on its short positions, which former Goldman workers say will be far more lucrative over time. For instance, Goldman profited to the tune of $1.5 billion from one series of mortgage-related trades by Mr. Egol with Wall Street rival Morgan Stanley, which had to book a steep loss, according to people at both firms.

Tetsuya Ishikawa, a salesman on several Abacus and Hudson deals, left Goldman and later published a novel, “How I Caused the Credit Crunch.” In it, he wrote that bankers deserted their clients who had bought mortgage bonds when that market collapsed: “We had moved on to hurting others in our quest for self-preservation.” Mr. Ishikawa, who now works for another financial firm in London, declined to comment on his work at Goldman.

Profits From a Collapse

Just as synthetic C.D.O.’s began growing rapidly, some Wall Street banks pushed for technical modifications governing how they worked in ways that made it possible for C.D.O.’s to expand even faster, and also tilted the playing field in favor of banks and hedge funds that bet against C.D.O.’s, according to investors.

In early 2005, a group of prominent traders met at Deutsche Bank’s office in New York and drew up a new system, called Pay as You Go. This meant the insurance for those betting against mortgages would pay out more quickly. The traders then went to the International Swaps and Derivatives Association, the group that governs trading in derivatives like C.D.O.’s. The new system was presented as a fait accompli, and adopted.

Other changes also increased the likelihood that investors would suffer losses if the mortgage market tanked. Previously, investors took losses only in certain dire “credit events,” as when the mortgages associated with the C.D.O. defaulted or their issuers went bankrupt.

But the new rules meant that C.D.O. holders would have to make payments to short sellers under less onerous outcomes, or “triggers,” like a ratings downgrade on a bond. This meant that anyone who bet against a C.D.O. could collect on the bet more easily.

“In the early deals you see none of these triggers,” said one investor who asked for anonymity to preserve relationships. “These things were built in to provide the dealers with a big payoff when something bad happened.”

Banks also set up ever more complex deals that favored those betting against C.D.O.’s. Morgan Stanley established a series of C.D.O.’s named after United States presidents (Buchanan and Jackson) with an unusual feature: short-sellers could lock in very cheap bets against mortgages, even beyond the life of the mortgage bonds. It was akin to allowing someone paying a low insurance premium for coverage on one automobile to pay the same on another one even if premiums over all had increased because of high accident rates.

At Goldman, Mr. Egol structured some Abacus deals in a way that enabled those betting on a mortgage-market collapse to multiply the value of their bets, to as much as six or seven times the face value of those C.D.O.’s. When the mortgage market tumbled, this meant bigger profits for Goldman and other short sellers — and bigger losses for other investors.

Selling Bad Debt

Other Wall Street firms also created risky mortgage-related securities that they bet against.

At Deutsche Bank, the point man on betting against the mortgage market was Greg Lippmann, a trader. Mr. Lippmann made his pitch to select hedge fund clients, arguing they should short the mortgage market. He sometimes distributed a T-shirt that read “I’m Short Your House!!!” in black and red letters.

Deutsche, which declined to comment, at the same time was selling synthetic C.D.O.’s to its clients, and those deals created more short-selling opportunities for traders like Mr. Lippmann.

Among the most aggressive C.D.O. creators was Tricadia, a management company that was a unit of Mariner Investment Group. Until he became a senior adviser to the Treasury secretary early this year, Lewis Sachs was Mariner’s vice chairman. Mr. Sachs oversaw about 20 portfolios there, including Tricadia, and its documents also show that Mr. Sachs sat atop the firm’s C.D.O. management committee.

From 2003 to 2007, Tricadia issued 14 mortgage-linked C.D.O.’s, which it called TABS. Even when the market was starting to implode, Tricadia continued to create TABS deals in early 2007 to sell to investors. The deal documents referring to conflicts of interest stated that affiliates and clients of Tricadia might place bets against the types of securities in the TABS deal.

Even so, the sales material also boasted that the mortgages linked to C.D.O.’s had historically low default rates, citing a “recently completed” study by Standard & Poor’s ratings agency — though fine print indicated that the date of the study was September 2002, almost five years earlier.

At a financial symposium in New York in September 2006, Michael Barnes, the co-head of Tricadia, described how a hedge fund could put on a negative mortgage bet by shorting assets to C.D.O. investors, according to his presentation, which was reviewed by The New York Times.

Mr. Barnes declined to comment. James E. McKee, general counsel at Tricadia, said, “Tricadia has never shorted assets into the TABS deals, and Tricadia has always acted in the best interests of its clients and investors.”

Mr. Sachs, through a spokesman at the Treasury Department, declined to comment.

Like investors in some of Goldman’s Abacus deals, buyers of some TABS experienced heavy losses. By the end of 2007, UBS research showed that two TABS deals were the eighth- and ninth-worst performing C.D.O.’s. Both had been downgraded on at least 75 percent of their associated assets within a year of being issued.

Tricadia’s hedge fund did far better, earning roughly a 50 percent return in 2007 and similar profits in 2008, in part from the short bets.

The Wall Street Journal has adopted the Murdoch brand of “news” reporting and with it, an attack on the basic principles of law that have been in place for hundreds of years. As you can see from the article below they acknowledge that more and more Judges are finding flaws in the foreclosure scheme, but frames it as a question about whether Judges are losing their “impartiality.”

This tactic, long expected, by those of us that have been promoting fairness and justice in mortgage litigation, is intended to inflame state legislatures into enacting “relief” measures that would “protect” pretender lenders from “technical” defenses and attacks from those crafty homeowners and their lawyers. This is a time honored tradition of the business community to use their money and ability to gain access to legislators and make it legal to do what was illegal. That is exactly what got us into this mess in the first place.

At the root of the crisis are toxic titles, loans that have been paid several times over, and foreclosers who have nothing to lose and everything to gain from foreclosure (at the expense of the real people who put up the money and their homes). It will take decades to unravel the legal mess created by these mortgages and by allowing foreclosed titles to go to parties that had nothing to do with the loan.

The silver lining here is that the lenders are obviously getting worried enough to plant articles like the one below.

Foreclosure Challenges Raise Questions About Judicial Role

By AMIR EFRATI

A group of state and federal judges presiding over foreclosures are wiping away borrowers’ mortgage debt, invalidating foreclosure sales and even barring some foreclosures outright.

The decisions in recent months by a handful of judges in states including Massachusetts, New York and Texas mark a new phase in the judiciary’s battle to stem the rising tide of foreclosures by punishing mortgage companies for paperwork mistakes and alleged mistreatment of borrowers.

The number of judges taking such action remains small, and most foreclosures go through without a challenge.

But the growing number of rulings against lenders’ claims is raising questions among some legal experts about judges’ impartiality.

“The question is whether judges are changing the rules in the middle of the game…just because there is a financial crisis,” says Todd Zywicki, a law professor at George Mason University and a critic of policy initiatives aimed at curtailing lenders’ ability to foreclose.

As early as 18 months ago, several judges in California, New York, Ohio and elsewhere would dismiss foreclosure cases if they could find reason to do so. But those judges often allowed the mortgage companies to refile their foreclosure claims after attesting to their ownership of the mortgage in the county in which the homeowner lives.

Now, after the country has been mired in a housing crisis for more than two years, more judges are calling these companies on their paperwork glitches, and in some cases going much further in their efforts to help homeowners.

It makes sense for judges to demand that mortgage companies follow the rules to the letter if they want to win foreclosure cases in court, says Raymond Brescia, an assistant professor at Albany Law School who has written about the role of the courts in the financial crisis. “I don’t think that’s a crazy idea,” he says. “To expect plaintiffs to prove their case is what the judicial system is founded on.”

But if judges decide to help borrowers in ways that overlook the merits of individual cases, Mr. Brescia adds, that would “undermine the integrity of the judiciary, and that’s not going to help anybody.” Instead, he says, it might trigger a backlash from legislators or regulators to rein in activist jurists.

At the heart of some of the court rulings is what became a common practice among mortgage companies: filing a foreclosure claim without showing proof that they actually own the mortgage and have the right to foreclose. This occurs in part because mortgages change hands multiple times after the original loan is made, but the mortgage documents and the contracts between borrowers and lenders are never altered to reflect those changes. Years later, it can be difficult to verify who is the owner of the mortgage.

That played a key role in a ruling in October by Keith Long, a state-court judge in Massachusetts. He invalidated two foreclosure sales that had occurred more than two years ago. The judge affirmed his own prior ruling that said units of U.S. Bancorp and Wells Fargo & Co. never had the right to sell the homes.

Judge Long ruled that even though the companies physically held the relevant mortgage documents, the mortgages were never legally assigned to them and recorded with the state.

“They’re selling something they don’t own,” says attorney Paul Collier, who began representing the borrowers in the case last year.

Walter H. Porr, a lawyer for the companies, which are appealing the ruling, says his clients “operated in what had been an accepted industry fashion for the better part of 15 or 20 years.” He adds: “We owned those mortgages.”

In October, a federal bankruptcy judge in White Plains, N.Y., rejected a claim by a mortgage company that the debtor owed $460,000. The judge, Robert D. Drain, said the company, PHH Mortgage Corp., couldn’t prove it owned the debt.

A spokeswoman for PHH, which is appealing, said the company is trying to resolve the case.

And in a prominent case in New York’s Suffolk County on Long Island, Jeffrey Spinner, a state-court judge, canceled $292,000 in mortgage debt after he ruled the borrowers were mistreated by IndyMac Bank.

The judge said in a November ruling that the bank displayed “harsh, repugnant, shocking and repulsive” behavior by making no attempt to negotiate a settlement with Diane Yano-Horoski after she and her husband fell behind on payments, despite a state law requiring the company to try.

OneWest Bank, which purchased the debt from IndyMac, plans to appeal. In a statement, it said the ruling, “if allowed to stand, has sweeping and dangerous implications.”

At least one judge has been admonished for appearing to favor borrowers. In September, a Florida state appeals court ruled that a lower-court judge, Valerie Manno Schurr, erred in routinely delaying foreclosure sales by several months. Her reasoning put concern for the homeowners ahead of the law, the appeals court said.

Judge Manno Schurr didn’t respond to requests for comment.

Write to Amir Efrati at amir.efrati@wsj.com

Actually, a client of mine is renting a residence that is in pre-foreclosure.  She called me because there was a stranger in her backyard taking photographs and she wanted to know why.  I ran a search on the property and found that the home she is living in is in pre-foreclosure.  There have been 4 loans taken on it since 2004…any one or all could be in default.

Pre-foreclosure is like a grace period.  The homeowner is being warned that they’re in default and need to do something about it, but at this point, the lender is unable to claim back the property and sell it to recoup their costs. The length of the grace period varies, as it’s determined by state laws. Some states allow the grace period to last for as long as 6 months, but many states have shorter periods.

We have just come across a huge number of new bank REO deals.  These range from $1000 homes in Michigan to commercial and residential deals in California.  Some of these bank REO deals allow cherry picking while others are take the entire package.  Visit our inventory page for details.  The ones listed below will be posted on their too.  http://www.tridentinvestmentsllc.com/reos/inventory.html.

SunBelt Package – Dec 2009 – Package 10 (2 small packages)

• Purchase price for 20 buildings: $682,000
• Cherry picking allowed
• Homes are in AR * 1; AZ * 3; CA * 2; LA * 2; NV * 1; OK *1; TX * 1; UT * 1; MA * 1; NJ * 4; NY * 2
• Plus 3 points

Chicago, IL – Dec 2009 – Package 11 (11 homes in Chicago, IL)

• Asking Price for all 11 homes: $139,100
• Most homes are 3 to 6 bedrooms
• Cherry Picking allowed.

Texas Package – Dec 2009 – Package 12 (18 homes in various major TX cities)

• Asking Price for all 18 homes: $482,800
• Cities include Dallas, Ft. Worth, San Antonio, Waco, Greenville, etc.
• Cherry Picking allowed.

Georgia Package – Dec 2009 – Package 13 (10 homes in various major GA cities)

• Originally 16 homes, down to 10
• Average asking price for each is in the mid $30,000s
• These have sold for mid $100,000s to lower $200,000s.
• Must be in contract by Dec. 29, 2009
• Cities include Decatur, Atlanta, Lithonia, and Stone Mountain
• Cherry Picking allowed.

CA Package – Dec 2009 – Package 14 (many packages including Land, Commercial, and SFR deals)

• 9 Page document showing 70 different deals.
• Average deal is around 60% LTV
• California areas include: San Diego, San Bernardino, Orange County, Los Angeles, Riverside
• Nevada areas include: Las Vegas
• Arizona areas include: Maricopa County, Phoenix
• Georgia areas include: Atlanta
• Texas areas include: Houston
• You can pick any deal out of the 70

Michigan Package – Dec 2009 – Package 15 (122 homes for $1000 each)

• 122 homes in Michigan
• Only $1000 each for a total purchase price of $122,000
• Quit Claim Deeds
• NO CHERRY PICKING. This is a take all deal.

Contact us today on these Bank REO deals.

Name: Kevin Dunlap

Company: Trident Investments Group

Phone: (702) 591-1784

Email: Kevin@TridentInvestmentsLLC.com

Main Web: http://www.tridentinvestmentsllc.com

Inventory List: http://www.tridentinvestmentsllc.com/reos/inventory.html

I wanted to give you all something for Christmas….maybe not exactly what you were hoping for, but perhaps more than ever, it is the thought that counts.

So, it’s not a shiny new stated income loan. Or a stay of execution from foreclosure proceedings. Or a chauffeured ride in Mr Peabody’s Way-Back Machine, to Christmas Past  when all our homes were worth more. In fact it’s not any of those great big dreams we were busy betting on the come not so long ago. No high rise condos in Las Vegas. Or shopping centers in Chowchilla.  No second homes in the mountains. Forget about those last two rentals in Fresno we could have leveraged into with the equity lines on our tiny Santa Cruz  bungalows.

There have been many occasions over the years in real estate, when I would wake with sudden clarity, from what felt like a somnambulist trance. In those moments I found myself wishing that the world would simply stop moving like a blur around me.  I just wanted to freeze everything in place. Give my fingers,  gripping the facade so tightly, a chance to relax. Forget about the strange surreal fluttering in my stomach that was mysteriously following me around from house to house like a dark shadow. Stop worrying about  all those people making huge life decisions on the fly with barely a second thought or glance behind at the houses they were buying.

For a long time, I’ve needed a breathing space and an opportunity to reflect.  A chance to search the landscape littered with careless chards of affluence in hopes of recovering a few small pieces of my own soul – ejected when the G forces on Mr. Toad’s Wild Real Estate Ride got so powerful it was impossible to hold it all together as a real person.

So some might say….  Be careful what you wish for…. You just might get it.   Well, that’s the both the bad news and the good news for this year’s Christmas Presence.

Now that we’ve had time to reflect – by choice or just by the default of the marketplace, how many of us would willingly plunge headlong back into those craziest of times? Sure we’d like to be a bit busier. But would we really want go back to that place where 18 offers in the first two days was considered normal?  Where overbids regularly stretched people’s boundaries past any recognizable human form? If this is your wish for Christmas future,  then you really haven’t gotten the message or spent enough time in mindful meditation about the miraculous gift  that has been put on our plates.

In case you haven’t noticed, the fundamental reality of our economic system has changed forever.  On some deeper level, we all knew this was coming. We all knew we were living beyond our means even in this, the wealthiest nation on earth where 5% of the world’s population uses 25% of the world’s resources. All of us have felt the existential pangs and emptiness of materialism and what  it feels like to invest our identity and sense of self-worth in the ubiquitous, consumer-driven world of “stuff”.

And now, that the frenzy has abated, we’ve been given another chance to summon the collective courage to live beyond this moment differently with a new sense of responsibility to ourselves and to others.

Maybe this will be the economic downturn where crime rates and divorce rates don’t increase and instead,  more random acts of kindness and senseless acts of beauty are spontaneously reported.  Maybe people will  pay it forward this time instead of letting it all pile up on their revolving/spiraling 18% credit cards.  Maybe this will be the economic down turn where  the goal isn’t to return to a bigger and flashier version of business as usual but rather to create a new spiritual and enlightened moral vision of what business as usual really ought to be.

Anyone who still gets a tear in their eyes while watching It’s A Wonderful Life t and A Christmas Carol  is still capable of accessing that deeper desire for a different value system -  one where self-interest and idealism and social change all intersect.

So here is your Christmas Presence. I compiled a small list of favorites to watch, read and reflect on.   Google the Following or Go Straight to my Blog Site www.real-estate-of-mind.com

George Carlin – A Wonderful Message

Jill Bolte Taylor – Powerful Stroke of Insight

Money as Debt (1-5)

Bill Moyers Interviews Andrew J. Bacevich

Michael Lewis – The End

Repossessing Virtue – Parker Palmer on Economic Crisis, Morality and Meaning/Podcast

George Carlin Talks About Stuff

Jeff Buckley – Hallelujah

by Robert Khuzami
Director, Division of Enforcement
U.S. Securities and Exchange Commission

Before the United States Senate Committee on the Judiciary

December 9, 2009

I. Introduction

Chairman Leahy, Ranking Member Sessions, Senator Kaufman, and Members of the Committee, thank you for the opportunity to testify today on behalf of the Securities and Exchange Commission (SEC). I am honored to be here to testify before you and alongside my esteemed colleagues from the U.S. Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI).

Today’s hearing is titled “Mortgage Fraud, Securities Fraud and the Financial Meltdown: Prosecuting Those Responsible.” Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors. The SEC is the only agency in the federal government focused primarily on investor protection; as such, we recognize our special obligation to uphold these principles.

As I will discuss in more detail below, in the enforcement area the SEC is moving on five primary fronts to advance these objectives. First, we are investigating and pursuing enforcement cases based on unlawful conduct related to the financial crisis. Second, we are enhancing our historically close working relationship with other law enforcement authorities, including the DOJ, in order to maximize the efficient use of limited resources, as well as to deliver a united and forceful response to those who would violate the federal securities laws. Third, we are implementing several initiatives, including the creation of national specialized units that will make the Division of Enforcement more knowledgeable and efficient in attacking both the causes of the recent financial crisis, as well as better arming us to address current and future market practices that are a potential cause for concern. Fourth, our staff is proposing various legislative reforms to provide the Division with improved tools to address securities fraud and related misconduct, including nationwide service of process, a whistleblower program and improved access to grand jury material. Last, in light of the magnitude and importance of the task of regulating and policing our capital markets and financial system, as well as the growing size, complexity, and number of market participants, we are seeking to address the compelling need for additional resources within the Division and throughout the SEC.

II. Recent Accomplishments and Initiatives

The Division of Enforcement has long combatted fraud in the financial markets, and our recent efforts continue this record. Although case statistics cannot tell the whole story, and I caution against placing undue emphasis on them, they are one indicator of the Division’s accomplishments. This past fiscal year, the SEC:

• Brought 664 enforcement actions;
• Ordered wrongdoers to disgorge $2.09 billion in ill-gotten gains (an increase of 170% compared to $774 million in fiscal 2008);
• Ordered wrongdoers to pay penalties of $345 million (an increase of 35% compared to $256 million in fiscal 2008);
• Sought 71 emergency temporary restraining orders to halt ongoing misconduct and prevent further investor harm (an increase of 82% compared to 39 in fiscal 2008);
• Sought 82 asset freezes to preserve assets for the benefit of investors (an increase of 78% compared to 46 in fiscal 2008); and
• Issued 496 orders opening formal investigations (an increase of over 100% compared to 233 in fiscal 2008).

Since January, we already have filed more than twice as many emergency temporary restraining orders in all cases across the board, as compared to the same period last year. In addition, where possible and appropriate, we return funds directly to harmed investors. Overall, since the 2002 passage of the Sarbanes-Oxley Act, the SEC has returned approximately $6.6 billion to injured investors.¹

A. Cases

We bring enforcement actions in a wide range of areas from accounting and disclosure fraud, to derivatives and structured products, to insider trading and market manipulation. With respect to cases arising out of the financial crisis, a central issue, as in many of the SEC’s enforcement cases, is whether investors received timely and accurate disclosure concerning the deteriorating business conditions, increased risks, and downward pressure on asset values experienced by a number of companies and funds during the financial crisis. For example, with respect to mortgage originators, specific issues include the extent and impact of the deterioration of the housing market on future business, and whether loan loss reserves were properly calculated in accordance with generally accepted accounting principles. The SEC also has focused on the possible failures of public companies to disclose the fair asset value of toxic assets and possibly false or misleading disclosures to investors and purchasers of structured products, including mortgage-backed securities and collateralized debt obligations, which have some form of mortgage as the underlying asset. Some examples of our mortgage-related enforcement actions, as well as actions in other areas, over the past year include the following:

Mortgage-Related Cases

• Just this week, the SEC filed charges against three former officers of New Century Financial Corporation, once the third largest subprime lender in the United States, for their alleged roles in including false and misleading information regarding the company’s subprime mortgage business and in materially overstating the company’s financial results by improperly understating its expenses relating to repurchased loans in Commission filings. The SEC’s complaint alleges that New Century failed to disclose material facts necessary to make its financial statements not misleading, including, among other things, dramatic increases in early default rates, loan repurchases and pending loan repurchase requests, and that New Century materially overstated its second and third quarter financial results in 2006 (for example, the complaint alleges that pre-tax earnings in the second quarter were overstated by 165%, while third quarter pre-tax earnings were improperly reported as a $90 million profit instead of an $18 million loss).²
• In June 2009, the SEC charged Angelo Mozilo, the former CEO of Countrywide Financial, and two other former Countrywide executives with fraud for allegedly deliberately misleading investors about the significant credit risks the company was taking in efforts to build and maintain market share. Our complaint alleges that Countrywide portrayed itself as underwriting mainly prime quality mortgages, while privately describing as “toxic” certain of the loans it was extending. The SEC’s complaint also charges Mozilo with alleged insider trading for selling his Countrywide stock based on non-public information for nearly $140 million in profit.³
• In April 2009 the SEC brought actions against three former executives at American Home Mortgage Investment Corp. for alleged accounting fraud and allegedly making false and misleading disclosures relating to the risk of its mortgage portfolio. Our complaint alleges that two of the executives fraudulently understated the company’s first quarter 2007 loan loss reserves by tens of millions of dollar, converting the company’s loss into a fictional profit. One of the executives, Michael Strauss, settled the SEC’s charges, without admitting or denying the SEC’s findings, by paying approximately $2.2 million in disgorgement and prejudgment interest and a $250,000 penalty, and agreeing to a five-year bar from serving as an officer or director of a public company.⁴
• In May and December 2009, the SEC brought two cases involving Brookstreet Securities Corp., a registered but now defunct broker-dealer, in connection with sales of allegedly unsuitable Collateralized Mortgage Obligations (CMOs) to retail customers. In the more recent action filed a few days ago, the SEC sued Brookstreet and its former President and CEO, alleging that from 2004 to mid-2007, the President and CEO helped create, promote, and facilitate an investment program, the “CMO Program,” through which Brookstreet improperly sold risky, illiquid CMOs to retail customers (including retirees and retirement accounts) with conservative investment goals. More than 1,000 Brookstreet customers invested approximately $300 million through the CMO program. Earlier, in the May action, the SEC sued ten registered representatives of the firm for allegedly making false statements when marketing the CMOs, allegedly receiving $18 million in commissions related to the investments and causing customers losses of over $36 million.⁵
• In June 2009, the SEC charged registered investment adviser Evergreen Investment Management Company, LLC, and an affiliate, with allegedly overstating the value of a mutual fund that invested primarily in mortgage-backed securities and for selectively disclosing problems with the fund to favored investors, allowing them to sell earlier than other investors and avoid losses. The adviser and its affiliate settled with the SEC, without admitting or denying the SEC’s findings, by agreeing to pay $3 million in disgorgement and prejudgment interest and a total civil penalty of $4 million, as well as make an additional payment of $33 million to compensate shareholders. The SEC received valuable assistance from the Secretary of the Commonwealth of Massachusetts and the Massachusetts Securities Division in the investigation.⁶
• In May 2009, in the Reserve Fund matter, the SEC charged the managers of a $62 billion money market fund whose net asset value fell below $1.00, or “broke the buck,” based in part on investments in Lehman-backed paper, for their alleged failure to properly disclose to the fund board material facts relating to the value of the Lehman-backed paper. On November 25, a federal judge in New York endorsed the SEC’s approach to distributing the fund’s assets on a pro-rata basis, which should result in an estimated return of at least 99 cents on the dollar for all shareholders who have not had their redemption requests fulfilled, regardless of when they submitted those redemption requests.⁷

Accounting Fraud

• In July 2009, the SEC charged the former Chief Accounting Officer of Beazer Homes, a homebuilder with operations in at least twenty-one states, with allegedly conducting a multi-year fraudulent earnings management scheme and misleading Beazer’s outside and internal auditors to conceal his fraud.⁸ In 2008, the SEC issued a settled order finding that Beazer Homes, among other things, decreased reported net income through improper reserves during a period of strong growth from approximately 2000 to 2005. Then, as Beazer’s financial performance began to decline in 2006, along with the housing market, Beazer reversed the improper reserves and increased its net income.⁹

Broker-Dealer, Investment Adviser, and Hedge Fund Misconduct

• Last month, the SEC charged New York-based investment adviser Value Line Inc., its CEO, its former Chief Compliance Officer, and its affiliated broker-dealer Value Line Securities, Inc., in a case involving over $24 million in allegedly bogus brokerage commissions on mutual fund trades funneled through Value Line Securities, Inc. The parties agreed to settle the SEC’s charges, without admitting or denying the SEC’s findings, by consenting to the entry of a cease-and-desist order, total payment of nearly $45 million in monetary remedies, industry and officer and director bars, and other relief.¹⁰
• In August 2009, the SEC took its first enforcement actions for alleged violations of the SEC’s rules to prevent abusive “naked” short selling, charging two options traders and their broker-dealers with violating the locate and close-out requirements of Regulation SHO. Regulation SHO requires broker-dealers to locate a source of borrowable shares prior to selling short and to deliver securities sold short by a specified date. In separate cases involving New York-based Hazan Capital Management LLC (HCM) and Chicago-based TJM Proprietary Trading LLC (TJM), the SEC alleged that the traders and their firms improperly claimed that they were entitled to an exception to the locate requirement and engaged in transactions that merely created the appearance that they were complying with the close-out requirement. The parties agreed to settle the SEC’s charges without admitting or denying the SEC’s findings. In the HCM case, the SEC ordered the parties to pay disgorgement of $4 million (deemed satisfied by the orders of NYSE Amex, LLC, and NYSE Arca, Inc., in their related actions) and acknowledged the respondents’ undertaking to pay fines totaling $1 million in the related SRO actions. In the TJM case, the SEC ordered the parties to pay disgorgement of over $500,000 (deemed satisfied by an order of the Chicago Board Options Exchange Inc. (CBOE), in its related action) and acknowledged the respondents’ undertaking to pay a $250,000 fine to the CBOE. Last month, the SEC followed up with a case against Rhino Trading, LLC, Fat Squirrel Trading Group, LLC, and two individuals for the parties’ similar alleged violations of Regulation SHO’s close-out requirement. The parties agreed to settle the SEC’s charges, without admitting or denying the SEC’s findings, and the SEC ordered the parties to pay total disgorgement of $395,000 (deemed satisfied by an order of the CBOE in its related action) and acknowledged the respondents’ undertakings to pay fines to CBOE totaling $180,000.¹¹
• In April 2009, the SEC charged New York-based investment adviser Hennessee Group LLC and its principal for failing to perform their advertised review and analysis before recommending that their clients invest in the Bayou hedge funds that were later discovered to be a fraud. The parties agreed to settle the SEC’s charges, without admitting or denying the SEC’s findings, and to pay over $800,000 in disgorgement and penalties, among other relief.¹²
• Beginning approximately one year ago, the SEC entered into a series of landmark settlements with six large broker-dealer firms — Citigroup Global Markets, UBS Financial Services, Wachovia Securities, Deutsche Bank Securities Inc., Bank of American Securities and RBC Capital Markets Corp. — for allegedly misrepresenting to their customers that auction rate securities (ARS) were safe, highly liquid investments that were equivalent to cash or money market funds. The firms failed to disclose the increasing risks associated with ARS, including their reduced ability to support the auctions. When the ARS market froze, customers were unable to liquidate their securities. Through these settlements the SEC enabled retail investors who purchased ARS to receive 100 cents on the dollar for their investments and restored approximately $60 billion in liquidity to the ARS market. These settlements were achieved due to the collective efforts of the SEC, the New York Attorney General’s Office, the North American Securities Administrators Association, and FINRA.¹³

Insider Trading

• Insider trading continues to be a significant program area, and this fall, the SEC filed charges relating to two complex insider trading rings alleging that more than $53 million in illegal profits were collectively obtained by 30 entities and individuals, including hedge fund portfolio managers and other Wall Street professionals, attorneys, and corporate insiders, among others. In the action against billionaire Raj Rajaratnam and Galleon Management LP, the SEC filed charges against a total of 21 individuals and entities, alleging that the scheme cumulatively generated more than $33 million in illicit gains. In another significant insider trading action, the SEC charged an attorney in the New York office of a major international law firm, another attorney, six Wall Street traders, and a proprietary trading firm for their alleged involvement in a $20 million insider trading scheme.¹⁴ The Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of New York provided invaluable assistance and cooperation in these cases.
• In May 2009, the SEC charged a former portfolio manager at hedge fund investment adviser Millennium Partners and a salesman at Deutsche Bank for alleged “cross-market” insider trading in credit default swaps on international holding company VNU. In this case, bank employees allegedly tipped the portfolio manager about an anticipated change in VNU’s underlying bond structure that substantially increased the price of the credit default swap, which allowed the defendants allegedly to profit from their purchase of credit default swaps when the restructuring was announced.¹⁵

Public Trust

• Last month, the SEC brought actions against J.P. Morgan Securities and two of its former managing directors for their roles in an alleged unlawful municipal securities pay-to-play scheme involving Jefferson County, Alabama. The SEC alleged that the firm and its two directors made more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners and that the commissioners in turn voted to select the firm as managing underwriter, and its affiliated bank as swap provider. J.P. Morgan did not disclose the payments or conflicts of interest in the swap confirmation agreements or bond offering documents when it passed along the cost of the payments in the form of higher interest rates on the swap transactions. J.P. Morgan settled the case, without admitting or denying the SEC’s findings, by paying $50 million to Jefferson County, forfeiting more than $647 million in claimed termination fees, and paying a penalty of $25 million.¹⁶
• Earlier in the year, working with the New York State Attorney General, the SEC charged Raymond B. Harding, the former leader of the New York Liberal Party, as well as Henry “Hank” Morris, a top political advisor, and New York’s former Deputy Comptroller for allegedly extracting kickbacks from investment management firms seeking to manage the assets of New York’s largest pension fund, the New York State Common Retirement Fund. Harding allegedly received a total of approximately $800,000 in sham “finder” fees.¹⁷

Ponzi Schemes

• The SEC investigates and prosecutes many Ponzi scheme cases each year, the majority of which are brought as emergency actions — seeking a temporary restraining order and an asset freeze — both to prevent new victims from being harmed and to maximize the recovery of assets to investors. Since the beginning of this calendar year, we have filed 55 cases involving Ponzi schemes or Ponzi-like payments.

Foreign Corrupt Practices Act

• Late last year, the SEC filed a settled civil injunctive action charging Siemens Aktiengesellschaft (Siemens), a Munich, Germany-based manufacturer of industrial and consumer products, with violations of the anti-bribery, books and records, and internal controls provisions of the Foreign Corrupt Practices Act (FCPA). The SEC brought this action in conjunction with the DOJ and the Office of the Prosecutor General in Munich, Germany. Siemens paid a total of $1.6 billion in disgorgement and fines in the three actions, which is the largest amount a company has ever paid to resolve corruption-related charges.¹⁸

B. Cooperation and Coordination with Other Authorities

The SEC historically has had a very close and cooperative working relationship with criminal and other regulatory authorities, including the DOJ, self-regulatory organizations, foreign regulators, state securities regulators, the Commodity Futures Trading Commission (CFTC), the U.S. Postal Inspection Service, the Department of Labor, the Special Inspector General for the Troubled Asset Recovery Program, and banking regulators. The nature and extent of the cooperation and coordination varies as appropriate from case to case and can include referrals, information sharing, simultaneous actions, SEC staff details, or other assistance on criminal cases. For example, in fiscal 2009, more than 150 of the SEC’s enforcement cases were filed in coordination with criminal charges filed by the DOJ and others, an increase of 30% over fiscal 2008. Similarly, we coordinated with criminal authorities and other regulators in approximately 75% of our most recent high priority cases. As noted in the cases above, we have brought several significant actions over the past year in which we worked closely with federal and state law enforcement authorities. These include the insider trading cases against Galleon Management LP and an attorney at a major international law firm, the pay-to-play cases against Raymond B. Harding and Henry “Hank” Morris, the FCPA case against Siemens, and the ARS settlements with Deutsche Bank, Citigroup, USB, Wachovia, RBC, and Bank of America.

Finally, last month, as part of the effort to better combat financial crime and mount a more organized, collaborative, and effective response to the financial crisis, the SEC joined the DOJ, the U.S. Department of the Treasury (Treasury), and the U.S. Department of Housing and Urban Development (HUD) in announcing the President’s newly-established interagency Financial Fraud Enforcement Task Force (Task Force). The DOJ will lead the Task Force with the assistance of the SEC, Treasury, HUD, and FBI serving on the Steering Committee. The Task Force leadership, along with representatives from a broad range of federal agencies, regulatory authorities, and inspectors general, will work with state and local authorities to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, address discrimination in the lending and financial markets, and recover proceeds of financial crimes for victims. The Task Force, which replaces the Corporate Fraud Task Force established in 2002, will build upon efforts already underway to combat mortgage, securities, and corporate fraud by increasing coordination and fully utilizing the resources and expertise of the government’s law enforcement and financial regulatory organizations. As an important, early step, the Securities Working Group of the Task Force will convene in New York on December 11, 2009. Attendees include the Regional Directors and Senior Officers of the SEC’s 12 offices nationwide, our counterparts from United States Attorney’s Offices, and representatives of the FBI, CFTC, and the U.S. Postal Inspection Service. The participants will share substantive expertise, exchange information and approaches for supporting successful organizations, and identify ways to improve coordination.

One of the vital aspects of the Task Force will be to better coordinate criminal and civil enforcement efforts. As a former federal prosecutor with the DOJ — and now as the Director of the Division of Enforcement at the SEC — I have seen first-hand the benefits of coordinated civil and criminal enforcement efforts. I am confident that the Task Force will result in greater opportunities to identify and prosecute wrongdoers, and thereby enhance public confidence in the integrity of our markets.

C. Division Reorganization

Since I became the Director of the Division of Enforcement in March of this year, we have been undertaking a top-to-bottom self-assessment of our Division’s operations and processes. We have asked ourselves how can we improve overall and specifically, how can we work smarter, swifter, be more strategic, and more successful. In short, our focus has been on developing as an organization and as individual public servants to fulfill our critical mission of investor protection.

Phase One of our Division self-assessment is now complete, and we have implemented or are in the process of implementing a number of key reforms. These changes have been described as the “the unit’s biggest reorganization in at least three decades.”¹⁹ Together, these changes are intended to optimize the use of our resources, to gather and utilize expertise across the Division and the SEC, to bring cases more swiftly and more efficiently, and to increase strategic analysis and proactive investigations. Highlights of the current changes include the following:

• Specialization. We are creating five new national specialized investigative groups that will be dedicated to high-priority areas of enforcement, including Asset Management (including hedge funds and investment advisers), Market Abuse (large-scale insider trading and market manipulation), Structured and New Products (including various derivative products), Foreign Corrupt Practices Act cases, and Municipal Securities and “Pay-to-Play” issues. Members of the specialized units will acquire the expertise and investigative insights that can only be developed by conducting investigations in the same subject area, combined with ready access to others with specialized skills. With increased focus, training, and access to specialized expertise, investigative staff will conduct more effective, efficient investigations. With a national focus, these specialized groups will help to cultivate a sense of common mission and mutual support among Division personnel in different regional offices.
• Management Restructuring. We are adopting a flatter, more streamlined organizational structure under which we will eliminate an entire layer of management. Our self-assessment revealed that we had a management structure that was too top-heavy, which created more process and delay than was optimal. We are reallocating a number of staff who were first line managers — some of our best and brightest in terms of experience and dedication — to the mission-critical work of conducting front-line investigations. As part of this effort, we will be working to maintain staff to manager ratios that will allow for close substantive consultation and collaboration — the goal is to have a management structure that facilitates timely case building, ensures quality control, and provides for the growth and development of the staff — ultimately enhancing the Division’s ability to fulfill its investor protection mission.
• Streamlining. We are streamlining a number of internal processes and procedures. This streamlining includes permitting senior officers to approve the issuance of subpoenas for documents and testimony, without having in most cases to secure advance formal authorization from the Commission. With this change, we will be able to move more quickly in ferreting out fraud, and be able to react immediately if confronted by recalcitrant targets or dilatory tactics.
• Cooperation Tools. We are developing, for use by the SEC, agreements, similar to those used by criminal law enforcement authorities, to secure the cooperation of persons who are on the “inside” or otherwise aware of organizations or associations engaged in fraudulent activity. These agreements, the most important of which is a so-called “cooperation agreement,” provide that such persons must agree to provide truthful evidence and testify against the organizers, leaders, and managers of such wrongful activity, in exchange for a possible reduction in sanctions imposed on them. Such cooperation agreements have the capacity to secure the availability of witnesses and information for the Division early on in investigations. The goal is to allow us to build stronger cases and to file them sooner than would otherwise be possible, thus preventing additional investor harm.
• Other Initiatives. In addition to those described above, we are implementing a number of other initiatives designed to improve our processes and overall effectiveness. Among other items,
  • We are enhancing our training and supervision, including creating a formal training unit to ensure that our staff is armed with the knowledge and expertise necessary to confront today’s complex market and products;
  • We have hired the Division’s first-ever Managing Executive, a COO-type role to focus on the Division’s operations. Where previously many administrative, operational, and infrastructure tasks were handled on an ad hoc basis by investigative personnel and could be a drain on investigative functions, those tasks will now be handled more efficiently and effectively by trained staff with the appropriate skill set;
  • We are establishing an Office of Market Intelligence, which will serve as a central office for the handling of complaints, tips, and referrals that come to the attention of the Division, coordinate the Division’s risk assessment activities, and support the Division’s strategic planning activities. In short, this office will enable us to have a unified, coherent, coordinated response to the huge volume of complaints, tips, and referrals we receive every day, thereby enhancing our ability to open the right investigations, bring the right cases, and ultimately protect investors;
  • We have hired experienced former federal prosecutors to serve as Deputy Director of the Division of Enforcement and Director of the New York Regional Office, two of the most significant positions in the Division.

I am confident that these changes — and others we will make along the way as we continue to self-assess and evaluate our progress — will reinvigorate our Division, restore investor confidence, and enable us to fulfill our mission of investor protection.

III. Continuing to Strengthen the Division

We will continue to strengthen the Division. Some of the challenges we encounter may be addressed by current legislative initiatives, while others may be addressed through our on-going self-assessment and by optimizing our use of limited resources.

A. Legislative Initiatives

To address issues faced by the Division, the staff has recommended several legislative measures to improve its ability to protect investors and deter wrongdoing. Many of these legislative initiatives have the potential to enhance substantially the Division’s powers and effectiveness. These include:

• Establishing a “whistleblower” program. We have recommended whistleblower legislation that would provide substantial rewards for tips from persons with unique, high-quality information. We expect this program to generate significant tips that we would not otherwise receive from persons with direct knowledge of serious securities law violations. This legislation, along with our cooperation initiatives, would increase incentives for persons to share full information quickly while expanding protections against retaliatory behavior. This proposed legislation has the potential to enable the Division to investigate violations more effectively and efficiently.
• Obtaining improved access to grand jury materials. The Division is seeking a narrow modification to the “grand jury secrecy rule” that would enhance the Division’s ability to conduct timely investigations and use resources efficiently. The proposed amendment would authorize the DOJ to seek court authorization to release certain limited grand jury information to Commission staff for use in matters within the Commission’s jurisdiction consistent with the statutory authority applying to such access by federal bank regulators. It would permit sharing of information only with regard to conduct that may constitute violations of the federal securities laws. With regard to that information, however, the proposed amendment would lessen the burden in obtaining court approval. The court could approve the sharing of the information upon a showing of a “substantial need in the public interest,” rather than the higher “particularized need” standard. In addition, under the proposed amendment the judicial proceeding requirement would not apply to the Commission, permitting information to be shared at an earlier stage in an investigation and in connection with an administrative proceeding.
• Establishing nationwide service of process. The SEC currently has nationwide service in administrative proceedings. Establishing nationwide service of process in civil actions filed in federal courts would produce a number of substantial advantages, including a significant savings in terms of travel costs and staff time through the elimination of duplicative depositions and the benefits of having live witnesses and party testimony before the trial court. The House recently passed a bill on this subject, and we are hopeful the Senate will support this as well.
• Additional initiatives. Additional legislative proposals that would serve to enhance the Division’s effectiveness and efficiency include the ability to seek civil penalties in cease-and-desist proceedings, the ability to seek penalties against aiders and abettors under the Investment Advisers Act of 1940, and the ability to charge aiding and abetting violations under the Securities Act of 1933 and the Investment Company Act of 1940.

In addition to the Enforcement-specific legislative initiatives outlined above, I believe that current proposed legislation to regulate OTC derivatives and require hedge funds and other private pools of capital to register with the SEC ultimately would improve the Division of Enforcement’s access to information about trades through uniform audit trails, greater transparency, and recordkeeping and reporting requirements. Furthermore, the SEC has undertaken a consideration of a number of issues concerning market structure, such as short selling, flash orders, direct market access, co-location, dark pools, and high-frequency trading.

B. Future Plans for the Division of Enforcement

We continually assess our processes and the way we use our resources. While the current legislative initiatives certainly will help to address some of the practical challenges we face in policing the financial markets, we recognize that there is more work to be done within the Division. We must ensure that we use our resources wisely, both human resources and the vast amount of information that are available to us. Some of the ways we are doing that include:

• Improving the handling of complaints, tips, and referrals. In March 2009, the SEC hired the MITRE Group, a non-profit, federally funded research and development firm, to conduct a comprehensive review of the SEC’s systems and procedures for evaluating and tracking complaints, tips and referrals (CTRs). We are now in the process of drafting new policies and procedures and laying the foundations for a centralized information technology solution that will provide the SEC with an automated mechanism for tracking, analyzing, and reporting the handling of CTRs.
• Tracking cases with qualitative metrics. As part of our focus on the quality and effectiveness of our enforcement program, we are implementing systems to measure certain qualitative factors of our investigations and cases. These metrics should help us track cases and determine whether our resources are being used effectively to file cases with programmatic significance in a timely manner.
• Improving information technology. Information technology is a priority for the Division. For example, increasing our electronic document management capacity will allow us to more effectively load, store, and search the millions of documents involved in our investigations. System improvements also will enhance our ability to track data and manage cases.

C. Resources

How to maximize and use resources efficiently is a continuing challenge for our Division. The scope and complexity of the financial industry has grown significantly over the last decade. Currently, the SEC oversees over 35,000 registrants, including 12,000 public companies, 11,000 investment advisers, 8,000 mutual funds, 5,500 broker dealers, 600 transfer agents, as well as exchanges, clearinghouses, NRSROs, and SROs. In contrast, the entire Division of Enforcement staff nationwide, including lawyers, accountants, information technology staff, and support staff, hovers only just above 1,100.

Given the size, complexity, and cross-border scope of the securities industry, and the huge volume of information that the SEC receives, the SEC — and our Division — needs far more resources to improve its ability to protect investors. We recognize our obligation to American taxpayers to use the resources we have as efficiently as possible — which forms the basis for many of the Division reforms I have described above, including the flattening of management, the streamlining of internal processes, and the increased use of cooperation tools. Even with these and other steps to increase our efficiency, however, our resources are inadequate for the task we confront. Thus, we must, among other improvements, increase the number of qualified staff in the Division and invest in critical information technology initiatives. Because of several years of flat or declining SEC budgets, the SEC has faced significant declines in resources in recent years. Despite the much appreciated budget increase received in 2009, the Division will still have significantly fewer staff than in it did four years ago, and its budget for improvements in technology remains lower than it was in 2005. I join Chairman Schapiro’s request for a self-funding mechanism that will allow us the resources and stability to truly police the world’s most sophisticated markets.

IV. Conclusion

The Division of Enforcement’s mission to vigorously enforce the federal securities laws is critical. As I hope my testimony here today demonstrates, we are aggressively bringing significant enforcement cases in a broad range of areas, including those arising out of the credit crisis. At the same time, we are committed to continue to revitalize and improve our programs, and pursue long-term improvements in our structure and processes. With the dedicated and talented men and women that I work beside each day in the Division, and alongside my colleagues at the DOJ, the FBI, and other law enforcement organizations, I am confident that we will successfully fulfill our mission.

I thank you for the opportunity to appear before you today. I would be pleased to answer your questions.

Endnotes

---

¹ During the 2009 calendar year alone, the SEC has distributed more than $2 billion to harmed investors. Section 308 of the Sarbanes-Oxley Act of 2002, codified at 15 U.S.C. �7246, enabled the Commission to distribute civil money penalties to investors in certain circumstances. In enforcement actions prior to the passage of the Sarbanes-Oxley Act, only funds paid as disgorgement could be returned to investors.

² SEC v. Brad A. Morrice, et al., Lit. Rel. No. 21327 (Dec. 7, 2009).

³ SEC v Angelo Mozilo, David Sambol, and Eric Sieracki, Lit. Rel. No. 21068A (June 4, 2009).

⁴ SEC v. Michael Strauss, Stephen Hozie and Robert Bernstein, Lit. Rel. No. 21014 (April 28, 2009).

⁵ SEC v William Betta, Jr., et al., Lit. Rel. No. 21061 (May 28, 2009) and SEC v. Brookstreet Securities Corp. and Stanley C. Brooks, Case No. SACV 09-01431 DOC (ANx) (C.D. Cal. Dec. 8, 2009).

⁶ In the Matter of Evergreen Investment Management Company, LLC and Evergreen Investment Services, Inc., AP File No. 3-13507 (June 8, 2009).

⁷ SEC v Reserve Management Company, Inc., Resrv Partners, Inc., Bruce Bent Sr. and Bruce Bent II, Lit. Rel. No. 21025 (May 5, 2009).

⁸ SEC v. Michael T. Rand, Lit. Rel. No. 21114 (July 1, 2009).

⁹ In the Matter of Beazer Homes USA, Inc., AP File No. 3-13234 (Sept. 24, 2009).

¹⁰ In the Matter of Value Line, Inc., et al., AP File No. 3-13675 (Nov. 4, 2009).

¹¹ In the Matter of Rhino Trading, LLC, Fat Squirrel Trading Group, LLC, Damon Rein, and Steven Peter, Lit. Rel. No. 60941 (Nov. 4, 2009); In the Matter of TJM Proprietary Trading, LLC, Michael R. Benson and John T. Burke, AP File No. 3-13569 (Aug. 5, 2009); and In the Matter of Hazan Capital Management, LLC and Steven M. Hazan, AP File No. 3-13570 (Aug. 5, 2009).

¹² In the Matter of Hennessee Group LLC and Charles J. Gradante, AP File No. 3-13454 (April 22, 2009).

¹³ SEC v. Banc of America Securities LLC and Banc of America Investment Services, Inc.; SEC v. RBC Capital Markets Corporation; and SEC v. Deutsche Bank Securities Inc., Lit. Rel. No. 21066 (June 3, 2009); SEC v. Wachovia Securities, LLC, Lit. Rel. No. 20885 (Feb. 5, 2009); SEC v. Citigroup Global Markets, Inc. and SEC v. UBS Securities LLC and UBS Financial Services Inc., Lit. Rel. No. 20824 (Dec. 11, 2008). This testimony refers only to public documents or statements about SEC v. Deutsche Bank Securities Inc., reflecting my recusal from the matter.

¹⁴ SEC v. Galleon Management, LP, et al., Lit. Rel. No. 21284 (Nov. 5, 2009) and SEC v. Cutillo, et al., Lit. Rel. No. 21283 (Nov. 5, 2009).

¹⁵ SEC v. Jon-Paul Rorech, et al., Lit. Rel. No. 21023 (May 5, 2009). This testimony refers only to public documents or statements about SEC v. Jon-Paul Rorech, et al., reflecting my recusal from the matter.

¹⁶ SEC v. LeCroy and MacFaddin, Lit. Rel. No. 21280 (Nov. 4, 2009) and In the Matter of J.P. Morgan Securities Inc., AP File No. 3-13673 (Nov. 4, 2009).

¹⁷ SEC v. Henry Morris, et al., Lit. Rel. No. 20963 (March 19, 2009), Lit. Rel. No. 21001 (April 15, 2009), Lit. Rel. No. 21018 (April 30, 2009).

¹⁸ Siemens agreed to pay $350 million in disgorgement to the SEC. In related actions, Siemens agreed to pay a $450 million criminal fine to the U.S. Department of Justice and a fine of �395 million (approximately $569 million) to the Office of the Prosecutor General in Munich, Germany. Siemens previously paid a fine of �201 million (approximately $285 million) to the Munich Prosecutor in October 2007. SEC v. Siemens Aktiengesellschaft, Lit. Rel. No. 20829 (Dec. 15, 2008).

¹⁹ David Scheer, SEC Never Did ‘Competent’ Madoff Probe, Report Finds (Update 2), Bloomberg.com, Sep. 2, 2009, http://www.bloomberg.com/apps/news?pid=20603037&sid=aBHQkUqCQppk.

http://www.sec.gov/news/testimony/2009/ts120909rk.htm

“The problem is not that the mortgages are in default. The problem is that the investment banks are in default of their obligations to investors and homeowners. Until Government and the Courts realize this simple fact, they will never untangle the debris caused by the illusion of a crash. If that day ever comes, more than 80% of our problems will vanish.”

“Legally, the ONLY way these mortgages could be viewed as being delinquent or in default is if we add a SECOND or THIRD party to the transaction each of whom is entitled to FULL payment. Sound impossible? That is exactly how millions of foreclosures have already been done and ratified by courts and judges over whose eyes the wool is so thick they err on the side of “blind” and forget about “justice.”

Editor’s Note: The article below shortens the analysis required to follow what really was going on. In simple terms, Goldman created toxic waste and sold it as gold. Goldman then bet that it was toxic waste, which was no “bet” since they knew for sure. When it turned out to be toxic waste, they collected on the bet. So they collected twice — first when they sold it to investors, and second when they collected on the “insurance.”

The investors were hung out to dry, along with the borrowers. Both lost the full value of their investment (measured in cash and/or property or liability), and both were left with potential greater liability than their investment if they pursued legal relief.

The point now being raised in the media is the realization of what we said 2 years ago — they had to CREATE toxic waste that would not suddenly convert to a performing loan.

Like the Broadway production or the movie, The Producers, if the loans started performing, then the accounting would show that the investment banks had only used a small percentage of the proceeds of sale from mortgage backed bonds to actually fund mortgages.

So, as we point out in the articles coming out today, Goldman and others inserted a provision that we pointed out 2 years ago wherein Goldman would declare the toxicity of the asset, thus forcing the market into a downward spiral. This gave them double the security and peace of mind they needed to know that the market would definitely crash. (It was actually Bear Stearns and Lehman who first invoked this provision).

The significance of this for homeowners is that in order to accomplish the goal of creating toxic loans that could not perform under any circumstances, a chain of securitization had to evolve in which homeowners would be induced to purchase the loan product under the mistaken impression it was a safe investment based upon representations of the “underwriter,” “appraiser” etc. This was a mirror of what was done to the pension funds who bought the pools of loan product under the mistaken impression that it was a safe investment based upon the representations of the underwriter, ratings agency etc.

This means that the securitization chain was created with the deliberate intent to create bad loans that would end up in “default” and in foreclosure. The only two real parties in interest — pension fund and homeowner were the only ones that actually lost money. Some investment banks also lost money if they were not in on the game.

The taxpayers bailed out the only parties who did NOT lose money, which explains the large bonuses while the economy is in “crisis.”

The mortgages and notes of “borrowers” were paid off several times over, as were the investments of the pension funds. The problem is not that the mortgages are in default. The problem is that the investment banks are in default of their obligations to investors and homeowners. Until Government and the Courts realize this simple fact, they will never untangle the debris caused by the illusion of a crash. If that day ever comes, more than 80% of our problems will vanish.

“Legally, the ONLY way these mortgages could be viewed as being delinquent or in default is if we add a SECOND or THIRD party to the transaction each of whom is entitled to FULL payment. Sound impossible? That is exactly how millions of foreclosures have already been done and ratified by courts and judges over whose yes the wool is so thick they err on the side of “blind” and forget about “justice.”

The ONLY way to peel away the layers over the eyes of government and the courts is to attack through discovery, contested factual issues and the requirements of proof.

Wednesday, December 23, 2009

“Body Count From Goldman Actions Crosses Into Criminal Territory”

By Thomas Adams, at Paykin Krieg and Adams, LLP, and a former managing director at Ambac and FGIC.

Readers may have noticed Janet Tavakoli’s recent article at Huffington Post on Goldman Sachs and AIG. While much of it covers territory that Yves and I already wrote about previously, Ms. Tavakoli stops short of telling the whole story. While she is very knowledgeable of this market, perhaps she is unaware of the full extent of the wrongdoings Goldman committed by getting themselves paid on the AIG bailout. The Federal Reserve and the Treasury aided and abetted Goldman Sachs in committing financial and ethical crimes at an astounding level.

She notes, accurately, that Goldman used AIG to hedge its bet on CDO’s, either for itself with the Abacus deals, or for its clients, with the Davis Square deal. Had AIG failed, Goldman would have been on the hook for the losses: to execute the CDO with synthetic mortgage bonds, Goldman went “long” the CDS and then turned around and went “short” with AIG, effectively taking the risk of the mortgage bonds defaulting and then transferring it to AIG.

But Ms. Tavakoli fails to note that the collapse of the CDO bonds and the collapse of AIG were a deliberate strategy by Goldman.

To realize on their bet against the housing market, Goldman needed the CDO bonds to collapse in value, which would cause AIG to be downgraded and lead to AIG posting collateral and Goldman getting paid for their bet. I am confident that Goldman Sachs did not reveal to AIG that they were betting on the housing market collapse.

To help hasten the housing market collapse, Goldman ran a huge mortgage lending and issuance program with low quality loans virtually designed to fail, including dozens of deals backed by completely toxic non-prime second lien loans (these loans help pump up the housing bubble and let borrower’s suck the equity out of their homes).

In soliciting AIG’s insurance for the CDOs, Goldman was not disclosing that the transaction was highly speculative. Goldman was offering AAA, or even super AAA bonds. Goldman designed and sold these bonds and purchased a rating from the rating agencies that represented the risk to be AAA. In fact, the bonds did not provide real protection, despite their AAA rating, and when the housing market turned down, the AAA CDO bonds collapsed in value exactly as they were designed to do.

Goldman never wanted these CDOs to succeed – their bet depended on them failing. This is why they used AIG as their insurer – AIG posted collateral, which enabled Goldman to still get paid even when AIG inevitably got downgraded for taking on such toxic deals.

Goldman needed AIG’s insurance to complete this bet and get them off risk for the CDO they created

Hedge fund manager John Paulson and others used the same strategy. Goldman’s bet was risky because they depended on AIG being solvent in order to get paid. Other parties who made similar betters, but relied on the other bond insurers to pay them off ended up getting hurt when the bond insurers got downgraded and the trade did not pay off, as well.

Months before AIG received its bailout, Goldman was well aware of the risk that insurers would pay less the full amount of the CDOs – Goldman was advising FGIC in its restructuring efforts and FGIC negotiated a CDO commutation for ten cents on the dollar. Goldman mitigated the risk of downgrade by dealing exclusively with AIG, which was required to post collateral in the event of a downgrade.

Goldman also misled shareholders and investors by proclaiming that they were not exposed to toxic CDOs because they were hedged with AIG, even as the bond insurers (AIG’s direct competitors in the CDO market), were getting downgraded.

It is bad enough that the creators and sellers of the CDOs, such as Goldman, BlackRock and TCW, have not been held to account for selling worthless bonds while representing them to be of AAA quality. Most of these influential power brokers have succeeded in blaming the victim (investors and insurers who believed their lies about the quality of the bonds) for the financial crisis to distract from their own questionable activities.

Goldman goes quite a few steps further into despicable territory with their other actions and the body count from Goldman’s actions is so enormous that it crosses over into criminal territory, morally and legally, by getting taxpayer money for their predation.

Goldman made a huge bet that the housing market would collapse. They profited, on paper, from the tremendous pain suffered by homeowners, investors and taxpayers across the country, they helped make it worse. Their bet only succeeded because they were able to force the government into bailing out AIG.

In addition, the Federal Reserve and the Treasury, by helping Goldman Sachs to profit from homeowner and investor losses, conceal their misrepresentations to shareholders, destroy insurers by stuffing them with toxic bonds that they marketed as AAA, and escape from the consequences of making a risky bet, committed a grave injustice and, very likely, financial crimes. Since the bailout, they have actively concealed their actions and mislead the public. Goldman, the Fed and the Treasury should be investigated for fraud, securities law violations and misappropriation of taxpayer funds. Based on what I have laid out here, I am confident that they will find ample evidence.

Update 12/23, 1:00 PM: Yves here. Some readers in comments are dismissing this post as mere Goldman bashing, when its behavior was far more pernicious. I was remiss in not adding a critical bit of Tom’s argument, which he provided in a separate post:

While the sub-prime deals and CDOs were obviously going bad, an argument was made by many people at the time that the aggressive mark downs by AIG accelerated the death spiral for the market.

It is pretty clear, here and elsewhere, that Goldman was the one that initiated the mark downs of collateral value. It would be interesting to explore this all the way through. Though not discussed in this article, Goldman shorted subprime through the Abacus deals, and perhaps elsewhere. this gave them an incentive to force mark downs. the intermediation deals described in the article, combined with AIG’s collateral posting, gave them another incentive to be aggressive with mark downs. they were acting like they wanted to grab the money before anyone else could get their hands on it. this would have raised some issues in an AIGFP bankruptcy. (note – Hank Greenberg suggested that this was going on in his October 2008 testimony but there was a chorus of attacks on him for being a crook and unreliable, thanks to his problems with Spitzer.)

So here we have the pattern:

1. Goldman creates or sells $23 billion (or more) of CDOs and stuffs them into AIG.

2. Goldman proclaims to the world they have no exposure to CDOs and warns that banks and insurers with CDO exposure will get downgraded.

3. Goldman initiates the mark downs of CDOs with AIG and others, accelerating the market’s downward spiral.

4. Huge mark to market losses lead insurer and bank credit to freeze, short term markets to lock up, ABCP to collapse.

5. AIG posts as much collateral as it has to Goldman, who has more aggressively marked down the exposure.

6. Bond insurers are downgraded, banks begin commutations with them.

7. AIG fails, Fed steps in, Goldman gets bailed out at par.

We have moved to the new house and I have been without a connection until today. My apologies for not getting back to you with details about MDX-1106 but I will do my best to get some answers out to you over the weekend.

We killed off the last pesky pockets of resistance with CyberKnife surgery on Monday and hopefully I will be on a cancer vacation for a while. The MDX-1106 has produced ‘dramatic results’ in my body and the team at Beth Israel is very excited and optimistic about all the news, as am I. Long term durability is always the question, but for now, this is the first bit of great news we have had in a long, three-year period. And we’ll take it. The cancer is on the run right now and this drug, the love and support of my family and friends, my mental state, and my physical well-being have all helped in the battle.

2009 was a really, really rough year for us. We lost our home, my cancer spread, I underwent three brain surgeries, and HDIL2. But I’m still here.

2010 will be a lot better, I promise.

News Release
FOR IMMEDIATE RELEASE
Amber Presley
512/439-8708
amber.presley@kw.com
News Release

Your friend in the real estate business,

Shelli Dore

Friend me on Facebook!
Connect with me on LinkedIn!
Follow me on Twitter!

…Remember! The next time you are in a conversation with someone who is thinking about a move – IN ANY CITY OR STATE IN THE US OR CANADA – call me first! I can help make sure your friends, family members and work associates are very well taken care of.

In the current economic downturn, one in five homes is under water. Real estate values continue to plunge leaving a short sale as one of the best and only options to avert foreclosure. It is a less damaging alternative to a distressed homeowner’s credit rating and spares him the agony and stigma of foreclosure. A short sale is often the favored option to banks. Statistical studies indicate that banks lose an average 40 percent on a foreclosure as against 19 percent on a short sale. Only 23 percent of short sale dealings are actually executed. 75% of transactions fail because of the inordinate delay in responding to the offer by the mortgage service provider. Rick Smith has closed dozens and dozens of short sales, at a close rate approaching 90%. 

Expediting Short Sales in the Bay Area 

Rick Smith is a certified distressed property expert whose strong suit is concluding short sale transactions. He is backed by over 20 years of experience in the real estate industry during which time he has established trust and rapport with banks. Because of this he is able to expedite short sale approvals. He knows the paperwork required and guides his clients in putting together a convincing short sale package. If you are a Bay Area resident and wish to effect a short sale transaction to avert foreclosure, Rick Smith is the realtor to contact. He can be reached at 408.482.0539. Click on his website www.ricksmithrealtor.com to learn more of the short sale transaction process.

Northern Utah real estate, Salt Lake City real estate, Shawn Moore, home buying, home selling, homes for sale, buy a house, sell a house, foreclosures, distress sales, listings, agent.

From Yasha Levine at truthdig:

Michele Bachmann has become well known for her anti-government tea-bagger antics, protesting health care reform and every other government “handout” as socialism. What her followers probably don’t know is that Rep. Bachmann is, to use that anti-government slur, something of a welfare queen. That’s right, the anti-government insurrectionist has taken more than a quarter-million dollars in government handouts thanks to corrupt farming subsidies she has been collecting for at least a decade.

And she’s not the only one who has been padding her bank account with taxpayer money.

Original DVD cover

Bachmann, of Minnesota, has spent much of this year agitating against health care reform, whipping up the so-called tea-baggers with stories of death panels and rationed health care. She has called for a revolution against what she sees as Barack Obama’s attempted socialist takeover of America, saying presidential policy is “reaching down the throat and ripping the guts out of freedom.”

But data compiled from federal records by Environmental Working Group, a nonprofit watchdog that tracks the recipients of agricultural subsidies in the United States, shows that Bachmann has an inner Marxist that is perfectly at ease with profiting from taxpayer largesse. According to the organization’s records, Bachmann’s family farm received $251,973 in federal subsidies between 1995 and 2006.

…snip…

However, Bachmann doesn’t think other Americans should benefit from such protection and assistance. She voted against every foreclosure relief bill aimed at helping average homeowners (despite the fact that her district had the highest foreclosure rate in Minnesota), saying that bailing out homeowners would be “rewarding the irresponsible while punishing those who have been playing by the rules.” That’s right, the subsidy queen wants the rest of us to be responsible.

Bachmann’s financial disclosure forms indicate that her personal stake in the family farm is worth up to $250,000. They also show that she has been earning income from the farm business, and that the income grew in just a few years from $2,000 to as much as $50,000 for 2008.

…snip…

But Bachmann isn’t the only welfare recipient on Capitol Hill. As it turns out, there is a filthy-rich class of absentee farmers—both in and out of Congress—who demand free-market rules by day and collect their government welfare checks in the mail at night, payments that subsidize businesses that otherwise would fail.

…snip…

Chuck Grassley, the longtime Republican senator from Iowa who warns his constituents of Obama’s “trend toward socialism,” has seen his family collect $1 million in federal handouts over an 11-year period, with Grassley’s son receiving $699,248 and the senator himself pocketing $238,974. Even Grassley’s grandson is learning to ride through life on training wheels, snagging $5,964 in 2005 and $2,363 in 2006. In the Grassley family they learn early how to enjoy other people’s money.

Sen. Grassley railed against government intervention in the health care market, telling The Washington Times, “Whenever the government does more … that’s a movement toward socialism.” As the top Republican on the Senate Finance Committee, he ought to know, especially because the government has done more for him and his kin than for Americans struggling with high medical bills and mortgages.

…snip…

Then there’s Sen. Sam Brownback, R-Kan., whose family has been on the government take for at least the past 11 years, pocketing some $500,000. The senator recently held a “prayercast” with Michele Bachmann to beseech God to kill health care reform as soon as possible because it would bring an evil socialist spirit into America. Like Bachmann, Brownback has a fierce belief in God, the free market and a two-year limit on all welfare benefits—unless it’s welfare to rich Republicans who don’t need it.

Not surprisingly, Blue Dog Democrats are on board with this welfare-for-the-rich thing. Max Baucus, the fiscally conservative Democratic senator from Montana who did his best to sabotage the health care reform process before it ever began, collected $250,000 in taxpayer subsidies to his family’s farm while fighting to keep Americans at the mercy of free-market health insurance. Sen. Blanche Lincoln of Arkansas, another Democrat, also helped hold the line against so-called socialized medicine for Americans who need assistance, even though her family farm business follows the socialized subsidy playbook to a T. The Lincolns pocketed $715,000 in farm subsidies over a 10-year period, and the senator even admitted to using $10,000 of it as petty cash in 2007. Democratic Rep. Stephanie Sandlin of South Dakota stayed true to her conservative free-market roots by voting against the public option. Meanwhile, her daddy, Lars Herseth, a former South Dakota legislator, collected a welfare jackpot of $844,725 paid out between 1995 and 2006.

…snip…

Farm subsidies have become so corrupt that payments sometimes go to dead people for years. Federal farm subsidies, which were originally meant to help struggling farmers survive, are now little more than taxpayer robbery, taking taxpayer wealth from working Americans and sending it to the have-mores. According to 11 years’ worth of Environmental Working Group data that tracks $200 billion in subsidies, the wealthiest 10 percent of “farmers” have collected 75 percent of the money. That’s exactly the kind of socialism that Rep. Bachmann and her elite ilk like.

Greater Greenville SC Real Estate Residential Market Conditions, Homes Sold, Average Days on Market, Listings, and Homes for Sale – November 2009

National Association of Realtors reported today December 22nd, 2009 that existing home sales in November rose 7.4 percent to 6.54 million units, up from 6.09 million units in October 2009. This numbers for November is 44 percent higher than the 4.54 million units sold in November 2008. Greater Greenville SC real estate market also saw an increase in sale. In November 2009, there were 581 total residential single family homes, including Condos and Townhouses, that sold in the Greater Greenville real estate market. This number is 40.3 percent higher than the 414 units that were sold in November 2008, and 10.2 percent higher than the 12 month average of 527 units. This increase is mostly credited to first time home buyers who hurried to take advantage of the first time home buyer tax credit which originally had a deadline of November 30th. Average sales price in Greater Greenville for November 2009 was $157,491, Median sales price was $132,900, and total sales volume was $91,502,537. The average Days on Market(DOM) in Greater Greenville for the month of November was 100 days. Year to date, from January 1st to November 30th 2009, there were 6251 units sold. Average sales price was $166,112, Median sales price was $139,900, total volume was $1,038,365,561, and the average DOM was 101 days. As of December 10th 2009, there were 6,465 residential single family, condo/townhouses available for sale in the Greater Greenville real estate market. This is 192 units less inventory than the 6,657 available units as of November 10th 2009. Average list price was $259,492, Median list price was $184,628, total volume was $1,677,615,331, and average DOM for the active listings was 158 days. The increase in Greenville SC home sales, coupled with the decrease in current inventory is an indication that the home buyer tax credit is doing its job to stimulate the housing market. Of course we still have a long way to go, especially with the amount home owners who are still in default, but it seems like our worst days are behind us. Remember: The $8,000 first-time Home Buyer Tax Credit has been extended to April 30th, and has also been expanded to include a $6,500 tax credit for repeat buyers who have occupied their home for at least five years. Statistics used in this post was gathered from the Greater Greenville Association of Realtors inc. Multiple Listing System. These statistics may not include sales like new construction or For Sale by Owners that were brokered by member firms. Greater Greenville includes Greenville, Simpsonville, Greer, Easley, Fountain Inn, Mauldin, Taylors, Travelers Rest, Piedmont, Landrum, Marietta, pelzer, some parts of Spartanburg County, Anderson County, Pickens County, Laurens County, and Oconee County. Please Contact Victor Amadi at 864-525-0201 for more detail on the $8,000 Home Buyer Tax Credit, and for all your Greater Greenville Real Estate needs. Greenville County SC Real Estate and Homes for Sale Greenville County SC Entry Level Homes for Sale {under $150k} Greenville County SC Median Homes for Sale {$150k~$300k}   FREE Quick Over-The-Net Home Evaluation     Greenville County Upscale Homes for Sale {$300k~$600k} Greenville County SC Luxury Homes for Sale {$600k~$1m}  Greenville County SC Million Dollar Homes for Sale {over $1million} Greenville County Lots & Land for Sale Greenville County Condos & Townhouses for Sale     START NEW SEARCH   Greater Greenville County SC MLS Real Estate – Homes for Sale in the Greenville Area of South Carolina. Here you have access to the following market segments: Greater Greenville Entry Level Homes, Greater Greenville Median Homes, Greater Greenville Upscale Homes, Greater Greenville Luxury Homes, Greater Greenville Million Dollar Homes, and Greater Greenville Lots, Homesites and Land for Sale in Greenville County SC. Surrounding towns and communities include: Greenville, Simpsonville, Greer, Easley, Fountain Inn, Mauldin, Taylors, Travelers Rest, Piedmont, Landrum and Marietta South Carolina. Also includes Greenville County, Spartanburg County, Anderson County, Pickens County, Laurens County, and Oconee County real estate and homes for sale. Call Victor Amadi at (864)525-0201. EXIT Upstate Realty!  Weblink: - Greater Greenville South Carolina Real Estate Residential Market Conditions, Homes Sold, Average Days on Market, Listings and Homes for Sale – November 2009

Bankruptcy is an option for people who find themselves in over their head in debt. Often times, such overwhelming debt is due to divorce, illness or loss of employment. If you find yourself in financial distress, sometimes bankruptcy is the best option for you as it allows you to develop a plan to repay your debt or have your debt discharged through a liquidation of your assets (see What Type of Bankruptcy Should I File?). When considering bankruptcy, it is important to learn if bankruptcy is, in fact, the best option for you and how filing bankruptcy may affect your life. Consulting a bankruptcy attorney about bankruptcy and its effect on your life is always a good idea before submitting a petition for bankruptcy.

It is important to understand that bankruptcy provides you with an opportunity to rebuild your credit; it does not provide you with a clean slate. What bankruptcy will do is give you the opportunity to start over as your past debts will be discharged and you will have the opportunity to live a debt free life. This is not a “clean slate” as your bankruptcy will adversely affect your credit report, making it difficult to reestablish good credit, although not impossible.

If you file bankruptcy, it will appear on your credit report for 10 years if you filed Chapter 7 or Chapter 11 and will appear on your credit report for 7 years if you filed Chapter 13. Having this information on your credit report has the potential to affect your ability to receive credit in the future. While finding future credit is not impossible, it is often provided at a higher interest rate and unavailable unless the credit is secured. For example, a credit card company may not offer you credit without an annual.

While a bankruptcy will appear on your credit report for up to 10 years—depending on the type of bankruptcy you file—most people seeking to buy a home are eligible for a mortgage within two-years of filing bankruptcy. All creditors view bankruptcy differently and if you have maintained a consistent pattern of paying off debt after filing for bankruptcy, some lenders may reward your new credit behavior. If you are planning on buying a home before you file bankruptcy, it is a good idea to discuss this with a bankruptcy attorney who should be able to advise you how bankruptcy will affect your future home buying plans.

Bankruptcy may also affect your ability to lease rental property and find employment. Employers are able to ask if you have ever filed for bankruptcy before. Even if it has been a long time since your bankruptcy, you must disclose this information or risk having your employment terminated for lying about your background. Rental property owners may also check your credit history before offering you a lease. Many rental property owners are not willing to provide housing to individuals with a bankruptcy on their record.

Also, when you file for bankruptcy it may affect your ability to file for bankruptcy in the future. For this reason, it is important to discuss your financial situation with a bankruptcy attorney so he or she can help you determine if bankruptcy is the best option for you at this time; in some instances, it may be better to wait. A bankruptcy attorney should also be able to inform you how bankruptcy will impact your life.

In addition to all of the physical damages of bankruptcy, filing for bankruptcy is stressful and emotional. Bankruptcy can take a toll on your health, your relationships and your self-esteem as it upsets your sense of security. An experienced bankruptcy attorney should be able to help you see the light at the end of the tunnel and provide you with a plan to help you through your difficult financial situation.

If you need help working thru bankruptcy or exploring different options. Then please feel free to call us at 1-866-320-0961 or visit us at http://www.1stamericanlawcenter.com

//

Company adds field service personnel to assist distressed homeowners

by Brian Flock

I wish I knew.
No, I don’t want to know.

It has been a while since the last post, and part of that is because intellectually I understand our house is in foreclosure and will be auctioned off soon, but emotionally this is still the room where my child sleeps, and in this room we celebrated birthdays and holidays, and in here we got sick and here is where we all grew older. Ten years is a lifetime to someone as young as my child. And even at my age, it is long enough that the memory of other places is a bit faded. This is home. And I don’t want to know when we are going to have to leave.

But not knowing has created a tremendous amount of anxiety. Some days that is more than manageable. Some days it is hard to breath. And, in the oddest of oddities, some days seem very normal.

The Federal Deposit Insurance Corp. reported that the number of multifamily loans 90 days for more past due has doubled since last year and hit 3.6% in the third quarter — the highest since 1993.

The multifamily sector is experiencing record vacancy rates due to high unemployment and low household formation, according to Freddie Mac.

Freddie Mac and Fannie Mae are major investors in multifamily loans, and could experience greater delinquencies if the situation persists.

High jobless rates among teenagers (27%) and 20-24-year olds is forcing many to postpone household formation or a move back with family and friends, according to Freddie Mac chief economist Frank Nothaft.

In addition, the vacancy rates have moved up as federal tax credits for first-time homebuyers have encouraged renters to become homeowners. A Census Bureau report shows the vacancy rate on buildings with ten or more apartments is 13.5% as of Sept. 30.

For apartments built since the start of 2000, the vacancy rate is 23.2%, “reflecting in part the slow rental rate of newly built dwellings,” Mr. Nothaft says in a paper on housing trends. “As a result of rising vacancies and lack of opportunity to increase rents, multifamily property values are falling and delinquency rates on multifamily mortgages are rising,” said Nothaft.

The Freddie economist points out that the National Council of Real Estate Fiduciaries has reported that multifamily property values have declined 29% from their mid-2008 peak.

_______________________

Commercial Loan Compliance® | A Certified Forensic Audit Company

Get The Facts on Your Loan and Protect Your Rights! | Commercial and Multi-Family Audits Starting as low as $2495

Call 1-866-966-6615 or visit www.cl-compliance.com