The Definitive Source For News On Jews

If you’re like me, now that we’re in the week that federal income taxes are due, you are finally starting to collect your records and prepare for the ordeal. Either way, whether you are a procrastinator like me, or have already finished and know how much you have paid to the government, it is a good time to stop and consider how much of your money goes to pay for our bloated and largely useless and pointless military.

The budget for the 2011 fiscal year, which has to be voted by Congress by this Oct. 1, looks to be about $3 trillion, not counting the funds collected for Social Security (since the Vietnam War, the government has included the Social Security Trust Fund in the budget as a way to make the cost of America’s imperial military adventures seem smaller in comparison to the total cost of government). Meanwhile, the military share of the budget works out to about $1.6 trillion.

That figure includes the Pentagon budget request of $708 billion, plus an estimated $200 billion in supplemental funding, called “overseas contingency funding” in euphemistic White House-speak), to fund the wars in Afghanistan and Iraq, some $40 billion or more in “black box” intelligence agency funding, $94 billion in non-DOD military spending (that’s for stuff like the military share of NASA funding, the miilitary operations of the Dept. of Homeland Security and the military activities of the State Dept., etc.), $100 billion in veterans benefits and health care spending, and $400 billion in interest on debt raised to pay for prior wars and the standing military.


The 2011 military budget, by the way, is the largest in history, not just in actual dollars, but in inflation-adjusted dollars, exceeding even the spending in World War II, when the nation was on an all-out war footing.

This military spending in all its myriad forms represents 53.3% of total US federal spending.

It’s also a budget that is rising at a faster pace than any other part of the budget (with the possible exception of bailing out crooked Wall Street financial firms and their managers). For the past decade, and continuing under the present administration, military budgets have been rising at a 9% annual clip, making health care inflation look tame by comparison.

US military spending isn’t just half of the US budget. It is also half of the entire global spending on war and weaponry.

In 2009, according to the venerable War Resisters League, US military spending accounted for 47% of all money spent globally on war, weapons and military preparedness, and that share has certainly risen in the subsequent two years.

What makes that staggering figure particularly ridiculous is that America’s allies–countries like France, Britain, Germany, Italy, and Japan–account for another 21% of the world’s military spending. Fully 12 of the top-spenders among big military-spending nations are either allies of the US, or are friendly countries like Brazil and India. That is to say, America and its friends and allies account for more than two-thirds of all military spending worldwide. (Not to mention the fact we are the main source of income to Israel)

Who is the real threat to peace here?

China, in contrast, probably the closest thing to a real “threat” to American interests because of America’s treaty commitments to the island nation of Taiwan, and China’s claim that the island is an integral part of the PRC, spends only some $130 billion on its military, much of which is actually devoted to maintaining military control over the country’s own 1.3 billion people, some of whom might prefer to be independent, or to be freer, if they weren’t under a military jackboot.

The next biggest military spender, Russia, spends less than $80 billion a year on its decrepit military–one-twentieth of the US, and isn’t even technically an enemy of the America anymore. Its military is largely busy keeping restive regions from spinning off from the mother country, anyhow.

Meanwhile Iran, which the White House and Congress are portraying as America’s arch enemy despite its not having invaded another country in hundreds of years, isn’t even on the list of the top 17 military big-spenders. Iran’s current military budget is a teensy $4.8 billion, about the same as the estimated $5 billion spent on the military by North Korea–America’s other “major enemy.” Each of those country’s military budgets is about one-quarter of the military budget of Australia, or a third of the military budget of the Netherlands.

Just to give one an idea of how small $4.8 billion is in comparison to the $1.6 trillion that the US is spending each year on war and planning for war, that number is roughly what the Pentagon plans to spend over the next year on childcare and youth programs, morale and recreation programs and commissaries on its bases! It’s about what the Pentagon will spend acquiring replacement Seahawk, Chinook and Blackhawk helicopters this year.

For the average American, what all this means is that of every dollar you send to the IRS, 53 cents will be going to pay for blowing stuff up, fattening the wallets of colonels, admirals and generals, bloating the portfolios of investors in military industries, and of course funding the bonuses paid to executives of those companies, and the campaign chests and expense accounts of the members of Congress who vote for these outlandish budgets. Your money will also be going to pay for the salaries and the bullets of those brave heroes over in Afghanistan who are executing kids, killing pregnant women (and then digging out the bullets and claiming they were stabbed by their families), and for the anti-personnel weapons that are creating legions of legless Afghan kids.

Next time you hear that the government needs to cut funds for providing medical care to the children of laid-off workers, or that supplemental unemployment funds are running out, next time you hear that federal funds that are needed to fund extra teachers at your school are being cut, or that Social Security benefits need to be cut back, or the retirement age needs to be increased to 70, next time you hear that your local post office has to be shut down for lack of funds, next time you hear that Medicare benefits need to be reduced, think about that 53% of your tax payment that is going to finance the most enormous war machine the world has ever known.

And ask yourself: Is this really necessary? Is this really where I want my money going? Is this really making us safer, or our nation more secure

Foreclosure rates surge, biggest jump in 5 years
By ALEX VEIGA, AP Real Estate Writer Alex Veiga, Ap Real Estate Writer Thu Apr 15, 12:34 am ET
LOS ANGELES – A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace, according to a new report.

RealtyTrac Inc. said Thursday that the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago. In addition, households facing foreclosure grew 16 percent in the same period and 7 percent from the last three months of 2009.

More homes were taken over by banks and scheduled for a foreclosure sale than in any quarter going back to at least January 2005, when RealtyTrac began reporting the data, the firm said.

"We’re right now on pace to see more than 1 million bank repossessions this year," said Rick Sharga, a RealtyTrac senior vice president.

Foreclosures began to ease last year as banks came under pressure from the Obama administration to modify home loans for troubled borrowers. In addition, some states enacted foreclosure moratoriums in hopes of giving homeowners behind in payments time to catch up. And in many cases, banks have had trouble coping with how to handle the glut of problem loans.

These factors have helped slow the pace of foreclosures, but now that trend appears to be reversing.

"We’re finally seeing the banks start to process the inventory that has been in foreclosure, but delayed in processing," Sharga said. "We expect the pace to accelerate as the year goes on."

In all, more than 900,000 households, or one in every 138 homes, received a foreclosure-related notice, RealtyTrac said. The firm based in Irvine, Calif., tracks notices for defaults, scheduled home auctions and home repossessions.

Homeowners continue to fall behind on payments because they’ve lost their job or seen their mortgage payment rise due to an interest-rate reset. Many are unable to refinance because they now owe more on their loan than their home is worth.

The Obama administration’s $75 billion foreclosure prevention program has only been able to help a small fraction of troubled homeowners.

About 231,000 homeowners have completed loan modifications as part of the Obama administration’s flagship foreclosure prevention program through March. That’s about 21 percent of the 1.2 million borrowers who began the program over the past year.

But another 158,000 homeowners who signed up have dropped out — either because they didn’t make payments or failed to return the necessary documents. That’s up from about 90,000 just a month earlier.

Last month, the administration expanded the program, launching a plan to reduce the amount some troubled borrowers owe on their home loans and give jobless homeowners a temporary break. But the details of those programs are expected to take months to work out.

The states with the highest foreclosure rates in the first quarter were Nevada, Arizona, Florida and California, with Nevada leading the pack, RealtyTrac said.

Rising home prices and speculation fueled a wave of home construction there during the housing boom. But now the state, particularly around the Las Vegas metropolitan area, is saddled with a glut of unsold homes.

Still, the number of homes in Nevada that received a foreclosure filing dropped 16 percent from the first quarter last year.

All told, one in every 33 homes in Nevada was facing foreclosure, more than four times the national average, RealtyTrac said.

Foreclosure filings rose on an annual and quarterly basis in Arizona, however.

One in every 49 homes there received a foreclosure-related notice during the quarter.

Florida, meanwhile, posted the third-highest foreclosure rate with one out of every 57 properties receiving a foreclosure filing.

California accounted for the biggest slice overall of homes facing foreclosure — roughly 23 percent of the nation’s total. One in every 62 properties received a foreclosure filing in the first quarter.

For all of the bank’s moralizing, [the sanctity of contracts] is not what’s at issue here. It’s the $448 billion in equity lines and other junior loans held primarily by the nation’s four biggest banks. If principal writedown is allowed, most of the equity lines involved will be wiped out if the property is underwater. In fact, the plan Obama announced last week for owners of such homes allowed only 10 cents to 20 cents on the dollar for second-lien holders.

Right now second lienholders are holding up mortgage modifications for underwater homes. Yet mortgage experts clearly have determined that a borrower whose mortgage is more than 115 percent underwater will likely walk away from the home. If the borrower walks away, the first lienholder forecloses and the second lienholder gets nothing anyway.
448 billion times zero = how many times the Tier 1 Common Equity – or Tier 1 Capital – of those very same four large banks?

There’s your problem right there – if the actual market value of these seconds was to be recognized by the banks (that’s zero – bupkis – nil – bandersnatch – zilch) they would all be insolvent right here and now.

It’s nice to see this showing up in more and more publications.

Oh, and let’s add in their exposure to the nearly half-a-trillion in CDOs too, with nearly all of those worth a nickel on the dollar – at best.

Now if we could just get the attention of those pesky jackasses at the OCC, SEC – or even better, the FBI – we might get them to quit swilling coffee and donuts and instead start doing their damn jobs!

source below

Black Swans Credit Conditions European Central Bank Housing Market Morgan Stanley Nassim Taleb Real estate Wall Street Journal

From The Daily Capitalist

Here’s a story for the decade. Morgan Stanley’s Msref VI, an $8.8 billion real estate fund, lost $5.4 billion, the biggest loss in the history of private real estate equity investing. This story is just out from the Wall Street Journal and it is worth a read.

It isn’t clear from the article, but they bought many of their properties in 2007. I don’t have to tell you how insane of a move that was when the U.S. housing market was collapsing. One of their big misses was the Eurotower in Franfurt which, ironically, is the home of the European Central Bank.

I’ll give you a hint what may have motivated Morgan; according to the article:

When times were good, the fund generated fat fees for various segments of the bank. In 2007 alone, Morgan Stanley earned $104 million in acquisition fees, $22 million in fund-management fees, $13 million in financing fees, $36 million in real-estate-management fees, and $21 million in financial-advisory fees, according to fund documents reviewed by the Journal.

Here are some highlights of the article:

The soured investments made by the $8.8 billion fund, Msref VI International, continue to be a distraction for Morgan Stanley as it tries to extricate the fund from complex deals around the world. In many cases, the company can’t walk away from foundering investments because the fund made billions of dollars in guarantees.

Morgan Stanley now is negotiating with lenders to reduce the fund’s obligations on the money it borrowed, its interest payments, renovation costs and other expenses. …

As credit conditions worsened, Morgan Stanley executives had to spend increasing amounts of their time disentangling the fund’s complex deals. About 20% of the $8.8 billion raised for the fund came out of the pockets of Morgan Stanley and its employees.

There’s not much Morgan Stanley can say about this other than mea culpa. It appears they are having trouble raising money for Msref VII.

I have been very critical of the state of current economic thinking by financial institutions, especially their analysis of the causes of business cycles (see "The Smartest Guys in the Room). It appears, like many of their counterparts, Morgan Stanley never saw it coming. Many institutions didn’t want to see it coming because the fees were too good.

Another criticism is the poor analysis of risk in investments. Being a big fan of Nassim Taleb and Benoit Mandelbrot, I believe the investment risk models that are still being used on Wall Street despite the disastrous investment results, are inadequate to protect investors from "fat tails" and "black swans." While I understand that financial markets analysis differs from real estate investment analysis, they both construct models that ignore the possibility of major systemic risks.

Real estate analysis takes into account regional differences and economies, but I have seen little competent analysis of macroeconomic impacts either regionally or globally. In this crash, did no one see that residential real estate was riding a credit bubble, which, if collapsed, would devastate credit markets, reveal vast commercial overbuilding and inflated cap rates that relied on asset appreciation to make sense?

As we all know, the answer is, no.

Here is part of their press release (Jun 20 2007) upon the completion of the funding of Msref VI:

“The record size of this fund, both for Morgan Stanley Real Estate and among real estate investment managers, is indicative of strong capital flows into real estate as new investors seek exposure to the asset class and existing investors increase their allocations,” said John Carrafiell, Managing Director and Global Co-Head of Morgan Stanley Real Estate Investing. “Real estate is increasingly becoming an important component of an asset allocation strategy because it offers portfolio diversification and the ability to invest in ‘real’ assets, which provide uncorrelated investment returns compared to other asset classes.”

“We believe that attractive opportunities to invest in real estate around the globe will continue as demand for all asset types outpaces supply,” said Sonny Kalsi, Managing Director and Global Co-Head of Morgan Stanley Real Estate Investing. “Global employment growth, an aging population in the west, a growing population in the east, and accelerating urbanization in many emerging markets will drive the need for all types of quality real estate.”

I’ll bet they wish they had never said that.

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oh, goodie goodie!!! -lol-

The Myth of Jewish Control of the Federal Reserve: Introduction

Orthodox Jewish schools hit the jackpot when federal stimulus funds were handed out last year around the state, collecting more than $1 million through school lunch-program grants, while the city’s Department of Education snared just $2 million — although it has 10 times as many students.
Records show that the state received just under $6 million late last year from the Department of Agriculture to distribute to schools enrolled in the National School Lunch Program.
The money was targeted for schools where more than 50 percent of students were eligible for free lunches, meaning the neediest.
Jane Briggs, a state education spokeswoman, said the yeshivas did well because, "based on the poverty levels in the schools, their eligibility was high."

On Friday, the Wall Street Journal revealed details of a cover up by the nation’s largest banks that have been engaged in potentially-criminal accounting activities to conceal the amount of debt on their balance sheets. The SEC has been notified of the allegations and has launched a probe to determine whether further action is needed. Among the banks implicated, are Goldman Sachs, JP Morgan, Bank of America, and Citigroup. According to the WSJ:

"Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York. A group of 18 banks….understated the debt levels used to fund securities trades by lowering them an average of 42 per cent at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters." ("Big Banks Mask Risk Levels", Kate Kelly, Tom McGinty, Dan Fitzpatrick, Wall Street Journal)

The article has set off alarm bells on Wall Street because of the similarity between Lehman Bros. "repo 105" transactions and these new signs of obfuscation by other large banks. "Repo 105" is an accounting device that Lehman used to hide $50 billion in debt off its balance sheet in an attempt to mislead investors about the true state of its financial health. The WSJ story suggests that the practice may be more widespread than originally thought. The "repo 105" scandal is further complicated by suspicions that Lehman was assisted in its effort by the Federal Reserve Bank of New York which, at the time, was headed by the present Secretary of the Treasury, Timothy Geithner. Here is a short recap of what transpired between the Geithner’s NY Fed and Lehman according to ex-regulator William Black and former NY governor Eliot Spitzer from an article on Huffington Post:

"The FRBNY [i.e., New York Fed] knew that Lehman was engaged in smoke and mirrors designed to overstate its liquidity and, therefore, was unwilling to lend as much money to Lehman. The FRBNY did not, however, inform the SEC, the public, or the Office of Thrift Supervision (which regulated an S&L that Lehman owned) of what should have been viewed by all as ongoing misrepresentations.

The Fed’s behavior made it clear that officials didn’t believe they needed to do more with this information. The FRBNY remained willing to lend to an institution with misleading accounting and neither remedied the accounting nor notified other regulators who may have had the opportunity to do so…… We now know from Valukas and from former Treasury Secretary Paulson that the Treasury and the Fed knew that Lehman was massively overstating its on-book asset values." (Time for the Truth" William Black and Eliot Spitzer, Huffington Post)

So the question is whether the NY Fed helped other banks conceal important financial information from investors, too. And–if that’s the case–then how can the public be confident that the biggest banks in the country are truly solvent?
According to the WSJ: "An official at the Federal Reserve Board noted that the Fed continuously monitors asset levels at the large bank-holding companies, but the financing activities captured in the New York Fed’s data fall under the purview of the Securities and Exchange Commission, which regulates brokerage firms."

The Fed’s explanation is a tacit denial of its responsibility to regulate or report suspicious accounting practices to the appropriate agencies. The response is not just "buck passing", but also suggests collusion. So far, there’s no clear link between the Fed and the shady bookeeping at the banks. But many now believe that — in the case of Lehman — the Fed acted as an "enabler", either by serving as a counterparty in repo 105 deals or by looking the other way while the transactions were executed. Either way, the situation demands an independent investigation.

To put the WSJ article in context, it helps to review the details of the Lehman case. Here’s an excerpt from an article by Eric Dash in the NY Times:

"Newly released report on the collapse of Lehman Brothers … sheds surprising new light on Lehman’s dealings with the New York Fed. Lehman engaged in a series of transactions with the New York Fed that were similar to the ones that drew criticism from the bankruptcy court examiner who investigated its collapse….

“The report by Mr. Valukas nonetheless raises fresh questions about the role of the New York Fed in supporting Lehman during the frantic months leading up to its collapse. It suggests that Lehman executives believed the Fed would be able to help the bank avert disaster and provide it with a business opportunity…

“Lehman, desperate for financing, seized its chance. It packaged billions of dollars of troubled corporate loans into an investment called Freedom CLO. Then, in a series of transactions, it shifted Freedom back and forth to the New York Fed, in exchange for cash. Those moves helped make Lehman look healthier.

“Essentially, Lehman was able to temporarily warehouse illiquid investments that were worrying its investors at the New York Fed in return for cash. The Fed created this facility immediately after the near collapse of Bear Stearns. Some suspect that other banks engaged in similar maneuvers.” ("Fed Helped Bank Raise Cash Quickly", Eric Dash, New York Times)

So why did "Lehman executives believe the Fed would be able to help the bank avert disaster and provide it with a business opportunity"? Most likely, because that had been standard operating procedure. The Fed was merely acting as it had before. Lehman used the repo market to amplify leverage to maximize profits, (the same as the other banks) and when they couldn’t find a counterparty to accept their garbage collateral, the Fed would step in and provide short-term loans and "warehouse" their toxic assets. In essence, the Fed was helping to defraud investors who believed the banks reports were accurate. Here’s Yves Smith at Naked Capitalism who sums it up perfectly:

"The NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations……at a minimum, the NY Fed helped perpetuate a fraud on investors and counterparties. This pattern further suggests the Fed, which by its charter is tasked to promote the safety and soundness of the banking system, instead, via its collusion with Lehman management, operated to protect particular actors to the detriment of the public at large. And most important, it says that the NY Fed, and likely Geithner himself, undermined, perhaps even violated, laws designed to protect investors and markets."

So if the NY Fed had no moral qualms about its "repo 105" dealings with Lehman, than why would hesitate to do the same thing for the other banks? Tyler Durden at Zero Hedge answers the question like this:

"We contend that Repo 105 type book-cooking and quarter end balance sheet window dressing was a prevalent phenomenon among all the banks. The fact that over the past two and a half years this resulted in a differential from the peak quarterly assets of over $65 billion is unbelievable, and the fact that this had slipped through the regulators’ fingers is inexcusable…..

“We are confident that armed with this data, the SEC will be able to provide a prompt and logical response to why the primary dealers have such a peculiar pattern in downshifting their assets toward quarter end, and much more relevantly, who the counterparties are that would consistently take the other side of these quarter end window-dressing trades." ("Evidence That Primary Dealers Have Collectively Engaged In Repo 105 And Qtr-End Book Cooking Type Schemes For Years" zero hedge, 4-9-10)

Durden’s logic looks good. If Lehman was being aided in its "book cooking" by the NY Fed, then the other banks were probably being helped, as well. It looks like Geithner left his fingerprints everywhere.

If we add these new developments to the fact that the Financial Accounting Standards Board’s (FASB) "mark to market" rule has been suspended (allowing banks to arbitrarily assign whatever value they choose to the own illiquid assets) and, the fact that the Federal Reserve still refuses to allow an independent audit of the dodgy collateral it accepted from the banks in exchange for Treasuries and other loans; then it still looks like the banking system is either teetering or insolvent.

And don’t expect the Securities and Exchange Commission to get to the bottom of this either. SEC chairman Mary Schapiro is a proven financial industry loyalist who has no intention of upsetting her Wall Street overlords by digging too deep or issuing subpoenas. If she pursues the investigation at all, it will only be to placate the public and to apply liberal amounts of whitewash to the whole matter.

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

On Friday, the Wall Street Journal revealed details of a cover up by the nation’s largest banks that have been engaged in potentially-criminal accounting activities to conceal the amount of debt on their balance sheets. The SEC has been notified of the allegations and has launched a probe to determine whether further action is needed. Among the banks implicated, are Goldman Sachs, JP Morgan, Bank of America, and Citigroup. According to the WSJ:

"Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York. A group of 18 banks….understated the debt levels used to fund securities trades by lowering them an average of 42 per cent at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters." ("Big Banks Mask Risk Levels", Kate Kelly, Tom McGinty, Dan Fitzpatrick, Wall Street Journal)

The article has set off alarm bells on Wall Street because of the similarity between Lehman Bros. "repo 105" transactions and these new signs of obfuscation by other large banks. "Repo 105" is an accounting device that Lehman used to hide $50 billion in debt off its balance sheet in an attempt to mislead investors about the true state of its financial health. The WSJ story suggests that the practice may be more widespread than originally thought. The "repo 105" scandal is further complicated by suspicions that Lehman was assisted in its effort by the Federal Reserve Bank of New York which, at the time, was headed by the present Secretary of the Treasury, Timothy Geithner. Here is a short recap of what transpired between the Geithner’s NY Fed and Lehman according to ex-regulator William Black and former NY governor Eliot Spitzer from an article on Huffington Post:

"The FRBNY [i.e., New York Fed] knew that Lehman was engaged in smoke and mirrors designed to overstate its liquidity and, therefore, was unwilling to lend as much money to Lehman. The FRBNY did not, however, inform the SEC, the public, or the Office of Thrift Supervision (which regulated an S&L that Lehman owned) of what should have been viewed by all as ongoing misrepresentations.

The Fed’s behavior made it clear that officials didn’t believe they needed to do more with this information. The FRBNY remained willing to lend to an institution with misleading accounting and neither remedied the accounting nor notified other regulators who may have had the opportunity to do so…… We now know from Valukas and from former Treasury Secretary Paulson that the Treasury and the Fed knew that Lehman was massively overstating its on-book asset values." (Time for the Truth" William Black and Eliot Spitzer, Huffington Post)

So the question is whether the NY Fed helped other banks conceal important financial information from investors, too. And–if that’s the case–then how can the public be confident that the biggest banks in the country are truly solvent?
According to the WSJ: "An official at the Federal Reserve Board noted that the Fed continuously monitors asset levels at the large bank-holding companies, but the financing activities captured in the New York Fed’s data fall under the purview of the Securities and Exchange Commission, which regulates brokerage firms."

The Fed’s explanation is a tacit denial of its responsibility to regulate or report suspicious accounting practices to the appropriate agencies. The response is not just "buck passing", but also suggests collusion. So far, there’s no clear link between the Fed and the shady bookeeping at the banks. But many now believe that — in the case of Lehman — the Fed acted as an "enabler", either by serving as a counterparty in repo 105 deals or by looking the other way while the transactions were executed. Either way, the situation demands an independent investigation.

To put the WSJ article in context, it helps to review the details of the Lehman case. Here’s an excerpt from an article by Eric Dash in the NY Times:

"Newly released report on the collapse of Lehman Brothers … sheds surprising new light on Lehman’s dealings with the New York Fed. Lehman engaged in a series of transactions with the New York Fed that were similar to the ones that drew criticism from the bankruptcy court examiner who investigated its collapse….

“The report by Mr. Valukas nonetheless raises fresh questions about the role of the New York Fed in supporting Lehman during the frantic months leading up to its collapse. It suggests that Lehman executives believed the Fed would be able to help the bank avert disaster and provide it with a business opportunity…

“Lehman, desperate for financing, seized its chance. It packaged billions of dollars of troubled corporate loans into an investment called Freedom CLO. Then, in a series of transactions, it shifted Freedom back and forth to the New York Fed, in exchange for cash. Those moves helped make Lehman look healthier.

“Essentially, Lehman was able to temporarily warehouse illiquid investments that were worrying its investors at the New York Fed in return for cash. The Fed created this facility immediately after the near collapse of Bear Stearns. Some suspect that other banks engaged in similar maneuvers.” ("Fed Helped Bank Raise Cash Quickly", Eric Dash, New York Times)

So why did "Lehman executives believe the Fed would be able to help the bank avert disaster and provide it with a business opportunity"? Most likely, because that had been standard operating procedure. The Fed was merely acting as it had before. Lehman used the repo market to amplify leverage to maximize profits, (the same as the other banks) and when they couldn’t find a counterparty to accept their garbage collateral, the Fed would step in and provide short-term loans and "warehouse" their toxic assets. In essence, the Fed was helping to defraud investors who believed the banks reports were accurate. Here’s Yves Smith at Naked Capitalism who sums it up perfectly:

"The NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations……at a minimum, the NY Fed helped perpetuate a fraud on investors and counterparties. This pattern further suggests the Fed, which by its charter is tasked to promote the safety and soundness of the banking system, instead, via its collusion with Lehman management, operated to protect particular actors to the detriment of the public at large. And most important, it says that the NY Fed, and likely Geithner himself, undermined, perhaps even violated, laws designed to protect investors and markets."

So if the NY Fed had no moral qualms about its "repo 105" dealings with Lehman, than why would hesitate to do the same thing for the other banks? Tyler Durden at Zero Hedge answers the question like this:

"We contend that Repo 105 type book-cooking and quarter end balance sheet window dressing was a prevalent phenomenon among all the banks. The fact that over the past two and a half years this resulted in a differential from the peak quarterly assets of over $65 billion is unbelievable, and the fact that this had slipped through the regulators’ fingers is inexcusable…..

“We are confident that armed with this data, the SEC will be able to provide a prompt and logical response to why the primary dealers have such a peculiar pattern in downshifting their assets toward quarter end, and much more relevantly, who the counterparties are that would consistently take the other side of these quarter end window-dressing trades." ("Evidence That Primary Dealers Have Collectively Engaged In Repo 105 And Qtr-End Book Cooking Type Schemes For Years" zero hedge, 4-9-10)

Durden’s logic looks good. If Lehman was being aided in its "book cooking" by the NY Fed, then the other banks were probably being helped, as well. It looks like Geithner left his fingerprints everywhere.

If we add these new developments to the fact that the Financial Accounting Standards Board’s (FASB) "mark to market" rule has been suspended (allowing banks to arbitrarily assign whatever value they choose to the own illiquid assets) and, the fact that the Federal Reserve still refuses to allow an independent audit of the dodgy collateral it accepted from the banks in exchange for Treasuries and other loans; then it still looks like the banking system is either teetering or insolvent.

And don’t expect the Securities and Exchange Commission to get to the bottom of this either. SEC chairman Mary Schapiro is a proven financial industry loyalist who has no intention of upsetting her Wall Street overlords by digging too deep or issuing subpoenas. If she pursues the investigation at all, it will only be to placate the public and to apply liberal amounts of whitewash to the whole matter.

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

In contrast to the expansionist fiscal spending programmes in neighbouring Gulf states, Dubai announced a 6 per cent reduction in expenditure for its 2010 budget last month. Spending is projected to be $9.64bn this year, compared with $10.3bn in 2009.