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Generational Dynamics Web Log for 14-Apr-2009
Stories of massive generational fraud and corruption continue to pour out

Web Log - April, 2009

Stories of massive generational fraud and corruption continue to pour out

Long-time readers of this web site know how much my life has been affected by the things I've been writing about. Writing online is no meaningless ideological game to me, as it is for the bloggers you read elsewhere.

This web site has turned into far and away the most important and significant achievement of my entire life, and I'm very proud of the fact that I've helped hundreds, perhaps thousands, of people save their families' lives by telling them how to protect their assets.

But nothing has affected me more than writing about the massive fraud and corruption that has permeated finance, journalism and politics.

As I've said many times over six years, the stench of corruption has sickened me. There are literally times when I came very close to vomiting right at my computer keyboard. And I can't begin to count the number of sleepless nights I've had since I started this web site in 2002, as I foresaw what was coming, and how everything I foresaw was coming true.

And the sickening stench hasn't ended. The same greedy, destructive Boomers and Gen-Xers who brought about this disaster are continuing to do so and continuing to lie about it.

Industrial collapse in Canada, Japan, Germany, Italy, France, USA and UK <font face=Arial size=-2>(Source: jessescrossroadscafe.blogspot.com)</font>

Industrial collapse in Canada, Japan, Germany, Italy, France, USA and UK (Source: jessescrossroadscafe.blogspot.com)

One of the slimiest performances I've seen was last week's presentation at Washington's Economic Club by Lawrence Summers, White House National Economic Council. Summers bragged about his life's accomplishments and then, smiling smugly, he said, "I think the sense of a ball falling off the table -- which is what the economy has felt like since the middle of last fall -- I think we can be reasonably confident that that's going to end within the next few months and you will no longer have that sense of freefall."

Well, you can just look at the above graph and see that he's lying. Industrial production figures in all the G7 (developed) countries have been like "a ball falling off the table." And you can look at all sorts of other data. There's absolutely nothing to justify Summers' claims.

Now, I don't really care if someone makes a lot of money, even someone like Summers, who made $5.2 million in 2008 from hedge funds, plus $2.7 million in speaking fees, and who also consulted for hedge funds when he was President of Harvard University. If the Harvard University trustees don't care, then why should I care?

But I'm offended when someone like that becomes the economic front man for the Administration, and then openly lies, especially after a year of hearing a lot of crap during the campaign that the Obama administration was going to be completely open and honest, without even the appearance of impropriety.

But I don't mean to pick on just Summers. He's just an average person in a world where the average person is a crook. The same generations of people who perpetrated the fraud, who created the worthless mortgage-backed securities and worthless CDS securities contracts, and sold them to the public as risk-free AAA securities are still in charge. Those people haven't disappeared; they're still pulling scams. They're just using new variations, to take advantage of this year's opportunities.

I've been writing about these scams for years, as regular readers of this web site know. One of the most disgusting was the subprime mortgage company that I wrote about last year in January. They had made huge sums of money by defrauding thousands of people by talking them into lying on their mortgage applications, and had defrauded the lenders through these falsehoods.

The reason that that story caught my attention was that the Boomer executive vice president, 59, was married to a Gen-X wife, 37. When the company went bankrupt, the wife decided to dump the husband and take the kids (why not?), in order to get as much money as possible. The husband killed his wife, then killed himself.

And even after all this, the remaining company officers were in bankruptcy court requesting that all remaining money be split among them as bonuses, rather than give it to some of the people who had been defrauded.

For some reason, this story epitomizes all that's been going on. Greedy, selfish, destructive Boomers and Gen-Xers, willing to destroy anyone else's life for their own gain, and committing further destruction when their attempts are foiled. The standard today in government, business and journalism is of dishonesty and unethics (is that a word?).

I recall a job interview from late 2007, just after the credit crisis began. (For why I was looking for a job, see "Boomers and Gen-Xers: Dumbing down IT / How Digimarc Corp. self-destructed.") I was talking to a company VP, and as was my obsessive habit, I warned him that there was a great deal of fraud going on in the world, and that he should make sure that his company's assets were safe. He said, "So you think everyone in the world is a crook?" I knew he thought I was nuts, and of course I didn't get the job.

So what's interesting to me now is that the stories behind all of these frauds that I've been writing about for years are starting to come out. If anything, what I wrote in the past underestimated the situation.

I've written about the "culture of complicity" that pervades today, and the overwhelming circumstantial evidence that proves that people were knowingly committing fraud.

In an airing of Bill Moyer's journal, William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s, described what's been going on:

"BILL MOYERS: Is it possible that these complex instruments were deliberately created so swindlers could exploit them?

WILLIAM K. BLACK: Oh, absolutely. This stuff, the exotic stuff that you're talking about was created out of things like liars' loans, that were known to be extraordinarily bad. And now it was getting triple-A ratings. Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant risk, it has crushing risk. That's why it's toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years. So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it's scandalous what came out. What we know now is that the rating agencies never looked at a single loan file. When they finally did look, after the markets had completely collapsed, they found, and I'm quoting Fitch, the smallest of the rating agencies, "the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined."

BILL MOYERS: So if your assumption is correct, your evidence is sound, the bank, the lending company, created a fraud. And the ratings agency that is supposed to test the value of these assets knowingly entered into the fraud. Both parties are committing fraud by intention.

WILLIAM K. BLACK: Right, and the investment banker that — we call it pooling — puts together these bad mortgages, these liars' loans, and creates the toxic waste of these derivatives. All of them do that. And then they sell it to the world and the world just thinks because it has a triple-A rating it must actually be safe. Well, instead, there are 60 and 80 percent losses on these things, because of course they, in reality, are toxic waste."

Black doesn't name any names, unfortunately, but makes a general argument like the one I'm making -- that the fraud was so massive, that everyone must have been involved.

In another part of the interview, he does name two government regulators who failed to do their jobs:

"WILLIAM K. BLACK: Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have masses losses, and that they're fine.

These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed, not because...

BILL MOYERS: What do you mean?

WILLIAM K. BLACK: Well, Geithner has, was one of our nation's top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he's a failed legacy regulator."

Black indicts both Treasury Secretaries -- Hank Paulson and Timothy Geithner -- and I can only agree. In this "culture of complicity," neither of them could blow the whistle or tell the truth without exposing their own complicity in the repeated fraud.

Another article, written in December, does name names, and gives specifics for how the fraud was perpetrated.

The article was written by Michael Lewis. In the 1980s, at age 24, with no business experience whatsoever, he stumbled into a job paying him a six-figure salary to advise investment bankers about something he knew nothing about. After a few years, he got out while the getting was good, and wrote a book called Liar's Poker about his experiences:

"I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual."

Lewis was shocked at this response at the time, and indeed it's still shocking today. These were Generation-X students at Ohio State University looking for ways to get into the business of defrauding people. What kind of college must Ohio State University be to graduate a class of crooks? It's pretty safe to say that ethics is not a strong point at Ohio State.

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But of course I don't mean to pick on Ohio State. Every college was like that. It's not the college, it's Generation-X, kids who were (and are) infuriated by what they see as the stupidity of the Boomers in whose shadow they grew up, kids who rejected every value that their parents and teachers tried to teach them, and who glorify stupidity and fraud.

(See "The nihilism and self-destructiveness of Generation X," and "Reader comments on the Nihilism of Generation-X." For more information on generational archetypes, see "Basics of Generational Dynamics.")

Lewis' article is fascinating, because it explains exactly how and why collateralized debt obligations (CDOs) and credit default swaps (CDSs) were introduced in a big way into the securitization business.

Each development had one and only one purpose: To make more money at investment banks, while screwing investors. "I was just appalled," says Steve Eisman, also an Xer. "People would pay up to have someone manage their C.D.O.’s—as if this moron was helping you. I thought, You prick, you don’t give a fuck about the investors in this thing."

Eisman was a hero to Lewis, because Eisman tried to warn everyone that the securities market was headed for disaster. But no one listened because everyone was making too much money, screwing investors.

One of Lewis' villains was Greg Lippman, a mortgage-bond trader at Deutsche Bank, and also an Xer:

“What Lippman did, to his credit, was he came around several times to me and said, ‘Short this market,’?” Eisman says. “In my entire life, I never saw a sell-side guy come in and say, ‘Short my market.’”

Well, here we have a problem, don't we? We have Lippman selling securities, telling Eisman to make money by betting that the securities will lose money. I'm not a lawyer, but isn't that securities fraud? It sure looks that way to me. How come nobody is arresting Lippman?

When I talk about the aggressive, destructive role that Gen-Xers played in the current disaster, I often get an indignant reply. "We were working for Boomers, and we did what they told us to do, because we had to, or we would have been fired."

I usually answer, "If your Boomer boss asked you to kill his wife, would you do that too?"

What's clear from Lewis' account was this was almost an entirely Gen-Xer run scheme. When I read these stories, I never read about Boomers playing anything but a passive role. Some Xers are heroes, some Xers are villains, but all the actors are Xers. The Boomers don't figure in any of these stories. It's all about Xers.

By no means does that excuse Boomers. Boomers were still the bosses, and Boomers let it all happen. In fact, with fraud so pervasive, there's no doubt that they all knew that it was going on, but didn't object because they too were making money, and didn't care who got screwed.

That's why on the web site I'm always talking about the "lethal combination of greedy, nihilistic Gen-Xers, together with greedy, stupid Boomers." What's happened these last few years could not have occurred without the active cooperation of both Xers and Boomers. Xers were needed because of their contempt for values, and their willingness to destroy anything or screw anyone, in order to benefit themselves. Boomers were necessary because they had no moral values whatsoever, and they let the Xers do it, in order to benefit themselves.

In the end, Eisman summarizes the situation as follows: "That Wall Street has gone down because of this is justice. They fucked people. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience."

Isn't that amazing? Not one person. That's not surprising, when you consider that I've never heard anyone on tv apologize for what he he'd done. It's always someone else's fault.

For me personally, I feel a small element of pride that everything I've been writing about for the last few years has turned out to be completely true, and people who called me names were completely wrong. But that small element of pride is still overwhelmed by the enormous feeling of revulsion at what's been going on. And I'm not going to get much sleep tonight either.

I still sometimes feel like vomiting sometimes. I felt like vomiting last week when when I heard Larry Summers give his slimy speech, taking pride in what he's accomplished, and saying that everything is going to be OK. Summers has been a full, active participant in the massive fraud of the last few years, and now he's just continuing the fraud as Secretary of the Treasury.

Do you remember when the credit crunch first broke, in August 2007? At that time they were discussing how many of these toxic assets (as we now call them) existed. The optimists on CNBC said that there were less than $100 billion of them around. The pessimists on CNBC said that there were as many as $200 billion.

Well, guess what? Banks and insurance companies have already confessed to having $1.29 trillion in toxic debt, and last week the International Monetary Fund (IMF) indicated that they would reach $4 trillion.

And even that won't be the end.

Mike Mayo, an analyst at Calyon Crédit Agricole, analyzed the holdings of 11 major banks and found that, on average, loans have only been marked down to 98 cents on the dollar. This indicates that debt-related assets have much farther to fall, and that the $4 trillion will be far exceeded. The volume of toxic assets keeps going up every week, and I expect it to reach tens of trillions before it's all over.

There's another angle to this. The government is supposedly "stress testing" various banks, to find out the size of their toxic debt exposure, and whether the banks can survive. Well, the Fed has ordered the banks to keep quiet about the results of the stress tests. You can be sure that if the banks were passing the stress tests, they'd want everyone to know. So you can be sure that they're failing. It's just more lies, deception and fraud by the Administration that repeatedly spewed crap promising to be open and transparent, without having even the appearance of impropriety.

On another subject, President Obama has announced that his Administration will end deficit spending. They're going to do this with the most massive spending program in the history of the universe -- trillions in bailouts and stimulus, curing global warming, and implementing universal health care. Apparently President Obama believes that the way out of debt is to go infinitely deeper into debt.

Well, here's the assessment of the nonpartisan Congressional Budget Office (CBO):

Projected government deficit <font face=Arial size=-2>(Source: washingtonpost.com)</font>

Projected government deficit (Source: washingtonpost.com)

As the graph shows, the CBO "concluded that President Obama's budget would rack up massive deficits even after the economy recovers."

And so, we have worldwide industrial production crashing around the world, and worldwide trade and transportation have come almost to a standstill.

There is no way that anything remotely like Summers' giddy forecast is going to come true, and Summers knows it.

This is turning out to be a big joke. I'd laugh, except I think I'm feeling sick again.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (14-Apr-2009) Permanent Link
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Generational Dynamics Web Log for 14-Apr-2009 Stories of massive generational fraud and corruption continue to pour out

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Generational Dynamics Web Log for 14-Apr-2009
Stories of massive generational fraud and corruption continue to pour out