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Generational Dynamics Web Log for 1-Apr-2010
1-Apr-10 News - New suicide bombings in Russia's Caucasus region

Web Log - April, 2010

1-Apr-10 News - New suicide bombings in Russia's Caucasus region

Epidemic of financial and mortgage fraud is continuing as before.

Congress calls CEOs on the carpet after health care writedowns are announced

Boeing company announced on Wednesday that it will record a $150 million charge against profits, because President Obama's health care bill has removed a tax benefit to corporations that give prescription drug coverage to retirees. Bloomberg says that the charge will be reflected in first quarter earnings.

Earlier this week, AT&T announced a $1 billion writedown for the same reason. A number of other companies will make similar announcements. Some companies will undoubtedly solve the problem by ending their prescription drug coverage for retirees.

Representative Henry Waxman has sent letters to the CEOs of AT&T and other companies formally demanding that they produce documentation by April 9 defending the writedowns.

As I understand the law, listening to this issue being discussed on television, these corporations are required by law and by SEC regulation to declare these adjustments, so that investors will be fully informed. Obviously if a new law removes a tax benefit, then a tax charge is required. Thus, Waxman's letters are sheer political intimidation.

I get criticized all the time by readers for getting angry, but I'm sorry, this stuff absolutely infuriates me.

It's the likes of Waxman that pushed through the "fair housing" and "fair lending" laws that put people into homes that they couldn't afford. Waxman and his peers (especially Barney Frank) couldn't stop bragging about how they got these laws passed, and how they helped the poor, the blacks, the women and the children. Anybody who said that putting people into homes they couldn't afford was very bad policy was charged with being a racist, sexist cretin.

Now that those people are all losing their homes through surging foreclosures, it turns out that it's really Waxman and Frank who f--ked over those same poor people, black people, women and children, by leaving them homeless. That makes Waxman and Frank the racist, sexist cretins.

So now Waxman is turning his blaster on companies that are required by law to take writedowns for losing tax benefits in the health care bill. I'm sorry to be so furious, but how is it possible that this nation is being run by politicians who are so incredibly stupid?

Why is no one jailed for 'mortgage fraud epidemic'?

If you want to understand the sheer destructiveness of people like Waxman, it's well to take a look at an article posted on the CNN web site in 2004:

"FBI warns of mortgage fraud 'epidemic' Seeks to head off 'next S&L crisis' Friday, September 17, 2004 Posted: 5:44 PM EDT (2144 GMT)

WASHINGTON (CNN) -- Rampant fraud in the mortgage industry has increased so sharply that the FBI warned Friday of an "epidemic" of financial crimes which, if not curtailed, could become "the next S&L crisis."

Assistant FBI Director Chris Swecker said the booming mortgage market, fueled by low interest rates and soaring home values, has attracted unscrupulous professionals and criminal groups whose fraudulent activities could cause multibillion-dollar losses to financial institutions.

"It has the potential to be an epidemic," said Swecker, who heads the Criminal Division at FBI headquarters in Washington. "We think we can prevent a problem that could have as much impact as the S&L crisis," he said. ...

The FBI has dispatched undercover teams across the country in an urgent investigation into dealings by suspect mortgage brokers, appraisers, short-term investors, and loan officers, Swecker, flanked by FBI executives and Justice Department prosecutors, revealed. ...

States identified as the top 10 "hot spots" for mortgage fraud are Georgia, South Carolina, Florida, Michigan, Illinois, Missouri, California, Nevada, Utah and Colorado."

Excerpts from the CNN article were posted by guest blogger Edward Harrison on Yves Smith's Naked Capitalism web site.

The question that Harrison asks is: "Where are the investigations, perp walks, convictions? So what happened to all that fraud?"

And that's a very good question. The standard excuse that we hear from politicians, journalists and bankers is that they didn't know that there would be a credit crisis that would bring everything down. In other words, their defense is, "I may be an expert, but I'm way too stupid to have known I was doing anything wrong."

But the FBI did know, and they talked about it. So why aren't these people in jail by now?

This is the same kind of thing we've seen in so many stories I've posted on this web site. There was a culture of complicity throughout Washington, among the bankers, the politicians, the journalists, and the regulators, all of whom had something to gain by allowing the repeated fraud to continue.

Henry Waxman today is calling on the carpet companies that are doing what's required by law in informing investors of increases taxes resulting from the health care bill. Waxman would presumably be happier if these companies broke the law, since their breaking the law would serve his current political purposes. And then later he could express outrage that they broke the law, so he'd get a double win.

I can't prove it, but I believe that investigations will show that congressmen like Henry Waxman and Barney Frank would have called on the carpet any FBI investigator that interfered with illegal activities in the housing industry, and would have said that any such investigator was racist and sexist. That's why regulators could not prosecute crimes that they knew were being committed; because congressmen like Waxman and Frank, who must also have been aware that crimes were being committed, did not want the crimes prosecuted for political reasons.

I know that some of you out there will object to the above narrative. But what I keep grasping for is this: How is it possible that so many crimes were committed by so many people in so many different companies, and everyone looked the other way? How is that even possible? It must be generational, because it would not have happened prior to the 2000s decade. I'm proposing the "Waxman-Frank" explanation. If you have a better explanation, then let me know. But one thing is clear: Once the Silent generation was gone, then inhibitions and ethics went out the window, and it was OK to screw anyone you wanted to make a buck.

And while we're at it, the Naked Capitalism blog entry quotes an article from Nuwire investor:

"Epidemic Levels Of Mortgage Fraud Leading To Development Of Local Bubbles

Published on: Thursday, February 11, 2010

Government efforts to stabilize the financial system have kept interest rates low, and bought up more than $1.4-trillion in mostly failed mortgage-backed securities. But widespread fraud and other government efforts may already be driving the development of another housing bubble.

The FBI says mortgage fraud is still at epidemic levels, which may be fueling the development of local bubbles. Government backed low interest rate mortgages offered by the Federal Housing Administration (FHA) are showing signs of wide abuse by home buyers. The Internal Revenue Service is investigating an estimated 100,000 to 350,000 tax payers who may have cheated taking the first time home buyers tax credit. ...

"Mortgage fraud has been a crime of opportunity," said Merle Sharick of the Mortgage Asset Research Institute (MARI). "Now it's become a crime of necessity." MARI developed the Mortgage Industry Data Exchange as a weapon to defend against mortgage fraud.

Low downpayment FHA loans aren’t the only mortgages that are being tapped for fraud. Veteran Administration (VA) and the U.S. Department of Agriculture’s rural home loan program are also being eyed by investigators as mortgages that have been used by borrowers to fraudulently obtain financing.

Federal investigators are looking into a series of schemes that victimize home buyers and businesses, including low income families and real estate investors, who are being saddled with over-inflated mortgages in growing numbers.

The IRS says that that some of the most common types of fraud include property flipping, double sets of closing statements and fraudulent qualifications."

Notice the similarity between the 2004 article and the 2010 article. The same people are committing the same crimes today. And that includes the bankers, who are still charging 30% interest rates, and using the money to pay themselves million dollar bonuses. Nothing has changed in six years, and it won't be long before a new financial crisis begins.

New suicide bombings in Russia's Caucasus region

Double suicide bombings in Kizlyar, a city in the the Caucasus province of Dagestan, killed 12 people and wounded 23, mostly members of Russia's security forces. This follows by two days the Moscow subway explosions by suicide bombers.

Map: Bombings in Dagestan <font face=Arial size=-2>(Source: CS Monitor)</font>

Map: Bombings in Dagestan (Source: CS Monitor)

First, it's important to point out that while Moscow has been free of suicide bombings for many years, that isn't true of Dagestan. To the contrary, Dagestan has been plagued by dozens of suicide bombings almost every year. Thus, these new Dagestan bombings wouldn't be making worldwide news if it weren't for the Moscow bombings two days ago.

Historically, Dagestan is the site of centuries of genocidal inter-ethnic wars. This situation became much worse in the late 1990s, when the Russians were fighting the Islamists in Chechnya, causing many Chechens to flee to Dagestan for safety. Along with the Chechens came Islamist terrorist weapons, making the situation in Dagestan much worse than it had been, and it had been pretty bad.

In the course of the Chechen wars, the Russian security apparatus brutally crushed the opposition, through murder, kidnappings, and more extreme forms of violence. Vladimir Putin gets a lot of credit from many Russians for winning the Chechen wars, and for his hardline extremely nationalist statements about the Chechens, and for the victory that was declared last year. At the same time, many people in Dagestan and Chechnya are motivated by pure hatred toward the Russians in general, and Vladimir Putin in particular.

Thus, the new bombings provide a major political test for Putin, according to CS Monitor. Putin has been regarded as a hero for winning the Chechen war, but if terrorist activities are revived now, then Putin will be blamed. Given this political calculation, something to watch for is whether Putin will over-react, and institute brutal new measures in Dagestan and Chechnya to get revenge for the bombings.

Meanwhile, the Telegraph reports that Chechen terrorist leader Doku Umarow has posted an internet video claiming credit for the Moscow subway bombings.

Umarov says that he ordered the subway bombings, and that more bombings will occur in Moscow and other cities. He said, "Therefore the war is coming to your streets and you will feel it on your own lives and on your own skins. ... [You will no longer] serenely watch the war in the Caucasus unfolding on your TV screens, serenely watching and not reacting to the excesses and crimes of your gangs which are sent to the Caucasus under Putin’s leadership."

From the point of view of Generational Dynamics, Russia is headed for a major new civil war, re-fighting the war between Trotsky and Stalin in the 1920s, as well as the Caucasus wars that were fought at the same time. We may be watching several steps on the say to that war.

Additional Links

James Lovelock says that humans are too stupid to prevent climate change. Well, duh. If they're too stupid to prevent financial crises, and they're too stupid to prevent wars, then why should they be smart enough to prevent anything else? Guardian

"Saudi Arabia's conflicted Policy on the Afghanistan Crisis." A great overview of how Saudi Arabia and Iran are competing for influence in Afghanistan. Memri

China's huge property bubble is spreading from the big cities to the medium sized and smaller cities in rural areas. Caing

The plot to bomb the Moscow subways earlier this week may have been hatched by Islamist terror groups in Pakistan. Asia Times

A poll shows that thanks to the financial crisis, only half as many people this year as last plan to play pranks on their friends or relatives on April 1, April Fools Day. Moscow Times

(Comments: For reader comments, questions and discussion, see the 1-Apr-10 News - New suicide bombings in Russia's Caucasus region thread of the Generational Dynamics forum. Comments may be posted anonymously.) (1-Apr-2010) Permanent Link
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