Ex-BofA chief Lewis charged with fraud - Feb. 4, 2010

NEW YORK (CNNMoney.com) -- New York Attorney General Andrew Cuomo said Thursday it was bringing civil charges against senior Bank of America executives, including former company CEO Ken Lewis, for their role in the company's controversial purchase of Merrill Lynch.

Separately, the Securities and Exchange Commission said it had struck a $150 million settlement agreement with BofA over its decision to pay billions of dollars in bonuses to former Merrill employees.



Bank of America's last-minute decision to purchase the ailing Merrill in September 2008 has remained a central issue in the wake of the financial crisis, prompting both federal and state probes into the matter.

Cuomo's office, which has been aggressively pursuing an investigation into the merger and subsequent bonuses paid to former Merrill employees, said it was charging Lewis and Bank of America's former chief financial officer Joe Price with fraud.

The lawsuit contends that the bank's management team understated the losses at Merrill in order to get shareholders to approve the deal, then subsequently overstated the firm's willingness to terminate the merger to regulators weeks later in order to get $20 billion of additional aid from the federal government.

"Bank of America and its officials defrauded the government and the taxpayers at a very difficult and sensitive time," Cuomo said at a press conference Thursday, joined by federal bailout cop Neil Barofsky, whose office aided in the investigation. "I believe that Bank of America officials exploited this fear."

A spokesperson for Bank of America called the charges "regrettable" and "totally without merit," adding that both Lewis and Price acted in good faith at all times and were "consistent with their legal and fiduciary obligations."

Mary Jo White, an attorney with law firm Debevoise & Plimpton, who is representing Lewis, echoed those remarks, saying her client had been "unfairly vilified" in a search for the culprits of the financial crisis.

"This suit is not fair, it is without factual or legal basis, and we look forward to prevailing in a court where the facts and law do matter," White said in a statement.

Lewis retired from the company at the end of last year amid intense scrutiny about his role in the merger. Price continues to serve at the bank as the head of the firm's consumer banking and credit card business.

Cuomo's office would not say whether the investigation prompted what many believed was an early retirement by Lewis.

New York's top lawmaker also said newly-appointed Bank of America CEO Brian Moynihan had no responsibility in the firm's failure to disclose losses before a special shareholder vote in December 2008.

"Mr. Moynihan did not have a role in that," said David Markowitz, special deputy attorney general for investor protection, who helped lead the investigation.


Despite the charges against Lewis and Price, Bank of America may be one step closer to putting the Merrill bonus controversy behind them as a result of Thursday's proposed settlement with the SEC.

The terms of the agreement would require the Charlotte, N.C.-based lender to pay the $150 million penalty to its shareholders who were affected by the disclosure violations.

It would also require the company to implement a number of corporate governance changes for the next three years including giving its shareholders an advisory vote, or "say on pay" of its executives.

Bank of America would also pay $1 million to the Office of the Attorney General for the State of North Carolina to resolve an investigation it had raised over the merger. The company said the payment is not a penalty or a fine.

Bank of America and the SEC were set to square off in court in March over charges that it allegedly lied in its proxy statement, telling shareholders it would not pay out bonuses paid to Merrill employees in fiscal year 2008.

The agency brought another nearly identical legal action against BofA in January, alleging that the firm failed to alert investors about the potential losses at Merrill Lynch before the deal closed.

The latest settlement would resolve both those charges, but it would still be subject to the approval of U.S. District Court Judge Jed Rakoff.

Rakoff scuttled a previous agreement between the two parties last fall, arguing that the original $33 million settlement was not only paltry, but would only impact those who were hurt by the bonus scandal: the company's shareholders.

Bank of America (BAC, Fortune 500) shares fell nearly 4% in afternoon trading Thursday.



Ex-BofA chief Lewis charged with fraud - Feb. 4, 2010

FED GAVE Banks Access to 23.7 TRILLION DOLLARS NOT $700 Billion!

Looky Looky, what do we have here ?
Another fast one by the FED on our Dime !!

This stuff has to STOP !!

Central banks end US dollar emergency swap lines - BusinessWeek

The Bank of England said Wednesday that it and other major central banks are ending emergency lending arrangements put in place with the U.S. Federal Reserve in the wake of the global credit crisis, citing improvements in financial markets.

The decision marks the first unified retraction by central banks around the world of extraordinary support measures to boost lending after credit markets seized up in late 2007, causing the global economic downturn.

The Bank of England was joined by the European Central Bank, the Bank of Japan and the Swiss National Bank in announcing that the temporary reciprocal currency arrangements with the Fed would expire on Feb. 1.

"These lines, which were established to counter pressures in global funding markets, are no longer needed given the improvements in financial market functioning seen over the past year," the bank said in a statement. "Central banks will continue to cooperate as needed."

The Fed announced in December 2007 that it had authorized so-called liquidity swap lines with the European Central Bank and the Swiss National Bank. The agreement was extended to include several other central banks in April 2009.

Under the arrangements, central banks around the world provided each other with foreign currency -- the Fed made U.S. dollar liquidity available elsewhere, with the ECB providing euros and the Bank of England providing sterling. The agreements added up to hundreds of billions of dollars.

The aim was to improve liquidity conditions in U.S. and foreign financial markets after banks became nervous of lending to each other amid concerns about the state of balance sheets across the industry.

The stagnation in the interbank lending pushed up the premium for short-term U.S. dollar funding in particular, a currency that features widely in both asset and liability tables of banks and companies around the world. That led to a sharp rise in interbank lending rates, which flowed through to the rest of the financial system.

The Bank of England said it conducted its last U.S. dollar repo operation under the arrangements on Wednesday.



Central banks end US dollar emergency swap lines - BusinessWeek

Will the Feds Fund Deficits with 401(k)s?

The writing is on the wall for retirement assets held in conventional ways. A report last week in Business Week shows that the U.S. Feds have 401(k) assets in their sites.

“The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort."

“Annuities generally guarantee income until the retiree’s death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview.”


Now ostensibly, the plan to offer an annuity option for 401(k) plans will seem sensible. But don’t be fooled.

This is the beginning of a money grab by the Feds for the $3.6 trillion in assets held by U.S. 401(k)s. The Feds need that money to finance the deficit. This is where some of the money to fund the deficits may come from, answering a question we asked earlier in the week. What you can’t take, you’ll have to print.

But right now, the Feds can’t just take that 401(k) money. Well, they could. But it would crash stocks and infuriate the public, leading to some civic violence. What’s more, it would feel like theft as well as looking (and being) like it. So they have to dress the plan up as something that’s better for savers.

They’re trotting out the idea that a defined benefit pension plan is better than defined contribution plan (which is true, if it’s funded well). A defined benefit plan guarantees you income in your old age years. A defined contribution plan (what we have now) just guarantees money flows into the stock market (which is good for the financial services industry, but don’t guarantee you’ll have any money when you really need it later in life).

The U.S. Treasury Department and the Obama administration are exploring ways to encourage U.S. savers to buy more annuities or investment vehicles composed of “safe” assets. What constitutes safe? Why 30-year U.S. government bonds of course! Thus, the government can encourage people to buy what the Chinese and the Japanese and most other U.S. creditors don’t want to touch any longer.

The trouble with an annuity or 30-year bond is that you get crushed by inflation. In principle, it’s not different that a zero coupon bond. You get your nominal investment back upon redemption. But you are not compensated for inflation and your money is tied up, instead of working harder for you elsewhere.

It’s obvious what the Fed’s get out of this: a ready source of new funds to buy their bonds. This kicks the can of unsustainable deficit spending down the road a few months, or perhaps a few years. But it doesn’t change the fundamentally destructive path of U.S. fiscal policy.

What it does tell you is that mischief is afoot among the wealth stealers of the modern nation state? Faced with a failed funding model, they are beginning their cash grab. This takes the form of higher taxes. But the big bounty is the retirement savings of millions of Americans.

This solves the problem of having to sell the debt to foreign investors. And it solves the problem of having to make tough budget deficits. Just issue more debt and make the super funds buy it with your money.

If you think that’s balderdash or won’t happen, you’re being naïve. It won’t happen overnight. But it will happen gradually. It’s evolving towards that already. If they can’t get it through tax or royalty revenues, the tax posse will get it by any means necessary, which means your super assets are an obvious target.

Alarmist? Irresponsible? You decide. But we can see the evolution of this as clear as day, even if saying it in public is bad form or taboo. But now is the time to say the taboo things.

Dan Denning Article

Ron Paul Calling For Revolution? Great Speech!!

SEC order helps maintain AIG bailout mystery

* SEC agreed with AIG to keep some bailout terms sealed

NEW YORK, Jan 11 (Reuters) - It could take until November 2018 to get the full story behind the U.S. bailout of insurance giant American International Group (AIG.N) because of an action taken last year by the Securities and Exchange Commission.

In May, the SEC approved a request by AIG to keep secret an exhibit to a year-old regulatory filing that includes some of the details on the most controversial aspect of the AIG bailout: the funneling of tens of billions of dollars to big banks like Societe Generale, Goldman Sachs (GS.N), Deutsche Bank (DBKGn.DE) and Merrill Lynch.

The SEC's Division of Corporation Finance, in granting AIG's request for confidential treatment, said the "excluded information" will not be made public until Nov. 25, 2018, according to a copy of the agency's May 22 order.

The SEC said the insurer had demonstrated the information in the exhibit, called Schedule A, "qualifies as confidential commercial or financial information."

The expiration date for the SEC order falls on the 10th anniversary of Federal Reserve of New York's decision to provide emergency financing to an entity set up to specifically acquire some $60 billion in collateralized debt obligations from 16 banks in the United States and Europe.

All the banks that got money from the Fed-sponsored entity -- Maiden Lane III -- had purchased insurance contracts, or credit default swaps, on those mortgage-related securities from AIG.

The SEC's decision to approve AIG's request for confidential treatment got scant attention at the time. But it could spark controversy now following the release last week of 14-month-old emails that reveal that some at the New York Fed had discussions with AIG officials about how much information should be disclosed to the public about the Maiden Lane III transaction.

The New York Fed, then led by Treasury Secretary Timothy Geithner, plays a critical role in the world of finance given its close dealings with all the major Wall Street banks, many of which were counterparties of AIG.

SEC spokesman John Nestor declined to comment on the reasons for granting AIG's request to treat the exhibit as confidential.

In a typical year, the SEC receives 1,500 requests from U.S. companies for confidential treatment for portions of regulatory filing, said Nestor. The agency grants those requests, "all or in part," 95 percent of the time, he said.

It's not clear what information is in the exhibit beyond a listing of the 16 banks that were beneficiaries of the Maiden Lane transaction. Last March, under pressure from Congress, AIG released the names of the banks that sold CDOs to Maiden Lane and how much money the banks got in the process.

When AIG filed the Schedule A exhibit with the SEC, it redacted the information it wanted to keep confidential, in anticipation regulators would approve its request.

The Fed's bailout of AIG long has been controversial because the banks that sold CDOs to Maiden Lane III were paid 100 percent of face value, even though many of the securities were worth substantially less at the time of the government bailout.

Last Thursday the furor over the Maiden Lane transaction was reignited after Rep. Darrell Issa, a California Republican, released copies of emails detailing discussions between the New York Fed and AIG over how much information to disclose.

The emails have provided fresh ammunition for critics of Geithner. New York Fed General Counsel Thomas Baxter Jr. said in a letter to Issa's office that Geithner "played no role in, and had no knowledge of" the emails.

Issa, the highest-ranking Republican on the House Committee on Oversight and Government Reform, said the panel will soon hold hearings about how information was disclosed to the public about the Maiden Lane deal.

Issa's spokesman Kurt Bardella declined to comment on the SEC's handling of the AIG's confidentiality request.

But Issa, in a prepared statement, said "as much information as possible should be made available to Congress to review the details and decisions" regarding the payments.

The batch of emails released by Issa discussed the SEC's requests for more information about the exhibit that AIG wanted to keep secret. But the emails did not mention the SEC's decision to grant AIG's request for confidential treatment.

Geithner’s Fed Told AIG to Limit Swaps Disclosure

Was reading Bloomberg today and came across a very interesting Story, which is kind of HUGE !!

Story on Bloomberg.com


The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.” President Barack Obama selected Geithner as Treasury secretary, a post he took last year.

Bank Payments

Issa requested the e-mails from AIG Chief Executive Officer Robert Benmosche in October after Bloomberg News reported that the New York Fed ordered the crippled insurer not to negotiate for discounts in settling the swaps. The decision to pay the banks in full may have cost AIG, and thus taxpayers, at least $13 billion, based on the discount the insurer was seeking.

The e-mail exchanges between AIG and the New York Fed over the insurer’s disclosure of the transactions show that the regulator pressed the company to keep details out of the public eye. Issa’s comments add to criticism from Republican lawmakers, including Senator Chuck Grassley of Iowa and Representative Roy Blunt of Missouri, who wrote letters in the past two months demanding information from Geithner, 48, about the costs of the AIG bailout.

Securities Lawyers

AIG’s Dec. 24, 2008, filing was challenged privately by the U.S. Securities and Exchange Commission, which polices the adequacy of disclosures by publicly traded firms. The agency said in a letter to then-CEO Edward Liddy six days later that AIG should provide a Schedule A, which lists collateral postings for the swaps and names the bank counterparties that purchased them from the company. The Schedule A was disclosed about five months later in a filing.

“Our position has always been that if AIG’s securities lawyers determine that AIG is legally obligated to make a particular filing or disclosure, then that is what AIG must do,” said Jack Gutt, a spokesman for the New York Fed, in an e- mailed statement. Gutt said it was appropriate for the New York Fed, as party to deals outlined in the filings, “to provide comments on a number of issues, including disclosures, with the understanding that the final decision rested with AIG’s securities counsel.”

Mark Herr, a spokesman for New York-based AIG, declined to comment. Andrew Williams of the Treasury referred questions to the New York Fed.

Kathleen Shannon, an AIG deputy general counsel, wrote to the insurer’s executives in a March 12, 2009, e-mail about the conflicting demands from the New York Fed and SEC.

‘Reasonable Basis’

“In order to make only the disclosure that the Fed wants us to make,” Shannon wrote, “we need to have a reasonable basis for believing and arguing to the SEC that the information we are seeking to protect is not already publicly available.”

AIG disclosed the names of the counterparties, which included Deutsche Bank AG and Merrill Lynch & Co., on March 15. The disclosure said AIG made more than $27 billion in payments without identifying the securities tied to the swaps or listing the value of individual purchases by each bank, details the Fed wanted to keep out, according to the March 12 e-mail from AIG’s Shannon.

Earlier that month, Fed Vice Chairman Donald Kohn testified to Congress that disclosure of the counterparties would harm AIG’s ability to do business. The insurer agreed to turn over a stake of almost 80 percent in connection to its bailout.

‘No Mention of the Synthetics’

The e-mails span five months starting in November 2008 and include requests from the New York Fed to withhold documents and delay disclosures. The correspondence includes e-mails between AIG’s Shannon and attorneys at the New York Fed and its law firm, Davis Polk & Wardwell LLP. Tom Orewyler, a spokesman for Davis Polk in New York, declined to comment as did Shannon.

According to Shannon’s e-mails obtained by Issa, the New York Fed suggested that AIG refrain in a filing from mentioning so-called synthetic collateralized debt obligations, which bundled derivative contracts rather than actual loans.

The filing “reflects your client’s desire that there be no mention of the synthetics in connection with this transaction,” Shannon wrote to Davis Polk on Dec. 2, 2008. “They will not be mentioned at all.”

AIG had about $9.8 billion of swaps protecting the synthetic holdings as of September 2008, the company said on Dec. 10, 2008. Goldman Sachs said in a press release last month that it was among banks that had losses on synthetic CDOs.

As part of a bailout that swelled to $182.3 billion, AIG and the Fed created Maiden Lane III, a taxpayer-funded facility designed to remove mortgage-linked swaps from the insurer’s books. Shannon told the New York Fed on Nov. 24, 2008, that AIG executives wanted to publicly disclose details about Maiden Lane the next day.

‘Guided by Your Counsel’

“Do you think it might be feasible to hold off on the Maiden Lane III 8K and press release until next week?” Brett Phillips, a New York Fed lawyer wrote in an e-mail that day. “The thinking is that the Maiden Lane III closing will be a less transparent event, and it might be better to narrow the gap between AIG’s announcement and the New York Fed’s publication of term sheet summaries.”

“Given the significance of the transaction, AIG would be best served by filing tomorrow,” Shannon wrote. “We will of course be guided by your counsel.” The document outlining the Maiden Lane agreement was posted on Dec. 2, 2008.

In at least one instance, AIG pushed for documents to be disclosed and then released the information.

‘Better Disclosure’

“We believe that the agreements listed in the index (i.e., the Master Investment and Credit Agreement and the Shortfall Agreement) do not need to be filed,” Peter Bazos, a Davis Polk lawyer wrote on Nov. 25, 2008. “Please let us know your thoughts in this regard.”

AIG’s Shannon replied that “the better practice and better disclosure in this complex area is to file the agreements currently rather than to delay.” The agreements were included in the Dec. 2 filing.

More details of the negotiations over swaps payments emerged in November 2009 when Neil Barofsky, the special inspector in charge of policing the Troubled Asset Relief Program, assessed the Fed’s role in the bailout.

“Federal Reserve officials provided AIG’s counterparties with tens of billions of dollars they likely would have not otherwise received,” Barofsky wrote in a Nov. 17 report. “The default position, whenever government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with government funds.”

AIG’s first rescue was an $85 billion credit line from the New York Fed in September 2008. The bailout was expanded three times and is valued at $182.3 billion. That includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury and up to $52.5 billion for Maiden Lane facilities to buy mortgage-linked assets owned or backed by the company.

Stocks Take a Beating

NEW YORK (TheStreet) -- Stocks sold off at the start of the new quarter as disappointing jobless claims data left Wall Street bracing for Friday's unemployment report. After locking in 15% gains for the third quarter, the Dow Jones Industrial Average started off the new three-month period by taking a 204.89-point plunge, dropping 2.1%, to 9507.39, while the S&P 500 slid 27.4 points, or 2.6%, to 1029.68. The Nasdaq Composite edged down 64.94 points, or 3.1%, to 2057.48.
Losses were broadbased with financials, commodities, technology and home stocks hard hit. The Philadelphia Stock Exchange Gold and Silver Index, the Philadelphia Semiconductor Index, and the KBW Bank Index all sank more than 4%.
Stocks fell early after the Department of Labor said there were 551,000 new jobless claims last week, up from an upwardly revised 534,000 the week prior and topping expectations for 535,000.
Those data, paired with a worse than expected report on private sector job losses earlier in the week, have traders cautious ahead of the most-anticipated data of the week, Friday's unemployment report, says Doug Roberts, chief investment strategist at ChannelCapitalResearch.com.
"You've seen chinks in the armor, so people are hesitant -- especially with it coming on a Friday," says Roberts. "There's uncertainty, and until there's some sort of resolution, people are going to be nervous."
Adding pressure to the market, Goldman Sachs changed its forecast for September nonfarm payrolls from a loss of 200,000 to a loss of 250,000, wrote James DePorre, founder and CEO of Shark Asset Management, on RealMoney.com.
In other data Thursday, Institute for Supply Management's manufacturing index edged down 0.3 points to 53.6, vs. expectations for a rise to 54. The Chicago PMI spurred selling earlier in the week, when it indicated a contraction in manufacturing.
"Tentative signs in housing, automobile, Chicago PMI and several other economic indicators continue to remind us that the month of September was weaker than generally expected," writes Seabreeze Partners' Doug Kass. He later adds that, "at the risk of being the boy who cried wolf, I believe that market participants have a false sense of security in rising equity share prices."
"Plenty of stocks were pumped up by mark-up buying. The pump-up and subsequent support underneath is now gone," writes Jim Cramer on RealMoney.com."We know that jobless claims aren't improving. That's a real negative, especially for retail and banks. But, and this is a big but, we are not seeing the right stocks go up if we are signaling another dip down."
Not all of the recent data have been negative. Among the day's surprises, construction spending unexpectedly increased by 0.8% in August, and pending home sales rose by 6.4% vs. expectations for a much smaller, 1% gain.
At the same time, the Department of Commerce said personal income increased 0.2% in August, in line with the prior month's increase, and spending ticked up 1.3%, respectively, vs. 0.3% in July. Both readings were slightly better than expected.
In other news Thursday, Federal Reserve Chairman Ben Bernanke testified before the House Financial Services Committee on regulatory reform. Bernanke told members of Congress that a council of regulators should monitor systemic risk, while all systemically important financial firms should be subject to a consolidated regulator.