Tuesday, November 22, 2011

The United Banana Republic of America

The outright corruption and thievery at the highest levels of business and Government have gotten to the point at which its hard to not think of our country as little more than a glorified banana republic.  I remember that I had a friend in business school who's father was an ambassador to a Central American country.  My buddy told me that Central American high level bureaucrats at official cocktail parties achieved honor, social status and bragging rights based on the relative amount of U.S. aid that each guy diverted into their own pocket.  I get the feeling that the same thing happens now among the banking and business elite, as they achieve social status based on the amount of taxpayer and investor money that they walk away with.  Obviously this is predicated on their ability to plant key people into key spots in the Presidential administration.  With the Bush administration it was defense companies, who had their de facto President sitting in the office of the Vice President (that would be Cheney).  In the current administration, it's Obama's chief of staff, a former JP Morgan director, the Treasury Secretary - who is in effect a big bank puppet - and the Chairman of the CFTC - a former Goldman Sachs partner and butt-buddy of Jon Corzine.

And the thievery gets more blatant and obvious.  Just take for instance the plundering of MF Global.  Right now there's at least $1.2 billion in missing customer funds.   Where did this money go?  A friend of mine who has been in the banking industry for 20 years can not believe that there are absolutely no electronic traces to that money.  If the money had been transferred out of MF Global, it would have had to have been reported to FINRA and it would have had to travel at some point through the Federal Reserve bank wire system.  So where is it?  At first, $600 million of it was "found" at JP Morgan.   But JP Morgan has denied that this was MF Global customer money.  Why can't we see a history of money transfers between MF Global and JP Morgan?  Did they vanish into thin air?  There is a large-scale cover-up going on here and I have to believe that Jamie Dimon is laughing right now because JP Morgan appears to have gotten away with hijacking funds from MF Global.  Where's Jon Corzine in all of this?   And it just so happens that the former Soros trader who MF Global hired in early 2011 to expand its proprietary trading business has gone missing...Oh, and just to kick a little more sand in our faces, JP Morgan has emerged as the winning bidder of MF's stake in the London Metals Exchange.  This was a highly coveted asset on MF's books and it gives JPM a powerful 10% ownership stake in the largest physical metals trading venue in the world.  Usually when I smell the stench of dog shit, I watch where I'm stepping.  This one doesn't exactly smell kosher, does it?

Speaking of watching where you are stepping, if you have your investment account and IRA at either Merrill Lynch or Jefferies, you might want to get it out of there.  I've been warning about this for over week now and the smell of dog shit is getting stronger.  This report about regulators warning B of A to get its act together hit the tape today:  LINK  It would appear that B of A is starting to have liquidity problems and it turns out that B of A has several billion in bonds that it has to pay off over the next few months. These bonds were issued under the 2008 bank bailout and are guaranteed by the Taxpayers via the FDIC.  This is near-zero debt that will have to be refi'd using much more expensive debt issued (not sure who would buy it - maybe Buffet) or payed off using I don't know what capital.  I believe that the noose of insolvency is closing around B of A's neck, and given the way that MF Global has been handled, I do not believe that investment accounts at Merrill Lynch are safe.

And now for Jefferies.  JEF has issued several denials and rebuttals to various commentaries and analyses that suggest that Jefferies has financial problems.  The best defense JEF has offered up is to present its revised GAAP financials, which don't show anything meaningful.  So today, per zerohedge, the rating agency of Egan Jones - probably the most truthful credit rating organization - issued the latest warning on Jeffries:  LINK

Interestingly, most critiques of Jefferies have focused on its sovereign bond holdings and derivatives exposure.  But a quick glance at the latest 10-Q shows an even bigger problem:   its holdings in residential and commercial mortgage paper.  Of $18 billion in longer term financial instruments,  $2.6 billion (14%) is in sovereign paper BUT $4.4 billion (24% is in mortgage paper).  It is likely this is private label garbage that is maybe worth 30 cents on the dollar.  Maybe.  And it's almost all classified as "Level 2" assets, which means that they have some bullshit computer model that spits out a pricing value for these assets that Jeffries expects us to believe is realistic.  It's not.  Jefferies has $3 billion in book equity.  If we were to apply a very conservative 50% write down of its reported sovereign and mortgage holdings, this would wipe JEF's net worth.  And we're not addressing the reality that should be associated with its off-balance-sheet garbage, which is likely several multiples larger than its reported mortgage and sovereign debt issues.

But you know, all this wouldn't be as much of a problem for me if Jefferies wasn't run by a guy who used to work directly under Michael Milken at Drexel Burnham.  In fact, Jefferies is to a large degree a reincarnation of the rats who got away without punishment from corrupted firms like Drexel.  All I can do is present the facts as I am able to dig them up.  I know that after watching with complete horror at how the MF Global situation is being covered up and is screwing over the customers - whose money should be under the highest standard of protection - I would not leave my money anywhere near B of A or Jeffries.  For sure it's not safe to leave your fate in the hands of the Government regulators who are paid to protect you.  The reason:  they are getting paid even more by big banks to screw you.

Lie down with dogs, wake up fleas. And the stench of dog shit is getting a lot stronger out there...


  1. Dude, I really enjoy your posts. Thanks.

  2. As always top post Dave.

  3. (Dave)

    Thanks for the feedback! I really appreciate it.

  4. Spot On again !
    Swiss Genome

  5. It's worse than even you are saying!
    Check out Armstrong's comments on his recent experience PAGE 2 here about getting clients' money for his upcoming December seminar:

  6. I may just put in this link as my entire commentary tonight. Priceless.

  7. BRIEF-Trustee for MF Global broker-dealer unit sees recovering $1.3 bln of assets from Harris Bank
    Published: Tuesday, 22 Nov 2011 | 5:34 PM ET
    Text Size





    Nov 22 (Reuters) - * Trustee for MF Global Holdings Ltd broker-dealer unit expects to recover $1.3 billion of assets from bank of montreal's harris bank -- spokesman * Assets being recovered include foreign currencies, securities, cash -- spokesman * Assets to be pooled under MF Global Inc trustee's control, for eventual payback to customers -- spokesman (New York Equities Desk; tel: +1 646 223 6000) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved.

  8. (Dave)

    CNBC's Kayla Tausche clarified that the $1.3 billion is unrelated to the $1.2 billion in missing customer funds. At this point, it is still not known where the shortfall in customer accounts ended up,

    Read more: http://www.businessinsider.com/13-billion-in-mf-global-funds-recovered-2011-11#ixzz1eV89d0Rw
    It's not the missing customer funds:

  9. Not to worry, not to worry...there's still one rule of law...one set of laws for them and one set of laws for the rest of us...

    Banks Pressing for Foreclosure Settlement Before Investigation

    If ever you need as an illustration why bank bailouts are such a misguided idea, one need look no further than Fraudclosure and RoboSigning. The sunk cost of the bailouts have completely skewed government officials priorities. Hence, enforcement of laws and imposing criminal penalties has become verbotten, as it undercuts the prior monies.

    Why do I suspect that the hand of former NY Fed president and current Treasury Secretary Timothy Geithner is behind this?