The Financial Crisis Inquiry Commission (FCIC) was created to determine the cause and effect of the 2008 Wall Street meltdown.  Phil Angelides was Chairman of the Commission.  His comments below come during the first ten minutes of his speech.  Click here to listen for yourself.

“The public stewards of our financial system failed us, the CEO’s of financial institutions drove their companies over the cliff and our economy with it….Nearly 26 million Americans are out of work, cannot find full time work, or have quit looking for work.  Eleven TRILLION dollars of household wealth and retirement savings has been wiped away, vanished like some day trade gone bad….None of what happened was an act of God.  The greatest tragedy coming out of this crisis would be to accept the idea that no one could’ve seen this crisis coming and thus, nothing could’ve been done.  If we accept this notion, I guarantee you, it will happen again” 

Presidents Bush and Obama have both said the financial crisis was unforseen and could not have been prevented.  THEY LIED!  The Financial Crisis Inquiry Commission concluded: 1) The crisis was preventable  2) Regulators looked the other way  3) Big banks took irresponsible risks.  Two presidents say the crisis could not have been prevented.  But the official inquiry into the crisis concluded otherwise, and yet, not one media story calls attention to the presidential cover up, which Mr. Angelides says guarantees another financial crisis.

Neil Barofsky was the Special Inspector General for the TARP bailout program, which gave 700 BILLION tax dollars to failing banks.  Regarding the nine largest banks, Mr. Barofsky said ”if they had even larger holes on their balance sheet due to FRAUD, that would’ve been only more reason for Treasury to give them money”.  But he only had jurisdiction over the use of TARP funds, not the fraud that caused the financial crisis.  William Black is a former Deputy Director of the Savings and Loan Insurance Corporation.  After the S&L meltdown in the 1980′s, Mr. Black helped obtain a 1000 felony convictions of “elite” bankers.  In this interview, Mr. Black lays out the evidence of Wall Street fraud that caused the crisis.  Just listen to the first five minutes, you’ll be angry that prosecutors have not acted on the compelling evidence.  The financial crisis demonstrates media collusion to cover up crimes committed by elite bankers and politicians.

Not all regulators looked the other way while financial crimes were being committed but their voices were silenced by a culture of corruption.  One of those regulators was Armando Falcon.  During the Bush administration, he was director of the Office of Federal Housing Enterprise Oversight (OFHEO), which had regulatory authority over Fannie and Freddie.  They collapsed in 2008 while holding 6.3 TRILLION of debt and home mortgages, which are now explicitly backed by the taxpayer.  Trillions of dollars of those mortgages are toxic assets that may never be worth anything.  In sworn testimony before the FCIC, Mr. Falcon said the Bush White House and media blocked OFHEO’s attempts to protect taxpayers from financial sector risk.  

In 2003, Falcon released a report characterizing Fannie and Freddie (F&F) as a “systemic risk”.  A few days before the report was released, Falcon received a call from Fannie Mae CEO Franklin Raines.  According to Falcon, Raines “threatened to bring down me and the agency” if the risk report was released.  Then, an official from Treasury called him and said F&F lobbyists were pressuring other agencies to prevent the report’s release.  Finally, on the day the report was released, the Bush White House fired Falcon and media focused on his firing while giving “scant coverage” to the systemic risk report.  Falcon said “this was of course exactly the result intended by those who engineered the timing of the announcement of my replacement”.

Who engineered the timing of the announcement?  It was the Bush White House who fired Falcon and refused to delay the announcement when Falcon asked them to do so.  And national media used the firing to cover up the 2003 risk report.  Think about it.  On April 9, 2010, Falcon testified that Fannie Mae’s CEO threatened him, and the Bush White House carried out those threats.  There’s only one reason why this is not a national, front page story.  Left, right and center media colluded to cover up the crime.  F&F held 6.3 TRILLION of home mortgages when they collapsed in 2008, for the preceding five years, Congress, Bush, Obama and media covered up the risk to taxpayers.  Mr. Falcon talks about the cover up of F&F’s systemic risk report in his opening statement to the FCIC.  He recounts the incident at 4min/30sec into the following clip.  Click here to watch it.

FCIC Commissioner Byron Georgiou said F&F were ”cooking the books“.  Georgiou addressed lobbying practices while F&F were cooking the books and said “this was an equal opportunity bipartisan lobbying push over the YEARS when Fannie and Freddie were engaging in this practice”.  Falcon said F&F lobbyists used “strong arm tactics” and “misinformation” to block legislation that would’ve protected taxpayers.  In the same link, Georgiou said this was “a particularly egregious lobbying abuse”.  Why?  Because F&F were Government Sponsored Entities (GSE’s) backstopped by taxpayers, so their lobbyists were quasi government employees who blocked regulation that would’ve protected taxpayers.  Commissioner Hennessey said F&F losses will cost taxpayers 389 BILLION.  But Georgio said this doesn’t include 1.5 TRILLION of toxic assets purchased by Treasury and the Fed, “which may never be worth anything”.

Last but not least, the Federal Government has made systemic fraud the new national accounting standard.  In April of 2009, Congress pressured the Financial Accounting Standards Board (FASB) to relax mark to market rules.  These rules were put in place to prevent the accounting fraud that led to Enron’s collapse.  They require large companies to mark assets on their balance sheet  to current market value, rather than make up some value the assets might be worth in the future.  But thanks to the relaxation of mark to market rules, the Federal Government and large companies can inflate the value of assets on their balance sheets to cover up toxic assets.  This is particularly important for covering up the toxic assets of Fannie, Freddie and Wall Street.  When F&F collapsed in 2008, the government assumed responsibility for all losses.  All of F&F’s 6.3 TRILLION of debt/assets are being kept off the Federal Budget.  And thanks to Dodd/Frank’s resolution authority, taxpayers are explicitly  backstopping the debt of Too Big To Fail (TBTF) Wall Street banks. 

Simon Johnson is a former IMF chief economist and is currently on the Congressional Budget Office council of advisors.  In testimony before the Senate Budget Committee, he said Dodd-Frank did not solve the budgetary threat posed by TBTF banks and another financial crisis represents a “short term” budget liability equal to 40% of GDP [5.6 Trillion].  Johnson said CBO rules require this liability be scored in the budget, but Ranking Republican Judd Gregg replied, “we don’t score a lot of things around here.”   This is Enron style accounting fraud on steroids.

In 2001, the national debt was 5.7 Trillion.  It took 230 years to accrue the 5.7 Trillion, but in little more than a decade, the national debt has tripled.  The Federal deficit is the annual budgetary shortfall that increases the national debt.  In January 2009, Republican Jeb Hensarling said the Federal deficit has grown 800% since Democrats took control of the House.  But this is part of the childish blame game both parties use to cover up the truth.  As Simon Johnson pointed out during the Senate Budget Committee hearing, the TRILLION dollar deficits are a result of the huge drop in government revenue due the financial crisis and recession.  It should be noted that neither Kent Conrad (Budget Committee Chairman), or ranking Republican Judd Gregg disagreed with Johnson’s analysis of the numbers, only his solutions.

One of the FCIC’s conclusions was bank regulators “looked the other way” while Wall Street engaged in massive fraud.  One of those regulators was the Federal Reserve, specifically, the New York branch of the Fed.  Guess who was President of the NY Fed while fraud was blowing up the housing bubble?  It was Tim Geithner, Obama’s Treasury Secretary.  While President of the NY Fed, Geithner was legally charged with examining the books of Wall Street banks.  He did such a good job of covering up their fraud, Obama selected him to run Treasury.  More fraud!  If there are no consequences for regulators who refuse to enforce the rules, why would Dodd/Frank finance reforms protect taxpayers?

Senator Sherrod Brown cites a CBO report saying it will cost taxpayers 8.6 TRILLION to prop up failing banks.  It’s important to remember that this taxpayer liability is the result of unchecked Wall Street fraud.  During a House debate on TARP, Rep. Marcy Kaptur said ”high financial crimes have been committed” and “these criminals have so much political power, they can shut down the normal legislative process of the highest law making body in this land.”  But now, when discussing the gov’t debt crisis, not one politician mentions the budgetary cost of unchecked Wall Street crime.  For example, if my accountant is embezzling from by business, I could cut spending to zero and still go bankrupt.  So the first prioity is to stop the embezzling, not cut spending.  Likewise, before we can get the Federal budget under control, Wall Street criminals and their bipartisan partners in crime must be held accountable.  But not only has the Obama administration refused to prosecute Wall Street criminals, Rep. Brad Sherman says the executive branch (Obama) wants authority to spend TRILLIONS on future Wall Street bailouts, without approval from Congress.

FCIC hearings went on for nearly a year with little or no media coverage.  Instead, citizens get fraudulent spin from politicians and media who are covering up systemic fraud. Taxpayers are being forced to pay for the cost of fraud and irresponsible risks taken by big banks.  The following link will get you to all the FCIC hearings and final report.

http://fcic.law.stanford.edu/hearings

William Black was Deputy Director of the Savings and Loan Insurance Corporation in the 80′s when fraud and corruption collapsed the S&L industry.  He’s currently a law professor at the University of Missouri.  In a radio interview, Black makes a compelling case for pursuing criminal prosecutions of Wall Street bankers.   He says the FBI, in 2004, testified in the House of Representatives and predicted mortgage fraud would cause a financial crisis.  And in 2006, anti-fraud experts warned all major lenders that “liars loans” had a “90%” incidence of fraud.  But instead of limiting liars loans, lenders “massively increased” their number to the point that when the subprime bubble burst, 1 in 3 mortgages were liars loan.  Mr. Black said this amounts to a million cases of fraud per year by the financial industry, and named Citigroup who recieved a 306 BILLION bailout.  He said the Federal Home Finance Administration (FHFA), has filed civil suits against the 17 largest banks because they “knew” they were engaged in fraud.  Mr. Black is calling for criminal prosecutions because civil suits are being used to give the false impression of government due diligence.  

According to Mr. Black, the statute of limitations has not run out so email his interview to your attorney, local prosecutor, Sheriff, State Attorney General, and U.S. Attorney.  Policiticians and media also need to be held accountable for their part in the crime of the century.  Racketeering, Influence and Corrupt Organization (RICO) statutes would throw a wide net over the criminals.  Work with friends, neighbors, co-workers and business associates to pressure prosecutors to act.  Click here to listen to Mr. Black’s interview.

The Dodd-Frank Finance Reform Act is a continuation of fraud by politicians and banks.  President Obama signed Dodd-Frank into law under the guise of “consumer protection” and eliminating future bailouts of Too Big To Fail banks.  But Senator Brown says the biggest banks are even bigger and ”can risk bankruptcy at the expense of society rather than bearing the losses themselves.”  Dodd-Frank created the Consumer Financial Protection Bureau (CFPB) and placed it under the authority of the Federal Reserve.  But the Fed is one of the regulators that ignored the bank fraud  which caused the crisis.  Oops!  Dodd-Frank also gave the Executive Branch (FDIC) “resolution authority”, i.e., unlimited  bailout authority without a vote by Congress.  The following links are short clips of hearings on the CFPB, which is putting burdensome regulations on small banks and doing nothing to reform Wall Street.   Link1, Link2, Link3 

Why is financial reform targeting small banks that didn’t cause the crisis and doing nothing to reform Wall Street?  It’s the result of regulatory capture.  Former IMF chief economist Simon Johnson wrote the book “13 Bankers”.  He says the few hundred people who run the six largest banks have “captured the state” and have power to “extort” money from government.  Click here to watch his presentation on the subject.  Edward Kane is a senior research fellow at the Federal Deposit Insurance Corporation (FDIC).  He also says Dodd-Frank’s failure to reform Wall Street is the result of “regulatory capture”.

How did Wall Street banks achieve regulatory capture?  It began with  financial deregulation in President Clinton’s second term.  The PBS documentary The Warning exposes Federal policy to NOT regulate financial fraud.  For a look at the results of this policy watch CNBC’s House of Cards.  Two key pieces of legislation  deregulated financial markets, they were Gramm-Leach-Bliley (GLB), and the Commodity Futures Modernization Act (CFMA).  This legislation led to the creation of a 650 TRILLION, unregulated derivatives market.  This is more than the combined GDP of all the world’s economies, and it’s controlled by a small number of investment banks.  The interconnected nature of derivatives markets has created global systemic risk which allows banks to extort money from governments.  In other words, banks can extort bailouts from governments by threatening to blow up the global economy.

What can citizens do to restore the rule of law?  First, use the evidence of fraud compiled by William Black to force action by public prosecutors.  Second, reinstate Glass Steagall which was enacted in 1933 to curb bank speculation that caused the 1929 market crash.  It kept bank speculation in check for 70 years until it was repealed by GLB in 1999.  Third, repeal the CFMA.  This would make banks responsible for their derivatives losses.  In “The Warning”, Larry Summers was a Clinton advisor who pushed for the repeal of Glass Steagall.  He was also Obama’s advisor on financial reform.  Oops!  You can find two informative articles on Glass Steagall, GLB and the CFMA by clicking on the pdf file ”Knowledge is Power” at the end of this post.  The articles are under the “Financial Markets” section.   They are easy to understand even if you don’t have any knowledge of finance.

Thomas Hoenig is President of the Kansas City Federal Reserve.  He’s calling for the reinstatement of Glass Steagall as a means to break up big banks.  Glass Steagall  forces banks to separate high risk gambling in derivatives from commercial banking activities, this removes derivatives losses from the government safety net and protects taxpayers.  Mr. Hoenig refers to TBTF banks as Systemically Important Financial Institutions (SIFI’s), and says they “are not consistent with the rules of capitalism”.  Why?  He says one of the fundamental rules of capitalism is, if you exercise poor judgement running your business you must be allowed to fail.   Click here and listen to Hoenig’s comments on TBTF and Glass Steagall.

Rush Limbaugh and other propagandists on the right say the financial crisis occured because government forced banks to make loans to people who couldn’t pay them back.  They specifically blame the Community Reinvestment Act (CRA), which was signed into law by President Jimmy Carter.  So we’re supposed to believe a thirty year old piece of legislation suddenly caused the worst financial crisis since the Great Depression.  Mr. Black presents documented evidence that refutes the lies of propagandists like Rush.  The collapse of Fannie and Freddie are also blamed on affordable housing goals set by government.  But Armando Falcon and James Lockhart both testified that affordable housing goals were low on the list of Fannie and Freddie’s priorities.  Click on the following links to hear their statements. LInk1, LInk2 

The majority of subprime loans were originated by mortgage brokers like Countrywide, who were exempt from the CRA.  Wall Street banks were knowingly buying worthless loans from brokers, bundling, securitizing, and selling them off around the world with fraudulent Triple A ratings.  The Government’s role was not that it forced banks to make bad loans, but an ideological committment to NOT regulate Wall Street fraud.  The liars loans referenced by Mr. Black were a direct result of Fed policy.  The Federal Reserve’s jurisdictional authority includes setting underwriting standards, so they could’ve  stopped the massive increase in liars loans at any time.  After Countrywide collapsed under the weight of it’s huge portfolio of liars loans, Bank of America purchased the wreckage.  But because Dodd-Frank backstops the losses of TBTF banks, the ratings agency Moody’s reported that Bank of America’s debt is rated ”five notches above what it would be without government support.”  So taxpayers are subsidizing all the liars loans Bank of America purchased from Countrywide.

For more information click on the pdf file Knowledge is Power.  It’s easier to use the links in the file if you email it to yourself.