Wednesday, September 28, 2011

Will we ever see the day when certain Bank trust departments sue their TBTF bank parents?

Thousands, if not millions of times banks serve as corporate trustee for private family trusts, many times IRS 501-c-3's non-profits, foundations and endowments and local charities including schools, hospitals, colleges, and museums are beneficiaries of these trusts in ADDITION to family members and future unborn generations.

Given the trillions of wealth lost to the fraud wraught on financial markets by TBTF banks shouldn't these trustees act as trustees should and "pursue any and all claims"or is that asking too much? Or is it a little to close to home base?

Morgan Stanley's CEO John Mack may have been the one quoted but he was surely not alone when he said in 2003 the "Agency model is dead".

As we entered the 2000's Wall St's bonus machine was broken, almost irreparably as competition ate away year after year at their meal tickets - commissions, M&A (Mergers and aquisition advisory fees) and underwriting new issues were confronted with unrelenting powerful, only going one way (down, faster and faster) - price competition.

Commissions were taking a hit from the likes of Schwab, Etrade, and Fidelity. From another angle the advent of ECN's (online stock trading auctions, dark pools of "liquidity") were forcing commissions levied by the NYSE to go down, and regulators ordered penny - based pricing on stocks, so bid ask spreads narrowed; all acted to force commission rates down.

Hordes of new competitors hungry for a piece of M&A and stock and bond underwriting forced fees down and or fee - sharing there as well; at the end of the day bonus pools were evaporating.

It was clear and recognizable that new competitors, many aided by available faster, better cheaper technology were forcing Wall St's profits south - so what did the TBTF banks scheme up to do to restore their bonus checks?

Leverage an American institution - the "home mortgage" as its implicit and explicit dual leverage made for maximum bonus; and in the wake of 9/11 it was "patriotic"...
A scheme to approve any and all mortgage apps, turn them into Mortgage backed securities, sell some of them to investors like mutual funds, insurance companies and pension plans both here and overseas; but begin to horde trillions of them in a second set of books literally OFF balance sheet (and in some cases off shore).

The beauty of this scheme was that the "market" and price competition would not be involved. Yes, let me repeat "the market and price competition would NOT be involved" traders at the same TBTF banks could use their own computer models to assign value to the increasing MBS stored in the likes of "200 stories tall mortgage warehouses". It was a rare event indeed for any of these off balance sheet holdings to see the light of any true, arms-length market - based trade.

Even the Fed chairman was unaware...
Federal Reserve Chairman Ben Bernanke gave a speech to the NY Economic Club, in October 2007 he educated the assuredly august, learned and rapt audience that in the "old days" banks used to make a mortgage loan and hold it ON their books until it was paid off by the borrower, departing from that practice he said that today (2007) banks packaged mortgages into mortgage backed securities and sold them OFF TO (third party, arm's length) investors. [emphasis added]

Excerpt: At one time, most mortgages were originated by depository institutions and held on their balance sheets. Today, however, mortgages are often bundled together into mortgage-backed securities or structured credit products, rated by credit rating agencies, and then sold to investors.

However, as far as I can tell, there is no report, that anyone in that room raised their hand to correct the Fed Chairman. Why?

Because the same Fed chairman, a year later, would learn that his statement was incorrect. TBTF banks were NOT selling MBS off to investors; millions of mortgages were approved for one purpose, to create more MBS, while TBTF were cranking trillions of MBS out, they were NOT selling them off to investors, they were hiding them off balance sheet, misleading every mortgage borrower, every investor to replace what had been lost to fair, disclosed, free market - based price competition (some would call that capitalism) - THEIR MASSIVE BONUS CHECKS. The FDIC uses the word "concealed" here.

Excerpt: Further, many of the complex structures that concealed additional leverage and exposure, such as structured investment vehicles and other off-balance-sheet conduits have been largely consigned to the history books. Cash and liquid securities represent larger percentages of the balance sheet, while reliance on short term debt has declined.

In comparison, today Amazon released it's new tablet called "Fire" priced at $199 to compete with others most importantly Apple's more expensive iPad. See we benefit from lower and lower prices on new technology why? Because it's out there people use it, compare it, blog about it - in a word any and all information from manufacturers to users is "transparent". In the year 2011 I remain incredulous (but not surprised) at the opposite by TBTF banks and their paid foot soldier representatives lobbyists, media and think tanks. Applying their business model's opacity, I wonder if they would be comfortable paying thousands for a Commodore II pc and for how much memory?

Estimates of the amount of TBTF Bank support direct and indirect provided by the Fed and or US Treasury is about $2o Trillion including the recent QE programs. MBS issuance largely by the TBTF banks from 2001 to 2008 is $17 Trillion; is there any connection?

The damage to the economy for years was a false growth from cash out refinancings, borrowers were defrauded when they applied for loans and were universally approved for any and all types of and amounts of mortgages. Borrowers did NOT approve their own loans, ultimately in effective control (and pricing) of the MBS markets; TBTF banks approved EVERY loan.

We later know, only from limited emails that mortgages and MBS deals composed of these very same mortgages were called shit, crap and cows by any number of TBTF-produced and or related information; one even said it's 100% ALL DEALER RISK, NO MTM. Translated it means that MBS held by TBTF banks was "only TBTF bank risk, no mark to market (only marked to traders' internal computer models.)"

Perhaps when bank trust departments wake up from the train wreck, home movie they've been watching they will recognize a claim and pursue it as fiduciaries should; of course they can always resign as they ALL serve voluntarily and with pay (or is that the reason)?

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