Truth and Trans...'s  Instablog

James Pendelton, known as ‘JP’ in the upscale New York neighborhood, watched as the assault rifle tumbled end-over-end before landing in the Hudson River. He remarked, “See the steam?” noting the whiffs of steam bellowing off the hot barrel when it made contact with the cool river water. JP’s best friend cowardly hid behind a barrier stenciled with the letters FIRREA, the barrier had been in place for quite a while, left over from decades ago and no one ever asked what FIRREA meant – it had become a peripheral object, but the perfect place to hide when the bullets started flying.

She peeked just enough to see the steam, “Yes, I see it, is that the last of it? Are we done?”

JP scanned the street looking at the bodies, not one or two bodies but what must have been thousands of bodies. He motioned for Sheila to join him, “Come here, we still have a ton of work to do, we’re not done yet.”

Sheila slowly stepped over the barrier and was joined by JP’s partner, Clint Fox. Clint was known as CFO because he was all about the 0’s, the money. Just as CFO and Sheila made it to JP’s side, a horde of JP’s crew rounded the corner, “Well, well”, said JP, “let’s get started shall we?”

“Let’s be proficient, I want every body searched for any valuables. Start to my left and lets get this done in an orderly fashion.” JP ordered.

JP grabbed the leader of his crew by his sleeve, “you know what to do with the wills right?”

“Yes, I plant the wills, leaving everything to you, on each of the bodies.” Responded his crew leader. “Don’t you think it’s a bit much, isn’t this going raise suspicion?”

“Sure it will but it will be in the courts hands then. I’ll have everything and even if I return it – I’ll have it for years, making money hand over fist, it’s a win-win.”

“As you wish. You’re certain there are no witnesses?”

“The only witness is Shelia and by association she can’t say anything, plus her lawyers are in a better connected position than you are. I think we’ll be fine.”

The crew started their work while JP and Shelia leaned against the barrier, Sheila pointed out to JP that one of the crewmen was waving them over.

“This one is still alive.” Said the crewman when JP was close enough to hear, “What should I do?”

JP checked the mans body, “He’s mortally wounded, he’ll die. Plant the will and keep moving.” As JP was stepping over a body on his way back to the barrier, a hand from a supposed corpse grabbed his ankle causing him to trip and fall onto the pavement. JP fell with such force that it cracked his nose, gushing blood and specks of cartilage.

As he got to his knees, he saw another shareholder moving, then another, then another. Sheila began to scream, “They’re all moving, they’re alive. I thought you had taken care of this?”

“It will be fine!” shouted JP as his hand cupped his nose, examining the damage. The corpse in front of him stood and ran toward Sheila. She eked out a terrifying scream and jumped behind the barrier, just peeking enough to see what was happening.

One by one, the bodies started to twitch and roll on the pavement. Sheila was beside herself and she watched as JP ran towards the barrier. He never made it, he was swallowed up in a horde of zombies. Sheila watched as long as she dared, she watched as JP was torn to shreds in the frenzy of zombies. She decided to make a run for it and just as she stood she heard a ghastly scream from the horde, “FIRREA!” one the zombies screamed pointing in her direction.

“FIRREA!”

During the Permanent Subcommittee of Investigations (PSI) hearings that occurred on April 13^th and April 16^th of 2010, Senator Levin doggishly stayed on his desired topic: Washington Mutual as a case study of the failures of banking sub-prime lending.  Peppered throughout the panel members testimonies were two common themes; it’s wrong to package up deals and pass the risk, the cost to others down the line and that Washington Mutual, even with two bank runs was still well capitalized when placed into receivership.

I will certainly concede the first subject matter, it is absolutely wrong to package up debt, while making a profit and passing the risk, the true cost of the debt, onto investors down the line.  The persons or companies that engage in such practices should be held accountable and those practices should be stopped. On the same premise of admission, the same promise of self-examination - - it is equally true that the FDIC (Federal Deposit Insurance Corporation) should not be allowed to package up a deal, rewarding itself by protecting its own fund while passing the risk, the true cost of the debt, onto investors down the line. 

The hearings added that both regulatory agencies failed to supervise WaMu’s activities and it’s easy to extrapolate that the FDIC was under more pressure than normal due to fee cutting in prior years.  The FDIC was in fear that WaMu would cost them, but that fear was internal not external, fear based on moral culpability;  

The idea that we (our representatives) are attacking (and rightfully so) this concept that passing the buck to save your own skin or to make a profit is wrong, threaded in this notion is the righteous idea that if you have an opportunity or even an mandate to regulate these types of plays you should do so and with heavy hand, and that there is no room for “too big to fail”. 

All noble concepts but look what is really happening; we’re passing massive legislation that benefits us in the here and now while it burdens future generations, the reform bill that’s about the pass is so watered down from its original vision that it is the opposite of true regulatory reform (to use Levin’s comment – where is the bite), and of course we all agree that “too big to fail” is true and requires attention, legislation even, yet our government is growing at at an alarming rate. 

What they (the politicians) seem to be missing is that these problems are systemic but not only to the ‘systems’ being investigated by single committees but systemic to the entire US financial system – starting with legislation, congress, banks, etc.  Point in fact:  We don’t need a regulatory division to tell GS that it needs a tier ratio of 6.77 or what have you – that could and should be handled by legislation, by law, not some regulatory mandate that can be changed at a moment’s notice, I personally don’t think we need a regulatory agencies at all – sound and just laws of the land with stiff punishment would suffice through enforcement agencies.

My point of course is that while we are troubled and admonishing the banks for securitizing the bad debt with good debt, making a profit, then letting the incurrence of default effect other parties, we are/have done no better if we let the FDIC do the exact same thing, except it didn’t make a profit, it protected itself from a loss of funds but the underlying doctrine of self preservation exists and caused harm.

In addition, there was much conjecture of a Turf War between the Office of Thrift Supervision (OTS) and the FDIC.  To this, I would say absolutely there was and is a Turf War but to look at it in a restricted view of FDIC vs. OTS really misses the apex causes of the Turf War.  The problems between the FDIC and OTS, especially when Washington Mutual was involved, were only symptomatic of the Turf War that exists between New York Banks and “Other” banks.  While Mr. Dimon doesn’t believe there is a club;

If you're allowed (JPM for example) to be in constant contact with policy makers at all hours of the day, calling Paulson on the phone, having meetings and others are not - then you're part of the "club".

If you're allowed be in constant contact with the FDIC about banks (other than your own) and these contacts are via phone calls, daily and weekend emails and presentations at meetings while others are not - then you're part of the "club".

If you're allowed to communicate to congressmen, effectively lobbying for the purchase/capture of a rival instituion and it doesn't raise concern for antitrust violations - then you're part of the "club".

Going into the next set of PSI hearings we know that all ‘large’ banks were in the sub-prime mortgage game, we know that only ONE agency is accused of seizing a well capitalized bank.  It’s my understanding that the Stated Income, NINA loans and the like are not truly marketable anymore and that reform legislation is almost ready for a vote - so it appears that we’ve started to rectify the banks but what of the FDIC’s actions, its moral culpability?

In a written statement by Kerry Killinger that has been submitted to the Permanent Subcommittee of Investigations (PSI), Mr. Killinger states that "Washington Mutual executives expected a $10 billion offer from Banco Santander" for 80% of the company.   That comment is significant to the attempts of WaMu to raise capital and/or sell itself by the FDIC imposed deadline of “End of September, 2008.”  However the statement hints at antitrust violation when taken in context and paired with documents from WMI’s bankruptcy case.

In the first wave of 2004 Discovery, an email, released by JP Morgan and written by Jose Cerezo, a banker at JPMorgan portrays JP Morgan CEO Jamie Dimon and Banco Santander’s CEO Emilio Botin discussing WaMU and future bidding/acquisition options.  Quoted from the email written by Cerezo, “It is important to have an open dialogue with them, as Santander would not pursue any of these opportunities if JPMorgan were to do the same (can't compete on price with JPMorgan for an acquisition in the USA). But Santander would probably hire JPMorgan as advisor if we are not going after them..."  The email also indicates that Dimon hints Washington Mutual may have worse numbers that being presented in public.

Antitrust laws are meant to protect competition in the marketplace and the mere communication with anyone at Banco Santander about the status of Washington Mutual is wrought with peril, ill-advised and most likely against the law.  In addition, JP Morgan Chase had a standing and in effect Confidentiality agreement with Washington Mutual that prevented misappropriation of confidential information and trade secrets.  At a minimum it is obvious that JP Morgan Chase broke that confidentiality agreement and worse, it appears that JP Morgan Chase may be guilty of Antitrust Violations.