Remember, Bernanke said under questioning the other day that “they hid it” in response to a question about whether or not The Fed knew about the Lehman “105” repo arrangements, which appear to have been structured to intentionally mislead the public (and investors) about its liquidity position.
But in the deep of the night Financial Times published an article that resoundingly calls “BS” on that claims:
Securities and Exchange Commission and Federal Reserve officials were warned by a leading Wall Street rival that Lehman Brothers was incorrectly calculating a key measure of its financial health months before its collapse in 2008, people familiar with the matter say.
Former Merrill Lynch officials said they contacted regulators about the way Lehman measured its liquidity position for competitive reasons. The Merrill officials said they were coming under pressure from their trading partners and investors, who feared that Merrill was less liquid than Lehman.
Beyond the apparent perjury (which our Congress seems to ignore any time a “powerful” person commits it) there is the larger problem in that if the Chairman of The Fed has lied about this, what else has he lied about?
Most critically, what about all those other banks out there with HELOC exposure behind underwater first mortgages that are not being paid on time?
The Market Ticker has reported on the wildly inaccurate and ridiculous treatment of firsts in this environment – people being “allowed” to remain in a home even though they haven’t made a payment in a year – and sometimes two, loans that are reported to credit bureaus as having payments made on them “by agreement” when the consumer is not only not paying but has never talked with the financial institution involved about it. A quick look at the 10Qs and 10Ks filed by the big financial institutions discloses that these institutions have literal hundreds of billions of HELOCs and Second Lines on their balance sheets that are behind underwater first mortgages. Each and every one of those loans is worth nothing if the first mortgage it is subordinate to fails to pay.
There is thus every reason to believe that not only did Lehman materially misstate its balance sheet position and financial strength but that this deception is ongoing right here and now.
Further, Diane Orlick of CNBS has reported on what I have asserted repeatedly over the last three years:
If the banks really accounted for all the losses in the home loan market, they’d all be insolvent.
I have every reason to believe that not only is there a pattern of conduct here in deceiving the American People as to the “financial strength” of the banks and other financial institutions in this nation but that this deception is willful, ongoing, and reaches all the way to The Federal Reserve Chairman.
This Financial Times report, along with the report on Lehman Brothers (which asserts that The Federal Reserve Bank of NY had the information necessary to discern what Lehman was doing – whether it acted on it or not) makes a prima-facie case of willful and intentional regulatory blindness to balance sheet fraud and intentional misrepresentation of capital positions.
This is not the only regulator against which such charges have been lodged. OTS appears to have intentionally permitted Indymac Bank to backdate deposits – and the firm subsequently failed.
This sort of regulatory malfeasance must not be allowed to stand.
These are not accidents, they are intentional acts.
When multiple people conspire together to break the law you have the very sort of act that the Racketeering Statutes were designed to prohibit – and punish.
The assertion by The Fed (and FDIC) that “it lacks the authority” to resolve large failed institutions is a lie. “Prompt Corrective Action” (Title 12, Chapyer 16, Sec 1831o) of US Code not only provides all the authority necessary to close a bank – any bank – that fails to meet statutory capital limits it mandates that action.
There is no discretion permitted in that statute and The Federal Reserve, as one of the Federal banking agencies, has no right to ignore this section of black-letter law.
Yet it, along with the FDIC, OTS and OCC all have.
The balance-sheet games and holding of loans that have no collateral and are behind non-performing firsts yet have not been written down to their recovery value, which as a matter of statutory law is zero, is an outrage.
We must not permit federal officials, including Bernanke, to come before Congress and thumb his nose at the rule of law, just as we must not permit so-called “federal regulators” to thumb their noses at the black-letter law that not only is more than sufficient to resolve these failed and failing institutions but mandates that these regulators do so.