Extend and Pretend Is Wall Street's Friend
The Burning Platform
now have an economy in which five banks control over 50 percent
of the entire banking industry, four or five corporations own most
of the mainstream media, and the top one percent of families hold
a greater share of the nation’s wealth than any time since 1930.
This sort of concentration of wealth and power is a classic setup
for the failure of a democratic republic and the stifling of organic
~ Jesse – http://jessescrossroadscafe.blogspot.com/
the old-timers knew that subprime mortgages were what we called
neutron loans — they killed the people and left the houses.”
~ Louis S. Barnes, 58, a partner at Boulder West, a mortgage banking
firm in Lafayette, Colo
that has been sold to the public by the Federal government, Wall
Street, and the corporate mainstream media over the last two years
is the economy is recovering and the banking system has recovered
from its near death experience in 2008. Wall Street profits in 2009
& 2010 totaled approximately $80 billion. The stock market has
risen almost 100% since the March 2009 lows. Wall Street CEOs were
so impressed by this fantastic performance they dished out $43 billion
in bonuses over the two year period to their thousands of Harvard
MBA paper pushers. It is amazing that an industry that was effectively
insolvent in October 2008 has made such a spectacular miraculous
recovery. The truth is recovery is simple when you control the politicians
and regulators, and own the organization that prints the money.
plan to create the illusion of stability and provide no-risk profits
to the mega-Wall Street banks was implemented in early 2009 and
continues today. The plan was developed by Ben Bernanke, Hank Paulson,
Tim Geithner and the CEOs of the criminal Wall Street banking syndicate.
The plan has been enabled by the FASB, SEC, IRS, FDIC and corrupt
politicians in Washington D.C. This master plan has funneled hundreds
of billions from taxpayers to the banks that created the greatest
financial collapse in world history. The authorities had a choice.
This country has bankruptcy laws. The criminally negligent Wall
Street banks could have been liquidated in an orderly bankruptcy.
Their good assets could have been sold off to banks that did not
take their extreme greed based risks. Bond holders and stockholders
would have been wiped out. Today, we would have a balanced banking
system, with no Too Big To Fail institutions. Instead, the years
of placing their cronies within governmental agencies and buying
off politicians paid big dividends for Wall Street. Their return
on investment has been fantastic.
The plan has
been as follows:
- In April
2009 the FASB caved in to pressure from the Federal Reserve, Treasury,
and Wall Street to suspend mark to market rules, allowing the
Wall Street banks to value their loans and derivatives as if they
were worth 100% of their book value.
- The Federal
Reserve balance sheet consistently totaled about $900 billion
until September 2008. By December 2008, the balance sheet had
swollen to $2.2 trillion as the Federal Reserve bought $1.3 trillion
of toxic assets from the Wall Street banks, paying 100 cents on
the dollar for assets worth 50% of that value.
- In November
2009 the Federal Reserve and IRS loosened the rules for restructuring
commercial loans without triggering tax consequences. Banks were
urged to extend loans on properties that had fallen 40% in value
as if they were still worth 100% of the loan value.
- By December
2008 the Federal Reserve had moved their discount rate to 0%.
For the last two years, the Wall Street banks have been able to
borrow from the Federal Reserve for free and earn a risk free
return of 2%. The Federal Reserve has essentially handed billions
of dollars to Wall Street.
- When it
became clear in October 2010 that after almost two years of unlimited
liquidity being injected into the veins of zombie banks was failing,
Ben Bernanke announced QE2. He has expanded the Fed balance sheet
to $2.6 trillion by injecting $3.5 billion per day into the stock
market by buying US Treasury bonds. Bernanke's stated goal has
been to pump up the stock market. While taking credit for driving
stock prices higher, he denies any responsibility for the energy
and food inflation that is spurring unrest around the world.
- The Federal
Reserve has increased the monetary base by $500 billion in the
last three months in a desperate attempt to give the appearance
of recovery to a floundering economy.
on December 31, 2010, through December 31, 2012, all noninterest-bearing
transaction accounts are fully insured, regardless of the balance
of the account, at all FDIC-insured institutions. The unlimited
insurance coverage is available to all depositors, including consumers,
businesses, and government entities. This unlimited insurance
coverage is separate from, and in addition to, the insurance coverage
provided to a depositor’s other deposit accounts held at an FDIC-insured
Losing – Change the Rules
banks had absolutely no problem with mark to market rules from 2000
through 2007, as the value of all their investments soared. These
banks created products (subprime, no-doc, Alt-A mortgages) whose
sole purpose was to encourage fraud. Their MBA geniuses created
models that showed that if you packaged enough fraudulent loans
together and paid Moody's or S&P a big enough bribe, they magically
became AAA products that could be sold to pension plans, municipalities,
and insurance companies. These magnets of high finance were so consumed
with greed they believed their own lies and loaded their balance
sheets with the very toxic derivatives they were peddling to the
clueless Europeans. They didn't follow a basic rule. Don't crap
where you sleep. When the world came to its senses and realized
that home prices weren't really worth twice as much as they were
in 2000, investment houses began to collapse like a house of cards.
The AAA paper behind the plunging real estate wasn't worth spit.
After Lehman Brothers collapsed and AIG's bets came up craps for
the American people, the financial system rightly froze up.
fear and misinformation to ram through a $700 billion payoff to
Goldman Sachs and their fellow Wall Street co-conspirators through
Congress, it was time begin the game of extend and pretend. Market
prices for the "assets" on the Wall Street banks' books were only
worth 30% of their original value. Obscuring the truth was now an
absolute necessity for Wall Street. The Financial Accounting Standards
Board already allowed banks to use models to value assets which
did not have market data to base a valuation upon. The Federal Reserve
and Treasury "convinced" the limp wristed accountants at the FASB
to fold like a cheap suit. The FASB changed the rules so that when
the market prices were not orderly, or where the bank was forced
to sell the asset for regulatory purposes, or where the seller was
close to bankruptcy, the bank could ignore the market price and
make up one of its own. Essentially the banking syndicate got to
have it both ways. It drew all the benefits of mark to market pricing
when the markets were heading higher, and it was able to abandon
mark to market pricing when markets went in the toilet.
mark-to-market accounting, in essence, suspends reality." – Beth
Brooke, global vice chair, at Ernst & Young
desired all the billions of upside from creating new markets for
new products. Their creativity knew no bounds as they crafted MBOs,
MBSs, CDOs, CDSs, and then chopped them into tranches, selling them
around the world with AAA stamps of approval from the soulless whore
rating agencies. When the net result of a flawed system of toxic
garbage paper was revealed, there was no room at the exits for the
stampede of investment bankers. The toxic paper was on the banks'
books and no one wanted to admit the greed induced decision to purchase
these highly risky, volatile "assets". The trade had not gone bad,
the ponzi scheme had unraveled. Suspending FASB 157 has been an
attempt to hide this fraudulent business model from investors, regulators
and the public. By hiding the true value of these assets, the financial
system has never cleared. The banks remain in a zombie vegetative
state, with the Federal Reserve providing the IV and the life support
Hide the Losses
Part two of
the master cover-up plan has been the extending of commercial real
estate loans and pretending that they will eventually be repaid.
In late 2009 it was clear to the Federal Reserve and the Treasury
that the $1.2 trillion in commercial loans maturing between 2010
and 2013 would cause thousands of bank failures if the existing
regulations were enforced. The Treasury stepped to the plate first.
New rules at the IRS weren't directly related to banking, but allowed
commercial loans that were part of investment pools known as Real
Estate Mortgage Investment Conduits, or REMICs, to be refinanced
without triggering tax penalties for investors.
Reserve, which is tasked with making sure banks loans are properly
valued, instructed banks throughout the country to "extend and pretend"
or "amend and pretend," in which the bank gives a borrower more
time to repay a loan. Banks were "encouraged" to modify loans to
help cash strapped borrowers. The hope was that by amending the
terms to enable the borrower to avoid a refinancing that would have
been impossible, the lender would ultimately be able to collect
the balance due on the loan. Ben and his boys also pushed banks
to do "troubled debt restructurings." Such restructurings involved
modifying an existing loan by changing the terms or breaking the
loan into pieces. Bank, thrift and credit-union regulators very
quietly gave lenders flexibility in how they classified distressed
commercial mortgages. Banks were able to slice distressed loans
into performing and non-performing loans, and institutions were
able to magically reduce the total reserves set aside for non-performing
If a mall developer
has 40% of their mall vacant and the cash flow from the mall is
insufficient to service the loan, the bank would normally need to
set aside reserves for the entire loan. Under the new guidelines
they could carve the loan into two pieces, with 60% that is covered
by cash flow as a good loan and the 40% without sufficient cash
flow would be classified as non-performing. The truth is that billions
in commercial loans are in distress right now because tenants are
dropping like flies. Rather than writing down the loans, banks are
extending the terms of the debt with more interest reserves included
so they can continue to classify the loans as "performing." The
reality is that the values of the property behind these loans have
fallen 43%. Banks are extending loans that they would never make
now, because borrowers are already grossly upside-down.
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© 2011 The