Never Put Money within Reach of Jamie Dimon

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I actually don’t think Federal Reserve Bank of NY Board Member Jamie Dimon got his hands on the almost $3 billion of Iraqi money deposited in the FBRNY that has vanished.

An audit by [Special Inspector General for Iraq Reconstruction Stuart] Bowen’s office published on Sunday investigated the roughly $3 billion the Iraqi government gave the Defense Department to pay bills for contracts the Coalition Provisional Authority awarded before it dissolved in 2004. Most of these funds were deposited into an account at the Federal Reserve Bank of New York.  Even though DOD was responsible for maintaining the proper documentation, it could only account for $1 billion of the money.

“It’s symptomatic of the poor record keeping that was rife throughout the early stages of the reconstruction effort,” Bowen, who has conducted three other major audits into the original pot of roughly $21 billion in Iraqi funds the U.S. managed in 2003 and 2004, said.

After all, that money dates to 2004 and Dimon’s service on the FBRNY Board didn’t begin until January 2007. (Though I will note that Jamie Dimon and Iraq’s money overlapped at the FBRNY for a year.) Moreover, it was DOD’s responsibility to keep track of the money, not the FBRNY or Jamie DImon.

Still, I can’t help but notice that the announcement that we’ve lost almost $3 billion of Iraqi’s money (on top of the more than $100 million in cash that managed to walk out of Saddam’s former palace) came within a day of the time some are declaring the missing MF Global $1.2 billion has “vaporized.”

Nearly three months after MF Global Holdings Ltd. collapsed, officials hunting for an estimated $1.2 billion in missing customer money increasingly believe that much of it might never be recovered, according to people familiar with the investigation.

As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a “significant amount” of the money could have “vaporized” as a result of chaotic trading at MF Global during the week before the company’s Oct. 31 bankruptcy filing, said a person close to the investigation.

That money does seem to have been lost in the immediate vicinity of Dimon’s JP Morgan.

As the week progressed, MF Global executives came to believe that JPMorgan Chase & Co., one of MF Global’s primary bankers and a middleman moving that cash, was dragging its feet in forwarding the funds.

Corzine phoned Barry Zubrow, then JPMorgan’s chief risk officer, to question the slow payments. Corzine also called William Dudley, president of the Federal Reserve Bank of New York, to update him on MF Global’s status and told him that payments were slow to arrive from JPMorgan and others.

[snip]

JPMorgan was able to slow the delivery of funds, worsening MF Global’s distress. As a result, they note, hundreds of millions of dollars of MF Global money may be still stuck in accounts at JPMorgan.

So while I’m not suggesting Jamie Dimon bears any personal liability for these missing billions (or those of Lehman or Bear Stearns), I will note that Dimon seems to have the 21st Century equivalent of the Midas Touch: Rather than turning things into gold when he touches them, when billions get within reach of Jamie Dimon, they seem to vaporize.

Poof!

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Jamie Dimon, Toddler MOTU

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Can you think of any major public figure–or even any ill-tempered toddler in your own life–that whines more than Jamie Dimon?

Chief Executive Jamie Dimon said President Barack Obama’s decision to expand investigations into home lending and sales of mortgage securities could stop settlement talks with the states over foreclosure practices.

“It has a pretty good chance of derailing it,” Dimon said in a televised interview with CNBC from Davos, Switzerland on Thursday.

Whining Dimon is effectively warning Obama that if any real investigation takes place, JP Morgan will walk away from Obama’s effort to make pension funds pay to bail Dimon’s company out. And–as Michael Whitney noted on Twitter–he’s doing so from the safe harbor of Davos, where presumably his fellow-MOTUs won’t throttle him for such arrogance.

It’s not enough, I guess, that Obama wants to excuse JPMC for its crimes. Dimon will only accept such help, he says, so long as Obama also refrains from even peeking at what crimes JPMC committed.

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What Do You Call a “Cornhusker Kickback” for California?

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Remember the “Cornhusker Kickback“? That was the $45 million in expanded Medicaid funding Ben Nelson demanded from the Obama Administration before he’d support Health Insurance Reform. The special treatment for Nebraska gave the reform effort a tawdry feel.

And just as importantly, it did nothing to improve Nelson’s popularity in his own state. When he announced he would not run for reelection in December, reporters pointed to the Cornhusker Kickback as one issue that was making his reelection increasingly unlikely.

Nelson obtained a huge controversial provision in that legislation — derisively called the “Cornhusker Kickback” by GOP opponents — that called for the federal government to pay Nebraska’s costs for Medicaid expansion, potentially saving the state tens of millions of dollars annually. The provision was ultimately killed, but Nelson still paid a political price. Nelson adamantly denied that he traded his support for the Democratic health plan in exchange for the special provision, yet his standing back home took a big hit. Nelson proved to be the 60th and deciding vote for the Democratic health-care package.

Yet it seems like Obama’s trying something similar in his effort to get CA’s Kamala Harris to join in his foreclosure settlement, with $10 billion in aid slated for CA’s struggling homeowners.

Banks and government negotiators have cleared a big hurdle in efforts to resolve allegations of widespread mortgage-related misdeeds, agreeing on terms for a settlement that are being circulated to the 50 US states for approval, state officials and a bank representative say.

The proposed pact would potentially reduce mortgage balances and monthly payments by more than $25bn for distressed US homeowners, these five people said.

The tentative agreement still must be approved by all 50 state attorneys-general, and negotiators have previously missed proposed deadlines. Participants described the proposal terms as set, meaning the states will be asked either to agree to them or decline to participate.

The amount of potential aid is contingent on state participation and would decrease significantly if big states do not sign the agreement. New York and California are among several states that have voiced concerns about the terms of the proposed deal with Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial. New York and California are particularly concerned with the part of the deal that would absolve the banks of civil liability for allegedly illegal mortgage-related conduct.

California borrowers would be eligible to receive more than $10bn in aid if the state were to agree to the terms, according to several people involved in the talks.

Don’t get me wrong. In this case, there’s good reason to give CA a disproportionate part of the settlement funds. Read more →

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Obama’s Housing Campaign

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Let’s connect a few data points.

Last Friday, Jame Dimon demanded that all the players (except the actual homeowners) get locked into a room until some leader solved the housing problem he and his buddies created.

On Sunday, the Administration promised, for what seems the bajillioninth time, to really do something about foreclosures.

On Monday, the Democrats confirmed that Obama will accept his nomination at Bank of America stadium. They did this to have more skyboxes they could sell to the 1%.

Then on Wednesday, Shawn Donovan rolled out the latest incarnation of the foreclosure settlement–one which still helps just a small fraction of families suffering because the housing bubble crashed.

And now the Administration has a meeting planned for January 23–what sounds like just the meeting DImon demanded–to iron out the last bits of such a minimally helpful settlement. There are two details of this meeting that are especially noteworthy.

First, only the Democratic Attorneys General appear to be invited.

Materials about the proposed deal are being sent to all states, and Democratic attorneys general have been asked to meet on Jan. 23 with Miller, Donovan and Associate Attorney General Thomas Perrelli, said Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller.

[snip]

Republican attorneys general will separately discuss the proposed settlement by phone the same day with their Republican counterparts on the negotiating committee in addition to Donovan and Perrelli, Greenwood said.

[my emphasis]

Even better? This meeting is in Chicago!

At the Jan. 23 meeting in Chicago, the federal and state officials will answer questions and discuss details of the potential deal in an effort to win support, Greenwood said.

None of the named principles of this discussion live in Chicago. Thomas Perelli is in DC. Shawn Donovan is in DC. Tom Miller is in IA. Even the banksters are from NY and Charlotte.

The one thing that’s in Chicago, of course, is Obama’s campaign headquarters. (Outgoing Chief of Staff and now campaign Co-Chair and former–future?–JP Morgan exec Bill Daley? He lives in Chicago!)

So to “solve” the foreclosure problem, we’re going to invite a bunch of people–but only the Democrats–to Obama’s campaign headquarter city to hammer out something that really only helps a fraction of those affected.

Yes we can.

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The Home of the Free Got Foreclosed

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On Wednesday’s Gitmo anniversary, Jonathan Turley had a WaPo column listing 10 reasons why the US was no longer the “land of the free.” I thoroughly endorse his list:

Assassination of US citizens

Indefinite detention

Arbitrary justice

Warrantless searches

Secret evidence

War crimes (impunity for torture)

Secret court

Immunity from judicial review

Continual monitoring of citizens

Extraordinary renditions

But I do think the list skews (not surprisingly, given that it was a GItmo anniversary piece) to ways the war on terror have circumscribed our civil rights and rule of law generally.

It’s worth noting that the same things have been happening domestically, with at best only a tangential tie to “security.” For example, where Turley describes renditions and indefinite detention, he might as well have included the immigration deportation system, which like the terrorism one operates with a great deal of arbitrariness, but which also rounds up more American citizens. Turley discusses surveillance generally, but we should note that some of that war on terror surveillance–National Security Letters and drones, for example–are being used increasingly in criminal law enforcement. Add in the increasing militarization of the police–some of which came directly from the drug war, some of which has been reapplied generally in the name of national security.

And then there’s the courts. Even putting the defunding of legal aid aside, even putting aside the broad push to force consumers and employees into privatized arbitration rather than courts, even our legal system itself is showing signs of failure. Most spectacularly, that failure shows in efforts to let banks steal homes so as to pass all the losses of the banks’ own failures onto homeowners.

Turley is right that the war on terror has chipped away at fundamental freedoms. But so has increased corporate power and related efforts to coerce the 99%.

It’s not just that Al Qaeda bombed the land of the brave; so, too, did America’s own corporations foreclose on the home of the free.

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Ubercapitalist Begs for Government Intervention

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Fresh off the Friday news dump that its profits stalled in the last quarter (after it had to stop laundering money for Iran and inheriting the lost money of MF Global customers), fresh off the news that JPMorgan Chase might lose $5 billion in the Europe crisis, and, it should be said, fresh off the departure of a JPMC Exec from the White House Chief of Staff position, Jamie Dimon is calling for a real solution to the housing market.

“I would convene all the people involved in the business, I would close the door, I’d stay there until we resolved a bunch of these issues so we could have a more healthy mortgage market,” the 55-year-old chief executive officer of JPMorgan Chase & Co. said today.

The patchwork of U.S. and international regulatory policies governing the housing and mortgage markets are hampering recovery here and abroad, Dimon said on a conference call with analysts after the New York-based bank released fourth-quarter earnings. In the U.S., state foreclosure laws conflict with a variety of federal policies on refinancing or modifying loans to troubled borrowers, Dimon said.

Leadership is needed to overhaul the industry, including reviving the market for private-label residential mortgage bonds and reforming regulations governing mortgage repurchases and foreclosures, he said.

“You could fix all this if someone was in charge,” Dimon said, tapping on the table for emphasis. “No one is in charge.”

Which is pretty funny, since a bunch of Attorneys General just did show some leadership.

Attorneys general or representatives from nearly 15 states met in Washington, D.C., on Tuesday to discuss and share different enforcement options and strategies around various mortgage-related issues, according to sources familiar with the conversation.

The meeting was prompted by the slow pace at which a national foreclosure settlement led by the Obama administration is progressing, and is likely to be the first in a series, said these sources.

[snip]

“This past Tuesday, a group of like-minded Attorneys General met in D.C. to discuss ongoing and future investigations into the mortgage finance and foreclosure industries,” said Delaware Deputy Attorney General Ian McConnel.

“The talks weren’t just about investigations,” said a source with knowledge of the discussions. “They were also about the attorneys general offices feeling uninvolved in a process by which their federal colleagues have been negotiating on their behalf.” [my emphasis]

Or maybe it’s this show of leadership that’s got Dimon whining?

But what I find most amusing about this ubercapitalist begging for government intervention is this: Dimon says he’s gonna lock “all the people involved in the business” in a room until they come up with a solution. But note who he’s going to invite?

Jamie Dimon has a plan to fix the U.S. housing market: lock mortgage lenders and regulators behind closed doors until they figure it out. [my emphasis]

Because if you realized that homeowners, too, were a fundamental part of the housing business, you might lose your cred as a psychopath.

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Mitt’s Welfare-Driven Vulture Capitalism

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When I hosted Steve Rattner at FDL Book Salon, I noted how blind he was to problems of other private equity firms–in the context of the auto bailout, Cerberus. So I was interested in Rattner’s attempt to defend Mitt’s tenure at Bain.

Bain Capital is not now, nor has it ever been, some kind of Gordon Gekko-like, fire-breathing corporate raider that slashed and burned companies, immolating jobs wherever they appear in its path.

[snip]

Instead, with modest exceptions (keep reading to learn more about these), Bain Capital was a thoroughly respectable — nay, eminent — investment manager that successfully discharged its responsibility of earning high returns for its investors by deploying capital in companies privately rather than by buying shares in the public market. (Hence the name, private equity.)

The point Rattner of course doesn’t delve into is this one: how taxpayers effectively subsidize this process because of tax law.

So what are the question marks (promised above) around the story of Romney and Bain Capital? First, it’s fair game to question the amounts of debt that are sometimes used in leveraged buyouts. While higher debt usually means higher returns — because debt is cheaper than equity, thanks in part to its tax deductibility — it also means higher risk of bankruptcy.

The problem, as private equity guy and public monies-scamming Steve Rattner sees it, is all this debt leads to more bankruptcies.

But what does it mean that all this debt incurs tax advantages?

Thankfully, Rortybomb posted this interview with Josh Kosman, who wrote a book on the topic, to explain it.

Your research has found that, far from being natural, private equity exists largely due to issues with the tax code. Can you explain?

The whole industry started in the mid-to-late 1970s. The original leveraged buyout firms saw that there were no laws against companies taking out loans to finance their own sales, like a mortgage. So when a private equity firms buys a company and puts 20 percent down, and the company puts down 80 percent, the company is responsible for repaying that.

Now the tax angle is that the company can take the interest it pays on its loans off of taxes. That reduces the tax rate of companies after they are acquired in LBOs by about half. Banks, also realizing this tax effect, were willing to finance these deals. At the time, you could also depreciate the assets of the company you were buying — that’s not true today.

They saw that you could buy a company through a leveraged buyout and radically reduce its tax rate. The company then could use those savings to pay off the increase in its debt loads. For every dollar that the company paid off in debt, your equity value rises by that same dollar, as long as the value of the company remains the same.

So the business model is based on a capital structure and tax arbitrage?

Yes. It’s a transfer of wealth as well. It’s taking the wealth of the company and transferring it to the private equity firm, as long as it can pay down its debt.

[snip]

A recent paper from the University of Chicago looking at private equity found that “a reasonable estimate of the value of lower taxes due to increased leverage for the 1980s might be 10 to 20 percent of firm value,” which is value that comes from taxpayers to private equity as a result of the tax code. Can you talk more about this?

That sounds about right. If you took away this deduction, you’d still have takeovers, but you’d have a lot less leverage and the buyer would be forced to really improve the company in order to make profits. I think that would be a great thing.

The whole interview very accessibly lays out precisely what I was trying to get at the other day: there are aspects of private equity that have bad consequences baked in. And they’re all baked in, in part, precisely because taxpayers are subsidizing the takeovers in the form of tax benefits.

Or welfare, as the creative destructionists ought to call it.

Update: Per prostratedragon, see this Dean Baker diary putting some numbers to this rich person welfare.

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Santa’s Elves Just Got Fired

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Remember the “good” jobs report last week? As Dean Baker explained, many of the new jobs were actually the “couriers” who delivered your holiday presents.

The sharp drop in the unemployment rate over the last four months (from 9.1 percent to 8.5 percent) is not consistent with the job growth reported in the establishment survey. The survey reported 200,000 jobs in December; however, this figure is skewed by the 42,200 job gain reported for couriers. There was a similar gain in this category reported for last December, which was completely reversed the next month. Clearly this is a problem of seasonal adjustment, not an issue of real job growth. Pulling out these jobs, the economy created 158,000 jobs in December, in line with expectations.

Pulling out the courier jobs, growth has averaged 145,000 per month over the last four months. This is somewhat better than the 90,000-100,000 a month needed to keep pace with the growth of the labor force, but certainly not rapid enough to explain a 0.6 percentage point drop in unemployment. At this pace, we would not get back to pre-recession levels of unemployment until 2027. [my emphasis]

Now Baker’s predicted reversal in those jobs has started to appear, with initial jobless claims up 24,000 this week.

More Americans than forecast filed applications for unemployment benefits last week, raising the possibility that a greater-than-usual increase in temporary holiday hiring boosted December payrolls.

Jobless claims climbed by 24,000 to 399,000 in the week ended Jan. 7, Labor Department figures showed today in Washington. The median forecast of 46 economists in a Bloomberg News survey projected 375,000. The number of people on unemployment benefit rolls rose, while those receiving extended payments decreased.

Hiring by package delivery companies and retailers during the holidays to meet demand for gifts may now be giving way to an increase in dismissals.

These words–“couriers” and “package delivery companies”–are very cold. What we’re really talking about are Santa’s Elves, the wondrous people who make your holidays magical, particularly given how they help you avoid crowded malls by allowing you to shop online. In all the cartoon Christmas specials, those elves spend the off-season making more toys for the next Christmas. Not so our “modern” economy. Now, we benefit from their services, enjoy our holidays, and then <<BAM!!>> the Elves are on the street again, looking for work.

Merry Christmas!

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Associate Attorney General Thomas Perrelli to Leave DOJ in March

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The guy in charge of–among other things–the elusive foreclosure fraud settlement with the banksters just told NPR’s Carrie Johnson he’ll be leaving in March.

Associate Attorney General Tom Perrelli will leave the third highest-ranking post at the Justice Department in March after nearly three years managing a bustling portfolio that has run the gamut from mortgage abuses and the oil spill in the Gulf of Mexico to stamping out domestic violence in Indian country.

Perrelli, 45, says that he’ll take several months off to spend with his growing family. He and his wife have a five-year-old, a two-year-old, and a pair of twins due in May. “This is the best job I’ll ever have,” Perrelli tells us, “you really couldn’t ask for better.” But, long hours spent overseeing Justice Department units that handle tax, civil rights, environment, antitrust, civil cases and billions of dollars in federal grant programs has taken “an enormous amount of energy and commitment and sacrifice.”

As Johnson points out, Perrelli has had his fingers in a number of contentious issues: the Cobell settlement and the BP investigation. But I suspect it also sets a finite deadline for the foreclosure fraud settlement, rumored to be imminent for about a year.

One of his biggest efforts has yet to come to fruition. For more than a year, the Justice Department and state attorneys general have been hammering out a settlement with the country’s largest mortgage servicing companies over faulty paperwork and forclosure abuses known as “robo signing” that helped push people out of their homes. The process has been complicated and sometimes fractious, as top lawyers for the state of California and New York criticized the process as going too soft on the banks.

And then, of course, there’s the question of a replacement–because there’s no way Republicans are going to confirm anyone for a functional post at a Department of Justice they like to claim is responsible for sending guns to Mexican drug cartels.

Just what this country needs, a DOJ even more hampered by missing key operational executives.

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The Mafia Bank

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In his book, McMafia, Misha Glenny describes how mobsters filled the vacuum left by communism in Eastern Europe and Russia.

The new circumstances bewildered old international institutions. All had to improvise and no party quite understood the implications of its actions or their unintended consequences.

One group of people, however, saw real opportunity in this dazzling mixture of upheaval, hope, and uncertainty. These men, and occasionally women, understood instinctively that rising living standards in the West, increased trade and migration flows, and the greatly reduced ability of many governments to police their countries combined to form a gold mine. They were criminals, organized and disorganized, but they were also good capitalists and entrepreneurs, intent on obeying the laws of supply and demand.

Which appears to be what’s happening in Italy, too, where the mafia now constitutes the country’s largest “bank.”

Organized crime has tightened its grip on the Italian economy during the economic crisis, making the Mafia the country’s biggest “bank” and squeezing the life out of thousands of small firms, according to a report on Tuesday.

Extortionate lending by criminal groups had become a “national emergency,” said the report by anti-crime group SOS Impresa.

Organized crime now generated annual turnover of about 140 billion euros ($178.89 billion) and profits of more than 100 billion euros, it added.

“With 65 billion euros in liquidity, the Mafia is Italy’s number one bank,” said a statement from the group, which was set up in Palermo a decade ago to oppose extortion rackets against small business.

Now, obviously, the strength of the Italian mafia is nothing new. Nor is its role in loan-sharking.

Nevertheless, it appears that the chaos caused by the financial crisis–and the oligarchs’ refusal to pursue a sane approach that puts the interest of society ahead of bond-holders–has created another vacuum the mob can fill.

Of course, that just makes Italy like many other countries in the world, where the mob has similarly accrued more power in recent years.

The refusal to inconvenience the oligarchs is really going to increasingly empower a more obviously brutal form of oligarchs. Something to look forward to!

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