Truth About Global Economic Conspiracy Crash For Bailout's! Banks Mafia Scam Involving: Goldman Sachs, Deutsche Bank, Moodys, Standard Poors; Read Report: WALL STREET AND THE FINANCIAL CRISIS: Anatomy of a Financial Collapse, From The US Senate Investigation

A two-year investigation into the causes of the financial crisis has culminated in the US Senate publishing a 639 page report damning major financial institutions and regulatory bodies. Citing a wealth of internal documents and private communications ‘Wall Street and The Financial Crisis: Anatomy of a Financial Collapse’ details an array of reckless business activities which left the global economy in disarray and poor countries to disaster.

Versão Portuguesa Portuguese Version:
Máfia Económica Global! "Wall Street e a Crise Financeira: Anatomia do Colapso Financeiro" Culpa Bancos, Moodys, Standard Poors, Goldman Sachs, Deutsche Bank, Supervisão e Desregulação dos Mercados! Relatório Elaborado Pela Comissão de Investigação do Senado dos EUA Desmonta A Conspiração; Acorda e Levanta-te Portugal, Espanha, Itália, Grécia; Os Banqueiros Que Paguem A Crise Que Criaram!

1. Introdution
2. About Wall Street and the Financial Crisis: Anatomy of a Financial Collapse Report
3. Study Development and Target
4. Opinion Of Senator Carl Levin, Committee on Homeland Security and Governmental Affairs Chairman
5. Levin-Coburn Report Content
6. Major Causes Of the Financial Crisis
7. Report findings
1. Report Proves What Some Call "Conspiracy Teories"
2. High Risk Lending: Case Study of Washington Mutual Bank
3. Regulatory Failures: Case Study of the Office of Thrift Supervision
4. Inflated Credit Ratings: Case Study of Moody’s and Standard & Poor’s
5. Investment Bank Abuses: Case Study of Goldman Sachs and Deutsche Bank
6. Goldman Sachs
1. 13,9 Biliões de Dólares Americanos Num Fundo de Apostas Contra Os Clientes
2. Goldman Sachs:Strategy: Bet Against Clientes
3. Case Of Hudson 1 CDO
4. Case Of Timberwolf CDO
5. Case Of Abacus CDO
7. Deutsche Bank
1. PIGS and Craps on a CDO “Ponzi Scheme.” Operation
2. CDO Machine
3. $8 billion Edge Fund Against $102 Billion RMBS Portfolio
8. Conclusão Sobre o Papel dos Bancos Na Crise
8. Report recommendations
1. Recommendations on high risk lending
1. Ensure “Qualified Mortgages” Are Low Risk
2. Require Meaningful Risk Retention.
3. Safeguard Against High Risk Products
4. Require Greater Reserves for Negative Amortization Loans
5. Safeguard Bank Investment Portfolios
2. Recommendations on regulatory failures
1. Complete OTS Dismantling
2. Strengthen Enforcement
3. Strengthen CAMELS Ratings
4. Evaluate Impacts of High Risk Lending
3. Recommendations on inflated credit ratings
1. Rank Credit Rating Agencies by Accuracy
2. Help Investors Hold CRAs Accountable
3. Strengthen CRA Operations
4. Ensure CRAs Recognize Risk
5. Strengthen Disclosure
6. Reduce Ratings Reliance
4. Recommendations on investment bank abuses
1. Review Structured Finance Transactions
2. Narrow Proprietary Trading Exceptions
3. Design Strong Conflict of Interest Prohibitions
4. Study Bank Use of Structured Finance
9. Critical Auto-Análisis by a Moodys Director
10. Tables
1. Deutsche Bank Total Annual CDO Issuance 2000-2009
2. Tabela S&P Evaluates Deutsche Bank Gemstone VII Ratings by Tranche
11. A Crise dos EUA Torna-se Global Via Offshore
1. Deutsche Bank Cayman Offshore
2. Goldman Sachs OffShore
12. Reports
1. Report WALL STREET AND THE FINANCIAL CRISIS: Anatomy of a Financial Collapse
2. Documentation Suport Report
13. Autores Responsáveis
14. Extra: The Official Bankster Dictionary

About Wall Street and the Financial Crisis: Anatomy of a Financial Collapse Report

Wall Street and the Financial Crisis: Anatomy of a Financial Collapse is a report issued on April 13, 2011 by the United States Senate Permanent Subcommittee on Investigations. The 639 page report was issued under the chairmanship of Senators Carl Levin and Tom Coburn, and is colloquially known as the Levin-Coburn Report.

Study Development and Target

After conducting “over 150 interviews and depositions, consulting with dozens of government, academic, and private sector experts” found that “the crisis was not a natural disaster, but the result of high risk, complex financial products, undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.”

Opinion Of Senator Carl Levin, Committee on Homeland Security and Governmental Affairs Chairman

In an interview, Senator Levin noted that:

“The overwhelming evidence is that those institutions deceived their clients and deceived the public, and they were aided and abetted by deferential regulators and credit ratings agencies who had conflicts of interest.”

 Levin-Coburn Report Content

By the end of their two year investigation, the staff amassed 56 million pages of memos, documents, prospectuses and e-mails. The report, which contains 2,800 footnotes and references thousands of internal documents  focused on four major areas of concern regarding the failure of the financial system: high risk mortgage lending, failure of regulators to stop such practices, inflated credit ratings, and abuses of the system by investment banks. The Report also issued several recommendations for future action regarding each of these categories.

Major Causes Of the Financial Crisis

The report focuses on what it states are the four major causes of the financial crisis, and begins by concentrating on the impact made by high risk mortgage lenders, using Washington Mutual Bank (WaMu) as an example. Beginning in 2004, WaMu embarked upon a lending strategy emphasising high risk loans. At the same time, the bank was engaged in a host of questionable lending practices including steering borrowers form conventional mortgages toward higher risk products and accepting loan applications without verifying the borrower’s income. The same apened with Deutsche Bank and Goldman Sachs managing the Edge Funds.

In April 2010, the Subcommittee held four hearings examining four root causes of the financial crisis. Using case studies detailed in thousands of pages of documents released at the hearings, the Subcommittee presented and examined evidence showing how high risk lending by U.S. financial institutions; regulatory failures; inflated credit ratings; and high risk,poor quality financial products designed and sold by some investment banks, contributed to the financial crisis.

Report findings

The Report found that the four causative aspects of the crisis were all interconnected in facilitating the risky practices that ultimately led to the collapse of the global financial system. Lenders sold and securitized high risk and complex home loans while practicing subpar underwriting, preying on unqualified buyers to maximize profits. The credit rating agencies granted these securities safe investment ratings, which facilitated their sale to investors around the globe. Federal securities regulators failed to execute their duty to ensure safe and sound lending and risk management by lenders and investment banks. Investment banks engineered and promoted complex and poor quality financial products composed of these high risk home loans. They allowed investors to use credit default swaps to bet on the failure of these financial products, and in cases disregarded conflicts of interest by themselves betting against products they marketed and sold to their own clients. The collusion of these four institutions led to the rise of a massive bubble of securities based on high risk home loans. When the unqualified buyers finally defaulted on their mortgages, the entire global financial system incurred massive losses.

Report Proves What Some Call "Conspiracy Teories"

When we read that experts” found that “the crisis was not a natural disaster, but the result of high risk, complex financial products, undisclosed conflicts of interest; and the failure of regulators, the payment of credit rating agencies, and the market itself to rein in the excesses of Wall Street.”,we can say that what some call Conspiracy Teories, are in fact conspiracy.

High Risk Lending: Case Study of Washington Mutual Bank

Through a case study of Washington Mutual Bank (WaMu), the Report found that in 2006, WaMu began pursuing high risk loans to pursue higher profits. A year later, these mortgages began to fail, along with the mortgage-backed securities the bank offered. As shareholders lost confidence, stock prices fell and the bank suffered a liquidity crisis. The Office of Thrift Supervision, the chief regulator of WaMu, placed the bank under receivership of the Federal Deposit Insurance Corporation (FDIC), who then sold the bank to JPMorgan. If the sale had not gone through, the toxic assets held by WaMu would have exhausted the FDIC’s insurance fund completely.
The report found that WaMu sold high risk Option Adjustable-Rate Mortgages (Option ARMs) in bulk, specifically to the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). WaMu often sold these loans to unqualified buyers and would attract buyers with short term “teaser” rates that would skyrocket later on in the term. The Report found that WaMu and other big banks were inclined to make these risky sales because the higher risk loans and mortgage backed securities sold for higher prices on Wall Street. These lenders, however, simply passed the risk on to investors rather than absorbing them themselves.

Regulatory Failures: Case Study of the Office of Thrift Supervision

The Office of Thrift Supervision (OTS) was cited in the Report as a major culprit in financial collapse, for their “failure to stop the unsafe and unsound practices that led to the demise of Washington Mutual” While OTS identified over 500 deficiencies at WaMu, they did not take any regulatory action against the bank. OTS repeatedly requested corrective action, but the bank never followed through on their promises. The Report also cites the regulatory culture within OTS as an issue that exacerbated the lack of oversight. OTS consistently referred to the banks it oversaw as its “constituents.” They favored asking banks to correct problems rather than enforcing regulation, even though the banks rarely followed through on the agreements.

Inflated Credit Ratings: Case Study of Moody’s and Standard & Poor’s

The case study of Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Financial Services LLC (S&P) exposed a combination of inaccurate readings and conflicts of interest within the credit rating agency community. Due to a lack of regulation, agencies were able to place quantity over quality in rating of securities. Credit rating agencies were paid by Wall Street firms for their rating service. If credit rating agencies were to issue anything less than a AAA rating, they could be run out of business by the Wall Street firms they depended on. In the years leading up to the 2008 crisis, Moody’s and S&P rated tens of thousands of U.S. residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs). They regularly inflated the ratings, giving AAA grade ratings to the majority of RMBS and CDO securities, even though many were based off high risk home loans. In 2006, the high risk home loans began to fail, yet Moody’s and S&P continued, for 6 months, to issue AAA ratings to the same quality securities. After the CDOs and RMBS securities that consisted of these home loans began to incur losses, the rating agencies turned around and quickly began to downgrade the high risk securities. Now saturated with toxic and unmarketable assets, and the RMBS and CDO securities market collapsed. Traditionally, AAA rated securities had less than a 1% probability of default. In 2007, the majority of RMBS and CDO securities with AAA ratings suffered losses. 90% of AAA ratings given to subprime RMBS securities originated in 2006 and 2007 were later downgraded to junk status by credit rating agencies.

Investment Bank Abuses: Case Study of Goldman Sachs and Deutsche Bank

The Report cites investment banks as a major player in the lead up to the crisis, and uses a case study of two leading participants in the U.S. mortgage market, Goldman Sachs and Deutsche Bank. The case study found that from 2004 to 2008, banks focused their efforts heavily on RMBS and CDO securities, complex and high risk financial products that they could bundle and sell to investors who did not necessarily know the composition of the product. Financial institutions issued $2.5 trillion in RMBS and $1.4 trillion in CDO securities. They created large trading desks that dealt strictly in RMBS and CDO securities. More alarmingly, their trading desks began to take out insurance policies against the RMBS and CDO securities, allowing them to wager on the fall in value of their own asset. They acted in many instances as an intermediary between two opposing parties who wished to bet on either side of the future value of a security. This practice led to a blatant conflict of interest in the securities market, as the banks used “net short” positions, in which they wagered on the fall of a security, to profit off the failure of a security they had sold to their own client.

The studies show how the credit default swaps that allowed investors and banks themselves to place bets on either side of the performance of a security further intensified market risk. Finally, they show that the unscrupulous trading techniques at the banks led to “dramatic losses in the case of Deutsche Bank and undisclosed conflicts of interest in the case of Goldman Sachs.”

Goldman Sachs

The case study of Goldman Sachs exemplifies this conflict of interest. They underwrote about $100 billion in RMBS and CDO securities in 2006 and 2007. They saw their securities were defaulting, and instead of warning investors to stay away from those products, they began developing a short position that would allow them to profit off of the inevitable collapse of the mortgage market. They amassed a $13.9 billion net short, and made $3.7 billion in profit in 2007 from the decline of the mortgage market. They sold RMBS and CDO securities to their own clients without notifying them of their conflict, that they had a multi-billion dollar short against that same product. The case study further examines four CDOs sold by Goldman known as Hudson 1, Anderson, Timberwolf, and Abacus 2007-AC1. The study found that Goldman would sometimes take risky assets they held in their inventory and dump them into these CDOs. They knowingly included low-value and poor quality assets in them, and in three of the CDOs, they had taken a short position against the CDO. Goldman sold their own toxic assets to their clients, then proceeded to bet against them, without ever notifying anyone about their conflict of interest.

Case Of Hudson 1 CDO

In the case of Hudson 1, Goldman took a 100% short against the $2 billion CDO, and then sold the CDO to their clients. The security soon lost value, and while their clients lost their investments, Goldman made $1.7 billion.

Case Of Timberwolf CDO

In the Timberwolf CDO, Goldman sold the securities above book value to their clients, then soon dropped the price after the sale, causing their clients to incur quick losses. The Timberwolf security lost 80% of its value within 5 months and is worthless today.

Case Of Abacus CDO

 In the case of the Abacus CDO, Goldman did not take a short position, but allowed Paulson & Co. Inc., a hedge fund with relations to former Treasury Secretary and Goldman executive Henry Paulson, to select the assets included in the CDO. Goldman marketed and sold the security to their clients, never disclosing the role of Paulson & Co. Inc. in the asset selection process or the fact that the CDO was designed to lose value in the first place. Today, the Abacus securities are worthless, while the Paulson hedge fund made about $3 billion.

Deutsche Bank

The Deutsche case study Report focuses on the bank’s top CDO trader,

PIGS and Craps on a CDO “Ponzi Scheme.” Operation

Greg Lippmann. He warned colleagues that the RMBS and CDO securities were “crap” and “pigs” and could make money taking shorts against them. He predicted the securities would lose value and called the financial industry’s CDO operation as a “ponzi scheme.”

CDO Machine

Deutsche Bank took out a $5 billion short position against the RMBS market from 2005 to 2007, earning a profit of $1.5 billion. The case studies of these two investment firms also show that even as mortgage delinquencies increased in 2008, the banks continued to heavily market CDOs and RMBS securities to their clients. The banks knew that if they were to stop their “CDO machine” that was churning out record profits and record executive bonuses, the firms would have to cut back on their excesses and close their CDO desks.

$8 billion Edge Fund Against $102 Billion RMBS Portfolio

Deutsche Bank’s RMBS Group in New York, for example, built up a $102 billion portfolio of RMBS and CDO securities, while the portfolio at an affiliated hedge fund (usualy used to bet agains the product), Winchester Capital, exceeded $8 billion.

Banks Role in The Economic Crisis

The Report found that the investment banks were “the driving force” behind the risk-laden CDO and RMBS market’s expansion in the U.S. financial system, and the banks were a major cause of the crisis itself.

Report recommendations

Recommendations on high risk lending

Ensure “Qualified Mortgages” Are Low Risk

Federal regulators should use their regulatory authority to ensure that all mortgages deemed to be “qualified residential mortgages” have a low risk of delinquency or default.

Require Meaningful Risk Retention

Federal regulators should issue a strong risk retention requirement under Section 941 by requiring the retention of not less than a 5% credit risk in each, or a representative sample of, an asset backed securitization’s tranches, and by barring a hedging offset for a reasonable but limited period of time.

Safeguard Against High Risk Products

Federal banking regulators should safeguard taxpayer dollars by requiring banks with high risk structured finance products, including complex products with little or no reliable performance data, to meet conservative loss reserve, liquidity, and capital requirements.

Require Greater Reserves for Negative Amortization Loans

Federal banking regulators should use their regulatory authority to require banks issuing negatively amortizing loans that allow borrowers to defer payments of interest and principal, to maintain more conservative loss, liquidity, and capital reserves.

Safeguard Bank Investment Portfolios

Federal banking regulators should use the Section 620 banking activities study to identify high risk structured finance products and impose a reasonable limit on the amount of such high risk products that can be included in a bank’s investment portfolio.

Recommendations on regulatory failures

Complete OTS Dismantling

The Office of the Comptroller of the Currency (OCC) should complete the dismantling of the Office of Thrift Supervision (OTS), despite attempts by some OTS officials to preserve the agency’s identity and influence within the OCC.

Strengthen Enforcement

Federal banking regulators should conduct a review of their major financial institutions to identify those with ongoing, serious deficiencies, and review their enforcement approach to those institutions to eliminate any policy of deference to bank management, inflated CAMELS ratings, or use of short term profits to excuse high risk activities.

Strengthen CAMELS Ratings

Federal banking regulators should undertake a comprehensive review of the CAMELS ratings system to produce ratings that signal whether an institution is expected operate in a safe and sound manner over a specified period of time, asset quality ratings that reflect embedded risks rather than short term profits, management ratings that reflect any ongoing failure to correct identified deficiencies, and composite ratings that discourage systemic risks.

Evaluate Impacts of High Risk Lending

The Financial Stability Oversight Council should undertake a study to identify high risk lending practices at financial institutions, and evaluate the nature and significance of the impacts that these practices may have on U.S. financial systems as a whole.

Recommendations on inflated credit ratings

Rank Credit Rating Agencies by Accuracy

The SEC should use its regulatory authority to rank the Nationally Recognized Statistical Rating Organizations in terms of performance, in particular the accuracy of their ratings.

Help Investors Hold CRAs Accountable

The SEC should use its regulatory authority to facilitate the ability of investors to hold credit rating agencies accountable in civil lawsuits for inflated credit ratings, when a credit rating agency knowingly or recklessly fails to conduct a reasonable investigation of the rated security.14

Strengthen CRA Operations

The SEC should use its inspection, examination, and regulatory authority to ensure credit rating agencies institute internal controls, credit rating methodologies, and employee conflict of interest safeguards that advance rating accuracy.

Ensure CRAs Recognize Risk

The SEC should use its inspection, examination, and regulatory authority to ensure credit rating agencies assign higher risk to financial instruments whose performance cannot be reliably predicted due to their novelty or complexity, or that rely on assets from parties with a record for issuing poor quality assets.

Strengthen Disclosure

The SEC should exercise its authority under the new Section 78o-7(s) of Title 15 to ensure that the credit rating agencies complete the required new ratings forms by the end of the year and that the new forms provide comprehensible, consistent, and useful ratings information to investors, including by testing the proposed forms with actual investors.

Reduce Ratings Reliance

Federal regulators should reduce the federal government’s reliance on privately issued credit ratings.

Recommendations on investment bank abuses

Review Structured Finance Transactions

Federal regulators should review the RMBS, CDO, CDS, and ABX activities described in this Report to identify any violations of law and to examine ways to strengthen existing regulatory prohibitions against abusive practices involving structured finance products.

Narrow Proprietary Trading Exceptions

To ensure a meaningful ban on proprietary trading under Section 619, any exceptions to that ban, such as for marketmaking or risk-mitigating hedging activities, should be strictly limited in the implementing regulations to activities that serve clients or reduce risk.

Design Strong Conflict of Interest Prohibitions

Regulators implementing the conflict of interest prohibitions in Sections 619 and 621 should consider the types of conflicts of interest in the Goldman Sachs case study, as identified in Chapter VI(C)(6) of this Report.

Study Bank Use of Structured Finance

Regulators conducting the banking activities study under Section 620 should consider the role of federally insured banks in designing, marketing, and investing in structured finance products with risks that cannot be reliably measured and naked credit default swaps or synthetic financial instruments.

Moody’s managing director critical self analysis

Looking back after the first shock of the crisis, one Moody’s managing director offered this critical self analysis:

“Why didn’t we envision that credit would tighten after being loose, and housing prices would fall after rising, after all most economic events are cyclical and bubbles inevitably burst. Combined, these errors make us look either incompetent at credit analysis, or like we sold our soul to the devil for revenue, or a little bit of both.””

Deutsche Bank Total Annual CDO Issuance 2000-2009
Year	Total CDO Issuance ($ in billions)
2000	67.99
2001	78.45
2002	83.07
2003	86.63
2004	157.82
2005	251.27
2006	520.64
2007	481.60
2008	61.89
2009	4.34

Gemstone VII Ratings by Tranche
Tranche	Initial Rating: Date	1st Downgrade: Date	2nd Downgrade: Date	3rd Downgrade: Date
Class A-1a	AAA: March 15, 2007	A+: Feb. 5, 2008	BB+: July 11, 2008	CC: August 19, 2009
Class A-1b	AAA: March 15, 2007	B-: Feb. 5, 2008	CC: July 11, 2008	n/a
Class A-2	AAA: March 15, 2007	AA-: Nov. 21, 2007	CCC-: Feb. 5, 2008	CC: July 11, 2008
Class B	AA: March 15, 2007	BBB: Nov. 21, 2007	CC: Feb. 5, 2008	n/a
Class C	A: March 15, 2007	B-: Nov. 21, 2007	CC: Feb. 5, 2008	n/a
Class D	BBB: March 15, 2007	CCC Nov. 21, 2007	CC: Feb. 5, 2008	n/a
Class E	BB+: March 15, 2007	CCC: Nov. 21, 2007	CC: Feb. 5, 2008	n/a
Preference Shares	Not rated
Source:	S&P

The Crisis Goes Global on Offshore 

When we read this report and look to the financial crisis timeline, then we can say that when the prosecuter starts the investigations, the banksters spread the American Toxics and the crisis globaly:
First Iceland, people reject it, then Ireland, Greece, Portugal, Spain, Italy, Chipre, and a lot more to come until people do the same as Iceland.

Deutsche Bank Cayman Island Offshore

To issue the CDO securities, Deutsche Bank established an offshore corporation in the Cayman Islands called Gemstone CDO VII, Ltd.1357 To administer the corporation, Deutsche Bank appointed its Cayman Island affiliate, Deutsche Bank Cayman, which is a licensed trust company.1358 As administrator, Deutsche Bank Cayman provided Gemstone 7 with the administrative services needed to operate the CDO securitization, including but not limited to, providing office facilities and secretarial staff, maintaining the books and records required by Cayman law, naming at least two Cayman directors, and acting as the Share Registrar for Gemstone shares.

HBK’s Long Investment in Gemstone. HBK routinely purchased the equity tranche,1360 also known as the residual interest, in all of its Gemstone deals, including Gemstone7.1361 HBK told investors in its sales presentation that “HBK has retained 100% of the equity from CDO transactions resulting in strong alignment of interests between HBK and investors.”1362 According to Kevin Jenks, HBK’s collateral manager, HBK had a “buy and hold” approach to all of its Gemstone CDOs.1363 HBK also told the Subcommittee that it participated in Gemstone 7 with “the objective of obtaining long exposure to the CDO’s collateral, on a leveraged basis, through ownership of the Residual interest.”

HBK deals were known for containing above average concentrations of BB or lower rated assets, but HBK prided itself on its ability to run in-depth analysis and accurate stress tests on assets it selected for its CDOs.1365 HBK expected to receive a 15% return on its investment in the equity tranche.1366 In its investor presentation, HBK stated: “The firm strives to provide superior risk-adjusted rates of return with relatively low volatility and relatively low correlation to most major market indices.”1367 HBK’s presentation also claimed that, as of January 2007, it had only three downgrades in its asset backed security portfolio, and that its upgrade to downgrade ratio was 23 to 3.1368 Investor M&T Bank, who later purchased Gemstone 7 securities, told the Subcommittee that it had relied on HBK’s assertions when choosing what it thought was an investment with “minimal risk.”

Goldman Sachs OffShore

In addition, Goldman typically established a domestic and an offshore corporation to act as the nominal owners of the securitization’s incoming cash, assets, and collateral securities; to serve as the actual issuers of the securities; and to perform certain administrative services. Goldman also established arrangements for the servicing of any underlying mortgages. In some CDOs, Goldman or its affiliate provided additional services as well, acting in such roles as the collateral securities selection agent, the collateral put provider, or the liquidation agent charged with selling impaired assets. Goldman also used its global sales force to market its securities to investors around the world, typically selling Goldman-issued CDO securities through a private placement and RMBS securities through a public offering.

In late 2006, when subprime residential mortgages began to incur higher than expected rates of delinquency, fraud, and default, and its inventory of mortgage related assets began to lose value, Goldman took a number of actions. It sold the mortgage related assets in its inventory; returned poor quality loans to the lenders from which they were purchased and demanded repayment; limited new RMBS securitizations; sold or securitized the assets in its RMBS warehouse accounts; limited new CDO securitizations to transactions already in the pipeline; and sold assets from discontinued CDOs.

Throughout this process, Goldman made a concerted effort to sell securities from the CDO and RMBS securitizations it had originated, even when those securities included or referenced poor quality assets and began losing value. Many of the CDO and RMBS securities that Goldman sold to its clients incurred substantial losses. The widespread losses caused by CDO and RMBS securities originated by investment banks are a key cause of the financial crisis that affected the global financial system in 2007 and 2008.

WALL STREET AND THE FINANCIAL CRISIS: Anatomy of a Financial Collapse

Suport Documentation Report

United States Senate PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

Committee on Homeland Security and Governmental Affairs

Carl Levin, Chairman

Tom Coburn, Ranking Minority Member

WALL STREET AND THE FINANCIAL CRISIS: Anatomy of a Financial Collapse

MAJORITY AND MINORITY STAFF REPORT

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

April 13, 2011

SENATOR TOM COBURN, M.D.

Ranking Minority Member

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

ELISE J. BEAN

Staff Director and Chief Counsel

ROBERT L. ROACH

Counsel and Chief Investigator

LAURA E. STUBER

Counsel

ZACHARY I. SCHRAM

Counsel

DANIEL J. GOSHORN

Counsel

DAVID H. KATZ

Counsel

ALLISON F. MURPHY

Counsel

ADAM C. HENDERSON

Professional Staff Member

PAULINE E. CALANDE

SEC Detailee

MICHAEL J. MARTINEAU

DOJ Detailee

CHRISTOPHER J. BARKLEY

Staff Director to the Minority

ANTHONY G. COTTO

Counsel to the Minority

KEITH B. ASHDOWN

Chief Investigator to the Minority

JUSTIN J. ROOD

Senior Investigator to the Minority

VANESSA CAREIRO

Law Clerk

BRITTANY CLEMENT

Law Clerk

DAVID DeBARROS

Law Clerk

ERIN HELLING

Law Clerk

HELENA MAN

Law Clerk

JOSHUA NIMMO

Intern

ROBERT PECKERMAN

Intern

TANVI ZAVERI

Law Clerk

MARY D. ROBERTSON

Chief Clerk

From Facebook

The Official Bankster Dictionary

European Central Bank = JP Morgan Banksters Cartel

European Union - Rockfeller Massonic Order

US Federal Reserve = European controlled private bank.

Central Bank = Counterfeiting Ring Leader

Nobel Prize Winning Economists = Banking Shill Propaganda Puppets, by and large, awarded with Ivy League tenure, that a 3rd-grader well schooled in monetary truths can generally discredit.

Criminal Underworld Currency Counterfeiters = Competitors that must be arrested and jailed.

Savings Account = Devaluation Account, Cash Advance for Gambling Division

Gambling = Banking Primary Business Line

Fraud = Banking Secondary Business Line

Las Vegas, Macau, Atlantic City = Model for running business operations.

Inflation = Currency Devaluation through anti-free market manipulation of interest rates.

Fractional Reserve System = Fractional Expansion Citizen Bankruptcy System, BSE (Biggest Scam Ever)

Futures Markets = Manipulation Casino, SkyNet Three-Card Monte Scam

Pablo Escobar, Joaquín ‘El Chapo’ Guzmán, The Ochoa Hermanos, Yakuza = Cash Cows

El Subcomandante Marcos aka Delegado Zero = Anti-poverty activist that must be wacked and shut up

Independent Media = Terrorist

Mass Media = Allies

Allen Stanford, Bernie Madoff = Occasional Patsies and Necessary Fall Guys to appease the public’s ire at us.

Stock Markets = Manipulation Casino, SkyNet Three-Card Monte Scam

Commercial Investment Firm Rating of “Buy” and Hold” = Contrarian Indicator to SELL!

Commercial Investment Firm Rating of “Sell” = Contrarian Indicator to “BUY!”

Barbarous Relic = USD, Euro, Yen

Beta = Empty Statistic meant to impress naïve investors

Insider Trading = Mechanism we can utilize to build wealth and remain immune from proesecution but for which we will send common peasants to jail.

Diplomatic Immunity = Not a United Nations privilege but a privilege given to all of us to commit as much fraud and crime as possible without the slightest hint of ever being sent to jail.

Loan = Usury

Credit Card = Debt accumulation card

USD, Euro, Yen, etc. = Fantasy Digital Idea made real by banksters to control humanity

Women’s Liberation Movement = Expansion of Tax Base from only men to men AND women

Income Taxes = Wealth Transfer from citizens to owners of central banks.

Gold = Bankster Kryptonite

Silver = Bankster Kryptonite

Truth = Banker Kyrptonite

Rising Gold & Silver Prices = Hated situation that makes it difficult to manipulate asset prices and that must therefore be controlled.

Lies & Deception = Bankster Standard M.O.

Free Markets = Fairytale story like Santa Claus, Easter Bunny and Tooth Fairy to be taught in business schools worldwide.

Drug Lords and Underground Crime Syndicates = Provider of global banking liquidity and huge year-end bonuses

Parasite = Favorite insect

Capitalism = Dead system that was killed by Central Banking but false scapegoat we can blame when we cause economic crashes and despair

Miscellaneous Charges = Small Monthly Charges to siphon off money from bank accounts that customers will never notice or complain about

Computer = Vehicle to rig all stock markets and commodity markets with HFT programs that execute trades not possible if executed by humans and if executed in a clear and transparent market.

Boom = Unsustainable price distortions caused by interest-rate manipulation and market rigging.

Bust = Opportunity to make money twice as quickly as in a boom!

Market Crash = Engineered event to ensure the peasants will never accumulate enough wealth to rebel against us.

Rising Markets on Mondays or Tuesdays into OpEx Fridays: Ruse to sucker more people to go long in order to fleece them by the time Friday arrives.

Declining Markets on Mondays or Tuesdays into OpEx Fridays: Ruse to sucker more people to go short in order to fleece them by the time Friday arrives.

Presidents and PMs = Best puppet and marionette allies to be rewarded handsomely after they leave office (see Tony Blair and the current POTUS)

Superior Judges, SCOTUS = Made Men

War = Double Bonus! Opportunity to devalue money at faster rate than during peace time and opportunity to accumulate more wealth from interest charged on war appropriations.

Universities, Colleges and MBA programs = Re-education camps to indoctrinate students into fairytales of non-existent free markets, non-existent capitalism, and lies about how stock markets, real estate markets and economic cycles really work. Alternative meaning = best mechanism to bury young adults in a mountain of debt before their work life even begins so we can control them.

Economic Journals and University Tenure = Carrot dangled in front of economic professors to ensure that they repeat to the world the “official” party line.

Key Economic Indicators = False manipulated statistics designed to dumb down citizens into believing economy is recovering even as we increase their economic suffering

Ben Bernarnke = Shakespearean clown.

Conspiracy = Best Word to Discredit Truth about the global monetary system when the truth somehow escapes our censorship algorithms and makes it to the mainstream media we control.

Machiavelli = Role Model

Ivy League Schools = Indoctrination Camps for media representatives and professors we will send to brainwash other global regions into believing our propaganda

CNBC = The Cartoon Network.

Goldman Sachs = Rookie Farm Camp for global criminal banking syndicate.

World Bank & IMF = Banks used by Western countries to impose crushing debt on developing nations to stunt their growth.

Bailout = Transfer of Wealth from citizens to us.

TBTF = Lie used to ensure we can perpetuate fraud and to pass legislation that would never pass under normal circumstances unless we use the TBTF threat.

Quantitative Easing = Currency Devaluation.

Fiat Currency = Worst Possible Idea

Propaganda = Daily Financial News Feed

ATM Machine = Only banking invention in the last century that has improved peoples’ lives instead of making them worse.

Debt Forgiveness = PsyOps Term that makes it appear we are being benificient towards humanity when in reality, the amount of debt forgiveness probably could not equal the amount of money we have stolen from humanity through inflation, currency devaluation, income taxes, and other unjust taxes meant to transfer wealth to us.

Compartamentalization = Process to keep good people working as cogs in the machine within the banking industry ignorant of the fact that they are inflicting massive harm upon society.

Sound Money = Bankster Extinction Level Event. End of modern day immoral banking thievery system and event that would necessitate bankers having to find real jobs to earn wealth instead of merely building wealth by transferring wealth from everyone else to themselves. Also known as physical gold, physical silver, and the medium that allows citizens to call the banksters’ bluff in their monetary devaluation scheme and that allows citizens to fight back against corrupt banksters.

http://hsgac.senate.gov/public/_files/Financial_Crisis/FN1462-1576.pdf

http://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/FinancialCrisisReport.pdf?attempt=2

European Revolution Portugal, Spain, Greece, Italy, Ireland: Southern Europe Must Revolt Against Price Stability; That Depends A Future of Prosperity Or Deep Depression"; Christopher T. Mahoney Ex-Vice President Moody's

Southern Europe Must Revolt Against Price Stability
It’s time for a revolution in the eurozone; the time for polite discussion has ended. What is at stake is not a percent or two of economic growth in the South, but rather the difference between a future of prosperity and a future of depression. The mindless happy talk of unity, solidarity and an ever closer union is now irrelevant and in bad taste. People are eating out of trash bins, and an entire generation is living on the dole.

European Central Bank Governors Meeting; Mario Draghi  Goldman Sachs Trilateral Bilderberg Bankster Boy ECB President Press Conference Transcript by  Christopher T. Mahoney Ex-Vice President Moody's

Article traslated in portuguese - Artigo traduzido em português

Christopher T. Mahoney, ex-vice presidente da agência Moody's diz que os países do Sul da Europa deve revoltar-se contra a política de estabilização de preços defendida pelo Conselho de Governadores do Banco Central Europeu

If the South continues to permit the North to administer the poisonous medicine of monetary deflation and fiscal austerity, it will suffer needlessly for years. Yes, we all know that the ECB was modeled after the Bundesbank and part of the deal for Germany was that the euro would be as strong as the mark. But that was then, and this is now.

The eurozone is a multinational republic in which no country, no matter how high its credit rating, can act as hegemon. Germany has just two votes on the ECB’s governing council, not control and not a veto. Germany is  just another member of the union, and the Bundesbank is just another regional branch of the Eurosystem. The ECB treaty was not intended as a suicide pact, and it can be interpreted liberally enough to permit what has to be done. If the constitutional court objects, then Germany can exit. She can’t force anyone else to.

The revolution must be led by France, Italy and Spain. They have already acted together at the last summit, when Monti refused to adjourn until Merkel made major concessions (since rescinded) about bank bailouts. These three men, Hollande, Monti and Rajoy, must form the nucleus of a bloc within the eurozone that demands open-ended QE until eurozone nominal growth rises to the mid-single-digits, and stays there.

First of all, there may already be enough votes on the governing council to ram QE through the Berlin Wall. Failing that, the bloc can refuse further austerity and threaten exit unless the ECB capitulates. Sadly, Mario Draghi is a cipher in all this, having sworn allegiance to the single mandate in order to get Merkel’s approval as president. He cannot lead the rebellion, nor would it be appropriate for him to do so.

What I am advocating is a public break with the Bundesbank and its ideological satellites, and a categorical rejection of minimal nominal growth and fiscal retrenchment. The Southern Bloc must demand nominal growth targeting, unsterilized bond-buying, and an end to self-strangulation by austerity. Those policies have been tried and they have failed for two years.

The South cannot balance its budget without inflation, nominal growth, and rising nominal government revenue. Structural reform is nice but at this stage quite irrelevant. Budget cuts and labor market reforms are not and must not be a prerequisite for nominal growth. Those are shibboleths unrelated to medium-term growth, and they would be much easier to implement in the context of growth.

Before this heart-rending tragedy is over the South will revolt, but probably when it is too late. The time is now, before Spain and Italy are forced to drink the Troika’s strychnine and arsenic. France, as a continental leader with market credibility, must lead this effort. Germany and its allies will think twice before going mano a mano with France.

The cost to the creditor powers will be higher inflation and a decline in value of their claims on the South, but that must occur one way or another. Inflation is much preferable to repudiation, which is the only other viable alternative.

Maybe it would be more prudent to conduct this revolt in private, but my sense is that it can only work as a public ultimatum. Europe successfully stared down Russia on many occasions during the cold war; she can do the same with Germany today.

Christopher T. Mahoney Profile

Mahoney Blog Capitalism And Fredom: Southern Europe Must Revolt Against Price Stability

European Central Bank Governors Meeting; Mario Draghi Goldman Sachs Trilateral Bilderberg Bankster Boy ECB President Press Conference Transcript by Christopher T. Mahoney Ex-Vice President Moody's

Transcript Of Draghi's Press Conference: For the convenience of readers, Christopher T. Mahoney Ex-Vice President Moody's, have cleaned up the ECB's transcript of Draghi's Goldman Sachs European Central Bank President press conference, which followed the monthly meeting of the governing council.

Transcript in Portuguese: Transcrição da Conferência de Imprensa do Concelho de Governadores do Banco Central Europeu em Mario Draghi defende a política de estabilização de preços

Christopher T. Mahoney, ex-vice presidente da agência Moody's diz que os países do Sul da Europa deve revoltar-se contra a política de estabilização de preços defendida pelo Conselho de Governadores do Banco Central Europeu

Introductory statement to the press conference and subsequent Q&A

Mario Draghi, President of the ECB,

Slovenia, 4 October 2012


Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Governor Kranjec for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of today’s meeting.

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are expected to remain above 2% throughout 2012, but then to fall below that level again in the course of next year and to remain in line with price stability over the policy-relevant horizon.

Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term.

Economic growth in the euro area is expected to remain weak, with ongoing tensions in some euro area financial markets and high uncertainty still weighing on confidence and sentiment.

Our decisions as regards Outright Monetary Transactions (OMTs) have helped to alleviate such tensions over the past few weeks, thereby reducing concerns about the materialisation of destructive scenarios. It is now essential that governments continue to implement the necessary steps to reduce both fiscal and structural imbalances and proceed with financial sector restructuring measures.

The Governing Council remains firmly committed to preserving the singleness of its monetary policy and to ensuring the proper transmission of the policy stance to the real economy throughout the euro area. OMTs will enable us to provide, under appropriate conditions, a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area. Let me repeat again what I have said in past months: we act strictly within our mandate to maintain price stability over the medium term; we act independently in determining monetary policy; and the euro is irreversible.

We are ready to undertake OMTs, once all the prerequisites are in place. As we said last month, the Governing Council will consider entering into OMTs to the extent that they are warranted from a monetary policy perspective as long as programme conditionality is fully respected. We would exit from OMTs once their objectives have been achieved or when there is a failure to comply with a programme. OMTs would not take place while a given programme is under review and would resume after the review period once programme compliance has been assured.

Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP contracted by 0.2%, quarter on quarter, in the second quarter of 2012, following flat growth in the previous quarter. Economic indicators, in particular survey results, confirm the continuation of weak economic activity in the third quarter of 2012, in an environment characterised by high uncertainty. We expect the euro area economy to remain weak in the near term and to recover only very gradually thereafter.

The growth momentum is supported by our standard and non-standard monetary policy measures, but is expected to remain dampened by the necessary process of balance sheet adjustment in the financial and non-financial sectors, the existence of high unemployment and an uneven global recovery.

The risks surrounding the economic outlook for the euro area continue to be on the downside. They relate, in particular, to ongoing tensions in several euro area financial markets and the potential spillover to the euro area real economy. These risks should be contained by effective action by all policy-makers in the euro area.

Euro area annual HICP inflation was 2.7% in September 2012, according to Eurostat’s flash estimate, compared with 2.6% in the previous month. This is higher than expected and mainly reflects past increases in indirect taxes and euro-denominated energy prices. On the basis of current futures prices for oil, inflation rates could remain at elevated levels, before declining to below 2% again in the course of next year.

Over the policy-relevant horizon, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate. Current levels of inflation should thus remain transitory and not give rise to second-round effects. We will continue to monitor closely further developments in costs, wages and prices.

Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes owing to the need for fiscal consolidation. The main downside risks relate to the impact of weaker than expected growth in the euro area, in the event of a renewed intensification of financial market tensions, and its effects on the domestic components of inflation. If not contained by effective action by all policy-makers in the euro area, such intensification has the potential to affect the balance of risks on the downside.

Turning to the monetary analysis, recent data confirm the subdued underlying pace of monetary expansion. In August the annual growth rate of M3 decreased to 2.9%, from 3.6% in July. While this decline was mainly due to a base effect, monthly inflows were also relatively contained. Conversely, strong monthly inflows into overnight deposits contributed to a further increase in the annual rate of growth of M1 to 5.1% in August, compared with 4.5% in July. This increase reflects a continuing high preference for liquidity in an environment of low interest rates and high uncertainty.

The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) declined in August to -0.2% (from 0.1% in July), reflecting a decrease in the annual rate of growth of loans to non-financial corporations to -0.5%, from -0.2% in July. By contrast, the annual growth of loans to households remained unchanged, at 1.0%, in August. To a large extent, subdued loan dynamics reflect the weak outlook for GDP, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. At the same time, in a number of euro area countries, the segmentation of financial markets and capital constraints for banks restrict credit supply.

The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels, thereby contributing to an adequate transmission of monetary policy to the financing conditions of the non-financial sectors in the different countries of the euro area. It is thus essential that the resilience of banks continues to be strengthened where needed.

To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.

Other economic policy areas need to make substantial contributions to ensure a further stabilisation of financial markets and an improvement in the outlook for growth. As regards fiscal policies, euro area countries are progressing with consolidation. It is crucial that efforts are maintained to restore sound fiscal positions, in line with the commitments under the Stability and Growth Pact and the 2012 European Semester recommendations. A rapid implementation of the fiscal compact will also play a major role in strengthening confidence in the soundness of public finances.

At the same time, structural reforms are as essential as fiscal consolidation efforts and measures to improve the functioning of the financial sector. In the countries most strongly affected by the crisis, noticeable progress is being made in the correction of unit labour cost and current account developments. Decisive product and labour market reforms will further improve the competitiveness of these countries and their capacity to adjust.

Finally, it is essential to push ahead with European institution-building. The ECB welcomes the Commission proposal of 12 September 2012 for a single supervisory mechanism (SSM) involving the ECB, to be established through a Council regulation on the basis of Article 127(6) of the Treaty. The Governing Council considers an SSM to be one of the fundamental pillars of a financial union and one of the main building blocks towards a genuine Economic and Monetary Union.

We will formally issue a legal opinion in which we will, in particular, take into account the following principles: a clear and robust separation between supervisory decision-making and monetary policy; appropriate accountability channels; a decentralisation of tasks within the SSM; an effective supervisory framework ensuring coherent oversight of the euro area banking system; and full compatibility with the Single Market framework, including the role and prerogatives of the European Banking Authority. As the Commission proposal sets out an ambitious transition schedule towards the SSM, the ECB has started preparatory work so as to be able to implement the provisions of the Council regulation as soon as it enters into force.

We are now at your disposal for questions.
_____________________________________________________________

Question:
Two short questions, Mr Draghi. The first one: you mentioned downside risks to the economy again. Have there been any discussions today about a possible rate cut in the months to come?
And the second one on Spain: do you find Spanish bond yields appropriate at the moment or are they still hampering your monetary policy transmission?

Draghi:
On the first question the answer is no and on the second question, I will not comment.
But let me say one thing I forgot; Marko will answer questions about Slovenia today, so you will have to ask him about Slovenia.

Question:
Mr Draghi, was the decision to leave rates unchanged unanimous? That is the first question.
And the second is: what do you think about publishing the minutes much sooner than 30 years after the respective meetings?

Draghi:
On the first question, I would say that there was no discussion. So it was a unanimous decision about interest rates.

On the second question, clearly there have been statements by several Governing Council members and by myself showing an open mind with regard to this point; but it is a complex process and we are actually thinking about how to proceed. There are pros and cons. What you have to keep in mind is that the ECB is already a very transparent institution; just think about this press conference every month. There are also hearings in Parliament, interviews, speeches… I think that there are some benefits, as far as communication is concerned, to having greater transparency. At the same time, we have to evaluate and assess what this means in our specific context, the European context, which is different from that of the United States and the United Kingdom.

Question:
Mr Draghi, last month when you announced the OMTs, you said that matters were now effectively in the hands of governments. How concerned are you by the way that governments have responded? Some finance ministers have suggested that the ESM might not be covering legacy bank debts for instance, and Spain has still not applied for a bailout.
And my second question is on Greece: how would the ECB feel about rescheduling the repayments on the Greek bonds? Would that qualify as monetary financing?

Draghi:
On the second question, the answer is yes, it would qualify as monetary financing. We have said several times that any voluntary restructuring of our holdings would be monetary financing.

On the first question, I could say that today we are ready with our OMTs. We have a fully effective backstop mechanism in place, once all the prerequisites are in place as well. Governments have made substantial progress on a variety of fronts, both in what I call “vulnerable countries” and in countries that are under a full IMF programme. You can actually see this progress across the board as far as fiscal consolidation, structural reforms and also repairing some of the flaws of the banking sector are concerned. So, at this point, it is really up to the governments to decide what they want to do. The mechanism is in place.

Now to your question about the ESM: we will have to assess exactly what it means, and I do not want to prejudge the technical discussion that will take place. But we have to remember that this is not a matter for the ECB, it is a matter for the governments concerned; it is governments’ money, it is taxpayers’ money. So, they will have to discuss and take a stance on exactly what is meant by legacy assets.

Question:
Back to the OMT, you mentioned that there are steps that need to happen before the ECB would activate it. It is in the governments’ hands. Does that weaken the effectiveness of the OMT because you make yourselves part of the political process, which can be time-consuming and complicated?

And my second question is on the continued rise in youth unemployment in Europe and anti-austerity protests. How concerned are you about unemployment, youth unemployment and is austerity making the problem worse? Thank you.

Draghi:
The first question is about conditionality. We view conditionality as an essential part of the activation of the OMT. I have made this point since the very beginning. Conditionality will actually have several roles. First of all it will reduce the moral hazard by governments. The second role it will have is that it protects the independence of the ECB. Without conditionality you would certainly have what people call fiscal dominance. With conditionality the independence of the ECB is protected. There is also a third angle to this. You can look at conditionality as a way to create credit enhancement on the bonds of the country that is actually the object of conditionality. So, it is an incentive to pursue the right economic policies, which have benefits for all parties concerned. Now, there are going to be, and rightly so, some political processes, but look at this from another angle. You know that one of the conditions is the signing of a memorandum of understanding with the Eurogroup. Once you have that, you have unanimity. And you have the whole of Europe that is supporting this programme politically. By itself, this is an extremely forceful ingredient in the programme.

The second question was about youth unemployment. We completely share the concerns of the situation. And, as a matter of fact, in independent speeches several members of the Governing Council have raised the issue of high unemployment and especially focused on youth, on the young part of the population. It is an incredible waste of resources and it will have to be addressed and it can be addressed by properly reforming the labour market so as to decrease the dual nature the labour markets have taken, I would say in the last seven to ten years, in some European countries. The challenge, of course, is to address the dual nature of the labour market, while keeping it flexible overall.

Question:
Would a rate cut even be conceivable at the moment given that the transmission mechanism is broken and would there be any point in conducting such a thing until the OMT has been used or there has been a sustainable and significant drop in the bond yields of the countries that have distressed bond markets? Or is that an over-emphasis of the way you see this broken transmission mechanism?

And my second question. We are in Slovenia, at the spot where George W. Bush had his first ever summit with Vladimir Putin, after which Bush said he looked into Putin’s eyes and could see his soul and knew this was a man he could do business with. I was wondering if there was any such moment today between you and Mr Weidmann?

Draghi:
I would like to know from you who is Putin and who is George W. Bush?
Question:
I leave that to you.

Draghi:
On the first question, in a sense it is a purely hypothetical question. But it can be addressed by saying that non-standard monetary policy measures are being designed and implemented when the standard ones are not fully effective. Otherwise, we would simply stay with the standard policy measures. So, in a sense, this answers your question.

Question:
Can you carry on using standard measures at the same time as having to deploy non-standard ones?

Draghi:
Well, we have to see if we can repair the monetary policy transmission channels. We do not speculate on future changes in interest rates. I think that the Governing Council has assessed that the price level and the rate of change of prices is in line with medium-term price stability, according to our definition. So, that is the assessment we made about the interest rate and, as I said, there was no discussion.
But to answer your second question, while I do not want to comment on individual positions, of course, I can say that the discussion was very constructive across the board.
Question:
Mr Draghi, you keep encouraging banks to repair their balance sheets. Do you think that they should be able to use ESM funds for that, for their existing problems as well?
And my second question regards Spain: do you think that precautionary credit lines for Spain should be sufficient to solve Spanish financial problems?

Draghi:
On the first question: when I said there has been significant progress, I included the repair of bank balance sheets. The statement the President of the European Banking Authority (EBA) gave yesterday, when he presented the figures on the recapitalisation that has taken place so far, was reassuring in this respect. So, the capitalisation gap that was rather large until two years ago has been reduced significantly by the euro area/ European banks.
On Spain: it is one example where significant progress has been made. Significant challenges remain ahead as well, but the progress made on the front of fiscal consolidation, structural reforms (with the announcement of a very large reform programme), and on the front of the banking sector, with the conclusion of the stress test, is really remarkable if you think of just how many measures have been announced, legislated and implemented in such a short period of time.

Question:
Mr Draghi, just to follow up on that question. Does that mean that it would be enough for Spain to continue on its reform progress for the ECB to start buying bonds or would Spain actually have to commit to much harsher reforms for you to intervene?
And my second question would be: about a year ago, you said in a similar press conference that you would make periodic checks on whether you are in sync with the tradition of the Bundesbank or whether you are deviating from it. I was wondering what your assessment is today, whether you are in sync, or how close are you?

Draghi:
On the second point, I can answer right away that if the tradition of the Bundesbank was to ensure price stability, the ECB is fully in sync with that tradition.
On the first question, there is a tendency to identify conditionality with harsh conditions, as you said. Conditions do not necessarily need to be punitive. Actually, many of the conditions are related to structural reforms, which have social costs, but also great social benefits. And if the reforms are well designed, the latter are going to be greater than the former. So, whether this is enough is up to the Spanish Government to decide. It is for the other euro area governments to decide whether the programmes suffice – you know what the conditions are, you know that it is necessary to submit a request for an EFSF/ESM programme. We would actively seek the IMF’s involvement in the process. Having said that, we now have a mechanism in place that is a fully effective backstop if such a request comes and if the assessment of the Governing Council regarding the monetary policy transmission channels allows action to be taken.

Question:
I was wondering whether you could explain your thinking with regard to Portugal, because Portugal does look as if it has fulfilled the prerequisites for the OMT to work. So, why hasn’t the European Central Bank bought Portuguese debt on the secondary market?
And then one other question, because we are in Slovenia: the Slovenian Government is going ahead with the setting up of an institution to take over the non-performing loans from the banks in return for providing them with government bonds. Will those government bonds be eligible as collateral if the banks present them?

Draghi:
Portugal is an example of the significant progress that I have hinted at before, of the very, very significant progress that has been achieved. Moreover, the overall situation, politically speaking, is a strong situation. Obviously, we also fully share the concerns that have been expressed about the difficult social situation, but the reform agenda is firmly in place. The OMT would not apply to countries that are under a full adjustment programme until – and that is what I believe I said last time – until full market access, complete market access has been obtained. And this is because the OMT is not a replacement for a lack of primary market access. By the way, on this front, among several pieces of positive news that we have had in the last few days, we had one piece on Portugal, namely that, yesterday, for the first time, a three-year bond was issued, which is not complete market access, but it marks the beginning of complete market access, so that it is actually a reassuring bit of news.

Kranjec:
On Slovenia, you are right. The Parliament has adopted a law on the agency that will try to carve out bad assets from the banks. But the precise modalities for the eligibility of these bonds has not been decided yet, so that I am not able to tell you whether this would be acceptable or not. I can only tell you that the pool of collateral that is available to Slovenian banks at the moment is sufficient and that it is not an urgent matter. I understand that it will be elaborated in further steps on this law.

Question:
Have you seen any signs that the pure announcement of the OMT framework has affected the easing of credit conditions in the weak countries?
And my second question is, have you discussed what could be a good measure to decide what is an acceptable level of financial fragmentation and what is an unacceptable level?

Draghi:
On the first question, the answer is yes.

Question:
Sorry, because the figures of today, the August figures, show that especially in Spain it is getting worse.

Draghi:
There was a substantial, significant improvement all across financial markets and then there was a correction. If we take a snapshot now with respect to the beginning of August we see that the various interest rate spreads are still at a level way below where they were in July. We see one comforting piece of news, as I said before, about Portugal, having issued the first three-year bond. The second piece of good news actually concerns Spain, that Spain has completed almost 90% of its funding programme for the sovereign. There has been sizeable issuance by corporations and banks since then and, something that is dear to our eyes and we always look at: TARGET2 balances (or imbalances) have stabilised. All in all, the effect has been positive. There have been sizeable inflows of bank deposits in Italy. Spain’s recourse to central bank financing has gone down in the last month. Not bad, but at the same time we also have to express a note of caution. First of all, volatility is still relatively high and, secondly, governments will have to persevere in their reform action on all fronts: fiscal consolidation, structural reforms, the banking sector and more generally the financial market sector.
What is an acceptable level of fragmentation? Well, it is hard to say. But certainly when you see two subsidiaries of the same company located in two different countries and paying completely different interest rates for their borrowing, when you see exactly the same individual borrower, say a young couple that wants to buy a flat, and paying a completely different interest rate on mortgages, then you start asking yourself, maybe there is a problem here. Then you look around and you see that credit flows are normal in one part of the euro area, are non-existent in another part, falling and have been falling precipitously in yet another part. When you see that you have widespread credit rationing in some parts of the euro area, when you see that there is a very strange correlation between the movements in the exchange rates and the interest rates; namely that the exchange rate appreciates when the interest rates go down, and vice versa. When you see that the bid-ask spreads reveal a profound lack of liquidity in certain markets, when you see that levels of volatility are abnormally high and when you see that you have the inversion of the yield curves all of a sudden, which then disappears right after an announcement, then you say that you have a reasonable and possibly unacceptable level of fragmentation in the euro area. But the issue is really that the level of fragmentation becomes unacceptable when the singleness of the monetary policy in the euro area is being put into question. Because that is the time when we cannot achieve our primary objective, namely maintaining price stability in the medium term across the euro area.
Question:
I would like to return to the question of bad banks. The ECB had some concerns regarding the establishment of this agency or bank and I would like to ask you,
Mr. Draghi, whether this remark still stands or you support this, let’s say, resolution for Slovenia?
And the second question is, what are your recommendations for Slovenia regarding fiscal consolidation? Do you think that Slovenia needs a bailout?

Draghi:
I think Marko will respond best to both questions, but by and large let me say that we agree with the overall assessment of the IMF.

Kranjec:
Just to say a few sentences. The ECB made an assessment of the law that was adopted and we understood it in a sense that the view was that the agency, the government and the central bank should cooperate closely in deciding how to make the banking sector more resilient.
As to the second question regarding the bailout, I think it is much too early to say anything about it. All macroeconomic indicators at the moment point to the fact that if a country adopts decisive stabilisation measures in fiscal consolidation, in labour markets, in pension reforms and of course in the banking sector, it will not need to apply for a programme, but in the end, as the President also said, in many countries that is primarily a political decision. The central bank cannot operate in an environment which is inherently unstable from a macroeconomic point of view.

Question:
As a member of the Slovenian press, my question is rather similar. The decision on the OMT programme has contributed enormously to calming the situation in the markets. However, the yields on Slovenian government bonds remain rather high and surpass the yields of the Spanish government bonds. What do you believe are the factors that could calm this situation, which is very worrisome for Slovenian citizens?

Kranjec:
The spreads that you have noticed in the markets in our opinion do not reflect the fundamentals. You should take into consideration that the capital markets for Slovenian paper are very shallow, the transactions are rare and one cannot judge the underlying fundamentals from two or three transactions. We believe that with the adoption of the stabilisation measures that I mentioned before, spreads will go down and I understand – no I do not only understand, you can verify yourself – that spreads have gone down. With the adoption of further measures I believe that spreads will go down as they have done in other euro area countries.

Question:
Two questions. The first one: How concerned are you that if the OMT programme actually comes into action it might rearrange the yield curve and denaturalise the yield curve, as it were and frontload the short-end of the maturity spectrum?
The second one is on the OMT per se: If the OMT is a purely monetary measure for repairing the dysfunction of a fragmented market, how can you set political preconditions? Is it not a little bit like the local fire brigade telling me “ I can only turn on the water if you show me that you have a roof improvement programme”?

Draghi:
On the first point, we will certainly monitor the strategic response of the issuers to our programme. The OMT is not meant to induce a strategic response in favour of issuing short terms.. So this will be monitored. By the way, I think, and that is my purely personal perception, that all of the countries that may need an OMT have now reached, after many years of a difficult, very difficult process, reasonable maturities, reasonable durations in their stock of public debt. It is very unlikely they will change these durations in favour of a short-term issuance. First, because they have market access. It is not that they do not have market access. These countries do have market access. So there is no reason really to change the duration, and you know there are not only pros if you change the duration, you also have some serious cons. So all in all, I think it is unlikely. In any event the ECB will closely monitor this possible strategic response by issuers.
As to the second point, I think it is just the other way around. I think I did say something about this last time we had this press conference. When the OMT was designed, we had the perception and the evidence that there were tail risks in the euro area, namely that there was a bad equilibrium for certain countries in certain markets. It means that expectations were self-perpetuating and in the end would create disruptive scenarios. So then it is opportune for the policy-maker, which in this case is the ECB, to step in with a programme. At the same time, we should not forget how these countries got into a bad equilibrium to begin with, namely with bad policies, or in some cases no policies at all for a long period of time, while the rest of the world was changing completely. So the first conclusion was that any monetary policy would have no effect if the other policies did not change. That is why conditionality is so important. Eventually, as I said at the beginning, it is what makes the monetary policy effective and it is what protects the independence of the ECB. So I would not buy the example you have given, I think it is really an integral part of this.

Question:
Are you comfortable with the current situation in which Spain – and even Germany – has doubts about the rescue? Or did you expect a more rapid reaction from the political side?
And second, do you think that Spain has the possibility to resolve its crisis without European aid?

Draghi:
Unfortunately, I cannot comment on either of the questions, because stopping this process is very much a decision that is entirely in the hands of governments. As I have said over and over again, I think that through the OMT programme, the ECB has done everything possible and it could certainly create an environment which is conducive to reforms because it could remove what we call the redenomination risk. So, it could remove tail risks but ultimately, the initiative is in the hands of governments.

Question:
You spoke several times about risks and now redenomination risks. Yields have calmed down since your announcement in July and then your further announcement. How much of these risks have been removed and do you think it is just a temporary effect which will be reversed in the event that the OMT programme is not applied?
And second, as you made OMTs dependent on a request and the governments seem to be extremely reluctant to make such a request, and given that the monetary policy transmission mechanism is still broken, have you thought about any other solution that you could apply in this event?

Draghi:
Well, on the second question: for the time being, no. I think we have the sense that it was a very important decision which has many dimensions. We had to cope with all of these and it is now in place. We are ready and we have a fully effective backstop mechanism in place. Now it is really in the hands of governments and, as I said many times, the ECB cannot replace the action of governments.

With regard to whether the level of interest rates reflects redenomination risks, as I said before, we are considering a variety of indicators here, one of which is the interest rates and then we are also considering those I mentioned, namely the bid-ask spreads, liquidity, the shape of the yield curves and volatility. So there are a variety of indicators which will certainly inform our monetary policy assessment.

Question:
With regard to the recapitalisation of banks through the ESM, do you see any possible way out and if so, what is it?
And second, the markets are already discussing the point at which you could intervene in the markets in the event that Spain or another country asks for aid. Do you have a particular target or target range?

Draghi:
On the second question, the answer is no. As I just said, we are looking at a variety of indicators. And we will look at all of them because we have to carry out monetary policy assessment. What is the degree of disruption to our monetary policy transmission channels? That is simply a question we have to answer.
On the first question, as I said before, it really is very much in the hands of governments. They took the initiative a year and a half ago to create the ESM. Now that it is about to enter into force, there are certain limitations that are being brought to the table. There is going to be a political discussion and frankly, it would not be right for the ECB to prejudge the outcome of this discussion, nor to express views on it.

Question:
I would like to ask you a question on the supervision of banks: how do you plan to ensure that the two tasks to be performed by the ECB will be separated? In Germany at least, there are still important people who have many concerns about this potential conflict of interest. Jens Weidmann recently raised these concerns in an interview, so what would be your response?

Draghi:
I think there are very important concerns that we are addressing by means of a proper internal organisation. The proposal doesn’t give us much of an option on this. I think one of the principles I stated at the very beginning of this discussion was that, if in the end the ECB is involved in the single supervisory mechanism, we have to make sure we have an organisation which de facto assures the separation of monetary policy from supervision. And this can be done by fully delegating the task to the Supervisory Board. Fortunately, the Commission’s proposal does foresee the possibility of the Governing Council delegating all the supervisory tasks to the Supervisory Board. So, the management and internal organisational means are there. I believe it can be achieved.


http://capitalismandfredom.blogspot.pt/2012/10/transcript-of-draghis-press-conference.html#links

Living Europe’s Nightmare

NEW YORK – Losing a long war is always hard to accept. Hemmed in by the Americans and the Russians in the final days of World War II, Hitler convinced himself that he had two armies in reserve to mount a counter-attack and win the war. Meanwhile, having lost the entire Pacific, Japan’s Imperial Cabinet believed that no enemy could set foot upon the country’s sacred soil. When the truth is unimaginable, human psychology finds an alternative reality in which to dwell.

That describes the global situation today. The entire planet seems to be in denial about what is about to occur in the eurozone. Pundits keep expecting Germany to pull a rabbit out of the hat and flood the continent with Eurobonds, or that Mario Draghi will mount a coup at the European Central Bank and buy up every deadbeat country’s bonds.

Either could happen, but both are extremely unlikely. Germany cannot guarantee the eurozone’s debt without control over the eurozone, which no one has offered, and Northern Europe will not permit the ECB to be hijacked by “Club Med” and turned into a charity organization. It is not just a matter of politics; it is also – as the Germans keep pointing out – a matter of law.

Europe has a Plan A, whereby each country would reform its economy, recapitalize its banks, and balance its budget. But Plan A is not working: its intended participants, most notably France, are rejecting it, and there is an emerging southern European consensus that austerity is not the solution.

Greece’s recent election has put it in the anti-austerity vanguard. Italy and Spain (which does not have enough money to bail out its banking system), have similarly called for an end to austerity, and Ireland will be voting on it soon. All have lost access to the bond market, and Portugal is so far beyond hope that its sovereign debt is trading for cents on the euro.

There is no well-thought-out plan for the orderly exit of the eurozone’s insolvent countries. There are no safeguards, no plans, no roadmap – nothing. The Maastricht Treaty, like the United States Constitution, did not provide for an exit mechanism. So, instead of realism and emergency planning, we get denial and more happy talk. But, just because something is “unthinkable” doesn’t mean that it can’t happen.

In fact, it already is happening. Greece is rapidly running out of money; its residents are withdrawing their deposits and have stopped paying their taxes and utility bills. Even if the country can stay afloat until the June 17 election, a disorderly eurozone exit, default, and currency redenomination will follow. Greece will be dependent upon foreign aid for essential imports such as petroleum and food. Civil order will be difficult to maintain, and the army may be forced to step in (again).

Once Greece goes, runs on bank deposits are likely to follow in Spain and Italy. There is nothing to stop Spanish and Italian depositors from wiring their euros from their local bank to one in Switzerland, Norway, or New York. At that point, the only thing still standing between the eurozone and financial chaos will be the ECB, which could buy government bonds and fund the bank runs. The scale of such an operation would be enormous, and would expose the ECB to huge credit risk. But it could, in principle, step in – if Northern Europe permitted.

If the ECB does not step in, Italy and Spain, too, will be forced to exit the eurozone, default on their euro-denominated sovereign and bank obligations, and redenominate into national currency. Massive losses would be imposed on the global financial system. Given the opacity of banks’ exposures, creditors would be unable to discriminate between the solvent and the insolvent (as was the case in September 2008).

The US banks most likely to be affected by such a scenario would be the globalists: Citigroup, Bank of America, JPMorgan Chase, Goldman Sachs, and Morgan Stanley. They would require a rescue package similar to the US Troubled Asset Relief Program, created after Lehman Brothers’ collapse in 2008. The US can afford a second TARP, but it would require Congressional legislation, which is not guaranteed (though the US Federal Reserve can, of course, keep the system funded no matter what).

Massive wealth destruction, combined with global financial chaos, would pose a challenge to monetary policymakers worldwide. Central banks would be tasked with preventing deflation, implying a major round of quantitative easing. But, since banks are the transmission mechanism for monetary stimulus, this presupposes functioning banking systems. Each country would need to restore confidence in its banks’ solvency, which would most likely require a blanket bank guarantee and a recapitalization scheme (such as TARP).

The US financial system can withstand any shock, because the US can print the money that it needs. The Fed can maintain nominal prices, nominal wages, and growth if it acts heroically, as it did in 2008. The stock market will react negatively to the level of uncertainty caused by the collapse of the European financial system (as it did in 1931), and the dollar, yen, and gold should benefit. The fate of the British pound and Swiss franc is impossible to say; they could benefit as safe havens, but their banks are highly exposed to the eurozone.

It is bad enough that the world is utterly unprepared for the future that can be foreseen. The unanticipated financial, economic, and political consequences of the coming crisis could be even worse.

Em Português:

Reunião do Conselho de Governadores do Banco Central Europeu: Transcrição Conferência de Imprensa do Presidente  do BCE Mario Draghi  Goldman Sachs; Transcrito Por Christopher T. Mahoney Ex-Vice Presidente Moodys