Most scams are run out of Texas and Florida….

What little people have known for years, apparently wealthy people are learning the hard way. If it seems to good to be true, and it is coming from Florida or Texas…..it is.

First was Madoff, who was running his pyramid scheme for 20 years until it recently fell apart, leaving in its wake West Palm Beach millionaires and a long list of people with cash to burn, selling their estate jewelery to make ends meet and now, Texas enters the financial scam scene.

Texas billionaire Allen Stanford, has been charged by the SEC in a civil complaint with “fraud of shocking magnitude that has spread its tentacles throughout the world,” said Rose Romero, regional director of the SEC’s office in Fort Worth, Texas, and reported by Reuters.

Stanford, who holds dual U.S.-Antigua citizenship, has dropped off the face of the earth and failed to respond to a subpoena. The SEC can’t understand it.

SIB, his company, oversees $50 billion in assets (this seems to be a magic number, Madoff was charged in a $50 billion fraud scheme).

Maybe the SEC doesn’t consider it worth their time to investigate, unless it amounts to enough money to warrant Barbuda and Antigua’s prime minister to consider the consequences “catastrophic.”

Stanford’s banks are based there and, according to Reuters, “he owns the country’s largest newspaper, heads a local commercial bank, is the biggest private employer, its top investor and is the first American to receive a knighthood from its government.”

He is accused of selling $8 billion in CD’s “by promising high return rates that exceed those available through true certificates of deposits offered by traditional banks.”

Reuters lists additional SEC allegations as the following:

— Stanford’s Antigua-based bank reported identical returns of 15.71 percent in 1995 and 1996, which the SEC called “improbable” and suspicious.

— Ninety percent of the offshore bank’s claimed investment portfolio was in a “black box” shielded from any independent oversight, and only Stanford and aide James Davis, also charged, knew details of the bulk of the portfolio.

— Stanford failed to cooperate with the SEC probe and continued to mislead investors by falsely saying the SEC had frozen accounts or the company had ordered a moratorium on CD redemptions.

— A major, unidentified clearing firm stopped processing wires to SIB for purchase of SIB-issued CDs after the clearing firm was unable to obtain information about the company’s financial condition.

— Stanford used false information to promote a mutual fund program separate from the CDs. The program grew to more than $1.2 billion from less than $10 million in 2004.

In Antigua, hundreds were lining up to get their money out, Panama regulators seized one of the Standford’s local affiliates, the local arm of its financial group pulled itself off of Columbia’s stock exchange, and Adolph Ogi, the former president of Switzerland, quit his post on the advisory board of Stanford Financial Group.

Despite all of this, Reuters states that “There were no signs of imminent criminal charges against Stanford, whose personal fortune was estimated by Forbes Magazine last year at $2.2 billion. A Justice Department spokesman would not confirm or deny the existence of a criminal investigation.”

I would think criminal charges would be a no-brainer, considering the amount of money involved, the 30,000 clients and the 131 countries in which he operated.

But no.

Why, you ask?

Because Reuters also reported this:

Stanford was also expanding his political reach, opening a Washington lobbying office about two years ago after buying the Washington Research Group, a policy study unit of Charles Schwab & Co, in 2005.

Stanford spent $2.8 million on lobbying in 2008, according to records accessed through the Center for Responsive Politics, which tracks campaign contributions. His political action committee and employees donated about $2.4 million to parties and candidates for federal office since 1989.

Campaign finance reform won’t fix this, the only thing that will is term limits for Congress and supermax prisons for the influence purchasers.

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From Chicago – signs of the economic hard times

On Friday and Monday, my train was empty, as were others I checked with – all coming from different directions into Chicago’s Loop (financial center). Layoffs? Four-day work weeks?

Normally one cannot find a parking space ANYWHERE near Union Station (home of Metra and Amtrak) at any time of the day, even when gas prices were $4 a gallon and our (Metra’s) ridership was up. This week – park anywhere, not a problem.

Traffic has been a nightmare for a few years now. I can’t tell you how many times an ambulance can’t get down the street because of all the cars (and the stupid people driving them who won’t get out of the way). Last week? Ambulances were flying down the street with only a siren blaring – no horns honking at all. Clear passage.

That’s good for them, but to me, is not a sign of good economic times. Sorry, they are not all riding their bikes. Actually – haven’t seen many of them lately either.

The Edens expressway, which normally starts rush hour at about 6:30am (rush hour being a euphemism for an expressway that is a parking lot), is also traffic free. Yesterday at 7:30 am, it was 19 minutes from Dempster to the Circle interchange. Normally, at that hour, it would be at least 40 minutes. 19 minutes is how long it takes at 3 in the morning.

For those of you not familiar with Chicago, this expressway leads into the Loop, the heart of Chicago’s downtown where banks, the Board of Trade, the Chicago Mercantile Exchange, the Board of Options Exchange, and the Futures Market call home. It is also the seat of city government has congressional offices, the mayor is here, the Cook County Board, courts, lawyers, pick ’em, they’re here.

No traffic.

Not good.

Obama – there aren’t two sets of rules

President Obama deserves credit for taking responsibility for the the last two cabinet nominees who turned out to be tax cheats, Kellefer and Daschle. But what about Geithner, who will now head the agency he cheated?

In his admission the President said,

I’ve got to own up to my mistake, which is that ultimately it’s important for this administration to send a message that there aren’t two sets of rules. You know, one for prominent people and one for ordinary folks who have to pay their taxes.

Though Daschle owed a significant amount of money for a car and driver, and Kellefer didn’t pay her D.C. unemployment taxes, Geithner’s offense was worse. National Review online explained it best.

But the IMF took great care to explain to those employees, in detail and frequently, what their tax responsibilities were. First, each employee was given the IMF Employee Tax Manual. Then, employees were given quarterly wage statements for the specific purpose of calculating taxes. Then, they were given year-end wage statements. And then, each IMF employee was required to file what was known as an Annual Tax Allowance Request. Geithner received all those documents.

The tax allowance has turned out to be a key part of the Geithner situation. This is how it worked. IMF employees were expected to pay their taxes out of their own money. But the IMF then gave them an extra allowance, known as a “gross-up,” to cover those tax payments. This was done in the Annual Tax Allowance Request, in which the employee filled out some basic information — marital status, dependent children, etc. — and the IMF then estimated the amount of taxes the employee would owe and gave the employee a corresponding allowance.

At the end of the tax allowance form were the words, “I hereby certify that all the information contained herein is true to the best of my knowledge and belief and that I will pay the taxes for which I have received tax allowance payments from the Fund.” Geithner signed the form. He accepted the allowance payment. He didn’t pay the tax. For several years in a row.

Perhaps President Obama doesn’t realize this part. Perhaps all of the legislators who confirmed him don’t realize this. But just who on Obama’s staff recommended and vetted this guy, and who is he kidding when he told Congress,

At his confirmation hearing, Geithner called the transgressions “careless mistakes” and unavoidable ones.

He told the Senate Finance Committee the failure to pay was “unintentional.” But he also said, “I should have been more careful.”

He blamed his accountant, he blamed Turbo Tax, then finally came up with the above pathetic excuse. More frightening is the fact that he was confirmed because of the skills he has that will get us out of this economic mess.

He was involved in the original TARP distribution, the decision to bail out everyone but Lehman Brothers, and was the head of the N.Y. Federal Reserve while the economy was in a meltdown.

I trust him?

Prior to this job he served as Under Secretary of the Treasury for International Affairs from 1998 to 2001 under Secretaries Robert Rubin and Lawrence Summers, where he was a principal adviser and member of the executive branch’s senior team.

Funny, these are the guys that brought us part of this mess by weakening the Glass-Steagall Act, removing the line between commercial and investment banks which was put in place after the Depression to ensure that it would never happen again!

Guess where many of our former government employees worked before and after their stints in our government?

Goldman Sachs.

The list, for this one financial institution, includes Rubin, Paulson, Steel, Flowers (involved in a bid to take student loan lender Sallie Mae private), Whitehead (deputy secretary of state under Reagan), and Josh Bolten, Bush’s chief of staff, and now Geithner.

How about no one involved in the financial industry ever gets to hold a position such as this. Personally I would nominate the chief auditor for the IRS for the job.

But that’s me. I don’t put much stock in “experts”. Though I predicted this mess a couple of years ago, the “experts”, until last year, were still debating whether we were in a recession.

All I have to do is look at the lack of business in downtown restaurants, the 24-hour diners that are no longer open 24 hours and the Chicago rush hour that is devoid of cars.

Think Geithner should resign to remove the appearance of a double standard?

Take the poll

Tax Cheats – the ethical and unethical

So far three of Obama’s cabinet post picks have been found to have tax problems. Nancy Killefer, a former assistant treasury Secretary in the Clinton administration, withdrew her nomination for deputy director of the Office of Management and Budget, after it became known she hadn’t paid D.C. unemployment taxes.

Tom Daschle, who was going through the confirmation process when it was found he owed $143,000 in taxes (and has paid them now), backed out today.

Both said they did not want to be a distraction.

I respect that they backed out. It was the moral and ethical thing to do. But it is disturbing that three people, who had been in such positions of power, found themselves above the law that the rest of us have to follow.

Can anyone figure statistical probability of this?

Sure, they said it was a little mistake, but c’mon. Do you believe that? Or do you believe they knew they wouldn’t be audited, so why not fudge a little, or a lot?

Then there’s Geithner, who will oversee the agency that garnishes our wages and freezes our assets when we do what he did.

A friend of mine said we should be able to do what Geithner did, and when we get caught, just tell the IRS we are exercising the Geithner Exclusionary Rule, and assure them that when we get nominated to a cabinet post sometime in the future, we’ll be happy to pay up.

Somehow I don’t think that will work.

But where Daschle and Killefer at least had the decency to withdraw, though they likely would have been confirmed anyway, Geithner doesn’t seem to feel that sense of shame and the need to step down for the greater good of the administration that is trying to change Washington.

No, he figured his apology was good enough. Could that be because he comes from the same stock as the bankers who stuck their hands out for our hard earned money, then promptly lined their pockets with it? Remember Geithner was head of the N.Y. Fed and was in on the original bailout deals.

Not a big surprise that he feels no embarrassment for what he did. The heads of all these banks who ran their companies into the ground feel no embarrassment either. Why should they? Everyone around them is doing the same thing. In their world, this is normal.

I would love to see Obama task the IRS with auditing every present and former cabinet member and legislator going as far back as possible. I would start with the 18 who voted for Geithner in committee, then I would move on to the 60 who voted ‘yes’ in the full roll call vote in the Senate. Perhaps they ‘yes’ votes didn’t want to appear hypocritical by voting ‘no’, just in case they get tapped in the future.

What’s interesting is who voted ‘no’.

For the most part, both senators of the deep south states voted ‘no’. States in the west and midwest were split or voted no (except Illinois, of course, where everyone voted ‘yes’, but then we aren’t know for our ethical politicians).

And in the Boston-Washington corridor? Well what do you think would happen in the corridor of power.

BTW. What bank did the heads of the banks put their billions in bonuses in? Or did they just buy gold?

It’s all a shell game

Reuters today, set out several scenarios for the bank bailouts, one being setting up a separate bank to “buy bad assets.”

But they contend that the problem with that is that

many banks are recording assets on their books at values that are too high.

This would result in the taxpayers bearing the burden of massive losses and the banks’ equity investors being handed a huge subsidy.

The alternative problem is

buying assets at too low a price would likely force banks to recognize major losses, which would weaken them further.

So I guess we are saying that we really don’t know how much these banks are worth and neither do they.

What we have been doing, is buying shares of preferred stock and warrants to boost their capital. But that isn’t working. So the idea has been floated to convert the preferred shares to common stock which, in the case of Bank of America, would make the bank’s

total tangible common equity…. instantly rise to $108.5 billion, giving it a tangible common equity ratio of 4.5 percent, 73 percent above the current ratio of 2.6 percent. Other banks could reap similar benefits.”

Again, this is just a numbers game. But does it bear any resemblance to reality?

Turning the preferred stock into common stock would instantly save the bank money it sorely needs, and would bolster a key measure of the bank’s capital strength by more than 70 percent instantly. Other banks that have received money from the Treasury, including Citigroup Inc, (C.N) could also benefit.

If it gives common shareholders the chance to get some money back and stabilizes financial companies, it’s worth considering. It seems like a no-brainer,” said Bo Brownstein, chief executive of Big Five Asset Management in Denver.

The move would not completely fix the banking system’s capital problems, but it would go a long way toward helping.

Helping what and who? Certainly not the taxpayers who will be paying the interest on this borrowed TARP money for the next two generations? Sure it would benefit the shareholders, because Lord knows we don’t want those who risked their money in the stock market to lose it.

What a crime that would be. But the article contends that

the government could receive change its preferred shares into convertible preferred shares that pay no dividend and have no voting rights. If done properly, the securities might be similar enough to common equity to soothe investors and rating agencies.

Soothe the investors and the rating agencies……..does anyone know how much any of these banks are truly worth? If so, please tell us and if not, let them all fail, let the investors lose their shirts, and the rest of the country can soothe them with a lullaby…….if that diamond ring turns brass papa’s gonna buy you a looking glass…..

And then you’ll know how Alice felt in Wonderland……..

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