Important case in CDS debacle

Tripped across this article noting a case decided last year that very well may be cited during future civil action related to the credit default swap market collapse. Lots of work for lawyers as this mess unwinds! It's a good read.


http://overhedged.blogspot.com/2008/01/little-noted...

SEC bails out mortgage crooks.

Methinks this isn't going to help foster an environment of accountability.

Subprime Lenders Get Big Accounting Break at SEC: Jonathan Weil

Commentary by Jonathan Weil

Jan. 30 (Bloomberg) -- Just when it seemed as if the mortgage mess had hit a new low, now comes this: The Securities and Exchange Commission's staff has granted the subprime-lending industry a huge exemption from the normal rules for off-balance- sheet accounting.

In effect, the move will let home lenders keep their balance sheets looking much smaller and less leveraged, even while the off-the-books loans they made get a makeover.

For months, banking regulators and politicians have been pressing lenders to freeze the interest rates on many adjustable-rate subprime mortgages that are scheduled to reset soon at higher interest rates. The idea is to minimize defaults and foreclosures.

While that's a noble objective, all good deeds must be accounted for, and that's been a sticking point for many banks. Through September, just 3.5 percent of subprime mortgages that reset in the first eight months of 2007 had been modified, according to Moody's Investors Service. Even lenders inclined to help don't want to hurt their financial results. And now they might not have to, thanks to a Jan. 8 letter from the SEC's chief accountant, Conrad Hewitt.

Here's the background: Many lenders recorded upfront profits by selling loans in bulk to off-balance-sheet trusts -- known as qualified special purpose entities, or QSPEs -- which then repackaged the loan pools into mortgage-backed securities. The trusts are supposed to be beyond the lenders' control. And if the companies servicing the loans tinker with them in ways that aren't spelled out in the trusts' charters, the sales must be reversed, and the trusts must come onto the lenders' books, under the Financial Accounting Standards Board's rules.

Financial Constraints

That would mean much more assets and debt, possibly limiting banks' ability to make new loans. Not surprisingly, some of the biggest mortgage lenders, including Washington Mutual Inc., Countrywide Financial Corp. and Wells Fargo & Co., had been pushing regulators for a break.

By following new guidelines issued last month by a banking- industry group called the American Securitization Forum, Hewitt said servicers will be allowed to modify subprime mortgages where defaults are ``reasonably foreseeable,'' without jeopardizing the trusts' off-balance-sheet treatment.

Hewitt's letter came in response to requests by the ASF, as well as the Treasury Department and others. On Dec. 6, the ASF published a ``streamlined'' framework for evaluating subprime mortgages issued from January 2005 to July 2007, where the initial rates are scheduled to reset before August 2010.

Loans that meet certain criteria -- based on things such as low credit scores, the number of days delinquent, and high loan- to-value ratios -- are eligible for ``fast-track'' modifications, on the basis that it's foreseeable they'll default, the ASF said.

Losing Status

The wholesale approach includes lots of room for discretion. For instance, if a borrower's credit score is too high, mortgage servicers can use an ``alternate analysis'' and consider a ``tailored modification for a borrower.''

Hewitt said such modifications wouldn't cause the QSPEs to lose their off-the-books status, though he did call for more disclosures by lenders about QSPEs' activities.

Hewitt said he realized there's no way to know how accurate the ASF criteria might be at predicting actual defaults, because there ``is a lack of relevant, observable market data that can be used to perform an objective statistical analysis of the correlation.'' Still, he said the group's criteria looked reasonable, ``based upon a qualitative consideration of the expectation of defaults.''

Hewitt declined to be interviewed, as did FASB officials.

Little Discretion

The accounting standard at issue is FASB Statement No. 140. Its rules had envisioned QSPEs as brain-dead vehicles, akin to wind-up toys. Their actions are supposed to be automatic responses that ``were entirely specified in the legal documents that established'' the trusts. When servicers do exercise discretion, it must be ``significantly limited.''

``I do not believe mortgage modification in such a wholesale and proactive fashion can be reasonably viewed as significantly limited,'' says Stephen Ryan, an accounting professor at New York University, who specializes in financial instruments and institutions.

According to the ASF, many QSPEs' legal documents say loan modifications are permitted where default is ``reasonably foreseeable.'' However, the ASF framework wasn't published until last month. So there's no way the activities it describes could be fully specified in the charters at any of the affected QSPEs.

While it may be a good thing under current circumstances to give servicers incentives to modify lots of subprime mortgages, Ryan says, ``I think the chief accountant should have indicated he was providing an exemption to, rather than interpreting a vague area in, FAS 140.''

Changed Rules

The ASF's executive director, George Miller, says that ``the framework itself cannot be specified in trust documents that existed before the framework was issued.'' However, he says ``it does not need to be'' and that Hewitt's letter is ``not an exemption, just an interpretation'' of whether applying the group's criteria would comply with Statement 140.

This might be a slippery slope. Perhaps the auto industry could be saved, for example, if only we devise new accounting ``interpretations'' of the rules governing their massive pension liabilities.

Hewitt couldn't call his Jan. 8 letter an outright exemption, of course. Unlike the SEC itself, he doesn't have the authority to overturn the FASB's rules. Practically speaking, however, that's what he did.

The SEC and the FASB at least should acknowledge this subterfuge for what it is. Don't count on it, though.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Jonathan Weil in Boulder, Colorado, at jweil6@bloomberg.net
Last Updated: January 30, 2008 00:06 EST

Chaos in Iraq

Wow, how was this allowed to go so completely wrong?!?!

The state of the (Iraqi) union
By Pepe Escobar

I say this to the evil Bush - leave my country.
We do not need you and your army of darkness.
We don't need your planes and tanks.
We don't need your policy and your interference.
We don't want your democracy and fake freedom.
Get out of our land.
- Muqtada al-Sadr, Iraqi Shi'ite leader

The George W Bush-sponsored Iraqi "surge" is now one year old. The US$11 billion-a-month (and counting) Iraqi/Afghan joint quagmire keeps adding to the US government's staggering over $9 trillion debt (it was "only" $5.6 trillion when Bush took power in



early 2001).

On the ground in Iraq, the state of the union - Bush's legacy - translates into a completely shattered nation with up to 70% unemployment, a 70% inflation rate, less than six hours of electricity a day and virtually no reconstruction, although White House-connected multinationals have bagged more than $50 billion in competition-free contracts so far. The gleaming reconstruction success stories of course are the Vatican-sized US Embassy in Baghdad - the largest in the world - and the scores of US military bases.

Facts on the ground also attest the "surge" achieved no "political reconciliation" whatsoever in Iraq - regardless of a relentless US corporate media propaganda drive, fed by the Pentagon, to proclaim it a success. The new law to reverse de-Ba'athification - approved by a half-empty Parliament and immediately condemned by Sunni and secular parties as well as former Ba'athists themselves - will only exacerbate sectarian hatred.

What the "surge" has facilitated instead is the total balkanization of Baghdad – as well as the whole of Iraq. There are now at least 5 million Iraqis among refugees and the internally displaced - apart from competing statistics numbering what certainly amounts to hundreds of thousands of dead civilians. So of course there is less violence; there's hardly any people left to be ethnically cleansed.

Everywhere in Iraq there are myriad signs of balkanization - not only in blast wall/partitioned Baghdad. In the Shi'ite south, the big prize is Basra, disputed by at least three militias. The Sadrists - the voice of the streets - are against regional autonomy; the Supreme Islamic Iraqi Council (SIIC)- which controls security - wants Basra as the key node of a southern Shi'iteistan; and the Fadhila party - which control the governorate - wants an autonomous Basra.

In the north, the big prize is oil-rich Kirkuk province, disputed by Kurds, Sunni Arabs and Turkmen; the referendum on Kirkuk has been postponed indefinitely, as everyone knows it will unleash a bloodbath. In al-Anbar province, Sunni Arab tribes bide their time collaborating with the US and controlling the exits to Syria and Jordan while preparing for the inevitable settling of scores with Shi'ites in Baghdad.

Obama and Hillary vs Iraqis
Meanwhile, in the Democratic party presidential race, Hillary Clinton, who voted for the war on Iraq, viciously battles Kennedy clan-supported Barack Obama, who opposed the war, followed at a distance by John "can a white man be president" Edwards, who apologized for his initial support for the war. Obama, Edwards and Clinton basically agree, with some nuance, the "surge" was a fluke.

They have all pledged to end the war if elected. But Edwards is the only pre-candidate who has explicitly called for an immediate US troop withdrawal - up to 50,000, with nearly all of the remaining out within a maximum of 10 months. Edwards insisted Iraqi troops would be trained "outside of Iraq" and no troops would be left to "guard US bases".

For their part, both Clinton and Obama believe substantial numbers of troops must remain in Iraq to "protect US bases" and "to fight al-Qaeda in Iraq". This essentially means the occupation grinding on. Both never said exactly how many troops would be needed: they could be as many as 75,000. Both have steadfastly refused to end the "mission" before 2013.

It's hard to envision an "occupation out" Obama when among his chief advisers one finds former president Jimmy Carter's national security adviser Zbigniew Brzezinski - the "grand chessboard" ideologue who always preached American domination of Eurasia - and former Middle East negotiator Dennis Ross, who always fought for Israel's dominance of the "mini-chessboard", the Middle East.

So far Obama has not given any signs he would try to counter the logic of global US military hegemony conditioned by control of oil; that's why the US is in Iraq and Africa, that's the reason for so much hostility towards Venezuela, Iran and Russia. As for Clinton - with the constant references to "vital national security interests" - there's no evidence this twin-headed presidency would differ from Bush in wanting to install a puppet, pliable, perennial, anti-Iranian, peppered-with-US-military-bases regime in Iraq.

But more than US presidential candidates stumbling on how to position themselves about Iraq, what really matters is what Iraqis themselves think. According to Asia Times Online sources in Baghdad, apart from the three provinces in Iraqi Kurdistan, more than 75% of Sunnis and Shi'ites alike are certain Washington wants to set up permanent military bases; this roughly equals the bulk of the population in favor of continued attacks against US troops.

Furthermore, Sunni Arabs as a whole as well as the Sadrists are united in infinite suspicion of the key Bush-mandated "benchmark": the eventual approval by the Iraqi Parliament of a new oil law which would in fact de-nationalize the Iraqi oil industry and open it to Big Oil. Iraqi public opinion as a whole is also suspicious of what the Bush administration wants to extract from the cornered, battered Nuri al-Maliki government: full immunity from Iraqi law not only for US troops but for US civilian contractors as well. The empire seems to be oblivious to history: that was exactly one of ayatollah Ruhollah Khomeini's most popular reasons to dethrone the Shah of Iran in 1979.

Too many fish in the sea
It's impossible to overestimate the widespread anger in Baghdad, among Sunnis and Shi'ites alike, for what has essentially been the balkanization of the city as negotiated by US commanders with a rash of militias; the occupiers after all are only one more militia among many, although better equipped. Now there are insistent rumors - again - in Baghdad that the occupation, allied with the government-sanctioned Badr Organization - is preparing an anti-Sadrist blitzkrieg in oil-rich Basra.

The daily horror in Iraq has all but been erased from US corporate media narrative. But in Baghdad, now virtually a Shi'ite city like Shiraz, Salafi-jihadi suicide bombers continue to attack Shi'ite markets or funerals - especially in mixed neighborhoods, even those only across the Tigris from the Green Zone. Sectarian militias - although theoretical allies of the occupation, paid in US dollars in cash - continue to pursue their own ethnic cleansing agenda. And the "surge" continues to privilege air strikes which inevitably produce scores of civilian "collateral damage".

The Sunni Arab resistance continues to be the "fish" offered protection by the "sea" of the civilian population. All during the "surge", the Sunni Arab guerrillas always kept moving - from west Baghdad to Diyala, Salahuddin, Nineveh and Kirkuk provinces and even to the northern part of Babil province. After the collapse of fuel imports from Turkey used to drive the Iraqi power grid, Baghdad and other Iraqi major cities are most of the time mired in darkness. Fuel shortages are the norm. In addition, the Sunni Arab resistance makes sure sabotage of electricity towers and stations remains endemic.

Contrary to Iraqi government propaganda, only very few among the at least 1 million Iraqis exiled in Syria since the beginning of the "surge" - mostly white-collar middle class - have come back. They are Sunni and Shi'ite alike. People - mostly Sunni - are still fleeing the country. The Shi'ite urban middle class fears there will inevitably be a push by the Sunni Arab resistance - supported and financed by the ultra-wealthy Sunni Gulf monarchies - to "recapture" Baghdad. This includes of course the hundreds of thousands of Baghdad Sunnis forced to abandon their city because of the "surge".

As for the Sadrists, they are convinced the 80,000-strong Sunni Arab "Awakening Councils" - al-Sahwah, in Arabic - gathered in Anbar province are de facto militias biding their time and practicing for the big push. It's fair to assume thousands still keep tight connections with the Salafi-jihadis (including most of all al-Qaeda in the Land of the Two Rivers) they are now supposedly fighting.

Considering the sectarian record of the US-backed Maliki government - which, as well as the Sadrists, considers the Awakening Councils as US-financed Sunni militias - there's no chance they will be incorporated into the Iraqi army or police.

One of the Awakening Council leaders, Abu Marouf, a Saddam Hussein "security officer" before the 2003 invasion and then a commander of the influential Sunni Arab guerrilla group the 1920 Revolutionary Brigades, all but admitted to The Independent's Patrick Cockburn the consequences will be dire if they are not seen to be part of the so-called "reconciliation" process. All this amounts to a certainty: a new battle of Baghdad is all but inevitable, and could happen in 2008.

Occupied of the world, unite
As the occupation/quagmire slouches towards its fifth year, it's obvious the US cannot possibly "win" the Iraqi war - either on a military or political level - as Republican presidential pre-candidate John McCain insists. Sources in Baghdad tell Asia Times Online if not in 2008, by 2009 the post-"surge" Sunni Arab resistance is set to unleash a new national, anti-sectarian, anti-religion-linked-to-politics offensive bound to seal what an overwhelming majority of Iraqis consider the "ideological and cultural" US defeat.

Already now a crucial Sunni-Shi'ite nationalist 12-party coalition is emerging - oblivious to US designs and divorced from the US-backed parties in power (the Shi'ite SIIC and Da'wa and the two main Kurdish parties - the Kurdish Patriotic Union of Kurdistan and the Kurdistan Democratic Party ). They have already established a consensus in three key themes: no privatization of the Iraqi oil industry, either via the new oil law or via dodgy deals signed by the Kurds; no breakup of Iraq via a Kurdish state (which implies no Kurdish takeover of Kirkuk); and an end to the civil war.
The 12-party coalition includes almost all Sunni parties, the Sadrists, the Fadhila party, a dissidence of Da'awa and the independents in the Iraqi Parliament. And they want as many factions as possible of the Sunni Arab resistance on board - including the crucial tribal leaders of Awakening.

The ultimate success of this coalition in great measure should be attributed to negotiations led by Muqtada al-Sadr. The Sadrists are betting on parliamentary elections in 2009, when they sense they may reach a non-sectarian, nationalist-based majority to form a government. This would definitely bury Iraq's Defense Minister Abdul Qader Mohammed Jassim's recent estimate that a "significant" number of US troops would have to remain in Iraq at least for another 10 years, until 2018.

Even barring a possible Dr Strangelove-like attack on Iran, Bush is set to leave to Obama or Clinton, apart from a nearly $10 trillion black hole, a lost war in Afghanistan, total chaos in Pakistan, an open wound in Gaza, a virtual civil war in Lebanon and the heart of darkness of Iraq.

Both Obama - still unwilling to defend progressive ideas on progressive grounds - and drowning-in-platitudes Clinton owe it to US and world public opinion to start detailing, in "the fierce urgency of now", how they realistically plan to confront such a state of (dis)union.

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007). He may be reached at pepeasia@yahoo.com.

(Copyright 2008 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

No marx tonite.

Hey, I'm staying in tonight, Tuesday night. Be back in force next week fo sure.

Meanwhile, check out some crazy videos on the web. I mean like anything, it's all good. Try youtube, or metacafe. that's the stuff.

Medically unfit troops sent into battle

Is our military in such bad shape that we really need to be sending soldiers who are medically unfit to carry out their missions into a war-zone? This is despicable.

Report: Troops to war despite broken leg, torn rotator cuffs

The Associated Press
Posted : Thursday Jan 17, 2008 11:45:49 EST

DENVER — Soldiers who were medically unfit or considered borderline have been sent to the Middle East to meet Army goals for “deployable strength,” The Denver Post reported Thursday.

Quoting internal Army e-mails and a Fort Carson soldier, the newspaper said that more than 50 troops were deployed to Kuwait en route to Iraq while they were still getting medical treatment for various conditions. At least two have been sent home.

Capt. Scot Tebo, the surgeon for Fort Carson’s 3rd Brigade Combat Team, wrote in an e-mail obtained by the newspaper that “We have been having issues reaching deployable strength, and thus have been taking along some borderline soldiers who we would otherwise have left behind for continued treatment.”

Master Sgt. Denny Nelson said he was sent to Kuwait last month despite a severe foot injury. He was sent back to Fort Carson after a military doctor in Kuwait wrote that he never should have been shipped out.

Maj. Harvinder Singh, the 3rd Brigade Combat Team’s rear detachment commander, said he did not believe medically unfit soldiers have been sent to Iraq. He said soldiers with medical problems are deployed only if they can be assigned to light-duty jobs and if medical services are available at their destinations.

Fort Carson spokeswoman Dee McNutt said she knew of no Army policy defining “deployable strength” levels that Army commanders must meet.

Singh said commanders have goals, “but there is no repercussion if you don’t hit that goal.”

Nelson, a 19-year Army veteran who was given the Bronze Star, said he fractured his leg and destroyed tendons in his feet while jumping on his daughter’s trampoline.

He said he was sent to Kuwait last month even though Fort Carson doctors ordered that he not run, jump or carry more than 20 pounds for three months.

Nelson said two other soldiers were deployed with torn rotator cuffs, another was deployed even though he was taking morphine for nerve damage and another had mental health issues.

Nelson said the soldier with nerve damage was sent home after medical staff at a clinic in Iraq turned down his request for more pain medication.

Nelson said that while he was in Kuwait he was told by superiors he would be in charge of 52 soldiers who were receiving medical treatment.

“I expected to find a whole bunch of people, but when I got there, they were all gone. They were already all in Iraq,” Nelson said.

Singh said those soldiers would have received medical treatment in Iraq.

Nelson was sent back to the U.S. after a physician in Kuwait, Maj. Thomas Schymanski, sent Fort Carson officials an e-mail saying, “This soldier should NOT have even left [the continental United States] ... In his current state, he is not full mission capable and in his current condition is a risk to further injury to himself, others and his unit.”

Nelson said he feared he would be a liability to fellow soldiers because of his inability to carry full combat gear.

“I’m not going to Iraq not being able to wear any of my gear, not carry a weapon,” he said. “I become a liability to everybody around me because if they get mortared, they’re going to have to look out for me because obviously, I can’t run. I can’t look out for myself. Now I’ve got soldiers worrying about my welfare, instead of their own.”

Tell Bill O'Reilly he's wrong about homeless veterans

Bill claims the Department of Veterans Affairs is wrong to say there are 200,000 homeless veterans on any given night in the USA. Submit the letter and let him know how these people have been overlooked and discarded by the country they so selflessly served. Thank You!

read more | digg story

Sir Edmund Hillary RIP 1919-2008

Wow, rip aged explorer dude. Are there any explorers left in the world any more? Is that still a viable profession these days? Where can I buy a pith helmet?

Sir Edmund Hillary dies
Stuff.co.nz | Friday, 11 January 2008

Sir Edmund Hillary, who was born in Auckland on July 20, 1919, died aged 88 at Auckland City Hospital at 9am today, the Auckland District Health Board said.

The New Zealand flag will be flown at half-mast on all Government and public buildings from today until midnight Saturday to mark Sir Ed's death. Flags will also be flown at half-mast on the day of his funeral, the date of which is to be confirmed.

Announcing Sir Ed's death, Prime Minister Helen Clark said his passing was a profound loss to New Zealand.

"My thoughts are with Lady Hillary, Sir Edmund's children, wider family, and close friends at this sad time," Miss Clark said.

Miss Clark said Sir Ed always described himself as an average New Zealander.

"In reality, he was a colossus. He was an heroic figure who not only knocked off Everest but lived a life of determination, humility, and generosity."

Sir Ed's 1953 ascent of Mt Everest brought him world-wide fame and Miss Clark said the legendary mountaineer was the best-known New Zealander ever to have lived.

"But most of all he was a quintessential Kiwi. He was ours - from his craggy appearance and laconic style to his directness and honesty. All New Zealanders will deeply mourn his passing."

Miss Clark said Sir Ed had not basked idly in celebrity, drawing on his international prestige to highlight issues and values which he held dear.

She paid tribute to Sir Ed's humanitarian work with the Sherpa people of the Himalayas.

He established the Himalayan Trust in the early 1960s and worked tirelessly until his death to raise funds and build schools and hospitals in the mountains.

" The legacy of Sir Edmund Hillary will live on. His exploits continue to inspire new generations of New Zealanders, as they have for more than half a century already," Miss Clark said.

New Zealand's cricket team will wear black arm bands and observe a minute's silence along with the crowd before play starts on day one of the second test against Bangladesh at the Basin Reserve in Wellington tomorrow.

- with NZPA

Guitar hero turntable?!?

HAPPY NEW YEAR

hey All,

I'll be at Marx cafe tonight, don't know if I'm playing. The owner gave every other Tuesday to a pair of BritPop dj's, and I'm not sure if this is an on tuesday or an off tuesday as it were. I'm not to happy about that, but we'll see how long they last.

So, I'll be there around 9 either way. Seeya!

-Matt