From Volume 37, Issue 48 of EIR Online, Published Dec. 10, 2010

U.S. Economic/Financial News

Pittsburgh Lawsuit May Open Pandora's Box Full of Mortgage Securities Fraud

Dec. 4 (EIRNS)—Recently, a Pennsylvania judge refused to dismiss certain claims in a lawsuit filed by the Federal Home Loan Bank (FHLB) of Pittsburgh against JPMorgan Chase and Countrywide Financial (now owned by Bank of America). The suit alleges that JPMorgan and Countrywide provided incomplete and inaccurate information about the risks associated with $2.8 billion in mortgage-backed securities (MBS) that they had sold to FHLB, which FHLB is now demanding be bought back by the sellers. There is a tidal wave of such MBS "buy-back" demands across the country facing the fraudsters.

While the judge sided with the defendants (including the major ratings firms) on some of the bank's claims, he let stand the claim of fraudulent misrepresentation. "I cannot conclude that the information and warnings in the offering statements bar plaintiff's misrepresentation claims," wrote Judge R. Stanton Wettick Jr. in the Nov. 29 opinion. The bank claims it would not have bought the bonds if JPMorgan, which sold them, and the ratings companies, had provided complete and accurate information regarding the risks of nonpayment, the judge said in his description of the complaint.

This suit, and others that the Federal Home Loan Banks of Seattle, Chicago, San Francisco, and Indianapolis are also pressing, has the potential to unravel the entire mortgage scam, since the entire mortgage market was, and is, based on just such fraudulent misrepresentation.

Collapse Doesn't Produce Jobs; Economists Are Surprised

Dec. 3 (EIRNS)—After "business economists" across the board forecast that the U.S. economy would grow by a net 150,000 jobs in November, the Labor Department estimated in its report today that it was only 39,000—and of those, 34,000 were "virtual" jobs, imputed by the Department's computers, and thus probably don't exist.

The government reported that public-sector employment fell by another 11,000 jobs, as a result of primarily state and city cutbacks, while private employers supposedly added 50,000 jobs (most of them probably the fictitious creations noted above). It was a miserable report, showing again that in an economic collapse, money-printing for the stock market doesn't add up to employment.

The official unemployment rate rose to 9.8%, from 9.6% in November. The employment/population ratio fell another .2% to a record low 58.1%. Real unemployment/underemployment is well over 30 million, and more than 500,000 Americans have dropped out of the labor force since September.

The Labor Department's "Household Survey" gave a grim picture again in November. It estimated that actual unemployment grew by 276,000, employment fell by 172,000, and another 82,000 Americans dropped out of the labor force in discouragement. During, roughly, Barack Obama's second year in office (November 2009-November 2010), the number of officially unemployed, and employed, have each stayed about the same; but the number of Americans dropped out of the labor force has jumped by 1.7 million in those 12 months.

Another AIG Shell-Game Exposed by Federal Reserve Disclosures

Dec. 2 (EIRNS)—New details on the AIG bailout from Federal Reserve documents reveal that 11 of AIG's life insurance units had been letting hedge funds and other traders borrow securities from their investment portfolios. Instead of keeping the collateral, AIG sought higher yields by reinvesting it in mortgage-backed securities. This was all conducted entirely off the balance sheet by insurers in half a dozen states.

When the value of the mortgage-backed securities plunged in Sept. 2008, AIG and its insurance units did not have the resources they needed to settle with those who had borrowed their securities.

Forty percent of the money that the Fed lent to AIG was tied to this. The Fed lent AIG $20.5 billion in cash just to settle those mortgage-backed securities trades. As collateral, the Fed took about $24 billion of the insurance companies assets. This was illegal since insurance assets are held to secure policyholders' claims and are not supposed to be encumbered or pledged.

In light of this disclosure, the Dec. 2 Wall Street Journal lead editorial, "The Fed's Bailout Files," reports that members of the Federal Reserve had presented to Treasury Secretary Ben Bernanke a memo opposing a bailout, which the Fed continues to resist disclosing. The editorial reads in part: "Why did Messrs. Geithner and Bernanke insist on bailing out AIG, despite apparent resistance within the Fed? The central bank still refuses to release a memo to Mr. Bernanke from the Fed staff, which Senator Jim Bunning has said made the case that an AIG bankruptcy was not a systemic risk. The Fed and other regulators have continued to stonewall document requests on these cases...."

All rights reserved © 2010 EIRNS