From: "Catherine Austin Fitts" <[EMAIL PROTECTED]> Linda Minor rightly pointed out to me yesterday that derivatives are definitely a part of what is happening in the mortgage banking financial fraud and money laundering. She is absolutely right. What does this have to do with CIA-DRUGS? Several things. A lot of the mortgages are in the same neighborhood.... Let me give you a possible scenario. A woman lives in public housing. Her 16 year old daughter ends up in jail after a phony bust where an informant planted drugs on her. The bust comes through an HUD Operation Safe Home swat in which the woman believe that the local DC police have arrested her daughter. HUD then has the woman evicted because of her daughter being "associated" with drugs even though the woman has no knowledge. The woman spends what little money she has paying for dealing with visiting her daughter out of state (transportation, staying at the Super 8)and paying for the collect phone calls. Meantime, the drugs planted on her daughter head back out on the streets for sale to profit the informant, the money goes into a mortgage banking operation that funds a no document, no deposit FHA/HUD insured loan for the purchase of a single family home for the woman's son who works as an orderly at the local FHA financed nursing home affiliated with the local FHA financed hospital. One of the informants working in the neighborhood arrange for him to be fired (all the nursing home subsidy is HHS and HUD and it is managed by an asset manager who has to play ball or else they get an enforcement action on their heads), he defaults on the mortgage, the mortgage banker collects 99% on the dollar (meantime notice that he is only losing 1% to launder...and he got the upfront fees) and then HUD forecloses on the mortgage (no loan sales) and that means that the mortgage files can be destroyed. The property sits in inventory at HUD, at which point the same game can be played again. Several years ago, I told the guys at FHA that they could never make their volume targets unless everyone in a poor neighborhood refinanced twice a year, including the people in jail. I meant it as a joke. I did not realize that they were putting in place a system that indeed could do that. One of the great parts of the system is that you can use it to turnover your retail network in poor neighborhoods. Just like we would send all the kids back to business school at Dillon Read, here you can arrange for your bright young entrepreneurs to go to jail the day they get smart. Another beauty is you can batch up the mortgage and create mortgage backed securities that you then use to cancel corporate taxes. The beauty of that is that then the woman and her son have to keep working to pay 100% of the taxes that pay for the enforcement operations that manage and process them and their family. Indeed in Washington, DC it helps pay for the tax credit that is now offered for first time homebuyers. But the best part is the picture that Andrew Cuomo takes in the neighborhood with all the folks who get no doc no down payment loans saying that he cares about poor people and is making it possible for them to become homeowners. As does Department of Justice covert operations who thanks to their control of enforcement of HUD are having a pig fest in the mortgage banking money laundering operations. Which is why Andrew Cuomo and Lee Radek hate people and thinks they are really stupid. We love the people killing us. Question for us is there a clean team left in the FBI or DOJ that would like to make billions playing the game in reverse? Uri Dowbenko's latest article on derivatives below. -----Original Message----- From: uri dowbenko [mailto:[EMAIL PROTECTED]] Sent: Wednesday, March 01, 2000 1:29 AM To: [EMAIL PROTECTED]; Katrina Moore; [EMAIL PROTECTED]; [EMAIL PROTECTED]; Catherine Austin Fitts Cc: Michael J. McManus Subject: Re: FW: Mortgage-Backed Securities: Derivative Products 'Boiler Room': Reach Out & Scam Someone by Uri Dowbenko "Boiler room" is slang for a telemarketing company that sells some kind of bogus product, in this case, fraudulent or even non-existent stocks. Written and directed by Jeff Younger, "Boiler Room" is a high energy movie set in a Long Island securities firm called JT Marlin. The similarity to the better known JP Morgan is deliberate. It's a ruse to lure the hapless suckers into buying stock with complete confidence. (Note: JT Marlin also happens to be the real-life name of the filmmaker's former boss, manager at the New York Comptroller's office, who sued New Line Cinema and later made an out of court settlement.) Seth Davis (Jonathan Ribisi) runs a successful casino in his apartment, a 24 hour/7 day a week operation, when he's approached to work at the shady brokerage firm. His father (Ron Rifkin) is a judge who constantly disparages his son's life. The father-son relationship is fractured seemingly beyond repair. "What relationship?" the father asks. "I"m not your girlfriend. Relationships are your mother's shtick. I'm your father." When Seth gets initiated into the firm, Jim (Ben Affleck) does the snarling Alec Baldwin routine from the brutal sensory asssult by David Mamet called "Glengarry Glen Ross." Jim berates the new recruits, attacks their manhood, and taunts them with the keys to his Ferrari. For fun, they memorize the lines from "Wall Street"-when they're not getting drunk and fighting with other. The senior brokers are Chris (Vin Diesel), a Gen-X millionaire with a Nazi death camp survivor haircut and Greg (Nicky Katt), who looks like a younger version of actor Peter Gallagher. Their amusing back-and-forth, anti-Jewish, anti-Italian tirades sound like the real deal. Then Seth starts going out with receptionist Abby (Nia Long), and the film takes a romantic detour which actually puts a little heart into this hard-edged saga of twenty-something hustlers. For a real-life look at real-life scammers-read "F.I.A.S.C.O., Blood in the Water on Wall Street" by Frank Partnoy. This first-hand account of derivatives traders at the investment banking firm Morgan Stanley makes the Boiler Room guys look like pikers, mere amateurs in a field of professional global-minded sharks. In other words, if you think gambling inVegas is fun and you have a couple million to play with, you'd love derivatives. Imagine-if you will-the most exotic, high-stakes financial instruments in the world-so exotic you need a computer model to figure out if you made money or if you lost your shirt. And even then you can't be sure . Sound like fun? Former Wall Street salesman Frank Partnoy thought so. He was a derivatives trader who joined Morgan Stanley in 1994 at age 27. His delirious account of high finance hijinks is one of the most informative, entertaining-and horrific-books you could read. The book's title refers to Morgan Stanley's annual clay pigeon shooting trip known as the "Fixed Income Annual Sporting Clays Outing." Think Animal House on Wall Street -- selling securities to clueless chumps who incidentally run big investment funds. These securities are so toxic the brokers themselves call them"nuclear waste." Partnoy, who worked at Morgan Stanley's Derivative Products Group, says they took in about $1 billion in fees from 1993 to 1995, selling the ultra-risky highly- complex securities called derivatives. So what are derivatives? They're typically government bonds that haven't thrown off any interest since, say, 1850. The bonds are repackaged, renamed, and resold to investors who typically don't have a clue. The traders called them "crap cake with chocolate icing." That was one of the more favorable terms. And who buys these high risk securities? In one section of the book, Partnoy engages in a guessing game with one of the salesmen. "Is it Quantum? (the largest hedge fund in the world started by financier George Soros)." "No way. Are you kidding me?" "How about mutual funds?" "Nope." "Commercial banks?" "No. Look, I'm not going to tell you any names, but if I tell you who the main categories of buyers are, will you leave me alone?" "OK. I could badger him for names later. He said state pension funds and insurance companies." "What? I was shocked. He just smiled." "He said state pension funds were among the biggest buyers of structured notes of which this Thai trade was but one example. Generally the list of structured note buyers included the State of Wisconsin and several counties in California including Orange County although the salesman noted that this Thai trade was small and unusual and that state pension funds and insurance companies typically bought other types of structured notes." Whoah. Monte Carlo looks tame in comparison, right? Partnoy's book makes esoteric financial instruments easy to understand, as he explains the potential financial disaster that could cascade from some bad bets in the global casino. Bad bettors, by the way, include the hopelessly outclassed Robert Citron, who gambled Orange County finances straight into bankruptcy. There's also the story of Nick Leeson, the young trader who gambled the British establishment Barings Bank into oblivion. And don't forget monster losses at Gibson Greetings, Dell Computer and Procter & Gamble. Also, if you remember, there was the infamous Mexican peso crisis. Here's what Partnoy writes about the so-called Peso Swaps. "When a bank borrowed money and bought a bond, those positions appeared on the bank's balance sheet which had a cost. The borrowing was a liability and the bond was an asset. International banking regulations require that banks maintain certain minimum capital levels based on their balance sheet assets and liabilities. If those assets and liablilities increase, the bank needs more capital to guard against a loss..." "Peso swaps let Mexican banks increase their bets while avoiding these costs and regulations. Banks loved swaps because unlike loans or other forms of borrowing, swaps would not appear on the bank's balance sheets. Therefore they were not subject to capital requirements or other regulations. In other words from a balance sheet perspective, Peso Swaps were free." Neat trick, huh? Then there are Equity Swaps, which according to Partnoy are "one reason why US corporations paid essentially zero capital gains taxes." You'll learn how Wall Streeet invents new "products" based on rating agency chicanery. AAA credit ratings can be bought if the price is right. You'll learn new acronyms like RAV's (Repackaged Asset Vehicles) and PERLS (Principle Exchange Rate Linked Securities). Also thereUs ageless wisdom about sales, like, "If a bond cannot be sold with two hockey tickets and a good bottle of wine, the bond cannot be sold." As far as kiss and tell stories go, "F.I.A.S.C.O." makes Mike Milken's Predators Ball look like a Boy Scout picnic. It's great reading and as fascinating as watching a train wreck. Partnoy's cynical tone is dark comedy at its best. You'll laugh out loud. You'll cringe. You'll shake your head in disbelief at these amazing true stories from Wall Street. Woody Allen used to say that a stockbroker is someone who takes all your money and invests it. Until it's gone. In the case of derivatives, the joke is that it's not just your money. It's assets from company pension funds. State and county assets. The list goes on and on. Who knows who else has bought these derivative time bombs? As all good gamblers say, read 'em and weep. The parallels between gambling and stock trading should be obvious. While "Boiler Room" takes pot shots at penny stock broker types, "FIASCO" delivers the dirt on the highly leveraged scams of "investment bankers" in the Global Casino. "Boiler Room" is a realistic hard-boiled look at the high pressure lives of high pressure salesmen. Crackling with intensity, the film peers behind the curtain of greed. Make your first million before you're thirty. Or else... Copyright 2000 Uri Dowbenko Uri Dowbenko can be reached by e-mail at [EMAIL PROTECTED] MailCity. Secure Email Anywhere, Anytime! http://www.mailcity.com ------------------------------------------------------------------------ Learn more with SmartPlanet. It's a new way of learning online. SmartPlanet offers hundreds of courses to take on your time, in your space. Join for FREE today! http://click.egroups.com/1/1703/2/_/475667/_/951928775/ ------------------------------------------------------------------------
