By Karl Denninger, The Market Ticker

I’m not particularly happy about this report, although the “street reaction” was that it was “pretty much as expected.”

I note with some curiosity that the apparent math error from last month has not been revised out – it’s still there (housing.)  This month’s computation, at first blush, looks ok.

The nastiness inside the report comes from the fact that medical care inflation is alive and well, running 1/2% month-on-month.  This is the second month straight of that, which is well beyond the annualized 3.6% being claimed.  If it continues, things get very interesting, especially given Obama’s Health Care “reform” push.

Offsetting this is a material drop in rent, which is definitely not a bad thing from the consumer’s perspective.  Of course government-provided “gotta buy ‘em” services (water and sewer) are up materially.  Fortunately they’re not a huge part of the equation.

All-in-all the report is pretty benign, but one has to wonder on the health care issues – is that people jacking prices ahead of Obama’s “proposals”?  Naw, nobody would ever do something like that…. would they?

More articles from the Market Ticker….

Mark Thoma submits:

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AP broke the big news — better be sitting down: “During the 2003-06 boom, the three agencies that supervise most U.S. banks – the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency – gave out at least $19 million in bonuses”

Oh my god! oh my god! Just think, the money used to pay bonuses at these three agencies over this three year period would have been almost enough to pay the one-year bonus of a single top performer at Goldman or AIG. What an incredible waste of taxpayer dollars.

It is understandable that AP would look into this issue, but responsible people there should have quickly realized that there is nothing here. We have all sorts of incompetents running the regulatory agencies (starting with Federal Reserve Board Chairman Ben Bernanke), and we should certainly be asking about whether they deserve their paychecks, but the money at issue with these bonuses is far too trivial to waste anyone’s time with.

–Dean Baker

Read more….

Zero Hedge

Going through today’s pertinent Q&A with Bernanke, initially we focus on Fed nemesis #1, Ron Paul. First question of relevance: “Do you Mr. Bernanke think that rates were hold too low for too long?” The degree of Fed delusion is easily seen by the response: “the bottom line is nobody really knows for sure, but the evidence is quite mixed.” Obviously the bald one has never attempted to sell a home in the Inland Empire. The evidence sure would be a little less mixed in that case. But at least Bubble Ben has given a speech on it (which incidentally caused John Taylor to almost have a conniption against the stupidity of the Fed’s chairman). Yet just in case you thought the man may have at least one screw unloose in his voluminous cranial hollow, Bernanke opens his mouth and says “Even if rates were too low for too long, the magnitude of the error was not big enough to account for the huge crisis we had. I think what caused the crisis was a failure in regulation.”…..And this is the man who determines monetary policy….Only now do we find out he has never actually ever opened an Econ 101 textbook, instead opting to go straight to writing them. Luckily Ron Paul proceeds to give the Princeton “expert” a much needed lesson in monetarism, and what happens when rates are zero for far too long.

To be expected, Bernanke certainly did not appreciate being schooled in Econ 101. After Paul rips Bernanke’s face off with the Chairman’s constant excuse that regulation is the answer to everything, arguing instead that artificially low rates merely send constantly flawed price signals, Bernanke retorts “Well you need some system to set the money supply. I guess you are a gold standard supporter.” At this point Paul gives the most priceless response ever: “I am for the constitution.” (4:50 into the clip)… A flabbergasted Bernanke again proceeds to cast the blame… This time everywhere but the Fed: “Every major country in the world uses a Central bank to make some decision about the money supply.” We ask the philosophy experts among our readers to tell us just what type of fallacy this is. Ron Paul once again has a brilliant response: “Then there is no good information for the investor unfortunately.” What are you talking about Ron – there is Cramer. At least until such time as his particular regulators wake up… Which they seem to have done so today finally.

Next up, California’s Brad Sherman asks the current-former Fed Chief duo the following runner up to the most critical question of the day: “Bureaucracies hate bad headlines, they’ll often do desperate things behind the scenes to avoid that big headline from breaking. Prudential regulators are going to get bad headlines if a big institution fails, particularly under some circumstances, and if they can prevent that failure, if they can just put it off for six months, their reputations and careers can be saved. Monetary policy, just cutting the interest rate by quarter point can save a troubled institution. So how can we be sure that monetary policy is not influenced by the natural human desire of bank supervisors, to save one or two institutions, for at least long enough for them to move over to another department. How do we make sure that monetary policy does not meet the career needs of bank supervisors?” And the token bullshit response from the follicularly confused one: “I don’t think that’s a very realistic scenario.” Oh really? We think it is, and in fact we think that the probability of influence on monetary policy arising from this line of thinking is much, much greater than all that other BS we have been hearing about how an audit will make the Fed become an engine of hyperinflation, the argument that Barney Frank, Chris Dodd, Mel Watt and all the other bought and paid for Wall Street cronies are using to prevent Ron Paul’s audit the Fed initiative from ever passing. Bernanke elaborates on what one day will be an amusing case study: “I suspect the Central Bank Chairman will be around and concerned about his or her reputation when the economy has excessive inflation or whatever problem might arise from bad interest rate policy. I don’t think there is much evidence for that particular issue.” How about the issue that every reputation can be bought and paid for by someone with a big suitcase full of brand new $100 trillion bills, with a portrait of Supreme Chancellor Blankfein on the front? This is post the hyperinflation – certainly the Central Bank chairman will not be dumb enough to want to be paid in Pre-Petition money.

Yet of all questioners, Rep. Scott Garrett asks the truly most relevant questions of the day. First among them: “Are the GSE obligations sovereign debt?” Bernanke’s response: “We stand behind it, but whether it is legally sovereign debt or not, I am not equipped to tell you.” Same thing from Volcker, who adds that it is a “bad arrangement where you have this quasi private organization and the government stands behind it.” So not even the wannabe uber regulator knows how to account for an amount equal to half of the total US Federal Debt. Swell.

On Lehman Garrett asks “The Fed was there on scene, your folks were there at Lehman’s. Was the Fed aware of the Repo 105 and the accounting irregularities going on?” Bernanke answers “No – they were hidden. We are currently, for example, the principal regulator of Goldman Sachs, and we have about a dozen people on site, and another dozen who are looking at the company. We had in this case two people assigned to Lehman. And their main obligation was to make sure we get paid back our loans…. Our objective on the discount window loan was to make sure it was safe and they were safe.“

Now parse the last few sentences carefully. Not only does the Fed admit that it is and was in the Fed’s interest to delegate manpower to make sure that Goldman is fine (in an agent ratio of 6-to-1 “scouring” over Goldman’s books), but Bernanke blatantly contradicts himself when claiming the reason for the presence of the Fed’s entourage. If the Fed was indeed so focused on recouping its discount window borrowings, then how on earth did Geithner green light that Lehman would be allowed to deposit a nearly $3 billion  CDO, which contained loans by CFC, which after a cursory look Citigroup determined was “Bottom of the barrel” and “junk”? What is the basis of this dual standard – why does the Fed pretend to be concerned with safeguarding taxpayer money (with which Bernanke justifies its minimalist presence at Lehman) when it comes from the Discount Window yet is happy to collateralize “junk” paper in the Primary Dealer Credit Facility? Is whoever was in charge of the Lehman account at the FRBNY some schizophrenic (and please let it not be discovered that the person in charge was, just like in AIG’s case, again Steven Manzari)? And why does the Fed believe it has any credibility as an uber-regulator when it constantly fails a less than uber-one?

In earlier questioning by Spencer Bacchus, Bernanke answered that the only reason why the Fed had a “couple” of people in the company, was to make sure that Lehman “repaid the money lent by the Fed’s Primary Dealer Credit Facility.” Yet the Fed had lent out money, as noted above, collateralized by, well, excrement. Once again that is a truly “brilliant” overture by a wannabe regulator of all that has a dollar sign in front of it. 

Bernanke digs himself even deeper. When explaining why the FRBNY got paid back, BB says “we took collateral and we took extra large haircuts to make sure it was safe.” Oh… so now you care about getting paid back. Was it, perhaps, under the guidance of one Goldman Sachs, who may have at this point decided it was time to rid the world of the pesky Lehman Brothers that made you start enforcing legitimate collateral controls?

Then Garrett asks the key question: “In light of these reports is this something that we should be concerned about? Is activity at these other [banks such as Goldman] is that something that (a) we should be concerned about and (b) something the Fed should be concerned about and are you looking into it.” Bernanke’s retort “[the banks] are now under our consolidated supervision, so we are now paying attention to these issues.” That’s the non-answer. As to the answer of whether the Fed is looking at whether shady accounting is going on or was going on in the past, Bernanke’s version of the Fifth is as follows: “I don’t know. This report just came out this week.” In other words if Peck had not agreed to declassify Valukas’ report, if there was no pressure to put the Examiner’s report in the public domain the Fed would never have expressed any interest into just what kind of shady accounting goes on to mask the Tier 1 and Risk Based Capital of the banks under its supervision, and that leverage ratios by most of the banks it supervises are likely complete shams?

A relentless Garrett keep probing: to the NJ representative’s question whether the Fed demanded that Lehman’s regulator (whoever it may be since it was not the Fed, even though the Fed had implemented three separate liquidity stress tests, of which Lehman failed every single one) require that Lehman raise its liquidity, Bernanke once again gets an acute case of amnesia: “I don’t have the exact information that you are asking.” So once again the Fed proves that the only thing it can regulate is the bribery sinking fund at Goldman et al with direct recipient Federal Reserve governors. Everything else will just fall into place once yet more of Goldman’s competitors are done away with, and Goldman (and JPM, of course, can’t forget Fed, Jr), are left standing as the only two financial firms in the known universe. And this is the Fed that lame duck and financially supremely challenged Chris Dodd wants to put in charge of regulating everything in this country? If that really ends up happening, we are so #&$*ed… but not before Goldman funnels all of Americas’ money into its Middle-Class Irredeemable Negative Interest Rate All-market Fund SIV.

More articles from Zero Hedge….

SEOUL, South Korea — North Korea executed a former senior official last week as punishment for the country’s botched currency reform, a news report said Thursday.

In November, North Korea redenominated its currency as part of efforts to lower inflation and reassert control over the country’s nascent market economy. However, the measure reportedly worsened the country’s food situation by forcing the closure of markets and sparked anger among many North Koreans left with piles of worthless bills.

Pak Nam Gi, the ruling Workers’ Party finance and planning department chief who spearheaded the currency reform, was executed by a firing squad in Pyongyang last week, South Korea’s Yonhap news agency reported, citing unidentified sources.

Pak was accused of ruining the nation’s economy in a blunder that also damaged public opinion and had a negative impact on leader Kim Jong Il’s plan to hand power over to his youngest son, Yonhap said.

Citing its sources, Yonhap said many North Koreans believe the government used Pak as a scapegoat for the failed currency reform.

Park Sang-hak, a North Korean defector in Seoul who is a key organizer of a campaign to send anti-government leaflets into the North, said a contact there told him in a recent telephone conversation that there were rumors Pak Nam Gi was either executed or sent to a political prison.

Despite tough restrictions, some North Koreans are able to communicate with the outside world using Chinese cell phone networks, according to defectors.

North Korea has reopened hundreds of markets since the botched reform, but the prices of the few goods available have continued to rise, according to Lee Seung-yong, an official of Good Friends, a Buddhist-affiliated group that sends food and other aid to the North.

South Korea’s Unification Ministry and National Intelligence Service – its main spy agency – said they could not confirm Pak’s reported execution.

Pak was last mentioned by the North’s official Korean Central News Agency in January when he accompanied Kim on an inspection trip. Kim sacked Pak following arguments within the country’s leadership over who should take responsibility for the currency fiasco, South Korean media reported last month.

It is not unprecedented for the communist government to execute officials for policy failures.

In the 1990s, North Korea publicly executed a top agricultural official following widespread starvation, Park said.

The North faces chronic food shortages and has relied on outside assistance to feed much of its population since a famine believed to have killed as many as 2 million people in the 1990s.

North Korea is regarded as having one of the world’s worst human rights records with public executions, camps for political prisoners and torture.

Read more….

By Karl Denninger, The Market Ticker

I know you’re not going to listen to me.

I’m going to say it anyway, because as a concerned citizen of The United States of America, I must.

You are making a grave, perhaps nation-ending mistake.

Attempting to “deem” the Health Care bill passed when it has not actually been voted on is not Constitutional.  Article 1, Section 7:

All bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.

Every Bill which shall have passed the House of Representatives and the Senate, shall, before it become a Law, be presented to the President of the United States; If he approve he shall sign it, but if not he shall return it, with his Objections to that House in which it shall have originated, who shall enter the Objections at large on their Journal, and proceed to reconsider it. If after such Reconsideration two thirds of that House shall agree to pass the Bill, it shall be sent, together with the Objections, to the other House, by which it shall likewise be reconsidered, and if approved by two thirds of that House, it shall become a Law. But in all such Cases the Votes of both Houses shall be determined by Yeas and Nays, and the Names of the Persons voting for and against the Bill shall be entered on the Journal of each House respectively. If any Bill shall not be returned by the President within ten Days (Sundays excepted) after it shall have been presented to him, the Same shall be a Law, in like Manner as if he had signed it, unless the Congress by their Adjournment prevent its Return, in which Case it shall not be a Law.

This is the black-letter law of the land. 

There are millions of Americans who are extraordinarily pissed off right now.  Some of them, like me, write scathing columns on The Internet or we rant on Talk Radio and Television (such as Judge Napolitano)

But some just smolder.  Some remember the other founding document of our Republic, The Declaration of Indpendence, which says, in part:

That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

That doesn’t sound so good.  What has tempered these people is largely what always has in all nations, that is:

Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed.

Indeed.

Neither you or I know where the line is for that cross-section of the citizens in this land.  I cannot speak for them, for I am not inclined toward the sort of actions that they are, nor do I countenance them.  As such I’m not exactly on those folks’ ”A list”.

In fact I fear the day they decide to express their disgust, for while in singular number those expressions are horrifying, as a group such actions harken to a time I hope we would never revisit in this nation.

But I do understand, and see, that they are seething in anger at what has befallen this once-great country.

They have watched as thirty years of corruption in Washington DC has turned our economy and government into a bad joke.

They have watched their jobs go overseas to a Communist Nation for the benefit of a handful of corporate oligarchs, while Washington chortles.

They have watched banksters do everything in their power to imprison them in debt, including bribing Congress to remove usury laws, “reform” bankruptcy so as to render a significant percentage of the population under effective indentured servitude (allegedly prohibited by the Constitution) while the very same banksters declare bankruptcy at the drop of a hat and stick lenders with losses, and while these very same banksters peddle fraudulent securities, cook their balance sheets and generally defraud everyone in the nation – then force the taxpayers, at gunpoint (quite literally, if you remember the fall of 2008 – you were in the room with Bernanke and Paulson when they threatened tanks in the streets) to bail them out.

Finally, they have watched Health Care turn into a monstrous mess, with cost increases of 10, 20 even 30% or more a year.  These costs are expanding at that rate because ambulance chasers like former Presidential Candidate John Edwards make millions while Congress has passed laws forcing Americans to eat the development expense for every advanced medical technology over the last 30 years.  Congress has refused to demand that medical practitioners bill everyone the same price for the same procedures and drugs.  Congress has passed laws exempting medical providers and insurers from anti-trust law, so those aggrieved cannot sue in private causes of action for these abuses.  And finally, Congress has forced all of us to eat the cost of care for illegal invaders who commit their first crime with their first step over our national boundary.  All of these abuses and more could be addressed, but none of them are in the bill you wish to advance, and that, Madame Speaker, is intentional.

But all of this, while it has been outrageous and even criminal, has been, for the most part, Constitutional.  It may be the stuff of a Banana Republic, and it may violate equal protection of the law (a founding principle and in fact a guaranteed right), but Congress has never cared about any of that in my 47 years on this planet.

Witness all the laws you, Madame Speaker and the rest of the Government (including this Health Care plan) do not have to obey while the rest of us do under pain of fine or even imprisonment.

What you propose to do now, however, is not Constitutional.

Rather than negotiate, advance and pass something like my four-point plan that would, along with dropping anti-trust protections and ending the practice of preventing reimportation of drugs and devices, attack the problem at the source, you instead are putting forward the Senate’s 2200-page monstrosity.

You are doing so because this bill is not about Health Care at all.  It is about revenue, and you know it.  It is about the fact that The Federal Government is running into a wall at warp speed trying to furiously cover up all the fraud and scams in the financial system while at the same time spending over $1.5 trillion we do not have to replace collapsed consumer demand. 

You must raise revenues, and you know it – or this ship called “The USS Treasury” sinks beneath the waves, and the first sacrifices to go overboard will be all the Seniors on Medicare and Social Security – not by choice, but by force of fiscal insolvency.

In short, this is just another Washington scam. 

But this time you’re going too far, and you’re taking a horrific risk. 

You must not, Madame Speaker. 

You must instead face this nation and tell the truth.

We cannot fund the scams and frauds any more.  Those who committed them must go to prison, even if they’re campaign contributors.

We cannot borrow 10% of our GDP and spend it forward, as the CBO projects we will try, in a futile and permanent attempt to replace consumer demand.

If we do not stop this idiocy we will soon be unable to fund Social Security, Medicare and Welfare in all its forms, leading to an immediate and critical breakdown of our society.

The mad reach for revenue, Madame Speaker, is why you’re in such a hurry – and you know damn well I’m right.

If you succeed, we will get your tax bill now and the promised health care never. 

That’s a fact.

There is a bright white line for every person in this country who has taken an oath to uphold our Constitution.  It is in different places for each of those individuals, but you had better believe it exists.

For some it will be crossed if you try to disarm Americans, as was attempted after Katrina. 

For some it will be crossed if you try to occupy their homes. 

And for some, it may be crossed if you attempt to “deem” this bill passed, when The House has not actually passed it.

I pray this evening I am wrong, and that for no material number of people – indeed, for no one person – that is where their personal line is.

But I am reasonably certain that this prayer will be offered in vain.

Therefore, the choice is yours, not mine, for all I can do in furtherance of my hopes (and abeyance of my fears) is pray. 

You, Madame Speaker, on the other hand, can act to quell this idiocy.

Or you may tempt fate, you may tempt the millions of people who have swore an oath to defend and uphold The Constitution and, having done so, went to war throughout our history.  Many of those people, along with millions more who never wore a uniform stand today in defense of that “quaint” old piece of parchment – but not in defense of you, nor any other person.

You may also provoke States to assert their long-dormant 10th Amendment rights for real, not in some quaint “one off” regarding intra-state weapons manufacturing.  That, Madame Speaker, harkens back to a time I’d rather not revisit as well.

You will almost certainly lose your Speaker’s Gavel come November, as the mortal sin against the Constitution of deeming a bill passed without actually voting on it is so inimical to a republican form of government and displays such gross arrogance that you have forfeited your right to wield that gavel by mere contemplation of the act. 

I am quite certain that I stand with millions of other Americans who are willing to put forth whatever effort is necessary to see that occurs come November – at the ballot box – whether you proceed with your abhorrent plan or not. 

But what I pray for this evening, as I complete my day and offer homage to God before retiring, is that your office, and those of your fellow Democrats who are about to violate your sacred oaths willfully, intentionally, and with malice aforethought – is all you lose.

More articles from the Market Ticker….

By Karl Denninger, The Market Ticker

Is this just words?  A glimmer of light flickers on in the dark halls of 535 fools….

Mr. President, last Thursday, the bankruptcy examiner for Lehman Brothers Holdings Inc. released a 2,200 page report about the demise of the firm and which included riveting detail on the firm’s accounting practices. That report has put in sharp relief what many of us have expected all along: that fraud and potential criminal conduct were at the heart of the financial crisis.

Exactly.  I’ve been writing about this for three years; indeed, it was recognition of fraud in large financial firms that led me to begin writing The Market Ticker.

Lehman structured its repo agreements so that the collateral was worth 105 percent of the cash it received – hence, the name “Repo 105.” As explained by the New York Times’ DealBook, “That meant that for a few days – and by the fourth quarter of 2007 that meant end-of-quarter – Lehman could shuffle off tens of billions of dollars in assets to appear more financially healthy than it really was.”

It was a little more than that.  Lehman accounted for these transactions as a sale, when in fact they were a loan.  There’s a hell of a difference between the two – in one case you remove an asset from your balance sheet and replace it with cash (and that change is permanent) and in the other you exchange an asset for a liability, and the net impact on your balance sheet is in fact negative, not positive (since you must pay interest on a loan.)

First, we must undo the damage done by decades of deregulation. That damage includes financial institutions that are “too big to manage and too big to regulate” (as former FDIC Chairman Bill Isaac has called them), a “wild west” attitude on Wall Street, and colossal failures by accountants and lawyers who misunderstand or disregard their role as gatekeepers. The rule of law depends in part on manageably-sized institutions, participants interested in following the law, and gatekeepers motivated by more than a paycheck from their clients.

Second, we must concentrate law enforcement and regulatory resources on restoring the rule of law to Wall Street. We must treat financial crimes with the same gravity as other crimes, because the price of inaction and a failure to deter future misconduct is enormous.

Third, we must help regulators and other gatekeepers not only by demanding transparency but also by providing clear, enforceable “rules of the road” wherever possible. That includes studying conduct that may not be illegal now, but that we should nonetheless consider banning or curtailing because it provides too ready a cover for financial wrongdoing.

Everything that went on leading up to the crisis, and most of what went on in “managing” it, was unlawful under already-established black-letter laws.  Some examples should make this clear:

• AIG sold credit-default swaps (a form of insurance, even though we don’t call it that) with no capital behind them – that is, no ability to pay.  Entering into a contract with full knowledge that you have no ability to perform is a fraudulent act – you are representing to someone that you have capacity to pay under the loss scenario, when you do not.

• Purchasing “protection” of this sort at below the market rate of risk as determined by the spread is an uneconomic act.  That is, the essential purpose of such a purchase is not to buy protection against the adverse event, but rather to intentionally misrepresent to regulators that your assets are “covered” and thus of better quality than they are, for the explicit purpose of not having to hold reserves against them.  I argue that this is an act of fraud.  The essential point is that nobody works for free – it is therefore impossible to buy a Bond that has a risk spread over Treasuries (of equivalent duration) of 3% plus a credit-default swap to cover it for less than the same spread.  A seller of protection who does not charge at least the risk-adjusted spread will not have sufficient capital to pay, and a seller who does charge at least the risk-adjusted spread (and thus can pay) leaves you with a trade, in total, that yields less than the Treasury!   If you desire a risk-free trade it makes no sense to purchase the more-risky bond and credit-default swap, as your total return will be lower than just buying the Treasuries!

• Mortgage origination and rating was rife with fraud up and down the line.  The breaches of representations and warranties are not accidents or oversights – they are frauds.  The most-carefully-negotiated set of terms in any offering document (for anything) is always the reps and warranties; as a seller of a business in the past I can tell you with absolute certainty that this is the case, because it is the section by which you can be hung if you make false statements.  The Securitizers represented to the buyers of these mortgage-backed securities that the credit quality was of a certain caliber in the loans that were made, when in fact post 2004 it was known that the majority of “ALT-A” loans contained some element of misrepresentation.
• Carrying second lien loans on the books of a bank that are behind a 60+ delinquent first that is underwater at any material value is, in my opinion, a fraudulent act.  By black-letter law these second-position liens are entitled to exactly nothing until the first mortgage is fully paid.  In the case where such a loan is underwater and not performing they have no economic value whatsoever.  Current statistics are that virtually all 60+ delinquent mortgages will ultimately foreclose or sell short.  80% of the dollar value of HELOCs are in the four bubble states (Nevada, Arizona, California and Florida) and the majority of these lines are behind an underwater first.  ALL of the big banks are currently holding a massive number of these loans (tens of billions individually and hundreds of billions in aggregate) on their balance sheets at or near par value, that is, 100 cents on the dollar.  I can come up with no reasonable argument for these claimed valuations, and yet they are allowed to persist.  Packages of these loans currently trade on the second market for literal pennies on the dollar.

Why is this allowed to continue?  I have, for the last three years, asked repeatedly “Where are the cops?”

I have also asked a more-serious question, and one with unpleasant implications for our society as a whole: Is the government a felon itself?

I believe these questions are fair.  You speak in your letter of FERA, The Fraud Enforcement and Recovery Act.  Well, if we’re supposed to be enforcing the law against fraud, where are the cops sir?  All I’ve seen FERA do thus far is fatten the officers at the local donut shop.

As I said more than a year ago: “At the end of the day, this is a test of whether we have one justice system in this country or two. If we don’t treat a Wall Street firm that defrauded investors of millions of dollars the same way we treat someone who stole 500 dollars from a cash register, then how can we expect our citizens to have faith in the rule of law? For our economy to work for all Americans, investors must have confidence in the honest and open functioning of our financial markets. Our markets can only flourish when Americans again trust that they are fair, transparent, and accountable to the laws.”

The American people deserve no less.

We may deserve no less, but so far we the people have received zilch, all in the name of “not disturbing the so-called recovery.”

But in point of fact we’ve not only refused to prosecute, we’ve allowed these financial institutions to try to cover the holes blown in their own balance sheets as a consequence of this fraudulent activity with fees and interest charges assessed on the people!

This is akin to not only looking the other way when the robbers show up and commit their heist, but then in addition assessing the victims a tax to pay for the robber’s getaway car!

More articles from the Market Ticker….

The fine print in the sweeping overhaul of the U.S. financial system proposed by Sen. Christopher Dodd reveals loopholes, ambiguities and unanswered questions about some key players – among them a new consumer protection bureau, credit-rating companies and payday lenders.

Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, unveiled his draft legislation on Monday. His plan’s details suggest his struggle to balance the conflicting demands of Republicans and the financial industry lobbyists, who oppose an independent new consumer agency, and Democrats, many of whom question whether Dodd has gone far enough.

Dodd has stressed the reach of his blueprint, especially noting the importance of a new independent consumer watchdog to write rules for products such as mortgages and credit cards. “This crisis started when people were given mortgages they didn’t understand and could never afford,” said Dodd. “If there was a watchdog on duty, it didn’t bark.”

Still, the legislation would impose significant limits on the autonomy of the new watchdog. It would establish a Financial Stability Oversight Council of nine members, all but one of whom would be existing financial regulators such as the Treasury Secretary and Comptroller of the Currency, which oversees national banks.

Just one member of the Council would have the power to delay the bureau’s suggested regulations, and six would be needed to override them. Council members could block any bureau recommendation they feel threatens the stability of the banking system.

Even before it crafted a rule, the consumer bureau would be required to consult with other financial regulators about whether the rule would be consistent with the objectives of those existing agencies, some of which have been accused of being lax in the lead-up to the financial crisis. The bureau also would have to consult with the Federal Trade Commission before imposing any regulations.

Nor would the consumer bureau be allowed to examine the books of any lender without first coordinating with other federal and state bank examiners so that they all go on the same day – a measure intended to reduce the regulatory burden on lenders.

In addition, the new bureau would have to rely as much as possible on existing documents of the financial institutions it oversees and could not dictate that they use any specific technology to aid the bureau in monitoring.

The consumer bureau would be housed in the Federal Reserve. While Dodd said the Fed wouldn’t have “one iota” of authority over the bureau – and would basically be renting office space – the bill provides for the presidents of the regional Fed banks to recommend at least six members to the bureau’s advisory board.

Much of the bill addresses what the consumer bureau would not be able to do. For instance, the bureau could not declare a lending practice “unlawful” simply because it is deemed unfair. To be illegal, the practice must be “likely to cause substantial injury to consumers, which is not reasonably avoidable by consumers.”

It’s also unclear exactly which lenders the bureau could regulate. Take, for example, payday lenders, which offer short-term, high interest loans.

Dodd’s bill does not actually mention the word “payday.” Yet Dodd’s 11-page summary of the bill does. The summary says a new consumer protection bureau housed within the Fed will have the authority to examine and enforce regulations for “large payday lenders.” But “large” is not defined.

“It’s not clear what ‘large’ means,” states the “Payday Pundit,” a blog of the industry trade group, the Community Financial Services Association. “I will try to seek clarification over the next few days.”

Another payday industry lobbyist told the Investigative Fund that he believes Dodd intends for the consumer protection bureau to determine what “large” means.

As the Investigative Fund has reported, the industry spent about as much as JP Morgan & Co. last year on lobbying alone, and is engaged in an aggressive campaign to resist being ruled by Washington.

Payday lenders were not explicitly mentioned in the approved House version of financial reform either. Amid uncertainty, the bill’s author, financial services committee chair Barney Frank (D-Mass), quickly dispatched a letter to his colleagues saying the new consumer agency would have authority over them.

Separately, Dodd’s bill targets the nation’s top credit rating companies, such as Standard & Poor’s and Moody’s.

As the Investigative Fund reported in a three-part series last year, the raters have long dodged regulation using the First Amendment as a shield. But now, the raters are at the center of the financial crisis. They awarded inflated grades to investments–including ones they allegedly helped create–that ultimately unraveled the economy.

Dodd’s bill calls for a new credit rating overseer within the Securities and Exchange Commission, which will have the authority to fine – or even de-register – the companies for repeated mistakes. The bill also would require ratings analysts to pass qualifying exams and receive relevant education.

But in certain ways, Dodd doesn’t appear to have been as forceful with the raters as Frank was last year. Whereas Frank would remove most, if not all, requirements that investors and banks rely on credit ratings, Dodd called for a Government Accountability Office study of this step. Meanwhile, his bill would direct regulators to remove whatever statutory references to credit ratings that they see as unnecessary. Again, however, it’s unclear exactly what that wording means.

Dodd, like Frank, provided investors the first explicit right to sue the rating companies. But Frank’s bill set forth a seemingly easier standard for suing the raters.

Ultimately, Dodd’s measures, clear and ambiguous alike, face an uncertain future. They are subject to change as the full banking committee takes up amendments to the bill next week.

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