Articles About Trading & Investing

Hard at Work Answering Your Questions

6 | By Shah Gilani

I’ve been writing about a lot of controversial and complex subjects over the past few weeks and months.

From the subprime student loan debacle to the federal government’s stockpiling of bullets horror story to too many investigations to keep track of – it’s a lot to take in.

I want to make sure you all have a good grasp on all this. Therefore, over the weekend, I asked you all to send me any questions you have about these topics – or any other subject I’ve been covering.

The response has been overwhelming so far, but I want to make sure that all of you get a chance to submit your questions.

For me to get them, though, you’ve got to send them in.

Keep reading for how to do just that…

Send Me Your Questions Now

I’m going to start addressing your questions soon.

That means you still have a couple of days to get them in.

So, if you have a question about any issue I’ve covered recently, or want to suggest a new idea for me to investigate, please click here and start typing.

And stay tuned… I plan to start answering your questions in my very next column, later this week.

Once more: If you ever wanted to ask me anything (besides personal investment advice), now is your chance.

You folks are keeping me busy.

I’ll see you later this week.

Related Reports:

Kill the Fed

33 | By Shah Gilani

It’s maddening…

Our economy is stagnating.

The divide between haves and have-nots is widening every day.

There are fewer and fewer good jobs and careers to be had.

And maybe worst of all, according a survey by the non-profit Employee Benefit Research Institute and Greenwald and Associates, about 36% of workers have less than $1,000 in savings and investments that could be used for retirement (not counting their primary residence or defined benefit plans and traditional pensions), and 60% of workers have less than $25,000.

What the heck happened?

The Federal Reserve System is killing America. It has destroyed the economy. It has undermined savers and retirees. It is even responsible for the corruption in Congress.

We have to kill the Federal Reserve before it kills America for good.

There’s nothing in the Constitution about a central bank. There’s nothing “free-market” about a central bank. There’s no reason for a central bank – with omnipotent power over the creation of money and credit, over employment (which is an absolute joke), over the entire economy, and over Congress – to exist. No reason.

Okay, there is one reason…

The Only Reason the Fed Exists

The Federal Reserve, America’s central bank, exists to serve big banks and Wall Street.

There is no other reason for the existence of the Fed. None.

Central banks exist to backstop banks. They were all created by bankers to serve them.
When banks get into financial trouble (for any number of reasons, all of them having to do with their bad management and greed), if there is no backstopping angel with unlimited (completely made up out of thin air) resources to bail them out, they would shut down.

And they should shut down. Sure, there would be losses. Equity owners would lose, creditors would lose, and some depositors would lose money, too, if they aren’t covered by FDIC insurance.

But if banks were allowed to fail, if they were each on their own insignificant enough to the financial system, to the whole economy, that they could fail without doing economic damage, they should be allowed to fail. Small banks are still allowed to fail based on this exact principle.

But clever bankers, the masters of the biggest banks in any system (in the U.S. it was a group of the most powerful banks in the U.S. and allied banking interests in Europe in 1913) figured out that if they got so big that any one of their failures would result in contagion and undermine the financial system and the economy, then they could convince governments to create central banks to safeguard systems and economies.

The Federal Reserve was legislated into existence in 1913 precisely to backstop America’s biggest banks. The history of exactly how the Fed came about and who was involved in the secret meetings at JPMorgan’s private island to design the “System” (they didn’t use the term bank because they wanted to imply a safety “system” and not raise the ire of the public, who were fearful and skeptical of the big banks that were already running the country) is one of America’s greatest cloak-and-dagger stories.

The true tale is laid bare in an extraordinarily well researched and documented book “The Creature from Jekyll Island” by G. Edward Griffin. Read it.

Without getting into the weeds on how they mechanically do it, it’s instructive enough to know what the Federal Reserve does. In a nutshell, all their “regulatory” duties aside, the Fed prints money and gives it to banks.

That’s right, the Fed – not the U.S. Treasury – creates dollars. The Treasury actually prints dollars and mints coins, but they only do enough of that to keep a certain amount of currency in circulation. The creation of money comes from the Federal Reserve System.

Look at your dollars, any bills in your wallet. They don’t technically belong to the Treasury. They say right up top: “Federal Reserve Note.” It’s Federal Reserve money. But the Fed doesn’t have to have the Treasury print money to give it to banks. They just credit banks electronically. And, like magic, banks have money when they need it.

Here’s How the Fed is Killing America

They backstop banks, all the too-big-to-fail banks, not littler, less important banks that are allowed to fail because they’re not politically important, all the big banks. And they backstop Wall Street speculation.

Banks are speculators, and they are part of what we call “Wall Street.” Wall Street makes money by shuffling paper, by playing in and manipulating what are supposed to be free-market capital markets. When they over-leverage and their paper juggling, hot-potato money-making schemes implode, they would fail (Bear Stearns and Lehman Brothers did, and so did Merrill Lynch and Goldman Sachs and Morgan Stanley and Citigroup, all of them imploded, to one degree or another, in 2008) and be wiped out.

But the Federal Reserve can save any of them, or which they want to save, and it did just that in 2008. They saves their own and let a few institutions be absorbed by bigger institutions so they could become more systemically important. And in doing that the Fed saved the financial system.

Good for them. And good for us, right?

No. The Fed plays god with the financial system. It plays god with the economy. And it rules over Congress and is responsible for our massive debt.

By backstopping banks and Wall Street speculation, the Fed has increased the “financialization” of the American economy. Our economy is more about moving paper assets around to create wealth than it is about producing and manufacturing real goods and services.

That’s why the divide between the haves and have-nots is getting wider. If you have financial assets, you’ve benefited by the Fed’s zero interest rate policies (or ZIRP). That’s because speculators know the Fed won’t let Wall Street down, they won’t let markets drop. That’s great if you’re a financial paper punter.

But, while the Fed has lowered interest rates to zero for banks and speculators to borrow cheaply to leverage up their paper financial assets (in rigged capital markets), those low rates have destroyed savers pocketbooks. Savers aren’t punters. They park their money in fixed-income investments to earn a yield.

Savers have been destroyed by the Fed.

And the deficit? That’s the Fed’s fault. Congress doesn’t have to tax the public to keep spending. The Treasury issues all the bills, notes, and bonds it wants to raise money, and the banks buy most of their paper obligations. Then the Fed buys those bills, notes, and bonds from the banks with the money they “print” electronically. That’s why there’s no accountability in Congress.

Far worse, the bankers, with their fat profits, lavish money on Congress to get what they want. There’s no one in Congress, no one, who doesn’t take campaign money one way or another from some financial system player. Wall Street owns Congress and they get their money to buy their puppets from the Fed’s backstopping.

There’s no need for a Federal Reserve if the TBTF banks are split up into hundreds of regional banks. If no single bank failing would cause contagion, or harm the economy, they should be allowed to fail.

If we want to take back America from the bankers and the Wall Street machinery that soaks up economic capital for their paper-pyramiding wealth-minting factories, and disadvantages savers, producers and workers, then we have to kill the Federal Reserve Bank.


Don’t Wait for the Next Apple Hack – Get off the Grid Now

10 | By Shah Gilani

There’s no stopping the march of technology.

But are we all marching over a cliff?

Whether it’s photos of nude celebrities hacked from the iCloud, hacked credit cards at Home Depot, hacking attacks on JPMorgan Chase, or the National Security Agency’s hacking all of us, the truth is that we’re all hackable – because we’re all on servers somewhere.

Servers – whether in our own PCs, in our workplace’s IT “closets” or in the “cloud” – provide essential services and hold huge amounts of our important information.

And it doesn’t matter where your server is. If you’re on a server – and you are – you can be hacked…

Apple’s Bad Week

There are many ways we can be hacked, and lots of ways companies and server farms and clouds can be hacked.

According to Apple, the nude celebrity photos stolen from the iCloud didn’t result from a breach of the iCloud (though it did). According to Apple, they were stolen (through the iCloud) from the individual accounts of the celebrities.

Apparently, “brute force” was used to run thousands of possible passwords before coming up with winning entries that yielded access to the stacks of stored photos.

If you’re wondering how the public felt about the breach… well, some of you probably enjoyed the photos. However, a lot of you sold Apple stock yesterday.

The big drop in the stock, traceable to the iCloud hack, comes at nearly the precise moment Apple is likely to introduce its new “mobile wallet” along with the launch of the new iPhone 6.

Talk about bad timing.

Just when we’re supposed to lock ourselves further into the Apple ecosystem and consider giving up our plastic cards for a “secure” mobile wallet, the same iCloud where our digital money and credit will be shepherded… it gets sheared.

Then there’s the Home Depot hack. Though the hack occurred back in April or May, we don’t know much yet, because the DIY retailer isn’t saying much. But it looks like 2,200 stores were affected, which means millions of customers’ data was probably spilled.

Clean up on aisles 7, 8, 9 and 10 – and on the servers.

How big could the HD hack be? Bigger than the Target hack that affected 40 million credit card numbers and compromised 70 million addresses and phone numbers and other personal information.

Even scarier is the recent hack of JPMorgan Chase, only the largest bank in the United States. Who did what? No one is saying, because it’s a bank and there are national implications.

National implications? Yep.

Here’s what the retired four-star Army General Keith B. Alexander, formerly director of the NSA and head of U.S. Cyber Command, had to say. In an interview with Bloomberg yesterday, Alexander said the JPMorgan Chase hack may have been orchestrated by Russia as a warning to the United States over its Ukraine-related sanctions.

Vladimir Putin‘s message: “If you mess with us, we will undermine your financial system.”

That’s scary.

We know the math whizzes at the NSA, courtesy of hero/traitor Edward Snowden‘s revelations, are hacking everyone here at home. Yeah, that means you and me.

And they’re hacking into our friends’ and allies’ “secure” communications networks. And they’re spying on them in their offices and in their bedrooms – and they’re probably looking at their nude photos, too.

We know it, and now our pissed-off friends know it, too.

There’s hacking going on in “them thar hills,” and big national governments – ours and Russia’s – are behind a lot of it.

All those hills are alive with the sound of hackable humming servers. So, are we all headed over some technology cliff that’s going to land us in some open field where we’re all nude and vulnerable to being terrorized?

It could be.

Storm Clouds Gathering

And just when we thought the cloud was going to be the next big thing, Timothy D. Naegele is speaking up.

In an online comment posted to American Banker‘s Tuesday story about the iCloud breaches, the highly respected financial attorney and former counsel to the Senate Banking Committee wrote, “The cloud is a mistake. No one’s data is safe. It is vulnerable to hackers, terrorists and others. Anyone who tells you differently is mistaken.”

Take this as a warning.

If you can activate or turn on multifactor authentication requirements on your stuff stored on servers, do it. If you have your passwords and/or log-on information stored in any cloud anywhere or on a server at home, take them offline and store them in an old-fashioned paper (remember paper?) notebook.

If you have apps that access and store stuff in the cloud, what’s in that cloud can be traced back to your computer, tablet or cellphone – which may not be such a “smart” phone, after all.

Whatever you can do to make your digital footprint scarce, do it. Get off grid before your own nude photos go online… because I really don’t want to see them.

I’m not talking to you, Kate Upton.

The Feds Are Stockpiling Ammo – Here’s What We’re Going to Do

289 | By Shah Gilani

This is a warning. I’m not kidding.

I heard something yesterday that blew me away.

I can’t further corroborate it, but I trust the source.

My friends know I like to target shoot. I don’t hunt, because I can’t kill anything living, but I like guns. Maybe it has something to do with wanting to be James Bond when I was a kid… OK, I still want to be 007.

As other target shooters know, it’s gotten harder and harder to get ammunition.

Fo a few years now, all kinds of stuff have been going around on the Internet about why ammunition is hard to get. I’ve read a bunch of things, and friends send me links to articles all the time.

But a friend I trust just shared some news that shocked me. I want you to hear this news, too.

Dollar Theory

Not too long ago, I came across some articles about how various federal agencies were stockpiling massive amounts of ammunition. One of the agencies was the IRS, the Internal Revenue Service.

I didn’t think of IRS agents as gun-toting G-Men anymore, so that idea struck me as odd. What’s even odder, however, is that the ammo was supposedly hollow-point rounds.

Hollow-point rounds are deadly. They go into flesh and tissue the size of the bullet but spread out on impact. They’re not for target shooting. Not even police officers are allowed to use hollow points.

Here’s where this all comes together.

My friend asks me yesterday what I think about the U.S. dollar, our currency. I gave him my opinion. Then he asked me if I thought the dollar was going to collapse, as in totally collapse. I answered that I didn’t think there was any reason it would just collapse.

It could lose its reserve status eventually, maybe, possibly – but not immediately, I said.

Then he blew me away. He asked if I’d heard about the government stockpiling hollow-point ammo. I said, as a matter of fact I had heard that. He said, “It’s true.”

He said his “friend,” who is one of the top guys at the Department of Homeland Security, told him why.

Federal government bigwigs are planning for the collapse of the U.S. dollar, he said. They even have a date. They expect the dollar to implode in 2016.

That’s less than two years away.

He explained that there are foreign forces working to undermine the dollar. And it’s working. It’s happening slowly, but it’s going to mushroom, and the net result will be a global panic and massive dollar selling – to the point that it will collapse.

Because we rely on the dollar without questioning its purchasing power, its “store of value” or its government backing, a sudden collapse of the dollar would undermine society.

How’s that? That’s because, my friend told me, the divide between the haves and have-nots in the United States is so wide now that the government expects there to be riots and looting and total chaos all across the country.

It will be about having things or not having things, he said. It won’t be about having dollars, because they won’t be worth anything.

That’s why the feds are stockpiling ammo. That’s why it’s harder for the rest of us to get ammo.

I am not the kind of person who takes rumors and rubbish and extrapolates them into conspiracy theories. But when someone I know, someone I trust implicitly, someone who is very well connected, tells me something like this, I think long and hard about it.

What Comes Next?

But don’t worry. There are ways we can prepare for this.

Indeed, this doesn’t mean there won’t be chances to make money… lots of money.

In fact, that’s what I’m doing now. I’m considering how we will best be able to protect ourselves and, better still, how we can profit hugely from the demise of the dollar.

I’m scanning the globe to determine how we’ll not only get through, but also take advantage of this worldwide crisis. I’m finding the best investments, deciding where we’ll put our money for safekeeping and figuring out which areas will be hardest hit.

No matter what happens, I’m going to be right here.

What do you think?

The Alibaba IPO: Is It Full of 40 Thieves… or 40 Billion Carats?

12 | By Shah Gilani

The Alibaba Group IPO is coming.

Questions about when it’s coming, or how big it will be, or how complicated the deal is don’t matter. They can be answered, and I will answer them here.

The real question is: Should you buy the stock? The answer to that is… keep reading…

Hitting the Road

At this point, it looks like the IPO roadshow featuring Alibaba founder Jack Ma will begin on Sept. 3. The company’s seven investment banks and five outside law firms expect the song-and-dance routine for institutional investors to start in Asia, then head to Europe, and end up playing to packed investor houses all across United States.

Then, the company should debut on the New York Stock Exchange in mid-September.

Market followers have suggested numerous date changes for the initial public offering based on superstition, lucky numbers, religious holidays, summer vacations and persnickety regulatory requirements.

But, no matter – it’s coming.

The initial offering is expected to raise $20 billion for the company, which would make it the largest IPO in history. The IPO for Visa Inc. (NYSE: V) currently holds the record, having raised $19.65 billion in 2008. Facebook Inc. (Nasdaq: FB) raised $16 billion in 2012.

Depending on the first-day closing price of the new stock, Alibaba could be worth anything from $130 billion to $200 billion, which is a wide moat to wade into. But cutting itself a wide swath is what Alibaba is all about – and why this is a complicated deal.

The Long Story

Alibaba is the largest e-commerce company in China – at least that’s the short story. It’s really an eBay, Amazon, PayPal, cloud computing company, venture capital shop and a whole lot more, all rolled into a labyrinth-like company with an increasingly global reach.

Adding to it s complexity, Alibaba is domiciled in the Cayman Islands, does the grand majority of its business in China, and is listing itself on the NYSE. That means it will face regulatory scrutiny in multiple international jurisdictions.

Making its home in the Cayman Islands affords Alibaba an unprecedented amount of freedom and privacy, some of which it will have to give up in the IPO, and some of which will make it less transparent than U.S. regulators and investors are comfortable with.

One big problem comes along with being a Cayman Islands entity. Because it’s domiciled there, Alibaba cannot be included in major benchmarks like the S&P 500 or any of the MSCI indexes.

The S&P 500 only contains U.S.-domiciled companies and has more than $5.1 trillion in assets tracking it, one way or another. Not being eligible for many of the indexes that big institutions track and trade means those mammoth investors won’t be falling over themselves to buy shares.

And because the shares aren’t listed in its home country, Chinese participation will be limited.

The company’s governance structure is another issue for regulators and investors. It empowers insider partners with the right to nominate a majority of the board of directors.

Even though Alibaba is a Cayman Islands company, it has to abide by Chinese rules. And because of China’s strict limits on foreign ownership of Chinese companies, for Alibaba to list its shares on a foreign exchange, the company had to structure its “assets” into separately held vehicles owned by outside companies.

That’s not very transparent.

So, a lot of investors, both institutional and retail, are asking whether they should buy shares when the company debuts.

The short answer to that question is “no and yes,” or “yes and no” – depending on how you look at it.

I wouldn’t buy shares on the first day of trading for many reasons. A big one is the Facebook phenomenon. A deal this big and this global could have trading issues along the lines of what happened with Facebook’s IPO.

The deal is so huge that the company’s investment bankers are saying they need to line up enough investor interest, about four times what will be raised, to help support the share price after the initial IPO frenzy subsides and shares face the “free market.”

Down the Line

As far as buying shares of Alibaba, I’m going to wait and see how they trade on the opening day and for a few weeks after that.

In a perfect world, I’d look to buy Alibaba if there are any early hiccups and after the IPO shares fall. (I missed that “perfect world” with Facebook because I got greedy and thought I’d get in lower as the price was falling – it was down enough – but missed it on the way up.)

Is Alibaba a “buy” in the long run? You bet it is.

There’s so much to this company that I could write about what they’re doing in the open and under the radar and fill up a dozen of these columns.

Here’s what I’ll say for now: Alibaba is going to be one of the greatest global companies of our time.

As retail investors, most of you won’t be able to buy into the Alibaba IPO right away – whether you want to or not. However, there’s another way to play it.

My colleague Bill Patalon, editorial director of Money Map Press, beat me to sharing this “backdoor” investment – and he’s come up with an impressive strategy to follow before the initial offering. Click here for his full report.

HFT Rats Find New Targets Even as They Flee Banks

13 | By Shah Gilani

Rats are fleeing their listing ships.

Of course, that’s not surprising.

The Financial Times reported yesterday that high-frequency traders are leaving investment banks for hedge funds, prop trading houses and their own startups.

Oh, you didn’t realize that investment banks – in other words, too-big-to-fail banks – had high-frequency trading (HFT) desks?

Surprise, surprise, surprise. HFT isn’t the exclusive purview of specialized trading shops.

HFT is a proven money-raking machine, and today I’m going to tell you that’s why it’s part of most so-called investment banks’ trading operations…

Get Into the Game

HFT is a complicated game – um, I mean, business model.

Super-smart computer scientists design mega-fast machines that intercept trading orders from the airwaves or cable conduits. Their machines read these orders – the orders you send to your discount broker, the orders institutions send to dark pools… everybody’s orders.

And before all those orders can be brought together and matched up so a trade gets executed, HFT boys pick off the orders they want.

They also send out their own orders, billions of them every day. They don’t want these orders executed, but want other machines to see their orders and move after them, which are canceled before they can be acted on. It’s about faking out other traders’ machines to set them up to be picked off.

It’s beautiful.

What’s the endgame? Insider trading. Legalized insider trading.

These aren’t tips from an insider. It’s trading on inside data flows that aren’t protected, but sold to HFT desks to be traded against, with an advantage that only the HFT players have.

The HTF rats are leaving the TBTF banks because of the Volcker rule.

The Volcker rule, which has to be implemented by July 2015, puts an end to certain “proprietary” trading. Proprietary, or “prop,” trading is that done for the house and not on behalf of any clients.

Yes, banks trade for clients. And yes, banks are liars about trading for clients by taking the other side of their clients’ trades and not calling that what it is… prop trading.

Anyway, prop trading is going to get a closer look as we get to July 2015. European banks are looking at maybe two years before they get their own Volcker-type rules.

So, the rats are leaving their listing ships (they’re listing because their trading revenue streams are going to dry up) for swamps where they can run wild and get paid what they’re worth.

Good News, Bad News

Anything that reduces the risk TBTF banks take with depositors’ and taxpayers’ money is a good thing.

The bad news is that these same banks will just buy big brokerage operations in order to sell their order flow to the HFT players. And those players will pay them handsomely to pick off their brokerage customers. In fact, they’ll be able to pay even more to peek under skirts everywhere, because not being “banks” means they won’t be subject to having their own skirts looked up and will pay their traders whatever they’re worth.

The TBTF banks are already selling out their brokerage customers. They’re selling raw order data to HFT desks and giving their own HFT desks access to their clients’ dark pool orders. Barclays is under investigation for abusing its dark pool clients, and inquiries have been sent to Goldman Sachs, UBS, Deutsche Bank and Credit Suisse about how they operate their dark pools.

What does this all mean? Nothing. It’s just moving around deck chairs.

Until HFT is brought to heel, it will remain a legalized, institutionalized pick-off-the-suckers game. All the exchanges will make their profit, and so will all the trading desks.

It’s business as usual.

“The strong seem to get more, while the weak ones slave. Empty pockets don’t ever make the grade. Momma may have and Poppa may have, but God bless the child that’s got his own.”

Connecting the Dots on the DOJ’s Latest Moves

10 | By Shah Gilani

Two things hit my radar today, and they’re both interesting, for different reasons.

On the surface, you might think they’re not connected, but they might be.

First of all there’s Bank of America Corp. (NYSE: BAC). That poor wee bank was too-big-to-fail even before it bought Countrywide (ground zero for the mortgage crisis) and Merrill Lynch (which was itself TBTF).

And now BoA is in tentative talks with the U.S. Department of Justice (aka the Obama Mafioso Collection Agency) to pay between $16 billion to $17 billion for its part in selling shoddy mortgages, or originating them, or packaging them, or being a TBTF bank that wasn’t allowed to fail but now has to pay the piper.

Today, I’m going to tell you the story behind the story on this. And I’m even going to give you a stock pick…

Welcome to the Moronicracy

It’s ironic (or maybe the better word is moronic) that BoA bought Countrywide because it thought the mortgage crisis was a chance to add to its mortgage-origination business.

But it’s not ironic (and definitely not moronic) that BoA bought Merrill Lynch, partly because the US. Treasury Department begged it to, so we wouldn’t have another Lehman Brothers moment. I’m talking the kind of moment that would have been Lehman Squared.

Because what looked moronic at the time – especially on account of having to pay God-only-knows how many billions of dollars in fines, settlement deals, shareholder suits and litigation costs – turns out to be anything but moronic after all.

How come the Countrywide and Merrill deals weren’t moronic, you ask? Because BoA can easily pay all the “associated costs” of the two acquisitions… thanks to the two acquisitions.

Oh, and as BoA nears its deal to probably, maybe put most of these “legacy” mortgage issues behind it, at least the biggest ones, BoA announced yesterday that it’s raising its dividend. You know, as a way to thank shareholders for their equity.

OK, maybe BoA is raising its dividend to attract more equity stakeholders. Either way, the point is the bank is flush after almost being flushed down the toilet itself.

And for that, reader of WSII who pretty much said, “Shut up and give us some stock picks” – and for the rest of you, too – I say now is a good time to buy some BoA.

Yep, I say buy it here, buy more if it drops to $14 and load up the boat if for whatever reason it drops to $13. It’s way too big to fail – and it won’t.

I actually like Wells Fargo & Co. (NYSE: WFC) better, but it’s a little expensive dollar-wise at almost $50 bucks a share. (Though it’s actually cheaper price/earnings multiple-wise)

Driveway Drive-By

The other thing on my radar today also involves the DOJ and subprime loans.

Preet Bharara, the U.S. Attorney for the Southern District of New York, subpoenaed General Motors Financial. He wants documents related to subprime auto loans that GM finances and packages into securities.

Someone apparently smells a rat in the subprime auto loan origination, securitization and dump-on-investors hot potato game. Is there fraud going on there? Maybe.

But that’s not what’s interesting to me. It’s uninteresting to me because cars aren’t homes.

As big as the subprime auto loan business has become – even if there’s some monumental level of underperforming loans or nonperformance (meaning people keep their cars and just don’t pay) – the “foreclosure” process just isn’t the same.

Lenders send a tow truck and take the car back. Increasingly, the cars are fitted with location devices and turn-off switches so lenders can easily recover them. So, I’m not inclined to think burned investors in subprime auto loans are going to panic out of their securities and cause the Greater Recession.

I’m more interested in the “nuances” of what the DOJ is after.

Is this a consumer protection thing? Is this an investor protection thing? Or is this another wrap them on the knuckles, threaten to sue them and “collect” more money from them because there may be more easy money out there to go after thing.

What this auto loan expedition could be – and this is interesting – is that DOJ could, yet again, be using the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (aka FIRREA) to see if auto lenders are committing fraud against any federally insured institutions. That, after all, is what FIRREA is all about.

What’s interesting about that, you ask? It’s the irony thing. The DOJ can use FIRREA to go after fraud on a federally insured financial institution if the fraud is caused by the same federally insured financial institution being affected by it. How’s that for interesting?

General Motors Financial isn’t a federally insured institution. It was formerly a subprime lender known as AmeriCredit, which GM bought in 2010. As of now, it is the only subprime auto player that admits to being subpoenaed. There may well be others.

Ally Financial Inc. (NYSE: ALLY) just went public, and I hope you didn’t buy it, because it’s trading below its IPO price and I warned you about it right here.

Last December, Ally settled for $98 million by not admitting or denying it ripped off minority subprime auto buyers by arbitrarily jacking up its total loan costs, for the pure profit of it.

Is that what the DOJ is after here?

No one knows – and that’s what makes it so interesting.

In the end, the connection between these BoA and Ally stories may be simple. Maybe the DOJ is extracting money from federally insured financial institutions to help pay the federal deficit.

After all, only the Feds can act as enforcer of last resort.

Related Reports:

Wall Street Insights & Indictments: I Can’t Believe The Government Wants To Unleash This On The Public.

Wall Street Insights & Indictments: The Latest Subprime Scandal May Be Sitting in Your Driveway.

The Rating Agencies Feel Heat – It’s About Time

18 | By Shah Gilani

Sometimes it’s all about time. Things take time. Time catches up to things.

In the case of the many crimes and misdemeanors that led up to the credit crisis, time seems to be finally catching up with some crooked institutions.

As for the real crooks, as in the individuals who lied, cheated, stole, and directed others to lie, cheat, steal, and more for their share of the almighty bonus pool… not so much.

But sometimes, you take what you can get.

This time it’s a rating agency’s turn… It’s not enough. But today I’m going to share this bit of good news.

Rated G… for Garbage

In February 2013, the U.S. Department of Justice slapped Standard & Poor’s with a $5 billion civil suit. Apparently, for fraud, filing criminal suits is not civilized, at least not if you want to keep getting political donations.

S&P and its parent, McGraw Hill Financial Inc. (NYSE: MHFI), pooh-poohed the 119-page suit – of course. They called it “meritless” and vowed to defend themselves “vigorously.”

The lawsuit charges S&P with egregiously rating residential mortgage-backed securities and related structured products it knew were garbage as USDA Choice or AAA Yummy Good. And believe it or not, a lot of people bought it.

S&P is only the largest rating agency in the world. It only rated some $2.8 trillion worth of residential mortgage-backed security (RMBS) junk and $1.2 trillion worth of structured dreck during the run-up. And then it subsequently downgraded all that supposed Prime Cut to “Oops, it’s stinky rotten. How were we supposed to know things would change?”

So, at least the economy and the American people weren’t affected. Because what’s a few trillion dollars of rot in an otherwise healthy buffet of Wall Street entrées?

Some serious stuff, as in smoking-gun internal emails at S&P, has surfaced. According to a Reuters article that came out after the suit was filed, “By July 5, 2007, as the credit crisis began taking hold, a new S&P structured finance analyst told an investment banking client: ‘The fact is, there was a lot of internal pressure in S&P to downgrade lots of deals earlier on before this thing started blowing up. But the leadership was concerned of p*ssing off too many clients and jumping the gun ahead of Fitch and Moody’s.’”

Of course, there is a lot more. In due course, we may get to see some of the more enlightening emails. I’ve seen some, and they are funny – while at the same time sickening.

So, with all the time that’s passed since the DOJ filed its suit, what’s happened?

Not much.

S&P has stonewalled the government. It wants to break up the suit into different parts. It also wants to countersue the government, saying the lawsuit is retaliation for S&P lowering the U.S. credit rating down a notch from AAA during the debt-ceiling impasse in Congress. But S&P says it might negotiate a less than $1 billion settlement deal.

It’s ongoing. The thing that gives me hope is that we’ve seen successful cases won against big banks, including admissions of guilt, in a few circumstances.

If in time this case is won and S&P has to plead guilty, there will be more and more lawsuits all over the place. And because no one has gone to jail, which is a tragedy, at least stripping pigs of some of their money – though sadly it’s all shareholders’ money – is better than a stick in the eye.

Serving Notice

The U.S. Securities and Exchange Commission is finally getting in on the game and may be going after S&P. A so-called Wells notice has been served to S&P. The SEC issues such notices when it wants to let a target know it’s being looked at.

It’s comforting to know the SEC is on the case, because without the SEC where in heaven’s name would we all be?

You also might be wondering about that other massive rating agency, Moody’s, and why it hasn’t been implicated in any wrongdoing. After all, the folks there were doing the exact same thing as S&P was being paid billions of dollars to do: lie.

Maybe in due time. But don’t hold your breath.

While all that was going on, a little old man everyone reveres – a man who chastises Wall Street and then comes to its aid, in the name of helping America of course – owned a giant chunk of Moody’s when it was making all that greasy money.

Of course, in time Warren Buffett got rid of the albatross around his neck. But as far as the government going after Moody’s and dragging in the venerable one himself, that’s going to take time.

Like I said, don’t hold your breath.

The Latest Subprime Scandal May Be Sitting in Your Driveway

8 | By Shah Gilani

Back in April I wrote about the initial public offering from Ally Financial Inc. (NYSE: ALLY). I told you about how they were loading up the truck with subprime auto loans, and how that lending game was too reminiscent of the subprime mortgage buildup and subsequent crisis to not warrant a déjà vu-all-over-again feeling.

I’m no longer one of the only muckrakers warning that the subprime auto loan space is sleazy and potentially dangerous to our economic health.

I usually don’t trust or link to pieces in the mainstream media. But this really caught my attention… so I wanted to share…

And the Next Subprime Bubble Is…

The DealBook blog from The New York Times had an absolutely brilliant piece the other day titled “In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates.”

Here’s the piece by Jessica Silver-Greenberg and Michael Corkery. This ties in with so much of what I’ve been saying recently: the so-called housing recovery, the student loan fiasco, the dangerously sky-high stock market. I could go on…

You have to read it.

I don’t do this often, but I can’t add much to what Silver-Greenberg and Corkery have exposed. So, I’ll let you digest this today and ask you for your comments.

Related Reports:

Wall Street Insights & Indictments: I Can’t Believe the Government Wants to Unleash This on the Public.

DealBook: In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates.

Wall Street Insights & Indictments: Here Comes That “Yogi” Feeling: It’s 2009 All Over Again.

Wall Street Insights & Indictments: Higher Education: The Biggest Scam Going.

Wall Street Insights & Indictments: Airplanes, Automobiles, and Market Crashes.