Feds found Pfizer too big to nail, so they looked the other way on massive fraud

(NaturalNews) When the world’s largest pharmaceutical company was found to have engaged in a massive illegal marketing campaign, federal prosecutors decided the company was too big to punish — so they let it set up a shell corporation to take the blame.

In 2001, the FDA approved Bextra for the relief of arthritis and menstrual cramps, but did not approve it for more severe surgical pain. Yet Pfizer aggressively promoted the drug to anesthesiologists and surgeons — “anyone that use[d] a scalpel for a living,” in the words of one internal company document. Company employees also told doctors that the FDA had approved Bextra as safe in doses as high as 40 milligrams, whereas the agency had actually only approved doses up to 20 milligrams.

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Securities and Exchange Commission files civil suit against Goldman Sachs for mortgage fraud

Why is the SEC filing a civil suit as opposed to having the DOJ indict these Wall Street fat cats criminally for insider trading?  At best a civil suit will result in a fine.  At least it’s something, but this is nowhere near the level of action we need to take.

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New York Times
By LOUISE STORY and GRETCHEN MORGENSON

The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.

The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment.

The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market. Those deals, which were the subject of an article in The New York Times in December, initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank.

As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars.

According to the complaint, Goldman created Abacus 2007-AC1 in February 2007, at the request of John A. Paulson, a prominent hedge fund manager who earned an estimated $3.7 billion in 2007 by correctly wagering that the housing bubble would burst.

Goldman let Mr. Paulson select mortgage bonds that he wanted to bet against — the ones he believed were most likely to lose value — and packaged those bonds into Abacus 2007-AC1, according to the S.E.C. complaint. Goldman then sold the Abacus deal to investors like foreign banks, pension funds, insurance companies and other hedge funds.

But the deck was stacked against the Abacus investors, the complaint contends, because the investment was filled with bonds chosen by Mr. Paulson as likely to default. Goldman told investors in Abacus marketing materials reviewed by The Times that the bonds would be chosen by an independent manager.

“The product was new and complex, but the deception and conflicts are old and simple,” Robert Khuzami, the director of the S.E.C.’s division of enforcement, said in a statement. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”

Mr. Paulson is not being named in the lawsuit. In the half-hour after the suit was announced, Goldman Sachs’s stock fell by more than 10 percent.

In recent months, Goldman has repeatedly defended its actions in the mortgage market, including its own bets against it. In a letter published last week in Goldman’s annual report, the bank rebutted criticism that it had created, and sold to its clients, mortgage-linked securities that it had little confidence in.

“We certainly did not know the future of the residential housing market in the first half of 2007 anymore than we can predict the future of markets today,” Goldman wrote. “We also did not know whether the value of the instruments we sold would increase or decrease.”

The letter continued: “Although Goldman Sachs held various positions in residential mortgage-related products in 2007, our short positions were not a ‘bet against our clients.’ ” Instead, the trades were used to hedge other trading positions, the bank said.

In a statement provided in December to The Times as it prepared the article on the Abacus deals, Goldman said that it had sold the instruments to sophisticated investors and that these securities “were popular with many investors prior to the financial crisis because they gave investors the ability to work with banks to design tailored securities which met their particular criteria, whether it be ratings, leverage or other aspects of the transaction.”

Goldman was one of many Wall Street firms that created complex mortgage securities — known as synthetic collateralized debt obligations — as the housing wave was cresting. At the time, traders like Mr. Paulson, as well as those within Goldman, were looking for ways to short the overheated market.

Such investments consisted of insurance-like policies written on mortgage bonds. If the mortgage market held up and those bonds did well, investors who bought Abacus notes would have made money from the insurance premiums paid by investors like Mr. Paulson, who were negative on housing and had bought insurance on mortgage bonds. Instead, defaults spread and the bonds plunged, generating billion of dollars in losses for Abacus investors and billions in profits for Mr. Paulson.

For months, S.E.C. officials have been examining mortgage bundles like Abacus that were created across Wall Street. The commission has been interviewing people who structured Goldman mortgage deals about Abacus and other, similar instruments. The S.E.C. advised Goldman that it was likely to face a civil suit in the matter, sending the bank what is known as a Wells notice.

Mr. Tourre was one of Goldman’s top workers running the Abacus deal, peddling the investment to investors across Europe. Raised in France, Mr. Tourre moved to the United States in 2000 to earn his master’s in operations at Stanford. The next year, he began working at Goldman, according to his profile in LinkedIn.

He rose to prominence working on the Abacus deals under a trader named Jonathan M. Egol. Now a managing director at Goldman, Mr. Egol is not being named in the S.E.C. suit.

Goldman structured the Abacus deals with a sharp eye on the credit ratings assigned to the mortgage bonds associated with the instrument, the S.E.C. said. In the Abacus deal in the S.E.C. complaint, Mr. Paulson pinpointed those mortgage bonds that he believed carried higher ratings than the underlying loans deserved. Goldman placed insurance on those bonds — called credit-default swaps — inside Abacus, allowing Mr. Paulson to short them while clients on the other side of the trade wagered that they would not fail.

But when Goldman sold shares in Abacus to investors, the bank and Mr. Tourre only disclosed the ratings of those bonds and did not disclose that Mr. Paulson was on other side, betting those ratings were wrong.

Mr. Tourre at one point complained to an investor who was buying shares in Abacus that he was having trouble persuading Moody’s to give the deal the rating he desired, according to the investor’s notes, which were provided to The Times by a colleague who asked for anonymity because he was not authorized to release them.

In seven of Goldman’s Abacus deals, the bank went to the American International Group for insurance on the bonds. Those deals have led to billions of dollars in losses at A.I.G., which was the subject of an $180 billion taxpayer rescue. The Abacus deal in the S.E.C. complaint was not one of them.

That deal was managed by ACA Management, a part of ACA Capital Holdings, which changed its name in 2008 to Manifold Capital Holdings.

Goldman at first intended for the deal to contain $2 billion of mortgage exposure, according to the deal’s marketing documents, which were given to The Times by an Abacus investor.

On the cover of that flip-book, it says that the mortgage bond portfolio would be “selected by ACA Management.”

In that flip-book, it says that Goldman may have long or short positions in the bonds. It does not mention Mr. Paulson or say that Goldman was in fact short.

The Abacus deals deteriorated rapidly when the housing market hit trouble. For instance, in the Abacus deal in the S.E.C. complaint, 84 percent of the mortgage bonds underlying it were downgraded by rating agencies just five months later, according to a UBS report.

It takes time for such mortgage investments to pay out for investors who short them, like Mr. Paulson. Each deal is structured differently, but generally, the bonds underlying the investment must deteriorate to a certain point before short-sellers get paid. By the end of 2007, Mr. Paulson’s credit hedge fund was up 590 percent.

Mr. Paulson’s firm, Paulson & Company, is paid a management fee and 20 percent of the annual profits that its funds generate, according to a Paulson investor document from late 2008 titled “Navigating Through the Crisis.”

Money Out Of Thin Air: Now Federal Reserve Chairman Ben Bernanke Wants To Eliminate Reserve Requirements Completely?

Economic Collapse Blog

Up until now, the United States has operated under a “fractional reserve” banking system.  Banks have always been required to keep a small fraction of the money deposited with them for a reserve, but were allowed to loan out the rest.  But now it turns out that Federal Reserve Chairman Ben Bernanke wants to completely eliminate minimum reserve requirements, which he says ”impose costs and distortions on the banking system”. At least that is what a footnote to his testimony before the U.S. House of Representatives Committee on Financial Services on February 10th says. So is Bernanke actually proposing that banks should be allowed to have no reserves at all?

That simply does not make any sense. But it is right there in black and white on the Federal Reserve’s own website….

The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

If there were no minimum reserve requirements, what kind of chaos would that lead to in our financial system?  Not that we are operating with sound money now, but is the solution to have no restrictions at all?  Of course not.

What in the world is Bernanke thinking?

But of course he is Time Magazine’s “Person Of The Year”, so shouldn’t we all just shut up and trust his expertise?

Hardly.

The truth is that Bernanke is making a mess of the U.S. financial system.

Fortunately there are a few members of Congress that realize this.  One of them is Republican Congressman Ron Paul from Texas.  He has created a firestorm by introducing legislation that would subject the Federal Reserve to a comprehensive audit for the first time since it was created.  Ron Paul understands that creating money out of thin air is only going to create massive problems.  The following is an excerpt from Ron Paul’s remarks to Federal Reserve Chairman Ben Bernanke at a recent Congressional hearing….

“The Federal Reserve in collaboration with the giant banks has created the greatest financial crisis the world has ever seen. The foolish notion that unlimited amounts of money and credit created out of thin air can provide sustainable economic growth has delivered this crisis to us. Instead of economic growth and stable prices, (The Fed) has given us a system of government and finance that now threatens the world financial and political institutions. Pursuing the same policy of excessive spending, debt expansion and monetary inflation can only compound the problems that prevent the required corrections. Doubling the money supply didn’t work, quadrupling it won’t work either. Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile.”

The truth is that the financial system that we have created makes inflation inevitable.  The U.S. dollar has lost more than 95 percent of the value that it had when the Federal Reserve was created.  During this decade the value of the dollar will decline a whole lot more.

That doesn’t sound like a very good investment.

But that is what happens when you give bankers power to make money up out of thin air.

And things are only going to get worse.

Especially if Bernanke gets his way and reserve requirements are eliminated entirely.

The U.S. economy is a giant mess already, and we have got a guy at the controls who simply does not have a clue.

It’s going to be a rough ride.

UN climate panel based claims on student essay

January 31, 2010
Physorg/AFP

A glacier in the Everest region, some 140 kms (87 miles) northeast of Kathmandu. The UN climate change panel based claims about ice disappearing from the world’s mountain peaks on a student essay and an article in a mountaineering magazine, a British newspaper reported Sunday.

The UN climate change panel based claims about ice disappearing from the world’s mountain peaks on a student essay and an article in a mountaineering magazine, a British newspaper reported Sunday.

The claims risk causing fresh embarrassment for the Intergovernmental Panel on Climate Change (IPCC), which had to apologise this month over inaccurate forecasts about the melting of Himalayan glaciers.

In a recent report, the IPCC stated that observed reductions in mountain ice in the Andes, Alps and Africa was caused by global warming and it referred to two papers as the source of the information.

But The Sunday Telegraph said one of the sources quoted was actually an article published in a magazine for mountaineers which was based on anecdotal evidence about the changes they were witnessing during climbs.

The newspaper said the other source was a dissertation written by a geography student who was studying for a master’s degree at the University of Bern in Switzerland that quoted interviews with mountain guides in the Alps.

The IPCC rejected as “baseless and misleading” a report this month from another British newspaper, The Sunday Times, raising doubts about the evidence behind its claim that global warming is linked to worsening natural disasters.

Scientists have defended the IPCC since it admitted to errors over the Himalayan glacier claim, insisting its work is balanced and its conclusions are sound.

Climategate: Emails authentic, major blow to anthropogenic global warming theory

Youtube
Tuesday, Nov 24th, 2009

Former minister MP Peter Lilley discusses on RT the scandal dubbed Climategate, after the University of East Anglias Climate Research Unit (CRU) servers were hacked into, bringing to public attention many emails and documents from scientists that suggest data on climate change has been manipulated to suit the Global Warming “Theory”.

How much imaginary gold has been sold?

GATA
Adrian Douglas
Friday, October 16, 2009

On October 10 I published an article that postulated that the gold market is a Ponzi scheme because it sells gold that doesn’t exist by implementation of the principles of fractional reserve banking. (See http://www.gata.org/node/7887.) Since writing that article further information has come to light that supports this claim and allows an estimate of how much gold has been sold that doesn’t exist if the owners of the gold ask for it.

In other words, there are several owners for each ounce of physical gold.

By complete coincidence Paul Mylchreest of The Thunder Road Report has just written an in-depth study into the daily trading volumes of gold on the London over-the-counter market, which can be found here:

http://www.gata.org/files/ThunderRoadReport-10-15-2009.pdf

The London OTC market is where most physical gold is traded. This market is a wholesale market where trades are conducted only between the bullion trading houses on behalf of their clients. About 95 percent of the trading is by way of gold that is held in unallocated bullion accounts.

The unique characteristic of gold is that about 50 percent (80,000 tonnes) of the above-ground stocks are held as a store of wealth (investment). The other 50 percent exists as jewelry. When gold is bought as a store of wealth it can perform that function for you wherever it is in the world. Given this unique characteristic many large investors in bullion prefer to leave their gold with the bullion dealer from whom they bought it so that it can be stored in their vault and easily resold. This is identical to the situation with stocks, where most stock certificates are held by brokerage houses, not by individuals.

That people are buying and selling gold without ever taking delivery means that there is the opportunity for bullion houses to sell gold that doesn’t exist.

Now the bullion houses probably don’t view this as illegal or dishonest because they will operate a fractional reserve type of system, just as the banks do with fiat currency, and will make sure they have enough gold on hand for what would be the maximum estimated volume of gold that could be called for delivery. After all, trading is done with unallocated gold, so how much more unallocated can it get if it doesn’t exist at all?

This is what caused bank runs in the days of the gold standard. People would deposit gold in a bank and receive bank notes (dollar bills) in exchange. At any time the depositor could return and hand over his bank notes and receive from the bank the same quantity of gold he deposited. The banks realized that under normal circumstances a maximum of about 10 percent of the gold deposited could be requested. So the banks saw an opportunity. They could issue up to 10 times as many bank notes in loans as there was gold in the bank and they could earn interest on the bank notes. The system worked until there was difficulty meeting withdrawals. Then word spread quickly that the bank was insolvent, and as holders of the banknotes rushed to the bank to redeem them for gold, the bank would admit it had insufficient gold and would declare bankruptcy.

The origin of the word “bankruptcy” is from the Latin words “bancus” and “ruptus,” which means literally that the bank is broken. Banks have gone bust frequently enough to have earned themselves the ownership of the word to describe the phenomenon. Isn’t that ironic when banks are meant to be a safe store for money?

This basic scam is at the center of modern gold market manipulation. Instead of real gold, paper substitutes for gold are sold through derivatives, futures, pooled accounts, exchange-traded funds, gold certificates, etc. I estimate that each actual physical ounce of gold has multiple ownership claims to it.

For the scam to be sustained there must always be plentiful physical gold for those who want it. The market is, in effect, a giant inverted pyramid with a huge paper gold market being supported by a small amount of physical gold at the tip of the inverted pyramid. The scam can continue until there are indications of a shortage of physical gold. If all the claimants of each ounce of real gold demand their gold, then there is the potential for a squeeze such as has never been seen before.

To lend support to the idea that all the gold in the world has been sold several times over I cite the case of Morgan Stanley, which was sued in 2005 for selling non-existent precious metals. Morgan Stanley even had the audacity to charge storage fees. The firm settled the class-action lawsuit out of court but no criminal charges were ever filed. If Morgan Stanley was doing this, you can bet that it is the tip of the iceberg.

Paul Mylchreest has done fabulously detailed research into data on the daily trading of gold on the London OTC market. He concludes that 2,134 tonnes of gold are traded each and every day. That is a shocking number because this is 346 times larger than all the gold that is mined in the world each day.

But this on its own is not sufficient evidence to indicate that the market is fraudulent. For example, if I have a 1-ounce gold coin and I have a hundred friends I could sell the coin to a friend and then he could immediately sell it back to me or sell it to one of my other friends, who could sell it back to me. If I were to transact with all my friends in the same day in this way, I could have turned over a volume of 100 ounces in trading transactions but no fraud would have occurred because the last friend I traded with owns the 1-ounce coin, even though it went through a hundred sets of hands before it got to him. There are no multiple ownership claims to the coin because the trades were sequential, not simultaneous.

But if I were to sell 1 ounce of gold to all my friends and promise I would keep the gold for them, the trading for the day would be 100 ounces but now fraud has been committed because I have a liability of 100 ounces while I have possession of only 1 ounce. If they never ask for the gold and I can pay them cash when they want to sell their gold, then there is a good chance my friends would be none the wiser … until the day when at least two friends insist on receiving the 1-ounce coins they each supposedly own.

The daily gold trading in London is simply humongous. We talk of the gold market being a tiny market. It is anything but. It has a daily turnover of $70 billion. To put this in perspective, the world consumes 86 million barrels of oil each day. The total cost of the global daily oil consumption is a mere $6 billion!

But as discussed above, the daily volume traded does not in and of itself prove that a fraudulent fractional reserve operation is being conducted. Mylchreest did some more work using statistics from the GFMS metals consultancy to determine the maximum quantity of gold stock the OTC market could be holding with which it can back the huge daily trade volume. The gold that is traded has to be in the form of London Good Delivery (LGD) bars, which are 400-ounce bars. Mylchreest estimates that there can be only about 15,000 tonnes of such bars in the world. Let us assume that the London OTC market holds them all. We will show that by comparison with the trading of other unallocated gold products that 15,000 tonnes is nowhere near enough gold stock for the gold not to have more than one ownership claim to each ounce.

The purpose of buying investment gold is for it to store wealth. This necessarily implies that it is held for a long time. If gold is bought and traded quickly it would destroy wealth, not store it, because there would be a large loss due to transactional fees. The figures we have so far suggest that the entire stock of gold of the London gold market could be turned over every seven days (15,000 / 2,134 = 7). That would hardly be characteristic of a market that is supposed to be selling a “buy and hold” product. For the purposes of illustration, in a town of 15,000 houses would you expect 2,134 houses to be sold each day? Or that each house on average would have 52 owners during the year?

Let’s compare how much of the inventory of the precious metal exchange-traded funds are traded each day to get a good idea about how frequently investors trade something they have bought as a store of wealth. The most liquid and highly traded ETF is GLD. It has 325 million shares outstanding and the fund trades on average 11.9 million shares each day. This means it trades one share each day for each 30 shares outstanding. Central Fund of Canada trades one share for each 140 shares outstanding, while the Gold Trust Unit trades one share for each 300 shares outstanding.

The GLD ETF is a way of buying, holding, or selling unallocated gold. One would expect the investors’ behavior in this ETF would be similar to those trading the unallocated accounts on the OTC. If the investor trading mentality on the London OTC is similar, then 2,134 tonnes should be 1/30th of the gold stock held by the OTC. This equates to 64,000 tonnes of gold. But Mylchreest estimates that the OTC can hold no more than 15,000 tonnes because that is the entire global stock of LGD bars. If we use the CEF example, the stock would have to be 298,000 tonnes, or by the GTU example it would have to be 640,000 tonnes.

Probably the GLD comparison is the most relevant, as that exchange-traded fund claims to hold 1,100 tonnes gold, which is comparable to the maximum 15,000 tonnes that could be held by the OTC participants. However, the OTC is restricted to wholesale traders and has a minimum trade limit of 1,000 ounces. In GLD the minimum trade is a tenth of an ounce and trading is open to everyone. Considering these limitations it is likely that OTC participants would turn over a lot less than 1/30th of the inventory in a day. But even taking the GLD estimate, the OTC participants should be holding 64,000 tonnes when according to what can be deduced from GFMS statistics they can be holding only 15,000 tonnes.

This means that each ounce has at least four owners. I think this is probably very conservative because the GLD vehicle is set up to be easily traded and in units as small as a tenth of an ounce. I would guess that it is more likely to be as high as 10 or even 20 owners to every ounce, particularly when the banking world has used a 5-10 percent reserve ratio with fiat money for a long time and bankers are creatures of habit.

This would imply that the liability for unallocated gold that has been sold is probably closer to 150,000 tonnes (taking the more conservative 10 percent figure), but the liability is backed by a totally inadequate maximum of only 15,000 tonnes of physical gold. So it’s likely that between 45,000 and 135,000 tonnes of unallocated gold has been sold that does not exist.

This is between 50 and 170 percent of the entire existing investment gold stock that has taken 6,000 years to mine and accumulate.

We are hearing of more and more cases of gold investors wanting to take physical delivery or have allocated gold.

In my recent article I said:

“A couple of months ago Greenlight Capital, the large hedge fund, switched $500 million of investment in GLD to physical gold bullion. … Apparently Germany has requested that its sovereign gold held by the New York Federal Reserve Bank be returned to Germany. Hong Kong has requested the same of the Bank of England, which stores its sovereign gold. Robert Fisk, a respected journalist for the UK’s Independent newspaper, reported this week that the Arab oil-producing states, Japan, Russia, and China have been holding secret talks to replace the dollar as the international reserve currency and as an accounting unit for trade. He reports that the basket of currencies they propose instead of the dollar would include gold. If gold is going to regain its monetary role, then you can understand why those in the know want actual physical bullion. There are some very real and significant signs that a run on the Bank of the Gold Cartel for physical gold is commencing.”

Talking of runs on the bank, Rob Kirby of Kirby Analytics in Toronto, a GATA consultant, did some brilliant sleuthing work. His sources have told him that there was panic in the London gold market around September 30 as participants in the market wanted to take delivery of their purchased gold and refused generous cash settlements that were offered instead. Central banks had to come to the rescue to provide the gold via leasing. Apparently even the central banks could not provide bars that met LGD standards, which indicates that an acute shortage of physical gold is developing and that perhaps already many OTC clients have drained a large proportion of the 15,000 tonnes of gold stock from the London OTC market.

This supports what I have been discussing above.

Paul Walker, CEO of GFMS, recently said that gold was going up because of some “large lumpy transactions in a market with a degree of illiquidity.”

If the OTC was selling only gold that the participants own, there could never be a lack of liquidity. The panic that occurred at the end of September confirms that there is a chronic lack of liquidity. This necessarily implies that there is multiple ownership of the same ounce of gold and it is, therefore, fraudulent. Leasing of gold from central banks provides only temporary liquidity, because the central banks want their gold returned at some later date, and it looks as if the bullion bankers may have dipped into that well one too many times already.

The gold market is in a precarious position. Just as in the days of the gold standard it requires only one customer not having his deposit returned to bring down the bank, because a domino effect results in all depositors asking for their deposits to be returned. If my estimates are correct, that somewhere between 64,000 and 150,000 tonnes of gold have been sold against a reserve of only 15,000 tonnes.

But how much of even this 15,000 tonnes remains?

The panic at the end of September suggests that liquidity is very tight, in which case only a small percentage of investors asking for their gold to be delivered or placed in an allocated account will blow up the gold market and expose the scam — a scam that has been repeated time and time again throughout history. Why should this time be any different?

If you think you own gold, you should take a few precautions.

If you have unallocated gold in some sort of pool account that does not have a satisfactory audit or you own shares in an ETF that does not have a reliable audit, take action. Take delivery of gold or move your investment to reliable and audited allocated storage.

If you do nothing about it and when the music stops you are left with just a piece of paper that says you own gold but no one is able to give it to you, then perhaps you will be able to take comfort in your having dismissed the German government, the Hong Kong government, Greenlight Capital, and many others as a bunch of nuts who don’t know as much as you do about counterparty risk in the gold market. But the “nuts” who are realizing that there are multiple claims to each ounce of gold will at least have their gold if they ask for it first.

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Adrian Douglas is a member of GATA’s Board of Directors and publisher of the Market Force Analysis letter (www.MarketForceAnalysis.com), which identifies market turning points. Subscribers receive bi-weekly bulletins on the markets to which they subscribe.