FDIC Q4 2008 Graphs Show No Bottom

Compiled By Anthony M. Freed

Expenses associated with rising loan losses and declining asset values overwhelmed revenues in the fourth quarter of 2008, producing a net loss of $26.2 billion at insured commercial banks and savings institutions. This is the first time since the fourth quarter of 1990 that the industry has posted an aggregate net loss for a quarter. The ?0.77 percent quarterly return on assets (ROA) is the worst since the ?1.10 percent in the second quarter of 1987. A year ago, the industry reported $575 million in profits and an ROA of 0.02 percent. High expenses for loan-loss provisions, sizable losses in trading accounts, and large writedowns of goodwill and other assets all contributed to the industry’s net loss. A few very large losses were reported during the quarter-four institutions accounted for half of the total industry loss-but earnings problems were widespread. Almost one out of every three institutions (32 percent) reported a net loss in the fourth quarter. Only 36 percent of institutions reported year-over-year increases in quarterly earnings, and only 34 percent reported higher quarterly ROAs.

Insured banks and thrifts set aside $69.3 billion in provisions for loan and lease losses during the fourth quarter, more than twice the $32.1 billion that they set aside in the fourth quarter of 2007. Loss provisions represented 50.2 percent of the industry’s net operating revenue (net interest income plus total noninterest income), the highest proportion since the second quarter of 1987 when provisions absorbed 53.2 percent of net operating revenue. As in the fourth quarter of 2007, a few institutions reported unusually large trading losses, while others took substantial charges for impairment of goodwill. Trading activities produced a $9.2 billion net loss in the quarter, compared to a loss of $11.2 billion a year earlier. These are the only two quarters in the past 25 years in which trading revenues have been negative. Goodwill impairment charges and other intangible asset expenses rose to $15.8 billion, from $11.5 billion in the fourth quarter of 2007. Other negative earnings factors included a $6.0-billion (12.8-percent) year-over-year decline in noninterest income, and $8.1 billion in realized losses on securities and other assets in the quarter, more than twice the $3.7 billion in losses realized a year earlier. The reduction in noninterest income was driven by declines in servicing income (down $3.1 billion from a year earlier) and securitization income (down $2.6 billion, or 52.3 percent).

Net income for all of 2008 was $16.1 billion, a decline of $83.9 billion (83.9 percent) from the $100 billion the industry earned in 2007. This is the lowest annual earnings total since 1990, when the industry earned $11.3 billion. The ROA for the year was 0.12 percent, the lowest since 1987, when the industry reported a net loss. Almost one in four institutions (23.4 percent) was unprofitable in 2008, and almost two out of every three institutions (62.5 percent) reported lower full-year earnings than in 2007. Loss provisions totaled $174.3 billion in 2008, an increase of $105.1 billion (151.9 percent) compared to 2007. Total noninterest income was $25.5 billion (10.9 percent) lower as a result of the industry’s first-ever full-year trading loss ($1.8 billion), a $5.8-billion (27.4-percent) decline in securitization income, and a $6.8-billion negative swing in proceeds from sales of loans, foreclosed properties, and other assets. As low as the full-year earnings total was, it could easily have been worse. If the effect of failures and purchase accounting for mergers that occurred during the year is excluded from reported results, the industry would have posted a net loss in 20081. The magnitude of many year-over-year income and expense comparisons is muted by the impact of these structural changes and their accounting treatments.

Net loan and lease charge-offs totaled $37.9 billion in the fourth quarter, an increase of $21.6 billion (132.2 percent) from the fourth quarter of 2007. The annualized quarterly net charge-off rate was 1.91 percent, equaling the highest level in the 25 years that institutions have reported quarterly net charge-offs (the only other time the charge-off rate reached this level was in the fourth quarter of 1989). The year-over-year increase in quarterly net charge-offs was led by real estate construction and development loans (up $6.1 billion, or 448.1 percent), closed-end 1-4 family residential mortgage loans (up $4.6 billion, or 206.1 percent), commercial and industrial (C&I) loans (up $3.0 billion, or 97.3 percent), and credit cards (up $2.5 billion, or 60.1 percent). Charge-offs in all major loan categories increased from a year ago. Real estate loans accounted for almost two-thirds of the total increase in charge-offs (64.7 percent).

Total reserves increased by $16.5 billion (10.5 percent) in the fourth quarter. Insured institutions added $31.5 billion more in loss provisions to reserves than they took out in charge-offs, but the impact of purchase accounting from a few large mergers in the quarter limited the overall growth in industry reserves2. The growth in reserves, coupled with a decline in industry loan balances, caused the industry’s ratio of reserves to total loans to increase during the quarter from 1.96 percent to 2.20 percent, a 14-year high. However, the increase in reserves did not keep pace with the sharp rise in noncurrent loans, and the industry’s ratio of reserves to noncurrent loans fell from 83.9 percent to 75.0 percent. This is the lowest level for the “coverage ratio” since the third quarter of 1992.

Total assets of insured institutions increased by $250.7 billion (1.8 percent) in the fourth quarter. The growth was driven by a $341.7-billion (194.3-percent) increase in balances with Federal Reserve banks. While 1,069 banks reported increases in reserve balances during the quarter, five banks accounted for more that half of the entire industry increase. Net loans and leases fell by $130.6 billion (1.7 percent), as several large institutions restructured their loan portfolios. Three large banks accounted for all of the decline in the industry’s loans during the fourth quarter; most institutions grew their loan balances in the quarter. Almost two-thirds of all institutions (64.2 percent) reported increases in their loans and leases, while only about half as many institutions (2,894 institutions, or 34.8 percent of all reporters) had declines in their loan portfolios.

The number of FDIC-insured commercial banks and savings institutions reporting financial results fell to 8,305 at the end of 2008, down from 8,384 at the end of the third quarter. The net decline of 79 institutions was the largest since the first quarter of 2002. Fifteen new institutions were chartered in the fourth quarter, the smallest number in any quarter since the third quarter of 1994. Seventy-eight insured institutions were absorbed into other institutions through mergers, and 12 institutions failed during the quarter (five other institutions received FDIC assistance in the quarter). For all of 2008, there were 98 new charters, 292 mergers, 25 failures and 5 assistance transactions. This is the largest number of failed and assisted institutions in a year since 1993, when there were 50. At year-end, 252 insured institutions with combined assets of $159 billion were on the FDIC’s “Problem List.” These totals are up from 171 institutions with $116 billion in assets at the end of the third quarter, and 76 institutions with $22 billion in assets at the end of 2007.

Source:  FDIC.gov

Heartland Now Under SEC Investigation

By Anthony M. Freed, Information-Security-Resources.com Financial Editor.

(Click to Enlarge)

During Heartland Payment Systems (HPY) quarterly Earnings conference call, CFO and President Robert Baldwin revealed that Heartland is indeed under SEC investigation, though the details of exactly why they are being investigated have not been released.

Company President and Chief Financial Officer Robert Baldwin Jr. disclosed the investigations during Heartland’s quarterly conference call with investigators (sic) Tuesday, saying that the SEC had launched an informal inquiry into the company and that there is also a related investigation by the Department of Justice. The U.S. Department of the Treasury’s Office of the Comptroller of the Currency (OCC), which regulates national banks and their service providers, has launched an inquiry, as has the FTC, he said.

Reached Wednesday, a Heartland spokesman could not say why the SEC was investigating the company.

However, the investigation may relate to stock trades made by Heartland Chairman and CEO Robert Carr after Visa notified Heartland of suspicious activity on Oct. 28, 2008. According to insider trade filings, Carr sold just under US$8 million worth of stock between Oct. 29 and the day the breach was disclosed. Heartland’s stock was trading in the $15-to-$20 range for most of these transactions, but it dropped following the breach disclosure. It closed Wednesday at $5.49.

This is trenchant to my January 29 analysis about the possibility that knowledge of the 2008 information breach may have influenced stock trades by Heartland CEO Robert O. Carr.  The article prompted an email response direct to me from Heartland representatives in which  they categorically denied any illicit trading activity on the part of Carr:

At the time of this announcement, Mr. Carr was not under any trading restrictions pursuant to the company’s insider trading policy and was not in possession of any material non-public information concerning the company. Under this 10b5-1 plan, programmed sales of company stock were made on Mr. Carr’s behalf, and he had no discretion regarding the timing or other aspects of those sales.

Although he was not required to do so, Mr. Carr terminated his 10b5-1 when the company confirmed the security breach it disclosed in the company’s press release of January 20, 2009. As has been reported, Heartland first learned of a potential problem from the card associations on October 28th of last year, well after the announcement of this 10b5-1 plan. Heartland categorically denies that Mr. Carr was aware of a potential security breach at the time he adopted his trading plan.

As CEO of the sixth largest payment card processor, I would hope that Carr would at times possess some non-public information on the company he built, but that is a topic for a different discussion on the overall CEO performance levels and our failing economy.

Here is the time line of the breach and Carr’s trades so far:

May 14, 2008:  Breach reported to have began May 20, 2008 Carr Makes first stock sale of the year, 2695 shares August (first week), 2008:  CEO Robert Carr’s 10b5-1 is proposed August 8, 2008:  Board approves 10b5-1 plan August 8 – August 14, 2008:  Carr makes six separate sales of stocks totalling 60,000 shares August 19, 2008:  Breach reported to have ended August 28, 2008:  Carr sells 80,000 shares September 3, 2008:  Carr sells 80,000 shares September 17, 2008:  Carr sells 80,000 shares October 15, 2008:  Carr sells 80,000 shares October 28, 2008:  Visa and MasterCard notify Heartland of problems; Carr sells 80,000 shares November 6, 2008:  Carr sells 80,000 shares November 20, 2008:  Carr sells 80,000 shares December 11, 2008:  Carr sells 80,000 shares December 26, 2008:  Carr sells 42,900 shares January 7, 2009:  Carr sells 80,000 shares January 12, 2009: Carr suspends his 10b5-1 stock selling plan January 20, 2009:  Breach Announced Sources:  (http://www.secform4.com/insider-trading/1144354.htm) (http://www.2008breach.com/)

Revelations that the SEC is investigating the stock trades comes on top of class action lawsuits spurred by the breach, as well as a steady decline in stock price.

Heartland has also been hit with a class-action lawsuit relating to the breach, which was publicly disclosed on Jan. 20. “We may, in the future, be subjected to other governmental inquiries and investigations,” Baldwin said during the call. “We intend to vigorously defend any claims asserted against us.”

An unofficial transcript of Heartland’s call can be found here.

The Heartland breach, which has now affected more than 500 banks across the country, leaving an untold number of consumers at risk of financial identity theft and Heartland stakeholders with a loss exceeding 50% in about one month’s time.

There is also another “undisclosed” breach which we are hearing about.  The breach itself has already been confirmed by Visa, and it is possible the breach will exceed Heartland in size.

Our team has been predicting that 2009 will be the year that InfoSec moves to the forefront of the economic crisis with Homeland Security implications.  We believe the somewhat obscure issue will be as familiar to the American public as the notorious subprime and pay option ARMs have in the last year or two.

Much like the meltdown of the mortgage industry, the revelations of lax governance in the handling of sensitive and private data will likely shock the public and the business community alike, and those revelations are bound to come all too painfully slow, especially for shareholders.

The data loss debacle at Heartland highlights the fact that the failure to secure information is the next major shareholder derivative, director and officer liability, regulatory, consumer product safety, and class-action issue to impact our economy.

More updates to follow.

More Heartland News:

Heartland Now Under SEC Investigation

Another Payment Card Processor Hacked

Heartland Breach: Fraud Activity Reported

Heartland Update: Reps Respond to Questions

Did Heartland CEO Make Insider Trades?

Anthony is a researcher, analyst and freelance writer who worked as a consultant to senior members of product development, secondary, and capital markets from the largest financial institutions in the country during the height of the credit bubble. Anthony’s work is featured by leading Internet publishers including Reuters, The Chicago Sun-Times, Business Week’s Business Exchange, Seeking Alpha, and ML-Implode.

The Author gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to Information-Security-Resources.com

Problematizing Israel’s “Right to Exist”

By Guest Author Semyon Dukach

Most men have wives. Studies have shown married men to be happier than single men. They live longer, commit fewer crimes, and are more likely on average to actively raise their children than single men.

Likewise married women are measurably happier than single women on average, and children do better when raised by two married parents, so it’s safe to say that marriage overall does society more good than harm.

Yet despite the many benefits of marriage and family values, we simply do not talk about a man’s right to a wife. In a world without slavery, a right to a wife makes no sense at all; one could state with certainty that there is obviously no such thing.

It is less obvious but equally true that there’s no such thing as an absolute right to health care. You can have a right to be left alone, a right to speak your mind, a right to pray to your own god in your own language, but you can’t have a right which requires that another human being go to school for 24 years and then treat you for free.

You might want free health care, you might need free health care, we as a society probably ought to provide some level of free health care to everyone, but no one can claim free health care as an inalienable right, for the simple reason that it requires the services of others who have not been born under a symmetrical obligation.

The notion of restricting the concept of human rights only to natural rights that don’t require the services of others is perhaps the biggest reason why the approach taken by Jefferson in the American Declaration of Independence has had so much more traction and political acceptance than the broader unrestricted case for entitlement proclaimed in the UN’s still unenforced Universal Declaration of Human Rights.

Some rights are arguable; some are clear.

But no right is as fundamental as the right to exist. The right to life is the most clear-cut, basic right, and murder is the clearest right violation. It’s clear, that is, as long as you are talking about human beings. Extend it to fetuses, animals, or countries, and the right to exist becomes highly controversial, dependent on various details, and anything but clear-cut.

Supporters of abortion rights have long been angered by the wide adoption of the term “pro-life” to describe opposition to abortion. The notion that the right to life should be extended to fetuses and should override the mother’s right to make choices concerning her body is a controversial one. Framing it into a term like “pro-life” is an old attempt to influence the narrative by linking the prohibition of abortions with the most fundamental right of all. Getting to name your own controversial position is half the battle.

A widely adopted name is a crucial fulcrum in forming the perception of truth.

A similarly unreasonable extension of the right to life is made by using the concept to refer to countries. Who can oppose Israel’s right to exist if the term implies respecting the right to life of Israel’s Jewish inhabitants?

The usage is particularly insidious because it implies a simple numerical aggregation: the right of Israel to exist sounds like the combined right to life of all Israelis, which is clearly even more fundamental than the right to life of any one individual.

Given that Israel was created largely as a response to a relatively recent, deliberate, and partly successful attempt to murder every Jew in the world, it is particularly easy to associate Israel’s right to exist with that fundamental right to life, and to hold people who deny it in great contempt. But is it in fact a reasonable association?

Taking a closer look at the language, the right to exist of a certain country is a very different thing than the right to life of its inhabitants. Specifically, Israel’s right to exist refers to the right of the nation to call itself “Israel”, and by implication to consider itself a Jewish state. And that unfortunate framework demands that all others, particularly the large and growing Arab population of both Israel proper as well as of its occupied territories, also consider the nation they live in to be a Jewish state.

Arabs may have some substantial rights in Israel. In some ways their lives may be better than those of people in neighboring countries. But living in an officially Jewish state, no Arab child can grow up with the full dignity and pride of citizenship.

Even with anti-discrimination laws on the books, and amendments to the constitution ensuring that we are in fact one nation with liberty and justice for all, it took a black president for many African Americans to begin to feel equal in the United States.

Imagine how blacks and Latinos would have felt if the US was re-named to a word with the historic meaning of “White nation under God”, and they were asked to affirm its right to exist as a White and Christian State?

The framers of the American constitution had it right: The concept of the nation-state formed along ethnic lines got us out of the middle ages, but has long since outlived its usefulness.

The world is evolving away from ethnic divisions and towards equality and human rights, naturally selecting post-ethnic open-access societies, and rewarding them with prosperity. Meanwhile the same long term global evolution is slowly but surely presenting Nazi Germany and her lesser cousins, in places like Rwanda, Cambodia, and Darfur, with the ultimate future of the Tyrannosaurus Rex.

But by responding to genocide with a Jewish state, the Zionists have inadvertently surrendered their humanist ideals to survivalist realpolitik. In forming their core political philosophy as an antithesis to Hitler’s rhetoric, they have extended the damage done to them by fascism.

A more progressive, post-ethnic response would have been to create a refuge for all victims of attempted genocide, and to include all existing residents as equal citizens of this refuge-state.

Unfortunately the path of division was taken instead, resulting in 60 years of bloodshed, recriminations, and deepening desperation.

Pragmatists inside and outside of the region continue to shout for a separate but equal two-state solution. But history shows that the two ethnically divided states will never be equal, and that in the long term, states based on ethnic division will become extinct.

Only a single, pluralistic, inclusive, post-ethnic Israeli-Palestinian state will have an absolute right to exist.

And when an era of justice and equality for all comes to the region at last, ending thousands of years of pogroms and crusades, Barack Obama’s inaugural words will ring as true in the Middle East as they do now in America:

“For we know that our patchwork heritage is a strength, not a weakness. We are a nation of Christians and Muslims, Jews and Hindus – and non-believers. We are shaped by every language and culture, drawn from every end of this Earth; and because we have tasted the bitter swill of civil war and segregation, and emerged from that dark chapter stronger and more united, we cannot help but believe that the old hatreds shall someday pass; that the lines of tribe shall soon dissolve; that as the world grows smaller, our common humanity shall reveal itself; and that America must play its role in ushering in a new era of peace.”

Semyon Dukach is an angel investor, high tech entrepreneur, and former president of the MIT Blackjack Team.

More Than 500 Banks Hurt By Breach

Heartland Payment Systems Breach Updates:

If your institution has been affected in the Heartland breach and you are not on this list, please send an email to editor@bankinfosecurity.com. Include your name, email, and a phone number where you may be contacted for verification.

Following is the latest up-to-date list of institutions impacted by the Heartland breach and – where available – the total number of cards compromised:

Acadian Federal Credit Union, Fort Kent, ME
Access National Bank, Reston, VA
Achieva Credit Union, Largo, FL
Adams Bank & Trust, Grant, NE (15)
Alabama State Employees Credit Union, Montgomery, AL (4,097)
Alaska USA Federal Credit Union, Anchorage, AK (70,000)
Alerus Financial, Grand Forks, ND
Alpine Bank, Aspen, CO (3,500)
Alva State Bank, Alva, OK
Amarillo National Bank, Amarillo, TX (5,000)
Amboy Bank, Old Bridge, NJ
American Bank, Waco, TX (1,000)
American Exchange Bank, Elmwood, NE
American Bank Montana, Bozeman, MT
American National Bank, Oakland Park, FL
American National Bank, Denver, CO (2,500)
American National Bank and Trust Co., Danville, VA
American Riviera Bank, Santa Barbara, CA
American State Bank of Grygla, Grygla, MN
American West Bank, Spokane, WA
Apple Creek Banking Co., Apple Creek, OH
Apple Valley Bank, Cheshire, CT (100)
Arizona State Credit Union, Phoenix, AZ
Arkansas County Bank, Stuttgart, AR
Arvest Bank, Mountain Home, AR
Association of Vermont Credit Unions, VT (6,000)
Baker Boyer Bank, Walla Walla, WA
BancFirst, Oklahoma City, OK
Bangor Federal Credit Union, Bangor, ME (3,000)
Bangor Savings Bank, Bangor, ME (18,000)
Bank of America, St. Louis, MO
Bank of Bridger, Bridger, MT (80)
Bank of Broken Bow, Broken Bow, NE
Bank of Cape Cod, Hyannis, MA
The Bank of Edwardsville, Edwardsville, IL
The Bank of Elk River, Elk River, MN (6,000)
The Bank of Fayetteville, Fayetteville AR
The Bank of Guam, Territory of Guam
Bank of Jackson Hole, Jackson Hole, WY
Bank of Lee’s Summit, Lee’s Summit, MO
Bank of the Panhandle, Guymon, OK
The Bank of the Pacific (3,000)
Bank of Monticello, Monticello, MO
Bank of Oklahoma, Tulsa, OK
Bank of the Ozarks, Little Rock, AR
Bank of Utah, Ogden, UT (245)
Bank of Westminster, Westminster SC
The Bank of Zachary, Zachary, LA (1,200)
Bank Plus, Graettinger, IA
BankTrust, Mobile, AL
Banterra Bank, Mt. Vernon, IL
Bay Bank, Theodore, AL
Bay Vanguard FSB, Baltimore, MD
BBVA Compass, Birmingham, AL
Beacon Credit Union, Wabash, IN (4,500)(See what Beacon told their members about the Heartland Breach)
Bellwether Community Credit Union, Manchester, NH
Berkshire Bank, Pittsfield, MA
Bermuda Bank, Bermuda
Best of Iowa Community Credit Union, Hiawatha, IA
Big Horn Federal Savings Bank, Greybull, WY (650)
Big Sky Western Bank, Bozeman, MT
Black River Country Bank, Black River Falls, WI (300)
Braham Bank, Braham, MN
Bremer Bank, St. Paul, MN (See what Bremer Bank told its customers about the Heartland breach) (7,800)
Brighton Bank, Salt Lake City, UT
The Brunswick State Bank, Brunswick NE
Butterfield Bank, Bermuda
Calhoun County Bank, Hampton, AR
California Community Credit Union, Sacramento, CA
Canadian Tire Financial Services, Niagara, Ontario, Canada (15,000)
Canandaigua National Bank, Canandaigua, NY (7,993)
Cape Cod Cooperative Bank, Cape Cod, MA (3,600)
Capital Communications Federal Credit Union, Albany, NY
Capitol Federal, Topeka, KS (14,000)
Carson National Bank, Auburn, NE
Central Bank, Arlington, MA
Central National Bank, Enid, OK
The Central National Bank and Trust Company of Enid, Enid OK, (1600)
Central Savings Bank, Sault Ste. Marie, MI (300)
Century Bank and Trust, Milledgeville, GA
Century Bank FSB, Sarasota, FL (2,200)
Century Bank of Kentucky, Lawrenceburg, KY (1,000)
Charleroi Federal Savings Bank, Charleroi, PA
Charles River Bank, Medway, MA
The Charlotte Fire Department Credit Union, Charlotte, NC
Charter Oak Bank, Napa, CA
Chase Bank, Utah
Chocolate Bayou Community FCU, Alvin, TX (2500)
Citigroup Inc., New York, NY
The Citizens Bank of Winfield, Winfield, AL
Citizens Bank Corvallis, OR
The Citizens Bank of Swainsboro, Swainsboro, GA
The Citizens Bank of Weston, Weston, WV (550)
Citizens National Bank of Park Rapids, Park Rapids, MN
Citizens State Bank of Clayton, La Crosse & Onalaska, WI
Citizens State Bank, New Baltimore, MI
Citizens State Bank, Perry, FL (400)
Citizens State Bank of Roseau, Roseau, MN (700)
Citizens State Bank of Loyal, Loyal, WI
Citizens Trust Bank, Atlanta, GA (1,000)
Citizens & Northern Corporation, Wellsboro, PA
Clay County Savings Bank, Liberty, MO (900)
Coloramo Federal Credit Union, Grand Junction, CO
Columbia Bank, Lake City FL
Columbia River Bank, The Dalles, OR
Columbus Community Bank, Columbus, GA (50)
Comerica Bank, Springfield, OH
Communication Federal Credit Union, Oklahoma City, OK (6,700)
Commercial & Savings Bank, Millersburg, OH
Community Bank, Alva, OK
Community Bank of Broward, Weston, FL
Community Bank of The Red River Valley, Grand Forks, ND
Community First Bank, New Iberia, LA
Community First National Bank of Mountain Home, Mountain Home, AR
Community One, Asheboro, NC
Community Savings Bank, Edgewood, IA (1,000)
Community Spirit Bank, Red Bay, AL
Concorde Bank, Blomkest, MN
Consumers Credit Union, Kalamazoo, MI
Cooperative Extension Service Federal Credit Union, Little Rock, AR
Coronado First Bank, Coronado, CA
Core First Bank, Topeka, KS
Countybank, Greenwood, SC (3,000)
Credit Union 1, Rantoul, IL
Credit Union 1 of Kansas, Topeka, KS
Credit Union 1, Fairbanks, AK (8,256)
CU Community Credit Union, Springfield, MO (16)
Cumberland County Federal Credit Union, Falmouth ME
Cumberland Security Bank, Pulaski, KY
Custer Federal, Broken Bow, NE
CWV Tel Federal Credit Union, Clarksburg, WV
Dairy State Bank, Rice Lake, WI (1,500)
Davison State Bank, Davison, MI
Dearborn Village Community Credit Union, Dearborn, MI
Dedham Savings, Dedham MA
Denali Alaskan Federal Credit Union, Anchorage, AK (10,300):
Denali State Bank, Fairbanks AK (1,000)
The Dewey State Bank, Dewey, IL (150)
Dime Bank, Norwich, CT
Dollar Bank, Pittsburgh, PA
Dupaco Community Credit Union, Dubuque, IA
DuTrac Community Credit Union, Dubuque, IA
EarthMover Credit Union, Oswego, IL (600)
East Dubuque Savings Bank, Dubuque, IA
East Wisconsin Savings Bank of Kaukauna, WI (600)
Eastern Maine Medical Center Federal Credit Union, Bangor, ME
Eastman Credit Union, Kingsport, TN
Elevations Credit Union, Denver, CO (35,000)
The Elkhart State Bank, Elkhart, TX (500)
Elliott Federal Credit Union, Jeanette, PA (100)
El Paso Employees Federal Credit Union, El Paso, TX (1,000)
Emporia State Federal Credit Union, Emporia, KS
Employees Credit Union, Dallas, TX
Emprise Bank, Wichita, KS
Enrichment Federal Credit Union, Oak Ridge, TN
Enterprise Bank of Florida, Palm Beach Gardens, FL
Enterprise Bank, Lowell, MA (3,000)
EPB Employees Credit Union, Chattanooga, TN, (300)
ESB Financial, Emporia, KS
Evansville Federal Credit Union, Evansville, IN
Extraco Banks, Killeen, TX (9,000)
F&A Federal Credit Union, Monterey Park, CA
Fairmont Federal Credit Union, Fairmont, WV
Family Community Credit Union, Charles City, IA
Family First Federal Credit Union, Orem, UT (3,600)
Farmers & Merchants Bank, Waterloo, AL
Farmers and Merchants Bank, Stuttgart, AR
Farmers & Merchants State Bank, Archbold, OH
Farmers National Bank, Lebanon, KY (500)
Farmers National Bank, Emlenton, PA (5,000)
Farmers State Bank of Ohio, West Salem, OH
Farmers State Bank, West Bend, IA
Farmers Trust & Savings Bank, Spencer, IA (725)
Fidelity National Bank, West Memphis, AR (1,463)
Fifth Third Bank, Cincinnati, OH
The First, A National Banking Association, Hattiesburg, MS
First & Farmers National Bank, Pulaski, KY
First American Bank, Elk Grove Village, IL
First Bank, Azle, TX (3,000)
First Bank & Trust, Brookings, SD
First Bank Blue Earth, Blue Earth, MN
First Bank of Delaware, Wilmington, DE
First Bankers Trust Company, Quincy, IL
1st Bank, Evanston, WY
First Bank Montana, Lewistown, MT
First Bank and Trust of East Texas, Lufkin, TX
First Century Bank, Claiborne County, TN
First Chatham Bank, Savannah, GA
First Cheyenne Federal Credit Union, Cheyenne, WY (500)
First Citizens National Bank, Charles City, IA
First Community National Bank, Steelville, MO
First County Federal Credit Union, Muncie, IN
First Dakota National Bank, Yankton, SD
First Enterprise Bank, Oklahoma City, OK
First Federal, Port Angeles, WA (3000)
First Federal Bank, Harrison, AR
First Federal Bank, Dickson, TN (5,057)
First Federal Bank of Florida, Lake City, FL
First Federal Savings Bank, Rochester, IN (3,500)
First Federal Savings Bank of Iowa, Fort Dodge, IA
First Financial Bank NA, Terre Haute, IN
First Financial Credit Union, Albuquerque, NM
1st Financial Federal Credit Union, St. Louis, MO (6,000)
1st Gateway Credit Union, Clinton, IA
First Lincoln Federal Credit Union, Lincoln, NE (259)
First Mid-Illinois Bank & Trust, Matoon, IL
First National Bank Alaska, Anchorage, AK
First National Bank of Central Texas, Waco, TX
First National Bank & Trust, Syracuse, NE (300)
First National Bank, Bastrop, TX (1,800)
First National Bank of Burleson, Burleson, TX
First National Bank of Monterey, Monterey, IN
First National Bank of Colorado, Ft. Collins, CO
First National Bank, Carmi, IL
First National Bank of Farragut-Shenandoah, IA (60)
First National Bank of Hutchinson, KS (1,000)
First National Bank Pratt, Pratt, KS
First National Bank, Seiling, OK
First National Bank of Crystal Falls, Crystal Falls, MI
First National Bank, Spearman TX
1st Pacific Bank of California, San Diego CA
First Security Bank, Missoula, MT
First Security Bank & Trust, Charles City, IA (1,400)
1st Source Bank, South Bend, IN
First State Bank of Illinois, Carthage, IL
First State Bank, Nora Springs, IA
First State Bank, Russellville, AR (1,500)
First State Bank of Kansas City, KS (400)
First State Bank of Scottsbluff, Scottsbluff, NE (200)
First State Bank, Union City, TN (9,300)
First State Community Bank, Farmington, MO
First Tech Credit Union, Portland, OR
FirstTrust Bank, Philadelphia, PA (3,000)
Five Points Bank, Hastings, NE (200)
Fleetwood Bank, Fleetwood, PA
Florence Savings Bank, Florence MA
Forcht Bank, Kentucky (8,500)
Forest Park National Bank & Trust Co., Forest Park, IL (500)
Four Corners Community Bank, Farmington, NM
Franciscan Skemp Credit Union, La Crosse, WI
Fraternal Order of Police Credit Union, Tulsa, OK (600)
Freedom Credit Union, Springfield, MA (2,400)
Fresno County Federal Credit Union, Fresno, CA
FSG Bank, Chattanooga, TN
Fullerton Community Bank, Fullerton, CA (78)
Fulton Bank, Lancaster, PA
Galveston Government Employees Credit Union, LaMarque, TX
Gate City Bank, Fargo, ND
Gateway Bank of Central Florida, Ocala, FL
GCS Federal Credit Union, Pontoon Beach, IL
GECU, El Paso, TX (25,000)
Georgetown Savings Bank, Georgetown, MA
GFA Federal Credit Union, Gardner, MA
Glacier Bank, Kalispell, MT
The Gordon Bank, Gordon, GA (300)
Great Lakes Credit Union, Great Lakes, IL
Great Southern Bank, Springfield, MO
Greater Nevada Credit Union, Carson City, NV
Greater Rome Bank, Rome, GA
Guaranty Bond Bank, Mt. Pleasant, TX
Guaranty Bank and Trust, Denver, CO
Gulf Coast Community Bank, Pensacola, FL
Happy State Bank and Trust, Happy, TX (2,000)
Hawaii Pacific Federal Credit Union, Honolulu, HI
Healthcare Employees FCU, Princeton, NJ (452)
Health Facilities Federal Credit Union, Florence, SC (3,500)
HealthFirst Federal Credit Union, Waterville, ME (261)
Heartland Bank, St. Louis, MO
Heritage Bank, Hastings, NE (50)
Heritage Bank of Nevada, Reno, NV
Heritage South Credit Union., Sylacauga, AL (600)
Heritage Valley Federal Credit Union, York County, PA
Home Federal Bank, Treasure Valley, ID (1,800)
Huntington Bank, Ashland, OH
Huntingdon Valley Bank, Warminster, PA
Huron Community Bank, East Tawas, MI
Hyperion Bank, Philadelphia, PA
IberiaBank, Lafayette, LA
Idadiv Credit Union, Nampa, ID
Independent Bank, Ionia, MI
Indiana State University Federal Credit Union, Terre Haute, IN (1,300)
Indiana University Credit Union, Bloomington, IN
Industrial Credit Union of Whatcom County, Bellingham, WA
Innovations Federal Credit Union, Bay County, FL (400 cards)
Integra Bank, Evansville, IN
International Bank of Commerce, Laredo, TX
INterra Credit Union, Goshen IN
Iowa State Bank, Ruthven, IA
Iowa State Bank and Trust Company, Fairfield, IA
Iowa State Savings Bank, Knoxville, IA
Iowa Trust and Savings Bank, Emmetsburg, IA (700)
Jeanne D’Arc Credit Union, Lowell, MA (500)
Jefferson Bank, Dallas, TX, (200)
Johnson Bank, Racine, WI
Kellogg Company Employee Federal Credit Union, Omaha, NE
Kennebec Savings Bank, Augusta, ME (1,500)
Kennebunk Saving Bank, ME (7,000)
Killbuck Savings Bank, Killbuck, OH
Kinecta Federal Credit Union, Manhattan Beach, CA
Kootenay Savings, Trail, British Columbia, Canada
La Loma FCU, Loma Linda, CA (300)
Lake Country Community Bank, Morristown MN (245);
Landmark Credit Union, New Berlin, WI
Lassen County Federal Credit Union, Susanville, CA (600);
Laurens State Bank, Emmetsburg, IA;
Legence Bank, Evansville, IN;
Liberty Bank, Cheshire, CT;
Liberty Bank, South San Francisco, CA;
Lutheran Credit Union, Brea, CA
Machias Savings Bank, Machias, ME
Maple City Savings Bank, FSB, Hornell, NY
Marine Bank and Trust, Carthage, IL
Marlborough Savings Bank, Marlborough, MA
Mascoma Savings Bank, White River Junction, VT
mBank, Manistique, MI
McCone County Federal Credit Union, Circle, MT
Members Choice Credit Union, Houston, TX
Mercer County State Bank, Sandy Lake, PA (2,516)
Merchants & Southern Bank, Gainesville, FL
Mercy Family Credit Union, Mason City, IA
Merrill Bank, Bangor, ME (156)
Metro North Federal Credit Union, Waterford, MI
Michigan Catholic Credit Union, Troy, MI
Mid America Bank & Trust Co., Rolla, MO (200)
MidFirst Bank, Tulsa, OK
Mid-Oregon Credit Union, (4,000)
Minnwest Bank, Redwood Falls, MN
Mission Bank, Bakersfield, CA
M&I Bank
M & T Bank, Buffalo, NY
Monad Federal Credit Union, Pasco, WA
Monroe Bank & Trust, Monroe, MI
MountainCrest Credit Union, Arlington, WA
Mountain West Bank, Couer d’Alene, ID
Mt. McKinley Bank, Fairbanks, AK
Municipal Employees Credit Union Oklahoma City, OK
Mutual Bank, Muncie, IN (8,000)
NAFT Federal Credit Union, Pharr, TX (250)
Nantahala Bank And Trust Company, Franklin, NC
NAS JRB Credit Union, New Orleans, LA
National Bank of Delaware County, Delaware County, NY
NBC Oklahoma, Oklahoma City, OK
Nebraska Land National Bank, NE (150)
Nebraska State Bank, Broken Bow, NE
Newburyport Five Cents Savings Bank, Newburyport, MA
NIH Federal Credit Union, Rockville, MD
Norfolk Municipal Employees Federal Credit Union, Norfolk, VA
North Alabama Educators Credit Union, Huntsville, AL
North American Savings Bank, Kansas City, MO
North Country Savings Bank, Canton, NY
North Iowa Community Credit Union, Mason City, IA
North Star Community Credit Union, Maddock, ND
North Valley Bank, Redding, CA (11,000)
Northeast Family Federal Credit Union, Manchester, CT
Northern Indiana Federal Credit Union, Merrillville IN (600)
Notre Dame Credit Union, South Bend, IN (2,000)
Oak Valley Community Bank, Oakdale, CA
O Bee Credit Union, Tumwater, WA (See what O Bee told its members: http://www.obee.com/)
Ohio Valley Community Credit Union, Clarington, OH (690)
Ohio University Credit Union, Athens, OH (8,500)
Oklahoma Central Credit Union, Tulsa, OK
Old National Bank, Mt. Vernon, IL
Old National Bank, Evansville, IN
Old West Federal Credit Union, John Day, OR (1,000)
OptumHealthBank, Salt Lake City, UT
Oregon Territory Federal Credit Union, Salem, OR
P&S Credit Union, Salt Lake City, UT
Pacific Western Bank PacWest Bancorp, San Diego, CA
PALCO Federal Credit Union, Muncy, PA (1,214)
Parsons Federal Credit Union, Pasadena, CA
Patriots Bank, Kansas City, MO
Patterson State Bank, Patterson, LA
Pentagon Federal Credit Union, Alexandria, VA
PeoplesChoice Credit Union, Saco, ME. (500)
Peoples National Bank, Mt. Vernon, IL (2,927)
Peoples State Bank, Wyalusing, PA
People’s State Bank in Wausau, WI
Piedmont Credit Union, Danville, VA (15)
Pine Bluff National Bank, Pine Bluff, AR
Pinnacle Bank, NE
Pinnacle Bank of South Carolina, Greenville, SC
Pinnacle Federal Credit Union, Edison, NJ
Pioneer Credit Union, Green Bay, WI
The Pittsfield Cooperative Bank, Pittsfield, MA
Planters & Citizens Bank, Camilla, GA (340)
Platte Valley National Bank, Scottsbluff, NE (388)
Poplar Bluff Federal Credit Union, Poplar Bluff, MO (998)
Port Alliance Federal Credit Union, Norfolk, VA (700)
Prairie Federal Credit Union, Minot, ND
Premier Bank, Dubuque, IA
Prosperan Bank, Oakdale, MN
Provident Bank, Baltimore, MD
Public Service Credit Union, Denver, CO
Pulaski Bank, Little Rock, AR
Rainier Pacific Bank, Tacoma, WA (5,700)
Redding Bank of Commerce, Redding, CA (4,000)
Regions Financial Corp., Birmingham, AL
Republic Bank, Louisville, KY
The RiverBank, Osceola, WI
Rivermark Credit Union, Portland, OR
River Valley Credit Union, Miamisburg, OH
Rockville Bank, Rockville, CT
Rocky Mountain Law Enforcement Federal Credit Union, Denver, CO
Rosedale Federal Savings & Loan Association, Baltimore, MD
RTP Federal Credit Union, Durham, NC
SAFE Credit Union, North Highlands, CA
Sanford Institution for Savings, Sanford, ME
San Mateo Credit Union, Redwood City, CA (10,000)
Savings Bank of Danbury, Danbury, CT
Sawyer Savings, Saugerties, NY
Schertz Bank & Trust, Schertz, TX (600)
Schools First FCU, Orange County, CA
School Systems Federal Credit Union, Troy NY
Security Federal Savings Bank, Logansport, IN
Security Service FCU, San Antonio, TX
Select Employees Credit Union, Sterling, IL (100)
SESLOC Federal Credit Union, San Luis Obispo, CA
Shelby Savings Bank, Center, TX (600)
Shell New Orleans Federal Credit Union, New Orleans, LA (1,800)
Shore Community Bank, Toms River, NJ (283)
Show Me Credit Union, Mexico, MO
Silver Lake Bank, Topeka, KS (900)
Simmons First National Corp., Pine Bluff, AR
Southern Missouri Bank of Marshfield, Marshfield, MO
South Central Credit Union, Jackson, MI (650)
South City Bank, Vestavia Hills, AL
SouthFirst Bank, Sylacauga, AL
Southside Credit Union, San Antonio, TX (775)
Sovereign Bank, Northeast U.S.
Spirit Bank, Belmont, MS
Spokane Media Federal Credit Union, Spokane, WA (330)
St. Agnes Employees FCU, Baltimore, MD (550)
Star Financial Bank, Fort Wayne, IN
State Bank of Countryside, Countryside, IL
State Bank of Chandler, Chandler, MN
The State Bank, Fenton, MI
The State Bank, La Junta, CO (2075)
State Bank of Texas, Irving, TX
State Employee’s Credit Union (SECU), Raleigh, NC (60,000)
State Highway District #5 Credit Union, Yakima, WA (268)
The Stephenson National Bank & Trust, Marinette, WI (884)
Sterling Savings Bank, Spokane, WA
St. Mary’s Bank, Manchester, NH (4,300)
The Stock Exchange Bank, Woodward, OK
Stockman Bank, Billings, MT
Summit Federal Credit Union, Rochester, NY (500 cards)
Sundown State Bank, Denver City, TX
Sun West Bank, Las Vegas, NV
Superior Bank, Birmingham, AL
Surrey Bank & Trust, Mount Airy, NC
Susquehanna Bank, Lancaster, PA
TD Bank, Portland, ME
TD Bank North, Portland, ME
TelComm Credit Union, Springfield, MO
Telesis Community Credit Union, Chatsworth, CA, (2,360)
Texas Bank & Trust, Longview, TX
TierOne Banks, Broken Bow, NE
Timberland Bank, Hoquiam, WA
Tinker Federal Credit Union, Enid, OK
Topeka City Employees Credit Union, Topeka, KS (190)
TPS Credit Union, Toledo, OH (900)
Town & Country Bank, Ravenna, NE
Tobacco Valley Teachers Federal Credit Union, Enfield, CT
Total Community Credit Union, Taylor, MI
Town and Country Credit Union, Minot, ND
Trinity Bank, Dothan, AL (152)
Triangle Credit Union, Nashua, NH
TrustCo Bank Corp., Glenville, NY
Trustmark Bank, Jackson, MS (75,000)
Tucson Federal Credit Union, Tucson, AZ
Tulsa Teachers Credit Union, Tulsa, OK
The Twin Star Credit Union, Olympia, WA
Two Rivers Bank, Blair, NE (1,000)
Ulster Savings Bank, Kingston, NY (2,300)
United Bank of El Paso, El Paso, TX (250)
United Mississippi Bank, MS (200)
Union Bank of California, San Francisco, CA
Union State Bank, Arkansas City, KS
United Credit Union, Mexico, MO
Union State Bank, Winfield, KS
United Heritage Credit Union, Austin, TX
United Savings Credit Union, Fargo-Moorehead, ND, (450)
United Southern Bank, Umatilla FL (1,500)
University of Wisconsin-Oshkosh Credit Union, Oshkosh, WI
US New Mexico Federal Credit Union, Albuquerque, NM
USAA Federal Savings Bank, San Antonio, TX
U.S. Bank, St. Louis, MO
UT-MUO Federal Credit Union, Toledo, OH (410)
Valley Bank of Helena, Helena, MT
Valley Bank & Trust, Gering, NE (16).
Valley National Bank, Wayne, NJ (20,013)
Valley View Bank, Kansas City, MO
Virginia Bank & Trust, Danville, VA
Warren Federal Credit Union, Cheyenne, MT (1,400)
The Warrington Bank, Pensacola, FL
Washington State Employees Credit Union, Olympia, WA (4,000)
Waterford Bank, NA, Toledo, OH
Wells Fargo, Utah
Wells Federal Bank, Wells, MN (160)
WESC Federal Credit Union, Casper, WY (140)
Westar Federal Credit Union, Camillus, NY
West Branch Valley FCU, Williamsport, PA (432)
West Iowa Bank, West Bend, IA
West Michigan Community Bank, Grandville, MI
Westbound Bank, Katy, TX
Western Illinois Credit Union, Macomb, IL
Western Security Bank, Billings, MT
WestSide Bank, Hiram, GA
WGE Federal Credit Union, Muncie, IN
White Earth Reservation Federal Credit Union, Mahnomen, MN
Wright-Patt Credit Union, Dayton, OH (17,200)

Court Enforces FOIA Request to Release TARP Details

By Anthony M. Freed

Advocates of an open Government and transparent allocation of taxpayer funds celebrated the news late Friday afternoon (2-20-09) that the U.S. District court has moved to enforce a Freedom of Information Act (FOIA) request to release more details about exactly how TARP bailout funds have been and are being used.

The TARP was passed in early October, 2008, in an effort to stem the damage to the nation’s financial industry incurred during a decade of lax risk-abatement that pervaded the banking culture after the legislative emasculation of the Glass-Steagall Act.

FOX Business sued Treasury on Dec. 18 over failure to provide information on the bailout funds or respond to FBN’s expedited requests filed under the FOIA. The initial request, filed on Nov. 25, sought actual data on the use of the bailout funds for American International Group (AIG) and the Bank of New York Mellon (BK), and an additional request, filed on Dec. 1, sought similar data on the bailout funds for Citigroup (C).

FBN asked the Treasury Department to identify, among other issues, the troubled assets purchased, any collateral extended, and any restrictions placed on these financial institutions for their participation in this program.

The Treasury Department – along with the other banking regulators like the FDIC, OTS, and the Federal Reserve – are notoriously secretive concerning the data they collect and their subsequent analysis of the viability of any particular institution, preferring to operate instead behind closed doors.

This tendency often leaves investors in the dark, which generally tends to work in the banks’ favor. Regulators would argue that they are not in the business of moving markets, and that some data may be misinterpreted and inadvertently cause a run on funds at named institutions, evidenced by Schumer’s now infamous disclosure of details that may have led to the collapse of Indy Mac Bank in 2008.

That argument may have held some water until the TARP bailout effectively made the U.S. taxpayer a shareholder in any number of as yet identified institutions, and the owner of any assortment of exotic financial instruments which have proved toxic to Global capital markets.

Judge Richard J. Holwell of the U.S. District Court for the Southern District of New York said in a decision Friday that the government is directed to comply with FOX Business’s request under the FOIA “within 30 days and to produce a Vaughn index with 45 days.” That means Treasury must comply with FOX Business’s request by Monday, March 23, and must produce a Vaughn index by Monday, April 6.

The Treasury will have the chance to withhold some documents and information they deem too sensitive, but now have to provide an itemized “Vaughn index” of which documents and information have been redacted, and for exactly what reason.

“A Vaughn Index must: (1) identify each document withheld; (2) state the statutory exemption claimed; and (3) explain how disclosure would damage the interests protected by the claimed exemption.”

This may open the door to further FOIA challenges to release the remaining information if the Treasury fails to convince the courts that their vetting of information was reasonable.

I don’t think Treasury has realized that they are not the only ones who have new powers and responsibilities in the implementation of this historic bailout – the courts have yet to weigh-in on much of this, including who is ultimately going to be held responsible for the mess that is the economy, even if it is still taxpayers who have to foot the bill to clean it all up.

My guess is that the courts feel very differently about full disclosure than does the insider Wall Street elite who regulate themselves from Washington D.C. in seeming perpetuity.

Frank Rich of the New York Times wrote a good op-ed piece called What We Don’t Know Will Hurt Us, which helps further the argument that it is time to get to bottom of exactly what is going on with our economy, and why their seems to be so little consequence for the perpetrators of so much devastation.

Americans are right to wonder why there has been scant punishment for the management and boards of bailed-out banks that recklessly sliced and diced all this debt into worthless gambling chips. They are also right to wonder why there is still little transparency in how TARP funds have been spent by these teetering institutions. If a CNBC commentator can stir up a populist dust storm by ranting that Obama’s new mortgage program (priced at $75 billion to $275 billion) is “promoting bad behavior,” imagine the tornado that would greet an even bigger bank bailout on top of the $700 billion already down the TARP drain.

Remember, the fundamental point of the TARP bailout is to funnel incredible amounts of taxpayer money – debt, actually – to the very institutions and people who are responsible for driving the markets off the cliff in the first place.

And they got paid handsomely for doing it.

It is time for our nation’s financial machine to drop the self-righteous arrogance they have cloaked themselves in for too long, for all of those paper-pushing money lords to release their false sense of entitlement, relinquish their ill-gotten wealth from the last 10 years, and to return to their proper place in the economic landscape as facilitators of capital creation, not the creators of capital.

Accountability in the largest disbursement of public funds in history is not only a good idea, it is essential to our democracy, as is ending the revolving door between corporate boardrooms and the regulatory offices of our government.

The Fox Business FOIA request and the court’s decision to release more information should serve as a warning to the Wall Street good ol’ boys that their orgy of omnipotence is truly over, and that the era of accountability is in.

Banking’s Systemic Subprime Subterfuge

By Guest Author Nicholas Windrum

We have always recognised that banks have to be trustworthy for the system of money to be able to function at all. This is because the banks completely control everything that happens, or can happen to money – how reliable it is and how freely it moves from person to person.

Every time money moves from one person to another, it creates something useful and valuable:  real wealth of some sort and employment, enabling workers to use their wages to eat and house themselves.

Millions of people Worldwide are now losing their jobs, their houses and their wages enabling them to eat and survive. Homelessness and starvation is being forced on them, not because they do not want to work; on the contrary, they are pretty desperate to work. Very few people like to be idle.

The only reason these people’s lives are being wantonly destroyed is because the people and organisations in charge of maintaining the reliability and integrity of money have completely wrecked it, wrecked the whole delicate system of trading, rolling back civilisation to poverty and primitive barter as that fragile symbol of trust – money – is destroyed and debased by the very people we all trusted to cherish it on our behalf.

These people are the banks.

Money itself is simply a symbol of trust. It has no other value than to allow one person in possession of some money to pass it on to another person in exchange for something that does have real value – a loaf of bread, or something else that’s really useful, like a house to live in.

Our system of money is now in complete shambolic meltdown because nobody can trust it; it has become unreliable.

Why ?

Because it has become unreliable, individuals and businesses are unable to be certain there will be an adequate flow of money for them to continue to function. Business cannot function without reliable flows of money purchasing it’s products from which it then pays it’s workers, who are then enabled to eat and pay their mortgage.

Money was originally ‘invented’ by banks as merely a trusted symbol of exchange to replace the clumsy idea of barter. They have been in control of it ever since. It is important to be an honest person when handling money as there is always a temptation to find an excuse to keep some or all of it for yourself.

Dishonesty has always been around to some extent, and there have always been people whose job it is to handle money not belonging to them, who have stolen some.

Because theft is so damaging and disruptive, society has always sought to achieve a high degree of honest morality in all public dealings of any kind. Without it, all civilisation crumbles into anarchy, chaos and brutality. Dictatorships, violence, famine and death have always been the consequence throughout history.

In recent times the banks have invented excuse after excuse to construct more and more reasons to take some of our money we entrusted to them for themselves.

Some examples of this, and there are many, might be the quaint idea of inventing something called the penalty charge. This can range from a charge of millions to a business, or a small amount to an individual who fails to precisely control even the pettiest detail of his finances.

This results in banks looking for excuses to ‘justify’ a penalty charge and their artfully constructed self-righteous, twisted, logic then turns their honest customer into an enemy with whom the bank battles with and often then irretrievably harms by wrecking every aspect of that person’s finances.

Every time this little bit of dishonest, fraudulent dealing occurs in some tiny little corner of the financial system, a small amount of trust is destroyed and ripples out far beyond that bank and the customer it is stealing from, magnified beyond recognition as it touches huge numbers of other people.

A good example of the cumulative effect of this is the ‘sub-prime’ mortgage. This is a farce. An artificial construction by banks designed to milk outrageous amounts of money from people unable to defend themselves from what amounts to blatant fraud in a form the law describes as ‘conversion’.

Conversion is simply when you unlawfully ’convert’ property rightfully owned by another to your own use in such a devious manner it cannot be legally seen as obvious common theft because it is disguised. Sounds familiar in your dealing with banks ?

The banks deliberately set out to create this type of mortgage because it is more profitable than the old fashioned type based on honest trust and fair dealing which no longer provided enough profits to fuel the bank’s rapacious greed.

This is how it is done.

A perfectly respectable, reliable, person has an ordinary mortgage with an old fashioned building society – one of those ‘high street’ lenders. That person’s life may be disrupted by common events. It may be divorce, sickness, temporary unemployment, for example.

Nothing that would normally destroy people’s financial lives to the extent of being unable to have enough money to keep the roof over their head and feed themselves. Disruption of this sort normally happens to a huge proportion of the population.

What does a modern bank do when such a person become a few months in arrears with their mortgage ? Why, it first of all makes it more difficult for that person to recover their financial stability as the bank imposes arbitrary ‘penalty’ charges which are designed to rapidly mount up into thousands of pounds.

It then ‘black lists’ the unfortunate individual by notifying the credit agencies that they are financially unreliable. This is used as an excuse by any other financial organisation to make life even more impossible for that person by pushing them further and further into uncontrollable debt by using the excuse to milk them of more money by penalising them financially at every possible opportunity; using sanctimonious self-righteousness to blame the unfortunate individual they are manipulating for what the banks are actually doing themselves.

So, someone who may have a loan for only half the value of their house and be only as few as three months in arrears will have re-possession proceedings brought against them by the the bank. They are threatened with eviction and homelessness, with the inevitable consequences of forced unemployment, family breakup, increased debt and even illness.

The bank evicts them, and the house may remain empty so long it loses value as it deteriorates. Or it is likely to be sold at a considerable loss. That former homeowner is now blacklisted as too uncreditworthy to be lent money again by the ordinary high street mortgage lenders.

Curiously, that same bank just happens to wholly or partially own another company which also lends money for buying houses. But this one only lends to people with ‘impaired’ credit. The same sort of people who have just been refused an ordinary, standard mortgage.

People are also refused standard mortgages for infinitely more trivial reasons. They may have a county court judgement of just a few pounds against them. It may be such a frivolously brought claim they may have chosen to simply contemptuously ignore it.

But such a thing and a myriad other excuses are used by the banks to push people into the more profitable ’sub-prime’ mortgage lending arena with one of those subsidiary companies the banks own.

Or they are pushed into this rapacious ‘sub-prime’ lending market by all sorts of other restrictions manufactured by lenders.

A common one is the borrower not earning enough money to afford the ‘high street lender’s loan. Funny how that doesn’t stop the same financial organisation lending the money to the same ‘unreliable’ , ‘uncreditworthy’ person at higher rates of interest and with huge penalties imposed by another partly or even wholly owned lending business subsidiary to the one that refused the fairer loan !

Now the banks have manipulated someone into a position where the banks can produce an excuse to charge more for a mortgage – much more.

Enticed by a low starting rate of interest that escalates after a while to often as much as double monthly repayments and with penalty charges of thousands of pounds if the borrower has to terminate the mortgage in a year or two, the borrower has nowhere to turn.

All the banks collude to stop him obtaining an honest loan costing less. The banks want their extra profits ! And here is a mug who can’t complain and has nowhere to turn to and the banks know it. Don’t they just.

They have carefully manipulated their affairs by jointly creating this stranglehold over money by pooling their resources and their information to enable them to work together to create this extra profitable ‘sub-prime’ lending market. Pretty much exactly the same techniques used by the door to door rip off loan shark illegally charging annual percentage rates of thousands of per cent to impoverished workers.

It is exactly the same process at work. Fraud, theft, manipulation, threats, fear. These immoral sub-prime lenders have much in common with criminal door to door loan sharks and other thieves. Their victims are caught like flies in spiders webs. There is no escape.

But wait. It doesn’t just end there does it ? Having established this wicked system of modern banking that provides such huge profits to the banks, they wanted more. Greed is good they seemed to think. Yes, that’s what they said. Greed is good !

So they started using the same ludicrous types of manipulation on each other as lending between banks escalated beyond reason or comprehension to prop up the fragile system of deceit the banks were busy creating.

The banking system seemed to become more and more like a giant ‘Ponzi’ scheme where banks borrowed money from other banks to repay their own debts before it was discovered they had no money left at all to meet their obligations, because they had lent the lot as they forced increasingly large amounts of loans onto a gullible population who simply couldn’t understand what was going on.

All people could see was the value of houses increasing to levels of un-affordability where everyone was forced to borrow gigantic amounts of money just to have a home to live in.

But, like all ‘Ponzi’ or pyramid selling schemes based on fraud, the banking system was becoming more and more fragile. It was so riddled with double dealing, fraud, dishonesty and mistrust, banks became too fearful of even each other’s reliability to lend to each other anymore. The banks had successfully created a system based on deceit, mistrust and lies which had also spread into the whole wider community of individuals and business.

The Global banking system went into meltdown as money disappeared into the banks from wherever they could grasp it. The biggest con trick of all was persuading Governments ‘to bail them out’ by giving huge amounts of money – hundred of billions of pounds to stop them going bust and then even more of our money disappearing into oblivion.

The banks kept it for themselves where it is actually useless. Money is only useful and only performs it’s function when it keeps moving from person to person. The banks stopped the World money supply from moving.

So, in the same way the banks are the places where money is created to make trade and commerce become possible, so it is that money is destroyed and is now completely vanishing from existence by the banks being able to reverse the process.

That is exactly what the banks have done. It is the biggest fraud in history.

Looking for someone to blame other than themselves, the banks immediately blamed the ‘sub-prime’ borrowers.

The banks claimed it was all their fault because they were unreliable individuals who couldn’t afford to keep up the payments on the loans they should never have had in the first place; mainly because they were too poor to be able to afford them.

All those very bad borrowers had misled the poor innocent banks into lending them money. It was all their fault, the banks said. But they weren’t too poor for the banks to take their money, were they ?

The banks are liars. Sub-prime was deliberately created by the banks as a means to make more money and take advantage of people. and the banks in their breathtaking greed were too stupid to know when to stop, so they still haven’t stopped.

They are still foreclosing on homeowners even if there is loads of equity remaining in the property. Business loans are forcibly being demanded to be prematurely repaid to the banks and further new loans are rare and generally mostly unavailable.

So, the result is World-wide economic meltdown and poverty and misery of all sorts. Word wide trade and commerce is being destroyed by banks being irresponsible, greedy, and nasty.

Thank you very much, the banks.

PSSSST

Consider this.

A little clue it cannot be sub-prime lenders responsible for the gigantic sums of money disappearing into oblivion is simply that the amounts of money now vanishing into a black hole is apparently reaching into trillions -many trillions. It is a sum my calculator cannot understand or even cope with. So I haven’t much hope of understanding it either. Nor have you.

Let’s do some maths. If the average house price is £200 000 and the loan to buy it is 100 per cent, then one million sub-prime borrowers failing to pay a single penny of that back, ever, means a total loss to the banks of 200 000 million pounds or 200 billion pounds.

Of course this calculation is a complete fiction, because usually the banks re-possess the homes and get all their money back and then some. Sometimes, just sometimes, the banks will not be able to sell the homes for the full amount of the loan and there will be a loss. But the banks still won’t lose that money without pursuing the former homeowner for years to recover anything still owed from their wages.

The banks will not be suffering much in the way of loss from re-possessions and I imagine any losses are more than compensated by profit. So where might this loss they all whinge about be ? Search me ! Perhaps they might like to tell us ?

Here is a slightly more realistic calculation which tells another part of the story. The Council of Mortgage Lenders here in the UK say that each re-possessed house costs £35 000 to repossess. So each bad sub-prime mortgage loan is costing £35 000 and not actually the full value of the property at all.

Even that figure is misleading because it, apparently, is what the CML say the cost is, but they carefully bend the truth by omitting to mention that whole cost is usually born only by the borrower and never by the lender, unless the sale price of the property falls below the value of the loan; something almost unheard of here in the UK in normal circumstances.

But, assuming there is that cost of £35 000, and not arguing about who bears it, multiplying it by one million feckless sub-prime borrowers having their homes repossessed makes a total figure of 35 thousand million or just thirty five billion pounds,

Do you recall the hundreds of billions, even trillions of pounds forthcoming recently from Governments to subsidise the banks ? Seems to be a bit of a discrepancy here somewhere, don’t you think ?

Figures of annual repossessions in the UK were running at about 50 000 homes a year until a few months ago. Nothing like that fictional figure of one million used above. So what does fifty thousand repossessions look like costing at the official Council of Mortgage Lenders figure of £35 000 ?

Why, that comes down to only one thousand, seven hundred and fifty million pounds or 1.75 billion pounds; virtually all of which is borne by the borrower and is not a loss to the lender at all.

Frankly, I doubt if lenders even lose ten per cent of that and that would reduce the figure of apparent loss to just one hundred and seventy five million. Tiny, miniature, compared with the eye watering losses the banks are complaining about and the Governments are pumping into the banks to keep them from going broke.

As America has about five times the population of the UK you might, roughly, multiply that figure by five to get an approximate figure for the USA. At 1.75 billion it’s nothing like the losses banks are claiming sub -prime mortgages have cost them, is it ?

That’s thousands of millions, or hundreds of billions, even trillions, remember ?

The inescapable conclusion is someone is not telling the truth ! I wonder who that could be ?

I think it might be the banks.

I was always told that people who didn’t tell the truth were called liars.

If the banks are lying, and it looks like they are, then how can they be trusted to be in charge of the money supply ?

 

Nicholas Windrum is a thinker and writer living somewhere in the UK…

Also from Nick:

Rapacious Greed Reveals Banking’s Global Confidence Scheme

Another Payment Card Processor Hacked

By Anthony M. Freed

Reports are surfacing that there has been another major information security breach at a credit card payment processor, though the company has not yet been identified.  

The breach news comes less than one month after Heartland Payment Systems announced they had suffered what is likely to be the biggest PCI breach to date, possibly bigger than the TJMAX breach. 

Heartland (HPY) is the sixth largest payment processor in the nation.

There had been indications in early Heartland reports that the FBI was pursuing suspects who may be part of a larger criminal conspiracy targeting multiple companies, but there are no reports yet as to whether this latest breach is part of that investigation, or whether the revelations at Heartland led to this breach being uncovered.

From DataLossDB.org on the breach at the unknown company:Banks around the country are reportedly receiving warnings, and perhaps even new lists of cards to replace. This is apparently regarding another credit card processor, unrelated to Heartland Payment Systems, having a significant breach.

OSF has received multiple tips from multiple sources, and has spoken with the good people over at bankinfosecurity.com who have confirmed they too are hearing the exact same thing. From what we’ve heard, this second breach is significant in scale, but we have not as of yet been told who the processor is.

Also, speaking of BankInfoSecurity.com, they’ve released an article about three people being arrested for allegedly using credit cards from the Heartland Breach. And also, their list grows of institutions affected by the Heartland incident (they maintain a much more comprehensive list than we did). Hats off!

Our team has been predicting that 2009 will be the year that InfoSec moves to the forefront of the economic crisis.  We believe the somewhat obscure issue will be as familiar to the American public as the notorious subprime and pay option ARMs have in the last year or two.

Much like the meltdown of the mortgage industry, the revelations of lax governance in the handling of sensitive and private data will likely shock the public and the business community alike, and those revelations are bound to come all too painfully slow, especially for shareholders.

The data loss debacle at Heartland highlights the fact that the failure to secure information is the next major shareholder derivative, director and officer liability, regulatory, consumer product safety, and class-action issue to impact our economy.

Nearly one month after going public, few details of the Heartland breach have been released, and many questions remain regarding a long chain of events that include both the breach and also an aggressive executive 10b5-1 stock selling plan adopted in early August of last year, the same month the breach is now reported to have ended, but still five months before the breach was announced publicly.
 
Heartland Payment Systems stock price has been flat-lined since losing half of it’s value shortly after the January 20, 2009 breach announcement.  A report form komonews.com gravely illustrates that this is more than a security issue, it is a commercial viability issue: 

Heartland says it has closed the security hole that allowed criminals to infiltrate their systems, but the matter is far from settled. The company will likely have to pay big penalties to banks to reimburse the cost of issuing new cards, and analysts say the intrusion could even threaten the company’s survival if the big card brands decide to cut off Heartland from connecting to their networks.

One big payment processor, CardSystemsSolutions, went under after a 2005 data breach in which 40 million credit card accounts were compromised and the big card brands stopped doing business with CardSystems. Representatives for Visa Inc. and MasterCard Inc. declined to comment.

The latest piece of news for the Heartland timeline comes from StorefrontBacktalk.com‘s Evan Schuman:

“According to a MasterCard alert, this sniffer program stole card numbers and expiration dates from credit and debit cards processed by Heartland from May 14, 2008, through Aug. 19, 2008, as the information entered Heartland’s payment switch,”

 Here is what we know of the Heartland timeline thus far, which is not much, but it does beg for a more thorough explanation by company officials for no other reason than several important things happened in a relatively short period of time, and that alone should be reason enough:

May 14, 2008:  Breach reported to have began
May 20, 2008 Carr Makes first stock sale of the year, 2695 shares
August (first week), 2008:  CEO Robert Carr’s 10b5-1 is proposed
August 8, 2008:  Board approves 10b5-1 plan
August 8 – August 14, 2008:  Carr makes six separate sales of stocks totalling 60,000 shares
August 19, 2008:  Breach reported to have ended
August 28, 2008:  Carr sells 80,000 shares
September 3, 2008:  Carr sells 80,000 shares
September 17, 2008:  Carr sells 80,000 shares
October 15, 2008:  Carr sells 80,000 shares
October 28, 2008:  Visa and MasterCard notify Heartland of problems; Carr sells 80,000 shares
November 6, 2008:  Carr sells 80,000 shares
November 20, 2008:  Carr sells 80,000 shares
December 11, 2008:  Carr sells 80,000 shares
December 26, 2008:  Carr sells 42,900 shares
January 7, 2009:  Carr sells 80,000 shares
January ??, 2009: Carr suspends his 10b5-1 stock selling plan
January 20, 2009:  Breach Announced

HeartLand representatives maintain that company officials were not alerted to the breach until being contacted by Visa (V) and MasterCard (US:MA) officials in late October.

In an email I received from Heartland’s representatives, they state that there is no relationship whatsoever between the breach and Carr’s stock sales:

At the time of this announcement, Mr. Carr was not under any trading restrictions pursuant to the company’s insider trading policy and was not in possession of any material non-public information concerning the company. Under this 10b5-1 plan, programmed sales of company stock were made on Mr. Carr’s behalf, and he had no discretion regarding the timing or other aspects of those sales.

Although he was not required to do so, Mr. Carr terminated his 10b5-1 when the company confirmed the security breach it disclosed in the company’s press release of January 20, 2009.  As has been reported, Heartland first learned of a potential problem from the card associations on October 28th of last year, well after the announcement of this 10b5-1 plan. Heartland categorically denies that Mr. Carr was aware of a potential security breach at the time he adopted his trading plan.

I can see no reason not to take them at their word, but I also urge Heartland officials to release more information to clear up the issue, such as the documentation that Heartland’s Systems and IT departments keep to show compliance with requirements for sensitive data protection.  Hard copy confirmation that no one at Heartland was aware of any major security problems prior to October 28, 2008 would put any questions to rest with more finality than a corporate press release or an email.

Something to look forward to is the conference call with Carr now scheduled to take place in the last week of February.  The agenda state the call will discuss Q4-2008 earnings, but it seems almost certain they will address the breach then, and hopefully will provide more details regarding an eventful August 2008.

From the press release:

Chairman & Chief Executive Officer Robert Carr and President & Chief Financial Officer Robert Baldwin will host a conference call beginning at 8:30 AM Eastern Time, Tuesday, February 24, 2009, to discuss fourth quarter and fiscal year end 2008 results and conduct a question and answer session.

Heartland Payment Systems invites all interested parties to listen to its conference call broadcast through a webcast on the Company?s website. To access the call, please visit the Investor Relations portion of the Company?s website at: www.heartlandpaymentsystems.com. The webcast will be archived on the Company?s website within two hours of the live call and will remain available through Friday, May 22, 2009.

You may also participate by calling (800) 559-6679 and providing the operator with Pin Number 81829786

The SEC does require disclosure by company leadership of known threats to share price, so we should expect that more will be revealed during the call – unless the investigation would prevent the release of such information, in that case we would probably at least get some statements to that effect.

Either way it seems that much will be revealed in the call.

As for the latest breach, let’s hope it is not a record breaker and that no fraud cases are the result.  Be vigilant about checking your own credit card statements and report any suspicious activity immediately.  Then just keep your fingers crossed that we can effectively put the information security genie back in the bottle before the next breach is not just a financial security matter, but a national security event as well.

 

Anthony is a researcher, analyst and freelance writer who worked as a consultant to senior members of product development, secondary, and capital markets from the largest financial institutions in the country during the height of the credit bubble. Anthony’s work is featured by leading Internet publishers including Reuters, The Chicago Sun-Times, Business Week’s Business Exchange, Seeking Alpha, and ML-Implode. 

The Author gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to Information-Security-Resources.com.

Groucho’s Investment Club: Membership Has Rewards

Managers Actively Kill Wealth

By “Plan Orange” Author Michael White

The problem with putting your head in the sand is that you cannot see or hear. No sense gets in. Maybe this is a bright idea given the sad things we see today?  Yet you need to see and hear during a time of unrest and danger.

We are in that time now. Don’t lie to yourself that we are not in a time which may prove perilous. It has been perilous very recently and it may be again very soon. I stack up newspapers I don’t get too right away and occasionally race through maybe a week of them in an hour. I cherry pick the best stories.

One commentator I trust deeply is James B. Stewart at the Wall Street Journal. He writes the “SmartMoney” column. Mr. Stewart lives up to that name. Money managers as a group generously deserve our contempt and derision. Yet Mr. Stewart is an effective money manager and a great teacher and coach. You will make money and beat the index funds if you listen to him.

Last November he made the following observation of massive new government investment in the banking sector:

“These (injections of capital to the banking and financial system) should be good investments, since so much of the crisis is psychological, and values will rebound when confidence is restored.” (How Obama Can Fix the Economy, November 12th, 2008, Wall Street Journal).

I hope the paper didn’t make your doorstep that day.

Mr. Stewart could not have been more wrong. This crisis is not driven by a psychological dread like the fear of death or ex-girlfriends. This crisis is driven by very real facts which correctly induce fear. Even paranoids have enemies, and even the great American banks can bankrupt themselves. When they do they can take the whole world tumbling down. The world is tumbling.

Mr. Stewart’s prescience reminded me exactly of Kenneth Griffin, CEO of Citadel Investment Group. Mr. Griffin is a great king of the hedge fund world. He is also now a fantastically big loser who made a ton of money for himself prior to losing an absolutely unthinkable amount of money for other people. Will he pay a dime back from his personal kitty to help his clients crawl slowly to zero lost (forget gains for now)? Why should he have anything and take away so much from others?

“The idea that the largest banks in the world would simultaneously fail, need government support, government guarantees, and/or government intervention to survive was not in my range of realistic scenarios,”  said Mr. Griffin (Citadel Under Siege, Fortune Magazine. Dec. 9, 2008).

How do you read this sentence? Is he saying our catastrophe was impossible to see? Or did he simply fail to have basic tests in place? I know for a fact it’s the latter. He apparently thinks it’s not true. I assure you it was not difficult to foresee. He was dead wrong before the fact and he is dead wrong afterwards.

My modest proposal: Claw back the personal income of failed hedge fund managers until the claw takes as much as they have lost others. It would be a life-long sentence. And use this special tax to replenish the charities ripped off by Bernard Madoff. It’s a garnishment. And it’s progressive tax policy.

Ignorance Eternally Recurs

Mr. Griffin need not have looked far to attain reasonable intelligence ahead of his catastrophic losses. The most basic research produces great results in this crisis. What is striking about our financial crisis is not how complex it is, but how simple are its largest influences. The primary touchstone by which we should have warned ourselves of the past and by which we should guesstimate the future is hidden in plain sight.

Review the April Fool’s Day 2008 Balance Sheet of the American Economy (Unmanageable Loss. Manageable Catastrophe. New Mortgage News, April 1, 2008). It predicts systemic bank failures. That means that it predicts that many banks will fail. This work depended upon approximately three minutes of study and calculation. It has been right in every respect — except that what was then a wild prediction of losses now seems petite, thin and malnourished.

At the time the guess was $2 trillion of mortgage losses. Now the guess is $5 trillion. Five is more than two.  The five trillion is now a wild number, but I have walked this way before. Logic is my guide. The madness of crowds I will leave as your option. As you may rightly imagine, with a trillion here and a trillion there, pretty soon we are talking about real money. The money lost is very real now, as is our national bankruptcy. We need to file, but we can’t find a good attorney.

So what should you be watching?  What should you be doing?  How can you do well from this information?

Practical Matters: Your Money

First, remember cash is king. Keep your savings in cash. Deviate from this suggestion only with trepidation. Pause here. Decide. Act. Better to be safe. Remember a 2% return last year made you 30% or 40% smarter than your competition investing in stocks. Right now equity investments are unknowable because the world is too wildly in flux. Stay far away for now, even if you are smart enough to be one of those people who puts a little more in all the time. 

Debt investments are bizarre today. Many carry explicit government guarantees. Only a fool would bet against Bill Gross at Pimco. He is simply following the advice of the US Treasury and the Fed. He believes there are some fantastic investments right now. Check the article link for his advice. (What Bill Gross is Buying, January 6th, 2009, Forbes). His philosophy is that the United States government will not back out of its word guaranteeing private-sector debts.

Go with Bill if you need to get pumped up.

If at all possible, don’t buy real estate – unless you hit the seller very hard on price and anticipate values will fall 20% from today’s market values. Or unless you are in love with the property, and the love will last more than five years. If you own real estate and you need to move in the next two or three years, then try to sell now. Prices are falling at a rapid sprint pace. Don’t depend upon prayers that this will all stop.

In every way we have to rationally judge property values, the news is bad. Fully 11 of 20 major metro areas in the United States had record annual declines in the year ended Dec. 1, 2008 (Home Prices Fall At Record Pace, January 27, 2009, CNNMoney.com). That includes Chicago for my Chicago readers: Down 12.5% in a year and down 16% from peak values in September 2006. This is the most recent data available.

Don’t buy real estate: The best research on bank crises says property values will continue to fall until summer 2011. We have two more years of decline left — if we use past experience as our estimator.

Sell real estate: If you are waiting for prices to improve, you may have to wait five or ten years. Assume the price of your home will fall 25% from its value today. Then make the decision of whether or not you should sell today: Do you want to own your home in two years when it is worth 25% less than it is worth today? Remember: To know this crisis, look at the value of homes and don’t take your eye off the ball. To know this crisis, look at what will happen to the value of mortgages and don’t take your eye off the ball.

And then say to yourself:

“What will happen in a world where residential mortgages in the United States — the largest single financial market in the world — what will happen should that market experience massive unthinkable losses that will bankrupt most major financial institutions in the United States?”

Depression Redux

I cannot have knowledge of the feeling one experienced upon entering the Great Depression. I do know that this reversal feels gargantuan. There are still many mighty pretenders to the throne who appear to be solvent and who may soon find themselves fools and mass creators of poverty. The obvious cases now are Chase (JPM) and Wells Fargo (WFC). 

Why Chase and Wells? They both originated huge and aggressive second mortgage portfolios during the boom and they are now holding enormous investments in the most defective and ugly form of residential home mortgage. Godspeed, I say. Death will find you. Perhaps soon.

Wells holds $84 billion and Chase holds $94 billion of second mortgages (Oppenheimer & Co (OPPAX), September 2008). Almost 40% at Wells are in California. Both second mortgages and California are disasters.

Do you remember what to keep your eye on (property values & mortgages, property values & mortgages, property values & mortgages)? If Wells goes down, they apparently will pull down one of the kings a bit too. Warren Buffett reportedly owns 290 million share of Wells Fargo and has supposedly lost $6 billion there. I find it hard to believe this risk was not hedged.

At least the managers of Chase and Wells are just singing, dancing and clapping their hands after having created a portfolio over many years of hard work. They can’t just walk from this paper with a trade. Mr. Griffin, the hedge-fund manager, has a more difficult charge to answer. For a better understanding of Mr. Griffin, refer to any of the bylaws of Groucho’s Investment Club. 

Membership Has Its Rewards

Grouchorefused to join any club which would allow him in. He knew there would be nobody good at the club if there were types like himself allowed to join. So too any person with the personality to raise money for management is the personality which cannot manage money. How much more proof do we need? Let me count the ways for you. What follows is just a short list from the encyclopedia.

Mr. Madoff had the special touch for $50 billion. A lot of great companies could be made from $50 billion. An entrepreneur is the opposite of a money manger. They like to do things without asking for help from others. They could easily build heaven and earth with $50 billion.

Mr. Madoff’s money management results we will never apparently know. Early reports indicate there was no trading at all. He was busy shuffling the deck. Think of him as the Vermouth trader. He mixes up your savings into a martini, and then gently mouths the word “Vermouth” to keep the mix dry. This is the special insight he brought to the “Equity Hedge” category.

No better than he are active money managers in the massive mutual fund world who take one or two percent off the top every year when definitive proof demonstrates that less than one percent know what they are doing (The Prescient Are Few, July 13, 2008, New York Times).

We should give active mutual fund managers credit for returning whatever principal they don’t lose. It’s not a full Madoff. Yet in every other respect, their work is as fraudulent as his. If you fear God, don’t send your children into this field. It’s deeply unfair to a gullible investing public that active managers of mutual funds legally extract fees that they do not earn. Given their consistent non-performance, the investment warnings should blare in unambiguous language their history of failure.

Believe me when I tell you this: Their failure is very successful. A true warning would say: “Our only purpose is to collect fees. We cannot beat the performance of computer-generated index funds. We wish we could. We will give it the college try, but it will not work. We apologize in advance. Thank you for your investment. We appreciate your kindness.”

While the frauds of our world are hard to keep track of just about now, it does not mean they cannot be discovered. The active money managers are the ponzi’s extraordinaire. To those who love fraud: Your hats off to them.

The Albino Jumps for Jack

A fascinating study by Riskdata shows a simple test of the reported returns of the Madoff funds were so preposterous that the fraud was obvious and apparent (Risk Test Study of Madoff Claims, January 21, 2009, Financial Times).

Banks and regulators had to spend almost no time or money to get their man. Mr. Madoff was an albino doing jumping jacks in the nude. And Mr. Madoff was an albino to the financial press as well. Funny they would not dream of their failure as a demand for their regulation. They are in the business of information and analysis, but you will not see any sad confessions from this profession. Yet they too let Madoff go with their ignorance.

I would like to suggest a way to end this hypocrisy.

My proposal for press regulation would be consistent with logical consequences, and with the demands they are making of others. It’s a very workable plan. I think we should make them write an after-school punishment note once a month. It must be hand-written. The note will say: “I will look at both sides of the story.” They must send the note to the United States Department of Justice: Office of Journalistic Integrity.

If enacted, the free-market element in the newsroom would explode beyond expectations. There would be outrage by such massive intrusion. If we raised the penalty to writing out the punishment sentence 50 times every month, then press coverage would evolve to skew Ron Paul to the left wing.

Then we just throw in the Mickey Mouse trap.

We give them 101 different sets of rules for the after-school punishment note based upon geographic location and bureacraticwhim (I estimate the number of different legal regimes which mortgage originators comply with in the United States is equal to 101. I am not kidding.). Then they would all quit their jobs, join the border militia, take pictures of themselves carrying assault rifles, and repeatedly blow up the home of William Ayers. We would all be much safer. This plan is budget neutral.

In any case, on the whole, the ignorance and prejudice of the media throughout this crisis has been breathtaking. Their funny faddish attempts to make this all a result of deregulation and derivatives and Republicans is such a back-breaking ideological fantasy. It’s also enjoyable because it proves their dishonesty. They are now like all of us. They are fraudsters too. The poor poor precious dears are swimming in the same ocean with the rest of us. They are adapting perfectly to the salt water.

Star Biz Reporter Flunks Econ 101

My favorite illustration is Roger Lowenstein, the star business reporter of the New York Times. His little ditty on the financial crisis faults regulation and leverage and derivatives. He is outraged by all of this in the case of AIG (AIG) (Regulator in Chief, September 26, 2008, New York Times).

Yet he is forgetful about the wild glamorous sex-party of regulatory failure and infinite leverage and massive derivate exposure and major political muscle and world-leading mortgage assets at the Gatsby homes called Fannie Mae and Freddie Mac. It smells here like a Democratic-party activist.

The property depression and mortgage defaults don’t really merit any mention to Mr. Lowenstein. Monopoly as well is apparently not an appropriate subject for regulation. One assumes the pages were torn out of his Econ 101 textbook.

My opinion is that the heart and sole of some of the best questions about our financial crisis center upon this simple inquiry: Did we have good reason to support a monopoly in mortgage loans? You may not know that that question is among the most interesting. The reason you don’t know: The bias and ignorance of those who report the news to you. Facts may intrude. Funny how Mr. Lowenstein even likes the fate of our commercial banks in the crisis. They are safely under the guard of stricter regulation, he said.

“As highly leveraged investment banks, derivatives traders and unregulated hedge funds were pummeled, regulated institutions like banks were relatively stable,” said Mr. Lowenstein.

Only true if the world is cleansed of Citi (C), Wachovia (WB), and Washington Mutual (WAMUQ). They may have other brothers dying very soon. I called in for a correction on this, but the line was busy.  One wonders if the reporters remember that their fallacy is splashed forever across the front pages for all of the world to see? 

It’s only not funny when you remember that through the work of the press we will understand the nature of our failure. We will try to soften the next spectacular crash. We need great intelligence to reverse this one. Facts precede understanding. 

Mr. Lowenstein’s malpractice deserves special condemnation because every Tom, Dick and Bozo in the financial press will think Mr. Lowenstein knows what he is talking about. They have followed his lead or picked it up in the Kool-Aid. The word “monopoly” has been banned from the financial press. This is similar to the disappearance of early top lieutenants of Mao in famous pictures when his hair was thicker. Hair was very important to Mao. 

It’s a special responsibility reporters have. When our economy stops working, the children all over the world are starving more. The paper from derivatives contracts is not choking those children. It is something unphysical.

Fraudulent Theme

Let’s look at the catalogue of stupidity and deceit. Let’s remember the fallen nature of each of us. Just here in this letter we have Mr. Madoff depriving his own people and all of their charities. He has stolen the work and suffering of thousands of lives whose great sacrifices and generosity are made empty. He should be executed.

We have mutual fund managers who bounce right along with a success ratio of less than 1% versus the returns of computer-generated portfolios. Yet they are legally collecting unearned fees all the way to the bank. That includes the money making they are taking from nice little old ladies who trust in the world and the people in it. It is insensible that this is not criminal behavior.

Then we have Wells and Chase pretending to be solvent. Do their equity investors know? What about the nice little old ladies who invest in banks because they are safe? Weren’t enough ruined by Fannie Mae (FNM), Freddie Mac (FRE), Wachovia, Washington Mutual, Countrywide (CFC), Citi?

There is Citadel Investment Group. Mr. Griffin may be a Forbes 400 entrant. Yet his clients are also 50% less wealthy after last year. What a weird hedge: These money managers promise positive returns in any market. 

By the way, my correspondent: You are the smart ones giving them all of your money. You are a member in good standing of Groucho’s Investment Club. Your number should already have been mailed to you. I hope you will enjoy the privileges of membership. Groucho would be happy to meet you when he stops by. Good luck to you. In the case of Mr. Stewart, the SmartMoney columnist, you have a safe haven and don’t need luck. He can get past his error and win. His principles allow for error. There is light there.

In all the other cases, what a sad sad story we must tell about ourselves.

Quite neatly we are divided into two groups, but not of equal size. There is first the big group. All of them are dumb. And then the smaller group. They are selfish enough to cheat the dumb. Cheating is their intelligence. That’s a good summary of history. Write that down. Then sit back and ask yourself: What makes the world turn? What is it like to touch the sun?

What is the name of my father’s father’s father? Why don’t I know his name? How can that be possible that he is unknown? Is he so worthless so soon? It is true that God is mysterious. It is true we are undeserving of what He has given us. How pathetic have we become that we don’t even know that?

No regulation can ban stupidity. No law can stop all deceivers. And the build up and mixture of stupidity and deception requires periodic explosions. We need reminders of our true selves.  Our new world should begin with old truths. We are dumb predators. We are not inspiring. We are known most truthfully by our sins. We are reliable in sin.

Only a fool thinks we are a few changes away from perfection. The dangerous fool believes we are mostly changeable from our lowly selves. The roaring nincompoop thinks these things do not apply to themselves. We would all do well to look up “confession” and acquainstourselves with the primative cultures who used its office.

Why would they do such a thing?

Let me guess. You don’t know the answer. You don’t know why confession is necessary.

Here is the answer. In the olden days all persons knew they were of small importance in comparison to God. They realized they were unworthy of the gifts which they had been given. They knew that without God they were lost and of little use. All realized that they had an obligation to be better than themselves.

You are a simpler personality. You don’t know you are lost. I don’t know what that makes you exactly, but I wouldn’t send any letters home about it.

 

Michael White is an author and the Managing Director at The New Mortgage Company in the Chicago Area.

Other Articles by Michael White:

Plan Orange: The Mortgage Crisis Killed Quickly  February 3, 2009

Omnipotent Property Depression: History’s Ominous Omniscience  January 19, 2009

ISR News: WorldPay (CORRECTION: NOT PROPAY) Suffers $9M Heist

(CORRECTING EARLIER POST ON INFORMATION-SECURITY-RESOURCES.COM – NOT PROPAY IDENTIFIED IN DATA SECURITY BREACH)

Excerpts From Blog.Wired.com

A carefully coordinated global ATM heist last November resulted in a one-day haul of $9 million in cash, after a hacker penetrated a server at payment processor RBS WorldPay, New York’s Fox 5 reports. 

RBS WorldPay announced on December 23 that they’d been hacked, and personal information on approximately 1.5 million payroll-card and gift-card customers had been stolen. (Payroll cards are debit cards issued and recharged by employers as an alternative to paychecks and direct-deposit.) Now we know that account numbers and other mag-stripe data needed to clone the debit cards were also compromised in the breach. 

At the time, the company said it identified fraudulent activity on only 100 cards, making it sound like small beans. But it turns out the hacker managed to lift the withdrawal limits on those 100 cards, before dispatching an global army of cashers to drain them with repeated rapid-fire withdrawals. More than 130 ATMs in 49 cities from Moscow to Atlanta were hit simultaneously just after midnight Eastern Time on November 8. 

A class action lawsuit has been filed against RBS WorldPay on behalf of consumers.

 

Comments from Anthony M. Freed, Information-Security-Resources.com Financial Editor:

This illustrates that even with the knowledge of a breach, the vulnerability to theft and fraud may remain for an indeterminable period of time, and this can create unease amongst stakeholders.

The markets hate uncertainty.

When the known quantities begin to add up in the tens of millions in real losses, coupled with a marked decline in stock prices, it’s time for leaders industry-wide to take affirmative steps to ensure that capital flows freely into information security technology, regardless shrinking budgets plaguing industries in the midst of this economic downturn. The alternative is to face ever bigger hits to value.

The costs of this breach have yet to be tallied, as it may take years for the full impact to be revealed, but there is ample time and there are already the tools available to reduce these risks significantly, and an investment has to be made today or we are guaranteed losses tomorrow.

Anthony is a researcher, analyst and freelance writer who worked as a consultant to senior members of product development, secondary, and capital markets from the largest financial institutions in the country during the height of the credit bubble. Anthony’s work is featured by leading Internet publishers including Reuters, The Chicago Sun-Times, Business Week’s Business Exchange, Seeking Alpha, and ML-Implode.

(WorldPay was previously identified in this story as “ProPay” by mistake for a short time – the editors apologize for any confusion or inconvenience)

NowPublic

Tags: lawsuit | theft | Banks | breach | ATM | corrections | information security | Tech & Biz | WorldPay

Plan Orange: The Mortgage Crisis Killed Quickly

By Guest Author Michael White

We cannot start our recovery until we have completed our bankruptcy. Go ahead now and do the denial, anger, bargaining, and depression. Open the window and scream. Then put the fate of the world ahead of the obvious reasons we shouldn’t do this. Yes, we will reward a carnival of bad behavior and make people believe they can get away with it. Should we chose massive global depression instead?

Then ask yourself:  Is it possible our property market can deteriorate by 40% and no systemic bankruptcy follows? Is the bubble’s very definition homeowners taking on debt they cannot afford — to buy houses priced for a Ponzi flip? Where is that bad debt going to go?

Bankruptcy invalidates debt which cannot be paid. At present, we may have $5 trillion of mortgage debt which needs de-validation because it is un-payable (see graphic). It’s a big job.  If true, then the United States Treasury must issue a check to cover the bill. 

Thus will our un-payable mortgage debt go away. We will live happily ever after. To work hard. To pay off this huge new debt. And pledge against borrowing recklessly to purchase homes.

The primary beneficiary of this plan, in addition to individual homeowners, is our bankrupt banks. They are now incapacitated, and our economy cannot thrive without their lending. They will live again after their $5 trillion dollar death sentence is commuted. Present leadership need not be retained. My suggestion is tar & feathers for them.

Plan Orange: The Graphic End of the Financial Crisis. Plan Orange pays down the mortgage debt of all property owners in the United States to 80% of the value of their home today. The purpose is twofold. The plan pays down mortgage debt to make it more affordable and to bring it current. It also strengthens all banks who own mortgages. The bill for Plan Orange may be as high as $5 trillion. This graph attempts to estimate the amount of negative equity nationwide in the United States by the end of the year. Negative equity measures the amount by which a mortgage balance exceeds a property’s value. The graph exaggerates the problem, but may make it easier to understand. The graph on the right side depicts the total of all mortgage balances on residential properties in June 2006 and at the end of this year (12/09). The graph on the left side depicts property values in June 2006 and then a 40% loss by the end of this year. Determining the total amount of negative equity helps define the amount of mortgage loans which will not be repaid. The value described as (A) is both the estimate of negative equity in December 2009 and the estimate of payments under Plan Orange to reduce mortgage balances.

So let’s issue a check from Treasury to individual homeowners to erase all uncollectible mortgage debt; or actually issue a check payable to the mortgage creditor for the benefit of the mortgage debtor. It’s a rapid-fire bankruptcy. It’s an instant recapitalization of banks. It’s a sharp turn of our economic ship away from the massive icebergs which our Titanic property market now advances toward full steam ahead.

General Bankruptcy: Will Murder Crisis,Wants The Job

Plan Orange also offers all of the following:

► Smartly injects a massive stimulus – approximately five times the stimulus of the present Obama-administration proposal — in the space of a single month.

► Destroys negative equity.

► Rewrites all unfair loans.

► Eliminates all foreclosures.

► Starts and completes bankruptcy for perhaps 25 million homeowners in the space of a month.

► Instantly transforms mortgage investments from bad to good.

► Instantly strengthens the financial standing of major holders of mortgage assets; the banks and insurance companies who provide loans to all businesses and consumers.

► Ends the threat of massive derivatives-contract events which would have been triggered by defaulting mortgage investments.

“But that lingering risk of (bank) insolvency means that the state needs to be ready to take yet more action. One option is to keep intervening as events unfold. The other (choice) is to shock the markets out of their mistrust by using public money to create a floor to the market, either in housing or in asset-backed securities.” The Economist. March 22, 2008. “Wall Street’s Crisis.”

Should we take such an action, we will unleash a boom from this terrible crisis. We need the boom now to pay off the massive new debts which our government must shoulder. Should we fail to take such an action, we must anticipate a continued deterioration in debt and equity markets. They will fall here, there and everywhere. Only shorts will be smart.

It is true that the graph of Plan Orange is crude. The numbers it depicts are wild guesses. Yet crude and limited as the picture may be, and given that the numbers are just a very rough estimate, the picture’s validity may be a significant. mistake of much greater import is to fail to estimate the total overhang of mortgage debts which are now “unsecured” debts.

I have not seen a single good estimate of this number. My apologies in advance for those reporters who have tried to determine this number as I am unaware of your work. To the rest of the pool of business reporters I say that your ignorance is best measured by your failure to estimate this crucial number.

Reporting on the financial crisis without knowing the volume of “unsecured” mortgage debt is adopting the strategy of blindness to make your way through the most troubling economic event of our lifetime.  Edward Pinto, former chief credit risk officer at Fannie Mae, has just estimated negative equity by 12/31/09 as $1 trillion. He also finds no overall negative equity today. (Edward Pinto, January, 16, 2009, How Serious is the Mortgage Problem That Will Confront President Obama).  I radically disagree with this estimate

The graph may be rough, but Plan Orange is a true picture of our financial crisis. It is the best starting point to guess what amount of “unsecured” mortgage debt we are going to encounter. And it provides a true, swift, and smart plan for how we may best end the crisis.

Plan Orange Volunteers For Job, Promises Ruthless Execution.

The unfolding drama has two primary players. They are property values and mortgage debts.  As property values fall, the worth of mortgage investments fall.  As the value of mortgage investments fall, the solvency of banks falls.

Then they wither and die.

That is the phase the banks are in now. I can’t imagine any of our major banks can survive our property catastrophe without massive new injections of capital. Plan Orange estimates property values will fall 40% from their peak value by the end of this year. We were down 23% two months ago from the high in summer 2006 (S&P/Case-Shiller Home Price Indices, 20-city Composite, December 30,2008, Home Price Declines Worsen as We Enter the Fourth Quarter of 2008).

The plan then wildly assumes 40% of mortgage debts will lose all value because of the fall in home values. Why? For one, you have to start somewhere in this guessing game, and a wild guess of $1 of equity destruction creating about 60 cents of debt destruction has at least the appearance of reason. It mimics our actual nationwide debt-to-equity ratio of 50%. If you measured the value of all mortgages at the market peak they would equal approximately 50% of the value of all residential real estate.

One other note to set the fearful into a wild stampeding retreat to the hinterlands: The obvious error in the Plan Orange graph is that equity to begin with is actually much lower than 50% on the properties which are going to default. In any case, stay with the assumption and use the loss of $8 trillion of equity and $5 trillion of mortgage debt as a big picture rule-of-thumb to define our crisis. To those with better information I would deeply appreciate your assistance in better defining these crucial numbers.

Before things went bad, the buyer of a home took out a mortgage to buy a home. The logic of that business decision has now become meaningless if the mortgage no longer buys a home. And for many it doesn’t.

“First, there must be a credible programme for what Americans call “deleveraging”. The US cannot afford years of painful debt reduction in the private sector – a process that has still barely begun. The alternative is forced writedowns of bad assets in the financial sector and either more fiscal recapitalisation or debt-for-equity swaps. It (deleveraging) also means the mass bankruptcy of insolvent households and forced writedowns of mortgages.” Financial Times. Martin Wolf. January 13, 2009. Why Obama’s plan is still inadequate and incomplete.

What happens if five or ten years or 15 years of payments on a mortgage create no wealth for the payer? What if the payments were impossible when the payer believed they would create wealth, but now they create nothing? Does the prospect of no wealth create the desire for impossible effort?

Then ask yourself this question: “When does a debt I am paying become too great if, after I have paid it, I receive nothing but a good credit report and the satisfaction of having met my promise to repay a debt?” It would be safest to say that this family-business decision will not follow the principles of Mother Theresa, unless of course she had a Robin Hood thing.

Look at the simple math. It is one thing to pay religiously on a $10,000 credit card to maintain your credit report. It is another question entirely if the bill is $200,000, the house is worth $120,000 (the value of a $200,000 house after a 40% value loss), and the payments last for 30 years. The obvious rational choice is to send the keys to the bank and let them have it.

Default. Allow the bank to take ownership.

When this happens and the bank finishes foreclosure, the bank sells to a private party for perhaps $80,000. The bank has lost $120,000 ($200,000 mortgage minus $80,000 sale price). This drama has and is and will repeat on a massive scale never seen before in our country. It is not alarmist to say we must expect an Armageddon of foreclosures.

Mr. Pinto, the previously referred to former Chief Credit Officer at Fannie Mae, has just estimated this week that one in six mortgages will go into foreclosure in the next four years; a total of nine million mortgages of a total national pool of 57 million mortgages (Edward Pinto, January, 16, 2009, How Serious is the Mortgage Problem That Will Confront President Obama). How would foreclosure filings increase should negative equity approach the $5 trillion mark by year end (as I have estimated). Or what if we hit $5 trillion of negative equity in 2010 or 2011? Versus Mr. Pinto’s estimate of $1 trillion of negative equity resulting in foreclosures of one in six homes?

We have never seen before a loss in values comparable to the one we are experiencing today. We are far worse already than the depression — if you count the loss as a percentage of the peak value (Carmen Reinhart & Kenneth Rogoff, Dec. 19,2008, page 5, The Aftermath of Financial Crisis). Their study of 21 bank crises suggest we have three more years of declining property values to get to the end of our property depression.

Plan Orange offers a simple solution to this problem.

For our $120,000 home with the $200,000 mortgage, Plan Orange says: Have the US Treasury pay down the balance of the mortgage to $96,000 (80% of the present appraised value is $96,000). If we use this payoff scheme en masse, we would eliminate foreclosures, negative equity, bank failures, derivative default events, and maybe even arrest the fall in property values.

Is it possible Plan Orange solves every significant problem in the property and mortgage world, and in a few other worlds as well?

Capital Invades the Crisis. Confidence Wins.

The plan may be a true solution to an impossible problem, yet it has one decidedly serious drawback: It costs $5 trillion dollars (according to the wild guestimate graph).  I was relieved the other day to see World War II cost $17 trillion. That makes Plan Orange a bargain basement offer. Now I know that a $5 trillion cost makes the plan ridiculous. Unfortunately, the loss in property values is also ridiculous.

Do we have to do something ridiculous to get out of this ridiculous crisis we are in? It is not ridiculous to believe we must use a ridiculous option to kill a ridiculously massive catastrophe. Whatever the actual cost, if we ignore this grave issue, soon we will see pictures of ourselves and they will show our eyes are like dull tiny cue balls. And we will all go by the same name — Zombie.  And the world will follow us into oblivion.  And stay there.

They can’t stop its progress. Only we can.

A stimulus package dominates the news of the Obama administration plans. It is irrelevant to the issue of falling property values, disappearing mortgages, and bankrupt banks. It is useless in addressing the major crisis issues. Sorry. it’s off the point.

Recent chatter favoring a bad-bank to hold bad loans is a welcome sign that the faction called “economists” are gaining preponderant influence versus the “tea-ceremony” faction. A bad-asset bank, however, has no capacity to arrest property-price destruction or to deleverage zombie consumers in mortgage debt far over their heads.

A bad-asset bank only solves one of four major problems in the Vietnam nexus of non-performing assets / bank recapitalization / homeowner default / property-value destruction. Plan Orange attacks all of these problems. Which is better: One or four?

The time is right for massive intervention. Plan Orange guides our way forward well. It works in all property bubble countries. A coordinated announcement would create enormous confidence in markets worldwide. Bust can be broken into boom.

A bright future is much closer than we have imagined. Courage, ambition, and intelligence are the keys. They are widely available here. Open your eyes to danger and get ready to fight the good fight.

 

Michael White is the Managing Director at The New Mortgage Company in the Chicago Area. 

Heartland Breach Update: Reps Respond to Questions

By Anthony M. Freed, Information-Security-Resources.com Financial Editor
 

On Friday January 30, representatives of Heartland Payment Systems (HPY) contacted me via email regarding my recent article which had asked some tough questions regarding the timing and nature of multiple large stock sales during the months leading up the revelation that the company was the victim of a security breach.
 
The company’s prompt attention in addressing these questions is appreciated.  From Heartland’s Representatives:

In August 2008, Mr. Carr put in place a 10b5-1 plan to sell Heartland stock. The company publicly announced this plan by press release on August 8th, 2008, stating:

Mr. Carr and Robert Baldwin, President and Chief Financial Officer, have adopted prearranged trading plans to sell a portion of their company stock over time as part of their individual long-term tax planning, asset diversification, and liquidity strategy. Following the completion of trades contemplated under the plan, both Carr and Baldwin will continue to hold a substantial ownership interest in Heartland Payment Systems. Included in Carr’s holdings are 2,375,000 shares acquired through options exercised in the first quarter of 2006, none of which were used to satisfy the tax obligations incurred at the time the options were exercised. The stock trading plans were adopted in accordance with Rule 10b5-1 under the Securities and Exchange Act of 1934, as amended, as well as the Company’s policies with respect to sales of shares held by insiders. Under the Carr plan, a maximum one million shares can be sold over the next year, corresponding to the number of new performance-based options granted to Carr by the Board of Directors. Under the Baldwin plan, a maximum 78,180 shares can be sold, representing his options that expire in January 2009.

At the time of this announcement, Mr. Carr was not under any trading restrictions pursuant to the company’s insider trading policy and was not in possession of any material non-public information concerning the company. Under this 10b5-1 plan, programmed sales of company stock were made on Mr. Carr’s behalf, and he had no discretion regarding the timing or other aspects of those sales.

Although he was not required to do so, Mr. Carr terminated his 10b5-1 when the company confirmed the security breach it disclosed in the company’s press release of January 20, 2009.  As has been reported, Heartland first learned of a potential problem from the card associations on October 28th of last year, well after the announcement of this 10b5-1 plan. Heartland categorically denies that Mr. Carr was aware of a potential security breach at the time he adopted his trading plan.

These are important issues to stakeholders, and legitimate questions to ask.  I appreciate Heartland’s concern, and I will continue to follow the story as it unfolds.

 

 

 

Anthony is a researcher, analyst and freelance writer who worked as a consultant to senior members of product development, secondary, and capital markets from the largest financial institutions in the country during the height of the credit bubble. Anthony’s work is featured by leading Internet publishers including Reuters, The Chicago Sun-Times, Business Week’s Business Exchange, Seeking Alpha, and ML-Implode.

 

The Author gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and  Information-Security-Resources.com

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