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Why are Financial Terrorists (JP Morgan Chase and Morgan Stanley...etc.) getting away with attacking America?

Financial Terrorists are attacking America

    If the article by Martin Braun and William Selway published by Bloomberg is a valid indication, no American citizen is safe from intentional government-sanctioned financial destruction.

    Everyone should assume all major investment banks are intentional players in sophisticated scams that epitomize American-style predatory capitalism, and that smaller local banks have been fleeced. Logic dictates smaller banks have been successfully targeted for infestation with financial weapons of mass destruction early on. They present plumper pickings as compared to leaner small school districts in poor communities in Pennsylvania.

    Logic also dictates that credit unions, 401K plans, corporate pension plans and even money-market funds all have been infested and are at risk of major loss of value.

    Bluntly, no one is safe from America's government-sanctioned financial terrorists.

    One form of deadly infestation is called an interest-rate swap, the most prevalent form of financial derivative, by which two parties agree to swap payments for as long as 30 years. One party agrees to pay a fixed interest rate. The other party agrees to pay a variable rate.

    Derivatives have been glowingly hailed as an improvement to the financial markets as a way to "reduce risk". As Alan Greenspan, then Chairman of the Federal Reserve explained in a 1998 speech to the Securities Industries Association:

    "All the new financial products... financial derivatives being in the forefront... contribute economic value by unbundling risks and reallocating them in a highly calibrated manner."

    Meaning savvy sharks and predators could greedily keep the opportunities for gain to themselves while "unbundling" the contra-party risks of loss by foisting them onto unsuspecting citizens who strive diligently to improve their communities but lack specialized financial acumen found only on Wall Street.

    Trusting, well-intentioned citizens who are intentionally and disdainfully played for saps and suckers, with government support.

    The Sickening Case of Erie, Pennsylvania

    Erie, Pennsylvania is a 100,000-population city with a long-decimated manufacturing base and a population that's declined by 30 percent since 1970. Widespread poverty is starkly reflected by a single statistic: About 76 percent of school students are eligible for free or reduced-price lunches.

    In 2001 the Erie school system prepared to make urgently need repairs to deteriorating buildings, including Roosevelt Middle School. The school board issued $38.7 million in bonds that were locked into a fixed interest rate for the next 10 years.

    By 2003, the Erie school system desperately needed money for operating costs and purchase of new textbooks. The school board determined residents couldn't afford a tax increase.

    Within a few days of enactment of a new state law, JPMorgan Chase and Co. "came to Erie's rescue". In September 2003 the school board was told all they had to do was "sign some papers" and they would benefit at some time in the future, if interest rates increased.

    Meaning JPMorgan Chase purchased the right to force Erie schools to make good on an interest rate swap if rates instead declined, at any time before 2029.

    The board "signed some papers" and was paid $785,000. The board wasn't told the obligation they sold for $785,000 was actually worth about $2 million, or that JPMorgan Chase's profit on the deal would be over $1 million.

    Perversely, interest rates declined. In July 2006 the already cash-strapped Erie school board paid $2.9 million to JPMorgan Chase to get out of the deal.

    As a school board member who works as sales manager for a machine shop explained:

    "We were desperate for money."

    He later described the result of that desperation more succinctly:

    "It's like we got raped."

    And Bethlehem, Pennsylvania

    The experience of Bethlehem, a former steel town of 72,000 people, was similar. In April 2005 the Bethlehem school board was told they could generate over $11 million over the next 25 years while protecting interest rate moves on two prior bond issues.

    The board signed on, sold eight interest-rate swaps, and to date has received about $900,000.

    Not nearly as much as the transaction fees generated for the parties involved. Those fees for one deal totaled about $3 million, including $900,000 for JPMorgan Chase and $840,000 for the brokerage firm Morgan Stanley.

    A sales firm that acted as advisor and a financial advisory firm were each paid $630,000. In total, the sales firm has been paid $1.6 million and the advisory firm has been paid $1.3 million by the Bethlehem school system. JPMorgan Chase and Morgan Stanley have split $5 million.

    All for helping the Bethlehem school system solve their financial difficulties. The $7.9 million total is slightly more than $500 per student.

    And Many Other Pennsylvania School Systems

    Since Erie signed on, at least 500 similar deals totaling about $12 billion have been proposed to municipalities and school systems in Pennsylvania. Almost all these proposals were privately negotiated, without public bidding, apparently based on representations made by banks and financial advisors that competitive bids were not required, were not desirable and would not be in government agency's interests.

    Cash-poor local school districts and municipal government agencies in struggling communities can't afford to hire on-staff, genuinely unbiased experts who understand complex financial derivatives. Even most financial derivatives salesmen with multi-million dollar annual incomes don't fully understand the products they're selling.

    As a result, Erie school board members weren't able to know whether they were getting a good deal or were getting fleeced by Wall Street and New York bankers. All they knew was that the payments would help balance their severely strained operating budget.

    As the Erie schools superintendent explained:

    "We're always at the mercy of the experts that advise us..."

    Failure of SEC Regulation

    The Securities and Exchange Commission doesn't have authority to regulate derivatives but does have responsibility to regulate the banks that create derivatives.

    Christopher Cox, chairman of the SEC, says:

    "I am concerned that municipalities are taking on more risk..."

    "It's a serious issue..."

    The SEC does have authority to regulate how banks do business. Apparently the SEC views this type of institutionalized scam mounted against unsophisticated local citizens who serve on local school boards without pay to be an acceptable business practice not deserving of regulation. An issue that's apparently not so serious after all.

    Complicity by the Federal Reserve

    These types of sickening results were clearly foreseeable and could have been prevented by the Federal Reserve. Instead, Chairman Alan Greenspan encouraged and worked to ensure a complete lack of regulation:

    "The consequences of innovative financial engineering doubtless has been a far more efficient financial system."

    "... regulation is going increasingly to have to rely on private counter-party surveillance to achieve safety and soundness."

    Bluntly, Greenspan actively worked to assure the foxes would be put in charge of guarding the hen houses. He urged and actively supported the banks in developing new opportunities to fleece trusting but financially naive American citizens.

    Independent Financial Advisors

    The possibility that school boards would be taken advantage of was anticipated by the Pennsylvania legislature. This is why the state law requires municipalities to retain "independent financial advisors" when entering into an interest-rate swap.

    The Erie school board did retain an "independent financial advisor". On the basis of a recommendation by JPMorgan Chase, the seller of the swap. The board wasn't informed that the advisory firm's founder had contributed $469,400 to politicians while urging passage of the enabling law

    The case of Erie is typical. "Independent financial advisors" are retained based on recommendations by the banks and are paid by the banks.

    On a contingent basis. The advisors only get paid if the deals close. This alone utterly destroys all semblance of impartiality. In earlier times, when rational standards of common decency prevailed in American society, this would have unanimously been considered to be highly unethical and grounds for lifetime revocation of professional licenses.

    Today, ethics and morality have been cast aside and replaced with predatory attitudes of permissiveness. As SEC Chairman Cox explains:

    ".. all financial firms should tell clients their fees..."

    Should, as in voluntary. For good measure, Cox added:

    "... to the extent they are regulated by the SEC, they must."

    This from the man who heads the federal agency that possesses authority but steadfastly refuses to accept responsibility for regulating.

    Instead, Cox has self-righteously placed blame on the victims:

    "... school district officials have a responsibility... to ensure their advisors are actually independent..."

    ".. there is an obligation to get good independent advice..."

    Bluntly, non-knowledgeable, unpaid school board members have obligations. Highly knowledgeable, highly paid bankers have no obligations except to grow rich at the expense of American taxpayers.

    Back to Erie

    In Erie, the school board did ask the JPMorgan Chase representative how much his bank would make in fees. The answer:

    "I can't quantify that for you."

    In the Erie case, the advisor wrote a two-page opinion letter concluding the deal was "fair". The letter didn't disclose which party was being treated "fairly" or how much JPMorgan Chase's fees would be.

    For it's two-page letter, the financial advisor was paid $60,000. A bond insurer was paid $57,585 and lawyers and other participants split $106,000, presumably in fair and equitable fashion.

    JPMorgan Chase kept about $1 million for itself and justified the transaction by noting:

    "...the swaps were vetted by independent financial advisors..."

    Enabling Legislation

    This scam was made possible by a Pennsylvania law enacted in 2003 that expressly gives local government agencies, including school districts, authority to purchase interest-rate swaps.

    The selling point for this overwhelming endorsement was less than candidly explained by a lobbyist:

    "There could be huge cost savings for many of the local governments."

    Lobbying by financial advisory firms who would profit by advising municipal clients might possibly have influenced the vote. Those firms included a lobbyist representing bond underwriters who contributed $141,245 in the prior three years and then claimed:

    "The donations weren't tied to the legislation."

    The founder of another lobbying firm made political contributions totaling $469,400. His firm was later retained by the Erie school board as its "independent financial advisor". On the basis of a recommendation by JPMorgan Chase.

    In short, the law was passed as a result of heavy lobbying for several years by financial advisory firms. Lobbying for passage was very intense.

    And very non-partisan and very successful. The law was passed by votes of 197-0 in the House and 45-0 in the Senate.

    Back to Erie

    The law has proven good for financial firms but not for school districts. The cash-strapped Erie school system received $785,000 for the contract they sold in 2003 and bought their way out of for $2.9 million in 2006. They lost over $2 million to financial hucksters while government stood down and did nothing.

    Astute readers might wonder how the cash-strapped Erie school board generated $2.9 million to buy its way out of the deal. The partial answer:

    By selling two new interest-rate swaps. Activities eerily similar to those of up-against-the-wall consumers who attempt to delay their financial collapse by borrowing from an instant-cash payday loan operator.

    Roosevelt Middle School was closed in 2007 because of lack of funds to repair massive physical deficiencies. Students now meet in temporary space leased from a church.

    A Nationwide Scam

    Similar laws empowering local government agencies and local school systems to deal in financial derivatives they don't understand have been enacted in 39 other states. Everywhere, local boards of concerned local citizens who sincerely work to make their communities better places to live under some semblance of social justice are at similarly massive disadvantage. Meaning, the sickening experiences of Erie and Bethlehem are being replicated nationwide. And all the while, the government that's supposed to protect its citizens from danger both foreign and domestic stands aside and does nothing.

    Required Enabling Legislation

    Citizens of Pennsylvania and 39 other states must strive to clean their Statehouses of every incumbent who voted for this type of enabling legislation.

    And elect new legislators who will pass new enabling legislation that will allow their Attorneys General and Secretaries of State to protect the citizens.

    As in Massachusetts, where government agencies are only allowed to purchase Triple-A rated bonds. Merrill Lynch ignored that law and sold the City of Springfield a collateralized debt obligation for $13.9 million. Less than one year later, the value of that CDO was $1.2 million, representing a loss of over 90 percent.

    The Massachusetts Secretary of State courageously charged Merrill Lynch with fraud and misrepresentation. Merrill Lynch quietly settled out of court by paying Springfield their full purchase amount.

    JPMorgan Chase and Jamie Dimon

    As to JPMorgan Chase, America's third-largest financial firm:

    Net income in 2007 totaled $15.4 billion.

    That number would have been even higher, but the company increased provisions for losses from sub-prime mortgages and leveraged buy-out loans by $2.54 billion. Perhaps the predators got played for saps and suckers by more savvy predators over at Goldman Sachs Group.

    As to Jamie Dimon, JPMorgan Chase's Chairman and CEO:

    His 2005 income was $22 million. In 2006 his income increased to $27 million, including a $1 million salary, a $13 million cash bonus and stock options valued at $13 million.

    Dimon also enjoyed perks, including personal use of the corporate jet valued at $375,000 and personal use of corporate cars valued at $111,000.

    Indicating Dimon is frugal by nature. This indication is supported by his rationing of his daughter's bath towels to save on laundry expenses and his cancellation of corporate cell phone accounts and Wall Street Journal subscriptions for his employees to save on operating expenses.

    Mr. Dimon is a typical example of parasitic elites who live high at other people's expense when times are good. And frantically lobby for their firms to be propped up and saved by the Federal Reserve when times turn bad, because of the excesses they furthered. The bills for the bailouts they urgently demand will be paid, to the tune of many billions of dollars, by the taxpayers they fleeced.

    Recognize The Terrorist Enemies

    Meanwhile, President Bush urges patriotic Americans to wave flags and support the troops in their government's quest to destroy the mythical terrorist gang al Qaida in their caves in Bora Bora, Afghanistan.

    While far more dangerous gangs of terrorists, sanctioned and supported by that same government, maraud throughout America from their caves in the shadows of Wall Street.

    Of the two, as clearly demonstrated in Erie and Bethlehem, the financial terrorists that government actively supports are much more dangerous to the safety and well-being of the nation.

    Concerned citizens should carefully note the Pennsylvania enabling statute passed unanimously in both House and Senate. Living proof that partisanship takes a back seat to money, perks and favors sagely doled out by lobbyists.

    Another proof legislatures aren't friends and supporters of the citizens they are elected to serve.

    As President Bush famously proclaimed:

    "You're either with us or you're against us."


    "If you're not for us, then you are against us."

    Citizens must take that statement to heart and realize their elected legislatures don't act in the best interests of the citizens. Instead, elected legislatures act in the best interests of themselves, the public be damned.

    President Bush's determination clearly applies. Elected legislatures have demonstrated themselves to be enemies of the citizens and should be dealt with accordingly.

    The same applies to the major banks. They are not in business to serve the needs of the citizens or their nation. They are in business to serve their greedy, selfish desire for maximum profit, achieved by unfairly taking advantage, the public be damned.

    Again, President Bush's determination clearly applies. The major banks have demonstrated themselves to be enemies of the people and should be dealt with accordingly.

    And Destroy The Terrorist Enemies

    True America patriots must learn to distinguish between friend and foe and follow the ancient adage:

    "Support your friends. Destroy your enemies."

    True American patriots could better support and defend their country from its domestic enemies and enhance its long-term future by uniting in support and facilitating the destruction of the catalysts of the financial cancer that's destroying their country.

    JPMorgan Chase?


    Merrill Lynch?

    Morgan Stanley?

    Let them die.

    Even better, actively support their destruction. I suggest true patriots support the death of these traitorous firms. Let the Chinese government's investment institutions pick over the rotting bones. At least the Chinese can be counted on to take a long-term view and work to build a viable economy.

    Patriots should use cash to the greatest possible extent, satisfy and terminate credit cards and all other forms of credit as best possible, and remove hard-earned savings deposits from all financial institutions.

    The proceeds should be invested in physical forms of gold and silver.

    Be sure to pay cash and not leave a paper trail.

    Chuck Simpson