PAUL B. FARRELL
20 reasons new megabubble pops in 2011

Greed blinded us to subprime meltdown, it'll blind us next time too
By Paul B. Farrell, MarketWatch

Last update: 7:31 p.m. EDT June 2, 2008ARROYO GRANDE, Calif. (MarketWatch) -- You think I'm drinking that famous Beltway Kool-Aid, maybe because I'm predicting another meltdown coming in 2011? Well, you're being served from the same punch bowl, my friends.

Wall Street, Washington and the Fed are all praying the credit crisis is under control. Unfortunately, all their happy-talking is just a lot of hype, to hide their next bubble.

World markets are headed into another meltdown by the end of the first term of the next president ... and you won't even hear it coming under all the happy-talk.

Cycles happen. Bubbles blow, pop, meltdowns happen. Significantly, they're getting bigger and more frequent. Think 1987, 2000, 2007 -- the next in 2011. All the happy-talk from Washington and Wall Street gurus can't start the bull before it's time.

Nor will a lot of non-happy-talker warnings make a bubble burst early.
For example, two years ago I analyzed the 2000-2002 bear phase of "The Cycle." We reported on 16 reasons why all the happy-talk failed to restart the bull market during that 30-month recession, while investors slowly lost $8 trillion.

Now you'll see how all the warnings of a housing bubble and a coming meltdown also had no effect on the 2004-2007 bull phase of "The Cycle."

Why? Because bull/bear, bubble/bust, expansion/recession cycles have a natural pattern that ebbs and flows on their own time, making fools of all gurus predictions. And all the happy-talk and not-so-happy-talk in the world has no effect: Happy-talk won't restart a bull. Nor can not-so-happy-talk warnings puncture a bubble. Cycles have lives of their own, they mature and die unpredictable, age and pop when they feel like it.

Another will happen, soon. A busted bubble and a new meltdown coming by the end of the next presidential term. Why then? Because the last few occurred with increasing frequency, separated by thirteen years then seven, and the next will come within four years. These trends are obvious from studying the works of masters like former Commerce Department chief economist Ed Dewey's classics, including his Cycles, the Mysterious Forces that Trigger Events.

Here's my list of warnings from 20 not-so-happy-talkers. Notice how they were as unable to pop the 2004-2007 bubble before its time, as the happy-talkers were unable to restart a bull during the 2000-2002 recession:

2000: Fed governor warns Greenspan. Former Federal Reserve governor Ed Gramlich served 1997-2005. He was warning Alan Greenspan as early as 2000 about the coming subprime crisis. See his book "Subprime Mortgages: America's Latest Boom & Bust."
2004: Nixon's secretary of commerce. In "Running on Empty," Peter Peterson says: "This administration and the Republican Congress have presided over the biggest, most reckless deterioration of America's finances in history" creating a "bankrupt nation."

June 2005: The Economist. Cover story two years before collapse: "The worldwide rise in house prices is the biggest bubble in history. ... Rising property prices helped to prop up the world economy after the stock market bubble burst in 2000." Values increased 75% worldwide in five short years. "Never before have real house prices risen so fast, for so long, in so many countries ... This is the biggest bubble in history."

January 2006: Fortune. Interview with Richard Rainwater. "This is the first scenario I've seen where I question the survivability of mankind." He's 112th on the Forbes 400, worth $2.3 billion: "Most people invest and then sit around worrying what the next blowup will be. I do the opposite. I wait for the blowup, then invest." He waited with a half-billion-dollar war chest.

February 2006: Faber's Market Newsletter. "Correction Time is Here!" was Faber's headline: "If we combine the overbought condition of the stock market, investors' sentiment high optimism, equity mutual funds' low cash positions, and also heavy foreign buying, we have all the ingredients for a stock market correction in the US getting underway very shortly."

March 2006: Forbes. Economist Gary Shilling wrote: "The current housing weakness will develop into a full-scale rout ... It's clearly a bubble and is nationwide ... The house-price collapse will induce a painful recession that will send U.S. stocks into a tailspin ... China will suffer a hard landing ... and weakness in the U.S. and China will spread worldwide."

March 2006: "Sell Now." Former Goldman Sachs investment banker John Talbott's book: "Sell Now! The End of the Housing Bubble." His statistics covered America's top 130 metropolitan areas. The top 40 were facing an average 47.2% decline.

March 2006: Pimco Investment Outlook. In the quarterly newsletter, "The Gang That Couldn't Shoot Straight," Pimco's boss Bill Gross took a big swipe at a presidential economic report: "It's not so much that the report was a compilation of untruths or even half-truths. It's just that it failed to tell the truth," and hid the fact that Washington's "borrowed from the future to pay for today's party."

March 2006: Buffett in Fortune. Remember Warren Buffett's famous farmer story: "Our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than they produce -- that's the trade deficit -- we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own."

May 2006: Harper's magazine. Michael Hudson wrote an article, "Guide to the Coming Real Estate Collapse," analyzing 20 trends: "Taken together, these factors will further shrink the 'real' economy, drive down those already declining real wages, and push our debt-ridden economy into Japan-style stagflation or worse."

August 2006: Wall Street Journal. Countrywide's CEO Angelo Mozilo: "I've never seen a 'soft-landing' in 53 years, so we have a ways to go before this levels out. I have to prepare the company for the worst that can happen." He did little. A year later, he was in full denial mode.

November 2006: Fortune. Cover story asks: "Can the Economy Survive the Housing Bust?" They said "the correlation between current builder confidence and future stock market returns over the past 10 years is downright unnerving." The NAHB confidence index is a leading indicator because the stock market inevitably follows in lockstep a year later. The index had "plummeted 54%."

November 2006: The Economist. In a cover story: "The Dark Side of Debt," Timothy Geithner, president of the Federal Reserve Bank of New York, said in a Hong Kong speech: "The same factors that have reduced the probability of future systemic events, however, may amplify the damage caused by, and complicate the management of, very severe financial shocks. The changes that have reduced the vulnerability of the system to smaller shocks may increase the severity of the larger ones." Geithner later negotiated the Bear Sterns collapse.

January 2007: Los Angeles Times. Schwab "averaged 242,300 trades a day the first nine months of 2006. That was up 29% from the same period a year earlier, and a click above its 242,000 peak in 2000"and the last collapse.

April 2007. GMO Quarterly Newsletter. GMO manages $145 billion. CEO Jeremy Grantham wrote: "The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it's bubble time. ... Everyone, everywhere is reinforcing one another. ... The bursting of the bubble will be across all countries and all assets ... no similar global event has occurred before."

June 2007: Shilling's Insight Newsletter. "Just as the U.S. housing bubble is bursting, speculation elsewhere will come to a violent end if history is any guide. ... Richard Bookstaber, who designed various derivative-laden strategies over the years, now fears that financial derivatives and hedge funds, focal points of today's huge leverage, will trigger a financial meltdown."

June 2007: Pop! Then it happened! And Dan Gross had a well-timed book: "Pop! Why Bubbles are Great for the Economy." He says bubbles work miracles, so just let them pop, Pop, POP!

July 2007: Fortune. As the contagion spread, Treasury Secretary and former Goldman Sachs CEO Henry Paulson tells Fortune "this is far and away the strongest global economy I've seen in my business lifetime." He's repeated the same remark often since. Earlier, he and Fed Chairman Ben Bernanke said the subprime crisis was "contained." Clueless, Bernanke assembled hedge fund managers, asking them to explain the global derivatives market.

August 2007. Wall Street Journal. Former SEC Chairman Arthur Levitt wrote on the Journal's Op-Ed page: "In terms of market meltdowns and the degree of pain inflicted on the financial system, the subprime mortgage crisis has the potential to rival just about anything in recent financial history, from the savings and loan crisis of the late 1980s to the post-Enron turndown in the beginning of this decade."

August 2007: 60 Minutes. While Paulson and Bernanke were claiming the subprime crisis was "contained," the chief architect of the subprime-housing meltdown, Alan Greenspan, was on tour, making millions, hustling his new book, "The Age of Turbulence."

On 60 Minutes he made a totally incredulous denial that he "really didn't get it until very late." He "didn't get it?" Yes, and to this day Greenspan rigidly maintains his blind faith in the free-market myth.

His latest argument: Bubbles are a function of innovation, like the dot-coms and subprime derivatives. Regulators should trust the free markets, never micromanage innovation.

But what blinded Greenspan? His ideology? A brain quirk? Genetics? The president's reelection? It doesn't matter why: Whatever it was, it's bad news for America. Why? Because if the leader of America's monetary system for 18 years "doesn't get" that he was also the chief architect of the biggest economic blunder in American history since the 1929 Crash, can we ever trust any future leaders?

Scary, isn't it! How can we have faith in the next guy? Are our leaders the problem? Or is the system broken? Is capitalism itself at risk when the best and brightest are "blinded," unable to see disasters until it's too late?

But that is our "system," and in this system our leaders inevitably morph into bulls, ideologically blinded by their power. And like real bulls, all they see is red. So eventually ... they must run onto a sword, and self-destruct!

Morgan Stanley Real Estate Acquires Crescent Real Estate Equities

Morgan Stanley Real Estate Acquires Crescent Real Estate Equities (CEI) for $22.80/Sh
May 22, 2007 5:04 PM EDT

Crescent Real Estate Equities Company (NYSE: CEI) entered into a definitive agreement pursuant to which funds managed by Morgan Stanley Real Estate will acquire Crescent in an all cash transaction for $22.80 per share and the assumption of liabilities for total consideration of approximately $6.5 billion. Shares of Crescent Real Estate Equities closed at $21.62 today.

Toxic Corporate Real Estate

This occurred in 2007?

Morgan Stanley Real Estate announced today that it has completed the previously announced acquisition of Crescent Real Estate Equities Company (CEI) for $6.5 billion.

All of Crescent’s outstanding shares of common stock have been converted to the right to receive $22.80 per share in cash without interest and less any applicable withholding for each share of common stock.

“We are excited to acquire the unique portfolio of properties that Crescent put together,” said Michael Franco, Managing Director, Morgan Stanley Real Estate. “We believe that the depth and breadth of our real estate investing platform will enable us to maximize the value of the diverse holdings of office, destination resorts and resort residential.”

With the acquisition of Crescent, Morgan Stanley Real Estate adds to its portfolio 54premier office buildings totaling 23 million square feet located in select markets across the United States with major concentrations in Dallas, Houston, Denver, Miami, and Las Vegas. In addition, it gains investments in resort residential developments in locations such as Scottsdale, AZ; Vail Valley, CO; and Lake Tahoe, CA and in the wellness lifestyle leader, Canyon Ranch®.

Morgan Stanley acted as financial advisor to Morgan Stanley Real Estate with Goodwin Procter LLP and Jones Day acting as legal counsel. Greenhill & Co., LLC acted as the financial advisor to Crescent with Pillsbury Winthrop Shaw Pittman LLP acting as legal counsel.

Morgan Stanley Real Estate is comprised of three major global businesses: Investing, Banking and Lending. Since 1991, Morgan Stanley Real Estate has acquired $121.5 billion of real estate assets worldwide and currently manages $55.6 billion in real estate assets on behalf of its clients. A complete range of market-leading investment banking services for real estate clients include advice on strategy, mergers, acquisitions and restructurings, as well as underwriting public and private debt and equity financings. As a global leader in real estate lending, Morgan Stanley has offered approximately $156.0 billion of CMBS through the capital markets since 1997, including $35.5 billion in 2006. For more information about Morgan Stanley Real Estate, please visit www.morganstanley.com/realestate.

Morgan Stanley (MS) is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. The Firm's employees serve clients worldwide including corporations, governments, institutions and individuals from more than 600 offices in 32 countries. For further information about Morgan Stanley, please visit

www.morganstanley.com.

Contacts:

For Morgan Stanley Real Estate

Media Relations:
Alyson D’Ambrisi, 212-762-7006

Rainwater's 'Single Worst Investment' Toxic Real Estate

Renowned investor Richard Rainwater saw 70% of the value drain out of his $100 million investment in Thornburg Mortgage

by Christopher Palmeri

Sometimes even billionaires make bone-headed moves. Richard Rainwater, the legendary Fort Worth investor, has seen a 70% decline in just two months on some $100 million he put into troubled home lender Thornburg Mortgage (TMA). Rainwater calls it the "the single worst investment of my career."

The 65-year-old-financier, with a fortune estimated at $3 billion by Forbes magazine, told BusinessWeek.com he was watching TV last year when he saw Thornburg's chief executive, Larry Goldstone, speaking about the mortgage crisis. "He seemed like a bright guy," Rainwater recalls. Rainwater says he then checked with some of his investment industry sources who said they considered Thornburg a "capable group."

Buying into the Jumbo MarketIn January Rainwater plunked down about $100 million to buy roughly 5 million shares of the Santa Fe (N.M.) company's preferred stock. Rainwater bought shares both in a public offering that Thornburg had arranged and on the open market. He says his average cost was 21.45 a share. The preferred stock trades today at 6.25 per share; Thornburg common shares closed Mar. 13 at 2.26, down from 28 in May.

Filings with the Securities & Exchange Commission show that Rainwater and his wife, Darla Moore, own preferred stock convertible into 9.3 million shares of Thornburg's common stock, about 6% of the company's shares outstanding. By the time Rainwater invested, Thornburg was already in trouble. That was reflected in the fact that Thornburg was offering a dividend on the preferred shares of 10%. The company declined to comment on the issue.

Founded in 1993 by the current chairman, Garrett Thornburg, the company specializes in making "jumbo" single-family home loans to what it calls "superprime" customers. Those are individuals with credit scores of 744 or higher. Some 97% of its investments are in loans rated AA or higher by ratings agencies. Thornburg says just 0.4% of its loans are delinquent, compared to an industry average of more than 4%.

Rainwater says it was the high-end nature of Thornburg's business that attracted him to the company. "Housing values are suffering everywhere," he says. "But at the high end things are holding up better." On its Web site Thornburg is offering mortgage rates as low as 7.9%.

Crumbling Credit Markets
Last summer Thornburg averted greater financial difficulties by selling $20 billion of its assets. In recent weeks, though, its problems have escalated as lenders began requiring the company to put up more capital to back its mortgage investments. The company says it is presently negotiating with creditors who want $600 million in additional financing.

The problem, says Keefe, Bruyette & Woods (KBW) analyst Bose George, is that Thornburg has been funding its business with short-term loans. That worked when capital was easy to find. "They have one of the best balance sheets on the asset side," George says. "The problem is in the market—it's hard to borrow money." George says he sees the market shifting away from independent lenders such as Countrywide Financial (CFC) and Thornburg. In the future, "mortgage lending is going to be done by banks," he says. "Nonbanks have turned out to be extremely vulnerable to this kind of downturn."

Win Some, Lose Some
Rainwater is famous for scooping up assets in troubled companies. As a chief adviser to Fort Worth's billionaire Bass brothers in the 1980s, he directed the family to invest in then-floundering Walt Disney (DIS). That company went on to great success under Chief Executive Michael Eisner. In the 1990s, Rainwater plunged into oil and gas companies then struggling with low commodities prices. He invested in the Hunt brothers' bankrupt Penrod Drilling, since merged into Ensco International (ESV), and T. Boone Pickens' Mesa Petroleum, now a part of Pioneer Natural Resources (PXD). "Oil I understand," Rainwater says. "Interest rates…?"

Last August Rainwater sold Crescent Real Estate Equities to Morgan Stanley (MS) for $6.5 billion. Crescent was a big owner of office buildings. Rainwater sold at what now looks to have been the peak of the recent commercial real estate cycle. "It just seemed like the right time to do it," he says, with the prices paid for office property working out to yield just 4% to 5% for buyers.

Rainwater says his portfolio is still up for the year thanks to his energy holdings, which include blue chip oil and gas companies such as Chevron (CVX) and ConocoPhillips (COP).

Nonetheless, he says, the losses so far on Thornburg "still don't feel good."

Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau

Here come the Real Estate Toxic Mortgages...

Crescent Real Estate Equities Co. (NYSE: CEI) has finally found a buyer, and one that seems to like its mixed-use approach. Morgan Stanley Real Estate has agreed to acquire the Fort Worth, Texas-based REIT for a deal that totals $6.5 billion, including the assumption of debt.

Crescent, a mixed-use REIT owned by Texas billionaire Richard Rainwater, was in the midst of morphing itself into a pure-play office REIT. After evaluating its strategic options, the company came to the conclusion that it could "take advantage of the void left by rabid industry consolidation" as a remade office REIT. More likely, it was positioning itself better for an outright sale.

The Crescent deal just underscores the notion that the private equity boom is still in full swing. According to a New York Times article citing data from Thomson Financial, there have been $281 billion worth of private equity deals in the U.S. so far this year -- that's triple the amount compared to the same period last year, which ended up breaking all sorts of records.

There seems to be plenty of momentum left for REIT take-private deals, too. Year to date, 12 REITs have gone private for a total of $16.2 billion. But, there's still a ways to go to catch up to the lofty levels of 2006, when 23 deals totaling $64.3 billion, including the mammoth EOP buyout, took place, according to SNL Financial data listed in an article by The Wall Street Journal.

Greenhill & Co. LLC served as Crescent's financial advisor and Pillsbury Winthrop Shaw Pittman LLP provided legal

Prior to the deal with Morgan Stanley, Crescent had set into motion a series of deals, including the $550 million sale of its six hotels plus the 343,664-square-foot Austin Centre office building for $75.5 million to Walton Street Capital LLC in March. It also struck a deal recently to sell a portfolio of Dallas-area office assets to a venture between Trimarchi Management and UBS for about $420 million, according to published reports. Crescent also sold the historic Exchange Building in Seattle for $80.6 million to a joint venture between GE Asset Management and The Ashforth Co.

The REIT was preparing to shop its resort and residential development business through JP Morgan and was still evaluating plans for Canyon Ranch, a wellness lifestyle company owned in partnership with Mel Zuckerman and Jerry Cohen.

It's not clear what Morgan Stanley will do with the various pieces of Crescent going forward. The financial services firm considers Crescent's "unique" platform complimentary to its own wide range of business lines.

Morgan Stanley has certainly cast a wide net for real estate acquisitions, gobbling up properties and real estate companies in all sectors of the industry, and has been a major force in the take-private deals that have fueled the hot investment sales market over the past two years.
Last year, it acquired Town and Country Trust, an apartment REIT, through a venture with Onex Real Estate and Sawyer Realty Holdings LLC, in a deal valued at $1.5 billion. Also in 2006, it paid $1.9 billion to acquire Glenborough Realty Trust, a San Mateo, CA-based office REIT. It recently acquired CNL Hotels & Resorts for about $6.6 billion, including the sale of a portion of the properties to Ashford Hospitality Trust.

The financial firm has also reached into its deep pockets for a plethora of property acquisitions lately. It recently paid about $2.43 billion to buy a portfolio of former EOP assets in San Francisco from Blackstone. It also acquired a 28-story office tower at 2 Park Ave. in Manhattan for $519 million. On the retail side, Morgan Stanley recently formed a joint venture with Inland Western Retail Real Estate Trust Inc. to acquire and manage retail properties in target markets across the U.S. with a goal of building a billion-dollar portfolio.

The Crescent deal just underscores the notion that the private equity boom is still in full swing. According to a New York Times article citing data from Thomson Financial, there have been $281 billion worth of private equity deals in the U.S. so far this year -- that's triple the amount compared to the same period last year, which ended up breaking all sorts of records.

There seems to be plenty of momentum left for REIT take-private deals, too. Year to date, 12 REITs have gone private for a total of $16.2 billion. But, there's still a ways to go to catch up to the lofty levels of 2006, when 23 deals totaling $64.3 billion, including the mammoth EOP buyout, took place, according to SNL Financial data listed in an article by The Wall Street Journal.

Greenhill & Co. LLC served as Crescent's financial advisor and Pillsbury Winthrop Shaw Pittman LLP provided legal counsel. Morgan Stanley acted as financial advisor to Morgan Stanley Real Estate with Goodwin Procter LLP and Jones Day providing legal counsel.

Morgan Stanley Real Estate - Corporate Real Estate Toxic Mortgages

January 2006: Fortune. Interview with Richard Rainwater. "This is the first scenario I've seen where I question the survivability of mankind." He's 112th on the Forbes 400, worth $2.3 billion: "Most people invest and then sit around worrying what the next blowup will be. I do the opposite. I wait for the blowup, then invest." He waited with a half-billion-dollar war chest.

One year later- look at the deal Morgan closed on May 22, 2007

Morgan Stanley Real Estate Acquires Crescent Real Estate Equities (CEI) for $22.80/Sh
Crescent Real Estate Equities Company (NYSE: CEI) entered into a definitive agreement pursuant to which funds managed by Morgan Stanley Real Estate will acquire Crescent in an all cash transaction for $22.80 per share and the assumption of liabilities for total consideration of approximately $6.5 billion. Shares of Crescent Real Estate Equities closed at $21.62 today.

Crescent Real Estate Equities Co. (NYSE: CEI) has finally found a buyer, and one that seems to like its mixed-use approach. Morgan Stanley Real Estate has agreed to acquire the Fort Worth, Texas-based REIT for a deal that totals $6.5 billion, including the assumption of debt.

Crescent, a mixed-use REIT owned by Texas billionaire Richard Rainwater, was in the midst of morphing itself into a pure-play office REIT. After evaluating its strategic options, the company came to the conclusion that it could "take advantage of the void left by rabid industry consolidation" as a remade office REIT. More likely, it was positioning itself better for an outright sale.

The Crescent deal just underscores the notion that the private equity boom is still in full swing. According to a New York Times article citing data from Thomson Financial, there have been $281 billion worth of private equity deals in the U.S. so far this year -- that's triple the amount compared to the same period last year, which ended up breaking all sorts of records.

There seems to be plenty of momentum left for REIT take-private deals, too. Year to date, 12 REITs have gone private for a total of $16.2 billion. But, there's still a ways to go to catch up to the lofty levels of 2006, when 23 deals totaling $64.3 billion, including the mammoth EOP buyout, took place, according to SNL Financial data listed in an article by The Wall Street Journal.

Greenhill & Co. LLC served as Crescent's financial advisor and Pillsbury Winthrop Shaw Pittman LLP provided legal

Goldman Sachs and Morgan Stanley decided—while fearing for their own existence—to transform themselves into bank holding companies in September (bringing with it the ability to access the Federal Reserve's discount window), they essentially brought to an end the era of the standalone investment bank.

Bank of America said it couldn't even close its Merrill Lynch acquisition without substantial extra government help, and is likely to get billions of dollars in federal guarantees.

U.S. Seeks to Drop Case Against Former Sen. Stevens

Prosecutors did not do their job!

Well I hope the AG looks at his case-jurors said the prosecutor did not do their job in December 2008...

2002-The largest private financial fraud case in our country's history began to uncover itself back in 2002, and no one heard of it. Wonder why?

JPMorgan, Citi, Goldman, Merrill, Morgan were all involved in this scheme, for years and were found guilty of contributing to the largest financial fraud case in our history; the largest financial fraud case that just ended Dec 2008 and no one paid attention. Credit Suisse LLC is pending with litigation with its involvement in this case.

The last trial for this case, even after the CEO stood trial was James K Happ. The ONE AND ONLY acquittal James K Happ!

December 18, 2008 - THE COLUMBUS DISPATCH By Jodi Andes --Prosecutors' case fell short, juror says, instead, they were more a belief that federal prosecutors had not done their job…

The SEC places Happ at CFO of Columbia Homecare prior to arriving at NCFE. The years Happ was at NCFE were what the trial was focused on.

Guess what James K Happ did as CFO at Columbia? He used NCFE to finance HCA’s losing asset-homecare into a dumping ground, Medshares Inc in Memphis financed by NCFE. All the while Medshares was under multiple investigations for Medicare Medicaid fraud. Yet no one has heard of this case.

He was the ex-CFO of HCA-Columbia Homecare Group prior to arriving at NCFE and the only one not guilty.

Who is behind this fraud, really? Who are they covering up for?

Bigger than Enron

First off get it straight-FBI RAIDED the offices on Dublin Ohio in 2002-then it filed for bankruptcy, after the fraud was beginning to uncover, but the trial left out the root-the one acquittal, the ex-CFO of Columbia Homecare Group, James K Happ.


Nearly seven years after National Century Financial Enterprises collapsed in a $2.9 billion fraud, its founder, Lance K. Poulsen, was sentenced to 30 years in prison on Friday in one of the harshest white-collar punishments in history, The New York Times’s Zachery Kouwe reported.

Mr. Poulsen was convicted in October of leading a vast fraud as chief executive of National Century, a company based in Dublin, Ohio, that provided financing for hundreds of clinics, hospitals and other health care providers.

The company’s fall in 2002 contributed to the bankruptcies of 275 health care facilities and cost Credit Suisse and the Pacific Investment Management Company, the nation’s biggest bond fund investor, more than $540 million.

“Mr. Poulsen is an architect of a fraud of such magnitude that it would make sophisticated financial analysts shudder,” Judge Algenon Marbley said in Federal District Court in Ohio. “It is considered the largest fraud at a private company in the United States. Mr. Poulsen perpetrated this fraud over a seven-year period and went to enormous lengths to conceal it.”

Mr. Poulsen, 65, is already serving a 10-year sentence for trying to bribe the main witness against him in the case. His sentence will run concurrently with the sentence for witness tampering.

Mr. Marbley’s decision signals that federal judges could begin imposing harsher sentences for white-collar crime in response to the rise in public outrage over corporate fraud after the discovery of Bernard L. Madoff’s multibillion-dollar Ponzi scheme. The sentence for Mr. Poulsen exceeds the 25 years given to Bernard J. Ebbers, the former chief executive of WorldCom, and the 24 years given to Jeffrey K. Skilling, the former Enron chief.

Mr. Marbley also handed out a 25-year sentence to Rebecca Parrett, a former National Century executive who became a fugitive after she was convicted last year.

Mr. Poulsen and Ms. Parrett were also ordered to pay $2.38 billion in restitution.

Before it filed for bankruptcy in 2002, National Century provided loans to a variety of health care companies that were backed by payments expected to be made by insurance companies and government programs like Medicaid and Medicare. Mr. Poulsen then packaged the loans into bonds and sold them to institutional investors and Wall Street firms.

In many cases, the company deliberately lent more to the facilities, many of which were owned by Mr. Poulsen, than their receivables were worth. The scheme finally came apart in the spring of 2002 when investors began to question the value of the loans, which forced National Century into a liquidity crisis.

Go to Article from The New York Times

Comprehensive regulatory reform is critical to these efforts

March 26, 2009 10:00 AM EDT

Below is Treasury Secretary Tim Geithner's Written Testimony to the House Financial Services Committee Hearing on financial regulatory reform:

Thank you Chairman Frank, Ranking Member Bachus, and other members of the Committee. I appreciate the opportunity to testify about the critical topic of financial regulatory reform.

Over the past 18 months, we have faced the most severe global financial crisis in generations. Some of the world’s largest financial institutions have failed. Equity and real estate prices have fallen sharply, eroding the value of our savings. The supply of credit has tightened dramatically. Confidence in the overall financial system, in the protections it is supposed to afford for investors and consumers, has eroded. These financial pressures have intensified the recession now underway around the world.

And as in any financial crisis, the damage falls on Main Street. It affects the vulnerable. It affects those who were conservative and responsible, not just those who took too much risk.

Our system is wrapped today in extraordinary complexity, but beneath all that, financial systems serve an essential and basic function. Financial institutions and markets transform the earnings and savings of American workers into the loans that finance a home, a new car or a college education. They exist to allocate savings and investment to their most productive uses.

Our financial system does this better than any other financial system in the world, but our system failed in basic fundamental ways. The system proved too unstable and fragile, subject to significant crises every few years, periodic booms in real estate markets and in credit, followed by busts and contraction. Innovation and complexity overwhelmed the checks and balances in the system. Compensation practices rewarded short-term profits over long-term return. We saw huge gains in increased access to credit for large parts of the American economy, but those gains were overshadowed by pervasive failures in consumer protection, leaving many Americans with obligations they did not understand and could not sustain. The huge apparent returns to financial activity attracted fraud on a dramatic scale. Large amounts of leverage and risk were created both within and outside the regulated part of the financial system.

These failures have caused a great loss of confidence in the basic fabric of our financial system, a system that over time has been a tremendous asset for the American economy.

To address this will require comprehensive reform. Not modest repairs at the margin, but new rules of the game. The new rules must be simpler and more effectively enforced and produce a more stable system, that protects consumers and investors, that rewards innovation and that is able to adapt and evolve with changes in the financial market.

On February 25, after meeting with the banking and financial services leadership from Congress, President Obama directed his economic team to develop recommendations for financial regulatory reform and to begin the process of working with the Congress on new legislation. The Treasury Department has been working with the President’s Working Group on Financial Markets (PWG) to develop a comprehensive plan of reform. This effort has been and will be guided by principles the President set forth earlier this year and in his speech as a candidate at Cooper Union in March 2008.

Financial institutions and markets that are critical to the functioning of the financial system and that could pose serious risks to the stability of the financial system need to be subject to strong oversight by the government. Our financial system and the major centralized markets must be strong and resilient enough to withstand very severe shocks and the failure of one or more large institutions. We need much stronger standards for openness, transparency, and plain, common sense language throughout the financial system. And we need strong and uniform supervision for all financial products marketed to consumers and investors, and tough enforcement of the rules to ensure full accountability for those who violate the public trust.

Financial products and institutions should be regulated for the economic function they provide and the risks they present, not the legal form they take. We can’t allow institutions to cherry pick among competing regulators, and shift risk to where it faces the lowest standards and constraints.

And we need to recognize that risk does not respect national borders. We need to prevent national competition to reduce standards and encourage a race to higher standards. Markets are global and high standards at home need to be complemented by strong international standards enforced more evenly and fairly. These are global markets and challenges. Building on these principles, we want to work with Congress to put in place fundamental reforms that create a stronger, more stable system, with much stronger protections for consumers and investors, and a more streamlined, consolidated, and simple oversight framework.

I want to begin that process today by focusing on proposals that are essential to creating a more stable system, with stronger tools to prevent and manage future crises. In this context, my objective is to concentrate on the substance of the reform agenda, rather than the complex and sensitive questions of who should be responsible for what.

Over the next few weeks we will outline proposals in the areas of consumer and investor protection and for reform of regulatory oversight arrangements.

We start with systemic risk, not just because of its obvious importance to our future economic performance, but also because these issues require more cooperation globally, and they will be at the center of the agenda at the upcoming Leaders’ Summit of the G-20 in London on April 2.

These proposals reflect a range of complex and consequential policy choices. They will require careful work and drafting. It is important that we get this right. We recognize there will be many alternative models put forth to achieve the objective we all share of creating a more stable system. And we look forward to working with the Federal Reserve, with the agencies that make up the President’s Working Group on Financial Markets, and with the Congress on a package of reforms that we can all support.

The Crisis and Its Fundamental Causes

The current crisis had many causes.

Two decades of sustained economic growth bred widespread complacency among financial intermediaries and investors, lowering borrowing costs and weakening lending standards.

A global boom in savings resulted in large flows of capital into the United States and other markets, pushing down long-term interest rates and pushing up asset prices. The rising market hid Ponzi schemes and other flagrant abuses that should have been detected and eliminated.

In that environment, institutions and investors looked for higher returns by taking on greater exposure to the risk of infrequent but severe losses.

A long period of home price appreciation encouraged borrowers, lenders, and investors to make choices that could only succeed if home prices continued to appreciate. We had a system under which firms encouraged people to take unwise risks on complicated products, with ruinous results for them and for our financial system.

Market discipline failed to constrain dangerous levels of risk-taking throughout the financial system. New financial products were created to meet demand from investors, and the complexity outmatched the risk-management capabilities of even the most sophisticated financial institutions. Financial activity migrated outside the banking system, relying on the assumption that liquidity would always be available.

Regulated institutions held too little capital relative to the risks to which they were exposed. And the combined effects of the requirements for capital, reserves and liquidity amplified rather than dampened financial cycles. This worked to intensify the boom and magnify the bust.

Supervision and regulation failed to prevent these problems. There were failures where regulation was extensive and failures where it was absent.

Regulators were aware that a large share of loans made by banks and other lenders were being originated for distribution to investors through securitizations, but they did not identify the risks caused by explosive growth in complex products based on these products.

Investment banks, large insurance companies, finance companies, and the GSEs were subject to only limited oversight on a consolidated basis, despite the fact that many of those companies owned federally insured depository institutions or had other access to explicit or implicit forms of support from the government. Federal law allowed many institutions to choose among regulatory regimes for consolidated supervision and, not surprisingly, they avoided the stronger regulatory authority applicable to bank holding companies. Those companies and others were highly leveraged or used short-term borrowing to buy long-term assets, yet lacked strong federal prudential regulation and routine access to central bank liquidity.

And while supervision and regulation failed to constrain the build up of leverage and risk, the United States came into this crisis without adequate tools to manage it effectively. Until the Housing and Economic Recovery Act and the Emergency Economic Stabilization Act were passed in the summer and fall of 2008, the executive branch had effectively no ability to provide the capital or guarantees necessary to contain the damage caused by the crisis.

And as I discussed before this committee on Tuesday, U.S. law left regulators without good options for managing failures of systemically important non-bank financial institutions.

Regulation of a financial system as complex and dynamic as our system is inherently difficult and challenging. But that difficulty has been compounded by a U.S. regulatory structure that is unnecessarily complex and fragmented. The complexity has sometimes resulted in a failure to assign clear responsibility for achievement of some public policy objectives, notably for financial stability.

Toward a More Stable and Resilient Financial System

Our comprehensive framework for regulatory reform will cover four broad areas: systemic risk, consumer and investor protection, eliminating gaps in our regulatory structure; and international coordination.

In the coming weeks, I will present detailed frameworks for each of these areas. Today, I will discuss in greater detail the need to create tools to identify and mitigate systemic risk, including tools to protect the financial system from the failure of systemically important financial institutions.

Second, weaknesses in our consumer and investor protections harm individuals, undermine trust in our financial system, and can contribute to systemic crises that shake the very foundations of our financial system. The choice of what home mortgage to get or how to save for retirement are some of the most important financial decisions that households make. It is crucial that when households make choices we have clear rules of the road that prevent manipulation and abuse. We must restore integrity to our financial system and strengthen these protections. Consumer and investor protection is a critical component of the President’s regulatory reform plan. We are developing a strong, comprehensive plan for consumer and investor regulation to simplify financial decisions for households and to protect people from unfair and deceptive practices.

We must end the practice of allowing banks and other financial companies to choose their regulator simply by changing their charters; regulators must choose who to regulate. Moreover, our regulatory system must be comprehensive and eliminate gaps in coverage. Our regulatory structure must assign clear regulatory authority, resources, and accountability for each of the key regulatory functions. We must not let turf wars or concerns about the shape of organizational charts prevent us from establishing a substantive system of regulation that meets the needs of the American people.

To match the increasing global markets, we must ensure that global standards for financial regulation are consistent with the high standards we will be implementing in the United States.

The Financial Stability Forum (FSF) has played an essential role in the effort, working with the world’s standard - setting bodies to study the underlying causes of the crises and address these weaknesses. Much progress is being made to enhance sound regulation, strengthen transparency, and reinforce international collaboration.

We have begun to work with international colleagues to reform and strengthen the FSF so that it can play a more effective role alongside the original Bretton Woods institutions in strengthening the financial system. We have already gotten agreement to expand the membership to include all G-20 countries, giving it a stronger mandate for promoting more robust standards consistent with the principles above, and working with the IMF and the World Bank to monitor the implementation of those standards.

In addition, we will launch a new, initiative to address prudential supervision, tax havens, and money laundering issues in weakly regulated jurisdictions. President Obama will underscore in London on April 2 at the Leaders’ Summit the imperative of raising standards across the globe and encouraging a race to the top rather than a race to the bottom.

Reducing Systemic Risk

The crisis of the past 18 months has exposed critical gaps and weaknesses in our regulatory system. As risks built up, internal risk management systems, rating agencies and regulators simply did not understand or address critical behaviors until they had already resulted in catastrophic losses.

This crisis has made clear that certain large, interconnected firms and markets need to be under a more consistent, and more conservative regulatory regime. These standards cannot simply address the soundness of individual institutions, but must also ensure the stability of the system itself. We need to strengthen our system of prudential supervision across the financial sector. We must require that firms build up capital during good economic times so that they have a more robust protection against losses in down times – and can continue to lend to America’s households and businesses big and small. We need to examine our accounting rules to see whether, consistent with investor protection, we can require firms to build up loan loss reserves that look forward and account for losses in downturns.

In addition, regulators must issue standards for executive compensation practices across all financial firms. These guidelines should encourage prudent risk-taking, incent a focus on long-term performance of the firm rather than short-term profits, and should not otherwise create incentives that overwhelm risk management frameworks.

The key elements of our plan to address systemic risk are:

First, we need to establish a single entity with responsibility for systemic stability over the major institutions and critical payment and settlement systems and activities.

Second, we need to establish and enforce substantially more conservative capital requirements for institutions that pose potential risk to the stability of the financial system, that are designed to dampen rather than amplify financial cycles.

Third, we should require that leveraged private investment funds with assets under management over a certain threshold register with the SEC to provide greater capacity for protecting investors and market integrity.

Fourth, we should establish a comprehensive framework of oversight, protections and disclosure for the OTC derivatives market, moving the standardized parts of those markets to central clearinghouse, and encouraging further use of exchange-traded instruments.

Fifth, the SEC should develop strong requirements for money market funds to reduce the risk of rapid withdrawals of funds that could pose greater risks to market functioning.

And sixth, we need to establish a stronger resolution mechanism that gives the government tools to protect the financial system and the broader economy from the potential failure of large complex financial institutions.

Systemically Important Financial Firms and Markets

To ensure appropriate focus and accountability for financial stability we need to establish a single entity with responsibility for consolidated supervision of systemically important firms and for systemically important payment and settlement systems and activities.

We can no longer allow major financial institutions to choose among consolidated supervision regimes and regulators or to avoid consolidated supervision entirely. That means we must create higher standards for all systemically important financial firms regardless of whether they own a depository institution, to account for the risk that the distress or failure of such a firm could impose on the financial system and the economy. We will work with Congress to enact legislation that defines the characteristics of covered firms, sets objectives and principles for their oversight, and assigns responsibility for regulating these firms.

In identifying systemically important firms, we believe that the characteristics to be considered should include: the financial system’s interdependence with the firm, the firm’s size, leverage (including off-balance sheet exposures), and degree of reliance on short-term funding, and the firm’s the importance of the firm as a source of credit for households, businesses, and governments and as a source of liquidity for the financial system.

In general, the design and degree of conservatism of the prudential requirements applicable to such firms should take into account the inherent inability of regulators to predict future outcomes.

Capital requirements for these firms must be sufficiently robust to be effective farther into the tails of potential outcomes than capital requirements for other financial firms. And they must be less pro-cyclical, requiring firms to build up substantial capital buffers in good economic times so that they can avoid deleveraging in cyclical downturns.

The single systemic regulator will also need to impose liquidity, counterparty, and credit risk management requirements that are more stringent than for other financial firms. For instance, supervisors should apply more demanding liquidity constraints; and require that these firms are able to aggregate counterparty risk exposures on an enterprise basis within a matter of hours.

The regulator of these entities will also need a prompt, corrective action regime that would allow the regulator to force protective actions as regulatory capital levels decline, similar to that of the FDIC with respect to its covered agencies.

Payment and Settlement Activities

Weaknesses in the settlement systems for key funding and risk transfer markets, notably overnight and short-term lending markets (such as those for tri-party repurchase agreements) and OTC derivatives, have been highlighted as a key mechanism that could spread financial distress between institutions and across borders. While some progress was made in the markets for CDS and other OTC derivatives while I was at the New York Fed, federal authority over such arrangements is incomplete and fragmented, and we have been forced to rely heavily on moral suasion to encourage market participants to strengthen these markets.

We need to give a single entity broad and clear authority over systemically important payment and settlement systems and activities. Where such systems or their participants are already federally regulated, the authority of those federal regulators should be preserved and the single entity should consult and coordinate with those regulators.

Hedge Funds and Other Private Pools of Capital

U. S. law generally does not require hedge funds or other private pools of capital to register with a federal financial regulator, although some funds that trade commodity derivatives must register with the CFTC and many funds register voluntarily with the SEC. As a result, there are no reliable, comprehensive data available to assess whether such funds individually or collectively pose a threat to financial stability. However, in the wake of the Madoff episode it is clear that, in order to protect investors, we must close gaps and weaknesses in regulation of investment advisors and the funds they manage.

Accordingly, we recommend that all advisers to hedge funds (and other private pools of capital, including private equity funds and venture capital funds) with assets under management over a certain threshold be required to register with the SEC. All such funds advised by an SEC-registered investment adviser should be subject to investor and counterparty disclosure requirements and regulatory reporting requirements. The regulatory reporting requirements for such funds should require reporting, on a confidential basis, information necessary to assess whether the fund or fund family is so large or highly leveraged that it poses a threat to financial stability. The SEC should share the reports that it receives from the funds with the entity responsible for oversight of systemically important firms, which would then determine whether any hedge funds could pose a systemic threat and should be subjected to the prudential standards outlined above.

Credit Default Swaps and Other OTC Derivatives

The current financial crisis has been amplified by excessive risk-taking by certain insurance companies and poor counterparty credit risk management by many banks trading Credit Default Swaps (CDS) on asset-backed securities. These complex instruments were poorly understood by counterparties, and the implication that they could threaten the entire financial system or bring down a company of the size and scope of AIG was not identified by regulators, in part because the CDS markets lacked transparency.

Let me be clear: the days when a major insurance company could bet the house on credit default swaps with no one watching and no credible backing to protect the company or taxpayers from losses must end.

In our proposed regulatory system, the government will regulate the markets for credit default swaps and over-the-counter derivatives for the first time.

We will subject all dealers in OTC derivative markets and any other firms whose activities in those markets pose a systemic threat to a strong regulatory and supervisory regime as systemically important firms.

We will force all standardized OTC derivative contracts to be cleared through appropriately designed central counterparties (CCPs). We will also encourage greater use of exchange-traded instruments.

The CCPs will be subject to comprehensive settlement systems supervision and oversight, consistent with the authority outlined above.

We will require that all non-standardized derivatives contracts be reported to trade repositories and be subject to robust standards for documentation and confirmation of trades, netting, collateral and margin practices, and close-out practices.

We will bring unparalleled transparency to the OTC derivatives markets by requiring CCPs and trade repositories to make aggregate data on trading volumes and positions available to the public and make individual counterparty trade and position data available on a confidential basis to federal regulators, including those with responsibilities for market integrity.

Finally, we will strengthen participant eligibility requirements and, where appropriate, introduce disclosure or suitability requirements, and we will require all market participants to meet recordkeeping and reporting requirements.

Money Market Mutual Funds (MMFs)

In the wake of Lehman Brothers’ bankruptcy, we learned that even one of the most stable and least risky investment vehicles - money market mutual funds - was not safe from the failure of a systemically important institution. These funds are subject to strict regulation by the SEC and are billed as having a stable asset value - a dollar invested will always return the same amount. But when a major prime MMF “broke the buck” - lost money - the event sparked sharp withdrawals across the entire prime MMF industry. Those withdrawals resulted in severe liquidity pressures, not only on prime MMFs but also on financial and non-financial companies that relied significantly on MMFs for funding. The vulnerability of MMFs to breaking the buck and the susceptibility of the entire prime MMF industry to sharp withdrawals in such circumstances remains a significant source of systemic risk.

We believe that the SEC should strengthen the regulatory framework around MMFs in order to reduce the credit and liquidity risk profile of individual MMFs and to make the MMF industry as a whole is less susceptible to runs.

Resolution Authority

As I discussed on Tuesday, we must create a resolution regime that provides authority to avoid the disorderly liquidation of any nonbank financial firm whose disorderly liquidation would have serious adverse effects on the financial system or the U.S. economy.

Please note that the draft resolution legislation we have submitted is a first step intended to address a significant void in today's regulatory structure. This mechanism is intended to be a permanent authority and therefore, will also be a critical element of Treasury's broader regulatory reform proposals. As we move forward on those proposals, we will need to align the draft legislation with the broader regulatory reform effort as it develops. At this point, however, I will focus on how the authority and mechanism would work within our current regulatory framework.

We must cover financial institutions that have the potential to pose systemic risks to our economy but that are not currently subject to the resolution authority of the FDIC. This would include bank and thrift holding companies and holding companies that control broker-dealers, insurance companies, and futures commission merchants, or any other financial firm posing substantial risk to our economy.

Before any of the emergency measures specified could be taken, the Secretary of the Treasury, upon the positive recommendations of both the Federal Reserve Board and the FDIC and in consultation with the President, would have to make a triggering determination that (1) the financial institution in question is in danger of becoming insolvent; (2) its insolvency would have serious adverse effects on economic conditions or financial stability in the United States; and (3) taking emergency action as provided for in the law would avoid or mitigate those adverse effects.

The Treasury and the FDIC would decide whether to provide financial assistance to the institution or to put it into conservatorship/receivership. This decision will be informed by the recommendations of the Federal Reserve Board and the appropriate federal regulatory agency (if different from the FDIC). The U.S. government would be permitted to utilize a number of different forms of financial assistance in order to stabilize the institution in question. These include making loans to the financial institution in question, purchasing its obligations or assets, assuming or guaranteeing its liabilities, and purchasing an equity interest in the institution.

This authority is modeled on the resolution authority that the FDIC has under current law with respect to banks and that the Federal Housing Finance Agency has with regard to the GSEs. Here, conservatorships or receiverships aim to minimize the impact of the potential failure of the financial institution on the financial system and consumers as a whole, rather than simply addressing the rights of the institution’s creditors as in bankruptcy.

Depending on the circumstances, the FDIC and the Treasury would place the firm into conservatorship with the aim of returning it to private hands or a receivership that would manage the process of winding down the firm. The trustee of the conservatorship or receivership would have broad powers, including to sell or transfer the assets or liabilities of the institution in question, to renegotiate or repudiate the institution’s contracts (including with its employees), and to deal with a derivatives book. A conservator would also have the power to fundamentally restructure the institution by, for example, replacing its board of directors and its senior officers. None of these actions would be subject to the approval of the institution’s creditors or other stakeholders.

The proposed legislation would create an appropriate mechanism to fund the appropriately limited exercise of the resolution authorities it confers. This could take the form of a mandatory appropriation to the FDIC out of the general fund of the Treasury (subject to all the restrictions on the use of appropriated funds, including apportionments under the Anti-Deficiency Act), and/or through a scheme of assessments, ex ante or ex post, on the financial institutions covered by the legislation. The government would also receive repayment from the redemption of any loans made to the financial institution in question, and from the ultimate sale of any equity interest taken by the government in the institution. The Deposit Insurance Fund will not be used to fund such assistance.

Conclusion

The President has made clear that we will do what is necessary to stabilize the financial system and restore the conditions for economic growth. Working closely with the Congress, we have moved quickly and with forceful action to help get people back to work and the economy growing again. With your help we are also moving to repair the financial system so that it works for, rather than against, recovery.

Comprehensive regulatory reform is critical to these efforts. In the coming days and weeks, we will continue to lay out the steps we must take to protect against systemic risk. We will also lay out a detailed framework for stronger rules to protect consumers and investors against fraud and abuse.

Next week I will join President Obama in London for the G-20 leaders meeting to build support - with the help of other interested nations and strengthened international bodies -for higher global standards for financial regulation.

We are a strong and resilient country. We came into the current crisis without the authority and tools we needed to contain the damage to the economy from the financial crisis. We are moving to ensure that we are equipped with both in the future, and in the process, that we modernize our 20th century regulatory system meet 21st century financial challenges.

Bigger than Enron ..just this alone is 2 Billion

Isn't that funny.....all the ignorant reporters kept writing 1.9 Billion Fraud!

Now they are going after 2 Billion from one investment bank> What gives?

Credit Suisse played an important part in an alleged fraud ?

What about JPMorgan, Chase, Citi, blah blah blah....


Investors in the failed National Century Financial Enterprises Inc. aren’t the only ones going after Credit Suisse, the investment bank that issued the Dublin company’s AAA-rated notes.

U.S. District Judge James Graham in Columbus this month allowed a litigation trust formed in the wake of National Century’s bankruptcy to pursue about $2 billion in claims against Credit Suisse. The company had been seeking to dismiss the case.

The trust has alleged Credit Suisse played an important part in an alleged fraud that led to about $2 billion in investment losses and sparked bankruptcy for its subsidiaries.

A federal probe into National Century has led to convictions of or guilty pleas from 10 of 11 former executives targeted in the investigation. The company bought lump sums of unpaid bills from health-care companies and sold the receivables as securities to be backed by the collections, but the probe found National Century executives were taking money for personal use by investing in uncollectible or nonexistent receivables.

While the criminal case against several former executives was pending, Graham in December 2007 refused to dismiss most claims against Credit Suisse from institutional investors who had alleged the investment bank knew the notes it marketed and sold were worthless.

The bank in the action filed by the litigation trust unsuccessfully argued the National Century fraud did harm only to investors represented in the other lawsuit, leaving the trust with no grounds for its claims.

Credit Suisse has argued it wasn’t liable because it didn’t make misrepresentations to clients and didn’t have knowledge of the fraud. Officials for the company declined to comment for this report.

Robert Madden, a partner at Houston-based Gibbs & Bruns LLP representing the trust and the largest group of investors within the related suit, said both cases are now running on roughly parallel tracks after the latest refusal to dismiss the suit. Discovery is complete for both cases and, barring a summary judgment, they’ll be headed to trial.

The only true statement in this AP article is

Almost $400,000 seized in Ohio fraud case
By ANDREW WELSH-HUGGINS – 21 hours ago

This is misleaduing and WRONG!COLUMBUS, Ohio (AP) — A fugitive convicted in a $1.9 billion corporate fraud scheme put aside almost $400,000 in a bank account before she disappeared, money her trial attorney said he knew nothing about.

Rebecca Parrett, who has been on the lam nearly a year, gave the money to another attorney after removing it from an escrow account, according to federal court documents. But on Friday, U.S. District Court Judge Algenon Marbley said the funds should be seized from an Arizona bank account used by Parrett, 60, a former executive with National Century Financial Enterprises.

The government could use the money to provide restitution to investors who lost money.

Parrett, who will be sentenced Friday in absentia, faces up to 60 years in prison. She disappeared last March after her conviction on 13 counts of securities and wire fraud and money laundering while she worked for National Century in suburban Columbus. Prosecutors likened the fraud, which involved misleading investors and fabricating data, to the Enron or WorldCom scandals.

Arizona attorney Seymour Sacks told the U.S. marshals that Parrett had given him $350,000 from an escrow account, the warrant said. Sacks said he refused to turn the money over to Parrett's husband and son when they requested it after she disappeared, according to the warrant.

Gregory Peterson, who represented Parrett at trial, said he only learned of the money's existence after his client disappeared.

"I was not aware of any money she had anywhere," Peterson said Monday, repeating that he didn't know where his client was.

Parrett's sentencing in absentia will come a few hours before Marbley sentences Lance Poulsen, National Century's founder and former chief executive.

The sentencings are the latest chapter in the downfall of what was once the country's largest health care financing company. Since the FBI raided its offices in 2002, at least nine former executives have been convicted of corporate fraud.

At its height the company employed more than 300 people, most of them in the Columbus area. Executives made millions, with Poulsen alone earning more than $9.1 million between 1996 and 2002, according to the government.

National Century offered financing to small hospitals, nursing homes and other health care providers by purchasing their accounts receivable, usually for 80 or 90 cents on the dollar, so they wouldn't have to wait for insurance payments. National Century then collected the full amount of the payments.

The company raised the money to fund its business by selling bonds to investors. It declared bankruptcy in 2002 after the FBI raid.

Copyright © 2009 The Associated Press. All rights reserved.

AIG POLITICAL CONTRIBUTIONS

March 8, 2004

AIG, Citigroup Battle Unions on Political Donation Disclosure

http://www.bloomberg.com/apps/news?pid=10000103&sid=arBbK7iUfgPM&refer=us

Merrill Backs Bush

Bush derives much of his campaign donations from executives at publicly traded companies, with employees at Merrill Lynch & Co., UBS AG and MBNA Corp. among those making up 13 of his top 20 donors last year, contributing $2.9 million.

Six of the top 20 donors to Senator John Kerry, who has clinched the Democratic Party's presidential nomination, were employees of listed companies, and they gave $275,000 since he began campaigning in January 2003, according to the Center for Responsive Politics.

The shareholder resolutions were filed in December and January by the Service Employees International Union and other affiliates of the AFL-CIO, a federation of 64 unions representing 13 million people. They seek annual reports about corporate donations and ``an accounting of the company's resources, including property and personnel, contributed or donated to'' political parties or candidates.

General Electric

Shareholder proposals included in proxy ballots seldom garner a majority of votes, though a high percentage of favorable returns can send a message to the board, said Sabato at the University of Virginia.

Many of the companies targeted by the proposal asked the SEC to let them exclude the information from their proxies on the grounds that political involvement is part of ordinary business. Warren, New Jersey-based Chubb Corp., which was denied its request to omit the proposal, said in letters to the SEC that the measure would constitute micro-management by shareholders.

``Providing detailed information regarding which members of management influence which decisions about political contributions extends deeply into the company's daily decision- making procedures,'' Chubb wrote.

The SEC denied a request by Wells Fargo & Co. to omit the resolutions from its proxy. Wells Fargo, based in San Francisco, will post its policy on political contributions on its Web site in accordance with the unions' request, said spokeswoman Julia Tunis.

General Electric Co., whose chairman and chief executive officer, Jeffrey Immelt, 48, donated $2,000 to the Bush campaign, included the resolution in its proxy -- along with a recommendation to shareholders to vote against it.
``Because GE is committed to complying with applicable campaign finance laws, including all reporting requirements, we do not believe the report requested in this proposal is necessary,'' the Fairfield, Connecticut-based company said in its proxy.
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/18/AR2009031803201.html?wpisrc=newsletter

From 1987 to 2004, the company's financial products unit contributed more than $5 billion to AIG's pretax income. In spring 2005, after I left the company, AIG's credit rating was downgraded. It would have been logical for AIG's new management to end or reduce its business of writing credit default swaps because of the risk it faced of having to post billions of dollars in additional collateral in connection with certain credit default protection. Yet AIG ramped up its credit default swaps business; significantly, the quality of the securities AIG wrote credit protection for deteriorated, and the company plunged into subprime mortgages. The results were disastrous.

Charles Krauthammer-Bigger than Enron

I AM SO CONFUSED!

Did this happen Januaray 20, 2009?

I am guessing NOT!

I say before 1999 even....but let us look:

Ready?

2004

AIG

2004

MERRILL

March 8, 2004

AIG, Citigroup Battle Unions on Political
Donation Disclosure

http://www.bloomberg.com/apps/news?pid=10000103&sid=arBbK7iUfgPM&refer=us

Merrill Backs Bush

Bush derives much of his campaign donations from executives at publicly traded companies, with employees at Merrill Lynch & Co., UBS AG and MBNA Corp. among those making up 13 of his top 20 donors last year, contributing $2.9 million.

Six of the top 20 donors to Senator John Kerry, who has clinched the Democratic Party's presidential nomination, were employees of listed companies, and they gave $275,000 since he began campaigning in January 2003, according to the Center for Responsive Politics.

WHO HAD ACCESS IN 2004? AIG or me?

Bigger then Enron- Credit Suisse

Credit Suisse Loses Bid To Toss Nat'l Century Suit

Law360, New York (March 19, 2009) -- A federal judge has refused to dismiss a suit against Credit Suisse Securities LLC alleging that it helped National Century Financial Enterprises Inc. run the enormous Ponzi scheme that eventually drove it into bankruptcy.

Judge James L. Graham of the U.S. District Court for the Southern District of Ohio ruled Wednesday that nearly all claims of the lawsuit, which was filed by a trust...

My comment to Tom Daschle's Op-Ed in WaPO

OBAMA says: The epitome of Fraud Waste and Abuse….

I SAY: Root that out and we can afford much more to spend!

PAY ATTENTION PEOPLE

Are you aware of the largest private financial fraud in our country's history that ended December 2008?

WHY?

It was not 'low income housing' mortgages; it was HEALTHCARE FINANCIAL FRAUD; the largest private "FINANCIAL INSTITUTION“in our country.

JULY 10, 2007 - SUPERSEDING INDICTMENT CHARGES EIGHT FORMER EXECUTIVES OF HEALTH CARE FINANCING COMPANY WITH CONSPIRACY, FRAUD, MONEY LAUNDERING

"This case is one of the largest corporate fraud investigations involving a privately held company headquartered in small town America," said FBI Criminal Investigative Division. (Because it was private, no one has ever heard of this case, cried one prosecutor)

A reminder relating to the NEED for ‘healthcare financial service’ i.e. (NCFE) National Century Financial Enterprises; home health - which was struggling under the Balanced Budget Act of 1997; about 1,400 agencies closed nationwide in 1998.

Recall in 1998: On Sept 8, 1998 Standard and Poors downgraded the bonds of Charter/HCA …

The following is an excerpt from a 10-K SEC Filing, filed by J P MORGAN CHASE & CO on 3/9/2006:
the three current or former Firm employees are sued in their roles as former members of NCFE's (National Century Financial Enterprises) board of directors

2002 FBI Raids NCFE headquarters in Dublin Ohio

Prior to the exposure of ‘some’ of the fraud at NCFE, the same entities were also involved in the "LARGEST PRIVATE" Bankruptcy Court in Memphis, TN in 1999. (Another “private’ company; remember, home health - which was struggling under the Balanced Budget Act of 1997)

Guess what this LARGEST PRIVATE Company filing bankruptcy in Tennessee was--- HOME HEALTHCARE!

The SEC NEVER received documentation of the publicly traded companies allegedly selling or divesting their home health units to this private company.
Six months or so later after the acquisition of all the losers, this private healthcare company filing bankruptcy in Tennessee held much of if not ALL of Columbia/HCA Homecare’s losing' assets, home health- financed by the largest fraudulent private "FINANCIAL INSTITUTION “in our country, NCFE.

Tennessee Bankruptcy court transcripts reveal lawyers crying Fraud only to be reprimanded by the appointed corporate bankruptcy judge. She forbade the lawyers from using the ‘F’ (fraud) word in her court. (Got to love those appointed judges) Guess what tool was used in this corporate bankruptcy court in TN? DIP FINANCE TOOL.


March 26, 2008; By Jodi Andes; THE COLUMBUS DISPATCH
Nine other executives have been convicted or pleaded guilty in National Century's collapse. Only Poulsen and executive James Happ still await trial.

Only CEO and ONE EXECUTIVE –JAMES K HAPP await trial? JAMES K HAPP –LAST PERSON ON TRIAL—

WHY?
Who is James K Happ? Where was James K Happ when Richard Scott was at Columbia in 1997?

In 1997 James K Happ was the CFO of the Dallas-based Columbia Homecare Group, Inc. “In this role, he directed the company through the challenging reimbursement climate, known as the interim payment system, and participated in the divestiture of all of Columbia/HCA's home care operations” (SEC Form)


Let me remind you the size and TOO BIG TO FAIL mentality for HCA-Hospital Corporation of America is in Nashville, TN. Remember Senator Bill Frist- Leader of the Senate- HOLY COW!

December 9, 2008. James K. Happ, 48, is charged with conspiracy, money-laundering conspiracy and three counts of wire fraud; the 11th National Century executive to be tried or admit guilt. , Also today, a former friend of Happ's testified that, while working at National Century, Happ boasted that he never could be charged with any fraud because he didn't sign anything.

(Just like Madoff’s sons never signed anything therefore they are not involved.)

December 18, 2008 - The ONE AND ONLY acquittal; James K Happ!

By Jodi Andes THE COLUMBUS DISPATCH
Prosecutors' case fell short, juror says National Century fraud case produces 1st acquittal; The "not guilty" verdicts that came in federal court yesterday were not so much a vindication of the last National Century Financial Enterprises executive to stand trial, a juror said.

Instead, they were more a belief that federal prosecutors had not done their job, the juror said after he and his fellow jurors acquitted James K. Happ of five counts after 12 hours of deliberation. "He very well may have been guilty. A lot of us thought he was," said the juror who wouldn't give his name. "But if he was, you gotta have the evidence."

“Federal prosecutors had not done their job” in 2008?

To be continued…..

Bigger then Enron....self made....I think not!

Net Worth:$1.7 bil
Fortune:self made
Source:HCA Healthcare
Age:70
Country Of Citizenship:United States
Residence:Nashville, Tennessee
Industry:Health Care
Education:Vanderbilt University, Bachelor of Arts / Science, Washington University, Medical Doctor
Marital Status:married, 3 children


Former Air Force flight surgeon took HCA, nation's largest hospital operator, private with Bain Capital, KKR and Merrill Lynch in 2006. At the time the $33 billion leveraged buyout was the largest in history; eclipsed by $45 billion purchase of power giant TXU four months later. "Being private in these times is a blessing. The timing couldn't have been better." Founded Hospital Corp. of America with father and Jack Massey 1968; took public following year. Led management buyout 1989; took public again 3 years later. Merged with Richard Rainwater's 1994, became chief exec again 3 years later. Nashville native left board in January, now focused on philanthropy through family foundation.

Bigger than Enron-Financial FRAUD

How long was Sen Grassley Chairman of the Finance Com? Our financial system went off a cliff Sep 08

Morgan Stanley private incarnation

Another PUBLIC goes PRIVATE SCAM....PONZI SCHEME

Morgan Stanley hasn't said yet if Crescent's top executives will stay with its new, private incarnation.

"...despite four shareholder lawsuits in Tarrant County, Texas, contesting it. "


This spring, Crescent said it intended to sell off its non-office holdings. A deal to sell the whole company to Morgan Stanley came up in May.

Financial adviser Richard Rainwater of Fort Worth, who formerly worked with Texas' wealthy Bass brothers, co-founded Crescent in 1994 with CEO John Goff.
Wednesday, August 1, 2007
REIT with extensive Colo. holdings to be soldDenver Business Journal


Shareholders in Crescent Real Estate Equities Co. of Fort Worth, Texas, OK'd the company's sale on Wednesday to Morgan Stanley for roughly $6 billion.

As of mid-July, Crescent owned 2.5 million square feet of office properties in Colorado and several residential developments in downtown Denver and mountain ski towns.

Nearly 74 percent of holders of Crescent's outstanding shares favored the sale.

The transaction includes a $22.80 per-share offering, valued at $2.3 billion, plus the assumption of $3.1 billion in Crescent debt.

The sale is expected to close Aug. 3, despite four shareholder lawsuits in Tarrant County, Texas, contesting it. Publicly traded Crescent (NYSE: CEI) will merge into an affiliate of New York-based Morgan Stanley's (NYSE: MS) real estate group. The existing Crescent company will cease to operate.

Crescent, a real estate investment trust (REIT), currently has 23 million square feet of office space nationwide, as well as residential and resort holdings.

The Texas company sold its 613-room Marriott City Center hotel in downtown Denver -- one of the metro area's largest hotels -- in a package deal in March. Walton TCC Hotel Investors V LLC bought the Marriott and Crescent's 190-room Park Hyatt Beaver Creek Resort for $550 million.

Crescent's current Denver-area office holdings include:

Johns Manville Plaza -- 675,400 square feet at 717 17th St., Denver, one of downtown Denver's largest office buildings;
707 17th Street (also called MCI Tower) -- 550,805 square feet in downtown Denver;
Regency Plaza One -- 309,862 square feet at 4643 S. Ulster St. in the Denver Tech Center;
Peakview Tower -- 264,149 square feet at 6465 S. Greenwood Plaza Blvd. in Centennial;
44 Cook -- 124,174 square feet at 44 Cook St. in Denver;
55 Madison -- 137,176 square feet at 55 Madison St. in Denver;
The Citadel -- 130,652 square feet at 3200 Cherry Creek South Drive in Denver.
Crescent's Denver residential developments that have not yet sold out include One Riverfront and The Park at One Riverfront. The company has another 310 acres in metro Denver for future housing development, including nearly seven acres downtown.

The Fort Worth company's mountain residential holdings range from Eagle Ranch in Eagle to Three Peaks in Silverthorne and Riverfront Village in Beaver Creek. Crescent has 170 acres for future projects.

This spring, Crescent said it intended to sell off its non-office holdings. A deal to sell the whole company to Morgan Stanley came up in May.

Financial adviser Richard Rainwater of Fort Worth, who formerly worked with Texas' wealthy Bass brothers, co-founded Crescent in 1994 with CEO John Goff.

Rainwater currently sits on company boards, and owns or controls more than 4 percent of the company's shares, according to GlobeSt.com. He also has more than 5 million partnership units. Goff and company president Dennis Alberts recently forfeited their $10.3 million worth of partnership units as part of the Morgan Stanley deal.

Morgan Stanley hasn't said yet if Crescent's top executives will stay with its new, private incarnation.

JPMorgan Chase, Citi, Bank of America, Goldman Sachs, ....

MORE PONZI SCHEMES? THIS NEEDS TO END! WAKE UP AMERICA!
JPMorgan and CITI were found GUILTY of contributing to the ENRON PONSI SCHEME.
JPMORGAN CHASE and CITI PAID GOVERNMENT SETTLED AGREEMENTS FOR FRAUD in our nation's “LARGEST ‘PRIVATE’ FINANACIAL FRAUD CASE “ in our history! National Century Financial Enterprises, Inc. (NCFE) Federal prosecutors proclaimed “no one has ever heard of” this case. I believe that was intentional. (DOJ case ended 2008)

This month, FEBRUARY ‘09, although the DOJ’s NCFE case ended in December 2008, we now have ‘Credit Suisse Securities LLC has asked the court overseeing litigation over the collapse of health care lender National Century Financial Enterprises Inc. to sanction Lloyds TSB Bank PLC for allegedly hiding a deal with Moody's Investor Services Inc…’

December 2008, at the last trial of NCFE in Columbus, Ohio, ALL executives EXCEPT ONE, was acquitted. Funny, Mr. Happ was the last executive to go on trial, even after the so-called master mind, CEO Lance Poulsen.

Mr. James K Happ, the ONE and ONLY EXECUTIVE acquitted in this trial that NO ONE HAS EVER HEARD OF. Who is Mr. James K Happ?

Mr. James K Happ was the CFO at Richard Rainwater's Columbia Homecare Group prior to arriving at National Century Financial Enterprises, Inc. (NCFE)

As CFO at Columbia Homecare Group, Mr. James K. Happ was responsible for divesting the ‘losing assets’ of a publicly traded company’s homecare segment via NCFE's financing. The alleged divestiture was a sale to a 'PRIVATE' company, Medshares, Inc. Medshares was a healthcare company that was already under investigation for MEDICARE/MEDICAID FRAUD. Medshares acquired this divestiture and six months or so later, filed bankruptcy.

Associated Press - February 21, 2008
COLUMBUS, Ohio (AP) - A former executive of NCFE says the company withheld financial information from its investors. Sherry Gibson testified Thursday in federal court in the government's securities fraud case against five former owners and executives of National Century Financial Enterprises.
The government alleges the five schemed to defraud investors of $1.9 billion.
A guilty executive told jurors she told investors "absolutely nothing" about National Century's practices of advancing cash to Memphis, Tenn.-based Medshares, a home-health care provider.

National Century executives also had voting control of Medshares stock. National Century wired that company $93 million without receivables during that same time frame.

The last trial in the “LARGEST ‘PRIVATE’ FINANACIAL FRAUD CASE “in our history, the one and only executive, James K Happ gets his acquittal. According to the jurors, “The PROSECUTOR did not do his JOB!”

The LARGEST CORPORATE BANKRUPTCY ever filed in Memphis, TN was filed by Medshares, Inc. in 1999.

If one searches the court records, the outcry from so many lawyers of fraud were only to be scolded by the judge and warned not to use the "F" word in her court.

HARRY MARKOPOLOS....look at the publicly traded companies dumping the losing assets into private companies....

THIS NEEDS TO END! WAKE UP AMERICA! MORE PONZI SCHEMES?
JPMorgan and CITI were found GUILTY of contributing to the ENRON PONSI SCHEME. Both JPMORGAN CHASE and CITI PAID GOVERNMENT SETTLED AGREEMENTS FOR FRAUD in our nation's “LARGEST ‘PRIVATE’ FINANACIAL FRAUD CASE “ in our history! National Century Financial Enterprises, Inc. (NCFE) Federal prosecutors proclaimed “no one has ever heard of”. I believe that was intentional.
In the trial in Columbus, ALL executives except one, was acquitted. Who was this one and only executive acquitted? James K Happ. Mr. James K Happ was the CFO at Richard Rainwater's Columbia Homecare Group before arriving at National Century Financial Enterprises, Inc. NCFE.
BUT HOLD ON......Now, FEBRUARY 2009, even though NCFE case was supposedly CLOSED by the DOJ in the BUSH ADMINISTRAION, in 2008, is now back in the INVESTIGATIN OF :
Credit Suisse Seeks Sanctions against Lloyds
Law360, New York (February 03, 2009) -- Credit Suisse Securities LLC has asked the court overseeing litigation over the collapse of health care lender National Century Financial Enterprises Inc. to sanction Lloyds TSB Bank PLC for allegedly hiding a deal with Moody's Investor Services Inc. in order to manipulate a deposition in its favor.Credit Suisse, which is accused by Lloyds and others of committing fraud as an agent for National Century's note offerings, said in a motion filed Friday that Lloyds concealed an...