Unravelling UBS Derivative Bond Trading and Hedges Provide Details on Securitization Scam

“”Mr. Adoboli had ceased to act as a professional investment banker and had begun to approach his work as a naked gambler,” Ms. Wass said.”

Editor’s Comment: Just so there is no mistake about it, my opinion is that securitization never occurred and that all the paperwork was a cover-up for a complex PONZI scheme that ended like all all PONZI schemes —- when the money from new investments dries up, the scheme is over. I hold these truths to be self-evident and easily proven without speculation.

The failure of government to prosecute comes from two sources (a) conflicts of interests because of the revolving door for people who work at banks and then at regulators or vica versa and (b) because honest policy makers, unsophisticated in the ways of Wall Street truly believe that the collapse of bank of America, Chase, Citi, Wells et al would lead to a run on the banks and an end to our financial system and social network.

Bill Maher said it all last night when he “quipped” that our faith and belief in the almighty dollar exceeds any evidence of faith, belief or morality tied to a relationship with God. As long as that is true, prison populations will rise, drug lords to rise to greater wealth and power, and military-industrial complex (a warning from President Dwight Eisenhower) will control much of our spending and foreign policy. Today we add the threat of banks gone wild and the details of their sordid deals provide a road map for just how the supposed “securitization” of residential mortgages became real in the minds of millions and how it worked like a charm to cover up a common theft that rose so high that the consequences are still being felt as the theft continues right under the noses of regulators, law enforcement and law makers.

Behold the case of “Kweku M. Adoboli, a former UBS trader in London who faces four counts of fraud and false accounting in connection with a $2.3 billion loss at the Swiss bank.” Here in his own words and those who are prosecuting him, is the methods he used, the results he “achieved” and the plausible deniability that works so well on Wall Street to avoid criminal prosecution of the highest executives while they throw their soldiers under the bus.

This is a case that few people will notice unless they see articles like this one and it starts them thinking about how we got to this point where the entire housing market, consumer market and financial market is cornered by the decisions of common thieves who achieved power in ways no better than Scarface.

The man they are throwing under the bus (as opposed to leveraging him to get to higher and higher kingpins the way they do with drug lords) “doctored documents, invented profits and fabricated clients to cover up his rogue activities. Sasha Wass, the lead prosecutor, told a jury that Mr. Adoboli was motivated by greed and ego as he looked to increase his salary and status at the bank.”

One background comment here. Back when I was on Wall Street, the self-governing mechanism that worked most of the time was the fact that the firms were only allowed to be partnerships with no limitation on personal liability. When we allowed them to go public it was like opening the lion cage, because they could take whatever risks they wanted with the money of shareholders, clients or investors and pocket huge bonuses vastly exceeding the size of their prior partnership. Instead of partners at risk, we have management unhinged. It worked out for the people who rose to the top and many middle management folks who had never seen such salaries and bonuses in the history of Wall Street — all while median national income was flat, the economy was growing increasingly dependent on debt to create the appearance of commerce that would be counted in GDP measurements, and living expenses imposed on the middle class skyrocketed.

Fabrication of trades, documents and false accounting are and always have been a staple method of business. Wall Street institutionalized fraud as a custom and practice of the industry long before the mortgage meltdown, even preceding the dawn of the 20th century. What is different here is that for the last 30-40 years Wall Street has been dipping directly into the pockets of consumers and breaking laws that are already on the books, rules and regulations that have been in place since the Great depression that was also caused by Wall Street speculation, and generally treating consumers as trading pawns or garbage that could be viewed as collateral damage while Wall Street performed its function — to make money.

But Wall Street was not allowed into existence to MAKE money, it was allowed into existence to create liquidity which is another way of creating money not for themselves, which would be counterfeiting, but for others who are innovating, expanding and growing. With no effective referee on the playing field, the players went wild making up rules and even pretending they had played when they were out to lunch with the referees.

Wall Street began creating money for itself in 1983 with the full blessing of the Federal Reserve and the U.S. government. Instead of using it as an engine for national growth, they used to to create growth of salaries and bonuses for the people who worked there, thus siphoning out of the economy what should have been piped in — liquidity, money, investment and loans into a strong economy.

Follow the bread crumbs and you will arrive at the front door of every mega bank and discover that securitization was completely falsified, covered up and sold in a way that even today has an aura of legitimacy. It is taken as true (an assumption that is totally wrong) that Wall Street firms sliced and diced the loans and sold them to investors through investment pools variously referred to as pools, REMICs, Special Purpose Vehicles, Trusts and other names.

Not one of these “pools” ever had a bank account, an asset or a penny. They were all fictitious entities with whom Wall Street made fictitious trades, as a cover-up for taking much of the money from pension funds and making ti the money of the Wall Street firms through trading profits (selling bad loans — funded from investor money from outside the securitization chain —- to the investors at a profit), thus creating the endless stories about trading profits and losses that never were real. It was simple theft: out of the money advanced by investors, Wall Street put much of it in their own very deep pockets.

They covered it up with fictitious or bad loans whose funding required much less money than the funding on a real loan using standard underwriting procedures based upon the premise of repayment. Here the premise was nonpayment and Wall Street made sure that was what happened — even if the loans were current.

“Mr. Adoboli took pains to evade internal controls. According to prosecutors, the former UBS trader, who focused on a plain-vanilla version of derivatives trading, falsified trades valued from $5 million to $20 million. Mr. Adoboli even created separate accounts, which he called his umbrella, to hide the profits and losses of his unauthorized activities. In 2009, the so-called umbrella held $30 million, according to the prosecution.”

In the real world of business people whoa re CEO of a large organization or said to have known or should have known” about bad or illegal practices. In the world of finance such statements are never made, and instead of sitting in prison, people like Jamie Dimon sits on the board of the New York Federal Reserve board.

If you liked the crash of 2007-2009 you are going to love what happens next. The ONLY hope we have is your use of voting power and putting practical understandable policies into place by electing those who are not bought off by the banks.

September 14, 2012, 3:59 pm <!– — Updated: 6:59 pm –>

Ex-UBS Trader Is Accused of Gambling in a Big Loss

Tags: Kweku M. Adoboli, securitization, UBS
Posted in bubble, Corruption, Eviction, securities fraud |