The developer of Bonita Bay Club, an exclusive golf community on Florida’s west coast, is using aggressive tactics to get the club’s members to pay off his debts and save him from bankruptcy, according to some disgruntled investors. Questions continue to swirl regarding whether the club’s group of lenders, led by KeyBank, who had lent the developer $120 million by securing club property, is aiding in the scheme.

Last week David Lucas, president of Bonita Bay Group, the golf club’s Management Company, was sued by club members in a complaint that evokes another Ponzi scheme. Claims against Lucas and BBG charge the developer and the company with deceptive and unfair trade practices, constructive fraud, and unjust enrichment. But Lucas isn’t the only party accused of wrong doing, as Dealbreaker reported that Ohio-based Key is also about to be named a defendant in the case.

Lucas married into the moneyed Shakarian family, who founded the GNC chain, and took over running the club after his father-in-law David Shakarian died right before the community was set to open in the mid 80’s.

Local news reports tracking the saga in Naples, Florida say BBG is now nearly insolvent. BBG collected over $100 million when it was formed in “refundable deposits,” which constituted members’ entry fees, and issued promissory notes in return. The notes were essentially a non-interest loan to be paid back in 30 years or within 30 days of a member’s death or resignation. This arrangement worked well until there was a rush of withdrawals in the fall of 2007 and BBG said it didn’t have the money to pay them back. Where that money went has turned into a complicated legal mess that has forced members to turn to the courts for relief.

A few months ago, Bonita Bay Club residents started receiving letters from Lucas saying that unless they buy the club from his firm, he’ll have to shut it down, which could result in a bankruptcy. Lucas wanted the members to come up with another $20 million, on top of the interest free membership notes and the dues they’d been paying, to take over the club. However, their commitments would not end there. Members would still owe money to KeyBank and have to pay back the members who had resigned. It would be a good deal for Lucas, who after being forgiven from the membership note liability, could book a gain on his income statement. It would also be a pick-up to his capital account, clearing the way for him to become a credible borrower again and start all over on another deal.

The members, who’ve entrusted a Turnover committee to speak for them, said in a letter to Lucas last week, “The Club cannot possibly sustain the economic burden you propose without a significant dues increase or a significant reduction in services (or both) in addition to the lack of funding for capital replacement or improvements. We would have no assurance that by the time the $20 million of debt was repaid the facilities would be in acceptable condition.”

David Lucas responded to club members last week that negotiations to buy the club were halted and threatened members that if they did not pay their dues this winter season, they would not have a club to play at. According to the letter obtained by BankImplode, “If you support the current course of the Turnover committee, you commit yourselves to years of litigation, continue or worsen the negative effect on the value of your home and completely halt all real estate activity in Bonita Bay.  Your community will stand still and your club experience will suffer as the result of diminished dues payments.”

Should members choose to stop funneling money into a management company they believe won’t be used for its intended purpose, then the specter of bankruptcy looms. Should conditions worsen and the situation get to that point, the focus of the battle would then shift to who is senior as a creditor and has control of the club’s assets. Is it the bankers or the members? Are there victims in this case that would trump any creditors’ claims? Many club members BankImplode interviewed for this story didn’t have a clear understanding of the distinction.

One of Lucas’ strategies was to scare members into the possible threat of KeyBank foreclosing on the loan and taking over their beloved club’s assets. Such a move has led members to believe that their private access could soon become public.  Lucas, in his own defense, claims he could not refund members’ money because he had to pay off the looming loan so they don’t lose the club. Indeed, nearly $30 million has been paid back to KeyBank. Unfortunately, members are only hearing Lucas’ side of the loan terms as they can obtain no information from Key. As a result, they feel Lucas cannot be trusted to run their club or control the golf course.

In a letter sent to club members last week by their Turnover Committee, the Committee reminds members that “KeyBank has told the TOC that they cannot talk to the TOC without [BBG’s] consent. BBG has refused to grant our request.”

When Roger Brunswick, a Bonita Bay resident, was asked if Lucas was using foreclosure as a scare tactic to get members to pony up more money and actually buy the club from Lucas to pay off his debts to Key he said, “That’s definitely a possibility”.

But BankImplode has learned that foreclosure is not a plan KeyBank has in mind, since the bank does not want to be in the business of running the club. A person familiar with KeyBank’s thinking said there are other ways for the lending group to get their money back. How legal or ethical those ‘ways’ are is at the heart of this argument, which could take a while to resolve. Meanwhile, the club isn’t being maintained to the standards members have been paying millions for.

KeyBank spokeswoman, Laura Mimura, told BankImplode, “There is no current plan for KeyBank or the lender group to ‘take over’ the business of Bonita Bay Group.” Additionally, KeyBank claims that they are only the lead agent on a credit facility provided by seven lending intuitions to Bonita Bay Group. Mimura also points out “Key is legally obligated to adhere to the terms of the loan documents when making any decisions regarding the Bonita Bay Group loan.“ For Key that’s a way of saying they are at the mercy of the lending group. But club members who are familiar with the original loan terms say Key has the majority interest in the loan and thus controls the decision making for the group – which would make Mimura’s argument something of a cop-out.

There is another legal issue here. According to page 19, section E of the original mortgage agreement, club members are senior to the lender in regard to the rights of use of club assets. Even if KeyBank did foreclose on the loan, all it gets is the land and buildings, but the members still control the way the facilities are used. So if the majority of members don’t want the club to be public or increase membership, it won’t happen. The language of the contract actually obviates concerns of members losing their coveted exclusive security.

But Michael Lissack, a Bonita Bay Group resident, points out “KeyBank loses a lot of the value in selling the club to an outside party if the new party can’t control their assets. Who would want to buy it?” Lissack believes KeyBank knows this and it’s just another reason they will not foreclose on the loan. Instead, as reported at Dealbreaker, he says KeyBank is directing BBG to defraud the senior creditor, i.e. the membership tied to club assets. Lissack believes KeyBank is just easing up on loan terms and taking what cash members are paying this year for dues as repayment on their loan.

Meanwhile the club is barely being maintained. Members have told BankImplode that, for example, the heat in the men’s locker room isn’t working and the restaurant is only open a few nights a week.

Whether the courts consider KeyBank’s drive to get money paid back before returning member’s entry fees or maintaining the club is yet to be decided. BBG does have other income streams from real estate sales in its portfolio and even a profitable water facility business. That’s one of the reason members are so outraged that Lucas expects them to pay for his perceived poor debt management.

A Bonita Bay Club resident comment after the Dealbreaker story reads, “We want to see BBG bite the dust in a blazing fire ball on the steps of the Federal Courthouse in Ft. Myers followed by a fire sale to the homeowners of the BBG assets at 10 cents on the dollar. It can and in all likelihood will happen.” We found this sentiment to hold for most residents we spoke with who wished to keep their names out of the press.

There’s one last catch in this complicated showdown that could save members from having to shell out more money for legal fees or to buy the club.

There is currently a separate civil suit pending put forth by Frederick Feldkamp – a Bonita Bay Group member at another club called Shadow Wood – against BBG for not honoring his promissory note when he resigned. The case is currently waiting for a decision by the judge as BBG just turned in its legal response. If these promissory notes are considered an illusory contract and thus turned into a constructive trust, club members could be considered victims instead of creditors. And luckily for club members, victims trump creditors in a bankruptcy. Given that the promissory notes have not been paid back, that becomes a violation of the constructive trust. At that point the court could assume BBG can’t be trusted to run the club or handle members’ money and out they go. The court would then appoint an independent receiver to run the club who can then rule that good ‘ol KeyBank has to return some of the $30 million used from club monies to pay off its loan.

If that scenario plays out, besides KeyBank having to book a loss on its $120 million loan, there will also be questions about the banks’ aiding in the violation of the constructive trust. To say the least, this is a public relations mess for a TARP bank that has thus far managed to stay out of the limelight.

The lesson here simply might be only member-owned clubs prevail as a safe investment, because the current environment is pitting leverage-happy developers and their banks against them. Ironically, in BBG marketing material Lucas credits the values set forth by his father-in-law David Shakarian as the foundation of principles he’s built the development company’s reputation on. Lucas writes, “We have created places where people want to live by striving to do the right thing in every aspect of community planning and development, from caring for the land to caring about our residents’ quality of life through community involvement.”

It looks like it will be up to the courts to rule on how well those family values are holding up now.

UPDATE, 2009-09-30: According to an internal letter seen by BankImplode from Paul DiVito of KeyBank Real Estate Capital, it states the KeyBank lending group never prohibited BBG from refunding golf club member deposits. The Wall Street Journal quoted David Lucas saying KeyBank would not allow him to use money from the credit facility to even refund partial members deposits. DiVito writes, “Also, regardless of what you may have heard or read, KeyBank and the other Lenders have never prohibited BBG from refunding membership deposits. Keybank did not authorize BBG or any other party to make that statement…. The fact is that any issue regarding the refund of deposits is between BBG and the club members…” With contradictions like these, it is no wonder members don’t trust David Lucas to run their club.  But why didn’t KeyBank simply make a public statement denying BBG’s claim instead of hiding behind client privilege? Stay tuned as we continue to follow this story.

Editors Note: The reporter holds no relevant stock positions. Teri Buhl is an investigative journalist who has written for Trader Monthly, The New York Post, Housingwire, and Dealbreaker.

Bank of America is taking the hard line at every turn with the government whose citizens saved it. The bank is the recent recipient of a two bagger of cash transfusion from the taxpayer, in one arm went $45 billion under TARP and in the other arm was a $118 billion backstop against Merrill losses. Without it, all the government strong arming in the world couldn’t make Kenny boy wrap his arms around Merrill. It was a loss sharing deal under which the the best the taxpayer could do is break even.

Bank of America agreed to pay USD 425 million to government agencies, including the Treasury Department, to exit an arrangement under which public funds might have been used to shoulder losses on USD 118 billion worth of risky assets from the Merrill Lynch takeover. The option was never used, but the government has argued that the bank benefited from the promise of protection.

The move is part of a broader effort by the bank to reduce its reliance on various forms of government support. Charlotte, N.C.-based BofA has been one of the largest benefactors of the government’s financial rescue programme, receiving a total of USD 45 billion from the taxpayer-financed USD 700 billion financial bailout programme.

Now that the taxpayer financed mini bubble has allowed the bank to profit on trading gains, the bank says that it shouldn’t have to pay for the loss sharing provision, since it never went into effect. You might think they’d be grateful for the implicit guarantee that made counterparties want to do business, or you might think that they’d repay the full amount as a show of good faith or even, heaven forefend, gratitude. You would of course be wrong.

Thus, taxpayers were owed $4,427 billion for the guarantee. They got $425 million. That is less than 10 cents on the dollar. Just because you don’t burn down your house, the insurance company will not give you a ninety percent refund of the premiums.

By my math that’s $.425 B /4.427B =0.096 and that is indeed less than a flat dime to the dollar.
See how that works; Heads they win, Tails Screw You. Or in actuallity: Heads Screw You, Tails Screw You.

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“I had to get us out of this,” the elderly man said Friday from the other side of the glass at San Diego central jail. “I’ve never done a bad thing in my life. But when you get desperate, I guess you throw all that sh– out the window.”

Listening to how Michael Casey Wilson of Santee tells it, a 17 percent mortgage, the threat of homelessness and a terminal health condition will turn a man to crime.

Wilson, 69, is accused of walking into the Bank of America branch in the 4100 block of El Cajon Boulevard in City Heights and handing a bank manager a demand note, saying he had a bomb. Prosecutors said he made off with $107,000 before he was caught lying on a front porch near the bank.

“I wrote them an apology. I am so sorry,” he said referring to the employees who rusrushed out of the bank. “It’s not my purpose in life to scare people.”

“If it would’ve worked the way I wanted it to, it would’ve just been he and I. But he told everybody. He shouldn’t have done that,” Wilson said.

On Thursday he pleaded not guilty to three counts of robbery and one count of falsely reporting a bomb to a business. In an interview Friday, Wilson was very open about the plan he had hatched to save his home.
“I was hoping to get $50,000 to pay off my mortgage,” he said. “Just to get the money and get the hell out of there.”

Wilson said he had planned to hail a taxi and drive with the bank manager to the airport. Once the manager was gone, Wilson said he had hoped to pick up another taxi to take him to his home in Santee. But he said he never thought the bank manager “had the balls to call the police.”
“I saw all of a sudden all the people rushing out and I knew I was had,” he said. “I knew that he had called me in. C’est la vie.”

Wilson said he lives with his 73-year old wife who he described as a “gentle soul.” He said he feared for her future living on the streets if he couldn’t make their house payment.

Looking at Wilson, you can see his health is suffering. He claims doctors have diagnosed him with severe arthritis, sleep apnea, heart problems, and a disease he described as one “that makes you fly off the handle.” Wilson said he was told he had one to two years to live.

When he hatched the bank robbery plan, he said that he had considered the consequences but thought, “It was 50-50. Well if I get caught, I get caught. I’m dying anyway so what different does it make.”
Wilson could face more than seven years in prison if he is convicted. His bail was set at $50,000.

“I’m an asshole. Let’s face it,” he said. “Here’s a man who f–ked up his life and his family’s life but I did it with good intentions. Just stupid intentions.”

As opposed to the bad intentions of the bankers we are all up against.

With word that green shoots sprouting up all over the road ways and side walks, Ben Bernanke’s shrill statement that the “recession is likely over” could almost trick some one into believing all the hype.

Federal Reserve Chairman Ben Bernanke said Tuesday that the recession was “very likely over,” as consumers showed some of the first tangible signs of spending again.

Mr. Bernanke, who had become cautiously more upbeat in recent weeks amid signs of third-quarter growth, said for the first time that forecasters agree “at this point that we are in a recovery.”

Why would anyone listen to this clown, who said there was no housing bubble and claimed there would be no recession until we were in a recession. You don’t have to work too hard to conclude Ben knows better, but the people in the know want more proof before putting their money where big Ben’s mouth is.

Citigroup Inc (C.N) plans to pay back $20 billion it owes the government when the bank sees more concrete signs of recovery, Chief Executive Vikram Pandit said on Wednesday.

He said Citigroup has plenty of capital to use to pay back the $20 billion.

“To us it’s really more about timing than capacity (to repay),” Pandit said, speaking at a conference at Barclays Capital in New York.

To everyone it’s all about timing and it’s clear that the time of recovery is not now.

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By Teri Buhl for BankImplode.com

In order to sort through the disaster that is Wells Fargo’s (quote: WFC) commercial loan portfolio, the bank has hired help from outside experts to pour over the books… and they are shocked with what they are seeing. Not only do the bank’s outstanding commercial loans collectively exceed the property values to which they are attached, but derivative trades leftover from its acquisition of Wachovia are creating another set of problems for the already beleaguered San Francisco-based megabank.

Wachovia, which Wells purchased last fall as it teetered on the brink of collapse, was so desperate to increase revenue in the last few years of its existence that it underwrote loans with extremely shoddy standards and paid traders to take them off their books.

According to sources currently working out these loans at Wells Fargo, when selling tranches of commercial mortgage-backed securities below the super senior tranche, Wachovia promised to pay the buyer’s risk premium by writing credit default swap contracts against these subordinate bonds.  Dan Alpert of Westwood Capital says these were practices that he saw going on in the market at large.

Keep in mind, should the junior tranches eventually default, then the bank is on the hook.

Alpert says in reference to how he saw CMBS trades get done, “These guys would say ‘We’ll just take back that silly credit risk you’re worried about.’ Of course that was a nice increase to earnings when they got the security sold. The bank made money at the time.”

When asked if Wells Fargo was prepared to pay out those credit default swaps if these securities default, a spokeswoman told Bank-Impode.com,” In keeping with our strong risk discipline, we continually monitor all of our outstanding derivative positions. We have provided extensive transparent disclosures on our derivatives in our 2008 annual report beginning on page 132.” The real question is, however, was enough disclosed to investors about this practice when Wells purchased Wachovia?

One top hedge fund manager who has experience in outing accounting fraud told Bank-Implode “They needed to estimate that CDS liability upon the purchase of Wachovia. If they didn’t, they’ve committed fraud.”

Since there is no way to track the amount of contracts Wachovia wrote due to the lack of a central clearinghouse for credit default swaps , the next best option for analysts is to examine how the loans that backed the mortgage securities are performing. An in-depth review by Bank-Implode shows significant weakness regardless of Wells Fargo’s recent claim to the Wall Street Journal that the merger integration is on track.

According to the New York Post, Harry Markopolos, the most prominent whistleblower on Bernie Madoff, gave a speech this summer at the Greek Orthodox Church in Southampton predicting more major scandals will soon be revealed about the unregulated, $600 trillion, credit default swap market that Wachovia/Wells is playing in.

One senior member of Wells Fargo’s commercial loan group who deals directly with the quandary, who spoke on the condition of anonymity, said, “One third of this commercial portfolio we took on from Wachovia is impaired and needs to be completely rewritten. I’ve just hired five more guys and we can’t keep up with the volume of defaults. Southeast Florida and Tampa are serious trouble spots.”

Wachovia’s third quarter 2008 filings, which reflect their assets three days before Wells Fargo agreed to the acquisition, shows the bank held a whopping $230 billion in its commercial loan portfolio. Current figures show Wells’ 90-day defaults on its commercial portfolio are rapidly growing. According to data from WLMlab.com which tracks financial numbers that Wells files with its regulators, the bank’s Construction and Development portfolio, with $38.2 billion in loans, is defaulting at a level eight times greater than the rest of the nation’s banks, as of June 30th.  Alarming, right?

Wachovia commercial loan officers who spoke to BankImplode say that the bank specialized in underwriting short-term loans up to five years during the credit boom of 2005-2007.  The standard terms for such loans included interest-only payments on a floating rate with a huge balloon payment in the final year of the loan. If these loans cannot be refinanced, more waves of defaults are inevitable.

According to Susan Smith, author of a recent PriceWaterhouseCoopers investor survey about the state of the CMBS market, more trouble is brewing. “It’s going to be very difficult for these loans to get refinancing when the market value is going down and fundamentals are deteriorating,” says Smith.  According to data from her report, problems in the South Florida region, to which Wachovia had large exposure, are amplified by an increasing overall cap rate (OCR), up 80 basis points from last year, and declining rent prices. (The OCR is the perception of risk investors see. The overall cap rate goes up when the overall risk in the market is up.)

Given the warning signs on the horizon, it’s plausible that Wells Fargo would try to unload some of these troubled loans on the secondary market.  But according to multiple private investment shops set up to invest in distressed debt, Wells isn’t selling them. If Wells were to sell the loans, not only would the bank have to book a loss, but would also have to pay out on those pesky credit default swaps.

Instead of selling the loans, sources inside Wells commercial group told BankImplode that they have been instructed to modify loans for customers in default by adjusting the interest rate, but not change the maturity date. Why?  According to Meredith Whitney, founder and CEO of Meredith Whiney Advisory Group, Wells is working an accounting game of “extend and pretend.”

“If the bank doesn’t change a maturity date, then it does not have to take an impairment charge on its books, which would affect earnings,” says Whitney. If the loans don’t look like they are impaired, the rating agencies then do not have to downgrade the billions of CMBS that Wachovia sold to other banks and investors. Moody’s backed out of such a downgrade last month, after it previously warned downgrades were coming on $4.1 billion of Wachovia Bank commercial mortgage securities because it now expects principal and interest payments to continue.

Adds Whitney “We’ve seen Wells Fargo play modification games with its own loans.  Why wouldn’t they do it with the loans they took on from Wachovia?” On Tuesday on CNBC, Whitney said again “I don’t know if those commercial modifications are going to work.”

In response to analyst expressing doubts that the near $40 billion structured into the purchase of Wachovia for losses in its total portfolio will be enough, CEO John Stumpf spoke out. Stumpf told investors at the Barclays conference this week, Wells Fargo has used $2.2 billion in credits for losses from Wachoiva’s commercial mortgages, or one-fifth of the $10.4 billion in total losses it expects from those loans.

Unfortunately for investors, banks hold CDS liabilities off balance sheet and do not recognize them as a loss until they actually have to pay it.  Wachovia at least disclosed in its third quarter 2008 10-K (on note 15) that credit derivatives are a regular part of how they finance commercial activities, and add that such instruments ‘don’t meet the criteria for designation as an accounting hedge’.

Given that a specific number for CDS exposure is not yet tenable, it’s hard to say how many billions are at risk.  Yet most market players who follow this bank said when those CMBS de-lever and the derivatives come due, it will be a problem for which Wells is absolutely not adequately capitalized.

To give Wells Fargo credit, it might not even know the size of the problem. BankImplode could not find an analyst who covers the stock to say Wells actually has enough loss reserves built in for it, but regardless the analysts are very concerned about the bank’s health based on the data that they do see. Both Whitney and Paul Miller of FBR Capital Markets both have gone on-air and written in notes to clients that Wells’ loan loss reserves are not enough to handle coming impairments to residential loans. Miller has a recommended stock price of $15 while WFC is currently trading around $29.

So could Wells really have enough capital to handle the liability of credit derivatives that will likely come due within the year? As we watch more and more of the junior tranches of commercial mortgage back securities Wachovia sold become worthless, how will Wells Fargo afford to pay for the risk premiums Wachovia promised they’d cover of if the loans blew up?  From all indications, the bank cannot meet these obligations unless it raises more capital, sells good assets for a loss, or puts more of that TARP money to use instead of sending it back to taxpayers,  as CEO John Stumpf has promised.  So much for “earning our way out” of the financial crisis.

[Additional reporting by Chris Gillick]

Editors Note: This reporter holds no relevant stock positions. Teri Buhl is an investigative journalist who has written for Trader Monthly, New York Post, Housingwire, and Dealbreaker.

Someone had better get word to Judge Jed Rakoff fast because he screwed up yesterday when he refused to go along with a cozy little settlement that had been worked out between Bank of America and the Securities and Exchange Commission. That sweet deal was a cover up in which no one admitted to any wrong because no one had even been accused of wrong doing. This is par for the elite, but of course the judge had not been so informed, so he made the perfectly awful decision not to go along, because it wasn’t fair. What?

And what does fairness — or as Rakoff defined it, “elementary notions of justice and morality” — have to do with securities law? Hasn’t he learned that securities law is supposed to be about the triumph of form over substance, about generating endless paperwork for lawyers while giving shareholders the illusion of knowing what management is up to?

And can you believe the total lack of judicial decorum in declaring, in simple English, that the largest bank in the America had “lied” to its shareholders? Any first-year law student knows that what he really meant was that there was “a failure to disclose material information in accordance with SEC Rule 10(b)-5.”

Bank of America, of course, doesn’t see it that way at all. Just because it told its shareholders that, in connection with its purchase of the failing brokerage Merrill Lynch, no bonuses would be paid to Merrill directors, officers and employees without its written consent, that didn’t really mean there would be no bonuses. After all, the proxy also had a passing reference to the possibility of an exception to this statement, which could be found in Section 5.2 of something called the Company Disclosure Schedule. All a diligent shareholder had to do was read Section 5.2 to learn that, in fact, Bank of America had already approved $5.8 billion worth of Merrill bonuses. Then again, getting hold of the aforementioned Disclosure Schedule would have been quite a challenge, because, according to common corporate practice, the schedule was never actually disclosed.

The nerve! And look at what you’ve done now, judge! By not cooperating with the “business as usual” crowd, you now threaten to knock the entire Bank of America board off their fat asses and into the witness seat, just because Andrew Cuomo decided to do the Securities and Exchange Commission’s job for them.

Bank of America’s board of directors will be hauled into the New York Attorney General’s office to explain what happened as the bank struggled to close its acquisition of Merrill Lynch.

On Wednesday, Andrew Cuomo subpoenaed five directors, according to a source familiar with the investigation. It was the first in a wave of subpoenas that his office will issue, eventually to cover all 15 Bank of America ( BAC – news – people ) directors on the board at the time of the January merger. Three other directors as of the time of the March proxy came from the Merrill Lynch side of the company.

Cuomo, along with the House Oversight Committee and the Securities and Exchange Commission, has been probing the series of events that transpired in late November and through December, as Bank of America was trying to close the $50 billion purchase. The investigations are looking at what executives of the bank knew and when, what disclosures were made or not made to shareholders and why, and what was communicated to the board.

But you already know about that Andy, what are you,..? Oh, I get it.  Make a lot of noise, raise a lot of dust, drag it out and drag it on until your elected, then toss it out to the next New York State Attorney General to vuck up.

And so it was, the relatively strong was coerced to buy the pathetically weak.

I suspect Lewis he will be forced out as CEO whether he is indicted or not. Certainly he deserves to go. The more serious issue is the appearance of coercion by Paulson and Bernanke.

Please note that Cuomo’s letter states “In an interview with this Office, Secretary Paulson largely corroborated Lewis’s account. “

As far as I am concerned, Paulson just pleaded guilty. I do not care what Paulson’s reasons were, no one is above the law.

Let the criminal indictments begin: Paulson, Bernanke, and Lewis.

By now, Andy, if you’re not going to indict with all that, then you’re just not going to indict.

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Much has been made in the mainstream financial media of the difference between Bear Stearns and Lehman Brothers, and the shrill question still arises:  ”why save Bear Stearns and let Lehman Brothers fail?”  The question is quaint, of course, to those in the know. Bear Stearns was no more saved than Lehman, but rather the bank was turned into a sacrificial offering from the Fed to the ghost of the chairman of the meeting at Jekyll  Island. And while neither Bear Stearns nor Lehman Brothers conducts business anymore, JP Morgan’s investment in the Creature from Jekyll Island is still paying dividends. But those profits come with a human cost and cannot be measured by the metrics of finance.

The Human Cost of Shock:

When Yu Lia Chun, a retired hospital orderly in Hong Kong, thought her money was in a savings account, she never dreamed that via the twisted actions of securitization she had lent it to a bankrupt American securities firm halfway around the globe. She was ruined! Her family was ruined!

Yu and others were swept away by the tsunami of defaulting equity-linked notes or so-called Lehman minibonds .

The Human Cost of Loss:

Lehman’s employees worked hard and sacrificed much for their pay scale. Many considered their jobs careers, were loyal and had their retirement tied up in the company stock. For a time, their loyalty and service were highly rewarded and they lived well off the scraps from the Lehman elite table. They would have never thought to plan for the overnight collapse of their company or their way of life.

Lehman Brothers collapsed at the onset of the credit crisis and the careers and jobs lost there will likely not be replaced in a lifetime. As upper management and upper middle management move into the unemployment lines, they do so knowing they have lost far more than just a job or career, they have lost their lifestyles and they will never have those ones again. It would be as if you lived in the Emerald City, and going out to play in the enchanted forest, you forgot your key. Now the life you loved is locked behind a door slammed shut and you know that you will never hold that key again. Fuld and the other executives still have their riches, but for the everyday employee, losing Lehman means losing everything.

You can now be sure that the Obama administration mini bubble is fully inflated and set to pop. Morgan Stanley Chief Executive Ass Wipe, John Mack, is stepping down, signaling the end of the ponzi crash dive.

Mack will be replaced by retail brokerage head James Gorman, in an attempt to show that the bank is embracing stable businesses after losing big on risky ones.

John will hold onto the Chairman’s seat because he needs the extra time to count all the bonus Morgan Stanley placed on the alter of his retirement in detriment to the bank he ran. Sometimes it’s nice to be the boss, ain’t it.

Under Mack, Morgan Stanley was willing to bet more of the bank’s own money, a strategy that yielded big rewards in years like 2006. In 2008, however, this same strategy pushed the bank to the brink of collapse.

So John saw the bubble expanding, raked in his riches and left the bank, leaving the taxpayer and anybody and everybody else to pick up the pieces. Now this game is over and Mack is giving up the job no one wants. Like a good steward of Wall Street, Mack Daddy hits the door with his 2006 bonus of $40 million still intact, and the taxpayer gets the shaft.

Thanks, Mack!

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Although its namesake John Pierpoint Morgan owned less than 20% of J.P. Morgan & Co, he certainly understood the business model passed on to him by the company’s true owner, Mayer Amschel Rothschild.

That same model, steeped in fraud and soaked in blood money, is still at work today. Mayor Rothschild, for whom John Pierpoint Morgan fronted in America, gathered his acorns by embezzlement of the wealthiest monarch and all of Germany at the time, Prince William of Hesse-Kassel. Witness:

The early fortunes of the Rothschild family were made through a conjunction of financial intelligence and the wealth of Prince William. In 1785 the Landgrave of Hesse-Kassel died, leaving his immense wealth (largely gained through the loan of Hessian mercenaries,not least to Great Britain during the American Revolution) to the young Prince William. During the Napoleonic wars the Prince saw necessary to have his fortune hidden from Napoleon by using his long standing Jewish friend’s home in Frankfurt. This money then saw its way through to Nathan Mayer, (N.M.) in London, where it helped fund the British movements through Portugal and Spain. The interest made from this venture was reaped by the budding Jewish bankers, who used it to swiftly develop their fortune and prestige in Europe and Britain. It was not long before their riches outweighed that of their benefactor, the Prince William of Hesse-Kassel.

Actually, Rothschild stole the money from the Prince and lent it out to all sides of waring factions. It was only after he was caught that Rothschild repaid the money, but he managed to keep the gains. See how that works: it’s theft until your caught, then it just becomes an interest free loan. Where can you get one of those. Only at the Fed.

So well did Morgan absorb the concept that 222 years later, the same principal is still at work. In case you think this is a case of “that was then and this is now,” think again.

The CFTC order imposes a $300,000 civil monetary penalty on JPMF. The order also requires JPMF to implement enhanced procedures to assure adherence to rules governing segregation of customer funds.

In 2007, JPMF maintained accounts for customer funds (segregated accounts) and kept its own funds in separate accounts. During this time, JPMF processed transactions related to the delivery of Treasury notes that resulted in JPMF’s segregated accounts being insufficiently funded by approximately $750 million. That is, JPMF drew upon customer segregated funds beyond its actual interest, which resulted in customer funds being commingled with JPMF’s funds.

That is, JPMF drew upon customer segregated funds beyond its actual interest, which resulted in customer funds being commingled with JPMF’s funds.

That is embezzlement; where are the indictments?

Well don’t look for the indictments anytime soon.

On June 1, Morgan failed to correctly tally the amount of Treasuries that should have been transferred to its customer accounts. On June 4, it caught the error — three hours later than regulations required — but did not report it to the CFTC until June 6, also contrary to the rules.

So JP Morgan takes a $300,000 fine on the free use of $750 million for six days. What did they do with the money?

No one is saying fraud was involved, but rather it appears a bookkeeping error on a busy day led to the problem.

No one can say fraud was or was not involved until JPMF tells us what they did with the money. Why is no one, including the CFTC, asking this question? Given the current environment, the question certainly seems to be a discrete one, although the answer most likely isn’t.

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