Department of Justice

Over the past week, many have been scratching their heads over why JPMorgan is so eager to comply with the DOJ's investigation into the banks misrepresentation of the quality of its RMBS bundled mortgages, having gone so far as to suggest a number that could be as large as $4 billion in cash (with a $7 billion non-cash component), though still shy of the DOJ's $20 billion ask. The reason, as the WSJ reports, may be very simple one: a rat is providing the Feds with information deep from within the house of the whale. "The Justice Department's pursuit of possible criminal charges against J.P. Morgan Chase & Co. is based in large part on a key cooperator from inside the bank who is aiding the government and has provided information suggesting the bank vastly overstated the quality of mortgages that were being bundled into securities and sold to investors, according to people familiar with the matter."

• House GOP banking on Plan C (Politico)
• Pimco shook hands with the Fed - and made a killing (Reuters)
• BlackBerry's Torsten Heins has a $55 Million golden parachute (Reuters)
• JPMorgan Urged to Pay More in Mortgage Deal (NYT)
• Soros Adviser Turned Lawmaker Sees Crisis by 2020 (BBG)
• U.N. Members Agree on Syria Disarmament (WSJ)
• U.N. Says Humans Are 'Extremely Likely' Behind Global Warming (WSJ)
• The non-falsifiable threats emerge: Shutdown Would Shave Fourth-Quarter U.S. Growth as Much as 1.4% (BBG)
• Swaps Rules Worry Industry: Coming Regulations Have Market Players Concerned About Possible Disruption (WSJ)

• JPMorgan eyes $4bn ‘pay for peace’ deal (FT)
• Prosecutors Pursue Big SAC Settlement (WSJ) - in the US if you are rich enough, no crime is bad enough
• Cruz's Defiant Stand Is Also a Lonely One (WSJ); Texas senator speaks for more than 14 hours (FT)
• Iran Applies Brakes to U.S. Mideast Plans (WSJ)
• Americans in Poll Doubt Economy Rebound in Defiance of Forecasts (BBG)
• Big Banks Cut Basel III Shortfall by $112 Billion at End of 2012 (BBG) - the equivalent of 10 bridges to the Kalahari desert
• Obama’s Jabs at Russia on Syria Shows Diplomacy Tensions (BBG)
• ICAP Staff Face Criminal Charges Tied to Libor  (WSJ)
• Alibaba Is Said to Shift Target for I.P.O. to U.S. From Hong Kong (NYT)
• Home gold rush is over (Reuters)
• Conoco in landmark Alaska drone flight (FT)

Standard & Poor's has broken its relative silence over the US government's $5 billion fraud lawsuit against it in style. Slamming the DoJ's suit as "impermissibly selective, punitive, and meritless," S&P - seeking to dismiss the lawsuit with prejudice - exclaimed that the suit was brought "in retaliation for [their] exercise of their free speech rights with respect to the creditworthiness of the United States of America." The government says there was "no connection" between the downgrade and the filing of the lawsuit which is focused on the S&P inflating ratings to win more fees from issuers and failing to downgrade CDOs. Interestingly, as Reuters notes, S&P noted yesterday that $4.6bn of the alleged losses were from CDOs structured and marketed by BofA and Citi...

Following yet another rout in Asia overnight, which since shifted over to Europe, US equity futures have stabilized as a result of a modest buying/short-covering spree in the 10 Year which after threatening to blow out in the 2.90% range and above, instead fell back to 2.81%. Yet algos appear confused by the seeming USD weakness in the past few hours (EURUSD just briefly rose over 1.34) and instead of ploughing head first into stock futures have only modestly bid them up and are keeping the DJIA futs just above the sacred to the vacuum tube world 15,000 mark. A lower USDJPY (heavily correlated to the ES) did not help, after it was pushed south by more comments out of Japan that a sales tax hike is inevitable which then also means a lower budget deficit, less monetization, less Japanese QE and all the other waterfall effect the US Fed is slogging through. Keep an eye on the 10 Year and on the USD: which signal wins out will determine whether equities rise or fall, and with speculation about what tomorrow's minutes bring rife, it is anybody's bet whether we get the 10th red close out of 12 in the S&P500.

On July 30, when FERC announced that it had agreed to resolve it allegations of JPMorgan manipulation of the energy market for a $410 million fine, with the bank neither admitting nor denying guilt, we posited that the only question on Jamie Dimon's mind was whether to pay the fine from petty cash or just to charge it on his corporate Amex. Three weeks later he may have some other questions swirling in his head, such as "whose Christmas lobbying stocking did I not fill with campaign donations?" after the WSJ reported that it is no longer FERC, but the DOJ itself, led by Preet Bharara, which is investigating whether JPM manipulated energy markets. Ironically, this is a deja vu of the SAC take down by the same Bharara, when a few months after SAC settled with the SEC it was shocked to be crushed by the Department of Justice which pulled an "Arthur Anderson" on it and for all intents and purposes shut it down (although with nobody sent to prison). It remains to be seen if Bharara will have the balls to take this prosecution to the next level and whether after he made SAC into Arthur Anderson, he will make JPMorgan into the New Normal's Enron and whether Jamie Dimon or Blythe Masters will be the next Lay and/or Skilling. One can hope.

• Vocal billionaire activist IRR - 150x: Icahn bought $1 billion of AAPL stock, seeks $150 billion buyback (BBG)
• BlackBerry Said to Have Sought Buyers Since 2012 (BBG) - for a phone or the entire company?
• IPhone Fingerprint Reader Talk Boosting Biometric Stocks (BBG) - also, the NSA will need to grow its Utah data center
• UPS Jet Crashes in Birmingham, Ala. (WSJ)
• America's Farm-Labor Pool Is Graying (WSJ)
• Hong Kong Lowers Storm Signal as Typhoon Closes on China (BBG)
• Indian submarine explodes in Mumbai port (FT)
• BofA Banker Sued by Regulator Later Joined Fannie Mae (BBG)
• Software that hijacks visits to YouTube uncovered (FT)
• Chinese Billionaire Huang Readies Iceland Bid on Power Shift (BBG)
• China to launch fresh pharmaceutical bribery probe (Reuters)
• Defeat at J.C. Penney Hurts Ackman as Performance Trails (BBG)

Favoring “Friends” ... Harassing “Enemies” ... Propaganda ... Cyber-Warfare ... Track ‘Em and Whack ‘Em

The Justice department is said to plan to block the AMR-US airline merger:

*AMR-US AIRWAYS DEAL SAID TO BE SUBJECT OF U.S. ANTITRUST SUIT
*US AIRWAYS ALSO SUED BY TEXAS, ARIZONA, FLORIDA, DC, VIRGINIA
*JUSTICE DEPARTMENT SAID TO PLAN SUIT TO BLOCK AIRLINE MERGER
*AMR CAN EMERGE FROM BANKRUPTCY WITHOUT MERGER, U.S. SAYS

Both stocks are down notably on the news - AMR -22%, LCC -11%; and the rest of the airlines sector is weakening. Among the DoJ's 'gotchas - "A US Airways document said that capacity reductions have “enabled” fare increases." Perhaps the lowly lobbyists of the Airline industry should have 'donated' just a little more money...?

The Department of Justice’s (DOJ) latest civil suit against Bank of America (B of A) is an embarrassment of tragic proportions on multiple dimensions. We're "only" going to explore seven of its epic fails here.  The two most obvious fails (except to most of the media, which failed to mention either) are that the DOJ has once again refused to prosecute either the elite bankers or bank that committed what the DOJ describes as massive frauds and that the DOJ has refused to bring even a civil suit against the senior officers of the banks despite filing a complaint that alleges facts showing that those officers committed multiple felonies that made them wealthy by causing massive harm to others.  Those two fails should have been the lead in every article about the civil suit. There are many more...

• Fukushima: "300 metric tons of contaminated water were likely leaking into the ocean daily" (WSJ)
• Unexpected strength in China trade data eases some gloom (Reuters) - actually, perfectly expected data fakery
• Pimco, BlackRock Seek to Bar California Mortgage Seizures (BBG)
• How will Amazon's Bezos change The Washington Post? (Reuters)
• Montreal Maine Railway Files for Bankruptcy After Crash (BBG)
• Fed Belongs to Everybody as Public Says It’s Our Money in Crisis (BBG)
• Local Russian TV channel broadcasts rare critical segment about Putin (Reuters)
• Loeb’s Reinsurer With No U.S. Staff Gains From Obama’s Jobs Act (BBG)
• As Berlusconi star fades, daughter Marina tipped as new leader (Reuters)
• Detroit Rattles Muni Market (WSJ)

Nearly a year after the Benghazi embassy attack that left four Americans dead including ambassador Chris Stevens, it seems that the deaths of US citizens have "made a difference" after all in the eyes of the amusingly named US Department of Justice, which moments ago filed criminal charges related to the Libyan attack. Alas, that's all we know because as the WSJ reports, the charges were filed under seal. It probably means that is all that shall be known until one day, several years from now long after Eric Holder has left the building, the DOJ will unseal the charges and disclose it never had a case to begin with.

With regard to the disastrous Macondo oil well rupture that ended in 11 deaths and triggered the largest US offshore oil spill of all time (and uncountable ongoing ecological impacts), Halliburton has 'graciously' decided to plead guilty to destroying evidence. 'Guilty?' we hear you ask? When has any large US corporation not just settled in order to not be forced to admit guilt? Well, as Reuters reports, "their willingness to plead to this may also indicate that they'd like to settle up with the federal government on the civil penalties." The maximum statutory fine for this apparent midemeanour? $200,000! Or 0.0007% of expected revenues for 2013. Well, that'll teach 'em for sure - they won't be destroying evidence again, eh?

Following our initial uncovering of the manipulation and monopolization of the metals warehousing business two years ago, the last few days have seen the public's attention grabbed by the reality of what the banks are actually doing. Following this week's hearing, as the Fed reconsiders banks roles in non-banking businesses (and the 'societal benefit'), it seems the CFTC has woken up. As the WSJ reports, the Department of Justice has opened an initial probe into the metals warehousing industry and the Commodity Futures Trading Commission has also sent letters to some firms telling them to preserve documents, in what is likely the beginning stages of an investigation.

We need to think about lessening the economic “skin-in-the-game” for RMBS and focusing anew on enforcing US securities laws...