International Forecaster Weekly

Diminishment of Sovereignty and More Fed Manipulations

Davos pact diminishes sovereignty of european nations, deflation and inflation, employment not improving for election, more money managers bullish on gold, money chaos cover up is political, gold rush in China as the year of the dragon starts, Fed bolsters commodities despite economic decline.

Bob Chapman | February 1, 2012

On Friday from the Bilderberg conclave at Davos, appointed European Central Bank President, Mario Draghi proclaimed that Europe had averted financial disaster and cited the improvement in euro zone markets in recent weeks. He said it was the ECB’s duty to guard against deflation as well as inflation. The fact of the matter is that he and his friends at the Fed arranged a currency swap of $1 trillion of which the ECB dispersed $660 billion to 523 EU banks, at 1% interest for three years. He also cut interest rates twice and extended loans for 1 to 3 years. Mr. Draghi could be expected to take the easy Anglo-American way out. He is fully Illuminati trained and that is where his orders emanate from.

He continued about how the conclusion of a fiscal pact, the ESM, the European Stabilization Mechanism, where budgets and fiscal spending policies would be determined by unelected, Treasury appointees, who have been officially immunized by the EU government. Mr. Draghi makes no note of these qualifications and forgets to let us know that in this new ESM pact all the nations lose their sovereignty.

As yet, after a month, there is no evidence that the funds had reached the real economy. The banks that just received the funds at 1% interest have been depositing them at ¼% interest with the ECB. They have not lent to each other because bankers say they do not trust each other. What a sad state of affairs. In addition to the above the ECB now accepts loan collateral of much lower quality than previously was approved. As you can see there were a lot of facts Mr. Draghi deliberately left out.

Now the banks have to use these funds to refund old and new debt and lend to keep the economies afloat. They also have to play their parts in keeping the six problem nations afloat.

Concerning the subject of Greece we were told last Friday a deal would be announced but nothing has happened as yet. The outlook is grim and the fundamentals are terrible. We won’t rehash Greece, because we have been over it so many times. We will wait to see what this week brings.

The Portuguese economy is falling deeper into austerity. Bank lending has fallen by the most on record. It fell $6.5 in December the biggest monthly decline since December 197, when the ECB began collecting data. Portugal, if they’ like to recover, should be using the LTRO funds to make loans to small and medium sized companies.

The Kiel Institute for the World Economy says Portugal would have to have a budget surplus of 11% of GDP annually. If they had 2% growth, which is a tall order, it would need a 56% haircut on its debt to get back on a sustainable path to recovery.

Gold finally out of that early on mess, finally had a good month, up just under 10%. That is the best January since 1980. We remember January 1980 well – it was the final month of the gold rally. Oddly enough the shares topped out in June with gold trading at $680 to $720. We would like to say that the 3 gold and silver suppressions of this past 2011 and 2012 has pointed out in stark relief that the US government has been very actively manipulating gold and silver prices, legally, since 1980. We mention this because short-term charts are terribly distorted and for us you cannot use them. The advocates are out again with their charts and believe we hope they are right. As usual as they have been, they will be wrong. They’ll soon call for reversal and as they do gold and silver will go higher.

After having loaned the ECB $1 trillion they now tell us we’ll receive QE 3. In fractional banking that could be $10 to $20 trillion. Any substantial part of those funds are used and monetized you’ll see some stunning inflation.

Election is in view and employment is not improving. The Fed has pledged that it is prepared to provide for further monetary accommodation. Inflation is headed higher, not lower. All that money and credit will influence inflation. Yes, the EU, US and UK economies will be flat this year and probably slightly higher. What we are doing with QE 3 and other types of stimulus is just extending the game.

If everything is fine why did the US Mint sell 114,500 ounces of American Gold Eagles with still two days left in January to accommodate buyers? Maybe the total will be 145,000, the largest sale in 1-1/2 years. It’s because people do not trust their economies and their governments that is why and they are buying gold and silver coins to protect themselves.  They only have to look at the Republican Presidential primaries where votes are stolen by computer, dead people vote and Ron Paul doesn’t get a chance to state his case.   Our government is a criminal syndicate. All those American gold and silver buyers know this, and that is why they want gold and silver coins, not fiat dollars.

Finally we are starting to see money managers, hedge funds, and others getting more bullish on gold. This should lead to short covering in gold and silver and the shares.

Here we have QE 3 in the works as we predicted months ago. We said it would consist of the Fed buying the banks garbage so they have cash to follow the Fed’s orders. Those orders will be to buy Treasuries, Agencies and to make loans to small and medium companies. Before the Fed bought $1.4 trillion of this paper, mostly MBS and CDO’s. We never found out what the Fed paid for previous purchases and we won’t this time either. This is another gift the Fed, or should we say taxpayer gives the to the banks. What we are seeing in Europe and again shortly here is another stuffing of the system with money and credit. The Fed is headed down the road of no return and they know exactly what they are doing. That is playing money and credit creation to the bitter end. Historically no central bank has had the power to do this. If played out to the end we have to expect hyperinflationary depression, which will end in a deflationary depressionary collapse. This will destroy the value of the US dollar and its purchasing power. The entire system will probably collapse to a great extent including perhaps 60% of commerce, 40% to 50% unemployment, and the end of the financial system and resorting to bartering, the social support system and government. They will all collapse, so you had better prepare for it. All this will be expedited if Ron Paul is not elected our next president. If he were to be elected he could short-circuit many programs and policies that are destroying our nation.

The moves by the elitist Fed via the ECB to cover-up the monetary and financial chaos in Europe and in the US via QE 3 is in part political. Political in France and toward the next elections. France is a nightmare for the elitists and obviously those in power want Obama returned. He having done everything asked of him.

Bob Chapman - Discount Gold & Silver Trading - 27 Jan 2012

Interview 457 – The International Forecaster with Bob Chapman

Bob Chapman - Financial Survival - January 30, 2012

Bob Chapman - Oracle Broadcasting - Jan. 28, 2012

Bob Chapman - USAprepares Radio Show - Jan. 31, 2012 – Vincent Finelli

As we predicted last fall that QE 3 will come in the form of another bank bailout. This time it will be the clearing of toxic bonds from the banks’ books, which was done by buying $1.4 trillion in these bonds previously. We expect $800 billion to $1.3 trillion this time around. The disbursement of these funds should last 12 to 18 months. These moves were in part responsible for our change in GDP for the US this year from minus 1-1/2% to 2% to plus 1-1/2% to 2%.

In the latest out of Europe, Germany is pushing Greece to relinquish control over its budget policies to a euro zone “budget commissioner,” who would be able to veto domestic fiscal decisions, similar to the powers they want to grant to the ESM.

German logic is if further funds are not dispersed, Greece cannot threaten its members with default, but will have to accept outside fiscal control with funs. The game being paid by Germany is dangerous and could lead to immediate default. In addition any deal made in February by the PASOK government is subject to change in two months by a new election victor and party in charge. The German position is dumb and ultimately won’t work.

The Greeks are not going to like or accept the German demands. There will be demonstrations and the new policies may go nowhere. From the Greek side, when you have lost almost everything there is little more to lose. Unfortunately, we predicted all this but few were listening.

After putting the present regime in power 25 years ago in Iran the US has had nothing but problems, the latest and most important has been the sale of oil in currencies other than the US dollar. Asked many times, Iran refuses to comply. This is the main reason the US and Europe are so aggressive in pursuing Iran. Underneath it all it is all about petrodollars. This is why Iraq was destroyed and Libya as well. The US could not tolerate Iraq selling oil in euros. Anyone who steps out of line gets zapped, no matter who it is. At the IMF a year ago director Dominique Strauss-Kahn called for a different currency to, a new world currency, to end the dominance of the dollar. As a result he was set up in a hotel in NYC for rape. We immediately pointed out this was a bag job and so it was, but it got him out of his IMF job, he couldn’t run for the French presidency and they destroyed his reputation. This shows you how far and even further the US Illuminists will go to protect their oil monopoly and fixed oil payments in US dollars only. Strauss-Kahn is a top Illuminist and they still destroyed him. If the dollar becomes only one of many currencies in which oil is sold, the dollar will then collapse. For the US, the barn door has closed, but the farm animals are already loose.

At Davos this past week the US Secretary of the Treasury, Timothy Geithner, urged the euro zone to boost its cache of bailout cash and protect Italy and Spain against the threat of a market rout. At the same time the new IMF leader Christine Lagarde urged Greece and its creditors to agree on cutting debt burdens.

What we see here is a request for more funds. The Fed just did a swap, a loan, for $1 trillion for the ECB in behalf of 523 EU banks. Obviously it wasn’t enough and obviously they would rather borrow from the ECB and the Fed rather than go the fractional route. We will see more money spilled but never really enough.

While these events ran paramount on Friday night, while most everybody was enjoying themselves, Fitch cut Italy’s rating 2 notches to A minus. Joining the group n being downgraded we saw the same medicine applied to Spain, Belgium, Slovenia and Cyprus.

Last week the Dow fell 0.5%, S&P was little changed, the Russell 2000 gained 1.8% and the Nasdaq 100 rose 1.0%. Cyclicals rose 0.8%; utilities were unchanged; transports gained 1.2%; consumers fell 0.4%; banks fell 1.4% and broker/dealers fell 3.0%; high tech rose 0.3%; semis fell 0.2%; Internets fell 0.3% and biotechs rose 5.4%. Gold bullion rose $72.00, the HUI Gold Index rose 9.4% and the USDX fell 1.6%.

Two-year T-bills fell 3 bps to 0.21%, as 10-year notes fell 13 bps to 1.89%. German 10-year bunds rose again.

The Freddie Mac 30-year fixed rate mortgage rates rose 10 bps to 3.98%; the 15’s rose 7 bps to 3.24%. The one-year ARM’s were unchanged at 2.74% and 30-year fixed rate jumbos were down 4 bps to 4.46%.

Fed credit expanded $1.5 billion to $2,905 trillion, which is up 20.1% yoy. Fed foreign holdings at Treasuries and Agencies rose $14.4 billion to $3.406 trillion. Custody holdings for foreign central banks rose $55 billion yoy, or 1.6%.

M2, narrow, money supply rose $8.0 billion to a record $9.763 trillion. That is up 10.2% yoy.

Total money market fund assets fell $14.7 billion to $2.679 trillion.

Commercial paper rose $3.4 billion to $971 billion. That is down $17 billion from a year ago, or 1.7%.


            A "gold rush" swept through China during the week-long Lunar New Year holiday this year, with demand for precious metals and jewelry surging since the Year of the Dragon began.

            Sales of gold, silver and jewelry rose 57.6 percent during the week-long holiday at Caibai, one of Beijing's best-known gold retailers, according to data released by the Ministry of Commerce (MOC) on Saturday.

            Other jewelry stores across the country also saw sales boom during the period, with customers favoring New Year-themed gold bars, gold ingots and other types of Dragon-themed jewelries.

            "Long treasured by Chinese, gold is no longer owned only by a privileged few, but has become a new investment channel open to all," said Guan Qiang, assistant manager at Caibai.

            The Spring Festival gives people a chance to preserve and present gold as gifts, offering hopes that it will increase in value and not be impacted by inflation, Guan said.

            During the week-long holiday, which lasted from January 22 to 28, the sales volume in Caibai and Guohua, another of Beijing's top gold retailers, reached about 600 million yuan ($95.28 million).

            The figure showed a 49.7-percent increase over that of last year's Spring Festival, said a report released by the Beijing Municipal Commission of Commerce.

Caibai began selling gold bars as investment items during the 2008 Beijing Olympic Games, but the trend of buying gold or silver bars during the Spring Festival has really taken off in the past two years, Guan said.

            For Guan and his colleagues, the Spring Festival rush was an exciting but exhausting experience, as customers flooded the store and surprised clerks with their purchasing enthusiasm.

            "With customers crowding and rushing in, we did not even have time to eat and drink," said a sales clerk at the gold bar counter surnamed Li.

            She said each shop assistant had received hundreds of customers per day and wrote several times more orders than on ordinary days.

            "You can hardly even see the gold bars, necklaces and pendants in the display case. People seem crazy about gold, snatching it up more like a 'cheap cabbage' than such a precious metal," said Beijing resident Miao Miao.

            "You have to quickly decide whether to make a purchase, or it will be taken away by others."

            Miao was shopping for a pair of gold bracelets to give to her granddaughter as a gift for the New Year.

            "When my daughter was born in 1984, we had no means or savings to buy her one as a keepsake. We can finally realize this dream by sending it to her daughter," Miao said.

            However, Chinese do not value gold only in only sentimental terms. The precious metal is also expected to maintain or increase its value, as evidenced by the surging investment demand seen around the country, insiders have said.

            "To most Chinese, gold is more convenient to cash in than other investment instruments. Despite common investment risks, the price of gold is clear and easy to judge," said Guan.

            Compared to unpredictable investments, such as those in the stock market or housing sector, gold is cherished more by Chinese for its increasing value as an asset as well as the unlikelihood that it will be affected by inflation, Guan said.

            China is expected to overtake India as the world's top gold consumer in the next few years. Strong demand for investments in gold and jewelry will have driven China's total gold demand to 750 metric tons in 2011, according to the World Gold Council.

            Despite the record-high price of gold, the demand for investments in gold and jewelry has continued to soar, with the market expected to reach about 955.2 metric tons by 2020, thanks to a growing middle class and a more affluent society, said Binghai, director of the Shanghai Gold & Jewelry Trade Association.


The NY Fed’s Index of Coincident Economic Indicators shows how putrid the economic ‘bounce’ is for New Jersey. NYC, due to the trillions poured into Wall Street bounced well but is now rolling over. The bounce of NYC obviously helped NY State, but that bounce was modest and is also rolling over.

US Q4 GDP increased 0.7%, 2.8% annualized; 3% was expected. However, consumption increased only 2%. Inventory growth contributed 2 percent points to the 2.8% growth! Real final sales rose 0.8%.

The Commerce Department greatly boosted GDP by lowering the GDP deflator to only 0.39% from Q3’s 2.56%. This created 2.16% more GDP q/q…Using CPI to deflate GDP would have produced negative GDP.

The absurdly low GDP Deflator also greatly overstates income, which increased only 0.8%...Government spending declined 4.6% in Q4 and 2.1% for 2011 due to massive defense cuts. This is the biggest decline since 1971…Part of the surge in inventory could be inflation.


Consumer Metric Institute: If the highly positive swing in the inventory number is real, it is certainly not sustainable and when combined with actual consumer spending the numbers themselves would be prima facie evidence that manufacturers over-corrected in anticipation of huge holiday spending. Such an over-correction should lead to reversals in the coming quarters. On the other hand, if the swing is an artifact of firming commodity prices it is just a further indication that the headline number is hopelessly noisy subject to erratic phantom movements as the BEA's "deflaters" struggle to track pricing changes.

And lastly, the volatility of the inventory parts of the BEA's equation continue to distort the headline number enough to render it useless as a source of genuine economic information. In the best of times the inventory data provided by the BEA is late and incomplete, but it is necessitated by the need within the BEA's equations to reconcile the production based manufacturing portions of their equation to the consumption based consumer portions. Because of that it is both partly plugged (at least in the monthly and quarterly updates) and highly susceptible to fluctuations in pricing levels.

In short, this report is disturbing because of how the headline number masks real and troubling weakness in the more substantive details


The PCE number was the most-understated and worthless, regularly-followed inflation number the Fed could come up with, shy of the “core” PCE deflator, net of food and energy, which Mr. Bernanke traditionally has been fond of touting.

GDP for 2011 increased only 1.7%. US Debt increased almost 9% in 2011; the Fed’s balance sheet increased over 20%. $1.22 Trillion of US Treasury debt and QE2.0 and Operation Twist II produced about $260B of GDP.

How many times can this occur before an implosion occurs?

Employment in Alabama has surged since July 2011; however this has caused great controversy.

Alabama's unemployment rate has dropped more than any of its bordering states according to the U.S. Bureau of Labor Statistics. According to the data, Alabama's unemployment has dropped by 1.9% since July 2011 when the rate reached its high for the year at 10% unemployment…

The legislature passed a handful of measures that were touted as ways to recruit industry to Alabama.

They included tax incentives for companies to relocate to Alabama and a law aimed at cracking down on illegal immigration which was sold as an economic development bill… [Bill passed in June]


[Fed officials and other solons are complicit]

The amount of money the federal government hands out in direct payments to individuals steadily increased over the past four decades, but shot up under Obama, climbing by almost $600 billion a 32% increase in his first three years…

According to the Census Bureau 49% now live in homes where at least one person gets a federal benefit — Social Security, workers comp, unemployment, subsidized housing, and the like. That's up from 44% the year before Obama took office, and way up from 1983, when fewer than a third were government beneficiaries…

This year, more than 46 million (15% of all Americans) will get food stamps. That's 45% higher than when Obama took office, and twice as high as the average for the previous 40 years…

The number of people on Social Security disability has steadily climbed since the 1970s, thanks mainly to easier eligibility rules. But their numbers jumped 10% in Obama's first two years in office, according to the Social Security Administration. That sharp rise was due largely to meager job prospects since the recession ended in 2009…

The government's role in health care has grown over the past decades, with 45% of all health spending now coming from the federal government, up from 32% in 1990…

In just nine years, entitlement spending is on track to eat up 61% of the federal budget, according to the CBO. And unless these programs are cut back, they will soon consume all federal taxes, one CBO budget scenario predicts…


Due to the Fed, several commodities are surging despite universal forecasts of global economic decline.

Cattle prices are at an all-time high due to the lowest herd count in 50 years (due to grain prices last year).

Orange juice hit an all-time high (Looking good, Billy Ray!)…Cash corn is trading at premium in January for the first time since 1975 (due to tight supplies)…Gasoline futures hit an all-time high for January.

As we keep asserting, if the Fed were to implement QE 3.0, the inflation surge could be much worse than the inflation surge that accompanied QE 2.0, which killed economic growth and fomented global revolt.


In Honolulu… there’s a four-bedroom home priced at $785,000 that has views of the sun setting over the Pacific Ocean. The beaches of Waikiki are 15 minutes away.   Starting this month, the property is available to buyers with a subprime credit score, limited cash reserves and a 3.5% down payment using a loan backed by the Federal Housing Administration. Without the agency, a buyer would need a 20% down payment and an unblemished financial history for a jumbo mortgage…  The agency increased the size of mortgages it’s willing to insure to as high as $793,750 in Hawaii and $729,750 in the costly real estate markets of states including California, Florida, and Virginia.


Freddie Mac Bets Against American Homeowners.

But the trades, uncovered for the first time in an investigation by ProPublica and NPR, give Freddie a powerful incentive to do the opposite, highlighting a conflict of interest at the heart of the company. In addition to being an instrument of government policy dedicated to making home loans more accessible, Freddie also has giant investment portfolios and could lose substantial amounts of money if too many borrowers refinance.

“We were actually shocked they did this,” says Scott Simon…the head of the giant bond fund PIMCO’s mortgage-backed securities team…“It seemed so out of line with their mission.The trades put them squarely against the homeowner, he says.


CBO has released a study comparing the wages and benefits of private sector and federal non-military workers. The study uses statistical techniques to make comparisons with adjustments for education level, experience, and other factors.

Here are the overall results:

- The wages of federal workers are 2 percent higher than similar private-sector workers, on average.

- The benefits of federal workers are 48 percent higher than similar private-sector workers, on average.

- The total compensation (wages plus benefits) of federal workers is 16 percent higher than similar private-sector workers, on average…


The percentage of safe assets to total assets in the US economy has been roughly the same since 1952, at about 33 per cent…The stability of demand for safe assets has held during a time in which the assets of the financial sector as a percentage of all assets in the economy have climbed from 25 to 40 per cent, with most of the growth in total assets being financed through debt rather than equity…

Since the relevant topic is how to prevent a run in the shadow banking system, we’re primarily talking about debt here specifically, the debt eligible to be used as collateral in repo and short-term secured lending markets…

Gorton and Metrick have previously argued that the panic wasn’t caused directly by the revelation that subprime-related ABS values were plummeting; this had already happened earlier than 2007. The problem was that the lack of transparency in repo markets meant that investors had no way of distinguishing between repo borrowers whose collateral was subprime-related and those whose collateral was relatively safer. So they started raising haircuts, from zero in most cases, indiscriminately across all

repo counterparties. The run was on and so was the credit crunch…

The core problem is that there is no such thing as a safe asset, as the world has so painfully learned.

”Safe asset” is just a phrase that describes assets perceived to be safe enough. But we can never completely eliminate the possibility that an asset will go from safe enough to not safe enough.


US personal income increased 0.5% in December; but 23% of income growth was due to personal transfer payments. Spending was flat. Savings surged 4% - in December!!! This does not compute!

Illinois’ unpaid bills may more than triple to $34.8 billion by 2017 unless lawmakers and Democratic.

Governor Pat Quinn immediately bring Medicaid and pension spending under control, said a research group. The “potentially paralyzing” backlog, projected to reach $9.2 billion when this fiscal year ends June 30, would be fueled by an “unsustainable” increase in Medicaid spending, according to the Civic Federation, which calls itself a nonpartisan government research organization

House Republicans are proposing to spend about $260 billion over the next 4 1/2 years on transportation programs, as well as substantially increase the size of trucks permitted on highways, according to a draft bill being introduced this week… [Bribing the constituents with more goodies from borrowed money]

Residential real estate prices fell more than forecast in November, showing distressed properties are hampering improvement in the U.S. housing market.

The S&P/Case-Shiller index of property values in 20 cities declined 3.7 percent from November 2010 after decreasing 3.4 percent in the year ended in October, the group said today in New York. Economists projected a 3.3 percent drop, according to the median estimate in a Bloomberg News survey.

Another wave of foreclosures threatens to keep the pressure on prices and delay recovery in the industry that precipitated the last recession, underscoring the Federal Reserve’s view that housing “remains depressed.” More stability in real-estate values may be needed to persuade Americans to take advantage of record-low mortgage rates.

“We’ve seen home prices take a turn for the worse after showing some signs of a bottom, and we do think that there is more downside from here,” said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York, who correctly forecast the price decline. “If you get stronger jobs and wage growth, it’ll go far in alleviating some of the pipeline foreclosures that have yet to happen.

Consumer confidence unexpectedly dropped in January and a gauge of business activity fell, underscoring forecasts that the U.S. economy will cool after expanding at the fastest pace since the second quarter 2010.

The New York-based Conference Board’s confidence index decreased to 61.1, lower than the most pessimistic forecast in a Bloomberg News survey of economists, from a revised 64.8 reading the prior month. The Institute for Supply Management-Chicago Inc. said its business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth.

Employers aren’t hiring fast enough to drive bigger gains in wages and consumer spending, while higher gasoline prices are cutting into household budgets. Another report today showed home prices fell more than forecast in November, eroding the wealth of families as they seek to rebuild savings.

“This quarter will be a bit slower,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who had the lowest sentiment estimate. “Consumer confidence appears to have leveled off, as job growth isn’t quite as good and gasoline prices have moved back up.”

Business activity in the U.S. cooled in January as orders and employment slowed, indicating last quarter’s pickup in growth will not be sustained into 2012.

The Institute for Supply Management-Chicago Inc. said today its business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth. Economists forecast the gauge would rise to 63, according to the median of 57 estimates in a Bloomberg survey.

Three consecutive readings exceeding 60 are still the strongest since early 2011, signaling manufacturing remains a mainstay of the expansion even as the world’s largest economy decelerates. Nonetheless, the risk of a recession in Europe prompted by its debt crisis and slower growth in some emerging markets pose a risk to export growth.

Business activity in the U.S. Midwest grew more slowly than expected in January, according to the Institute for Supply Management-Chicago's index of Midwest business activity.

"January's Chicago PMI reading of 60.2 compares to 62.2 in December and a market consensus of 63.0, but remains quite healthy," said David Sloan, an economist with IFR Economics.

"Firmer data from other surveys appear to be catching up with the Chicago PMI," he added. "Internals were generally somewhat softer with the exception of a rise in delivery times."

Maurice “Hank” Greenberg, the former CEO of American International Group Inc. (AIG), and the company he runs, Starr International Co. (Starr), have sued the U.S. Government for the alleged unconstitutional federal takeover of AIG in 2008, according to Reuters.

The lawsuit seeks $25 billion in damages and alleges violations of the Fifth Amendment, which says private property can’t be taken for “public use, without just compensation.”  Moreover, Starr accuses the U.S. Treasury Department and Federal Reserve Bank of New York of wrongly seizing control of AIG and using it as a vehicle to funnel tens of billions of dollars to AIG’s trading partners, and also alleges that the AIG bailout was done as “a vehicle to covertly funnel billions of dollars to other preferred financial institutions including Goldman Sachs.”

“The government’s actions were ostensibly designed to protect the United States economy and rescue the country’s financial system,” the complaint asserts.

The complaint adds that, “[a]lthough this might be a laudable goal, as a matter of basic law, the ends could not and did not justify the unlawful means employed. The government is not empowered to trample shareholder and property rights even in the midst of a financial emergency.”

The $25 billion estimate reflects what Starr calls the value of the government’s stake on January 14, 2011, when it swapped AIG preferred stock for 562.9 million common shares.  AIG was once the world’s largest insurer by market value.

The federal claims case is Starr International Co. v. United States, No. 11-779(Fed. Cl. filed Nov. 21, 2011). The Federal Reserve case is Starr International Co. v. Federal Reserve Bank of New York, No. 11-8422 (S.D.N.Y. filed Nov. 21, 2011)


            JPMorgan Chase & Co. was sued by Germany’s largest cooperative lender for allegedly making false and misleading statements in connection with the sale of residential mortgage-backed securities.

            DZ Bank AG sued yesterday in New York State Supreme Courtin Manhattan, saying it bought about $85 million of the securities from JPMorgan based on offering materials that misrepresented the underwriting standards used to issue the underlying loans.

            "Plaintiff did not know the true facts regarding defendants’ misrepresentations and omissions in the offering materials, and justifiably relied on those misrepresentations and omissions," Frankfurt-based DZ Bank said in the complaint. The German lender is seeking $85 million in damages.

            Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

            Tasha Pelio, a spokeswoman for New York-based JPMorgan, declined to immediately comment on the lawsuit.

            The case is Deutsche Zentral-Genossenschaftsbank AG v. JPMorgan Chase & Co, 650293/2012, New York State Supreme Court(Manhattan).