America's Black Budget & Manipulation Of Markets

America's Black Budget & Manipulation Of Markets
Thursday, 27 May 2004, 10:18 am
Column: Catherine Austin Fitts
Mapping The Real Deal With Catherine Austin Fitts Audio Special

http://www.scoop.co.nz/stories/HL0405/S00268.htm

AUDIO: Catherine Austin Fitts
http://www.netcastdaily.com/1experts/2004/exp052204.mp3

Financial Sense NewsHour
Radio & Net Talk Show Presenting
Catherine Austin Fitts w/ Jim Puplava
May 22, 2004 Webcast

America's Black Budget & the
Manipulation of Mortgage & Financial Markets

Investors benefit from understanding the federal budget, credit policies and covert intervention that drive markets -- often overriding fundamental economics. How has the US governmental apparatus become so powerful in the marketplace and what does it mean to the health of our economy? How unstable is the mortgage bubble and where are the opportunities for investors if the bubble bursts?

FOR AUDIO SEE…
http://www.financialsense.com/Experts/2004/AustinFitts.html

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*TRANSCRIPT*

For providing us with a transcript of the show, special thanks to one of Jim Puplava's Financial Sense NewsHour listener, Glenn Assheton-Smith, and his fellow investors at the http://www.siliconinvestor.com forums :

Epic American Credit and Bond Bubble Laboratory Forum
http://www.siliconinvestor.com/stocktalk/subject.gsp?subjectid=54034

Ride the Tiger with CD Forum
http://www.siliconinvestor.com/stocktalk/subject.gsp?subjectid=54430

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JP: Catherine, we’ve seen a lot of information and a lot of concern on Wall St. about the Mortgage markets. We’ve seen consumers take on more debt when it comes to taking on bigger mortgages, refinance. But this story gets much bigger than just the credit itself.
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CA: Sure. Where would you like to start?

JP: (Laughter) Well, let’s talk about black budgets and how the manipulation takes place in the mortgage and financial markets.

CA: OK. Let me start off with a story. When I became Assistant Secretary of Housing, I left Wall St. and went to Washington in 1989, and I walked into the FHA Jim, which at the time was a $300 billion portfolio of mortgage insurance, about 80% of that was single family. So it’s homes, homes that Americans buy, and it’s sort of broad middle class/lower middle class. And I walked in and I said to the guy who was supposed to be the Controller, and I said I’d like to see our financial statements.

So he delivered to my office about 20 pounds of books all on the budget, and I read it twice, and I called him and said “Look, I’ve read this thing twice – a couple of thousand pages – and I can’t find out how much we are making or losing in the single family fund." By law, the SHA commissioner has sole fiduciary responsibility to make sure that the $50 to $100 billion of mortgage insurance originated is self-sustainable. So the premiums are supposed to fund whatever the defaults and losses are. So I said, “I can’t find out how much money we’re making or losing”. “Well that’s because”, he said, “It’s not in the budget”. And I said, “Well where is it?” And he said, “Well the Accountants have it”. And I said, “Well where can I find them?” And he said, “They report to a different Assistant Secretary, you’re not allowed to speak to them”.

JP: (Laughter)

CA: So I was a little bit taken aback. And to make a long story short, I had raised a lot of money for the first Bush, and so I lobbied extensively, and what I got was a pair of cufflinks, and the accountants moved over to report to me, it took about 2 months. And so I could finally talk to the accountants, and they came in and I said, “How much are we making or losing in the single family fund?” And they said, “We’re losing $11 million a day.”

JP: Wow.

CA: Exactly, so I said, “Well we have 10 regions and 80 field offices, where are we making or losing money?” And they said, “We don’t know that.” And I said, “We mail out checks, we have zip codes, so it’s a crash emergency go-find-out.” And they came back 2 months later, and it turned out we were making money in 8 regions, and losing money in 2 regions.

And I was also on the oversight board through the Secretary of the RTC, which was the cleanup of the S&L’s, and it was very much the same pattern. It turned out that the two regions – 1 was Texas, which included Arkansas, so you had both the Bush’s and the Clinton’s in the same region, and the second was in Colorado. And what had happened, a significant part of what they called the S&L scandal and the HUD scandal was you literally had a financial fraud epidemic – it was called, some people call it Iran-Contra, but after you work through it and learned all about it, we had a significant black budget financial operation financing black budget projects with financial fraud, whether it was through the S&L’s or HUD. And all of that could happen because you did not have transparency.

So one of the things I got passed when I worked with a group of people in the Administration was a requirement that you produce audited financial statements for the 24 agencies of government. One of the things I’d like to do is go through a little bit about that and tie it back to the mortgage bubble.

And so we got in the first Bush administration a law required that the Federal government had to produce audited financial statements, which went into operation in 1995, they had about 4 years before they were required. And what happened when the first financial statements came out, was essentially most agencies could not comply, or produce audited financial statements. And as of today Jim, in 2004, the Federal government has yet to comply with the laws requiring audited statements for those 24 agencies, and the Treasury consolidated.

JP: And yet they always need more money, but they can’t account for where the money that they have goes.

CA: Right. In fact, in 2001 we did an estimate, and it turned out that 85% of the first Bush administration budget [was] going to agencies that weren’t in compliance with the audited financial statements rules and reliable financial systems.

Anyway, let me fast forward. In 1995, when HUD produced the first audited financial statements, they were published, and a fellow came to see me, and he said, “Look, there’s been a terrible mistake. You don’t understand, my family’s been in business for many generations, and we’ve been tracking all the FHA mortgage insurance outstanding in the market since the FHA went into existence in 1934, and there’s a terrible mistake – the amount of outstanding FHA mortgage insurance in the markets is significantly more that is shown in these financial statements …

Now when the fellow came to see me, Jim I thought he was crazy because what he was saying was that the U.S. Treasury and the FHA were engaged in significant securities fraud. In other words, what he was saying was that there was a significant amount of FHA & Ginnie Mae (or FHA related) securities outstanding than was shown in the financial statements.

Now, that’s what I’ve come to believe is true. In 1995, I thought the guy was nuts. What has been evidenced over the last 7 years, is that there is a pattern that suggests there is very significant financial fraud in the mortgage markets. And let me tell you a little bit about why I believe that to be true.

After I left the Bush administration, the Secretary of Treasury asked me to go back in as a Governor of the Federal Reserve. But I discovered the Internet when I was in HUD, and decided that I wanted to create my own securities firm that specialized in financial software. And I was convinced there was a tremendous opportunity to finance neighborhoods and places, and securitize small businesses and small real estate income and finance in the equity markets. In other words, in a world of privatization, there’s no reason why you can’t finance a lot of municipal functions with equity. …
FULL REPORT:>>
http://www.scoop.co.nz/stories/HL0405/S00268.htm

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