welcome to the kaiser report on my max kaiser peek a boo accounting is the new black yes it's the must wear accounting trick for banks and as a pal these are nations across the world this season and financial fraud fashion experts that is to say the auditors say that big blue counting looks great matched with a mis sold swap or wrapped in an accidental misplaced when a segregated client funds so a great way to recycle all your old scams emerging as the tide goes out however just as you wouldn't wear a mini skirt if your legs look like tree stumps you don't want to try wearing these accounting tricks and if your name is joe bag of delegates or jane tacky topol.

no no no then you'll find that your. county will be replaced with black and white stripes for the next forty or fifty years while working on jamie diamond's chain gang we're again on the chain. the diva i believe stacey well max with that intro we are going to have to go to the capital of fashion italy italy faces restructured derivatives hit italy risks potential losses of billions of euros on derivatives contracts is restructured at the height of the eurozone crisis according to a confidential report by the room treasury that sheds more light on the financial practices that enabled the debt laden country to enter the euro in one nine hundred ninety nine so max they face eight billion euros the losses on thirty one point seven billion in derivative contracts so those that just represent a peek at six months worth of contracts remember greece when they're getting into

the euro we reported on this extensively goldman sachs top of dry of the prime minister and john paulson has fund manager constructed a faulty gimmick of accounting fraud using swaps and derivatives to cook the books and allow greece to enter the euro so that they could invent a crash that economy and buy the assets as are doing today for pennies on the dollar these are income producing assets are getting for virtually free well looks like italy had this same group of advisors probably goldman sachs and j.p. morgan and the big four accounting firms the four horsemen of the accounting apocalypse all advice to italy to come on board cook the books enter the euro under false pretenses now the economy is crashing now the same predatory monopolist will be on the sidelines looking to acquire a lot of italian assets for pennies on the dollar once again well the report notes that tens of billions of euros of these contracts were indeed incurred between that

period leading up. in one thousand nine hundred eight the crucial period when you had to have your you know according to the master treaty you need to your debt deficit to be below three percent of g.d.p. so they said rome was flattering its accounts by taking upfront payments from banks in order to meet the deficit targets set by the e.u. for joining the first wave of eleven countries that adopted the euro in one thousand nine hundred nine so go on with your fashion theme this is they were flattering their accounts and indeed italy had a budget deficit of seven point seven percent in one thousand nine hundred five by nine hundred ninety eight it was down to two point seven percent despite the fact that they didn't have an increase in revenue to the treasury nor did they have. commensurate cut in expenses they're exchanging long term liability for a short term cash infusion to make the book you know the books look good right now i mean exactly what george osborne is doing he just released his budget for the you

know forward year and it's packed with all these accounting gimmicks to give him a short term sugar high of cash old locking it is for decades liabilities that the u.k. will never be able to pay off now importantly who was the director general of the treasury of italy at the time oh it was one mario draggy who you might recognize as the guy in charge of the e.c.b. the european central bank well following these derivatives these dodgy derivatives he then went to goldman sachs in two thousand and two a similar thing again to what we saw and greece but there's a concerted conspiracy of racketeering and price fixing and manipulation and accounting fraud involving mario draggy all the policy makers in italy always saw the same thing in greece christine legarde totally implicated in massive financial fraud at the i.m.f. the troika the e.c.p.a. the e.u.

they're all involved of course it's not a state of fraud in that. you've got a group of gangsters divvying up let's say the brooklyn fish market or some trucking franchise it's all through the back channels of the shadow banking system where they meet in private groups like builder berger the g twenty or the i.m.f. confound totally off the record completely without scrutiny or oversight and they cook books they trade on inside information and they aggregate wealth and they leave everyone else to fend for themselves in a demilitarized zone of poverty and fraud well you know the article does note that back in two thousand and one. an italian talk about peta. sees a pig and italian economics professor caused a storm when he obtained one such derivatives contracts taken out in one thousand nine hundred six and accused countries of window dressing their accounts mr peak did not identify the country nor the bank involved but they have since been named in the media as italy and j.p.

morgan so he was already saying that these countries were window dressing their accounts this is back in two thousand and one before the debts built up even more dangerously so you know we could have stopped. the disaster that we see in the eurozone now when it immediately started but he was shut down but the euro was set up to fail and the bankers behind it were well aware that it would fail germany was well aware that the trend would be toward the peripheral states collapsing and germany taking over and we have the fourth reich and anglo markel is doing their best to step into the footsteps of the third reich now regarding this report by the financial times about the eight billion euros and derivatives losses that italy is about to face the italian treasury it's all about of board they say they say not to worry in fact italy treasury says no danger to state finances following reports of derivatives losses treasury denies derivatives contracts used to meet criteria to enter euro and italy treasury says derivatives contracts were subject to systematic

checks by euro stat always confirmed to be in conformity with the rules so this is what they always you know turn to it as well as your us that remember they were also involved in the greece disaster eurostat pumps out faulty statistics just like in the u.k. the office of budgetary analysis of statistics pumps out false information but of course it's above board but the ship is capsized. so you know they're above board but they're underwater and they've capsized it's like saying get up on the titanic victims there they made it there's they made it to the deck but the ship was capsized doesn't do them any good doesn't well actually now that you mention that makes me think of comparing them to the indian journalist indian t.v. journalist reports flood from victim shoulders an indian journalist as you see there he's being criticized for appearing on television reporting from a disaster zone while sitting on the shoulders of one of the flood victims this is

just like mario draggy who is sitting on the shoulders of the flood a fraud victims across europe and their wobbling just like that guy was safe and he's saying well it's. all ok your eyes that said it was ok the treasury said it was it took a all of this is above board oh it's above board the water splashing over the gunnels. but is above board we're sinking like a rock but we're still a ball. well now speaking of fraud another big fraud that we've been covering for the last few years is in the news and this is c f t c to bring civil suit against john course i know for m.f. global the u.s. regulator charged with overseeing m.f. global plans to file an unprecedented civil suit against john corps and lawyers for the former chief executive of the collapse brokerage said on tuesday so remember in october two thousand and eleven m.f. global collapse and so did one point six billion dollars and customer accounts only be unprecedented of anyone actually got caught doing something that they ended up

paying a penalty of some kind of size or went to jail who's one of the staff to see mr gary gone sort of that goldman sachs truck yeah care is actually goldman sachs is the fall of the c.f. he's is involved in greece is involved in italy is involved in all of them j.p. morgan is mark involved when i meet and they these conferences and they meet to collude and fix prices and steal money and then that governments will impose austerity measures to help pay for the money that's been stolen. well according to the article here successful litigation by the c f.t.c. against an executive at a failed financial firm would be a rare win for the u.s. government agency which just struggle to hold senior bankers to account for alleged misbehavior in recent years notice how one point six billion euros could go missing or were dollars in this case and it's all alleged that tens of billions of euros that went missing from the greek government accounts and now the italian government

accounts it's all alleged misbehavior and misconduct. for i remember correctly in the case of grace and dale's mother they turned up to some billion euros or something and they're suddenly magically appeared out of nowhere they're not sure where that came from but the lady likes to eat cakes and she needed a billion dollars of the tickets out of the work and from i don't know i just quit i'm suddenly wealthy i don't talk to anybody anymore i don't know what happened and so here one point six billion dollars went missing and there's a civil case no possible criminal case against this guy right now let's look at what happened with one point two million little tiny dollars just a fraction of the one point six billion that we're missing at m.f. global one point two million missing from new york down swiss air jet so f b i agents federal bureau of investigation agents are investigating the apparent disappearance of one point two million dollars in cash these were one hundred

dollar bills earlier this week that went missing on a board a flight they were destined for the new york fed the new york fed this this box arrived there of this alleged one point two million dollars that was supposed to be in there they opened it and there was nothing in there and they reckon it's an inside job the money went missing because some parts in the hamptons was due a million dollar bribe to fix the live board market or the forex market or the energy markets and he's sitting on a thirty million dollar home he's got four hundred million dollars in the bank but that mill. in dollars was going to pay as late as yacht payment so he's upset so they're going to try to bring in let's let's do way some more civil rights let's torch the constitution let's torch the bill of rights so some hamptons schmuck doesn't want to miss is happens shockey yacht payment for five seconds let's talk it all but all down for america down sort of bridge god damn it i mean that's that's that's the priorities that you have in america and that's why only the

people living there enjoy their slavery slavery is legal and they love it well you know the point is that ok whether or not this money it will miss their founder whatever blah blah blah the f.b.i. started investigating was the f.b.i. ever called into the john courson thing did they ever investigate what happened to the thousands of farmers who lost their segregated accounts remember these were guys hedging that fail a possible failure of their crops that said there was a real failure of the banking system and the peekaboo accounting which looks great on john cores on the f.b.i. i wasn't involved no police were called for any of the actual crimes that have been committed so you have a two tier justice system you have a two tier economy you have me a feudalism you have austerity you have legalized slavery but what's left except maybe a box of donuts and a half drunk cup of coffee stays here but thanks much for being on the kaiser

report. so each of us are going to. be interviewed. to. play well with. this month's high tech means good

help whether it be the latest laser cutters or lifesaving heart rushing innovators are working hard to keep you healthy for some companies it's been a winding road from car simulators to cutting edge streaming systems for others it's been a lifetime of work along the mysteries of the cell chikatilo phone technology we've got the future.

welcome back to the kaiser report i'm max keyser time now to go to new york and speak with france a mechanic of re the auto tours dot com where francine a former auditor herself blows the whistle on all the dodgy dealings at the big four auditors francine welcome back to the kaiser report. thank you all right francine mckenna your latest piece in forbes magazine is called the bernie made off of muni's tell us about it this is a story i've been wanting to write since last year when rita cron well who is the comptroller of the city of dixon illinois was found out to have stolen fifty three

million dollars from that small town fifteen thousand people fifty three million dollars over twenty years she used the money to buy four hundred race horses to build ranch's to buy lots of spangle e cowgirl outfits and jewelry and outfit her home with tons of doodads in the western motif and when some of the municipalities some of the state local governments really started to fill the meredith whitney prediction of more defaults a few more failures the mismanagement corruption more corruption charges i thought this is a really good opportunity to write about. municipal fraud and the potential impact on municipal bond holders it's already killing the taxpayers and i thought perhaps the bondholders might be next to suffer from mismanagement mixed with fraud. all

right so when you say comparing it to bernie made up there is very ponzi scheme like element to what's going on in this particular case or just you're using that as a blanket term to indicate financial fraud really more to talk about an amoral sociopath kind of personality she was doing this for twenty years she was earning eighty thousand dollars a year as the comptroller and living this sort of double life where everybody thought the money came from somewhere else and so the idea is how do you keep going for so long bernie gave it up when he probably thought the gig was up he was caught she only gave it up when they found out she took a little bit too much time off and somebody saw some bank statements with one of her bank her fake bank accounts she had no intention of giving this up she was only sixty years old now she's going to live the next twenty years in prison how big francine mckenna how big roughly is the municipal bond market in the united states

well this is a three trillion dollar market but one of the things i learned from doing the story is that it's a really really really difficult market to read the data isn't available it's unreliable it's controlled by those wonderful big three rating agencies but even the fed doesn't know what the size of the market is and how many true defaults there are because the rating agencies only give data about the issues that they rate themselves to looking at all of the things that end up going into an unrelated category or everything that gets issued that doesn't. deserve a rating all kinds of hybrid issues there's a whole lot of paper out there that's ending up in funds and ending up in some cases and peoples of individual portfolios the retail investor is

a very very large portion. market through funds and through individual purchases and the individual investor is completely defenseless really no availability of data there's been some. new stories recently about how they're getting screwed on pricing because again it's really up to the brokers and the other players in the market to decide what you're going to pay and what you're going to buy and again the rating agencies what it's going to be rated right so the appeal of even a simple bond for a retail investor is that it has really attractive tax benefits you don't pay let's say taxes for the municipality the region of the state or the the town in which the nyssa palette he is offered so the way these things are sold as they look at a after tax equivalent yield and then they come they compete with a fully taxable obama say treasury bond and i remember in my days as

a stock broker the only due diligence that we did was that we'd look at the yield and then we look at the rating if the rating is double a we'd assume that moody's or s. and p. did their due diligence in this three trillion dollar market and we sold these bonds into individual portfolios there's a huge demand for this tax advantage income instrument so you're saying that this case is not a you know a one off that the entire industry is is rife with this type of negligence and that this this municipal bond market is as riddled with problems as some of these other pieces of the financial markets that we're looking at but it's just something that hasn't got a lot of attention yet but it could very well get get a lot of attention now especially since interest rates are moving up and the entire bond market is the environment is change right francey right the pricing scheme to change because of the interest rates moving up and in the meantime people are chasing yield and as you know sometimes people don't look too deep when they're

looking. for a higher higher yield unfortunately the higher yield doesn't come with. less risk you have to really pay. through risk for that higher yield and these bonds in particular if there are special revenue bonds if there are conduit bonds you have to watch out for things that are sort of ego driven parking garages for for stadiums hospitals other kinds of health care related issues schools and educational related bonds these things are sort of using the imprimatur of the states and local governments to issue bonds for private activities and those things sometimes don't last very long in terms of the revenue that's backing it you have to really be careful and again people don't look very far when they see these higher yields when the alternative is the euro or a half a percent in anything else all right let's jump to look at the macro picture here

on a global basis talking about the bernie made off approach to accounting and fraud looking at what's happening in different countries around the world it's really been disclosed that italy went through the same pre euro adoption accounting fraud that greece went through that is to say that their books were cooked to make it look like they have more income more equity than they really did and they get away with this by saying that or they describe this as saying well italy simply had a little bit of window dressing before the according to the master treaty parameters but this is just another case of collusion and fraud isn't it from saying mckenna absolutely window dressing in any language. and italian is fraud on the investor and in this case fraud on the state fraud on the citizens potentially fraud and others who bought those sovereign bonds. it's really

funny j.p. morgan seems to have been involved at some point in the distant past in this situation in italy and the j.p. morgan was the one that sold. really really complex swaps to jefferson county the largest municipal bankruptcy in the united states so you have the banks running all over the world trying to get people to buy things that are blowing up later and it looks like italy is going to have to face the music of some of the sun winding right now are enough for us and we can only find another example of massive accounting fraud and bankers laughing about it in the case of angle irish banker over there in ireland turns out now according to a whistleblower that some ticks have been released that we hear bankers leading up to the fraud laughing about how they simply pulled a number out of the hat or. they pulled it out of there or to put it in the

darker listeners of all irish twat and that they were just who what you're killing for and what was involved in this boondoggle is one of the big four i would imagine yes absolutely ernst and young was the auditor of anglo-irish the same place as lehman brothers and of course window dressing was involved here we know the window dressing story of lehman brothers repo one hundred five moving things around on the balance sheet in order to make things look better there and it anglo-irish they were doing was allowing loans to be issued to executives fitzpatrick and his cohorts who are now. hopefully going to go to trial for their crimes but they were lending to the executives and then paying them back at the at the quarter ends lending again paying it back lending again paying it back in order to try to take advantage of the situation and in addition. you know basically punch

a hole in banks' balance sheet by a lot of risky lending that the taxpayers in ireland and it up paying for and ended up paying for with a bailout you know hard to believe they actually nobody over race those tapes earlier really really unbelievable. you know francine i saw a documentary recently recently from the dutch film off the deep pro talking about where this twenty trillion dollars worth of money is being hidden around the world using various accounting gimmicks and offshore techniques and they point the finger basically at the big four accounting for jim mentioned ernst and young of course escaping m.g. deloitte and touche and price waterhouse cooper the four remaining of the big four the other ones already being taken down by charges fraud etc but. we don't hear about these four accounting firms as much as we hear about fraudulent banks or banking criminalities and the other scourge of the financial industry how do the

big four accounting firms manage to stay under the radar as they do well they play switzerland with the media they're always there to help reporters tell the story and therefore reporters leave them out of the story in the u.k. in the u.s. there's a revolving door between the accounting firms the regulators and in a lot of cases the banks and other industrial companies like google starbucks cetera that have been accused of tax avoidance in particular in the u.k. so you have the people that are creating the laws and then going to the tax the tax authorities in the u.s. and in the u.k. for example and then supposedly monitoring and enforcing the laws you have the accounting firms lobbying on behalf of industrial companies both both in the u.s. and the u.k. and they basically play all sides of the fence with the idea that growing companies and growing banks and sustaining the banks is good for jobs in the economy when all

it is the good for the pocketbooks of the executives that are working we see with anglo-irish situation these executives are laughing at the rest of us they're laughing at the rest of us they pulled the wool over the eyes of the even the regulators who thought that they were pulling the wool over. the eyes of the citizens and the investors in for the sake of maintaining stability it's really really gotten to the point where i think we just need more shareholder activism and more taxpayer activism in order to stop these guys in their tracks the big four accounting firms are enablers on both sides of cronyism corporate cronyism and regulatory revolving door cronyism all right francine mckenna at a time thanks so much for being on the kaiser report thank you max and that's going to do it for this edition of the kaiser report with me max kaiser and stacy herbert our thank my guest francine mckenna read the auditor's dot com if you'd like to get

in touch tweet us at kaiser report until next time x. factor saying i yell.

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