Josh Rosner (@JoshRosner) is co-author of the New York Times Bestseller “Reckless Endangerment” and Managing Director at independent research consultancy Graham Fisher & Co. He advises regulators, policy-makers and institutional investors on banking and financial services (a more complete bio appears at the end of this column).

This is part 3 of 5; Yesterday evening, we published the Introduction. We will be releasing a different part each evening and morning culminating in the release of Rosner’s complete report on Friday morning. On that date, the Senate Permanent Subcommittee on Investigations will release their final report on JPM’s CIO Group (aka the London Whale).

Prior installments are here: Intro, and part 2

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INTERNAL CONTROL PROBLEMS APPEAR TO BE PERVASIVE

We have chosen not to detail every violation and will only highlight the operational failures that we believe demonstrate management’s inability to effectively manage this “Too Big to Fail” firm.

The repeated violations and the longstanding failures of the Board to remedy many of these problems raising serious questions about the veracity of the CAMELS supervisory examination process[i] and the willingness of regulators to demand corrective actions of our largest firms. Moreover, with apparent justification for the OCC to issue a “Safety and Soundness Order”[ii], one has to wonder whether the Federal Reserve’s “stress test” has placed constraints on the firm.

JPMorgan’s list of regulatory violations over the past five years is long, diverse and crosses legal and regulatory jurisdictions. Many of these infractions are for repeated violations of specific control failures, which the Company had previously agreed to remedy. This calls into question Jamie Dimon’s remarks before the Miami Chamber of Commerce on February 4th 2013, during which he stated that when JPMorgan makes mistakes “we try and fix those mistakes”.

OCC and Federal Reserve Board

Anti-Money Laundering and Bank Secrecy Act issues

On  January 14, 2013, the Federal Reserve and the OCC issued a Consent Order to JPM designed to remedy deficiencies, which the bank neither admitted nor denied.  The OCC identified deficiencies indicating that JPMC’s firm-wide Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance program failed to ensure the  bank’s compliance with certain requirements.

While the Order does not detail the specific violations or deficiencies that were found, other regulatory actions suggest that either these were tied to new violations or that the OCC and Federal Reserve were, a year and a half later, acting in response to an August 2011 civil settlement[iii]  by the U.S. Treasury’s Office of Foreign Asset Control (OFAC) that found JPM had egregiously violated:

-  Cuban Assets Control Regulations (“CACR”);

-  Weapons of Mass Destruction Proliferators Sanctions Regulations (“WMDPSR”);

-  Executive Order 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters”;

-  the Global Terrorism Sanctions Regulations (“GTSR”);

-  the Iranian Transactions Regulations (“ITR”);

-  the Sudanese Sanctions Regulations (“SSR”);

-  the Former Liberian Regime of Charles Taylor Sanctions Regulations (“FLRCTSR”); and

- the Reporting, Procedures, and Penalties Regulations (“RPPR”)

Beyond these violations, which were determined to be “egregious because of reckless acts or omissions,” the bank was found to have violated several other AML/BSA regulations in non-egregious ways including by an undisclosed transfer of 32,000 ounces of gold bullion for the benefit of a bank in Iran.

If, on the other hand, the recent Consent Orders relate to violations  other than those identified in the OFAC settlement it seems plausible that JPMorgan could have been found to have violated AML/BSA regulations related to its role in the recent Vatican Bank scandal[iv], a drug cartel money-laundering scheme[v] or even tied to the Madoff bankruptcy[vi].

The government’s treatment of foreign banks relative to the seeming deference given JPM raises questions about the infractions relative to the penalties. After all, HSBC recently settled a money-laundering probe for $1.92 billion and Standard Chartered paid $327 million to settle charges relating to Iranian transactions while JPMorgan paid $88.3 million for a civil settlement of these violations.

If one contrasts JPM’s treatment with the FDIC’s recent action against a state bank with two branches[vii], in which the bank’s charter was revoked for violations related to money laundering and the bank was fined $15 million, one must wonder if state-chartered banks are held more accountable than our nation’s largest firms.

 

Commodity Futures Trading Commission (CFTC)

Segregation of Client Funds

JPMorgan’s handling of customer monies should be another cause for concern.  The Company’s executives and its Board have repeatedly failed to address ongoing problems and have exposed shareholders to the costs associated with repeated fines. The problems appear only to come to light only after being discovered as a result of customer problems but, once discovered the Firm is routinely permitted, without admitting wrongdoing, to make an offer for civil settlement. These offers are accepted on the expectation that internal control violations will be remedied and, as a result, matters that might otherwise have potentially led to criminal charges are settled for fines.

On September 9, 2009, the CFTC sanctioned JPMorgan for failing to properly segregate customer funds and for failing to report these “under-segregations” on a timely basis[viii]. The CFTC accepted JPMorgan’s offer of settlement without requiring the Company to either admit or deny wrongdoing, as a result the firm was able to avoid an administrative proceeding that could have uncovered more regulatory and legal violations. This matter relates to activities that occurred between May and June 2007 but it is unknown if this was the entirety of the period of violations or if it was only the period the regulator chose to identify. According to the CFTC, JPM failed to segregate $725 million of its own money from a $9.6 billion account. The CFTC cited numerous violations resulting from “under segregation”, ”untimely computation of segregation”, “untimely notification of under segregation” and “failures to supervise”. The Company was allowed to settle for $300,000.

In June 2010, in demonstration that the failures to segregated funds that the CFTC had settled were not isolated occurrences, the British Financial Services Authority fined JPMorgan a record 33.32 million British pounds for failing to “adequately protect between $1.9 billion and $23 billion of client money between November 2002 and July 2009.”[ix] In this instance, the FSA determined that the error remained undetected for nearly seven years”.

On April 4, 2012, JPM was again found, by the CFTC, to be in violation of segregation rules. Once again, to avoid administrative proceedings in the face of findings of violations of law, the Company made an offer of settlement that the CFTC accepted without requiring the Company to admit or deny wrongdoing. The Company was fined $20 million in civil money penalties and, once again, directed to remedy control problems[x]. As in prior instances the firm’s internal controls were inadequate and failed to discover these violations before a problem arose.

The CFTC found that from at least November 2006 though September 2008, JPM accepted deposits of customer funds from Lehman Brothers, Inc. In violation of law JPMorgan extended credit to Lehman Brothers for 22 months based on these customer funds because JPM determined, wrongfully, those funds were to be included in Lehman Brothers net free equity. After the bankruptcy of Lehman Brothers, again in violation of law, JPMorgan refused repeated requests by the Trustee and the Commission to release those Lehman customer funds to the Trustee of Lehman’s estate.

While there have been no findings against JPMorgan, ongoing legal wrangling by the Company seems to offer some basis to believe that similar problems in the segregation of funds may have also occurred related to the failure of Peregrine Financial[xi] and MF Global[xii].

Commodities Violations

On September 27, 2012, the CFTC issued an Order[xiii] claiming that JPMorgan violated Section 4a(b)(2) of the Commodity Exchange Act and, for $600,000, allowed the bank to again settle a matter without admitting or denying the violations. The summary of facts suggest, had the CFTC instituted an administrative proceeding and full inquiry, the alleged violations may well have been far more pervasive; encompassing a larger number of commodity assets and a greater occurrence of violations than merely those settled. After all, according to the CFTC, these systems were not relied on only for the trading of cotton, they were “used by commodity traders to track their current positions in partcular futures contracts” [xiv].

Moreover, the underlying actions of JPMorgan that led to the CFTC actions appear to demonstrate either a willful attempt to circumvent the regulations or the  bank’s complete incompetence in the management of its controls.

According to the CFTC, a “deficiency in its newly created automated position limit monitoring system for the commodity business” caused JPM to violate position limits in cotton futures. Since, according to the CFTC’s own statement, the systems appear to have been used for commodities beyond just cotton, it would seem reasonable for the CFTC to have engaged in a deeper inquiry in an effort to ascertain whether the violations had occurred in the trading of other commodities.

More troubling than the breakdown of internal controls that lead to reliance on an obviously failed system is that “after learning of this deficiency, JPMCB utilized a manual position limit monitoring procedure pending correction of the automated monitoring system. Despite adoption of this manual position limit monitoring procedure, JPMCB violated its short-side speculative position limit on several occasions.” So, the breakdown in controls was not limited to the automated system but also occurred during the application of the remedial manual procedures.

These issues lead to obvious questions for which we will likely never have answers:

  • Do the violations that occurred when JPMorgan instituted the manual procedures result from negligence or something more?
  • Did the OCC review the implementation of these “newly created” automated systems?
  • Are there mechanisms in place for regulators to inform each other of violations and control weaknesses in instances where a settlement occurs without an admission or denial of wrongdoing?
    • Is there a formal mechanism within the Financial Stability Oversight Committee?
    • Is there an inter-agency system to record all settled matters with a regulated entity?
  • If there are no such effective inter-regulator procedures, then the notion of the “enhanced supervision” of Systemically Important Financial Institutions created by Dodd-Frank has offered the American public false security.

JPMorgan’s violations in commodity markets do seem to extend beyond the cotton market findings by the CFTC. In December 2012, JPM was fined $65,000 by the NYMEX Business Conduct Committee for “inadvertently” overstating open interest in a crude futures contract by 46.9%, and offsetting concurrent long and short positions it held for a customer resulting in an overstatement of open interest of 5.2% for that trade date[xv].

Fictitious Trade/Wash Sale

On March 8, 2012, the CFTC simultaneously alleged and settled with JPMorgan over its belief that the company violated Section 4c(a)(I) of the Commodity Exchange Act [xvi] by, on May 25, 2010, knowingly executing a fictitious trade to sell and buy 11,642 ten-year spreads on behalf of a client. The customer was on both sides of the transaction and JPM was aware of that. In  its filing, the Commission stated its recognition of Congress’s intent in creating the relevant law[xvii] but again, allowed a civil settlement, for $140,000, without a deeper investigation. As a result, it is unclear if this instance represented a one-time failure or if shareholders are at ongoing legal or regulatory risk from future exposures to a more pervasive breakdown of controls.

There is some evidence that, if the regulators engaged in a full and broad investigation, shareholders would likely be exposed to further destruction of shareholder equity resulting from failures of management. In June 2012 the NYMEX found that on 10 separate occasions between January and June 2011 JPM executed wash trades in WTI or gasoline between entities with the same beneficial ownership. In each instance the company’s trader was the sole decision maker for both the buy and sell side of the trade. While the firm was fined only $30,000 to settle these violations (neither admitting nor denying wrongdoing) it is unclear if they have yet addressed the control problems.[xviii].



[i] http://www.occ.gov/publications/publications-by-type/other-publications-reports/prbbnkgd.pdf p.1 (“One of the most challenging and important aspects of a bank examiner’s job is knowing how to read and react, in a balanced and effective way, to symptoms of problems that may not yet be obvious to bank management and directors …Examiners will recognize and sometimes refer to such banks as “borderline” or “dirty 2’s,” referring to the imminence of a CAMELS downgrade to a “3” if conditions worsen. It is not unusual for officers and directors of banks such as these to overlook or deny the potential seriousness of problem symptoms at this stage. Indeed, it sometimes boils down to who is more confident in their assessment of the fundamental issues – the banker or the examiner, and whether the examiner has prioritized his/her findings by order of significance”. See also p.30 “Under the existing Corrective Action PPM and going forward, formal action or PCA should be considered for 3-rated banks with weak management or when conditions are deteriorating rapidly. The corrective measures should be appropriately severe and explicit as to implementation…Such actions are also used when corrective action by the board is not forthcoming, or when informal actions are insufficient. In some circumstances, there is a presumption for formal action, regardless of the bank’s capital level and composite CAMELS rating. That presumption in favor of formal action exists when one or more of the following conditions exist:

  • Significant problems in the bank’s systems, controls, policies, internal audit programs, or MIS.
  • Significant insider abuse or compliance problems.
  • Failure to respond to prior supervisory efforts.
  • Substantial noncompliance or lack of full compliance over an extended period of time”. )

[ii] IBID p. 31 (See: “Safety and Soundness Standards: The OCC also has the authority under 12 USC 1831p-1 and 12 CFR 30 to issue a safety and soundness order against a bank that fails to meet established safety and soundness standards. Operational and managerial standards have been established under Part 30 in the following areas: Internal controls and information systems; Internal audit system; Loan documentation; Credit underwriting; Interest rate exposure; Asset growth; Asset quality; Earnings; Compensation fees and benefits.This tool was designed to address unsafe and unsound conduct that is not reflected in bank capital levels”.)

[iii] http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20110825.aspx  US department of treasury, “Release of Civil Penalties Information – JPMorgan Chase Bank, N.A. Settlement.” Last modified 2011. http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20110825.aspx .

[iv] http://www.spiegel.de/international/europe/a-growing-vatican-bank-scandal-threatens-catholic-church-image-a-842140-2.html Wassermann, Andreas, and Peter Wensierski . Spiegel Online, “Transparency vs. Money Laundering: Catholic Church Fears Growing Vatican Bank Scandal.” Last modified 2012. Accessed February 25, 2013. http://www.spiegel.de/international/europe/a-growing-vatican-bank-scandal-threatens-catholic-church-image-a-842140-2.html . (See: “Officials from the Council of Europe committee responsible for combating money-laundering were supposed to assist these efforts and, to do so, even be allowed into the inner sanctum of the Vatican bank. Yet veteran Church bankers and members of the Curia apparently had no intention of abstaining from lucrative dealings with problematic funds. The plan, Italian financial investigators believe, was from then on to discretely eliminate all traces of clandestine business dealings. A role in the effort was played by a bank in Benedict’s home country: Germany. In 2009, the same year that Gotti Tedeschi took over as president of the IOR, the bank set up an account with the Milan-based branch of the American bank JPMorgan Chase. From that point on, millions started flowing on an almost daily basis from JPMorgan’s Milan office to the one in Frankfurt, where the IOR also had a JPMorgan account. Vatican officials opted for a special account in Milan with the number 1365, a so-called “sweep facility account,” which was automatically zeroed out at the end of each day. The Vatican bank confirmed the existence of this account late last week, though it said it was primarily used for handling securities transactions. Through last year, this financial set-up was allegedly used to process more than a billion euros for the Vatican bank. Italian investigators suspect that it was also used to launder funds from dubious sources. The transfers via JP Morgan would likely have remained unnoticed if the IOR hadn’t involved another Italian bank two years earlier in two cases. The attention of Italian financial regulators had been attracted by curious transactions the Vatican bank had made via Credito Artigiano. In 2010, a total of €23 million had been transferred from several accounts at that bank, but without listing the account holders or purposes of the transfers. Of that, €20 million was reportedly supposed to make its way to the Vatican’s JPMorgan account in Frankfurt, while the remaining €3 million was destined for an account at another bank in Rome.”)

[v] http://www.amlcftblog.com/2008/01/cocaine-trade-fuels-euro-laundering.html  AKGUN ALP, INONU. AML-CFT, “Cocaine trade fuels Euro laundering.” Last modified 2008. http://www.amlcftblog.com/2008/01/cocaine-trade-fuels-euro-laundering.html.

[vii] http://blogs.wsj.com/corruption-currents/2012/11/19/first-bank-of-delaware-loses-charter-over-aml-problems/  Rubenfeld, Samuel. “First Bank of Delaware Loses Charter Over AML Problems..” The Wall Street Journal, November 19, 2012. http://blogs.wsj.com/corruption-currents/2012/11/19/first-bank-of-delaware-loses-charter-over-aml-problems/  (accessed February 25, 2013).

[viii]http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enfjpmorganorder09092009.pdf  Instituting Proceedings Pursuant to 6(c) and 6(d) of the Commodity Exchange Actand Making Findings and Impossing Remidial Sanctions.” Last modified 2009. http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enfjpmorganorder09092009.pdf .

[x]http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enfjpmorganorder040412.pdf  Commodities Future Trading Commission. “Instituting Proceedings Pursuant to 6(c) and 6(d) of the Commodity Exchange Actand Making Findings and Impossing Remidial Sanctions.” Last modified 2012.

[xi] http://observer.com/2012/08/jpmorgan-would-prefer-peregrine-financial-group-trustee-not-subpoena-jamie-dimon/ and http://www.huffingtonpost.com/2012/07/12/pfg-customer-account-jpmorgan-chase_n_1668386.html  Clark, Patrick. “JPMorgan Would Prefer Peregrine Financial Group Trustee Not Subpoena Jamie Dimon.” New York Observer, August 6, 2012. http://observer.com/2012/08/jpmorgan-would-prefer-peregrine-financial-group-trustee-not-subpoena-jamie-dimon/.

Gongloff, Mark. “In PFG Scandal, JPMorgan Chase Had Surprising Role: It Held Customer Accounts.” Huffington Post, July 12, 2012. http://www.huffingtonpost.com/2012/07/12/pfg-customer-account-jpmorgan-chase_n_1668386.html .

[xiv] IBID (See: “The automated monitoring system generated a report that is used by commodity traders to track their current positions in pmiicular futures contracts relative to the applicable speculative position limits.”)

[xv] http://www.nfa.futures.org/BasicNet/Case.aspx?entityid=0000815&case=12-08778-BC+-+J.P.+MORGAN+SECURITIES&contrib=NYME  National Futures Association, “Case Summary.” http://www.nfa.futures.org/BasicNet/Case.aspx?entityid=0000815&case=12-08778-BC – J.P. MORGAN SECURITIES&contrib=NYME.

[xvii]http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enfjpmorganorder030812.pdf COMMODITY FUTURES TRADING COMMISSION, “ORDER INSTITUTING PROCEEDINGS PURSUANT TO.” Last modified 2012. http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enfjpmorganorder030812.pdf .  (See: “Congress’ intent in enacting Section 4c(a) was to “‘ensure that all trades are focused in the centralized marketplace to participate in the competitive determination o f the price o f the futures contracts.’” In re Collins, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ~ 27,194 at 45,742 (CFTC Dec. 10, 1997) (quoting S. Rep. No. 93-1131, at 16-17 (1974». In other words, Section 4c(a) was meant “to prevent collusive trades conducted away from the trading pits,” Merrill Lynch Futures. Inc. v. Kelly, 585 F. Supp. 1245, 1251 n.3 (S.D.N.Y. 1984), and “to outlaw insofar as possible all schemes of trading that are artificial and not the result of arms-length trading on the basis of supply and demand factors,” In re Goldwurm, 7 Agric. Dec. 265,276 (1948).”

Category: Credit, Legal, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “JPMorgan’s Internal Control Problems, or HSBC’s Got Nothing On Us!”

  1. hammerandtong2001 says:

    Regarding MF Global –

    Jesse over at the Cafe Americain has posted extensively about JPM’s involvement in this sordid affair. And Francine McKenna at “retheauditors.com” has exposed, chapter and verse, the direct involvement of JPM in attempting to purloin client funds.

    Fortress Bank, indeed.

    .

  2. RW says:

    In a barter economy or even a (really) hard money economy these relationships are a bit easier to figure out but in a fiat money economy where any credit granting agency can, in effect (and usually in reality) “print money” that is equivalent to the full faith currency of the governing body …well, at a guess, I’d think legislation and regulation had better catch up or just bend an entire nation and its citizenry over until the big financial dildo hits its stop or the gas runs out (so to speak).

  3. ToNYC says:

    Control Frauds are the thinking man’s way to a banana republic where all we have to sell to are debt slaves.
    Thanks, Nixon-Mitchell-Rumsfeld Class of 1969.

  4. Michel Delving says:

    Mr. Rosner, I see you’ve maintained your fondness for slamming the GSEs at every opportunity, even in a report on JPMC’s risk management and internal controls.
    Prof. Frank Partnoy and Prof. Jeff Madrick directly challenged the veracity of some of the claims you made in Reckless Endangerment. Specifically, in The New York Review of Books, they dispute your statement about subprime mortgages, that “By 2008, some $1.6 trillion of toxic mortgages, or almost half of those that were written, were purchased or guaranteed by Fannie and Freddie. ”

    They say the number is false, and that you must have lifted it from Edward Pinto’s research without attribution. So can you tell us if you still stand behind that number and how you came up with it? Nothing in Fannie and Freddie’s financials support that number, and the FCIC demolished Pinto’s credibility.

    http://www.nybooks.com/articles/archives/2011/oct/27/did-fannie-cause-disaster/?pagination=false

  5. Been Around 1963 says:

    You overlooked the most notorious AML violation of all, oversight (or really lack of oversight) of the Madoff Fund accounts.

  6. The Window Washer says:

    Damn boy! Epic good post.

  7. Angryman1 says:

    like I said the other thread, they got alot of cash……..like a alot alot of cash. They can play play risky games, try for deceiving clients for profit……and get away with it if something blows up.

  8. Josh Rosner says:

    Michel Delving, funny that you would try and discredit my book and this paper by using a single sentence that relates to an undefined term like subprime. Yes, it is undefined. Do you define it by product, LTV, DTI, FICO…. Since FICO was, since its introduction, the leading demarcation of the boundaries between prime, Alt-A and subprime I think it is a fair measure. If you want to dispute that you are free to but you, like Madrick and Portnoy should be honest enough to recognize we will then be disputing definitions not facts.

    Neither Madrick nor Portnoy, both of whom I like, seemed interested in actually reading my book. They suggest that Ms. Morgenson and I lay blame for the crisis fully at the feet of the GSEs. If one reads the book it is clear that we don not, but neither do we play the partisan game of closing our eyes to reality. We clearly state that the PLS issuers were issued the worst products and engaged in the most blatantly abhorrent customer and investor abuses. They, on the other hand, seem in their review, to want to pretend that the roots of the crisis had nothing to do with the GSEs seasoning the market and leading a race to zero beginning in the mid-1990′s. I don’t think either of them were particularly focused on GSEs and housing in that period as I was. Perhaps if they were they would have been more able to see the forest for the trees.

    I would point out that my track record on calling the GSEs problems in 2001-2003, when others were fighting them perhaps for other reasons does not equal an endorsement of the basis of every other critics views.Like my warnings on the GSEs, my calling the peak of the homeownership in 2004, calling the peak in housing in late 2005 and warning of the coming crisis in the RMBS and CDO markets and the effects that would have on the housing market should stand on their own… outside ideological nonsense.

    It is obvious from your question that you are pushing a narrative or partisan position, what is it?

  9. Josh Rosner says:

    Mr, Delving,

    By the way, it may be worth reading my Testimony to the House Subcommittee of last week. I slam the GSEs for their part, I slammed others as well. If you choose to be in denial of reality that is your prerogative. Good luck with that.

    http://stopforeclosurefraud.com/2013/03/06/testimony-of-joshua-rosner-subcommittee-on-capital-markets-and-government-sponsored-enterprises-fannie-mae-and-freddie-mac/

  10. Josh Rosner says:

    Interesting that you choose not to address or refute any of the items in this report but resort to extraneous and personal attacks.

  11. 873450 says:

    When JPMorgan co-mingles Vatican and cocaine cartel deposits swept through its Frankfurt facility accounts zeroed out at the end of each day, does the money come out clean or dirty?

  12. ToNYC says:

    “does the money come out clean or dirty?”

    They use the term “baptism” to cleanse existential conditions like original sin, so it’s not that much of a stretch for convertible human energy like currency. But then, you either have the faith or you don’t, or whether you are chosen or not.

  13. Michel Delving says:

    Mr. Rosner,

    Au contraire, no personal attack, denial or hidden agenda being pushed here. I’ve long been an avid reader of yours and former collaborator Joseph Mason’s writings.
    Sorry to see you’ve read far more into my comment than warranted. Clearly there was something to it that touched a nerve. I fail to see how I have purportedly impuned your book by merely asking a question that is hardly extraneous, since you yourself chose to weave goings on at the GSEs into your report on JPMC criminality by comparison. I referenced Ed Pinto’s research because he is the only source I know of for this faux data. If that offended you, then I am truly sorry as I can readily understand why anyone seeking credibility would want to distance themselves from Pinto and other perpetrators of The Big Lie. It was, after all, a very simple question that yet deserves a simple answer. How did you come up with the figure of 1.6 trillion of toxic mortgages, purchased or guaranteed by Fannie and Freddie by 2008? Where did you get this number?