PBS Producer Who Toppled Eric Holder’s Criminal Chief Gets an Award

By Pam Martens and Russ Martens: October 2, 2014

Martin Smith, Frontline Producer, Drills Down for Answers  in "The Untouchables"

Martin Smith, Frontline Producer, Drills Down for Answers in “The Untouchables”

Martin Smith, producer extraordinaire of some of the most riveting documentaries for the PBS program, Frontline, has received the 2014 John Chancellor Award for Excellence in Journalism, presented by the Columbia University Graduate School of Journalism.

Typically, our reaction to journalism awards is akin to that of the late Alex Cockburn, author, columnist and long-time co-editor of the sassy CounterPunch.com web site, who had this to say on the subject in 2009:

“…as a rule CounterPunch disapproves of the endless prizes the journalism industry awards itself. Many years ago, the great editor of Le Monde, Hubert Beuve-Mery, let it be known that anyone at his newspaper accepting an award would be fired. These farcical rituals peak in the annual absurdities of the Pulitzers…

“Now I see that another CounterPuncher has been given a major journalism prize. His newspaper reports that ‘Patrick Cockburn, The Independent’s foreign correspondent, has won the 2009 Orwell Prize, the most prestigious award for political writing in British journalism.’ The judges hail his work as ‘an exemplary untangling of the political and social complexity that lies behind one of the world’s great crises.’ They praised the manner in which Cockburn’s work ‘enriches our understanding.’  This is well merited praise, but…the Orwell Prize? I have not yet had an opportunity to remonstrate with Patrick about accepting a trophy etched with the name of a police informer. I can only hope that some very substantial financial dispensation accompanied the award – the sole argument for accepting this or any such prize. At least our parents are not alive to witness this shame.”

Patrick Cockburn, of course, is the brother to Alex Cockburn.

With the caveat from Alex Cockburn in mind, we are nonetheless calling out the award to Martin Smith for the very simple reason that he has performed a critical public service in pulling back the curtain on deeply cloaked frauds on the public.

Lanny Breuer, Former Criminal Chief of U.S. Justice Department, Appearing on Frontline's "The Untouchables"

Lanny Breuer, Former Criminal Chief of U.S. Justice Department, Appearing on Frontline’s “The Untouchables”

On January 22, 2013, Frontline aired Smith’s program titled “The Untouchables,” revealing the stunning news that the U.S. Justice Department under its Criminal Division chief, Lanny Breuer, hadn’t even made a pretense of a real investigation against the powerful Wall Street firms for their role in the financial collapse. This is the transcript of that portion of the program:

MARTIN SMITH: We spoke to a couple of sources from within the Criminal Division, and they reported that when it came to Wall Street, there were no investigations going on. There were no subpoenas, no document reviews, no wiretaps.

LANNY BREUER: Well, I don’t know who you spoke with because we have looked hard at the very types of matters that you’re talking about.

MARTIN SMITH: These sources said that at the weekly indictment approval meetings that there was no case ever mentioned that was even close to indicting Wall Street for financial crimes.

The afternoon after Smith’s program aired, Lanny Breuer announced he was stepping down from the Justice Department. Breuer returned to his former law firm laden with Wall Street clients, Covington & Burling (where U.S. Attorney Eric Holder also hails from) to become its Vice Chairman. The firm’s web site says Breuer “specializes in helping clients navigate…Congressional investigations, securities enforcement actions, and other criminal and civil matters presenting complex regulatory, political, and public relations risks.”

Three months after the Breuer program, in April 2013 Smith knocked it out of the park again. Using simple graphs and language the average person can understand, Smith uncloaked Wall Street’s asset stripping of the average worker’s 401(k) plan. We reported at the time:

“If you work for 50 years and receive the typical long-term return of 7 percent on your 401(k) plan and your fees are 2 percent, almost two-thirds of your account will go to Wall Street. This was the bombshell dropped by Frontline’s Martin Smith in this Tuesday evening’s  PBS program, The Retirement Gamble.

“This is not so much a gamble as a certainty: under a 2 percent 401(k) fee structure, almost two-thirds of your working life will go toward paying obscene compensation to Wall Street; a little over one-third will benefit your family – and that’s before paying taxes on withdrawals to Uncle Sam.”

We check Smith’s math in the program and find that there’s another way to prove his point and advise our readers to do the following: “Pull up a compounding calculator on line. Take an account with a $100,000 balance and compound it at 7 percent for 50 years. That gives you a return of $3,278,041.36. Now change the calculation to a 5 percent return (reduced by the 2 percent annual fee) for the same $100,000 over the same 50 years. That delivers a return of $1,211,938.32. That’s a difference of $2,066,103.04 – the same 63 percent reduction in value that Smith’s example showed.”

You can read our full coverage here and see the original Frontline program here.

While we are singling out just these two programs from Smith, the John Chancellor Award is being presented for Smith’s cumulative accomplishments over 40 years. The prize honors the television correspondent and longtime NBC News anchor John Chancellor. The award comes with a $25,000 cash prize (which would please Alex Cockburn). It will be presented at a dinner ceremony at Columbia University’s Low Library in New York on Wednesday, November 12, 2014.

Four Other Lawyer Whistleblowers are Essential at the Carmen Segarra Senate Witness Table

 By Pam Martens and Russ Martens: October 1, 2014

Carmen Segarra Photo from Public Radio's "This American Life"

Carmen Segarra Photo from Public Radio’s “This American Life”

Wall Street’s crime spree has been coming at the public for the past six years like a geyser spewing from a broken water main. It’s been tough for the public to keep tract of the twists and turns, and equally so for Congress.

What has been lost in all the media frenzy over the tapes released by Carmen Segarra, an attorney and bank examiner at the New York Fed who was fired for wanting to hold Goldman Sachs accountable, according to her lawsuit, is that four other regulatory lawyers have stepped forward from 2006 to earlier this year to report that their Wall Street regulator has been captured. In the case of those four, the captured regulator is the Securities and Exchange Commission.

When you have five Wall Street insiders with law degrees telling you that Wall Street regulators are not upholding the laws they are mandated to enforce while the nation is still struggling to recover from an epic financial crash this corrupt cronyism produced just six years ago, it’s time to allow the public to hear directly from all of these voices at one Senate witness table.

James A. Kidney, Former SEC Trial Attorney

James A. Kidney, Former SEC Trial Attorney

On March 27 of this year, a 28-year legal veteran at the SEC, James Kidney, used the occasion of his retirement party to deliver a blistering assessment of the regulatory capture at this key Wall Street watchdog. Kidney castigated upper management at the SEC for policing “the broken windows on the street level” while ignoring the “penthouse floors.” Kidney further noted that “On the rare occasions when Enforcement does go to the penthouse, good manners are paramount. Tough enforcement – risky enforcement – is subject to extensive negotiation and weakening.”

News of the speech was quickly amplified by business wire services and the New York Times. But just six months later, the press has failed to notice that this is the identical charge that Carmen Segarra is making about her former Wall Street regulator employer, the New York Fed.

Kidney correctly characterized the demoralization of his legal peers at the SEC and its revolving door to Wall Street, stating that the best and brightest “see no place to go in the agency and eventually decide they are just going to get their own ticket to a law firm or corporate job punched.” (Retirement Remarks of SEC Attorney, James Kidney (Full Text).)

The American Lawyer published excerpts from 2,000 pages of documents it had obtained from the SEC under a Freedom of Information Act (FOIA) request, which revealed that Kidney had pushed the SEC to investigate higher ups in the Goldman Sachs Abacus 2007-AC1 investment scam. In that case, Goldman Sachs knew that Abacus was designed to fail and allowed a hedge fund, John Paulson & Co., to bet against it while recommending it as a good investment to its own clients. The SEC only pursued a mid-level employee, Fabrice Tourre, while settling with Goldman Sachs for $550 million.

In other words, except for the nature of the scam, James Kidney is telling the very same story about his experience attempting to regulate Goldman Sachs as Segarra is now revealing about Goldman Sachs and the New York Fed – with tapes to back it up.

Gary Aguirre, Former SEC Lawyer

Gary Aguirre, Former SEC Lawyer

On June 28, 2006, Gary Aguirre, a former SEC attorney, testified before the U.S. Senate on the Judiciary. During his final days at the SEC, Aguirre had pressed to serve a subpoena on John Mack, the powerful former official at Morgan Stanley. Aguirre wanted to take testimony about Mack’s potential involvement in insider trading. Mack was protected — Aguirre was fired via a phone call while on vacation — just three days after contacting the Office of Special Counsel to discuss the filing of a complaint about the SEC’s protection of Mack. Aguirre testified that the SEC had thrown a “roadblock” in his investigation because the suspected insider trader had “powerful political connections.”

In 2011 another SEC lawyer, Darcy Flynn, told Congressional investigators and the SEC Inspector General that for at least 18 years, the SEC had been shredding documents and emails related to its investigations — documents that it was required under law to save. Flynn told investigators that by purging these files, it impaired the SEC’s ability to see the connections between related frauds.

The fourth attorney was an anonymous whistleblower inside the SEC, but it would behoove the Senate to seek out his or her testimony – even if it is presented without revealing his or her name. On September 27, 2011, the SEC Inspector General released a report revealing that this anonymous attorney at the SEC had sent a letter to the Inspector General, blowing the whistle on the former SEC Director of Enforcement, Robert Khuzami. The whistleblower was complaining about Khuzami’s handling of charges that Citigroup executives had intentionally misled public investors about its exposure to subprime mortgages, understating the amount by $37 billion in the fall of 2007. According to the Inspector General’s report, the whistleblower alleged that:

 “…just before the staff’s recommendation was presented to the Commission, Enforcement Director Robert Khuzami had a ‘secret conversation’ with his ‘good friend’ and former colleague, a prominent defense counsel representing Citigroup, during which Khuzami agreed to drop the contested fraud charges against the second individual. The complaint further alleged that the Enforcement staff were ‘forced to drop the fraud charges that were part of the settlement with the other individual,’ and that both individuals were also represented by Khuzami’s friends and former colleagues, creating the appearance that Khuzami’s decision was ‘made as a special favor to them and perhaps to protect a Wall Street firm for political reasons.’ ”

The Inspector General’s report was heavily redacted but systematically whitewashed the claims against Khuzami, throwing more demoralization at the veteran attorneys in the SEC.

Last year, a nonpartisan Congressional watchdog weighed in on the personnel practices at the SEC. On July 18, 2013, the Government Accountability Office (GAO) issued a report on the declining morale among SEC employees. The report found that the SEC ranked 19 out of 22 similarly sized Federal agencies in overall satisfaction and commitment. The GAO said its findings were consistent with the Partnership for Public Service’s analysis of the Office of Personnel Management’s 2012 Employee Viewpoint Survey. That analysis found that “SEC’s overall index score—which measures staff’s general satisfaction and commitment—declined from 73.1 in 2007 to 56 in 2012.”

This morning, Senator Elizabeth Warren gave an interview to NPR on what’s wrong with financial regulation of Wall Street, stating the following about lax regulation and Wall Street’s implosion in 2008:

“the regulators stood by as the big financial institutions kept loading up on more and more and more risk. The regulators had the tools to say to the big financial institutions, ‘Hey, guys, you gotta back off  you’re putting the whole system at risk when you do this.’ And yet the regulators didn’t do that. They were willfully blind to what went on. And what we’re seeing here is that same kind of cozy relationship, as the big financial institutions continue to run their operations, taking on more risk, doing what they want to do and brushing their regulators aside.”

As Senators Warren and Sherrod Brown think about how to structure the Senate hearings to get to the bottom of how to reform Wall Street’s regulators, these five attorneys, who have sacrificed career opportunities in order to stand up for the public interest, must have a seat at the table.

New Report: Global Economies May Be on Path to Another Crash

By Pam Martens and Russ Martens: September 30, 2014

U.S. Total Debt by Sector, 1916 to 2014, from International Center for Monetary and Banking Studies and CEPR Study

U.S. Total Debt by Sector, 1916 to 2014, from International Center for Monetary and Banking Studies and CEPR

Four noted economists have issued a report under the umbrellas of the International Center for Monetary and Banking Studies and the Centre for Economic Policy Research (CEPR) that is raising alarm bells at global central banks.

According to the report: “The world is still leveraging up; an overall, global deleveraging process to bring down the total debt-to-GDP ratio – or even to reduce its growth rate – has not yet started. On the contrary, the debt ratio is still rising to all-time highs.”

This, say the authors, has produced an “ongoing vicious circle of leverage and policy attempts to deleverage, on the one hand, and slower nominal growth on the other,” setting the basis “for either a slow, painful process of deleveraging or for another crisis, possibly this time originating in emerging economies (with China posing the highest risk).”

These are two key points from the study:

“Until 2008, the leveraging up was being led by developed markets, but since then emerging economies (especially China) have been the driving force of the process. This sets up the risk that they could be at the epicentre of the next crisis. Although the level of leverage is higher in developed markets, the speed of the recent leverage process in emerging economies, and especially in Asia, is indeed an increasing concern.

“The level of overall leverage in Japan is off the charts; while its status as a net external creditor is an important source of stability, the sustainability of large sectoral debt levels remains open to question.” (According to the study, Japan has a total debt of 562 percent of GDP and debt excluding financials of 411 percent of GDP.)

Things are not depicted as too rosy in the U.S. either. According to the authors, from 2003 to 2008, “the ratio of total debt to GDP rose 62 percentage points, led by a 22 percentage point increase in the debt share of the financial sector and a 12 percentage point increase by households.” And while the financial sector has decreased its debt-to-GDP ratio by approximately 37 percentage points through write-downs, “the US remains highly levered today as a consequence of a near 38 percentage point increase in federal debt relative to nominal GDP.”

The key drivers of the increase in total public debt-to-GDP in the U.S. since the financial crisis have been the bailouts of Fannie Mae, Freddie Mac, AIG and the auto industry according to the report.

One chart in the report (featured above) stands out particularly. It shows the dramatic buildup of financial debt heading into the crash of 1929 as well as the crash of 2008. That chart was stunningly similar to the peaks in another chart we have featured on these pages previously – the historic peaks in income inequality just before the crash in 1929 and 2008. (See below.)

Until we tame Wall Street and put the country back on a sound financial equilibrium in terms of debt and income equality, we will obviously continue to flirt with another financial crash.

The authors of the study are: Luigi Buttiglione of Brevan Howard Investment Products; Philip R. Lane, Professor of Political Economy at Trinity College, Dublin; Lucrezia Reichlin, Professor of Economics at the London Business School; and Vincent Reinhart, Chief U.S. Economist at Morgan Stanley and a former Director of the Division of Monetary Affairs at the Federal Reserve.

The study notes that it reflects the opinions of the authors, not necessarily the opinions of the two organizations.

Income Inequality Graph from Robert Reich's Film, "Inequality for All"

Income Inequality Graph from Robert Reich’s Film, “Inequality for All”

 

Carmen Segarra: Wall Street’s Spy Vs Spy

By Pam Martens: September 28, 2014

William C. (Bill) Dudley, President of the Federal Reserve Bank of New York

William C. (Bill) Dudley, President of the Federal Reserve Bank of New York

If you missed our coverage in 2012 of the Lower Manhattan Security Coordination Center where Wall Street sleuths from those serially charged firms like Goldman Sachs and JPMorgan dunk donuts alongside New York’s finest in a $150 million spy center, keeping tabs on the comings and goings of their own Wall Street employees as well as innocent pedestrians, then you may not fully appreciate why Carmen Segarra has been celebrated all weekend for her temerity in taping her boss and colleagues at the New York Fed, as well as employees inside the cloistered bowels of Goldman Sachs.

While Wall Street was spying on everyone else in lower Manhattan in a high tech center funded by the taxpayer, Segarra strolled over to a Spy Store, plunked down a modest sum and walked out with a tiny tape recorder. She then proceeded to capture the essence of the quintessential captured regulators who didn’t see the 2008 crash coming and won’t see the next one coming either – because their job is not to see too much. (We called the Spy Store on Saturday to ask if they had experienced an upsurge in sales of the tiny recorder. We were informed that sales were brisk but not unusual.)

Segarra is a lawyer and former bank examiner at the Federal Reserve Bank of New York, one of Wall Street’s key regulators, who charged in a lawsuit filed in October 2013 that she was told to change her negative examination of Goldman Sachs by colleagues, who also obstructed and interfered with her investigation. According to her lawsuit, when she refused to alter her findings, she was terminated in retaliation and escorted from the Fed premises.

After having her case tossed by a Judge whose husband was representing Goldman Sachs, Segarra turned over her 46 hours of tape recordings to ProPublica’s Jake Bernstein and public radio’s This American Life. ProPublica and This American Life released their stories on the tapes this past Friday, creating a media frenzy.

The hubbub has reached the ears of the U.S. Senate, with Senators Elizabeth Warren and Sherrod Brown calling for Senate Banking hearings on the deeply conflicted New York Fed.

Over the years, Wall Street On Parade has written about a raft of conflicts of interests at the New York Fed that would not be tolerated at any other financial regulator. During 2007 and 2008, as Citigroup entered an intractable death spiral from off balance sheet debt bombs and obscene executive pay, New York Fed Chief Tim Geithner was busy hobnobbing – enjoying 29 breakfasts, lunches, dinners and other meetings with Citi execs.

On January 25, 2007, Geithner hosted former Citigroup Chairman and CEO, Sandy Weill, to lunch at the New York Fed. According to Geithner’s appointment calendar, Elise Geithner, his daughter, shared the chauffeured car to work with her father and then joined him at lunch with Sandy Weill.

Geithner went on to become Secretary of the Treasury and played a pivotal role in making sure that Citigroup was not allowed to fail but was instead bailed out by the taxpayer. Weill was one of Citigroup’s largest individual shareholders.

In early 2012, as JPMorgan was making wild bets with derivatives in London, using the insured deposits of its banking customers, its Chairman and CEO, Jamie Dimon, was sitting on the Board of Directors of the New York Fed. As the bank was being investigated by the New York Fed, Jamie Dimon continued to sit on its Board, serving out his two terms which ended in late 2012. The derivatives debacle became infamously known as the London Whale trades where JPMorgan admitted to losing $6.2 billion of its bank depositors’ money.

While the New York Fed was investigating JPMorgan, Bill Dudley was serving as the President of the New York Fed and his wife, Ann Darby, a former Vice President at JPMorgan, was receiving approximately $190,000 per year in deferred compensation from JPMorgan – an amount she is slated to receive until 2021 according to financial disclosure forms.

According to the New York Fed’s web site, its “employees are subject to the same conflict of interest statute that applies to federal government employees (18 U.S.C. Section 208).” Under that statute, a spouse’s conflicts become the conflicts of the employee.

Full blown hearings of the New York Fed and its jaded ways are long overdue.

Carmen Segarra: Secretly Tape Recorded Goldman and New York Fed

By Pam Martens and Russ Martens: September 26, 2014

The Trading Desk at the New York Fed Has Speed Dials to Wall Street Firms and Bloomberg Terminals

The Trading Desk at the New York Fed Has Speed Dials to Wall Street Firms (Photo from Educational Video Released by the Federal Reserve)

Jake Bernstein has a financial blockbuster up today at ProPublica on the secret tape recordings made inside the New York Fed and Goldman Sachs by bank examiner turned whistleblower, Carmen Segarra, who was fired by the New York Fed after she refused to change her examination findings on Goldman Sachs.

Segarra is one gutsy bank examiner and lawyer: according to the article, she went to the Spy Store, bought a tiny microphone, and proceeded to tape record two of the most powerful financial institutions in the world — 46 hours worth of tapes.

Read our past coverage of the Carmen Segarra story and the deeply conflicted New York Fed at these links:

Blowing the Whistle on the New York Fed and Goldman Sachs

The Carmen Segarra Case: Welcome to New York, Wall Street and McJustice

A Mangled Case of Justice on Wall Street

Is the New York Fed Too Deeply Conflicted to Regulate Wall Street?

New Documents Show How Power Moved to Wall Street, Via the New York Fed

Intelligence Gathering Plays Key Role at New York Fed’s Trading Desk

Relationship Managers at the New York Fed and Citibank: The Job Function Ripe for Corruption

As Citigroup Spun Toward Insolvency in ’07- ’08, Its Regulator Was Dining and Schmoozing With Citi Execs

At Last We Know the Real Purpose of the Federal Reserve Bank of New York: It’s a Confessional for Traders Gone Rogue

New York Fed’s Strange New Role: Big Bank Equity Analyst

As Criminal Probes of JPMorgan Expand, Documents Surface Showing JPMorgan Paid $190,000 Annually to Spouse of the Bank’s Top Regulator

New York Fed’s Answer to Cartels Rigging Markets – Form Another Cartel