Puerto Rico’s Debt Is Quietly Sitting in Mom and Pop Mutual Funds as Trump Says It Will Be Wiped Out

By Pam Martens and Russ Martens: October 4, 2017 

President Donald Trump

President Donald Trump

There was likely a collective gasp at OppenheimerFunds Inc. yesterday when President Donald Trump made another of those market-moving pronouncements, telling Fox News that Puerto Rico’s debt would have to be wiped out. The President’s remarks suggested he thought the losers would be Wall Street banks. The President stated: “You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be — you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.”

The reality is that a large percentage of Puerto Rico’s debt is held in tax-free municipal bonds and municipal bond mutual funds, owned not by Wall Street banks or tycoons, but by mom and pop investors seeking tax-free income. (As a result of Congressional legislation, the interest on municipal bonds issued by the Commonwealth of Puerto Rico, its political subdivisions and public corporations, is not subject to Federal, state or local taxes. This has made the individual bonds and mutual funds particularly attractive in places like New York City where residents pay a Federal, state and local income tax.)

According to a semi-annual report made last month at the Securities and Exchange Commission, Oppenheimer Rochester Fund Municipals, a popular tax-free fund held by many New York investors, was sitting on a boatload of Puerto Rico municipal bonds as of June 30, 2017. The SEC filing shows over 100 different Puerto Rico bonds, issued by the Commonwealth and numerous other Puerto Rico issuers like the Puerto Rico Electric Power Authority and the Puerto Rico Sales Tax Financing Corp. (The fund, of course, holds a widely diversified portfolio of other bonds as well.)

In July, Reuters reported that Oppenheimer’s various tax-free mutual funds had the largest mutual fund holdings of Puerto Rico bonds as of April 30, totaling a whopping $7.3 billion face amount. According to Oppenheimer’s September SEC filings reviewed by Wall Street On Parade this morning, most of that debt is trading at a large discount to the face amount and the values, reported as of June 30, 2017 to the SEC, do not reflect the new market lows experienced by the bonds since Hurricane Maria made a direct hit to Puerto Rico in late September. (Reuters reported that the second largest mutual fund holder of Puerto Rico debt as of April 30 was Franklin funds, which also provides popular tax-free funds to mom and pop investors. Franklin was reported to be holding approximately $3 billion face amount of Puerto Rico bonds.)

In its September SEC filing, OppenheimerFunds notes that it has set up a special web section to provide updates on the situation with its Puerto Rico bond holdings. (See here and here.) Tellingly, those web pages have not been updated since the devastation from Hurricane Maria occurred, suggesting OppenheimerFunds understands it’s now in uncharted waters. What it had said before the hurricane hit was as follows:

“Securities issued in Puerto Rico have historically helped Oppenheimer Rochester deliver high levels of tax-free income to the shareholders in many of our 20 muni bond funds. Our funds hold a large and diverse set of bonds from Puerto Rico, many of which offer very attractive yields and all of which are exempt from federal, state and local income taxes for individual investors.

“Much has been written about political, economic and fiscal developments in the Commonwealth of Puerto Rico, and some analysts and journalists have raised questions about the securities issued on island. Credit rating agencies have also weighed in, recently with downgrades. In turn, the market has reacted.

“Over the years, however, we have seen the Puerto Rico securities held by our funds deliver highly competitive levels of tax-free income and what we believe to be high value relative to the risk they incur. We hope our shareholders have seen this, too.”

Mutual funds are always supposed to add the caveat: “Past performance is no guarantee of future results.” That would seem to be particularly relevant to the situation today.

How Many Times Can the President Be Called “Unfit” Before It Undermines Confidence in America?

By Pam Martens and Russ Martens: October 3, 2017

Newsweek Cover -- Lazy Boy Donald TrumpThe point of having a President is that in times of crisis there is one leader who can speak quickly and directly to anxious citizens and rally their confidence and trust and optimism to push forward to create a better day for themselves and their country. Franklin Delano Roosevelt was the embodiment of such a leader.  We have reprinted below his Christmas Eve message to the nation on December 24, 1941 as a much-needed reminder of how a President of these United States should conduct himself in a time of crisis.

In the case of President Donald Trump, it took him four days to pull himself away from public bickering with NFL athletes and notice that an unprecedented humanitarian disaster was unfolding in Puerto Rico following the devastation unleashed there by a direct hit from Hurricane Maria. Then, over the next ten days, the President alternated between reminding Puerto Ricans, all of whom are U.S. citizens, that they must deal with their debt to Wall Street; get their financial house in order; and adding a final Tweeted insult that implied Puerto Ricans were lazy slackers waiting for a handout. What kind of leader talks to his own citizens like that when they don’t know where they will find food or water to survive over the next week and when 95 percent of the 3.4 million residents of Puerto Rico remain without electricity.

Today, the New York Times has titled a column by Michelle Goldberg, “An Unfit President Fails Puerto Rico.” Goldberg writes:

“Reports from post-hurricane Puerto Rico tell of American citizens experiencing a level of humanitarian desperation usually seen only in the poorest of countries. As of Saturday, according to the Department of Defense, only 45 percent of customers on the island had access to drinking water. People are frantically seeking food and medical supplies, and there’s not enough diesel to deliver much of the aid that’s reached San Juan. While that city’s mayor pleaded with the world for help, the president of the United States tweeted racially inflected insults at her and her people from his golf club. He implied they are lazy and ‘want everything to be done for them’ rather than helping themselves.”

Donald Trump has been President of the United States for just over eight months. For many of us, it feels like an eternity in hell. Each time we read the word “unfit” or a similar headline assessment describing the President of our country, we cringe with the realization that our nation is losing the confidence of our allies around the world and the positive outlook of  our fellow Americans is being deeply eroded.

On June 30 of this year, the headline “Donald Trump Is Not Well,” ran over an OpEd at the Washington Post by Mika Brzezinski and Joe Scarborough, hosts of the MSNBC show, Morning Joe. The OpEd came in response to a sexist rant against Brzezinski by the President of the United States the prior day on his Twitter page. Invoking for the second time his fixation about women and blood, the President called Brzezinski “low I.Q. Crazy Mika” and said that at a prior visit to his Mar-a-Lago residence in Palm Beach she was “bleeding badly from a face-lift.” (The hosts called the face-lift allegation a lie.) Adding some evidentiary support to their claim that the President “is not well,” the MSNBC hosts wrote:

“From his menstruation musings about Megyn Kelly, to his fat-shaming treatment of a former Miss Universe, to his braggadocio claims about grabbing women’s genitalia, the 45th president is setting the poorest of standards for our children.”

In July, David Rothkopf, a Washington Post columnist and visiting scholar at the Carnegie Endowment, wrote that “for the first time in three decades in the world of foreign policy,” he was “getting regular questions about the mental health of the president.” Rothkoph explained:

“That is where we are now. The president’s tweeting hysterically at the media is just an element of this. So too is his malignant and ever-visible narcissism. The president has demonstrated himself to have zero impulse control and a tendency to damage vital international relationships with ill-considered outbursts, to trust very few of the people in his own government, and to reportedly rant and shout at staff and even at the television sets he obsessively watches.”

Rothkoph suggests in his column that the greatest threat to the country is the president himself. We disagree. The greatest threat to the United States is that its citizens accept this behavior without meaningful challenge and forget how a true leader acts and sounds like.

President Franklin D. Roosevelt’s Message to the Nation, Christmas Eve, December 24, 1941

Fellow workers for freedom:

There are many men and women in America — sincere and faithful men and women — who are asking themselves this Christmas:

How can we light our trees? How can we give our gifts?

How can we meet and worship with love and with uplifted spirit and heart in a world at war, a world of fighting and suffering and death?

How can we pause, even for a day, even for Christmas Day, in our urgent labor of arming a decent humanity against the enemies which beset it?

How can we put the world aside, as men and women put the world aside in peaceful years, to rejoice in the birth of Christ?

These are natural—inevitable—questions in every part of the world which is resisting the evil thing.

And even as we ask these questions, we know the answer. There is another preparation demanded of this Nation beyond and beside the preparation of weapons and materials of war. There is demanded also of us the preparation of our hearts; the arming of our hearts. And when we make ready our hearts for the labor and the suffering and the ultimate victory which lie ahead, then we observe Christmas Day—with all of its memories and all of its meanings—as we should.

Looking into the days to come, I have set aside a day of prayer, and in that Proclamation I have said:

“The year 1941 has brought upon our Nation a war of aggression by powers dominated by arrogant rulers whose selfish purpose is to destroy free institutions. They would thereby take from the freedom-loving peoples of the earth the hard-won liberties gained over many centuries.

“The new year of 1942 calls for the courage and the resolution of old and young to help to win a world struggle in order that we may preserve all we hold dear.

“We are confident in our devotion to country, in our love of freedom, in our inheritance of courage. But our strength, as the strength of all men everywhere, is of greater avail as God upholds us.

“Therefore, I… do hereby appoint the first day of the year 1942 as a day of prayer, of asking forgiveness for our shortcomings of the past, of consecration to the tasks of the present, of asking God’s help in days to come.

“We need His guidance that this people may be humble in spirit but strong in the conviction of the right; steadfast to endure sacrifice, and brave to achieve a victory of liberty and peace.”

Our strongest weapon in this war is that conviction of the dignity and brotherhood of man which Christmas Day signifies — more than any other day or any other symbol.

Against enemies who preach the principles of hate and practice them, we set our faith in human love and in God’s care for us and all men everywhere.

It is in that spirit, and with particular thoughtfulness of those, our sons and brothers, who serve in our armed forces on land and sea, near and far — those who serve for us and endure for us that we light our Christmas candles now across the continent from one coast to the other on this Christmas Eve.

We have joined with many other Nations and peoples in a very great cause. Millions of them have been engaged in the task of defending good with their life-blood for months and for years.

One of their great leaders stands beside me. He and his people in many parts of the world are having their Christmas trees with their little children around them, just as we do here. He and his people have pointed the way in courage and in sacrifice for the sake of little children everywhere.

And so I am asking my associate, my old and good friend, to say a word to the people of America, old and young, tonight Winston Churchill, Prime Minister of Great Britain.

Puerto Rico Relief Efforts Pale to that for Just One Wall Street Bank

By Pam Martens and Russ Martens: October 2, 2017

With 3.4 million fellow American citizens undergoing an epic humanitarian crisis in Puerto Rico, a United States territory, as critically-needed food and water remain undistributed for lack of manpower and proper logistical coordination by the Trump administration, there is no better time than the present to assess how corporate welfare trumps the rights of individual citizens of the United States.

President Trump, the man who ran on a so-called populist agenda, has Tweeted the following regarding the situation in Puerto Rico (italic emphasis added below):

September 25: It’s old electrical grid, which was in terrible shape, was devastated. Much of the Island was destroyed, with billions of dollars owed to Wall Street and the banks which, sadly, must be dealt with. Food, water and medical are top priorities – and doing well.

September 29: The fact is that Puerto Rico has been destroyed by two hurricanes. Big decisions will have to be made as to the cost of its rebuilding!

September 30: Such poor leadership ability by the Mayor of San Juan, and others in Puerto Rico, who are not able to get their workers to help. They want everything to be done for them when it should be a community effort. 10,000 Federal workers now on Island doing a fantastic job.

When Donald Trump made these Tweets, the situation was as follows in Puerto Rico as the result of Hurricane Maria making a direct hit on the island: most of these U.S. citizens have no electric power, no air conditioning in sweltering heat, no working refrigerators or running water because of the lack of electricity, with tens of thousands of homes missing their roofs and/or walls.

Instead of focusing on the simple reality that citizens in the midst of an epic humanitarian disaster of this magnitude must be forgiven for wanting assistance, Trump portrayed Puerto Ricans as welfare slackers, wanting “everything to be done for them.” This Tweet was reminiscent of another super rich, out-of-touch Republican who wanted to run the country on behalf of people like himself. In 2012, Mitt Romney was captured on tape during a campaign fundraising event making the following remarks:

“There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what…And so my job is not to worry about those people. I’ll never convince them that they should take personal responsibility and care for their lives.”

But when the President invoked the “billions of dollars owed to Wall Street and the banks which, sadly, must be dealt with” in the earliest days of this humanitarian disaster, he topped even Romney for his callous disregard for American citizens who were not born with a silver spoon in their mouth.

The U.S. government’s treatment of debt-riddled Puerto Rico today and the serially-charged, debt-riddled Wall Street banks before, during and after the 2008 financial crash of their own making, says all we need to know about the fragility of democracy in the U.S. today.

In 2007, long before most Americans realized how financially distressed Wall Street had become, the Federal Reserve (the central bank of the U.S.) secretly began funneling money under the table to some of the biggest financial firms in the world at almost zero percent interest. After the media filed Freedom of Information Act lawsuits to find out the extent of this handout to Wall Street and Senator Bernie Sanders added an amendment to the Dodd-Frank financial reform legislation, the bipartisan watchdog for Congress, the Government Accountability Office (GAO), finally revealed in 2011 that the Fed has sluiced $16 trillion in secret cumulative loans to Wall Street banks and their foreign counterparties between 2007 and 2010.

Just four banks, Citigroup, Morgan Stanley, Merrill Lynch and Bank of America received $7.8 trillion, almost half of the total $16 trillion. (See chart below from the GAO report.) Senator Bernie Sanders poignantly said about the bailout: “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”

The serially-charged, now felony-bank Citigroup, received a bailout that makes the financial needs of Puerto Rico to rebuild seem like chicken feed. The U.S. Treasury infused $45 billion in capital into Citigroup to prevent its total collapse; the government guaranteed over $300 billion of Citigroup’s assets; the Federal Deposit Insurance Corporation (FDIC) guaranteed $5.75 billion of its senior unsecured debt and $26 billion of its commercial paper and interbank deposits; and the Fed secretly sluiced $2.5 trillion in almost zero-interest, cumulative loans to Citigroup. All of this largess was given despite Citigroup’s scurrilous history of ripping off American citizens.

Trump’s lack of compassion for fellow Americans struggling to survive in a corporate-owned “democracy” reminded us of what Neil Barofsky had revealed in his book Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall StreetBarofsky was the Special Inspector General of the Troubled Asset Relief Program during the financial crisis.

Barofsky revealed in his book that the former New York Fed President, Tim Geithner, whom President Obama elevated to be his Treasury Secretary, had confided that the hidden purpose of a Federal program ostensibly to help struggling homeowners avoid foreclosure was actually a spurious maneuver to help Wall Street banks. Barofsky wrote:

“For a good chunk of our allotted meeting time, Elizabeth Warren grilled Geithner about HAMP, barraging him with questions about how the program was going to start helping home owners.  In defense of the program, Geithner finally blurted out, ‘We estimate that they can handle ten million foreclosures, over time,’ referring to the banks. ‘This program will help foam the runway for them.’

“A lightbulb went on for me.  Elizabeth had been challenging Geithner on how the program was going to help home owners, and he had responded by citing how it would help the banks. Geithner apparently looked at HAMP as an aid to the banks, keeping the full flush of foreclosures from hitting the financial system all at the same time. Though they could handle up to ‘10 million foreclosures’ over time, any more than that, or if the foreclosures were too concentrated, and the losses that the banks might suffer on their first and second mortgages could push them into insolvency, requiring yet another round of TARP bailouts.  So HAMP would ‘foam the runway’ by stretching out the foreclosures, giving the banks more time to absorb losses while the other parts of the bailouts juiced bank profits that could then fill the capital holes created by housing losses.”

We get the sense from the government videos that Trump is posting to his Twitter account showing FEMA and military personnel handing out bottles of water and food in Puerto Rico while calling the media’s accurate reporting of the dire situation there “fake news,” that Trump is only interested in “foaming” the public relations runway. We get the added sense that like Romney, Trump knows that “those people” are not going to elevate his political prospects and so his “job is not to worry about those people.” Fellow Americans and the media must continue to raise their voices to prevent this outcome.

GAO Data on Secret Emergency Lending Programs During  Financial Crisis

GAO Data on Secret Emergency Lending Programs During Financial Crisis

Financial Times Columnist Skewers Wall Street Model in the New York Times

By Pam Martens and Russ Martens: September 28, 2017

Rana Foroohar

Rana Foroohar

Rana Foroohar, an Associate Editor and Global Business Columnist for the Financial Times, penned an OpEd at the New York Times yesterday that was as audacious in its insults to the Times’ richest hometown industry, Wall Street, as it was brilliantly in touch with the abject dysfunction of the U.S. financial system.

Foroohar’s thesis is this: “…there’s a core truth about our financial system that we have yet to comprehend fully: It isn’t serving us, we’re serving it.”

Foroohar describes in specific detail what Wall Street On Parade has long described as Wall Street’s institutionalized wealth transfer system. (See our articles describing this system under the menu button above titled “Wealth Transfer Schemes.” You may find two particular articles of interest, here and here.)

Just how high up the chain of command this “service” to Wall Street goes was deftly captured in a Tweet by the President of the United States on Monday of this week. In the midst of a humanitarian crisis in Puerto Rico, where upwards of 3 million fellow Americans are living with limited access to food and water and without any municipal electric power in the midst of a sweltering heat wave in the aftermath of Hurricane Maria, President Trump Tweeted about the “billions of dollars owed to Wall Street and the banks” by Puerto Rico, adding that this debt “sadly, must be dealt with.”

To those of us who instinctively know how Wall Street has its way with Presidents of every stripe, it sounded like Puerto Rico was either going to be extorted in the midst of a humanitarian crisis into sweetening the pot for its creditors on Wall Street or strong-armed into the kinds of privatization schemes that Wall Street has so cleverly inflicted on cash-strapped nations in the past.

In her OpEd, Foroohar explains how the big banks have become unmoored from their core purpose. She writes:

“In the 1970s, most of their financial flows, which of course come directly from our savings, would have been funneled into new business investment. Today, only about 15 percent of the money coming out of the largest financial institutions goes to that purpose. The rest exists in a closed loop of trading; institutions facilitate and engage in the buying and selling of stocks, bonds, real estate and other assets that mainly enriches the 20 percent of the population that owns 80 percent of that asset base. This doesn’t help growth, but it does fuel the wealth gap.”

Foroohar makes these other astute observations as well:

“The financial industry, dominated by the biggest banks, provides only 4 percent of all jobs in the country, yet takes about a quarter of the corporate profit pie…

“Finance has become the tail that wags the dog. Until we start talking about how to create a financial system that really serves society, rather than just trying to stay ahead of the misdeeds of one that doesn’t, we’ll struggle in vain to bridge the gap between Wall Street and Main Street.”

On the very day that Foroohar’s opinion piece appeared in the New York Times, the Office of the Comptroller of the Currency (OCC) released its latest quarterly report on the obscene trading revenues of the banks. The OCC reported the following for the second quarter of 2017:

“consolidated holding company trading revenue of $15.2 billion in the second quarter of 2017…

“Credit exposure from derivatives increased in the second quarter of 2017 to $369.5 billion…

“…four large commercial banks represented 89.6 percent of the total banking industry notional amounts [of derivatives]”

If we want to put a name on just whom it is that Americans are in servitude to, it’s those four banks holding the largest amounts of derivatives: JPMorgan Chase, Citigroup, Goldman Sachs, and Bank of America – the same big banks that received massive taxpayer bailouts in the 2007 to 2010 financial crisis and secret low-cost loans in the trillions of dollars from the Federal Reserve.

Last year we reviewed Foroohar’s equally insightful book, “Makers and Takers: The Rise of Finance and the Fall of American Business.” Foroohar worries in the book about an ugly revolution in America if Wall Street is not reined in soon. She writes:

“Research proves that more inequality leads to poorer health outcomes, lower levels of trust, more violent crime, and less social mobility – all of the things that can make a society unstable. As [Thomas] Piketty told me during an interview in 2014, there’s ‘no algorithm’ to predict when revolutions happen, but if current trends continue, the consequences for society in terms of social unrest and economic upheaval could be ‘terrifying.’ ”

Senator Elizabeth Warren Expresses Skepticism about SEC Chair’s Real Agenda

By Pam Martens and Russ Martens: September 27, 2017

Senator Elizabeth Warren Questions SEC Chair Jay Clayton During Senate Banking Committee Hearing, September 26, 2017

Senator Elizabeth Warren Questions SEC Chair Jay Clayton During Senate Banking Committee Hearing, September 26, 2017

Donald Trump’s pick for Chairman of the Securities and Exchange Commission, Jay Clayton, had good reason to be nervous yesterday morning as he prepared to testify before the U.S. Senate Banking Committee. The ranking member of that Committee, Senator Sherrod Brown, had previously made his feelings known about Clayton’s fitness to serve as Wall Street’s top cop prior to Clayton’s Senate confirmation. Brown had stated:

“It’s hard to see how an attorney who’s spent his career helping Wall Street beat the rap will keep President-elect Trump’s promise to stop big banks and hedge funds from ‘getting away with murder.’ I look forward to hearing how Mr. Clayton will protect retirees and savers from being exploited, demand real accountability from the financial institutions the SEC oversees, and work to prevent another financial crisis.”

Wall Street On Parade did further investigation of Clayton around the time of his pending Senate confirmation and found that over the prior three years, Clayton had represented 8 of the 10 largest Wall Street banks as a law partner at Sullivan & Cromwell, where he had been employed for two decades.

Another problem for Clayton on the Senate Banking Committee is Senator Elizabeth Warren, who is known for coming to hearings armed with a deep trove of facts and statistics on Wall Street’s big, bad banks. Clayton seemed totally unprepared for Warren’s line of questioning yesterday, giving answers that raised further questions as to whose interests he was really representing.

SEC Chair Jay Clayton Responds to Questioning by Senator Elizabeth Warren During Senate Banking Committee Hearing, September 26, 2017

SEC Chair Jay Clayton Responds to Questioning by Senator Elizabeth Warren During Senate Banking Committee Hearing, September 26, 2017

Warren reminded Clayton that in one of his first speeches as the SEC Chair, he had remarked that there had been “a 50 percent decline in the total number of U.S. listed public companies over the last two decades.” Warren said Clayton has used this rationale for reviewing and possibly reducing the disclosure burdens on public companies. Then Warren went in for the kill:

“I want to understand your thinking on this. You compared the number of companies today with the number of companies in 1996 and 1997… which as you know was at the height of the dot.com boom. And, as you know, there was a sharp increase in the number of public companies leading up to the 1996 and 1997 years and then a lot of those companies failed over the next few years, leaving Mr. and Mrs. 401(k) losin’ a whole lot of money. So when you pick 1996 and 1997 as your target years for comparison, were you arguing that those were the ideal market conditions for ordinary investors?”

Clayton responded that he would be happy to pick any five to seven year period over the last 20 years.

Warren then explained that the evidence shows that the decline in publicly-traded companies is primarily the result of public companies merging and acquiring other public companies. Warren said she hoped Clayton would soon be giving a speech supporting stronger anti-trust enforcement.

Warren then presented her hard data, stating:

“But let’s just look at the IPOs, since that has been your focus. You said you want to get more investors involved in emerging companies, which is why you want to see more companies going public. Now in 1996, the peak of the dot.com bubble, there were 624 IPOs with a total of $36 billion in deal volume. From 2012 to 2016, there were about half that number of IPOs but the average annual deal volume was higher than it was in 1996. In 2014, IPOs raised $96 billion, nearly triple the total deal volume in 1996. So, in other words, in the last few years, people are investing more money in IPOs than they did even at the height of the dot.com boom.

“So if your primary focus is on investors and not bankers and deal lawyers who make money on each of these IPOs, why do you care if there are fewer IPOs so long as IPOs overall are attracting more investor dollars?”

Clayton said he thought it was better for investors to get on board earlier in the growth stage of new companies. Warren pulled out more research debunking that claim, stating:

“The data show that having fewer but bigger IPOs is better for investors. The IPO companies now tend to have more revenue, they tend to perform better in the long run than in the past when there were more IPOs and more failures. Which looks to me like a positive outcome for Mr. and Mrs. 401(k).”

Warren continued:

“Loosening the disclosure and registration requirements may make life a whole lot more profitable for a handful of bankers and for corporate attorneys, who just want more IPOs in the system, but there is no evidence that it will make life better for investors. And it is investors, not bankers and lawyers, who you are supposed to be watching out for at the SEC.”

Clayton’s response was simply, “I understand that.”

Senators are given very little time to make their case at these Senate hearings. While Warren has honed her ability to get critical information before the American people in a short period of time, here is what else she could have gotten on the record about Wall Street’s jaded history of rigged IPOs, had she had more time.

As we explained in detail in 2008, this is how the dot.com IPO market actually operated on Wall Street:

“First, Wall Street firms issued knowingly false research reports to trumpet the growth prospects for the company and stock price; second, they lined up big institutional clients who were instructed how and when to buy at escalating  prices to make the stock price skyrocket (laddering); third, the firms instructed the hundreds of thousands of stockbrokers serving the mom-and-pop market to advise their clients to sit still as the stock price flew to the moon or else the broker would have his commissions taken away (penalty bid). While the little folks’ money served as a prop under prices, the wealthy elite on Wall Street and corporate insiders were allowed to sell at the top of the market (pump-and-dump wealth transfer).

“Why did people buy into this mania for brand new, untested companies when there is a basic caveat that most people in this country know, i.e., the majority of all new businesses fail? Common sense failed and mania prevailed because of massive hype pumped by big media, big public relations, and shielded from regulation by big law firms, all eager to collect their share of Wall Street’s rigged cash cow.”

If history is any guide, Jay Clayton will be returning to his lucrative partner status at Sullivan & Cromwell after he leaves the SEC. Does he really want to anger his colleagues at the firm or their Wall Street clients?