Wall Street and its Washington cronies would like you to believe that the financial crisis and its ongoing aftermath are based on nothing more than bad judgment calls by otherwise well-meaning Wall Street titans. Don’t believe it. The following articles explore the trail of corruption.
Imagine you moved in next door to a mischievous child. Over the years, you watched the parents scold ever so lightly as the deviant behavior grew from stealing loose change to petty larceny to bank robbery. You knew for sure the child would eventually get caught and end up in prison; but you didn’t count on one thing: the parents used their political clout with each ratcheting up of the crimes to avoid prosecution, effectively turning the overseers of the public interest into criminal enablers. As the enablers “fixed” the outcome of each crime, they also sealed the records from public view and historical perspective.
That scenario typifies how criminal behavior has exploded on Wall Street and why President Bush, Congress and the regulators are stumbling around in the dark looking for cures for a financial crisis that they can neither understand nor contain: they’re enablers in denial.
Americans learned two new truths last week from the Bush Administration’s version of Life’s Little Instruction Book: if you’re a Wall Street miscreant you’re thrown a lifeline; if you’re a Wall Street crime fighter you’re thrown a land mine.
In the first effort, the Feds effectively handed a Federal Reserve ATM card to JPMorgan to funnel your tax dollars to the teetering Bear Stearns brokerage firm to address counterparty risks that have been building for at least 4 years as the Feds snoozed. Counterparty risk is the trillions of dollars of insurance contracts (credit default swaps and other derivatives) taken out by Wall Street firms on each other’s (counterparty) bonds, bundled mortgage and commercial debt (collateralized debt obligations). The firms have used unregulated over-the-counter contracts to perform this risk transfer alchemy and funded their own company, Markit Group Ltd., to take the place of a regulated exchange for price discovery.
Wall Street, known variously as a barren wasteland for diversity or the last plantation in America, has defied courts and the Equal Employment Opportunity Commission (EEOC) for decades in its failure to hire blacks as stockbrokers. Now it’s marshalling its money machine to elect a black man to the highest office in the land. Why isn’t the press curious about this?
The Obama phenomenon has been likened to that of cults, celebrity groupies and Messiah worshipers. But what we’re actually witnessing is ObamaMania (as in tulip mania), the third and final bubble orchestrated and financed by the wonderful Wall Street folks who brought us the first two: the Nasdaq/tech bubble and a subprime-mortgage-in-every-pot bubble.
If you want to flush out market manipulation, don’t turn to the sleuths in Congress. They’ve been probing trading of the oil markets for two years and completely missed a company at the center of the action. During that period, a barrel of crude oil has risen from $50 to $140, leaving a wide swatch of Americans facing a choice this coming winter of buying food or paying their heating bill.
The vetting of Sarah Palin for the McCain campaign by an Iran-Contra alumnus brought an epiphany. (See “The Man Who Vetted Palin,” CounterPunch, September 8, 2008.) The inability of the American populace to control this crime spree we call the Bush administration is not because we’re lazy, narcissistic or willfully blind to human rights violations, as much of the world now views us. It’s because we’ve been misidentifying this crime spree as “the Bush administration.” What we’re clearly confronting is the Iran-Contra Alumni Association masquerading as the Executive Branch, replete with domestic spying, dark ops, fake journalists, fake news reels, press intimidation, protester arrests, infiltration and torture.
Purge your mind for a moment about everything you’ve heard and read in the last decade about investing on Wall Street and think about the following business model:
You take your hard earned retirement savings to a Wall Street firm and they tell you that as long as you “stay invested for the long haul” you can expect double digit annual returns. You never really know what your money is invested in because it’s pooled with other investors and comes with incomprehensible but legal looking prospectuses. The heads of these Wall Street firms have been taking massive payouts for themselves, ranging from $160 million to $1 billion per CEO over a number of years. As long as new money keeps flooding in from newfangled accounts called 401(k)s, Roth IRAs, 529 plans for education savings, and hedge funds (each carrying ever greater restrictions for withdrawing your money and ever greater opacity) everything appears fine on the surface. And then, suddenly, you learn that many of these Wall Street firms don’t have any assets that anybody wants to buy. Because these firms are both managing your money as well as having their own shares constitute a large percentage of your pooled investments, your funds begin to plummet as confidence drains from the scheme.
The forces of the universe sent us a corruption triple play the week of December 8th. Just in case there were any slumbering souls still doubting the multi headed monster we need to slay to avoid becoming Rome, those benevolent forces assaulted our senses with a politician, a lawyer, and a Wall Street icon in a three-day sweep of unimaginable crime. Unimaginable, at least, to those of us bereft of adequate imaginations to keep up with the criminals.
On February 24, 2005, I clicked on the evening news to see President Bush finishing his European tour in Slovakia, surrounded by children waving little American flags. It had the feel of a Macy’s holiday window designed by Karl Rove. I recalled a recent news item about Slovakia. Just two months prior to the President’s visit, Slovakia initiated a plan to divert nine per cent of workers’ wages into private investment accounts laden with corporate stocks and bonds as an alternative to a government run social security program.
This was similar to a plan that President Bush had peddled under the banner of the “ownership society.” Fortunately, this was one of the rare occasions when the President was rebuked by Congress.
There has been much debate among Wall Street veterans as to why major European investment banks suffered serious damage from the Bernard Madoff Ponzi scheme while our biggest U.S. investment banks escaped unscathed.
For the past two decades, Wall Street watchers could count on four U.S. firms to land in the middle of every securities scandal. From Nasdaq price fixing to fake research to rigging the IPO markets to peddling toxic subprime assets, one could rest assured that Citigroup’s Smith Barney, Morgan Stanley, Merrill Lynch and Goldman Sachs would be heading the lineup. Their complete absence from the greatest Ponzi scheme in history raises the question: what did they know and when did they know it?
As testimony to how Orwellian life has become under the outrages of Wall Street hubris, last week saw a comedian, who poses as an anchor on a fake news show, grab the reins of the Wall Street investigation from the actual investigators in Congress.
Either Jon Stewart is the smartest man in America or he has incredible instincts. In a week’s time, he has zeroed in, like a heat-seeking missile, on the core of Wall Street’s malady. How insightful of Stewart, host of Comedy Central’s “The Daily Show,” to rationalize that the core of Wall Street’s corruption might well be the same core that it has drawn the darkest curtain around: trading.
For the past 18 years, a motley mix of corporate law firms, Wall Street powerhouses and private justice providers have been serving up false testimony to the highest court of our land that mandatory arbitration is “inexpensive, fast and fair” and a proper substitute for the public court system. And for 18 years a majority of the U.S. Supreme Court has been cozying up to these brazenly preposterous statements while gutting our Constitution’s Seventh Amendment guarantee to a jury trial. In doing so, wittingly or unwittingly, the Supreme Court has aided and abetted the key linchpin of a wealth transfer system that has brought the nation to its knees.
Today, everything from Wall Street brokerage accounts, employment contracts, credit cards, mortgages, even cell phone contracts have routinely removed the individual’s constitutional right to file a claim in court to seek redress of a grievance or fraudulent action. Instead, the individual’s claim is forced into one of the privately run arbitration organizations where conflicts are rampant, discovery is limited, and the right to appeal is typically impossible because the arbitrators are not required to explain the rationale for their decisions in writing.
As the newly appointed Financial Crisis Inquiry Commission prioritizes its agenda to investigate how a 200-year old system conceived to establish fair pricing and trading of stocks and bonds morphed into a rigged backroom casino of craps tables piled high with triple-A rated junk that crippled the world’s largest economy, they must place Wall Street’s private justice system at the top of their list for subpoenas.
While the Federal Trade Commission (FTC) was receiving gut-wrenching documentation of predatory lending abuses at a unit of Citigroup, the Federal agency mandated to level the playing field for low income homeowners, the U.S. Department of Housing and Urban Development (HUD), was quietly awarding 19,968 mortgages of homeowners in distress to Citigroup to dispose of as it saw fit. HUD legally became Citigroup’s joint venture partner in at least two of the deals, retaining a minority interest.
At a time when the corporate leaders of America have demonstrated an incurable proclivity to blaze a trail of scorched earth and looting across the banking, trading, housing, and mortgage industries, the public is now catching the whiff of a new smoldering stench just over the horizon.
If corporate America has its way, everything from our parking meters, zoos, airports, toll roads and drinking water will be privatized in the biggest fire sale in the history of the industrialized world. In other words, let’s send a powerful message to our children that the reward for corporate greed, incompetence and criminal behavior is to hand over what’s left of the country’s assets to the crime syndicate.
As currently structured, Wall Street investment banks have no incentive to bring viable companies to market. Wall Street makes the same huge fees for putting lipstick on a pig and dumping it on the public as they do for launching solid companies with real job growth potential. Over the past decade, trillions of dollars of investors’ life savings have been misallocated to bogus business models. Those companies are now worthless or are trading for pennies on the Pink Sheets, the graveyard for investment banks’ misfired ideas.
America is held out to the world as a meritocracy. You work hard, you play by the rules, you make sound judgment calls, you succeed. That’s the American dream. Right? That’s what the President of the United States should exemplify in his actions. Right?
Then how does one explain the individuals who represent the abject failures of financial and regulatory theory chosen by the President to dominate the dialogue on financial reform. How does one reconcile President Obama appointing Lawrence Summers as head of the National Economic Council after Mr. Summers played a central role in rolling back the safeguards that led to the current financial crisis.
It was only a matter of time before the hideously disfigured face of U.S. financial services would gaze into the mirror and see the reflection of legal counsel from a parallel universe. The thoroughly discredited one-stop-shopping-mega-bank-securities-casino has spawned a new era law firm: one that lends its legal imprimatur to complex financial derivatives that blaze a scorched earth from Jefferson County, Alabama to the Arctic Circle, then offers up white color criminal defense to investment bankers snared in the fraud aftermath.
On President Obama’s first day in office on January 21, 2009, he issued an Open Government memo promising the American people a new era of transparency…It pains me to inform you, Mr. President, but the Treasury Department, Board of Governors of the Federal Reserve, and Securities and Exchange Commission (the trio that has been variously distracted minting trillions in currency, trading cash for trash with Wall Street, surfing for porn, or mishandling multiple voluminous tips on Bernie Madoff’s Ponzi scheme) have misplaced your memo or, as many suspect, take their marching orders not from you but from Wall Street — perhaps because they perceive that this is where you take your orders too.
On December 1, the Fed was forced to release details of 21,000 funding transactions it made during the financial crisis, naming names and dollar amounts. Disclosure was due to a provision sparked by Senator Bernie Sanders of Vermont. The voluminous data dump from the notoriously secret Fed shows just how deeply the Federal Reserve stepped into the shoes of Wall Street and, as the crisis grew and the normal channels of lending froze, the Fed effectively replaced Wall Street and money centers banks in terms of financing.
The Fed has thus far reported, without even disclosing specifics of its lending from its discount window, which it continues to draw a dark curtain around, that it supplied, in total, more than $9 trillion to Wall Street firms, commercial banks, foreign banks, corporations and some highly questionable off balance sheet entities. (Much smaller amounts were outstanding at any one time.)
Wall Street’s audacity to corrupt knows no bounds and the cooptation of government by the 1 per cent knows no limits. How else to explain $150 million of taxpayer money going to equip a government facility in lower Manhattan where Wall Street firms, serially charged with corruption, get to sit alongside the New York Police Department and spy on law abiding citizens.
You would never know it by the tame closing figures on the stock market’s leading indices, but there was another wild algorithm disrupting markets yesterday, leading to trading halts, finger pointing and one stock, Knight Capital Group, losing $330 million in market capitalization.
First they rigged the housing market; then the foreclosure market. Next came the rigging of the Libor interest rate which facilitated rigging the futures market, interest rate swaps sold to municipalities, and trillions of dollars in consumer loans. Now the biggest Wall Street firms — the same ones bailed out by the taxpayer in 2008 — are hoarding physical commodities and jacking up the cost of everything from food and beverage to gas at the pump, while getting an edge to trade for the house.