The Double Bed of Business and Government

Interpenetration in the Obama Administration
by NORMAN POLLACK


Oh Mary Jo, we eagerly awaited your cleaning up of the stench, crud, dreck of SEC—all, and obviously, in vain, as your appointment to head the Commission once more reveals the Obama Administration’s mighty efforts on behalf of the American Business System, especially its most problematic, exploitative, illegal features, i.e., those which create the greatest unearned profits for the perpetrators of economic skullduggery and sleight-of-hand, now, as the latest attraction, derivatives trading. Obama has found his soul mate in regulation in Mary Jo White, just as in paramilitary operations in John O. Brennan. Government, at its finest hour of political treachery in serving the American people.

Let’s get serious. The United States throughout its historical development has interiorized the structure and values of capitalism, a puristic capitalist-institutional formation, still more greatly accelerated since the aftermath of World War II, to a far more intensified expression than any advanced industrial nation, thereby making America and capitalism itself synonomous, identical, indistinguishable one from the other—a synchronism of the two transcending party, and with thorough bipartisan support, creating clear boundaries to social change and political protest. Obama is merely the latest spear carrier in a continuous line—with few notable exceptions in the nation’s past—of presidents ministering to the needs of dominant groups and attempting, sometimes unsuccessfully (witness the latest financial crisis and its still unfolding consequences), to satisfy the imperative needs of the economic system. Rather than seek, even within capitalism, the moderation of its war-prone, imperialist, underconsumptionist tendencies and societal class differentials, thereby adding some degree of justice and melioration to its execution and operations, America, now particularly under Obama, is going for broke to liberate its oppressive, even nightmarish, inner reason and potential, in which militarism, deregulation, and an economic freefall for working people become increasingly evident.

In this light, Mary Jo White at SEC, rather than a disappointment (for those who still hold out hope of Obama’s essential honesty as dedicated to social welfare and structural democracy), is par for the course, one that started off with the appointments of Geithner, Summers, and Robert Rubin’s policies, ideas, and confederates under Clinton, the placation of and support for Big Pharma and health insurers under Obamacare, the more pointed assistance to the defense, nuclear, and oil industries, and the heartfelt embrace of Wall Street, and continues in a sophisticated corporatism—the real definition of liberalism—far more dangerous for its realization of a social order founded on monopolism and wealth concentration than is the unsystematic business favoritism and chisling mindset, the penny ante mode of capitalist development, which fails to marshall the full resources of the State, of the Republicans.

Obama has a step up on his predecessors—for reasons still difficult to determine, given that his personal acumen and brightness have been grossly exaggerated. Perhaps he simply has allowed the gathering historical forces inhering in the US’s global posture, in which America can no longer dictate the course of world events, to coalesce in his administration: an aggressive defensiveness against the very democratization his candidacy supposedly represented. Capitalism serves as the battering ram for the restoration of American world power. Its helpmate, more than previously, is naked force displayed as the doctrine of permanent war, the military juggernaut adjusted to the specific theaters of concern from naval power in the Pacific to drones for targeted killing, intervention, CIA activities of regime change, the JSOC paramilitary operations, springing up throughout the globe.

Interpenetration, the integrative, instead of merely parallel, structures, values, relations of mutual dependence and inspiration, of business and government, has in America since the time of Theodore Roosevelt (Gabriel Kolko’s Triumph of Conservatism, after more than a half-century, still has not been assimilated into the collective realization that REFORM is largely big-business inspired, to achieve the consolidation of wealth and, relatedly, the security of capitalism at home and in the world, free from radical challenges, and even that of lesser-capitalist competitors), provided the foundations designed to ensure that capitalism in America, because inseparable from the State, could rely on government for its stabilization and global expansion. Now, under Obama, there is no longer any question (one muted or nonapplicable for long stretches of the past, frequently embodied in the strategy of the Open Door) that a mainspring of capitalism is the reliance on the military, for purposes of counterrevolution abroad, economic stimulation at home, and in both arenas, a system of power fusing national and international purpose to create Fortress Capitalism as an eternal source of wealth and leadership.

Welcome Mary Jo; do your mischief with respect to derivatives, themselves already mischievous enough, knowing that you will sleep soundly in the knowledge that, if your Boss can sleep soundly after personally selecting targets for assassination, you too deserve restful slumber for participating in the wreckage of an economy whose victims are all but assassinated in their despair, loss of employment, and for some, foraging in the ash cans as in days of yore—under your counterpart servants of wealth.

Here follows my New York Times Comment (May 6) on its editorial disappointment on Ms. White’s record as the newly-installed head of the SEC. My fond wish is that Times disappointment will turn into forthright and fundamental criticism of the whole shebang (but I’m not holding my breath):

The Times’ analysis of SEC partiality to banks and their role in the dervatives trade is wise, sound, and timely, but lacking fuller context: Obama’s wider posture of deregulation, exemplified by the appointment of White but actually running through the regulatory apparatus. SEC, FDA, EPA, in areas crucial to the welfare of the American public, we are being left to hang out to dry. The issue of derivatives cannot be treated in isolation: In all respects, internal corporate-banking hegemony defines the American scene, suitably disguised in liberal rhetoric.

When will the con game stop? Probably not for a long time, as both major parties contribute to the widening of economic and class differentials, accompanied by the weakening of the social safety net. Symbolically, derivatives signify the splitting apart of America–not the 1% vs. the 99%, too simplistic by far, but a structural cleavage sufficiently acute to result in underconsumption, unemployment, and the need to rectify domestic hardship through greater militarism, both as distraction and as the source of further enrichment for America’s wealthy.

Yes, we are witnessing the financialization of the US economy, introducing basic distortions across the board, from loss of manufactures to further financial crises. As a nation, we seem not to learn, possibly even incapable of learning. But I’m glad The Times in this editorial helps to open the can of worms.

Sen. Warren Slams Regulators for Failure to Prosecute Big Banks

Friday, February 15, 2013 by Common Dreams
Warren: 'I am really concerned that too-big-to-fail has become too-big-for-trial'
- Lauren McCauley, staff writer


At her debut on the Banking, Housing and Urban Affairs Committee on Thursday, freshman Sen. Elizabeth Warren (D-Mass.) grilled a panel of top financial regulators on their lack of prosecution of banks' criminal activities with repeated emphasis on one particular question: "When was the last time you took a Wall Street bank to trial?"

Educating the panel on the value of taking a bank to trial, Warren explains:

If [banks] can break the law and drag in billions in profits and then turn around and settle paying out of those profits, they don’t have that much incentive to follow the law. It's also the case that when we have a settlement, and not a trial, it means that we don't have those days and days and days of testimony of what those financial institutions have been up to.

The question I really want to ask is about how tough you are — about how much leverage you really have.

The regulators—representing the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Reserve, and the Treasury among others—responded with predictable platitudes: "We have not had to do it as a practical matter to achieve our supervisory goals," said one and, "When we look at these issues [...] we look at the distinction between what we could get if we go to trial and what we could get if we don't," answered another.

Ryan Grim, writing for the Huffington Post, points out that open-Internet pioneer Aaron Swartz was one of Warren's constituents who she reportedly both met and admired.

Swartz recently committed suicide after being hounded by federal prosecutors over a "harsh array of charges" because they wanted to "make an example" of his activism—a point that Warren may have referenced in her remarks.

"I want to note that there are district attorneys and US attorneys who are out there every day squeezing ordinary citizens on sometimes very thin grounds and taking them to trial to 'make an example,' as they put it," Warren told the group.

"I am really concerned that too-big-to-fail has become too-big-for-trial. That just seems wrong to me."

A Sign That Obama Will Repeat Economic Mistakes

Friday, December 7, 2012 by TruthDig.com
by Robert Scheer

Please don’t tell me that these reports in the business press touting Sallie Krawcheck as a front-runner for chairman of the SEC or even a possible candidate to be the next Treasury secretary are true. Who is she? Oh, just another former Citigroup CFO, and therefore a prime participant in the great banking hustle that has savaged the world’s economy. Krawcheck was paid $11 million in 2005 while her bank contributed to the toxic mortgage crisis that would cost millions their jobs and homes. Sallie Krawcheck.

Not that you would know that sordid history from reading the recent glowing references to Krawcheck in the New York Times, the Wall Street Journal and Bloomberg News that stress her pioneering role as a leading female banker—a working mother no less—but manage to avoid her role in a bank that led the way in destroying the lives of so many women, men and their children. Nor did her financial finagling end with Citigroup, as Krawcheck added a troubling stint in the leadership at Merrill Lynch and Bank of America to her résumé.

A woman who would be an excellent choice as the most experienced as well as principled candidate to head the SEC or Treasury is Sheila Bair, former head of the FDIC, who labored to protect consumers rather than undermine them. Indeed, her outstanding book “Bull by the Horns,” chronicling her fight in the last two administrations to hold the banksters accountable, should be required reading for the president and those who are advising him on selecting his new economic team.

The SEC is supposed to supervise the banks rather than abet them in their chicanery. And although the Treasury Department has been a captive of Wall Street lobbyists for most of the modern era, one would expect something better from the second coming of Barack Obama. Those are key appointments in determining whether the president can turn around the still-moribund economy by channeling the spirit of Franklin D. Roosevelt. Or will he continue to plod along on the course set by George W. Bush, bailing out the banks while ignoring beleaguered homeowners and the many other victims of this banking-engineered crisis?

Obama was given a pass on the economy by voters only because Mitt Romney was an even more craven enabler of Wall Street greed. But the outlines of the Bush Wall Street payoff remain in place, with the Federal Reserve continuing to bail out the banks with virtually free money and the purchase of $40 billion in toxic mortgage-based bonds every month to add to the more than trillion dollars in that junk that the Fed previously had taken off the banks’ books.

The money printing by the Fed is at the heart of the massive debt crisis. But it has been great for the bankers, with compensation at the 32 largest banks slated to hit an all-time high of $207 billion this year, according to a Wall Street Journal estimate. This reward for ripping off the public is almost three times the amount the federal government spends on education. Once again the bankers are blessed for their failures, receiving such wildly excessive compensation despite the fact that banking revenue is down 7.2 percent over the last two years.

A prime example is Krawcheck’s old bank, Citigroup, whose new CEO this week announced that the company has been forced to engage in a major retrenchment, eliminating 11,000 jobs and closing 84 branches. The bank has been deeply troubled ever since the housing meltdown it helped trigger first began, and it was saved from bankruptcy only by a direct infusion of $45 billion in taxpayer money and a commitment of an additional $300 billion in underwriting of Citigroup’s bad paper.

The ugly tale of America’s Great Recession is inextricably entwined with the deplorable practices of Citigroup, the too-big-to-fail bank made legal by Bill Clinton’s signing off on reversing the Glass-Steagall law that prevented the merger of investment and commercial banks. The first beneficiary of the revised law was the newly created Citigroup, saved from bankruptcy a decade later by the taxpayers.

I shouldn’t be surprised that Krawcheck would be considered a viable nominee for a central position in managing our economy. After all, her colleague in the top ranks at Citigroup during the years of financial depravity, Robert Rubin, is considered a significant adviser to the Obama administration, and his protégés, led by Treasury Secretary Timothy Geithner, are still directing policy. It was Rubin who pushed through the reversal of Glass-Steagall, an act of betrayal of the public interest that was rewarded with obscene amounts of money when he ultimately took the job of leading the bank he made legal.

The very fact that these folks remain influential, as witnessed by Krawcheck being considered to head the SEC rather than being the subject of one of its much-needed investigations, gives further evidence of the enduring but ultimately terminal illness of crony capitalism.

Blackout on Corporate Crime Enforcement

Lawyers Behind Closed Doors

by RUSSELL MOKHIBER

 

Put top corporate crime law enforcement officials and defense attorneys behind closed doors for two days at a posh resort outside of Washington, D.C.

Call it the American Conference Institute’s National Conference on the Foreign Corrupt Practices Act (FCPA).

Charge $2,000 to $4,000 per person to attend.

And for 90 percent of the conference sessions, slam the door shut on the press.

Is that any way to discuss foreign bribery in a democracy?

Probably not.

But that’s what’s happening at the Gaylord National Resort just south of Washington, D.C. later this week.

Reporters will be allowed to cover the keynote address by Justice Department Criminal Division Chief Lanny Breuer and two other sessions.

But they will not be allowed to cover twenty other sessions, including ones where top FCPA law enforcement officials will be speaking.

So, for example, Tracy Price, the assistant director of the Securities and Exchange Commission’s (SEC) FCPA unit, will speak on Friday at a session titled “FCPA Internal Controls amid Increased SEC Expectations: What Your Books and Records Need to Accomplish.”

Reporters are not allowed to cover her talk.

Sean McKessy, the SEC’s top whistleblower official, will be speaking on Thursday at a session called “Creating a Home for the Whistleblower: How to Facilitate Open Communication and Appropriately Respond to Allegations in a Bounty Hunter Environment.”

Reporters are not allowed to cover his talk.

Nathaniel B. Edmonds, assistant chief at the Criminal Division’s Fraud Section will be speaking at a session called “Friend or Foe?: A Dissection of a Monitorship from Start to Finish.”
Reporters are not allowed to cover his talk.

James M. Koukios is another assistant chief at the Fraud Section.

He’ll be speaking at a session titled “Where Companies Go Wrong on FCPA Compliance: What Not To Do and Lessons Learned from the Most Costly Mistakes.”

Reporters are not allowed to cover his talk.

Jason Jones, another assistant chief of the Fraud Section, will be speaking at a session titled “10 Trip Wires to Avoid When Conducting an FCPA Internal Investigation.”

Reporters are not allowed to cover his talk.

The American Bar Association (ABA) has never prohibited press from covering their sessions – including last month when the ABA held it’s Foreign Corrupt Practices Act 2012 Conference at the Westin Hotel in Georgetown.

In fact, according to the ABA’s Earnestine Murphy, the ABA has an open meetings policy – which means that all conference sessions – with the exception of business meetings – are open to the media.

Mike Koehler, who runs the FCPA Professor blog and is an Assistant Professor of Law at Southern Illinois University, recently questioned the wisdom of putting law enforcement officials and corporate defense attorneys behind closed doors to discuss FCPA policy.

“Should public servants be allowed to speak at private conferences and events that charge thousands of dollars to attend?” Koehler asked. “Should public servants be used as pawns by corporate conference organizers to boost attendance and thus revenue? Should the enforcement agencies release all speeches, comments and remarks, including answers to questions posed by the audience? Do small to medium size enterprises have the resources to attend such events?”

Payoff in the Pit of the Plutocracy

Burning Every Bridge

by RUSSELL MOKHIBER

 

Jeff Connaughton was a lobbyist, a Senate aide and a White House lawyer. He says he came to Washington, D.C. as a Democrat and left as a Plutocrat.

Now he’s written a book – The Payoff: Why Wall Street Always Wins (Prospecta Press, August 20, 2012.)

This book is about corporate crime – although that phrase doesn’t appear anywhere in its 288 pages.

It is in fact one of the best books on how corporate criminals manipulate the system to get away with their crimes.

One way is to enforce silence among the elites who know how the system works.

“Party cohesion and the desire to make a munificent living in DC go a long way to enforce silence,” Connaughton writes.

But Connaughton is silent no more.

“I’m willing to burn every bridge,” he writes. “Now that I’ve mutinied and fled to a remote place, I want to set flame to the ship that would take me back there.”

Connaughton says there have been no Wall Street prosecutions because the Obama Justice Department failed “to take a timely, targeted, all-in approach to the problem.”

“The truth is, the Justice Department never made investigating these actions a high priority,” he writes. “It never formed strike forces of investigators and lawyers that had sufficient resources and backing to doggedly pursue the obvious potential wrongdoers as long as it took to bring a fraud case.”

Prosecutors never used provisions in the Sarbanes-Oxley Act, which put in place tough criminal sanctions in the wake of Enron and other cases of massive corporate frauds, to indict those executives responsible for misleading financial reports.

“If Obama had appointed aggressive trial lawyers – and (Vice President Joe) Biden knew plenty of them – to these Justice Department positions and backed their efforts, there’s a good chance they would’ve hunted the worst Wall Street fraudsters relentlessly.”

“If the explanation for the inadequate effort is corruption (the administration could not afford to anger Wall Street contributors), the revolving door, or a belief that the health of the financial industry is more important than legal accountability, then we have an actual double standard. I don’t know the explanation, but in terms of faith in our institutions, it may not matter whether the double standard is real or apparent. That double standard has torn the social and moral fabric of our country in a way I find to be unforgivable.”

Connaughton says that two sources were telling him that Christine Varney, the assistant attorney general for the Antitrust Division, “was complaining to friends that Rahm Emanuel, then White House chief of staff, had sent her a message – in effect, throttle back on antitrust enforcement, because the top priority is economic recovery.”

“I was concerned that Attorney General Holder had gotten the same message about investigating Wall Street crime,” he writes.

Connaughton quotes Secretary of the Treasury Timothy Geithner as saying – “The stuff that seemed appealing in terms of…Old Testament justice…penalize the venal, would have been dramatically damaging to the basic strategy of putting out the panic, getting growth back, making people feel more confident in the future.”

“Geithner’s statement would seem to indicate that he believes utilitarian outcomes justify overlooking potentially criminal behavior by banks,” Connaughton writes.

Connaughton worked as chief of staff for Senator Ted Kaufman (D-Delaware.) Kaufman was appointed as Biden’s replacement and dedicated his two years in office to demanding accountability for Wall Street’s crimes.

During one meeting with Justice Department Criminal Division Chief Lanny Breuer, Breuer said the department was dependent on the “pipeline” to bring forward cases against Wall Street banks and their executives.

“That’s when I lost my temper,” Connaughton writes. “‘Lanny, you need to go down into your pipeline and make sure the FBI and U.S. attorney’s offices are making this a top priority.

Organize and shake your pipeline hard and get it to bring you cases. Don’t just sit back and wait.’”

“I also couldn’t resist invoking our mutual history in the White House Counsel’s office and even exhorting him to emulate the tactics of our former antagonist,” he writes. “‘You need to be like Ken Starr. You need to target some of these guys like they were drug kingpins, just like Starr targeted Clinton, and squeeze every junior person around them until you can get one to flip and give evidence against the senior people.”

The scene at the Securities and Exchange Commission (SEC) was not much better.

SEC Enforcement Division Director Robert Khuzami, when asked about federal judges rebuking the SEC for paltry fines, said to Kaufman: “I’m not losing any sleep over them.”

And SEC chair Mary Schapiro wasn’t much more responsive.

“Near the end of the [October 2009] meeting [Kaufman] told [SEC Chairman Mary] Schapiro, ‘I don’t believe you’re going to do anything about high-frequency trading.’ Looking him straight in the eye, she replied, ‘You just watch.’”

“We watched for nearly three years,” Connaughton writes. “It wasn’t until July 2011 and June 2012 that the SEC approved minimalist rules that would force market participates to collect the data that would enable the SEC to begin – begin – the process of understanding HFT’s impact on markets. In effect, Ted and I and America are still watching and waiting for the SEC to take meaningful action.”

“If my tenure as Ted’s chief of staff taught me anything, it’s that the C in SEC doesn’t stand for the speed of light.”

Kaufman introduced legislation with Senator Sherrod Brown (D-Ohio) to break up the big banks.

But Brown-Kaufman could muster only 33 votes in the Senate.

“Senator Diane Feinstein – one of the most liberal members of the Senate – asked [Senator Dick] Durbin, the majority whip, ‘What’s this amendment?’ [referring to the Brown-Kaufman amendment to break up the mega-banks]. According to Durbin, he replied: ‘To break up the banks.’ Giving the thumbs-down sign, Feinstein said bemusedly: ‘This is still America, isn’t it?’
Connaughton and Senator Kaufman tried to get enforcement authorities to move aggressively against Wall Street criminality. They tried to break up the big banks. To no avail.
They were up against The Blob.

And The Blob won.

“The Blob – its really called that – refers to the government entities that regulate the finance industry – like the Banking Committee, Treasury Department, and SEC – and the army of Wall Street representatives and lobbyists that continuously surrounds and permeates them,” Connaughton writes. “The Blob moves together. Its members are in constant contact by e-mail and phone. They dine, drink, and take vacations together. Not surprisingly, they frequently intermarry. No lobbying restrictions yet promulgated can prevent pillow talk between Blob spouses.”

Connaughton holds out hope for reform – but not until there is another Wall Street crisis.
In the meantime, he says it’s time to “stop voting for the lesser of two evils” – and stand on principle.

He has burned his bridges.

And he wants you to burn yours, too.

Why Cheaters Prosper

Just Ask a Banker

by MIKE WHITNEY

 

Now there’s something you don’t see every day.

If I told you that the Wall Street Journal ran no less than 3 articles in the last week promoting more regulations, you’d think I was crazy. But it’s true. And, for once, the WSJ is right.

Last week, the Securities and Exchange Commission (SEC) voted down a proposal for rule changes that would have helped to avoid another financial meltdown like 2008. The vote was 3 to 2 and– as the editors of the WSJ opined– it illustrates the degree to which government regulators are captured by the industry.

“Captured”? Industry “slaves” is more like it.

Here’s the story: When Lehman Brothers failed in September 2008, there was a run on Reserve Primary Fund, a money market mutual fund that had a paltry 1.2% of its $63 billion in Lehman financial assets. Even so, when Primary “broke the buck” (and could no longer pay back its investors 100 cents on the dollar) panic spread through the market triggering a bank run. Prime money-market funds lost $310 billion or 15%  in less than a week. The panic put stocks into a nosedive which didn’t stop until the Fed extended a blanket taxpayer-funded guarantee on all money market funds.

Four years have passed since the money markets blew up and still nothing has been done to fix the problem, which means that it’s only a matter of time until the next meltdown.

Now, there are a couple of very easy ways to make the system safe again. Either the SEC can require the funds to have enough ready cash on hand to pay investors off “in full” if they want their money back on short notice or financial institutions can explain to investors that there are risks involved when they put their money into money market mutual fund accounts. (and that the value of their investment can go up or down) These aren’t FDIC-guaranteed depository accounts, even though everyone seems to think they are.

Both of these are straightforward solutions that would remedy the situation and assure that the financial system would not suffer another massive heart attack if one of these funds were to dip below 100 cents per dollar.

So why did 3 of the 5 SEC board members vote the measures down?

Well, because the banks don’t want to hold any additional capital to pay off investors in the event of a run. And, because the banks don’t want investors to know that they are actually taking a risk by putting their money in money market mutual funds. (They want to preserve the illusion that these are standard-issue checking-savings accounts) And, finally, because the banks know that if the system goes haywire again, the Fed and US Treasury will ride to rescue with more taxpayer-backed bailouts. So, why would they want to pay when Uncle Sam will cover their losses anyway? That’s how the banks see it.

Here’s a little more background from the Wall Street Journal:

“The industry notes that only two funds have ever broken the buck—and argues this is much ado about nothing. Yet that doesn’t mean other funds didn’t come close. A Boston Fed study—unchallenged by the industry—found “frequent and significant” cases in which companies that sponsor money funds had to bail them out. At least $4.4 billion was provided between 2007 and 2011 to at least 78 funds.”….

…the Treasury’s Office of Financial Research found that in April 2012—after those SEC changes had been implemented—there were 105 money-market funds with combined assets of more than $1 trillion that were at risk of breaking the buck if any of the top 20 outfits in which they invested defaulted. Of those, 14 were at risk of breaking the buck if any of the top 30 outfits in which they invested did so.

In ordinary times, that may be OK. In a crisis, it spells trouble, particularly since the funds tend to invest in the same securities.” (“SEC Can’t Agree on a Fix For Money-Market Funds”, David Wessel, Wall Street Journal)

So the idea that “only two funds have ever broken the buck” is pure baloney. These funds get into trouble all the time, which is why they need to be fixed, so the banks that run them provide the resources necessary to make them safe. At present, the financial institutions are getting a free ride, which is to say, they are recipients of an implicit government subsidy by virtue of the fact that the Fed will be forced to backstop their crappy mutual fund if the there’s another panic. That’s free insurance and, in 2008, it cost taxpayers a bundle.

This whole money market fracas is just like the regulatory issues surrounding securitization, which is the bundling of loans into securities.  Dodd-Frank is supposed to require originators of these garbage products to retain a portion of them for their own accounts. It’s called “risk retention” and it’s no different than an insurance company being required to keep some money on hand in case your bloody house burns down.

Fair enough? Well, of course, the banks don’t want to have skin in the game, not unless it’s your skin or my skin. So, they are fighting risk retention tooth and nail.

And they’re probably going to win that fight, too, because in the good old USA, cheaters always prosper. Just ask a banker.

Obama Surrenders to Goldman Sachs

The Justice Department will not prosecute the investment bank for mortgage fraud.
August 10, 2012 | By Andrew Leonard


Rarely does one see a more perfect illustration of the Obama administration’s tortured relationship with Wall Street.

On August 9, the Justice Department and the SEC both announced [3] the end of investigations into potential criminal behavior related to Goldman’s handling of mortgage-backed securities in the runup to the financial crisis. That same day, the Center for Responsive Politics reported [4] that Goldman employees had switched from giving 75 percent of their campaign donations to Democratic candidates in 2008 to giving 70 percent of of their donations to Republicans in 2012.

That’s called having your mortgage fraud [5] cake and eating it too.

Whether motivated by sheer pique at Obama’s mildly derogatory comments about “fat cat” bankers, or annoyed by his calls to raise their taxes back to the perilous heights of the Clinton years, or simply incensed at Dodd-Frank’s potential inroads against Goldman’s profit machine, the much-put upon employees of the world’s most famous investment bank are giving Democrats the cold shoulder. And at the very same time, a Democratic administration is sending up the white flag of surrender, acknowledging that it simply can’t bring Wall Street to account for its misdeeds before and during the financial crisis.

And misdeeds there were. The 635-page Levin-Coburn report [6] on the financial crisis released in April 2011 makes that clear beyond any reasonable doubt. Goldman knew that the mortgage-backed securities it was packaging together were crap, sought out suckers to sell the trash too, and cashed in by betting that the products they were packaging and selling off would implode in value. Sure, everyone on Wall Street was engaged in the same games — the big difference with Goldman was that they were much, much better at it, and got out while the getting was still good.

Unfortunately, what seems clearly obvious to the normal person does not appear to translate into a slam-dunk court case, in the judgment of Department of Justice prosecutors faced with the daunting prospect of tackling the best-money-can-buy legal defense sure to be marshaled by Goldman. There’s surely a nugget of truth there — Wall Street did a very effective job in the 80s and 90s of ensuring that the rules governing their behavior were as lax as possible. But it still feels pusillanimous. And the cowardice completes a circle — because one of the key reasons why Goldman’s campaign contributions are now flowing to Romney is his promise to repeal the Obama administration’s primary effort to prevent future financial sector misbehavior — Dodd-Frank.

---

Links:

[3] http://dealbook.nytimes.com/2012/08/09/goldman-says-sec-has-ended-mortgage-investigation/?hp
[4] http://www.businessweek.com/news/2012-08-08/goldman-sachs-leads-split-with-obama-as-ge-jilts-him-too
[5] http://www.huffingtonpost.com/2011/04/15/goldman-sachs-levin-investigation_n_849708.html
[6] http://levin.senate.gov/imo/media/doc/supporting/2011/PSI_WallStreetCrisis_041311.pdf

A Fraudulent JOBS Bill

Let Them Eat Money
by ROB URIE


One of the businesses of Wall Street in the 1980s was the “bucket shop;” firms with networks of stockbrokers who defrauded senior citizens with phony stories about the businesses and prospects of the companies whose stocks they were selling. The companies for the most part existed only on paper, but they were legally registered with the SEC (Securities and Exchange Commission) leaving gullible and / or desperate “investors” with the impression that they were legally sanctioned by the government and therefore legitimate. And in fact, this business model moved to the mainstream of Wall Street in the tech bubble of the late 1990s and was only temporarily shut down with threats of prison terms.

With this history behind it Barack Obama and both political parties in Congress recently passed the misleadingly named JOBS bill that legalizes and institutionalizes the bucket shop business model. Matt Taibbi does a good takedown of the bill in his Rolling Stone blog, but the question that even he fails to answer is why? Why would removing legal barriers to fraud make sense to anyone? Or more precisely, to whom would doing so make sense?

The purported purpose of the bill is to make it easier for startup companies to raise capital in capital markets. Fair enough, but then why legalize fraud? The bill explicitly legalizes the telling of stories about a company’s prospects divergent from the truth in order to sell stock. In the 1980s a few of the more egregious and / or less politically connected bucket shops were shut down and their executives sent to prison for doing exactly this. So again, to whom would it be deemed legitimate to tell lies to people to part them from their money?

Readers who don’t work on Wall Street or who aren’t Barack Obama can be forgiven if no answer readily leaps to mind. So please consider the following question—what has been the source of the astounding wealth that has been concentrated in so few hands over the last forty years? There were never enough gullible seniors in all of history to pay Wall Street’s way, so there must be other ways that the money was made? By way of economic parables, I provide three different explanations below and then tie them together:

• In the movie “Tommy Boy” the predatory car parts executive played by Dan Aykroyd explains to the accidental savior of a car parts factory, played by Chris Farley, that what he wants in buying the factory and firing its workforce is “the box,” the company name, so that he can sell his lower quality car parts for the premium price that the factory’s high quality products commanded. Although the movie is fiction, the strategy of making struggling companies profitable by scamming consumers into paying more for low quality products by attaching premium names to them was part and parcel of the 1980s leveraged buyouts that purported to revive American industry while making bankers and company executives fabulously rich.

As this scam can’t run-on forever without people catching on, the next step was:

• Apple Computer has recently become one of the most “profitable” companies in the world by outsourcing its manufacturing to low wage manufacturers in China (primarily Foxconn). The word profitable is in scare quotes because there is no theory of capitalism that supports the claim that systematically paying labor less than its product (what labor produces less a market rate of profit) produces profits. What is produced are returns to economic power called economic rents, a form of extortion so odious to the theorists of capitalism that “capitalism” was invented to end their existence. While to most contemporary Americans the difference between profits and economic rents may seem a matter of mere semantics, so then is the difference between legal and criminal behavior when criminals write the laws.

• Third, one of the main reasons why banks in the West have historically been heavily regulated is that they have been given the right to create money. (If you don’t know this then (1) you qualify to be a professor of economics at an Ivy League university and (2) the MMT (Modern Money Theory) crowd has expositions explaining banks and money all over the web). In exchange for this right to create money banks were regulated like utilities with strict rules regarding under what conditions, and to whom, loans could be made. And they were forbidden from engaging in financial speculation that might put depositors’ funds at risk. When banking regulations were effectively eliminated in the late 1990s and early 2000s bankers quickly set about writing themselves massive paychecks with the money they had been granted the right to create.

These three corporate strategies, knowingly defrauding consumers (example: The Insurance Hoax By David Dietz and Darrell Preston Bloomberg Markets September 2007), using economic / political power to systematically underpay labor here and abroad and using a deregulated financial system premised on heavy regulation to facilitate unlimited withdrawals of social wealth by connected insiders define the methods of expropriation used by American business over the last forty years. But none of these tactics individually would account for the amount of money expropriated by plutocrats.

The linchpin in this system of expropriation is “financialization,” the modes of monetizing social wealth so that it can be effectively expropriated. Banks create money directly by making loans. Investment banks create financial instruments, such as stocks and bonds, which become monetized social wealth when they are exchanged for money. A company can be looted by granting stock options to executives that represent a substantial ownership interest in the firm. Creating the stock options requires an investment bank and creating the money to buy them (monetize them) from executives requires a commercial bank to make a loan to buy the stock, say, to the same company. (This explanation is simplistic but it captures the basic truths of what is being described).

The motivation for defrauding consumers and systematically underpaying labor that this system creates is that both increase the profits on which the value of stock granted to connected insiders is based. Should this seem legitimate, imprisoning the overpaid executives and hiring competent management at wages commensurate with what other labor earns would have this same effect and would be much more broadly socially beneficial. But this system is set up to push social wealth into ever fewer hands. And it has been used to buy our political system, to destroy labor and other organized resistance and to create a police / surveillance state that is designed to maintain this system of expropriation. Now add to this one more tool for expropriation: Barack Obama’s JOBS bill.

It is no accident that the phenomenal accumulation of expropriated wealth that has taken place in recent decades has coincided with the declining wealth and prospects of the middle and lower classes. Government policies since the early 1970s have been designed to destroy organized labor so that predator-capitalists can again underpay labor. Consumer protections have been systematically dismantled so that bait and switch tactics and outright theft by corporations face no recourse. And any legitimate “deregulation” of finance would have rescinded the right of unregulated banks to create money and any guarantees of rescue should banks fail.

The facts are that the new plutocrats are rich because they took what belonged to working people, the middle and lower classes, including wealth, incomes, social organization and our ability to act for the common good through economic, political and social cooperation and put it into their own pockets. Plutocrats argue that consumer and environmental regulations are burdensome, but burdensome to whom? If they profit from the systematic taking from consumers and the ability to destroy the environment that we depend on, then straightforwardly they profit from our loss. Fabulously well-paid bankers required a multi-trillion dollar bailout—more money than these banks earned in the entirety of their existences, less than a decade after they were given free rein to act in their own interest. And again, “freedom” to systematically underpay labor is thievery under any theory of capitalism.

So finally, why do Barack Obama and a bipartisan Congress believe that legalizing fraud is legitimate? The immediate answer is because that is all that they know. They exist in a self-legitimizing universe where if you have something it is because you earned it. The broader answer is that an economic system based on exploitation (capitalism) isn’t set up to differentiate between socially productive behavior and radically socially destructive behavior.

And notice please, Washington isn’t working to eliminate all laws, just the ones that impede the progress of social wealth from those who create it up to the plutocracy. With respect to protecting the wealth and privilege of the plutocrats, Washington (and Brussels and London) is all about laws. With strip searches and indefinite detention priority one for Washington, we are a nation of laws by the rich for the rest of us. But remember where the wealth came from. To turn a phrase, let them eat money. Strike!

The Regulation Killers

Making the People Pay
by RALPH NADER
The Republican Party has a sense of humor, however inadvertently. It’s ardent advocates regularly accuse the Obama Administration of heavy handed regulation of business.

Tell that to the hundred federal poultry inspectors who just picketed the Department of Agriculture in opposition to a proposal that would allow those crammed, bacterial poultry slaughterhouses to do their own inspections. The picketers fear that with this license, the poultry bosses will speed up the slaughter rate to 175 birds per minute from the present 70.

Tell that to the Securities Exchange Commission that will have to allow the return of the notorious boiler room practices where “start-ups” with up to $1 billion in annual revenues can sell stock to investors like the old Wild West days with little discourse or regulation. After the recent devastating Wall Street crash and bailout, here they go again—just throw the federal cop off the corporate crime beat.

Tell that to Donald Michaels, the superbly qualified head of the Occupational Safety and Health Administration who can’t get the White House to approve issuance of long-overdue life-saving safeguards for worker health and safety. Fear of Republicans by the Obamaites in an election year super-cedes their oath to enforce laws that save lives in hazardous workplaces. Nearly 60,000 workers lose their lives to workplace-related diseases and trauma every year. That is equivalent to nineteen 9/11 casualty tolls every year.

Tell that to a strapped Environmental Protection Agency that at long last was trying to reduce the toxic materials in your air and water. President Obama personally intervened on two of their forthcoming regulations to stop them.

Tell that to the Food and Drug Administration (FDA) that was the subject of a front page New York Times article on April 3, 2012 titled “White House and the F.D.A. Often at Odds.” It seems that President Obama’s deputy chief of staff, Nancy-Ann DeParle, has been leaning on FDA Commissioner, Dr. Margaret A. Hamburg to drop proposed rules requiring labeling of calories for foods served on airplanes and movie theaters, as well as regulation of sunscreen and asthma inhalers.

The Obamabush White House objected to what the Times said was “the enforcement of an agency decision on a drug to prevent premature births.”

The FDA believed that the Obama “hope and change” campaign in 2008 would start a new day from the years of George W. Bush who believed, for example, that the agency should not issue rules preventing contamination of eggs and other produce. Alas, said a top FDA official to the Times: “Employees here waited eight long years for deliverance that didn’t come.”

Mr. Obama, as with his other choices of White House staff, set himself up by choosing the “regulation czar,” Cass R. Sunstein who can give thumbs down on agency safety proposals. Professor Sunstein, who thinks harder than he feels the pain of victims of non-regulation (or law and order) has a philosophy known as “libertarian paternalism”. (Google it if you wish to discover its meaning.)

FDA scientists sadly recall Mr. Obama’s White House ceremony to sign a memorandum in 2009 to replace Mr. Bush’s politicization of science in government with scientific integrity and to listen to scientists “even when it’s inconvenient—especially when it is inconvenient.” Once again, words, words, words, succumb to the power of corporatism.

Obama’s regulatory agency officials receive constant pressure from Congressional corporatists on their meager enforcement budgets. They are made to behave as if they should fear the criminals and defrauders they are supposed to be catching to protect the American people.

All of them are envious of the new Consumer Financial Protection Bureau (CFPB) created by Congress to shield consumers of credit, mortgages, payday loans and other financial transactions from the Wall Street-driven crime wave. You see, the CFPB resides inside the Federal Reserve and receives its $500 billion budget from the Fed, which gets its budget from bank frees and is free of the Congressional hammers.

Still, the CFPB and its sterling staff (with few exceptions) is an agency waiting to start producing long-needed rules of decent business behavior. It is not clear what is causing the delay, but it couldn’t be Congress now. It may be the high hurdles that the Bureau has to overcome vertically with its supervisory council—real or fancied.

Occupy Washington needs to mass in front of these agency buildings soon to highlight the truth about Obama’s weak-kneed regulatory agencies. In a perverse way, the Obamaites would probably welcome such protests as enhancing their corporate fundraising efforts.

Meanwhile the people pay!

Corporate Whistleblowers Get the Shit Treatment From Washington

Tuesday, March 6, 2012 by TomDispatch.com
Why no one would listen

by Eyal Press


What’s worse: to be persecuted and indicted for trying to expose an act of wrongdoing -- or to be ignored for doing so?
Whistleblowers have been under intense scrutiny in Washington lately, at least when it comes to the national security state. In recent years, the Obama administration has set a record by accusing no fewer than six government employees, who allegedly leaked classified information to reporters, of violating the Espionage Act, a draconian law dating back to 1917. Yet when it comes to workers who have risked their careers to expose misconduct in the corporate and financial arena, a different pattern has long prevailed. Here, the problem hasn’t been an excess of attention from government officials eager to chill dissent, but a dearth of attention that has often left whistleblowers feeling no less isolated and discouraged.

Consider the case of Leyla Wydler, a broker who, back in 2003, sent a letter to the Securities and Exchange Commission (SEC) about her former employer, the Stanford Financial Group. A year earlier, it had fired her for refusing to sell certificates of deposit that she rightly suspected were being misleadingly advertised to investors. The company, Wydler warned in her letter, “is the subject of a lingering corporate fraud scandal perpetrated as a ‘massive Ponzi scheme’ that will destroy the life savings of many, damage the reputation of all associated parties, ridicule securities and banking authorities, and shame the United States of America.”

It was a letter that should have woken the dead and, as it happened, couldn’t have been more on target. Wydler didn’t stop with the SEC either. She also sent copies to the National Association of Securities Dealers (NASD), the trade group responsible for enforcing regulations throughout the industry, as well as various newspapers, including the Wall Street Journal and the Washington Post. No one responded. No one at all.

In the fall of 2004, Wydler called the examination branch of the SEC’s Fort Worth District Office to relay her concerns. A staff person did hear her out, but once again nothing happened. More than four years later, as the aftershocks of the global financial meltdown continued to play out, the news finally broke that Stanford had orchestrated a $7 billion Ponzi scheme which cost thousands of defrauded investors their savings.

Making Law for Wall Street
Wydler might have preferred the attention of the Espionage Act to the dead silence that greeted her efforts, and she was hardly alone. As with her, so with Eileen Foster, a former senior executive at Countrywide Financial who, in 2007, uncovered evidence of massive fraud -- forged bank statements, bogus property appraisals -- perpetrated by a company that played a major role in the subprime crisis that eventually caused the U.S. and global economies to implode. No one listened to her then and no one -- in the government at least -- seems to care now, either.

Interviewed recently on 60 Minutes, Foster said she would still be willing to provide the names of people at Countrywide who belong in jail, if she were summoned to testify before a grand jury. She may never get the opportunity. As 60 Minutes reported, a Justice Department that has gone to such extraordinary lengths to prosecute national security whistleblowers has made no effort to contact her.

The experiences of corporate whistleblowers like Foster and Wydler underscore a truth highlighted by legal scholar Cass Sunstein in his book Why Societies Need Dissent. The voices of dissidents who have the courage to bring uncomfortable news to light -- information that can prevent disastrous economic or other blunders from happening -- matter only to the extent that anyone pays attention to them.
“A legal system that is committed to free speech forbids government from silencing dissenters,” observed Sunstein. “That is an extraordinary accomplishment.” But as he went on to note, the formal existence of this right hardly ensures that individuals who exercise it in situations that cry out for opposition have an impact. “Even in democracies, disparities in power play a large role in silencing dissent -- sometimes by ensuring that dissenters keep quiet, but more insidiously by ensuring that dissenters are not really heard.”

And it seems that, if the present House of Representatives has anything to say about it, the law will soon ensure that corporate whistleblowers are silenced anew. Although the financial meltdown of 2008 didn’t exactly inspire the Justice Department to hold high-ranking Wall Street executives accountable (to date, not one CEO has been prosecuted for fraud), the abusive practices and billion-dollar scams that regulatory agencies somehow overlooked did prompt some reform. As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress put in place new rules that, at least theoretically, enhanced the protections and incentives available to whistleblowers.

One provision of Dodd-Frank, for example, allows employees to bypass corporate internal compliance programs and report violations directly to the SEC. Another provides rewards for Wall Street whistleblowers who step forward and offer the government tips that lead to successful prosecutions of fraud.

But even these modest steps may soon be reversed. Last year, Congressman Michael Grimm (R-NY) unveiled the antidote to Dodd-Frank’s gestures toward the urge to leak. His “Whistleblower Improvement Act” -- a name that Orwell might have appreciated -- would do away with the Dodd-Frank protections, such as they are, which the U.S. Chamber of Commerce and other industry groups lobbied against and continue to vigorously oppose.

Grimm’s proposal would indeed mark an “improvement” -- for companies hoping to deprive whistleblowers of their voices. If passed, it would strip the financial rewards from Dodd-Frank and require most whistleblowers to first report problems to their employer before even thinking about going to the government. “This would be like requiring police officers to tip off suspects before they begin an investigation,” the Project on Government Oversight has wryly observed.

Harry Markopolos, a financial analyst who repeatedly tried to warn the SEC about Bernard Madoff’s Ponzi scheme -- and who, like Leyla Wydler, was persistently ignored -- has said the law “reads as if it were a wish list from those who once designed the Enron, Madoff, Global Crossing, Stanford, and WorldCom frauds.” Evidently, that only proved an incentive for the House Subcommittee on Capital Markets to approve Grimm’s measure in December 2011, on a party-line vote, which means it could now be tacked onto some must-pass piece of legislation and enacted.

The Silent Treatment
Should the Grimm Act eventually become law, it would not mark the first time corporate whistleblowers had been encouraged to step forward in the wake of rampant abuse and misconduct, only to discover that public officials had no intention of emboldening them to speak out. Back in 2002, after the accounting scandals broke at Enron and WorldCom, President George W. Bush signed the Sarbanes-Oxley Act, which made it a crime for companies to retaliate against employees who reported suspected fraud and illegal activities.

“The era of low standards and false profits is over,” Bush declared at the time. “No boardroom in America is above or beyond the law.” It didn’t quite turn out this way. In fact, his administration promptly set about staffing the federal agency in charge of whistleblower complaints with judges determined to deprive employees who reported suspected fraud of the protections they thought they’d just been guaranteed.

According to the Wall Street Journal, of 1,273 complaints filed by employees who claimed they had been subjected to company retaliation for speaking out between 2002 and 2008, the government ruled in favor of whistleblowers 17 times. Another 841 complaints were dismissed unheard, sometimes thanks to minor technicalities. Other times they were tossed out because the potential whistleblowers worked at the private subsidiaries of publicly traded companies, which the Department of Labor bizarrely decided were not covered by the statute.

Some might assume that, if the government ignores corporate whistleblowers again, a citizenry incensed by the greed and recklessness of Wall Street is not likely to allow history to repeat itself. But this might be wishful thinking. Despite the lore of the whistleblower that pervades popular culture, Americans turn out to be less sympathetic to such dissenters than Europeans. Drawing on data from the World Value Surveys and other sources over multiple years, the sociologist Claude Fischer has found that U.S. citizens are “much more likely than Europeans to say that employees should follow a boss’s orders even if the boss is wrong.” They are also more likely “to defer to church leaders and to insist on abiding by the law,” and more prone “to believe that individuals should go along and get along.”

Whistleblowers may often be praised in the abstract and from a distance, but Americans have a tendency to ignore or even vilify them when they dare to stir up trouble in their own workplaces or communities. In the case of Leyla Wydler, it wasn’t just the SEC that disregarded her warnings about Stanford. It was also her fellow brokers, none of whom came forward to defend her, and her clients, who for the most part brushed aside the concerns she voiced about Stanford’s certificates of deposit (and so their own investments).

Later, after the facts had come to light, Wydler testified at a Congressional hearing in Baton Rouge, Louisiana, before an audience full of defrauded investors. She received a standing ovation. The belated recognition felt nice, she told me, but it would have felt a lot better if more people had listened to her beforehand, and maybe even stood by her side.

If we really want to honor people like Wydler, we ought to make sure that financial industry whistleblowers who emulate her example in the future don’t have to languish in isolation or wait so long for the applause, and that, unlike Eileen Foster, Harry Markopolos, and Leyla Wydler, they will be spared the silent treatment.

A World in Denial of What It Knows

Sunday, January 1, 2012 by the New York Times
by Geoffrey Wheatcroft

COULD there be a single phrase that explains the woes of our time, this dismal age of political miscalculations and deceptions, of reckless and disastrous wars, of financial boom and bust and downright criminality? Maybe there is, and we owe it to Fintan O’Toole. That trenchant Irish commentator is a biographer and theater critic, and a critic also of his country’s crimes and follies, as in his gripping if horrifying book, Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger.

He reminds us of the famous if gnomic saying by Donald H. Rumsfeld, then the United States secretary of defense, that “There are known knowns... there are known unknowns ... there are also unknown unknowns.” But the Irish problem, says Mr. O’Toole, was none of the above. It was “unknown knowns.”

What he means is something different from denial, or evasion, irrational exuberance or excess optimism. Unknown knowns were things that were not at all inevitable, and were easily knowable, or indeed known, but which people chose to “unknow.”

Unknown knowns were everywhere, from Wall Street to Brussels, from the Pentagon to Penn State. Ireland merely happened to offer an extreme case, where “everyone knew.”

They just chose to forget that they knew — about the way that Irish banks ran wild, how easy credit fueled a monstrous explosion of property prices and speculative house-building. Bertie Ahern, the Irish prime minister at the time of the rapid economic growth, merely boasted, “The boom is getting boomier,” preferring to unknow the truth that booms always go bust.

Beginning in 2008, the skies were lighted up by financial conflagrations, from Lehman Brothers to the Royal Bank of Scotland. These were dramatic enough — but were they unforeseeable or unknowable? What kind of willful obtusity ever suggested that subprime mortgages were a good idea? An intelligent child would have known that there is no good time to lend money to people who obviously can never repay it.

Or recall how we were taken into the Iraq war. That was the origin of Mr. Rumsfeld’s curious words 10 years ago. When he murmured about “things we do not know we don’t know,” he was touching on the unconventional weapons that Saddam Hussein might — or might not — have held.

In a sense, Mr. Rumsfeld was more right than he realized. Those of us who opposed the war may be asked to this day whether we knew what weaponry Iraq possessed, to which the answer is that of course we didn’t. Nor, as it transpired, did President George W. Bush, Vice President Dick Cheney, Mr. Rumsfeld or Prime Minister Tony Blair of Britain.

But that was the wrong question. It should have been not “what weaponry does Saddam Hussein possess?” but “Is Saddam Hussein’s weaponry, whatever it may be, the real reason for the war, or is it a pretext confected after a decision for war had already been taken?” The answer to that was obvious and could have been known to all, but too many people chose to unknow it.

Then there was another unknown known: the likely consequences of an invasion. Shortly before it began, Mr. Blair met President Jacques Chirac of France. As well as reiterating his opposition to the coming war, Mr. Chirac offered the prime minister specific warnings. Mr. Blair and his friends in Washington seemed to think that they would be welcomed with open arms in Iraq, Mr. Chirac said, but that they shouldn’t count on it. It was foolish to think of creating a modern democracy in an artificial country with a divided society like Iraq. And Mr. Chirac asked whether Mr. Blair realized that, by invading Iraq, they might yet precipitate a civil war.

This has been described in a BBC documentary by someone present, Sir Stephen Wall, a Foreign Office man then attached to Downing Street. As the British team was leaving, Mr. Blair turned and said, “Poor old Jacques, he just doesn’t get it,” to which Sir Stephen now adds dryly that he turned out to get it rather better than “we” did.

At that time, Mr. Chirac was reviled in America, and his career has just ended in disgrace, with a court conviction for embezzlement. But who was right about Iraq? All the calamities that followed the invasion were not only foreseeable, they were foreseen. And yet for Mr. Blair, as well as Washington, they were unknown knowns.

One more such, bitter as it is to say so when many people have been ruined, was the Bernard L. Madoff fraud. For years, his investors gratefully and unquestioningly accepted returns that were strictly incredible. Loud warning voices sounded. Harry Markopolos, a former investment officer, exhaustively back-analyzed Mr. Madoff’s supposed figures by computer. He spent nearly nine years repeatedly trying to explain to the Securities and Exchange Commission that these figures were not merely incredible but mathematically impossible. And still the SEC chose to unknow it. Leos Janacek wrote a harrowing opera called “The Makropulos Affair”; Peter Gelb at the Met should commission someone to write “The Markopolos Affair” as a fable for our times.

In a very different kind of scandal, not everyone at Penn State, and certainly not every fan, knew what had happened in the showers. But quite enough was known by people who could have acted. They chose instead to unknow. And so to another classic unknown known, the euro. The recent summit in Brussels turned into a silly melodrama, with a British prime minister, David Cameron this time, once more playing the pantomime villain. But Mr. Cameron was right, if for the wrong reasons, to oppose the European Union’s latest frantic (and doomed) plan to prop up the euro.

If truth be told (but it so rarely is!), the euro cannot work and could never have worked. That is, a single currency embracing countries as diverse in social culture, productivity, work practices and taxation as Germany and Greece, or the Netherlands and Portugal, is economically impossible without much closer fiscal and financial union — which is politically impossible. Anyone could have known that at the time the euro was introduced, but for the rulers of the European Union it was their very own unknown known.

“The Cloud of Unknowing” is a medieval classic of mystical writing, and unknowing still hangs over us. It will be a happier new year if we can dispel some of that cloud, try to unknow less, and know a little more.

Nastiest Scams, Rip-Offs and Tricks From Wall Street Crooks

How many high-level Wall Street players have been put in jail for the crimes that led to the financial crisis? Not. Even. One. 

By Dave Johnson, AlterNet
Posted on December 26, 201

How many high-level Wall Street players have been put in jail for the crimes that led to the financial crisis?  Not. Even. One.   

Last week several executives from the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, known as “Fannie Mae and Freddie Mac,”were sued by the Securities and Exchange Commission (SEC) for civil fraud. They were charged with misleading investors about the quality of the loans they were buying.  But this is a civil suit, not a criminal prosecution, so they face no possibility of jail time.  And the SEC is notoriously ready to settle these cases, accepting fines without admission of guilt. 

Meanwhile, last month Bloomberg News revealed that the Federal Reserve secretly loaned  $1.2 trillion to banks on Dec. 5, 2008, their neediest day, even as some of their CEOs were assuring investors their banks were healthy.  Are these CEOs facing prosecution or even civil fraud suits for doing the very same thing?  Not so much. 

These stories barely even reveal the tip of the iceberg of financial malfeasance.  We have been hearing for years now about the scams, frauds, rackets, schemes, tricks and various other ways that people on Wall Street made gazillions while crashing the economy.  The one thing we haven’t heard anything about is anyone at the top being held criminally accountable … for anything! 

Given these recent developments, the end of a bad year seems like a good time to take a look back at just a few examples of what was, and in too many cases, still is going on. So here is a little holiday-season nudge to all the attorneys general who may be hesitant to take them on -- if not with jail time, then at least  The banksters still have faced no accountability. 

They got bailed out … will We, the People continue to get sold out?

1. Fraudclosure/Robosigning

After the housing bubble collapsed, and the “innovative” mortgage “products” that were created by the financial industry began to blow up, with people’s payments rising into the stratosphere just as housing prices dropped and people were losing their jobs, the banks were faced with literally millions of foreclosures to process.  But, being Wall Street outfits, they didn’t want to be responsible for doing any actual work themselves.  Best to outsource the work to someone … cheap.  And that is what they did – and are still doing. 

The banks hired “robosigning” outfits to process the foreclosures, which resulted in accusations of documentation fraud, where the outfits file affidavits claiming to have documents they do not have.  The original mortgages often did not include proper paperwork to clearly prove who signed the loans or who had title, etc.  These firms would forge signatures, sign affidavits saying they had proper paperwork when they did not, and a number of other ruses to speed foreclosures.  And courts set up what were called “rocket dockets” to assist the process.  David Dayen at Firedoglake (Sept 2010): Foreclosure Fraud as Cover-Up for Mortgage Fraud, 

Banks never had the proper documentation for these loans, after handing them out to anyone with a pulse, and slicing and dicing them through securitization. The fraud allows banks and the state and local governments explicitly facilitating this by setting up special, speedy foreclosure courts the ability to paper over these objections. If the lenders had to obey the law and use a deliberative process to affirm the title ownership, practically nobody would get evicted. If enough of those struggling can be forced out of their homes, and the fraudulent mortgages thrown in the dumper, the banks can save their balance sheets.

This fraudulent process caught up with the banks, and once again the government offered “settlements” that, instead of prosecuting the fraud, offered immunity from prosecution before the states even had a chance to fully investigate charges. California’s Attorney General Kamela Harris backed away from this deal. Several other state Attorneys General, including New York’s Eric Schneiderman and Delaware’s Beau Biden are independently investigating foreclosure fraud, along with those in Nevada, Minnesota, Massachusetts and Kentucky.

We’ll see if the “settlement”  comes through, blocking a more comprehensive investigation and possible prosecutions. Recently Massachusetts filed the first foreclosure-fraud lawsuit, followed by Nevada.

2. Pushing Subprime Loans

The initial wave of mortgages to go bad were the “subprime” mortgages that were given to people barely able or even unable to make their payments.  Why were there so many of these mortgages in the system?  These mortgages were pushed on people by “predatory lenders” who would make a quick buck on upfront fees and commissions and then sell the loans to Wall Street to be repackaged into “CDOs” – the “toxic assets” that took down much of the financial system. 

You may have come across the recent story in the news about the Sheriff and movers refusing to evict a 103-year-old woman and her 83-year-old daughter from the home they have lived in for 53 years.  So here is a question: Why does a 103-year-old woman who has been in her house for 53 years even have a mortgage? Because many banks were pushing minority borrowers into expensive subprime loans, even if they qualified for standard mortgages.

According to Think Progress, “Wells Fargo had perhaps the most horrifying practices in this department, calling the subprime loans that they pushed in poor, black neighborhoods “ghetto loans.”


Predatory lending isn’t just about steering borrowers into very expensive loans, it is also about hard-selling people into borrowing money in the first place.  According to The Leadership Conference, “Predatory lending occurs when a lender uses unfair, deceptive, or fraudulent practices when selling a loan to a consumer. Borrowers are steered toward unaffordable loans, or charged higher fees or interest rates than those they qualify for. “

Predatory and subprime lending has died down, thanks to some degree of a restoration of sanity and new lending standards. But no one stepped in and stopped it when the practice was at its … prime. 

Meanwhile yet another “settlement” with no criminal charges is occurring. On Wednesday the government announced a $335 million settlement with Bank of America’s Countrywide Financial unit for overcharging minorities and pushing them into subprime loans.

3. Betting Against Designed-to-Fail Bonds

Even in collapsing markets there is money to be made by placing bets against assets that are overvalued, and then when their price drops the bets pay off.  And if you know where the toxic assets are, in advance, you can make a ton of money. The best way to know where toxic assets are is if you put them there, on purpose, in order for them to collapse. A ProPublica story, Did Citi Get a Sweet Deal? Bank Claims SEC Settlement on One CDO Clears It on All Others, says CitiBank created toxic assets on purpose in order to make bets that they would fail, 

In the run-up to the global financial collapse, Citigroup’s bankers worked feverishly to create complex securities. In just one year, 2007, Citi marketed more than $20 billion worth of deals backed by home mortgages to investors around the world, most of which failed spectacularly. Subsequent lawsuits and investigations turned up evidence that the bank knew that some of the products were low quality and, in some instances, had even bet they would fail.

Citibank made a lot of money from these bets because they knew where the toxic assets were, because they put them there, on purpose, in order to bet against them. CitiBank created these CDO toxic assets in a way that was designed to fail, and sold them to customers as solid investments, and then made bets that these assets were worthless. When the designed-to-fail assets failed, CitiBank made money, the customers were wiped out. 

The Securities and Exchange Comission (SEC) offered to “settle” this case with CitiBank, accepting a cash fine in exchange for dropping any prosecution or even making CitiBank admit wrongdoing.  But promsingly this was rejected by the judge.  DailyKos: Judge Rakoff stands up to SEC and Citigroup, 

Today, Judge Rakoff added to his legacy of independence by rejecting the SEC's efforts to settle with Citigroup for $285M over mortgage-backed securities fraud allegations.

… Under the law, Judge Rakoff was obligated to determine whether this settlement was "fair, reasonable, and in the public interest"; the SEC argued that no, the public interest didn't actually matter—and, if it did, the SEC itself could assess what the public needed. No no no, said the Judge.

Goldman Sachs also received a earlier settlement-without-prosecution for operating a similar scheme.  Washington Post: Goldman Sachs to pay record settlement in fraud suit, change business practices, 

Goldman Sachs agreed Thursday to pay $550 million to settle a fraud suit brought by the Securities and Exchange Commission that accused the storied Wall Street bank of selling a subprime-mortgage investment that was secretly designed to fail.

The crux of the case alleges that Paulson & Co., a hedge fund, was looking for a way to bet on a drop in the housing market and that it asked Goldman to help create a financial product that would allow such a wager. Paulson, led by hedge fund manager John Paulson, essentially bought insurance against the investment -- much like taking out an insurance policy on a person who secretly has a potentially deadly disease. …

The investment ultimately lost virtually all its value, costing investors $1 billion.

Word is these schemes were not uncommon.  Ney getting that an investment is going to blow up if you’re the one who put the bomb in it and set the timer in the first place.

4. An “Epidemic” Of Mortgage Fraud

For years regulators were warned about “an epidemic” of mortgage fraud, but looked the other way. For example, a CNN news story is from 2004, years before the financial collapse, FBI warns of mortgage fraud 'epidemic', warned,

Rampant fraud in the mortgage industry has increased so sharply that the FBI warned Friday of an "epidemic" of financial crimes which, if not curtailed, could become "the next S&L crisis."

… The FBI has dispatched undercover teams across the country in an urgent investigation into dealings by suspect mortgage brokers, appraisers, short-term investors, and loan officers, Swecker, flanked by FBI executives and Justice Department prosecutors, revealed.

The Bush administration’s reaction was to pull FBI agents off of white collar crime like mortgage fraud, reducing the numer of agents looking at banking fraud from 1,000 during the S&L Crisis investigation down to around 100. 

5. Ratings Agencies Gave AAA to CDOs

Subprime and just fraudulent mortgages were getting bundled up into complex bonds and sold by the big Wall Street banks to investors looking for higher yields than they could get from other investments.  (They didn’t even bother to make sure they had proper documentation proving who had signed the loans, and who should receive the payments. More on this later.)

But investors wanted to buy bonds that were safe. So they turned to the ratings agencies.  These are the companies responsible for determining the safety of investments. The ratings agencies had conflicts of interest, being paid in various ways by Wall Street to help mislead investors and tell them that the “toxic assets” bonds that Wall Street was selling had the highest safety rating of AAA.  Then the investors lost, the economy was tanked and the taxpayers are now and into the future paying the bill. 

William Black was a regulator during the S&L crisis.  He explains at the Huffington Post, writing in, The Two Documents Everyone Should Read to Better Understand the Crisis, 

The first document everyone should read is by S&P, the largest of the rating agencies. The context of the document is that a professional credit rater has told his superiors that he needs to examine the mortgage loan files to evaluate the risk of a complex financial derivative whose risk and market value depend on the credit quality of the nonprime mortgages "underlying" the derivative. A senior manager sends a blistering reply with this forceful punctuation:

Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most investors don't have it and can't provide it. [W]e MUST produce a credit estimate. It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so.

The rating agencies never reviewed samples of loan files before giving AAA ratings to nonprime mortgage financial derivatives. … 

…Worse, the S&P document demonstrates that the … banks … engaged in the same willful blindness. They did not review samples of loan files because doing so would have exposed the toxic nature of the assets they were buying and selling. The entire business was premised on a massive lie -- that fraudulent, toxic nonprime mortgage loans were virtually risk-free. The lie was so blatant that the banks even pooled loans that were known in the trade as "liar's loans" and obtained AAA ratings despite FBI warnings that mortgage fraud was "epidemic."

In other words, superiors at the ratings agencies told their underlings to just make up fraudulent credit ratings.  

Today the people who were at the top of the ratings agencies and the Wall Street firms have millions and live in big houses.  How many of the rest of us now or will have to live in cars and cardboard boxes because of what they did? 

6. Banksters Who Made Out Like … Bandits

Many financial-company executives made millions (hundreds of millions, actually) while they were doing questionable things that ended up crashing their companies and the economy.  But they got to keep the money.  For example, when you hear that Wall Street firm “Lehman Brothers” went bankrupt, you might think, “serves them right.” But what actually happened was that a lot of regular people ended up losing their jobs while a few people at the top got really, really rich.  CEO Richard Fuld, for example, ended up with almost half a billion. 

(Really, really rich.)  Business Week: How Much Did Lehman CEO Dick Fuld Really Make? 

"Mr. Fuld will do fine," Waxman said. "He can walk away from Lehman a wealthy man who earned over $500 million. But taxpayers are left with a $700 billion bill to rescue Wall Street and an economy in crisis."

So, no, “they” didn’t get what they deserved – and neither did top executives like Fuld. 

 

7. Insiders Profiting From Being … Insiders

Stephen Friedman was a member of the Board of Goldman Sachs at the same time as he was Chairman of the Federal Reserve Bank of New York. He has to resign from the NY Federal Reserve, keeping his position with Goldman Sachs, after it was revealed that he had purchased $3 million worth of Goldman Sachs stock while the Federal Reserve was regulating the company after it became a bank holding company in September 2008. This was around the time that the NY Fed negotiated for Goldman Sachs to receive payments from AIG, that would be paid at 100 cents on the dollar, even though AIG was in default. 

According to an Oct. 27, 2009 Bloomberg report, New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers,

The deal contributed to the more than $14 billion that over 18 months was handed to Goldman Sachs, whose former chairman, Stephen Friedman, was chairman of the board of directors of the New York Fed when the decision was made. Friedman, 71, resigned in May, days after it was disclosed by the Wall Street Journal that he had bought more than 50,000 shares of Goldman Sachs stock following the takeover of AIG. He declined to comment for this article.

Congress finally, finally voted to audit the Federal Reserve.  It was a one-time, limited audit, but that is a lot more than We, the People were allowed to know about the Fed before the audit.  What did we learn?  Rolling Stone’s Matt Tiabbi, in The Real Housewives of Wall Street, tells us.

The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. "Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous."

For just one example of what has been going on with the Fed, one company, named Waterfall TALF Opportunity, received nine loans totaling around $220 million.  Among its chief investors: Christy Mack and Susan Karches.  Tiabbi explains why you care, writing,

Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley's investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.

Insiders getting hundreds of millions of dollars from the Fed, in secret. That is just one example of the shenanigans discovered when the Fed was audited.  Is there any investigation of this underway?  Not that the public has been told, and not likely ever. 

More recently there was another example of insiders potentially profiting from being on the inside track was in the news recently.   President Bush’s Treasury Secretary Henry Paulson may have tipped off a group of hedge fund managers with specific information about what the government would be doing. 

Again, no one is being prosecuted. 

Impunity? 
There are so, so many other outrages.  And these are only the things that have hit the news.  Are some or all of these not just outrages, but actual crimes?  After the “S&L Crisis” there were 1,100 prosecutions and more than 800 bank officials went to jail.  This time – even with the appearance of widespread criminality in the financial industry – not so much.  In fact, not any.   

Were crimes committed by people high up in the financial industry?  It looks that way, but we really have no way of knowing if our government again and again offers “settlements” that block the comprehensive investigations that come with prosecutions.  

Why won't our legal system prosecute anyone on Wall Street for anything?  We see outrage after outrage, and they put poor people in jail for life for stealing a hot dog when they are hungry.  Meanwhile Wall Street is funding an effort to blame government for the financial collapse, to block regulation and defund the regulatory agencies.  This is an effort to subvert government and turn people against democracy so that plutocracy – government of by and for the 1% – can reign. 

We should all be demanding that the legal system do its job to sort this out instead of actively blocking prosecutions by approving “settlements.” People lose faith in government when it looks like the 1% can get away with any outrage. And now we know that when We, the People gather to demand something be done about this we are met with pepper spray and batons.