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Everything You Need to Know About Wall Street, in One Brief Tale January 14, 2012

Posted by rogerhollander in Economic Crisis.
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Published on Saturday, January 14, 2012 by Rolling Stone
Matt Taibbi

If there was ever a news story that crystallized the moral dementia of modern Wall Street in one little vignette, this is it.

Newspapers in Colorado today are reporting that the elegant Hotel Jerome in Aspen, Colorado,  will be closed to the public from today through Monday at noon.

The Hotel Jerome in Aspen. (Walter Bibikow/AWL Images)

Why? Because a local squire has apparently decided to rent out all 94 rooms of the hotel for three-plus days for his daughter’s Bat Mitzvah.

The hotel’s general manager, Tony DiLucia, would say only that the party was being thrown by a “nice family,” but newspapers are now reporting that the Daddy of the lucky little gal is one Jeffrey Verschleiser, currently an executive with Goldman, Sachs.

At first,  I couldn’t remember how I knew that name. But then I looked it up and saw an explosive Atlantic magazine story, published last year, called, “E-mails Suggest Bear Stearns Cheated Clients Out Of Millions.” And then I remembered that piece, and it hit me: Jeffrey Verschleiser is one of the biggest assholes in the entire world!

The story begins at Bear Stearns, where Verschleiser used to work, up until the company exploded, in large part because of him personally.

Back in the day, you see, Verschleiser headed Bear’s mortgage-backed securities operations. Toward the end of his tenure, his particular specialty began with what at the time was the usual industry-wide practice, putting together gigantic packages of crappy subprime mortgages and dumping them on unsuspecting clients.

But Verschleiser reportedly went beyond that. According to a lawsuit later filed by a bond insurer called Ambac, Verschleiser also masterminded a kind of double-dipping scheme. What he would do is sell a bunch of toxic mortgages into a trust, which like all mortgage trusts had provisions written into their pooling and servicing agreements (PSAs) that required the original lenders to buy the loans back if they went into default.

So Verschleiser would sell bad mortgages back to the banks at a discount, but instead of passing the money back to the trust, he and other Bear execs allegedly pocketed the funds.

From the Atlantic story by reporter Teri Buhl:

The traders were essentially double-dipping — getting paid twice on the deal. How was this possible? Once the security was sold, they didn’t have a legal claim to get cash back from the bad loans — that claim belonged to bond investors — but they did so anyway and kept the money. Thus, Bear was cheating the investors they promised to have sold a safe product out of their cash. According to former Bear Stearns and EMC traders and analysts who spoke with The Atlantic, Nierenberg and Verschleiser were the decision-makers for the double dipping scheme.

Imagine giving someone a hundred bucks to buy a bushel of apples, but making a deal with him that he has to buy back any apples that turn out to have worms in them. That’s what happened here: Bear sold the wormy apples back to the farmer, but instead of taking the money from those sales and passing it on to you, they simply kept the money, according to the suit.

How wormy were those apples? In one infamous email cited in the suit, a Bear exec colorfully described the content of the bonds they were selling:

Bear deal manager Nicolas Smith wrote an e-mail on August 11th, 2006 to Keith Lind, a Managing Director on the trading desk, referring to a particular bond, SACO 2006-8, as “SACK OF SHIT [2006-]8″ and said, “I hope your [sic] making a lot of money off this trade.”

So did Verschleiser himself know the mortgages were bad? Not only did he know it, he went so far as to tell his colleagues in writing that it was a waste of money to even bother performing due diligence on the bad bonds:

Jeffrey Verschleiser even said in an e-mail that he knew this was an issue. He wrote to his peer Mike Nierenberg in March 2006, “[we] are wasting way too much money on Bad Due Diligence.” Yet a year later nothing had changed. In March 2007, Verschleiser wrote to Nierenberg again about the same due diligence firm, “[w]e are just burning money hiring them.”

One of the ways that banks like Bear managed to convince investors to buy these bonds was by wrapping them in bond insurance through companies like Ambac, commonly known as “monoline” insurers. Investors who knew the bonds were insured were less worried about default.

Verschleiser, seeing that Bear had gotten firms like Ambac to insure its “sack of shit” bonds, saw here a new opportunity to make money. He first induced the monolines to insure the worthless bonds, then bet against the insurers! (Is it any wonder this guy ended up hired by Goldman, Sachs?) From the Atlantic story again:

Then in November 2007, Verschleiser wrote to his risk committee that he knew insurers for mortgage securities were going to have big financial problems. He suggested they multiply by ten times the short bet he’d just made against stocks like Ambac. These e-mails show Verschleiser’s trading desk bragging to firm leadership that he made $55 million off shorting insurers’ stock in just three weeks.

So in essence, Verschleiser was triple-dipping. First he was selling worthless “sacks of shit” to investors, representing them as good investments. Then, he kept the money from the return sales of the wormy apples. And then, on top of that, he made money by betting against the insurers he was sticking with these toxic assets.

We all know what happened from there. Bear, Stearns went under, thanks in large part to insane schemes like Verschleiser’s, and all of us were forced to pick up at least part of the tab as the Fed spent billions subsidizing Bear’s emergency takeover by JP Morgan Chase. In subsequent litigation, Chase has steadfastly refused to buy back the bad mortgages dumped on investors by the likes of Verschleiser, and has even fought tooth and nail to prevent the information in the Ambac suit from being made public.

Ambac went into Chapter 11 bankruptcy in 2010 for a variety of reasons, some of which had nothing to do with its losses in deals like these. But certainly Ambac and other monoline insurers like MBIA suffered for having insured worthless mortgage bonds sold onto the market by the Verschleisers of the world. Ambac in its suit asserted that it paid out over $641 million in claims related to the bonds from the Bear deals.

With all of this, though, Verschleiser landed happily on his feet. He reportedly heads Goldman’s mortgage division now. And after cutting a mile-wide swath of losses through the American economy, helping destroy two venerable firms in Bear and Ambac, bilking the taxpayer for untold millions more (he is also named in a lawsuit filed by the Federal Housing Finance Agency for allegedly speeding bad loans onto securitization before they defaulted), Verschleiser is now living the contented life of a proud family man, renting out a 94-room hotel for three days for his daughter’s Bat Mitzvah.

It’s certainly heartening that Verschleiser is spending this money on his daughter instead of, say, hiring a busload of Jamaican hookers to spend the weekend lounging with him in a hot tub full of Beluga caviar. People ought to give their children the best, I guess. But there’s this, too: at a time when one in four Americans has zero or negative net worth, renting a 94-room hotel for three days for a tweenager party might already be pushing the edge of the good taste/tact envelope. Even for the most honest millionaire in Aspen, it would seem a little gauche.

But for this burglarizing dickhead to do it? It’s breathtaking. I hope he at least invited his bankrupted investors to the pool party.

p.s. Since this blog was posted, I’ve received a number of letters all asking the same question — how could it be possible that what Verschleiser did is not illegal? How is he not in jail?

The answer is that if the allegations in the Ambac suit are true, it certainly would seem to be illegal. Most notably, the pocketing of putback money almost has to be a form of theft or embezzlement.

The rest of Bear/Verschleiser’s scheme, however, is also illegal, but in a more complicated way. If you read the complaint in the Ambac suit, what you see is a sort of extreme blueprint for how mortgage securitization worked in general during that period.

There is a veritable sea of fraudulent and corrupt practices one may gaze upon here, if the SEC were looking for something to target — everything from withholding material facts from customers and ratings agencies, to threatening ratings agencies with lost business if they didn’t overrate bonds, to lying in offering documents, to the manipulation of accounting procedures (this went on after the loans had moved onto Chase’s books), etc. — but the most flagrant violation in the suit involves the issue of due diligence, and here we do know a lot about Verschleiser’s role.

It seems that when Bear did do due diligence in these deals, it very frequently overrode the firms they’d hired to do that due diligence, and put the loans in the deals anyway. In the third quarter of 2006, Bear overrode its due diligence firm an incredible 65% of the time, putting loans into their securitizations despite an outside firm finding red flags in the notes.

Even worse, Bear went out of its way to hide the evidence that it was knowingly ignoring due diligence. This is from the complaint:

Bear Stearns ignored the proposals made by the heads of its due diligence department in May 2005 to track the override decisions, and instead took the opposite tack, adopting an internal policy that directed its due diligence managers to delete the communications with its due diligence firms leading to its final loan purchase decisions, thereby eliminating the audit trail.

This is fraud because in its agreements with investors, Bear promised to conduct “due diligence,” it promised to conduct “quality control” testing of the loan pools, it promised to “repurchase” defective loans, and it also promised to implement “seller monitoring,” i.e. to prevent the securitization of loans from bad suppliers.

But it not only didn’t do these things, it engaged the opposite behavior and knowingly covered up its fraud by deleting its communications.

Verschleiser was personally named in the evidence offered in the Ambac suit. In a letter to Ambac, Bear’s RMBS Investor Relations managing director Cheryl Glory wrote that “Jeff will… provide you with the due diligence results of all three deals once complete.”

But this is the same Jeff who we now have in writing  saying this about those promised due diligence results: “We are wasting way too much money on Bad Due Diligence,” and “We’re just burning money hiring them.”

It doesn’t take a genius to deduce that Bear was not upholding its contractual obligations by delivering what it itself considered “bad due diligence” to Ambac. At the very least, this is actionable.

Verschleiser undermined due diligence in other ways. One good one was to demand that his due diligence people operate at speeds that made genuine due diligence impossible.

At one point during these deals, Verschleiser reamed out his immediate subordinate, co-head of mortgage finance Baron Silverstein, over the “problem” of the due diligence department taking too much time to do its work. Silverstein responded by issuing the following tirade to John Mongelluzzo, Bear’s VP for Due Diligence, demanding that he not get in the way of Bear’s insane goal of funding 500 mortgages a day:

I refuse to receive more emails from [Verchleiser] (or anyone else) questioning why we’re not funding loans every day. I’m holding each of you responsible for making sure we fund at least 500 each and every day… I was not happy when I saw the funding numbers and I knew NY would NOT BE HAPPY… I expect to see 500+ every day. I will do whatever is necessary to make sure you’re successful in meeting this objective.

Whenever any right-wing loon, or Bloombergite, tries to tell you the mortgage crisis was caused by the government forcing the poor banks to lend to broke black people, please direct them to this passage. The banks not only wanted to give out these loans, they wanted to give them out at the speed of light. They wanted to crank them out so fast that their own auditors literally couldn’t read the writing on the loan applications. This was greed, not policy. Anybody who says anything else is high on something.

Anyway, given that much of Verschleiser’s questionable behavior is in writing, his case sure seems court-ready. But for whatever reason, he has not been indicted.

One can almost understand a regulator not wanting to take on the whole circular securitization scheme — Bear lends money to corrupt mortgage firm, mortgage firm makes bad loans, Bear packages bad loans and sells to investors, then takes the proceeds and creates more bad loans — because it is so complex and difficult to prove.

But in this case there are simple issues of fraud and theft that could be taken on without having to prosecute broader crimes related to securitization. But prosecutors, apparently, just blew those off. In the current environment, regulators even miss the layups.

Too Big to Jail May 24, 2011

Posted by rogerhollander in Criminal Justice, Economic Crisis.
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 Goldman Sach’s Lloyd Blankfein

Published on Tuesday, May 24, 2011 by CommonDreams.org

  by  Danny Schechter

This week the financial crisis finally went prime time in the form of a big budget HBO docudrama called “Too Big To Fail.”Goldman Sach’s Lloyd Blankfein. (File)

It was a well-acted docudrama focused on the BIG men and some women in the banks and in government who tried to put Humpty Dumpty back together again up on that wall to prevent a total economic collapse when panic dried up credit and financial institutions faced failure.

Based on the work of a New York Times reporter, it offered a skillfully-made but conventional narrative which, like most TV shows, showcase events but miss their deeper context and background.

We heard all the explanations, save one.

There was greed, ambition, ego and money lust. There were personal rivalries and ideological battles, parochial agendas and narrow self-interest. There was panic on THE Street and in the halls of mighty institutions. In many ways, the program recycled and made an official narrative compelling viewing. In the end, everyone was to blame so no one was to blame.

But… what was missing was any notion of intentionality and premeditation, almost no mention of systemic fraud and CRIME, that one word that sums up what really happened for those millions of Americans who have lost jobs and homes. We never saw victims or felt their pain and bewilderment. We were never shown how a shadow banking system emerged or how the finance industry worked with their counterparts in finance and insurance to transfer wealth from the poor and middle class to the superrich,

When I was but a precocious lad, my elementary school encouraged students to take out a savings account at the nearby Dime Bank in the Bronx. We were each given a bankbook and taught to put in $.50 a week to show us how to build wealth by being thrifty. It was with a sense of pride that I watched my balance grow.

It may have been peanuts in the scheme of things, but to me, at the time, it was the way to plan for the future.

At the same time, in those year I watched TV shows glamorize the bank robbing antics of a man named Willie Sutton who also staged jail breaks wearing masks and costumes. When he was asked why he robbed banks, he responded famously, “That’s where the money is.”

And it still is, except in our era, it is the banks that are robbing us.

That’s because what’s now called the “financial Services sector” has gone from about 30 percent of our economy to over 60 percent. Through a process called financialization, they have transformed how all business is done.

Making money from money soon began to surpass making money from making things. What we were never warned about was the danger of getting too deeply in debt, or how the economy was shifting from production to consumption.

Private equity, credit swaps, derivative deals and collateralized debt obligations soon drove the economy. Markets became captives of high performance trading by powerful computers.

When Wall Street became the defacto capital of the country, the bankers accrued more power than the politicians who they bought up with impunity. Their lobbying power deregulated the economy and decriminalized their activities. They killed many of the reforms enacted during the New Deal designed to protect the public. They built a shadow (and shadowy) banking system beyond the reach of the law.

And now, here we are, in 2011, five years after the meltdown of 2007, four years after the crash of 2008 and the passage of the TARP bailout that pumped money into their treasuries at taxpayer expense. Since then, there has been a steady parade of scandals and the disclosures that have come out since. Every week, more banks close and or consolidate and run into problems with regulators.

Take “my” old bank in the Bronx. It has been through as many changes as I have been. A website on bank histories runs it down:

Dime Savings Bank of New York, The
04/12/1859 NYS Chartered Dime Savings Bank of Brooklyn
09/10/1930 Acquire By Merger Navy Savings Bank
06/30/1970 Name Change To Dime Savings Bank of New York, The
09/30/1979 Acquire By Merger Mechanics Exchange Savings Bank
07/01/1980 Acquire By Merger First Federal S & L Assoc. of Port Washington
08/01/1981 Acquire By Merger Union Savings Bank of New York
06/23/1983 Convert Federal Dime Savings Bank of NY, FSB
01/07/2002 Purchased By Washington Mutual Inc.
01/07/2002 Name Change To Washington Mutual Bank

And then, of course, some years later, Washington Mutual itself, went bust and was bought up for a song by JP Morgan Chase. Here are some of the latest headlines about the bank now known as WAMU:

WaMu agrees on post-bankruptcy control — report‎ – Reuters
WaMu, Shareholders, Biggest Creditors Said to Settle …‎ – Bloomberg
WaMu shareholders are offered $25M-plus to drop claims

On the day I wrote this commentary, the New York Times reported:

“The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.

All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac.”

And to whom does the Times turn for expertise on the subject, but a key former operative at Washington Mutual who was with the bank in the go-go era of shoveling out subprime mortgages? Now, he gives advice on risk management:

“These shops are under siege; it’s just a tsunami of stuff coming in,” said Taj Bindra, who oversaw Washington Mutual’s servicing unit from 2004 to 2006 and now advises financial institutions on risk management. “Lenders have a strong incentive to clear out inventory in a controlled and timely manner, but if you had problems on the front end of the foreclosure process, it should be no surprise you are having problems on the back end.”

What were people’s homes are now “inventory” to be stockpiled even though it has a negative cumulative effect on economic recovery of the housing market.

The banks that are increasingly despised and blamed for their role in engineering the financial disaster, are now trying to play nice to change their negative image.

Explains the Times:

“Conscious of their image, many lenders have recently started telling real estate agents to be more lenient to renters who happen to live in a foreclosed home and give them extra time to move out before changing the locks.

“Wells Fargo has sent me back knocking on doors two or three times, offering to give renters money if they cooperate with us,” said Claude A. Worrell, a longtime real estate agent from Minneapolis who specializes in selling bank-owned property. “It’s a lot different than it used to be.”

So, they are still foreclosing, but with a smile. Is it a ‘lot different than it used to be’?
Just last month, Huffington Post reported:

“Top executives at Washington Mutual actively boosted sales of high-risk, toxic mortgages in the two years prior to the bank’s collapse in 2008, according to emails published in a wide-ranging Senate report that contradicts previous public testimony about the meltdown.

The voluminous, 639-page report on the financial crisis from the Senate Permanent Subcommittee on Investigations singles out Washington Mutual for its decision to champion its subprime lending business, even as executives privately acknowledged that a housing bubble was about to burst.”

The truth is that most of the bigger banks have emerged from the financial crisis stronger than ever, with executives cashing in with higher salaries and bigger bonuses. That old saying about criminals who “laughed all the way to the bank” has to be revised because in this case they never left the bank.

More shocking has been the largely passive response by our government and prosecutors. At last, the Attorney General of New York is said to be investigating but none of the big bankers have yet gone to jail or suffered for the scams and frauds they committed. Most of the State officials who vowed to after the banks in the absence of aggressive federal actions have backed down.

So what can “we the people” do? We can do nothing and watch more of what’s left of our wealth vanish, or we can join others in demanding a “jailout,” not a bailout.

A well-known international banker was just arrested for a high profile alleged sex crime but not one of possibly thousands have been prosecuted for well documented financial crimes.

Where are the political leaders and activist groups willing to “fight the power” and demand accountability and transparency on Wall Street?

Why are so many us banking on a financial recovery to bring back jobs and a modicum of justice created by the very people and institutions responsible for the crisis?

And why didn’t I learn about these dangers when I first discovered the wonderful world of banking? Isn’t that what schools are for?

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Danny Schechter

Mediachannel’s News Dissector Danny Schechter investigates the origins of the economic crisis in his book Plunder: Investigating Our Economic Calamity and the Subprime Scandal (Cosimo Books via Amazon). Comments to dissector@mediachannel.org

Subprime Prosecution Stops Foreclosures But Lets Goldman Sachs Off Hook May 12, 2009

Posted by rogerhollander in Criminal Justice, Economic Crisis, Housing/Homelessness.
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(Roger’s note: read this then tell me why the Bailout funds could not be used to help homeowners pay subprime mortgages so that the Attorney General could pursue criminal charges against Goldman Sachs for the sake of justice and future deterrence; instead of letting Goldman Sachs get away with breaking the law with impunity and buy their way out with the taxpayers dollars.  I am guessing that the Massachusetts AG is taking her cue from Barack Obama and his AG, Eric Holder, who would rather “reconcile” and “look forward” rather than comply with their oaths of office to defend and uphold the U.S. Constitution.)

Ryan Grim, www.huffingtonpost.com, May 12, 2009

Massachusetts Attorney General Martha Coakley won a victory against the Goldman Sachs Group Monday, forcing the financial firm to cut a $10 million check to the state and pony up $50 million to help around 700 homeowners pay subprime mortgages.

“Goldman Sachs is pleased to have resolved this matter,” says Michael DuVally, a Goldman spokesman, declining to comment further.

They were also pleased, no doubt, by the terms in the settlement that allowed Goldman to avoid admitting any wrongdoing. Letting Goldman off excuses what could have been criminal behavior, but it also brings relief to hundreds of homeowners and offers a roadmap to some sort of law-enforcement-driven solution where lawmakers have come up short.

Massachusetts Congressman Barney Frank, chairman of the House Financial Services Committee, said he wouldn’t “second guess” Coakley’s decision to settle short of criminal convictions. “I don’t know what other avenues she had available, but I will say this: Getting significant relief for 700 people is very important, both for them and for the economy. Now, that’s a legitimate consideration in getting it done more quickly than waiting for a couple years to go through the criminal procedure,” he tells the Huffington Post.

Rep. Bill Delahunt was a Massachusetts District Attorney for 23 years. He said balancing immediate justice for victims with bringing the white-collar criminals to justice can be difficult.

“You almost have to judge those on an ad hoc basis. There’s no formula,” he says in general, adding that he didn’t know enough about Coakley’s investigation to comment on her specific course of action.

“Clearly, there’s a preference to pursue them criminally because I think that creates deterrence,” he says. “You know, it’s difficult to deter a kid who’s going to rob a 7-11 store for 25 bucks but for people who are purportedly educated, or at least sophisticated, who defraud others, they’re more susceptible to being deterred.”

But the most sophisticated they are, the more they can drag out a prosecution. By the time they’re found guilty, half the victims may be out on the street, their homes foreclosed.

“It’s not always a perfect world and you can’t always secure the perfect justice,” says Delahunt. “It would appear that our attorney general did some good work that resulted in a very significant sum of money for redress by their behavior.”

Frank agrees. “I can’t tell exactly what the considerations were, but I’m inclined to think the value of getting immediate relief for 700 people and saving their homes, yeah, I’d trade off a little for that,” he says.

Goldman Sachs was not accused of originating the subprime loans in question, but rather investigated for facilitating the process by buying them and bundling them into securities without regard to whether the borrowers would be able to pay them back — or whether the borrowers or originators had followed reasonable lending practices or filed the appropriate paperwork.

“We will continue to investigate the deceptive marketing of unfair loans and the companies that facilitated the sale of those loans to consumers in the Commonwealth,” Coakley said in a statement. (Coakley’s press office did not return a call.)

The state attorney general’s office has previously pulled in more than $75 million from settlements with UBS, Morgan Stanley, Citibank, and Merrill Lynch, all related to the financial crisis.

But the U.S. attorney general would have a hard time making a similar case nationally. Coakely relied on stricter rules on subprime lenders who make “unfair” loans under state law.

Congressional Democrats hope to give the federal government the power some states now have. Last week, the House passed anti-predatory lending legislation that Coakley helped Frank’s committee draft.

“What we do in our bill is to go beyond any set of state laws,” says Frank, citing a requirement that five percent of the loan portfolio be kept by the company that originates the loan. Having that amount of skin in the game, he hopes, will persuade a lender to take a loan seriously.

The bill is now, like much else, stalled in the Senate.

Banking Committee Chairman Chris Dodd (D-Conn.) says that subprime lending reform is a lesser priority because the credit freeze has inadvertently dried up the business.

“That’s true right now but we cannot count on that being true forever,” says Frank. “You couldn’t count on getting a non-predatory loan a little while ago and it is true that the freeze has helped some. That’s true in some other areas as well. There aren’t a lot of credit default swaps being written.”

But, says Frank, the financial industry won’t have forgotten how to write a bad loan once the market thaws.

“It is important to get laws on the books, because this de facto moratorium isn’t going to last forever,” he says.

Ryan Grim is the author of the forthcoming book This Is Your Country On Drugs: The Secret History of Getting High in America

Banksters on the War Path: How Wall Street Is Fighting Back and Winning Their Fight for the Status Quo May 2, 2009

Posted by rogerhollander in Economic Crisis.
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by Danny Schechter

Dick Durbin knows his way around the Senate. He’s been there a long time, long enough to know how things really work. Over the years, the man from Illinois has come to realize that it’s not the elected officials who are in charge. Last week, he said it was the bankers “who run the place” acknowledging that Senators may be in office, but not necessarily in power.

Usually, the people who pull the strings stay in the background to avoid too much public exposure. They rely on lobbyists to do their bidding. They prefer to work in the shadows. They may back certain politicians, but coming from a world of credit default swaps as they do, they hedge their bets by putting money on all the horses.

They have so much influence because they have been reengineering the American economy for decades through “financialization,” a process by which banks and financial institutions gradually came to dominate economic and political decision-making. Kevin Phillips, a one time Reagan advisor and commentator, says our deepest problem is “the ascendancy of finance in national policymaking (as well as in the gross domestic product), and the complicity of politicians who really don’t want to talk about it.”

Curiously, despite the journalists like Bill Moyers and Arianna Huffington who have been blowing the whistle on the role of the “banksters” in our political life, criticizing the Republicans and Democrats who deregulated the financial system, this issue seems to float above the heads of most of the public, much of the press, and even the activist community more drawn to punishing the torture inflicted on a few by a former Administration than the economic duress being imposed on the majority of Americans by a minority of the super rich.

Demonstrators are still drawn more to the White House than the banks that have proliferated on every corner of the country.

Last week, a Zogby poll found that a majority of the public believes the press made things worse by reporting on the economic collapse. Not only is that blaming the messenger, it also overlooks the fact that much of the media was complicit in the crisis by not covering the forces that caused the collapse when it might have done some good.

Exacerbating the problem is that the Obama Administration has, in Robert Scheer’s words, enlisted “the very experts who helped trigger the crisis to try to fix it.”

“Obama,” he writes “seems depressingly reliant on the same-old, same old cast of self-serving house wreckers who act as if government exists for the sole benefit of corporations and executives.”

The team of Tim Geithner and Larry Summers has been carrying Wall Street’s water as Robert Rubin did before them. No wonder that Obama’s Attorney General Eric Holder told the Street last February, “We’re not going to go on any witch hunts.”

That was before we learned that Wall Street forced US regulators to delay the release of stress test results for the country’s 19 biggest banks until next Thursday, because some of the lenders objected to government demands that they needed to raise more capital. They are trying to rig the results.

That was also before the public learned of the obscenely huge bonuses the firms benefiting from the TARP bailout were shelling out to their executives. That was before we saw how the bankers with help from Democrats, including new convert Arlen Specter, managed to kill a bill to help homeowners stop foreclosures.

“The Senate on Thursday rejected an effort to stave off home foreclosures by a vote of 51 to 45. It was an overwhelming defeat, with the bill’s backers falling 15 votes short — a quarter of the Democratic caucus — of the 60 needed to cut off debate and move to a final vote. Across the United States, the measure is estimated to have been able to prevent 1.69 million foreclosures and preserve $300 billion in home equity.”

Commented the Center for Responsible Lending, “Instead of defending ordinary Americans, the majority of Senators went with the banks. Yes, the same banks who have benefited so richly from the TARP bailout.”

There was one small victory with the House approving a bill to protect consumers from credit card abuses. It’s not clear if the Senate will pass it too. “It’s one step forward and one step backward,” said Travis Plunkett, of the Consumer Federation of America. “Congress is moving in fits and starts to re-regulate the financial services industry and the banking lobby still has tremendous clout.”

“Tremendous clout” is an understatement.

In this past week, we also saw how a few hedge funds undermined the attempt to save Chrysler from bankruptcy by holding out for more money even after the unions and big banks agreed to compromise to save jobs.

The President was furious but apparently powerless: “A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout,” Obama said. “They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting.”

Explains the blog Naked Capitalism, “the banksters are eagerly, shamelessly, and openly harvesting their pound of flesh from financially stressed average taxpayers, and setting off a chain reaction in the auto industry which has the very real risk of creating even larger scale unemployment than the economy already faces. It’s reckless, utterly irresponsible, over-the-top greed.”

Will they be allowed to get away with it? A “captured” Congress is doing their bidding. There is no doubt that class antagonism is stewing, says the editor of the blog. He expressed a fear of a reaction that will go way beyond flag-wavng tea parties.

“… I am concerned this behavior is setting the stage for another sort of extra-legal measure: violence. I have been amazed at the vitriol directed at the banking classes. Suggestions for punishment have included the guillotine (frequent), hanging, pitchforks, even burning at the stake. Tar and feathering appears inadequate, and stoning hasn’t yet surfaced as an idea. And mind you, my readership is educated, older, typically well-off (even if less so than three years ago). The fuse has to be shorter where the suffering is more acute.”

One is reminded of the title of that movie, “There will be blood.” Rather than show contrition or compassion for its own victims, Wall Street is hoping to jack up its salaries and bonuses to pre-2007 levels. The men at the top are oblivious to the pain they helped cause. And so far, they’ve only occasionally been scolded by politicians that have mostly enabled, coddled, bankrolled, funded, rewarded, and genuflected to their power.

Wall Street’s behavior may be predictable, but how can we account for the silence of so many organizations that should be out there organizing the outrage that is building? Knock, Knock, Obama supporters, bloggers, trade unionists, out of work workers and fellow Americans. Will we fight back or roll over?

Pitchforks anyone?

Mediachannel’s News Dissector Danny Schechter is making a film about Wall Street based on his book Plunder (newsdissector.com/plunder). Comments to dissector@mediachannel.org 

Financial elite have no shame February 7, 2009

Posted by rogerhollander in Canada, Economic Crisis.
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Let’s imagine, for a moment, how different the public debate would be today if it had been unions that had caused the current economic turmoil.

In other words, try to imagine a scenario in which union leaders – not financial managers – were the ones whose reckless behaviour had driven a number of Wall Street firms into bankruptcy and in the process triggered a worldwide recession.

Needless to say, it’s hard to imagine a labour leader being appointed to oversee a bailout of unions the way former Goldman Sachs CEO Henry Paulson was put in charge of supervising the $700 billion bailout of his former Wall Street colleagues.

My point is simply to note how odd it is that the financial community has emerged so unscathed, despite its central role in the collapse that has brought havoc to the world economy.

Of course, not all members of the financial community were involved in Wall Street’s wildly irresponsible practices of bundling mortgages into securities and trading credit default swaps. But the financial community as a whole, on both sides of the border, certainly pushed hard to put in place an agenda of small government, in which financial markets largely regulated themselves and citizens (particularly high-income investors) would be spared the burden of paying much tax.

The agenda advanced much further in the U.S., but had an impact in Canada, particularly on the tax front.

One would think that those who pushed this agenda so enthusiastically would, at the very least, be a tad embarrassed today.

But so influential are those in the financial elite – and their hangers-on in think-tanks and economics departments – that they continue to appear on our TV screens, confidently providing us with economic advice, as if they’d played no role whatsoever in shaping our economic system for the past quarter century.

Of course, we’re told there’s been a major change in their thinking, in that many of them are now willing to accept large deficits in today’s federal budget, in the name of stimulating the economy.

While this does seem like a sharp departure from the deficit hysteria of the 1990s, a closer look reveals the change may not be that significant.

In fact, financial types have always accepted deficits – when they liked the cause. Hence their lack of protest over George W. Bush’s enormous deficits, which were caused by his large tax cuts for the rich and his extravagant foreign wars.

What they don’t like is governments going into deficit to help ordinary citizens – either by creating jobs or providing much unemployment relief.

So the Canadian financial community has been urging that the stimulus package consist mostly of income tax cuts – even though direct government spending would provide much more stimulus and do more to help the neediest.

If the Harper government follows the financial community’s advice, we will simply move further along with the small government revolution launched by Ronald Reagan in the early 1980s.

Of course, tax cuts are not the same as financial deregulation. But they are twin prongs of a bundled package aimed at reducing the power of government to operate in the public interest.

Surely it’s time to rethink this resistance to government acting as an agent of the common good.

And maybe it’s time for a little humility on the part of a financial elite that long has enjoyed such deference while turning out to be so spectacularly inept.
 

Linda McQuaig’s column appears every other week. lmcquaig@sympatico.ca

GREENSPAN: “OOPS” October 23, 2008

Posted by rogerhollander in Economic Crisis.
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IF THE CURRENT CRISIS, WHICH APPEARS DESTINED TO GENERATE A 1929 LIKE DEPRESSION, DOESN’T STRIP BARE THE FATAL FLAW IN THE U.S. STATE CAPITALIST ECONOMY, I DON’T KNOW WHAT WILL.

 

LISTEN TO THE GREAT ECONOMIC GURU, ALAN GREENSPAN, WHO BELIEVED – BELIEVED ! – THAT BANKS WOULD BE PRUDENT IN THEIR LENDING PRACTICES TO PROTECT THEIR SHAREHOLDERS.  SO THE HEALTH OF THE AMERICAN ECONOMY WAS DEPENDENT ON REPUBLICAN DEREGULATED AND INSPIRED “PRUDENT BANKERS” TO PROTECT OUR HARD EARNED MONIES?

 

IF IT WEREN’T TRAGIC, IT WOULD BE LAUGHABLE.

 

WEALTH IS CREATED BY THE BLOOD AND SWEAT OF WORKING PEOPLE, AND WE HAVE BEEN BETRAYED BY BOTH THE OWNERS OF CAPITAL – FINANCIAL AND OTHERWISE – AS WELL AS OUR QUISLING ELECTED GOVERNMENT OFFICIALS IN CONGRESS AND ELSEWHERE.

 

THE BAILOUT ONLY EXACERBATES THE SITUATION, AND IT IS NOT WORKING.  NOTHING LESS THAN SYSTEMIC CHANGE IS NEEDED.

Greenspan Concedes Error in Regulatory View

Doug Mills/The New York Times

Alan Greenspan, former Federal Reserve chairman, with John Snow, former Secretary of the Treasury, at a hearing on Capitol Hill on Thursday.

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    Published: October 23, 2008

    WASHINGTON (AP) — Alan Greenspan, the former Federal Reserve chairman, said Thursday that the current financial crisis had uncovered a flaw in how the free market system works that had shocked him.

    Mr. Greenspan told the House Oversight Committee on Thursday that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had proved to be wrong.

    Mr. Greenspan said he had made a “mistake” in believing that banks operating in their self-interest would be enough to protect their shareholders and the equity in their institutions.

    Mr. Greenspan said that he had found “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.”

    Mr. Greenspan, who headed the nation’s central bank for 18.5 years, said that he and others who believed lending institutions would do a good job of protecting their shareholders are in a “state of shocked disbelief.”

    He said that the current crisis had “turned out to be much broader than anything that I could have imagined.”

    The committee called Mr. Greenspan to testify along with former Treasury Secretary John W. Snow and the Securities and Exchange Commission chairman, Christopher Cox, as lawmakers sought to discover if regulatory failings had contributed to the crisis.

    The committee chairman, Henry A. Waxman, said he believed that the Federal Reserve, which regulates banks, the S.E.C. and the Treasury had all played a role in contributing to the mistakes.

    “The list of mistakes is long and the cost to taxpayers is staggering,” Mr. Waxman, a California Democrat, told the three men. “Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite. The mantra became that government regulation is wrong. The market is infallible.”

    In his testimony, Mr. Greenspan blamed the problems on heavy demand for securities backed by subprime mortgages by investors who did not worry that the boom in home prices might come to a crashing halt.

    “Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment,” Mr. Greenspan said. “Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity.”

    Mr. Greenspan said that a necessary condition for the crisis to end would be a stabilization in home prices but he said that was not likely to occur for “many months in the future.”

    When home prices finally stabilize, Mr. Greenspan said, then “the market freeze should begin to measurably thaw and frightened investors will take tentative steps towards re-engagement with risk.”

    Mr. Greenspan said until that occurred, the government was correct to move forward aggressively with efforts to support the financial sector. He called the $700 billion rescue package passed by Congress on Oct. 10 “adequate to serve the need” and said that its impact was already being felt in markets.

    Mr. Greenspan did not specifically address the criticism he is receiving now as being partly to blame for the current crisis.

    Mr. Greenspan’s critics charge that he left interest rates too low in the early part of this decade, spurring an unsustainable housing boom, while also refusing to exercise the Fed’s powers to impose greater regulations on the issuance of new types of mortgages, including subprime loans. It was the collapse of these mortgages and rising defaults a year ago that led to the current crisis.

    In his testimony, Mr. Greenspan put the blame for the subprime collapse on overeager investors who did not properly take into account the threats that would be posed once home prices stopped surging upward.

    “It was the failure to properly price such risky assets that precipitated the crisis,” Mr. Greenspan said.

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