Theft of a Nation: Wall Street Looting and Federal Regulatory Colluding by Gregg Barak, (2012)
I had to get this book from Interlibrary Loan. It was a rare time when my local library did not have a book I wanted. It was pretty squeaky new; I suspect it had not been read before, and that is a shame because it is well-written and full of footnoted facts that will remind you again of why we were all mad enough to “Occupy Wall Street” just a few years ago. And the really sad part is that nothing has changed. Republican entrenchment has only become worse. I cannot understand where they get their deep and abiding conviction that the government owes NOTHING to the citizens, not even the right to vote. I am almost too tired, too sad, and too discouraged by the current election cycle (2016) to even bother to bitch about these old and wiped out of current memory catastrophes and the bastards that became millionaires and billionaires through endless corruption, greed, and sense of entitlement. These are people who do not care about the consequences of their actions: we have a surfeit of sociopaths in charge of our economy and government. The effects are catastrophic to Main Street and Wall Street just keeps on stealing the wealth from everyone else with their CEO pay, multi-million dollar bonuses, and casino capitalism.
If your personal wealth is predominantly in capital markets [then] you had a hell of a scare, but you’re 70 percent of the way back to where you were in 2007. If your personal wealth is predominantly in your home, you’re fucked. And for approximately 80 percent of the people in the United States, their only asset is their home.
— Damon Silvers, a lawyer at the AFL-CIO and member of the TARP Congressional Oversight Panel 2011 (p. 40)
TARP was not the only solution proposed, and some could have addressed “the needs of Main Street” but W’s faux populist have-a-beer-with-me kind of guy would not have allowed it. Nor would the “advisors” aka former and/or future Goldman Sachs employees, have ever let Main Street have anything “free” (it would be immoral to pay for excessive mortgage debt directly to the consumers because they have only themselves to blame for buying a house they couldn’t afford).
Ha! He mentions the pretend “Wall Street Reform and Consumer Protection” bill (Dodd-Frank) is 2,300 pages long!!!! It is ridiculous! No one can know much less enforce “a law” 2,300 pages long. And you just know that the Republicans at the behest of their puppet masters included all kinds of loopholes and arbitration clauses or other get out of jail free provisions in it. (p. 40)
Going back to the start of the book, one of the issues addressed included the way that the Wall Street fraudsters differed from individual crooks is the systemic and indeed incentivized financial industry employees to steal without distinguishing that from business as usual.
A similar but expanded answer comes from the book No One Would Listen (2010) by Harry Markopolos. Markopolos, an independent financial fraud investigator for institutional investors and others seeking forensics accounting expertise, has emphasized the cultural and social acceptance of FREE-MARKET IDEOLOGIES and the political denial over the past three decades of the harmful consequences of widespread deregulation. He and other insiders have also elaborated on the declining enforcement activity of the financial regulatory agencies of the United States during this period. For example, despite the detailed evidence of Madoff’s fraud provided by outside informers and independent investigators to the Securities and Exchange Commission beginning in the late nineties, the SEC never took ANY official steps against his [Madoff’s] Ponzi scheme.
The same kinds of explanation may be applied to those too-large-to-fail financial institutions like AIG, Countrywide Financial, or Goldman Sachs. Despite all the red flags, warnings, and concerns raised by people inside and outside of the SEC, the Federal Reserve Board, and the DOJ over the “questionable,” “risky,” and “unsound” practices of these financial transactions, these firms were given a free pass to persist in their behavior without interference until the meltdown began in the fall of 2007. It has also been argued by academics and commentators that in the case of the frauds committed by both Madoff and Wall Street, professional were acting “without understanding the underlying logic of the transactions they made, and those who knew better ignored the signs of impending disaster. And in both cases, agencies failed to exercise oversight delegated to them as ‘guardians of trust.’”
This argument, although correct, is too generous and does not get close to the most germane legal issues surrounding the sanctioning and punishment of Wall Street financial fraud. For example, by the end of 2011, with no shortage of existing evidence on the widespread and institutionalized fraud committed by Wall Street firms and with the statute of limitations on securities litigation about to expire, not one of these “defrauding banksters” or their fraudulent corporations had been criminally prosecuted by the United States. Moreover, with the billions of the dollars looted and the trillions of dollars lost and the millions of victims harmed, the U.S. Congress and G. W. Bush BAILED OUT THE HIGHEST-ROLLING BANKERS, MORTGAGERS, AND INSURERS in October 2008 when the president signed into law the Troubled Asset Relief Program (TARP). Had the government NOT purchased the assets and equity from these Wall Street financial institutions to cover the losses wrapped up in their toxic derivative investments, these corporations would have collapsed, as Washington Mutual Bank and Lehman Brothers did a few weeks earlier in September 2008.
Comparatively, Madoff’s Ponzi scheme was unique in the annals of Ponzi schemes. Its longevity, size, and global reach make similar Ponzi schemes highly unlikely in the future. By contrast, the episodic orgies of speculation, manipulation, and rigging of financial markets by Wall Street bankers are as old as “leveraged based investments,” according to the late John Kenneth Galbraith, a former president of the American Economic Association. Historically, when these institutional fraudsters have been “caught” with smoking guns in their hands, they are rarely, if ever, criminally prosecuted for securities fraud. When occasional sanctions do occur, they usually involve civil, administrative, or regulative enforcement. If financial penalties are incurred, they are a small fraction of the monies “illegally” gotten, and none of the fined parties or corporations has to admit publicly or otherwise to any intentional misdeeds or wrongdoing. Such lawful dishonesty exemplifies the contradictions of bourgeois legality and the crimes of capitalist control alike. (pp. 24-25)
The thing that amazed me about the crash, Madoff, the Savings & Loan, Enron, and on and on, is that smart people are suckered just as much as less astute investors. This creates a halo effect where investors probably said, well if XYZ invested in this, they must have done due diligence and thus it is safe to gamble my money on this scheme or that. The problem being that those assholes in the financial industry don’t give a shit about you or your money. They make money off the trade whether it is good or bad, so they don’t really have to even read a prospectus. They are their own little boys club sharing tips and rumors and doing whatever it takes to make their million dollar bonuses. Something 99 percent of Americans will never even see in their lifetimes.
It is obscene that the “free-market” has rewarded financial “managers” to pillage with impunity and gamble money not their own away without regard for the risk or the consequences. The fact that the consumer protection bureau had to be implemented — at great difficulty since it would actually do something to stop the corporations from gouging consumers, something the rich fucks don’t want to see happen — and has been constrained and thwarted from doing their mission as much as Republicans could manage, shows that our Congress is not there to help we the people, but rather is millionaires catering to billionaires and their corporate persons that will never die, never be jailed, and never have to do anything but pay fines and carry on. [Please read the Alternet article linked here. It is excellent.]
The book goes on to point out that, in part because they never have to admit to any wrongdoing, the banksters just keep on, factoring in fines as a cost of doing business. I’m pretty sure they even get to write fines off as a business expense to reduce their taxable income! We were stuck with the highly overrated and “great” mind (choke) of freaking Alan Greenspan for decades with his Ayn Rand obsession, and University of Chicago neoliberalism incorrect beliefs controlling the Federal Reserve System. He finally admitted that his “assumptions about self-correcting financial markets were wrong. Duh, ya think?
Another one of the cabal of Goldman Sachs cronies neck-deep in corruption and fantasies about “free-market” ideology not based on any version of reality is Lloyd Blankfein (CEO of Goldman Sachs). He framed his “mistakes” as doing “God’s work” in order to sustain the free-market system. (p. 33) The arrogance and hubris is astounding. And you just know that if he caught a secretary using the company photocopier to copy her tax returns, she would be fired without references for making such a “mistake.”
The author points out that all investors are not equal in terms of accessibility to redress. They also were not all direct investors, but small timers who might not even have known where their financial “manager” was investing their money. After all, that expertise is what they theoretically were paying for as investors. They end up in personal ruination but the big investment firms and millionaires can just carry on, write off their losses, and never lose much sleep.
A few of the facts that ultimately led to Occupy Wall Street, but was ultimately unsustainable given the capitalist work or die founding principle included the bonuses and profits the CEOs and traders made for themselves and their companies.
Of course, what neither Blankfein nor most on Wall Street or Capitol Hill want to address are the CRIMES OF CAPITALIST CONTROL, whether it’s the everyday practices of securities fraud, or the institutionalized looting facilitated by a corrupt U.S. taxing system. For example, in the case of Goldman Sachs, the bank paid out $10 BILLION in COMPENSATION and BENEFITS in 2008 before netting a profitable income of $2 BILLION, which yielded an effective corporate of 1 percent or $14 million paid to Uncle Sam. For the same year, God’s helper, Blankfein, was the recipient of $42.9 MILLION in pay. [all tax deductible by the corporation] in pay. In 2010, compensation and benefits for twenty-six of the top thirty-five publicly held securities and investment-services firms set a record of $144 BILLION, “a 4% increase from the $139 billion paid out in 2009.” Moreover, the “data showed that revenue was expected to rise at 29 of the 35 firms surveyed, but at a slower pace than pay.” (p 33)
Another example of the million versus billions is that the fines are in the millions (usually) and yet the profits are in billions, so there is NO motive for the too-big-to-fail to change their ways and they have not done so. It’s all even worse now!
Another example of the outrageous pretense of being concerned was a Goldman Sachs stunt of announcing “it would spend $500 million to help thousands of small businesses recover from the recession.” Who knows if they actually followed through on this promise?
This public relations exercise represented a paltry sum of money when compared to the $16.7 BILLION the bank had already set aside for its BONUS POOL during the first nine months of 2009. In the same period, as a tax-deductible expense, the financial industry had also spent $344 million lobbying Capitol Hill AGAINST SUBSTANTIAL FINANCIAL REFORM. (p. 33)
Successfully obviously. You may even have heard a few rumblings about the now somewhat infamous (vowed to change by Bernie Sanders and Hillary Clinton – whose husband gutted financial regulation in the first place and who voted for the corporate gift bankruptcy bill as Senator) CARRIED-INTEREST TAX TREATMENT that yielded “about $10 BILLION in lower taxes” over ten years. That $10 billion could have paid for, gosh, where to start, pay off all mortgages for people earning less than $50,000 a year perhaps? This might make up for the equity loss their corruption cost homeowners and caused their home mortgages to be underwater. Or pay off all student debt, giving the next generation a shot at not being in debt peonage for the rest of their lives. But people must be held to a higher standard of “morality” than corporate persons. It would be immoral to “give” foreclosed homeowners a break, but not a problem at all to bail out the banks that defrauded actual people.
In the larger scheme of things, $10 BILLION is “chump change” compared to what has been at stake over Wall Street’s continued ‘free hand to keep peddling the indecipherable derivatives beyond the reach of regulators.’ “At the outbreak of the Great Recession, the Gang of Six — Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo — held more than 95 percent of the exposed derivatives whose total contract value exceeded $29 TRILLION. To put it simply, these bankers were not about to relinquish their control over the right to exploit these financial markets without a fight. Nor were these banksters about to turn their backs on their deregulatory and non-regulatory gains accomplished during the administrations of Presidents Bill Clinton and George W. Bush. . . .
Moreover, as business reporter and journalist Andrew Ross Sorkin argued in his best-selling Too Big to Fail (2009), these goliaths of the banking industry were protected by an implied taxpayers’ safety net. Hence, they have a built-in incentive to start taking risks again. (pp. 33-34)
The whole premise of a truly “free-market” capitalism is false. It is known that unfettered competition leads to increasing tendencies toward monopolies, not more chances for small businesses to thrive. That’s why we barely have any small businesses anymore! And why cable companies collude to fix fees and agree to separate territories. It’s why big companies continuously gobble up anything remotely competitive, park patents, and sue to kill competition. In the case of big pharma they even have it worked out so that the generic companies sue for the right to make generics and then they settle our of court for a large amount of money and the generic wanna be happily doesn’t bother. Big pharma also had it down to an art to tweak some irrelevant component so that they can apply for a new patent and start with proprietary protection all over again.
The most shocking thing I have learned in my nearly one year of reading mostly nonfiction is how the world as I thought it was never existed. The Democratic presidency of Bill Clinton did damage that Republicans would not have even tried. That is, his implementation of workfare, gutting Glass-Steagall, and other neoliberal policies that betrayed unions and turned the Democrats into moderate Republicans.
During the last quarter of the twentieth-century the basic philosophy and practice of free-market theories, often referred to as nineteenth-century laissez-faire theory or as neo-classical rational economics today, became the governing justifications for policies of DEREGULATION and NON-INTERVENTION. By the 1980s, these empirically UNDEMONSTRATED theories had come to capture academia by way of Milton Friedman, a pioneering, Nobel-winning economist [boo hiss] at the University of Chicago. Subsequently, these UNPROVEN THEORIES of “free markets” along with their accompanying ANTI-GOVERNMENT and ANTI-REGULATION ideologies came to dominate the imaginations of nearly all of the Republican and Democrats alike. Although free-market theory and practice has NEVER WORKED as explained, “free-market” rhetoric has served as a powerful ideological weapon and rationalizing tool for REDISTRIBUTING WEALTH UPWARD. This is not to argue that the neo-classical ideologies of free markets, governmental hands off, and privatization in general, as well as the deregulation of FINANCIAL SECURITIES and the lack of an economic-systemic delegitimation crisis in particular, have not been without their vocal critics and non-believers.
On the contrary, within academic and policy circles both inside and outside the official corridors of Wall Street and Washington, there have been alternative analyses and interpretations of economics, regulation, and state intervention. For the most part, those non-conforming perspectives have been dismissed, ignored, or marginalized by elite policy wonks of the prevailing political economy of neo-liberal capitalism. Those excluded outsides with a difference in approach to the Wall Street implosion of 2007-2008 and the future of financial markets have included such esteemed economists as Nobel Prize winners Maurice Allais and Joseph E. Stiglitz. Excluded insiders have included, for example, the recent demise of Brooksley Born, a former chair of the Commodity Futures Trading Commission (CFTC), or the earlier departure of Reagan appointee Ed Gray. . . . [who] became concerned about thrift speculation. He also become too persistent in his criticisms of and opposition to the new deregulations stemming from the Garn-St. Germain Act (1982). As a direct result, President Reagan accepted Gray’s early resignation from his appointed three-year term to spend more time with the family. (p. 45)
You all may not recall the Savings and Loan crisis that led to the Garn-St. Germain Act, but it was a crucial event in the history of corruption and the little spoken of now other Bush son, Neil Bush. Republicans paid his $50,000 fine and his legal expenses. George the First was Veep at the time of Silverado bailout that cost taxpayers about $1.3 billion. The whole Bush family legacy and history is one that has cost blood and money while they remain rich and pampered and prominent in politics. Gag.
Nevertheless, adherents to the ideologies of free markets with their often-distorted view of Adam Smith’s “invisible hand” typically believe that economic self-interest invariably leads to the best possible outcomes. According to this ideological orthodoxy, “Any restrictions on the PROFIT-SEEKING activities of individuals and corporations INTERFERE with the invisible hand, and therefore are ‘inefficient’ and nonsensical. Ignored by most of these ideologues in their deferential references to The Wealth of Nations (1776) were Smith’s concerns about self-interests leading to exploitation, injustice, and financial ruin. For example, Smith was critical of “how employers colluded with each other to keep wages low, as well as the ‘savage injustice’ that European mercantilist interests had ‘commit with impunity’ in colonies in Asia and the Americas. (p. 47)
. . .capitalism is an economic system of fragmented, contradictory, and uneven markets of risks and rewards. Consequently, the winners and losers of the current financial crisis are framed not only by the markets they have access to, but also to the bodies of rule enforcement that may be applied (or not) in legal practice. (p. 48)
Okay, trying to move on, but the book is really compelling reading. On page 51 there is a reference to a 1994 Supreme Court ruling I had not heard of before: Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164.
“In a stunning show of illogic,” the 5-4 majority held that plaintiffs may NOT argue an aiding and abetting suite under Section 10(b) of the Securities Exchange Act, “reversing sixty years of court and administrative rulings.” In other words, the court all but WIPED OUT INVESTOR PROTECTION by deciding that plaintiffs could no longer “sue advisors like investment bankers, accountants, and lawyers for aiding and abetting securities fraud. A suit against them could only proceed if the defendant was charged with primary liability, meaning the damaged party was his client. Hence, investors were prohibited from recovering any losses from those accountants, for example, who had signed off on fraudulent financial statements and upon whom they had relied as investors.
So basically, a get out of jail free card. And no risk of any financial consequences. And the small investors are fucked. Pages 52-55 should make you cry. Page 55 has a table of the top bonuses for 2007 and 2009 featured many millions per person, double figures, like $72 million for Gary Cohn at Goldman Sachs. God’s worker Lloyd Blankfein $70 million in 2007 and restrained himself taking a measly $9 million bonus in 2009. But the biggest winner was the mind blowing $160 million bonus in 2007 of Merrill Lynch’s CEO Stan O’Neal. He was forced to step down in 2008, after demolishing the company which was forcibly sold to a somewhat unwilling Bank of America.
Unfortunately, Obama didn’t think that those insane bonuses were unreasonable. And so he declined to prosecute anyone.
As Obama explained in an early 2010 White House interview, “I, like most of the American people, don’t begrudge people’s success or wealth. That is part of the free-market system.” Moreover, in defending the $27.8 million and $70 million that Dimon and Blankfein received in bonuses in 2007 as not excessive, he had this to say: “I know both those guys” and “they are very savvy businessmen.” Indeed, they are very savvy derivatives salesmen who with collusion from the political leaders in the U.S. government are still running speculative investment empires at taxpayer and consumer expense. Part and parcel of American Dream 3.0, this CASINO CAPITALISM gambles on little of SOCIAL VALUE other than mostly obscene gobs of currencies for building excessive personal fortunes by ways of fiddling with other people’s money and life savings.
President Obama is well aware of these other interpretations or constructions of economic inequality. He is also aware of those economic constructions of financial realities that are OUT-OF-BOUNDS in the land of free markets. A place where producers extracted FAR MORE than they were worth, given the risks being taken. At the same time,
‘their outsize compensation moved the pay goalposts for all in the fold (recall that Merrill Lynch CEO John Train’s driver earned $230,000 in a year). And pay is far and away the biggest expense at the firms, so systematic overpayment can and did leave them UNDERCAPITALIZED relative to the the risks assumed. At Goldman, for instance, average compensation across the firm in 2007 was $630,000, totaling 44% of net revenues, and nearly twice net earnings.’ (f. 52, p. 57)
. . . As it turned out, the financial looting was left in place as Congress ultimately took a hands-off approach regarding compensation.
. . . The public was furious at the recent news that American International Group [AIG]. which had been rescued by commitments of up to $180 BILLION in taxpayer money, was paying $165 MILLION in bonuses to executives and traders at the division that had nearly caused the company to collapse. (f. 53, p. 58)
. . . In addition to becoming one of the wealthiest industries in the history of the American economy and one of the most powerful political forces in Washington, Wall Street was able to use the ideology of FREE MARKETS to convince both sides of the political aisle “that unfettered innovation and unregulated financial markets were good for America and the world.” (f. 56, p. 59)
Privatized profit and socialized risk. And now since the maneuvering involved many mergers and acquisitions, the too big to fail banks are even bigger.
J.P. Morgan’s takeover of Washington Mutual’s failed banking operations in September 2008 increased the asset size of the New York company by more than $300 BILLION, or 20%. Bank of America bought Merrill Lynch & Co. and Countrywide as those two companies, with nearly $1 TRILLION in combined assets were sinking. Wells Fargo, the biggest bank on the East Coast, when Wachovia was on the verge of collapse in late 2008. The three bulked-up giants now hold more than a third of ALL DEPOSITS in 25 metropolitan areas that are home to 70 million people, or nearly one-fourth of the U.S. population. [!!!] (f. 59, p. 60)
This book has really excellent and significant factual details about the significant impact of all of this merging and what not. Like three banks made 57% of all home mortgages in the first quarter of 2010, up from 28% in 2008. (f. 61, p. 60)
‘When measured in terms of loans and other assets, these three giants plus Citigroup, Inc. had $7.7 trillion as of March 31, up 56% since the end of 2007. Their combined assets [were] nearly twice as big as the assets of the NEXT 46 BIGGEST BANKS‘ according to SNL Financial, a research firm in Virginia. (f. 62, pp. 60-61)
As pointed out elsewhere, this quantity of assets exceeds that of several countries.
By avoiding these structural contradictions and by failing to address the root causes of these financial crises the political establishment remains ‘captive to the idea that America needs big, sophisticated, risk-seeking, highly profitable banks.’ As long as this is the case Wall Street bankers will continue to have “the upper hand in any negotiation.” After all, politicians may come and go, but to date the banking oligopoly in the United States continues to grow exponentially. Meanwhile, the U.S. political economy, its infrastructure and institutions as a whole, continue to deteriorate from both a SCARCITY of financial credit and SOCIAL CAPITAL as well as from an ABUNDANCE OF UNENLIGHTENED SELF-INTEREST AND UNFETTERED VICTIMIZATION. (p. 61)
In the remaining chapters there are a lot of good details, including a few pages of tables naming names of the crooks and basically how much they paid to stay out of jail.
What is known for certainty about U.S. Financial markets is that with the ascendance of Reaganomics and neo-liberalism, usury laws were knocked down and end runs around Glass-Steagall began. . . .
To summarize, we are being fucked by the same greedy bastards that nearly broke the world. These seems to be very little we can do about it. That’s depressing. But we must hold on to hope and persist in pushing for more consideration for the citizens and less obsession about profiteering and cheating and by we most vulnerable people in the country.