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Tag: "Wall Street"

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By Erich Vieth on November 18th, 2009

When do the prosecutions begin?

In the St. Louis alternative newspaper, The Riverfront Times, James Lieber sizes up the prosecutions now underway for the economic collapse. Oh, wait. There aren’t any prosecutions:

As it stands now, there is only one federal prosecution related to the credit crash and bailout cycle, and it was begun by the Bush administration’s Justice Department in June 2008.

Not that there aren’t culprits. Bernie Madoff and other accused Ponzi schemers like Allen Stanford are mere pickpockets compared with Wall Street’s institutional buccaneers, who so far have carted off up to $12.7 trillion — that’s nearly equal to the entire gross domestic product. They’ve multiplied their booty with billions in subsidies and a flood of derivatives — some of them merely old soured wine in new bottles. Today’s pirates are sailing away from the light regulatory scrutiny that apparently will continue in our benighted, weakened, financially top-heavy and bubble-addicted economy. [Former regulator William] Black says Obama’s current efforts are doomed to fail — and, in a twist, it’s for lack of trying. “There is not a single successful regulator giving him advice,” Black notes.

I’ve posted about William Black previously. Lieber describes him as follows: “a Ph.D. criminologist and lead lawyer at the Office of Thrift Supervision, who helped steer the brilliant federal effort that cleaned up the S&L industry and won more than 1,000 felony convictions of senior insiders while recovering millions of their ill-gotten dollars.” Black is someone to whom Obama should be listening. He states that there are two reasons why there aren’t vigorous ongoing prosecutions resulting from this collapse

1) “It’s difficult to prosecute others for securities fraud if you condoned the deals to begin with,” and

2) Obama administration lacks the will. Obama was the candidate most preferred by Wall Street and he has surrounded himself with lackeys for big finance, including not only Lawrence Summers and Tim Geithner, but also Attorney General Eric Holder, who has made it clear that white collar crime is something which he’d rather not prosecute.

Keep in mind that “Wall Street’s institutional buccaneers [have] so far have carted off up to $12.7 trillion, and that in 2008, In 2008 American households lost 18 percent of their wealth. Why aren’t there more prosecutions? There’s no good reason. This is an excellent in-depth article. The title: “No Justice: We’ve bailed out the banks. When do we go after the crooks behind our financial collapse?”

Economy • Featured • Politics • Psychology Cognition
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More to the peak oil story
By Brynn Jacobs on November 09th, 2009

More to the peak oil story

A few weeks ago, I wrote a post entitled “The Unspoken Reality of ‘Peak Oil’“, in which I tried to convey the scale of the problem we face. “My main motto never changes, the era of low oil prices is over,” said Dr. Fatih Birol who is the Chief Economist for the International Energy Agency (IEA). Now we have even more confirmation that peak oil has arrived. Today, the IEA released their 2009 version of the annual World Energy Outlook, in which they attempt to forecast supply and demand through 2030. And once again, the IEA continues to forecast that there will be plenty of supply, if only we can muster the needed capital investments. Unfortunately, the needed capital investments are enormous:

The capital required to meet projected energy demand through to 2030 in the Reference Scenario is huge, amounting in cumulative terms to $26 trillion (in year-2008 dollars) — equal to $1.1 trillion (or 1.4% of global gross domestic product [GDP]) per year on average. (p.43)

As if that weren’t bad enough, the release of the report has been almost completely overshadowed by yesterday’s Guardian which has alarming allegations from two different whistleblowers within the IEA

Current Events • Featured • Sustainable Living
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By Erich Vieth on October 28th, 2009

Bond raters hiding behind First Amendment

This is insanity: The bond raters, those three big Wall Street companies that rated crappy mortgages to be great investments, thereby plunging the country into economic chaos, are hiding behind the First Amendment. They are claiming that they can’t be sued for the financial equivalent of calling a mouse an elephant, because their work product is just an “opinion.” We charge millions of dollars for giving you a rating, and you can’t hold us accountable because it’s an “opinion.”

I’ll tell you this: I work as a lawyer. If a screw up someone’s case because I give him bad advice (in return for charging her a fee), she could (rightfully) sue me for malpractice. If I raised the defense that I can’t be sued for terrible advice because it was merely “an opinion,” I’d be laughed out of court with an adverse judgment tattooed onto my forehead. That the courts aren’t letting these ratings firms get hammered makes you wonder whether the unspoken defense is “too big to fail.” If they didn’t have this ridiculous “First Amendment” defense, the smug and irresponsible raters would be ripped apart by millions of justifiably irate plaintiffs.

And, of course, Congress is in no hurry to beat back the ratings firms’ lobbyists and hold these jokers accountable for all of the 401K’s they’ve trashed.

Economy • Featured • Fraud • Law
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By Erich Vieth on October 21st, 2009

What’s up with economic reform? Not enough.

At Alternet, you can read Art Levine’s detailed account of legal corruption of the economic “reform.” It’s not pretty, and the good guys are losing many of the important battles. Here’s a passage, but go read the whole thing–it’s well written and critically important:

So, the sleek, blond J.P Morgan lobbyist in a smart gray suit set off by a brightly colored scarf was able to saunter in shortly before the doors opened for the hearing to see just how many more loopholes could be added. (She declined to identify herself.)

Like the evicted family in Michael Moore’s new film being hired by the bank to clean out their own home, the banking-industry lobbyists in Washington have at long last created the ultimate trickle-down effect from the bailouts: hiring the jobless ( for $11 to $35 an hour) to hold their places in line to make sure there’s no effective federal crackdown preventing more job-destroying speculation in credit default swaps and other derivatives.

Corruption • Economy • Featured • Politics
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By Erich Vieth on October 18th, 2009

Elizabeth Warren: Nothing much has changed

Elizabeth Warren has lots of bad news, the “stabilized” economy and the huge Wall Street bonuses notwithstanding. Warren is the Chair of the Congressional TARP Oversight Panel.

Good for her, hammering on Henry Paulson’s enormous bait and switch. Most of that TARP money was supposed to be used for loans for small businesses, not more gambling and bonuses, which is where it appears to have gone. Yet, according to Warren, there will “never” be a meaningful accounting of that money.

Economy • Politics • Psychology Cognition
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By Erich Vieth on October 09th, 2009

The bankers continue their stranglehold over Washington.

Bill Moyers interviewed economist Simon Johnson and U.S. Representative Marcie Kaptur of Ohio about the Wall Street/Washington connection and the picture isn’t pretty. In fact, it’s terrifying. I highly recommend that you make yourself watch this 30-minute segment. It’s a massive problem with no hint of a solution. Here’s an excerpt:

BILL MOYERS: Why have we not had the reform that we all knew was being was needed and being demanded a year ago?

SIMON JOHNSON: I think the opportunity the short term opportunity was missed. There was an opportunity that the Obama Administration had. President Obama campaigned on a message of change. I voted for him. I supported him. And I believed in this message. And I thought that the time for change, for the financial sector, was absolutely upon us. This was abundantly apparent by the inauguration in January of this year. . . . And Rahm Emanuel, the President’s Chief of Staff has a saying. He’s widely known for saying, ‘Never let a good crisis go to waste’. Well, the crisis is over, Bill. The crisis in the financial sector, not for people who own homes, but the crisis for the big banks is substantially over. And it was completely wasted. The Administration refused to break the power of the big banks, when they had the opportunity, earlier this year. And the regulatory reforms they are now pursuing will turn out to be, in my opinion, and I do follow this day to day, you know. These reforms will turn out to be essentially meaningless.

MARCY KAPTUR: When Lincoln ran into trouble, during the Civil War, he got new generals. He brought in Grant. I hope that President Obama will bring in some new generals on the financial front.

BILL MOYERS: Should Geithner be fired? And Summers be fired?

MARCY KAPTUR: I don’t think that any individuals who had their hands on creating this mess should be in charge of cleaning it up. I honestly don’t think they’re capable of it.

BILL MOYERS: Let me show you an excerpt from the speech President Obama made on Wall Street last month, September. Here is the challenge he laid down to the bankers.

PRESIDENT OBAMA: We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.

BILL MOYERS: A reality check. Not one CEO of a Wall Street bank was there to hear the President. What do you make of that?

SIMON JOHNSON: Arrogance. Because they have no fear for the government anymore. They have no respect for the President, which I find absolutely extraordinary and shocking. All right? And I think they have no not an ounce of gratitude to the American people, who saved them, their jobs, and the way they run the world.

Economy • Politics • Psychology Cognition
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By Erich Vieth on October 05th, 2009

Matt Tabbi on economic death by short-selling

In this month’s Rolling Stone, Matt Tabbi once again takes on Wall Street with an article entitled “Wall Street’s Naked Swindle.” This article is not yet available online. Tabbi’s focus this time is naked short selling. Tabbi has proven to be an excellent teacher of abstruse financial concepts, including the concept of short selling, and also including the insidious practice of naked short selling. With this technique (and others) Wall Street has turned the economy into “a giant asset-stripping scheme, one whose purpose is to suck up the last bits of meat from the carcass of the middle class.”

Tabbi’s article is an excellent read, which is not at all surprising given Tabbi’s track record. The bottom line is that naked short selling is a “flat-out counterfeiting scheme.” How bad is the widespread use of this technique?

That this particular scam played such a prominent role in the demise of [Bear and Lehman] was supremely ironic. After all, the boom that had ballooned both companies to fantastic heights was basically a counterfeit economy, a mountain of paste that Wall Street had built to replace the legitimate business it no longer had. By the middle of the Bush years, the great investment banks like bear and Lehman no longer made their money financing real businesses and creating jobs.

As Tabbi then reminds us, there is more than one way to counterfeit. Consider credit default swaps:

If you squint hard enough, you can see that the derivative-driven economy of the past decade has always, in a way, been about counterfeiting. At their most basic level, innovations like the ones that triggered the global collapse-credit default swaps and the collateralized debt obligations-were employed for the primary purpose of synthesizing out of thin air those revenue flows that are dying industrial economy was no longer pumping into the financial bloodstream. The basic concept in almost every case with the same: replacing hard assets with complex formulas that, once unwound, would prove to be backed by promises and IOUs instead of real stuff.

In this related piece, Tabbi further discusses “naked short selling”:

Again, a lot of this stuff is complicated and not only hard for people outside the finance world to follow, but kind of, well, boring as well. But it’s through these tiny regulatory loopholes, these little nooks and crannies, that the economy gets manipulated. The effect of all of these regulatory gaps has been to transform Wall Street from a means of connecting capital to good business ideas into a giant casino, where the object of the game is shaving little slices off the great flows of money as you push them back and forth using a great big toolbox of manipulative techniques. This is one of the tools.

Economy • Fraud • snake oil
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Matt Tabbi goes to war against Goldman Sachs
By Erich Vieth on July 02nd, 2009

Matt Tabbi goes to war against Goldman Sachs

Rolling Stone’s Matt Tabbi is one of my heroes. I’ve often recommended his investigative pieces at DI. Tabbi’s latest Rolling Stone article is an all-out attack on Goldman Sachs as the culprit behind the bubbles and busts. No, they don’t “just happen.” [Note: the full article is here]. No, Goldman Sachs isn’t the only culpable entity, but Goldman serves well as a deserving target for the kinds of criminal abuses that have destabilized the U.S. economy and crushed the savings of so many people.

Here’s one example of many by Tabbi, this one explaining how it was that so many shitty mortgages were approved by lenders across the United States. Step One for this problem (as it is for so many other problems with the economy) is to eliminate sane standards for evaluating the economic worth of commodities, individuals and entities. The first step has the intentional function of destroying the possibility of honest valuation, thereby setting the stage for confusing and misleading investors:

Goldman’s role in the sweeping global disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren’t in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that shit out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

Beware, that if you watch the videos of Tabbi explaining this blatant robbery of investers and taxpayer, as well as the Democrat complicity with this mess, you will seethe. You will feel betrayed.

Economy • Featured • Fraud • ignorance • snake oil
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Nothing about our economic system has really been fixed, or even diagnosed, and time is running out.
By Erich Vieth on June 07th, 2009

Nothing about our economic system has really been fixed, or even diagnosed, and time is running out.

According to SANDY B. LEWIS and WILLIAM D. COHAN, nothing about our economic system has really been fixed or even diagnosed, and time is running out. This is the theme of a powerfully and clearly written Op-ed piece in today’s New York Times, entitled “The Economy Is Still at the Brink“:

We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over — and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow’s swings are a fool’s game . . .The storm is not over, not by a long shot.

Lewis, who owns a brokerage house and Cohan, a Wall Street banker, succinctly present the problem and some solutions:

Six months ago, nobody believed that our banking system was well designed, functioning smoothly or properly regulated — so why then are we so desperately anxious to restore that model as the status quo? . . . Instead of hauling out the new drywall to cover up the existing studs, let’s seriously consider ripping down the entire structure, dynamiting the foundation and building a new system that rewards taking prudent risks, allocates capital where it is needed, allows all investors to get accurate and timely financial information and increases value to shareholders and creditors.

The authors lay out numerous areas of concern, many of them in the form of pointed questions. Why, indeed, haven’t we taken steps to change the system? As Einstein once said, insanity is “doing the same thing over and over again and expecting different results.” Lewis and Cohan urge President Obama to take these real steps, to get serious about the faux solution so far imposed (the massive injection of federal money in the absence of any systematic fix).

Instead of promising the imminent return of good times, why isn’t Mr. Obama talking more about the importance of living within our means and not spending money we don’t have on things we don’t need? . . . We are 139 days into his presidency, and while there is still plenty of hope that Mr. Obama will fulfill his mandate, his record on searching out the causes of the financial crisis has not been reassuring.

Lewis and Cohan’s Op-ed is must-reading and disturbing reading.

Economy • Featured • Politics
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How to really reform the SEC
By Erich Vieth on May 26th, 2009

How to really reform the SEC

Dan Smolin asks a good question: Why should we assume that the SEC’s Mary Schapiro will make a U-turn in 2009, given that Schapiro has spent her entire career inviting brokerages to “self-regulate” and doing everything in her power to keep consumers at bay when they are ripped off and kept in the dark by brokerages? The easy answer is that we shouldn’t assume that Schapiro will all of a sudden go to bat for the consumers. After all, Schapiro “has been at the very center of a failed regulatory process for the past two decades.” We know where her loyalties lie, just like we know that Tim Geithner will never turn hard against Wall Street to clean up the corruption (see here for more details on Geithner–and here). Truly, years of actions speak much more loudly than months of words for both Schapiro and Geithner.

I am convinced that Obama doesn’t have the horses he needs to clean up Wall Street corruption. It’s a typical modern conundrum where you need a highly motivated powerful outsider to get the job down, but there simply aren’t enough highly motivated powerful outsiders.

If Mary Schapiro had even an iota of interest in protecting consumers, Smolin wouldn’t be needing to advocate for the following changes he is now pushing–they would have been a reality years ago:

1. Abolish the mandatory arbitration system and give investors back their constitutional rights;

2. Abolish “self regulation” by FINRA, which is a sham. The brokerage industry should be regulated by a governmental authority with the power to do so effectively. The SEC would be the likely agency to do so, with the right leadership;

3. Require brokerage statements to:

(a) Disclose the risk of every portfolio, as measured by standard deviation;
(b) Compare the returns of every portfolio to a portfolio indexed to benchmarks of comparable risk; and
(c) Disclose the “cost equity” of the portfolio, which is the amount the investor must make to break even, after payment of commissions, fees and margin interest.

Common sense, right? Why aren’t these reforms a reality? Good question. And why is a terribly motivated person like Mary Schapiro still sitting there pretending to be a reformer?

Corruption • Economy • Good and Evil • Law • Politics • law and order
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By Tony Coyle on May 12th, 2009

The Crisis of Credit - visualized!

In my never ending quest to understand more about why we are currently in a recession and why my house is worth less than a brace of Latte’s from Starbucks, I seek insight from teh intertubes. I found such insight at the Church of the Apocalyptic Kiwi - (who were also inspirational during the presidential race, fyi)

Enjoy!

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

American Culture • Communication • Current Events • Economy • snake oil
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Bank Regulator William K. Black: The best way to rob a bank is to own one.
By Erich Vieth on April 06th, 2009

Bank Regulator William K. Black: The best way to rob a bank is to own one.

I’ve often had the thought that our massive meltdown could be figured out if we could only recruit some intelligent and well-motivated people to gather and analyze the evidence. But who would those people be? Who could serve as the template the type of character we seek out in such people?

Too bad we don’t have 1,000 people like William K. Black. Black is the former senior regulator who cracked down on financial institutions during the savings and loan crisis of the 1980s, pointing fingers at five congressmen including John McCain. Black went about his work with such vigor that he even drew a death threat from Charles Keating.

Have you ever gotten excited listening to anyone talking about the economy? In this breath-taking interview with Bill Moyers, Black offers his own carefully studied analysis regarding the “bailout.” This is not the intentionally abstruse financial jargon that you usually hear when pundits discuss the meltdown. The theme of the Black’s interview is this: “The best way to rob a bank is to own one,” which is also the title to a book he wrote in 2005. Black teaches economics and law at the University of Missouri — Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007.

This video is required viewing for anyone who is convinced that we are not getting the straight scoop from the corporate media or from our government.

American Culture • Economy • Featured • Fraud • Media • Politics
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By Erich Vieth on March 21st, 2009

Matt Tabbi’s take on the economic meltdown

I’ve long-admired Matt Tabbi’s thought-process and writing style. This week at Rolling Stone, Tabbi weighs in on what he thinks is really going down in Washington DC and on Wall Street:

People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations. The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess . . . .

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

In the process of writing this article, Tabbi shows no mercy for AIG or any other company dabbling in CDO’s (collateralized-debt obligations) or CDS’s (credit-default swaps). This feels right to me: Showing no mercy to those who dabbled in speculative financial instruments as if they were conservative investments. After all, those financial “gurus” who made these decisions were highly educated people with legions of financial and accounting experts working for them. They should have known better. They have no excuses.

Nor does the federal government have excuses. Case in point: Who was regulating AIG? One inept guy.

Among other things, the GAO report noted that the entire OTS had only one insurance specialist on staff — and this despite the fact that it was the primary regulator for the world’s largest insurer!

I don’t know enough about economics to really weigh in on this crisis. I am highly suspicious about the need for these “bailouts,” however. I do know that this money is already gone and that there is almost no accountability for the money we’ve paid out. I do know that the government has almost no hope of tracing the use of the trillions it is spraying out, almost all of it to proven irresponsible politically-connected financial bigshots. And I do know enough to understand that far too many prominent economists are looking and acting bewildered. I also suspect that many Wall Street power brokers, the same ones that got us into this mess, are still in charge. I know enough to understand that many people who seem to be well-positioned to understand this mess are looking clueless.

I hope I’m wrong in all my assumptions.

Economy • Politics
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