Even someone as unfamiliar with the workings of Wall Street as I am could smell a rat when then Treasury Secretary Hank Paulson came running to Congress yelling that the sky was falling and unless American taxpayers gave the big banks hundreds of billions of dollars the global financial system would collapse.
Paulson provided no details to back up his claim. He didn’t even have a definite figure in mind. I think he eventually settled on something like 700 billion dollars. Blindly, trustingly, Congress wrote him a check.
That was just the beginning. Even after Paulson and his boss, George W. Bush, left the scene, the banks and insurance giant AIG continued to feed at the public trough. The rationale was that these institutions were too big to fail; if they were allowed to collapse, the global economy would go down with them.
I certainly am no financial expert, but I think I can recgnize a scam when I see it.
And I wonder why nobody has gone to prison in connection with the shenanigans that went on.
For example, one of the AIG hot shots sold insurance to investors when he knew the derivatives they were insuring would turn out to be worthless. When AIG couldn’t pay up, the government used your taxes to pay off the investors. As far as I know, the guy is still at large. The way I see it, he should be in prison.
And would you believe it? When the government asked who got the bailout payments, AIG refused to divulge such private information about its clients.
And how’s this one? Wall Street insiders who were selling the derivatives to customers were also selling the stock short – betting the price would collapse. Of course, they made a bundle while their customers got shafted. How is it possible that these racketters have not been charged?
In yesterday’s UK Guardian newspaper, Charles Ferguson wonders why there haven’t been widespread prosecutions under the RICO act. If this wasn’t racketeering, he asks, what is?
Ferguson reminds us that major hedge funds “including Magnetar, Tricadia, Harbinger Capital, George Soros, and John Paulson” made billions of dollars each by betting against the worthless mortgage securities when they probably had inside knowledge that a collapse was coming.
And they were just small players. The big banks were even more involved. Here’s an excerpt from the article:
Morgan Stanley started betting against the bubble as early as 2004…. Goldman Sachs …. made billions of dollars by betting against the very same stuff that it had been making billions selling only a year or two before.
Almost all the prospectuses and sales material on mortgage-backed bonds sold from 2005 until 2007 were a compound of falsehoods. And as the bubble peaked and started to collapse, executives repeatedly lied about their companies’ financial condition. In some cases, they also concealed other material information, such as the extent to which executives were selling or hedging their own stock holdings because they knew their firms were about to collapse.
In some cases, we have evidence of senior executive knowledge of and involvement in misrepresentations. For example, quarterly presentations to investors are nearly always made by the CEO or chief financial officer of the firm; if lies were told in these presentations, or if material facts were omitted, the responsibility lies with senior management. In other cases, such as Bear Stearns, we have evidence from civil lawsuits that senior executives were directly involved in selling securities whose prospectuses allegedly contained lies and omissions.
Ferguson argues that “a reasonable list of prosecutable crimes committed during the bubble, the crisis, and the aftermath period by financial services firms includes: securities fraud, accounting fraud, honest services violations, bribery, perjury and making false statements to US government investigators, Sarbanes-Oxley violations (false accounting), Rico (Racketeer Influenced and Criminal Organisations Act) offences, federal aid disclosure regulations offences and personal conduct offences (drug use, tax evasion etc).”
You would think a lot of big shot bankers would be in jail by now. But apparently it’s not that easy. Government watchdogs just haven’t been able to get their act together. And the crooks go free. Meanwhile, time passes and evidence gets harder and harder to come by.
To add insult to injury, presidential candidate Mitt Romney wants to roll back regulations passed in Congress to prevent similar Wall Street skullduggery in the future. He argues that regulations are a brake on econmic growth, that Wall Street should be allowed to do as it pleases, and that the tax structure should be revised to provide even richer pots for the scam artists.
How does that saying go? Fool me once shame on you; fool me twice shame on me?