Friday, 25 March 2011

Why isn't Wall Street in jail?

Recently, Rolling Stone published this question with a 10 page answer from reporter Matt Taibbi detailing some of what's gone down since the worldwide financial meltdown of 2008. I'm certain that as cynical we all are, the answers will not come as any sort of shock, but more of a confirmation of our suspicions that the rich get richer and the rest of us schmucks get trampled on without being able to do anything about it. The world is so big and complicated that at the end of the day does anybody truly know what's going on never mind who's to blame when anything does go wrong?

Many probably look at Rolling Stone Magazine as a hip rag connected to the music industry with all the latest and greatest about their favourite bands. Those same are either too young or have taken one too many tokes to remember the gonzo journalism of Hunter S. Thompson when his drug addled perspective on the American way graced the pages of the mag and set something of a standard in how reporting could drop the F bomb spelled in full with little regard for the censors or the prudent reserve of some of the readership. And that meant topics which were not about music, but about politics, big business, and society, all of those things which keep the lights on and the DVD players pumping out the beat.

So, imagine my interest when my eyes fell upon the above question with the tagline, "Financial crooks brought down the world's economy - but the feds are doing more to protect them than to prosecute them." Like a lot of people, I remain interested, no, fascinated by a crisis that didn't affect me personally, but reportedly left the entire world less well off. Of course, I'm probably affected but don't fully appreciate how. The numbers bandied about when talking about the bailouts and the amounts added to the debts of various countries have so many zeroes after them that I am no longer able to grasp the magnitude of the financial tsunami which engulfed the planet. I keep hearing a questing which goes like, "What is the legacy we are leaving our children?" and wonder that if I don't necessarily feel the pinch right now, will future generations be sinking under the financial burden being created today?

Taibbi talks about each of the big names we've come to associate with what is called the biggest financial crisis since the Great Depression of the 1930s: AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Despite attributing the blame for the most fraudulent financial malfeasance to the people running these companies, the reporter makes note of how no one has gone to jail. He adds that to add insult to injury, many times the people who have actually committed the crimes do not pay the fines themselves, the companies do and do so usually using funds from their own investors. The companies and their leaders and employees get off scot free and the ones paying the tab are the ones who have placed their hard earned money with these institutions.

The Securities and Exchange Commission (SEC) is the watchdog of Wall Street. It is their responsibility to look out for bad things and while the agency itself does not have prosecutorial powers, they do work closely with the Department of Justice (DOJ) whose job is to put the bad people in jail. Taibbi writes though that this isn't working. He says curiously that this isn't associated with any political party and it doesn't matter who's in office. It seems to be a question of the cozy relationship which exists between all the players, those in the government and those on Wall Street. This incestuous relationship has most of these people on a first name basis so that somebody at SEC may find themselves investigating not a criminal per se but possibly a friend.

An example of this lax enforcement is the story of Al "Chainsaw" Dunlap. SEC discovered that Sunbeam was using fraudulent accounting practices to hide losses from its investors and inflate profits. Its punishment for CEO Dunlap was a fine of $500,000 while barring him from running a public company again. Dunlap's net worth was an estimated $100 million and Taibbi points out that Dunlap had to do no jail time and retired on only $99.5 million. According to Wikipedia, Dunlap's career is checkered with shady practices and bad deals and CNBC shows him as number six on their list of the worse CEOs of all time.

Bank of America was caught hiding $5.8 billion in bonuses from shareholders. SEC fined them $165 million but did not require them to admit to any wrongdoing. I calculate that to only be 2.95% which in the grand scheme of things - $5.8 billion - is merely chickenfeed.

Taibbi writes: To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. "You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bulls**t would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once."

And who is Lloyd Blankfein I can hear you asking? He is the chairman of Goldman Sachs. FYI: Matt Taibbi has written an article "The Great American Bubble Machine" which presents some eye-opening information about this company and their complicity in various financial problems including the 2008 crisis.

It is interesting to read the reporter's accounts of various people involved in policing the financial industry who had proof of malfeasance but were either ignored or in some cases, fired. Is this an example of government inefficiency? Laziness? Or culpability in the whole affair? In the post-crash analysis, much of what is being retold seems so obvious, like trying to sneak an elephant up to your room after lights out, that it almost defies the imagination how anybody could miss the signs.

Taibbi answers this question at the end of his article. If government and big business look like they are in bed together, a glance at the names of the players reveals that government and big business are in bed together. People who have worked at SEC and other regulatory agencies have moved on to big business by making "a million-dollar Passing through the Revolving Door", ending up working for the same firms they used to police. He calls this a disturbing picture of a closed and corrupt system, a timeless circle of friends that virtually guarantees a collegial approach to the policing of high finance and closes with some examples of current law enforcement.

In 2010, the government deported 393,000 people. A mom lied about where she lived in order to get her kids into a better school district and was sent to jail for 10 days for fraud. But bankers? Taibbi adds that financial crimes don't seem real; you don't see the culprits waving guns in liquor store or dragging coeds into bushes. However he calls them worse. The perpetrators are rich with every conceivable social advantage but do what they do at the expense of others with immunity from any responsibility if anything goes wrong.

Pigs and Hogs
There's a wonderful saying my wife likes to use: Pigs get fat, hogs get slaughtered. No one denies that there isn't greed, but it seems there's greed then there's greed. What if in getting supposedly "your share", your actions actually destroy the system? What if you kill the goose that lays the golden eggs?

Oddly enough, the story that Taibbi tells puts a new spin on the concept of crime. The ins and outs of the situation are so complicated, you have a difficult time determining if there was a crime. If you do figure out there's a crime, you have a difficult time figuring out who is responsible and by the time the proverbial manure hits the fan, the fat cats have gotten their money safely locked up in off-shore accounts. How does the system penalize somebody who's rich? Certainly the fines paid by individuals and companies seem insignificant in comparison with the vast sums of money being earned by these players. A fine is nothing more than the price of doing business; it certainly isn't punishment and it certainly doesn't seem to be a deterrent to this despicable behaviour.

Are we all dishonest at heart?
Here's my scenario. I put you in front of an open bank vault and tell you that you are free and clear to take any amount you want; it is guaranteed that no one will ever know and you will never get caught. The question now is not whether you'll be punished; the question is merely whether you can overcome any moral compunction which would prevent you from taking the money. Yes, you could choose to not take the money but this would in no way benefit anybody or hurt anybody. The only aspect of this is that the money isn't yours. You would be taking money that wouldn't belong to you.

What would you do? I'm betting you'd take it. Why? Well, why not? Leaving the money benefits absolutely nobody on Earth; it would only benefit your conscious.

Apparently, back in the late 50's, a postal worker in San Francisco found a bag full of unmarked bills (unmarked = the bills could not have been traced) which had apparently fallen off a Brink's truck. - How does a bag of money "fall off" a truck? - The worker turned the bag in. When the story broke, the postal worker supposedly received letters from all over the United States telling him he was an idiot; he should have kept the money. Ha! I'd say those people wouldn't think twice about cleaning out the vault in my devised scenario above!

Dishonest to the limit
Everybody give me $1, just one measly dollar. I'm going to be rich and you're only out a dollar. Where's the harm?

That's the point, where is the harm because we can't see it. In the original Wall Street, Gordon Gecko took over companies, broke them up then sold the pieces all without caring about the poor schmos he put out of a job. This was business and this was about making a profit. At what point does making a profit go too far; at what point is there a risk of killing the golden goose? Pigs get fat; hogs get slaughtered.

Final Word
Matt Taibbi has written an excellent article. I am perusing some other pieces by him and I think he's got his finger on the pulse of finances in general and the financial crisis in particular. Check out "The Great American Bubble Machine" to hear more about Goldman Sachs, a very scary and nefarious company.

On a related note, I would recommend to anybody the documentary Inside Job which is about the 2008 financial crisis. Unlike your common horror flick trying to scare you with zombies and such, this film is a true horror story as it is the true story of a debacle of such immense proportions, I for one do not fully grasp what happened.

Let's all get informed. The people in power are counting on our ignorance and complacency. Individually, we're small but together and united, we can do something.


Rolling Stone - Feb 16/2011
Why Isn't Wall Street in Jail? by Matt Taibbi
Financial crooks brought down the world's economy — but the feds are doing more to protect them than to prosecute them.

Wikipedia: Matt Taibbi
Matthew C. "Matt" Taibbi (born March, 1970) is an American author and polemical journalist reporting on politics, media, finance, and sports for Rolling Stone and Men's Journal. Previously he edited and wrote for The eXile, the New York Press, and The Beast. His July 2009 Rolling Stone article "The Great American Bubble Machine" famously described Goldman Sachs as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

my blog: Movie Review: Inside Job

Rolling Stone - Apr 5/2010
The Great American Bubble Machine by Matt Taibbi
From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression -- and they're about to do it again

YouTube - July 4/2009
Rolling Stone: The Great American Bubble Machine PT.1 of 5
In Rolling Stone Issue 1082-83, Matt Taibbi takes on "the Wall Street Bubble Mafia" — investment bank Goldman Sachs. The piece has generated controversy, with Goldman Sachs firing back that Taibbi's piece is "an hysterical compilation of conspiracy theories" and a spokesman adding, "We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good." Taibbi shot back: "Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it." Here, now, are excerpts from Matt Taibbi's piece and video of Taibbi exploring the key issues.

Wikipedia: Goldman Sachs
The article's section called Controversies lists some scary dealings of this company which would make anybody wonder just how wicked it is.


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