Lessons from Old New York and New
One Lawman With the Guts to Go After Wall Street
| What the US was supposed to do, perhaps one state will. We trim, blend, and append three 2011 articles, two on a new investigation, May 18, from: (1) Rolling Stone by Matt Taibbi, and (2) Truthdig by Robert Scheer; and (3) Econamici, May 12, on oversight by Polly Cleveland. |
by Matt Taibbi, by Robert Scheer, and by Polly Cleveland
- Is the Hammer Finally Coming Down?
The new investigation by New York State Attorney General Eric Schneiderman is focused on at least three companies: Morgan Stanley, Bank of America, and old friend Goldman Sachs.
Lenders like Countrywide and New Century first created huge masses of bad loans, committing fraud to get people into loans (from doctoring income statements with white-out to phonying FICO scores to engineering fake appraisals). They then sold the bad loans to the big banks (above), which sold them to suckers around the world as AAA-rated securities.
The questions Schneiderman will ask: Did the banks securitize loans they knew were fraudulent? Did they commit fraud by duping the bond insurers into thinking the mortgages were not risky? And did they know, when they lent huge amounts of money to the Countrywides of the world, that they would use that money to create the bad loans? In other words, did the banks finance the fraud in addition to brokering it?
There is another investigation into the banks’ mortgage abuses. It’s by the states’ Attorneys General, led by Iowa AG Tom Miller. Although the Miller probe was focused on documentation abuses, it could theoretically have covered securitization as well.
If the AGs sign off on a friendly global settlement for mortgage abuses prematurely, it would be a blatantly political arrangement. Such a desire to sweep the mortgage mess under the rug seems almost universal among high-ranking politicians, and particularly in the Obama administration.
The banks cannot enter into a settlement with 49 states. They need all 50 at the table. If Schneiderman breaks rank and goes off on an end-run investigation, then an easy settlement vanishes.
The amount of money investors lost in this fraud scheme is probably gigantic. The ill-gotten money the banks made off that same fraud is probably similarly huge. And the damage to society, in the form of mass foreclosures and other losses, is incalculable. If the banks end up being found liable for all of these offenses, they could face truly crippling fines and penalties.
To see the whole article, click here
JJS: While bankers deserve punishment, that won’t solve the systemic problem. The basic problem is society, rather than share the rents for land (mistakenly called “housing” values), allows this money stream to become the low hanging fruit for speculators. Why ever do we send this value -- spending for land -- to Wall Street in the first place? As long as society keeps feeding Wall Street so much free money, then Wall Street will remain corrupt.
- One Lawman With the Guts to Go After Wall Street
All of the leading politicians and officials, federal and state, Republican and Democrat, were on board to complete the job of saving the banks while ignoring their victims ... until last week when the attorney general of New York refused to go along.
Despite a mountain of evidence of robo-signed mortgage contracts, deceitful mortgage-based securities, and fraudulent foreclosures, the banks were going to be able to cut their potential losses to what was, for them, a minuscule amount.
In a deal that had the blessing of the White House and many federal regulators and state attorneys general -- a settlement probably for not much more than the $5 billion pittance the top financial institutions found acceptable -- the banks would be freed of any further claims by federal and state officials against the bankers for their accountability in creating and collecting on more than a trillion dollars’ worth of toxic mortgage-based securities.
Not really surprising given both the enormous hold of Wall Street money over the two major political parties and the revolving door through which executives travel between firms like Goldman Sachs and the top positions in the U.S. Treasury Department and elsewhere in the government.
Under Bill Clinton, George W. Bush, and Barack Obama, it was the bankers who were assisted into lifeboats that had no room for ordinary people.
To see the whole article, click here
JJS: The solution, some say, is to forget the flow of land rent to Wall Street, leaving the bankers and brokers powerful beyond reach, but instead to try to reach them with regulators, despite the revolving door cited above.
- From Public Meat Markets to Derivatives Markets
For a while, the New York City Council forbids private butcher shops. It establishes public spaces in easy walking distance of residents. Here, highly-skilled, city-licensed butchers operate from small stalls, paying fees to the city. City inspectors patrol for unsanitary conditions, mystery meat, or thumbs on scales. Customers comparison-shop, keeping prices and quality competitive. The butchers also watch one another, reporting violations and creating peer pressure to maintain high standards. Butchers often keep the same stall for years, building trust with regular customers.
In short, the markets operate much like ideal competitive markets: many responsible sellers of standard products in a stable relationship with many well-informed buyers, meeting in a single physical location.
So why does the city abandon a successful policy? The cholera outbreak of 1832, and the Great Fire of 1835, impel the city to build the Croton Aqueduct, completed in 1842, bringing water 41 miles from Westchester County. To pay the huge construction debts, the city diverts fees from the meat markets. The panic of 1837 and ensuing depression further cripple city finances.
Be it sirloins or contracts, ideally, licensed professionals trade standardized products on designated exchanges, according to rules meant to curb fraud and monopoly.
In 1998, a new private market sprang up in “derivatives”, like “credit default swaps”. The private derivatives markets mushroomed from 100 to 700 trillion before blowing up in 2008.
“Free” markets need government oversight to operate safely and fairly.
Meanwhile, public produce markets have returned to New York in the form of Greenmarkets. They’re licensed, inspected and regulated just like the old meat markets.
To see the whole article, click here
JJS: While there is a role for police, are bureaucrats also needed? Especially since such regulators can’t know the business as well as the regulatees?
Further, should there be regulations dealing with details, or broad laws dealing with fundamental fraud and dishonesty? Coupled with stiff and certain punishment for violators? Also, should government be limiting the liability of business? Thereby sheltering the perpetrator of fraud rather than protecting the victim?
Ultimately, we should reduce temptation and not let land rent unduly enrich the coterie of Wall Street bankers. Instead, society should recover and share the values it creates. Taking the commonwealth out of the pockets of just a few would make it possible for us to abolish counterproductive taxes and addictive subsidies -- and undependable regulations.
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Editor Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Why is so much wealth in the hands of the few?
Fraud wasn't a problem, it was the business plan
One in four Americans is employed to guard the wealth |
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