After the financial meltdown of 2008, the Bush administration shoveled tons of money into Wall Street as did the Federal Reserve. TARP, the Troubed Asset Relief Program, was a $700 billion carte blanche gift to Wall Street to prevent an imminent meltdown. This was engineered by Henry Paulson, Bush’s Treasury Secretary.
But that was miniscule compared to what the Fed ponied up. A lawsuit by Bloomberg News forced the Fed to reveal that it had given $7.7 trillion to banks all over the world to prevent the looming crisis. And the Fed is still at it with its policy of Quantitative Easing (QE).
But while the banks have been bailed out and are still being given monthly money cards, they have not been held to account for the behavior that caused the financial crisis in the first place. No banker has gone to jail despite the massive fraud and corruption that they perpetrated and in fact are still perpetrating.
The main, if not the only, cause of the 2008 meltdown was the mortgage market. Mortgages were being given to anyone who could fog a mirror. Waitresses were stating their incomes at $12,000. a month in order to get a mortgage on a $650,000. McMansion. These mortgages were then packaged into securities (CDOs or Collateralized Debt Obligations) by Wall Street and sold to unwary investors like pension funds.
When people defaulted on these mortgages, the whole house of cards started to collapse. Everywhere along the chain of events there was corruption. For instance, the mortgage originators like Countrywide were paid a loan origination fee. The more loans they originated the more money they made. Countrywide then sold off portfolios of mortgages to Wall Street so they had no skin in the game if the mortgages failed.
But, you might ask, why did Wall Street buy such toxic crap? Didn’t they do due diligence on these portfolios? They actually subcontracted the due diligence out to due diligence underwriters who vouched for the soundness of these portfolios. Why would they do that? Because they had a financial incentive to process and approve as many portfolios as possible.
This is one of the schemes that makes it hard to prosecute the bankers. At each step of the way there was no central character responsible for the whole shenanigan. It was parceled out to different subcontractors and entities along the way.
Wall Street can claim that it was the due diligence underwriters’ fault for not doing proper due diligence. Not only that but these mortgage portfolios were then evaluated by the rating agencies: Standard and Poor’s, Moody’s and Fitch Group. These rating agencies gave the portfolios triple A ratings even though many of them verged on worthlessness. Again Wall Street can claim that it was the rating agencies’ fault. The rating agencies got paid by Wall Street itself so they had every incentive to rate them highly.
If they didn’t, Wall Street wouldn’t have been able to attract investors, and the rating agency that didn’t play along would lose business. They were only too happy to play along. Since the fraud and corruption existed on so many levels, it is hard for the US Justice Department to go after any particular banker.
But that’s not all folks. There is even more overt criminal activity going on. In December 2012, HSBC was fined $1.9 billion for laundering drug money out of Mexico. It’s getting harder to fight the War on Drugs if the banks are in cahoots with the drug kings themselves. But no bankers will go to jail. Jail is reserved for young black men primarily who get caught with an ounce of marijuana in their possession. HSBC has also laundered money for Iran and Libya.
It seems that even terrorists need a banker and HSBC was only too willing to comply taking in suitcases of cash through specially designed windows built just for that purpose. In return for overt criminal activity, HSBC gets a slap on the wrist and no criminal prosecution because Eric Holder and the US Justice Department are a bunch of wimps treading on eggshells lest they upset the worldwide criminal capitalist banking system and bring on the collapse of the world economy.
“Shame on the Department of Justice. Shame on them,” said Jimmy Gurulé, a former federal prosecutor who teaches law at the University of Notre Dame. “These are actions that facilitated major international drug cartels to continue their operations,” he said. “Now, if that doesn’t justify criminal prosecution, I can’t imagine a case that would.”
CPA Practical Advisor reports:
“Since 2009, several European banks have paid heavy settlements related to allegations they moved money for people or companies on the U.S. sanctions list: Switzerland’s Credit Suisse, $536 million; British bank Barclays, $298 million; British bank Lloyds, $350 million; Dutch bank ING, $619 million; and the Royal Bank of Scotland, $500 million for alleged money laundering at Dutch bank ABN Amro.
“While those cases involved deals with such countries as Iran, Libya, Cuba and Sudan, the HSBC case was notable for the government’s allegation that it also helped launder $881 million in drug-trafficking proceeds for Mexican drug cartels.”
In the Savings & Loan scandal of the 1980s, over 1000 bankers went to jail. But the Saving and Loan deal was a paltry undertaking compared to the worldwide criminal enterprise that the global capitalist banking system represents. At the heart of the whole thing are the world’s central banks each of which is printing money like crazy trying to debase their currencies.
The US Fed’s goal is to drive up inflation. What? That encourages people to buy now instead of waiting for later when the prices might go up. The Fed indulges in all sorts of convoluted thinking of this sort. They are giving $85 billion a month in QE (Quantitative Easing) to the big banks in an effort to keep the economy from going into the tank.
The theory is that by keeping interest rates low, people will borrow more money and buy more stuff. A side effect is that the US is able to keep its interest payments on the national debt low. Another side effect is, that because savers are getting practically no interest on their savings accounts, they will invest in the stock market.
Hello! The stock market is at all time highs! Since consumption is 70% of GDP, the Fed and the US government desperately need people to keep buying stuff. This will supposedly create jobs and lower the unemployment rate (one of the Fed’s mandates) which is still very high by historic standards. But printing money cheapens the value of the dollar.
The cheapening of the dollar will also make US exports more attractive. But since other countries are engaged in the same strategems, the overall denouement is that the world is degenerating into a currency war. The problem is that QE only amounts to another round of gift giving to the big banks. The money isn’t trickling down to the average person.
If the Fed really wanted to boost the American economy, it would inject money into the bottom of the economy (example, paying off people’s mortgages thereby freeing up money for consumption) and let it trickle up instead of the opposite which is not working, but it is against the law to do that. Capitalist rules prevent that from happening. And although the Fed is encouaging them do do it, intelligent consumers are not going to borrow money and go into debt just to purchase a lot of cheap crap made in China in order to keep the economy going. What if consumers revolt? Then the economy goes into the tank.
The state of New York has filed suit against JP Morgan Chase for fraud related to the sale of mortgage backed securities. Eric Schneiderman, the state’s attorney general, seeks an unspecified amount of damages related to billions of dollars in investor losses. The state maintains that JP Morgan’s Bear Stearns division should have known that the stuff it was selling was crap.
Bank of America agreed recently to pay $2.43 billion to settle claims it misled investors about the acquisition of Merrill Lynch & Co., in the largest shareholder class-action settlement tied to the meltdown. BofA didn’t admit wrongdoing.
And homeowners foreclosed on illegally are also filing lawsuits. Many were told that in order to have their mortgages modified they would have to adhere to certain conditions including continuing to make mortgage payments albeit at a reduced rate. After complying with all conditions, many had their homes foreclosed on anyway. The banks had a two track strategy: one department pursued modification while another concurrently pursued foreclosure. The foreclosure guys usually won out because it was more profitable to foreclose than to modify.
States are filing lawsuits against banks because of MERS, the Mortgage Electronic Registration System, claiming that they have been defrauded out of registration fees and that mortgages transferred through MERS are illegal. Louisiana’s lawsuit is being brought under RICO, alleging wire and mail fraud and a scheme to defraud the parishes of their recording fees.
And the beat goes on. Little piddly civil lawsuits with no criminal prosecution instead of one gigantic criminal lawsuit by the US Justice Department. That means no bankers in orange jumpsuits pulling KP duty any time soon. They are free to continue their fraud and corruption because to discontinue it would bring down the whole international banking system.
John Lawrence
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Remember this was all made possible by Clinton’s tearing down the wall between wall street and banks established by Roosevelt in response to the great Depression. And the cut and paste job of new regulations done by Frank/ Dodd to plug that gaping hole of greed won’t stop the same thing from happening again. You also did not mention that in addition to greed the banks were happy to buy the crap paper produced by Mozillo at Countrywide (now there’s a guy who ought to be in jail BIG time)was because FNMA was leading the way.The governments mortgage banker was leading the pack. Ther ought to be a an FBO wanted poster in every post office in the country for Mozillo. Instead he sold the pile of bad paper he had left over to the B of A and pis probably floating around on a yacht somewhere improving his phony tan and wearing Tommy Bahama shirts.
Over past 30 years, mammoth global Monied Corporate and Financial sector interests have evolved with the disproportionate power of MONEY to do great damage to ordinary working citizens … while holding politicians and justice officials at ransom on the premise of being too big to fail and too clever to be prosecuted. This, among other factors, has been destroying what remains of any trust, cooperation, and sense of a fair playing field so essential to the proper functioning of any democracy.
The social cost of being unable to act fairly together as a Collective has been enormous. We’ve lost our social cohesion. We’ve lost our trust in the financial sector, in politics, in class relations, even in information provided by media communication, political, and economic systems bought by special interests.
In a prior writing, “Broken Down System of Governance,” I dwelled on the broader societal dysfunctions inflicted when trust, fairness, dignity, give and take are eroded — as has happened on a grand scale in recent years. Treating people well and justly in an economic system that was inherently fair where everyone had an equal opportunity was something my WWII generation was always proud of. No more, however. Now, almost every day we hear how some bank or some person from the financial sector has made a financial “killing” by some tax evasion scheme (legitimate and illegitimate), by mortgage foreclosures, by deceptive credit card abuse, etc., and all by manipulative money-mad culprits getting off scot-free. Little wonder social trust has been all but eviserated in a system where government is captive to financial powers, a monied elite who threaten taking their money elsewhere, setting higher interest rates, downgrading the ratings unless you Mr. USA do …
This cynical financial maximization spirit couldn’t be clearer or better illustrated than by Lloyd Blankfein, the head of Goldman Sachs. He remarked in so many words that investors in his firm’s exotic products should know that they might be designed to fail, that trust is hardly a byword in the investment industry. After all, Mr. Blankfein went on, Goldman Sachs knows more about the ways to gain and lose money with their (contrived) products — as demonstrated again recently in a plus $400 million speculative windfall profit in food price futures. As Blankfein said, predatory promotion of complex investment products defrauded well-off investors as well as ordinary citizens of their investor-managed pension funds. BUT, everyone should have known better, that investment banks (like Goldman Sachs) cannot be trusted.
Yes, indeed, the disillusionment is deep that banks can’t be trusted; companies can’t be trusted that ax workers at the slightest whim; government can’t be trusted to strengthen and balance forces protecting the well-being of human capital against the greedy excesses of corrupt capitalism. For our obscene income-wealth Gap makes it clear the top 1% and the rest of us are not in the same boat by a long shot!
A society devoid of trust, equity, cooperation, fair play, equal opportunity is going nowhere effectively on critical challenges staring us in the eye: job stagnation; rising CO2 emissions causing climate warming, Arctic permafrost and ice meltdown; demise in quality pre-college education, loss of manufacturing base; quality-cost effective basic public health care system.
Can we change course and get our act together in time to solve these huge problems? I truly hope so!
Frank- thank you for commenting! Your books, essays, and interviews are as accessible as they are illuminating. You raise the issue of a society devoid of trust and I think the current lack of trust in institutions- particularly government, is revelatory. It serves the libertarian agenda to exacerbate the lack of trust in government as yet one more reason for the market to assume responsibility for the “public good.” The public good is of course destroyed under the rubric of saving it.
Paranoia and anti-government conspiracy theories from the fringe are legitimized and accommodated because they further erode trust.
And what can you say about fairness and trust, when Nixon is pardoned, Obama gives a free pass to torturers, and as John Lawrence notes, the masterminds behind the financial disaster are deemed to big to jail? The erosion of trust is caused by very different kinds of perspectives, which means it is going to be tough to fix.
Part of this phenomenon of not being able to hold big corporations including banks accountable is how they divide up what they’re trying to do into many different independent segments none of which can be held accountable for the ultimate outcome. For instance, when Walmart subcontracts hiring dockworkers to an outfit that supplies dockworkers and then those dockworkers are subsequently underpaid or abused, you can’t hold Walmart responsible because after all it was the subcontractor that did the abuse.
This is the reason that the Justice Department can’t bring a criminal case against the bankers. They outsourced and subcontracted so many different parts of the puzzle that no one entity can be legally held responsible for the final result.
Thank you Anna.
Yes, social trust and justice once lost in a society is very difficult to recover. That is why Obama is trying to bring back “WE the COLLECTIVE” into our consciousness where a majority of citizens see and act on the necessity bottom-up to change directions for the common good. It’s an effort to control the selfish genes, to tame demogogic self-rightousness and narrow perspectives, to think pragmatically beyond the blinds of ideological purity, to reduce the level of inequality and increase the equality of opportunity. It’s a call to halt the money-influence peddlers stealing our democracy and transfering its riches to a few. It involves a return to unifying American values of constructive compromise and cooperation that conservatives and liberals once respected based under the general principle, “If the Community is not in a healthy state, we are all in trouble.”
It was taken for granted in the 50s, 60s and early 70s, that a government “Of, By, and For the People” looks after the common good and a fair playing field for All citizens. Somehow in the 80’s we started sailing on a new social economic course where the Individual became the ship’s Captain encouraging ‘survival of the fittest’ and ‘to each his own’ themes. That encouraged the paradigm of moving money from the bottom of the pyramid to the top 5% and 1% … so came the world of outsourcing, automating, downsizing, restructuring working class jobs in a race -to-the-bottom to increase shareholder values.
In contrast over the last 33 years, I’ve observed firsthand the European Way of sorting out the conflicting and competing interests behind capitalism’s tremendous wealth creating capacity so that the benefits are broadly and fairly shared … guided by the central cultural value, “We Are All In This Life Together” — thus forging a tie between “I and Community.” Are southern EU countries really struggling now? Yes. Will the EU stronger nations find a way to stabilize the weaker economies? Yes, in my view.
In this regard, I thought SDFP readers would appreciate reading what Maurice Levy, for 40 years now the much respected Chairman and CEO of Publicis Groupe in France, had to say about the very disruptive, transformative changes in the world economy confronting everyone. Here follows his plea for a hybrid capitalism serving humanity at both the Community and Individual levels in these more insecure times.
“We are living through an unprecendented crisis. It’s far more than a financial crisis (editor’s note: perpetuated by a melange of smug robber barons). It’s a loss of meaning, direction, and proper values. … In fact, I believe that over the past 20 years (at least) the world has lost its bearings and has begun to wager with its moral values. Almost unnoticed, ethics have given way to cynical opportunism in business, in finance, in politics, and in life in general. …
For all these betrayals of ethics, the bill is very high. It is being paid, in the first place, in millions of jobs destroyed, wealth vaporized and businesses weakened. It is also being paid, and above all, in a crisis of confidence. A crisis that no financial rescue plan can make go away. People, consumers, employees, shareholders — who now has any confidence? In what? In whom?
Sustainable development, social responsibility, corporate governance, and transparency: these are the new orientation points, and value creation must be beneficial for All, not only beneficial for Shareholders. Value creation must be “good”– ethical, sustainable and devoid of cynicism. Contrary to what some banking leaders seem to believe, it is not enough that something is “legal.”It must be ethically irreproachable.
The sea-change of values that lies ahead of us will change our way of thinking and of acting. What is useful and what is superfluous? What is needed and what is merely wanted? These are the tradeoffs that we will be making. This is what will form our criteria in the decades to come. Consume better to consume less, rather than Consume more for less — that will be the new watchword. …
In short, we must learn to reconnect with the true force of capitalism: the success of the Individual for the benefit of the Community. And maybe a little generosity will even generate more growth.”
An honest, introspective confession and directional challenge we Americans haven’t got around to … YET!