Every legit competitive sport has rules of conduct governing how the game is to be played, all conceived to maintain the fairness, honesty and integrity of the process. Umpires, referees, linesmen, field judges and alike don’t hesitate to impose sanctions the moment they spot an infraction. Break a rule, you’re penalized, benched, fined, out of the game, out of the sport, maybe even for good. Congress and the media repeatedly tell us the American public would tolerate no less, even though the overwhelming majority of sports fans have nothing more than a mere rooting interest in the outcome; no “skin” as it were, in the game– except gamblers, who have all the more reason to want it to be on the level, unless they’ve already fixed it.
How bizarre then, that on Wall Street, repository of the hopes, dreams and what’s left of the hard earned cash and retirement savings of American investors, the most basic of rules enacted to protect the fairness, honesty and integrity of the process are routinely ignored and dishonored.
Like it’s predecessor, the Obama administration has thus far assiduously avoided examination, pursuit or punishment of those most responsible for plunging us and the rest of the world into a financial calamity that did not have to happen— and from which many believe we will never recover.
In fact, in the name of “avoiding” financial Armageddon, they’ve bent over backwards to provide cash and cover for, if not actively participate in, a thoroughly corrupt status quo that selectively eschews the rule of law to enable manipulation of a broad range of markets that hugely profit the most greedy and lawless among us– to the permanent detriment of everybody else. That might not be the intention at the very top, but the scoreboard still reads: Wall Street 10, Public minus 10 plus interest, payable forever.
A seminal element of the enormous problems we face today is little known or understood by the general public and most investors: the government’s abject failure, via the Securities and Exchange Commission, the agency charged with protecting investors and the integrity of the markets, to enforce the most basic, rudimentary business axiom: that when a buyer pays, the seller must deliver that which was sold– (obliquely: he who sells what isn’t his’n, must make good or go to prison).
Congress passed the Securities Exchange Acts of 1933 and `34 to restore greatly diminished public confidence in our capital markets and mandated the SEC: “having due regard for the public interest, the protection of investors, and the safeguarding of securities, to facilitate the establishment of a national system for the prompt and accurate clearance and settlement of transactions in securities.”
But incredibly, the SEC has done just the opposite by empowering the Wall Street owned and operated black box Depository Trust and Clearing Corporation to create a Three card Monte style, bait and switch, non-settlement, non-delivery of securities system that facilitates the unlimited sale of securities that the seller is never required by anybody to actually deliver, so that the transaction is never properly “settled.” Known as naked short selling or failure to deliver, the scam has the same effect as counterfeiting because by definition and design, it dilutes the actual value of real shares by overpowering the natural laws of supply and demand.
The government’s long toleration of this fraud at the very core of the system has enabled Wall Street banks, broker-dealers and hedge funds running all kinds of hot, dirty and foreign money along with their own, to reap huge, often tax free profits, by selling and never delivering unlimited quantities of phantom stock, options, bonds, and even US Treasuries, with total impunity. Over the years, the practice has destroyed countless companies and crushed the hopes and dreams of millions of investors worldwide. Yet the SEC, self-proclaimed as “the investors first line of defense against securities fraud” and “the pre-eminent gold standard of enforcement of securities laws,” has not brought a single enforcement action to stop it or punish the perpetrators. Is it any wonder the bad guys have come to feel invulnerable?
Even more incredible (and more profitable for Wall Street insiders), the “Stock Borrow Program” of the Depository Trust’s National Securities Clearing Corporation (NSCC) subsidiary allows the exact same parcel of shares to be loaned and reloaned over and over again to create an ever-metastasizing cancer of freely tradable “security entitlements.” These illusions of ownership overhang the market (just like naked shorted shares) artificially depressing share prices, They are not backed by an equal number of duly authorized certificates, and lack the full bundle of ownership rights a buyer thinks they are getting with their purchase (ie. voting rights, having dividends taxed at preferential rates, etc.). Most investors looking at their monthly statements have no idea they may not reflect actual shares bought, received and held in their account, but only IOUs from their trusty brokers, who consistently violate the duty of fair dealing owed their clients by failing to insist on delivery of shares they were paid a commission to purchase for them. That’s because to keep the scam going, the SEC-approved system quietly provides incentives for them not to.
For at least the past dozen years, evidence of gross conflicts of interest, fraud and derelictions of duty and principle up and down the political/financial food chain, have been abundant, but ignored. We are now living with the consequences. Deregulation and non-enforcement of statutes, rules and regulations designed to provide a measure of integrity, fairness and stability to banking and the capital markets (ie. limits on leverage, usury laws, separation of commercial from investment banking), and basic investor protections like those mentioned above, have been systematically ditched. Honest accounting standards that used to prohibit cooking the books, offshore special purpose vehicles, and performing auditing services while simultaneously giving tax avoidance advice were simply bought off. Time was, assets had to be marked to their actual fair market value (“mark to market”) instead of numbers totally contrived to enable insolvent banks to illude otherwise.
Basic principles of insurance law which require an insurable interest (ownership or risk of commensurate loss) in that which you insure (especially regarding someone else’s life or property), were legislatively trashed to enable rapacious, ethically bereft speculator banks and hedge funds to erect a new and extremely lucrative swindle using a kind of debt insurance product they called credit default swaps (CDS); so named, because by their rightful name, bond insurance, they would violate every state’s insurance laws and be void as against public policy without ownership of the underlying bonds—which was certainly not in the predators game plan. Parlaying never having to actually buy or own the underlying bonds along with the ability to broadly manipulate and malign their market price downward, made 40-1 leveraged CDS bets almost sure winners; outcomes dictated from the sidelines by greedy gamblers with little or no risk of commensurate loss. And they’re still at it today, unregulated, and operating in almost total secrecy; a Quadrillion Dollar Derivatives Death-Star that may well some day implode all.
Getting away with so many fraud-based practices for so long has emboldened the wrongdoers to almost obsessively believe they can get away with anything. Years of successfully bilking the public without fear of being caught or punished has imbued them with the kind of blinding arrogance that boldly shoves 3 pages at Congress and says with a straight face: Give us the dough ($700 billion)– ours to do with as we will, free from liability or accountability—or else. And now they’re being rewarded for it with the biggest profits and bonuses ever. Why?
Why were all the safeguards so intentionally set in place in 1933 and 1934 abandoned? Because those empowered to make and enforce our laws— sworn to be good stewards of the public interest— allowed themselves to be seduced and inducted to serve private interests, not the least of which their own, courtesy of campaign contributions, lobbyist largess, lucrative job prospects, and other co-optive emoluments known anywhere else in the world as bribes. When will we learn that it’s not about politics, ideology or principle? It’s about the money! But drop me a line the next time you hear any corporate or mainstream media pro daring to talk or write about it in those terms. Somehow, as obvious and pernicious a role as it plays in our political process, discussing venal motive is off limits, part of the pretense that our elected officials actually represent the best interests of the people who voted for them (as distinguished from those who bankroll them).
The Wall Street banksters, of course, are not the only corrosive anti-social force at work here. Other divisions of the corporate kleptocracy Army of Avarice that dictate our national policy and exploit our national wealth (big oil, insurance, agra, pharma, health care, telecom, and defense) also spend generously to keep feasting at the public trough. It’s just that Wall Street’s misdeeds (even to the dismay of their co-predators) have brought us to the edge of a full-scale long term national/international disaster.
So one has to wonder whether the announcement of a new federal Financial Fraud Enforcement Task Force to combat financial crime is to be taken any more seriously than Peking University economics students took Treasury Secretary Geithner’s assurance that “Chinese assets [invested in US dollars] are very safe.” Their raucous laughter came from knowing what more and more of the world now knows– that assets invested in US dollars are not so safe at all.
Of course, TBTB do not want any of that nonsense getting around. They definitely don’t want people knowing the true magnitude of our financial problems, or that many savvy, independent economists, financial experts and market observers believe America is not only broke– but in great peril as a nation if we continue on the present course. As they watch the steadily sinking value of the dollar, they foresee a time not too distant when real joblessness will be 30% or more; when the value of your house will drop another 30%, same as your pension or 401k; a time when governments are taking in far less than needed to cover Social Security, Medicare, Medicaid, education, transportation, police and yes, even national defense, requiring drastic cuts in all government services, federal and state, along with markedly increased taxes of all kinds, in a climate of rising interest rates, energy and commodity prices, and alas, civil unrest. In order to pay our creditors $700 billion plus in annual interest on a $12 trillion and counting national debt, they see Americans being required to turn in a portion of what’s left of their retirement plans in exchange for long-term, low yield US government bonds. In short, they see us being screwed blue, now and later, condemned to a steadily deteriorating standard of living that for most, will turn the American Dream into a nightmare.
Our leaders don’t want us to know that today’s crisis was the inevitable result of massive unchecked fraud by mortgage lenders, auditors, investment banks, ratings agencies, securitizers, regulators and insurance companies like AIG, which wrote credit default swaps both they and the purchasers knew there were far too insufficient reserves to cover—and that could only be paid off by a taxpayer funded bailout.
They don’t want us to know that the so-called stress tests the banks underwent last Fall were an exercise in wink, wink, nod-nod misrepresentation; or about the bloated valuations of hundreds of billions in toxic assets the privately owned Federal Reserve continues to unlawfully purchase from their too big to fail bankster buddies. The banks were supposed to loan the proceeds out to ease the alleged credit impasse and help stimulate the economy. Instead, what they haven’t used to artificially inflate the equities market or invest abroad, they’ve mostly redeposited with the FED, who then, fairy godmother-like, has gifted them back risk-free 3% interest in a round-trip razzle dazzle that seamlessly and shamelessly transfers even more taxpayer dollars into bankers’ bonus-bloated pockets.
They don’t want us to know that most big banks, if their assets were marked to current fair market value, and government handouts removed, would in fact, be insolvent; that Fannie, Freddie, the FDIC, and the all important Pension Benefit Guaranty Corporation (PBGC), insuring the pensions of some 34 million private sector workers and retirees, are also insolvent—as are most pension funds across America.
They don’t want the public to see the future too clearly because they fear the truth would be too much for us to handle, and cause panic they are unready to cope with, along with deep resentment at the government for allowing things to get so bad (let alone for their failing to curtail wrongdoing after it’s been brought to their attention). So they distract, dissemble and offer promises of reform, saying: Hey, It’s okay. We dodged the bullet. Things will be difficult, but in the end, we’ll come shining through because were America, and we can do anything!
Except pay the bill. The fact of the matter, the undeniable, irrefutable arithmetic is that we are not going to be able to pay the bill as it comes due and keep the country reasonably free from soaring misery and discontent.
US Senator Byron Dorgan speaks of “modern-day bank robbers” deploying “anything goes” capitalism in a system they’ve rigged so they “always win” by wielding “unfair advantage over average consumers and taxpayers”— with “no accountability.” Americans “watching selfishness prevail over the public interest” he says, is not only “injuring the economy” but “undermining the public’s trust in government.“ (where many of the Teabaggers are coming from).
For those who follow the subject closely, selfishness is PC for plain old stealing. But then Wall Street has long considered Main Street “the dumb money.” theirs, almost by right, and certainly by tradition, for the taking. Not surprisingly, they created a culture of corruption that’s proven itself bad to the bone. What other industry has literally dozens of words and phrases characterizing unethical, illicit conduct? (Backdating, Channel stuffing, Cherry picking, Churning, Cookie jar reserves, Cooking the books, Dummy accounts, Earnings management, Flipping, Fomenting, Free-riding, Front running, Insider trading, Late trading, Lulling, Market timing, Marking the close, Matching orders, Naked options, Naked short selling, Off balance sheet, Painting the tape, Ponzi scheme, Puffing, Pump and dump, Pyramid scheme, Round-tripping, Scalping, Selling away, Short and distort, Spinning, Spring loading, Tipping, Touting, Trading ahead, etc., etc., etc.) God’s work, indeed.
Instead of facing reality now, telling the people the truth about what’s occurred, demanding accountability, enforcing the laws made to protect you and me, and taking steps to prevent wrongdoers from continuing to profit from their misdeeds (a classic principle of jurisprudence), our government, aided by a thoroughly captured, moribund mainstream media that’s forgotten how to speak truth to power, keeps trying to shove the dirt under the rug. Extend and pretend. They say one thing and do another, hide the truth, avoid transparency, and engage in even more lies and deceit. Do they not understand that the false expectations they are perpetuating will only evoke greater outrage as people more and more realize they have been played for suckers and left to founder in despair? And that none of this would have happened if the people in charge had upheld their oaths and acted to insure that “liberty and justice for all” were more than just words.