bankster

belated 1/17

SEE DEREGULATION CFPB DODD FRANK

banks are keeping frackers afloat (not to mention xl); trump baillout stimulus (permian patriots)

not sure whereto draw the line, but basically ppl who shd have gone to jail for gt recession (money laundering?)

===

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an 4 26

The Financial Times reported Friday morning that the big banks that Wall Street is betting on are failing in private credit markets. It's something that New Republic writer Logan McMillen is sounding the alarm about because it is the same thing that happened in the 2007 and 2008 global economic collapse.

This week, the Federal Reserve likely freaked out economic experts when it demanded the largest banks "detail their exposure to the opaque, multitrillion-dollar private credit market," said McMillen. "Then, almost simultaneously, word broke that some of those same banks are imminently launching a credit default swap index with S&P Global, targeting that same market."

McMillen cautioned that the U.S.'s macroeconomic program is quickly falling apart under the stress of President Donald Trump's war against Iran, the closure of the Strait of Hormuz and the rise in inflation.

It comes as the "U.S. Treasury is now desperately trying to finance a $1.9 trillion deficit without a large pool of captive foreign buyers. Trump "failed to prepare" for the crisis. A former Trump strategist told CNN last month that the president thought Iran would be just as easy as Venezuela was.

Nate Swanson, a former Trump staffer and current senior fellow and director of the Iran Strategy Project at The Atlantic Council, assumes that Trump thought the whole operation would be easy and he'd be successful

Trump was coming off a "win" from his June strikes and from capturing Venezuelan leader Nicolás Maduro. In the past, Trump was able to kill Iranian military officer Qasem Soleimani "with virtually no repercussions," said Swanson.

Trump has done nothing to prepare for the closure of the Strait of Hormuz, and worse, he's done nothing to protect the U.S. economy from the ensuing disaster after the bombing began.

"China is dumping U.S. Treasuries at a rate not seen since the Global Financial Crisis, while stalwart buyers like Japan are seeing their bond yield rates creep up to their highest levels in 27 years," said McMillen, explaining it isn't healthy for the macroeconomy.

What happens this weekend might mark a shift that will be felt for at least a year or more "in the form of a liquidity crisis."

"The Fed’s request that major banks detail their exposure to the private credit market should terrify risk assessors. When macroeconomists picked through the rubble of 2008, many landed on the conclusion that there had been a catastrophic mispricing of risk," McMillen said.

Credit rating agencies continued to claim that toxic subprime mortgages were somehow AAA-rated. Regulators in 2008 at the very least knew where the underlying assests were, McMillen explained. That isn't happening with the $2 trillion private credit market. It's a black box hidden in "regulatory shadows to facilitate high-risk corporate loans that traditional banks were forced to abandon after the passage of Dodd-Frank."

A major indicator of danger comes from a March Politicoreport revealing that investors are pulling their money after a "string of blow-ups." At the same time, the world of artificial intelligence has posed a risk to some software companies. So, investors are growing so worried that they're pulling their money out to such an extreme that they hit withdrawal limits.

Those limits on withdrawals "from many of these private funds tell us there’s a bank run taking place behind the velvet ropes, in the VIP section," cautioned McMillen.

So, Wall Street is offering a product for another possible crash. In 2008, " played a significant role in the collapse of the housing market. Now they're being introduced into the $2 trillion market at a time when there is a "liquidity crisis." It's also happening as the Federal Reserve admits it doesn't understand what's going on and has asked banks to detail their exposure to the private credit market. McMillen described it as a kind of "mirror maze of transactions for regulators to navigate."

For about 12 to 18 months in 2007, a small handful of mortgage defaults proved capable of triggering a cascade of multibillion-dollar payouts across the globe." These were after the ABX index (Asset-Backed Securities Index) was created. It was a kind of "synthetic collateralized debt obligation market" that ultimately reached $5 trillion in value. It was just one kind of "credit-default swaps.) Investors were then able to make bets on those investments"without ever owning the underlying asset."

It ultimately led to "a small handful of mortgage defaults ... triggering a cascade of multibillion-dollar payouts across the globe," said McMillen.

Now, the same thing might happen again, only with the private credit market that handles $2 trillion in corporate debt.

"Wall Street is once again seeding flammable barrels of fictitious capital in the financial sector, virtually guaranteeing that if the underlying loans bomb, the blast radius will be much larger than the asset class itself," wrote McMillen.

In 2008, "there was still an 'adult' in the room," he explained. Now, the U.S. is a mess fiscally, and when it comes to foreign relationships, the president isn't winning a lot of friends. Back then, McMillen said that the U.S. had a "clean-enough balance sheet" to navigate the losses and keep things moving.

"Today, U.S. government debt is equal to 122 percent–124 percent of annual gross domestic product," he cautioned. "In the past, this was manageable because the petrodollar paradigm forced the rest of the world to buy U.S. Treasuries. But with the Carter Doctrine scuppered, the Strait of Hormuz closed, and the State Department weaponizing the SWIFT system through sanctions, those once-captive buyers are finally beginning to abandon the U.S. dollar."

It means the U.S. "will be backed into a corner with only a few viable exits." It means the banks would have to be bailed out for the second time in 20 years to prevent a global collapse. The American dollar and credit outlook would be the casualty while everyday people are forced into an "austerity crisis."

"When the domestic economy faced the last crisis of this magnitude, in the late 1970s, Fed Chairman Paul Volcker hiked interest rates, intentionally triggering a recession that broke the back of organized labor. The “Volcker shock” served as the founding act of the bipartisan neoliberal consensus, establishing a macroeconomic and foreign policy paradigm where the U.S. offshored its industrial base and policed maritime shipping lanes in exchange for cheap imports," explained McMillen.

In March, AlterNet wrote about one of Trump's big plans: opening these risky investment markets to anyone who wants to participate using their retirement funds. Now there is a fear that doing so could push markets teetering on the brink over the cliff.

"The Labor Department is planning to roll out a long-awaited proposal that would offer workers invested in retirement products like 401(k)s access to the so-called private markets — a class of highly coveted but risky investments that have historically been walled off from the masses," Politico explained last month.

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BANKING

AN 6 25

Sen. Bernie Sanders (I-Vermont), Sen. Elizabeth Warren (D-Massachusetts), Rep. Alexandria Ocasio-Cortez (D-New York), Rep. Pramila Jayapal (D-Washington) and others on the left have often said that one of the painful lessons of the Great Recession is that the United States needs more regulation of banks, not less. But according to Politico's Michael Stratford, the second Trump Administration is "gearing up to deliver a major win to Wall Street banks" by "easing rules imposed on megabanks in response to the 2008 financial crisis."

:{:{In an article published by Politico on May 31, Stratford reports, "Trump-appointed regulators are nearing completion of a proposal that would relax rules on how much of a capital cushion the nation's largest banks must have to absorb potential losses and remain solvent during periods of economic stress.}:

The plan — being developed jointly by the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation — could be released in the coming months, according to two people familiar with the discussions who were granted anonymity to discuss plans that aren't yet public. The forthcoming proposal would represent the latest policy win for the banking industry, which has been closely scrutinized and regulated since the 2008 global financial meltdown."}:

Stratford adds, "The move would be the first major banking regulation that Trump-appointed regulators take up as they advance policies they say will lead to greater economic growth."

The Politico reporter notes that under former President Joe Biden, "regulators" proposed "that large banks increase the size of their capital cushions" — a plan that was "detested by" the banking industry. And the Trump Administration's plans, according to Stratford, would be a major departure from Biden-era banking policies.

IFrame Content

Politico's reporting is receiving a lot of discussion on X, formerly Twitter.

Financial writer Michael Zaccardi tweeted, "Deregulation on the way? Trump administration is said to move to ease capital rules for big banks."

X user and MAGA critic Stephen Herling commented, "What’s the worst that can happen? Asking for the people back in 2007."

Another X user, Jarmo Laitinen, posted, "We all remember what happened last time they cut regulations."

X user Richard Brown wrote, "Don't protect your constituents. R.I.P. them off. Hey MAGA did you vote for this?"

Jayapal has been outspoken about the second Trump Administration and banking regulations.

The progressive congresswoman tweeted, "After the Great Recession — which cost millions of jobs and destroyed countless lives — our government put regulations in place to make sure it never happened again. Now, Trump is getting rid of those rules. What could possibly go wrong?"

*Read Michael Stratford's full article for Politico at this link.

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raw story

Criminal corporations are not people — but Trump just pardoned one anyway - Raw Story

In what could be a U.S. first, President Donald Trump last week pardoned a criminal corporation, a move that largely flew under the proverbial radar amid his pardon spree for white-collar criminals including at least one of his supporters.

On March 28, Trump pardoned HDR Global Trading, the owner and operator of the cryptocurrency exchange BitMEX; company co-founders Arthur Hayes, Benjamin Delo, and Samuel Reed; and former business development chief Gregory Dwyer.

The company and the four men hads each pleaded guilty to one count of violating the Bank Secrecy Act "by willfully failing to establish, implement, and maintain an adequate" anti-money laundering program, as required by law. In January, the U.S. Department of Justice sentenced BitMEX to a fine of $100 million, while the executives were sentenced to criminal probation and ordered to pay civil fines.

While experts noted that Trump acted within his rights to pardon the corporation, there is no known precedent for a president taking such action.

IFrame Content

Noting the U.S. Supreme Court's highly controversial 2010 Citizens United v. Federal Election Commission ruling—which affirmed corporate personhood and the dubious notion that unlimited outside spending on political campaigns is free speech—Stanford Law School professor Bernadette Meyler toldThe Intercept that "while we have seen the rise of a trend of treating corporations as persons in other areas of law, we haven't seen that so far in the area of pardoning."

Kimberly Wehle, a professor at the University of Baltimore School of Law and preeminent pardons expert, wrote for The Hill on Tuesday that the BitMEX pardons send the message that "companies involved in financial crimes don't have to worry about accountability under this president, as least when it comes to crypto, for reasons that he has no incentive to ever make known."

"BitMEX can continue its prior criminal practices with federal impunity, and maybe even rely on the pardon to thwart future investigations into related conduct by federal lawmakers or state prosecutors," Wehle added. "The biggest losers in this deal are, once again, the American people, including the more than 77 million who might finally be realizing that they voted for lawlessness last November."

"The biggest losers in this deal are, once again, the American people."

Brandon Garrett, a Duke University law professor specializing in corporate crime and punishment, told The Interceptthat the BitMEX pardons are part of a wider pattern of impunity under Trump, who "now seems to be systematically pardoning corporate malefactors left and right without respect, really, to any real serious consideration about the merits of the cases [or] the larger policy implications of issuing these pardons."

As the consumer advocacy watchdog Public Citizen recently noted, "The Trump administration has dropped, withdrawn, or halted investigations and enforcement actions against over 100 corporations in its first two months in office."

Beneficiaries include companies owned or led by Trump donors or allies, including private prison giant GEO Group; Zelle network banks JPMorgan and Bank of America; crypto firms Coinbase, Gemini, Kraken, OpenSea, Ripple, and Robinhood; and Elon Musk's SpaceX.

"Trump's corporate pardons show the president's true base is the billionaire executives and corporate elites lining up to indulge their greed at the trough of Trump's corruption," Public Citizen research director Rick Claypool said last week. "Trump's soft-on-corporate crime approach invites a corporate crime spree and potentially catastrophic abuses for America's consumers, workers, and communities."

Public Citizen co-president Robert Weissman added that the Trump administration's "effective no-enforcement policy against corporations virtually guarantees more financial scams, more workplace discrimination, more poisoning of the air and water, more food contamination, more fraud, more disease, and more preventable death."

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AN 1 25

Big Wall Street banks are hoping that President-elect Donald Trump will kill several major regulations imposed on the financial industry — including one set of rules aimed at preventing another 2008-style financial crash.

That's according to a Saturday article in the Guardian, which reported that banks are optimistic about the incoming administration's regulatory agenda. Some bankers are particularly eager about the possibility of Trump taking an axe to the Basel III rules, which were put in place in response to the global banking crisis that preceded the Great Recession of the late aughts.

In a 2024 article, Investopedia described **Basel III as an international set of guidelines developed by 28 countries that established "minimum capital, leverage and liquidity requirements to ensure major banks could survive another upheaval." This was a response to the forced bailouts of banks deemed "too big to fail," requiring an infusion of hundreds of billions of taxpayer dollars to keep financial institutions afloat.

In addition to Basel III, Trump could undo some of the anti-too-big-to-fail provisions in the 2010 Dodd-Frank financial reform act. This includes a mandatory "stress test" from the Federal Reserve imposed on all financial institutions with more than $50 billion in assets. Dodd-Frank also requires banks to put forth a "living will" that serves as a plan in the event a bank should fail.

A.J. Bell investment analyst Dan Coatsworth told the Guardian that big banks are optimistic about their treatment under Trump's second term given his promises to roll back corporate regulations. He said banks' surging stock prices in the wake of the election symbolizes Wall Street's bullish attitude toward the incoming administration, but emphasized that the industry didn't want so much deregulation that it would risk future instability.

“Trump wants to make things easier for banks, but he won’t want to risk any damage to the financial system,” Coatsworth told the Guardian. “That means being more lenient with rules but not having them too loose."

Financial institutions are also excited about Trump's stated opposition to the environmental, social and governance (ESG) movement in which investors are encouraged to hold their wealth in industries deemed to be more sustainable. JPMorgan Chase CEO Jamie Dimon has already suggested he would roll back the company's previous commitments to address climate change, and "use the word ‘commitment’ much more reservedly in the future" in regard to pro-environment pledges.

ppl's action doc

...housing, with money going to rental assistance and

homeownership programs like the National Housing

Trust Fund, which provides states with grants to

construct and preserve homes affordable to people

with the lowest incomes.102 The bill also makes major

investments in our public housing stock, HOME, the

Capital Magnet Fund, and rural housing. Specifically,

the bill would use tax credits and government

financing to bolster affordable and resilient housing,

stating that it will support the construction or

rehabilitation of more than two million homes.103

By providing down payment assistance, rental

assistance, and other homeownership initiatives, the

bill would make housing more affordable and put a

substantial dent in our housing deficit.104

The plan also includes new project-based vouchers

to provide long-term affordability and ensure that

very low-income households are able to access new

affordable homes.105 However, providing vouchers

when there isn't enough housing stock, especially

since some landlords refuse them, doesn't solve

the problem. We must urge policymakers to actually

build and invest enough in new public housing

stock, not rely on band-aid fixes.

While recent steps taken by the Biden administration

to expand the supply of affordable housing units,

with an emphasis on lower- and middle-income

families, are promising, much more remains to be

done.106

Corporate Pushback

So far this year, real estate groups have spent

$41,772,440 on lobbying.107The National

Association of Realtors (NAR)—the nation’s

second-largest real estate lobbying group,

fiercely opposes eviction moratoriums—and spent

$84,113,368 on lobbying efforts in 2020.108

Large

corporations, through the NAR and other real

estate industry groups, have spent millions to halt

thenational eviction moratorium.109 The Mortgage

Banking Association, which has also been

pushing for the Biden administration to end the

moratorium, spent $2,458,313 in 2020.110

On July

27 the National Apartment Association (NAA)—

whose top tier partners include Home Depot,

AT&T, and Sherwin Williams—filed a lawsuit to

recover damages on behalf of rental housing

providers that have suffered severe economic

...

losses under the "overreaching” federal eviction

moratorium.111 The National Association of Realtors

filed a similar lawsuit.112 An investigative study from

Popular Information found that despite receiving

millions in forgivable loans from the Paycheck

Protection Program, 62 corporate landlords

were filing evictions during the moratorium—

putting thousands on the streets in the midst of a

pandemic.113

The NAR publicly boasts of its commitment to

protecting property interests. While most real

estate industry lobbying over the past year has

been spent pushing back against the eviction

moratorium, this is consistent with their long

history of promoting the interests of private

landlords and developers over those of tenants.

Background

The historical legacy of large corporations like

Coldwell Banker and Wells Fargo in perpetuating

housing segregation dates to nearly a century ago,

but the effects of these decisions are still prevalent

today.114 Residential segregation has inhibited home

value appreciation for Black people, helping to

fuel the Black-white wealth gap.115 It’s also meant

that Black households are more likely to live in

concentrated poverty.116 A study from 2020 found

that formerly redlined neighborhoods are more

susceptible to COVID-19 complications, bringing to

light just one example of the connection between

housing discrimination and health.117

Still today, exclusionary zoning is ubiquitous in cities

across the country and has been found to exacerbate both economic and racial segregation.118 The

home ownership rate for Black families is 45 percent, compared to 74 percent for white families.119

Research shows that owner-occupied homes in

Black neighborhoods are undervalued by an average of $48,000 per home.120

The COVID-19 crisis has exacerbated housing

insecurity across the country. This has been

especially the case for low-income renters and

renters of color.121 The federal eviction moratorium

passed through the CARES act in March of 2020

helped save lives and was estimated to have

prevented 1.55 million evictions.12...

https://www.alternet.org/2020/11/perdue-2649059250

roger s salon

Perdue, one of two multimillionaire Georgia Republican senators facing insider-trading scrutinyahead of runoff elections in January, traded hundreds of thousands of dollars in bank stock while passing pro-bank legislation on the Senate Banking Committee, financial disclosures show.

Between 2017 and 2020, while on the committee, Perdue co-sponsored 14 bills that benefited the financial industry, including through deregulation and extended liability protection. In that time he also accepted more than $1 million in political contributions from financial interests, federal filings show...[db]...most active traders in Congress, pushed back against allegations of insider trading in advance of the coronavirus, claiming that outside advisers made the calls without his input.

A bombshell New York Times report on Wednesday has made clear that was a lie: This summer, Justice Department investigators found that Perdue had instructed one of his brokers to offload more than $1 million in a company after the CEO tipped off the senator in a personal email.

This news comes as Perdue faces a Jan. 5 runoff against Democratic rival Jon Ossoff, who battered Perdue on the insider-trading allegations throughout the year. The runoff, along with Georgia Republican Sen. Kelly Loeffler's runoff election held on the same day — Loeffler faces the Rev. Raphael Warnock, a Democrat — will determine which party controls the Senate.

The latest stock news also creates a new context for assessing Perdue's personal involvement in prior trades, such as millions of dollars in transactions while he served on the Banking Committee.

Perdue, one of the wealthiest members of Congress, built his fortune in the style of Mitt Romney — "a turnaround specialist who helps revive brands and reap rewards for investors," as the Atlanta Journal-Constitution put it in a review of his business record.

The AJC ruled that his record was "mixed," in part because of a buyout Perdue helped structure as the CEO of Dollar General, which landed him a $42 million windfall when he stepped down in 2008. The next year, the company had to pay that same amount to settle shareholder claims that Perdue and other execs had shortchanged them in the deal....Perdue, who was elected to the Senate in 2014, has invested millions. A portion of it rests in a Wells Fargo brokerage account and a Georgia holding company called DBP Enterprises, where Perdue has held an ownership stake since 2011.

That DBP stake comprises 130 assets valued anywhere between $12 million and $29 million, according to 2018 Senate financial disclosures. His Wells Fargo account lists 60 assets valued at up to $1.2 million.

Disclosures only provide ranges of value, so we cannot know precisely how much money Perdue has moved in stock trades, or the extent of his profits. But the forms do show that between 2017 and 2020, while he sat on the Banking Committee, Perdue traded at a minimum hundreds of thousands of dollars, possibly millions... The shares earned him up to $204,000 in capital gains and dividends payouts.

But Perdue does not let his stocks sit idle. Between 2017 and 2018, disclosures show, the senator not only sold as much as $135,000 in bank stock, but scooped up as much as $600,000. Over the next two years he cranked up the volume, unloading as much as $1,110,000 in banking shares and buying as much as $480,000.

In April of this year, Perdue was swept up in the same insider trading scandal that has also damaged Loeffler, when it was revealed that earlier in the year he had bought and sold shares in several companies that were eventually directly affected by the coronavirus pandemic. The scandal, which included Senate veterans Richard Burr, R-N.C., and Diane Feinstein, D-Calif., shook public confidence, raising concerns that elected officials had abused their access to privileged information in order to capitalize personally on the spread of the disease.

The next month, under scrutiny from the public and government investigators, and with the election on the horizon, Perdue pledged to stop trading individual stocks....In September he announced that the Department of Justice, the Securities and Exchange Commission and the Senate Ethics Committee had all cleared him of wrongdoing. He marked the occasion with a new campaign ad, which accused Ossoff of lying to voters about Perdue's involvement.

The Times gave the lie to that defense on Wednesday, indicating that Perdue had acted on a personal tip. The report recalls a moment from an October 2017 hearing, where senators on the Banking Committee grilled Wells Fargo CEO Tim Sloan about the account fraud scandal that had wracked the bank the year before.

The scandal earned the bank a $150 million fine from the Consumer Finance Protection Bureau, an agency Perdue had...sought to defang earlier that same year with a bill that the American Bankers Association called "an effective check and balance on the Bureau's authority."

Perdue, whose Wells Fargo account at the time held up to $1.2 million, teed Sloan up to defend his company, but Sloan, contrite in the face of multiple bareknuckled government investigations, repeatedly declined the exit ramp. Perdue then let slip a reference to a private conversation, before reluctantly admitting that the decade-long scandal — which resulted in..."I think you would agree, we in a private conversation — there is no way to sugarcoat this as a serious issue, and I appreciate your handling it the way that you are," Perdue said.

Over the next three years, Perdue continued to throw softballs to big banks. As he was slinging stock, he cosponsored 14 bills that benefited the financial industry, the majority earning the blessing of the ABA. Five of them were lobbied on by financial institutions where Perdue held hundreds of thousands in stock, including Regions Financial, US Bancorp and JP Morgan.

For instance, in 2017, Perdue cosponsored a bill called the Systemic Risk Designation Improvement Act, which was geared to loosen Dodd-Frank regulations on mid-sized banks. The bill never made it out of committee, but Regional Financial and US Bancorp, where Perdue had stashed $300,000, both lobbied heavily on it.

Perdue went after Dodd-Frank again that year, cosponsoring the Economic Growth, Regulatory Relief and Consumer Protection Act, which the New York Times reported "frees banks from a variety of regulations that were imposed after the financial crisis of 2008," including "innovative measures" that targeted large institutions. That bill never made it out of committee, but was lobbied on by banks where Perdue held up to $465,000 of stock at the time, including Wells Fargo....In two instances, Perdue received tens of thousands of dollars in campaign contributions from financial institutions on the same day he introduced legislation.

On May 21, 2019, Perdue signed on as an original co-sponsor of a bill that postponed compliance with a new accounting standard that some in the financial industry believed would impede lending during an economic downturn. FEC records show that in the days before Perdue co-sponsored the bill and the two weeks immediately afterward, he received nearly $50,000 from employees at the Capital Group, a financial services company, including $5,400 from the CEO.

In October 2017, a few weeks after Sloan's testimony, Perdue co-sponsored legislation that eased regulations on mortgage transfers that cross state lines. That bill was first introduced in August, and in the month before Perdue added his name on Oct. 25, his campaign received $24,000 from employees of the wealth management company SEI Investments, according to FEC filings.

Fourteen of those SEI employees gave $1,000 on Oct. 19, but only one employee donated the same day that Perdue committed to the bill: a maximum donation of $5,400, from CEO Alfred West.

This September, Postmaster General Louis DeJoy was hit with FEC criminal complaints for an alleged "straw donor" scheme, in which he reimbursed employees for political donations to his favored candidates.

Over the course of his career, Perdue has accepted more than $2 million in donations from the investment and securities industry, and half a million from commercial banks. But considering that so few of those bills made it past the committee, and only two became law, it is not clear who got the most out of their investment.

A Perdue campaign spokesperson did not reply to questions for this article.

how BlackRock is on track to infiltrate a Biden administration

Max Moran Independent Media Institute

October 22, 2020

The Democratic base, still scarred from the 2016 election, is frantic not to count its chickens before they hatch. But Wall Street and corporate America have no such qualms. As Joe Biden leads in national polls and swing states, the most powerful firms in the country are seeking assurances that his administration won't crack down on their crimes.

For many, that means tapping the Obama-era alumni...

https://www.alternet.org/2020/08/elizabeth-warren-sounds-the-alarm-on-a-mounting-housing-crisis-and-the-profiteers-who-will-take-advantage/

https://theintercept.com/2020/05/08/coronavirus-republicans-bank-deregulation-loans/

lee f

rEPUBLICAN LAWMAKERS and finance industry lobbyists are using the coronavirus pandemic to press regulators into rapidly waiving financial safeguards for community banks.

And so far, banking regulators have obliged, lifting rules imposed after the 2008 crisis that limit risk-taking and require banks to undergo more strenuous audits.

But experts are warning that the deregulatory blitz, sold as a fix to stimulate business by encouraging more lending, raises the potential for a flood of small bank failures, potentially lengthening economic woes and risking the need for future bank bailouts.

In a recent academic paper, Kress observed that out of the 489 banks that failed and were resolved by the federal government from 2008-2013, all but nine were community banks. The failures of community banks during this period cost taxpayers nearly $50 billion. In contrast to the bailouts of large Wall Street banks, which were eventually paid back with interest to the federal government, the small bank bailouts only incurred significant costs.The flurry of advocacy began in March just as the imminent threat of the pandemic seized headlines. That month, several GOP lawmakers contacted regulators at the Federal Reserve and the Federal Deposit Insurance Corporation to urge officials to adjust the threshold at which community banks may qualify for exemption from all risk-based capital requirements.

“We strongly urge you to use the full measure of discretion afforded by Congress to maximize capital simplification and regulatory relief for the greatest number of community banks,” wrote Rep. Denver Riggleman, R-Va., in a letter signed by eight other House Republicans, obtained via a Freedom of Information Act request by The Intercept. In addition to Riggleman, the letter was signed by Reps. Scott Tipton, R-Colo.; Bill Huizenga, R-Mich.; Ann Wagner, R-Mo.; Frank Lucas, R-Okla.; David Kustoff, R-Tenn.; Barry Loudermilk, R-Ga.; John Rose, R-Tenn.; and Blaine Luetkemeyer, R-Mo.

The letter asked that the Federal Reserve and FDIC lower the Community Bank Leverage Ratio from 9 percent to 8 percent, a move that would qualify about 400 banks for special exemption from scrutiny over the level of risk taken on by a bank. The lower leverage ratio, the lawmakers argued, would “support credit in thousands more communities across the country.”

Ordinarily, a complete revision of federal regulation would require months of deliberation, an open comment period, and an agency justification backed by evidence. But the Covid-19 emergency short circuited the process, and within weeks, the leverage ratio was lowered.

The demands in the congressional letter were slipped into the CARES Act, the $2.2 trillion bailout legislation.The legislation waived a number of regulations on banks, from accounting standards to loan limits, and temporarily lowered the Community Bank Leverage Ratio to 8 percent through the duration of the public health crisis.

Banks must maintain a certain risk-based capital requirement, meaning banks with riskier assets must have higher levels of capital to contain potential losses. Bank stability is also measured by a leverage ratio, which is simply the percentage of capital held of total bank assets.

Lowering the Community Bank Leverage Ratio means hundreds of banks can hold onto less capital while avoiding standards that restrict the types of risk they take on.

“The industry and regulators love to use jargon and impenetrable language but the leverage ratio is nothing but a capital buffer that a bank has to have to absorb losses itself so it won’t have to be bailed out by taxpayers,” said Dennis Kelleher, president of the financial reform group Better Markets.

“It would really turn logic on its head to now say the banks should not have to comply with those other rules and they should get a lower leverage ratio,” added Kelleher.

“The whole idea of lowering capital requirements to respond to a pandemic is wrong,” said Jeremy Kress, an assistant law professor at the University of Michigan School of Business.

Kress noted that while public attention was focused largely on “too big to fail” mega-banks, hundreds of community banks failed during the crisis that started with the 2008 financial collapse.

The failure of small banks during the last crisis also created a cascading effect of economic damage, as small businesses and entrepreneurs around the country were cut off from credit, driving one of the slowest economic recoveries in U.S. history, Kress argues.

If the current pandemic leads to a wave of defaults, more community bank failures could be on the horizon. The deregulatory push to reduce capital requirements could hasten the level of bank failures, said Kress, exacerbating the current economic crisis.

“When we see a bunch of small institutions failing simultaneously,” said Kress, “that leaves a lot of communities and small businesses and individuals without needed access to credit.”

“The efforts that we are seeing today to weaken the Community Bank Leverage Ratio is only going to make the community banking sector more fragile and increase the likelihood of another collapse of small banks,” he added.

The leeway for regulators to exempt the community banks from risk-related assessments came from special authority granted by the Economic Growth, Regulatory Relief, and Consumer Protection Act, a law passed in 2018, the largest bank deregulation measure ushered in by Trump.

The measure removed proprietary trading restrictions from banks with $10 billion or less in assets imposed by the so-called Volcker Rule following the 2008 crisis. It also instituted the Community Bank Leverage Ratio rule, allowing small banks to skirt regulatory standards known as Basel III capital rules if they maintain a leverage ratio between 8 and 10 percent. The FDIC set the rate at 9 percent following the law.

The Congressional Budget Office, the independent body that analyzes legislation, suggested at the time that the deregulatory push would threaten the stability of community banks, which would likely use the exemption to chase higher returns by taking on more volatile loans and securities. The CBO noted that even a Community Bank Leverage Ratio of 9 percent could raise FDIC costs by increasing the probability of bank failures and FDIC bailouts.

After winning passage of the 2018 law, the industry went to work lowering the Community Bank Leverage Ratio well before the pandemic. Over the last year, representatives from the Mortgage Bankers Associations and the Independent Community Bankers Association, have pressed for the 8 percent standard, a push that was renewed in recent months, lobbying disclosures show.

Rep. Jodey Arrington, R-Texas, a former FDIC official under President George W. Bush, was one of the lawmakers pushing to loosen the standard.

In a separate letter to bank regulators, Arrington asked for “ample time” for community banks to comply with the new 8 percent Community Bank Leverage Ratio and for the change to be made permanent. “Furthermore,” the congressman wrote, “in order to maintain long-term economic growth, the CBLR should be maintained at the minimum eight percent threshold, allowed by P.L. 115-174, beyond the COVID-19 pandemic.”

The Texas lawmaker dismissed concerns that reducing regulations could raise the risk of bank failures.

“Relaxing regulations in a reasonable way including lowering reserve requirements by 1% for community banks during the immediate crisis as well as our longer term economic recovery will provide greater access to much-needed capital for small businesses, which, in turn, will help keep people employed and strengthen our overall recovery efforts,” said Arrington in a statement to The Intercept.

“Lenders of all sizes will certainly have an increase in risk to their loan portfolios; however, banks have an incentive to operate responsibly in order to stay solvent and community banks who operate on a thinner margin need some targeted relief to continue serving rural communities like mine,” the lawmaker added.

Bank industry advocates have long argued that capital requirements have curbed lending. But banking industry watchdogs have pointed out that a growing body of empirical research shows the exact opposite and that well-capitalized banks make more loans and more high-quality loans.

Research from the Bank for International Settlements found that “higher bank capital is associated with greater lending.” Morris Goldstein, a former fellow at the Peterson Institute for International Economics, in a review of economic literature, similarly found that “better capitalized banks lend more, not less, than weakly capitalized ones.”

Still, community banks have won a series of deregulatory measures in part by leveraging their relative popularity in contrast to the big banks. Despite the economic risks of lifting bank rules, small banks have been at the tip of the spear in weakening financial safeguards.

“Everybody loves community banks, right?” said Kress. “They’re the most sympathetic industry in Congress because every member has a community bank in their district. They do a lot of residential and small business lending, they sponsor your kids’ kickball team, they seem far removed from the financial engineering of Wall Street.” “Community banks, motherhood, and apple pie,” chuckled Kelleher.

The lofty reputation held by community banks, however, has concealed the danger they pose to the economic system.

“The bank industry pushes in a lot of different ways,” Kelleher noted. “They do it directly against the regulators, they do it indirectly through their legislative allies. It’s really pretty sad how many are using the pandemic as nothing but a pretext for their deregulation agenda that they’ve been asking for for years.

”

https://www.alternet.org/2020/04/banks-and-the-trump-administration-see-opening-to-bring-back-wall-street-casino-in-coronavirus-crisis/

no lnx

Banks and the Trump administration see opening to bring back Wall Street casino in coronavirus crisis

Written by Joan McCarter / Daily Kos April 12, 2020

The banksters are gonna bankster. Right now, they are gleefully rubbing their hands together as if they were washing coronavirus away, but in anticipation of the rollback of regulations they’ve been under since the last big economic crisis. You remember it—the one that they created a dozen years ago that nearly brought the global economic system down. Since then, they’ve been chafing under the modest rules imposed by the Dodd-Frank Wall Street reform law. But those rules are being eased under the current economic and public health crisis, and if the banksters have their way, there will be no going back.

The Federal Reserve and other regulators are loosening the rules on how much capital banks have to hold to be able to absorb losses; are allowing smaller banks to take on a higher debt load; and the Trump administration has delayed rules that would make them prepare against potential losses and set up systems to minimize risks. Trump’s cronies are doing their best to figure out how to weaken all these rules and turn Wall Street into a casino again. They see this as an opportunity, but the top Democrats in charge of banking oversight vow to fight.

“While our federal regulators, agencies and financial institutions must take action to protect consumers and our economy, I must emphasize that it is unacceptable to use this crisis as an excuse to justify rollbacks of important financial regulations that are in place to protect our financial system and economy,” Rep. Maxine Waters, chair of the House Financial Services Committee, warned last month. “Wall Street will take advantage of anything to chip away at commonsense financial protections,” Ohio Sen. Sherrod Brown, top Democrat on the Senate Banking Committee, told Politico. “Right now, as we deal with the economic fallout of coronavirus, we need the financial watchdogs to keep a close eye on the financial system. We need to be doing everything we can to protect hardworking Americans, not helping Wall Street and big banks skirt regulations.”

Banks do need to have flexibility to make loans and keep businesses and individuals afloat. But they also need to not play roulette with the global economy, and Wall Street certainly has done nothing in the past 12-plus years to indicate it was going to watchdog itself.

banks Pressure Health Care Firms to Raise Prices on Critical Drugs, Medical Supplies for Coronavirus

Lee Fang

Investment bankers have been candid about the opportunity to raise drug prices on critical drugs and medical supplies.

320 cory bb

"A piece of shit": Government report on Wells Fargo corruption shows top executives' direct complicity in millions of acts of fraud

Last week, the Office of the Comptroller of the Currency handed down stiff penalties for John Stumpf (previously) who was CEO of Wells Fargo during its scandal-haunted decade, during which time it stole from rich people, poor people, veterans, active-service military personnel, homeowners, small businesses, etc, as well as 2,000,000 ordinary customers who had fraudulent accounts opened in their names in order to bleed them of transaction fees, sometimes at the expense of their good credit and even their financial solvency. Under the deal, Stumpf will have to pay $17.5m in fines and cannot ever work in finance again (don't worry, he's still a multi-multi-multi millionaire). Read the rest

wells Fargo's ex-CEO will pay $17.5m in fines and never work in banking again (but he is still very, very rich)

When John Stumpf (previously) was CEO of Wells Fargo, he oversaw a string of scandals including literally millions of acts of bank fraud, and still managed to walk out of the business with millions in bonuses and no criminal prosecutions. Read the rest

no lnx

‘Blinded by greed’: Financial reporter examines Deutche Bank’s disturbing relationship with Donald Trump

Written by Alex Henderson March 12, 2020

The banking sector in general has received more than its share of scathing critiques since the economic crash of September 2008 and the Great Recession, but no bank has been more controversial in the Trump era than Germany’s Deutsche Bank. In his new book, “Dark Towers: Deutsche Bank, Donald Trump, and an Epic Trail of Destruction,” journalist David Enrich (known for his finance reporting for the New York Times) delves into President Trump’s relationship with Deutsche. And Enrich discusses the book in a Q&A interview with the German weekly Der Spiegel (which means “The Mirror” in German).

Speaking to Der Spiegel’s Alexander Sarovic, Enrich explained that Deutsche Bank “has been involved in really serious scandals all over the world, ranging from money laundering and manipulating markets to violating international sanctions — from bribing public officials to deceiving governments and regulators.” And according to Enrich, Deutsche helped Trump win the United States’ presidential election in 2016.

“Donald Trump was completely off limits, unbankable with the mainstream financial institutions for many years because he had defaulted over and over again — and then, Deutsche Bank comes in,” Enrich recalls. “It was trying to make a name for itself in the United States market…. They almost single-handedly enabled him to bounce back from all his business failures and keep building, which Donald Trump then used very successfully to portray himself as a successful businessman and real estate mogul. That was one of the foundations for his successful White House campaign.”

Sarovic asked Enrich why Deutsche “remained committed to Trump even after he defaulted on a loan of over $300 million and then sued the bank on top of that” — and the Times’ finance editor responded, “They kept thinking that the fees they could generate from Trump on the short term were worth the very substantial long-term risks. And in all honesty, that turned out to be true. The relationship with Trump over 20 years has probably been quite profitable for Deutsche Bank.”

Deutsche, according to Enrich, “really were blinded by greed” — and that greed attracted them to Trump. Sarovic noted that two Democrat-led committees in the U.S. House of Representatives have subpoenaed Trump’s financial records, asking Enrich what those documents might “reveal.”

REDUX

1119

invert yield curve; homewreckers book 8 mil foreclosures; big % llc shell corps; // CDS; R wolff says banks can't deal with hit 1/2 of Gt Recession , get loans to cover loans; mnuchin etc wilbur recalled gov't baillout after S&L; mnu sez put 1.x billion but pain nothing for indybank and then got subsidies to foreclose?! // get car for free, put some bucks in then pocket total profit 11/8/19

new

steve mnu piad 0 for indy bank, and gov't guar lose no money, sold to buddy in same blg (bunch of pluto-crats ) soros, paulsen, wilbur

extensive interview: https://kpfa.org/episode/letters-and-politics-october-23-2019/

https://kpfa.org/episode/upfront-october-21-2019/

aaron glantz homewreckers

elizabeth Warren asks why the Justice Department went easy on big banks

Kevin Wack, Jesse Eisinger / ProPublicaAugust 20, 2019

After an article by ProPublica and American Banker examining how the DOJ softened settlements with RBS and Barclays, the presidential candidate blasts settlements that let banks “evade accountability.”

https://www.alternet.org/2019/08/heres-how-trumps-political-appointees-overruled-tougher-settlements-with-big-banks/

no lnx

Here’s how Trump’s political appointees overruled tougher settlements with big banks

PBS Newshour

Written by Jesse Eisinger, Kevin Wack / ProPublica August 2, 2019

This article was produced in partnership with American Banker.

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up for ProPublica’s Big Story newsletter to receive stories like this one in your inbox as soon as they are published.

Since Donald Trump’s election, federal white-collar enforcement has taken a big hit. Fines and settlements against corporations have plummeted. Prosecutions of individuals are falling to record lows.

But just how these fines and settlements came to be slashed is less well understood. Two settlements with giant banks over financial crisis-era misdeeds provide a window into how the Trump administration has eased up on corporate wrongdoers.

In settlements last year with the two big U.K.-based banks, Barclays and Royal Bank of Scotland, political appointees at the Trump administration Justice Department took the unusual step of overruling staff prosecutors to reduce the settlements sought, leaving billions of dollars in potential recoveries on the table, according to four people familiar with the settlements.

In the case of RBS, then-Deputy Attorney General Rod Rosenstein decided that the charges should not be pursued as a criminal case, as the prosecutorial team advocated, but rather as a less serious civil one.

Both cases were developed by the Obama administration DOJ and involved accusations that the banks misled buyers of residential mortgage-backed securities before the 2008 financial crisis. Prosecutors seemingly found numerous examples of bankers knowingly selling lemons to their customers. The mortgages they were putting into securities were “total fucking garbage,” one RBS executive said in a phone call that was recorded and cited in a DOJ filing. A Barclays banker said a group of loans “scares the shit out of me.” Mortgages that went into the two banks’ securities lost a total of $73 billion, according to calculations used by the government.

In March 2018, the DOJ settled with Barclays for $2 billion, a sum dictated by Trump appointees that was far below what the staff prosecutors in the Eastern District of New York in Brooklyn had sought. The settlement with RBS occurred in August 2018, for $4.9 billion. After Rosenstein downgraded the case from criminal to civil, other Trump appointees concluded that the settlement amount should be about half of what staff prosecutors in the District of Massachusetts had sought.

DOJ spokeswoman Sarah Sutton said that the Barclays and RBS settlements held the banks accountable for serious misconduct, and that the penalties recovered from the banks were fair and proportionate compared with those previously obtained from other banks. She did not respond to detailed questions about how the two settlements were reached and why key decisions were dictated from Washington. “They were largely negotiated by career attorneys in the Department and U.S. Attorneys’ offices with the support and collaboration of Department leadership,” Sutton wrote in an email.

Aspects of how the DOJ came to settle the cases have been recounted. The New York Times reported on Rosenstein’s decision in the RBS case. But this is the first extensive account of how the banks secured the favorable outcomes.

The British banks employed an old playbook, one that proved effective with the Trump administration:Hire prominent former high-level DOJ officials who were now at major law firms. These attorneys won access to the top echelons of the Trump DOJ, where they found an audience receptive to their arguments that the staff prosecutors were unfairly singling out their clients for excess punishment.

The two cases stemmed from the Obama administration’s efforts to bring charges against banks for misdeeds that contributed to the financial crisis. Critics assailed the Obama DOJ for what they perceived as tardy and inadequate policing of financial crisis malfeasance. For example, the Obama DOJ did not prosecute any top bankers for actions related to the crisis. But it did belatedly bring civil charges, and it reached large settlements with numerous banks, including JPMorgan Chase, Citigroup and Bank of America. Moreover, the Obama-era DOJ consistently required the banks to acknowledge their bad acts, a practice that has ceased during the Trump administration.

As the Obama administration was winding up in the fall of 2016, the DOJ had not completed all that it aspired to. It rushed to reach settlements with foreign banks that had shown less urgency to resolve the allegations than some of their U.S. counterparts.

Less than a week before Trump’s inauguration, the DOJ announced that Deutsche Bank had agreed to pay a $3.1 billion civil penalty, and that Credit Suisse would pay $2.48 billion. But there were holdouts, including Barclays and RBS.

Prosecutors in Brooklyn wanted Barclays to pay somewhere within a range in the high single digits of billions of dollars, according to two people familiar with the negotiations. Barclays balked, drawing a line at $2 billion, according to a Bloomberg News account.

Barclays hired an all-star team of defense lawyers. The roster included Karen Seymour, a partner atSullivan & Cromwell who had previously served as chief of the criminal division in the U.S. attorney’s office in Manhattan and has since become general counsel at Goldman Sachs.

Also on Barclays’ legal team was Kannon Shanmugam, a former high-ranking official in the George W. Bush DOJ who was then a partner at Williams & Connolly.

With the two sides far apart in December 2016, the DOJ sued Barclays. Prosecutors also brought civil charges against two former executives at the bank who played key roles in its pre-crisis subprime mortgage operations.

Suing was an unusual step — cases against large corporations normally settle before a complaint is filed — and it was meant to send an implicit message to Barclays. Because the DOJ had been forced to go to court, the British bank could expect the price tag of an eventual settlement to be higher.

Barclays was making the opposite bet: that it would be able to negotiate a more favorable settlement once Trump appointees were in place at DOJ.

In a 192-page complaint, the DOJ alleged that Barclays engaged in fraud on a massive scale, deceiving investors about the characteristics of mortgages used to create securities that sold for tens of billions of dollars.

A Barclays employee commented during a 2006 phone call that one particular pool of mortgages was “about as bad as it can be,” but he did not abandon the loans or modify the bank’s standard disclosures to investors, according to the government’s complaint. In another example, when that same banker said that a particular pool of loans “scares the shit out of me,” because he believed the company that originated the mortgages was likely to go bankrupt soon, Barclays bought the loans anyway. The bank deliberately did not conduct due diligence on the mortgages and then packaged them into bonds, the complaint asserted, all the while falsely telling a rating agency that due diligence had been done on 100% of the loans.

“More than half of the underlying loans defaulted,” the complaint stated, causing huge losses for investors.

Barclays’ legal team argued that the bank should not pay higher penalties in a settlement than other banks had paid relative to their market share. Barclays had been a relatively small player in the residential mortgage-backed securities, or RMBS, market, and its settlement should be sized accordingly, they reasoned.

This was an argument that the DOJ had long rejected. In a 2014 speech, then-Associate Attorney General Tony West argued that a firm’s market share should not outweigh evidence of the extent of its wrongdoing. “The facts and evidence of a particular case — they are what will ultimately matter the most,” he said.

In the Barclays matter, prosecutors in Brooklyn believed they had a strong case. The judge assigned to the case, U.S. District Judge Kiyo Matsumoto, seemed to agree. “This complaint is probably one of the more fulsome complaints I’ve ever seen,” Matsumoto said at an April 2017 hearing.

But the view that ultimately mattered was the one held by a new crop of officials at Main Justice, the DOJ’s headquarters in Washington. Besides Rosenstein, who was not involved in the Barclays case, key players in the RMBS settlements included Trump administration political appointees in the associate attorney general’s office, according to people familiar with the talks.

Steve Cox, the deputy associate attorney general, oversaw the cases, reporting to Jesse Panuccio, the principal deputy associate attorney general. In February 2018, Panuccio became acting associate attorney general, the No. 3 position at the DOJ, after Rachel Brand resigned from the post.

Neither had much experience with federal prosecutions. Panuccio was a former lawyer to Florida Gov. Rick Scott, as well as the chief labor and land use official in Florida, and Cox was a onetime associate at WilmerHale who had spent six years as a corporate counsel at an oil company, Apache Corporation, before joining the DOJ.

Following communications with the Barclays legal team, DOJ officials in Washington conveyed a message to the staff prosecutors in Brooklyn: settle the case within a narrow range around $2 billion, or we will take the negotiations out of your hands. The instruction came via a spreadsheet that listed the dollar range.

For DOJ officials in Washington to dictate specific terms of a settlement was unusual. U.S. attorney offices generally have wide latitude in choosing what they investigate and in making prosecutorial decisions. “Involvement of DOJ in cases handled in the U.S. attorney’s offices is not common” but happens on big cases from time to time, said Harry Sandick, a former federal prosecutor who is now a partner at Patterson Belknap. During Obama-era negotiations, Main Justice had tried to show a united front with prosecutors who’d investigated the RMBS cases, according to former department officials.

At least one prosecutor acknowledged the internal rift between Brooklyn and Washington to the Barclays’ defense team, according to a source familiar with the matter. Once prosecutors in Brooklyn learned Main Justice’s position, this prosecutor communicated to the Barclays side that the bank had prevailed. Recalling how the deal went down, one government official said: “It seemed like a defeat.”

The staff prosecutors weren’t just disappointed about settling for a fraction of what they had sought back in 2016. They had brought civil charges against two former Barclays employees, Paul Menefee and John Carroll, and in exchange for dismissal, the two men agreed to pay a combined $2 million. But the agreement did not include language that precluded Barclays from footing the bill. That meant that Menefee and Carroll, who did not admit wrongdoing, might not have to pay a dime out of their own pockets.

Lawyers for Menefee and Carroll did not respond to requests for comment. In a statement, U.S. Attorney Richard Donoghue said, “The substantial penalty Barclays and its executives had to pay was an important step in recognizing the harm that was caused to the national economy and to investors in RMBS.”

At Main Justice, at least one official also regretted the Barclays deal, but from the opposite perspective. Cox told a prosecutor that he wished the Barclays settlement had been even smaller, but he explained that it wasn’t feasible to go lower because it had been reported that the bank offered to pay $2 billion, according to a person familiar with the conversation.

Cox did not respond to requests for comment.

Panuccio, who stepped down from the DOJ in the spring, declined to answer specific questions, citing the confidentiality of the department’s process. In an email response, he said, “The general narrative the questions seem to suggest is belied by the facts — including the fact that DOJ recovered historically significant sums in its 2018 and 2019 FIRREA settlements, and the fact that DOJ filed a major FIRREA suit against UBS in November 2018.” (FIRREA is the Financial Institutions Reform, Recovery and Enforcement Act of 1989, a law dating from the savings and loan scandals of the late ’80s.)

Barclays declined to comment.

While Barclays had been in active negotiations with the DOJ during the Obama administration, the RBS defense team had not. RBS did not want to enter negotiations until the prosecutors dropped the criminal investigation.

Boston prosecutors declined to do so. Mortgages that went into RBS’ securities suffered about $54 billion in losses, ravaging their customers’ investments. The prosecutors believed they had compiled damning evidence that RBS officials knew what they were doing was wrong. In one example, RBS’ chief credit officer in the United States called the mortgages that were going into the securities “total fucking garbage” with “fraud [that] was so rampant … [and] all random,” according to calls the prosecutors later quoted in the statement of facts against the bank. He stated that “the loans are all disguised to, you know, look okay kind of … in a data file.”

In 2016, the RBS defense team, which included former Deputy Attorney General Jamie Gorelick, of WilmerHale, appealed to Stuart Delery, then the third-highest official at the DOJ. Delery knew Gorelick from their time at the DOJ. Despite that relationship, according to a person knowledgeable about the matter, Delery said he would not interfere with an ongoing investigation at a U.S. attorney’s office. (Delery did not respond to requests for comment. Gorelick directed questions to RBS.)

Then came November. A few months later, the Trump appointees arrived.

For a while, nothing changed. The Boston prosecutors continued their investigation, more convinced than ever that the RBS conduct merited a criminal charge. They wrote what’s known as a “prosecution memo,” which they had begun during the Obama administration, describing the underlying criminal acts under FIRREA.

Such a move would have been groundbreaking. The Obama DOJ had used FIRREA, but for civil charges. And the Boston prosecutors did not want to stop there. They argued for first charging the bank criminally, and then moving on to seek criminal charges against individual bankers. Those would have been the first of their kind.

They never got that far.

In time, Trump political appointees such as Panuccio and Cox began to figure out their way around the department. The RBS defense team, including Gorelick, requested meetings with top officials. Gorelick again had a connection with a key DOJ official. She had worked with Cox, earlier in his career when he was an associate at WilmerHale, defending BP in investigations of the Deepwater Horizon spill.

The defense group now also included Mark Filip of Kirkland & Ellis, representing the British government’s interest in RBS. Filip, who did not respond to requests for comment, has a special stature. During his tenure as deputy attorney general, he had codified the conditions prosecutors had to assess in bringing cases against corporations, which are today known as the “Filip Factors.” Prosecutors are supposed to weigh a variety of issues, such as how serious offenses are and whether the company has cooperated with investigators. As a private sector big hitter, companies hire him, in the view of prosecutors, to explain why his factors are not met in a given case.

The RBS team was able to meet with the No. 2 at the DOJ, Rosenstein. It’s unusual, though not unprecedented, for a defense team to get access to such a high-level official. The RBS team persuaded Rosenstein.

In the spring of 2018, Rosenstein informed Andrew Lelling, the U.S. attorney for the District of Massachusetts, that his office couldn’t pursue criminal charges against RBS. Rosenstein said he didn’t want the DOJ treating RBS differently from other banks, which faced only civil investigations. (The Massachusetts U.S. attorney’s office declined to comment on the details of the RBS settlement. Rosenstein, who left the DOJ in May, did not respond to inquiries.)

RBS spokeswoman Linda Harper confirmed that the Boston U.S. attorney’s office had recommended criminal prosecution and that the bank had met first with Delery and then with Rosenstein.

“The argument we made was for fairness and parity,” she said. The bank’s defense team, she added, argued that “Main Justice should ensure that like cases are treated alike.”

The Boston team was disappointed and angry. It argued that prosecutors charge people when they have the necessary evidence, even if they cannot charge all people who committed the same crime. And it maintained that the decision went against department policy. In May 2017, then-Attorney General Jeff Sessions issued a memo directing prosecutors to charge defendants with the most serious provable crimes carrying the highest penalties.

“It calls into question whether the memo meant what it says when it came to white-collar prosecutions,” a person familiar with the decision said.

Once the case was downgraded, the Boston team turned to deciding on the monetary settlement. Internally, prosecutors had discussed seeking a settlement in the $9 billion to $10 billion range, reflecting their belief that the RBS conduct was especially egregious.

At one point in the spring after the Rosenstein meetings, Main Justice sent Boston a similar spreadsheet that it sent to other U.S. attorney offices concerning their open cases, including those against Barclays, Japanese bank Nomura and Swiss bank UBS. For RBS, the range was between around $4.5 billion to about $6.6 billion.

The Boston prosecutors tried to get the settlement as close to the top of the range as they could. But they were thwarted even in that attempt. Cox told the Boston team that the DOJ would “call the bluff” of RBS and tell the bank it would take $4.9 billion.

Prosecutors thought the DOJ had caved. They complained to Cox that Main Justice had authorized the office to seek as much as $6.6 billion. Cox’s reply: But RBS won’t go that high.

https://www.corporatecrimereporter.com/news/200/steven-brill-corporate-liberals-corporate-crime/

phrma:

There is a pivotal corporate crime scene in Steven Brill’s new book – Tailspin: The People and Forces Behind America’s Fifty Year Fall – and Those Fighting to Reverse It (Knopf, 2018).

Brill is sitting in a conference room with federal prosecutors in Philadelphia trying to understand why no executive was charged with Johnson & Johnson’s criminal off label marketing of the antipsychotic drug Risperdal to children and the elderly. The prosecutors had secured a misdemeanor plea from a subsidiary and collected a $2.2 billion fine.

Brill wanted to know – why wasn’t the key Johnson & Johnson executive – the current CEO, Alex Gorsky – charged?

“Why instead was Johnson & Johnson allowed, like other drug companies, to pay a fine and have the corporation – actually only its subsidiary – plead guilty to one crime, a misdemeanor associated with its marketing to the elderly?” Brill asked.

In the conference room, “prosecutors who had worked on the case seemed surprised by the question,” Brill writes.

“As we sat in their conference room in Philadelphia, they looked at me blankly, as if I didn’t understand that getting the $2.2 billion fine and the misdemeanor guilty plea was a big victory, squeezed out over months of tense negotiations,” Brill says. “One of the lawyers involved later said that prosecuting Gorsky had been mentioned casually by the prosecutors at the start of the negotiations, but that it was never brought up again as the talks continued, and that no one on either side had considered it a serious possibility.”

Are you saying that the reason is the fundamentally corrupt nature of the system – where you have the prosecutors swinging through the revolving door to the big corporate firms?

“I don’t think it’s corruption like that,” Brill told Corporate Crime Reporter in an interview last week. “It’s more a state of mind. Take the Johnson & Johnson case. Eric Holder has a press conference and says – we are getting a $2.2 billion fine. What these people did was despicable. They put the children and the elderly at risk for their lives. And that’s the end of it. Everybody feels good. The government gets a big fine. Johnson & Johnson could care less about that fine. It’s a fraction of their earnings. The stock doesn’t even take a hit the first day. And nobody is held personally responsible. That dynamic happens over and over again.”

“Look at the press release involving JP Morgan and the Foreign Corrupt Practices Act in China. You read that entire press release and the statement of facts behind the press release. Not a single person is named.”

“There is a scene in the Johnson & Johnson piece. I’m sitting in a conference room at the U.S. Attorney’s office in Philadelphia asking them about the case. And I say – what about Alex Gorsky? And they looked at me like I was a Martian. What does Alex Gorsky have to do with this? We have this big fine. We have this corporate integrity agreement. And I said – he and others are the people who did this. And the prosecutors actually didn’t seem to understand the question.”

“And you report that Judge Rakoff says that when he was a prosecutor, they would actually treat corporate crimes like street crimes, like mob crimes – go after the individuals, start at the bottom, flip witnesses, move up the corporate ladder. Indicting the corporation wasn’t in the equation. It was indicting the responsible executives. Now that has been flipped.”

You say state of mind. But isn’t it more insidious? When you were in that room at the U.S. Attorney’s office in Philadelphia, you were facing prosecutors who were looking at their career choices. Isn’t it true that to upend the apple cart, to start criminally prosecuting executives at Johnson & Johnson, would adversely affect their career paths?

“Call me naive. You are reading too much venality into it. They have gotten into this rhythm of – this is the way the game is played. It’s not like the prosecutor woke up that morning and said – if I don’t hold Alex Gorsky responsible I’m going to get a much better job.”

“What he could be thinking is – if I try to hold Alex Gorsky responsible, I’m never going to see a settlement. The people in Washington are going to be pissed off at me. There is going to be a long trial. They are going to have the best lawyers in the world. And we may lose everything. I think they are wrong, but that is what they may be thinking.”

In your book, you seem to be looking at what we call corporate liberals. They are generally liberal lawyers who went to liberal Ivy League law schools and come out to work for the corporate state in one way or another – either corporate law firms or for a stint as a prosecutor then to return to the law firm.

“In part, yes,” Brill says. “The best example goes back a ways. The law firm Paul Weiss working for JP Stephens. And Munger Tolles, a classic example of the relatively new firm with people from Yale, Harvard and Stanford law schools. They wrote the legal briefs that argue that Wells Fargo should be able to rely on a compulsory arbitration clause for all of those people whose customers were screwed by having the phony accounts set up for them.”

Those are two examples, but it’s pretty much the norm. The graduates of the top liberal law firms go to work for big firms that represent corporations and corporate criminals.

“Yes. In fact, Ralph Nader sent me a study done about six months ago of Harvard Law School alumni that said the same thing.”

You do raise exceptions in your book. One you raise is Dennis Kelleher of Better Markets.

“He got out of Harvard Law School, but also served in the Air Force and worked for Ted Kennedy. He then went to Skadden Arps, then left Skadden Arps and went in the opposite direction. He set up the Better Markets organization, which is a non profit that lobbies against the corporate lobbyists.”

Your book focuses on what you call moats – liberal elites representing corporations who try and protect themselves and their self-interests, but at the same time undermining the common good.One area that you know better than most are these corporate lawyer moats. But why are there so few exceptions – like Dennis Kelleher?

“There are lots of exceptions. And there is also the model of people going in and out of corporate law firms and working in public service. I wouldn’t say it’s exactly a binary thing. But the main reason is that people tend to do things for incentives. And one of the major incentives in our world is money.”

What is the way out of it?

“More people ought to be thinking about a balance in their lives between their personal achievement and the common good. That’s why I have in my book so many examples of people and organizations who are defying the stereotypes. Max Stier runs the Partnership for Public Service. He went to Stanford Law School. He then went to Williams & Connolly. Then he decided he wanted to do public service. And so far, he hasn’t looked back.”

You have a section in your book on the corporate crime moat and you ask why we are unable to hold corporate executives accountable for their crimes.

“Corporations and CEOs have hit the trifecta. First, they established that they were too big to fail so the country has to bail them out. Then they established that they were too big to jail, because if you took their license to operate away, the economy would also crash. And finally, they established the last leg. The CEOs who run them can’t be held responsible because the corporations are too big to manage. Any CEO can always say — you cannot prove beyond a reasonable doubt that this was going on in my company. My company is all around the world. I have hundreds of thousands employees. How are you going to prove that I knew it?”

“That is the story of what happened after the crash. No CEO of any respectable company was held responsible. And even the CEOs of less respectable companies were not held personally responsible. Look at the CEO of Countrywide.

He paid a bit of a fine. But it might have been a fraction of the money he made.”

“The whole idea of the book is what we have lost at the top is any sense of responsibility for the common good and any mechanism of accountability for those who hurt the common good.”

For the complete q/a format Interview with Steven Brill, see 32 Corporate Crime Reporter 25(13), June 18, 2018, [print edition only.]

Ever wonder why no bankers went to jail after the 2008 financial crisis? Investigative journalist, Jesse Eisinger, tells us why in his book, “The Chicken Shit Club.”

https://ralphnaderradiohour.com/the-chicken-shit-club/

https://www.alternet.org/news-amp-politics/failure-punish-white-collar-crime-after-2008-financial-crisis-helped-produce

auerback

In the aftermath of the worst financial crisis since the Great Depression, bank officials at HSBC admitted to the Department of Justice that the bank violated the Bank Secrecy Act, the International Emergency Economic Powers Act and the Trading with the Enemy Act. This amounted to one of the largest and most destructive money laundering and anti-terror finance sanctions-busting in history. Fines were leveled,but no senior bankers went to jail. In another investigation, the DOJ implicated :{Deutsche Bank and UBS:(style="background-color:#ffff66;"):}: in a bid-rigging cartel that illegally manipulated LIBOR, the most important global benchmark interest rate. Professor Bill Black estimates that the “dollar amount of deals affected by the collusion range[s] from $300-550 trillion in deals manipulated at any given time.” It was a scandal that may have been history’s largest financial crime, yet the U.S. Department of Justice refused to prosecute any of the elite bank officers involved.

As we approach the 10th anniversary of the 2008 crash, ProPublica’s Jesse Eisinger reminds us that no top bankers were ever “held accountable for the biggest financial crisis since the Great Depression… No one.No top officer from any major bank went to prison.” All of these instances of corporate corruption occurred well before Trump’s election. Trump stands accused of much the same. But how do you make a political case for the latter’s impeachment on the grounds of corporate corruption (even as the president virtually daily violates the Constitution’s Emoluments Clause), given the earlier reticence of multitudes of politicians, regulators, and DOJ officials to prosecute similar white-collar crimes whose impact dwarfed those allegedly committed by America’s 45th president?

It says something about the way we have (to paraphrase the late Senator Daniel Patrick Moynihan) as a society gotten very soft on criminal deviancy that the practices alleged to have been perpetrated by Trump not only in the 2016 election, but also for decades before in his real estate ventures, no longer appear to be disqualifications for the office of the presidency, let alone grounds for impeachment. The previous Obama administration’s embrace of the concept that the systemically dangerous institutions (SDIs), particularly the largest banks, whose senior officials were “too big to jail,” meant that the bankers who grew wealthy from leading the largest and most destructive fraud schemes in banking history got off scot-free.And they also created a context in which the business practices of a candidate like Donald Trump were normalized to a degree that they were considered an insufficient bar to block him from the presidency.

These facts are worth recalling in the context of the recent convictions of former Trump campaign chairman Paul Manafort on charges related to bank and tax fraud, and the guilty plea by former Trump lawyer Michael Cohen, who directly implicated the president in campaign finance law violations. As sordid as their actions were, they are small beer compared to what took place in the decade, in which a whole industry literally succumbed to an epidemic of fraud, money laundering, and other forms of malfeasance.

Of course, one shouldn’t ignore the role of the GOP in terms of fomenting this degradation of the rule of law (clearly George W. Bush’s gutting of the SEC, his refusal to devote more fiscal resources to the hiring of additional FBI field officers to investigate financial fraud, and his appointments of Goldman Sachs’ Hank Paulson and his AG, Alberto Gonzalez, all contributed to this “criminogenic environment”). However, it is largely the Democratic Party today that is seeking to position itself as a quasi-constitutional brake on this lawless presidency, which, given their minority political status, means using the courts to save the country from a descent into total constitutional anarchy. But the Democratic Party’s ongoing obeisance to its Wall Street donor class via its longstanding embrace of financial deregulation (especially prolific during the tenure of Robert Rubin as Treasury Secretary in the 1990s), and its correspondingly supine response to the consequences of said deregulation during time of the Obama administration, means that Democrats are poorly placed to mount a credible case for impeachment today on the basis of Trump’s sleazy business practices.

During the 2016 election campaign, Trump cynically exploited people’s anger at the widespread sense of a judicial system heavily tilted against the average American, as well as highlighting the unsavory alliance between the “swamp” in Washington, D.C., and Wall Street, all while reminding voters of the Democrats’ role in the financial deregulation that helped to destroy the global economy years later. Sincere or not, contrast this to President Obama’s breezy comments on the money awarded to the CEOs of JP Morgan Chase and Goldman Sachs respectively, Jamie Dimon and Lloyd Blankfein. Although Obama initially condemned the “obscene” bonuses of Wall Street “fat cats,” by 2010 Business Insider reported the president was “totally cool” with the awards to these “very savvy businessmen”:

“I, like most of the American people, don’t begrudge people success or wealth. That is part of the free-market system.”

The American people generally don’t “begrudge people success or wealth” if it is achieved honestly. What Obama failed to acknowledge is that the electorate was revolted when such wealth was accumulated on the back of pervasive fraud and government bailouts, or experienced a sense of things being rigged against them in their own economic lives. It is important to recall this context as we ponder the miasma of prosecutions, indictments and guilty pleas that have emerged from special independent prosecutor Robert Mueller’s ongoing investigations of the Trump administration. In aggregate, the indictments and guilty pleas have added to the overall picture that Mr. Mueller has been investigating an organized crime syndicate (albeit one as if Fredo was the only Corleone brother to survive and ended up running the show), as opposed to the administration of the so-called leader of the western world.

But have these convictions given renewed momentum toward removing Trump via impeachment? They seem to reflect business as usual in relation to the pervasive corruption that was uncovered in the aftermath of the 2008 crisis, a profoundly inconvenient fact for those who persist in the delusion that America’s institutional framework and its alleged attachment to the rule of law could prevent the descent of this country into a kind of fascist authoritarianism. The Obama presidency is now viewed fondly through the prism of the nightmare that is Trump. But what did the 44th president (or his treasury secretary, or attorney general) do when confronted with the epidemic of fraud and malfeasance that gave us the nightmare of 2008? Basically nothing. Bankers were given a “get out jail free” card. Indeed, given the persistent tolerance of the crimes of wealthy CEOs, it’s hard to believe that Paul Manafort would be the object of a criminal investigation today if he had stayed out of the 2016 presidential campaign, let alone Donald Trump.

As Eisinger has argued, the DOJ “occasionally brings charges against lower-level executives of major corporations, but hasn’t held the chief of a Fortune 500 company accountable in more than a decade,” which foamed the runway for the current occupant of the White House. In truth, such has been the degradation in the rule of law in this United States, that even now it is questionable whether white-collar crime per se constitutes a legitimate threshold to conduct impeachment proceedings. HSBC confessed to money laundering for Mexican drug cartels, and evading sanctions directed against Iran. Fines were issued (equivalent to a few quarters’ profit), but that’s it. No jail time. The GOP will no doubt shamelessly remind the Democrats of these inconvenient facts if the latter seeks to impeach Trump on that basis.

Any American who has recited the words of the Pledge of Allegiance knows that the rule of law is inextricably tied to the ideal of “liberty and justice for all.” There mustn’t be a two-tiered system: one for the wealthy, and one for the rest of us. The guilty plea of Michael Cohen was announced with great fanfare by Robert Khuzami, the current Deputy U.S. Attorney for the United States Attorney’s Office for the Southern District of New York. He proclaimed that Cohen’s conviction “serves as a reminder that we are a nation of laws, with one set of rules that applies equally to everyone.”

If Khuzami’s name rings a bell for some, it is because he was once the General Counsel for the Americas for Deutsche Bank from 2004 to 2009, and then went to the SEC as head of enforcement. In the latter position, Khuzami’s intense conflicts of interest from his previous role at DB guaranteed there would be no serious investigation of collateralized debt obligation (CDO) abuses. Indeed, his career exemplifies the revolving door culture that has characterized the D.C.-Wall Street nexus, which makes one prone to regulatory capture, and correspondingly lax when it came to prosecuting the very rule of law that Khuzami himself trumpeted in the wake of the Cohen convictions. There is a balancing act for people like Khuzami, needing (per Eisinger) “to display their dazzling smarts but also eventually needing to appear like reasonable people and avoid being depicted by the white-collar bar as cowboys unworthy of a prestigious partnership.” Even though, as Yves Smith of the economics blog Naked Capitalism noted, Deutsche Bank was patient zero of CDOs designed to fail for the benefit of subprime shorts, under Khuzami’s tenure at the SEC, the German bank attracted virtually no scrutiny. This, despite the fact that DB’s leading salesman of this toxic junk, Greg Lippmann, figures prominently in all reasonably researched accounts of pre-crisis CDOs. So much for the idea that “one set of rules… applies equally to everyone.”

The Democrats’ largely absentee approach to the problem of white-collar crime could well explain why the party and the special independent prosecutor continue their efforts to make the case for “Russian collusion.” The theory being that conspiracy with a foreign power to influence an election will create a sufficient threshold to attain the “high crimes and misdemeanors” standard needed to secure impeachment.

Treason is also sexier than white-collar crime and, in theory, easier to prosecute. But it’s still not a slam dunk. We’re now 18 months into Mueller, and the polls still suggest that the Democrats have not gained sufficient political traction with this issue beyond their base. No smoking gun has yet emerged, or least insufficient evidence to encourage Republicans to abandon their president. Hence, calling for impeachment remains a risky strategy if Mueller fails to deliver the goods, as it will appear to many voters that the Democrats are using the courts to overturn an election result (much as Democrats used to allege during the GOP/Ken Starr-led impeachment proceedings against Bill Clinton). But, it’s also hard to make an impeachment case on the basis of white-collar offenses, given the Democratic Party’s historic accommodation of Wall Street criminality.

And until the Democrats come face-to-face with their legacy—their complicity in failing to bring about “change you can believe in” in the aftermath of 2008—it will be harder for them to argue for Trump’s removal on that basis, at least to the degree that is required to secure bipartisan support. A promised “return to normality” isn’t enough, given what “normality” gave us 10 years ago. Democrats can’t enable arsonists, and then complain when the fire spins out of control. But that’s exactly the situation in which we find ourselves today with our modern-day Nero tweeting as Washington, D.C., continues to burn.

This article was produced by the Independent Media Institute.

The People vs. Goldman Sachs: Why Top Execs Should Stand Trial

A Senate committee has laid out the evidence. Now the Justice Department should bring criminal charges

http://www.rollingstone.com/politics/features/the-vampire-squid-occupies-trumps-white-house-w456225

Back on February 19th, during a primary-season speech in Myrtle Beach, South Carolina, Donald Trump directed a two-pronged rhetorical offensive against opponents in both parties. He started with Ted Cruz.

"I know the guys at Goldman Sachs. They have total, total control over [Cruz]," Trump said. "Just like they have total control over Hillary Clinton."Cruz's campaign, Trump pointed out, had taken loans from the infamous investment bank Goldman Sachs. And he'd failed to properly disclose one of these loans.

Trump demonized the bank enough that it almost seemed like genuine animosity existed between candidate and squid. When Goldman announced in September that it was banning employees from donating to Trump's campaign, it seemed official.

In October, Trump was even more specific in pointing the finger at Goldman. Referencing speeches Clinton gave to Goldman, Trump said that "Hillary Clinton meets in secret with international banks to plot the destruction of U.S. sovereignty in order to enrich these global financial powers, her special interest friends and her donors."

Trump's tales sounded like classic Rothschild/Bilderberg conspiracy lore. They would have been absurd, were it not for the fact that so much of the innuendo around Goldman Sachs often turns out to be true.

The bank has an extraordinary history of placing its executives in high-ranking governmental and quasi-governmental positions, from treasury secretaries to senators to the heads of the World and European Central Banks. Goldman has been implicated in the trafficking of toxic mortgages, a sprawling state corruption case in Malaysia, the manipulation of world commodity prices and a heinous episode involving Greece in which the bank helped to mask the country's ballooning debt while simultaneously working with JPMorgan Chase to create an index for betting against Greece's economy.

Nonetheless, Trump's insinuations about a Goldman-Hillary secret conspiracy were so pointed that CEO Lloyd Blankfein was forced to respond.

"If there's some secret international cabal, I've been left out of the party again," he quipped.

In his final pitch to voters in the days before the election, Trump used the image of Blankfein in to argue that insiders had ruined the lives of ordinary Americans to enrich themselves. Here is the narration you heard when Blankfein's face came on screen:

"It's a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities."

Trump at an August campaign rally in Fort Lauderdale, Florida. Joe Raedle/Getty img]

One surprise election result and a mountain of jubilant #draintheswamp hashtags later, Donald Trump has filled his White House with, you guessed it, Goldman veterans.

His chief strategist, the unabashed white-supremacist loon Steve Bannon, is a former Goldman banker, as is adviser Anthony Scaramucci. Steve Mnuchin marks the fourth Goldman-pedigreed treasury secretary in the last four presidencies, after Bob Rubin, Lawrence Summers and Hank Paulson.

But the real shocker is the recent appointment of Goldman Chief Operating Officer Gary Cohn to the post of director of the National Economic Council. Bannon and Mnuchin were former, past Goldmanites. Cohn, meanwhile, is undoubtedly at least the number-two figure at the world's most despised bank, if not the outright co-head with Blankfein. He has been at the center of many of its most infamous episodes, including the Greek affair.

So much for draining the swamp.

The new party line, emanating both from Washington and from Alt-Right yahoos on the Internet, is that people like Gary Cohn are no longer the swindling scum-lords Trump said they were a few months ago, but simply smart businessmen.

As Trump put it, "Gary Cohn is going to put his talents as a highly successful businessman to work for the American people."

This mantra is often used to explain Goldman's legend. Its advocates say they may be cold-blooded, but they're just dern good at what they do.

The bank has worked very hard to nurture exactly that image, particularly when there are darker explanations for the bank's success that they would rather leave unexplored. A great example involves Cohn, Trump's new "top economic adviser."

Way back in November of 2007, a tidal wave was beginning to devour Wall Street. The subprime mortgage market was collapsing, and the bulk of America's investment banks were foundering.

Indeed, within a year, three of the country's storied top five investment banks – Bear Stearns, Merrill Lynch and Lehman Brothers – would be wiped out by the crisis, thanks mainly to their overinvestment in subprime.

One bank stood out as an exception: Goldman Sachs.

The legend on the street was that Goldman was somehow not only going to survive the crash, but prosper and make big profits. How did Goldman do so well during a financial hurricane? The New York Times had an answer: its leaders were smart – and humble!

"Goldman's secret sauce, say executives, analysts and historians," the paper wrote, "is high-octane business acumen, tempered with paranoia and institutionally encouraged — though not always observed — humility."

Where did writers Jenny Anderson and Landon Thomas Jr. get the idea that Goldman's smarts saved them during the mortgage crisis? From Goldman, of course.

We know this because of an investigation conducted into the bank's a-little-too-miraculous performance that year by the Senate Permanent Subcommittee on Investigations.

Chaired by Michigan Sen. Carl Levin, the PSI scrupulously detailed the efforts by Goldman to get out from under the mortgage crash by dumping its disastrous mortgage investments on its own clients as it simultaneously bet against them.

This maneuver, colloquially described since as the "Big Short" episode, was perhaps the most lurid example of Wall Street iniquity during the crash years. And Trump's new economic adviser, Cohn, played a central role.

Michigan Senator Carl Levin. Mark Wilson/Getty

In the run-up to the "Big Short" story – in the years leading up to 2007 – Goldman had joined other banks in helping cause the financial crisis. They'd done so by creating masses of toxic mortgage instruments and selling them to unsuspecting investors, who were (often falsely) told the loans met underwriting standards. Goldman, like JPMorgan Chase, Bank of America and Citigroup, would later pay billions to settle claims by its infuriated customers, which included state and federal housing authorities.

At the tail end of 2006, Goldman execs saw that a) the subprime mortgage market was in serious trouble, and b) the bank itself was dangerously overinvested in it. So they made a frenzied, often deceptive effort to induce their clients to eat what should naturally have been their own losses.

On December 14th, 2006, mortgage chief Daniel Sparks proposed: "Distribute as much as possible on bonds created from new loan securitizations and clean previous positions."

Translation: Let's create new mortgage-backed products to dump on others, and use them to "clean" our toxic portfolio.

In one mortgage-based deal called Hudson 1 securities, Goldman helped sell its toxic holdings by saying the bank's interests were "aligned" with those of potential clients, because it would own a tiny, $6 million slice of the deal.

The bank left out the fact that it had a $2 billion bet against the same deal.

In the same deal, Goldman told clients that the mortgage products in Hudson had been "sourced from the Street," i.e., that this stuff did not come from Goldman's own inventory. When Senate investigators later pressed Goldman executives on this question, they hilariously claimed this wasn't a lie, because Goldman was part of "the Street."

"They were like, 'We are the Street,'" one investigator told me, laughing.

Through deals like this, Goldman within months went from having a $6 billion bet on mortgages to having a $10 billion bet against them – a "big short."

All of these moves were made with the assent of the Firmwide Risk Committee, which included Goldman CFO David Viniar, Blankfein and Cohn.

They would go on to fleece other clients. In the summer, an Australian hedge fund called Basis Capital was induced to buy $100 million of a mortgage-based Goldman deal called "Timberwolf." They told the Aussies to expect a return of "over 60 percent."

Meanwhile, in private, Goldman execs were saying things like, "Boy, that timberwof [sic] was one shitty deal."

The sales rep who got Basis to buy was so elated that the subject line of his email read "Utopia." He told other execs he'd found the ultimate sucker. "I found white elephant, flying pig and unicorn all at once," he crowed.

Basis Capital later claimed it lost $56 million in six weeks. It filed for bankruptcy within months of the Timberwolf deal.

Getting back to the Times story about how Goldman's smarts and humility saved them during the crash: One of the documents the Senate investigators discovered was an email from Goldman press flack Lucas van Praag to a group of senior Goldman executives that included Blankfein, Cohn and Viniar.

Van Praag wanted to warn the leadership that there was a Times piece coming that would examine why Goldman managed to prosper at a time when everyone else was being wiped out. Van Praag did not, of course, tell The Times that Goldman had survived by making sure that its clientele bought up what Blankfein called the "cats and dogs" of its toxic inventory.

What van Praag instead said was more Trumpian: that Goldman just had a winning culture.

"We spent a lot of time on culture as a differentiator," van Praag told his bosses, when describing his interactions with apparently gullible reporter Jenny Anderson. "She was receptive."

In response to van Praag's email, Blankfein wrote, "Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts."

This is the same Lloyd Blankfein who testified years later in the Senate: "We were not consistently or significantly net-short the market in residential mortgage-related products in 2007 and 2008."

He added, "We didn't have a massive short against the housing market, and we certainly did not bet against our clients."

When Sen. Levin heard Blankfein say he didn't have a "massive short" during 2007, he was furious. "Heck, yes, I was offended," he told Rolling Stone. "Goldman's CEO claimed the firm 'didn't have a massive short,' when the opposite was true."

We know the "opposite was true" because of the extensive email record these arrogant yutzes left behind. One of the smoking guns involved Cohn. On July 25, 2007, Viniar sent Cohn an email pointing out the huge losses and writedowns that other banks were experiencing.

"Tells you what might be happening to people who don't have the big short," Viniar told Cohn.

img doc]

In the heat of the meltdown, there was some gallows humor between Cohn and Blankfein. At one point the two men seemed to be trying to figure out where they were with their mortgage strategy, and what to do going forward. "We are marking both sides," Cohn says. "There is a net short."

"Bet all the dads at camp are talking about the same stuff," Blankfein joked.

Goldman's higher-ups ended up having a great year. While the whole financial world was collapsing due in large part to behaviors like that of his own bank, Blankfein made $68.5 million, a record for a Wall Street executive. Cohn made $67.5 million. The two were the McGwire and Sosa of the profiting-off-others'-misery era. The bank, meanwhile, would lay off 3,200 lower-level employees within a year.

Goldman probably should have gone out of business in 2007-2008. Two little-discussed acts of government welfare in September of 2008 helped save the company.

First, there was the infamous emergency granting of Commercial Bank Holding Company status to Goldman. Have you ever seen a Goldman branch or a Goldman ATM? Probably not, because it isn't a commercial bank. But on September 21st, 2008, the government gave it permission to call itself one.

This move, so desperately needed that it was executed on a Sunday night, allowed Goldman access to mountains of life-saving cash from the Federal Reserve.

The other key move was a decision by the SEC to ban short-selling of financial stocks. This nakedly anticapitalist maneuver allowed Goldman to fend off attacks by speculators who correctly sensed the company was in deep trouble.

Apart from the SEC order, major shareholders like pension funds in New York and California also agreed to stop lending shares of Goldman and Morgan Stanley to short-sellers, essentially protecting these two banks in particular from the forces of the market. Notably, they were the two top-five investment banks that survived 2008.

Blankfein was initially opposed – "I'm for markets," he reportedly said – but as things worsened, he agreed with Morgan Stanley chief John Mack that they needed their government Daddy to save them.

"You're right. We have to do something about this," he said. He later called the decision "tricky."

Yet even with the SEC ban on short-selling, Goldman's stock price continued to plunge, from $207.78 in February 2008 to $47.41 in November. Cohn claims not to have been worried. "It wasn't scary at all," he said.

Vanity Fair found a colleague who scoffed at Cohn's assessment. "Complete and utter nonsense," the person said. For all their brains and humility, these geniuses needed the government to halt the free market on their behalf to survive.

Goldman deserves its villainous reputation. The bank symbolizes all the worst aspects of the modern "financialized" economy. The crash era was the ultimate example.

Banks like Goldman mostly didn't create anything of value during this time. Mostly what they did was engineer new ways to create credit that led to millions of people buying homes they couldn't afford, creating the mother of all financial bubbles.

When it all went bust, as it necessarily had to, they scrambled by hook or crook to dump the damage on other people. Clients ate their losses and they ran weeping to the taxpayer for rescue – Goldman got $12.9 billion alone just from the AIG bailout, which of course was engineered by former Goldman chief Hank Paulson. In the middle of all of this, people like Blankfein and Cohn paid themselves record amounts of compensation. They are scum, and it's absolutely fitting that so many of them will end up serving the Trump administration.

Donald Trump made a lot of political hay out of the iniquity of people like Cohn during his campaign. But his recent appointments are absolute proof that his "populist" message was a crock all along – not that we couldn't have guessed anyway.

hmmn

OpEdNews Op Eds 2/21/2011 at 03:21:42

Why didn't any banksters go to jail? -- and other mysteries of the U.S. political economy

By Richard Clark

To answer that initial question by Bill Maher, Matt Taibbi responded with a rhetorical question:

"How much drug enforcement would there be in this country if every top-ranking narc had a $2 million-a-year job waiting for them with the local drug dealer after they left government service?" (After their careers on "the Hill," lot of former members of Congress go to work as lobbyists for the financial industry, receiving about that same amount of money.)

Bill Maher: So tell us in simple terms why the banksters belong in jail?

Matt's reply, nearly verbatim:

All the banks were broadly involved in a criminal fraud scheme that involved the selling of mis-marked mortgage-backed securities. These securities were composed of toxic, crappy sub-prime mortgages that they were waving a bunch of phony-baloney ratings over (like using some kind of "magic wand') and then selling them off to pension funds, insurance companies, and banks around the world. They were "wanded' (fraudulently labeled) as AAA-rated securities, which were by no means really anything close to AAA quality-- far from it. It was like selling oregano, claiming it was high-quality marijuana, and doing it on a massive, massive scale, to thousands of defrauded buyers.

When it comes to financial fraud, the banksters in the financial services industry far outdid Bernie Madoff, who was just doing a simple, age-old Ponzi scheme. In contrast to that, the Wall Street banksters were doing something on a vastly larger scale, cheating vastly larger numbers of people than Bernie ever cheated. Theirs was a much, much bigger operation. As a result, millions of Americans went into foreclosure and a great many lost their homes, just as millions more probably will. Millions more lost their jobs, in part because of the falling real estate values and the greatly reduced spending of those whose home values went way south, with many of them eventually losing their homes or fearing they might. Meanwhile, the banksters who sold these folks the predatory loans are still living like Pablo Escobar, another very successful criminal. But unlike Escobar, virtually none of the banksters have gone to jail, nor will they. Plus, the likelihood is strong that that all of them will continue to keep the trillions they stole from us. Angelo Mozillo from Countrywide Financial was the only bankster to come close to getting time behind bars and he got off with a $45 million fine and a promise to never again serve as the director of a large institution.So yes crime pays in the United States, at least for banksters and those in government who pave their way.

Who are some of the other Mubarak-level bankster/looters in this country?

Dick Fuld from Lehman Brothers got away with $500 million of essentially stolen money. He cashed out before his company went down. He undoubtedly knew what was going to happen and pulled his cash out of his company while telling his investors that everything was fine.

Alan Greenspan played a huge role in the bubbles that developed: first the tech bubble in the 90s and then the mortgage bubble that we just went through. And as Taibbi reminds us, every time Wall Street screws up (by making reckless investment gambles), the banksters get to go back to the Fed and borrow as much money as they need, to start the game all over again! They go to the Fed and borrow money at essentially zero percent interest and then lend it back to the American people at (credit card) rates that often approach 20 or 30%, and gamble much of the rest in the stock- and derivatives markets.

Essentially what we're looking at here is a giant "subsidy" system -- for banksters -- that is based on the generosity, and/or gullibility, of American taxpayers and voters, most of whom are essentially still asleep at the wheel.

The pension funds that state workershave, were set up for many of the same people who today turn out to be the victims of the mortgage-backed securities scheme. It was to these pension funds that the banksters sold many of these toxic sub-prime mortgages (in the form of mortgage-backed securities) that eventually blew up, causing the pension funds to lose all or most of their money. [indymac saved by 2 agreeing to help out?]

And now the states (which ended up broke as a result of all the tax revenue shortages, caused by the consequent recession) have to pay these pensions to teachers and other state workers (firefighters and policemen) that have retired, even though they were all defrauded by these banks on Wall Street and the banksters who ran them. Meanwhile, state and county workers continue to get laid off right and left, as tax revenues continue to shrink right along with plunging home values and hundreds of thousands of foreclosures, layoffs and pay cuts.

But in spite of all this ghastly fallout from their crimes, the fat cats continue to do just fine

From 1979 to 2006, the richest 1% more than doubled their share of the total US income, from 10% to 23%. The richest 1% have an average annual income of more than $1.3 million. This is not surprising when you consider that for the last 25 years, over 90% of the total growth in income in the US went to the top 10% of earners -- leaving 9% of all new income to be shared by the bottom 90%. Source: Jared Bernstein and Heidi Shierholz, State of Working America.

Meanwhile, Glen Beck goes on and on about lefty "socialists" descending on Washington, and Rush Limbaugh rails about "class warfare for a leftist agenda that will destroy our society." Beck is being paid something in excess of $30 million a year to be a propagandist (liar) for the rich. In Limbaugh's case it is now something like $200 million a year for his services as a liar/propagandist, because he does such a good job of bamboozeling the rubes. Interesting to note that when he first went on the air, he operated at a loss in terms of the advertising revenue that he generated. But the powers-that-be kept paying him well because they believed he had great potential and they thought he would be a good investment. And indeed he was -- for them....

matt t RS 2/11

Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.

"Everything's fucked up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that."

I put down my notebook. "Just that?"

"That's right," he said, signaling to the waitress for the check. "Everything's fucked up, and nobody goes to jail. You can end the piece right there."

Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world's wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.

This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18.

The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What's more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even "one dollar" just months before his unit imploded, to the $263 million in compensation that formerLehman chief Dick "The Gorilla" Fuldconveniently failed to disclose. Yet not one of them has faced time behind bars.

Invasion of the Home Snatchers

Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve thefirms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice."If the allegations in these settlements are true," says Jed Rakoff, a federal judge in the Southern District of New York, "it's management buying its way off cheap, from the pockets of their victims."

Taibblog: Commentary on politics and the economy by Matt Taibbi

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 bullshit would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once."

But that hasn't happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.

Just ask the people who tried to do the right thing.

Wall Street's Naked Swindle

Here's how regulation of Wall Street is supposed to work. To begin with, there's a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly "self-regulating organizations" like the New York Stock Exchange.All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.

The major federal agency on the Wall Street beat is the Securities and Exchange Commission.The SEC watches for violations like insider trading, and also deals with so-called "disclosure violations" — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn't have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney's Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC's director of enforcement.

The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can't balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC's army of 1,100 number-crunching investigators to make their cases. In theory, it's a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.

That's the way it's supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who's in office or which party's in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.

The systematic lack of regulation has left even the country's top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. "I think you've got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street," he says.

In the hierarchy of the SEC, the chief accountant plays a major role in working to pursue misleading and phony financial disclosures. Turner held the post a decade ago, when one of the most significant cases was swallowed up by the SEC bureaucracy. In the late 1990s, the agency had an open-and-shut case against the Rite Aid drugstore chain, which was using diabolical accounting tricks to cook their books. But instead of moving swiftly to crack down on such scams, the SEC shoved the case into the "deal with it later" file. "The Philadelphia office literally did nothing with the case for a year," Turner recalls. "Very much like the New York office with Madoff." The Rite Aid case dragged on for years — and by the time it was finished, similar accounting fiascoes at Enron and WorldCom had exploded into a full-blown financial crisis. The same was true for another SEC case that presaged the Enron disaster. The agency knew that appliance-maker Sunbeam was using the same kind of accounting scams to systematically hide losses from its investors. But in the end, the SEC's punishment for Sunbeam's CEO, Al "Chainsaw" Dunlap — widely regarded as one of the biggest assholes in the history of American finance — was a fine of $500,000. Dunlap's net worth at the time was an estimated $100 million. The SEC also barred Dunlap from ever running a public company again — forcing him to retire with a mere $99.5 million. Dunlap passed the time collecting royalties from his self-congratulatory memoir. Its title: Mean Business.

The pattern of inaction toward shady deals on Wall Street grew worse and worse after Turner left, with one slam-dunk case after another either languishing for years or disappearing altogether. Perhaps the most notorious example involved Gary Aguirre, an SEC investigator who was literally fired after he questioned the agency's failure to pursue an insider-trading case against John Mack, now the chairman of Morgan Stanley and one of America's most powerful bankers.

Aguirre joined the SEC in September 2004. Two days into his career as a financial investigator, he was asked to look into an insider-trading complaint against a hedge-fund megastar named Art Samberg. One day, with no advance research or discussion, Samberg had suddenly started buying up huge quantities of shares in a firm called Heller Financial. "It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller," Aguirre recalls. "And he wasn't just buying shares — there were some days when he was trying to buy three times as many shares as were being traded that day." A few weeks later, Heller was bought by General Electric — and Samberg pocketed $18 million.

After some digging, Aguirre found himself focusing on one suspect as the likely source who had tipped Samberg off: John Mack, a close friend of Samberg's who had just stepped down as president of Morgan Stanley. At the time, Mack had been on Samberg's case to cut him into a deal involving a spinoff of the tech company Lucent — an investment that stood to make Mack a lot of money. "Mack is busting my chops" to give him a piece of the action, Samberg told an employee in an e-mail.

A week later, Mack flew to Switzerland to interview for a top job at Credit Suisse First Boston. Among the investment bank's clients, as it happened, was a firm called Heller Financial. We don't know for sure what Mack learned on his Swiss trip; years later, Mack would claim that he had thrown away his notes about the meetings. But we do know that as soon as Mack returned from the trip, on a Friday, he called up his buddy Samberg. The very next morning, Mack was cut into the Lucent deal — a favor that netted him more than $10 million. And as soon as the market reopened after the weekend, Samberg started buying every Heller share in sight, right before it was snapped up by GE — a suspiciously timed move that earned him the equivalent of Derek Jeter's annual salary for just a few minutes of work.

The deal looked like a classic case of insider trading. But in the summer of 2005, when Aguirre told his boss he planned to interview Mack, things started getting weird. His boss told him the case wasn't likely to fly, explaining that Mack had "powerful political connections." (The investment banker had been a fundraising "Ranger" for George Bush in 2004, and would go on to be a key backer of Hillary Clinton in 2008.)

Aguirre also started to feel pressure from Morgan Stanley, which was in the process of trying to rehire Mack as CEO. At first, Aguirre was contacted by the bank's regulatory liaison, Eric Dinallo, a former top aide to Eliot Spitzer. But it didn't take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm's lawyers, Mary Jo White, was on the phone with the SEC's director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as "smoke" rather than "fire." White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street.

Pause for a minute to take this in. Aguirre, an SEC foot soldier, is trying to interview a major Wall Street executive — not handcuff the guy or impound his yacht, mind you, just talk to him. In the course of doing so, he finds out that his target's firm is being represented not only by Eliot Spitzer's former top aide, but by the former U.S. attorney overseeing Wall Street, who is going four levels over his head to speak directly to the chief of the SEC's enforcement division — not Aguirre's boss, but his boss's boss's boss's boss. Mack himself, meanwhile, was being represented by Gary Lynch, a former SEC director of enforcement.

Aguirre didn't stand a chance.A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. "It all happened so fast, I needed a seat belt," recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal.

Rather than going after Mack, the SEC started looking for someone else to blame for tipping off Samberg. (It was, Aguirre quips, "O.J.'s search for the real killers.") It wasn't until a year later that the agency finally got around to interviewing Mack, who denied any wrongdoing. The four-hour deposition took place on August 1st, 2006 — just days after the five-year statute of limitations on insider trading had expired in the case.

"At best, the picture shows extraordinarily lax enforcement by the SEC," Senate investigators would later conclude. "At worse, the picture is colored with overtones of a possible cover-up."

Episodes like this help explain why so many Wall Street executives felt emboldened to push the regulatory envelope during the mid-2000s. Over and over, even the most obvious cases of fraud and insider dealing got gummed up in the works, and high-ranking executives were almost never prosecuted for their crimes. In 2003, Freddie Mac coughed up $125 million after it was caught misreporting its earnings by $5 billion; nobody went to jail. In 2006, Fannie Mae was fined $400 million, but executives who had overseen phony accounting techniques to jack up their bonuses faced no criminal charges. That same year, AIG paid $1.6 billion after it was caught in a major accounting scandal that would indirectly lead to its collapse two years later, but no executives at the insurance giant were prosecuted.

All of this behavior set the stage for the crash of 2008, when Wall Street exploded in a raging Dresden of fraud and criminality. Yet the SEC and the Justice Department have shown almost no inclination to prosecute those most responsible for the catastrophe — even though they had insiders from the two firms whose implosions triggered the crisis, Lehman Brothers and AIG, who were more than willing to supply evidence against top executives.

In the case of Lehman Brothers, the SEC had a chance six months before the crash to move against Dick Fuld, a man recently named the worst CEO of all time by Portfolio magazine. A decade before the crash, a Lehman lawyer named Oliver Budde was going through the bank's proxy statements and noticed that it was using a loophole involving Restricted Stock Units to hide tens of millions of dollars of Fuld's compensation. Budde told his bosses that Lehman's use of RSUs was dicey at best, but they blew him off. "We're sorry about your concerns," they told him, "but we're doing it." Disturbed by such shady practices, the lawyer quit the firm in 2006.

Then, only a few months after Budde left Lehman, the SEC changed its rules to force companies to disclose exactly how much compensation in RSUs executives had coming to them. "The SEC was basically like, 'We're sick and tired of you people fucking around — we want a picture of what you're holding,'" Budde says. But instead of coming clean about eight separate RSUs that Fuld had hidden from investors, Lehman filed a proxy statement that was a masterpiece of cynical lawyering. On one page, a chart indicated that Fuld had been awarded $146 million in RSUs. But two pages later, a note in the fine print essentially stated that the chart did not contain the real number — which, it failed to mention, was actually $263 million more than the chart indicated. "They fucked around even more than they did before," Budde says. (The law firm that helped craft the fine print, Simpson Thacher & Bartlett, would later receive a lucrative federal contract to serve as legal adviser to the TARP bailout.)

Budde decided to come forward. In April 2008, he wrote a detailed memo to the SEC about Lehman's history of hidden stocks. Shortly thereafter, he got a letter back that began, "Dear Sir or Madam." It was an automated e-response.

"They blew me off," Budde says.

Over the course of that summer, Budde tried to contact the SEC several more times, and was ignored each time. Finally, in the fateful week of September 15th, 2008, when Lehman Brothers cracked under the weight of its reckless bets on the subprime market and went into its final death spiral, Budde became seriously concerned. If the government tried to arrange for Lehman to be pawned off on another Wall Street firm, as it had done with Bear Stearns, the U.S. taxpayer might wind up footing the bill for a company with hundreds of millions of dollars in concealed compensation. So Budde again called the SEC, right in the middle of the crisis. "Look," he told regulators. "I gave you huge stuff. You really want to take a look at this."

But the feds once again blew him off. A young staff attorney contacted Budde, who once more provided the SEC with copies of all his memos. He never heard from the agency again.

"This was like a mini-Madoff," Budde says. "They had six solid months of warnings. They could have done something."

Three weeks later, Budde was shocked to see Fuld testifying before the House Government Oversight Committee and whining about how poor he was. "I got no severance, no golden parachute," Fuld moaned. When Rep. Henry Waxman, the committee's chairman, mentioned that he thought Fuld had earned more than $480 million, Fuld corrected him and said he believed it was only $310 million.

The true number, Budde calculated, was $529 million. He contacted a Senate investigator to talk about how Fuld had misled Congress, but he never got any response. Meanwhile, in a demonstration of the government's priorities, theJustice Department is proceeding full force with a prosecution of retired baseball player Roger Clemens for lying to Congress about getting a shot of steroids in his ass. "At least Roger didn't screw over the world," Budde says, shaking his head.

Fuld has denied any wrongdoing, but his hidden compensation was only a ripple in Lehman's raging tsunami of misdeeds. The investment bank used an absurd accounting trick called "Repo 105" transactions to conceal $50 billion in loans on the firm's balance sheet. (That's $50 billion, not million.) But more than a year after the use of the Repo 105s came to light, there have still been no indictments in the affair. While it's possible that charges may yet be filed, there are now rumors that the SEC and the Justice Department may take no action against Lehman. If that's true, and there's no prosecution in a case where there's such overwhelming evidence — and where the company is already dead, meaning it can't dump further losses on investors or taxpayers — then it might be time to assume the game is up. Failing to prosecute Fuld and Lehman would be tantamount to the state marching into Wall Street and waving the green flag on a new stealing season.

The most amazing noncase in the entire crash — the one that truly defies the most basic notion of justice when it comes to Wall Street supervillains — is the one involving AIG and Joe Cassano, the nebbishy Patient Zero of the financial crisis. As chief of AIGFP, the firm's financial products subsidiary, Cassano repeatedly made public statements in 2007 claiming that his portfolio of mortgage derivatives would suffer "no dollar of loss" — an almost comically obvious misrepresentation. "God couldn't manage a $60 billion real estate portfolio without a single dollar of loss," says Turner, the agency's former chief accountant. "If the SEC can't make a disclosure case against AIG, then they might as well close up shop."

As in the Lehman case, federal prosecutors not only had plenty of evidence against AIG — they also had an eyewitness to Cassano's actions who was prepared to tell all. As an accountant at AIGFP, Joseph St. Denis had a number of run-ins with Cassano during the summer of 2007. At the time, Cassano had already made nearly $500 billion worth of derivative bets that would ultimately blow up, destroy the world's largest insurance company, and trigger the largest government bailout of a single company in U.S. history. He made many fatal mistakes, but chief among them was engaging in contracts that required AIG to post billions of dollars in collateral if there was any downgrade to its credit rating.

St. Denis didn't know about those clauses in Cassano's contracts, since they had been written before he joined the firm. What he did know was that Cassano freaked out when St. Denis spoke with an accountant at the parent company, which was only just finding out about the time bomb Cassano had set. After St. Denis finished a conference call with the executive, Cassano suddenly burst into the room and began screaming at him for talking to the New York office. He then announced that St. Denis had been "deliberately excluded" from any valuations of the most toxic elements of the derivatives portfolio — thus preventing the accountant from doing his job. What St. Denis represented was transparency — and the last thing Cassano needed was transparency.

Another clue that something was amiss with AIGFP's portfolio came when Goldman Sachs demanded that the firm pay billions in collateral, per the terms of Cassano's deadly contracts. Such "collateral calls" happen all the time on Wall Street, but seldom against a seemingly solvent and friendly business partner like AIG. And when they do happen, they are rarely paid without a fight. So St. Denis was shocked when AIGFP agreed to fork over gobs of money to Goldman Sachs, even while it was still contesting the payments — an indication that something was seriously wrong at AIG. "When I found out about the collateral call, I literally had to sit down," St. Denis recalls. "I had to go home for the day."

After Cassano barred him from valuating the derivative deals, St. Denis had no choice but to resign. He got another job, and thought he was done with AIG. But a few months later, he learned that Cassano had held a conference call with investors in December 2007. During the call, AIGFP failed to disclose that it had posted $2 billion to Goldman Sachs following the collateral calls.

"Investors therefore did not know," the Financial Crisis Inquiry Commission would later conclude, "that AIG's earnings were overstated by $3.6 billion."

"I remember thinking, 'Wow, they're just not telling people,'" St. Denis says. "I knew. I had been there. I knew they'd posted collateral."

A year later, after the crash, St. Denis wrote a letter about his experiences to the House Government Oversight Committee, which was looking into the AIG collapse. He also met with investigators for the government, which was preparing a criminal case against Cassano. But the case never went to court. Last May, the Justice Department confirmed that it would not file charges against executives at AIGFP. Cassano, who has denied any wrongdoing, was reportedly told he was no longer a target.

Shortly after that, Cassano strolled into Washington to testify before the Financial Crisis Inquiry Commission. It was his first public appearance since the crash. He has not had to pay back a single cent out of the hundreds of millions of dollars he earned selling his insane pseudo-insurance policies on subprime mortgage deals. Now, out from under prosecution, he appeared before the FCIC and had the enormous balls to compliment his own business acumen, saying his atom-bomb swaps portfolio was, in retrospect, not that badly constructed. "I think the portfolios are withstanding the test of time," he said.

"They offered him an excellent opportunity to redeem himself," St. Denis jokes.

In the end, of course, it wasn't just the executives of Lehman and AIGFP who got passes. Virtually every one of the major players on Wall Street was similarly embroiled in scandal, yet their executives skated off into the sunset, uncharged and unfined. Goldman Sachs paid $550 million last year when it was caught defrauding investors with crappy mortgages, but no executive has been fined or jailed — not even Fabrice "Fabulous Fab" Tourre, Goldman's outrageous Euro-douche who gleefully e-mailed a pal about the "surreal" transactions in the middle of a meeting with the firm's victims. In a similar case, a sales executive at the German powerhouse Deutsche Bank got off on charges of insider trading; its general counsel at the time of the questionable deals, Robert Khuzami, now serves as director of enforcement for the SEC.

Another major firm, Bank of America, was caught hiding $5.8 billion in bonuses from shareholders as part of its takeover of Merrill Lynch. The SEC tried to let the bank off with a settlement of only $33 million, but Judge Jed Rakoff rejected the action as a "facade of enforcement." So the SEC quintupled the settlement — but it didn't require either Merrill or Bank of America to admit to wrongdoing. Unlike criminal trials, in which the facts of the crime are put on record for all to see, these Wall Street settlements almost never require the banks to make any factual disclosures, effectively burying the stories forever. "All this is done at the expense not only of the shareholders, but also of the truth," says Rakoff. Goldman, Deutsche, Merrill, Lehman, Bank of America ... who did we leave out? Oh, there's Citigroup, nailed for hiding some $40 billion in liabilities from investors. Last July, the SEC settled with Citi for $75 million. In a rare move, it also fined two Citi executives, former CFO Gary Crittenden and investor-relations chief Arthur Tildesley Jr. Their penalties, combined, came to a whopping $180,000.

Throughout the entire crisis, in fact, the government has taken exactly one serious swing of the bat against executives from a major bank, charging two guys from Bear Stearns with criminal fraud over a pair of toxic subprime hedge funds that blew up in 2007, destroying the company and robbing investors of $1.6 billion. Jurors had an e-mail between the defendants admitting that "there is simply no way for us to make money — ever" just three days before assuring investors that "there's no basis for thinking this is one big disaster." Yet the case still somehow ended in acquittal — and the Justice Department hasn't taken any of the big banks to court since.

All of which raises an obvious question: Why the hell not?

Gary Aguirre, the SEC investigator who lost his job when he drew the ire of Morgan Stanley, thinks he knows the answer.

Last year, Aguirre noticed that a conference on financial law enforcement was scheduled to be held at the Hilton in New York on November 12th. The list of attendees included 1,500 or so of the country's leading lawyers who represent Wall Street, as well as some of the government's top cops from both the SEC and the Justice Department.

Criminal justice, as it pertains to the Goldmans and Morgan Stanleys of the world, is not adversarial combat, with cops and crooks duking it out in interrogation rooms and courthouses. Instead, it's a cocktail party between friends and colleagues who from month to month and year to year are constantly switching sides and trading hats. At the Hilton conference, regulators and banker-lawyers rubbed elbows during a series of speeches and panel discussions, away from the rabble. "They were chummier in that environment," says Aguirre, who plunked down $2,200 to attend the conference.

Aguirre saw a lot of familiar faces at the conference, for a simple reason: Many of the SEC regulators he had worked with during his failed attempt to investigate John Mack had made a million-dollar pass through the Revolving Door, going to work for the very same firms they used to police. Aguirre didn't see Paul Berger, an associate director of enforcement who had rebuffed his attempts to interview Mack — maybe because Berger was tied up at his lucrative new job at Debevoise & Plimpton, the same law firm that Morgan Stanley employed to intervene in the Mack case. But he did see Mary Jo White, the former U.S. attorney, who was still at Debevoise & Plimpton. He also saw Linda Thomsen, the former SEC director of enforcement who had been so helpful to White. Thomsen had gone on to represent Wall Street as a partner at the prestigious firm of Davis Polk & Wardwell.

Two of the government's top cops were there as well: Preet Bharara, the U.S. attorney for the Southern District of New York, and Robert Khuzami, the SEC's current director of enforcement. Bharara had been recommended for his post by Chuck Schumer, Wall Street's favorite senator. And both he and Khuzami had served with Mary Jo White at the U.S. attorney's office, before Mary Jo went on to become a partner at Debevoise. What's more, when Khuzami had served as general counsel for Deutsche Bank, he had been hired by none other than Dick Walker, who had been enforcement director at the SEC when it slow-rolled the pivotal fraud case against Rite Aid.

"It wasn't just one rotation of the revolving door," says Aguirre. "It just kept spinning. Every single person had rotated in and out of government and private service."

The Revolving Door isn't just a footnote in financial law enforcement; over the past decade, more than a dozen high-ranking SEC officials have gone on to lucrative jobs at Wall Street banks or white-shoe law firms, where partnerships are worth millions. That makes SEC officials like Paul Berger and Linda Thomsen the equivalent of college basketball stars waiting for their first NBA contract. Are you really going to give up a shot at the Knicks or the Lakers just to find out whether a Wall Street big shot like John Mack was guilty of insider trading? "You take one of these jobs," says Turner, the former chief accountant for the SEC, "and you're fit for life."

Fit — and happy. The banter between the speakers at the New York conference says everything you need to know about the level of chumminess and mutual admiration that exists between these supposed adversaries of the justice system. At one point in the conference, Mary Jo White introduced Bharara, her old pal from the U.S. attorney's office.

"I want to first say how pleased I am to be here," Bharara responded. Then, addressing White, he added, "You've spawned all of us. It's almost 11 years ago to the day that Mary Jo Whitecalled me and asked me if I would become an assistant U.S. attorney. So thank you, Dr. Frankenstein."

Next, addressing the crowd of high-priced lawyers from Wall Street, Bharara made an interesting joke. "I also want to take a moment to applaud the entire staff of the SEC for the really amazing things they have done over the past year," he said. "They've done a real service to the country, to the financial community, and not to mention a lot of your law practices."

Haw! The line drew snickers from the conference of millionaire lawyers. But the real fireworks came when Khuzami, the SEC's director of enforcement, talked about a new "cooperation initiative" the agency had recently unveiled, in which executives are being offered incentives to report fraud they have witnessed or committed. From now on, Khuzami said, when corporate lawyers like the ones he was addressing want to know if their Wall Street clients are going to be charged by the Justice Department before deciding whether to come forward, all they have to do is ask the SEC.

"We are going to try to get those individuals answers," Khuzami announced, as to "whether or not there is criminal interest in the case — so that defense counsel can have as much information as possible in deciding whether or not to choose to sign up their client."

Aguirre, listening in the crowd, couldn't believe Khuzami's brazenness. The SEC's enforcement director was saying, in essence, that firms like Goldman Sachs and AIG and Lehman Brothers will henceforth be able to get the SEC to act as a middleman between them and the Justice Department, negotiating fines as a way out of jail time. Khuzami was basically outlining a four-step system for banks and their executives to buy their way out of prison. "First, the SEC and Wall Street player make an agreement on a fine that the player will pay to the SEC," Aguirre says. "Then the Justice Department commits itself to pass, so that the player knows he's 'safe.' Third, the player pays the SEC — and fourth, the player gets a pass from the Justice Department."

When I ask a former federal prosecutor about the propriety of a sitting SEC director of enforcement talking out loud about helping corporate defendants "get answers" regarding the status of their criminal cases, he initially doesn't believe it. Then I send him a transcript of the comment. "I am very, very surprised by Khuzami's statement, which does seem to me to be contrary to past practice — and not a good thing," the former prosecutor says.

Earlier this month, when Sen. Chuck Grassley found out about Khuzami's comments, he sent the SEC a letter noting that the agency's own enforcement manual not only prohibits such "answer getting," it even bars the SEC from giving defendants the Justice Department's phone number. "Should counsel or the individual ask which criminal authorities they should contact," the manual reads, "staff should decline to answer, unless authorized by the relevant criminal authorities." Both the SEC and the Justice Department deny there is anything improper in their new policy of cooperation. "We collaborate with the SEC, but they do not consult with us when they resolve their cases," Assistant Attorney General Lanny Breuer assured Congress in January. "They do that independently."

Around the same time that Breuer was testifying, however, a story broke that prior to the pathetically small settlement of $75 million that the SEC had arranged with Citigroup, Khuzami had ordered his staff to pursue lighter charges against the megabank's executives. According to a letter that was sent to Sen. Grassley's office, Khuzami had a "secret conversation, without telling the staff, with a prominent defense lawyer who is a good friend" of his and "who was counsel for the company." The unsigned letter, which appears to have come from an SEC investigator on the case, prompted the inspector general to launch an investigation into the charge.

All of this paints 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. Even before the corruption starts, the state is crippled by economic reality: Since law enforcement on Wall Street requires serious intellectual firepower, the banks seize a huge advantage from the start by hiring away the top talent. Budde, the former Lehman lawyer, says it's well known that all the best legal minds go to the big corporate law firms, while the "bottom 20 percent go to the SEC." Which makes it tough for the agency to track devious legal machinations, like the scheme to hide $263 million of Dick Fuld's compensation.

"It's such a mismatch, it's not even funny," Budde says.

But even beyond that, the system is skewed by the irrepressible pull of riches and power. If talent rises in the SEC or the Justice Department, it sooner or later jumps ship for those fat NBA contracts. Or, conversely, graduates of the big corporate firms take sabbaticals from their rich lifestyles to slum it in government service for a year or two. Many of those appointments are inevitably hand-picked by lifelong stooges for Wall Street like Chuck Schumer, who has accepted $14.6 million in campaign contributions from Goldman Sachs, Morgan Stanley and other major players in the finance industry, along with their corporate lawyers.

As for President Obama, what is there to be said? Goldman Sachs was his number-one private campaign contributor. He put a Citigroup executive in charge of his economic transition team, and he just named an executive of JP Morgan Chase, the proud owner of $7.7 million in Chase stock, his new chief of staff. "The betrayal that this represents by Obama to everybody is just — we're not ready to believe it," says Budde, a classmate of the president from their Columbia days. "He's really fucking us over like that? Really? That's really a JP Morgan guy, really?"

Which is not to say that the Obama era has meant an end to law enforcement. On the contrary: In the past few years, the administration has allocated massive amounts of federal resources to catching wrongdoers — of a certain type. Last year, the government deported 393,000 people, at a cost of $5 billion. Since 2007, felony immigration prosecutions along the Mexican border have surged 77 percent; nonfelony prosecutions by 259 percent. In Ohio last month, a single mother was caught lying about where she lived to put her kids into a better school district; the judge in the case tried to sentence her to 10 days in jail for fraud, declaring that letting her go free would "demean the seriousness" of the offenses.

So there you have it. Illegal immigrants: 393,000. Lying moms: one. Bankers: zero. The math makes sense only because the politics are so obvious. You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players. But for stealing a billion dollars? For fraud that puts a million people into foreclosure? Pass. It's not a crime. Prison is too harsh. Get them to say they're sorry, and move on. Oh, wait — let's not even make them say they're sorry. That's too mean; let's just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead. But don't make them pay it out of their own pockets, and don't ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year. What's next? Taxpayer-funded massages for every Wall Street executive guilty of fraud?

The mental stumbling block, for most Americans, is that financial crimes don't feel real; you don't see the culprits waving guns in liquor stores or dragging coeds into bushes. But these frauds are worse than common robberies. They're crimes of intellectual choice, made by people who are already rich and who have every conceivable social advantage, acting on a simple, cynical calculation: Let's steal whatever we can, then dare the victims to find the juice to reclaim their money through a captive bureaucracy. They're attacking the very definition of property — which, after all, depends in part on a legal system that defends everyone's claims of ownership equally. When that definition becomes tenuous or conditional — when the state simply gives up on the notion of justice — this whole American Dream thing recedes even further from reality.