- Project Censored's top 2010 story was "US Congress
Sells Out to Wall Street," highlighting that since 2001, "eight
of the most troubled firms have donated $64.2 million to congressional
candidates, presidential candidates and the Republican and Democratic parties."
It's no surprise that they own them, what Wall Street Watch.org showed
in a March 2009 Essential Information and Consumer Education Foundation
report titled,"Sold Out: How Wall Street and Washington Betrayed America."
-
- The accompanying press release said:
-
- Over the past decade, "$5 billion in political contributions
bought Wall Street freedom from regulation, (and) restraint." From
1998 - 2008, "Wall Street investment firms, commercial banks, hedge
funds, real estate companies and insurance conglomerates (the FIRE sector)"
spent over $1.7 billion in political contributions and another $3.4 billion
on lobbyists, in return for which:
-
- -- they were freed from regulation;
-
- -- could speculate on financial derivatives and an alphabet
soup of securitized garbage, including asset-backed securities (ABSs),
mortgage-backed securities (MBSs), collateralized mortgage obligations
(CMOs), collateralized debt obligations (CDOs), collateralized bond obligations
(CBOs), credit default swaps (CDSs), and collateralized fund obligations
(CFOs) - combined, sliced, diced, packaged, repackaged, and sold in tranches
to sophisticated and ordinary investors, many unwittingly through mutual
funds, 401(k)s, pensions, and the like;
-
- -- could merge commercial and investment banking and
insurance operations;
-
- -- bilk investors and the public through fraudulent schemes;
and
-
- -- get trillions of bailout dollars when the economy
crashed.
-
- For decades, Wall Street and successive governments colluded
to defraud the public, using various schemes to transfer wealth from them
to the privileged. Carter spearheaded deregulation Nixon and Ford began
by hiring Alfred Kahn to head the Civil Aeronautics Board (CAB). The 1978
Airline Deregulation Act followed. It dissolved the CAB, removed industry
restraints, eased consolidation, and subsequent bills deregulated trucking
and railroads - the 1980 Motor Carrier Act and 1980 Staggers Rail Act,
following the 1976 Railroad Revitalization and Regulatory Reform Act.
-
- Carter also phased out interest rate deposit ceilings,
and gave the Fed more power through the 1980 Depository Institutions and
Monetary Control Act, removing New Deal restraints and enabling subsequent
administrations to go further.
-
- Under Reagan, energy deregulation followed, notably oil
and gas, then electric utilities under GHW Bush and Clinton, the result
being high prices, brownouts, and Enron-like scandals. In the 1980s, the
1982 Alternative Mortgage Transactions Parity Act led to exotic feature
mortgages with adjustable rates or interest-only. They carry low "teaser"
rates for several years, after which they're adjusted much higher, often
making loans unaffordable, especially for low-income, high-risk borrowers
using subprime and Alt-A loans.
-
- The 1982 Garn-St. Germain Depository Institutions Act
deregulated thrifts and fueled fraud, so much that the Savings and Loan
crisis followed, hundreds of banks failed, and taxpayers got stuck with
most of the $160 billion cost. In 1987, the Government Accountability Office
(GOA) declared the S & L deposit insurance fund insolvent because of
mounting bank failures.
-
- In 1988, global regulators imposed minimum bank capital
requirements, known as the Basel Accord or Basel I, enforced in the G-10
countries.
-
- In 1989, the Financial Institutions Reform and Recovery
Act abolished the Federal Home Loan Bank Board and FSLIC, transferring
them to the Office of Thrift Supervision (OTS) and FDIC. It also created
the Resolution Trust Corporation (RTC) to liquidate troubled assets, assume
Federal Home Loan Bank Board insurance functions, and clean up a troubled
system.
-
- Clinton era telecommunications deregulation let media
and telecommunication giants consolidate, gave new digital television broadcast
spectrum space to current TV station owners, and let cable companies increase
their local monopoly positions.
-
- His 1994 Reigle-Neal Interstate Banking and Branching
Efficiency Act let bank holding companies operate in more than one state.
In 1996, the Fed reinterpreted Glass-Steagall to let bank holding companies
earn up to 25% of their revenue from investment banking. The 1998 Citicorp-Travelers
merger followed, combining a commercial/investment bank with an insurance
company ahead of the 1999 Financial Services Modernization Act, also called
the Gramm-Leach-Bliley Act (GLBA) authorizing it.
-
- Some Background
-
- During the Great Depression, the Bank Act of 1933 (Glass-Steagall)
created the FDIC, insuring bank deposits up to $5,000 and separating commercial
from investment banks and insurance companies, among other provisions to
curb speculation. Senator Carter Glass was its prime mover and got Senator
Henry Steagall to go along by including his amendment to protect deposits.
Glass believed banks should stick to lending, not speculate, deal, or hold
corporate securities. He blamed them for the 1929 crash, subsequent bank
failures, and the Great Depression. The Bank Act of 1933 passed quickly
to curb them.
-
- No Longer since the Neoliberal 1990s
-
- Later weakened, it still curbed abusive practices until
GLBA repealed it, let commercial and investment banks and insurance companies
combine, and facilitated consolidated power, fraud and abuse that followed.
Other deregulatory rules permitted off-balance sheet accounting to let
banks hide liabilities.
-
- In 2000, the Commodity Futures Modernization Act (CFMA)
passed, legitimizing swap agreements and other hybrid instruments, at the
heart of today's problems by ending regulatory oversight of derivatives
and leveraging that turned Wall Street more than ever into a casino.
-
- In her book "It Takes a Pillage: Behind the Bailouts,
Bonuses, and Backroom Deals from Washington to Wall Street," former
insider Nomi Prins explained CFMA as follows:
-
- "That act ushered in tremendous growth of unregulated
commodity trades through its "Enron Loophole (for its Enron On-Line,
the first Internet-based commodity transactions system to let companies)
trade energy and other commodity futures on unregulated exchanges."
-
- "It also sparked growth in the unregulated credit
derivatives trades that bet on defaults of corporations or loans, which
became the main ingredient in the hot new Wall Street financial gumbo.
Credit derivatives were a type of insurance contract written against not
just one corporation or loan but on investments that scarfed up bunches
of subprime loans (junk) and stuffed them into the unregulated CDOs that
imploded and hastened the greater lending crisis."
-
- Credit default swaps became the most widely traded credit
derivative. As unregulated insurance bets between two parties on whether
or not a company's bonds would default, financial writer Ellen Brown asked
in her April 11, 2008 article titled, "Credit Default Swaps: Evolving
Financial Meltdown and Derivative Disaster Du Jour:"
-
- What if "the smartest guys in the room designed
their credit default swaps (but) forgot to ask one thing - what if the
parties on the other side of the bet don't have the money to pay up?"
In late 2007, when the financial crisis hit, they didn't, causing a "supersized
bubble" to deflate.
-
- New Deal reforms were enacted to prevent it. Deregulatory
madness made it inevitable and the subsequent global economic fallout that
continues - compounded by what Danny Schechter explained in his book, titled
"The Crime of Our Time," calling the financial collapse "a
crime story (involving) high status white-collar crooks." Their schemes
included:
-
- -- "Fraud and control frauds;
-
- -- Insider trading;
-
- -- Theft and conspiracy;
-
- -- Misrepresentation;
-
- -- Ponzi schemes;
-
- -- False accounting;
-
- -- Embezzling;
-
- -- Diverting funds into obscenely high salaries and obscene
bonuses;
-
- -- Bilking investors, customers and homeowners;
-
- -- Conflicts of interest;
-
- -- Mesmerizing regulators;
-
- -- Manipulating markets;
-
- -- Tax frauds;
-
- -- Making loans and then arranging that they fail;
-
- -- Engineering phony financial products: (and)
-
- -- Misleading the public."
-
- Worst of all, they got away with it, still do, and got
trillions of dollars in bailout money as a bonus, free money from the Fed
plus interest on Fed held reserves.
-
- The Absence of Regulatory Oversight
-
- Earlier New Deal reforms were long gone, but for the
most part worked when in place. The Securities and Exchange Act of 1934
followed the Securities Act of 1933, requiring offers and security sales
to be registered, pursuant to the Constitution's interstate commerce clause.
Previously, they were governed by state laws, so-called "blue sky
laws" to protect against fraud.
-
- The 1934 law regulated secondary trading of financial
securities and established the SEC under Section 4 to enforce the new Act,
later under the 1939 Trust Indenture Act, the 1940 Investment Company Act,
the Investment Advisors Act the same year, Sarbanes-Oxley of 2002, and
the 2006 Credit Rating Agency Reform Act.
-
- The SEC was established to enforce federal securities
laws, the security industry, the nation's financial and options exchanges,
and other electronic securities markets and instruments unknown in the
1930s, including derivatives and other forms of speculation. In principle,
it's charged with uncovering wrongdoing, assuring investors aren't swindled,
and keeping the nation's financial markets free from fraud and other abuses.
-
- That was then, but no longer. Under George Bush, the
SEC was more facilitator than enforcer, a paper tiger, not a guardian of
the public trust. It:
-
- -- turned a blind eye to fraud and abuse;
-
- -- protected Wall Street, not investors;
-
- -- neutered its enforcement staff's authority;
-
- -- adopted voluntary regulation;
-
- -- let investment banks hold less reserve capital;
-
- -- freely use leverage;
-
- -- incur much higher debt levels; and
-
- -- pretty much do what they pleased, only occasionally
punishing an offender with a wrist-slap.
-
- Financial fraud prosecutions dropped sharply, practically
never against powerful, well-connected firms, the Bernie Madoff exception
because he confessed to his sons, and they turned him in for running what
he called a "giant Ponzi scheme."
-
- Obama exacerbated the worst bad practices. Wall gets
a free ride. Foxes guard the hen house. Inmates run the asylum. Regulators
don't regulate. Investigations aren't conducted. Criminal fraud is ignored.
Nothing is done to curb it, and except for Madoff, only small fries need
worry. Washington protects the big ones, Obama assigning Mary Schapiro
the task as his SEC chief.
-
- She's a consummate insider, spent years promoting Wall
Street self-regulation, headed the Financial Industry Regulatory Authority
(FINRA), was the National Association of Securities Dealers' (NASD) chairman,
president, and CEO, ran the Commodity Futures Trading Commission, and is
expert at quashing fraud investigations. Except for high profile cases
too big to hide (like Countrywide's Angelo Mozilo and Texas financier Robert
Allen Sanford), she's treaded lightly on the rich and powerful, is doing
nothing to curb insider trading, front-running, market manipulation, and
other abuses.
-
- Even the Wall Street Journal, commenting on her appointment,
said her regulatory record "shows she has infrequently pursued tough
action against big Wall Street firms." A year later, her job performance
proves it, made easier by decades of deregulation.
-
- In 2003, the Controller of the Currency, John Hawke,
Jr. preempted state predatory lending laws (in violation of the 10th Amendment),
meaning nationally chartered banks (including the nation's biggest) would
come under federal standards, not more stringent state ones. According
to former New York Attorney General and Governor, Eliot Spitzer:
-
- "Not only did the Bush administration do nothing
to protect consumers, it embarked on an aggressive and unprecedented campaign
to prevent states from protecting their residents from the very problems
to which the federal government was turning a blind eye."
-
- In 2004, Basel II replaced Basel I with more comprehensive
guidelines, ostensibly to ensure banks hold capital reserves appropriate
to their lending and investment practices. In other words, the more risk,
the greater the reserves, but given lax regulatory oversight, banks pretty
much do what they want, and Obama gives them free reign, all the easier
with trillions in bailout dollars.
-
- In 2007, the Fed's Term Auction Facility extended loans
to depository institutions with no public disclosure, unlike its discount
window operations. In addition, global regulators let commercial banks
set their own capital requirements, based on internal "risk-assessment
models."
-
- Regulators ignored predatory lending practices. They:
-
- -- overrode state consumer protection laws to curb exploitive
lending and other abuses;
-
- -- prevented victims from suing predatory loan issuing
firms;
-
- -- freed Fannie, Freddie and giant Wall Street players
to operate recklessly;
-
- -- let them hide toxic assets by off-balance sheet accounting;
Financial Accounting Standards Board rules allow it, and the Security Industry
and Financial Markets Association and the American Securitization Forum
have lobbied furiously to keep them unchanged; in other words, to deceive
the public by letting insolvent institutions look healthy;
-
- -- let them eliminate some of their own (Bear Stearns,
Lehman Bros. and Merrill Lynch) to remove competition;
-
- -- abandoned antitrust and other regulatory principles;
-
- -- created too-big-to-fail institutions; and
-
- -- let them do anything they wished, free from meaningful
oversight.
-
- Credit rating agencies played their part as well because
of their relationship with issuers. They ignored high-risk financial instruments,
rated them highly, and duped investors to believe they were safe. The SEC
could have intervened but didn't. The 2006 Credit Rating Agencies Reform
Act requires regulators to establish clear guidelines to determine which
ones qualify as NRSROs (Nationally Recognized Statistical Rating Organizations).
-
- The SEC is supposed to monitor their internal record-keeping
and prevent conflicts of interest, but can't regulate their methodology
and must approve their standards even knowing they're flawed.
-
- One hand thus feeds the other. Conspiratorially, the
regulator and credit agencies turn a blind eye to abuses, cry foul when
it's too late, then promise greater diligence next time. Change, of course,
never comes, so next time is like last time until so extreme the whole
system collapses, harming ordinary people the most.
-
- After the 2008 Bear Stearns collapse, special lending
facilities opened the discount window to investment banks, accepting a
broad range of asset-backed securities, principally toxic ones, as collateral
- what economist Michael Hudson called "cash for trash." Numerous
other programs followed, including:
-
- -- the 2008 Emergency Economic Stabilization Act (ESSA)
establishing the Troubled Asset Relief Program (TARP) to trade bad assets
for good ones;
-
- -- the 2008 New York Fed administered Term Asset-Backed
Securities Loan Facility (TALF) to lend up to $1 trillion on a non-recourse
basis to holders of certain AAA-rated asset-backed securities (ABS) backed
by newly and recently originated consumer and small business loans;
-
- -- Fed purchases of money market instruments;
-
- -- the Public-Private Investment Program (PPIP) to subsidize
toxic asset purchases with government guarantees; and
-
- -- trillions of dollars in bank bailouts; according to
Neil Barofsky, the Special Treasury Department's TARP Inspector General,
banks got or were pledged up to $23.7 trillion, or the equivalent of an
$80,000 liability for every American; in March 2009, Bloomberg reported
that the Treasury and Fed "spent, lent, or committed $12.8 trillion"
up to that point, and more was available for the asking, besides other
free money at near zero percent rates plus interest on reserves held by
the Fed.
-
- Wall Street never had it so good. For the public, hard
times are worsening as America sinks deeper into depression, a protracted
one according to some experts hitting the needy and disadvantaged hardest.
The land of the free is now the most callous, the result of what former
Wall Street and government insider Catherine Austin Fitts calls a "financial
coup d'etat."
-
- She explains the "pump(ing) and dump(ing) of the
entire American economy," duping the public, fleecing trillions of
dollars, and it's more than just "a process (to destroy) the middle
class. (It's) genocide (by other means) - a much more subtle and lethal
version than ever before perpetrated by the scoundrels of our history texts."
-
- The scheme includes abusive market manipulation, "fraudulent
housing (and other bubbles), pump and dump schemes, naked short selling,
precious metals price suppression, and active intervention in the markets
by the government and central bank" along with insiders trading on
privileged information unavailable to the public. It's part of a government
- business partnership for enormous profits through "legislation,
contracts, regulat(ory laxness), financing, (and) subsidies" - a conspiratorial
plot to transfer household wealth to powerful special interests.
-
- Here's a taste of the consequences, courtesy of economist
David Rosenberg on February 16.
-
- He reported that "credit contraction continues unabated,"
and the numbers are staggering:
-
- -- $30 billion in the past week;
-
- -- $100 billion in the first six weeks of 2010, "a
historic 16% annualized decline;"
-
- -- since the crisis erupted in fall 2007, $740 billion,
"a record 10% decline;" and
-
- -- "The fact that credit has dropped at a 16% annual
rate since the turn of the year is testament to how the credit contraction
is actually accelerating."
-
- And it's broad-based:
-
- -- consumer loans down at a 12% annual rate year to date;
-
- -- real estate down 13.5% annualized;
-
- -- commercial and industrial loans down at a 19.3% annual
rate; and
-
- -- short-term business credit down $14 billion year to
date.
-
- Rosenberg calls it "alarming," especially "since
the bulk of the fiscal and US dollar stimulus is behind us, not ahead of
us....The era of the 'green shoots' is officially dead."
-
- Europe is mired in recession. Britain faces a possible
2010 sovereign debt crisis, spiking yields and raising borrowing costs,
according to Morgan Stanley. Eastern European nations teeter on the brink
of debt default. So do Greece, Spain, Portugal, Italy, and Ireland. A January
14 George Magnus Financial Times article titled, "Sovereign default
risks loom" said:
-
- "There is no peacetime precedent for the current
speed and scale of public debt accumulation....The spectre of sovereign
default, therefore, has returned to the rich world," sparking fears
of nonpayment, paying less than face amount, inflation, capital controls,
special taxes that break private contracts, and/or currency devaluations,
measures also threatening America given its crushing debt burden.
-
- Yet according to Rosenberg, "the consensus community
has no clue as to what the future holds," forecasting rosy scenarios
while Rome burns.
-
- In fact, "the depression is ongoing even if the
most recent recession has faded; and in our view, the next one is not too
far away especially now that the stimulus is soon to subside." The
contagion will be global, the fallout catastrophic because the worst is
yet to come, what economist Michael Hudson foresaw in early 2009 saying:
-
- "The (US) economy has reached its debt limit and
is entering its insolvency phase. We are not in a cycle but (at) the end
of an era. The old world of debt pyramiding to a fraudulent degree cannot
be restored," only delayed for a more painful day of reckoning. It's
coming according to Austrian economist Ludwig von Mises (1881 - 1973) because:
-
- "There is no means of avoiding a final collapse
of a boom brought about by credit expansion." It's only a matter of
sooner "or later as a final and total catastrophe of the currency
system involved."
-
- Expect a deepening global depression; protracted economic,
political, social, and institutional upheaval; mass unemployment, poverty,
homelessless, and hunger; and severe repression to curb public anger. Blame
it on decades of political influence buying yielding unprecedented returns
for the privileged, but economic wreckage and catastrophic life changes
for the rest. The price of excess is pain, lots of it for the world's disadvantaged,
the ones who always pay for rich peoples' sins.
-
- Stephen Lendman is a Research Associate of the Centre
for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.
-
- Also visit his blog site at sjlendman.blogspot.com and
listen to the Lendman News Hour on RepublicBroadcasting.org Monday - Friday
at 10AM US Central time for cutting-edge discussions with distinguished
guests on world and national issues. All programs are archived for easy
listening.
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