A Dirty Business
Marian
George Packer | The New Yorker | June 27, 2011 |
[...] Lightly regulated and nearly opaque, hedge funds played a
central role in the creation of credit-default swaps and other
financial exotica that led to the economic collapse of 2008.[...]
In the seventies and eighties, the S.E.C. had been a powerful
regulator, led by ambitious attorneys; it handled important cases like
the insider trading of Ivan Boesky and Michael Milken.
But by the mid-aughts the commission was languishing. Its chairman, a
former California congressman named Christopher Cox, exuded blithe
faith that the financial markets would regulate themselves.
The S.E.C. ignored warnings when Wall Street inflated the credit
bubble with dubious “synthetic” securities known as collateralized
debt obligations. After the Enron scandal, in 2001, the S.E.C. began
attracting promising lawyers like Michaelson, but it was still a
largely impotent institution.
Wall Street regarded it with disdain, and when companies under
investigation were called to give testimony their executives may have
felt little reluctance to lie, which carried far less risk than
admitting to a crime under oath in a civil action. [...]
Some Wall Street observers have called the Galleon case a sideshow.
When Charles Ferguson, the filmmaker, won an Oscar, earlier this year,
for “Inside Job,” a scathing documentary account of the Wall Street
meltdown, he began his acceptance speech by saying, “Three years after
a horrific financial crisis caused by massive fraud, not a single
financial executive has gone to jail, and that’s wrong.”
Ferguson told me that Bharara’s focus on an insider-trading scandal
was misplaced, given that the financial crisis was caused primarily by
shoddy mortgages and the cynical trading of those irresponsible
loans.
Last month, the Times columnist Joe Nocera accused Bharara of
displaying phony toughness while sending a message to Wall Street’s
élites that “crime pays.” Matt Taibbi, of Rolling Stone, has taken the
even harsher view that prosecutors have given bankers a pass because
they covet lucrative jobs in the private sector.[...]
Eliot Spitzer, who brought dozens of suits against financial
institutions between 1999 and 2006, when he was New York’s Attorney
General, told me that it wouldn’t be easy to build prosecutions
directly tied to the financial crisis. Top bank executives, with the
assistance of lawyers and accountants, took care to insulate
themselves from the fraudulent activities of mortgage lenders and
other low-level players.
But, he added, “I’ve always believed you start at the bottom, the
credit department of the bank ~ that’s where the guys with green
eyeshades, who don’t get the bonuses, write down what is honest and
truthful about their critiques of the loans being made.” As in the
Galleon investigation, prosecutors could amass a document trail
allowing them to flip someone down below; they could then work their
way to the top.
Spitzer referred me to a set of documents produced by Clayton
Holdings, a company hired by investment banks to evaluate the loans
that they were securitizing and selling to investors.
In some cases, thirty per cent of the loans were found to be bad, if
not fraudulent, yet the banks packaged and traded them anyway. “Just
track this,” Spitzer said, “and you’ll be able to make the case that
people were willfully blind.”
Fraud abetted the financial crisis, from the marketing of deceitful
financial products to the banks’ concealment of losses after the
housing market collapsed. Then why are no executives in jail? One
reason is that criminal law often founders in what prosecutors call a
“dead-body case.”
During the mortgage bubble, the possible crimes were committed before
any investigations had begun. By the time the government could have
gathered enough evidence to obtain wiretaps, any incriminating
conversations would have long since taken place.
The Department of Justice also played a role in inhibiting vigorous
prosecutions. In 2008, the department, under President George W.
Bush’s Attorney General, Michael Mukasey, distributed the major new
investigations across different offices. [...]
The Southern District, with its superior experience and expertise in
accounting fraud, was largely cut out. Neil Barofsky, a former
Southern District prosecutor who left the office in December, 2008, to
become the first inspector general of the Troubled Asset Relief
Program, considers this a mistake.
“The Department of Justice made a decision that decreased the
probability that those cases are going to get made,” he said. He
suggested that the attorneys in the Southern District weren’t happy
about missing the chance. “Getting the C.E.O. of a major bank is not a
career killer,” he said. “It’s a career maker.”
At the time, the Southern District was between leaders, and the
attorneys in its securities unit had their hands full with other
cases, including Galleon. [...]
Several financial-fraud experts told me that a task force, made up of
assistant attorneys adept at financial investigations, should have
been created in key districts, especially in New York’s Southern
District, and given two or three years to investigate a single bank.
These teams could have functioned almost like special prosecutors,
with an open-ended mandate, and worked in tandem with agencies like
the S.E.C. and the F.B.I., as in the Galleon case. These prosecutors
might have had the time and the expertise to recognize a subtly
incriminating e-mail or spreadsheet.
Such a major initiative needed to come from Washington, but
investigating Wall Street’s big banks seems not to have been a top
priority. [...]
In the spring of 2009, Congress authorized a hundred and sixty-five
million dollars to be spent on more vigilant fraud enforcement.
According to a recent article in the Times, only thirty million or so
was spent.
In December, 2009, Senator Ted Kaufman, of Delaware, as a member of
the Judicial Committee, held an oversight hearing on financial-fraud
prosecutions. A Brooklyn jury had just acquitted two Bear Stearns
hedge-fund managers of fraud and conspiracy, in the only criminal case
related to the major players in the financial crisis.
At the hearing, Kaufman urged Justice Department officials not to be
deterred by the unwelcome verdict. “It is just very hard for me to
understand why there haven’t been more indictments,” Kaufman, whose
Senate term ended last November, told me. “I am incredibly
disappointed." [...]
Until now, Bharara has not spoken at length about the lack of
financial-crisis prosecutions. [...]
Perhaps indictments couldn’t be brought against top bank executives,
but Bharara could take down Rajaratnam, and he went out of his way to
give the case a high profile. It was his best chance to deter the
pervasive corruption of Wall Street. One former prosecutor compared
the financial crisis to international narcotics trafficking, and
insider trading to street-level drug dealing. Maybe a federal
prosecutor couldn’t nail Scarface, but he could always go after
Stringer Bell. [...]
Rajaratnam’s defense, which cost him as much as forty million dollars,
according to the Wall Street Journal, was based on the argument that
there was too much information available in the marketplace for
anything to be considered a secret. [...]
This view was most cogently expressed by Professor Gregg Jarrell, a
professional expert witness and an economist at the University of
Rochester, who came out of the University of Chicago’s free-market
school of thought. As the S.E.C.’s chief economist in the mid-
eighties, he had argued against stronger regulation of that era’s
leveraged buyouts.
Rajaratnam’s spokesman, Jim McCarthy, of CounterPoint Strategies, who
appeared in court every day with a carefully pressed pocket square
that matched his tie, was a libertarian. For McCarthy, the wiretapping
of Rajaratnam violated the Fourth Amendment’s prohibition against
unreasonable search and seizure, and Preet Bharara’s crusade against
Galleon posed a threat to the legitimate activities of all hedge
funds. [...]
In spite of the Judge’s caveat, the catastrophic events of 2008
haunted the proceedings. All the wiretaps had been made that year, and
so the jurors heard tapes of a hedge-fund manager running his business
as one investment bank after another fell. [...]
While the ocean liner was sinking, these leaders of finance and
industry were focussed on keeping their chips from sliding off the
lower deck’s poker table. The wiretaps, which breached the normally
soundproof walls of hedge funds, told a breathtaking tale of selfish,
short-term thinking.
According to the government, two of Rajaratnam’s most important
conversations in 2008 occurred on his office phone, which wasn’t
tapped. [...]
In order to introduce evidence about Rajaratnam’s Goldman trades, the
government subpoenaed Lloyd Blankfein, Goldman’s chairman and chief
executive, who has come to represent the face of investment banking in
an age of dubious and destructive practices. [...]
Under Michaelson’s direct examination, Blankfein subtly rewrote the
history of the financial crisis ~ a phrase he never uttered. Instead,
Blankfein spoke vaguely of “riskiness” and “uncertainty.” [...]
As for Buffett’s five-billion-dollar investment in Goldman, Blankfein
suggested that it had made an already attractive company even more so.
According to “Too Big to Fail,” in September, 2008, Timothy Geithner,
then the head of the New York Federal Reserve, wasn’t sure that
Goldman would survive, and its stock price was plummeting so fast that
Blankfein was in a state of panic. [...]
The jury deliberations lasted twelve days ~ longer than almost anyone
expected. But on the morning of May 11th the jurors pronounced
Rajaratnam guilty on all fourteen counts of securities fraud and
conspiracy to commit securities fraud. [...] Sentencing was scheduled
for July 29th. The defense team vowed to appeal. [...]
The Galleon case helps to answer these broader questions about the
culture of the financial world: it illustrates how, over the past
decade, cheating and self-dealing became the principal ways to succeed
on Wall Street. Bharara’s campaign of deterrence has had a
particularly strong effect at hedge funds. Several New York attorneys
told me that clients have called in a panic. “There are a lot of
nervous people out in the Hamptons,” one criminal lawyer said. [...]
And yet, nearly three years after the financial crisis, Wall Street
still relies on reckless practices to create wealth. An investment
banker recently described the meltdown, with some chagrin, as “a speed
bump.”
The S.E.C. remains so starved of resources that its budget this year
falls short of Raj Rajaratnam’s net worth at the time of his arrest.
The agency lacks the technology to keep track of the enormous volume
and lightning speed of algorithmic trades, like the ones that caused
last May’s “flash crash” of the stock market.
The market has become more of an exclusive gambling club for the very
rich than a level playing field open to the ordinary investor.
As for the larger financial system, in Washington, D.C.,
implementation of the Dodd-Frank regulatory reform law has been
slowed, if not yet sabotaged, by lobbying on the part of the big banks
and a general ebbing of will among politicians. [...]
http://www.newyorker.com/reporting/2011/06/27/110627fa_fact_packer
Marian
ylem
in-office.
I caught a news blurb on Rajaratnam's conviction and although it is
encouraging...the criminality on Wall Street rages on.
This was one that Mike Moore called spot on.
And here is the problem in a nut-shell:
"The market has become more of an exclusive gambling club for the very
rich than a level playing field open to the ordinary investor.
As for the larger financial system, in Washington, D.C.,
implementation of the Dodd-Frank regulatory reform law has been
slowed, if not yet sabotaged, by lobbying on the part of the big banks
and a general ebbing of will among politicians."
And the Republican Party (as well as some well-bribed Democrats) are
aiding and abetting Wall Street's racketeering operations.
Ylem
Marian
This is the most accessible explanation & it came out last October!
Scroll down for reviews, then get it from Netflix...
'INSIDE JOB' Nailed Wall St & an Oscar...
http://www.picturetrail.com/gid21760098
Marian
Marian
http://www.picturetrail.com/gid20975146
On Jun 24, 3:04 pm, Marian <lustr...@gmail.com> wrote:
> New York City’s top prosecutor takes on Wall Street crime.
>
> George Packer | The New Yorker | June 27, 2011 |
>
> [...] After the Enron scandal, in 2001, the S.E.C. began
> attracting promising lawyers like Michaelson, but it was still a
> largely impotent institution.
>
> Wall Street regarded it with disdain, and when companies under
> investigation were called to give testimony their executives may have
> felt little reluctance to lie, which carried far less risk than
> admitting to a crime under oath in a civil action. [...]
>
> When Charles Ferguson, the filmmaker, won an Oscar, earlier this year,
> for “Inside Job,” a scathing documentary account of the Wall Street
> meltdown, he began his acceptance speech by saying, “Three years after
> a horrific financial crisis caused by massive fraud, not a single
> financial executive has gone to jail, and that’s wrong.”
>
> Ferguson told me that Bharara’s focus on an insider-trading scandal
> was misplaced, given that the financial crisis was caused primarily by
> shoddy mortgages and the cynical trading of those irresponsible
> loans.
>
> Last month, the Times columnist Joe Nocera accused Bharara of
> displaying phony toughness while sending a message to Wall Street’s
> élites that “crime pays.” Matt Taibbi, of Rolling Stone, has taken the
> even harsher view that prosecutors have given bankers a pass because
> they covet lucrative jobs in the private sector.[...]
>
> Eliot Spitzer, who brought dozens of suits against financial
> institutions between 1999 and 2006, when he was New York’s Attorney
> General, told me that it wouldn’t be easy to build prosecutions
> directly tied to the financial crisis. [...]
>
> But, he added, “I’ve always believed you start at the bottom, the
> credit department of the bank ~ that’s where the guys with green
> eyeshades, who don’t get the bonuses, write down what is honest and
> truthful about their critiques of the loans being made.” [...]
>
> Spitzer referred me to a set of documents produced by Clayton
> Holdings, a company hired by investment banks to evaluate the loans
> that they were securitizing and selling to investors.
>
> In some cases, thirty per cent of the loans were found to be bad, if
> not fraudulent, yet the banks packaged and traded them anyway. “Just
> track this,” Spitzer said, “and you’ll be able to make the case that
> people were willfully blind.”
>
> Fraud abetted the financial crisis, from the marketing of deceitful
> financial products to the banks’ concealment of losses after the
> housing market collapsed. Then why are no executives in jail? [...]
>
> The Department of Justice also played a role in inhibiting vigorous
> prosecutions. In 2008, the department, under President George W.
> Bush’s Attorney General, Michael Mukasey, distributed the major new
> investigations across different offices. [...]
>
> short-term thinking.[...]
>
> And yet, nearly three years after the financial crisis, Wall Street
> still relies on reckless practices to create wealth. An investment
> banker recently described the meltdown, with some chagrin, as “a speed
> bump.”
>
> The S.E.C. remains so starved of resources that its budget this year
> falls short of Raj Rajaratnam’s net worth at the time of his arrest.[...]