5-point Strategy to defeat Regulators

http://rollingstone.com/politics/news/how-wall-street-killed-financial-reform-20120510
How Wall Street Killed Financial Reform
It's bad enough that the banks strangled the Dodd-Frank law. Even worse is the way they did it - with a big assist from Congress and the White House.
by: Matt Taibbi

That the banks have just about succeeded in strangling [reform] is probably not news to most Americans – it's how they succeeded that's the scary part. The banks followed a five-point strategy that offers a dependable blueprint for defeating any regulation – and for guaranteeing that when it comes to the economy, might will always equal right.

STEP 1: STRANGLE IT IN THE WOMB

STEP 2: SUE, SUE, SUE

STEP 3: IF YOU CAN'T WIN, STALL

STEP 4: BULLY THE REGULATORS

STEP 5: PASS A GAZILLION LOOPHOLES

The best way to explain where those hidden taxes come from is to compare a regulated market to an unregulated one. It's the difference between buying soap and buying drugs. You go into a corner store and there's a price tag on the soap, but you can always go across the street, or on the Internet, to see what soap costs someplace else. But when you go to buy an eight ball of coke, you have to ask your dealer what the price is, and it's not like you can compare prices online. If you're tough and streetwise and you know what coke costs, you might get it for a couple hundred bucks. But if you're some quivering Ivy Leaguer idling in a Lexus, the price might be $400.

That's how the swaps market works. It operates completely in the dark. If you're some Podunk town in Texas or Alabama and you need swaps financing, you've got to ask Goldman Sachs or Morgan Stanley what it costs. There's no exchange where you can compare prices. And modern investment bankers are ethically a notch below your average drug dealer. They will extract from their customer – a town, an airline, a chain of retail stores – whatever they think he'll pay. And that extra cost will be passed on to you by the overcharged customer, in the form of higher taxes, bigger home-heating bills, higher sewer rates or pricier airline tickets. Wall Street will be taking a bite out of you every time you write a check.

That's particularly true because most members of Congress know that the public seldom pays any attention to the fiendish complexities of things like derivatives reform.

But money never gets tired. It never gets frustrated. The system has become too complex for flesh-and-blood people, who make the mistake of thinking that passing a new law means the end of the discussion, when it's really just the beginning of a war.

The Scam Wall Street Learned From The Mafia

my brief notes, quoted verbatim from this blog post:

http://rollingstone.com/politics/news/the-scam-wall-street-learned-from-the-mafia-20120620
The Scam Wall Street Learned From the Mafia
How America's biggest banks took part in a nationwide bid-rigging conspiracy - until they were caught on tape
by: Matt Taibbi

Along with virtually every major bank and finance company on Wall Street, these wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars.

The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds. And they did it so cleverly that the victims never even knew they were being cheated.

In fact, stripped of all the camouflaging financial verbiage, the crimes committed were virtually indistinguishable from the kind of thuggery practiced for decades by the Mafia, which has long made manipulation of public bids for things like garbage collection and construction contracts a cornerstone of its business. The only thing that made this trial different from a typical mob trial was the scale of the crime.

classic cartel activity: not just one corrupt bank, but many, all acting in careful concert against the public interest. we've seen numerous hints that such orchestrated corruption exists. In the bankruptcy of Jefferson County, Alabama, we learned that Goldman Sachs accepted a $3 million bribe from J.P. Morgan Chase to permit Chase to serve as the sole provider of toxic swap deals to the rubes running metropolitan Birmingham – "an open-and-shut case of anti-competitive behavior," as one former regulator described it. More recently, a major international investigation has been launched into the manipulation of Libor.

we may yet find out that the world's most powerful banks have, for years, been fixing the prices of almost every adjustable-rate vehicle on earth, from mortgages and credit cards to interest-rate swaps and even currencies.

In a post-crash era where Wall Street trials almost never make it into court, and even the harshest settlements end with the evidence buried by the government and the offending banks permitted to escape with no admission of wrongdoing, this case finally dragged the whole ugly truth of American finance out into the open – and it was a hell of a show.

1. THE SCAM

the setting reflected the bizarre alternate universe that exists on Wall Street. Like so many court cases involving big banks, the proceeding looked more like a roomful of expensive lawyers negotiating a major corporate merger than a public search for justice. the spectators were not average citizens come to witness how they had been robbed blind by America's biggest banks. Instead, there were row after row of suits – other lawyers.

One of the main lines of defense for corrupt Wall Street institutions in recent years has been the extreme complexity of the infrastructure within which these crimes are committed.

Contracting corruption has been around since the construction of the Appian Way. The difference here is the almost unimaginable scope of the crime – and the fact that it's mobsters from Wall Street who are getting in on the action. Until recently, such activity has traditionally been the almost exclusive domain of the Mafia.

"When I think of bid rigging, I think of the convergence of organized crime and the government," says Eliot Spitzer. "The urge to become a monopolist," he says, "is as old as capitalism." The Mafia moved into bid rigging, he says, because it observed over time that monopolizing public contracts offers a far more lucrative business model than legbreaking.

"Organized crime learned their lessons from John D. Rockefeller," Spitzer explains. "It's much more efficient to control a market and boost the price 10 percent than it is to run a loan-sharking business on the street, where you actually have to use a baseball bat and collect every week."

2. THE TAPES

Almost every executive involved in the trial was absurdly young; many were just out of college when the bid-rigging scam started. The extreme youth of some of the conspirators was an obvious subtext of the trial, underscoring the fact that far more senior executives from bigger banks had been permitted by the government to evade testifying.

The brokers and providers used a dizzying array of methods for rigging deals. In some cases, the broker helped the "winner" by simply excluding other bidders, who may or may not have been in on the scam.

3. THE POLITICIANS

The case offers a clear and unvarnished blueprint of the architecture of American financial and political corruption.

Defense counsel showed us how employees were routinely directed by their boss, to make political contributions to select candidates, only to be reimbursed for those contributions later on.

More interesting, though, were the stories about political payoffs.

In 2001, CDR hired a consultant named Ron White, a Philadelphia bond attorney who happened to be the chief ­fundraiser for then-mayor John Street. CDR gave White two tickets to the 2003 Super Bowl in San Diego plus a limo – a gift worth $10,000. As his "guest," White took Corey Kemp, the city treasurer for Philadelphia, who, 16 days later, awarded CDR a $150,000 contract to advise the city on swap deals. But that wasn't the end of the gravy train: CDR doled out those swap deals to selected banks, who in return kicked back $515,000 to CDR for steering city business their way.

Even more startling was the way that a notorious incident involving former New Mexico governor and presidential candidate Bill Richardson resurfaced during the trial. Barack Obama had nominated Richardson to be commerce secretary – only to have the move blow up in his face when tales of Richardson accepting bribes began to make the rounds. Federal prosecutors never brought a case against Richardson

CDR paid Bill Richardson $100,000 in contributions and got $1.5 million in public money in return. And not just $1.5 million, but $1.5 million for work they didn't even do – the state still had to hire another firm to do the actual job. Nice non-work, if you can get it.

To grasp the full insanity of these revelations, one must step back and consider all this information together. It turns into a kind of unbroken Möbius strip of corruption – the banks pay middlemen to rig auctions, the middlemen bribe politicians to win business, then the politicians choose the middlemen to run the auctions, leading right back to the banks bribing the middlemen to rig the bids.

When we allow Wall Street to continually raid the public cookie jar, we're not just enriching a bunch of petty executives – we're effectively creating an alternate government, one in which money lifted from the taxpayer's pocket through mob-style schemes turns into a kind of permanent shadow tax, used to maintain the corruption and keep the thieves in place. And that cuts right to the heart of what this case is all about.

Wall Street is tired of making money by competing for business and weathering the vagaries of the market. What it wants instead is something more like the deal the government has – regularly collecting guaranteed taxes. What's crazy is that in order to justify that dream of regular, monopolistic tribute, they've begun to see themselves as a type of shadow government, watching out for the rest of us. Amazingly enough, this even became a defense at trial.


4. THE DEFENSE

The men and women who run these corrupt banks and brokerages genuinely believe that their relentless lying and cheating, and even their anti-competitive cartelstyle scheming, are all legitimate market processes that lead to legitimate price discovery.

And besides, it's not like ordinary people understand this stuff anyway. So how is it the place of some busybody federal prosecutor to waltz in here and say what's a fair price?

This incredible defense, perfectly expresses the awesome arrogance of the modern-day aristocrats who run our financial services sector. Corrupt or not, they built this financial infrastructure, and it's producing the prices they genuinely think are fair. And fair to them is the customer getting the absolute bare minimum, while they get instant millions for work they didn't do.

Moreover – and this is the most important part – they believe they should get permanent protection from the ravages of the market, i.e., from one another's competition. Imagine Jack Nicholson on the witness stand, dressed in a repairman's uniform and tool belt. Who's gonna fix those refrigerators? You? You, Lieutenant Weinberg? You can't handle the truth!

Capitalism is a system for determining objective value. What these Wall Street criminals have created is an opposite system of value by fiat. Prices are not objectively determined by collisions of price information from all over the market, but instead are collectively negotiated in secret, then dictated from above.

To the great credit of the jurors in the Carollo case, they didn't buy Wall Street's ludicrous defense.

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In the end, though, the conviction of a few bit players seems like far too puny a punishment. A truly commensurate penalty would be something like televised stonings of the top 10 executives of every guilty bank, or maybe the forcible resettlement of every banker and broker in Lower Manhattan to some uninhabited Andean wasteland... anything to address the systemic nature of the crime.

Get busted for welfare fraud even once in America, and good luck getting so much as a food stamp ever again. Get caught rigging interest rates in 50 states, and the government goes right on handing you billions of dollars in public contracts.

Who ultimately loses in these deals? Well, to take just one example, the New Jersey Health Care Facilities Finance Authority, the agency that issues bonds for the state's hospitals, had their interest rates rigged by the Carollo defendants on $17 million in bonds. Since then, more than a dozen New Jersey hospitals have closed, mostly in poor neighborhoods.

this is what Wall Street learned from the Mafia: how to reach into the penny jars of dying hospitals and schools and transform their desperation and civic panic into fat year-end bonuses and the occasional "big lunch." Unlike the Mafia, though, they were smart enough to do their dirt without anyone noticing for a very long time, which is what defense counsel in this case were talking about when they argued that towns and cities "were not harmed" by the rigged bids, i.e. what taxpayers didn't know couldn't hurt them. This is logical thinking, to the sociopath – like saying it's not infidelity if your wife never finds out. But we did find out, and the scale of betrayal unveiled was epic. It was like finding out your husband didn't just cheat, but had a frequent-flier account with every brothel in North America for the past 10 years. At least now we know how bad it was. The trick is to find a way to make the cheaters pay.