Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Rescuing the United States from the Gigantic Derivatives Fraud

Politics / Credit Crisis 2009 Mar 30, 2009 - 07:22 PM GMT

By: Mike_Whitney

Politics Best Financial Markets Analysis ArticleIt's a bird...It's a plane...No, it's Spitzer to the Rescue - If Obama is serious about restoring confidence in the markets, he should replace current SEC chief Mary Schapiro with Eliot Spitzer. That would send a message to the world that the president is through messing around. Schapiro is another Wall Street toady who believes that the markets can regulate themselves. As the head of the Financial Industry Regulatory Authority, or Finra, she stood by while the financial giants increased their leverage to unsustainable levels and spread their derivatives-contagion to every part of the system.


Schapiro also missed the Madoff scandal, the auction-rate bond fraud, the blow up at Lehman Brothers, and the mortgage meltdown. She was blindsided at every turn. Her dismal performance as a private-sector regulator proves that she's the wrong person for the job. Even the far-right Wall Street Journal has lambasted Schapiro. In an article titled "Obama's pick to head SEC has record of being a Regulator with a Light Touch" the WSJ relays this revealing anecdote:

"The Financial Services Institute, a trade group, was meeting, and Ms. Schapiro addressed the crowd about Finra's efforts to fight frauds aimed at senior citizens. Frank Congemi, a financial adviser, asked what Finra was doing to regulate "packaged products" such as complex mortgage securities. Mr. Congemi says that Ms. Schapiro replied: "We have rating agencies that rate them." The credit-rating agencies, by this time, were being heavily criticized for having given triple-A ratings to mortgage bonds that became unsalable as foreclosures rose.

Mr. Congemi says that at the May 7 meeting he retorted: "What is that going to do to markets and people's trust when these things go to zero?" He says Ms. Schapiro replied that she couldn't answer hypothetical questions." (Wall Street Journal, Obama's pick to head SEC has record of being a Regulator with a Light Touch")

This story sums up Schapiro's laissez faire attitude perfectly; plenty of posturing and rhetoric with zero enforcement, another empty gourd.  She's doomed to follow in the footsteps of her feckless predecessor, Christopher Cox, who stuck his head in the sand while the 5 biggest investment banks levered up to 30 to 1 and brought the whole global house of cards crashing to earth. Schapiro will undoubtedly torpedo any effort to police the markets or to bring charges against any of the Wall Street Godfathers.

And what is the SEC up to now? Where are the regulators and what steps have been taken to clean up Wall Street?

Nothing. Just more blabbering. Obama hasn't changed a thing. Treasury is full of bank loyalists and the SEC is loaded with brokerage-friendly flunkies. The only difference is that the SEC's rubber stamp has been passed from laughingstock Cox to lapdog Schapiro. Other than that, it's business as usual.

If Spitzer was running the SEC, the Pinkertons would be swarming the investments houses right now, thumbing through the off-balance sheet paperwork, overturning filing cabinets and tasering bloated banksters as they scuttle away clutching their Armani briefcases stuffed with taxpayer loot.

The public is not in the mood for any more lame excuses or windy oratory from President Inspiration. Just get on with it. Governing is more than just gliding from one teleprompter to the next pointing at rainbows and promising Utopia. There has to be action, accountability, and justice.

What people want is to see a truncheon-wielding cop on every corner of lower Manhattan. They want regulators snooping through e mails and digging through trash cans to uncover any scrap of evidence that will build a case for investor fraud or criminal malfeasance. They want Spitzer-clones--armed with bullwhips and billy-clubs--posted in every boardroom, in every penthouse, on every private jet; breathing down the necks of every CEO, every CFO, and every dodgy, derivatives-peddling scam-artist until the financial typhoon subsides and the culprits, cutthroats and carpetbaggers are dragged in leg-irons to Guantanamo for a few brief dunks on Dick Cheney's waterboard.

This is not the time for namby-pamby, weak-kneed Schapiro. Eliot Spitzer has a proven record of taking on the industry behemoths and organized crime. (He launched an investigation that brought down the Gambino family's control over Manhattan's garment and trucking industries) He's devoted himself to consumer and environmental protection, while taking aim at white collar crime and securities fraud. Until he stepped down, he'd been doing a bang-up job reigning in reckless speculators, predatory lenders, and Wall Street kingpins. He's a bulldog, a corporate dragon-slayer, and the best man for the job. Spitzer's heavy-handed tactics made him big business's most hated man. In fact, in January 2005, the president of the US Chamber of Commerce described Spitzer's approach as "the most egregious and unacceptable form of intimidation we've seen in this country in modern times."

If that isn't a ringing endorsement for SEC chief, than what is?

SPITZER'S HOOKERGATE

In March 2008, Spitzer resigned as Governor of New York when he was caught with a high-priced prostitute named Ashley Dupre. The story made headlines across the country. Spitzer accepted full responsibility for his conduct and did not challenge the allegations even though the information was gathered via a federal wiretap.

The Spitzer case brings up some unsettling questions about Bush's surveillance programs; mainly whether they are really being used to investigate potential terrorists or simply a means of destroying political enemies.  Spitzer made a name for himself by sticking it to bigshot business tycoons and Wall Street kleptocrats, the very type of people who fill out Bush's campaign donor list. That's why many people believe that the Bush Justice Department was simply carrying out a vendetta on behalf of Spitzer's many powerful enemies.

Just days before the scandal broke, the Washington Post published an article by Spitzer which linked the Bush administration to the mortgage fiasco. He showed how Bush had blocked all efforts to save loan applicants from being fleeced by mortgage lenders. Spitzer was joined by many other state attorneys general who noticed early on that predatory lending was on the rise and that there was a concerted effort to keep the mortgage swindle going whether applicants had the ability to make their payments or not.

Elliot Spitzer op-ed in the Washington Post:

"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 2003, during the height of the predatory lending crisis, the Office of the Comptroller of the Currency (OCC) invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. The curbs we sought... would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers." (Elliot Spitzer, “Predator Lenders' Partner in Crime" Washington Post)

If the allegations are true, then the Bush administration was directly and maliciously involved in duping thousands, if not millions, of credulous borrowers into fraudulent loans. Surely, this is a matter that requires congressional investigation. Journalist Greg Palast sums it up like this:

"Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the Mother Shark, its founder and now owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill Lynch and Citigroup's Citibank made mortgage usury their major profit centers.....But there were rumblings that the party would soon be over...

The big players knew that unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press – one was “Wall Street Declares War on Spitzer” - made clear to Bush's enforcers at Justice who their number one target should be. And it wasn't Bin Laden.("Eliot's Mess", Greg Palast)

Spitzer gave his enemies all the ammo they needed to put him away for good, and they took full advantage of it. No one expected that he would pop up just a year later.


Last Sunday, Spitzer was interviewed on Fareed Zakaria's GPS on CNN. The ex-Gov showed a better grasp of the details of the financial situation than of any of the 535 members of Congress. Spitzer understands the problems and knows what needs to be done to fix them. Here's a small part of the interview:

Fareed Zakaria: What made you look at AIG and say something is wrong here?

Eliot Spitzer: Their fundamental accounting structure was wrong, and when we prosecuted them we brought a case that they had allegedly manufactured fictitious reinsurance contracts designed to create the appearance of capital on the books which was not there and this was was a structure that had been designed and orchestrated at the very top of the company.

Fareed Zakaria:  So they were basically fudging the numbers to make it look like they had a stronger balance sheet than they actually had?

Spitzer: Precisely. That is exactly right. The underlying effort was to create the  illusion of financial strength that was not actually there. And as we dug more deeply into the underlying structure and organization and accounting that was ongoing at the company we knew there was a problem. Four people have been convicted in this and the former CEO was called an unindicted co-conspirator in the federal courtroom by the federal prosecutor. So, this was a fundamental effort to alter the facts and lie to the public."

AIG CENTER OF THE WEB

ZAKARIA: So, do you think the problems that AIG got into later on stemmed from some of the same practices that you were trying to get at?

SPITZER: They stemmed from an effort at the very to to gin up returns whenever, wherever possible, and to push the boundaries in a way that would garner returns almost regardless of risk. Back then, I told people that AIG is at the center of the web. The financial tentacles of this company stretched to every major investment bank. The web between AIG and Goldman Sachs is something that should be pursued. And as I've written...

Consider what Spitzer is saying; that the lumbering Goliath, AIG, is at the very center of the gigantic derivatives fraud which took trillion of dollars of undercapitalized credit default swaps (CDS) and sold them (as insurance) to myriad other financial institutions to help them maintain artificially high ratings on complex securities whose real value was always in doubt since the underlying collateral was connected to uncreditworthy borrowers who were more likely to default or go into foreclosure. Whew! These CDS are the paper claims to fictive wealth which greatly inflated the world's biggest speculative bubble. These unregulated swaps are the tissue that holds together the failing shadow banking system which both Geithner and Bernanke are committed to preserve. Spitzer understands how this complex system works and what it will take to bring it under control. This alone should put him at the top of the list of candidates for the SEC.

If the Obama team was serious about defending the little guy and restoring confidence in the markets, then Spitzer would be the logical choice, warts and all. But since the real objective appears to be keeping the same basic power-structure in place at all costs; the present course will do just fine. One unmistakable sign of imperial decline is the inability to make critical changes when the country's future depends on it. 

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

Mike Whitney Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Paul
31 Mar 09, 17:13
Obama already compromised

Never happen. Obama is President BECAUSE he's already compromised. No other outcome would have been allowed during the selection process.


KRISHNA RAO
02 May 09, 08:30
BELL THE CAT ?

Does this mean that all the people are being fooled all the time ? I mean if its so obvious then either the citizens dont know the depth of the rot or even of they do know they are not bothered as long as their side of the bread is buttered. We come across scandals in other countries but there is media exposure which highlights the issues. Why is the american media silent for so long on such crucial issues? or has the american media been bought / owned ?

Either way I see no recovery except for manipulations that are effectd in the name of recovery. Nice opportunity to make some money though especially if you are top three investment ( ooops !) banks,,,


Post Comment

Only logged in users are allowed to post comments. Register/ Log in