Posts Tagged ‘Financial Crime’

It’s not just Wall Street

May 21, 2015


It’s not just the USA that allows bankers and financiers to break the law and get away with it.   Or regards the largest financial institutions as “too big to fail”.

This goes back to Prime Minister Tony Blair, who thought he could make London the world’s financial hub by freeing banks from all regulation.

As in the USA, the government’s priority is to protect the financial institutions rather than to protect the public.

Banking regulation is even weaker in Europe than in the United States, and one of the goals of the proposed Transatlantic Trade and Investment Partnership, the next international agreement in the pipeline after the Trans Pacific Partnership, is to set limits on financial regulation.

That would make banking and finance un-reformable, either in the USA, the UK or other TTIP signatories.

Update 5/22/2015.  The five banks that pleaded guilty to rigging interest rates and the exchange rate for foreign currencies are Britain’s Barclays and the Royal Bank of Scotland, the USA’s Citicorp and JP Morgan Chase and Switzerland’s UBS.


The legacy of Eric Holder

September 29, 2014

The Real News Network interviewed Bill Black, an expert on white-collar crime and a former financial regulator, on the legacy of Attorney General Eric Holder.  Here is part of what he said:

Eric Holder has surprised me.  I always predicted that he would at least find one token case to prosecute some bank senior executive for crimes that led to the creation of the financial crisis and the global Great Recession. … …

Well, he’s actually going to leave without even a token conviction, or even a token effort at convicting

So, in baseball terms, he struck out every time, batting 0.000, but he actually never took a swing.  So he was called out on strikes looking, as we would say in baseball.

Too-big-to-jailAnd I couldn’t believe that he would leave without at least having one attempted prosecution against these folks.

So he hasn’t done the most–he never did the most elementary things required to succeed. He never reestablished the criminal referral process, which is from the banking regulatory agencies, who are the only ones who are going to do widescale criminal referrals against bank CEOs, because, of course, banks won’t make criminal referrals against their own CEOs.

Holder could have reestablished that criminal referral process in a single email on the first day in office to his counterparts in the banking regulatory agencies, and he’s going to leave never having attempted to do so.

On top of that, if you’re not going to have criminal referrals from the agencies, the only other conceivable way that you’re going to learn about elite criminal misconduct of this kind is through whistle-blowers.  And as you mentioned, this administration, and Eric Holder in particular, are known for the viciousness of their war against whistle-blowers.

What the public doesn’t know—and it doesn’t know because of Eric Holder—is that in the three biggest cases involving banks–again, none of them, not a single prosecution of the elite bankers that drove this crisis—all three of those cases, against Citicorp, against JPMorgan, and against Bank of America, were made possible by whistle-blowers.

via After Eric Holder Resigns, A Look at His Record on Bank Prosecutions.

Instead of prosecutions, Holder negotiated settlements in which the big banks agreed to pay big fines.  That would have shifted the penalty from the actual wrongdoers to the stockholders.  Black pointed out that the stockholders didn’t suffer, either, because when the settlements were announced, the stock prices of the banks rose by more than the amount of the settlements.


How insiders rob banks and cause crises

March 18, 2014

William K. Blank is professor of economics and law at the University of Missouri at Kansas City, a former bank regulator and author of The Best Way to Rob a Bank Is to Own One (which I haven’t read).

In this TED talk, he explains how crooked bankers enrich themselves through what he calls “control fraud”.  The method is as follows:

  • Make a lot of loans to people you know can’t pay you bank.
  • Conceal the bogus nature of the loans through fraudulent appraisals.
  • Collect high interest rates (for a while)
  • Report record profits (for a while)
  • Collect an enormous salary and enormous bonuses (for a while)
  • Escape scot-free with your riches when the crash comes.

There are two other elements that he doesn’t mention in this particular talk.

  • Convert the loans into financial securities and sell them to suckers
  • Go to Congress and the Federal Reserve Board to be bailed out when the crash comes.

Black said all this has been facilitated for the past 20 years by the Clinton, Bush II and Obama administrations, and by the Federal Reserve Board during that period.  Everything is in place for another crash as big as what came before.

It seems obvious to me that we Americans need to (1) break up the “too big to fail” banks (those whose assets exceed a certain set percentage of Gross Domestic Product, (2) refuse to insure deposits that are used for risky investment and (3) prosecute financial fraud, as was done in the Bush I administration following the savings and loan crash.


America Has Become a “Cheater-Take-All” Nation by Willliam K. Black for AlterNet.

The Big Lie That Haunts the Post-Crash Economy by Dean Stockman for The New Republic.   The “big lie” is that “everyone” is to blame for the crash of the housing bubble, when in fact the bubble was mainly due to crooked financiers.

New Lawsuit Alleges That Wells Fargo Has a Manual for Mass Fabrication of Foreclosure Documents by Yves Smith.

Why Prosecutors Whiffed on Subprime Crime by Barry Ritholtz for Bloomberg View.

Hat tip for the video to Yves Smith.

A white culture of lawlessness?

July 31, 2013

white culture of crime

Click on Video of Violent, Rioting Surfers Shows White Culture of Lawlessness for more.

Click on “…the most violent ethnic group in America” for an earlier post of mine.

Just to be clear, the cartoon and my post are intended to be a satirical comment about how certain types of crime and criminals are treated more leniently than others.  I don’t actually believe that white people as a group are criminal.  Some of my best friends are white people.  In fact, I’m a white person myself.

Click on Mat Bors Archive for more of his cartoons.


American kleptocracy

July 11, 2012

Charles H. Ferguson, producer of the Oscar-winning documentary film “Inside Job,” argues in his new book, PREDATOR NATION: Corporate Criminals, Political Corruption and the Hijacking of America, that the executives of the largest financial firms are criminals—literally, not metaphorically.

Ferguson dug into investigative reports and civil lawsuits, and, being a successful academic and entrepreneur himself, was able to talk to many high-status people who might not have talked to the likes of Michael Moore (or me).  On the basis of this, he named names, and laid out evidence of lawbreaking.  Unlike many financial writers, he was able to explain clearly how the various financial scams worked, what harm they did and why they were against the law.

This is the best book I’ve read on what’s wrong with the financial system.  If you have time to read just one book, I recommend you read this one.

Neither the financial sector nor the U.S. economy as a whole will be restored to health until people are sent to prison when they commit financial fraud, accounting fraud, price rigging, bribery, perjury and other crimes.  Wall Street financiers, like everyone else, are entitled to be presumed innocent by the legal system until proven guilty, but Ferguson lays out reasons why various individuals should be the subject of criminal investigations.

Here are some examples:

1.  Jefferson County, Alabama, home of the city of Birmingham, decided to refinance a major sewer project when interest rates fell in the early 2000s.  Instead of offering new financing at a lower interest rates, a consortium of banks led by JPMorgan Chase talked local officials into buying something called auction-rate securities, in which the interest rate is reset every three weeks, and paying six times the normal amount in fees. This was made possible by paying local officials and brokerage firms, and paying $3 million to Goldman Sachs and $1.4 million to Rice Investments not to compete.  All these bribes were added the fees charged to the county government.  One week in 2008 nobody wanted to bid on auction-rate securities, and the obligation fell to Jefferson County’s taxpayers, most of whom were not rich.  Two county commissioners were prosecuted and sent to prison.  JPMorgan Chase paid some small fines and two of its executives were barred from securities trading, but that is all, even though bribery is a crime.

2.  Morgan Stanley in 2007 was one of many companies selling a security called a synthetic collateralized debt obligation—a debt backed by no collateral, but structured as if it was.  It was set up to duplicate the results of a package of collateralized subprime mortgages, which would soon be revealed to be worthless.  Morgan Stanley officials persuaded the Virgin Islands government employees’ pension fund, among others, to invest the fund in these securities, which they at the time knew to be worthless and were selling short—that is, selling with an option to buy back later after the price had plummeted.  The Virgin Island civil servants lost their pension rights.  Through the short selling, the value of the pension fund was transferred to Morgan Stanley.

3.  Goldman Sachs sold an investment package which was created on the basis of its bad quality, just so an investor named John Paulson could bet that it would collapse.  Yet most of these bad securities were rated AAA, and Goldman Sachs in its prospectus said they’d been subject to an intensive credit review process.  Selling securities knowingly based on false information is a crime.

This was not just a case of a few bad applies, Ferguson wrote.  Almost all the apples were bad.  He said the whole housing price bubble was based on fraud, Ferguson said.  Wall Street firms sold securities based on mortgages in which they falsely stated that the loan did not exceed the value of the property, the property did not have liens taking priority over the mortgage, the property was occupied and the borrower had the financial ability to pay back the mortgage.  There is a legal requirement of “due diligence” to make sure the information in a securities offering is correct.  This wasn’t done, Ferguson said.

Borrowers in some cases were also victims of fraud, he said.  Some of them, especially minorities and immigrants, were misinformed about the terms of the loan; some who qualified for standard loans were told they only qualified for subprime loans, which carried higher interest rates and charges.  This is illegal under the truth and ending laws.

In an earlier era, lawbreaking financiers such as Charles Keating, Michael Milken, Ivan Boesky and Enron’s Jeff Skilling went to prison.  Martha Stewart went to prison for the comparatively trivial offense of selling stock based on a tip by somebody who had inside information.  In the savings and loan scandals of the 1980s, several thousand financial executives were criminally prosecuted and hundreds were sent to prison.  But in today’s scandals, nobody has been criminally prosecuted.

The evidence of criminal fraud is just as great now as it was then, but the Obama administration, like the Bush administration before it, is dominated by representatives of the very firms that are suspected of criminal activity.  President Obama has said that no laws have been broken.  That is a statement he would be justified only after an extensive investigation had shown it to be so.  It is not justified as an excuse for not conducting the investigation.

Not just the government, but the top echelons of the economics profession have fallen under the sway of Wall Street, Ferguson wrote.  There is a three-way revolving door, from Wall Street to government to the economics departments of the top universities.  Top economists get consulting fees, corporate directorships, and big lecture fees from Wall Street firms and the foundations they set up.  Hardly any universities have financial disclosure or conflict-of-interest rules.  The economics establishment, unsurprisingly, is unsympathetic to points of view that conflict with Wall Street interests.

Again, Ferguson names names, and cites chapter and verse.  I don’t do justice in this post to his detailed facts.  I recommend you read the book.  If you don’t have time to read a whole book, you can sample Ferguson by clicking on the links below.

Click on Where We Are Now for an excerpt from Predator Nation on how financial corruption affects the U.S. economic future.

Click on The Sellout of the Ivory Tower and the Crash of 2008 for an excerpt from Predator Nation on the corruption of the economics profession.

Click on Wall Street Has Turned the U.S. Into a Predatory Nation for the first part of a TV interview of Ferguson by Amy Goodman on her Democracy Now program.

Click on Corporate Criminals, Political Corruption and the Hijacking of America for the second part of Amy Goodman’s interview.