From 4 decades in the securities business I know regulators protect their friends and former colleagues well before the American public. I also know why the banks must be separated from being able to participate in any aspect of the securities business, and why the Trojan Mega Banks need to be cut into pieces. Elizabeth Warren has now started Congress on a path to expose regulators’ malfeasance leading to the question of why no primary culprits have been indicted and prosecuted, notwithstanding the lame excuses of our AG, Eric Holder.
My new book – HOW WE GOT SWINDLED BY WALL STREET GODFATHERS, GREED & FINANCIAL DARWINISM ~ THE 30-YEAR WAR AGAINST THE AMERICAN DREAM is the only book to connect all the dots; because it exposes the primary culprits and controlling issues which combined to create the 2nd worst economy since 1776; and our vast chasm of financial inequality which has shattered the middle class and the lives of so many Americans. Americans who just want government stuff according to prominent Teapublicans and great Americans like Romney.
Because Elizabeth is now leading a critically needed charge to correct financial inequality against Wall Street Banks and their sociopathically greedy narcissistic leaders that feed on financial inequality – I have shared some excerpts to give you some insight to what Elizabeth knows, and what you need to know to be objectively and accurately better informed.
chapter 5: Greedy Deregulated Banks Abandoned Prudence and Reason for Fees and Bonuses:
“The Gramm-Leach-Bliley Act of 1999 repealed: the Banking Act of 1933 known as Glass-Steagal; and the Bank Holding Company Act of 1956, which prevented bank holding companies headquartered in one state from acquiring a bank in another state and from engaging in the insurance business – further, the approval of Federal Reserve Board was required under this act to establish a bank holding company. Graham-Leach-Bliley, once again, allowed Mega, Trojan-like Banks to come alive, like dinosaurs rising from the dead to gobble up our economy as they did in 1929.
On December 21, 1999 the Commodity Futures Modernization Act was signed into law by President Bill Clinton as it was attached to an 11,000 page omnibus appropriation bill. This bill was drafted by lobbyists and Wall Street lawyers for Phil Gramm (PhD) Chairman of the Senate Finance Committee, who specifically wanted a deregulated atmosphere for over-the-counter energy trades and trading on electronic energy commodity markets. Further, it willfully and intentionally (two characteristics of fraud) created the Credit Default Swap to get around state regulators who regulate insurance, because this was insurance called a Swap. Which was not regulated – and really a bet that nothing “insured” would ever go down. This bill was introduced in the Senate on December 15, 2000, the last day before Christmas recess by three Republican Senators led by Gramm and joined by two Democrats.
It is probable that only Gramm, and his lawyers who drafted the bill, read the dire terms of the bill which was referenced and buried in a long and complex conference report to the 11,000 page “2000 omnibus budget bill. However after it was passed there was enough time to have read the bill before it led to the surreptitious, unregulated behavior of Enron which caused its collapse, not so long after. …”
chapter 8: Self-Serving Regulators Serve the Self-Interested Ultra Rich:
“We know it is wrong to lie. And we know what the SEC did to Martha Stewart for lying to their investigators; they put her in jail, although no individual was injured and the financial markets did not implode. Why? Because you and I cannot lie to SEC investigators. Congress also habitually prosecutes us if we lie to them. But what happens when they lie to us, or allow Wall Street and Banks to lie to investors (us again)? I guess lawyers would argue that to be a lie the false statement must be given under oath. Let’s put them under oath and ask them if they have tried to identify manipulative, contrived financial products. And follow up by asking if they think these products are or were deceptive. Let’s ask if they ever smelled the odor of Ponzi – or if all the flips were, in fact, an innovative chip off the old Ponzi.
What happens when Wall Street Banks promote investing in large, securitized, blind pools of sub-prime debt termed bonds – and then add diversification and Swaps to assure investors the “bonds” are safe? And even better the bonds are rated AAA by Credit Rating Agencies to provide further validation of the prudence and safety of the Bonds! After all these safety procedures to further affirm the safety and prudence to be obtained by investing in the Bonds, Wall Street then advertises how the risk has been quantitatively measured using the latest financial engineering tools available to reduce risk. We know what happens. …
Section 10(b) of the 1934 Securities Exchange Act makes it “unlawful for any person…to use or employ, in connection with the purchase of sale of any security.., any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the SEC may prescribe.” 15 U.S. C. sec.78j. Rule 10b-5, which implements this provision, forbids the use, “in connection with the purchase or sale of any security, “of any device, scheme, or artifice to defraud” or any other “act, practice, or course of business” that “operates…as a fraud or deceit.” 17 CFR sec. 240. 10b-5 (2000) One of Congress’ primary objectives in passing the act was “to insure honest securities markets and thereby promote investor confidence” after the market crash of 1929. United States v. O’Hagan, 521 U.S. C. 642, 658…
Have regulators stopped to hear that innovative financial products are “too complex to explain.” That remark from anyone who sold that type of security should be more than enough for any regulator to prosecute based on the plethora of existing rules – pick one!
The Fed Bank Holding Company Supervisory Manual of about 1,500 pages stipulates: IM-2210-1. Communications with the Public About Collateralized Mortgage Obligations (CMOs) – (a) General Considerations, … (3) Safety Claims – A communication should not overstate the relative safety … (5) Simplicity Claims – CMOs are complex securities and require full, fair and clear disclosure in order to be understood by the investor. So if something is too complex to explain it seems that it would be illegal to sell it.
Credit raters must be able to understand a complex transaction to rate the security, and credit ratings should reflect the amount of risk – as well as disclose it – right? So there ought to be an explanation from the rating agency that is understandable as well as from the issuer – or how can the investor understand? Comprehensible explanations seem to be few and far between (trite but true).
Another looming question is: why should banks be allowed to invest in complex securities based on excessive leverage, which is apparently allowed by the Fed’s Bank Holding Company Supervision Manual. What kind of protection from the risk of insolvency is this? We ought to know better now. Does it make sense to trust the Fed with additional responsibilities when it failed so miserably in the past? A regulation has the full force of the law behind it so if the regulation is violated the law is broken. …
The tear down of the fire-walls – barriers against greed – allowed Wall Street and Banks to get the bit in their teeth, and if you have ever been on a horse heading for the barn you know what happens. …
Too bad the Fed in its role as the central bank of the United States enables greed! …
Apparently, no one has set limits for the amount of leverage used in the fabrication of financial products – products Bank Holding Companies create, invest in, and even maintain markets for. Why? Because limits are against the ethic of the survival of the richest crowd. The Fed’s mandate is “to promote sustainable growth, high levels of employment …
The Fed has a long history of not intervening until well after it should – it does not anticipate when it should intervene because the Fed Bank Board members are among the leading culprits who require the intervention. Again, the Financial Darwinists are in charge…
It is now self-evident that the Fed has had a severe case of macular degeneration regarding its inability to see the all the galloping greed as well as even consider the danger of mega banks, which it helped create. Keep in mind a bank to become a Bank Holding Company needs Fed approval – which Goldman Sachs got in September. Since many of the Fed leaders are economists, some should remember why Woodrow Wilson spoke out against bigness.
In 1914, the Clayton Antitrust Act prohibited certain kinds of price discrimination and the acquisition of stock in competing corporations, and this led to the establishment of the Federal Trade Commission. Less than 20 years after the Great Depression in 1956 The Bank Holding Company Act was enacted to further prevent banks from becoming too large and too powerful, which was a logical progression from other legislation to deal with the “toxic” effects of unfettered banks becoming, again, too large and too powerful. Too big to fail really means too big to control. …
The bottom line is apparent. Our regulators are chiefly concerned for the “markets” which means Wall Street’s ability to remain unscathed no matter what!”
Chapter 8 is 22 pages long and the longest chapter, because Americans need to be better informed about why the regulators are not are their side, and understand the profound conflicts that are self-evident to anyone without severe macular degeneration. Read my article about Mary Jo White to understand.
Elizabeth Warren is the first Senator to properly pin some regulators to the wall, and is not finished yet, because it is impossible to understand why one major culprit has not, at least, been indicted, let alone charged with fraud. And there is no statute of limitations for prosecuting Federal Fraud, so Elizabeth has time. This time Elizabeth cannot be shut up or shut down as she was when Teapublicans refused to confirm her appointment as the head of the Consumer Financial Protection Bureau, and the banks went crazy. Of course the banks lived in deadly fear of having someone in Washington who could not be influenced by their money and understood the extent of their deceit and fraudulent activities – and now the Banks worst fear is in the Senate! (I called Elizabeth’s office at Harvard Law to get permission to send her the finished draft of How We Got Swindled, and spoke with her secretary who called me back with Elizabeth’s OK.)
Alan Grayson has also thanked me for his copy, another Harvard Lawyer, so I know that at least 2 members of Congress know what I have learned from 4 decades of personal inside experience, and as the former owner of an NASD Member Firm Broker Dealer who was on the SECs list of BDs to submit all proposed rule change to for comments.
I also know from a 1 hour meeting with the SRVP with the Cleveland Bank, who is in charge of policy among other things – that the Fed does not have a policy to enforce the regulation that I have written about which specifically makes $700 trillion to $1.2 quadrillion swap derivatives without any foundational values “unlawful.” Read my 5th Estate piece on this interview – Fed Fails to Regulate – from October 2012.
So here we are, finally watching the Banking/Regulator drama of deceit and conflicts unfold. And it will get far more nauseating the deeper Elizabeth goes – so send your support for her efforts to everyone you can. And tell your congressional representatives to join Elizabeth in her efforts, because the Teapublicans are not happy with the truth – even when it is also for their unwitting benefit!
Buy Henry’s book from Amazon, about which David Satterfield, former Business Editor of the Miami Herald and 2 times Pulitzer Prize Winner, said this:
This should be must-reading for every policy maker in Washington and every student of economics and finance.