Friday, October 21, 2011

Finally, the Truth

I've been waiting for someone to say this on air for months, and today I finally heard it, on Rose Aguilar's Your Call on KALW 91.7 FM.  Rose's Friday program is always a "media roundup," discussing the week's best recent reporting, and today they started out with this one:

Citigroup settles for $285 million; no Wall Street exec jailed yet

While discussing the question of why nobody from Wall Street has gone to jail yet, one of the panelists (maybe Jake Bernstein from ProPublica but I'm not sure) said the Unsayable Thing:

Nobody from Wall Street has gone to jail because what they did wasn't really illegal.

It was deceptive; it was a scam; it was wrong.  Read the linked McClatchy story for details of what Citi did, which had all the moral rectitude of a pea-and-shell game.  But - it wasn't illegal.  Why not?  Because we spent the previous 15 or so years removing so much regulation from the banking and financial industry.  The Citi deal centered around a "collateralized debt obligation", a form of derivative - if you aren't sure what a CDO is and would like to know, take an hour and listen to the classic This American Life broadcast from May 2008, Giant Pool of Money.  After that you'll know more about CDOs than you're comfortable with.  But CDOs were unregulated; the financial industry made sure years ago that all financial derivatives were totally unregulated.  No rules on how they could be set up and managed at all.  That's one of the reasons the Lehman crash caused the short-term credit market to freeze solid:  they didn't have to publish records on the derivatives they traded, so they didn't; and when a big player went down, nobody know what anybody else was on the hook for.

So after the crash, Congress put together the Dodd-Frank Act, to put some regulations back in place on the banking industry.  Remember that when you hear the Republicans screaming that Dodd-Frank has to go.  Some of the stuff that went on actually is illegal now, and the Republicans can't stand it.  Personally, I'd like to see Dodd-Frank gone too; but I want it replaced with the Glass-Steagall Act, which probably won't happen.

Along with the PG&E (and other) gas pipelines that regularly blow up and kill people, the financial crash was just one more side effect of the prevailing right-wing believe that All Government Regulation Is Bad.  Personally, I could use a little more of it.

1 comment:

  1. aka: Credit Default Swaps.

    What they were were bundled derivatives assigned an imaginary value and traded like real stock.

    Our broker has been trying to sell us REIT's for years, and each time I point out all the vacancy signs in the financial district. But he never gives up. Every year for the last 20 it's "have you considered REITs?" This is because his brokerage house is pushing to sell worthless product. That's because someone is paying them off to do that. It was the same with the CDF's--they "traded" these things between each other, assuming that they could fool enough of their well-heeled clients to buy the stuff into their portfolios. There are always enough millionaire sheep to allow brokers and account managers to do anything with their money they're told by "the experts." When the experts are acting on behalf of the crooks, you'd best take your money elsewhere.

    The most astonishing thing is the credulity. People keep investing in derivatives, even knowing the inherent risks. But people are stupid. When banks and brokerages collude, it's a conflict of interest. This is as obvious as the hair on your mole. And still, people don't push for regulation. People are stupid. Which is why these kinds of things keep popping up decade after decade.