When will the Wall Street criminals pay for their crimes?

A new study is being reported on showing that Americans have the lowest opinion of Wall Street Banks and financial institutions in a long time. Lindsay Owens looks at how Americans perceive the honesty and ethical practices as trends over 40 years.

Recent scandals involving Wall Street banks and financial institutions, headed by some of the world's most well-paid managers, executives and analysts, have many Americans asking themselves whether this game is rigged. It is this sense of injustice, coupled with economic insecurity, that animates changes in Americans' attitudes toward Wall Street. It's not just a small number of Americans, those who are actually "occupying" Wall Street, who feel such injustice. That's just the tip of the iceberg.

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Americans have never exactly loved Wall Street stockbrokers or bankers—but we certainly didn't always hate them. Why this increasing hostility? The answer is a "perfect storm" of financial turmoil and a series of major scandals on Wall Street.

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According to ... Harris Interactive, the percent of Americans with a great deal of confidence in the people running Wall Street had already reached an all-time low of just 4 percent by February of 2009. These figures are not just a reflection of Americans' dissatisfaction with the size of their bank accounts — they also reflect the increasing belief that Wall Street is playing a game that only the bankers can win.

Economic hard times, such as global recessions, do tend to bring about small, but noticeable drops in the public's confidence in Wall Street, just as we might expect falling confidence in a military that is losing a war.

But when economic downturns coincide with major scandals, as in the savings and loan crisis of the late 1980s and early 1990s and our current dilemma, the biggest changes in public confidence result — changes that may have contributed to the protests we are seeing on Wall Street today. In other words, Americans really begin to get angry when there is evidence of systematic foul play.

To be sure, material hardships such as unemployment rates in the 9 percent range and the continuing high levels of foreclosures and bankruptcies undoubtedly set the stage for a public outcry. But this outcry has a distinctly moral tenor. The sentiments of the Occupy protestors holding signs reading "Blame Wall Street Greed," "People not Profits" and "Wall Street was the Real Weapons of Mass Destruction" certainly echo the wider American public's sense of moral indignation.

Just 26 percent of Americans in an April 2011 Harris poll thought the people working on Wall Street were "as honest and moral as other people" (for a point of comparison, the percentage was 51 in 1997). In that same poll, 67 percent of Americans agreed that "most people on Wall Street would be willing to break the law if they believed they could make a lot of money and get away with it."

It was perfectly obvious by 2009 to the public that the financial collapse that occurred in the fall of 2008 was the direct result of extreme and reckless risk-taking by Wall Street bankers. It soon became equally clear that those banks considered themselves too big to fail, so they had been free to take insane risks with other people's money. They would get the winnings and the American taxpayers would take the losses.

This was all clear to the Wall Street bankers long before the financial collapse they created. The accuracy of their beliefs became very clear when, after they were bailed out, not a single criminal case was brought against the criminal bankers who had created the disaster. Instead by 2010 their bonuses were reaching record levels never before seen, even as the world economy was struggling to dig out of the economic rubble those bankers left in their wake.

Is the "Occupy Wall Street" a social movement that expresses the anger of the rest of us who have watched those economic criminals commit their crimes and then skate without any retribution? No doubt. And if it is not effective then there will be another to follow until the Wall Street criminals pay for their crimes.

Tea Partiers - descendants of the John Birchers

It's difficult to watch the antics of the right-wing idiots who call themselves "The Tea Party" and not worry about the future of America. The thing is, though, that they are not all that new in America.

They essentially spout the same set of idiocies that the John Birch Society made famous in the late 50's and the 1960's. The historian Sean Wilentz offers an excellent essay on the intellectual roots of the Tea Party. Go read it.

But what Wilentz does not do is describe the conditions which have allowed these right-wing idiots to become so prominent, or at least not in depth. He does allude to the fear that the election of the African-American Obama as President has instilled in the American right wing, but that's only part of the story. The threat to America from the economic collapse we today call "The Great Recession" has also added to their fear, and it is built on fear of the many social changes which have included the disruption of the traditional American status where the White Race could be expected to dominate the government and the nation. It's not just the result of the civil rights battles, it includes the fact that within not too many years the so-called White Race will become a minority in America.

The automatic status that White conservatives have felt they had simply by being born White is inevitably disappearing. So they are reacting to both the social and the economic changes that are occurring to America. These factors have been key, in fact, to the political rise of the conservative movement over the last three decades.

The shock of the election of the backwoods President from Arkansas in 1992 was an earlier threat to derail the conservative effort to lock down their domination of American society. But after conservatives failed to impeach Clinton, they were able to recapture the White House with George Bush. Unfortunately, they do not have a governing coalition, only a coalition that can often elect their politicians. Once in office they are not allowed by their base to make the practical decisions required of a modern government. That left the conservatives with nothing else to do except start wars and to corruptly take as much money and as many contracts from government as they could.

Essentially the conservatives sold off the control of the American financial system to the Wall Street Banks, who promptly went about destroying what they had bought as Greenspan and his fellow libertarians watched and sat on their hands. By 2007 it was clear that a financial disaster was coming. (See my previous articles from 2007 and 2008 labeled Finance and economics.) The collapse of Wall Street in Fall of 2008 did more than threaten to destroy the world economy. Great Depression II was barely avoided by the panicky Bush Secretary of Treasury Henry Paulson, whose belated actions were in fact carried out by the incoming Barack Obama and the bipartisan leadership of Congress. It also totally destroyed the credibility of the Republican party leadership.

It was this vacuum of Republican leadership that this year's Tea Partiers have stepped into. But the libertarian anarchists of the Tea Party could not have become as powerful as they have without the financing of the Libertarian ultra wealthy groups and individuals like the Koch brothers who have been actively financing the groups that funnel money to the tea Partiers to ensure that their rallies are organized and to bus the participants of those rallies to the party.

Then there is the other element - Rupert Murdoch and FOX. Murdoch is another of the uberwealthy who want to destroy American worker political power and recreate America as a nation ruled by the wealthy - a plutocracy. The government in his view should tax the masses and funnel that money to the wealthy who will dominate the society. The tea Partiers are the populist arm of this vision held by people such as the Koch brothers, Rupert Murdoch, the Walton family, Erik Prince (who created Blackwater/Xe with his inherited wealth and who has used it to milk the government of overpriced security contracts) and so on. The political center of their power nationwide is the club of 100 millionaires called the U.S. Senate. Keep in mind that Glenn Beck is Rupert Murdoch's spokesman spreading the gospel. In the UK Glenn Beck has lost all of his sponsors, yet Murdoch's FOX has kept him on the air for nearly a year without sponsors. That is NOT a money-making action by Rupert Murdoch. It is purely political and quite expensive. (See the Countdown with Olberman that was broadcast Friday October 15th where he shows Murdoch explaining his political motivations.)

The public face of all this is the tea party with its rehashed John Birch Society ideology, but the core is the financial power of the uberwealthy American families and big business executives who were enabled to throw their money into American politics with the Supreme Court five gave them the Citizen's United decision that allowed the money to flow without any public record or reporting into political channels.

So go read Sean Wilentz's excellent article that explains where the Tea Party ideology comes from. But the real political threat to America is not the tea party idiots. It is the on-going effort by the ultra-wealthy to take political control of America and turn America into an out and out plutocracy where we are either members of the plutocracy or we are taxed by them to pay for their support.

The election is in slightly over two more weeks. Go vote. Defeat the corporations and the wealthy families trying to take America over.

[Just to point out how far back the economic crisis was recognized, go read my article Administration has admitted Recession in 2008 which I posted in November 2007. This was the Bush administration admitting that the Recession was coming.]

Republicans fighting Wall Street regulation tooth and nail.

What's up with the Republicans? As long as they say "No!" to Wall Street reform, the Wall Street banks will continue to fill their coffers for what they expect will be a critical election in November.



Robert Borasage explains what's behind the Republican obstreperousness.

The moral decline of Wall Street.

Do Wall Street banks have an obligation to society? Not according to the Wall Street banks. Their only functions are to create and sell financial products and to make as large a profit as possible for their shareholders and executives.

That's the lesson that Michael Hirsh has taken away from the Senate hearings on Wall Street yesterday. In hindsight is seems obviously true.

Here's the problem. If a deal is profitable but is destructive to society, then under those rules Wall Street is required to conduct the deal - and to profit by it. It doesn't matter to them who else gets hurt, that's their lookout. Do the series of deals lead to a collapse of the world-wide financial markets? Not their problem. They are responsible only for recognizing the problems they are creating in advance, then shorting the markets they themselves have created so that they can make profits out of the collapse.

OK. If that's the way Wall Street want things then society is going to have to step in and protect itself from Wall Street (and London's City) by regulating it. The size and nature of the collapse we recently observed clearly demonstrates that half-hearted regulation is not safe.

If vampires exist and are needed to keep the economy functioning at high efficiency, then it would behoove society to keep the vampires carefully strapped down and closely watched, allowing them very little freedom to go off the reservation and practice their blood-sucking ways without close supervision. They will never need as much blood as they will want.

It's hard to watch the evasion and hubris of the Goldman Sachs bankers yesterday and not comprehend that they are financial vampires with some limited utility in the financial system. That's the core lesson of the Goldman Sachs hearings yesterday.

For a description of the boring nature of the hearing, here is Time's Swampland

The Goldman hearing has conformed to a familiar pattern. Senators begin with pointed questions and descend into demagoguery; the bankers force stoic stares, and then, when they're forced to speak, essentially try to eat up clock until it's time to repeat the excercise.

Three of the four witnesses on this first panel -- Daniel Sparks, Michael Swenson and Josh Birnbaum -- supplied aggressively bland opening statements. The notable exception was Fabrice Tourre, a.k.a. the Fabulous Fab, the lone Goldman employee accused of fraud. In a strident denial, Tourre confronted the charges head on, relying heavily on the Big Boy Defense—that is, the firms who got soaked in the Abacus deal were among the world's most sophisticated investors, making bets that scores of other smart people made, and it's not our job to coddle or second-guess them. “I deny – categorically – the SEC allegation,” he said. The specificity of Tourre's opening remarks – compared to his colleagues, at least – seemed to demonstrate confidence in his case.

From there, though, the hearing has been reduced to basic theatrics.

The financial rating agencies: bad actors currently being overlooked.

Paul Krugman writes about the strange story of the financial rating agencies who were key actors in creating the financial collapse we are still suffering from. Yet they are effectively being ignored both by the media and by the congress which is considering financial regulation reform. This is what Krugman wrote:

of AAA-rated subprime-mortgage-backed securities issued in 2006, 93 percent — 93 percent! — have now been downgraded to junk status.

What those e-mails reveal is a deeply corrupt system. And it’s a system that financial reform, as currently proposed, wouldn’t fix.

The rating agencies began as market researchers, selling assessments of corporate debt to people considering whether to buy that debt. Eventually, however, they morphed into something quite different: companies that were hired by the people selling debt to give that debt a seal of approval.

Those seals of approval came to play a central role in our whole financial system, especially for institutional investors like pension funds, which would buy your bonds if and only if they received that coveted AAA rating.

It was a system that looked dignified and respectable on the surface. Yet it produced huge conflicts of interest. Issuers of debt — which increasingly meant Wall Street firms selling securities they created by slicing and dicing claims on things like subprime mortgages — could choose among several rating agencies. So they could direct their business to whichever agency was most likely to give a favorable verdict, and threaten to pull business from an agency that tried too hard to do its job. It’s all too obvious, in retrospect, how this could have corrupted the process.

And it did. The Senate subcommittee has focused its investigations on the two biggest credit rating agencies, Moody’s and Standard & Poor’s; what it has found confirms our worst suspicions. In one e-mail message, an S.& P. employee explains that a meeting is necessary to “discuss adjusting criteria” for assessing housing-backed securities “because of the ongoing threat of losing deals.” Another message complains of having to use resources “to massage the sub-prime and alt-A numbers to preserve market share.” Clearly, the rating agencies skewed their assessments to please their clients.

These skewed assessments, in turn, helped the financial system take on far more risk than it could safely handle.

If the rating agencies are not controlled in some way, then they will be leading the way into the next financial collapse.

The prognosis for the Great Recession is not good.

What's wrong with the current government approach to holding off the Great Depression II? Digby quotes Krugman at length, then goes on to add further information provided by a financially knowledgeable friend of hers.

Here is a really important point made by Digby's friend. The Obama administration is aiming the rescue actions of government wrong. Instead of spending to create new jobs, they are spending to prop up already inflated asset prices.

Her friend discusses the article by Paul Krugman and Robin Wells:

They make an important point -- as just stated -- that its key to get jobs back and that deficits don't matter if they are producing jobs. But, Krugman/Wells simply gloss over this in their larger commentary about govt deficits.... they fail to note that 80 to 90% or more of govt commitments in this crisis have been to prop up assets, not produce jobs. The Fed has basically engaged in the same high leverage act as the financial sector --- and the price tag for that is that we're a hair trigger away from collapse while simultaneously have so over committed the govt -- all to prop up asset prices because we said "no" to the Swedish model (which was short, not long) -- that, in effect, we've shot our wad at asset prices and when folks say, jobs, jobs, jobs, the oligarchs cry: too much govt debt.

Krugman/Wells simply do not explain this -- and the article would have been far superior if they had.

My short take on these articles is that Krugman/Wells explain that financial collapses occur because of excessive borrowing - bank and government leverage to build financial assets.

Borrowing is not inherently wrong. Borrowing to create jobs builds the economy. It's borrowing to prop up asset prices, especially financial assets which do almost nothing for the real economy of goods and services that is dangerous. But the oligarchs who currently run American society depend on financial prices for the wealth that guarantees their position in society. This is because Wall Street has expanded in recent years to create over 40% of the profits in the American economy at the expense of outsourcing real jobs to third world countries.

The different point of view that Digby adds also makes many very important points. Read both the Digby article and the Krugman/Wells article.

The Krugman/Wells article can be read in the New York Review of Books.

Off balance sheet transactions and the need for financial reform

This is an excellent speech - clear, precise and short.

Frank Partnoy on Off-Balance Sheet Transactions (MMBM) from Roosevelt Institute on Vimeo.

Best short analysis of the recent banking crisis so far

Want a short overview of what all went wrong with Wall Street in 2008? Here is a floor speech by Senator Ted Kaufman that does a superb job of summarizing the set of problems and how they worked out in the crisis.

It's already a summary, so I won't try to summarize it here. Go read it.

Bad as it already appears, the Banking system may be even worse than we knew

We know that the Wall Street financial companies let their greed and stupidity very nearly bring the U.S. and the world economy fall into the second Great Depression in the Fall of 2008. But what did they do to save themselves? The Guardian has just published the story from the United Nations Office on Drugs and Crime.

Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer.

Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

This will raise questions about crime's influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. "In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor," he said.

Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.

So it's not just the people in third world countries who died when the global economy froze up. It's not just the businesses and governments around the world who lost massive amounts of money. It's not just retirees who suddenly found they don't have the money they planned on for their retirement. It's also the people who have died because of the drug trade.

That is going to include people who have died because drug dealers are financing the Taliban in Afghanistan or the rebels in Colombia. This will almost certainly have exacerbated the Mexican war on drugs.

Hooray for the power of the uncontrolled Wall Street financial people. And they are paying off the Republicans and conservative Democrats in Congress to prevent the passage of laws that would reregulate Wall Street.