July 18, 2013

  • Wall Street Arrogance/Stupidity & Government Enabling

    The country and much of the world is still reeling from the financial meltdown whose cause can be pinpointed to the major Wall Street banks and their toxic financial products they peddled throughout the globe. Today Detroit has filed for bankruptcy, becoming the largest US city on record to do so. 

    Cities around the globe are dealing with the pain of the one two punch of toxic products that were sold to them from the big banks and the collapse in property tax revenue from the flood of home mortgage defaults.

    Yet, despite the great carnage and ruin to people’s investments, homes, lives, and futures, you’d be hard pressed to find any one of the bankers or hedge fund players own up to any errors or wrong doing.

    Believe it or not, they largely place the blame on the blow up on the masses for not continuing to pay their mortgage. Forget about the fact that the banks had a hand in inflating home values to a bubble level, falsified income levels on loan applications so that the loans would qualify, fired appraisers who wouldn’t play ball and appraise homes well above what they really thought they were worth, and conned people with their sweet nothing songs of “you can always get a refi if you need to cash out or adjust your loan payments”. But when things went south, the defaulting homeowner gets the bulk of their finger pointing.


    The truth is Wall Street suffers from a case of terminal arrogance, thinking they are the “experts” at all times and never take blame for any mistakes, even as they siphon off funds from the citizens in the form of government bailouts. The growing government debt becomes “our” problem with pressure to cut medicare and social security benefits while increasing taxes. But when Wall Street firms make money, they would laugh at the notion of sharing their wealth with the general population. So despite their claim at loving capitalism, they are hypocrites that actually seek to socialize their losses onto others rather than own up to their mistakes and take direct accountability for them.

    Their mantra is “Heads, we win, tails, you lose!”.


    The reality is they aren’t as smart as they “think”, and arrogance is a poor substitute for having actual brains. Take the majority of hedge funds out there, upon scrutiny you’ll find just a handful of folks if any that actually know what they’re doing and the rest are just parasites sponging off the knowledge of others.The sad part is these parasites “think” they are as good as the folks who actually know what they are doing – that’s the problem.


    Here’s an example- you get into a conversation with one of these types about market or economic related matters- if they feel you have dared questioned their “all-encompassing” market knowledge, they will respond not with a knowledgeable answer that shows they actually know something, but they throw an arrogant “mine is bigger than yours” attack. You’ll hear such drivel as “Our firm has assets of over uptyump billion, we’re globally located, how much do you book in client wealth, we’re the largest this, the best that, etc…”

    While these are nice “sounding” attempts to make whoever is saying them seem superior, upon closer analysis, it’s all a bunch of garbage and a dodge from showing any “real” knowledge. What they are attempting to do is make the case that they have soo much money or assets that they must be sooo smart. Good con artists can also make the claim of great wealth from the money they gleaned from their victims, and that’s the meat of it really. Just because someone may be good at getting someone to invest with them, doesn’t mean that actually know what they are doing. It means the hedge fund or banks has convinced the prospective victim investor that they know what they are doing.


    Take these would be “geniuses” and put them in a separate room and make them prove they can generate real performance and not just spout out text book portfolio theory mumbo jumbo, then you will see just how “smart” most of them really are.


    And therein lies the problem- Wall Street has more “con artists” than actual smart people and being they are given so much power and deference by our Government, don’t expect our economic woes to go away anytime soon. Isn’t it interesting that it’s been over 5 years since the meltdown and there are KNOWN cases of intentional fraud and wrongdoing, and yet, not ONE bank exec has faced criminal charges.  Any case brought against the banks have been civil, and and the penalties small in relation to the overall profits made.


    This week another civil case opens up against Fabrice Tourre, one the sellers of toxic investment products that led to the meltdown. But he is just a “low man” on the totem pole of blame.



    I’m still waiting for “criminal cases” to be brought against the top execs, but I’m not holding my breath for that. Our government and attorney general  seems to be too afraid to rock the boat and cause potential economic upheavals with administering “true justice”

    … and so the arrogance continues, and we are all but guaranteed that there will be another Wall Street originated crisis because no one was made to pay for their misdeeds this time.






    Watch The Untouchables on PBS. See more from FRONTLINE.




Comments (23)

  • I believe one of the excuses for not prosecuting the CEOs of Goldman Sachs and Citibank and all the big investment firms was that they were, again, too big to be prosecuted, meaning the SEC’s fact finder was afraid to disturb any of the big banks/investment firms because of what the consequences might be, ie, causing more market collapse.

  • I find it funny how all these companies, not just wall street firms, attempt to socialize their losses. what gets me the most is that a lot of these industries are subsidized in some way or another but do very little to rectify the social ills and calamities they cause. In terms of wall street, their level of hubris sometimes appalls me. I still find it hilarious that certain business are too big to fail but american cities are not. While I can understand the argument of a localized incident versus one that has potential to cause a global calamity, I cannot understand why the so called mechanisms in place to prevent the smart guys in the room from getting out of hand is always late in discovering the financial experiments that go wrong drastically wrong. At the end of the day I am just frustrated at how we as a populace has come to accept all of this in stride. 

  • Wall Street people were called “Masters of the Universe”. It made me ill. When Reagan listened to his economic chief and sold trickle down economics to the country it made me sick. That economic chief has since apologized, admitting trickle down does not work. Alan Greenspan also apologized after the 2008 economic collapse, admitting he didn’t take human greed into account. Lehman Brothers’ CEO Dick Fuld testified before Congress he didn’t know what happened. Now that’s funny. We require accountability from kindergarten teachers but not from someone who makes $22 million in year-end bonuses alone? Citibank offered Lehman Brothers “special loans”. The way it worked was LB was given loans of up to nearly $40 billion just before LB had to publish quarterly reports. LB banked the loans and included them as assets in their reports. Once the reports were scrutinized LB returned the money to Citibank. At the same time LB produced media that showed LB outdoing other Wall Street banks every quarter. Senior Vice Presidents oversaw the media and Dick Fuld signed off on much if not all of it. The truth however was LB was underwater and had been for years before the 2008 crash. They misled investors and employees alike. Moody’s, S&P, The Wall Street Journal, The Financial Times, Forbes and all of the other ranking agencies and financial publications bought into it. When in the summer of 2001 I heard a female Wall Street executive say, “The government has finally stopped regulating us and business people can now do what business people do” to great applause at a conference, a voice inside said to me, we’re in big trouble. It didn’t take long for what that voice said to play out. The SEC was gutted under the Bush administration. There were SEC people on site at Lehman headquarters at 745 7th Avenue but they had neither the resources nor the understanding to uncover what was going on. As for the bank bailouts, they were unfortunately but absolutely necessary. Were failing banks not infused with money there would have been a run on money probably worse than we saw at the advent of the Great Depression and we would have been in far deeper shit. The picture of a society in pure anarchy with people armed to the hilt with automatic weapons killing one another was not far-fetched. The bailout of the auto industry has proven to be a great idea. The staple U.S. auto industry is again on top of the world and the paid back loans with interest have helped cut the deficit and bolster the U.S. economy. The domino effect of the shutdown of our auto industry and all of the industries that support it would have been devastating. Fortunately though many complained and moaned we held together as a country and did what we had to do.

  • Here’s a story I just heard. It’s based on a report in the New York Times. Goldman Sachs owns a percentage of the tin can industry, tin cans used for soda. From what I gleaned GS also owns a number of warehouses from which cans are distributed. According to the report they move cans from warehouse to warehouse with the purpose of stalling distribution of the cans by months. This brings the cost of cans up by artificially raising demand and the cost is of course passed onto the public. Meanwhile at 1/10th of a penny profit added per can GS stands to make $6 billion in profit over every 3 year period based on the number of soda cans purchased a year in the U.S. This has been going on for about a decade according to the report I saw. GS and other banks, Morgan Stanley was mentioned, own oil tankers. By slowing down tankers they cause the price of oil to go up. Bankers also speculate on commodity prices. Manipulating supply is a way for them to profit. Some in Congress want to investigate. It’s a new story for me and sketchy for me at this point but manipulation of commodities and prices at the cost of consumers is not new to Wall Street though and it’s why allowing Wall Street to run wild without effective regulation is bad for the country. 

  • @TheSutraDude - I guess now we know how the rich keep getting richer – screwing the working, tax paying citizens.

  • @redlight3 - Right, but that’s a poor excuse for withholding justice, and because the remaining banks have gotten even bigger since the meltdown, nothing has changed but now they know they have a free pass due to their size/importance. This creates a dangerous moral harazd that all but guarantees another Wall Street crisis in the future since they know the government is there to bail them out with minimal penalties.

  • @Pre_K - Wall Street gets away with more because they grease the palms of so many politicians via political donations and they are the place that many people work for after they put in their time at the SEC or other government agencies. That puts pressure on politicians and agency folks to be lenient and go along with the flow. Cities don’t have such far reaching clout, nor do individuals, so if you or I run into financial difficulties, we’re on our own for the most part.The only thing worse than not being proactive and stopping these guys from committing economic suicide and taking the nation/world with them, is to bail them out with no criminal repercussions, basically letting them get away with the crime at our expense of trillions of new debt added to the taxpayers bill dealing with recession woes.

  • @TheSutraDude - The level of fraud these banks have committed with money laundering, LIBOR manipulating, documentation “doctoring”, robo-signing, etc…, would land an individual in jail for life, but they get the “too big to fail” get out of jail card. So disgusting.It’s unfortunate that our government has been effectively captured by big money – made even worse by the “Citizens United” ruling establishing corporations with the same political donating rights as individuals. I agree that the government needed to intervene during the crisis, but I strongly disagree with how they did it. They basically gave the banks a blank check via eternal printing of funds with no corporate penalties put in for such reckless and lawless behavior. It’s no wonder these firms don’t feel any guilt or regret.I believe we would have been far better off if it were handled along the lines of the Savings and Loan Crisis- where the stronger banks not involved took over the weaker banks/credit unions. In this case the US should have enabled/helped the largest banks that were smart enough to to get involved with sub-prime loan derivative investment instruments to take over the banks in crisis. Shareholders should have been taken to the cleaners and not left intact. The problem is it’s a fixed game. The Fed is composed of all the banks so Bernanke, Paulson, Geithner all have interests to look after their own. AIG has already arranged a 30 cents on the dollar payout to GS, who agreed to it, but Bernanke scuttled it and insisted that AIG pay out all its debt at 100% to all the banks it owed, which includes foreign entities as well. Since they got such a nice bailout with no real penalties of any kind and in fact were rewarded with the remaining banks being allowed to get even bigger and more indispensable, it’s just a matter of time before another crisis is created- only this time will likely be the true meltdown as the US won’t have any financial ammo left to keep the wolf at bay.

  • @SoullFire - The stock market seems to be skyrocketing as I am writing this, with the Fed and it’s QE infinity throwing the gas on the flames.  Too bad Joe Q Public didn’t share in  the rally, since most of the market is funded by the 1%.  What is really sad is, when this house of cards stock market falls, who ends up paying for the Too Big to Fail banks’ and investment firms’ losses?  That’s right, the 99%, tax paying working, wage slave citizen, socialized losses, but the 1% privatized gains individuals walk away laughing all the way to their off shore banks.

  • @SoullFire - My understanding is there are now regulations in place that will assure there is no more too big to fail and banks that engage in risky practices and lose will go down on their own and not be bailed out by taxpayers. I’d have to look more into it to be certain in my own mind. The thing is there was so much debt in Wall Street banks across the board there were no banks that could have taken the debt on and they are the biggest banks in the world. Ronald Reagan’s economist convinced Reagan that trickle down economics was a good idea. After 2008 he admitted he was wrong. Between the end of WWII and the advent of trickle down Reaganomics the economy grew equally throughout the economic strata. Beginning with trickle down top 2% income grew increasingly while middle class income pretty much flat lined and income declined for those in the poverty level. Since 2000 middle class income has grown only 16% while income for the top 1% has grown 281%. 

  • @redlight3 - Yup. We’ve become an economically unbalanced society and it’s unsustainable. 

  • @TheSutraDude - Ah, but writing “rules” is one thing, faithfully implementing them is another. =) The Fed and SEC would tell you that they “thought” they already had enough checks/balances in place to prevent such a crisis in the first place. The truth is, they did, but failed to take action as red flags went up time and time again. There is nothing that was done that tells me if another multiple super banking crisis with lots of counter party risk takes place the result would be any less frenetic. As soon as the gears start freezing up and echoes of a global domino cascade of bank failures and threats of a Depression become palpable, Ben, Paulson, Geithner et, al will do exactly as they’ve done the last time – change their stance over the months from “there isn’t a problem”, to “there was a threat, but it has been safely contained and dealt with”, to “We require extraordinary powers to prevent collapse of the civilization as we know it.”.Wall Street is also sure to do its best to circumvent and new rules/policies meant to reign in its excessive risk taking. A good example of this is the response to the new Volker Rule, meant to limit banks from engaging in proprietary trading against the interests on their clients as well as taking on too much leveraged risk. Wall Street put their lawyers to work and determined that the futures market isn’t covered by the Volker Rule, so all the money is being shifted to futures. No surprise there. Even with that end-run, the Volker Rule has still not been implemented due to delays years after the original crisis, and time dulls the mind and lessons the importance of having strong safeguards. The 1% are not keen on giving up any power if they can help it.

  • @SoullFire - Actually the SEC was gutted under the Bush administration. The SEC had neither the manpower nor the teeth to do anything. I might have mentioned this above…during a conference meeting in the summer of 2001 an SVP at Lehman told the attending bankers the government has finally left us alone and is allowing business people to do what business people do. When I heard that a voice in my head said, we’re in big trouble now. I was working one Sunday on the Retail Banking floor when I heard a senior associate tell his team, “Never let legalities keep you from doing a deal. That’s what we have a legal department for.” This is why we need people to continue to stand up and be heard especially at the voting booth. One of the biggest problems is people don’t turn out for midterm elections. We’ve been paying the price for that since the 2010 election. A record number (by far) of filibusters in the Senate and legislation not even brought to a vote in the House. We also see people voting against their own economic interests in republican gerrymandered districts. Those votes are reflected in Wall Street proprietary trading against investor interests.  

  • @TheSutraDude - Even accounting for the weakened state of the SEC, they can still easily be held guilty of dereliction of duties. There was an prominent individual as well as several others on Wall Street who reported on Bernie Maddoff’s shady activities as not being economically viable years before the melt down. He even hand delivered documentation that could show his returns were impossible.They could have shut him down as a Ponzi operation years earlier and save investors billions of lost funds by not allowing it to keep growing and pulling in new victims. Instead, they sat on the information and did nothing. If they won’t even go after one lone big fish, it’s no wonder they were next to invisible with the banks.Definitely agree that people need to get out and vote “smart”. Polarized news/info media has done a good job at dividing the vote and conning folks to vote against their own interests. So you have people angry at welfare recipients as a drain on the economy but know and care nothing about all the corporate welfare big oil and farm companies received in terms of subsidies.

  • @SoullFire - Yes that’s true. I don’t remember the whistleblower’s name. He had a Greek name. People in every workplace shy away from blowing whistles or creating a stir. Job security. It’s unfortunate. Many see something wrong but then think, if I say something I might lose my job and I have bills to pay, kids to support, etc. Madoff was a prominent Wall Street figure. He was head of NASDAQ for a while and it turns out he didn’t have the legal qualification to be in that position. Madoff was a Wall Street version of The Emperors’ New Clothes. It appears even Madoff’s son’s knew something wasn’t right but they didn’t say anything. We need to mature as a nation until we understand we are stronger and live better when we don’t lie to and cheat each other.  

  • @SoullFire - Also there were SEC employees on site at Lehman Brothers because of suspicion of wrong doing but they were given misleading information and the common wisdom is they couldn’t make heads or tails of some of the fraudulent financial instruments Lehman was using including what I mentioned earlier, “special loans” from Citibank. Also, one Lehman executive sent emails upstairs voicing concerns about what he believed to be fraudulent practices. He was removed from his position and either left the firm or was fired. 

  • @TheSutraDude - That’s both a sad and scary thought that people who have jobs to shine the light on wrongdoing are intimidated by the very people they should be going after instead of vice versa. This is why I maintain that we remain vulnerable to more evil schemes from the big banks/hedge funds. There are some who are living quite well using the tools of lying/cheating. The problem is it’s only the select few opposed to the many who suffer for it.Unless those who lie and cheat get duly and truly punished for their actions instead of only receiving a symbolic slap on the wrist, things are more likely to get worse instead of better as more people seek to join in and reap the spoils of the dark side.

  • @SoullFire - It’s a sickness in our society and of capitalism in general wherein profit is considered a justification for almost anything. Yet there is hope. There are a lot of descent people in the world with the wisdom not to do the wrong thing for profit. 

  • There’s another angle worth considering. As you might know Wall Street firms have something called “The Chinese Wall”. It is an ethical and legal barrier between divisions of a firm to prevent insider trading. I had to sign an oath to not reveal information I was to be privy to on both sides of the wall due to the position I was being hired for. A coworker who was also privy to information from both sides of the wall and I often wondered at lunch how the firm and our entire economy could continue on its present course based on what we saw on a day to day basis. However I questioned myself because every financial publication in the industry…I’m talking Forbes, The Financial Times, Business Week, The Wall Street Journal…and every ratings agency praised the firm and we maintained AAA+ ratings while I was there. I figured we were missing pieces of the puzzle. It was also difficult to swallow that a huge international investment banking firm would be nothing more than a big Ponzi scheme and out of 25,000 employees, all the financial publications and ratings agencies the 2 of us knew what was really going on. Turns out we weren’t missing pieces but as the expression goes, hindsight is 20/20. 

  • @TheSutraDude - Yes, fortunately not all people of wealth and power are corrupt, but as along as the ones that are command the economic and political power centers, it’s going to be tough sledding for the 99%.I’m always amazed that these folks who claim to be “the smartest people in the room” so we shouldn’t question them then turn around and say they had no idea the storm was coming. But so many folks including myself were writing active warnings since late 2006 and earlier. Anyone with eyes open could see the housing boom was unsustainable with all the “creative” loans they were doing.  There were numerous warnings being sent out but the folks who could have made a difference sat on the information, ignored it, and fired the messengers issuing the warnings. It’s unfortunate the the whistle blowers are the ones who typically pay the price while those remaining complacent and derelict stay whole. At least there’s some good news today-  SAC has been indicted with criminal charges of insider trading. While the SEC continues to march down the “civil” path, at least the government is willing to start pursuing financial wrongdoing in criminal court. We can only hope this is the start of a trend.

  • @SoullFire - I warned people of an impending economic collapse in the 80s when trickle down went in gear. People didn’t want to hear it. I remember the “Greed is good” posters and bumper stickers proclaiming the one with the most toys when he dies wins. I thought the collapse would happen fairly soon. When it didn’t I began wondering if it would happen in my lifetime but I was certain it would happen and it did. A year or two after trickle down was introduced I saw a huge yacht moving slowly down the East River past the U.N. The next morning I heard on the news it was Donald Trump’s newly acquired yacht. It was the second largest private yacht in the world and pre-owned. The previous owner from whom Trump bought it was Adnan Khashoggi, the biggest Arab arms dealer in the world. Khashoggi sold Trump the yacht after purchasing a new yacht, the biggest in the world at the time. Trump’s newly acquired yacht trickling down the East River was a perfect metaphor for what trickle down economics was going to bring to the country and it wasn’t money in the pockets of middle class. In the mid 90s I was in a Manhattan restaurant, telling a friend my thoughts on Wall Street stupidity and fraud. I noticed a nearby table of 5 or 6 glaring at me. As they left one came over to me and said, “You should stick to things you know about.” I had no doubt they were young bankers. I wish I they had to face me now.  I hope the SAC indictment is a harbinger of things to come. 

  • You guys are awesome; I learned so much about economics with what you guys just posted here.Anyways, I came back into this entry because I thought I left a message for this post and was curious to know if there might be more comments regarding how to salvage this situation.Unfortunately it seems the answer is still murky.Just to reiterate, we have system in place now that will prevent another collapse from happening, but we have no clue if it can be enforced or will actually do what it’s supposed to.At the moment though, the auto industry which was in tatters previously, is on the rebound and the stocks seem to be looking up?Does this mean we are on our way to recovery or is this just another facade waiting to be ripped?

  • @juslitome - They “claim” they have a system in place now, but that has been said before, and clearly wasn’t the case. The problem isn’t the system itself, but the “people” behind the system. The the agencies that are supposed to crack down on shady operations fail to do so, whatever system that’s put in place is destined to fail, and as an economic tsunami takes shape, all rules will again be tossed out the window in the name of a claimed “unforeseeable emergency”.The current market climate is continued smoke and mirrors. The Fed is running “qualitative easing”, or “QE” for short. It essentially means they are buying lots of bonds on the open market which keeps the mortgage rate low and drives money into the stock market. Every time they hint at stopping QE, the market gets more volatile and looks like it wants to drop. Eventually it will in due time- but when is anyone’s guess. The problems have not been solved. The banks that were deemed “too big to fail” are now even bigger. Jobs creation continues to be anemic. Unemployment remains high. The reality will eventually make itself known in the stock market.

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