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Wall Street Shoots Public with Machine Guns, and Laughs

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Headlined to H3 12/21/09

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Ben Bernanke has become a scapegoat for the economic crisis, but he shouldn't take the rap for the financial and now economic disaster. Bernanke, as Fed Chairman, wasn't the one packaging crap derivatives and peddling them off to retirement funds as AAA, when they were anything but. Sure, he was in charge of a lot of financial regulation as Fed Chairman, but that doesn't mean much when a lot of the regulatory system has been gutted. A lot of people in the financial industry are saying Bernanke shouldn't be reappointed because he let the Federal Reserve be used as an off balance sheet entity for the Treasury, and that by doing this, he greatly exceeded his responsibilities. OK, but I would ask, what choice did he really have? The extent of the damage happening in the credit markets was so massive that unless somebody had stepped in and provided trillions of dollars of backstop, the entire credit system would have crumbled, and in fact, it almost did even with extraordinary government help.

Like him or not, you can't fault his intentions. And so these bankers, instead of criticizing Bernanke, should take a long hard look in the mirror and see the face of the problem--their deliberate actions that have hurt us all. They have not only hurt their companies and markets, they've hurt the public! Our hurt is very real, it's the record unemployment and the explosion in public debt--our national debt.

Our national debt can be easily managed in some ways, but is worrisome in other ways. The usual way that large debts can be managed is to simply let inflation rise, which will greatly reduce the value of the debt, and make it easier to pay off. But the problem is that, when other countries hold large amounts of our debt, they won't like it if we use inflation to manage our debt, because they'll end up getting screwed. When those other countries get pissed off enough, they'll stop buying our debt. That's what happened to Iceland, and it's what sent their country's economy over the cliff. Another problem with a large debt is that we end up spending too much money to service it--just the interest payments on our current debt will be nearly as much as our defense budget, and more than our domestic programs. But overall, I know that it was much better for us to add to our debt by bailing out our banking and credit system, than it would have been to let our economy fall into another great depression. Such a depression would have cost us much more than the amount of debt that we now need to manage.

The public has had to mortgage away some of its future, and the bankers who got us into this mess have come out of it with no damage, in fact, they're making more money than they did before--record bonuses. They're making their investments now not on mortgages, or giving people credit, but investing in the stock market. They're making record profits!

They don't understand that their legitimate role is to provide credit. They see their role as the gamblers, they're poker players, they're out there to beat the system. They're not out there to provide a useful productive product, they're out there to beat the system. They're not trying to give people credit they need to produce things, they're out there to make money. It's a distortion of their role. Banks now treat people like they're dice, they're just people on a board, but you're not just screwing with individual lives, you're screwing with the functioning of the system, and all the lives it's going to affect when the system fails.


We should save the system, but go after the culpable people. Find the outlaws, and give them an incentive not to repeat their stupid behaviors.

But nobody has even started prosecuting these people! There are people who are culpable, and until you let them know that there are going to be consequences to that kind of behavior, they're going to think they can get away with it, and they'll do it again. They're already starting to have these life insurance scams... It's a pirate mentality. These investment bankers and traders think they're the privileged, they think they're entitled.

I think there needs to be a real push by the DOJ to team up with committed financial regulators and go after those most responsible in the financial industry for the damage that we, the public, are going to have to bear for many years to come.

I don't see Federal Reserve Chairman Ben Bernanke, or the previous Treasury Secretary Henry Paulson as being on this list. I don't think they had bad intentions. I think that they were making mistakes, but well intentioned ones. The ones that need to held to account are the ones who knew what they were doing was wrong, and were just trying to get theirs and get out. And those that didn't get out had golden parachutes: When a company tanks, and the stinking CEO still makes 50 million dollars, there's something wrong. I'm sure that the way they were doing things they could get called to account on something. I'm sure laws broken.

However, I'm not so sure what the law is on financial terms. I know that if you get into an accident, you don't necessarily intend to kill a person, but you're still charged with manslaughter. Intent doesn't always seem necessary to do extensive harm. Those responsible might not have intended to cause this harm, but they knew it was going to be a secondary effect. By secondary effect I mean, they were out to make money, and they didn't intend to cause the US economy to collapse, but they knew that something bad was going to happen. You can prosecute somebody for a secondary effect. It's like, if you shoot a rifle into a populated area, you don't intend to hit your target, but it's negligence because you didn't take due caution, you didn't take enough steps to make sure that the bullet isn't going to land someplace where it's going to hurt somebody. Look at all the people that fell out of work, the credit dried up, and then businesses stopped hiring people and laid people off... there's got to be trillions of dollars in lost income alone. There's a lot of people who have been hurt, lives have been ruined. The public has been gunned down.

The public deserves retribution, but the problem is, we have a President under the thumb of the bankers. President Obama has shown a tendency to compromise way too much--it's starting to look like he's afraid of upsetting anyone, or making anyone mad at him. His actions invite weakness, and Wall Street is good at smelling blood.

Here's three bankers, among many, who spilled the public's blood:

1) Angelo R. Mozilo. Former Chairman and CEO of Countrywide Financial. He acknowledged in email correspondence that he knew the mortgage loans his company was making were "toxic", and that his company was "flying blind" in the mortgage market. But that didn't stop him from telling shareholders just the opposite, that Countrywide was a high quality mortgage underwriter. While Mr. Mozilo has been sued by the SEC for fraud, at most, he's only looking at forfeiting some of his ill gotten gains. This isn't good enough. He was an important player in the mortgage fraud disaster that almost wrecked our credit markets, and he knew what he was doing.

2) Joseph J. Cassano. Former head of AIG Financial Products (AIGFP). Took over as AIGFP chief in 2001, and got fired, sorry, resigned, in February 2008. What can we say, he made out like a bandit! Under his direction, AIGFP bet massively long on the housing market through selling CDSs, some 500 billion dollars worth. AIG was massively leveraging, and the company didn't have anything near what it needed to cover if its bets went bad. But it was good business for Cassano who personally made over 280 million dollars off this scam. The public be damned! He was going to milk the gutting of financial regulations for all they were worth, and to his selfish credit, he did. Towards the end, he even lied to investors about the extent of the losses rapidly accumulating on his company's books due to CDS deals rapidly going south. Cassano is no idiot, he knew what he was doing, and the stunning magnitude of the bets he made, clearly shows that he had no regard for either his company or the public, who depend on AIG for insurance products. What he had regard for, was the huge bonuses he was making off bets that depended on asset bubbles never popping. He was betting that real estate prices would continue to go up up up, so that even if people defaulted, the banks would still make money.

3) Robert E. Rubin. Former Director and Senior Counselor of Citigroup, with a brief stint as Chairman in late 2007. Mr. Rubin pushed Citi to invest heavily in risky assets, and he did this knowing full well that Citi is a massive depository institution (over 800 billion deposit base) where the public places its money for safekeeping. In return for his reckless advice, Citi paid Rubin 126 million over an 8 year period, much of this in bonuses. So now you can see one very profitable reason why Rubin was pushing so hard for Citi to expand into very lucrative, but also very risky financial products: it was going to mean a lot of money for him in bonuses! In his pursuit of wealth, Rubin wasn't just putting Citi's creditor's and shareholder's money at risk, he was putting the public's deposits at risk. Rubin even had the gall to complain to the board that his compensation was low, and that he could have easily gone someplace else and earned a lot more. As smart as he's reputed to be, and as knowledgeable about finance as he should be, after having worked in finance and banking for decades, including having been the CEO of Goldman Sachs, it stretches credulity to think that Rubin couldn't see the abyss he was pushing Citi towards. No one is too old to face the scales of justice. His exorbitantly paid advice was linked to how much money Citi made, and this mad drive for profit almost drove a massive depository institution into bankruptcy, a bankruptcy that was only staved off by the public handing Citi tens of billions, and putting itself on the hook for hundreds of billions more.

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