Last March I reviewed Matt Taibbi's important book Griftopia
, an entertaining account
thorough-going financial fraud that gave us the financial crisis. Taibbi shows
that the US "superpower" can match any third-world backwater in the magnitude of
greed and fraud that is endemic in business and government. I would not be
surprised if Taibbi's book motivated the more aware participants of Occupy Wall
Taibbi's Griftopia was published last year. This year Henry Holt
publishers have provided us with Gretchen Morgenson and Joshur Rosner's
Reckless Endangerment. Morgenson and Rosner tell the story again, but
with less drama and provocation. Possibly, it might be more acceptable to those
gullible Americans who wrap themselves in the flag and refuse to believe that
their country could ever knowingly do anything that is wrong.
I am not suggesting that Morgenson and Rosner pull their punches. To the
contrary, the authors deliver enough knockouts to be contenders with Taibbi as
world champions in exposing the reckless fraud that the US financial sector and
its regulators now epitomize.
The financial crisis, which is very much still with us, did not result from
accident or miscalculation; neither did it result because of a flaw in Alan
Greenspan's theory, as he told Congress when a feeble effort was made to hold
him accountable. It was the intentional result of people motivated by short-term
profits who wanted to get theirs and get out.
As Reckless Endangerment shows, fraud characterized every stage of
the process from the fraudulent borrower incomes and credit scores that mortgage
issuers gave to unqualified buyers, through the securitization of the mortgages
and their triple-A investment grade ratings by the rating agencies (Standard
& Poor's especially, but also Moody's and Fitch) to the investment banks
that sold what the banks knew was junk to investors around the world as
investment grade securities. Indeed, Goldman Sachs was simultaneously betting
against the mortgage derivatives that it was selling to clients.
Investment banks, such as Goldman Sachs, which once considered it a matter
of honor to represent the interests of customers, took advantage of the trust
that had been built up in the past to commit fraud against customers in order to
advance the banks' short-term profits and the out-sized multi-million dollar
managerial bonuses that these fraudulent profits produced.
Morgenson and Rosner provide a number of unique accounts of how those
benefitting from fraud were able to defeat laws that were passed that would have
held them to account. For example, the state of Georgia passed perfect
legislation that held predatory lending to account. William J. Brennan Jr. and
Georgia Governor Roy E. Barnes got the Georgia Fair Lending Act through the
state legislature. It was a model for other states. As the federal regulators
had thrown in the towel, the state laws would have prevent the worst part of the
financial crisis, it not prevented the crisis altogether.
The Georgia law only lasted a few months, because the rating agencies saw
that their enormous profits from issuing fraudulent investment grade ratings
were threatened by the law. The corrupt rating agencies mischaracterized the
consumer protection act as a jihad by regulators. Standard & Poor's declared
that it would no longer allow Georgia mortgages to be placed in mortgage
securities that it rated.
In other words, Georgia mortgages could no longer be securitized. This
announcement banned Georgia mortgage lenders from securitization. Thus, the law
was overturned, and fraud ran wild.
These kind of mafia strong-armed tactics in order to protect at all costs
the short-term mega-bonuses that drove the totally fraudulent system have never
been held accountable or punished. Totally innocent people are held indefinitely
and tortured by the US government for no other reason than to convince the
gullible public that they are endangered by terrorists, but those who wiped out
the home ownership and retirement pensions of millions of Americans now hold
high and honorable positions on corporate boards and US regulatory agencies.
Federal regulatory agencies totally failed. Former chairperson
of the Commodity Futures Trading Commission
(CFTC) Brooksley Born tried to use her statutory authority to regulate
over-the-counter derivatives, but she was blocked by the Federal Reserve
chairman, the US Treasure secretary, and the SEC chairman and forced to resign.
As University of Chicago Nobel economist George Stigler predicted, regulatory
agencies are captured by those who are intended to be regulated. This was the
Regulators turned a blind eye to obvious criminal fraud, and were rewarded
with lucrative positions in the financial community. The same for the US
senators and representatives who repealed Glass-Steagal and other financial
For example, former US senator Phil Gramm who spearheaded the repeal of the
Glass-Steagall Act, which separated commercial from investment banking, the
repeal of which set up the financial crisis, was rewarded by being made vice
chairman of the mega-bank UBS, a Swiss global financial services company.
What Taibbi, Morgenson and Rosner make clear is that while monster
criminals continue to collect their multi-million dollar annual incomes,
depressed single mothers, deserted by the men who fathered their children, are
sent to prison for having small quantities of illegal drugs to boost their
depressed spirits, and their children are put up for adoption.
This is "justice" in America where there is "freedom and democracy."