So here's the simple picture: When someone like baseball pitcher Roger Clemens is being investigated, the state tries to put the man in jail for lying to Congress. But Dick Fuld gets a pass for the exact same offense.
Fuld was named the worst CEO of all time by Portfolio magazine. As the company's CEO, Fuld presided over Lehman during this period when it was engaged in all sorts of crimes. Aside from this matter of helping Fuld hide his own personal income, Lehman, during the last few years of its existence, was engaged in some very, very shady transactions called "Repo 105" transactions. This was a kind of Enron-esque accounting scheme where they were essentially borrowing tens of billions of dollars at the end of every quarter and then booking (claiming) all that money as revenue, so as to make the company look very profitable to potential and current investors. So, if you were an investor in Lehman Brothers and you're looking at their bottom line, you're thinking, "Hey, they're making a lot of money. They're doing great." In fact, the "profits' they were looking at was all borrowed money, and after the quarter was over Lehman had to repay that money to their creditors. And after arranging and authorizing this massive deception and fraud, it was guys like Fuld who were cashing out of Lehman while everybody else was staying in and buying in, based on the false picture that Fuld and Lehman created for them. This is fraud. Criminal fraud.
The interesting thing about the Fuld case is that Lehman had been taking advantage of a loophole in the SEC's rules in the early part of the 2000s, which enabled the company to misreport Fuld's income. Then the SEC noticed that this practice was very widespread, and they created a new rule specifically to target this kind of income-hiding that Fuld was engaged in. They created the rule, saw clear cases of this rule being violated, and they usually chose not to do anything about it. So, even when we do have regulation on Wall Street, the laws are really often meaningless, because you need someone who has the will to prosecute, the will to investigate, to make the laws and rules real. The reality, however, is that such laws are applied selectively, when, for whatever reason, the SEC is out to "get" somebody.
Has anyone gone to jail?
Well, Bernie Madoff. But Madoff, compared to all these other guys, is really small potatoes. He's also not really representative of what mainly went on, on Wall Street, during this period. He's just a garden variety Ponzi-scheme con artist. Of course, he did it on a much bigger scale than most Ponzi-scheme con artists, but this is a crime that could have happened in the '20s, the '30s, the '40s. It had nothing to do with this incredibly sophisticated, complex criminal fraud scheme involving the mortgage bubble and the sale of these phony-baloney mortgage-backed securities. Madoff had nothing to do with that stuff.
So what are the repercussions of what happened? What did the 2008 crash mean?
Basically what we had here was the collapse of a giant bubble scheme. When the banksters pumped the whole country full of these defective investment vehicles, i.e. these defective mortgages bundled up into marketable securities, to be fraudulently sold to chumps, it created a very, very dangerous situation for the entire country. When the housing market went south, as everyone should have known it eventually would, these "weapons of mass deception" ended up essentially bankrupting or fatally cheating and wounding pension funds and insurance companies and banks all over the country. And so, now we're all paying for all these phony deals, which in their totality, amounted to one giant scam.
When the banksters flooded the market with these soon-to-be-toxic securities, many of them were smart enough to realize that they were eventually going to blow, so they started betting against them. How did they do that? They went to insurance companies like AIG, and they took out literally trillions of dollars of what are called credit default swaps (a kind of insurance policy) on these mortgages -- i.e. the mortgages that made up the mortgage backed securities being marketed -- so that when those securities all blew up, it blew up some of these companies, like AIG, that had majorly overextended themselves by writing trillions of dollars of insurance policies that they had absolutely no way to pay off in the event that too many of the insured investments went bad. And that's what the bailout was really all about. The bailout wasn't really to pay off real losses in these mortgages. It was really to pay off the bets on these mortgages -- the bets that were placed by way of the insurance policies that had been written on them, bets that would pay off in the event that the mortgages went south. So, not only did the banksters flood the market with a trillion dollars of defective "merchandise' (the mortgage-backed securities), they also got the United States taxpayer to pony up $7 trillion worth of bailout money to pay off their bets on all this stuff. This is, then, what people are referring to when they talk about a $7 trillion theft. Example: The New York Times reported as follows:
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