Corporate personhood exists for the purpose of divorcing men like Lloyd Blankfein from the consequences of their actions. Well, I say enough: the man's metaphorical head must roll and the crime for which he bears executive responsibility must be punished. I don't even care if Goldman-Sachs experiences a corporate makeover in the process, but America cannot afford to reward this kind of behavior with taxpayer dollars.
If politicos want to obstruct reform in the name of fictitious persons set free by an amendment clearly intended solely for recently freed members of homo sapiens, there isn't much we can do. But who will have the guts to talk about corporate personhood this morning in the wake of Obama's statement? And how quickly will mention of the issue become an apologia for the role of corporations in American life today?
Corporate personhood has to end. They aren't people, and if they were people we would lock them up more often than any ethnic or national group. Goldperson-Sachsium is a species only known to legal science. It is definitely not a human, but a kind of animal.
Many animals are useful. Some animals, however, are of no use to the American people and should be treated like any vicious predator: captured, chained, and disposed.
This particular animal is no use to the American people. It's time we chained it.
People just prefer to love to hear about self-responsibility, blissfully unaware of walmart making its prices low by getting taxpayer money when not following through with the mantra that hard work gets rewarded (recall my story about my friend who went there, overheard the manager doing the rah rah dance to his employees, openly asked them if the workers would share in the profits, and got kicked out as a result). Amongst other examples of elitism stealing from this country and saying how each of us owes $x0,000 in the national debt. That's bull since when does the government work for the people? No, they work for the elitists. They can pay it back.
Or a better idea: Start anew; everyone's debt freely wiped out and everyone starts new. Every company needing bailing out (despite their taking taxpayer subsidy and the rest), every government, and us.
And before anyone says it, profits via ill-gotten means nullify any purported claim to morality or ethics.
Ezra Klein – ourfuture.orgure.org
Progress Now – 303-991-1900 – progressnow.orgw.org
Progessive Dems of America – 877-239-2093 (VOICE M or Fax)
Adm Coord – pdamerica.orgerica.org
Media Matters – 202-756-4100
Michael Moore – Dogeatdogfilms – 212-977-2068p
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Ralph Nader
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It was another disappointment in a year full of them. What has been missing most of all since the real dimensions of the meltdown became known is a sustained effort to consider our out-of-control financial system as a whole. Both Washington and Wall Street continue to see the financial crisis as a matter of toxic assets, when the entire financial system has become toxic. It is a system of overlarge and untouchable Wall Street institutions that deal in opaque products with government regulators who remain miles behind. The persistence of Wall Street as the whip hand in the global economy has begun to generate doubts about capitalism itself. The remedies being prepared by the Obama administration and the Congress amount to antidotes to the lingering poison in the system from the real-estate bubble; they do little to address the fact that the system is already generating a flood of new poison infecting the whole economy. As commissioner Brooksley Born pointed out during one of the few productive exchanges at the hearing, the four bankers' firms represent about $230 trillion worth of trade in over-the-counter derivatives, much of which is still going unmonitored (prompting another warning recently from Commodity Futures Trade Commission chairman Gary Gensler, who said in a speech that without new rules, the operation of the derivatives market will continue to be like "buying an apple from the supermarket when the price of the apple is kept private" or "buying 100 shares of a stock for your 401[k] with no knowledge of where the market prices the stock").
Bankers and regulators alike continue to characterize the disaster of the past two years as a "perfect storm," but as Angelides himself said, the creation of this system was not an act of God, but of people. Which people? Where are they? You can count on one hand the number of top executives on Wall Street and senior officials in Washington who have owned up to even a sliver of responsibility for a system that was a generation in the making.
Oh, sure, everybody is acutely aware that they have to get on the right side of public outrage. That's no doubt part of the reason why President Obama announced a new $90 billion tax levy today on big financial institutions in order to recoup losses from the TARP bailout program. "My commitment is to recover every single dime the American people are owed. And my determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at the very firms who owe their continued existence to the American people," Obama said. But this is mostly political theater. Yes, the CEOs admitted that they are addressing Wall Street's executive compensation practices, which were so central to the disaster and to the conversion of the entire real economy into a optioned-up race to drive up stock prices, come what may. Regulators—especially FDIC chair Sheila Bair, who remains ahead of the curve—are demanding new pay incentives that reward a focus on long-term corporate value, and promoting "clawbacks" of bonuses and salary for instruments that do poorly. But there's already an internal battle over Bair's proposal, and the Wall Street lobby is hovering in ominous opposition.
Above all, most of the culprits of the crisis remain in power, while those who warned most presciently about the systemic issues remain on the outside looking in. Perhaps the oddest thing about the commission's opening hearing was that Born—one of the very few heroes of the whole sordid financial mess—was the last of the 10 commissioners to ask her questions. That's the position usually reserved at congressional hearings for the most junior member of the panel. I couldn't get a straight answer from commission staff on why the only person in Washington who really predicted and understood the dangers to come, and who is clearly more qualified to chair the commission than Angelides, a political crony of Nancy Pelosi's, had been so seemingly marginalized. It seemed akin to batting A-Rod ninth in the opening game of the World Series.
A commission spokesman assured me that Born would go first the next day. Further inquiries revealed that Born was not entirely happy about starting things out with the CEOs. A distinguished lawyer who, as chairwoman of the Commodity Futures Trading Commission, warned back in 1998 that derivatives were getting out of control, only to find herself crushed by the Wall Street/Washington juggernaut, Born would have preferred to build a case more carefully. She wanted to question junior witnesses first, including key people at the Wall Street firms, and only then confront the CEOs with detailed questions about their practices, according to two sources familiar with the internal discussions (Born herself would not comment, and the commission spokesman denied there was any dispute). Bringing in the CEOs first as a headline-grabber and asking them gentle opening questions, said one observer, was like "making Richard Nixon the first witness in the Watergate hearings." Born was overruled, just as she had been in 1998, but sadly for the country, she was proved right once again. After the hearing, when JPMorgan chairman Jamie Dimon was asked why the CEOs hadn't been more apologetic, he responded that questioners have to be "very specific" about what they want him and the others to apologize for. They weren't.
Instead, Angelides asked Lloyd Blankfein of Goldman Sachs to volunteer "the two most significant" things "for which you could apologize." The Goldman CEO obligingly suggested that taking excessive leverage was a mistake, but added that this was "typical behavior" that everyone was doing. Blankfein also said he regretted some instances of Goldman's two-faced practice of selling and pitching derivatives to customers that the firm would then bet against. But in the next breath, Blankfein seemed to aggressively defend such practices because Goldman was a "market maker" that had to supply products to both sides of a transaction. Angelides never got his apology and didn't bring it up again. Nor did the commission seem to make a lot of progress in pulling together a deep and detailed narrative of what went wrong, which is what it's supposed to be doing; instead the four CEOs, our gurus of greed, were asked for advice about what America should do in the future.
What is needed is both a full understanding of what went wrong and an overhaul that would put Wall Street back in its proper place, and return it to its rightful role as an efficient supplier of capital to the real economy. When an august figure like former Federal Reserve chairman Paul Volcker declares that he hasn't seen any evidence that 20 years' worth of financial innovation has produced economic growth, we all ought to be worried. Only with a thorough overhaul can we restore the nation's flagging faith in our market system.
It's not happening. Even with all the currently proposed fixes, Wall Street is likely to remain the master of Main Street, determining compensation levels and the time horizons for strategy and growth. The financial industry is fighting every effort to dampen speculative practices, even in the derivatives market linked to basic commodities, which continues to inflate the price of oil, rice, wheat, and corn despite plentiful supplies that normally would drive prices lower. In the past decade, a frenzy of buying and holding by Wall Street—and by its customers, funds advised to keep 10 percent of their investments in commodities—has overwhelmed the physical supply and demand. As a result, in the eight years leading up to the financial crisis, "American consumers and businesses spent $1.5 trillion more on energy than they had to" because of derivatives trading, says Peter Beutel, who puts out a widely read newsletter on the energy market.
Will the Financial Crisis Inquiry Commission ever get down to this level of inquiry? Let's hope that it does. But this is not a very promising start.
Published: January 15 2010 20:35 | Last updated: January 15 2010 20:35
The American public dreams of putting bankers on trial. The hearings of the Financial Crisis Inquiry Commission, which started this week, are a spectacle that comes close to that fantasy. With camera flashes firing, the bankers’ journeys to take the stand have had the drama of the “perp walk”. The quasi-defendants were quizzed, among other things, on the White House’s new plan, revealed this week, for a $90bn tax on banks.
The proposal is political. That much is clear from the timing. The administration announced it ahead of bank bonus season. With US unemployment continuing to rise, the spectacle of Wall Street plutocrats reporting multimillion dollar earnings from bailed-out companies will trigger geysers of rage. This policy should soothe and exploit that popular anger.
EDITOR’S CHOICE
Little European support for bank levy - Jan-15
US bank levy will be tax-deductible - Jan-15
Money Supply: One cheer for banking levies - Jan-15
Lex: Obama’s levy - Jan-14
Bankers’ fury - Jan-14
FT Alphaville: From Obama to Europe, with love - Jan-15
But this is not mindless populism. Crisis interventions made US bank creditors and shareholders hundreds of billions of dollars richer. But, for its part, the commonweal is expected to lose $47bn on its initial $125bn equity injection into the banks alone. The American state has a right to correct that imbalance.
The details of the proposal will necessarily be a cause of argument. The White House has settled on using the levy to pay for losses on the troubled asset relief programme. But the reasoning for targeting this amount of money is muddled. Some Tarp losses are nothing to do with the banks, notably expected losses from the car industry bail-outs. And some financial sector costs are excluded, particularly the price of insurance policies that were put in place, and acknowledged in banks’ funding costs, but never called upon. A further complication to the levy is that customers will probably end up paying it.
There is much for reasonable people to disagree on here – and even more for politicians to dispute. But the levy is justified, and it will force the banks to cover the cost they have imposed on society. This tax will draw in cash from banks backed by foreign governments. But other states should follow suit, as Tim Geithner, the US Treasury secretary, has said.
Debate about the levy, however, must not distract from the question of how to construct a financial system where banks can fail safely. In future, it must be easier for bank debt to be turned into common equity in a crisis, and the fate of insolvent banks’ counter-parties must be made clearer to prevent the panic that followed the Lehman bankruptcy. Capital requirements must also be raised.
For cases when regulators fear a bank may be too big to fail, the authorities should work out a model for ex ante insurance premiums, payable to the state. Such a structure, combined with extra-high capital requirements for these overgrown institutions, should create strong incentives for these companies to slim down. It should, in addition, make sure that they cannot profit from the public guarantees that their bloatedness brings them. States must not continue acting as omniline insurers, guaranteeing everything for free.
The Wall Street bankers know very well how to defend themselves. It was all a matter of bad judgment, they said. And they know you can't be held responsible for that, legally or even (arguably) ethically. Lloyd Blankfein of Goldman Sachs admitted they had "rationalized" about some of their products. Rationalizing does not make you culpable. "If you're going to do everything right in business, you're going to make mistakes," the Times quotes Jamie Dimon, head of JP Morgan Citigroup. It's just how the system sometimes works, they seemed to be saying. We make mistakes, we are human.
But what a set of mistakes! When does bad judgment become serious negligence? And when you are so well -- paid when you make mistakes -- in fact, because you make mistakes. Doesn't that suggest there is more at work here than a few errors of judgment? When one commissioner rightly suggested their was no downside to bad judgment -- those who got bonuses didn't have to give all the money back -- Jamie Dimon, whose reputation is high because he avoided mortgage-backed securities when they got too risky, argued that the bankers paid for their mistakes. You lose your jobs, you lose your reputation, he said.
That comment, in a nutshell, displayed how far removed these bankers are from the real world. It reminds me of the baseball players I watch in the dugout after they lose a big game. I am upset that my Yankees lost, but some of the players are laughing. Then, I remember. He makes $5 million a year, the other makes $12 million a year. Hard to get too upset.
When Jamie Dimon loses his job (he had been fired by Sandy Weill of Citigroup back in 1998 and was devastated for a while), he may have $10 or $100 million in the bank. When typical Americans are fired, they may not be able to meet their medical expenses or send their kids to college or got to the movies -- or even keep their homes. Do these guys have a serious sense of that? Do they think their "eating their own cooking" is remotely similar to what the rest of America had to eat because of their bad cooking?
It's important to understand that when Goldman and Morgan and Bank of America and Citigroup and Merrill wrote so-called collateralized debt obligations, they were making it possible for mortgage originators to write tens of billions of dollars worth of unscrupulous mortgages -- the sub-prime mortgages including adjustable rate mortgages, no down payments mortgages, negative amortization mortgages, "liar" loans. These originators conned home owners about low interest rates interest and often encouraged them to lie about their incomes. By late 2007, the default rate on Countrywide subprime mortgages reached 28 percent. Some of these banks had their own aggressive mortgage originators, notably Citigroup and late in the game, Merrill.
So here's at least one question that the next round of bankers should be asked. Did they know they were supporting predatory and probably criminally fraudulent lending throughout America by their activities? Was this just bad judgment? If they didn't know, how could they be qualified to be a CEO of such an influential institution?
THERE may not be a person in America without a strong opinion about what coulda, shoulda been done to prevent the underwear bomber from boarding that Christmas flight to Detroit. In the years since 9/11, we’ve all become counterterrorists. But in the 16 months since that other calamity in downtown New York — the crash precipitated by the 9/15 failure of Lehman Brothers — most of us are still ignorant about what Warren Buffett called the “financial weapons of mass destruction” that wrecked our economy. Fluent as we are in Al Qaeda and body scanners, when it comes to synthetic C.D.O.’s and credit-default swaps, not so much.
What we don’t know will hurt us, and quite possibly on a more devastating scale than any Qaeda attack. Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed. Now that it can count on government bailouts, Wall Street has more incentive than ever to pump up its risks — secure that it can keep the bonanzas while we get stuck with the losses.
The window for change is rapidly closing. Health care, Afghanistan and the terrorism panic may have exhausted Washington’s already limited capacity for heavy lifting, especially in an election year. The White House’s chief economic hand, Lawrence Summers, has repeatedlyannounced that “everybody agrees that the recession is over” — which is technically true from an economist’s perspective and certainly true on Wall Street, where bailed-out banks are reporting record profits and bonuses. The contrary voices of Americans who have lost pay, jobs, homes and savings are either patronized or drowned out entirely by a political system where the banking lobby rules in both parties and the revolving door between finance and government never stops spinning.
It’s against this backdrop that this week’s long-awaited initial public hearings of the Financial Crisis Inquiry Commission are so critical. This is the bipartisan panel that Congress mandated last spring to investigate the still murky story of what happened in the meltdown. Phil Angelides, the former California treasurer who is the inquiry’s chairman, told me in interviews late last year that he has been busy deploying a tough investigative staff and will not allow the proceedings to devolve into a typical blue-ribbon Beltway exercise in toothless bloviation.
He wants to examine the financial sector’s “greed, stupidity, hubris and outright corruption” — from traders on the ground to the board room. “It’s important that we deliver new information,” he said. “We can’t just rehash what we’ve known to date.” He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened.
Angelides gets it. But he has a tough act to follow: Ferdinand Pecora, the legendary prosecutor who served as chief counsel to the Senate committee that investigated the 1929 crash as F.D.R. took office. Pecora was a master of detail and drama. He riveted America even without the aid of television. His investigation led to indictments, jail sentences and, ultimately, key New Deal reforms — the creation of the Securities and Exchange Commission and the Glass-Steagall Act, designed to prevent the formation of banks too big to fail.
As it happened, a major Pecora target was the chief executive of National City Bank, the institution that would grow up to be Citigroup. Among other transgressions, National City had repackaged bad Latin American debt as new securities that it then sold to easily suckered investors during the frenzied 1920s boom. Once disaster struck, the bank’s executives helped themselves to millions of dollars in interest-free loans. Yet their own employees had to keep ponying up salary deductions for decimated National City stock purchased at a heady precrash price.
Trade bad Latin American debt for bad mortgage debt, and you have a partial portrait of Citigroup at the height of the housing bubble. The reckless Citi executives of our day may not have given themselves interest-free loans, but they often walked away with the short-term, illusionary profits while their employees were left with shredded jobs and 401(k)’s. Among those Citi executives was Robert Rubin, who, as the Clinton Treasury secretary, helped repeal the last vestiges of Glass-Steagall after years of Wall Street assault. Somewhere Pecora is turning in his grave
Rubin has never apologized, let alone been held accountable. But he’s hardly alone. Even after all the country has gone through, the titans who fueled the bubble are heedless. In last Sunday’s Times, Sandy Weill, the former chief executive who built Citigroup (and recruited Rubin to its ranks), gave a remarkable interview to Katrina Brooker blaming his own hand-picked successor, Charles Prince, for his bank’s implosion. Weill said he preferred to be remembered for his philanthropy. Good luck with that.
Among his causes is Carnegie Hall, where he is chairman of the board. To see how far American capitalism has fallen, contrast Weill with the giant who built Carnegie Hall. Not only is Andrew Carnegie remembered for far more epic and generous philanthropy than Weill’s — some 1,600 public libraries, just for starters — but also for creating a steel empire that actually helped build America’s industrial infrastructure in the late 19th century. At Citi, Weill built little more than a bloated gambling casino. As Paul Volcker, the regrettably powerless chairman of Obama’s Economic Recovery Advisory Board, said recently, there is not “one shred of neutral evidence” that any financial innovation of the past 20 years has led to economic growth. Citi, that “innovative” banking supermarket, destroyed far more wealth than Weill can or will ever give away.
Even now — despite its near-death experience, despite the departures of Weill, Prince and Rubin — Citi remains as imperious as it was before 9/15. Its current chairman, Richard Parsons, was one of three executives (along with Lloyd Blankfein of Goldman Sachs and John Mack of Morgan Stanley) who failed to show up at the mid-December White House meeting where President Obama implored bankers to increase lending. (The trio blamed fog for forcing them to participate by speakerphone, but the weather hadn’t grounded their peers or Amtrak.) Last week, ABC World News was also stiffed by Citi, which refused to answer questions about its latest round of outrageous credit card rate increases and instead e-mailed a statement blaming its customers for “not paying back their loans.” This from a bank that still owes taxpayers $25 billion of its $45 billion handout!
If Citi, among the most egregious of Wall Street reprobates, feels it can get away with business as usual, it’s because it fears no retribution. And it got more good news last week. Now that Chris Dodd is vacating the Senate, his chairmanship of the Banking Committee may fall next year to Tim Johnson of South Dakota, home to Citi’s credit card operation. Johnson was the only Senate Democrat to vote against Congress’s recent bill policing credit card abuses.
Though bad history shows every sign of repeating itself on Wall Street, it will take a near-miracle for Angelides to repeat Pecora’s triumph. Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesn’t even match the lobbyingexpenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009. The firms under scrutiny can pay for as many lawyers as they need to stall between now and Dec. 15, deadline day for the commission’s report.
More daunting still is the inquiry’s duty to reach into high places in the public sector as well as the private. The mystery of exactly what happened as TARP fell into place in the fateful fall of 2008 thickens by the day — especially the behind-closed-door machinations surrounding the government rescue of A.I.G. and its counterparties. Last week, a Republican congressman, Darrell Issa of California, released e-mail showing that officials at the New York Fed, then led by Timothy Geithner, pressured A.I.G. to delay disclosing to the S.E.C. and the public the details on the billions of bailout dollars it was funneling to its trading partners. In this backdoor rescue, taxpayers unknowingly awarded banks like Goldman 100 cents on the dollar for their bets on mortgage-backed securities.
Why was our money used to make these high-flying gamblers whole while ordinary Americans received no such beneficence? Nothing less than complete transparency will connect the dots. Among the big-name witnesses that the Angelides commission has called for next week is Goldman’s Blankfein. Geithner, Henry Paulson and Ben Bernanke should be next.
If they all skate away yet again by deflecting blame or mouthing pro forma mea culpas, it will be a sign that this inquiry, like so many other promises of reform since 9/15, is likely to leave Wall Street’s status quo largely intact. That’s the ticking-bomb scenario that truly imperils us all.
