Financial Sector Crime, Regulation and Reform

By: Mark_B_Rasmussen

We have had the most expensive and damaging crime wave in American history over the past few years, costing the American public $10-$11 trillion loss of net worth.  You are probably as surprised as I am about the lack of investigations, indictments and prosecutions for crimes of this size.  At last week’s G-20 meeting we heard a wonderful speech from our “Orator-In-Chief”. 

“Where reckless behavior and lack of responsibility led to crisis, we will not allow a return to banking as usual”.
“We will adopt policies needed to lay the foundation for strong, sustained and balanced growth”.
“We will have global architecture that meets the needs of the 21st century”.
“We’ve brought the global economy back from the brink”.  Time will tell!

“That struts and frets his hour upon the stage and then is heard no more: it is a tale Told by an idiot, full of sound and fury, signifying nothing.” - Shakespeare

Has the obama administration stopped privatizing profits and socializing losses?  - NO!

Has the obama administration investigated, set limits or stopped the “black box”, “high frequency”, “flash trading” (commonly 70% - 90% of all shares traded in a day)? – NO; This is where a company can “front run” their customers by buying or selling ahead of them in microseconds and then pick up a few cents or dollars per transaction ($22 billion in profits in 2008).  This is known as wealth redistribution today and used to be called STEALING!  Where are the indictments?  Where are the perp walks?  Where is the “Change We Can Believe In”?  Now that the certainty of a successful one way bet has been established for the financial criminals (heads the financial elite win, tails the American people lose), there is an even greater incentive to act recklessly and irresponsibly with impunity.

Have the bond rating agencies been investigated and prosecuted? – NO!
The bond rating agencies were paid by the issuers of bonds to rate the bonds.  The bond rating agencies rated sub prime RMBS (Residential mortgage backed securities) and other high risk trash/toxic waste AAA.  At that time there were only 7 U.S. corporations rated AAA.  This trash infected the entire world and caused, $trillions in financial losses and irreparable damage to the credibility of our “financial innovation” and engineering.  Where are the indictments?  Where are the perp walks?  Where are the prosecutions? 

Has the “Too Big to Fail” condition been mitigated in our country? – NO!  It is much worse than when the crisis started.  B of A now owns Merrill Lynch (the largest broker dealer) and Countrywide (the largest residential mortgage originator and servicing company).  Wells Fargo now owns Wachovia.  JP Morgan now owns Bear Stearns and Washington Mutual etc. 

Has the Glass Steagall Act been reenacted - NO!  The Glass Steagall Act was enacted in 1933.  After 1929, Congress examined the mixing of the “commercial” and “investment” banking industries that occurred in the 1920s. Hearings revealed conflicts of interest and fraud in some banking institutions’ securities activities. A formidable barrier to the mixing of these activities was then set up.  This law was repealed in 1999 under Clinton and after Long Term Capital collapsed in 1998.  After the collapse, Greenspan said that hedge funds didn't need any regulation because they were self regulating and were so good at managing their risk. 

Has the obama administration reduced the leverage in the financial community – NO!
In 2004 Greenspan and Christopher Cox head of the SEC thought it would be a good idea to increase broker dealer leverage from 12:1 to 40:1 with the Greenspan Put in place (implicit guarantee for the "too big to fail")-ensuring obscenely reckless practices and an inevitable collapse.  With 40:1 leverage you are insolvent with a 2.5% loss.  Now that the certainty of a successful one way bet has been established (heads the financial elite win, tails the American people lose), there is an even greater incentive to act recklessly and irresponsibly with impunity.

Were leverage caps agreed to at the G-20 summit?-NO!

Has “Naked Short Selling” been abolished?-NO!  This is where a company sells shares of stock that they have not borrowed aka counterfeiting stocks.  This is now called wealth redistribution and used to be called FRAUD & STEALING!  Where are the prosecutions?  Where are the perp walks?  Now that the certainty of a successful one way bet has been established for the financial criminals (heads the financial elite win, tails the American people lose), there is an even greater incentive to act recklessly and irresponsibly with impunity.

Have there been any prosecutions for “naked short selling”? - NO!

Has the Uptick rule been reinstated? - NO!

Were any specific rules on banks’ capital reserves announced at the G-20 summit? - NO

Has there been anything done to reduce or regulate the $600 trillion derivatives market – NO! aka “financial weapons of mass destruction” – Warren Buffet (12 times world GDP).  Do you remember AIG, Lehman Bros., Bear Stearns, Fannie Mae, Freddie Mac wiped out over a weekend?  DERIVATIVES!

Has there been a stop of the move of regulator to Wall Street and Wall Street to regulator? – NO!  A large part of the corruption of financial regulators is the very common migration from government to Wall Street or Wall Street to government?  Tim Geithner of the Federal Reserve to the Treasury, Henry Paulson from Goldman Sachs to the Treasury, Robert Rubin from Goldman Sachs to the Treasury to name a few.  There is an incentive for the regulators to not regulate or enforce regulations so that they can get lucrative jobs on Wall Street when they leave their regulatory post.  This also works the other way, where they can leave Wall Street firms and become government regulators to help themselves and their friends in the financial world most.  The most glaring example was when Henry Paulson decided to rescue AIG with $180 billion of your money and immediately give $12 billion to Goldman Sachs.  We The People were saddled with $180 billion in obligations so Goldman Sachs could get $12 billion and pay out a new record in bonuses this year.

Have position limits been established and enforced by the CFTC to prevent manipulation of commodities – NO!...look at gold and silver.

When all is said and done, it appears that much is said (and so well) and little done.

By Mark B. Rasmussen

Mark is a real estate appraiser/broker by profession

Copyright © 2008 Mark B. Rasmussen

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