Archive for the ‘Wall Street’ Category
The great mystery story in American politics these days is why, over the course of two presidential administrations (one from each party), there’s been no serious federal criminal investigation of Wall Street during a period of what appears to be epic corruption. People on the outside have speculated and come up with dozens of possible reasons, some plausible, some tending toward the conspiratorial – but there have been very few who’ve come at the issue from the inside.
We get one of those rare inside accounts in The Payoff: Why Wall Street Always Wins, a new book by Jeff Connaughton, the former aide to Senators Ted Kaufman and Joe Biden. Jeff is well known to reporters like me; during a period when most government officials double-talked or downplayed the Wall Street corruption problem, Jeff was one of the few voices on the Hill who always talked about the subject with appropriate alarm. He shared this quality with his boss Kaufman, the Delaware Senator who took over Biden’s seat and instantly became an irritating (to Wall Street) political force by announcing he wasn’t going to run for re-election. “I later learned from reporters that Wall Street was frustrated that they couldn’t find a way to harness Ted or pull in his reins,” Jeff writes. “There was no obvious way to pressure Ted because he wasn’t running for re-election.”
Kaufman for some time was a go-to guy in the Senate for reform activists and reporters who wanted to find out what was really going on with corruption issues. He was a leader in a number of areas, attempting to push through (often simple) fixes to issues like high-frequency trading (his advocacy here looked prescient after the “flash crash” of 2010), naked short-selling, and, perhaps most importantly, the Too-Big-To-Fail issue. What’s fascinating about Connaughton’s book is that we now get to hear a behind-the-scenes account of who exactly was knocking down simple reform ideas, how they were knocked down, and in some cases we even find out why good ideas were rejected, although some element of mystery certainly remains here.
There are some damning revelations in this book, and overall it’s not a flattering portrait of key Obama administration officials like SEC enforcement chief Robert Khuzami, Department of Justice honchos Eric Holder (who once worked at the same law firm, Covington and Burling, as Connaughton) and Lanny Breuer, and Treasury Secretary Tim Geithner.
Most damningly, Connaughton writes about something he calls “The Blob,” a kind of catchall term describing an oozy pile of Hill insiders who are all incestuously interconnected, sometimes by financial or political ties, sometimes by marriage, sometimes by all three. And what Connaughton and Kaufman found is that taking on Wall Street even with the aim of imposing simple, logical fixes often inspired immediate hostile responses from The Blob; you’d never know where it was coming from.
In one amazing example described in the book, Kaufman decided he wanted to try to re-instate the so-called “uptick rule,” which had existed for seventy years before being rescinded by the SEC in 2007. The rule prevents investors from shorting a stock until the stock had ticked up in price. “Forcing short sellers to wait for the price to tick up before they sell more shares gives a breather to a stock in decline and helps prevent bear raids,” Connaughton writes.
The uptick rule is controversial on Wall Street – I’ve had some people literally scream at me that it doesn’t do anything, while others have told me that it does help prevent bear attacks of the sort that appeared to help finally topple already-mortally-wounded companies like Bear Stearns and Lehman Brothers – but what’s inarguable is that Wall Street hates the rule. Hedge fund types or employees of really any company that engages in short-selling will tend to be most venomous in their opinions of the uptick rule.
Anyway, Connaughton and Kaufman were under the impression that new SEC chief Mary Schapiro would re-instate the uptick rule after taking office. When she didn’t, Kaufman wrote her a letter, asking her to take action. When that didn’t do the trick, he co-sponsored (with Republican Johnny Isakson) a bill that would have required the SEC to take action.
Nothing happened, and months later, Kaufman gave a grumbling interview to Politico about the issue. One June 30, the paper’s headline read: “Ted Kaufman to SEC; Do Your Job.”
The next day, the Blob bit back. Connaughton was in the basement of the Russell building when a Senate staffer whose wife worked for Shapiro shouted at him. From the book:
“Hey, Jeff, you’re in the doghouse.” He meant: with his wife.
“Why?” I asked.
“That Politico piece by your boss.”
I was taken aback but tried to downplay the matter. “We just want the SEC to get its work done.”
“Remember,” he said. “We all wear blue jerseys and play for the Blue Team. I just don’t think that helps.”
When Connaughton told Kaufman over the phone what the staffer said, Kaufman exploded. “You call him back right now and tell him I said to go fuck himself in his ear,” Kaufman said.
Similarly, when Kaufman tried to advocate for rules that would have prevented naked short-selling, Connaughton was warned by a lobbyist that it would be “bad for my career” if he went after the issue and that “Ted and I looked like deranged conspiracy theorists” for asking if naked short-selling had played a role in the final collapse of Lehman Brothers. Naked short-selling is another controversial practice. Essentially, when you short a stock, you’re supposed to locate shares of that stock before you go out and sell it short. But what hedge funds and banks have discovered is that the rules provide “leeway” – you can go out and sell shares in a stock without actually having it, provided you have a “reasonable belief” that you can locate the shares.
This leads to the obvious possibility of companies creating false supply in a stock by selling shares they don’t have. Without getting too much into the weeds here, there is an obvious solution to the problem, which essentially would be forcing companies to actually locate shares before selling them. In their attempt to change the system, Kaufman and Connaughton discovered that the Depository Trust Clearing Corporation, the massive quasi-private organization that clears most all stock trades in America, had come up with just such a fix on their own. Kaufman recruited some other senators to endorse the idea, and as late as 2009, Connaughton and Kaufman were convinced they were going to get the form. “I said to Ted, ‘We’re going to change the way stocks are traded in this country.’”
But before the change could be made, Goldman, Sachs issued “data” showing that there was “no correlation” between naked short selling and price movements. When Connaughton asked an Isakson staffer what the data said, the staffer, intimidated by Goldman, replied, “The data proves we’re full of shit.” Connaughton looked at the data and realized instantly that it was a bunch of irrelevant gobbledygook, even firing off an angry letter to Goldman telling them the tactic was beneath even them.
But Goldman’s tactic worked. A roundtable to discuss the idea was scheduled by the SEC on September 24, 2009. Of the nine invited participants, “all but one” were for the status quo. Connaughton expected the DTCC representatives to unveil their reform idea, but they didn’t:
Afterwards, I went over to [the DTCC representatives] and asked, “What happened?” Sheepishly, and to their credit, they admitted: “We got pulled back.” They meant: by their board, by the Wall Street powers-that-be.
Essentially the same thing happened in Kaufman’s biggest reform attempt, the amendment to the Dodd-Frank bill he co-sponsored with Ohio’s Sherrod Brown, which would have broken up the Too-Big-To-Fail banks. But the Brown-Kaufman amendment, which was really the meatiest thing in the original Dodd-Frank bill, the one reform that really would have made a difference if it had passed, just died in the suffocating mass of the Blob. The key Democrats one after another failed to line up behind it, and in the end it was defeated soundly, with Dick Durbin, the number two man in the Democratic leadership, giving it this epitaph: “a bridge too far.”
Again, those interested in understanding the mindset of the people who should be leading the anti-corruption charge ought to read this book. It’s the weird lack of concern that shines through, like Khuzami’s comment that he’s “not losing sleep” over judges reprimanding his soft-touch settlements with banks, or then Southern District of New York U.S. Attorney Ray Lohier’s comment that the thing that most concerned him – this is the period of 2008-2009, the middle of a historic crimewave on Wall Street – was “cyber crime.”
On the outside we can only deduce the mindset from actions and non-actions, but Connaughton’s actually seen it, and with the book you get to see it too. It’s scary and definitely worth a read.
Matt Taibbi – Rolling Stone Magazine
A federal crackdown is proceeding quietly against bankers accused of systematically defrauding states, local governments and non-profits.
Since 2009, federal authorities have secured 19 convictions or guilty pleas as part of the investigation, including seven since April. The cases have put a spotlight on the municipal bond market, an esoteric corner of the finance world where prosecutors say Wall Street firms have repeatedly used inside information to pad their bottom lines at the public’s expense.
“[T]hese complex, seemingly uninteresting backroom deals have a real impact on taxpayers,” Richard Weber, head of the Internal Revenue Service’s criminal division, said following the convictions of three former UBS bankers last month.
So let me ask the silly question that nobody is asking – have these deals been unwound or have the guilty institutions been forced to cough up every single dime of ill-gotten gain back to the municipal government that got bilked, including all the fees from the fraudulent scheme and every dollar of excess interest resulting from the bid-rigging?
Or did the beneficiaries get to keep some or all of what they stole and did the taxpayers get and are continuing to get financially raped?
I remind everyone that in the case of Jefferson County Alabama the 400% sewer and water bill increases remain even though some of the people involved were prosecuted and convicted.
If the taxpayers were not made whole and the institutions that were involved were not forced to remit to those taxpayers every single dime of ill-gotten gains, with interest, along with every dime of fees they “earned” through these fraudulent deals then in point of fact the crime still did pay even if there have been a few limited prosecutions of “the little people” at the bottom who were involved.
Burn Wall Street: An Update from Otto Von Danger
I was fortunate enough to receive an update from Otto Von Danger on the progress of his large scale installation for this year’s Burning Man: Burn Wall Street.
Otto’s been part of the Burning Man landscape for quite a while now, first as part of the Man Crew, building the Man and Man base and then branching out to work on other projects such as the yearly return of his Frog Bat , Burning Man 2010′s Megatropolis and his Hippie/Raver Powered Lawn Chair. If you know him, you know he is driven to create large tangible things with a sense of humor and his work is not only interactive but he enjoys blowing it up before he burns it much to the delight of all.
Burn Wall Street is his most ambitious project to date and he told me, “I’ve always been political, but this is my first art with a political meaning” and his aim is simple. Burn Wall Street is a fiercely “non-partisan to the core” installation that touches on everything from the Bill of Rights and Voter turnout to what Otto says are the two main goals of his piece:
Get Money Out of Politics and Regulate Wall Street.
Otto explains this as only he can,
Both left and right, the Tea Party and the Occupy Movement, they’re always fighting about these wedge issues, but Burn Wall Street wants them to put that BS down for a minute, put away your Bibles and Manifestos, and come together to accomplish two things. We need to TAKE THE MONEY OUT OF POLITICS and make it an even process with a constitutional amendment so the courts can’t come back and fuck us, and then we have to actually REGULATE WALL STREET. If they can put a kid in prison for selling drugs, they should be able to put a banker who steals millions of dollars in jail… really in prison, where they can introduce him to his new life partner Bubba. No more slaps on the wrist. These people are robbing your grandmother and my grandmother and everyone’s kids and walking scot free.
Once that’s taken care of, right and left can go back to bickering over their wedge issues, but this needs to be done now.
Mike Matel paints the Bill of Rights
The press loves tension between the Right and the Left. Mr. Von Danger says, “There is both left and right at Black Rock City but Burning Man supersedes that kind of shit. It is the perfect place for a project like this.” He was interviewed by NPR at KUNR this week and you can hear the interview here.
In keeping with the idea of coming together, Burn Wall Street is trying to get speakers from all sides of our politics to speak at the 9 am keynote speeches throughout the week including Sharron Angle to give the Tea Party point of view,Ron Paul to deliver his Libertarian thoughts and Reverend Billy to discuss Occupy Wall Street.
Currently his team is prefabricating the buildings and working on the Bull at the Salvagery which he says is the “NIMBY of Reno”. Another Burning Man project, Pier 2 is also being worked on in the same space. They have the first two buildings,Chaos Manhattan Bank and Meryl Lynched near completion and will be hitting the playa with trucks full of the project on August 12th. Murals for the insides of the buildings are being painted now.
They believe they will are placed between 9:00 and the Man, slightly behind the promenade that goes from 3:00 to 9:00. There won’t be any way to miss Burn Wall Street as Otto says, “It’s bigger than the Man and the Temple combined and the tallest building, the Goldman Sucks Building at nine stories and 72 feet will be the highest point where you can climb to and see the playa, up the twisted jungle gym inside.”
Desert Arts Preview
I saw Otto Von Danger and Joe Olivier, aka Exact Lee, Burn Wall Street’s Facilitator and Executive Producer, speak at the Desert Arts Preview in San Francisco a few weeks back and Otto made it very clear that Tecate Park, the BWS version of Zuccotti Park where spontaneous camp cities sprang up during the Occupy protests, was in no way to have Burners Occupying it with tents and encampments because the powers that be do not allow camping directly on that particular spot on the playa. So… occupying Tecate Park would be something Burn Wall Street certainly discourages, even if it would reinforce the interactivity of the space that is entirely inspired by the real Occupy camps and protests in New York City. Got it?
Daily at 9:00am there will be keynote speakers and the ringing of the Wall Street Bell and one of the more sublime happenings at BWS will be in the Bank of UnAmerica where Participants are encouraged to bring in pinks slips and foreclosure notices to tack to the walls to be burnt when the entire structure is incinerated on Friday night at 9.
And with the Friday night burn will be a highly guarded pyrotechnic display that Otto says, will be “something never seen before, not one big boom, but lots and lots of them” and Exact Lee put it well at the Desert Art Preview when he said, “I promise you that when our pyroshow starts on Friday night, you will be in fear for your physical safety.”
Burn Wall Street Buck by David Silverman
The Burn Wall Street crew is a cohesive bunch this year and Mr. Von Danger invites people who are still looking to get involved to go to the website and send your resume to Otto Von Danger (firstname.lastname@example.org). There is a lot of work still to do and if you can work in Reno before the event you can then work on playa to install it. If you can’t volunteer your time and skills, you can always donate money and or supplies using the URLs below:
Burning Man Spark call out for stuff
While they are a funded Honorarium project, the project is currently about 16 thousand dollars short of their goal and could use a donation from you for any amount. With your cash donations you are buying “collateral debt obligations that are guaranteed to fail” that can be redeemed for Burn Wall Street Bucks designed by Black Rock City’s one and only Tubador (aka David Silverman).
Otto also sends this warning, “While redeeming your BWS Bucks at the Chaos Manhattan Bank be aware that Chaos Manhattan will charge you for standing on the floor, looking out the window, using a pen or talking to a teller so by all means don’t ask the teller for a pen.”
Burn Wall Street can be found on the web at:
Over two years ago a story I heard and the economic trends inspired me to write “I Wanna Be A Pirate”. The lyrics sat in a drawer until last summer when a song with a similar theme was released. That song was “They’re Shuttin Detroit Down”. It was time to put music to “The Pirate”. For more on I wanna be a pirate visit us at makethemwalktheplank.com — Ed Waters
Wake up America – We’re being screwed!
A few years ago I heard a story about a regular guy who, through no fault of his own, kept losing jobs due to outsourcing and insourcing. That story is what prompted me to write “I Wanna Be A Pirate”. This man’s factory was shut down and the manufacturing was sent to China (probably with the help of your tax dollars). So he went back to school and got an IT degree. Guess what? He lost that job too because there is a visa program that brings folks into this country who will generally work for less than Americans. That’s what it’s like to be an American worker today! While all our politicians are talking about creating jobs, behind your back they have voted to pass trade agreements that end up sending your jobs to China, India, Mexico, anywhere cheap labor can be found. This started under President Reagan, but really took off under the Clinton and Bush administrations. That’s right – no one party is to blame. Mark Bello, an attorney I met online, reminds me that, while many Americans are losing their jobs, many more Americans are being damaged from tainted products being imported from China, etc. So we lose our jobs and are then rewarded with cheap, dangerous products.
It costs a lot of money to run for re-election. Did you know a good part of your elected officials time is spent trying to raise money for this very thing? Where do you think they get that money? They get it primarily from lobbyists who represent special interests. So while your elected official is telling you how much he or she cares about your issues, they are really doing whatever special interests tell them to do. Our hope for America’s future is being destroyed because our politicians are for sale to the highest bidder.
Wall Street gave the vast majority of their donations to Barack Obama in 2008. In 2012 the majority of their donations are now going to Mitt Romney. Wall Street never backs a loser and they put their money on the candidate that they think will protect them from prosecution and ensure their free-for-all. Best to make a note of their current position and beliefs.