In her book Third World America, Arianna Huffington urged us to break "the choke hold that special interest money has on our politics." (P. 172) Congress allowed no-strings bailouts during the 2008 financial crisis and ongoing impunity and benefits for connected Wall Street banks. Yet there has been little accountability and no high profile indictments for widespread financial fraud.
Jon Corzine: Buying the Hearts and Minds of Congress and the White House
On October 31, MF Global went bankrupt under circumstances that suggest a classic situation for fraud. MF Global's Chairman of the Board and CEO was Jon Corzine, former Goldman Sachs CEO, former U.S. senator (D., New Jersey), and former governor of New Jersey. On November 4, 2011, Corzine resigned as head of MF Global. Customer money to the tune of $600 million to $1.2 billion is still missing. JPMorgan was MF Global's largest secured creditor. Corzine either can't or won't explain what happened. He offers neither a theory nor an expert opinion.
(See also: "Rehypothecation Is An Old Story: MF Global's Story Is a Different Story of Filched Funds," and "MF Global Revelations Keep Getting Worse." )
Jon Corzine was a huge fundraiser, a "bundler" accumulating contributions from other people for campaigns for the Democratic Party. The Center for Responsive Politics reported that Corzine and his first and second wives contributed a combined $917,000 to Democratic committees and candidates over a 20-year period. Since April 2011, Corzine bundled in excess of $500,000 for President Obama's re-election campaign.
On December 24, 2011, it was announced that President Obama returned direct contributions of $70,000 from Corzine and his wife, Sharon Elghanayan. They had each given the maximum allowable amount of $30,800 to the Democratic National Committee (DNC) and $5,000 to President Obama's campaign.
Of course the DNC and President Obama can't distance themselves fast enough from Jon Corzine now. But if this is to be more than a political stunt, they should toss back the $500,000 that Corzine raised from his friends on Wall Street.
Arianna wrote that both corporate and financial interests have "captured our leaders' hearts and minds... Obama's senior economic advisors believe we live in a Wall Street-centric universe." (Third World America Pp. 151-152.)
A Few Good Men and Women
A few members of Congress fight for the rights of taxpayers and for the system of justice we used to expect in the United States before special interest groups bought much of Congress.
Representative Marcy Kaptur is a fierce fighter for justice not only for her constituents but for all Americans. She's not alone. The MF Global hearings revealed that a mix of Democrats and Republicans stand up for what is right, but there are members of Congress on both sides of the aisle that don't.
Representative Hayworth: "Goldman Sachs former partners... respect you greatly."
Financial firms like Goldman Sachs spread their money around and contribute to the campaigns of both Democrats and Republicans.
During the hearings of the House Financial Services Committee hearing on December 15, 2011, Representative Nan Hayworth (R., New York) treated Corzine like a royal that had misplaced his crown instead of the CEO of a bankrupt company with hundreds of millions or more of customer money missing under suspicious circumstances: "Governor Corzine, Mr. Abelow [former COO of MF Global]... I know Goldman Sachs former partners who know both of you and respect you greatly... I hope... you will employ your talents and your minds to enlightening us as to how we can prevent... this from ever happening again."
Later she referred to Corzine's career as "rather stellar... to say the least." If she had spoken to customers of MF Global that found money missing from their "segregated" accounts, she would have heard a different point of view.
In the two previous Congressional hearings both Corzine and Abelow had stonewalled and dodged. These aren't the guys to ask about prevention, unless Representative Hayworth wants their advice on how not to run a financial firm. Corzine was chairman, CEO, and initiator of an enormous risky trade, a net "off-balance-sheet" position of $6.3 billion in sovereign debt disclosed in MR Global's March 2011 annual report. He was in a position to overrule any risk manager. He got rid of one risk manager critical of his trades and installed another. Corzine is the poster child for worst practices in controls and corporate governance.
Representative Huizenga: "Thousands feel cheated"
In the December 15 hearings, Representative Bill Huizenga (R. Michigan) pressed Corzine and got him to admit he was a detail guy "in markets and client activities." Corzine said that in areas of his expertise he is "very hands on."
Huizenga pointed out that the commingling of customer funds is serious. People lose law licenses and real estate brokerage licenses over it. "That's why you're seeing such anger and hostility over this." He challenged Corzine's claiming that he didn't recall details and said it "doesn't ring true."
Huizenga continued: "This certainly doesn't feel or look like you were caring for those other people's money in the way that you should have or certainly were expected to." None of Corzine's money was at risk in these accounts. The representative summed up: "You've got thousands of hard working people around this country that feel cheated."
Are the Congressmen From New Jersey Going Easy on Corzine?
The three Congressional hearings investigating the MF Global bankruptcy have so far had no teeth. During the Senate Agriculture Committee hearings on Tuesday, December 13, 2011, Senator Mike Johanns (R. Nebraska) expressed his disbelief at the representations made by officers of MF Global. The officers had claimed ignorance of the circumstances of the missing money.
Senator Johanns responded: "There must have been many many [sic] people who knew that money was being drained out of client accounts... do you realize how incredible [your claim of ignorance] sounds to this committee?"
Yet Senator Robert Menedez (D., New Jersey) later said: "After three hearings, I don't know what more we'll learn that we don't know today." Menendez is on the Senate banking committee, which hasn't held any hearings. This is strange, because the Senate banking committee is the only one that oversees MF Global's regulators. The senator took the seat vacated by Jon Corzine when he became governor of New Jersey. Menendez is a good politician, since he didn't rule out a Senate banking committee hearing if new facts come up. But it is the purpose of investigations and robust hearings to uncover the facts in the first place.
When it comes to fraud, if you don't look for it, you don't find it, because when it comes to fraud, there is always a cover-up.
Representative Kaptur on MF Global: "I believe most of us would call that theft."
Representative Marcy Kaptur is not on any of the aforementioned committees, but she has been following the hearings in both the House of Representatives and the Senate. She read her special order into the Congressional Record:
"The fact that 'customer accounts were not intact,'' as [CFTC] Commissioner Sommers described it, means that someone took other people's money. I believe most of us would call that theft. Even if some of the money is recovered by the bankruptcy process, that does not alter the fact that the process by which customer accounts were violated broke the law."
Excerpt from Representative Marcy Kaptur's Special Order on MF Global December 14, 2011.
Representative Kaptur has experience debunking Wall Street's spin. Bank of America's officers withheld material information from shareholders concerning losses and bonus payments related to its takeover of Merrill Lynch during the 2008 financial crisis. Bank of America wildly overpaid for the acquisition and taxpayer bailouts were needed as the extent of losses became apparent. Bonus payments of $3.6 billion were given to Merrill Lynch executives as the firm imploded and was sold to Bank of America. Merrill lost $27 billion in 2008.
"Bank of America agreed to pay a $33 million fine to the SEC but -- you guess it -- admit no wrongdoing. A heroic U.S. district judge, Jed Rakoff, refused to rubber-stamp the deal, which he called a breach of 'justice and morality' that 'suggests a rather cynical relationship between the parties.'" Third World America P. 154
The SEC and Bank of America then cooked up a $150 million settlement. This is a classic negotiation ploy among the captured "regulators" at the SEC whose next job is often a lucrative position dependent on Wall Street for revenues. It's called lowballing. You set the expectations so low that you can increase your initial offer by multiples and it will still be a bad-faith joke on the party with whom you settle. Judge Rakoff reluctantly accepted the new settlement of only $150 million, since he felt bound by judicial restraint.
Congresswoman Marcy Kaptur (D., Ohio) took on this issue and more when she grilled then Secretary of the Treasury Henry ("Hank") Paulson and former CEO of Goldman Sachs:
"Your orchestration yielded... an unprecedented dumping of private sector losses on the U.S. taxpayer. History will show that the U.S. government and you knew about Wall Street's growing losses long before the Bank of America / Merrill merger. In fact, Bank of America's purchase of Countrywide in January 2008 was but another positioning of private sector interests in preparation for what I call the greatest Hail Mary pass of all time in taking those Wall Street losses and placing them on the next three generations. What interests me is who you helped and who you didn't."
Goldman Sachs was a major beneficiary of bailouts and continued to pay its employees high bonuses. Warren Buffett got a sweetheart deal for injecting $5 billion into Goldman Sachs. Taxpayers injected $10 billion into Goldman Sachs -- among other extremely lucrative ongoing benefits -- and got a vastly inferior deal with timing of the unwind controlled by the borrower, Paulson's former firm, Goldman Sachs.
Janet Tavakoli is the author of an upcoming e-book: MF Global: A Classic Situation for Fraud.
She is a credible critic of the shenanigans in the finance industry.
I wonder why you haven't been all along, attacking the utter lack of regulation to rule out even the possibility of fraud. I wonder why you haven't been calling for specific and detailed ways in which we can separate commercial banking out from the rest entirely.
Your article seems to be completely leaving out all those at MF Global who were there before Corzine joined them, and what their roles in all this may be. It sure seems odd to me that suddenly all this money is missing, but only (according to your presentation) after Corzine arrived. I find that odd and highly unlikely. It would seem logical that a slow syphoning off of the funds would have been more unlikely seen, and more easily accomplished over years. So let us see what the full facts are before you come out slamming people.
Underhanded gerrymandering here in Ohio is placing her in opposition to Dennis Kucinich. We need BOTH of these good people. Honest and fearless and smart!
Both parties are complicit in this financial fraud....
In June 2007, Man Financial was spun off from Man Group as a separate, public entity, via an IPO, and renamed MF Global....in less than a year, with that first CEO, had unauthorized trading in customer accts, huge fines and was on its' knees. (see below as to his current occupation) Then, Bernard Dan tried it for a couple years. He stepped down in 2010 for "personal reasons" and ended up at the helm of another corporation....
Kevin Davis, the former CEO for the now bankrupt futures and options brokerage firm, joined City CFO John Liu’s Bureau of Asset Management (BAM) Sept. 6, this according to Comptroller spokesperson Matthew Sweeney.
A real book might be interesting
Excerpt from Representative Marcy Kaptur's Special Order on MF Global December 14, 2011.
The people of Ohio who voted for this woman should be very proud of her, and of themselves for electing a more-or-less competent and honest politican.
Wall Street is useless. They have gone beyond the restraints of rationality and common sense and simply do not need to exist.
The banks must be broken up after being separated by a Glass-Steagall replacement. It's time that everyone who profits from high risk strategies be put into the position of not only being able to gain, but solely responsible for bearing any losses. Failure must be their only option for excessive stupidity.
http://www.citizen.org/documents/FinanceReregulationFactSheetFINAL.pdf
To Rescue Main Street, We Need to Curb the WTO
"...Starting in the late 1970s, the U.S. government and corporations pushed to redefine “finance” from a service that supports the real economy to a tradable commodity whose flow across borders should be uninhibited. Starting in the late 1980s, they successfully pushed for financial services to be included in “trade” negotiations, including those establishing the World Trade Organization (WTO). “The sector was truly unique in that respect, and there is little doubt within the trade policy community that financial sector support in the European Union and the United States was a determining force in concluding the FSA [WTO Financial Services Agreement]” notes a study posted on the WTO’s own website “Financial Services and the WTO: What Next?”
The WTO rules require deregulation – and lock-in – of financial services that countries “liberalize” under these terms.
[snip]
For instance, the Glass-Steagall Act created a firewall between commercial and investment banks to prevent the former from speculating with consumers’ savings. But the U.S.’ 1997 FSA commitments noted an intent to change Glass-Steagall to conform with WTO rules. The Gramm-Leach-Bliley Act, which did so, passed in 1999 – the year the FSA went into effect...."
For another perspective on where problems lie, see Hernando de Soto on the destruction of economic facts. Global can work only if assets remain tied to paperwork that identifies ownership. "Knowing who owned and owed, and fixing that information in public records, made it possible for investors to infer value, take risks, and track results."
http://www.businessweek.com/magazine/content/11_19/b4227060634112.htm
If we had to sink or swim due to our individual efforts, so should Wall Street and all the banks and investment firms.