The only real shock from our financial implosion is that anybody is remotely shocked by the implosion.
Wall Street is a grand lie built on a foundation as unsound as a house of cards teetering on shifting sands. Wall Street is a casino rigged against investors sold false hope by unscrupulous companies sanctioned by government to deceive customers. The crisis was not only predictable, but inevitable. John McCain claims he will clean up our financial system, but he did nothing in 1997, or any year thereafter, when all the danger signs began to emerge from the dark corrupt shadows of the Street.
To understand the depth of government failure and complicity leading to the inescapable collapse we witness today, we need to go back and remind ourselves of the sordid history that we all seem to have forgotten too quickly. The list of nefarious deeds is long, but worth reviewing to understand how we arrived at our current sad state.
Our financial system is flawed top to bottom, in a perverse example of vertical integration. Let's start with brokers. Any advice offered by anybody on Wall Street will consistently drive toward strategies and trades that make money -- not for individual traders, but for the adviser in whom they trust. The system is inherently corrupt, weighted against investors in favor of brokers who only make money by encouraging more trading. Make no mistake: you are a target. Keep your hand tightly gripped to your wallet next time your broker says she wants to help.
But the inherent conflict of interest with brokers is just a minor symptom of a much more serious disease. Remember Kenneth Lay, Andrew Fastow, and Jeffrey Skilling of Enron? How about Dennis Kozlowski, Tyco's ex-chairman and chief executive? But even these high profile losers are not the primary problem.
Remember WorldCom? That company had the fine distinction of perpetrating accounting fraud that led to one of the largest bankruptcies in history. Rite Aid executives were accused of securities and accounting fraud that forced the drugstore chain to restate more than $1 billion in earnings. Executives at the company were charged with colluding in overstating Rite Aid's income in every quarter from May 1997 to May 1999, forcing the company to restate results by $1.6 billion, the largest restatement ever recorded at the time, according to the SEC.
And who can forget the Adelphia Communications scandal? In that sordid case, the company inflated earnings to meet Wall Street's expectations, falsified operations statistics, and concealed blatant self-dealing by the founding family, the Rigas, who collected $3.1 billion in off-balance-sheet loans backed by Adelphia.
Five years ago, Morgan Stanley, promoting an image of steady, conservative, trustworthy values, agreed to pay $50 million to settle federal charges that investors were never informed about compensation the company received for selling certain mutual funds. Before that the SEC settled with Putnam Investments, at the time the fifth largest mutual fund company, which allegedly had allowed a select group of portfolio managers and clients to flip mutual fund shares to profit from prices gone flat. Dick Strong of the Strong Funds admitted to skimming his investors to benefit himself. What was his punishment? Strong was allowed to sell his fund business for hundreds of millions of dollars.
In all, almost two dozen firms were implicated in scandal. Mutual fund firms agreed to fines totaling more than $2.6 billion in more than 100 settlements, almost none of which was returned to shareholders. Some mutual funds allowed the favored few to buy and sell shares in rapid-fire fashion. Oddly, this practice is actually legal, but harmful to innocent shareholders not lucky enough to be included in the game. That would be you. In a preview of the proposed $700 billion bailout five years later, wealthy clients were given special treatment.
We also have the unethical issue of late trading. Fund shares, unlike stocks, are priced only once daily at their 4 p.m. closing price. That is true for you, but apparently not for favored clients. Some funds seem to have allowed a few big clients to lock in the closing price after 4 p.m., letting them profit from late-breaking news. That is the ultimate insider trading. Even companies have the presumption of innocence until proven guilty, but the list of firms tied to the investigation was impressive, and included Janus, Strong, Bank of America's Nations Funds, Bank One's One Group funds, Alliance Capital, Prudential Securities, Fred Alger Management, Merrill Lynch, and Wilshire Associates.
The real crime here is that the practices that led to the mutual fund scandal in the first place were never addressed by regulators. Way back in 2004, SEC Commissioner Harvey J. Goldschmid, said "The commission's inaction at this point has made it a safer world for a small minority of lazy, inefficient, grossly overpaid and wrongheaded CEOs." Does that sound familiar four years later?
Yet even those examples are not the most egregious. Warning signs in bright neon letters 10 feet high could not be more obvious than corruption at Fannie Mae, accused of fleecing investors. The Justice Department opened a formal investigation in October 2004 following reports that the mortgage company might have manipulated its books to meet earnings targets. Sound familiar yet again? This is after Fannie tried to hinder an official investigation by refusing to provide relevant information. And we are shocked by the meltdown on Wall Street today?
What did we learn from these growing series of scandals dating back to 1997? Absolutely nothing. Not one darn thing. We have exactly what we deserve by voting for politicians who are nothing but pigs at the trough. John McCain outrageously claims he is for regulation and control of Wall Street. Only in the distorted light of a presidential campaign could such a perversely false statement gain any credibility. He was at the table when the problems emerged more than 10 years ago, and did nothing to stop the train of corruption from rolling down the track. He embodies the problem, not the solution. He is not the fox guarding the henhouse; he is the fox with feathers in his mouth, looking innocent when asked what happened to the chickens.
The bailout with which Washington currently struggles is a righteous and obvious conclusion of political hubris and failed ideologies made possible by complacent voters. Let us not make the same mistake in November by voting for the very people who caused the crisis. We need to eject the Republicans and elect Obama.