The Smartest Guys on Wall Street
After seeing the collapse of some of America's most highly esteemed financial services corporations and the federal government's subsequent attempt at bailing them out, I thought it would be a good idea to once again view the 2004 documentary about the bankruptcy of Enron, "The Smartest Guys in the Room." One fleeting clip from the documentary seemed to sum up the whole mess on Wall Street: At a ceremony at the Baker Institute for Public Policy at Rice University, Enron CEO Kenneth "Kenny Boy" Lay, with the Bush Family consigliore James Baker standing at his side, presents something called the "Enron Prize" to then Federal Reserve Chair Alan Greenspan who graciously accepts the tainted gift before an adoring crowd of erstwhile young capitalists.
I always thought it was not a good sign that the single corporation most heavily connected to George W. Bush's political career -- Enron -- turned out to be nothing more than a collection of venal and corrupt junior-varsity wannabe Mafiosi. After years of throwing around millions of dollars in political campaign contributions and lobbying for deregulating California's energy markets, Governor Pete Wilson (now a top adviser to Arnold Schwarzenegger), signed "Kenny Boy's" deregulation into law in 1996. Enron's "energy traders" then aimed to destroy the state (and pump up Enron's stock) by ripping off its energy markets to the tune of $30 billion. Dick Cheney's "energy task force" conspired with Enron to block the Federal Energy Regulatory Commission (FERC) from imposing price controls to stop the bleeding. And the state of California has been fiscally screwed ever since.
Enron, like the now disgraced Wall Street flim-flam artists, was "marking to market" like nobody's business, as well as trading crazy derivatives in indecipherable Ponzi schemes.
Many of the same investment banks that are central to the current Wall Street crisis were gaming the system during Enron's long slide into bankruptcy. Investors from Merrill Lynch, Morgan Stanley, Chase, Citigroup and other firms pumped money into some of Enron's "special purpose entities" in exchange for Enron stock. They increased the paper value of Enron by financing phony partnerships like "LJM," and then sold off the artificially inflated stock for enormous profits. They knew Enron was involved in illegal and corrupt activities both on the West Coast and abroad, but that didn't stop them from facilitating the fraud (and making a killing in the process). Unlike Enron's employees with their measly 401ks, the investment banks (along with Kenny Boy and Jeff Skilling) could dump their stock any time they pleased. A few people went to jail, including four high-ranking Merrill Lynch executives, but the Bush administration and the Republican Congress largely covered up the criminality. Then came 9-11 and the whole episode was forgotten.
Later, when it was learned that Wall Street banks played a pivotal role in similar schemes that tanked Global Crossing, Tyco, Adelphia and other corrupt companies, the only "reform" to come out of the travesty was the tepid and toothless "Sarbanes-Oxley Act," which called for "transparency" but never really got it. Had there been a vigorous effort at that time to reel in the big players on Wall Street, the crisis we now face might have been avoided. But as Sarah Palin pointed out in her recent debate with Joe Biden, looking at the past will not "progress the agenda." (With such a worldview one wonders why anyone would ever bother to study history at all.)
The current crisis is much bigger than we now know. It will take months, if not years, to untangle the layers of fraud, corruption, and malfeasance both on Wall Street and inside the Bush administration that produced the nation's worst financial meltdown in 70 years. There has got to be aggressive criminal investigations across the board. Those who lobbied for deregulating the financial services sector, (like Enron had done with California's energy market), are just as culpable as those who took advantage of the free-for-all that followed. Some people need to be indicted. Some people need to go to jail -- And I don't mean fall guys.
We seem to have learned nothing from Enron. And we probably won't learn anything from the latest Wall Street catastrophe either. Even in the face of the Enron collapse Kenny Boy and Jeff Skilling were still calling for greater deregulation to make their illegal activities -- ex post facto -- legitimate. The Bush administration's SEC performed similar to the FERC during Enron's rape of California. The cop on the beat was on the take.
It's astounding to hear calls from John McCain and Sarah Palin for more deregulation. McCain and Palin in recent interviews, speeches, and debates keep calling for "less government" and more "freedom," which have been euphemisms for deregulating big business since the Reagan days. Even though millions of people would have lost their Social Security in the meltdown had their accounts been privatized, McCain-Palin are still calling for privatizing the program. The 2008 Republican Party platform states: "We believe the solution should give workers control over, and a fair return on, their contributions. . . . Comprehensive reform should include the opportunity to freely choose to create your own personal investment accounts which are distinct from and supplemental to the overall Social Security system." The McCain-Palin ticket is calling for the same old greedy and dangerous policies that produced the financial crisis in the first place and put millions of Americans at risk -- on steroids. It's a national disgrace to see a cranky, pissed-off rich old white guy, along with his vapid beauty queen/sportscaster running "mate" muddying up the waters to try to deflect blame from the Republican administration, even while running for Bush's third term.
The Republican Party subjected the nation to a 28-year sociological experiment in Neo-liberal economics. And as it did in Latin America and other parts of the world, it was an epic failure. The rich got richer while working people saw their living standards decline. And, as always, taxpayers were left paying the bill.
What more evidence do we need that America's corporate culture at the highest levels has become sociopathic? They would not have thought twice about gambling with millions of people's Social Security accounts. Without criminal prosecutions and vigorous re-regulation of the financial services industry this amoral, exploitative culture will devour the country. Some people, such as Hank Paulson and his buddies, might be smiling right now after Wall Street successfully shook down Congress for $1 trillion, but this taxpayer subsidy is probably only a down payment.
Follow Joseph A. Palermo on Twitter: www.twitter.com/N/A
In 2003, when I wrote Pigs at the Trough, America's corporate crooks were largely playing with shareholders' money. The new batch of Pigs I cover in the just-released updated version is playing with taxpayer money -- trillions of it.
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I believe we are in the beginning stages of the economic meltdown. We don't even have $700 billion for the proposed bailout and this band-aid is not likely to work. It seems to me the financial meltdown is likely to impact the real economy which will unleash the next financial tsunami - credit card debt! $700 billion dollars just ain't enough even if it were to be effective. Where is the necessary money going to come from? Either from thin air (creating Weimar Republic like inflation) or by borrowing abroad. But I don't think Asians will continue to throw away their surpluses. See the article by former prime minister of Thailand in this morning's Financial Times:
http://www
We went through the Great Depression with our democracy more or less intact. This time around we are less likely to be as lucky. The authoritarian instinct we have acquired over the years fighting communism and "emergency" legislations passed by our "patriots" are likely to get into picture this time around. And we, freedom loving Americans, will fall in line behind our despot simply because our food comes from thousands of miles away; whoever controls the food controls the populace. The Empire's days are numbered but the torture facilities will just move to the Halliburton built conz-lagers at home. The military-i
We are entering a very dangerous phase, as you say.
Americans own 200 million guns, and those ostentatious gated communities are going to feel more like Kabul than the United States if this turns into a depression and wipes millions of people into the street.
They can try the "anti-terror" madness on us, but maybe they've noticed how badly that's failing world-wide? I hope so, because we'd be far better off solving our problems peacefully.
However, unlike the sheeplike generation of the 1930s, the current occupants aren't going into that dark night whimpering and singing Woody Guthrie songs.
How much of the bad money from bank loans found its way into the accounts of bankers and their friends, possibly running hedge funds? Perhaps this explains how they ran their banks into the ground and collected humungous salaries.
Could they get this money back? I'll bet this "funny" money total in bad securities equals all the big
money made by stock market manipulators.
I'm suprised there was no mention of former Senator Phil Gramm's Enron escapades in this article.
Mr Gramm drafted the "Enron loophole" of the Commodity Futures Modernization Act of 2000 while his wife was on the board of Enron. This loophole essentially enabled Enron to execute the derivatives shell game that became so infamous.
Mr Gramm has fequently been mentioned as a possible Secretary of the Treasury in a McCain administration.
Nice.
Just sayin
Its them or us. I don't wanna be mean, but look at this mess.
"And the state of California has been fiscally screwed ever since."
Wow. Slow down tiger. If that was the only problem the state has, the city dump would smell like roses.
Me thinks that blaming Enron and deregulation for what is wrong with America's financial world has become like the top price among commentators.
Oil is expensive - it was Enron.
Electricity is expensive - it was Enron.
Milk is expensive - it was Enron.
The cat has kittens - it was Enron.
The problem with all of that is that in most cases it wasn't Enron, it was not even "like Enron". But then it would require actual dedication to find out what the problem is. Why spend that effort if we can just use the E word and be done writing an article?
Hey "Kill," did you even read Joe Palermo's post? I didn't think so.
I would have to agree on the electricity is expensive - it was Enron one.
For example, the ratepayers of Pacific Gas and Electric subsidized the bankruptcy of this utlility caused largely by Enron through premium electric rates for years. Enron was the major player in deregulating the California electricity market and subsequently the largest player once the market was deregulated.
Of course while the ratepayers got screwed, PG&E shareholders made out like bandits.
http://www
Just sayin
Funny.. I owned plenty of PGE stock then. I remember it going from about $30 to $6.. made out like bandits???
The smartest guys in the room were crooks. And thats being polite. Why defend them? Whats in it for you?
Way to go, Joe. I've been fascinated with the Enron scandal and have done extensive study on the subject. I've always wondered how we could not have taken away lessons on the value of regulation and oversight from the Enron example. I've also wondered if George Bush didn't consciously replicate this debacle on a larger scale, as it was his administration in Texas that presided during the Enron meltdown. He is either extremely clever or extremely stupid to have enabled the circumstances of the current economic crisis to gather and gain momentum.
What about Keating 5? If you walk backwards through our history, you'll find that again and again, we've been served with examples of corruption and greed that should have formed policy but were swept under the rug. The Smartest Guys In The Room typically outwit themselves and eventually have to account for their actions. Usually before a judge.
Because the "lesson" of Enron is you can get away with all the loot and screw the small stockholders and now the taxpayers.
It may be totally off the mark, but my personal opinion is that this was on purpose. The highest folks on the pyramid saw a growing cancer eating away at the base stones of the pyramid. Through democratic process, good-hearted politicians with Christian leanings continued in the form of FDR to enact more and more "entitlement" programs, funded by the federal govt. There was also this other strange affliction manifesting itself as the cold war. Much money was wasted in this endevour, and the solution to this sort of happened with the bankruptcy of the Soviet Union.
Now it's our turn. Probably starting with the next president, serious reductions in the military will occur, not jus Iraq, but all over the globe. W was (s)elected in 2000 because of his success in bankrupting whatever he was in charge of. His time is now ending with final fireworks. When the extent of his crimes become apparent, he will have to flee the country. It's happened to many an elected leader in Mexico, which isn't that far from Texas.
The end result may be something like what happened to the USSR. Texas could be an independent nation, maybe even the South "will rise again". There could be battle over the fate of California and much of the southwest. It doesn't have to come to this, but the affluence of America, started by the victory of WW2, and carried on for decades by borrowing, could very well be coming to an end.
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