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Lydia Fisher

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Elizabeth Warren, Accountability, Debt Ceiling and: "No More Phonies" Reads America's Want Ad!

Posted: 07/20/11 05:12 PM ET

Good for Elizabeth Warren for taking a stand. Coming from Wall Street, I know exactly what that means. You take the heat when you come up against the phony or the intimidators. All for wanting to do the right thing!

In a recent Oversight Committee hearing, Professor Warren highlights the need for further investigation on foreclosure abuses. Any rush to reach a settlement with the "Too Big to Fails" would give them a "blanket pass for widespread alleged acts of fraud."

Recent months have shown that "servicers have filed thousands of documents that appear to have been fabricated or improperly altered, or have sworn to false facts."

Surprised?

Which leads to accountability. Settlements have been the practice du jour. A few hundred million, here and there -- a mere few days of trading profits for the "Too Big To Fails." And don't get me going (I've lived it) when it comes to the army of lawyers who lawyer up every document with every type of disclosure imagined in this hemisphere (a discussion for another time). Yet, when it comes to serving proper documentation in the foreclosure process, what happened?

The French phrase, "Plus ca change plus c'est la meme chose," comes to mind. The more things change, the more they stay the same.

My hope is that things do change. America's "Want Ad" cries for honest and bold leadership.

Back to Elizabeth Warren. No surprise Professor Warren was not appointed to head the Consumer Finance Protection Bureau (CFPB). Recall (over a decade ago) the resignation of Brooksley Born, former Commodity Futures Trading Commission (CFTC) Head. This "Cassandra" warned of an impending derivatives catastrophe.

Voila!

AIG, a decade or so later. Taxpayers paid off (in the billions) those who were betting with credit default swap derivatives on the fall of our housing market.

Stay with me.

The US national debt ceiling debate continues (we'll get to it shortly). No doubt, worrisome. Yet, there's another debate to be had -- one on the minds of many Americans. The one focused on why the massive fraud that got us to the worrisome national debt ceiling debate, in the first place, goes unaccounted for, still, where it matters. Or, are we living in "a system in which only the little people have to obey the law, while the rich, and bankers especially, can cheat and defraud without consequences?" What's worse, the "little people" don't even have a voice anymore.

Let's face it, Wall Street CEOs and their legions, created phony securities, bet against them, paid themselves, got bailed out, and continue to pay themselves lavishly, still, because they can. To think that at the whiff of any restraint -- as basic as additional capital requirements in the midst of rather daunting global economic conditions (which they helped create) -- "Too Big To Fails" balk.

We've not only our national debt to worry about, but the debt of other sovereign nations as our financial tentacles are global. What looms on the horizon are hundreds of trillions in derivatives -- bets on debt or assets of any kind, including the debt of the peripheral Eurozone PIIGS (Portugal, Italy, Ireland, Greece and Spain).

Behind the national debt ceiling debate and the rolling Eurozone debt crisis, ticks the derivatives "time-bomb" -- concentrated in a handful of US banks. Yes, those derivatives, the progeny of interconnected financial institutions, creating and betting with one another on a scale unseen, in the history of mankind, in terms of market size and wealth made. It may be AIG on steroids if the worldwide debt contagion gets out of hand.

The multi-decade super cycle of leveraging has left the world with far more debt than it can service, let alone ever pay off ($160 trillion, private and public against world GDP, just shy of $60 trillion). And, sovereign governments made far more promises to citizens than they can ever keep. A dilemma.

Austerity (maybe frugality's the better word) is inevitable. In particular, if economies cannot grow in a way to support debt and obligations.

Even if the US raises the national debt ceiling to say $16 trillion from $14.3 trillion, what then? The difference is pretty much what it takes to run the country to the 2012 election (with some spare change) -- we're borrowing 4.5 billion a day! It makes the debated $4 trillion deficit reduction over a decade rather paltry. How do we as a society work this out now, find the right balance between taxes, borrowing, spending given the headwinds we face (household indebtedness, falling housing prices, unemployment, unfunded liabilities over $50 trillion...)? And, there are those who propose to eliminate the debt ceiling altogether. That's like having no limit on a credit card. Changing the "rules of the road," when we can't live within them, has got me troubled.

Back to the "getting away with it," for what may go down as the financial crisis in our nation's history?

Here's an interesting take:

That's a result of new guidelines issued by the Justice Department in 2008, which have allowed prosecutors to take a "softer approach" to corporate crimes. The guidelines -- known as deferred prosecution agreements -- have permitted financial companies to avoid indictments if they agree to investigate and report their own crimes.
Then this, from a law firm memo to its Wall Street clients:
"[The memo said] 'It shows that the aggressive days at the Department of Justice were coming to an end or at least decreasing,' " Story {the reporter} tells Fresh Air's Dave Davies. "So this decision was really good news for the banks -- and it was interesting that it occurred at the end of the summer of 2008, right when all of these financial crisis cases that might have been made were becoming apparent."

Add to this, banker rhetoric, that "any action against them would place economic recovery at risk."

Who says?