Crossposted with The Baseline Scenario.
Last week, Senator Ted Kaufman (D., DE) gave a devastating speech in the Senate on "too big to fail" and all it entails. A long public silence from our political class was broken -- and to great effect. Today's Dodd reform proposals stand in pale comparison to the principles outlined by Senator Kaufman. And yes, DE stands for Delaware -- corporate America has finally decided that its largest financial offspring are way out of line and must be reined in.
Now, the Senator has gone one better, putting many private criticisms of the financial sector -- the kind you hear whispered with conviction on the Upper East Side and in Midtown -- firmly and articulately on the public record in a Senate floor speech to be delivered tomorrow (this is a direct link to speech). He pulls no punches:
"fraud and potential criminal conduct were at the heart of the financial crisis"
He goes after Lehman -- with its infamous Repo 105 -- as well as the other entities potentially implicated in those transactions, including Ernst and Young (Lehman's auditors). This is the low hanging fruit -- but have you heard even a squeak from the White House or anyone else in the country's putative leadership on this issue?
And then he goes for the twin jugulars of Wall Street as it still stands: The idea that we saved something, at great expense in 2008-09, that was actually worth saving; and Goldman Sachs.
"[T]his is not about retribution. This is about addressing the continuum of behavior that took place -- some of it fraudulent and illegal -- and in the process addressing what Wall Street and the legal and regulatory system underlying its behavior have become."
Our system has long been imperfect, but it used to work much better:
"When crimes happened in the past (as in the case of Enron, when aided and abetted by, among others, Merrill Lynch, and not prevented by the supposed gatekeepers at Arthur Andersen), there were criminal convictions."
Here's the most intriguing bit -- he challenges the moral authority of those who think they are doing "God's work" in finance.
"If we uncover bad behavior that was nonetheless lawful, or that we cannot prove to be unlawful (as may be exemplified by the recent reports of actions by Goldman Sachs with respect to the debt of Greece), then we should review our legal rules in the US and perhaps change them so that certain misleading behavior cannot go unpunished again."
But that's not all -- he actually lays out the parameters of what should be, if our legal institutions still functioned, a compelling case against Goldman.
"Following these transactions, Goldman Sachs and other investment banks underwrote billions of Euros in bonds for Greece. The questions being raised include whether some of these bond offering documents disclosed the true nature of these swaps to investors, and, if not, whether the failure to do so was material."
"These bonds were issued under Greek law, and there is nothing necessarily illegal about not disclosing this information to bond investors in Europe. At least some of these bonds, however, were likely sold to American investors, so they may therefore still be subject to applicable U.S. securities law. While "qualified institutional buyers" (QIBs) in the U.S. are able to purchase bonds (like the ones issued by Greece) and other securities not registered with the SEC under Securities Act of 1933, the sale of these bonds would still be governed by other requirements of U.S. law. Specifically, they presumably would be subject to the prohibition against the sale of securities to U.S. investors while deliberately withholding material adverse information."
This sounds like a potential violation of Rule 10b-5 -- you are simply not allowed to sell securities in the United States while withholding material adverse information, i.e., what any reasonable investor would want to know (like the true indebtedness of a government, when you are being pitched on a sovereign debt issue). In fact, such actions are frequently considered serious fraud -- at least when the people involved aren't as powerful as Goldman Sachs.
And after having just spent a considerable amount of time with Hank Paulson's memoir, On the Brink, I have to ask: What did Hank Paulson know (as CEO of Goldman at the time), and when did he know it -- regarding the potential misleading sale of Greek government securities to US entities? Goldman reportedly netted $300m from its Greek "swaps" and presumably more from managing subsequent Greek debt issues; this is the same order of magnitude as Mr. Paulson's payout when he left Goldman (around $500m, tax-free).
Who is Senator Kaufman and what power does he have in this situation? He is not a member of the Senate Banking Committee -- and if you think this is a regulatory issue, that reduces the weight of his voice.
But he is a member of the Senate Judiciary Committee and we are discussing here potential crimes -- or what should be crimes if the legal system still functioned. He was also a cosponsor of the Fraud Enforcement and Recovery Act (FERA) -- which was right on topic -- and is an experienced Capitol Hill insider who has studied these issues long and hard. He has also worked closely, over many years, with Vice President Biden.
The tide is turning, but not primarily through the actions of Senator Dodd and his Banking colleagues. Rather the biggest and most unruly players in our financial system have behaved in such an egregious manner that they will be brought down by the law -- either that, or they will further bring down the law.
Arianna Huffington: Celebrating Sen. Ted Kaufman, Accidental Leader
Sen. Ted Kaufman has emerged as one of the Senate's fiercest critics of Wall Street and a champion of the need to push for a serious rebooting of our financial system.
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Let's be blunt Wall Street has worked to the detriment of the greater good of the USA for decades. They are true predators, they lack ethics, their corrupt deal making, inside influence and trading were instrumental in the decline of the many (middle class) and the huge rise in wealth of the few. They are a club or tribe that works to advance their own. Their parasitic efforts are directed at making the rich richer and they willingly sacrificed US companies in a process to the benefit of a few.
Wall Street and the Federal Reserve along with the US Treasury and many Congressmen collaborated to put the burden on Americans while Wall street banksters walked away with the gold. They knew that their actions had put their Wall Street and NY financial markets in jeopardy and they hurriedly connived with the US Treasury and Federal Reserve to pump it up by obligating the full faith of future generations of American taxpayers before the world saw it as a totally inept and corrupt entity. The result is why we saw a huge recovery in prices in the last year. Our government was working for them while obligating Americans.
http://www.youtube.com/watch?v=R5P5Npb6NmM
And no, I'm not a Republican.
Gee, I wonder on which corporate board would she be welcome? I guess all for, having seen the Ship of State tilt to their side and all the coins from Americans' pockets rolling towards the Wall Street side of the ship while our mom and dad soldiers were busy fighting the Pentagon's other eater of public money COIN wars the rest of us old and fat Americans cheered them on demanding "victory" in neocon "WORLD WAR IV" AGAINST ISLAM. No chance that we'll rise-up and rebel lets we can no longer fill-er-up our gas-guzzling SUVs real cheap. For Marie-Antoinette had it perfectly right: since we have no bread, why we're just eating CHINESE CAKE. Don't worry, when the kids come back victorious from their COIN WARS they'll have lots of coins with which to pay our debt!
--Zhuang Zi, Chinese philosopher, 4th century BCE
It appears that nothing much has changed in the past 2300 years.
NO Senator.. it was NOT WALL St that did the above, it was CONGRESS that set it up and got well paid off for doing so. Core issue is a corrupted Congress and State Capitals. As one writer once said and seems so applicable. "me thinks you doth protest to much":
Fact is Congress is totally corrupted, fact is they throw it in your face with comments like "I spend half my time raising money for next elections". Oddly enough, I find no where in ANY campaign or government document is it noted that the Swineators and House of Reprehensibility is sent to DC (or state capitals) to spend "Half time on job, other half raising money". Remove the corruption in Congress's, and you remove the money influences.
Sorry but our "government morphed into an industry as our industry's bought government. You have a business where you can safely "influence Congress with NO legal issues being raised about such, then WS or others are NOT at all to blame... AKA they just followed the laws, as written by congress. "me thinks you CYA Wall ST to much"
When will anyone wake up and see that NYC is the financial center of America and therefore where any major cover up and bribes will be conducted.
Everything in NYC concerning billion dollar-fraud coverups are done in the most sophisticated ways and if you think that Prosecutors close there eyes willingly to these massive fraud then you are foolish..
It will not change in NYC because it is the power center for high financial crime unless a real force of the people stand up with politicians and make sure prosecutor are investigated and prosecuted if found guilty or fired. We need a clean up other wise NYC will cause another meltdown like you have never seen .
GREED - EGO - LIES -
The whole world is on the Financial District's backs, and it's because they buy off peddlers too easily.
It's transformative. The new wave of Congress should know it well.
Ya think...?