Look Out Wall Street: There is a New Sheriff in Town

We have lived through a period when political and business leaders seem to have been able to avoid being held accountable for their reckless and negligent behavior. Sounds like lawyer talk. Well lawyers were intricately involved in this sorry state of affairs. Lets take the Bush administration. What did all the Republican cronies like Cheney learn from the Nixon saga? Don't put yourself in weak position legally. Don't testify under oath. Better yet, don't testify. Don't provide information under threat of perjury and obstruction of justice, better yet don't provide information. They artfully avoided political accountability for a litany of constitutional abuses, executive misconduct and malfeasance.

Now lets consider what has happened in the financial services industry. Until recently, our securities laws forced Wall Street to worry about the way it conducted business. Don't play by regulatory rules with origins in Roosevelt's New Deal and sooner or later the SEC or an Elliot Spitzer clone will hunt you down. You had to worry about adequate disclosure and a battery of rules designed to protect Joe public and the sanctity of the markets. If you misbehaved, you also had to worry about a ravenous plaintiff's bar charged with the duty of prosecuting claims on behalf of investors unable to fend for themselves (for a generous fee, of course).

Those New Deal rules are still there. However, Wall Street managed to water everything down to the point where a man made Katrina hits the financial markets and there is little or no means to hold the perpetrators accountable. The SEC was either clueless or too feeble to chase the bankers who designed, peddled and later lied about their exposure to toxic asset backed securities. What about Credit Default Swaps? Oh, those so called financial weapons of mass destruction are not securities within the meaning of the securities laws. Those are cutting edge risk management tools.

How about so called victims like poor old AIG banding together to sue those who set them up with these improvised financial explosive devices. Never mind, those were sold to sophisticated institutions and "accredited" investors more than able to fend for themselves. Sales to these financial sophisticates are not subject to the same legal regime. We now see that "sophisticated investor" means one who expects to be bailed out by Uncle Sam.

Finally, you won't be seeing any widows and orphans starting class action suits, because no one sold them any securities. Instead, they are accused of being culpable in the great sub-prime meltdown because they fell prey to the army of mortgage brokers who aggressively peddled shadow bank loans. Mortgage brokers owned by who else? Wall Street investment banks like Merrill, Lehman and Bear Stearns. Shadow bank loans? Yep, AAA legal advice.

Let the markets regulate themselves! That is the fundamentalist mantra of the lords of the Street. Well, that is what the markets were actually doing until the SEC decided to act on the shorts. Self regulation came in the surprising form of punishment by the shorts. After all, it was the hedge fund industry, Messrs Einhorn et al, and not the SEC that called Lehman and AIG to the carpet. The SEC, fixed the short problem. Trading bets against financial institutions were temporarily banned. In a comic twist, the SEC planed to force hedge fund managers to testify under oath. Something more than you can expect from the likes of Harriet Myers and Alberto Gonzalez. Ultimately, the reckless bets that the investment banks made with shareholder capital went unpunished.

Well you begin to see how what seems like one big scam is actually a legally airtight apparatus for screwing the public in an indirect manner without being held legally accountable. Time to throw out all of the New Deal regulatory assumptions and start all over again. Wall Street, like the Bush administration, managed to innovate its way out of accountability.

Next came the TARP bailout. Hank Paulsen, a former Goldman Sachs honcho connived Joe taxpayer into shelling out billions to save a corrupt and broken financial juggernaut. Plenty of new opportunities for Wall Street bankers to make a killing cleaning up their own mess.

As we have seen, Paulsen threw the first tranch of TARP money out of the helicopter without attaching any strings. No one seems to be able to explain where the money has gone or the magnitude of the losses yet to be uncovered. Now we learn that billions of dollars were paid in bonuses to employees of institutions that are essentially insolvent absent taxpayer largess. Paulsen and his fellow Goldman Sachs henchman Neel "Kash n Carry" can be credited with designing an opaque bailout that lays perfect ground cover for the continuing incompetence and greed of the scions of Wall Street.

In the latest Act of the Bailout Soap Opera, BAC's CEO Ken "Screwless" Lewis is claiming that management of BAC should not be held accountable for proceeding with the Merrill Lynch merger despite having knowledge of surprise mega losses last December. His defense, "the Feds made me do it". This Bailout defense is the latest twist in the science of executive non-accountability. The bonus hissy fight between Screwless Lewis and John "Complain" Thain is a comedy that rivals Abott and Costello's "Who's on First" (http://www.youtube.com/watch?v=sShMA85pv8M)

There you have it. The TARP Bailout has created a black-hole of corporate accountability. If you are a stakeholder (a shareholder, creditor, bondholder, taxpayer) it is impossible to divine who the Boards and managers of these companies think they owe their fiduciary duty to.

The Obama Administration certainly has its work cut out for it. It looks like we are off to a good start. Someone should have read the "riot act" to the Consumer Finance Industrial Complex long ago. Yesterday, President Obama took the first shot across Wall Street's bow. "Shameless" behaviour will no longer be tolerated. He characterised Wall Street's 2009 bonus payout as "the height of irresponsibility". Concurrently, a message was sent to Citigroup, --your not leaving on a 50 million dollar taxpayer subsidised jet plane. Richard Parson's, Citigroup's incoming Chairman, met with Obama earlier this week. One can only guess what was said in that meeting.

One hundred years ago a man named Franklin Keyes, Esq. published a tract titled: "Wall Street Speculation, Its Tricks and Its Tragedies". In it he said: "Wall Street is dominated by some of the brainiest and shrewdest men in the country, natural born sharpers and schemers, and before the average man can get the better of them, except through the merest chance, he will have to eat brain food for a long time."

We have a President who has eaten plenty of brain food for a long time. Wall Street better get the message: There's a new sheriff in town.

WilliamBanzai7