Thursday, April 2, 2009

Eliot Spitzer to the rescue of Obongo ?

Eliot Spitzer to the rescue of Obongo ?

If Obama were serious about restoring confidence in the markets, he’d dump SEC chief Mary Schapiro and replace her with Eliot Spitzer. That would send a message to the world that the administration means business.

Schapiro is another Wall Street toady who believes in “self regulating” markets. Right. As the head of the Financial Industry Regulatory Authority, or FINRA, she twiddled her thumbs while the financial giants increased their leverage to gigantic levels and spread their derivatives-contagion to every part of the system.

Schapiro also missed the Madoff scandal, the auction-rate bond fraud, the blow up at Lehman Brothers, and the mortgage meltdown. She was blindsided at every turn. Her dismal performance as a private-sector regulator proves that she’s the wrong person for the job. Even the far-right Wall Street Journal has lambasted Schapiro.

In an article, titled “Obama’s pick to head SEC has record of being a Regulator with a Light Touch” the WSJ relays this revealing anecdote: “The Financial Services Institute, a trade group, was meeting, and Ms. Schapiro addressed the crowd about FINRA’s efforts to fight frauds aimed at senior citizens. Frank Congemi, a financial adviser, asked what FINRA was doing to regulate ‘packaged products’ such as complex mortgage securities. Mr. Congemi says that Ms. Schapiro replied: ‘We have rating agencies that rate them.’ The credit-rating agencies, by this time, were being heavily criticized for having given triple-A ratings to mortgage bonds that became unsalable as foreclosures rose.

“Mr. Congemi says that at the May 7 meeting he retorted: ‘What is that going to do to markets and people’s trust when these things go to zero?’ He says Ms. Schapiro replied that she couldn’t answer hypothetical questions.” (Wall Street Journal, Obama’s pick to head SEC has record of being a Regulator with a Light Touch”)

This story sums up Schapiro’s “do nothing” attitude perfectly: plenty of posturing and rhetoric with zero enforcement. She’s doomed to follow in the footsteps of her feckless predecessor, Christopher Cox, who stuck his head in the sand while the five biggest investment banks leveraged up to 30 to 1 and brought the whole global house of cards crashing to earth. Schapiro will undoubtedly torpedo any effort to police the markets or to bring charges against any of the Wall Street Godfathers.

And what is the SEC up to now? Where are the regulators and what steps have been taken to clean up Wall Street?

Nothing. Just more blabbering. Obama hasn’t changed a thing. Treasury is full of bank loyalists and the SEC is loaded with brokerage-friendly flunkies. The only difference is that the SEC’s rubber stamp has been passed from laughingstock Cox to lapdog Schapiro. Other than that, it’s business as usual.

If Spitzer were running the SEC, the Pinkertons would be swarming the investments houses right now, thumbing through the off-balance sheet paperwork, overturning filing cabinets and Tasering bloated banksters as they scuttle away clutching their Armani briefcases stuffed with taxpayer loot.

The public is not in the mood for any more lame excuses or windy oratory from President Inspiration. Just get on with it. Governing is more than just gliding from one teleprompter to the next, pointing at rainbows and promising Utopia. There has to be action, accountability, and justice.

What people want is to see a truncheon-wielding cop on every corner of lower Manhattan. They want regulators snooping through emails and digging through trashcans to uncover any scrap of evidence that will build a case for investor fraud or criminal malfeasance. They want Spitzer-clones -- armed with bullwhips and billy clubs -- posted in every boardroom, in every penthouse, on every private jet; breathing down the necks of every CEO, every CFO, and every dodgy, derivatives-peddling scam artist until the financial typhoon subsides and the culprits, cutthroats and carpetbaggers are dragged in leg irons to Guantanamo for a few brief dunks on Dick Cheney’s waterboard.

This is not the time for namby-pamby, weak-kneed Schapiro. Eliot Spitzer has a proven record of taking on the industry behemoths and organized crime. (He launched an investigation that brought down the Gambino family’s control over Manhattan’s garment and trucking industries.) He’s devoted himself to consumer and environmental protection, while taking aim at white-collar crime and securities fraud. Until he stepped down, he’d been doing a bang-up job reigning in reckless speculators, predatory lenders, and Wall Street kingpins. He’s a bulldog, a corporate dragon-slayer, and the best man for the job. Spitzer’s heavy-handed tactics made him big business’s most hated man. In fact, in January 2005, the president of the US Chamber of Commerce described Spitzer’s approach as “the most egregious and unacceptable form of intimidation we’ve seen in this country in modern times.”

If that isn’t a ringing endorsement for SEC chief, than what is?

Spitzer’s hookergate was an FBI/MOSSAD honey-trap

In March 2008, Spitzer resigned as governor of New York when he was caught with a high-priced call girl named Ashley Dupre. The story made headlines across the country. Spitzer accepted full responsibility for his conduct and did not challenge the allegations even though the information was gathered via a federal wiretap.

The Spitzer case brings up some unsettling questions about Bush’s surveillance programs; mainly whether they are really being used to investigate potential terrorists or simply a means of destroying political enemies. Spitzer made a name for himself by sticking it to big shot business tycoons and Wall Street kleptocrats, the very type of people who fill out Bush’s campaign donor list. That’s why many people believe that the Bush Justice Department was simply carrying out a vendetta on behalf of Spitzer’s many powerful enemies.

Just days before the scandal broke, the Washington Post published an article by Spitzer which linked the Bush administration to the mortgage fiasco. He showed how Bush had blocked all efforts to save loan applicants from being fleeced by mortgage lenders. Spitzer was joined by many other state attorneys general who noticed early on that predatory lending was on the rise and that there was a concerted effort to keep the mortgage swindle going whether applicants had the ability to make their payments or not.

Elliot Spitzer’s op-ed in the Washington Post: “Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye. . . .

“In 2003, during the height of the predatory lending crisis, the Office of the Comptroller of the Currency (OCC) invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules

“But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

“Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. The curbs we sought . . . would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

“When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.” (Elliot Spitzer, “Predator Lenders’ Partner in Crime” Washington Post)

If the allegations are true, then the Bush administration was directly and maliciously involved in duping thousands, if not millions, of credulous borrowers into fraudulent loans. Surely, this is a matter that requires congressional investigation.

Journalist Greg Palast sums it up like this: “Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the Mother Shark, its founder and now owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill Lynch and Citigroup’s Citibank made mortgage usury their major profit centers. . . . .But there were rumblings that the party would soon be over . . .

“The big players knew that unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press – one was “Wall Street Declares War on Spitzer” - made clear to Bush’s enforcers at Justice who their number one target should be. And it wasn’t Bin Laden.(“Eliot’s Mess,” Greg Palast)

Spitzer gave his enemies all the ammo they needed to put him away for good, and they took full advantage of it. No one expected that he would pop up just a year later.

Last Sunday, Spitzer was interviewed on Fareed Zakaria’s GPS on CNN. The ex-gov showed a better grasp of the details of the financial situation than of any of the 535 members of Congress. Spitzer understands the problems and knows what needs to be done to fix them.

Here’s a small part of the interview:

Fareed Zakaria: What made you look at AIG and say something is wrong here?

Eliot Spitzer: Their fundamental accounting structure was wrong, and when we prosecuted them, we brought a case that they had allegedly manufactured fictitious reinsurance contracts designed to create the appearance of capital on the books which was not there and this was a structure that had been designed and orchestrated at the very top of the company.

Fareed Zakaria: So they were basically fudging the numbers to make it look like they had a stronger balance sheet than they actually had?

Spitzer: Precisely. That is exactly right. The underlying effort was to create the illusion of financial strength that was not actually there. And as we dug more deeply into the underlying structure and organization and accounting that was ongoing at the company we knew there was a problem. Four people have been convicted in this and the former CEO was called an unindicted co-conspirator in the federal courtroom by the federal prosecutor. So, this was a fundamental effort to alter the facts and lie to the public.”

AIG/CIA2 center of the web

ZAKARIA: So, do you think the problems that AIG got into later on stemmed from some of the same practices that you were trying to get at?

SPITZER: They stemmed from an effort at the very to to gin up returns whenever, wherever possible, and to push the boundaries in a way that would garner returns almost regardless of risk. Back then, I told people that AIG is at the center of the web. The financial tentacles of this company stretched to every major investment bank. The web between AIG and Goldman Sachs is something that should be pursued. And as I’ve written . . .

Consider what Spitzer is saying; that the lumbering Goliath, AIG, is at the very center of the gigantic derivatives fraud which took trillion of dollars of undercapitalized credit default swaps (CDS) and sold them (as insurance) to myriad other financial institutions to help them maintain artificially high ratings on complex securities whose real value was always in doubt since the underlying collateral was connected to uncreditworthy borrowers who were more likely to default or go into foreclosure. Whew! These CDS are the paper claims to fictive wealth which greatly inflated the world’s biggest speculative bubble. These unregulated swaps are the tissue that holds together the failing shadow banking system which both Geithner and Bernanke are committed to preserving. Spitzer understands how this complex system works and knows what it will take to bring it under control. This alone should put him at the top of the list of candidates for the SEC.

If Obama were serious about defending the little guy and restoring confidence in the markets, he’d replace Schapiro with Spitzer pronto. But since the real goal is to maintain the same basic power structure at all costs; the economy will continue its relentless slide towards the abyss. One unmistakable sign of imperial decline is the inability to make critical changes when the country’s future depends on it....

Europe on the Rocks too...

Recall the self-satisfied EU celebrations of recent years -- the inauguration of the euro and the famous blue Euro passport, the accession of all the Eastern European and ex-Soviet statelets, the gloating as the euro steadily revalued. Fortress Europe was strong and united at last. The 21st century belonged to the new Old World.

But then a few cracks began to appear in the shiny facade. The Poles, especially, carped about just about everything -- the thought of giving up their precious zloty (boy, are they sorry now), the EU farming rules, the lack of Euro-support for US wars, and the Euro-cowardice in facing down the Russian bear. They and the Czechs revealed Fortress Europe for what it was by welcoming US missile bases, provoking the Russians into threatening to make Europe once again the world’s nuclear battlefield. Kosovo managed to divide even the big boys, with Spain refusing to recognise this latest US-German plaything, and ratcheting up the tensions between Serbs, Croats -- even the Slovenes. The Balkan cauldron is as hot as ever.

The world financial meltdown was the proverbial straw that has left the Euro-camel paralysed. The collapse of the government of the Czech prime minister -- the Euro-president himself -- was a fitting symbol for the collapsing house of cards. No doubt, someday there will be a musical about this Euro-Camelot, this once-and-never-land.

The comeuppance of Czech Prime Minister Mirek Topolanek was not the result of his recent snub of US President Barack Obama (he called Obama’s stimulus spending “a way to hell” that will “undermine the stability of the global financial market”). Rather it was the modest but unflagging campaigning by the Czech Nonviolent Movement (CNM), which has been fighting the installation of the US missile base outside Prague for two years now. They mounted an ongoing series of nonviolent actions -- petitions, hunger strikes, rallies, protests, electioneering -- building a grassroots campaign uniting the 70 percent of the Czech population who oppose the base, nibbling away at the right-centre majority until it finally fell.

CNM organiser Jan Tomas called for “all invading armies to withdraw from all occupied territories” (you can fill in the blanks), and for nuclear disarmament. “Now in the Czech Republic a new chapter of our struggle begins.”

Topolanek is welcoming Obama to the G20 meeting in London as the European president and hosting Obama a few days later at a US-EU summit in Prague. Obama will then go to Strasbourg for NATO celebrations. Topolanek’s undiplomatic remark actually represents the EU consensus and is surely not so far from the mark. Obama’s ad hoc measures to deal with the crisis have been praised by almost no one but the bankers, who are being treated to trillions of dollars with no assurance that this massive bill will do any good whatsoever -- except, of course, for the bankers. One-third of his stimulus package is in the form of tax cuts and is unlikely to have any long-term effect.

Not that the Eurocrats are coming up with anything more likely to succeed. The EU is a hodge-podge of very different states with radically different governments and economies, with no parallel Europe-wide budget to allow for fast and broad stimulus measures. The US budget deficit will be 10 percent of GDP this year and the next and the next. This is impossible for the EU, which has a 3 percent limit per country and which, unlike the US, cannot print its currency as if there were no tomorrow.

Much of the trillions that Obama is spending is in fact seeping into Europe, adding to the steady US dollar inflow over the past half century, leaving Europe awash in dollars. For Europe to notch up the euro-printing press would be foolhardy in the extreme. The EU counts on exports as a stimulus to the economy, like Asia, something the US abandoned long ago. Though the subprime craze infected Europe too, its financial woes stem primarily from the US with its unbridled consumerism and wars, and will never be solved until the US puts its own house in order, balancing its budget and its trade, something that Obama has made no hint of doing.

Adding the eastern non-economies to the EU merely compounded its problems. European institutions invested very heavily in these “emerging markets” and the financial crisis has led to a withdrawal of capital from such regions back to the centre, exposing investors to large losses. It’s no coincidence that the US dollar rose over the past six months, despite the terrible shape the US economy is in, or that the European leaders are unwilling and unable to commit to major stimulus measures for the EU as a whole. What was touted even a year ago as a joyous community, a big happy family, is now a dysfunctional one, complete with sibling rivalry, spoiled brats and marital strife.

This year’s G20 inspired protests across Europe. Tens of thousands marched through Berlin, Vienna, Paris and other European cities to demand action on poverty, job losses and climate change. In London, 35,000 protesters gathered to Put People First on 28 March, bringing together more than 100 trade unions, aid agencies, religious groups and environmental organisations to call on world leaders to commit to real reforms. “Never before has such a wide coalition come together with such a clear message for world leaders,” said Brendan Barber, the general secretary of the Trade Union Congress. “The old ideas of unregulated free markets do not work and have brought the world’s economy to near-collapse, failed to fight poverty and have done far too little to move to a low-carbon economy.” The protests culminated on 1 April -- Financial Fools Day -- with a movement called “Storm the Banks” focusing on the Bank of England.

In Paris, demonstrators dumped a pile of sand outside the city’s stock market to mock the use of island tax havens. Whether or not the G20 leaders took note, the only real progress at the G20 was in fact a concerted attempt to address this practice, though the havens are resisting fiercely. The Swiss foreign minister called German Finance Minister Peer Steinbruck a “Nazi henchman,” and the Sunday Times revealed that Lord Myners, the minister in charge of the British government’s “assault” on tax havens, has 250,000 pounds sterling in an offshore shelter in Jersey. Myners recently met Jersey officials who now say they have “nothing to fear” from any tax haven crackdown. Past attempts to take on the tax havens failed, and it is far from certain that this one will succeed.

The G20 is ignoring the urgent issue of global warming, but the demonstrators did not. Organisers of the largest group, Camp for Climate Action, compare carbon trading to the subprime boondoggle. Important decisions about climate change are being left to the market, despite the fact that it is controlled by the biggest polluters teaming up with the same financiers who brought economies crashing down, argues Peter McDonell in The Ecologist.

These voices of protest are the ones showing the way out of Europe’s present chaos, not the voices mouthing the same old tired platitudes at the G20, the special US-EU Summit or the upcoming NATO celebrations. Topolanek can badmouth Obama as much as he likes. It makes no difference. He would do well to leave behind his 500 retainers and together with his Czech nemesis step outside their armed fortresses, dispense with their tear gas and Tasers, and spend a night camping out with Climate Action or at least listening to the likes of Tomas and Barber.

No comments:

Post a Comment