Neil Barofsky For The S.E.C.

By Simon Johnson

There are two fundamentally different views regarding modern Wall Street. The first is that the financial sector has been terribly and unjustly put upon in recent years – regulated into the ground and treated with repeated disrespect, including by the White House.

There was, for example, an impressive amount of whining this week when no one from a big bank was invited to a high-profile meeting with the president on fiscal issues. As the people holding strongly to this view run large financial institutions and have effective public relations teams, this has become an important part of the conventional or establishment wisdom, repeated without question in some parts of the media.

The second view is that the powerful people who run global megabanks have lost all sense of perspective – including failing to realize that they have more access to people at the top of our political power structures than any other sector has ever had. Anyone who doubts this view – or wonders exactly how the revolving door among politics, lobbying and banking works – should read Jeff Connaughton’s account, “The Payoff: Why Wall Street Always Wins” (which I have written about in more detail before). Mr. Connaughton is most gripping when he describes the failure of law enforcement around securities issues, including issues with both the Department of Justice and the Securities and Exchange Commission.

Which of these views is correct? We will soon know, because there is a simple and direct test that is fast approaching: Whom will President Obama nominate as the new chair of the S.E.C.? (Mary Schapiro, the current chairwoman, is widely reported to be stepping down soon.)

There are only two possible outcomes. The president could pick someone who is very close to the securities industry, for example a senior financial services executive or one of their favorite lawyers or someone who already works in their “self-regulatory” apparatus. Any former politician who has taken large donations from Wall Street or an academic who sits on the board of a large financial company would also fit into this category. There is no shortage of candidates from this side of the contest.

Alternatively, the president could choose someone who is not only willing to enforce the law and regulation but who would actively seek to change the conventional wisdom around finance. For example, all too often we hear – including from some top officials – that if we relax the capital requirements, the economy will grow faster in a sustainable manner.

This is a very dangerous idea that completely ignores the fact that Europe went much farther than we did in reducing bank capital in the run-up to 2008 (i.e., allowing banks to finance themselves with more debt and less equity) and that this directly contributed to the complete disaster they now face. Thank goodness that Sheila Bair, then head of the Federal Deposit Insurance Corporation and a few others successfully resisted attempts to lower bank capital in a parallel manner in the United States. (If you want more detail on these points, look at Ms. Bair’s book, Bull by the Horns, or the forthcoming book by Anat Admati and Martin Hellwig, “The Bankers’ New Clothes: What’s Wrong With Banking and What to Do About It.”)

Without doubt, part of the problem that led to the crisis of 2008 was weak regulation. But can any regulation be effective at any moment the conventional wisdom is that we have some form of “new economy” in which asset prices can only go up – and therefore financial institutions should be allowed to borrow a great deal more relative to their shareholder equity?

To make Wall Street safer – and more helpful to the rest of the economy – implementing new rules is not enough. We need completely new thinking about securities markets, including all dimensions of how investors are treated and where financial-system risks lurk. We must be able to trust the financial system again – and we are currently a long way from this point.

There are three potential S.E.C. chairmen who could have this kind of impact. If you have other names, see if they match these three in terms of integrity, willingness to go against the consensus and ability to get things done.

First, former Senator Ted Kaufman of Delaware has been a consistent advocate for financial-sector reform and was one of the clearest voices during the 2010 legislative process that led to Dodd-Frank. His advice was ignored then; in fact he was opposed directly by Treasury and the White House (see Mr. Connaughton’s book for details). It is not too late for the president to change his mind. (See this longer piece I did a few days ago on Senator Kaufman for this Boston Globe feature.)

Second, Neil Barofsky is the former special inspector general in charge of oversight for the Troubled Asset Relief Program. A career prosecutor, Mr. Barofsky tangled with the Treasury officials in charge of handing out support for big banks while also failing to hold the same banks accountable, for example in how they treated homeowners. He confronted these powerful interests and their political allies repeatedly and on all the relevant details – both behind closed doors and in his compelling account, published this summer: “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.”

His book describes in detail a frustration with the timidity and lack of sophistication in law enforcement’s approach to complex frauds.  He could instantly remedy that if appointed — Mr. Barofsky is more than capable of standing up to Wall Street in an appropriate manner.  He has enjoyed strong bipartisan support in the past and could be confirmed by the Senate (just as he was previously confirmed to his TARP position).

Third, Dennis Kelleher is a former senior Senate leadership aide with a great deal of political experience, including during the financial crisis and in the negotiations that led to Dodd-Frank, and now runs the pro-reform group Better Markets. Previously, Mr. Kelleher was a partner at the international law firm of Skadden, Arps, Slate, Meagher & Flom, where he specialized in the S.E.C., securities, financial markets and corporate conduct in the US and Europe.  No one has been a more effective advocate of implementing substantive reforms. Mr. Kelleher and his team are in the trenches every day, arguing on behalf of taxpayers and ordinary citizens at every opportunity before the entire range of regulators, in court cases and with Congress and the administration. They are also amazingly effective – particularly considering the huge resources of the firms that they go up against (for some examples, see this New York Times profile of Mr. Kelleher).  His private and public sector experience and expertise are very highly regarded throughout the financial regulatory agencies and in the legislative and executive branches more broadly.  He also has strong relationships on both sides of the aisle and could likely be confirmed.

At the start of this second presidential term, many people are optimistic that President Obama will finally push hard for meaningful change around Wall Street – including at the S.E.C.

Goldman Sachs, JPMorgan Chase and Citigroup were all big donors to the Obama campaign in 2008 (see this recent column by William D. Cohan), but they did not make the top 10 list this year. Now would be a perfect time for the president to clean up Wall Street with a strong S.E.C. that is focused on enforcing the law and overturning dangerous parts of the conventional wisdom.

An edited version of this post appeared on the NYT.com’s Economix blog on Thursday; it is used here with permission.  If you would like to reproduce the entire post, please contact the New York Times.

91 thoughts on “Neil Barofsky For The S.E.C.”

  1. I concur with your method of choosing the next S.E.C. chairperson. But I also know that the current president does not want to piss off too many rich people, and that alone could be the reason for the former to be chosen.

  2. WHO CARES about whether or not they piss off rich people?

    Seriously – WTF CARES?

    Worried about being tortured, killed, wiped out financially, can’t work at what you were born to do…?

    That’s the POINT – isn’t it? If there is an endless grab bag of THREATS against you and loved ones – EXISTENTIAL threats? – channeled 24/7 on all media stations by paid brown nosed dogs released by the 480 who STOLE 2.08 TRILLION – then that’s the very reason we have a DUTY to take them OUT. The did it using The Patriot Act – how is anyone who claims to have an AMERICAN soul not be spitting bullets at that level of monstrosity????!!!!!.

    All these years of mental masturbation with numbers and not a freekin’ *peep* about how “the greatest city in the world” as Letterman’s show starts off with, is looking ONLY at BILLIONS to re-build itself

    while 480 people hold on to their TRILLIONS of “precious” using this reasoning:

    USA is only place left on earth that has not put “the rich” on notice.

    The PRESIDENT works for We The People. If he can’t do that, then an advance has been made in racial relations, anyway. Craven avarice and selfishness cut across all *races* – go figure.

  4. Good regulators are like having good referees; remember the outrage at the unfair calls during the NFL referee lockout? We need good referees calling the game of finance. Obama expressed his outrage and frustration at the terrible call in one NFL game:
    http://www.8newsnow.com/story/19638797/nfl-lockout
    I think it remains to be seen if he feels equal outrage and frustration at some of the bad calls we’ve had with respect to Wall Street. It seems those proposed in this post might be good ones.

  6. More than the civil-penalty oriented SEC is required to clean the filthy cess pool of Wall Street and the predatorclass institutions that have robbed, pillaged, and raped the American public.

    What’s really needed are beefy criminal prosecutions and long prison terms upon conviction of criminal fraud statutes, and related infractions.

    Once these wise guys see their peers in orange jump suits being led off in cuffs and foot chains, the sooner their own behavior and outlook comes into line with the statutes designed to preclude and defeat fraud and other financial crimes, of which there are many…..including blowing up big buildings into dust.

  7. I’m not going to buy Jeff Connaughton’s book for moral reasons. To me, this has the same smell as Greg Smith leaving Goldman. He sucks off the corrupt system for multiple years, then when he’s had his fill and has to loosen his belt and slouch on the couch to take some Pepto-Bismol before his stomach busts, he wants to tell us how disgusting all that sausage making was.

    I might even give Connaughton the benefit of the doubt that his book is 99% true. But I’m not going to pay him gratuitous dividends for explaining to me the details of how he stole my lunch.

    I’m pro-knowledge, but not that pro-knowledge that I’m going to pay to have someone explain to me how he banged my cornhole over multiple years. I think I can read about K street, J street, American Banker’s Association, SIFRA, FINRA, National Association of Realtors, American Medical Association (basically a Doctors’ union made up of Doctors who bad mouth Nurses Unions) etc and fill in most of the blanks.

  8. Yep, Obama might just decide to punish some Wall St crooks for not getting into the his top 10 regarding donations. However not for causing hardships for millions, or maybe even billions of people, but because they they failed to donate enough of their profits to each party. Which of course could mean that those who gave more to Republican campaigns than they did to the Democrat causes… well, they could be in serious trouble. There is a very important precedent involved here.

  9. You folks want a FREE education that’s not going to cost you $14+ dollars from Amazon??? Quinn Gillespie and Associates is the lobbying firm Jeff Connaughton used to belong to. You can take a look at the long list of “saintly maidens” that belong to their client list:
    http://en.wikipedia.org/wiki/Quinn_Gillespie_%26_Associates

    Now Quinn Gillespie and Associates was co-founded by Ed Gillespie who is a Republican strategist and used to be a White House “Counselor” to “W” Bush. Gillespie is also connected to Karl Rove’s “GPS Crossroads”, a Super PAC where a lot of the super-rich contribute money in a “dark pool” type fashion.
    http://en.wikipedia.org/wiki/Ed_Gillespie
    You can also read about Karl Rove’s GPS Crossroads here:
    http://en.wikipedia.org/wiki/Crossroads_GPS#Crossroads_GPS

    Now, you may feel comfortable buying a book from a guy who used to “break bread” with the likes of these “sorts” shall we say. I do not.

  10. @: then that’s the very reason we have a DUTY to take them OUT. The did it using The Patriot Act – how is anyone who claims to have an AMERICAN soul not be spitting bullets at that level of monstrosity????!!!!!.

    Just how do you propose to “take them out”? Do we even know who they are? We can see you are good with the 6th grade math and all, but trying to remove an enemy with words is closer to pulling your own teeth despite the need to feed yourself. They very well could be congressman, or lobbyists, or even a wall street tycoon. Are they movie stars? Or musicians?? Is Warren Buffett one of them, Or was Steve Jobs one that you did get. Or perhaps Emeril Lagasse needs to be talked too. Just who exactly is it you are talking to Annie, other than yourself that is.

  12. Five for Neil? Mine was #2, which makes me ask: how many read this here blogsy? I have no network or soapbox to publicize the petition, so where can it be posted to get the 150 minimum?

  13. The idea that Wall St. is “put upon,” can only be taken as a bad joke. Let me put it this way…if they gave ALL of their earnings for the next century,
    if they gave all of their ill gotten gains to charity for the next one hundred years, it would STILL not absolve them of the crimes they have committed against humanity.

  14. Look folks, the hyenas and Jindals, uuuuuhh, excuse me the hyenas and jackals are already licking at the wounds of the dead animal on the side of Interstate I-93 somewhere near the “big dig”. Oh, strange, the body seems to be moving, but it’s bleeding deeply around the midsection and hyenas and Jindals, oh!!, darn it!!, I mean the hyenas and jackals are slurping at the blood lasciviously.
    http://www.salon.com/2012/11/16/mitt_romney_punching_bag/

    Oh well, you know what they say, “who needs friends when you’ve cuckoo and nutso?”

    I wonder why the jackals were so quiet about the 47% comments, but now…… huh….?? Weird….

  15. I personally gave up on politics decades ago, for very good reasons I might add. Not Neil, nor anyone else at this juncture, can reverse the damage done. We must wait, and then when he least expects it, (which for him could be any time now), a God which he does not believe in, shall balance the scales of justice so he should never be able to acquire such money, influence, and power ever again on this particular planet in that particular fashion. Or if he does somehow, there will be an even greater day of accounting, balancing and for him and many others, a reckoning. Just be patient and keep him discouraged, frustrated, and lonely with everything he does. Concentrate on making your country as efficient as possible until your 90 days of free goods arrive.

  17. Forget about the big banks for a moment and think about the small borrowers.

    When capital requirements for banks are different for different assets, depending on perceived risks, as they currently are, higher for “The Risky” and much lower for “The Infallible” then, especially in times of extreme bank capital scarcity, higher general capital requirements will discriminate even more against The Risky, the small businesses or entrepreneurs, and in favor of “The Infallible”

    And so, calling for capital requirements increases, leaving discrimination untouched, can only be defended by someone out to favor “The Infallible”, like the infallible sovereign and some few highly rated corporations, and not caring one iota about small fry like small businesses or entrepreneurs. Is this the Professor’s agenda? It might be but, if not, then the problem is that he has yet not understood the cause of this crisis.

    http://subprimeregulations.blogspot.com/2012/11/regulators-please-temporarily-lower.html

  18. Risk is entirely dependent on the law. The law is wrong in so many ways that risk is purely perceived risk, and not discriminatory risk. In fact, risk actually orbits so many moons, that the choice becomes entirely yours, depending on your location and orbit of like minded peers.
    For me, if a law needs to be changed, and you can not change it, you must break it!
    For congress, there is a law for uins, and a law for weins, and they ain’t the same law!

  23. Simon Johnson told the Senate Budget Committee that another financial crisis represents a short term liability to the budget equal to 40% of GDP (5.6 TRILLION) http://www.c-spanvideo.org/clip/3343395 Mr. Johnson said CBO rules require this liability be scored in the budget. Ranking Republican Judd Gregg replied, “there’s a lot of things we don’t score around here”. http://www.c-spanvideo.org.clip/3343212 It should be noted that neither Chairman Kent Conrad or Judd Gregg disagreed with Johnson’s analysis of the numbers.

  24. @filth, Your math is below 6th grade:

    More misery for others = More $$$$ for ME ME ME

    You are DELUSIONAL to think that your sadistic economic “ism” has a larger and more powerful *army* than the MILLIONS who JUDGE the situation based on JUST WAR criteria.

    Condition #1 HAS BEEN MET for the launch of a Just War. Free education can be considered “community service”, right? Everyone has the “right” to defend their own *turf*?

    The question is not who runs the SEC next. The answer to the CENSORED question is that the SEC, as an institution, corrupted itself in order to do the exact opposite of enforcement of regulation. So you have to be a believer in the cult of personality to swallow the sell that it all rests now on who heads up the SEC. Institution is too far gone.

    Refresher course:

    “The Just War theory is an authoritative Catholic Church teaching confirmed by the United States Catholic Bishops in their pastoral letter, The Challenge of Peace: God’s Promise and Our Response, issued in 1983. More recently, the Catechism of the Catholic Church, in paragraph 2309, lists four strict conditions for “legitimate defense by military force”:
    1. the damage inflicted by the aggressor on the nation or community of nations must be lasting, grave, and certain;
    2. all other means of putting an end to it must have been shown to be impractical or ineffective;
    3. there must be serious prospects of success;
    4. the use of arms must not produce evils and disorders graver than the evil to be eliminated. The power as well as the precision of modern means of destruction weighs very heavily in evaluating this condition.”

    Three types of *force* were applied by banksters – brute, economic, and psychological. It’s a WAR. And CLEARLY – THEY started it.

    As for the 400 Forbes – like I said before to GenXers and their fetishitic attachment to their gizmos – “youve been punked”. You spent BILLIONS on the gizmos, but, DOH!, keeping power available to run them is “community service”.

    And what do the Walmart heiresses do all day long? It could not have taken them more than an hour to figure out the math of paying POVERY wages. What kind of economic “ism” is that? The calculation of a POVERTY wage? But that isn’t even the main problem I personally have with WalMart. It’s the depressive mediocrity of their products and their store environment. It’s the standarization of UGLY. My ego would no doubt lead me to blow open a worm hole into the future with that much economic power in hand – pick your expression of BEAUTY – architecture, music, new sources of energy, permanent and sustainable organic farming….

    Rich man’s idiot son….yup, the slaves notice….

    JUST WAR.

    BURN The Patriot Act – it was ALWAYS about getting into your finances and pulling the strings to EXTRACT it ALL. The burden of PROOF is on you *economists* that that never happened…

  26. Annie, I agree with your premise that the SEC is so mired in systemic corruption, a change in leadership cannot cure the disease. In a previous comment, I provided a link to Mr. Barofsky saying fraud by the nine largest banks caused the financial crisis. And yet, Barofsky is not calling for widespread criminal prosecution of Wall Street CEO’s and their bipartisan partners in crime. Hmmm???

    Maybe Barofsky subscribes to Alan Greenspan’s ideology that Wall Street fraud should NOT be regulated. Greenspan’s anarchical ideology is exposed in the PBS Frontline documentary titled “The Warning” http://video.pbs.org/video/1302794657/

    America’s ruling class has achieved exemption from the rule of law and created a culture of corruption. Equality before the law is the basis of a civil society. Citizens must preassure county, state and Federal prosecutors to abide by our founding principle, equal protection under the law. We can begin by sending them the compelling evidence provided by William Black in the following radio interview. http://onpoint.wbur.org/2011/10/18/prosecuting-wall-street/player More evidence to convict ruling class criminals can be found at http://www.standupforyourrights.me

  27. The military is the most beloved institution. But is this a good thing?
    Probably not, since there was a beginning to religion and wars, why in turn can’t there be an ending to religion and wars?? One which leaves no doubt about right and wrong, a proven end with logical conclusions.
    I think a good part of it is happening right now, especially among the sheepie with eyes closed. We are at a peak of military technology, at a time when we need compromise which includes logical conclusions, and not a my way or the highway approach which is all that has been and will be delivered. Just this morning I heard the president say from Asia that America was a pacific nation, and gave the typical growth spew of confidence in the future of Asia markets. It’s not the efficient method to promise growth in an economy, when uncertainty abounds.

  28. America does not have a regulatory apparatus. We have prison industrial complex, and an intelligence industrial complex spying on Americans without due process, – but we don’t have a regulatory apparatus policing markets, prosecuting abuses, and abusers, and working to protect and advance the people’s best interests. In fact what American’s citizenry must hazard and endure is a purchased regulatory owned and controlled by – and peopled with the very predatorclass operators the regulatory apparatus is sanctioned to regulate. In practical application – there is no regulation. We have thousands of pages of laws designed to regulate, but with no effective policing or enforcement – there is in fact no, or very minor and insignificant regulation.

    Any step forward in strengthing the policing and enforcement capabilities of existing regulations – not to mention – much needed more expansive future regulations is welcome.

    Very much appreciate the reading list the advocacy of these candidates. Hopefully the change president will finally start working on the change policies he promised and campaign on in 2008, and 2012.

  29. “…To make Wall Street safer – and more helpful to the rest of the economy – …”

    You mean Wall Street is not where Capitalist Companies, The GM, um,
    lets see John Deere, maybe one shoe company, companies that build things in America; where average Joe America, can invest:

    IS NOT WHAT WALL STREET IS?

  31. For the reason that it was not the absence of the Glass-Steagall Act that caused this crisis and so, instead of a “good start”, restoring it, would signify a false start

  32. @TonyF – “…America does not have a regulatory apparatus. We have prison industrial complex, and an intelligence industrial complex spying on Americans without due process, – but we don’t have a regulatory apparatus policing markets, prosecuting abuses, and abusers, and working to protect and advance the people’s best interests….”

    Just sticking with the spying thing for the moment….not just some Deliverance Boyz voyeuring from their billion $$$$ spanking new spy center built in the middle of POLYGAMY country in Utah saying “not everyone DESERVES a home” because that was THEIR schtick for how they got the $$$$ for their spy center (TRUTH!!!!) – rob the “feminists” via FRAUDCLOSURES

    but the Moussad, the Swiss and the Chinese all have OPEN ACCESS to the same knocked down and beat up while knocked down USA citizens – is this “outsourcing” in a global economy? About a minute in…

    http://www.nbcnews.com/id/49263362#49875590

    The situation is BEYOND ABSURD. We’re stripped naked and ROBBED to pay corporate private armies! EVERYTHING the Deliverance Fascists do they get to do EVERYTHING in *secret*! GLOBAL War/Drug/Slave LORDS get to judge YOU. These people are INIQUITORS. That is their CULTURE.

    JUST WAR.

    I have the RIGHT to protect myself – just like fnk *israel*

  33. Forgot to add in the *Russian Mob* in NYC area that Putin chased out…but it’s too easy for them – they snicker with glee and add to the apparatus already built up by that anti-semite list…

  34. Per Kurowski, you say the absence of Glass Steagall did not cause the financial crisis. During the 70 years Glass Steagall was in place, the U.S. did NOT experience a Great Recession/Depression caused by the financial sector.. Canada did not remove the firewall between commercial and investment banks. As a result, Canada’s debt to GDP ratio is approx. 30% while the U.S. debt is 150% of GDP (if toxic assets are marked to market value). http://www.marketwatch.com/story/fasb-approves-more-mark-market-flexibility

    Obama and his bipartisan partners in crime are cooking the gov’t books. In a previous comment, I linked to Simon Johnson’s testimony before the Senate Budget Committee. Simon told the Committee another financial crisis represents a short term budget risk equal to 40% of GDP (5.6 TRILLION), and this should be scored in the budget. Obama is also keeping Fannie Mae and Freddie Mac’s liabilities off budget. http://www.zerohedge.com/article/obamas-budget-has-one-small-missing-piece-63-trillion-dollars

    For easy to read info on Glass Steagall and derivatives, check out the “Financial Markets” section in the following pdf. http://www.standupforyourrights.me/?p=1026

  35. Yes I say that the removal of Glass Steagall Act did not cause this crisis… because absolutely every asset that became problematic and caused the crisis, were those for which the regulators allowed the banks to hold extraordinarily low capital.

    The AAA rated securities collateralized with lousy awarded mortgages to the subprime sector, and for which banks were authorized to leverage 62.5 times to 1 had nothing to do with Glass Steagall Act removal.

    The loans to “The Infallible”, like Greece, and for which banks were authorized to leverage 62.5 times to 1 had nothing to do with Glass Steagall Act removal.

    The credit default swaps that AAA rated AIG sold, because with that banks could leverage those credits over 60 times had nothing to do with Glass Steagall Act removal.

    The excessive loans to the real estate sector in Spain and that is bringing that country down and for which banks could leverage over 40 to 1 had nothing to do with Glass Steagall Act removal.

    And so on!

  36. SEC does not have criminal investigation authority, so to fix the problem, we need strong anti-TBTF fellows. Here is my choice for new cabinet posts. Eliot Spitzer for Attorney General, Robert Reich for Treasury Secretary to clean up the dirty Wall Street. Unfortunately, Obama is not gonna fix the dirty street because he is one of them. You remember what Jeremiah Wright said after his church’s video clip four years ago. ‘He is a politician’. A shrewd politician. I voted for Obama not because of his character but because he is a lesser evil.

  37. Per, you’ve finally landed in the Left Field without a Mitt Hall of Fame.
    Regardless of capital requirements for loans, the source of the financial meltdown was the sale and packaging of complex derivative transactions, made possible with the lifting of the firewall provided Glass Steagall.

    You need new eyeglasses, too, Per.

  39. Gees, the moment Per starts inking up the page, its time for the last supper, or the big old execution day. Say your prayers young uns.

  40. I love the way we’re simplifying a very complex problem down to one or the other reason that lays blame on the persons we want to lay blame on.
    Per is right in that bank capital ratios are a huge element in the susceptibility of the system to collapse. At the absurd ratios Basel allowed, all it took was a 1.5% loss in the value of a loan-secured financial instrument to put the originating institution in the hole and force a call. On top of that, the variable capital ratio requirements created a distorting effect that directed investments away from useful projects and socialized risk…because the regulators thought they understood risk.
    Bond is right that the lack of oversight of the shadow banking industry generated poorly designed or fraudulent investment instruments. But by the time Glass-Steagall was overturned, the financial industry had moved far far beyond its limits – just like the Germans end-ran around the Maginot line, Glass-Steagall only regulated the traditional banking structure in existence at its passage. Dodd-Frank may be a horrendous mess and frought with loopholes, but it shows how complex the FIRE sector has become.
    And of course Congress turned a blind eye to the systemic problems that were eroding the middle-class oriented economy of the mid 20th century in favor of schemes that maximized enrichment by leveraging and opacity.
    I could go on. But it’s a real trick designing a financial system that allows innovation and efficient distribution of resources to worthy projects that’s also robust to internal and external shocks and gaming.

  43. @Glen Gorder, “…Annie, I agree with your premise that the SEC is so mired in systemic corruption, a change in leadership cannot cure the disease….”

    Ignoring so much overwhelming evidence is, both, insane and criminal.

    If the SEC is disbanded, then other “laws of the jungle” can pick up the slack. We are there already, anyway, with the two sets of rules…although *fittest* is definitely going to be re-defined :-)

    @Oregano, “…But it’s a real trick designing a financial system that allows innovation and efficient distribution of resources to worthy projects that’s also robust to internal and external shocks and gaming…”

    In the 1990s, it was found that $40 an hour for *LABOR* like nurses and electricians would keep the *robustness* stabilized – the shoulders you can stand on to do the *worthy projects*. It’s all BUILT on a decent man to land ratio, btw. Not picked out of the….

    @filth – how dare you put *religion* and *war* in the same category? YOU DID GET RID OF THIS *authority* in the lead up to Iraq and replaced it with what?!!! The rank savagery of Deliverance Boyz.

    “The Just War theory is an authoritative Catholic Church teaching confirmed by the United States Catholic Bishops in their pastoral letter, The Challenge of Peace: God’s Promise and Our Response, issued in 1983. More recently, the Catechism of the Catholic Church, in paragraph 2309, lists four strict conditions for “legitimate defense by military force”:
    1. the damage inflicted by the aggressor on the nation or community of nations must be lasting, grave, and certain;
    2. all other means of putting an end to it must have been shown to be impractical or ineffective;
    3. there must be serious prospects of success;
    4. the use of arms must not produce evils and disorders graver than the evil to be eliminated. The power as well as the precision of modern means of destruction weighs very heavily in evaluating this condition.”

    Condition One has been met. The SEC is a JOKE in the face of the lasting, grave and certain DAMAGE everyone SEES. What part don’t you understand?

    No one is delusional about the *power* of the private military of the GLOBAL War/Drug/Slave Lords who stole the funding from Social Security and Medicare funds to create themselves as “the law”.

    It’s still a duty to stop them NOW.

  44. How dare I?, I have every right too.
    Besides, who died and left you king of the river.
    You are a war monger, a person who can’t communicate effectively enough, so muscle is the last resort.
    We get that part, and as I have stated for years now, you are in great pain.
    I have never seen anyone suffer as much as you do, with the same misery and misunderstanding of days gone by. I know misery loves company, but you have none here. You are completely alone in most everything you do, everywhere you do it, including here. Nobody talks to you at your level of consciousness, they talk above you, around you, and through you. And you continually respond with the same jargon of needing to be the enforcer of duties and conditions. Keep liking war, and you will remain, miserable.

  45. The removal of Glass Steagall Act just postponed the slowdown. As did the excessively high leverage ratios and the foreign inflows, all of these combined to create excess liquidity. But even when bundled as ‘excess liquidity’ these are just symptoms.

    The underlying cause is about job creation shortfalls in an economy that is out of sync with the global economy. In the US… it is routinely ignored that the recycled dollars that were driving the excess liquidity were surplus dollars that should have been invested in the poorest parts of the world, instead of the wealthiest. The cause then can also be explained as a shortfall of consumption where there is demand which is based needs, while there was over-consumption in nations which were doing whatever necessary to create jobs.

    But of course just like the analysis of the Great Depression, that which sells… is that which casts blame away from the actual culprit. The culprit though is US policy in general regarding its governance of world affairs. The imbalances are a result of the reserve currency status and the policies to protect that status.

  46. Oregano says, “I love the way we’re simplifying a very complex problem…” Who is we? There’s a number of regulatory changes that led to the subprime bubble, among them, virtually non-existent capital requirements. But the fact is, If Glass Steagall were fully reinstated, the result would be a breakup of Too Big To Fail (TBTF) banks, and a removal of risky investment banking activities from the Federal safety net. This is the most important step to restoring fiscal sanity to the Federal budget.

    Taxpayers are backstopping the gambling losses of TBTF banks. This props up Wall Street credit ratings and conversly, the rating of U.S. sovereign debt goes down. Moody’s says Bank of America’s rating is five notches above what it would be without gov’t support. http://www.c-spanvideo.org/clip/3344569

    I posted the link below in a previous comment, but the information is essential for understanding the “fiscal cliff”. The three things to take away are: 1) Dodd/Frank does not end TBTF. 2) The TRILLION dollar plus Federal budget deficits are directly attributed to the financial crisis. 3) Another financial crisis represents a short term budget liability exceeding 5 TRILLION dollars. This is the 3 minute clip of Simon Johnson testifying before the Senate Budget Committee. http://www.c-spanvideo.org/clip/3343395

    While promoting “13 Bankers”, Simon Johnson gave a presentation on CSPAN’s Book TV. I haven’t seen a link to it so I’ll post it.
    http://www.booktv.org/Watch/11440/13+Bankers+The+Wall+Street+Takeover+and+the+Next+Financial+Meltdown.aspx

    During his presentation, Simon said the few hundred people who run the six largest banks have “captured the State” and have power to “extort” money from gov’t. In other words, TBTF banks have achieved exemption from the rule of law and pose an existential threat to our democratic Republic . Evidence of this is put forth by William Black in the following radio interview:
    http://onpoint.wbur.org/2011/10/18/prosecuting-wall-street/player

    Given Simon Johnson and James Kwak’s recognition that U.S. sovereignty has been subverted by big banks, it’s odd that they frame ongoing fiscal issues (tax reform) as a function of democracy.

  47. @Glen, why, us, of course … ;-) I don’t dispute that reinstating firewalls between investment and retail banks isn’t needed. But it tackles one aspect of the whole problem with a bloated and unstable FIRE sector – the creation of unwise financial products and as a consequence the reduction of bank political power. You may have noticed that my big thing is reestablishing a linear and robust market that doesn’t distort incentives and that increases transactional transparency (see Norm Cimon’s comments for more on this). So you both are tackling equally important aspects of this huge question; Per is looking at the playing field, you at the players. I’m oversimplifying here to make a point, of course.

  48. Ray LaPan says “the removal of Glass Steagall Act just postponed the slowdown”. Partially true, but more of an obviscation than revelation. Ray correctly suggests America’s decline is due to structural changes resulting from globalization. America’s ruling class favors Communist China’s command and control economic model, so “free” trade is used to transfer TRILLIONS of U.S. investment capital, technology and hard assets to China. This redistribution of wealth is attributed to America’s inability to “compete” globally. In reality, the wealth transfer is subsidizing China’s authoritarian economic model at the expense of U.S. taxpayers. Bottom line, America’s ruling class does not want Western democracies to dominate the world economy.

    Wall Street cronies say gov’t should be run more like a business. Well, multi-nationals spend billions PROTECTING their market share. Why? If a business engages in “free” trade, and transfers capital and technology to it’s competitors, it won’t be in business for long. Prior to free trade and globalization, America practiced trade PROTECTION and dominated the global economy because of it. We didn’t outsource the U.S. manufacturing base to the Soviet Union just because they had cheap labor. Globalization is a euphamism for global corporate tyranny, and China’s brutal regime is Wall Street’s partner in crime.
    http://www.standupforyourrights.me/?p=115
    Free trade is designed to transition the U.S. from an industrial economy to a low wage service economy, which by definition means a steep decline in economic growth. The subprime bubble was created to mask the catastrophic effects of de-industrialization and shift blame to average citizens for “living beyond their means”. The financial crisis institutionalized TBTF and their TARP entitlement program. Pat Mulloy is a member of the U.S./China Economic and Security Review Commission. He says the trade imbalance with China will result in a foreign country owning large chunks of the U.S. economy. http://www.c-spanvideo.org/appearance/600148025 Rep. Brad Sherman said the “cancerous” trade relationship with China is driven by enormous corporate power. http://www.c-spanvideo.org/appearance/571769246

  49. Oregano, reinstating Glass Steagall accomplishes your “big thing”, i.e., it would remove incentives for irresponsible risk taking that distorts markets and increase transactional transperancy by breaking up artifically complex institutions. Kansas Fed President Thomas Hoenig makes similar arguments. http://www.c-spanvideo.org/clip/3343244

  50. @Glenn: yes…but it only does it in the United States. The leveling of the playing field has to be global, because the unleveling of the playing field happened there…in Basel. To the extent that the United States controls the world economy through its reserve currency status, reinstating Glass-Steagall (which I am not opposed to) would affect world markets, but today, unlike in the 1930s, there are several centers of economic power that must act in concert: Europe, Bejing, Japan. Mercantilists all, like the US in years past. They have little interest in preserving the US’ economic power other than in the service of keeping things afloat until a transition can be effected. A transition might be a good thing, but that’s beside the point. The solution to our domestic economic issues, through our own promotion of global free trade (also something which I do not oppose in theory) on our terms, is not completely within our hands. This is why I tend to side with Per’s emphasis on global lending capital regulations as key to restoring the world economy’s health and fairness.

  51. @glenn: I just finished watching Ken Burn’s piece on the Dust Bowl. What is so obvious from that story is how immensely capable we are of changing the face of the earth…and so utterly unable to remember what it has taught previous generations. Only 10 years after soil conservation measures were widely adopted and the rains returned, so did the briefcase farmers and speculators, and so did the droughts and dust clouds. They were not as strong this time because enough farmers maintained the methods of conservation that had saved them. But then, irrigation from the Ogalalla Acquifer was discovered…and we are 20 years away from another dust bowl.
    It appears to be human nature to forget, to focus on the now. The only practical solution appears to be to diminish our power to broadly act, to enable the wisdom of groups and the commons to reassert itself again. To that end, at least domestically, it means reducing the size of the actors on our economic stage, for no person or group of supposedly wise ones can remain so indefinitely.

  53. “reinstating Glass Steagall accomplishes your “big thing”, i.e., it would remove incentives for irresponsible risk taking that distorts markets”
    First. I am not against reinstating a Glass Steagall act if done with care and perhaps even after the TBTF have been broken up since otherwise we could just end up with even higher concentrations of TBTF.
    Second. I am in favor of breaking up big banks… and as an ED at the World Bank I said so in 2003, while perhaps all of you were kept silence, on this “professionally” delicate issue.
    Third. The incentives for “irresponsible risk taking” has nothing to do with Glass Steagall…

    And while were at it, let me again dissect better the phrase “irresponsible risk-taking” and which, in the context of the current crisis, creates confusion about what happened.

    Absolutely all bank assets that created the current problems, 100%, were assets considered to be “absolutely safe” belonging ex ante to “The Infallible”. The regulators being too risk adverse and not wanting the banks to expose themselves to “The Risky” gave the banks, by means of very low capital requirements, the possibility to earn immense expected risk-adjusted returns on their equity (and bonuses) by sticking with “The Infallible”. And so what really happened is better described as “an excessive regulatory risk aversion that caused banks to create excessive exposures to “The (supposedly) Infallible”.

  54. “Keep liking war, and you will remain, miserable.”

    Talking to the mirror and thinking he sees Annie

  55. Bottom line is the SEC is useless. Only people who *believe* in the cult of personality believe that who heads up the SEC has the power to actually make the Institution do its job and “regulate”! There are so many aspects of cultism among the Econ nattering class that it is like visiting Jim Jones in Jonestown and helping him plan his Final Act by taking his order for suicide injections being shipped to an off the grid place like Guyana…

    Raising taxes on a family of 4 who MIGHT still have 30K fiat $$$$ flow their way in a year through a series of *service* jobs to pay for heading up an SEC is ridiculous. I’m not going to pay for someone to abuse law to such a degree – basically institutionalizing economic injustice and genocide.

    @GG – “…Given Simon Johnson and James Kwak’s recognition that U.S. sovereignty has been subverted by big banks, it’s odd that they frame ongoing fiscal issues (tax reform) as a function of democracy….”

    Who better than them to understand that 2.08 TRILLION in *private hands* puts them in the same position as everyone else – all you can do is rob Peter to pay Paul…AKA “taxes” from a HUGELY shrunk pool of fiat paper.

    Gotta stop the shipping of coal to China….

    I’m a Star Trek Prime DIrective “policy” wonk. The biggest human factor missing from the policy delusions of the globalists is CULTURE. How much damage the rest of the world allows these sadistic tyrants m to inflict on HUMAN CULTURE is a real consideration – not another pulled out of the butt *ism* with a foundation in:

    More misery for others = More $$$$ for ME ME ME.

    Man to land ratio….can’t sell your racial superiority over the “white man” if you could not figure out how not to crap where you sleep…

  56. Glenn,
    Spoken like a true believer. The problem though is that your thinking is backward, how could a nation with 780 military bases around the world be taken advantage of by a nation that has almost no bases outside of its borders, and with almost no authority in the Bretton Woods institutions. And your comment is framed as if a nation providing vast quantities of labor and trading the fruits of that labor for paper of questionable value has somehow been given a free ride. And a ride on by the very folks who not only invented the concept of platforming, but folks too who are only 4% of the global population but own 56% of global market share. And yes, they be the same folks who consume vastly more than what they produce but still manage to maintain a strong currency. But of course these folks consume as a favor to the world’s poor, even when it means that they must contend with the consequent obesity and the diet-related diseases that follow. Consumption as charity, and investment as a favor, because of course ‘Americans won’t do ‘those’ jobs’.

  57. Per, lets put “the infallible” vs. “the risky” in perspective. Ratings agencies turned junk securities into Triple A via mathematical models predicated on fraud. The models were inherently fraudulent because they were based on the assumption that home prices would increase 6% per year, FOREVER.

    Wall Street banks used Structured Investment Vehicles (SIV’s) to keep toxic assets (hundreds of billions) off balance sheet. Tim Geithner, then NY Fed President, was legally charged with examining the books of Wall Street banks. OOPS! But like the CEO’s who bankrupted their businesses, Geithner was rewarded for his failure and promoted to Treasury Secretary.

    The FBI, in 2004, testified before Congress in open session, that mortgage fraud would lead to a financial crisis. In spite of numerous warnings, 1 in 3 loans was a “liars loan” when the bubble burst.

    This is why Neil Barofsky said fraud by the nine largest banks caused the financial crisis. http://www.c-spanvideo.org/clip/3343248 And why William Black is calling for criminal prosecution of Wall Street titans. http://onpoint.wbur.org/2011/10/18/prosecuting-wall-street/player

    Oregano and Per emphasize global capital requirement standards as the key to “restoring the global economy’s health and fairness”. Their argument conveniently ignores the underlying fraud that caused the global crisis. Hmmm?? If there are no consequences for regulators who refuse to enforce the rules, why would more/different rules restore fairness? Restoring “fairness” depends on enforcing the rule of law because systemic fraud is the new global standard. For more info, check the following post titled “Crime of the Century”.
    http://www.standupforyourrights.me/?p=697

  58. Fraud or not fraud the truth is that there has never ever been a major bank crisis that has resulted from excessive exposures to something ex-ante considered “The Risky” they have all, no exceptions, resulted from excessive exposures to what was ex-ante considered “The Infallible”, and that only later, ex-post turned out to be very risky.

    In this respect if we are going to have capital requirements based on risk, empirical evidence suggest these should be higher for what is perceived as “The Infallible” and lower for what is perceived as “The Risky”. Do you start to comprehend the magnitude of the regulatory mistake or do you still feel that it is impossible for regulators to regulate that bad?

    On the doors of all banks there should be signs stating “Caveat emptor, regulators regulating”

  59. Ray LaPan, my thinking is backwards? I think not. The 780 military bases, Bretton Woods authority, the dollars reserve currency status, etc., are being used to subsidize the global economy at the expense of America’s domestic economy. A majority of TARP funds went to foreign banks and the Fed’s QE to infinity is driving growth in emerging markets while U.S. growth is flat and real unemployment is 15%. http://www.c-spanvideo.org/appearance/601240269

    George Soros cites data from the Bank of International Settlements (BIS), which says EU and US banks are the largest supplier of credit to emerging markets. China is the largest emerging market, so banks propped by U.S. taxpayers are financing Communist China’s 8% growth while U.S. growth remains stagnant. These links are to Soros and an Investors Business Daily article saying “20 TRILLION of taxpayer funds” has been committed to prop up Wall Street. http://video.cnbc.com/gallery/?video=3000046947
    http://news.investors.com/article/531170/201004221920/bull-on-wall-street.htm?Ntt=20trillion

    Chinese State Owned Entities (SOE’s) are currently mining a TRILLION dollars of copper, gold and lithium reserves in Afghanistan. And much of Iraq’s oil production is going to China. So is it backward thinking to conclude U.S. tax dollars and military are subsidizing China’s growth? I think not. Here’s a CNBC report on mining in Afghanistan. http://video.cnbc.com/gallery/?video=3000047354

    And let’s remember, the Fed’s dual mandate is price stability and full employment in the U.S. economy, not the global economy. U.S. citizens will bear the brunt of inflationary costs resulting from the Fed’s QE to infinity while subsidized/protected emerging markets continue to grow. The global economy has been structured to favor emerging markets and the expense of Western democracies. This didn’t just “happen”. Goldman Sachs Chairman of Asset Management, Jim O’Neill, takes credit for creating emerging markets. http://www.charlierose.com/view/interview/11612

  60. @Glenn, no, I and Per are not ignoring the underlying fraud that did go on in the US system. Note that Per in his response agrees with you that banks need to be broken up – perhaps even BEFORE reinstatement of a firewall. The point we’re trying to make is that systemic fraud doesn’t exist without the incentive to do so, and the incentives to do so lie in the laws and agreements, domestically and globally, created ostensibly to manage risk but that in practice increased it.
    A second issue is one of timing. Criminal fraud prosecutions take vast amounts of time and resources, particularly when the laws being used as criteria are so vague as to preclude definitive prosecution. However, changing regulations can begin happening almost immediately with immediate salutory effect, and delay is one thing we have been suffering from. Legal prosecution needs to happen where it can, but should happen at best in parallel with regulatory restructuring, not before it.
    Although I’d love to see a lot of perp walks, the unfortunate reality is that we may better serve the cause of justice for our future by, for now, tempering our desire for vengance for the past.

  61. yes, Glenn, ‘backwards’.

    Now you are using FDI and carry-trade capital that is provided as needed, to gain the best ROI, as if the receiving nations are not threatening a ‘currency war’ to insulate their economies from ‘spillover’ and from foreign exploitation of ‘their’ demographic dividend. You have your facts fairly straight but you fail to understand that the purpose of US foreign investment is to control the global marketplace and of course to earn the max ROI. You get that the American publics’ welfare is secondary to the welfare of the American investor but you are missing the fact that the US is in an economic war with the ROW. And it was while pressing too hard to gain ground in this war that excess liquidity got out of control. Those calling for penal reforms of Wall St don’t understand that the US Government and Wall St knowingly took risks in tandem with an ‘end justifies the means’ justification. Machines and technology are driving down the demand for labor and in the not too distant future… the nation that owns the resources through stock, patents, and lending gains, well, that nation will have control, it already does in fact, but the ROW is realigning day by day.

  62. Haha. Comedy central again..”an impressive amount of whining”..

    I work on Wall Street and did not hear any whining

    There was a sense of relief. It takes 2-3 hours to get down to DC and then 2-3 hours to get back and a complete waste of time if the President thinks that the CEO of Pepsi is more important to get the US moving again.

    Yeah baby, Pepsi!!! Nice

    It was easier to talk 1 on 1 with the President when he called.

    Sorry simon buddy, looks like you are the only person upset.

  64. All this jibber jabber is irrelevant. Unless criminals are held accountable and punished for wanton and systemic criminal activity, both the criminals and the crimes will grow more abusive and destructive. The predatorclass finance oligarchs own and control the government and the regulatory apparatus, so quite obviously – there will never be any policing or punishing criminals and systemic crimes in the finance sector.

  65. Oregano, you said “systemic fraud doesn’t exist without the incentive to do so”. The two most obvious incentives driving systemic fraud are 1) The lack of criminal prosecutions and insufficient penalties to deter financial fraud. Goldman Sachs was fined 500 million for fraud, but received billions via the bailout of AIG. This level of “enforcement” incentivizes more fraud. 2) The lack of a firewall (Glass Steagall) has led to the creation of artificially complex institutions which are now Too Big To Fail. This status places high risk, speculative trading in the Federal safety net. And as Neil Barofsky said about the nine largest banks, “if they had even larger holes on their balance sheet due to FRAUD, that would’ve been only more reason for Treasury to give them money”. http://www.c-spanvideo.org/clip/3343248

    As long as TBTF banks exist, the fraud described by Mr. Barofsky will occur again, and again……

  66. Chinki Chameli, doing God’s work are you?. Give my regards to Rabbi Blankfein. You work on Wall Street and didn’t hear any whining? Perhaps you’re deaf as well as dumb. Sorry, I couldn’t resist the cheap shot. But every time Uncle Bernanke thinks about taking the candy away from this children on Wall Street, they scream and stomp their little feet until Uncle Ben caves. All that free sugar may be clouding your memory so here’s a reminder of the last handout.

  67. @GG – “….As long as TBTF banks exist, the fraud described by Mr. Barofsky will occur again, and again……”

    But since the SEC is there as a buffer between whatever *force* can break up TBTF and the rights of USA taxpayer – no taxation without representation – then we’re back to the utter uselessness of the SEC. Nothing in it for the USA taxpayer so why support this useless institution and pay their salaries when their job is to screw us?

    Seriously, how much are those “mortgage backed securities” worth anymore? The machines and technology that billions of people manufactured

    and then died penniless as a reward, or were killed after making the machines and technology and WEAPONS OF MASS DESTRUCTION (gee, like the lights are going to stay on for anyone else to use that “stuff” as a consumer – how much can 480 acquire even with their unquenchable avarice?)

    are *people my friend* and can be charged for the space they occupy, AKA rent? No one thought that far ahead, huh? Can you charge machines and technology *rent*?

    It’s all stupid math because there is a REAL PHYSICAL LIMIT to *profit* based on a man to land ratio. The one machine that does the work of 1 billion people still sucked up the resources of a billion people in it’s creation.

    All we have is a global economy that translates the removal of a billion people and the resources exhausted for that machine into *wealth* now owned by one person. It’s just one giant organ extraction machine.

  68. Off topic again (as usual??), sorry
    I often wander off topic here because I think the hosts (Kwak and Johnson) of this site are generally (though not absolutely if I count some filtering quibbles) very gentlemanly and civilized and encourage dialogue. So I can’t help but try to take advantage of that if I think something is worth discussing or making my cute little attempts at witticisms.

    I’ve gotten back more to reading Paul Krugman lately as this site doesn’t post as regularly as it did in say 2008–2009. And sometimes I go away and come back to certain writers, as I take break from them the prose seems more refreshing after a little break.

    So I’m reading the last 2 or 3 of Krugman’s posts (along with a book on trade he published around ’97 that I picked up cheap). And this post I thought was quite humorous:
    http://krugman.blogs.nytimes.com/2012/11/20/the-new-republicans/
    When he gets to the final two paragraphs is the real killer. I lift a good portion of Krugman’s words here with apologies to Mr. Krugman for not asking:
    “Republican intellectuals and pundits who seem to be truly open-minded about both economic and social issues. But I worded that carefully: they “seem to be” open-minded; indeed, they’re professional seemers. When it matters, they can always be counted on — after making a big show of stroking their chins and agonizing — to follow the party line, and reject anything that doesn’t go along with the preacher-plutocrat agenda. If they don’t deliver when it counts, they are excommunicated; see Frum, David.”

    So the question pops into my mind, could he possibly (likely) being referring to an NYT colleague who also does his little fake introspective poser dance on the fence routine on PBS NewsHour whose initials would be D.B.??? In which case just once I wish Krugman would go ahead and punch D.B. directly in the nose and sign the bridge of D.B’s nose “Krugman’s knuckles were here”.
    I WOULD GET A HUGE KICK OUT OF IT IF PROFESSOR KWAK WOULD HERE ON REFER TO D.B. AS “PROFESSIONAL SEEMER”

  69. Here’s my off-topic comment for the day – all about “let’s pretend” we’re regulating something…I mean, how cynical can you get! As always, a new low can be found…Because the march to invading Iran is so blatant that it’s gonna usurp the historical record of Hitler that holds the prize for war-mongering in the books, let’s throw in a pretend peace talk visit. Quite the final hurrah for Hilary…

  70. Up to a whopping 31 signatures on the Barofsky petition. Can we realize every little thing helps? Petitions, letters to our rep, letters to the editor…continuous pressure from a variety of sources both big and small. (Not sure if blog comments count as pressure). The tbtf doctrine is established so it’s not going to die quickly or easily. If Neil can get in there he’s another pressure point.

    Moopheus | November 17, 2012 at 1:38 pm |

    Okay, I’ve created a petition at whitehouse.gov to nominate Barofsky. Only 24,999 more signatures to go. It needs 150 to appear on the web site:

    http://wh.gov/Xn6n

  71. My last response to Ray LaPan is still awaiting moderation. Too many links I suspect so I’ll modify it. Ray said “the US Government and Wall St. knowingly took risks in tandem with an end justifies the means justification”. The key word is KNOWINGLY because it implies INTENT. The financial crisis was intentionally created as a pretext for institutionalizing TBTF and TARP, which are the antithesis of an efficient, transparent, market economy. Hence the book title “13 Bankers and The Wall Street Takeover…” These clips pertain to Dodd/Frank’s Resolution Authority.

    http://www.c-spanvideo.org/clip/3343222
    http://www.c-spanvideo.org/clip/3343218
    http://www.c-spanvideo.org/clip/3343227

    Ray, the economic war you refer to is as old as time. There have always been corrupt elites who want to enslave the masses. Their ideology has many names. Fascism, communism, monarchy, dictatorship, tyranny, take your pick. The Fed, Wall Street and US multi-nationals have chosen Communist China’s authoritarian model. They’re using manufactured financial shocks and “free” trade to bring America to it’s knees and empower China’s brutal regime. China was funneling cash into Fannie and Freddie equal to 10% of it’s GDP. Immediately after their collapse, China was paid back 100 cents on the dollar…400 BILLION. Some say China is trending toward a more humane, market economy. Exiled Chinese citizens testified to the contrary during a recent Congressional hearing. Check out this post titled “Communist China Tortures Religious and Free Speech Advocates” http://www.standupforyourrights.me/?p=115

  72. @Ray La Pan-Love “The underlying cause is about job creation shortfalls in an economy that is out of sync with the global economy. In the US… it is routinely ignored that the recycled dollars that were driving the excess liquidity were surplus dollars that should have been invested in the poorest parts of the world, instead of the wealthiest.”

    Not quite… the Regulators did not talk about the wealthiest and poorest, in their language, it was about “The Infallible” and “The Risky”.

    The Basel II capital requirements indicated that banks needed to hold much more capital when lending to fallible sovereigns than when lending to the “infallible” sovereigns, even though the “fallible” already were paying higher interests.

    I even went to the UN to protest this…

    Click to access UN_FFD_Statement_Basel_Accord.pdf

    But I found absolutely no traction. Other prominent developing country experts, like Professor Stiglitz, were monopolizing the debate with their agendas;

    http://financefordevelopment.blogspot.com/2009/06/what-i-asked-commission-of-un-experts.html

    And, on jobs… why do we not test capital requirements for banks based on potential-of-job-creation ratings? That would at least serve a purpose and if distorting at least distort in the right direction.

  73. I signed the petition for Barofsky. Meanwhile, after reading her excellent book (mentioned by Simon above), I had started this petition to nominate Sheila Bair as Treasury Secretary (or any high regulatory position would be equally appropriate, of course). Please sign and spread.
    http://wh.gov/X0vD

  74. What Per describes in technical form is more commonly known on the streets as “The Partnership”. It includes and insures, that you not only pay for the item, but you continually keep paying to maintain that item in the name of jobs. Now this is not always on purpose, but never the less, it is the end result and the end desire of those who provide jobs and money for them. They don’t respond to Per’s situation because it would imply that their methods and direction were wrong and still need to be corrected. They disagree and since debt and jobs are their friend, they haven’t any need or desire to change their behavior. Time increases the snowball effect and you finally get violence between the have’s and have not’s. Which only increases their need to grow the war economy, it costs $500 to shoot a rocket into Israel, and $100,000 to strike that rocket down before it lands. Who eventually pays for the inefficiency of American diplomacy? The US taxpayer.

  75. @GG – Very interesting posts – thanks for sharing.

    Fortunately, there is a billion people buffer zone right next door to China that is such a completely different *culture*, that if we just sit back and let the Star Trek Prime Directive work it out, we’ll see a real survival of the fittest contest. Not that the Bolshevik-like revolutionaries who threw USA under the global bus know how to do anything other than ALWAYS take the wrong turn to amplify savage and sadistic INIQUITY…all we can do is disconnect them from using our money to kill us with which we still have the RIGHT to do BY LAW. Pitchfork and torches LAW is still LAW.

    Which goes back to the USELESSNESS of the SEC for the Middle Class.

    You want to give your yid buddy a high paying job so that he can find yet another way to rip out a body organ of taxes from poverty wage earners, ala Patriot Act, then dig in your own pocket for the salary for Barofsky…

    Not that complicated at this point in time for Middle Class – do WHATEVER IT TAKES to blow up that funnel that trickles it all UP…

    Wasn’t there all that chatter about how *fragile* it all is….? SEC is all about making it less *fragile* – a better, more legal heist….?

    May we all be thankful for the fruits of our own LABOR as our free will future unfolds – we really DO create our own destinies :-)

  76. @ Glenn Gorder, “As long as TBTF banks exist, the fraud described by Mr. Barofsky will occur again and again…” Why will it happen again? The Plunge Protection Team has a dual mandate which includes acting as The Plunge Creation Team. Remember when TARP was initially voted down? Well, The Plunge Creation Team told Congress the market would drop thousands of points and the U.S. would be under martial law if TARP was not passed. Rep. Brad Sherman confirmed this on the floor of the House. http://www.youtube.com/watch?v=HaG9d_4zij8

    The Plunge Creation Team is responsible for EXTORTING concessions from elected officials. One of the concessions is immunity from prosecution for TBTF executives.

    How can citizens restore the rule of law and a market economy? Prior to the American Revolution, Thomas Paine wrote “Common Sense” as a means to generate the groundswell of support necessary for establishing a sovereign nation. Now, as then, a grassroots movement is necessary. But this time we need a non-violent revolution that begins with educating the public, who in turn, pressure Sheriff’s and prosecutors at the County, State and Federal level. If millions of citizens emailed William Black’s interview (below) to law enforcement, there would be movement toward restoring U.S. sovereignty. http://onpoint.wbur.org/2011/10/18/prosecuting-wall-street/player

    The following website is a layman’s legal brief describing crimes of treason, fraud and extortion being perpetrated by America’s ruling class. http://www.standupforyourrights.me The Declaraton of Independence ended with the founders pledging their honor, fortunes and lives to the cause. The price of freedom is high, but be thankful and seize the opportunity.

  77. I support Neil Barofsky for S.E.C. Chairman. At least he publicly acknowledged that Wall Street fraud caused the financial crisis. Unfortunately, he’s too passive when it comes to calling for criminal prosecutions. With an Orwellian President in office, these are perilous times for democracy, so bold action will be required to restore representative gov’t. In the first few minutes of William Black’s interview, he said Obama went from “yes we can to we’re not even going to try”, i.e., prosecute Wall Street fraud. In fact, shortly after being elected in 2008, Obama went on Jay Leno and said Wall Street’s activities leading up to the financial crisis “were legal”. Later, he said the very same thing on “60 minutes”. Shortly after the 2008 collapse, a top officer from Barclay’s was on the BBC and said, “Wall Street has bought the Senate and is in the process of buying Obama”. M&A signed, sealed and delivered.

    Phil Angelides was Chairman of the Financial Crisis Inquiry Commission (FCIC). These are his comments:
    “The public stewards of our financial system failed us, the CEO’s of financial institutions drove their companies over the cliff and our economy with it….Nearly 26 million Americans are out of work, cannot find full time work, or have quit looking for work. Eleven TRILLION dollars of household wealth and retirement savings has been wiped away, vanished like some day trade gone bad….None of what happened was an act of God. The greatest tragedy coming out of this crisis, would be to accept the idea that nobody could’ve seen this crisis coming and thus nothing could’ve been done. If we accept this notion, I guarantee you, it will happen again”. http://www.youtube.com/watch?v=Vpn87fyKFNk&NR=1&feature=endscreen
    Both Bush and Obama have said nobody could’ve seen the crisis coming and nothing could’ve been done to prevent it. They lied. For links to FCIC hearings, check out the post “Crime of the Century” http://www.standupforyourrights.me/?p=697

  78. The SEC is not the only institution that is full of delusional wingnuts who lack common sense and a realistic view of the problems of the present! Check out this comment on a site that constantly hammers at the FDA for slowing down *progress* through *regulation* – this was found in the comments thread about whether birth control should be sold without a prescription – comment from a C-suite *marketing* guy – you can’t make this stuff up:

    “…..If you look at the big picture, our morals and economic structure have been in decline since the collapse of feudalism. Wealth properly belongs to those who can wrest it from the hands of the weak. Romney had a real shot at reestablishing this natural state. Sadly we ended up with another 4 years of liberalism instead….”

    ANy questions about war-mongerers? They’ve been at it for decades – “…wealth properly belongs to those who can wrest it from the hands of the weak….”

    BULL SH_T math and “isms” pulled from the fat lazy butt is NOT WEAK?

    Too far gone, GG….

  79. Annie, too far gone? Maybe. But before the collapse of every dictatorship, the oppressed thought it would never end, and after the collapse, they wondered how it lasted as long as it did. The long arc of the universe bends toward justice. This is the natural law that terrifies ruling class mutants. They know they’re the weak link and that the best and brightest rise from the rank and file. Their Hobbsian Leviathan is doomed to fail and the vision of Locke and Jefferson will prevail. Will it happen in my lifetime? I don’t know and it doesn’t matter. What matters is taking a stand on principle, not principal, one day at a time.

    Ask yourself why spokesmodels (US Presidents) for the mutant ruling class profess values of justice, equity and democracy. The mutants have to lie about their evil agenda because they know humanity aspires to a just, equitable world. Adam Smith acknowledged this in his book “The Theory of Moral Sentiment”. Smith recognized the innate human quality known as enlightened self interest, i.e., the instinctual understanding that helping others serves one’s own self interests. As the Great Awakening unfolds, the mutant’s divide and conquer strategy will lose it’s power. Woe unto those who are on the wrong side of history.

    Another good candidate for SEC Chairman is Brooksley Born. While Director of the Commodity Futures Trading Commission, she stood up to President Clinton’s gang of financial thugs (Greenspan, Summers and Rubin). She challenged Greenspan’s position that Wall Street fraud should NOT be regulated, and lost. Her struggle is chronicled in the PBS Frontline documentary “The Warning”. http://video.pbs.org/video/1302794657/

  81. @GG – They consider people *WEAK* for following the hard-earned experiential laws of economic fairness that everyone BUT THEM decided were worth following – or as you observed, “….the instinctual understanding that helping others serves one’s own self interests…”.

    Sadistic, wanton and psycholtic political Nihilism striking at economic justice and WINNING because of algorithms? You’ve got to be kidding me…

    And what’s with all the effete squeemishness all of a sudden? Like bashing each other with bats, ala Gangs of New York, is not part of the *labor* movement?

    When Greenspam got PERSONAL with Born instead of addressing her accusations, she would have been within the boundaries of POLITE UPPER CRUST SOCIETY to give him a swift sharp crack of a slap across his cheek like Hollywood films from the 1940s made famous – the woman has the RIGHT to slap the cad so go ahead and sue.

    In the final analysis, it IS too far gone based on Just War criteria. Criteria #1 HAS BEEN MET.

    People in the SEC were enablers regulating ONLY the LEGAL ability of anyone to come and haul their carcasses to prison because they caviled their way around the letter of the law.

    The SEC was the enabler, not the enforcer. A whole bunch of them belong in jail, not chattering about who gets the JOB as Head of the Enablers.

    Do we or do we not have any institution in place to CLAW BACK some of the TRILLIONS wiped out with a key stroke?

  82. The institutions are in place. Leaders willing to put everything on the line standing up for the principles of representative gov’t and rule of law are not. Neil Barofsky and Brooksley Born would be banished from the beltway if they made prosecuting regulators, politicians and executives a priority. And it should be a priority. We need leaders who are willing to make personal sacrafices rather than always make “pragmatic” choices. Good intentions pave the road to hell. Where are we going and why are we in this handbasket?

    I support Barofsky and Born because armed rebellion is not a viable option. I believe the strategy of Dr. Martin Luther King Jr., the Dalai Lama and Ghandi will prevail in the end. When the people lead, the leaders will follow. Born and Barofsky are the most apt to follow.

  83. Hi GG,

    That’s yet another problem with so-called *leadership* in USA under das boot of the MIC. There actually is such a thing as a JUST WAR. Declaration of Independence makes its case along the lines of the ANCIENT Justus Bellum POLITICAL *guidelines* for SELF_DEFENSE. When was the last time modern USA claimed the moral right to spend trillions against a people living without electricity? What, indeed, are our “national interests”…?

    On a HEALTH CARE industry news website, your fellow citizen had NO COMPUNCTIONS whatsoever to say this with utter political confidence in the righteousness of his call to ACTION:

    “….Wealth properly belongs to those who can wrest it from the hands of the weak….”

    That man is a PREDATOR. A rabid raccoon heading for your ankle. There would be very few human beings around if we had not gotten together to man a defense against PREDATORS back when there were a lot more of them than there were of us.

    I have no inclination to adopt an ideological *ism* that turns me into a PREDATOR, I also have no inclination to adopt an ideological *ism* that prevents me from HAVING THE RIGHT to defend myself against a PREDATOR.

    Having a bunch of mental masturbating, ass-kissing, metro sexual wonks claim superiority as leaders following the algorithm god of delusion is Jim Jones Jonestown crap. Of course the brainwashed followers know there’s nothing in it for them to leave the cult. Unfortunately, REALITY runs on a different set of physics and math and, quite frankly, the cultists never did and never will have the brain power or the moral orientation to create *Paradise*. The world IS ganging up on the idiot who openly admits to

    “…..Wealth properly belongs to those who can wrest it from the hands of the weak….”

    HE declared the war, my friend. Don’t you dare say that I have no right to defend myself WITH ALL OPTIONS on the table because then I’ll be at war with you, too, as an ENABLER.

  84. Annie, you posed the question, “what, indeed, are our national interests”. I would ask, who and what defines our national interests? The U.S. President’s oath of office summarizes and defines our national interests. The Constitution and Bill of Rights codified Enlightenment values of representative gov’t and individual rights. In order to protect our national interests, these principles must be protected against all enemies foreign and domestic. This includes protecting the domestic economy from foreign interests via protectionist trade policies. And protecting citizens from U.S. based multi-nationals, which by definition, are loyal to no country.

    Globalization is an intentional attack/war on U.S. sovereignty and national interests. The global economy has been restructured to position Communist China as the headquarters for the NEW & IMPROVED Global Military Industrial Complex. This is on it’s face, treason. The statutory origins of globalization’s treasonous policies can be traced back to the reptilian predators running Wall Street. Wall Street criminals have declared war on the United States of America. Armed rebellion is a justifiable option. But as stated in my previous comment, I don’t think armed rebellion is a viable option.

    The predatory ruling class is well known for its use of provocateurs, i.e., subversives who inject hatred and vitriol into the public discourse. Their intent is to provoke violence which is then used as a pretext for fully implementing policies like the Patriot Act, NDAA and martial law. You compared ruling class predators to rabid raccoons going for the ankles. They’re more like rabid wolves going for the throat. Beware the rabid wolves dressed in the clothing of righteous indignation.

  85. @GG – I agree with you about the passage of The Patriot Act being the de-facto official end of the United States of America, no doubt about it. The Supreme Court etched it in stone with the Citizens United ruling.

    But with so many other tribes and cultures, globally, recognizing the common enemy, it’s not a done deal who will be the one ring to rule them all, so to speak. A mirthless, starving, exhausted, brain-washed army under Pharisaitical control (name the *ism*, they’re all genetically Pharisaism) is not one to be feared for its *soft power* – is it?

    And location is still everything….

    Which brings me back to your comment – “…But as stated in my previous comment, I don’t think armed rebellion is a viable option….”.

    How am I not communicating this lucidly – the “armed rebellion” has already happened! You would not have a black market economy (war/drug/slave lord’s *corporate army*) that is more lucrative than a bankrupt car manufacturing industry if it was soft power that made THAT economic reality currently possible, would you?

    Patriot Act or not, law of the jungle regarding predators is still a RIGHT the individual holds and I’ll argue with Scalia on that one :-))

    Little ol’ Annie Oakley has EQUAL RIGHT to draw that line in the sand – even and maybe even especially ECONOMICALLY – and say, “you cross this line, you die”.

    Back in 1999, after the loss of a family member to breast cancer (he had to leave behind a 3 year old baby boy who was her heart), I used my paid work at the time in science to try and advance the “war against cancer”. After having prepared thousands of “safety summaries”, basically a scientific wrap up of cause of death for breast cancer patients, how could an *idea* about a better way to deliver chemo not be discerned?! And I was not the only one who wanted to head int hat direction – bone marrow transplant surgeons were struggling for a way out of their rigid box to develop the procedure, but because so many cross-scientific disciplines had to come together, they could not. Too much protectionism at every turn…

    Getting from that place in time to here today defending my right to defend myself against rabid raccoons and salivating wolves on an MIT economic discussion board – well, that’s a story that only a Tolstoy could capture. Sorry, GG, been the victim of an undeclared war for far too long beginning with the targeting of the Polish neighborhood by pushers back in the 1960s. Just looking for reinforcements.

    Grandma’s final directive was “…first get the drug pushers….” but by the time she passed away, she was talking about “global” PHARMA.

    Her point always was, do it anyway :-)

  86. You are your own worst raccoon. You don’t pollute,[anything], and then try to find a cure. You start off with something good, and keep it good, you maintain, and life extend that goodness. Rather than spending who knows how much money trying finding cures to your perceived (well in the past) fountain of youth. Which, turned bad because you were ingesting kerosene in your veins while you partied in your sleep. Now you want forgiveness and fairy dust, in the name of life maintenance? You have truly gone crazy in so many ways I even lost count, but now better understand your suffering, and responses, basically lost in space since time dealt you so many bad hands it was difficult to cipher your case. How big is that train you are on?? Anyone riding your coat tales??? Can you say unsystainable health care costs???? Need I go on?????

  87. The reason real medical research is not advancing is because hedge funds started a new gold rush – biotech companies. And cancer is the cow they are milking…

  89. Obamacare is another example, like the S.E.C, of government’s Orwellian nature. The Patient Protection and Affordable Healthcare Act was supposed to reduce costs. It has done the opposite. Jim Chanos runs a large investment firm specializing in short selling. After looking at Obamacare, his firm covered all its shorts in the “private” health care industry, which gets more than half its revenue from State and Federal gov’t. Chanos said the health care industry makes profits double that of the S&P 500. In other words, the “private” health care industry makes profits double that which the market can bear, all thanks to the massive subsidy known as Obamacare. OOPS!

    The coverage of pre-existing conditions is often cited as an expression of Obamacare’s compassion for the sick and injured. But days before Obamacare passed the Senate, former DNC chairman Howard Dean said the bill should be “killed”. Why? He said it was written by Democrat staffers on behalf of insurance companies. The one example he gave was the outrageous cost of covering pre-existing conditions under Obamacare In addition to the high cost, he said Obamacare allows insurance companies to write the rules for covering pre-existing conditions.

    The first link is to Jim Chanos. His comments on Obamacare come at 13:05 into the interview. The last link is a post titled “Obamacare, The Big Lie”

    http://www.theatlanticwire.com/politics/2009/12/howard-dean-says-kill-the-bill-inspiring-liberal-tide/26103/
    http://www.standupforyourrights.me/?p=935

  90. @GG, “….He said it was written by Democrat staffers on behalf of insurance companies….”

    If you look at health care, which includes infrastructure such as waste management and clean water, it is the ULTIMATE *consumer* product. Everyone will need to purchase, if you will, a box of bandaids, at the very least. So what is the rationale for creating this monstrosity of money-for-nothing, for-profit insurance suck-out machine? As you note, all it did was to make the ultimate, necessary *consumer product* unaffordable!

    quote – “…..Chanos said the health care industry makes profits double that of the S&P 500. In other words, the “private” health care industry makes profits double that which the market can bear….”

    But as always, because the dead zone of sanctioned talking points can be spewed forth, ad nauseum, about health care – the point about the ILLEGAL drug trade rolling around in more cash than even the auto industry had to operate with is also a HUGE, fabric of civilization destroying consequence of allowing parasitic industries like for-profit health insurance to utterly destroy the ability of a commerce-based Main Street economy to set an affordable price for a consumer necessity – which having an auto is not in a city like NY…

    And the final bit of complexity, so to speak, that makes normal people feel like they are in an alternate universe hologram programmed to reflect an insane dream someone had after eating pepperoni pizza before falling asleep, is that no one KNOWS what the real, immediate health care needs of the population actually are! At least remove all the *cosmetic* costs and make sure illegal immigrant TB patients are getting treated sine they are in school with your kids, and get that dude spreading clap around the high school cleaned up. Immediate needs are still NOT covered fo rthe Middle Class because you have to pay 2 grand out of pocket on top of the 400 per month premium before you get a *rebate*. That’s KILLING the *consumer* – literally.

    Most of us can’t even put a finger on the abnormality of human nature in the people who focused so directly on assaulting an individual’s health through a money-for-nothing business model…I say it’s sadism PLUS greed. What else could it be? I’m seriously asking…it’s not science, philosophy, economics, ethics, justice…it’s irrational, ignorant, petty, spiteful, and takes the politics of personal destruction all the way to using *government* to wrangled the power of direct infliction of pain and suffering by manipulating access to a consumer product! Slave owner mentality holdover….

    Here we go again – we have the RIGHT to defend our access to the fruits of our own labor. Which, in this case, means the for-profit health insurance companies need to be taken out. They did nothing but contribute heavily to Just War criteria #1 – lasting damage….

    A lot more manufacturing of health care products – at least enough to cover the USA’s population’s REAL immediate needs – will need to be re-established on USA soil. There you go – you’ll finally get a real job instead of enronista-ing another consumer product/public utility….

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