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This article is a follow-up to my recent piece on
“America’s Financial Oligarchy” which was a synopsis of
Simon Johnson’s “The Quiet Coup” on how the financial
industry has effectively captured our government. This follow-up article is
an edit and review of a lengthy 231-page report prepared in March 2009 by the
Consumer Education Foundation (see wallstreetwatch.org/reports/sold_out.pdf
for the full report) on how, over the years, the ‘Money Industry’
as they refer to the financial oligarchy, sold out America to gain such
control. Like Simon’s article the Consumer Education report at
wallstreetwatch.org deserves much more exposure than it will receive in its
original format and hence my effort to distill it
into a 3-page summary, with my comments where
warranted, for your quick review.
The ‘Money Industry’ Bought Control of
America for $5.2 Billion
Harvey Rosenfield, President
of the Consumer Education Foundation, contends that “Over the last
decade, Wall Street (i.e. the entire financial sector consisting of
commercial banks, accounting firms, insurance companies, securities firms
including hedge funds and private equity firms) showered Washington with over
$1.738 billion in supposed ‘campaign contributions’ and another
$3.441 billion on 2,996 officially registered lobbyists (more than five for
each Member of Congress) whose job it was to press for deregulation. In return
for the investment of this $5.179 billion, the Money Industry was able to get
rid of many of the reforms enacted after the Great Depression and to operate,
for most of the last ten years, without any effective rules or restraints
whatsoever.”
The Transfer of Power Took 25 Years
• Beginning in 1983 with the Reagan
Administration, the U.S. government acquiesced to accounting rules adopted by
the financial industry that allowed banks and other corporations to take
money-losing assets off their balance sheets in order to hide them from
investors and the public.
• Between 1998 and 2000, Congress and the Clinton
Administration repeatedly blocked efforts to regulate “financial
derivatives” — including the mortgage-related credit default
swaps that became the basis of trillions of dollars in speculation.
• In 1999, Congress repealed the
Depression-era law that barred banks from offering investment and insurance
services, and vice versa, enabling these firms to engage in speculation by
investing money from checking and savings accounts into financial
“derivatives” and other schemes understood by only a handful of
individuals.
• Taking advantage of historically low
interest rates in the first few years of this decade, mortgage brokers and
bankers began offering mortgages on egregious terms to purchasers who were
not qualified. When these predatory lending practices were brought to the
attention of federal agencies, they refused to take serious action. Worse,
when states stepped into the vacuum by passing laws requiring protections
against dirty loans, the Bush Administration went to court to invalidate
those reforms, on the ground that the inaction of federal agencies superseded
state laws.
• The financial industry’s friends in
Congress made sure that those who speculate in mortgages would not be legally
liable for fraud or other illegalities that occurred when the mortgage was
made.
• Egged on by Wall Street, two
government-sponsored corporations, Fannie Mae and Freddie Mac, started buying
large numbers of subprime loans from private banks as well as packages of
mortgages known as “mortgage-backed securities.” (See my article
entitled “Our Worst Nightmare: The Puncture of the U.S. Housing
Bubble” which outlined their house of cards approach.)
• In 2004, the Securities and Exchange Commission, now
operating under the radical deregulatory ideology of the Bush Administration,
authorized investment banks to decide for themselves how much money they were
required to set aside as rainy day reserves. Some firms then entered into $40
worth of speculative trading for every $1 they held.
• With the compensation of CEOs increasingly
tied to the value of the firm’s total assets, a tidal wave of mergers
and acquisitions in the financial world — 11,500 between 1980 and 2005
— led to the predominance of just a relative handful of banks in the
U.S. financial system. Successive administrations failed to enforce antitrust
laws to block these mergers. The result: less competition, higher fees and
charges for consumers, and a financial system vulnerable to collapse if any
single one of the banks ran into trouble.
• Investors and even government authorities
relied on private “credit rating” firms to review corporate
balance sheets and proposed investments and report to potential investors
about their quality and safety. But the credit rating companies had a grave
conflict of interest: they are paid by the financial firms to issue the
ratings. Not surprisingly, they gave the highest ratings to the investments
issued by the firms that paid them, even as it became clear that the ratings
were inflated and the companies were in precarious condition. The financial
lobby made sure that regulation of the credit ratings firms would not solve
these problems.
None of these milestones on the road to economic
ruin were kept secret, says Rosenfield. The dangers
posed by unregulated, greed-driven financial speculation were readily
apparent to any astute observer of the financial system but few of those entrusted
with the responsibility to police the marketplace were willing to do so and
those officials in government who dared to propose stronger protections for
investors and consumers consistently met with hostility and defeat. The power
of the Money Industry overcame all opposition, on a bipartisan basis.
Their Weapons of Mass Destruction were Derivatives
As Franklin Roosevelt observed seventy years ago,
“our enemies of today are the forces of privilege and greed within
our own borders” and today, says Rosenfield,
their weapons of mass destruction were derivatives: pieces of paper that were
backed by other pieces of paper that were backed by packages of mortgages,
student loans and credit card debt, the complexity and value of which only a
few understood. In fact, says Rosenfield:
“America’s economic system
is where it is today because gambling became the financial sector’s
principal preoccupation, and the pile of chips grew so big that the Money
Industry displaced real businesses that provided real goods, services and
jobs.”
The Purchase of America was a LBO
Rosenfield believes that the American consumers
are not to blame for this debacle nor those who used credit in an attempt to
have a decent quality of life, nor those who agreed to accept the amazing
terms for mortgages and finding out later that they had been misled and could
not afford the loan at the real interest rate buried in the fine print.
Instead of assuming any responsibility for living beyond their means Rosenfield believes Americans are only to blame
for “allowing Wall Street to do what it calls a leveraged buy out of our political system by spending a relatively
small amount of capital in the Capitol in order to seize control of our
economy”.
The Privileges of the Financial Oligarchy are Being
Preserved
Rosenfield contends that the moment the Money
Industry realized that the casino had closed, it turned — as it always
does — to Washington, this time for the mother of all favors: a $700 billion bailout which was quickly extended
to include a feast of discount loans, loan guarantees and other taxpayer
subsidies to the tune of at least $8 trillion so far. Then,
panicked by Wall Street’s threat to pull the plug on credit, Congress
rebuffed efforts to include safeguards on how taxpayer money would be spent
and accounted for. Rosenfield is of the opinion
that the bankers used the bailout monies to pay bonuses, to buy back their
own bank stock, or to build their empires by purchasing other banks with very
little of the money being used for the purpose it was ostensibly given: to
make loans. He is absolutely convinced that Washington’s latest
giveaway — the Greatest Wall Street Giveaway of all time as he calls it
— has not fixed the economy but that, at this very moment of national
threat, the banks, hedge funds and other parasite firms that crippled our
economy are pouring money into Washington to preserve their privileges at the
expense of the rest of us.
Washington Was Paid Off
That’s why, according to Rosenfield,
you won’t hear anyone in the Washington establishment suggest that
Americans be given a seat on the Board of Directors of every company that
receives bailout money or that credit default swaps and other derivatives
should be prohibited, or limited just like slot machines, roulette wheels and
other forms of gambling. In most of the United States, he says, you can go to
jail for stealing a loaf of bread but if you have paid off Washington, you
can steal the life-savings, livelihoods, homes and dreams of an entire
nation, and you will be allowed to live in the fancy homes you own, drive
multiple cars, throw multi-million dollar birthday parties, etc. and
virtually get away with it. Sure, he points out, you might not be able to get
your bonus this year or, worst come to worst, if you are one of the very
unlucky few unable to take advantage of the loopholes in the plan announced
by the Treasury Secretary Geithner, you may end up
having to live off your past riches because you can only earn a measly
$500,000.
The Money Industry Remains in Charge
Rosenfield believes that since President
Obama’s key appointments to the Treasury, the SEC and other agencies,
like their predecessors, are veterans of the Money Industry that the Money
Industry remains in charge of the federal agencies and keeps our elected
officials in its deep pockets and, as such, nothing will change and that:
“if America is to recover from
this economic debacle that we find ourselves in, its people must return to
the principles that made it great — hard work, creativity, and
innovation — and both government and business must serve that end.
Washington must serve America, not Wall Street. Things will not change so
long as Americans acquiesce to business as usual in Washington. It’s
time for Americans to make their voices heard.”
The report concludes that Wall Street is presently
humbled, but not prostrate. Despite siphoning trillions of dollars from the
public purse, Wall Street executives continue to warn about the perils of
restricting “financial innovation” even though it was these very
innovations that led to the crisis in the first place and they are scheming
to use the coming Congressional focus on financial regulation to centralize
authority with industry- friendly agencies.
“If we are to see the
meaningful regulation we need, Congress must adopt the view that Wall Street
has no legitimate seat at the table. With Wall Street having destroyed the
system that enriched its high flyers, and plunged the global economy into
deep recession, it’s time for Congress to tell Wall Street that its
political investments have also gone bad. This time, legislating must be to
control Wall Street, not further Wall Street’s control.”
God Bless America
My recent “America’s
Financial Oligarchy is Still in Control” article concluded that the
country is in financial crisis and instead of the financial oligarchy being
broken up to permit essential reform they are continuing to use their
influence to prevent precisely the sorts of reforms that are needed
immediately to pull the economy out of its nosedive. Moreover, our
legislators seem unwilling to act against these powerful financiers opting
instead to succumb to their power and influence and continue to give them
what they deem to be in their best interest instead of that of the
taxpayers’. Rosenfield goes one step further
in claiming that the Money Industry has, in fact, bought control of the
American political system and, in the process, betrayed America’s trust
in them. They are still in control and there is no end in sight.
Indeed, the long-term consequences for
America are so dire I think it is incumbent upon us to evoke the words of the
anthem “God Bless America” with its stirring words “stand
beside her and guide her.” I think you would agree, regardless of party
affiliation or leanings, that America needs all the help it can get!
Lorimer Wilson
Read
all the other essays published by Lorimer Wilson
Lorimer Wilson is an economic/financial analyst and commentator writing on
the major economic and financial crises of our times plus articles on
precious and rare earth metals, investing in times of crisis, analyses of
gold mining indices and gold. He is a Contributing Editor to www.preciousmetalswarrants.com
and contributor to a large number of other sites.
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