To be blunt about it, the real problems aren’t the burst bubbles in the home mortgage market, in credit default swaps (CDS), in commercial real estate, nor in credit. It’s the systemic fraud masquerading as government policy that encouraged too much of the risky behavior that allowed bubbles to begin in the first place.
Olivier Garret may have tagged the situation properly, in titling a recent essay Bigger Than Watergate? (I have spelled his name correctly here). For those whose first inclination might be to scoff at such an idea, consider the relative impact of Watergate and the ongoing financial scandals. Watergate merely brought into the light what any thinking person should be able to figure out for himself: the electoral political process is plagued with dishonorable people drawn to power, and tends to corrupt in some way the honorable few who manage to become insiders. Already, the meltdown of Wall Street has changed the lives of every person who has financial dealings in and/or with the USSA. Some of the more obvious ways include: investments wiped out in stock market losses; equity in homes and/or home ownership itself destroyed as speculation and lack of due diligence (on both sides of the mortgage loan officer’s desk) ran rampant; retirement and pension funds evaporated via ridiculous (fraudulent?) CDS plays; continued earthquakes in the banking sector; generally tight credit conditions, and outrageous interest rates and penalty fees on credit cards and home equity lines of credit; and the continued devaluation of the dollar. In fact, it’s something akin to a miracle to me that the dollar’s held up as well as it has—it certainly speaks to the power of habit and inertia.
Garret’s essay focuses on the revelation that Hank “Strong Dollar” Paulson and Ben “Too Big to Fail” Bernanke strong-armed then Bank of America CEO Ken Lewis to proceed with the merger with Merrill Lynch. And here’s the key, all emphasis mine:
[T]he part of the story that could really break Al Paulson and Don Bernanke’s necks is the failure to inform the Securities and Exchange Commission, as well as Bank of America’s shareholders, of the extent of toxic waste Bank of America was forced to accept. That’s fraud, pure and simple.
And that’s a pretty good sign that this is not going to go away. Some of the Casey Research editors ... think it’s going to be huge, especially since the scandal happened on President Bush’s watch and the Democrats are in control of Congress. Chances are that either Paulson or Bernanke is going down, depending who cuts a deal with prosecutors first. Their “friends in high places” may be able to keep the Justice Department out of it, but they won’t be able to control ambitious state officials like Cuomo. There’s blood in the water, and this is a career maker for a prosecutor.
That it is ... but the fact that the fraud is endemic, reaching even those who are supposed to be regulating these players, leaves me skeptical.
Another crack emerged late yesterday, as NY Fed chair resigns amid [Goldman Sachs] stock purchase questions. [Funny, though ... the story wasn’t on my Google News home page just now, nor in the “top headlines” on the Reuters home page. Instead, included there is a story on how the financial crisis “inspires Tori Amos’ latest album”. Now that’s news, innit?] Don’t fall for their attempted Jedi mind trick that compliance with the rules means nothing improper was done; when someone in such a position of power buys stock in one of the entities he is supposed to regulate, at the very least that’s a conflict of interest. Some are calling it fraud; and I don’t disagree. And I think we’re still quite early in this game of Find the Fraudsters.
So why am I skeptical that those responsible will be held accountable? Because the fraud pervades the top levels of the financial sector as well as the federal government. Goldman Sachs “alumni” are all over the place in D.C.—and I don’t think that’s by chance. Their execs, along with other banksters, donate generously to federal officials’ campaigns. Remember the stories revealing that some congressvermin got sweetheart deals on their mortgages and/or home equity lines of credit? Do you really think Barney Frank isn’t firmly in someone’s pocket? Between all the inbreeding and colluding going on, I think that even bulldog state prosecutors like Cuomo are going to find the row very tough to hoe. I hope I’m wrong.
Garret’s essay closes with questions as to whether Americans will rise up against this pervasive fraud. Even if it happens, that may not be enough to bring about meaningful change (and that doesn’t mean a new version of Glass–Steagall). There are other actions one can take, including shunning the banks. Can’t do business without one, you say? Don’t be so sure. Have you looked into any of those check-cashing places? Yes, they take a percentage of the check as their fee, but mightn’t having the rest of your check as cash in your pocket be worth that price, instead of your bank’s check-clearing delays, limits on ATM withdrawals and/or debit card purchases in one day, etc.? There’s a lot of fear-mongering regarding those businesses, along with payday loans and pawn shops, but some research shows [PDFs] the banksters to be just as bad, if not worse. If one is interested in starving these monsters—and that may be the only action that starts to grab their attention—alternatives to traditional banks and their services are worth exploring.