An insider’s view of Wall Street criminality

By Andre Damon and Barry Grey, WSWS.ORG, a socialist organization
Thank you, WSWS. | See also our addendum below on a related topic.

Greg Smith (left), an executive director at Goldman Sachs, announced his resignation Wednesday in an op-ed piece in the New York Times, denouncing the bank’s “toxic” culture of avarice and fraud.

Smith headed the firm’s United States equity derivatives business in Europe, the Middle East and Africa. In his column, entitled “Why I Am Leaving Goldman Sachs,” he describes a corporate environment that encourages and rewards big short-term returns gained through the bilking of clients and the general public. “It makes me ill how callously people talk about ripping their clients off,” he writes.

Speaking of one’s clients as “muppets” and describing deal-making as “ripping eyeballs out” are commonplace at Goldman, according to Smith. The way to advance at the Wall Street giant, he writes, is to persuade your clients “to invest in the stocks or other products that we are trying to get rid of,” get your clients “to trade whatever will bring the biggest profit to Goldman,” and trade “any illiquid, opaque product with a three-letter acronym.”

The column describes an operation in which laws and regulations requiring financial institutions to deal honestly with their clients and protect their interests are routinely violated. The insider’s indictment of Goldman Sachs highlights a broader process—the criminalization of American capitalism as a whole.

It confirms from the inside that three-and-a-half years after Wall Street’s manic pursuit of super-profits triggered a global financial meltdown and the deepest slump since the Great Depression, nothing has changed in the boardrooms of corporate America. The same fraudulent and often illegal practices that enriched the financial aristocracy and plundered the rest of society continue unabated. The criminals at the top, having been bailed out with trillions of taxpayer funds, are making more money than ever, while millions of ordinary people are being driven into poverty and homelessness.

Education, health care, pensions are being gutted, wages are being slashed and more austerity is on the agenda because there is supposedly “no money.” Corporate profits and CEO pay, meanwhile, are setting new records.

This is an indictment not simply of Goldman Sachs, or even Wall Street alone, but rather the entire economic and political system. Every official institution—the White House, Congress, the courts, the media, the Democratic and Republican parties—is complicit.

Smith’s column was widely reported in the media. NBC Nightly News led its report Wednesday night with the story, interviewing a former chairman of the Securities and Exchange Commission who was brought on to deplore the type of practices described by the former Goldman executive. The ruling class is well aware that popular anger against Wall Street is rising and capitalism itself is becoming increasingly discredited in the eyes of millions of Americans—a process that found an initial expression in the Occupy Wall Street protests. It is concerned that Smith’s piece will further fuel this sentiment.

The practices to which Smith points—and worse—are well known to the Obama administration and the financial regulatory agencies. In April of last year, the Senate Permanent Subcommittee on Investigations published a 640-page report outlining in detail the fraudulent and illegal practices of major banks that contributed to the September 2008 crash. Fully 260 pages of that report were devoted to Goldman Sachs. They explained chapter and verse, giving dates and naming names, how the bank defrauded its clients by selling them mortgage securities while betting against the same investments, without telling them it was doing so.

The committee also documented the complicity of the credit rating firms and federal regulators in the colossal mortgage Ponzi scheme that collapsed in 2007-2008, setting off a new world depression. It cited securities laws that had been violated by Goldman and two other banks it examined, Washington Mutual and Deutsche Bank, and referred this information to the Obama administration’s Justice Department.

The response of the White House was to do absolutely nothing. Not a single senior bank executive has been criminally charged, let alone imprisoned, for crimes that have devastated the lives of countless millions of people in the US and around the world. Instead, the White House has shielded the corporate criminals.

One Wall Street firm after another—Goldman Sachs, Bank of America, Citigroup, Countrywide Financial—has been allowed to settle charges filed by the Securities and Exchange Commission out of court, paying token fines while admitting no wrongdoing. That this continues is seen in the filing Monday in federal court of the sweetheart settlement between five major banks and the state and federal governments of charges arising from the banks’ illegal processing of foreclosures. The banks have merely to pay a combined fine of $5 billion for illegally throwing thousands of families out of their homes, with no admission of wrongdoing. In return, they get the quashing of state investigations that threatened to result in tens of billions in damages and fines.

Not only does the Obama administration protect the Wall Street criminals, it includes their representatives among its top personnel. To cite some examples:

* Mark Patterson, a former Goldman Sachs lobbyist, is the chief of staff to Treasury Secretary Timothy Geithner.

* Dianna Farrell, former financial analyst at Goldman Sachs, is deputy director of the National Economic Council.

* Jacob Lew, Obama’s chief of staff, was a top executive at Citigroup. He follows two other bankers chosen by Obama to head his White House operations—former JPMorgan executive William Daley and former Chicago investment banker Rahm Emanuel.

The criminalization of the American corporate-financial elite cannot be separated from the capitalist system itself. It is the product of a decades-long process of crisis and decay, in which the ruling elite has increasingly separated its wealth-making from the production of real value.

Manufacturing and the productive infrastructure have been decimated, while financial manipulation and speculation have come to dominate economic life. The working class has suffered a catastrophic decline in its social position at the same time that a parasitic financial aristocracy has come to exercise a de facto dictatorship over the political system.

Like all aristocracies, the American financial elite will not accept any infringement of its wealth and power. The working class must break its grip by mobilizing its strength in opposition to both parties of Wall Street and fighting for the establishment of a workers’ government and socialist policies, beginning with the nationalization of the banks and corporations and their transformation into public enterprises under the democratic control of the working people.

—Andre Damon and Barry Grey

 

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ADDENDUM

The foreclosure fraud settlement: An amnesty for Wall Street criminals

By Barry Grey | WSWS.ORG
13 February 2012

Last Thursday, the Obama administration announced its latest windfall for Wall Street—a settlement of charges of rampant law-breaking committed by major banks in their rush to foreclose on families and seize their homes.

The agreement, largely dictated by the perpetrators, quashes investigations by state governments that threatened to expose a cesspool of corruption and crime. It frees the banks from future prosecution or financial liability for forgery, lying to the courts and illegally evicting homeowners.

In return, the firms—Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial—are required collectively to pay a relative pittance in cash ($5 billion) to the states and the federal government and allocate $20 billion more, over three years, to ease the terms for a small fraction of the 11 million homeowners who owe more on their loans than their homes are worth.

Not a single family whose home was seized (4 million since 2007) will get a new house. Instead, an estimated 750,000 foreclosed homeowners will receive a check for $1,500 to $2,000, if they can show that they were improperly evicted. This derisory sum—assuming it is ever paid out—provides a measure of the contempt of the banks and the government for working people.

In what has become his trademark, Obama presented this amnesty for lawlessness and predation by the financial aristocracy as a boon to the people. He called the deal a “landmark settlement” that will “speed relief to the hardest-hit homeowners.”

“Today’s settlement,” he declared, “is all about … standing up for the American people, holding those who broke the law accountable…”

As always, Obama proceeds from the assumption that the American people are infinitely gullible and suffer from collective amnesia. Since coming to office, Obama has done nothing to halt foreclosures or provide relief for distressed homeowners.

When the scandal over “robo-signing” and forged foreclosure documents erupted in the fall of 2010, the 50 state attorneys general launched a coordinated investigation. Some called for a halt in foreclosures to prevent families from being illegally thrown out of their homes.

The Obama administration vociferously opposed this demand and privately urged the banks to speed up the foreclosure process in order to clear out the backlog of non-performing mortgages that was depressing the housing market. With financial stocks plunging and fears mounting that the banks would be unable to withstand untold billions in damages from private and state lawsuits, the White House intervened to preempt any serious investigation and block a public airing of the crimes.

It spent 16 months in secret talks with the banks and attorneys general, devoting most of its efforts to bullying recalcitrant states to drop their own lawsuits and join a federal-state settlement favorable to Wall Street. The result was the deal announced Thursday.

The administration’s role in the foreclosure scandal is an extension of its single-minded focus since taking office on protecting the interests of the financial oligarchy. The assembly-line forging of foreclosure documents was itself the outcome of the practices that produced the housing collapse and foreclosure crisis in the first place.

Between 2004 and the Wall Street crash of 2008, the banks lured millions of Americans into overpriced sub-prime mortgages, often involving low “teaser” interest rates that jumped sharply after a set time. Wall Street knew full well that the loans could not be repaid. It was a colossal Ponzi scheme, and as in all such schemes, the perpetrators were intent on milking the racket for as long as possible. The major banks proceeded, moreover, with full confidence that, in the end, the government would step in to cover their losses.

The toxic loans were bundled, securitized and sold, creating a massive structure of debt resting on fraudulent and legally dubious foundations, from which bank executives and top shareholders secured dizzying levels of personal wealth. When the Ponzi scheme collapsed, the federal government bailed out the banks to the tune of trillions of dollars. As a result, the banks are now flush with cash and their executives and big shareholders are richer than ever.

In their rush to sell predatory home loans and turn them into instruments for financial speculation, the banks and mortgage companies paid little attention to trifles such as documentation. As a result, when the housing bubble burst and mortgages began to default en masse, there were no reliable records and no way for the banks to even establish their claim to ownership of the homes they wanted to foreclose.

Two government investigations into the financial collapse—one by the Financial Crisis Inquiry Commission and the other by the Senate Permanent Subcommittee on Investigations—have produced thousands of pages detailing fraudulent practices by the banks and the collusion of the rating agencies and federal regulators. These reports have remained dead letters. Not a single high-level Wall Street executive has been criminally prosecuted, let alone sent to jail.

With the blessings of the Obama administration and the entire political establishment, the speculation and swindling continue unabated, sowing the seeds for an even more cataclysmic financial crash and depression.

This culture of blanket impunity is the hallmark of a decaying aristocratic society. The corporate and financial elite is so embedded in criminal activity that the issue of responsibility cannot even by broached, for fear that it will begin to unravel the entire stinking edifice.

Only the mass mobilization of the working class in opposition to the Obama administration, the two big business parties and the corporate-financial elite can halt the evictions and provide relief for the victims of the mortgage racket. The Wall Street criminals must be investigated and tried, their ill-gotten fortunes seized and the money put toward the creation of affordable housing for working people.

All those victimized by the mortgage lenders and banks must be made whole.

The Socialist Equality Party insists that access to decent housing is a social right. We call for the restructuring of all mortgages to affordable levels, indexed to income and employment status. As our program states: “The right to decent housing for all can be assured only by placing the home building and financing industry under public ownership and pouring hundreds of billions of dollars in public funds into the construction of new homes and apartments and the renovation of existing buildings.”

—Barry Grey

The authors also recommend:

Senate report on Wall Street crash: The criminalization of the American ruling class
[18 April 2011]

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