One of the followers of this blog today accused me of being a Socialist, apparently because of the cartoon I posted on the blog “Wall Street Bankers Jailed for Destroying the Economy: Zero”. He said I had the right idea, but the wrong target. He said the politicians and economists should all be put in jail instead.
So, to set the record (and him) straight, I need to point out that I am a proud, card-carrying Capitalist and that I also hold membership in the dreaded one percent club. As many of you who are reasoned have figured out through reading my blog, I also have little patience with those who operate using opaque business practices and who play by rules designed to cause injury and harm to the least empowered among us. So, you could call me a Moral Capitalist. An Honest Capitalist. A Compassionate Capitalist. A Hippocratic Corpus Capitalist. But, never a Socialist. It is a depressing sign of a cultural tragedy when people are able to confuse Socialism with Moral Capitalism.
Do I think that the fools who paved the road to economic ruin, and then drove recklessly down that road, causing permanent damage, sickness and destruction to the global economy should pay some price, should suffer some ruin, should be sent to jail? You bet I do.
If Bill Clinton would simply say, “You know, when I beefed up the 1977 Community Reinvestment Act to force mortgage lenders to relax their rules to allow more socially disadvantaged borrowers to qualify for home loans, I think I made a mistake there. When in 1999, I repealed the Glass-Steagall Act, which ensured a complete separation between commercial banks, which accept deposits, and investment banks, which invest and take risks, I was probably wrong.” I would be OK with that. Clinton has done a ton of good since leaving the Presidency, and I think the scales are probably balanced.
Phil Gramm however, the former US senator from Texas, free market advocate with a PhD in economics who fought long and hard for financial deregulation, should be in jail right now. His work, encouraged by Clinton’s administration, allowed the explosive growth of derivatives, including credit swaps. In 2001, he told a Senate debate: “Some people look at sub-prime lending and see evil. I look at sub-prime lending and I see the American dream in action.” It is not that I have a problem with derivatives, or credit swaps. I have a problem with actions that have no consequences. I have problem with Senators that serve themselves instead of the American citizenry.
According to the New York Times, federal records show that from 1989 to 2002 he was the top recipient of campaign contributions from commercial banks and in the top five for donations from Wall Street. At an April 2000 Senate hearing after a visit to New York, he said: “When I am on Wall Street and I realise that that’s the very nerve centre of American capitalism and I realise what capitalism has done for the working people of America, to me that’s a holy place.” Not so holy now, Phil. Nowhere near soon enough, this asshole eventually left Capitol Hill to work for UBS as an investment banker. Of course he did.
Kathleen Corbet ran the largest of the big three credit rating agencies, Standard & Poor’s. The agencies were basically acting as cheerleaders throughout the 2005-2008 period, assigning the top AAA rating to collateralised debt obligations, the often incomprehensible mortgage-backed securities that turned toxic. Investigations by the Securities and Exchange Commission and the New York attorney general among others, have focused on whether the agencies were compromised by earning fees from the very banks that issue the debt they rate. Compromised? Do you think? The reputation of the industry was savaged by a blistering report by the SEC that contained dozens of internal emails that suggested they had betrayed investors’ trust. And Kathleen shouldn’t be in jail? Come on, Man.
How about every senior manager at AIG? AIG had a vast business in credit default swaps and therefore a huge exposure to a residential mortgage crisis. When AIG’s own credit-rating was cut, it faced a liquidity crisis and needed an $85B bail-out from the US government to avoid collapse and avert the crisis its collapse would have caused. It later needed many more billions from the US treasury and the Fed, but that did not stop senior AIG executives taking themselves off for a few lavish trips, including a $444,000 golf and spa retreat in California and an $86,000 hunting expedition to England. “Have you heard of anything more outrageous?” said Elijah Cummings, a Democratic congressman from Maryland. “They were getting their manicures, their facials, pedicures, massages while the American people were footing the bill.” Yes, they should all be in jail.
And, let’s not forget Dick Fuld, Ralph Cioffi and Matthew Tannin. Fuld, a former bond trader known as “the Gorilla”, encouraged risk-taking and yet, had really no idea what securitized products his traders had created. He knew they were probably worthless if the shit ever hit the fan though, and it is because of this cynical knowledge and his unwillingness to stop the flow of these products emanating from his own house, that he should be in jail. Cioffi and Tannin were Bear Stearns bankers recently indicted for fraud over the collapse of two hedge funds last year, which was one of the triggers of the credit crunch. They are accused of lying to investors about the amount of money they were putting into sub-prime, and of quietly withdrawing their own funds when times got tough. Jail.
Angelo Mozilo, the former chief of Country-wide Bank, the nations largest lender of sub-prime loans is also a crook. BofA recently paid billions to settle investigations by various attorney generals for Countrywide’s mis-selling of risky loans to thousands who could not afford them. The company ran a “VIP program” that provided loans on favourable terms to influential people including Christopher Dodd, chairman of the Senate banking committee, the heads of the federal-backed mortgage lenders Fannie Mae and Freddie Mac, and former assistant secretary of state Richard Holbrooke. I know it’s a free country. I know Dodd, Holbrooke, et al, did nothing technically wrong in accepting these loans. I know Mozilo is in within his rights to create loans for people who clearly could not afford to pay them off. But, they all had a moral responsibility to themselves, their souls and to the American people.
I could go on for a long time here. George Bush, Gordon Brown, Greenspan, Stan O’Neal, Jimmy Cayne, Chris Dodd, Chuck Prince, Joe Cassano, Lew Ranieri, etc., etc., but you get my point. There are, in my mind, clear fiduciary and moral principles that these people all violated in the course of their work, and as the direct result of their actions, millions of people are now suffering through what will undoubtedly go down as the worst Global depression in history. This housing market has not hit bottom and will continue to be the Albatross around the neck of this recovery for years to come. It will only get worse, as another 4 million homes fall to foreclosure during the next few months. The government management team at Greece did almost exactly the same thing as the Wall Street Bankers did here (knowingly pushed a corrupt and ruptured system well past its breaking point), and in a few months, the entire Eurozone will begin to pay the price for that. And, then the rest of the world.
But, will anyone be thrown in jail? Not likely. So yes, I do feel more than a bit of empathy for the 99%. When they break the law, they almost always get sent to jail.