Monday, June 25, 2012

Banking as organized crime

Matt Taibbi is doing incredible work trying to explain to the rest of us just how criminal the banksters have become.  I tend to think of the moneychangers as being engaged in practices that most religions have long ago defined as sin, so I tend to rhetorically wonder what's new about this crime wave.  But Taibbi is right—the sociopathic behavior of the banking community has gotten so destructive, and so brazen that in some ways, this really is quite new.

First up, we have an excerpt from his Rolling Stone article on some moneychangers who were actually caught bid-rigging in the municipal bind market.  Then we have him joined by Yves Smith in a Bill Moyers interview.

The Scam Wall Street Learned From the Mafia

How America's biggest banks took part in a nationwide bid-rigging conspiracy - until they were caught on tape
June 21, 2012 11:20 AM ET

Someday, it will go down in history as the first trial of the modern American mafia. Of course, you won't hear the recent financial corruption case, United States of America v. Carollo, Goldberg and Grimm, called anything like that. If you heard about it at all, you're probably either in the municipal bond business or married to an antitrust lawyer. Even then, all you probably heard was that a threesome of bit players on Wall Street got convicted of obscure antitrust violations in one of the most inscrutable, jargon-packed legal snoozefests since the government's massive case against Microsoft in the Nineties – not exactly the thrilling courtroom drama offered by the famed trials of old-school mobsters like Al Capone or Anthony "Tony Ducks" Corallo.

But this just-completed trial in downtown New York against three faceless financial executives really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.

The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America. The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being ­cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime.

In fact, stripped of all the camouflaging financial verbiage, the crimes the defendants and their co-conspirators committed were virtually indistinguishable from the kind of thuggery practiced for decades by the Mafia, which has long made manipulation of public bids for things like garbage collection and construction contracts a cornerstone of its business. What's more, in the manner of old mob trials, Wall Street's secret machinations were revealed during the Carollo trial through crackling wiretap recordings and the lurid testimony of cooperating witnesses, who came into court with bowed heads, pointing fingers at their accomplices. The new-age gangsters even invented an elaborate code to hide their crimes. Like Elizabethan highway robbers who spoke in thieves' cant, or Italian mobsters who talked about "getting a button man to clip the capo," on tape after tape these Wall Street crooks coughed up phrases like "pull a nickel out" or "get to the right level" or "you're hanging out there" – all code words used to manipulate the interest rates on municipal bonds. The only thing that made this trial different from a typical mob trial was the scale of the crime.

USA v. Carollo involved classic cartel activity: not just one corrupt bank, but many, all acting in careful concert against the public interest. In the years since the economic crash of 2008, we've seen numerous hints that such orchestrated corruption exists. The collapses of Bear Stearns and Lehman Brothers, for instance, both pointed to coordi­nated attacks by powerful banks and hedge funds determined to speed the demise of those firms. In the bankruptcy of Jefferson County, Alabama, we learned that Goldman Sachs accepted a $3 million bribe from J.P. Morgan Chase to permit Chase to serve as the sole provider of toxic swap deals to the rubes running metropolitan Birmingham – "an open-and-shut case of anti-competitive behavior," as one former regulator described it.

More recently, a major international investigation has been launched into the manipulation of Libor, the interbank lending index that is used to calculate global interest rates for products worth more than $3 trillion a year. If and when that case is presented to the public at trial – there are several major civil suits in the works here in the States – we may yet find out that the world's most powerful banks have, for years, been fixing the prices of almost every adjustable-rate vehicle on earth, from mortgages and credit cards to interest-rate swaps and even currencies.

But USA v. Carollo marks the first time we actually got incontrovertible evidence that Wall Street has moved into this cartel-type brand of criminality. It also offered a disgusting glimpse into the enabling and grossly cynical role played by politicians, who took Super Bowl tickets and bribe-stuffed envelopes to look the other way while gangsters raided the public kitty. And though the punishments that were ultimately handed down in the trial – minor convictions of three bit players – felt deeply unsatisfying, it was still a watershed moment in the ongoing story of America's gradual awakening to the realities of financial corruption.  more



  1. This shouldn't be a eureka moment, but it seems to be. It is mere logic and observation though...
    --Wall Street no longer invests in production,
    --therefore there is no increased value being created,
    --therefore for them to claim any ROI on their portfolio,
    --it is fake value derived from bets claimed while crashing some once legitimate business,
    --it is from scamming value out of someone else;
    --via derivatives 'cashing in' on someone's loss,
    --via rapacious fees and fluffed up servies,
    --via pyramid scheme 401k shuffling,
    --via socializing their losses,
    --via publica subsidies of their services...
    otherwise the highest ROI by definition would only be equal to their investment value of the investments made in productive activities (mining, farming, et al where value is literally pulled from the ground/sea...(I suppose a business can bottle oxygen, eh) still I hesitate to add 'air' since that seems to be all banks are selling now, a bogus value created from thin air they attach to instruments of digits and paper for their flimsy oligarchic services.

    Their services are the latest societal bubble about to burst. They have become so delusional so as to become sociopathic institutions, their corruption so complete and so systemic that they blindly use it now as their own defense in courts!

    They went through too-big-to-fail and increased their bonuses instead of realizing the bailout was a lesson they needed to learn.

    They have created a derivative market that is insanity and folly of man rolled into one giant financial fail, multiple times the world's GDP...this alone speaks to their inability to self-regulate.

    But maybe they are right. Fixing this goes beyond tweaking fixes of regulations. They had their chance to accept Dodd-Frank tweaks and even those they resist. They have created a too-big-to-bailout market, so the next market failure will require nationalization and an entire industry liquidated as if it never existed.

    Banking must be destroyed so as to save banking. The best part is common people need to do nothing--no marching in the streets, no subversive actions by anarchists, no campaigns or boycotts to organize--do nothing, because these masters of the universe will completely destroy themselves with their folly, greed, and lack of wisdom or understanding.

    Oh, it won't be pretty. It will be ugly, their death throes will be clumsy and they will drag down any foolish lifeguard who tries to pull them out of the whirlpool they have created. But when it is over and they are gone, they will be history and it will be a better world.

    Because a man has to have a dream.

  2. This, Mike, is damn profound!
    Thank you.