Who caused the financial collapse? Why aren’t they in jail?
Devona Walker May 26, 2010 AlterNet
We’re livid about the Wall Street bailout and skeptical about financial reform
If you write bad checks, if you steal a car, you are going to jail. That’s how the system works for regular folks. On Wall Street, if you rip someone off, defraud them, take their (our tax) money, you may get a bonus or you may lose your job. But not one of the players that contributed to the financial meltdown has seen the inside of a jail cell. That’s predatory capitalism at its finest. That’s the American double standard that has so many Americans livid about the Wall Street bailout and skeptical about financial reform.
Here are some of the biggest players, who have not been held accountable and won’t really be touched by Financial Reform.
Credit rating agencies. Let’s start with the credit rating agencies, the folks who were suppose to be watchdogs for the mortgage market. Their role, even though the financial reform debate seems to center around derivatives and “too big to fail,” in the financial collapse should not be overlooked. Moody’s and Standard & Poor, etc. gave A ratings on risky packages, sub prime mortgage-backed securities. The entire ratings system was a scam in which they were helping the banks screw investors. They had no real incentive to do their job. They were paid by the banks and therefore had every incentive not to really evaluate the products — but do what the banks wanted.
Even back in Dec. 2006, an internal employee memo illustrates they knew exactly what they were doing.
“Rating agencies continue to create [an] even bigger monster – the CDO [collateralized debt obligation] market. Let’s hope we are all wealthy and retired by the time this house of cards falters.”
The credit rating agencies were suppose to be the watchdogs. They set the credit standards “that determined which loans Wall Street could repackage and, ultimately, which borrowers would qualify.”
Will Moody and Standard & Poor face a Senate inquiry? Will they be prosecuted for their negligence? I doubt it. Will financial reform change how they go about doing their job? Apparently not.
Bear Sterns. James Cayne, the former CEO of Bear Sterns, has a net worth of $900 million. He is one of the richest and most arrogant men in the world. He directly mismanaged this hedge fund into utter bankruptcy, by ignoring the implosion of the sub prime bond market, which directly led to the financial crisis. Then when Treasury did not bail him out he went on a tirade.
“The audacity of that p—k in front of the American people announcing he was deciding whether or not a firm of this stature and this whatever was good enough to get a loan,” Cayne said about Treasury Secretary Timothy Geithner. “Like he was the determining factor, and it’s like a flea on his back, floating down underneath the Golden Gate Bridge, getting a h–d-on, saying, ‘Raise the bridge.’
The collapse of the financial markets is directly related to the real estate crisis. Initially, it was all fallout from the sub prime mortgage market. Was it just Bear Stearns being asleep at the wheel? Was it the result of too little oversight and too much greed? Yes, to all of the above. But it began with Bear Stearns.
Countrywide Financial. Former CEO Angelo Mozilo is the founder of the Countrywide Financial and built it into a mortgage giant. He personally helped turn the American Dream into the American nightmare for millions of struggling families. In 2006, Countrywide originated $461 billion worth of mortgages. In 2007, Mozilo took in $121.5 million from exercising stock options and was awarded another $22.1 million in compensation. By the time, Bank of America bought Countrywide the sale price was less than 10 percent of the company’s worth.
Mozilo blamed the Federal Reserve for raising interest rates for too long, crooked real estate speculators, falling housing prices, and regulators’ attacks on interest-only and other risky sub-prime mortgages. The U.S. Securities and Exchange Commission filed a civil lawsuit, accusing Mozilo of insider trading. He made more than $139 million in profits in 2006 and 2007 by exercising 5.1 million in stock options. Mozilo has also been accused by numerous States Attorney General for knowingly selling risky mortgages to folks that Coutrywide knew could not afford them.
Mozilo says the bad economy is to blame for Countrywide’s failures. But it was Countrywide that helped cause the bad economy.
You might remember the Friends of Angelo fund? Mozilo was nothing but crooked. He was indicted yes. Did he do jail time? No. Does financial reform directly address the loopholes that Mozilo and Countrywide exploited, leading to the financial collapse? Not as far as I can tell.
And then there is AIG, which operated without any real regulation and ultimately required a taxpayer bailout that broke all the rules.
“The company was a corporate Frankenstein, a conglomeration of banking and insurance and investment interests that defied regulatory oversight,” said Congressional Oversight Panel Chairwoman Elizabeth Warren at a hearing on American International Group’s bailout.
Warren said the government’s lack of oversight of AIG (AIG, Fortune 500) and the insurer’s monstrous nature explain why the company got a $182 billion government bailout rather than a traditional bankruptcy proceeding.
AIG is in the process of selling two large foreign life insurance businesses, AIA and Alico, the proceeds will be used to pay down $51 billion of AIG’s debt to taxpayers. That will almost completely pay off AIG’s loan from the Federal Reserve Bank of New York, but still has to pay back the nearly $50 billion it has borrowed from Treasury’s Troubled Asset Relief Program.
Does financial reform address what led to AIG’s downfall? Does it address why (too big to fail) we were forced to bail them out? Does it revisit the Glass Steagall Act? No, to all of the above.
Devona Walker is a veteran print journalist. She has worked for The Associated Press and the New York Times company.