Financial Corruption

Financial Corruption

By Marcus Jolly

Americans have no choice but to trust the financial system. We need corporate giants to help us reach our dreams of owning a home. Unfortunately, big finance corporations that run America’s economy use our faith in them to commit fraud and usury at the highest level. The worst part is that they continuously get away with it without fear of punishment. And if there is punishment, it generally amounts to nothing more than a slap on the wrist. These investment bankers escape punishment by being in league with governmental law makers. They have players on both teams so no one goes to jail.  

Over the years, the scams committed by these finance giants are shown to the world through the media and other reporting. By now, most Americans know who these culprits are: Goldman Sachs, AIG, Bank of America, JP Morgan Chase, Lehman Brothers, and Morgan Stanley. Lehman Brothers hid $50 billion in loans from investors. Bank of America falsified their documents to hide billions in bonuses. AIG had major accounting scandals that indirectly led to their crash years later and resulted in the biggest government bailout to date.    

 Goldman Sachs is by far the highest on the list of Wall Street con bankers. A case was recently brought against Goldman Sachs for selling subprime mortgages to investors while betting against them. Subprime meaning mortgages made to high-risk individuals who would not be able to pay the debt. Synthetic collateralized debt obligations, or CDO’s, are derived from mortgage bonds but they do not hold any assets. You can still invest in CDO’s or short them as you would stock using insurance contracts called credit-default swaps, or CDS’s. The investment bank Goldman Sachs formulated these CDO’s with subprime mortgages then bought CDS’s for themselves betting that the CDO’s would lose value. Not surprisingly, they did. Goldman knew they were selling bad goods wrapped in pretty packages meant to deceive. When the packages were opened and a black hole of debt sucked their investors in, Goldman made a killing betting against it knowing the black hole of debt was there.

The Goldman case is a prominent part of the mortgage fiasco in 2008. Goldman Sachs CEO Lloyd Blankfein and other top executives including Daniel Sparks, David Viniar, and Tomas Montag were subpoenaed to Congress to answer for their deceit to Goldman’s clients. It is a federal crime to lie before Congress, but Goldman executives blatantly lied anyway giving testimonies that conflicted with evidence gathered by the Securities and Exchange Commission, or SEC. These people should be held accountable for their actions. They should stand trial, but history has shown us that they will walk free and unscathed.

Imagine a person building houses with used material and faulty foundations, while at the same time buying home insurance on the houses knowing they were going to fall down. Then that person sold these houses for full price saying they were built well and sturdy with new material. That kind of fraud would land that person before a jury and face jail time, not just get fined, but could go to a real prison.

It is rare for any executive to get fined for their crimes. Usually the company will pay a fine leaving any criminal executive free and clear. Through a process known as “golden parachutes,” top executives steal large sums of money then figuratively jump from the top of the building and float safely down in their parachutes while the corporation takes the heat.  Goldman Sachs was fined $550 million for defrauding investors in a case called Abacus, but no one went to jail or got personally fined. Freddie Mac paid $125 million for misreporting earnings. Fannie Mae paid out $400 million for stacking their books. Even AIG paid $1.6 billion after a major accounting scandal that led to the company’s collapse two years later. Still, in every case not one executive received a fine or went to jail.

Occasionally the SEC will fine individual executives. The SEC fined two Citigroup executives a combined $180,000 for hiding $40 billion in liabilities from investors. An even rarer occurrence is when someone actually goes to jail. The norm at Wall Street and other top investment banks is if you make enough money, no one has to go to jail. An exception to the no jail rule was Bernie Madoff, a Ponzi con artist who stole millions from other rich people. Madoff got some serious time for his crimes. On a long list of executive offenders, Madoff is a small percentage that received punishment.

Over the years, the SEC took a few shots at prosecuting big finance companies and their CEOs. With Rite Aid, the SEC had plenty of evidence against the company for using accounting tricks to stack their books. Someone at the SEC purposely set the case aside, and it dragged on for years. No one went to jail, and by the time the case was finished other financial scams like Enron and WorldCom had become an economic crisis. The SEC didn’t even begin to question the CEO of Morgan Stanley, Jon Mack, about an open-and-shut insider trading case until the statute of limitations had passed. The government brought charges against two executives at Bear Stearns for fraud and stealing $1.6 billion from investors. Somehow the case ended in acquittal.

These big corporate executives dodge jail not only because they know the right people, but because they are the right people. Top executives from Goldman Sachs benefit from what’s called “Government Sachs”: after years of service at Goldman they work in top government positions for years before returning to Goldman. Jon Corzine was a former CEO of MF Global and Goldman Sachs before becoming a Senator and then Governor of New Jersey. William Dudley was President of the Federal Reserve Bank after years at Goldman Sachs as an investment trader. Gary Gensler, a former Goldman executive became the Commodity Futures Trading Commissioner. Robert Rubin in 1969 was the CEO of Goldman Sachs then went on to become the Treasury Secretary and Bill Clinton’s senior economic policy advisor. Henry Paulson was CEO of Goldman then Treasury Secretary during the financial crisis from 2007 to 2009. Robert Steel was a former partner at Goldman and then Under Secretary for Paulson at the Treasury Department. The list continues on, but there is an obvious pattern. Goldman Sachs is close to the ear of the President and other top officials who make the laws for banking, then they go right back into the money business. It’s a revolving door of government and finance.