Someone named Charles Ferguson won an Academy Award for a documentary on the Wall Street 2008 Crisis. I heard him on Left Wing radio in which he said 1. Although there is overwhelming evidence of fraud, no one has been prosecuted. 2. Deregulation is the culprit. And, 3, the Occupy movement is the beginning of hope for change.
He goes on to lay blame on Obama, in spite of the fact this all happened on Bush's watch, because in USA you blame the black guy, and by USA racial purity laws Obama is black, if not an American.
In the interview a clip was played of Obama stating that although what happened in the 2008 crisis (before Obama) was immoral, wrong, etc... no laws were violated. Ferguson commented that Obama was wrong, and further, Ferguson could not believe Obama did not know what was going on was criminal.
Let me demonstrate Obama is right. And further, that there was no "deregulation," and how the Wall Street Crimes can proceed apace without breaking any rules. Let me show you a fountainhead example, and then comment afterwards.
In 1983 by Robert Morris Associates, a USA banking industry association disseminated a moneymaking idea in a manual for a seminar entitled “Lending Our Credit Instead of Our Money.” In brief, the seminar made widely known an opportunity available in an esoteric part of banking. To wit:
A. Standby letters of credit have no reserve requirement to match exposure. There is no theoretical limit to which a bank can extend credit. There is a limit to lending money, but not to lending credit.
B. Letters of credit are off balance-sheet exposure. They need only be footnoted. If footnoted, one is not afoul of the regulators, no matter what is being footnoted.
C. Letters of credit obligations may produce securities that may be traded on secondary markets. The ratings agencies found such securities ratable investment grade.
D. The problem of mismatched maturities might arise from these securities. The solution is “bigger is better.”
E. Exposure to letter of credit risk is an internal prudential matter, not an external regulatory matter.
F. The seminar mentions the PennCentral and Chrysler credit crises and government bailouts.
There you have it, the DNA of every banking crisis since 1983. Mexican bailout, that is Reagan’s $8 billion 1982 bailout, not Clinton’s $40 billion 1995 replay. Note the successive financial crises contain the A-F elements above: S&L crisis 1985 and on, October 1987 crash, 1992 Exchange rate crisis, 1997 asian monetary crisis, 1998 LTCM crisis, Dotcom 2000 crash, 2008 subprime crash. Much has been written on all of these, with commentators all noting some degree of mystery. Each successive crisis got bigger and wider.
Regulators attended closely to every one of these debacles. The manual notes that the activities are regulated by the State of New York, the FDIC, the Federal Reserve, and the Comptroller of the Currency. The three federal agencies were familiar enough with standby letters of credit to issue regulations specifically on those. Indeed, a FED governor wrote a article for the manual endorsing the practice, with caution. It is in the very manual that explained how to lend credit, instead of money, off balance sheet, with no reserve. In 2008, as in 2012, Every single one of those regulators, and more are still in position. We have more regulations, not less. There was never, at any time, deregulation. There may have been changes in regulations, but never deregulation. And do note, at no point did any change in regulation address any element of the practices which originated in the 1983 seminar, and spread wildly thereafter.
Now the image of sober regulators, concerned about the investor and the economy, looking over documents with view to spotting wrongdoing is as distorted as the idea of Secret Service Agents protecting a Kennedy. Regulators are as much about booze and broads and partay as are secret service agents and GSA officials. SEC regulators are especially fond of internet porn.
Now clam down and think for a minute. If there was ever deregulation, how come there are still regulators? If we had no regulations, why would there be regulators? Deregulation would mean no regulators. If you want the powers that be to stop viewing you personally with contempt, you must use words as though you understand what they mean. Never use the word deregulation in relation to the financial crisis, because there was never deregulation. Your use of the word confirms to the powers that be that they have nothing to worry about, because you still have no idea what you are talking about.
Why has this not been prosecuted? Well, first, it must be understood. Second, no regulations were violated. And in the turf wars that make up the time spent in government service, it is a rare prosecutor will wade in where no regulator has pointed. There is fraud in relation to contractual obligations and property rights, but not malfeasance in regulation.
O! It gets better. Banks that behaved in a manner consistent with sound practice, such as Beal Bank, were investigated by the regulators, for refusing to join in on the malfeasance. Beal bought a failed bank from the FDIC in 2002 (2002!) and discovered it was loaded up on FDIC originated bad loans (pump and dump), and sued the FDIC and won. So regulators never saw it coming, although they themselves were doing it, and got caught by a banker. I am not making this up. Be careful when you challenge malfeasance on the part of the state, they come after you.
O! It gets better. Banks that behaved in a manner consistent with sound practice, such as Beal Bank, were investigated by the regulators, for refusing to join in on the malfeasance. Beal bought a failed bank from the FDIC in 2002 (2002!) and discovered it was loaded up on FDIC originated bad loans (pump and dump), and sued the FDIC and won. So regulators never saw it coming, although they themselves were doing it, and got caught by a banker. I am not making this up. Be careful when you challenge malfeasance on the part of the state, they come after you.
But, as I pointed out in the essay on Coase, property rights have been abrogated by the Coase Theorem, in which there is no right or wrong, there is just two parties sorting things out.
Legendary shortseller James Chanos is notoriously circumspect, but I did hear someone say (maybe him) his tactic was to study corporate financial statement footnotes. In light of the practices this seminar outlines, might one make billions with this insight? A bank with wild exposure revealed in a footnote might be a target for shortselling. And perhaps even more lucrative for the shortseller, who is the party who is depending on a given banks credit yet unaware of its ephemerality? Chanos nailed Enron and several other companies long before the regulators had a clue.
What we see is a market actor spots market shenanigans, not the regulators. A market actor metes out condign punishment. It was market actors who nailed Bernie Madoff immediately, and regulators who gave Madoff a clean bill of health for a decade. And then only after the market exposed him to the general public.
It was market actors who spotted the banks mischief and were positioned to set the markets straight by shortselling the financial stocks. It was Christopher Cox as the head of the SEC that outlawed shorting 799 financial stocks, assuring the bankers were exempt from the consequences of their actions, not only in law, but in economics 101. The reason we have this problem going on is because regulators have protected the banks from the rule of law. Anyone who uses the terms 'deregulation" is simply a shill for the bankers, sending people looking in the wrong direction.
Ferguson is a life member of the CFR, a dotcom centimillionaire, clever fellow, bestseller writer and Academy Award winner. Do you think it is a coincidence that a fellow with those insider credits is ahem, misrepresenting the fact and further blaming the black guy? Ferguson's academy award, books and advice to join the occupy movement tells the powers that be that they need not concern themselves in the slightest with the economic conditions in the USA.
By the way, what is the score now on Google search?
Blame Bush 3.5 million hits
Blame Obama 55 million hits
Bush's went down?! And he was in office eight years vs Obama's four? Obama deserves this because he knew going in what the score was. I'll believe we have a president in which race does not matter but ideas do, and we can trust to do the right thing, when we get a man who is authentic and was born in USA, like Louis Farakhan.
Feel free to forward this by email to three of your friends.
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