Banksters Gone Wild

Wall Street’s Bad Boys and Their Washington Enablers: Banksters Gone Wild

Published on counterpunch, by PAM MARTENS, December 7, 2007.

Imagine you moved in next door to a mischievous child. Over the years, you watched the parents scold ever so lightly as the deviant behavior grew from stealing loose change to petty larceny to bank robbery. You knew for sure the child would eventually get caught and end up in prison; but you didn’t count on one thing: the parents used their political clout with each ratcheting up of the crimes to avoid prosecution, effectively turning the overseers of the public interest into criminal enablers. As the enablers “fixed” the outcome of each crime, they also sealed the records from public view and historical perspective.

That scenario typifies how criminal behavior has exploded on Wall Street and why President Bush, Congress and the regulators are stumbling around in the dark looking for cures for a financial crisis that they can neither understand nor contain: they’re enablers in denial.
Nothing more dramatically illustrates the criminal contagion than the fact that for the second time in 13 years, Orange County, California has found Wall Street toxic sludge threatening its public funds.

Here’s what happened the first time around: a Merrill Lynch stockbroker, Michael Stamenson, sold billions of dollars of complex securities to Orange County, which ran a pooled investment fund for close to 200 cities and school districts in the county. The county lost $1.7 billion when the highly leveraged fund imploded, the county filed bankruptcy, resulting in serious job losses and cutbacks in social services to the poor. In all, Merrill made approximately $100 million in fees with Stamenson collecting $4.3 million in just the two-year period of ‘93 and ‘94 …

… Terrifying banks on this side of the Atlantic is the knowledge that (1) two of our biggest Wall Street firms, Citigroup and Merrill Lynch, underwrote tens of billions of that Channel Island paper, Granite Master Issuer, and sold it here in the U.S.; (2) Citibank, the commercial banking unit of Citigroup, is the principal paying agent; (3) big chunks of that paper, as of SEC filings on September 30, 2007, is sitting in money markets and fixed income mutual funds in the U.S., raising some serious liability issues for Citigroup and Merrill; and (4) 30 percent of the mortgages have a loan to value (LTV) ratio of 90 to 100 percent while over 50 percent have a LTV of 80 to 100 percent. [2]

It smells Enronesque and Parmalatesque (the bankrupted Italian dairy firm) to a wide swath of the legal and banking community and given that Citigroup will finally face public trials in both of these earlier swindles next year, the timing could not be less propitious for confidence building.

The British Parliament is grilling all the players and regulators for answers to the financial crisis in public hearings while here in the U.S. we prefer to fashion remedies for a financial crisis we’ve yet to investigate or understand.

To recap: there has been the first bank run in 140 years in Britain. We’ve had the first run on a public money market fund here in Florida. The U.S. debt markets have been barely functioning for four months. Our largest banks don’t trust each other.
Perhaps one of the presidential candidates could leave the campaign trail long enough to prove their leadership skills by calling for emergency hearings in Congress, the venue in which we the people pay them to do the people’s work. (full text).

[1] Citigroup’s 3rd Quarter 10Q filing with the SEC discussing its SIV, 107 pages;

[2] Granite Master Issuer securitization filing with the SEC.

(Pam Martens worked on Wall Street for 21 years; she has no securities position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire.)

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