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February 2 / 3, 2008
Bankers Gone Bonkers
Global Finance and the Insanity Defense
By PAM MARTENS (reprinted with
permission from Pam Martens)
SOURCE:
http://www.counterpunch.org/martens02022008.html
With Wall Street capital disappearing as
fast as foreclosures are climbing, one
foreign head of state had an epiphany.
French President Nicholas Sarkozy
advanced the idea recently that the
global financial system is "out of its
mind."
To develop this theory further, I've
reconstructed below some of the
mileposts on our journey to this
financial loony bin.
Exhibit One:
Commit-a-Felony-Get-a-Bonus Contract.
Back in 2002, Mark Belnick, who had
previously been one of the legal go-to
guys for Wall Street as a rising star at
corporate law firm Paul,Weiss, Rifkind,
Wharton & Garrison, found himself
transplanted as General Counsel at
fraud-infested Tyco International.
Mr. Belnick inked a retention agreement
for himself and it was duly filed
without fanfare at the top corporate
cop's web site, the Securities and
Exchange Commission (SEC). The agreement
guaranteed Mr. Belnick a payment of at
least $10.6 million should he commit a
felony and be fired before October 2003.
Very
prescient fellow, Mr. Belnick was indeed
charged with a few felonies like grand
larceny and securities fraud by the
Manhattan District Attorney's office.
Mr. Belnick was acquitted of those
charges and the SEC let him off the hook
for aiding and abetting federal
violations of securities laws with a
$100,000 penalty payment and a
prohibition against serving as an
officer or director of a public company
for five years. Mr. Belnick agreed to
the SEC settlement without admitting or
denying the charges. Mr. Belnick did not
lose his law license and continues to
practice law.
While Mr. Belnick was drafting his
"felony bonus" agreement with Tyco, he
was also teaching a law course at
Cornell on ethics. Today, his agreement
is available at the FindLaw.com web site
as a "sample business contract," raising
the suspicion that we as a society have
become desensitized to financial
insanity.
Exhibit Two: Supreme Insanity.
On December 7, 2006, Wall Street was
elated to learn that the U.S. Supreme
Court had agreed to hear its case
requesting that a no-law zone be drawn
around its financial borders for acts of
collusion and commercial bribery, such
as those so well documented in the
issuance of new stock offerings during
the tech/dotcom bubble. Calling the
matter an alleged "epic Wall Street
conspiracy," the U.S Federal Court of
Appeals for the Second Circuit had
earlier turned down Wall Street for its
requested grant of immunity.
The Wall Street firms and their legions
of lawyers appealed to the Supreme
Court, arguing that the SEC (which, by
the way, has no criminal powers) should
have sole authority to regulate it and,
therefore, it should be immune from
other U.S. laws governing collusion and
commercial bribery. (Credit Suisse First
Boston Ltd. v. Billings.)
On June 18, 2007, the Supreme Court
issued its opinion giving Wall Street
everything it wanted, concluding that
the SEC was doing a good job. The Court
wrote: "...there is here no question of
the existence of appropriate regulatory
authority, nor is there doubt as to
whether the regulators have exercised
that authority."
The sweeping ignorance of that statement
is breathtaking. Whether it was Wall
Street firms price fixing on NASDAQ for
decades or the orchestrated rigging of
the market for new stock issues in the
late 90s or the current
institutionalized system of credit
fraud, the SEC always has its lens
fogged until some college professors or
investigative reporters publish a step
by step playbook, disseminate it widely,
and force the SEC to take action to save
face.
Worse yet, when the SEC finally does
take action, it imposes fines of
millions for stealing billions, making
crime one of the most productive profit
centers on Wall Street.
This 2007 decision from the Supreme
Court comes exactly 20 years and 10 days
after the 1987 Supreme Court decision in
Shearson/American Express Inc. v.
McMahon. Under this ruling, Wall Street
has been able to run a private justice
system called mandatory arbitration to
hear the cases of the investors or
employees it defrauds (with the
exception of class actions). The
instruction manual for this private
justice system explains that adherence
to the law is not required; arbitration
panel members, many on Wall Street's
payroll, can just go with their gut.
In other words, the highest court in our
land is telling Americans that the
reward for serial lawlessness is
immunity from the law.
Exhibit Three: Banks' Secret Profit
Center: Your Death.
Few
Americans are aware that for at least 16
years big business and banks have been
secretly taking out millions of life
insurance policies on their rank and
file workers and naming the corporation
the beneficiary of the death benefit
without the knowledge of the worker. The
individual policies are frequently in
the hundreds of thousands of dollars. If
the employee leaves the company, no
problem; big business is still allowed
to collect the death benefit and they
track the employee through the Social
Security Administration to keep tabs on
when they die. These policies are
commonly known as "dead peasant" or
"janitor" policies because they insure
low-wage earners including janitors.
Some of the largest corporations in
America have been boosting their income
statements by including cash buildup in
the policies as well as receiving the
death benefit tax free.
In 2003, the General Accountability
Office (GAO) released a study with the
startling findings that companies were
taking out multiple policies on the same
individual and that 3,209 banks and
thrifts had current cash values in these
policies totaling $56.3 Billion.
But instead of a congressional revolt
against this revolting practice, it
remained in place for at least 16 years
after Congress first learned about it.
Then along comes the worker-friendly
sounding Pension Protection Act of 2006
submitted by our Congress and signed by
the President. Buried deep within this
massive document was the grandfathering
of the millions of previously issued
policies with a little tinkering at the
edges of tax and reporting issues on
newly issued policies.
Exhibit Four: They Keep the Money;
You Get the Slogan.
Around the time the stock market was in
the process of losing $7 trillion of
investor wealth in ill-conceived techs,
dotcoms and telecoms, aided and abetted
by Citigroup and its Wall Street
cronies, I was driving on Charles
Lindbergh Blvd. in Uniondale, Long
Island when a bizarre billboard caught
my eye. The giant billboard read:
He who dies with the most toys is still
dead.
Live Richly.
(Citigroup logo: "Citi" and angelic red
halo.)
I had never worked on Madison Avenue but
I knew a lot of ad folks and I was
pretty sure advertisements typically
involved children, pets or other warm
and fuzzy things. Citigroup telling me
to ponder my own death seemed, well,
"out of its mind."
I knew there had to be more behind this
campaign. According to Citigroup's web
site, the "Live Richly" campaign was
meant to communicate "that Citi is an
advocate for a healthy approach to
money. Citi is an active partner in
achieving perspective, balance, and
peace of mind in finances and in life
for its customers."
The ad agency was Fallon Worldwide and
it clearly had Citigroup confused with a
social responsibility fund, not the firm
that named its trades after its real
motives like the "Dr. Evil" trade that
disrupted the European bond markets or
the "Black Hole" mechanism associated
with the bankrupting of Italian dairy
giant, Parmalat.
Here's a sampling of the insanity taking
place inside Citigroup as they spent
millions extolling the public to evolve
as better human beings and, more subtly,
pay no mind to the $7 trillion of
investor wealth that's evaporating
behind our curtain of kindness.
Citigroup slogan: People with fat
wallets are not necessarily more jolly.
Citigroup reality: Sandy Weill,
Citigroup's CEO, earned "$785 million in
total compensation over five years: more
than any chief executive in America, and
by a wide margin." Dan Ackman, Forbes,
April 26, 2001.
Citigroup slogan: Holding shares
shouldn't be your only form of
affection.
Citigroup reality: "A recently unearthed
'highly confidential' Citigroup memo
openly discussed the 'pressures' keeping
research analysts from providing
investors with honest research. In the
2002 memo, John Hoffman, then global
research chief for Citi's Salomon Smith
Barney division, advised Salomon Smith
Barney CEO Michael Carpenter of the
internal view that 'implementation and
enforcement of clearer and more accurate
ratings is in conflict with certain
paramount goals of our firm'-namely,
maximizing underwriting fees." Peter
Elkind, Fortune, November 23, 2005
The memo was obtained as a Florida law
firm attempted to get restitution for
what Salomon Smith Barney clients were
increasingly holding: worthless shares.
Cumulatively, all of these examples
suggest that a strong argument could be
made that unfettered greed finds its
ultimate expression in systemic
corruption which is frequently
indistinguishable from insanity.
Please note just how much of this
insanity can be placed at the doorstep
of self-regulation.
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. She
can be reached at
pamk741@aol.com
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