If Obama were serious about restoring confidence in the
markets, he�d dump SEC chief Mary Schapiro and replace her with Eliot Spitzer.
That would send a message to the world that the administration means business.
Schapiro is another Wall Street toady who believes in �self
regulating� markets. Right. As the head of the Financial Industry Regulatory
Authority, or FINRA, she twiddled her thumbs while the financial giants
increased their leverage to gigantic levels and spread their
derivatives-contagion to every part of the system.
Schapiro also missed the Madoff scandal, the auction-rate bond
fraud, the blow up at Lehman Brothers, and the mortgage meltdown. She was
blindsided at every turn. Her dismal performance as a private-sector regulator
proves that she�s the wrong person for the job. Even the far-right Wall Street
Journal has lambasted Schapiro.
In an article, titled �Obama�s pick to head SEC has record
of being a Regulator with a Light Touch� the WSJ relays this revealing
anecdote: �The Financial Services Institute, a trade group, was meeting, and
Ms. Schapiro addressed the crowd about FINRA�s efforts to fight frauds aimed at
senior citizens. Frank Congemi, a financial adviser, asked what FINRA was doing
to regulate �packaged products� such as complex mortgage securities. Mr.
Congemi says that Ms. Schapiro replied: �We have rating agencies that rate
them.� The credit-rating agencies, by this time, were being heavily criticized
for having given triple-A ratings to mortgage bonds that became unsalable as
�Mr. Congemi says that at the May 7 meeting he retorted: �What
is that going to do to markets and people�s trust when these things go to zero?�
He says Ms. Schapiro replied that she couldn�t answer hypothetical questions.�
(Wall Street Journal, Obama�s pick to head SEC has record of being a Regulator
with a Light Touch�)
This story sums up Schapiro�s �do nothing� attitude
perfectly: plenty of posturing and rhetoric with zero enforcement. She�s doomed
to follow in the footsteps of her feckless predecessor, Christopher Cox, who
stuck his head in the sand while the five biggest investment banks leveraged up
to 30 to 1 and brought the whole global house of cards crashing to earth.
Schapiro will undoubtedly torpedo any effort to police the markets or to bring
charges against any of the Wall Street Godfathers.
And what is the SEC up to now? Where are the regulators and
what steps have been taken to clean up Wall Street?
Nothing. Just more blabbering. Obama hasn�t changed a thing.
Treasury is full of bank loyalists and the SEC is loaded with
brokerage-friendly flunkies. The only difference is that the SEC�s rubber stamp
has been passed from laughingstock Cox to lapdog Schapiro. Other than that, it�s
business as usual.
If Spitzer were running the SEC, the Pinkertons would be
swarming the investments houses right now, thumbing through the off-balance
sheet paperwork, overturning filing cabinets and Tasering bloated banksters as
they scuttle away clutching their Armani briefcases stuffed with taxpayer loot.
The public is not in the mood for any more lame excuses or
windy oratory from President Inspiration. Just get on with it. Governing is
more than just gliding from one teleprompter to the next, pointing at rainbows
and promising Utopia. There has to be action, accountability, and justice.
What people want is to see a truncheon-wielding cop on every
corner of lower Manhattan. They want regulators snooping through emails and
digging through trashcans to uncover any scrap of evidence that will build a
case for investor fraud or criminal malfeasance. They want Spitzer-clones -- armed
with bullwhips and billy clubs -- posted in every boardroom, in every
penthouse, on every private jet; breathing down the necks of every CEO, every
CFO, and every dodgy, derivatives-peddling scam artist until the financial
typhoon subsides and the culprits, cutthroats and carpetbaggers are dragged in
leg irons to Guantanamo for a few brief dunks on Dick Cheney�s waterboard.
This is not the time for namby-pamby, weak-kneed Schapiro.
Eliot Spitzer has a proven record of taking on the industry behemoths and
organized crime. (He launched an investigation that brought down the Gambino
family�s control over Manhattan�s garment and trucking industries.) He�s
devoted himself to consumer and environmental protection, while taking aim at
white-collar crime and securities fraud. Until he stepped down, he�d been doing
a bang-up job reigning in reckless speculators, predatory lenders, and Wall
Street kingpins. He�s a bulldog, a corporate dragon-slayer, and the best man
for the job. Spitzer�s heavy-handed tactics made him big business�s most hated
man. In fact, in January 2005, the president of the US Chamber of Commerce
described Spitzer�s approach as �the most egregious and unacceptable form of
intimidation we�ve seen in this country in modern times.�
If that isn�t a ringing endorsement for SEC chief, than what
In March 2008, Spitzer resigned as governor of New York when
he was caught with a high-priced call girl named Ashley Dupre. The story made
headlines across the country. Spitzer accepted full responsibility for his
conduct and did not challenge the allegations even though the information was
gathered via a federal wiretap.
The Spitzer case brings up some unsettling questions about
Bush�s surveillance programs; mainly whether they are really being used to
investigate potential terrorists or simply a means of destroying political
enemies. Spitzer made a name for himself by sticking it to big shot business
tycoons and Wall Street kleptocrats, the very type of people who fill out Bush�s
campaign donor list. That�s why many people believe that the Bush Justice
Department was simply carrying out a vendetta on behalf of Spitzer�s many
Just days before the scandal broke, the Washington Post
published an article by Spitzer which linked the Bush administration to the
mortgage fiasco. He showed how Bush had blocked all efforts to save loan
applicants from being fleeced by mortgage lenders. Spitzer was joined by many
other state attorneys general who noticed early on that predatory lending was
on the rise and that there was a concerted effort to keep the mortgage swindle
going whether applicants had the ability to make their payments or not.
Elliot Spitzer�s op-ed in the Washington Post: �Not only did
the Bush administration do nothing to protect consumers, it embarked on an
aggressive and unprecedented campaign to prevent states from protecting their
residents from the very problems to which the federal government was turning a
blind eye. . . .
�In 2003, during the height of the predatory lending crisis,
the Office of the Comptroller of the Currency (OCC) invoked a clause from the
1863 National Bank Act to issue formal opinions preempting all state predatory
lending laws, thereby rendering them inoperative. The OCC also promulgated new
rules that prevented states from enforcing any of their own consumer protection
laws against national banks. The federal government�s actions were so egregious
and so unprecedented that all 50 state attorneys general, and all 50 state
banking superintendents, actively fought the new rules
�But the unanimous opposition of the 50 states did not
deter, or even slow, the Bush administration in its goal of protecting the
banks. In fact, when my office opened an investigation of possible
discrimination in mortgage lending by a number of banks, the OCC filed a
federal lawsuit to stop the investigation.
�Throughout our battles with the OCC and the banks, the
mantra of the banks and their defenders was that efforts to curb predatory
lending would deny access to credit to the very consumers the states were
trying to protect. The curbs we sought . . . would have stopped the scourge of
predatory lending practices that have resulted in countless thousands of consumers
losing their homes and put our economy in a precarious position.
�When history tells the story of the subprime lending crisis
and recounts its devastating effects on the lives of so many innocent
homeowners, the Bush administration will not be judged favorably. The tale is
still unfolding, but when the dust settles, it will be judged as a willing
accomplice to the lenders who went to any lengths in their quest for profits.
So willing, in fact, that it used the power of the federal government in an
unprecedented assault on state legislatures, as well as on state attorneys
general and anyone else on the side of consumers.� (Elliot Spitzer, �Predator
Lenders� Partner in Crime� Washington Post)
If the allegations are true, then the Bush administration
was directly and maliciously involved in duping thousands, if not millions, of
credulous borrowers into fraudulent loans. Surely, this is a matter that
requires congressional investigation.
Journalist Greg Palast sums it up like this: �Spitzer not
only took on Countrywide, he took on their predatory enablers in the investment
banking community. Behind Countrywide was the Mother Shark, its founder and now
owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill
Lynch and Citigroup�s Citibank made mortgage usury their major profit centers.
. . . .But there were rumblings that the party would soon be over . . .
�The big players knew that unless Spitzer was taken out, he
would create enough ruckus to spoil the party. Headlines in the financial press
� one was �Wall Street Declares War on Spitzer� - made clear to Bush�s
enforcers at Justice who their number one target should be. And it wasn�t Bin
Laden.(�Eliot�s Mess,� Greg Palast)
Spitzer gave his enemies all the ammo they needed to put him
away for good, and they took full advantage of it. No one expected that he
would pop up just a year later.
Last Sunday, Spitzer was interviewed on Fareed Zakaria�s GPS
on CNN. The ex-gov showed a better grasp of the details of the financial
situation than of any of the 535 members of Congress. Spitzer understands the
problems and knows what needs to be done to fix them.
Here�s a small part of the interview:
Fareed Zakaria: What made you look at AIG and say something
is wrong here?
Eliot Spitzer: Their fundamental accounting structure was
wrong, and when we prosecuted them, we brought a case that they had allegedly
manufactured fictitious reinsurance contracts designed to create the appearance
of capital on the books which was not there and this was a structure that had
been designed and orchestrated at the very top of the company.
Fareed Zakaria: So they were basically fudging the numbers
to make it look like they had a stronger balance sheet than they actually had?
Spitzer: Precisely. That is exactly right. The underlying
effort was to create the illusion of financial strength that was not actually
there. And as we dug more deeply into the underlying structure and organization
and accounting that was ongoing at the company we knew there was a problem.
Four people have been convicted in this and the former CEO was called an
unindicted co-conspirator in the federal courtroom by the federal prosecutor.
So, this was a fundamental effort to alter the facts and lie to the public.�
AIG center of the web
ZAKARIA: So, do you think the problems that AIG got into
later on stemmed from some of the same practices that you were trying to get
SPITZER: They stemmed from an effort at the very to to gin
up returns whenever, wherever possible, and to push the boundaries in a way
that would garner returns almost regardless of risk. Back then, I told people
that AIG is at the center of the web. The financial tentacles of this company
stretched to every major investment bank. The web between AIG and Goldman Sachs
is something that should be pursued. And as I�ve written . . .
Consider what Spitzer is saying; that the lumbering Goliath,
AIG, is at the very center of the gigantic derivatives fraud which took
trillion of dollars of undercapitalized credit default swaps (CDS) and sold
them (as insurance) to myriad other financial institutions to help them
maintain artificially high ratings on complex securities whose real value was
always in doubt since the underlying collateral was connected to uncreditworthy
borrowers who were more likely to default or go into foreclosure. Whew! These
CDS are the paper claims to fictive wealth which greatly inflated the world�s
biggest speculative bubble. These unregulated swaps are the tissue that holds
together the failing shadow banking system which both Geithner and Bernanke are
committed to preserving. Spitzer understands how this complex system works and
knows what it will take to bring it under control. This alone should put him at
the top of the list of candidates for the SEC.
If Obama were serious about defending the little guy and
restoring confidence in the markets, he�d replace Schapiro with Spitzer pronto.
But since the real goal is to maintain the same basic power structure at all
costs; the economy will continue its relentless slide towards the abyss. One
unmistakable sign of imperial decline is the inability to make critical changes
when the country�s future depends on it.
Whitney lives in Washington state. He can be reached at firstname.lastname@example.org.