The Fraud Started At the Very Top: With Government Leaders

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Washington’s Blog

The government's entire strategy
now - as during the S&L crisis - is to cover up how bad things are.

But it is not only a matter of covering up fraud that has already happened. The government also created an environment which greatly encouraged fraud.

Here are just a few of many potential examples:

  • Business Week wrote on May 23, 2006:

"President
George W. Bush has bestowed on his intelligence czar, John Negroponte,
broad authority, in the name of national security, to excuse publicly
traded companies from their usual accounting and securities-disclosure
obligations."

  • Tim Geithner was complicit in Lehman's accounting fraud, (and see this), and pushed to pay AIG's CDS counterparties at full value, and then to keep the deal secret. And as Robert Reich notes,
    Geithner was "very much in the center of the action" regarding the
    secret bail out of Bear Stearns without Congressional approval. William
    Black points out:
    "Mr. Geithner, as President of the Federal Reserve Bank of New York
    since October 2003, was one of those senior regulators who failed to
    take any effective regulatory action to prevent the crisis, but instead
    covered up its depth"
  • The former chief accountant for the SEC says that Bernanke and Paulson broke the law and should be prosecuted
  • The government knew about mortgage fraud a long time ago. For
    example, the FBI warned of an "epidemic" of mortgage fraud in 2004.
    However, the FBI, DOJ and other government agencies then stood down
    and did nothing. See this and this. For example, the Federal Reserve turned its cheek and allowed massive fraud, and the SEC has repeatedly ignored accounting fraud. Indeed, Alan Greenspan took the position that fraud could never happen
  • Bernanke might have broken the law by letting unemployment rise in order to keep inflation low
  • Paulson and Bernanke falsely stated that the big banks receiving Tarp money were healthy, when they were not
  • Of course, deregulation by Larry Summers, Robert Rubin, Phil
    Gramm and many other high-level politicians and regulators also helped
    to grease the skids for fraud

Economist James K. Galbraith wrote in the introduction to his father, John Kenneth Galbraith's, definitive study of the Great Depression, The Great Crash, 1929:

The main relevance of The Great Crash, 1929
to the great crisis of 2008 is surely here. In both cases, the
government knew what it should do. Both times, it declined to do it.
In the summer of 1929 a few stern words from on high, a rise in the
discount rate, a tough investigation into the pyramid schemes of the
day, and the house of cards on Wall Street would have tumbled before its
fall destroyed the whole economy. In 2004, the FBI warned publicly
of "an epidemic of mortgage fraud." But the government did nothing,
and less than nothing, delivering instead low interest rates,
deregulation and clear signals that laws would not be enforced. The
signals were not subtle: on one occasion the director of the Office of
Thrift Supervision came to a conference with copies of the Federal
Register and a chainsaw. There followed every manner of scheme to
fleece the unsuspecting ....

 

 

This was fraud, perpetrated in the first instance by the government on the population, and by the rich on the poor.

 

***

 

The government that permits this to happen is complicit in a vast crime.

In
other words, the fraud started at the very top with Greenspan, Bush,
Paulson, Negraponte, Bernanke, Geithner, Rubin, Summers and all of the
rest of the boys.

As William Black told me today:

In
criminology jargon: they created an intensely criminogenic
environment. I have no knowledge whether the national security aspects
played any role, but the anti-regulatory dogma was devastating.