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Guest Post: Wall Street's Fraud Solutions For Systemic Peril
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Had regulators done their jobs, they would have shut down Wall Street’s financial meth labs, and the Ponzi scheme would have quickly choked to death from lack of monetary oxygen."
Hence the reason why the regulators would not and indeed, could not shut it down. The great ponzi required these actions. This is one of the primary reasons why the efforts of the authorities have been centered on the concept of reflation of asset prices. The capacity of asset prices to support ever increased leverage is the foundation upon which nearly everything else is premised.
When one doesn't wish to regulate, one can find a thousands reason for not regulating.
Back when I was a wee little insurance salesman, I was told the regulators were there to keep me honest. Looks like I was the greater fool because that clearly isn't the case, if it ever was.
As the wee little salesman there certainly were and are. It is the companies that have the droves of salesfolks to whom the regulations acted only to provide the illusion that things were being looked after.
Had regulators done their jobs, they would have shut down Wall Street’s financial meth labs
They would've been shut down via bankruptcy. No "regulator" needed. The problem is that the regulators did not allow for losses to be realized, thus wiping out debt. You don't need regulators to convert debt to equity, you just need lawyers and bankruptcy courts.
And the decision to save Wall Street was political, not financial. The tea party protests are a political response. The decision to short-circuit the automakers' day in BK courts was made by politicians. Smashing and taking over whole segments of the economy is political. This is a political crisis, of status quo old money versus everyone else. Ms. Tavakoli is right, we need the (political) will to implement the solutions.
We need to bitch about the economics, but we need to get motivated and active politically. Now.
Many are motivated, but to do what? Vote out Kennedy, Frank, Dodd, Schumer? Who in their districts will do that?
My friends in Massachusetts wouldn't have voted against Teddy Boyo if he committed vehicular homicide.
Without a changing of the palace guard, all the activity in the world--- which translates solely to, "you vote out your incumbent and I'll vote out my incumbent for the venal financial debauchery they have caused"--- means little to nothing.
Unless you are in favor of anarchical tactics executed by a paunchy, soft, and sedated populace.
If even the nation's various militia-men, who bought all the guns and the survival gear won't rise up, what can you expect from the somnolent middle class whose only protest is a tea party?
If we want to do it peacefully we have to take to the streets in an ever-more-disruptive but non violent manner. 100 people go to each CONgressional reps' local offices. Line up outside into the street. Work stoppages, bank boycotts; we've forgotten how to do this. What is actually required is a conscious and deliberate committment of time. Local groups exist for various issues.
the regulators are, at the top, scumbag criminals themselves feeding off the corruption
They need to go to prison too
Yes it was fraud but no one else will call it that.
I fully agree with J. Tavakoli's comments, but it's a bit like slamming the Germans for waging blitzkrieg on poland in WW2. They waged it because they WANTED too. Damn them or fault them all want. Their intention was to wage blitzkrieg. The intent of all those Janet writes about is equally clear. They choose their actions.
Did Janet get blackballed by the Wall Street establishment? She comes off as bitter, angry, vengeful, and at times mildly retarded. She's way smarter and more experienced than I am, but has some kinda crazies ideas in that beautiful head of hers that I can't resolve with her experience/knowledge.
From what I understand, Janet had a fairly successful career in the derivatives/ risk management area, and called it quits when the Ponzi stuff started really ramping up.
I don't think she bitter, moreso that quite blunt in her analytical assessment.
Quite frankly, she gives me an intellectual woody.
I think she's awfully angry with the Wall Street establishment, moreso than it deserves. Instead of blaming idiot buyers who exercized zero fiduciary duty she's quicker to blame the bankers, when in my experience, it should be the hedge/pension/institutional managers, ratings agencies, and government maroons who received more ire. That is not to say The Street was blameless, quite the contrary, they were complicit, but methinks Janet shoots past her mark, more often than not.
As we have intellectualized ad infinitum, we can spread blame for the financial crisis all over the place-- and I don't think Ms. Tavakoli would necessarily disagree on that assessment.
Her weighting of Wall Street share of the blame, however, comes from the perspective of a successful professional who has actually worked inside Wall Street firms for many years.
I don't think its more "anger" than it is "familiarity" with the institutions she was initately familiar with. She likely knew that a whole lot of damage would be done to the financial system if Wall Street kept to their ways. And, unfortunately, there was no morally complleing reason to stop.
BTW, you need to keep in mind that one of the "idiot buyers" during this mess were the purchasers of AIG credit default swaps-- yeah, many of the same Wall Street firms you aredntly support. Turns out the leverage was higher and the counterpary risk was much greater than their "experts" expected on these toxic derivatives. Well, DUH!
No worries, though. Hank Paulson hand picked the investment banking goofballs that wouldn't dare fail under his watch (sorry, Lehman & Merrill)-- and the regulators/politcal figures were kept at bay as contributions continued to roll in. If anything, Wall Street doesn't get enough blame because man of those firms were in on MULTIPLE sides of the madness.
I just don't think Janet Tavakoli is too terribly far off the mark in this instance.
"Did Janet get blackballed by the Wall Street establishment? She comes off as bitter, angry, vengeful, and at times mildly retarded. She's way smarter and more experienced than I am, but has some kinda crazies ideas in that beautiful head of hers that I can't resolve with her experience/knowledge."
Did you get a lobotomy? Are you a retard? Did you even read the piece?
Good work Janet Tavakoli - you are right on the mark.
Oh my god this person has NO IDEA what the IMF is.
From wikipedia. All you have to do is see how IMF set up dictators loaned them vast amounts of money and then let them get turned into democracies. This is their primary Method of Operation. The same MO that the rothchilds and rockefellers used with JP Morgan as thier agent to indebt various countries all over europe and the US. Everytime you call these people incompetent or incapable of understanding you are playing RIGHT into their hands.
Won't format. Google IMF wikipedia. Scroll down to the percentage of debt before dicatoraship percentage after dicatorship to see how the IMF does business.
+100
Should have gave a link for that.
http://en.wikipedia.org/wiki/International_Monetary_Fund
under the section
IMF/World Bank support of military dictatorshipsWall Street and their regulators have always been....
and still are ....quite an incestuous lot....driven solely by their paychecks....
It used to be that a stockbroker was not paid on straight
commission and was an average age of over 35 years....
Furthermore they were trained over a better than two year
period....
In 1978 or close to....the big firms began to pay on
commission only.....they would hire 100 knowing they would keep 5....
Before electronic trading commissions were well over $100
per ticket on average....today the same ticket costs
20 cents at some firms....
In short...Wall Street had to turn to gathering assets and
charging some percentage of the assets....however the real home run was the fat mark ups on opaque debt and derivative products....Before it was limited partnerships that caused havoc....however this one broght them down....
Here is what needs to happen....
Glass Stegall needs to be implemented again...
However the brogerage model has changed forever because
the brokerage model has been replaced by direct electronic trading....and internet based information....
An individual has far better tools than before to run their own affairs....without the need for brokers....
This does not mean that the securities business contracts....quite the contrary....it gets much bigger....
Why ? It becomes reliable in that anyone that has a PC can buy/sell 100 units for 20 cents....ie phone call change....Also wiki style non biased information could be provided ....
If a person wants management....then the actual track record
could easily be seen....and performance handily monitored in that management units could trade live on the exchanges....
The crux of the problem is that the securities businesses and their regulators "capture" game must end....
This is very simple to resolve....All govt. employees must
have a 5 year waiting period before "crossing over"....to the real paying jobs....This solves "capture"....
The securities business model is also very easy to solve...
De-fragment the exchanges via the BATS model....whereby
transaction costs/markups basically are non-existant....
Scure a wiki based information format for all securities
information changes and reporting....
Segregate management by allowing for management units whereby performance is easily viewed as shares....and make it liquid at any time....
Make sure that all securities go through price discovery
via the BATS model....
Lower and largely eliminate legal largesse costs....
Totally revamp the rating agencies....This is very simple....Make them clearly liable....
This is not rocket science.....This is common sense....
Thank you Ms. Tavakoli.
If you can fit it into your schedule, how about running the SEC for a couple of years?
The Ponzi schemes will continue, with the obvious blessing of the current administration, in spite of all the "hope and change" rhetoric. The simple fact is financial products are one of the very few things this country "manufactures" and exports anymore...(along with the moribund and collapsed housing industry sans the export factor..)
Our immediate future success is based on this..Has been for the last 10 years..it is the reason the same players are still in the game (Bernanke, et. al.and fraud prosecutions are few..it is the only simple, easy hope left for the political mass..
"Capture"... In Japan it's called "Amakudari" or "Descent From Heaven" and is under serious consideration for being ruled illegal. This from a country that has 30% of its elected officials sitting in positions they inherited from their parents.
Janet,
This is an outstanding summarization of the Ponzi scheme, and thank you so much for taking the IMF to task and not letting them dodge their shortcomings and complicities too.
Why is this so hard for people to understand?
Bring back Glass Steagall . Either that or criminalize gross financial negligence (make it comparable to embezzelment) to change the incentive matrix so that bankers will be discouraged from taking undue risk with other people's money.