The Triumvirate of Wall Street/ the Fed/ and US Politicians is Crumbling Pt 2

Months ago, I warned that a tsunami of litigation was going to be coming to Wall Street and Washington. At the time I noted that Goldman Sachs CEO Lloyd Blankfein had recently hired a mega-defense attorney, as well as the fact that the Fed had gone into damage control mode (staging town-hall meetings, opening itself up to Q& A sessions, defending its actions to Congress, etc.).



I also noted in a recent article that the triumvirate of Wall Street/ the Fed/ and US Politicians would be crumbling in the future as these three groups tried to shift the blame for what happened during 2008 from one to another in an attempt to divert public outrage.


Indeed, the only reason this process hasn’t already reached a fever pitch is because the benefits of not talking for most of those who were in on the corruption still outweigh the consequences of keeping their mouths shut.


This process has already changed for some players in the financial game: we have recently seen some minor players get taken down, but those have primarily been insider trading cases involving expert networks, hedge funds, and corporate directors.


The main issue or question is: when do we start seeing the real power players at the heart of the Financial Crisis come under scrutiny (what Blankfein is clearly anticipating by hiring a defense lawyer).


By the look of things, it’s coming sooner rather than later:


            Lehman Brothers Subpoenas Geithner In J.P. Morgan Fight


Lehman Brothers Holdings Inc. (LEHMQ) and its creditors late Thursday said they want to subpoena Treasury Secretary Timothy Geithner to question him under oath over allegations J.P. Morgan Chase & Co., (JPM) illegally siphoned billions of dollars from the collapsing investment bank in the days before it filed for the largest bankruptcy in U.S. history.


In a filing accompanying Lehman's filing, made in U.S. District Court in Washington, Lehman's official committee of unsecured creditors said Geithner has thus far refused to comply with an Aug. 9, 2011, subpoena, and it wants a court to force Geithner to give a deposition by a March 16 deadline.


"Despite being a crucial fact witness on these issues, Secretary Geithner has refused to appear at a deposition in accordance with a valid subpoena issued by the Committee," the committee's lawyers said in the filing. Geithner was president of the Federal Reserve Bank of New York at the time of the Lehman collapse.


This could represent a potential sea change in the legal environment in the US. It’s clear Geithner thought he could get out of this mess by virtue of the fact he’s among the highest level of the power elite. However, the announcement that he doesn’t expect Obama to keep him as Treasury Secretary may have changed this.


For one thing, it’s clear that Obama is trying to distance himself from Geithner for political reasons (more than one GOP candidate has stated Geithner should be fired). The real issue is whether it’s been decided that Geithner will be the one who gets the albatross hung around his neck.


It’s too early to know, but one thing is for certain, the litigation is beginning to shift from minor players to major players at the core of the Financial Crisis. Investors take note, this is a major shift and needs to be monitored as it will have major implications for market dynamics going forward.


Remember, the markets have been on life support from the Fed and Treasury ever since 2008 hit. If those behind that life support begin facing major legal trouble the aggressive “we will save the day” attitudes of the Fed et al may change.


And when this happens the life support will get pulled.


Make no mistake, we are heading into a Crisis that will make 2008 look like a joke. The money for all of these various programs (both in Europe and the US) simply isn’t there. So this time around we’re going to see stock crashes AS WELL as civil unrest, food shortages, and the like.


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Good Investing!


Graham Summers


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