It’s official. The nation’s top cop, Attorney General Eric Holder, has clearly articulated the administration’s policy on crime at the biggest banks: it will not be prosecuted. Indeed, as we’ve long expected, the criminals in top management will not be investigated, they will not be indicted, they will not be prosecuted, and they will not be punished.
If you want to lie, cheat, and steal, the safest place to be is at an institution like Citi, BofA, Wells Fargo, JPMorgan, or Goldman. There’s no downside to criminal behavior if you can work your way to the top of any of these “systemically dangerous institutions” (SDIs as Bill Black calls them). Their business model is based on crime, and since crime is rewarded within these institutions and ignored by our top cop, the worst criminals will naturally rise to the highest positions in these SDIs. The incentives are aligned to continue promulgating the biggest criminal conspiracies the world has ever seen as these institutions not only enrich top management, but serve as bankers to international terrorists and drug lords.
Here’s Holder’s justification: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” he said. “And I think that is a function of the fact that some of these institutions have become too large.” http://www.alternet.org/economy/outrage-some-banks-are-too-big-prosecute
He went on, trying to shift some of the blame to Congress: sheer size of the big banks “has an inhibiting impact on our ability to bring resolutions that I think would be more appropriate. That is something you (members of Congress) all need to consider.”
He’s saying: You see, Congress, it is your fault that I will not prosecute crime because you have allowed these big banks to exist. However, it is largely due to the Administration’s efforts—led by Timmy Geithner—that the biggest banks not only survived the crisis, but grew bigger as they gobbled up the competition (often with help from the Treasury). Uncle Sam backstopped these control frauds—Bill Black’s term for corporations that are run by top management to enrich themselves.
While I would not want to relieve Congress of all responsibility for protecting the criminal class on Wall Street, the truth is that the Administration is far more culpable—so it is downright disingenuous for Holder to point his finger at Congress.
So this is what we’ve come to: 21st century capitalism is a control fraud.
If Wall Street were a small part of our economy it might not matter too much—as Keynes said, speculation on a steady stream of enterprise is not a big problem, but matters become grave when speculation dominates. And Wall Street’s FIRE sector does dominate the economy: 40% of corporate profits and 20% of value added.
Not only does finance continue to spread its bloodsucking vampire squid tentacles into every sphere of life—the process labeled financialization—but it sets the standard of behavior that nonfinancial firms adopt. Look, you cannot have one sector that rewards top management fabulously while others do not.
The entire corporate sector must follow Wall Street’s lead—and any firm that does not will be taken over by a rapacious thief in a leveraged buy-out. Workers will be fired, shareholders are screwed, divisions are spun-off, and a handful of thieves make out like bandits. That’s modern capitalism.
The main tool used to enrich corporate management is “pump and dump”: take a myopic view of the corporation, do anything to get a short-term gain in equity prices (including using cash to buy the firm’s own shares), and include generous stock option plans in management’s compensation. This is why Wall Street went public in the late 1990s—to enrich the likes of Bob Rubin and Hank Paulson. Pump up the stocks, exercise the options, and dump. Walk away from the hulking mess you made, with your own hundreds of millions intact.
Remember General Electric—Thomas Edison’s industrial giant? Jack Welch took it over and ran it like a financial firm—reporting profits of 20% quarter after quarter through, shall we say, “creative accounting”. He drove up the stock price by 4000% over his tenure, then cashed out, making a reputed half a billion dollars for himself. He was a key figure in promoting the notion that generous compensation for top management—much in the form of stock options—properly aligns incentives.
As Bill Black notes, what this does is to provide spectacular rewards to control frauds and to ensure massive losses for average shareholders and employees of the firms when stock prices collapse. Shortly after Welch took the money and ran, GE’s stock price fell by two-thirds and the firm had to take big write-offs for the phony profits it had been reporting. While GE stocks slowly recovered in the mid-2000s boom, they collapsed to 5 in the GFC and in the current, historic, stock bubble GE is only in the low twenties. Welch is still treated as a corporate hero. And teaches his business philosophy to MIT students.
In any case, Wall Street has taken all this to a new level—outright, admitted, criminal behavior. And not just any crimes. It is not a stretch to say that financing global terrorists and drug lords rises to treason. Wall Street is committing crimes that would lead to drone strikes and the electric chair if anyone else did them. Corporations are now supposedly people, too. Electric chair for Wall Street’s funding of terrorists?
Senator Elizabeth Warren demanded to know: “What does it take, how many billions of dollars do you have to launder from drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution?”
Holder answered her question. This administration will never investigate, will never prosecute, will never punish top management at any big financial institution. No matter what. It might shake financial markets. It might throw a monkey wrench into the 21st century version of capitalism.
Folks, there is no Plan B. This is all we’ve got. Control Fraud Capitalism. Pump and dump from one election cycle to the next.
Call it Bubbleonia (Michael Hudson’s term): create a bubble in some financialized asset, pay huge bonuses to our financial engineers, wait for the next crash, and then bail-out Wall Street.