Bankers Gone Bonkers
Finance and the Insanity Defense
By PAM MARTENS
--- - With
Wall Street capital disappearing as fast as foreclosures are
climbing, one foreign head of state had an epiphany. French
President Nicholas Sarkozy advanced the idea recently that the
global financial system is "out of its mind."
To develop this theory further,
I've reconstructed below some of the mileposts on our journey to
this financial loony bin.
Back in 2002, Mark Belnick, who
had previously been one of the legal go-to guys for Wall Street
as a rising star at corporate law firm Paul,Weiss, Rifkind,
Wharton & Garrison, found himself transplanted as General
Counsel at fraud-infested Tyco International. Mr. Belnick inked
a retention agreement for himself and it was duly filed without
fanfare at the top corporate cop's web site, the Securities and
Exchange Commission (SEC). The agreement guaranteed Mr. Belnick
a payment of at least $10.6 million should he commit a felony
and be fired before October 2003.
Very prescient fellow, Mr.
Belnick was indeed charged with a few felonies like grand
larceny and securities fraud by the Manhattan District
Attorney's office. Mr. Belnick was acquitted of those charges
and the SEC let him off the hook for aiding and abetting federal
violations of securities laws with a $100,000 penalty payment
and a prohibition against serving as an officer or director of a
public company for five years. Mr. Belnick agreed to the SEC
settlement without admitting or denying the charges. Mr. Belnick
did not lose his law license and continues to practice law.
While Mr. Belnick was drafting
his "felony bonus" agreement with Tyco, he was also teaching a
law course at Cornell on ethics. Today, his agreement is
available at the FindLaw.com web site as a "sample business
contract," raising the suspicion that we as a society have
become desensitized to financial insanity.
On December 7, 2006, Wall Street
was elated to learn that the U.S. Supreme Court had agreed to
hear its case requesting that a no-law zone be drawn around its
financial borders for acts of collusion and commercial bribery,
such as those so well documented in the issuance of new stock
offerings during the tech/dotcom bubble. Calling the matter an
alleged "epic Wall Street conspiracy," the U.S Federal Court of
Appeals for the Second Circuit had earlier turned down Wall
Street for its requested grant of immunity.
The Wall Street firms and their
legions of lawyers appealed to the Supreme Court, arguing that
the SEC (which, by the way, has no criminal powers) should have
sole authority to regulate it and, therefore, it should be
immune from other U.S. laws governing collusion and commercial
bribery. (Credit Suisse First Boston Ltd. v. Billings.)
On June 18, 2007, the Supreme
Court issued its opinion giving Wall Street everything it
wanted, concluding that the SEC was doing a good job. The Court
wrote: "...there is here no question of the existence of
appropriate regulatory authority, nor is there doubt as to
whether the regulators have exercised that authority."
The sweeping ignorance of that
statement is breathtaking. Whether it was Wall Street firms
price fixing on NASDAQ for decades or the orchestrated rigging
of the market for new stock issues in the late 90s or the
current institutionalized system of credit fraud, the SEC always
has its lens fogged until some college professors or
investigative reporters publish a step by step playbook,
disseminate it widely, and force the SEC to take action to save
Worse yet, when the SEC finally
does take action, it imposes fines of millions for stealing
billions, making crime one of the most productive profit centers
on Wall Street.
This 2007 decision from the
Supreme Court comes exactly 20 years and 10 days after the 1987
Supreme Court decision in Shearson/American Express Inc. v.
McMahon. Under this ruling, Wall Street has been able to run a
private justice system called mandatory arbitration to hear the
cases of the investors or employees it defrauds (with the
exception of class actions). The instruction manual for this
private justice system explains that adherence to the law is not
required; arbitration panel members, many on Wall Street's
payroll, can just go with their gut.
In other words, the highest
court in our land is telling Americans that the reward for
serial lawlessness is immunity from the law.
Three: Banks' Secret Profit Center: Your Death.
Few Americans are aware that for
at least 16 years big business and banks have been secretly
taking out millions of life insurance policies on their rank and
file workers and naming the corporation the beneficiary of the
death benefit without the knowledge of the worker. The
individual policies are frequently in the hundreds of thousands
of dollars. If the employee leaves the company, no problem; big
business is still allowed to collect the death benefit and they
track the employee through the Social Security Administration to
keep tabs on when they die. These policies are commonly known as
"dead peasant" or "janitor" policies because they insure
low-wage earners including janitors. Some of the largest
corporations in America have been boosting their income
statements by including cash buildup in the policies as well as
receiving the death benefit tax free.
In 2003, the General
Accountability Office (GAO) released a study with the startling
findings that companies were taking out multiple policies on the
same individual and that 3,209 banks and thrifts had current
cash values in these policies totaling $56.3 Billion.
But instead of a congressional
revolt against this revolting practice, it remained in place for
at least 16 years after Congress first learned about it.
Then along comes the worker-friendly sounding Pension Protection
Act of 2006 submitted by our Congress and signed by the
President. Buried deep within this massive document was the
grandfathering of the millions of previously issued policies
with a little tinkering at the edges of tax and reporting issues
on newly issued policies.
They Keep the Money; You Get the Slogan.
Around the time the stock market
was in the process of losing $7 trillion of investor wealth in
ill-conceived techs, dotcoms and telecoms, aided and abetted by
Citigroup and its Wall Street cronies, I was driving on Charles
Lindbergh Blvd. in Uniondale, Long Island when a bizarre
billboard caught my eye. The giant billboard read:
He who dies with the most
toys is still dead.
(Citigroup logo: "Citi" and
angelic red halo.)
I had never worked on Madison
Avenue but I knew a lot of ad folks and I was pretty sure
advertisements typically involved children, pets or other warm
and fuzzy things. Citigroup telling me to ponder my own death
seemed, well, "out of its mind."
I knew there had to be more
behind this campaign. According to Citigroup's web site, the
"Live Richly" campaign was meant to communicate "that Citi is an
advocate for a healthy approach to money. Citi is an active
partner in achieving perspective, balance, and peace of mind in
finances and in life for its customers."
The ad agency was Fallon
Worldwide and it clearly had Citigroup confused with a social
responsibility fund, not the firm that named its trades after
its real motives like the "Dr. Evil" trade that disrupted the
European bond markets or the "Black Hole" mechanism associated
with the bankrupting of Italian dairy giant, Parmalat.
Here's a sampling of the
insanity taking place inside Citigroup as they spent millions
extolling the public to evolve as better human beings and, more
subtly, pay no mind to the $7 trillion of investor wealth that's
evaporating behind our curtain of kindness.
Citigroup slogan: People with
fat wallets are not necessarily more jolly.
Citigroup reality: Sandy Weill,
Citigroup's CEO, earned "$785 million in total compensation over
five years: more than any chief executive in America, and by a
wide margin." Dan Ackman, Forbes, April 26, 2001.
Citigroup slogan: Holding
shares shouldn't be your only form of affection.
Citigroup reality: "A recently unearthed 'highly
confidential' Citigroup memo openly discussed the 'pressures'
keeping research analysts from providing investors with honest
research. In the 2002 memo, John Hoffman, then global
research chief for Citi's Salomon Smith Barney division, advised
Salomon Smith Barney CEO Michael Carpenter of the internal view
that 'implementation and enforcement of clearer and more
accurate ratings is in conflict with certain paramount goals of
our firm'-namely, maximizing underwriting fees." Peter Elkind,
Fortune, November 23, 2005
The memo was obtained as a
Florida law firm attempted to get restitution for what Salomon
Smith Barney clients were increasingly holding: worthless
Cumulatively, all of these examples suggest that a strong
argument could be made that unfettered greed finds its ultimate
expression in systemic corruption which is frequently
indistinguishable from insanity.
Please note just how much of
this insanity can be placed at the doorstep of self-regulation.
worked on Wall Street for 21 years; she has no securities
position, long or short, in any company mentioned in this
article. She writes on public interest issues from New
Hampshire. She can be reached at
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