Point of View Columns

Shell Game for Billionaires

Spring is on its way and the flowers are starting to bloom. But all the scented bouquets in the world cannot hide the stench arising from the sleight of hand shell games that we see being played out in the higher echelons of high finance. Consider that the SAC hedge fund paid a $600 million dollar fine for insider trading last week. This week it was announced that Citibank would be paying a $730 million fine for misleading investors. And neither institution has admitted to wrong doing in the process.

And SAC and Citibank should not be considered outliers or pariahs in the financial community. During the past year Bank of America, J.P. Morgan Chase and the Royal Bank of Scotland have all paid enormous fines, sometimes in excess of a billion dollars for misleading or improper conduct. On the Planet Earth such behavior would be called “stealing”. In the ethereal world of high finance it is called business as usual.

Take a moment to think about how much money an organization would have accumulated through insider trading for it to agree to pay a fine in excess of half a billion dollars. Think about how much money a bank must have made in providing misleading information to investors to justify paying a fine that approaches a billion dollars. Clearly these fines are seen as the cost of doing business – and then only if they get caught.

We see the Teapublicans doing their level best to shred and eviscerate the infrastructure that the Dodd Frank Act is supposed to establish in order to protect the public from wrongdoing by bad actors in the financial community. Instead of closing ranks to insure that a “free market” is also a “fair market”, too many opponents of regulation would rather let the thieves into the temple and walk away with all the profit that they can carry.

There was a time, not too long ago, when Wall Street was deeply involved in the process of investing in the future of this country. Investment bankers made money by financing the creation and expansion of businesses as well aggregating capital to support the development of the infrastructure of this country. Commercial bankers loaned money to small businesses and startups in addition to the blue chip firms.

This is not a reflection through a Norman Rockwell looking glass; these are historical facts that illustrate a very different mindset than what we find in the financial community today. Today technology based “trades” have replaced investment as the fuel that drives the Wall Street engine.

These trades, orchestrated by supercomputers that are linked globally, move enormous sums of money around the world in the blink of an eye 24 hours a day, seven days a week. The only jobs that these trades produce are in the banks, investment firms and law firms. The only infrastructure investment arising out of this faux finance would be the addition of a guest home on the summer estate of some hedge fund executive.

The shell game for billionaires entails moving money around and picking up the billions of dollars of loose change that somehow get left behind after every series of transactions. And fudging information to investors and illegally making use of inside information is just part of the shell game. Of course the grimy sweaty sans-culottes of the world aren’t supposed to worry about what is going on with this trans global shell game. And, by the way, don’t ask these would be Masters of the Universe to pay any additional taxes as they climb the greed beanstalk that, for them, reaches to the heavens.

We can go back to the fact that more regulation and more enforcement of those regulations might prevent some of the more egregious offenses. But the mindset in too much of the financial community is similar to players in some kind of Grand Game using supercomputers, offshore accounts and impenetrable documentation to grab as much money as possible. And if you get caught, you pay a fine that comes nowhere near the actual profit accumulated during a round of the Grand Game.

Perhaps the Masters of the Universe will realize that it is possible for them to make money through investment in the future and the financing of the dreams and plans of others – if they would only take a break from their computer simulated Grand Game.

I would not, however, recommend holding your breath waiting for this to happen.

Point of View Columns

The Real Takers

Two recent news items carved into the public consciousness the true extent and hypocrisy of the Teapublican right wing and its myths. Several Teapublican members of congress dismissed all attempts to reach out to the Latino community, lumping all of that community with other supporters of the Democratic Party who are “takers”. As that vile commentary made its rounds it was announced in Davenport, Iowa that one Russell Wasendorf, Sr., the founder of the Peregrine Financial Group was sentenced to fifty years for stealing in excess of $215 million.

One of the many lows of the Romney campaign was the leaked video of Mitt Romney claiming that 47% of the American people were in effect “takers”, receiving a multitude of unearned benefits for housing, food, education and healthcare. It was, Mr. Romney believed, this 47% that would never vote for him and would always be looking for the Democratic handout that was waiting around the corner.

Of course Mitt Romney was half right. It wasn’t 47% of the American people who didn’t vote for him, it was more like 53%. But he was wrong in labeling and libeling so many Americans as “takers”, simply because the social safety net that they helped to create and pay for actually works.

But Mitt Romney and the Teapublicans are totally wrong in implying that there is this class of Americans – 53%, 10%, 1%, it doesn’t matter – who have achieved wealth and success through their own hard work and sheer genius. Such an analysis ignores the public education system, the highways, the commercial banking infrastructure, law enforcement and healthcare that create an environment where businesses can thrive and prosper. And no, they didn’t build that!

But the Teapublican shadow dance also tends to distract from another reality which the Peregrine case illustrates. Mr. Wasendorf founded an investment company, ran it for almost thirty years, stole $215 million of other people’s money and by all accounts never made a single penny. Yet Mr. Wasendorf was a respected member of the 1% club with estates, private planes and an office building to show off his edifice complex until, that is, the entire house of cards came crashing down.

And just in case we should think that Peregrine case is an outlier let us not forget Bernie Madoff ($18 billion stolen – 150 year prison sentence), Allen Stanford ($7 billion stolen – 110 year sentence), and Thomas Petters ($4 billion stolen – 50 year prison sentence).

Meanwhile, with stunning regularity firms like Goldman Sachs, Royal Bank of Scotland, J.P. Morgan Chase and Bank of America pay staggering fines of hundreds of millions, and in some instances billions of dollars for “improper practices”. Of course this punishment does not include criminal penalties for the perpetrators also known as the beneficiaries of these “improper practices”

It is important for us to understand that none of these examples are outliers. Great wealth many times is the result of “sharp” practices that are many times made illegal after the fact. The “sharp” business practices that created the fortunes of John D. Rockefeller, Andrew Carnegie and J.P. Morgan gave rise to an entire infrastructure of laws, rules and regulations. Those “sharp” practices were unfair and would now be illegal and in some instances crimes.

The point is that the real “takers” in American history have not been “welfare queens” getting a few extra food stamps. The real “takers” have been the men and women who have cheated and stolen and lied their way to unimaginable fortunes. To the extent they have been subtle enough to employ their chicanery without a ski mask, these “takers” end up in boardrooms, boards of trustees and in some instances Teapublican campaign finance committees.

Misdirection is one of the oldest ploys in just about every sport and certainly in politics. While filling the airwaves with complaints about the mythical “takers” from Ayn Rand’s fairy tales – students on scholarship, parents feeding their children, veterans receiving health support, elderly citizens receiving care and sustenance – attention is diverted from the brazen robberies that take place every day.

Most people in business are honest. But there are too many who are dishonest and who populate an ever growing den of thieves. These robbers represent the true burden on society and the drain on the economy.

Just because the robbers wear bespoke suits and custom-made shirts while being driven by their chauffeurs doesn’t mean that they aren’t the real “takers”.