More Mayhem Among Money Mavens

by C. O. Jones

Jon Corzine was a star, a shooting star: CEO of Goldman Sachs, U. S. Senator (D.NJ), spending $62 Million of his own money in the 2000 election, recipient of the coveted Enron Prize for Distinguished Public Service in 2005, Governor of New Jersey in 2007, (another $38 Million). Corzine made things happen; he was a prince of the revolving door.

Returning to the public sphere in March 2010, he was appointed CEO and Chairman of MF Global, a multinational futures broker and bond dealer. With experience, political connections and a veteran of the revolving door, he was expected to turn around this mid-level company with a struggling balance sheet.

Always known as a risk-taker, Corzine took personal control of investment decisions and surreptitiously began buying European “sovereign bonds,” i.e. he began betting on the bailout of troubled European economies.

“Accepted" accounting procedures for these nefarious instruments allow profits to appear immediately after purchase of the bonds. Investors began taking notice that the firm was making a profit, and stock prices rose; but “customer” funds, as required by law, were kept aside.

 The cycle was augmented by pulling in funds from other sectors of the company through a highly risky and discredited financial practice called “Internal Repo.”  This led to the inevitable growing pyramid of profits: as long as the funds came in, more of these highly risky derivatives could be purchased, which led to ever greater profits shown on the books. With the funds leveraged to 40:1, staggering profits might be realized with a swing of a mere 2 or 3%. This, of course, promised enormous bonuses for Corzine. Conversely, a drop of 1 or 2% would produce margin calls from J. P. Morgan, Global’s banker, and trouble for investors---but not for Jon Corzine!

Finally, with Euro Bond holdings exceeding $6 Billion, word started leaking out, investors became nervous, and the bubble burst. MF Global now stands as the 8^th largest bankruptcy in US history. With $1.2 Billion in customer funds “missing,” we speculate that the funds were slipped into margin calls.

Testifying under subpoena at a House Agriculture Committee hearing, Corzine professed ignorance about the massive shortfall that emerged as regulators and federal investigators began probing MF Global's Oct. 31 bankruptcy. Though several committee members still thanked Corzine for opting not to cite his Fifth Amendment right to avoid testifying, others appeared somewhat irritated by his carefully chosen answers. Several described the financial jeopardy now faced by farmers and other agriculture constituents who were MF Global customers.

This sad, troubling tale comes four short years after the previous, massive collapse of the financial services industry, generated by industry fraud, and bailed out by government and future taxpayers. The point here is that the nabobs who run this industry know no bounds in greed and duplicity. The Obama administration has not brought justice to the men who cooked up the myriad of fraudulent schemes from the last mess, any more than it has brought Jon Corzine to justice.  There have been no trials, no jail time. In fact, the same people who brought down the world economy are still pulling the strings, and claiming even greater salaries and bonuses than before the crisis.

In another, recent financial corruption case, United States of America v. Carollo, Goldberg and Grimm, a threesome of bit players on Wall Street got convicted of obscure antitrust violations. This just-completed trial in downtown New York against three faceless financial executives, over 10 years in the making, allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.

The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street thugs spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America. The banks secretly colluded to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, they stole from schools, hospitals, libraries and nursing homes – from “virtually every state, district and territory in the United States,” according to one settlement. And they did it so cleverly that the victims never even knew they were being ­cheated. No thumbs were broken, and no cement goulashes were recovered, but lots of money disappeared, and its manner of disappearance had a familiar ring: organized crime.

In fact, stripped of all the camouflaging financial verbiage, the crimes the defendants and their co-conspirators committed were virtually indistinguishable from the kind of thuggery practiced for decades by the Mafia, which has long made manipulation of public bids for things like garbage collection and construction contracts a cornerstone of its business. What’s more, in the manner of old mob trials, Wall Street’s secret machinations were revealed during the Carollo trial through crackling wiretap recordings and the lurid testimony of cooperating witnesses, who came into court with bowed heads, pointing fingers at their accomplices. The new-age gangsters even invented an elaborate code to hide their crimes. They spoke in thieves’ cant, or as Italian mobsters talking about “getting a button man to clip the capo.” On tape after tape these Wall Street crooks coughed up phrases like “pull a nickel out” or “get to the right level” or “you’re hanging out there” – all code words used to manipulate the interest rates on municipal bonds. The only thing that made this trial different from a typical mob trial was the scale of the crime.

Some progress is being made. Last month the SEC announced a $150 Million refund to Capital One credit card customers for abusive, misleading, even fraudulent lending practices. OK, this is nice, but it represents hardly even a wrist-slap to the managers who carry out this chicanery. 

On cue, the international system brings us TIBOR, or LIBOR. This bank scandal is so large that Barclay’s Bank set aside $300 Million just for litigation. Fines for Barclay’s alone are near $500 Million. This scandal involves massive collusion, among the largest banks, worldwide, to manipulate interest rates (as in the Carollo case) to suit the individual bank’s portfolio.

While the fines here may reflect the magnitude of the crimes, the important factor is that Barclay’s share holders will shoulder the burden of the penalties. Those who committed the crimes go scot-free. These people belong in jail, for God’s sake, not idling around watching for the next big opportunity for a killing. Our political leaders don’t have the gumption to go after the criminals. We need new laws---a return to Glass Segal. We need regulatory teeth to enforce our existing laws. Legislative injunctions to prevent fraud and collusion are impossible because the bankers control our politicians.

Millions in this country alone live in crushing poverty. Scores of Einsteins and Mozarts live in squalor without a chance to present their gifts to the world. Bankers, who contribute nothing, control our politicians, travel the oceans in yachts and hide their millions/billions in foreign tax havens. We need to be aware, my friends, of the faceless threat from the reigning oligarchy that controls our country, our public dialog and us!

As we move toward what looks to be a pivotal election in November, consider the likely positions of our two candidates on confronting this threat to our democratic structure. We can conclude from the last 3 years that if re-elected, President Obama is unlikely to take dramatic steps to control the banks.

Mr. Romney, on the other hand, refuses to be specific on any policy issue. From what he does say, however, we can assume that he will continue the trend of taking the teeth out of regulatory agencies. Given that these are the only things that stand between us and the rapacious bankers, we must conclude that under his government this disturbing trend will continue unfettered. Take your pick.

C. O. Jones is a Robbinsense staff writer