Matt Taibbi: Wall Street's Naked Swindle

This is worth reading.

Wall Street's Naked Swindle by Matt Taibbi.

Closing quote from this story:

"The new president for whom we all had such high hopes went and hired Michael Froman, a Citigroup executive who accepted a $2.2 million bonus after he joined the White House, to serve on his economic transition team — at the same time the government was giving Citigroup a massive bailout. Then, after promising to curb the influence of lobbyists, Obama hired a former Goldman Sachs lobbyist, Mark Patterson, as chief of staff at the Treasury. He hired another Goldmanite, Gary Gensler, to police the commodities markets. He handed control of the Treasury and Federal Reserve over to Geithner and Bernanke, a pair of stooges who spent their whole careers being bellhops for New York bankers. And on the first anniversary of the collapse of Lehman Brothers, when he finally came to Wall Street to promote "serious financial reform," his plan proved to be so completely absent of balls that the share prices of the major banks soared at the news.

The nation's largest financial players are able to write the rules for own their businesses and brazenly steal billions under the noses of regulators, and nothing is done about it. A thing so fundamental to civilized society as the integrity of a stock, or a mortgage note, or even a U.S. Treasury bond, can no longer be protected, not even in a crisis, and a crime as vulgar and conspicuous as counterfeiting can take place on a systematic level for years without being stopped, even after it begins to affect the modern-day equivalents of the Rockefellers and the Carnegies. What 10 years ago was a cheap stock-fraud scheme for second-rate grifters in Brooklyn has become a major profit center for Wall Street. Our burglar class now rules the national economy. And no one is trying to stop them."

Where David Einhorn Sees Value in Today's Markets

Greenlight Capital's David Einhorn was speaking today at the 5th Value Investing Congress in New York City.

Two years ago he appeared as a highlight lecture of the show, and laid out his reasons for shorting Lehman Brothers stock. Needless to say there was quite a bit of attention to what he had to say today.

Here are some highlights:

1. A very bleak outlook for the US economy

2. US has a lack of political will to adopt needed financial reforms.

3. Right now he would like to hold gold rather than cash because "gold benefits from poor fiscal policy."

4. Buying long dated options on much higher interest rates in the US and Japan

5. Singled out GE as thwarting financial reform due to their intense lobbying efforts.

Transcript of David Einhorn's presentation.

PBS Frontline Presents: The Warning - Roots of the Financial Crisis

It will be worth watching if we can see the role that the Fed under Alan Greenpsan played, during the Clinton Administration, to set the US on the road to financial crisis. This was done in concert with Bob Rubin, Larry Summers and Tim Geithner, representing the vested interests of the Wall Street banks.

Many of the same players that were involved in this have been brought back to Washington under the Obama Administration. This is the source of our initial disillusion with Obama as a 'reformer.' He was reforming nothing, just bringing back the crew that started the ball rolling.

Several Republicans played a key role in this sabotage of sound regulation even during the Clinton Administration, including Phil Gramm's crippling of the regulatory process. What was started under Clinton reached its fruition, if not a generalized looting, under the free market ideologues in the Bush Administration and in particular with Treasury Secretary Henry Paulson.

We have not seen it yet, but it is a story that deserves to be told. We hope that Frontline does it justice.

We hope that this is not the phase of the financial crisis when they start trotting out patsies and scapegoats to be thrown under the bus for the amusement and diversion of the crowd from the serious work before us. The US financial system needs a thorough investigation and substantial reform, not more headlines and high profile perp walks. Or we will be back at the brink most assuredly, if we are not there already. It will happen again.

PBS FRONTLINE Presents
The Warning
Tuesday, October 20, 2009, at 9 P.M. ET on PBS

The Warning (Video Preview)

"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission (CFTC) -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"

In The Warning, airing Tuesday, Oct. 20, 2009, at 9 P.M. ET on PBS (check local listings), veteran FRONTLINE producer Michael Kirk (Inside the Meltdown, Breaking the Bank) unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."

Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.

"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"

Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."

Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.

"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience..."