Democratic Underground - Know your BFEE: Goldmine Sacked or The Best Way to Rob a Bank Is to Own One

Now that George Walker Bush has emptied what’s left of the U.S. Treasury into Wall Street’s gargantuan beggar’s cup,
you need to know the name of the fellah who got us into this deregulation mess.

His name is George Herbert Walker Bush. Duhbya’s daddy.

Here he is at the old ball game (or wherever), giving the lensman (or somebody) a nice smile and a great big conspiratorial wink.

Poppy as Veep was charged with driving the deregulation bandwagon.

Back when trickle-down was new, Ronald Reagan appointed Poppy the Veep to a big job.
Bush was to head the federal government’s efforts to streamline government regulations,
including the deregulation of the financial “industry.”

BUSH GROUP'S PROPOSALS ON BANKING REGULATION

By EDWARD COWAN (NYT); Financial Desk
The New York Times
December 24, 1983, Saturday
Late City Final Edition, Section 1, Page 39, Column 5, 689 words

An Administration working group has agreed on a long list of changes meant to simplify Federal regulation of financial institutions, according to a statement from Vice President Bush's office. The group, which Mr. Bush heads, is striving to send recommendations for legislative proposals to President Reagan within weeks. The ...

SOURCE (sorry, no dinero for downloadin’ today):

http://select.nytimes.com/gst/abstract.html?res=FA0C1EFD3E5C0C778EDDAB0994DB484D81

Unfortunately, this also led Uncle Sam to desupervise these same financial industries.
In addition to unleashing the age of greed, this desupervision served to benefit a certain class of fraudster –

a high class, connected fraudster.

Two New Words for P.O.’d Taxpayers

CONTROL FRAUD

Control Fraud

Lars Christian Smith
Conservation Finance

James Galbraith mentions in a comment the very useful concept of “control fraud” introduced by William K. Black, see e.g. When Fragile becomes Friable: Endemic Control Fraud as a Cause of Economic Stagnation and Collapse (pdf),

William K. Black is also the author of the book The Best Way to Rob a Bank Is to Own One.

SOURCE: http://conservationfinance.wordpress.com/2007/03/06/control-fraud/

The Bush Commission’s work resulted in the “right” conditions.

DE-REGULATION MEANS DE-SUPERVISION

The Best Way to Rob a Bank Is to Own One

How Corporate Executives and Politicians Looted the S&L Industry

By William K. Black

Preface

In 2003, the United States Department of Justice reported that property crimes had continued their trend and fallen to an all time low. In fact, property crimes have surged to an all-time high since Enron collapsed in late 2001. The reason for the contradiction is that the Justice Department does not count serious property crimes because it excludes white-collar crimes from its data keeping. A wave of frauds led by the men who control large corporations, what I term "control fraud," caused the massive losses from property crimes.

In the 1980s, a wave of control frauds ravaged the savings and loan (S&L) industry. I was a regulator during the heart of that crisis. As the book shows, I had an uncanny ability to end up in the wrong place at the wrong time and a talent for getting powerful politicians furious at me. After the crisis, I went back to school at the University of California at Irvine to learn to be a criminologist. I knew that the S&L crisis had grown out of systemic fraud. My dissertation studied California S&L control frauds.

This book arose from my concerns that we had failed to learn the lessons of the S&L debacle and that the failure meant that we walked blind into the ongoing wave of control frauds. The defrauders use companies as both sword and shield. They have shown themselves capable of fooling the most sophisticated market participants and academic experts. They are financial superpredators who use accounting fraud as a weapon and a shield against prosecution.

Several factors make control frauds uniquely dangerous. The person who controls a company (or country) can defeat all internal and external controls because he is ultimately in charge of those controls. Fraudulent CEOs do not simply defeat controls; they suborn them and turn them into allies. Top law firms, under the pretense of rendering zealous advocacy to the client, have helped fraudulent CEOs loot and destroy the client.

Top-tier audit firms are even more valuable allies (Black 1993e). Every S&L control fraud, and all of the major control frauds that have surfaced recently, were able to get clean opinions from them. Control frauds, using accounting fraud as their primary weapon and shield, typically report sensational profits, followed by catastrophic failure. These fictitious profits provide the means for sophisticated, fraudulent CEOs to use common corporate mechanisms such as stock bonuses to convert firm assets to their personal benefit. In short, they camouflage themselves as legitimate leaders and take advantage of the presumption of regularity (and psychic rewards) that CEOs receive.

Fraudulent CEOs can transform the firm and the regulatory environment to aid control fraud. They can use the full resources of the firm to bring about these changes. Control frauds frequently make (directly and indirectly) large political contributions. They may lobby in favor of deregulation or tort reform, or seek to remove the chief regulator. They can place the firm in the lines of businesses that offer the best opportunities for accounting fraud. This generally means investing in assets that have no readily ascertainable market value and arranging reciprocal "sales" of goods, which can transform real losses into fictional profits (Black 1993b). It can also mean, however, targeting poorly regulated industries. They can make the firm grow rapidly and become a Ponzi scheme.

The result is a dangerous package that appears healthy and legitimate but is not and that has extraordinary resources available for use by a fraudulent CEO. Control frauds have shown the ability to fool the most sophisticated market participants. They can be massively insolvent and still be touted by experts as among the very best firms in the world. The conventional economic wisdom about the S&L debacle assumed that "high flier" S&Ls existed solely because of deposit insurance. Scholars asserted that private market discipline would prevent any excessive risk taking in industries that had no government guarantee. This view was incorrect: S&L control frauds consistently showed the ability to deceive uninsured private creditors and shareholders. Elliot Levitas, one of the commissioners appointed to investigate the causes of the debacle as part of the National Commission on Financial Institution Reform, Recovery and Enforcement (NCFIRRE), emphasized this point in 1993, but no economist took him seriously. The current wave of control frauds has proved his point conclusively.

The scariest aspect of control frauds, however, is that they can occur in waves, causing systemic damage. The S&L debacle was contained before it damaged our overall economy, but this book explains how near a thing that was. Waves of control fraud have occurred in many nations, often with devastating consequences. Russia's privatization campaign was ruined by such a wave.

CONTINUED…

http://books.google.com/books?id=SI3F8wEuT24C&pg=PA32&lpg=PA32&dq=reagan+administration+banking+deregulation&source=web&ots=UjIZ1kdNve&sig=VJz7Y8ZC7VUhzLTRxTWEhyGGOlM&hl=en&sa=X&oi=book_result&resnum=4&ct=result#PPA37,M1

… WHICH MEANS DE-FRAUDING THE MOPES

No wonder John McCain’s so chummy with Joe Lieberman.

Need a hint?
Arthur Andersen?
ENRON?

Dishonesty, Greed and Hypocrisy in Corporate America.

Come to think of it, it explains why McCain’s friends with Phil Gramm, the ultraconservative deregulator from Texas.

ENRON and the Gramms

THE FINE PRINT.

Something very important we don’t want to miss… or forget.

Picked to direct the Wall Street bailout: Who is Neel Kashkari?

By Alex Lantier
8 October 2008
WSWS.org

On October 6 US Treasury Secretary Henry Paulson named Neel Kashkari to head the Treasury’s new Office of Financial Stability (OFS). The OFS is charged with paying out $700 billion to Wall Street banks and other financial firms in exchange for their failed mortgage-backed assets, under the terms of the bailout signed into law by President Bush on October 3.

Kashkari’s identity is thus a matter of considerable public interest. Only 35 years old, Kashkari joined the Treasury in 2006 “as a Senior Advisor to US Treasury Secretary Henry M. Paulson,” according to his official Treasury Department biography. At the time, Paulson was giving up his job as CEO of Wall Street investment bank Goldman Sachs to join the Treasury.

The biography continues, “Prior to joining the Treasury Department, Mr. Kashkari was a Vice-President of Goldman Sachs & Co. in San Francisco, where he led Goldman’s IT Security Investment Banking practice, advising public and private companies on mergers and acquisitions and financial transactions.”

Despite his high rank, Kashkari has only a few years of experience in finance. After initially studying aerospace engineering at the University of Illinois, he worked at defense firm TRW on contract projects from the US space agency NASA, before switching careers and attending the Wharton School of Business in Philadelphia. He joined Goldman Sachs after graduating from Wharton in 2002.

Once at the Treasury, Kashkari helped prepare the recently passed bailout. The Wall Street Journal wrote, “Mr. Kashkari was part of the Treasury team that negotiated the asset-repurchase program with Congress <...> He was also one of the originators of the plan. Last year, he and Phillip Swagel, assistant secretary for economic policy, crafted a proposal called ‘break the glass’—referring to the emergency nature of using such a tool—which envisioned Treasury buying bad loans and other assets.”

Kashkari’s history highlights the extraordinary influence of Goldman Sachs, a firm that stands massively to benefit from the bailout its former executives have organized at the Treasury. Not only does Goldman now have the option of unloading its failed mortgage-backed assets on the Treasury, but it stands to make large sums from carrying out the actual transactions of the bailout program itself.

CONTINUED…

http://www.wsws.org/articles/2008/oct2008/kash-o08.shtml

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