A Tale of Two Wall Streets

 

15 September, 2009. Lower Manhattan is always a bit of a strange and wonderful place, with the Federal / State / City government complex a short taxi ride away from Wall Street, Little Italy cheek-by-jowl with a Chinatown that has yet to recover from the economic devastation of 9/11, whose ruins still lie just a few blocks away, even as ever-hip Tribeca and Battery Park continue to shine. 

 

15 September, 2009. Lower Manhattan is always a bit of a strange and wonderful place, with the Federal / State / City government complex a short taxi ride away from Wall Street, Little Italy cheek-by-jowl with a Chinatown that has yet to recover from the economic devastation of 9/11, whose ruins still lie just a few blocks away, even as ever-hip Tribeca and Battery Park continue to shine. 

But yesterday was a truly schizoid day in the life of a city that likes to claim, at least, it continually embraces the seemingly contradictory in a single time and place.At historic Federal Hall, President Obama was giving a speech about financial responsibility [!] to an audience comprised largely of those who created the cataclysm of Black September 2008 that has since enveloped the world like a slowly creeping – rather than dramatically rising – mushroom cloud:

 

• investment bankers and hedge fund honchos who played IBG – “I’ll Be Gone” – with trillions of other people’s money;
   
• regulators who couldn’t seem to figure out what the corporations they were supposedly watching were doing – not least because they had no independent sources of information about those activities;
   
• and elected officials, all slavishly dependent on the largesse of big-money contributors from the finance / health care / etc etc etc sectors for the endless, and endlessly annoying, American election campaign.[br]

But as everyone in the audience knew, for a candidate who campaigned on the promise of “change,” the President has done little, if anything, to transform the conditions under which Wall Street has operated since the time of Reagan, even as they created the world’s most serious economic crisis since the Great Depression

And while there is no doubt the Cheney / Bush regime gave them everything they ever asked for, and more, they also knew that Obama’s key economic appointees, Treasury Secretary Tim Geithner and National Economic Council head Larry Summers – whom he glowingly praised in the first paragraphs of his far-from-soaring speech – were, in fact, directly responsible for unleashing the financial apocalypse of a year ago. How? Because in December 2000 – at the very moment W was being placed in a Presidency he hadn’t won by a Republican Supreme Court – then Treasury Secretary Larry Summers, and his Deputy Secretary Tim Geithner, under cover of night, as the Rolling Stones would say, pushed through legislation that basically de-regulated the now-infamous derivatives – the financial instruments St Warren of Buffet has likened to uncontrolled weapons of mass destruction.

That, of course, is the dirty little secret of the shadow wayang played by Washington and Wall Street for the last three decades – there is no real difference between Republicans and Democrats. Both are equally dependent on the financial sector for massive campaign contributions, just as they are to the vested interests blocking any fundamental change in the catastrophic US health “care” system: insurance companies / drug companies / the AMA / HMOs / and hospitals.

So once Wall Streeters saw that Summers and Geithner – which indicates the direction of the power flow between them, whatever their official posts – were going to be in charge of the Obama “response” to the financial / economic crisis now ravaging the world, they breathed a huge sigh of relief.

They knew their privilege would remain unchallenged – as it has indeed – whatever the rhetoric of “change.”

But at the same time Obama was playing out the charade in Federal Hall, a short walk away, someone actually WAS doing something about the scandal that dares not speak its name.

Federal District Judge Jed S. Rakoff – a name that should be as honored in judicial circles as the Nobel Peace Prize-worthy Spanish investigative judge Balthazar Garzon – was rejecting precisely the sort of shady deal between the “regulators” and the “regulated” that has been a dismaying constant of contemporary American political economy.

As the New York Times put it, Rakoff “overturned a settlement between the Bank of America and the Securities and Exchange Commission over bonuses paid to Merrill Lynch executives just before the bank took over Merrill last year.”

The judge said that Bank of America “materially lied” in shareholder communications about the bonuses. The $33 million settlement “does not comport with the most elementary notions of justice and morality” … The case involved $3.6 billion in bonuses that were paid by Merrill Lynch late last year, just as that firm was about to be merged with Bank of America. Neither company provided details of the bonuses to their shareholders, who voted on Dec. 5 to approve the merger. The judge focused much of his criticism on the fact that the fine in the case would be paid by the bank’s shareholders, who were the ones that were supposed to have been injured by the lack of disclosure. “It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against the management go away” … The proposed settlement, the judge [wrote], “suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.”

All this does, of course, is force the two “sides” to actually prepare for a trial to begin no later than February 1 – and who knows what shenanigans the two will cook up between now and then.

But in a landscape dominated by sly chicanery and constant collusion between what are supposed to be adversaries, Rakoff’s commitment to simple human honesty is not just refreshing in itself, but offers a sad commentary on the lack of principle from a President supposedly all about “change.”

David Caploe PhD
Chief Political Economist, EconomyWatch.com
President, Minerva School / ACALAHA