Way back in the 1920's, corruption was rampant on Wall Street. The government's response was to create the Securities and Exchange Commission to regulate the stock market. In 1933, the Glass-Steagall Act prohibited commercial banks from investing in stocks, and brokerage firms and investment banks from getting involved in commercial banking (among other things.) The point was to establish the proverbial "Chinese wall" to separate commercial banks and investment banks.
This worked well for decades. But Wall Street's greed could not be contained forever. BTW, I may have mentioned this before, but it bears repeating: the real power in this country is in New York, not Washington. That said, in 2004 Treasury Secretary Henry Paulson was the head of the investment bank Goldman Sachs. He (among others) went to the goverment complaining that only being allowed to use 12-1 leverage was constraining his firm's ability to do business. That's like having 8 cents for every dollar you risk in the stock and bond markets. Goldman Sachs (and the other banks) could be more profitable if they were allowed to use leverage of 20-1, or 30-1, or 40-1.
And so it was done; Wall Street firms were transformed into gambling casinos. It wasn't as risky as all that for Goldman and JP Morgan Chase, since their government connections and inside information allowed them to know what would happen ahead of time. It's a lot easier to play the market that way. But some of the less privileged players made bad bets and fell by the wayside. Today I doubt there is one large financial institution that would be solvent if it had to liquidate all of its assets.
Where was the SEC when all of this is going on? Good question. They certainly weren't investigating Bernie Madoff. Madoff, if you haven't heard the news lately, was a distinguished 70-year old former chairman of the Nasdaq. But for the past ten years, he has been running a Ponzi scheme that stole $50 billion from investors. And it's not like the SEC actually caught him; his own people finally turned him in. The SEC had been tipped to investigate him over and over for the past nine years, and never looked into his operation.
As I have said before, people need to go to prison; not just in the failed banks and brokerage firms, but in the regulatory agencies as well. The SEC ignored naked shorting of stocks until it finally had to step in and prohibit the naked shorting of the 17 financial firms that had been doing all of the naked shorting in the first place. In other words, the SEC only protects the criminals. In this country, we don't take disgraced government officials out and shoot them, and that's really a shame where Christopher Cox is involved. Under his "leadership" for the past four years, our financial markets have been manipulated and controlled to a level the old Soviet politburo would have been proud of.
In 1805, the Battle of Trafalgar was fought off the Spanish coast, in which the British admiral Lord Nelson destroyed the combined French-Spanish fleet. The French admiral Villeneuve escaped with his life, and returned to Paris, where Napoleon reportedly was not happy with him. Shortly thereafter, Villeneuve was found dead, stabbed three times in the heart. The police ruled it a suicide. Ah, to live in simpler times, when disgraced leaders got what they deserved!
No comments:
Post a Comment