The Mafia, the Drug Cartels, The Russian Mobsters – mere lightweights. You want to know who are the biggest organized crime lords on the planet? Look no further than Wall Street and your friendly neighborhood Mega-Banks:
A telephone call between a financial adviser in Beverly Hills and a trader in New York was all it took to fleece taxpayers on a water-and-sewer financing deal in West Virginia. The secret conversation was part of a conspiracy stretching across the U.S. by Wall Street banks in the $2.8 trillion municipal bond market. […]
West Virginia was just one stop in a nationwide conspiracy in which financial advisers to municipalities colluded with Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Wachovia Corp. and 11 other banks.
They rigged bids on auctions for so-called guaranteed investment contracts, known as GICs, according to a Justice Department list that was filed in U.S. District Court in Manhattan on March 24 and then put under seal. Those contracts hold tens of billions of taxpayer money.
According to the Bloomberg report, this conspiracy to defraud local governments encompassed 160 deals which victimized over 200 state agencies, local governments (municipalities, counties, school districts) and not for profit organizations.
It was a classic kickback scheme.
Localities relied upon “financial advisory firms” to help them obtain the best rates on guaranteed investment contracts or GIC’s. GIC’s are essentially the equivalent of Certificates of Deposit for small governments, except they involve millions and sometimes billions of dollars.
Unfortunately for them the firms they relied upon as their advisers to get the best deals on the GIC’s they were purchasing were in league with Bank of America, JP Morgan, Cititcorp, Lehman Bros. and a multitude of other banks to rig the bids so that the local municipalities etc. got lower interest rates than the market rate for the GIC’s which they assumed had been bid to acquire the highest interest rates available. The money from these sales of below market rate GIC’s was pocketed by the banks after paying the “adviser” kickbacks ranging from $4,500 to $475,000 per deal.
What did they gain from this and what did the municipalities lose because of this conspiracy? It’s simple really:
Municipalities and states raise $400 billion a year by selling bonds. They invest much of those proceeds in GICs, sold by banks or insurance companies. Those accounts hold taxpayer money and earn interest before public agencies spend it.
Banks and advising firms illegally siphoned money from taxpayers by paying artificially low interest rates in the GICs, the CDR indictment says. The money was intended to build schools, hospitals, roads and sewers and refinance higher-cost debt.
They stole money intended to build schools, repair roads, etc. essentially from you and me. And their theft was so widespread and so well known that the Masters of the Universe (i.e., the criminal class on Wall Street) openly bragged about their illegal schemes in telephone conversations:
“The whole investment process was rigged across the board,” said Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Service’s tax-exempt bond division. “It was so commonplace that people talked about it on the phones of their employers and ignored the fact that they were being recorded.” […]
During more than three years of investigation, federal prosecutors amassed nearly 700,000 tape recordings and 125 million pages of documents and e-mails regarding public finance deals.
These illegal bid rigging schemes occurred at the same time that the Banks were flooding the markets with Collateralized Debt Obligations, Credit Default Swaps and other derivatives. In other words during the years that the Bush administration turned a blind eye to all sorts of criminal conduct by Investment firms, Big Banks and other related financial institutions such as hedge funds.
I wonder why they felt so secure that they could just blithely and openly ignore the risk of federal prosecution? Could it be they simply assumed the Bush administration’s Justice Department would never be given the green light to prosecute them for their multiple fraudulent activities?
The IRS agent quoted above said he had been referring “scores” of these cases to the Justice Department before he retired in 2007? So why are these indictments only being filed now in 2010 after all the damage was done?
Probably the same reason Goldman Sachs has been only recently been sued by the SEC and is being investigated for defrauding purchasers of its mortgage backed derivatives in 2006 and 2007 at the same time it was betting those same investments would fail.
In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
All just another day at the office for the largest organized crime syndicate in US history. How much money did the conspirators (i.e., the big Banks and Wall Street Firms) make from defrauding our local governments? How much did they rob from pension funds and other institutional investors? No one really knows, but rest assured it was a number in the BILLIONS of DOLLARS.
Hell, right now they are using computer trades in the stock market to amass untold wealth. They went an entire quarter trading in the markets without losing money on any single day! That feat had never been accomplished before. They made $9.74 BILLION from their manipulative computerized stock trades in only 3 months.
Daily trading net revenue was $25 million or higher in all of the first quarter’s 63 trading days, New York-based Goldman Sachs reported in a filing with the U.S. Securities and Exchange Commission today. The firm reaped more than $100 million on 35 of the days, or more than half the time.
Goldman Sachs, which is facing a fraud lawsuit from the SEC related to the sale of a mortgage-linked security in 2007, generated $9.74 billion in trading revenue in the first quarter, exceeding all of its Wall Street competitors. Trading accounted for 76 percent of first-quarter revenue. The lack of trading losses could add to the perception that Goldman Sachs has an unfair advantage in the markets, said one shareholder.
That wasn’t because they were such savvy traders by the way. If they were their clients would be making money hand over foot also. Yet in that same first quarter, Goldman’s client’s who followed their investment advice lost money!
Goldman Sachs Group Inc. racked up trading profits for itself every day last quarter. Clients who followed the firm’s investment advice fared far worse.
Seven of the investment bank’s nine “recommended top trades for 2010” have been money losers for investors who followed the New York-based firm’s advice, according to data compiled by Bloomberg from a Goldman Sachs research note sent yesterday. Clients who followed the tips lost 14 percent buying the Polish zloty versus the Japanese yen, 9.4 percent buying Chinese stocks in Hong Kong and 9.8 percent trading the British pound against the New Zealand dollar.
That’s really something when you can make millions of dollars every day trading in the markets while your clients our losing their shirts. How do they do it? Simple. They cheat.
Also called High Frequency Trading (HFT) or “black box trading,” automated program trading uses high-speed computers governed by complex algorithms (instructions to the computer) to analyze data and transact orders in massive quantities at very high speeds. Like the poker player peeking in a mirror to see his opponent’s cards, HFT allows the program trader to peek at major incoming orders and jump in front of them to skim profits off the top. And these large institutional orders are our money — our pension funds, mutual funds, and 401Ks.
When “market making” (matching buyers with sellers) was done strictly by human brokers on the floor of the stock exchange, manipulations and front running were possible but were against the rules, which were strictly enforced. Front running by computer, using complex trading programs, is an entirely different species of fraud. A minor loophole in the system has morphed into a monster. Keiser maintains that computerized front running with HFT has become the principal business of Wall Street and the primary force driving most of the volume on exchanges, contributing not only to a large portion of trading profits but to the manipulation of markets for economic and political ends.
[…]Tyler Durden, writing on Zero Hedge, notes that the HFT game is dominated by Goldman Sachs, which he calls “a hedge fund in all but FDIC backing.” Goldman was an investment bank until the fall of 2008, when it became a commercial bank overnight in order to capitalize on federal bailout benefits, including virtually interest-free money from the Fed that it can use to speculate on the opaque ATS exchanges where markets are manipulated and controlled.
So to sum up. Wall Street sold its clients the equivalent of junk bonds with bogus AAA ratings, and profited by shorting the market. They conspired with each other to rig the sales of Guaranteed Investment Contracts to local towns, municipalities, state agencies, etc. to cheat them out of the best market rates available, a clearly fraudulent activity. They use sophisticated automated computer program trading to lock in profits in market trades based on insider information from their clients.
Oh, and they have defrauded municipalities around the world by turning municipal bond deals into derivatives (much like they did with home mortgages) that are now bankrupting local governments while the banks make out like — well like bandits:
The prosecution relates to a huge bet on interest rates that the four banks—UBS, JPMorgan Chase, Deutsche Bank and Hypo Real Estate’s DEPFA unit—helped the [Milan] city authorities to take in 2005. The banks helped arrange the sale of €1.7 billion ($2.3 billion) of bonds for the city and then also helped it swap the fixed interest rate it was paying on the bonds for a lower, floating rate. Part of the contract is thought to have involved a “collar”, a way of limiting the range of outcomes on a bet, which protected Milan from rising rates but which also meant it would have to pay out if they fell.
The city claims that it was originally promised interest savings of about €60m on the deal but has now made big losses because interest rates have fallen, triggering payments to the banks. Bankers with knowledge of the transaction claim that, in fact, the city has benefited from offsetting gains as the interest rate it pays on the underlying debt has fallen too. The prosecution also claims that the banks charged more than €100m in fees that were built into the price of the swaps and were not properly disclosed to city officials. The banks all deny any wrongdoing.
The outcome of the case will be closely watched elsewhere. In Italy alone, local municipalities had derivatives exposures with a face value of €25 billion last year, according to the Bank of Italy.
By the way, this happens in America also, not just Greece or Italy. Read this article and feel your anger rise:
The 81-year-old Roosevelt Middle School was on the verge of being condemned. The district was running out of money to buy new textbooks. And the school board had determined that the 100,000-resident community 125 miles north of Pittsburgh couldn’t afford a tax increase. Then JPMorgan Chase & Co., the second-largest bank in the U.S., made Barker an offer that seemed too good to be true.
David DiCarlo, an Erie-based JPMorgan Chase banker, told Barker and the school board on Sept. 4, 2003, that all they had to do was sign papers he said would benefit them if interest rates increased in the future, and the bank would give the district $750,000, a transcript of the board meeting shows. […]
What New York-based JPMorgan Chase didn’t tell them, the transcript shows, was that the bank would get more in fees than the school district would get in cash: $1 million. The complex deal, which placed taxpayer money at risk, was linked to four variables involving interest rates. Three years later, as interest rate benchmarks went the wrong way for the school district, the Erie board paid $2.9 million to JPMorgan to get out of the deal, which officials now say they didn’t understand. {…]
It is. During the past four years in Pennsylvania alone, banks have pitched at least 500 deals totaling $12 billion like the one JPMorgan Chase sold to Erie, according to records on file with the state Department of Community and Economic Development. Most of the transactions — which occurred outside the state’s largest cities of Philadelphia and Pittsburgh — have been made without public bidding, which means that banks and advisers privately arranged the deals with small school districts, the records show.
And the Republicans and Conserva-Dems want to block or weaken financial reform while all this is going on in plain sight? The same politicians that have taken Wall Street’s campaign contributions willingly for years in order to insure that government regulation of the financial industry would would be strangled in its bed before it ever came up for a vote? Doesn’t that make them co-conspirators in the largest criminal enterprise on the planet?
Maybe it’s time tom break up the banks. Reinstate the Glass Steagall Act. And regulate derivatives trading up the wazoo so that these abuses — no lets call them what they are: crimes — never happen again. Like HCR, the current financial reform bill should be just the beginning.
