2009 November 01 Sunday
Why No RICO Charges For Wall Street Executives?

Okay, my subject title is rhetorical. Both the Democratic and Republican Parties are pretty much owned by special interests. But the question needs asking repeatedly.The McClatchy Newspapers chain is doing a series on illegal wrong-doings of Goldman and other Wall Street firms with the claim that these firms knew they were peddling junk as AAA securities. Goldman knew the crash was coming 2 years before it happened but misrepresented the quality of the mortgage-backed securities it was selling. Isn't this felonious behavior?

WASHINGTON ó 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.

Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

So basically some Wall Street firms brought on the biggest financial crisis since the Great Depression just to make big bucks for themselves. Then some of them get saved by massive government injections because they are too big to fail, they make billions off of these injections, and then they reward themselves huge bonuses. The American people are too stupid to demand that Wall Street be prosecuted like the Mafia.

Why aren't all the pensions, insurance companies, and other institutional buyers calling for jail time for the Goldman bond salesmen and their bosses?

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

McClatchy thinks Goldman Sachs violated securities laws.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

A former Goldman investment banker describes Goldman's activities as totally criminal.

John Talbott, a former Goldman investment banker and the author of a new book, "The 88 Biggest Lies on Wall Street," said "it wasn't a mistake" when illegal immigrants got home mortgages.

The lenders, he said, "just wanted somebody, anybody to sign a note" so they could sell it to Wall Street, where ratings agencies that were paid hefty fees by the investment banks bestowed triple-A grades or their equivalent on most subprime bonds.

"It's not just unethical," Talbott said of the chain of profiting subprime players extending from real estate appraisers to Wall Street. "It's totally criminal."

McClatchy also finds that Moody's purged ratings analysts who tried to do an honest job. Isn't this also illegal? Why isn't the Obama Administration charging thousands of Wall Street executives and salesmen on RICO charges? Isn't this a massive conspiracy to commit fraud?

WASHINGTON -- As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression.

A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings.

You can follow McClatchy's investigation here.

What I want to know: Did Lehman Brothers and Bear Sterns go down because they were too stupid to know that they were dealing in junk? Or did they just wait too long to get off the carousel when the game came crashing down?

Share |      By Randall Parker at 2009 November 01 10:48 AM  Elites Betrayal And Incompetence

Mr. Mises said at November 1, 2009 11:43 AM:

PP, if you want to know why Bear and Lehman blew up, read this:


Bob Badour said at November 1, 2009 1:56 PM:

Mr. Mises is right.

Lehman Brothers and Bear Sterns went down because someone shot them down. It's the 21st century version of "going to the mattresses." The only question is: Did the Gambinos put them down to hurt their rivals? Or did their rivals put them down to hurt the Gambinos.

Mr. Mises said at November 1, 2009 2:17 PM:

Someone = Goldman, of course. They have bought the state. At some point, they have to be taken down. Either from within the state or from outside the state. Class-action lawsuits might be possible. But we can't allow Feudalism v 2.0 to take hold.

Mercer said at November 1, 2009 2:55 PM:

Where is Andrew Cuomo?

Some of the Wall Street crowd might be prosecuted under RICO but the New York state Martin Act gives the NY attorney general greater investigative powers then any other prosecutor in the US for financial fraud. This is the law that Spitzer used against Merrill Lynch and other companies to make himself famous. Disclosure: I am not lawyer. I am basing this statement on the book I read about Spitzer titled Spoiling for a Fight.

Note that people from Bear Stearns are currently under trial. When their cases are finished I expect prosecutors to go after other firms.

Black Death said at November 1, 2009 5:22 PM:

Hmmmm.... No RICO charges (or any other type of charges) for Goldman Sachs? Wonder why?

Top Obama Campaign Contributors

University of California $1,591,395
Goldman Sachs $994,795
Harvard University $854,747
Microsoft Corp $833,617
Google Inc $803,436
Citigroup Inc $701,290
JPMorgan Chase & Co $695,132
Time Warner $590,084
Sidley Austin LLP $588,598
Stanford University $586,557
National Amusements Inc $551,683
UBS AG $543,219
Wilmerhale Llp $542,618
Skadden, Arps et al $530,839
IBM Corp $528,822
Columbia University $528,302
Morgan Stanley $514,881
General Electric $499,130
US Government $494,820
Latham & Watkins $493,835

Note that those contributions are from employees of the organizations, not the organizations themselves. Big banks and financial firms have always been top contributors to Obama campaigns, going back to his Senate days. It's the Chicago way! Looks like Goldman got a lot of bang for their bucks. It always amazes me how cheaply American politicians can be bought.

Bob Badour said at November 1, 2009 6:33 PM:
Someone = Goldman, of course.

Goldman Sachs, olive oil import companies, same difference. When you start digging into naked shorts issue, you find the Gambino crime family in cahoots with the Russian mafia on one side, and I am not quite so clear who is on the other side. So, did the Gambinos take out a rival's bank or did a rival take out the Gambinos bank?

Mr. Mises said at November 1, 2009 8:32 PM:

A few weeks ago I was speaking with a Hedge Fund thug (I'm in the financial services industry) and mentioned that Dick Fuld claimed naked shorts took down Bear and that it was a serious problem in the industry. We were drinking, but the HF dude went completely off the tracks in anger at my suggestion. He was beyond defensive in his denials that naked shorts even exist. It was bizarre.

Bob Badour, you're 100% correct with your mafia references. This is totally out of hand.

AMac said at November 1, 2009 8:40 PM:

Black Death,

When compiling the published records of campaign contributions, one must bear in mind that the 2008 Obama Campaign drove a stake through the heart of campaign-finance transparency. By choosing to disable the main anti-fraud safeguard for online credit card/debit card/cash card contributions, Obama's people encouraged no-trace contributions. My own experience recounted here.

Does this reflect the greater moral virtures of the Republican Party? I doubt it. Because Democrats are smarter and because they have fewer worries about bad press, it makes sense that they're the innovators in this area.

To what extent are your numbers actually lowball estimates? There is, of course, no way to know.

How much interest has the FEC and Congress taken in this issue? One guess.

Black Death said at November 2, 2009 6:20 AM:

AMac -

Good point. The numbers I cited may well be underestimates, but they're the only ones available from official sources:


Obama initially stated that he would accept public funding for his campaign but then changed his mind. His organization turned off the credit card fraud checks and then used political influence to stop an FEC probe. Nice, eh? The Obama administration stinks of corruption, but I guess it's just the Chicago way.

averros said at November 3, 2009 3:20 AM:

"Why No RICO Charges For Wall Street Executives?"

Because they own the Guvirmint, stupid. Who do you think bankrolls both major political parties in US?

Mercer said at November 3, 2009 8:48 AM:

"Did Lehman Brothers and Bear Sterns go down because they were too stupid to know that they were dealing in junk?"

Yes. John Lanchester has a review of two books by Lehman people at the lrb.co.uk. He says the people at the top believed in the junk "Fuld and his henchmen simply didnít want to hear any of their bad news. The bank carried on sleepwalking towards disaster."

I disagree with Lanchester that letting Lehman fall was a mistake. I don't think you can prevent a big bubble from popping eventually.

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