Friday, October 10, 2008

Machiavellian Scheme or Stupidity?

Sixteen years ago, in 1992, Michael Stamenson, Merrill Lynch's number one salesman, worldwide, starred in the Merrill Lynch training video for brokers. He told recruits, that in order to become a successful broker, and "master of the universe", that they needed the "tenacity of a rattlesnake, the heart of a black widow spider and the hide of an alligator."

Stamenson went on to prove that that's not all you need to master the universe, as his star faded, after his client, Orange County, CA, sued Merrill Lynch for pushing the county into bankruptcy because of Stamenson's reckless investment advice. Orange County was Merrill's biggest account. They bought billions of dollars in exotic securities from Stamenson to fund almost 200 cities and school districts. Merrill Lynch made $100 million in fees. They ended up settling for $400 million, and an additional $30 million to prevent a grand jury investigation.

In addition, not only did Stamenson escape criminal charges, he remained on the payroll ($750,000/yr down from $3 million), retained his Merrill stock options and deferred compensation.

"You frequently see the person at the center of the storm continue to be well compensated by the corporate entity, while they are denying all wrongdoing,'' the lawyer added. "The company can cut someone off or embrace them. In the mix, they have to think about: 'What are the risks if I cut this person off? What happens if he starts saying things to others?"
All documents and testimony were sealed regarding this case, as is normally the case when Wall Street or any large corporation is involved in order to conceal their wrongdoing from public scrutiny.

The Merrill Lynch/Orange County example is just one of many that demonstrate the history of the credit derivatives' role in our current fiscal crisis. Fast forward sixteen years. Isn't it a little hard to believe that the former CEO of Goldman Sachs was blindsided by this economic disaster? Don't you think Enron, WorldCom, Global Crossing, Tyco, and McKesson-HBOC, not to mention, thousands of other warnings and signals that economic collapse was inevitable, should have clued him in? Despite Eliot Spitzer's lack of self-control, he saw this coming, as did many others without the credentials of Henry Paulson. Paulson's hysterics imploring us to approve a bailout were hardly believable. His three-page remedy, declaring himself omnipotent should have been the icing on the cake, so to speak.

So, what Paulson and Bush would like us to believe, that the current crisis is simply due to homeowners and mortgage loans is just one factor of many and the reality is that our government provided the credit derivatives market fertile ground to crash our economy. Structured Investment Vehicles (SIVs) and Special Purpose Entities (SPEs) served to hide enormous amounts of debt from public scrutiny, making companies appear more profitable and more solvent than they really were. No, this goes much further and its roots go much deeper, culminating in institutionalized criminality of which Paulson, Bush, the Supreme Court etc, wittingly, or unwittingly, are very much a part.

Since the Enron debacle, the Supreme Court has put big business' interests ahead of those of we, the people, loosening restrictions on corporate management and lightening the regulatory pressures. Here are just a few examples:

Wachovia v. Watters: The Supreme Court ruled that federal law trumps state consumer protection laws even when it involves an operating subsidiary of the national bank.

Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc : ("scheme liability") The court ruled to greatly limit the ability of shareholders to hold vendors, banks, accountants, law firms and others legally responsible for the securities fraud of another party. In an interview with the New York Times, J. Edward Ketz, called this ruling "a travesty of justice" and a "huge step backwards in the fight to prevent further accounting frauds from harming investors and the American economy."

Exxon Shipping Co. v. Baker: In June, 2008 the U.S. Supreme Court drastically reduced the punitive damages arising out of the 20-year old class action lawsuit, over the 1989 Alaskan oil spill. Since the jury awarded $2.5 billion in punitive damages in 1994, nearly 20% of the 33,000 fishermen, Native Alaskans, cannery workers and others who stood to benefit from the lawsuit have died.

Lilly Ledbetter Fair Pay Act of 2007 The Supreme Court held that the statute of limitations starts as soon as employment discrimination begins rather than when the employee first discovers it. How can you pursue a claim if you don't know that the claim even existed?

Binding Mandatory Arbitration: The Supreme Court's approval of mandatory pre-dispute arbitration has given banks and credit card companies their own system of "justice" where they act as judge and jury. Sen. Patrick Leahy, D-Vt sums it up as the Supreme Court's "blind devotion to corporation arbitration schemes".

2 comments:

fool me once,  18:06  

The Bush administration has been very successful if you look at what they've accomplished through the lens of the agenda they had for this country.

In a nutshel, it's disaster capitalism. Paulson's hysterics were for the benefit of the public to create desperation and fear so the Bush Admin. could take this opportunity to clean up.

Notice how fast everything happens and how chaotic the atmosphere. It's all part of their master plan.

Iraq is much the same story. The disaster was intentional. It enabled Haliburton and Blackwater and the richest of the rich to profit big time from the slaughter of innocent victims.

If anyone believes otherwise they're foolish.

Roth's stepchild 11:15  

I couldn't agree more.

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