Lowenstein dismisses the rabble wanting Wall Street accountability as “armchair prosecutors” with “populist notions,” emblems of the Paranoid Style in American Politics with parallels to the “dismal historiography of JFK assassination buffs to the beliefs that Washington was implicated in Pearl Harbor and Sept. 11,” saying “it’s easier for people to believe that some bad actor is the cause of bad things.”
Well, yes. This wasn’t a natural disaster, but that doesn’t mean evil puppetmasters set out to crash the global economy on purpose.
The problem with letting Wall Street off the hook now is that so much of this stuff hasn’t really even been investigated yet. Just today, news is out that the New York attorney general is opening a broad investigation into Wall Street securitization practices during the bubble, which was four years ago and that a federal audit found that the top five mortgage companies defrauded the federal government.
It isn’t just that prosecutors haven’t gone after the bigwigs of Wall Street, it’s that they haven’t even gone after the smaller fry. If you think about it, it’s pretty surprising that Senate investigators have found so much damning stuff on email. Everybody knows the really naughty stuff isn’t going to be put into writing. That’s why you find so many LDLs in sensitive areas of Goldman’s emails—“let’s discuss live.”
How do you build a case against the higher-ups then? The tried and true method is to target the proles who committed more-obvious crimes, flip them, and work your way up the chain. None of that has been attempted (as far as we know) with Wall Street for its role in the crisis. Contrast that with the full-court press done to protect other investors in the Galleon and SAC Capital investigations, which have been filled with wiretaps, flips, and convictions.
So what are some of the “big risks” that do deserve criminal investigation? Here are a few off the top of my head:
— Reducing “the number of souring loans they returned to the originator in exchange for the right to buy some of the originator’s next batch of loans.”
That’s what the New Century bankruptcy trustee’s report says Wall Street did while denying putback claims by securities investors.
— “Peddl(ing) these mortgages with a willful disregard, bordering on fraud, for whether their customers could repay them.”
Lowenstein himself wrote that in The End of Wall Street. If even he thinks that the Street’s mortgage practices—which were clearly a major cause of the crash—were “bordering on fraud,” then why the carping about people calling for criminal investigations of and charges for things like Wall Street’s mortgage practices?
— Lying about how much debt you have.
Here’s Lowenstein in BW on Lehman Brothers’ Repo 105 scheme (emphasis mine):
Although Repo 105 enabled Lehman to mask $50 billion of debt, the firm’s reported debt was more than $600 billion. Put differently, Lehman’s net leverage ratio was either 15 times or 17 times, both sky-high. Either way, the world knew it was highly leveraged, and its solvency was a matter of intense public debate. Had Lehman presented its balance sheet with more candor, it conceivably would have suffered its crisis earlier; maybe it would have failed in July instead of September. Regardless, the cause of the failure wasn’t Lehman’s misguided attempt to beautify its books. It was its excessive appetite for debt, and the risk tolerance of its creditors, for years before.
Let’s assume that Repo 105 was the only book-cooking Lehman was doing (it almost surely wasn’t), and that at best it staved off Lehman’s bankruptcy by just two months.
The financial crisis—or at least the scale of it— was due in no small part to investor distrust of the books at banks like Lehman Brothers. Nobody outside Lehman and its auditor Ernst & Young specifically knew about Repo 105 in September 2008, but lots of people, like David Einhorn, knew or suspected that Lehman was cooking its books; that the numbers just didn’t add up.
Lowenstein's analysis is so logically mangled as to be meaningless to any careful reader.
". . . that people who take big risks should be subject to a criminal investigation; that executives of large financial firms should be criminal suspects after a crash . . ."
But Taibbi and Nocera AREN'T saying this, which is why they bother to write articles detailing why and how they believe THIS crash involved criminal behavior. No one on God's green Earth that I've read says that criminal behavior is the sole cause behind every economic crash, or even behind this one.
Certainly the articles Lowenstein purports to analyze don't say that at all. Even Taibbi's article about Goldman's century-long bubble-riding doesn't make the claims Lowenstein attacks. I'm curious if Lowenstein has read these articles at all.
#1 Posted by Renee Dumas, CJR on Tue 17 May 2011 at 03:54 PM
Excuse me, Mr Lowenstein. There's something on your chin.
#2 Posted by Dan Tomkinson, CJR on Tue 17 May 2011 at 04:21 PM
Oh Jeez!...
Ryan's got his Black Helicopters in Whisper Mode again!
It isn’t just that prosecutors haven’t gone after the bigwigs of Wall Street, it’s that they haven’t even gone after the smaller fry.
Like WHOM, Ryan?... WHO is going unprosecuted? Who are these nefarious "proles" that will lead us to Mr. Big's Evil Lair? Names, please!...
Three pages of beating the same dead anti-capitalist horse from an "armchair prosecutor" with a "populist motive". (I wish I had come up with that one).
If you can provide an example of an actual crime that actually occurred by some actual criminals that is actually going unprosecuted... Please let me know... I'll drive down to my congressman's office today with pitchfork in hand.
But be careful... The last time you put a name to your conspiracy theory, you got your facts wrong and blew away the premise of your story in the process.
Until and unless you can come up with some "fact-thingies" to support your fervent credulity - some actual proof that the Vast Wall Street Conspiracy is anything more than a liberal crack dream, why not do the "journalism" thing instead of your "quixotic commie advocacy" thing?
#3 Posted by padikiller, CJR on Wed 18 May 2011 at 08:14 AM
Padikiller's ability to read an article containing abundant evidence of wrongdoing and then accuse the author of being a factless, Unserious Conspiracy Theorist, is nothing short of amazing.
The name of the "actual crime" you're looking for? Fraud. Keep defending it--it's very pro-capitalist, and I know how important that is to you. Adam Smith's bit about free markets requiring accurate information about prices to work? Not so much.
#4 Posted by TrevorM, CJR on Wed 18 May 2011 at 03:50 PM
Lowenstein is also Warren Buffett's biographer and an avowed shareholder in Buffett's Berkshire Hathaway. Berkshire invested in two financially troubled companies in 2008: Goldman Sachs and General Electric.
Lowenstein is conflicted here; he has financial and professional ties to one of the architects and premier advocates of government assistance to failed banks.
His word on this subject should be taken with a few pounds of salt.
#5 Posted by sunlight, CJR on Wed 18 May 2011 at 04:43 PM
Trevor...
I'm looking for actual "fact"... An actual person who committed an actual crime that an actual regulator or actual prosecutor is actually ignoring. And I'm not seeing such a thing.
What we have here are mere allegations of.. What?.... Fraud, you say?.. Where?... Where is someone lying to someone else to steal money?
Every car dealership in the world will offer double commissions to get rid of the dogs on the lot - this is how business works. We're not talking about "Wall Street" villains plying the alleys of Main Street with bundles of bad loans here. Instead we have savvy businesses talking up crappy loans and more savvy businesses buying them. But who got "deceived"?
Now, cooking the books is a different story and the people who do so should go to jail - But WHO are they, exactly? WHAT crimes are going unpunished? WHO is falling asleep at the switch?
Goldman Sachs may have cooked its books, but it also got hammered by the SEC for doing so and Andrew Cuomo has initiated a criminal investigation - the system is working in this case. No black helicopters here.
There are bad actors to be found on "Wall Street" (as there on Main Street) but there is hardly any pervasive accounting problem - and no evidence that I see that any particular crime is going unprosecuted. Witness Bernie Madoff, Ken Lay, Bernie Ebbers, etc.
Ryan's insistence that "Wall Street" is getting away with crime is just kooky. WHO is "Wall Street"?
If he can show me an example of criminal activity that is going unpunished, I'm with him. Until then, he'll have to man the helicopters solo.
#6 Posted by padikiller, CJR on Wed 18 May 2011 at 04:48 PM
As Ryan acknowledges, some acts of wrongdoing (like Goldman's) have been punished. Hammered is certainly not the word I would use. His larger point is that, based on the limited instances of wrongdoing we do have knowledge of, it's evident that more widespread wrongdoing probably occurred.
If you can read ProPublica's reporting on the crisis and think that the actions of the SEC and the Justice department have been sufficient, you're either blinkered or dishonest: http://www.propublica.org/series/the-wall-street-money-machine
#7 Posted by TrevorM, CJR on Wed 18 May 2011 at 06:44 PM
CJR is simply doing what it teaches its readers (and students) to do: conceal and sugar-coat the indefensible activities of the federal govt and its enablers at the Federal (sic) Reserve (sic) while blaming almost everything on allegedly laissez-faire markets and capitalists. After all, the world's most prolific monopolies of violence, power, and money could not succeed in their "good intentions," toward "democracy" and the "general welfare," without a PR army of "intellectuals."
#8 Posted by Dan A., CJR on Wed 18 May 2011 at 07:58 PM