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Letting the Banking Rats Out of the Bag
The good judge smelled a rat.
“Was there some sort of ghost that performed these actions?” New York federal Judge Jed S. Rakoff demanded to know Monday in rejecting a deal that would let Bank of America off the hook in yet another banker bonus scandal. The Securities and Exchange Commission had charged the bank with covering up for outrageous bonuses given out at Merrill Lynch as the bank acquired the failed stockbrokerage, and now it was letting the bank off the hook with a chicken-feed fine.
“Do Wall Street people expect to be paid large bonuses in years when their company lost $27 billion?” the judge asked, and Lewis J. Liman, the lawyer for Bank of America, assured him they do: “My God! Bonuses on Wall Street? It is not a matter of surprise.”
But for those of us less sophisticated in the ways of Wall Street, it is a surprise that Merrill Lynch executives were rewarded for failure at the same time Bank of America was using $45 billion in taxpayer funds to take over the brokerage house. Six hundred ninety-six executives who helped run Merrill into the ground were granted more than a million bucks each.
BofA lawyer Liman attempted to put an egalitarian spin on this government-sponsored welfare for the superrich by pointing out that all told, another 39,000 Merrill employees averaged only $91,000 in bonuses, but the judge wasn’t having it: “I’m glad you think that $91,000 is not a lot of money; I wish the average American was making $91,000.”
That’s the point; the average American is paying for the banking debacle not only in taxes for the bailout but with lost jobs and homes. Yet the SEC, which is supposed to be protecting the ordinary citizen’s interests, decided to give BofA execs a bye. The question is why Bank of America and Merrill failed to inform their shareholders that such payoffs were part of the deal. The details of the bonuses were known to BofA CEO Kenneth Lewis and other top bank executives but not mentioned in the merger agreement or proxy statements sent to the company’s shareholders for approval.
The SEC complaint did accuse BofA of misleading its shareholders, but instead of digging deeply into how such decisions had been made and by whom, a deal was concocted in which BofA got off with a paltry $33 million fine. That is less than the bonus received by one of the Merrill execs. Yet the SEC deal would have closed the case on how that decision was made.
“You filed a rather uninformative, bare-bones complaint,” Judge Rakoff told SEC lawyer David Rosenfeld, who lamely defended the decision to avoid going after the bankers involved, and it is instructive of whose interest he was serving that “[t]he lawyer for Bank of America periodically whispered what appeared to be suggestions to Mr. Rosenfeld,” as a New York Times article put it.
Whispering between government regulators and the Wall Street honchos ostensibly being regulated is what got us into this mess in the first place. The SEC looked the other way as the banking bandits piled on hundreds of billions in toxic holdings, and its lawyers evidently still do not get the message that they are not supposed to be facilitators of financial rip-offs.
Thankfully, at least one judge had the courage to challenge the rules of the game and at least delay its predictable outcome. “I would be less than candid if I didn’t express my continued misgivings about this settlement at this stage,” Rakoff said. “When this settlement first came to me, it seemed to be lacking, for lack of a better word, transparency. I did not know much about the facts from the complaint, I did not know much, or really anything, about the basis of the settlement.” He said that accepting the settlement “would leave uncertain the truth of the very serious allegations made” by the SEC and whether any of the bonus money was “derived directly or indirectly from the $20 billion” that BofA received from the government.
That is the only error the judge made; the figure is actually $45 billion in government bailout funds for BofA and $118 billion more in public money to guarantee its toxic assets. Given that enormous investment of taxpayer funds, and the trillions more put at risk because of the folly of those richly rewarded banking bonus babies, transparency would indeed seem to be required as the order of the day. As Judge Rakoff concluded, Bank of America and Merrill Lynch had not only “effectively lied to their shareholders” but the money to finance their bonus scam had come “from Uncle Sam.”
Why has it been left to one stellar judge to sound the alarm, and why is Congress and the Obama administration looking the other way?
23 Comments so far
Show AllWhy has it been left to one stellar judge to sound the alarm, and why is Congress and the Obama administration looking the other way?
Those who are paid the most will look the other way the most.
Exactly, they will not throw themselves under the bus. this was the greatest scam ever sold.
"they will not throw themselves under the bus..."
But they might still find themselves under the bus.
After the FALL, when history writes another chapter, history will still repeat itself. For details of what usually happens to greedy ruthless criminal exploiters and other PUBLIC ENEMIES see the umpteen historical examples during depressions, war, famine or revolutions.
Something will give and there is not much at the bottom which is left to give.
Instead of trying to repair Bank of America's credit rating, the Federal Government should help repair the credit rating of all those that the Bank of America helped destroy. Let the real crooks go to jail!
The problem with the "system" is while this one Judge might sound the alarm , it will be overturned on appeal when it comes to a more ideologically friendly court.
It neither a matter of doing what is Just or indeed a matter of the law. It is all POLITICS and a protection of the status quo.
Yet the prisons filled with the poor who are put away for stealing an 8 dollar pizza.
Good posts here everyone!
This is exactly what happens when people holding the highest governmental positions are closely connected with Wall St. They need to go and the SEC needs to do its job!
Joe Biden got tens of millions from the banking sectors for his campaign, all from the loving state of Delaware, where banks dont have to do a whole lot ot law breaking to scam the consumer.
91,000 would pay of all my debt, that includes my car and house.
Love
Zero
The politicians owned by them, and the "banking" CEO's must be laughing at the taxpayers so hard it makes their sides hurt. Don't forget, many of these "banks" were NOT banks prior to their bailouts. They had to convert what were essentially brokerage houses and NOT banks, into bank holding companies in order to fall under the FED bailout umbrella. The FED was not implemented to regulate or monitor brokerages OR insurance companies, yet they took it upon themselves to bail out AIG. ALL of those institutions that had gotten themselves into trouble by acting on and for their own greed should have been allowed to fail. Horrid. All of it. Just horrid.
I was thinking today that contractual pension obligations of airlines and auto makers have never been considered sacred by bankruptcy judges, and people who have worked toward those retirement benefits their whole lives can no longer expect them, or can expect reduced pension payments, yet Wall Street greedmongers defend giving out taxpayer bailout money in obscene bonuses, to reward failure, by claiming "contractual obligation". These people truly are thieves, dividing up the spoils.
Don't expect Obama to fight for any regulations with real teeth in them. He's one of their government shills.
I hate to say it, but the US is a corrupt institution owned not by the people but by powerful corporate lobbies. To a degree this is true elsewhere but it has reached an unsustainable peak in the US. It will eventually collapse under its own weight and it won't be pretty.
One simple way to fix this is to allow donations to political bodies only by a live human body and to put a cap on that of some moderate sum per year.
Only then will you have something approaching a democratic representation.
Transparency. I have really grown to love that word. It is to the Obama administration what God was to the Wanker Bush regime. Transparency. You, too, can see through Obama and clearly make out that he is filled with wild blueberry muffins.
And he keeps shooting raspberries at us.
Robert Sheer asks a good question:
"Why is Congress and the Obama administration looking the other way?"
Answer: Because they can.
And why is that?
Because they were voted into office by the likes of Robert Sheer and feel they now have licence to anything that promotes their careers.
If the left can't grow a spine, why in heaven's name would you expect their representaties to be able to do it?
My advise to Democratic voters: Grow a spine! Start demanding, stop begging on your knees (it only makes you shorter)
The entire corrupt system should have been allowed to fail. The rich, connected, and corrupt clowns running the country had everything their way - no regulation, no oversight, a veritable license to steal. They owned the goose that laid golden eggs (workers, taxpayers, the middle class). And yet were still so incredibly greedy and so boneheadly stupid that they strangled that goose. Of course, greedy and stupid though they were, they were still in change, so they just raped us one more time, reset the old system, and started again. Reaganomics dictated that capitalism = democracy, and we've been suffering under that delusion for 30 years. Until the money is removed from politics, and the rich removed from power, democracy will never exist in this country. Instead, we continue to use the stock market and the GNP as indicators of "the economy", when middle class America is out of work, crushed and broke.
Until out-of-work middle class America is not revolting, money will NOT be removed from politics, the rich will NOT be removed from power, and democracy will be kept on being abused as tool for the 'elite' to thief.
It's not that long ago when banksters and other parasites of a people were lynched as enemy of the people.
I'm not sure they were greedy or stupid. Well, OK, greedy but not stupid. They have simply used us up. When Nixon went to China they tagged along (drove the bus?) so they could begin cultivating their next society to suck dry. The Chinese government had just realized that the Soviet economic system was unsustainable and would eventually collapse (from a Charlie Rose interview with the former President of Singapore)--imagine 1974!, they figured it out way before our CIA had a clue, which I don't think they ever did. The Chinese decided to learn from the capitalists.
Anyway they cultivated their next victim and no longer need us. They can just suck dry what's left here while they dig into their Asian feast. This time, though, they may be the dessert.
Just hang in there. In about two or three years, the dollar will of so little value, we will be able to use $100 bills for wall paper.
Google Pam Martens. She spent many years on wall street. She spotted the crooked Madoff many years ago. She has domcumented how the system was gamed for the very purpose of NEVER getting to a judge by setting up phony "industry" arbitration boards which the SEC would normally defer to (of course). These boards are populated by former top dogs in law enforcement like Janet Reno. It is very, very corrupt and it goes very high and very deep. When the scam is so huge that it has to go to a judge like this one with BofA and Merril, the SEC tries to hamstring the judge with a "no guilt admission required" settlement and a paltry fine.
Do you know someone that works in wall street? Then you know a crook and a traitor. Reject him, his family and his friends. The culture has celebrated these bastards when they drive by in their expensive cars going to their Hampton houses. It's time we made them persona non grata.
We need to tax the shit out of every move they make. Representative Peter Welch from Vermont is the go to guy for the transaction tax. Give him a call.
The answer to the "Contracts" argument is simple:
The Bonuses are Against the Public Interest. And the lawyers Know it. The Judge just needs to enforce the Uniform Commercial Code provision:
2-302. Unconscionable contract or Term.
(1) If the court as a matter of law finds the contract or any term of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable term, or it may so limit the application of any unconscionable term as to avoid any unconscionable result.
(2) If it is claimed or appears to the court that the contract or any term thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination.
And so it occurs that pols and pundits ponder how the president's popularity plummets. Freshly minted poorer people, pissed upon are now pissed off and they will not forgive Mr. Obama his single, early, and greatest error: He was the cop on the beat who acted as lookout man for the bankster heist. The people, even the dimmest among us, have seen and now conclude of him as a co-conspirator.
He's too smart to claim ignorance so it must be malice with forethought. And what does he do as this turd economy decomposes? He spouts the lies which enabled all previous, though smaller scale rip-offs: 'normal business cycle' or 'we need the banks to continue lending' or unemployment MIGHT reach 10%.'
It is too bad really, I was proud of my country and my fellow countrymen there for a few weeks in Nov. of 2008
sierra7
Our financial/political system operates on the, "Greater Fool Theory (http://en.wikipedia.org/wiki/Greater_fool_theory)
And guess who is/are the "greater fool(s)"?
We The People!
B of A loans you the money you have given the government to give B of A, charges you interest to purchase a house they did not make on land they never owned, then takes the house.
This is theft.
This is having institutions structurally designed to maximize profit.