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Generational Dynamics Web Log for 12-May-2011
12-May-11 News -- Raj Rajaratnam conviction raises hopes of Pecora Commission revival

Web Log - May, 2011

12-May-11 News -- Raj Rajaratnam conviction raises hopes of Pecora Commission revival

Regulators are as guilty as banksters

Raj Rajaratnam conviction raises hopes of Pecora Commission revival

Billionaire hedge fund manager Raj Rajaratnam was convicted on Wednesday of 14 counts of insider trading, according to Bloomberg.

Raj Rajaratnam leaving court after being found guilty (AFP)
Raj Rajaratnam leaving court after being found guilty (AFP)

He had a network of insiders at companies like Intel, Goldman Sachs, Google and Hilton Hotels who provided him with specific information about earnings, forecasts and mergers in advance of public information, and then he traded on that information. He made $63.8 million from illegal insider trading. He's expected to be sentenced to about 19 years in jail.

One can understand and sympathize with a Jean Valjean who steals a loaf of bread to feed his family, or even an ordinary employee who makes a couple of thousand dollars by purchasing a some stock after hearing some insider news.

But here you have a billionaire who blatantly broke the law to make $60 billion more. Listening to some of the wiretap recordings on TV, you can hear what contempt he has for the rules. This is a man who considers breaking the law for his own gain, f--king the system, f--king ordinary investors, to be like a fun video game where he had a higher score than other crooks.

Even so, it's almost a miracle that he was charged with anything. As I wrote last year ( "23-Oct-10 News -- Prof. William K Black on dereliction of duty by FBI"), William Black was the prosecutor was the senior regulator investigating the savings and loan crisis of the 1980s. He had thousands of criminal referrals, and got over a thousand priority felony convictions of the elites -- the top people at the savings and loans. By contrast, today's regulatory agencies had ZERO criminal referrals -- not a one. According to Black:

"This is a crisis that we know empirically involved million of fraudulent mortgages being made. We know that the losses are out there. We know that the industry extorted FASB to gimmick the accounting rules, so they didn't have to recognize the losses. We know that the Fed has huge positions as collateral in these fraudulent mortgages. We've seen the Fed, Ambac, Fannie, Freddie, Pimco, Blackrock -- all putting back after investigating tens of billions of dollars of mortgages, and saying, these were sold under false representations and warranties -- frauds, and absolutely no one has gone to jail for it."

Black points to collusion between the FBI and the Mortgage Bankers Association -- "the trade association of the perps" -- as one reason.

The reason that there were thousands of criminal referrals in the 1980s savings and loan crisis is because the Silent generation, who had a sense of ethics, were still in charge at that time. The reason that there are ZERO criminal referrals in today's crisis is because the Boomers and Gen-Xers are in charge, and today's regulators are just as crooked and incompetent as the perpetrators, and have NO morality or ethics.

For an example of this, see my 2008 report, "Bond insurer 'bailout' appears near crisis point." In that report, I described how New York Insurance Superintendent Eric Dinallo repeatedly colluded with banks, including Citibank, and bond insurance firms, to lie to the public and defraud investors.

Pecora Commission

This isn't the first time this has happened. It also happened in the 1930s. People were sent to jail then because of the Pecora Commission. Here's how it was described in the 1939 book Since Yesterday by Frederick Lewis Allen:

"Intermittently throughout the year 1933 the Senate Committee on Banking and Currency, with the aid of its inexorable counsel, Ferdinand Pecora, had been putting on one of the most extraordinary shows ever produced in a Washington committee room: a sort of protracted coroner's inquest upon American finance. One by one, a long line of financial overlords--commercial bankers, investment bankers, railroad and public-utility holding-company promoters, stockbrokers, and big speculators--had filed up to the witness table; and from these unwilling gentlemen, and from their office files, had been extracted a sorry story of public irresponsibility and private greed. Day by day this story had been spread upon the front pages of the newspapers.

The investigation showed how pool operators in Wall Street had manipulated the prices of stocks on the Exchange, with the assistance of men inside the companies with whose securities they toyed. It showed how they had made huge profits (which represented the exercise of no socially useful function) at the expense of the little speculators and of investors generally, and had fostered a speculative mania which had racked the whole economic system of the country--and this not only in 1928 and 1929, but as recently as the spring of 1933, when Roosevelt was in the White House and Wall Street had supposedly been wearing the sackcloth and ashes of repentance. The investigation showed, too, how powerful bankers had unloaded stocks and bonds upon the unwary through high-pressure salesmanship and had made millions trading in the securities of their own banks, at the expense of stockholders whose interests they claimed to be serving. It showed how the issuing of new securities had been so organized as to yield rich fruits to those on the inside, and how opportunities to taste these fruits had been offered to gentlemen of political influence. It showed how that modern engine of financial power, the holding company, had been misused by promoters: how some of these promoters had piled company upon company till their structures of corporate influence were seven or eight stories high; how these structures had become so complex that they were readily looted by unscrupulous men, and so unstable that many of them came crashing down during the Depression. It showed how grave could be the results when the holding-company technic was applied to banking. It showed how men of wealth had used devices like the personal holding company and tricks like the sale of stock (at a loss) to members of their families to dodge the tax collector--at the very moment when men of humbler station had been paying the taxes which supported the government. Again and again it showed how men occupying fiduciary positions in the financial world had been false to their trust."

This is exactly what's happening today, except that there's no Pecora Commission to throw these people in jail. There are too many regulators, analysts, journalists and politicians, Democrats and Republicans, in bed with the crooks to risk delving too deeply.

When the Financial Crisis Inquiry Commission hearings began in Congress a couple of years ago, I had hoped that they would perform the same role as the Pecora Commission, especially when they elicited testimony that proved mathematically that the banksters had committed fraud. (See "Financial Crisis Inquiry hearings provide 'smoking gun' evidence of widespread criminal fraud.")

However, I was severely disappointed when the FCIC hearings essentially came to nothing.

So call me a cockeyed optimist, but I'm hoping that the well-deserved conviction of Raj Rajaratnam will lead to a new Pecora Commission, and to sending a lot of perpetrator banksters to jail. But I won't hold my breath.

Update: A new article by Mike Taibbi in Rolling Stone has just been posted today, detailing years of specific crimes by Goldman Sachs executives, as determined by the Senate Subcommittee on Investigations, chaired by Democrat Carl Levin. The investigation showed that Goldman executives created and sold billions of dollars worth of fraudulent synthetic securities (residential mortgage backed collateralized debt obligations squared), knew that the securities were fraudulent, and then "shorted" the market, betting that their own clients would be wiped out by the securities that Goldman sold them. The result was that Goldman made billions of dollars by knowingly screwing their own clients. During the Levin committee hearings, Goldman executives lied about material facts. Despite all this, the Obama Justice Department is refusing to prosecute. (Paragraph added - 12-May)

(Comments: For reader comments, questions and discussion, see the 12-May-11 News -- Raj Rajaratnam conviction raises hopes of Pecora Commission revival thread of the Generational Dynamics forum. Comments may be posted anonymously.) (12-May-2011) Permanent Link
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