News & Analysis
Subprime Prosecutions Miss the Point
Sub-prime feeding frenzy haunts Wall Street five years on ... A fresh lawsuit filed by New York's top government prosecutor is a reminder that the financial crisis is still haunting Wall Street ... The $26m (£16m) or so that Bear Stearns paid for Encore Credit Operations in October 2006 was not frontpage news. If shareholders of the US investment bank noticed the deal, approval would have been their most likely response. The purchase of Encore Credit, which arranged mortgages for Americans with poor credit histories, strengthened Bear Stearns' seat at the only table that really mattered on Wall Street in late 2006. Like rivals at Merrill Lynch, Citigroup and Bank of America, bankers at Bear Stearns were pocketing millions of dollars by taking US mortgages, packaging them into bonds and selling them to investors around the world. The business drove profits at Bear Stearns to a record $2.1bn in 2006, saw then chief executive Jimmy Cayne rewarded with a $15m bonus and had helped the bank's share price triple over the previous five years. – UK Telegraph
Dominant Social Theme: Finally, someone is bringing these big banks to justice.
Free-Market Analysis: The accusations of criminality against Wall Street mount. Occupy Wall Street plans demos and in the UK, the LIBOR "scandal" proceeds with regular declarations that the world has never been exposed to such criminality, etc.
We wonder at all of this because anyone who spends any time on the Internet should surely be aware that when one compares the crimes of the "private" sector to the crimes of the "public" sector, public (or more precisely "public/private") sector crimes are far larger in scale.
But they are rarely named, much less prosecuted. As we regularly report, they include the creation of global, phony wars "on terror" and the creation of recessions and even depressions via monopoly money printing from nothing. The cost in human lives is incalculable. Blighted dreams and ruinous poverty are the least of it ...
No, the mainstream media whips itself into a frenzy over Wall Street corruption. That's the easy target. Would that they paid as much attention to public policy and the endless stream of "regulations" pouring out of Brussels, Washington DC and London.
This is one way we know that such reports over financial industry corruption constitute a kind of dominant social theme. As we have noted before, they accomplish two purposes.
First, they distract people from the REAL issues of Western corruption; second, they provide the topmost power elite with yet MORE leverage.
The leverage occurs via mercantilism, the way that elites manipulate government to serve their own private interests.
The biggest example of mercantilism is, of course, the central bank. It is via central bank money printing – of trillions and trillions – that the top elites derive their enormous Money Power.
The impossible sums do not need to be spent by elites but merely "directed" in the proper way. And they have been. Elite paradigms have been imposed on education, government, military facilities, media (excluding the Internet) and, of course, finance.
We can see, therefore, that when the mainstream attacks the banking industry (including securities drummers), the attack is basically being launched by the same elements that have CONSTRUCTED the securities industry.
Why would elites organize a situation whereby they were attacking their own interests?
They do it all the time!
It is part of what is called the Hegelian dialectic. Elite control grows via thesis, antithesis ... synthesis.
When the elites use their public "justice system" (and we regularly argue for a system of private justice) to attack their financial system, they are merely sacrificing functionaries for a greater purpose.
The purpose is to make the free-market system disreputable and also to pass more laws and regulations that the top elites can use to beat down up-and-comers.
Eventually we shall reach a place where capital markets are impossible for the average entrepreneur to use. Some would say, of course, that we reached that place long ago.
And some would argue, as well, that the money industry is impossibly corrupt and crooked. But this misses the point.
The money business, as it is offered to the masses, is an entirely controlled one and nothing like a free-market system. In the US, it started out as a free-market system but is by now impossibly convoluted and hopelessly regulated.
Regulation, mandating that investments all march in a certain direction, guarantee asset bubbles when combined with central banking money printing.
This is, of course, exactly what happened when one discusses the "subprime crisis." Money was channeled to the subprime sector of the US housing market because various regulations and bureaucracies demanded it. Easy rates made the eventual crash inevitable.
Here's some more from the article:
Eric Schneiderman, who was elected New York attorney general almost two year ago, alleges that Bear Stearns systematically mis-sold mortgage-backed bonds to investors in the pursuit of profit. Buyers of the bonds lost $22.5bn in 2006 and 2007 alone as US house prices fell, according to the charges which Schneiderman announced at the Department of Justice in Washington on Tuesday.
Schneiderman wants unspecified damages from JP Morgan, which says it will contest the allegations that cover the two years before it acquired Bear. Many of the allegations echo those already made about banks' practices in the run-up to the financial crisis.
But the charge sheet paints a picture of the fevered scramble to ensure a supply chain which moved mortgages from across America to the desks of sales staff on Wall Street, would never run dry.
The volume of mortgages that Bear Stearns packaged and sold soared from $21bn in 2003 to $69bn just three years later, according to a suit that reveals the pressure exerted on a supply chain that Bear, like Wall Street competitors, had assembled.
Staff at Clayton Holdings, the company Bear hired to monitor the quality of the mortgages that went into the bonds, were instructed "not to get married to the loan," while checking them, the suit alleges. In another email cited, an employee at Clayton writes: "Have 1,594 loans to do in 5 days. Sounds like fun? NOT!" ..
Schneiderman and Ben Lawksy, head of the newly established Department of Financial Services in New York, have shown an appetite to go after banks. 2007 saw bumper profits and record bonuses. Five years on, some of the practices that drove the boom are still haunting Wall Street.
Again, it is not "practices" that haunt Wall Street but an entire, centuries-old system of elite control that came to perverse fruition in the 20th century with the propagation of the central banking system and then the "dollar reserve" global program.
We try to return to these issues regularly for our readers because their understanding has an impact on both financial literacy and wealth creation.
Those who understand the "problem" is far bigger than the "subprime" crisis or "Wall Street" will be in a better position to protect themselves, their families and their wealth than those who subscribe to the "Wall Street is crooked" meme.
In fact, the US justice system is nothing more than a huge Gulag. Some one out of every three US citizens is reportedly exposed to the criminal portions of the US justice system before they reach their mid-20s.
As for the political and judiciary facilities of the US, they are equally corrupt and miserable. The problem goes far beyond the money industry itself.
Anyone who expects current potential prosecutions – civil ones, by the way – to have an impact on business as usual is sorely misguided, in our view. And anyone who ACTS within the ambit of such a worldview is surely acting from a position of incorrect information.
Realize, please, the system has been constructed for a certain purpose. It is actually MEANT to implode, apparently in order to create a kind of world government.
Conclusion: Perhaps we are missing something but this is the conclusion to which we are ineluctably led.
Posted by rmotley on 10/03/12 02:50 PM
They only filed civil charges not criminal. It is a game.
Reply from The Daily Bell
Agreed. We mentioned that toward the bottom ...
"Anyone who expects current potential prosecutions – civil ones, by the way – to have an impact on business as usual is sorely misguided, in our view ..."