Big Bankers and the U.S. Government: A Coalition Circumventing Accountability on Wall Street

It is interesting that the U.S. Department of Justice did not pursue the fraudulent bankers on Wall Street not only during the Bush presidency, but also the following presidency, that of Barak Obama.  Not coincidentally, Goldman Sachs was the single biggest campaign contributor to Obama’s 2008 candidacy for president. It would seem that Wall Street had both political parties in a net by the time of the financial crisis in September, 2008. A sector of the economy being able to control both major parties is bad for not only industrial policy (i.e., favoritism), but also democracy. In short, a government should have enough strength to constrain a business sector, rather than being subject to it. The latter condition implies continued vulnerability should greed again get ahead of itself on Wall Street. By nature, greed, if allowed to go on running on its own steam, accumulates more and more momentum. 

The New York Times reported in 2011, “legal experts point to numerous questionable activities where criminal probes might have borne fruit and possibly still could. Investigators, they argue, could look more deeply at the failure of executives to fully disclose the scope of the risks on their books during the mortgage mania, or the amounts of questionable loans they bundled into securities sold to investors that soured. Prosecutors also could pursue evidence that executives knowingly awarded bonuses to themselves and colleagues based on overly optimistic valuations of mortgage assets — in effect, creating illusory profits that were wiped out by subsequent losses on the same assets. And they might also investigate whether executives cashed in shares based on inside information, or misled regulators and their own boards about looming problems. Merrill Lynch, for example, understated its risky mortgage holdings by hundreds of billions of dollars. And public comments made by Angelo R. Mozilo, the chief executive of Countrywide Financial, praising his mortgage company’s practices were at odds with derisive statements  he made privately in e-mails as he sold shares; the stock subsequently fell sharply as the company’s losses became known. Executives at Lehman Brothers assured investors in the summer of 2008 that the company’s financial position was sound, even though they appeared to have counted as assets certain holdings pledged by Lehman to other companies, according to a person briefed on that case. At Bear Sterns, the first major Wall Street player to collapse, a private litigant says evidence shows that the firm’s executives may have pocketed revenues that should have gone to investors to offset losses when complex mortgage securities soured.”[1]  David Skeel, a law instructor at the University of Pennsylvania, remarked, “It’s consistent with what many people were worried about during the crisis, that different rules would be applied to different players. It goes to the whole perception that Wall Street was taken care of, and Main Street was not.”[2]

Elliot Spitzer, the Attorney General of New York, was preparing to go after some big bankers until he stopped when a lawyer at the U.S. Department of Justice (DOJ) told him to back off because the department would be moving against the bankers. However, it did no such thing; the DOJ would not in fact "move" against the bankers. So it is suspicious; the lie may have been fabricated in Washington, D.C. to protect the bankers. If so, elected representatives including the president who had received sizable campaign contributions from the bankers themselves or their banks would be prime suspects. To suggest that an elected official would not protect a major contributor is like asking water to go up hill.  The subterfuge used by the DOJ at the time was that if the department went after the bankers, the banks themselves, which were too big to fail without taking the financial sector and even the economy with them, would become too unstable.
Incredibly, not only did the bankers not get punished; the banks got bailouts, which the bankers could use to pay themselves bonuses! This included bonuses at Goldman Sachs for selling "crap" (i.e., the subprime-mortgage-based bonds) to even good clients and of course lying about how solid the bonds actually were. 

Bank regulators, who can be "captured" by regulatees not only due to reliance on information from them, but also political pressure from the regulatees' political protectors in Congress and the White House, may have played a role too. According to The New York Times, bank regulators referred 1,837 cases to the Justice Department in 1995. In 2007-2010, an average of only 72 a year was referred for criminal prosecution.  “The Office of Thrift Supervision was in a particularly good position to help guide possible prosecutions.” From the summer of 2007 to the end of 2008, O.T.S.-overseen banks with $355 billion in assets failed. The thrift supervisor, however, did not refer a single case to the Justice Department between 2000 and 2010. The Office of the Comptroller of the Currency, a unit of the Treasury Department, referred only three in that decade.[3]

The relationship between the head of Thrift Supervision and the CEO of Countrywide is particularly revealing.  In March 2007, Countrywide was regulated exclusively by the regulatory agency. That agency was overseen at the time by John M. Reich, a former banker and Senate staff member appointed in 2005 by President George W. Bush. Reich was on all for deregulation. Robert Gnaizda, a former general counsel at the Greenlining Institute, a nonprofit consumer organization in Oakland, Calif., said he had spoken often with Reich about Countrywide’s reckless lending. Gnaizda says that when he suggested to Reich how he could build a case against Mozilo, the CEO of Countrywide, Reich “was uninterested. He told me he was a good friend of Mozilo’s.”[4] Reich subsequently refuted that the two were friends. “I met with Mr. Mozilo only a few times," Reich insisted, "always in a business environment, and any insinuation of a personal friendship is simply false.”[5] Even a few business meetings can be sufficient and the same ideology can be sufficient, however, to bend the ear of a regulator. Besides, Reich had reason after the financial crisis to deny any friendship with a man largely discredited due to the mortgage-producing antics at Countrywide. Mozilo’s flush fingers may have stretched as far as the chairman of the Financial Crisis Inquiry Commission, Phil Angelides. The New York Times reported in 2011 that he had told two deputies that Mozilo and Countrywide were off limits, though Angelides subsequently denied having made the statement. Instead, he pointed instead to the Republican opposition to hearings on Countrywide in Congress.

I suspect that whether of the deregulation crowd or Democratic, both parties, being of part and parcel of the establishment, had by the financial crisis of 2008 become too close to the vested interests on Wall Street to effectively regulate its banks and bankers, and thus to be in a position to investigate cases of regulatory failure. In other words, when the necessary relationship between financiers and regulators breaks down, accountability does as well. Without the regulators and DOJ being able to constrain excessive greed by holding the people in the financial sector accountable, continued vulnerability to the financial system collapsing as it almost did in September, 2008 can be expected even if it is ignored.  

See Essays on the Financial Crisis: Systemic Greed and Arrogant Stupidity, available at Amazon.

1. Gretchen Morgenson and Louise Story, “In Financial Crisis, No Prosecutions of Top Figures,” The New York Times, April 14, 2011.

2. Ibid.

3. Ibid.

4. Ibid.

5. Ibid.

The Case for a Presiding President in Russia

On December 31, 2010, a Russian judge sentenced Mikhail Khodorkovsky, the Russian tycoon who had been imprisoned in 2003 after defying Vladimir Putin, to an additional six years in prison. According to The New York Times, "It was a politically tinged decision that undermined President Dmitri Medvodev."[1] Leonid Goman of the Right Cause Party in Russia agreed. "It was obviously a political, not a judicial, decision." He went on to say that in general terms, "corruption is endemic, government power is often abused and senior politicians are rarely, if ever, held accountable for misdeeds."[2]  Clearly, Prime Minister Putin was still very much in control in Russia.  His message was that wealthy businessmen should not interfere in Russian politics. What a contrast to American politics, especially after the U.S. Supreme Court's Citizens United case!  Khodorkovsky was at one time the richest person in Russia, having been one of the oligarchs who bought government assets at bargain prices after the fall of the USSR, but he financed opposition parties in a political system that was anything but democratic.

Analysis:

This case points to the importance of separating a judiciary from executive and legislative branches of government, as in the E.U. and U.S. The fragile nature of a judiciary's credibility can be of dangerous ground even when the branches are separated. But in Russia technically under President Medvodev in 2010, a court doing the bidding of a powerful prime minister (in name only) contributes to the demotion of the credibility of the country's judiciary. Ultimately, the president of a country is charged with presiding over its system of government with an eye towards protecting it as a going concern.  

For example, U.S. President Andrew Jackson in the early 1830's looked out for the viability of the country's federal system by pushing Congress back on its tariff that hurt South Carolina and pushing the latter to repeal its Acts by which federal law could be nullified. He also vetoed a bill that, if enacted, would have allowed Congress to appropriate money for what was really a state road in Missouri. The President's focus was on maintaining the balance between the federal level and that of the member-states that is so important to maintaining a viable federal system in the long term. 

In the case of Russia, the problem concerning the political use of the court was that neither the president nor prime minister were interested in safeguarding the judiciary's long-term viability, for they prostituted it for political expediency. I submit, moreover, that most governments have lacked a presiding president, by which I mean a president who is primarily fixated on maintaining the continued viability of the system of government, including its credibility. It is too easy for voters to elect partisans who are more focused on their respective ideological agendas than putting the system itself first. Similarly, it is too easy for dictators to use all branches of government to consolidate more power for themselves or their party rather than to protect the viability of the branches, including how they are related, rather than to be primarily oriented to presiding over the system as a whole. 

See related essay: "On the Eclipse of Russian Federalism: Implications for the E.U."

1. Clifford Levy, "Russia Extends Prison Sentence of Tycoon 6 Years,” The New York Times, December 31, 2010, p. A1.
2. Ibid. 

Glimpsing behind the Curtain: Vice President Lyndon Johnson and the Kennedy Assassination

Robert Ross interviewed Lyndon Johnson’s mistress, Madeleine Duncan Brown what Ross titled, “The Clint Murchison Meeting in Dallas November 21, 1963.” The interview took place sometime before her death on June 22, 2002. The content is revealing, and she comes across as very credible as it is obvious she still had feelings even then for the late president. She also had a credible motive for opening up to the American people. So in watching the interview, I did not view it as just another conspiracy theory; I paid attention. Sometimes the truth finally emerges in plain sight, rather than through complicated theories as in Oliver Stone’s film, JFK (1991). The most revealing facts to emerge from the interview are that Jack Ruby, who killed Oswald just two days after the assassination, had been at the meeting at Murchison’s mansion on the night before the assassination, and that LBJ told Madeleine while leaving Murchison’s house after the meeting, “After tomorrow, those SOB’s will never embarrass me again.” That the official narrative from the Warren Commission would still carry weight as the default account at least in the first two decades of the next century astounded me. At the very least, all of Madeleine’s knowledge of the players should have caused at least a tremor when the interview was made public. The status quo has that much inertia. Even so, the American public can gleam from Brown’s account just how different the reality of the power-brokers in (and outside of) the U.S. Government can be from what the public knows. Unfortunately, the patina or gloss even of acting can have incredible staying-power even in the face of the facts revealed. Members of the political elite and their companions may want to protect their legacies in old age, or want the freedom of conscience that comes from the impunity that can only come with death. The resulting piecemeal facts must justify themselves, however, whereas the long-standing official version often has the benefits of not only protective power and entrenchment that comes with having been the default for so long, but also a coherent (i.e., contrived) narrative.  

Madeleine had met LBJ in 1948. By her reckoning, she and Lyndon had a “wonderful relationship.” Johnson fathered Madeleine’s son, Steve Brown, who had died of cancer by the time of the interview. In spite of having cancer, Steve had sued to get part of Johnson’s estate. Madeleine was hurt by the way the power structure in Texas had handled Steve by preventing him from appearing in court. “I probably would never have opened my mouth, but the way they handled my son. They can’t take anything from me now. The public needs to know.” Essentially, she says in the interview that the assassination of Kennedy was the result of a domestic plot that been planned since the 1960 Dem Convention.

Joe Kennedy and H. L Hunt met three days before the convention and they cut a deal: Johnson would be the VP. At the time, Hunt told Madeleine, “We may have lost a battle but we’re going to win the war.” On the day of the assassination, he would tell her, “We won the war.” Madeleine concluded the assassination was “a political crime for political power.” H.L. Hunt, the richest man in the world at the time, and others “mapped a plot to get rid of John Kennedy” from just after the convention. The 8-f group included oil men such as Clint Murchison and Hunt, Texas politicians such as John Connally, and even occasionally J. Edgar Hoover.

Meeting the night before the assassination at Clint Murchison’s house on Nov 21, 1963 were Lyndon Johnson, Edgar Hoover, John McCloy, H.L. Hunt (who had had flyers “Wanted for Treason: John F. Kennedy” passed out in downtown Dallas), John Currington, George Brown, Richard Nixon, Amen J. Carter, Jr, Texas Gov. John Connally, Earle Cabell (mayor of Dallas, whose brother Kennedy had fired after the botched Bay of Pigs invasion), W. O. Bankston, Clint Peoples, Bill Dicker (sheriff of Dallas county), Cliff Carter, Malcom Wallace, and, representing the mafia, Carlos Marchellas, Joe Civilla, and Jack Ruby (an old buddy, Madeleine remarks). I submit that the mafia had a motive to kill the president whose brother Robert had turned the U.S. Department of Justice on the mob, including very mobster in Chicago, Sam Giancana, who is said to have put Illinois over the top in voting for Kennedy. It is particularly relevant, therefore, that Ruby, who would later he killed Oswald out of anger for assassinating the president, was at a meeting with such notable insiders on the night before the assassination. Also, the inclusion of the FBI and the sheriff of Dallas County fit with the obvious need to cover-up the crime. That Richard Nixon, who had lost the 1960 election to Kennedy—unfairly according to the man known as “tricky Dick”—would be in a meeting with Johnson supporters should also raise some eyeballs; it would make sense, however, if the Democrats wanted assurances that the other party would not try to uncover the plot. It is therefore significant that Nixon was already in town; he and Johnson had met two days earlier.

At any rate, the social party at the mansion, for which Madeleine had been invited, broke up at 11 p.m. when the Vice President arrived. He and others went into a conference room. Jack Ruby brought a call-girl, Shirley, to the meeting. When Johnson came out of the meeting at its conclusion, he told Madeleine: “After tomorrow, those SOB’s [i.e. sons of bitches] will never embarrass me again.” Johnson was angry. “The Irish mafia, I think,” Madeleine says in the interview when Ross asks her whom Johnson was referring to. However, in her book written five years earlier, Madeleine wrote that Johnson had told her, “After tomorrow, those goddamned Kennedy’s will never embarrass me again.”[1] Because she looks like her mind is going astray at that point in the interview—she would, after all, die soon—I suspect she confused Lyndon’s antipathy at the Irish mob with his loathing of the two Kennedy brothers. 

Even if Johnson didn’t get along with a mobster, his frustrating relationship with the Kennedy brothers in the White House is well documented. Regardless of whomever he was angry at, that Lyndon Johnson knew that something would be very different for him on the next day—the day of the assassination—suggests that he knew of it beforehand. In fact, that he made such a statement with such strident certainty just after the meeting suggests to me that its purpose had been to decide on whether to go ahead with the plan. If indeed Lyndon Johnson had at the very least been aware of the assassination beforehand, the way in which he publicly reacted after it can be seen in a different light—as being acted out rather than authentic. By implication, the American people had no clue as to what was actually going on behind the scenes. The sheer difference ought to be of concern from the standpoint of democracy, because the sheer degree of acting can be used on an ongoing basis to hoodwink the electorate.

People on the periphery of the plotting group were in an interesting predicament, being let into at least some of the inside information and yet not truly part of the group. Hence they could be expected to share at least one of their points of reference with the public and thus feel guilty enough to speak, or finally turn on the insiders by divulging the tidbits of information even in the face of a seemingly overwhelming public narrative. Clint Murchison’s secretary, for instance, committed suicide days after the assassination. Even though Madeleine still had feelings for Johnson (i.e., they had not ended on a bad note), she was convinced that he had been in on the assassination and yet she said nothing of this publicly until she was old, after her sons had died so she had nothing to lose. For one thing, she says in the interview that if Kennedy had not been assassinated when he was, Johnson would have faced “serious political problems when he returned to Washington.” He had been involved in the Billy Sol Estas and the Billy Baker scandals, and Kennedy was already looking for another VP candidate for 1964, according to Kennedy’s secretary, Evelyn Lincoln.[2] At the time of the assassination, a U.S. House committee was planning to indict Johnson. A man, who would later be shot, was going to testify that Johnson had taken kick-backs from agricultural programs. When Lyndon was president, he kept the Vietnam War going on for so long because he was getting kickbacks on military contracts to his business friends.

Johnson’s real mentality, however, went deeper than corruption. According to Madeleine, Malcolm “Mac” Wallace was Johnson’s hit-man. In a letter to the Department of Justice in 1984, Douglas Caddy, the lawyer for Billie Sol Estes, claimed to have evidence that Johnson order hits on eight men, including Kennedy.[3] Johnson “had no qualm about having someone killed,” the still-smitten Madeleine says in the interview. “Whatever it takes to get a job done,” she says of Lyndon’s mentality. She agrees with Ross in his conclusion that Johnson must have thought the end justified the means. Madeleine points out that Johnson even had an innocent woman who had seen Madeleine and Johnson together in a hallway killed. Even just to conceive that a U.S. president had a hit man is difficult; to a public kept largely in the dark, such a thing—and that the American electorate voted for a mafia-like man in 1964—must seem inconceivable, or else fiction, like the series, House of Cards. Hence the vulnerability lodged in American democracy wherein the electorate is left with mere superficial or artificial perceptions of the candidates and office-holders remains largely hidden from view.

All of the above hitherto hidden from view does not even count the stealth role of corporations in influencing Congress, the President, and even the regulatory agencies that regulate the specific corporations or industries. The relationship can indeed be quite cozy in spite of the conflicts of interest that should be obvious. The allowance of “dark money” contributions to political campaigns affirmed by the U.S. Supreme Court in its Citizens United case is just one indication of how the real relationship between business and government in the U.S. can be deliberately hidden from plain view, and especially this disinfectant effect of sunlight. If sunlight is essential for the popular sovereign (i.e., the People) to hold its government officials accountable, then representative democracy in the U.S. is seriously flawed. To get caught up in debating who shot Kennedy may be just what the political elite wants because not only such myopic investigations tend to be premised on the Warren Commission’s report as the default narrative to be disproven, but also the obsession of one historical event comes at the expense of uncovering the true nature of the current office-holders in government and the real relationship between business and government.

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[1] Madeleine Duncan Brown, Texas in the Morning: The Love Story of Madeleine Brown and President Lyndon Baines Johnson (Conservatory Press, 1997).

[2] James Hepburn, Farewell America: The Plot to Kill JFK (Penmarin Books: 2002).

[3] Ibid.