Daily Archives: February 6, 2016

Former CFTC Head Brooksley Born: Still Telling the Uncomfortable Truths About Wall Street

It is a must read. Brooksley Born was the former head of Commodity Futures Trading Commission (CFTC) under the Clinton Administration. And her interview in 2015 about Wall Street is what Bernie Sanders discussed about in the Thursday’s Presidential debate: Getting the money out of politics and ending the financial influence by Wall Street and special interest groups into Congress.

By Pam Martens and Russ Martens: May 7, 2015

Wall Street On Parade website:

Brooksley Born is best known as the sole regulator in the Clinton administration who attempted to regulate derivatives and became the target of bullying by then Treasury Secretary Robert Rubin, his enforcer, Larry Summers, and Fed Chair Alan Greenspan.Frontline aired an expose on the guts Born summoned to stand up to the Wall Street enablers’ cartel. In the end, of course, Wall Street had its way and derivatives remained unregulated. Born resigned her post.

In her talk at the conference, Born takes on the preposterous proposition that markets can self-regulate. During her time at the CFTC, Born said Wall Street had poured billions of dollars into deregulation lobbying which was “supported by the fallacious beliefs championed notably by Alan Greenspan that financial markets are self regulating and that financial firms are capable of policing themselves.”

Born told the crowd that the dangers have only grown since the collapse:

“The power and influence of the financial sector threatens a continuation of the regulatory capture that contributed to the financial crisis. Financial firms, too often, have significant say in the appointment of high regulatory officials. The tendency of some former government officials to obtain highly lucrative positions in the financial sector after leaving government may well act as an inducement to those remaining in government to serve the interest of the financial sector rather than those of the public.”

Born reminded the audience that since the enactment of the Dodd-Frank financial reform legislation, the country has witnessed more frauds, manipulations and reckless behavior on the part of the very same financial firms, adding:

“With respect to derivatives trading, JPMorgan lost $6 billion through speculative trading of the London Whale and both MF Global and Peregrine Financial went bankrupt after allegedly engaging in misappropriation of customer funds. In light of all this, we must ask ourselves whether the financial and political power of our largest financial firms poses a threat to our policy making on financial regulation and seriously undercuts the administration of justice.”

Born also cautioned the public against believing that the derivatives’ market has been fixed, stating:

“Dodd-Frank gave the Commodity Futures Trading Commission an enormous new responsibility to impose regulation on this previously unregulated market which was a significant cause of the financial crisis and which is currently estimated to be $400 trillion in notional amount [face amount] in the United States and almost $700 trillion globally. It’s actually larger than it was at the time of the financial crisis…The jury is still out on whether the regulatory regime under Dodd-Frank will be adequate to address the dangers of this market…”

According to Born, too many exemptions have been carved out in the derivatives arena under Dodd-Frank, including derivatives used for hedging and foreign exchange swaps.

Professor Admati, who co-authored with Martin Hellwig the book, The Bankers’ New Clothes: What’s Wrong With Banking and What to Do About It, had equally harsh words for Wall Street and its regulators. Admati said the 2008 crash changed her life, explaining:

“What changed my life was seeing bad science and flawed claims winning policy debates…I thought at least the academics and the policymakers would engage on these issues so we can get the policy right, but I was wrong. People don’t want to engage when what you say challenges their views or their actions. They may ignore and evade. I’ve witnessed not only blind spots but what Margaret Heffernan talks about – willful blindness.”

In their seated conversational exchange following each of their formal speeches, Born said incumbents in Congress still depend on Wall Street’s campaign contributions – so they listen to the Jamie Dimons of the world and the Lloyd Blankfeins and the Alan Greenspans. Born said  she had come to the conclusion “that we can’t start to deal with the issue unless or until our biggest financial institutions are considerably cut down in size.”

Did Financial Giant Goldman Sachs Just Admit the System is Rigged?

Bill Black explains why one of world’s largest investment firms Goldman Sachs is questioning the “efficacy of capitalism” and why its CEO is terrified of a Sanders presidency. You can view it here on the Real News (include transcript).

William Black: Hillary, the Banksters Committed “Fraud” not “Shenanigans”

William K. Black
February 4, 2016     Bloomington, MN

Former Secretary of State Hillary Clinton, in her debate with Senator Sanders minutes ago, said that she went to Wall Street and told them to stop their “shenanigans.”  The context was that she was being asked to respond to the complaint that she was too close to on Wall Street billionaires.  She had every incentive, therefore, to demonstrate how tough she would be on Wall Street.  In that context, the best she could muster was the pusillanimous “shenanigans.”  Here is a typical definition of that word with examples.

  1. : a devious trick used especially for an underhand purpose
  2. 2a:  tricky or questionable practices or conduct —usually used in pluralb :  high-spirited or mischievous activity —usually used in plural

Examples of shenanigan

  1. students engaging in youthful shenaniganson the last day of school
  2. an act of vandalism that went way beyond the usual shenanigansat summer camp

Hillary cannot bring herself to use the “f” word in the context of Wall Street CEOs leading the largest and most destructive fraud epidemics in history – frauds that made them spectacularly wealthy.  A few minutes later, Bernie said that “fraud” was Wall Street’s business model.

There is no “if” – Systemically Dangerous Banks Pose a “Systemic Risk”

Hillary then said that we should end systemically dangerous institutions (SDIs) “if” they posed “systemic risk” and praised President Obama for supporting Dodd-Frank provisions that provide a convoluted process for doing so that a new president likely could not use effectively.  There can be disputes on the margins as to whether the 25thlargest U.S. bank is systemically dangerous, but there is no question but that the largest 20 banks in the U.S. pose a systemic risk.  There is no question but that President Obama has not, and will not, force a single one of them to shrink to the point that they no longer pose a systemic risk.  I do not think that many people believe that Hillary will force even a single gargantuan bank to do so, but if that is her intent, the word she needs to use is “will” rather than “if.”  Hillary should say:  “If I am elected President I will promptly require the roughly 20 largest banks to shrink to a size where they no longer pose a systemic risk.”

Continue reading

As Madoff Airs On TV, Two Anonymous Whistleblowers Are Pounding On The SEC’s Door Again

Submitted by Pam Martens and Russ Martens via WallStreetOnParade.com,

Last night ABC began its two-part series on the Bernie Madoff fraud. Viewers will be reminded about how investment expert, Harry Markopolos, wrote detailed letters to the SEC for years, raising red flags that Bernie Madoff was running a Ponzi scheme – only to be ignored by the SEC as Madoff fleeced more and more victims out of their life savings.

Today, there are two equally erudite scribes who have jointly been flooding the SEC with explosive evidence that some Exchange Traded Funds (ETFs) that trade on U.S. stock exchanges and are sold to a gullible public, may be little more than toxic waste dumped there by Wall Street firms eager to rid themselves of illiquid securities.

The two anonymous authors have one thing going for them that Markopolos did not.They are represented by a former SEC attorney, Peter Chepucavage, who was also previously a managing director in charge of Nomura Securities’ legal, compliance and audit functions. We spoke to Chepucavage by phone yesterday.  He confirmed that two of his clients authored the series of letters. Chepucavage said further that these clients have significant experience in trading ETFs and data collection involving ETFs.

Throughout their letters, the whistleblowers use the phrase ETP, for Exchange Traded Product, which includes both ETFs and ETNs, Exchange Traded Notes. In a letter that was logged in at the SEC on January 13, 2016, the whistleblowers compared some of these investments to the subprime mortgage products that fueled the 2008 crash, noting that regulators and economists were mostly blind to that escalating danger as well. The authors wrote:

“The vast majority of ETPs have very low levels of assets under management and illiquid trading volumes. Many of these have illiquid underlying assets and a large group of ETPs are based on derivatives that are not backed by physical assets such as stocks, bonds or commodities, but rather swaps or other types of complex contracts. Many of these products may have been designed to take what were originally illiquid assets from the books of operators, bundle them into an ETP to make them appear liquid and sell them off to unsuspecting investors. The data suggests this is evidenced by ETPs that are formed, have enough volume in the early stage of their existence to sell shares, but then barely trade again while still remaining listed for sale. This is reminiscent of the mortgage-backed securities bundles sold previous to the last financial crisis in 2008.”

The authors also note in this same letter that they have been presenting their evidence of “significant red flags” and “fundamental flaws” to the SEC since March 2015 and that the industry has not disputed the evidence. However, disclosures of these risks in the product offerings has not been forthcoming either.

Here’s What Hillary Clinton’s Paid Speaking Contract Looks Like

From The Intercept:

So what exactly does Hillary Clinton ask for when she gives a paid speech, like the ones she gave at Goldman Sachs? A contract for a speech she gave at the University of Nevada Las Vegas provides some answers.  The contract was obtained by the Las Vegas Review-Journal in August, through the state public records law.

For that speech in October 2014, Clinton requested two payments of $112,500:

hillary-clinton-contract-4

The contract reveals that the speeches are tightly controlled, including prior approval of who introduces Clinton and who moderates any question-and-answer session:

hillary-clinton-contract-2

Read on.