The Seeds of Our Demise

Don’t you remember a few years ago, the “green” boom was beginning, the general population was waking up to organic food and buying local and it seemed like things were going to get better… then the economy tanked.  Now we are heading towards austerity, privatization and plutocracy.  How did this happen, and how can we change it? 

The lead up to the great recession started with banks encouraging lenders to lie about their earnings and assets so they could make high risk loans, the first step in a chain of banking fraud: the fraud of inducement.  Rating agencies continued the lie, guaranteeing that the loans were secure.  The investment banks took the “secure” loans and sold them to investors as “derivatives” and other exotic financial instruments.  Pension funds and honest investors bought these toxic “assets”, creating a huge bubble.  When people began to default on their mortgages the bubble popped, decimating people’s savings, allowing the top 1% to buy up real assets, and creating a black hole of debt that may bankrupt the nation.  The mainstream media would have us believe that the banks were the victims of their foolish lending practices, but actually is this is the inevitable result of a control fraud scheme involving the lending banks, the ratings agencies/insurance companies, the accounting firms, the investment banks, the regulators, and the courts. 

Corruption at the Highest Levels

Control fraud is a term coined by William Black, a regulator during the savings and loan scandal in the 80’s who successfully prosecuted over 1,000 high level bankers.  In a control fraud the bank is both the perpetrator and victim of the fraud.  Under the control of the CEO the bank makes bad loans, inflates their value through fraudulent audits, sells the loans turning losses into profit, shows record profits and then collapses. The CEO and his cronies draw huge bonuses and loot the bank for all it is worth before abandoning it.

The trouble is that, in our current sub-prime mortgage scandal, the corruption has traveled beyond the CEOs to our regulators and courts.  Obama’s administration is aiding and abetting the fraud.  Our government is both the perpetrator and victim of a massive control fraud, and the US Treasury is now being looted on its way to bankruptcy. 

The regulators have been successfully neutralized by the finance lobby.  Obama has taken millions of dollars from big banks including JP Morgan, Goldman Sacs, and Citigroup; as well as most of congress.  (ref1) There has not been a single criminal referral from The Comptroller of the Currency; the national banks regulator, appointed by Obama, responsible for making criminal referrals to the FBI and the Justice Department.  Compare this to the 10,000 referrals made from this office during the savings and loan crisis in the 80’s, a financial scandal 70 times smaller than the current sub-prime mortgage scandal.

Robbing the Taxpayer

            Not only are the regulators refusing to prosecute in the face of blatant fraud, they are acting on behalf of the banks to steal from the taxpayers.  When a bank can’t pay its’ debts the government should take control, sell any remaining assets and cover the depositors losses.  If the government does provide funds, it should be to the depositors after the bank has collapsed and investors have lost money.  Instead favored insiders have picked up the good assets, investors have been bailed out, and the taxpayers have taken on the debt. 

The $182 billion AIG bailout funneled money to banks including Goldman Sacs.  Then Secretary of the Treasury Henry Paulson, former CEO of Goldman Sacs, orchestrated the bailout.  Fannie Mae and Freddy Mac, private banks not under federal deposit insurance, were illegally bailed out by the Federal Reserve costing us $1.5 trillion.  Bank of America has transferred $79 trillion toxic debts from their investment bank to their federally insured deposit bank making US taxpayers liable for those inevitable losses. (Ref2)

            The regulators have also acted on behalf of the banks to aid their accounting fraud.  The Prompt Corrective Action Law mandates that banks must be closed when they can’t pay their debts.  But congress has pressured the Financial Standards Accounting Board (ref3) to change the rules so banks can hide their losses.  Banks that should be closed continue to commit fraud and collect huge bonuses. 

A Way Out?

Fixing this situation must begin at the highest levels of government.  Obama and his administration must be replaced by regulators that will uphold the laws.  According to Bill Black, The Federal Deposit Insurance Corporation needs to investigate the largest banks that are known to have committed fraud, like Bank of America.  Banks who issued fraudulent mortgages should be taken into receivership.  They will continue to function while the new management investigates and makes referrals for prosecution.

            The “too big to fail” banks must be subject to strict regulations to eliminate their lobbying power, shrink their size, and provide transparency. 

            The separation of investment and deposit banking, dismantled under Clinton, must be re-established so that the country’s savings are not devastated by investor’s fraud and folly.  The accounting rules must be corrected so that insolvent banks can be closed.  The borrower verification rules must be re-instated so that banks cannot make fraudulent loans. 

An important shield on the local level is alternative currencies.  Local currencies like the Berkshire, and gold backed currencies like the liberty dollar, provide protection from attacks on the dollar.  Municipal banks, like the Bank of North Dakota can provide capital to the real economy helping businesses and banks weather economic collapses.

Individuals can fight foreclosures in court.  Russell Overton, from Liverpool NY, has avoided foreclosure by asking to see the original wet ink mortgage document; his case was put on indefinite hold.  We can also save spend locally, because ultimately we depend on our community to win the economic war that is being waged upon us by the double headed dragon of corrupt politicians and bankers.

Ref1 http://www.opensecrets.org/pres08/contrib.php?cid=N00009638

Ref2 San Francisco Cronicle 10-27-11 Bank of America Derivative Transfer Draws Lawmaker Scrutiny

Ref3 http://www.washingtontimes.com/news/2009/apr/03/board-loosens-bank-accounting-rules/