Forget Wall Street. What about the rest of us?

The demise of accountability...

We live in a time when political and business leaders are able to avoid being held accountable for their acts of self interest, gross negligence and misconduct. Sounds like lawyer talk. Well lawyers are intricately involved in this sorry state of affairs.

Lets take the Bush administration. What did all the Republican cronies like Cheney learn from the Nixon saga? Don't put yourself in weak position legally. Don't testify under oath, better yet don't testify, don't provide information under threat of perjury, better yet don't provide information. They have artfully avoided accountability for a litany of abuses, misconduct and malfeasance.

OK, now lets consider what has happened in the financial services industry. Until recently, our securities laws forced Wall Street to worry about how it conducts business. Don't play by the rules and sooner or later the SEC or Spitzer would catch up to you. You had to worry about adequate disclosure and rules designed to protect public investors. If you misbehaved, you had to worry not only about the SEC, but the plaintiff's bar charged with the duty of prosecuting claims by investors unable to take care of themselves (for a fee of course).

Wall Street has managed to water everything down to the point where you have this monumental implosion of the markets and little or no means to hold the players accountable. Don't hold your breath waiting for the SEC to chase the bankers that designed, peddled and later lied about their exposure to toxic securities. What about CDSs? Oh, those are not securities within the meaning of the securities laws. How about investors like poor old AIG banding together to sue those who set them up with these improvised financial explosive devices. Never mind, those were sold to "sophisticated" and "accredited" investors able to fend for themselves. We now see that sophisticated investor means one who expects to be bailed out by Uncle Sam. Finally, you won't be seeing any widows starting class action suits, because no one sold them any securities this time around. They are accused of being financially culpable in this mess because they fell prey to the army of mortgage and real estate brokers peddling the temptation of home equity loans.

Well you begin to see how what seems like one big scam is actually a finely tuned apparatus for screwing Joe public without being held accountable.

Time to throw out all of the old regulatory assumptions and start all over again. Wall Street, like this administration, has innovated its way out of good old fashioned accountability.

Well, we are apparently entering a new phase in American Economic policy - it's called socialism. We the people are now we the owners of AIG, and untold billions of dollars worth of mortgages.

I, for one, have no desire to see the financial industry implode and do not care to live through a second Great Depression. I think the bailout is necessary. However, the fact that the American taxpayer is accepting all this fiscal responsibility at great expense, I insist on pnuishing those that profited from these unethical and immoral loan products that created this crisis.

Millions of Americans face homelessness and a bleak financial future, while a few thousand became very wealthy. Now hundreds of millions of Americans must pony up a trillion dollars to correct the situation.

Again, I agree with the bailout but only if it is accompanied by heavy duty regulation of the financial services industry, a reinstatement of usury laws (lmiting interest rates that can be charged), and criminal prosecution of those responsible for creating this horrific mess - including restitution to the American people for the milions of dollars they have sucked out of te economy and the financial ruin they have wrought on the American citizen for their personal profit.

We all (certainly including me) tend to forget that we are not really talking about Wall Street at all. Financial Services (products, instruments, packages, etc) are where people's retirement check comes from. It's where people get their money they have saved in order to send a child to college. A credit squeese (crunch, implosion) means they cannot buy a car if they cannot get a car loan. they cannot buy a house if they cannot get a mortgage. All of this far away esoteric Wall Street stuff is in fact built in the fabric of all of our lives.

I was watching a news report yesterday when a reported said "this shot in the arm is just what Wall Street needed." My first thought was that what Wall Street really needs is a swift kick in some other part of its anatomy. These people are playing with fire which, if allowed to get out of control, can burn down everything as we know it - and they're doing it all for short term personal gain.

Where is the bail-out for people who have lost, or are in the process of losing, their homes? I know this doesn't take the bigger picture into account, but I can't help but feel that the relief is being directed to the perpetrators instead of the victims.

1. socialism would mean SOCIALIZATION of profits and properties, as well as debts. this is FASCISM, the fusion of corporates and government for the elites.

2. justin, why did you choose to listen to the chief economist of the lehman bros for this and the future?

3. if AIG deal was so sweet that we the taxpayers stand to make money on this transaction, why did no one profit-driven corporate grab it when it was available?

4. washington, including the not-so-frank disgraceful barnie frank, dragged its feet and did as little as possible to help the beleaguered homeowners, lecturing "you shouldn't have bought the house you couldn't pay for", but has trillions to throw around for their billionaire friends.

i'm glad that the one and the sameness of washington and wall street has become clear even to conservative joe blows. we the people will throw the criminals out of power into prison in november, and start all over again. anything will be fairer than this.

an interviewer on npr asked an "expert" "where did all that money, the 600 billion dollars worth - referring to lehman's debt - all go?" the "expert" said, "to the shareholders as dividends, to CEOs as salaries and bonuses, you know..."

i have a hunch: the 600 billion never existed in real terms. the speculative "high-finance" capitalism we have is grounded on nothing but illusion. it's a FRAUD, perpetuated by lies on top of lies, which include the numbers (such as CPI) paraded as "facts" by government as well as corporates. that's what Marx meant when he said capitalism will implode by itself.

Kind of makes me wish I had participated in the bubble. I saw no financial gain during the bubble (didn't work in financial services, buy or sell a house, have a mortgage, or take a HELOC), but it sounds like I get to feel the hangover of the aftermath. What's the use of getting the hangover if you didn't party first?

We keep wanting to blame Bush. when will we as voters learn that one man didn't make this wasteland of greed. One of our best economies had a republican congress and a democratic president. The pres. doesn't do squat except to sign off on what congress gives him. If congress doesn't give him something or he doesn't sign on, then nothing happens. Congress can over ride any veto, so who really has control. Our pres. doesn't have the control that everyone thinks he has. It is your local congressman/woman that is dropping the ball. "Throw the bumbs out" and start anew. You keep sending the same people to Washington and expecting a different result. It's you, the voters fault. Palin is the only new one on a ticket. Send her to Washington and see what happens, even as V.P. she's likely to shake up more than any of your flakey old congressman you keep sending back for more of the same. She can't screw it up any more than it is. This is "your" mess and life doesn't change unless "you" do something different. Good Luck to the ole US of A

The part that policymakers seem to be forgetting is that some people save money in banks--or used to. By keeping the interest rates artifically low, they have driven savings to other sectors. One place many in the middle-class have invested is housing -- not for the place to live, but as an investment vehicle having a chance of a reasonable return. With the internet, it has even become more common for investors to go out of state to purchase rentals or houses for speculative sales. It seems that Congress wants to protect people's ability to get loans for cars and houses. While this is noble, the focus might need to shift to the basic question of how people can get food and shelter. Providing these through a capitalistic system, where distribution generally is more equitable because it is based on money and information rather than on status and privilege, has been proven to give the most fair distribution of goods and services. But, to do so requires good evaluation of the realities, not just feeling sorry for certain classes of people and making policies to benefit them. We can't make interest rates low just so that some people can have new cars and houses. We might need to help business in general -- or the auto industry if sales go too low. But we also need to look at how housing works for people -- in cities, for the homeless, and for those in single-family dwellings. We need to look at food and if people are starving. And at jobs. Regarding interest rates, in the 1980's, they were very high. This slowed the economy, and may not be the best way, either. But to freeze the interest rates because they might affect people with variable rate loans? It won't work.

Since we the people have bought the big financial institutions, without any say in the decision, we now should demand a say in the operation of this failed industry.
How about a total American walkout until we get to pick ordinary citizens to head the institutions and be on the boards. Just have a lottery and select some of us to run things. A group of amateurs could surely do better than all the sophisticated professionals.

Justin,

Interesting observations from John Mauldin's latest letter:

It is going to cost the taxpayers a lot of money. While I think the losses on AIG will be rather minor in the grand scheme of things, if you add up Fannie and Freddie and a new RTC, coupled with the stimulus package, you can easily get to $500 billion, and that is probably a low number.
For such a price, we had better get a new regulatory scheme which requires reduced leverage. Want to get really mad? Up until 2003, all investment banks were allowed only 12 to 1 leverage. Then in 2004, the SEC basically gave five banks (and only five banks) the ability to lever up 30 or even 40 to 1. Bet you can guess the five banks. Bear, Lehman, Merrill, Morgan and Goldman. Three down.
As Barry Ritholtz wrote: "So while the SEC runs around reinstating short selling rules, and clueless pension fund managers mindlessly point to the wrong issue, we learn that it was the SEC who was in large part responsible for the reckless leverage that led to the current crisis." (Don't get me started on blaming the short sellers. Let's not blame the people who leveraged up their companies 40 to 1 with bad investments.)
We absolutely must move credit default swaps to a regulated exchange, no matter how much investment banks and hedge funds scream. Must be done. Do it now. Real rules about writing mortgages, although now that losses are in the hundreds of billions, underwriting rules are already becoming quite restrictive.
And while we are at it, a thorough revamping of the rating agencies and the rules they use should be at the top of someone's list.

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I had never really considered the effect of leverage on this situation, but if the investment banks had never been allowed to leverage up then what would have happened?

I can't get beyond the feeling that this downturn is all just based upon funny money. I know that everyone wanted to recover from the stock market of 2000 as soon as possible, but we need to work on rebuilding longterm stable growth mechanisms in this country. We have not done that. So, while everybody might go to a party....not everybody wakes up the next day feeling the same. Think liquor vs beer or champagne vs wine.

How long does it take to print 700 billion dollars? Do he still have a gold standard? And since I just invested in a heck of a lot of real estate, when can I move in? See what happens when so many people take those real estate classes that were advertized on tv. I wonder where that guy is that taught thoses classes. I still remember that old (not so old)
commercial where that law teacher (now an investment banker At Smith & Barney) says, " we make money the old fashioned way, WE EARN IT".

The bail-out should be conditional:
- firing the CEO,s and the board,
- having an ethical committee set up to have the teams responsible of these disaster giving back all stock option, bonuses, of the last 5 years in exchange of not suing them for fraud and any available judiciary ground,
- creating a 10 years special finance tax on banks profits and highest salaries, until it reimburses any cost incurred to us the people, principal, interest and managerial costs,
- capping for 10 years the executives salaries, bonuses, stock option.
- regulating and controlling short selling
- have the share holder vote for compensation packages.
If Mac Cain doesn't condition the bail-out this way or in a similar way, he will lose. At least my vote.

And the rest of us?

Funny that no one mentioned that our retirement funds are tied to wall street, the bandits. We robbed ourselves more than anything.

We can blame the gvt, the institutions and whatever but as long as it seemed to work, where were the complaints?

How many paid attention when R. Buffet signaled that it was a really bad idea? (5 years ago). How many did purchase a house on fake financial declarations, with the hope to flip the house?

The debacle started with our own bankrupt vision of get rich quick and the media, including The Times, who supported that vision by presenting only one side.

I am one of the lucky one, purchased a house in 1997, at a normal price, almost paid it off now, have no credit card bill or other debt. Neither my wife nor I fell for the get rich stuff, we were to busy living our lives as we saw fit I guess.

Yes, let's blame everyone but let's look onto the mirror first. The .com was a dire warning, anyone heeded it?

newrevolution, you're on to something. Let's have a national lottery for political office, like selective service for government. Beats the Bastille and the guillotine. And Bryan from Houston, I nominate you for first go-round as Treasury Sec. Just don't get too comfortable in office...

I am no financial wizard, not even close. I work hard as a school nurse, my husband and I are paying our mortgage every month, taking care of our two teenage daughters, saving for retirement and college, etc. We've done the "right" stuff, saved, tried to stay within our budget. Now it looks to me that many of the "experts", corporate bigwigs, financial and investment companies, have been ruled by greed, short-sightedness, and selfishness, with no thought for small individual investors who rely on their investments to help with retirment, college, etc. What happened to ethical standards? Obviously we cannot depend on an unregulated business because during free-of-regulation-and-oversight times translate to let the buyer beware, let the avarice of human beings come out and take over. Until human beings can have the common good foremost in their thinking we must have oversight...it's an obvious conclusion to me.

Whats alarming to me is that the offer purports that we still have a "great" educational system.

I disagree. The quality of high-school education is nearly foreign when it is compared to even 8 years ago.

Children are not even taught how to truly break down a modern issue past the sound bytes and what they mean. The only viable High School program is I.B which, lets be honest is not prepared for equally, it is something dubbed as exclusive and difficult.

If we think things are bad now, Wait until we hand the power of consent over to the very polarized general mass of new leadership to come in 15 to 20 years. The institutions that teach them RIGHT NOW are defunded and teach nothing but test derived from the failed EQA. We teach people how to best fit the form of information, not how to think properly so that things will change.

Some might argue that the point Im making is un-related. I would argue that it is the source of the problem : Institutionalised thought that serves no-one but the immediate problem and the people who should be held accountable for the problem. We used to have a name for people who behaved this way. They were called Criminals.

When President Bush cited his reluctance to aid "bad actors" when refusing to assist homeowners facing foreclosure, I couldn't help recalling candidate Bush's address to "the haves and have mores" when he said, "Some people call you the elite. I call you my base." Today I can't help but wonder what portion of this possibly trillion dollar bailout will flow to his base.

So, let me see if I understands this mess. The Federal Government assumes the banks' bad debts, (mortgages, home improvement and home equity loans) which are undercapitalized or in default. This relieves the banks of carrying bad loans in their portfolios and frees up their hen available unencumbered capital and new capital to make new loans. The Federal Government then sells these bad loans on the open market to investors and speculators (banks?) at deeply discounted prices. What prevents the banks from buying back the bad paper themselves at the discounted prices, or the Wall Street speculators whoo made billions on derivative and credit swap defaults from buying the bad paper on leveraged credit again? And, the Federal Government is going to buy the bad loans at face value from the banks who made the bad loans in the first place right? And, where is the Federal Government going to get the money to pay the banks? Hmmmm? How can a taxpayer opt out of this scheme?

Afterthought to prior comment.

I just read an article by Paul; LaMonica? about short selling by Wall Street speculators.

Is the Federal Government assumption of the banks' debts (bad loans) akin to the sale or forced surrender by speculators (bannks) of financial paper they do not own, then buying back the same paerp nwhen the price drops? Hmmmmm?

If those of us making minimum wage or living on SS are going to be strapped with paying back what the fat cats mistakes did, why shouldn't they give up a years salary, including the president to cover this mess. That would equal what the rest of us will suffer for. Who will help us when we can't pay for food or medicine? Who will bail us out? I guess Greed is Good wins out while our country is hiding it's head in shame. Kick the little guy when he's already down. The fat cats made theirs.

This is your cherished Capitalism, crooks on the top and idiots at the bottom.

everything was hunkydori when you thought you were in the club.

Enjoy your Freedom to be at the bottom.

thanks for confirming the general cluelessness of the general population.

there are some pretty clueless questions here that have very simple answers to them. but obviously most people feel like they are doing themselves or society some benefit these days by regurgitating some inane comment that appeared somewhere in the MSM.

600 billion went to executive bonuses. haha what idiot thought that one up? 600 billion. how much is warren buffet worth?

that takes about ten seconds to find out.

wake up folks, if you are in the game here and this clueless, you need to get out. it's clearly far too risky for the people who believe that they understand it but if you are a player with no clue then it is nothing short of playing with dynamite.

get out of the market and get your money into a savings account. you will get what you deserve and have no complaints. and you will have all kinds of free time available to do what it is that you enjoy doing the most. watching soap operas eating potato chips and drinking your favorite mind numbing substance. life will be beautiful and the rest of us criminals and idiots will be all the happier for it.

have a nice day.

There must be a collective punishment for industries that profit from the tax payer future misery. Millions or billions dollars in bonus, etc.

I recommend that as a condition to provide the humongous bailout and government cover(no shorting of stock, etc), the federal government should be DEMAND maximum salary of wall street/mortgage/banking workers should not exceed the 2 times the salary of the president of the United States.

This should be in place until the industry no longer needs the government subsidy (tax payer money) to survive. Most of the workers are not impacted by this rule but the executives should be lucky to making 2X of the U.S president salary. If this was any other time in the history, they will be facing a firing squad.

thanks for confirming the general cluelessness of the general population.there are some pretty clueless questions here that have very simple answers to them. but obviously most people feel like they are doing themselves or society some benefit these days by regurgitating some inane comment that appeared somewhere in the MSM.600 billion went to executive bonuses. haha what idiot thought that one up? 600 billion. how much is warren buffet worth?that takes about ten seconds to find out.wake up folks,Tiffany Jewellery All products tiffany catalog if you are in the game here and this clueless, you need to get out. it's clearly far too risky for the people who believe that they understand it but if you are a player with no clue then it is nothing short of playing with dynamite.get out of the market and get your money into a savings account. you will get what you deserve and have no complaints. and you will have all kinds of free time available to do what it is that you enjoy doing the most. watching soap operas eating potato chips and drinking your favorite mind numbing substance. life will be beautiful and the rest of us criminals and idiots will be all the happier for it.