Thursday, April 26, 2012

(No.196) Casino banking & the Wall Street shell game

"Casino banking and the Wall Street shell game"

by    Alastair Rickard

I have referred frequently in my columns to the greed, incompetence and general thickheadedness of many of the senior executives in the financial services business especially in the U.S. and particularly in big American banks.

I do not exclude Canadian financial services, with which I have both some experience as well as close observation, from concern. But the sort of regulation and enforcement here was absent in the U.S. and kept Canadian bankers from much indulgence in the sort of mind-numbingly stupid excesses which resulted in the financial crisis of 2008 et seq. However Canada's Finance Minister Jim Flaherty knows that the country's big banks are not the paragons that the Wall Street disaster made them seem by comparison.

Indeed, just recently Flaherty warned Canada's big banks that their lending practices have come to bear a troubling resemblance to those that caused the U.S. mortgage crisis. Hence the reason, in part, for the changes just announced by Ottawa involving the activity and supervision of the government's mortgage insurance agency, the CMHC.

The fathers of the financial crisis, after decades of steadily less financial regulation in the U.S., were primarily a club of 20 or so major 'Wall Street'/U.S. financial institutions.

Just as damning in its way as the institutional mismanagement which produced a near meltdown of the west's financial system was the silence of (and in the case of the rating agencies, the active participation in) what I refer to as the financial services paparazzi: the so-called experts in the rating agencies, the financial analysts in the various brokerage firms and consulting houses, the financial media, et al.

In terms of the pre-crisis activity of the financially self-aggrandizing mental midgets in charge of the Wall Street firms, the question is:  except for the very occasional lonely public voice, where were all the 'experts' as the billions and then trillions of  of dollars in toxic assets were "securitized" and resold? Did it not occur to any of these experts that what these firms were doing with their actual financial risk was deliberately structured to avoid New York state insurance regulation of what were in fact insurance contracts, regardless of the euphemisms used to avoid using the word insurance: e.g., credit default swaps and synthetic collateral debt obligations?

Of course the private, opaque and unregulated market for these derivatives was ever so much to be preferred to insurance regulation with all of its awkward and restrictive insistence on financial reserves to back risk. This was of course the sine qua non for the casino banking that produced the financial crisis, with the major rating agencies providing the triple A ratings of the financial crap that were needed to keep the shell game going.

Even as late as early 2008, where were the battalions of investment gurus and talking heads who are still the ubiquitous ornaments of the financial media including the cable news/business outlets? Where were the voices questioning the competence (never mind wisdom) and indeed the understanding of senior financial executives of what they were doing and the financial devices they were using to make their multi-million dollar bonuses while taking American and European financial stability ever closer to the edge of the cliff? The public silence of most experts and insiders  was deafening even after the first European bank  (Germany's IKB) choked on U.S. real estate bubble-generated, securitized, toxic sub-prime mortgages.

All of this is by way of being a prelude to praise of the recent 4 hour investigative report by the American Public Broadcasting System's program Frontline called "Money, Power and Wall Street". It's 4 segments were broadcast in 2 parts of 2 hours each on April 25 and May 1.

The PBS program eclipsed anything yet done on the subject by commercial television in the U.S.  It featured interviews with dozens of the key players and observers in the Wall Street firms, among federal regulators and politicians and the financial media in the US and Europe. It provides a clear and impressive analysis of who did what and who failed to do what they ought to have done. It is absolutely superb and a fine example of how PBS news and public affairs programming regularly outshines its commercial peers.

Such incisive and hard-hitting programming on a nationally and internationally significant subject is rarely to be seen on American commercial television networks apart from an occasional segment on CBS's long running "60 Minutes". The 24 hour cable news networks in the U.S. are not even players in the same game.

This recent PBS program also stands as an excellent example of why the big business cheerleaders as well as the ideological groupies and apologists to be found among Washington Republicans are forever trying to curtail or eliminate the limited funding provided by the federal government to the Corporation for Public Broadcasting.

Frontline's "Money, Power and Wall Street" is just the sort of reality-based education that should be required viewing by, for example, the depressingly numerous Americans who still believe that their President is a Muslim socialist born outside the U.S. However I have to admit that even if such a thing could be mandated it would likely fail to have much beneficial effect on the politically paranoid and the conspiracy-minded who would (and will) dismiss it out of hand.

The PBS program will doubtless be repeated but all four segments can be viewed online at




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