A Hookah Pipe Dream

Me, with beard and hoodie, dressed to fit in with OWS

I’m growing a beard. My wife doesn’t like it. She turns her head when I go to kiss her. “It’s prickly,” she complains. Well, I’m feeling prickly. I don’t like what I see in the American political or business arenas. So I’m growing the beard in solidarity with the Occupy Wall Street (OWS) folks. I’m not sure what they don’t like, although articulating their complaints seems to be high on the list.

There are several things I don’t like, and I’m sure if I wandered around an OWS camp like James ‘ACORN’ O’Keefe (he takes photos of people misbehaving), I’d find common ground on many of them. For example, I don’t like James O’Keefe.

But let’s stick to the theme. How do I loath thee, Wall Street, let me count the ways.

• I don’t like banks taking TARP money and then paying their executives huge bonuses.
• I don’t like financial institutions like Goldman Sachs cheating investors.
• I don’t like the lack of public and quasi-public oversight of our financial institutions.
• I don’t like the executives of companies that led the American economy down the garden path to the dump going unpunished.
• I don’t like corporations being people -- they’re so antisocial.

A judge just threw out the Securities and Exchange Commission's proposed $285m settlement with Citigroup, which was accused of misleading investors in one of those toxic mortgage schemes at the peak of the US housing bubble. If I recall correctly, he called the amount of the fine, “rounding error” for Citigroup.

The SEC is supposed to be riding herd on Wall Street, but it’s letting the bulls run and feeding the rest of us manure. The SEC has had a longstanding practice of levying relatively minor financial settlements alongside de facto waivers of civil liability for the guilty. “Wealth management institutions,” as they like to call themselves, commit fraud and pay small fines, and the SEC allows them to walk away without admitting to criminal wrongdoing. Nice work if you can get it, and you can, and that brings me to my next dislike.

I hate the fact that no one went to jail. AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley were run by people involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. And the aforementioned Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. No one has been indicted, let alone gone to jail. And no one was watching. And that brings me to my next dislike.

I don’t like the total ineptitude of the Federal Reserve, the FDIC, the Office of the Comptroller of the Currency, and the Commodity Futures Trading Commission, and other federal institutions, including the Justice Department. Justice is blind, only not in a good way.

And then there’s our Congress. So much to dislike and so little space to rail about it. But let’s stay with the theme -- Wall Street. Because running for office in the House and Senate requires raising obscene amounts of campaign cash, and because special interests are willing to contribute said cash, we have encouraged a system of legalized bribery. Wall Street leverages that system (Wall Street likes the word ‘leverage’), and the revolving door between the Fed and employees of Wall Street -- once you were a crook, now you’re a regulator -- to preempt and/or weaken regulatory reform, such as the Dodd-Frank bill.

The only way we’re going to solve the problem of a bought and paid for Congress is to institute a system of publicly funded elections -- no 527s, PACs, Super PACs, Pack-of-Money of any kind, soft, squishy, slimy, or otherwise. No endless robocalls at all hours. None, nada. This is what OWS should be demanding, but that brings me to my last dislike.

I dislike the search-and-destroy partisanship in Congress that makes campaign finance reform a hookah pipe dream.

Given the likelihood of any of these dislikes being addressed by Congress anytime soon, the OWS folks, and my beard, may be around for a while.

Sorry honey.

Every American Should Occupy the Hell Out of Wall Street!

Listen. The bastards screwed us. I'm not kidding. It's a disgrace. They are not just unethical -- we expect that by now, don't we? They are crooks. If you don't understand that these bankers and brokers are crooks, you haven't been doing your due diligence -- shame on you. Furthermore, if you believe that the various government and private regulatory agencies charged with oversight and enforcement of our financial institutions are actually doing their job, unimpeded by the influence of revolving doors or money, then I have a bridge to sell you.

Look, corporate capitalism is, on the whole, amoral. Corporations and their CEOs aren't in business to "... form a more perfect union, establish justice, ensure domestic tranquility, provide for the common defense, or promote the general welfare," especially not to promote the general welfare (consider tobacco companies). Corporations are in business to make a profit. As long as they do this more or less honestly, good for them. I mean, caveat emptor, to some extent, right?

But when corporations (which, despite what five members of the Supreme Court tell us, are not people) and their executive officers (who are people) lie, cheat, and steal, we object, don't we? I do. All those people in the Occupy Wall Street (OWS) movement do (and good for them).

Every American should occupy the hell out of Wall Street any way we can. I've written about Goldman Sachs' approach to the idea of an "honest broker" elsewhere, so I'll go on to describe a personal experience with my former broker. I closed my Merrill Lynch account, and I wrote a rather lengthy letter to Merrill's regional director of "wealth management" and detailed the many and varied egregious Merrill activities that led me to my decision. Here's my letter.

March 6, 2009

James P. Hughes

Managing Director, Greater Northwest

1201 Pacific Ave.

Wells Fargo Plaza

Tacoma, WA 98402

SUBJECT: CLIENT SATISFACTION SURVEY

Dear Mr. Hughes;

In your letter of November 12, 2008, your requested that I complete subject survey. Forgive me for taking so long to respond. Developments in Merrill Lynch’s fortunes and conditions in global markets as a whole demanded my attention. Merrill Lynch has been in the news a lot, and the news hasn’t been good.

Today’s news on your firm is that one Merrill trader, Alexis Stenfors, apparently gambled away more than $120 million in the currency markets. Others seemingly lost hundreds of millions on tricky credit derivatives. And it has come to light that Merrill Lynch hemorrhaged $13.8 billion during the final three months of 2008 alone.

Bank of America's shareholders did not learn of the gaping hole until after they approved the merger of the two companies on December 5, 2008. Nor was the extent of the loss fully known when Merrill paid out $3.6 billion in bonuses, which were based on estimates of the firm's performance as of December 8, 2008. Thomas Montag, who headed up Merrill's markets operations, was alone paid a bonus of $39M. When the problems at Merrill became clear, Bank of America was forced to seek a second, multibillion-dollar rescue from Washington. 

Before he was forced to resign in January of this year, ex Merrill CEO John Thain, brought in to right the Merrill ship, spent over $1.2M to redecorate his office, while it was coming to light that the firm had actually lost some $27 billion in 2008. Thain accelerated approximately $4B in bonus payments to employees at Merrill just prior to the close of the deal with Bank of America.

Merrill’s true loses appear to have been concealed from Bank of America. BoA, subject to its own lack of due diligence, lowered its dividend after buying Merrill, its stock subsequently dropped from 45 to 5, and Moody’s lowered BoA’s rating. After the BoA takeover, Peter Krause left Merrill and received a $25M “golden parachute” after just 3 months with the company.

In late 2007, Merrill’s CEO, Stanley O’Neal, who was largely responsible for “reinventing” Merrill to be the aggressive, high risk-taking company it became, was forced to resign after the firm suffered its biggest loss in its history (up to that time). O’Neal left with a $160M severance package.

Because I was concerned by what I was reading recently about Merrill Lynch, I did some background research on the firm and found many other examples of Merrill’s lack of values-based leadership. For example:

In January 2007, Merrill Lynch analyst Stanislav Shpigelman was sentenced to 37 months in jail for his part in an insider-trading scheme, following on the heels of ML broker Peter Bacanovic in another, highly publicized insider-trading scandal involving Martha Stewart.

In 2002, the New York State Attorney General’s Office accused Merrill Lynch, and its analyst, Henry Blodget of regularly issuing false or misleading recommendations about Internet-based stocks in an effort to increase the firm’s underwriting business. Merrill Lynch settled the allegations with a $100 million fine.

One of your firm’s most egregious actions was in aiding the massive Enron fraud by creating the false appearance of profits and cash flow. For example, Merrill Lynch purchased Nigerian barges from Enron on the last day of 1999 only because Enron secretly promised to buy the barges back within six months, guaranteeing Merrill Lynch a profit of more than 20%. As a result of this fraud, Merrill Lynch ultimately paid $80 million to settle with the SEC.

In an eerie preview of today, Merrill Lynch lost $377M trading mortgage-backed securities as far back as 1986, helping bankrupt Orange County, California, which sued Merrill.

Merrill Lynch has been fined by the Commodities Futures Trading Commission, and charged by the SEC with overcharging its mutual fund clients.

Mr. Hughes, the positive feelings I have for my financial advisor are, I’m afraid, overwhelmed by the negative feelings I’ve developed for Merrill Lynch. That’s why, after having had a relationship with Merrill Lynch for over 25 years, I am leaving your firm, and why I am not completing the subject client survey.

Sincerely,

and etc., etc.

Does it surprise you to learn that I never heard back from Mr. Hughes? No? My you are cynical.