The Business Of High-End Prostitution Is Enormously Profitable-- Just Ask Your Garden Variety Congressman

Charles Ferguson's latest film, Inside Job, was probably last year's most important movie. I don't think it ever made it on the level of Toy Story 3, which grossed $415,004,880, or Iron Man 2, which grossed $312,433,331. In fact, Inside Job's worldwide gross was $7,883,873. I guess no one wants to see a film about investment banks... even the ones that have systematically impoverished the United States. Whether you saw it or not, watch the Charlie Rose interview with Ferguson. It's powerful.

I suppose the movie could have made more money if they marketed the hookers-and-coke aspect of the film. But it made a compelling case about something a lot more crucial to all of our lives. Didn't matter, of course; people were more interested in Toy Story 3... more than 50 times more interested, as it turns out. It also turns out that last week Reuters reported on a Wall Street prostitution ring. Needless to say, none of the clients were busted.

Seventeen people were indicted on Wednesday on charges of running a high-end prostitution ring that catered to Wall Street clients who often spent more than $10,000 in a night, authorities said.

The ring pulled in more than $7 million over three years, Brooklyn District Attorney Charles Hynes said at a news conference.

"The business of high-end prostitution is enormously profitable," Hynes said.

The prostitution service, named High Class NY, was run 24 hours a day out of an office in Brooklyn and charged from $400 to $3,600 an hour for its services, according to the 144-count indictment. It also provided customers with cocaine and other narcotics, the indictment said.

Hynes said clients often spent in excess of $10,000 in a single night.

They were "all high-end customers coming from the financial markets. People with nothing but money," he said.

Police said the business was extremely sophisticated, running several escort websites and using dummy corporations with misleading names and codes during business-related phone calls.

High Class NY even had a law firm draw up employment contracts for its prostitutes, who described themselves as models and fraudulently agreed to refrain from sexual contact with clients, police said.

"They were on the high-end of sophistication," said Vice Detective Joe Panico.

Among those indicted were High Class NY owner Mikhail Yampolsky and his wife Bronislava, who allegedly used the proceeds from their business to finance expensive trips to Atlantic City and luxury car purchases, Hynes said.

Also indicted were Yampolsky's son Alexander, step-son Jonathan, 11 managers and supervisors and two investors, Efim Gorelik and Yakov Maystrovich, he said.

Each of the investors had put $700,000 into High Class NY and were being paid back with interest, he said.

Each of those indicted faces the possibility of 25 years in prison if convicted. Two prostitutes face separate indictments on prostitution and drug charges.

The prostitutes in this 15-minute segment of the film are far more important and far more interesting than the segment of the film about leggy hookers and cocaine users. It's a horrible indictment of the Obama Administration.

H.R. 1315-- Wall Street's Revenge

Even if the exact figures aren't in your head, it probably comes as no surprise that Wall Street and the Financial, Insurance, Real Estate sector has poured more legalistic bribes into American politics than any other interest group-- $1,590,799,311 in direct "contributions" to people running for Congress since 1990. That doesn't count lobbying, an even greater amount. It should surprise no one that so far this year the two top recipients of these bribes in the House are Republican Majority Leader Eric Cantor ($378,700) and Republican Speaker John Boehner ($355,325). Among the top 10 recipients of these massive bribes from Wall Street are 9 Republicans, all members of committees dealing with financial matters and banking regulations-- Jeb Hensarling (R-TX), Spencer Bachus (R-AL), Ed Royce (R-CA), Pat Tiberi (R-OH), Steve Stivers (R-OH), Scott Garrett (R-NJ), Kevin McCarthy (R-CA). And, remember, that just this cycle. Since 1990 Wall Street has lavished $5,349,215 on Cantor, more than to any other Member of the House. House Financial Services Committee chairman Spencer Bachus has been the recipient of $4,900,624 and Boehner's cut was $4,678,643. Banksters don't give away their profits because they had a nice game of golf with someone. These are the men who pushed through Bush's TARP bailout and these are the people who voted this week to eviscerate Dodd-Frank, the bill passed last year in response to Wall Street greed nearly driving the world into another Great Depression.


H.R. 1315 passed Thursday 241-173. Only one Republican, Walter Jones of North Carolina, voted against it and Cantor had already instructed the leaders of North Carolina Republican legislature to redistrict Jones' seat to make it more Democratic-leaning. This year, Jones' voting record is more progressive than 17 Democrats, including 8 of the 10 Democrats who followed Cantor's lead in passing a bill to make sure Wall Street predators could rob the public blind-- John Barrow (Blue Dog-GA), Dan Boren (Blue Dog-OK), Ben Chandler (Blue Dog-KY), Henry Cuellar (Blue Dog-TX), Jim Matheson (Blue Dog-UT), Mike McIntyre (Blue Dog-NC), Bill Owens (NY), and Mike Ross (Blue Dog-AR).

Former Labor Secretary Robert Reich, gave an appropriate, spot on eulogy for the bill:

One full year after the financial reform bill spearheaded through Congress by Christopher Dodd and Barney Frank was signed into law, Wall Street looks and acts much the way it did before. That’s because the Street has effectively neutered the law, which is the best argument I know for applying the nation’s antitrust laws to the biggest banks and limiting their size.

Treasury Secretary Tim Geithner says the financial system is “on more solid ground” than prior to the 2008 crisis, but I don’t know what ground he’s looking at.
 
Much of Dodd-Frank is still on the drawing boards, courtesy of the Street. The law as written included loopholes big enough to drive bankers’ Lamborghini’s through-- which they’re now doing.

What kind of derivatives must be traded on open exchanges? What are the capital requirements for financial companies that insure borrowers against default, such as AIG? How should credit rating agencies be funded? What about the much-vaunted Volcker Rule requiring that banks trade their own money if they’re going to gamble in the stock market-- how should their own money be defined? What “stress tests” must the big banks pass to maintain their privileged status with the Fed?
 
The short answer: whatever it takes to maintain the Street’s profits and perquisites.
 
The law included a one-year delay, ostensibly to give regulators time to iron out these sorts of details. But the real purpose of the delay, it’s now obvious, was to give the Street time to expand the loopholes and fill the details with pablum-- when the public stopped looking.
 
Since Dodd Frank was enacted a year ago, Wall Street has spent as much-- if not more-- on lobbyists and political payoffs designed to stop the law’s implementation than it did trying to kill off the law in the first place. The six largest banks spent $29.4 million on lobbying last year, according to firm disclosures-- record spending for the group. This year they’re on track to break last year’s record. 

According to the Center for Public Integrity, the Street and other financial institutions engaged about 3,000 lobbyists to fight Dodd-Frank-- more than five lobbyists for every member of Congress. They’ve hired almost the same number to delay, weaken, or otherwise prevent its implementation.
 
Meanwhile, the portion of the law that’s now supposed to be in effect is barely being enforced. That’s because the agencies charged with enforcing it, such as the Securities and Exchange Commission, don’t have enough money or staff to do the job. Congress hasn’t seen fit to appropriate these necessities.

Several of these agencies are still lacking directors or commissioners. Senate Republicans have refused to confirm anyone. They wouldn’t even consider Elizabeth Warren to run the new consumer bureau.
 
Many of same business leaders who blame the sluggish economy on regulatory uncertainty are complicit in all this. A senior vice president of the Chamber of Commerce told the New York Times that “uncertainty among companies about the rules of the road is keeping a lot of capital on the sidelines.” The Chamber has been among the groups responsible for keeping Dodd Frank at bay.
 
But it’s the biggest Wall Street banks-- the ones that got us into this mess in the first place, and got bailed out by the public-- that have taken the lead in killing off Dodd-Frank. They can afford the hit job.

At the same time, their executives-- enjoying pay and bonuses as large as in the boom days of the housing bubble-- are busily bankrolling both political parties, although Republicans are favored in this election cycle. A significant portion of Mitt Romney’s sizable war chest has come from the Street. President Obama is no slouch when it comes to pulling at the Street’s purse strings.
 
Bankers try to justify their shameful murder of Dodd-Frank by saying tightened regulatory standards will put them at a disadvantage relative to their overseas competitors. JP Morgan’s Jamie Dimon had the nerve to publicly accost Ben Bernanke recently, complaining that the law’s implementation would harm the Street’s competitiveness.
 
The argument is pure claptrap. In the wake of global finance’s near meltdown, Europe has been more aggressive than the United States in clamping down on banks headquartered there. Britain is requiring its banks to have higher capital reserves than are so far contemplated in the United States. In fact, senior Wall Street executives have warned European leaders their tighter bank regulations will cause Wall Street to move more of its business out of Europe.
 
Wall Street is global because capital is global. JP Morgan Chase, Goldman Sachs, Citigroup, Bank of America, and Morgan Stanley are doing business in every corner of the world. Goldman even advised Greece on how to hide its growing indebtedness, before the rest of the world got wind, through a derivatives deal that circumvented Europe’s deficit rules.
 
The real reason Wall Street has spent the last year bludgeoning Dodd-Frank into meaninglessness is the vast sums of money it can make if Dodd-Frank is out of the way. If you took the greed out of Wall Street all you’d have left is pavement.
 
Wall Street is the richest and most powerful industry in America with the closest ties to the federal government-- routinely supplying Treasury secretaries and economic advisors who share its world view and its financial interests, and routinely bankrolling congressional kingpins.

How else can you explain why the Street was bailed out with no strings attached? Or why no criminal charges have been brought against any major Wall Street figure-- despite the effluvium of frauds, deceptions, malfeasance and nonfeasance in the years leading up to the crash and subsequent bailout? Or why Dodd-Frank has been eviscerated?
 
As a result of consolidations brought on by the bailout, the biggest banks are bigger and have more clout than ever. They and their clients know with certainty they will be bailed out if they get into trouble, which gives them a financial advantage over smaller competitors whose capital doesn’t come with such a guarantee. So they’re becoming even more powerful.
 
Face it: The only answer is to break up the giant banks. The Sherman Antitrust Act of 1890 was designed not only to improve economic efficiency by reducing the market power of economic giants like the railroads and oil companies but also to prevent companies from becoming so large that their political power would undermine democracy.
 
The sad lesson of Dodd-Frank is Wall Street is too powerful to allow effective regulation of it. We should have learned that lesson in 2008 as the Street brought the rest of the economy-- and much of the world-- to its knees. Now we’re still on our knees but the Street is back on top. Its leviathans do not generate benefits to society proportional to their size and influence. To the contrary, they represent a clear and present danger to our economy and our democracy.
 
They should be broken up, and their size must be capped. Congress won’t do it, obviously. So we’ll need to rely on the nation’s two antitrust agencies-- the Federal Trade Commission and the Antitrust Division of the Justice Department. The trust-busters are now investigating Google. They should be turning their sights onto JPMorgan Chase, Citigroup, and Goldman Sachs instead.

Matt Stoller a former policy staffer for Alan Grayson when Grayson served on the House committee that originated the bill now works for the Roosevelt Institute. He has always felt that the bill didn't go nearly far enough towards desperately needed Wall Street reform. "There was," he writes, "no attempt initially to ask the question, 'what happened and what should we do about it?' There was no examination of the purpose of a banking system, and how to rebuild a system that aligns the public with the financial industry. There was no attempt to build legitimacy through a public education campaign about what Congress and the administration was doing, and why. Instead, legislators and very serious men in suits started throwing around terms like 'systemic risk regulator' and 'resolution authority,' and then used the idea of a Consumer Financial Protection Bureau as a palliative for liberals.

While a shadow bailout took place through the Federal Home Loan banks and the Federal Reserve from 2007 onward, eventually a fiscal and regulatory solution would become necessary. The first significant legislation in this thrust was the famous Bazooka bill (or Housing and Economic Recovery Act) signed in June 2008 that allowed Treasury Secretary Hank Paulson to take over and pump unlimited sums into Fannie and Freddie. The second was the TARP. Both of these bills were pivotal to providing the government with enough firepower to overcome the solvency crisis.

After the immediate crisis was contained, losses were socialized, and profits returned to financial executives, Congress had to put together a “solution." It would have a giant bite at the apple in restructuring our regulatory apparatus. But in order to perpetrate the oligarchic banking structure, it would be important that no structural changes to the industry be implemented. Not one regulator was fired for his or her part in the crisis. The Justice Department adopted a posture of legalizing financial control fraud by refusing to prosecute anyone involved in the meltdown, and continues to allow millions of cases of foreclosure fraud to continue. Ben Bernanke was renominated, and the administration fought a bitter below-the-radar battle to secure his confirmation. With a few modest exceptions, the risk-taking and leverage in our financial markets continues apace, and the deregulatory neoliberal mindset is still dominant. The Federal Reserve has been audited, but the system is now accountability-free for high level operatives in finance and politics. And now that Elizabeth Warren has been thrown overboard by the administration, the lockdown of the financial system is nearly complete.

And mostly, that’s what Dodd-Frank accomplished. It rearranged regulatory offices and delivered a new set of mandates, but effected no structural changes to our banking system. Congress never asked what happened, or why, or even, what kind of banking system do we want? And that’s because Obama’s Treasury Secretary already had the answers to these questions.

Lisa Donner, the executive director of Americans for Financial Reform, reminds Americans what is at stake in this battle over financial reform and has the polling to back up her claim that voters don't buy Wall Street’s arguments against reform, and that they do want effective cops on the beat policing the financial marketplace, regardless of the lies coming out of the paid off Wall Street shills like Cantor and Boehner.

Two years ago at this time we were in the midst of a major battle about whether and to what extend Congress would stand up to Wall Street and financial industry special interests and change the failed program of deregulation that led to the financial crisis. One year ago we applauded the progress made with the passage of the Dodd Frank Wall Street Reform and Consumer Protection Act. Today we are celebrating the new Consumer Protection Bureau officially opening its doors-- so that for the first time there is a cop on the beat ensuring fair play for consumers in the financial marketplace.

But the battle for accountability and transparency is anything but over. Today the House has passed H.R. 1315 the ‘Consumer Financial Protection Safety and Soundness Improvement Act’-- a bill title that would make George Orwell blush. In fact, HR 1315 would cut the CFPB off at the knees, and make it impossible for it to do the job we need it to: standing up for Main Street, even when Wall Street doesn’t want it to.

Earlier this week, we released a poll with AARP and the Center for Responsible Lending that demonstrates widespread support for the CFPB and Wall Street reform. By a 3 to 1 margin Americans want financial firms held accountable and financial reforms to take effect. And they want the CFPB-- created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010-- to be up and running. By overwhelming margins and across the political spectrum they want the CFPB to make credit offers clearer, they want rules the road for all kinds of financial companies, and they want an end to tricks and traps.

Public Citizen was even more brutal in its assessment-- and even more on target. Bartlett Naylor, Public Citizen's Financial Policy Counsel:

Public Citizen deplores the shameful vote in the House of Representatives today to emasculate the new Consumer Financial Protection Bureau. A House majority that votes against the interests of its own constituents who continue to suffer massive unemployment from the bank-caused recession has clearly lost its moral compass.
 
There’s only one constituency that favors gutting the CFPB-- abusive bankers. Unfortunately, the banking industry continues to funnel some of its profits into a lobby offensive to dismantle the new consumer agency so as to shield itself from the new cop on the beat enacted in the year-old Dodd-Frank law. And it paid off today.

Obama claims he will veto the bill if it ever gets through the Senate.

Something Important Happened On That Oscars TV Show-- Inside Job

When I retired from Warner Bros-- I mean on that last day-- I made a speech to the staff and remember telling them the best thing about leaving was that I'd never have to go to the Grammys again, let alone the MTV Awards or the People's Choice Awards or any of that godawful crap where you become a prop in someone's tawdry TV show. So you can imagine that I was not exactly watching the Oscars Sunday night and was only aware of it because all my tweet buddies were making fun of the show. The next morning I was delighted to hear that Inside Job won in the best documentary category, as it had at the Directors Guild of America and Writers Guild. It's the only movie I saw that won and DWT covered it here, here and here, even before it was released. For me to say it was the most important movie of the year, doesn't mean much since it was just about the only movie I saw this year. What director Charles Ferguson said on the stage last night, though, does mean something...

“Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by financial fraud, not a single financial executive has gone to jail, and that's wrong.”

And my neighbor told me the whole audience applauded. Thank goodness he wasn't pulled off the stage for having the gall to say something... political.

The film had impressed critics and the industry alike with its expansive cinematography, global reach, fast-paced narrative and pointed interviews.

Ferguson, a self-described "policy wonk" with a doctorate in political science, interviewed fund managers, central bankers and political advisers for his film, which uncovered an uncomfortably close professional relationship between academia and hedge funds.

But not everyone was willing to subject themselves to his pointed questions, including key players like Henry Paulson, the former CEO of Goldman Sachs and treasury secretary at the worst moments of the economic implosion.

He also expected more from the new government.

"The biggest surprise to me personally and biggest disappointment was that nobody in the Obama administration would speak with me even off the record-- including people that I've known for many, many years," Ferguson said backstage.

He believes Americans, who lost homes and jobs in the millions because of shady mortgage lending and bank collapses, are disappointed that "nothing has been done."

"Unfortunately, I think that the reason is predominantly that the financial industry has become so politically powerful that it is able to inhibit the normal process of justice and law enforcement," said Ferguson.

Ironically, the only noteworthy coverage of Ferguson's powerful statement yesterday I saw in the mainstream media was from the Wall Street Journal, though not on their fabled editorial page. "Ferguson’s move," they reported, "to slam Wall Street-- just as his film had done on the big screen-- electrified the proceedings."

The acceptance speech was noteworthy. At these kinds of awards ceremonies, it is customary for self-congratulatory recipients to bask in the spotlight and thank everyone but their fifth-grade drama teachers. It was startling to hear Ferguson to attack Wall Street so brazenly.

Of course, you could be cynical and suggest that Ferguson’s tough talk will serve to put a light on Inside Job now and goose sales of DVDs. Ferguson has only managed to reignite the public’s anger for the sins of financial crisis. That may be what Wall Street executives are muttering this morning. But for now, score another big victory for Charles Ferguson.

By all means, get it here.

Maybe Obama Will Actually Bring Some Change... More Than Anyone Bargained For

Nice target... I mean house

From today's Frank Rich column, Still The Best Congress Money Can Buy: Wall Street is already celebrating the approach of bonus season by partying like it’s 2007. In The Times’s account of this return to conspicuous consumption, we learned of a Morgan Stanley trader, since fired for unspecified reasons, who went to costly ends to try to hire a dwarf for a Miami bachelor party prank that would require the dwarf to be handcuffed to the bachelor. If this were a metaphor-- if only!-- Wall Street would be the bachelor, and America the dwarf, involuntarily chained to its master’s hedonistic revels and fiscal recklessness with no prospect for escape.

John Judis, author and senior editor at TNR, argues persuasively that despite the fact that "the percentage of conservatives in the actual electorate this November-- and their proportional support for Republicans-- increased dramatically by ten percentage points from 2006," conservatism among registered voters hasn't gone up much since 2006. There was an increase of 3 percentage points from 2006 to 2010 but-- and this is key-- "the conservative tilt was much stronger in the electorate that actually voted than among registered voters." Just as our own research has shown, "conservatives were more energized than their liberal or moderate counterparts. And intensity has much more to do with political outcomes than the sheer numbers that opinion polling registers... [T]he liberal electorate that took to the streets in 2006 and 2008 was demoralized and demobilized."

And the results showed not just in the election, but in the political questions that are currently being debated in the press and in Congress. It’s not whether to have a single-payer health care system, but whether to have a national system at all. It’s not whether social spending should be increased, but whether it should be frozen or cut.

The "better" news is that "the conservative trend after 2008 was not the result of the gradual erosion of the liberal-moderate majority, but of the failure of the Obama administration to stem the [economic] downturn that began in 2008... [T]he Obama administration’s failure to seize the political opportunity afforded by the Great Recession has not necessarily opened the way to a new Republican majority. More likely, it will lead to a period where the two parties exchange power, and where neither can establish a long-lasting majority."

But Obama could easy make it much worse-- and many observers think he's, in fact, determined to. About a week ago Dave Johnson of Campaign for America's Future applied the theory of "The Shock Doctrine" to the push to gut Social Security. He decries the move towards proposals meant to cut middle class tax breaks and programs so that the richest Americans can continue to concentrate the nation's wealth in the hands of fewer and fewer families. "This is full-on Shock Doctrine, wait for an emergency like the terrible recession so people are in shock and want solutions, and then change everything so fast they can’t respond while telling them how this is good for them." And on Friday Johnson followed up with a proposal of his own that is meant to cut the deficit without hurting the people who Obama and the American government are supposed to represent-- the 99% of us who are not fabulously wealthy and who we don't expect to see ignored, especially not by a Democratic administration. Johnson's 8-point proposal seems like a lot more serious and effective-- not to mention fair-- than the toxic nonsense coming out of the Catfood Commission or the Rivlin Commission.

1) Restore pre-Reagan top tax rates. We didn't have massive deficits until we reduced the top tax rates.

2) Income is income. No more reduced capital gains tax rate. The incentive to invest should be to make a bunch of money from a good investment. The reason there is a low capital gains tax rate is that the wealthy get most of their income from capital gains. And the reason they get most of their income from capital gains is there is a low capital gains rate. The resulting income shifting schemes are a drag on the rest of us. (Also applies to dividends.)

3) Income is income. Inheritance income should be taxed as income, except there should be a "democracy cap" on how much someone can inherit. We decided not to have an aristocracy when we founded this country so we shouldn't have one.

4) Businesses should be taxed or not taxed, but not taxed AND not taxed. They shouldn't be able to use "double Irish" or "Dutch sandwich" or operate out of PO boxes in Bermuda or the Cayman Islands. (Bonus, this also helps reduce incentives to send our jobs and factories out of the country.)

5) If you don't pay your taxes We, the People won't pay to provide you with services. We can start by not allowing you to have a driveway that connects to public streets, or water/sewer hookups or mail. Also we won't enforce any contracts for you, including the one that says you "own" your house(s). And no government-developed Internet for you.

If companies like Google want to "double Irish" and "Dutch Sandwich" us or operate out of PO boxes in tax havens, we shouldn't let them use government services like courts, or the government-developed Internet. See how well they operate without access to roads (that includes for employees to get to go to work.) How about withdrawing the limited liability protection that investors in corporations receive? And of course no protection for "intellectual property" or trademarks. Oh, yeah, no access to anyone who went to a school that used tax dollars. And no government services means no sea-lane protection for your products shipping from Chinese factories, by the way.

6) Speaking of sea-lane protection, why do we have a military budget comparable to when we faced nuclear annihilation by the Soviet empire? Bases in Germany and Japan? And why can I go to this website, pick a DC-area zip code, say 22314, and learn that "Dollar Amount of Defense Contracts Awarded to Contractors in this Zip Code from 2000 to 2009: $7,086,397,848." Seriously, scroll down the page and look at some of the contracts and amounts awarded. I suspect there's some serious deficit reduction to be found in the military budget. A comprehensive and very public audit of where all that money has been going since, say, 1981 might take a chunk out of the debt problem all by itself

7) I could start listing all the corporate subsidies, tax breaks, monopoly grants, schemes, contracts, etc. that we pay for, but I think you get the idea. How about calling bribery by its name: bribery, and doing something about it?

8) To the extent that implementing this plan does not clear up the deficit and start paying off the debt, how about a yearly national property tax on all individual holdings above, say, $5 million, with the tax rate progressively increasing as total wealth increases, and keep doing this each year until the debt is paid off. Perhaps start at 1% on $5 million, 2.5% at $10 million, 5% at $50 million, etc. (Hedge fund managers and investment bankers start at 50% and go up, just for the heck of it. We can call this the "get the money from where the money went tax.")

Or maybe Obama wants to just continue to preside over a situation that's starting to smell a lot more like pre-Revolutionary France. And all it took to trigger the decapitations of the aristocracy was... some climate change. Of course, the ruinous climate change alone wouldn't have done it. Does this wikipedia description of the causes of the French Revolution sound vaguely familiar?

Although France in 1789 faced economic difficulties, mostly concerning the equitability of taxation, it was one of the richest and most powerful nations of Europe. The French people also enjoyed more political freedom and a lower incidence of arbitrary punishment than any of their fellow Europeans. However, Louis XVI, his ministers, and the widespread French nobility had become immensely unpopular. This was a consequence of the fact that peasants and, to a lesser extent, the bourgeoisie, were burdened with ruinously-high taxes levied to support wealthy aristocrats and their sumptuous, often gluttonous, lifestyles.

...These problems were all compounded by a great scarcity of food in the 1780s. A series of crop failures caused a shortage of grain, consequently raising the price of bread. Because bread was the main source of nutrition for poor peasants, this led to starvation. The two years previous to the revolution (1788–89) saw meager harvests and harsh winters, possibly because of a strong El Niño cycle caused by the 1783 Laki eruption in Iceland.

Sure, a little excessive... but a bat mitzvah no one will ever forget, even if daddy's a criminal

Yesterday was the anniversary of a big party in New York. Could it really only have been just 5 years ago when notorious war profiteer David H. Brooks was celebrating his daughter's bat mitzvah at the Rainbow Room. The event cost upwards of $10 million and featured Aerosmith, Nelly, Tom Petty, the Eagles, Kenny G. and 50 Cent. Aerosmith was paid $2 million and there's no way on earth Tom Petty or the Eagles would have played for less; they share the same manager. Brooks was a big macher; he had just donated $25,000 to the National Republican Senatorial Committee a couple of months earlier.

There's a lot in this post that tangentially touches on Iceland. Loki, the volcano that errupted and caused the wealther patterns that triggered the French Revolution, for example, is on Iceland. And these days, whenever I think about Iceland, I think about Charles Ferguson's brilliant documentary about the most recent financial meltdown, Inside Job since it too is tangentially about Iceland. I posted about the film when I first saw it in September. And a month ago Ferguson posted over at Salon about the question that probably anyone who's sitting and watching it for a few minutes will ask himself-- how will he deal wth Obama?

It was before the election and he wasn't as harsh as he could have been. But he did struggle with the question about how to tackle Obama.

When Barack Obama was elected, he had an unprecedented opportunity to shape American history by bringing the country's new financial oligarchy under control. Elected on a platform of change and renewal by a nation in crisis and with strong majorities in both houses of Congress, his election celebrated throughout the world, Obama could have done great things. Instead, he gave us more of the same. America will be paying for his decision for a very long time.

The first troubling sign was his personnel appointments: Larry Summers, the man behind nearly every disastrous policy that created the crisis, fresh from making $20 million from hedge funds and investment banks while at Harvard, to become the director of the National Economic Council; Tim Geithner, plucked from the New York Federal Reserve Bank and put in charge at Treasury; as Geithner's chief of staff, Mark Patterson, a former Goldman Sachs lobbyist; to succeed Geithner at the New York Fed, William C. Dudley, who was chief economist of Goldman Sachs during the housing bubble years; Michael Froman, straight from Citigroup Alternative Investments, which lost billions while its executives became rich, to coordinate economic policy for the National Security Council; Jacob Lew, who was the CFO of Citigroup Alternative Investments, as deputy secretary of state (and now, Obama's nominee to run the Office of Management and Budget); Gary Gensler, a former Goldman executive who helped ban the regulation of over-the-counter derivatives, to lead the Commodity Futures Trading Commission, which regulates derivatives; Mary Shapiro, former head of the Financial Industry Regulatory Agency, the investment banking industry’s self-policing body, to run the Securities and Exchange Commission; reappointing Ben Bernanke. And on and on.

These moves were excused as the understandable actions of a president-elect without a background in finance turning to the most experienced people in a time of crisis. But even then, it was clear that these people had been part of the problem, not the solution, and that other highly competent but untainted candidates were available.

And now, nearly two years later, the Obama administration has established a clear record. Beginning almost immediately, the president consistently opposed any effort to control financial industry compensation-- even for firms receiving federal aid, as most were in 2009. Then came a long period of total inaction, followed by the toothless Wall Street reform bill passed this summer and the appointment of a former Fannie Mae lobbyist, Tom Donilon, as the new national security advisor. There was no action on the foreclosure crisis and no serious attempt to investigate the causes of the crisis. The SEC has brought only a handful of civil cases ending in trivial fines, with neither firms nor individuals required to admit any wrongdoing.

Most tellingly, there has not been a single criminal prosecution of any firm or any individual senior financial executive-- literally zero-- and, of course, no appointment of a special prosecutor. While we can debate the extent to which fraud caused the crisis, and precisely how much fraud was committed, the answer is clearly not zero. We already know that Lehman and other firms used fake accounting to hide liabilities and inflate assets; that lenders and securitizers frequently knew that the loans they sold and packaged were fraudulent or defective; and, of course, we also now know that Goldman Sachs and other investment banks sold securities they knew to be defective (they were often sold to pension funds for low-paid government employees, by the way)-- and that they designed many of these securities so that they could profit by betting against them after they were sold. Stunningly, this last practice was not ipso facto illegal; but as a practical matter, it’s pretty hard to do if you’re telling the truth. Yet nobody has been prosecuted, and only a very few individuals have even been sued in civil cases.

It is, in short, overwhelmingly clear that President Obama and his administration decided to side with the oligarchs-- or at least not to challenge them. This raises the question of why they have made this choice, and whether it is a correct (in the sense of rationally self-interested) calculation on their part.

As to the "why," several explanations have been proposed. One is that the president, as a matter of individual psychology, is extremely conflict-averse, preferring to avoid fights no matter how important. A second hypothesis is that the president is simply doing the most he can, given the political climate and the furious lobbying effort with which he is confronted. This explanation, however, is belied by the personnel appointments, among other evidence.

A more disturbing possibility is that the Obama administration has simply codified a new strategic equilibrium in American politics, one first devised by the Clinton administration, in which both parties are supine with regard to the financial sector and the wealthy.

The objection to this view is that there is some evidence, in conventional political terms, that the Obama strategy of giving in to Wall Street might be a mistake. The economy remains in bad shape, bad enough to be a major political handicap, and will likely stay that way for several years. Democrats are having trouble fundraising (from individuals, at least; interest group donors remain plentiful), union voters may desert them, and it looks like Republicans and the Tea Party will make substantial inroads in the midterm elections. The liberal media, most prominently the Huffington Post but many other outlets as well, have turned sharply critical of administration policy. And my own conversations with friends and colleagues have revealed a deep, angry disillusionment with Obama.

But consider the situation more broadly. If the two parties both lie down for Wall Street in roughly equal measure, but fight viciously over other issues, it is possible to construct a stable strategic equilibrium. At the margin, the Democrats are slightly less favorable to business, at least for unionized industries, but nobody upsets the financial sector apple cart.

This angers much of the Democratic base. But the Democrats avoid the epic confrontation that would surely ensue if they were to take on the financial sector, which would retaliate with a massively funded effort. Instead, the two parties fight furiously, or at least pretend to fight furiously, about a wide range of other social issues that affect many voters deeply-- abortion, gay rights, gun control, stem cell research, creationism, global warming, health insurance and so on. Each side can credibly warn its base that if it deserts the party, apocalypse may follow. So, while some citizens may register as independents, or stop voting, or stop donating to the system, the entrenched establishments of both parties will remain safe.

Of course, the sustainability of this strategic duopoly depends on the absence of truly independent challenges, such as third parties. Third parties can and do arise in America-- George Wallace, Ross Perot, Ralph Nader and, now (sort of), the Tea Party-- but they tend to be short-lived, in part because they face enormous structural obstacles in becoming a sustainable political force. For one, America doesn't have a parliamentary system, and most localities don’t use ranked-choice or "instant-runoff" voting. Plus, given the structure of American elections, the Obama administration can credibly warn, pointing to the example of Ralph Nader, that any splinter effort would hand the White House to the Republicans. And, given the enormous role now played by money in American elections, the logistical and financial efforts required to create a grass-roots third party would be huge. In contrast, the financial sector possesses the twin advantages of concentration and cohesion on the one hand, and of enormous financial resources on the other.

So, then, the Obama administration’s choices may be depressingly rational, given the "quiet coup," to use Simon Johnson’s term, constituted by the spectacular rise of the financial industry and the wealthy over the last quarter-century. This does not mean we should all despair; there have been times before in American history when the American people had to force their leaders to follow them. A century ago, the progressive movement achieved major reforms in the face of an economy even more concentrated than today. But it won’t be easy. To reverse the hegemony of the financial sector, and the danger it poses both to economic stability and to real democracy, will require an enormous outpouring of popular anger and organizational energy, probably a considerable period of time, and perhaps could be generated only by... another, even worse, financial crisis, such as might well occur a decade hence, given the absence of real reform after this one…

Class War, California's Prop 23 And The Education Of Arnold Schwarzenegger

A few weeks ago we took a look at the preview of Inside Job, the riveting new film by Charles Ferguson which opens Friday in NYC and in L.A. the following week. It concentrates on the financial meltdown-- and makes the case very convincingly, that it was an inside job-- here in the U.S. But the film starts in pristine, scenic Iceland and may startle some viewers by drawing the straight line between greed-driven sociopaths in the financial sector destroying the environment for the sake of fatter bonus packages. One person who wouldn't be startled by that, at least not now, a few days short of his 7th anniversary of being elected governor of California, is Republican Arnold Schwarzenegger. A few days ago Schwarzenegger gave what was probably the most cogent and profound speech of his political career. In the video below Keith Olbermann put it into context. Believe me, it's worth listening to:



As Olbermann explains, "the Citizens United ruling, unleashing private groups to pour millions of dollars into political campaigns has benefited Republicans by a ratio of six to one. The outpouring of money leading to last night's extraordinary outpouring from the Republican governor of California, talking about a political campaign now underway there to, in essence, take over the state with cash in order to undo the legislation he signed 4 years ago to reduce carbon emissions there by 30% by the year 2020..." Arnold:

Does anyone really believe that these companies, out of the goodness of their black, oil hearts and spending millions and millions of dollars to protect jobs? This is like Eva Braun writing a kosher cookbook... I want to talk about the corruption of the democratic process and about forces willing to sabotage the country's economic future for private gain. I want to talk about the Texas oil interests that have descended upon California to overturn a California environmental law, and then, as soon as they've done their dirty work thanks to millions of dollars of scare-tactic advertising, they intend, in the words of their own spokesperson, to fold up their tents and go home... Oil companies like Valero and Tesero and Frontier and Koch Industries are blatantly trying to manipulate the will of the people and the public good... The motivate is... self-serving greed.

Well, right now, polls show self-serving greed-- well financed self-serving greed-- is all tied up with the public interest. Are the public morons? Judge for yourself.

California voters believe global warming is a significant issue and are inclined to trust scientific views on the subject, but they remain closely divided on a November ballot measure that would suspend the state's global warming statute, according to a new Los Angeles Times/University of Southern California poll.

California’s global warming law, passed in 2006, is aimed at slashing greenhouse gas emissions by power plants, factories and vehicles.

The ballot initiative, Proposition 23, would delay implementation of the law until California unemployment drops to 5.5% and stays at that level for a year. Unemployment is now over 12%, and a sustained level at or below 5.5% has rarely been achieved, so environmental advocates argue that the initiative would in effect put the law on indefinite hold.

More than two-thirds of likely voters in the survey said that global warming is a “very important” or “somewhat important” issue to them. And more than four in 10  likely voters said they have “complete” or “a lot” of trust in what scientists say on the subject, with more than two in 10 saying they have a “moderate” amount of trust.

On the ballot measure itself, the survey showed that about one-fifth of likely voters had not yet taken a position. Forty percent favor the initiative and 38% oppose it, essentially a dead heat.

And Big Business, protected by an out-of-whack reactionary Supreme Court, specifically designed to represent corporate interests, has all the money they need to persuade voters-- otherwise occupied with their own difficult struggles-- that whatever serves their bottom lines in truth, even when it is clearly anti-truth.

Framing Prop 23 as the "California Jobs Initiative" is a clever bait-and-switch by out of state oil tycoons like David Koch to halt any and all efforts at the state level to address the climate crisis and save California's already slumping economy.

Voters in California-- and every other state-- need to realize that failure to cut greenhouse gas emissions risks destroying millions of jobs and grinding California's economy to a halt. The effects of climate change need to be thought of as a "negative stimulus" to the economy, leading to reduced profitability, decreased investment, job loss, and falling wages... [T]here are no jobs on a dead planet.

Private Gains/Public Losses: Inside Job-- The Movie

I guess if you just arrived back on earth after hitching a ride on a passing meteorite from Alpha Centauri, you might be unaware that there has been a global financial and economic meltdown taking place-- the cherry on the cake of the right's ascension to power and their anti-regulatory, "greed-is-good" mania. Friday night I went to see the new Charles Ferguson film that puts it all together in a powerfully compelling, stark and ultra-informative documentary. That's the trailer above.

Oscar-nominated Ferguson seamlessly weaves together a narrative that exposes the selfish greed and corruption of Republicans from Reagan to Bush-- without sparing the equally culpable Clinton and his crew of bandits-- while graphically showing the devastation from Iceland to Singapore to Queens. Ferguson, who was brilliant on NPR last week, the reason I accepted the invitation to see the screening:

This film attempts to provide a comprehensive portrayal of an extremely important and timely subject: the worst financial crisis since the Depression, which continues to haunt us via Europe’s debt problems and global financial instability. It was a completely avoidable crisis; indeed for 40 years after the reforms following the Great Depression, the United States did not have a single financial crisis. However, the progressive deregulation of the financial sector since the 1980s gave rise to an increasingly criminal industry, whose “innovations” have produced a succession of financial crises. Each crisis has been worse than the last; and yet, due to the industry’s increasing wealth and power, each crisis has seen few people go to prison. In the case of this crisis, nobody has gone to prison, despite fraud that caused trillions of dollars in losses. I hope that the film, in less than two hours, will enable everyone to understand the fundamental nature and causes of this problem. It is also my hope that, whatever political opinions individual viewers may have, that after seeing this film we can all agree on the importance of restoring honesty and stability to our financial system, and of holding accountable those to destroyed it.

Although France's former Minister of Finance, Christine Lagarde, Trillion Dollar Meltdown author Charles Morris, Eliot Spitzer, and NYU Economics Professor Nouriel Roubini come off as the most astute and penetrating characters in Ferguson's documentary, it is through the interviews with the perpetrators and villains, lured unsuspecting into condemning themselves and their cronies, that one gets the true horror of what has been pulled off against the citizens of this country by the business and political elite. My favorite scumbags-- and, as a firm believer in the death penalty, I heartily disagree with Ferguson that any of these crooks belong in prison-- are Scott Talbot chief lobbyist for the Financial Services Roundtable (Banksters, Inc), Glenn Hubbard, Bush's Chief Economic Advisor and one of the main architects of the great heist, currently disgracing Columbia University as dean of their increasingly untrustworthy and very shady Business School, and the hapless/clueless David McCormick, former Under Secretary for International Affairs at the U.S. Department of Treasury (the guy in the video up top who asks for the filming to be stopped when it finally dawns on him that the movie isn't going to be a toast to the genius of Phil Gramm).

You've probably heard of most of these folks but Ferguson introduces two know are both delightful and previously unknown to the general public: Jonathan Alpert and Kristin Davis. He's a prominent Manhattan psychotherapist to Wall Street executives and to the sex workers they employee. And Kristin (photo above, right)? The former Madam to the investment banker community. Ferguson explores another aspect of the financial meltdown through them, and others: overgrown boys on cocaine trying to prove their dicks are the biggest. They cost the world economy over $20 trillion dollars, made out like bandits, are all still living like kings-- actually better than any king ever did-- and are about to get another huge tax break from their pals the Republicans plus cowardly and corrupt Democrats like John Adler (NJ) and Evan Bayh (IN).



SONY Pictures was kind enough to provide theatergoers with Ferguson's timeline of how deregulation, which Wall Street bribed Congress into providing, led to the development of a toxic Wall Street Culture and the financial collapse:

1930s (post-Great Depression)-1979: Traditional American finance

1933-35: Motivated by financial abuses that contributed to the Great Depression, new laws such as the Glass-Steagall Act and the Securities and Exchange Act place limits on financial risk-taking and require extensive disclosure of financial information

• Bankers/traders earned salaries in line with other professionals; tightly regulated financial sector

1980s: The Reagan Era: laissez-faire and trickle-down economics

• Substantial deregulation, especially the Garn-St. Germain Act which deregulates Savings and Loan companies, leading to the later S&L crisis

• Oliver Stone’s Wall Street immortalized financial sector greed and immorality

• S&L scandal: loose regulations, lax enforcement lead to massive fraud; hundreds of S&Ls fail lax enforcement lead to massive fraud; hundreds of S&Ls fail; $124 billion taxpayer-funded bailout

• Neil Bush approves $100 million of bad loans to business partners through Silverado S&L, which subsequently fails

• 1989: Keating Five: Four senators and CEO Charles Keating accused of improper influence in advocating against investigating Lincoln S&L, which collapses and Keating is convicted of fraud

• 1987-1990: Michael Milken, Ivan Boesky and other Wall Street executives convicted of fraud and insider trading

1990s: Clinton era: increasing revolving door between Washington and Wall Street

• 1999: Clinton administration members with Wall Street backgrounds help pass the Gramm-Leach-Bliley Act, aka the “Citigroup Relief Act,” repealing Glass-Steagall and allowing mergers that create Citigroup

• 1994: A new law gives the Federal Reserve power to regulate the mortgage industry, but Alan Greenspan refuses to enact any regulations, on the grounds that regulation was unnecessary

• 2000: Clinton Administration, particularly Larry Summers, Alan Greenspan and key Congress members including Senator Phil Gramm help enact the Commodity Futures Modernization Act, which bans all regulation of financial derivatives and exempts them from anti-gambling laws

• 2000: Dot-com bubble bursts

• 2000-2002: Eliot Spitzer sues 8 investment banks for conflict of interest and recommending dot-com stocks they thought were junk; reaches settlements totaling $1.4 billion in fines

2000s: George Bush pushes for further deregulation and relaxed enforcement

• 2000-2005: Investigations of Fannie Mae and Freddie Mac reveal massive accounting fraud

• 2002: Arthur Andersen, auditor, convicted of obstruction of justice for shredding Enron documents

• 2003: Worldcom revealed to have inflated assets by $11 billion

• 2000s: new crops of highly complex financial innovations flourish: securitization of mortgages, credit default swaps, synthetic CDOs

• 2000-2007: Fed by the investment banking industry, a massive housing and mortgage credit bubble sweeps the United States; mortgage lending quadruples, housing prices double

• 2004: After intense lobbying by investment banks, the SEC lifts the leverage limits on the investment banking industry, allowing them to borrow more

• 2005: IMF chief economist Raghuram Rajan warns of dangerous incentives and risks in the financial system; Larry Summers dismisses him as a “Luddite”

• 2005-2008: Goldman Sachs, Morgan Stanley, Deutsche Bank and other investment banks begin using credit default swaps to bet against the same mortgage securities that they are selling as extremely safe

• 2006: Hank Paulson, CEO of Goldman Sachs, becomes Treasury Secretary

• 2007: The housing bubble bursts, as the financial sector runs out of people willing to borrow and purchase more housing; home ownership reaches an all-time high, while savings rates are at historic lows

2008: Great Recession begins

• Collapse of Bear Stearns (March) and then Lehman Brothers (September)

• AIG rescued with $85 billion one day after Lehman declares bankruptcy

• Housing prices drop by 32 percent over three-year period

• Record foreclosures

• Unemployment rises from 5% to 10% in one year

• Tens of billions in bailout money go to AIG and Goldman Sachs

• $700 billion emergency bailout for the financial industry

2010s: The Obama era: Business as usual?

• Timothy Geithner becomes Treasury Secretary

• Larry Summers becomes director of the National Economic Council

• President Obama re-appoints Ben Bernanke

• Obama appoints many Wall Street executives to senior regulatory and economic policy positions

No one goes to prison and no one has to give back the ill-gotten gains. Ordinary citizens just have to eat it. And ordinary citizens probably deserve it since they keep reelecting the criminal political class that has made this all possible. Since we're about to go into an election, I thought I'd just mention in passing that there are several politicians up for reelection in November who voted on the Gramm-Leach-Bliley Act that effectively guaranteed the great heist by deregulating Wall Street. In the Senate, which passed it 54-44, every Republican voted YES and every Democrat (other than reactionary Dixiecrat Ernest Hollings of South Carolina) voted NO. Facing the voters in November we find Chuck Grassley (R-IA), and John McCain (R-AZ) on the YES side and Barbara Boxer (D-CA), Russ Feingold (D-WI), Blanche Lincoln (D-AR), Barbara Mikulski (D-MD), Patty Murray (D-WA), Harry Reid (D-NV), Chuck Schumer (D-NY) and Ron Wyden (D-OR), who tried stopping the catastrophic bill from passing. Why so few Republicans left in the Senate? Many of them, like Gramm, left to take get-rich-quick/thank-you jobs with the big banks, lobbyists and Wall Street firms.

It passed the House by far more lopsided numbers, 343-86, 16 Republicans and 86 Democrats (+ Independent then-Rep. Bernie Sanders) voting NO. Among the YES votes were Richard Burr, Jim DeMint and David Vitter, now sleazy and reactionary U.S. Senators seeking reeelction from the Carolinas and Louisiana; Charlie Bass and Steve Chabot (respectively a New Hampshire and an Ohio crook looking for their old jobs back); Roy Blunt and Pat Toomey (uber-corrupt political hacks jonesin' for a promotions to the Senate from Missouri and Pennsylvania); John Boehner, of course who is hoping voters are retarded enough to make him Speaker; Allen Boyd (Blue Dog-FL); Joseph Crowley (an extraordinarily corrupt New York New Dem fast rising in the House Democratic leadership); Nathan Deal and John Kasich (looking for jobs as governors of Georgia and Ohio, where their talents will be appreciated); Dick Armey (currently acting as king of the teabaggers); Rob Portman (whose economic activities have been so destructive to Ohio that he feels he deserves to be the next senator from that freaked out state); and the economic "brains" behind the Republican/Wall Street agenda, Paul Ryan; as well as a slew of the old Wall Street/K Street standbys like David Dreier (R-CA), Ken Calvert (R-CA), Brian Bilbray (R-CA), Steny Hoyer (D-MD), Peter King (R-NY), Steve LaTourette (R-OH), Jerry Lewis (R-CA), Buck McKeon (R-CA), Pete Sessions (R-TX) and Elton Gallegly (R-CA).

Go see the movie. Kenneth Turan summed it up perfectly for the L.A. Times: "It's a powerhouse of a documentary that will leave you both thunderstruck and boiling with rage," as did Roger Ebert (in the Chicago Sun-Times): "A very angry, very carefully argued, brutally clear documentary about how the American financial industry set out deliberately to defraud the ordinary American investor." People who played key roles in the collapse but who refused to appear on camera include Lawrence Summers, Alan Greenspan, Joseph Cassano, Lloyd Blankfein, Robert Rubin, Ben Bernanke, Henry Paulson and Tiny Tim Geithner.