More than four years later Frontline investigates why no Wall Street executives have gone to jail. Did the government fail? Tonight on Frontline: The Untouchables. Frontline: The Untouchables, 2013
In 2009 Wall Street bankers were on the defensive: the great American mortgage bubble had burst. The economy was in ruin and Wall Street bankers were being blamed. ibid.
In Washington there was broad support for prosecuting Wall Street … At first prosecutors were optimistic. ibid.
‘No-one was being held to account for the failure to hold Wall Street to account.’ ibid. critic
It’s getting hard to wrap your brain around subprime mortgages, Wall Street’s fancy name for junk home loans. There’s so much subprime stuff floating around – more than $1.5 trillion of loans, maybe $200 billion of losses, thousands of families facing foreclosure, umpteen politicians yapping – that it’s like the federal budget: It’s just too big to be understandable.
So let’s reduce this macro story to human scale. Meet GSAMP Trust 2006-S3, a $494 million drop in the junk-mortgage bucket, part of the more than half-a-trillion dollars of mortgage-backed securities issued last year. We found this issue by asking mortgage mavens to pick the worst deal they knew of that had been floated by a top-tier firm – and this one’s pretty bad.
It was sold by Goldman Sachs (Charts, Fortune 500) – GSAMP originally stood for Goldman Sachs Alternative Mortgage Products but now has become a name itself, like AT&T and 3M.
This issue, which is backed by ultra-risky second-mortgage loans, contains all the elements that facilitated the housing bubble and bust. It’s got speculators searching for quick gains in hot housing markets; it’s got loans that seem to have been made with little or no serious analysis by lenders; and finally, it’s got Wall Street, which churned out mortgage ‘product’ because buyers wanted it. As they say on the Street, When the ducks quack, feed them.
Alas, almost everyone involved in this duck-feeding deal has had a foul experience. Less than 18 months after the issue was floated, a sixth of the borrowers had already defaulted on their loans. Investors who paid face value for these securities – they were looking for slightly more interest than they’d get on equivalent bonds – have suffered heavy losses. Allan Sloan, Fortune Magazine online 16th October 2007, ‘House of Junk: The Deal’
Regulations of derivatives transactions that are privately regulated by professionals is unnecessary. Alan Greenspan, 24th July 1998
US Taxpayers Risk $9.7 Trillion Dollars On Bailout Programs. Bloomberg article 9th February 2009, Pittman and Ivry
The government works for a private bank, and the private bank works for its owners – the true masters. Catherine Austin Fitts, Assistant Secretary of Housing
What Wall Street and credit card companies are doing is really not much different from what gangsters and loan sharks do who make predatory loans. While the bankers wear three-piece suits and don't break the kneecaps of those who can’t pay back, they still are destroying people’s lives. Bernie Sanders
Government bailout hits $8.5 trillion. San Francisco Chronicle headline 26th November 2008
Wall Street used these panic tactics to get us to pass this $700,000,000 bill ... They said the market would drop 700 points, blood would flow in the streets and lions would be devouring children in the parks of Los Angeles. Congressman Brad Sherman, interview Alex Jones Show
In September 2008 the bankruptcy of US Investment Bank Lehman Brothers and the collapse of the world’s largest insurance company AIG triggered a global financial crisis. The result was a global recession. Charles H Ferguson, Inside Job 2010
This crisis was not an accident. It was caused by an out-of-control industry. ibid.
In the 1980s the financial industry exploded; the investment banks went public giving them huge amounts of stockholder money. People on Wall Street started getting rich. ibid.
By the end of the decade hundreds of savings and loans companies had failed ... Thousands of Savings & Loans executives went to jail for looting their companies. One of the most extreme cases was Charles Keating. ibid.
By the late 1990s the financial sector had consolidated into a few gigantic firms; each of them so large their failure could threaten the whole financial sector. ibid.
In December 2002 ten investment banks settled the case for a total of 1.4 billion dollars and promised to mend their ways. ibid.
Since deregulation began the world’s biggest financial firms have been caught laundering money, defrauding customers and cooking their books again and again and again. ibid.
Using derivatives, Bankers could bet on virtually anything ... A fifty trillion unregulated market. ibid.
In the early 2000s there was a huge increase in the riskiest loans called subprimes. ibid.
The investment banks actually preferred subprime loans because they carried higher interest rates. ibid.
Lehman brothers was the top underwriter of subprime lending. ibid.
The Securities and Exchange Commission conducted no major investigations of the investment banks during the bubble. ibid.
Credit Default Swaps worked like an insurance policy ... Speculators could also buy Credit Default Swaps from AIG in order to bet against CDOs they didn’t own. ibid.
According to a Bloomberg article business entertainment represents 5% of revenue for New York derivatives traders and often includes strip clubs, prostitutes and drugs. ibid.
Goldman Sachs sold at least $3,100,000,000 of these toxic CDOs in the first half of 2006. ibid.
By late 2006 Goldman had taken things a step further: it didn’t just sell toxic CDOs it started actively betting against them at the same time. ibid.
The three ratings agencies – Moody’s, S & P [Standard & Poor] & Fitch made billions of dollars giving high ratings to risky securities. ibid.
As early as 2004 the FBI was already warning of an epidemic of mortgage fraud. ibid.
The market for CDOs collapsed. ibid.
In March 2008 the investment bank Bear Stearns ran out of cash and was acquired for $2 a share by J P Morgan Chase. The deal was backed by $30 trilion in emergency guarantees from the Federal Reserve. ibid.
Neither Lehman nor the federal government had done any planning for bankruptcy. ibid.
The AIG bailout cost taxpayers over $150 billion. ibid.
The men who destroyed their own companies and plunged the world into crisis walked away from the wreckage with their fortunes intact. ibid.
It has corrupted the study of economics itself. ibid.
Even after the crisis many of them opposed reform. ibid.
Mid-2010: not a senior financial executive had been criminally prosecuted or even arrested. ibid.
The financial system turned its back on society, corrupted out political system and plunged the world economy into crisis. ibid.
The financial crash was meant to put an end to dangerous risk-taking by bankers. But it hasn’t. The Corbett Report, ‘Meet Goldman Sachs the Vampire Squid’
In our post-Lehman, post-subprime, post-bankster-bailout world, Goldman Sachs is a synonym for evil. ibid.
‘They’re pathological.’ ibid. F William Engdahl
‘The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells of money.’ ibid. article Matt Taibbi, Rolling Stone magazine
‘How Goldman Sachs basically created the great crash of 1929.’ ibid. Thom Hartmann show 2009, cited Galbraith
Goldman’s contribution to the subprime meltdown of the previous decade … ibid.
‘So for Goldman to get into the ten billion dollar cheque for bailout they had to go from a gambling house, an investment bank, into a nice commercial bank.’ ibid. Greg Palast, interview Democracy Now
The tissue of wanton criminality that permeates the very fabric of Goldman Sachs history. ibid.
‘Doin’ God’s work.’ ibid. Lloyd Blankfein
When Goldman Sachs becomes Government Sachs … well who is going to stop them and how? ibid.
Save this company, don’t save that one – who’s making those decisions? Oh that’s right, Hank Paulson, ex-Goldmanite. ibid.
Wait – did he say drain the swamp or to fill the swamp as quickly as possible with as many members of Goldman Sachs as can possibly be stuffed into it? ibid.
The financial crash was meant to put an end to dangerous risk-taking by bankers. But it hasn’t. The risks bankers take in their pursuit of profits are double-edged. Bankers II: Risking It All, BBC 2013