Bloomberg has a detailed story up on its website about a pending Department of Justice suit that charges that municipalities were not simply played for fools by big financial firms and sold down the river by their supposed advisers. Sadly, that is all too common. What is noteworthy here is that the advisers engaged in widespread, open bid rigging to lower the income government entities received on their investments, and took kickbacks from the banks who were the beneficiaries of this process.
Understand further: the payments that were allegedly paid in these cases were significantly large as to require some level of management approval. There is no way management did not know this was afoot.
How this situation came about is that government-related bodies, just like big corporations, will sell bonds to raise money for long term projects. Typically, they don’t need all the dough at once. For instance, if you are building a school, the project expenses might extend over a period of three years. So you want to park your unused proceeds in an instrument that pays more than a bank account. A popular route was guaranteed investment contracts. Municipalities would organize a bidding process to see where to park their dough to receive the best return.
But this is where the process went off the rails. The “advisers” to the municipalities were peculiarly hired by the municipality, but ultimately paid by the bank that wins a piece of business. That of course is a terrible set of incentives if you want someone to work on your behalf. The advisers were were colluding with the banks to keep the bids low and being paid additional undisclosed fees for their assistance. And the banks involved are major names: Bank of America (which has admitted guilt and is turning state’s evidence), JP Morgan (this when its CEO gives sanctimonious speeches about doing the right thing), Citigroup, Lehman, plus eleven others.
Now municipal finance is admittedly a cesspool; in some places, such as Jefferson County, Alabama, the “adviser” was a crony of a corrupt local official and featherbedding was part of the job description. But there is every reason to think that for most part, the fleeced government bodies were chumps rather than complicit.
What struck me was that this story was on Bloomberg this morning and I did not see it until this evening, thanks to a message from reader Francois T. No blog in my RSS reader deemed this worthy of attention. Is corruption by the banking classes now such a normal state of affairs that no one bothers to take note unless the perps are called before Congress and made to squirm?
Some tidbits from the article, which I encourage you to read:
In the bid-rigging deals, CDR [a municipal adviser} gave false information to municipalities and fed information to bankers allowing them to win with lower interest rates than they were otherwise willing to pay, the indictment says. Banks took their illegal gains from the additional returns and paid CDR kickbacks, according to the indictment….
During more than three years of investigation, federal prosecutors amassed nearly 700,000 tape recordings and 125 million pages of documents and e-mails regarding public finance deals….
Bid rigging not only cheated cities and towns, it also illegally denied the IRS required taxes from GIC income, [retired IRS investigator Charlie] Anderson said. The evidence is clear in telephone recordings made on GIC desks, he said. “We could hear people talking about how everyone knew who was going to win the bid. You could tell it was just everyday business.”
Yves i think that this is so much “Business as usual” that few are paying attention and fewer expect any serious consequences.
BTW…How do you get rid a 175+/- lbs leech, wearing a Jake Mueser and Amber Doyle suit…salty Margareta’s at stones are sooo passé these days.
Skippy…hoping to hear heat..like flamethrower hot heat, like…The very existence of flamethrowers proves that some time, somewhere, someone said to themselves, “You know, I want to set those people over there on fire, but I’m just not close enough to get the job done.” -George Carlin
extra credit see:
YOU HAVE NO RIGHTS – George Carlin
I miss George, and I especially miss watching him pick apart the shared delusions of our species. Thank God for YouTube! (ha…see what I did there?)
Thanks. Carlin was a riot—and Skippy carries his baton.
A small gift see: Archive of American TV…: George Carlin – Archive Interview
At least he got to play a cardinal before he died, can you imagine if they let him play pope?
it was on my facebook page all day! how could you have missed it?
Me thinks there is still time to clean the scum out of the financial and oil sectors and put them to work cleaning up the oil scum in the Gulf of Mexico. Perhaps if they have to clean up a mess they helped create, their replacements will be more cautious. I hope the bastards get sick eating their shrimp cocktails in the meantime. Any Gulf shrimp we harvest now are probably self lighting thanks to BP. Just add fire.
Yes, one can condemn the banks and the “advisers” for ripping off the municipalties….. but what kind of doofuses are running municipalities that they hire “advisers” who will be paid by the people the municipalities are “negotiating” with. ?????????????
Yves, you call this arrangement “peculiar”. I’m inclined to be less generous. Either the representatives of the municipalities were in on the take somehow, or they are too stupid to be taking up oxygen, much less being responsible for managing our tax dollars.
And people wonder why there’s a grassroots movement to halt the huge expansion of government?
What “huge expansion of government” are you talking about?
Yes, the balance sheet of the Fed has expanded mightily, but the Fed is captured by Wall Street, and that balance sheet was expanded to make Wall Street look solvent.
And what “grassroots movement” are you talking about? The one funded by GOP lifers and manipulated by News Corp.? The movement that doesn’t know what socialism actually is? What fascism actually is? What the facts about taxes actually are?
But let’s go back to your analysis of the representatives of the municipalities. If the representatives were “on the take somehow,” then you admit that there was a crime and that there was collusion between all the parties involved. If the representatives should have been euthanized, as you seem to suggest, the fact remains that a crime was committed and the advisers and banks were in on it.
One pursuing his own interests in the absence of regulation should understand that someday someone might come after him for fraud, if he behaves fraudulently. Blame the government all you want, but the advisers and the banks behaved criminally because they are criminals, not because the government made them be criminals or because the reps were easy marks just asking to be victimized. Some of us actually behave the same way when nobody is looking as when we are under intense scrutiny.
Alright! I knew that all I needed to do was put a tiny bit of Libertarian bait on the hook, and some fool would chomp on it with all his might. Now where to retort….
Let’s see… no acknowledgement that government is growing relative to GDP, that government employment is growing relative to the private sector, that people who prefer smaller government are just tools for The Powers That Be (as opposed to politicians, who all slave laborious and solely for the Public Good), or maybe your….what’s the word – insane – interpretation that I propose euthanizing incompetent fiduciaries of the public purse? Of should I just address your high-horse sanctimony?
Think I’ll just pass on all counts. Not worth it.
Cool handle though…..
Business is also growing with respect to GDP… For instance, the market capitalization of the stock exchanges is reaching 120% of GDP again… that means that the value of the stocks traded on the exchanges is bigger than the whole US economy… and that´s not even counting the businesses that don´t have stocks…
So why do you complain about government taking like 36% of GDP when business takes so much more in comparison…?
Because I prefer to give my money away voluntarily, in exchange for goods received, or to charities I admire, rather than to have it taken from me at gunpoint, and spent I things I don’t approve of (Iraqi War, TARP, etc etc).
In a democracy, some degree of the latter is necessary. I like roads and fire departments and national defense, and accept that I won’t agree with all expenditures. But I think that too large a percentage of government spending is wasteful, and too large a percentage of it is simply spent by politicians to enhance their own power.
I like freedom. Call me a romantic….
I like freedom, too. No disagreement there.
By the way, please give me some pointers on avoiding wasteful spending in my own life! I make too many dumb and wasteful decisions, and it would be great to get a lesson from someone who never does. The tricky part about agency in business and in government is that we have too many *humans* acting as the agents. If we could just get beings like you in charge, we could dismantle the government, we could wipe out all the people who take advantage of others through fraud or force (and all those businessfools who make dumb decisions). Utopia awaits!
Alex exults: “Alright! I knew that all I needed to do was put a tiny bit of Libertarian bait on the hook, and some fool would chomp on it with all his might. Now where to retort….”
Hah! The game is afoot! You sound like the diabolical Prof. Moriarty about to fence with Holmes. And then…
“Now where to retort….
“Let’s see… no acknowledgement that government is growing relative to GDP, that government employment is growing relative to the private sector, that people who prefer smaller government are just tools for The Powers That Be (as opposed to politicians, who all slave laborious[ly] and solely for the Public Good), or maybe your….what’s the word – insane – interpretation that I propose euthanizing incompetent fiduciaries of the public purse? Of should I just address your high-horse sanctimony?”
“Think I’ll just pass on all counts. Not worth it.”
Dang! What a letdown, Alex. Is that it, blame the victim and make a few weak jabs below the belt? Moriarty would do so much better.
Let us consider the MANY examples:
1. Real estate brokers, both purchase and commercial leasing, are paid for by the seller/lessor contract. Yet they run around with the prospective buyer/lessee, and most people think of their broker who drags them around as working for “them,” particularly since their fee comes out of the check the buyer/lessor writes. This is also true in mortgage brokerage.
2. If you have a private banker, who do you think he works for? Yet most people who are rich enough to have a private banker think he works for them and private bankers often leave their banks with their clients. Ditto high end securities brokers. From an economic perspective, if a broker or private banker has a loyal and profitable clientele, he has a franchise, and can walk with it. So who really is the employer here?
3. I have often seen lawyers on deals where they have put two parties together (usually on smaller deals that can’t support a lot of fees) get a waiver from one side. There will be no second lawyer on the deal, everyone understanding who formally represents the deal is a bit of a fiction, since it will come out of the funding if a deal closes. The tricky bit is who pays if the deal fails, so the lawyer is usually engaged formally by the seller.
So this sort of ambiguity is not uncommon.
With the case of municipalities, I suspect it has to do with budgets, that paying explicitly for advisers would be controversial and hard to get approved. Their fees would probably be well above what a lot of people make in a year and would therefore be nixed. So you have a problematic finesse to deal with a political/PR problem.
I’m most familiar with the first example you cite – lifetimes ago, I was a real estate agent who worked mostly with buyers. My explicit fiduciary responsibility was to my client, and my client alone, not to the seller – not only out of my ethical sense, but my license would have been revoked had I ever been found to act otherwise; in fact, had I taken it to the level that these “advisers” did and goosed the sales price in exchange for kickbacks from the seller, I would have faced jail time.
I see your point that there is an ambiguity on who exactly is paying me – yes, my portion of the commission was debited from the sellers’ settlement sheets in escrow, but, yeah, it was my buyers’ money that went INTO the escrow that constituted the top line on the sellers’ credit column. So,actually not that ambiguous – only one party was coughing up cash – my buyers. Any ambiguity is settled by law – the agent representing the buyer MUST negotiate for THEIR best deal, not the sellers’ best deal.
I know nothing about how municipalites negotiate their financing, but was simply struck that it seems crazy for whoever handles this for the municipality (and is presumably well-paid to be in a position of so much responsibility), simply hands it over to one “adviser” and signs whatever the “adviser” brings back. Do they spend more time shopping for their shoes than they do shopping for a $50,000,000 school bond?
I suppose the difference is that, with my clients, it was THEIR money at stake, so they insist on total transparency in the negotiations. With a municipal employee, it’s not THEIR money, so maybe they’re not as motivated to be vigilant.
This is the inherent problem with government, witness TARP. How much more educated would Congress have gotten if it was THEIR money going to AIG, et al? But it’s not. It’s your money, and my money, and politicians routinely use tax money to cozy up to their future employers (Goldman Sachs), to dole it around to people who they need as voting blocs for their next election. If they need more money to buy more power, they find new ways to get more from you and me.
It’s a sick system.
Alex…ideology’s aside, when you say government[?] whose government[?] are you referring to. The bought and payed for one by special interests aka corporate enterprise (big pockets), the rank and file, agencies protective or regulating filled with revolving door corporate officers and managing directors, or the one where two party’s play the I’m different than the other one, till inaugurated.
Government is a big word meaning many things could you elaborate, is it a section or all of it, and do you include the influence by proxy of the corporate influence at all levels.
Skippy…if you bemoan one, it seems you have to call both out…yet you haven’t..why?
All of the above, but to varying degrees. Let’s take them in order. I don’t like the:
1 – excessive influence of special interests. Some degree is always necessary – if you own a business and laws are being considered that will be detrimental to your business, makes sense to band together with others in your field and hire someone to make your case (aka – lobbyist). But it is perversely excessive, as any reader of this blog is well aware of – didn’t feel the need to inform the well-informed. But I’ll also add the Unions to the list of excessive influence in the Corridors of Power as well. The Banksters exchange money for favors. The Unions exchange money and campaign workers for favors. I regret that the taxpayers, who pay this money, really have no lobby. And as we run deficits and print dollars, our grandchildren are increasingly paying this money, and as they don’t exist yet, they REALLY have no influence.
2 – I have no beef with the rank and file, except for the fact that the public employee unions have negotiated benefits and retirement plans, and often salaries, that often are well in excess of those received by similar workers in the private sector. They are a special interest unto themselves, and they negotiate against…. fellow government employees. Private sector workers negotiate against private sector management, who must negotiate in the interests of the shareholders, and the shareholders money. When public unions negotiate, they negotiate against another public employee, who negotiates on behalf of the taxpayers’ money, and frankly my dear, they don’t give a damn about the taxpayer’s money. I live in California, where we are running a $20 billion deficit, largely due to insanely bloated bureacrasies and insanely generous pension plans. We are in worse shape than Greece, and many of our public employees retire at age 50 at 90% of salary, and full health benefits – a better deal than Greece offers. In exchange for this great deal, the public unions give money and campaign workers for the politicians who agree to offer them these generous packages. Our unfunded state pension system is $500,000,000,000 underwater, and our permanently gerrymandered Dem majority is completely funded by the public unions and comletely unwilling to cut the excessive bennies.
3 – Revolving door regulatory agencies – obviously an obscene conflict-of-interest.
4 – Two parties filled with politicians whose main goal is to maintain and increase their own power, with little or no regard to how that affects the citizenry. Two different flavors of Obscene, using different constituencies for money and votes, but it’s the same tap dance on the face of the taxpayers. The Repubs tend to use Big Biz (but the Dems have gotten quite good at that lately as well), funneling corporate welfate in exchange for power, while the Dems have more of an in with the Unions, and with handing out free stuff (paid by taxpayers or borrowed from our unborn grandchildren) to large blocs of folks (“Spread the wealth”) to buy votes and loyalty. And of course, both take good care of the Military-Industrial Complex. Both flavors stink.
I loved Thoreau at 16, and still love him today – “The government that governs the least, governs best.”
That clears up a few things, although I personally think we have to accept that as we grow and play around with the laws of the universe we/citizens need adequate safety protocols and the bodys to insure this happens.
Skippy…the gulf blob is just one exsample.
Quite true, Skippy, quite true….
One law would cover that – if you break something, you have to pay for it; and if you don’t have the resources to cover any possible calamity from your actions, you can’t do it until you have adequate insurance and re-insurance.
Okay, that was two laws. Guess I’m a Big Government fan :-)
Many incidents are avoidable, seems one thing repeatedly, repetitively is at work…largess in the name of egregious profit, brought forward for only a few too savor…at our cost in the now and future.
Skippy…Insurance works for some things…but, not all…eh.
I read your bullet points, agree w/most of it.
But… IMO, your “government is the problem” view demonstrates a failure in critical thinking.
This financial meltdown was executed by non-governmental, private industry… en total. The housing bubble was grown and expanded in a feedback loop promoting ever increasing values, a necessity to justify value of WS’s mortgage bonds.
It was fed to a public, which bought it hook/line/sinker, and sold to that public w/alchemic lies… period.
The entire environment was given a green light by Bush’s WH and Delay’s K-Street funded Congress, paid in full to look the other way and ignore reality. Your Libertarian standard bearer, CATO, staffed Bush’s WH… was entirely handed that task.
In short, your CATO crowd got their duckies all lined up as they had hemmed & hawed since the “Reagan Revolution”, and they proceeded to jump through the window of opportunity w/fraud on a scale never seen in modern times. There are a lot of crooks about in suits & ties, whose intent is not to excell & deliver value, rather to aquire wealth. Their mantra is: wealth building, but their method is stealing… and lieing about it (“God’s work”).
I would suggest you go a little deeper in your analysis. I have found nothing… NOTHING, in Libertarian (CATO) screeds which demands (or even mentions) integrity. And I would suggest to you that integrity is the common, bottom line quality absent from 99% + of the crowd who brought us “financial innovation”.
When you say:
* TARP was an attempt to recover from the private financial fraud, not the cause of it. If all you see is TARP, then you’re viewing the tail of a beast which has ravaged you… and missed the beast.
* Now who in media/government is crowing about this government takeover of private enterprise… hmmm, let me see now, uhmmm… Sarah Palin? Michelle (“I ain’t gon’a do no evil census” Bachman? Glenn Beck? Newt?…
* Congress’ job is to uphold US Constitution, by oversight/lawmaking/budgeting. That is a function of honesty, (hopefully) some basic understandable principles, maybe throw in a little bit of intelligence, & then wrap it all up w/some clean intentions. Seen any of that lately?
Who got us into Iraq? Who lied about it? Who refused to do any… and I emphasize *any* oversight in that endeavor? Etc., etc., et-f**king etc…
Geezus… this whole article Yves highlighted is great. Except… it’s 3-5 years late, was on the horizon and in view to many then. The criticism during this incubation period was poo-pooed by the same “free marketer” types you echo (get government out of the way), because it seems popping a bubble before it’s time just seems soooo, soooo uhhh… (fill in the words).
Your prescriptions miss the Forest for the Ocean.
TARP was an attempt to recover from the private financial fraud, not the cause of it. If all you see is TARP, then you’re viewing the tail of a beast which has ravaged you… and missed the beast.
Truer words of wisdom have never been spoken.
Whatever happened to the old saw: “An ounce of prevention is worth a pound of cure?”
The time to prevent the GFC was before it happened. The time to prevent the blowout on the Deepwater Horizon was before it happened.
The libertarian prescription is to allow social anarchy until all hell breaks loose, and then claim the culpable parties must pay damages. A couple of factors belie this simplistic and naïve formulation, 1) the culpable parties never seem to have the wherewithal to pay the monetary damages they have inflicted, and 2) some of the things they destroy are sacred, irreplaceable.
Along these same lines was this paragraph from a story from today’s “Links:”
“If genetics and neurosci¬ence could provide rigorous, specific, early detection years before psychosis or depression, these illnesses might be redefined in terms of a trajectory. As a result, interven¬tions, rather than being ameliorative or rehabilitative, could become preemptive or even preventive….”
“2) some of the things they destroy are sacred, irreplaceable.”
How true DownSouth, The LANies know the price of everything and the value of nothing, including human life: in BP’s recent deepwater “event horizon”, the environmental devastation is incalculable, as are the eleven workers sacrificed to cost-saving profits. What is their price? What compensation would they demand if they could for their ignoble sacrifice? Apply the same calculus to criminal wars and you very soon run out of silver shekels.
I think anybody with common sense knows that TARP isn’t the cause of the problem, but it sure does sustain the problem. Much like all stimulus does, it stimulates the problem. I never supported bailouts of financial institutions, and IMF bailing out Greece (cough German, and French banks) was ill-advised. The bailout isn’t the cure, bailout continues the same problem trajectory. Low interests didn’t start derivatives, but with low interest rates, they sure did exploded with the speculation in housing, which is a no-brainer. Goldman Sachs, and other institutions, including the Federal Reserve have no credit (literally). The government is in bed with the bankers, and no “civil suit” will convince me otherwise. That is why Andrew Jackson sought to eliminate a central bank, even perhaps a banking system that is a centralized. Deregulation can be blamed, but let’s not forget the role the Central Bank, and other regulations that promote no risk behavior like the FDIC, and Federal Reserve Banks. If Goldman Sachs treats their customers like crap, why in the world do you bail them out? Ironic how people claim free markets destroyed the economy, yet claim that free markets can be cured with Keynesian solutions. Free banking has huge amount of risk, in Federal Reserve System with government bureaucracy, you have risk covered by the regulators, central banks, and government, thus comes up the “too big to fail” propaganda. If the financial institutions weren’t bailed out, perhaps true sustainable economic recovery will occur instead of continued market volatility.
Your innocence and naïveté, along with your abiding faith in the private sector, knows no bounds. And like all true believers who hail from the Libertarina-Austrian-Neoliberal (LANie) constellation, your universe is a world of half-truths and distortions.
“I suppose the difference is that, with my clients, it was THEIR money at stake, so they insist on total transparency in the negotiations,” you tell us. “With a municipal employee, it’s not THEIR money, so maybe they’re not as motivated to be vigilant.”
Then you use this as a departure point to launch off into your anti-government tirade: “This is the inherent problem with government, witness TARP. How much more educated would Congress have gotten if it was THEIR money going to AIG, et al?”
To begin with, your construct of how buyer-seller relationships work, although it does have a hint of truth to it, is for the most part a fiction. It is based on the assumptions about human behavior that inhere in neoclassical economic theory. The assumption is that both parties to a transaction have equal information, both are equally knowledgeable, and that each party will weigh up this information and make decisions in a totally rational, self-serving way.
Of course in the real world it doesn’t work that way at all. In our complex world it would be impossible for any one individual to gain the knowledge necessary in so many separate fields—-finance, medicine, real estate, automobiles, televisions etc.—-to make truly informed decisions. So the way it works is that people develop relationships with people (or companies), and it is these individuals and companies they trust to advise them in these complex decisions. People use a number of strategies to decide who it is they are going to trust and not trust, and these strategies can go awry. Much of advertising and other propaganda is expended on building these relationships of trust.
That is the first fiction your argument is based upon. The second fiction, really half-truth, you put forward is when you assert that “the inherent problem with government” is that “with a municipal employee, it’s not THEIR money” they’re handling. There is some truth in that, but totally missing from your simplistic black and white worldview (government = bad; private enterprise = good) is the fact that the public sector is not alone in being plagued with these problems. Your hallowed private sector has its share of these problems as well (I think George Soros calls them “agency problems”, and Bill Black calls them “control fraud.”). Do you believe that persons charged with making decisions on behalf of corporations don’t face similar conflicts? Do you believe that incentives in the private sector are always such that they motivate decision-makers to make the decisions that are in the best interests of the company they work for?
So to conclude, yours is a world of blind faith in private enterprise.
Reading your comments, along with those from many other LANie true believers that have commented on Naked Capitalism over the past few days, reminded me of another group of true believers—-the artists and architects who naively, but wholeheartedly and unquestioningly, threw their support behind the communist revolution in Russia As Victor Awas explains:
They were all extraordinarily polemical, often verbally prolix, and always violently certain in their assertions. They wrote and spoke a great deal of nonsense which was frequently incoherent and irrelevant, and undoubtedly alienated many of those they sought to convert or convince. Nevertheless, the cumulative effect of their words conveyed pure idealism, pure youth and the vibrancy of pure and total commitment. It is a touching testament to an entire generation of artists in every field who placed themselves at the service of a revolution which betrayed and destroyed most of them.
–Victor Awas, The Great Russian Utopia
Yes,thank you. Excellent as always.
“…the way it works is that people develop relationships with people (or companies), and it is these individuals and companies they trust to advise them in these complex decisions. People use a number of strategies to decide who it is they are going to trust and not trust, and these strategies can go awry. Much of advertising and other propaganda is expended on building these relationships of trust.”
It’s at once frightening and infinitely reassuring to see the degree to which trust and integrity are the self-evident cornerstone of a healthy and great society. We really need a spiritual awakening.
I couldn’t help chuckling about Awas’ description of Soviet artists and architects. Though on the margins, communism nutured great artists and artists, the legacy of official Soviet architecture is a hideous testament to totalitarian ideology, the invariable result of dogma over living spirit.
Agree on all points… although not gon’a fritter my life away waiting.
In the meantime, I’ll bet USA’s gon’a enjoy a decreasing standard of living… possibly arriving in fits an jerks, until this “awakening” shows up.
Whatever happened to them there LGIP’s down yonder in Florida — that deal that was taken over by Blackwater Snakes?? What ever happened to all them LGIP’s across America … that wasn’t looking too good a few years ago, and then along came the WaMu and Fannie thing … oh never mind. Thing always look murky inside black holes! It was nice to look in way back then, but now that we’re all sucked inside this mess, it doesn’t really matter much. have a nice day!
==> Florida State Board of Administration and its Local Government Investment Pool, Trustees, not accept or process deposit or withdrawal requests…
My question is: how the hell do you get 700,000 recordings and 125M documents and not bring charges?
Were they planning to perform arrests on the perps deathbeds?
How long were they going to wait to press charges or at the very least issue a cease and desist order?
Is anybody driving this train?
Great question! And simple answer: employees of the Dept. of Justice are not paid for their results – they are paid for their time.
Sorry, I’m on an anti-government meme tonight, and this one was so obvious….. :-)
There is also a little factor we shouldn’t forget: the Courts excessive leniency toward white collar crime, and the courts extreme cultural sensitivity to wealth. You need an airtight case to be reasonably sure a financier will have to do the perp walk.
It is also a sad fact of life in the USA that prosecutors are very reluctant to be harsh against higher up executives. Witness the inexcusable leniency toward Pharma executives of corporations that are serial offenders; any individual who would’ve engaged in the same type of activity would be behind bars at the 2nd offense, when not the first one.
Oh! I’d be remiss to forget to mention that things shall get far worse in the wake of the Citizens United case. Justices are now for sale in each and every state where there are judicial elections.
A banana republic without the bananas; the worst of both worlds we got there.
Whole lot of relevant cultural conditions in those little factoids… worth pondering a bit, maybe during changeover ads from Cramer to (whoever).
“During more than three years of investigation, federal prosecutors amassed nearly 700,000 tape recordings and 125 million pages of documents and e-mails” … I wonder where these DoJ investigator will turn their attention now?
Did this investigation use up a lot of person-hours that will now be freed up to go after Wall Street and hedgie perps?
They’re playing poker, awaiting orders from David Axelrod, who is managing a 2012 Presidential election and is now conducting polls to see what has the most voter cachet.
Please see the work of the Pa. Auditor General on interest rate swaps by school districts, municipal entities, transportation entities and other infrastructure entities in his state. Large sums skimmed off the taxpayers and sent to Wall Street — a tiny portion of the skim invested in campaigns.
I’m with Alex Black on this one. Bankers will do what’s necessary — including kickbacks — to get business and a better deal. Make it illegal, regulate it, investigate it, toss some of ’em in jail (PLEASE!)… but they’ll still do it.
It is the responsibility of the municipal leadership to ensure that, if they feel the need for an advisor, the advisor is shackled in fiduciary responsibility. If the municipal leadership doesn’t feel it can justify an upfront fee to “Buy” that fiduciary responsibility of the advisor … don’t choose that advisor. Hire a cheaper one, or go it alone and let the municipality suffer for not buying an expert up front.
Put the bankers & advisors on trial, and if they can be found guilty: great! But at the municipal level, leadership that was taken advantage of in these instances proves themselves incompetent (or on the take), and ought be removed by the legal means available.
Oh well, that’s the infamous Clayton Williams worldview.
While running an unsuccessful bid for governor of Texas in 1990, the Republican oil man was heard making an off-color joke comparing rape to weather. Williams’ comment: “As long as it’s inevitable, you might as well lie back and enjoy it.”
” With the case of municipalities, I suspect it has to do with budgets, that paying explicitly for advisers would be controversial and hard to get approved. Their fees would probably be well above what a lot of people make in a year and would therefore be nixed. So you have a problematic finesse to deal with a political/PR problem.”
Yves – a few points to consider:
1. In muni world, the role of advisor is in part to “keep the bankers honest” – talk about irony.
Generally, one firm cannot underwrite and advise on the same issue – you have to pick one. More fees in underwriting for the big guys so the little guys advise. The advisors are the gatekeepers. Agree there are PR/political issues and a good handful of advisors like their political power – with the governments and with the bankers. Also, underwriters can do swaps and derivatives and makes lots of money – pl see Jeff Co.
Guess who advises municipalities on the swaps and derivatives – yes, the advisor.
2. follow the banker……..bloomberg has published reports identifying the players at the firms as having been colleagues over the years and then branching out to different firms. The network was there. This in and of itself is not proof of guilt, but is proof of common thinking (because many of the players worked for one person in particular).
3. of course management knew about these arrangements. But they probably did not think the players had gone so close, or over, the edge of colluding on bids as opposed to running clean bidding processes. I suppose they will (and should) pay the price of blind ignorance. Most of the people under investigation have been fired from their positions and the firms will argue they already took corrective action.
4. the muni world is no different from “sophisticated” investors that bought rigged CDOs – if you are not transparent with your clients and you collude with an interested party that is not disclosed, you can make a killing. But not for long. But the damage is done.
5. the banks, dealers and advisors in the muni market are fighting reform, go figure.
The U.S. has become systemically corrupt. Brokers (The Agency problem Soros refers to) is not limited to Banking or Securities.
I own a database that I license to the Pharmaceutical companies. The brokers routinely were recommending my database because I paid them 35% commission instead of 20%. Perhaps me revealing this makes understanding the problem that much clearer.
I was on a school board of a very large fast growing district in PA in the late 90’s. We floated bonds like crazy to pay for new construction, remodels and expansions. Some of us tried to keep the financial business out of the hands of the controlling political party (repug, naturally) and sort of spread it around. Our attorney was especially good at this til the majority on the board got rid of him. I was in the next round and lost the election. Never underestimate to power of the repugs to line their contributors pockets. It is very difficult to keep up with the financial end of things if that is not your background and you are not always given the whole picture but get information in increments if at all. There is an incredible amount of money to made in all of this.
That wouldn’t happen to have been CBSD would it? Or maybe was it CRSD?
bucks at the time was a liberal version of repug… but still repug
Yves, I saw this story yesterday and figured that you would have already seen it. I was excited by the headline and was hoping to read how DOJ was suddenly diligently protecting the American People. I was disappointed. Early on, the piece explains that BOA is cooperating because back in March they signed a settlement agreement in which BOA, the company, would not be prosecuted, in exchange for cooperation against miscreant individuals. Hence, our illustrious DOJ has cut a deal with the whale in order to fry up some small-fry, precisely the opposite of what it should be doing. Sadly, this is not news.
I said it two years ago and I’ll say it again:
Claw back ten years of ill-gotten bonuses and jail Jaimie Dimon.