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2011-02-22

Matt Taibbi: "Why Isn’t Wall Street in Jail?"

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"Nobody goes to jail,” writes Matt Taibbi in the new issue of Rolling Stone magazine. “This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth." Taibbi explains how the American people have been defrauded by Wall Street investors and how the financial crisis is connected to the situations in states such as Wisconsin and Ohio. [includes rush transcript]

Transcript

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: We turn now to Matt Taibbi. But before I do, let me read a sentence from a recent paper by Dean Baker, who concludes, "Most of the pension shortfall using the current methodology is attributable to the plunge in the stock market in the years 2007-2009. If pension funds had earned returns just equal to the interest rate on 30-year Treasury bonds in the three years since 2007, their assets would be more than $850 billion greater than they are today."

And this — he quotes David Cay Johnston of tax.com: "The average Wisconsin pension is $24,500 a year, which is hardly lavish. But what is stunning is that 15% of the money contributed to the fund each year is going to Wall Street in fees," which is why we now ask the question, "Why isn’t Wall Street in jail?"

Actually, that’s the title of reporter Matt Taibbi’s new article for Rolling Stone magazine. In the piece, Matt writes, quote, "Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth."

Well, I interviewed Matt Taibbi on Sunday about his report. Now I want to play an excerpt of our discussion.

AMY GOODMAN: We’re seeing these mass protests in Madison, Wisconsin, and there’s other protests that are happening. We see the working poor, the middle class, under tremendous stress, and yet they’re the ones who are being hit hardest, not Wall Street. Explain what has happened. Why isn’t Wall Street in jail?

MATT TAIBBI: Well, it’s an incredible story. I mean, just to back up and provide some context, I think, for this Wisconsin thing, and especially for the Ohio thing, given what their governor used to do for a living —

AMY GOODMAN: Explain.

MATT TAIBBI: Well, he was an employee for Lehman Brothers, and he was —

AMY GOODMAN: This is Governor Kasich.

MATT TAIBBI: Governor Kasich, yeah, and he was intimately involved with selling — getting the state of Ohio’s pension fund to invest in Lehman Brothers and buy mortgage-backed securities. And of course they lost all that money. And this, broadly, was really what the mortgage bubble and the financial crisis was all about. It was essentially a gigantic criminal fraud scheme where all the banks were taking mismarked mortgage-backed securities, very, very dangerous, toxic subprime loans, they were chopping them up and then packaging them as AAA-rated investments, and then selling them to state pension funds, to insurance companies, to Chinese banks and Dutch banks and Icelandic banks. And, of course, these things were blowing up, and all those funds were going broke. But what they’re doing now is they’re blaming the people who were collecting these pensions — they’re blaming the workers, they’re blaming the firemen, they’re blaming the policemen — whereas, in reality, they were actually the victims of this fraud scheme. And the only reason that people aren’t angrier about this, I think, is because they don’t really understand what happened. If these were car companies that had sold a trillion dollars’ worth of defective cars to the citizens of the United States, there would be riots right now. But these were mortgage-backed securities, it’s complicated, people don’t understand it, and they’re only now, I think, beginning to realize that they were defrauded.

AMY GOODMAN: Explain what the crime is. Who has profited? Who should be on trial?

MATT TAIBBI: Well, you know, again, the broad crime in all of this was just fraud. They were taking — these banks were taking, again, these subprime mortgages, and they would have these billion-dollar pools of mortgages where, in some cases, 70 or 80 percent of the loans were to people who had no identification or no jobs or who had put no money down into the mortgage. And then they were taking these loans and applying this phony baloney, hocus pocus math, these derivative instruments, and turning them into AAA-rated investments. And they were marketing, again, these securities to, say, state pension funds as AAA-rated investments, which means credit risk almost zero. So they took the stuff that they knew was very, very risky and very, very likely to default, and they were going to the state of Wisconsin, the state of Ohio, the state of New York, and saying, "Hey, this is almost as safe as — or in fact, it is as safe as United States Treasury bonds. You should buy this, and you’ll earn a little bit more than you’ll earn if you buy T-bills." The reality was, they were just taking absolutely worthless stuff and sticking it with these people and then fleeing the scene. This is no different than drug dealers who take a bag of oregano and sell it to you as, you know, a pound of weed. That’s exactly the same scam.

AMY GOODMAN: Talk about John Mack and Gary Aguirre.

MATT TAIBBI: This is an amazing story, just because it demonstrates how far above the law these people are. John Mack is one of the most powerful people on Wall Street. Right now he’s the chairman of the board at Morgan Stanley. He used to be their CEO. Way back in 2001, when he was sort of between jobs, he had left Morgan Stanley and was interviewing with Credit Suisse First Boston. He was involved in a case that was investigated by the SEC. A hedge fund called Pequot made a very suspicious investment into a company called Heller Capital, which was about to be acquired by General Electric. This hedge fund bought, you know, an enormous amount of Heller stock three weeks before this acquisition by GE of Heller. Credit Suisse First Boston was Heller’s investment banker. John Mack was interviewing for the job with Credit Suisse a few days before Pequot made its purchases, and he was in direct contact with the hedge fund guy who made those purchases. Under any normal circumstances, he would be targeted for investigation by the SEC.

AMY GOODMAN: And his name was?

MATT TAIBBI: The investigator’s name was Gary Aguirre. And Aguirre —

AMY GOODMAN: And the guy buying up?

MATT TAIBBI: Art Samberg was the name of this hedge fund manager. He was a big star on Wall Street. In fact, there are articles about, you know, how does Art Samberg manage his amazing returns year after year? Well, you know, this was sort of a clue as to how.

Anyway, this SEC investigator named Gary Aguirre wanted permission to go interview John Mack, and his superiors at the SEC told him — they basically told him that he couldn’t, and the reason they said was because Mack has, quote-unquote, "powerful political connections." At the time, he was a Ranger, one of Bush’s fundraising Rangers. He would later become a major fundraiser for Hillary Clinton. So he played both sides of the fence. This, again, is very typical of Wall Street. And Aguirre, when he pressed the matter, he was fired by the SEC.

AMY GOODMAN: You say in your article that the justice system has actually evolved into a highly effective mechanism for protecting financial criminals, not just not prosecuting them, but protecting them.

MATT TAIBBI: Right. Well, one of the things that I found out when I was interviewing former SEC officials and whistleblowers, people who had been involved in some of these cases, is, you know, when you look at the revolving door situation with all these — the Mary Jo Whites and the Gary Lynches and the Linda Thompsons, these former high-ranking financial cops who leave government service and they go to work in these millionaire partnerships on Wall Street, it creates this collegial atmosphere where it’s just a few — a small group of lawyers who all know each other, and they’re in this constant merry-go-round, from government, back to private service, back to government again, and they’re really in this — it’s far too collegial.

There’s a scene in my story where the current head of the SEC enforcement, Robert Khuzami, is giving a speech to all these lawyers, and he’s saying, you know, "We have a new policy now where if you’re a defendant or if you’re a company that’s being investigated, you can come to the SEC, and we will get you answers as to whether or not the Department of Justice has a criminal interest in your case." So, essentially, the SEC is now acting as a middleman for these companies, so they can go and find out whether they’re going to be criminally prosecuted. Then, once they get that information, they can make a decision about whether or not to settle financially with the SEC. And they pay a settlement. Nobody gets criminally prosecuted. No individuals ever get fined. They pay these fines, and they almost always have a little section in there that says that they do not admit wrongdoing. So, they don’t even have to say they’re sorry, essentially. These companies go and they pay their fines. No individuals have to suffer at all. And it’s all done in a very collegial way.

AMY GOODMAN: You suggest in your piece that Bernie Madoff went to jail because it was rich people who were the victims.

MATT TAIBBI: Absolutely. Every single former investigator or current investigator that I talked to said the same thing: Madoff went to jail because the wrong people suffered. You know, it was famous actors. It was, you know, the glitterati in New York. If these were teachers and firemen and all the usual suspects — you know, look at the — we have a million people in foreclosure in this country right now, and a lot of them are there because of predatory lending and because of this fraud scheme, but there are no criminal prosecutions. I think that’s the reality now, is that we don’t see anybody being criminally targeted unless their victims were powerful people themselves.

We have two-and-a-half million people in jail this country, you know, more than a million who are in jail for nonviolent crimes. And yet, we couldn’t find a single person on Wall Street to do even a day in jail for losing 40 percent of the world’s wealth in a criminal fraud scheme? And that tells you that we have — this goes beyond the cliché that rich people have better lawyers and they have an advantage. This is a step beyond that. This is a situation where the system is completely corrupted, and it’s true regulatory capture. The SEC and the Justice Department are essentially subsidiaries of Wall Street.

AMY GOODMAN: Matt Taibbi, his new article for Rolling Stone magazine, "Why Isn’t Wall Street in Jail?" And you can go to our website for our web exclusive part two of that conversation. Who else does Matt Taibbi think should be in jail?

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