Wall Street’s Made-off with the Money Culture

April 25, 2010
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What is becoming increasingly apparent and broadcasted ever more widely across all media is that the culture at the top tier US banks, hedge funds, and financial firms is an anything goes, casino gambling culture. $50B fraudster Bernie Madoff was not an isolated aberration but symptomatic of Wall Street’s greedy gambling addiction. Just one example, synthetic CDO derivatives that are are at the heart of the AIG collapse and the SEC’s fraud case against Goldman Sachs are not financial instruments creating intrinsic value but pure Las Vegas bets on where and how specific players and markets are going to “play out”. Synthetic CDOs don’t allow a bondholder to reduce owned risk – they are huge bets by two large financial players on what is going to happen in in very complex financial market transactions for which there is limited transparency on who owns what, to whom , and for how long. Synthetic CDOs are part of the gambling disease that has infected Wall Street such that twice in the past ten years the Street has brought two increasingly harsh recessions on not just the US but the whole World.


GOP Senate leader Mitch McConnell, after a lobby tour of Wall Street the week before, declared that the 41 Republican Senators were prepared to stand fast against Financial Regulatory Reform.


As Financial Regulatory Reform does inch forward what is coming out is how deeply ingrained the gambling culture has become on Wall Street. Thus, not just financial regulatory reform but a change in the Ethos of The Street is required. Frank Rich’s column from the NYTimes catches the nature of the arguments quite well:

….That “financial alchemy,” as Zuckerman calls it, explains why the finance sector’s share of domestic corporate profits, never higher than 16 percent until 1986, hit 41 percent in the last decade.
As many have said — though not many politicians in either party — something is fundamentally amiss in a financial culture that thrives on “products” that create nothing and produce nothing except new ways to make bigger bets and stack the deck in favor of the house. “At least in an actual casino, the damage is contained to gamblers,” wrote the financial journalist Roger Lowenstein in The Times Magazine last month. This catastrophe cost the economy eight million jobs….

To achieve this overdue reckoning will require action — by the S.E.C., the Justice Department and any other legal authority that wants to get into the act. That no one at Lehman Brothers has yet been held liable for its Enronesque bookkeeping deceit is appalling. That we still haven’t seen the e-mail and documents that would illuminate A.I.G.’s machinations with Goldman and the rest of its counterparties amounts to a cover-up. That investigative journalists have consistently been way ahead of the authorities, the S.E.C. included, in uncovering Wall Street’s foul play is a scandal. If this culture remains in place, the whole crisis will have gone to waste.

As a reminder of the unchastened status quo, Blankfein remains the gift that keeps on giving. On Thursday, The Financial Times reported that he had been calling clients to argue that the S.E.C. case against Goldman would ultimately “hurt America.” The opposing point of view was presented by Ira Glass on his radio show “This American Life” this month. With reporters from the nonprofit journalistic organization ProPublica, it told the story of another hedge fund, Magnetar, that gamed the housing bubble. Bankers who worked on Magnetar deals walked away with their huge bonuses well before disaster struck — or, as the program put it, “bankers made money even when they were buying things that eventually blew up the bank.” Not to mention the economy. And it was all legal.

The problem with Rich’s viewpoint is that it is fundamentally pessimistic. He implies several times that both parties, Democrats and Republicans, are too indebted to Wall Street’s campaign largesse. And of course, the Supreme Court just opened up campaign financing to no limits giving Wall Street even more power in  Washington. If Tea Party members and the general public want to have something really worthwhile to protest about, then with a doubt it is how to control this Wall Street gambling culture and ethos that constantly puts the US economy and their individual wealth in danger.

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