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Republicans, Democrats, and Wall Street Fraud or: Who's the MF Now?

Jon Corzine's MF Global is missing $600 million of customer money, and the bankruptcy trustee has no idea when it might be found or when investors might be paid back, if ever. The New York Times today says that the investigation points to the conclusion that the firm simply misappropriated (that is, stole) customer money to back up failing bets on the distressed bonds of failing European governments.

The former head of Goldman Sachs and Democratic governor of New Jersey presided over a firm that may turn out to have been a criminal enterprise.  Maybe the Occupy Wall Street movement should shift venue to the headquarters of the Democratic Party, which has a long pattern of involvement in outright corruption.

If this is the case -- and I will patiently await the results of investigation by the proper authorities before coming to any conclusion -- the only proper thing to do would be to throw the book at Corzine and his colleagues and put some people in jail for a very, very long time. In response to corporate malfeasance and Wall Street's misbehavior in the advent of the 2008 crisis, we have had a raft of new legislation and regulation -- Sarbanes-Oxley, Dodd-Frank, the Volcker rules, and more minutiae than the battery of corporate lawyers hired by the banks can follow. My few friends still employed in the investment banking industry are making a fraction of what they once did, but their lawyers are getting fat. The last hiring bubble in Wall Street, I'm told, is in risk management and legal services. Remember what Mother used to say: "You can't have any new laws until you use the old ones!"

There is overwhelming documentation that key Democratic Party figures used government sponsored enterprises -- the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) -- to corrupt Congress on a grand scale in order to pay themselves spectacular sums. Last year Gretchen Morgenson and Josh Rosner told the sordid story in their book Reckless Endangerment:

The authors, Gretchen Morgenson, a Pulitzer Prize-winning business reporter and columnist at The New York Times, and Joshua Rosner, an expert on housing finance, deftly trace the beginnings of the collapse to the mid-1990s, when the Clinton administration called for a partnership between the private sector and Fannie and Freddie to encourage home buying. The mortgage agencies’ government backing was, in effect, a valuable subsidy, which was used by Fannie’s C.E.O., James A. Johnson, to increase home ownership while enriching himself and other executives. A 1996 study by the Congressional Budget Office found that Fannie pocketed about a third of the subsidy rather than passing it on to homeowners. Over his nine years heading Fannie, Johnson personally took home roughly $100 million. His successor, Franklin D. Raines, was treated no less lavishly.

To entrench Fannie’s privileged position, Morgenson and Rosner write, Johnson and Raines channeled some of the profits to members of Congress -- contributing to campaigns and handing out patronage positions to relatives and former staff members. Fannie paid academics to do research showing the benefits of its activities and playing down the risks, and shrewdly organized bankers, real estate brokers and housing advocacy groups to lobby on its behalf. Essentially, taxpayers were unknowingly handing Fannie billions of dollars a year to finance a campaign of self-promotion and self-­protection. Morgenson and Rosner offer telling details, as when they describe how Lawrence Summers, then a deputy Treasury secretary, buried a department report recommending that Fannie and Freddie be privatized. A few years later, according to Morgenson and Rosner, Fannie hired Kenneth Starr, the former solicitor general and Whitewater investigator, who intimidated a member of Congress who had the temerity to ask how much the company was paying its top executives.

The quotes above are from a New York Times book review by the Clinton administration's most left-wing cabinet member, Robert Reich. Congress subsidized Fannie Mae and Freddie Mac, the two agencies skimmed a third of the subsidy, and used it to pay their executives and lobby Congress. The master manipulator in the Morgenson-Rosner story is James A. Johnson, Mondale's 1984 campaign manager and a top Democratic Party player for decades, who became FNMA chairman in 1990 and created the lobbying behemoth.