YW Blogcast 61 - Criminals on Wall Street?

Jason Hartman has often said that Wall Street is the modern version of organized crime. And he’s not wrong–the things that happen on Wall Street are beyond deplorable. Masquerading as the place where our financial heart beats, where our cash arteries thrive with the life force of money, Wall Street is instead a bit of a hole down which we flush our financial dreams.

Some pretty crazy things have gone on there, but what are the worst among them? Quite honestly, it can be hard to tell–but allow us to provide a look at some of the highlights or, more accurately, low lights.

Richard Fuld

You’ve probably heard Fuld’s name tossed around, and never affectionately. Initially patted on the back for his handling of the sub prime mortgage crisis, Fuld was the longest tenured CEO on all of Wall Street. While other bigwigs were forced to resign, Fuld kept his job though he drastically underestimated the spiraling housing market in the United Stated and the effect it might have on Lehman’s business.

He failed to complete deals that many thought would prevent Lehman Brothers from bankruptcy on the basis that he thought the firm was worth more–it wasn’t. But in 2008, Fuld (along with twelve other Lehman Brothers higher ups) were summoned by the grand jury in connection with three investigations related to securities fraud.

Fuld was nicknamed the “Gorilla” because of his competitiveness and rumors circulated that he was once punched in the face at a company gym. He’s made a lot of Worst CEO of All Time lists and is one of Time magazines top 25 people to blame for the financial crisis.

Jamie Dimon

This J.P. Morgan Chase CEO was head of an extremely mighty bank, though much of his corruptive acts were born of the Federal Reserve. The Fed has twelve regional offices in which officials from that regions banks make up the board of directors. This meant that Jamie Dimon was on the board of the New York Fed, who was supposed to regulate J.P. Morgan.

Is this a conflict of interest? Certainly. Does it happen with regularity? Absolutely. And Jamie Dimon didn’t even have to try very hard to help his bank out, negotiating a bailout package with the New York Fed during his time on the board. On Wall Street, Dimon’s otherwise criminal behavior was likely celebrated.

Phil and Wendy Gramm

Why do alone what you can do with a loving partner? Texas Senator Phil Gramm helped push through the Commodity Futures Modernization Act, which banned federal regulation of poker chips and state enforcement against anti-gambling laws against derivatives trading. Enron was a lobbying force, though they later memorably collapsed under fraudulent derivatives trades.

At the time the bill passed, Wendy Gramm served on the Enron board of directors and, while the company collapsed, Wendy made her share of cash.

Phil left the senate for the vice chairmanship at UBS, a Swiss bank. Since, UBS has been involved in a number of scandals. A lot of folks have gotten in trouble, but Phil and Wendy seem to be doing alright.

Warren Buffett

Not to be confused with Jimmy, the more fun Buffett, Warren was once a spokesperson for many, speaking out about class warfare. Now, he actively lobbies against Wall Street reform. He’s used his wealth to buy friends who will do the same–a Nebraska Senator filibustered on reform for Buffett. Buffett has defended Goldman Sachs–he is, after all, an investor.

In 2008, he put a casual $10 billion into Goldman Sachs. He’s since acknowledged that he did that only because he thought Goldman would be bailed out by the government. He was right many times over and was handsomely rewarded with the help of taxpayers.

Robert Rubin

Robert Rubin was a Goldman Sachs chairman who happened upon the position of Treasury Secretary under President Bill Clinton. Rubin ruled over a time of great deregulation and was a heavy political influencer. He helped repeal Glass Steagall, a law that banned banks from gambling with taxpayer money in securities. In 1998, Citibank merged with Travelers Insurance group, which was illegal–but Rubin repealed the law in 1999. The two companies merged to form Cigigroup.

That year, Rubin hit the road, taking up employment with Citi where he earned a salary of $120 million. When the company collapsed in 2008, they required a bailout. With a terrible public image, Rubin decided to attempt repair by speaking about Social Security and government spending.

Alan Greenspan

Yet another familiar name on the list, Federal Reserve chairman Alan Greenspan was a buddy to Rubin, backing his deregulatory plans and squashing efforts to regulate derivatives. He left office in 2006, when the derivatives market had become a multi-trillion dollar casino. Greenspan accepted a position with PIMCO and later Paulson & Co, a hedge fund. You’ve probably heard their name too–they worked with Goldman Sachs to ruin their own clients through unregulated derivatives.

In  the 80s, Greenspan was linked to a series of financial criminals.

Stephen Friedman

When the financial crisis reached it’s peak, around fall of 2008, Stephan Friedman was chairman of the New York Fed and also set on the board of directors at Goldman Sachs. The Fed paid to keep AIG from collapse and then paid AIG’s counter parties 100 cents on the dollar for AIGs bets. Friedman bought 52,600 shares of Goldman stock, which doubled (and then some) his holdings.

The public didn’t find out which banks received money until much later. Friedman made millions of dollars from his Goldman stock (they were the number one beneficiary of the bailout). If he knew it, he’s a criminal and if he didn’t–well, he’s an idiot.

The bottom line

As you can see, corruption runs deep down Wall Street. This list, while long, could be a lot longer–and nothing is changing. While stocks can be a seemingly fun option, you’re putting your money at great risk and you’re dealing with risky people. This kind of investing is little more than a gamble. Investors beware!