Steve Kroft reports on a new book from Michael Lewis that reveals how some high-speed traders work the stock market to their advantage March 30, 2014
The following script is from "Rigged" which aired on March 30, 2014. Steve Kroft is the correspondent. Draggan Mihailovich, producer.This month marks the fifth anniversary of the current bull market on Wall Street, making it one of the longest and strongest in history. Yet U.S. stock ownership is at a record low and less than half of Americans trust banks and financial services. And in the last two weeks, the New York attorney general and the Commodities Futures Trading Commission in Washington have both launched investigations into high-frequency computerized stock trading that now controls more than half the market.
The probes were announced just ahead of a much anticipated book on the subject by best-selling author Michael Lewis called "Flash Boys." In it, Lewis argues that the stock market is now rigged to benefit a group of insiders that have made tens of billions of dollars exploiting computerized trading. The story is told through an unlikely cast of characters who figured out what was going on and have devised a plan to correct it. It could have a huge impact on Wall Street. Tonight, Michael Lewis talks about it for the first time.
Steve Kroft: What's the headline here?
Michael Lewis: Stock market's rigged. The United States stock market, the most iconic market in global capitalism is rigged.
Michael Lewis: By a combination of these stock exchanges, the big Wall Street banks and high-frequency traders.
Steve Kroft: Who are the victims?
Michael Lewis: Everybody who has an investment in the stock market.
"Stock market's rigged. The United States stock market, the most iconic market in global capitalism is rigged."
Michael Lewis is not talking about the stock market that you see on television every day. That ceased to be the center of U.S. financial activity years ago, and exists today mostly as a photo op. This is the stock market that Lewis is talking about; the one where most of the trades take place now, inside hundreds of thousands of these black boxes located at more than 60 public and private exchanges, where billions of dollars in stock change hands every day with little or no public documentation. The trades are being made by thousands of robot computers, programmed to buy and sell every stock on the market at speeds 100 times faster than you can blink an eye. A system so complex, it's all but invisible.
Michael Lewis: If it wasn't complicated, it wouldn't be allowed to happen. The complexity disguises what is happening. If it's so complicated you can't understand it, then you can't question it.
Steve Kroft: And this is all being done by computers?
Michael Lewis: All being done by computers. It's too fast to be done by humans. Humans have been completely removed from the marketplace.
"Fast" is the operative word. Machines with secret programs are now trading stocks in tiny fractions of a second, way too fast to be seen or recorded on a stock ticker or computer screen. Faster than the market itself. High-frequency traders, big Wall Street firms and stock exchanges have spent billions to gain an advantage of a millisecond for themselves and their customers, just to get a peek at stock market prices and orders a flash before everyone else, along with the opportunity to act on it.
Michael Lewis: The insiders are able to move faster than you. They're able to see your order and play it against other orders in ways that you don't understand. They're able to front run your order.
Michael Lewis: Means they're able to identify your desire to, to buy shares in Microsoft and buy 'em in front of you and sell 'em back to you at a higher price. It all happens in infinitesimally small periods of time. There's speed advantage that the faster traders have is milliseconds, some of it is fractions of milliseconds. But it''s enough for them to identify what you're gonna do and do it before you do it at your expense.
Steve Kroft: So it drives the price up.
Michael Lewis: So it drives the price up, and in turn you pay a higher price.
"If it wasn't complicated, it wouldn't be allowed to happen. The complexity disguises what is happening. If it's so complicated you can't understand it, then you can't question it."
Michael Lewis is not the first person to allege the stock market is rigged or that high-frequency traders are front running the market but he was the first to find Brad Katsuyama, who is the first to figure out how it was being done.
Michael Lewis: A very unlikely character, a trader at the Royal Bank of Canada, a young Canadian man named Brad Katsuyama realized that the market that he thought he knew had changed. The market seemed to be willing to sell a stock. But the minute he went to buy it, someone else bought it, the stock went up. It was as if someone knew what he was doing before he did it.
RBC trading floor in New York City
WALLSTREETANDTECH.COM
Back in 2008, Katsuyama was 30 years old and running the Royal Bank of Canada's stock desk in New York with 25 traders working for him. Every time one of them tried to buy a large block of stock for a client their order would only be partially filled and the price of the stock would go up. It kept happening over and over again.
Brad Katsuyama: The best analogy I think is that your family wants to go to a concert. You go onto StubHub, there's four tickets all next to each other for 20 bucks each. You put in an order to buy four tickets, 20 bucks each and it says, "You've bought two tickets at 20 bucks each." And you go back and those same two seats that are sitting there have now gone up to $25.
Steve Kroft: What'd you think the problem was?
Brad Katsuyama: I had no idea. I couldn't get answers.
At first, Katsuyama thought the technology at RBC was slow, until he went to Stamford, Conn., and paid a visit to one of the largest hedge funds in the world.
Brad Katsuyama: The same thing that I was experiencing as a trader, one of the most sophisticated hedge funds in the world was also having the same problem. Then the light bulb goes off. You say, "Holy cow, this is, this is a huge problem."
Steve Kroft: You were determined to get to the bottom of it?
Brad Katsuyama: Yeah.
Steve Kroft: Why?
Brad Katsuyama: 'Cause it just didn't feel right. It didn't feel right that people who are investing on behalf of pension funds and retirement funds are getting bait and switched every single day in the market.
Katsuyama suspected that the problem had something to do with plumbing, the way the trades were routed through fiber optic cables from his trading desk in lower Manhattan to the 13 public exchanges in northern New Jersey. But no one would tell him exactly what happened to his orders once he hit the buy or sell button. So he put together a team of technical experts, traders and most importantly, an Irish telecom guy named Ronan Ryan, who was an expert on high-speed fiber optic networks.
Ronan Ryan: I knew nothing about trading until my first day at RBC when I sat in that three hour meeting on algorithms. I called my wife afterwards. And I'm like, "Holy crap, I have no idea what they just said."
Ryan had done work for the high-frequency traders. He knew what they were building and he knew about the colossal amounts of money they were prepared to spend. He told Brad about a company called Spread Networks that had laid a high-speed fiber optic cable from the futures market in Chicago to the exchanges in New Jersey. They spent $300 million just to shave three milliseconds off the fastest route and were leasing access to high-frequency traders at $10 million a pop.
Michael Lewis: From Brad Katsuyama's point of view, when he heard they were willing to spend that kind of money for milliseconds it told him the sums involved were vast. That was one of the first questions he said he had. He says, "All right, I'm getting ripped off. Everybody's getting ripped off. But what does it add up to?" And I think when he heard the story of Spread Networks, he realized this is tens of billions of dollars we're talking about.
Ronan Ryan also knew where all the cable was buried and had detailed maps of the fastest routes from the financial district in lower Manhattan to the various stock exchanges in New Jersey, all calculated down to the millisecond.
Ronan Ryan: So I would sit there, roll out maps, and roll out this data center as a box and a line going through it. And they had no idea what I was on about. And then I'd be like, "Hey are you guys aware of where these data centers are located? Of course you're arriving there at different time intervals."
For Brad, the maps turned what had been an abstract idea into something he could actually see. The first place his orders were landing was the BATS Exchange across the river in Weehawken, N.J., and high-frequency traders were lying there in wait.
Michael Lewis: Brad realizes, "Oh my God, that's how I'm being front-runned. I'm being front-runned because my signal gets to the BATS Exchange first and they can beat me to all the, all the other exchanges."
It only took a tiny fraction of a second for Brad's trade to reach the next exchanges on the network, but the high-speed traders were able to jump in front of him, buy the same stock and drive the price up before his order arrived, producing a small profit of just one or two pennies. But it was happening to everyone's trades millions of times a day.
Michael Lewis: One hedge fund manager said, "I was running a hedge fund that was $9 billion and that we figured that the, just our inability to, to make the trades the market said we should be able to make was costing us $300 million a year." That was $300 million a year in someone else's pocket.
Steve Kroft: Is this illegal?
Michael Lewis: No. That's the thing that's so shocking about all this. It should...
Steve Kroft: Well you used the word front running. Front running's illegal.
Michael Lewis: This form of front running is legal. It's legalized front running. It's crazy that it's legal for some people to get advance news on prices and what investors are doing. It's just nuts. Shouldn't happen.
Ronan knew the only way to beat the high-frequency traders was to take away their milliseconds advantage that allowed them to sniff out slower trades and beat them to the exchange. He had an idea how to do it.
Brad Katsuyama: And he said, "You're probably better off trying to go slower," which means send the order to the exchange located the farthest away first and send the order to the one that's located to you last. So stagger when you send them out with the goal of arriving at all places, as close to the same time as possible.
Katsuyama and his team developed software that did just that, allowing the orders of Royal Bank of Canada's customers to reach all of the exchanges at the same time, cutting the high-frequency traders out of the equation.
Brad Katsuyama: And essentially our fill rates went to 100 percent. We couldn't believe it when, when we actually figured it out.
Steve Kroft: So you beat speed by slowing it down.
Brad Katsuyama: Yeah, as crazy as that sounds.
Katsuyama and his team went out and began selling and explaining what they had discovered to the big mutual funds, pension funds and institutional investors, people who had suspicions that they were being front-run but didn't know how.
Steve Kroft: And nobody had really bothered or tried to figure this out until Brad Katsuyama came along...
Michael Lewis: It was in nobody's interest to, correct. I spoke to dozens of investors, big investors, famous investors who, who said that, "When Brad Katsuyama came into my office and laid out to me how the market was rigged, my jaw hit the floor. I mean, I knew something was wrong. I just didn't know what it was and no one had told us."
Brad Katsuyama: Part of those meetings led us to believe, "Holy cow, this is, this is really something." 'Cause some of the most sophisticated, largest asset managers in the world, this is the first time they were hearing this story.
And some of the most famous names in the American stock market heard the pitch...
Michael Lewis: The Capital Group, T. Rowe Price, Fidelity, Vanguard, I mean, it, one after another. He was in their offices. They said, "This man walked in. Why is he gonna know how the stock market operates?" And, and at the end of the hour they said, "Oh, my God, he understands."
Hedge fund titan David Einhorn of Greenlight Capital is one of the believers.
Steve Kroft: Was he able to show you how your orders were being front run?
David Einhorn: Oh yeah. They had, they, they got the marker and the white board and started drawing maps and boxes, and wires and locations. And yeah, we went through it in some detail.
Steve Kroft: Did you find it interesting?
David Einhorn: It was. It was.
Clients like Einhorn encouraged Brad and his team to do something bigger. That's when Katsuyama, a conformist even by Canadian standards, decided to do something radical. In 2012, he quit his high-paying job as head trader at RBC and went off with some of his team to start their own exchange.
Steve Kroft: You were making good money at Royal Bank of Canada?
Brad Katsuyama: Yeah, right.
Steve Kroft: Millions of dollars?
Brad Katsuyama:: Right. I guess, I guess everybody know that now? Right, yeah.
Steve Kroft: Why did you wanna go off and walk away from that job and start a stock exchange?
Brad Katsuyama: Yeah, wasn't an easy conversation to have with my wife, that's for sure. It almost felt like a sense of obligation to say, "We found a problem. It's, it's affecting millions and millions of people. People are blindly losing money they didn't even know they're entitled to. It's a hole in the bottom of the bucket.
They set out to build an exchange funded exclusively by large traditional investors. They called it IEX, the investor's exchange, and quietly launched it in October with the support of some of the biggest players on Wall Street. And it comes with built in speed bumps to eliminate the advantage of high-speed predators.
Michael Lewis: And the way they did it was they coiled 60 kilometers of fiber optic cable between themselves and the high-frequency traders computers. They call it the magic shoe box and it looks like it's got fishing line in it. But essentially, a high-frequency trader, if he tries to react on the IEX exchange, his trade goes (makes noise) for 60 kilometers until, so he's, he's in east Jesus.
Steve Kroft: So it gets there the same time as everybody else.
Michael Lewis: It gets there same time as everybody else's.
Steve Kroft: Do you think they can game you?
Ronan Ryan: I think that they'll try to game us. I think the fact, though, that we've gone and met with the majority of the biggest high-frequency firms to explain what the magic shoebox is doing and that people haven't said, "Oh that's rubbish. That won't work." We've had many ask us for a backdoor, to be honest. So that says something that it'll work.
The exchange is off to a strong start, although it is still very small with lots of powerful enemies that like the status quo and are trying to starve IEX by discouraging customers from using them. Greenlight Capital's David Einhorn is one of the investors.
Steve Kroft: Do you think IEX will survive?
David Einhorn: I think it's gonna succeed. I think it's gonna succeed in a very big way.
Just last week, IEX received a strong endorsement from Goldman Sachs, whose top executives cited it as a model for a more stable and less complicated stock market.
Brad Katsuyama: We're selling trust. We're selling transparency. And, and, and to think that trust is actually a differentiator in a service business, it's kind of a crazy thought, right?
Michael Lewis: Why is this kid, why is he able to all of a sudden sit at the center of the American stock market? And the answer is, when someone walks in the door who is actually trustworthy, he has enormous power. And this is the story, story of trying to restore trust to the financial markets.
Few journalists have achieved the impact and recognition that Steve Kroft's 60 Minutes work has generated for over two decades. Kroft delivered his first report for 60 Minutes in 1989.
President Dwight D. Eisenhower warned, “Our American heritage is threatened as much by our own indifference as it is by the most unscrupulous office or by the most powerful foreign threat.” He also warned against the predations of the “military-industrial complex,” which includes the Wall Street financial complex aided and abetted by the Federal Reserve cartel and your “representatives” in Congress who receive huge campaign contributions from the financial industry. If you want to be free of the elite, find out how much money your “elected” representative receives from the banks and their cronies (military-industrial contractors), and demand they reject such contributions, which often serve as bribes to the politically ambitious. Here are two websites to find out where your legislator gets financial donations: www.maplight.org and www.opensecrets.org.
It is powerful elite interests that select presidential and congressional candidates to do their bidding. Ask yourself why we have had presidents who are conniving political hacks, rich 1 percent playboys, Texas wheeler-dealers, cheap southern adulterers/sexual predators, successive family power brokers, and corrupt Chicago politicians without proper credentials. This list goes on and on in Congress with plenty of fire and smoke.
The Federal Reserve “bank” was established in 1913 with pretention that it would stabilize the American economy, but its real purpose was to protect the wealthy bankers who founded it in secret. The Fed, a private non-government bank, prints paper currency (debt) and bills the American taxpayer for it. The Fed gives newly printed money to elite bankers who speculate with it in the stock market and place highly lucrative gambles in the international casino known as the derivatives market. These bankers also deposit the free money with Federal Reserve to receive 0.25 percent interest. Free money and free interest! If you try this, you’ll be arrested for counterfeiting!
This Fed/bankster system brought on the 2008 recession but continues today hugely magnified. Why?! Because it is very lucrative for the elite rulers of the world as they transfer wealth from the middle class to themselves! Here are some facts to illustrate:
·Since 2008, the number of people on food stamps has spiked from 28.2 million to 47.7 million (70 percent increase).
·Average family income for top 0.01 percent (the elite) increased by 75.2 percent between 2002 and 2012, while average family income of the bottom 90 percent decreased by 10.7 percent.
·The top 1 percent own over 50 percent of America’s wealth. A group of just 400 Americans are worth $2 trillion, which is more than the total GDP of Italy, Mexico, or Canada.
·Fraud and theft are rampant in every financial venue and include the manipulation of interest rates, currency exchange rates and commodity prices (from corn to oil to gold). Big American/international banks openly violate the law and pay token fines; for instance, if you think a billion dollar fine for HSBC is large, consider that it amounts to about five weeks of profit for the huge bank. These banksters consider criminal fines just another cost of doing business. No one is ever prosecuted.
The above list is small in relation to the whole truth, which is that the entire financial system is rigged like a casino in which the house – the banksters and their military-industrial and political cronies – cannot lose!
What are you waiting for? Someone to rescue you? No one is coming. If you want to be rescued, you must snap out of your apathy. You must repudiate the elitist’s system. You must get rid of all the congressmen and senators who abet and encourage this inequity. All are guilty to one degree or another – some more so than others – like those who gave us the Unaffordable Care Act (Obamacare), which is just another way to control the middle and lower class masses by determining if, when and for what they can receive medical treatment.
Your must get rid of the Federal Reserve. Ron Paul is right about their nefarious goals and practices. They are a more inhumane and destructive cartel than all the drug cartels put together. Their power and influence are worldwide. Time is almost out to block their ultimate goal of enslaving the world and making you their serfs in bondage!
I am certain that it was the same with Goliaths when they looked down on their Davids. No problem here -- yet.
On the sidewalks of Constitution Avenue on March 22, a No-Problem-Here-Yet contingent of activists showed up to protest the European Central Bank's conference on Monetary Policy at the Federal Reserve Board of Governors. They straggled in from DC suburbs as well as the streets of Chicago and NYC and they had one clear intention: to locate the stone that they could put in their sling to dispatch their enemy.
"Our ultimate goal is to take the ownership of the means of producing money in this country away from the private cartel of Wall Street banksters," declared OrganizersHarrison Schultz and Lorna Shannon.
"This first event is called The People's First Grassroots Conference on Monetary Policy and we intend to put the spotlight on what is called the NEED Act," the two added.
Let me see if I understand this. It's grassroots. It's people. And, it's about monetary policy. Somehow, went my initial thinking, the first two don't seem to fit in with the latter. The Federal Reserve is not inclined to mingle with people having grass stains on their coveralls.
That thought was corrected vigorously by those I met. The very fact that they were very likely to be ignored seemed to promise more effort on their part, not less. This is America. It is to be expected.
We're FedUp
"We're FedUp with the Federal Reserve and the private cartel of Walls Street bankers who work at and control the Fed," Harrison added. "We intend to start an important conversation and see it grow across the country and in numbers that cannot be ignored."
The determination of this band fits in nicely with American history and the hate-hate relationship citizens have had with the Fed for the past 100 years (its centennial was celebrated in December).
The first attempt at creating a central bank was in 1791 when then-Treasury Secretary Alexander Hamilton established the First Bank of the United States. It became the largest corporation in the United States, which soured agrarian-minded Americans and its 20-year-charter ended in 1811. Congress refused to renew it by one vote.
In 1913 the Federal Reserve System came into existence and signed into law by President Woodrow Wilson. It was considered a classic example of compromise -- a decentralized central bank that balanced the competing interests of private banks and populist sentiment.
That warm legislative glow lasted, somewhat, until the market crash of 1929 and the Great Depression. From 1930 to 1933, nearly 10,000 banks failed, Roosevelt declared a bank holiday, and economists and politicians went back to the drawing board... out of which came the Banking Act of 1933 (better known as the Glass-Steagall Act).
Basically, the banks got a good spanking and were ordered to play by the (new) rules.
Time and space do not allow for a deeper history lesson, but it suffices to say that the Fed has had a checkered history. In many ways it kept a damper on inflation and provided money at times of crisis. It also allowed the greed of the banking houses to reach heights not seen since before the Great Depression.
And, we all know what happened.
We all know, as well, that the Occupy Wall Street movement came into existence three years into the Great Recession to change the conversation and the playing field itself. The national dialogue would no longer be run by bankers and politicians who urged austerity (not for themselves) on the one hand and blamed Main Street on the other.
For the first time since the '30s, the 99 percent stood up and pointed out the real culprits -- Wall Street and the politicians they own. People listened, they heard, and began to believe.
They got bailed out. We got sold out
Which brings us back to this small troupe carrying signs and using a bullhorn to bring the inequities of the Fed to the attention of passing cars and pedestrians.
Like most of the people reading this article, the onlookers are unaware that the Fedtruly isn't federal. It is not a government agency, but a privately owned corporation. The audience, also like most people reading this article, do not know that this corporation is owned by America's largest banks -- whose executives also sit on its board.
There is decidedly something wrong with this picture and the effort that will be needed to change it, described by this interviewer as "The Vietnam War That We Must Win" in a conversation with protestor, Nick Egnatz.
"It is time to take the power of money creation from the Federal Reserve and private banking cartels and return it to a transparent system that is accountable to the people," one of the protestors shouted through his megaphone. (This was one, serious Occupy rant we are talking about.) The literature handed out continued that lineage:
"Our goal is no longer merely changing the conversation or urging people to quit their jobs, leave their homes to occupy the streets, or get arrested and beaten by the police. We do however recognize the value of spending time in the streets at actions, demonstrations, rallies and marches in order to help grassroots activists and organizers learn more about the Federal Reserve; and to show the public that people are organizing to create a better economy for all of us."
It continues:
"While the Fed and ECB talk more status quo economics, making insignificant policy changes and making cases for printing more and more debt backed money to further enslave and oppress the 99 percent, we will present radical alternatives that can transform the power dynamics and empower entire communities that have been completely disenfranchised from the system and alienated from the ever elusive American Dream."
And ends: "FedUp is an educational movement. Our aim is to illuminate the truth about the Federal Reserve and to spread awareness about alternatives to the centralized banking system."
Choosing the weapon...and the warrior
So, if a FedUp hero (or heroine) will be needed to serve as the David 99 percent against Goliath Fed 1 percent, and its sling is education, just exactly what is the stone that will split the forehead of one of the largest and most frightening Ogres this world has produced and bring it low?
It's the NEED Act, better known as H.R. 2990 (112th) National Emergency Employment Defense Act of 2011.
Introduced by then-congressman Dennis Kucinich, its purpose is to create a full employment economy as a matter of national economic defense; to provide for public investment; to retire public debt; to stabilize the Social Security retirement system; to restore the authority of Congress to create and regulate money, modernize and provide stability for the monetary system of the United States, and for other public purposes.
That's some stone. And, we only need to find one congressman today who will become its new sponsor, be the requisite David to pick it up and put it into the sling and start twirling.
Where is that David today? Who will be that David today?
from globalresearch.ca By Eric Zuesse Global Research, March 26, 2014
Two recent reports show that Obama and his Administration lied when they promised to prosecute Wall Street executives who had cheated outside investors and deceived homebuyers when selling mortgages to them.
On May 20, 2009, at the signing into law of both the Helping Families Save Their Homes Act and the Fraud Enforcement and Recovery Act, President Obama said:
“This bill nearly doubles the FBI’s mortgage and financial fraud program, allowing it to better target fraud in hard-hit areas. That’s why it provides the resources necessary for other law enforcement and federal agencies, from the Department of Justice to the SEC to the Secret Service, to pursue these criminals, bring them to justice, and protect hardworking Americans affected most by these crimes. It’s also why it expands DOJ’s authority to prosecute fraud that takes place in many of the private institutions not covered under current federal bank fraud criminal statutes — institutions where more than half of all subprime mortgages came from as recently as four years ago.”
Then, in the President’s 24 January 2012 State of the Union Address, he said:
“Tonight, I’m asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. (Applause.) This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans. Now, a return to the American values of fair play and shared responsibility will help protect our people and our economy.”
However, two years later, the Inspector General of the U.S. Department of Justice issued on 13 March 2014 its “Audit of the Department of Justice’s Efforts to Address Mortgage Fraud,” and reported that Obama’s promises to prosecute turned out to be just a lie. DOJ didn’t even try; and they lied even about their efforts. The IG found: “DOJ did not uniformly ensure that mortgage fraud was prioritized at a level commensurate with its public statements. For example, the Federal Bureau of Investigation (FBI) Criminal Investigative Division ranked mortgage fraud as the lowest criminal threat in its lowest crime category. Additionally, we found mortgage fraud to be a low priority, or not [even] listed as a priority, for the FBI Field Offices we visited.” Not just that, but, “Many Assistant United States Attorneys (AUSA) informed us about underreporting and misclassification of mortgage fraud cases.” This was important because, “Capturing such information would allow DOJ to … better evaluate its performance in targeting high-profile offenders.”
Privately, Obama had told Wall Street executives that he would protect them. On 27 March 2009, Obama assembled the top executives of the bailed-out financial firms in a secret meeting at the White House and he assured them that he would cover their backs; he promised “My administration is the only thing between you and the pitchforks”. It’s not on the White House website; it was leaked out, which is one of the reasons Obama hates leakers. What the DOJ’s IG indicated was, in effect, that Obama had kept his secret promise to them.
Here is the context in which he said that (from page 234 of Ron Suskind’s 2011 book, Confidence Men):
The CEOs went into their traditional stance. “It’s almost impossible to set caps [to their bonuses]; it’s never worked, and you lose your best people,” said one. “We’re competing for talent on an international market,” said another. Obama cut them off.
“Be careful how you make those statements, gentlemen. The public isn’t buying that,” he said. “My administration is the only thing between you and the pitchforks.”
It was an attention grabber, no doubt, especially that carefully chosen last word.
But then Obama’s flat tone turned to one of support, even sympathy. “You guys have an acute public relations problem that’s turning into a political problem,” he said. “And I want to help. But you need to show that you get that this is a crisis and that everyone has to make some sacrifices.” According to one of the participants, he then said, “I’m not out there to go after you. I’m protecting you. But if I’m going to shield you from public and congressional anger, you have to give me something to work with on these issues of compensation.”
No suggestions were forthcoming from the bankers on what they might offer, and the president didn’t seem to be championing any specific proposals. He had none: neither Geithner nor Summers believed compensation controls had any merit.
After a moment, the tension in the room seemed to lift: the bankers realized he was talking about voluntary limits on compensation until the storm of public anger passed. It would be for show.
He had been lying to the public, all along. Not only would he not prosecute the banksters, but he would treat them as if all they had was “an acute public relations problem that’s turning into a political problem.” And he thought that the people who wanted them prosecuted were like the KKK who had chased Blacks with pitchforks before lynching. According to the DOJ, their Financial Fraud Enforcement Task Force (FFETF) was “established by President Barack Obama in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.” But, according to the Department’s IG, it was all a fraud: a fraud that according to the DOJ itself had been going on since at least November 2009.
The IG’s report continued by pointing out the Attorney General’s lies, noting that on 9 October 2012, “the FFETF held a press conference to publicize the results of the initiative,” and:
“The Attorney General announced that the initiative resulted in 530 criminal defendants being charged, including 172 executives, in 285 criminal indictments or informations filed in federal courts throughout the United States during the previous 12 months. The Attorney General also announced that 110 federal civil cases were filed against over 150 defendants for losses totaling at least $37 million, and involving more than 15,000 victims. According to statements made at the press conference, these cases involved more than 73,000 homeowner victims and total losses estimated at more than $1 billion.
“Shortly after this press conference, we requested documentation that supported the statistics presented. … Over the following months, we repeatedly asked the Department about its efforts to correct the statistics. … Specifically, the number of criminal defendants charged as part of the initiative was 107, not 530 as originally reported; and the total estimated losses associated with true Distressed Homeowners cases were $95 million, 91 percent less than the $1 billion reported at the October 2012 press conference. …
“Despite being aware of the serious flaws in these statistics since at least November 2012, we found that the Department continued to cite them in mortgage fraud press releases. … According to DOJ officials, the data collected and publicly announced for an earlier FFETF mortgage fraud initiative – Operation Stolen Dreams – also may have contained similar errors.”
Basically, the IG’s report said that the Obama Administration had failed to enforce the Fraud Enforcement and Recovery Act of 2009. This bill had been passed overwhelmingly, 92-4 in the Senate, and 338-52 in the House. All of the votes against it came from Republicans. The law sent $165 million to the DOJ to catch the executive fraudsters who had brought down the U.S. economy, and it set up the Financial Crisis Inquiry Commission, and had been introduced and written by the liberal Democratic Senator Patrick Leahy. President Obama signed it on 20 May 2009. At that early stage in his Presidency, he couldn’t afford to display that he was far to the right of every congressional Democrat, so he signed it.
Already on 15 November 2011, Syracuse University’s TRAC Reports had headlined “Criminal Prosecutions for Financial Institution Fraud Continue to Fall,” and provided a chart showing that whereas such prosecutions had been running at a fairly steady rate until George W. Bush came into office in 2001, they immediately plunged during his Presidency and were continuing that decline under Obama, even after the biggest boom in alleged financial fraud cases since right before the Great Depression. And, then, on 24 September 2013, TRAC Reportsbannered “Slump in FBI White Collar Crime Prosecutions,” and said that “prosecutions of white collar criminals recommended by the FBI are substantially down during the first ten months of Fiscal Year 2013.” This was especially so in the Wall Street area: “In the last year, the judicial District Court recording the largest projected drop in the rate of white collar crime prosecutions — 27.8 percent — was the Southern District of New York (Manhattan).”
Another recent report documents lying by the Administration regarding its promised program to force banks to compensate cheated homeowners for fraud in their mortgages, and sometimes even for evictions that were based on those frauds. The investigative journalist David Dayen headlined on 19 March 2014, “Just 83,000 Homeowners Get First-Lien Principal Reductions from National Mortgage Settlement, 90 Percent Less Than Promised.” He documented that, “the Secretary of Housing and Urban Development sold the settlement on a promise of helping 1 million homeowners, and the final number missed the cut by over 916,000. That … shows the essential dishonesty [Obama’s HUD Secretary Shaun] Donovan displayed in his PR push back in 2012. … We’re used to the Obama Administration falling far short of their goals for homeowner relief, whether because of a lack of interest or a desire to foam the runway for the banks or whatever. Even still, the level of duplicity is breathtaking.”
