Published CommPRO.biz 2013.10.03

Wall Street Ethics

Mid-September (2013.09.15) marked five years since Lehman Brothers, one of the largest investment banks ever, filed the largest bankruptcy ever, sending sky rockets up all over the world and marking the beginning of what we’ve come to call the “Great Recession.” Lehman’s implosion triggered a serious of herculean bailouts of the rest of our banking sector by the American taxpayers.

Hank Paulson, who became Treasury Secretary after a career at Goldman Sachs, saw a danger of another depression if the banking sector collapsed. He hurriedly threw together the bailouts. However, he failed to impose the controls needed to keep the banks from abusing these funds, leaving them free to award themselves over the top bonuses. The Federal Reserve kicked in billions more, throwing open the doors to the risky gambling (see London Whale) that caused the collapse.

Lehman wasn’t the only bank gone wild; all of the dozen or so monster banks were behaving badly. Lehman was just pushing the limits of the regulation-free climate the banking lobby created over the preceding two decades. Repo 105 was the accounting gimmick of choice at Lehman. The tricksters there would sell off billions of their really bad stuff before each quarterly reporting period, making their books look as though they were sound when in fact they were anything but. Emails, written just before the bankruptcy, show that senior management pushed their subordinates to cover their tracks.

On May 18, 2008, almost exactly two months before the bankruptcy filing, Senior Vice President Matthew Lee had a letter hand delivered to four of Lehman’s top executives with a copy to their house counsel. In it he detailed these practices and questioned both their legal and ethical grounds. Management responded by firing him. Later, Lee identified Repo 105 as one source of the collapse for the federal investigators. Matthew Lee is still out of a job today; nobody on Wall Street has hired this honest man.

Not so most of the schemers who played fast and loose with the financial facts at Lehman. According to a Huffington Post tally, three quarters of the Lehman folks -47 of 63 involved in the Repo 105 scam- are employed in the financial world and doing just fine thank you. In fact, while most Americans are struggling to recover from the crash and millions are unemployed, the Wall Street banksters are fine.

And why shouldn’t they be –aside from ethics and stuff like that– the banks know if they overplay their hand again, Repo 105 or whatever, a taxpayer bailout is just around the corner. So they gamble with your savings, secure in the knowledge that the FDIC will cover their losses and that we’ll loan them whatever they need to get back on their feet. Just don’t ask them to support the small businesses that create jobs or anything like that. Leave that to the suckers who run the regional and community banks.

The Price

The nearly unprecedented power a handful of monster banks wield over our lives raises a suite of ethical questions. “Nearly unprecedented” only because it mimics the power of the banking sector in America following World War I and through  the decade we refer to as the “Roaring Twenties.” We all know what happened at the end of that period, the Great Depression.

Interestingly, the monster banks of that day played a small role in triggering that horrific event. However, the people and their representatives in the Congress reacted more aggressively than those in that esteemed body have in response to an event almost exclusively the result of reckless behavior by today’s monster banks. Their power is two-fold: their control over members of Congress through massive injections of campaign cash, plus their ability to convince foolish voters that making rich folks richer will somehow benefit those down the food chain.

Add to this snake-oil logic the idea that instead of addressing the Great Recession as we have every other economic downturn since the industrial revolution, we are told that we need to cut investments in education, our crumbling infrastructure, firemen, police, and anything else that might maintain and improve our nation’s well-being. We are told austerity is the answer, a solution embraced by some in the Euro Zone and Great Britain.

Germany has taken the lead in imposing this path to prosperity on its neighbors. However, it’s not been so keen on austerity for Germany itself. The Scandinavian nations have not embraced austerity with enthusiasm either. Our neighbors to the north, Canada, have seen no need, since their banking laws saved them from the carnage our banks inflicted on Americans. By the way, our banks are fine; we bailed them out and guess what they are doing? The same stuff that crashed the world economy in 2007-2008. Why not? They know we will bail them out again.

How’s austerity working for the American people? They took the hit, no bailout for them. It’s been hard. Losing homes, jobs and dreams has been tough. Some folks can’t deal with it. Marriages come apart, and for some folks who just can’t go on, suicide seems the answer. The suicide rate in Europe has soared and it’s climbed in America as well.

As the recession ballooned from 2007 through 2010 experts* estimate suicides exceeded the norm by more than 4,750 across our land. The rate was a lot higher in states with the highest job losses. Unemployed folks are roughly twice as likely to die by their own hand as those who have work. Every one of these nearly 5,000 Americans who committed suicide was killed by the reckless bankers who tanked our economy. The bankers killed them as surely as if they had mowed them down against a wall; they were “Collateral Damage” in the bankers’ scramble for riches. The bankers gambled and everyone lost,,,,, except them. Some lost their lives.

*David Stuckler & Sanjay Basu, The Body Economic: Why Austerity Kills