December 14, 2010 Dylan Ratigan

Lawrence McDonald: Why No Handcuffs in the Financial Crisis?


Lawrence McDonald

Bloomberg recently reported that “more than 70 percent of Americans say big bonuses should be banned this year at Wall Street firms that took taxpayer bailouts, a Bloomberg National Poll shows…”

JPMorgan Chase & Co. Chairman and Chief Executive Officer Jamie Dimon got a bonus package for 2009 valued at $17 million and Goldman Sachs Group Inc.’s Chairman and CEO Lloyd Blankfein received a $9 million all-stock bonus for last year, down from his Wall Street record $67.9 million in 2007.”

“The American people bailed them out and immediately they went and paid their employees very large bonuses,” says poll respondent Michael Robertson, 43, of Wayne, Michigan. “I don’t believe they should have a bonus at all for a while.”

Why have there not been any prosecutions in the financial crisis? “Lawrence McDonald is as intimately familiar with how badly you’re being screwed by the American financial system, and how corrupt the governments decision making is to address not only reforming the financial system but servicing justice inside the financial system,” says Dylan.

So familiar, in fact, that he wrote a book about it.

Lawrence McDonald is the author of  A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers. Larry is currently with McDonald Advisory Group and DC Tripwire, specializing in both research and asset management.

“The SEC, these regulators, they love the low-hanging fruit. They love the insider trading cases. The complexity of the Lehman Brothers balance sheet and what went down — there were definitely criminal activities and horrific accounting moves that deceived investors. We raised in the spring of 2008 as Lehman was heading towards that iceberg — we raised $10 billion in equity and preferred stock. Those investors were absolutely vaporized,” says Larry.

He continues, “like you said, nothing’s been done. They want to go after insider trading, kind of 20th century investigations instead of 21st century investigation,” says Larry.

Dylan asks, “but what could be more low hanging fruit, politically, than the obvious extraction using the executive compensation vehicles at the top of places like Lehman Brothers to wind up the most insane gambling parlor the world has ever seen? Then, when all the bad bets come back, jam them down the governments throat under the blackmail that you’ll blow up every pension in America?”

“There is something going on with the Lehman investigation. It’s ebbed and flowed,” says Larry. “In September, they brought Lehman executives back for the third and fourth time. Even in October, over the last several weeks, things have gotten a little more quiet. And I think that they’re going to make a move, we just don’t know when it is,” says Larry.

“I think Goldman was the appetizer, and Lehman could be the main course, it might be next year. They’re going to go after some of this stuff — around the executive compensation of the decision makers that really deceived the investors in terms of our balance sheet manipulation,” says Larry.

As far as the FCIC investigations, Larry isn’t enthusiastic about the results so far as they haven’t yet gone after any individuals involved in the crisis. “In terms of individual executives and what they did wrong, I am really disappointed.  I think everyone is going to be disappointed with this thing. It’s going to give everyone kind of a thirty thousand foot view of the financial crisis but we need a five thousand foot view. We want people to be held accountable for what they did to our economy,” says Larry.

“It has to be political,” says Dylan. “It’s obvious that Obama and Geithner work on behalf of the financial institutions, both in the way that they have lobbied against leverage requirements, lobbied against anything that would reduce a banks ability to perpetuate itself in too big to fail fashion. They have basically worked on behalf of the servicing banks, and against the bond holders and the home owners when it comes to foreclosure. Do you think I’m wrong to look at Obama and Geithner and the Treasury Department, and ultimately Eric Holder and the Justice Department as bought by the banks?” asks Dylan.

“There’s no question that nine months ago, the position of Geithner and Obama, I would say, was ten times more aggressive on the banks on the heels of the AIG bonus thing. You remember, it was a big deal. They were really coming at the banks, a lot of aggressive language. And then through the summer, you had the Dodd-Frank bill come together, and you had all of these — about $320 million of political contribution money that went toward these candidates and all of a sudden, Dodd-Frank language is massively softened, Obama massively softened his position as well, and they’re either corrupt or just terrified of hurting the banks when we need them to heal. It’s one of the two,” says Larry.

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