I love Matt Taibbi. For those of you who never heard of him, he’s a political writer for Rolling Stone and he’s been focusing mostly on the financial sector for the past few years (wall street, mortgage crisis, crooked bankers, etc). I like him cause he really seems to be the kind of person that doesn’t care what people think when he writes. He is pissed and it shows in his incredibly researched and detailed articles.
Yes, for the most part the public is of the belief that financial news is boring but he writes about it anyway. Somebody needs to and he does it quite well.
No article he has ever written does it better than the one in the current issue of RS (1160). The article is called “The Scam Wall Street Learned From the Mafia” and I urge you to give it 30 minutes of your time. It is an amazing read about something that is esoteric and yet totally accessible. It’s about bond interest rates.
Before you complain, let me explain. This article talks about a specific case where the feds went after and won a case against 3 traders who were caught participating in a fraud to fix interest rates on big municipal bond deals. The technicalities are not important here. What is important is how these guys were ripping off cities around the country and then using their profits to go on trips to Las Vegas and such. These kinds of guys are those douchie rich guys in the bar that you hate and you wonder : What makes them so special that they deserve to be so rich? Well guess what? It’s not due to skill or brains, it’s due to a willingness to rip people off.
As I read this I was just so mad at these fuckers. And these are just the 3 that the government went after. There are hundreds more and there are many more even bigger executives that are part of this fraud as well. It’s sickening. There is even a connection to Bill Richardson who I thought was a good guy when he was running for president:
Even more startling was the way that a notorious incident involving former New Mexico governor and presidential candidate Bill Richardson resurfaced during the trial. Barack Obama, you may recall, had nominated Richardson to be commerce secretary – only to have the move blow up in his face when tales of Richardson accepting bribes began to make the rounds. Federal prosecutors never brought a case against Richardson: In 2009, an inside source told the AP that the investigation had been “killed in Washington.” Obama himself, after Richardson bowed out, praised the former governor as an “outstanding public servant.”
Now, in the Carollo trial, defense counsel got Doug Goldberg, the CDR broker, to admit that his boss, Stewart Wolmark, had handed him an envelope containing a check for $25,000. The check was payable to none other than Moving America Forward – Bill Richardson’s political action committee. Goldberg then went to a Richardson fundraiser and handed the politician the envelope. Richardson, pleased, told Goldberg, “Tell the big guy I’m going to hire you guys.”
Goldberg admitted on the stand that he understood “the big guy” to mean Wolmark. After that came this amazing testimony:
Q: Soon after that, New Mexico hired CDR as its swap and GIC adviser on a $400 million deal, right?
Q: You learned later that that check in that envelope was a check for $25,000, right?
A: Yes. I learned it later.
Q: You also learned later that CDR gave another $75,000 to Gov. Richardson, right?
Q: CDR ended up making about a million dollars on this deal for those two checks?
Q: In fact, New Mexico not only hired CDR, they hired another firm to do the actual work that they needed done?
A: For the fixed-income stuff, yes.
What we get from this is that CDR paid Bill Richardson $100,000 in contributions and got $1.5 million in public money in return. And not just $1.5 million, but $1.5 million for work they didn’t even do – the state still had to hire another firm to do the actual job. Nice non-work, if you can get it.
In case you are still skeptical about the complex subject, I will explain it to you here : Cities borrow money to build bridges and hospitals and rec centers. When they make the loan they usually get the whole amount at once (say $25M) and they pay construction guys and other vendors out of that account as they go on with the project. What this means is that for the duration of the project, the majority of that $25M is sitting in some bank so to make some money with it, the cities can lend it out to borrowers and charge a fair interest rate for it. This is where these guys ripped off the cities. There is supposed to be a public bid from borrowers on that rate (say a fair rate is 5.00%) but these guys fixed the auction to maybe only give 4.95%. That .05% on $25M is real money. Multiply that by 100s of deals a year and you have a motive to keep ripping off the cities.
This is a great read and it is representative of what is really going on in this country. The sad part is that this isn’t capitalism. The heart of capitalism is the free market. Without that, we have nothing and colluding on a price at auction is exactly what we don’t want but yet it is everywhere.