April 6, 2009
Sixty-nine Million of us voted for President Obama because he promised hope and change from the disasters of the Bush Administration. Countless millions of human beings around the planet joined us in our relief and our elation when he was elected. An unthinking uncritical "Obamamania" among most of his supporters continues to prevail so far. This is dangerous for them, for President Obama and for all of us. Without critical analysis and pressure from his millions of supporters, Obama will stumble into disaster.
We have carefully watched the new President’s first 100 days and we are appalled. We find that Obama has continued Bush policies affecting the abuses of Wall Street banks, and allowing Wall Street wrongdoers to manage our economy and the "recovery."
Forget the impeachment of Bush and Cheney, the prosecution of Eliot Spitzer for his sexual indiscretion, and Bernard Madoff’s little Ponzi-scheme. What about prosecuting those bankers who profited from the most massive fraudulent swindle in human history?
Reputable commentators such as Michael Whitney, John Paul Roberts, Professor Michael Hudson, and now Professor William K. Black have spelled out the details. The CNBC TV Documentary House of Cards explained in detail with surprisingly candid on camera, guilt free admissions by the wrong-doers how this swindle worked from the borrowers and mortgage salesmen in Los Angeles to the top CEOs of Wall Street and to the Fed. These sources of our information have been relatively diplomatic in tone. It is time to name names and cite the fraudulent acts of those responsible, and the specific violations of law.
As we evaluate all of this, keep in mind what William K. Black said on Bill Moyer’s April 3 program about making risky loans where the ability of the borrower to repay a loan is not vetted: "We know that will produce enormous fraud under economic theory, criminology theory, and two thousand years of life experience." Both Democrats and Republicans, hand in hand with Wall Street Bankers, by repealing the Glass-Steagall Act, and by enacting The Commodity Futures Modernization Act of 2000 specifically to preclude regulation, caused the current extraordinary depression and crisis by ignoring and acting contrary to this accumulated human wisdom. Think of this when you evaluate whether their acts were knowing and intentional and whether they are guilty or innocent.
THE INTENTIONAL FRAUD OF THE WALL STREET BANKERS, RATING COMPANIES, AND THEIR CONGRESSIONAL ENABLERS
The legal elements or requirements of the crime or wrong of fraud known to every first year law student are:
1. An intentional misrepresentation of facts or a false promise
2. Knowledge of falsity
3. Intent to deceive
4. Justifiable and actual reliance on the truth of what was represented or promised
5. Resulting Damage
President Obama is a brilliant lawyer, top of his class at Harvard Law, and a ten year professor of Constitutional Law. His roots are in Chicago politics. President Obama clearly knows the elements of fraud.
We know the factual details of the wrongdoing from CNBC’s video House of Cards where those involved in the fraud at each level made surprisingly candid admissions of what they had done. At each level, the CEOs involved felt no guilt or responsibility. They would not have changed their conduct in retrospect Each said he had to do what he did to stay in business and to compete with others who were doing the same thing. This was the "justification" at every level from LA mortgage salesperson, to the bankers, the creators of layers of derivatives and credit default swaps to the raters who gave the derivatives that they knew or should have known were not worth their stated values: AAA ratings. All of this was happening in the context of congressionally granted exemptions from regulation, and NY Fed President Timothy Geithner’s failure to supervise and to regulate.
The Wall Street bankers deliberately made and palmed off to others loans that they knew were really bad. They made them because they were so profitable. Among themselves, they called them "liar’s loans" because they did not care if borrowers were unqualified and they encouraged them to lie about their incomes. They created the layers of derivatives based on these pools of liar loans, knowing that they were extremely risky. They pressured the rating companies to give them AAA ratings, and the rating companies complied "because the competition was doing it" when they knew or should have known that the "securities" were really not of AAA quality.
Foreign investors, domestic pension fund managers, and foreign governments and banks justifiably relied on the Wall Street banker’s sales pitch and the AAA ratings. The AAA rating satisfies the obligation of "due diligence" in checking the risk of an investment. These innocent but sophisticated investors had a right to assume that NY Fed President Timothy Geithner was doing his duty of supervising and regulating.
All of these investors were damaged when the house of cards collapsed. The investors have been damaged. We the citizens and voters and generations of our offspring have suffered almost incalculable damage…damage totaling many trillions of dollars that will plague us for generations.
This is the massive Wall Street fraud that President Obama inherited, and is now covering up, and possibly attempting to restart.
PRESIDENT OBAMA IS NOT FAITHFULLY EXECUTING THE LAW REGARDING UNDERCAPITALIZED BANKS
President Obama now has the sworn Presidential duty to "take care that the laws be faithfully executed." Thus he must "faithfully" prosecute financial wrongdoing, avoid conflicts of interest, and specifically, take certain prompt action against wrongdoing Wall Street banks as mandated by the Prompt Corrective Action Law that was enacted just following the savings and loan crisis of the 1980s. This law is found in Title 12 United States Code beginning at Section 1831. There is no exception in the law for "banks that are too big to fail," and no exception for criminal enterprises even if they are large.
Instead of bailing out wrongdoing banks with Trillions of dollars of our money, President Obama is required by federal law to appoint a receiver for the bank within 90 days after it becomes critically undercapitalized. He must prosecute those bankers who were paid salaries or bonuses while their banks were undercapitalized. There is no question that they are undercapitalized because they require Trillions just to make them function, without complying with legal standards. If "they are too large to fail," they have seized way too much private "mafia-like" power over all of us. President Obama can and must follow the law.
OBAMA’S CHOSEN FINANCIAL AND ECONOMIC ADVISORS KNOWINGLY DEREGULATED SO AS TO ENABLE THE FRAUD, AND THEN PARTICIPATED IN THE FRAUD AND PROFITED FROM IT
Obama’ Chief Economic Advisor, Larry Summers one of Clinton’s Secretaries of the Treasury, and Robert Rubin along with Republican Senator Phil Gramm lead the lobbying effort to repeal the Glass Steagall Act thereby enabling Wall Street Banks to invest in derivatives, hedge funds, and credit default swaps, and permitting Wall Street insurance companies to engage in banking.
Then the same three men, Summers, Rubin, and Gramm together with Alan Greenspan lead the effort to persuade Congress to pass a law in 2000 without debate in either the House or the Senate prohibiting the regulation of these newly enabled Wall Street financial giants. It is known as The Commodity Futures Modernization Act of 2000, and is found in Title 7 USC Section 2. The exemptions from regulation are found in Sections 2 (g) and 2(h). President Clinton signed the new law on December 21, 2000.
Obama’s Chief Economic Advisor Larry Summers and his Secretary of Treasury Timothy Geithner both pushed for the enactment of this law which enabled the ensuing fraud involving mortgages and the layers of derivatives that were known to be risky and worthless.
Secretary of Treasury Timothy Geithner, President of the New York division of the Fed where all of the major Wall Street banks are located had the following duties according to its own mission statement:
It is responsible for
formulating and executing monetary policy,
supervising and regulating depository institutions,
providing an elastic currency,
assisting the federal government’s financing operations, and
serving as the banker for the U.S. government.
In addition to paying his own taxes, Timothy Geithner had a public responsibility and duty to all of us. Timothy Geithner, the man chiefly responsible for avoiding what has happened, instead facilitated the fraud. He did not supervise and he did not regulate.
PRESIDENT OBAMA IS KNOWINGLY AND INTENTIONALLY REWARDING CRIMINALS AND IS COVERING UP WALL STREET BANK CRIMES AND FRAUD
It is a felony for any person including the President of the United States to cover up a crime. 18 USC Section 4 states:
Whoever, having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some judge or other person in civil or military authority under the United States, shall be fined under this title or imprisoned not more than three years, or both.
Such a cover up is also criminal fraud as defined in 47USC 1001.
Such a cover up when done by a President, Vice President or a Secretary of Treasury is also a "high crime and misdemeanor" warranting impeachment under Article II, Section 4 of our Constitution:
"The president, vice president and all other civil officers of the United States shall be removed from office on impeachment for, and conviction of…high crimes and misdemeanors."
President Obama has also taken the Presidential Oath that he will faithfully execute this cover up avoidance law as well, and not to violate it himself.
80% of the American people, according to a recent poll believe that Wall Street is crooked and is responsible for our current Depression.
Obama, in a recent speech to Wall Street CEOs telling them to "cool it" about justifying their contract rights to bonuses, said
"My administration is the only thing between you and the pitchforks."
So what is he saying to the 80% of us potentially holding pitchforks who voted for him?
In effect, he is saying in his vague, charming, persuasive and hypnotic way: "I know of no crimes. I want to look to the future I will not prosecute the bankers. I will hire them as advisors. We have nothing to learn from their mistakes. We together will try to restore lending, and restart the economy as it was."
What are President Obama’s own lawyers, Dawn Johnson Chief of the Office of Legal Counsel and Attorney General Eric Holder advising him? Are they, like John Yoo and Michael Mukasey who advised Bush that he could torture, advising Obama that he has the power to ignore the law created exactly for the purpose of dealing with failing banks because of an economic emergency? What is brilliant lawyer Obama advising himself? Where is there indication of Obama’s own integrity and inner moral compass?
WHAT ARE THE CONSEQUENCES FOR US IF OBAMA’S MUTI-TRILLION BAIL OUT OF WALL STREET "SUCCEEDS?"
The most immediate, pressing danger is that it will not work at all. Obama may not discover this until it is too late to try another solution. The reason is Obama seeks mainly to restore the lending ability of the Wall Street banks. That will work only if we are willing to fund our purchases by more borrowing. We are not. We will not borrow. We are too frightened. The great danger is of a total breakdown of civilized democratic society.
Even if it "works," Obama’s plan will never succeed for us. The reasons are:
- Obama and his advisors see capitalism as a stable system that only got a little off track due to unfortunate lack of regulation. It is in fact in deep trouble even aside from the banking problem due to an overproduction of goods and services that can be produced at a profit. This is the underlying "systemic defect." Failing to recognize this defect, Obama does nothing to solve it.
- Obama aims mainly toward providing more credit, restoring the Wall Street banks’ ability to lend money.
- Obama fails to deal adequately with restoring the purchasing power of consumers from our earned labor.
- The inevitable result for us will be a vast inflation of our dollars, so that each dollar buys less and less. We will be like frogs placed in slowly heating water. We will notice nothing at first. The "water" will heat slowly until it kills us. It may ultimately "succeed" for the wealthiest 1% in that they will own all of the land, gold, platinum, silver, and commodities and live in guarded gated castles. Those of us who survive will do so as feudal serfs who are permitted to share-crop their land. The result for Obama is that he will lose his bid for re-election in 2012 due to the massive despair and disillusionment of voters.
WHAT COULD OBAMA DO THAT WOULD WORK?
Although his window of opportunity is very short, if Obama changed course promptly before he has put us many trillions further in debt, there are sound, historically tested things he could do. They are bold. They involve a profound change in his analysis of our problem. He could:
- Cause our government to be the sole creator of our money supply, our silver coins, our dollar bills, and our "check book" money. Lincoln did this in 1860 to finance the Civil War. The state of Pennsylvania did this successfully for 50 years prior to 1789.
- Instead of borrowing from private banks and other governments, our government could create and issue money to meet government, business and individual needs, including rebuilding our infrastructure, education through college, and universal health coverage, and to pay our government’s obligations on existing bonds as they fell due.
- Prohibit "fractionalized reserve banking," the practice of private bankers lending from 10 to 90 times the asset-reserves they hold. Allow banks only to loan on a 1 to 1 basis, from the dollars they have on deposit.
- Impose a top limit on interest that could be charged say 8%.
- Allow the Wall Street banks to go into bankruptcy, but retain enough of the needed staff employees to implement the new way of supplying money where needed.
- Repeal the Federal Reserve Act and install the needed functions of the Fed as a division of the Treasury Department.
- Enable local banks and businesses to continue to function as they now do.