Federal Bureau of Investigation Quotes

Barry Bonds was a star professional baseball player whose accomplishments were aided by taking illegal drugs. He lied about his use of drugs, and the Department made a very large effort over years to finally prosecute him. However during that time there were almost no prosecutions of the thousands of bankers and financiers who had lied, cheated, forged legal documents and in the process almost permanently ruined the American economy—the Great Recession of 2008. The Justice Department claimed that white collar cases are very complex and take longer to prepare prosecutions. Critics claimed that there are so many law breakers, that the government does not want to prosecute all the felons, but just go after a few, and this is easier if time has gone by and public anger has receded or been forgotten.

Born thought that her agency was responsible for regulating the new esoteric financial products—derivatives including credit default swaps—for otherwise there would be no regulation at all of financial products that could dwarf the stock and bond market. Summers persuaded her to back off. When the Meltdown of 2008 hit, the huge derivative exposure of the large banks and some insurance companies was so great that it was one of the major causes for the meltdown of the entire banking system. Summers, normally a great economist not only called this one wrong, but later, along with most other government and private economists ignored a very explicit warning—See {637168}, {637986}, and {620038}.

At this time it was 6 years after the Home Financing Crisis and the Meltdown of 2008 and despite tens of thousands of law violations by the bank, the Justice Department was finally finishing their investigations and requiring some penalties. Other negotiations with other banks were in progress, but no bank executives were going to jail for the millions they handled fraudulently, whereas a burglar who stole household goods would do jail time.

In the Great Recession thousands of bank executives of the banks that received government bailouts committed fraud and perjury providing false information under oath and foreclosing on mortgages illegally. There were so many bank felons that the Justice Department decided not to prosecute any of them and let the Banks pay relatively small fines instead. Then the banks paid the crooked employees bonuses. Paul was one of the few members of Congress who favored prosecution of all the guilty bankers regardless of the number.

The Meltdown of 2008 came a year later and Citigroup, one of the largest banks in America, had massive liquidity problems and in order to stave off bankruptcy the taxpayers had to come up with $45 Billion. The bank executives, as this quotation demonstrates, knew that they were in a very risky situation and that if the subprime mortgages started to default, the “music would stop” and they and the other banks would have a massive liquidity problem. None the less, they kept on investing more and more of their bank customer’s money and making money in what they knew was a highly risky enterprise. The greed clouded their judgment and when the music stopped and many were no longer dancing, the Meltdown of 2008 almost destroyed the entire national economy and triggered the Great Recession where the overwhelming proportion of Americans had to suffer for the greed of those who could not “stop dancing” even as they knew it was very dangerous.

U. S. Treasury Secretary Larry Summers called Rajan a “Luddite” for this view, but what Rajan observed and predicted was exactly what happened in the Meltdown of 2008 which led to the Great Recession. Rajan was one of the few economists to call this right. Several, invested their own money assuming a crash and made billions. Most, like Summers and the Federal Reserve Chairmen in retrospect admitted that they missed the signs and didn’t connect the dots. See {637168}, {637987}, and {620038}

He was replying to Senator Grassley--{637990}. This quotation is one of the saddest admissions in American law enforcement and corporate regulatory history. A small group of very wealthy men, working for huge financial corporations caused the worst financial crisis since the Great Depression. The Government regulators were reined in by the Bush Presidential administration and were none to competent anyway. The Clinton Administration repealed the Glass Stiegel Act allowing banks to gamble with customer’s The Congress made matters worse by kowtowing to the housing and real estate special interests and overheating the housing market. But with all that some of the many of the financial executives committed crimes ranging from financial fraud to forgery of court documents. But they had put the country into such a poor economic state, that the Obama administration feared that prosecution of some of the leading financial executive criminals would spook the financial markets and cause an even greater economic situation. At least the Attorney General admitted the truth of Senator Grassley’s suspicion--{637990}.

Credit default swaps were in large part responsible for the melt down of the economy of 2008 and the Great Recession thereafter. A credit default swap was one of the favorite derivatives that became popular. Is an insurance policy that a company will pay off its bonds and not go bankrupt. It is a cross between an insurance mechanism and a stock exchange type security mechanism, and through heavy lobbying, escaped any kind of regulation. It cost a company no money to write a credit default swap, and they were paid to do so. As long as business and the economy was good, it was a terrific business but there was no way of ever knowing how much risk they were taking. So companies who wrote credit default swaps did not have to have the money to pay to back them up. When that happened in 2008, even the largest insurance company in the world collapsed because of the risk of having to pay the credit default swap and the U. S. Government had to take over the insurance company. In 2010, the Obama administration passed a financial reform bill that began to regulate credit default swaps. Buffet, the American who had made the most money in financial securities, realized the great danger not only to the company, but to the entire national economy. Most of the rest of the financial institutions, could make large amounts of money without have to have much capital as long as things went well. So credit default swaps began to exceed the other financial instruments in activity. Neither the Federal Reserve or the other government regulatory agencies chose to regulate these risky instruments nor even to require that they be publicly disclosed -- See {637987}, {637986} and {637992}.

This almost unbelievable memo was written by bank officials to help the bank’s mortgage sales staff cheat and “trick” the computer system which the bank used to determine whether or not a mortgage customer was worthy of mortgage credit. Why would the bank officials want their sales force to lie and “trick” their own system. In the Meltdown of 2008, most of the larger banks were REQUIRED to have a system to check the credit quality of the prospective borrower. However, the regulators never expected this kind of fraud from a supposedly reputable firm.

in the meltdown of 2008

This quotation is classic as it digested the major reasons for the worst financial crises since the Great Depression into one paragraph that captured the essence of the problem. The great dispute has been ever since, who let this happen, who was supposed to stop it from happening, and who did what to correct the problem afterwards so that it would not happen again? In this situation, the Wall Street Houses had paid securities rating firms to give these bonds an AAA rating even though they were backed by very risky mortgages none of which had AAA ratings.

The Treasure Officials had a reason for bailing out the bondholders. They were afraid that if bank bondholders and owners took big losses at that time, it would “spook” the financial markets and cause even worse panics than then existed. The political pressure would be to bail out the financial institutions which would have lost much more money after the “spooking”. So it was, they argued, less cost to the taxpayer to bail out the bondholders at the beginning and save the bailout costs later. Some argued that there was no reason to bail out the richest people in America if they lose a lot of money so it is not an issue of bail out now or later. History shoed that the financial leaders did have the clout to force the government to bail them out however. There are some who wanted to have a showdown with the wealth banks and other financial institutions and let them go bankrupt and then the economy would right itself. No one really knows for sure which is why Economics is called the “dismal science”—See {596873}.

He was referring to Fannie Mae, the government-created. private mortage guarantee company. It was heavily regulated, and in general it met the regulatory requirements. However, the requirements were insufficient, and in the 2008 Meltdown and the Great Recession that followed, Fannie Mae itself was in such bad financial condition, that the Federal Government had bail them out or have the entire home mortgage industry fall apart.

The Senator asked Justice Department officials if the reason that there had been no prosecutions of any major financial figures associated with the Meltdown of 2008 and the Great Recession is that they were “too big to jail.” This appears to be the first public official to use this phrase. See {637991} for the Attorney General’s sad but truthful reply.

Greenspan was not the amoral fool that this quotation makes him seem. Despite the fact that he was the most important financial officer of the country, he had an ideological faith that a free market was self-corrective in a democracy. The financial industry would police itself he believed. He also trusted the self interest of the financial corporations to restrain them from getting too greedy -- {637989}. He and many others were wrong and most Americans paid the price.

There was concern that there might be a housing bubble developing with consequent overpricing of houses. The bubble broke and when it did, it was sudden and dramatic with the Meltdown of 2008

Geithner, the Treasury Secretary immediately after the Meltdown of 2008, facing complete collapse of our financial system, among other ameliorations, advocated and implemented many subsidies to bail out the banks most of whom had been greedy, foolish and often dishonest. He even allowed banks to use taxpayer money to pay bonuses to Bank executives who had brought the bank to ruin being a cause of the crisis. However, the banks not only survived but recovered and made huge profits while many of the taxpayers whose funds were used to help the banks were still struggling to make ends meet and it was they who received little, if any, government assistant.