Matt Taibbi Explains Wall Street's "License to Steal," Offshore Tax Havens and Private Equity Firms

Syndicated from Democracy Now! on Mon, 2012-07-30

In sections:

Web Exclusive

In part two of our interview with <a href="http://www.democracynow.org/appearances/matt_taibbi">Matt Taibbi</a>, he describes recent Wall Street scandals — including a decade-long Wall Street scandal that drained money from every county and state in the United States — and notes not a single bank executive has faced individual consequences. He also explains how Republican presidential nominee Mitt Romney’s former firm, Bain Capital, and others have used private equity to raise money to conduct corporate raids. "It’s just a scheme to take a cash-rich company and move all that cash to a few actors — typically it’s the executives of the target company and the executives in the private equity firm — and then you force everybody else to pay," Taibbi says. "The workers pay by either losing their jobs or taking reductions in salary, and the guys at the top win." <a href="http://www.democracynow.org/2012/7/19/matt_taibbi_libor_rate_fixing_scandal">Click here to watch part one of this interview.</a>
AMY GOODMAN: This is Democracy Now!, democracynow.org, The War and Peace Report. I’m Amy Goodman, with Juan González. Matt Taibbi is our guest, contributing editor for Rolling Stone magazine. His most recent in-depth <a href="http://www.rollingstone.com/politics/news/the-scam-wall-street-learned-from-the-mafia-20120620">piece</a> is "The Scam Wall Street Learned from the Mafia: How America’s Biggest Banks Took Part in a Nationwide Bid-Rigging Conspiracy—Until They Were Caught on Tape." He’s author of Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History.
OK, explain what this scam Wall Street learned from the Mafia, how America’s biggest banks took part in a nationwide bid-rigging scheme.
MATT TAIBBI: Well, this is actually somewhat similar to the Libor situation, because what we’re dealing with is a kind of a cartel-style corruption scheme. In Libor, it was 16 banks acting in concert to rig the international interest rates. What this one was was a number of the world’s biggest banks colluding to artificially suppress the amount of money that cities and towns earned on their municipal bond service. So this is—it’s very complicated inside baseball stuff, but when a town or city wants to borrow money, it goes to Wall Street. It issues a bond. Let’s say it borrows $50 million. It doesn’t spend all that money right away, so it doesn’t build the school right away, it doesn’t build the baseball field. It keeps that money in an account somewhere, and banks are supposed to compete with each other at auction for how much that money is going to earn. That money is going to be invested, and they’re supposed to out bids against each other for how much they’re going to pay the towns and the cities on that investment income. And what they’ve been doing is they’ve been getting together secretly and parceling out business. So the banks—one bank will say, you get to do the bond service for the school in this town, you get to do the bond service for the—you know, the hospital over here, a third gets to do the bridge or the highway in another state. And essentially, this was every state—every county in every state in the United States was affected by this scandal over a period of about 10 years. We just recently had a trial for a few of the participants here in New York, but it extends far beyond those individual defendants
AMY GOODMAN: Give names. Give examples.
MATT TAIBBI: Well, the particular—the particular defendants in that trial, which was two months ago here in New York City, they were three guys who worked for a subsidiary of GE Capital, but GE was really the fifth big bank to be caught up in this scandal. JPMorgan Chase has already paid a $228 million settlement. Bank of America, UBS, Wachovia, which is now Wells Fargo, they’ve all paid settlements in excess of $100 million. This all came out last year, although surprisingly there was no real coverage about it. It was also—this is actually the scandal that helped submarine the appointment of the—I’m blanking—the New Mexico governor who was nominated by Barack Obama.
JUAN GONZÁLEZ: Bill Richardson.
MATT TAIBBI: Bill Richardson, excuse me, yes. His commerce secretary appointment was submarined by this scandal indirectly, because he was taking money from a middleman company called CDR, which was arranging these rigged auctions. So this—the conspiracy extends to probably a dozen or two dozen of the biggest banks in the world. And we have criminal cases now that are just wrapping up for 18 of the defendants in this conspirace, but it extends beyond that.
AMY GOODMAN: Talk about JPMorgan Chase and JB—Jamie Dimon, not to mix their names together.
MATT TAIBBI: Right.
AMY GOODMAN: The appearance before the Senate Banking Committee, the kinds of questions that were asked, or instead, the kinds of advice that was asked for by senators on both sides of the aisle—
MATT TAIBBI: Right.
AMY GOODMAN: —who were receiving millions of dollars from him?
MATT TAIBBI: Right, right. So, Jamie Dimon gets summoned before the Congress, and he’s there to answer questions about how it could possibly happen that a bank could suddenly have a $3 or $4 billion loss overnight. And the reason we ask these questions is that—because there’s an implicit federal guarantee. This is a—you know, a commercial bank like Chase is FDIC guaranteed. And so, when it gambles and it risks enormous sums of money, it’s essentially all of our problem because if JPMorgan Chase were to go under for any reason, then all of us would have to pay for it. Jamie Dimon and a lot of people on Wall Street don’t really see it that way. And so, when he was hauled up before Congress to answer questions about how this loss could possibly happen after everything that happened in 2008, why wasn’t there better risk assessment, how could there not be controls that prevented this sort of thing from happening, he really acted very put out that he even had to answer any questions. And most of the questions actually weren’t that tough, to begin with. They ended up really more asking him advice on how to better regulate the economy. It was a comical kind of situation where there’s sort of a widespread misunderstanding of what the dangers are here.
JUAN GONZÁLEZ: And to get back to this point of the level of scandal that we have seen continually exposed, one after another, with the banks continuing just to pay hundreds of millions of dollars in fines and billions of dollars in settlements, then just keep on—keep on keeping on. You know, there seems to be no sense of total outrage or shame, or at least among government officials, there’s no sense of the outrage that is felt among the public—
MATT TAIBBI: Right.
JUAN GONZÁLEZ: —about these banks continuing to rig the financial system.
MATT TAIBBI: Right. Yeah, no, this is—I think this is the key thing that people don’t understand, is that in the law enforcement community there’s an incredible amount of enthusiasm, for some reason, among people in law enforcement for doing things like catching undocumented aliens. You know, I was down in Georgia last week. I heard about a case where a guy was deported for fishing without a license. You know, it’s incredibly easy to start a criminal case everywhere outside of Wall Street, but in Wall Street, we’ve had one scandal after another involving enormous sums of money, you know, not just billions of dollars but, with the Libor thing, trillions of dollars, and not a single person has had to have any individual consequence. So you talk about all those settlements. Those are all paid by the company and by the shareholders. Not a single person since 2008 has gone to—has been indicted, has gone to jail, has spent a day in jail, or has paid any kind of money out of his own pocket. And until there’s any individual consequence, it’s really a license to steal. I think the Libor thing is really going to be a litmus test for all regulators, because if you can’t go to jail for rigging an $800 trillion market, what can you go to jail for?
AMY GOODMAN: Who do you think should be tried first, jailed first?
MATT TAIBBI: Well, all the traders and all of these—the Libor submitters all have to be indicted, clearly. But it has to go higher than that, because this can’t happen without the consent of the senior executives in the companies, so they all have to go, too. And I think the British acted appropriately in immediately, you know, making sure that the Barclays chief stepped down. But that’s just for starters. I think, you know, we have to do that. We have to remove all the executives who are responsible for this.
JUAN GONZÁLEZ: And, of course, all the sports fans now who go to these stadiums, renamed after banks—
MATT TAIBBI: Right, right.
JUAN GONZÁLEZ: —including now the new New York Nets in the Barclays Arena in Brooklyn—
MATT TAIBBI: Right, right, exactly. And then—
JUAN GONZÁLEZ: —are facing having to walk into these stadiums for these thieves, being named after them.
MATT TAIBBI: Exactly, and then think about another—here’s another sports thing. The Justice Department assigned 93 agents to the Rogers Clemens case. Think about that. Ninety-three guys assigned to the case of injecting Roger Clemens with steroids. How many people are investigating the mortgage-backed—or who are on the mortgage-backed task force that Obama allegedly started a few months ago? It’s less than that, from what I understand. So here you have this massive criminal conspiracy that involves all the biggest companies in America, and we’re spending less resources investigating that than we do on a single baseball player—who’s retired, incidentally.
AMY GOODMAN: On the stadium issue, speaking about sports—
MATT TAIBBI: Right.
AMY GOODMAN: —right, President Obama going to speak in Bank of America Stadium—whoops! I mean Panthers Stadium.
MATT TAIBBI: Right, Panthers Stadium, yeah.
AMY GOODMAN: So, Bank of America bought the rights in 2004.
MATT TAIBBI: Right.
AMY GOODMAN: And now, as the Democrats do their fundraising, they’ve stopped calling it "Bank of America Stadium."
MATT TAIBBI: Right, right.
AMY GOODMAN: And they’re calling it Panthers Stadium, which is interesting in itself, but—for lots of reasons, but your response?
MATT TAIBBI: Well, first of all, I did a big exposé on Bank of America a few months ago, and so I hope I had a tiny, tiny part in this. I think the Occupy movement has done a lot of work with Bank of America, and I think that has a much bigger part to do with this.
AMY GOODMAN: Recap what you found in what you—your investigation.
MATT TAIBBI: Well, Bank of America, they were a—they’re sort of a poster child for everything that’s wrong with "too big to fail," but most importantly, in 2008, they were really the most aggressive actor in the whole—in the sort of scheme to sell toxic, explosive mortgage-backed securities to public funds like pension funds and unions. And that was really just a gigantic fraud scheme. And Bank of America, along with its subsidiaries, Countrywide and the investment bank—my god, I’m losing my mind—
JUAN GONZÁLEZ: Merrill Lynch.
MATT TAIBBI: Merrill Lynch, exactly—they were all probably the most aggressive in their respective fields in pushing those toxic mortgage-backed securities. So, it would be, I think, bad for the Democrats to associate themselves with that company, heading into the campaign.
AMY GOODMAN: OK, speaking about the elections, explain Bain, private equity. I think the reason so many get away with so much, or so few, you know, at the top get away with so much, people just cannot understand it. It’s like going to a surgeon, and he starts explaining what he’s going to do to you. In fact, it affects all of us, or in that case, it affects you, right? The surgeon. But you have no idea what he or she just said.
MATT TAIBBI: Right, right, exactly. Yeah, I know, private equity is difficult to understand. I think what’s funny is, it’s really not that much different from what we saw in the 1980s when we—when corporate raiders and leverage buyout specialists like, you know, Carl Icahn became these sort of Gordon Gekko-style public villains. That’s really all that public equity—private equity is. It’s just that the mechanism has changed. Back in the '80s, what these guys were doing is they were using junk bonds to create the financing they needed to take over companies. Nowadays they're using securitization and what are called CLOs, collateralized loan obligations. It’s the same mechanism that banks used to create mortgage privatizations.
And so, what they’re doing is, you take a company like Bain. It has a small amount of cash. Let’s say it wants to acquire a company for $500 million. It might have $40 million. It will go to a big bank, like a Goldman or a JPMorgan Chase, and it will say, "We want to raise $300 million so that we can go in and buy a majority of the shares in this company." The big bank will go out. It will issue a securitized bond, like the mortgage bonds that they were issuing, and raise a whole bunch of money. The Bain-like company then goes and buys a majority of the shares, and when they do that, when they take over the company, the critical thing is, all that debt, all that borrowed money, that when they borrowed all that money to take over the company, the company now, the taken-over company, now assumes that debt. So, when you take over the company, they now have this additional burden that they have to meet. And in order to meet that burden, they often have to streamline themselves and lay off people. The private equity firm will also typically charge a reorganization fee to the target company. So they’ll say, "We’ve come over. We’ve taken over your company. And in order to restructure, you have to pay us x amount of money." So now the target company has two new obligations that it has to meet: it has to pay the reorganization fee, and it has to pay all that debt service, which is why they have to lay off people, because they don’t have as much money as they did before.
AMY GOODMAN: And the biggest crime around how this all affects everyday people?
MATT TAIBBI: Well, the biggest crime is that you’re taking functioning, healthy companies, and you’re larding them with debt, forcing them to lay people off. And it’s just a scheme to take a cash-rich company and move all that cash to a few actors—typically it’s the executives of the target company and the executives in the private equity firm—and then they—you force everybody else to pay. The workers pay by either losing their jobs or taking reductions in salary, and the guys at the top win. And that’s kind of the direction—that’s really what Mitt Romney represents. He represents this economics that sees massive compensation heading upward and tightening of the belt everywhere else. And we’ve seen this trend develop over two decades or so here in America, and a lot of it has to do with financial maneuvers like this.
AMY GOODMAN: Matt Taibbi, I want to thank you very much for being with us, contributing editor for Rolling Stone magazine. His most recent in-depth piece is "The Scam Wall Street Learned from the Mafia: How America’s Biggest Banks Took Part in a Nationwide Bid-Rigging Conspiracy—Until They Were Caught on Tape." His latest book, Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History.

Primary links

Upcoming events

Much More News

Top Stories

Front Page Headlines

Subscribe to Mostly Water

Matt Taibbi Explains Wall Street's "License to Steal," Offshore Tax Havens and Private Equity Firms