Wall Street keeps pounding Washington.
Fighting any attempt to rein in the too big to fail banks.
Corporations. Lobby groups. Front groups. Bought and paid for members of Congress.
Repeal Glass-Steagall.
Prohibit the regulation of derivatives. (Commodities Futures Modernization Act.)
Defeat hard caps on bank assets. (Brown-Kaufman).
Weaken the Volker Rule.
Keep the revolving door well oiled.
Who’s fighting back?
Headed by a former partner at Skadden Arps – Dennis Kelleher.
How did that happen?
Well, it didn’t happen without money.
Kelleher worked as a partner for many years before heading to the U.S. Senate to work as an advisor to the Democratic leadership on domestic and foreign policy.
While there, he met a hedge fund manager named Michael Masters.
Masters wanted to fund a public interest group to fight back against Wall Street.
He searched the Washington scene and couldn’t find one.
So, he created and funded Better Markets in 2010.
And hired Kelleher to run it.
So, now we have Better Markets and a handful of other public interest groups fighting to defend Main Street against the ravages of Wall Street.
“And we’re up against the richest, most powerful industry in the history of the world,” Kelleher told Corporate Crime Reporter in an interview last week.
“We know how to fix this problem because we’ve done it before,” Kelleher said.
“After the Great Depression, we put in place a whole set of rules and regulations and regulators to prevent that from happening again, and they worked for seventy years.”
“Then what the financial industry did is took their economic power, bought political power and then used that political power to deregulate the financial industry.”
“That took about fifteen to twenty years, reaching a crescendo in 2000 when Glass Steagall was repealed.”
“And the Commodities Futures Modernization Act which prohibited the regulation of derivatives, was passed.”
“We had seventy years of regulation with a world class financial system and then seven years of total deregulation, and then the financial collapse happens that crashes the global financial system and almost ushers in a second depression.”
“It’s not a mystery on how to deal with the financial industry.”
“The question is – do we have the political will and can the U.S. government withstand the monied interests and onslaught of Wall Street?”
Not yet at least.
Take the case of the Securities and Exchange Commission (SEC).
“Let’s deconstruct the PR spin of the SEC’s Division of Enforcement,” Kelleher says.
“Let me take a very specific example here.”
“The SEC settled with Citigroup for $265 million on a single CDO – that was a $1 billion CDO.”
“This is the case that everyone has paid attention to and it’s before the Second Circuit Court of Appeals now.”
“It’s going to be one of the most important Second Circuit cases in corporate governance in a long time when it finally comes down.”
“That was one of the SEC’s big achievements – they will get $265 million when it comes down.”
“What is really going on there – and Citigroup’s PR people said this at the time the settlement was announced – is that that concludes the SEC’s investigations of Citigroup’s CDO business.”
“Citigroup was the number one worldwide placement agent for CDOs in 2007.”
“Over several years, Citigroup placed about $150 billion in CDOs.”
“And we know that Citigroup wrote down, from its own books, just under $40 billion in CDOs of their own holdings in the fall of 2008.”
“We have no idea what the investor losses were on all those CDOs.”
“For all of that, Citigroup gets to walk by using shareholder money to pay $265 million.”
“In the quarter that that settlement was announced, Citigroup’s revenues exceeded $20 billion and its profits exceeded $4 billion.”
“Robert Khuzami, the head of enforcement, had the temerity to say at the time that the settlement was announced, that it wouldn’t just deter Citigroup, it would deter Wall Street.”
“Well that’s laughable. It’s laughable that a company like Citigroup could get away with what it got away with, which is the creation, sale, distribution and shorting of worthless securities that they themselves took $40 billion in losses on, for $265 million dollars five or six years after the fact.”
“What the SEC has done by their slap on the wrist, roll over approach to corporations and senior executives, is they have not only essentially green-lighted more crime and rewarded more crime, they have also cut down the amount of money that they can get when they’re doing their sellout settlements.”
“It’s one of the most unbelievable things that they do over and over again.”
“The SEC doesn’t go after whales, they go after minnows. They never go after senior executives on or the real power on Wall Street.”
“In the Citigroup case, they went after one very low level guy. They should be embarrassed to go after such junior people. It’s a breach of faith of the American people that they’re supposed to be protecting.”
“Khuzami just said recently that it’s very difficult to find somebody in the corporate structure that had a sufficient knowledge of what was going on and had a duty to disclose that knowledge.”
“What he is doing every time he says that, is giving Wall Street a road map of how to make sure their executives are never held liable.”
“I don’t want to sound highfalutin here, but the rule of law and the belief of the equal application of the law, is fundamental to not just our government, but to our culture.”
“Right now, everybody knows that there are two sets of rules. There’s a rule for Wall Street, and a rule for everyone else. What we need at the head of the SEC and the Department of Justice is somebody who will aggressively enforce the law in the power centers in this country, to enforce the law against Wall Street, just like they will do on Main Street.”
“Again, that is actually in the interest of Wall Street and everybody else.”
“It’s not that you’re anti Wall Street, anti capitalism, anti wealth.”
“I say all the time that I hope that as many people as possible in the United States can become as rich as possible, if they do it legally.”
“And if we have a sounder, safer, banking system that doesn’t cause taxpayers to bail out Wall Street.”
“If someone can make a fortune in those confines, God bless them.”
“That’s America. The other part of America is that there are rules, there are laws, and it doesn’t matter if you’re filthy rich or poor, the law is supposed to be applied to you.”
“When rich Wall Streeters get a pass and can cause the second largest financial collapse in this country’s history since 1929 and usher in the worst economy since the Great Depression, and there’s no accountability and no penalty against the real power on Wall Street and the financial industry, everyone gets that message.”
[For the complete transcript of the Interview with Dennis Kelleher, see 27 Corporate Crime Reporter 1(10), January 7, 2013, print edition only.]