To Wall Street scourge Janet Tavakoli, the list of financial-crisis villains still evading responsibility is not short and includes, to name a few, Jamie Dimon, Jon Corzine, Tim Geithner, Mary Schapiro, George W. Bush, President Obama and the financial media.
The list is hardly exhaustive, but provides some balance to a satirical piece she wrote in Wednesday’s Huffington Post titled “Prince Harry Offered Partner Position at Goldman Sachs.” Reading like a memo written by Goldman Sachs to the unflatteringly photographed scion of the British royal family, a reader might have gotten the impression it is Goldman Sachs she is unhappy with:
“You've [Prince Harry] been overexposed. We completely understand that feeling! We felt the same way when we bought credit default protection from AIG on rotten CDOs, some of which we manufactured ourselves for ourselves and for foreign banks. We nearly sunk AIG, but U.S. taxpayers were forced to bail it out.”
The article by Tavakoli, a credit derivatives expert and author most recently of "The New Robber Barons," reads like a criminal fraud indictment of Goldman Sachs, but in an interview with AdvisorOne, the Chicago-based consultant said, “You could say the same thing for Merrill Lynch. You could say a similar thing for the fact that [JPMorgan Chase CEO] Jamie Dimon has not yet been held accountable” for the nearly $6 billion in derivatives trading losses at a JPMorgan unit that reported to him and for which he gave signed risk-control assurances under Sarbanes-Oxley rules.
Tavakoli says all the major former investment banks and large bank holding companies participated in fraud during the subprime mortgage crisis, but the public—and even the financial community itself—remains uninformed about their role.
“There’s been a lot of lying, and the lying has been so good that many people in the business aren’t fully aware of the big picture of what happened,” Tavakoli says.
What the lies of which Tavakoli speaks are attempting to obscure is “widespread massive fraud for which people have not been indicted,” and an additional barrier to justice has been Wall Street’s “shills in the financial media. It’s as if they’re taking dictation,” Tavakoli says.
As an example of what she calls this “campaign against the truth,” Tavakoli cites a recent Columbia School of Journalism expose of CNBC financial reporter Maria Bartiromo and contributor Bethany McClean on a report about Goldman Sachs avoiding a Justice Department indictment.
Former regulator Bill Black, also on the taped CNBC segment, attempted a vigorous case against Goldman, but “he has been marginalized; these ladies were laughing at him.”
Yet “despite this reprehensible behavior [securities fraud], they are a bank as of 2008, they can now borrow from the Fed,” Tavakoli says.
Besides Wall Street and the media, Tavakoli, who was on the cover of Research magazine in May, is no less critical of Washington’s role in covering up financial fraud.
“The Treasury and the Fed have manipulated the narrative by, for instance, saying we need money [for] TARP; we need money [for] AIG. Any reasonable liquidator would have clawed back that money” [on collateral calls made to Goldman, SocGen and others], she says.
Tavakoli wants to see too-big-to-fail banks broken up, but says even that is insufficient.
“We have to look into the practices. We do have too many regulators, but they’re failed regulators. We could rid ourselves of two-thirds of the people in the system. We have the wrong kind of regulators. In fact we have anti-regulators— incompetent and venal people unable to do their jobs.”
Tavakoli cites MF Global and its disgraced CEO, former Gov. Jon Corzine of New Jersey, as a case in point. “I and many other financial professionals don’t understand why he has not been indicted.
“It appears there are sufficient grounds for an indictment,” she continues. “If you look at Sarbanes-Oxley [rules], they had bond issuance [last] August and material misstatements were made in August. The representations were that they had adequate risk controls.
“And that’s above and beyond the looting of customer accounts,” she says.
Tavakoli believes that Dimon is equally indictable under Sarbanes-Oxley rules. She criticizes President Obama for appearing “on [the TV program] The View and saying Jamie Dimon is a great bank manager when, embarrassingly enough, it turns out the losses were many times more [than originally thought] and people in that unit may face criminal indictment.”
She suspects fundraising has something to do with all this.
“We’re looking at both sides of the aisle getting massive contributions from Wall Street and they’d like to continue that; Corzine is one of Obama’s top campaign bundlers," she said. "Under the Bush administration, a lot of these problems were allowed to fester and thrive. And the Democrats promised change and instead gave us more of the same."
“Obama appointed people from the Bush Administration who are failed regulators,” she continued, citing SEC Chairwoman Mary Schapiro as a prime example. “She’s the antichrist of investor advocacy,” Tavakoli says, pointing to her record as head of FINRA in the Bush administration. “The record is along the lines of I-banks 100, investors zero,” she adds.
“The fish rots from the head. Based on her track record at FINRA, she shouldn’t be in the regulatory system at all.”
Asked about Schapiro’s recent push to regulate money-market funds, Tavakoli answered: “How did that turn out?” implying there may have been more of an appearance of effort than determination to achieve results.
Tavakoli concludes that we need to crack down on criminal fraud in order to restore our financial system.
“You don’t build confidence in the financial system by covering up the problems. You build confidence by addressing problems swiftly and effectively and by rooting out fraud,” she says.
Read Research magazine's May interview with Tavakoli, Finding the Culprits of the Financial Crisis, on AdvisorOne.
Read Liars, Cheaters and Thieves, from the May issue of Research, on AdvisorOne.