Janet Tavakoli has been one of the clearest voices on finance and banking for well over a decade. She wrote several books well before the 2008 crisis warning of the dangerous risks being taken by derivatives players, and has tirelessly tried to warn the Fed and the IMF about the instability of the current financial system.
Her new book Decisions: Life and Death On Wall Street is a fascinating peek behind the curtain of the world of high-finance. Decisions also answers the burning question: why none of the problems which caused the 2008 crisis have been fixed.
Decisions should be read by everyone … both consumers who want to understand why the financial system is broken, and regulators who say that they don’t understand complicated financial matters.
Former Goldman Sach managing director (and head of the international analytics group at Bear Stearns in London) Nomi Prins sums up Tavakoli’s unique perspective in writing Decisions:
To truly understand the stakes of the global financial game, you must know its building blocks; the characters, testosterone, and egos, as well as the esoteric products designed to squeeze investors, manipulate rules, and favor power-players. You had to be there, and you had to be paying attention. Janet [Tavakoli] was.
Decisions pulls no punches, and takes no prisoners … slamming the big banks and the regulators for the fraud and collusion that periodically wrecks our economy:
By the late 1980s…the Federal Reserve Bank and large U.S. banks had established a pattern to control the public relations damage each time banks had a major screw-up: accountants and regulators let banks lie about the size of the problem to stall for time; the Federal Reserve blew smoke at the media; finally, the Fed would bail out the banks in a way that most taxpayers would not understand.
The International Monetary Fund enabled the bailouts with minimum write-downs according to Tavakoli’s Law of Sovereign Bailouts:
Never call bad debt bad debt—at least not in public. Lend bad debtors more money, so they can pay interest on bad loans, and banks won’t have to admit they have bad debt and increase reserves. When substantial “haircuts” or write-downs are involved, the banks with the most clout will determine the size of the write-down, and they will decide when that occurs. This type of restructuring is a bailout that protects the egos, status, and bonuses of banking executives and their cronies. Done properly, you will transfer wealth from middle classes to the upper classes, preferably to bonus-seeking executives in the global banking industry.
Banks didn’t have to get smarter or more competent. The Fed trained the banks that uninformed taxpayers would eat the losses, and fake accounting would let bank officers keep their positions and their money.
When I asked Democrats close to the top of the Obama administration, their answers were so similar I thought they had memorized a script
It was a bipartisan betrayal of taxpayers. Congress depends on bankers’ campaign contributions, benefits from lobbyists, and a stream of lucrative jobs for friends, families, and even themselves when they leave office. Our representatives made a decision that served their own interests.
Did our representatives in Washington make the right decision for the country? They did not. They were wrong. They were dangerously and decision behind a mythical idea of a “crisis of confidence” if we prosecuted, arrested, and imprisoned crooks.
There is a crisis of confidence today, but that crisis of confidence is because we did not prosecute and imprison people who defrauded the global financial markets and taxpayers.
If we indicted fraudsters, raised interest rates, and broke up too-big-to-fail banks, people would have more confidence in our government and in the financial system.
Instead of sending subsidies to bankers while starving the nation of capital spending—thus diverting funds from the best way to create meaningful jobs—we could have invested in the real economy.
Banks send a steady stream of cash back to Washington so that our elected so-called representatives make sure taxpayer money will always flow to Wall Street with no strings attached. Taxpayers have been thoroughly and completely had.
One of my Latin American friends compared our new crony capitalism to a banana republic: “We’ve seen this movie before, but this time it’s in English.”