America?s Criminal Crony Capitalism

When I started reading Charles Ferguson’s Predator Nation, a thorough indictment against the financial industry, his repeated use of “criminal” to describe financial industry executives seemed to be just blowing smoke, in view of the government’s lack of successful prosecutions.

That was, until I read the federal rule that Ferguson finally cites on page 190 of his book (after “criminal” has already been used 68 times).

The rule, from the 1934 Securities Exchange Act, reads:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

© To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

Who really believes there has not been “any act, practice, or course of business” that operated “as a fraud or deceit upon any person, in connection with the purchase or sale of any security”?

For example, Goldman Sachs aggressively sold its clients bundled bad debt while successfully betting against that debt themselves, without openly disclosing the company’s role or its opinion about the quality of the product it was selling. Was this not a conflict of interest, covered by the law?

Do we really believe Goldman CEO Lloyd Blankfein when he says that these actions did not pose a conflict of interest “In the context of market making”? Do we really believe that the conflicted party did not omit “to state a material fact” by failing to disclose the conflict, and that a “fraud or deceit” was not committed?

I do not believe it, and I think most people don’t believe it.

Why, then, have we become resigned to assuming that the cynical derring-dos of the financial industry were not, strictly speaking, crimes?

Charles Ferguson has convinced me that a reading of the law says they are crimes. It’s about time someone said so, loudly and plainly.

That, exactly, is Ferguson’s intention.