Chanos: Where are the perp walks?

The New York Observer has a wonderful interview with Jim Chanos out today. In it, he talks about probable fraud and criminality at Lehman. I want to use his comments as a lead-in to a wider discussion about fraud and criminality in financial services.

The Chanos interview reads:

The Observer: Did anything surprise you about the Lehman Brothers report? Or did it just validate everything you thought?
Mr. Chanos: Except for the shameful New York Fed/Lehman “stress test” disclosures, nothing in it surprised me. We had concerns about Lehman well before 2008. People thought they were tough, no-nonsense guys. But we were saying, actually, they’re incredibly aggressive risk takers with a wide berth for what they consider the truth. We’ve known for a while that the hole in their balance sheet was around $150 billion. To put that in perspective, the hole in Enron’s balance sheet was roughly $65 billion. We can quibble on a billion here, a billion there, but $150 billion? I have to think that fraud was involved. It wasn’t just bad business judgment.

So do you think there will be any perp walks? And why haven’t there been any yet?
I would be stunned if there weren’t at least indictments at Lehman and some of the other large institutions that have failed. I don’t know why there haven’t been any yet, but it’s amazing that it’s taken them this long. We’ve known about Lehman’s books since late 2008, but we just needed it confirmed by someone who wasn’t a short seller, since we’re not to be trusted. [laughs] We’ve known something was wrong with their books since the collapse.

So, where are the perp walks?  How long does it take before we see any investigations? It boggles the mind that $150 billion is vaporized

Forget about Lehman for a second, three years after the subprime crisis first hit and 18 months after the panic, there haven’t been any arrests, any indictments, nor any convictions at any major bank or at any of the government-owned financial institutions Fannie, Freddie and AIG. How do you lose trillions of dollars in the most lax regulatory environment without somebody, somewhere, at some time lying or stealing? It makes no sense.

If anything has caused tens of millions to lose faith in the financial system it is this. People may not know exactly who lied and who stole, but they want to see investigations – at a bare minimum. And they want to hear our political leaders saying "the investigations are ongoing. This is a priority for us. We want to get to the bottom of this" – repeatedly and vociferously. Right now the silence is deafening.

It doesn’t take a rocket scientist — and certainly not an accountant — to deduce one thing from the Lehman scandal. The misleading of regulators, investors and the public did not happen in isolation. Like Enron, WorldCom, Tyco, Wachovia, Washington Mutual, Fannie/Freddie, CDOs, Bear, AIG, bond insurers, GM, Chrysler, CIT, California, Greece and the countless others wrapped up in this crisis, Lehman is symptomatic of a banking system bent on finding ways to hide risk from the investing public and regulatory community…

It should be clear to all that a deeper examination of the relationship between all the audit firms and their clients on the issue of risk-obfuscation is needed. Limiting any inquiry to Lehman alone is inadequate.

Eliot Spitzer and Josh Rosner, 17 March 2010

If we are to believe Bryan Marsal, the man overseeing the Lehman bankruptcy, Wall Street has learned nothing from this calamity. He says it will happen again. It is time the government started asking the questions, getting the subpoenas, reading the e-mails and acting like they give a damn. The observations of Chanos, Spitzer, Rosner and Marsal say they don’t. If the politicians don’t demand action, I guarantee you there will be hell to pay come elections in November.

Source

The End-Times Investor – The New York Observer

13 Comments
  1. Mike says

    How about the rating agencies that sanctioned all the crap these guys were selling? Weren’t they the gatekeepers to credibility here? Sure, the CDO/MBS buyers should have done better due diligence, but fraud was enabled by their gross misconduct and blatant conflicts of interest.

  2. Chris D. says

    Ed:

    I suspect that John Robb is correct in linking public anger over the unpunished financial chicanery – especially in regard to AIG- with the recently passed health bill. The bill, now law, seems to be another case of the government rewarding, this time the insurance arm of finance, as evidenced by the recent action in the stocks of these companies.

    http://globalguerrillas.typepad.com/globalguerrillas/2010/03/rational-rage-at-a-broken-system.html

    1. Edward Harrison says

      Chris, I agree that the well is poisoned. Americans are already more distrustful of government than many other nationalities. So when we saw the apparently stark transition from Bush to Obama without any meaningful change in banking policy, it only confirmed suspicions that government is behind all of this chicanery.

      With Obama introducing his healthcare bill and having not made employment a top priority n 2009, it seems understandable that people would redirect their anger wherever they could.

      I said this eight months ago myself

      https://pro.creditwritedowns.com/2009/07/obama-and-health-care-wasting-political-capital.html

      This is the kind of thing that cannot be reversed entirely. Obama has shown himself to be on the wrong side of the crucial issues early on in his presidency and I don’t think he will be able to completely restore trust in him or government at large as a result.

  3. Anonymous says

    So, hedge fund managers are in the know about the financial weaknesses of firms, in this case, to the tune of 150 billion, and place bets to make a killing, while the entire financial system and Main Street takes a hit. How admirable.

  4. Anonymous says

    The issue is simple to understand if you recognize this fact: America is now a “fascist country”. Fascism is another word for “corporatism”, a term coined in the early 1920s by Italian President Mussolini. As it seems apparent to an increasing number of Americans, corporations get what they want. Even the recent “health care” bill that passed, has most democrats supporting a “Public option”. After 2,000 industry lobbyests went to work, all but one (Dennis Kucinech) had dropped their support for a public option. Even he dropped his support in the end so he could support the bill with NO public option. In other words, ALL democrats eventually caved into the corporate interests. That would mean they all supported a bill that preserved the profit interests of drug companies and insurance companies.

    Many folks spoke of the 45,000 people that die each year from lack of health insurance, but they really die from something else: lack of availability of “alternative medicine” and the lack of TEACHING of preventative medicine. Once again, it’s because there’s NO MONEY in prevention. If I don’t eat junk, eat fruits and vegetables, get adequate sunshine (which gives vitamin D), run 5-10 miles per day and do other health promoting things, I will SAVE money on future health expenditures. However, with all the talk about “health care reform” not ONE Congressman discussed the need for us to do things that could SAVE us money. In other words, no one discussed PREVENTION. Why? There’s no money in it.

    So, while we lament the banks getting bailed out, the health insurance companies getting most of what they want and, in general, the monied interests winning while the middle class loses, we should remember one thing: That’s the nature of fascism. The corporations rule and everyone else gets screwed. It is an unfortunate consequence of capitalism WITHOUT at the same time decent regulations.

    Ms. Brooksley Born COULD have been listened to about ten years ago, but she was shunned and ignored. More recently, Christopher Dodd COULD have kept with his original proposal to have a regulatory agency OUT of the Federal Reserve, but now the fox is guarding the proverbial hen house.

    Once again, it’s fascism. The polititians will give consumers the illusion of “helping them” while the insurance industry and the banks laugh…all the way to the bank!

    And why isn’t Joseph Stiglitz, Daniel Walker, Michael Hudson and Brooksley Born in some regulatory position in the Obama Administration? Why are those who got us INTO this crisis, overseeing its recovery?

    If I’m helping a client to lose 80 pounds, and they, instead GAIN 80, shouldn’t I be fired? I should think so!

    Tom

  5. Anonymous says

    As Dylan sang
    They say that patriotism is the last refuge / To which a scoundrel clings / Steal a little and they throw you in jail / Steal a lot and they make you king.

    Sadly, no one of substance is going to be prosecuted.
    We live in a Plutocracy.

    Aimlow Joe
    http://www.aimlow.com

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