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"It is unlikely, I think, that this will generate a lot of media publicity," [Judge] Baer sighed to the jury in his preliminary instructions.
June 22, 2012 4:18 AM   Subscribe

The Scam Wall Street Learned from the Mafia is Matt Taibbi's take on the recent convictions in the municipal bond bid-rigging case of United States v. Dominick P. Carollo, Steven E. Goldberg, and Peter S. Grimm. These three fraudsters are among the fifteen convicted so far with regard to the federal government's investigation into nationwide municipal bond bid-rigging schemes.

Indictment and superseding indictment here.

Taibbi talks a little bit more about the case on Don Imus.
posted by Sticherbeast (45 comments total) 17 users marked this as a favorite

 
I'm shocked, shocked to find that gambling market rigging is going on in here!
posted by Skeptic at 4:39 AM on June 22, 2012


I'm shocked, shocked to find that Don Imus is still on the air.
posted by Blue_Villain at 4:47 AM on June 22, 2012 [2 favorites]


See folks, someone went to jail for bankrupting the world. Can we just move along now? Surely Justice has been served...
posted by PenDevil at 4:52 AM on June 22, 2012


Give a man a gun, and he can rob a bank.
Giva a man a bank, and he can rob the world.
posted by seanmpuckett at 4:57 AM on June 22, 2012 [17 favorites]


It's not municipal bond rigging (which also goes on) its GIC rigging. Think CDs for huge sums of money
posted by JPD at 5:18 AM on June 22, 2012 [1 favorite]


It is really disheartening to see this reaction of sarcastic surprise and defeatism. Yes, we all know the big banks were engaged in shady shit. And yes, we all know that they will never be held accountable for all of it. But it is still important to do the best we can to understand, and hopefully prevent it in the future, instead of throwing up our hands and giving up.
posted by Nothing at 5:23 AM on June 22, 2012 [3 favorites]


It's interesting to me that every time I read one of these stories it always white men at the center of it. Really, they don't let any women or black folks into this club?

I am glad to see what Taibbi points out: that we can prosecute these people, that their crimes are not so arcane that juries will be baffled, and that someone, somewhere, still gives enough of a shit to go after them.
posted by Legomancer at 5:30 AM on June 22, 2012 [1 favorite]


Apropos of n-thing, I agree, apropos of Nothing.
posted by Glomar response at 5:42 AM on June 22, 2012


It's interesting to me that every time I read one of these stories it always white men at the center of it. Really, they don't let any women or black folks into this club?

Kind of like how we have no idea, NO IDEA, how to define the demographics of the typical school or workplace shooter. They're all so different, we just can't talk about a common type. There is no profile. And if there were, it certainly wouldn't be of disaffected white males.
posted by OmieWise at 5:51 AM on June 22, 2012


But it is still important to do the best we can to understand, and hopefully prevent it in the future

Not gonna happen. That's like saying "next time I'm thrown bodily off a cliff I'm not gonna fall down, I'll just fly away instead!"

No point in paying attention, because nothing we say or do will change the outcome next time, and nothing we say or do will stop it.

May as well save our energy for something more useful.
posted by aramaic at 6:02 AM on June 22, 2012


These convictions do give me hope that our regulatory and criminal justice mechanisms are not completely powerless in the face of concentrated wealth. However, it'd be interesting to chart the number of convictions (or even indictments) for improprieties in the finance sector compared to the cost of those improprieties (in lost jobs, lower GDP, etc.). I wonder if the more costly the infraction, the less likely there is to be an indictment (or even regulatory action).
posted by audi alteram partem at 6:06 AM on June 22, 2012


If you are a gambler, the slightest edge is all that's necessary to make you a long-run winner. This is an example of that, and then some. Practically, it's no different than sticking a gun in our collective faces; these wastes-of-skin have stolen more from you and me than any street criminal ever will. There isn't a corner of hell hot enough for them, IMO.

It's also ironic (but astoundingly obvious) that the thugs who scream the loudest that "capitalism is the best system, you commie" are the ones who abandoned capitalism for cronyism a long time ago. Capitalism for you, citizen - I'll take the sure thing.
posted by Benny Andajetz at 6:07 AM on June 22, 2012 [3 favorites]


Also, one thing is absolutely predictable: This will NEVER stop as long as the punishment is less expensive than the money made by gaming the system. The fines being levied are merely a cost of doing business. They are, in no way, a real punishment.
posted by Benny Andajetz at 6:10 AM on June 22, 2012 [10 favorites]


The problem with the story is that it seems entirely plausible that all a bank like GE wants out of one of these deals is a deposit, the "GIC", and in order to get the 200 million to move around it needs to deal with the brokers like CDR, who are shady. It's not clear to me that "Wall Street" actually cares about the basis points and that the bid rigging isn just a shady way for CDR to get kickbacks on these deals. Since CDR is the broker on the deal, you have to work with CDR bidding process in order to get the deposit.

Of course GE is happy to hang out it's junior executives to dry on the case... I'm not saying they aren't scumbags.
posted by ennui.bz at 6:56 AM on June 22, 2012


Actually if the fines quoted in the piece are correct - 365 mil for two players who do 35 bil a year in nominal issuance then I'd be pretty sure that's multiple years worth of income. Underwriting fees aren't very big for these sort of things (although they should be almost zero)

But here's the thing. Yes, the guys were guilty, yes its good they might get jail time - but its municipal finance - one of the least profitable, lowest prestige areas of Wall Street. No one who matters really cares about this or these guys going to jail.
posted by JPD at 6:56 AM on June 22, 2012


It's interesting to me that every time I read one of these stories it always white men at the center of it. Really, they don't let any women or black folks into this club?

I'm visiting New Orleans and one of the big stories here is former-mayor Ray Nagin's prosecution for corruption. I was honestly surprised to read about it - I had assumed that anyone in his position would necessarily be corrupt, and why were they making a big deal about it? So I guess I'm post-racial.
posted by Joe in Australia at 6:58 AM on June 22, 2012


But here's the thing. Yes, the guys were guilty, yes its good they might get jail time - but its municipal finance - one of the least profitable, lowest prestige areas of Wall Street. No one who matters really cares about this or these guys going to jail.

But I bet GE would care if it found itself frozen out of the municipal bond market.
The defense's cross-examinations were surreal. It was ­certainly true that some of the government's cooperating witnesses had dubious résumés, so it may have made sense to highlight their generally duplicitous history of tax evasion or lying to investigators. But in their zeal, defense counsel went far beyond simply discrediting the witnesses, spending an inordinate amount of time eliciting even more details about the grotesque corruption scheme their own clients had taken part in. The result was a rare and somewhat confusing spectacle: high-octane lawyers from Wall Street working to rip the lid off Wall Street corruption in open court.

Defense counsel showed us, for instance, how CDR employees were routinely directed by their boss, David Rubin, to make political contributions to select candidates, only to be reimbursed by Rubin for those contributions later on. This kind of corporate skirting of campaign finance limits is something we've always suspected goes on, but we rarely get to see direct evidence of it.

More interesting, though, were the stories about political payoffs. In 2001, CDR hired a consultant named Ron White, a Philadelphia bond attorney who happened to be the chief ­fundraiser for then-mayor John Street. CDR gave White two tickets to the 2003 Super Bowl in San Diego plus a limo – a gift worth $10,000. As his "guest," White took Corey Kemp, the city treasurer for Philadelphia, who, 16 days later, awarded CDR a $150,000 contract to advise the city on swap deals. But that wasn't the end of the gravy train: CDR doled out those swap deals to selected banks, who in return kicked back $515,000 to CDR for steering city business their way.


I think it's pretty clear that brokers like CDR help Wall Street keep it's hand's clean in dealing with local politicians. The point being that local politics in the U.S. is largely corrupt. In order to get the GIC, GE would otherwise have to bribe the politicians itself. So, instead, the broker does it and, because they are shady, they want kickbacks coming the other way from GE.

Municipal finance is low-profit but it's not a charity. GE is enabling corruption at the local level because it needs the deposits.
posted by ennui.bz at 7:07 AM on June 22, 2012


But I bet GE would care if it found itself frozen out of the municipal bond market.

Well I think they might already be out of the GIC business. I'm not sure, but once they got downgraded from AAA it became a dramatically less profitable and more capital intense business for them
posted by JPD at 7:10 AM on June 22, 2012


"Cheaters may almost never win but, given equal opportunity and a large enough competition, the winners are almost always cheaters."
posted by mondo dentro at 7:12 AM on June 22, 2012 [4 favorites]


yep. looks like they are basically not doing much
posted by JPD at 7:13 AM on June 22, 2012


I'm not sure what municipal finance's lack of relative prestige have to do with anything. Nobody's calling these guys Masters of the Universe. As with any other sector, most of the finance world is humdrum and workaday. But, municipal finance turned a profit, so it was part of GE Capital's business, irrespective of whether or not these men were employed by their "betters."

I mean, hell, now that I've typed out Masters of the Universe, I remember that in Bonfire of the Vanities, bond trader Sherman McCoy was only dubbed a "Master of the Universe" with a hefty dose of irony.
posted by Sticherbeast at 7:30 AM on June 22, 2012


It matters because no one is seeing this outcome and saying "oh shit better stop fucking around and toe the line"

Instead its "those dumb muni guys. what a bunch of clowns. who lets themselves get taped bid rigging"

There's no deterrent.
posted by JPD at 7:37 AM on June 22, 2012 [4 favorites]


The relative prestige of this arena has zip to do with it. Banks have a vitally important role to play in our society; in the case of municipal bonds they are literally custodians of taxpayers' money. I don't think anyone begrudges the banks some profit for the work they do, but this is no different than embezzlement. A dime, a dollar, ten zillion dollars - it doesn't matter.
posted by Benny Andajetz at 7:40 AM on June 22, 2012 [1 favorite]


It matters because no one is seeing this outcome and saying "oh shit better stop fucking around and toe the line"

OK, that makes more sense. I agree with you.

That said, knowing how people in general work, even if the government had truly nailed some people higher on the totem pole using techniques more sophisticated than using their own blatantly criminal recorded conversations, I doubt people would change very much just from that.
posted by Sticherbeast at 7:41 AM on June 22, 2012


May as well save our energy for something more useful.

Studying aramaic, perhaps?
posted by notyou at 8:13 AM on June 22, 2012


Last year, the two leading recipients of public bond business, clocking in with more than $35 billion in bond issues apiece, were Chase and Bank of America – who combined had just paid more than $365 million in fines for their role in the mass bid rigging.

To put this in perspective, it's like stealing $1,000 and only being forced to give back $10.40.
posted by dr_dank at 8:25 AM on June 22, 2012


For those of you put off by Taibbi's mountains of prose, here's his description of the scam, on page two:
The "simple fraud" Waszmer described centered around public borrowing. Say your town wants to build a new elementary school. So it goes to Wall Street, which issues a bond in your town's name to raise $100 million, attracting cash from investors all over the globe. Once Wall Street raises all that money, it dumps it in a tax-exempt account, which your town then uses to pay builders, plumbers, the chalkboard company and whoever else winds up working on the project.

But here's the catch: Most towns, when they raise all that money, don't spend it all at once. Often it takes years to complete a construction project, and the last contractor isn't paid until long after the original bond is issued. While that unspent money is sitting in the town's account, local officials go looking for a financial company on Wall Street to invest it for them.

To do that, officials hire a middleman firm known as a broker to set up a public auction and invite banks to compete for the town's business. For the $100 million you borrowed on your elementary school bond, Bank A might offer you 5 percent interest. Bank B goes further and offers 5.25 percent. But Bank C, the winner of the auction, offers 5.5 percent.

In most cases, towns and cities, called issuers, are legally required to submit their bonds to a competitive auction of at least three banks, called providers. The scam Wall Street cooked up to beat this fair-market system was to devise phony auctions. Instead of submitting competitive bids and letting the highest rate win, providers like Chase, Bank of America and GE secretly divvied up the business of all the different cities and towns that came to Wall Street to borrow money. One company would be allowed to "win" the bid on an elementary school, the second would be handed a hospital, the third a hockey rink, and so on.
posted by notyou at 8:43 AM on June 22, 2012 [1 favorite]


Last year, the two leading recipients of public bond business, clocking in with more than $35 billion in bond issues apiece, were Chase and Bank of America – who combined had just paid more than $365 million in fines for their role in the mass bid rigging.

To put this in perspective, it's like stealing $1,000 and only being forced to give back $10.40.


Only if $35B represents their profit from the bond issuance.
posted by SugarFreeGum at 8:44 AM on June 22, 2012


Oh, one more graf:
How did they rig the auctions? Simple: By bribing the auctioneers, those middlemen brokers hired to ensure the town got the best possible interest rate the market could offer. Instead of holding honest auctions in which none of the parties knew the size of one another's bids, the broker would tell the pre­arranged "winner" what the other two bids were, allowing the bank to lower its offer and come in with an interest rate just high enough to "beat" its supposed competitors. This simple but effective cheat – telling the winner what its rivals had bid – was called giving them a "last look." The winning bank would then reward the broker by providing it with kickbacks disguised as "fees" for swap deals that the brokers weren't even involved in.
posted by notyou at 8:45 AM on June 22, 2012


Studying aramaic, perhaps?

I absolutely, and emphatically, encourage everyone to study me in great detail. There is much to be learned from long sessions spent contemplating my glory.

Much will be revealed to the reverent student.
posted by aramaic at 8:59 AM on June 22, 2012 [6 favorites]


After a prosecutor caught former Atlanta mayor Manyard Jackson as part of a bid rigging scheme via his bond brokerage in Chicago, the City of Atlanta rewarded him by naming the airport after him. I can't get the AJC to do a follow-up on the story, even when relevant news like this arrives.
posted by surplus at 9:34 AM on June 22, 2012


To put this in perspective, it's like stealing $1,000 and only being forced to give back $10.40.

Only if $35B represents their profit from the bond issuance.


Muni Bond Fees are something like .5% or 50 bps so revenue on 35B is more like 175 mil. Profit is going to be less than that obviously, but non-comp costs are pretty low.

If you thought the bid rigging cost 5 bps on average you are looking at 17.5 mil. So the fines are actually pretty high relative to the gains - which is as it should be.
posted by JPD at 10:47 AM on June 22, 2012


For those of you put off by Taibbi's mountains of prose

As usual, 1 page of facts and 6 pages of calling people assholes, and also pointing out that they are Jewish.
posted by empath at 10:53 AM on June 22, 2012


and also pointing out that they are Jewish.

Searched the article for 'Jewish', no results. I like the like the sly accusation of antisemitism though, empath. I think you are riffing off of Taibbi's attacks on Goldman Sachs, which some people tried to say were antisemitic (as opposed to anti-wallstreet)? Or perhaps you were assuming that since he has kind of an Arabic sounding last name...?
posted by jackbrown at 11:25 AM on June 22, 2012 [2 favorites]


In the call, Wolmark and Goldberg start haggling over the price of CDR's kickback. Wolmark tells Goldberg he only wants what's fair. "Listen, I'm not a chazzer," Wolmark says.

Fans of the movie Scarface will remember Tony Montana's inspired translation of this Yiddish term: "Thas a pig that don' fly straight."

Wolmark reassures Goldberg that as pigs go, he's a straight flier. "You see the kind of mensch I am," he says.
posted by empath at 11:40 AM on June 22, 2012 [1 favorite]


As usual, 1 page of facts and 6 pages of calling people assholes, and also pointing out that they are Jewish.

As I've said before about Taibbi: he writes for Rolling Stone and gets them to let him spend weeks watching a little-noticed Wall St trial and write a few thousand words about a topic so boring it seems no major media outlet felt like giving it more than a footnote of coverage even though it regards a massive criminal conspiracy by most of the major banks involving a scheme to 'systematically [steal] from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States"' by bribing politicians, brokers and each other

I don't think the fact that he calls people assholes and quotes their slang was, for me, the most important take-away from this article. I recommend everyone read it and decide for themselves
posted by crayz at 12:16 PM on June 22, 2012 [6 favorites]


I'm dumbfounded at the realisation that I have been outkneejerked by Empath, but yeah: going into an aside about the ethnic identity of a wrongdoer is always problematic. When it involves Jews and money the author loses any presumption of auctorial innocence.
posted by Joe in Australia at 1:35 PM on June 22, 2012


More from Taibbi: Notes on Wall Street's Bid-Rigging Scandal

"For space reasons we had to leave a few interesting bits out of my latest magazine piece, 'The Scam Wall Street Learned From the Mafia,' about widespread corruption in the municipal bond markets. The odd thing is, we might actually have undersold the damage done by this sort of cartel-style corruption."
posted by homunculus at 9:54 AM on June 23, 2012 [1 favorite]


From that link

Muni ratings are based upon the financial strength of the issuer, while corporate bond ratings are based upon risk of default. And who knows, maybe that makes sense.


This is why Taibbi is a bad journalist. You can't just shrug that away when your entire argument is predicated on that not making sense.

Now in this case he happens to be right. It doesn't really make sense that corps are judged on default risk and munis on "financial strength." But you can't just address that issue this way. Also it sort of displays a lack of knowledge about how these thing get priced, but that's a long conversation. The way the munis directly lose/lost money because of the weird ratings difference is that they often were forced to buy bond insurance from AAA rated corporates to make their own bonds AAA, when if they were rated on default risk they would probably be AAA anyway.

But the market prices the bonds. Its not "look at ratings table add x bps to yield. sell at that price"
posted by JPD at 10:51 AM on June 23, 2012


Matt Taibbi and Yves Smith on Bill Moyers and Company.
posted by homunculus at 12:43 PM on June 23, 2012


This is why Taibbi is a bad journalist. You can't just shrug that away when your entire argument is predicated on that not making sense.

He's better than the other people covering this.
posted by JHarris at 1:35 PM on June 23, 2012 [1 favorite]


He's better than the other people covering this.

He's a dwarf in a tallest midget contest.
posted by JPD at 2:30 PM on June 23, 2012


A Huge Break in the LIBOR Banking Investigation
posted by homunculus at 11:31 AM on June 28, 2012 [1 favorite]


Shouldn't that go in the LIBOR thread?
posted by JPD at 9:58 AM on June 29, 2012


That comment appeared before that thread was posted, but it's now crossposted there.
posted by Joe in Australia at 11:40 AM on June 29, 2012


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