Enron

Political Corruption: GOP Embraces the Ken Lay Way

Leo Gerard — Thu, 02 Dec 2010 09:40:30 -0500

The GOP has adopted the Ken Lay principles – that is obfuscation, false statements and feigned innocence. Republicans are obfuscating about the real reason for their opposition to extending unemployment benefits, the way Enron CEO Ken Lay concealed the truth about billions in losses his corporation racked up.

Lay assured Enron workers the corporation was strong – five weeks before it failed. When the nation’s 7^th largest corporation collapsed into bankruptcy in 2001, Lay walked away, by his own estimate, with $20 million. By contrast, Enron’s 4,000 workers and creditors left with debts. The employees lost their jobs and pensions, and the creditors lost $65 billion.

Lay cooked the books. A jury, and a judge in a separate case, convicted him of it in 2006 – finding him guilty of fraud, conspiracy and false statements. He obscured Enron’s massive losses with accounting hocus-pocus then lied about it so pervasively and persuasively that in February of 2001, ten months before the bankruptcy, Fortune magazine awarded Enron first place for innovation and second for management quality.

Republican acolytes of the Ken Lay way contend that the federal budget deficit prohibits spending $65 billion to extend emergency unemployment insurance for a year. But, at the same time, they insist the deficit doesn’t constrain extending tax cuts to the richest 1 percent at a cost of $61 billion for the year 2011. It’s masterful. And as corrupt as Ken Lay.

In the past 60 years, Congress has never terminated emergency unemployment benefits when joblessness was this severe. The highest point at which Congress ended the program previously was 7.2 percent, and that rate was declining. Now, unemployment is stuck at a rate significantly higher -- 9.6 percent. There are 14.8 million unemployed workers, five jostling for every single job opening. They subsist on unemployment checks averaging less than $290 a week, which for too many is insufficient to forestall foreclosure because it’s half of what an average family spends for necessities.

Despite that six-decade precedent, Republicans blocked extension of unemployment benefits on Tuesday, then on Wednesday announced they’d vote on no measure until they got renewal of the Bush tax cuts and a resolution continuing funding for the federal government. As a result, 800,000 jobless Americans lost those small, family-preserving checks. Republicans are holding them hostage, with a ransom demand of tax cuts for the nation’s richest 1 percent. If the GOP doesn't get what it wants, 2 million will lose unemployment insurance by year's end.

Like Ken Lay, Republicans mouth right-sounding words. They claim they care about creating jobs and improving the economy. All the while, just the way Lay covertly defiled accounts, the GOP kicks the economy in the stomach.

The non-partisan Congressional Budget Office (CBO) ranked unemployment insurance as among the best economic boosters and job creators. CBO determined it generates as much as $1.90 in economic activity for every government dollar. Similarly, a study by the Economic Policy Institute showed that extending the benefits for a year would create as many as 488,000 jobs, which, ultimately, would reduce the cost of benefits because those workers would pay taxes rather than seek food stamps.

Republicans swear that the way to create jobs is to extend the Bush tax breaks for the nation’s richest – people earning more than a quarter million dollars a year. The GOP slyly says those words over and over, hoping repetition will spin them into truth. Like Ken Lay’s assertion that Enron was strong as it disintegrated, the GOP tax cut talking point defies truth.

The CBO concluded that extending tax cuts for the rich was among the least effective economic stimulators. It calculated that extending unemployment insurance would revive the economy up to 19 times as much as extending tax cuts for the nation’s wealthiest 1 percent. In addition, those tax breaks didn’t achieve promised job creation during the Bush administration. Since Harry Truman, no president but George H.W. Bush and Gerald Ford, both one-termers, generated fewer jobs than the 3 million George W. Bush did over his eight years. Even one-term “stagflation” President Jimmy Carter produced more than three times as many jobs as George W. Bush.

Again, aping Ken Lay, Republicans are engaging in accounting fraud. Professing deep concern over the budget deficit, Republicans say they’d extend unemployment insurance for a year if Democrats would cut federal spending by $65 billion to pay for it. They don’t acknowledge any parallel requirement to cut federal spending by $61 billion to pay for extending tax cuts for the rich for a year.

Just like Enron furloughing 4,000 while Ken Lay and fellow executives stole away with millions, Republicans would take food from the mouths of the unemployed while bulking up the deficit to appease the rich who feast on Almas caviar and White Alba truffles.

That’s corrupt accounting.

And it makes sense. It comes from the party of Ken Lay, who flew George H. W. and Barbara Bush on an Enron plane to George W’s inauguration. You can betcha Republicans won’t take responsibility for the personal and economic devastation caused by their decision to continue moving wealth from the middle class to the rich, just like Ken Lay denied responsibility for Enron’s bankruptcy – right up to his death -- which occurred at a Colorado resort as he awaited sentencing.

The Bank Lobby Gets Desperate on Derivatives

Zach Carter — Wed, 23 Jun 2010 14:10:13 -0400

Astonishingly, as Wall Street reform enters its final hours a tired, generic corporate refrain against regulation is gaining traction. As bigwig bankers and their lobbyist brethren fight to defeat tough new rules on derivatives—the crazy casino that brought down AIG—all their sloganeers can come up with is the trite wail that serious rules will send this risky business overseas. It'd be funny if members of Congress weren't taking it seriously.

"Oh no—the business will go overseas!" is the last-ditch, we're-about-to-lose-this-one cry of despair for corporate executives in every industry. Crack down on a profitable abuse in the United States, and the entire business will move to London or Mumbai, sending jobs and tax revenue abroad-- or so the argument goes. You only hear this line when CEOs know they have no case, and have to divert attention away from the real substance of the policy debate. In the case of Wall Street abuses, this nonsense is especially ridiculous. The bank lobby really just doesn't have any good arguments to launch in its favor, so it's falling back on generic corporate jargon.

In reality, the U.S. has extremely broad authority to crack down on derivatives activity abroad, we just don't have a whole lot of good rules on derivatives for regulators to enforce. It's extremely difficult for financial institutions to simply offshore their risky derivatives business to avoid oversight. Under current law, the Commodity Futures Trading Commission has the authority to regulate any trading done by foreign firms on behalf of U.S. clients, any trading of U.S. assets conducted by foreign institutions and any trading that causes a "substantial disruption" in U.S. markets. Just about anything the CFTC wants to get its hands on, it can, and the current CFTC Chairman, Gary Gensler, is a committed reformer. We just need to write good rules for his agency to enforce.

Moreover, finance tricksters will have no incentive to move their destructive derivatives trading abroad, because the rules in other countries are, in fact, much tougher than those the U.S. is currently considering.

There are a lot of ways to crack down on Wall Street, but none of them will work without reining in the insane, secretive market for derivatives—speculative instruments that allow financiers to gamble on anything from subprime mortgages to the price of corn. Right now Wall Street is making a big push to roll-out new derivatives on movie box-office receipts, allowing the financial world to place raw bets on how much money a movie is going to make. It sounds crazy and destructive, and it is.

Germany is leading the way on derivatives reform by simply banning this kind of naked gambling outright. The U.S. effort is critically important, but much more modest. Instead of banning the casino, reformers in Congress are hoping to shrink it by ending the taxpayer subsidies that fuel it. This is at the heart of the proposal from Sen. Blanche Lincoln, D-Ark., that has earned so much ire from the bank lobby. Bankers love their taxpayer subsidies, and love converting them into bonuses—who wouldn't? The trouble is that this business is inherently risky, and can jeopardize the entire economy, as the collapse of AIG attests.

But ending subsidies is still not as strong as banning gambling, which Germany is doing. The entire European Union is currently making a move to follow Germany's lead. Businesses can't exit U.S. markets to skirt regulations if their Wild West trading schemes are outlawed everywhere else.

In the U.K., officials are poised to impose a hefty tax on all financial assets, prevent banks from ballooning their balance sheets with derivatives trades. That means, U.S. banks can't send their derivatives operations to the U.K. without paying a big price.

Outside of Europe, few nations have the financial infrastructure to support derivatives trading on the scale of what we currently have in the U.S., where $300 trillion in trades are housed at just five banks. Some Asian nations do have this kind of infrastructure, big financial firms in Asia all realize that they will have to comply with U.S. rules if they want to keep doing business in the U.S. And indeed, policymakers in Hong Kong and other financial centers are looking to the U.S. for leadership on derivatives, and are likely to mimic whatever reforms are adopted here.

But more broadly, we have to ask why the U.S. should be worried about this activity being offshored at all. Raw gambling by financial institutions brought on one of the greatest economic catastrophes in American history. It forced the government to pony up over $4 trillion in bailout funds, expanded the national debt by 40 percent, and killed over 8 million jobs. If this business goes overseas, so be it! Let other nations bailout their megabanks and wreck their own economies if they want to. Today's derivatives casino is a job-killing nightmare that produces nothing other than megabonuses for bankers. Taxpayers have no business subsidizing such economic destruction.

Compared to international efforts, Blanche Lincoln's derivatives bill is overpoweringly mild, but it remains the only serious attempt to rein in the speculative casino that crashed our economy. The fact that the bank lobby's only tactic left is the wail "offshore!" shows how desperate our bank executives have become. Congress has no business caving to such nonsense at this stage of the reform process.

Real Reform Gains Traction: Lincoln Stands Firm on Derivatives Overhaul

Zach Carter — Thu, 17 Jun 2010 09:49:04 -0400

As the House and Senate publicly iron out their differences on Wall Street reform during conference committee, the most important aspect of the overhaul is gaining strength behind the scenes. Sen. Blanche Lincoln, D-Ark., is standing firm on her tough derivatives bill, and continues to garner unlikely allies from within the Federal Reserve as the final vote on the provision approaches.

The latest high-profile supporter of Lincoln's bill is St. Louis Fed President James Bullard, according to a Senate source familiar with the matter. Bullard joins Kansas City Fed President Thomas Hoenig and Dallas Fed President Richard Fisher as recent co-supporters of the measure to rein in megabank derivatives operations. Other key members of the conference committee, including House Agriculture Committee Chair Collin Peterson, D-N.D., are also offering support for the provision, which is likely to come up for a vote next week.

Both the bank lobby and reformists recognize that Lincoln's effort—known on Capitol Hill as Section 716—is the most serious proposal to rein in Wall Street still on the table for 2010. The bill's strategy is simple: End taxpayer subsidies for the derivatives market—the crazy casino that brought down AIG, Enron and Long-Term Capital Management. Right now, five megabanks score enormous profits by backing their derivatives operations with cheap loans from the Fed's discount window and taxpayer-guaranteed deposits. This cheap funding makes derivatives enormously profitable, and encourages banks to fuel enormous speculative casinos. Speculation on that magnitude is inherently unstable, and when the casino comes crashing down, the result is a disaster for the global economy (think AIG and Lehman Brothers).

By forcing banks to move their derivatives dealing into separately capitalized affiliates with no access to taxpayer perks, the business would become less profitable, and the global capital markets casino would shrink, putting the broader economy on stable footing.

But since those taxpayer subsidies mean big profits for banks, they also mean big bonuses for bank executives. And so every Wall Street lobbyist in Washington has been targeting Section 716, and they've convinced some top-level, bank-friendly officials like Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner to defend them.

But lately the political wind has shifted to Lincoln's back. Former Fed Chairman Paul Volcker, previously an opponent of the provision, reversed his opposition, saying he hadn't fully understood the details of the plan. A host of high-profile economists, including Nobel Laureate Joseph Stiglitz, former IMF Chief Economist Simon Johnson, Nouriel Roubini, Robert Johnson, Jane D'Arista and others have endorsed 716, saying that it's the last best chance to end Wall Street's reliance on taxpayer bailouts.

Derivatives are the central way that megabanks make themselves too-big-to-fail. By engaging in hundreds of millions of dollars worth of derivatives trades every day, banks enshroud themselves in complex webs of debt that no regulator can decipher. If a bank like that finds itself on the verge of collapse, regulators simply cannot predict what will happen if the bank is shut down. The Wall Street reform bill includes expanded authorities for regulators to shut down failing financial titans—but regulators will not use those powers on banks that run derivatives casinos on the scale of those currently in existence, in which five banks control nearly $300 trillion in trading. That's trillion, with a 't.'

Lincoln made a few concessions earlier this week in an effort to appease critics, but so far, none of them have been important. The most significant move will allow the Fed to provide derivatives dealers with emergency funding in the event of a financial collapse—powers known in Washington as 13(3) authorities. For many reform advocates, this looked sinister—the point of the Lincoln language is to remove taxpayer subsidies, but Lincoln would now permit emergency Fed loans.

This is ultimately a non-issue. The point of Lincoln's overhaul is to end the situation in which banks fund derivatives operations with loans from the Federal Reserve's discount window and cheap taxpayer-backed deposits. Discount window lending is radically different from the kind of lending the Fed does under 13(3). Banks go to the discount window all the time for loans as part of the ordinary course of business, and those loans come with a low, predictable interest rate (currently 0 percent). Lending under 13(3), by contrast, comes with strings attached. For all the faults of the Fed's handling of the AIG bailout, the Fed received an 80 percent stake in the company and discharged the firm's CEO.

This is not the sort of help that derivatives dealers want from the government—what they want are low-interest-rate loans from the Fed, and cheap FDIC-insured deposits. The prospect of emergency Fed lending doesn't change the incentives for a derivatives dealer any more than the prospect of some future Congress enacting a new law authorizing broad bailouts of derivatives dealers does.

Without access to discount window loans or FDIC-insured deposits, banks simply cannot operate. Even with access to emergency Fed lending, banks will have no choice but to move their derivatives dealing operations into an independently capitalized affiliate, and that affiliate will not be able to fund derivatives with cheap taxpayer guarantees as part of the basic business model. As soon as those operations are pushed out, banks will immediately have to put more capital behind them, and the entire derivatives casino will shrink. The reform is still fully intact.

No law can ban future bailouts, whether they be from the Fed or Congress. When the next financial crisis hits, policymakers will bail out whatever firms they deem necessary to prevent a collapse. If they need to change the law, they'll go to Congress. If Congress spurns them, policymakers will conduct their bailouts under-the-table by letting firms get away with overly optimistic accounting. What we can do is limit the potential for that next crisis to ever come about. Lincoln's plan is the most important provision for preventing a future crisis still on the table.

Commodity Futures Trading Commission Chairman Gary Gensler was one of the chief advocates for allowing 13(3) funding to derivatives dealers, according to a Senate source familiar with the negotiations. Gensler is the most serious advocate for derivatives reform in Washington, and he has been instrumental in pushing to fix another major loophole in the regulations requiring central clearing of derivatives (the current bill doesn't allow regulators to enforce those regulations, and Gensler has come out strongly in favor of fixing the problem during the conference committee).

The fight for Lincoln's bill is by no means over. The endorsement of three Fed presidents comes as a coalition of Wall Street-friendly New Democrats, led by Reps. Melissa Bean, D-Ill., Joe Crowley, D-N.Y., and Jim Himes, D-Conn., push back against the Lincoln language. The New Dems argue that 716 can be replaced by a strong Volcker Rule, which bans speculative gambling by commercial banks. The argument is totally disingenuous—the Lincoln plan is about limiting speculation throughout the financial sector, not just in banks themselves.

So far, neither Treasury nor the New Dems have had much luck persuading members of the conference committee to buck 716. Almost nobody in Washington wants to be caught committing an epic sell-out to Wall Street during the final stages of the reform process, when the public is watching every move. We've known for several weeks that some version of Wall Street reform would ultimately pass Congress. If Lincoln holds firm, that reform will actually be significant.

Chris Dodd, Phil Gramm, And The Legacy Of A Statesman

Zach Carter — Wed, 19 May 2010 15:06:40 -0400

Few realized it at the time, but Senator Chris Dodd's political career ended on June 12, 2008. That day, Portfolio magazine published its blistering expose on Countrywide Financial's "Friends of Angelo" program, naming the Democrat from Connecticut as one of the top beneficiaries of the subprime kingpin's political favors program. It's too late for Dodd to save his Senate seat. It's not too late for him to clear his name, but time is running out.

The ferocious response to Dodd's implication in the scandal has always, in truth, been somewhat curious. To this day, the evidence against Dodd remains nowhere near as damning as that against Sen. Kent Conrad, D-N.D., and unlike Conrad, Dodd never openly lied about his communications with Countrywide (at least, never got caught). Conrad has emerged from the scandal virtually unscathed, while Dodd is looking for a new job.

As Wall Street reform legislation has staggered along over the two years since the Portfolio story, the Countrywide scandal has faded to the background, with Dodd's key role in the legislative process returning to center stage. Although Dodd has never emerged as a reformist warrior, he has at times appeared to be a good-faith negotiator seeking significant reforms while making necessary concessions.

But what a list of concessions. During the debate over new credit card regulations, Dodd protected payday lenders by scuttling efforts to cap consumer credit interest rates at 36%. Once the broader financial reform effort was underway, Dodd all but gutted President Barack Obama's plan to create an independent Consumer Financial Protection Agency that could both write and enforce consumer lending regulations. Dodd carved out several deep loopholes in the agency's enforcement jurisdiction, placed it under the anti-consumer Federal Reserve, and dramatically restricted its ability to actually write rules by giving the existing, failed bank regulators veto power over any of the new agency's proposals. To his credit, Dodd never pretended these were substantive or productive concessions, instead openly acknowledging that the moves were intended to garner votes.

When it came time for Dodd to take action on the "Volcker Rule," Dodd again went to war against reformers on behalf of Wall Street. The proposal from Obama and former Fed Chairman Paul Volcker would ban risky proprietary trading by economically essential commercial banks, preventing them from gambling with taxpayer money. But instead of writing hard rules, Dodd kicked the issue to bank regulators, ordering them to conduct a study of the issue and allowing regulators to write their own regulations. Critically, Dodd did not requiring that anything actually be done to implement Obama's signature Wall Street reform.

The same scene appears to be playing out this week on derivatives—the crazy casino that brought down insurance giant AIG. Dodd cut deals with Sen. Blanche Lincoln, D-Ark., to weaken her strong derivatives bill, in the process, shooting the legislation full of loopholes that could make the remaining rules impossible for regulators to enforce. Beyond derivatives, Dodd cut a deal with Sen. Tom Carper, D-Del., that restricts the ability of state regulators to crack down on predatory lending.

All of these capitulations directly aided Wall Street at the expense of the rest of the economy. But for all of these concessions, Dodd could at least make the case that they were either honest mistakes (the derivatives loopholes), or concessions Dodd believed were necessary to win support for the overall package. Dodd has never been able to call himself a strident reformer, but he could at least defend himself against charges that he was going to bat for Wall Street.

It is impossible to find even a theoretical justification for Dodd's actions over the past 24 hours. Late on Tuesday, Republicans unleashed a swarm of procedural maneuvers to block a vote on an amendment from Sens. Jeff Merkley, D-Ore., and Carl Levin, D-Mich. The amendment would require the implementation of Obama's signature Wall Street reform—the Volcker Rule. Instead of fighting for his Democratic colleagues, Dodd has been all too happy to roll over for the Republicans, and tried today to end debate on the bill without even bringing Merkley-Levin to a vote.

Let me repeat that. Dodd isn't just refusing to support Merkley-Levin, he's refusing to even allow it a vote on the Senate floor. There is no way to gauge the political expediency of Dodd's support or withholding of support without at least getting a vote on the measure. This was a naked attempt to prevent the Wall Street reform package from getting stronger.

The Merkley-Levin fiasco isn't Dodd's only very recent sin. He also attempted to prevent key amendments from Sens. Maria Cantwell, D-Wash., and Byron Dorgan, D-N.D., from coming to a vote. Both the Cantwell and Dorgan bills would significantly strengthen derivatives regulation. Their amendments are believed to have widespread support, and Wall Street is very worried that the provisions could actually be adopted—if allowed to come to a vote on the Senate floor. Dodd is standing in the way. Cantwell also has a bill co-sponsored by Sen. John McCain, R-Ariz., to reinstate Glass-Steagall, the Depression-era law separating boring commercial banking from risky investment banking that protected our economy from bailouts for fifty years. Dodd is also blocking that amendment.

At the same time, Dodd is preparing what is rumored to be an epic "manager's amendment"—a conglomeration of all the back-room deals he has cut with various senators in order to win their support for the overall bill. If the manager's amendment is long enough, it becomes very hard to vote against, because sinking it would in turn sink the overall reform package. Dodd currently plans to use the manger's amendment to further sabotage Sen. Lincoln's plans to overhaul derivatives.

So in the past 24 hours, Dodd appears to have been going to bat for Wall Street, not out of concern for any greater political good, but exclusively for the purpose of padding the profits of big banks. The Senator from Connecticut cannot boost his own electoral prospects with this activity—that era of Dodd's life will soon be over. But some speculate that if Dodd can curry enough favor with Wall Street, he can secure a cushy and lucrative position when he leaves office next year.

If Dodd were to continue down this path, it could make him the Democratic Party analog to Phil Gramm, the infamous Republican Senator from Texas who took a job at Swiss banking giant UBS after pushing through a barrage of deregulatory legislation during his Senate career. Gramm is a very wealthy man—in addition to his UBS money, Gramm's wife Wendy Gramm (herself a former derivatives regulator) took home millions while serving on the board of Enron after her husband pushed through a bill blocking the regulation of derivatives that Enron specialized in. Nothing can take away that money. But history has already passed its judgment on the Gramms—they are Exhibit A in political corruption, the clearest example of everything that is wrong with American politics.

It is not too late for Dodd to avoid leaving a similar legacy. If he decides to fight for amendments that strengthen the Wall Street bill, his reputation can be partially salvaged. If he uses the manager's amendment to include strong legislative improvements, he can go down in history as a fearless reformer with a pragmatic streak. But if Dodd does not stand up to Wall Street and its Republican backers, he will forever be remembered as Angelo Mozilo's man in Washington. No amount of money is worth such public shame.

Back Jack, And Do It Again

Connie Nichols — Fri, 05 Mar 2010 16:57:14 -0500

Tent City here I come!

Everywhere I look, people are down-scaling as fast as they can to hang on to their pictures, books, laptop, piano, oboe, mp3s, and a 25-year-old bottle of Mouton-Rothschild Bordeaux…at least in that order for me.

My doomsday Cassandra-box just keeps getting bigger and spreading to others—a universe of debt created from the big bang aka greed, a universe exponentially expanding into the far reaches of uncharted uber-space. Über Sucks.

The treachery of the World Trade Center destruction on 9-11-01, and subsequent spurious acts, some global, some by people and companies I knew and trusted, combined to leech all the liquidity out of my bank and money market accounts. I always hope for the best, but my preparations for the worst were still not enough to stop the sucking sound of my loot disappearing down a drain—lost income, lost retirement, lost hours worrying about over-draft fees, bogus contracts, compounded interest and confounded drones calling my phone.

“If this is not blankety-blank, then please hang up the phone…”

“Ms. Drone, this is blankety-blank, where is my cash?”

Drones don’t answer, they only relay bad news. I only know the answer I’ve been told by talking heads with forked tongues. My expectations of a cushy, altruistic retirement are lost somewhere in a bubble that popped. Pop goes the weasel.

Something good might come from my losing a sense of security that never really existed. After all, if I default on my home loan, the bank will be out the exorbitant interest I would have gladly paid had the income continued. My current financial disaster was jump-started by “Royal Scam” rock stars wiggling out of paying royalties and promised salaries, while they were “reeling in” huge checks—a situation no different than Enron-AIG-Madoff executive-types squirreling off with all their stockholders’ money.

But like Nietzsche, I believe “a good writer possesses not only his own spirit but also the spirit of his friends.” (I wonder if Nietzsche’s friends ever said, “Dude, the mustache is too friggin’ big for your lip.”)

In the spirit of friendship, again, why do humans generate the intense suffering rendered by a perpetual motion machine of war fueled by greed and ideologue? And, how can we expect our children to behave any differently, when it seems the model for success in life is to cheat and steal?

Come on people, wake up! Without banking regulations, protective usury laws, and general moral ethics taught to our young, such as "Don't cheat anyone out of anything owed to them," the goose is cooked and devoured by the greed vultures. I give up on older people; go straight to jail.

The song says, we go “Back Jack and Do It Again,” and so it seems, until we explode or sicken ourselves into extinction.

Cases Against Enron Executives Revived

OurFuture.org Staff — Tue, 09 Sep 2008 11:12:57 -0400

A ruling in the federal appeals court in New Orleans on Monday revived Texas state court fraud cases targeting Enron Corp's former leaders and more than a dozen financial institutions accused of playing a role in the company's collapse, legal documents showed.

Stoneridge and the End of Enron Deterrence

David Sirota — Thu, 17 Jan 2008 13:23:34 -0500

Conservative intellectuals typically justify their reactionary legal/judicial agenda by citing the theory of deterrence. They tell us that harsh punishments, mandatory sentences and wide definitions of the criminal accessory designation are the ways to deter crime before it happens, because under such "get tough" measures, potential perpetrators will think twice before committing a crime.

The theory, of course, doesn't end up working all that well when applied to crimes that emanate from momentary "passion" and from socioeconomic desperation. A crime of passion is often not deterred by potential punishments because, by definition, a crime of passion is one where the perpetrator is motivated by a blinding explosion of emotion. Similarly, a crime of socioeconomic desperation — stealing food, etc. — is not usually deterred by the threat of jail because such crimes are by definition motivated by perpetrators' belief that they need to commit the crime to survive.

However, where "get tough" measures can deter unacceptable behavior is in the area of white-collar crime — crime often plotted by emotionless calculation and committed by the very rich (a k a the least economically desperate people in America). And this is why this week's Stoneridge decision by the Supreme Court is so tragic: A major deterrent to Enron-style white-collar crime was crushed right before our very eyes.

Here are the gory details from the Financial Times:

"The Stoneridge v Scientific-Atlanta decision was a homerun for corporate interests. The court reaffirmed a 1994 ruling that business partners, lawyers and bankers cannot be held liable for assisting or participating in corporate fraud unless investors can prove they specifically relied on those third parties when making investment decisions...Merrill Lynch, for example, will be able to use this ruling to fend off the long-running Enron investor lawsuit, and UBS could do the same in its HealthSouth litigation."

Though the Financial Times — like most loyal corporate media megaphones — cheered the decision, it noted that now that "gatekeepers, like lawyers and bankers, are protected they are less likely to question shady activities by their clients." That's actually an understatement. It provides an incentive for the "gatekeepers" to not ask questions.

Whereas before the Stoneridge ruling, these "gatekeepers" would want to know what kinds of shady shenanigans their clients were engaging in so as to deter prosecution, they now will not want to know anything so that they can claim total plausible deniability.

As author Thomas Geoghegan has written, the justice system is the last resort — the final barrier between civilization and total chaos. When the rest of civil society fails — when the regulators blow it, when the watchdogs get run over — it is up to the justice system to create the deterrents that prevent economic greed from being allowed to destroy the country. In the Bush era, when our government's regulatory agencies have been gutted, one of the last remaining deterrents is the knowledge that if you help a corporation steal from its employees and shareholders, you might become the target of a civil lawsuit that could result in serious financial pain.

Under the guise of taking on supposedly "greedy" trial lawyers, the conservative movement is working to take away that deterrent and help the truly greedy — the corporations that polls show Americans are sick and tired of being trampled by. Whether by statutorily limiting punitive damage awards or by using the Supreme Court to strip investors of their right to demand recourse, the Right's efforts are moving America closer to the barbaric, economic Darwinism they dream of, a place where those who helped Enron executives are given more rights than the shareholders Enron bilked, a place where respect for the common good is subverted for a survival-of-the-greediest mentality.

Conservative Judges to Enron Retirees: Drop Dead

Robert Borosage — Wed, 16 Jan 2008 09:44:39 -0500

Remember the Enron employees who watched their retirement savings evaporate as the Enron ponzi scheme, chaired by George Bush’s best buddy, “Kenny Boy” Lay, went up in smoke?

The conservative majority on the Supreme Court just told them all: “Drop Dead.” Forced to choose between protecting the rights of the small investors who got defrauded and the companies, banks, accountants and vendors who conspired in creating and profited from the fraud, the Court protected the crooks and skewered the victims.

No surprise. That was the entire point of stacking the court with right-wing, activist judges. Sure the nomination battles over the judges focused on Roe v. Wade and civil rights. But the intent all along was to choose judges who would protect corporate interests and presidential prerogatives. Roe v. Wade is still standing. But consumers, workers, small investors, and the freedoms of Americans are taking it in the ear.

The conservative majority’s decision yesterday held that companies that conspired to help Stoneridge report fraudulent profits could not be held liable to the investors who got fleeced. Unless the co-conspirers communicated with the investors directly, investors could not be said to have been misled by them.

The case was widely seen as a precursor of the decision in the suit by Enron investors against the Wall Street banks –including JP Morgan Chase, Merrill Lynch and Citigroup – that worked with Enron to create fake sales that enabled Enron to report mythic profits and hide significant losses.

So now does fraud becomes a profit center for Wall Street banks? With their catastrophic failures in mortgage lending, they need something. The majority noted that the Securities Exchange Commission could pursue the co-conspirators on criminal charges, but needless to say, the toothless SEC won’t disturb any fraud peddler’s sleep.

The rationale of the decision was to reassure third party lenders and vendors that they couldn’t be held liable to unfounded lawsuits against corporate fraud. But these weren’t folks just doing business with a crooked company. These were principals in the fraudulent schemes designed to mislead investors. The decision can only undermine investor confidence in US markets at the very moment the reputation of US banks and markets has been savaged by the subprime mortgage debacle, the coming credit card and auto loan defaults, and the terrifying vulnerability of the 40 trillion unregulated and unfathomable credit-default swaps market.

The conservatives on the Supreme Court have just defined that free markets mean free for fraud. If this keeps up, pillows will once more be a popular place for small investors to park their savings.