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Is Wall Street's Business Model Corrupt?
"Given the scope of the allegations to date, we are not talking simply about the occasional corrupt individual. We are talking about something verging on a corrupt business model." -- U.S. Attorney Preet Bharara, NYT, May 27, 2011
As the evidence mounts, the raison d'être for Occupy Wall Street is proving correct. Much of high finance, it seems, is based on a "corrupt business model." Here's a brief tour of its contours. (For more detail please see How to Make a Million Dollars an Hour.)
1. Rating Agencies Turn Tricks for Cash:
The three major rating agencies, by regulation, have special status in our economy. Their job is to help police the financial system by scrutinizing the credit worthiness of new securities created and sold by banks and other financial institutions. The higher the rating, the easier it is to market the securities. (Pension funds, for example, are only permitted to buy highly rated securities. And triple A-rated securities allow banks to hold and count such securities as Tier 1 capital against their loans, an extremely valuable attribute.) During the housing boom, banks found ways to "securitize" junk mortgages to sell to investors all over the world. Even though the underlying sub-prime mortgages were extremely risky, the banks claimed their bundling and slicing techniques made most of the securities extremely safe.
READ MORE Les Leopold: Is Wall Street's Business Model Corrupt?
"Given the scope of the allegations to date, we are not talking simply about the occasional corrupt individual. We are talking about something verging on a corrupt business model." -- U.S. Attorney Preet Bharara, NYT, May 27, 2011
As the evidence mounts, the raison d'être for Occupy Wall Street is proving correct. Much of high finance, it seems, is based on a "corrupt business model." Here's a brief tour of its contours. (For more detail please see How to Make a Million Dollars an Hour.)
1. Rating Agencies Turn Tricks for Cash:
The three major rating agencies, by regulation, have special status in our economy. Their job is to help police the financial system by scrutinizing the credit worthiness of new securities created and sold by banks and other financial institutions. The higher the rating, the easier it is to market the securities. (Pension funds, for example, are only permitted to buy highly rated securities. And triple A-rated securities allow banks to hold and count such securities as Tier 1 capital against their loans, an extremely valuable attribute.) During the housing boom, banks found ways to "securitize" junk mortgages to sell to investors all over the world. Even though the underlying sub-prime mortgages were extremely risky, the banks claimed their bundling and slicing techniques made most of the securities extremely safe.
READ MORE Les Leopold: Is Wall Street's Business Model Corrupt?
