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Post details: Tales from the Swamp

Tales from the Swamp

Wall Street breathed a collective sigh of relief.

Its arch-nemesis, a man who cast his nets far and wide into the teeming waters of the Financial Empire got ensnared in a little web of his own. In the most overreported story of this year so far, the New York up-and-coming Governor Eliot Spitzer stepped down after showing up on the customer side of a high profile prostitution ring. The backdrop of a thick smoke billowing from the American financial engine against which the bust occurred will surely give conspiracy nuts plenty to mull over in years to come. Only days before he was caught with his pants down, Spitzer penned a Washington Post article titled "Predatory Lenders' Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers" in which he implicated the White House in the promptly unraveling housing debacle.

But Spitzer was not the only one who stepped on a shaky moral ground recently. Shortly after the ill-fated governor handed an upscale "escort" $4300 for temporarily "abandoning" her ethical principles and lending her body to his inferior desires, Ben Bernanke and his Federal Reserve Bank extended over $400 billion in easy credit to Wall Street "financiers", who temporarily "abandoned" their time tested lending standards and made their funds available to inferior causes. I am not sure what exactly would constitute "financial prostitution", but pushing teaser-rate zero-money-down mortgages to borrowers with income documented on a beer coaster and then selling the debt as investment grade securities to foreign investors comes pretty close. No wonder that when the winds of fortune reversed and the pyramid scheme ran out of stone cubes, the banksters found their balance sheets rather scantily clad. So scantily in fact that they conceived a brilliant idea: let's turn the Fed into a pimp and the US taxpayers into naive johns.

There is a big difference in this analogy though. And I don't mean just the magnitude of the "payment" involved. While Spitzer took responsibility for his actions, publicly apologized and stepped down, financial maestros keep remarkably silent about their transgressions - that is if you don't count the incessant whining and calling for government intervention. And you certainly won't see the Wall Street Journal pillorying the fat cats for their gambling, after all theirs was a great business model - if it works out, we keep the profits, if it fails, Uncle Sam will bail us out. How convenient. Maybe if they returned some of the billions they collected in bonuses and fat fees for deals they knew were doomed, the liquidity of the whole system would somewhat improve, no? But I am not holding my breath for any apologies here, let alone money.

There is one more aspect in which the two tales differ: Mr. Spitzer's lapse, however much it hurt his family, will affect the wallet of an average Joe Sixpack only marginally if at all. Wall Street's love affair with greed is a different story though. Bear Sterns employees and shareholders already saw their wealth severely decimated when their stock fell from $57 to $4 in just two trading days. In the greater scheme of things, the mortgage debt implosion and subsequent maneuvers attempting to camouflage the solvency crisis of truly biblical proportions are affecting all of us. We the taxpayers will have to shell out the money for the profligacy of Wall Street wizards. It is not that gold, Euro or oil are moving up these days, it is the greenback that is moving down, because there is more and more of it, proportionately to the speed with which chief Bernanke wiggles his credit wand.

Only history will sort out who got screwed up more, whether the wretched call-up girl or the American public. In the meantime - we better step carefully. There are some unseemly critters still lurking in the banking swamp.



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