“[This] may well turn out to be greatest non-violent crime against humanity in history … never before have so few done so much to so many” – Graydon Carter, Editor, Vanity Fair THE CRIME OF OUR TIME WAS THE ECONOMIC COLLAPSE “INDEED, CRIMINAL?” DANNY SCHECHTER “The news dissecTor” Author of PLUNDER Director of IN DEBT WE TRUST Preface by LARRY BEINHART author of WAG THE DOG WAS THE ECONOMIC COLLAPSE “INDEED, CRIMINAL?” THE CRIME OF OUR TIME Comments on The Crime of Our Time “Regulations have always been the mechanism used by societies to prevent flagrant abuses of power, the enslavement of the working class and the rise of a parasitic power elite. The erosion of regulations, as Danny Schechter makes clear in his book, permits the powerful to legalize crime. Theft, fraud, deceptive advertising, predatory lending, debt sold to investors as assets become the currency of a false economy. And when this ficticious economy crashes those who engaged in these crimes, because they have hijacked the reigns of power, are able to loot the U.S. Treasury in the largest transference of wealth upwards in American history. There are many forms of terrorism. And this economic terrorism, as Schecter writes, is perhaps even more dangerous to the nation than the attacks of 9/11.” – Chris Hedges, author of Empire of Illusion: The End of Literacy and the Triumph of Spectacle “Danny Schechter is the people’s economist. The clairvoyance of his opus transcends mainstream statistics-gatherers because he examines the real world, reporting the American condition as told to him by the real people who live it everyday. The Crime of Our Time combines Schechter’s signature bold passion, keen analysis, and solid empathy for those caught in the cross-fires of the financially powerful and politically connected. Like Schechter’s other works, The Crime of Our Time is ahead of its time, and we could all learn from Schechter’s astute, heartfelt, and exceedingly accurate observations and predictions.” – Nomi Prins, former Managing Director at Bear Stearns and Goldman Sachs, author It Takes a Pillage “Excellent investigative journalism like Danny Schechters in The Crime Of Our Time actually protects capitalism against the cancer of white collar crime by educating law enforcement, businesses, investors, anti-fraud professionals, and the public about schemes used by criminals who victimize our economic system for their own personal gain.” – Sam Antar, Convicted White Collar Criminal “Danny Schechter brings both the needed economics exper- tise and the media credentials to the important task of exposing and analyzing the elements of crime and corruption woven deep into the fabric of our economic system’s cur- rent crisis. Plunder and The Crime of Our Time are important contributions toward understanding an historic moment of change in the economy and society of the United States.” – Richard D. Wolff, Professor of Economics Emeritus, University of Massachusetts, Amherst, Visiting Professor, Graduate Program in International Affairs, New School Uni- versity, New York “Did the current economic crisis result simply from mar- ket forces, misjudgment and greed? Or was it a deliberate criminal manipulation of markets to extract wealth from the masses? In The Crime of Our Time, Danny Schechter turns his polished investigative and reporting skills to exploring the theory that it was a crime. In veteran journalist prose, he establishes the crime’s elements, identifies the players, and exposes the weapons that have turned free markets into vehicles for mass manipulation and control. – Ellen Brown, a Los Angeles area-based attorney, is the author of Web of Debt and other books and articles on eco- nomic issues. “Danny ranges wide over the political and cultural landscape, pointing fingers, naming names and holding no sacred cows in his quest to determine what went wrong with our econo- my and who was responsible. His work is the antidote to to a biased, compromised and sclerotic mainstream media.” – Aaron Krowne, editor of Ml-implode and related websites on the mortgage and banking crisis. “With The Crime of Our Time, Danny Schechter has made himself the clean-up hitter in the line-up of investigative jour- nalists. He has continued his pioneering work on how the actual existing real world of capitalism works – not the fairy tale version that dominates solitical and media discourse. This book is truly revelatory and must reading for anyone trying to understand the financial currents that have run the economy into the ditch. With The Crime of Our Time, Danny Schechter has smashed the ball 500 feet over the centerfield fence. Robert W. McChesney, co-author, The Death and Life of American Journalism THE CRIME OF OUR TIME WAS THE ECONOMIC COLLAPSE “INDEED, CRIMINAL?” DANNY SCHECHTER Author of PLUNDER Director of IN DEBT WE TRUST THE CRIME OF OUR TIME WAS THE ECONOMIC COLLAPSE “INDEED, CRIMINAL?” © 2009 Danny Schechter First Edition All rights reserved. No part of this publication may be reproduced, stored in retrievable system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise except for reviews, without the prior permission of the publisher: Danny Schechter News Dissector Editor Mediachannel.org Globalvision Inc. 575 8th Avenue New York, NY 10018 www.mediachannel.org Director IN DEBT WE TRUST (Indebtwetrust.org) Author, PLUNDER (newsdissector.com/Plunder) Designed and produced by Tony Sutton, Editor ColdType 10469 Sixth Line, Georgetown Ontario L7G4S6, Canada www.coldtype.net For Those Who Saw, Anticipated, Knew, And Were Ignored. Frederic Bastiat, Fernando Pecora Nouriel Roubini, and J.K. Galbraith And, as always, Sarah Debs Schechter ix CONTENTS Preface By Larry Beinhart, author Wag The Dog xi Musical Preface: Soundtrack By Polar Levine/Polarity 1 xiv PROLOGUE xix INTRODUCTION: Our Time And Financial Crime xxxi CHAPTER 1: The Madoff Moment 1 CHAPTER 2: The White Collar Prison Gang 29 CHAPTER 3: The Crimes of Wall Street 31 CHAPTER 4: The Criminal Mind 43 CHAPTER 5: The Crime At The Heart of The Crime 49 CHAPTER 6: What Should Be Prosecuted? 53 CHAPTER 7: Investigating Financial Criminals 59 CHAPTER 8: Count One: Predatory Subprime Lending 67 CHAPTER 9: The Victims Are Everywhere 83 x CHAPTER 10: Witnesses For The Prosecution 87 CHAPTER 11: Count Two: Wall Street Complicity 91 CHAPTER 12: Count Three: The Insurers 97 CHAPTER 13: Co-Conspirators: The Role of The Media 107 CHAPTER 14: Warnings Ignored 117 CHAPTER 15: The Bear Stearns “Bleed-Out” 125 CHAPTER 16: The Liquidation of Lehman 141 CHAPTER 17: Are Our Markets Manipulated? 153 CHAPTER 18: The Testosterone Factor 169 CHAPTER 19: The Role of Regulators and Politicians 177 CHAPTER 20: Judgment Day `93 Epilogue 209 AUTHOR’S BIO 211 xi PREFACE By Larry Beinhart Dear Prosecutors, Tell your secretary to hold your calls, close your office door, and take a private moment. Lean back in your chair. Close your eyes. Conjure up these names: Thomas Dewey, Rudolph Giuliani, Eliot Spitzer …. … Hold it. Clear the image of Ashley Dupre in her bikini from the back of your eyelids … OK … now … Meditate on the headline: Dewey Defeats Truman. He didn’t, quite. But the crusading prosecutor had three terms as governor of New York and came within an eyelash of becoming president. Rudolph Giuliani, the crusading prosecutor, went on to serve two terms as mayor of New York, became a serious presidential contender, and along the way became exceedingly rich. Eliot Spitzer went from crusading prosecutor to Attorney General of the State of New York to governor. If he hadn’t been “Client number 9,” a run at the presidency would have been in his future, too. Someday, someday, someone is going to use that base – cru- sading prosecutor – to make it all the way to the White House. It could be you. When you think of Tom Dewey, you think “Gangbusters!” He took on big time racketeers. Waxey Gordon, Dutch Schultz, Louis “Lepke” Buchalter – the head of Murder Incor- porated – and Lucky Luciano, the Capo di Capo Tutti, head of all organized crime in the United States. xii But he also prosecuted Richard Whitney. Who, you may ask, was Richard Whitney? The Whitneys arrived in North America in 1630. Richard went to Groton and Harvard, he became a broker, and then went on to become President of the New York Stock Exchange. Alas, he had losses he could not cover. He turned to embez- zlement. Thomas Dewey convicted him and sent him to Sing- Sing. Dewey was also involved in the prosecution of Stephen Paine, a partner in, and son of the founder of, Paine Weber. Stephen had helped finance and facilitate the looting of six investment trusts. Rudy Giuliani, picked up where Dewey left off. Giuliani headed up the biggest racketeer trial in history, using RICO laws to go after the heads of all Five Families at once. But the prosecutions that made his reputation were against financiers. Ivan Boesky was, by title, an arbitrageur, someone who makes money on the difference in the prices of the same item in different markets. In actuality, he was more like a hedge fund operator who invested large sums of money betting on the market. In particular, on the big swings that came with mergers and takeovers. He learned, early on, that it was easy to bet wrong and if the bet was big enough, he could be ruined by it, and nearly was. Boesky decided that he would rather bet only when he was certain. That would only be profitable if his certainty came before other people became certain. The only way to do that was to cultivate individuals who could give him inside information. Which Ivan did, and by the time he was charged, he had made $200 million dollars.