[R-G] Has a Comedian Just Saved America?

[Anthony Fenton]

http://counterpunch.org/

March 16, 2009
Jon Stewart's Epiphany
Has a Comedian Just Saved America?

By PAM MARTENS

As testimony to how Orwellian life has become under the outrages of  
Wall Street hubris, last week saw a comedian, who poses as an anchor  
on a fake news show, grab the reins of the Wall Street investigation  
from the actual investigators in Congress.

Either Jon Stewart is the smartest man in America or he has incredible  
instincts. In a week’s time, he has zeroed in, like a heat-seeking  
missile, on the core of Wall Street’s malady.  How insightful of  
Stewart, host of Comedy Central’s “The Daily Show,” to rationalize  
that the core of Wall Street’s corruption might well be the same core  
that it has drawn the darkest curtain around: trading.

Stewart is the son of an educational consultant mother (Marion  
Leibowitz), physicist father (Donald Leibowitz) and trading technology  
guru brother (Larry Leibowitz) an executive at the New York Stock  
Exchange.  He’s got a smart family and he’s equally smart, advancing  
the national debate on a comedy channel.

After a week of explosive commentary and video clips of questionable  
reporting at the cable business network, CNBC, Stewart interviewed Jim  
Cramer on Thursday, March 12. Cramer hosts CNBC’s “Mad Money” show  
which promotes itself as an advocate for the small investor while, at  
the same time, suggesting lots of buying and selling of  specific   
stocks.  Stewart used the highly anticipated interview to show a  
devastating clip revealing Cramer to be the embodiment of the market  
manipulators that he rails against on his show.  Acknowledging on the  
clip that he would never say something like this on TV, Cramer states:

“You know, a lot of times when I was short at my hedge fund and I was  
positioned short, meaning I needed it down, I would create a level of  
activity beforehand that could drive the futures.  It doesn’t take  
much money.”

Allow me to translate:

You know, a lot of times when I was making a large bet that prices  
would decline in a specific stock or bond or derivative when I worked  
in the largely unregulated world of private money called hedge funds,  
and I needed to give that decline a little unseen assistance to make  
my bets profitable, I would go into the futures market to trade.   
That’s because I could put down as little as 4 to 10 percent of the  
money I needed for the trade and borrow the balance in what is called  
a margin account.

The academics and economists (none of whom ever worked a day on Wall  
Street) have been telling us in OpEds and speeches and testimony  
before Congress that the crumbling Wall Street structure results from  
bundled subprime mortgages, collateralized debt obligations, credit  
default swaps, and asset backed securities.

Trillions of dollars of taxpayers’ funds have been spent on the  
premise that these toxic assets are the problem.  The fate of a nation  
has been staked on that analysis: that if we get these assets off the  
balance sheets of the major firms, the credit spigots will begin to  
flow once again, the banks will once again trust each other and lend  
to each other, and investors will resume buying stocks and bonds with  
their confidence in the system restored.

Stewart’s weeklong commentary and clips helped to dramatically expose  
this logic as bogus.   None of the toxic instruments would have grown  
to a problem capable of collapsing the country’s financial system if  
their trading had been regulated, transparent and fairly reported on  
by mainstream media.  The security instruments were never the problem;  
how they were traded was the problem.  For example, the mortgage and  
debt securities were, in reality, junk bonds but they were tradedas  
triple A.  They were not traded on an exchange where price discovery  
would have shown them to be junk bonds, they were traded in an opaque  
over the counter market.  In the case of credit default swaps, they  
were traded in a market created by the very firms who needed to hide  
for as long as possible (while executives reaped windfall compensation  
and bonuses) the dubious pricing of the securities and gargantuan  
amounts being issued.  (See CounterPunch column “How Wall Street Blew  
Itself Up.”)

Wall Street is supposed to have an early warning system that if  
something is amiss it will self correct in time to avoid a collapse of  
the system.  That early warning system is known as price action.  In  
other words, the trading price of Citigroup, Merrill Lynch, Lehman  
Brothers, Bear Stearns, Freddie Mac, Fannie Mae and AIG should have  
begun a downward trajectory years ago as these firms loaded up on  
leveraged junk.  There is only one possible scenario, in my opinion,  
to explain why this did not happen: trading in the market was rigged.   
Thanks to Jim Cramer, the public now knows how easy it is to get stock  
prices to move up or down.   (As one more example, see “Wall Street  
Powerhouses Invested Alongside Madoff.”)

To be a fair marketplace, the trading price of stocks and bonds must  
represent the  composite wisdom of all market participants who have  
the same opportunity to ferret out information from public sources.   
When trading is internalized at the big Wall Street firms (meaning  
they are allowed to match customer stock orders in-house), when they  
are able to create and clandestinely operate their own trading venues  
off the radar screens of the regulators, when they are able to create  
offshore vehicles like Structured Investment Vehicles to hide bets  
gone bad, there is no longer any composite wisdom.  There is only  
dumbed down information which the public possesses from CNBC and the  
superior information available to those operating inside the  
clandestine system.  (See Maria Bartiromo and the Co-Branding of CNBC  
and Citigroup.)

The big Wall Street firms that taxpayers are bailing out even gobbled  
up some of the largest specialist firms.  Those are the folks who are  
required to maintain fair and orderly markets on the regulated stock  
exchanges.  But here’s what the specialists are really doing,  
according to charges disclosed on March 4, 2009 by the Securities and  
Exchange Commission (SEC):

     “…from 1999 through 2005, the firms violated their basic  
obligation as specialists to serve public customer orders over their  
own proprietary interests. As specialist member firms on one or more  
of the regional and options exchanges, the firms had a duty to match  
executable public customer or ‘agency’ buy and sell orders and not to  
fill customer orders through trades from the firm's own accounts when  
those customer orders could be matched with other customer orders.  
However, the firms violated this obligation by filling orders through  
proprietary trades rather than through other customer orders, thereby  
causing millions of dollars of customer harm.”

The $70 million in disgorgement and penalties the SEC charged 14  
specialist firms (some of which are owned by Wall Street powerhouses  
like Goldman Sachs and Citigroup) is now effectively coming out of the  
taxpayers’ pocket since these are two firms enrolled in the taxpayer  
cash for toxic asset trash bailout bonanza.  In other words, the  
public investor is now paying back the money that was stolen from the  
public investor in the continuing Wall Street saga of heads I win,  
tails you lose.  Is it any wonder it takes a comedian to deal with  
this stuff.

The speed at which Congress begins daily sessions investigating  
trading of both toxic and non toxic securities will determine the  
speed at which this country begins to rebuild from the ashes.

After the 1929 crash and as the nation entered the Great Depression in  
the early 1930s, the Senate convened hearings by the Committee on  
Banking and Currency that peeled back month after month from 1932 to  
1934 previously impenetrable layers of trading fraud.  Each layer of  
fraud opened a window into the next layer.   The hearings did not  
focus on assets, toxic or otherwise, it focused on the trading of  
assets: how Wall Street created dark pool operators (today’s hedge  
funds) to trade on inside information and manipulate prices; how some  
of the most respected men on Wall Street had participated in trading  
frauds; how some of the largest firms were secretly manipulating stock  
prices; how respected business columnists were taking bribes from Wall  
Street players to move trading prices.

I’ve often pondered just how it was that every large brokerage firm  
had the same idea at almost the same time in the early 1990s: to put a  
TV set airing CNBC in every stockbroker’s office.  The managers came  
around and offered the broker a deal they couldn’t refuse: a deeply  
discounted price on the TV and the firm would install it hanging from  
the edge of the ceiling so it wouldn’t take up precious desk space.   
Out of 55 brokers in my office at the time, only myself and one other  
broker declined.  Can you think of any other industry that wants its  
workers sitting around watching TV instead of working?  Unless, of  
course, what CNBC is telling brokers to buy and sell is actually  
considered part of the work day by the Wall Street masters.

As you ponder that, consider this excerpt from testimony given at the  
Friday, June 3, 1932 Senate hearings:

     William A. Gray, Counsel to the Committee: So that the committee  
may understand the matter which I am now going to present, permit me  
to say that I am going to show by Mr. Lion himself that he is a  
publicity man, and that for a period of three years he was acting for  
numerous brokerage houses in the city of New York, that he furnished  
through various journals, including radio speeches, publicity for  
certain stocks, pools which were then being operated by the brokerage  
houses, he being paid for such by cash and by being given calls on the  
particular stocks in questions, at prices that he could sell them to  
his advantage, the brokerage house of course giving him credit for  
same in an account which he carried and settling with him the same as  
they would settle with any other person who had actually bought and  
sold, he not being required to put up any cash at all.  Now, Mr. Lion,  
please give us your full name.

     Mr. Lion: David M. Lion…

     Mr. Gray: What is your business?

     Mr. Lion: Financial publicity.

     Mr. Gray: How long have you been engaged in that business?

     Mr. Lion: Five years or more.

     Mr. Gray: Prior to engaging in that business and for the past  
five years have you at any time conducted a paper of your own?

     Mr. Lion: Yes.

     Mr. Gray: What was the name of that paper?

     Mr. Lion: The Stock and Bond Reporter…

     Mr. Gray: How long did you continue the use of the radio for the  
purpose of disseminating information about stocks?

     Mr. Lion: I used it all of 1929…

     Mr. Gray: Now, you did not do your own radio talking, did you?

     Mr. Lion: No, sir.

     Mr. Gray: What was the name of the man you employed to do your  
radio talking?

     Mr. Lion: I employed William J. McMahon…

     Mr. Gray: Who is he?

     Mr. Lion: He was an economist…

     Mr. Gray: Each of his talks was devoted to a particular stock,  
wasn’t it?

     Mr. Lion: No.

     Mr. Gray: Sometimes only one stock?

     Mr. Lion: Yes, sir…

     Mr. Gray: But when he ended up his talk as a usual thing he  
referred to a particular stock and boosted it.  That is true, isn’t it?

     Mr. Lion: Yes, sir.

     Mr. Gray: And he was a salaried man on your staff for that  
purpose, wasn’t he?

     Mr. Lion.  Yes, sir.

Jon Stewart has opened the floodgates.  Let the hearings begin.

Pam Martens worked on Wall Street for 21 years; she has no security  
position, long or short, in any company mentioned in this article.   
She writes on public interest issues from New Hampshire.  She can be  
reached at pamk741 at aol.com