The Hightower Report

Banking Reform Gone Bad

They roll into Washington from the West, the North, the South – good ideas to make our national policies better, to make our economy fairer, to improve our nation. And these good ideas – still sparkling with freshness and common sense – are delivered into the welcoming arms of our members of Congress, who, with great fanfare and promise, carry them into the majestic Capitol building, the sanctuary of our democracy.

But then, lobbyists appear from out of the shadows to whisper to lawmakers and slip checks into their pockets. Time passes, and the fresh ideas show signs of wilting. Next, they move into closed committee rooms where they get dissected by members representing special interests. Then – with Republicans sourly opposing anything fresh and good, and with Democrats timorously trying to appease sour Republicans – the ideas are taken down into a dark, secret chamber for "negotiations."

From there, the good idea emerges as a bill. Only – ohmygod, don't look! – it's been turned inside out, stuffed, and twisted into a bad idea. Republicans, who forced this grotesque gut job, spit on their own creation and walk away, but Democrats say they need to pass something, so they pass the bad idea and call it progress.

This has been the sad journey of a bill to create a Consumer Financial Protection Agency, a good idea that surfaced a year ago to stop Wall Street and other banking hucksters from ripping off consumers. That idea is now being "negotiated" in the Senate, where it is expected to be perverted from an independent watchdog with real teeth into a puppy kept by the Federal Reserve System, where it will be taught not to bark at bankers, much less bite.

The hope for us consumers is that the House will reject this fraud. For more information, contact Consumer Federation of America: www.consumerfed.org.

Abacus Among Us

Doing a public service was the very last thing on the minds of the geniuses at Goldman Sachs who created Abacus 2007-ACI, but I for one am grateful to them.

Abacus is the name of the investment package that has caused mighty Goldman to get its tail caught in a crack at the Securities and Exchange Commission. According to the federal fraud cops, Abacus is nothing but a scam. Yet I find it enormously useful, because it reveals two dirty little secrets that Wall Street does not want us outsiders catching onto.

Secret No. 1 is that Wall Street has radically and abruptly shifted its function. Rather than being the financier of productive business enterprises, it is now a global gambling house for the superrich, as Abacus proves.

A hedge fund huckster named John Paulson had scoured mortgage records to find home loans that he was sure would be foreclosed. He then got Goldman to pool these shaky mortgages into Abacus and sell the package on the premise that it would actually increase in value. Paulson paid $15 million to Goldman to market Abacus.

Investors were not told that Paulson had hand-selected these doomed mortgages and had made a side bet that they would fail. Investors lost $1 billion, Paulson made a billion, and Goldman cashed in, too.

Abacus was a casino game, pure and simple – and that's what Wall Street has become.

Secret No. 2: The media reported that Paulson "earned" a billion bucks in this deal. But he did not. He grabbed, snookered, absconded with, and otherwise hauled off a billion – but "earned" implies meriting something. For example, America's teacher-of-the-year certainly earns a paycheck of $40,000, but Paulson is a snake who did nothing to deserve his billion-dollar haul.

So thanks, Goldman Sachs, for showing us your Abacus and revealing two ugly secrets on how Wall Street really works.