As a kid, Matt Taibbi’s favorite writer was Nikolai Gogol.
So, straight out of college, Taibbi headed to Russia, where he spent ten years playing baseball in the Russian baseball leagues, playing basketball in Mongolia, and writing about corporate crime.
Of course, in Russia, corporate crime was more underworld.
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Like the mob, right?
“It is kind of hard to define what the mob is in Russia,” Taibbi told Corporate Crime Reporter in an interview last week. “The mob in Russia encompasses the federal government as well.”
“When Russia had its financial collapse in 1998, the Russians got an enormous quantity of bailout monies from the IMF and the World Bank – something like $18 billion or $19 billion.”
“The Yeltsin administration was taking a lot of that cash and they were using an offshore account in the Jersey Islands to buy their own government T-bills. They were essentially insider trading their own state debt with the bailout money.”
“These are complicated organized crime transactions.”
“But not totally dissimilar to the kinds of bailouts here in the States where you saw a lot of these companies getting bailouts, but they were also doing things like buying or shorting their own stock because they had insider knowledge about who was getting a bailout and when.”
“It was similar to the stuff that went on here.”
After his stint in Russia, Taibbi came back to the States to cover the corporate crime scene here for Rolling Stone magazine.
He’s author of a new book – Griftopia: Bubble Machines, Vampire Squids and the Long Con That is Breaking America.
“This book is useful for somebody who is a beginner with how Wall Street works. You want to understand about what went wrong before 2008,” Taibbi said.
“I walk people through what happened with mortgages, what the fed’s role was in creating the mortgage bubble, the commodities bubble. What happened in the commodities markets, why gas prices rose in the summer of 2008.”
“Instead of making it wonky and full of economic verbiage, I wrote it like a true crime story. I wrote it for the complete neophyte so that you would come away understanding many of the new fraud schemes on Wall Street, where there was an explosion of new financial instruments that were misused, often criminally, by people on the street.”
“Griftopia translates as a thieve’s paradise. It’s a paradise for grifters. That’s the thesis of the book – modern Wall Street is set up in such a way that it’s basically a no lose proposition for dishonest financial companies. They have virtually no regulation, they have created this vast taxonomy for extremely complicated fraud and theft schemes. And then they have this additional benefit of having a built in insurance system where if everything goes wrong, if they make bad investment decisions, or if they gamble the wrong way, they have either the Fed or the taxpayer bailing them out.”
“It is designed to show people that this is like a casino where the house always wins. And that’s why it’s a thieves paradise.”
When Taibbi claims that the federal government could have prosecuted the mortgage based securities fraud, he relies on a trio of former government insiders – former SEC chief accountant Lynn Turner, former SEC whistleblower Gary Aguirre, and University of Missouri Kansas City Law Professor William Black.
“Also, New York Attorney General Eric Schneiderman is definitely sniffing around Goldman and the other too big to fail companies,” Taibbi said. “There are Attorneys General who are bailing out of the foreclosure settlement from California to Minnesota.”
Are there going to be prosecutions on the securitization front?
“They have to first stop the foreclosure settlement,” Taibbi says. “Those two things go hand in hand.”
“It would relieve these companies from widespread civil liability at the very least. And there is talk that it is also going to encompass criminal liability, which would wipe out all of those potential prosecutions.”
“If they do that deal, the Schneiderman-type investigations will be stillborn.”
If there is a deal, there will be some kind of criminal settlement that would preclude any further prosecution?
“Yes,” Taibbi says. “That’s the expectation. How broad that settlement is going to be and what it will preclude nobody really knows yet.”
“Everyone assumes that there is going to be a waiver of civil liability. But whether it will also encompasses criminal liability, nobody knows. But there is some concern that it would.”
“After these various Occupied Wall Street protests, many members of Congress became interested in the issue. There are some people in the Progressive Caucus in the House who are trying to get the Attorneys Generals together, to try to get more people than Schneiderman and Kamala Harris in California to drop out of the settlement talks or make more demands.”
“The protests are having an effect in that sense. At least some of the elected officials are hearing what the people are saying. And they don’t want to be perceived as having not done something to stop another handout to the banks. That is my impression.”
Did you find any evidence that there are people at the Justice Department who wanted to prosecute but then there was a political call not to prosecute?
“There is definitely talk and gossip that there was an effort, a collaboration between the Justice Department and maybe the Treasury Department in the early days of the Obama administration,” Taibbi says. “There was a lot of fear about going after the big banks at a time when the markets were unsteady. And maybe some prosecutions were avoided out of some concern that it might cripple the economy. There is a lot of sentiment out there that something like that occurred.”
“Whether or not you are ever going to prove that is something else entirely.”
“There was a fraud case in Ohio last year where some single black mother lied about where she was living so that her kids could get into a better school,” Taibbi says. “And the judge said that if she didn’t do actual jail time it would demean the seriousness of the offense.”
“And then here we have market alternating gigantic frauds. And nobody has to suffer any personal consequences.”
“There was one case involving Citi where a couple of guys had to pay $80,000 or $90,000. And that’s the extent of the personal damage that any of these guys have suffered. And until you reverse that, there is not going to be any incentive to behave better.”
For the complete transcript of the Interview with Matt Taibbi, see 25 Corporate Crime Reporter 43, November 7, 2011, print edition only.