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Nomi Prins and the Demons of Wall Street

Dusty Sklar
September 23, 2016

by Dusty Sklar

IF THERE'S ONE person in America who can write clearly about the financial world and its horrors and abuses, it's Nomi Prins. A former managing director at Goldman Sachs and senior managing director at Bear Stearns, she also held senior positions at Lehman Brothers and Chase Manhattan Bank. Prins is a very productive business journalist and a senior fellow at DEMOS, and has written several books that favor us with an insider's view: Other People's Money: The Corporate Mugging of America (2004); Jacked: How Conservatives Are Picking Your Pocket (2006); It Takes a Pillage: An Epic Tale of Power, Deceit and Untold Trillions (2009); and All the President's Bankers: The Hidden Alliances that Drive American Power (2014). A new volume, Artisans of Money, is forthcoming from Nation Books in 2017.

Prins joined Goldman Sachs in March of 2000 at the height of the bull market, and resigned two years later because, she says, "Corporate malfeasance of epic proportions made me realize that it was far more important to use my knowledge to be part of the solution than to continue being part of the problem" -- the problem being the "collaboration among firms like Goldman Sachs, corporate America, and Capitol Hill [that] pumped up and then brought down the economy and people's futures with it."

Wall Street is at home with either party, she notes. Under both the Clinton and Bush administrations, economic and political crimes were perpetrated (mostly by men), and government policy not only failed to stop these felonies, it actually abetted them.

Take Robert Rubin's policies, for instance. A co-chair of the Goldman Sachs executive committee, he was made Clinton's secretary of the treasury in 1995 and finally made sure to see the Glass-Steagall Act repealed in November of 1999. That law, which set boundaries between investment and commercial banks and protected the public from haphazard speculation with their money, had been on the books since 1933.

Wall Street had favored deregulation for many reasons. Texas Senator Phil Gramm, who headed the Senate Banking Committee responsible for the repeal, crowed: "Glass-Steagall, in the midst of the Great Depression, thought government was the answer. In this period of economic growth and prosperity, we believe freedom is the answer." That did not appear to be the case when the bear market and economic recession followed, in which deregulation played a major role, according to Prins, "by allowing companies to expand on debt into areas in which they had no historic expertise without an overarching plan for logical and sustainable growth or expansion."

Similarly, the repeal of Glass-Steagall was one of the reasons for what Prins calls the Second Great Bank Depression in 2008. She cites other reasons as well, such as "risky loans that benefitted lenders over borrowers; layered securities consisting of complex combinations of those loans; the immense amount of borrowing, or leverage, taken on by the financial system using those loans and securities as collateral; the greed for money and positioning that propelled Wall Street titans to extract immense bonuses while they bent the ears and filled the pockets of the politicians who changed the rules to enable institutions to become too big to fail."

Was the federal bailout necessary? Prins discussed that with Naomi Klein, author of The Shock Doctrine, who told her: "I don't think the financial sector bailout has ever been about fixing the problem; it's been about using the crisis as a pretext for the greatest transfer of public wealth into private hands in monetary history. That's not to say that there isn't a crisis, just that the people in charge are less interested in fixing it than in taking care of their friends who take care of them. It's straight-up pillage, what a kleptocratic regime does when it panics."

IT TAKES A PILLAGE unmasks the different ways in which the banks gamed the system and enriched themselves, with no oversight from the government — with, in fact, the help of the Fed and Treasury departments — while our anxieties were assuaged with the false news that the bailout would help us.

A prime example is Secretary of the Treasury Hank Paulson, a former Goldman Sachs CEO who left the government as the financial crisis got underway. Shortly after letting Lehman go under, he rescued AIG. Coincidentally, Goldman Sachs would have been out $20 billion if AIG had been allowed to fail. (In 2009, Prins detailed ten different ways that Goldman Sachs benefitted from public funds during the financial crisis and the TARP bail-out at Alternet.)

Yet Wall Street persists in going on the way it always has. The reforms that were instituted are anything but reformative, and our economy remains troubled, unproductive for the great majority of working Americans. But real change won't come unless we insist that it must. "We need regulations to address risk in every layer of the system, from the loan or bond, to the bank, to the very structure of the global financial industry," Prins has written in the American Prospect ("Risk Is Best Managed from the Bottom Up").

Among the solutions she suggests are: a more tightly regulated system of rules for corporations and harsher penalties for breaking them; independent boards of directors of corporations, with representatives from consumers' groups; protection for retirement money; nationalized governance of the agencies that rate the financial health of corporations. Bankers, she notes, shouldn't be able to keep risky assets off the books to hide them from investors and regulators; big banks should be broken up; Glass-Steagall should be revived.

Above all, the alliances between bankers and politicians must end. "Our choice is simple," says Prins. "Either we break the alliances, or they will break us."

Dusty Sklar is a contributing writer to our magazine and the author of Gods and Beasts: The Nazis and the Occult, as well as numerous stories and articles. Some of her articles for us have dealt with American corporate collaboration with Nazism, the American eugenics movement’s influence upon Nazism, and Mahatma Gandhi’s views on Zionism and the Holocaust.