Someday, it will go down in history as the first trial of the modern American mafia. Of course, you won't hear the recent financial corruption case,
United States of America v. Carollo, Goldberg and Grimm, called anything like that. If you heard about it at all, you're probably either in the municipal bond business or married to an antitrust lawyer.
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Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.
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Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America...And they did it so cleverly that the victims never even knew they were being cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name:
organized crime.
In fact, stripped of all the camouflaging financial verbiage, the crimes the defendants and their co-conspirators committed were virtually indistinguishable from the kind of thuggery practiced for decades by the Mafia, which has long made manipulation of public bids for things like garbage collection and construction contracts a cornerstone of its business... The only thing that made this trial different from a typical mob trial was the scale of the crime.
USA v. Carollo involved classic cartel activity: not just one corrupt bank, but many, all acting in careful concert against the public interest. In the years since the economic crash of 2008, we've seen numerous hints that such orchestrated corruption exists. The collapses of Bear Stearns and Lehman Brothers, for instance, both pointed to coordinated attacks by powerful banks and hedge funds determined to speed the demise of those firms.
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More recently, a major international investigation has been launched into the manipulation of Libor, the interbank lending index that is used to calculate global interest rates for products worth more than $3
trillion a year. If and when that case is presented to the public at trial – there are several major civil suits in the works here in the States – we may yet find out that the world's most powerful banks have, for years, been fixing the prices of almost every adjustable-rate vehicle on earth, from mortgages and credit cards to interest-rate swaps and even currencies.
But
USA v. Carollo marks the first time we actually got incontrovertible evidence that Wall Street has moved into this cartel-type brand of criminality. It also offered a disgusting glimpse into the enabling and grossly cynical role played by politicians, who took Super Bowl tickets and bribe-stuffed envelopes to look the other way while gangsters raided the public kitty.
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In a post-crash era where Wall Street trials almost never make it into court, and even the harshest settlements end with the evidence buried by the government and the offending banks permitted to escape with no admission of wrongdoing, this case finally dragged the whole ugly truth of American finance out into the open – and it was a hell of a show.
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The
Carollo case provides far more than a detailed look at the mechanics and pervasiveness of bid rigging; it offers a clear and unvarnished blueprint of the architecture of American financial and political corruption.
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The defense's cross-examinations were surreal. It was certainly true that some of the government's cooperating witnesses had dubious résumés, so it may have made sense to highlight their generally duplicitous history of tax evasion or lying to investigators.
But in their zeal, defense counsel went far beyond simply discrediting the witnesses, spending an inordinate amount of time eliciting even more details about the grotesque corruption scheme their own clients had taken part in.
The result was a rare and somewhat confusing spectacle: high-octane lawyers from Wall Street working to rip the lid off Wall Street corruption in open court.
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To grasp the full insanity of these revelations, one must step back and consider all this information together: the bribes, yes, but also the industrywide, anti-competitive bid-rigging scheme. It turns into a kind of unbroken Möbius strip of corruption – the banks pay middlemen to rig auctions, the middlemen bribe politicians to win business, then the politicians choose the middlemen to run the auctions, leading right back to the banks bribing the middlemen to rig the bids.
When we allow Wall Street to continually raid the public cookie jar, we're not just enriching a bunch of petty executives...we're effectively creating an alternate government, one in which money lifted from the taxpayer's pocket through mob-style schemes turns into a kind of permanent shadow tax, used to maintain the corruption and keep the thieves in place. And that cuts right to the heart of what this case is all about.
Wall Street is tired of making money by competing for business and weathering the vagaries of the market. What it wants instead is something more like the deal the government has – regularly collecting guaranteed taxes. What's crazy is that in order to justify that dream of regular, monopolistic tribute, they've begun to see themselves as a type of shadow government, watching out for the rest of us. Amazingly enough, this even became a defense at trial.
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The men and women who run these corrupt banks and brokerages genuinely believe that their relentless lying and cheating, and even their anti-competitive cartel style scheming, are all legitimate market processes that lead to legitimate price discovery. In this lunatic worldview, the bidrigging scheme was a system that created fair returns for everyone.
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And besides, it's not like ordinary people understand this stuff anyway. So how is it the place of some busybody federal prosecutor to waltz in here and say what's a fair price?
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This incredible defense, which the attorneys for all three defendants led with, perfectly expresses the awesome arrogance of the modern-day aristocrats who run our financial services sector. Corrupt or not, they built this financial infrastructure, and it's producing the prices they genuinely think are fair for us – and for them.
And fair to them is the customer getting the absolute bare minimum, while they get instant millions for work they didn't do. Moreover – and this is the most important part – they believe they should get permanent protection from the ravages of the market, i.e., from one another's competition.
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That, ultimately, is what this case was about. Capitalism is a system for determining objective value. What these Wall Street criminals have created is an opposite system of value by fiat. Prices are not objectively determined by collisions of price information from all over the market, but instead are collectively negotiated in secret, then dictated from above.
"One of the biggest lies in capitalism," says Eliot Spitzer, "is that companies like competition. They don't. Nobody likes competition."
To the great credit of the jurors in the
Carollo case, they didn't buy Wall Street's ludicrous defense. On May 11th, nearly a month after the trial began, they handed down convictions to all three defendants. Carollo, Goldberg and Grimm, who will be sentenced in October, face as many as five years in jail.
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In the end, though, the conviction of a few bit players seems like far too puny a punishment, given that the bid rigging exposed in
Carollo involved an entrenched system that affected major bond issues in every state in the nation. You find yourself thinking,
America's biggest banks ripped off the entire country, virtually every day, for more than a decade!
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Over the years, many in the public have become numb to news of financial corruption, partly because too many of these stories involve banker-on-banker crime. The notorious Abacus deal involving Goldman Sachs, for instance, involved a hedge-fund billionaire ripping off a couple of European banks – who cares?
But the bid-rigging scandal laid bare in
USA v. Carollo is a totally different animal. This is the world's biggest banks stealing money that would otherwise have gone toward textbooks and medicine and housing for ordinary Americans, and turning the cash into sports cars and bonuses for the already rich. It's the equivalent of robbing a charity or a church fund to pay for lap dances.
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As
Carollo showed us, in open court, this is what Wall Street learned from the Mafia: how to reach into the penny jars of dying hospitals and schools and transform their desperation and civic panic into fat year-end bonuses and the occasional "big lunch." Unlike the Mafia, though, they were smart enough to do their dirt without anyone noticing for a very long time, which is what defense counsel in this case were talking about when they argued that towns and cities "were not harmed" by the rigged bids.
No harm, to them, means no visible harm, i.e., that what taxpayers didn't know couldn't hurt them. This is logical thinking, to the sociopath – like saying it's not infidelity if your wife never finds out. But we did find out, and the scale of betrayal unveiled in
Carollo was epic. It was like finding out your husband didn't just cheat, but had a frequent-flier account with every brothel in North America for the past 10 years.
At least now we know how bad it was. The trick is to find a way to make the cheaters pay.
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