AIN Blog: Brace for More Banker Backlash

 - November 1, 2011, 6:52 AM
Word "bank" on outside wall of tall building.
Citigroup palmed off some toxic mortgage-backed securities on unsuspecting investors knowing they would be worthless. (Photo: Salvatore Vuono / FreeDigitalPhotos.net)

If you’re gainfully employed in business aviation, odds are you vote Republican and cheerlead for robust capitalism, and that’s understandable. Nobody with a mortgage and kids to educate is inclined to bite the hand that feeds, and capitalism-created wealth is what pays the bills for all of us in this business.

It’s also possible you’re not a fan of New York Times columnist Thomas Friedman’s views, in which case you might have missed his reaction to news of a Wall Street scam that has cost Citigroup a $285 million fine. According to the verdict of the U.S. legal system and reports in The Wall Street Journal and Friedman’s paper, Citigroup palmed off some toxic mortgage-backed securities on unsuspecting investors knowing full well they would be worthless; after selling them, it bet millions of dollars against the securities, and sure enough they collapsed, netting the banking group $160 million. Friedman’s verdict is spot on: “It doesn’t get any more immoral than this.”

“The deal became largely worthless within months of its creation,” The Wall Street Journal noted. “As a result, about 15 hedge funds, investment managers and other firms that invested in the deal lost hundreds of millions of dollars, while Citigroup made $160 million in fees and trading profits.”

For business aviation, the sting in this shameless scam is that it serves to rekindle the evil-banker flames and, in turn, reinvigorate the public’s (and the President’s) disapproval of the business jet as the preeminent, enduring symbol of wretched excess and ill-gotten gains on Wall Street, a vilification campaign that had come off the boil in recent months. It adds salt, too, when Citigroup, in agreeing to pay up, trotted out the utterly baffling and by now tired line about “while admitting no guilt or wrongdoing.” It’s time this patently fatuous disclaimer was struck from the permissible lexicon of corporate and personal double-speak, and some encouragement in this direction can be drawn from Friedman’s reporting that the U.S. District Court judge overseeing the case has demanded that the Securities Exchange Commission explain how such serious securities fraud could end with the defendant neither admitting nor denying wrongdoing.

In the meantime, buckle up and fly clean because in the public’s eye, honest wealth remains a contradiction in terms and the jet is still a big fat whipping boy. Maybe it’s time for NBAA to introduce a corporate code of ethics for admission to keep the association respectable. First up for review: Citigroup.

The last word should go to Friedman, who concluded his column by offering some free advice to the financial services industry: “Stick to being bulls. Stop being pigs.”

Comments

Mech out in BFE's picture

Business Aviation's butt kissing of our so called "capitalist system" is pretty nauseating.

My former employer imploded because they drank the Kool-Aid, and bought Wall Street, Triple "AAA" rated junk for their portfolio. About a 2 billion dollar hit, near as I can tell. Of course, the first guys to get the axe in our case were the Flight Department, and about 4-500 of the other serfs.

Two years of un/under employment has pretty much screwed me financially. But I'm one of the lucky/smart ones. Sold out my 401K in mid-2007, because I saw this implosion coming (even with the 10% hit, I'm still way ahead). I could own a house, and be bankrupt for sure.

Hey, but we are just the "wretched refuse", and who gives a crap about us?

Go online and do some research. This isn't the fault of "Subprime borrowers who borrowed more money than they could pay back", or the government forcing banks to loan money to poor/black people. This was Wall Street systematically lobbying for changing laws that made all of their formerly illegal behavior legal, under the banner/excuse of "excessive government regulation strangling capitalism", then levering up 40 times, and daring the government NOT to bail them out when the finance-created house bubble finally blew up in their faces.

Wall Street made cash on the original loan, they made cash on the securitization, and they made cash on "managing" the securities for the morons that bought them. Didn't matter that the system was a giant crap bomb, they got their money in cash, up front.

Ask 100 people what they know about "MERS" and 99 of them don't know what you are talking about. It's not much.......just another Wall Street designed corner cut that is going to screw up the titles/mortgages of practically every piece of residential property financed by it's participants. Good luck getting title insurance, when the Title Insurance companies wake up to their exposure. And this assumes that Title Insurance companies are still going to be around. Seems that most of them have their money invested in......you guessed it.....Mortgage Backed Securities.

The more you scratch the surface, the more you realize that the US has more in common with your typical Banana Republic than it does with anything resembling what it used to be.

Sorry about the rant. A whole bunch of our so-called business and political leadership from both parties should be in jail, but it's becoming obvious to me that this isn't ever going to happen.

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