In his critiques of the U.S. financial system, Bernie Sanders hasn’t quite captured the full extent of what Wall Street really does, and just how much of a threat it poses.
By Pam Martens and Russ Martens of Wall Street on Parade.
Senator Bernie Sanders has come closer than anyone on the Presidential campaign trail in defining what Wall Street actually does. Sanders has repeatedly stated at his rallies that “the business model of Wall Street is fraud.”
That analysis is correct but abbreviated. Sanders needs to go further. It’s not just Wall Street’s business model that has left the United States with the greatest wealth inequality since the Roaring Twenties (a time when Wall Street investment banks were also allowed to own deposit-taking banks). It’s how Wall Street is monetizing that fraud that poses an existential threat to the solvency of the United States and the impoverishment of millions of Americans.
The attempted WeWork Initial Public Offering (IPO) of last year was a classic example of how Wall Street can put lipstick on a pig, pass it off as a hot new startup company, and sell its shares, which were overpriced by about $40 billion, to unwary public pension funds and mutual funds that dominate millions of Americans’ 401(k) plans. The IPO failed to materialize simply because alternative media sent the dirty details of the offering viral, forcing business media to cover the story.
Rather than being a hot new tech startup with oodles of potential, WeWork was a money-losing real estate leasing company with a grifter as its CEO. That, however, didn’t stop two of the largest law firms, Skadden Arps, Slate, Meagher & Flom and Simpson, Thacher & Bartlett, from representing the company and the underwriters, respectively, and it didn’t stop two of the biggest firms on Wall Street, JPMorgan Chase and Goldman Sachs, from trying to unload the dog of a deal on investors for a hefty underwriting fee.
That’s what we mean by monetization of fraud. (See The Dickensian Tale of the WeWork IPO.)
Now you may be thinking that WeWork might have been just an aberration where due diligence slipped through the cracks by a bunch of overworked bean counters. Unfortunately, this is the way that Wall Street has been issuing IPOs for a very, very long time…