Courtesy of Pam Martens.
When Congress, the media, the financial experts talk about transparency on Wall Street, it is always in abstract terms: we should have more transparency; we should know more details about the kinds of risks Wall Street is taking with other people’s money; we should be able to see the nature of derivatives trading being conducted in private agreements between Wall Street firms; we should make the big banks hold more capital to offset all the risks we know they’ll never let us see until it’s too late.
Unfortunately, we can’t fix Wall Street’s problems by discussing them in the abstract. We need to be comprehensively cognizant of what Wall Street has become, peel away the artifices layer by layer, and put in legislative fixes that get quickly to the problem – not 848 page snafus like Dodd-Frank that require implementation rules to be debated and massaged for years by a tangled web of regulators, most of whom are already captured by Wall Street.
The very first artifice that has to be crushed is Wall Street’s private justice system. Wall Street is the only industry in America that is operating its own self-regulatory court system. It is benignly called mandatory arbitration but if you step back and look very closely, it’s a full blown private justice system that was structured by Wall Street’s biggest law firms to give an edge to Wall Street.
Today, if you want to become a customer of the largest Wall Street firms, it requires that you to sign away your rights to access the nation’s courts and use Wall Street’s court instead – the Financial Industry Regulatory Authority’s (FINRA) dispute resolution program. This is a program where transparency dies.
There is no ability to see a repetitive pattern of fraud because claims are not heard in an open courtroom. Typically, the press is barred from the proceedings. Case law and legal precedent are not required to be followed. Brief decisions are written by an arbitrator which rarely provide the public with adequate insight into the full details of the dispute or any legal rationale for the decision. There have been numerous charges in the past that arbitrators who give a large award to a plaintiff against a Wall Street firm are blackballed from serving in the future.