The David H. Brooks story hits on all the high notes of capitalist excess: taking advantage of investors, selling the Pentagon defective goods, an ostentatious life style, and perhaps even more.
Kessler, Robert E. 2007. "Former LI military Contractor Is Busted for Living Lavishly with Cash from Investors and Company, Feds Say." Newsday (26 October): p. A 7.
“The former head of the Long Island company that provided most of the body armor for U.S. soldiers in Iraq and Afghanistan was arrested at dawn yesterday in a Manhattan apartment by FBI and IRS agents on charges of looting the company and investors of nearly $200 million to pay for a lavish lifestyle. That included supporting a stable of trotting horses; a face-lift for his wife; a diamond, ruby and sapphire-encrusted belt buckle in the shape of a U.S. flag; and an $8-million bat mitzvah for his daughter, which featured music stars including 50 Cent and Kenny G, according to Benton Campbell, the U.S. attorney for the eastern district.”
“Brooks allegedly made the huge stock option gain in 2004 by selling shares in the company shortly after he said he had no intention of selling the stock and shortly before the stock plunged because of reports about the quality of its body armor, the indictment said.”
“Brooks pleaded not guilty at arraignment in U.S. District Court in Central Islip and was held without bail by U.S. District Court Judge Joanna Seybert, pending a hearing Monday. Seybert acted after prosecutor Martin said that in the past year Brooks had purchased a single diamond worth $10 million, unspecified millions in gold and had surreptitiously moved $22 million to banks in Switzerland and Senegal. The United States does not have an extradition treaty with Senegal, Martin said.”
Brooks has a history of controversy: In 1992, Brooks and his brother, Jeffrey, are investigated by the Securities and Exchange Commission for insider trading scandal within Jeffrey Brooks’ small brokerage. The firm agrees to pay a $405,000 fine without admitting wrongdoing. In 2005, the company recalls all vests containing Zylon because of concerns over how quickly the fiber degrades. In 2006, DHB’s subsidiaries settle nationwide class-action suits over those vests.
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O’Brien, Timothy L. 2006. “All’s Not Quiet on the Military Supply Front.” New York Times (22 January).
“DHB might have remained anonymous if not for a spate of recent events. The quality and adequacy of vests supplied to soldiers in Iraq has come into question over the last year, culminating in a Pentagon study, first reported by The New York Times this month, that said that 80 percent of the Marines who died in Iraq from upper-body wounds might have survived if they had had body armor covering more of their torsos. (It was the military, and not manufacturers, that determined the specifications for the vests DHB supplied the Marines, said DHB).”
“The Marines and the Army recalled about 23,000 Point Blank vests from the field last year after The Marine Corps Times reported that the Marines acquired the vests despite warnings from Army personnel that the vests had what the newspaper described as “critical, life-threatening flaws.” The Marine Corps issued a statement in November saying that there was “no evidence to suggest that soldiers or Marines have been at risk, or that these vests will not protect against the threat they were designed to defeat”.”
I wish you would go a little further than you do in this post. The title promises to show 'how capitalism works' but delivers only another rich bad guy story. You make it far too easy for a reader to discern here just another case of a corrupt individual instead of a corrupt and bankrupt system. Would you consider deepening this post by adding more about how specifically you see this story revealing the underlying dynamics of a corrupt socio-economic system (capitalism) rather than merely indicting an individual actor. Without making such a connection capitalism evades guilt because we are allowed to conclude that rotten apples are to blame for the rot.
ReplyDeleteIt is not a deep story -- only that they guy touched on so many of the symptoms of capitalist degeneracy: the obscenely expensive party & supposedly other excesses, taking advantage of the military putting soldiers at risk, defrauding stockholders.
ReplyDeletecameron,
ReplyDeleteYou may find an article in today's NY Times to be more indicative of the wonders of capitalism at work. The only question is, who is it working for? Entitled, "Banker's Lesson From Mortgage Mess: Sell, Don't Hold," it describes how Citigroup and Merril Lynch took a big tumble by holding collateralized debt obligation bonds, rather than selling them off to, what one might call, an unsuspecting public. The article makes clear that this decision to hold the C.D.O.s was not altruism, but that the market for the paper was a bit soft and the banks thought that it would regain strength. Strange that the article focuses more on the "sell, don't hold" aspect of the story rather than the need for financial institutions to do some due diligence. Had Citigroup and Merril managed to unload their worthless paper would that have made their execs better capitalists? What could it have made of the buyers of that paper.
It was also interesting to note that the author of the article, Vikas Bajaj, referred to both Citigroup and Merril as banks, noting that bankers often agree that, "They make money by trading stocks and bonds, not by owning them." Funny, I thought that brokerage firms make money by trading stocks and bonds. Banks, on the other hand, were supposed to make their money by lending money and collecting interest on the debt. Just shows to go ya how confusing things can get when banks and brokerages are the same thing.
That's one of the wonders of how capitalism has come to work.
sure enough Jack, long-run real economy weakness, financial deregulation and 'animal spirits' have created such an abundance of fictitious, even parasitic, wealth that it overwhelms its basis and itself...'finally' pooling up in a 'through the looking glass' purity of Level 3 lakes.
ReplyDelete"From November 15, we will have a new tool for figuring out how much toxic waste is in investment banks' balance sheets. The new US accounting rule SFAS157 requires banks to divide their tradable assets into three "levels" according to how easy it is to get a market price for them. Level 1 assets have quoted prices in active markets. At the other extreme Level 3 assets have only unobservable inputs to measure value and are thus valued by reference to the banks' own models.
Goldman Sachs has disclosed its Level 3 assets, two quarters before it would be compelled to do so in the period ending February 29, 2008. Their total was $72 billion, which at first sight looks reasonable because it is only 8% of total assets. However the problem becomes more serious when you realize that $72 billion is twice Goldman's capital of $36 billion. In an extreme situation therefore, Goldman's entire existence rests on the value of its Level 3 assets.
The same presumably applies to other major investment banks - since they employ traders and risk managers with similar educations, operating in a similar culture, they probably have Level 3 assets of around twice capital. ...
[...]
There has been no rush to disclose Level 3 assets in advance of the first quarter in which it becomes compulsory, probably that ending in February or March 2008. Figures that have been disclosed show Lehman with $22 billion in Level 3 assets, 100% of capital, Bear Stearns with $20 billion, 155% of capital, and J P Morgan Chase with about $60 billion, 50% of capital. However those figures are almost certainly low; the border between Level 2 and Level 3 is a fuzzy one and it is unquestionably in the interest of banks to classify as many of their assets as possible as Level 2, where analysts won't worry about them, rather than Level 3, where analyst concern is likely.
The reason analysts should worry is that not only are Level 3 assets subject to eccentric valuation by the institution holding them, but the ability to write up their value in good times and get paid bonuses based on their capital uplift brings a temptation that few on Wall Street appear capable of resisting. ..."
3 Nov 2007 Asia Times
http://atimes.com/atimes/Global_Economy/IK03Dj03.html
Isn't capitalism wonderful, especially when you're the archetypical capitalist, the investment banker. By the way, did anyone bother to take nte of the very robust severence pay outs to those execs aboout to lose their positions of priviledge do to their banks' current edgy positons. How come they don't have to give some of the money back, if theirs are pay for performance plans?
ReplyDeleteMinsky's words are better than any reply I could give:
ReplyDelete6: "Thus, bankers (using the term generically for all intermediaries in finance), whether they be brokers or dealers, are merchants of debt who strive to innovate in the assets they acquire and the liabilities they market."
Minsky, H. P. 1992. "The Financial Instability Hypothesis." Working Paper No. 74. Annandale-on-Hudson (New York: The Levy Economics Institute (May).http://www.levy.org/pubs/wp74.pdf
There is no economic system that's without its rotten apples. What's wrong with most ideological systems is not the spirit of the dogma...even though some of them habour inherent contradictions.The problem is the people controlling such systems. They are not infallible. They are humans who most of the time are bent on mischief. They exploit the ideologies-even the perfect ones- expounded by great minds to achieve their selfish goals. That's why capitalism or any other economic system for that matter does not work. Its as simple as that. Never let anyone tell you different. Simply put: its greed.
ReplyDelete