Ill Gotten Gains

Manfredonia Wall Street Crusader

Drug smuggling, rape, money laundering, Marcos' billions, and other juicy Wallstreet scandals

Articles by Ed Manfredonia the Crusader

http://blackstarnews.com/
Wall Street: Ill-Gotten Gains

Goldman Sachs headquarters in Manhattan

[Wall Street Scandals]
In this brief article, we shall demonstrate how the Securities and Exchange Commission changes federal securities laws to legalize illegal conduct by Wall Street specialist firms.

We shall prove that there were no serious penalties for New York Stock Exchange (NYSE) specialist firms, which sold stock short on a minus tick, which at the time was a serious violation of the Securities Exchange Act of 1934.

Selling stock long means selling stock, which you own. Selling stock short means selling stock, which one does not own. Selling stock short on a minus tick is selling stock, which one does not own, at a price that is lower than the last different price.

Individuals and firms sell stock short because they believe that the price of the stock shall decline. Then after the price of the stock declines the individual or firm can purchase the stock at a price, which is less than the price at which the stock was sold- and thereby earn a profit.

Until July 6, 2007 selling stock short on a minus tick was illegal under Section 10(a) of the Securities Exchange Act of 1934. This article shall prove that Section 10(a) was repealed to benefit large Wall Street firms.

Philip Peltz and Sol Mandel were small players. Philip Peltz (United States of America v. Philip Peltz, 433 F2d 48: year 1970) and Sol Mandel (United States of America v. Sol Mandel, 296 F.Supp. 1038: year 1969) were both sentenced to federal prison because Peltz and Mandel had sold several hundred shares of Georgia Pacific stock short on a minus tick, which was a violation of Section 10(a) of the Securities Exchange Act.

Since 1997, the New York Stock Exchange has possessed proof that Spear Leeds and Kellogg (SLK), which was purchased by Goldman Sachs in October 2000, permitted firms that cleared through SLK to sell stock short on a minus tick. Section 10(a) of the Securities Exchange Act of 1934 prohibited short sales of stock on a minus tick. This was illegal until July 2007- when the Securities and Exchange Commission changed the law to benefit Goldman Sachs and other brokerage firms.

How did the New York Stock Exchange know that a trader, who cleared through Spear Leeds and Kellogg, could illegally sell short stock on a minus tick and, thereby, violate Section 10(a) of the Securities Exchange Act?

In July 1995 I had received an anonymous package, which contained the records of Schettinos’s illegal trading- including Schettino’s illegal trading of stocks that were listed on the New York Stock Exchange. On 7 October 1996, I wrote a letter to Edward Kwalwasser, Executive Vice President of Legal and Regulation at the New York Stock Exchange.

I identified myself as a former market maker at the American Stock Exchange. In this letter I notified Kwalwasser that in March 1995 Pat Schettino, a managing director of Spear Leeds and Kellogg who was responsible for the option and stock clearing operations of SLK at the American Stock Exchange, had illegally sold short on a minus tick the stock of Micron, a stock which was listed on the NYSE, and had illegally traded NYSE listed stocks for account 43AC1209 of Bullseye Securities, which was a clearing customer of Spear Leeds and Kellogg.

In my missive to Kwalwasser I stated: “I have been informed that Schettino sold short 1,000 shares of MU stock, while the account was short 5,000 shares.”

On March 5, 1997 I received a letter from William Glynn, Sales Practice Analyst, at the NYSE, in response to my missives to Kwalwasser requesting that the NYSE investigate Schettino’s illegal trading, since the American Stock
Exchange was investigating Schettino’s trading. In his reply Glynn stated that the NYSE would not investigate Schettino’s trading. On April 3, 1997 I once again wrote to Glynn and requested that the NYSE investigate Schettino’s illegal trading. On April 9, 1997 Glynn once again responded and stated that the NYSE would not investigate Schettino’s trading because the American Stock Exchange was investigating Schettino’s illegal trading.

On July 29, 1997 I confronted Edward Kwalwasser, the NYSE Executive Vice President for Legal and Regulatory Affairs, in the presence of Andrew Kandel, Bureau Chief Securities Division of the New York State Office of the Attorney General, at a public hearing, which was held at New York Law School. At this hearing I asked in the presence of Kandel why Kwalwasser and the NYSE had refused to investigate Schettino for illegally selling shares of Micron short on a minus tick. I also asked Kwalwasser why the NYSE had not investigated Schettino’s illegal trading of NYSE listed stocks, including IBM, for the 43AC1209 account of Bullseye Securities. Kwalwasser stated that he could not comment.

On 25 June 1998 I wrote to Richard Grasso, Chairman of the New York Stock Exchange, and stated that the NYSE had refused to investigate Schettino’s sale of Micron short on a minus tick and Schettino’s illegal trading for Bullseye Securities. I enclosed a copy of a missive, which was dated 13 June 1998 and was addressed to Edward Kwalwasser. This missive to Kwalwasser discussed the illegal trading of NYSE listed stocks by Pat Schettino, a former managing director of Spear Leeds and Kellogg.

Thus the Regulatory and Enforcement Division of the New York Stock Exchange had been informed that a senior managing director of Spear Leeds and Kellogg had illegally sold stock short on a minus tick (1,000 shares of Micron). Furthermore, Schettino had illegally sold this stock short on a minus tick for an account at Bullseye Securities that was not his. And the NYSE took no action.

Eventually in 1999 after a four year investigation, the American Stock Exchange permanently banned Schettino from the securities industry for illegal trading at the American Stock Exchange.

On September 15, 2000 in a missive to Robert Katz, Secretary to the Board of Goldman Sachs, I notified the Board of Goldman Sachs that Schettino had illegally sold short on a minus tick the stock of Micron and that Schettino had illegally traded stocks, which were listed on both the New York Stock Exchange and the American Stock Exchange, for the account of Bullseye Securities. This was more than one month prior to Goldman’s purchase of Spear Leeds and Kellogg.

On January 31, 2006 the New York Stock Exchange announced that it had fined 18 NYSE member firms including Goldman Sachs and LaBranche, a total of $5.85 million for submitting false records, which showed that these firms had reported illegal short sales of stock as legal long sales of stock.

On January 3, 2006 the NYSE in Hearing Panel Decision 05-145 fined Goldman Sachs $150,000 for reporting illegal short sales as legal long sales of stock. The NYSE added this interesting caveat: The illegal short sales were reported as legal long sales for an indeterminable period of time and this may have been done since 1989.

On January 3, 2006 the NYSE in Exchange Hearing Panel Decision 05-146 fined LaBranche Specialists $150,000 for reporting illegal short sales as long sales.

But more is to come.

On December 21, 2006 the New York Stock Exchange in NYSE Hearing Board Decision 06-224 fined Spear Leeds and Kellogg Specialists, a subsidiary of Goldman Sachs, $600,000 for violating Section 10(a) of the Securities and Exchange Act by illegally selling stock short on minus ticks.

On December 21, 2006 the New York Stock Exchange in NYSE Hearing Board Decision 06-227 fined LaBranche & Co., a NYSE specialist firm, $600,000, for violating Section 10(a) of the Securities Exchange Act by illegally selling stock short on a minus tick.

Section 32 of the Securities Exchange Act of 1934 provides that any person, who willfully violates any provision of the Securities Exchange Act of 1934, is punishable by a fine of not more than $10,000 for each violation of the Securities Exchange Act of 1934 and imprisonment of not more than two years for each violation of the Securities Exchange Act of 1934. Mandel and Peltz were sentenced to federal prison for selling a few hundred shares of stock short on a minus tick. Why were not the specialists of Goldman Sachs and LaBranche sent to federal prison for selling stock short on a minus tick?

If one were to read every enforcement action, which the New York Stock Exchange made pertaining to illegal short sales of stock, it becomes readily apparent that the Securities and Exchange Commission changed the rules regarding sales of short stock on a minus tick to benefit firms such as Goldman Sachs and LaBranche.

Thus the legal equivalent of bubonic plague was permitted by the NYSE so that its member firms could earn money and defraud the public.

Goldman Sachs and other major firms own not only the Department of the Treasury, but they also own the Securities and Exchange Commission.

Manfredonia worked on Wall Street for several years.
To comment or to subscribe to or advertise in New York’s leading Pan African weekly investigative newspaper, or to send us a news tip, please call (212) 481-7745 or send a note to Milton@blackstarnews.com
Also visit out sister publications Harlem Business News

Wall Street: See No Evil

Is this what Wall Street thinks of the little guys?

If you had perpetrated the crimes of either Louis Ligouri, or Joseph Manna, or Louis Paolillo you would be on a long bus ride, free of charge, singing: Allentown, here I come.

By Edward Manfredonia
July 8th, 2007

Series: The Wall Street Scandals

This article is concerned with three individuals, Louis Ligouri, Joseph Manna and Louis Paolillo, who were members of the American Stock Exchange- and their ability to violate federal securities laws with minor punishment.

Louis Ligouri was a floor broker and a member of the Board of Governors of the American Stock Exchange, when Louis Ligouri violated federal securities laws. Arthur Levitt, later Chairman of the Securities and Exchange Commission, was Chairman of the American Stock Exchange at the time Louis Ligouri violated the Securities Exchange Act of 1934.

Joseph Manna and Louis Paolillo were specialists and partners in the American Stock Exchange specialist firm of Manna, Paolillo, Bader, Katz & Co. at the time that they violated the Securities Exchange Act of 1934.

Furthermore, there is another common thread joining Louis Ligouri, Joseph Manna and Louis Paolillo-- Spear Leeds and Kellogg processed their trades. Spear Leeds and Kellogg was purchased by Goldman Sachs in October 2000- against my prescient advice.

Although I am utilizing American Stock Exchange Disciplinary Decisions from 1989 for Louis Ligouri and 1996 for both Joseph Manna and Louis Paolillo, these disciplinary decisions are highly relevant to the present- and most notably provide more detail of violations of federal securities law than current American Stock Exchange Disciplinary Decisions.

The federal securities laws, which were violated by Louis Ligouri, Joseph Manna and Louis Paolillo go to the very heart of the Securities Exchange Act of 1934. Louis Ligouri stole $180,000 from public customers as quoted in the American Stock Exchange Disciplinary Decision in the Matter of Louis Ligouri 89-D-17. Joseph Manna posted prices, trades and quotes for the sole purpose of increasing the net capital in the account of the specialist firm of Manna, Paolillo, Bader, Katz, & Co. as stated in the American Stock Exchange Decision In The Matter Of Joseph Manna 1996. Louis Paolillo posted fictitious trades at advantageous prices to increase the net capital in the account of the specialist firm of Manna, Paolillo, Bader, Katz, & Co. as stated in the American Stock Exchange Disciplinary Decision In the matter Of Louis Paolillo 96-D-08.

It is easy to understand that Louis Ligouri’s theft of $180,000 is a crime. It is also easy to understand that Louis Paolillo’s posting fictitious trades is illegal. But it is more difficult to understand that Joseph Manna’s actions were illegal. So let us examine two examples.

The first example shall deal with a crime that has become common in the era of increasing real estate prices. In many areas of the metropolitan area unscrupulous real estate agents working with unscrupulous mortgage brokers and unscrupulous appraisers have perpetrated a similar crime to that of Joseph Manna. By selling a house to numerous straw buyers and steadily increasing the price of the house and the appraisal of the value of the house, these real estate agents and mortgage brokers steadily increase their profits by means of commissions on the sale of homes; commissions paid to mortgage brokers; and the illegal profits, which they split with the buyers. Eventually, there is a total collapse when the final purchaser of the home cannot meet his mortgage payments and the mortgage lender is stuck with an overvalued house.

The second example is analogous to falsely inflating the inventory, which a firm possesses to obtain a loan. Thus, assume that a jewelry store had inventory composed of 1 and 2 carat diamonds. The jeweler went to the bank to borrow money and the jeweler stated that he had an inventory of 4 and 5 carat diamonds. Thus the value of the inventory was falsely increased. But when the loan came due, and the bank seized his inventory, the bank could not recover the amount of its loan because the value of the inventory was not sufficient to cover the loan. This is what Joseph Manna did. By giving false values to his option inventory, Manna provided false information to his bank—in this instance, Spear Leeds and Kellogg, which cleared the trades and guaranteed the net capital, or minimum capital maintenance, of the American Stock Exchange specialist firm of Manna, Paolillo, Bader, Katz & Co.

But there is one major problem with utilizing derivative products- in this instance, equity options, specifically equity call options. (Definition: A call option gives an individual the right to purchase a stock at a specific price.) The problem is that equity call options have a limited life span and, therefore, lessen in value over time. Furthermore, all options are exercised at a specific stock price- if the stock is less than the strike price of the call option, the call option has no value. Let us assume that the option expires on June 15, 2007 and the price of a stock is $28. Thus, on the day in June when the option expires and the strike price of the call is 25, the value of the June 25 call option is: $28 (price of stock) - $25 (strike price of call) = $3.

Now let us utilize another example. It is May and the stock is trading at $28. An individual believes that the stock is going to go up. This individual purchases a June 30 call for $1.50. This means that on expiration day in June, the day when the option expires, the stock must go to $31.50 to break even. To determine the break even price we merely take the cost of the call, $1.50, and add it to the strike price of the call 30.00, $1.50 + 30= $31.50. But assume that the stock price remains at $28. The strike price of the June 30 call is above the price of the stock $28 - $30 = -$2, a negative value, so the value of the June 30 call option is $0 and you have lost the purchase price of the call, which is $1.50.

As I have shown, options have a limited life and the value of an option decreases over time. Usually, the life of an equity option is measured in a few months- at least the most active equity options.

One way to look at equity options is to think of equity options as stock. When stock trades at a higher price, the value increases. But there is a peculiarity with options. Options are a derivative product. If the price of the stock increases, the value of a call, which is the right to purchase stock at a specific price, increases. Or the price of an equity option can increase if, like a stock, someone purchases an equity option.

Equity options are usually valued at the last price, but there are exceptions- usually when the option is lightly traded. Joseph Manna, the option specialist with the firm of Manna, Paolillo, Bader, Katz & Co., knew this. So, if the last sale of an option were not at a high enough price, Manna could pursue two courses of action.

Manna could change the quote of the option and increase the bid, the price at which Manna would purchase the option, thereby, increasing the value of the option. Or Manna could purchase one or more options at a higher price than the last sale, thereby, increasing the value of the options.

By falsely increasing the value of the options in his inventory, Manna illegally increased the net capital, or Minimum Capital Maintenance, of the specialist firm of Manna, Paolillo, Bader, Katz & Co.

It must be noted that what led to the conviction of Ivan Boesky, who was convicted in the largest insider trading scandal ever and paid a fine of $100 million, was the violation of the "Net Capital Rule." The "Net Capital Rule" is defined as: the amount of money that must be maintained in a brokerage account to meet the requirements necessary to cover the stocks and derivative instruments in the account. Net Capital is composed of: liquid assets, such as cash and Treasury bills, minus liabilities. In many respects the net capital rule is identical to the Minimum Capital Maintenance, except that in this instance Minimum Capital Maintenance applies to specialist firms at the American Stock Exchange. Minimum Capital Maintenance is set by a stock exchange, in this instance the American Stock Exchange. Net Capital is set by the Securities and Exchange Commission.

The Minimum Capital Maintenance is the American Stock Exchange equivalent to the "Net Capital Rule," which has been set by the Securities Exchange Act of 1934. Net Capital is defined as liquid assets, such as cash and Treasury Bills, minus liabilities. The Minimum Capital Maintenance also includes as assets the market value of the long positions of stock and options (those options and stocks that are owned by a specialist firm) minus the liabilities (those options and stock that are sold, but not owned by a specialist firm). But the penalties for illegally violating Net Capital and Minimum Net Capital are identical in the Securities Exchange Act of 1934.

Manna was the partner in charge of the options division of the specialist unit of Manna, Paolillo, Bader, Katz & Co. Manna was the specialist in the options of PXQ (Pyxis Corp.).

During the relevant time period, January to March 1995, the specialist firm of Manna, Paolillo, Bader, Katz & Co. was hemorrhaging money. If the firm continued to lose money, the specialist firm of Manna, Paollilo, Bader, Katz & Co. would become insolvent.

Manna was faced with an insoluble dilemma. Manna knew that he could not obtain additional financing. Manna could not liquidate his positions in the options of Pixis Corp. at favorable prices. Manna knew that he needed to increase the value of his positions in the hope that the market would favor him.

So, Manna decided to illegally change the value of the options, which the specialist firm of Manna, Paolillo, Bader, Katz & Co. had in its inventory, thereby, meeting the requirements of Minimum Capital Maintenance as established by the American Stock Exchange.

In a three month period from January to March 1995 Manna made 310 quote changes after 4:10 p.m., after the close of trading, to increase the value of the option inventory of the specialist firm of Manna, Paolillo, Bader, Katz & Co. On 49 occasions Manna also made purchases of nominal amounts of options to increase the value of the specialist firm’s inventory.

Manna was fined $30,000 and suspended for 60 days from Exchange membership. And it is here that I must note that Manna’s violations of the equivalent of the Net Capital Rule, or Minimum Capital Maintenance, were far more serious than Ivan Boesky’s violation of the net capital rule. And Ivan Boesky spent several years in federal prison. For details please refer to Part I of my personal web site, www.WallStreetScandals.com.

Paolillo, the stock specialist for Manna, Paolillo, Bader, Katz, & Co. was charged with printing 36 fictitious transactions. Paolillo plea bargained to printing 6 fictitious transactions.

Paolillo was fined $35,000 and was suspended for one year. For more details please refer to Part I of my personal web site, www.WallStreetScandals.com.

Louis Ligouri did not have the elegance of Manna or Paolillo. On or about June 15, 1987, Louis Ligouri opened a Registered Trading account at Spear Leeds and Kellogg.

The most important fact here is that Louis Ligouri never traded- and Spear Leeds and Kellogg knew this. Ligouri opened a Market Maker account. But the only trading activity that took place were 130 trades that were placed in Ligouri’s trading account.

Ligouri participated in an arrangement whereby, beginning in July 1987 until January 1989, more than 130 profitable rejected options trades (DK’s) that Ligouri had not made, were put into his Registered Trader account. Ligouri then liquidated these trades for a nearly riskless profit.

The American Stock Exchange imposed the following penalties upon Ligouri: a censure; a permanent ban from membership in the Exchange; and, a three year suspension from association in any capacity with any Exchange member or member organization.

Ligouri stole in excess of $180,000 and served no time in jail. For more details refer to Part I on www.WallStreetScandals.com.

It is important to note that after the specialist firm of Manna, Paolillo, Bader Katz & Co. went out of business, Spear Leeds and Kellogg took over the American Stock Exchange stock specialist unit of Manna, Paolillo, Bader & Katz.

Having served their suspensions, Louis Ligouri, Joseph Manna, and Louis Paolillo resumed their profitable careers on Wall Street- earning in excess of $100,000 per annum.

When contacted by The Black Star News concerning his egregious violations of federal securities laws, Louis Paolillo replied with a terse: "No comment." The Black Star News was unable to contact either Louis Ligouri or Joseph Manna.

Just imagine what would happen to you if you had committed an equivalent crime- such as stealing $180,000. Or if you had committed bank fraud, which is similar to the crime of falsifying your assets to meet the minimum capital maintenance.

If you had perpetrated the crimes of either Louis Ligouri, or Joseph Manna, or Louis Paolillo you would be on a long bus ride, free of charge, singing: Allentown, here I come.

The author worked on Wall Street for several years

USA: Billionaires' Welfare State

Goldman Sachs CEO Lloyd Blankfein---he's not about to lose his home. Photo: radaronline.com

Wall Street always praises the destructive essence of capitalism, a financial survival of the fittest. But the reality is far from a Darwinian theory of survival. It is always those with the most money and the most political influence that survive.
By Edward Manfredonia
August 22nd, 2007

Only The Rich Matter

Let’s keep it simple then build it up. You borrow money to purchase a modest home.

You do not have sufficient money to purchase a home-or even to pay for a down payment. So, a mortgage broker, an intermediary who can provide you with a mortgage, happily assures you that he can obtain a mortgage for you. If you do not have sufficient capital for a down payment, the mortgage broker happily explains that you can obtain a mortgage for the entire amount.

Of course the interest rate might be high, but the mortgage broker assures you that you cannot lose money with home prices rising rapidly. The mortgage broker finds a bank willing to provide you with a mortgage; what is technically known as a sub prime mortgage, and everyone is happy.

But then the unthinkable occurs. Perhaps there are hidden costs. Or you could now be holding a mortgage with variable rates and the interest rates have increased. You cannot make the payments-and you lose your home. You may even have to file for bankruptcy.

Do the mortgage broker and the bank suffer? No. The mortgage broker has collected his fee and he or she has no risk. The bank has sold your mortgage. So the originating bank has no exposure.

Your mortgage is purchased by a major Wall Street firm. Your mortgage is combined with other sub prime mortgages and is now part of a collateralized debt obligation (CDO), which consists of thousands of mortgages made to individuals with credit problems. This CDO has been separated into two parts, called tranches, and sold to financial institutions willing to accept risk.

The first tranche is comprised of your payments of the principal of the mortgage-the amount that you borrowed. The second tranche is composed of the payments of the interest. Each of these tranches is now called a Collateral Debt Obligation; collateral because the collateral is the property, your home, for which you had borrowed the money.

And this market is huge. Hundreds of billions of dollars of CDOs were created and sold by assuring individuals with bad credit that they could obtain and afford a mortgage on easy terms.

But before the brokerage firms could sell these CDOs, the CDOs had to be rated. The big ratings agencies, such as Standard and Poors, rated these CDOs. It is the ratings agencies that determine if these CDOs are sufficiently free of risk to be labeled “investment grade.” The rating agencies do not rate securities for free-they are paid a fee, which can be quite substantial.

Let us examine the rating scheme. You have bad credit. You do not have sufficient money for a down payment. Yet, you somehow qualify for a mortgage. Not only do you receive a mortgage, but thousands of other individuals in your risk category also receive mortgages.

And what “rating” did the rating agencies provide for these CDOs? Triple A; the same rating as government securities and Exxon-Mobil. Yes, the rating agencies say that your credit is as good as that of Exxon-Mobil.
But who owns these CDOs, which are comprised of sub prime mortgages?

The answer is banks, insurance companies and most importantly Hedge Funds, whose Chief Executive Officer can earn a billion dollars a year. A Hedge Fund is not required to file detailed reports to the Securities and Exchange Commission. Hedge Funds are investment vehicles for individuals who have millions in excess funds to invest.

Insurance companies, such as AIG, a component of the Dow Jones Industrial Average, own these CDOs. Not only American Banks but banks in countries such as Australia, Germany and Japan, have invested in these CDOs- no doubt having been safely assured that these CDOs were of investment grade stature.

Here, you are a minnow in an ocean. You cannot pay your mortgage and the sharks of Wall Street decry your lack of understanding of financial principles. And you fail. You lose your home. You have been devoured by the sharks of Wall Street.

But now the sharks are upset. For the sharks of Wall Street, the failure of the sub prime market is the equivalent of a catastrophe on the order of global warming. For years, the sharks were making money selling your mortgage and the mortgages of others via marketing and selling CDOs and making huge profits on the mark ups.

This sleight of hand was performed with the knowledge and cooperation of the Federal Reserve System. The Federal Reserve System is not interested in protecting the individual investor. The Federal Reserve System views itself as a protector of the American financial system and does its best to prevent any financial disruptions to the wealth of the billionaires.

Two hedge funds run by Bear Sterns were closed. Goldman Sachs disclosed losses of 29% in Goldman’s Global Equities Opportunity Fund hedge fund and sought infusions of $3 billion in capital into this hedge fund from investors including billionaires, Eli Broad and Hank Greenberg.

Wall Street was shaken up. At first the Federal Reserve System injected $90 billion of reserves into the financial system for rescue. That was not enough. Next, the Federal Reserve System injected another $35 billion into the financial system.

The European Central Bank first added $65 billion dollars. The next day the ECB added $80 billion to the financial system. But the stock markets continued to plunge.

The Federal Reserve System then took a drastic step-something that it had not done since 9-11. The Federal Reserve System lowered the Discount Rate .5% from 6.25% to 5.75% and stated that it would accept sub prime
mortgages as collateral.

The Discount Rate is the rate at which the Federal Reserve System lends money to member banks-and it usually discourages this loan of money. Not only did the Federal Reserve System lower the Discount Rate, but the Federal Reserve System stated that the loan could be for 30 days and not just overnight. It was this drastic action that caused the Dow Jones Industrial Average to jump by 233 points and rally.

It is now apparent that the Federal Reserve System shall lower the Federal Funds Rate from 5.25% to perhaps 4.75% at its next meeting. The Federal Funds Rate is the rate at which member banks of the Federal Reserve System can lend their excess reserves, which are on deposit at the Federal Reserve System, to other banks.

But the Federal Reserve System is taking a major risk. The risk is that inflation shall accelerate. From June 2006 to June 2007, the Bureau of Labor Statistics has stated that egg prices have increased 19.5%; whole milk 13.3%; fresh chicken 10%; and, white bread 9.6%. These are items, which you consume on a daily basis. But the Federal Reserve System has placed inflation on the back burner and Wall Street is its concern.

The Federal Reserve System does not care about individuals; it cares only about financial institutions-banks and the major brokerage firms, also called prime brokers, such as Goldman Sachs, Morgan Stanley and Bear Sterns. These three prime brokers clear the trades for 60% of the hedge funds. These prime brokers must be saved-not you and your house or the affordability of the basic necessities of life, such as food; you’re all just little guys, as far as the Reserve is concerned.

To prove my thesis that only large financial institutions are of concern to the Federal Reserve System we must now consider the actions of the Federal Reserve System during the banking crisis of the late 1980’s and early 1990’s. The Federal Reserve System protected the big banks and permitted the little banks to fail.

We shall prove my thesis by comparing the actions of the Federal Reserve System toward two banks: The Bank of New England and Freedom National Bank, which was headquartered in Harlem.

Both the Bank of New England and Freedom National Bank were insolvent. The Bank of New England was a big bank. Freedom National Bank was a small bank, whose depositors were largely African-Americans and African-American businesses, churches and nonprofits.

To maintain the solvency of the Bank of New England, the Treasury and the Federal Reserve System deposited as much as $1.8 billion of Treasury tax receipts (withholding taxes, etc.) overnight as an interest free loan, while at the same time refusing to continue its policy of depositing Treasury tax receipts at Freedom National Bank.

The Federal Deposit Insurance Corporation guaranteed all deposits, even those exceeding $100,000, at the Bank of New England. At Freedom National Bank, the FDIC guaranteed only those deposits up to $100,000 and agreed to pay fifty cents on the dollar on amounts in excess of $100,000.

It was only after special legislation was introduced by the team of Representative Charles Rangel and then Senator Alfonse D’Amato and passed by Congress that the nonprofits, churches and businesses with deposits exceeding $100,000 were fully reimbursed.