Recognizing that wages in America have been stagnating for years, JP Morgan Chase CEO Jamie Dimon announced that the bank was giving 18,000 of its lowest waged employees a 20% pay raise. Now, that sounds really generous except when you looked at the details and realize just how laughable it is. In a vain glorious …
Last week the Senate finally confirmed Loretta Lynch as the 83rd Attorney General after a 5 month delay. She was sworn in on Monday by Vice President Joe Biden. The reasons the Republican majority made for the hold on her confirmation were baseless and revealed just how dysfunctional the congress really is. Using the fight over abortion provisions in an human trafficking bill that Democrats found untenable, looked more like hostage taking than politics. Ms. Lynch had sailed through her other confirmations with unanimous bipartisan support. She has a history of being tough on political corruption and police brutality. She famously prosecuted the New York City Police officers who had brutally abused Abner Louima and was investigating the officer involved in the choke hold death of Eric Garner last year.
But the one really good reason the Republicans had to not confirm her was never mentioned by them or the media, the banks. As the article by William K. Black, a professor of economics and law, discusses, “(Ms.) Lynch’s failure to prosecute HSBC and its officers exemplified a real Obama scandal, the effective end of the rule of law for criminal bankers.”
GOP opposition to Lynch was a missed opportunity
By William K. Black, Al Jazeera
The Republicans’ failed tactics against Loretta Lynch reveal the big banks’ hold on both parties
The reason Lynch was such a godsend to the GOP never appeared in the Times article: HSBC. The biggest bank in Europe and the most disreputable large bank in the world, HSBC was the subject of the most important case Lynch ever handled. It demonstrated that Lynch’s “formidable reputation as a prosecutor” is undeserved, making Republican opposition to her nomination legitimate. More important, her failure to prosecute HSBC and its officers exemplified a real Obama scandal, the effective end of the rule of law for criminal bankers.
Lynch’s sweetheart deal with HSBC, her indefensible reactions to the bank’s failures to comply even with the sweetheart deal and the bank’s continued commission of thousands of felonious transactions after the sweetheart deal offered Republican leaders the ideal circumstances to attack the Obama administration. The Republicans did not need to suddenly develop investigative skills and honest congressional reports. The Democrats, Lynch’s appointee as HSBC’s monitor and the whistleblowers have done all the heavy investigative lifting for the GOP. The ultrashort version is that HSBC and its personnel were caught red-handed having laundered over $1 billion for Mexico’s Sinaloa drug cartel – one of the most violent cartels in the world – and helped Sudan and Iran violate U.S. anti-terrorism and anti-genocide sanctions with impunity. This was all documented in a Senate investigation by former Sen. Carl Levin – a Democrat and Congress’ most respected and competent investigator – in a report that the Republicans could have joyfully quoted. The bank was found to have engaged in massive efforts to aid and abet tax fraud. HSBC’s monitor discovered that the bank was not complying with even the sweetheart nonprosecution agreement that Lynch negotiated. She nevertheless failed to prosecute any of the numerous felonies at HSBC outlined in the Levin report.
Remarkably, the supposedly liberal New York Times and GOP leaders have something in common: Both refused to mention HSBC as a key reason for rejecting Lynch’s nomination. What the GOP’s embarrassingly self-destructive strategy for opposing Lynch proves is that even when the Republicans have the perfect opportunity to embarrass the Obama administration and highlight one of its largest scandals – the failure to prosecute a single bank officer who led the most destructive epidemics of financial fraud in history that caused our Great Recession – the Republicans refused, lest they upset their leading source of political contributions. The approval of the Lynch nomination demonstrates that bipartisanship does exist on Capitol Hill: when it favors the big banks and their lobbyists
Prosecuting these bank criminals was too hard for former AG Eric Garner, it obviously will be for AG Lynch, as well. The banks not only own congress, they own the White House and the Department of Justice.
“The banks own the place.” Sen. Dick Durban said that back in 2009 when he was trying to get 60 votes lined up for bankruptcy reform. at the time he was referring to Congress.
“And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place,” he said on WJJG 1530 AM’s “Mornings with Ray Hanania.” Progress Illinois picked up the quote.
The banks have now gone beyond just financing. According to Matt Taibbi at Rolling Stone, in their most devious scam yet, ” Banks are no longer just financing heavy industry. They are actually buying it up and inventing bigger, bolder and scarier scams than ever”
Most observers on the Hill thought the Financial Services Modernization Act of 1999 – also known as the Gramm-Leach-Bliley Act – was just the latest and boldest in a long line of deregulatory handouts to Wall Street that had begun in the Reagan years. [..]
…it would take half a generation – till now, basically – to understand the most explosive part of the bill, which additionally legalized new forms of monopoly, allowing banks to merge with heavy industry. A tiny provision in the bill also permitted commercial banks to delve into any activity that is “complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.”
Complementary to a financial activity. What the hell did that mean?[..]
Today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs own oil tankers, run airports and control huge quantities of coal, natural gas, heating oil, electric power and precious metals. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to metals like zinc, copper, tin, nickel and, most infamously thanks to a recent high-profile scandal, aluminum. And they’re doing it not just here but abroad as well: In Denmark, thousands took to the streets in protest in recent weeks, vampire-squid banners in hand, when news came out that Goldman Sachs was about to buy a 19 percent stake in Dong Energy, a national electric provider. The furor inspired mass resignations of ministers from the government’s ruling coalition, as the Danish public wondered how an American investment bank could possibly hold so much influence over the state energy grid [..]
(B)anks aren’t just buying stuff, they’re buying whole industrial processes. They’re buying oil that’s still in the ground, the tankers that move it across the sea, the refineries that turn it into fuel, and the pipelines that bring it to your home. Then, just for kicks, they’re also betting on the timing and efficiency of these same industrial processes in the financial markets – buying and selling oil stocks on the stock exchange, oil futures on the futures market, swaps on the swaps market, etc.
Allowing one company to control the supply of crucial physical commodities, and also trade in the financial products that might be related to those markets, is an open invitation to commit mass manipulation. It’s something akin to letting casino owners who take book on NFL games during the week also coach all the teams on Sundays [..]
…The situation has opened a Pandora’s box of horrifying new corruption possibilities, but it’s been hard for the public to notice, since regulators have struggled to put even the slightest dent in Wall Street’s older, more familiar scams. In just the past few years we’ve seen an explosion of scandals – from the multitrillion-dollar Libor saga (major international banks gaming world interest rates), to the more recent foreign-currency-exchange fiasco (many of the same banks suspected of rigging prices in the $5.3-trillion-a-day currency markets), to lesser scandals involving manipulation of interest-rate swaps, and gold and silver prices.
But those are purely financial schemes. In these new, even scarier kinds of manipulations, banks that own whole chains of physical business interests have been caught rigging prices in those industries [..]
…When does the fun part start?
It would seem the “fun” has already begun for the banks while the pillaging continues under the watchful eyes of the congress, the Department of Justice and banking regulators.
Credit default swaps are pure casino bets. They were originally designed as a form of insurance against bond and other credit defaults (“I’ll pay you a monthly fee and you pay me my losses if these bonds default.”)
It’s a simple concept, but CDSs soon evolved. Turns out you don’t have to actually hold the bonds to insure them. This means that one guy can sit at a table with a bunch of bonds (or bundles of mortgages), while another guy can insure them. Meanwhile, at 50 other tables, 50 more guys can buy the same “insurance” on the same bonds from anyone who will sell it to them. Keep in mind, only the first guy actually holds the bonds. The other guys just know they exist.
That’s 50 side-bets on one set of bonds. Placing side-bets on someone else’s property is like betting on a ball game you’re just watching. Like I said, pure casino money.
Do you see the problem? One guy’s bonds default and suddenly 51 guys in that room, everyone who sold “insurance,” they’re all wiped out. Why? Because the dirty secret of derivatives bets is that the people offering the “insurance” rarely have the money. They’re betting that they can collect “insurance” fees forever and the defaults will never come. That’s what happened with mortgage-backed bets in 2007, and that’s what’s happening today.
In 2010, the Democratic held Congress passed the Dodd-Frank Wall St. Reform and Consumer Protection Act to rein in the worst practices of the banks and Wall St. Needless to say, it is overly complicated, inadequate and has yet to be fully implemented.
That has not stopped the now Republican held House, along with some Democrats, to end some of the regulations. Less that week after Sen. Carl Levin released a scathing report on the $6.7 billion loss (pdf) of JP Morgan Chase in the infamous “London Whale” deal, the House Agriculture Committee, go figure that logic, approved seven bills that would gut regulation of the derivatives market and once again, if the banks lose, the tax payer makes good the losses. Sound familiar? Does TARP ring a bell? The housing market crash?
It turns out that the Agriculture Committees have held jurisdiction over derivatives since the mid-19th century, when farmers used derivatives to achieve stability over future prices. Traders still use derivatives for corn and other commodities, but the world of derivatives has grown far more sophisticated over the decades. Nevertheless, congressional committees zealously guard their jurisdictions, and so a bunch of lawmakers from rural states get to determine a major aspect of financial policy. [..]
To see how this all works, just look at the hearing on these derivatives bills, held last week. When Ag Committee chairman Frank Lucas wasn’t openly parroting industry scare tactics about energy price spikes from regulation, he called on a list of witnesses that included four industry trade group representatives and one public advocate from Americans for Financial Reform, Wallace Turbeville. (He did great (pdf).) Or for an even clearer indication, read these PowerPoint slides created for Ag Committee staff by the Coalition for Derivatives End-Users, an industry-backed lobbyist organization. This extremely one-sided perspective on the issue simply becomes the default position for committee members and their staffs, an example of the “cognitive capture” in D.C. that sidelines alternative voices. And it all happens under the radar.
One of the Democratic House members who is sponsoring these bills, is Rep. Jim Himes, a former Goldman Sachs vice president who represents the Connecticut bedroom communities of Wall Street traders. It’s not hard to imagine why he defended his support of these bills when asked by the press. The Democratic members of the committee who voted with the 25 Republicans to send these bills to the House floor are: Pete Gallego (TX-23); Ann Kuster (NH-2); Sean Patrick Maloney (NY-18); Mike McIntyre (NC-07); David Scott (GA-13); and Juan Vargas (CA-51).
These are the bills that were passed by the committee:
H.R. 634 (pdf), the Business Risk Mitigation and Price Stabilization Act of 2013
· H.R. 677 (pdf), the Inter-Affiliate Swap Clarification Act
· H.R. 742 (pdf), the Swap Data Repository and Clearinghouse Indemnification Correction Act of 2013
· H.R. 992 (pdf), the Swaps Regulatory Improvement Act
· H.R. 1003 (pdf), To improve consideration by the Commodity Futures Trading Commission of the costs and benefits of its regulations and orders.
· H.R. 1038 (pdf), the Public Power Risk Management Act of 2013
· H.R. 1256 (pdf), the Swap Jurisdiction Certainty Act
Even if these bills all get passed, they will never see the light of day in the Senate.
Sheila Bair, the longtime Republican who served as chair of the Federal Deposit Insurance Corporation (FDIC) during the fiscal meltdown five years ago, joins Bill to talk about American banks’ continuing risky and manipulative practices, their seeming immunity from prosecution, and growing anger from Congress and the public.
“I think the system’s a little bit safer, but nothing like the dramatic reforms that we really need to see to tame these large banks, and to give us a stable financial system that supports the real economy, not just trading profits of large financial institutions,” Bair tells Bill.
Rolling Stone‘s Matt Taibbi joins Bill to discuss the continuing lack of accountability for “too big to fail” banks which continue to break laws and act unethically because they know they can get away with it. Taibbi refers specifically to the government’s recent settlement with HSBC – “a serial offender on the money laundering score” – who merely had to pay a big fine for shocking offenses, including, Taibbi says, laundering money for both drug cartels and banks connected to terrorists.
Taibbi also expresses his concern over recent Obama appointees – including Jack Lew and Mary Jo White – who go from working on behalf of major banks in the private sector to policing them in the public sector.
Matt has more on Mary Jo White and her involvement with squashing the insider trading case against future Morgan Stanley CEO John Mack by Sec investigator Gary Aguirre.
There are a few more troubling details about this incident that haven’t been disclosed publicly yet. The first involve White’s deposition about this case, which she gave in February 2007, as part of the SEC Inspector General’s investigation. In this deposition, White is asked to recount the process by which Berger came to work at D&P. There are several striking exchanges, in which she gives highly revealing answers.
First, White describes the results of her informal queries about Berger as a hire candidate. “I got some feedback,” she says, “that Paul Berger was considered very aggressive by the defense bar, the defense enforcement bar.” White is saying that lawyers who represent Wall Street banks think of Berger as being kind of a hard-ass. She is immediately asked if it is considered a good thing for an SEC official to be “aggressive”:
Q: When you say that Berger was considered to be very aggressive, was that a positive thing for you?
A: It was an issue to explore.
Later, she is again asked about this “aggressiveness” question, and her answers provide outstanding insight into the thinking of Wall Street’s hired legal guns – what White describes as “the defense enforcement bar.” In this exchange, White is essentially saying that she had to weigh how much Berger’s negative reputation for “aggressiveness” among her little community of bought-off banker lawyers might hurt her firm.
Q: During your process of performing due diligence on Paul Berger, did you explore what you had heard earlier about him being very aggressive?
Q: What did you learn about that?
A: That some people thought he was very aggressive. That was an issue, we really did talk to a number of people about.
Q: Did they expand on that as to why or how they thought he was aggressive?
A: I think and as a former prosecutor, sometimes people refer to me as Attila the Hun. I understand how people can get a reputation sometimes. We were trying to obviously figure out whether this was something beyond, you always have a spectrum on the aggressiveness scale for government types and was this an issue that was beyond real commitment to the job and the mission and bringing cases, which is a positive thing in the government, to a point. Or was it a broader issue that could leave resentment in the business community or in the legal community that would hamper his ability to function well in the private sector?
It’s certainly strange that White has to qualify the idea that bringing cases is a positive thing in a government official – that bringing cases is a “positive thing . . . to a point.” Can anyone imagine the future head of the DEA saying something like, “For a prosecutor, bringing drug cases is a positive, to a point?”
Somehow this sounds like more of the same at the from the Obama administration.
If anyone had any doubts that the US Government is no longer a “government of the people” but of corporation and Wall St, you need only read the recently released FBI documents that labeled Occupy Wall Street a “terrorist group” and coordinated with banks and cities nationwide to suppress the protests with strong arm tactics and targeted assassinations (see pg 61 of document). This all started before the protest even began without evidence that the protests would be anything but peaceful and despite the internal acknowledgment that the movement opposed violent tactics. The documents prove that the government blatantly lied about the Department of Homeland Security involvement in coordinating the violent crackdown in New York City, Oakland and other major cities. Partnership for Civil Justice obtained the heavily redacted FBI documents revealing that the surveillance began at least a month before the protest in Zuccotti Park began and that the #OWS movement was being treated as potential criminal and terrorist activity.
The PCJF has obtained heavily redacted documents showing that FBI offices and agents around the country were in high gear conducting surveillance against the movement even as early as August 2011, a month prior to the establishment of the OWS encampment in Zuccotti Park and other Occupy actions around the country.
“This production, which we believe is just the tip of the iceberg, is a window into the nationwide scope of the FBI’s surveillance, monitoring, and reporting on peaceful protestors organizing with the Occupy movement,” stated Mara Verheyden-Hilliard, Executive Director of the Partnership for Civil Justice Fund (PCJF). “These documents show that the FBI and the Department of Homeland Security are treating protests against the corporate and banking structure of America as potential criminal and terrorist activity. These documents also show these federal agencies functioning as a de facto intelligence arm of Wall Street and Corporate America.”
“The documents are heavily redacted, and it is clear from the production that the FBI is withholding far more material. We are filing an appeal challenging this response and demanding full disclosure to the public of the records of this operation,” stated Heather Benno, staff attorney with the PCJF.
Author and activist Naomi Wolf reported in The Guardian that these “new documents prove what was once dismissed as paranoid fantasy: totally integrated corporate-state repression of dissent.”
It was more sophisticated than we had imagined: new documents show that the violent crackdown on Occupy last fall – so mystifying at the time – was not just coordinated at the level of the FBI, the Department of Homeland Security, and local police. The crackdown, which involved, as you may recall, violent arrests, group disruption, canister missiles to the skulls of protesters, people held in handcuffs so tight they were injured, people held in bondage till they were forced to wet or soil themselves – was coordinated with the big banks themselves.
The Partnership for Civil Justice Fund, in a groundbreaking scoop that should once more shame major US media outlets (why are nonprofits now some of the only entities in America left breaking major civil liberties news?), filed this request. The document – reproduced here in an easily searchable format – shows a terrifying network of coordinated DHS, FBI, police, regional fusion center, and private-sector activity so completely merged into one another that the monstrous whole is, in fact, one entity: in some cases, bearing a single name, the Domestic Security Alliance Council. And it reveals this merged entity to have one centrally planned, locally executed mission. The documents, in short, show the cops and DHS working for and with banks to target, arrest, and politically disable peaceful American citizens.
The documents, released after long delay in the week between Christmas and New Year, show a nationwide meta-plot unfolding in city after city in an Orwellian world: six American universities are sites where campus police funneled information about students involved with OWS to the FBI, with the administrations’ knowledge (p51); banks sat down with FBI officials to pool information about OWS protesters harvested by private security; plans to crush Occupy events, planned for a month down the road, were made by the FBI – and offered to the representatives of the same organizations that the protests would target; and even threats of the assassination of OWS leaders by sniper fire – by whom? Where? – now remain redacted and undisclosed to those American citizens in danger, contrary to standard FBI practice to inform the person concerned when there is a threat against a political leader (p61).
Transcript can be read here
So much for paranoia. The government is out to stop peaceful protest in anyway they can.
Disregard all cheery news you hear from the MSM that the housing crisis is over and housing prices are stable and on the rise. It’s not over. We are still bailing out the banks over the troubled homeowner.
“The evidence is overwhelming: home prices are anything but stable.”
Michael Olenick: Still Looking for a Housing Bottom
Two trends are apparent. One is that banks are delaying foreclosures, or not foreclosing at all despite long-term delinquencies. The other is that private equity firms – flush with cash thanks to Tim Geithner’s religious devotion to trickle-down economics and the resulting cascade of corporate welfare – have been bidding up and holding foreclosed houses off the market. These two factors have artificially limited supply and, combined with cheap mortgages rates, driven up prices. While we can debate whether these strategies represent the best public policy, these policies are obviously not long-term sustainable. [..]
Holding back inventory means that the houses that are put on offer sell faster and at higher prices. That creates an incentive to delay foreclosures or not foreclose at all even when a home is delinquent. Though this seems obvious, the mainstream housing finance community – aided by a freelance “housing analyst,” – uses the faster figures to somehow prove banks are not holding houses. [..]
Besides lower foreclosure activity, the government is going all out to give away houses to private equity firms. Recently Fannie Mae sold 275 properties across metro Phoenix in one sale to a mystery buyer, according to a report by Catherine Reagor of the Arizon Republic. [..]
Anybody who has been a landlord seems to quickly tire of it so, assuming there isn’t a pending planned mass immigration to Phoenix, these investors will eventually want to cash out by selling these houses. Further, they will want to minimize maintenance expenses while they are renting out these houses, so the eventual sale of these houses will increase supply and prolong the housing crisis. Geithner’s policy of shaking down Main Street to help Wall Street continues to hurt your street. [..]
Taking account of the delayed foreclosures and the beginning of mass purchases of houses would mean there should be a surge in home prices, but we’re still seeing little movement in many areas. This is especially puzzling given how inexpensive mortgage are. [..]
Of course, this assumes that people can get mortgages for these houses, though many can’t. Young people especially are hopelessly in debt thanks to out-of-control tuition hikes predictably caused by equally out-of-control student loan policies. [..]
Thanks to low lower foreclosures, real-estate speculators buying in bulk, and low interest rates there is enough direct and anecdotal evidence to suggest that we may be seeing a real-estate recovery on paper. Further, these policies are clearly calibrated to bring about a bubble, despite that bubbles are difficult to control and are not, by definition, sustainable: they always eventually pop. Let’s at least hope that when this bubble bursts the new Wall Street bulk buyers are treated with the same ruthless “free market” vigor that the prior owners of these houses were treated with after the last bubble burst. However, I doubt the mystery Asian money buyer, that Fannie sold Phoenix to, will ever be subject to something like the rocket docket.
Washington’s Blog goes down the list of evidence that “the government’s “Homeowner Relief” Programs are disguised bank bailouts … not even AIMED at helping homeowners. It’s a fascinating piece with all the links to this sham.
Former special inspector general overseeing TARP Neil Barofsky (@neilbarofsky) joined Up w/ Chris Hayes to talk about his book “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.” Along with panel guests Heather McGhee (@hmcghee), vice president of policy and research at the progressive think tank Demos; Josh Barro (@jbarro), who writes “The Ticker” for Bloomberg View; Michelle Goldberg (@michelleinbklyn), senior contributing writer for Newsweek/Daily Beast; and Up host Chris Hayes (@chrislhayes), Barofsky shares his thoughts on the failure of TARP and the housing crisis.
What is a criminal enterprise? According to the FBI, a criminal enterprise is:
a group of individuals with an identified hierarchy, or comparable structure, engaged in significant criminal activity. These organizations often engage in multiple criminal activities and have extensive supporting networks…
The FBI defines organized crime as any group having some manner of a formalized structure and whose primary objective is to obtain money through illegal activities.
So have the big banks engaged in multiple criminal activities whose primary objective is to obtain money through illegal activities?
Consider just the past month:
LIBOR just keeps getting bigger by the day, like a wildfire.
US lawmakers have raised concerns that the alleged manipulation of the London Interbank Offered Rate, or Libor, may have harmed households, raising the stakes on a scandal that thus far has been confined to Wall Street and the City of London.
There are at least 900,000 outstanding US home loans indexed to Libor that were originated from 2005 to 2009, the period the key lending gauge may have been rigged, investigators have said. Those mortgages carry an unpaid principal balance of $275bn, according to the Office of the Comptroller of the Currency, a bank regulator.
During periods when banks were allegedly attempting to push Libor higher, households with loans tied to the gauge may have paid higher rates than necessary. However, if the rate was manipulated lower, households may have benefited from paying below-market interest rates.
“I think the US government should be just as aggressive in getting to the bottom of this scandal as the United Kingdom has been,” said Senator Sherrod Brown, chair of the bank regulatory subcommittee on the Senate banking committee.
“This was not isolated to London, but affected tens of millions of investors, borrowers and taxpayers in our country as well,” Mr Brown added.
One area we hope will be investigated is the impact on TALF borrowing. Some of the loans were priced off Libor, raising the specter that the banks might have gamed the rates not just for advertising purposes, but to game these programs. From the Federal Reserve Bank of New York’s website:
The interest rate on TALF loans secured by ABS backed by federally guaranteed student loans will be 50 basis points over 1-month LIBOR. The interest rate on TALF loans secured by SBA Pool Certificates will be the federal funds target rate plus 75 basis points. The interest rate on TALF loans secured by SBA Development Company Participation Certificates will be 50 basis points over the 3-year LIBOR swap rate for three-year TALF loans and 50 basis points over the 5-year LIBOR swap rate for five-year TALF loans. For three-year TALF loans secured by other eligible fixed-rate ABS, the interest rate will be 100 basis points over the 1-year LIBOR swap rate for securities with a weighted average life less than one year, 100 basis points over the 2-year LIBOR swap rate for securities with a weighted average life greater than or equal to one year and less than two years, or 100 basis points over the 3-year LIBOR swap rate for securities with a weighted average life of two years or greater. For TALF loans secured by private student loan ABS bearing a prime-based coupon, the interest rate will be the higher of 1 percent and the rate equal to “Prime Rate” (as defined in the MLSA) minus 175 basis points. For other TALF loans secured by other eligible floating-rate ABS, the interest rate will be 100 basis points over 1-month LIBOR.
Note again that some of the loans were priced off one-month Libor, which per the Barclays disclosures, were among the maturities manipulated; these are clearly a place to start [..]
In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.
This is a big mistake, in terms of the economics at stake and the likely political impact.
The behavior at Barclays has all the hallmarks of fraud – intentional deception for personal gain, causing significant damage to others.
The Commodity Futures Trading Commission nailed the detailed mechanics of this deception in plain English in its Order Instituting Proceedings (which is also a settlement and series of admissions by Barclays). Most of the compelling quotes from traders involved in this scandal come from the commission’s order, but too few commentators seem to have read the full document. Please look at it now, if you have not done so already.
The commission’s order portrays a wide-ranging conspiracy (or perhaps a set of conspiracies) to rig markets, including, but not limited to, any securities for which the price is linked to a particular set of short-term interest rates.
This past weekend on Up with Chris Hayes, Chris and his panel guests discuss the rate rigging scandal.
Not only did they go native, they were hand picked by the same bank CEO’s that sit on the Federal Reserve board of directors. This is great article of how that works from Prof William K. Black, associate professor of economics and law at the University of Missouri-Kansas City, who explains some more of the reasons the TBTF banks need to be broken into smaller pieces.
Jessica Silver-Greenberg and Ben Protess have written an extraordinarily important column for the New York Times about embedded examiners at JPMorgan.
Embedded examiners’ are federal regulators whose normal work station is a desk at the bank. We only embed examiners for systemically dangerous institutions (SDIs) – banks so large that they pose a systemic risk to global economy.
Embedded examiners do not work. They get too close to the bank officers and employees. In the regulatory ranks we called this “marrying the natives.” Nothing works with SDIs – they are too big to manage, too big to fail, and too big to regulate. A conventional bank examination, scaled up to size to fit an SDI the size of JPMorgan would have 500 examiners and take 18 months to “complete.” (Obviously, when it takes that long to complete an examination it is impossible to “complete” an examination in any meaningful sense – by the time you’ve spent 18 months examining an SDI it can be a radically different bank.) One cannot conduct an effective conventional bank examination of even a medium-sized bank on a “real time” basis because of the amount of new information pouring in every minute. Conventional examinations examine a bank’s records and operations “as of” some date (typically the last quarter-end for which reports have been filed). Embedding examiners is an effort at achieving an “early warning” system. It has one virtue – it indicates that some senior regulator(s) recognized that they cannot rely on the bank’s own reports to determine whether it is steering toward trouble.
In fairness, twenty-five years ago the proponents of embedding recognize the severity of the “marrying the natives” problem. They simply viewed embedding as the least bad manner of attempting the impossible – effectively regulating SDIs. Here is the key passage of the NYT column.
Roughly 40 examiners from the Federal Reserve Bank of New York and 70 staff members from the Office of the Comptroller of the Currency are embedded in the nation’s largest bank. They are typically assigned to the departments undertaking the greatest risks, like the structured products trading desk. Even as the chief investment office swelled in size and made increasingly large bets, regulators did not put any examiners in the unit’s offices in London or New York, according to current and former regulators who spoke only on condition of anonymity.
Senior JPMorgan executives assured the bank’s watchdogs after the financial crisis that the chief investment office, with hundreds of billions in investments, was not taking risks that would be a cause for concern, people briefed on the matter said. Just weeks before the trading losses became public, bank officials also dismissed the worry of a senior New York Fed examiner about the mounting size of the bets, according to current Fed officials.
The authors of the article frame the issue as whether Jamie Dimon’s role as Director of the Federal Reserve Bank of New York poses a conflict of interest and could have led to the regulatory failure to place any examiners in the chief investment office (CIO). The CIO appears to be the largest de facto hedge fund in the world. (Note: “hedge fund” is a deliberately misleading term. Entities called hedge funds typically speculate rather than hedge. When I call the CIO a “hedge fund” I mean that it largely speculates and disingenuously calls its bets “hedges.”) [..]
SDIs are not simply dangerous, they are also inefficient. Shrinking the SDIs to the point where they no longer posed a systemic risk would also increase their efficiency, make them small enough to regulate, and help recover our democracy.
SDIs that function as banks pose intolerable risks to the global economy. SDIs that function as (thinly disguised) hedge funds should be far beyond the pale. Conservative and libertarian philosophy rightly condemn providing enormous federal subsidies to a private entity whose senior officers claim any wins and socialize any severe losses.
Extractionism: taking money from others without creating anything of value; anything that produces economic growth or improves our lives.
MSNBC talk show host, Dylan Ratigan has a new book, Greedy Bastards, coming out in January and has been promoting the premise of the book, how the banks have shaken down taxpayers, in a series of on-line pod casts. He recently interviewed Yves Smith, author of ECONned and proprietress of naked capitalism, gave Dylan an education of how the banks have been extracting capital for themselves and why investors are afraid to take them to court for fear the government will retaliate.
Under an extractionist system, we find lose value at a faster rate over time, while we need to be creating it. Instead of giving people incentives to make good deals where both sides can benefit, extractionist systems rewards those who take and take some more, and give nothing in return. Sadly, extractionism has crept its way into every aspect of our economy – it’s everywhere, from trade to taxes to banking.
Let’s take a look at banking as an example. As Yves Smith explains, financial firms do provide valuable services to our economy, like establishing stable and reliable methods of payment for goods and services, and selling bonds and stocks to help raise new money to fund big projects. There are more than that, of course, but those are two basic examples of valuable services that our banking and financial sector provides.
Now, let’s look at how they can also be extractive – almost always going back the lack of transparency in the financial markets.
Yves identifies two main extractive techniques of our financial industry. The first is charging too much for goods or services. “Even fairly sophisticated customers can’t know what the prices are of many of the products, so it’s difficult for them to do side-to-side comparisons,” says Yves.
The second method is producing products that are so complicated – like in the swaps market – that clients can’t see hidden risk in them. “This has unfortunately become extremely common now that we have a lot more use of derivatives. Many of the formulas that are used they are disclosed by they are extremely complicated, and then on top of that, the risk models that are commonly used for evaluating the risk actually understate the risk,” says Yves.
In the interview Yves makes suggestions how this can be fixed:
1. A small tax on all financial transactions. 2. Give financial institutions a bigger financial responsibility when they knowingly recommending bad products or dubious strategies. 3. We need increased political pressure for an effective and robust Securities and Exchange Commission. 4. More inspection of what the banks are doing in their over-the-counter businesses.
The full interview transcript is here.
Yes, we do need a Constitutional amendment to get money out of politics so this can be stopped.
h/t Yves Smith @ naked capitalism