Tag: ek Politics

Springtime for Bankers

Paul Krugman, The New York Times

MAY 18, 2014

By any normal standard, economic policy since the onset of the financial crisis has been a dismal failure.

…

Now Timothy Geithner, who was Treasury secretary for four of those six years, has published a book, “Stress Test,” about his experiences. And basically, he thinks he did a heckuva job.

…

How can people feel good about track records that are objectively so bad? Partly it’s the normal human tendency to make excuses, to argue that you did the best you could under the circumstances.

…

But there’s also something else going on. In both Europe and America, economic policy has to a large extent been governed by the implicit slogan “Save the bankers, save the world” – that is, restore confidence in the financial system and prosperity will follow. And government actions have indeed restored financial confidence. Unfortunately, we’re still waiting for the promised prosperity.

Much of Mr. Geithner’s book is devoted to a defense of the U.S. financial bailout, which he sees as a huge success story – which it was, if financial confidence is viewed as an end in itself.

…

One reason for sluggish recovery is that U.S. policy “pivoted,” far too early, from a focus on jobs to a focus on budget deficits. Mr. Geithner denies that he bears any responsibility for this pivot, declaring “I was not an austerian.” In his version, the administration got all it could in the face of Republican opposition. That doesn’t match independent reporting, which portrays Mr. Geithner ridiculing fiscal stimulus as “sugar” that would yield no long-term benefit.

But fiscal austerity wasn’t the only reason recovery has been so disappointing. Many analysts believe that the burden of high household debt, a legacy of the housing bubble, has been a big drag on the economy. And there was, arguably, a lot the Obama administration could have done to reduce debt burdens without Congressional approval. But it didn’t; it didn’t even spend funds specifically allocated for that purpose. Why? According to many accounts, the biggest roadblock was Mr. Geithner’s consistent opposition to mortgage debt relief – he was, if you like, all for bailing out banks but against bailing out families.

Tim Geithner, unreliable narrator

Felix Salmon, Medium

Published May 18, 2014

one thing has become generally-received wisdom about the book: whatever you might think of Geithner’s actions and opinions, he’s at least presenting himself in an honest and unvarnished manner. Michael Lewis describes this as a “near-superhuman feat”: “there’s hardly a moment in Geithner’s story when the reader feels he is being anything but straightforward,” he writes.

If Geithner isn’t being honest about his actions and the actions of others, then the whole book becomes much more problematic. And already critics on the right have, predictably enough, accused Geithner of lying.

Most of the time, such accusations boil down to a he-said-she-said about private conversations held in secret. But sometimes, Geithner makes simple declarations which are easily fact-checked.

…

Geithner at his most prescient and heroic. He enters a hidebound wood-paneled institution where coffee is brought to his desk on a silver tray while briefings involved precious little discussion or debate; and in his very first speech he decides to speak truth to entrenched financial power, trying to “push back against complacency” and warn against the rise of the shadow banking system.

But here’s the thing: we can read the speech, it’s archived on the Fed’s website. And so it’s pretty easy to tell whether Geithner did indeed try to push back against complacency, in his speech, and warn of the rise of the shadow banks.

Spoiler: he didn’t.

…

Geithner was saying that the shadow banking system is getting bigger, that the banks the NY Fed regulated were accounting for a smaller and smaller part of the total financial system - and that this was a positive development. Geithner wasn’t warning his audience about the risks of shadow banking, he was extolling it, on the grounds that it had “improved the capacity of our system to handle stress”!

…

This is a bright green light to all the bankers in the room, saying “go ahead with all your whiz-bang new innovative products, we think they’re great, even if we don’t really understand them or know how to regulate them, it’s our job to keep up with you, and we have people in Basel who are on it.” Not once did Geithner indicate that the financial system was getting too complex and that the Canadian approach of forcing banks to keep things simple was maybe a good idea. Instead, he embraced all of the complexity, and just said that the regulatory architecture would have to cope, somehow.

…

There are two big worrying things here. The first is that Geithner didn’t see the crisis coming at all, and indeed was something of a cheerleader for all of the dangerous activities that the banks were getting up to. The second, which is just as bad, is that with hindsight, Geithner sees this speech as being prescient and heroic - that it’s something to be proud of, rather than sheepishly ashamed of.

As I read the rest of Geithner’s book, then, I’m basically forced to treat the author as an unreliable narrator. Geithner might seem to be straight-up and guileless, but his report of this speech shows that he can remember things - even things which are easily found on the internet - in an extremely self-serving manner. Maybe that’s only to be expected, from a political memoir. But it’s disappointing, all the same.

Transcript

Transcript

Transcript

Transcript

The climate is apparently already affecting the United States, according to the latest scientific reports, and the IPCC report is saying that we are facing severe crisis as we move further into this century. Yet public policy is nowhere near catching up to the extent of the crisis.

The underlying economic crisis has not been dealt with. The issues that led to the financial collapse in 2008 have not been addressed. The issues of too-big-to-fail, the issue of massive financial speculation and gambling that triggered the crisis have not been mitigated in any serious way by legislation. And most predictions are we’re heading into another global, deep recession sooner than later.

Lawrence Wilkerson is a retired United States Army soldier and former chief of staff to United States Secretary of State Colin Powell.

Transcript

I think, your real question, who’s behind the White House, and who’s therefore behind U.S. foreign policy, more or less? I think the answer today is the oligarchs, which would be the same answer, incidentally, ironically, if you will, for Putin in Russia, the people who own the wealth, the people who therefore have the power and who more or less (and I’m not being too facetious here, I don’t think) buy the president and thus buy American foreign policy.

Transcript

Transcript

I’ll have a Brador, thanks.  And keep them coming.

And those Aussies.

Maybe a couple of Oil Cans now.

The truth of the matter is that each day of delay, as with Arctic drilling, makes the project more economically unfeasable and increases that the likelihood that Trans-Canada will give up and seek a better return for its money.

Keystone XL Pipeline Likely Not Headed for Senate Vote

The Real News Network

May 8, 2014

New York Public Library abandons controversial renovation plans

Jason Farago, The Guardian

Wednesday 7 May 2014 15.31 EDT

The move is a substantial and unexpected U-turn for the country’s second-largest library system, which for two years faced concerted protests from employees, library patrons, and architectural preservationists but insisted that its proposals were the only way forward. The Central Library Plan, as it was called, would have blasted open the stacks underneath the research branch’s upper reading room and exiled 1.5m books to a warehouse in New Jersey. Tony Marx, the library’s chief executive officer, had described the plan as one that would “replace books with people.” But many of the city’s researchers and writers, including Junot Diaz, Lydia Davis and Art Spiegelman, demonstrated against the plans – which they called everything from plutocratic to barbarous.

Four different lawsuits had been filed against the project, accusing the library both of endangering its purpose as a research institution and of damaging the architectural integrity of the central branch. In the landmark building, which opened in 1911 and was designed by the eminent architectural firm Carrère and Hastings, the reading room sits unusually at the top of the building, above massive stacks of books that are ferried to readers via a system of centralized elevators. The Central Library Plan would have broken open the stacks to create a lending library, designed by the British firm Foster & Partners, that would have featured sofas and computer banks but would have exiled most of the books to an underground storage facility or an offsite warehouse. (While the library published several schematic renderings, Foster’s full designs have never been revealed to the public.)

…

“I had no idea this was coming, but I never believed it wasn’t possible,” said Caleb Crain, author of the novel Necessary Errors and one of New York’s most consistent critics of the Central Library Plan. In 2012, Crain had advocated for a revised plan that would have retained the central branch as a research library and upgraded the sicklier Mid-Manhattan branch into a major lending institution. The NYPL, at the time, called that idea impossible. It now plans to do almost precisely what Crain proposed.

Much of the angry rhetoric surrounding the Central Library Plan concerned the possibilities of e-books and the supposed eclipse of printed volumes by digital media. But legal, rather than technological, obstacles would have made much of the NYPL’s collection inaccessible. “The vast majority of books were printed between 1923 and today, and every one of those remains in copyright,” said Crain. “For many we can’t make digital copies even if we wanted to. And the fact is that people absorb information better from printed paper than they do from screens. If you’re a researcher, the NYPL and the Library of Congress are the only two major libraries where you can work if you’re not a professor or a student.”

Charter Schools Gone Wild: Study Finds Widespread Fraud, Mismanagement and Waste

May 5, 2014

by Joshua Holland

Sabrina Joy Stevens, executive director of Integrity in Education, told BillMoyers.com, “Our report shows that over $100 million has been lost to fraud and abuse in the charter industry, because there is virtually no proactive oversight system in place to thwart unscrupulous or incompetent charter operators before they cheat the public.” The actual amount of fraud and abuse the report uncovered totaled $136 million, and that was just in the 15 states they studied.

(h/t Crooks & Liars)

Why Does Refusing to Put Fraudulent Banks into Receivership Help the Economy?

by William Black, New Economic Perspectives

Posted on April 30, 2014

Conservative economists love “creative destruction.” They can’t wait to “get their Schumpeter on” when a business fails and thousands of workers lose their jobs. There is no more “creative destruction” conceivable than when we put a bank that has become a fraudulent enterprise into receivership, remove the controlling officers leading the fraud, and sell the bank through an FDIC-assisted acquisition. Indeed, the pinnacle of creative destruction would be doing this with a systemically dangerous institution (SDI) through a process that split the supposedly “too big to fail” bank into smaller components that (1) were no longer large enough to pose a systemic risk, (2) were more efficient than the bloated SDI, (3) no longer extorted a large (implicit) government subsidy that made real competition impossible, and (4) no longer had dominant political power via crony capitalism. Unlike the situation in which an SDI collapses suddenly in the midst of causing a global crisis when its frauds cause a liquidity crisis, it is vastly easier to put fraudulent SDIs in receivership in today’s circumstances. Unlike Arthur Anderson, the receivership power allows us to keep the enterprise alive and create more competitors rather than fewer.

As I often remarked, it is a testament to the financial and moral sophistication of our successors as financial regulators relative to our primitive era that they have realized that keeping fraudulent CEOs in charge of our largest banks – and virtually never putting such banks into receivership however massive and damaging their serial felonies – is the key to achieving financial stability. Their system, it must be admitted, has proven far superior. GDP losses are merely far more than 100X greater in the current crisis than in the savings and loan debacle. The jihad against effective regulation and prosecution of elite control frauds has been an enormous success. The primary question is whether to classify the resultant epidemics of accounting control fraud as “unintended consequences” of the three “de’s” (deregulation, desupervision, and de facto decriminalization) or as a very “intended consequences.”

…

Lanny Breuer’s infamous “lamentations” speech (while head of DOJ’s Criminal Division) underscored how he fell hook, line, and sinker for the absurd claims of economists hired by today’s most elite fraudulent banksters that banks (and bankers!) should be “too big to prosecute.” By Breuer’s own bumbling admission, he lay awake at night for fear that his (always hypothetical) prosecutions of the major banks might “cause” a fraudulent bank to “fail.” This is, of course, heresy under the Schumpeterian creed of “creative destruction,” but theoclassical economists are very forgiving of their co-religionists who get rich by spreading heresy in the service of fraudulent elites.

Breuer was so bad that he obscured what we primitive regulators and white-collar criminologists had emphasized for decades. First, no banker is “too big to jail.” They are easily replaceable and removing a fraudulent bank CEO from power is the single most productive act that regulators and prosecutors can accomplish. Breuer and Attorney General Eric Holder were involved in a con when they claimed that their failure to prosecute the senior bank officers leading the frauds was in any way related to “too big to fail.” Hilariously, they even applied the “rationale” for non-prosecution to former bank officers – as if a bank would fail “because” its former officers were prosecuted. It is a testament to the weakness of the reportage that this claim was not treated with ridicule.

…

The Bush and Obama administration have already allowed the statute of limitations to run on vast numbers of frauds led by the CEOs of mortgage bankers and the 10 year statute of limitations applicable to federally insured banks (which we obtained in response to the S&L debacle) is rapidly running. The recent DOJ IG report documented the hollow nature of the FBI investigations related to the crisis. Even when the statute of limitations has not run it becomes very difficult to try “old” cases because of the loss of documents and memory and the feeling of judges and juries that the matter cannot have been terribly grave if the FBI ignored it for eight years. Even if Holder had a “Road to Damascus” conversion today and tried to prosecute the elite bank frauds that drove the crisis he would be far too late. The DOJ will commit its greatest strategic failure to uphold the rule of law. That does not mean that it could not bring a dozen prosecutions against the most destructive and fraudulent bank CEOs during the waning years of the Obama administration, but there is no evidence that the FBI is even investigating those frauds.

Instead, Holder has given up on prosecuting the CEOs that led the frauds that caused our crisis. The new DOJ press leak indicates that DOJ may charge two foreign banks with committing frauds unrelated to the financial crisis. This is hardly a major accomplishment, but it is all that Holder can bring himself to do so it was ballyhooed in “Deal Book” under this sad title “2 Giant Banks, Seen as Immune, Become Targets.”

…

Deal Book has written another article praising a moral and policy travesty. Read beyond the article’s propaganda and you will find that it actually contains admissions by senior DOJ officials confirming that our description of the disgraceful policies that we charged that DOJ and the anti-regulators were following was correct and confirming that our conclusion that such policies were deeply criminogenic had proved correct. Bharara admitted that the GBH Doctrine created a “gaping liability loophole that blameworthy [controlling bank officers] are only too willing to exploit.” Until we appoint regulators with the spines, integrity, brains, and courage to realize that our paramount function is to place banks led by frauds into receivership and end the CEO’s ability to lead a control fraud we will fail to have a sound banking system and we will fail to restore the rule of law.

Big Banks Erred Widely on Troubled Mortgages, U.S. Regulator Confirms

By MICHAEL CORKERY, The New York Times

April 30, 2014, 8:14 pm

The latest analysis found that at least 9 percent of the errors discovered in the review involved banks improperly denying loan modifications that would have prevented foreclosures. The report also found that more than half of the errors related to administrative flaws and improper fees charged to homeowners during the foreclosures process.

Last year, 15 financial institutions settled with banking regulators, making payments that totaled $3.9 billion to more than four million homeowners. The settlements ended the independent reviews, which had been costly and lengthy. As part of the deals, the banks agreed to pay the homeowners, regardless of whether they had been harmed.

…

Bank of America, for example, had reviewed only 6 percent of its files, revealing a financial error rate of 8.9 percent. Wells Fargo had examined about 9.6 percent of its records, finding an error rate of 11.4 percent.

…

Before the reviews, regulators discovered many problems with the way banks had handled foreclosures after the financial crisis, including bungled modifications and the practice of “robo-signing,” where reviewers signed off on mounds of foreclosure paperwork without verifying its accuracy. Other errors included wrongful foreclosures and improper fees charged to homeowners.

…

In particular, the Government Accountability Office, an auditing arm of Congress, said this week that regulators had not demanded specific terms for $6 billion in foreclosure prevention measures that the banks agreed to undertake, in addition to the $3.9 billion in cash pay outs to homeowners.

It also said the decision to cut short the review left regulators with limited information about actual harm to borrowers when they negotiated the $10 billion settlement.

Regulators had calculated a preliminary error rate of 6.5 percent for all the banks when they negotiated the settlements last year, according to the G.A.O.

…

It was one of the largest and most costly bank failures in American history. And the bank’s collapse could end up costing the F.D.I.C. even more money because of the Independent Foreclosure Review.

It is possible that the F.D.I.C. will have to cover at least some of the costs of the $8.5 million payouts, banking specialists said. Specifically, the F.D.I.C. could be responsible for any errors in the first three months of 2009 when the federal regulators owned IndyMac’s assets and ran its servicing operations, they said.

It’s Good – no – Great to be the CEO Running a Huge Criminal Bank

By William K. Black, New Economic Perspectives

April 29, 2014

Every day brings multiple new scandals.  At least they used to be scandals.  Now they’re simply news items strained of ethical content by business journalists who see no evil, hear no evil, and speak not about evil.  The Wall Street Journal, our principal U.S. financial journal ran two such stories today.  The first story deals with tax evasion, and begins with this cheery (and tellingly inaccurate) headline: “U.S. Banks to Help Authorities With Tax Evasion Probe.”  Here’s an alternative headline, drawn from the facts of the article: “Senior Officers of Goldman Sachs and Morgan Stanley Aided and Abetted Tax Fraud by Wealthiest Americans, Failed to Make Required Criminal Referrals, and Demanded Immunity from Prosecution for Themselves and the Banks before Complying with the U.S. Subpoenas: U.S. Department of Justice Caves in to Banker’s Demands Continuing its Practice of Effectively Immunizing Fraud by Most Financial Elites.”

Oh, and the feckless DOJ (again) did not require any officer who committed the felony of aiding and abetting tax fraud to resign or to repay the bonuses he “earned” through his crimes.  But not to worry, the banks – not the bankers – may have to pay fines as the cost of doing their felonious business.  The feckless regulators did not even require Goldman Sachs and Morgan Stanley to disclose to shareholders their participation in the program.

…

The context of this WSJ story is the broader series of betrayals of homeowners by the regulators and prosecutors led initially by Treasury Secretary Timothy Geithner and his infamous “foam the runways” comment in which he admitted and urged that programs “sold” as benefitting distressed homeowners be used instead to aid the banks (more precisely, the bank CEOs) whose frauds caused the crisis.  The WSJ article deals with one of the several settlements with the banks that “service” home mortgages and foreclose on them.  Private attorneys first obtained the evidence that the servicers were engaged in massive foreclosure fraud involving knowingly filing hundreds of thousands of false affidavits under (non) penalty of perjury.  As a senior former AUSA said publicly at the INET conference a few weeks ago about these cases – they were slam dunk prosecutions.  But you know what happened; no senior banker or bank was prosecuted.  No banker was sued civilly by the government.  No banker had to pay back his bonus that he “earned” through fraud.

…

Everyone involved in the faux foreclosure review – the “consultants” hired who to do the review, the mortgage servicers, the (non) regulators, and the GAO performed abysmally.  The “review” was an expensive farce.  The regulators did not conduct the review.  The servicers did not conduct the review.  The consultants were chosen by the servicers, which the regulators should never have allowed.  The consultants were allowed to have additional conflicts of interest such as having worked on the loan foreclosures they were reviewing.  The “design” of the (non) study was an embarrassment.  The (non) study collapsed almost immediately because it turned out that many of the servicers’ files were so pathetic that the study “design” could not be followed.  Rather than stop and reconsider the implications of those file defects for the likelihood that the servicers engaged in fraud in order to foreclose the regulators decided to continue.  The more severe the file defects the greater the incentive of servicers to engage in foreclosure fraud.

The consultants were soon hopelessly behind schedule and budget because of the severity of the loan file defects.  Eventually, the (non) regulators gave up and brought the (non) study to an end, not with a bang but with a whimper.  Real regulators would have had great negotiating leverage.  The servicers had agreed to conduct the study and failed.  It would cost the servicers more to complete the review than simply boost the payout by several billion dollars.  The two obvious answers were to continue the study and order interim payouts or to stop the study and in return for a significantly larger payout to homeowners.  Naturally, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve found a third, far worse choice.  They left the cash on the table that could have gone to the homeowners.  The GAO was no stronger.  They do agree that the OCC and the Fed left billions on the table but they also give them a pass, saying that the settlement is in the “range” that would emerge from the regulators assumed rate of bad foreclosures.  The problem, as the facts disclosed in the GAO’s report make clear, but GAO’s analysis ignores, is that the regulators’ assumed rate of bad foreclosures had no reliable basis and was proven to be far too low an estimate by the fact that the loan files were so incomplete that the consultants could not complete the study.  So, there is no reliable basis for GAO’s claim that there is any “range” of reasonableness for the payments to homeowners.

Two Giant Banks, Seen as Immune, Become Targets

By BEN PROTESS and JESSICA SILVER-GREENBERG, The New York Times

April 29, 2014, 8:40 pm

Federal prosecutors are nearing criminal charges against some of the world’s biggest banks, according to lawyers briefed on the matter, a development that could produce the first guilty plea from a major bank in more than two decades.

In doing so, prosecutors are confronting the popular belief that Wall Street institutions have grown so important to the economy that they cannot be charged. A lack of criminal prosecutions of banks and their leaders fueled a public outcry over the perception that Wall Street giants are “too big to jail.”

…

The new strategy underpins the decision to seek guilty pleas in two of the most advanced investigations: one into Credit Suisse for offering tax shelters to Americans, and the other against France’s largest bank, BNP Paribas, over doing business with countries like Sudan that the United States has blacklisted. The approach applies to American banks, though those investigations are at an earlier stage.

First, I’ll believe it when I see it.

Second, where are Bank of America, Citigroup, Goldman Sachs, JP Morgan, or Wells Fargo?  Is this just a protectionist assault of foriegn owned institutions?

Why Only One Top Banker Went to Jail for the Financial Crisis

By JESSE EISINGER, The New York Times Magazine

APRIL 30, 2014

American financial history has generally unfolded as a series of booms followed by busts followed by crackdowns. After the crash of 1929, the Pecora Hearings seized upon public outrage, and the head of the New York Stock Exchange landed in prison. After the savings-and-loan scandals of the 1980s, 1,100 people were prosecuted, including top executives at many of the largest failed banks. In the ’90s and early aughts, when the bursting of the Nasdaq bubble revealed widespread corporate accounting scandals, top executives from WorldCom, Enron, Qwest and Tyco, among others, went to prison.

Continue reading the main story

The credit crisis of 2008 dwarfed those busts, and it was only to be expected that a similar round of crackdowns would ensue. In 2009, the Obama administration appointed Lanny Breuer to lead the Justice Department’s criminal division. Breuer quickly focused on professionalizing the operation, introducing the rigor of a prestigious firm like Covington & Burling, where he had spent much of his career. He recruited elite lawyers from corporate firms and the Breu Crew, as they would later be known, were repeatedly urged by Breuer to “take it to the next level.”

But the crackdown never happened. Over the past year, I’ve interviewed Wall Street traders, bank executives, defense lawyers and dozens of current and former prosecutors to understand why the largest man-made economic catastrophe since the Depression resulted in the jailing of a single investment banker – one who happened to be several rungs from the corporate suite at a second-tier financial institution. Many assume that the federal authorities simply lacked the guts to go after powerful Wall Street bankers, but that obscures a far more complicated dynamic. During the past decade, the Justice Department suffered a series of corporate prosecutorial fiascos, which led to critical changes in how it approached white-collar crime. The department began to focus on reaching settlements rather than seeking prison sentences, which over time unintentionally deprived its ranks of the experience needed to win trials against the most formidable law firms. By the time Serageldin committed his crime, Justice Department leadership, as well as prosecutors in integral United States attorney’s offices, were de-emphasizing complicated financial cases – even neglecting clues that suggested that Lehman executives knew more than they were letting on about their bank’s liquidity problem. In the mid-’90s, white-collar prosecutions represented an average of 17.6 percent of all federal cases. In the three years ending in 2012, the share was 9.4 percent.

Why Wall Streeters Don’t Go To Jail

Linette Lopez, Business Insider

4/30/2014

(H)ere are five things you need to know about what Eisinger found in his reporting.

1. There’s a pendulum swing thing going on here. The white-collar guys at the DOJ were inspired by their colleagues who took down the mob. That’s why when a man who had worked under Rudy Giuliani named Michael Chertoff became the criminal chief of the DOJ in 2001, the agency was ready for war.
2. When Chertoff went after Arthur Anderson hard for its role in disguising Enron’s fraud, there was a backlash. Corporate America, and even some prosecutors, thought Chertoff had overstepped his bounds.
3. Corporate attorneys started figuring out ways to protect their clients. They were trying to counter the ‘Thompson Memo’, a strategy written by then-Deputy Attorney General Larry Thompson. Basically he gave corporations carrots for rolling back the attorney client privileges that protected them. Because of the backlash, however, the memo has been all but rolled back, according to Eisinger.
4. In 2003 there was a turning point. The Fed stepped in while the DOJ was prosecuting PNC Financial Services, and asked for a meeting with Chertoff, where Chertoff told then-Fed official Herbert Biern that: “if the DOJ ‘can’t bring these cases because it may bring harm, then maybe these banks are too big.'” Sound familiar?
5. After that, they deferred and non-prosecution agreements started pouring out of the DOJ. There were 242 from 2004-2012. There had been 26 in the previous 12 years.