Charged with regulating Wall Street, the Securities and Exchange Commission (SEC) has become a launching pad for former agency employees—by the hundreds—to become part of the industry they once oversaw.
The study also found numerous other concerns with the “revolving door” between the SEC and financial firms. These included agency workers trying to help corporations influence agency regulations, defending companies suspected of breaking the law, and helping them avoid tougher enforcement actions.
Perhaps the most high-profile concern in this arena is President Obama’s nomination of Mary Jo White to become the new SEC chief. During her most recent job at the firm of Debevoise & Plimpton, White’s clients included JPMorgan Chase, General Electric, Verizon Communications, former Bank of America chief executive Kenneth Lewis, and Rajat Gupta, the former Goldman Sachs board member convicted of insider trading.
“The revolving door is moving faster than ever,” Senator Charles Grassley (R-Iowa) said after reading POGO’s findings. “The SEC has to fix this problem once and for all. That involves more disclosure, more meaningful restrictions, and top-to-bottom application of the rules without waivers that make any restrictions meaningless.”
After a year and a half of bungled work and plenty of criticism, the Obama administration decided to close down its review of mortgage fraud this week and order banks to pay a sum that consumer advocates say falls short of what’s fair.
The Independent Foreclosure Review was established 18 months ago to vet how banks handled home foreclosures and to compensate Americans for any wrongdoing.
In the end, federal regulators decided on an $8.5 billion settlement that banks must pay. But of this total, only $3.3 billion is actual cash, while another $5.2 billion represents “credits” that financial institutions will receive for avoiding future foreclosure.
The $3.3 billion in funds will be distributed to about 3.8 million borrowers who were eligible to have their foreclosures reviewed. That amounts to approximately $870 per homeowner.
The Office of the Comptroller of the Currency, one of the federal regulators that managed the review and negotiated the new settlement, would not reveal to the media how it decided on the $3.3 billion figure.
As for the review itself, the process was wrought with problems, starting with the fact that banks were allowed to hire “independent” consultants to review mortgage files—consultants who often turned out to have business relationships with the banks they were reviewing, thus creating potential conflicts of interest.
In what the New York Times declared as a “dark day for the rule of law” on December 11, 2012, HSBC, the world’s second largest bank, failed to be indicted for extensive criminal activities in laundering money to and from regimes under sanctions, Mexican drug cartels, and terrorist organizations (including al-Qaeda). While admitting culpability, and with guilt assured, state and federal authorities in the United States decided not to indict the bank “over concerns that criminal charges could jeopardize one of the world’s largest banks and ultimately destabilize the global financial system.” Instead, HSBC agreed to pay a $1.92 billion settlement.
The fear was that an indictment would be a “death sentence” for HSBC. The U.S. Justice Department, which was prosecuting the case, was told by the U.S. Treasury Department and the Federal Reserve that taking such an “aggressive stance” against HSBC could have negative effects upon the economy. Instead, the bank was to forfeit $1.2 billion and pay $700 million in fines on top of that for violating the Bank Secrecy Act and the Trading with the Enemy Act. In a statement, HSBC’s CEO stated, “We accept responsibility for our past mistakes… We are committed to protecting the integrity of the global financial system. To this end, we will continue to work closely with governments and regulators around the world.” With more than $7 billion in Mexican drug cartel money laundered through HSBC alone, the fine amounts to a slap on the wrist, no more than a cost-benefit analysis of doing business: if the ‘cost’ of laundering billions in drug money is less than the ‘benefit,’ the policy will continue.
As part of the settlement, not one banker at HSBC was to be charged in the case. The New York Times acknowledged that, “the government has bought into the notion that too big to fail is too big to jail.” HSBC joins a list of some of the world’s other largest banks in paying fines for criminal activities, including Credit Suisse, Lloyds, ABN Amro and ING, among others. The U.S. Assistant Attorney General Lanny A. Breuer referred to the settlement as an example of HSBC “being held accountable for stunning failures of oversight.” Lanny Breuer, who heads the Justice Department’s criminal division, which was responsible for prosecuting the case against HSBC, was previously a partner at a law firm (along with the U.S. Attorney General Eric Holder) where they represented a number of major banks and other conglomerates in cases dealing with foreclosure fraud. While Breuer and Holder were partners at Covington & Burling, the firm represented notable clients such as Bank of America, Citigroup, JP Morgan Chase and Wells Fargo, among others. It seems that at the Justice Department, they continue to have the same job: protecting the major banks from being persecuted for criminal behaviour.
With a great deal of focus on the $1.9 billion in fines being paid out by HSBC, little mention was made of the fact that HSBC had roughly $2.5 trillion in assets, and earned $22 billion in profits in 2011. But not to worry, HSBC’s executive said that they “accept responsibility for our past mistakes,” and added: “We have said we are profoundly sorry for them, and we do so again.” So not only did the executives of the world’s second largest bank apologize for laundering billions in drug money (along with other crimes), but they apologized… again. Thus, they pay a comparably small fine and face no criminal charges. I wonder if a crack dealer from a ghetto in the United States could avoid criminal prosecution if he were to apologize not once, but twice. Actually, we don’t have to wonder. In May of 2012, as HSBC executives were testifying before the U.S. Senate in Washington D.C., admitting their role in drug money laundering, a poor black man was convicted of peddling 5.5 grams of crack cocaine just across the river from the U.S. Capitol building, and he was given 10 years in prison.
Back in August the bank stated that they had put aside $700 million to pay fines for illegal activities, which conveniently was the exact amount they were fined by the U.S. Justice Department (not including the forfeiture of profits). Lanny Breuer declared the settlement to be “a very just, very real and very powerful result.” Indeed, one could agree that the results are “powerful” and “very real,” in that they provide a legal state-sanctioned decision that big banks will not be prosecuted for their vast criminal activities, precisely because they are big banks. The “very real” result of this is that we can guarantee that such criminal behaviour will continue, since the banks will continue to be protected by the state. With news of the settlement, HSBC’s market share price rose by 2.8%, a clear sign that “financial markets” also reward criminal behaviour and the “pervasively polluted” culture at HSBC (in the words of the U.S. Senate report).
Jack Blum, a Washington attorney and former special counsel for the Senate Foreign Relations Committee who specializes in money laundering and financial crimes stated that, “If these people aren’t prosecuted, who will be?” He further asked: “What do you have to do to be prosecuted? They have crossed every bright line in bank compliance. When is there an offense that’s bad enough for a big bank to be prosecuted?” But the Justice Department’s Lanny Breuer explained that his department had to consider “the collateral consequences” of prosecutions: “If you prosecute one of the largest banks in the world, do you risk that people will lose their jobs, other financial institutions and other parties will leave the bank, and there will be some kind of event in the world economy?”
In other words, the U.S. Justice Department decided that big banks are above the law, because if they weren’t, there would be severe consequences for the financial system. And this is not just good news for HSBC, the “favourite” bank of Mexican drug cartels (according to Bloomberg), but it’s good news for all banks. After all, HSBC is not the only bank engaged in laundering drug money and other illegal activities. Back in 2010, Wachovia (now part of Wells Fargo) paid roughly $160 million in fines for laundering some $378.4 billion in drug money. Drug money has also been found to be laundered through other major financial institutions, including Bank of America, Banco Santander, Citigroup, and the banking branch of American Express. Nearly all of the world’s largest banks have been or are currently being investigated for other crimes, including rigging interest rates (in what’s known as the Libor scandal), and other forms of fraud. Among the banks being investigated for criminal activity by U.S. prosecutors are Barclays, Deutsche Bank, Citigroup, JP Morgan Chase, Royal Bank of Scotland, UBS, Bank of America, Bank of Tokyo Mitsubishi, Credit Suisse, Lloyds, Rabobank, Royal Bank of Canada, and Société Générale, among others. Regulators and investigators of the Libor scandal – “the biggest financial scandal ever” – report that the world’s largest banks engage in “organized fraud” and function like a “cartel” or “mafia.”
The pervasive criminality of this “international cartel” is so consistent that one commentator with the Guardian has referred to global banks as “the financial services wing of the drug cartels.” But indeed, where could be a better place for drug cartels to deposit their profits than with a financial cartel? And why would banks give up their pivotal role in the global drug trade? While the pharmaceutical drug industry records annual revenues in the hundreds of billions of dollars (which is nothing to ignore), the global trade in illicit drugs, according to the United Nations Office on Drugs and Crime, amounted to roughly 2.3-5.5% of global GDP, around $2.1 trillion (U.S.) in 2009. That same year, the same United Nations office reported that billions of dollars in drug money saved the major global banks during the financial crisis, as “the only liquid investment capital” pouring into banks. Roughly $325 billion in drug money was absorbed by the financial system in 2009. It is in the interest of banks to continue profiting off of the global drug trade, and now they have been given a full green light by the Obama administration to continue.
Welcome to the world of financial criminality, the “international cartel” of drug money banks and their political protectors. These banks not only launder billions in drug money, finance terrorists and commit massive fraud, but they create massive financial and economic crises, and then our governments give them trillions of dollars in bailouts, again rewarding them for creating crises and committing criminal acts. On top of that, we, the people, are handed the bill for the bailouts and have to pay for them through reduced standards of living by being punished into poverty through ‘austerity measures’ and have our labour, resources, and societies exploited through ‘structural reform’ policies. These criminal banks dominate the global economy, and dictate policies to national political oligarchies. Their greed, power, and parasitic nature knows no bounds.
The fact that the Justice Department refused to prosecute HSBC because of the effects it could have on the financial system should be a clear sign that the financial system does not function for the benefit of people and society as a whole, and thus, that it needs to be dramatically changed, cartels need to be destroyed, banks broken up, criminal behaviour punished (not rewarded), and that people should dictate the policies of society, not a small network of international criminal cartel banks.
But then, that would be rational, so naturally it’s not even up for discussion.
Why the banks must be nationalized
Since September 15, 2008 the United States economy has been like a ticking time bomb with the unregulated activities of the banks the fuse that is slowly burning. This fuse has affected the international banking system and while citizens of the United States are focused on an electoral contest, the issues of the future of the U.S banking system, the future of the dollar and the future of the Euro are bringing home the reality of the capitalist depression. Two weeks ago, Paul Krugman released a book entitled, End this Depression Now. This book sought to galvanize action by the US government to stimulate the economy based on the twentieth century Keynesian ideas of stimulating growth. Increasingly, it is becoming clearer that far more drastic political measures will be needed if the international financial system is to be protected from the gambling of the top bankers in the United States. Wealth creation and a new economic system are needed to meet the needs of human beings.
This reality was brought home last Thursday, May 10, when it was revealed that J. P Morgan Chase, the largest bank in the United States had been involved in the most risky type of speculative trading that was not supposed to be undertaken by a federally insured depository institution. The nature of the speculative trading is still covered up by the media but from what has been coming out there were bets placed by a derivative trader who was placing US$100billion bets that the US economy would recover. One report called the operation ‘trades in the synthetic derivatives hedging business.’
Whether this is the real cause of the attention to JP Morgan Chase will only come to light when the media and the representatives of the people call for the removal of Jamie Dimon, the CEO of this bank and takes over the bank. While the information on the $3 billion loss is as opaque as the business world of the financial system, the nature of the risk that was being undertaken is reserved exclusively for the big banks and offers multi- million dollar profits in this ether world that is called financial capitalism.
JPMorgan Chase is currently one of the biggest banks in the world supposedly with $2.1 trillion in assets and more than 239,000 employees. I used the word ‘supposedly’ because JP Morgan Chase was one of the recipients of more than$26 billion of Troubled Asset Relief Program (TARP) funds after the collapse of Lehman Brothers and the American International Group (AIG) in September 2008. Troubled Assets was the term coined by the US government to hide from the world the state of the insolvency of the US banking system where the big banks had overextended themselves in the housing bubble issuing what was then called mortgage backed securities. These banks are still mired in the toxic mess from the orgy of speculation of that era and JP Morgan compounded its own risky position by taking over the bad bank, Washington Mutual.
The Bank JP Morgan Chase grew bigger and riskier after absorbing two of the failed banks at the center of the MBS debacle. JPS acquired Bears Stearns and Washington Mutual. Hence on top of its own involvement in the casino economy, JP Morgan Chase had taken on two failed banks in an attempt to save the US financial system.
The Tarp instrument was the means through which the US government had ‘bailed out the banks and investment houses in 2008. JP Morgan Chase was involved in the same credit default swaps (CDS) that was at the core of the gambling that brought down the system in 2008. The speculative activities of the Banks have increased since 2008 and now the press is seeking to lay the blame on one derivatives trader in London. According to the media, speculation by a derivatives trader in London has produced a $2 billion trading loss for JP Morgan Chase. It is still not clear the extent of the loss but we know that it is in the same category as the losses at MF Global last year. These losses add to the scandal after scandal and are supposed to be on par with the other debacles of 2008 when two major Wall Street institutions, Bear Stearns and then Lehman Brothers went bankrupt. This year the progressive forces must renew the call for the nationalization of the big banks which are supposed to be too big to fail.
THE ARROGANCE OF THE BIG BANKS
The rise and impending collapse of J P Morgan Chase is a cautionary tale about the fortunes (or currently misfortunes ) of the US banking system. Older readers will remember the name Chase Manhattan Bank and the era when David Rockefeller and this bank stood at the apex of US capitalism. Today Chase Manhattan no longer exists and has been absorbed through the mergers and acquisitions of the years of neo-liberal capitalism. Then there was the other major US capitalist whose fortunes were made when there were the most brutal forms of exploitation of workers. This was the banker and industrialist, John Pierpont Morgan. The career of JP Morgan was symbolic of the merger of industrial and bank capital to create financial capitalism at the turn of the twentieth century. Today at the start of the 21st century JP Morgan Chase is the result of the combination of several large U.S. banking companies over the last decade including Chase Manhattan Bank, J.P. Morgan & Co., Bank One, Bear Stearns and Washington Mutual. Going back further, the predecessors of the current banking behemoth include major banking firms among which are Chemical Bank, Manufacturers Hanover, First Chicago Bank, National Bank of Detroit, Texas Commerce Bank, Providian Financial and Great Western Bank.
JP Morgan Chase is a textbook case of what happened to US banks during the era of neo-liberalism when the Glass Steagall Act was repealed separating investment banking from federally insured deposit banks. Much attention has been paid to the two poster children of the new casino type operators who claim to be bankers, Jamie Dimon of JP Morgan Chase and Lloyd Blankfein of Goldman Sachs. These two are just at the top of the massive political structure that squeezes the mass of the citizens of the world for the top 1 per cent. In the book ‘13 Bankers: The Wall Street Takeover and the Next Financial Meltdown’, the authors Simon Johnson and James Kwak have detailed the evolution of the neo-liberal world that was spun by these bankers. According to Johnson and Kwak, the bankers created new money machines with new schemes such as securitization, high yield debt, arbitrage trading and derivatives. On top of these serial innovations we now have a new one called value at risk. Later we will be told what is synthetic derivatives hedging business. These “serial innovations created the new money machines that fueled the rapid, massive growth in the size, profitability and wealth of the financial sector over the last three decades.”
It is the accrued power of these bankers that now threatens the global system of capitalism. After the tremors of the financial markets in 2008 these same banks that called for deregulation called for bail outs because they were too big to fail. For a while, there had been word of the depth of the hole in other banks and we are still waiting for the information on Bank of America which is still under wraps with Wikileaks. Only two months ago, the Federal Reserve completed a “stress test” of the 19 largest US banks, which gave all of them a green light in terms of solvency and approved increased dividends or stock buybacks for 15 of the 19 banks. This exposure of JP Morgan exposes the fraud of the so called stress tests.
Although the banking system was propped up and we are informed in the media that these banks recently passed ‘stress tests,’ the news about the risky bets of JP Morgan is a stark reminder that the time bomb is ticking. Since that fateful week in September 2008, far from resolving the crisis of the US financial system, the bailout of Wall Street that had been orchestrated by the Federal government has resulted in a further centralization of financial assets in a handful of giant institutions that dominate American society. The further centralization now means that five of the 13 banks—JP Morgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs — held $8.5 trillion in assets at the end of 2011. The big five have increased their viselike grip on the US economy over the past five years: in 2006, their financial holdings amounted to 43 percent of US gross domestic product. By the end of 2011, that figure had risen to 56 percent.
JP MORGAN AT THE FOREFRONT OF OPPOSING REGULATION
JP Dimon is the CEO of JP Morgan Chase. He has been the most active among the bankers in manipulating the system playing both sides of the political game and arguing against the regulation of the banks. Jamie Dimon was paid over US $23 million last year and now it is coming out that it is the accounting scams that produced the paper profits that enabled the big bonuses for Dimon and the traders who were urged to make riskier bets. Dimon has been the most active in the press and in his visits to the Obama White House. He has argued for the ‘markets’ to take their course when his bank has been in operation in a world that is beyond the reach of markets. While the world of these bankers is beyond the ‘market’ these are the financiers who promote the myth that the development of a generalized market (the least regulated possible) and democracy are complimentary to one another. The same bankers who argue that the economic sphere and the political sphere are separate and that the market does not need the state are the same bankers who are expending billions to lobby so that the limited regulations proposed by the Dodd-Frank legislation of 2010 are not affected. The Dodd-Frank legislation included one particular clause called the Volcker rule that was supposed to ban proprietary trading by the lords of the universe.
Jamie Dimon has been described by Barack Obama as one of the smartest bankers in the United States. Obama was simply exposing the subservience of the federal government to the bankers who are the same group pouring millions into both campaigns. The bankers are ensuring that whichever party wins in November, the US banking system will be protected. Barack Obama timidly called for regulating JP Morgan while actively engaging the soliciting of funds from one of the most notorious ‘private equity’ firms in New York. The close relationship between the private equity firms and the bankers constitute the power of the top one per cent and the US government acts to serve this one per cent. After the big scare of 2008 there was fear internationally that there would be a run on the dollar. It was this fear that induced the members of the US government to pass the Dodd-Frank Legislation to prevent the obscene conflict of interest of the banks and investment houses. The expedient which was supposed to prevent the conflict of interest was the Volcker rule, named after the former Treasury Secretary of an era before financialization. The rule placed trading restrictions on financial institutions. In the 2010 legislation, the Volcker rule separates investment banking, private equity and proprietary trading (hedge fund) sections of financial institutions from their consumer lending arms. Banks are not allowed to simultaneously enter into an advisory and creditor role with clients, such as with private equity firms. The Volcker rule aims to minimize conflicts of interest between banks and their clients through separating the various types of business practices financial institutions engage in.
JP Dimon has been the leader in opposing the Volcker rule because his organization has been at the forefront of the practice where a hedge fund is operating inside a commercial bank. Commercial banks are federally insured and are different from investment banks. Under the rules of the so called market, bankers are not supposed to take deposits from customers and then use the same deposits to make speculative bets. This was not supposed to happen but when the banks became huge money machines, they operated above the law. This is how a bank such as JP Morgan controls assets that are worth 20 per cent of the GDP of the USA.
BANKS MUST BE NATIONALIZED
Jamie Dimon sits on the Board of the Federal Reserve of New York. This is the most important position of the US financial system because this is the reserve system that holds the foreign reserves of 60 per cent of the economies of the world. JP Morgan Chase is a particularly critical financial institution, since in addition to its vast holdings; it serves as one of the two main clearing banks in New York City, along with Bank of New York Mellon, handling financial transactions for all other banks. Any challenge to its solvency immediately puts a question mark over the whole financial system. Central bankers all over the world are following with interest the call for Jamie Dimon to be removed from the Board of the Federal Reserve of New York because of conflicts of interest. The Federal Reserve Bank of New York carries out foreign exchange-related activities on behalf of the Federal Reserve System and the U.S. Treasury. In this capacity, the bank monitors and analyzes global financial market developments, manages the U.S. foreign currency reserves, and from time to time intervenes in the foreign exchange market. The bank also executes foreign exchange transactions on behalf of customers.
Tim Geithner now Treasury Secretary was the former President of the Federal Reserve Board of New York. It was under Geithner when billions were handed over to the bankers after 2008. Then Geithner was trying to save the US financial system so that foreigners will not pull their reserves out of the dollar. As Treasury Secretary, Geithner was reported to have had secret meetings with Jamie Dimon in March this year when news first surfaced of the synthetic trades.
Elizabeth Warren, now running for a Senate seat in Massachusetts, has called for the resignation of Jamie Dimon from the Federal Reserve Board of New York. Every citizen will understand that there is a conflict of interest [involved in] sitting on a board that is supposed to regulate the operations of JP Morgan Chase. But conflict of interest has never been a problem for the US capitalists. They changed the rules to suit themselves. However, this was before the era when other societies had alternatives. From China to Venezuela and from Argentina to Japan, central bankers are seeking ways to exit from the contagion of the speculative trading of US bankers.
Last year the world was exposed to the realities of the insolvency of the US financial system when there was the debate on the debt ceiling. Now it has been revealed that the debt ceiling will have to be raised again. This is sending shudders down the spine of financial institutions around the world.
The political struggles over the future of the US financial system are maturing. In order to pre-empt utter disaster the President of the Federal Reserve Bank of Dallas has called for the big banks to be broken up. The big banks continue to act on the assumption that the US dollar will be the reserve currency of international trade, especially now that the Euro is in disarray. These big banks are of the view that the US government will continue the devaluation of the US dollar without a response from the rest of the world. It is this understanding which has influenced the bankers to believe that the US government will intervene to bail them out when they make speculative bets that the US economy will improve. Many refuse to accept that this is a depression.
Sober elements understand that the banks must be broken up and this was stated explicitly in the annual report of the Federal Reserve Bank of Dallas. The letter from the head of the Dallas Federal Reserve is entitled, Choosing the Road to Prosperity Why We Must End Too Big to Fail—Now. In this letter, Richard Fisher from the Dallas Federal Reserve argues that the situation of the big banks is a disaster in waiting. Fisher would force the big banks to reorganize and get much smaller. And he would require “harsh and non-negotiable consequences” for any bank that ends in trouble and seeks government aid, including removal of its leaders, replacement of its board, voiding all compensation and bonus contracts and clawing back any bonus compensation for the two previous years.
It is now understood by these sober elements in the USA that the Big Banks may be not only too big to fail, but also too big to save.
The politicians in the USA are compromised and refuse to see the reality. It is the task of the progressive forces to keep the discussions on the JP Morgan losses on the table in order to educate the people on the nature of the depression. The major media houses such as the New York Times are attempting to manage this story saying that this $3-4 billion loss is a drop in the bucket. From the financial papers there is the buzz that one’s loss is another person’s gain. This is cold comfort to the poor all over the world who are suffering in the midst of this depression. In 2008 the government socialized the losses while the profits were privatized. The bailout was one of the biggest transfers of wealth from the poor of the world to the rich. These bankers now need another bail out and the US government will have to increase the debt ceiling.
For the moment the Occupy Wall Street Movement has made it impossible for the government to bail out the banks again. However, far from bailing out the bankers, speculators such as Corzine of MF Global and Jamie Dimon should be prosecuted. It is not enough to say that what JP Morgan was doing was inappropriate from a federally insured depository institution. It is time for the people to call for these banks to be taken over and the big bankers removed.
It is now time for audacity and more audacity. Nationalization and political education at the moment is more important than the elections. Bankers like JP Morgan profit from war and these forces want another big war so that the capitalists can recover. The peace and justice forces must be more vigilant. The JP Morgan Chase debacle heightens the desperation of the top one per cent in the USA.
- The Need For An Independent Investigation Into JP Morgan Chase (baselinescenario.com)
Gasoline and heating oil prices are ratcheting up. In California, some motorists are paying over $5 per gallon. President Obama declared that “there is no quick fix” for this problem. Meanwhile, the hapless but howling Republicans are blaming him for the fuel surge as if he is a price control czar.
Indeed, President Obama has some proper power to cool off retail petroleum prices. David Stockman, President Ronald Reagan’s Budget Director, said it plainly on CNN last week, “Stop beating the war drums right now [against Iran], and Obama could do that, and he could say the neocons are history.” Having done his stint on Wall Street, Stockman knows that war talk by the war hawks inside and outside of our government is just what the speculators on the New York Mercantile Exchange want to hear as they bid up the price. Your gasoline prices are not charging up due to strains between supply and demand. Speculation, with those notorious derivatives and swaps, is what is poking larger holes in your fuel budget, according to Securities and Exchange Commission enforcement lawyers. The too-big-to-fail Wall Street gamblers – Goldman Sachs, JP Morgan Chase, Bank of America, Merrill Lynch, and Morgan Stanley – are at it again.
Dr. Mark Cooper of the Consumer Federation of America documented that speculation added $600 to the average family’s gasoline expenditures in 2011. Earlier, the head of Exxon/Mobil estimated that speculation was responsible for over $40 per barrel in price increase at a time when oil was more than $100 per barrel.
Last June, the Commodity Futures Trading Commission (CFTC) Chairman, Gary Gensler, declared in New York City that “huge inflows of speculative money create a self-fulfilling prophecy that drives up commodity prices.”
Mr. Gensler and the CFTC received more legislated authority to police these Wall Street gamblers, but key members of Congress refused to give him a budget to, in his words, “be a more effective cop on the beat,” at a time of sharply-increasing trading volume. Congressional campaign budgets are being swelled by campaign contributions from those very Wall Street gamblers. This is called “cash-register politics.” Meanwhile, you the people pay and pay at the pump and wonder why no one is doing anything about it.
But an inadequate budget only explains part of Mr. Gensler’s problems. He is continually undermined by other CFTC Commissioners who do not want real enforcement action. He also seems to be wearing down under the pressure.
Back in the 1970s, a sudden increase in gasoline prices – even a few cents – led to an uproar among consumers and demands for regulation, price controls and other government action. Now that the New York Mercantile Exchange, with its big banking and hedge fund speculators loading up on fat profits and bonuses is right here in the U.S., officials are throwing up their hands saying “there are no quick fixes.”
Yet by the constant Israeli-Obama-Hillary Clinton-Congressional-AIPAC belligerent talk about Iran developing a capability to produce nuclear weapons is provoking Tehran’s warnings about the Straits of Hormuz, and the oil price speculators are having a field day with your gas dollars.
Senator Bernie Sanders (I-Vt.) regularly demands that that Obama’s regulators impose limits on oil speculations. He asserts that the “skyrocketing price of gas and oil has nothing to do with the fundamentals of supply and demand.” Even Goldman Sachs analyst, David Greely, claimed Wall Street speculation in the futures market is driving up oil prices.
In response to such clamorings, President Obama announced in April 2011 a new inter-agency working group to combat fraud. Don’t hold your breath waiting for any action here.
So why doesn’t President Obama invite the various industries such as the trucking and airline companies that are hurt by spiraling oil prices, together with consumer groups, motorist organizations, such as AAA and Better World Society, and the relevant government agencies to generate the pressure on Congress and the recalcitrant members of the CFTC to stop fronting for the Wall Street casino giants?
Mr. Obama and Energy Secretary Chu keep saying that there is enough oil in world markets and that speculatively-driven higher oil prices are undermining the U.S. economic recovery. Yet Mr. Obama seems unwilling to fully use his administration’s existing authority to crack down on the surging speculation.
There is much more action possible under current statutory authority for the regulators to use and earn their salaries. They need to hear louder rumblings from the people. While the people need, whenever possible and safe, to walk short distances instead of drive there, if only to stiffen their determination to fight back in more than one way.
Why the Feds Won’t Prosecute the Big Wall Street Banks
Yesterday the Department of Justice and 49 state attorneys general announced the long anticipated $25 billion deal with 5 large Wall Street firms — Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc. — to settle foreclosure and mortgage servicing abuses. Unfortunately, the settlement is not yet 24 hours old and cracks are emerging.
Each major corruption settlement with Wall Street, and they are legion over the past 15 years, triggers a commemorative magazine cover. I keep some favorites handy.
The October 1996 cover of Registered Representative Magazine, the trade magazine for financial consultants and stock brokers, blared in 48 point bold red type: “How the NASD Was Corrupted.” That issue focused on the years of price fixing of stocks traded on the Nasdaq market by the biggest firms on Wall Street while the self regulatory body, the National Association of Securities Dealers, was dominated by the same firms and looked the other way. (Think SEC today.)
The Department of Justice, then under Janet Reno, had this to say about the settlement: “We have found substantial evidence of coercion and other misconduct in this industry. By providing for the random monitoring of traders’ telephone calls, we expect to deter future price fixing on Nasdaq.” At the time, Reno said the “law does not provide the Department with statutory authority to recover damages or monetary penalties in such cases.”
The next big corruption probe drew a giant green serpent wrapped around the street sign for Wall Street on the cover of BusinessWeek with the rhetorical question: “Wall Street: How Corrupt Is It?” That settlement collectively cost the big firms $1.4 billion for peddling fake stock research to the public to induce investors to buy bad companies while the same analysts called the firms “dogs” and “crap” in internal emails. The announcement of the deal came on April 28, 2003 from the SEC, the New York Attorney General of that day, Eliot Spitzer, the NASD, the New York Stock Exchange and state securities regulators — all gushing over how great this deal was for the public and how it was going to reform Wall Street.
New York Magazine has found an odd way of commemorating the crumbs available to illegally evicted and displaced children and families under the current settlement. The current magazine cover has a Wall Street guy clasping his… uh…private portfolio…with the headline: “The
Emasculation of Wall Street.” If Wall Street is being emasculated, you sure can’t tell it from yesterday’s settlement.
Not only did Wall Street settle its robo-signing, illegal foreclosures and servicing problems with the Department of Justice and 49 state attorneys general (Oklahoma settled independently) but lost in the headlines was that the two major regulators of national banks, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, also settled with the biggest Wall Street banks in a decidedly cozy deal that effectively lets them off without a monetary fine as long as they pay under the federal-state settlement agreement.
The OCC settled with Bank of America, Citibank, JPMorgan Chase, and Wells Fargo for a combined $394 million but here’s the cozy part: “the OCC agrees to hold in abeyance imposition of such penalties provided the servicers make payments and take other actions under the federal-state settlement with a value equal to at least the penalty amounts that each servicer acknowledges that the OCC could impose…”
The Federal Reserve issued monetary sanctions of $766.5 million against the parent holding companies: Bank of America Corp., Citigroup Inc., Ally Financial, Inc., JPMorgan Chase & Co., and Wells Fargo & Co. and two mortgage servicers GMAC Mortgage, LLC a subsidiary of Ally Financial, Inc., and EMC Mortgage Corporation, a subsidiary of JPMorgan Chase & Co. But again, the Wall Street firms can get off the hook for paying these sums by simply paying them under the $25 billion federal-state settlement.
The specifics of just what the state attorneys general agreed to is unknown, even to some of the attorneys general. According to the web site set up to inform the public about the settlement both the primary “Settlement Document” and the “Executive Summary” will be “coming soon.” Without those documents available for public perusal, there is the reasonable suspicion that the public has once again been feted to lipstick on a pig, as they like to say on Wall Street.
One striking problem is that California Attorney General Kamala D. Harris states on her web site and in this video that California is getting $18 billion. Florida Attorney General Pam Bondi
says on her web site that Florida is receiving $8.4 billion. Those two amounts would leave a negative figure for the other 47 states that agreed to the $25 billion deal.
There’s also something peculiar about the Federal Department of Justice and 49 states setting up an informational web site that ends in .com instead of .gov. Register.com shows the web site has used a privacy shield to block the name of the owner of the site.
Corporate media is reporting that the deal settles only foreclosure and servicing abuses. But this web site states: “The agreement settles only some aspects of the banks conduct related to the financial crisis (foreclosure practices, loan servicing, and origination of loans) in return for the second largest state attorneys general recovery in history and direct relief to distressed borrowers while they can still use it.” The Florida Attorney General concedes on her web site that the deal with the state includes loan origination issues. That may not sit well with residents of a state where massive loan origination frauds occurred.
I called the AG’s office in Massachusetts – historically a tough regulator when it comes to Wall Street. The spokesperson could not answer why loan origination is included on the settlement web site.
Why is mortgage loan origination a big deal? Because tens of thousands of consumers were victimized in a bait and switch racket, believing they were getting a fixed rate mortgage only to find out a few years down the road that they had an adjustable rate mortgage that reset and doubled or even tripled their monthly payment – making it impossible to stay in their home; an effective wealth stripping enterprise by Wall Street against decent, hardworking families across America.
Other abuses in loan origination abounded. The Federal Trade Commission took this testimony from Michele V. Handzel, a former Branch Manager for CitiFinancial, a unit of Citigroup. Ms. Handzel is comparing the practices of CitiFinancial after it acquired another firm, The Associates.
“CitiFinancial put much more pressure on employees than the Associates did to include as many credit insurance and ancillary products as possible on every loan….In fact, I feel that the credit insurance sales practices at CitiFinancial were worse than at The Associates. From January to June 2001, the policy was that no personal loan at CitiFinancial would be approved if it did not include some type of credit insurance, nor would a real estate loan be approved without some type of ancillary product…There were several internal measures in place to effectuate this policy. For instance, District Managers would frequently refuse to send a loan to underwriting if it did not include some type of insurance product. Moreover, loans that were closed and did not include any insurance would be identified by CitiFinancial’s internal insurance auditors, and the employee who closed the loan would be written up…Closings at CitiFinancial resembled those at The Associates – they were brief. Personal loan closings took approximately 10 minutes. Real estate loan closings took a little longer but also did not provide a lot of details about the loan. At CitiFinancial, I was instructed to do a ‘closed folder’ closing, meaning that information would be discussed orally first. Only after the borrower indicated that he wanted to sign would the employee open the folder and have the borrower sign the papers.”
In the past, Wall Street knew it could steal billions and settle with its easily maneuvered regulators for millions. It did this time and time again, never having to admit to any crime. Wall Street translated this to mean that crime was a lucrative profit center. This latest settlement raises the potential of this profit center. Wall Street now understands that it can steal trillions and settle for billions.
And just why is it that the Feds can’t or won’t prosecute the biggest of the Wall Street firms? Because they are the Federal Government’s bond brokers, the primary dealers who contractually agree to buy Treasury bills or notes or bonds at every U.S. Treasury auction. They may be serially corrupt, but Uncle Sam needs those contractual guarantees of its primary dealers to be sure it can pull off its debt auctions. And the U.S. government cannot engage in contracts with convicted financial felons.
And it won’t break up these bloated behemoths because big balance sheets are just what a government with $15 trillion in debt is looking for in a bond broker.
Pam Martens worked on Wall Street for 21 years. She spent the last decade of her career advocating against Wall Street’s private justice system, which keeps its crimes shielded from public courtrooms. She maintains, along with Russ Martens, an ongoing archive dedicated to this financial era at www.WallStreetOnParade.com. She has no security position, long or short, in any company mentioned in this article. She is a contributor to Hopeless: Barack Obama and the Politics of Illusion, forthcoming from AK Press. She can be reached at firstname.lastname@example.org
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