Too Big To Fail - Represent Consumers

Latest D.C.-Wall Street brainstorm – bailouts with your bank deposits

Think your federally insured bank deposits are safe? Think again.

The geniuses that are supposed to be protecting your money have dreamed up a scary idea to use your money to help fund the next bailout.

This is not some paranoid conspiracy theory.

In December, the U.S. Federal Deposit Insurance Corp. (which is supposed to insure your money in the bank) and the Bank of England proposed using your bank deposits to defray the costs of rescuing a too big to fail bank when it gets in trouble. Wall Street hates the term “bailout,” so they’ve came up with a more innocuous term: “resolution.” The report, “Resolving Globally Active, Systematically Important Financial Institutions,” is linked here.

“In all likelihood [in a bank collapse],” the report’s authors write, “shareholders would lose all value and unsecured creditors [including depositors] should thus expect that their claims would be written down to reflect any losses that shareholders did not cover.”

People who trusted the bank and put their money there would not get their money back under this proposal. Instead their deposits would be turned into shares in the newly resuscitated bank.

A version of this already happened as a result of the Cyprus financial crisis. Now FDIC/BOE have proposed a similar approach for the U.S. and England the next time the big bankers fail.

Inside the Washington-Wall Street bubble, that’s not an “if.” It’s a “when.”

This latest proposal is what passes for smart thinking inside the bubble, untroubled by the bad banker behavior it enables or any concern for the public outrage simmering outside.

The proposal stems from a fact that surprised me when I learned it: when you put your money in the bank, you no longer own it; the bank does. It becomes the banks’ asset, which it promises to give you back under certain conditions. In legal terms, the depositor becomes an “unsecured creditor” of the bank. Under the terms of the FDIC/BOE joint December 2012 proposal, the unsecured creditors’ money could be used to offset the costs of resuscitating a bank that the geniuses in Washington and Wall Street determine is too big to fail.

The bankers and their faux regulators are in the hunt for new source of bailout fund because, under Section 716 of the Dodd-Frank law passed in the aftermath of the 2008 meltdown, they can’t use taxpayer funds the next time the $230 trillion derivatives market tanks.

Derivatives, you will recall, are those pieces of paper, unconnected to any physical assets, that created the house of cards that collapsed back in 2008 because nobody could figure out what the derivatives were worth.

Why not just let banks that engage in derivatives speculations and lose fold? The firms’ executives, bondholders and investors would get hurt. And we can’t let that happen, of course.

So they want to “resolve” a bank’s excessive risk-taking with our money.

In Cyprus, only the wealthiest’s deposits were seized. The FDIC is supposed to insure individual depositors’ account up to $250,000 per depositor per account. But under the FDIC/BOE proposal, even accounts of $250,000 or less could be seized by the failing bank and converted to stock as part of a bailout scheme.

Meanwhile, what about the purchasers of those risky derivatives, which the banks are still trafficking in more than ever? They would fare better than lowly depositors because they are treated as “secured creditors,” under a little-noticed provision that the bankers’ lobbyists had inserted into a 2005 rewrite of U.S. bankruptcy law.

I’ve been surprised by how little attention this proposal has gotten. It’s been covered mainly by Ellen Brown, a longtime critic of the banking sector and the government’s failure to regulate it. Certainly a major reason for the paucity of mainstream coverage is the lack of transparency around the regulation of banking institutions, and the media’s failure to push back against that. The big media, with few exceptions, has largely bought the narrative that the Obama administration has been selling, which is that the Dodd-Frank financial reform law successfully reined in banks and solved the TBTF issue, and that we have left the bad old days of financial collapses and bailouts behind us.

Nothing could be further from the reality, as the FDIC/BOE proposal makes clear. The banks continue to engage in risky derivatives gambling, resist any efforts to get them to stop, and enlist their allies at the Fed and other faux regulators to find someone else to absorb the costs of their own inevitable gambling losses.

Much of the regulations that would implement Dodd-Frank are being watered down behind closed doors, where the public is locked out and bank lobbyists have easy access to apply relentless pressure.

Even after multiple foreclosure fraud scandals, the LIBOR interest-rate fixing scandal, and the J.P. Morgan London Whale derivatives trade scandal, the media is more interested in touting the revival of the merger and acquisitions market than doing skeptical reporting on big banks and regulators.

Another reason that the reality gets lost is that it doesn’t fit neatly into the Republican-Democrat frame through which most of the media sees all policy. While Democrats at least rhetorically favor regulation and Republicans blame government for all the banks’ problems, beyond a little political stagecraft the two parties have collaborated smoothly to continue to bury the issue and let the bankers off the hook. This gives members of both parties a wide berth to keep raising campaign money from the bankers, and their congressional staffers a pathway unobstructed by any unpleasantness on their way to lucrative employment on Wall Street when they want to cash in.

This FDIC/BOE proposal is just the latest example of the government regulators protecting the bankers’ interests and throwing the rest of us to the wolves. That’s not what a majority of Americans want, obviously. According to this Rasmussen poll, 50 percent of all Americans favor breaking up the big banks so they don’t pose such a threat to our financial future, and can’t continue to dominate our political landscape. Only 23 percent oppose such a breakup.

Sen. Bernie Sanders, the independent socialist from Vermont, has introduced legislation to break up the banks. Rep. Brad Sherman, a Democratic legislator from Los Angeles, has said he will introduce companion legislation in the House.

Breaking up the banks is critical, but its only the first step. We need the re-imposition of a modern-day version of the Glass-Steagall Act, the Depression-era law that barred banks from mixing in other financial businesses that place depositors’ money at risk. Its repeal in 1999 led directly to the 2008 meltdown.

In the updated Glass-Steagall, federally insured banks should be barred from gambling in derivatives or other complicated investments.

Meanwhile, we need full public hearings on the FDIC/BOE proposal, and any other proposals regulators are considering about how to pay for future bailouts that involves taxpayers or consumers.

Contact your senator and representative and demand an end to big banks and publicly insured bank gambling. This FDIC/BOE proposal is a grim reminder of what we get when we’re left out of the political process, and we leave our financial system in the hands of the politicians, the experts and the bankers.

Recuse Obama's 1 percent economic team

While President Obama campaigned for reelection as a candidate to fight for the 99 percent, he has assembled a second-term economic team that is extraordinarily cozy with the 1 percent.

His picks for Treasury, the head of the Securities and Exchange Commission and director of the Office of Management and Budget are guaranteed not to make anybody on Wall Street or the biggest corporations nervous.

First there was the prospective SEC chief, Mary Jo White, a tough former prosecutor who cashed in as a top defense attorney for big bankers post-bailout. When bankers like John Mack of Morgan Stanley needed to make insider charges go away or Jamie Dimon needed to make sure settling federal foreclosure fraud charges didn’t hurt too much, Mary Jo White was by their sides.

Then came the new Treasury secretary, Jacob Lew, the recipient of a series of lucrative favors from Citibank during his incredibly profitable trip through the Wall Street-Washington revolving door. The most galling was Citibank’s nearly $1 million bonus for Lew – after the bank was bailed out by taxpayers. The bonus was contingent upon him snagging a high-level government job.

That was not Lew’s only taste of taxpayer-funded generosity. Earlier, he got another big, highly unusual bonus on his way out the door from an executive position at state-financed New York University, after making a deal for Citibank to handle the school’s loan business. Meanwhile NYU students were seeing their tuition skyrocket. So after cutting a deal with Citibank, Lew gets a bonus from New York taxpayers to leave NYU. Then he gets hired by Citibank – no big surprise – and then gets a bonus to leave Citibank if he can become a high-ranked alumnus.

No wonder we call him “Lucky Lew.”

In the midst of all the recent furor over the sequester, the Senate confirmed Lew with little debate – and few answers to the many questions raised by his taxpayer-funded bonuses and benefits. One Republican senator spoke fiercely against Lew. Sen.Charles Grassley of Indiana said on the Senate floor, “Mr. Lew’s eagerness and skill in obtaining bonuses, severance payments, housing allowances and other perks raises concerns about whether he appreciates who pays the bills.”

Lew was confirmed with barely a peep from Republicans or Democrats. Independent Vermont Sen.Bernie Sanders, who caucuses with Democrats, voted against Lew.

Democrats fell in line with their president. But why did Republicans make so little fuss about Lew? (Only 25 voted against him.) Sen. Orrin Hatch, of Utah for example, offered a long list of reasons why choosing Lew was a bad idea, then voted for him.

This was after Republicans had mounted a robust attack on Obama’s nominee for defense secretary, Chuck Hagel, the former Republican senator from Nebraska. Hagel might have had an easier time if he was pushing Wall Street’s agenda of punishing the vast majority with of Americans with a bitter stew of unemployment, falling wages and austerity after a severe recession that Wall Street, not Main Street, caused.

Lew and White, meanwhile, have both offered comfort to the bankers. Lew told a Congressional committee that he doubted deregulation was a major cause of the financial collapse that wrecked the economy and forced taxpayers to pay for big bankers fraud and recklessness. For her part, White expressed concerns about overzealous prosecutors unfairly targeting bankers.

The latest candidate that Obama wants to put on the economic team, Sylvia Reynolds Burrell is, like Lew, an alumnus of the Clinton administration team who was mentored by then-Treasury secretary Robert Rubin. He helped big bankers’ dreams come undo true by working to end the Depression-era Glass-Steagall law before going through the revolving door himself to become Citibank’s president.

Reynolds went on to work at the Gates Foundation before taking over the Wal-Mart Foundation, the charitable arm of one the nation’s biggest and most profitable corporations, as well as one of the largest employers of low-wage workers.

She is not without ties to big financial institutions, serving on the board of directors of MetLife, the country’s biggest life insurance company. In the post Glass-Steagall world of high finance, Metlife through its subsidiaries lost big on bundled derivatives based on worthless real estate loans.

It’s quite a team the president is assembling, drawn from the country’s largest corporations and those who represent their interests. They may be very smart people. They also share this: one can scrutinize their records and find no hint of any of them questioning the impact of excessive corporate power or the big banks, or advocating policies that would empower and revive the middle-class. President Obama’s economic team exposes the wide and painful gap between his election-year rhetoric about income inequality and his willingness to do something about it.

White has already said she will recuse herself, if she is confirmed, from cases involving her former clients – not that the SEC has shown much interest in scrutinizing the too-big-to fail banks. Lew should likewise remove himself any decision-making that would affect Citigroup, though that would leave him twiddling his thumbs for most days, since the Treasury’s main job in the Obama administration so far has been figuring out ways to prop up Citigroup and the other too-big-to-fail institutions.

Bonuses / Citibank / Income inequality / Martin Column / President Barack Obama / Too Big To Fail - 03/06/2013

Does Jack Lew's Citibank contract violate ethics laws?

The emerging details of prospective Treasury Secretary Jack Lew’s contract with Citibank raise fresh concerns about the persistent issue of the Obama administration’s revolving door with too big to fail banks.

During Lew’s confirmation hearing earlier this month, Sen. Orrin Hatch, R-Utah, questioned the president’s pick to run the Treasury Department about a provision in his employment contract with Citibank – where Lew landed after his previous tenure as a high-ranking official in the Clinton administration.

According to his Citibank contract, he would lose a hefty bonus worth nearly $1 million and other compensation if he left before he received it, except under two very specific circumstances – either he died or obtained a high-level job in the federal government.

If he became a lobbyist, he would lose the bonus. If he became a farmer or the governor of New York, no bonus. Only by getting one of the administration's top jobs could he swim in that vast ocean of cash.

The unusual terms of the contract create a huge potential conflict of interest for Lew, who stood to gain enormous wealth if he landed a government job. Citibank is ensuring that Lew can comfortably move back into the public sector without financial sacrifice. What do the bankers expect for their money? On many tough issues which will require Lew to represent consumers, borrowers and taxpayers when big banks lobby authorities for weaker regulation, can we count on Lew to strongly represent us, even though we have no millions to dangle in front of him?

During his confirmation hearing, Sen. Hatch noted “your employment agreement included a clause stating that ‘your guaranteed incentive and retention award’ would not be paid upon exit from Citigroup but there was an exception that you would receive that compensation ‘as a result of your acceptance of a full time high level position with the United States Government or a regulatory body.’ Now is this exception consistent with President Obama’s efforts to ‘close the revolving door’ that carries special interest influence in and out of the government?”

Lew’s answer doesn’t pass the smell test. “I’m not familiar with records that were kept, so I don’t have access to things that I don’t know about,” Lew testified.

Is Lew, with a reputation as a serious numbers cruncher, policy wonk and savvy political negotiator, suggesting that when it came to the terms of his own bonus, he didn’t read the relevant documents?

Either his statement is false or he just disqualified himself from any government job, especially one overseeing the nation’s complicated finances.

Lew’s response begs for further inquiry. Hatch didn’t pursue it during the hearing. Neither did any of the major media in their coverage. The only initial coverage came from Pam Martens in her “Wall Street on Parade” blog. She referred to the “bombshell” Hatch dropped during the hearing. A week later, Bloomberg columnist Jonathan Weil covered the issue, writing that it appeared that Citibank paid Lew a “sort of bounty” to get a high-powered job in the administration. Lew has certainly earned that Citibank bonus with a series of powerful positions, first in the State Department, then as director of President Obama’s Office of Management and Budget and then as his chief of staff.

Lew and the Obama administration may have other problems aside from whether Lew’s Citibank bonus disqualifies him from a job overseeing it and other megabanks. Government watchdog Bart Naylor, an analyst with Public Citizen in D.C., said, after reviewing excepts of Lew’s contract, that the Justice Department should investigate for a possible criminal violation of USC 18 Section 209, which reads:

“Whoever receives any salary, or any contribution to or supplementation of salary, as compensation for his services as an officer or employee of the executive branch of the United States Government, of any independent agency of the United States, or of the District of Columbia, from any source other than the Government of the United States, except as may be contributed out of the treasury of any State, county, or municipality; or

Whoever, whether an individual, partnership, association, corporation, or other organization pays, makes any contribution to, or in any way supplements, the salary of any such officer or employee under circumstances which would make its receipt a violation of this subsection—?”

Naylor, said: “ The Department of Justice should answer whether the contract between Citi and Mr. Lew is in accord with federal ethics law. This law prevents a private company from making `any contribution’ to an employee `for his services’ to the executive branch of the government. Citi’s contract states that Mr. Lew would sacrifice any bonus he earned unless he landed a high level federal job. Authorities must answer whether the $1 million bonus Mr. Lew qualified for by taking a high level government job constituted a `contribution’ from Citi.”

Even if Lew’s Citibank bonus doesn’t constitute a criminal violation, it certainly violates the spirit of the law and gravely undermines the public’s confidence in him and in the administration’s ability to protect the public from the onslaught of Citibank lobbying and political contributions. If the Obama administration wishes to retain any shred of credibility in its ability to regulate too big to fail banks, it should immediately launch an investigation into the circumstances surrounding Lew’s contract – and the contracts of the many other former Citibank officials who have served in the administration.

Here’s a partial list:

•Former Citigroup chief economist Lewis Alexander, who joined Treasury in 2009 as a top adviser to former Treasury Secretary Tim Geithner. Alexander is probably best known for having incorrectly predicted, while still at Citi in 2007, that the U.S. would avoid a recession from the crash of the housing bubble. He left the Treasury Department in 2011.

•Former vice-chairman of Citigroup’s global markets Lewis Susman was named to the plum assignment of U.S. ambassador to Great Britain in 2009. He earned his job the old-fashioned way, as one of President Obama’s top contributors and bundlers during the 2008 campaign.

• Michael Froman, a veteran of the revolving door who served in the Clinton Treasury Department before his work as a chief financial officer at Citibank, is credited with introducing President Obama to Robert Rubin, the former Clinton Treasury secretary who oversaw the dismantling of the Glass-Steagall Act before becoming Citibank CEO during the financial crisis. Froman is a special assistant to the president and deputy national security adviser for international economic affairs. The New York Times reported that Froman received more than $7.4 million in compensation from Citibank between January 2008 and joining the White House in February, 2009 – including a $2.25 million bonus, which the White House claimed Froman donated to charity.

•David Lipton, another Clinton Treasury veteran who was paid huge Citibank bonuses ($1.275 million in 2008 and $762,000 in 2009) while serving as the bank’s head of country global risk management. President Obama appointed him special assistant to the National Economic Council and the National Security Council.

The administration should get a clue, withdraw Lew’s nomination, and find somebody to lead the Treasury who puts the interests of the public and taxpayers ahead of those of the big bankers.

Citibank / Executive Pay / Lobbying / Martin Column / President Barack Obama / Revolving door / Too Big To Fail - 02/25/2013

In drug war, big bank plays get out of jail free card

For years U.S. authorities have been lecturing our Mexican neighbors on how to crack down on their murderous drug cartels, which seem to operate freely any without fear of law enforcement.

What an embarrassment for the U.S. that it had the drug cartel’s biggest money launderer in its clutches but, incredibly, declined to prosecute, even though the money launderer had the blood of the Sinaloa gang on its hands.

And for what greater good did the U.S. give up the moral high ground in the war on drugs?

To protect a “too big to fail” bank and its top officials.

The U.S. declined to prosecute because the money launderer was a giant global bank, and to seek criminal sanctions might undermine the world financial system.

While it was engaged in massive illegal money laundering, HSBC was also the recipient of a backdoor bailout worth $3.5 in 2008, conveyed to the bank through insurance giant AIG.

According to a report issued earlier this year from the Permanent Senate Subcommittee on Investigations, HSBC “exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering controls.”

In 2007 and 2008, the Senate committee found, HSBC moved $7 billion in bulk cash from Mexican to its U.S. operations, even though authorities warned that the money was proceeds from drug sales. According to the New York Time, HSBC’s Sinaloa associates gross about about $3 billion a year, which puts the cartel in the saome league as Netflix and Facebook..

HSBC was doing a thriving business with cash exchanges used by the drug cartels known as casas de cambio, despite repeated warnings that they were nothing more than fronts for the drug cartels. Years after other banks had cut them off, HSBC continued to do business with the casas de cambio.

The report stated that Middle East bankers with links to Al Queda also banked with HSBC.

What a terrible example the U.S. is setting for how to enforce the rule of law.

U.S. authorities claimed prosecuting the bank or individuals responsible for the money-laundering activities might threaten the stability of the world economy. Prosecutors tried to obscure the vile preposterousness of this cop-out beneath an avalanche of public relations puffery.

Authorities touted the $1.9 billion fine levied against HSBC as the largest of its kind, though it’s more like the U.S. taking it’s unseemly cut of the bank’s billions in money-laundering proceeds. But the PR campaign couldn’t cover the foul odor rising from the deal.

As part of the deal, bank officials officials apologized and promised never to misbehave again. But the notion that prosecutors couldn’t figure out how to hold the individuals responsible for years of lawlessness while reaping profits from the drug trade makes a mockery of law enforcement’s tough drug war rhetoric.

I wonder how other targets of the U.S. government’s harsh drug war tactics view prosecutors’ soft-pedaling on HSBC. Take for example Russ Caswell, who owns a cheap motel outside Boston where rooms rent for $57 a night. Authorities have made some drug busts at the motel, and they don’t think Caswell is doing enough to root out the lawbreakers at his motel. So prosecutors are moving to take the entire motel away from him. Not just the portion of his profits he allegedly made from drug dealers, but the entire motel, which is worth about $1.3 million.

HSBC buying its way out of accountability for its lawless behavior while Russ Caswell fights for his motel highlights one of the ugliest and most corrosive aspects of the country’s growing income inequality.

If you’re big and powerful enough, you can break the law with impunity.

We shouldn’t allow this shameful deal to stand. We should demand that the Senate Judiciary Committee hold public hearings on it and soon – before the stench spreads to all of us and we can’t get it off. Here are the members of the Judiciary committee. Call them and remind them we’re supposed to be setting the example for Mexico, not adopting their corrupt ways.

Martin Column / Too Big To Fail - 12/19/2012

Tell Mitt: Don't run campaign on drug money

Imagine if U.S. politicians took financial contributions skimmed from the ill-gotten gains of bloody Mexican drug cartels and terrorists.

Imagine further that those who profited off the drug gangs used their murder-tinged cash to lobby the U.S. Congress.

You don’t have to strain yourself, this is not some sordid fantasy concocted by Hollywood to horrify and entertain you. This is the reality created by Wall Street’s finest and our leading politicians.

The latest sorry chapter in Wall Street’s waltz with the drug-dealers is laid out in a report by the Senate Permanent Committee on Investigations. Officials of the British too big to fail bank HSBC acknowledged that despite repeated warnings, they failed to stop drug and terror-tainted deposits from moving through the bank.

According to the report, HSBC, one of the world’s largest banks with a strong U.S. presence, “exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering controls.”

In 2007 and 2008, the Senate committee found, HSBC moved $7 billion in bulk cash from Mexican to its U.S. operations, even though authorities warned that the money was proceeds from drug sales.

HSBC was doing a thriving business with well-known cash exchange businesses used by the drug cartels known as casas de cambio, despite repeat warnings that they were fronts. Years after other banks had cut them off, HSBC continued to do business with the casas de cambio.

Mexican drug cartels weren’t the only ones taking advantage of HSBC’s lax controls. Middle East bankers with links to Al Queda also found HSBC a hospitable environment in which to conduct business.

You might think that the authorities would have roast HSBC officials on a spit.

Far from it: in 2008, regulators rewarded HSBC with $3.5 billion from taxpayers in a backdoor bailout, in payments funneled to the bank’s U.S. subsidiary through AIG.

Now HSBC’s bankers have been humiliated at a public hearing and the company’s shareholders may be forced to pay as much as $1 billion in fines.

Still, from the bankers’ perspectives, you would have to say money laundering and bailouts have been very, very good to them. Even after they pay the fine, they’d have more than enough to pay for the $125,000 they’ve given to congressional candidates so far this election cycle, and the $5,700 they’ve doled out to Mitt Romney. The left-over laundered money will also help defray the costs of the $900,000 worth of lobbying the bank has done this year.

I’m confident now that the full extent of HSBC’s misdeeds has become known, Romney and the other politicians will want to have nothing to do with this dirty money and will be clamoring to give it to charity.

But just in case it slips their minds in the rush of doing the people’s business, we should help them out. Mitt can provide a good example by being the first to get rid of the drug and terror money.

Campaign contributions / Martin Column / Mitt Romney / Too Big To Fail - 07/24/2012

London calling – is anyone listening?

Here we go again.

The scandal over bank manipulation of a key interest rate is just the latest strong signal that bankers rigged the system to benefit themselves and screw everybody else.

Not that we need another signal.

The scandal stems from something called LIBOR – the London Interbank Offered Rate. It’s an integral part of the global banking system. LIBOR is supposed to reflect the interest rate at which banks loan money to each other. It’s also a benchmark rate for other transactions, everything from home mortgages and credit cards to complex derivatives.

That means that the cost of the mortgage loan is pegged to whatever LIBOR is. On a home mortgage loan, for example, the interest rate might be a few points above LIBOR. The Financial Times estimates that about $350 trillion worth of contracts are tied to LIBOR.

It turns out that British-based Barclays Bank was manipulating the rates to increase their own profits, and to disguise how the bank was performing – possibly with the collusion of their regulators. The conservative Economist calls it “the rotten heart of finance,” and cautions that it is about to go worldwide.

The scandal hit home in England first, causing Barclays’ Bank president to resign and pay a record fine, and regulators on both sides of the Atlantic promising to get to the bottom of it.

But there are strong suspicions that Barclays wasn’t alone, that other too big to fail banks might have also engaged in the same shenanigans. The Wall Street Journal reports that at least 16 banks are under investigation, in three criminal and 10 civil probes.

It’s bad enough that Barclay traders have been caught discussing the manipulation in emails, referring to the rate manipulation as “the fixings” and requesting a particular rate as casually as if they were ordering a double latte.

What’s worse, the Financial Times started raising questions about the LIBOR-rigging five years ago and the Wall Street Journal cast doubt on the banks’ LIBOR practices in May 2008. 2008. So any regulator or prosecutor with an iota of curiosity could have been digging into LIBOR since then.

As we already know, curiosity about bankers’ malfeasance has been a rare commodity among the officials who are supposed to be scrutinizing their bank behavior. Remember President Obama’s repeated promises to get tough on bankers, most recently in his State of the Union speech in January?

Don’t expect Mitt Romney to make an issue of it – at least 15 of Barclay’s most senior U.S.-based bankers have donated the maximum $2,500 contribution to his presidential campaign. The CEO who resigned, Bob Diamond, had been among the co-hosts for a London fundraiser when Romney goes to London for the Olympics. (Barclays’ political action committee has also contributed significant amounts of cash to Democrats, though not the president, over the years.)

The LIBOR scandal rips the curtains away from one of the nastiest Big Lies on both sides of the 2012 presidential campaign: the president’s line that his Dodd-Frank reform has fixed the financial system, and Romney’s pitch that regulation is the problem and that we should leave bankers alone to run their business as they see fit.

Martin Column / Mitt Romney / President Barack Obama / Too Big To Fail - 07/09/2012

King of the Hill

Though we need to wait until November to find out who the next president will be, we already know who the king is.

That would be JPMorgan Chase CEO Jamie Dimon, who got the regal treatment from the Senate Finance Committee this week when he was called to testify about the disastrous trades that has cost his firm more than $3 billion so far and reduced the firm's market value by $27 billion.

You know, the trades that Dimon originally dismissed as a “tempest in a teapot.”

Which gives you some idea of the teapots that President Obama’s favorite banker can afford. President Obama has particularly close ties to the bank: JPMorgan’s PAC was one of the top donors to his 2008 campaign, offering more than $800,000, and the president’s former chief of staff, William Daley, was a top executive there.

Dimon is equally popular on Capitol Hill. Instead of a grilling him about his failure to take action for months after questions were raised about the strategy surrounding the failed trades, most of the senators treaded lightly.

Instead of scrutinizing the foreclosure fraud and failure that led to JPMorgan’s $5.3 billion share of a $26 billion settlement with state attorneys generals, several senators took the opportunity to offer Dimon a platform to continue his campaign against regulation of Wall Street, including modest reforms like the Volcker rule which many say could have prevented the JPMorgan loss – had it been in place.

For his part, Dimon denied that he knew anything, took some vague responsibility and minimized the losses as an isolated event.

The route to traditional royalty is through birth or marriage. Dimon won his political crown through another time-honored path – he bought it. Most of the senators he faced had benefited from the generosity of his bank’s campaign contributions. As the Nation’s George Zornick reported, the senators had received more than $522,000 from JPMorgan, about evenly split between Republicans and Democrats.

The staff of the Finance Committee and JPMorgan are connected through a web of revolving door contacts. The banking committee’s staff director is a former JPMorgan lobbyist, Dwight Fettig. One of the banks’ top lobbyists is a former staffer for banking committee member Sen. Chuck Schumer, while three of its outside lobbyists used to work for the committee or one of its members.

J.P. Morgan has pummeled Congress and regulators with more than $7.6 million worth of lobbying in an effort to get banking rules written to favor the bank.

The king’s appearance before his subjects on the Senate Finance Committee was a powerful demonstration, for those who still need it, of just how little of the spirit and the practice of real democracy remains in an institution that is supposed to embody it.

If our representatives were truly beholden to us, rather than to Dimon and others with large supplies of cash to dole out, his testimony would have had a starkly different tone.

He has a lot to answer for. So do those who let him off so easy.

And it’s not just Dimon that the senators have failed to oversee. While bankers’ profits are back, the banking system is still broke.

If those senators were serving us, rather than serving as lapdogs to bankers, Dimon and other Wall Street monarchs might be looking at prison cells, not red carpets.

Martin Column / Too Big To Fail / Uncategorized - 06/14/2012

Biggest Loser, Too Big to Fail Edition

Welcome to this week’s episode of the Biggest Loser, Too Big to Fail Bank edition!

Each week we tally up the bad behavior of a banker who took taxpayers’ money in the bailout, only to engage in more obnoxious antics calculated to hurt the very taxpayers whose generosity has guaranteed the bankers’ gazillion dollar annual compensation.

This week we’re featuring a surprise guest, a banker who, in the past, the press fawned over as one of the savviest Wall Street titans, who managed to actually enhance his reputation during and after the 2008 financial collapse.

Please welcome JPMorgan Chase CEO Jamie Dimon, whose bank is the biggest in the nation, with total assets of $2.3 trillion.

He’s not one of those CEOs who presides over a big bank that everybody assumes is a zombie, like Bank of America and Citibank.

No, Dimon and his bank actually made money. He was presumed to know what he was doing. Especially by President Obama, who welcomed him to the White House on numerous occasions.

And Dimon has distinguished himself as the most vocal opponent of bank regulation, which Dimon says could be bad, not just for him, but for America.

Dimon is tops in the public relations game – his reputation wasn’t tarnished even after federal authorities found that his bank was improperly foreclosing on the nation’s veterans and JPMorgan Chase had to pay $45 million two months ago to settle a lawsuit.

Dimon was still invited to the White House and fancy seminars where the attendees hung on his every word.

That was before Dimon admitted last week that one of his top traders had lost $2 billion on trades that were supposed to hedge against other risky bets that the banks’ traders were taking.

These were bets that were supposed to reduce the bank’s risks, not cost it $2 billion.

It’s just the latest evidence that not even the smartest banker, not even Jamie Dimon, who just a couple of weeks ago had dismissed warnings about the bets as a “tempest in a teapot,” has a clue as to how their own firm’s complicated financial engineering works.

Admittedly, the competition for too big to fail biggest loser is tough because the bailed-out bankers’ behavior has been so bad.

Determining the biggest winners is easy, however: the politicians and lobbyists who have collected millions in campaign contributions and lobbying fees from bankers who have successfully crippled efforts at real reform. JP Morgan Chase’s latest losses will no doubt reinvigorate the debate over financial reform, causing the banks to shovel yet more money to the politicians and lobbyists in their effort to make sure that the only true reform – breaking up the big banks, so they’re not too big to fail – never happens.

Beyond the reality TV theatrics of the political debate, we know who the real losers are – the taxpayers who foot the bill and citizens who are shut out of political debate by the corporations who dominate it with their money.

President Obama and his administration like to brag that taxpayers are making a profit from big chunks of the bailout. But that PR covers up the real story on the bailout: the federal government spent trillions to make the too big to fail banks like JP Morgan Chase bigger and more powerful, not to rein them in.

As Charlie Geist, a Wall Street historian and professor at Manhattan College told Politico, “The guy in the street in 2008 and 2009 was worried about his or her deposits, and now it’s clear they should still be worried.”

Derivatives / Martin Column / Too Big To Fail - 05/16/2012

Identity Theft in the Matrix

Something weird occurred on my TV when I happened to catch a few minutes of the Madrid Tennis Open on Sunday. Whatever technology these stadiums use to provide constantly changing television advertisements along the sides of the court wasn’t working too well. Some of the furniture on the clay itself seemed to be dissociating on an atomic level. A chair looked as if it was disappearing in a shimmering blue cloud. It was like that moment in the movie The Matrix when the reality of the unreality becomes apparent to Neo – a house cat vanishes for a split second, then reappears.

The technical snafu made the match pretty hard to watch, so I reverted to the New York Times, where columnist Thomas Friedman happened to be expressing astonishment at the profound influence of corporate marketing values on American society. Few have written more enthusiastically about the spread of capitalism worldwide than Friedman, so it was surprising to hear him say he “had no idea” that famous authors, revered sports players and even public institutions have all bartered their identities for corporate cash.

Just then, Roger Federer won the match. “Watch this,” my wife said in a moment. “He’s going to reach into his gym bag and pull out an expensive watch, so he’s wearing it when he gets the award.” Sure enough, with a bemused grin – I took it to be a guilty “ok, I have to do this” sort of look – Federer theatrically slipped his sweaty hand into the bag and slowly pulled out a gleaming Rolex, which he then slid onto his wrist.

I’m no slouch when it comes to tracking the commodification of our culture – a Ralph Nader spin-off, Commercial Alert, has been quietly raising the issue for years – but I’d never witnessed someone of Federer’s stature actually engage in a corporate sponsorship ritual, one which happens to be well known to tennis fans.

The impact of celebrity endorsements and the promotion of products in TV shows and films is more than just an idle curiosity. For many years, Americans were urged to close the gap between the lifestyle they aspired to – as displayed in the entertainment media – and the economic reality of their lives by borrowing on their homes and credit cards. This masked a gaping and painfully growing chasm that is now the topic of conversation only because Wall Street flushed the toilet on our economy a few years back. Where once you too might have been able to pull a beautiful watch out of your duffel courtesy of a JP Morgan Chase credit card, that’s no longer possible for many.

Even more insidious than dictating our personal dreams and values is the corporate capture of our political identities. In that sense, the United States Supreme Court’s infamous decision in Citizens United symbolically acknowledges what had long ago become the Golden Rule of American democracy: those who have the gold, rule. By bestowing human rights upon corporate entities, and equating spending money to buy elections with freedom of speech, Citizens United locked in a system of legalized bribery that locks most Americans out of the electoral process that is our birthright.

Sure, we still have the right to vote. But the choices we are offered are usually determined by a political establishment mostly dominated by corporate money and a vast apparatus of election consultants, public relations hacks and lobbyists.

Every corporate dollar spent on candidates and elections pays an enormous return on the investment. The Money Industry gave $5 billion to federal officials in the ten years leading up to the 2008 financial debacle, as we documentedin 2009 (PDF). The result: “bipartisan” decisions by lawmakers and the executive branch stripping away decades of legislation designed to protect America against lunatic speculation. Liberated, Wall Street gambled till it lost everything. Cost to American taxpayers: hundreds of trillions of dollars in bailouts, lost jobs, battered businesses, devastated communities – a Depression. Heads they win, tales you lose.

A recent study by academics at the University of Kansas examined how a particular federal tax break for multinational corporations became law, and what happened after that. They calculated that for every $1 spent on lobbying in favor of the tax break, the companies were spared $220 in taxes – a return of 22,000%.

Last week’s revelation that JP Morgan Chase had lost $2 billion through trading practices that are supposed to be illegal under the financial reform law passed by Congress in 2010 begged the question: how did they get away with it? Answer: JP Morgan Chase spent millions on lobbyists whose job was to weaken the law, and delay its implementation. The current draft of the federal regulations required to enforce a key provision of the law is a 298-page monstrosity; thanks to JP Morgan’s lawyers, it’s loaded with political booby traps and sabotaging IEDs that will utterly neuter the law, if it ever takes effect.

Mission accomplished.

With staggering results like these, it’s no wonder that the corruption of American politics is now an industry itself. The Times estimates its size at $6 billion a year, and reports that a series of mergers and acquisitions is creating a corporate lobbying conglomerate where the best and brightest – including retiring members of Congress – alight.

This is the Invisible Government that used to be the topic of novelists and conspiracy theorists. In the celebrity-driven entertainment Matrix, it’s easy to miss if you aren’t looking around and wondering what’s going on.

Harvey Column / Paul Volcker / Supreme Court / Too Big To Fail - 05/15/2012

How Mitt Could Win

Why doesn’t Republican presidential contender Mitt Romney’s free-market gospel include a ringing call to break up the too big to fail banks?

Over at the conservative American Enterprise Institute blog, James Pethokoukis suggests Romney could benefit if he did just that.

After all, this is no longer a position favored only by Occupy Wall Street.

All kinds of establishment figures now acknowledge that breaking up the big banks is needed to heal our financial system, and that as long as we don’t, taxpayers could be on the hook for another bailout.

The most recent public official to reach this conclusion is none other than Richard Fisher, the president of the Dallas branch of the Federal Reserve, who last week issued a report in which he concluded: “The too big to fail institutions that amplified and prolonged the recent financial crisis remain a hindrance to full economic recovery and to the very ideal of American capitalism.”

This should be catnip for Romney, who professes to be all about ending government interference in the free market.

What the Dallas Fed’s report makes clear is that the Dodd-Frank financial reform legislation and the policies of the Obama administration haven’t lessened the power of the too big to fail banks, or made them healthier – it’s helped them gain market share while doing little to force them to reduce the same risky business practices that led to the 2008 financial collapse.

While Dodd-Frank theoretically sets up a process to deal with too big to fail institutions when they get in trouble, our politicians and regulators by their actions have signaled to the big banks that they don’t have the guts to break them up or get them to change how they do business.

For a politician in Romney’s position, staking out a position against the big banks would give him the high ground against the president, who claims to be reining in the banks’ bad behavior but isn’t.

It would help him with the Tea Party activists, who rail against the bank bailouts and crony capitalism. Promising tough action on the banks would also help him with independents who understandably don’t trust all the political double-talk they hear.

But Romney doesn’t have the guts to do it. His free market rhetoric stops right at the bankers’ door, where he must appear meekly with hat in hand, asking for donations, just like the president of the United States, from bankers who continue to prosper only because of the trillions of dollars worth of favors done for them by politicians using taxpayers’ money.

The top 5 donors to Romney’s campaign are people associated with bailed out banks, according to the Center For Responsive Politics. The president raised an unprecedented $15.8 million from the financial sector in 2008, while his administration was in the midst of bailing them out. Though Romney has the edge in Wall Street fundraising now, the president has vowed to fight back – including a pledge not to demonize Wall Street.

The big media and the politicians all talk about these policies as though they’re great intellectual debates about clashing views of the role of government. But when it comes to the too big to fail banks, all Romney’s free market preaching is just so much hot air.

This is the dishonest heart of our politics. What neither Romney nor the president, nor apparently the American Enterprise Institute, can acknowledge is that it’s all about the money.

Martin Column / Mitt Romney / President Barack Obama / Too Big To Fail - 03/30/2012