Ending a Rigged Economy – Part III

The following is an excellent excerpt from the book “OUR REVOLUTION: A Future to Believe In” by Bernie Sanders from Part Two: “An Agenda For a New America; How We Transform Our Country” from Chapter Three: “Ending a Rigged Economy” on page 303 and I quote: “The Business Model on Wall Street Is Fraud – Here are just a few examples:

  • In August 2014, Bank of America paid more than $16 billion to settle charges that it lied to investors about the riskiness of the mortgage-backed securities it sold during the run-up to the crisis.
  • In April 2016, Goldman Sachs reached a $5 billion settlement for marketing and selling fraudulent mortgage-backed securities that were the foundation of the housing crisis. This is in addition to the $550 million Goldman paid to settle another 2010 fraudulent mortgage case.
  • In April 2016, Wells Fargo reached a $1.2 billion settlement with the Department of Justice (DOJ) for “reckless” and “shoddy” underwriting on thousands of home loans from 2001 to 2008.
  • In February 2016, Morgan Stanley reached a $3.2 billion settle with the DOJ and several states for misleading investors about the quality of the mortgage bonds it was selling.
  • In February 2016, HSBC reached a $601 million settlement with the DOJ and other federal and state agencies for abusive mortgage lending practices.
  • In July 2014, Citigroup reached a $7 billion settlement for mortgage fraud. Then–attorney general Eric Holder said Citigroup’s “activities constricted mightily to the financial crisis that devastated our economy in 2008. . . .  The bank’s misconduct was egregious.  As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”  Richard Bowen, a former Citigroup executive turned whistle-blower, added, “In July 2008, I gave the SEC a thousand pages documenting fraud and the false representations given to investors in many securitizations. . . . In light of the huge losses this behavior caused our country, it is outrageous that, six years later, a settlement of only civil fraud charges would be announced, with no individuals being held accountable and no real admission of wrongdoing or true penalties assessed.”
  • In November 2013, JPMorgan Chase settled for $13 billion for lying to Fannie Mae and Freddie Mac about the quality of mortgage-backed securities it sold them. Settlement documents revealed how every large bank in the U.S. committed mortgage fraud.  In 2011, JPMorgan also admitted to wrongly foreclosing on some military families and overcharging 4,500 more on their mortgages.  “We failed to comply with aspects of the law,” admitted an executive vice president.
  • In 2011, the Justice Department fined Bank of America (which had purchased Countrywide) $335 million because Countrywide charged 200,000 minority homeowners more for their mortgages than they did whites and steered them into risky subprime loans designed to fail.
  • In 2012, Wells Fargo was fined $175 million to settle similar claims of discriminatory and predatory subprime lending in black and Hispanic neighborhoods. According to sworn affidavits, Wells Fargo loan officers referred to black customers as “mud people” and called their subprime mortgages “ghetto loans.”

Maybe you are thinking that the illegal behavior of the executive at these huge financial institutions was limited to the housing crisis.  That it was a onetime thing.  I’m afraid not.  Fraud is their business model, through and through:

  • In July 2016, State Street Bank reached a $382 million settlement with DOJ for rigging foreign currency exchanges.
  • In June 2014, The French bank BNP Paribas was ordered to pay $8.9 billion in penalties by a U.S. district judge after pleading guilty to charges of violating U.S. money laundering laws by conducting business in Sudan, Iran, and Cuba.
  • In July HSBC was fined $1.9 billion, after senior DOJ officials overruled the recommendation by prosecutors to pursue criminal charges, for laundering Mexican drug trafficking money, because it “could result in a global financial disaster.”
  • In May 2015, five banks, including JPMorgan Chase and Citigroup, paid a $5.4 billion fine after pleading guilty to “a brazen display of collusion and foreign exchange rate market manipulation, ” according to Attorney General Loretta Lynch.
  • In February 2015, ten banks, including Goldman Sachs and JPMorgan Chase, were investigated for tampering with the process of setting the price of precious metals for global markets.
  • In March 2014, the FDIC accused six big banks–including Bank of America, Citigroup, and JPMorgan Chase–of fraud and conspiracy in an “epic plot” to manipulate bank-to-bank interest rates that underpin at least $50 trillion (trillion!) in global financial transactions.
  • In April 2011, Wachovia (since acquired by Wells Fargo) was fined for laundering billions of dollars in illegal drug money. The federal prosecutor said, “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations.”  The fine was less than 2 percent of the bank’s $12.3 billion profit in 2009.
  • In July 2016, JPMorgan Chase paid $200 million to settle criminal and civil charges related to bribing foreign officials.

Of course, these are just a few examples that demonstrate what I mean when I say that the business model of Wall Street is fraud. Money laundering, currency manipulation, bribery, conspiracy, rate tampering, collusion: These are the routine practices of Wall Street.  And, this is not just my opinion.  This is what a number of financial executives themselves have acknowledged.

In a 2015 University of Notre Dame survey on ethics in the financial services industry, 51 percent of Wall Street executives thought it was likely that their competitors engage in unethical or illegal activity to gain an edge.  More than one-third have either witnessed or have firsthand knowledge of wrongdoing.  Nearly one in five believe they must engage in illegal or unethical activity to be successful.  And a quarter have signed or been asked to sign confidentiality agreements that prohibit reporting illegal or unethical activities to the authorities.

When a banker from Barclays was caught trying to rig the $5 trillion-per-day currency market in 2010, he said blithely, “if you ain’t cheating you ain’t trying.”

And in 2008, an analyst from Standard & Poor’s, a credit-rating agency that consistently and knowingly gave AAA ratings to near-worthless mortgage-backed securities, said, “Let’s hope we are all wealthy and retired by the time this house of cards falters.”

Our country can no longer afford to tolerate the culture of fraud and corruption on Wall Street.  The people responsible for illegal behavior must be held accountable.  Unfortunately, that has not been the case so far.

Ending “Too Big to Jail” – It is no secret that millions of Americans have become disillusioned with our political process.  They don’t vote.  They don’t believe much of what comes out of Washington.  They have concluded that the system is rigged.

In my view, one of the reasons for that deep conclusion is that people see different rules for the rich and powerful than for everyone else.  They see kids arrested and sometimes even jailed for possessing marijuana or for other minor crimes.  But when it comes to Wall Street executives, whose illegal behavior hurts millions of Americans, they see that somehow there are no arrests, no police records, and no jail time.

We are supposed to be a country of laws and equal justice.  Where is not supposed to be one standard for Wall Street executives and another for everybody else.  Wall Street caused incalculable harm to our country, and the people who were responsible must be held to account.

That is why in 2013, I was stunned when our country’s top law enforcement official suggested it might be difficult to prosecute executives of major financial institutions who commit crimes because it could destabilize the financial system of our country and the world.  Since when did that become a criterion for deciding whether or not to prosecute the law?

Then-attorney general Eric Holder told the Senate Judiciary Committee: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when were hit with indications that if we do prosecute–if we do bring a criminal charge–it will have a negative impact on the national economy, perhaps even the world economy.”

In other words, not only are Wall Street banks too big to fail, their executives are too big to jail.  After leaving his job as attorney general, Holder returned to the giant law firm where he previously worked, Covington & Burling, whose clients just so happen to include JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo–some of the largest financial institutions in America.

There is something fundamentally wrong with our criminal justice system when not one major Wall Street executive has been prosecuted for causing the near collapse of our entire economy.  That has got to change.  “Equal Justice Under Law” cannot just be words engraved on the entrance of the Supreme Court.  It must be the standard that applies to all Americans, including Wall Street executives.

Where Do We Go From Here? – The time is long overdue for real financial reform in this country.  It will not be easy given the enormous power of Wall Street and its political supporters, but it is absolutely necessary if we are to have the kind of strong and stable economy that we need to rebuild the shrinking middle class.

The “Heads, banks win/tails, everyone else loses” system must come to an end.  We need to create a financial system that works for ordinary Americans, not just those on top.  Here are just some steps forward that will help us achieve that goal.

Ending “Too Big to Fail” – To create an economy that works for all Americans and not just a handful of billionaires, we have got to address the ever-increasing size of the mega-banks.  And we must end once and for all, the scheme that is nothing more than a free insurance policy for Wall Street: the policy of “too big to fail.”

We need a banking system that is part of a productive economy–making loans at affordable rates to small-and medium-sized businesses so that we create a growing economy with decent-paying jobs.  We need a banking system that encourages homeownership by offering affordable mortgage products that are designed to work for both the lender and the borrower.  We need a banking system that is transparent and accountable, and that adheres to the highest ethical standards as well as to the spirit and the letter of the law.

This is not the banking system we have today.  Wall Street cannot continue to be an island unto itself, gambling trillions of other people’s money on risky derivatives, acting illegally, and making huge profits, all the while assured that if its schemes fail, the taxpayers will be there to bail them out.

Of course, that is precisely what happened in 2008, when taxpayers bailed out Wall Street.  Financial institutions received a $700 billion gift from Congress.  And thanks to an amendment I offered in 2010, we were able to learn that the Federal Reserve provided $16 trillion in secret loans to some of the largest financial institutions and corporations in the U.S. and throughout the world.  We were told these unprecedented actions were necessary because the financial institutions involved were simply “too big to fail.”  In other words, they were so large and intertwined with all aspects of the economy that if they collapsed, the U.S. economy and maybe the entire global economy would go down with them.

One might have thought that, as part of the bailout, these huge banks would have been reduced in size to make certain that we never experience a recurrence of what happened in 2008.  Well, that’s not exactly what happened.  In fact, the very opposite occurred.  Today, three out of the four largest financial institutions–JPMorgan Chase, Bank of America, and Wells Fargo–are about 80 percent bigger than they were before we bailed them out.

Today the six largest banks issue more than two-thirds of all credit cards and more than 35 percent of all mortgages.  They control more than 95 percent of financial derivatives and hold more than 40 percent of all bank deposits.  Their assets have almost quadrupled since the mid-1990s and are now equivalent to nearly 60 percent of our GDP.

If these banks were too big to fail in 2008, what would happen if any of them were to fail toady?  The taxpayers would be on the hook again, and almost certainly for more money than in the last bailout.  We cannot allow that to happen.  No financial institution should be so large that its failure would cause catastrophic risk to millions of Americans or to our nation’s economic well-being.  No financial institution should have holdings so extensive that its failure would send the world economy into crisis.

If a bank is too big to fail, it is too big to exist.  When it comes to Wall Street reform, that must be our bottom line.  This is true not just because of the risk to our economy of another collapse and bailout; it is also true because the current extreme concentration of ownership in the financial industry allows a very small number of huge financial institutions to have far too much economic and political power over this country.

If Teddy Roosevelt, the Republican trustbuster, were alive today, he would say, “Break ’em up.”  And he would be right.

Here’s how we can do it.

We must pass legislation to cap the size of the largest financial institutions in this country so that their assets are no more than 2 percent of GDP–which is equal to about $350 billion today.  This would break up the ten biggest banks in the country: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, U.S. Bancorp, PNC, Bank of New York Mellon, and HSBC North America.

This is not a radical idea.  Under this plan, the size of JPMorgan Chase would simply go back to where it was in 1997.  Bank of America would shrink to where it was in 1998.  Wells Fargo would go down to where it was in 2002. And Citigroup would shrink to where it was during the second term of Bill Clinton’s administration.

Breaking up the big banks would reduce systemic risk in our financial system.  It would also mean increased competition.  Oligopolies–where the market is dominated by just a few economic actors–are never good for consumers.  Smaller banks are more likely to offer affordable financial products that Americans actually want and need, and consumers would have more banking products to choose from.

The idea of breaking up the too-big-to-fail banks is supported not only by a number of progressive economists, but also by some leading figures in the financial community.

The Independent Community Bankers of America, representing six thousand community banks, supports the idea because they understand that the function of banking should not be about speculation in derivatives and other esoteric financial instruments.  Rather, it should be about providing affordable loans to businesses to create jobs in a productive economy, and providing Americans with loans they can afford to purchase homes, cars, and other consumer needs.  In other words, the function of banking should be boring.

Past and present presidents of Federal Reserve banks in Dallas, St. Louis, Kansas City, and Minneapolis also support breaking up these behemoth banks.  While these individuals are much more conservative than I am, all of them understand how dangerous too-big-to-fail banks are to our economy.

And I am proud that for the first time, the Democratic Party is on record as supporting this concept as well, thanks to an agreement our campaign worked out with Hillary Clinton’s campaign.  The 2016 Democratic National Committee platform declares; “Banks should not be able to gamble with taxpayers’ deposits or pose an undue risk to Main Street.  Democrats support a variety of ways to stop this from happening, including. . .breaking up too-big-to-fail financial institutions that pose a systemic risk to the stability of our economy.”

This is a very important political step forward.  Now it is our job to make sure the next president and Congress turn that platform statement into reality.”


LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran


About tim074

I'm a retired dairy farmer that was a member of the National Farmer's Organization (NFO). Before going farming, I spent 4 years in the United States Air Force where I saved up enough money to get my down payment to go farming. I also enjoy writing and reading biographies and I write about myself as well as articles and excerpts I find interesting. I'm specifically interested in finances, particularly in the banking industry because if it wasn't for help from my local Community Bank, I never could have started farming which I was successful at. So, I'm real interested in the Small Business Administration and I know they are the ones creating jobs. I have been a member of Common Cause and am now a member of Public Citizen as well as AARP. I have, in the past, written over 150 articles on the Obama Blog (my.barackobama.com) and I'd like to tie these two sites together. I'm also on Twitter, MySpace and Facebook and find these outlets terrifically interesting particularly what many of these people did concerning the uprising in the Arab world. I believe this is a smaller world than we think it is and my goal is to try to bring people together to live in peace because management needs labor like labor needs management. Up to now, that hasn't been so easy to find.
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