The following is an excellent excerpt from the book ALL THE PRESIDENTS’ BANKERS: The Hidden Alliances That Drive American Power” by Nomi Prins from Chapter 19 titled “the 2000s: Multiple Crises, the New Big Six, and Global Catastrophe” on page 418 and I quote: “The Justice Department Goes Soft on Bankers – Many congressional hearings and investigations have probed the bankers’ practices since the crisis that began in 2007. Similar to the Pujo hearings after the Panic of 1907, though, they have resulted in nothing material against the bankers with the strongest political alliances. And unlike the impact of the 1932-1933 Pecora Commission hearings, no substantive regulatory act has passed to significantly alter their behavior. Though banks would end up paying various fines and legal settlements, that amounted to fractions of pennies on the dollar relative to their immense asset bases. Their structure and influence remained unaltered.
As of September 1, 2013, the SEC reported it had levied just $1.53 billion in fines and $1.2 billion in penalties, disgorgement, and other money relief against the big banks for their multitrillion-dollar global Ponzi scheme—or as the SEC put it, “addressing misconduct that led to or arose from the financial crisis.” Goldman paid a $550 million fine from the SEC for a similar allegation. The firm admitted no guilt for the related activities. Bank of America paid a $150 million fine without admitting any guilt for misleading shareholders regarding its payment of Merrill Lynch’s bonuses when it took over the firm. JPMorganChase eventually settled the London Whale probe with a $1.02 billion fine, greater than the fines it paid the government for all of its housing-related infractions. Though the firm admitted that it had violated banking rules by not properly monitoring trading operations, that kind of admission was akin to copping a misdemeanor plea while facing a major felony.
On August 1, 2013, a federal judge approved a $590 million settlement by Citigroup in a shareholder lawsuit accusing the bank of hiding billions of dollars of toxic mortgage assets. On that same day, a jury found former Goldman Sachs banker Fabrice Tourre liable for his role in the Abacus deal, which lost some investors $1 billion. The ruling was dubbed a major victory for the SEC. “We had obviously gratified by the jury’s verdict and appreciate their hard work,” lead SEC lawyer Matthew Martens said.
The Justice Department chose not to criminally prosecute the chairmen from Goldman or JPMorgan Chase (both of whom ranked in the top twenty for Obama’s career campaign contributors) or from anywhere else for creating faulty CDOs, trading against them, dumping them on less knowledgeable investors, or otherwise speculating with capital supposedly siphoned off for more productive and less risky purposes.
Similarly, the Justice Department punted on processing Jon Corzine, the former governor of New Jersey and a top-tier bundler for Obama. Steering his firm MF Global into an abyss, Corzine had bet more than $6 billion on European sovereign debt. The $1 billion MF Global “mistake,” the multi-billion-dollar losses on bets made by Chase, the CDOs chosen by the firm’s biggest hedge fund clients that had been set up to fail—these were apparently just minor events in the scheme of making money and maintaining alliances. On October 31, 2011, MF Global filed Chapter 11, with $41 billion in assets and $39.7 billion in debt, the eighth largest bankruptcy in US history. Four days before the collapse, Corzine sent an email to an employee “to strategize how they could use customer segregated funds [and get JPMorgan Chase] to clear MF Global’s trades more quickly.” He avoided criminal fraud charges.
The general response of Obama and his cabinet toward Wall Street criminality and the sheer unsavoriness of its leaders showed the degree to which nothing had changed and the lack of commitment to reform. If nothing changes fundamentally in the banking landscape, more and larger crises are a given. The most powerful banks are bigger, more interconnected, and more reliant on cheap money and federal largesse than ever. Their leaders are unrepentant and unaccountable. Their political alliances require nothing of them anymore except some fines that can be readily re-earned.
Lucky 2013 – By 2013, the major global banks were sitting on nearly $3.3 trillion of excess reserves (about $2 trillion for the US banks at the Fed and the rest at the European Central Bank), refusing to share their government aid with the citizens of the world.
By October 2013, the government was careening toward a debt cap of $16.49 trillion, and the weakness of the US political system relative to the financial one was demonstrated by a government shutdown over budget and ego squabbles. The Fed’s balance sheet had ballooned to a historic record of just over $3.7 trillion, comprised in part by $2.1 trillion of treasuries, or nearly $2 trillion in excess bank reserves. These government debt securities were issued by the US Treasury, purchased by the banks, and then reverted as excess (nonrequired) reserves to the Fed—in other words, a nonproductive circle of extra national debt issued for no real reason. In addition, the Fed books contained $1.34 trillion of mortgage-backed securities (following the establishment of an $85 billion per month mortgage-backed and Treasury securities purchase program, totaling more than $1 trillion per year). The size of the Fed’s books had increased by 25 percent since July 2011 and 50 percent since July 2009, and it stood at ten times the amount it had been in July 2008. All of this debt was held as means to prop up bond prices so the bankers could maintain higher values on their books of associated securities, and to keep rates low so that money remained cheap, under the guise of aiding the broad economy.
In numerous speeches, Bernanke condoned his zero-interest rate policy and “quantitative easing” bond-buying policies, which kept the rates at which banks borrowed money on other speculative ventures, and their remaining faulty mortgage-backed securities would be bought by the Fed. Their 2012 bonuses rose $20 billion, up from 2011.
The cycle of banker-White House alliances persisted. The senate confirmed Obama’s choice of Jack Lew to succeed Tim Geithner as Treasury secretary on February 27, 2013. Lew was no stranger to big bankers either. In his prior role as Obama’s director of the Office of Management and Budget, he met often with Wall Street’s elite. Before that, he had served in the Clinton White House with Rubin, and with Summers during the Glass-Steagall repeal days.
Like his mentor, Rubin, Lew had worked at Citigroup, where he served as chief operating officer of the alternative investments unit. He got paid $940,000 in early 2009, while Citigroup was inhaling bailout funds. He had served in the division that the SEC charged with hiding $39 billion of subprime debts in off-balance-sheet structured investment vehicles. In Washington, he just might help Citigroup regain some of its old glory.
Banks Wrapping Up – By November 2013, four years after the Federal Crisis Inquiry Commission first convened (it went on to hold nineteen days of public hearings and review millions of pages of bank documents on the causes of the financial crisis), the total amount of SEC fines levied along with various, mostly mortgage-related, legal settlements for the six major US banks reached about $80 billion, or about 0.8 percent of their assets. Of that, only the $1 billion levied for JPMorgan Chase’s London Whale trade involved admission of a crime. The total figure was equivalent to one month of the Fed’s mortgage and Treasury securities purchase program, which entailed buying many similar potentially questionable securities from the banks, thereupon aiding the funding of their “punishments.”
The media reported the multibillion-dollar bank settlements as if they had far more meaning to the population than they actually did, especially considering only approximately $20 billion of them involved cash fines.
Relative to the big Six banks’ assets of approximately $9.6 trillion and their profits over the years preceding the financial crisis, the figure was a drop in the bucket, and revealed a “let them shoot first, get questioned later” attitude on the part of the federal justice and regulatory system.
The Obama administration remained silent on what constituted, if even unofficially, mass organized crime, or at least gross incompetency and fraud (though not admitted) on the part of the banking system and its leaders. Moreover, even though most of these repercussions were related to the banks’ ability to issue, source, repackage, trade, and distribute complex mortgage and related securities from under one roof, there came no bold statements from the White House on resurrecting a Glass-Steagall Act that would once again prohibit these joint activities within one bank. Neither the details nor the occurrence of the settlements and ongoing investigations served to shake the support, and thus the unofficial endorsement, of the Oval Office for the bankers’ power in the form of their overall structure or their Federal Reserve-backed status.
Though WorldCom CEO Bernie Ebbers and Enron CFO Andrew Fastow went to jail for their corporate misdeeds, no major bank CEO was found to have done anything criminally wrong while presiding over practices that caused great global harm, though some of their more junior staff took the heat. That too had historical precedent: bankers with tighter ties to the president or Treasury secretary tend to get passes. They control the money flow. If the “money trusts” back in the 1910s were powerful, after a century of Fed backing and tightening political-financial alliances, the millenial money masters of today are even more so.
The moral hazard of supporting their movements has become far greater. One major difference between now and then is that the control of finances by private bankers is far broader, the complexity of financial instruments greater, and the danger of a total systemic collapse more likely.
We Must Break the Alliances – In a November 2009 interview with London’s Sunday Times, Lloyd Blankfein, was asked about the size of his firm’s staff bonuses. He claimed that he was just a banker doing “God’s work.” As for the economic disparities that “work” engendered, he said, “We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all.” After all, he explained, Goldman Sachs is helping “companies to grow by helping them to raise capital. We have a social purpose.” His words, which he noted as tongue-in-cheek later, echoed so false against the backdrop of a deflated public economy that all manners of media slammed them.
But there was a kind of truth to what he said.
There have been times when the biggest bankers shattered public trust and times when the public believed that bankers’ interests somewhat aligned with their own. In those periods, bankers took public service roles that weren’t just related to the economy, and they didn’t flaunt their wealth. The Great Depression provoked a climate of social responsibility. Related bank regulation lasted for decades. During World War II, many Americans even equated bankers with patriotism.
Today, no such attitude prevails. Never before have the government and the Federal Reserve collaborated so extensively by propping up the banking system to the detriment of the population. Never has the world been so quick to push austerity on countries whose only crime was standing in the way of banker speculation. Never have bankers thought this was copacetic. Never have their political alliances been so widespread yet so impersonal. Never have their rewards been so high.
When money has no cost, the consequences of using it irresponsibly have no cost either. The bankers’ bets and actions crushed the global economy before, and they will again. The most powerful ones emerged unscathed. They had proven to be as influential, if not more so, than their alliances. But they cannot be allowed to continue. For absent a true shakeup in the structure of the financial industry and realignment of the power bankers wield over the general economy, we will surely face more financial crises in the years to come.
The nature of twenty-first-century political-financial alliances will reinforce and fortify the bankers’ power, even as bankers continue to behave in ways that will lead to more widespread economic pain. The reality is that financial crises will worsen and may spread to Latin America, the Middle East, and Asia, for the mechanisms of global finance are more destructive.
US hegemony and the strength of Wall Street have been closely aligned for more than a century, during which certain private bankers have achieved a position of greater power than the presidency (or central banks). The crises of the past decade were a manifestation of what happens when US bankers operate beyond the control of government, often enabled by the highest political office in the world. Whereas the mid-twentieth-century ushered in a sense of humility and unity between private finance and public service, by the 1970s that ship had sailed.
There’s a reason that the Fed bailed out the biggest banks, that Dodd-Frank was toothless, and that Obama dared even to consider Larry Summers, a tried-and-true Clintonian Rubinite, to head the Fed after Bernanke. After Summers’ withdrawal, on October 9, 2013, Obama similarly opted for Janet Yellen—a former chair of Clinton’s economic council while Glass-Steagall was being dismantled and Fed vice chair beside Bernanke, who advocated massive subsidy programs to buoy the banking system.
It no longer matters who sits in the White House. Presidents no longer even try to garner bankers support for population-friendly policies, and bankers operate oblivious to the needs of national economies. There is no counterbalance to their power. And since America’s latest elected leader pressed the pretense of financial reform instead of actually pushing for real reform, bankers can do greater damage than ever before. Bankers dominate the globe using other people’s money, and presidents gain command through other people’s votes, but in the ongoing game of influence and control, these are mere chips that grant players a seat at the table of power.
America operates on the belief that if its biggest banks are strong, the nation will be too. It is not US military might alone that evokes global trepidation; it is also US financial might, in the form of the alliance between the presidency and the major bankers.
No other country on the planet is driven by such a critical symbiotic and costly relationship. This is why US hegemony, from a financial superpower perspective, is not in decline. The most elite US bankers and government officials understand that their positions are mutually reinforcing, with the Fed serving as a support vessel in the middle. The US bank heads retain more influence over global capital than any government, and their unique alignment with the presidency is a force that will fortify America’s power, often at the expense of populations the world over.
Our choice is simple: either we break the alliances, or they will break us.”
(WHOEVER GETS ELECTED AS PRESIDENT IN 2016, MUST HAVE AN ATTORNEY GENERAL THAT WILL BREAK THE ALLIANCES WITH BANKING AND WHEN YOU HAVE AN INVESTMENT BANKER AS ARROGANT AS LLOYD BLANKFEIN WHEN HE WAS BEING INTERVIEWED BY LONDON’S SUNDAY TIMES IN NOVEMBER 2009, MADE THE COMMENT THAT “HE WAS JUST A BANKER DOING GOD’S WORK.” IF HE EXPECTS ME TO BELIEVE SOMETHING THAT STUPID WHEN WE’RE HAVING SO MANY CIVIL WARS IN COUNTRIES ALL OVER THE WORLD AND THEIR INVESTMENT BANKERS EXPLOITING THEIR CUSTOMERS, USING ALL THOSE TOXIC DERIVATIVES THEY’RE CREATING AND SOME SEEM ARROGANT IN OUR COUNTRY, WHO ARE ATTEMPTING TO EVEN RUN FOR POLITICAL OFFICE JUST BECAUSE THEY’RE SO SHREWD AND EXPLOITED THE MONEY FROM US TAXPAYERS. JUST BECAUSE THEY GOT AWAY WITH EXPLOITING ALL THIS MONEY THE WAY THE LONDON WHALE DID, DOESN’T MAKE THEM GOOD CANDIDATES FOR PUBLIC OFFICE BECAUSE IT TAKES ANOTHER KIND OF PERSON TO RUN FOR PUBLIC OFFICE AND THAT IS, A PERSON THAT HAS A HEART, WHICH THESE HEDGE FUNDS, PRIVATE EQUITY, AND VENTURE CAPITALISTS, WHICH ARE PROMOTING ALL THOSE GROWING, UNREGULATED, TOXIC DERIVATIVES, SHOULD BE PUT IN JAIL, RATHER THAN BE ELECTED TO OFFICE BECAUSE THEIR TOXIC DERIVATIVES ARE WORTHLESS. I KNOW WHAT AN ASSET IS. I USED TO FARM. IT STARTS WITH THE LAND AND ALL THE COMMODITIES THAT COME FROM IT, WHICH WAS ILLUSTRATED AT THE START OF THE BOOK BY THE STARVING BANKERS WORKING AS A LION AND A GORILLA IN A CIRCUS, JUST FOR SOMETHING TO EAT IN 1933. SINCE TOXIC DERIVATIVES HAVE NOT PROVED THEMSELVES AS A REAL ASSET THEY MUST BE GOTTEN RID OF. JUST LIKE COUNTERFEIT MONEY MUST NOT BE ALLOWED IN THE ENTIRE FINANCIAL SYSTEM.
LaVern Isely, Overtaxed Independent Middle Class Taxpayer and Public Citizen and AARP Members