The US House of Representatives today released the results of its three-year investigation – hampered along the way by the Department of Justice and the Department of the Treasury – into why HSBC and its executives weren’t prosecuted.
Empirical evidence has told us for years that in the US a bank and its executives cannot be prosecuted if the bank is big enough. We’ve come to call this type of bank “Too Big to Jail.”
Empirical evidence has also told us that a bank can do essentially whatever it wants to, given that, if caught, it may have to pay a fine that then becomes just part of the cost of doing business. Wall Street doesn’t care about fines. They’re “extraordinary items” that banks and analysts systematically exclude from their “ex-items” per-share earnings.
Fines matter under GAAP reporting. But they don’t matter in the rosy picture that Wall Street paints of the banks. And so they don’t matter.
But now comes the House Financial Services Committee and offers evidence beyond our “empirical evidence”: a 288-page report, “Too Big to Jail: Inside the Obama Justice Department’s Decision Not to Hold Wall Street Accountable.” And below is the Committee’s galling summary. Enjoy!
Senior U.S. Department of Justice officials overruled internal recommendations to prosecute global bank HSBC Holdings Plc for money-laundering violations because of concerns about the stability of the financial system, according to a congressional report released on Monday.…Business Insider
Former Secretary of State Hillary Clinton, in her debate with Senator Sanders minutes ago, said that she went to Wall Street and told them to stop their “shenanigans.” The context was that she was being asked to respond to the complaint that she was too close to on Wall Street billionaires. She had every incentive, therefore, to demonstrate how tough she would be on Wall Street. In that context, the best she could muster was the pusillanimous “shenanigans.” …
Hillary cannot bring herself to use the “f” word in the context of Wall Street CEOs leading the largest and most destructive fraud epidemics in history – frauds that made them spectacularly wealthy. A few minutes later, Bernie said that “fraud” was Wall Street’s business model.…New Economic Perspectives
Generally speaking, businesses earn profits in one of two basic ways. The first is by providing goods and services more productively than others and selling them at a price people are willing to pay. The second is by seeking rents. “Rent,” in the economic sense, refers broadly to any excess benefits that people and businesses receive simply because they have power over something that others need. Patents are a form of rent, as are cable TV monopolies.
For economists, rent-seeking is everywhere, and is a common way that economies go awry. Crudely speaking, productivity enhancement is good, because it makes society richer over all. Equally crudely, rent-seeking is bad, because it makes the people who are already rich even richer. Rent-seeking tends to be a force against innovation and for stagnancy, in large part because its focus is on the past — on maintaining power and influence gained long ago, often at the expense of innovation. Businesses built around rent-seeking don’t try to increase the size of the pie; they just want to make sure they get a bigger slice. (If a company doesn’t seem to care about your opinion of it as a customer, there’s a good chance that it is seeking rents.) — Adam Davidson
Last week’s settlement between the Justice Department and five giant banks reveals the appalling weakness of modern antitrust.Because "free markets." How does that follow? Doesn't have to.
The banks had engaged in the biggest price-fixing conspiracy in modern history. Their self-described “cartel” used an exclusive electronic chat room and coded language to manipulate the $5.3 trillion-a-day currency exchange market. It was a “brazen display of collusion” that went on for years, said Attorney General Loretta Lynch.
But there will be no trial, no executive will go to jail, the banks can continue to gamble in the same currency markets, and the fines – although large – are a fraction of the banks’ potential gains and will be treated by the banks as costs of doing business.
America used to have antitrust laws that permanently stopped corporations from monopolizing markets, and often broke up the biggest culprits.
No longer. Now, giant corporations are taking over the economy – and they’re busily weakening antitrust enforcement....
I received a message last week from a savvy reader, a former McKinsey partner who has also done among other things significant pro-bono work with housing not-for-profits (as in he has more interest and experience in social justice issues than most people with his background). His query:
We both know that financialization has, among so many other things, turned large swaths of the capital markets into a casino
Here’s my thought/question: is there a house?
The common wisdom is that the ‘house wins’ in casinos
In all likelihood, at least in the great financial crisis, the TBTF banks were the ‘house’… yet, it’s at least a bit different from a casino house because, absent the bailouts, those banks would not have won.
So, who or what was really the ‘house’? Was it the Fed? Did the Fed actually ‘win’?
Naked CapitalismMaybe the ‘house’ is the 1% …. or, more precisely, the .01%???
With the other Wall Street behemoths also on shaky ground, then–Treasury Secretary Henry Paulson ran to Capitol Hill, accompanied by Federal Reserve Chairman Ben Bernanke and New York Fed President Timothy Geithner. Their message was clear: The apocalypse was nigh. They demanded Congress make an open-ended commitment to bail out the banks. In a message repeated endlessly by the punditocracy ever since, the failure to cough up the money would have led to a second Great Depression.
The claim was nonsense then, and it’s even greater nonsense now.Counterpunch
When people talk about politicians that aren't friendly to Wall Street, they always bring up Senator Elizabeth Warren (D-MA).
They rarely remember a man who's quietly proposed more bipartisan Wall Street regulation than Warren — Ohio Senator Sherrod Brown (D).
Now is the time to remember him though, because if the Democrats keep control of the Senate Brown could end up heading the powerful Senate Banking Committee according to Guggenheim Securities analyst Jaret Seiberg
"If Democrats keep the Senate, Sen. Sherrod Brown may be the next chairman," Seiberg wrote in a recent note. "This is the senator who wants the biggest banks to maintain a 15% equity to assets ratio. Despite this, he also would help the regional banks, small banks and insurers and could favor raising the SIFI [Systemically Important Financial Institutions] threshold to $100 billion or more.
That 15% ratio is part of a bill Brown proposed along with Senator David Vitter (R-LA). It's called the "Terminating Bailouts for Taxpayer Fairness" Act and is meant to end 'Too Big To Fail.'…Business Insider
Size does matter. Interconnectedness matters. Put them together and you’ve got the recipe for another Global Financial Crisis that will force the Treasury and the Fed to bail-out the Squid again.Economonitor — Great Leap Forward
Here’s another story in the continuing saga of Bankster fraud.
As I’ve argued since 2008, it is likely that all—or nearly all–of the residential mortgage backed securities (RMBSs) are fraudulent. The Banksters engaged in fraud at every link in the RMBS food chain.
They defrauded the borrowers. They forced the appraisers to commit fraud (pressured them to overvalue property). They conspired with ratings agencies to overvalue the RMBSs. They created MERS to destroy property records and to cheat local governments out of recording fees. They separated the promissory notes from the deed of trust, invalidating the lien. They hired BurgerKing Robo-signers to create forged documents. They lie in court, committing perjury. They steal homes from owners who don’t even have mortgages. And on, and on, and on. Their depravity knows no bounds.
But here’s an entertaining story. Bear with me, it is a bit complicated.New Economic Perspectives
On Wall Street today the talk is all about former Treasury Secretary Tim Geithner's new book that hits in the stands next week. Among the many admissions is that he was too soft on big banks. Wow, Tim, ya think?CNBC NetNet
The head of the Federal Reserve Bank of New York said Thursday that some of America’s largest financial institutions appear to lack respect for the law, a potentially explosive charge against an industry already roiling from numerous government investigations into alleged wrongdoing.
William Dudley, one of the nation’s top banking regulators whose organization helps oversee Wall Street banks including JPMorgan Chase and Citigroup, made the comment during a speech focused on the problems posed by banks perceived to be “too big to fail,” and possible solutions to correct them.
But in an abrupt turn, Dudley suggested that regulators may be stymied by "cultural" issues that have negatively affected the nation's biggest banks.
“Collectively, these enhancements to our current regime may not solve another important problem evident within some large financial institutions -- the apparent lack of respect for law, regulation and the public trust," he said.
“There is evidence of deep-seated cultural and ethical failures at many large financial institutions,” he continued. “Whether this is due to size and complexity, bad incentives, or some other issues is difficult to judge, but it is another critical problem that needs to be addressed.”Is Bill Dudley finally reading Bill Black?
Credit unions have been snatching customers from banks amid consumer frustration over rising fees and outrage over Wall Street's role in the financial crisis.
Now banks are fighting back by trying to take away something vital to credit unions — their federal tax exemption.
With fast-growing credit unions posing more formidable competition to banks, industry trade groups are pressing the White House and Congress to end a tax break that dates to the Great Depression....
Credit unions said the effort to take away their tax exemption was simply an attempt to stifle competition and remove one of the only checks on bank fees for consumers.And it comes as some in Congress are pushing to loosen regulations on credit unions so they can expand their business further, including legislation that would lift a cap on the amount of money they can lend to businesses.
The tax exemption is crucial to credit unions, which by law can't raise capital through public stock offerings the way that banks can, said Fred R. Becker Jr., president of the National Assn. of Federal Credit Unions, a trade group with about 3,800 federally chartered members.
"They'll have to convert to banks, which is what the banks want," he said. "Then they'd have, for lack of a better term, a monopoly."Los Angeles Times
At the moment, it’s a war of words, but very soon the debate to tax credit unions will hit the streets.
This week, credit union supporters from South Florida and throughout the country will descend on Washington, D.C. to “Hike the Hill” and meet with lawmakers to stress the importance of keeping in place the federal tax exemption for credit unions.
The debate is nothing new. For years, the big banks have lobbied Congress to repeal the tax exemption status. This time around, they declared war.....
Any individuals who feel strongly about the taxation issue are encouraged to ... sign the “Don’t Tax My Credit Union” petition.
In the last few days, the Department of Justice (as well as the SEC) filed a case against Bank of America over a 2008 prime mortgage securitization that takes breaks some new ground in fraud allegations and is also saber-rattling in the form of launching a criminal investigation into JP Morgan’s sale of mortgage backed securities.
So what’s with the new-found religion? The Snowden effect? Perhaps, but given that cases take a while to gin up, this may be Holder trying to rebuild what little he has left in the way of a reputation after confirming remarks made by others in his office that some animals, um, banks, were more equal than others. [allusion to George Orwell's Animal Farm]....
It’s inconceivable that the DoJ would indict JP Morgan at a corporate level. Not only would Holder not risk destabilizing the bank, there’s simply no way the Treasury would let him go there. If any actual criminal charges are contemplated (remember, this is just an investigation), expect a rerun of the UBS Libor strategy, where UBS paid a large fine for Libor rigging and admitted to criminal conduct…in its Japanese unit. I’d be delighted to be proven wrong, but there’s no reason to expect anything other than new and better optics from the Obama Administration at this late date.Naked Capitalism
