Tag: Bank

The Bailouts and the Risk

It’s Bank Bash time again here at RTFLC. Presented for your consideration: the Atlantic’s expose on how tenuous the banks hold on sanity really is:

The financial crisis had many causes—too much borrowing, foolish investments, misguided regulation—but at its core, the panic resulted from a lack of transparency. The reason no one wanted to lend to or trade with the banks during the fall of 2008, when Lehman Brothers collapsed, was that no one could understand the banks’ risks. It was impossible to tell, from looking at a particular bank’s disclosures, whether it might suddenly implode.

Note that they are talking specifically about the banking crisis, not the mortgage crisis that precipitated it. That’s another issue entirely.

For the past four years, the nation’s political leaders and bankers have made enormous—in some cases unprecedented—efforts to save the financial industry, clean up the banks, and reform regulation in order to restore trust and confidence in the American financial system. This hasn’t worked. Banks today are bigger and more opaque than ever, and they continue to behave in many of the same ways they did before the crash.

It’s a very long read, but worth it. The go through the recent LIBOR and JP Morgan scandals and points out just how deceitful and opaque the banks have been on these subjects. The note how hesistant investors and the public are of investing in banks or entrusting their money to banks. They go through the books at Wells Fargo and discover just how opaque their investments are. In most cases, the value of trillions of dollars in assets is a guess. At best.

The solution they point to is not more Dodd-Frank or Sarbanes-Oxley complexity. No, it’s straight-forward disclosure to investors and to the general public who have, through TARP and the Federal Reserve, become the ultimate fiscal backstop:

The starting point for any solution to the recurring problems with banks is to rebuild the twin pillars of regulation that Congress built in 1933 and 1934, in the aftermath of the 1929 crash. First, there must be a straightforward standard of disclosure for Wells Fargo and its banking brethren to follow: describe risks in commonsense terms that an investor can understand. Second, there must be a real risk of punishment for bank executives who mislead investors, or otherwise perpetrate fraud and abuse.

These two pillars don’t require heavy-handed regulation. The straightforward disclosure regime that prevailed for decades starting in the 1930s didn’t require extensive legal rules. Nor did vigorous prosecution of financial crime.

Since [the 1980’s], however, the rules have proliferated, the arguments about compliance have become ever more technical, and the punishments have been minor and rare. Not a single senior banker from a major firm has gone to prison for conduct related to the 2008 financial crisis; few even paid fines. The penalties paid by banks are paltry compared with their profits and bonus pools. The cost-benefit analysis of such a system tilts in favor of recklessness, in large part because of the complex web of regulation: bankers can argue that they comply with the letter of the law, even when they violate its spirit.

The Basel I agreement was 18 pages long. Basel III is 616 pages long. And the current financial disclosure agreements can mean thousands of columns of numbers. Dodd-Frank may be end up being 30,000 pages long. Does that sounds like a transparent banking system to you?

Our government, of course, loves this situation because it means they can employ lots of regulators and gets lots of lobbyists genuflecting to them. But the result is that banks that don’t even know how much money they have.

This isn’t a fix. This is a system that employees zillions of regulators and lobbyists while our banking system becomes more complex, more opaque and more vulnerable. It makes bankers rich and unaccountable while leaving the taxpayers holding a bag that might be trillions of dollars deep.

And we really shouldn’t be surprised that this situation has only gotten worse under supposed communist Barack Obama. Matt Taibbi also has an article out detailing some of the chicanery behind TARP, particularly the way the Obama administration retasked it, lied about the use of TARP, lied about the health of the banks and allowed them to find ways to pay out gigantic bonuses despite the provisions that supposedly prevented it. He eventually reaches an identical conclusion: TARP has created a banking system that is more centralized, more complex and more at risk than ever before.

It’s not just the politicians, of course. What jumps out at you from the Taibbi article is the overweening sense of entitlement that emanates from the big banks: a sense of entitlement so profound, AIG (not a bank but it pretends to be one) is considering suing the government that loaned it $180 billion because its stock crashed.

(The Rolling Stone Article is a tough read because of Matt Taibbi’s famous bullshitedness. According to him, the only people who opposed TARP and stood in the way of this crony capitalist juggernaut were progressives. The battle over the bailouts is seen entirely in those terms. He completely ignores the deep conservative opposition to it. He says that TARP initially died because “95 democrats lined up against it” ignoring that 133 Republicans lined up against it too and that a majority of Republicans opposed in the eventual passage of the bill. Here’s the fucking roll call.)

We are not safer than we were five years ago. Our banking system is not more secure or more regulated. And, at some point, this is going to blow up on us.

John Huntsman was one of few in Election 2012 who tried to alert us to the danger we face. Ron Paul and Gary Johnson have also warned us about the danger of handing out large sacks of Federal Reserve funny money. But no one in power has picked it up. They’re too busy fighting each other over self-created crises like the fiscal cliff. And while they’re fighting over that cliff, we’re in danger of the whole fucking mountain falling out from under us.

This is being spun as an issue for “progressives” but it’s just as critical to conservatives and libertarians who value a sound banking system and straight-forward laws (also, you know, a functioning economy). We have to realize that this mess is bipartisan. Republicans may have opposed Dodd-Frank, but they haven’t exactly been proposing a new regime of better law. And Democrats may bash the big banks, but they take their campaign contributions and make sure no one knows what’s going on behind the doors.

No, it’s going to have to come from outside Washington, from the hundreds of millions of Americans who loaned the banks trillions and are still holding the bag four years later. I just fear that we won’t do anything about it until the next financial collapse plunges us into a dark age.

Modern Day Javerts

You know why I get irritated when people call Obama a Secret Communist Anti-Colonialist Crypto-Marxist Douchbag? Because if he actually were one, it would almost be preferable. At the very least, we wouldn’t have shit like this:

Richard Eggers doesn’t look like a mastermind of financial crime.

The former farm boy speaks deliberately, can’t remember the last time he got a speeding ticket, and favors suspenders, horn-rimmed glasses and plaid shirts. But the 68-year-old Vietnam veteran is still too risky for Wells Fargo Home Mortgage, which fired him on July 12 from his $29,795-a-year job as a customer service representative.

Egger’s crime? Putting a cardboard cutout of a dime in a washing machine in Carlisle on Feb. 2, 1963.

Now before you start bank bashing … and I’ll bash some banks later on, let’s go into exactly why Wells Fargo fired him for having done a stupid stunt before men landed on the moon. It’s not because they are an evil company.

Big banks have been firing low-level employees like Eggers since the issuance of new federal banking employment guidelines in May 2011 and new mortgage employment guidelines in February.

The tougher standards are meant to weed out executives and mid-level bank employees guilty of transactional crimes, like identity fraud or mortgage fraud, but they are being applied across-the-board thanks to $1-million-a day fines for noncompliance.

Banks have fired thousands of workers nationally because of the rules, said Natasha Buchanan, an attorney with Higbee & Associates in Santa Ana, Calif., who has helped some of the banking workers regain their eligibility to be employed.

“Banks are afraid of the FDIC and the penalties they could face,” Buchanan said.

The regulatory rules forbid the employment of anyone convicted of a crime involving dishonesty, breach of trust or money laundering. Before the guidelines were changed, banks widely interpreted the rules to exclude minor traffic offenses and some other misdemeanor arrests.

New rules have eliminated exceptions for expunged crimes and certain minor offenses and expanded the categories of employees covered, Buchanan said.

Of course, the bank executives — you remember those guys? — the ones who turned the financial system into a cat’s cradle made out of uncooked spaghetti and then came to us with their hands out when it fell apart? Yeah, this not sweeping them up. In fact, Wells Fargo agreed to pay the Feds $175 million to make a high-level investigation go away.

There’s a waiver process for people who have mended their ways — like Eggers, who has not put a fake coin in a laundry machine recently. But the process takes time … unless you’re a high-powered executive. And the banks are prioritizing getting those waivers for … high-powered executives. The FDIC may issue a grand total of 74 waivers this year. They are not going to people like Eggers.

This is not communism. It’s not capitalism either. It’s the Corporate Welfare State, where profits are privatized, losses are socialized, risks are encouraged and the wealthy well-connected bosses are never harmed. When the hammer does come down, for appearance’s sake, it comes on low-level employees and borrowers, not the big bosses or even the medium ones. And both parties are supporting this, as much as the GOP likes to pretend they opposed TARP.

Now about those banks. This is yet one more data point for the case that the big banks have gotten too big and too powerful for the health of our nation and our economy. This is not a case where the free market has created a oligarchic banking system. This is a case where the government, by bailing out big banks and letting them use that money to buy up small banks, has encouraged this; has created this. I have made this argument before. But this is again in the news with Simon Johnson making the case that breaking up the big banks should be part of the GOP platform (if necessary, they can make room by dropping the planks on Shariah law and outlawing abortion without exception). Here is John Carney, quoting the TARP watchdog on the problem. I’ll quote Johnson:

The big opportunity for presumptive Republican presidential nominee Mitt Romney and for conservatives more broadly is to choose this moment to pivot against big banks. Ryan is plugged into the Tea Party wing of the Republican Party, which has been consistently opposed to megabanks and the subsidies they attract through being too-big-to-fail (talk to Representative Ron Paul).

Ryan can draw on the intellectual support of senior figures in the Republican Party — including former Utah Governor Jon Huntsman, the presidential candidate who had the strong support of the Wall Street Journal editorial page for his approach to breaking up the megabanks. Senator Richard Shelby — ranking Republican on the Senate Banking Committee — is cagier, but seems inclined to be skeptical of the value of the largest banks as currently constituted. Two weeks ago, Senator David Vitter co-wrote a brilliant letter to Federal Reserve Chairman Ben S. Bernanke on the problems the banks pose.

In addition to politicians, the emerging consensus among heavyweight Republican intellectuals is that bigger banks should be forced to fund themselves with much more equity relative to debt — in other words, capital requirements should be significantly higher for any financial firm whose failure can cause broad damage. The argument is that too-big-to-fail is too- big-to-exist and the right way to pressure banks to break up is through capital requirements that increase along with a bank’s size.

A Romney-Ryan ticket has the opportunity to tap the Republican populist tradition (think Teddy Roosevelt). The megabanks — such as Bank of America Corp., JPMorgan Chase & Co. (JPM) and Citigroup Inc. — have become today’s government-sponsored enterprises. They receive large, opaque and dangerous subsidies, encouraging them to engage in excessive risk taking. The question is how best to remove those subsidies.

Removing the subsidies isn’t enough. The damage to our political, financial and legal systems is too extensive. I do like the requirement of higher capital requirements, which has some support. But I fear that if we don’t do something about this soon, we’re going to have a much worse situation on our hands.

Because firing people like Eggers isn’t working the problem.

(H/T to Maggie McNeill for the post title).

The Real Scandal in Washington

As I said in the comments on Alex’s post, I’m not too opposed to the double standard that gets applied to sex scandals. Republicans get hit harder because of the hypocrisy of dictating moral values to the nation when it comes to homosexuality and abortion while they schtupp lobbyists on the side.

But I do object to the failure to call out Democrats when they engage in hypocrisy that makes David Vitter look like Pope Benedict. The Democrats bombard us with an endless stream of propaganda about how they stand up for the little guy, they stand up to special interests, they oppose big money. And they do this while selling the country down the river to those exact interests. One week they are standing up to big insurance companies by pushing healthcare reform the insurance companies love. The next, they’re standing up to energy interests by lavishing money on “green” technology pushed by powerful energy interests. You can read Alex’s post below on the debacle unfolding at Fannie and Freddie, the liberal creation that was tangled up with every monied interest around and zealously defended against re-regulation by Democrats.

And then there’s Dodd-Frank, the bill that was supposed to stick it to the big banks in favor of the little guy. This is the bill that’s going to make Elizabeth Warren everyone’s second wife, constantly nagging us about our financial choices. This is the bill that was named after two men so covered in bank lobby money, their shit comes out in coin sleeves.

So how’s that bill working out? We’ve passed it, so now we can find out what’s in it.

Behold, the sudden realization:

Dodd-Frank is so sprawling — the legislation runs to more than 2,000 pages — that the law firm Morrison & Foerster dubbed the tracker it created to monitor the implementation process “FrankNDodd.”

The law laid out principles but often left it to regulators to write the actual rules. Those would be the same regulatory agencies that failed to prevent the financial crisis and that, in some cases, view the banks they oversee, not taxpayers, as their primary constituents.

Dodd-Frank requires 387 different rules from 20 different regulatory agencies. The Byzantine, tedious rulemaking process has occasionally pitted regulator against regulator and proved a bonanza for lobbyists.

Congress set aggressive deadlines for regulators to make rules to enforce the law, and, unsurprisingly, they are failing to meet them. The agencies missed each of the 26 deadlines they were supposed to meet for April. So far, regulators have finalized 24 rules and missed deadlines on 28, according to the law firm Davis Polk.

This is not an accident. This is not the creation of evil Republican deregulators. That the rule-making is coming to be controlled by special interests is exactly what we fucking predicted would happen.

What did we expect? Between Dodd-Frank and Sarbanes-Oxley, we are getting to the point here he only way to make money is to control the politicians and the regulators. Anyone else gets screwed. They only other choice is to take your business to less stupid countries.

Well, we all know this is the fault of the evil Republicans. Certainly the Democrats don’t … oh.

Every morning, a Wall Street trade group called SIFMA sends out an email with the day’s news. SIFMA is the Securities Industry and Financial Markets Association. It represents banks and trading firms. So it’s no surprise that the email is usually heavy with critical news stories about financial reform laws, like the Dodd-Frank Act.

But tonight, SIFMA will be hosting a fundraising dinner for Democratic Congressman Barney Frank: yes, he’s the Frank in Dodd-Frank. SIFMA members will pay $1,000 or more for a seat at the table.

The Wall Street interests are also big Obama contributors.

This needs to be drilled into people’s heads: the rich and the powerful love hyper-regulation. They love it. They love it because they have the money and the influence to successfully navigate a politically-controlled landscape. All that over-regulation accomplishes is the screwing over of newcomers — those who don’t have influence yet and haven’t stuffed political war chests with their hard-earned money. The guys who brought down our financial system love Barney Frank and they love Dodd-Frank because they are protected; they have the keys to the vault (literally, in the case of bailouts).

And the politicians love it too. How else would a turd like Barney Frank get his bloated ass kissed by rich bankers? How else would Obama roll up $35,000 donations? They love having people come to Washington and genuflect before them. They love having the success of businesses and the fate of hundreds of billions of dollars turn on their whims and whimsies. This is what they live for.

The only people who lose are the average citizen, the honest businesses, the economy and the sucker lefties who continues to mindlessly support these weasels and their weasely reforms.