Minds are changing on Too Big to Fail. A month ago, it was just something in the air. Now, it looks like we're headed for a real legislative confrontation. And man, is the finance sector freaking.
Last week, on April 24th, Democratic Senator Sherrod Brown of Ohio and Louisiana Republican David Vitter introduced legislation called the "Terminating Bailouts for Taxpayer Fairness Act of 2013 Act," or the "Brown-Vitter TBTF Act" for short. The bill is a gun aimed directly at the head of the Too-Big-To-Fail beast.
During the Dodd-Frank negotiations a few years ago, Brown teamed up with Delaware Democrat Ted Kaufman to introduce an amendment that would have physically capped the size of the biggest banks. The amendment was bold and righteous but was slaughtered on the floor by a 61-33 margin, undermined by leaders of both parties – 27 Democrats voted against it.
Brown-Vitter offers a different and, in a way, more elegant solution to the problem than Brown-Kaufman. Rather than impose size limits, it simply insists that banks with over $500 billion in assets maintain higher capital reserves than are currently required. Companies like J.P. Morgan Chase, Wells Fargo, Morgan Stanley, Goldman Sachs, Citigroup and Bank of America will have to keep capital reserves of about 15 percent, about twice the current amount.
The bill only has such tough requirements for just those few megabanks, which sounds unfair, except that the aim of the bill, precisely, is to level the playing field. Right now, the biggest U.S. banks enjoy a massive inherent market advantage in that they're able to borrow money far more cheaply than other banks, because everybody on earth knows the government will never let them fail and will always bail them out in a pinch, making their debt essentially U.S.-government guaranteed. Studies have shown that these banks borrow money at about 0.8 percent more cheaply than other banks, and that this implicit government subsidy is worth about $83 billion a year just to the top 10 banks in America. This bill would essentially wipe out that hidden subsidy and make the banks bailout-proof.
As soon as Brown-Vitter was introduced, a very interesting thing happened. The Independent Community Bankers of America, or ICBA, issued a press release boosting the bill. "ICBA strongly supports this legislation," the release read, "and urges all community banks to join the association in advocating passage of legislation to end too-big-to-fail."
If you haven't already, now would be a good time for you to go buy Matt Taibbi's book, "Griftopia". In the book, he explains with absolute clarity how bubbles are made and how they burst, and how Wall Street manufactures them in order to relieve ordinary people of their hard-earned money.
While most media attention towards fracking has focused on the threats to drinking water and health in communities throughout North America and the world, there is an even larger threat looming. The fracking industry has the ability - paralleling the housing bubble burst that served as a precursor to the 2008 economic crisis - to tank the global economy.
Playing the role of Cassandra, the reports conclude that "the so-called shale revolution is nothing more than a bubble, driven by record levels of drilling, speculative lease & flip practices on the part of shale energy companies, fee-driven promotion by the same investment banks that fomented the housing bubble..." a summary details. "Geological and economic constraints – not to mention the very serious environmental and health impacts of drilling – mean that shale gas and shale oil (tight oil) are far from the solution to our energy woes."
I'm certain these reports will be dismissed as the left-wing answer to right-wing climate change deniers. Before naysayers do that, they should consider the sources behind the report.
Hmm, might that old line about "given the choice between a real Republican and a fake one, voters will pick the real ones every time" apply here? This presidential race shouldn't be this tight -- and it wouldn't, if the Obama administration and the Democratic caucus hadn't ignored the pressing needs of the poor. Instead, they're worried about the kind of millionaires who see themselves as "battered wives":
The multimillion-dollar high-rise being built near his office, Bill Moyers said Friday, is evidence of the “new Gilded Age” running roughshod over the U.S., which he discussed with journalists Chrystia Freeland and Matt Taibbi.
The building will be built in New York, where Moyers said the income disparity among residents rivals that of a Third-World country. In spite of that, neither Barack Obama nor Mitt Romney have broached the subject in the midst of the 2012 presidential campaign.
One reason for that, Freeland said, was that the notion runs counter to how the country has set up its economic system; the minute Obama even suggested that the rich pay more taxes brought on cries of “class warfare.”
“You know, there was an activist investor who sent an e-mail to his friends,” Freeland said. “The subject line is, ‘battered wives.’ And in the e-mail he compares himself and his fellow multi-millionaires to battered wives who are being beaten by the president. He actually uses those words.”
And while the rich fight to get richer, Taibbi said, the Democratic Party shifted toward not fighting for the poor like it used to, starting with increased fundraising pushes during Bill Clinton’s presidency.
“Economically, they began to side more and more with Wall Street and more and more with the very rich,” he said. “And they’ve, I think we’ve now reached the point where neither party really represents the very poor in the way that the Democrats maybe used to. And so, that there’s, that’s why, you know, you don’t see it in the debates, because neither party is really an advocate for that kind of left behind class anymore.”
It is clear that President Obama's messaging is not working and that he's missing some huge opportunities to call out the ridiculous fantasy of Romney's economic plan when most Americans polled trust Romney to handle the deficit more than Obama. Any sentient being who employs even basic thinking skills should be able to see that Romney and Ryan's economic plans are simply mathematically impossible, but yet, that computation isn't coming through.
I've never thought much of Joe Biden. But man, did he get it right in last night's debate, and not just because he walloped sniveling little Paul Ryan on the facts. What he got absolutely right, despite what you might read this morning (many outlets are criticizing Biden's dramatic excesses), was his tone. Biden did absolutely roll his eyes, snort, laugh derisively and throw his hands up in the air whenever Ryan trotted out his little beady-eyed BS-isms.
But he should have! He was absolutely right to be doing it. We all should be doing it. That includes all of us in the media, and not just paid obnoxious-opinion-merchants like me, but so-called "objective" news reporters as well. We should all be rolling our eyes, and scoffing and saying, "Come back when you're serious."
The load of balls that both Romney and Ryan have been pushing out there for this whole election season is simply not intellectually serious. Most of their platform isn't even a real platform, it's a fourth-rate parlor trick designed to paper over the real agenda – cutting taxes even more for super-rich dickheads like Mitt Romney, and getting everyone else to pay the bill.
Taibbi tells Eliot Spitzer that the media needs to pushback hard and demand answers. Yeah well, good luck with that. The media has been enabling Romney and Ryan from the beginning. Think they're gonna actually do their job now?
Rolling Stone's Matt Taibbi, who has done more than just about anyone to keep Wall Street perfidy in the public spotlight, points out their latest successful effort to undermine what few regulations they do have.
Wall Street lobbyists are awesome. I’m beginning to develop a begrudging respect not just for their body of work as a whole, but also for their sense of humor. They always go right to the edge of outrageous, and then wittily take one baby-step beyond it. And they did so again last night, with the passage of a new House bill (HR 2827), which rolls back a portion of Dodd-Frank designed to protect cities and towns from the next Jefferson County disaster.
Jefferson County, Alabama was the most famous case – the city of Birmingham went bankrupt after being bribed and goaded into taking on billions of dollars of toxic swap deals – but in fact it was just one of hundreds of similar examples of localities being duped into suicidal financial deals by rapacious banks and financial companies. The Denver school system, for instance, got clobbered when it opted for an exotic swap deal pushed by J.P. Morgan Chase (the same villain in Jefferson County, incidentally) and then-school superintendent/future U.S. Senator Michael Bennet, that ended up costing the school system tens of millions of dollars. As was the case in Jefferson County, the only way out of the deal involved a massive termination fee that might have been even more destructive than the deal itself.
To deal with this problem, the Dodd-Frank Act among other things included a simple reform. It required the financial advisors of municipalities to do two things: register with the SEC, and accept a fiduciary duty to respect the best interests of the taxpayers they are advising.
Sounds simple, right? But Wall Street couldn’t have that. After all, if companies are required to have a fiduciary responsibility to cities and towns, how in the world can they screw cities and towns? The idea was a veritable axe-blow to the banks’ municipal advisory businesses.
So what did Wall Street lobbyists and trade groups like SIFMA (the Securities Industry and Financial Markets Association) do? Well, they did what they’ve been doing to Dodd-Frank generally: they Swiss-cheesed the law with a string of exemptions. The industry proposal that ended up being HR 2827 created several new loopholes for purveyors of swaps and other such financial products to cities and towns. Here’s how the pro-reform group Americans for Financial Reform described the loopholes (emphasis mine):
For example, any advice provided by a broker, dealer, bank, or accountant that is any way “related to or connected with” a municipal underwriting would be exempted from the fiduciary requirement. A similar exemption would be created for all advice provided by banks or swap dealers that is in any way “related to or connected with” the sale to municipalities of financial derivatives, loan participation agreements, deposit products, foreign exchange, or a variety of other financial products.
So basically, if you’re underwriting a municipal bond for a city or a town, and you happen also to give the city or town advice about some deadly swap deal that will put the city into bankruptcy for the next thousand years, you don’t have a fiduciary responsibility to that city or town. The banks’ view is that being asked to perform the merely-technical function of underwriting a bond is very different from advising someone to take on an exotic swap deal – so if a bank is mainly an underwriter and happens to offhandedly recommend this or that swap deal, it just isn’t fair to drop this onerous financial responsibility, this weighty designation of municipal financial advisor, on its shoulders.
I've written before about municipal bond dealers, who are pretty much scum. They cost taxpayers millions of additional dollars in taxes, because they always pad their deals with enough money to cover the kickbacks. I wouldn't trust one to watch my dog for five minutes.
Leave it to Taibbi to put things in perspective. Yes, the one percent does need to believe these things. How else can they justify what they do? Now how do we rationalize the beliefs of the Tea Partiers and the rest of Fox Nation?
"I think he really genuinely believes that the only reason that his particular message isn't resonating is that people want something for free and he's not offering it to them," Taibbi, a contributing editor forRolling Stone, told The Huffington Post on Tuesday. "It's crazy."
[...] Taibbi, who famously labeled Goldman Sachs a "vampire squid" and recentlylambasted Romney in a Rolling Stone article, said the top one percent on Wall Street looks down on the poor because it's the only way they can psychologically excuse their "mass fraud and theft."
"It's all based upon this idea that 'poor people deserve to be poor because they don't work hard enough and I deserve the money that I make because I do work hard,'" Taibbi said. "It's just a pervasive belief ... the psychological underpinning of almost everything they do. If they didn't have this way to excuse their dismissal of the poor, then they wouldn't be able to do a lot of the things that they do."
He noted that "everybody pays taxes in one form or another, whether sales tax or payroll tax," and that income taxes comprise a small percentage of Romney's own recent taxes.
Taibbi added that Romney, who comes from a privileged background, disregarded another "tax" that many poor people have to pay: "a kind of qualitative tax which nobody talks about -- this sucky hard work tax."
"If you're low-income enough to not be paying income tax, you're doing a sh*tty job that nobody else wants to do in this country," Taibbi said. "You're cleaning toilets. You're driving buses at the night shift. You're bussing tables. You're doing all these things that Mitt Romney is never going to do."
Once upon a time, when I was a department head at a large company, one of my employees was badgering me about why we were going to lose our jobs after we merged with another company. "We make money for them, if you just tell them, they'll keep us on," she said.
I said that the whole point of the merger was to make money for the stockholders, not to reward us for doing a good job. She told me how unfair that was. Finally I said, "I hear you on the phone every week, moving the money around in your 401K because you expect to make 13 percent interest. Don't you get it? It's people like you who cost us our jobs. Everyone in the stock market who expects to make a killing, instead of a reasonable return. Every time you move your money, you make it more likely someone else is going to lose their job."
Are you kidding? Mitt Romney was the guy that fired you from that $22.50 an hour job, and helped you replace it with two $9 an hour jobs! He was a pioneer in the area of eliminating the well-paying job with benefits and replacing it with the McJob that offered no benefits at all. One of the things that killed him in the Senate race against Ted Kennedy were Kennedy ads that reminded voters that Mitt’s takeovers resulted in slashed wages and lost benefits. He was exactly the guy that eliminated that classic $22.50 manufacturing job, like in the case of GST Steel, where Bain took over with an initial investment of $8 million, paid itself a $36 million dividend, ended up walking away with $50 million, and left GST saddled with over $500 million in debt. 750 of those well-paying jobs were lost.
What kinds of jobs were left for those fired workers to look for? Well, in the best-case scenario, you might have found one at Ampad, another Bain takeover target, where workers had their pay slashed from $10.22 to $7.88 an hour, tripled co-pays, and eliminated the retirement plan.
So a guy who eliminated hundreds of $22 an hour jobs and slashed hundreds more jobs to below $9 an hour blasts Barack Obama for not giving you the better life you deserved, after you lost your $22/hour job and had to take two $9/hour jobs. Are we all high or something? Did that really just happen?
Matt Taibbi does a real nice job on a topic that has been my own obsession for decades: Municipal bonds. Bonds are where all the political kickbacks and thievery have always been hidden, and the despicable thing is, regular people lose real, tangible things as a result, yet are none the wiser.
I remember years ago, I attended a charity banquet at a local hospital, and someone running for county council came over and said, "I was told I should come over and introduce myself to you." He then proceeded to talk about what wonderful things he did for charities, and what a humble man he was. I stopped him: "I'm sure you're very nice to your wife and family, and I'm sure your dog loves you. But you're a municipal bond dealer, and that's really all I need to know about you."
He protested. "My firm won't be bidding on any business with the county if I'm elected." (Of course he was going to be elected; he was a Republican in a GOP-controlled county.) I looked at him. "Mr. N., you and I both know that all your firm has to do is rubber stamp another firm's deal, and they'll do the same for you. It's corrupt and it costs the taxpayers money." (Requiring approval from another firm is supposed to make sure the deal is fairly priced. Hah!)
After the banquet, he made a point of letting me know he was taking all the leftover food to a homeless shelter. It reminded me of those old Mafia guys who built all those magnificent churches in South Philly, presumably to buy their way into heaven.
All this corruption is hidden by many layers, helped along by the fact that - surprise, surprise - things like bond deals are exempt from public bid. So I'm very hopeful that this trial will put at least a little fear into these pinstriped scum:
Someday, it will go down in history as the first trial of the modern American mafia. Of course, you won't hear the recent financial corruption case, United States of America v. Carollo, Goldberg and Grimm called anything like that. If you heard about it at all, you're probably either in the municipal bond business or married to an antitrust lawyer. Even then, all you probably heard was that a threesome of bit players on Wall Street got convicted of obscure antitrust violations in one of the most inscrutable, jargon-packed legal snoozefests since the government's massive case against Microsoft in the Nineties – not exactly the thrilling courtroom drama offered by the famed trials of old-school mobsters like Al Capone or Anthony "Tony Ducks" Corallo.
But this just-completed trial in downtown New York against three faceless financial executives really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.
The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America. The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime.
In fact, stripped of all the camouflaging financial verbiage, the crimes the defendants and their co-conspirators committed were virtually indistinguishable from the kind of thuggery practiced for decades by the Mafia, which has long made manipulation of public bids for things like garbage collection and construction contracts a cornerstone of its business. What's more, in the manner of old mob trials, Wall Street's secret machinations were revealed during the Carollo trial through crackling wiretap recordings and the lurid testimony of cooperating witnesses, who came into court with bowed heads, pointing fingers at their accomplices. The new-age gangsters even invented an elaborate code to hide their crimes. Like Elizabethan highway robbers who spoke in thieves' cant, or Italian mobsters who talked about "getting a button man to clip the capo," on tape after tape these Wall Street crooks coughed up phrases like "pull a nickel out" or "get to the right level" or "you're hanging out there" – all code words used to manipulate the interest rates on municipal bonds. The only thing that made this trial different from a typical mob trial was the scale of the crime.
Matt Taibbi with a good explanation of why we should be upset about JPMorgan Chase and their $2 billion in gambling losses (remember, Jamie Dimon's saying at least $2 billion):
If you’re wondering why you should care if some idiot trader (who apparently has been making $100 million a year at Chase, a company that has been the recipient of at least $390 billion in emergency Fed loans) loses $2 billion for Jamie Dimon, here’s why: because J.P. Morgan Chase is a federally-insured depository institution that has been and will continue to be the recipient of massive amounts of public assistance. If the bank fails, someone will reach into your pocket to pay for the cleanup. So when they gamble like drunken sailors, it’s everyone’s problem.
Activity like this is exactly what the Volcker rule, which effectively banned risky proprietary trading by federally insured institutions, was designed to prevent. It will be argued that this trade was a technically a hedge, and therefore exempt from the Volcker rule. Not only does that explanation sound fishy to me (as Salmon notes, for Iksil’s trade to be a hedge, this would mean Chase had an equally giant and insane short bet on against corporate debt, which seems unlikely), but it's sort of immaterial anyway: whether or not this bet technically violated the Volcker rule, it definitely violated the spirit of the law. Hedge or no hedge, we don’t want big, federally-insured, too-big-to-fail banks making giant nuclear-powered derivatives bets.
This incident is certain to reignite the debate about Dodd-Frank and may undermine the broad effort to roll back the bill, which we wrote about in the latest issue of the magazine. Staffers on the Hill started mobilizing the instant the Chase news hit the airwaves yesterday, and you can bet we'll hear more debate in the next few months about not only the Volcker Rule but the Lincoln Rule, which was designed to wall off risky swaps from the federally-insured side of these banks.
I’ve heard from all sides today, with some thinking the Chase trade was Dodd-Frank compliant, and others saying it probably violated both the Volcker and the Lincoln rules.
Either way, the incident underscored the basic problem. If J.P. Morgan Chase wants to act like a crazed cowboy hedge fund and make wild exacta bets on the derivatives market, they should be welcome to do so. But they shouldn’t get to do it with cheap cash from the Fed’s discount window, and they shouldn’t get to do it with money from the federally-insured bank accounts of teachers, firemen and other such real people. It’s a simple concept: you either get to be a bank, or you get to be a casino. But you can’t be both. If we don’t have rules to enforce that concept, we ought to get some.
JPMorgan Chase & Co lost $15 billion in market value and a notch in its credit ratings on Friday while a chorus of regulators and politicians reacted to its surprise $2 billion trading loss by demanding stiffer oversight for the banking industry.
The loss by one of Wall Street's most respected banks embarrassed chief executive Jamie Dimon, a leader lauded for steering his bank through the fallout from the 2008 financial crisis without reporting a loss.
"We know we were sloppy. We know we were stupid. We know there was bad judgment," Dimon said in an interview with NBC television to be broadcast on "Meet the Press" on Sunday.
Taibbi is interviewed by Max Keiser. His segment starts at 12:30.
While the general public still doesn't understand credit default swaps, the MF Global ripoff is just plain old-fashioned criminal theft. When you use Peter's money to pay Paul, it's not complicated. Matt Taibbi points out that no one seems to want to do anything about it, and it's making him furious:
Almost every story written about MF Global by any financial news outlet will contain the word "chaos," and describe the bookkeeping challenges of the firm’s last days as just too overwhelming for mere human beings to handle. The sources are almost always unnamed, but they all say the same thing – it was just too much math, too much! The Times’s Dealbook page offered one of the most humorous examples:
A flurry of transactions engulfed the firm in the week before it filed for bankruptcy, as $105 billion of cash shuttled in and out. Amid the chaos, the employees became overwhelmed.
''It's like being at the bottom of Niagara Falls,'' recalled one employee in a meeting with federal authorities, according to one of the people involved in the case.
It’s incredible that people are offering as a defense the idea that a financial company could be so overwhelmed by transactions that it could just lose track of $1.6 billion. If you’re so terrible at managing money that you can honestly lose a billion dollars – especially after swearing up and down to the whole world that you were the right choice to manage the cherished millions and billions of scads of farmers, ranchers, and other investors – you should go to jail just for that, just on general principle.
But most pundits aren’t saying that. Instead, it seems like like every financial reporter both in this city and in Washington is talking to the same five or six defense lawyers, buying their weak arguments, and offering the same lame excuses for the missing money, which should tell you a lot about how the Wall Street press corps managed to miss the warning signs for 2008 and other disasters.
Somebody from MF Global has to be arrested soon. The message otherwise to middle America is so galling that it boggles the mind.
It would be one thing if this was a country with a general, across-the-board tendency toward leniency for property crime. But we send tens of thousands of people to do real jail time in this country for non-violent offenses like theft. We routinely separate mothers from their children for relatively petty crimes like welfare fraud. For almost anyone who isn’t Jon Corzine, it’s no joke to get caught stealing in America.
But these people stole over a billion dollars, right out in the open, and nobody is doing anything about it. Instead, we get a lot of chin-scratching legislative hearings, and an almost academic-style public discussion about whether or not a crime even took place. If there aren’t arrests in this case soon, ordinary people will correctly deduce that it simply isn’t a crime to steal in America, if the thefts are executed with a computer by white people in suits.
Just as it was incredible when Florida authorities dragged their feet in the Zimmerman case, it’s incredible that people in Washington don’t see the implications of this continual non-decision on MF Global. Apparently they hope no one notices. The sad thing is, they might be right.