The economic news last week highlights what happens when governments are unable to confront the root cause of the financial collapse – the risky speculation and securities fraud of the big banks. What happens? They blame the people, cut their benefits, tax their savings and demand they work harder for less money.
In the United States there have been no criminal prosecutions for securities fraud in the big banks. Just as the Justice Department has made it clear that the big banks are too big to jail because doing so jeopardizes the stability of the banking system; financial fraud investigator Bill Black points out that the SEC cannot institute fines that are too big for the same reason. “The art is to make the number sound large to fool the rubes, but to insure that the fine poses only a modest inconvenience to our ‘most reputable’ fraudulent banks.” So, the SEC trumpets “more than 150 firms and individuals, with sanctions totaling $2.7 billion.” Black points out that this number sounds big, but it isn’t compared to the losses caused by the fraud epidemic in the US which are well in excess of $15 trillion. A trillion is a thousand billion. Are we, ‘the rubes’ or do we know that our government is in cahoots with big finance?
In fact, the big banks have been engaged in all sorts of nefarious activity for a long time, asWashington’s Blog points out with this jaw-dropping list of crimes, and are rife with fraud. And, this week the biggest of the too big to prosecute, JP Morgan, had its financial fraud and disrespect for government on display when the Senate Banking Committee issued a massive 300 page indictment, errr report, documenting the $6.2 billion “London Whale” scandal. The report traces the scandal right to the top, CEO Jamie Dimon, and shows how the bank lied to bank examiners and investors. Experts state the obvious from this evident fraud; investigations and fines, and possibly a large monetary settlement are possible but a prosecution by DOJ remains unlikely. Obvious because everyone knows the game in Washington is one of no criminal prosecutions.
Although, another too big to jail bank, Goldman Sachs did have a loss in court this week, when the US Supreme Court refused to overturn a Court of Appeals decision requiring the bank to defend a civil suit by investors claiming securities fraud. There are lots of hurdles ahead, but this provides a glimmer of hope.
This week our too big to prosecute philosophy of the (lack of) Justice Department was shown to apply to foreign banks as well. The second largest bank in Germany got a pass when it offered a job to an IRS agent who cut its tax burden. Again, the rubes were told that Commerzbank paid $210 million in tax liability, sounds good, but it was only 62% of what it owed. The day after the agreement the IRS officer was offered a job at Commerzbank. The agent pled guilty to charges this week, but the bank and the officers involved were not prosecuted.
Europe is showing us what happens when government fails to confront the big banks – the people pay and the economy collapses into depression. Is this our future?
The horror story of the week for struggling workers and poor countries has to be Cyprus. The country was being built up as a big banking area but when it all went sour, they went to the EU for a bailout. The EU hemmed and hawed and finally agreed, but with a very big requirement which takes structural adjustment to a new level of abuse – they required “a one-off 10 percent tax on savings over €100,000 and a 6.75 percent tax on small depositors. Senior bank bondholders and investors in Cyprus’ sovereign debt will be left untouched.” [See update below.]
This is causing a run on the banks in Cyprus, but is also raising red flags in many other struggling Euro countries. Can bank accounts in Greece, Italy, Spain, Portugal or any other country in Europe be safe? Are more and more people going to take their money out of the banks and keep it under their mattress? It may seem like the sane thing to do but a run on the banks will just weaken shaky banks further.
Leaders of the EU, IMF and Germany are all staying with their demand for more austerity and greater productivity (i.e. lower wages for greater output). At the same time they are urging bailout of the banking system which remains weak. This same leadership recognizes their approach may lead to a “social explosion” and Standard & Poors is also warning that the situation is socially explosive. The reality is that southern Europe is essentially in a depression and Germany, EU and IMF are demanding that they squeeze more money out of impoverished people.
In Washington, DC, the two Wall Street parties keep talking about cuts to the budget – austerity measures that will hurt the old, the poor, the young and working class – and disregard the fact that government spending is actually not the problem. While they push austerity, they remain silent as big business interests go into their sixth year of big tax avoidance. Paul Buchheit summarizes “For over 20 years, from 1987 to 2008, corporations paid an average of 22.5 percent in federal taxes. Since the recession, this has dropped to 10 percent – even though their profits have doubled in less than ten years.” He highlights the worst of the worst. On top was Obama’s jobs czar, General Electric.
There is some sanity, but not much, among the US financial elite. Dallas Fed Chairman Richard Fisher told the Conservative Political Action Conference that it was time to break up the big banks and end the crony capitalism that protects them. Liberal Democrat Sherrod Brown has introduced a bill to do just that. Of course it is opposed by the administration so it will probably not go anywhere.
Instead, President Obama is pushing the anti-democratic Trans Pacific Partnership which is a gift to the big banks and other transnational corporate interests. For the big banks it will require countries to let capital flow in and out without restriction, not allow the banning or regulation of risky investments like derivatives and credit-default swaps and will prevent the formation of much-needed public banks. Our Wall Street government continues to serve Wall Street first at the expense of the people’s necessities.
All of this shows it is time to remake the banking system: hold security fraud violators criminally accountable, break up the too big to jail banks, support community banks and credit unions and create public banks at least at the state and local level; and make the Fed transparent and accountable to democracy. This would be a transformed banking system that would serve the people and the economy, move toward economic democracy and take power away from corrupt Wall Street. Failure to confront and remove the plague of Wall Street-centered banking will continue to infect the entire economy. Is Cyprus in our future? It doesn’t have to be.
Update: On Tuesday, March 19, the Parliament in Cyprus rejected the tax on bank accounts after mass protests by the people. This leaves Cyprus in a mess with no bailout and no money to contribute to a bailout. Will Russia invest in future oil found recently off the coast of Cyprus in return for the Parliament protecting $30 billion in Russian deposits that are in Cyprus banks? Will Germany and the EU bend, not requiring Cyprus to raise money for the bailout? Will Cyprus leave the EU? Lots of questions without answers right now, but the banks in the country will remain closed until they figure it out.
Kevin Zeese JD and Margaret Flowers MD co-host ClearingtheFOGRadio.org on We Act Radio 1480 AM Washington, DC and on Economic Democracy Media, co-direct It’s Our Economy and were organizers of the Occupation of Washington, DC. Their twitters are @KBZeese and @MFlowers8via The Plague of Wall Street Banking » Counterpunch: Tells the Facts, Names the Names.
Goldman Sachs loses bid to keep shareholder proposal to split chairman and CEO roles off proxy statement
Chalk another one up for activist investors.
Yesterday, the Securities and Exchange Commission informed the bank that it couldn’t block the proposal from being included among a list of proposals at its next annual shareholder meeting.
The proposal was sent by CtW Investment Group, which owns just 25 Goldman shares, for inclusion on the proxy.
Goldman argued that the proposal was vague and didn’t merit a vote. The SEC said it’s “unable to concur” with that view.
The proposal to split the chairman and CEO roles is one that Goldman has faced several times in the past.
Last year, Goldman named James Schiro as a lead independent director in an effort to quiet activism from pension plan American Federation of State, County and Municipal Employees.
AFSCME also recently made a similar request for JPMorgan to split its chairman and CEO roles, which are currently held by Jamie Dimon.
(The scene opens in a Goldman Sachs washroom. Mr. B., a top company executive, has entered and rushes into his private Stall #8. A few moments later washroom attendant Selig Cartwright hears pathetic sobbing coming from the stall. He stands outside its door and asks:)
Are you O.K, Mr. B? Is the video player in there on the blink again? Did I forget to put the latest issue of Maxim on the shelf?)
No, Selig. I’m not O.K. I’m (blubber, blubber) a failure. I’m (blubber, blubber) a failure as an investment banker and as a man.
Those people, Selig? Don’t be silly. They only do that just before elections. Even then, when Jamie Dimon went before a Senate committee, most of whose members are on his campaign contribution pad, they looked ready to press his pants if sitting too long caused wrinkles. And after President Obama said he opposed the carried interest tax break for hedge fund managers, he went to dinner with his biggest hedge fund manager supporter.
If that’s not what’s got you so miserable, sir, is it the state of the world economy? The endless recession in Japan? The Eurozone recession with unemployment at 12 percent, the anti-austerity results of the Italian election? Or our own weak economy and last week’s sequester fiasco? Is that what’s causing your investment banker pain?
Be serious, Selig. (Blubber, blubber) Why would any of that bother someone on Wall Street or in other financial centers? An endless recession in Japan? That country’s main Nikkei index is up 34 percent since November 2012. Europe’s recession, huge unemployment and voter revolt? That region’s own main stock index is up 23 percent since June of last year. Our own weak economy and that sequester business last week? The Dow went up anyway.
None of this bothers a Wall Street banker?
Of course not, Selig. The banking economy is no longer linked to the little person economy where people like you live out your petty little person existences. We thrive as long as Bernanke’s Fed and the central banks of Japan and the EU keep giving us money, and we repay the favor by keeping it all for ourselves rather than letting people like you have some, which would cause inflation. The only inflation it causes is in certain asset categories like stock prices.
And this special inflation benefits Wall Streeters?.
Yes, Selig, But only marginally. Average bonuses on The Street went up only a piddling 37 percent this year, just a tad above $125,000, on top of our regular salaries. Chump change, as even you can well imagine.
I might be able to imagine it better, sir, if the national minimum wage were raised to $9 an hour.
Am I supposed to care about that sort of thing, Selig? Don’t I have enough on my mind? Aren’t I hurting enough? (Slobber, slobber)
Sorry, Mr. B. So why are you so sad now, sir?
Why am I sad, Selig? (Blubber, blubber) Why am I sad? (Whine, slobber). It’s all in that latest Goldman filing with the S.E.C. that just became public. Haven’t you read it?
No. But maybe it’s in today’s mail at home. What did it say, sir? What was in that company filing that has brought you such pain?
If you read that filing the answer would be obvious. You know we make more than half our money on stock trading. And in 2012, Selig, we lost money in 16 trading days. Sixteen trading days! (Slobber)
Out of how many trading days in all, sir?
With nine holidays off, Selig, 251 trading days in all. (Slobber). But there were 16 days, 16 whole days out of those 251, when in spite of our ability to manipulate gains and losses on trades, we still lost money.
A tragic tale, Mr. B. Though perhaps not as tragic for you as for the people on the other sides of those trades — people who lack Goldman’s special abilities to almost always profit on these supposedly equal opportunity transactions. But did you at least make a lot of money on the trading days when you did make money?
A lot of money? I guess some people would say so. We made more than $100 million on 41 of these days last year. (Slobber, sob, whine)
i don’t understand, Mr B. What does this make you sad? Make you feel like a failure? That’s not chump change, even in Wall Street terms.
Because, Selig, because (whine), because (blubber), because (slobber), because we made more than $100 million a day for 54 days in 2011. (Sob), thirteen days more than we made last year. So I’m a failure, Selig. As an investment banker and as a man.
Mr. B. May I speak honestly, sir?
Of course, Selig. Provided what you say makes me feel better and is not critical in any way.
Given my total financial dependence on your goodwill, sir, that’s a given.
Then proceed to be honest with me, Selig.
Your acceptance of money from the central bank generates a kind of economic growth, which though it all ends up with people like you and doesn’t trickle down to little people like me, it makes politicians look like they know what they’re doing and economists look like they know what they’re talking about.
You’re saying, Selig, that Wall Streeters like me are critical to maintaining the present political and economic order, and the illusions on which it is based? That I’m useful. Useful?
Indeed you are, sir. And the service economy that Wall Streeters like you have done so much to bring into being means there are more low paid people like me employed to service the needs of very wealthy folks like you, which makes you…
A job creator! I’m a job creator, Selig.
You are, sir. Which is why my wife includes you in her prayers nightly.
Thank your good woman, for me, Selig. Now be a good fellow and find that new issue of Maxim and pass it under the door of the stall. Our conversation has given me much to think about and I shall need time to cogitate.