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Financial Sector Thinks It’s About Ready To Ruin World Again
“It’s been about five or six years since we last crippled every major market on the planet, so it seems like the time is right for us to get back out there and start ruining the lives of billions of people again,” said Goldman Sachs CEO Lloyd Blankfein.
The nation’s major banks and investment firms say they are ready to give utterly decimating the world’s economies “another go.”
NEW YORK—Claiming that enough time had surely passed since they last caused a global economic meltdown, top executives from the U.S. financial sector told reporters Monday that they are just about ready to completely destroy the world again.
Representatives from all major banking and investment institutions cited recent increases in consumer spending, rebounding home prices, and a stabilizing unemployment rate as confirmation that the time had once again come to inflict another round of catastrophic financial losses on individuals and businesses worldwide.
“It’s been about five or six years since we last crippled every major market on the planet, so it seems like the time is right for us to get back out there and start ruining the lives of billions of people again,” said Goldman Sachs CEO Lloyd Blankfein. “We gave it some time and let everyone get a little comfortable, and now we’re looking to get back on the old horse, shatter some consumer confidence, and flat-out kill any optimism for a stable global economy for years to come.”
“People are beginning to feel at ease spending money and investing in their futures again,” Blankfein continued. “That’s the perfect time to step in and do what we do best: rip the heart right out of the world’s economy.”
According to sources, the overwhelming majority of investment bankers are “ready to get the ball rolling” by approving a host of complex and poorly understood debt-backed securities that are doomed to quickly default, as well as issuing startlingly high-risk loans certain to drive thousands of companies into insolvency.
Top-level executives also told reporters that when it comes to depleting the life savings of millions of people and sending every major national economy into a tailspin, they feel “refreshed and raring to go.”
“The other day I actually overheard someone on the sidewalk utter the words ‘I’m saving up for retirement,’ and right away I thought to myself, ‘Well, time to get down to work,’” said Morgan Stanley chairman James P. Gorman, adding that the increasing number of individuals entertaining ideas of starting their own businesses or buying houses was the financial sector’s cue to set off another devastating global recession. “We’re definitely thinking on a huge scale again, because we all really enjoy toying with the livelihoods of millions of people overseas and forcing them to wonder why reckless, split-second decisions made thousands of miles away dictate their whole country’s socioeconomic future.”
“Plus, it’ll be nice to finally wipe out the Euro once and for all this time,” Gorman added.
While most private equity firms, investment banks, and hedge funds are reportedly still undecided on the precise route to take in order to torpedo the job market and crash all international stock exchanges, sources confirmed they are nearly in position to resume gambling away trillions of dollars belonging to the American populace.
“We’ve got a lot of options on the table; it’s just a matter of picking which one we want to use to paralyze every single sector of the world economy,” said Capital One executive vice president Peter Schnall. “We already burst the dot-com and housing bubbles, so this time we can maybe mix it up by popping the education bubble and shattering the lives of everyone with outstanding student loans. Or maybe we’ll artificially inflate prices of stocks in social media companies and then pull the rug out, bankrupting every investor tied to companies like Facebook and Twitter. Or do both.”
“On second thought, maybe we’ll wipe out the housing market again too, just for the hell of it,” Schnall quickly added. “Might as well, right?”
According to a recent survey of Wall Street officials, 82 percent said they were “excited to shake off the rust” and send the Dow and NASDAQ into another freefall. Additionally, 75 percent of respondents admitted they have been “champing at the bit” for months to wholly undermine the nation’s local banks and money market accounts, leaving Americans too terrified to leave their savings anywhere.
Moreover, the chief financial officers from Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo unanimously told reporters that it has been “way too long” since they last saw the utterly dejected faces of American families whose homes had just been foreclosed on due to circumstances totally beyond their control.
“Now that the public’s efforts to curtail questionable Wall Street trading practices have all but ceased, it’s time for us to bring the world to its knees again,” said AIG CEO Robert Benmosche. “There are still plenty of opaque financial derivatives, high-frequency trading operations, and off-balance sheet transactions out there, all with virtually no federal regulation. Trust me, we can definitely work with that. And if anything, we can always just lobby for further concessions and deregulation in Washington—which, by the way, is so, so easy to do—and then we can cause as much damage as we want.”
Added Benmosche, “And while we’re at it, we’ll make sure we once again come away from this whole thing scot-free and far wealthier.”
Bankster’s Paradise: Obama Allowing the Foxes Write the Rules
Bankster Lobbyists Writing Regulatory ‘Reform’ Legislation
Nearly six years since massive financial fraud and speculative market manipulation drove the global capitalist economy off the rails, congressional grifters in both benighted political parties have turned over the legislative process to bankster lobbyists.
Talk about technocratic efficiency!
Last week, The New York Times revealed that “Bank lobbyists are not leaving it to lawmakers to draft legislation that softens financial regulations. Instead, the lobbyists are helping to write it themselves.”
According to emails leaked to the Times, a bill that “sailed through the House Financial Services Committee this month–over the objections of the Treasury Department–was essentially Citigroup’s.”
Despite huge losses during the capitalist economic meltdown, which included heavy exposure to toxic collateralized debt obligations (CDOs) which cost shareholders some 85 percent of asset value by early 2009, by 2012 the bank had built up an enormous cash horde to the tune of $420 billion (£277.7bn), derived from selling some $500 billion (£330.6bn) of “special assets” placed in Citi holdings that were guaranteed from losses by the US Treasury Department; this included untaxed overseas profits of some $35.9 billion (£23.74bn) according to Bloomberg.
As I reported last month, Citigroup was handed some $45 billion (£29.78bn) in TARP funds while the Treasury Department and Federal Reserve secretly backstopped more than $300 billion (£197.31bn) in toxic assets on their books. In addition to receiving “$2.5 trillion [£1.64tn] of support from the American taxpayer through capital infusions, asset guarantees and low-cost loans,” as Wall Street on Parade analyst Pam Martens pointed out, like other too-big-to-jail banks such as Wachovia and HSBC, the Citi brand has long been associated with washing dirty cash for drug cartels.
Hit with a toothless Consent Order by the Federal Reserve in March over “deficiencies in the Banks’ BSA/AML [Bank Secrecy Act/Anti-Money Laundering] compliance programs,” federal regulators charged that Citigroup and their affiliate Banamex “lacked effective systems of governance and internal controls to adequately oversee the activities of the Banks with respect to legal, compliance, and reputational risk related to the Banks’ respective BSA/AML compliance programs.”
The Federal Reserve “action” followed an anemic Consent Order last year by the Office of the Comptroller of the Currency (OCC) which also cited Citi’s failure to “adopt and implement a compliance program that adequately covers the required BSA/AML program elements due to an inadequate system of internal controls.” Additionally, the OCC charged that the “Bank did not develop adequate due diligence on foreign correspondent bank customers and failed to file Suspicious Activity Reports (‘SARs’) related to its remote deposit capture/international cash letter instrument activity in a timely manner.”
Nevertheless, as with other criminogenic banks such as JPMorgan Chase, similarly hit with an equally toothless Consent Order by the Office of the Comptroller of the Currency in January, in their infinite wisdom the Federal Reserve averred that their Citigroup action was issued “without this Order constituting an admission or denial by Citigroup of any allegation made or implied by the Board of Governors in connection with this matter, and solely for the purpose of settling this matter without a formal proceeding being filed and without the necessity for protracted or extended hearings or testimony.”
In other words, let’s sweep this under the rug as quickly as possible and move on. But before we do, let’s step back for a moment and wrap our heads around a few salient facts.
Here’s a bank with a documented history as the GAO revealed in 1998, of laundering drug money for well-placed Juárez and Gulf Cartel crony Raúl Salinas de Gortari, the brother of former Mexican president Carlos Salinas, charged with amassing a multimillion dollar fortune from narcotics rackets and then squirreling it away in London, Switzerland and the Cayman Islands.
Does this evoke any memories?
According to GAO investigators, “Mr. Salinas was able to transfer $90 million to $100 million between 1992 and 1994 by using a private banking relationship formed by Citibank New York in 1992. The funds were transferred through Citibank Mexico and Citibank New York to private banking investment accounts in Citibank London and Citibank Switzerland.”
Beginning in 1992, Citibank “assisted Mr. Salinas with these transfers and effectively disguised the funds’ source and destination, thus breaking the funds’ paper trail.” And they did so by creating “an offshore private investment company named Trocca, to hold Mr. Salinas’s assets, through Cititrust (Cayman) and investment accounts in Citibank London and Citibank Switzerland,” and then failed to “prepare a financial profile on him or request a waiver for the profile, as required by then Citibank know your customer policy.”
Keep in mind that when Swiss prosecutors completed their money laundering investigation, The New York Times disclosed that “Swiss police investigators have concluded that a brother of former President Carlos Salinas de Gortari played a central role in Mexico’s cocaine trade, raking in huge bribes to protect the flow of drugs into the United States.”
That Swiss report stated, “When Carlos Salinas de Gortari became President of Mexico in 1988, Raúl Salinas de Gortari assumed control over practically all drug shipments through Mexico. Through his influence and bribes paid with drug money, officials of the army and the police supported and protected the flourishing drug business.”
Does the name of former Banamex CEO Roberto Hernández ring any bells?
Described as “the single biggest winner” of Mexican bank privatizations engineered by the Bush and Clinton regimes during the 1990s as Narco News disclosed, a subsequent investigation revealed that “Hernández had been accused–publicly and via a criminal complaint–by the daily newspaper Por Esto! of trafficking tons of Colombian cocaine through his Caribbean costa properties on that peninsula since 1997.”
And when Citigroup acquired Banamex in 2001 for the then-princely sum of $12.5 billion (£8.27bn), it was described as the largest US-Mexican corporate merger in history. Should it surprise us that this Citi subsidiary was named alongside parent Citigroup by the OCC and Federal Reserve for repeated failures to adequately police dirty money flowing into their coffers?
Members of the House Financial Services Committee should examine why they would turn over the legislative process to a criminal financial cartel!
As Times’ journalists Eric Lipton and Ben Protess reported, “Citigroup’s recommendations were reflected in more than 70 lines of the House committee’s 85-line bill. Two crucial paragraphs, prepared by Citigroup in conjunction with other Wall Street banks, were copied nearly word for word. (Lawmakers changed two words to make them plural.)”
Proving yet again, that Washington lawmakers are beholden to their Wall Street masters, MapLight, a nonpartisan research group that “reveals money’s influence on politics in the US Congress,” disclosed that legislators “serving” on the House Financial Services Committee “approved six bills that would roll back pieces of the Dodd-Frank Act designed to improve regulation of the derivatives market.”
Lawmakers who voted “yes” on HR 992, the Orwellian-named Swaps Regulatory Improvement Act, “received, on average, 2.6 times more money from top banks than committee members” who voted “no.” MapLight further disclosed that lawmakers who voted “yes” on this pernicious piece of legislative detritus “received, on average, 3 times more money from the Finance, Insurance, and Real Estate (FIRE) sector,” than committee members who voted “no.”
The $700 trillion derivatives market, 93.2 percent of which is controlled by the four largest too-big-to-fail-and-jail US banks, Bank of America, Goldman Sachs, JPMorgan Chase and Citigroup, is a cash cow and shadow market for crooked financial insiders. HR 992, which rolled-back a key provision of 2010’s anemic Dodd-Frank financial “reform” legislation, Sec. 716, would have required banks to spin off their derivatives activities into separate units that would not have access to federal bank subsidies, i.e., taxpayer bailouts.
“In recent weeks, the Times reported, “Wall Street groups also held fund-raisers for lawmakers who co-sponsored the bills. At one dinner Wednesday night, corporate executives and lobbyists paid up to $2,500 to dine in a private room of a Greek restaurant just blocks from the Capitol with Representative Sean Patrick Maloney, Democrat of New York, a co-sponsor of the bill championed by Citigroup.”
Responding to questions, Financial Services Committee member Jim Himes, a former Goldman Sachs banker, third-term Connecticut Democrat and one of the top recipients of Wall Street largess to the tune of $194,500 according to OpenSecrets told the Times:
“It’s appalling, it’s disgusting, it’s wasteful and it opens the possibility of conflicts of interest and corruption. It’s unfortunately the world we live in.”
No Mr. Himes, it’s the world you live in.
While your colleague across the aisle, Stephen Fincher (R-TN), cites Bible verses to justify gutting federal nutritional assistance to 47 million hungry Americans while being the “the second largest recipient of farm subsidies in the United States Congress” according to Forbes, and received some $3.48 million (£2.3m) since 1999 in USDA farm subsidies while doing the “Lord’s work” according to the Environmental Working Group, the US Congress, including “liberal” Obama Democrats have promoted every filthy piece of legislation that facilitates Wall Street’s plundering of the American people.
Referencing the recent vote on HR 992, the Center for Responsive Politics reported that in the first quarter of 2013, members of the Financial Services Committee “received more than $1.3 million in donations to their campaigns and leadership PACs from the securities and investment industry and commercial banks.”
According to OpenSecrets, “By far the largest source of cash from the two industries was the Investment Company Institute, a trade association representing Wall Street firms. The ICI gave at least $129,000 to members of the House Financial Services Committee. Other trade groups representing banks and investment firms, including the American Bankers Association and the Independent Community Bankers of America, were also major contributors.”
OpenSecrets reported that “Banking industry companies increased their contributions in 2013 to $640,286, from $497,169 in early 2011. Citigroup, in particular, jumped from $19,500 in donations to committee members to $39,500. UBS went from $64,250 to $88,000. Wells Fargo also opened its checkbook a little wider this year, giving $80,000, compared with $31,250 in 2011.”
Commenting on this latest gift to Wall Street criminals, the World Socialist Web Site observed: “Flush with the $85 billion in cash printed up and handed to the banks every month by the Federal Reserve, business at the Wall Street casino is booming. Stock values are at record levels and so are bank profits, amidst declining wages and mass poverty.”
“Under these conditions,” Marxist critic Andre Damon averred, “the banks have been pushing to rip up even the very modest restrictions on financial speculation, while broadening the scope of government bailout laws. The aim is simple: to give banks the maximum ability to speculate without constraint, while getting the maximum possible government assistance if and when the bubble collapses.”
None of this should surprise anyone who has paid the least attention to the cronyism and financial parasitism of the Obama regime.
From get-out-of-jail-free-cards passed out to drug money laundering banks by Eric Holder’s Justice Department, to the appointments of Citigroup alumnus and Cayman Islands tax-dodger Jacob Lew as Treasury Secretary, Debevoise & Plimpton partner Mary Jo White over at the Securities and Exchange Commission to the nomination of billionaire Hyatt Hotel heiress, subprime mortgage “pioneer” and union-buster Penny Pritzker to lead the Commerce Department, it’s a bankster world, all the time.
How’s that for Hope and Change™!
Tom Burghardt is a researcher and activist based in the San Francisco Bay Area. In addition to publishing in Covert Action Quarterly and Global Research, an independent research and media group of writers, scholars, journalists and activists based in Montreal, he is a Contributing Editor with Cyrano’s Journal Today. His articles can be read on Dissident Voice, Pacific Free Press, Uncommon Thought Journal, and the whistleblowing website WikiLeaks. He is the editor of Police State America: U.S. Military “Civil Disturbance” Planning, distributed by AK Press and has contributed to the new book from Global Research, The Global Economic Crisis: The Great Depression of the XXI Century.
The Biggest Price-Fixing Scandal Ever
Everything Is Rigged: The Biggest Price-Fixing Scandal Ever
The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There’s no price the big banks can’t fix
Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world’s largest banks may be fixing the prices of, well, just about everything.
You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that’s trillion, with a “t”) worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it “dwarfs by orders of magnitude any financial scam in the history of markets.”
That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world’s largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world’s largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.
Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It’s about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.
It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.
The Scam Wall Street Learned From the Mafia
Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks.
“It’s a double conspiracy,” says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. “It’s the height of criminality.”
The bad news didn’t stop with swaps and interest rates. In March, it also came out that two regulators – the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions – were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver prices. “Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks – many other benchmarks – are legit areas of inquiry,” CFTC Commissioner Bart Chilton said.
But the biggest shock came out of a federal courtroom at the end of March – though if you follow these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants’ incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place.
“A farce,” was one antitrust lawyer’s response to the eyebrow-raising dismissal.
“Incredible,” says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in antitrust cases.
All of these stories collectively pointed to the same thing: These banks, which already possess enormous power just by virtue of their financial holdings – in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation’s GDP – are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing. Moreover, it’s increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system.
If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it. Forget the Illuminati – this is the real thing, and it’s no secret. You can stare right at it, anytime you want.
The banks found a loophole, a basic flaw in the machine. Across the financial system, there are places where prices or official indices are set based upon unverified data sent in by private banks and financial companies. In other words, we gave the players with incentives to game the system institutional roles in the economic infrastructure.
Libor, which measures the prices banks charge one another to borrow money, is a perfect example, not only of this basic flaw in the price-setting system but of the weakness in the regulatory framework supposedly policing it. Couple a voluntary reporting scheme with too-big-to-fail status and a revolving-door legal system, and what you get is unstoppable corruption.
Every morning, 18 of the world’s biggest banks submit data to an office in London about how much they believe they would have to pay to borrow from other banks. The 18 banks together are called the “Libor panel,” and when all of these data from all 18 panelist banks are collected, the numbers are averaged out. What emerges, every morning at 11:30 London time, are the daily Libor figures.
Banks submit numbers about borrowing in 10 different currencies across 15 different time periods, e.g., loans as short as one day and as long as one year. This mountain of bank-submitted data is used every day to create benchmark rates that affect the prices of everything from credit cards to mortgages to currencies to commercial loans (both short- and long-term) to swaps.
Gangster Bankers Broke Every Law in the Book
Dating back perhaps as far as the early Nineties, traders and others inside these banks were sometimes calling up the company geeks responsible for submitting the daily Libor numbers (the “Libor submitters”) and asking them to fudge the numbers. Usually, the gimmick was the trader had made a bet on something – a swap, currencies, something – and he wanted the Libor submitter to make the numbers look lower (or, occasionally, higher) to help his bet pay off.
Famously, one Barclays trader monkeyed with Libor submissions in exchange for a bottle of Bollinger champagne, but in some cases, it was even lamer than that. This is from an exchange between a trader and a Libor submitter at the Royal Bank of Scotland:
SWISS FRANC TRADER: can u put 6m swiss libor in low pls?…
PRIMARY SUBMITTER: Whats it worth
SWSISS FRANC TRADER: ive got some sushi rolls from yesterday?…
PRIMARY SUBMITTER: ok low 6m, just for u
SWISS FRANC TRADER: wooooooohooooooo. . . thatd be awesome
Screwing around with world interest rates that affect billions of people in exchange for day-old sushi – it’s hard to imagine an image that better captures the moral insanity of the modern financial-services sector.
Hundreds of similar exchanges were uncovered when regulators like Britain’s Financial Services Authority and the U.S. Justice Department started burrowing into the befouled entrails of Libor. The documentary evidence of anti-competitive manipulation they found was so overwhelming that, to read it, one almost becomes embarrassed for the banks. “It’s just amazing how Libor fixing can make you that much money,” chirped one yen trader. “Pure manipulation going on,” wrote another.
Yet despite so many instances of at least attempted manipulation, the banks mostly skated. Barclays got off with a relatively minor fine in the $450 million range, UBS was stuck with $1.5 billion in penalties, and RBS was forced to give up $615 million. Apart from a few low-level flunkies overseas, no individual involved in this scam that impacted nearly everyone in the industrialized world was even threatened with criminal prosecution.
Two of America’s top law-enforcement officials, Attorney General Eric Holder and former Justice Department Criminal Division chief Lanny Breuer, confessed that it’s dangerous to prosecute offending banks because they are simply too big. Making arrests, they say, might lead to “collateral consequences” in the economy.
The relatively small sums of money extracted in these settlements did not go toward reparations for the cities, towns and other victims who lost money due to Libor manipulation. Instead, it flowed mindlessly into government coffers. So it was left to towns and cities like Baltimore (which lost money due to fluctuations in their municipal investments caused by Libor movements), pensions like the New Britain, Connecticut, Firefighters’ and Police Benefit Fund, and other foundations – and even individuals (billionaire real-estate developer Sheldon Solow, who filed his own suit in February, claims that his company lost $450 million because of Libor manipulation) – to sue the banks for damages.
One of the biggest Libor suits was proceeding on schedule when, early in March, an army of superstar lawyers working on behalf of the banks descended upon federal judge Naomi Buchwald in the Southern District of New York to argue an extraordinary motion to dismiss. The banks’ legal dream team drew from heavyweight Beltway-connected firms like Boies Schiller (you remember David Boies represented Al Gore), Davis Polk (home of top ex-regulators like former SEC enforcement chief Linda Thomsen) and Covington & Burling, the onetime private-practice home of both Holder and Breuer.
The presence of Covington & Burling in the suit – representing, of all companies, Citigroup, the former employer of current Treasury Secretary Jack Lew – was particularly galling. Right as the Libor case was being dismissed, the firm had hired none other than Lanny Breuer, the same Lanny Breuer who, just a few months before, was the assistant attorney general who had balked at criminally prosecuting UBS over Libor because, he said, “Our goal here is not to destroy a major financial institution.”
In any case, this all-star squad of white-shoe lawyers came before Buchwald and made the mother of all audacious arguments. Robert Wise of Davis Polk, representing Bank of America, told Buchwald that the banks could not possibly be guilty of anti- competitive collusion because nobody ever said that the creation of Libor was competitive. “It is essential to our argument that this is not a competitive process,” he said. “The banks do not compete with one another in the submission of Libor.”
If you squint incredibly hard and look at the issue through a mirror, maybe while standing on your head, you can sort of see what Wise is saying. In a very theoretical, technical sense, the actual process by which banks submit Libor data – 18 geeks sending numbers to the British Bankers’ Association offices in London once every morning – is not competitive per se.
But these numbers are supposed to reflect interbank-loan prices derived in a real, competitive market. Saying the Libor submission process is not competitive is sort of like pointing out that bank robbers obeyed the speed limit on the way to the heist. It’s the silliest kind of legal sophistry.
But Wise eventually outdid even that argument, essentially saying that while the banks may have lied to or cheated their customers, they weren’t guilty of the particular crime of antitrust collusion. This is like the old joke about the lawyer who gets up in court and claims his client had to be innocent, because his client was committing a crime in a different state at the time of the offense.
“The plaintiffs, I believe, are confusing a claim of being perhaps deceived,” he said, “with a claim for harm to competition.”
Judge Buchwald swallowed this lunatic argument whole and dismissed most of the case. Libor, she said, was a “cooperative endeavor” that was “never intended to be competitive.” Her decision “does not reflect the reality of this business, where all of these banks were acting as competitors throughout the process,” said the antitrust lawyer Sokol. Buchwald made this ruling despite the fact that both the U.S. and British governments had already settled with three banks for billions of dollars for improper manipulation, manipulation that these companies admitted to in their settlements.
Michael Hausfeld of Hausfeld LLP, one of the lead lawyers for the plaintiffs in this Libor suit, declined to comment specifically on the dismissal. But he did talk about the significance of the Libor case and other manipulation cases now in the pipeline.
“It’s now evident that there is a ubiquitous culture among the banks to collude and cheat their customers as many times as they can in as many forms as they can conceive,” he said. “And that’s not just surmising. This is just based upon what they’ve been caught at.”
Greenberger says the lack of serious consequences for the Libor scandal has only made other kinds of manipulation more inevitable. “There’s no therapy like sending those who are used to wearing Gucci shoes to jail,” he says. “But when the attorney general says, ‘I don’t want to indict people,’ it’s the Wild West. There’s no law.”
The problem is, a number of markets feature the same infrastructural weakness that failed in the Libor mess. In the case of interest-rate swaps and the ISDAfix benchmark, the system is very similar to Libor, although the investigation into these markets reportedly focuses on some different types of improprieties.
Though interest-rate swaps are not widely understood outside the finance world, the root concept actually isn’t that hard. If you can imagine taking out a variable-rate mortgage and then paying a bank to make your loan payments fixed, you’ve got the basic idea of an interest-rate swap.
In practice, it might be a country like Greece or a regional government like Jefferson County, Alabama, that borrows money at a variable rate of interest, then later goes to a bank to “swap” that loan to a more predictable fixed rate. In its simplest form, the customer in a swap deal is usually paying a premium for the safety and security of fixed interest rates, while the firm selling the swap is usually betting that it knows more about future movements in interest rates than its customers.
Prices for interest-rate swaps are often based on ISDAfix, which, like Libor, is yet another of these privately calculated benchmarks. ISDAfix’s U.S. dollar rates are published every day, at 11:30 a.m. and 3:30 p.m., after a gang of the same usual-suspect megabanks (Bank of America, RBS, Deutsche, JPMorgan Chase, Barclays, etc.) submits information about bids and offers for swaps.
And here’s what we know so far: The CFTC has sent subpoenas to ICAP and to as many as 15 of those member banks, and plans to interview about a dozen ICAP employees from the company’s office in Jersey City, New Jersey. Moreover, the International Swaps and Derivatives Association, or ISDA, which works together with ICAP (for U.S. dollar transactions) and Thomson Reuters to compute the ISDAfix benchmark, has hired the consulting firm Oliver Wyman to review the process by which ISDAfix is calculated. Oliver Wyman is the same company that the British Bankers’ Association hired to review the Libor submission process after that scandal broke last year. The upshot of all of this is that it looks very much like ISDAfix could be Libor all over again.
“It’s obviously reminiscent of the Libor manipulation issue,” Darrell Duffie, a finance professor at Stanford University, told reporters. “People may have been naive that simply reporting these rates was enough to avoid manipulation.”
And just like in Libor, the potential losers in an interest-rate-swap manipulation scandal would be the same sad-sack collection of cities, towns, companies and other nonbank entities that have no way of knowing if they’re paying the real price for swaps or a price being manipulated by bank insiders for profit. Moreover, ISDAfix is not only used to calculate prices for interest-rate swaps, it’s also used to set values for about $550 billion worth of bonds tied to commercial real estate, and also affects the payouts on some state-pension annuities.
So although it’s not quite as widespread as Libor, ISDAfix is sufficiently power-jammed into the world financial infrastructure that any manipulation of the rate would be catastrophic – and a huge class of victims that could include everyone from state pensioners to big cities to wealthy investors in structured notes would have no idea they were being robbed.
“How is some municipality in Cleveland or wherever going to know if it’s getting ripped off?” asks Michael Masters of Masters Capital Management, a fund manager who has long been an advocate of greater transparency in the derivatives world. “The answer is, they won’t know.”
Worse still, the CFTC investigation apparently isn’t limited to possible manipulation of swap prices by monkeying around with ISDAfix. According to reports, the commission is also looking at whether or not employees at ICAP may have intentionally delayed publication of swap prices, which in theory could give someone (bankers, cough, cough) a chance to trade ahead of the information.
Swap prices are published when ICAP employees manually enter the data on a computer screen called “19901.” Some 6,000 customers subscribe to a service that allows them to access the data appearing on the 19901 screen.
The key here is that unlike a more transparent, regulated market like the New York Stock Exchange, where the results of stock trades are computed more or less instantly and everyone in theory can immediately see the impact of trading on the prices of stocks, in the swap market the whole world is dependent upon a handful of brokers quickly and honestly entering data about trades by hand into a computer terminal.
Any delay in entering price data would provide the banks involved in the transactions with a rare opportunity to trade ahead of the information. One way to imagine it would be to picture a racetrack where a giant curtain is pulled over the track as the horses come down the stretch – and the gallery is only told two minutes later which horse actually won. Anyone on the right side of the curtain could make a lot of smart bets before the audience saw the results of the race.
At ICAP, the interest-rate swap desk, and the 19901 screen, were reportedly controlled by a small group of 20 or so brokers, some of whom were making millions of dollars. These brokers made so much money for themselves the unit was nicknamed “Treasure Island.”
Already, there are some reports that brokers of Treasure Island did create such intentional delays. Bloomberg interviewed a former broker who claims that he watched ICAP brokers delay the reporting of swap prices. “That allows dealers to tell the brokers to delay putting trades into the system instead of in real time,” Bloomberg wrote, noting the former broker had “witnessed such activity firsthand.” An ICAP spokesman has no comment on the story, though the company has released a statement saying that it is “cooperating” with the CFTC’s inquiry and that it “maintains policies that prohibit” the improper behavior alleged in news reports.
The idea that prices in a $379 trillion market could be dependent on a desk of about 20 guys in New Jersey should tell you a lot about the absurdity of our financial infrastructure. The whole thing, in fact, has a darkly comic element to it. “It’s almost hilarious in the irony,” says David Frenk, director of research for Better Markets, a financial-reform advocacy group, “that they called it ISDAfix.”
After scandals involving libor and, perhaps, ISDAfix, the question that should have everyone freaked out is this: What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we’re forced to trust.
“In all the over-the-counter markets, you don’t really have pricing except by a bunch of guys getting together,” Masters notes glumly.
That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.
All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world, and God knows what they’ll find. The European Federation of Financial Services Users wrote in an official EU survey last summer that all of these systems are ripe targets for manipulation. “In general,” it wrote, “those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion.”
Translation: When prices are set by companies that can profit by manipulating them, we’re fucked.
“You name it,” says Frenk. “Any of these benchmarks is a possibility for corruption.”
The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it. It’s not just stealing by reaching a hand into your pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever’s in your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it’s only just coming into view.
This story is from the May 9th, 2013 issue of Rolling Stone.
via The Biggest Price-Fixing Scandal Ever | Politics News | Rolling Stone.
via The Biggest Price-Fixing Scandal Ever | Politics News | Rolling Stone.
JPMorgan Chase adds to its revenue stream every time an American signs up for food stamps in 23 states
JPMorgan Chase adds to its revenue stream every time an American signs up for food stamps
The same corporation that received tens of billions of taxpayer dollars back in 2008 as part of the massive corporate bailout swindle is now reaping hundreds of millions of dollars every year from the federal food stamp program, according to little-known reports. For every American that signs up for the Supplemental Nutrition Assistance Program (SNAP) in 23 states, it turns out, JPMorgan Chase & Co. earns a processing fee of between 31 cents and $2.30 per month, which adds up to nearly $1 billion a year in additional revenues for the company.
Much of the younger generation might not realize it, but the federal food stamp program used to be just that — a system serviced by actual paper food stamps. Today, however, the system is run by an electronic card system known as Electronic Benefits Transfer (EBT), for which plastic cards are issued to recipients. These cards work much like credit or debit cards, and can easily be swiped discreetly at grocery and convenience stores for food purchases. And rather than have to be continually reissued like stamps, EBT cards are simply recharged every month with more money.
But with this advanced technology comes the need for residual processing, and this is where JPMorgan comes into the picture. According to MoneyMorning.com, 23 states currently contract out with JPMorgan to handle the processing responsibilities associated with EBT management. And for each person receiving food stamp benefits, JPMorgan is able to add a monthly sum to its revenue stream which, when compiled across the board, appears to add up to nearly $1 billion annually.
Based on the latest available figures, JPMorgan appears to have raked in roughly $100 million in revenues, on average, from each of the states with which it contracts throughout the past seven years. This adds up to at least $2.3 billion in total revenues during this same time period, although the precise figure cannot be confirmed. Even so, JPMorgan is clearly garnering a pretty penny off the backs of both taxpayers and the nation’s poorest individuals through its EBT contracts.
“This business is a very important business to JPMorgan,” said Christopher Paton, the Managing Director of JPMorgan’s public-sector payments business, to Bloomberg News back in 2010 about its federal food stamp revenue stream. “It’s an important business in terms of its size and scale … Right now, volumes have gone through the roof in the past couple of years.”
JPMorgan also collects fees directly from food stamp recipients
EBT processing fees are not the only source of food stamp revenue for JPMorgan, however. According to MoneyMorning.com, the corporate giant also charges individual states a monthly point-of-sale (POS) machine fee, and SNAP recipients who use their EBT cards at ATMs outside of the JPMorgan network are also charged additional user fees. JPMorgan also charges EPT users fees to replace lost cards, and even charges a 25-cent fee for customer service calls.
“All those charges and fees come directly out of the pocket[s] of SNAP recipients — people so poor they need food stamps to make ends meet,” writes David Zeiler, Associate Editor of MoneyMorning.com. “You’d think a bank that needed a $94.7 billion bailout from U.S. taxpayers as a result of the 2008 financial crisis would have a better sense of civic responsibility. But that’s just not in JPMorgan’s DNA.”
Why Are Big Banks Going To War With A Federal Judge?
Goldman Sachs Really Does Not Like to Be Sued!
You know the power that great wealth can bring when banks sue a judge who does not rule in their favor. The kind of justice system that banks would prefer is one that never finds them guilty of any wrongdoing and, in order to make sure that happens, the banks’ money is fully employed in paying many, many lawyers to do their bidding.
The listing alone of the corporate lawyers engaged in the filing takes four pages!
These banks have already been found civilly guilty of mortgage fraud elsewhere so no one will be surprised at finding many new instances of fraud committed by them.
To no one’s surprise, of course, Goldman Sachs is fully represented in this case.
Why Are Big Banks Going To War With A Federal Judge?
The accusation: shoddy underwriting of mortgage-backed securities.
The request: that banks buy back their ugly securities so shoddily underwritten.
The nation’s largest banks have devised a novel way to protect their interests and save themselves from hundreds of billions of dollars in legal exposure. They’re taking a judge to court.
Lawyers for 17 banks submitted an unusual filing in the Second Circuit Court of Appeals this week (just listing all the corporate lawyers involved takes up the first four pages). The banks – including JPMorgan Chase, Bank of America, Wells Fargo, Goldman Sachs, Citigroup and Morgan Stanley – stand accused of ripping off the mortgage giants Fannie Mae and Freddie Mac. The Federal Housing Finance Agency, Fannie and Freddie’s conservator, alleges that these banks improperly sold $200 billion worth of mortgage-backed securities without disclosing the shoddy underwriting of the underlying loans. FHFA argues the banks knew the loans in the securities were bad, yet sold them to Fannie and Freddie anyway, leading to massive losses and the need for a government bailout. So FHFA wants the banks to buy back the securities they improperly sold under false pretenses.
U.S. District Court Judge Denise Cote took over the case in December, 2011, and quickly made a series of rulings in the case, first denying a motion by the banks to dismiss the lawsuit. The bank lawyers have become so dissatisfied with Cote’s rulings, in fact, that they have asked the Second Circuit to reverse them. The filing calls for a “writ of mandamus” that would throw out a series of rulings around discovery, which the bank lawyers claim “deprived Petitioners of their right to obtain evidence.” (You can chew for a moment on the idea that banks are being deprived of their rights.)
via The National Memo » Why Are Big Banks Going To War With A Federal Judge?.
via The National Memo » Why Are Big Banks Going To War With A Federal Judge?.
Goldman, JPMorgan Overvaluing Capital Strength
Goldman Sachs Group Inc., JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) lagged behind peers in a key measure of capital strength used by U.S. regulators to stress- test their resiliency in a severe recession.
The three firms submitted more-optimistic estimates of their capital strength and ability to avoid losses on trading and lending than Federal Reserve projections released yesterday for the 18 biggest U.S. banks. Of the three, the gap was widest for Goldman Sachs, which predicted that its Tier 1 common ratio may fall as low as 8.6 percent in a sharp economic downturn, compared with the central bank’s 5.8 percent estimate.
The disparities — including a gap of 1.3 percentage points for JPMorgan — raise the risk that some banks may have been too aggressive while seeking Fed approval to distribute capital to investors through dividends and share repurchases. The companies must maintain Tier 1 common ratios of at least 5 percent under their capital plans. The Fed is set to release the results of those requests next week.
“If you came in with rosier assumptions than the Fed’s own baseline, then you’re definitely at risk of failure” in the capital request, said Christopher Whalen, executive vice president at Carrington Investment Services LLC. “The Fed is going to push back on those banks.”
Spokesmen for JPMorgan, Goldman Sachs and Morgan Stanley, all based in New York, declined to comment.
Shares Decline
Goldman Sachs dropped 2.3 percent to $152.98 in New York, the second-biggest decline in the Standard & Poor’s 500 Index. (BBSTI) The Bloomberg Banks Stress Test Index, which includes all 18 firms subject to yesterday’s test, declined 0.2 percent. JPMorgan fell 0.9 percent to $50.20 and Morgan Stanley dropped 0.8 percent to $23.03.
Auto lender Ally Financial Inc. (ALLY) had a capital ratio of 1.5 percent, the lowest of the firms tested. Detroit-based Ally, which is majority-owned by the U.S., disputed the Fed’s results, calling the analysis “inconsistent with historical experience” and “fundamentally flawed.” The company predicted its capital ratio would be 5.7 percent under the Fed’s scenario, according to a filing.
The results are a prelude to the Fed’s capital-plan review of the same banks scheduled for release on March 14. Yesterday’s results don’t forecast next week’s because the first test excludes management’s plans, a Fed official said yesterday on a conference call with reporters.
Banks have said they were coming into this year’s process more cautious even as investors of the six biggest U.S. lenders were anticipating capital payouts that could total $41 billion.
Conservative Plan
Goldman Sachs Chief Financial Officer Harvey Schwartz told analysts in January that the firm works closely with regulators to ensure it has a “conservative capital plan.”
JPMorgan scaled back its $15 billion share-buyback program by at least 20 percent and hopes to boost the bank’s 30-cent quarterly dividend, Chief Executive Officer Jamie Dimon said this year. The bank’s buyback request was about half of last year’s program, the Financial Times reported today, citing unidentified people familiar with the matter. Joe Evangelisti, a company spokesman, declined to comment.
Morgan Stanley CFO Ruth Porat said in January that her firm only requested approval for buying the remaining 35 percent of its brokerage venture from Citigroup Inc.
Not asking for a lot won’t help lenders if the assumptions they use aren’t appropriately cautious, said Richard Bove, a bank analyst with Rafferty Capital Markets LLC.
“Even if they were conservative in their request, the capital plans will be turned down if the assumptions were too aggressive,” Bove said in a phone interview. “The Fed risks looking like it caved to pressure” if it doesn’t reject those plans, he said.
Goldman Sachs and Morgan Stanley both cited market risk rules under new international capital requirements, which increased risk-weighted assets, as a reason their capital ratios fell in the test.
“We were surprised that the brokers’ capital ratios came so close to the 5 percent minimum requirement, which could limit capital returns,” Brennan Hawken, an analyst at UBS AG, wrote in a research note.
Hawken had estimated that Goldman Sachs would request a $5 billion buyback. That amount would be larger than the firm’s buffer above the 5 percent minimum, he said. Morgan Stanley’s 5.7 percent ratio makes a capital return less likely in the second half of the year, Hawken said.
The banks were hurt by their trading risk, analysts said. The six biggest firms were projected to lose $97 billion on trading in nine quarters through 2014, compared with $116.5 billion in losses estimated in last year’s test, the central bank said. Goldman Sachs and JPMorgan had the most such risk, with the Fed projecting losses of $24.9 billion and $23.5 billion, respectively. JPMorgan said its trading losses would be $17.5 billion.
‘Volatile Business’
“It’s a much more volatile business,” said Jennifer Thompson, an analyst at Portales Partners LLC. “In a stressed environment you will have potentially massive losses. The offset should be that they are getting better returns from those businesses. Theoretically, it should all equal out.”
Citigroup, the only U.S. bank among the six biggest to have its capital plan rejected last year, saw its Tier 1 common ratio fall to 8.3 percent under the central bank’s projections. The company sought permission to repurchase $1.2 billion of its shares without seeking a dividend increase, Citigroup said in a presentation after the Fed posted its report.
Offset Dilution
The planned buyback would “offset estimated dilution created by annual incentive compensation grants,” the New York- based lender said in the presentation.
Since the 2008-2009 financial crisis, U.S. regulators have tried to minimize the odds of another taxpayer rescue, compelling banks to retain some earnings and reinforce their buffers against possible losses. The Fed said the aggregate Tier 1 common capital ratio for the 18 banks would fall from an actual 11.1 percent in the third quarter of 2012 to 7.7 percent in the fourth quarter of 2014 under its scenario.
The Tier 1 common ratio measures a bank’s core equity, made up of common shares and retained earnings, divided by its total assets adjusted for risk using global banking guidelines.
JPMorgan, the biggest U.S. bank, projected that its key capital ratio wouldn’t fall below 7.6 percent, compared with 6.3 percent estimated by the central bank. The lender said pretax losses through 2014 would total $200 million while the Fed said they would be $32.3 billion. JPMorgan also was more optimistic than the Fed in estimating net revenue, loan losses and provisions it would need to cover those losses.
Morgan Stanley
Morgan Stanley estimated its Tier 1 common ratio could fall to as low as 6.7 percent, 1 percentage point higher than the Fed’s projection. The bank’s estimate for net revenue in the stressed period was $5.1 billion higher than the Fed’s.
“Managements probably need to be a little bit more optimistic, the Fed’s a regulator,” Stifel Financial Corp. (SF) CEO Ronald Kruszewski told Matt Miller in an interview on Bloomberg Television’s “Fast Forward” program. “That’s not unusual.”
The Fed’s minimum projected ratio for Bank of America Corp. (BAC), which didn’t request buybacks or a dividend increase last year, would drop to 6.8 percent in the most adverse scenario while Wells Fargo & Co.’s would be 7 percent.
Losses for the 18 firms, which represent more than 70 percent of the assets in the U.S. banking system, would total $462 billion over nine quarters, according to the Fed.
Under the Fed’s worst-case scenario — where U.S. gross domestic product doesn’t grow or contracts for six straight quarters, unemployment peaks at 12.1 percent and real disposable income falls for five consecutive periods — the 18 companies would lose $316.6 billion on soured loans, led by Bank of America. The Charlotte, North Carolina-based firm would lose $57.5 billion, followed by $54.6 billion for Citigroup and $54 billion each for Wells Fargo and JPMorgan.
Home Loans
Home loans were the largest source with $60.1 billion in projected losses on first mortgages and $37.2 billion on junior liens and home-equity loans. Bank of America would face $24.7 billion in losses, as San Francisco-based Wells Fargo would incur $23.7 billion, the Fed estimated.
The next-largest source of bad debt was credit cards, which the Fed estimated would cost banks $87.1 billion. Citigroup, the world’s biggest credit-card lender, led loss estimates with $23.3 billion. Capital One Financial Corp. (COF), which gets more than half its revenue from credit cards, would lose $16.4 billion. The lender’s own analysis estimated credit card losses at $13.5 billion.
“The stress analysis and underlying assumptions are informed by a number of factors, including our experience in the 2008 financial crisis and subsequent recession,” McLean, Virginia-based Capital One said in a presentation on its website.
Capital One
As a share of a company’s loans, Capital One’s portfolio performed worst, with losses amounting to 13.2 percent of its holdings, according to the Fed. That compares with 6.9 percent for Bank of America and 7.7 percent for JPMorgan.
Dimon, 56, expressed confidence about the outcome of the stress test when he spoke to analysts and investors last week.
“Whatever happens, the company will be fine, as long as we can freely compete with everybody else in the world,” Dimon said Feb. 26 at the company’s investor day. “That, to me, is the most important thing of all.”
The following shows how the 18 biggest U.S. banks performed under the Fed’s preliminary stress test results, which didn’t take into consideration new capital proposals. They are ranked by their lowest projected minimum Tier 1 common ratio under the Fed’s severely adverse economic scenario:
Ally Financial Inc. 1.5 Morgan Stanley 5.7 Goldman Sachs Group Inc. (GS) 5.8 JPMorgan Chase & Co. 6.3 Bank of America Corp. 6.8 Wells Fargo & Co. 7.0 SunTrust Banks Inc. 7.3 Capital One Financial Corp. 7.4 Regions Financial Corp. 7.5 KeyCorp 8.0 Citigroup Inc. 8.3 U.S. Bancorp 8.3 Fifth Third Bancorp 8.6 PNC Financial Services Group Inc. 8.7 BB&T Corp. 9.4 American Express Co. 11.1 State Street Corp. 12.8 Bank of New York Mellon Corp. 13.2
via Fed Sees Goldman, JPMorgan Overvaluing Capital Strength – Bloomberg.
via Goldman, JPMorgan Overvaluing Capital Strength – Bloomberg.
Goldman Sachs Gets Break on Derivatives Regulation
Rather than delaying reform of derivatives for banks that are backed by federal deposit insurance (thus making the taxpayer liable for paying for investment banking risks), why not take away the commercial part of these investment banks? Investment banks make the risky bets and investment banks should pay for their own risks without any help from taxpayer insurance.
Better yet, outlaw altogether all derivatives that are based on speculation! The financial crisis of 2008 was directly a result of the use of toxic derivatives instruments called CDOs.
JPMorgan to BofA Get Delay on Rule Isolating Derivatives
JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Bank of America Corp. won a delay of Dodd-Frank Act requirements that they wall off some derivatives trades from bank units backed by federal deposit insurance.
Commercial banks including the Wall Street firms may get as long as an additional two years — until July 2015 — to comply with the rules, the Office of the Comptroller of the Currency said in a notice yesterday. The so-called pushout provision was included in the 2010 financial-regulation law as a way to limit taxpayer support for risky derivatives trades.
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JPMorgan & Chase Co.’s headquarters in New York. Photographer: Peter Foley/Bloomberg
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The Commodity Futures Trading Commission and other regulators need to complete swap rules to allow “federal depository institutions to make well-informed determinations concerning business restructurings that may be necessary,” the OCC said in the notice. Dodd-Frank requires that equity, some commodity and non-cleared credit derivatives be moved into separate affiliates without federal assistance.
Regulators including Federal Reserve Chairman Ben S. Bernanke had opposed the provision, saying it would drive derivatives to less-regulated entities. In February, the House Financial Services Committee approved with bipartisan support legislation that would let banks keep commodity and equity derivatives in insured units by removing part of the rule.
The OCC is prepared to “consider favorably” requests for transition, the regulator said in the six-page notice. The agency said delays could be extended for a third year based on consultations with other regulators.
OCC Report
JPMorgan had 99 percent of its $72 trillion in notional swaps trades in its commercial bank in the third quarter of 2012, according to the OCC’s quarterly derivatives report. Bank of America had 68 percent of its $64 trillion in its commercial bank, according to the report.
Banks including Citigroup Inc. (C) will be given as long as two years beyond the July 16 deadline to move their swaps businesses, the OCC said. They must submit written requests describing how a transition period would reduce harmful effects on mortgage lending, job creation and capital formation. The requests, which must be submitted by Jan. 31, also must weigh how the transition period would affect insured depositors.
Other Regulators
The Federal Deposit Insurance Corp. expects to release rules or guidance in coordination with other regulators that apply to different types of banks, Andrew Gray, the agency’s spokesman, said today in an e-mail. None of the 65 firms that registered as swap dealers with the CFTC by the end of last year are directly overseen by the FDIC, Gray said.
The Federal Reserve has primary oversight of swap dealers that have registered with CFTC including Bank of New York Mellon Corp. and Goldman Sachs Bank USA. The pushout provision’s impact on uninsured U.S. branches and agencies of foreign banks is also unresolved by the OCC’s guidance and lack of guidance from the FDIC and the Fed.
The uninsured branches of foreign banks should be given the same treatment as U.S. insured depository banks, Sally Miller, CEO of the Institute of International Bankers, said in an e-mail today. “It is imperative that this disparity of treatment be addressed quickly,” said Miller, whose organization represents banks including Credit Suisse AG (CSGN) and Deutsche Bank AG.
Eric Kollig, a Fed spokesman, declined to comment on the Fed’s approach to the issue.
‘Pretty Amazing’
“The procrastination of both regulators and the banks on this portion of Dodd-Frank has been pretty amazing,” Marcus Stanley, policy director for Americans for Financial Reform, a coalition including the AFL-CIO labor federation, said yesterday in a telephone interview. “The swaps-pushout provision is a really important part and something that absolutely should be a central part of the regulatory framework.”
Blanche Lincoln, an Arkansas Democrat who led the Senate Agriculture Committee during talks leading to Dodd-Frank, sponsored the original provision in 2010. It applied to more more types of derivatives before it was scaled back amid objections from Bernanke and former FDIC Chairman Sheila Bair.
“I never myself thought it made a great deal of sense,” Barney Frank, the Massachusetts Democrat who helped draft the Dodd-Frank law and whose last day in Congress was yesterday, said on Feb. 16 when he backed changes to the pushout provision.
Ken Bentsen, executive vice president of public policy and advocacy at the Securities Industry and Financial Markets Association, said Congress should still seek changes.
“We continue to believe that the underlying swaps push out provision is bad policy,” Bentsen said yesterday in an e-mail, noting that regulators haven’t proposed how the provision would work. “Given this uncertainty, it is impractical to require compliance by July 2013,” he said.
To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net
America’s TBTF Bank Subsidy From Taxpayers: $83 Billion Per Year
AMERICA’S TBTF BANK SUBSIDY FROM TAXPAYERS: $83 BILLION PER YEAR
It looks like Johnny Citizen in the good old USA is being well and truly screwed
Day after day, whenever anyone challenges the TBTF banks’ scale, they are slammed down with a mutually assured destruction message that limitations would impair profitability and weaken the country’s position in global finance. So what if you were to discover, based on Bloomberg’s calculations, that the largest banks aren’t really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers? The stunning truth is that the top-five banks account for $64 billion of an implicit subsidy based on the ludicrous (but entirely real) logic that: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail. Perhaps this realization will increase shareholder demands – or even political furore? The market discipline might not please executives, but it would certainly be an improvement over paying banks to put us in danger.
Why Barack Obama is likely to win Ohio? It is the improved economy, stupid — Unemployment cut by one third as auto companies hire and so do banks
Which state in the union has featured the following employment developments this month?
Chrysler announced they are adding 1,100 new jobs, J.P. Morgan Chase is looking for hundreds of bankers, and the Cleveland Clinic needs so many new nurses they rented out the Cleveland Browns football stadium for a jobs fair.
Yes, indeed,� it’s Ohio, and the unemployment rate is just seven percent these days, well below the national average and seemingly ready to go even lower as the above statistics make clear.
Ohio was once the rust belt and a byword for decaying infrastructure but now thanks to the auto bailout and an upbeat economic forecast, the populace are set to vote for Barack Obama over Mitt Romney.
There is precedence for this. Back in 1988, Democrat Michael Dukakis won several farm states like Iowa which he had no right to win after farm states made clear how much they blamed the Reagan administration and Dukakis opponent V.P. George Bush for the farming prices slump.
Similarly, Obama has stayed ahead in Ohio despite every effort by the Romney camp to undermine that lead– it truly is the economy stupid.
“We’re doing great,” says Rich DeVore, 47, president of a United Autoworkers Union local in Perrysburg, on the outskirts of Toledo told Bloomberg News. “You see a lot of great things happening.”
Put simply, unemployment has dropped by one third and Ohio looks like it will continue to support Obama as a result.
It may well put him in the White House.
