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March 28, 2014

Financial Reform Newsletter- March 28, 2014

Financial Reform Newsletter
March 28, 2014

Another week, another too-big-to-fail bank pays billions to settle yet more claims for fraudulent and illegal conduct for contributing to the 2008 financial crash.  It was announced this week that Bank of America is paying $6.3 billion (and buying back an additional $3.2 billion worth of securities) to settle claims for selling fraudulent securities to the federal housing agencies (variously called Fannie, Freddie, FHFA, or the GSEs).  What gets lost in the weekly announcements of billions and tens of billions of dollars in payments is that they arise from the too-big-to-fail banks’ fraudulent illegal conduct in inflating the housing bubble by creating, selling and distributing worthless mortgages, securities and derivatives (euphemistically called “toxic”).  That years-long fraudulent business model was not a victimless crime: it caused the worst financial crash since 1929 and the worst economy since the Great Depression of the 1930s.  That will cost the U.S. more than $12.8 trillion. Yet, the  perpetrators of those crimes pocketed tens of billions in bonuses in the years before the crash and use shareholder money now to pay for their fraud, while the American people get stuck paying the bill. 


Oh, and don’t forget that Wall Street and its allies love to blame the GSEs (Fannie and Freddie) for causing the crisis.  Of course, this has been demonstrated to be false time and time again, but the too-big-to-fail crowd never lets facts get in the way of their profits and bonuses.  Nevertheless, this settlement (like the $18+ billion from other banks) is yet more evidence that the GSEs were the victims of Wall Street’s fraudulent scheme just like the rest of America.


The guilty verdicts are in – but who still hasn’t been charged?  This week, a New York jury found five associates and employees of Bernie Madoff guilty of knowingly committing fraud and stealing billions of dollars from clients.  This was the largest Ponzi scheme in history and investors lost more than $17 billion.  In addition, a federal court rejected ex-Goldman Sachs director Rajat Gupta’s appeal and upheld his 2012 conviction for insider trading. But don’t be fooled by this flurry of guilty verdicts and one upheld conviction – the real Wolves of Wall Street are still roaming free.


As Madoff’s criminally convicted associates await sentencing for their involvement in his massive, decades-long conspiracy, JP Morgan Chase used shareholder money (again) to buy its way out of  criminal prosecution by paying a  $2 billion settlement for serving as Madoff’s bank for decades.  As the U.S. Attorney said, the bank repeatedly ignored clear warning signs over the years that could have revealed the crimes.  How much of those $17 billion in losses could have been avoided if JP Morgan Chase had acted on those warnings?  Inexcusably, the Feds again failed to hold a single individual that worked for JP Morgan Chase personally accountable for the bank’s egregious, multi-year enabling of Madoff’s Ponzi scheme.


When will the Feds learn that banks do not commit crimes; bankers do and, until they punish actual bankers, Wall Street will continue its crime spree, victimizing investors, markets and Main Street.  This is yet another example of a too-big-to-fail Wall Street bank engaging in reckless, negligent and downright criminal conduct, where no one is held liable.  That double standard is wrong, as one observer acidly noted: ” When is a crime not a crime? Apparently when it happens on Wall Street.”


DOJ makes fraudulent statements about its alleged fight against mortgage fraud.Pulitzer prize winning New York Times columnist Gretchen Morgenson’s must-rea piece on the report released by the inspector general of the Justice Department details the DOJ’s failure to fight financial frauds which contributed to the 2008 financial crisis.  Complex financial crimes are the lowest priority for the DOJ’s criminal investigation division, despite Attorney General Eric Holder’s false claim of “a groundbreaking, yearlong mortgage fraud enforcement effort.” The “scary” truth, says former senator Ted Kaufman, is that DOJ’s lax enforcement policy has resulted in “two levels of justice in this country, one for the people with power and money and one for everyone else.”


Fighting Wall Street’s too-big-to-fail bank’s never-ending war to weaken or kill financial regulation.  Better Markets filed a legal brief in the federal court in DC in support of the CFTC, defending the commission against unfounded claims made by Wall Street and the biggest global banks.  Those enormous banks have a self-interest in delaying, weakening and ultimately derailing financial reform, which is designed to eliminate or reduce the biggest banks’ high risk activities that threaten another financial crash and more bailouts. In this case, those too-big-to-fail banks, which are backed by taxpayers, are trying to prevent  needed and overdue regulation of their cross-border activities.  If they succeed, those banks would just move their business from the U.S. to overseas locations and reap huge profits, until the next crash when, like the 2008 bailout of AIG, they send the bill back to U.S. taxpayers.


Wall Street’s too-big-to-fail banks get a subsidy, which gives them an unfair advantage, because they are backed by the taxpayers.  Research from the New York Fed released this week shows that the too-big-to-fail banks get a funding advantage over other banks because the government won’t let them fail:  like in 2008, if they failed, the entire financial system would collapse and a second Great Depression, which was barely avoided last time, would be a virtual certainty.  It is mindboggling that anyone finds it news that there is a funding advantage for a bank that cannot fail; by definition, those handful of gigantic Wall Street Banks are substantially less risky than every other firm in the U.S. which is allowed to fail; only the too-big and too-dangerous-to-fail Wall Street banks fall into the comforting arms of the American taxpayer.  Unsurprisingly, this research is consistent with other independent research, although, also unsurprisingly, Wall Street’s the “world is still flat” defenders deny it.


Better Markets in the News:  

BofA to pay $9.5 billion to settle Fannie Mae, Freddie Mac claims:  The Los Angeles Times by E. Scott Reckard and Walter Hamilton 3/26/2014

Is Belfort’s “Wolf” The Real Wall Street?: Investopedia by Susan Antilla

Swaps rules done, but work far from over: Politico Pro by Zachary Warmbrodt 3/17/2014

BoE’s Cunliffe says big banks are still too big to fail: Reuters by Huw Jones 3/17/2014

New York Fed Chief Expresses Concern on New Leverage Rule: New York Times by 3/20/2014

Other Articles of Interest: 

Bank of America to Pay $9.5 Billion to Resolve FHFA Claims: The Wall Street Journal by John Kell 3/26/2014

Banks must prepare for escalating costs of legal problems: Financial Times by Tom Braithwaite 3/24/2014

When Is a Bank Too Small to Stress Over?: Bloomberg by Jonathan Weil 3/24/2014

Top China Banker for JPMorgan to Retire Amid Hiring Inquiry: The New York Times by Neil Gough 3/24/2014

CFTC steps up probe of ‘exchange for futures’ deals: Financial Times by Gregory Meyer and Kara Scannell 3/23/2014

Yellen Pursuing Bernanke’s Fed Policies With More Direct Style: Bloomberg by Rich Miller 3/21/2014

Income Gap, Meet the Longevity Gap: The New York Times by Annie Lowrey 3/15/2014



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