Financial Reform Newsletter
November 20, 2014
More Wall Street Crime And Fines, But Still No Real Punishment When The Too-Big-To-Fail Banks Break the Law: Egregious, years-long, knowing illegal conduct at JPMorgan Chase, Citigroup, Bank of America, Royal Bank of Scotland, HSBC and UBS has resulted in yet another settlement – this time for $4.3 billion in fines for manipulating the $5.3 trillion foreign exchange currency markets. But, until individuals and banks are meaningfully punished, this latest settlement will do nothing to stop the crime wave, as Better Markets CEO Dennis Kelleher stated:
“The breadth, brazenness, scope and duration of the global conspiracy to manipulate the foreign exchange markets are staggering. Yet, the global too-big-to-fail banks are again allowed to evade responsibility and accountability by using shareholders’ money to pay big fines, which will generate headlines but do little if anything to stop the relentless Wall Street crime spree. In fact, these payoff PR settlements are little more than cover-ups that reward past crime and will incentivize future crime.”
As another commentator noted, “what was extraordinary about the case is the misconduct occurred [through October, 2013] when the banks were already under investigation for a similar scandal involving the fixing of the London interbank offered rate, or LIBOR,” as well as lots of other violations, but they still weren’t deterred. The extent and level of lawlessness is mind-boggling.
Interestingly, while U.S. regulators and prosecutors don’t seem to get this, there were small signs of progress abroad. Britain’s Financial Conduct Authority banned a number of senior executives from finance for their banks’ recklessly aggressive sales tactics. The move was applauded by many within the financial press and fueled calls for more of the same. And this week Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, added his voice to the debate. Noting that penalties imposed on banks don’t seem to deter bad behavior by bankers, he called for new ways of clawing back pay. Once again the press welcomed the seeming change, but suggests we must go much farther still.
Wall Street’s Brokers’ Conflicts Of Interest And Hidden Fees Must Stop Draining Hard-Working American’s Retirement Savings: There is overwhelming evidence that American workers and retirees need unbiased, reliable advice about their retirement investments but they’re not getting it from Wall Street brokers. The latest proof appeared in a Boston Globe article, which highlighted two “undercover” studies showing that brokers consistently recommend higher-cost managed mutual funds over simpler and less expensive index funds when advising their middle class clients – by a margin of over 10 to 1! That’s because those brokers are not required to act in the best interest of their clients, and they can push financial products that earn them higher fees but saddle their clients with high-cost investments that “stunt the growth of middle-class nest eggs.” The Department of Labor is expected to issue a rule soon to fix the problem by broadly applying the “best interest” standard – known as the fiduciary duty — to anyone who gives advice about how to invest their hard-earned retirement money. There is an industry disinformation lobbying campaign to stop DOL from protecting savers, but the facts show the rule is needed and DOL should propose it ASAP. To learn more, see our letter to President Obama in favor of a strong DOL rule.
The Real Legacy of the Job-Killing Financial Crash of 2008 Is Ongoing Slow Growth, Elevated Part-Time Employment, And Worsening Income Inequality: The stock market keeps going up, the unemployment rate is declining, and gas prices are under 3 dollars, but still tens of millions of Americans are still suffering from economic insecurity in their own personal finances. With 7 million Americans stuck in part time jobs they don’t want, and the number of full time workers still 2 million less than before the financial crash-caused Great Recession began, it is clear that high levels of unwanted part time employment is a stubborn legacy of the 2008 financial crisis. As Better Markets’ CEO Dennis Kelleher recently detailed, and as Larry Summers has analyzed, traditional economic indicators no longer reflect the current economic reality for tens of millions of Americans who are still struggling. In fact, the evidence suggests that middle class Americans may be “permanently poorer” at the same time income inequality has grown even worse. For example, “Inflation-adjusted earnings of the bottom 90 percent of Americans fell between 2010 and 2013, with those near the bottom dropping the most. On the other hand, incomes in the top decile rose.” In The New York Times, Steven Ratner wrote, “the “Democrats’ drubbing in the midterm elections was unfortunate because the prospect of addressing income inequality grows dimmer, as the problems worsens.” Ratner included some excellent charts that compare America’s declining incomes with other developed nations. Recent studies show, that once taxes and government transfers are taken into account, the United States emerges as the worst for income inequality. Moreover, America’s tax revenues from its highest earners are smaller on a relative basis than those of any other Organization for Economic Cooperation and Development (OECD) country. No one knows when, if ever, the economic calamity caused by the financial crash will end, but it is a constant reminder of the importance of financial reform, which is designed to make sure such a catastrophe is never inflicted on the country again.
Better Markets in the News:
Financial firms lobby hard against stricter protections: Boston Globe by Christopher Rowland 11/16/2014
Time to Punish those at top for banking scandals: The Independent by Robert Jenkins 11/14/2014
Warren’s New Leadership Post: The Implications for Banks: American Banker by Victoria Finkle 11/14/2014
Big Banks Get Wrist-Slapped Over Currency Manipulation Charges: Crooks and Liars by Susie Madrak 11/14/2014
Watchdog: Wednesday’s Big Wall Street Settlement Is “Laughably Inadequate”: Mother Jones by Erika Eichelberger 11/13/14
Corporate Crime Cases Too Difficult to Prove: Corporate Crime Reporter 11/13/14
Foreign exchange manipulation allegations erode public opinion: LA Times by Dean Starkman and Jim Puzzanghera 11/12/2014
Banks fined billions for rigging currency markets: Associated Press by Danica Kirka and Marcy
Articles of Interest:
The Fed Needs Governors Who Aren’t Wall Street Insiders: The Wall Street Journal by Elizabeth Warren and Joe Manchin
Smoke and errors – Fed transparency and bank supervision: Financial Times by Tom Braithwaite 11/17/2014
JPMorgan Settles Claims It Cheated Shale-Rights Owners: Bloomberg by Margaret Cronin Fisk and Laurel Brubaker Calkins 11/16/2014
Inequality, Unbelievably, Gets Worse: The New York Times by Steven Rattner 11/16/2014
Forex fines show still much to do on UK banking reform lawmakers: Reuters by Kylie Maclellan 11/16/2014
Call to Congress: End Loophole for Tax on Elite: New York Times by James B. Stewart 11/14/2014
Forex banks prepare to claw back bonuses: Financial Times by Daniel Schafer and Sam Fleming 11/14/2014
Penalise the banks but use the money well: Financial Times by Gillian Tett 11/13/2014
Elevated Level of Part-Time Employment: Post-Recession Norm?: The Wall Street Journal by Nick Timiraos 11/12/2014
JPMorgan settlement not enough, says whistleblower: CNBC by Drew Sandholm 11/12/2014