Financial Reform Friday Newsletter
November 1, 2013
Must read New York Times article about a career prosecutor who has been a leader in charging the biggest banks on Wall Street with illegal conduct that caused the crisis: “From Anonymity to Scourge of Wall Street.” Our related tweets:
Large and small costs of 2008 financial crash and economic calamity continues. Although never mentioned, the extraordinary politics of the Federal Reserve Board (zero interest rates, QE bond/treasury purchases, to taper or not) are all attempts to reduce the damage done by Wall Street’s crash of the financial system. Also never mentioned in the fights over the deficit and debt, a very large part of that directly result from plummeting revenues and skyrocketing costs necessitated by the financial crash. It is now clear that the financial crash also crushed startups and, for a number of reasons, they have still not recovered. These are just some of the reasons the costs of the financial crash are going to be more than $13 trillion.
House votes to let brokers continue deceiving clients, pensioners and retirees. This week, the House of Representatives voted to stop new fiduciary duty rules that the Department of Labor and SEC are trying to pass to prohibit Wall Street predators from putting their own interests over their clients and exploiting investors for their own profits. Better Markets does not ordinarily comment on specific legislation, but exceptions are made for something as egregious as “The Retail Investor Protection Act.” Sadly, the only thing the bill protects are the bonuses of brokers and financial advisers, which come at the expense of their customers.
Applying the rule of law to Wall Street executives. Five years after the financial crisis, the cost of which will exceed $13 trillion, not a single Wall Street CEO or executive has been charged. As Wall Street’s wrongdoing mounts, regulators and prosecutors settle for fines or for going after mid-level employees. Yet the whales of Wall Street swim free. Better Markets President and CEO Dennis Kelleher recently appeared on public radio’s Background Briefing Ian Masters to discuss why no Wall Street titan has been held accountable and why Wall Street crime unpunished is crime encouraged.
Are regulators making progress on stopping Wall Street’s biggest banks from making huge, high risk bets that could lead to more bailouts (the so-called Volcker Rule)? CFTC Chairman Gary Gensler said this week that financial regulators are prepared to meet the deadline set by Treasury Secretary Jack Lew and will finish the Volcker Rule by the end of 2013. The rule to prevent proprietary trading on Wall Street has been under relentless industry attack but is crucial to reforming U.S. financial markets. In September, Better Markets met with SEC Chairman Mary Jo While and staff to advocate for a strong Volcker Rule and discuss how it can be effectively implemented. All of Better Markets’ Volcker Rule materials are collected here.
The SEC’s weak rule on risk retention (so-called “skin in the game”) leaves the financial system at grave risk. Financial reform is supposed to protect Main Street by reducing Wall Street’s high risk behavior. By that measure, the SEC’s credit risk retention rule fails. Rather than make Wall Street more prudent in its mortgage lending activities by requiring banks to keep a portion of each mortgage sold, the SEC has gutted the law and incentivized the very behavior that inflated the housing bubble and contributed to the financial crash. See the Better Markets comment letter detailing the rule’s threat to the financial system.
Trouble with JP Morgan Chase’s settlement with DOJ? The troubled bank’s tentative $13 billion agreement with the DOJ hit a snag this week, as the feds balked at JP Morgan’s insistence that the FDIC cover fines related to WaMu, although CEO Jamie Dimon acknowledged at the time of purchase that JP Morgan was buying WaMu’s liabilities as well as its assets. Regardless, the WaMu (and Bear Stearns) purchase has been a sweet deal for JP Morgan and Jamie Dimon: retail earnings alone increased from $247 million in 2008 third quarter profits to $2.7 billion in 2013 third quarter profits. Jamie got a great deal in 2008 and he’s looking to make another killing now by settling on the cheap. $13 billion is a lot of money, except on Wall Street and at JP Morgan where many, many multiples of that have been made from wrongful and illegal, if not criminal, conduct.
Tweet of the Week:
Some other things that might be of interest to you:
Madoff Money to Japan Mob Ties Breed Banks’ Global Pains: Bloomberg by Max Abelson 11/30/2013
Forex probes raise fears of a repeat of Libor scandal: Financial Times by Daniel Schafer and Alice Ross 10/30/2013
JP Morgan’s Legal Woes Extend to Oil Patch: The Wall Street Journal
November 1, 2013
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