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“Quaking In Their Boots”: Watch Out Wall Street, Sherrod Brown Is Coming

With Sen. Tim Johnson, D-S.D., officially headed for retirement, speculation regarding who will replace him as chairman of the Senate Banking Committee is well underway. And one option reportedly has Wall Street quaking in its boots: Sen. Sherrod Brown, D-Ohio.

As the Huffington Post’s Ryan Grim reported, Brown is fourth in line to head the Banking Committee – which oversees most financial regulatory matters for the upper chamber – but the three senators ahead of him all have reasons to take a pass. And if Brown were to become chairman, he would have a powerful new platform from which to continue his efforts to bust up the nation’s biggest banks. “I think everything from too-big-to-fail banks all the way down to issues impacting the unbanked and underbanked would suddenly see a new energy behind them,” one analyst told Politico.

Since the financial crisis of 2008, Brown has been one of the foremost critics of Wall Street’s mega-financial institutions. During the debate over the Dodd-Frank financial reform law, Brown tried unsuccessfully to secure passage of the SAFE Banking Act, which would have capped bank size as a percentage of the economy and reduced the amount of non-deposit liabilities that a firm could hold.

Brown’s plan would have gone much further than anything that ultimately wound up in Dodd-Frank, and would have been far preferable to the Volcker Rule, the unwieldy regulation meant to deter banks from threatening the financial system via risky trading.

Recently, Brown has joined with Sen. David Vitter, R-La., to once again call for breaking up big banks.

“How many more scandals will it take before we acknowledge that we can’t rely on regulators to prevent subprime lending, dangerous derivatives, risky proprietary trading, and even fraud and manipulation?” he asked. “We simply cannot wait any longer for regulators to act. These institutions are too big to manage, they are too big to regulate, and they are surely still too big to fail.”

It is certainly true that the last few years have seen the banking sector commit a slew of misdeeds: rampant foreclosure fraud; fixing of global interest rates; and the so-called “Whale Trade” that cost JP Morgan Chase billions of dollars (and yet still won the firm an award). And the root of the problem is that the largest banks aren’t only too-big-to-fail, they’re too-big-to-jail.

The Justice Department, in fact, explicitly said earlier this month that it is not prosecuting some of the biggest banks for fear of causing them to fail, which would endanger the rest of the financial system. Instead, banks have gotten off with slaps on the wrist and penalties that barely dent their bottom lines.

“Declining to prosecute either the banks themselves or individuals at the banks for financial fraud sends the message that crime pays,” said Sen. Charles Grassley, R-Iowa, another Brown ally. Indeed, if a bank is so big that prosecuting it is deemed too risky to the economy, that bank is too big, period!

As Brown joining with Vitter and Grassley shows, a coalition of left and right can be cobbled together when it comes to reining in banks for the good of the financial system. (The Senate even voted 99-0 recently to end federal advantages for too-big-to-fail banks, though the measure is non-binding.) Having Brown at the helm of the Senate Banking Committee certainly wouldn’t hurt that cause, and the economy would be better off for it.

 

By: Pat Garofalo, U. S. News and World Report, March 27, 2013

March 28, 2013 Posted by | Banks, Wall Street | , , , , , , , | Leave a comment

“The Sentiment Is Swinging”: Unanimous Senate Vote Bolsters Movement To Break Up Big Banks

It’s nearly impossible to get 99 U.S. senators to agree on anything.

But this past weekend, 99 senators agreed to send a non-binding message that the $83 billion subsidy “too big to fail” banks get from the government needs to end. The measure was co-sponsored by senators Sherrod Brown (D-OH) and David Vitter (R-LA).

The implicit subsidy first came to light in February when a Bloomberg News report found that “recurrent bailouts of the largest financial institutions have given [big banks] a unique advantage: They get a break on their borrowing costs, because creditors expect taxpayers to support them whenever they get into trouble.”

Shortly thereafter, Attorney General Eric Holder made the shocking admission that the Justice Department exercises restraint in prosecuting big banks for fear of shocking the global financial system.

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” Holder said, during testimony to the Senate Banking Committee.

Now all of the Senate’s Republicans have joined with senators Brown and Elizabeth Warren (D-MA) — who have long warned of the big banks’ continued ability to wreck havoc on the economy — to call for an end to the implicit subsidy.

“I’m glad that Republicans and Democrats can agree: ‘Too big to fail’ needs to end, and these big-bank subsidies make no sense,” Senator Warren said.

Bank lobbyists have denied that the subsidy exists. But as a Bloomberg editorial notes, they’ve rejected any steps that would prevent the government from having to serve as their backstop in case of a crisis.

“If big banks don’t get a subsidy on their debt, it’s hard to understand why they’re so adamantly opposed to measures, such as increased capital requirements, that would put a limit on their borrowing,” the editors noted. “Large banks commonly borrow $25 or more for each $1 in equity — or capital — they get from their shareholders, compared with less than 50 cents per $1 of equity for the average U.S. corporation.”

Financial reform following the financial crisis was weakened by bank lobbying. As Senator Dick Durbin (D-IL) noted at the time, the “banks own the place.” And by “the place,” he meant Congress.

This vote shows the sentiment is swinging against the banks. Whether senators are willing to vote against them when actual legislation is on the line still remains to be seen.

 

By: Jason Sattler, The National Memo, March 25, 2013

March 26, 2013 Posted by | Banks, Financial Reform | , , , , , , , | 1 Comment

“Holding Pickpockets To Account”: Sen. Elizabeth Warren Comes Out Swinging

In case you missed it, Elizabeth Warren made quite the splash at her first Senate Banking Committee hearing on Thursday.

In front of a panel entitled “Wall Street Reform: Oversight of Financial Stability and Consumer and Investor Protections,” Warren berated regulators for failing to prosecute a single Wall Street criminal in recent years, and for not letting institutional suspicions arise due to the fact that banks are trading at below-book value.

This, as you can imagine, did not sit well with banking executives.

According to POLITICO’s Ben White, they went apoplectic:

“We have been through more tests and thorough exams than any college student over the past four years, including many conducted by the CFPB,” said Richard Hunt, president and chief executive of the Consumer Bankers Association.

“While Sen. Warren had every right to ask pointed questions at [Thursday’s] Senate Banking Committee hearing, her claim that ‘nobody believes’ that bank books are honest is just plain wrong,” [another anonymous] executive said in an email. “As Federal Reserve Gov. [Daniel] Tarullo explained in response to her question, the low valuations are more likely due to continued economic uncertainty and concerns on the part of investors regarding the impact on banks’ profitability due to the hundreds of new regulations.”

White, however, left out key pieces of background here. The first is that Wall Street banks are performing like they were in 2006, and that their moaning about profitability rings hollow. The second is that to say the industry has a credibility problem would be the understatement of the decade: according to the Wall Street Journal and a trade publication called CFA Magazine, “one out of every ten people working on Wall Street are psychopaths.”

Not wanting to disappoint, the executive evidenced a delusional mendacity again in White’s article, when he said that “Elizabeth warren and [Texas Republican Senator] Ted Cruz are dueling for the title of ‘most extreme fringe freshman senator.’”

To this empty suit, it’s not just as if the financial crisis never happened. It’s as if Wall Street firms haven’t been mired in scandal after scandal since: foreclosure fraud, LIBOR, JP Morgan London Whale, FHA loan fraud, and MF Global to name a few. According to our faceless executive, wanting regulators to hold these well groomed pickpockets to account — for both crimes and reckless legal practices — is equal to slandering Chuck Hagel for having fictitious ties to North Korea or a blatantly made-up Hamas linked booster group (and certain publications continue to push this false equivalency in their fact-free devil-may-care attempts to be “objective” stenographers).

Fortunately for Wall Street, Warren might not have done herself any favors through her line of questioning. As Yves Smith, author of the the indispensable blog “Naked Capitalism” pointed out, the freshman Senator could have played a more subtle cat-and-mouse game to “tease out” information she claimed to have wanted – about why regulators never take cases to trial, namely, or why the fines they issue amount to a paltry “cost of doing business” amount. I suspect, however, that Warren was just trying to make a point – that whether regulators are scared of losing cases, or not wanting to find themselves shunned by Wall Street when they decide that they’ve had enough of Washington, they haven’t been doing the public any favors through inaction.

What’s important about this exchange, though, is that Warren demonstrated why she was elected. She might, thus far, be known as a one-issue kind of expert, but that issue is of massive importance to her constituents (and the American people). Her banking committee membership, I suspect, will be significantly more valuable the next time financier psychopaths pay a visit to one of the Senate office buildings to testify.

 

By: Brian Knight, Washington Monthly Political Animal, February 17, 2013

February 19, 2013 Posted by | Banks, Wall Street | , , , , | Leave a comment

“She Will Be Heard”: Elizabeth Warren Knows Where A Lot Of The Bodies Are Buried, Puts AIG On Notice

When new members arrive in the US Senate, they are supposed to take a seat on a back bench and listen quietly for a couple of years. That is not in Elizabeth Warren’s nature. She had been a US Senator from Massachusetts for only about a week when she broke with etiquette. Warren was outraged that AIG investors were urging the insurance giant’s directors to join them in a lawsuit against the federal government, claiming damages from the federal bailout of their company during the financial crisis.

The freshman senator sent out a tartly worded statement to her many fans and followers. “AIG should thank American taxpayers for their help—not bite the hand that fed them,” Warren wrote. The message swept the blogosphere like wild fire. The AIG directors folded the next day. It is perhaps mistaken to assume her voice alone stopped this corporate ingratitude in its tracks, but that may well be the message absorbed in Washington politics. Try not to provoke this new senator, especially on the stuff she knows a lot about. She might bite back.

Indeed, Senator Warren has renewed the accusation about the AIG bailout she had made a year ago during her Senate campaign. While the Federal Reserve pumped a fortune ($182 billion) into saving AIG from failure and thereby protected Wall Street megabanks from huge losses, the Treasury Department was arranging its own “sleuth bailout,” as Warren charged. Treasury granted an exception to the standard tax rules that delivered billions more to AIG in the form of a special tax break.

The company was effectively relieved from paying any taxes despite the fact that it has returned to profitability and repaid the Federal Reserve loans. The senator called on her supporters to join a campaign to end AIG’s special tax break. “Enough is enough…,” she wrote. “These special tax giveaways give AIG a competitive advantage over its competitors—all the while inflating AIG’s profit numbers and compensation for executives.”

What separates Elizabeth Warren from your typical newcomer to Congress—in addition to the rare gutsiness—is her deep knowledge of banking and finance. For many years, while she taught at the Harvard law school, Warren was a lonely crusader, exposing predatory bankers and the cruel terms by which millions of families were driven into bankruptcy.

Her reputation led to appointment as the chair of the Congressional Oversight Panel that investigated the AIG bailout in great depth. The COP final report is itself an extraordinary document of government—clear and concise, an unflinching analysis that describes exactly how the Federal Reserve and the Treasury failed to serve the public interest in their incestuous bailout of Wall Street titans.

“The AIG rescue demonstrated that Treasury and the Federal Reserve would commit taxpayers to pay any price and bear any burden to prevent the collapse of America’s largest financial institutions,” Warren’s report concluded.

She will be heard. The new senator will serve on the Senate banking committee and she already knows where a lot of the bodies are buried. I suspect some of those disgruntled AIG investors are wishing they had kept their whining to themselves.

 

By: William Greider, The Nation, January 10, 2013

January 11, 2013 Posted by | Banks | , , , , , , , , | 1 Comment

“Taboo Ideas”: Regular People Could Use A Bailout Every Bit As Much As Wealthy Elites

Via Atrios, I see that the idea of just printing money and handing it out is gaining some elite traction. Here’s Anatole Kaletsky in Reuters:

Last week I discussed in this column the idea that the vast amounts of money created by central banks and distributed for free to banks and bond funds – equivalent to $6,000 per man, woman and child in America and £6,500 in Britain – should instead be given directly to citizens, who could spend or save it as they pleased. I return to this theme so soon because radical ideas about monetary policy suddenly seem to be gaining traction. Some of the world’s most powerful central bankers – Mario Draghi of the European Central Bank last Thursday, Eric Rosengren of the Boston Fed on Monday and Mervyn King of the Bank of England this Wednesday – are starting to admit that the present approach to creating money, known as quantitative easing, is failing to generate economic growth. Previously taboo ideas can suddenly be mentioned.

The nice thing about this is it wouldn’t rely on some second-order effects through the expectation channel. With a big cash windfall a major fraction of the population are sure to spend it or use it to pay down some debt. When you’re in a depression, as we are, that’s just what the doctor ordered. This is as opposed to normal quantitative easing, which relies on pushing on the economy through the rotten banking system. Like a sponge, the banks absorb most of the money before it seeps out into the real economy.

Probably the biggest obstacle with this is how ridiculous it sounds. “The money has to come from somewhere,” people say. Actually, no it doesn’t. That’s the whole idea behind fiat money. Nothing behind it. “It’ll create hyperinflation,” conservatives will say. Nope. Right now we’re in a depression: we have very low inflation from too few people with jobs and money buying not enough goods and services to run the economy at potential.

Therefore, more spending will just pull in more idle people and resources. Only when the economy is at capacity is serious inflation a possibility. If it starts to happen, the Fed can easily act to restrain it.

The least convincing counterargument is the moral hazard one. “Can’t give people free money,” people say, “otherwise they’ll lose their moral fiber. Success must be earned.” I suppose all other things equal that’s the case, but that argument sure didn’t stop the Treasury from stuffing $700 billion down the rotting throats of the banks back in 2008, and it hasn’t stopped the Fed from stuffing God knows how many more trillions in cheap loans after it.

Again, I agree that moral hazard should be a consideration, especially for the richest and most powerful people and corporations, but we recognize in a crisis sometimes it’s more important to keep the system from collapsing than make sure every person gets exactly what she deserves. When we had a banking crisis, everyone agreed on this. Elites everywhere panicked, and swooped in with “incredible speed and force to bail out the financial sectors in which creditors are invested, trampling over prior norms and laws as necessary.” We’re now in the fourth year of an unemployment crisis, and it’s high time we found some similar urgency.

Nothing I haven’t said before, and still probably little chance of happening, but here’s hoping. Regular people could use a bailout every bit as much, if not more, than wealthy elites.

 

By: Ryan Cooper, Washington Monthly Political Animal, August 9, 2012

August 10, 2012 Posted by | Banks | , , , , , , , , | Leave a comment

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