“J.P. Morgan, The Man And The Bank”: Bassackwards Justice, Fining Banks Is Not A Crime-Stopper
J.P Morgan was recently socked in the wallet by financial regulators, who levied a fine of nearly a billion bucks against the Wall Street baron for massive illegalities.
Well, not a fine against John Pierpont Morgan, the man. This 19th century robber baron was born to a great banking fortune and, by hook and crook, leveraged it to become the “King of American Finance.” During the Gilded Age, Morgan cornered U.S. financial markets, gained monopoly ownership of railroads, amassed a vast supply of the nation’s gold and used his investment power to create U.S. Steel and take control of that market.
From his earliest days in high finance, Morgan was a hustler who often traded on the shady side. In the Civil War, for example, his family bought his way out of military duty, but he saw another way to serve. Himself, that is. Morgan bought defective rifles for $3.50 each and sold them to a general in the Union Army for $22 each. The rifles blew off soldiers’ thumbs, but Morgan pleaded ignorance, and government investigators graciously absolved the young, wealthy, well-connected financier of any fault.
That seems to have set a pattern for his lifetime of antitrust violations, union busting and other over-the-edge profiteering practices. He drew numerous official charges — but of course, he never did any jail time.
Moving the clock forward, we come to JPMorgan Chase, today’s financial powerhouse bearing J.P.’s name. The bank also inherited his pattern of committing multiple illegalities — and walking away scot-free. Oh sure, the bank was hit with that billion-dollar fine, but that’s hardly devastating to a behemoth that hauled in $6.5 billion in just the previous three months. Besides, note that not a single one of the top bankers who committed gross wrongdoing was charged or even fired — much less sent to jail. Fining banks is not a crime-stopper, for banks don’t commit crimes. Bankers do. And they won’t ever stop if they don’t have to pay for their crimes.
In fact, someone should make a movie about JPM’s honchos and title it Bankers Gone Wild! Not long ago, America’s biggest Wall Street empire was hailed as a paragon of financial integrity. But today it’s a house of crime, currently under investigation for management illegalities by seven federal agencies, several states and two foreign nations.
But there’s an additional “crime” taking place, hidden within that billion-dollar fine that regulators levied on the bank for top-level mismanagement, which caused shareholders to lose a whopping $6 billion in a trade scandal last year. Media reports say the bank agreed to pay the fine to settle those charges, but when it’s reported that “the bank” will pony up a billion dollars, who exactly is that?
Not the bankers who committed the illegalities, but Chase’s shareholders. Wow, how’s that for a raw deal? The money the bankers lost belonged to shareholders, yet they’re being socked for another billion to cover the bankers’ fine. Imagine if you got burglarized, then were fined for being burglarized! As one law professor said, “It’s not just adding insult to injury, it’s adding injury to injury.”
Federal regulators say it’s easier to get bankers to settle a case if they can hand the fine to shareholders, who don’t even get a say in the decision. But going after the bankers, they claim, would require a jury trial — and jurors might not convict.
Huh? What kind of bassackwards justice is that? Besides, it’s ridiculous to think that jurors wouldn’t jump at the chance to convict Wall Street banksters. That’s a jury I’d like to serve on. Wouldn’t you? Nail a couple of them, and that’d chill all of their wild finagling.
By: Jim Hightower, The National Memo, October 20, 2013
“The Engine Of American Inequality”: The Consequences Of A Free Wheeling, Unchecked Financial Industry
The past three decades have been a period of explosive growth for Wall Street and the financial industry. Meanwhile, a tiny slice of the population has claimed an ever-bigger share of this country’s economic rewards. The highest-earning one percent of Americans collected roughly 20 percent of total income last year; the top .01 percent – not enough people to fill a football stadium – had 5.5 percent of the income.
Could there be a connection here? Could our booming financial sector, which now generates an astonishing 30 percent of all corporate profits (more than double the figure of thirty years ago), help explain America’s rapid ascent to the highest level of economic inequality since the eve of the Great Depression, and the highest of any of the world’s rich nations? A growing number of economists and other authorities think the first trend may have more than a little something to do with the second.
The economic and political establishments long ago settled on a theory of rising inequality: technology and globalization, they told us, were carving a rift through the American labor force between those with and without the right kind of education and know-how. This idea was criticized from the start for ignoring a formidable corporate campaign to rewrite the rules of the U.S. economy at workers’ expense, and over time it has increasingly failed to account for the reality of who is getting ahead and who is falling behind.
In his 1991 book “The Work of Nations,” former (then future) Labor Secretary Robert Reich embraced a version of the “skills-gap” story. But in his recent film “Inequality for All,” Reich has more to say about discrepancies of power than of skill.
The longer this trend continues, in fact, the more it resembles the Occupy Movement’s picture of a soaring 1 percent and a lagging 99 percent. Out of every dollar of income growth between 1976 and 2007, the richest one percent of U.S. households collected 58 cents; and after taking a big hit in the financial crisis, they were soon back on track, capturing an extraordinary 95 percent of all the income gains between 2009 and 2012. To put it more plainly, since the beginning of the current economic “recovery,” the top 1 percent (who make upwards of $400,000 a year in household income) are pretty much the only ones who have recovered.
Within that small subset of Americans, executives, traders, fund managers and others associated with the financial sector loom large, comprising about a seventh of the one-percenters and accounting for about one fourth of their income gains over the past thirty-plus years. That’s not counting the many lawyers and consultants with financial sector clientele, or the growing number of executives of nonfinancial companies who seem to make most of their money these days through stock options and short-term financial plays. Together, corporate executives and financial sector employees account for well over half the post-1980 income growth of the top 1 percent and more than two-thirds of the even more remarkable gains of the top 0.1 percent.
Pinpointing the causes of an economic trend is a hard business. But there is global as well as historical evidence for a link between financial sector expansion and rising inequality. Studies of rich and relatively poor nations alike suggest that inequality goes up when societies tie their fortunes to a free-wheeling financial industry and the easy flow of global capital. There is also substantial research to suggest that much of the financial sector’s recent growth has come by extracting wealth from other areas of the economy, not by spurring innovation and opportunity for the society at large.
Several recent studies trace the industry’s pay-and-profit surge mostly to its success in the political and regulatory arenas. See, for example, this paper by Thomas Philippon and Ariell Reshef of New York University and the University of Virginia, who attribute between 30 and 50 percent of the financial sector’s recent gains to economic “rents.” That’s basically a polite way of describing the ability of many of today’s financial heavyweights to use their market clout, their inside knowledge and various explicit and implicit taxpayer subsidies to make money out of thin air.
Banking and finance were not always a road to fabulous riches in this country. As recently as the early 1980s – and throughout much of the 20th century – there was almost no pay differential between financial and non-financial professionals. Today, by contrast, financial workers make about 1.83 times as much as other white-collar workers. You’d have to go back to the Roaring Twenties, at the tail end of America’s original Gilded Age, to find another period when financial sector incomes and profits reached such conspicuous heights. That should tell us something.
In any case, these are pivotal questions for the country – and unavoidable questions for those seeking a path toward what President Obama has been calling a “middle-out” rather than a top-down economy. Broad prosperity, the president says, calls for greater public investment in education, infrastructure and other long-term needs, and for higher taxes on the wealthy to help pay for such things. That may be a worthy agenda. It has certainly proved to be a politically difficult agenda. But in a country that has let its financial sector become an engine of inequality, more will be required.
If we believe in our founding ideal of America as a land where children should start off on roughly the same footing regardless of history or ancestry, we will all have to screw up our courage and refocus on (among other challenges) the unfinished work of making sure we have a financial economy that serves the real economy, not the other way around.
By: Jim Lardner, U. S. News and World Report, October 11, 2013
“Raiders Of The Lost Retirement Account”: Wall Street’s Deceptive Retirement Account Fees Hurt Savers
Worried about your ability to set money aside for retirement? You should also worry about what happens to the money you do manage to put away. According to a report from Demos, the typical two-earner family with an employer-sponsored account will end up paying some 30 percent of its retirement nest egg – a total of $155,000 – to Wall Street money managers in 401(k) fees and charges.
How can this be? The financial services industry, in addition to its talent for developing different kinds of fees, has been adept at coming up with ways of concealing them. To start with, many of the fees and costs that Wall Street collects for trading securities are typically omitted from the top-line “expense ratio” reported to savers. That’s a pretty huge omission, since trading fees account for half the fees charged to an average investor, according to Demos.
The industry also makes its fees look small by typically reporting them as a percentage of total savings, avoiding any mention of the far higher proportion they make up of your total investment return. For example, a total fee that adds up to 2 percent of managed assets may seem small – but if your typical return is 7 percent, the fee represents almost 30 percent of total returns.
One of the biggest advantages enjoyed by industry lies in the nature of the professional advice available to investors seeking to understand such questions. Astoundingly, the broker who sells you a retirement product often has no obligation to serve your best interests, or even to provide you with reliable counsel. Instead, the law often gives brokers a green light to promote products that generate higher fees for them, regardless of the impact on you.
The non-partisan Government Accountability Office has documented numerous instances of such conflicts of interest. The GAO not only found investment managers cross-selling products to 401(k) clients that enriched the manager at the investor’s expense, but also brokers being rewarded for steering investors into high-fee products. One report found that almost a quarter of telephone representatives and half of web sites incorrectly informed investors that no fees would be levied for managing their retirement money if they transferred it into an individual retirement account. In fact, fees are charged on these products, but are usually buried deep in the fine print of the IRA documents.
The good news is that these problems have found a place on the agenda of Washington regulators. The bad news is that the necessary remedies face tremendous opposition. In fact, the way things are going, it will take a mighty effort to keep industry lobbyists from winning the fight to keep investors in the dark.
The Department of Labor has taken up the task of updating the legal protections covering 401(k)s and other employment-based retirement accounts. Certain forms of retirement savings (especially those managed directly by your employer) are already protected by a strong fiduciary duty – that is, a legal requirement for the investment manager to put your best interests first. But the fiduciary-duty rules are outmoded, and exclude much of the current retirement-fund market.
These fiduciary rules were last updated in 1975 – a time when over 90 percent of retirement plans were controlled directly by employers. That’s very different from today’s individualized accounts like 401(k)s and IRAs. As a result, employees have no legal protection when engaged in many transactions, including the critical one of “rolling over” a 401-K into an IRA. In order for the new rules to be effective, the Department of Labor will have to impose a clear ban on inappropriate steering of clients, including strict limitations on broker-payment arrangements that create conflicts of interest, along with much better disclosure.
And it will have to do so in the face of fierce resistance from the financial industry. The Department of Labor recently had to retreat on one proposal to improve fiduciary rules in a debate dominated by insider interests such as brokers and investment managers who benefit from the current high fees and lack of obligations to clients. Now the department is preparing to propose reforms again, and the same interests will try to defeat them again. The public needs regulators and legislators to stand up for better protections for our savings, and prevent the process from being dominated by financial insiders.
The Dodd-Frank financial reform law also handed an important responsibility to the Securities and Exchange Commission – the task of developing new rules to increase fiduciary protections for advice given by securities brokers. Right now, while investment advisors have a duty to put your best interests first, securities brokers don’t. In practice, the distinction between the two types of investment professionals is blurred and unclear to most investors. The Dodd-Frank law called for securities-broker fiduciary duties to be made stronger, clearer and more like those of true investment advisors.
Unfortunately, this is another area where heavy industry lobbying has greatly delayed and weakened action. Preliminary indications suggest that the SEC’s approach could end up being far weaker than is needed to protect investors.
The issues in retirement savings are broad, and new fiduciary rules won’t take care of all of them. But a strong legal obligation for all investment advisors to avoid deceptive and abusive practices would be a common-sense start. And that can only happen if investors and employees stand up for the principle that when financial professionals give advice, they must put the best interests of their clients first.
By: Marcus Stanley, U. S. News and World Report, June 4, 2013
“The Corruption Is Complete”: Where’s The Cop On The Wall Street Beat?
Bankers gone wild! Let’s tally some of their crimes:
JPMorgan Chase engaged in massive, systematic fraud to foreclose without cause or due process on innocent homeowners, tossing thousands of families into the streets.
Goldman Sachs profited by marketing an investment package that was designed to fail, collecting fat fees on each sale to unsuspecting investors who lost millions, while the bank also collected millions more from a side bet it made that, sure enough, its package would be a loser.
For years, HSBC has been butt-deep in a swamp of despicable, illegal money-laundering schemes, willingly processing billions of dirty dollars for vicious drug cartels and peddlers of arms to terrorist forces at war with America.
Many more examples abound. These are not poor saps desperately robbing a bank branch for a few hundred dollars, but criminal enterprises run by multimillionaire Wall Streeters who run in the finest social circles, are celebrated by the media and hobnob with the nation’s political elite.
Their corruption is complete; their crimes are documented. Yet, unlike sad-sack bank robbers, none of these Robbing Bankers have even been prosecuted, much less jailed. In fact, as revealed on PBS’s Frontline program earlier this year, frustrated prosecutors who served in the Justice Department’s criminal division two years ago report that “when it came to Wall Street, there were no investigations going on. There were no subpoenas, no document reviews, no wiretaps.”
Why is that? Where are the cops on the Wall Street beat?
Up in the suites, coddling the culprits, whom they know on a first-name basis. That’s because Attorney General Eric Holder and the chief of his criminal division, Lanny Breuer, have previously enjoyed lucrative careers as lawyers defending the very barons they’re now supposed to be prosecuting. Holder and Breuer both hail from the same Washington law firm, Covington & Burling, that specializes in representing corporate clients with legal issues at the Justice Department.
The moral here is clear: When engaged in high crimes, it literally pays to have friends in the highest places.
To transport them there, a secret cosmic door connects the parallel universes of Washington and Wall Street. It’s not the proverbial revolving door, but a wide-open passageway for easy flow back and forth — reserved for those in the know.
Lanny Breuer is one definitely in the know, passing with impunity from the job of defending Wall Street wrongdoers in cases before the Justice Department to being the department’s chief prosecutor of Wall Street wrongdoing.
Four years ago, he left Covington & Burling, where he represented Wall Street clients, to head the criminal division of Justice. Dismissing criticism that his long service to Wall Street banksters created an inherent conflict of interest with his new duty to the public, Breuer insisted that he’d be a better prosecutor “because of my deep experience in the private sector.”
That claim would’ve proven more convincing had he brought even a single case against the Wall Street executives who’ve been publicly exposed as self-enriching perpetrators of widespread fraud and other destructive financial crimes. But, no, not one.
Why? Call me cynical, but perhaps because he was using his four years at Justice to pad his résumé and enhance his value to Wall Street. Protecting bankers from prosecution could be a good career move.
No surprise, then, that Breuer headed back through that cosmic door, rejoining Covington in a specially created position to expand its role in defending corporate clients charged with foreign bribery, money laundering, securities fraud and such. “I’m a zealous advocate,” said the guy who studiously refrained from being a zealous prosecutor. “I look forward to being a zealous advocate for our clients again,” he added.
Sheesh, couldn’t he at least pretend to have some ethics? Instead, Lanny was relieved to be back on Wall Street’s side: “It’s my professional home,” he confessed.” Oh, did I mention that his starting salary at Covington will be $4 million a year?
By: Jim Hightower, The National Memo, April 10, 2013
“Too Big To Exist”: Wall Street Hogs Still Running Wild
Wall Street is a beast.
And proud of it! In fact, a pair of animals are the stock market’s longtime symbols: One is a snorting bull, representing surging stock prices; the other is a bear, representing a down market devouring stock value.
But I recently received a letter from a creative fellow named Charles saying that we need a third animal to depict the true nature of the Wall Street beast: a hog.
Yes! And we could name it “Jamie.” Jamie Dimon — I mean the multimillionaire, silver-haired, golden-tongued CEO of JPMorgan Chase, America’s biggest bank.
For years, Dimon has wallowed in the warm glow of America’s financial, political and media limelight, hailed as a paragon of sound management and banker ethics. He’s been publicly lauded by President Obama, celebrated by The New York Times and courted by leaders of both parties.
But, suddenly last summer, a big “oink” erupted from Chase, and Jamie’s inner hoggishness was revealed. It started when one of Chase’s investment arms went awry and lost $2 billion. At first, Dimon haughtily dismissed this as “a tempest in a teapot.” But the loss of investors’ money soon grew to a staggering $6 billion. Criminal probes began, investors squirmed, media coverage grew testy, and then came the revelation that took all the glitter off of Dimon.
On March 14, a U.S. Senate committee issued a scathing 300-page report documenting that the loss was not a mere “trade blunder” by Chase underlings, but the product of a systemic corporate culture of recklessness, greed and deception. An internal email from Jamie himself, with the words “I approve,” traced the stench all the way to the top. Not only did Dimon know what was going on, he enabled it.
JPMorgan’s mess stems from the same dangerous combo that rocked America’s financial system in 2007 and crashed our economy: ethical rot in executive suites, sycophantic politicians and reporters and willfully blind regulators. Meanwhile, Jamie is still Boss Hog at the giant bank and still drawing millions of dollars in annual pay and perks. Also, only one week after the Senate report came out, he was even given a media award for best 2012 performance by a CEO facing a corporate crisis. E-I-E-I-O!
For a better performance on containing banker narcissism, our lawmakers might look to Europe. I know that it’s considered un-American to like anything those “namby-pamby” European nations do, but still: Let’s hear it for the Swiss!
In a March 3 referendum, the mild-mannered, pacifist-minded Swiss people rose up and hammered their corporate executives who’ve been grabbing ripoff pay packages, despite having made massive financial messes.
Two-thirds of voters emphatically shouted “yes” to a maverick ballot proposal requiring that shareholders be given the binding say on executive pay. Violators of the new rules would sacrifice up to six years of salary and face three years in jail. That’s hardly namby-pamby.
Indeed, America’s lawmakers and regulators are the ones who’ve been squishy-soft on banksterism. Jamie is not the only one being coddled — none of the Wall Street titans whose greed wrecked our economy have even been pursued by the law, much less put in jail.
It’s no surprise, then, that those bankers have gone right back to scamming — and gleefully enriching themselves. Hardly a week goes by without another revelation of big-bank fraud, yet the banks simply pay an inconsequential fine and the culprits skate free.
Forget about too big to fail, banks have become “too big to jail.” Our nation’s top prosecutor, Attorney General Eric Holder, recently conceded that finagling financial giants are being given a pass: “It does become difficult for us to prosecute them,” he told a Senate subcommittee, “when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy.”
Meanwhile, just four giants — Bank of America, Goldman Sachs, Morgan Stanley and Wells Fargo — put nearly $20 million into last year’s elections, mostly to back Republicans promising to weaken the few feeble restraints we now have on banker thievery. With such Keystone Kops overseeing them, why would any Wall Streeter even think of going straight? Nothing will change until officials gut it up, go after lawless bankers and bust up the banks that are too big to exist.
By: Jim Hightower, The National Memo, April 3, 2013
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