My for now fictitious Credit Loaning Reporting Agency: Equitransunionicable.gov Lender ratings. 200- 500 sad sack, law breaker. 501 to 700 Sorry lender but if they default on your borrowed currency, your tax dollars will pay them more money to loan you at 0% interest cgharging you 5% for your own money. 701- 1000 Fictional score that insinuates the lending institution obeys laws and stays solvent, of hich there are no such lenders.
Most people think that the big bank bailout was the $700 billion that the treasury department used to save the banks during the financial crash in September of 2008. But this is a long way from the truth because the bailout is still ongoing. The Special Inspector General for TARP summary of the bailout says that the total commitment of government is $16.8 trillion dollars with the $4.6 trillion already paid out. Yes, it was trillions not billions and the banks are now larger and still too big to fail. But it isn’t just the government bailout money that tells the story of the bailout. This is a story about lies, cheating, and a multi-faceted corruption which was often criminal.
• Rating agencies- Rating agencies like Standard and Poor’s are paid by the banks (which is a conflict of interest) and have a huge influence on the ratings of securities. During the housing bubble ratings agencies continued to give triple AAA ratings to toxic mortgages. The justice department wants $5 billion in restitution from Standard and Poor’s for its part in falsifying ratings.
• Money laundering – It has been proven that the American Division of the HSBC bank did money laundering for Mexican drug cartels to the tune of $881 billion according to the Justice Department. The penalty to this bank for blatant corruption was $1.9 billion and the New York Times laments that HSBC was too big to indict. Nobody goes to jail at a time when an unemployed black person gets 10 years for robbing a minute mart.
• Betting Against – Both JP Morgan Chase and Goldman Sachs worked with hedge funds to bet against the toxic mortgages after the crash had started. They made money by selling short on the financial catastrophe they had created. JP Morgan was fined $296.9 million and Goldman Sachs was fined $550 million for actions
• Insider Trading –The jailed billionaire Raj Rajartmn made nearly $One million a minute by getting inside information from Goldman Schs. The New York attorney has fingered 70 hedge funds but the prosecution is very slow.
The operating principles of the big banks is a cesspool of greed, ethics and criminal intent and they give a very bad name to free market capitalism. During the housing bubble Wall street was considered the heart and soul of free market capitalism, but when they were in danger of total collapse they fell on their knees as socialists, begging the government and tax payers to bail them out
Many people have asked why the government bailed them out. Isn’t capitalism designed to get rid of the weak and the failed; so why didn’t we just let them fail? The answer was that they were too big to fail and allowing them to fail could have created a worldwide depression. . In fact, in a meeting with Congress on September 18th, 2008. Treasury Secretary Paulson told the members that $5.5 trillion in wealth could disappear by 2pm of that day. In a meeting with Senator Sherrod Brown, Secretary Paulson and Federal Reserve Chairman Ben Bernanke said, “we need $700 billion and we need it in 3 days.”
So how did this all happen?
1933 – The Glass –Stiegel Act regulated interest rates, established deposit insurance, and erected a wall between commercial and investment banking by restricting the former from engaging in non-banking activities like securities and insurance.
1978 – A successful legal challenge to the state usury laws and the massive promotion of credit cards by the banks led to dramatic growth of credit card debt by consumers.
1979 – Pension regulation was loosened which created a new market for speculation and the capital to feed it.
1980 – Investors fled conventional interest bearing accounts to alternatives such as money market, venture capital and hedge funds which were lightly regulated.
1982- Congress passed the Garn-St. Germaine Depository Institution Act which deregulated the Savings and Loan industry. This led to speculation with other people’s money and a crisis which would cost the taxpayer $201 billion. The deregulation of interest rates at conventional banks also led to elimination of bank net-worth, accounting standards, and loan to value ratio requirements.
1999-Republican Phil Gramm successfully led the effort that repealed most of the Glass-Stiegel Act, which was a depression era law that kept Commercial Banking and Investment separated.
2000- Only a year later Gramm inserted the new Commodity Futures Modernization Act into a must pass budget bill that rocketed through the Congress. One part of this bill would prohibit the regulation of Derivatives which allowed finance gurus to leverage and speculate with other people’s money. By using derivatives, credit default swaps and other unregulated financial instruments the big banks were able to chop up and resell loans and mortgages as repackaged securities or derivatives. The new securitization became globalized and eventually affected the world economy
After the creation of new financial tools (like credit default swaps and derivatives) as well as more access to everybody’s money; the banks began to do high risk gambling just like a big casino. The new financial tools were backed by the government so that taxpayers would get hung with the bill.
2007 – The speculation and lack of effective regulation eventually led to the crash of 2007 and The Great Recession. The industry is not afraid to do it again because they know no one goes to jail and the government will bail them out.
Why didn’t more people know that the bailout had climbed into the trillions?
In an article Secrets and Lies of the Bailout, Matt Taibbi says “It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyper concentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it.
After the original $700 billion bailout, the ongoing bailout was kept very secret because Chairman Ben Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort. In fact, $7.7 trillion of the secret emergency lending was only disclosed to the public after Congress forced a one-time audit of the Federal Reserve in November of 2011. After the audit the public found out the bailout was in trillions not billions; and that there were no requirements attached to the bailout money – the banks could use it for any purpose.
The big got even bigger
But why now, more than five years after the financial crisis and six or more years after the bad lending practices took place?
The version of this that is generous to the Justice Department goes like this: It took a while after the crisis to figure out where legal culpability might lie. Once they zeroed in on mortgage securitization as a key area of potential fraud, it was a massive job to ascertain who might have broken which laws. They had to examine thousands of transactions worth trillions of dollars, by dozens of banks and other financial intermediaries. As much as we might want to believe this is a “Law and Order” world where the most complex of cases can be promptly tied up within an hour (less when time is allowed for commercials, introductory theme song, and final-scene-wistful-scotch-drinking), that’s not how the law really works. Especially with complex securities litigation, it takes time to build these cases and ensure they are nailed down.
The version that is less generous to the Justice Department is this: In the aftermath of the financial crisis, they were too timid and chicken to go after the big banks. But now some time has passed, the financial system is less on the brink, and new leadership is in charge at the criminal division. Eric Holder wants some legacy cases to show he has gone aggressively after those culpable for the financial crisis, and this will be one of those cases.
This is going to be a $13 billion settlement. But how much is that for JPMorgan?
It’s a lot of money even for a bank the size of JPMorgan, though certainly nothing approaching a death blow. The bank earned $32 billion in operating income in 2012, so the settlement would be equivalent to about five months worth of income for the company. It is clear that JPMorgan lawyers had hoped for a much cheaper price for settling the cases; earlier settlement offers were as low a $1 billion and $3 billion.
Put another way, the reserve that JPMorgan set aside for the settlement last quarter caused the company to record its first quarterly loss since 2004. It managed to remain profitable throughout the financial crisis, but not through the legal losses that followed.
So who gets the money?
Of the $13 billion, $9 billion is to go to fines that would ultimately end up in government coffers, essentially helping repay taxpayers in part for their $188 billion bailout of Fannie Mae and Freddie Mac that was necessitated in part because of bad mortgages the companies bought from JPMorgan.
The other $4 billion is to go to help homeowners struggling with their mortgages. The exact contours of how that money will be used will be a matter of some focus once more details of the settlement materialize.
You may notice who is not included in this list: The private investors who bought residential mortgage backed securities stuffed with bad loans.
So are they going to admit wrongdoing?
It looks that way! In recent civil settlements with financial firms, prosecutors have insisted that the firms cop to whatever bad behavior they stood accused of. A past practice was to not require any admission of guilt, which often eased the pathway to a settlement. Now, JPMorgan lawyers and federal prosecutors are reportedly hammering out a “statement of facts” in which the company will concede some misdeeds.
So what does this mean for Jamie Dimon and JPMorgan?
First things first: it doesn’t resolve a number of unrelated legal matters the firm is facing, ranging from a probe of energy trading practices to investigations into its “London Whale” trading scandal to an investigation into whether the firm bribed Chinese officials by hiring their children. The company has said it will ramp up its hiring of compliance staff and spending on technology to try to prevent its sprawling, multi-trillion dollar business from having so many legal issues in the future.
Still, JPMorgan shareholders appear to be relatively happy to have the legal exposure potentially behind them despite the record-high settlement. Its shares have bounced around between roughly $50 and $54 since word of a potential settlement. And when they last had the opportunity to voice their view of Dimon’s performance, in a shareholder referendum this past spring,some 98 percent endorsed his continued leadership of JPMorgan.
Is JPMorgan too big to manage? Its shareholders, from all appearances, don’t think so, even with the $13 billion soon to be heading out the door to settle these old legal problems.
Is there a song, preferably by The Clash, that characterizes JPMorgan’s recent entanglements with the Justice Department?
There is.
Deprogramming Self, Finding Self 