Published CommPro.biz 2014.04.08

Too Big To Manage, Not Too Big To Fail

In an effort to forestall another “Too Big Too Fail” recession, our Federal Reserve established the so-called Stress-Tests. The Fed looks at a number of aspects of a bank’s operations and determines its potential to go belly-up, requiring another taxpayer bailout, even triggering another recession. Frankly, none of the monster banks are stable. They engage in what would be illegal gambling except for the exemption the Congress gave them to label risky behavior as “Investments.” The eight largest banks have all been told to beef up; to add close to $70 billion in fresh capital.

The latest stress-test dealt a blow to Citicorp. The sprawling giant failed for the second time in two years. The last stress-test failure in 2012 led to a change in leadership, unseating the CEO. This is the second blow Citi has suffered in recent months; in February its Mexican operation was hit with a $400 million fraud. Basically the Fed found that Citi is out of control, not just too big to fail, but too big to manage. It’s clearly time to break up Citi’s operations; it’s time for Citi to become a bank again.

It’s obviously time for all the monster banks to break up their uncontrollable global operations. They’re all clearly too big to manage. When banks count their Vice Presidents by the tens of thousands, that alone should indicate that the same conditions that led to the breakup of the monster banks of the day in the 1930s are in place again today.  It’s also apparent that these behemoths serve no real purpose in our society.

Quite the opposite, the monster banks disrupt the banking sector. Aside from the role they play in manipulating interest rates and other hanky-panky, they make it more than difficult for our community banks. Take credit cards for instance. With the revenue from their legalized gambling operations, they can make offers that a legitimate community bank cannot match. They suck off the checking and savings accounts as well.

But unlike the community banks they don’t use the funds harvested from these sources to provide small business loans. They pour this cash into risky gambling ventures with no social benefit. That leaves the small businesses that create most of the new jobs in our economy starved for operating cash and our economy the worse for it. In addition to Citi, the Fed failed three international banks with operations in the United States including British giant HSBC which our Justice Department considered too big to jail when they were exposed as facilitating international criminal enterprises.

There are a host of reasons why the monster banks should become a thing of the past. Problem is they pour cash into the pockets of our legislators and thwart any effort to restrict or control them. Arrogant CEOs like Chase über kommandant Jamie Dimon strut and lecture our Congressional leaders, flashing cuff links with the Presidential Seal. Those sent to take care of the people’s business are instead increasingly beholden to those with the cash to dictate to them, among others the monster banks.

 
"Am I wrong?"--"Am I crazy?"

"What do you think?"

"Do you agree?"

Banks Behaving Badly

“We’re doing what a bank is supposed to do.” That’s JP Morgan Chase CEO Jamie Dimon before a US Senate Committee after a two billion dollar gambling loss that has since grown to nearly six billion and is forecast to hit even higher numbers. Dimon was much harder on himself than were the Senators, or the members of a House Committee in a subsequent hearing. 

No surprise, members of Congress have good reason to be friendly. Dimon has pitched millions into Congressional war chests -more to Republicans, but lots to go around. The committee members understandably tossed softball questions. Dimon was decked out in cuff links with the presidential seal just so everyone would know where he was coming from. 

Unbelievably nobody called him on his, “We’re doing what a bank is supposed to do” line. This from a “Bankster,” as the Economist has labeled the out-of-control leaders of our financial sector. The billions lost on bad bets placed by one of its traders (AKA gamblers) in London are the least of the problems Dimon is facing. 

Chase is ensnared in the evolving Libor scandal that has a group of international banksters fixing interbank lending rates, impacting every loan rate imaginable. 

The incredibly complex Libor rate fixing scheme crosses civil and criminal legal lines. Dimon was fully aware of his bank’s involvement in this racket when he delivered his “What a bank is supposed to do” line; so we must assume that he thinks juggling interest rates worldwide is what banks do. 

That isn’t even the worst it. When Dimon was flaunting his control over those we send to Washington to do our business, he was fully aware that Chase had just shelled out a seventy-five million dollar fine for rigging a bid on a three billion dollar sewer bond deal that pushed Birmingham, Alabama into bankruptcy. A deal they cinched with a three million dollar bribe to Goldman Sachs. Chase and a host of other banksters have been rigging municipal bond auctions for decades.

This all came out when the Feds convicted three minor players from GE Capital they nailed rigging bond auctions. The Feds got their hands on recordings of telephone conversations between banksters making highly illegal deals to pass municipal bond business around among the banks. In addition to the bankster types from GE who are going to jail, scores of others from virtually every major bank in America and many international banks as well have taken a plea deal. 

Let’s be clear about what’s going on here. 

Between the Libor racket and the municipal bond rigging scam- the banksters have ripped off everyone in America to the tune of untold billions. JP Morgan Chase is not alone in these Mafia style rackets, but if that’s what Jamie Dimon thinks “banks do” then he has a different ethical standard than most of us hold.

The Clock is Ticking

If ever there was a moment illustrative of the need to restore Glass-Steagall, enforce the Volcker Rule, and repeal the foolish gambling exemption Congress gave Wall Street, it is now. JPM Chase CEO Jamie Dimon’s culture of Wild West saloon gambling was outed when the loss side of the bank’s bets was exposed by a huge bet gone bad in their London trading office (AKA gambling hall). The $2 billion loss is quickly ramping up and will likely be double that or more.

Fast forward to the JPM Chase annual meeting last week (05.15.12) where we find a visibly irritated and agitated Dimon facing questions on the multi-billion dollar losses and a shareholders’ challenge to his dual role as both Board Chair and CEO. He managed to hold on to his grip at the top with 60% of the shares voting to defeat the move to unseat and replace him as Chairman. While that sounds good, you must keep in mind that prior to corporate meetings companies routinely include as part of the meeting notice a request to hand over the voting rights to the management if you do not plan to attend and vote in person. Most shareholders comply and so you can figure that Dimon walked into the meeting with the votes in his pocket. You can bet he was shaken by the margin; to have 40% opposed is too close for comfort in that game.

Turning to the “snake eyes” that is piling up billions in losses, Dimon, according to the New York Times, came up with this gem: “We are going to manage it to maximize economic value for shareholders.” That has to be one of the wildest -let’s flip the conversation to my favorite subject- “Shareholder Value” moves in history. We’d guess that Dimon’s point is that shareholders benefit from the JP Morgan Chase gambling hall because they win more often than lose, and besides in the unlikely event that we drive off the cliff we are “too big to fail” and so the suckers (that’s us, taxpayers) will bail us out again. There’s no way we can lose.

Shareholder Value -as former GE CEO Jack Welch pointed out- is an outcome; as a strategy Welch famously dubbed it, ”the dumbest idea in the world." Dimon and his ilk love it as a strategy; it enables them to parlay their gambling culture into monster bonuses, with the ultimate backup, taxpayer bucks. Shareholder Value is a meaningless term the way Jamie Dimon and others use it these days. And it will come around to bite the taxpayers unless we force the too-big-to-fail banks back into their corners. We need to get them out of high stakes gambling. We need to make them choose: either create capital as an investment bank, or take deposits and make loans as a commercial bank. Anything less leaves all of us outside the game at their mercy. It’s time for Congress to act, restore Glass-Steagall, enforce the Volcker Rule and repeal the foolish gambling exemption Congress gave them.