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?"

Published CommPRO.biz 2013.10.03

Wall Street Ethics

Mid-September (2013.09.15) marked five years since Lehman Brothers, one of the largest investment banks ever, filed the largest bankruptcy ever, sending sky rockets up all over the world and marking the beginning of what we’ve come to call the “Great Recession.” Lehman’s implosion triggered a serious of herculean bailouts of the rest of our banking sector by the American taxpayers.

Hank Paulson, who became Treasury Secretary after a career at Goldman Sachs, saw a danger of another depression if the banking sector collapsed. He hurriedly threw together the bailouts. However, he failed to impose the controls needed to keep the banks from abusing these funds, leaving them free to award themselves over the top bonuses. The Federal Reserve kicked in billions more, throwing open the doors to the risky gambling (see London Whale) that caused the collapse.

Lehman wasn’t the only bank gone wild; all of the dozen or so monster banks were behaving badly. Lehman was just pushing the limits of the regulation-free climate the banking lobby created over the preceding two decades. Repo 105 was the accounting gimmick of choice at Lehman. The tricksters there would sell off billions of their really bad stuff before each quarterly reporting period, making their books look as though they were sound when in fact they were anything but. Emails, written just before the bankruptcy, show that senior management pushed their subordinates to cover their tracks.

On May 18, 2008, almost exactly two months before the bankruptcy filing, Senior Vice President Matthew Lee had a letter hand delivered to four of Lehman’s top executives with a copy to their house counsel. In it he detailed these practices and questioned both their legal and ethical grounds. Management responded by firing him. Later, Lee identified Repo 105 as one source of the collapse for the federal investigators. Matthew Lee is still out of a job today; nobody on Wall Street has hired this honest man.

Not so most of the schemers who played fast and loose with the financial facts at Lehman. According to a Huffington Post tally, three quarters of the Lehman folks -47 of 63 involved in the Repo 105 scam- are employed in the financial world and doing just fine thank you. In fact, while most Americans are struggling to recover from the crash and millions are unemployed, the Wall Street banksters are fine.

And why shouldn’t they be –aside from ethics and stuff like that– the banks know if they overplay their hand again, Repo 105 or whatever, a taxpayer bailout is just around the corner. So they gamble with your savings, secure in the knowledge that the FDIC will cover their losses and that we’ll loan them whatever they need to get back on their feet. Just don’t ask them to support the small businesses that create jobs or anything like that. Leave that to the suckers who run the regional and community banks.

Published in CommPRO.biz 2013.09.04

Too Small to Ignore?

It appears that Darryl Layne Woods may spend a year in jail and have to cough up a hundred grand in fines. Woods is the majority owner and former Chairman and CFO of the Mainstreet Bank in Ashland, Missouri; the bank has branches in Bunceton and Prairie Home. The three small towns with a total population of a little over 4,300 are in the Columbia, Missouri area. In addition to likely jail time and the fine, Darryl has been barred from ever again having any role in banking.

You see when the government was passing out money to support the banking sector following the crash, Mainstreet was given a little over a million dollars. Darryl “invested” about a third of that in a luxury condo in Florida. When asked what they had done with the money, the bank was not totally forthcoming about the condo. Darryl signed that document and is taking the fall. Part of the plea deal absolved his wife from any involvement. The bank will, of course, have to pay back all of the TARP funds if they haven't already. It turns out that the bank sold the condo in Florida this spring and made a few bucks on their investment.

A statement on the Mainstreet website from the bank’s Board seems to indicate that it’s all some big misunderstanding and that the bank had been making real estate investments of this nature for some time. The government claimed that the Florida condo was intended for use by Darryl and other bank executives.

Mainstreet Bank has been around for ninety years. It’s the kind of community bank that’s vital to small town America. Darryl Woods is 48 years old and listed as “majority owner.” That could mean anything from 51% up; a local newspaper just referred to him as the bank’s “owner.” We would guess he was used to doing whatever he felt like and this time he went too far, or was careless with the paper work.

It’s hard to understand how this differs from the banks taking billions in TARP and subsequent billions from the Federal Reserve while somehow managing to pay $140 billion in bonuses to their executives in 2009 alone. That’s the same year Darryl Woods spent $381,487 to buy a condo in Florida. Did the big banks just do a better job filling out paper work than the Mainstreet Bank in small town Missouri?

Last week (2013.08.27) Bush era Treasury Secretary Hank Paulson, the architect of TARP, said he was very disappointed with the bonuses. That would seem to be about five years too late. Paulson went on to claim that he could not have made bonuses a part of the deal for TARP funds or the banks would have backed away. If that was true, why were those same big banks desperately sucking up hundreds of billions from the Fed month after month even after they took the TARP funds? The Mainstreet Bank folks -being from Missouri- have to be saying, “Show Me.”

Published in CommPro.biz 2013.08.08

Anything Goes

The Monster Banks’ best investment over the last few decades has been the tens of millions they poured into the pockets of the Congress through their “K” Street lobbyists. It paid off, billions in profits that come right out of the pockets of every American. The bankers’ big score was the Financial Services Modernization Act of 1999, AKA the Gramm–Leach–Bliley Act (GLB) named for three members of our Congress who giggled all the way to their banks.

GLB gutted the Glass/Steagall Act; legislation written in the early 1930s limiting banks to the business of banking: taking deposits, making loans, supporting our economy. As a reward we agreed to insure the money of the bank’s depositors, so that should the bank go bust, the money you had in the bank would be safe (up to $10,000). GLB took down the fences, but left the taxpayers on the hook should the banks fail.

That and another gift from Congress, a law exempting Wall Street from gambling laws, opened the door to the crazy stuff that drove our economy off the cliff. The Monster Banks could use your deposits to bet on almost anything, always backed by America’s taxpayers. There are less than a dozen banks in this arena, the To-Big-To-Fail (TBTF) banks that we bailed out when the derivative fueled house of cards they created collapsed. Your corner neighborhood bank didn’t play this game. Unfortunately they suffered along with the rest of us, worse because the TBTF banks buoyed by gambling profits held a competitive edge. 

The TBTF Monster Banks are right back at it. Taking zero interest bucks from the Fed to gamble instead of investing in our economy. There’s a new game in town, commodities. Ten years ago the TBTF Banks got the Federal Reserve to set up a “Temporary” ruling allowing them to deal in commodities. When their mortgage game evaporated, the Monster Banks jumped into this marketplace. With all the free money at their disposal they bought grain and oil, even oil wells and tankers. They are into power, manipulating your electric bill, Enron redux.

Metals -steel, aluminum, copper- all commodity markets they can manipulate; a buck on a new car, a few pennies on a cell phone, a tenth of a penny on your soft drink can. Goldman Sachs, the mother of all TBTF Monster Banks, owns a couple dozen warehouses in Detroit full of aluminum bars. They shuffle them around from one warehouse to another in a dance that allows them to circumvent the law and jack up the cost of aluminum. Anything goes, ethics walks the plank.

The “Temporary” commodity games regulations expire next month. The Monster Banks are working hard to extend it. It better not happen. More important, we must get these banks out of the other gambling halls we have allowed them to create. We have to stop this nonsense and cut these big banks -quite literally- down to size. If we fail, it’s just a matter of time until we have to bail them out again.

They’re Back – 
Run For Your Lives!

What do you think our leaders would do when confronted by the imminent collapse of a sector of our economy whose assets are equal to 56% of our GDP? Given what they did in 2008 –properly we think– we can safely assume they would prop up the institutions at risk. Are you surprised that five of the banks we rescued in 2008 now have assets equal to 56% of our GDP*? In 2006 -before the collapse- these same five banks’ combined assets equaled 47% of our GDP*.

Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, and Wells Fargo, five of the players whose reckless actions drove the world economy off the cliff, are lined up to do it again. Their assets grew more than 40% from 2006 through 2011*. Why? That’s no mystery, the banks know and investors know that if there’s another collapse we will bail the Zombies out again. With the taxpayers on the hook, big banks are gambling with the same risky stuff that led to the 2008 collapse –derivatives, swaps etc., the stuff the bankers refer to as “crap.”

If it goes all wrong, the bankers and their investors have the taxpayers ready to bail them out again. Where else would investors put their bucks, high returns no risk? Published reports say all three rating services along with a covey of regional Federal Reserve presidents, see a bailout for the Zombie Banks down the road. Meanwhile, your neighborhood community bank –the bank down the street on the corner– doesn’t have an investment (AKA gambling hall) division; putting them at a distinct disadvantage in finding investors and customers.

We know how to solve this problem, been there, done that. Eighty years ago when the wheels fell off our economy our nation faced the same dilemma. They busted up the big banks and made them choose the sector of the banking world in which they wanted to operate. The Glass-Steagall Act separated investment banks from the regular commercial banks that we ordinary folk deal with.

During the 1990s’ deregulation frenzy the investment banks –Goldman Sachs in particular– pressed hard to break down this wall. In 1999 they succeeded Glass-Steagall was repealed. Then they convinced the Congress to exempt them from the gambling laws and they were off to the races. Take any risk, bet on any crazy thing, as long as you could call it an investment – it is legal. Within a few years they distorted the derivative and commodity markets turning them into Zombie bank gambling halls. Here’s the catch. They know they can’t lose. They know the suckers (AKA customers) take the losses. Worse comes to worse the taxpayers will be stuck with the mess. The bankers and investors will be just fine.

We all know what happened in the decade following the repeal of Glass-Steagall. We had to bail the banks out and now they are fine; back doing the exact same things that drove us off the cliff. Meanwhile the rest of America –and the world– is working its way out the hole they left us in. They are not doing anything illegal; however, ethically it stinks. It’s time to break up the Zombie banks and put them back in their cages, investment banks on one side of the business and commercial banks on the other. If not, we’ll be bailing them out again. They are counting on it

 *Bloomberg 04.19.12

Our Banking Problem

Last week (02.23.12) Bank of America kissed off Fannie Mae saying it would no longer sell mortgages to the (closet taxpayer backed) mortgage buyer. Published reports say the break is over some of the crappy mortgages BofA sold Fannie in the past. Mortgages, Fannie thinks BofA knew –or should have known – were crap. Fannie apparently wants their money back. BofA says the mortgages went south because of the recession, so Fannie (we the taxpayers) should eat them.

Like a lot of bad things this looks back to 2008. BofA bought subprime mortgage lender Countrywide Financial as it was about to go belly up. BofA says the Feds “made us” buy it; some think BofA thought it was getting a real steal. In any case, BofA is down +/- $30 billion on the deal so far. The once biggest dude in the world of banking has been on a diet slimming down, dumping anything it can and backing away from the mortgage business, whilst dodging its responsibilities and sticking the taxpayers with its problems at every opportunity. Case in point: last August, when BofA ran their manure spreader through Fannie they picked up a half billion dollars of our money.

It’s sickening when you consider how much (+/- $45 billion in TARP) we gave BofA to forestall their potential collapse. Not to mention BofA’s use of the Federal Reserve “Discount Window” where the Fed passes under-the-radar loans to the banks. Late in 2008 as BofA was attempting to take over Merrill Lynch, between them the two entities were living on about $80 billion in the Fed’s stealth loans.

All the while, regular folks, many of whom had been -through their naivety- lured into home loans they could not possibly hope to pay, were getting no help from the banks. Instead of using TARP and the other taxpayer bucks to help little folks they had set up to fail, the banks went back to gambling with more of the shaky financial products like derivatives that got us into this mess.

How big a deal is BofA’s decision to stop selling loans to Fannie Mae? It’s pretty big if you think it’s the people’s job to make sure that these too-big-to-fail banks don’t fail. BofA says it’s no big deal, they can sell off their mortgages to Freddie Mac and Ginnie Mae. These two agencies complete the triumvirate of federal agencies created to help make the American Dream –home ownership- come to be. Like Fannie Mae, Freddie Mac is a publically owned company and is “wink, wink” not backed by the taxpayers. Ginnie Mae was spun off from Fannie and is the only openly taxpayer backed entity of the three.

It’s past time to stop the reckless gambling, to break up these ethically challenged too-big-to-fail behemoths, and get the resultant smaller banks refocused on the reason for their existence, to provide the funds to keep our economy moving. If we could get the banking sector resized and refocused, the two Maes and a Mac might be good for us; right now they are just good for the banks.