Is born-again bank buster for real?

Who is Sandy Weill and why should we care that he now says he thinks big banks should be broken up?

Weill built Citibank into the financial colossus whose spectacular collapse in 2008 helped tank our economy. He said he had a vision of creating giant financial supermarkets that conjured up convenience, friendly service, well-lit aisles and lots of choices. But what he was actually building were massive financial tankers fueled on fraud and risky, toxic assets no one understood, kept afloat with dirty back-room deals, hijacked regulators, lobbying and campaign contributions.

To make that vision a reality, Weill also did more than anyone else to drive the final spike through the heart of the Depression-era Glass-Steagall law, which for seventy years had kept risky investment banking separate from federally-guaranteed traditional banking, reducing the risk of bank failures. President Clinton signed the bill repealing Glass-Steagall in 1999.

For his efforts, Weill, 79, made gazillions before he retired in 2006, ahead of the financial collapse.

He also earned a spot among a very select group - Time Magazine’s “25 people to blame for the financial crisis.”  Weill, Time said, helped create the country’s “swollen banks,” which remain one of the economy most serious unsolved problems.

His Citibank is one the worst, and remains on life support only through $45 million [million?] worth of the taxpayers’ generosity.

It didn’t help Weill’s reputation that a few weeks after Citibank accepted its bailout, he used the Citibank jet to fly to his vacation in Cabo, a flight immortalized by the poets on the New York Post copy desk with the headline: “Pigs Fly.”

It was only six months ago that Weill announced he was “downsizing” and simplifying his life, selling his Central Park West apartment in Manhattan for $88 million – more than double what he’d paid for it, as well as attempting to unload his yacht for nearly $60 million. Weill moved to another apartment downstairs.

But downsizing doesn’t mean the same for an uber-banker that it does for the rest of us. He spent $31 million on the largest real estate-deal in Sonoma County’s history, buying a Tuscan-inspired villa that includes 8 acres of vineyards, seven miles of private hiking trails, and an 11,605-square-foot mansion made with 800-year-old Italian roof tiles and 200-year-old wood beams, and a fire truck that comes with seven firefighters. A real estate agent cautioned against viewing Weill’s purchase as a sign that the real estate market in the county north of San Francisco was recovering. As one Coldwell Banker agent said: “[The sale] is not an indicator of an emerging real estate recovery, but rather the ability of the world’s wealthiest individuals to buy what they desire.”

There’s been all kinds of speculation about why has now come out in favor breaking up big banks. But the best way to judge whether he’s serious, or just trying to get a little good PR, is to examine how much cash he’s willing to spend to make it happen.

When bankers, led by Weill, wanted to repeal Glass-Steagall, they fought for 20 years and spent millions in lobbying and campaign contributions before they won. The big banks would certainly put up a similar fight against its reinstatement. No one knows better than Weill that when it comes to changing banking regulations, it’s not what people say that matters; money talks.

How much is Weill willing to spend in support of his newfound conviction? Without massive amounts of money behind them, his words are no more than an old mogul’s sad, empty cry for attention.

 

 

 

Glass-Steagel / Lobbying / Martin Column - 07/30/2012

Left, right and left out

On so many issues related to the state of our economic recovery, current notions of liberal and conservative don’t seem to apply.

For example, should we allow a real free market to work in our financial system?

Should we crack down hard on those Wall Street bankers who broke the law?

Should companies that want to foreclose on property have to follow the law?

If you’re in favor of real financial free market, tough law enforcement and following the law, are you conservative or liberal, left or right?

What you are is in the majority, and the most important political designation in the U.S. in 2012 – left out.

Your views are reflected only rarely in the political debate at all and never in the presidential debate. Sure, President Obama has repeatedly promised to get tough on Wall Street, most recently in the state of the union in January, but based on the results, those promises have little credibility. President Obama preaches for an activist role for government with the occasional populist flourish, but that impulse wilts if Republicans or campaign funders show the least resistance.

His opponent, Mitt Romney, considers any crackdown on Wall Street an affront to the beloved job creators to whom we should all be bowing down – even if they don’t actually use their wealth to create any decent jobs.

What we get instead of a real debate on how to get an economy that works for ordinary folks is a faux argument over the role of venture capitalist tycoons, between the candidate who used to be one and our president, who has relied on them a key source of campaign funding as much as Romney has.

What we get is the fiscal cliff drama about whether or not to shut down the government.

What we get is each side offering scary versions of what the other will do.

What we get are Mitt Romney’s assurances that if we just get the regulators out of the way, the wealthy job creators will get to work, regardless of whether anybody can afford to buy their products.

What we get is the president’s half-measures and handwringing. But it’s all political theater that doesn’t replace real jobs, real plans to revive housing and keep people in their homes and real accountability for bankers. It doesn’t replace a real debate about the role of big money in overshadowing those issues in our elections. Right now, both sides have left those out of their campaigns.

Politics is a team activity and our natural tendency is to root for our guy, downplay his flaws, and point out how much worse the other guy would be. But this election should not just be rooting for our team and beating the other guy. It should not be about rooting for our guy we’re so hyped up about how scary the other guy is.

It should be about who is willing to confront the big money, not bend to it.

It should be about who can really get people back to work, keep us in our homes, guide an economic recovery that’s not just for the wealthiest.

We should demand that we’re more than just a rooting section for our team, that our bread and butter concerns are not left out.

 

 

 

Congress / Martin Column / Mitt Romney / Outrage / President Barack Obama / Uncategorized - 07/28/2012

Tell Mitt: Don't run campaign on drug money

Imagine if U.S. politicians took financial contributions skimmed from the ill-gotten gains of bloody Mexican drug cartels and terrorists.

Imagine further that those who profited off the drug gangs used their murder-tinged cash to lobby the U.S. Congress.

You don’t have to strain yourself, this is not some sordid fantasy concocted by Hollywood to horrify and entertain you. This is the reality created by Wall Street’s finest and our leading politicians.

The latest sorry chapter in Wall Street’s waltz with the drug-dealers is laid out in a report by the Senate Permanent Committee on Investigations. Officials of the British too big to fail bank HSBC acknowledged that despite repeated warnings, they failed to stop drug and terror-tainted deposits from moving through the bank.

According to the report, HSBC, one of the world’s largest banks with a strong U.S. presence, “exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering controls.”

In 2007 and 2008, the Senate committee found, HSBC moved $7 billion in bulk cash from Mexican to its U.S. operations, even though authorities warned that the money was proceeds from drug sales.

HSBC was doing a thriving business with well-known cash exchange businesses used by the drug cartels known as casas de cambio, despite repeat warnings that they were fronts. Years after other banks had cut them off, HSBC continued to do business with the casas de cambio.

Mexican drug cartels weren’t the only ones taking advantage of HSBC’s lax controls. Middle East bankers with links to Al Queda also found HSBC a hospitable environment in which to conduct business.

You might think that the authorities would have roast HSBC officials on a spit.

Far from it: in 2008, regulators rewarded HSBC with $3.5 billion from taxpayers in a backdoor bailout, in payments funneled to the bank’s U.S. subsidiary through AIG.

Now HSBC’s bankers have been humiliated at a public hearing and the company’s shareholders may be forced to pay as much as $1 billion in fines.

Still, from the bankers’ perspectives, you would have to say money laundering and bailouts have been very, very good to them. Even after they pay the fine, they’d have more than enough to pay for the $125,000 they’ve given to congressional candidates so far this election cycle, and the $5,700 they’ve doled out to Mitt Romney. The left-over laundered money will also help defray the costs of the $900,000 worth of lobbying the bank has done this year.

I’m confident now that the full extent of HSBC’s misdeeds has become known, Romney and the other politicians will want to have nothing to do with this dirty money and will be clamoring to give it to charity.

But just in case it slips their minds in the rush of doing the people’s business, we should help them out. Mitt can provide a good example by being the first to get rid of the drug and terror money.

 

 

 

Campaign contributions / Martin Column / Mitt Romney / Too Big To Fail - 07/24/2012

Geithner must go

Please, President Obama, fire Timothy Geithner today and hire a treasury secretary to fight for the U.S. economy as hard as Geithner fights to protect bankers’ profits.

I know you’re intensely loyal to Geithner and have resisted such calls in the past.

But Mr. President, times and circumstances have changed. For your own good and especially for the good of the country, you should reconsider. You’re in an especially close election and you need to cut yourself loose from the failed policies you’ve pursued for the past four years that have coddled the financial sector at the expense of the rest of the economy.

Your loyalties are with Geithner but his, Mr. President, are with the too big to fail banks, not with the public.

The most recent evidence comes from this Huffington Reports piece which details how Geithner, while president of the New York Fed responded when he heard about the big banks manipulating a key interest rate known as LIBOR when he was chair of the New York Federal Reserve in 2007.

Recently disclosed emails show that while Geithner expressed concerns over the integrity of the LIBOR, or London Interbank Offered Rate, he did little to investigate or stop the manipulation.

What he did to was cut and paste the bankers’ own proposals into his own proposal to the Bank of England about how to address the LIBOR concerns. It should have been an early warning sign of how Geithner and his big bank cronies spoke with one voice – theirs.

The public may not understand just how critical the integrity of LIBOR is, but you do, Mr. President. You know that it’s how it’s used as a benchmark for trillions worth of transactions every day, on everything from complex credit default swaps to credit cards.

You also shouldn’t underestimate the public’s ability to grasp what’s at the root of this LIBOR scandal, which is the same theme that’s underlying JP Morgan London Whale trading losses – that bankers have been manipulating the financial system for their own interests, with your administration either fully cooperating or looking the other way.

Don’t underestimate the ability of the ruthless and hypocritical Republican attack machine to clobber you with those policies even as the Republicans embrace more banker-friendly policies than you are.

They’ll get a good shot this week when Geithner testifies before the House Banking Committee over what he knew and what he did about banks.

The public may not be focused on the LIBOR in the middle of a hot summer, Mr. President, But the scandal is just beginning to wash up on the our shores after causing tremendous damage after it erupted in England, after Barclays Bank acknowledged its own LIBOR manipulation and cut a deal with regulators. Meanwhile the investigation into 16 U.S. banks and their LIBOR shenanigans is just getting cooking.  It could be heating up at the same time as the presidential race.

Mr. President, you have another opportunity to do something that is good politics and good for the country too, and will distinguish your policy on the banks from your opponent’s do-nothing approach.

Get rid of Geithner and begin to chart a new course toward a system not rigged in favor of big bankers and their fat bonuses. We need a treasury secretary who doesn’t measure prosperity solely by the size of bankers’ wealth.

LIBOR / Martin Column - 07/16/2012

Underwater secrets

Local governments'  have often stirred controversy with their use of eminent domain. While it's supposed to be used for the public good, too often it has been used to profit developers, while the public just feels ripped off.

Still, the idea of local governments using eminent domain as a tool to stabilize home prices in some of Southern California’s hardest hit communities is an intriguing one.

It’s the kind of bold action that’s been missing in the government’s limp response to the foreclosure crisis.

But the scheme that’s unfolding in Southern California’s Inland Empire, rated as the one of the most underwater in the nation, is a step in the wrong direction.

It smacks of politically-connected high-finance types, boasting of their access to politicians as their “secret formula,” wheeling and dealing in secret.

A san Francisco venture capital firm is cooking up a scheme in San Bernardino to use the government’s eminent domain power to seize some underwater mortgages from investors who own them and have been unwilling to offer borrowers principal reduction that would allow them to stay in their homes.

The firm’s idea, apparently, is to for San Bernardino County and other local government’s form a joint powers authority that would allow those government to act together to use eminent domain to seize mortgage loans, not the property, of underwater homeowners who were not behind on their payments at “market value.”

Then, according to the scheme, the firm would find investors to issue new mortgages to the homeowners at that lower, more affordable “market value.”]

The plan was hatched by San Francisco-based Mortgage Resolution Partners. That’s the firm originally headed by Phil Angelides, former state treasurer, real estate developer and venture capitalist best known recently for leading a congressionally-appointed investigation into the financial crisis.

After issuing a report highly critical of the banks, Angelides didn’t stump the country to put pressure on authorities to follow up on his report with prosecutions.

He went into the mortgage business himself, swaddling his efforts to make profits from distressed mortgages in good intentions of finding solutions to the foreclosure crisis.

It was Angelides who boasted in a letter to potential investors that his firms’ secret formula was its connections to public officials. Reuters reported that Angelides told potential investors they could generate 20 percent profits.

After Angelides’ involvement in the firm was publicized earlier this year, he stepped aside. Replacing him was Steven Gluckstern, a hedge fund veteran who was one of President Obama’s major bundlers in the 2008 election.

According to published reports, Mortgage Partners would make its profit charging a fee on every mortgage seized. How much will it be paid and how? That hasn’t been disclosed. But according to Naked Capitalism, its sources say that the firm expects to make a 5.5 percent fee on each mortgage ­– paid for by having the government seize the mortgages at a discount and sell them back to the homeowner for a profit.

The most serious general flaw in the scheme is that has unfolded behind the cloak of confidentiality agreements between government officials and Mortgage Resolution Partners, with no public disclosure or debate on the concept or details, giving the whole deal the stink of a sweetheart deal, not a solution.

When the Riverside Press-Enterprise sought written records of communication between county officials and the mortgage firm, they were told there were none.

The use of eminent domain is highly controversial because it has often been justified as benefiting the public when it ends up benefiting real estate developers. In this case, investors who own the mortgage loans have already weighed in opposing the plan. Though the plan’s backers say eminent domain has been used to seize intangible goods, they acknowledge it hasn’t been used to seize mortgage loans before. So investors are likely to challenge the process in court.

But I wouldn’t shed too many tears for the investors, who have stood in the way of principal reductions or any other means of helping homeowners.

Another question raised by the current plan: why is only Mortgage Resolutions Partners being considered as a partner for the joint powers authority? The idea should be put out for an open bid. Maybe other firms would have even better plans and offer a better deal.

And there are plenty of other issues surrounding the plan. Walter Hackett is a former banker who is now lead attorney in the Legal Aid Riverside’s branch near San Bernardino. While he likes the idea of using eminent domain as a tool to stabilize home prices,

he questions why eminent domain would be used to seize mortgage loans – which are more difficult to set a price on – rather than property itself. Seizing the property and paying the investor for the fair market value of the property, rather than the mortgage, would extinguish the old mortgage and the new investors could then issue a new one to the borrower at the market value.

Hackett also questions why eminent domain would be used only on mortgages deemed current, so-called performing loans, rather than including properties that have already fallen into foreclosure that are still owned by investors. “Former owners, or others might be able to afford reduced payments once the properties are priced at market value, rather than at the price of the underwater mortgage,” Hackett said.

Hackett’s unusual background, having been a banker and represented homeowners in foreclosure, would be invaluable in redesigning such a proposal. It should not be left only to the venture capitalists and the county politicians.

I’m not suggesting that local governments shouldn’t find a way to use eminent domain or find other creative solutions to help struggling homeowners. But we also need to stop assuming that when the financiers and politicians go into the back room, they come out with something that’s in our interest – even if they say it is.

We learned from the bailout and the government’s subsequent coddling of the financial industry how the secrecy and lack of transparency undermine trust in both our financial system and our government.

However inconvenient to the bankers and hedge fund honchos, such proposals must be hammered out with full public participation and debate. We don’t need any more secret formulas” brewed with corporate cash and political connections in back rooms with you and me kept out.

 

 

Foreclosures / Martin Column - 07/12/2012

London calling – is anyone listening?

Here we go again.

The scandal over bank manipulation of a key interest rate is just the latest strong signal that bankers rigged the system to benefit themselves and screw everybody else.

Not that we need another signal.

The scandal stems from something called LIBOR – the London Interbank Offered Rate. It’s an integral part of the global banking system. LIBOR is supposed to reflect the interest rate at which banks loan money to each other. It’s also a benchmark rate for other transactions, everything from home mortgages and credit cards to complex derivatives.

That means that the cost of the mortgage loan is pegged to whatever LIBOR is. On a home mortgage loan, for example, the interest rate might be a few points above LIBOR. The Financial Times estimates that about $350 trillion worth of contracts are tied to LIBOR.

It turns out that British-based Barclays Bank was manipulating the rates to increase their own profits, and to disguise how the bank was performing­ – possibly with the collusion of their regulators. The conservative Economist calls it “the rotten heart of finance,” and cautions that it is about to go worldwide.

The scandal hit home in England first, causing Barclays’ Bank president to resign and pay a record fine, and regulators on both sides of the Atlantic promising to get to the bottom of it.

But there are strong suspicions that Barclays wasn’t alone, that other too big to fail banks might have also engaged in the same shenanigans. The Wall Street Journal reports that at least 16 banks are under investigation, in three criminal and 10 civil probes.

It’s bad enough that Barclay traders have been caught discussing the manipulation in emails, referring to the rate manipulation as “the fixings” and requesting a particular rate as casually as if they were ordering a double latte.

What’s worse, the Financial Times started raising questions about the LIBOR-rigging five years ago and the Wall Street Journal cast doubt on the banks’ LIBOR practices in May 2008. 2008. So any regulator or prosecutor with an iota of curiosity could have been digging into LIBOR since then.

As we already know, curiosity about bankers’ malfeasance has been a rare commodity among the officials who are supposed to be scrutinizing their bank behavior. Remember President Obama’s repeated promises to get tough on bankers, most recently in his State of the Union speech in January?

Don’t expect Mitt Romney to make an issue of it – at least 15 of Barclay’s most senior U.S.-based bankers have donated the maximum $2,500 contribution to his presidential campaign. The CEO who resigned, Bob Diamond, had been among the co-hosts for a London fundraiser when Romney goes to London for the Olympics. (Barclays’ political action committee has also contributed significant amounts of cash to Democrats, though not the president, over the years.)

The LIBOR scandal rips the curtains away from one of the nastiest Big Lies on both sides of the 2012 presidential campaign: the president’s line that his Dodd-Frank reform has fixed the financial system, and Romney’s pitch that regulation is the problem and that we should leave bankers alone to run their business as they see fit.

 

 

 

 

 

 

 

Martin Column / Mitt Romney / President Barack Obama / Too Big To Fail - 07/09/2012

Guide to congressional cosmetics

President Obama praised the STOCK Act when he signed it into law in April as a good first step to rid Congress of financial conflicts that undermine public confidence.

But it’s really no more than a fast makeup job to cover up the continuing blemishes on our democracy and give the president and members of Congress some talking points for the campaign trail.
The STOCK Act is supposed to prohibit legislators from profiting from the nonpublic information they get on the job. The STOCK Act also prohibits members of Congress from participating in initial public offerings unavailable to the public, and provides some additional public disclosure of congressional stock trading.
But we already know that members of Congress do better than civilians when they invest in the stock market. According to a 2011 study, investment portfolios of members of the House beat the market by about 6 percent annually, mimicking the performance of the stock portfolios of their Senate colleagues.
As an example, the Washington Post reported, four congressmen sitting on a committee investigating deceptive billing practices by video game makers sold their stock in the country’s biggest video game maker, GameStop, one of the companies under investigation.
One of the most egregious examples is Sen. Tom Coburn, the Republican Oklahoma senator who has made a name for himself preaching government austerity and self-righteously criticizing both parties for not having the courage to make the cuts needed to reduce the debt.
But austerity and sacrifice were apparently not on Sen. Coburn’s mind when he bought $25,000 in bonds in a genetic technology company at the same time he released a hold on legislation that the company supported. A hold is an informal Senate practice by which a senator can stall a piece of legislation. Coburn, meanwhile, cast one of the few votes against the STOCK Act, dismissing it as nothing more than a stunt.
One clue to just how innocuous the STOCK Act is: it was opposed by only two votes in the House and three in the Senate. This confirms my theory that whenever you see much ballyhooed-bipartisanship at work, you can be sure that members of Congress are either doing the bidding of the 1 percent, or covering their own butts.
The bottom line is that while members of Congress pass laws that prohibit other government officials from presiding over companies and industries in which they have a financial interest, Congress effectively exempts itself from such broad restrictions.
Writing on Yahoo Finance, Ron DeLegge outlines the STOCK Act’s major flaws and omissions: it still allows the sleazy, little-known practice of members selling “political intelligence” to lobbyists as well as continuing to allow members of Congress to own stock in industries over which they can exert influence.
The STOCK Act reminds us, when it comes to Congress, we shouldn’t be distracted by lame cover-ups or blather about bipartisanship, we should follow the money.
And we shouldn’t forget: it’s not their money.
It’s our money.

Bipartisanship / Congress / Martin Column / President Barack Obama - 07/06/2012