Financial Crisis - Represent Consumers

Latest D.C.-Wall Street brainstorm – bailouts with your bank deposits

Think your federally insured bank deposits are safe? Think again.

The geniuses that are supposed to be protecting your money have dreamed up a scary idea to use your money to help fund the next bailout.

This is not some paranoid conspiracy theory.

In December, the U.S. Federal Deposit Insurance Corp. (which is supposed to insure your money in the bank) and the Bank of England proposed using your bank deposits to defray the costs of rescuing a too big to fail bank when it gets in trouble. Wall Street hates the term “bailout,” so they’ve came up with a more innocuous term: “resolution.” The report, “Resolving Globally Active, Systematically Important Financial Institutions,” is linked here.

“In all likelihood [in a bank collapse],” the report’s authors write, “shareholders would lose all value and unsecured creditors [including depositors] should thus expect that their claims would be written down to reflect any losses that shareholders did not cover.”

People who trusted the bank and put their money there would not get their money back under this proposal. Instead their deposits would be turned into shares in the newly resuscitated bank.

A version of this already happened as a result of the Cyprus financial crisis. Now FDIC/BOE have proposed a similar approach for the U.S. and England the next time the big bankers fail.

Inside the Washington-Wall Street bubble, that’s not an “if.” It’s a “when.”

This latest proposal is what passes for smart thinking inside the bubble, untroubled by the bad banker behavior it enables or any concern for the public outrage simmering outside.

The proposal stems from a fact that surprised me when I learned it: when you put your money in the bank, you no longer own it; the bank does. It becomes the banks’ asset, which it promises to give you back under certain conditions. In legal terms, the depositor becomes an “unsecured creditor” of the bank. Under the terms of the FDIC/BOE joint December 2012 proposal, the unsecured creditors’ money could be used to offset the costs of resuscitating a bank that the geniuses in Washington and Wall Street determine is too big to fail.

The bankers and their faux regulators are in the hunt for new source of bailout fund because, under Section 716 of the Dodd-Frank law passed in the aftermath of the 2008 meltdown, they can’t use taxpayer funds the next time the $230 trillion derivatives market tanks.

Derivatives, you will recall, are those pieces of paper, unconnected to any physical assets, that created the house of cards that collapsed back in 2008 because nobody could figure out what the derivatives were worth.

Why not just let banks that engage in derivatives speculations and lose fold? The firms’ executives, bondholders and investors would get hurt. And we can’t let that happen, of course.

So they want to “resolve” a bank’s excessive risk-taking with our money.

In Cyprus, only the wealthiest’s deposits were seized. The FDIC is supposed to insure individual depositors’ account up to $250,000 per depositor per account. But under the FDIC/BOE proposal, even accounts of $250,000 or less could be seized by the failing bank and converted to stock as part of a bailout scheme.

Meanwhile, what about the purchasers of those risky derivatives, which the banks are still trafficking in more than ever? They would fare better than lowly depositors because they are treated as “secured creditors,” under a little-noticed provision that the bankers’ lobbyists had inserted into a 2005 rewrite of U.S. bankruptcy law.

I’ve been surprised by how little attention this proposal has gotten. It’s been covered mainly by Ellen Brown, a longtime critic of the banking sector and the government’s failure to regulate it. Certainly a major reason for the paucity of mainstream coverage is the lack of transparency around the regulation of banking institutions, and the media’s failure to push back against that. The big media, with few exceptions, has largely bought the narrative that the Obama administration has been selling, which is that the Dodd-Frank financial reform law successfully reined in banks and solved the TBTF issue, and that we have left the bad old days of financial collapses and bailouts behind us.

Nothing could be further from the reality, as the FDIC/BOE proposal makes clear. The banks continue to engage in risky derivatives gambling, resist any efforts to get them to stop, and enlist their allies at the Fed and other faux regulators to find someone else to absorb the costs of their own inevitable gambling losses.

Much of the regulations that would implement Dodd-Frank are being watered down behind closed doors, where the public is locked out and bank lobbyists have easy access to apply relentless pressure.

Even after multiple foreclosure fraud scandals, the LIBOR interest-rate fixing scandal, and the J.P. Morgan London Whale derivatives trade scandal, the media is more interested in touting the revival of the merger and acquisitions market than doing skeptical reporting on big banks and regulators.

Another reason that the reality gets lost is that it doesn’t fit neatly into the Republican-Democrat frame through which most of the media sees all policy. While Democrats at least rhetorically favor regulation and Republicans blame government for all the banks’ problems, beyond a little political stagecraft the two parties have collaborated smoothly to continue to bury the issue and let the bankers off the hook. This gives members of both parties a wide berth to keep raising campaign money from the bankers, and their congressional staffers a pathway unobstructed by any unpleasantness on their way to lucrative employment on Wall Street when they want to cash in.

This FDIC/BOE proposal is just the latest example of the government regulators protecting the bankers’ interests and throwing the rest of us to the wolves. That’s not what a majority of Americans want, obviously. According to this Rasmussen poll, 50 percent of all Americans favor breaking up the big banks so they don’t pose such a threat to our financial future, and can’t continue to dominate our political landscape. Only 23 percent oppose such a breakup.

Sen. Bernie Sanders, the independent socialist from Vermont, has introduced legislation to break up the banks. Rep. Brad Sherman, a Democratic legislator from Los Angeles, has said he will introduce companion legislation in the House.

Breaking up the banks is critical, but its only the first step. We need the re-imposition of a modern-day version of the Glass-Steagall Act, the Depression-era law that barred banks from mixing in other financial businesses that place depositors’ money at risk. Its repeal in 1999 led directly to the 2008 meltdown.

In the updated Glass-Steagall, federally insured banks should be barred from gambling in derivatives or other complicated investments.

Meanwhile, we need full public hearings on the FDIC/BOE proposal, and any other proposals regulators are considering about how to pay for future bailouts that involves taxpayers or consumers.

Contact your senator and representative and demand an end to big banks and publicly insured bank gambling. This FDIC/BOE proposal is a grim reminder of what we get when we’re left out of the political process, and we leave our financial system in the hands of the politicians, the experts and the bankers.

Revolve this

For many of the government officials cashing in, it seems that the more spectacular their failure to serve the public, the more valuable they are to the big Washington players that hire them.

Our government may be a dysfunctional mess, but for the public officials leaving their jobs, it’s been a banner couple of months. Unemployment may be above 9 percent in Washington, D.C., but our top government officials don’t have to spend too much time on the unemployment line.

Take for example, Mary Schapiro, who recently left her post as head of the Securities and Exchange Commission to go to work for a consulting firm named Promontory Financial, which is filled with former bank regulators making big bucks – working for banks!

You may recall Promontory as one of the “consulting” firms that banks got paid a total of $2 billion to do internal investigations of the banks’ foreclosures, in the wake of the robo-signing scandal. They were supposed to find out how widespread the robo-signing – using forged or otherwise fraudulent documents – was.

But the consultants’ investigations were shut down because the investigations themselves were such a mess. I wrote about it here. Basically $2 billion that could have gone to assist troubled homeowners and stabilize the housing market went instead to enrich a bunch of former bank regulators for shoddy work, while helping few of the many Americans who had victims of fraudulent foreclosures. A Senate subcommittee will holding hearing on the flawed foreclosure investigations beginning Thursday in Washington. Will Schapiro be working in the background, helping her new employer avoid accountability?

Schapiro’s tenure at the SEC is notable in the agency’s failure to go after a single high-ranking official at a too big to fail banks for the fraud and recklessness that led to the 2008 financial collapse. In academic circles, this is known by the polite name of “regulatory capture,” which is an overly nice way to describe the sinister legalized corruption that constitutes the status quo in Washington.

We don’t know how much Promontory is planning to pay Schapiro, or exactly what she’ll be doing. Curiously, the firm says she’ll be doing something called “risk management,” which is a strange job for Schapiro, since in her previous positions at the Commodities Futures Trading Commission and the Financial Industry Regulatory Authority, she never saw any risk in the malignant cancerous growth of derivatives investments that made bankers wealthy before they blew up the economy.

While her duties may be nebulous, her new employer was kind enough to leave her time for another part-time job, serving on the board of directors of General Electric, which pays no taxes but compensates its board members about $250,00 year.

Asked about the revolving door aspect of her departure, Schapiro told the Wall Street Journal, “In my case, there’s no revolving door, I’m not going back to government.”

Now don’t you feel better?

Schapiro should fit right in at Promontory, which was founded by Eugene Ludwig, right after his tenure as head of the Office of the Comptroller of the Currency.

As a federal regulator, Ludwig specialized in blocking states from enforcing their own predatory lending laws against big banks on grounds that they were preempted by the OCC. Meanwhile the OCC was way too cozy with the bankers and saw no problems as its charges. In 2000, he left government to found Promontory, which has consistently worked for the too big to fail banks Ludwig once was in charge of regulating.

Earlier this year, one of Ludwig’s remaining colleagues at OCC, Julie Williams, former deputy controller and chief counsel of the OCC, also joined her former boss at Promontory.

Also headed for the exit this month is Lanny Breuer, the head of the Justice Department’s Criminal Division; he co-chaired one of the Obama administration’s faux task forces that boldly promised to get to the bottom of who was responsible for the financial collapse before tiptoeing quietly off into the bureaucratic ether without any resources to do its work. Breuer resigned a day after he was the target of a devastating Frontline documentary that focused on the administration’s failures to hold the big bankers accountable.

Breuer went back to his previous employer, the white-shoe D.C. law firm, Covington & Burling, which represents, you guessed it, the very big banks Breuer and his task force supposed to be investigating. Breuer leaves behind another heavy hitting Covington & Burling alumni – the U.S. attorney general, Eric Holder.

Schapiro and Breuer’s moves are a stark reminder that the real action in Washington is not in the debate between the Republicans and Democrats that we see on television every day, it’s in the never-ending battle, mostly out of public view, by the members of the Money Party to protect their interests against the rest of us, who don’t belong.

Financial Crisis / Martin Column / Revolving door - 04/10/2013

For Jamie Dimon, it's a free country; others must pay

America's favorite banker is at it again.

At the posh gathering of the world’s global financial elite at Davos, Switzerland, J.P. Morgan Chase’s CEO has been whining that bankers have been scapegoated for the financial collapse.

You might be inclined to have some sympathy for Dimon, who got whacked with a 50 percent pay cut last year after his bank lost nearly $6.2 billion, and possibly up to $9 billion, in the notorious “London whale” trades, in which a J.P. Morgan Chase employee speculated with federally-insured deposits, as part of a hedging strategy gone awry – bets intended to reduce the bank’s risk increased it instead.

So Dimon was only paid $11.5 million and lost the distinction of being America’s highest paid banker.

If you don’t have your scorecard handy, Dimon is the one banker who managed to emerge from the financial collapse with his reputation intact, because of the widely held perception that J.P. Morgan had managed its risk well, avoiding the worst excessive behavior that typified too big to fail banks.

But since then Dimon and his bank have been tarnished by his continuing swaggering arrogance and revelations of the bank’s own numerous misdeeds.

He’s a fierce, if smooth, advocate for his fellow bankers against increased financial regulation. The “London whale” debacle, which he initially dismissed as a “tempest in a teapot” before going on Meet the Press to acknowledge the bank’s gargantuan mistakes, has not increased his capacity for introspection or self-criticism. “Life goes on,” he observed blithely.

Federal regulators ordered the bank to improve risk management in the wake of its stupendous London whale losses and to tighten money-laundering controls. A Senate subcommittee is also investigating the London whale trades.

Nor did the London whale losses increase his humility. Last August, Dimon came out roaring in an interview with New York magazine, saying he was not going to be one of those wimpy bankers afraid to criticize increased bank regulation because of fear of retribution. “We recently had an event with a hundred small bankers here, and 85 percent of them said they can’t challenge the regulation because of the potential retribution,” he told New York’s Jessica Pressler. “That’s a terrible thing. Okay? This is not the Soviet Union. This is the United States of America. That’s what I remember. Guess what,” he said, almost shouting at Pressler. “It’s a free. Fucking. Country.”

It may be a free country, but taxpayers and customers are going to pay dearly for J.P. Morgan Chase’s business practices.

Here’s a list of some of the controversies surrounding J.P Morgan:

• The New York Times recently reported that when outside analysts discovered serious flaws in thousands of mortgages that were packaged into securities by J.P. Morgan Chase, the bank either ignored the criticisms or watered them down. Evidence of J.P. Morgan’s handling of the outside reviews surfaced in emails disclosed in a lawsuit brought by investors who said they were misled about the value of the $1.6 billion in the packaged mortgage investments.

• The bank is also one of three U.S. banks under investigation for its role in manipulating the LIBOR interest rate, which determines the interest charged for a wide variety of retail and commercial loans. Authorities have already fined the British Barclays Bank $452 million for its role in the manipulation. The cost of LIBOR rigging to taxpayers is estimated at around $3 billion.

J.P Morgan paid $228 million and admitted wrongdoing to settle accusations that it rigged bids to win municipal bond business. Prosecutors said the bank entered into secret agreements with bidding agents to improperly see competitors’ bids..
The bank has agreed to pay authorities about $2 billion to settle claims of massive fraud and abuse in its foreclosure process across the country.
In 2011, the bank apologized for overcharging thousands of veterans on their mortgages and improperly foreclosed on others while they were on active duty overseas. J. P Morgan agreed to pay more than $30 million in damages.

In each of these cases, the amount of penalties is hardly going to worry J.P. Morgan, the country’s second-largest financial institution. In the fourth quarter of 2012, the company enjoyed record profits of $5.7 billion, up 53 percent over the same period a year earlier, on revenues of $23.7 billion.

Meanwhile, Dimon has found time to join with other top CEOs to champion a grand bargain to reduce the federal deficit, similar to the Simpson-Bowles plan that grew out of President Obama’s fiscal crisis commission. Dimon and other CEO’s have bravely concluded that the best way to reduce America’s debt is to shred the social safety net that Americans who suffered most through our deep recession have been clinging to.

Does Jamie Dimon’s track record really qualify him to offer us advice on the best way to fund the government and deliver essential government services like Social Security and Medicare. We can’t stop him from offering his two cents, but that’s about what’s it worth. While we’re free to ignore him, our politicians not so much, since J.P. Morgan’s PAC and individuals associated with the company spent $3.7 million on the 2012 elections. And while it favored Republicans, the bank still donated more than $236,000 to President Obama. Unless we decide to say otherwise, that could buy Jaime Dimon a lot of freedom.

Derivatives / Executive Pay / Financial Crisis / Martin Column - 02/13/2013

To protect investors and taxpayers, go outside the club

Here’s who would be better than President Obama’s pick to head the Securities and Exchange Commission: Almost anybody.

Couldn’t this administration find somebody who has not been spending her time defending too-big-to-fail banks, acting as an apologist for them, and whose law firm was paid to advise the government on the bailout?

That’s a description of Mary Jo White, most recently of the elite Debevoise & Plimpton law firm, one-time U.S. attorney for the Eastern District of New York…. and now the President’s choice to head the SEC.

There’s a long list of qualified people Obama might have chosen if he wanted to go outside the government-financial complex whose members have dominated economic policy, people with credible experience who have honed a critical perspective on the financial industry.

That list would start with Neil Barofsky, the former prosecutor who served as a tough special inspector general of the Troubled Asset Relief Program, better known as the taxpayer-funded bailout. It would also include Bill Black,who helped expose congressional corruption as a fearless federal regulator during the savings and loan scandal of the 1980s, now a University of Kansas City-Missouri law professor and white-collar crime expert – and consistent critic of the Obama administration’s failure to hold bankers accountable. High on the list would be Eliot Spitzer, the one-time attorney general of New York and television commentator and a sharp thorn in the side of bankers and the politicians who protect them. Christy Romero who also be on the list. Like White, she worked as a lawyer at an elite firm, but as the current special inspector general for the bailout she has been a fierce advocate for taxpayers.

Mary Jo White, according to the president, is “tough as nails.” At one time White was a hell of a prosecutor. When she was U.S. Attorney for the Eastern District of New York, though she prosecuted no major bank executives, she won convictions of the New York Mob boss known as Dapper Dan, John Gotti, and the World Trade Center bombers.

That was before she followed the well-worn path from public prosecutor to elite lawyer, joining the white-shoe law firm of Debevoise & Plimpton, where the average partner makes $2.1 million a year.

That was before she got cozy with J.P. Dimon and J.P Morgan, representing them in the widely criticized settlement of foreclosure fraud charges in a case involving 49 state attorneys general, the Feds and the too big to fail banks.

That was before representing Bank of America’s Ken Lewis on fraud charges and Morgan Stanley’s John Mack in an SEC insider-trading investigation.

Once she got through the revolving door, she worked the system on behalf of her clients, becoming a consummate well-paid insider in the Wall Street-Washington power nexus. In the process of strenuously protecting Mack from an interview at the SEC, White got herself into the middle of a full-fledged scandal, using her clout to help get a whistleblower at the federal agency canned, according to Rolling Stone’s Matt Taibbi. In addition, White’s husband is another veteran of the revolving-door, working as a top SEC official as well under previous do-nothing SEC commissioner Christopher Cox, in between stints as a bankers’ lawyer.

One fact that tells you al you need to know about what’s wrong with White as a banking enforcer is that her former client, Jamie Dimon told Fox Business News that White was “perfect” for the SEC job.

White might have made a better candidate to protect investors at the SEC if, since the bailout, she had expressed one iota concern about bankers’ excess, fraud or recklessness that led to the financial collapse.

Instead, White has expressed concern about prosecutors unfairly targeting bankers to get scalps to feed the angry public’s thirst for justice. In a legal brief on Lewis’ behalf, White wrote: “Some have looked to assign blame for every aspect of the financial crisis...This case is a product of that dynamic and does not withstand legal or factual scrutiny.”

In remarks at a New York University Law School event last year, White said: “You should be aggressive where there is a crime,” but prosecutors shouldn’t “fail to distinguish what is actually criminal and what is just mistaken behavior, what is even reckless risk-taking, and not bow to the frenzy.”

Her law firm meanwhile was itself cashing in on the bailout, receiving a contract worth $159,175 as one of 16 law firms Treasury hired to work on the bailout, American Lawyer reported.

White obviously lives in a far different world from most Americans, who are still rankled that so few bankers have been held accountable for the financial collapse.

Maybe it’s understandable that in her role as defender of too-big-to-fail bankers, she didn’t express much empathy for investors who lost savings, for cities and towns ravaged by foreclosure or workers laid off in the worst economic downturn since the Great Depression.

And it probably wouldn’t have endeared her to her clients if she had expressed outrage at the bankers’ epic greed and recklessness that led them to wreck our economy.

In her new job, she will face many tough challenges; overseeing implementation of many of the Dodd-Frank financial reform’s unfinished regulations, and convincing a deficit-obsessed Congress and president to beef up staffing and salaries at her chronically underfunded agency so that it can compete with her former colleagues at the fancy law firms. It’s hard to imagine White rising to this challenge, especially since after her SEC tenure she’ll probably head back to a big Wall Street firm.

Don’t get me wrong, I don’t believe there’s anything wrong with representing bankers – or mob bosses. Our legal system works best when both sides have strong, aggressive advocates. White made her choice to leave the relatively poorly paid public sector to join a private firm and provide bankers a “tough as nails” defense lawyer. But does that really qualify her as the best person to lead the SEC, an agency already reeling from a lack of credibility for not pursuing fraud in the financial sector aggressively enough? Don’t investors and taxpayers deserve protection from somebody whose primary concerns since the bailout haven't been profiting from it and keeping bankers comfortable?

Financial Crisis / Martin Column / President Barack Obama / Revolving door / Securities and Exchange Commission (SEC) - 02/04/2013

Where have all the task forces gone?

President Obama announced a new task force today to investigate the disappearance of the mortgage fraud task force he appointed earlier this year as well as another one he appointed in 2009.

“When duly appointed task forces vanish into thin air without a trace, this administration will not accept it,” the president said. “We expect this new task force, which will be called the Task Force Task Force, to move forcefully to accomplish its task.”

The Task Force Task Force’s mission will be made easier, the president said, because he appointed as one of it’s co-chairs the New York state attorney general, Eric Schneiderman. The New York state attorney general was also appointed co-chair of the mortgage fraud task force, which has not been seen or heard from since the president announced it during his State of the Union speech January 24.

Schneiderman said he would move “quickly” to interview himself as soon as he had a chance to familiarize himself with the circumstances of the disappearance of the mortgage fraud task force.

“We will get to the bottom of this,” Schneiderman pledged.

To show his seriousness, the president said he was reconvening the band of Navy SEALS who worked on the mission to find and kill Ban Laden in Pakistan, and putting them at the service of the Task Force Task Force. “When a group of American citizens go missing in the service of their country, we take it very seriously,” the president said. “One task force vanishing is bad enough, but two?”

Schneiderman refused to be pinned down to a timetable for the investigation. He also refused to comment on his previous insistence that he would “take action” if the mortgage fraud task force was stymied.

Schneiderman also refused to answer specific questions swirling around the mortgage fraud task force, such as why the entire mortgage fraud task force had a mere 50 lawyers when the Enron task force, convened to investigate a previous financial scandal involving a single company, had more than 100 lawyers working on it and why the mortgage fraud task force apparently still doesn’t have office space.

Schneiderman acknowledged that there are some mysteries that may be too deep for the new task force to unravel.

Was the mortgage fraud task force, aka the Residential Mortgage-Back Securities Working Group, actually a part of the earlier Financial Fraud Task Force, established November 17, 2009? Was the mortgage fraud task force actually something new, or just a PR offensive that amounted to nothing more than a repackaging of already existing efforts?

Though U.S. Attorney General Eric Holder has touted the administration’s efforts in going after financial fraud as nothing less than “historic,” the administration has yet to bring a criminal prosecution against a single major executive of a too big to fail institution. Some have questioned whether the president, who received more money from Wall Street than his Republican opponent, John McCain, really has any desire to hold Wall Street executives accountable for their actions.

Schneiderman’s investigation into the vanishing task forces may lead him right into the Oval Office to the man who appointed them.

A month before President Obama announced his new mortgage fraud task force in the State of the Union speech, the president told 60 Minutes, “Some of the most damaging behavior on Wall Street — in some cases some of the least ethical behavior on Wall Street — wasn’t illegal. That’s exactly why we had to change the laws.”

Financial Crisis / Martin Column / President Barack Obama - 04/24/2012

In new Hollywood role, former senator plays the heavy

Thanks to Hollywood lobbyist and former Senate banking chair Chris Dodd for telling it like it is.

Dodd warned that Hollywood’s big-money contributors, who have been very, very good to President Obama and his fellow Democrats, might withhold their cash after the president expressed reservations over a controversial Internet anti-piracy bill.

Who ever would have guessed it would be Dodd, who during his 21-year-long career in Washington collected more than $48 million in campaign contributions, much of it from the financial industry he was supposed to be overseeing, who would cut through all the lies and palaver to deliver the knockout punch to our Citizens United-poisoned political system?

“Candidly, those who count on quote `Hollywood’ for support need to understand that this industry is watching very carefully who's going to stand up for them when their job is at stake,” Dodd told Fox News. “Don't ask me to write a check for you when you think your job is at risk and then don't pay any attention to me when my job is at stake.”

But who better than Dodd to make clear what contributors expect for their cash. He knows exactly how the system works, from both sides of the revolving door.

It was Dodd, after all, who made sure that AIG executives got their bonuses in 2009 while taxpayers were bailing out the firm at the heart of the subprime meltdown. It was no coincidence that AIG executives had showered Dodd with $56,000 in contributions.

Nobody knows this terrain as well as Dodd.

He was a “friend of Angelo,” one of those elected officials who personally got sweet mortgage deals – at below market rates– from Angelo Mozilo, the head of the Countrywide, the mortgage company that nearly sank under the weight of its subprime trash loans until Bank of America rescued it. (His colleagues on the Senate Ethics Committee dismissed a complaint against him.)

While he and his colleague, Rep. Barney Frank (House Financial Services Committee?), oversaw the watering down of financial reform legislation in the wake of the financial crisis, Dodd played the role of beleaguered public servant, wringing his hands in frustration over the army of lobbyists against whom he was claimed he powerless.

But now that’s he moved from Washington to Hollywood, he’s got a new script that calls for tough, public, bare-knuckled threats to the president of the United States.

And whatever he owes the American public for his perfidy as an elected official, we owe him a debt of gratitude for it. Because he has exposed the political system and the money that dominates it for what it is.

As Dodd has illustrated so eloquently, the Supreme Court got it wrong in their infamous Citizens United decision, which allows corporations to dump unlimited, unreported cash into our political system.

Money is not free speech. I don’t know whether Bob Dylan had Congress in mind when he sang nearly 30 years ago, “Money doesn’t talk, it swears,” but he was prophetic.

The impact of money in politics has put a curse on our democracy, and it won’t be lifted until we throw the corporations and the billionaires’ money out.

As Dodd’s remarks demonstrate, big money campaign contributions are a blunt force instrument, which corporate interests and the wealthy can use to control the politicians who depend on them for their livelihoods, as Dodd did when he was playing the part of the distinguished U.S. senator.

Rest assured, the people who gave him $48 million knew his real role was so serve them, whatever lines he was required to utter for the scene he was playing at the time.

AIG / Citizens United / Congress / Executive Pay / Financial Crisis / Financial Reform Legislation / Martin Column - 02/01/2012

Busting Wall Street, by the numbers

How many FBI agents does it take to bust one Wall Street crook?

This isn’t the beginning of a joke. It’s one way to measure how serious the Obama’s administration latest highly touted financial fraud task force is about tackling its beat.

The task force is staffed with 10 FBI agents, according to U.S. Attorney General Eric Holder.

You can get some idea of whether that’s an adequate number by comparing it to the law enforcement effort in the wake of the Savings and Loan crisis in the 1980s, a major but vastly smaller financial collapse.

It only cost the taxpayers a mere $150 billion in bailout money, compared to the 2008 banking collapse, which cost us trillions.

Bill Black, a former S&L regulator turned white-collar criminal law expert and law professor at University of Missouri at Kansas City, has been one of the sharpest critics of the administration’s sharpest critics.

Black makes the point that regulators investigating S&L fraud two decades ago made thousands of criminal referrals, and the FBI assigned 1,000 agents to follow up on those referrals. Black says the referrals led to more than 1,000 felony convictions, including the executives of the S&Ls.

Black is just one of many who have noticed that President Obama’s heart has not really been into the task of putting top bank executives in jail.

As recently as December 11, the president told 60 Minutes in an interview: “I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn't illegal.”

Black points out that this at best a non-answer; at worst it’s double-talk. The president says that “some of the most damaging behavior on Wall Street, in some cases some of the least ethical behavior on Wall Street, wasn’t illegal.”

So the reasonable follow-up question would be: where are the prosecutions, over the past 3 years, of the rest of the behavior, the part that was illegal?

The other aspect of Obama’s answer that I find worrisome is the president’s perspective – he acknowledges that he’s making a judgment based on a view from 40,000 feet.

That’s a distance of 7.5 miles. The president isn’t predicting the weather here; he’s talking about whether crimes were committed in the process of the worst financial disaster in almost a century.

Good prosecutors and FBI agents don’t investigate from 7.5 miles away. They get in a suspect’s face, and into their history, find out who their friends and associates are. They dig into their family lives if they need to.

That’s how they operate when their hearts are in it if they want to make the case.

But even when their hearts are in it, good law enforcement people can’t do their jobs without resources.

And that’s a decision the president can make. He doesn’t have to ask Congress.

Call the president today and let him know that we won’t be fooled by faux enforcement efforts, and the we know the difference between what 10 FBI agents can do and what 1,000 can do – even from seven miles away.

Financial Crisis / Martin Column / President Barack Obama - 01/29/2012

Rise of the Machines

In the Terminator movies, a massive computer network created by the U.S. military known as Skynet suddenly becomes sentient and launches a catastrophic attack on humankind that reduces the planet to rubble. Most of the action in the films takes place before that holocaust, as desperate humans travel back in time hoping to prevent Skynet from being invented in the first place. Technology in that bleak future was no gleaming iPad. It was a mortal enemy.

Unfortunately, there's no unwinding the myriad events of the 1980s and 90s that led to the Wall Street financial implosion in 2008. What's left now is the economic rubble left by the collapse of a massive speculation machine built by Wall Street firms with the connivance of elected officials and regulators.

The high priests and priestesses of the Money Industry were those who could program the computers to predict the market and trade at light speed. Algorithms were the bible code of Wall Street. Billions were made by these middlemen as finance went viral, growing to a third of the U.S. economy, drawing the best and the brightest into the processing of paper and the manipulation of stocks, commodities, insurance contracts, and later packages of bundles of financial assets including mortgages, and then insurance contracts on those derivatives, as they are known.

Finally even the high priests and priestesses – never mind the regulators – no longer understood that the machinery was not doing, nor what any of the newly invented virtual assets were worth. Trading moved from the noisy floors of exchanges where traders frenetically bought and sold to super-fast processors operating silently on proprietary networks.

In retrospect, May 10, 2010 may come to be remembered as the day we had inkling that the machines were taking over. Suddenly stocks started falling in value and no one could figure out why. Within a matter of minutes on that afternoon, the Dow dropped 700 points. Then it miraculously recovered. No one really knows for sure, but most observers suspect that the so called "flash crash" was the result of high speed computers programmed to automatically react to unspecified market indicators. Today's New York Times reports that the regulators are fearful of more computer-driven crashes - and so are investors.

Another date to remember is June 1, 2009. That day, Air France flight 447, a highly computerized fly by wire Airbus A330 airplane, fell 35,000 feet into the Atlantic Ocean off South America. All 228 on board died.

The cause remained a mystery until the black box flight recorder was recovered from the deeps earlier this year. Investigators determined that the pilots did exactly the opposite of what they were trained to do, and based on faulty information from the airplane's computer system literally flew the plane into the water.

Science fiction has become fact: we are gradually, almost invisibly, forfeiting our judgment and our human attributes to technologies we do not fully understand and as yet do not fully control. This surrender pervades the culture: Corporations are persons for purposes of permitting them to exercise and ultimately swamp our First Amendment rights, the US Supreme Court has decreed. Restoring the primacy of human beings in the political process is imperative.

Like the Constitution, technology should serve us, not the other way around. An astounding outpouring of grief and affection for Steve Jobs this week has been followed by well-deserved odes to his creativity and acumen. Jobs democratized computers, putting them in the hands of the masses. The operative distinction is that apple products gave consumers more control over their assets – music, video, photos. Every one of Jobs' creations came with an on-off switch. One wonders what the man had to say about technology run amok, used to gild the lives of a few at the expense of many more.

Citizens United / Financial Crisis / Harvey Column - 10/10/2011

The American Flag Deficit Reduction Program

The US deficit is estimated at $1.5 trillion. In Washington, the debate is between raising taxes or cutting spending. Neither is necessary, if we take advantage of America’s greatest asset, the Star Spangled Banner.

In dire straits after the Wall Street debacle, many governments across the United States and throughout the world are being pressed to sell public assets – buildings, utilities, trains, even highways. Just last year, Governor Action Hero tried to sell off California courthouses and other historical landmarks to a private consortium for $2.33 billion. Naming rights on sports stadiums and convention centers have always been a revenue strategy for municipalities and closely associated private firms like Anschutz Entertainment Group, which wants to build a football stadium in downtown Los Angeles. In addition to seeking tax breaks from the city, the firm has already sold the stadium's naming rights to Farmers Insurance for $700 million.

Why not rent some or all of Old Glory on a daily basis to pay off the debt we have racked up to bail out Wall Street?

Here’s the math.

There are fifty stars on the flag (each one added when a state entered the Union). So if those stars were to be made “available” on a daily basis, there would be at least 18,250 “opportunities” every year (50 x 365).

Divide the deficit by 18,250, and we could eliminate the federal debt in one year if each star were offered up at the price of $82 million ($82,191,780.08, to be exact).

Sure, that’s hefty price, you might say. Who would pay it?

Answer: the folks who got America into this mess in the first place.

So let’s say J.P. Morgan Chase wanted the highly prestigious opportunity to occupy the entire flag for one day each year. Here’s what that might look like:

As a special inducement to pay $4 billion, companies that agreed to take the entire flag for a day could also be given the right to put some text on one of the stripes. It could be the company's most important message:

Or anything its CEO might desire:

Some may object that it is inappropriate to put the American Flag in the hands of big corporations. First of all, like the United States Supreme Court said in its Citizens United decision applying freedom of expression to corporations, all Americans will have equal freedom to buy access to the flag for $82 million per star. Corporations are Americans, too. Second, these companies own the United States anyhow, so what’s the biggie?

What about foreign countries? Should we rent the Stars and Stripes to our trading partners, the Chinese? If so, should we require them to write in English, or should we allow them to use Chinese characters?

That’s a tough question, and like all decisions concerning the American Flag Deficit Reduction Program, should be decided by the United States Congress.

Which, by the way, has a spectacular building in a prime location that would be highly attractive to certain firms. Consider this on the East Face of the Capitol Building:

"Congress. Brought to you today by Goldman Sachs."

Just think about it.

Financial Crisis / Harvey Column / Privatization - 07/07/2011

Mortgage Frauds, Official Shenanigans

Just how did the biggest bank fraud in the nation’s history go on with the full knowledge of authorities for 7 years?

Apparently, without much trouble.

Earlier this week, a judge sentenced Brian Farkas to 30 years in prison. He was the head of one of the country’s largest non-depository mortgage companies, convicted of a multibillion-dollar fraud that has been labeled the largest in the country’s history. The case was brought to prosecutors by the bailout’s former special inspector general – after a bank associated with the mortgage company tried to rip off the Troubled Asset Relief Program for $550 million.

Prosecutors said they sought the tough sentence as a deterrent, though bankers might not get the message.

Writing in the New York Times, white-collar criminal law expert Peter Henning said more respectable executives at bigger companies “perceive themselves as different from – and often better than – those who have been caught and punished, even if they are not.”

But one of the most outrageous aspects of the case has nothing to do with Farkas’ behavior: It has to do with how a government-sponsored agency, Fannie Mae, found evidence of his wrongdoing in 2000 and didn’t report it. According to court testimony as reported by Bloomberg News and the New York Times, when Fannie Mae found out that the bank was selling loans that had no value, the agency merely cut its ties with the bank.

Another government-sponsored agency picked up the business a week later, Bloomberg reported.

William Black, a former bank regulator who has been a sharp critic of the current administration’s lack of aggressiveness in investigating fraud in the wake of the 2008 financial collapse, told Bloomberg: “If there had been a criminal referral, Farkas would have gone to jail in 2002.”

Farkas’ firm, Taylor Bean remained in business for another 7 years before it collapsed in August 2009.

The confidential agreement to disentangle Freddie Mac from Taylor Bean was overseen by Freddie Mac’s general counsel, Thomas Donilon, who now serves as national security adviser to President Obama.

It’s not the first time Donilon’s actions have been called into question: while he was a lawyer in private practice, he led lobbying efforts to undermine the credibility of an investigation into Fannie Mae’s shaky finances in 2004.

It’s worth cheering that prosecutors finally successfully prosecuted a major case stemming from mortgage crowd. But it’s also worth noting that the perp does not come from the ranks of the nation’s too big to fail banks.

It’s also worth noting that Donilon’s conduct in the financial collapse didn’t get him cast out as a pariah, it won him one of the most important jobs in this administration.

Around the Web / Financial Crisis / Martin Column / President Barack Obama - 07/01/2011