The Plague of Wall Street Banking


Recent economic news highlights what happens when governments are unable to confront the root cause of the financial collapse—the risky speculation and securities fraud of the big banks. What happens? They blame the people, cut their benefits, tax their savings, and demand they work harder for less money.

In the United States there have been no criminal prosecutions for securities fraud by the big banks. The Justice Department has made it clear that the big banks are too big to jail because doing so jeopardizes the stability of the banking system. Financial fraud investigator Bill Black pointed out that the SEC cannot institute fines that are too big for the same reason. “The art is to make the number sound large to fool the people, but to insure that the fine poses only a modest inconvenience to the most reputable fraudulent banks.” So the SEC trumpets “more than 150 firms and individuals, with sanctions totaling $2.7 billion.” Black points out that this number sounds big, but it isn’t compared to the losses caused by the fraud epidemic in the U.S., which are well in excess of $15 trillion. A trillion is a thousand billion. Do we know that our government is in cahoots with big finance?

In fact, the big banks have been engaged in all sorts of nefarious activity for a long time and are rife with fraud. And the biggest of the too big to prosecute, JP Morgan, has had its financial fraud and disrespect for government on display when the Senate Banking Committee issued a massive 300-page indictment (errr report) documenting the $6.2 billion “London Whale” scandal. The report traces the scandal right to the top—CEO Jamie Dimon—and shows how the bank lied to bank examiners and investors. Experts state the obvious from this evident fraud. Investigations and fines, and possibly a large monetary settlement, are possible but a prosecution by DOJ remains unlikely as everyone knows the game in Washington is one of no criminal prosecutions.

Although, another too big to jail bank, Goldman Sachs, did have a loss in court when the U.S. Supreme Court refused to overturn a Court of Appeals decision requiring the bank to defend a civil suit by investors claiming securities fraud. There are lots of hurdles ahead, but this provides a glimmer of hope.

Recently, our too big to prosecute philosophy of the Justice Department was shown to apply to foreign banks as well. The second largest bank in Germany got a pass when it offered a job to an IRS agent who cut its tax burden.

Again, we were told that Commerz-bank paid $210 million in tax liability, which sounds good, but it was only 62 percent of what it owed. The day after the agreement, the IRS officer was offered a job at Commerz-bank. The agent pled guilty to charges, but the bank and the officers involved were not prosecuted.

The horror story of the week for struggling workers and poor countries has to be Cyprus. The country was being built up as a big banking area, but when it all went sour, they went to the EU for a bailout. The EU hemmed and hawed and finally agreed, but with a very big requirement that takes structural adjustment to a new level of abuse.

They required “a one-off 10 percent tax on savings over €100,000 and a 6.75 percent tax on small depositors. Senior bank bondholders and investors in Cyprus’s sovereign debt will be left untouched.” This caused a run on the banks in Cyprus, but is also raising red flags in many other struggling Euro countries.

Leaders of the EU, IMF, and Germany are all staying with their demand for more austerity and greater productivity (i.e. lower wages for greater output). At the same time, they are urging bailout of the banking system which remains weak. This same leadership recognizes their approach may lead to a “social explosion,” and Standard & Poors is also warning that the situation is explosive. The reality is that southern Europe is essentially in a depression and Germany, EU, and the IMF are demanding that they squeeze more money out of impoverished people.

In Washington, DC, the two Wall Street parties keep talking about cuts to the budget—austerity measures that will hurt the old, the poor, the young and working class. While they push austerity, they remain silent as big business interests go into their sixth year of big tax avoidance. Paul Buchheit summarizes: “For over 20 years, from 1987 to 2008, corporations paid an average of 22.5 percent in federal taxes. Since the recession, this has dropped to 10 percent—even though their profits have doubled in less than ten years.” He highlights the worst of the worst—on top was Obama’s jobs czar, General Electric.

There is some sanity, but not much, among the U.S. financial elite. Dallas Fed Chair Richard Fisher told the Conservative Political Action Conference that it was time to break up the big banks and end the crony capitalism that protects them. Liberal Democrat Sherrod Brown introduced a bill to do just that. Of course, it is opposed by the Administration so it will probably not go anywhere.

Instead, President Obama is pushing the anti-democratic Trans Pacific Partnership, which is a gift to the big banks and other transnational corporate interests. For the big banks it will require countries to let capital flow in and out without restriction, not allow the banning or regulation of risky investments like derivatives and credit- default swaps, and will prevent the formation of much-needed public banks. Our Wall Street government continues to serve Wall Street first at the expense of people’s necessities. All of this shows it is time to remake the banking system:
 

  • hold security fraud violators criminally accountable
  • break up the too big to jail banks, support community banks and credit unions
  • create public banks—at least at the state and local level
  • make the Fed transparent and accountable to democracy.
     

Failure to confront and remove the plague of Wall Street-centered banking will continue to infect the entire economy. On Tuesday, March 19, the Parliament in Cyprus rejected the tax on bank accounts after mass protests by the people. This leaves Cyprus in a mess with no bailout and no money to contribute to a bailout.

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This article is based on a newsletter for ItsOurEconomy.us. Kevin Zeese and Margaret Flowers co-direct It’s Our Economy and are organizers of Occupation Washington, DC. Their twitters are @KB Zeese and @MFlowers8.