Taibbi: Eric Holder, Wall Street's Double Agent

"Holder doubtless seriously believed at first that in a time of financial crisis, he was doing the right thing in constructing new forms of justice for banks, where nobody but the shareholders actually had to pay for crime. You've heard of victimless crimes; Holder created the victimless punishment.

But in the end, it was pretty convenient, wasn't it, that "the right thing" also happened to be the strategy that preserved Democratic Party relationships with big-dollar donors, kept the client base at Holder's old firm nice and fat, made the influential rich immeasurably richer and allowed Eric Holder himself to crash-land into a giant pile of money upon resignation.

What a coincidence! In any civilized country, it'd be a scandal. In America, though, he's just another guy selling whatever he can to get by. It was just too bad that what Holder had to sell was the criminal justice system."

Matt Taibbi, Eric Holder, Wall Street Double Agent, Comes In From the Cold

 

Holder was no rogue political appointee.  He was very much in the mainstream of the Wall Street wing of the Democratic Party, founded by the Clintons.  Obama did nothing to reform it and added Big Healthcare and Big Pharma into the corporatist money mix.

 

And so these reformers, throwing their constituency under the bus, have become the facilitators of the deep capture of our regulatory and political system in a bipartisan effort to get rich.

 

This is not to say that these are malevolently evil people by nature.  Although a few are. Most are just people, being carried along by an unsustainable tide of cynicism and personal greed that has imprinted itself on the minds of our privileged elites.  

 

They choose to commit criminal acts through a wonderful power of rationalization, in a downward spiral of moral decline.   One day they wake up and see the monstrous things they may have done, not in one grand moment in the dramatic rejection of the good, but in a thousand small choices and personal exceptions of self-indulgence. 

 

The worldview of the self-appointed elite is that now that I have gone to the right schools, said the right words, protected the right people, taken the right jobs and done the right things, now I get to cash in and get in filthy rich on easy money and the looting of the real economy.  I am finally gettin' paid.  This perverse mindset, which used to be a denizen of rural enclaves and big city bosses is becoming pervasive in Washington and New York.

 

It has all the hallmarks of the kind of dual class system that is specifically prohibited by the framers of the Bill of Rights.  But who will watch the watchers when 'everyone is doing it.'

 

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

 

Wall Street As a Negative Economic Force: Looting Will Continue Until Exhaustion or Collapse

“My hunch is that no one talks about the birth and death rates of American business because Wall Street and the White House, no matter which party occupies the latter, are two gigantic institutions of persuasion. The White House needs to keep you in the game because their political party needs your vote. Wall Street needs the stock market to boom, even if that boom is fueled by illusion.”

Jim Clifton, Chairman and CEO of Gallup, American Entrepreneurship, Dead or Alive?

As Pam and Russ Martens note in their recent article below, "Wall Street’s overarching function today is that of an institutionalized wealth transfer mechanism, propped up by compromised regulators and a dysfunctional Congress."

This is a terrific article, right on point, getting the bigger picture that almost all economic writers are missing, or failing to state in a clear and direct manner without mincing words.    The moneyed interests are not beneficent wealth creators doing God's work and creating jobs and value.  These are more like white collar criminals who are able to bend the law to their will, acting like parasites on the real economy.

THEY are 'too big to fail,' and you are 'too little to matter,' except as a convenient source of their income.

The financial sector is a utility function in a healthy, sustainable, and productive economy.   But in our misdirected mania to establish and maintain the global dollar supremacy in our pride and power, we have turned a utility function into a top priority and the central focus of the economy, to our own ultimate misfortune. 

Our society is out of balance and distorted as a result.  Corporations take precedence over people, and money directs the course of public policy and foreign entanglements, to its own ends.  And the people are left to suffer.

And you need to read it here.  A short excerpt is below.

The decline and stagnation of America coincides with the rise of an outsized and increasingly corrupt financial sector, that is misdirecting resources and gaming the savings and efforts of the great mass of the people, reallocating money to it own wasteful purposes.

As such, the Fed is not only being wasteful with their QE programs, they are actually being counterproductive by propping up a corrupt and harmful financial system that is a major impediment to economic recovery and progress.   This is the lesson of the lost decades of Japan, and we are not only repeating them here, but are strongly influencing and urging their adoption in Europe.

 

And shame on the liberal economists, who will promote stimulus of any sort in their ideological fervor, and cheerlead the results along with the White House, without being mindful that stimulus in itself is not a good thing, if it stimulates the wrong things.   QE is not an effective means of stimulus for the real economy, but it is a windfall and a sinecure for the financial sector and the one percent.

 

People and the real economy need jobs and higher real wages, but not increasingly powerful Banks for which they are prey.  Aggregate demand will stimulate jobs and wages, but not government handouts to the wealthy, who will chase hot money scams and monopolies before sharing their wealth with employees and productive investments.

The privileged and fortunate have an age old model of feudalism in mind:  lords and serfs.  And if the financial elite have their way, the looting, surveillance, and repression will continue, until exhaustion or collapse. 

 

Their greed knows no bounds, and is never satisfied.   Power and pride have their own imperatives: better to be a lord in a kind of hell, than just another servant, even in heaven.

 

History has shown, again and again, how pernicious the corruption can become once the abuse of power takes root in a system.  And how hard it finally falls.

People cannot work harder and save faster than the financiers and their politicians can steal their capital, misdirecting it into scams, frivolous 'innovations,'  unjust taxes and subsidies, and ultimately into their own financial machine where it enables even more scams, corruption, and malinvestments.

And reform cannot happen in a system where the moneyed interests vet the presidential candidates in advance, for whom they will allow you the privilege of voting, whipped up into an enthusiasm by the emotional directed messages of their corporate media.  Vote for Red!  No, you fool, vote for Blue!

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

Evidence Grows Showing Wall Street as a Negative Economic Force

By Pam Martens and Russ Martens

January 27, 2015

Wall Street’s overarching function today is that of an institutionalized wealth transfer mechanism, propped up by compromised regulators and a dysfunctional Congress. As the PBS program Frontline reported in 2013, if your work career spans 50 years and you receive the historic return of 7 percent on stocks in your 401(k) plan, the 2 percent typical fee charged by Wall Street mutual funds will gobble up almost two-thirds of your account.

The Frontline program was called The Retirement Gamble. Wall Street On Parade checked the math and found this was not a gamble but a certainty: 'under a 2 percent 401(k) fee structure, almost two-thirds of your working life will go toward paying obscene compensation to Wall Street; a little over one-third will benefit your family – and that’s before paying taxes on withdrawals to Uncle Sam.'"

This is a very short excerpt from a larger and more data packed article you may read for free here.

Related: Wall Street's Threat to the Middle Class - Reich

Matt Taibbi On the Passage of the Spending Bill With Wall St Giveaway By the Senate

A brief word from Matt Taibbi on the passage of the 2015 Spending Bill by the Senate.

Basically, the American People were pushed aside by the Congress to favour JPM and Citigroup who lobbied heavily for public coverage for their gambling on derivatives.

We might expect this from the Republicans, although it is difficult to understand how they can rationalize supporting corporate welfare when they are so tough on entitlements for the poor.  And as for the Democrats...

"If the Democrats actually stood for anything other than sounding as progressive as possible without offending their financial backers, then they would do what Republicans always do in these situations: force a shutdown to save their legislation. How many times did Republicans hold the budget hostage to rescue the Bush tax cuts?

But the Democrats won't do that here, because they're not a real party. They're a marketing phenomenon, a big chunk of oligarchical Blob cleverly sold to voters as the more reasonable and less nakedly corrupt wing of a two-headed political establishment.

So they'll punt on this issue in the name of "maturity" or "bipartisanship," Wall Street will get a nice win, and Hillary Clinton or whoever else is being set up as the Blob candidate on the Democratic side will receive an avalanche of Financial Services donations to stave off Warren (who will begin appearing in the press as an unhinged combination of Lev Trotsky and Spartacus). A neat little piece of business all around. I don't know whether to applaud or throw up."

Read the entire Taibbi article in Rolling Stone here.

Simon Johnson: The Wall Street Takeover and the Next Financial Meltdown

Is the crisis over? No

Have we fixed the underlying problems? No

This video is from 2011. The answers remain the same.

TBTF is a government subsidy, a cartel, and a distorting factor on markets.

This is not about economics or the analytics anymore. This is about politics, this is about power, this is about the money.

Simon Johnson is one of the few economists that are making any real sense of what happened, and what therefore is likely to happen next.   I find his thoughts quite persuasive, at least on this particular topic of the roots of the crisis and the nature of the likely solutions with regard to bank regulation.

Four Largest Banks Are Now Almost As Big As US GDP: Accounting Hides Risks - Taleb on Fragility

This is what happens when one allows the Banks to write their own reform rules in the aftermath of a financial crisis that was spiced with ideology, campaign contributions, and fraud.

JP Morgan, Wells Fargo, Citigroup, and Bank of America, and massively interlocked derivatives positions that are 'netted out' for accounting purposes, but which collapse in chain reaction effect when they encounter counter-party failure, frame this unhappy picture. That is the heart of 'too big to fail.'

And this does not include foreign based banks doing substantial business in the States, that also had to be supported by the Fed during the financial crisis. Or related firms like brokerages, faux banks like Goldman, and camp followers such as AIG and other non-bank financial sector corporations.

To Big To Fail still represents a serious risk to the financial system, and the failure to reform is clear policy error that is owned by the Fed, the Congress, and the Administration.

There will be no sustainable recovery until the Banks are restrained, the financial system is reformed, and balance is restored to the economy.

Bloomberg
U.S. Banks Bigger Than GDP as Accounting Rift Masks Risk
By Yalman Onaran
Feb 19, 2013 7:01 PM ET

Warning: Banks in the U.S. are bigger than they appear.

That label, like a similar one on automobile side-view mirrors, might be required of the four largest U.S. lenders if Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., has his way. Applying stricter accounting standards for derivatives and off-balance-sheet assets would make the banks twice as big as they say they are -- or about the size of the U.S. economy -- according to data compiled by Bloomberg.

“Derivatives, like loans, carry risk,” Hoenig said in an interview. “To recognize those bets on the balance sheet would give a better picture of the risk exposures that are there.”

U.S. accounting rules allow banks to record a smaller portion of their derivatives than European peers and keep most mortgage-linked bonds off their books. That can underestimate the risks firms face and affect how much capital they need.

Using international standards for derivatives and consolidating mortgage securitizations, JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. would double in assets, while Citigroup Inc. would jump 60 percent, third- quarter data show. JPMorgan would swell to $4.5 trillion from $2.3 trillion, leapfrogging London-based HSBC Holdings Plc and Deutsche Bank AG, each with about $2.7 trillion.

JPMorgan, Bank of America and Citigroup would become the world’s three largest banks and Wells Fargo the sixth-biggest. Their combined assets of $14.7 trillion would equal 93 percent of U.S. gross domestic product last year, the data show. Total assets of the country’s banking system would be 170 percent of economic output, still lower than 326 percent for Germany.

U.S. accounting rules for netting derivatives allow banks to erase about $4 trillion in assets, the data show. The lenders also can remove from their books most mortgages they package into securities, trimming an additional $3 trillion.

Off-balance-sheet assets and derivatives were at the root of the 2008 financial crisis. Mortgage securitizations kept off the books came back to haunt banks forced to repurchase home loans sold to special investment vehicles. The government had to rescue American International Group Inc. with a bailout that ballooned to $182 billion after the insurer couldn’t pay banks on derivatives tied to those bonds....

Read the rest here.