ALBERICI: “How certain are you that UniCredit broke the law while you were there?”
JONATHAN SUGARMAN: “A hundred per cent certain and to use the Irish expression, ‘to be sure, to be sure’ that is why I brought in this London based IT company which had a very good reputation in Dublin and the result was pretty horrific because whereas the breach that I’d reported to the regulator was a breach of twenty per cent, whereas the permissible deviation was one per cent, they rang me up one evening soon after they tied into our systems, linked into our systems and said your breach is actually forty per cent”.
ALBERICI: When he raised the alarm with his chief executive, the response was dismissive. It was a systems error. The risk manager was instructed to continue approving the deals. Jonathan Sugarman was in the thick of a reckless banking culture that was on a collision course with disaster.
Everyone says that what is happening now in Italy with their banks, and with Irish Unicredit, was some sort of accident, just as the claim has been made that this was true in America. But we have plenty of information that either is an admission or strongly suggests that there was nothing accidental about any of these events — that they were nothing more than a willingness by executives to overlook or even intentionally bury bad conduct simply to rob the taxpayer by taking risks they knew they could manage to foist off on everyone when — not if — their institutions blew up.
JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS), among the world’s biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally.
As concerns mount that those countries may not be creditworthy, investors are being kept in the dark about how much risk U.S. banks face from a default. Firms including Goldman Sachs and JPMorgan don’t provide a full picture of potential losses and gains in such a scenario, giving only net numbers or excluding some derivatives altogether.
Got that? JP Morgan has a market cap of $124 billion while Goldman has a market cap of about $50 billion Both have less than a trillion of balance sheet size. Between them they have more than twice their balance sheet in credit exposure and well more than 20 times their market cap in written credit protection.
This is ridiculously dangerous and the obvious question is “how in the hell can you possibly do that?”
The answer is that we learned nothing and have refused to end “too big to fail”: As a consequence these institutions are still playing “heads we win and keep the money, tails the taxpayer loses.”
And lose we have. We’ve lost jobs, we’ve got the government presenting roughly 10% of the economy in borrowed money and thus creating false demand that does not actually exist in the economy and our Congress continues to chug along trying to argue over whether they will increase spending by $200 or $500 billion a year. There has been zero reckoning against the facts presented here:
This cannot work over the intermediate or longer term and yet this is what we’re continuing to try to do!
The entire world is caught up in a gigantic Ponzimania but the world’s demand for pretty colored candy-emitting unicorns will not make them appear as unicorns are mythical creatures.
Nobody — simply nobody — is dealing with this in an honest fashion. Neither side of the aisle will put a stop to it, despite it being factually certain that it will blow up in our faces. As nations in Europe teeter on the brink of disaster we find that once again our financial institutions have levered up and hidden their exposure — it is just a matter of time before we start hearing “nobody could have seen it coming” again.
We must stop this and start applying handcuffs to these people, not coddling them.
Then there’s Congress and the blatant insider trading that they engage in. While it has been argued that this is technically legal there’s a new law review paper out that argues the opposite — that this practice is a black-letter criminal and civil violation of the law. The argument is quite persuasive too — but who’s going to appoint the special prosecutor and start cuffing Congressmen and women (like, for example, Pelosi?)
Oh please. That will happen only when “Occupy Wall Street”, The Tea Party or both together decide they’re going to “occupy” Washington DC and refuse to leave until the indictments issue.
For those on the right who say that “OWS” is wrong and a bunch of freeloaders while they’re the “rule of law” group: That above paper contains all you need to demand that every member of Congress involved in this practice go straight to prison and that an immediate felony investigation take place right now — and to find a lawful and peaceful means to force the investigation to take place.
Folks, it’s really quite simple: We’re to the point where either we, as a nation, stand up and insist that the raw corruption stop or we will not have an economic recovery, we will not have jobs, and we will not resolve the fact that we have a handful of financial institutions that four years on are still holding our nation (and the rest of the world) and every individual living on the planet hostage.
I see no evidence of a willingness to deal with the facts in DC, in Brussels or anywhere else. At its most-basic level the underlying financial fact is this: You cannot spend more than you take in over the intermediate and longer term. The mathematical fact of exponential growth makes attempting to do so impossible.
It is this attempt and the utter refusal to face that fact that has underlay all of the mess that we find ourselves in – both here in the United States and internationally.
There is only one question remaining: Will we cut it out before or after our entire economy collapses?