Archive for the ‘JP Morgan’ Category
JP Morgan is the largest processor of food stamp benefits in the United States. JP Morgan has contracted to provide food stamp debit cards in 26 U.S. states and the District of Columbia. JP Morgan is paid for each case that it handles, so that means that the more Americans that go on food stamps, the more profits JP Morgan makes. Yes, you read that correctly. When the number of Americans on food stamps goes up, JP Morgan makes more money. In the video posted below, JP Morgan executive Christopher Paton admits that this is “a very important business to JP Morgan” and that it is doing very well. Considering the fact that the number of Americans on food stamps has exploded from 26 million in 2007 to 43 million today, one can only imagine how much JP Morgan’s profits in this area have soared. But doesn’t this give JP Morgan an incentive to keep the number of Americans enrolled in the food stamp program as high as possible?
There are just some things that are a little too “creepy” to be “outsourced” to private corporations. The JP Morgan executive in the interview below does his best to put a positive spin on all this, but it just seems really unsavory for a big Wall Street bank to be making so much money off of the suffering of tens of millions of Americans….
So if unemployment goes down will this ruin JP Morgan’s food stamp business?
Well, apparently not. In the interview Paton says that 40% of food stamp recipients are currently working, and he seems convinced that there could be further “growth” in that segment.
So is this what America is turning into?
A place where tens of millions of the unemployed and the working poor crawl over to Wal-Mart and the dollar store every month to use the food stamp debit cards provided to them by JP Morgan?
It turns out that JP Morgan also provides child support debit cards in 15 U.S. states and they also provide unemployment insurance benefit debit cards in seven states.
Apparently states have found that they can save millions of dollars by “outsourcing” the provision of these benefits to big financial firms like JP Morgan.
So what happens if you have a problem with your food stamp debit card?
Well, you call up a JP Morgan service center. When you do this, there is a very good chance that you are going to be helped by a JP Morgan call center employee in India.
That’s right – it turns out that JP Morgan is saving money by “outsourcing” food stamp customer service calls to India.
When ABC News asked JP Morgan about this, the company would not tell ABC News which states have customer service calls sent to India and which states have them handled inside the United States….
JP Morgan is the only one today still operating public-assistance call centers overseas. The company refused to say which states had calls routed to India and which ones had calls stay domestically. That decision, the company said, was often left up to the individual states.
JP Morgan has been moving some of these call center jobs back inside the United States due to political pressure, but this whole situation is a really good example of what the “global economy” is doing to middle class Americans.
Just try to imagine the irony – a formerly middle class American that has lost a job to outsourcing calls up to get help with food stamp benefits only to be answered by a call center employee in India.
Welcome to the global economy, eh?
But wait, there is more.
It has just been announced that JP Morgan has admitted that they wrongly foreclosed on over a dozen military families and that they have been overcharging “thousands” of other military families on their mortgages.
It is a really bad public relations move to mess with military families.
Is anyone over at JP Morgan even paying attention?
JP Morgan has also been one of the primary financial institutions involved in the foreclosure “robo-signing” scandal.
They just seem to be having all kinds of problems lately. But they are not alone.
The truth is that we have gotten to the point where big Wall Street banks such as JP Morgan, Goldman Sachs, Citibank and Morgan Stanley just have way, way too much power.
The biggest Wall Street financial institutions had no trouble begging for bailouts from the U.S. government during the financial crisis, but when the American people have needed a little grace and mercy from them they have been less than helpful.
So what do you think about how the big Wall Street banks have been behaving? Join the conversation here: DISCUSSION (registration required to post)
Will Americans exercise our power, or become serfs to a permanent banking royalty?
An economist says the healthcare bill “is just another bailout of the financial system”, and lawyers say that it is unconstitutional.
Will we defeat this giveaway to the insurance giants, or become permanent slaves to mandatory insurance requirements?
Top scientists, economists and environmentalists all say
that cap and trade is a scam which won’t significantly reduce C02
emissions, and will only help in making the financial players who
crashed the economy even more wealthy.
Will we defeat this
worthless scam, or allow the failed banks like Goldman Sachs, JP Morgan
and Citigroup – who have already taken many billions of taxpayer
dollars – to make a fortune off of this con game at our expense?
Americans reclaim our nation in 2010 from the thugs and con artists, or
put our heads down and stay subservient while the little we have left
in the way of money, resources and dignity is stolen by the giant
banks, insurance companies and carbon trading players?
Study Finds That Of All Factors Determining The 'Bailoutability' Of Crappy Banks, Ties To The Federal Reserve Are Most Critical
Adam Smith, Charles Darwin and George Washington are not only rolling in their graves, they are dancing the macarena. A new study by the UMich School of Business has found what everyone has known since the crisis began, if not centuries prior: that the biggest, crappiest banks were guaranteed to get more bailout funding the more political ties they had (and more kickbacks they had offered). Is this sufficient to claim that capitalism in its purest sense has been corrupted beyond repair, courtesy of political intervention and constant pandering? Probably not, but it sure makes a damn good argument. In any case, the data is sufficient for all bears to start keeping a track of which banks are increasing their lobbying efforts and funding: those are the ones where the greatest weakness is likely still to be uncovered (if it hasn’t already). And while the political relationship probably is not a big surprise to any realistic readers, another finding of the study makes a solid case for abolition of the “apolitical” Federal Reserve:
A new study by Ross professors Ran Duchin and Denis Sosyura found that
banks with connections to members of congressional finance committees
and banks whose executives served on Federal Reserve boards were more
likely to receive funds from the Troubled Asset Relief Program, the
federal government’s program to purchase assets and equity from
financial institutions to strengthen its financial sector.
The unsupervised Federal Reserve gets to make or break banks, presumably under the gun of its one and only master, Goldman Sachs, which has already destroyed its major historical competitors: Bear Stearns and Lehman Brothers. This is a sufficient condition to not only audit the central bank but to immediately seek its abolition, and also to commence anti-trust proceedings against Goldman Sachs which is not only a monopoly, but by extension has veto power over the very regulatory mechanism that is supposed to keep it “fair and honest.” The system is truly broken.
More findings from the study:
Further, their research shows that TARP investment amounts were
positively related to banks’ political contributions and lobbying
expenditures, and that, overall, the effect of political influence was
strongest for poorly performing banks.
Can someone reminds us what the core premise of capitalism is again, and why we pretend to live in anything other than a hard core socialist society?
One of the professors of the study had this to say:
“Our results show that political connections play an important role in
a firm’s access to capital. The effects of political ties on federal capital investment
are strongest for companies with weaker fundamentals, lower liquidity
and poorer performance — which suggests that political ties shift
capital allocation towards underperforming institutions.”
The US financial system now need a new four letter acronym: everyone knows TBTF. We hereby annoint the Too Blatantly Briby To Fail (TB2TF) category of financial institutions. We posit that in 5 years there will be two banks in the former group: JP Morgan and Goldman Sachs, while every single other bank will make up the latter.
Among the specific data findings:
The researchers used four variables to measure political influence: 1)
seats held by bank executives on the board of directors at any of the
12 Federal Reserve banks or their branches (the Federal Reserve is
involved in the initial review of CPP applications from the majority of
qualified banks); 2) banks with headquarters located in the district of
a U.S. House member serving on the Congressional Committee on Financial
Services or its subcommittees on Financial Institutions and Capital
Markets (which played a major role in the development of TARP and its
amendments); 3) banks’ campaign contributions to congressional
candidates; and 4) banks’ lobbying expenditures.
They found that a board seat at a Federal Reserve Bank was
associated with a 31 percent increase in the likelihood of receiving
CPP funds, while a bank’s connection to a House member on key finance
committees was associated with a 26 percent increase, controlling for
other bank characteristics such as size and various financial
The last data point is truly troubling: while it is one thing to pander to corrupt politicians, at least when their transgressions are made public they can and will be booted out. Yet what checks and balances exist to punish current and former Fed staffers who endorse near-bankrupt companies, in self-evident conflict of interest acts, for enhanced survival? As the Fed is accountable to nothing and nobody, save Goldman Sachs, one can argue that Goldman decides the fate of the very core of the US financial system: which firms get the thumbs up and down treatment. This is an unbelievalbe travesty of both the constitutional and the tenets of capitalism and must be rectified immediately. It certainly helps that the president, being a Constitutional law professor, will surely get right on it.
“Our findings also suggest that qualified financial institutions were
more likely to receive an investment from CPP if they were bigger and
had lower earnings and lower capital,” said Duchin, U-M assistant
professor of finance. “This is consistent with an investment strategy
seeking to support systematically important institutions experiencing
If this study’s finding are confirmed and repeated independently by other research teams, it is safe to say that any pretense America has to being an efficient capitalism system (where those who can no longer compete, disappear) can be used to wipe the nation’s collective backside. Between this, and a choice of US dollars and Treasuries, Cottonelle is starting to see some serious competition.
h/t Geoffrey Batt
Head of California's Cap and Trade Offsets Program: Cap and Trade Won't Work for Climate, It's a Scam
Paul Krugman argues that cap and trade worked to reduce sulfur dioxide and stop acid rain, and so it will work to reduce C02.
However, two EPA lawyers with more than 40 years of cumulative
experience – including the guy who has been head of California’s cap
and trade offset programs for more than 20 years – say that sulfur
dioxide was different, and that cap and trade for climate is a scam which only
benefits the financial players.
Specifically, they point out that:
- Cap and trade was tried in Europe, but ended up raising energy
prices, creating volatility, produced few greenhouse gas reductions,
but made billions for the financial players
- Even the guy who invented the cap and trade concept doesn’t think it will work in regards to climate change (see this and this)
- Carbon offsets – which are part of the cap and trade plan – increase pollution
- One reason that offsets lead to more pollution is that investors
fight to keep toxic chemicals legal, so they can make more money off of
trading the offsets
- Like subprime mortgages and other creative financial instruments
which brought us the economic crisis, carbon offsets lack integrity and
don’t work (see this)
Watch the video:
Woman Who Invented Credit Default Swaps is One of the Key Architects of Carbon Derivatives, Which Would Be at the Very CENTER of Cap and Trade
I have written hundreds of articles documenting that unregulated, speculative derivatives (especially credit default swaps) are a primary cause of the economic crisis.
And I have pointed out that (1) the giant banks will make a killing on carbon trading, (2) while the leading scientist
crusading against global warming says it won’t work, and (3) there is a
very high probability of massive fraud and insider trading in the
carbon trading markets.
Now, Bloomberg notes that the carbon trading scheme will be centered around derivatives:
banks are preparing to do with carbon what they’ve done before: design
and market derivatives contracts that will help client companies hedge
their price risk over the long term. They’re also ready to sell
carbon-related financial products to outside investors.
Masters says banks must be allowed to lead the way if a mandatory
carbon-trading system is going to help save the planet at the lowest
possible cost. And derivatives related to carbon must be part of the
mix, she says. Derivatives are securities whose value is derived from
the value of an underlying commodity — in this case, CO2 and other
Who is Blythe Masters?
She is the JP Morgan employee who invented credit
default swaps, and is now heading JPM’s carbon trading efforts. As
Bloomberg notes (this and all remaining quotes are from the
above-linked Bloomberg article):
Masters, 40, oversees the New York bank’s environmental businesses as the firm’s global head of commodities…
a young London banker in the early 1990s, Masters was part of
JPMorgan’s team developing ideas for transferring risk to third
parties. She went on to manage credit risk for JPMorgan’s investment
Among the credit derivatives that grew from the bank’s early efforts was the credit-default swap.
Some in congress are fighting against carbon derivatives:
are going to be cutting up carbon futures, and we’ll be in trouble,”
says Maria Cantwell, a Democratic senator from Washington state. “You
can’t stay ahead of the next tool they’re going to create.”
51, proposed in November that U.S. state governments be given the right
to ban unregulated financial products. “The derivatives market has done
so much damage to our economy and is nothing more than a
very-high-stakes casino — except that casinos have to abide by
regulations,” she wrote in a press release…
However, Congress may cave in to industry pressure to let carbon derivatives trade over-the-counter:
House cap-and-trade bill bans OTC derivatives, requiring that all
carbon trading be done on exchanges…The bankers say such a ban would
be a mistake…The banks and companies may get their way on carbon
derivatives in separate legislation now being worked out in Congress…
Financial experts are also opposed to cap and trade:
George Soros, the billionaire hedge fund operator, says money managers
would find ways to manipulate cap-and-trade markets. “The system can be
gamed,” Soros, 79, remarked at a London School of Economics seminar in
July. “That’s why financial types like me like it — because there are
Hedge fund manager Michael Masters,
founder of Masters Capital Management LLC, based in St. Croix, U.S.
Virgin Islands [and unrelated to Blythe Masters] says speculators will
end up controlling U.S. carbon prices, and their participation could
trigger the same type of boom-and-bust cycles that have buffeted other
The hedge fund manager says that banks will
attempt to inflate the carbon market by recruiting investors from hedge
funds and pension funds.
“Wall Street is going to
sell it as an investment product to people that have nothing to do with
carbon,” he says. “Then suddenly investment managers are dominating the
asset class, and nothing is related to actual supply and demand. We
have seen this movie before.”
Indeed, as I have previously pointed out, many environmentalists are opposed to cap and trade as well. For example:
Michelle Chan, a senior policy analyst in San Francisco for Friends of the Earth, isn’t convinced.
we really create a new $2 trillion market when we haven’t yet finished
the job of revamping and testing new financial regulation?” she asks.
Chan says that, given their recent history, the banks’ ability to turn
climate change into a new commodities market should be curbed…
we have just been woken up to in the credit crisis — to a jarring and
shocking degree — is what happens in the real world,” she says…
of the Earth’s Chan is working hard to prevent the banks from adding
carbon to their repertoire. She titled a March FOE report “Subprime
Carbon?” In testimony on Capitol Hill, she warned, “Wall Street won’t
just be brokering in plain carbon derivatives — they’ll get creative.”
they’ll get creative, and we have seen this movie before …an
inadequately-regulated carbon derivatives boom will destabilize the
economy and lead to another crash.
Why isn’t the government breaking up the giant, insolvent banks?
We Need Them To Help the Economy Recover?
Do we need the Too Big to Fails to help the economy recover?
following top economists and financial experts believe that the economy
cannot recover unless the big, insolvent banks are broken up in an
- Nobel prize-winning economist, Joseph Stiglitz
- Nobel prize-winning economist, Ed Prescott
and professor of finance and economics at Columbia Business School, and
chairman of the Council of Economic Advisers under President George W.
Bush, R. Glenn Hubbard
- Deputy Treasury Secretary, Neal S. Wolin
- The President of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members, Camden R. Fine
- The head of the FDIC, Sheila Bair
- The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
- Economics professor and senior regulator during the S & L crisis, William K. Black
- Economics professor, Nouriel Roubini
- Economist, Marc Faber
- Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales
- Economics professor, Thomas F. Cooley
- Former investment banker, Philip Augar
- Chairman of the Commons Treasury, John McFall
Others, like Nobel prize-winning economist Paul Krugman, think that the giant insolvent banks may need to be temporarily nationalized.
In addition, many top economists and financial experts, including Bank of Israel Governor Stanley Fischer – who was Ben Bernanke’s thesis adviser at MIT – say that – at the very least – the size of the financial giants should be limited.
report was particularly scathing in its assessment of governments’
attempts to clean up their banks. “The reluctance of officials to
quickly clean up the banks, many of which are now owned in large part
by governments, may well delay recovery,” it said, adding that
government interventions had ingrained the belief that some banks were
too big or too interconnected to fail.
This was dangerous because it reinforced the risks of moral hazard
which might lead to an even bigger financial crisis in future.
If We Break ‘Em Up, No One Will Lend?
Do we need to keep the TBTFs to make sure that loans are made?
Fortune pointed out
in February that smaller banks are stepping in to fill the lending void
left by the giant banks’ current hesitancy to make loans. Indeed, the
article points out that the only reason that smaller banks haven’t been
able to expand and thrive is that the too-big-to-fails have decreased
Growth for the nation’s smaller banks
represents a reversal of trends from the last twenty years, when the
biggest banks got much bigger and many of the smallest players were
gobbled up or driven under…
As big banks struggle to find a way forward and rising loan losses
threaten to punish poorly run banks of all sizes, smaller but well
capitalized institutions have a long-awaited chance to expand.
BusinessWeek noted in January:
As big banks struggle, community banks are stepping in to offer loans and lines of credit to small business owners…
At a congressional hearing on small business and the economic
recovery earlier this month, economist Paul Merski, of the Independent
Community Bankers of America, a Washington (D.C.) trade group, told
lawmakers that community banks make 20% of all small-business loans,
even though they represent only about 12% of all bank assets.
Furthermore, he said that about 50% of all small-business loans under
$100,000 are made by community banks…
Indeed, for the past two years, small-business lending among community
banks has grown at a faster rate than from larger institutions,
according to Aite Group, a Boston banking consultancy. “Community banks
are quickly taking on more market share not only from the top five
banks but from some of the regional banks,” says Christine Barry,
Aite’s research director. “They are focusing more attention on small
businesses than before. They are seeing revenue opportunities and
deploying the right solutions in place to serve these customers.”
And Fed Governor Daniel K. Tarullo said in June:
importance of traditional financial intermediation services, and hence
of the smaller banks that typically specialize in providing those
services, tends to increase during times of financial stress. Indeed,
the crisis has highlighted the important continuing role of community
For example, while the number of credit unions has declined by 42
percent since 1989, credit union deposits have more than quadrupled,
and credit unions have increased their share of national deposits from
4.7 percent to 8.5 percent. In addition, some credit unions have
shifted from the traditional membership based on a common interest to
membership that encompasses anyone who lives or works within one or
more local banking markets. In the last few years, some credit unions
have also moved beyond their traditional focus on consumer services to
provide services to small businesses, increasing the extent to which
they compete with community banks.
Indeed, some very smart people say that the big banks aren’t really focusing as much on the lending business as smaller banks.
since Glass-Steagall was repealed in 1999, the giant banks have made
much of their money in trading assets, securities, derivatives and
other speculative bets, the banks’ own paper and securities, and in
other money-making activities which have nothing to do with traditional
Now that the economy has crashed, the big banks are making very few loans to consumers or small businesses because they still
have trillions in bad derivatives gambling debts to pay off, and so
they are only loaning to the biggest players and those who don’t really
need credit in the first place. See this and this.
So we don’t really need these giant gamblers. We don’t really need JP Morgan, Citi, Bank of America, Goldman Sachs or Morgan Stanley. What we need are dedicated lenders.
The Fortune article discussed above points out that the banking giants are not necessarily more efficient than smaller banks:
largest banks often don’t show the greatest efficiency. This now seems
unsurprising given the deep problems that the biggest institutions have
faced over the past year.
“They actually experience diseconomies of scale,” Narter wrote of
the biggest banks. “There are so many large autonomous divisions of the
bank that the complexity of connecting them overwhelms the advantage of
And Governor Tarullo points out some of the benefits of small community banks over the giant banks:
community banks have thrived, in large part because their local
presence and personal interactions give them an advantage in meeting
the financial needs of many households, small businesses, and
agricultural firms. Their business model is based on an important
economic explanation of the role of financial intermediaries–to
develop and apply expertise that allows a lender to make better
judgments about the creditworthiness of potential borrowers than could
be made by a potential lender with less information about the
A small, but growing, body of research suggests that the financial
services provided by large banks are less-than-perfect substitutes for
those provided by community banks.
It is simply not true
that we need the mega-banks. In fact, as many top economists and
financial analysts have said, the “too big to fails” are actually
stifling competition from smaller lenders and credit unions, and
dragging the entire economy down into a black hole.
The Giant Banks Have Recovered, And Are No Longer Insolvent?
Have the TBTFs recovered, so that they are no longer insolvent?
The giant banks have still not put the toxic assets hidden in their SIVs back on their books.
The tsunamis of commercial real estate, Alt-A, option arm and other loan defaults have not yet hit.
overhang of derivatives is still looming out there, and still dwarfs
the size of the rest of the global economy. Credit default swaps have arguably still not been tamed (see this).
Indeed, Nobel prize winning economist Joseph Stiglitz said recently:
U.S. has failed to fix the underlying problems of its banking system
after the credit crunch and the collapse of Lehman Brothers Holdings
“In the U.S. and many other countries, the too-big-to-fail banks
have become even bigger,” Stiglitz said in an interview today in Paris.
“The problems are worse than they were in 2007 before the crisis.”
Stiglitz’s views echo those of former Federal Reserve Chairman
Paul Volcker, who has advised President Barack Obama’s administration
to curtail the size of banks, and Bank of Israel Governor Stanley
Fischer, who suggested last month that governments may want to
discourage financial institutions from growing “excessively.”
While the big boys have certainly reported some impressive profits in the last couple of months, some or all of those profits may have been due to “creative accounting”, such as Goldman “skipping” December 2008, suspension of mark-to-market (which may or may not be a good thing), and assistance from the government.
very smart people say that the big banks – even after many billions in
bailouts and other government help – have still not repaired their
balance sheets. Tyler Durden, Reggie Middleton, Mish and others have looked at the balance sheets of the big boys much more recently than I have, and have more details than I do.
But the bottom line is this: If the banks are no longer insolvent, they should prove it. If they can’t prove they are solvent, they should be broken up.
The Government Lacks the Power to Break Them Up?
Does the government lack the power to break up the TBTFs?
One of the world’s leading economic historians – Niall Ferguson – argues in a current article in Newsweek:
[Geithner is proposing that] there should be a new “resolution
authority” for the swift closing down of big banks that fail. But such
an authority already exists and was used when Continental Illinois failed in 1984.
Indeed, even the FDIC mentions Continental Illinois in the same breadth as “too big to fail” banks.
And William K. Black (remember, he was the senior regulator during the S&L crisis, and is a Professor of both Economics and
Law) – says that the Prompt Corrective
Action Law (PCA), 12 U.S.C. § 1831o, not only authorizes the government
to seize insolvent banks, it mandates it, and that the Bush and Obama administrations broke the law by refusing to close insolvent banks.
Whether or not the banks’ holding companies can be broken up using the PCA, the banks themselves could be. See this
And no one can doubt that the government could find a way to break up even the holdign companies if it wanted.
FDR seized gold during the Great Depression under the Trading With The Enemies Act.
and Bernanke have been using one loophole and “creative” legal
interpretation after another to rationalize their various
multi-trillion dollar programs in the face of opposition from the
public and Congress (see this, for example).
And the government could use 100-year old antitrust laws to break them up.
don’t give me any of this “our hands are tied” malarkey. The Obama
administration could break the “too bigs” up in a heartbeat if it
wanted to, and then justify it after the fact using PCA or another
Is Temporarily Nationalizing the Giant Banks Socialism?
Many argue that it would be wrong for the government to break up the banks, because we would have to take over the banks in order to break them up.
may be true. But government regulators in the U.S., Sweden and other
countries which have broken up insolvent banks say that the government
only has to take over banks for around 6 months before breaking them up.
contrast, the Bush and Obama administrations’ actions mean that the
government is becoming the majority shareholder in the financial giants
more or less permanently. That is – truly – socialism.
them up and selling off the parts to the highest bidder efficiently and
in an orderly fashion would get us back to a semblance of free market
capitalism much quicker.
The Real Reason the Giant Banks Aren’t Being Broken Up
So what is the real reason that the TBTFs aren’t being broken up?
Certainly, there is regulatory capture, cowardice and corruption:
- Joseph Stiglitz
(the Nobel prize winning economist) said recently that the U.S. government is wary of challenging the
financial industry because it is politically difficult, and that he
hopes the Group of 20 leaders will cajole the U.S. into tougher action
- Economic historian Niall Ferguson asks:
which institutions are among the biggest lobbyists and campaign-finance
contributors? Surprise! None other than the TBTFs [too big to fails].
- Manhattan Institute senior fellow Nicole Gelinas agrees:
too-big-to-fail financial industry has been good to elected officials
and former elected officials of both parties over its 25-year life span
- Investment analyst and financial writer Yves Smith says:
Major financial players [have gained] control over the all-important over-the-counter debt markets…It is pretty hard to regulate someone who has a knife at your throat.
- William K. Black says:
There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .
Instead, the Treasury and the Fed are urging us not to
examine the crisis and to believe that all will soon be well. There
have been no prosecutions of the chief executives of the large nonprime
lenders that would expose the “epidemic” of fraudulent mortgage lending
that drove the crisis. There has been no accountability…
The Obama administration and Fed Chairman Ben Bernanke have
refused to investigate the nature and causes of the crisis. And the
administration selected Timothy Geithner, who with then Treasury
Secretary Paulson bungled the bailout of A.I.G. and other favored “too
big to fail” institutions, to head up Treasury.
Now Lawrence Summers, head of the White House National Economic
Council, and Mr. Geithner argue that no fundamental change in finance
is needed. They want to recreate a secondary market in the subprime
mortgages that caused trillions of dollars of losses.
neo-classical economic theory, particularly “modern finance theory,”
has been proven false but economists have failed to replace it. No
fundamental reform can be passed when the proponents are pretending
that there really is no crisis or need for change.
- Harvard professor of government Jeffry A. Frieden says:
agencies are often sympathetic to the industries they regulate. This
pattern is so well known among scholars that it has a name: “regulatory
capture.” This effect can be due to the political influence of the
industry on its regulators; or to the fact that the regulators spend so
much time with their charges that they come to accept their world view;
or to the prospect of lucrative private-sector jobs when regulators
retire or resign.
- Economic consultant Edward Harrison agrees:Regulating Wall Street has become difficult in large part because of regulatory capture.
But there is an even more interesting reason . . .
The number one reason the TBTF’s aren’t being broken up is [drumroll] . . . the ‘ole 80′s playbook is being used.
As the New York Times wrote in February:
the 1980s, during the height of the Latin American debt crisis, the
total risk to the nine money-center banks in New York was estimated at
more than three times the capital of those banks. The regulators,
analysts say, did not force the banks to value those loans at the
fire-sale prices of the moment, helping to avert a disaster in the
In other words, the nine biggest banks were all insolvent in the 1980s.
And the Times is not alone in stating this fact. For example, Felix Salmon wrote in January:
the early 1980s, when a slew of overindebted Latin governments
defaulted to their bank creditors, a lot of big global banks, Citicorp
foremost among them, became insolvent.
government’s failure to break up the insolvent giants – even though
virtually all independent experts say that is the only way to save the
economy, and even though there is no good reason not to break them up – is nothing new.
William K. Black’s statement that the government’s entire strategy now – as in the S&L crisis – is to cover up how bad things are (“the entire strategy is to keep people from getting the facts”) makes a lot more sense.