FedUpUSA

Posts Tagged ‘Bankers’

I was thinking about titling this post “Fire Jamie Dimon.”  I changed my mind because this article is much, much bigger than Mr. Dimon.  This is really an article about the current climate of fraud, negligence and incompetence that is accepted as the new normal.  Dimon and JP Morgan Chase are just the larger-than-life faces of the profound problems that are not getting fixed.  JP Morgan is the nation’s biggest bank; so, for the sake of simplicity, I just want to use JP Morgan and its CEO, Jamie Dimon, to illustrate what is really stopping the economy from getting better.  This is the 8,000 pound elephant in the room that nobody wants to even acknowledge.

Look no further than this past year.  There are big examples that come to mind that should have brought some criminal charges against bank personnel, or at least been grounds to fire Mr. Dimon.  Most recently, JP Morgan and Credit Suisse paid nearly $417 million (combined) to settle civil fraud charges by the Securities and Exchange Commission (SEC).  Reuters recently reported, “JPMorgan will pay $296.9 million, while Credit Suisse will pay $120 million in a separate case, with the money going to harmed investors, the U.S. Securities and Exchange Commission said.  Both settlements addressed alleged negligence or other wrongdoing in the packaging and sale of risky residential mortgage-backed securities . . .” Of course, both JP Morgan and Credit Suisse didn’t admit guilt, and no individuals were charged criminally.  The Reuters story went on to say, “On a conference call with reporters, Robert Khuzami (SEC enforcement chief) said it is hard to bring cases against individuals over ‘structured’ financial transactions because different people work on different aspects, making it hard to pin blame.”  (Click here for the complete Reuters story.)  It was the same story in 2011.  According to Reuters, “JPMorgan had in June 2011 agreed to pay $153.6 million to settle a separate SEC fraud case over its sale of mortgage securities to investors, also without admitting wrongdoing.”  Anybody see a pattern here for JP Morgan or government prosecutors?

Hey, you know what else makes it “hard to pin blame”?  Lots of cash donated to both parties by banks like JP Morgan.  So much cash that the boss will come down hard on prosecutors who bring charges.  One thousand financial elites were successfully prosecuted in the wake of the S&L crisis 20 years ago.  It was 70 times smaller than the 2008 financial meltdown that was caused by greedy bankers.  The “$296.9 million” paid by JP Morgan didn’t even come with an apology, let alone criminal charges for individuals.  This certainly didn’t fix anything, but it did let bankers and Jamie Dimon off the hook–once again.  Is this the business plan that Jamie Dimon condones?

Remember the $2 billion “London Whale” trading loss Mr. Dimon apologized for back in May just before shareholders approved a $23 million pay package for him?  That $2 billion loss turned into more than $6 billion.  That’s triple the original amount Dimon himself announced!   He missed by more than $4 billion!  Did he mean to mislead or is he just incompetent?  Was Dimon negligent as a CEO for allowing these kinds of losses?  Now, JP Morgan is suing its own former employees involved in the scandal, and JP Morgan will not comment on the lawsuit.  A recent New York Times story reported, “Since announcing the problem in May, JPMorgan has worked to reassure skittish investors. The bank has broadly reshuffled its management ranks and united some of its business operations.”  (Click here for the complete NYT story.)  Shouldn’t Mr. Dimon be “reshuffled”?  I mean, just before a big payday, he told shareholders the loss would be $2 billion when, months later, it turned into more than $6 billion.  Why didn’t Dimon know about this?  Where was his supervision? This is one of the nation’s top bankers, and he doesn’t know if a loss is $2 billion or $6 billion?

What about the LIBOR (London Inter-bank Offered Rate) interest rate rigging scandal that erupted earlier this year?  Once again, JP Morgan is involved.  I wrote about this back in July and said, “The Libor interest rate rigging scandal is being called the biggest financial fraud in history.  Libor is a key interest rate that is used globally to set as much as $800 trillion in transactions.  It is used to set interest rates for things such as credit cards, student loans, mortgages, corporate bonds and hundreds of trillions of dollars in derivatives.”  (Click here for the complete post.)  In August, the Huffington Post reported, “Pretty much everybody in the world with subpoena power has hit JPMorgan Chase with requests for information in the Libor-rigging scandal. . . . JPMorgan also said it was the subject of a large and growing number of lawsuits coming out of the Libor mess. State and local governments, for example, are suing banks for keeping Libor too low, hurting the value of interest-rate swaps they bought to protect against rising rates.”  (Click here for the complete Huffington Post story.)  Again, Dimon does not know what is going on in his own bank, or is this part of the business model that he condones?

All the above mentioned stories happened in just the last year or so.  The thing they all have in common is that Jamie Dimon was and still is–in charge.  When the captain of a ship keeps running aground and the ship owners keep patching the hull, when is it more practical to replace the captain?  Hasn’t Dimon run the bank aground on several occasions?  Aren’t the other banking executives crashing their boats into the rocks?  Don’t get me wrong, I think Mr. Dimon should be fired, but that’s not going to happen.  The mainstream media will not criticize Dimon or any the CEO of a big bank despite their dismal track records.  If any reporter did, I think they would be fired.   The public accepts this behavior, and our own government officials enable the fraud, negligence and incompetence to go unprosecuted and unpunished in the banking industry.  The economy will never truly recover against this kind of financial backdrop.

Greg Hunter – USA Watchdog

New York — Yesterday the House Financial Services Committee confirmed what we already know, namely that former Goldman Sachs CEO Jon Corzine deliberately stole customer funds when he was CEO of MF Global.  See Blomberg News story below:

http://www.bloomberg.com/news/2012-11-14/corzine-decisions-felled-mf-glo…

But what the Republican Committee report does not say is that the mechanism that allows Corzine and many others to walk away from such disasters without any civil liability for fraud is the 2005 Bankruptcy Reform Act, which the Republicans sponsored almost unanimously.  And we wonder why nobody is pursuing this for the theft that it clearly involved?

By the bankruptcy code Congress adopted and which congress alone can change: (i) Bankruptcy Judges are PRECLUDED from appointing “receivers” (Sec. 105(b)), (ii) the stay precludes creditors who were robbed from pursuing a receiver at the District Court, (iii) state receiverships are collapsed into the bankruptcy when it is filed and (iv), at least in the 2nd Cir., only a receiver can pursue claims based on theft.

Ergo:  There is almost no way to go after people to collect stolen money in corporations that are subject to the Bankruptcy Code (particularly in NYC).  As one veteran litigator told me yesterday: “AND WE CONSIDER OURSELVES AS A NATION GOVERNED BY “THE RULE OF LAW”?

The “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” was styled as a way to prevent abuse of bankruptcy by creditors, but really it was a way for the banking industry to protect itself from claims due to predatory lending.  Maryscott OConnor noted in an excellent 2005 analysis in the Daily Kos:

“The details of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 reveal it to be a bill crafted as a Republican paean to MBNA, the largest single contributor to the Republican party.  Far from being either an effort to stem “Bankruptcy Abuse” or an effort at “Consumer Protection”, the bill is in fact an attempt to rewrite bankruptcy laws to reduce the ability of those laws to protect consumers from predatory lending practices on the part of MBNA members, and to stiffen the capabilities of those corporations to collect from consumers already suffering from extreme financial hardships.”

She notes that the legislation received unanimous support in the Senate from Republicans and that several Democrats also supported this legislation, including:

Sen. Nelson (D – Nebraska)

Sen. Johnson (D – South Dakota)

Sen. Carper (D – Delaware)

Also frequently voting with the Republicans was then Sen. Joe Biden (D – Delaware).

But what even the critics did not understand at the time was that the 2005 Bankruptcy legislation also effective prevents investors from bringing civil fraud claims against the likes of Jon Corzine in the case of a bankruptcy.  Once a firm files bankruptcy, the officers and directors effectively get a “get out of jail free” card because the trustee cannot pursue fraud claims.  Unlike the case of  a failed bank where the FDIC is automatically appointed receiver, in bankruptcy a trustee’s powers are limited to the claims by the estate of the dead corporation.

As I have written previously in ZH, only a receiver can go after fraud by third parties in a bankruptcy.  But since the 2005 Bankruptcy law effectively prohibits the appointment of a receiver in bankruptcy, the bad guys get away.  This is one of the proud legacies of President George W. Bush and the Republican Congress, BTW.

So when you hear Republican politicians pointing figures at Jon Corzine for his “alleged” acts of fraud in the MF Global collapse, ask them why they changed the bankruptcy code to allow such acts of fraud to go unpunished.  The answer is that MBNA and other large banks pushed the changes, but only now do we understand that the targets were not merely hapless consumers but all investors.

The fact is that the Republicans sponsored the legislation to help banks continue to prey upon consumers is bad enough, but the real impact of the 2005 legislation was to give the officers and directors of failed broker-dealers effective immunity from civil fraud claims in the case of bankruptcy.  Until Congress repeals the 2005 Bankruptcy legislation, no investors’ funds are safe inside a broker-dealer – period.

Zero Hedge - R. Chris Whalen

The lack of enthusiasm for the latest effort to centralize all banking and monitory regulation within the European Central Bank suggests that the surreal struggle for continental unanimity still resides in the minds of banksters. Elites still seek to perfect the class distinguish of century old traditions, into a modern version of feudal serfdom. Globalism is the brainchild of the cabal of international banking. As long as a financial monopoly dominates political institutions, the end result will be more consolidation of the rule of the House of Rothschild.

The European Commission recently announces and lays ground for banking union.

“A new proposal would see the European Central Bank (ECB) gaining new powers to monitor the performance of the 6 000 or so banks in the eurozone. The arrangement would be known as the single supervisory mechanism.

The ECB would take over tasks such as authorizing banks and other credit institutions, ensuring they have enough (liquid) capital to continue operating even when sustaining losses and monitoring the activities of financial conglomerates.

If a bank breaches – or is at risk of breaching – capital requirements, the ECB would be able to ask the bank to take corrective action. National supervisors would meanwhile continue to carry out day-to-day checks.

A single rulebook on capital requirements, standardized deposit protection schemes and new recovery and resolution provisions – all proposed earlier in the year – would complete the ‘banking union’.”

A champion for the proposal, Michel Barnier: European banking union is “necessary and possible”, explains the scheme further.

“It is also understood the ECB will have the power to wind up banks; remove bank licenses; and force recapitalization programs when it think it’s necessary, according to the documents.

The ECB will also be empowered to “enter into administrative arrangements” with regulators outside the eurozone – or act and negotiate on behalf of all members in talks on global financial regulation.” 

The City of London has never been a keen supporter of European governance. Britain opposes ECB as head of Banking Union illustrates push back.

“Britain is pushing for changes to a proposed euro zone banking union to dilute the power of the European Central Bank, EU officials said, potentially hampering efforts to build the infrastructure urgently needed to underpin the euro.

Britain intends to propose a system that would give countries outside the banking union the possibility of blocking those within the project from clubbing together to shape EU-wide regulations, said EU officials, speaking on condition of anonymity.

“The concern is that the Bank of England can find itself outvoted by the ECB on aspects of rule making,” said one official. Britain will not join the banking union.”

Another report in, Britain pushing to dilute powers of ECB in banking union, reveals the concerns about a diminished influence of the British financial houses.

“Britain’s finance minister, George Osborne, fears the ECB will use its authority to impose EU-wide regulation that would favor countries with the euro and put London’s financial centre, using sterling, at a disadvantage.

“It seems unlikely that the ECB would ride roughshod over the wishes of the Bank of England, but that is what the British Treasury is worried about,” said the first official. “They want safeguards to make sure that doesn’t happen.”

Britain and all other members of the European Union must give the green light to the banking union before it can go ahead, an approval that could be delayed or withheld if London’s concerns are not addressed.”

Empowering the European Central Bank regulatory authority over every country as part of the broad EU coalition requires surrender of even more national sovereignty. 

Gary continues to talk about deleveraging in the economy and markets as if there’s some of that actually going on, and which is of course used as justification for QE3:

The only thing that would restore normal global growth, I argued, was time — the five to seven years it will take for deleveraging to be completed.

But there is no deleveraging.  That’s the entire point of QE(whatever) – preventing that deleveraging!

There have been only a couple of places where any deleveraging has taken place.  Home mortgages, for example, have “de-levered” by about $1.05 trillion, or roughly 10% of the maximum amount in Q2 2008.  However, the total amount of debt owed by that same group (persons and non-profits) has decreased by only $876.490 billion during the same period.  In other words net-net leverage is still increasing (much of it in student loans!) while home mortgages have modestlydecreased in outstanding size.

Now go look at the Z1 and find me another place where credit outstanding has decreased.  You can find only one:“financial market instruments”, in other words, credit between banks that does not enter the economy itself but is used to claim that margins and similar requirements are “covered.”

There has been no de-leveraging, in short.

What there has been is an outrageous destruction in capital formation, as the capital base of the nation has been systematically destroyed and transferred to these very same financial institutions to keep them from having to recognize their insolvency.

Unfortunately that effect is negative for everyone except those major financial institutions.

This is the problem, in a nutshell, with the policies of the government and Fed; they have not been intended to “help the economy”; any such pretext disappeared after the first QE when the outcome was clearly visible in the Fed Z1.

Gary is right in that the markets are basically “stoned” on monetary effects.  But the labor force, competitiveness and most-importantly capital formation are all decimated by these “effects.”

Let’s once again go over the impact of these policies, because there remains a meme in the economic literature (especially on bubblevision) that you can get a free lunch in some way with monetary games.  That’s balderdash and dangerous, and until we excise our belief in such silly superstitions no real progress can be made.

Let us presume that there are 10,000 units of currency and credit in the economy.  Let us further presume that there are 10,000 units of production — gasoline, bread, houses, etc.  Note that “units” are of necessity not the same between production and currency/credit – that is, we’re not going to commit the open and notorious public fraud of denominating production in the same thing we’re about to vary, then claim that a change in production denominated in that other unit is somehow unit-invariant!

Now the economy slows and the 10,000 units of production leaves us with 1,000 units unsold.  We therefore now have an actual organic demand for 9,000 units of output.  The rest is sitting in a warehouse.

The monetary response to this event is to add 1,000 units of currency and credit into the economy.

What happens?

Well, let’s think about it for a minute.  The premise of the “MMT” and Keynesians is that this addition will “stimulate demand.”  So let us give them the benefit of the doubt and assume for a minute that the entire 1,000 emitted units are immediately spent, closing the demand gap.

Did the gap really get closed?

No.  Remember, we had 10,000 units of output and 10,000 units of currency, and developed a slack of 1,000 units in demand for that output.  Now we have 10,000 units of output that is demanded but there are 11,000 units of currency and credit in the system where there were 10,000 before!

Therefore we now need 1.1 units of currency or credit to buy one unit of output.  This is an immediate devaluation of the existing stock of currency and credit in the economy, and that assumes that the actual demand gap is filled!

If the demand gap is not filled, that is the Keynesians and MMT folks are wrong about the impact of the the new emitted credit and currency then it’s even worse; if there’s no increase in actual demand in unit (not monetary) terms then you’re in real trouble because now you have 11,000 units of currency and credit but 9,000 units of demanded production; the devaluation in terms of imputed balance is now 18.1% instead of 10%.

That’s a problem, right?

We tried this same game during the 1930s, in fact, and it failed.  Oh sure, we managed to devalue the currency; that’s easy.  The hard part is returning to anything approaching full employment; you simply can’t get there by debasing the currencybecause when you do so all saved capital is damaged and the excessive leverage and thus its drag on the economy remains in the system instead of being purged by bankruptcies.

Now let’s look at the impact of a tax increase to fund increased government expenditures instead of monetary games.  In gross terms both are identical; that is, both take actual purchasing power out of the economy in the same amount.

But in the case of a tax it is imposed on profits, whether corporately or individually.  That is, with the exception of property taxes virtually all taxes are imposed not on saved capital but rather on current profitable economic activity.  This leaves available saved capital to form businesses and jobs.

In the case of monetary debasement, however, all economic activity and saved capital are identically hit.  The person who has $10,000 saved for his kid’s college education sees the value in credit-hour terms debased even though he did nothing with the funds other than try to stash them in expectation of a future need.

There is no such thing as a free lunch; reality is that our government and Fed policies have had exactly nothing to do with the broader economy or the people of our nation.  They have been intended to and actually did protect exactly one group — the big financial institutions – by literally stealing the accumulated and earned wealth of every American to the tune of trillions of dollars so as to prop up large financial institutions that took on too much risk on their own volition and in addition in many cases actively deceived and defrauded the public itself!

It’s outrageous enough that an institution or industry that ripped off the public got bailed out.

It’s even worse when the people who were victimized by that industry got robbed a second time to bail them out after being victimized in the first place.

But in the end, it hasn’t worked not because the programs were too small or too weak-kneed.

It didn’t work because mathematically it can’t.

Have you ever laid in bed awake at night with a knot in your stomach because you didn’t know how your family was possibly going to make it through the next month financially?  Have you ever felt the desperation of not being able to provide the basic necessities for your family even though you tried as hard as you could?  All over America tonight, there are millions of desperate families that are being ripped apart by this economy.  There aren’t nearly enough jobs, and millions of Americans that actually do have jobs aren’t making enough to even provide the basics for their families.  When you have tried everything that you can think of and nothing works, it can be absolutely soul crushing.  Today, one of my regular readers explained that he was not going to be online for a while because his power had been turned off.  He has been out of work for quite a while, and eventually the money runs out.  Have you ever been there?  If you have ever experienced that moment, you know that it stays with you for the rest of your life.  If you are single that is bad enough, but when you have to look into the eyes of your children and explain to them why there won’t be any dinner tonight or why they have to move into a homeless shelter it can feel like someone has driven a stake into your heart.  In this article you will find a lot of very shocking economic statistics.  But please remember that behind each statistic are the tragic stories of millions of desperately hurting American families.

Over the past decade, things have steadily gotten worse for American families no matter what our politicians have tried.  Poverty and government dependence continue to rise.  The cost of living continues to go up and incomes continue to go down.  It is truly frightening to think about what this country is going to look like if current trends continue.

The following are 37 facts that show how cruel this economy has been to millions of desperate American families…

1. One recent survey discovered that 40 percent of all Americans have $500 or less in savings.

2. A different recent survey found that 28 percent of all Americans do not have asingle penny saved for emergencies.

3. In the United States today, there are close to 10 million households that do not have a single bank account.  That number has increased by about a million since 2009.

4. Family homelessness in the Washington D.C. region (one of the wealthiest regions in the entire country) has risen 23 percent since the last recession began.

5. The number of Americans living in poverty has increased by about 6 million over the past four years.

6. Median household income has fallen for four years in a row.  Overall, it has declinedby more than $4000 over the past four years.

7. 62 percent of middle class Americans say that they have had to reduce household spending over the past year.

8. According to a survey conducted by the Pew Research Center, 85 percent of middle class Americans say that it is more difficult to maintain a middle class standard of living today than it was 10 years ago.

9. In the United States today, 77 percent of all Americans are living to paycheck to paycheck at least some of the time.

10. In the United States today, more than 41 percent of all working age Americans are not working.

11. Since January 2009, the “labor force” in the United States has increased by 827,000, but “those not in the labor force” has increased by 8,208,000.  This is how they have gotten the unemployment numbers to “come down”.

12. Sadly, 60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.

13. Today, about one out of every four workers in the United States brings home wages that are at or below the federal poverty level.

14. Right now, the United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.

15. At this point, less than 25 percent of all jobs in the United States are “good jobs”, and that number continues to shrink.

16. There are now 20.2 million Americans that spend more than half of their incomes on housing.  That represents a 46 percent increase from 2001.

17. According to USA Today, many Americans have actually seen their water bills triple over the past 12 years.

18. Electricity bills in the United States have risen faster than the overall rate of inflationfor five years in a row.

19. In 1999, 64.1 percent of all Americans were covered by employment-based health insurance.  Today, only 55.1 percent are covered by employment-based health insurance.

20. Health insurance premiums rose faster than the overall rate of inflation in 2011and that is happening once again in 2012.  In fact, it has been happening for a very long time.

21. According to one recent survey, approximately 10 percent of all employers in the United States plan to drop health coverage when key provisions of the new health care law kick in less than two years from now.

22. Back in 1983, the bottom 95 percent of all income earners had 62 cents of debt for every dollar that they earned.  By 2007, that figure had soared to $1.48.

23. Total home mortgage debt in the United States is now about 5 times larger than it was just 20 years ago.

24. Total consumer debt in the United States has risen by 1700 percent since 1971.

25. Recently it was announced that total student loan debt in the United States has passed the one trillion dollar mark.

26. According to one recent survey, approximately one-third of all Americans are not paying their bills on time at this point.

27. Right now, approximately 25 million American adults are living at home with their parents.

28. The percentage of Americans that find that they are able to retire when they reach retirement age continues to decline.  According to one new survey, 70 percent of middle class Americans plan to work during retirement and 30 percent plan to work until they are at least 80 years old.

29. The U.S. economy lost more than 220,000 small businesses during the recent recession.

30. In 2010, the number of jobs created at new businesses in the United States wasless than half of what it was back in the year 2000.

31. Back in 2007, 19.2 percent of all American families had a net worth of zero or less than zero.  By 2010, that figure had soared to 32.5 percent.

32. Approximately 57 percent of all children in the United States are living in homes that are either considered to be either “low income” or impoverished.

33. In the United States today, somewhere around 100 million Americans are considered to be either “poor” or “near poor”.

34. In October 2008, 30.8 million Americans were on food stamps.  Today, 46.7 million Americans are on food stamps.

35. Approximately one-fourth of all children in the United States are enrolled in the food stamp program.

36. Right now, more than 100 million Americans are enrolled in at least one welfare program run by the federal government.  And that does not even count Social Security or Medicare.

37. According to the U.S. Census Bureau, an all-time record 49 percent of all Americans live in a home where at least one person receives financial assistance from the federal government.  Back in 1983, that number was less than 30 percent.

What makes all of this even more frightening is that many homeless shelters and food banks around the nation are so overloaded at this point that they are already over capacity.  Just consider this example…

When Janice Coe, a homeless advocate in Loudoun County, learned through her prayer group that a young woman was sleeping in the New Carrollton Metro station with a toddler and a 2-month-old, she sprang into action.

Coe contacted the young woman and arranged for her to take the train to Virginia, where she put the little family up in a Comfort Suites hotel. Then Coe began calling shelters to see who could take them.

Despite several phone calls, she came up empty. Coe was shocked to learn that many of the local shelters that cater to families were full, including Good Shepherd Alliance, where Coe was once director of social services.

“I don’t know why nobody will take this girl in,” Coe said. “The baby still had a hospital bracelet on her wrist.”

Keep in mind that Loudoun Country is smack dab in the middle of one of the wealthiest areas of Virginia.

So if things are that bad in the wealthy areas, exactly how bad are things getting in many of the poorer areas?

Unfortunately, things continue to get worse for this economy.  DuPont has just announced plans to eliminate 1,500 jobs.  There are more major layoff announcements almost every single day.  So how bad will things get when ourcrumbling economic system finally collapses?  When kind of chaos will be unleashed all over the nation when millions upon millions of Americans finally lose all hope?

In the introduction to this article, I mentioned that one of my regular readers has had his lights turned off.  The following is how he described his situation…

No gas, no water, no electricity at my house. Couldn’t pay the bills. I’m broke. Desperately searching for any means of income, or at least enough cash to get the juice (electricity) restored.

Typing this missive in a dark house using the battery on my laptop. Feels like I’m camping out at home. Hope to get this situation fixed tomorrow… somehow. Needless to say, I *…. hate this.

I was ready for this, but it is still a major league inconvenience. For those of you who DO have power, etc. – and are not ready… oh brother. You need to get ready. Seriously, you do. Because what I’m going through is just an inconvenience. It may someday be a normal occurence. Ugh. (expletives deleted)

Hopefully a way can be found to get his situation turned around, but the truth is that there are tens of millions of other similar stories out there in America today.

What about you?  What are things like in your neck of the woods?  Please feel free to share your thoughts below…

The Economic Collapse