“Which is the greater crime, to rob a bank or own one?
–Bertold Brecht
“I'm pleased to offer a full repeal of the job-killing Dodd-Frank
financial regulatory bill.”
–Michelle Bachmann
It
must be tough times to be a banker. If
one listens to the likes of Michelle Bachmann and the Wall Street Journal
crowd the federal government is simply picking on banks too much. The government so over-regulates the banks
that they can no longer make money.
Regulations such as Sarbanes-Oxley (passed in 2002 in response to
significant corporate fraud and financial misstatements on Wall Street in
companies such as Enron, Credit Swiss, and Arthur Andersen among scores of
others) and Dodd-Frank (passed in 2010) to address Wall Street financial
self-dealing , conflicts of interest and gambling) are job killers draining
down the economy. Obama is Wall Street’s
public enemy number one, with record amounts of their money directed at
opposing his re-election after record amounts of their money endorsed his
candidacy in 2008.
All
of this pity for banks seems so ironic, and wrong. Bachmann, as she is prone so often to, proves
she don’t know much about history as Sam Cooke once sung, and the Wall Street
sympathizers have forgotten the role of the banks in bringing about the worst
economic crashes in American history.
One
does not have to go back to the Credit Mobilier scandal of the 1870s in the US
which involved the self-dealing of construction contracts by a major bank in
building of railroads. Nor does one have
to go back to the roaring 1920s when banks so speculated on securities that
their behavior helped precipitate Black Friday and the Depression. It was this speculation which lead to banking
reform in 1933 including the Glass-Steagall Act which created the Federal
Deposit Insurance Corporation (FDIC) to ensure depositor’s money and separated
investment bankers (those that speculate in securities) from commercial banks
(which do mortgages). Instead, one needs
only to look at more recent history to see how banking and Wall Street
speculation has wrought economic destruction in America...and across the world.
The
American economy crashed in 2002 after “irrational exuberance” of late 1990s
revealed that many companies such as Enron and WorldCom simply lied about their
financial health. Jeffrey Skilling and
Bernie Ebbers among others simply lied to the SEC and investors about their
finances. Cynthia Cooper, former chief
auditor for WorldCom tells of the misdeeds in Extraordinary Circumstances
and the movie/book The Smartest Guys in the Room tells the same at
Enron. Enron financial manipulation was
amazing, bankrupting California, bringing down its governor, and wiping out the
savings of tens of thousands of investors and employees. Because of these scandals Congress adopted
Sarbanes-Oxley to require companies to impose controls to make sure their
balance sheets were accurate, requiring CEOS and CFOs to swear under penalty of
perjury that their SEC reports were true and accurate.
And
then it all hit the fan in 2008.
Investment banks, speculating on mortgages and on Wall Street as a
result of repeal of Glass-Steagall by the Gramm-Leach-Bliley Act in 1999,
extended sub-prime loans to many individuals, often without income
verification, sold off the loans to the secondary mortgage market, and then
used the proceedings to gamble on Wall Street.
All of the collapsed in 2008 when the bets came due, banks lacked the
resources to cover their losses, and the economic crash spread around the
world.
The
Bush presidency offered TARP to bail out the banks and the Obama administration
followed up with trillions in credit and loans to help Wall Street. In fact, Obama was perceived by Wall Street
as their savior, bestowing on him record amounts of cash to help him win
election. Obama was the best friend Wall
Street could have at the time. Banks got
bailed out ahead of consumers and homeowners and profitability was restored to
the financial sector. Moreover in a
effort to prevent some of the worst excesses from returning Congress passed
Dodd-Frank in 2010 which imposed minimal new regulations and order to banks and
investment houses.
For
all of this, banks and Wall Street demonstrated their gratitude by turning on
him. They accused Obama of using a
rhetoric that made them the enemy. They
were instead simply innocent victims of federal regulatory excess. They were being robbed at gunpoint by federal
regulation.
But
look at where banking and Wall Street is today.
* Jamie Dimon and JPMorgan fraud on
trading hits $5.8 billion
* Barclays and other banks have
manipulated Libor (London Interbank Offered Rate)
* Wells-Fargo agrees to a record payout
to settle charges of race discrimination in their steering of people of color
to sub-prime loans.
Yet despite these scandals, the Financial Times
also notes how Wells-Fargo and JPMorgan have economically recovered, with the
former experiencing a 17% increase in second quarter profits.
Banks
and Wall Street today are again solvent thanks to trillions of tax dollar
credits and investments. Many are
experiencing record profits, yet many are also continuing to speculate,
self-deal, or engage in other anti-social behavior. And then there is the call for repeal of
Sarbanes-Oxley and Dodd-Frank and the ouster of Obama from the presidency. Biting the hand that feeds them is the
understatement of the year.
Recent
news events point not to the need to weaken regulation but to the imperative to
do even more. Banks and Wall Street
still lack the oversight and controls necessary to ensure that they serve the
interests of the American public.
Restoring Glass-Steagall, further limits on self-dealing, more Wall
Street prosecutions, use of anti-trust laws, and even more serious
consideration of public control of credit are needed if we want to ensure that
the financial sector serves the interests of the people and investors and not
simply those who run those institutions.
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