BREAK UP TOO BIG TO FAIL BANKS

Washington Post Columnist George Will wants to break up the big banks? (photo: AP)

Time to Break Up the Big Banks

By George F. Will, The Washington Post

09 February 13

George Will? Yes, today we bring you a story from George Will. It may never happen again, but today he is right. SMG/RSN

ith his chronically gravelly voice and relentlessly liberal agenda, Sherrod Brown seems to have stepped out of "Les Miserables," hoarse from singing revolutionary anthems at the barricades. Today, Ohio's senior senator has a project worthy of Victor Hugo - and of conservatives' support. He wants to break up the biggest banks.

He would advocate this even if he thought such banks would never have a crisis sufficient to threaten the financial system. He believes they are unhealthy for the financial system even when they are healthy. This is because there is a silent subsidy - an unfair competitive advantage relative to community banks - inherent in being deemed by the government, implicitly but clearly, too big to fail.

The Senate has unanimously passed a bill offered by Brown and Sen. David Vitter, a Louisiana Republican, directing the Government Accountability Office to study whether banks with more than $500?billion in assets acquire an "economic benefit" because of their dangerous scale. Is their debt priced favorably because, being TBTF, they are considered especially creditworthy? Brown believes the 20 largest banks pay less when borrowing - 50 to 80 basis points less - than community banks must pay.

In a sense, TBTF began under Ronald Reagan with the 1984 rescue of Continental Illinois, then the seventh-largest bank. In 2011, the four biggest U.S. banks (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo) had 40 percent of all federally insured deposits. Today, the 5,500 community banks have 12 percent of the banking industry's assets. The 12 banks with $250?billion to $2.3?trillion in assets total 69?percent. The 20 largest banks' assets total 84.5?percent of the nation's gross domestic product.

Such banks have become bigger, relative to the economy, since the financial crisis began, and they are not the only economic entities to do so. Last year, the Economist reported that in the past 15 years the combined assets of the 50 largest U.S. companies had risen from around 70 percent of GDP to around 130 percent. And banks are not the only entities designated TBTF because they are "systemically important." General Motors supposedly required a bailout because a chain of parts suppliers might have failed with it.

But this just means that the pernicious practice of socializing losses while keeping profits private is not quarantined in the financial sector.

To see why TBTF also can mean TBTM - too big to manage - read "What's Inside America's Banks?" in the January/February issue of the Atlantic. Frank Partnoy and Jesse Eisinger argue that banks are not only bigger but also "more opaque than ever." And regulations partake of the opacity: The landmark Glass-Steagall Act of 1933, separating commercial banking from investment banking, was 37 pages long; the 848 pages of the 2010 Dodd-Frank law may eventually be supplemented by 30 times that many pages of rules. The "Volcker rule" banning banks from speculating with federally insured deposits is 298 pages long.

There is no convincing consensus about a correlation between a bank's size and supposed efficiencies of scale, and any efficiencies must be weighed against management inefficiencies associated with complexity and opacity. Thirty or so years ago, Brown says, seven of the world's 10 largest banks were Japanese, which was not an advantage sufficient to prevent Japan's descent into prolonged stagnation. And he says that when Standard Oil was broken up in 1911, the parts of it became, cumulatively, more valuable than the unified corporation had been.

Brown is fond of the maxim that "banking should be boring." He suspects that within the organizational sprawl of the biggest banks, there is too much excitement. Clever people with the high spirits and adrenaline addictions of fighter pilots continue to develop exotic financial instruments and transactions unknown even in other parts of the sprawl. He is undecided about whether the proper metric for identifying a bank as "too big" should be if its assets are a certain percentage of GDP - he suggests 2 percent to 4 percent - or simply the size of its assets (Richard Fisher, president of the Federal Reserve Bank of Dallas, has suggested $100 billion).

By breaking up the biggest banks, conservatives will not be putting asunder what the free market has joined together. Government nurtured these behemoths by weaving an improvident safety net and by practicing crony capitalism. Dismantling them would be a blow against government that has become too big not to fail. Aux barricades!

Obama Suit vs Junk Bond Raters

Why the Government’s Lawsuit Against Standard & Poor’s Matters

By Richard Eskow | February 5, 2013

Before we begin, let’s take a moment to ponder the absurdity of a system in which

a) for-profit corporations are allowed to call themselves “agencies”;

b) the government – that is, us – gives these for-profit companies given trillion-dollar influence over the financial system; and

c) they’re paid by the financial institutions whose work they’re rating – institutions who will take their business elsewhere if their products aren’t rated highly .

We gave these “agencies” all this power, along with a huge financial incentive to rate garbage as if it were roses. Then we, in the form of government regulators, looked the other way. And now we’re shocked – shocked! – that these for-profit companies were behaving … well, like for-profit companies.

There’s an extremely strong case for fraud in the government’s new lawsuit against Standard & Poor’s. The lawsuit says that Standard & Poor’s lied to the SEC in order to be certified as a credit rating agency, and that it lied to investors about the objectivity and thoroughness of its reviews. It also alleges that S&P knew that some of the mortgage-backed securities it rated “AAA” were, in fact, lousy investments, and did it to keep the bank’s business.

Body of Evidence

There’s a lot of compelling evidence in the lawsuit. Much of it is taken from the Senate’s Permanent Subcommittee on Investigations, chaired by Sen. Carl Levin, which we reviewed in detail in “The Rating Game” and “Poor Standards.”

One email exchange shows that an analyst was pressured by S&P to improve a rating for their “customer,” and when the analyst offered a somewhat higher score he was “I don’t think that will be enough to satisfy them.” When another analyst asked to look at some files for a review,which is the standard way of doing things, he was told that his request was “TOTALLY UNREASONABLE!”

S&P isn’t just ethically challenged. It’s also lousy at what it does. When it downgraded US debt in 2011, for example, the Treasury Department found a $2 trillion error in S&P’s calculations. S&P simply deleted the error from their report, then wrote up a completely different rational for their downgrade – one that relied on unmeasurable and intangible considerations. To the trained eye that suggests they’d already picked a number and they were now making up reasons to justify it.

A billion here or there is one thing. But a trillion? That’s just plain sloppy.  As long as that kind of workmanship is driving our financial system, this lawsuit is important. Here are five takeaways from this action:

1. Ratings agencies are very important – and very broken.

Ratings agencies are given enormous responsibility and enormous power. Some investments are required by law to invest in only “AAA” financial products. Others, like many pension funds, have made the decision to stick to these (supposedly) safe investments exclusively.

S&P and other ratings agencies took banks’ money in return for rating their mortgage-backed securities “AAA.” Many of those securities were a form of organized fraud that was perpetrated on investors. These securities were such an easy way to earn money that they drove the housing bubble: Banks didn’t want to know if a borrower was a bad risk, because they could just bundle the loan with a lot of other equally doubtful ones and sell them all off to unwary investors.

That’s a guaranteed way to make money – for a while – as long as the rating agencies were guaranteed to give these worthless investments a “AAA” rating.  And they were. That places the rating agencies at the heart of the financial crisis, the recession, and all the loss that resulted from those events.

That’s as important, and as broken, as it gets.

2. The naysayers are wrong. There’s a very strong case against S & P.

S & P’s attorney, Floyd Abrams, took to the court of public opinion to defend his client on CNBC. Abrams argued that everybody believed these mortgage-backed securities were good, including Treasury Secretary Hank Paulson and the Federal Reserve.

But Standard & Poor’s sells a technical service. It isn’t paid all that money to repeat the conventional wisdom. And yet, within a year Standard & Poor’s was forced to downgrade many of these “AAA” investments to junk status. Apparently one of their key lines of defense will be: We weren’t crooked, just incompetent.

Besides, it isn’t true that “everybody” believed these investments were strong. Did Standard & Poor’s conduct any research into the work of the many economists who publicly said there was a housing bubble, as it continued to give these investments a “AAA” rating? I think we know the answer to that one.

The “incompetence” defense also fails to address the many emails and internal documents showing that sales, not accuracy, was the organization’s prime concern.

Abrams flirts with, but doesn’t embrace, the right-wing argument that this lawsuit is driven by revenge against S&P for downgrading the Federal debt. But that downgrade didn’t weaken the government’s ability to get cost-free loans, so there was no harm. And that was two years ago, which would make this a very delayed act of revenge.

Abrams and S&P are also trying to defend its actions on First Amendment grounds, claiming that they’re journalists.  Other agencies have tried this defense. But journalists aren’t “agencies.” They’re not given the authority to rate something, with billion-dollar implications. If these agencies were journalists, they’d have no product to sell.

A skeptical piece about the lawsuit from Peter J. Henning and Steven M. Davidoff in the New York Times also misses the mark. They write:

“The government will have to prove that ratings were in fact faulty, and published intentionally so as to deceive investors in the securities. In response, S.& P. could simply argue that the company was just as blinded by the financial crisis as anyone else, and that questionable e-mails are simply the work of lower-level employees who were not involved in the decision-making.”

This is Abrams’ “nobody saw it coming” argument. But that’s not what the government is alleging. The lawsuit shows that S & P claimed to have internal quality control standards, objectivity, and rigid methodology, that it made those claims in order to make money – and that it knew these claims weren’t true.

The issue isn’t whether S&P was as “blinded” as everyone else. The issue is whether it lied when it claimed to have better vision.

3. Political pressure works.

This lawsuit might never have been filed if it had not been for the hard work of Sen. Levin’s Subcommittee.

And it might not have been filed, or the government might have settled for a smaller fine, if there hadn’t been so much public demand for a tougher stand against those who brought down the economy.

Finally, there’s a case where the government wouldn’t settle for peanuts. That’s a pleasant surprise. It also shows that political pressure – whether from elected officials or the public at large – works.

4. Civil cases are important.

Republican Senator Charles Grassley, who has made some surprisingly good stands on banking issues, was dismissive because this is a civil suit and not a criminal prosecution. But this suit is already important, because it’s brought many important facts to the public’s attention. And it’s put the agencies on notice that there will be consequences for putting profits over performance.

And a civil suit seems like the right place to start. We’ve certainly hammered the Justice Department time and time again over its refusal to bring criminal cases against Wall Street bankers. That was, and is, outrageous.  But the burden of proof’s a little different here. What makes the lack of banker prosecutions so outrageous is the fact that the banks have paid hundreds of billions in fines for fraud — then committed the same kinds of fraud again.

Those settlements have created an enormous body of evidence regarding bankers’ crimes.  That’s not true in this case. Not does this lawsuit preclude criminal cases in the future. Hopefully they’ll be coming.

5. We need to dismantle the entire “credit ratings agency” system.

In the end, however, the real lesson is this: The entire system of “credit rating agencies” is broken. The Franken Amendment, which initially took away the most egregious salesmanship in the process, was downgraded to a requirement that the SEC conduct a study into rating agencies and make recommendations.

The SEC study found a lot of flaws, but the SEC has yet to take action. Instead the proposed set of regulations required by Dodd-Frank is being slow-walked to death.

That means nothing’s really changed: Credit rating agencies are still paid by the ultra-wealthy institutions they rate. Agency employees still have a revolving-door relationship with the banks, and so do the people who supervise the agencies.

Until the profit motive is removed from the agency process, the system will remain broken. In the meantime this lawsuit is at least a hopeful sign, and a step in the right direction.

Illegal Oil Monopolies $71 Billion Profit 2012

Exxon, Chevron Made 

$71 Billion Profit in 2012 

As Consumers Paid Record Gas Prices

By Rebecca Leber, ThinkProgress

02 February 13

 hile 2012 might not be a banner year for Big Oil profits, it wasn't a bad one either. With just BP left to announce 2012 earnings, Big Oil earned well over $100 billion in profits last year, while the companies benefit from continued taxpayer subsidies. Average gas prices also hit a record high last year, showing how a drilling boom may help oil companies' profit margins, but not consumers' wallets.

ExxonMobil - now the most valuable company in the world, passing Apple -earned $45 billion profit in 2012, a 9 percent jump over 2011. Meanwhile, Chevron earned $26.2 billion for the year. In the final three months of the year, the companies earned $9.95 billion and $7.2 billion respectively.

Here are the highlights of how Exxon and Chevron spend their earnings:

ExxonMobil

Exxon received $600 million annual tax breaks. In 2011, Exxon paid just 13 percent in taxes. The company paid no taxes to the U.S. federal government in 2009, despite 45.2 billion record profits. It paid $15 billion in taxes, but none in federal income tax.

Exxon's oil production was down 6 percent from 2011.

In fourth quarter, Exxon bought back $5.3 billion of its stock, which enriches the largest shareholders and executives of the company.

Exxon's federal campaign contributions totaled $2.77 million for the 2012 cycle, sending 89 percent to Republicans.

The company spent $12.97 million lobbying in 2012 to protect low tax rates and block pollution controls and safeguards for public health.

Exxon CEO Rex Tillerson received $24.7 million total compensation.

Exxon is moving ahead with a project to develop the tar sands in Canada.

Chevron:

In October, Chevron made the single-largest corporate donation in history. Chevron dropped $2.5 million with the Congressional Leadership Fund super PAC toelect House Republicans.

The bulk of Chevron's federal contributions came from the super PAC donation, for a total of $3.87 million for the 2012 cycle. 85 percent went to Republicans.

Chevron spent $9.55 million lobbying Congress in 2012, according to the Center for Responsive Politics.

Chevron paid 19 percent U.S. taxes last year (half of the top corporate tax rate of 35 percent), and received an estimated $700 million in annual tax breaks last year.

Chevron was fined $1 million for a refinery fire that sent 15,000 Richmond, California residents to the hospital. Though the company faces $10 million in medical expenses, Chevron earns it back in a couple of hours.

With Royal Dutch Shell and ConocoPhillips reporting $35 billion in combined profit in 2012, BP is the last company left to announce its profits for the year.

End of Capitalism

The Endgame of Capitalism

By Carl Gibson, Reader Supported News

he board game "Monopoly" was originally invented in the early 20th century to warn players of the dangers of free market capitalism. The original title was "The Landlord Game," made to show how property owners exploit their tenants with exorbitant rent. The game eventually evolved to include rules that let players charge higher rent if they owned all the railroads or the utility companies. But the endgame scenario of Monopoly is a lot like the endgame of capitalism that we're witnessing today - no matter how the game starts, the wealth will eventually accumulate in the hands of one player, while the other players have to sell off their property to pay their debt to the owner and, eventually, lose everything they have.

The Dow recently closed above 14,000, the highest it's ever been since October of 2007. While the financial pundits on CNBC would use this figure to have us believe the economy is bouncing back better than ever, the only ones sharing in the benefit of a healthy market are the wealthy investor class and corporations that have been insulated from the effects of the recession that still continues for the rest of us. The influx of high-frequency trading that now makes up half of all trading signifies the change of using the market as a vehicle for making long-term investments to manipulating it for short-term profit.

The market's latest high numbers are due to corporations turning out record profits quarter after quarter, having grown profits by 171 percent under Obama's watch. Most of those profits have come about by companies cutting costs by shifting jobs overseas, where they can pay a Chinese worker a fraction of what they would pay an American worker to do the same job. News has also broken about Fortune 500 companies like Chevron, Bank of America, AT&T and IBM using inmate labor at private prisons, meaning they can slap a "Made in the USA" sticker on a product made by someone working for slave wages. The influx of immigrants looking for work thanks to free trade agreements like NAFTA, has led to the inevitable exploitation of immigrant labor which will continue as long as US immigration policy punishes the exploited rather than the companies exploiting them. And these record corporate profits also have right-wing governors and state legislatures to thank for union-busting right-to-work laws that really only exist as a vehicle for businesses to pay workers less money for the same work, and for Republicans to erode a major fundraising base for their opposition.

The rest of the uptick in corporate profits can be attributed to a lax tax code that allows companies to book profits made in the United States in overseas tax havens. There's an estimated $2.3 trillion in US corporate profits booked in overseas accounts. Apple alone stashes $1 billion a week in overseas accounts to dodge corporate taxes. That's equivalent to over 4 million full-time minimum-wage jobs, every week. The share of US tax revenue from corporations has gone from 6% of GDP in the 1950s to just 1% today.

The executives of these companies make out like bandits, as they use their increased profits to buy their own company's stock, which makes the stock price go up, making the stock options owned by the executives more valuable. And with dividends taxed at a much lower rate than actual work (20% vs. 35%), the tax revenue needed to keep society functioning continues to dwindle as the investor class accumulates greater wealth than ever before. The six Waltons who own Wal-Mart own as much wealth as the bottom 40% of Americans.

Some financial analysts say this market surge is just a rally, destined to drop as Congress expects to wrangle with the deficit in May, including a possible downgrade of our credit rating. But the fact is, our deficit would disappear if we had a small sales taxon all Wall Street financial transactions, taxed capital gains at the same rate as by-God-hard-work and overhauled our tax code in favor of one that would do away with the loopholes that allow big corporations to offshore their billions in American profits. However, even that could get worse, as Obama has shown willingness to talk about aterritorial tax code that would effectively allow corporations to pay a 0% tax rate on their profits all over the world, including the US.

In a recent Daily Show appearance, Al Gore made a half-hearted attempt at explaining the idea of "sustainable capitalism" to Jon Stewart. But even Gore's description of capitalism as the only economic system that works sounded incredibly outdated to those of us who weren't millionaire media moguls or TV personalities. We're witnessing the endgame of capitalism, where a few wealthy individuals and corporations have accumulated most of the wealth while the rest of us are left to fight for the scraps. And it looks a lot like the endgame of Monopoly, where every player is selling off their house and foreclosing their property to pay the one player who already has everything. And when the Monopoly game has gone that far, the only thing left to do is flip the board over, scatter all of the winner's winnings, and try playing something else that everyone can enjoy.

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Carl Gibson, 25, is co-founder of US Uncut, a nationwide creative direct-action movement that mobilized tens of thousands of activists against corporate tax avoidance and budget cuts in the months leading up to the Occupy Wall Street movement. Carl and other US Uncut activists are featured in the documentary "We're Not Broke," which premiered at the 2012 Sundance Film Festival. He currently lives in Old Lyme, Connecticut. You can contact Carl at carl@rsnorg.org.

Reader Supported News is the Publication of Origin for this work. Permission to republish is freely granted with credit and a link back to Reader Supported News.

 

No JOBS - No RECOVERY

The Jobs Report, and Why the Recovery Has Stalled

By Robert Reich, Robert Reich's Blog

01 February 13

e are in the most anemic recovery in modern history, yet our political leaders in Washington aren't doing squat about it.

In fact, apart from the Fed - which continues to hold interest rates down in the quixotic hope that banks will begin lending again to average people - the government is heading in exactly the wrong direction: raising taxes on the middle class, and cutting spending.

The Bureau of Labor Statistics reported Friday that American employers added only 157,000 jobs in January. That's fewer than they added in December (196,000 jobs, as revised by the Bureau of Labor Statistics). The overall unemployment rate remains stuck at 7.9 percent, just about where it's been since September.

The share of people of working age either who are working or looking for jobs also remains dismal - close to a 30-year low. (Yes, older boomers are retiring, but the major cause for this near-record low is simply the lack of jobs.)

And the long-term unemployed, about 40 percent of all jobless workers, remain trapped. Most have few if any job prospects, and their unemployment benefits have run out, or will run out shortly.

Close to 20 million Americans remain unemployed or underemployed.

It would be one thing if we didn't know what to do about all this. But we do know. It's not rocket science.

The only reason for employers to hire more workers is if they have more customers. But American employers have not had enough customers to justify much new hiring.

There are essentially two sources of customers: individual consumers, and the government. (Forget exports for now; Europe is contracting, Japan is a basket case, China is slowing, and the rest of the world is in economic limbo.)

American consumers - whose purchases constitute about 70 percent of all economic activity - still can't buy much, and their purchasing power is declining. The median wage continues to drop, adjusted for inflation. Most can't borrow because they don't have a credit record sufficient to allow them to borrow much.

And now their Social Security taxes have increased, leaving the typical worker with about $1,000 less this year than last.

The Conference Board reported last Tuesday consumer confidence in January fell its lowest level in more than a year. The last time consumers were this glum was October 2011, when there was widespread talk of a double-dip recession.

The only people doing well are at the top - but they save a large part of what they earn instead of spending it.

Overall personal income soared by 8 percent in the final three months of 2012 compared to an increase of just over 2 percent in the third quarter, but this income didn't go into the pockets of the middle class. It went into the pockets of people at the top.

Wages and salaries grew a measly six-tenths of one percent.

Most of the rise in personal income in the last quarter was from companies rushing to pay dividends before taxes were hiked in 2013, and from an upturn in personal interest income. Both these sources of income went mostly to the well-to-do.

This explains why consumer spending is dropping. The Commerce Department said Thursday consumers' spending rose 0.2 percent last month. That's slower than the 0.4 percent increase in November.

So if we can't rely on consumers to stoke the economy, what about government? No chance. Government spending is dropping, too.

The major reason the economy contracted between the start of October and end of December 2012 was a major reduction in government spending in the fourth quarter.

Government spending has declined in nine of the last ten quarters, but it took a precipitous drop in the last quarter. This was mainly because military spending fell 22.2 percent. That's the largest fall-off since 1972 (mainly due to reduced spending on the war in Afghanistan, and worries by military contractors about further pending cuts). State and local spending also continued to fall.

Personally, I'm glad we're spending less on the military. It's the most bloated part of the government. Major cuts are long overdue. But the military is America's only major jobs program. Cutting the military without increasing spending on roads, bridges, schools, and everything else we need to do simply means fewer jobs.

What's ahead? More of the same. So what possible reason do we have to suspect the recovery will pick up speed? None.

Don't count on consumer spending. Wages and benefits continue to drop for most people, adjusted for inflation. States are hiking sales taxes, which will hit the middle class and the poor hardest. Deficit hawks in Washington are contemplating additional tax hikes on the middle class.

Housing prices are stabilizing, thankfully. But one out of five homeowners is still underwater, and the ranks of people renting rather than owning are rising. Health-care costs are also rising for most people in the form of higher co-payments, deductibles, and premiums.

Don't count on government, either. Government spending continues to head downward. The White House has already agreed to major spending cuts, some to go into effect this year. Coming showdowns over the next fiscal cliff, appropriations to fund government operations, and the debt ceiling will likely result in more cuts.

More jobs and faster growth should be the most important objectives now. With them, everything else will be easier to achieve - protection against climate change, immigration reform, long-term budget reform. Without them, everything will be harder.

Yet we're moving in the opposite direction - following Europe's sorry example of failed austerity economics.

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Robert B. Reich, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage." He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

 

JAIL the "Banksters"

JAIL the "Too Big to Fail" BANKSTERS

BILL MOYERS: You're working on a story right now that'll come out in a couple of weeks on the HSBC settlement. That's the, tell me about that, why it interests you.

MATT TAIBBI: Well, the HSBC settlement was a really shocking kind of new low in the history of the too big to fail issue. HSBC was a serial offender on the money laundering score. They had been twice given formal cease and desist orders by the government. One dating back as far as 2003, another one in 2010 for inadequately policing the accounts in their system. They laundered over $800 million for cartels in Colombia.

BILL MOYERS: Drug cartels?

MATT TAIBBI: Drug cartels in Colombia and Mexico. They laundered money for terrorist connected banks in the Middle East. Russian gangsters. Literally, you know, I talked to one prosecutor who's, like, "They broke basically every law in the book and they did business with every kind of criminal you can possibly imagine. And they got a complete and total walk." I mean, they had to pay a fine.

BILL MOYERS: $1.9 billion, a lot of money.

MATT TAIBBI: It's a lot of money. But it's five weeks of revenue for the bank, to put that in perspective. And no individual had to suffer any consequences at all. There were no criminal charges no individual fines, which was incredible. Incredible.

BILL MOYERS: Lenny Breuer also forced the Swiss bank UBS, as you know, to pay a big fine in the LIBOR, the price fixing conspiracy. And that outraged you as well, didn't it?

MATT TAIBBI: This is the, I think the biggest financial scandal of all time. It was a price fixing scandal where, essentially, some of the world's biggest banks got together and they conspired illegally to artificially rig the global interest rates which are based upon this London inner bank offered rate, which is a rate that measures how much it costs for banks to lend money to each other.

This LIBOR rate affects the prices of hundreds of trillions of dollars of financial products. And it goes from everything from credit cards to mortgages to municipal bonds. Basically everything in the world the price is, you know, is somehow connected to LIBOR. And these guys were monkeying around with this for individual profit. And they got, again, a complete and total walk on this. There were no criminal charges, which is just unbelievable.

BILL MOYERS: Did you see the Frontline documentary "The Untouchables?"

MATT TAIBBI: I did.

BILL MOYERS: Then you're familiar with Lanny Breuer's testimony.

MARTIN SMITH in Frontline: The Untouchables: You made a reference to losing sleep at night worrying about what a lawsuit might result in at a large financial institution. Is that really the job of a prosecutor to worry about anything other than simply pursuing justice?

LENNY BREUER in Frontline: The Untouchables: I think I am pursuing justice and I think the entire responsibility of the department is to pursue justice, but in any given case, I think I am prosecutors around the country being responsible should speak to regulators, should speak to experts, because if I bring a case against institution A, and as a result of bringing that case there's some huge economic effect. If it creates a ripple effect so that suddenly counter-parties and other financial institutions or other companies that had nothing to do with this are affected badly, it's a factor we need to know and understand.

MATT TAIBBI: Think about what he's saying. He's essentially saying that some individuals are so systemically important, that they can't be arrested and put in jail. Now, it's only a few steps forward to the corollary to that, which is if some people are too systemically important to arrest, other people may safely be arrested. So we're creating a class of people who are arrestable and another class of people who are not arrestable, which is crazy. It's a crazy thing for the assistant attorney general to say, to admit out loud that he's dividing Americans up into these two classes. There's no reason they couldn't have taken a number of individuals from some of these companies and put them on trial.

Historically, we've always done this. Even under the Bush administration, if you go back just ten years, you know, WorldCom, Enron, you know, Adelphia. We took the leading individuals of these companies and we put them on trial to make an example out of them. And this is exactly what we're not doing in this case. Those companies were systemically important then. I don't see why they can't do the same thing now.

BILL MOYERS: You were shocked when you heard that President Obama had named Mary Jo White to lead the Securities and Exchange Commission. And you wrote that she was a partner in a law firm that represented a lot of these big banks. You know, Bank of America, Goldman Sachs, Chase, AIG, Morgan Stanley.

You said, "She dropped out and made the move a lot of regulators make, leaving government to make bucket loads of money, working for the people she used to police." And I gather your great concern is that you don't want to see the country's top financial cop being indebted to the people who created the bank role?

MATT TAIBBI: Right. Yeah, absolutely. I mean, it's just simple common sense. I mean, you're sitting on $10 million, $15 million, however much money she made working there at Debevoise and Plimpton when she was a partner and you owe that money to this specific group of clients and now you're in charge of policing them, just psychologically think of that. It doesn't really work, you know? It doesn't really work in terms of how aggressive a prosecutor should be, what his attitude towards the people he's supposed to be policing should be. It's just, the circumstances just aren't quite right. You'd much rather see a career civil servant in that in that situation.

BILL MOYERS: She was once a tough prosecutor. What's your beef?

MATT TAIBBI: Well, you know, I have people who are telling me that I'm wrong about this, that Mary Jo White was an excellent prosecutor and she's a good choice. But, you know I've done stories in the past about an episode, you had an SEC investigator named Gary Aguirre who was pursing an insider trading case against the future CEO of Morgan Stanley. He asked for permission to interview that future CEO. His name was John Mack. It was denied. And it was because there was communication between Morgan Stanley's lawyer, who at the time was Mary Jo White and the higher ups at the SEC who included the director of enforcement, Linda Thomsen. Aguirre was later fired for complaining about having this investigation squelched.

BILL MOYERS: Blowing the whistle.

MATT TAIBBI: For blowing the whistle. But the SEC was later forced to pay a $750,000 wrongful termination suit to Aguirre in that case. But what's so interesting is that Aguirre's boss, the guy who killed that case went to work for Mary Jo White's firm nine months after the case died. And he got, you know, a multi-million dollar position. It's a classic example of how the revolving door works in Washington. You know, you have these regulators at the SEC. And they know that there's that job out there waiting for them. So how hard are they really going to regulate these companies when they know they can get that money?

But in Washington, you know, people kind of shake their heads at it because it's so common you know, that these people, they move from government back to, you know, these high priced legal defense firms that represent the banks. And then they go back to government again. And it's this sort of, this coterie of, you know, 100, 200 lawyers who really run this entire thing. And it's all the same people on both sides.

BILL MOYERS: Lanny Breuer was one of them. He was in a very prestigious Washington law firm. Jack Lew, the new incoming secretary of the Treasury if he gets approved, served three years at Citigroup. His record there, according to "The Wall Street Journal" was not very lustrous for a man who's about to take over the Treasury Department. But "The Wall Street Journal" suggests that he got his job, not because he had the experience, but because he was a crony of Robert Rubin.

MATT TAIBBI: Jack Lew served in the Clinton administration. I think he worked in the OMB in the, you know, Office of Management of the Budget. And he was one of the key players in helping pass the repeal of Glass-Steagall. And, you know, this is kind of the way it works. It's not a one to one, you know, obvious connection. But, you know, Glass-Steagall was repealed specifically to legalize the merger of Citi Group. And, you know, coincidentally Bob Rubin, who was the Treasury secretary and Jack Lew end up working at Citi Group five, ten years later. And they make enormous amounts of money. And then they go back to government. And again, this is just sort of this merry-go-round that everybody in Washington knows about. And that's the way it works.

BILL MOYERS: How do you explain President Obama's attitude in this? When he was running for president, he promised the close the revolving door. And he seemed genuinely shocked at the collapse of the financial system and the banks' role in it. But he also was raking in massive campaign contributions from these very people. Did those investments, did those contributions turn out to be good investments, or do you think he's just overwhelmed by the system that's controlled by these guys?

MATT TAIBBI: I think that they genuinely accept the explanation that they're probably hearing from all these people who run these Wall Street companies. You know, people like Bob Rubin and Larry Summers who are close confidants of the Obama administration are probably telling them, "Look, if we start prosecuting all kinds of people for you know, X, Y and Z, there's going to be major instability in the markets. People are going to flee America. They're going to withdraw capital from the American financial system. It'll be a disaster. Jobs will be lost." But it's just not an acceptable it's explanation. I think they're--

BILL MOYERS: Why?

MATT TAIBBI: Well, just because the rule of law isn't really the rule of law if it doesn't apply equally to everybody. I mean, if you're going to put somebody in jail for having a joint in his pocket, you can't let higher ranking HSBC officials off for laundering $800 million for the worst drug dealers in the entire world. People who are suspected, not only of dealing drugs, but of thousands of murders. I mean, this is an incredible dichotomy. And eventually, you know, it eats away at the very fabric of society when some people go to jail and some people don't go to jail.

BILL MOYERS: But do you ever have the sense that those guys are, you know, are and their lawyers are up there laughing at all of us on their way to the bank, no pun intended? I mean, the fact of the matter is they are immune. There was a story in "The Washington Post" the other day by Howard Schneider and Danielle Douglas. With the lead, "Five years after the collapse of Lehman Brothers, a global push to tighten financial regulation around the world has slowed in the face of attempted recovery, which the banks helped bring on. "And a tough industry lobby effort. Big banks, insurers and other financial giants remain intact and arguably too big to fail." I mean, nothing really has changed.

MATT TAIBBI: No, no, definitely not. And in fact, if you want to look at it objectively, since 2008, you know, the companies that we're talking about have become bigger and more dangerous and more immune to prosecution than they were back then. And you might even say by a lot. I mean, you know, the first factor was that you had a series of mergers in 2008, which you know, made companies like Wells Fargo and JP Morgan Chase, you know, double in size.

Or they were much bigger than they were before. So therefore they're more dangerous. And so you have these companies, like Barclays, like Royal Bank of Scotland, like UBS, like HSBC, which are, you know, they can't be regulated. We can't get an accurate accounting of what's going on in their books. And apparently now we can't even criminally prosecute them for laundering money like HSBC does. I mean we just keep setting the bar lower and lower and lower. And it's getting scary I think.

BILL MOYERS: There's a new analysis out just the other day from the Economic Policy Institute that shows the super-rich have done well in the economic recovery, while almost everyone else has done badly. And the economist Robert Reich says, "We're back to the widening inequality we had before the big crash." Are the financial and political worlds just too intertwined and powerful for anything to change?

MATT TAIBBI: I mean, it's a concern, I would worry about. But it doesn't mean you can't, you know, try to stop the problem. I definitely think though that there is this connection now between political power and financial power that's just becoming more and more overt. I mean, what Lanny Breuer is saying in that video is these people who have an enormous amount of power, destructive financial power we can't prosecute them.

On the flip side what they're essentially saying is that people who don't have any money at all, it's politically safe to put them in jail. And so, you know, we're creating this kind of dual class. And it's a very upsetting and disturbing situation.

BILL MOYERS: Matt Taibbi, we'll be looking forward to your next expose in a couple of weeks. Thank you very much for being with us.

MATT TAIBBI: Thanks for having me on.

 

Economy of Fewer, and Fewer Buyers

Why Consumers Are Bummed Out

By Robert Reich, Robert Reich's Blog

30 January 13

he Conference Board reported Tuesday that the preliminary January figure for consumer confidence in the United States fell to its lowest level in more than a year.

The last time consumers were this bummed out was October 2011, when there was widespread talk of a double-dip recession.

But this time business news is buoyant. The stock market is bullish. The housing market seems to have rebounded a bit.

So why are consumers so glum?

Because they're deeply worried about their jobs and their incomes - as they have every right to be.

The job situation is still lousy. We'll know more this coming Friday about what happened to jobs in January. But we know over 20 million people are still unemployed or underemployed.

Personal income is in terrible shape. The median wage continues to drop, adjusted for inflation.

Most people can't get readily-available loans because banks are still cautious about lending to anyone without a sterling credit history. (Eliminate student loans and you find Americans aren't borrowing any more than they were a year ago.)

And the payroll tax hike has reduced paychecks for the typical American by about $100 a month. That's just about what the typical family spends to fill up their gas tanks per month. Or half what they spend for groceries each week.

Contrast the current pessimism with consumer sentiment last October. Then, a majority polled by the Conference Board expected their incomes to rise over the next six months.

Now just 14 percent expect their incomes to rise, and 23 percent expect them to fall.

That 9 percent gap of pessimists exceeding optimists is the largest since the spring of 2009 when the Great Recession was almost at its worst.

The stock market is bullish because corporate profits are up, costs are down, the "fiscal cliff" agreement has locked in low taxes for most of the upper-middle class and wealthy, and there's no sign of inflation as far as the eye can see.

But corporate profits can't stay high when American consumers - whose spending is 70 percent of the U.S. economy - are this pessimistic about the future. They're just not going to spend.

American companies won't be able to make up the difference in foreign markets. Europe is careening into a recession. Japan is still in deep trouble. China's growth has slowed.

Profits are the highest share of the U.S. economy on record. Wages are the lowest. But this imbalance can't and won't last.

Investors: beware.

Politicians: Don't do any more deficit reduction. When consumers are this glum, austerity economics is particularly dangerous.

If the next showdowns over the fiscal cliff, government appropriations, and debt ceiling result in more deficit cuts this year, we're in a recession.