banking bailout

The Financial Crisis Inquiry Commission: Meaningful or Milquetoast?

Les Leopold — Mon, 11 Jan 2010 12:20:05 -0500

Every once in a long while a commission can change America. The 1954 Army-McCarthy hearings destroyed Senator Joe McCarthy by revealing his out-right viciousness and insincerity through the new media of television. The Watergate hearings helped to bring down a president. And the Pecora hearings in 1933 uncovered Wall Street scam after scam that enriched the bankers who crashed the financial system. Those hearings led to the financial reforms and regulations that protected us from another Great Depression, until they were eliminated to our detriment over the past thirty years.

The Financial Crisis Inquiry Commission also wants to make history. It has yet to pick up a name, but perhaps we’ll be soon calling it the Angelides Commission, after its chairman, Phil Angelides, the former California State Treasurer. Angelides set the bar high during a recent interview cited by Frank Rich in the New York Times

[Phil Angelides] wants to examine the financial sector’s “greed, stupidity, hubris and outright corruption” — from traders on the ground to the board room. “It’s important that we deliver new information,” he said. “We can’t just rehash what we’ve known to date.” He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened.

That’s the kind of language used by Ferdinand Pecora, the lead investigator for the 1933 commission, to humiliate the bankers who were stealing from the American people. But Angelides finds himself in a more difficult spot. First of all, he has to contend with more Republicans on his committee who may side with the bankers. After the 1933 Democratic landslide, Pecora and the Democrats were in complete control. Second, Pecora had the full backing of FDR who wanted to slam Wall Street. It’s unclear, to say the least, how much backing Angelides will get from the Obama administration.

But, Angiledes has one thing going for him: the American people are plenty angry just like they were in 1933. The public knows it’s been ripped off. It can’t comprehend how it’s possible for Wall Street bankers to be earning record amounts after so recently crashing the US economy and getting trillions of dollars of bailouts. This Wednesday the heads of Goldman Sachs, JP Morgan, Morgan Stanley and Bank of America will have a chance to explain why they are about to waltz off with gigantic compensation packages while more than 28 million Americans are without jobs or forced into involuntary part-time work.

One more major difference between now and 1933 are paid flacks, handlers and lobbyists who will attempt to inoculate the bankers from harm. You can expect these Wall Street CEOs to come into the hearings with carefully prepared statements that will slant reality their way and avoid all controversy. After hours and hours of prepping, they will respond to sharp questions more like voice-mail options, as the Angelides seeks to push the right buttons. The goal is to get Angelides to hang up. It will take enormous skill to get anything that resembles unrehearsed responses.

Phil Angelides, in fact, has to be better than Ferdinand Pecora. He will have to rip through layer after layer of hype, spin and half truths without the help of unrehearsed witnesses, a resurgent Democratic party or of the President of the United States.

Bob Borosage asked me to live blog to you during these hearings. He picked the right guy because I'm a junkie for this kind of theater. Also, he's under the illusion that I know something about finance because I've written a book about the crash. In any event, throughout the hearings, I’ll be providing you the play by play as it happens. Let’s hope there’s something to report other than PR releases.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009.

Alan Greenspan's Latest Epiphany

Isaiah J. Poole — Fri, 16 Oct 2009 11:07:17 -0400

Mr. Big Stuff himself, as he used to be called on CNBC during his heyday, has spoken once again. But this time, Alan Greenspan has uttered an inconvenient truth. So, will Washington and Wall Street listen?

The former Federal Reserve chairman's statement Thursday before the Council of Foreign Relations in New York about today's megabanks—"if they’re too big to fail, they’re too big"—is so self-evident a fifth-grader would get it. But the adults who are formulating economic policy at the Treasury Department and on Capitol Hill have treated that simple statement as heresy. There has been no serious move on either side of Pennsylvania Avenue to address the increased concentration of the banking sector that has been the consequence of the Wall Street bailout actions of the past year.

Neither has there been much of a ripple in the financial press over Greenspan's comments. (CNBC, which used to slavishly pore over every Greenspan utterance for hours on end when he was Fed chairman, did not mention the Greenspan speech on its website.) They were reported by Bloomberg News:

“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”

At one point, no bank was considered too big to fail, Greenspan said. That changed after the Treasury Department under then-Secretary Hank Paulson effectively nationalized Fannie Mae and Freddie Mac, and the Treasury and Fed bailed out Bear Stearns Cos. and American International Group Inc.

“It’s going to be very difficult to repair their credibility on that because when push came to shove, they didn’t stand up,” Greenspan said.

... The former Fed chairman said while “just really arbitrarily breaking down organizations into various different sizes” goes against his philosophical leanings, something must be done to solve the too-big-to-fail issue.

“If you don’t neutralize that, you’re going to get a moribund group of obsolescent institutions which will be a big drain on the savings of the society,” he said.

“Failure is an integral part, a necessary part of a market system,” he said. “If you start focusing on those who should be shrinking, it undermines growing standards of living and can even bring them down.”

The earnings reports from the financial sector that have come out this week help underscore how the too-big-to-fail problem has been worsened by the policy decisions that have been made by both the Bush and Obama administrations. As the Christian Science Monitor noted this week in reporting on JPMorgan Chase's blockbuster third-quarter earnings of $3.6 billion:

Before the financial crisis, in May 2007, these firms accounted for about 55 percent of the market value of financial firms within the S&P 500. Smaller banks and insurance firms accounted for the other 45 percent, according to numbers crunched earlier this year by Bespoke Investment Group.

Today, those 18 firms account for nearly two-thirds of the financial-sector market value in the index, according to numbers from S&P and the Yahoo! Finance website.

The Washington Post reported in August:

J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.

You may recall that this is not Greenspan's first come-to-Jesus moment. It was about a year ago when Greenspan, testifying before the House Committee on Oversight and Government Reform, admitted that he got the whole unbridled-capitalism-is-always-good thing wrong. "Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief," he said. Back then, our Robert Borosage wrote:

Greenspan spurned the Republican acolytes trying desperately to defend the faith and blame the crisis on the Community Reinvestment Act and the powerful lobby of poor people who forced powerless banks to do reckless things. Greenspan dismissed that goofiness in response to a question from one of its right-wing purveyors, Rep. Todd Platts, R-Pa., noting that subprime loans grew to a crisis only as the unregulated shadow financial system securitized mortgages, marketed them across the world, and pressured brokers to lower standards to generate a larger supply to meet the demand. Private greed, not public good, caused this catastrophe.

But to look at what came out of the House Financial Reform Committee Thursday is to question whether anyone seriously considered Greenspan's change of heart. That committee approved legislation that exempts virtually every bank in the country from policing by a new Consumer Financial Protection Agency. While the argument is that the agency would still have the authority to oversee about 150 of the nation's largest banks, the fact that the remaining 8,000 can escape the scrutiny of an agency charged with safeguarding consumer interests is another jaw-dropping example of the extent to which the banking industry, and not the people, "own" Congress. That 8,000, by the way, includes banks that have assets of as much as $10 billion.

Further, that same legislation creates regulations for derivatives—the shadowy financial transactions that set the stage for the Wall Street financial collapse—that are so full of holes that even Gary G. Gensler, chairman of the Commodity Futures Trading Commission, told The New York Times that he hoped a second congressional committee would rework the legislation to make it stronger.

The anonymous creator of iStockAnalyst, a stock tip site, captured the import of Greenspan's Thursday comments when he wrote on his blog, "You know we've reached code red 'Outrageous' when even 'hands off' Alan Greenspan believes the banks have become too large. As many sensible people have said, anything that is 'too big to fail' is TOO big period."

He goes on to write: "Will it change? No - but now you even have the Chief Provider of Narcotics to the financial industry for two decades worried about the Frankenstein he has helped birth."

That should give everyone pause. We should make sure it does.

Wells Fargo 'Chooses To Cheat Us'

Mike Elk — Tue, 07 Jul 2009 11:27:07 -0400

Last week, I wrote about workers who were fighting back against Wells Fargo after the bank cut off credit to Quad City Die Casting factory on Moline, Ill., causing the factory to close. This week Wells Fargo has cut off health care benefits to the workers, which the workers say violates federal labor laws.

The United Electrical, Radio and Machine Workers of America (UE) Local 1174, which represents the workers, has responded by filing charges today with the National Labor Relations Board. The company also informed employees that Wells Fargo would not approve the expenditure of owed vacation pay, and the company has refused to pay a 2 percent wage increase due the employees under their legally binding collective bargaining agreement.

As Wells Fargo cuts off credit to Quad City and forces it to break its collective bargaining agreement with its workers, the bank has $25 billion in federal bailout funds that were intended in part to make credit more available to businesses.

“Wells Fargo first ends financing, forcing our company to close, and now they won’t pay us what we are owed by law. To us, our vacation, insurance and wages mean everything to our families. But to Wells Fargo it's pennies, not even a blip in their billions. Yet they choose to cheat us out of what we have earned." said Deb Johann, a union member employed at the factory.

According to management officials, Wells Fargo approves all expenditures by the company on a weekly basis. Workers are calling upon federal officials to investigate the practices of Wells Fargo.

The UE that represents workers at the plant is the same union that occupied Republic Windows and Doors last summer. Its members are engaging in direct action against Wells Fargo, calling on the bank to keep the plant open. Workers continue to demand that Wells Fargo do what is necessary to keep the company in business until a sale of the company is finalized. According to parties familiar with the discussions, there are currently several interested parties looking to make a bid to purchase Quad City Die Casting.

The union says that after having received $25 billion in bailout money, Wells Fargo has an obligation to promote economic recovery by keeping the plant open. UE Director of Organization Bob Kingsley said, "We can't let this giant bank default on its obligation to the American people and the people of the Quad Cities. Wells Fargo is a roadblock to economic recovery."

The Federal Reserve Scrubs Its Image

Robert Borosage — Fri, 05 Jun 2009 12:15:53 -0400

Facing congressional criticism for secreting the names of the banks that have benefited from the trillions in Fed guarantees, swaps, loans, and what have you, the Federal Reserve has decided to hire a public relations pro to scrub its image and soothe the legislators.

The choice, as reported by Bloomberg, is a trifecta. Worked for Bob Rubin, who led the effort to repeal Glass-Steagall. Worked for Larry Summers who led the oppositon to regulating derivatives. And worked for Enron, the largest corporate Ponzi scheme of them all. She surely has the right experience

From Bloomberg:

Fed Intends to Hire Lobbyist in Campaign to Buttress Its Image

By Robert Schmidt

June 5 (Bloomberg) -- The Federal Reserve intends to hire a veteran lobbyist as it seeks to counter skepticism in Congress about the central bank’s growing power over the U.S. financial system, people familiar with the matter said.

Linda Robertson currently handles government, community and public affairs at Johns Hopkins University in Baltimore, and headed the Washington lobbying office of Enron Corp., the energy trading company that collapsed in 2002 after an accounting scandal. She was also an adviser to all three of the Clinton administration’s Treasury secretaries.

Robertson would help the Fed manage relations with lawmakers seeking greater oversight of a central bank that has used emergency powers to prevent Wall Street’s demise. While she wasn’t tied to Enron’s fraud, her association with the firm may raise questions, analysts said.

“Some members of Congress think there are votes in attacking the Fed” after it “unnecessarily and unwisely entangled monetary policy with fiscal policy,” said former St. Louis Fed President William Poole. “The Fed is going to have a tricky time of unwinding what has been done” and will need to “keep in touch with members of Congress more thoroughly,” said Poole, now senior fellow with the Cato Institute in Washington.

Robertson served under Treasury Secretaries Lawrence Summers, Robert Rubin and Lloyd Bentsen. She didn’t return calls seeking comment.

Summers Tie

Summers now heads the White House National Economic Council. Along with Treasury Secretary Timothy Geithner, he is leading Obama administration efforts to broaden the economic rescue and overhaul financial regulation. He has been mentioned as a possible successor to Fed Chairman Ben S. Bernanke should Bernanke not be renominated when his term ends in January.

Robertson is likely to start at the Fed in July and have the title of senior adviser to the Board of Governors, the people familiar with the situation said.

She was considered for a senior post under Geithner at the Treasury but ran up against the Obama administration’s restrictions on hiring lobbyists, the people said.

“People have been asking whether the Fed is capable of getting its job done right,” said Lynn Turner, a former chief accountant at the Securities and Exchange Commission. “Hiring a former lobbyist from Enron will surely make one wonder.”

Lawmaker Pressure

Robertson would confront a range of issues in the newly created position. Congress is looking to subject the Fed to more scrutiny, and some lawmakers have suggested that district bank presidents should be confirmed by the Senate.

Some legislators have also expressed opposition to the Obama administration’s attempt to make the Fed the regulator in charge of financial companies deemed too-big-to-fail.

In addition, the central bank has been become a target to some members of Congress who’ve posted online videos of their interrogations of Fed officials during public hearings.

One YouTube clip, of Florida Democratic Representative Alan Grayson’s grilling of Inspector General Elizabeth Coleman, has garnered almost 500,000 views in about a month.

Robertson is expected to advise the Fed on communications strategy, the people said. In recent months, Bernanke has pushed to make the traditionally secretive institution more open. He’s done a television interview with CBS’s “60 Minutes” program and taken questions from reporters at a National Press Club function in Washington.

According to her biography on the Johns Hopkins Web site, Robertson has spent more than 25 years working on federal legislative issues.

While Robertson’s Hopkins biography makes no mention of her work at Enron, federal disclosure documents show she joined the company in 2000 after working at the Treasury. Robertson, who signed some of the forms, said she lobbied on energy and tax issues.