At the request of rule-breaking bankers, a top U.S. regulator has for years settled bank cases in secret, raising the bar on just how far regulators are willing to go to help the industry they regulate.
In one particularly glaring example, Deutsche Bank agreed to pay $54 million to quietly settle charges that its New York mortgage-banking subsidiary, MortgageIT, sold bad loans to another mortgage bank, Independent National Mortgage Corporation, a/k/a "IndyMac." IndyMac collapsed under the weight of bad mortgage loans in July 2008, a notable milestone in the financial crisis.
In exchange for the settlement, the FDIC agreed not to announce the deal unless it was asked about it, the LAT writes. That was just one of "scores" of such settlements the LAT discovered through a Freedom of Information Act request that turned up 1,600 pages of documents.
The FDIC would not comment to the LAT about the no-press-release clauses, but a spokesman did say that it announces settlements "when damage payments are large and media interest intense." And many of the settlements turned up by the FOIA request were indeed fairly small. That does not explain the non-announcement of the Deutsche Bank settlement, which was relatively large and would probably have attracted some media interest.
The no-disclosure clauses might have helped the FDIC settle cases more easily, saving it the expense of going to trial. But so far the agency has been able to recover only $787 million of the $92.5 billion lost to bank collapses between 2007 and 2012, according to the LAT. Those bank failures were often helped along by the banker misbehavior flagged in the FOIA documents, which the LAT calls "a catalog of fraud and negligence: reckless loans to homeowners and builders; falsified documents; inflated appraisals; lender refusals to buy back bad loans."
Regulators are also cracking under heavy banker pressure when it comes to implementing Dodd-Frank financial reform laws. The "Volcker Rule" that tells banks they can't gamble with their own money has been repeatedly delayed, and could soon be delayed again, the Wall Street Journal recently reported.
On television, in interviews and in meetings with investors, executives of the biggest U.S. banks — notably JPMorgan Chase & Co. Chief Executive Jamie Dimon— make the case that size is a competitive advantage. It helps them lower costs and vie for customers on an international scale. Limiting it, they warn, would impair profitability and weaken the country’s position in global finance.
So what if we told you that, by our calculations, the largest U.S. banks aren’t really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers?
Wells Fargo is being sued by the State for vast fraud in the mortgage markets. The U.S. Attorney in the Southern District of New York, Preet Bharara, yesterday brought a case against WF seeking "hundreds of millions of dollars" in damages for what it says is a decade of fraudulent behavior, in which WF wrongfully certified more than 100,000 mortgages as being eligible for federal mortgage insurance. Basically, Wells Fargo screwed the FHA and HUD by mass-approving loans without regard for whether they were defective or not...
I’m in Alaska, amid moose and bear, trying to steal some time away from the absurdities of American politics and economics. But even at this remote distance I caught wind of Sanford Weill’s proposal this morning on CNBC that big banks be broken up in order to shield taxpayers from the consequences of their losses. Forget the bear and moose for a moment. This is big game.
If any single person is responsible for Wall Street banks becoming too big to fail it’s Sandy Weill. In 1998 he created the financial powerhouse Citigroup by combining Traveler’s Insurance and Citibank. To cash in on the combination, Weill then successfully lobbied the Clinton administration to repeal the Glass-Steagall Act – the Depression-era law that separated commercial from investment banking. And he hired my former colleague Bob Rubin, then Clinton’s Secretary of the Treasury, to oversee his new empire.
Weill created the business model that Wall Street uses to this day — unleashing traders to make big, risky bets with other peoples’ money that deliver gigantic bonuses when they turn out well and cost taxpayers dearly when they don’t. And Weill made a fortune – as did all the other executives and traders. JPMorgan and Bank of America soon followed Weill’s example with their own mega-deals, and their bonus pools exploded as well.
Citigroup was bailed out in 2008, as was much of the rest of the Street, but that didn’t alter the business model in any fundamental way. The Street neutered the Dodd-Frank act that was supposed to stop the gambling. JPMorgan, headed by one of Weill’s protégés, Jamie Dimon, just lost $5.8 billion on some risky bets. Dimon continues to claim that giant banks like his can be managed so as to avoid any risk to taxpayers.
Sandy Weill has finally seen the light. It’s a bit late in the day, but, hey, he’s already cashed in. You and I and millions of others in the United States and elsewhere around the world are still paying the price.
What’s the betting that one of the presidential candidates will take up Weill’s proposal?
Tax expert and UK government adviser John Whiting said he was sceptical that the amount hidden was so large.
Mr Whiting, director of the Office of Tax Simplification, said: "There clearly are some significant amounts hidden away, but if it really is that size what is being done with it all?"
Mr Henry said his $21tn is actually a conservative figure and the true scale could be $32tn. A trillion is 1,000 billion.
Mr Henry used data from the Bank of International Settlements, International Monetary Fund, World Bank, and national governments.
His study deals only with financial wealth deposited in bank and investment accounts, and not other assets such as property and yachts.
The report comes amid growing public and political concern about tax avoidance and evasion. Some authorities, including in Germany, have even paid for information on alleged tax evaders stolen from banks.
The group that commissioned the report, Tax Justice Network, campaigns against tax havens.
Mr Henry said that the super-rich move money around the globe through an "industrious bevy of professional enablers in private banking, legal, accounting and investment industries.
"The lost tax revenues implied by our estimates is huge. It is large enough to make a significant difference to the finances of many countries.
"From another angle, this study is really good news. The world has just located a huge pile of financial wealth that might be called upon to contribute to the solution of our most pressing global problems," he said.
'Huge black hole'
The report highlights the impact on the balance sheets of 139 developing countries of money held in tax havens that is put beyond the reach of local tax authorities.
Mr Henry estimates that since the 1970s, the richest citizens of these 139 countries had amassed $7.3tn to $9.3tn of "unrecorded offshore wealth" by 2010.
Private wealth held offshore represents "a huge black hole in the world economy," Mr Henry said.
Mr Whiting, though, urged caution. "I cannot disprove the figures at all, but they do seem staggering. If the suggestion is that such amounts are actively hidden and never accessed, that seems odd - not least in terms of what the tax authorities are doing. In fact, the US, UK and German authorities are doing a lot."
He also pointed out that if tax havens were stuffed with such sizeable amounts, "you would expect the havens to be more conspicuously wealthy than they are".
Other findings in Mr Henry's report include:
At the end of 2010, the 50 leading private banks alone collectively managed more than $12.1tn in cross-border invested assets for private clients
The three private banks handling the most assets offshore are UBS, Credit Suisse and Goldman Sachs
Less than 100,000 people worldwide own about $9.8tn of the wealth held offshore.
There’s been so much corruption on Wall Street in recent years, and the federal government has appeared to be so deeply complicit in many of the problems, that many people have experienced something very like despair over the question of what to do about it all.
But there’s something brewing that looks like it might be a blueprint to effectively take on the financial services industry: a plan to allow local governments to take on the problem of neighborhoods blighted by toxic home loans and foreclosures through the use of eminent domain. I can't speak for how well the program will work, but it's certaily been effective in scaring the hell out of Wall Street.
Under the proposal, towns would essentially be seizing and condemning the man-made mess resulting from the housing bubble. Cooked up by a small group of businessmen and ex-venture capitalists, the audacious idea falls under the category of "That’s so crazy, it just might work!" One of the plan’s originators described it to me as a "four-bank pool shot."...
by Nathaniel Popper The New York Times July 16, 2012
In the Senate report, HSBC is facing accusations that it helped its clients circumvent rules intended to stop transactions from countries facing international sanctions, and in some cases flouted laws in pursuit of profits.
While HSBC is accused of moving money into the United States from North Korea and Cuba, the most extensive problems involved accounts in Iran. An independent audit, paid for by HSBC, found that the bank facilitated 25,000 questionable payments involving Iran between 2001 and 2007. In some cases, HSBC executives counseled Iranian financial institutions on how to evade the filters of American regulators, the report says.
When the bank developed a way to process transactions for Iran's largest retail bank, an HSBC executive wrote an e-mail to his colleagues that said, "I wish to be on the record as not comfortable with this piece of business." None of his colleagues responded and the deal went ahead, according to the report.
The subcommittee also found evidence of widespread wrongdoing in HSBC's failure to stop money laundering through accounts tied to drug trafficking in Mexico. The bank is accused of shipping $7 billion in cash from Mexico to the United States in 2007 and 2008 despite several warnings that the money was coming from cartels that needed a way to return their profits to the United States.
In many of the cases detailed in the report, the Office of the Comptroller of the Currency is said to have spotted the problematic behavior. But in nearly every case, the subcommittee found that the agency gave HSBC only a warning or mild punishment and did not push the bank to make large-scale changes...
As regulators ramp up their global investigation into the manipulation of interest rates, the Justice Department has identified potential criminal wrongdoing by big banks and individuals at the center of the scandal.
The department’s criminal division is building cases against several financial institutions and their employees, including traders at Barclays, the British bank, according to government officials close to the case who spoke on the condition of anonymity because the investigation is continuing. The authorities expect to file charges against at least one bank later this year, one of the officials said.
The prospect of criminal cases is expected to rattle the banking world and provide a new impetus for financial institutions to settle with the authorities. The Justice Department investigation comes on top of private investor lawsuits and a sweeping regulatory inquiry led by the Commodity Futures Trading Commission. Collectively, the civil and criminal actions could cost the banking industry tens of billions of dollars...
It is very hard, looking at the elaborate edifices of fraud that are emerging across the financial system, to ignore the possibility that this kind of silence – "the willingness to not rock the boat" – is simply rewarded by promotion to ever higher positions, ever greater authority. If you learn that rate-rigging and regulatory failures are systemic, but stay quiet, well, perhaps you have shown that you are genuinely reliable and deserve membership of the club...
Meanwhile, Britain is sleepwalking in a march toward total email surveillance, even as the US brings forward new proposals to punish whistleblowers by extending the Espionage Act. In an electronic world, evidence of these crimes lasts forever – if people get their hands on the books. In the Libor case, notably, a major crime has not been greeted by much demand at the top for criminal prosecutions. That asymmetry is one of the insurance policies of power. Another is to crack down on citizens' protest.
When the rest of this scandal comes out, and it turns out that up to 15 more of the world's biggest banks (including Chase, Bank of America, and Citi) were doing the same thing as Barclays, our regulators better start "inflecting their eyebrows" pretty damn vigorously. Because if it comes out that these other banks were all involved with this scandal (and it will come out that way, almost for sure), and their CEOs and COOs get to keep their jobs, that'll be a sure sign that the fix is in. Let's hope Ben Bernanke, Eric Holder, and Tim Geithner are listening.
The Barclays Libor scandal may have shocked the British public, but Joseph Stiglitz saw it coming decades ago. And he's convinced that jailing bankers is the best way to curb market abuses. A towering genius of economics, Stiglitz wrote a series of papers in the 1970s and 1980s explaining how when some individuals have access to privileged knowledge that others don't, free markets yield bad outcomes for wider society. That insight (known as the theory of "asymmetric information") won Stiglitz the Nobel Prize for economics in 2001.
And he has leveraged those credentials relentlessly ever since to batter at the walls of "free market fundamentalism".
It is a crusade that has taken Stiglitz from Massachusetts Institute of Technology, to the Clinton White House, to the World Bank, to the Occupy Wall Street camp and now, to London, to promote his new book The Price of Inequality.
And kind fortune has engineered it so that Stiglitz's UK trip has coincided with a perfect example of the repellent consequences of asymmetric information.
When traders working for Barclays rigged the Libor interest rate and flogged toxic financial derivatives — using their privileged position in the financial system to make profits at the expense of their customers — they were unwittingly proving Stiglitz right.
"It's a textbook illustration," Stiglitz said. "Where there are these asymmetries a lot of these activities are directed at rent seeking appropriating resources from someone else rather than creating new wealth. That was one of my original points. It wasn't about productivity, it was taking advantage."
Yet Stiglitz's interest in the abuses of banks extends beyond the academic. He argues that breaking the economic and political power that has been amassed by the financial sector in recent decades, especially in the US and the UK, is essential if we are to build a more just and prosperous society. The first step, he says, is sending some bankers to jail. " That ought to change. That means legislation. Banks and others have engaged in rent seeking, creating inequality, ripping off other people, and none of them have gone to jail."...
Forget Bernie Madoff and Enron’s Ken Lay—they were mere amateurs in financial crime. The current Libor interest rate scandal, involving hundreds of trillions in international derivatives trade, shows how the really big boys play. And these guys will most likely not do the time because their kind rewrites the law before committing the crime...
Caught as the proverbial deer in the headlights, Barclays Chairman Robert E. Diamond Jr. resigned this week and offered a plaintive defense to the British Parliament that he learned only recently that his bank was manipulating the index on which so large a part of international trade is based. That is plausible only if we assume he was paid $10 million a year to be deliberately ignorant. The Wall Street Journal had exposed this scandal fully four years ago but his bank continued to participate in it nonetheless...
The American-born banker, who has dual citizenship in the United States and Britain, is well versed in financial chicanery, having started by putting together derivatives packages at Credit Suisse First Boston back in 1996. He was compelled under parliamentary questioning Wednesday to admit that “I can’t sit here and say no one in the industry knew about the problems with Libor. There was an issue out there and it should have been dealt with more broadly.”
He couldn’t deny widespread chicanery within his bank because, as in the collapse of Enron a decade ago, investigators had uncovered an email record of market manipulation so glaring that if the top executives were unaware, it was because they didn’t want to know.
As The New York Times editorialized: “The evidence, cited by the Justice Department—which Barclays agreed is ‘true and accurate’—is damning. ‘Always happy to help,’ one employee wrote in an email after being asked to submit false information. ‘If you know how to keep a secret, I’ll bring you in on it,’ wrote a Barclays trader to a trader at another bank, referring to their strategies for mutual gain. If that’s not conspiracy and price-fixing, what is?”...
The sad reality is that they will probably get away with it. The world of high finance is by design as obscure and opaque as the bankers and their political surrogates can make it, and even this most recent crack in their defense of deception will soon be made to go away.
This Libor-manipulation story grows crazier with each passing minute. We have officially disappeared now down the rabbit-hole of the international financial oligarchy.
Former Barclays CEO Bob Diamond is testifying before parliament in London today, and that's sure to bring some shocking moments. But there's already been one huge stunner. In advance of that testimony, Barclays released an email from October 29, 2008, written by Diamond to then-Chairman John Varley and COO Jerry del Messier (who also stepped down yesterday). The email from the CEO to the other two senior Barclays execs purports to detail the content of the conversation Diamond had with Bank of England deputy governor Paul Tucker that same day.
In the email, Diamond essentially tells the other two execs that he has been given permission by Tucker – encouraged, actually – to rig Libor rates downward. What’s even worse is that Diamond’s email suggests that Tucker was only following orders, i.e. that Tucker had received phone calls from "a number of senior figures within Whitehall" – that is, the British government – expressing concern about Barclays' high Libor rates. Tucker in this version of events was acting as a middleman for the British government, telling Diamond to fake his borrowing rates in order to preserve the appearance of financial stability, for the good of Queen and country as it were...
Back to the email. Diamond’s version of the conversation with Tucker, if true, is mind-blowing. To paraphrase, Diamond said that Tucker started off by asking Diamond why other banks were reporting such low borrowing rates relative to Barclays.
Diamond apparently deadpanned that his bank’s problem was that it was reporting the real numbers, while all the other banks were lying. "I asked Tucker if he could relay the reality, that not all banks were providing quotes at the levels that represented real transaction," Diamond wrote.
Tucker then steered Diamond to crime using the painfully oblique manner of an English gentleman trying to engage a prostitute without using any dirty words. He told Diamond that "while he was certain Barclays did not need advice,” the bank did not necessarily need to report such high rates all the time. Tucker put it this way: “It did not always need to be the case that Barclays appeared as high as it has recently."
This email amazes for a few reasons. One, it suggests that Barclays, which is currently carrying the standard in the LIBOR-manipulation scandal, was actually bringing up the rear — that all of the other banks were in on it, and Barclays only attracted the government's notice because they were last.
The second is the apparent revelation that Tucker was acting on orders, or at least suggestions, from Whitehall. If nothing else, this is an awesome piece of political jungle defense by Diamond, tossing a hand-grenade into the seat of Her Majesty's government minutes before he's supposed to be grilled by parliament. This revelation is almost certain to inspire an Aldrich-Ames-style manhunt for the Whitehall figures responsible for this alleged communication to Tucker. And if this turns out to be true? Wow...
The LIBOR manipulation story has exploded into a major scandal overseas. The CEO of Barclays, Bob Diamond, has resigned in disgrace; his was the first of what will undoubtedly be many major banks to walk the regulatory plank for fixing the interbank exchange rate. The Labor party is demanding a sweeping criminal investigation...
The furor is over revelations that Barclays, the Royal Bank of Scotland, and other banks were monkeying with at least $10 trillion in loans (The Wall Street Journal is calculating that that LIBOR affects $800 trillion worth of contracts)...
Anyway, the LIBOR story is leading the front pages of most of Britain’s dailies, it’s on TV, and it’s producing blistering editorials and howls of outrage amongst politicians and activists. But as compadre Yves Smith at Naked Capitalism put it, where’s the outrage here in America?
The big story on our shores in the last few weeks has been the health care ruling, which makes sense, but then after that… what? The heat? Tom and Katie? (There’s actually a story about how Katie can wear heels again, now that she’s not married to a short person). Joe Sandusky? Nightline’s big story tonight, which is already being hyped on the net, is about how fat Chris Christie is and why the hell he hasn’t done the bypass surgery yet...
But to me what’s missing from all of this is the “Holy Fucking Shit!” factor. This story is so outrageous that it shocks even the most cynical Wall Street observers. I have a friend who works on Wall Street who for years has been trolling through the stream of financial corruption stories with bemusement, darkly enjoying the spectacle as though the whole post-crisis news arc has been like one long, beautifully-acted, intensely believable sequel to Goodfellas. But even he is just stunned to the point of near-speechlessness by the LIBOR thing. “It’s like finding out that the whole world is on quicksand,” he says.