The Plague of Wall Street Banking

by KEVIN ZEESE and MARAGAET FLOWERS

The economic news this week highlights what happens when governments are unable to confront the root cause of the financial collapse – the risky speculation and securities fraud of the big banks.  What happens? They blame the people, cut their benefits, tax their savings and demand they work harder for less money.

In the United States there have been no criminal prosecutions for securities fraud in the big banks.  Just as the Justice Department has made it clear that the big banks are too big to jail because doing so jeopardizes the stability of the banking system; financial fraud investigator Bill Black points out that the SEC cannot institute fines that are too big for the same reason. “The art is to make the number sound large to fool the rubes, but to insure that the fine poses only a modest inconvenience to our ‘most reputable’ fraudulent banks.” So, the SEC trumpets “more than 150 firms and individuals, with sanctions totaling $2.7 billion.” Black points out that this number sounds big, but it isn’t compared to the losses caused by the fraud epidemic in the US which are well in excess of $15 trillion.  A trillion is a thousand billion. Are we, ‘the rubes’ or do we know that our government is in cahoots with big finance?

In fact, the big banks have been engaged in all sorts of nefarious activity for a long time, asWashington’s Blog points out with this jaw-dropping list of crimes, and are rife with fraud. And, this week the biggest of the too big to prosecute, JP Morgan, had its financial fraud and disrespect for government on display when the Senate Banking Committee issued a massive 300 page indictment, errr report, documenting the $6.2 billion “London Whale” scandal. The report traces the scandal right to the top, CEO Jamie Dimon, and shows how the bank lied to bank examiners and investors. Experts state the obvious from this evident fraud; investigations and fines, and possibly a large monetary settlement are possible but a prosecution by DOJ remains unlikely. Obvious because everyone knows the game in Washington is one of no criminal prosecutions.

Although, another too big to jail bank, Goldman Sachs did have a loss in court this week, when the US Supreme Court refused to overturn a Court of Appeals decision requiring the bank to defend a civil suit by investors claiming securities fraud.  There are lots of hurdles ahead, but this provides a glimmer of hope.

This week our too big to prosecute philosophy of the (lack of) Justice Department was shown to apply to foreign banks as well.  The second largest bank in Germany got a pass when it offered a job to an IRS agent who cut its tax burden.  Again, the rubes were told that Commerzbank paid $210 million in tax liability, sounds good, but it was only 62% of what it owed. The day after the agreement the IRS officer was offered a job at Commerzbank. The agent pled guilty to charges this week, but the bank and the officers involved were not prosecuted.

Europe is showing us what happens when government fails to confront the big banks – the people pay and the economy collapses into depression.  Is this our future?

The horror story of the week for struggling workers and poor countries has to be Cyprus.  The country was being built up as a big banking area but when it all went sour, they went to the EU for a bailout.  The EU hemmed and hawed and finally agreed, but with a very big requirement which takes structural adjustment to a new level of abuse – they required “a one-off 10 percent tax on savings over €100,000 and a 6.75 percent tax on small depositors. Senior bank bondholders and investors in Cyprus’ sovereign debt will be left untouched.” [See update below.]

This is causing a run on the banks in Cyprus, but is also raising red flags in many other struggling Euro countries.  Can bank accounts in Greece, Italy, Spain, Portugal or any other country in Europe be safe? Are more and more people going to take their money out of the banks and keep it under their mattress? It may seem like the sane thing to do but a run on the banks will just weaken shaky banks further.

Leaders of the EU, IMF and Germany are all staying with their demand for more austerity and greater productivity (i.e. lower wages for greater output). At the same time they are urging bailout of the banking system which remains weak.  This same leadership recognizes their approach may lead to a “social explosion” and Standard & Poors is also warning that the situation is socially explosive. The reality is that southern Europe is essentially in a depression and Germany, EU and IMF are demanding that they squeeze more money out of impoverished people.

In Washington, DC, the two Wall Street parties keep talking about cuts to the budget – austerity measures that will hurt the old, the poor, the young and working class – and disregard the fact that government spending is actually not the problem.  While they push austerity, they remain silent as big business interests go into their sixth year of big tax avoidance. Paul Buchheit summarizes “For over 20 years, from 1987 to 2008, corporations paid an average of 22.5 percent in federal taxes. Since the recession, this has dropped to 10 percent – even though their profits have doubled in less than ten years.” He highlights the worst of the worst. On top was Obama’s jobs czar, General Electric.

There is some sanity, but not much, among the US financial elite. Dallas Fed Chairman Richard Fisher told the Conservative Political Action Conference that it was time to break up the big banks and end the crony capitalism that protects them.  Liberal Democrat Sherrod Brown has introduced a bill to do just that. Of course it is opposed by the administration so it will probably not go anywhere.

Instead, President Obama is pushing the anti-democratic Trans Pacific Partnership which is a gift to the big banks and other transnational corporate interests. For the big banks it will require countries to let capital flow in and out without restriction, not allow the banning or regulation of risky investments like derivatives and credit-default swaps and will prevent the formation of much-needed public banks. Our Wall Street government continues to serve Wall Street first at the expense of the people’s necessities.

All of this shows it is time to remake the banking system: hold security fraud violators criminally accountable, break up the too big to jail banks, support community banks and credit unions and create public banks at least at the state and local level; and make the Fed transparent and accountable to democracy.  This would be a transformed banking system that would serve the people and the economy, move toward economic democracy and take power away from corrupt Wall Street. Failure to confront and remove the plague of Wall Street-centered banking will continue to infect the entire economy.  Is Cyprus in our future? It doesn’t have to be.

Update: On Tuesday, March 19, the Parliament in Cyprus rejected the tax on bank accounts after mass protests by the people. This leaves Cyprus in a mess with no bailout and no money to contribute to a bailout. Will Russia invest in future oil found recently off the coast of Cyprus in return for the Parliament protecting $30 billion in Russian deposits that are in Cyprus banks? Will Germany and the EU bend, not requiring Cyprus to raise money for the bailout? Will Cyprus leave the EU? Lots of questions without answers right now, but the banks in the country will remain closed until they figure it out.

Kevin Zeese JD and Margaret Flowers MD co-host ClearingtheFOGRadio.org on We Act Radio 1480 AM Washington, DC and on Economic Democracy Media, co-direct It’s Our Economy and were organizers of the Occupation of Washington, DC. Their twitters are @KBZeese and @MFlowers8.

This article is based on a weekly newsletter from It’s Our Economy. You can sign-up here to receive this free newsletter.

Kevin Zeese JD and Margaret Flowers MD co-host ClearingtheFOGRadio.org on We Act Radio 1480 AM Washington, DC and onEconomic Democracy Media, co-direct It’s Our Economy and are organizers of the Occupation of Washington, DC. Their twitters are @KBZeese and @MFlowers8.

Like What You’ve Read? Support CounterPunch
September 02, 2015
Paul Street
Strange Words From St. Bernard and the Sandernistas
Jose Martinez
Houston, We Have a Problem: False Equivalencies on Police Violence
Henry Giroux
Global Capitalism and the Culture of Mad Violence
Ajamu Baraka
Making Black Lives Matter in Riohacha, Colombia
William Edstrom
Wall Street and the Military are Draining Americans High and Dry
David Altheide
The Media Syndrome Between a Glock and a GoPro
Ruth Fowler
Ask Not: Lost in the Crowd with Amanda Palmer
Yves Engler
Canada vs. Africa
Ron Jacobs
The League of Empire
Andrew Smolski
Democracy and Privatization in Neoliberal Mexico
Stephen Lendman
Gaza: a Socioeconomic Dead Zone
Norman Pollack
Obama, Flim-Flam Artist: Alaska Off-Shore Drilling
Binoy Kampmark
Australian Border Force Gore
Kim Nicolini
Remembering Wes Craven’s The Hills Have Eyes
September 01, 2015
Mike Whitney
Return to Crisis: Things Keep Getting Worse
Michael Schwalbe
The Moral Hazards of Capitalism
Eric Mann
Inside the Civil Rights Movement: a Conversation With Julian Bond
Pam Martens
How Wall Street Parasites Have Devoured Their Hosts, Your Retirement Plan and the U.S. Economy
Jonathan Latham
Growing Doubt: a Scientist’s Experience of GMOs
Fran Shor
Occupy Wall Street and the Sanders Campaign: a Case of Historical Amnesia?
Joe Paff
The Big Trees: Cockburn, Marx and Shostakovich
Randy Blazak
University Administrators Allow Fraternities to Turn Colleges Into Rape Factories
Robert Hunziker
The IPCC Caught in a Pressure Cooker
George Wuerthner
Myths of the Anthropocene Boosters: Truthout’s Misguided Attack on Wilderness and National Park Ideals
Robert Koehler
Sending Your Children Off to Safe Spaces in College
Jesse Jackson
Season of the Insurgents: From Trump to Sanders
August 31, 2015
Michael Hudson
Whitewashing the IMF’s Destructive Role in Greece
Conn Hallinan
Europe’s New Barbarians
Lawrence Ware
George Bush (Still) Doesn’t Care About Black People
Joseph Natoli
Plutocracy, Gentrification and Racial Violence
Franklin Spinney
One Presidential Debate You Won’t Hear: Why It is Time to Adopt a Sensible Grand Strategy
Dave Lindorff
What’s Wrong with Police in America
Louis Proyect
Jacobin and “The War on Syria”
Lawrence Wittner
Militarism Run Amok: How Russians and Americans are Preparing Their Children for War
Binoy Kampmark
Tales of Darkness: Europe’s Refugee Woes
Ralph Nader
Lo, the Poor Enlightened Billionaire!
Peter Koenig
Greece: a New Beginning? A New Hope?
Dean Baker
America Needs an “Idiot-Proof” Retirement System
Vijay Prashad
Why the Iran Deal is Essential
Tom Clifford
The Marco Polo Bridge Incident: a History That Continues to Resonate
Peter Belmont
The Salaita Affair: a Scandal That Never Should Have Happened
Weekend Edition
August 28-30, 2015
Randy Blazak
Donald Trump is the New Face of White Supremacy
Jeffrey St. Clair
Long Time Coming, Long Time Gone
Mike Whitney
Looting Made Easy: the $2 Trillion Buyback Binge
Alan Nasser
The Myth of the Middle Class: Have Most Americans Always Been Poor?