‘Justice Deferred [sic]’ And ‘Too Big To Jail’

First, let me offer my thanks to friends/neighbors George and Barbara B-not-Bush, who provided me unasked with their print copy of this month's New York Review of Books. And while I do not know the man face to face (perhaps fortunately, as that is because I have not confronted the federal bench), I have come to have great respect for Jed S. Rakoff, US District Judge for the Southern District of New York, writer for NY Review of occasional reviews of nontechnical legal books, such as the one this post focuses on, Brandon L. Garrett's Too Big to Jail: How Prosecutors Compromise with Corporations.

I don't think I need to explain to any of you why you should care about this matter, but here's the short of it: in the past couple of decades, Justice departments of presidents of both major political parties have worked out agreements with large corporations such that the corporation is not prosecuted and not punished for clearly illegal misdeeds... and the persons responsible, be they board members, upper-level managers, legal teams, professional investment staff, or anyone else employed by these corporations, are not prosecuted or retrained at all. In other words, crimes are committed and noted, slaps on wrists are administered, and the people who committed them are not so much as formally reprimanded, let alone charged. Needless to say, the frequency of such crimes is growing greatly; that's what happens when felonies are simply neglected without any attempt to punish their perpetrators or to repair the faulty corporate procedures that allow them... indeed, encourage them... to be committed.

Judge Rakoff outlines the contents of Mr. Garrett's book much better than I can. Please read the review at the link above.

(Aside: regrettably, HPL seems not to have even one copy of this book, though they have at least one other book by Garrett in their catalog. Too Big to Jail is not even an expensive book on Amazon; I may get one myself.)

So — What's In The New FY 2015 Federal Budget, And What Does It Do To Financial Regulations?

See how your money flies!

Sharmini Peries, executive producer at The Real News Network (TRNN), interviews Gerry Epstein, codirector of the Political Economy Research Institute (PERI) at UMass Amherst:

PERIES: So, Gerry, let's begin with what you see as changes as a result of this budget to Dodd-Frank rules and legislation.

EPSTEIN: Well, it's outrageous what is going on. The Republicans and the Democrats are negotiating this huge budget bill, as you described, in order to prevent another government shutdown, which is an admirable thing to do.

But, of course, when this happens, people try to sneak in all kinds of irrelevant sort of wish-list bills in--provisions into these bills. And one of the most outrageous ones is the banks have stuck in a provision that's going to [blunt (?)] one of the most important aspects of the Dodd-Frank legislation, which, as you said, was designed to reduce the chances of another big financial crisis, and therefore it was designed to reduce the chances that the taxpayers would have to bail out these massive banks.

A provision of the Dodd-Frank that they're repealing by sticking this into this budget bill was designed to prevent the big banks from speculating using derivatives. These derivatives are these complex financial instruments that they use to speculate to make billions of dollars. But when they turn south, they caused Citicorp and Bank of America and these other big banks to virtually go bankrupt, and then the government bailed them out.

So the Dodd-Frank bill said, look, financial institutions can engage in these kinds of complex derivatives speculation if they want, but banks that are supported by the government through FDIC insurance, through deposit insurance, and through having access to the Federal Reserve bailouts and so forth, they can no longer engage in this kind of speculation. ...

And now they see the chance to get into this big must-do bill, and it's going to gut even further the Dodd-Frank legislation and make it much more likely that these big banks could start speculating or continuing to speculate, and it makes it much more likely that the taxpayer is going to have to bail them out again. ...

EPSTEIN: Well, first of all, they don't need to be doing this. There are all kinds of other institutions that can do it. But second of all, that's not how they use the derivatives. They use the derivatives to speculate on commodities. They use derivatives to speculate on municipal bonds, as we saw in Detroit. They use derivatives to cheat their customers. They use derivatives to cheat homeowners when they write these mortgages and pack them into these complex products, like collateralized debt obligations. And they do it with subsidized funds. That is, when these big banks that have deposit insurance and that they know the Federal Reserve will bail them out if they get into trouble, they get to borrow money more cheaply. Therefore, they get to speculate using cheaper money. They make much more profits. They pay their CEOs and their rainmakers millions and millions of dollars each year. And then, when things go bust, we have to bail them out.

...

Read the whole thing; see the whole sorry scam. As CSN&Y sang in "Deja Vu," we have all been here before. Remember the S&L scandals and bailouts from about 1986 to 1995? Who paid for that? (Hint: it wasn't the scandalous S&Ls themselves!)

Now the banks want to do it all over again. Now that there's no distinction between commercial banks and investment banks, the whole of Wall Street is one big criminal enterprise... backed by your tax dollars, if this bill passes and is signed into law.

Better start stuffing those mattresses, folks...

Blogger wendydavis at FDL quotes Lambert Strether at Naked Capitalism:

What could go wrong? The bottom line here is that the legalities and the contractual relations and whatever moral commitments were made don’t really matter. What does matter is that whenever there’s a big pot of money lying around that theoreticallly should go to working people — say, retirement funds, but it could be anything — Congress can retrade whatever deal put the money into the pot, and years after the fact, too. Oh, and workers lose the right to challenge the cuts in court. Nice!

Nice indeed. Nice screw job, from Wall Street to your ear...

Robert Reich: Wall Street Is One Of Democratic Party's Biggest Contributors

That's right: as improbable as it may seem to rank-and-file Democrats, their party is nearly as wholly owned by Wall Street as the GOP is... and Wall Street is paid back manifold, through the carried-interest tax loophole. Read this sad truth presented by Robert Reich, if you can stand to do so.

Think About This Senator From Massachusetts — Think Long And Hard About What She Could Do

... in an office with a great deal more power.

One thing she could do is make my broker and yours sh!t their pants, and that's no bad thing...

Wall Street Lobbyists: Pass Bill Deregulating Derivatives — Or We Will Shut Down Government

Via Isaiah Poole at Campaign for America's Future, we have the following from Zach Carter at Huffington Post:

According to multiple Democratic sources, banks are pushing hard to include the controversial provision in funding legislation that would keep the government operating after Dec. 11. Top negotiators in the House are taking the derivatives provision seriously, and may include it in the final bill, the sources said.

The bank perks are not a traditional budget item. They would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. -- potentially putting taxpayers on the hook for losses caused by the risky contracts. Big Wall Street banks had typically traded derivatives from these FDIC-backed units, but the 2010 Dodd-Frank financial reform law required them to move many of the transactions to other subsidiaries that are not insured by taxpayers.

...

The more things change, the more the changes are reversed by Republicans. Derivatives are arguably a major cause of the Wall Street collapse of 2008. They are inherently risky and under Dodd-Frank are currently not government-backed; see Wikipedia for a summary and list of the risks. Wikipedia concludes

[The loss] comes to a staggering $39.5 billion, the majority in the last decade after the Commodity Futures Modernization Act of 2000 was passed.

GOP Santa

Wikipedia is not known for allowing disputed content to remain unchallenged for long: almost everyone except the Wall Street fraudsters agrees the risks of unregulated derivatives are unacceptable. But Wall Street wants them back, with bells on... i.e., with FDIC backing. Your tax dollars at work, for Wall Street!

And the Party of No says Yes! Yes! Yes! to reviving them, or else they'll take their marbles and go home.

Campaign for America's Future has a petition. I signed it; what about you?

What Has The Consumer Financial Protection Bureau (CFPB) Ever Done For Me?

The CFPB is actually working! Via Bill Moyers, from Erika Eichelberger at Mother Jones, here is a list of 10 things the CFPB, brainchild of now Sen. Elizabeth Warren (D-MA), has done to protect you from various sorts of finance industry fraud. Read the list; one or more items may apply to you.

‘The Payoff’

 Seldom does a Washington lobbyist, lawyer and power-broker write a book. Even less often do I bother reading such a book. But it looks as if I am going to finish Jeff Connaughton's The Payoff: Why Wall Street Always Wins, in record time. It's not a page-turner for the author's writing (middling at best), his great personal charm (none that I can see), his admirable character (maybe, but like most wealthy people, he has some other aspects) or the novelty of the plot (I suspect this crap was going on long before our republic was a gleam in its founders' eyes), but because I find it simply dumbfounding that Wall Street essentially runs unregulated, and has the power to do literally anything it wants.

Read it and weep: we are wholly owned. Don't buy the book; I found it at the corner library, and you probably can, too.

Sometimes...

Sometimes, recently approaching all the time, I want to FACE DOWN THE FINANCIAL POWERS‑THAT‑BE IN THE OBAMA ADMINISTRATION, SLAP THEM BACK‑AND‑FORTH ACROSS THE FACE A FEW TIMES, HARD, TO GET THEIR ATTENTION, AND DEMAND OF THEM, "HAVE YOU LEARNED NOTHING AT ALL FROM AMERICA'S HISTORY???"

Armando at Daily Kos, faced with the same frustration, wrote a well-reasoned position paper, "The Lessons of 1937"; his post is probably less damaging to our cause than all that face-slapping would be, though I don't know that it will have any more positive effect on Obama's Wall Street gang...

Do you suppose there's any way, perhaps through the work of a stage hypnotist, to implant a suggestion in all of Obama's advisors that "austerity" is equivalent to, say, "obscenity," or perhaps "marijuana," or maybe "WikiLeaks"?

Dean Baker: Tax Wall Street Trades

Specifically, Baker advocates a per-trade tax of 0.03 percent, as a discouragement to financial speculation... i.e., gambling... as proposed in the Joint Tax Committee of Congress by Sen. Tom Harkin and Rep. Peter DeFazio:

As the presidential election builds up steam, the Washington elites in both parties are actively scheming to find ways to cut Social Security and Medicare benefits for retired workers. The media have widely reported on efforts to slip through a version of the deficit reduction plan developed by Morgan Stanley director Erskine Bowles and former Senator Alan Simpson. Since the vast majority of voters across the political spectrum reject cuts to these programs, the Washington insiders hope to spring this one on us after the election, when the public will have no say.

That is the sort of anti-democratic behavior we expect from elites who naturally want to protect their own interests. Of course the rest of us are more concerned about the well-being of the country as a whole rather than preserving the wealth of the richest 1 percent.

For the 99 percent there are much better ways of dealing with whatever deficit problems may arise down the road. Most obviously, insofar as we need more revenue we can look to tax the sort of financial speculation through which the Wall Street gang makes its fortunes. A very small tax on trades of stocks, options, credit default swaps and other derivative instruments could raise a vast amount of money.

The Joint Tax Committee of Congress estimated that a tax of just 0.03 percent on each trade, as proposed by Senator Tom Harkin and Representative Peter DeFazio, would raise more than $350 billion over the first nine years that it is in place. This is real money. It is an order of magnitude larger than the measures that have been suggested to go after the wealthy, such as President Obama's bank tax or most versions of the Buffet Rule.

...

This sounds right to me. People and corporations that use algorithms to execute ceaseless trades every millisecond or so are not contributing to the soundness of society or the economy, whether they make tons of money or not, and they should be made to pay for the practice. Slightly off topic, I also see no reason why capital gains should be taxed at a dramatically lower rate than earned income, but as far as I know, changes to that practice are not even on the table.

(Full disclosure: I have a relatively small amount of money invested. Literally none of my investments were speculative: all were chosen after I did considerable research to be as certain as I could be that the companies behind them are socially responsible (or better still, socially useful), and all have been held long-term. For my troubles, I have lost a fair amount of money in the market; I'd have done better with money in the mattress. But at least I didn't fund bombs, nuclear plants or genetically modified organisms. I sleep well with my decision. But in a legitimate market, I'd have been able to do well by doing good.)

If Baker is right, and the plans of Bowles and Simpson are sprung upon us after the election, it may well be that in this respect (as in so many others) it really doesn't matter who you vote for. Obama's advisors and cabinet members (i.e., department heads) are straight from the Street; none of them are going to do a damned thing in behalf of the 99 percent. Then again, there's Rmoney... he's the man who milks and then discards successful corporations, destroying jobs, using other people's money and taking a large cut himself, not to mention refusing to talk about his offshore accounts. Given that Rmoney apparently has Crossroads support, I guess you could call him a "Rove-ing gambler." So no matter who wins the presidency, no per-trade tax will happen, Washington will be awash in money as always, and the 99 percent... well, we lose. We always do.

Still, it's good to keep a per-trade tax in mind, just in case there's ever (ahem) an extraordinary change in the climate in Washington and actual change is possible. One can dream.