By Farron Cousins
November 16th, 2012 6:00am
Even before the final votes were counted on election day, the results of the election really don’t matter when it comes to Wall Street bankers. The so-called Too Big To Fail banks had already won the election, because neither candidate had the courage to stand up to the corruption of Wall Street and enact any kinds of reform that would help stop the banking industry from pulling off scams that destroy the lives of American consumers. Wall Street has already won, and American consumers have lost. Recently, Mike Papantonio of Ring of Fire talked about why Wall Street declared itself this year’s election winner with Nomi Prins, author of the new book “Black Tuesday,” and the transcript of that interview is below:
Mike: Nomi, when you hear Democrats talk about Dodd-Frank, it’s almost as if they’re thinking it’s some broad, sweeping reform that’s going to solve all the problems that burned our economy down. Nothing’s further from the truth, is it? All you have to do is look at this short history since the Wall Street burn down of our entire economy to understand Dodd-Frank is certainly not the sweeping reform that’s going to save us, is it?
Nomi: No, it isn’t at all. The bad part about framing it as such, or how Washington has framed it as such, is it doesn’t give us an opportunity to really create reform. Real reform would entail restructuring the entire banking landscape, and separating the components of banks that do shoddy toxic assets, and sell them, and speculate with them, and borrow against them, and inflate an entire fake economy and then deflate it much more quickly, as we saw during the crisis of 2008, into reasonable components that deal with individuals on deposits and loans. They can speculate separately all they want to, but not within the same institution that’s federally backed. That is not what was thought from Dodd-Frank.
Mike: Nomi, as you look back, we all knew what was going to happen when we saw Glass-Steagall dismantled. If you go back and you look at what the critics were saying was going to happen, it’s a little eerie because all of it happened. Exactly what they said was going to happen, happened. You had greed take over on Wall Street and create a mechanism that it makes it virtually impossible for the average consumer to ever get a fair break where it comes to dealing with big banks. Second of all, it makes it impossible to have our leadership find enough courage to do anything about it, as we’ve seen with our Justice Department. There’s no happy ending here. I don’t see this landing in a way that there’s a happy ending, unless you have a Department of Justice that starts putting people in jail. I just don’t see how this gets any better.
Nomi: Unfortunately, it doesn’t get better. The Department of Justice has totally dropped the ball. In fact, everything that the SEC did in terms of fining a lot of these institutions for what was called CDOs, or collateralized debt obligations, just a crazy Wall Street acronym for packaging junkie loans into something that looks pretty and then selling in onto the world, are all of the fines. The SEC was completely not even behind the ball, but nowhere near the ball in looking at this stuff as it was building up throughout the 2000s. Even after their fines, all the banks got to say, “We will deny any wrongdoing. We did nothing wrong. We’ll pay these fines so that we can go on our merry way, but we did nothing wrong.” Then you hand us over to the Justice Department and they basically say this on behalf of the banks. They say, “We can’t find that they really did anything wrong either.” They dropped all of these cases, and then that result was a total of about $4.5 billion worth of fines levied on the industry, most of which came from civil suits, not even from the SEC fines. [Inaudible 00:03:25] the bonuses these guys made over the period where the buildup to the crisis happened.
Mike: Let’s put it in perspective. $4.4 billion is what we saw. As you point out, most of that came from the private sector, lawyers saying, “We’re going to go after these people.” Otherwise, the Department of Justice probably would have done nothing. I can tell you firsthand, having handled these cases, that had it not been for our effort, the Department of Justice would have done nothing. Virtually nothing. Your comparison is to say, “Let’s look at the $4 billion compared to the Wall Street bonuses that topped $600 billion. Almost $700 billion dollars. The bonuses versus the paltry fines. To say, Nomi, that nobody did anything wrong. Nobody went to jail. Nobody was perp walked. There were no trials. It doesn’t take a lot of analysis to understand that we have a broken Department of Justice and broken leadership in Washington under Obama. This was his watch and nothing was accomplished.
Nomi: That’s exactly right. Not only was nothing happened, again, what occurs is we have this pretend that something happened, which is even worse than nothing happening, or at least equal. We have historically a period where there leadership. When FDR was in office in the White House, and this was after an unprecedented amount of fraud and speculation had culminated in the 1929 crash, and the awful Great Depression that followed. He took the leadership to create Glass-Steagall which separated the banks, and said you can’t be backed by the government and also create speculative transactions. You do one or the other, but you don’t back to speculation. Not only that, and this is something historically I don’t think anyone today understands in leadership or in banking. Something very critical happened under FDR as well, which was that the top banker at the time, Winthrop Aldrich, who was the head of Chase, the biggest bank in the country. He said, “I am for regulation. He in the front pages of the New York Times had a full spread with tighter regulations than Glass-Steagall was even proposing. He made it harsher and he did that because he agreed that regulation was important to the stability of the country, which was important also selfishly, to the stability of Wall Street. It came together. Today, we don’t have that philosophy.
Mike: First of all, as you put it and make it so clear in everything you write, we have no leader that will take on Jamie Dimon. If you don’t take on the worst of the worst, the Jamie Dimon types, then you have a system that doesn’t work. One story I thought was interesting, and you pointed out several times in your writing, and that is that you had, and this really tells a story, you had an Obama appointed SEC head, Mary Schapiro. She settled with Bank of America for just a giveaway, $34 million in a case that somebody should have gone to prison for. I’ll say it. You don’t have to say it. I’ll say it. I know the facts. People should have gone to prison for it. It was so bad the Department of Justice says, “We’re going to give you this friendly settlement of $30 million and then the judge, Rakoff of all people, the judge who typically is not really a proactive judge on these issues. He says, “No, the fine is going to be $150 million, because you misled shareholders. You did it during a time that all the rules were very clear, and you violated about 17 that were very clear, that in ordinary circumstances, would have put people in prison. This was Mary Schapiro, the Obama appointed SEC head, that said, “We’re just going to let you go.” How do you ever change the culture like that?
Nomi: You have to get rid of Mary Schapiro. You have to get rid of, effectively, Obama. The fact that he thinks anything happened reformatory, again, it’s a deep problem. It isn’t leadership to lie. It’s not leadership to not get into the bottom of what happened. These were fraud cases, and the Bank of America case, for example, with Countrywide, that’s still ongoing. All the fraud that happened with Bank of America taking over Countrywide. Aside from Bank of America and Merrill Lynch, which was where Mary Schapiro came in and tried to levy a nothing fine. All of that is criminal behavior. There was lying going on. There was fraud going on. There was infractions going on. There was misleading going on. There were so many, as you mentioned. Seventeen different types of crime that happened, and yet the SEC found nothing wrong. The Department of Justice has decided there will be nothing wrong to be found. The treasury secretary, Tim Geithner, has been completely absent in this campaign period from view, because he was involved in many of these decisions when the bail-outs and the subsidization that is ongoing for the banking industry to remain as it is, continues to go forward. The Federal Reserve isn’t implicated at all, and Obama was the person who reappointed Ben Bernanke, who was in the middle of the bailout and subsidization pre period into the post period. We still have him continuing to really support the banking system as is. There’s broken leadership [inaudible 00:09:15] everywhere.
Mike: We know this. Take what we’ve seen here with the Obama administration and watch it geometrically gain just abysmal disaster if we have a Mitt Romney. Those are our choices. We do know this. We do know with a Mitt Romney, he’s made it very clear. We look at the money that’s flowed to him and the statements that he’s made. It’s very clear. We’re certainly not going to see an improvement. My bet would be it would even get worse. Even though you have Obama, he has completely dropped the ball. Utterly dropped the ball. If he’s reelected, my hope is the first thing he does is get the Department of Justice under control. Puts Eric Holder out to pasture. Eric Holder simply is one of them. That’s what everybody misses.
Switching gears here – Nomi, you’ve written an awful lot about Libor. It’s embarrassing. I’m a journalism major back at University of Florida. One thing we were taught in journalism school was that sometimes understanding something, doing the hard work to dig and get the facts, that’s the role of a journalist. That’s what I always see you do. For example, you were out front on the Libor scandal before anybody was talking about it. Explain the problem we’ve seen with government even thinking Libor was a problem. First of all, how bad was Libor, and then what did government do about it?
Nomi: Libor stands for the London Interbank Borrowing Rate. It’s basically the rate at which banks lend to each other. More than that, it’s the rate at which banks set the price of their assets. For example, if they have a mortgage on their books and it’s connected to the Libor rate, if the Libor rate is low, the mortgage on their books will look like it’s valued higher. They book will look better if Libor is kept low. What the banks did, and they did this with the help of the Federal Reserve, with Central Bank in the UK amongst each other, and with the knowledge of the Treasury Secretary, got together and said we need this rate to be low because we have really bad assets on our books and we need them to look better so we can continue to appear solvent. That’s what they all did. All of these banking international institutions got together and said that’s what we’re going to do. That is what happened in the pre period to the crisis. From the population standpoint, we didn’t even have the ability to publicly know what was going on until it was very late. They knew what was going on. We did not know.
Mike: The Department of Justice knew, the SEC knew, the Treasury Secretary knew. Everybody knew, and I think the most troubling thing to me was to see Geithner’s reaction and leadership’s reaction, as if oh golly, how could we have known this was happening? This is just a total surprise. That was so fraudulent, wasn’t it?
Nomi: That was fraudulent because we subsequently found out that was lying. They did know. Not only did they have to have known, they see the rate. They see it drop. They know how it evaluates into assets. There is no miscommunication amongst those entities. They knew. They said they knew afterwards.
Mike: That’s just another example. How about the Fed announcing the QE3, this unlimited version of the Fed buying up about $30-$40 billion a month of mortgage-backed securities from banks? First of all, explain why they did that, and then explain does it ever get any better? What does it do to the economy?
Nomi: Here’s the thing. The Fed knows that these mortgage assets that are still on the bank’s books are bad. The banks can’t get rid of them. They say that if the banks can’t get rid of them, they can’t use their capital to lend productively. However, as we have seen, they don’t lend productively because they don’t want to. They would far rather speculate. Lending is a very, very distant side business. What happens is the Feds say just buy what you can’t get rid of. That is literally what it is. We will buy the waste in your attic and we will keep it on our books and we will pay for it until forever. Until we decide not to. What they’re doing therefore, they’re kind of draining the mortgage sewage from the system.
Mike: Who gets the sewage in the end? The taxpayer gets the sewage in the end, don’t?
Nomi: We pay for it. The treasury debt, which was discussed a lot in the campaign, and not really explained anywhere. The real treasury debt has come from subsidizing the banking the system. There’s been $5 trillion more of debt that is put on during the Obama administration. Almost $2.5 trillion of that debt is lying around the books of the Federal Reserve. It’s treasury bonds sitting there, treasury debt that was created to subsidize the system. It’s there on reserve for them in case they need it because they’re still insolvent, the banks, without that extra backbone behind them. That’s a large part of the debt that was created during these last few years. Another part is related to these mortgage assets. Almost $1 trillion. That’s most of the debt that was created was created for Wall Street. This has not been discussed [inaudible 00:04:39].
Mike: Have you ever even heard an explanation coming out of the White House? Certainly not Mitt Romney. I literally don’t think he has the capacity to understand it. Have you ever even heard an explanation of where the $5 trillion came from? Where did this number come from? We know some things. We know, for example, that the Fed has held onto about $2 trillion, $1.5 trillion.
Nomi: Two and a half.
Mike: In treasury excess reserves.
Nomi: Between mortgages and treasury.
Mike: Most people don’t understand what it means when the Fed holds onto treasuries and an excess reserve. What does that mean? What are they doing? They’re just hiding it, aren’t they? At least in this situation they are.
Nomi: Yeah, and in plain site. They’re basically saying that the concept of excess of reserves means that in addition to the requirements of money set aside by the banks for a bad day, which are regular reserves, the banks have an additional excess reserve, which are treasury bonds, which are there in case they need to use them to fund themselves to appear solvent. It’s excess. It’s not even necessary. The banking system is so completely obtuse and lying to such an extent as to its real condition that there’s a $1.5 trillion of excess money needed beyond requirements that is sitting at the Fed in case something bad happens.
Mike: Because they think something bad is going to happen. That’s the point here, isn’t it?
Nomi: Exactly, because it’s setting them afloat in theory, but not in actually in terms of how they are positioned on their own books. That’s the $1.5 trillion. In addition, there’s another trillion of these mortgage securities that have been and will be ongoing as the Fed. That’s basically a large subsidization for the banking sector.
I’m so glad you brought this up. The $5 trillion in debt has not been explained. It should have been explained by the Treasury Department. There is, and I’ve looked through this, an explanation, sort of a pseudo explanation that had been, it isn’t anymore, on the Treasury Department website, that says the economy was bad, so we didn’t get enough tax revenue in, so we have to basically raise debt to help the main economy. That’s a lie because there’s only been a shortfall of about $200 billion per year, and that’s saying that very conservatively, of tax revenue going to the Treasury Department during this recession period. That doesn’t add up to $5 trillion. It’s very misleading. The rest of the money really does come from the subsidization of Wall Street.
Mike: Either by holding back more excess reserves because you know things are going to get bad, or the Fed holding on to mortgage securities that are just completely trash, worthless, and hiding it from the American public. That’s why when you see American leadership, whether it’s Tim Geithner or whoever you’re talking to in this administration, talk about $5 trillion and where the hell is it? It’s like a dog watching television. As you watch them try to explain it, they know, but they want it to be a dog watching television because they don’t want to explain how frigging bad things are.
Nomi Prins, you’re really one of the best in the business. You’re always a go-to person for me where it comes to understanding issues like this. This is really well done. Titled “Before the Election was over, Wall Street Won.” Nomi Prins, always there to deliver great information. Thanks for joining me.
Nomi: Thank you so much.
Farron Cousins is the executive editor of The Trial Lawyer Magazine, a contributing writer at DeSmogBlog.com, and the producer of Ring of Fire.
