Author: Indivisible Lambertville / New Hope

Contributed by Resistance Writer.

“Across Britain, the number of children living in poverty has jumped sharply in the past six years, a trend that critics blame in part on the Conservative-led government’s policy of austerity, the budget-slashing response to the 2008 financial crisis that is steadily reshaping British life.”¹

Whether our government be Democrat, Republican, or Trumpist, the big banks continue to play an overriding role in policies that serve their economic needs at the expense of the general good. Indeed, a review of Secretaries appointed to manage the U.S. Treasury, which collects our tax dollars and prints money, shows that they tend to be veterans of the leading investment banks, chiefly Goldman Sachs:

The banking industry’s power is clearly evidenced by Trump’s current moves to deregulate the banks, although such laxness threatened to destroy our entire economy only a decade ago and continues to cause hardship and upheaval today. Indeed, the Great Recession of 2008-2009 was triggered by revelations that many of the western world’s largest banks were basically bankrupt, as a result of their scurrilous practices.  

In the immediate aftermath, the leading western governments shied away from addressing the root cause of the problem – slack regulation permitting risky and unscrupulous practices by the greedy few.  Instead, they drained their treasuries to keep the system intact and even retained and rewarded many of the same players responsible for the catastrophe in the first place. In the US, this intervention was masterminded by Goldman’s Hank Paulson and Robert Rubin’s protégé, Tim Geithner, who was then head of the powerful New York Federal Reserve Bank and ultimately became Treasury Secretary under Obama.  In the US, taxpayers ponied up $700 billion nominally, with considerably more committed in the form of guarantees.

Much as this policy was expedient, it may also prove fatal to democracy.  Here’s why.

Burned by The Meltdown. At the onset of the bank meltdown, democratic countries with relatively healthy economies and a comfortable middle class were suddenly upended by the stock market collapse. The Dow sank 54%, with other broad-market indexes falling all the more. Charities, churches, and schools, as well as state, city, and local governments around the world, from Iceland to Argentina, saw their treasuries evaporate, with Ukraine notably the worst hit.  Working people lost their savings, government workers their pensions, and many lost jobs as myriad businesses struggled and failed. Between December, 2007 and October, 2009, the US unemployment rate more than doubled, from 4.9% to 10.1%.

As a result, the price has been and will be paid by everyday people like you and me. For example, the Times recently reported that teachers at a state-run elementary school in Northwest England were alarmed when they found that a “rising number of hungry children at Morecambe Bay coincided with sharp reductions in welfare benefits associated with the clumsy introduction of a new welfare program.” ²  

Since regaining political control in 2010, the Conservatives have mandated more than $40 billion in benefit cuts and outright abandoned the nation’s initiative to “substantially reduce child poverty by 2020.”³  The upshot: Significant progress made by both Conservative and Labour governments in the prior decade, reducing by 800,000 the number of children in “relative poverty”, has sharply reversed, with the number up by 600,000 since 2012.  

The UK is far from alone. To cover the costs of the massive bankster bail-outs and still sustain their governments, the affected countries cut programs for the most vulnerable of their populations.⁴ Such worrisome trends engender a sense of insecurity, that, combined with the influx of desperate immigrants from conflict zones, sets the stage for recent and ongoing rise in Alt-Right support by working and middle-class people. In the case of Britain’s misguided decision to exit the European Union (EU) in 2016, the Alt-Right led folks to believe that their increasingly hopeless situation was a function of immigrants and taxes paid to the EU, which, through its generous economic grants, actually, did more to allay their circumstances than to hurt them.  

The clincher is this – just as the rise of fascism was spurred by Hitler’s ability to convince the German people that their woes were the fault of Jews and gypsies, rather than the toll of World War I – so, despotic leaders and firebrands, from Trump to Bannon to Hungary’s Victor Orban, now blame immigrants and their political opponents for the worsening living conditions mainly spurred by western governments’ ill-conceived response to the Great Recession.  Campaigning in July 2015, Trump attacked immigrants in inflammatory terms: “They’re taking our jobs. They’re taking our manufacturing jobs. They’re taking our money. They’re killing us.”⁵

It’s a facile argument because the actual details behind the banking collapse involve extremely complex financial transactions – really, elaborate Ponzi schemes — that the media grappled to communicate, and Republicans and many Democratic leaders alike were loathe to address. It’s possible that most politicians have a weak grasp of these machinations.  Then again, money talks. (Major political donors to both parties, the commercial banks contributed close to $60 million in 2017, apart from investment banks like Goldman, which gave $3 million on its own.)

The Occupy Wall Street Movement, inchoate though it was, had the right impulse.  Something smelled bad. Just over seven years ago, in September, 2011, the Movement took over Zuccotti Park in the heart of New York’s financial district, where they created a tent city.  Similar occupations sprang up around the world, meeting responses that ranged from ridicule to sympathy to outright abuse. Their greatest contribution may have been to dramatize our accelerating income inequality, identifying themselves as, “The 99%”. But, deliberately leaderless and without agenda, they were unable or unwilling to articulate the problem, let alone formulate a clear response.

It wasn’t always so. A look back at history would have been instructive. So devastating was the impact of the stock-market crash in 1929 and the Great Depression, following a decade of giddy abandon in the banking community, that the government got tough. Public opinion strongly in favor of stringent controls was stoked by open hearings, revealing shocking banking abuses that ring a familiar note. As we saw in the Great Recession, bankers then bundled bad loans and resold them to unwary investors, even as they took advantage of the market collapse.  The head of the New York Stock Exchange shorted shares in Chase National Bank and others, like JP Morgan, paid no taxes in 1931 and ’32, based on their claimed losses.⁶

To stop commercial banks from gambling with other people’s (our) money, they were prevented from engaging in so-called investment banking activities under the 1933 Glass-Steagall Act. Commercial banks were also subject to strict capital requirements and considerable government oversight. The Federal Deposit Insurance Corporation (FDIC) was established, charging banks a fee to create a pool that protected customer deposits if their bank got into trouble.

Since then, there have been sporadic upsets and looming scandals in the financial sector, but never on the scale of 1929 or what many of us experienced in 2008. Plus, bad actors were subject to the humiliation of the televised “perp walk”, as well as fines, banishment from the financial industry, and sometimes jail time.  When Michael Milken, the “Junk Bond King”, whose $1 million salary set a U.S. record for the 1980s, was indicted on 98 counts of racketeering and fraud in 1989, he was sentenced to 10 years – later reduced to two, barred from involvement in the securities industry, and fined $600 million.

A co-instigator of the “Savings & Loan Junk Bond Crisis”, Charles Keating defrauded his workaday depositors, including elderly pensioners, paid himself $34 million between 1986 and 1988, and famously installed gold-plated bathroom fixtures in one of his corporate jets.⁷   Despite having donated $1.3 million to five Senators, including John Glenn, Alan Cranston, and his close personal friend, John McCain, Keating still did nearly five years’ jail time.

More, when the Savings & Loan Crisis blew up, with close to one-third or 3,234 S&Ls in the tank, our government took corrective action, closing or “resolving” 747 failed banks and passing the comprehensive Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA), significantly bridling that wing of the industry. In sum, there were consequences, and crooks, no matter how rich, were still held accountable.

The Return of the Banksters. All along, the banks and their government allies were quietly whittling away at Glass-Steagall and other restrictions.  With over 25 years at Goldman, Clinton’s two-term Treasury Secretary, Robert Rubin, was true to his roots. Wikipedia recounts:

Rubin sharply opposed any regulation of collateralized debt obligations, credit default swaps and other so-called “derivative” financial instruments which—despite having already created havoc for companies such as Procter & Gamble and Gibson Greetings, and disastrous consequences in 1994 for Orange County, California with its $1.5 billion default and subsequent bankruptcy—were nevertheless becoming the chief engine of profitability for Rubin’s former employer Goldman Sachs and other Wall Street firms.[39]

The final blow came about when two mega-financial firms operating on different sides of the Glass-Steagall divide – Travelers and Citicorp — were allowed to merge in 1998.  Soon thereafter, the death knell for Glass-Steagall was rung by Congress, with the ardent support of Rubin and his deputy, Lawrence Summers, who went on to serve as Treasury Secretary for Obama.  Bill Clinton lauded the move, declaring Glass-Steagall “no longer appropriate”.

The newly merged Travelers and Citicorp, dubbed Citigroup, soon epitomized the excesses that triggered the meltdown. Chuck Prince, who took over this perambulating disaster, commented in 2007, “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”⁸

In fact, Citigroup and its ilk — Goldman Sachs chief among them⁹– were making extremely risky loans in the housing market through their commercial banking arms, which they then bundled and repackaged to sell to investors through their investment banking divisions.  When the music stopped, not only did 52,000 Citigroup workers get whacked immediately, but many mortgage holders lost their homes and investors their savings. The Citibank bailout alone cost taxpayers $45 billion, with another $300 billion offered in credit guarantees.¹⁰

While a few outliers, like Bernie Madoff, were brought to justice, many at the pinnacle of banking and government got away clean.  Soon after slaying Glass-Steagall, Robert Rubin landed at Citigroup, both (unusually) on the Board and in an operating capacity.  According to Wikipedia, the Wall Street Journal “noted that Citigroup shareholders have suffered losses of more than 70 percent since Rubin joined the firm and that he encouraged changes that led the firm to the brink of collapse.[26] In December 2008, investors filed a lawsuit contending that Citigroup executives, including Rubin, sold shares at inflated prices while concealing the firm’s risks”.[27]

More, the report states, “Writer and former trader Nassim Nicholas Taleb noted that Rubin collected more than $120 million in compensation from Citibank in the decade preceding the banking crash of 2008. When the bank, literally insolvent, was rescued by the taxpayer, he didn’t write any check—he invoked uncertainty as an excuse.’”[42]

Too-big-to-fail gets bigger.  Upon reflection, financier Sandy Weil, who headed Citigroup at the time of the infamous merger, went on record that, “What we should probably do is go and split investment banking from banking. Have the banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”¹¹  His sentiments were echoed by many, including the UK Independent Commission on Banking in a 2011 report on how to avoid another meltdown.  Columnist James Rickerts, a Wall Street veteran and international currency expert, sums it up nicely in the US News and World Report:

Now, when memories are fresh, is the time to reinstate Glass-Steagall to prevent a third cycle of fraud on customers. Without the separation of banking and underwriting, it’s just a matter of time before banks repeat their well-honed practice of originating garbage loans and stuffing them down customers’ throats. Congress had the answer in 1933. Congress lost its way in 1999. Now is the chance to get back to the garden.¹²

Unfortunately, given the lack of public comprehension and support, attempts by reformers, like Paul Volker, economist, head of Obama’s Economic Recovery Advisory Board, and former Federal Reserve chair under Jimmy Carter and Ronald Reagan, and Rep. Barney Frank, chairman of the House Financial Services Committee (2007 – 2011) were watered down to constitute the Dodd-Frank Act in 2010.  The proposed Volker Rule, preventing the commercial banks from engaging in speculative activities was applied, but with a bank-pleasing loophole. Nonetheless:

Studies have found the Dodd–Frank Act has improved financial stability and consumer protection,[9] although there has been debate regarding its economic effects.[10][11] The Act established the Consumer Financial Protection Bureau (CFPB), which from inception to April 2017 had “returned almost $12 billion to 29 million consumers and imposed about $600 million in civil penalties.”[12]

Meanwhile, the government’s ploy to bolster the system by pressuring large, somewhat stronger banks to take over the big collapsing ones, combined with steady acquisitions of small and medium sized banks, has taken us from banks that were considered “too big to fail” to mega banks that are significantly larger.  As of 2015, the 12 largest US banks controlled 70% of bank assets.¹³  

Fomenting collapse. Now, Trump is further exacerbating the problem by dissolving what slender bonds the Obama administration imposed on the banking industry, while adding $1 trillion to the national debt and widening the budget deficit by 29% in the first 10 months of 2018. Both the New York Times and the Wall Street Journal ^{14, 15} blame the Trump tax cut for reducing inflows at the same time that it has ramped up spending. Such conditions fuel inflation and reduce our country’s ability to withstand another financial crisis.  

Under the circumstances, it would not seem exactly prudent to push for lax controls.  Yet, holding to his campaign vow to “do a big number on Dodd Frank”¹⁶, Trump just signed the biggest rollback since the financial crisis, easing financial regulations and reducing oversight for banks with assets below $250 billion.[15][16][17] The law passed the House of Representatives in a 258–159 vote[18] and was signed into law by Trump on May 24, 2018.[19]  

Point blank, the Trump administration is setting the stage to allow the mega-banks deemed “too big to fail” back into the casino.  By “too big to fail”, it means that, unlike what would happen to you or me if we gambled and lost, the banks can count on the government (i.e. all of us) to bail them out if they make bad bets.  And, if they should win? Well, that equals more profits for them and the crony politicians they finance.   

To be sure, the unraveling of financial protections is just one of the many booby traps and landmines Trumpists are planting throughout the U.S. system and the global community.  If we don’t reverse course pronto, liberals could be left to clean up the mess, like Obama after the meltdown, and exacting unpopular government cutbacks to cover the huge deficit, as happened to Clinton after Bush.  Alternately, we may continue to slip into an era of growing inequality, oligarchy, and despotism. Either way, more children go hungry while the Fat Cats gorge at the table.

CALL TO ACTION: Demand that our public servants be transparent about their campaign finances and stand up for financial oversight with teeth.

1. “In Britain, Even Children Are Feeling the Effects of Austerity”, Patrick Kinglsey, The New York Times, September 26, 2018. https://www.nytimes.com/2018/09/26/world/europe/uk-austerity-child-poverty.html?action=click&module=Top%20Stories&pgtype=Homepage
2. Kingley, ibid.
3. Kingsley, Ibid.
4. “In Britain, Austerity is Changing Everything”, Peter S. Goodman, The New York Times, May 28, 2018. https://www.nytimes.com/2018/05/28/world/europe/uk-austerity-poverty.html
   • **”Repeal of Glass-Steagall Caused the Financial Crisis”, James Rickards, US News & World Report,  August 27th, 2012.
5. https://www.brookings.edu/blog/brookings-now/2017/08/24/do-immigrants-steal-jobs-from-american-workers/
6. “Why Bernie’s Right About Glass-Steagall”, Edward Morris, Moyers.com, April 14th, 2016.
7. “Charles H. Keating, Jr., central figure in savings-and-loan junk bond crisis dies at 90,” Matt Schudel, The Washington Post, April, 2, 2014. https://www.washingtonpost.com/national/charles-h-keating-jr-central-figure-in-savings-and-loan-scandal-dies-at-90/2014/04/02/a53cf6f6-ba81-11e3-9c3c-311301e2167d_story.html?utm_term=.f8b199667f77
8. http://business.time.com/2007/07/10/citigroups_chuck_prince_wants/
9. http://fortune.com/2016/04/11/goldman-sachs-doj-settlement/
10. http://wallstreetonparade.com/2012/08/the-untold-story-of-the-bailout-of-citigroup/
11. Morris, ibid.
12. https://www.usnews.com/opinion/blogs/economic-intelligence/2012/08/27/repeal-of-glass-steagall-caused-the-financial-crisis
13. https://www.forbes.com/sites/mikecollins/2015/07/14/the-big-bank-bailout/#1c460512d83f
14. “Cash Flowing into Treasury Starts to Ebb”, Jim Tankersley, The New York Times, July 26th, 2018
15. https://www.wsj.com/articles/u-s-federal-budget-gap-widens-21-in-first-ten-months-of-fiscal-year-1533924012
16. “Wall Street Welcomes Trump’s Shift on Regulation”, Ben McLannon and Barney Jopson, The Financial Times, February 2, 2018

Contributed by Paige Barnett.

Since the beginning of this current administration, consumers are losing their ability to recoup their losses from corporations and businesses who nefariously cheat consumers out of hard earned dollars. In other words, consumers are losing protections that would allow them to take the corporation to court and sue either as individuals or through a class action lawsuit.

An example of a bad faith corporate practice would be predatory lending.  As defined by Debt.org:

“Predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower doesn’t need, doesn’t want or can’t afford.”  

Examples include emergency personal loans for medical debt, home repair, or a car payment and the coup de gras, home loans. There are many ways in which lenders can cheat you out of money.

Laws meant to protect consumers from these practices include the ECOA (Equal Credit Opportunity Act) and more recently the Dodd Frank Act known fully as the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Dodd Frank, enacted in 2010, was in response to the 2008 recession and the aforementioned predatory lending practices of large banks that ploughed people into foreclosures and consequently, home loss. 2010 saw the highest rate of foreclosures and has trended downward since Dodd Frank was enacted.  2017 saw the lowest statistics in numbers of foreclosures. For more statistics click here.  

Consumer protections and more are changing and not in favor of the consumer.  This administration is rolling back protections. Here’s what you should know:

• Enforcement actions a the Consumer Financial Protection Bureau have dropped from  three to five per month to zero over the last four years. This means that “Payday” loans where people have been charged 950% interest rates are no longer being examined or enforced.  In fact, one lawsuit against a subprime predatory lender was dropped. By contrast, after a crackdown of autolenders in 2013, the CFPB alleged that minority borrowers were being charged higher interest rates than whites.  They faced multimillion dollar fines. But that is no more.
• There was a delay by the Department of Labor to fully implement a rule that requires financial advisors to work in their clients’ best interest. This means that you can not hold your financial advisor accountable for disinformation regarding your investments or other.
• Under Betsy DeVos, The Department of Education withdrew Obama era regulations that would protect student loan borrowers.  DeVos delayed forgiving the loans of students defrauded by for-profit colleges.

While the banks and corporations are happy, consumer advocates are concerned because these rollbacks will have an effect on everything from how consumers access credit, to car loans, home loans and even protections on items like cell phones, cribs and car seats.

Contributed by Olga Vanucci.

Just the Facts

• In 1984 there were 14,400 banks in the U.S.  In 2018, there are 4,800.
• The banking industry got a boost from the Republican tax law, with the corporate tax rate falling from 35% to 21%.  Bank of America’s bill to Uncle Sam in the first quarter of 2018 plunged by 26%, even though the No. 2 US bank earned 30% more.
• The tax law boosted bank profits by about $6.7 billion for the first quarter of 2018.  Yet banks would still have made record profits of $49.4 billion without the tax cuts.
• Bank of America is worth $293,600,000,000.  
• The median net worth of Americans is $68,800, including home equity. The median net worth excluding home equity is $16,900.

Sources:  https://fred.stlouisfed.org/series/USNUM  https://money.cnn.com/2018/04/18/investing/big-banks-earnings-record-profits/index.html?iid=EL   https://money.cnn.com/2018/05/22/investing/banks-record-profits-fdic-deregulation-bill/index.html    https://www.businessinsider.com/heres-the-average-net-worth-of-americans-at-every-age-2017-6  https://finance.yahoo.com/quote/bac/?p=bac