Insider Trading, John Boehner and The STOCK Act Travesty

by Nomad

Even though insider trading is a serious crime, until Obama, government officials were immune from prosecution.

New legislation was supposed to eliminate this oversight and it was supposed to be a major step in the right direction. It didn't quite work out that way.

Investigative journalist John Vibes, writing for the Activist Post, reported recently that less than two weeks before the economic collapse of 2008, several members of Congress took their money out of the stock market.

According to Vibes' sources, many top government officials and staff were given advance knowledge that market was about to melt down in secret meetings with the Fed and the Treasury Department. (For the full story, click on this link.)
With this information, they engaged in insider trading.

It was revealed that Senator Shelley Capito and her husband sold $350,000 worth of Citigroup stock at $83 per share, just one day before the stock dropped to $64 per share. Another shady trader was Congressman Jim Moran, who had his biggest trading day of the year days after the secret meeting, sellings stock in nearly 100 different companies.

Two weeks is a lot of advanced warning. In Washington, as the collapse approached, politicians on both sides were more interested in saving their own skins than protecting the citizens. 

Who Was and Wasn't Above the Law

However, the most amazing part of this tale is that, despite this use of privileged information for private benefit or at least, safeguarding, no laws were actually broken. 

Facing Single Digit Ratings, GOP Candidate JEB Responds to his Critics by saying "Blah, Blah"

by Nomad

Despite talk of a campaign in free-fall and cuts in campaign staff and salaries, JEB says his campaign is fine. To skeptics, the articulate Bush defiantly says,"Blah, blah."

Because political campaigns are really all about appearances, so much of what really goes on is shrouded in secrecy. If there is inner turmoil, it is carefully camouflaged and when things are going well. the press is ready to exaggerate any little thing as a sign of a candidate in despair and his/her ambition shattered.

So when the news outlets heard from JEB's campaign spokespeople that the numbers of staff were being reduced and salaries were being cut, the  rumors began to buzz. It was a pointless exercise to try to get a straight answer from the horse's mouth, as the cliche goes, but some bright thing asked Bush what it meant.

He assured the reporters while campaigning in South Carolina that critics were all wrong. The changes do not signify that his campaign is losing ground to people like Ben Carson and Trump. This slide has reportedly made some of his donors uneasy. Who wants to throw money on a horse that can't win.

Admit It, America

Earlier this year, an interviewer asked Mitt Romney to clarify a remark about public resentment regarding Wall Street conduct and inequality. He had said that such talk was driven by “envy.” He had also stated that a public debate about inequitable wealth distribution in this country was not necessary.

The interviewer asked him:

I’m curious about the word envy. Did you suggest that anyone who questions the policies and practices of Wall Street and financial institutions, anyone who has questions about the distribution of wealth and power in this country, is envious? Is it about jealousy, or fairness?

His arrogant response was off-the-cuff and, as with so many things Romney says without long consultations with his handlers, he revealed his real mentality and put his foot in it.

You know, I think it’s about envy. I think it’s about class warfare. When you have a president encouraging the idea of dividing America based on 99 percent versus one percent, and those people who have been most successful will be in the one percent, you have opened up a wave of approach in this country which is entirely inconsistent with the concept of one nation under God.

Given the weak state of the economy and the candidate's extreme wealth (a personal fortune reportedly around $250 million) it was a strange thing for any person running for office to say.

According to one source, over the last 20 years, America has had the highest or nearly highest poverty rates for individual adults, families and children among 31 developed countries. Meanwhile, the super-rich get just getting richer. According to the Aug. 23, 2010 New Yorker reported that between 2002 and 2007, the top one percent of rich Americans have seen their share of the national income double. 

For an interesting and enlightening look at depth of the problem, I recommend this link. Here's one excerpt:

In the decades after World War II, the wealthiest Americans were heavily taxed, with marginal rates over 90 percent on income above $400,000 (Bennett, 2010). Massive government investments in infrastructure, education, technology, and knowledge-based enterprises spread those tax dollars around, redistributing the nation’s wealth and creating “social value” (Alperovitz, 2009, p. 88) that was available to all citizens.

All that changed when Reagan became president and began a series of tax cuts which largely benefited the wealthiest Americans. One effect of these cuts has been a dwindling flow of revenue to spend on the infrastructure and for social investment.

(S)ince the late 1970s, wages have lost ground for the average worker while executive compensation has soared (Noblet, 2006). In 1979, the top one percent of Americans earned 33.1 times what the bottom 20 percent earned, but by 2000, this multiplier had more than doubled to 88.5 (Hogan, 2005).

Wealth distribution is even more skewed, with the top 20 percent of Americans owning 84 percent of all national wealth, while the bottom 20 percent own a mere 0.1 percent (Bennett, 2010). The United States has not seen this level of wealth inequality since the Roaring Twenties (Noblet, 2006; Tyson, 2004).

Had there been any one area of the economy that the conservative Republicans could point to and claim success, then an argument could be made. However, by following these policies, (and by launching two poorly conducted wars and allowing Wall Street to become an unregulated casino) these kind of wealth distribution has brought to nation to the brink of financial ruin.

And yet, according to Romney, nothing is amiss except the imagined jealousy of the 99%.

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Related articles

• What Class Divide? Rich and Poor, Red and Blue Agree on Wealth Distribution (moneyland.time.com)
• Romney's Disconnect With Average Americans (crooksandliars.com)
• Romney, the Unlikable (thedailybeast.com)

LIFE Magazine Examines Wall Street and Banking in 1946

by Nomad

In light of the announcement by JP Morgan CEO Jamie Dimon that his firm has lost $2 billion investing in derivatives, I thought I'd take this opportunity to re-post this article, originally published in my general blog, Nomadic View.

The most amazing thing about a casual look through the back pages of LIFE magazine is how relevant the articles can sometimes be. For example, take the January 7 1946 issue about Wall street "the Citadel to US Capitalism."

One of the side articles details the more conservative approach to banking following the world war and its origins. The story provides quite an education in the varied aspects of banking.

On Wall Street there are two principal kinds of bankers: Commercial bankers and investment bankers. The commercial banks, such as Chase and National City, make loans, accept deposits, finance foreign credits, buy government and state bonds. They also usually have a trust department which executes wills and acts as trustee. The investment bankers, such as Morgan Stanley and Kuhn, Loeb underwrite and distribute new security issues for corporations. They also have a brokerage department which buys and sells securities.

The Banking Act of 1933 made it illegal for one firm to act both as a commercial act and investment banking house. Until then, the two were often combined. In his triumphant days, J.P. Morgan, a banker, merged railroads and steel companies into nationwide corporations. In the 1920s, Wall Street made idols of men like Charlie Mitchell, chairman of National City Bank, who was also the greatest securities salesman in history and an adroit market manipulator. The 1929 crash exposed the dangers of these dual functions, With one hand, banks were taking deposits. With the other, they were financing new securities. When the business they were promoting failed, the depositors, security holder and the bank itself were in trouble.

Today the very nature of Wall street bankers has changed. In place of the speculators and market manipulator there are sound, deliberate investors who by choice as well as by law are more interested in government bonds than in a flier in market.

The Banking Act of 1933, also known as the Glass-Steagall Act, introduced banking reform and safeguards on deposits following the crash of 1929. Many of the provisions were also designed to reduce the amount of wild market speculation which was thought to be contributing factor to the collapse.

The Glass-Steagall Act passed after an ambitious former New York prosecutor, collected enough popular support for stronger regulation by bringing bank officials before the Senate Banking and Currency Committee to answer for the role in the crash.

In addition to the Banking Act of 1933, the Bank Holding Company Act was passed in 1956 and extended the restrictions on banks. According to this, bank holding companies owning two or more banks could no longer engage in non-banking activity and could not buy banks in another state.

Altogether, an impressive bit of banking regulation. The Banking Act of 1933 reduced the amount of free-wheeling risk-taking- with depositor's assets, I mean. And the Bank Holding Company Act clearly defined the role of banks and kept bank holding companies from becoming "too big to fail."

And you know something? It actually worked. Nations, which adopted such regulations and stuck to them when the rest of the world began to de-regulate, such as China and Turkey, have emerged from the latest crash, jolted but not devastated.

Another Fine Mess

So what happened? How did we come back in a full circle? Through a careful whittling away of the legislation through intensive and sustained lobbying by special interest groups, starting as far back as 1980 with the Depository Institutions Deregulation and Monetary Control Act.

This allowed banks to merge. Subsequent decisions by the Federal Reserve Board in 1986 and 1987, after the Board heard proposals from Citicorp, J.P. Morgan and Bankers Trust advocating the loosening of Glass-Steagall restrictions, further undermined the regulatory effects of the the Banking Act of 1933. 
For a full account of the various steps, see HERE. (The link is very enlightening)

The record shows a Federal Reserve Board, at the very least, flawed by its willingness to accept the demands of institutions to circumvent the laws were designed to regulate and control precisely those sectors.

Finally- perhaps inevitably- the Banking Act of 1933 was repealed in 1999 by the Gramm-Leach-Bliley Act. The legislation was signed into law by President Bill Clinton on November 12, 1999. (The role that Senator Phil Gramm played in this dismantling of regulatory protection has been cover extensively in another post.)
From there, it was a slow predictable march to the sorry mess of 2009.

Greed is Good?

What on earth could have persuaded, sensible people with all the wisdom a chastising experience as the Great Depression, to lift restrictions and to deregulate and repeal? The only answer seems to be the temptation of tremendous profits that de-regulation allowed financial institutions. In short, greed.

Much to their credit, Republican Senator McCain of Arizona and Democratic Senator Cantwell of Washington made a proposal for a return to the Glass-Steagall Act, specifically the distinction between commercial and investment banking. Ironically this regulation rollback to the 1930s is being called "Obama's banking reform", making it sound untested and potentially risky when a stronger case of risk by deregulation of the banking industry in the 1980s could- and should- have been made at that time.

Despite the crisis of 2008, banks, which have continued to rake in vast profits, have been strongly opposed to a return to the restrains of the Banking Act of 1933. Not surprising, is it?

As The New York Times reports:

The outlines of the Volcker Rule, one of the flagship provisions of the sweeping financial regulatory overhaul passed last year, will begin to take shape this week as regulators propose rules to limit the ability of most banks and Wall Street firms to use their own funds to buy and sell stocks, corporate bonds and derivatives.

For more information about the Volcker Rule, NYT gives a concise explanation of the reform.  
Wall Street will simply have to choose between being a source of dependable investment or a free-wheeling casino, but, it is a shame that we have to learn these lessons twice.

Update:

Mitt Romney has gone on record as wanting to repeal much of the reform legislation that President Obama and Congress enacted in light of the financial crisis of 2008. The Boston Globe reported in August of 2011:

Republican presidential candidate Mitt Romney has sharpened his critique of the financial regulatory overhaul signed by President Obama.

In response to the financial meltdown, Obama and Congress passed the Dodd-Frank bill, Wall Street reform legislation that enacted consumer protections, reformed some derivatives trading, and imposed new regulations on mortgage lenders and hedge funds.

In the past, Romney has criticized the bill for creating uncertainty in the financial industry and causing bankers and the financial service employees to pull back.

The lobbyist for the banking industry worked hard at watering down the legislation in any case and as a result, left many loopholes for financial institution to skate around regulations and oversight. 

From TalkingPointsMemo:

Dimon claims that the investment in question wouldn’t have violated the rule had it been in effect — he says the bets JPM made were meant to hedge against potential losses in other investments. But finance experts have cast doubt on that claim, and Dimon himself admitted that the incident will provide ammunition for the Volcker Rule supporters.

Politically, the latest financial disaster could create more doubt in the minds of the voters that the Republicans (in the form of Mitt Romney) is a little too eager to win the support of Big Banks and Wall Street and are setting up a repeat of the 2008 meltdown of the economy. 

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Related articles

• Volcker Rule To Restrict Banks' Proprietary Trading Contains Loopholes, Experts Say (huffingtonpost.com)
• Volcker Rule gets FDIC approval (money.cnn.com)
• AND NOW WE KNOW THE TRUTH ABOUT WALL STREET: It's Just Kids Playing With Dynamite (businessinsider.com)
• How J.P. Morgan Chase Has Made Case For Breaking Up Big Banks And Resurrecting Glass-Steagall - OpEd (eurasiareview.com)
• JP Morgan $2 billion loss stirs memories of 2008 crisis (csmonitor.com)
• Banks' Glass-Steagall Walls Quietly Rebuilt (Update 1) (jhaines6.wordpress.com)
• Wall Street, Romney, and Obama (crooksandliars.com)
• One Last Chance To Get Wall Street Reform Right (tpmdc.talkingpointsmemo.com)