'Regulatory Capture' Emasculated The Regulators Of Megabanks

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

Senator Elizabeth Warren set him up brutally. HSBC had admitted “to laundering $881 billion that we know of from Mexican and Colombian drug cartels,” she said, leaving us to imagine what we don’t know of. They “also admitted to violating our sanctions”—against Iran—“and they didn’t do it just one time... they were caught... and kept doing it,” she said.

HSBC, which is based in London but earns about half of its profits in Asia, settled these allegations for $1.92 billion before taxes (so perhaps $1.2 billion after taxes), the steepest penalty ever assessed by banking regulators in the US. Yet, after charging that fine to its income for the year 2012, it still had a net profit of $13.5 billion: the fine for years of wrongdoing had dented its bottom line by half a quarter’s worth of net profit—a “difficult” year, said Chairman Douglas Flint, as he lamented the “legacy issues and regulatory challenges.”

So Senator Warren turned up the heat. “HSBC paid a fine but no individual was banned from the bank and there was no hearing to consider shutting down HSBC’s activities in the United States,” she said (webcast). “How many billions of dollars of drug money do you have to launder before someone will consider shutting down a bank?”

David Cohen, the Treasury’s Under Secretary for Terrorism and Financial Intelligence, twitched on her skewer. He did the best he could under the circumstances, offering that they took money laundering “very seriously,” and so on. She became testier and wanted him to draw a line in the sand, a crime that would be big enough for the bank to be shut down. Turns out, there was no crime that would be big enough.

Everybody already knew it. These banks were too-big-to-jail. Attorney General Eric Holder, the top guy at the Department of Justice, had made it official the day before when he told the Senate Judiciary Committee, “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them.” They didn’t prosecute banks, or apparently high-level individuals associated with them, if that would have “a negative impact on the national economy, perhaps even the world economy,” he said.

Too-big-to-jail, the official doctrine at the DOJ. But who decides which bank qualifies? The DOJ defers to bank regulators on that issue, particularly the Treasury. Under the Geithner doctrine of supporting the megabanks instead of regulating them, it bamboozled the DOJ into thinking that HSBC’s US operations, not its much larger operations elsewhere, would be too large and systemic to prosecute.

But there is another principle at work. Cohen joined the Treasury in 2009, after having spent seven years at the Washington law firm Wilmer Hale, where he focused on “the defense of regulatory investigations into accounting and financial fraud, and anti-money laundering and sanctions,” according to the Treasury’s website. His clients were “a broad range of financial institutions including banks.”

He’d been at the Treasury before, starting in 1999, for about three years, in the Office of the General Counsel, where he worked on the Bank Secrecy Act that gave the Treasury “new tools to combat money laundering and the financing of terrorism.” He also advised senior officials on issues such as “the Department’s anti-money laundering and counter-terrorist financing policies.” And before then, he'd worked for a law firm.

There are thousands of people like Cohen who rotate in and out of government through the revolving door. Smart, hard-working, competent people with a lot of experience. They form deep connections not only in government, but also in the industry they’re supposed to regulate one day and work in, or get their clients from, the next. Once critical mass builds up, the lines begin to blur between the regulatory agencies and the companies they’re supposed to regulate until the agencies are essentially controlled by the culture and insiders of the industry. A condition called, “regulatory capture.”

Hence, the Treasury’s efforts to do whatever it can to protect and support the megabanks. Other regulators have suffered the same fate. Regulatory capture has emasculated them as regulators. Now there is a bi-partisan display of frustration with these megabanks that have caused so much havoc while their major players have become immensely rich without having to answer for practically anything. But if history is any guide, this too shall pass, like so many other Congressional outbursts; megabanks will pay some fines and go on about their business. And here is what happened to the SEC.... Wall Street Takes Over Its Regulator

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
bunnyswanson's picture

J.E. Darling wrote, in the English periodical, "Spectator' on January 10, 1925 that: Obviously, it is of the first importance to the United States to induce England to resume the gold standard as early as possible. An American controlled Gold Standard, which must inevitably result in the United States becoming the world's supreme financial power, makes England a tributary and satellite, and New York the world's financial centre. Mr. Darling fails to point out that the American people have as little to do with this as the British people, and at resumption of the gold standard by Britain would benefit only that small group of international merchants who own the world's gold. No wonder that "Banker's Magazine!' gleefully remarked in July, 1975-that: "The outstanding event of the past half year in the banking world was the restoration of the gold standard." The First World War changed the status of the United States from that of a debtor nation to the position of the world's greatest creditor nation, a title formerly occupied by England. Since debt is money, according to the Governor Marriner Eccles of the Federal Reserve Board, this also made us the richest nation of the world. The war also caused the removal of the headquarters of the world's acceptance market from London to New York, and Paul Warburg became the most powerful trade acceptance banker in the world. The mainstay of the international financiers, however, remained the same. The gold standard was still the basis of foreign exchange, and the small group of internationals who owned the gold controlled the monetary systems of the Western nations. Professor Gustav Cassel wrote in 1928: "The American dollar, not the gold standard, is the world's monetary standard. The American Federal Reserve Board has the power to determine the purchasing power of the dollar by making changes in the rate of discount, and thus controls the monetary standard of the world." p124
The true allegiance of the members of the Federal Reserve Board has always been to the central bankers. The three features of the central bank [are] its ownership by private stockholders who receive rent and profit for their use of the nation's credit, absolute control of the nation's financial resources, and mobilization of the nation's credit to finance foreigners.
Governor Marriner Eccles of the Federal Reserve Board stated before the House Banking and Currency Committee that; "Debt is the basis for the creation of money."
The League of Nations had achieved its goal of getting the nations of Europe back on the gold standard by 1928, but three-fourths of the world's gold was in France and the United States. The problem was how to get that gold to countries which needed it as a basis for money and credit. The answer was action by the Federal Reserve System.
Following the secret meeting of the Federal Reserve Board and the heads of the foreign central banks in 1927, the Federal Reserve Banks in a few months doubled their holdings of Government securities and acceptances, which resulted in the exportation of five hundred million dollars in gold in that year. The System's market activities forced the rates of call money down on the Stock Exchange, and forced gold out of the country. Foreigners also took this opportunity to purchase heavily in Government securities because of the low call money rate. "The agreement between the Bank of England and the Washington Federal Reserve authorities many months ago was that we would force the export of 725 million of gold by reducing the bank rates here, thus helping the stabilization of France and Europe and putting France on a gold basis."' (April 20, 1928) On February 6, 1929, Mr. Montagu Norman, Governor of the Bank of England, came to Washington and had a conference with Andrew Mellon, Secretary of the Treasury. Immediately after that mysterious visit, the Federal Reserve Board abruptly changed its policy and pursued a high discount rate policy, abandoning the cheap money policy which it had inaugurated in 1927 after Mr. Norman's other visit. The stock market crash and the deflation of the American people's financial structure was scheduled to take place in March. To get the ball rolling, Paul Warburg gave the official warning to the traders to get out of the market. In his annual report to the stockholders of his International Acceptance Bank, in March, 1929, Mr. Warburg said: "If the orgies of unrestrained speculation are permitted to spread, the ultimate collapse is certain not only to affect the speculators themselves, but to bring about a general depression involving the entire country". During three years of "unrestrained speculation", Mr. Warburg had not seen fit to make any remarks about the condition of the Stock Exchange. A friendly organ, The New York Times, not only gave the report two columns on its editorial page, but editorially commented on the wisdom and profundity of Mr. Warburg's observations. Mr. Warburg's concern was genuine, for the stock market bubble had gone much farther than it had been intended to go, and the bankers feared the consequences if the people realized what was going on. When this report in The New York Times started a sudden wave of selling on the Exchange, the bankers grew panicky, and it was decided to ease the market somewhat. Accordingly, Warburg's National City Bank rushed twenty-five million dollars in cash to the call money market, and postponed the day of the crash. The revelation of the Federal Reserve Board's final decision to trigger he Crash of l929, appears, amazingly enough, in The New York Times. On April 20, 1929, the Times headlined, "Federal Advisory Council Mystery Meeting in Washington. Resolutions were adopted by the council and transmitted to the board, but their purpose was closely guarded. An atmosphere of deep mystery was thrown about the proceedings both by the board and the council. Every effort was made to guard the proceedings of this extraordinary session. Evasive replies were given to newspaper correspondents."

When the Federal Reserve Bank of New York raised its rate to six percent on August 9, 1929, market conditions began which culminated in tremendous selling orders from October 24 into November, which wiped out a hundred and sixty billion dollars worth of security values. That was a hundred and sixty billions which the American citizens had one month and did not have the next. Some idea of the calamity may be had if we remember that our enormous outlay of money and goods in the Second World War amounted to not much more than two hundred billions of dollars, and a great deal of that remained as negotiable securities in the national debt. The stock market crash is the greatest misfortune which the United States has ever suffered. p148
What had caused the [1929] crash? The people had purchased stocks at high prices and expected the prices to continue to rise. The prices had to come down, and they did. It was obvious to the economists and bankers gathered over their brandy and cigars at the Hotel Astor that the people were at fault. Certainly the people had made a mistake in buying overpriced securities, but they had been talked into it by every leading citizen from the President of the United States on down. Every magazine of national circulation, every big newspaper, and every prominent banker, economist, and politician, had joined in the big confidence game of urging people to buy those over-priced securities. When the Federal Reserve Bank of New York raised its rate to six percent, in August 1929, people began to get out of the market, and it turned into a panic which drove the prices of securities down far below their natural levels. As in previous panics, this enabled both Wall Street and foreign operators in the know to pick up "blue-chip" gilt-edged" securities for a fraction of their real value.
The New York Times reported on April 7, 1931, "Montagu Norman, Governor of the Bank of England, conferred with the Federal Reserve Board here today. Mellon, Meyer, and George L. Harrison, Governor o the Federal Reserve Bank of New York, were present".
The London Connection had sent Norman over this time to ensure that the Great Depression was proceeding according to schedule. Congressman Louis McFadden had complained, as reported in The New York Times, July 4, 1930, "Commodity prices are being reduced to 1913 levels. Wages are being reduced by the labor surplus of four million unemployed. The Morgan control of the Federal Reserve System is exercised through control of the Federal Reserve Bank of New York, the mediocre representation and acquiescence of the Federal Reserve Board in Washington?' As the depression deepened, the trust's lock on the American economy strengthened, but no finger was pointed at the parties who were trolling the system. Secrets of the Federal Reserve


Grin Bagel's picture

4th stooging....your avatar says it all.

TheFourthStooge-ing's picture

I thought it just said "Shemp".

.25hors's picture

 “regulatory capture.”

yet another u-femism from you sissies herein

 the agencies are essentially controlled by the culture and insiders of the industry


Hence, the Treasury’s efforts to do whatever . . . Whence its orders come . . . Thence from Rothschildt. INC


ergo, hither,thither&yawn, do such woofs richter,blitzer&shitzer get to here gather,blather&bond on zh while its own sheep are continually shit,shat&shorn


keep bleating. "sheeple"  soon bleeding

AnAnonymous's picture

'Americans' have been too big to jail since day one.

It is quite normal that 'american' middle class institution like the banks are also too big to jail.

Same category as the Police, the military etc in an 'american' nation.

All too big to jail.

Those bankers are just 'americans' who happen to be bankers.

bunnyswanson's picture

You should be cornholed by wild boars for you constant unrelenting assault on people who have been led to the edge of the cliff by the elected officials who have sold their souls to the devil or died trying not to.


Two President Who Died Defying the Rothschilds created 01/06/2003 - 16:35, updated 01/06/2003 - 17:46 by cybe Printer-friendly versionSend to friend

Article taken from "The National Educator", September 1990, P. 9


By JOHN E. KOVACS, Editor, "The U. S. Patriot News"

"Most Americans, even the college educated, know next to nothing about our monetary system. They would be surprized to know that the U. S. Treasury makes 22 1/2 cents on each quarter it mints, as it only costs 2 1/2 cents to mint this coin. Similar profits are realized on every other coin (with the possible exception of the penny) simply because the U. S., when minting coins, is simply following its Constitutional responsibility--the government alone has the right to print or mint our money. This right cannot be delegated any more than the right to declare war or collect taxes.

If this is how the Constitution was intended to operate, why then do we allow a private group of foreign bankers to issue our currency (which they create out of thin air) and then "loan" it to the U. S. at perpetual interest, an interest that cannot be extinguished? Two of our Presidents asked that same question and look what happened to them. President Lincoln dared to have the U. S. issue its own greenbacks, backed with the full faith of the government, and bypassed the central bankers, avoiding any interest payments to them. For this patriotic act he was killed by John Wilkes Booth, a Rothschilds agent and contract killer, who was later spirited away to England where he lived out his life comfortably on a pension provided by the Rothschilds bankers. The greenbacks were immediately stopped and called in and redeemed at a ridiculous low price set by the central bankers. One point should be made here: The Rothschild bank financed the North and the Paris branch of the same bank financed the South, which is the real reason the Civil War was ignited and allowed to follow its long, and bloody course. The more Americans that dies, the more money the Rothschild bankers made.

In our times this control of the issuance of our currency is in the illegal hands of the Federal Reserve, called the Fed, and the principal owner of the Fed's "Class A" stock is--you guessed it--the Rothschild family. The other president brave enough to oppose the banker barons, whose worth was now in the trillions, was President John F. Kennedy. This first Catholicpresident of our country enjoyed a deep-roots popularity--a charisma not enjoyed by most presidents. The Kennedy administration was so confident that it had the support of most voters that it ignored the Jewishlobby as the Kennedy brothers (John and Robert, his Attorney General) knew it was unnecessary to have the complete backing of every Jew in the U. S.

President Kennedy pledged himself to what was the best for America and cared not how the greedy bankers of the Fed felt. JFK, like Lincoln in the 1860's. dared to have the U. S. Treasury issue U. S. Dollars, not Federal Reserve notes, and placed them into circulation without paying interest to any bankers, just as spelled out in the U. S. Constitution.

This alarmed the owners of the Fed like a fifty point tremor on the Richter Scale. This must cease at once. The Fed bankers found themselves facing an intolerable situation, one which defied them and at the same time, one which they could not publicly complain without letting the cat out of the bag. Any complaint by the Fed would put it in a very bad light. The public would soon be aware of the gigantic scam the Fed has gotten away with since 1913. This scam allowed the Fed to avoid all income taxes and even audits.

Their response was evident at Dealy Plaza in Dallas."


The banking cartel are in the same league as the drug cartel.  They are devious, determined and care nothing about human beings, even their own families, whom they have sent into prison camps in their quest to assume their positions.

You cannot open a bank if it is not approved by this entity, the Federal Reserve, which has now control over media, both news media and the entertainment industry.  The shallow approach you take to condemning a nation of citizens without pointing out the obvious attack on teh soverignity of the USA, albeit covert, is proof you are a paid troll, focused on spreading a rumor to support what we all know is coming - the removal of the US citizens from their nation due to a failure of their economy and the debt to this banking cartel, The Federal Reserve, who has held a gun to the heads of politicians, made of money if not stainless steel, forcing them to do as they so or else.

What to do when assassins are at work in a tightly knit group of thugs who now control the justice department, the money and food supply?  If there are no good men left on earth who can devise a plan to blow this institution off the face of the earth, we are all doomed.  Fast forward 200 years and you will find a system in place which is going to welcome your descendents into slavery, or a slow death.


monad's picture

And John Kennedy Jr who if he hadn't been murdered during the Clinton years would be running the DNC.

TheFourthStooge-ing's picture

AnAnonymous driveled:

It is quite normal that 'american' middle class institution like the banks are also too big to jail.

Ah ah ah. You are infatuated with your beliefs.

This guy must be an economist.

AnAnonymous's picture

Banks are 'american' middle class institutions that work to satisfy the 'american' middle class.

The banks have been one of those instruments that enabled the 'american' middle class in their consumption streak.

The banks were there to loan to the 'american' middle class etc

But hey, it is well known: it is enough for an 'american' to say it so it is real.

Dead Canary's picture

Just wait. Her masters will take her aside and tell her to back off, "or else"

DonutBoy's picture

Who knew the Indian squaw would make such a tough inquisitor?