Guest Post: Before The Election Was Over, Wall Street Won

Tyler Durden's picture

From Nomi Prins, former Goldman managing director who did not write a NYT op-ed.

Before The Election Was Over, Wall Street Won

Before the campaign contributors lavished billions of dollars on their favorite candidate; and long after they toast their winner or drink to forget their loser, Wall Street was already primed to continue its reign over the economy.

For, after three debates (well, four), when it comes to banking, finance, and the ongoing subsidization of Wall Street, both presidential candidates and their parties’ attitudes toward the banking sector is similar  – i.e. it must be preserved – as is – at all costs, rhetoric to the contrary, aside.

Obama hasn’t brought ‘sweeping reform’ upon the Establishment Banks, nor does Romney need to exude deregulatory babble, because nothing structurally substantive has been done to harness the biggest banks of the financial sector, enabled, as they are, by entities from the SEC to the Fed to the Treasury Department to the White House.

In addition, though much is made of each candidates' tax plans, and the related math that doesn’t add up (for both presidential candidates), the bottom line is, Obama hasn’t explained exactly WHY there’s $5 trillion more in debt during his presidency, nor has Romney explained HOW to get a $5 trillion savings. 

For the record, both missed, or don’t get, that nearly 32% of that Treasury debt is reserved (in excess) at the Fed, floating the banking system that supposedly doesn’t need help. The ‘worst economic period since the Great Depression’ barely produced a short-fall of  an approximate average of $200 billion in personal and corporate tax revenues per year, according to federal data.)

Consider that the amount of tax revenue since 2008, has dropped for individual income contributions from $1.15 trillion in 2008 to $915 billion in 2009, to $899 billion in 2010, then risen to $1.1 trillion in 2011. Corporate tax contributions have dropped (by more of course) from $304 billion in 2008 to $138 billion in 2009 to $191 billion in 2010, to $181 billion in 2011. Thus, at most, we can consider to have lost $420 billion in individual revenue and $402 billion in corporate revenue, or $822 billion from 2009 on. The Fed has, in addition, held on average of $1.6 trillion Treasuries in excess reserves. That, plus $822 billion equals $2.42 trillion, add on the other $900 billion of Fed held mortgage securities, and you get $3.32 trillion, NOT $5 trillion, and most to float banks.

The most consistent political platform is that big finance trumps main street economics, and the needs of the banking sector trump those of the population.  We have a national policy condoning zero-interest-rate policy (ZIRP) as somehow job-creative. (Fed Funds rates dropped to 0% by the end of 2008, where they have remained since.)

We are left with a regulatory policy of pretend. Rather than re-instating Glass-Steagall to divide commercial from investment banking and insurance activity, thereby removing the platform of government (or public) supported speculation and expansion, props leaders that pretend linguistic tweaks are a match for financial might. We have no leader that will take on Jamie Dimon, Chairman of the country’s largest bank, JPM Chase, who can devote 15% of the capital of JPM Chase, which remains backstopped by customer deposit insurance, to bet on the direction of potential corporate defaults, and slide by two Congressional investigations like walks in the park.

Pillars of Collusion

A few months ago, Paul Craig Roberts and I co-wrote an article about the LIBOR scandal; the crux of which, was lost on most of the media. That is; the banks, the Fed, and the Treasury Department knew banks were manipulating rates lower to artificially support the prices of hemorrhaging assets and debt securities. But no one in  Washington complained, because they were in on it; because it made the over-arching problem of debt-manufacturing and bloating the Fed’s balance sheet to subsidize a banking industry at the expense of national economic health, evaporate in the ether of delusion.

In the same vein, the Fed announced QE3, the unlimited version – the Fed would buy $40 billion a month of mortgage-backed securities from banks. Why – if the recession is supposedly over and the housing market has supposedly bottomed out – would this be necessary? 

Simple. If the Fed is buying securities, it’s because the banks can’t sell them anywhere else. And because  banks still need to get rid of these mortgage assets, they won't lend again or refinance loans at faster rates, thereby sharing their advantage for cheaper money, as anyone trying to even refinance a mortgage has discovered. Thus, Banks simply aren’t ‘healthy’, not withstanding their $1.53 trillion of excess reserves (earning interest), and nearly $900 billion in mortgage backed securities parked at the Fed. The open-ended QE program is merely perpetuating the illusion that as long as bank assets get marked higher (through artificial buyers, zero percent interest rates, or not having to mark them to market), everything is fine.

Meanwhile, Washington coddles and subsidizes the biggest banks - not to encourage lending, not to encourage saving, and  not to better the country, but to contain harsh truths about how badly banks played, and are still playing, the nation.

The SEC’s Role

According to the SEC’s own report card on “Enforcement Actions: Addressing Misconduct that led to or arose from the Financial Crisis”: the SEC has levied charges against 112 entities and individuals, of which 55 were CEOs, CFOs, and other Senior Corporate Officers.

In terms of fines; the SEC ‘ordered or agreed to’ $1.4 billion of penalties, $460 million of disgorgement and prejudgment interest, and $355 million of “Additional Monetary Relief Obtained for Harmed Investors. That’s a  grand total of $2.2 billion of fines. (The Department of Justice dismissed additional charges or punitive moves.)

Goldman, Sachs received the largest  fine, of $550 million, taking no responsibility (in SEC-speak, “neither confirming nor denying’ any wrongdoing) for packaging CDOs on behalf of one client, which supported their prevailing trading position, and pushing them on investors without disclosing that information, which would have materially changed pricing and attractiveness. (The DOJ found nothing else to charge Goldman with, apparently not considering misleading investors, fraud.)

Obama-appointed SEC head, Mary Shapiro, originally settled with Bank of America for a friendly $34 million, until Judge Rakoff quintupled the fine to $150 million, for misleading shareholders during its Fed-approved, Treasury department pushed, acquisition of Merrill Lynch, regarding bonus compensation. (Merrill’s $3.6 billion of  bonuses were paid before the year-end of 2008, while TARP and other subsidies were utilized). Still embroiled in ongoing lawsuits related to its Countrywide acquisition, Bank of America agreed to an additional $601.5 million in one non-SEC settlement, and $2.43 billion in another relating to those Merrill bonuses. Likewise, Wells Fargo agreed to pay $590 million for its fall-2008 acquisition of Wachovia’s foul loans and securities. These are small prices to pay to grow your asset and customer base.

Citigroup agreed to pay $285 million to the SEC to settle charges of misleading investors and betting against them, in the sale of one (one!) $1 billion CDO. Judge Rakoff rejected the settlement, but Citigroup is appealing. So is its friend, the SEC.  Outside of that, Citigroup agreed to an additional $590 million to settle a shareholder CDO lawsuit, denying wrongdoing.

JPM Chase agreed to a $153.5 million SEC fine relating to one (one!) CDO. Outside of Washington, it agreed to a $100 million settlement for hiking credit card fees, and a $150 million settlement for a lawsuit filed by the American Federation of Television and Radio Artists retirement fund and other investors, over losses from its purchase of  JPM’s Sigma Finance Hedge Fund, when it used to be rated ‘AAA.’

There you have it. No one did anything wrong. The total of $2.2 billion in SEC fines, and about $4.4 billion in outside lawsuits is paltry. Consider that for the same period (since 2007), total Wall Street bonuses topped $679 billion, or nearly 309 times as much as the SEC fines, and 154 times as much as all the settlements.

The SEC & Dodd Frank Dance

The SEC embarked upon 90 actions, divided into 15 categories, related to the Dodd-Frank Act that amount to proposing or adopting rules with loopholes galore, and creating reports that summarize things we know. Some of the obvious categories, like asset backed related products or derivatives, don’t even include CDOs, which got the lion’s share of SEC fines and DOJ indifference.

Rather than tightening regulations on the most egregious financial product culprits; insurance swaps, such as the credit default swaps imbedded in CDOs, the SEC loosened them. It did so by approving an order making many of the Exchange Act requirements not applicable to security-based swaps. In one new post-Dodd-Frank order, it stated, a “product will not be considered a swap or security-based swap if ,,, it falls within the category of…insurance, including against default on individual residential mortgages.” Thus, credit default swaps, considered insurance since their inception, warrant no special attention in the grand land of sweeping reform.

The credit ratings category includes 20 items proposed, requested, or adopted. Under things accomplished, the SEC gave a report to Congress that basically says that the majority of rating agency business is paid for by issuers (which we knew), and proclaims (I kid you not) that a security is rated “investment grade” if it is rated “investment grade” by at least one rating agency. Further inspection of SEC self-labeled accomplishments provides no more confidence, that anything has, or will, change for the safer.

The White House & Congress

Yet, the Obama White House wants us to believe that Dodd-Frank was ‘sweeping reform.’ Romney and the Republicans are up and arms over it, simply because it exists and sounds like regulation, and Democrats defensively portray its effectiveness.

Ignore them both and ask yourself the relevant questions. Are the big banks bigger? Yes. Can they still make markets and keep crappy securities on their books, as long as they want, while formulating them into more complicated securities, buoyed by QE measures and ZIRP? Yes. Do they have to evaluate their positions in real world terms so we know what’s really going on? No.

Then, there’s the Volcker Rule  which equates spinning off private equity desks or moving them into asset management arms, with regulatory progress. If it could be fashioned to prohibit all speculative trading or connected securities creation on the backbone of FDIC-insured deposits, it might work, but then you’d have Glass-Steagall, which is the only form of regulatoin that will truly protect us from banking-spawned crisis.

Meanwhile, banks can still make markets and trade in everything they were doing before as long as they say it’s on behalf of a client. This was the entire problem during the pre-crisis period. The implosion of piles of toxic assets based on shaky loans or other assets didn’t result from  private equity trading or even from isolating trading of any bank’s own books (except in cases like that of Bear Stearns’ hedge funds), but from federally subsidized, highly risky, ridiculously leveraged, assets engineered under the guise of 'bespoke' customer requests or market making related ‘demand.’ 

When the Banking Act was passed in 1933, even Republican millionaire bankers, like the head of Chase, Winthrop Aldrich, understood that reducing systemic risk might even help them in the long run, and publicly supported it. Today, Jamie Dimon shuns all forms of separation or regulation, and neither political party dares interfere.

But things worked out for Dimon. JPM Chase’s board (of which he is Chairman) approved his $23 million 2011 compensation package (the top bank CEO package), despite disclosure of a $2 billion (now about $6 billion) loss in the infamous Whale Trade. He banked $20.8 million in 2010, the highest paid bank CEO that year, too. In 2009, Dimon made $1.32 million, publicly, but really bagged $16 million worth of stock and options. He made $19.7 million in total compensation for 2008, and $34 million for 2007. Still a New York Fed, Class A director, he’s proven himself to be untouchable.

Yet, the kinds of deals that were so problematic are creeping back. According to Asset Backed Alert, JPM Chase was the top asset-baked security (ABS) issuer for the first half of 2012, lead managing $66 billion of US ABS deals.

In addition, according to Asset Back Alert, US public ABS deal volume rose 92.8% for the second half of 2012 vs. 2011, while issuance of US prime MBS (high quality deals) fell 50.6%. Overall CDO issuance rose 50.2%. (Citigroup is the lead issuer (up 552%.))

ZIRP’s  hidden losses

According to a comprehensive analysis of data compiled from regulatory documents by  Bill Moreland and his team at my new favorite website,, some really scary numbers pop out. Here’s the kicker: ZIRP costs citizens and disproportionately helps the biggest banks, by about $120 billion a year.

Between 2005 and 2007, US commercial banks held approximately $6.97 trillion of interest bearing customer deposits. During the past two quarters, they held an average of $7.31 trillion. During that first period, when fed funds rates averaged 4.5%, banks paid their customers an average of $39.6 billion of interest per quarter. More recently, with ZIRP, they paid an average of $8.9 billion in interest per quarter, or nearly 77% LESS. In dollar terms - that’s about $30.7 billion less per quarter, or $123 billion less per year.

Since ZIRP kicked into gear in 2008, banks have saved nearly $486 billion in interest payments. Average salary and compensation increased by approximately 23%. Dividend payments declined by 14.05%.

The biggest banks are the biggest takers. Consider JPM Chase’s cut. Although its deposits disproportionately increased by 46% from 2007 (pre ZIRP and helped by the acquisition of Washington Mutual) to 2012, its interest expenses declined by nearly 89%. From 2004 to 2007, Chase paid out $34.4 billion in interest to its deposit customers. From 2008 to mid-2012, it paid out $3.4 billion. JPM Chase’s ratio of interest paid to deposits of .27% is the lowest of the big four banks, that on average pay less than smaller banks anyway.

The percentage of JPM Chase’s assets comprised of loans and leases is lower at 36.04% compared to its peers’ percentage of 52.4%. Its trading portion of assets is higher, as 14.78% vs. 6.88% for its peers, and 4.23% for all banks.

Looking Ahead

To recap: savers, borrowers, and the economy are still losing money due to the preservation of the illusion of bank health. More critically, the big banks grew through acquisitions and the ongoing closures of smaller local banks that provided better banking terms to citizens.  The big banks have more assets and deposits, on which they are over-valuing prices, and paying less interest than before, due to a combination of Fed and Treasury blessed mergers in late 2008, QE and ZIRP. Yet, we’re supposed to believe this situation will somehow manifest a more solid and productive economy.  

Meanwhile, past faulty securities and  loans will fester until their transfer to the Fed is complete or they mature, while new ones take their place. This will inevitably lead to more of a clampdown on loans for productive purposes and further economic degradation and instability. Financial policy trumps economic policy. Banks trump citizens, and absent severe reconstruction of the banking system, the cycle will absolutely, unequivocally continue.

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stinkhammer's picture

it's a big club, and we're not in it

alstry's picture

But if we refuse to let them milk us....there is no club in the

MillionDollarBogus_'s picture


No, you are not in the club...

I don't see you in the CA, Grove gatherings...

Chupacabra-322's picture

It’s a big club and you ain't in it. You and I are not in The big club. By the way, it’s the same big club they use to beat you over the head with all day long when they tell you what to believe. All day long beating you over the head with their media telling you what to believe, what to think and what to buy. The table has tilted folks. The game is rigged and nobody seems to notice. Nobody seems to care. Good honest hard-working people . . . white collar, blue collar it doesn’t matter what color shirt you have on. Good honest hard-working people continue, these are people of modest means . . . continue to elect these rich cocksuckers who don’t give a fuck about you. They don’t give a fuck about you . . . they don’t give a fuck about you.

They don’t care about you at all . . . at all . . . at all, and nobody seems to notice. Nobody seems to care. That’s what the owners count on. The fact that Americans will probably remain willfully ignorant of the big red, white and blue dick that’s being jammed up their assholes everyday, because the owners of this country know the truth. It’s called the American Dream cause you have to be asleep to believe it . . .”



-George Carlin – “It’s a big club and you ain’t in it.”





the only club you going to have is the one beaten over your head.

WhiteChrist's picture

It's the fellowship of White Christ, and its insiders are the law. The wise man thinketh not, but doth His will. Borrow naughts and ones, then buy any wight He looketh kindly on. If any man of GS, HSBC, JPM, RBS, BOA or any other of the mains that be walk thy way, kneel before him and do what he axeth of thee. Wit that what he axeth is of the Lord.

ebworthen's picture

I appreciate the satire.

Bow and kiss their rings as one would do the Priests, Bishops, and Pope of the old church who sold indulgences to peasants for them to get out of purgatory and into heaven, and who held orgies and had Wives and mistresses many.

Thine bankers doeth God's will (if God is the Devil).


Crime pays..for now..what goes around comes around.

JosephConrad's picture

And, as a NATION, we're just too COWARDLY to JAIL the FELONS! The coming elections and current financial state of the nation indicate all too clearly OUR PSEUDO-DEMOCRACY IS DEAD - and ALL Americans jus stood by an let it DIE. After the elections, the ecay will only accelerate...

Village Smithy's picture

And that my friends is what is wrong with America.

WhiteChrist's picture

Pluck up thy heart, my friend! Less is wrong with the Banded Rikes of Wineland by day. In His kindness, the Lord hath chosen to spare them. These are wonderful times. May every man greet the day with mirth in his heart, for the mains that be are truly doing His work. If thou tweelst that this be so, buy AAPL or any wight that He looketh kindly on. Thou wilt be richly blessed.

fonzannoon's picture

A religious MDB? Mildly entertaining....

BlueCollaredOne's picture

I love witnessing the birth of a new troll.  Go forth young man, stake your claim of teh internets.  

LMAOLORI's picture



The Buck stops at the top that used to mean the politicians took responsibility and punished people breaking the law now it just means literally with donations/bribes.

ZeroHedge readers know they get it but none the less this article is pretty darn good

Top Brass at Big Banks Just Don't Get It:  Hoenig

BlueCollaredOne's picture

Nomi Prins is so hot, good combination of brains and beauty.  


BlueCollaredOne's picture

My rebuttal

Hot may be stretching it, but c'mon she talks about subjects usually reserved for 55+ bald guys.  Cute may be a better word

sgt_doom's picture

A most brilliant analyses of Ms. Prins, together with a most brilliant article by Ms. Prins, who was author of the magnificent book, Other People's Money.

An earlier book of the similar title by Louis Brandeis explained pretty much everything in the early 1900s, but today many are still clueless.

What Would Louis Brandeis Do ? ? ?

Today at the ringing of the NYSE bell, a bunch of CEOs yelled, "Fix the debt!"

Fine, so let's attack it the proper way by asking, "What would Louis Brandeis do?"

First, he would identify the culprits, those who generated and benefitted from creating the vast national debt --- Justice Brandeis would have vociferously urged, "follow the money."

The incredible national debt derives, principally, from two sources:

shadow banking and the enormous sums spent on military offense (yes, the Wall Street-owned politicians refer to it as "defense" --- but it's all offensive in nature and spirity).

To identify the culprits, we must assiduously identify the owners of ExxonMobil, JPMorgan Chase, Morgan Stanley, Goldman Sachs, GE, AT&T, Bank of America, Citigroup, et al. --- the owners MUST be known, and yes, there are indeed owners.

Next, we must identify those who actually physically own America --- this may require massive forensic audits of endless land trusts --- bt so be it!

After the owners and perpetrators of shadow banking have been identified --- they must then return all the money they've stolen.  Some are obvious, as they are the vocal ones pushing for austerity on the rest of us:  Peter G. Peterson (and his lackeys like Erskine Bowles, Jim Kolbe, Alice Rivlin, et c.), the funders of the Hoover Institute, the Cato Institute, the American Enterprise Institute, the Heritage Foundation, the Brookings Institution, etc., etc.

Obviously, we're aware of the Koch brothers, but little is known of the others who force their debt upon us.  And then there's Jon Corzine and that missing billion or so?

The perps behind the endless shadow banking scams (and illegal rehypothecation in America) have parked trillions and trillions of capital offshore --- amounts which will easily pay off "our" debt which they created!

There's missing billions during military operations in Afghanistan and Iraq, and let us never forget that unaccounted for $2.3 trillion announced by the Pentagon's comptroller --- at a press conference --- on 9/10/01.

Again, obviously, with the growing national debt it becomes increasingly difficult for the super-rich to sell their junk bonds --- but that's a problem of their own creation.  (And accounts for their own billionaire fortunes.)

Today they call them bonds (junk bonds) --- tomorrow the Fed refers to them as "toxic assets" and removes them from their books --- QE to infinity!!!!!!

("for packaging CDOs on behalf of one client"  --- I believe Ms. Prins is referring to how John Paulson, together with GS, created the Abacus CDO to be a failure-by-design, stocked with the worst sure-to-default mortgages, while purchasing Credit Default Swaps --- naked variety --- at $1.4 million a pop, with a payout of $100 million per CDS --- man oh man what a super-financial fraud scam!)

Shizzmoney's picture

The Feds won't go after bankers....but they'll sure go after small fry:

Authorities expose $50M betting ring

Queens District Attorney Richard A. Brown and New York City police commissioner Ray Kelly announced the indictment of 25 people Thursday following an 18-month investigation into illegal sports betting that spanned five states and allegedly yielded payouts of more than $50 million on horse racing, pro and college football, basketball, hockey and baseball.

"Illegal gambling is not a victimless crime," Brown said at a morning news conference.

But rigged LIBOR apparently IS a victimless crime.  So is buying rating agencies to rate subprime mortgages Triple A, and of course, evicting people out of homes you don't actually own.

"Such unlawfully earned profits are often diverted into more insidious criminal enterprises."

You mean, like buying Congressmen to write legislation?

buzzsaw99's picture

I'd prefer to risk my money with an illegal bookmaker rather than be a fisted muppet for the squid.

Shizzmoney's picture

The vig is at more competitive rates and is actually priced market-to-market, that's for sure.

Spastica Rex's picture

The candidates differ on the things that really matter: God, Guns, and Gays.

midtowng's picture

Wall Street won? Tell us something we don't know.

wandstrasse's picture

It'll end in tears.

A Lunatic's picture

Just elect GS for POTUS and get it over with already..................

LMAOLORI's picture



People already did that by electing obama

Let’s start with the numbers. Why is a first term Senator pulling down almost $300,000 a year from Goldman Sachs, Lehman Brothers, Bear Stearns, Fannie Mae, Freddie Mac, AIG, Countrywide Financial, and Washington Mutual? He has not even completed his fourth year in the Senate and received a total of $1,093,329.00 from these eight companies and their employees. (all data from John McCain’s numbers, according to for the period 1990-2008 (i.e., 18 years worth of data) only collected $549,584.00. In other words, Barack is receiving $273,582.25 (and 2008 is not over) per year while McCain raised a paltry $30,532.44.

Want another shocker? Barack Obama has received more from one source–Goldman Sachs $542,252.00–than McCain has from all of the companies combined. Who the hell is more beholden to lobbyists? And why does a junior Senator from Illinois rate this kind of dough?

Five Senior Goldman Sachs Execs Gave $130K To 'Obama Victory Fund' WHILE Eric Holder Was Deciding Whether To File Criminal Charges

Blankfein, a lifelong Democrat, probably falls into the camp of Masters of the Universe who will quietly continue to support the president but won't make many public comments or host big fundraisers.

JPMorgan Employees Join Goldman Sachs Among Top Obama Donors

A Lunatic's picture

I think you are mistaken, as Obama promised to rid Washington of Lobbyists back in 2008.........

LMAOLORI's picture



hahaha and we all know how that worked out

Obama Administration Employs Lobbyists, Contradicting Report

White House visitors log a list of union leaders, lobbyists

Kaiser Sousa's picture

nothing will change until there is violent resistance to the rulIng wealthy elite who r sociopaths.....NOTHING

pragmatic hobo's picture

the entire financial industry have become a cancer.

Zero Govt's picture

the mother of the cancerous cells is Govt's the biggest mistake for any society

...from it all other rotten fruitcakes hang, feed and get bailed. Stop the feed/rot

Stop Paying Tax

Zero Govt's picture

all these rotten deranged politicians and bankers are wrecking the country (see also Greece and many, many other examples) and to take it more personally, your community, your families future propects and your own life

you'll waste a lifetime trying to get change through the most openly corrupt (heavily sponsored puppet politicians) electoral system. What to do, what to do?

Pull the rug from under these blood suckers feet who live off everyone elses backs, bring down Wall Street and the rotten US Govt in one easy, painless, no blood, sweat or teargas protest/revolt:

Stop Paying Taxes ...suck on air suckers


Vincent Vega's picture

As with all casino's, the house always wins.

Zero Govt's picture

Have you seen Las Vegas? ...carnage!

..many of the Casino Co's are saddled with huge debts despite all that "winning"

the house doesn't always win, you just have to tilt the table/game your way. How about a winning strategy sure to take literally every chip they have off the table for an easy peasy win? Here it is..

Stop Paying Tax ...Game Over Suckers

Vincent Vega's picture

Not to be argumentative but I wouldn't think that huge debts necessarily equates to gaming losses. Perhaps a matter of fewer players in the current economic environment. But certainly you would agree that on each game the odds favor the house. If not, please name a game where the odds favor the player. And no, I have not been to Vegas. I don't gamble. But I do understand what you are saying...kind of like Lehman and Bear Sterns 'losing'.

I'd like to stop paying tax but the threat of jail has a very strong persuasive element about it.

RSloane's picture

Further economic degradation and uncertainty ----> you'd better save for the rough times ahead -----> you save ----> you're punished for saving -----> further economic degradation and uncertainty.........

Other than physical PMs, how can people save for the obvious chomp the rising bear wedge is going to most likely take out of the markets? Food, bullets, guns, PMs, first aid items, wood for fires, etc. Anything but putting money in banks, which are eating up our resources but remain essentially useless to most of us.

Seasmoke's picture

the only store fronts i ever see popping up are BANKS....and they are the nicest building i have seen

brent1023's picture

The cycle will not, repeat not, continue.

Just one more hit and I promise to quit, but I gotta' have one more.

azzhatter's picture

Look at that smug prick Dimon in that picture.

Osmium's picture


I was thinking the same thing.  Someone needs to knock that smug grin right off his face.

RSloane's picture

Why shouldn't he be smug? He's the proud owner of a president. If Romney wins, we'll see the same proprietary smile coming from some other banker.

slackrabbit's picture

2013 is going to get ugly....for them!

blunderdog's picture

I think most of the thoughtful readers here already get the gist, but what's the agenda, anyway?  Assume we know what's going on--the question is, does anyone have any suggestions for where to come up with the $7T or so in deposits that would need to be protected if the law is enforced and all the big banks are liquidated?

I think the idea of shutting down the banks is a fine one, but I've never heard anyone discuss the mechanics of how to do it without setting the country on fire.

RSloane's picture

Historically, banks were catagorized by the functions they performed and those functions were limited. They were far more effeciently managed and more responsive to the needs of their depositors. During the worst of the recession, hundreds of small community banks were destroyed because they could not compete with the government-sponsored zombie banks like BofA. Billions of lines of credit were irrevocably destroyed. The first thing that should be done is returning banks to limited functioning defined by their purpose for serving the community in which they reside. Rather than setting the country on fire, people would once again have a community bank for deposits, loans, mortgages, etc. That way if banks wish to peform on a risk-on basis in an uncertain environment, they could do so without jeapordizing the entire ecomomy. In other words, they would flourish or fall on their own sword without dragging the rest of us down with them.

fonzannoon's picture

Something tells me they will not voluntarily revert back to that. It's gonna be ugly.

blunderdog's picture

I still see no consideration given to the real problem.

The problem is NOT that "the banks won't permit the government to regulate them."  The problem is that the government CANNOT regulate them because enforcing the laws comes with a $7 trillion dollar price tag.

The only way for the US banking system to *survive* is to continue flooding them with liquidity, thus permitting them to escape the asset-writedowns that would immediately reveal their insolvency.

A move to begin enforcing regulations which would have prevented our current state of affairs will require restructuring of the big banks.  Restructuring the big banks means that we'd need an IMMEDIATE provision to protect the current demand-deposits, PLUS some kind of ongoing investigation of how to preserve (or recover) whatever fraction of all the retirement assets they can accurately be said to "hold."

This is like considering strategy vs. logistics in warfare.  It's easy to say that if Israel cares about Iran's nuke-program they can just attack Iran--that's strategy.  But who's considering the quandary of how a country with a 600 mile combat radius would be able to do so?