When
Will the Big Banks Be Reined In?
By
Phil Mattera in the Dirtdiggers Digest
In
case anyone had doubts about the venality of the big U.S. banks, some recent
news reports provide indisputable proof.
First,
David Kocieniewski of the New York Times wrote a mind-boggling
front-page report on
how Goldman Sachs has been using a metals storage company to move large
quantities of aluminum from one warehouse to another in Detroit.
The maneuver,
which exploits esoteric rules of the London Metal Exchange, generates millions
of dollars in profit for Goldman and pushes up the price of products such as
soft drinks sold in aluminum cans.
The Federal Energy Regulatory Commission just announced that
JPMorgan Chase would pay $410 million in penalties and disgorgement to
ratepayers to settle charges that it manipulated electricity markets in
California and the Midwest several years ago.
The announcement came shortly
after the agency ordered the British bank Barclays and four of its traders
to pay $453 million in civil penalties in connection with similar abuses in the
western United States.
Apparently
these banks decided that Enron’s energy market manipulation from a decade
earlier was a game plan rather than a cautionary tale.
Another Times piece reports
that major banks have in effect blacklisted more than a million low-income
Americans because their names appear in databases of supposedly risky
customers. The article highlights a Brooklyn woman who ended up on such a list
after she overdrew her checking account by all of $40 in 2010 and subsequently
was turned down by numerous banks when she tried to open an account.
Many of
the blacklisted people had to resort to exploitative check-cashing services and
payday lenders to conduct their financial transactions. Among the subscribers
to ChexSystems, the largest of the databases, were said to be Bank of America,
Citibank, JPMorgan Chase and Wells Fargo.
Allow
that to sink it. Banks that have been involved in multi-billion-dollar scandals involving
the deceptive sale of toxic securities, municipal bond bid rigging, foreclosure
abuses and the like decide that it is too risky to take on a customer who once
had a two-digit overdraft in her checking account.
For
institutions such as these, the only proper response is to play as dirty as
they do. A third NYT article reports
that the city of Richmond, California is doing exactly that by employing its power
of eminent domain to take over occupied homes that are under the threat of
foreclosure and instead offer the owners new, more affordable mortgages that
reflect the diminished value of the property.
The banks, which have dragged
their feet on foreclosure reforms, are indignant over the move and are, in the
words of the Times, threatening to “bring down a hail of lawsuits and all
but halt mortgage lending in any city with the temerity” to consider the
tactic.
The
need for bold tactics such as eminent domain has been brought about not only by
the banks but also by the half-hearted efforts of the Obama Administration to
deal with the foreclosure crisis. This is just one of the ways the
administration has not held the financial industry fully responsible for the
financial meltdown of 2008 and the repercussions that are still with us.
The
President himself is spending his time these days lobbying Congress to support
the selection of Larry Summers as the next chair of the Federal Reserve. This
is the same Summers who, as Clinton’s Treasury Secretary, promoted the
financial deregulation that helped usher in the bank recklessness that has done
so much harm to the economy.
The Wall
Street Journal recently revealed for
the first time that Summers has been working as a consultant to Citigroup in
addition to his previously reported roles advising a hedge fund, a venture
capital firm and a money management company. Obama apparently thinks that
someone with this kind of track record is well suited to oversee monetary
policy as the head of an agency that is also one of the main banking
regulators.
I’m
more impressed with the public officials in Richmond, California.
