Big Bank News (April 2013)

BIG BANK NEWS

Published by Reform-Wall-Street.org

April 2013   Vol. 1, No. 1

Big Banks Face Fierce Heat

   The month of March witnessed a major increase in the pressure to break up the big banks, which are even more dangerous now than before the 2008 crisis.
   Contradicting the Obama Administration’s talking points, Federal Reserve Chairman Ben Bernanke shifted his position and declared:

Too Big To Fail is not solved and gone. It’s still here. I agree with Elizabeth Warren 100 percent that it’s a real problem…. Too Big To Fail was a major source of the [2008] crisis and we will not have successfully responded to the crisis if we do not address that successfully.

   In a Washington Post editorial titled "Stop Subsidizing Wall Street," Thomas M. Hoenig, vice chair-man of the Federal Deposit Insurance Corporation (FDIC), called for restoring the wall between commercial and “investment” banking:

Government guarantees should be limited primarily to those commercial banking activities that need it to function: the payments system and the intermediation process between short-term lenders and long-term borrowers. Non-banking financial activities such as proprietary trading, market making and derivatives should be placed outside of commercial banks and so outside of the safety net.

   The head of the Dallas Federal Reserve Bank, Richard Fisher, garnered a great deal of publicity for his three-point plan to end too-big-to-fail banks. In particular, his appearance before the high-profile Conservative Political Action Conference, where he called the big banks “crony capitalists,” generated widespread coverage.
   Local newspapers throughout the country came to the defense of local community banks that are being unfairly driven out of business by the big banks.
   Many of these papers expressed outrage at Attorney General Eric Holder’s admission that he considers megabanks “too big to jail.”
   The Cyprus bank crisis not only made many Americans worry about the security of their own deposits. It also reminded us that banks use offshore tax havens to avoid paying taxes.
   The Senate unanimously adopted a non-binding amendment calling for an end to big bank subsidies, which are ongoing.
   The Senate also adopted another amendment that would facilitate the criminal prosecution of U.S. financial institutions that break the law. [Lanny A. Breuer, the man who headed the Justice Department investigation into the financial crisis, retired and landed a cushy job on Wall Street, as is common with government officials with responsibility for regulating Wall Street.]
   More than 38,000 people joined the call on the Maryland Attorney General to strip the charter of HSBC, the bank that paid a record $2 billion for money laundering.    
   More than 140,000 individuals signed the “Tell Obama to end too big to jail” petition.
   CREDO’s petition demanding that Holder resign if he won’t prosecute criminal bankers drew more than 150,000 signatures.
   Senator Bernie Sanders announced plans to introduce legislation to break up the big banks.
   Democratic Senator Sherrod Brown and Republican Senator David Vitter said they’ll introduce legislation to raise banks’ capital requirements, which could spur them to split their operations.
   Reports that Senator Brown may become the next chair of the Senate Banking Committee caused a stir in the pro-Wall Street press.
   Senator Elizabeth Warren performed a stellar job holding officials feet to the fire.
   JP Morgan Chase, which until recently was considered the best big bank, was embarrassed by a scathing Senate report on its $6.2 billion “London whale” loss, which involved tactics to evade regulations designed to prevent risk-taking and has reinforced the argument that the big banks are “too big to manage.”
   At least eight federal agencies continued to investi-gate Chase, which is suspected of having been complicit in the notorious Bernie Madoff Ponzi scheme.
   [Chase has paid $16 billion in fines, settlements and other litigation expenses in the last four years alone, which is only a fraction of their income. A mere business expense.]
   The conservative National Review quoted Bank analyst Jaret Seiberg saying, “If Congress was ever given the chance for an up-or-down vote on whether to break up the biggest banks, the big banks would lose every time.”
   On Bill Moyers and Company, former FDIC chair Sheila Bair said:

I think the system’s got incrementally safer, a little bit safer but nothing like the dramatic reforms that we really need to see to tame these large banks and to give us a stable financial system that supports the real economy, not just trading profits of large financial institutions.

   Floyd Norris, the chief financial correspondent for The New York Times wrote:

What evidence is there that playing in these opaque and complicated derivatives markets has helped banks do the job that justifies giving them the benefit of deposit insurance? That job involves the allocation of capital, the maintenance of payment systems and the protection of depositors. Why let banks play in these markets at all?

   Democracy for America, Daily Kos, and US Action launched a campaign to back legislation introduced by Senator Tom Harkin and Congressman Peter DeFazio that would impose a sales tax on financial trading. This proposal, which could bring in needed government revenues and help stabilize financial markets, sent a warning shot across the bow of the big banks.
   The New York Times reported that synthetic collaterized debt obligations (C.D.O.’s), that “were at the heart of the credit crisis more than four years ago…appear to be making a comeback,” which caused concern among those who noticed.
   A Rasmussen public opinion poll found that 50% of the public support breaking up the big banks and only 25% oppose the idea.
   A HuffPost/YouGov poll found that sixty-one percent of respondents said that banks and other financial institutions have become too large and powerful.
   Many Republicans began calling for the GOP to address its identity problem by re-branding itself as a populist party willing to take on the big banks.

What Strategy Might Work Best?

   Massive public pressure will be required to overcome the enormous political power of the big banks, who spend about $100 million a year to protect their interests, more than any other private sector. After the Senate voted down the 2010 SAFE Banking Act to end too-big-to-fail, Donny Shaw found that the 61 Senators who voted against the bill had received, on average, twice as much in campaign contributions compared to Senators who voted for it.
   A number of activist organizations are taking on the financial system. On the local level, campaigns like Occupy Bernal have prevented foreclosures. Switch Your Bank and StrikeDebt have gained some traction.
   In San Francisco, ACCE, ReFund California, and Supervisor Avalos are calling for an investigation of LIBOR fraud by big banks and its impact on city finances.
   In Oakland, a community-based campaign persuaded the Oakland City Council to stop doing business with Goldman Sachs unless that firm agrees to stop charging the city a 5.6 percent interest rate on bond debt.
   And efforts continue to organize alternative currencies and gift economies.
   Nationally, the Home Defenders League, the Campaign for a Fair Settlement, and the Take Back the People's Bank campaign have been pushing for principal reduction for all underwater homeowners and an end to all Fannie-Freddie evictions.
   On April 2, activists in more than a dozen cities across the country delivered more than 330,000 signatures to U.S. Department of Justice offices throughout the country calling on the Obama Administration to reject Eric Holder’s declaration that some financial institutions are too big to jail. Members of MoveOn, Credo Action, Home Defenders League, Campaign for a Fair Settlement, Courage Campaign and others participated in this action in a dozen cities, including Atlanta, Charlotte, Little Rock, Los Angeles, Minneapolis, Philadelphia, Pittsburgh, Sacramento, and St. Louis.
   As shareholders, a coalition of groups including the AFL-CIO, the American Federation of State, County and Municipal Employees, and the Benedictine Sisters of Mount St. Scholastica have been pressuring four of the six biggest banks to break up their operations. Arguing that the megabanks are too-big-to-manage and pointing to the diminished value of their stock as evidence, these shareholders have presented proposals for shareholder votes directing executives to explore splitting up their operations. (Local activists might build on that approach by calling on local governments and retirement boards to stop doing business with big banks that engage in both commercial and "investment" banking.)
   Americans for Financial Reform is a broad coalition that lobbies on legislative and regulatory issues.
   Senator Russ Feingold ‘s Progressives United Political Action Committee posted an End “Too Big to Fail” Petition.
   National People’s Action has affirmed that new laws should be put in place that minimize the risk of the “too big to fail.”
   The Public Banking Institute is advocating for local and state public banks like the very successful Bank of North Dakota.
   Rebuild the Dream supports a financial transaction tax, has hada  “Support for Homeowners” project, and has advocated the end of “too big to fail” banks.
   The Reinstate the Glass-Steagall Act Petition on SignOn.org garnered more than 112,000 signatures.
   Robin Hood Tax USA is calling for a march and rally in Washington, DC on April 20 to press for a financial transactions tax.
   These developments are encouraging and could feed into a national movement. But what seems to be lacking so far is grassroots organizing to call for the basic restructuring of our financial system. So long as the big banks retain their current role in the economy, their political clout will be very difficult to overcome. We need a popular force to push for fundamental reform. We need to help assure that any such reforms are meaningful.
   Early this year, Red Jahncke, a business consultant, penned a Bloomberg op-ed titled “Breaking Up Banks Is Easy When They Aren’t Failing.”  In this piece, he argued:

   The first and most obvious proof that we can lies in the 2010 bank-regulation law, the Dodd-Frank Act, which requires America’s too-big-to-fail banks to submit plans -- so-called living wills -- outlining how they can be dismantled if they get into trouble. So these banks have already provided breakup blueprints....
   Second, it has been done before. After the passage of the Glass-Steagall Act of 1933, big banks were divided into separate commercial-banking and investment-banking institutions....
   There is no reason banks couldn’t sell or spin off all of their credit-card operations.... Our megabanks could easily sell loans of all kinds…. Investment securities, including large amounts of U.S. Treasuries and mortgage-backed securities…can be sold with ease to reduce size….
   Branches are usually sold at a profit. For example, last May, HSBC closed the sale of 195 branches with $15 billion in deposits in northern New York state to a small bank, First Niagara Financial Group Inc.

   Our big banks inflict enormous damage on our economy and threaten even greater harm in the future. Without a strict separation between commercial and “investment” banking, taxpayers may be called on again to bail out a big bank in order to prevent an economic collapse. The federal government should provide deposit insurance only to commercial banks.
   But in an online discussion, Wilson Riles, a long-term Oakland-based activist who’s very familiar with both local and national politics, cautioned against a premature, excessive focus on national policy, which can leave activists discouraged and feeling disempowered. Riles commented:

   Significant social and political change…first starts in local circumstances and local communities in struggle…. Local efforts spur the Washington action…. Good changes that happen at local levels can quickly spread to other local communities and build understanding and loyalty. In addition visionary concepts can be honed into practicality and "successful" working examples can be well defined….
   When the change becomes a national question…there is a broad deep understanding and loyalty to the change that inspires the commitment, creativity, and sustained attention necessary to prevent blocking or even accelerate the change….
   The civil rights struggle was all taking place locally, against local ordinances and local bureaucracies, before it became a national issue…. The history of the labor movement is rooted in many local struggles. The tail end of it is the national legislation for a limited workweek, against child labor, and etc…. 

   Riles contrasted this dynamic with the U.S. anti-apartheid movement. He said:

   The actions taken at "colleges and local communities" had minimal impact on those local communities and no lasting effect. Oakland still has its anti-apartheid ordinances on the books but to no effect and with no effect on other human rights issues in Oakland or anywhere else in the world. Oakland did not have to change itself to do that.
   That is not the case with the civil rights struggle or with the labor movement. Those local communities had to change themselves and commitment, and sustainability of that change persists at the local level [and]  is not going to be easily lost or turned away from.

   Leonard Roy Frank, editor of the Random House Quotationary, replied:

   I agree with Wilson Riles. The actions taken by Oakland were ineffective because they entailed no change in the people of Oakland. Meaningful and lasting change in the community begins, or at least happens simultaneously with, change in the attitudes of the people of that community

   Reflecting on these comments, it strikes me that the change that was prompted by the labor and civil rights movements (but not the U.S. anti-apartheid movement) included changes in how people relate to each other. It seems the same can be said about the women's and gay liberation movements. We were, for example, called on to examine our submissiveness toward employers, as well as our racism, sexism, and homophobia.
   Positive personal and social changes on the local level can make a national political movement more sustainable, especially if those projects grow small, horizontal, compassionate communities of individuals who support each other in their personal development. To reform Wall Street we must transform America, including ourselves.
   How might a Wall Street reform movement learn from the labor, civil rights, women’s, and gay movements so we can have a “lasting effect” on our local communities? That is a question we need to address.

About Reform Wall Street

Reform-Wall-Street.org is edited by Wade Hudson with assistance from several colleagues. Our vision: To transform our society into a compassionate community dedicated to the common good of all humanity. Our mission: To assure that banks serve the public interest. Our primary goals:

• Impose a sales tax on financial transactions.
• End “too-big-to-fail” banks.
• Promote public banks, credit unions, and community banks.

Our primary methods:

• Use the website to consolidate, constantly update and share key information and analysis concerning the financial industry.
• Develop an informal network of individuals concerned about this issue.
• Share notifications about action opportunities.
• Support the development of inclusive, member-controlled grassroots activist organizations dedicated to this cause.
• Encourage the growth of small, supportive communities rooted in deep nonviolence whose members support one another in their personal development, community building, and civic engagement.

To be in touch, go to the site at Reform-Wall-Street.org or email wadeATwadehudsonDOTnet.

Power without love is reckless and abusive, and love without power is sentimental and anemic…. An edifice that produces beggars needs restructuring.
Dr. Martin Luther King, Jr.

NOTE: This (monthly) newsletter reviews the news from the month of March. To receive the daily "Big Bank News," follow the blog.