Thursday, July 19, 2012

What happened to banking?

Kill Wall Street before Wall Street kills America

By Mike Krauss
Bucks County Courier Times

Not so long ago, the words “banker” and” banking” were synonymous with prudence, probity and respectability. But say those words today, and across the U.S. and Europe tens of millions now react with anger and scorn.

What happened?

Political power flows from wealth. In the decades after World War II, the American people built up perhaps the greatest and (this is the important part) most broadly shared wealth the world had known. A democratic economics insured a democratic politics.

But beginning in the 1970s, federal tax, budget and economic policy began to favor the concentration of wealth in the hands of the already wealthy. As wealth was concentrated, so too was political power.

Until well after World War II, the finance industry accounted for no more than about 18 percent of U.S. domestic profit. It was one among many important industries. But as U.S. manufacturing was dismantled in order to maximize corporate profit, and as banking was allowed to consolidate into the “too-big-to-fail” banks, by 2010 the finance industry grew to account for 60 percent of U.S. domestic profit.

The power of that wealth was projected in Washington through legalized bribes that now make a mockery of democratic elections, and gutted the regulation that once protected homeowners, pensioners, savers and investors. Fraud became a business model. Wall Street exploded in a riot of greed, finding ever more clever ways to extract wealth from the American people.

So great is Wall Street’s power in Washington, that when its recklessly leveraged house of cards came tumbling down in 2008, two presidents and the Congress tried to put it back together, rather than let it die the death it had earned.

Instead of coming to the aid of the American people, and allowing the many thousands of responsible American banks and many more thousands of responsible bankers to retake their industry and market share from the con men and criminals, Washington caved to the wealth of Wall Street.

And the barons went right back at it, using every device known to man — and apparently taught in U.S. business schools for much of the past fifty years — to continue their campaign to extract every last nickel from anybody they could, any way they could.

Hyperbole? If only.

The mortgage market was a criminal enterprise. Deceit and double dealing were standard in the interest rate and credit default swaps markets. The municipal bond market was rigged. Wall Street wizards like former New Jersey governor and U.S. senator Jon Corzine gambled for their own account with huge sums of clients’ money without their consent or knowledge — and lost big.

It’s still going on. Now, the news from London. It is called the biggest scandal in history. The numbers are mind boggling.

LIBOR is the London Interbank Offered Rate. It is the interest rate set daily by the big banks and affects the cost of an estimated $800 trillion of “financial instruments,” including credit cards, mortgages, corporate bonds and bank loans worldwide. It has been rigged — and regulators have known it was rigged since at least 2008.

So blatant is the fraud and criminality, that even the British newspaper The Economist, a bastion of 1 percent capitalism, had to lead its coverage of this latest and greatest scandal with a headline it has so far tried to avoid: “Banksters.”

The storm now centers on Barclay’s Bank in London, but it is growing and will engulf all the big banks. And once again, regulators and governments on both sides of the Atlantic will bark, but they will not bite. There will be some fines and someone will get fired and walk away with a $20 million dollar severance package. Poor baby.

Finance has usurped our democracy. How do we take back it back?

In the United States, there is again a great hue and cry to break up the big banks and reinstate the Glass-Steagall Act, which separated the banks and investment houses after the Great Depression, but was repealed by Democratic President Clinton and a Republican Congress when they bowed to Wall Street a decade ago.

Great ideas. Don’t hold your breath; at least, not in the United States. The barons own this Congress, they will own the next and they are placing their markers with both Obama and Romney.

Rather, states and municipalities, unions, foundations, churches and not for profit organizations, which control perhaps trillions of dollars and much of it on deposit with Wall Street, can take those dollars out of the Wall Street banks, bank locally and set up a network of public banks, to put the money of the American people to work for the American people.

There may not be much time. When Merrill Lynch went down in 2008, it was leveraged 42 to 1. Today, of the $230 trillion derivatives market — 15 times larger than the entire U.S. economy — 97 percent is held by five banks. Those bets are insanely leveraged at 200 and 300 to 1. One more bad bet of the kind JP Morgan CEO Jamie Diamon could not explain to Congress (at least, not under oath), and the entire economy could go with it.

It is no longer enough to regulate Wall Street. We must take the money back. Americans must kill Wall Street, before Wall Street kills America.

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