Taibbi writes: "Paul Krugman wrote an op-ed in the New York Times today
called 'Sanders Over the Edge.' He's been doing a lot of shovel work for the
Hillary Clinton campaign lately, which is his right of course. The piece
eventually devolves into a criticism of the character of Bernie Sanders, but
it's his take on the causes of the '08 crash that really raises an eyebrow."
JPMorgan Chase ended up saddled with a $13 billion settlement after it
admitted to making 'serious misrepresentations' to mortgage investors.
(photo: Seth Wenig/AP)
Why the Banks Should Be Broken Up
By Matt Taibbi, Rolling Stone
09 April 16
Bernie or no Bernie, 'Times' columnist Paul Krugman is wrong about the banks
Paul Krugman wrote an op-ed in the New York Times today called "Sanders Over
the Edge." He's been doing a lot of shovel work for the Hillary Clinton
campaign lately, which is his right of course. The piece eventually devolves
into a criticism of the character of Bernie Sanders, but it's his take on
the causes of the '08 crash that really raises an eyebrow.
By way of making a criticism of the oft-repeated Sanders charge that the big
banks need to be broken up, Krugman argues that banks were not "at the heart
of the crisis."
This is Krugman's assessment of who was responsible:
"Predatory lending was largely carried out by smaller, non-Wall Street
institutions like Countrywide Financial; the crisis itself was centered not
on big banks but on 'shadow banks' like Lehman Brothers that weren't
necessarily that big."
Forget about the Sanders-Clinton race, because it's irrelevant to the issue.
Krugman is just wrong about this.
The root problem of the '08 crisis lay in a broad criminal fraud scheme in
the mortgage markets. Real-estate agents fanned out into middle- and
low-income neighborhoods in huge numbers and coaxed as many people as
possible into loans, whether they could afford them or not.
Those loans in turn were bought up by giant financial companies on Wall
Street, who chopped them up into a kind of mortgage hamburger. Out of this
hamburger, they made securities. These securities were then sold to
institutional investors like pension funds, unions, insurance companies and
hedge funds.
In the typical scenario, the investors buying these toxic mortgage
securities weren't told how risky the merchandise was. Many thought they
were investing in AAA-rated real estate, when in fact they were buying up
the flimsy home loans of part-time janitors, manicurists, strawberry
pickers, people without ID or immigration status, and so on.
There were two major classes of victims in this scheme: homeowners and
investors. About five million people went into foreclosure after the crash,
and investor losses globally ran into the trillions. It was an unparalleled
event in the annals of white-collar crime.
Virtually the entire financial industry had a hand in this. The ratings
agencies were complicit because they blessed a lot of these mortgage
securities with high ratings when they knew they didn't deserve them.
Companies like AIG had a role because they created a kind of
pseudo-insurance for these mortgage securities that disguised the risk they
posed.
And Krugman is right that companies like Countrywide and First Century, the
sleazy "mortgage originators" who sent teams of over-caffeinated real-estate
hustlers into neighborhoods offering crooked loans, were primarily
responsible for a lot of the street-level predatory lending.
But Krugman neglects to mention the crucial role that big banks played.
The typical arc of this scam went as follows: Giant bank lends money to
sleazy mortgage originator, mortgage originator makes lots of dicey home
loans, the dicey home loans get sold back to the bank, the bank pools and
securitizes the loans, and finally the bank sells the bad merchandise off to
an unsuspecting investor.
The criminal scenario that was most common was a gigantic bank buying up
huge masses of toxic loans from a Countrywide or some other fly-by-night
operation and knowingly selling this crap as a good investment to some
investor.
We chronicled an example of this in "The $9 Billion Witness," the story of
JP Morgan Chase whistleblower Alayne Fleischmann, who lost her job after
trying to stop the bank from selling a parcel of bad mortgages. JP Morgan
Chase ended up saddled with a $13 billion settlement after it admitted to
making "serious misrepresentations" to mortgage investors.
What's so baffling about Krugman's column is that there is a massive amount
of documentary evidence outlining this behavior, committed by virtually
every major bank in America. There was a $7 billion settlement paid by
Citigroup, which incidentally is the company that Bill Clinton originally
repealed the Glass-Steagall Act to create. Citi admitted to hawking
merchandise that violated their own internal credit guidelines.
Citi also bilked investors out of huge sums, and we know a great deal about
its behavior because it too had a whistleblower, named Richard Bowen. Bowen
sent the SEC over 1,000 pages documenting "fraud and false representations
given to investors."
There were virtually identical billion-dollar settlements involving Bank of
America, Goldman Sachs (which is now a bank holding company, remember) and
Morgan Stanley (ditto).
Wells Fargo's settlement is another blunt repudiation of Krugman's point,
because in the case of Wells, the bank itself was engaging in predatory
lending at the street level, not just selling crappy mortgages to investors.
Wells had to pay $175 million to settle charges of overcharging 4,000
minority homeowners in a case that saw evidence come out that the bank
specifically targeted black customers (referred to in one office as "mud
people") for "ghetto loans."
Let's not forget also that not only were the big banks intimately involved
in the signature fraud of the era - the creation and repackaging of toxic
mortgage loans - they were also involved in wide-ranging foreclosure abuses.
Companies like Bank of America, Citi, Wells Fargo and Chase ended up being
stuck with an additional $25 billion settlement just for the tawdry
document-fudging "robosigning" scheme that helped accelerate the foreclosure
crisis.
And did Krugman miss the other headlines from this era? Did he miss HSBC
being nailed for laundering hundreds of millions of dollars for Central and
South American drug cartels? How about the money-laundering scandals
involving Chase, the British Bank Standard Chartered, the German Commerzbank
AG and others, in which banks washed cash for crooks and rogue states?
And did he miss the LIBOR rate-rigging scandal that forced the likes of
Barclays, UBS, Rabobank, the Royal Bank of Scotland, and Deutsche Bank to
pay massive settlements for manipulating interest rates? How about the Forex
manipulations that led to still more settlements for the likes of Goldman,
BNP Paribas, HSBC and Barclays?
Krugman would likely argue that all those little things like laundering
money for narco-terrorists, monkeying with world interest rates, and
systematic cheating in the currency markets had nothing to do with the
crash.
He would technically be correct in this. But the entire argument for
breaking up the banks, which incidentally didn't originate in the Senate
with Bernie Sanders or even Elizabeth Warren but with Ohio's Sherrod Brown
and then-Delaware Sen. Ted Kaufman, was conceived with the idea that leaving
over-large banks intact invited not only the potential for future bailouts,
but future regulatory problems.
As MIT economist Simon Johnson pointed out in 2010, these institutions have
become so big that they can confront and defy the government. Moreover the
failure to punish the banks for the great mortgage frauds of the crisis
years left all of these companies with the knowledge that the authorities
were afraid to aggressively enforce the law, for fear of disrupting a
fragile economy.
When UBS and HSBC escaped with slap-on-the-wrist settlements for the LIBOR
and money-laundering offenses, respectively, Sherrod Brown redoubled his
efforts to break up the banks, insisting that these episodes proved these
companies were now too big to be regulated. By 2013, Brown said, it was
clear that "these megabanks are out of control."
The call to break up the banks is not some socialist clarion call to end
capitalism. (Well, it might be from Bernie, but not from everyone.)
In fact, it's just the opposite. The lessons of the crash era are that these
megabanks have grown beyond the organic controls of capitalism. They were so
big and so systemically important in '08 that the government could not let
them go out of business.
This alone was an argument for breaking them up. The banks emerged from '08
with the implicit backing of the federal government. They became quasi-state
entities, almost immune to failure. Not just Bernie Sanders worried about
this. Voices as diverse as Louisiana Republican David Vitter and Krugman's
own New York Times editorial board have argued for hard caps on bank size.
What's happened in more recent years, with LIBOR and the money-laundering
scandals and Forex and the London Whale episode and so on, is that these
firms also proved too "systemically important" to regulate and prosecute.
They grew too big not only for capitalism, but for criminal law.
When a company is not only too big to fail, but too big to prosecute, it's
too big to exist. Krugman may believe otherwise, but he shouldn't pretend
that others - including his own paper - don't have legitimate concerns.
Error! Hyperlink reference not valid. Error! Hyperlink reference not valid.
JPMorgan Chase ended up saddled with a $13 billion settlement after it
admitted to making 'serious misrepresentations' to mortgage investors.
(photo: Seth Wenig/AP)
http://www.rollingstone.com/politics/news/why-the-banks-should-be-broken-up-
20160408http://www.rollingstone.com/politics/news/why-the-banks-should-be-br
oken-up-20160408
Why the Banks Should Be Broken Up
By Matt Taibbi, Rolling Stone
09 April 16
Bernie or no Bernie, 'Times' columnist Paul Krugman is wrong about the banks
aul Krugman wrote an op-ed in the New York Times today called "Sanders Over
the Edge." He's been doing a lot of shovel work for the Hillary Clinton
campaign lately, which is his right of course. The piece eventually devolves
into a criticism of the character of Bernie Sanders, but it's his take on
the causes of the '08 crash that really raises an eyebrow.
By way of making a criticism of the oft-repeated Sanders charge that the big
banks need to be broken up, Krugman argues that banks were not "at the heart
of the crisis."
This is Krugman's assessment of who was responsible:
"Predatory lending was largely carried out by smaller, non-Wall Street
institutions like Countrywide Financial; the crisis itself was centered not
on big banks but on 'shadow banks' like Lehman Brothers that weren't
necessarily that big."
Forget about the Sanders-Clinton race, because it's irrelevant to the issue.
Krugman is just wrong about this.
The root problem of the '08 crisis lay in a broad criminal fraud scheme in
the mortgage markets. Real-estate agents fanned out into middle- and
low-income neighborhoods in huge numbers and coaxed as many people as
possible into loans, whether they could afford them or not.
Those loans in turn were bought up by giant financial companies on Wall
Street, who chopped them up into a kind of mortgage hamburger. Out of this
hamburger, they made securities. These securities were then sold to
institutional investors like pension funds, unions, insurance companies and
hedge funds.
In the typical scenario, the investors buying these toxic mortgage
securities weren't told how risky the merchandise was. Many thought they
were investing in AAA-rated real estate, when in fact they were buying up
the flimsy home loans of part-time janitors, manicurists, strawberry
pickers, people without ID or immigration status, and so on.
There were two major classes of victims in this scheme: homeowners and
investors. About five million people went into foreclosure after the crash,
and investor losses globally ran into the trillions. It was an unparalleled
event in the annals of white-collar crime.
Virtually the entire financial industry had a hand in this. The ratings
agencies were complicit because they blessed a lot of these mortgage
securities with high ratings when they knew they didn't deserve them.
Companies like AIG had a role because they created a kind of
pseudo-insurance for these mortgage securities that disguised the risk they
posed.
And Krugman is right that companies like Countrywide and First Century, the
sleazy "mortgage originators" who sent teams of over-caffeinated real-estate
hustlers into neighborhoods offering crooked loans, were primarily
responsible for a lot of the street-level predatory lending.
But Krugman neglects to mention the crucial role that big banks played.
The typical arc of this scam went as follows: Giant bank lends money to
sleazy mortgage originator, mortgage originator makes lots of dicey home
loans, the dicey home loans get sold back to the bank, the bank pools and
securitizes the loans, and finally the bank sells the bad merchandise off to
an unsuspecting investor.
The criminal scenario that was most common was a gigantic bank buying up
huge masses of toxic loans from a Countrywide or some other fly-by-night
operation and knowingly selling this crap as a good investment to some
investor.
We chronicled an example of this in "The $9 Billion Witness," the story of
JP Morgan Chase whistleblower Alayne Fleischmann, who lost her job after
trying to stop the bank from selling a parcel of bad mortgages. JP Morgan
Chase ended up saddled with a $13 billion settlement after it admitted to
making "serious misrepresentations" to mortgage investors.
What's so baffling about Krugman's column is that there is a massive amount
of documentary evidence outlining this behavior, committed by virtually
every major bank in America. There was a $7 billion settlement paid by
Citigroup, which incidentally is the company that Bill Clinton originally
repealed the Glass-Steagall Act to create. Citi admitted to hawking
merchandise that violated their own internal credit guidelines.
Citi also bilked investors out of huge sums, and we know a great deal about
its behavior because it too had a whistleblower, named Richard Bowen. Bowen
sent the SEC over 1,000 pages documenting "fraud and false representations
given to investors."
There were virtually identical billion-dollar settlements involving Bank of
America, Goldman Sachs (which is now a bank holding company, remember) and
Morgan Stanley (ditto).
Wells Fargo's settlement is another blunt repudiation of Krugman's point,
because in the case of Wells, the bank itself was engaging in predatory
lending at the street level, not just selling crappy mortgages to investors.
Wells had to pay $175 million to settle charges of overcharging 4,000
minority homeowners in a case that saw evidence come out that the bank
specifically targeted black customers (referred to in one office as "mud
people") for "ghetto loans."
Let's not forget also that not only were the big banks intimately involved
in the signature fraud of the era - the creation and repackaging of toxic
mortgage loans - they were also involved in wide-ranging foreclosure abuses.
Companies like Bank of America, Citi, Wells Fargo and Chase ended up being
stuck with an additional $25 billion settlement just for the tawdry
document-fudging "robosigning" scheme that helped accelerate the foreclosure
crisis.
And did Krugman miss the other headlines from this era? Did he miss HSBC
being nailed for laundering hundreds of millions of dollars for Central and
South American drug cartels? How about the money-laundering scandals
involving Chase, the British Bank Standard Chartered, the German Commerzbank
AG and others, in which banks washed cash for crooks and rogue states?
And did he miss the LIBOR rate-rigging scandal that forced the likes of
Barclays, UBS, Rabobank, the Royal Bank of Scotland, and Deutsche Bank to
pay massive settlements for manipulating interest rates? How about the Forex
manipulations that led to still more settlements for the likes of Goldman,
BNP Paribas, HSBC and Barclays?
Krugman would likely argue that all those little things like laundering
money for narco-terrorists, monkeying with world interest rates, and
systematic cheating in the currency markets had nothing to do with the
crash.
He would technically be correct in this. But the entire argument for
breaking up the banks, which incidentally didn't originate in the Senate
with Bernie Sanders or even Elizabeth Warren but with Ohio's Sherrod Brown
and then-Delaware Sen. Ted Kaufman, was conceived with the idea that leaving
over-large banks intact invited not only the potential for future bailouts,
but future regulatory problems.
As MIT economist Simon Johnson pointed out in 2010, these institutions have
become so big that they can confront and defy the government. Moreover the
failure to punish the banks for the great mortgage frauds of the crisis
years left all of these companies with the knowledge that the authorities
were afraid to aggressively enforce the law, for fear of disrupting a
fragile economy.
When UBS and HSBC escaped with slap-on-the-wrist settlements for the LIBOR
and money-laundering offenses, respectively, Sherrod Brown redoubled his
efforts to break up the banks, insisting that these episodes proved these
companies were now too big to be regulated. By 2013, Brown said, it was
clear that "these megabanks are out of control."
The call to break up the banks is not some socialist clarion call to end
capitalism. (Well, it might be from Bernie, but not from everyone.)
In fact, it's just the opposite. The lessons of the crash era are that these
megabanks have grown beyond the organic controls of capitalism. They were so
big and so systemically important in '08 that the government could not let
them go out of business.
This alone was an argument for breaking them up. The banks emerged from '08
with the implicit backing of the federal government. They became quasi-state
entities, almost immune to failure. Not just Bernie Sanders worried about
this. Voices as diverse as Louisiana Republican David Vitter and Krugman's
own New York Times editorial board have argued for hard caps on bank size.
What's happened in more recent years, with LIBOR and the money-laundering
scandals and Forex and the London Whale episode and so on, is that these
firms also proved too "systemically important" to regulate and prosecute.
They grew too big not only for capitalism, but for criminal law.
When a company is not only too big to fail, but too big to prosecute, it's
too big to exist. Krugman may believe otherwise, but he shouldn't pretend
that others - including his own paper - don't have legitimate concerns.
http://e-max.it/posizionamento-siti-web/socialize
http://e-max.it/posizionamento-siti-web/socialize
