Wall Street is its own worst enemy. It should have welcomed new financial regulation as a means of restoring public trust. Instead, it’s busily shredding new regulations and making the public more distrustful than ever.

The Street’s biggest lobbying groups have just filed a lawsuit against the Commodities Futures Trading Commission, seeking to overturn its new rule limiting speculative trading.

For years Wall Street has speculated like mad in futures markets – food, oil, other commodities – causing prices to fluctuate wildly. The Street makes bundles from these gyrations, but they have raised costs for consumers.

In other words, a small portion of what you and I pay for food and energy has been going into the pockets of Wall Street. It’s just another hidden redistribution from the middle class to the rich.

The new Dodd-Frank law authorizes the Commodity Futures Trading Commission to limit such speculative trading. The commission considered 15,000 comments, largely from the Street. It compromised on key provisions. It weighed the benefits to the public of the new regulation against its costs to the Street. It did numerous economic and policy analyses. It even agreed to delay enforcement of the new rule for at least a year.

But this wasn’t enough for the Street. The new regulation would still put a crimp in Wall Street’s profits.

So the Street is going to court. What’s its argument? The commission’s cost-benefit analysis wasn’t adequate.

At first blush it’s a clever ploy. There’s no clear legal standard for an “adequate” weighing of costs and benefits of financial regulations, since both are so difficult to measure. And putting the question into the laps of federal judges gives the Street a huge tactical advantage because the Street has almost an infinite amount of money to hire so-called “experts” (some academics are not exactly prostitutes but they have their price) who will use elaborate methodologies to show benefits have been exaggerated and costs underestimated.

It’s not the first time the Street has used this ploy. Last year, when the Securities and Exchange Commission tried to implement a Dodd-Frank policy making it easier for shareholder to nominate company directors, Wall Street sued the SEC. It alleged the commission’s cost-benefit analysis for the new rule was inadequate. Last July, a federal appeals court – inundated by Wall Street lawyers and hired-gun “experts” – agreed with the Street.

So much for shareholders nominating company directors.

Obviously, government should weigh the costs against the benefits of anything it does. But when it comes to the regulation of Wall Street, one overriding cost doesn’t make it into any individual weighing: The public’s mounting distrust of the entire economic system, generated by the Street’s repeated abuse of the public’s trust.

Wall Street’s shenanigans have convinced a large portion of America that the game is rigged.

Yet capitalism depends on trust. Without trust, people avoid even sensible economic risks. They also begin trading in gray markets and black markets. They think that if the big guys cheat in big ways, they might as well begin cheating in small ways. And they’re easy prey for political demagogues with fast tongues and vacuous solutions.

Tally up these costs and it’s a whopper.

Wall Street has blanketed America in a miasma of cynicism. Most Americans assume the reason the Street got its taxpayer-funded bailout without strings in the first place was because of its political clout. That must be why the banks didn’t have to renegotiate the mortgages of Americans – who, because of the economic collapse brought on by the Street’s excesses, are still under water and many are drowning.

That must be why taxpayers didn’t get equity stakes in the banks we bailed out – as Warren Buffet got when he bailed out Goldman Sachs. So when the banks became profitable gain we didn’t get any of the upside gains; we just padded the Street’s downside risks.

That must be why most top Wall Street executives who were bailed out by taxpayers still have their jobs, have still avoided prosecution, are still making vast fortunes – while tens of millions of average Americans continue to lose their jobs, their wages, their medical coverage, or their homes.

The cost of such cynicism has leeched deep into America, causing so much suspicion and anger that our politics has become a cauldron of rage. It’s found expression in Tea Partiers and Occupiers, and millions of others who think the people in charge have sold us out.

Every week, it seems, we learn something new about how Wall Street has screwed us. Last week we heard from Bloomberg News (that had to go to court for the information) that in 2009 the Street’s six largest banks borrowed almost half a trillion dollars from the Fed at nearly zero cost – but never disclosed it.

In early 2009, after Citigroup tapped the Fed for almost $100 billion, the bank’s CEO, Vikram Pandit, had the temerity to call Citi’s first quarter the best since 2007. Is there another word for fraud?

Finally, everyone knows the biggest banks are too big to fail — and yet, despite this, Congress won’t put a cap on the size of the banks. The assets of the four biggest – J.P. Morgan Chase, Bank of America, Citigroup and Wells Fargo – now equal 62 percent of total commercial bank assets. That’s up from 54 percent five years ago. Throw in Goldman Sachs and Morgan Stanley, and these six leviathans preside over the American economy like Roman emperors.

If Greece defaults and Europe’s major banks can’t make payments on their debts to Wall Street, another bailout will be required. And the politics won’t be pretty.

There you have it. A federal court will now weigh costs and benefits of a modest rule designed to limit speculative trading in food and energy.

But in coming months and years, the American public will weigh the social costs and social benefits of Wall Street itself. And it wouldn’t surprise me if they decide the costs of the Street as it is far outweigh the benefits. If so, the Street has only itself to blame.

Latest Shameless Ploy To Fleece You?

On November 27, Bloomberg News reported the results of its successful case to force the Federal Reserve to reveal the lending details of its 2008-09 bank bailout. Bloomberg reported that by March 2009, the Fed had committed $7.77 trillion in below-market loans and guarantees to rescuing the financial system, and that these nearly interest-free loans came without strings attached.

The Fed insisted that the loans were repaid and there have been no losses, but the Bloomberg report said the banks reaped a $13 billion windfall in profits; and "details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger."

The revelations provoked shock and outrage among commentators. But in a letter to the leaders of the House and Senate Committees focused on the financial services industry, Fed Chairman Ben Bernanke responded on December 6 that the figures were greatly exaggerated. He said the loans were being double-counted: short-term loans rolled over from day to day were counted as separate cumulative loans rather than as a single extended loan.

Bloomberg was quick to rebut, denying any exaggerated claims. But either way, the banks were clearly getting perks not available to the rest of us. As Alan Grayson observed in a December 5 editorial:

The main, if not the sole, qualification for getting help from the Fed was to have lost huge amounts of money. The Fed bailouts rewarded failure, and penalized success....

During all the time that the Fed was stuffing money into the pockets of failed banks, many Americans couldn't borrow a dime for a home, a car, or anything else. If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can't find a full-time job?

 All in the Name of Liquidity

 It was all explained, said Grayson, with "the Fed's all-time favorite rationale for everything it does, 'increasing liquidity.'" In 2008, bank liquidity dried up after Lehman Brothers collapsed, and the banks could not get the cheap, ready credit on which their lending scheme depends. The Fed then stepped in as "lender of last resort," doing what it had to do to keep the banking scheme going.

Left unexplained is why the banks' need for "liquidity" justifies such extraordinary measures. Why do banks need cheap and ready access to funds? Aren't they the lenders rather than the borrowers of funds? Don't they simply take in deposits and lend them out?

The Fed, it seems, was doing only what banks and the money market do for each other every day: making "liquidity" available at very low interest rates. In 2008, bank liquidity dried up after Lehman Brothers collapsed, and the banks could not get the cheap, ready credit on which their lending scheme depends. The Fed then stepped in as "lender of last resort," doing what it had to do to keep the banking scheme going.

What is this need for "liquidity" that justifies such extraordinary measures on behalf of the banks? Why do banks need cheap and ready access to funds? Aren't they the lenders rather than the borrowers of funds? Don't they simply take in deposits and lend them out?

The answer is no. Today, when banks make loans, they extend credit FIRST, then fund the loans by borrowing from the cheapest available source. If deposits are not available, they borrow from another bank, the money market or the Federal Reserve.

Rather than loans being created from deposits, loans actually CREATE deposits. They create deposits when checks are drawn on the borrower's account and deposited in another bank. These deposits can then be borrowed back at the Fed funds rate - currently a very low 0.25 percent. A bank can thus create money in the form of "bank credit"; lend it to a customer at high interest; and borrow it back at very low interest, pocketing the difference as its profit.

If all this looks like sleight of hand, it is. The process has been compared to "check kiting," defined in Barron's "Business Dictionary" as:

[An] illegal scheme that establishes a false line of credit by the exchange of worthless checks between two banks. For instance, a check kiter might have empty checking accounts at two different banks, A and B. The kiter writes a check for $50,000 on the bank A account and deposits it in the bank B account. If the kiter has good credit at bank B, he will be able to draw funds against the deposited check before it clears, that is, is forwarded to bank A for payment and paid by bank A. Since the clearing process usually takes a few days, the kiter can use the $50,000 for a few days and then deposit it in the bank A account before the $50,000 check drawn on that account clears.

 Setting Things Right

 As suspicious as all this appears, the economy actually needs an expandable credit system, and an expandable credit system needs a lender of last resort. What is wrong with the current scheme is that it discriminates against Main Street in favor of Wall Street. Banks can borrow very cheaply, while individuals, corporations and governments pay "whatever the market will bear." The banker middlemen take their cut in a scheme in which money is actually manufactured in the process of lending it. The profits are siphoned off to the 1 percent at the expense of the 99 percent.

To fix the system, the profits need to be returned to the 99 percent. How that could be done was suggested by Thom Hartmann in a recent editorial: 

Have the central bank owned by the US government and run by the Treasury Department, so all the profits ... go directly into the Treasury and you and I pay less in taxes....

For a model on the local level, he pointed to the Bank of North Dakota:

The good people of North Dakota ... established something very much like this - the Bank of North Dakota - and it's kept the state in the black, and kept its farmers, manufacturers and students protected from the predations of New York banksters for nearly a century. 

It's time for every state to charter their own state bank, just like North Dakota did, and for the Treasury Department to either buy the Fed from the for-profit banks that own it, or simply nationalize it.

We have been distracted here and in Europe by a sudden panic over our "sovereign debt" crises, when the real crisis is that our debt is NOT sovereign. We are indentured to a Wall Street money machine that creates our money and lends it back to us at interest, money our sovereign government could be creating itself, with full democratic oversight and accountability to the people. We have forgotten our roots, when the American colonists thrived on a system of money created by the people themselves, debt-free and interest-free. The continued dominance of the Wall Street money machine depends on that collective amnesia. The fact that this memory is surfacing again may be the machine's greatest threat - and our greatest hope as a nation.

Pulling Back the Curtain on the Wall Street Money Machine

The majority of directors at the world’s biggest banks have affiliations to polluting companies and organisations, a DeSmog investigation shows. The findings raise concerns over a systemic conflict of interest at a time when the international financial sector is under increasing pressure to stop funding fossil fuels.

DeSmog’s analysis found 65 percent of directors from 39 banks had 940 past or current connections to industries that could be considered climate-conflicted.

Directors with affiliations to companies involved in extracting oil, gas and coal – the world’s most polluting energy sources – were well-represented across bank boardrooms, with 16 percent of all board members having current or previous roles in the polluting energy sector. 

There were also significant ties to banks and investment vehicles supporting polluting industries, as well as to thinktanks and lobbying groups with a history of campaigning against climate action.

Geoffrey Supran, Research Associate in the Department of the History of Science at Harvard University, said the existence of such ties is “predictable, yet shocking”.

“The fossil fuel industry has a well-established track record of ingratiating itself with society’s opinion leaders and decision makers, and because of the revolving doors between the corporate leaderships of incumbent industries,” he told DeSmog.

“Having its fingers in all the pies allows the fossil fuel industry to quietly put its thumb on the scales of institutional decision making, helping delay action and protect the status quo.”

The investigation assessed the employment history and affiliations of 565 bank directors from the boards of major retail banks in the UK, US, Canada, Europe, South Africa, China and Japan.

Directors were found to have a wide range of experience in high carbon sectors, including in polluting energy, aviation, mining, manufacturing, and banks and investment companies known to support the fossil fuel industry. These positions ranged from director and advisory roles, to employment by the companies, and trade association or thintank memberships or affiliations (with data collected up to January 31, 2021). 

Banks are increasingly saying they will decarbonise by 2050, yet a large number continue to finance fossil fuels, the primary source of carbon emissions. To accelerate action, shareholder activists have filed climate resolutions for upcoming AGMs at three of the institutions analysed. UK bank Barclays and Japan’s biggest bank Mitsubishi UFJ (MUFJ) are considering resolutions for stricter regulations on lending. US bank Wells Fargo is facing a resolution to remove its Chair.

The resolutions come as a report by Rainforest Action Network showed that some of the world’s largest commercial and investment banks had invested $3.8 trillion into fossil fuel companies in the five years since the Paris Agreement, the global commitment to limit temperature rise to 2C and preferably to 1.5C by 2100.

Simon Youel, of advocacy group Positive Money, said the banks’ failure to act showed they could not be trusted to “go green” of their own accord.

“Bankers too often have vested interests in pumping up the carbon bubble, which is why we need central banks to play their role as regulators of the financial system and stamp out risky fossil fuel lending,” he told DeSmog.

DeSmog’s analysis found that 15 percent of directors had worked with companies identified by the Climate Action 100+ initiative as some of the world’s worst polluters, and one in 20 (six percent) had ties to companies financing extraction of coal, the most polluting fossil fuel.

The research also found that more than one in five directors (28 percent) had worked at other banks known to support fossil fuel extraction, and that 16 percent had been involved with investment vehicles supporting polluting industries. 

Read more:

https://www.desmogblog.com/2021/04/06/revealed-climate-conflicted-directors-leading-the-worlds-top-banks/

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