Courtesy of Pam Martens.
This month, U.S. Senators David Vitter (R-La.) and Sherrod Brown (D-Ohio) sent a letter to the Government Accountability Office (GAO) asking the federal watchdog agency to research and report on the economic subsidy that too-big-to-fail banks receive as a result of actual or perceived taxpayer support. Last week, Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, delivered a speech on the same topic.
While the points made by these gentlemen are both valid and critically important, they fail to take note of four other dangerous subsidies: (1) the market perception that the Washington and Wall Street revolving door has rendered these firms immune from prosecution – even for repeated, illegal cartel behavior; (2) the ability to spend billions buying back their own stock, effectively propping up their own share price and bad behavior; (3) self-regulation with compromised bodies creating the market perception and reality of a competitive edge; and (4) Congress and the Supreme Court tolerating Wall Street running its own private justice system (mandatory arbitration) where corrupt acts are kept hidden from public view until they blow up into catastrophic events to the economy.
In their letter to the GAO, Vitter and Brown noted:
“Government support also provides insured depository institutions with higher credit ratings that can encourage institutions to shift activities into these subsidiaries. For example, Bank of America moved $15 trillion in derivatives contracts from its broker-dealer, Merrill Lynch, to its insured depository institution affiliate in response to a credit downgrade. The result is that taxpayers would subsidize, and ultimately backstop, potentially risky investments. This move reportedly saved the bank $3.3 billion in additional collateral payments.
“When the Federal Reserve granted a 23A exemption to Goldman Sachs Bank in 2009, Goldman moved its multi-purpose derivatives dealer into its insured bank affiliate. Likewise, Morgan Stanley converted to a bank holding company, and received a 23A exemption for its derivatives business. And JPMorgan Chase Bank, N.A., currently holds 99 percent of the notional derivatives of JPMorgan Chase & Co.
“Morgan Stanley is reportedly considering similar measures in response to a threatened downgrade by Moody’s. Such a downgrade could require Morgan Stanley to post as much as $6.5 billion over the course of a year.”
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