The fact
that banks can borrow from each other, confidently, when needed, is because the
Fed stands behind that borrowing. So here's
another layer of Fed backstopping, beyond the way they step in, during a crisis,
or the way they're now intervening to help the banks. So the fact that these institutions really
depend in a very fundamental way on government support means they don't have
any right to the so-called "upside.'
Therefore bankers
should really be paid like public servants.
If their executives' pay had
been ratcheted down after the crisis,
we could have had a lot more sympathy for them, even if they just behaved for a
couple of years. They were bailed out by us, and then in 2009, instead of rebuilding their balance
sheets and getting rid of toxic loans as they should have, they paid themselves
record bonuses, even more munificent than in 2007. And this was a slap in the face for the
public that had bailed them out.
So what
we're describing here is a totally a corrupt financial and political system,
which is all laid out in Taibbi's Rolling Stone article, "The
Scam Wall Street learned from the Mafia."
As Taibbi
points out in his article, the mafia has services that people feel they need if
they're in a difficult situation. Example: loan sharking.
If you really need money, the mafia does
have the money to loan to you. And
people enter into these loan shark deals even though they know it's going to be
very difficult to pay 20% or more interest, and that they'll have their legs
broken if they don't pay back. Coincidentally,
the banks actually behave in very much the same manner when they find people
who really need money. You see this with
credit cards, as well as with mortgages.
So when you become in arrears, the banks basically act in this very
extortionate manner and, like the mafia, they don't cut you any slack. In addition, on Wall Street now, there's
bribery, theft, fraud, bid rigging, price fixing, gambling, and loan sharking. And it's all very well organized, just like
the mafia.
There is also
systematic rigging of municipal bond auctions, which have essentially robbed
every community in every state in the country -- and all of the major banks
were involved, including JPMorgan Chase.
They were rigging the auctions that were designed to create a fair rate
of return on the money local governments borrowed for municipal bonds. This, too, is a lot like something the mafia
does. As one of their staple businesses,
the mafia has historically engaged in bid rigging for construction or garbage contracts,
as well as for street cleaning services contracts. And now the big banks are doing exactly the
same thing. The only thing that's
different is, with the banks there's no violence involved. The superior method of control of the banks is
provided by the fact that they're ubiquitous, combined with the fact that they
have this incredible political power
that the mafia never had.
The other
advantage they have over the mafia is what is called oligopoly. For many of their services, every American
has a great deal of difficulty going beyond the five biggest banks which now
control assets that are equal to 56% of the US economy. This is one of the consequences of too-big-to-fail
and big banks getting ever bigger, as when JPMorgan bought up Bear Stearns.
In that recent
banking crisis, when the smaller players got sick, they were simply merged into
(acquired by) the bigger banks. So now, for
a lot of these services, there aren't that many banks for you to go to. You really have no choice, other than to deal
with the big banks. Oligopoly.
Congress is
paid to be informed and to hold these guys accountable. So why don't they ask the kind of questions raised
here? Answer: Because most people, including members of
Congress (who are dependent on campaign finance from these banks), refuse to
look at these banks in any critical way.
Yet without wanting to publicly admit it, they know that the banks are really organized-crime
organizations.
In the eyes
of many, organized crime is always either the Italian mafia or the Irish mafia
and only them. So the banks are treated with a kind of
deference and respect, because traditionally that's not who they were. They were these icons of finance that helped
build this country. But that's not who they are anymore. And now it's hard for people to wrap their
heads around this new reality about the banks, and treat them the way they
should be treated -- as organized-crime organizations.
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