From the Report we find out that lobbying politicians paid, and continue to pay, dividends for GS; that the complexity of financial instruments helped banks control the narrative against reform; that self-regulation is again being touted by banks who say they will be transparent and accountable; that greed and scheming continues unabated (the Fed was compelled to disclose its dealing with loaning GS and other banks exhoritant amounts of money in 2008); that dilution and rejection of financial reform re naked credit-default swaps, speculative hedge funds, proprietory trading, etc. continues unabated.
Finally, why isn't Goldman Sachs subject to the pay czar's tax on income or caps on pay? Goldman Sachs was bailed out to the tune of $10 billion and obtained $12.9 billion from AIG's bailout. I think they should show some societal responsibility by having serious caps placed on pay until the Big Recession is over and unemployment decreases.
Special Report BAC, GS, C, JPM, MS, AIG, MET, DB
by Paul A Ebeling, Jr. and Shayne Heffernan - Live Trading News
Bank of America Corp.(NYSE:BAC), JPMorgan Chase & Co.(NYSE:JPM), Citigroup, (NYSE:C) Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS), Special Report.
How Wall Street Beat Pennsylvania Avenue, and got all they wanted + much more… BAC, GS, C, JPM, MS, AIG, MET, DB
Wall Street’s biggest banks, whose action was rulled caused a Global financial crisis, and economic slowdown 2 yrs ago, were more adept when it came to countering Washington’s political and regulatory response.
The US government, promising to make the system safer, buckled under many of the financial industry’s protests.
US lawmakers spurned changes that would wall off deposit-taking banks from riskier trading. They declined to limit the size of lenders or ban any form of derivatives. Higher capital and liquidity requirements agreed to by regulators worldwide have been delayed for years to aid economic recovery.
The last 2 yrs have been the best ever for combined investment-banking and trading revenue at Bank of America Corp.(NYSE:BAC), JPMorgan Chase & Co.(NYSE:JPM), Citigroup, (NYSE:C) Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS), according to the year end data.
Goldman Sachs CEO Lloyd Blankfein, 56 anni, and his Top deputies are in line to collect more than US$100M in delayed Y 2007 bonuses, just 6 months after paying US$550M to settle a fraud lawsuit related to the firm’s behavior that year.
Citigroup, the bank that needed more taxpayer support than any other, has a balance sheet 14% larger than it was 4 yrs ago.
Wall Street fields an army of lobbyists, and its history of contributions to politicians were not the only Keys to success.
The financial system’s complexity gave bankers an advantage in controlling the narrative and dismissing the ideas of the would-be reformers as infeasible or dangerous.
A revolving door between government and banking offices contributed to a mind-set that what’s good for Wall Street is also very good for Main Street.
Making their case, bankers and lobbyists characterized proposed regulations as stifling innovation, competitiveness and economic growth.
They said the industry had learned its lessons, and that firms were adopting changes voluntarily to be more transparent and accountable. Successful companies should not be punished for the “Sins” of those that failed.
That argument resonated with lawmakers under pressure to boost a fragile economy, and bring down an unemployment rate that has hung in near 10% since August 2009, its highest level in more than 25 yrs.
U.S. President Barack Obama was elected in Y 2008, weeks after Lehman Brothers Holdings Inc. collapsed in the largest bankruptcy and the US Federal Reserve and government provided unprecedented support to insurance company American International Group Inc. (NYSE:AIG) as well as nine of the largest banks. Obama, who raised US$15M on Wall Street, promised that his administration would “crack down” on the “Culture of Greed and Scheming” that he said led to the financial crisis.
While Obama vowed to change the system, he filled his economic team with people who helped create it.
Timothy F. Geithner, 49 anni, who had been responsible for overseeing banks including Citigroup while President of the Federal Reserve Bank of New York, became Treasury secretary and named a former Goldman Sachs lobbyist as his chief of staff. Lawrence H. Summers, 56 anni, who is stepping down as Obama’s National Economic Council director, opposed derivatives regulation and supported the Y 1999 repeal of the Depression-era Glass-Steagall Act, which separated commercial and investment banking, when he served as deputy Treasury secretary and Treasury secretary in President Bill Clintons administration.
It was clear to Shayne and me that by February 2009 that the banks would get a Pass. You could see from the hiring of Tim Geithner, and from the messages that he and his team were putting out what the out come would be.
Even when changes were put forth by people who could not be characterized as radical populists, their ideas were dismissed as unrealistic, misinformed, advancing ulterior motives or damaging to US competitiveness.
Such tactics helped bat back suggestions from billionaire hedge fund manager George Soros and Berkshire Hathaway Inc. Vice Chairman Charles Munger that regulators ban purchases of so-called naked credit-default swaps, contracts that allow speculators to profit if a debt issuer defaults.
Geithner was an early opponent of any such ban, arguing at a March 2009 House Financial Services Committee hearing that it was not necessary and would not help. “It’s too hard to distinguish what’s a legitimate hedge that has some economic value from what people might just feel is a speculative bet on some future outcome,” he said. Supporters for the ban in the US Congress backed down because they got pressure from their constituents not to injure and ruin the fragile recovering economy.
Instead Dodd-Frank gave regulators at the Commodity Futures Trading Commission and the Securities and Exchange Commission the responsibility of writing rules governing the US$583 market in Over-the-Counter derivatives. The law, named after Connecticut Senator Christopher Dodd and Massachusetts Representative Barney Frank, requires that most derivatives be traded on 3rd party clearinghouses and regulated exchanges.
The CFTC withdrew a proposed Rule on December 9 after at least one commissioner, Scott O’Malia, a former aide to Republican Senator Mitch McConnell, objected.
The Rule would have required dealers of private swaps to quote prices to all market users before trades could be executed on an electronic system.
A new version, approved December 16, will save dealers Billions of Dollars, according to Moody’s Investors Service, because they will be able to limit price information to select participants.
An amendment requiring banks to spin out their swaps-dealing operations into separately capitalized units, so they would not have access to government backstops, made it into the Dodd-Frank bill. But, it was diluted in the end to exempt interest-rate and foreign-exchange contracts that make up more than 90% of the derivatives held by US banks.
Banks were also allowed to trade derivatives used to hedge their own risks and given up to 2 yrs to trade other types of derivatives, such as credit-default swaps that are not standard enough to be cleared through a central counterparty.
A suggestion that banks deemed “Too Big” to fail should be broken up or made small enough to fail. an idea backed by former US Federal Reserve Chairman Alan Greenspan, Bank of England Governor Mervyn King and hedge-fund manager David Einhorn, also failed to win any support from US policy makers, as bank executives argued that size alone did not make a company risky, and that it could be essential for banks to compete.
Jamie Dimon, JPMorgan’s CEO, said in a January 2010 interview that most of the financial firms that collapsed during the crisis were narrowly focused investment banks, insurers, mortgage brokers or thrifts, not big integrated conglomerates. “A lot of companies are big because they are required to be Big because of economies of scale,” he said.
The closest the Obama administration came to trying to limit the size of banks was in January 2010, when the US President proposed levying a fee on financial firms with assets of more than US$50B.
The idea was never adopted by Congress. Instead, it supported Geithner’s plan for a so-called resolution authority that would give regulators the ability to manage an orderly wind-down of a large financial company.
Critics voice that the authority is not likely to work in practice because regulators will not have power over a bank’s International operations.
The fact is that the resolution authority as drawn up by Dodd-Frank does not apply to the MegaBanks, and does not apply to JPMorgan Chase, nor can it because that authority only applies to US domestic financial entities.
Even before Mr. Obama took office in January 2009, former Federal Reserve Chairman Paul A. Volcker, an economic adviser to the President-elect, was calling for clear distinctions between banks that take deposits and make loans and those that engage in riskier capital markets businesses.
The recommendation, a modern version of Glass-Steagall, was put forward in a report by the Group of 30, an organization of current and former central bankers, financial ministers, economists and financiers whose board Volcker chairs.
It is important to note that he original reasons why Glass-Steagall was eliminates in the 1st place, and that was that the US banks were competing with large, Universal banks around the World. Goldman Sachs CEO Blankfein said in a March 2009 interview. “So I do not think we will turn the clock back now.”
The idea was left out of Geithner’s original financial regulation proposals and did not gain support until January, after a Republican upset a Democrat in a Massachusetts senate race.
President Obama and his economic team, including Mr. Volcker, then announced they were supporting a so-called Volcker Rule that would ban proprietary trading at regulated banks and prohibit them from owning hedge funds and private equity funds.
Gerald Corrigan, a former New York Fed President, who worked under Volcker at the Fed, and is now a managing director at Goldman Sachs, told a Senate hearing that banks should not be prevented from owning and sponsoring hedge funds or private equity funds because they promote “best industry practice.” He urged a distinction between proprietary trading and “Market Making” for clients or hedging related to such market making.
In the final version of Dodd-Frank, the Volcker Rule ended up looking much more like the Corrigan Rule.
Banks were allowed to own or sponsor hedge funds and private equity funds and even to invest in them as long as their holdings did not account for more than 3% of the bank’s capital or 3% of the fund’s capital.
The ban on proprietary trading exempted dealing in government and agency securities. Regulators were charged with deciding what other types of trading would be considered proprietary and which would be deemed market-making. Of course Mr. Volcker was disappointed with the final version.
Goldman Sachs Chief Financial Officer David Viniar, who told analysts in January that “pure walled-off proprietary trading” accounted for about 10% of the firm’s revenue, said in October that the company had closed one such business and was waiting to see if the rules would require other changes.
While the Dodd-Frank Act is the most sweeping financial legislation in decades, creating a consumer-protection office for financial products and a council of regulators charged with monitoring systemic risk, it does not fundamentally change a US banking system dominated by 6 companies with a combined US$9.4T of assets.
The law will not prevent lenders with federally guaranteed deposits from gambling in the derivatives markets, though it will place restrictions on some types of contracts, and require more transparent trading and central clearing. It does little to solve the danger posed by leveraged firms reliant on fickle markets for funding.
So, some are now saying that the legislation that was enacted is worthless, though it requires more transparency, disclosure and a series of things that are useful, even though it falls short of what some think should have been done.
The US Treasury Department takes a more positive view. The law “fundamentally changes the landscape of our financial regulatory system for the better,” said Steven Adamske, a Treasury spokesman, and it puts in place the strongest consumer protections in history, he said.
The biggest financial companies increased their spending on lobbying in the 1st 9 months of Y 2010 as they sought to influence the legislative outcome, according to Senate records.
JPMorgan’s advocacy spending grew 35%, to US$5.8M from US$4.3M, while Goldman Sachs’s rose 71% to US$3.6M.
Even as they were spending more on lobbying, the largest US banks cut their political giving for the Y 2010 elections.
Of the 10 biggest financial firms, only Goldman Sachs, MetLife Inc. (NYSE:MET), and the US subsidiary of Deutsche Bank AG (NYSE:DB) spent more from their political action committees during the Y 2009-2010 election cycle than they did in Y 2007-2008, according to Federal Election Commission filings.
The decrease was partly because of the economic slump, and also because some members of the US Congress refused to take donations from banks that received federal funds during the crisis.
The financial industry is very good at hiring people with experience in Congress and government, which gives it an edge in understanding the best tactics to use.
Last month Citigroup recruited former Obama administration budget director Peter Orszag as a Vice Chairman in its Global banking business, and Goldman Sachs hired Theo Lubke from the New York Fed, where he oversaw efforts to make the derivatives market safer. Research shows that lawmakers are more susceptible to lobbying on issues that are complex, technical or economic, which benefits the banks.
Even in areas that are not technical, such as bonuses, the financial industry was able to resist tough regulation.
With polls showing strong popular support for limits on pay, former British Prime Minister Gordon Brown pressed for a tax on banker bonuses and one on financial transactions to deter speculative trading.
President Obama did not go that far. Instead, the administration appointed Washington lawyer Kenneth Feinberg to review pay for the 100 Top executives at firms receiving “exceptional assistance” from the Troubled Asset Relief Program TARP). Mr. Feinberg ordered cuts at Bank of America, Citigroup and AIG, as well as at 2 bankrupt car companies, and their finance divisions.
The US administration, opposing any pay caps, urged regulators to require changes that would better align compensation with risk, such as paying bonuses in restricted stock. Several banks responded by raising bankers’ salaries.
So far this year, 5 Wall Street banks, Bank of America, JPMorgan, Citigroup, Goldman Sachs and Morgan Stanley, have set aside more than US$91B for salaries and bonuses.
In early Y 2010, Virginia Senator James Webb and California Senator Barbara Boxer, both Democrats, proposed an amendment to a jobs bill that would have imposed a 50% tax on any bonuses above US$400,000 collected in Y 2009 by executives at banks that received at least US$5B in TARP funds.
The US Chamber of Commerce opposed the tax, and urged Senators to reject the idea because it “would hamper efforts to resolve the ongoing financial crisis, restore economic growth, spur job creation and is likely unconstitutional.”
The Bill did not make it to a Vote.—Paul A. Ebeling, Jnr. www.livetradingnews.com
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