Moral Hazard Revisited: Too Big to Hack
"And I sincerely believe, with you, that
banking establishments are more dangerous than standing armies; and that the
principle of spending money to be paid by posterity, under the name of funding,
is but swindling futurity on a large scale."
- Jefferson
By J.M. Hamilton (9-7-14)
September 15 will mark the
sixth anniversary of the Lehman Brothers collapse, which also marks the beginning
of the global financial pandemic. And as
much as the Wall Street banking cartel would like to place this event in their
rear-view mirror, the Obama administration, via the Justice Department and the
SEC, along with various state A.G.s, have kept this problematic episode front
and center.
Seemingly, not a month goes
by without another record payout for bank malfeasance. The latest being BOA’s record payout of $16 billion, some of which is tax deductible, so you get to pick up a portion of the
tab, yet again, dear taxpayers.
Americans, depending upon one’s point of view, may or may not be
thankful for the Obama Administration's efforts to keep the catastrophe, and the banking
cartel’s roll in financial Armageddon, in plain site. However, rest assured, under a Romney
Administration, or a future Clinton Administration, the entire debacle would
have, likely, been swept under the rug.
Magically, disappeared.
Given that the U.S. congress
is legally paid off by the banking cartel to look the other way, and regulators
and pols often use the revolving door to land lucrative positions in banking and shadow banking, it appears that the Obama Administration is deliberately
keeping the pressure on the banking cartel, via law suits, record fines,
Dodd/Frank rules and regs, and higher capital/lending requirements. One can speculate… that by keeping the heat on, and eroding TBTF (too big to fail) monstrosities’ ability to mint profits (their returns on equity often have been spotty to lousy over the last six years), the
Obama Administration appears to be hoping that the free market will do, what our feckless congress failed to do.
That is, break up the TBTF
cartel.
The “free market” being
personified, in this instance, by stockholders.
Yes, stockholders, who should rightly insist upon the break up of these banking institutions, for the very reasons that: the constituent parts are often worth more
than the combined institution; that record fines, penalties, and legal fees
would likely cease; dividends – in turn – would climb higher; and the
reconfigured institutions would be easier to manage, without the on-going
hangover of “unforeseen” risk management events. Needless to say, the taxpayer would also be a
huge beneficiary of a Wall Street break up as well, since Americans would no
longer, implicitly, be on the hook for future bailouts, and financing and insuring so-called business practices that are inimical to America.
The banking crisis was eye
opening to the public: client
double-dealing was exposed, as was a market for highly illiquid, and grossly
under-collateralized, derivatives and
hybrid derivative products (such as CDOs and MBS); the rabid speculation
surrounding these instruments had come into view (this market now has a notional
value of $700 trillion, plus); and the fact that the taxpayer reinsures this
market was made manifest, with zero participation in the profit taking (quite
the opposite, in 2008 and after: Americans took the Street’s losses,
re-collateralized the Street, and in nearly all instances - paid for banker
bonuses).
Since then, as noted in my
piece, The Leviathan is Vertically Integrated, the list of Wall Street crimes,
and its further consolidation and reach into nearly ever facet of ordinary
Americans lives, has only grown, exponentially.
And these are the crimes that we know about: cornering and hoarding commodities to gouge
consumers and businesses; colluding on private equity deals to cheat stockholders, entrepreneurs and business owners; FOREX fraud; LIBOR fraud; illegally
foreclosing on the American dream of home ownership, with fraudulent paper work
(the Robo-Signing scandal, albeit often through proxies); and a rigged swaps
and derivatives market, cheating the elderly and pensioners. Then there’s Wall Streets’ involvement
with ubiquitous payday loan operators, who define the words: “usury,” and
“predatory.” Shenanigans with high frequency trade burns investors, and guarantee profits for the banks/HFT
crowd.
And if it can get more outrageous, Wall Street banks advise corporate clients (making hundreds of millions in the process) to engage in that most Un-American of activities, effectively renouncing American citizenship to
dodge paying taxes, known as inversions.
Arguably complicit in all
this is the Federal Reserve, and the ECB, both of which continue to bailout
these institutions with QE, and interest rate suppression. In direct causation to these bailouts, the “banksters”
often make millions in bonuses, wealth/income distribution is increasingly polarized,
and the poor and the middle class continue to bear the brunt of this six-year
Depression. It’s no surprise that the rise
of the Mega-Bank, or Mr. Sandy Weill’s folly, coincides with the decline of the
American middle-class. Now six years in, Europe is grasping at straws, and the American economy plods along, seemingly with
sub-par growth and low employment prospects.
Think of all the CEOs and
CFOs in America and Europe, who rightly hedged that interest rates would rise,
post 2008 crisis – utilizing swaps and derivatives, only to have central banks
wade into the market place and artificially, suppress interest rates. Once again, Wall Street and London banks made
a killing on the sale of these same swaps products, at the expense of
multinationals, corporations, and American and Europeans businesses. The Leviathan is, indeed, vertically
integrated. There is not a facet of your
life that the banks don’t have their hands in, demanding profits and tribute, which
adds up to a tax on your very existence, a drag on the global economy, and a
gross misallocation of capital and resources.
Witness consolidation and combination in industry after industry (sponsored by Wall Street M&A), leading to monopoly and cartel.
And the congress wonders why the airlines are making record profits, and job creation is stifled.
And the congress wonders why the airlines are making record profits, and job creation is stifled.
None other than Mr. Warren Buffett called the Fed, the greatest hedge fund ever; and the FED serves its
master, the Wall Street cartel, and they in turn, when they are not being sued,
operate as enormous hedge funds that you, Dear Americans, fund and reinsure. The banks are vertical integrated throughout the
economy, and their size and scope, insures that U.S. taxpayers will be bailing
them out for generations to come.
So where’s the news, you ask.
Well, we are getting
there. Seems that J.P. Morgan has been
hacked by shadowy actors, possibly the Russian government or its criminal
proxies. And as Bloomberg recently wrote, it appears that Americans may be on the hook for another form of bank bailout, that of economic damages, as a result of a future and pending cyber attacks. That
is to say, in the event of a terrorist, criminal, corporate, or state sponsored
cyber event – one that can easily be foreseen:
The American taxpayer will likely ride to the rescue, once again, to
bailout banks, who have had funds stolen or data, accounts and financial records
erased. Instead of breaking up these
institutions into manageable entities that can be closed down in a crisis… once
again, politicians, plutocrats, bankers, and the FED will calmly and solemnly
assure us all, that the almost guaranteed future cyber-bailout event is completely
necessary, for the good of the global economy, and Main Street health.
The implicit bailout of
banks, at the expense of the taxpayer, creates moral hazard in banking and
shadow banking institutions. As we saw
with the London Whale event, J.P. Morgan, allegedly, made illegal
under-reported/un-reported bets (to regulators/bank board), counter bets, and outsized trades, with losses running
into the billions; because, at the end of the day, if J.P. Morgan blows up
the global economy, the FED will be right there to bailout the bank, yet again,
as will the taxpayer.
The implicit cyber bailout,
noted by Bloomberg, just creates
another layer moral hazard, since Wall
Street operates as a giant casino/hedge fund, where “banksters” gamble with
taxpayer money, provided by the FED and congress (here’s the moral hazard). Therefore, it
is not at all hard to imagine a future event or occurrence, where the banks
themselves have an incentive to hack into their own systems to erase
problematic trades, or to juggle or eliminate accounts and records. A bank CEO with a multi-billion dollar problem
on their hands, such as the London Whale event, knowing full well that the
taxpayer will provide insurance for economic loss in the event of a cyber
attack, just might have every incentive to call upon a foreign government, a
criminal enterprise, or a bank’s own offshore squad of hackers (outsourced, of
course). And said banker might request
that files and data covering the problematic trade or transaction be
eliminated, from bank computers as well as the counterparties' computers (makes
one reconsider the idea of going paperless?). If a trade, or a deal, is big enough and bad
enough, involving numerous financial players and actors, what’s to prevent a banker,
via proxies, from eliminating the entire enterprise’s files and records, or all
of Wall Street’s and London’s records from being erased?
All the while, said banker,
is pointing the finger at shadowy players, and geo-political events, such as
the War in the Ukraine.
Too far fetched you say? The scenario I have painted is paranoid?
Consider the case of former MF Global
CEO, and former NJ governor, John Corzine, and his actions, as his commodity
and sovereign bond trades went south?
Mr. Corzine, last I checked, allegedly, gave orders to dip into client
monies, in effect doubling down on the futures, commodities, and bond bets that
brought MF Global down. Afterwards, client money went missing for a lengthy period of time.
How about the moral hazard we
see everyday on the corner of Wall and Broad?
Too Big to Fail is very real
but passé…. In the 21st
Century, U.S. citizens also need to begin to worry about Too Big to Hack.
If we have learned anything
since the 2008 financial crisis, it is this:
Given our exponential leaps in technology,
with money and power added in, man’s capacity to do great good and unfathomable
evil is only limited by his imagination.
I have nothing against
banks. My credit union serves me well. What I, and many Americans, are against are
institutions that have rigged our democracy, our government, our courts, our regulatory bodies, and the Federal Reserve, in their favor, and to the
detriment of this great nation. These
institutions and their list of crimes is ever growing; their business model
appears to based upon adding a speculative tax, or charge, on nearly ever
transaction engaged in by Americans, with Americans financing and insuring these highly egregious acts.
What a business model!
This piece doesn't even begin to touch on the crippling amounts of debt banks and private equity institutions load legitimate businesses up with daily, as yet another means to dodge paying taxes. These dodged taxes, in turn, are paid for by ordinary Americans, in the form of higher tax rates.
What a business model!
This piece doesn't even begin to touch on the crippling amounts of debt banks and private equity institutions load legitimate businesses up with daily, as yet another means to dodge paying taxes. These dodged taxes, in turn, are paid for by ordinary Americans, in the form of higher tax rates.
One possible solution is to
break up these institutions, before another catastrophe occurs.
Copyright JM Hamilton Publishing 2014
Copyright JM Hamilton Publishing 2014