Showing posts with label financial fraud on Wall Street. Show all posts
Showing posts with label financial fraud on Wall Street. Show all posts

Tuesday, January 27, 2015

“Better way to describe it: Paris is us,” The Colorado Springs Business Journal, January 23-29, 2015, 23.



PARIS IS US

What does the callous murder of journalists and Jews in Paris have to do with Colorado business? Why should we, so far away from what happened, care?

Let me answer these questions by analogy, one that was famous in the 1950s and may have been forgotten by now. It was a Protestant Pastor in Germany, Martin Niemöller (1892–1984), who famously said (there are different versions):

“First they came for the Socialists, and I did not speak out—because I was not a Socialist.

Then they came for the Trade Unionists, and I did not speak out—because I was not a Trade Unionist.

Then they came for the Jews, and I did not speak out—because I was not a Jew.

Then they came for me—and there was no one left to speak for me.”

What may seem remote at one point, the singling out of one minority group, becomes extremely relevant and personal at another. Lest we forget, there is some connectivity between all of humanity, and more specifically, between all the social, economic, political, and moral variables that guide us.

It’s inappropriate to compare what happened in Nazi Germany to what happened in Paris to a small satirical magazine with 60,000 circulation and to a kosher storefront. Unlike the German government who persecuted Jews and gays, socialists and Catholics, and others, the French government is sending police officers and troops to protect its minorities.

But the reason so many marched in Paris with signs that read “I am Charlie,” is that they didn’t simply want to show solidarity, but more importantly, they demonstrated that when something is morally objectionable, it cannot be contained; it spills over to every facet of the community.

When Wall Street misbehaves, Main Street is affected. When a so-called rogue trader throws off the balance of trades or “corners the market” in oil futures, for example, it’s not exclusively his affair.

His company’s reputation suffers, and it may even incur some fines. Wall Street gets a black eye as well, and regulators are seen as lax. Eventually, we can expect that the markets in general will be affected. Why should we care what happens to the case of the rogue trader, like the infamous “whale”?

As employees and employers, we have money invested in the markets, in the virtual safes of Wall Street, either through money market or pension funds. Likewise, interest rates—for cars and homes, business loans and credit cards—somehow are still dependent on what the giant Wall Street investment banks want us to pay. The Treasury Department responds to Wall Street, after all, in case you ever forget who has been heading it for decades.
In other words, “we are Wall Street” just as much as “we are Charlie.” You can pretend that financial or journalistic variables are separate from each other, but they are not! You can even claim that you don’t read French and that except for French Fries, you have no relation to France or its problems with extreme Muslims and their journalistic and Jewish victims.

But what will you say when this happens in New York? Still too far for you to identify with the problem there, on the East Coast? When the office of the NAACP was bombed here not long ago, was that close enough? Do you have to be African-American to be affected?

You may not care now, as Pastor Niemöller reminds us, because you aren’t a Jew or a journalist, black or financial maven, but when they come for you—who will speak out on your behalf?

When I see electricians changing wall-pack bulbs in below-freezing temperatures and the drivers who struggle in the snow to roll dumpsters to their truck for unloading—are they me?
When the guys in overalls come to empty 1,500 gallons of our grease-trap so early in the morning so as not to upset neighbors with the noxious odors of their work—are they you?

When the line-cook prepares your meal and the server brings it to your table—do you identify with their work, their diligence, their prayer for a good tip because they pay their own college tuition?

What the horrible incident in Paris should remind us all is that when catastrophes happen elsewhere, it’s only by random chance that they occur where and when they do. The idea that it cannot happen to you is preposterous, even fool-hardy.

The solidarity shown in Paris should remind us to feel sympathy and empathy with those around us, the people who serve and work for us, who teach and protect us, who lead and entertain us, and who might be victimized for no fault of their own.

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com





 [SG1]Care

Thursday, August 22, 2013

“Financial inequities persist under Obama”


You don’t have to be a Republican to sling some mud at our lame duck president. Senator Kirsten Gillibrand (D-NY), dared suggest that student loan rates should equal those charged to large banks, 0.75%; she’s appalled by the “business-as-usual” mindset found in Washington.

After much haggling, Congress has passed a bipartisan legislation that pegs student loan rates to the economy, hardly a comforting compromise for the largest debt in the economy (around $1trillion in 2012). Amidst the euphoria associated with a rare legislative agreement, the silly idea proposed by the junior senator has been quietly laid to rest: how dare she compare the mighty commercial banks to students?

Regardless of an estimated 8.7% drop in student enrollment in 2013 (compared to 2012), and regardless of graduates’ economic prospects in the new digital economy, let’s follow the mega commercial banks. If you recall, the Emergency Economic Stabilization Act of 2008 gave roughly $700 billion to banks to avert an impending economic catastrophe. Economic historians will debate for years the effects of this Act.
Fast forward to 2013, and these same banks have done tremendously well. Just look at their reports for the 2nd quarter of 2013: Bank of America’s revenue $22.9 billion, $4 billion net income ($97 billion bailout); Goldman Sachs’s revenue $8.6, $1.93 billion net income ($10 billion bailout); Citigroup’s revenue $20.5 billion, $4.2 billion net income ($220.4 billion bailout); JPMorgan Chase revenue $26 billion, $6.5 billion net income ($94.7 billion bailout). You see the picture—the banks are doing extremely well after a well-intentioned (but misplaced) taxpayers’ assistance. Couldn’t this money have been given directly to homeowners to avoid foreclosures? Should their “prime discount rate” be fixed at 0.75%, while ours is so much higher?

Given this collaborative relationship between banks and government agencies that regulate them—bailouts when needed—you’d hope that banks would behave like good citizens. Instead, these commercial banks have been disregarding federal laws with a level of impunity not seen since the Gilded Age.
The latest headlines are quite telling: “Lawyers Present Closing Arguments in Former Goldman Trader’s Fraud Case,” “Ex-Stock Analyst Charged With Insider Trading in Case Tied to SAC Indictment,” and “Morgan Stanley Fined for Selling Exotic Funds to Unwary Elderly.” At least these cases ended up in court. Many, though, have been settled out of court.

According to the New York Times, the Federal Energy Regulatory Commission agreed to settle with JPMorgan to the tune of $410 million. The regulator accused the bank, and more specifically its senior executive, Ms. Blythe Masters, of “manipulative schemes” that resulted in charging more for energy than was warranted at the time (2010-2011). We should leave the details of the facts in this case and its eventual settlement to lawyers. But should we ignore the moral hazards associated with ongoing abuses by bank executives, the beneficiaries of low borrowing costs and a federal safety net if they fail?
The argument about a rogue trader here and there that takes unduly advantage of unsuspecting investors or the public trust is one thing; when it’s a systematic behavior that is condoned (because not stopped) by CEOs and Board members, then American capitalism isn’t living up to the promises its founders made for its integrity.

Large commercial banks, like JPMorgan Chase, are public entities at least inasmuch as they collect individual deposits that are insured by the FDIC, they are publicly traded (hence publicly owned), they enjoy the largess of taxpayers (even though never consulted) when they are about to fail, and they are regulated by the US government. They are private insofar as their profits remain under the control of the management team whose compensation packages don’t require public (or government) consent. The choice of playing the public or private card is always at the discretion of these banks.
What should we make, then, of the $410 million settlement? Defrauding customers apparently is the new normal. Getting caught rarely happens. If it happens, fines are paid, and no one goes to jail. Powerful Wall Street lawyers cut a deal that doesn’t ruffle any feathers: it’s a win-win settlement (favorite cliché in Business Schools). Neither Ms. Masters nor Jamie Dimon (the CEO) went to jail, and the fines JPMorgan paid will be forgotten in the annual financial statement (which will amount, at this rate of profitability, to 1.6% of $25 billion). Likewise, the Federal Energy Regulatory Commission scored big in levying $410 million in fines in comparison to its latest settlement with a bank of $1.6 million (NYT).

Have we lost our moral outrage? Have we accepted financial scandals. We continue to deposit our paychecks in mega-banks for 0.1% interest and pay 6.99% interest for small business loans. No wonder banks’ facades are made of marble.

Raphael Sassower is professor of philosophy at UCCS; rsassower@gmail.com See also sassower.blogspot.com