In my last post (https://thenextrecession.wordpress.com/2013/10/22/from-coop-to-cop-out-from-stewardship-to-casino-banking/), I explained the demise of the UK’s Coop Bank from a bank that aimed to ‘serve the people’ with ‘ethical objectives’ to a failed toxic asset bank, now gobbled up on the cheap by American hedge funds, who coincidentally have now also got the largest equity share of Britain’s publicly-owned postal service, the Royal Mail, privatised at about one-third of its real value. This post now looks at the other end of banking spectrum: what the global universal banks are up to.
Well, despite the huge losses incurred to taxpayers in bailouts and the economy in general from the disastrous, reckless and criminal policies of the global banking system over the last six years, it’s business as usual. As I outlined in a past post (https://thenextrecession.wordpress.com/2013/02/01/the-never-ending-banking-story/), it’s a never-ending story of greed and criminality.
The bank that gained most from the global banking crisis was JP Morgan Chase. It was able to buy the investment bank, Bear Stearns when it went bust, for just $1 and JPMt was provided with billions of dollars of guarantees from the US government to enable it to gobble up huge shares in the US banking sector to become the largest player.
But it has not been all plain sailing. JP Morgan is now having pay the US government $13 billion in compensation for selling ‘toxic’ mortgage assets to Federal agencies, knowing full well that these mortgages were rubbish. The payment is in settlement to avoid criminal charges. It includes $4 billion to settle claims by the Federal Housing Finance Agency that JPM misled Fannie Mae and Freddie Mac about the quality of loans it sold them in the run-up to the 2008 financial crisis, another $4 billion in consumer relief and $5 billion in penalties to be paid by the bank. In a separate settlement, JPM also agreed to pay $100 million and acknowledge wrongdoing to settle allegations by the Commodity Futures Trading Commission related to its botched “London whale” trades. And last month, the bank agreed to pay $920 million to settle similar charges with US and UK regulators related to that 2012 trade. The great god of JP Morgan, CEO Jamie Dimon, is now looking less than great.
The latest settlement sounds huge, but it is not really. JPM has got off lightly. The bank had already made provisions of $23 billion to cover these settlements. If the Federal agencies and others had pursued their claims of misdoing to court, JPM was expecting to pay over $30 billion, wiping out the past six quarters of profit. Instead it has got away with less than half that. And no banker has gone to jail for knowingly misleading government agencies. One analyst reckoned that “JPM and Dimon are getting a pretty darn good deal from the government. I suspect when the settlement is actually disclosed, it will turn out that JPM’s payout for rep breach violations/FHFA stuff are actually lower than for other banks and lower than that BofA $8.5 billion settlement.”
And this particular calumny of selling toxic mortgages to US federal agencies has still to reach the door of other banks. The FHFA also bought mortgage securities from the likes of Barclays Bank ($5 billion), HSBC ($6 billion) and the notoriously reckless British bank (now nationalised) RBS to the tune of $30 billion! They face similar claims as JPM.
Andrew Haldane, the man at the Bank of England responsible for banking stability, has calculated that the major banks have only taken a hit equivalent to 1/20th of low-end estimate of what the banks ought to pay for all the damage they did. If ever there were a case for the government on the behalf of taxpayers to take over private corporations without compensation to the shareholders or bondholders, it is the global banking entities. Instead, they are escaping with the minimum of cost. Even though all these major banks should all be in public ownership after the losses and damage they have caused to the people, governments are doing all in their power to support them even now with credit guarantees, and where public stakes were taken, to divest state equity as fast as possible, even at a loss.
The British Conservative government has already started to sell off its one-third stake in Lloyds Banking Group. It sold a 6% holding for £3.2bn in September. American hedge funds could hardly wait, gobbling up the shares at a price some 60% below the price before the banking crisis. The taxpayer got 75p a share, just above the price it paid of 73.6p when bailing out Lloyds. So the government’s profit was a tiny £61m after five years. Since then, the price has risen another 7% – a nice little gain for the hedge funds. Lloyds CEO, Horta-Osório, will now qualify to receive last year’s £1.5m bonus award, albeit after five years. A second sale is planned for the first half of 2014, paving the way for the government fully to exit Lloyds by the end of next year. And remember the ‘gain’ to the taxpayer of £61m over five years must be balanced against the huge credit guarantees and special terms handed out to the big five banks in Britain that also cost the taxpayer in extra borrowing and costs. That cannot be recouped.
The right-wing UK government is also trying to sell off its huge 81% stake in RBS. The government plans to break the bank into two, creating a ‘bad bank’ with all the toxic assets that RBS holds, which will remain the liability of the taxpayer, while selling off the good part of the bank back to the private sector. The taxpayer will have $81-97 billion of bad assets on its hands. The sell-off of the good bit is, however, unlikely before the next British general election in 2015, because, as the British Chancellor, George Osborne put it: “RBS was a much more complex bank. It was a bank that was in a lot more trouble. The clean-up job has been more difficult”.
And so it goes on. It’s the same story in Italy. There, the criminal activities of the very venerable Siena-based bank, Monte dei Paschi, led to it going bust, well after the global banking crisis. The bank is Italy’s third-largest lender by assets. It received 4.1 billion euros in special state loans earlier this year after a toxic derivatives scandal brought it to its knees. The EU Commission is opposed to this bailout for two reasons: one, it wants bank bondholders to take a hit; and two, it does not like the government having shares in the bank. But there may be no way around part public ownership if the private sector won’t step up to the plate with new funds. In the meantime, ordinary bank workers are taking the hit. Monte dei Paschi has already cut 4,600 jobs and shutting 400 branches. But the EU wants more.
Indeed, there is much worry that other Italian banks are still hiding a load of nasties on their books. The IMF wants these ‘bad debts’ identified and separated off into a national ‘bad bank’ for the taxpayer to take on as a liability perhaps of about 15-20 billion euros. That may not be anywhere near the amount that will eventually be needed to ‘clean’ up Italy’s banks. My own estimates (no space to explain how my calculation is worked out) suggest more like 60-70 billion euros of losses in Italy alone.
But capital is not really worried. The state stands as a backstop to bail out the banks, to support them with credit guarantees and taxpayers’ money, and then to sell them back to a new set of private owners (hedge funds etc) at bargain prices. After all, we cannot have a publicly-owned, democratically-run banking system, can we?
9 thoughts on “Bad bankers, bad debts and bad banks”
“After all, we cannot have a publicly-owned, democratically-run banking system, can we?”
Nope, as a matter of fact we can’t. That’s the point. No more than we can have publicly owned, democratically run capitalism; no more than we can have socialist commodity production; socialist wage-labor; socialist production of and for value accumulation.
Oddly, perhaps, circumspection about the efficacy of the bloated and enormously profitable financial arm of late-stage-capitalism is a perspective that is not the sole perview of Marxist-oriented eonomics. Hedge funds, short term traders, and even some quite large private equity funds are sanguine about what finance capital has been up to since about 1982. In other words, there is no secret here. But there is a lot of banana oil coming out of Wall St., nonetheless: the Big Lie, in action (unemployment statistics, various measures of economic growth, earnings reports, etc., etc., ….all completely misleading if not deliberately inaccurate). Regrettably, enormous pain has been and will continue to be suffered by the cannon fodder in this gigantic rip-off: hundreds of million workers in both developing and developed economies.
Nor can we have publicly-owned, democratically-run retirement and medical care. Obama’s ACA points the way for the privatization of Medicare and SS in the USA. We are all to be frog-marched into a state engineered “market” and made to contort ourselves into “truckers and barterers” whether we like or want it or not.
Per Karl Polyani’s dystopia, the coercion of everything into the “market”, into universal private property, will require a totalitarian police state to protect against the inevitable mass rage against capitalism and its “market” ways. They are busy at that parallel project as well. Here in Oakland, CA the security forces are preparing for a para-military exercise called “Urban Shield”. Oakland has clearly been picked out by the Feds as a “trouble spot” requiring, among other things, Israeli consultants in repression:
Ever get the feeling that the capitalist state in the USA (and UK) is girding itself to suppress a revolution? Our ruling classes don’t appear too optimistic about their own future.
It is what you get when the banksters – including the “shadow banksters” especially – aren’t nationalized and put out of business.
Reblogueó esto en Econo Marx 21.
You forgot to mention the cherry on top for JPMC – the settlement is largely TAX DEDUCTABLE.
Yes dead right – I did note that but forgot to put it in th epost.
Basically, I personally believe that most of those “liar’s loans” were fraudulent because even minimal underwriting of the loan files was sufficient to detect the overwhelming majority of them. No honest, rational lender would make such a large number. The epidemic of mortgage fraud was in fact so large that it hyper-inflated the housing bubble, which allowed refinancing to further extend the life of the bubble and the depth of the recession.
I guess “liar’s loans” were done for the usual reason – they optimized (fictional) short-term accounting income by creating a “sure thing” . A fraudulent lender optimizes short-term fictional accounting income and longer term (real) losses by maximizing fictional profits and real losses. This destroys the lender, but it makes senior officers that control the lender wealthy.
The privately owned and controlled Central Banks have become so emboldened that their addiction to OUR debt is out of control. They are squeezing too hard and incomes are being strangled for all but the mega-rich. It can’t go on. But who will pay this time ?