Bringing Up the Rears: Special Banksters? Edition by Martin Andelman

by 29 Jul 2010
Lloyd Blankfein, John Mack, Vikram Pandit, Jamie Dimon, Brian Moynihan, Et Al.   Those names should ring some bells by now, but in case you can’t place them all, they are the names of the CEOs of Goldman, Morgan, Citi, JPM Chase, and the new guy at BofA who replaced Kenny Lewis at the beginning of this year.   Now, there are all sorts of reasons that I could go after these guys for being enormous rear ends.  I mean, just the fact that any of these CEOs still has her job is nothing short of astonishing.  Traditionally, as far as I can remember, CEOs that captain their corporate ships only to go fatally crashing into the cliffs of insanity get canned, right?  Not only did these guys keep their jobs after, at the very least, spectacularly failing, but they also picked up very nice bonuses to boot.  So, I’d have to say, very well done there.   But I’m not even going to worry about any of that today.  No, today I’m only concentrating on what this group of overbearing oligarchs has done lately, like as in over the last five quarters, according to the Federal Reserve Bank of New York.  That’s right, new stuff.  They didn’t do enough to destroy the global financial system over the last decade, so I guess it’s a matter of why-quit-on-a-winner sort of thinking?   Apparently, data released by the Federal Reserve Bank of New York shows that 18 banks, including those listed above of course, have been lying about their levels of debt that are used to fund their trading of securities at the end of the last five consecutive quarters, lowering them by an average of 42%, and then increasing those debt levels back to the real numbers in the middle of the following quarters.   Oh, I know… it’s not really “lying,” in this, our horribly-distorted-by-bank-lobbyists-world, I’m sure it’s actually perfectly legal, and equally sure there’s some banking lawyer out there who can set me straight on this.  If such a lawyer ever contacts me I think I’ll introduce myself by saying: “Hi, I’m a human being.  What are you?”   The Wall Street Journal reported the story saying:   “The data highlight the banks' levels of short-term financing in the repurchase, or "repo," market. Financial firms use cash from the loans to buy securities, then use the purchased securities as collateral for other loans, and buy more securities. The loans boost the firms' trading power, or "leverage," allowing them to make big trades without putting up big money. This amplifies gains—and losses, which were disastrous in 2008.”   Were they now?  Disastrous?  I hadn’t heard… pray do tell.  Disastrous for whom, exactly?  Not for any of these fine fellows, right?  They all did pretty darn well, following that little speed bump of a financial hiccup that people were all upset about for a few months, as I seem to recall.  It’s all better now, right?    I mean they hardly need any taxpayer support now, beyond a few trillion in free loans, and some suspended accounting rules that allow them to not recognize losses, right?  That’s no big deal, why that’s practically free market.  And quit it with all the “disastrous” talk, okay.  From now on, how about we refer to the events that took place during the fall of 2008 as being “challenges,” or better yet, “issues”?   The WSJ article went on to say:   “According to the data, the banks' outstanding net repo borrowings at the end of each of the past five quarters were on average 42% below their peak in net borrowings in the same quarters. Though the repo market represents just a slice of banks' overall activities, it provides a window into the risks that financial institutions take to trade.”   And I do love windows, don’t you.  I always ask for the window seat when on a long flight.  And I even like opening windows to let fresh air in when hanging around my house.  The problem with this “window,” is that if I were to open it, I’m fairly certain that whatever air would come in as a result, would be so toxic as to kill me within seconds.  Like a poisonous gas that would dwarf the power of Zyklon B.  The New York Fed declined to comment for the WSJ story, as did representatives from Goldman, Morgan, JPMorgan Chase, and Citigroup, which I thought was, collectively speaking, very transparent of them.  Bank of America, however, did say the following: "The efforts to manage the size of our balance sheet are appropriate and our policies are consistent with all applicable accounting and legal requirements.” As if that’s even remotely the point. The WSJ also pointed out that it was excessive borrowing, or “leverage,” as the banksters are fond of calling it (unless it’s a homeowner, of course, in which case “excessive borrowing,” is only a euphemism for “irresponsible deadbeat”), that was a big part of what caused the “issues” of 2008. Excessive borrowing by banks was one of the major causes of the financial crisis, leading to catastrophic bank runs in 2008 at firms including Bear Stearns Cos. and Lehman Brothers. Since then, banks have become more sensitive about showing high levels of debt and risk, worried that their stocks and credit ratings could be punished.” Damn, that was beautiful, was it not?  “Since then, banks have become more sensitive about SHOWING high levels of debt and risk…”  They’ve become more sensitive about SHOWING it, not that they don’t do it anymore.  So, you see… they’re not lying, they’re just being more “sensitive” to our needs by not sticking in our face the fact that not a damn thing has changed since they all cashed out on breaking the world.  Well, that’s different… thanks Lloyd, John, Vikram, Jamie and Brian… I do appreciate your newfound sensitivity.   Tell you what… if this was all there was with these guys, then I’d probably be willing to let them all off with a securities fraud conviction, but it’s far from being an isolated incident.  These guys are now operating essentially as if they are beyond the law, beyond even the scope of our democracy.    Did you see them report last month that their trading desks all made money every single day of the first quarter of 2010?  And then a guy from Bloomberg who’s apparently quite adept with numbers figured out that if a trader was someone with a 70% chance of making money on any given day the odds of him or her making money for 63 consecutive days would be 5.7 billion to one?  And I looked it up and found that, to give that mind-numbing numerical probability some context, the chances of being dealt a royal straight flush in five cards is only 650,000 to one.   Obviously, whatever these banksters did 63 days in a row during the first quarter, it bears no resemblance to “trading”.  And yet they touted it, as if we should all stand back and applaud their superior intellect, trading expertise, and general prowess with all things financial.    Well, I have a different idea of how these guys need to be treated.  They are failures.  Not a one of them would still be in business as the company they are today, were it not for the sycophants we have at Treasury, and the weak-kneed rubes we’ve elected to represent us, to say nothing of the administration, all of which decided that taxpayer largesse was in order.     It’s not a question of what’s merely legal anymore, fellas.  It’s a question of whether or not you’re the right guys to restore confidence in a financial system that’s proven itself to be morally and legally bankrupt.  You know, so that maybe… just maybe… the day will come when someone other than the federal government will want to invest in a mortgage backed security of one kind or another.  Because if that goal can’t be achieved, then I’d say that the banks of the future need be nothing more than another public utility.  Are you feeling me?   My God… lowering your debt at the end of the quarter to appear one way or the other?  Really?  Well, all I can think of is a quote from Clarence Darrow, who once said: “I’ve never killed a man, but I have been known to read a few obituaries with great pleasure.”   Shape up, banksters.  Because you’re currently on a path that doesn’t end well for anyone.   Mandelman out.     Martin Andelman is a staff writer for The Niche Report. He also writes an almost daily column on ML-Implode called Mandelman Matters.  He also publishes a Monthly Museletter and you can follow “Mandelman” on Twitter.  Send your responses to Martin@TheNicheReport.com    

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