Business/Finance

Maybe 'banksters' are the exception, not the rule

If you’re not familiar with the term “bankster,” it was coined, writes Harold Evans for BBC, “by an American immigrant, a fiery Sicilian-born lawyer by the name of Ferdinand Pecora. He was the chief counsel to the US Senate Committee on Banking set up in the early 30s to probe the origins of the Crash of 1929.”

On a recent edition of his Journal, transcribed at AlterNet, Bill Moyers interviewed Bill Black, a regulator during the savings and loan crisis of the late 1980s, who said:

“. . . an economist who [was] a regulator in the Savings and Loan industry. . . Larry White, wrote a book about the Savings and Loan crisis. And he said. . . one of the most interesting questions is why so few people engaged in fraud. Because objectively, you could have gotten away with it. But only about ten percent of the CEOs engaged in fraud. So, 90 percent of them were restrained by ethics and integrity. So, far more than law or by F.B.I. agents, it’s our integrity that often prevents the greatest abuses.

William Engdahl seconds this at Global Research:

Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.

The five are. . . JPMorgan Chase which holds a staggering $88 trillion in derivatives. … followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four. . . is Goldman Sachs with a ‘mere’ $30 trillion in derivatives. Number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7 trillion.

After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically. … In effect, these five institutions today believe they. . . can dictate the policy of the Federal Government. … The financial cancer must be isolated and contained by Federal agency in order for the host, the real economy, to return to healthy function.

Also, at Business Week, Matthew Goldstein wrote:

It’s plain crazy that 96% of the total notional value of all derivatives contracts is concentrated in the hands of five US banks.

Personally I question the structural integrity of the whole system. But I’m as capable as the next guy of drawing consolation from the knowledge that the problem might be more isolated than previously thought. Time to borrow another phrase from the thirties: “Break up the banks.”

Goldstein again:

If this seemingly endless financial crisis has taught us anything, it’s that no financial institution can ever again become too big to fail. That means any mega bank remaining standing at the end of this crisis will have to be split up either by voluntary divestitures, or by old-fashioned trust busting.

“Banksters,” “break up the banks,” “trust busting” — reprising those old refrains is music to the ears of those of us who are instinctively anti-big business.

1 reply »

  1. Back in the old days before branch banking, every little burg had a bank. In 1929-31, there were many thousands of bank failures. Banks failed for a variety of reasons, but the main reason banks failed was that since they were local, they were dependent at a very local level on both depositors and borrowers. If the wheat crop was bad, the farmers couldn’t repay the loans and the bank went bust. Contrast Canada, which had a depression as bad as we did. They had no bank failures during the depression as Canada only had 8 banks in 1929-31, they were all over the country, and their risk was spread out. The Canadian banks felt the pain, their profits were very low, but they survived, and prosper to this day.

    Jeff

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