Wayne O'Leary

The Banksters are Back

You remember the banksters (rhymes with “gangsters”), the Wall Street crowd that wrecked the economy in 2008 through their unscrupulous, irresponsible behavior and suffered no lasting consequences as a result. They’re back, bigger and bolder than ever, and about to take up where they left off a decade ago.

The renewed swagger of the big banks owes a lot, in the first instance, to the corporate tax cuts passed late last year, which benefited finance more than almost any other business sector due to the economy’s increased “financialization.” So-called financial services now account for a quarter of total corporate revenues, most of it accruing to the 10 largest banks that hold 80% of all US banking assets, up from 49% in 2006 and 29% in 1996.

Although much was made of the tax-linked employee bonuses announced at the start of 2018, most of big banking’s tax windfall (75 to 80 percent, according to financial analysts) will find its way to bank shareholders in the form of dividends and stock buybacks. Bank of America, one of Wall Street’s big four (the others are JPMorgan Chase, Wells Fargo and Citigroup), will distribute just $145 million of its $2.7 billion 2018 tax cut, a paltry 5.4%, in worker bonuses. Comerica Bank has committed $148 million of its first-year tax savings to buying back stock and only $3 million to employee bonuses, a ratio of nearly 50 to one.

According to Standard & Poor’s, corporate tax reductions will shrink the effective tax rates of US financial firms by a third, netting them an additional $7 billion in profits this year and increasing their combined revenues by 75%. At large institutions with overseas operations, such as JPMorgan Chase and Citigroup, the take will be padded considerably by the new territorial system of assessing corporate foreign earnings at the embarrassingly low rate of 10.5%. Over the next decade, US banks as a whole will save $250 billion from what would otherwise be a $715 billion tax liability.

But it’s not enough; it’s never enough for the banksters. Since the 1970s, a time when most bank investment went toward providing loans for needed business expansion on “Main Street,” banking’s focus has become the stock market and its bottom-line demands. Today, a New York Times analysis concludes, 85% of all discretionary bank money goes for higher-return deals-making or inside trading — the institutional buying and selling of stocks, bonds, and real estate. The uncomplicated goal is increasing profit margins, and thereby stock values, to enrich the one-fifth of the population that owns four-fifths of all bank assets.

One way to reach the desired goal is through a tax cut of the sort we’ve just had, which Goldman Sachs researchers say will increase the earnings-per-share of the largest financial firms an average of 13%. Another is the installation of a Federal Reserve chairman partial to eased bank regulations; the prospect of such an appointment (fulfilled by Trump’s selection of Jerome H. Powell) caused bank stocks to shoot up 15% in 2017.

But the most direct approach has been to deploy swarms of lobbyists to influence or frustrate the financial rule-making processes of the various federal agencies charged with implementing the details of enacted bank regulation — in this case, the Dodd-Frank reform law. Wall Street has been using this tactic successfully, in combination with verbal sniping and calls for deregulation, since Dodd-Frank was passed in 2010. The securities investment industry, led by Wall Street’s biggest lobby, the Securities Industry and Financial Markets Association, employed a total of 704 registered lobbyists for this purpose during the first nine months of 2014 alone at a cost of $74 million.

The financial industry’s guerilla war against Dodd-Frank has been applied nowhere with more energy than in the realm of derivatives trading, one of big banking’s most lucrative, if transcendently dangerous, pursuits. It’s the industry’s dirtiest little secret that, despite 2008, its love affair with risky derivatives never ended and, in fact, intensified immediately after the bailouts.

In 2010, the year of Dodd-Frank, US banks retained $218 trillion in derivatives holdings and made $100 billion in speculative trades. In 2012, JPMorgan Chase, Wall Street’s largest bank, lost $6.2 billion betting illegally on credit-default swaps tied to corporate debt; it expected a hefty federal fine, said the New York Times, but with $2.4 trillion in total assets, that likelihood was less than daunting.

JPMorgan’s object lesson proved no deterrent. By 2014, US banks carried $280 trillion worth of derivatives on their books and made some of their biggest profits on them. Investigators at the Office of the Comptroller of the Currency, a regulator, determined the following year (2015) that 95% of US derivatives trading originated with five elite and federally insured Wall Street banks, whose in-house gambles were no longer banned now that the Securities and Exchange Commission’s swaps “push-out” rule (rescinded in 2014) no longer applied. [See “Enablers of Financial Catastrophe,” 4/1/18 TPP.]

The banksters even funded a lobbying arm, the International Swaps and Derivatives Association, to campaign for lighter regulation of their favorite activity. Finally, in 2015, subprime loans, the poisonous ingredient in toxic derivatives, made their reappearance through the mortgage subsidiary of private-equity giant Lone Star Funds, where they soon accounted for a fifth of the company’s mortgages. Nothing, it seemed, had been learned from banking’s recent near-death experience; it was déjà vu all over again.

That’s where we stand as the bankster-friendly GOP Congress prepares, with the aid of a Senate cadre of traitorous “bipartisan” Democrats, to dismantle what’s left of the modest Dodd-Frank reforms. As always, the watchword is “freedom.” Senate Republicans would give banks of less than $250 billion in assets (including 25 of the 38 largest) the freedom to avoid federal stress tests and capital/liquidity requirements, and those of less than $50 billion in assets freedom from the Volcker Rule’s ban on proprietary trading and risky private-equity investments. House Republicans would extend those dubious freedoms to the biggest Wall Street banks and free them from the investigatory oversight of an independent Consumer Financial Protection Bureau.

The ship of state could shortly be taking on water, so get those deck chairs rearranged and spend your tax cut judiciously. The money may have to last.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, April 15, 2018

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