The Banking Model from Hell Has Now Killed the IPO Market

By Pam Martens and Russ Martens: September 23, 2016

its-about-trust-stupidThe horror stories that continue to spill out about what Wall Street banks are doing behind their cloistered walls have blurred the actual function of Wall Street: to efficiently allocate capital so that new industries can be born and thrive in America, creating new jobs and a rising standard of living for all of our fellow citizens.

In the same week that the U.S. Senate Banking committee was taking testimony that one of the biggest Wall Street banks, Wells Fargo, was opening two million unauthorized customer accounts over at least a four-year span in order to generate fees and meet daily sales quotas, the Wall Street Journal reported yesterday that just 68 new companies had been listed for public trading this year, a drop of 51 percent from the 138 companies that had gone public by this time last year.

Let’s recap what the public has learned over the past eight years about the Wall Street banking model from hell. (1) The greatest housing collapse since the Great Depression resulted from Wall Street banks muzzling their internal whistleblowers who wrote memos to management and shouted from the rafters that the banks’ mortgage loan departments were ignoring their own compliance rules and buying up tens of thousands of mortgages with wildly overstated incomes by the mortgage holder. (2) The banks then knowingly bundled these toxic mortgages into pools and paid the ratings agencies, Standard & Poor’s and Moody’s, to assign triple-A ratings to the offerings (called securitizations). (3) The banks knew these toxic mortgages would fail but they sold them to their customers as sound investments. (4) The banks also used their insider knowledge that the mortgages were going to fail to place bets (short sales) and reap billions of dollars in profits as the U.S. housing market collapsed and families were thrown into the streets.

Last December, “The Big Short” movie began to play in theatres across America, allowing millions of people to see how the unchecked, insidious greed of Wall Street had destroyed the nation’s economy along with the reputation of Wall Street, the ratings agencies and the revolving door regulators. (See video below.) The movie was based on real-life people on Wall Street and adapted from the book by the same title by author Michael Lewis, an authoritative source through his previous career on Wall Street.

Years before the movie made it to the big screen, thousands of activists around the country created the Occupy Wall Street movement to advocate for a realignment of their democracy and a radical overhaul of what Wall Street had become: a thinly disguised wealth transfer system for the one percent, being propped up by a corrupt political campaign finance system. After commanding news headlines for months and being carefully monitored by government surveillance, a brutal police eviction was orchestrated against Occupy Wall Street, journalists covering the protests and even New York City Council Members attempting to monitor what was happening. Congressman Jerrold Nadler sent a letter on December 6, 2011 to Attorney General Eric Holder at the  U.S. Department of Justice requesting that an investigation be undertaken. Nadler’s description of the events were reminiscent of a police state protecting the criminals:

“In addition to my concerns about police misconduct with respect to OWS protesters, I am especially troubled that during and after the November 15th eviction from Zuccotti Park, the NYPD aggressively blocked journalists from reporting on the incident, and in some cases, targeted journalists for mistreatment. Individuals without press credentials were also blocked from filming events, and were, in some instances, arrested apparently for taking pictures. According to news reports, and a letter from the major daily newspapers and other major news outlets and organizations representing journalists, at least ten reporters and photographers were arrested while trying to report on the incidents at Zuccotti Park. The NYPD forced journalists to leave Zuccotti Park, prevented members of the credentialed press from being present during the eviction, and used intimidation and physical force to prevent reporters and photographers from carrying out their journalistic functions. Many of those arrested were not charged with any offenses. Additionally, the City reportedly closed the airspace above the area in order to prevent news helicopters from recording the actions.”

George Freeman, Assistant General Counsel of the New York Times, wrote to the NYPD about the same events on behalf of The Times and many other newspapers and media groups. Freeman cited many examples of physical brutality against journalists. In one instance, a male photographer was photographing a man the police were carrying out of Zuccotti Park who was covered in blood.  “As he raised his camera to take a picture, two other police officers came running toward him, grabbed a metal barrier and forcefully lunged at him striking the photographer in the chest, knees and shin,” wrote Freeman. “As they did that they screamed that he was not permitted to be taking pictures on the sidewalk — the most traditionally recognized public forum aside from a park,” wrote Freeman.

After the Obama administration attempted to reassure the public that the evils of Wall Street had been remedied through his much-heralded legislation, the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, the Wall Street horror stories actually became more outrageous. The abuses were discovered not by Federal regulators, but by Senators Carl Levin and Elizabeth Warren, or members of the press, or, in the case of JPMorgan Chase, two trial lawyers with the tenacity to write a book.

In a 2012 case that became infamously known as the London Whale, Senator Carl Levin, who chaired the U.S. Senate’s Permanent Subcommittee on Investigations, did the work the U.S. Justice Department should have done and released a 306-page report on how JPMorgan Chase had used funds from its insured depository bank, Chase, to make hundreds of billions of dollars in wild derivative gambles in London, losing at least $6.2 billion along the way. Those wild gambles happened two years after the Dodd-Frank legislation was supposed to have cleaned up Wall Street. This is how Senator Levin described JPMorgan Chase’s post-reform behavior:  “[the bank] piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight, and misinformed the public.” That report came out in 2013.

In 2014, JPMorgan Chase was charged with two felony counts (which were deferred from prosecution) by the U.S. Justice Department for aiding and abetting Bernie Madoff’s Ponzi scheme. By May 20 of the following year, JPMorgan Chase had to plead guilty to another felony, this time for its involvement in rigging foreign currency trading.

Despite three felony charges, JPMorgan Chase’s Board kept Jamie Dimon in place as Chairman and CEO and actually gave him bonuses. This unprecedented hubris prompted two trial attorneys, Helen Davis Chaitman and Lance Gotthoffer to author the book, JPMadoff: The Unholy Alliance Between America’s Biggest Bank and America’s Biggest Crook, chronicling the history of crimes at the bank which had cost shareholders a staggering $35.7 billion in fines and settlements in just a four-year span. As testimony to how cowered corporate media has become when it comes to Wall Street, earlier this year Bloomberg Markets magazine editor, Joel Weber, fawned over Dimon in a Bloomberg TV interview, pushing the outrageous narrative that Dimon is all about the customer.

And, of course, there is the failed promise of Dodd-Frank to rein in the derivatives that played a pivotal role in blowing up Wall Street in 2008. Citigroup was able to have an amendment slipped into a spending bill and repeal the part of Dodd-Frank that would have forced derivatives out of the banks that are holding insured deposits. As we reported in July, Citigroup now has more derivatives than 4,701 U.S. banks combined. As of March 31, 2016, Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America and Morgan Stanley now control $231.4 trillion in derivatives or 93 percent of all derivatives in the entire FDIC banking universe of 6,122 banks and savings associations.

Not only has the Obama administration and Congress failed to rein in risk on Wall Street, but it is now dramatically more concentrated and dangerous to the global banking system. And, this is the first time in history that a major Presidential candidate, Senator Bernie Sanders, has traveled the country repeating the phrase to the thousands attending his rallies that “the business model of Wall Street is fraud.”

As Wall Street scratches its head and attempts to figure out why new companies don’t want to list their shares on a Wall Street stock exchange or hire a Wall Street bank to do their stock underwriting, we have a simple message for Wall Street: “It’s about trust, stupid.”

Don’t Believe the Fed; the U.S. Consumer Is Far from Strong

Retail Sales for Past Year (Courtesy of Trading Economics and Commerce Department.)

Retail Sales for Past Year (Courtesy of Trading Economics and Census Bureau.)

By Pam Martens and Russ Martens: September 22, 2016

Yesterday the Federal Open Market Committee (FOMC) of the Federal Reserve released its policy statement, which included its announcement to stand pat on interest rates at this meeting. The third sentence of this policy statement went like this: “Household spending has been growing strongly….” To use the parlance of Wall Street, the Fed was putting lipstick on a pig.

The average American might read that statement as it bounced around the newswires and conflate “household spending” with a strong consumer. Nothing could be further from the truth. Household spending data is actually capturing how Wall Street masterminds continue to fleece the 99 percent.

Just six days before the FOMC policy statement was issued, this is how USA Today reported on the strength of the consumer based on the Commerce Department’s release of retail sales data:

“U.S. retail sales slumped in August as auto and gasoline purchases fell and a core reading was unexpectedly weak, raising questions about consumer spending growth in the current quarter.

“Sales fell 0.3%, more than the 0.1% decline economists expected. A core measure — that excludes the volatile categories of autos, gasoline, building materials and food services — slipped 0.1%.  Economists had forecast a 0.4% rise.”

Why is household spending going in one direction and consumer spending in another?

The Bureau of Labor Statistics (BLS), part of the U.S. Department of Labor, states that it is the “principal Federal agency responsible for measuring labor market activity, working conditions, and price changes in the economy.” BLS includes such expenditures as housing costs, transportation, education, personal insurance and pensions in its “household spending” data. BLS found the following in its data release for 2015:

“All major components of household spending increased in 2015… Of these, expenditures on personal insurance and pensions showed the greatest percentage increase, 10.9 percent. This was followed by education expenditures, rising 6.4 percent, transportation expenditures, rising 4.7 percent, and entertainment expenditures, rising 4.2 percent.”

The BLS found that the increase in education expenditures resulted largely from a “63.7 percent increase in finance, late, and interest charges for student loans….” The horror stories coming out of the Consumer Financial Protection Bureau from the young student debt slaves of the Wall Street banks put a human face on this statistic. The one percent have simply found more ingenious ways to fleece the 99 percent and call it “household spending.”

The housing cost statistic offered by BLS also fails to capture the financial distress being imposed on millions of Americans by Wall Street hedge funds and private equity funds that are scooping up homes in distressed neighborhoods and hiking rents far above fair market rates. In a report last Fall, American Prospect Magazine found the following:

“…in areas where Wall Street investors own a significant number of these single-family homes—including Atlanta, Las Vegas, Phoenix, Miami, Tampa, Orlando, Charlotte, Dallas, Chicago, Detroit, Denver, and Los Angeles and nearby Riverside—their practices have harmed tenants and undermined long-term neighborhood stability.

“In April of this year, for example, one-quarter of all home sales were to cash-carrying investors. Since 2010, institutional investors backed by Wall Street have purchased a total of 528,369 single-family homes nationwide, led by Florida (78,155), California (52,802), Georgia (46,914), Arizona (35,979), and North Carolina (34,769), according to RealtyTrac…Together, these Wall Street entities have raised close to $70 billion to buy these homes.”

A report issued by the Pew Charitable Trusts on March 30, 2016 put this housing impact on lower income households into sharp perspective:

“Since the start of the housing crisis in 2007, home ownership rates have declined among households in the middle- and upper-income tiers. These decreases have affected the rental market, as former owners became renters, leading to rental vacancy rates at historical lows below 7 percent. The diminished supply of rental properties increased the cost of rental housing dramatically; in 2014, renters at each rung of the income ladder spent a higher share of their income on housing than they had in any year since 2004. Although both renters and homeowners spent more for housing in 2014, notable differences in the proportion of household resources going to shelter were evident across income groups, with lower-income renter households spending close to half of their pretax income on rent.”

The increase in household spending is nothing to cheer about for the average American as the benefits are flowing to the same one percent that tanked the economy in 2008, creating the worst wealth destruction for the average American since the Great Depression, and have now simply found ever more creative ways to continue to soak the 99 percent.

Fed Monetary Policy Is Being Held Hostage by Wall Street Banks

By Pam Martens and Russ Martens: September 21, 2016

fed-held-hostage-by-wall-street-banksWhile the U.S. Senate Banking Committee was taking testimony yesterday from the Chairman and CEO of Wells Fargo bank, John Stumpf, about his $19 million in pay last year and how Carrie Tolstedt was set to retire with $120 million from the bank, despite both of them presiding over the creation of  two million bogus bank accounts and credit cards, the Federal Reserve’s Open Market Committee (FOMC) was debating the wisdom of hiking rates and setting off a temper tantrum by Wall Street banks or standing still and losing more credibility. We will know the outcome of that conversation when the FOMC makes its announcement at 2 p.m. ET today.

American banking has now evolved from too-big-to-fail to too-big-to-prosecute to too-big-and-dangerous-to-return-to-normal-monetary-policy.

Since December of 2008, the Federal Reserve has held its interest rate benchmark at zero or almost zero. On December 16 of last year, the Fed’s Open Market Committee (FOMC) raised its benchmark rate, the Federal Funds Rate, for the first time in seven years by a mere quarter of a percentage point to between 0.25 percent and 0.50 percent from its former 0.0 to 0.25 percent.

Wall Street quickly telegraphed its ransom note to the Fed about further rate hikes. By January 20, the Dow Jones Industrial Average had experienced its worst start of the new year since 1897, tanking 10.03 percent, according to a Tweet from Howard Silverblatt, the S&P Dow Jones Indices Senior Index Analyst.

By February 3, four of the derivative-bloated Wall Street banks (Bank of America, Citigroup, Goldman Sachs and Morgan Stanley) were trading at their 12-month lows during the trading day. The Fed has been walking on egg shells ever since, hinting at another rate hike but never actually getting around to the actual rate hike.

There’s another elephant in the room for the Fed – consumer confidence. Since the enactment of Social Security in 1935, it has not been allowed to invest in anything other than U.S. Treasury securities, which are backed by the full faith and credit of the U.S. government. That has not only prevented Wall Street’s bogus securities (like toxic mortgage-backed securities and accounting frauds like Enron and Worldcom) from ravaging retirement savings but it has also allowed the government to function independently of markets. The same cannot be said of the Fed since the creation of 401(k) plans tied workers’ retirement wealth, and thus their confidence as consumers, to the gyrations of the stock market. (See Wall Street’s Collapse and the Ownership Society.)

The consumer represents two-thirds of Gross Domestic Product in the U.S. Tanking stock markets and tanking 401(k) statements are a buzzkill to shopping at the mall or buying those big ticket items for the home. This is why the 401(k) and Wall Street’s hostage-taking of the Federal Reserve warrants serious consideration in Congress – which might happen were it not being held hostage by Wall Street’s campaign financing.

On September 17 of last year, Reuters reporter Ann Saphir asked Federal Reserve Chair Janet Yellen at her press conference if it might be that the Fed would never escape its zero bound range. Yellen did not instill confidence with her answer. The exchange was as follows:

Ann Saphir: “Ann Saphir with Reuters. Just to piggyback on the global considerations, as you say, the U.S. economy has been growing, are you worried that given the global interconnecting this, the low inflation globally, all of the other concerns that you just spoke about that you may never escape from this zero lower bound situation.”

Janet Yellen: “So, I would be very– I would be very surprised if that’s the case. That is not the way I see the outlook or the way the committee sees the outlook. Can I completely rule it out? I can’t completely rule it out. But really that’s an extreme downside risk that in no way is near the center of my outlook.”

How real is this possibility? Ask Japan.

Wells Fargo Shaming Today in Senate: Edwards Family Are Ghosts in the Room

The Edwards Family that Built A.G. Edwards & Sons

The Edwards Family that Built A.G. Edwards & Sons

By Pam Martens: September 20, 2016

Imagine how you might feel if you were part of a distinguished family that built a respected business over 120 years only to see it gobbled up against your wishes by a banking behemoth, Wachovia, which collapsed a year later and was then forced into a shotgun wedding with another mega bank, Wells Fargo. Today, the Senate Banking Committee will put the finishing touches on this tragic tale of how a fine St. Louis family, the Edwards, lost control of their legacy of putting the customer first, to end up as part of a company now being shamed for opening two million fake accounts that were never authorized by its customers.

The Edwards family story will not be part of today’s Senate hearing, but one can easily imagine that five generations of Edwards will be looking down from heaven today on the proceedings and cursing one name: Bob Bagby, the man who orchestrated the sale of the 120-year old brokerage firm, A.G. Edwards & Sons to Wachovia in 2007.

Albert Gallatin Edwards, the founder of A.G. Edwards & Sons in 1887, was the son of Illinois Governor Ninian W. Edwards. The Edwards family shared a close friendship with Abraham Lincoln and he and Mary Todd were married in the Edwards home on November 4, 1842. Before founding A.G. Edwards with his son, Benjamin F. Edwards, Albert Gallatin served as Assistant Treasury Secretary under Lincoln and four subsequent presidents. He knew a thing or two about banking.

Albert Gallatin died in 1892 at age 80 and another son, George Lane Edwards, took the reins. George Lane’s brother, Albert Ninian, was passed the baton in 1919. A.G. Edwards & Sons bought a seat on the New York Stock Exchange in 1898.

A.G. Edwards & Sons ably survived the 1929-1932 stock market crash that wiped out 90 percent of the stock market’s value from peak to trough. By that time the firm was so well respected that its floor broker on the New York Stock Exchange, William McChesney Martin, Jr., only age 31 at the time, was named President of the New York Stock Exchange. (An interesting anecdote about that later.) Martin would go on to become Chairman of the Board of Governors of the Federal Reserve System from April 2, 1951 until January 30, 1970 – serving under five different presidents.

Presley W. Edwards, son of Benjamin F. Edwards and grandson of founder Albert Gallatin Edwards ran the firm through the challenging years of the Great Depression and thereafter until his son, Benjamin Franklin Edwards III, became Managing Partner in 1967. Following the firm’s incorporation, Benjamin Franklin Edwards III became Chairman and CEO, eventually building the retail brokerage firm into the largest independent retail brokerage firm in the country.

I had the privilege to work for A.G. Edwards while Ben Franklin Edwards III was at the helm. After the firm went public in 1971, he regularly penned letters to shareholders admonishing greed and wrongdoing on Wall Street. Copies of his annual letter were posted behind the copy machine in the branch so that employees could regularly remind themselves of the firm’s motto: focus on taking care of the customer and everything else will fall into place. The firm had no proprietary products at all so that brokers could be free of internal pressure and buy what they felt was in the client’s best interest.

The back office had been located in St. Louis for decades with veteran employees who had expert knowledge of how to get things done right the first time. It had state of the art trade processing capability that was far superior to that of many larger firms.

Ben Franklin Edwards III made it his mission to make visits to branches all over the country each year, letting brokers know he was on top of things. On one trip to our branch he told a group of us his family’s humorous version of how William McChesney Martin, Jr. went from floor broker to President of the New York Stock Exchange at age 31. Edwards said Martin would come home at night and take off his floor broker jacket and find trade tickets stuffed in his pockets that he had forgotten to execute. So the stock exchange thought he would do less damage by booting him up to the position of President.

Edwards also shared with us his philosophy on how to deal with a rogue broker: remove him with a scalpel from the organization, making sure to get any cancer he might have spread.

On one of Edwards’ visits to the branch we were celebrating the expansion and remodeling of the office and wanted to host an elegant celebration for his arrival. The St. Louis headquarters office actually had a curator of the A.G. Edwards artifacts dating back to the company’s founding. We had prints made of some of these amazing artifacts, like a handwritten brokerage statement from the early days and artifacts showing the close relationship between the Lincolns and Edwards.  Edwards beamed when he saw the attention to detail our office had gone to for his visit.

Edwards announced his retirement in 2001 and it was assumed by his brokers and veteran staff in St. Louis that his son, Ben Franklin Edwards IV (Tad), would take over. But the Board of Directors chose a non-family member, Robert (Bob) Bagby, as CEO. After promising that the company would remain independent, Bagby sold the firm to Wachovia Bank in 2007, earning coast to coast outrage from brokers and veteran employees who pummeled him with hate mail and online posts for months.

Bagby walked away with $7.5 million in vested Wachovia stock and more than $10 million in compensation and benefits when he left Wachovia the following year. Shareholders and brokers did not fare as well. Wachovia collapsed into a forced sale to Wells Fargo during the financial crash of 2008.

Ben Franklin Edwards III died in 2009 at age 77, living long enough to see his son, Tad, start a new brokerage firm to honor the family name.  According to the firm’s web site, Benjamin F. Edwards & Co., which was founded in 2008, now has “more than 50 offices and almost 200 advisors in 24 states.”

We have one message for Tad: don’t forget about the scalpel.

The Debate Is Over: Banking Has Become a Criminal Enterprise in the U.S.

By Pam Martens and Russ Martens: September 19, 2016

Senator Richard Shelby, Chair of the Senate Banking Committee

Senator Richard Shelby, Chair of the Senate Banking Committee

Tomorrow the U.S. Senate Banking Committee will hold a hearing to take testimony from Wells Fargo CEO John Stumpf and Federal regulators to understand how this mega bank was able to get away with opening more than two million fake customer accounts over a span of years. The accounts and/or credit cards were never authorized by the customer and were opened solely by employees to meet sales quotas, get bonuses or to avoid getting fired for failing to meet sales targets.

The only reason the Republican-controlled Senate is holding this hearing is because the Wells Fargo fake-account story got a lot of coverage in the media when the Consumer Financial Protection Bureau (CFPB) announced a $185 million settlement over the charges on September 8. The reason the story got a lot of media coverage is because it’s a simple story to tell: widely respected bank opens two million accounts for its customers without their knowledge or permission, sometimes illegally funneling money to the new account from the old account to generate fees.

In July of last year, when Citibank, the deposit-taking retail bank settled charges with the CFPB for $700 million for deceptively selling add-on products to credit card customers, the Senate Banking Committee yawned and did nothing.  The story didn’t get major press attention because it was a complicated story to tell. Among a long list of fraudulent practices, the CFPB found that Citibank led 2.2 million customers to believe they were paying to have their credit card monitored for fraud and identity theft, “when, in fact, these services were either not being performed at all, or were only partially performed,” according to the CFPB.

The CFPB charges against Citibank came exactly two months after Citbank’s parent, Citicorp, pleaded guilty to a felony with the Justice Department in connection with the rigging of foreign currency. On the same day, another U.S. mega bank, JPMorgan Chase, also pleaded guilty to a felony related to the same crime. Both banks are more than a century old and both banks, on May 20 of last year, pleaded guilty to a felony for the first time in their history.

The public first got its peek into the corrupt culture at Citigroup, the bank holding company of Citibank, on December 4, 2011 when Richard Bowen, a former Citigroup Vice President and whistleblower, appeared on 60 Minutes. Bowen explained how he had found that Citigroup was buying fraudulent mortgages and selling them to investors as sound investments. When his superiors ignored his warnings, in November 2007 he wrote to top management, including the CFO, chief risk officer and Robert Rubin, the Chairman of Citigroup’s executive committee who, as a former Treasury Secretary under Bill Clinton, had pushed to deregulate Wall Street banks – allowing them to hold FDIC insured products and cross-sell their carnival barker wares to the public.

Bowen explained on 60 Minutes what happens when an honest employee speaks out in one of the Wall Street banking behemoths: “I was relieved of most of my responsibility and I no longer was physically with the organization.” He was told not to show up at the bank.

Bowen’s treatment at Citigroup was replicated against a different whistleblower at JPMorgan Chase, now the largest U.S. bank by assets, according to a report by Matt Taibbi in Rolling Stone. Alayne Fleischmann, an attorney, described to Taibbi what she saw within JPMorgan Chase as “massive criminal securities fraud.” Taibbi describes what happened to Fleishmann as follows:

“Six years after the crisis that cratered the global economy, it’s not exactly news that the country’s biggest banks stole on a grand scale. That’s why the more important part of Fleischmann’s story is in the pains Chase and the Justice Department took to silence her.”

Fleishmann had found problems very similar to what Bowen had found at Citigroup. JPMorgan Chase was buying fraudulent mortgages and packaging them and selling them to investors. In one package of mortgage loans, Fleishmann found that approximately 40 percent were based on overstated incomes in violation of Chase’s tolerance for error of five percent in securitizations. Fleischmann told a managing director at JPMorgan Chase that “the bank could not sell the high-risk loans as low-risk securities without committing fraud,” according to Taibbi.

JPMorgan Chase went on to sell boatloads of these fraudulent mortgage products while Fleishmann was “quietly dismissed in a round of layoffs.” Obama’s Justice Department took all of this testimony from Fleishmann and had evidence of her written warnings that went unheeded. But even then, it let JPMorgan Chase and its executives off without prosecution.

When the big Wall Street banks collapsed under the weight of their own corruption in 2008, rather than being prosecuted by the Justice Department, the banks were bailed out through a secret, unprecedented $13 trillion revolving loan program operated by the Federal Reserve. Citigroup received the largest amount of these loans: over $2.5 trillion between 2007 and 2010. These loans were made frequently at less than one percent interest while the insolvent Citigroup charged some of its customers double-digit interest rates on credit cards.

Which brings us to today’s crisis of confidence in the U.S. banking system. The underfunded Consumer Financial Protection Bureau, which Republicans in Congress are attempting to neuter further, has received thousands of new complaints against the banking giants of Wall Street, which are publicly available for viewing here. (Just put the name of the bank you want to inspect in the search box.) Searching under the name Citibank brings up 29,000 rows of complaints. A search under Chase, the retail banking unit of JPMorgan Chase, brings up 37,000 rows of complaints.

The seriousness of the complaints against these two banks strongly suggests that the failure to prosecute these banks for frauds against their customers has led to far more than moral hazard. The complaints paint a crystal clear image of a U.S. banking sector that is evolving at lightning speed into an entrenched criminal enterprise.

The Senate Banking Committee is adding to this crisis by holding isolated hearings of isolated banks that look only at the current scandal. The serial scandals are simply symptoms. The disease is a U.S. banking sector that relies on fraud and abuse of its customers to meet its profit targets just as the low level employees of these banks are pressured into fraudulent acts to meet their sales quotas.

If you need more evidence, check out this timeline of regulators’ serial charges of abuses of its customers by JPMorgan Chase, compiled by two trial attorneys. Below is just a partial timeline of the serial abuses at Citigroup.


Chronology of Financial Abuses at Citigroup: (Only a Partial Listing):

September 19, 2002: FTC Announcement —  “In the largest consumer protection settlement in FTC history, Citigroup Inc. will pay $215 million to resolve Federal Trade Commission charges that Associates First Capital Corporation and Associates Corporation of North America (The Associates) engaged in systematic and widespread deceptive and abusive lending practices.”

October 31, 2003: U.S. District Court Judge William Pauley signs a settlement order agreed to by multiple regulators for Citigroup to pay $400 million over issuance of fraudulent stock research.

May 28, 2004: The Federal Reserve announces a $70-million penalty against Citigroup Inc. and CitiFinancial Credit Co. over their handling of high-interest-rate “subprime” mortgages and personal loans.

May 31, 2005: SEC announces a $208 million settlement with Citigroup over improper  transactions by its proprietary mutual funds.

June 28, 2005: Citigroup agrees to pay the UK regulator, the FSA, $25 million over its “Dr. Evil” trade that manipulated the European bond market.

March 26, 2008: Citigroup settles a suit with Enron creditors for $1.66 billion over claims it aided and abetted Enron in hiding its debt.

August 26, 2008: California Attorney General Edmund Brown Jr. announces a settlement with Citigroup to return all monies improperly taken from customers through an illegal account sweeping program. According to the Attorney General: “Nationally, the company took more than $14 million from its customers, including $1.6 million from California residents, through the use of a computer program that wrongfully swept positive account balances from credit-card customer accounts into Citibank’s general fund…The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps,” Attorney General Brown said. “When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice.”

December 11, 2008: SEC forces Citigroup and UBS to buy back $30 billion in auction rate securities that were improperly sold to investors through misleading information.

February 11, 2009: Citigroup agrees to settle lawsuit brought by WorldCom investors for $2.65 billion.

July 29, 2010: SEC settles with Citigroup for $75 million over its misleading statements to investors that it had reduced its exposure to subprime mortgages to $13 billion when in fact the exposure was over $50 billion.

October 19, 2011: SEC agrees to settle with Citigroup for $285 million over claims it misled investors in a $1 billion financial product.  Citigroup had selected approximately half the assets and was betting they would decline in value.

February 9, 2012: Citigroup agrees to pay $2.2 billion as its portion of the nationwide settlement of bank foreclosure fraud.

August 29, 2012: Citigroup agrees to settle a class action lawsuit for $590 million over claims it withheld from shareholders knowledge that it had far greater exposure to subprime debt than it was reporting.

July 1, 2013: Citigroup agrees to pay Fannie Mae $968 million for selling it toxic mortgage loans.

September 25, 2013: Citigroup agrees to pay Freddie Mac $395 million to settle claims it sold it toxic mortgages.

December 4, 2013: Citigroup admits to participating in the Yen Libor financial derivatives cartel to the European Commission and accepts a fine of $95 million.

July 14, 2014: The U.S. Department of Justice announces a $7 billion settlement with Citigroup for selling toxic mortgages to investors. Attorney General Eric Holder called the bank’s conduct “egregious,” adding, “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”

November 2014: Citigroup pays more than $1 billion to settle civil allegations with regulators that it manipulated foreign currency markets. Other global banks settled at the same time.

May 20, 2015: Citicorp, a unit of Citigroup becomes an admitted felon by pleading guilty to a felony charge in the matter of rigging foreign currency trading, paying a fine of $925 million to the Justice Department and $342 million to the Federal Reserve for a total of $1.267 billion.

February 23, 2016: The CFPB ordered Citibank to provide nearly $5 million in consumer relief and pay a $3 million penalty for selling credit card debt with inflated interest rates and for failing to forward consumer payments promptly to debt buyers. It took a second action against both Citibank and two debt collection law firms it used that falsified court documents filed in debt collection cases in New Jersey state courts. The CFPB ordered Citibank and the law firms to comply with a court order that Citibank refund $11 million to consumers and forgo collecting about $34 million from nearly 7,000 consumers.