The Wall Street Cartel: 1913 Versus 2013

By Pam Martens: July 24, 2013 

It’s time to grab a copy of the 1914 book by Louis D. Brandeis, Other People’s Money And How The Bankers Use It, to understand how Wall Street continues to engage in the greatest heist of the last two centuries. Yesterday’s Senate hearing on the Wall Street cartel that controls the London Metal Exchange drove home that point.

Brandeis was an expert on the so-called “Money Trust” of that era. Today, we call it either Banksters or, simply, Wall Street. The Pujo Committee hearings in the House of Representatives between 1912 and 1913 revealed how the financial cartel of that era had gained control of large segments of industrial output in the United States; manufacturing, railroads, mining, communications and financial markets. And, of course, JPMorgan sat at the helm of the cartel.

Twenty years later, in the early 1930s, along comes the Pecora Senate hearings to investigate how the Money Trust – Wall Street – crashed the stock market in 1929 and unleashed the Great Depression through this concentration of wealth and power.

With that backdrop of history, carefully consider the words of Senator Sherrod Brown below as he delivered the opening remarks for yesterday’s Senate hearing:

Remarks by Senator Sherrod Brown, July 24, 2013:

In 1913, former Supreme Court Associate Justice Louis Brandeis voiced concerns about the growth of trusts in the United States:

‘Investment bankers … became the directing power in railroads, public service and industrial companies through which our great business operations are conducted … They became the directing power also in banks and trust companies … [D]istinct functions, each essential to business, and each exercised, originally, by a distinct set of men, became united in the investment banker. It is to this union of business functions that the existence of the Money Trust is mainly due.’

Today, large, complex, opaque, and diverse corporations are no longer called “trusts.”

Instead we have “financial holding companies” – large conglomerates combining banks, trading firms, energy suppliers, oil refiners, warehouses, shipping firms, and mining companies. How did we get here? For years, our nation had separated banking from traditional commerce. But in 1999, after years of eroding that protection, Congress finally tore down the wall.

Beyond just combining commercial banking with insurance and investment banking, banks were now allowed to trade in commodities and to engage in a variety of non-financial activities. Four years later, the Federal Reserve enabled the first Financial Holding Company to trade in physical commodities. The justification for allowing this activity is a familiar one: other companies were doing it, and banks were at a competitive disadvantage.

Over the next six years, the rules became looser and looser. Goldman Sachs, in its own words, now ‘engage[s] in … the production, storage, transportation, marketing and trading of numerous commodities, including crude oil products, natural gas, electric power, agricultural products, metals, minerals (including uranium), emission credits, coal, freight, liquefied natural gas and related products[.]’

This expansion of our financial system into traditional areas of commerce has been accompanied by a host of anti-competitive activities:  speculation in the oil and gas markets; inflated prices for aluminum and potentially copper and other metals; and energy manipulation.

It has also been accompanied by important and troubling questions. Do the benefits of combining these activities outweigh the harm to consumers and manufacturers? Can regulators or the public fully understand these large, complex financial institutions and the risks to which these firms are exposing themselves – and the rest of society? Are the laws and regulations sufficiently stringent and transparent, and are regulators enforcing them aggressively enough? And what do we want our banks to do – make small business loans or refine and transport oil? Issue mortgages or corner the metals market?

There has been little public awareness of, or debate about, the massive expansion of our largest financial institutions into new areas of the economy. That is, in part, because regulators have been less than transparent about basic facts, about their regulatory philosophy, and about their future plans. Most of the information that we have has been acquired by combing through company statements in SEC filings, news reports, and conversations with industry.

It is also because these institutions are so complex, dense, and opaque that they are impossible to fully understand – the six largest U.S. bank holding companies have 14,420 subsidiaries, only 19 of which are traditional banks. Their physical commodities activities are not comprehensively reported – they are buried deep within various subsidiaries like their Fixed Income, Currency & Commodities units; asset management divisions; and other business lines. Their specific activities are not subject to transparency and are often buried in arcane regulatory filings.

Taxpayers have a right to know what is happening and to have a say in our financial system, because taxpayers are the ones who will be asked to rescue these megabanks yet again – possibly as a result of activities that are unrelated to banking.

I thank the witnesses for being here, and I look forward to their testimony.

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