By Pam Martens: September 3, 2013
After the greatest economic collapse since the Great Depression, after endless hearings in Congress going nonstop since 2008, after the voluminous report from the Financial Crisis Inquiry Commission, one would think we should know a great deal about the largest Wall Street banks that created the havoc and that stringent laws would have quickly been put in place to prevent another repeat.
Tragically, a Nation that can transmit trading data between New York and Chicago in 13.1 milliseconds, still has no idea what the biggest banks on Wall Street own or what threats those black holes of information pose to the national economy. This lack of transparency, combined with the failure of the 2010 Dodd-Frank financial reform legislation to, as yet, impose restraints on speculative trading (Volcker rule) and position limits on trades, renders the Wall Street of today even more dangerous than the Wall Street of 2008.
The exponentially greater danger of Wall Street today results from the harsh reality that the U.S. can no longer financially afford another bailout given the size of the U.S. debt and the mushroomed balance sheet of the Federal Reserve – both inflated because of the last Wall Street blowup.
The reality of just how little has changed despite five years of economic hemorrhaging was brought into stark focus in a speech delivered by Bart Chilton, a Commissioner of the Commodity Futures Trading Commission (CFTC) on August 5 of this year.
Chilton referred to Wall Street as the “cowboy companies” and said they were delivering a “Wild West” economy to the U.S. In terms of understanding what these companies own and the attendant risks, Chilton had this to say:
“You might wonder, ‘What it is they actually do own?’ Well, let me tell you a story. A couple of weeks ago we rounded up a posse to look and see what actually is owned by the banks. I’m a financial regulator; you’d think it would be a piece of pie to find a list of what they own, right? I mean, it would be understandable if there were certain business reasons why a few particulars of the ownership information might not be available to the public. Nevertheless, you’d think I could get it. After all, banks own commercial interests that can impact prices, and at the same time their trading desks are all over the very same markets. There are obvious conflicts of interest. I’m not saying there have been any violations of the law, but how would we even know?
“Our little posse did find that Morgan Stanley has ownership stakes in oil tankers and a fuel distributor. And, of course, they also trade crude oil and other energy contracts. Parts of Citigroup, Goldman Sachs and Bank of America own or have owned power plants. They also trade energy contracts. And, everybody’s been talking about Goldman Sachs holding onto aluminum at warehouses they own. Some say that’s consequently driving the up the price of beer and soda, while the bank collects storage fees. And, they trade aluminum. JP Morgan also owns similar warehouses, although they said last week they may get out of commodities. We’ll see. Oh, and by the way, Barclays and JP Morgan are putting out hundreds of millions of dollars in restitution for getting caught rigging electricity prices. There is that.”
Chilton said it was like déjà vu with the experiences of 2008 “when folks were asking questions about the valuation of credit default swaps (CDSs). Nobody could turn up much of anything. We all know how that troubled tale of tragedy ended,” said Chilton.
The Senate’s Permanent Subcommittee on Investigations, chaired by Senator Carl Levin, has opened an investigation into what these big Wall Street banks own in the way of physical commodity assets and how that conflicts with their speculative trading of commodities. Let’s hope the investigation is broad and deep and inspires the long overdue legislative changes to corral the cowboy companies.