By Pam Martens and Russ Martens: December 6, 2016
On December 2 President-elect Donald Trump’s transition team sent out a press release advising that he had formed a business advisory panel “which is composed of some of America’s most highly respected and successful business leaders, will be called upon to meet with the President frequently to share their specific experience and knowledge as the President implements his plan to bring back jobs and Make America Great Again.”
In fact, according to the Chair of the panel, Stephen A. Schwarzman, Chairman and CEO of Blackstone, a private equity/hedge fund/investment bank headquartered in New York City, it was Schwarzman who actually selected the members of the panel and Trump went with the full group he had selected. (See Schwarzman’s Bloomberg TV interview here.)
Aside from being a disparate cacophony of voices from wildly different businesses ranging from Boeing, a commercial jet manufacturer, to the Cleveland Clinic with no representation at all from labor or consumers, the panel has an outsized representation from the financial sector with one particularly curious member.
Of the 16 member group, 7 members hail from the financial/investment sector. In addition to Schwarzman, those members are:
Paul Atkins, CEO, Patomak Global Partners, LLC, Former Commissioner of the Securities and Exchange Commission;
Jamie Dimon, Chairman and CEO, JPMorgan Chase;
Larry Fink, Chairman and CEO, BlackRock;
Kevin Warsh, Former Member of the Board of Governors of the Federal Reserve System;
Adebayo Ogunlesi, Chairman and Managing Partner, Global Infrastructure Partners (a company buying up key infrastructure, like airports and pipelines, in countries around the world);
Daniel Yergin, an oil and energy expert who is Vice Chairman of a fascinating company known as IHS Markit. IHS merged with Markit Ltd. this year in a tax inversion, where it “officially” moved to London to avoid paying higher U.S. corporate taxes. But it’s the Markit part of the company that makes its inclusion on the business advisory group so interesting.
IHS Markit employees 4200 people, which right off the bat makes its inclusion on this panel suspect. It’s going to be sitting next to the likes of Jamie Dimon, whose JPMorgan Chase employees 235,000 people and Doug McMillon, President and CEO of Wal-Mart Stores, that has an employee roster of 2.3 million people worldwide with 1.5 million of those in the U.S., according to the company’s web site.
If you look at IHS Markit’s web site and the description of what it says it does for its customers, you will have no idea of what it’s talking about – unless you’re a trader on Wall Street or some other financial capitol around the globe.
The most fascinating aspect of Markit is that it was created with funding and backing from some of the largest firms on Wall Street who provided the market pricing for the instruments known as Credit Default Swaps — the instruments that played a major role in blowing up the U.S. economy and century old financial institutions in 2008.
We took an in-depth look at Markit in January 2008 in an article we headlined “How Wall Street Blew Itself Up” when the company was known as Markit Group. In exploring why Wall Street did not list its derivatives on exchanges to ensure a transparent form of price discovery, we wrote at the time:
“…the unabridged story is breathtaking in its callous disregard for the economic well being of this nation and its people. Exchange traded products did not emerge to hedge this risk because, behind the scenes, Citigroup, along with 12 other big banks and securities firms were funding a private company to gobble up all the necessary components to keep this burgeoning cash cow to themselves in the opaque, unregulated, over-the-counter (OTC) market, despite the fact that they knew it was dysfunctional.
“The private company that would become Wall Street’s ticker tape for pricing exotic credit instruments (derivatives on subprime mortgages and credit default swaps) started out as Mark-it Partners in 2001, the brain child of Lance Uggla while he was working for a division of Toronto Dominion Bank, TD Securities.
“The official story goes like this: Mark-it Partners needed big broker dealers to submit daily price data. As an incentive, it offered 13 large security dealers options to buy shares in the company providing they would be regular providers of pricing data: ABN AMRO, Bank of America, Citigroup, Credit Suisse, Deutsche Bank, Dresdner Kleinwort Wasserstein, Goldman Sachs, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, TD Securities, UBS. By 2004, according to an archived company press release, all of the companies had kicked in capital. The Financial Times would later report that these banks and brokerage firms held a majority interest of approximately 67%, hedge funds owned 13%, and employees 20%. The firm’s web site currently says it has 16 banks as shareholders, without naming the banks.”
We ended this January 2008 article with this warning:
“It was four years after the crash of 1929 before the major titans of Wall Street were forced to give testimony under oath to Congress and the full magnitude of the fraud emerged. That delay may well have contributed to the depth and duration of the Great Depression. The modern-day Wall Street corruption hearings in Congress were cut short by the tragedy of 9/11. They must now resume in earnest and with sworn testimony if we are to escape a similar fate.”
As we now know, we didn’t escape a similar fate. In March of 2008 Bear Stearns blew up. In September 2008, Lehman Brothers filed bankruptcy. AIG received a $185 billion taxpayer bailout; Fannie Mae and Freddie Mac were put into government conservatorship and Citigroup received the largest financial rescue in U.S. history, including a then-secret $2.5 trillion in cumulative loans from the Fed from 2007 to 2010. The collapsing Wachovia Bank was bought by Wells Fargo. The collapsing Washington Mutual bank was bought by JPMorgan Chase. And the collapsing Merrill Lynch was bought by Bank of America – all while the Fed had secretly hooked up a feeding tube of $16 trillion in super-cheap cumulative loans to keep Wall Street’s corrupt carcass on life support.
How Markit was created is a tragic reminder of how little has changed today in how Wall Street prices derivative risk and the monstrous job that any President will have in cleaning out this swamp. (See related articles below.)