Mr. President, This Is What You Should Know About Public-Private Partnerships

By Pam Martens and Russ Martens: March 1, 2017

President Donald Trump Addresses a Joint Session of Congress, February 28, 2017

President Donald Trump Addresses a Joint Session of Congress, February 28, 2017

In President Trump’s speech last evening to a joint session of Congress, he described his plan to rebuild America’s crumbling infrastructure as follows:

“To launch our national rebuilding, I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States — financed through both public and private capital — creating millions of new jobs.”

Financed through “both public and private capital” sounds a lot like a public-private partnership.  Here’s how those hybrid creatures have worked out so far for the American people.

Fannie Mae and Freddie Mac were, effectively, public-private partnerships. (The government preferred to call them “Government Sponsored Enterprises” or GSEs.) Each company traded on the New York Stock Exchange and each company had private shareholders. Because Fannie and Freddie had a line of credit from the U.S. Treasury and the market’s perception that the U.S. government would never allow them to default, their bonds carried a triple-A rating. Wall Street played that public-private partnership for all it was worth. The big Wall Street banks sold Fannie and Freddie hundreds of billions of dollars of junk residential mortgages, which they knew from internal reviews were likely to default, while representing to Fannie and Freddie that these were good mortgages. Then Wall Street, with inside knowledge of the house of cards it had built, sold the debt issued by Fannie and Freddie to public pensions and university endowments as triple-A investments.

On September 9, 2008, one week before the collapse of Lehman Brothers, the U.S. government took over Fannie and Freddie as it became clear to the markets that the assets backing their bonds were a pile of toxic sludge.

This is how the Financial Crisis Inquiry Commission report (the official report on the 2008 financial collapse) summed up the situation at Fannie and Freddie:

 “The GSEs were highly leveraged—owning and guaranteeing $5.3 trillion of mortgages with capital of less than 2%…

“The value of risky loans and securities was swamping their reported capital. By the end of 2007, guaranteed and portfolio mortgages with FICO scores less than 660 exceeded reported capital at Fannie Mae by more than seven to one; Alt-A loans and securities, by more than six to one. Loans for which borrowers did not provide full documentation amounted to more than ten times reported capital…

“At the end of December 2007, Fannie reported that it had $44 billion of capital to absorb potential losses on $879 billion of assets and $2.2 trillion of guarantees on mortgage-backed securities; if losses exceeded 1.45%, it would be insolvent. Freddie would be insolvent if losses exceeded 1.7%. Moreover, there were serious questions about the validity of their ‘reported’ capital.”

Today, Fannie and Freddie remain under the government’s conservatorship but unknown to most Americans, the government’s bailout of Freddie and Fannie was a well-disguised bailout of Wall Street’s biggest banks – just as the bailout of AIG was a backdoor bailout of Wall Street’s banks. Last May, Wall Street On Parade reported that Fannie Mae and Freddie Mac had continued to pay out billions of dollars to the Wall Street banks as counterparties to their derivative contracts. Freddie Mac’s SEC filing showed that it had paid out the following in just the past four years on its derivatives contracts: $2.1 billion in 2015; $2.6 billion in 2014; $3.46 billion in 2013; and $3.8 billion in 2012.  (See in-depth reporting in related articles below.)

Who would have paid those billions if not for the U.S. taxpayers who consistently function as the dumb tourists in Wall Street’s casino?

Then there is the sugar daddy of all public-private partnerships – the U.S. Federal Reserve. The President of the United States appoints the members of the Board of Governors of the Federal Reserve but the banks are the shareholders of the 12 regional Federal Reserve banks. One of those regional banks, the New York Fed, has all the real power. Wall Street On Parade reported on the unique status of the New York Fed in 2013 as follows:

The President of the New York Fed sits permanently on the Federal Open Market Committee (FOMC). The Presidents of the other 11 regional banks rotate on the FOMC;

Although there is no law requiring that the New York Fed should be the sole regional Fed Bank to conduct the open market operations of the FOMC, it has uniquely served in this function since 1935;

It is the only regional Fed Bank to have its own trading floor and speed dials to the largest firms on Wall Street;

It is the only regional Fed Bank to be allowed to intervene in foreign exchange markets;

The New York Fed, uniquely among the regional Fed Banks, stores gold for foreign central banks, governments and international agencies;

The New York Fed played a uniquely controlling role in the disbursement of trillions of dollars in loans to foreign and domestic banks during the 2007 to 2010 meltdown of Wall Street;

And, problematically, while needing the good will of Wall Street firms to carry out its open market operations mandate, it simultaneously functions as a primary regulator to some of the largest firms.

The Federal Reserve, in fact, mostly through the New York Fed, secretly disbursed $16 trillion in almost zero interest loans to Wall Street banks and foreign banks from 2007 to 2010, according to the Government Accountability Office (GAO). The public only learned about this unprecedented and unimaginable bailout in 2011 as a result of an amendment by Senator Bernie Sanders to the Dodd-Frank reform legislation which called for a GAO audit.

You need to let that sink in for a moment: outside of any action by the legislative branch of the U.S. government, the United States Congress – members of whom are elected by the citizens of the United States – a hybrid public-private partnership called the Federal Reserve created $16 trillion out of thin air and secretly doled it out to the scoundrels of the Wall Street collapse under what it calls its emergency powers.

Mr. President, the last thing the public wants from you is another public-private partnership. The last thing the American people think will make the country great again is another public-private partnership.

Mr. President, the public already has good reason to suspect that you’re not draining the swamp in Washington but restocking it. Hank Paulson, the U.S. Treasury Secretary who pushed for the massive Wall Street bailouts in 2008, was the former Chairman and CEO of Goldman Sachs. Your U.S. Treasury Secretary, Steve Mnuchin, is a former 17-year veteran of Goldman Sachs. Stephen Bannon, your Chief Strategist in the White House, previously worked at Goldman Sachs. The sitting President of Goldman Sachs, Gary Cohn, was named by you as Director of the National Economic Council. And your nominee to Chair the Securities and Exchange Commission, Jay Clayton, is an outside lawyer to Goldman Sachs whose wife is currently a Vice President there. Clayton has represented 8 of the 10 largest Wall Street banks in the past three years.

Mr. President, another public-private boondoggle that privatizes profits and socializes losses in a thinly veiled, institutionalized wealth transfer system to the 1 percent could prove fatal to the U.S. economy.

Related Articles:

‘Confidential’ Memo in the Hedge Fund Battle for Freddie and Fannie Comes Out of Hiding

The U.S. Government Is Quietly Paying Billions to Wall Street Banks

Prostitutes, False Billing, a $3 Billion Lawsuit: Oscar Mixup is the Least of PwC’s Problems

By Pam Martens and Russ Martens: February 28, 2017

Brian Cullinan and Martha Ruiz, PwC Partners In Charge of Oscar Envelopes

Brian Cullinan and Martha Ruiz, PwC Partners In Charge of Oscar Envelopes

PwC, formerly known as PricewaterhouseCoopers, is one of the Big Four accounting firms created in 1998 from the merger of Price Waterhouse and Coopers & Lybrand. Its namesakes are more than a century old. Unfortunately, PwC will henceforth be known as the accounting firm that provided presenters Warren Beatty and Faye Dunaway with the wrong red envelope at Sunday night’s Oscars. That mistake created a chaotic scene where two producers of the film “La La Land” were initially allowed to give speeches on stage for Best Film, then stunned with the news that “Moonlight” had actually won the award. At one point, producers and casts of both films stood in dazed confusion on the stage.

According to the official report thus far, a PwC partner, Brian Cullinan, mistakenly handed the Best Actress award envelope (Emma Stone for “La La Land”) to Beatty, instead of the envelope for Best Film, leading to Dunaway announcing it as Best Film.

In a YouTube video (see below) made by PwC to celebrate its long history of tabulating votes for the Oscars, the words “Integrity” and “Accuracy” flash upon the screen. But in multiple current court actions, PwC’s integrity and accuracy are being challenged in very serious ways.

One court action is close to the home of the Oscars. The Los Angeles City Attorney, Michael N. Feuer, brought an action against PwC in 2015 on behalf of the Los Angeles Department of Water and Power (LADWP). It initially alleged that when PwC submitted a bid proposal to update the forty year old billing and customer care system for the LADWP it “marked the beginning of a pattern of intentional deception, breach of commitments, and an almost endless litany of attempts to deny or cover up those acts or omissions by PwC that is virtually breathtaking in both its scope and its audacity.”

Because of PwC’s intentional misrepresentations and breaches of contract, according to the lawsuit, a chaotic disaster fell upon the public utility: “…the Department was not able to bill some of its customers for more than 17 months, including more than 40,000 of its 400,000 commercial customers, resulting in an $11 million loss in revenue for each month during this period. Moreover, for weeks, LADWP couldn’t bill any of its 1.2 million residential customers at all.” In addition, the complaint goes on, countless LADWP customers were overbilled while others were underbilled, “resulting in an exponential surge in ratepayer complaints, non-payment of bills, and an enormous spike in the aging of accounts receivable.”

And, that wasn’t the worst part of this lawsuit. In June of last year, the Los Angeles City Attorney filed a motion to amend the complaint to include charges that “several senior-ranking PwC Managers” had engaged “in a three-year long conspiracy to defraud the City of Los Angeles and the LADWP by repeatedly submitting intentionally falsified PwC time records in a manner not able to be detected by LADWP to obtain payments for work that PwC never performed from 2011 through at least 2013.” Payments for the overbilling were then used, according to the City Attorney, “to reimburse their subcontractor for payments made for the services of escorts and prostitutes, lavish hotel stays, two bachelor parties and thousands of dollars for ‘bottle service’ liquor at Las Vegas hotels and clubs in July 2011 and May 2013.”

This is not the first time that PwC has been charged with overbilling. In 2005, PwC paid $41.9 million to settle charges by the U.S. government that it had overbilled it for its travel expenses.

Then there is the titillating, multi-billion-dollar accounting malpractice case against PwC set to go to trial next Monday. After the fiasco at the Oscars on Sunday evening, the lawyers representing MF Global’s administrator are likely feeling a whole lot more confidant that their $3 billion case against PwC will settle before a jury is ever seated next week. MF Global is the commodity firm that collapsed in 2011 after making wild gambles in European sovereign debt. Jon Corzine, a former co-head of Goldman Sachs and former Governor and U.S. Senator from New Jersey, sat at the helm of the firm when the reckless financial trades were made. The fact that $1.6 billion of customer funds went missing resulted in multiple hearings before Congress. (Read our in-depth report on the matter.) As we reported in 2012, the MF Global collapse had all the earmarks of a financial system still out of control, even after the greatest taxpayer bailout in U.S. history in 2008 through 2010. We wrote:

“Only on Wall Street can you bankrupt a company; misplace $1.6 billion of customers’ money; lose 75 percent of shareholders’ money in two weeks; speed dial a high priced criminal attorney and get a court to authorize the payment of your multi-million dollar legal tab from the failed company’s insurance policies; have regulators waive your requirements to take licensing exams required to work in the securities and commodities industry; have your Board of Directors waive your loyalty to the firm; run a bucket shop out of the UK; and still have the word ‘Honorable’ affixed to your name in a Congressional investigations hearing.”

The same logic could be applied to PwC. Only in America’s current rudderless system of accountability and celebrity-obsessed society could PwC be facing all of these serious allegations but the charge that saturates newspapers and network television involves a mistaken Oscar award.

Warren Buffett Pens a Dangerously Misleading Letter to Americans

By Pam Martens and Russ Martens: February 27, 2017

Warren Buffett, CEO, Berkshire Hathaway

Warren Buffett, CEO, Berkshire Hathaway

Warren Buffett, the CEO of Berkshire Hathaway, authors an annual letter to shareholders that receives wide media coverage for the nuggets of wisdom dispersed to the masses. His latest letter, released on Saturday, trumpets American exceptionalism, the miraculous market system Americans have created, while it blithely dismisses the greatest wealth and income inequality in America since the 1920s. Buffett preposterously observes that “Babies born in America today are the luckiest crop in history.”

Let’s start with that last statement. According to our own Central Intelligence Agency, there are 55 countries that have a lower infant mortality rate than the United States. Even debt-strapped Greece beats the United States.

Much of what Buffett has to say in this letter sounds like unadulterated propaganda to reassure the 99 percent that his amassing of a net worth of $76.3 billion was a result of America’s great economic system which is percolating along just fine. Buffett writes:

“Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers…You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion…”

Mentioning the rule of law in the same breath with our market system shows Buffett’s hypocrisy in the worst light. Millions of Americans are still seething over the fact that not one top executive on Wall Street has gone to jail for their role in issuing fraudulent securities with triple-A ratings that brought on the greatest financial collapse since the Great Depression. Millions of Americans are still waiting for the U.S. Justice Department or the Securities and Exchange Commission to address the well documented market rigging charges that Michael Lewis made in his book, Flash Boys and on 60 Minutes. Millions of Americans have lost trust in their Congress, now with an approval rating of just 19 percent, to impose legislation to stop the serial crimes that continue to spew from Wall Street. Tens of millions of Americans believe that Wall Street’s financing of political campaigns has so completely corrupted the U.S. market system that it has become an institutionalized wealth transfer system from the pockets of the 99 percent to the 1 percent. As the ever-expanding raps sheets of JPMorgan Chase and Citigroup make clear, there is strong evidentiary support for this view.

Buffett’s reference to America’s “bountiful farmland” fails to mention the gut-wrenching poverty of migrant farmworkers that Jim Hightower captured just last week at Truthout, writing: “Allowing such abject poverty in our fields of abundance is more than shameful — it’s an oozing sore on our national soul, made even more immoral by the fact that our society throws 40 percent of our food into the garbage.”

After Buffett lauds that “America has amassed wealth totaling $90 trillion” he breezes past one of the most important debates of this century — the unprecedented wealth and income inequality in the U.S. — with this: “However our wealth may be divided, the mind-boggling amounts you see around you belong almost exclusively to Americans.” Buffett seems to be suggesting that the thousands of families who were illegally foreclosed on by Wall Street banks during the financial collapse (including active duty military members) should be comforted that the beneficiary of the rip offs were fellow Americans – not foreigners. Buffett writes:

“It’s true, of course, that American owners of homes, autos and other assets have often borrowed heavily to finance their purchases. If an owner defaults, however, his or her asset does not disappear or lose its usefulness. Rather, ownership customarily passes to an American lending institution that then disposes of it to an American buyer. Our nation’s wealth remains intact. As Gertrude Stein put it, ‘Money is always there, but the pockets change.’ ”

Millions of Americans clearly understand that those pockets, increasingly, belong to the 1 percent billionaire class who are gaming the system with a wink from our Congress.

Buffett also rolls out the threadbare, thoroughly discredited myth that Wall Street is an efficient allocator of capital. He writes:

“Above all, it’s our market system – an economic traffic cop ably directing capital, brains and labor – that has created America’s abundance. This system has also been the primary factor in allocating rewards.”

Since at least the 1990s, Wall Street’s radar in directing capital has been landing crashed heaps of jumbo jets on the financial runways of America. As dozens of lawsuits and Justice Department settlements have spelled out, in the lead up to the 2008 crash, Wall Street was paying rating agencies to deliver triple-A ratings to hundreds of billions of dollars of pools of subprime mortgages that they knew were destined to fail from their own in-house reviews.

Less than a decade earlier, Ron Chernow described for New York Times’ readers how Wall Street’s broken capital allocation system had brought on the bust. Chernow wrote: “Let us be clear about the magnitude of the Nasdaq collapse. The tumble has been so steep and so bloody — close to $4 trillion in market value erased in one year —  that it amounts to nearly four times the carnage recorded in the October 1987 crash.” Chernow compared the Nasdaq stock market to a “lunatic control tower that directed most incoming planes to a bustling, congested airport known as the New Economy while another, depressed airport, the Old Economy, stagnated with empty runways. The market functioned as a vast, erratic mechanism for misallocating capital across America,” Chernow correctly observed.

Buffett has a built-in conflict that apparently prevents him taking off his rose-colored glasses when it comes to Wall Street. The company where the bulk of his wealth is invested, Berkshire Hathaway, owns $2.7 billion of Goldman Sachs stock; $27.5 billion of Wells Fargo; and $5 billion of Bank of America preferred stock.

Denying that America is headed in the wrong direction; denying that Wall Street has become hopelessly corrupted won’t get the problems fixed. It will ensure that today’s young generation will become debt slaves to Wall Street and the one percent. Don’t allow Buffett’s facade of homespun folksiness to distract you from the hard facts.

Related Article:

What’s Really Behind Warren Buffett’s Nod to Jamie Dimon For Treasury Secretary

Are Big Banks’ Dark Pools Behind the Run-Up in Bank Stock Prices?

Source: FINRA

Source: FINRA

By Pam Martens and Russ Martens: February 24, 2017 

The biggest banks on Wall Street, both foreign and domestic, have been repeatedly charged with rigging and colluding in markets from New York to London to Japan. Thus, it is natural to ask, have the big banks formed a cartel to rig the prices of their own stocks?

This time last year, Wall Street banks were in a slow, endless bleed. The Federal Reserve had raised interest rates for the first time since the 2008 financial crisis on December 16, 2015 with strong hints that more rate hikes would be coming in 2016. Bank stocks never do well in a rising interest rate environment because their dividend yield has to compete with rising yields on bonds. Money gravitates out of dividend paying stocks into bonds and/or into hard assets like real estate based on the view that it will appreciate from inflationary forces. This is classic market thinking 101.

Bizarrely, to explain the current run up in bank stock prices, market pundits are shoving their way onto business news shows to explain to the gullible public that bank stocks like rising interest rates because the banks will be able to charge more on loans. That rationale pales in comparison to the negative impact of outflows from stocks into bonds (if and when interest rates actually do materially rise) and the negative impact of banks taking higher reserves for loan losses because their already shaky loan clients can’t pay loans on time because of rising rates. That is also classic market thinking 101.

Big bank stocks also like calm and certainty – as does the stock market in general. At the risk of understatement, since Donald Trump took the Oath of Office on January 20, those qualities don’t readily come to mind in describing the state of the union.

Prior to the cravenly corrupt market rigging that led to the epic financial crash in 2008 (we’re talking about the rating agencies being paid by Wall Street to deliver triple-A ratings to junk mortgage securitizations and banks knowingly issuing mortgage pools in which they had inside knowledge that they would fail) the previous episode of that level of corruption occurred in the late 1920s and also led to an epic financial crash in 1929. The U.S. only avoided a Great Depression following 2008 because the Federal Reserve, on its own, secretly funneled $16 trillion in almost zero interest rate loans to Wall Street banks and their foreign cousins. (Because the Fed did this without the knowledge of Congress or the public, this was effectively another form of market rigging. Had the rest of us known this was happening, we also could have made easy bets on the direction of the stock market.)

As we contemplated a more rational basis for the heady uplift in Wall Street bank stock prices this year, we were forced to consider the fact that the Wall Street banks run their own Dark Pools — which are effectively unregulated stock exchanges. That’s right. In addition to owning FDIC-insured banks holding Mom and Pop deposits; in addition to parking trillions of dollars of squirrely derivatives on the books of the FDIC banks; in addition to using those demand deposits to make wild, speculative gambles in the markets; in addition to being charged by regulators around the globe, including the U.S. Justice Department, with an insidious disregard for rigging and colluding in markets, the very same banks are allowed to operate quasi stock exchanges in the dark bowels of their own trading houses.

The chart above from Wall Street’s self-regulator, FINRA, shows that in the week of January 9, 2017 the Dark Pools of Wall Street’s banks made 49,487 trades in the stock of JPMorgan Chase. The biggest traders were UBS, which traded 1.7 million shares; Credit Suisse’s CrossFinder, which traded 1.2 million shares; and, shockingly, JPMorgan’s own Dark Pool, JPM-X, which traded 1.1 million in its own shares. In a rational world, we would be seeing handcuffs and perp walks for this kind of backroom dealing.

Adding to the curiosity, in the same week that JPMorgan and its “competitors” were trading in its stock, JPMorgan’s Best Friends Forever were putting out buy recommendations on its stock. (That’s right. In addition to one-stop shopping for everything from credit cards to junk bonds to dicey derivatives, these same Wall Street banks are allowed to make buy, hold and sell recommendations to the public on publicly traded stocks, including those banks that are counterparties to their derivative holdings. They are allowed to issue this “research” despite being charged with craven research practices by the Securities and Exchange Commission in 2003.)

On Wednesday of the week depicted on the Dark Pool chart above, Morgan Stanley reaffirmed its buy rating on JPMorgan’s stock. Its Dark Pool, indicated above as MSPL, traded over 400,000 shares of JPMorgan stock that week. Bank of America reaffirmed its buy rating also. Its Dark Pool, the Merrill Lynch Instinct-X, traded over 293,000 shares of JPMorgan stock that week. Deutsche Bank also reiterated its buy rating on JPMorgan stock and traded more than 584,000 shares of JPMorgan stock in its Dark Pool known as SuperX.

We don’t mean to suggest that JPMorgan’s stock is the only one being traded in the Dark Pools of Wall Street banks. In fact, every mega Wall Street bank is being similarly traded.

In the leadup to the crash of 1929, Wall Street was also operating Dark Pools. Back then, they were simply called “Pools.” From 1932 to 1934, the Senate Banking Committee conducted an exhaustive investigation into the systemic market rigging tactics used by the trading houses on Wall Street. A major part of the investigation looked at the activities within the “Pools.”

On June 6, 1934, the Senate released a final report on its findings. One finding addressed the serious amounts of money flowing into the pools:

“Banks also made substantial loans for the financing of syndicate or pool operations in stocks. In 1929 the 33 reporting banks made 34 loans to finance syndicate or pool operations, totaling $76,459,550…During 1929 some or all of these 33 banks participated in 434 stock syndicate or pool accounts.”

Just as today, Wall Street ran a massive campaign during the Senate hearings of 1932 to 1934 to ridicule any suggestion that it was running a market-rigging cartel. The report notes:

“The tendency has been to belittle reports of manipulative activities as unfounded rumors, unworthy of serious attention. The evidence adduced before the subcommittee has thoroughly discredited this attitude.”

The report provided the public with a clear understanding of the motivations behind creating a Pool:

“A pool, according to stock exchange officials, is an agreement between several people, usually more than three, to actively trade in a single security. The investigation has shown that the purpose of a pool generally is to raise the price of a security by concerted activity on the part of the pool members, and thereby to enable them to unload their holdings at a profit upon the public attracted by the activity or by information disseminated about the stock. Pool operations for such a purpose are incompatible with the maintenance of a free and uncontrolled market.”

That finding is worth repeating: “Pool operations for such a purpose are incompatible with the maintenance of a free and uncontrolled market.”

The report noted further:

“The testimony before the Senate subcommittee again and again demonstrated that the activity fomented by a pool creates a false and deceptive appearance of genuine demand for the security on the part of the purchasing public and attracts persons relying upon this misleading appearance to make purchases. By this means the pool is enabled to unload its holdings upon an unsuspecting public.”

Wall Street On Parade, to the chagrin of Wall Street, has recently asked the question, in regard to banks trading their own stocks in their own Dark Pools, “How Is This Legal.” We received several dismissive emails. But the Senate Banking Committee of 1934 and its myriad lawyers saw a big legal problem, writing:

“The conclusion is inescapable that members of the organized exchanges who had a participation in or managed pools, while simultaneously acting as brokers for the general public, were representing irreconcilable interests and attempting to discharge conflicting functions. Yet the stock exchange authorities could perceive nothing unethical in this situation.”

The Senate report found that “The propitious time to commence operations [in a Pool] is when public attention has been attracted either by the condition of the corporation issuing the stock or the industry of which it is a part, or by external factual conditions, such as the possibility of legislation affecting the industry.”

In other words, levitating the stock price works so much better if there is a news angle that can be bandied about in the press. For example, today we are hearing a lot about how Wall Street will reap big profits from Trump’s plan to repeal the Dodd-Frank financial reform legislation. In reality, that was fairly toothless legislation but repealing it without restoring the much stronger Glass-Steagall Act would doom Wall Street to another crash.

The Senate report explains how these publicized legislative windfalls can be constructed out of fairy dust. For example, in 1933 a Pool was created to levitate the shares of Libbey-Owens-Ford Glass Co. on the premise that it made liquor bottles and its share price would soar on the proposed repeal of prohibition. In fact, says the report, “it made no bottles and its business was in no way enhanced by the repeal of prohibition.”

Like the flattering buy recommendations we see emanating today from the deeply conflicted big banks, Wall Street had a similar hawking machinery in the late 20s and early 30s. The Senate report found:

“…The dissemination of information flattering to the stock in which the pool is operating is the fourth factor in bringing the operation to a successful conclusion. Although the nature and extent of the pool’s own operations are shrouded in utmost secrecy, the participants make use of various channels to disseminate information subtly designed to excite public attention toward the security. A method commonly followed is to cause market letters to be sent by brokerage firms to their branch offices, which letters are made accessible to the investing and speculating public…

“David M. Lion, who characterized his business as ‘financial publicity,’ testified before the subcommittee that he was the publisher of a paper known as ‘The Stock and Bond Reporter.’ This sheet publicized particular stocks which formed the basis of pool operations. As compensation for such publicity, Lion received calls on substantial blocks of stock from the pool operators…Lion also testified that he employed newspaper writers to publish articles concerning the securities, and that he paid for their services either by options on stock or by cash. The extent of his activities is manifested by the fact that he engaged in as many as 30 operations at one time on behalf of various pool operators.”

During the Senate hearings, Congressman Fiorella LaGuardia of New York produced a trunk of documents showing that financial journalists at some of the then august newspapers of New York were on the take to help the Pools accomplish their goals. One document showed that a man named Plummer, a publicity man, had “expended on behalf of his pool-operating employers the sum of $286,279 for the publication of articles in the press favorable to their stocks,” according to the Senate report.

Despite this rich and detailed history of Pool operations, the U.S. Congress has shown little interest in pulling back the dark curtain on today’s Dark Pools. We urge our readers to call their Senators and demand a serious investigation before the next financial crisis in unleashed on an unsuspecting public.

Related Articles:

Another Wall Street Inside Job?: Stock Buybacks Carried Out in Dark Pools

Citadel’s Dark Pool: SEC Draws a Dark Curtain Around Its Operations

Wall Street Journal Reporter: “The Entire United States Market Has Become One Vast Dark Pool”

Goldman Sachs’ Very Fishy Dark Pool Settlement With FINRA

After Charges of Running a Price Fixing Cartel on Nasdaq in the 90s, Wall Street Banks Are Now Trading Their Own Stocks in Darkness

What JPMorgan and Citigroup Have in Common When It Comes to Crime

By Pam Martens and Russ Martens: February 23, 2017

Jamie Dimon, Chairman and CEO of JPMorgan Chase, Testifying Before Congress on the London Whale Trading Losses at His Bank

Jamie Dimon, Chairman and CEO of JPMorgan Chase, Testifying Before Congress on the London Whale Trading Losses at His Bank

On September 8, 2016, the Consumer Financial Protection Bureau (CFPB) fined Wells Fargo $185 million following an investigation that found that its employees had engaged in a widespread practice of “secretly opening unauthorized deposit and credit card accounts” in order to meet sales quotas or qualify for bonuses. An estimated 2 million accounts were involved. One month later, the Chairman and CEO of Wells Fargo, John Stumpf, was gone.

Consider that swift action to acknowledge and punish egregious abuse of clients with how the Boards of Directors of JPMorgan Chase and Citigroup have responded to criminal felony charges and seemingly endless regulatory fines for abusing clients’ trust. The Boards have kept their CEOs in place, paid the monster fines and moved on to the next settlement.

Jamie Dimon became the CEO of JPMorgan Chase on January 1, 2006. At that point, the bank was more than a century old and had never been charged with a criminal felony. In 2014, the Justice Department charged JPMorgan Chase with two felony counts in connection with their role in facilitating the Madoff Ponzi scheme. The bank was given a two-year deferred prosecution agreement.

The very next year, in May 2015, JPMorgan Chase was hit with a new felony count for its role in rigging foreign currency markets as part of a banking cartel. That’s three felony counts in two years and yet Jamie Dimon kept his job. Before the felony counts there was a $13 billion settlement with the Justice Department and Federal and State regulators in 2013 for JPMorgan Chase’s role in selling toxic mortgage investments to investors as worthwhile products when the bank had good reason to believe they would blow up.

In 2012, Dimon himself was hauled before Congress to explain why his bank was making speculative bets with depositors’ money in high risk derivatives in London. The bank eventually owned up to losing $6.2 billion in the wild trades. The scandal  became infamously known as the London Whale. In 2013, the Senate Permanent Subcommittee on Investigations released a damning 307-page report on the London Whale matter. The same year, the regulator of national banks, the Office of the Comptroller of the Currency (OCC), released the following statement regarding the London Whale trades:

“The credit derivatives trading activity constituted recklessly unsafe and unsound practices, was part of a pattern of misconduct and resulted in more than minimal loss, all within the meaning of 12 U.S.C. § 1818(i)(2)(B)”;  and “The Bank failed to ensure that significant information related to the credit derivatives trading strategy and deficiencies identified in risk management systems and controls was provided in a timely and appropriate manner to OCC examiners.”

Senator Carl Levin, Chair of the Senate Permanent Subcommittee on Investigations at the time, said that the bank “piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight, and misinformed the public.”  And, unbelievably, Jamie Dimon continued his tenure as Chairman and CEO of JPMorgan Chase.

The crime spree at JPMorgan Chase became so surreal that two trial lawyers, Helen Davis Chaitman and Lance Gotthoffer, published a breathtaking book on the subject, comparing the bank to the Gambino crime family. In addition to the settlements noted above, the authors add more details as to what has occurred on Dimon’s watch, such as:

“In April 2011, JPMC agreed to pay $35 million to settle claims that it overcharged members of the military service on their mortgages in violation of the Service Members Civil Relief Act and the Housing and Economic Recovery Act of 2008.

“In March 2012, JPMC paid the government $659 million to settle charges that it charged veterans hidden fees in mortgage refinancing transactions.

“In October 2012, JPMC paid $1.2 billion to settle claims that it, along with other banks, conspired to set the price of credit and debit card interchange fees.

“On January 7, 2013, JPMC announced that it had agreed to a settlement with the Office of the Controller of the Currency (‘OCC’) and the Federal Reserve Bank of charges that it had engaged in improper foreclosure practices.

“In September 2013, JPMC agreed to pay $80 million in fines and $309 million in refunds to customers whom the bank billed for credit monitoring services that the bank never provided.

“On December 13, 2013, JPMC agreed to pay 79.9 million Euros to settle claims of the European Commission relating to illegal rigging of benchmark interest rates.

“In February 2012, JPMC agreed to pay $110 million to settle claims that it overcharged customers for overdraft fees.

“In November 2012, JPMC paid $296,900,000 to the SEC to settle claims that it misstated information about the delinquency status of its mortgage portfolio.

“In July 2013, JPMC paid $410 million to the Federal Energy Regulatory Commission to settle claims of bidding manipulation of California and Midwest electricity markets.

“In December 2013, JPMC paid $22.1 million to settle claims that the bank imposed expensive and unnecessary flood insurance on homeowners whose mortgages the bank serviced.”

Michael Corbat has been CEO of Citigroup since October 2012. Below is just a sampling of the regulatory charges against the bank under Corbat’s reign, including a guilty plea to a felony count in May 2015 which covered conduct that continued after Corbat took the helm.

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.

May 25, 2016: Citigroup agrees to pay $425 million to resolve claims brought by the Commodity Futures Trading Commission that it had rigged interest-rate benchmarks, including ISDAfix, from 2007 to 2012.

July 12, 2016: The Securities and Exchange Commission fined Citigroup Global Markets Inc. $7 million for failure to provide accurate trading records over a period of 15 years.

President Donald Trump’s naïve (or willfully blind) notion that Wall Street will work better at raising capital if it is unleashed from strident Federal regulation is unhinged from the facts on the ground. Those facts, as illustrated above, are that the Boards of two of the largest banks in the U.S. are utterly spineless when it comes to holding their CEOs and employees accountable in the face of a tsunami of crimes.