By Pam Martens: August 27, 2013
George Melloan has done a deep disservice to the ever-shrinking pool of ethical investigative writers covering Wall Street, civic-minded prosecutors, and to the underpaid but dedicated career regulators overseeing the financial markets. (No, the revolving door from Wall Street to Washington hasn’t quite killed off all that is good.)
Yesterday, Melloan penned an opinion piece for the Wall Street Journal that was so Koch-esque, so preposterously skewed, and so utterly lacking in factual basis that it must be called out. Melloan makes the claim that the big banks aren’t doing anything more egregious than they have done in the past and the growing charges of fraud are the product of overly zealous regulators, “encouraged by the Obama administration” to blame the nation’s economic ills “on the rich, Wall Street, moneybags bankers, deal makers like Mitt Romney or almost anyone else who still wears a suit to work.”
One might forgive a young, naïve Tea Party recruit for publishing a rant such as this in a small town newspaper. But Melloan worked for the Wall Street Journal as both a writer and editor for 54 years, retiring in 2006. Surely, after more than half a century working for the Wall Street Journal, he is actually reading the investigative reporting in the paper and not just the right-wing editorials.
Melloan’s evidentiary support for the premise that Wall Street simply can’t be any more corrupt than it was in the past is built around the Alan Greenspan theory (now debunked by everyone including Alan Greenspan) that bankers have a vested interest to self-regulate. (Wall Street bankers, both today and throughout history, have had an overriding interest to make as much money as they personally can.)
Melloan writes: “Have bankers all gone rogue? Populists would have you think so, and apparently a sizable majority of Americans hold that view as well, judging from opinion polls. But this is not plausible. Bankers are more likely to exercise extreme discretion in an era when they are being constantly reviled by leftist politicians, writers and placard-carriers in the streets.”
For Melloan’s first witness, he calls up Jamie Dimon, Chairman and CEO of JPMorgan Chase, the poor mistreated figure who is “paying dearly” at the hands of those populist regulators for no greater crime than simply calling parts of the Dodd-Frank financial reform legislation “idiotic.”
Melloan’s position on Dimon is a rude slap across the face to the investigative reporters who unearthed the London Whale derivatives fraud at JPMorgan; to the Justice Department prosecutors who just brought a criminal indictment against two of the traders involved in that matter; to Senator Carl Levin and the Senate’s Permanent Subcommittee on Investigations which thoroughly reviewed the case and unearthed the emails showing how JPMorgan’s books were being cooked to make losses from the trades appear manageable.
Melloan’s opinion piece is also an unwarranted distraction, if not outright intimidation, at a time when the news section of the paper is reporting seven open investigations of JPMorgan by the U.S. Justice Department.
The critical aspect of today’s crimes on Wall Street that Melloan fails to grasp is that thanks to the repeal of the Glass-Steagall Act in 1999, Wall Street traders are no longer gambling with just the firm’s capital. Today, they are using the FDIC insured deposits of the mom and pop accounts held in the main street banks they are misguidedly allowed to own. When JPMorgan lost $6.2 billion in wild, reckless trading of derivatives – the so called London Whale matter – it wasn’t betting with its own capital. Unbeknownst at the time to its regulators and the savings depositors of Chase, its commercial bank, it was gambling with the bank’s deposits.
From selling rigged interest rate swaps to municipalities, rigging the interest rate benchmark, Libor, in London, securing triple-A ratings on bogus subprime mortgages, betting against investments designed to fail while selling them to customers as good deals, to fraudulently foreclosing on desperate families, Wall Street has earned every bit of its abysmal reputation. No amount of Melloan fantasizing is going to change that.
The crimes on Wall Street today are exponentially greater and more deserving of prosecution because insured deposits are being used in ways that violate safety and soundness requirements of insured bank depositories. And, those deposits have been concentrated into trillion dollar holdings at a handful of Wall Street firms. This has no comparison in the history of Wall Street: it’s dangerous, it’s frightening, and it deserves to be of the utmost concern to the public and prosecutors.
The Wall Street Journal does its readers a tremendous disservice by publishing the musings of writers wearing blinders to this reality.