By Pam Martens and Russ Martens: April 4, 2023 ~
The New York Times has been able to fly below the radar in terms of its insufferable ability to muck up the financial system of the United States and then canonize its aiders and abettors with puff pieces.
It was none other than the New York Times that repeatedly used its editorial page to advocate for the repeal of the Glass-Steagall Act, which had protected the U.S. financial system from crisis for 66 years until its repeal under the Wall Street friendly Bill Clinton administration in 1999. It took only nine years after its repeal for the U.S. financial system to crash in 2008, requiring the largest public bailout in U.S. history. We’re now in banking crisis and bailout 3.0.
The 1933 Glass-Steagall Act was passed by Congress at the height of the Wall Street collapse that began with the 1929 stock market crash, the insolvency and closure of thousands of banks, followed by the Great Depression. The legislation addressed two equally critical flaws in the U.S. banking system. It created, for the first time, federally-insured deposits at commercial banks to restore the public’s confidence in the U.S. banking system and it barred commercial banks that were holding those newly-insured deposits from being part of Wall Street’s trading casinos – the brokerage firms and investment banks that were underwriting and/or trading in stocks and other speculative securities.
In 1988 a Times editorial read: “Few economic historians now find the logic behind Glass-Steagall persuasive.” Another in 1990 ridiculed the idea that “banks and stocks were a dangerous mixture,” writing that separating commercial banking from Wall Street trading firms “makes little sense now.”
On April 8, 1998, the editorial board of the New York Times became an outright cheerleader for a bank merger that would end up devastating Wall Street. The editorial was so pro-Wall Street and anti-public interest that it could have come straight from the desk of Sandy Weill, the man who wanted to merge his brokerage firm, Smith Barney, his investment bank, Salomon Brothers, and his insurance company, Travelers Group, with the large insured commercial bank, Citicorp, owner of Citibank. (The behemoth bank became known as Citigroup as a result of the merger and was the single largest recipient of the taxpayer bailout during the 2007-2010 financial crisis.)
The New York Times editorial in 1998 sounded like it came from Sandy Weill’s publicist. The Times wrote:
“Congress dithers, so John Reed of Citicorp and Sanford Weill of Travelers Group grandly propose to modernize financial markets on their own. They have announced a $70 billion merger — the biggest in history — that would create the largest financial services company in the world, worth more than $140 billion… In one stroke, Mr. Reed and Mr. Weill will have temporarily demolished the increasingly unnecessary walls built during the Depression to separate commercial banks from investment banks and insurance companies.”
With the green light from the New York Times, Congress repealed the Glass-Steagall Act the very next year.
Here’s what happened to Sandy Weill’s grand creation, Citigroup: By early 2009, it was a 99-cent stock and clearly insolvent. Despite this reality, the Federal Reserve made secret, cumulative loans of more than $2.5 trillion to prop up Citigroup from December 2007 through at least July 21, 2010, according to a Fed audit conducted by the Government Accountability Office. In addition, the U.S. Treasury injected $45 billion in capital into Citigroup; there was a government guarantee of over $300 billion on its dodgy assets; and the FDIC provided a guarantee of $5.75 billion on its senior unsecured debt and $26 billion on its commercial paper and interbank deposits.
But Sandy Weill made out just fine, walking away as a billionaire as a result of his Count Dracula stock options. (Compensation expert, Graef “Bud” Crystal, coined the Count Dracula stock option moniker because nothing could kill them, because the Citigroup Board had authorized them.)
One of the men who had put the pieces in place for these monster bailouts of the new mega banks on Wall Street was lawyer Rodge Cohen of Sullivan & Cromwell. In testimony to the Financial Crisis Inquiry Commission (FCIC) in 2010, Cohen admitted that he was personally involved in the amendment contained in the Federal Deposit Insurance Corporation Improvement Act (FDICIA) that changed the Fed’s emergency lending powers under Section 13(3) of the Federal Reserve Act.
That one-sentence amendment to Section 13(3) was interpreted by the Federal Reserve from December 2007 to mid-2010 as giving it carte blanche to shovel $29 trillion in cumulative loans to Wall Street banks and their foreign derivatives counterparties.
Cohen also admitted during his FCIC testimony that during his negotiations on behalf of the Board of Bear Stearns (a Wall Street investment bank that collapsed in the spring of 2008) he effectively provided a legal interpretation of the law to the Fed. Cohen stated during the interview: “We did say that we thought 13(3) provided broad power; that the ability was there if the Fed could satisfy itself on the collateral.”
In 2009, the New York Times canonized Cohen as follows in a feature article headlined as: H. Rodgin Cohen: Trauma Surgeon of Wall Street:
“All told, from March 2008, when Bear Stearns was purchased for a song by JPMorgan Chase (both Sullivan & Cromwell clients), to mid-September, when A.I.G. (another client) was handed several billion by the government, Mr. Cohen, 65, took part in a breathtaking 17 financial deals, often hurrying among negotiations like a surgeon running between O.R.’s.”
A week ago Monday, a new feature on Rodge Cohen appeared in the New York Times. It sounded like a worn out refrain on a creaky old player piano:
“There are plenty of differences between the fallout from the collapse of Silicon Valley Bank and the 2008 financial crisis, but one similarity is the man trying to clean it up: H. Rodgin Cohen, known as Rodge, the senior chair at the law firm Sullivan & Cromwell.
“The soft-spoken Mr. Cohen was at the center of efforts to save Silicon Valley Bank and First Republic, the latter of which involved a call between the Federal Reserve chair Jerome Powell, Treasury Secretary Janet Yellen and the JPMorgan Chase boss Jamie Dimon.”
Jamie Dimon is the Chairman and CEO of the largest federally-insured bank in the United States, JPMorgan Chase, which also happens to be one of the largest trading houses in the world — allowed as a result of the repeal of the Glass-Steagall Act. Dimon learned his craft, unfortunately, at the knee of Sandy Weill, where he functioned as Weill’s first lieutenant at Citigroup before moving on.
Like Weill, Dimon has also become a billionaire on his stock awards at JPMorgan Chase – notwithstanding his bank’s serial run ins with the criminal division of the Justice Department under Dimon’s “leadership,” resulting in an unprecedented five felony counts.
Dimon has all the same warts as Weill but, nonetheless, the New York Times deems him worthy of canonization.
At the height of the 2008 financial crisis, on September 26, 2008, the New York Times published a feature on Jamie Dimon, which carried this gushing praise:
“As one institution after another is laid low by the present crisis, Mr. Dimon stands at the head of a small band of bankers who are coming out on top in the new financial landscape.
“With two bold deals — first Bear and now WaMu — Mr. Dimon has muscled in further on Wall Street’s traditional turf and transformed JPMorgan into the country’s largest commercial bank. With WaMu, JPMorgan will have $905 billion in deposits and 5,400 branches nationwide, rivaling Bank of America in size and reach.”
If nothing else, the New York Times is Manhattan-centric. Bank of America is headquartered in Charlotte, North Carolina. By allowing JPMorgan Chase to gobble up WaMu (Washington Mutual), the mega bank power base was solidified in New York.
Last Thursday, propping up the sagging reputation of Jamie Dimon was back in full display at the New York Times. The digital headline read: “Jamie Dimon Reprises 2008 Role as Rescuer of a Failing Bank.” The headline for the same article on the front page of the Business Section in the print edition of the New York Times read: “Once Again, It’s Dimon To the Rescue.”
The somewhat comical problem with the newest effort to canonize Dimon in the New York Times is that the facts revealed in the article by the reporters stand in stark disagreement with the headline. For example, there is this in the article:
“Ms. Yellen [U.S. Treasury Secretary Janet Yellen] and Mr. Dimon discussed a plan to rope in other banks to steady First Republic. As the chief executive of the nation’s largest bank, Mr. Dimon would carry it out. The plan, which some executives at rival banks privately called ‘the Jamie and Janet show,’ involved 11 banks collectively depositing $30 billion into First Republic, and was meant to signal confidence in the teetering lender.
“Whether the $30 billion loan helped steady the lender and stave off financial contagion — First Republic shares tanked the day after the announcement, and remain down nearly 90 percent for the year — remains an open question, even though its shares have moved a little higher this week, along with other bank stocks, as fears of a bigger crisis recede.”
Here’s actually what happened. Dimon et al hatched a plan to put $30 billion in uninsured deposits into First Republic Bank as it was experiencing a bank run because 68 percent of its deposits were already uninsured by the FDIC. (The FDIC caps federal deposit insurance at $250,000 per depositor, per bank, but First Republic catered to the very wealthy so it had lots of deposits above that amount.) Reuters reported the story about the $30 billion infusion before the stock market closed on Thursday, March 16. First Republic Bank (ticker FRC) closed trading that day at a price of $34.27. The next day, Friday, March 17, First Republic closed at $23.03 – a plunge from the day before of 33 percent. Yesterday, First Republic closed at $14.60 – a decline of 57 percent from where the stock closed on the day the Dimon & Cohorts’ deal was announced. (Remind me, again, how this constitutes a “rescue”?)
S&P Global was so unimpressed with this “rescue” that the Sunday after the deal was announced, on March 19, it cut the credit rating of First Republic Bank three notches and deeper into junk status. Again, not the stuff of rescues.
This would not be the first time that Wall Street On Parade has caught the New York Times brazenly attempting to write a revisionist history of the financial calamities that have ensued as a result of the repeal of the Glass-Steagall Act. We have repeatedly asked the New York Times’ management to correct the mountain of errors that appeared in a 2012 Andrew Ross-Sorkin revisionist history of the crisis of 2008 and the role that the repeal of Glass-Steagall played in it. There is no debate about these egregious errors. There is only the question as to why the New York Times refuses to correct them.