Tag: Too Big Too Fail

After six years of protecting them, former Attorney General Eric Holder triumphantly returned to his roots, the law firm where he defended Wall Street and the banking industry before his appointment as AG. As though this was ever in doubt.

Eric Holder, Wall Street Double Agent, Comes in From the Cold

Matt Taibbi, Rolling Stone

Barack Obama’s former top cop cashes in after six years of letting banks run wild

Eric Holder has gone back to work for his old firm, the white-collar defense heavyweight Covington & Burling. The former attorney general decided against going for a judgeship, saying he’s not ready for the ivory tower yet. “I want to be a player,” told the National Law Journal, one would have to say ominously.

Holder will reassume his lucrative partnership (he made $2.5 million the last year he worked there) and take his seat in an office that reportedly – this is no joke – was kept empty for him in his absence.

The office thing might have been improper, but at this point, who cares? More at issue is the extraordinary run Holder just completed as one of history’s great double agents. For six years, while brilliantly disguised as the attorney general of the United States, he was actually working deep undercover, DiCaprio in The Departed-style, as the best defense lawyer Wall Street ever had.

Holder denied there was anything weird about returning to one of Wall Street’s favorite defense firms after six years of letting one banker after another skate on monstrous cases of fraud, tax evasion, market manipulation, money laundering, bribery and other offenses. [..]

In this light, telling reporters that you’re going back to Covington & Burling to be “engaged in the civic life of this country” seems like a joke for us all to suck on, like announcing that he’s going back to get a doctorate at the University of Blow Me.

Holder doesn’t look it, but he was a revolutionary. He institutionalized a radical dualistic approach to criminal justice, essentially creating a system of indulgences wherein the world’s richest companies paid cash for their sins and escaped the sterner punishments the law dictated.

Eric Holder Returns as Hero to Law Firm That Lobbies for Big Banks

By Lee Fang, The Intercept

After failing to criminally prosecute any of the financial firms responsible for the market collapse in 2008, former Attorney General Eric Holder is returning to Covington & Burling, a corporate law firm known for serving Wall Street clients.

The move completes one of the more troubling trips through the revolving door for a cabinet secretary. Holder worked at Covington from 2001 right up to being sworn in as attorney general in Feburary 2009. And Covington literally kept an office empty for him, awaiting his return.

The Covington & Burling client list has included four of the largest banks, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. Lobbying records show that Wells Fargo is still a client of Covington. Covington recently represented Citigroup over a civil lawsuit relating to the bank’s role in Libor manipulation.

Covington was also deeply involved with a company known as MERS, which was later responsible for falsifying mortgage documents on an industrial scale. “Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JPMorgan Chase and several other large banks,” according to an investigation by Reuters.

The Department of Justice under Holder not only failed to pursue criminal prosecutions of the banks responsible for the mortage meltdown, but in fact de-prioritized investigations of mortgage fraud, making it the “lowest-ranked criminal threat,” according to an inspector general report.

Since the 2008 financial crisis, the five Too Big Too Fail banks are 30% larger. Dodd-Frank has yet to be implemented and already banking lobbyists are working with congress to derail it. In March, Attorney General Eric Holder testified that some banks are just too large which makes them too hard to prosecute. Part of Holder’s justification that bringing criminal charges against large financial institutions would harm the economy, doesn’t quire hold water:

The U.S. Department of Justice appears to have neither conducted nor received any analyses that would show whether criminal charges against large financial institutions would harm the economy, potentially undermining a key DOJ argument for why the world’s biggest banks have escaped indictment.

Testimony by a top Justice official and fresh documents made public on Wednesday during a House financial services committee hearing revealed that financial regulators and the Treasury Department did not provide warnings to prosecutors weighing the economic consequences or fallout in the financial system of criminal indictments against large financial groups. DOJ also could find no records that would substantiate its previous claims that it weighed potentially negative economic or financial impacts when considering criminal charges, said Mythili Raman, acting assistant attorney general for the criminal division.

Wednesday’s revelations are likely to increase criticism of the Obama administration, which has been accused of a lackluster enforcement record against big banks in the financial crisis and other matters.

This week Treasury Secretary Jack Lew appeared at a Senate banking committee hearing where Sen. Elizabeth Warren (D-MA) questioned him on whether it’s time to cap the size of the banks deemed “too big to fail”:

Can we have more Liz Warrens? Like 60 of her?

LIBOR just keeps getting bigger by the day, like a wildfire.

Effect of Libor on US loans examined

by Shahien Nasiripour at The Financial Times

US lawmakers have raised concerns that the alleged manipulation of the London Interbank Offered Rate, or Libor, may have harmed households, raising the stakes on a scandal that thus far has been confined to Wall Street and the City of London.

There are at least 900,000 outstanding US home loans indexed to Libor that were originated from 2005 to 2009, the period the key lending gauge may have been rigged, investigators have said. Those mortgages carry an unpaid principal balance of $275bn, according to the Office of the Comptroller of the Currency, a bank regulator.

During periods when banks were allegedly attempting to push Libor higher, households with loans tied to the gauge may have paid higher rates than necessary. However, if the rate was manipulated lower, households may have benefited from paying below-market interest rates.

“I think the US government should be just as aggressive in getting to the bottom of this scandal as the United Kingdom has been,” said Senator Sherrod Brown, chair of the bank regulatory subcommittee on the Senate banking committee.

“This was not isolated to London, but affected tens of millions of investors, borrowers and taxpayers in our country as well,” Mr Brown added.

Libor Investigation Extended to US Mortgages, but What About TALF Loans?

by Yves Smith at naked capitalism

One area we hope will be investigated is the impact on TALF borrowing. Some of the loans were priced off Libor, raising the specter that the banks might have gamed the rates not just for advertising purposes, but to game these programs. From the Federal Reserve Bank of New York’s website:

   The interest rate on TALF loans secured by ABS backed by federally guaranteed student loans will be 50 basis points over 1-month LIBOR. The interest rate on TALF loans secured by SBA Pool Certificates will be the federal funds target rate plus 75 basis points. The interest rate on TALF loans secured by SBA Development Company Participation Certificates will be 50 basis points over the 3-year LIBOR swap rate for three-year TALF loans and 50 basis points over the 5-year LIBOR swap rate for five-year TALF loans. For three-year TALF loans secured by other eligible fixed-rate ABS, the interest rate will be 100 basis points over the 1-year LIBOR swap rate for securities with a weighted average life less than one year, 100 basis points over the 2-year LIBOR swap rate for securities with a weighted average life greater than or equal to one year and less than two years, or 100 basis points over the 3-year LIBOR swap rate for securities with a weighted average life of two years or greater. For TALF loans secured by private student loan ABS bearing a prime-based coupon, the interest rate will be the higher of 1 percent and the rate equal to “Prime Rate” (as defined in the MLSA) minus 175 basis points. For other TALF loans secured by other eligible floating-rate ABS, the interest rate will be 100 basis points over 1-month LIBOR.

Note again that some of the loans were priced off one-month Libor, which per the Barclays disclosures, were among the maturities manipulated; these are clearly a place to start [..]

The Market Has Spoken, and It Is Rigged

by Simon Johnson at The New York Times

In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.

This is a big mistake, in terms of the economics at stake and the likely political impact.

The behavior at Barclays has all the hallmarks of fraud – intentional deception for personal gain, causing significant damage to others.

The Commodity Futures Trading Commission nailed the detailed mechanics of this deception in plain English in its Order Instituting Proceedings (which is also a settlement and series of admissions by Barclays). Most of the compelling quotes from traders involved in this scandal come from the commission’s order, but too few commentators seem to have read the full document. Please look at it now, if you have not done so already.

The commission’s order portrays a wide-ranging conspiracy (or perhaps a set of conspiracies) to rig markets, including, but not limited to, any securities for which the price is linked to a particular set of short-term interest rates.

This past weekend on Up with Chris Hayes, Chris and his panel guests discuss the rate rigging scandal.

And it isn’t the first time.

The Franco-Belgian bank Dexia has become the first casualty of the 2011 banking crisis, with its Belgian arm being bought by the government and Belgium, France and Luxembourg providing a €90bn (£78bn) guarantee for its financing.

The bank, which specialises in local government financing and provides backing for more than 40 private finance initiative projects in the UK, ran into difficulties after its €3.4bn of exposure to Greece sparked concerns about its ability to absorb losses on the positions.

Other banks no longer wanted to lend it enough money to keep operating and it is expected to be the first of many to need bailing out during the renewed crisis in the sector. Alastair Ryan, analyst at UBS, reckoned eurozone governments could end up owning 40% of the sector if €200bn is needed to prop up banks – as estimated by the International Monetary Fund. Austrian bank Erste yesterday warned it would make a loss because of the eurozone crisis.

The embattled board of Dexia, which in 2008 received €6bn of assistance from France and Belgium, met on Sunday before it was announced on Monday that Belgium would pay €4bn for the operations in its country. Dexia shares resumed trading after last week’s suspension and fell almost 5%.

What Atrios said:

The CEO only earned a couple of million euros in each of the past couple of years. Worth every penny!

Repeating the same failed policies over and over expecting different results = Insanity