The Consensus on Big Banks Starts To Move

 By Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown

The ideology of unfettered finance is crumbling.  Whatever you think of the merits of the Goldman case from a legal or short-term perspective, the SEC’s allegation – and Goldman’s response – have further moved the mainstream consensus away from “finance is generally good” to “big banks are frequently scary.”

Senator Ted Kaufman should get a great deal of credit for his well timed charge on this issue – as I argue in BusinessWeek/Bloomberg.  But Lloyd Blankfein also gets an inadvertent assist, quoted in the Financial Times yesterday as saying that the SEC case against Goldman would “hurt America.”

Mr. Blankfein is starting to sound – and act – a lot like Nicolas Biddle, head of the Second Bank of the United States (by far the most powerful commercial bank of the day), during his confrontation with President Andrew Jackson in the early 1830s.

When Jackson first challenged the Second Bank, many people thought his concerns about the bank’s powers were excessive.  But then Biddle started to fight back, spending money freely to buy congressional affection (and even leading orators) and attempting to contract credit in order to demonstrate that Jackson was hurting America.

At that point, people understood that Jackson was essentially right.  The Second Bank had become so powerful that it could challenge elected executive authority and, if Biddle won, the consequences for democracy would be dire.

We are now in the phase when the most dangerous of our banks – and the people behind them – will go to any lengths to distort the realities and completely mislead people.  The only way to deal with this is to do what Andrew Jackson would have done – attack, in no uncertain terms, misrepresentation wherever we find it.

Some friends of ours produced an ad yesterday, which is now on YouTube, which cuts direct to the heart of the matter.  Review it and, if you agree with the message, send it to others.  Tell them to pass it on – and urge them also to understand why they should call their Senators and the Senate Democratic leadership and insist – firmly but politely – that the Brown-Kaufman SAFE banking act should receive an up-or-down vote on the Senate floor (my post on that issue, from yesterday, has been updated with a link to make these calls easier for everyone).

We should now view Goldman Sachs and our other five megabanks in the same terms that Andrew Jackson’s secretary used for the Second Bank of the United States, “Independently of its misdeeds, the mere power, – the bare existence of such a power – is a thing irreconcilable with the nature and spirit of our institutions” (see p.19 of 13 Bankers).

75 responses to “The Consensus on Big Banks Starts To Move

  1. Well done Simon. The impact that you had directly in this outcome cannot be understated.

  2. I agree that we must break up the banks. But the rhetoric is just as thick on both sides.

    Can anyone deny that the Goldman case is politically motivated?

    After reading the Republican letter to the SEC, I wouldn’t fault one for wondering if the Goldman case is just part of a political marketing campaign to support legislation:

    http://www.planbeconomics.com/2010/04/22/republican-letter-to-the-sec-re-goldman/

  3. Brad Thrasher

    Petition is signed and I’ll make the calls in about 35 minutes when the offices open.

  4. Thank you Simon for acknowledging the importance of the fight that President Jackson fought with Biddle and then won. No private banking institution should ever be allowed to become that powerful and almighty that it threatens the foundation of a countries very sovereignty by manipulation of the financial system. History is replete with famous quotes by members of the ruling elite and none encompass the position we find ourselves in then that of Mayer Amschel Bauer Rothschild.
    ‘Give me control of a nation’s money and I care not who makes it’s laws.’

    The Blankfein’s and Dimon’s of today may not be a Rothchild, but the practices of these mega banks gets you the same results and as Jackson well knew, no private bank should ever have that type of control over a countries policies or financial system.

  5. Brad Thrasher

    So what if it is? It wouldn’t be the first time a lawsuit was part of a marketing strategy. I know this much firsthand.

    Let’s move the pendulum in the direction of fairness before we start whining about how got there.

  6. Isn’t there also a parallel in the Medicis and the Fuggers? Lend money to the head of state, lend more money, send polite reminders about overdue interest payments, up the interest, support the head of state in reckless military adventures because they will guarantee sovereignty/generate new sources of income,lend more money, charge more interest, drive the head of state into bankruptcy and/or disgrace, name the successor, and finally become the successor.

  7. I applaud your efforts and agree wholeheartedly with limitations on these TBTF institutions, banking and otherwise (AIG, GE, GM, GMAC etc.). Taking the gains and socializing the losses is one of the biggest issue facing us today. Without consequences, the same will only continue.

    One worrisome fly in the ointment that I see; however, is the US likely won’t act unilaterally as the finance industry is global with many interconnections and “counterparties” involved. Basel II, GLBA and CFMA were watersheds (and failures). Without restructuring that includes international agreements in-kind, these global institutions will only go to an overseas exchange and continue the same behavior with the same overall results in the US despite any unilateral efforts.

    This weekend the G20 meets to discuss financial reform but likely the problems of Greece will divert their attention from their urgent and important tasks avoided thus far and now going on multiple years despite assurances from worldwide leaders of ‘coordination’ and ‘doing whatever it takes’.

    I hope I’m mistaken about why despite universal agreement, nothing will be done.

  8. That video ad is populist rhetoric not worthy of promotion or discussion on this site. If you cannot make the case on the merits, then use of an ad like this is just throwing gasoline on the polarized debates that have evolved on nearly every issue.

  9. We should now view Goldman Sachs and our other five megabanks in the same terms that Andrew Jackson’s secretary used for the Second Bank of the United States, “Independently of its misdeeds, the mere power, – the bare existence of such a power – is a thing irreconcilable with the nature and spirit of our institutions”

    That goes to the core of the freedom vs. corporatism issue. That’s in turn the core issue which delineates all others, and which assigns all political positions in the great struggle of freedom vs. tyranny.

    The health racketeering bill was one such issue – it boiled down to, did one favor further entrenching the tyranny of insurance rackets or not.

    The same is true of finance reform. We either act to break the power of the rackets, or we further entrench them. (By now there’s no such thing as a “neutral” outcome; they’re stealing god knows how many millions every day.)

    …attempting to contract credit in order to demonstrate that Jackson was hurting America.

    Yes, and in doing so he was actually a conscious traitor to America.

    We should keep that in mind when we look at the way the terroristic stock market tries to punish any public interest event. Also the MSM errand boys who deliver the ransom notes.

  10. I will share this article. The video ad does not cut it.

  11. please sign the petition if you want to help take some air out of the politically broken system:

    http://act.boldprogressives.org/cms/sign/petition_breakup/

  12. I watched the ad, and I concur with a couple of the posts above that the ad does not cut it. If you want to make a really effective ad that will shift the consensus from “big finance is good” to “big finance is very bad”, then work with Dylan Ratigan to make an infomercial out of this clip:

  13. Sorry in advance for re-posting, but as yet I still have not heard a convincing response to a concern mentioned yesterday (next para.). Some said I’d prefer the US to sit on its hands while the big banks run amok. No. Prof Johnson’s concerns over a future Bank Bailout 2.0 sound credible and justify serious and immediate debate. My concern is just whether a U.S.-only proposal will work, or inadvertently could deepen the damage within the United States in at least two macro ways: first, by triggering capital flight where financial assets are transferred en masse out of the United States (rather than being reabsorbed in smaller U.S. banks), and second, by failing to protect against spillover effects if non-U.S. megabanks look like they could catastrophically fail. Maybe there is an answer, and if so, I would like to hear it. Pending that, I could not agree that this scenario is simply not our problem, and that only non-U.S. taxpayers would bear the financial burdens if non-U.S. megabanks increase in size and complexity, and later stand at the brink of failure. I rather thought the recent crisis proves national boundaries don’t afford very good protection for this problem. So the bottom line is I question the wisdom of a U.S. only legislative response to this problem.

    Yesterday’s posted concern:

    Supposing there’s U.S. legislation to limit the size and leverage of our largest half-dozen or so banks, how does it get applied say to Royal Bank of Scotland ($3.8t in assets), Deutsche Bank ($2.9t in assets), BNP Paribas ($2.4t in assets), etc.? Wouldn’t the United States be unwise to jump off a cliff by itself? (I assume no one contemplates trying to break up foreign banks.) Wouldn’t we naturally expect capital flight? Regulatory arbitrage? Maybe there’s a good answer, but for now I question whether international cooperation will prove essential.

  14. I’m not sure the Jackson example is the best. Biddle certainly was an arrogant ass, but so was Jackson. And Jackson’s “answer” was to rely upon state banks…which left the U.S. government basically relying upon the Treasury Dept. to act like a bank for decades, a failed system which hurt the U.S economy in numerous ways until the Fed. Reserve was created.

    Morale of the story: Be careful what you do once you break the big banks up, because the solution might be as bad as the problem.

  15. Bankers finally get their comeuppancce… sod off!!

  16. I fully share these concerns. The G20 seems like the right forum assuming these issues could get the appropriate attention. Perhaps at least the G20 could convene a forum of member states (or at least states with megabanks) to pursue multilateral consensus on a serious, sustained, and time sensitive basis. Probably the issue is too complex and multifaceted to get sufficient attention at occasional meetings of the G20 leaders.

  17. Patrice Ayme

    The Europeans want to curb the power of the financial sector much more than Americans want. So it should be easy to ask them to break up their banks. Europeans are after a more general situation with the metastatic cancer of finance, having to do with fiscal heavens, hedge funds, Shadow banking, legalized tax avoidance (where the USA and the UK are world champs), etc.

    There will be no problems, as long as there is plenty of talk. After all, how difficult is it to reinstate the Banking Act of 1933, and apply it to bank holding companies? But that is exactly what Sarkozy called for at Davos when he said that banks ought not to speculate [financially]. this contains implicitly the breaking of said bank holding companies.
    PA

    http://patriceayme.wordpress.com/

  18. Lowell Thompson

    Tell it Sy!

    But don’t get over confident. Most Americans still don’t get the difference between govenment by Big Business and self-government. And as soon as the economy picks up, they’ll have even less incentive to try.

    BTW: If you don’t believe me, read David Brooks NYT column today. If a guy getting paid as much as Brooks is clueless, imagine what the average work-a-day citizen understands.

  19. The names Johnson & Kwak,or Kwak & Johnson the latter sounds better,…should recieve the “Nobel Peace Prize” – if Obama got the award for nothing ,these two guys “clarion-calls” have absolutely woken the comlacent masses! I’d like to reference Elizabeth MacDonald Blog on fox business news (I’m not a fan of Fox News,but there is this pearl in the mire called E’Mac; my sunshine-of-hope)which has a fantastic business resource (may I reiterate that I’m not a fox news guy,period!). The rating agencies for GS’s & Paulson&Co.(ABACUS/products) regarding ACA’s agency downgraded nine months after deal was closed? E’Mac’s Blog hits it out of the park,as all her storylines of highly volitile/controversial current events. Ref: http://www.foxbusiness.com_______thanks Simon, and please never stop “Your Good Digging for America’s Sake” PS. S&P’s rating agency is a unit of McGraw-Hill Co.,Inc. owned by the Rothschild’s Family. Follow the money?

  20. I hope it will not be considered off-topic to
    remark: after we get GS tied-up and Mr Blankfein
    dealt with — not to mention Greece — what are
    we going to do about Pete Peterson and David
    Walker?

    “Yikes, the deficit! Social Security and Medicare
    are eating us alive! Our grandchildren will pay
    bazillions! Run for the hills!”

    #43 traveled to West Virginia to look at the filing
    cabinet containing the FICA obligation docs. But
    he was busy with his wars ans so didn’t have the
    time and energy which the Peterson Foundation
    seems to have.

    Thoughts?

    Alan McConnell in Silver Spring MD

  21. To everybody out there!

    No matter how tough it gets, always take time to unwind. We don’t want to see the USA transforming into the Weimar Republic. Underneath, you can see what the “best of the best” did to get away from it all. Love and Peace.

  22. I don’t doubt there are many in Europe who would like to limit megabank leverage, but how about in China with 4 banks each exceeding $800b in assets, Japan with 3 banks each exceeding $1t in assets, the BRIC states other than China? Even in Europe, it seems fair to expect intense push back, where the UK, Germany, France, and a handful of other states have by far the largest concentration of megabanks and financial assets. Against that backdrop, it seems necessary to develop consensus among at least the states having TBTF institutions, as they have the most plausible opportunity to attract significant financial assets away from the others if there were not a broadly inclusive framework. Something less could invite a macroeconomic realignment with consequences that are difficult to predict. On your other point about the type of institution, I agree it makes sense to address any institution so large that it is TBTF.

  23. Re @ Barbara….ironically they are presently the agents of the Rothschild’s. Follow the money?

  24. Elisabeth Robson

    I’ve moved all my money out of big banks and will never ever do business with any of them (or their spawn) now or in the future.

    I emailed my senators and asked them to support the SAFE act.

    Let’s hope the American people win this one.

  25. Re: @ NS….Who cares if it’s unilaterally,its “Dog-Eat-Dog” now, and America’s dog is in this fight too win! Sure,President Jackson was aware of the ensuing problems,but his innate wisdom got us through the moral battle. The post economic turmoil was admirably taken on by Presidents Van Buren,Harrison (60days),Tyler,Polk,and Taylor too,..Fillmore,Pierce fixing the problems,and all was well. Then comes President Buchanan who preceeds the Cival War where President Lincoln takes the reins but was assasinated a week before he signs the treaty of the “Union’s” victory(could be a bit hazy here on dates,never the less)! Why? He refuses to pay the central bankers sixteen per/cent – brings into history what is now called the “Greenback Dollar”.___ PS. The same thing happened to JFK when he wanted to mint America’s money without the “Central Banks”! Lastly,..the world’s financial markets are in a gestation (whatever comes out of this – is anyone’s guess?) period ,or perhaps….indigestion period is the better description phrase…whatever( Germany’s Re-Unification,and China’s grand entrance as the World’s pre-immanent Trading Partner),and it will take years of stagnation,and slow growth to digest the last twenty years of global expansion. Sit back and relax,and “Buy-Made in America”,period!

  26. Like a number of posters, I would like to hear Simon’s and James’ response to the fear that breaking up the big banks would leave them vulnerable to takeover by foreign big banks. Today on WBUR a Brit commentator stated that Canada has banks equally “big” but had none of the failures/problems ours did. In fact he stated that Canada took the smallest hit from this meltdown in spite of having “big banks.” How did Canada manage that?
    BTW, I’ve made the calls and alerted legions of others.

  27. The Europeans want to curb down those banks with a vengeance, believe me. Sarkozy and Merkel a.o. don’t want banks to have such enormous power. The Europeans are completely fed up with Anglo-Saxon capitalism.

    It is time for a different economic model in the US.
    You can choose one (or a combination) from the models underneath;

    Rhineland Model

    http://www.adamsmith.org/blog/misc/the-rhineland-model/

    Nordic Model

    http://en.wikipedia.org/wiki/Nordic_model

    Polder Model

    http://en.wikipedia.org/wiki/Polder_model

  28. Re: @ Lowell Thompson…..Please,…don’t ever assume that the American people are dumb. Currently most or (those fortunate to find work) all americans are working two jobs – both partners…feeding a family and,trying to keep a roof over their head is a taunting task in ,and of itself,but their listening. Believe me – their listening,…

  29. Re: @ LindaMC….Canada is owned by the British. The British have fomented America’s Banking demise,or debacle. They believe America is still Briton’s. Read some history books. PS. The German’s,and French were always a better ally to America. It was England that started WW1,…and it has been England that has tried to destroy america by war several times during our short 200yrs.plus history.

  30. Application of a break up to a foreign bank would not be all that difficult within the United States. Every foreign bank operates through a subsidiary corporation or NA in the United States. Application of the favorite bureaucratic trick of proportioining would work . It would work even better coordinated with other states actions. Proportioning would apply the tests to the consolidated foreign bank as deemed to be entirely a United States bank. If it is too big, the proportionate percentage of US assets to total assets would be applied to force a reduced US size. It could work very well with creative people or be a huge dud with plodding riskless buraucratic application.

    In the end, all regulation that works is vibrant because it constantly changes to the circumstances. It avoids the death by fixed views paradigm. Of course, almost any study of bureaucratic systems reveals a progression to death by fixed views.

    If you regulate, you must know the regulated better than they know themselves and know yourselves even better. That takes people that can instantly change views to changed circumstances.Oh, they must have the power to be able to instantly change views. That power is not often given by a society from fear.
    So, TBTF will work for a time and need reworking. Reform is the mindset of the defeated plodder as I see it.

    The ultimate US problem is the question of bravery in attacking the problem in a country of ever more plodding ideologues rather than open thinkers.

  31. Oops, my name was omitted.

  32. good work mr johnson,
    having the link to get the up and down vote. I’ve been waiting a while for the site to take this step

  33. Nick Biddle sounds like a character in Fitzgerald’s Great Gatsby.

  34. Attaboy, rene … that adds to the discussion. Do you have any real discussion points to make in any of your posts?

  35. Petition signed and calls made.

  36. Russ –

    You nail it every time.

    I really appreciate your posts. Thank you.

  37. Would there be any merit to having the US government be the only authorized seller of CDS? That way, at least taxpayers could profit from TBTF, … until it implodes again, anyway.

  38. Andrew Jackson. The bank killer. He replaced a responsible institution with a cornucopia of state banks, run irresponsibly by a collection of hustlers who were his true constituents. Jackson was the “entrepreneur president”. He unleashed tin horn private greed and produced a depression and an age of worthless money. Biddle is one of the most unfairly slandered men of the Nineteenth Century. Jackson snuffed him for backing opposition candidates in the 1928 election.

    I wish someone would explain how cutting the mega banks down to size while not addressing bank power to divert finance from business loans to swaps and derivatives trades is likely to accomplish anything worth this incessant din. What changed when Standard Oil was sliced into a dozen oil companies?

  39. nothereforalongtime

    @lindaMC

    Essentially we (in Canada) got lucky this time. I was a banker through the 80′s, and Canada’s big banks got hosed in the “sovereign debt crisis” that happened after interest rates spiked. It killed their balance sheets and constrained them for years.

    Then we went through a period of the banks wanting to merge with each other and get even bigger. Since our political system is marginally less corporately-sponsored than yours (or maybe it’s the gerrymandering, or…) the upwelling of popular outrage at such an idea (we like our banks as much as you like yours) put the fear of loss into our elected “representatives”, and thereby put paid to that effort by our banksters. There’s also the small matter of our “Bank Act”, which the US lacks.

    The whole area of financial derivatives (beyond currency swaps and interest rate swaps) exploded after after I left the banking game, but my outsider’s impression is that Canada’s banks were not able to take such staggeringly-big bets as the investment banks.

    Also, we didn’t have a Fed reducing interest rates (or holding them artificially low) every time something went bump, pumping almost-free money into the economy almost continuously during the “great moderation”.

    And finally, our mortgage regulations were not nearly as stupid as yours. No Fannie Mae & Freddie Mac buying off members of Congress. Just regulations like the one requiring first-time home-buyers with less than 25% down (later reduced — we’re not completely immune to insanity) be insured by the CMHC, with the borrower paying the actuarially-sound insurance premium as part of the monthly premium. Also, no non-recourse mortgages (there are some exceptions, and they paid the price in the 80′s), no negative-amortization, no teaser rates, no off-loading of the asset from the balance-sheet to gain an immediate income, etc. etc.

    Despite all that, in most locations, our house prices are over-valued (relative to rents, and as a % of income), while yours are (now) slightly under-valued. But that could be because we have rent controls in most markets, which distort the comparison enough to make it almost worthless.

  40. jhanlon, if you scroll up you can see my proposal for US economic policy.

    Furthermore, on April 21st, I have asked Simon Johnson in his post “What should the President say on Thursday” the following;

    “The Democrats are afraid that if they truly take on the big banks, they will lose campaign contributions and be placed a major disadvantage for November 2010 and 2012 – “don’t push it too far” is the message from the White House to the Senate.”

    Please clarify! How is this possible? This is my main question about American politics.

    Why are the contributions from corporate America so important? How much are we talking about?

    I thought Barack Obama was extremely succesful in employing the new media to raise contributions for his campaign. Why do they need the corporations to chip in? Thanks in advance.

    ————————————————-

    A democracy* should be represented and chosen by the people. Not organisations, please!

    *The term is derived from the Greek: δημοκρατία – (dēmokratía) “rule of the people”

  41. jhanlon, I am deeply frustrated and disgusted about what is going on. I am relatively young and discovering how real-life politics work is no pleasure. No disrespect to the Americans in general but please do understand that this crisis goes all around the globe. We should be focusing on more important things. Making sure that our eco-systems, instead of economic systems, do not collapse due to overexploitation for instance. Or is that somewhat intertwined? I dunno, I am going to watch MTV and have some popcorn!

    BREAD AND GAMES, DIVIDE AND CONQUER.

  42. You’re welcome, and thanks for the good words.

    If you like my comments you should click on my blog.

  43. I assume by TBTF you mean to big to fail? But the major activity that the banks control is funds transfers, from every share transaction settlement to the electronic transfers of government funds to federal entities, etc, etc,and this is the swift response the banks make to regulatory moves to tax or control the capitalist system, that if that Bank(s) owned facility is not supported the whole mainly paperless and papered edifice collapses.

  44. Robin Thomas

    Blankfein should be tarred and feathered.
    I’m quite serious.

  45. As someone who lives deep in the heart of Red State America, but who cares deeply about this issue, I can say with confidence that you can’t make a successful case for reform by using a source that even mentions someone like Rachel Maddow. Furthermore, you also need to avoid any mention of the New York Times, Paul Krugman, Bill Clinton, Barack Obama, etc. Any of these names immediately give the audience a reason to ignore the message. The message needs to be that Wall Street is NOT free market capitalism — that Wall Street does not act in the best interest of Americans, American business, or main street. We need to say, yes, Fannie Mae and Freddie Mac were big problems… and yes, the evil democrats helped cause that, but the REAL issue that dwarfs that is unregulated GAMBLING of OUR money. We need to focus on HOW the big firms have returned to profitability… buy using free money from the FED to make loans, including the purchase of government bonds, to generate a profit. “Where’s your 0% interest loan?” We need a clip of the arrogant bankers recorded by Fox news after the Obama speech yesterday talking about how THEY create all of this wealth… and then we need a voice over that says, “you wouldn’t even EXIST now without our &%(*^ trillions in taxpayer money.”

    Bottom line, I think it’s actually possible to get conservatives to support this reform effort. Small business and medium business owners that didn’t get a bailout are ripe to hear this message. But, right now it’s not getting through because the messengers are east coast elites (with all due respect).

    And, if President Obama really cares about this… give back the Goldman money. I’m not even sure why it matters… but, you’d be amazed at how much of a distraction his campaign contributions are to this debate.

    I’ve been asking friends and family to call Senators… I was going to send the video link, but it is not usable in this part of the country.

  46. When is Simon or James or anyone going to take on Stephen Harper and Jim Flaherty and blast them. I saw Simon’s appearance on BNN and I thought it was very weak and he missed a perferctly good opportunity to go after Harper and Flaherty’s financial policies which no one ever seems to ever seems to do on Canadian TV. I wonder if it is on unwritten rule on CTVGlobeMedia owned BNN that progressive bloggers such as Felix Salmon and Yves Smith can take on Wall Street Banksters but cannot attack the Canadian Business/Political bankster establishment.

  47. I *like* “Stop Shorting America.”

    Use it!

  48. Simon Johnson wrote:

    “The ideology of unfettered finance is crumbling.”

    Rating Agency Testimony: “Must say yes” to Wall Street

    4/23/2010 03:34:00 PM – by Calculated Risk

    From Kevin Hall at McClatchy Newspapers:

    Executives testify: Bond-rating agencies corrupted themselves

    “Testifying under oath before the Senate Permanent Subcommittee on Investigations, officials who were closely involved in giving investment-grade ratings to complex financial instruments backed by shaky U.S. mortgages described how they were pressured to give Wall Street what it wanted.

    Called to appear before the panel, Richard Michalek, a former Moody’s vice president and senior credit officer, described the ratings process for deals that could bring more than $1 million in fees as a “must say yes” atmosphere.”

    The testimony is pretty amazing, but how is this being fixed?

    http://www.calculatedriskblog.com/

  49. I stood within earshot of Harper when he was asked if he had any concerns about the sub-prime crisis during a campaign stomp. The man who has a degree in economics was clueless, he looked at the ground, shrugged his shoulders and replied, if there was a problem I think I would know about it.

    Several weeks ealier I ditched all equities in my retirement portfolio out of concerns about the economy. Several weeks later the markets tanked. Several months later Harper’s minority government was forced to create a stimulus package or be voted out of office. As for the current state of affairs, the original risks remain open, for history to repeat itself again and again.

  50. Friday, April 23, 2010 – McClatchey

    “Throughout the day in earlier testimony and in e-mails released by Levin, however, former Moody’s and S&P officials told how they were pushed out or quit in frustration because managers badgered them to “massage” complex deals until they could land the business.

    A McClatchy investigation in October documented how top managers from the structured finance division, which rated the complex deals, were moved into the top executive suites at Moody’s and effectively took over the company.

    McDaniel and Corbet said they were unaware that their analysts felt pressured to sacrifice the quality of investment-grade ratings to maintain market share and earn the huge accompanying fees.

    Investment-grade ratings gave investors the illusion of safe bets, allowing big Wall Street firms such as Goldman Sachs to peddle the securities across the globe. Moody’s and its chief competitors were key players in the prelude to a near meltdown of global finance in September 2008.”

    http://tinyurl.com/2dz3vdg

  51. Real information about deceitful acts perpetrated in the financial system is now coming out and on an accelerating basis. Any accountant that holds or held higher responsibility must have long understood the grifting. Grifting it is and it is very widespread.

    We are now at a watershed as far as investment is concerned. Any investor that ever relies on a security rating in the future must be suffering from dementia. I expect these rating agencies to be driven out of business. I also expect the big accounting firms to be driven out of business too. The very systems of auditing they use will no longer function. Replacement systems will be too expensive. The fees required will be too high. Why would an investor trust any numbers emanating from the big banks or other financial companies?

    There is another aspect to all this though that points to simple societal decay from overcomplexity. Those that grift think they are deeply honest. That is, they are functionally insane.

    Why would anyone desire to invest in any kind of debt today issued by or securitized by a United States financial institution?

    The present financial elites look to me to have committed suicide. If they have not done so, it means invstors must live in a permanent fools paradise. People unable to separate real life from their fantasies. Thr financial system relies on confidence and any national financial system that ignores maintenance of confidence will simply collapse. In quick time too given the revelations of the past couple of weeks.

  52. carping demon

    PAY NO ATTENTION TO THOSE MEN BEHIND THE CURTAIN, Alan.

    They’ll get you, and your little dog, too.

  53. Of course its political. Does it matter? The GOP could have called for prosecutions. If the have they are whispering.

    Looking at this catastrophe through the distortion of Republican/Democrat politics misses the real political battle – megabanks vs. everything else. If the megabanks win the political battle, we the non-oligarchs are destined to be peons as are our grandchildren.

  54. I used to think this kind of conspiracy talk was the result of smoking too much weed.

    The events of the last few years makes it appear reasonable.

  55. rene has made a point with both his serious post and his less serious one.

    Sometimes those on one side of an issue are so wrong but inflexible that rational discussion is pointless. That’s when humor, satire, and ridicule becomes very effective.

  56. The big bank that needs to be audited and then broken up is the Fed. It’s the Fed’s policies that created the TBTF issues in the first place.

  57. And then eliminate debt-based currency.

  58. Simon, cheers!! You are obviously just using your head for actual reasoning, and your experience to teach us all. Thanks for your dedication to this effort. I have sent this message and the YouTube video to everyone I know, with a message imploring them to pass it on.

  59. I already knew about this, and wondered how it would play out. The ratings bureaus were obviously letting their greed get a few laps on prudence on the race to truth, just as with most at the big banks. If what we heard on the Hill in Senator Levin’s committee is true or even substantially true, I only hope that the piper is paid and many who foisted this on investors (let’s face it most were institutions acting on behalf of clients, i.e. charities, mutual funds, cities and states, pension funds, etc.) will go to prison for fraud. Giving any shaky investment a high rating when you know it’s not a valid rating is pure, unadulterated fraud. Accepting a rating from an agency, if you are the requesting party, and knowing that the rating is flawed, is also fraud.

  60. For anyone who hasn’t see the NY Times quite excellent coverage of 13 Bankers on Thursday, here it is — http://tinyurl.com/bankers13

    As SJ notes above, there are indeed signs of the consensus moving, though cynics might recall a proud boat and a certain iceberg.

  61. Much appreciated, thanks!

  62. N.B. I couldn’t find a description of the Rhineland economic model on the internet other than the one posted @ adamsmith.org

    The person describing the Rhineland model is actually being critical of the German economic model. Most likely he hasn’t read The Wealth of Nations properly or understood it correctly.

    I think Simon Johnson would make a good Adam Smith.
    How is your knowledge of the classics, Simon?

  63. Goldman Sach’s CEO and board are named in shareholder lawsuits

    Posted 12h 39m ago – Associated Press – excerpts

    NEW YORK — “Goldman Sachs’s CEO and other top officers are accused in a pair of shareholder lawsuits of lax oversight in deals involving risky mortage-backed securities that later went bad. The lawsuits filed Thursday in New York State Supreme Court name Lloyd Blankfein and the firm’s entire board of directors as defendants.

    The suits follow civil fraud charges filed last week by the Securities and Exchange Commission over the same investments. The SEC says Goldman committed fraud by failing to disclose important information about the securities that might have scared off investors.

    The two suits, filed by shareholders Robert Rosinek and Morton Spiegel, accuse Blankfein and other officers of “systematic failure” over 3 1/2 years for not properly vetting 23 mortgage-linked deals at the center of the SEC suit. Those deals, called Abacus, led to $1 billion in losses.

    The suits appear to be the first shareholder cases related to the Abacus deals. If so, they may mark the start of what legal experts expect will be a flood of shareholder cases against Goldman Sachs.”

    http://tinyurl.com/23xrwt3

  64. Senior SEC Staff Downloads Porn Amid Financial Crisis

    April 23, 2010 – Forbes.com

    “Yesterday, the story broke that 17 senior SEC staff members were surfing pornographic Web sites on the job while the financial industry crashed around us. As if this weren’t shocking enough, it was also revealed that at least one of the staff members was a woman. Shame on me, I suppose, for assuming it would have been only men.

    The female accountant tried to access online pornography from her office laptop nearly 1,800 times in two weeks, CNN reports. She also had 600 sexually explicit images saved on her hard drive.

    To say the least, this comes at an awkward time for the government. President Obama gave a speech on Thursday in New York calling for reform of the financial sector, and the Senate is currently working on a Wall Street reform bill. Plus, just last week the SEC launched an attack on Goldman Sachs, charging the investment bank with fraud.”

    http://tinyurl.com/28ebxtx

  65. You have a peculiar definition of “populism”. The advertisement calls out the phonies behind the STBTF site with devastating economy.

    Indeed, it’s ironic that STBTF attempts to play precisely to populist rage in manipulating its audience.

    Fail.

  66. Nick B from DC

    Hope everyone called their senators! I made my calls to my MD senators during work.

    Their staff said they had “no public position” yet on the issue, :P

  67. Pretty funny, Mr C. D. ! But you’ve got your
    characters wrong: _I_ am the little dog yapping
    at the curtain . . . or maybe curtains.

    Alan, who believes in acknowledging affable comments

  68. the big 5 Canadian banks (TD; RBC; BMO; Scotiabank; CIBC) are solidly grounded in retail banking and have been for over a century though they have some investment divisions…but none of them can be called “investment banks” ala Goldman Sachs or JP Morgan…they are also being closely regulated by the Canadian government which is not shy exercising their vested power…Canadians do not have the same obsession with individualism and fear of “big bad” Government as most Americans have…so they are quite comfortable giving their government the power to truly regulate…remember Canada has had a universal health care system with single payer for over 40 years now…that tells you the different mindset between Canadians and Americans when it comes to “trusting” the government…historically Canadians have always leaned towards “trusting” the government of the day…up to a point…until they really screw things up…then they’re booted out of Parliament…not a bad system really…America should try it…my Canadian friends are quite happy with what they have…just ask Pres Obama’s brother-in-law

  69. re @ earle.florida…sorry to burst your bubble…my extensive business dealings in Canada has taught me something…the majority of BIG corporations there are American-owned not British anymore…it might have been British 100 years ago…these big corporate names sound familiar?…GM, Ford, Chrysler, Microsoft, Coca Cola, IBM, Sears, Hilton, Avis, Pepsico, FritoLay, Amex, Citibank, Staples, Best Buy, Apple, NBA, just to name a few… well they’re big players in Canada and they’re all American the last time I checked…

  70. re @ earle.florida…this is off topic for sure…but how can any American claim that Germany was a better ally in the past (you mean 1941 – 1945?)…it just boggles my mind…when you visit Arlington Cemetery thousands of brave American soldiers are laid to rest there..they gave up their lives fighting the German Nazis in WWII…this is truly insulting to the veterans and their families who paid the ultimate price of defeating Germany in the Last Good War…I think many Americans like Tom Brokaw, Bob Dole and President Eishenhower’s descendants will strongly disagree with your proclamation that Germany was a better ally than the U.K….it’s just not supported with facts…this is outright revisionism

  71. Re: @ b.nimble_______If you had read the comment correctly with or without your lorgnette’s on…you would have realized that I explicitly said “IF” (obviously dependinging on how “If” is interpretated?)! Your pithy misconstrued diatribe exhibits a incoherent xenaphobic self-induced paralysis too reason. Let me reiterate,…”The Treaty of Versailles” in 1919 where Germany was forced(the English laughed aloud,but the French were more consoling) into bankruptcy,with absolutely no help in rebuilding was physically,mentally,and literally devastating. History says that two years into WW1,Germany which was winning the war had offered Britain,and France a negotiated peace deal. Now listen up ,please,…this is important – some German Zionist groups seeing an opportunity,made a deal with Britain to get the United (President Woodrow Wilson/Central Bank Creator?) States into the war if Britain promised to give the Zionists Palestine(The Balfour Declaration & Timeline/1917 Teaty/1930 Passfield Papers/1938 Political Events of Europe&Israel/1939 The London White Paper/1941 Resistance in Palestine/1945-48 The Return of the British). Finally …what I had said was that Germany was given an unfair treaty that infuriated the German people,and if it were in line with a more humanistic,fair,and amicable treaty “Hitler” would never had an argument to foment the most destructive,and inhumane war in mankinds history. Please learn too read between the lines if you cannot read the lines,…? Thankyou Mr. Earle “auf Wie der seh’en

  72. To the readers: Ref. post – “Safe Banking Act Breaking Up”. Thanks

  73. Re @ earle.florida…I can’t believe we are still psychonalyzing Hitler 70 years after he orchestrated the mass murder of millions of innocent men, women, and children (Jews and non-Jews)…Hitler was a sick, evil psychopath and he would have used ANY excuse to achieve his ultimate goal to rid Germany of his arch enemy – the Jewish people…the German people was led the garden path by the psychopathic, xenophobic, narcissistic Nazis and their thuggish supporters… and Germany was totally devastated as a result, along with the rest of the U.K., Western & Eastern Europe and Russia just to satisfy some egomaniac’s sick evil agenda…this is the lesson humanity cannot afford to forget…or we risk repeating the same deadly mistakes in the future

  74. Just a suggestion about the ad on youtube. It doesn’t make any suggestion about what steps to make. It seems incomplete. Give a website at the very least! Even the youtube page is vague and gives no direction or suggestion or website.

  75. Jay Leno had his own take:

    “Just four days after Goldman Sachs cost investors $12 billion by failing to tell them that they’re being investigated for fraud, they gave out another $5.4 billion in bonuses. Huh? Even Somali pirates are going, ‘Come on!’”

    The Daily Show host Jon Stewart lined up this zinger: “For what? $5.4 billion in bonuses to your fraud division?”

    Maybe the sharpest dig came from comedian Stephen Colbert. He riffed on Goldman’s once strong position in Washington, where many of its former executives have taken on powerful jobs over the years.

    “Why are government employees filing a civil suit against Goldman Sachs? That’s just going to be embarrassing in a few years when they all go back to work at Goldman Sachs,” he asked.”