May 15, 2012

Wall Street notes


Bill Clinton was a major perp

When a system of power becomes corrupted, it makes few distinctions along party lines. For example, although the media and liberals rarely recognize it, Bill Clinton played a major role in creating the current financial crisis. His signing of the repeal of the Glass-Steigall Act – which regulated banks for six decades – was one of the most damaging decisions made by a present in modern history. His reaction at the signing ceremony can be seen above.
 
Ralph Brauer,Progressive Historians - Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as [CEO Sanford] Weill's chief lieutenant. The previous year, Weill had called Secretary Rubin to give him advance notice of the upcoming merger announcement. .

When Bill Clinton gave that pen to Sanford Weill, it symbolized the ending of the twentieth century Democratic Party that had created the New Deal. Although the 1999 law did not repeal all of the banking Act of 1933, retaining the FDIC, it did once again allow banks to enter the securities business, becoming what some term "whole banks."

…With the stroke of a pen, Bill Clinton ended an era that stretched back to William Jennings Bryan and Woodrow Wilson and reached fruition with FDR and Harry Truman.

Why Glass-Steagall was important

Biz Finance - The Banking Act of 1933, widely known as the Glass-Steagall Act of 1933, separated banking according to the types of banking business - commercial banking and investment banking. It was passed when a large portion of the U.S. banking system collapsed during the Great Depression in the 1920s and 1930s. History and Meaning of Glass-Steagall Act

…After the enactment of Glass-Steagall, commercial banks could accept depositor's money and make loans but could not become involved in selling or trading securities or underwriting. They certainly could not trade in risky or speculative financial instruments.

….Investment banks could underwrite securities and sell securities, but they could not accept bank deposits or make loans to customers.

Along with the other provisions of the Glass-Steagall Act, it also created the Federal Deposit Insurance Corporation.The FDIC is a government corporation that insures the safety of depositors' money up to $250,000 per depositor per bank.

Think Progress - Massachusetts Democratic senate candidate Elizabeth Warren reacted to the news of JP Morgan’s $2 billion trading debacle by calling for the bank’s CEO, Jamie Dimon, to step down from his position as a director of the Federal Reserve Bank of New York’s board. Today, Warren also said that the episode makes the case for a return to “boring banking” — separating investment banking from traditional commercial banking — which was the status quo before the deregulatory zeal of the late 1990s:

Q: You think had [the Volcker rule] been in place, we wouldn’t be talking about this?

WARREN: Well, I’m going to put it this way. The Volcker Rule would help. We don’t know exactly the nature of these trades. But if the question is is the Volcker rule enough, or do we need more, look, I’m somebody who believes we really should have boring banking. That banking should be — the part that’s about savings accounts and checking accounts and our money system — should be separated from the kind of risk-taking that Wall Street traders want to take. That was originally what the Glass-Steagall Act was about, it was repealed in 1999. There was an effort to get it into Dodd-Frank in the 2010 bill. That effort failed. I think we really do need that kind of separation. We need to go back to boring banking. The people who want to take risks need to take risks with their own money and do it somewhere else.

This echoes the call made by economist Paul Krugman, who noted that the era of boring banking “was also an era of spectacular economic progress for most Americans.” Update

In an email today, Warren called on Congress to reinstate Glass-Steagall:

I’m calling on Congress to put Wall Street reform back on the agenda and to begin by passing a new Glass-Steagall Act. This was the law that stopped investment banks from gambling away people’s life savings for decades — until Wall Street successfully lobbied to have it repealed in 1999. A new Glass-Steagall would separate high-risk investment banks from more traditional banking. It would allow Wall Street to take risks, but not by dipping into the life savings and retirement accounts of regular people.

It doesn’t get much more corrupt than this

Sen. Bernie Sanders (I-Vt.) argues that "It is an obvious conflict of interest for Jamie Dimon, the CEO of the largest bank in America, to serve on the New York Fed's board of directors."

"The New York Fed is in charge of both regulating JP Morgan Chase and deciding whether or not to provide billions of dollars in virtually zero-interest loans to this too-big-to-fail institution if it needs another bailout. This is a clear example of the fox guarding the henhouse.

“Dimon served on the board of the Federal Reserve Bank of New York at the same time that his bank received over $390 billion in total emergency loans from the Fed. JP Morgan Chase was used by the Fed as a clearinghouse for the Fed's emergency lending programs. Dimon was successful in getting the Fed to provide JP Morgan Chase with an 18-month exemption from risk-based leverage and capital requirements. Dimon convinced the Fed to take risky mortgage-related assets off of Bear Stearns balance sheet before JP Morgan Chase acquired this troubled investment bank.”

How margin calls can affect your morning cup of coffee

Bloomberg - Robert P. Stiller, chairman and founder of Green Mountain Coffee Roasters Inc., disclosed the sale of more than one-third of his company stake, some of which was pledged to cover margin accounts and as loan collateral. About $125.5 million of Stiller’s Green Mountain stock was sold May 7 to meet margin requirements after the shares tumbled last week, according to a filing with the U.S. Securities and Exchange Commission today. Waterbury, Vermont-based Green Mountain on May 2 reported revenue that trailed analysts’ estimates, sending the shares down 48 percent the next day.

The sale brings Stiller’s stake down to about 8.39 million shares, making him the fifth-largest holder, from 13.4 million as of March 27, according to data compiled by Bloomberg. Stiller, who was chief executive officer of Green Mountain from 1981 until May 2007, has put about 12.5 million of his Green Mountain shares into margin accounts or pledged them as collateral for at least one loan, according to the company’s latest proxy statement.

Stiller was subsequently ousted as chair. Green Mountain’s stock price declined 50% in the two weeks of May

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