They are too big to fail! I have an idea. Let’s make them even bigger! That will solve everything.
A segment from Democracy Now of Thursday 21 May.
By Amy Goodman via Democracy Now.
Five of the world’s top banks will pay over $5 billion in fines after pleading guilty to rigging the price of foreign currencies and interest rates. Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland pleaded guilty to conspiring to manipulate the price of U.S. dollars and euros exchanged in the $5 trillion FX spot market. UBS pleaded guilty for its role in manipulating the Libor benchmark interest rate. No individual bank employees were hit with criminal charges as part of the settlements. We are joined by Matt Taibbi, award-winning journalist with Rolling Stone magazine.
NERMEEN SHAIKH: We turn now to the felons on Wall Street. Five of the world’s top banks will pay over $5 billion in fines after pleading guilty to rigging the price of foreign currencies and interest rates. Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland pleaded guilty to conspiring to manipulate the price of U.S. dollars and euros exchanged in the five trillion foreign exchange—$5 trillion foreign exchange spot market. UBS pleaded guilty for its role in manipulating the Libor benchmark interest rate. On Wednesday, U.S. Attorney General Loretta Lynch announced the deal.
ATTORNEY GENERAL LORETTA LYNCH: We are here to announce a major law enforcement action against international financial institutions that for years participated in a brazen display of collusion and foreign exchange rate market manipulation, and will, as a result, pay a total of nearly $3 billion in fines and penalties. As a result of our investigation, four of the world’s largest banks have agreed to plead guilty to felony antitrust violations. They are Citicorp, JPMorgan Chase & Co., Barclays PLC and the Royal Bank of Scotland PLC.
AMY GOODMAN: No one who works with the banks was hit with criminal charges as part of the settlements.
For more, we’re joined by Matt Taibbi, award-winning journalist with Rolling Stone magazine. His most recent book, The Divide: American Injustice in the Age of the Wealth Gap, is now out in paperback.
Welcome back to Democracy Now!, Matt.
MATT TAIBBI: Good to see you, Amy.
AMY GOODMAN: OK, explain what these banks are charged with. And what does it mean when you say banks are charged, but all the people go free?
MATT TAIBBI: Right, they filed—actually, these banks, the companies, pleaded guilty to felony charges in this case, which means it was not individuals of the company, it was the actual company itself, which is actually a step forward, because for a long time in the post-2008 period we were having a lot of settlements where there was a sort of a neither-admit-nor-deny agreement between the government and these companies, and in this case they actually did have to admit to wrongdoing and did have to plead guilty to a criminal charge, in addition to the money changing hands.
AMY GOODMAN: And what was the wrongdoing?
MATT TAIBBI: The wrongdoing was manipulating the prices of currencies, which is about as serious a financial crime as you can possibly get, I think. You know, you and I sat here a few years ago and talked about the Libor scandal. This is very similar.
AMY GOODMAN: In as simple terms as you can make it, because I think that’s why nobody goes to jail: No one can—
MATT TAIBBI: Right.
AMY GOODMAN: You can understand if someone steals a candy bar.
MATT TAIBBI: Right.
AMY GOODMAN: And a person can go to jail for years for that.
MATT TAIBBI: Right.
AMY GOODMAN: But when it comes to this, what did they do?
MATT TAIBBI: They were monkeying around with the prices of every currency on Earth. So, if you can imagine that anybody who has money, which basically includes anybody who’s breathing on the planet, all of those people were affected by this activity. So if you have dollars in your pocket, they were monkeying around with the prices of dollars versus euros, so you might have had more or less money fractionally, depending on all of this manipulation, every single day. And again, Attorney General Lynch went out of her way to say that this activity went on basically every single day for the last five years or so. So every single day, that $5 in your pocket was worth a little bit more or a little bit less, based on what these people were doing. And if you spread that out to everybody on Earth, it turns into a financial crime that’s on a scale that, you know, you would normally only think of in Bond movies or something like that.
NERMEEN SHAIKH: Well, the Justice Department says traders used online chat rooms and coded language to manipulate currency exchange rates. One high-ranking Barclays trader chatted, quote, “If you ain’t cheating you ain’t trying.” And another responded, quote, “Yes, the less competition the better.” So, could you comment on that, Matt? And also explain why, in this particular case, the companies pleaded guilty.
MATT TAIBBI: Well, I think part of it is because they had this very graphic online record of these people chatting and admitting to essentially a criminal conspiracy in writing. That’s one of the things that’s really interesting about this entire era of financial crime, is that you have so much of this very graphic, detailed documentary evidence just lying around. The problem is the government has either been too overwhelmed or too disinclined to go and get it and do anything with it. In this case, you have people openly calling themselves the cartel or the mafia, and then openly talking about monkeying around or manipulating, you know, the price of this or that. The CFTC, the Commodity Futures Trading Commission, actually released chats from a different case involving interest rate swaps yesterday, where they—where one guy was bragging about how he was holding up the price of interest rate swaps like he was bench-pressing at. They were bragging about this, you know, in these chat rooms. So these—what you have to understand about a lot of these people, they’re very testosterone-laden, souped-up young people who think that they’re indestructible. They’re very arrogant. And they’re doing all this in chat rooms, thinking they’re never going to get caught. And they got caught.
AMY GOODMAN: On Wednesday, Citigroup CEO Michael Corbat said, quote, “The behavior that resulted in the settlements we announced today is an embarrassment to our firm, and stands in stark contrast to Citi’s values,” unquote. Meanwhile, JPMorgan CEO Jamie Dimon called the investigation findings, quote, “a great disappointment to us.” He went on to say, quote, “The lesson here is that the conduct of a small group of employees, or of even a single employee, can reflect badly on all of us, and have significant ramifications for the entire firm,” said the CEO, Jamie Dimon.
MATT TAIBBI: Well, what’s humorous about this is that virtually all of these so-called too-big-to-fail banks now have been embroiled in scandals of varying degrees of extreme seriousness since 2008. So for them to say, “Oh, it’s just a few bad apples in this one instance,” is increasingly absurd. They have been dinged for everything from bribery to money laundering, to rigging Libor, to mass fraud in the subprime mortgage markets and now the forex markets. It’s one mass crime over—you know, after another, and there’s no consequence.
AMY GOODMAN: Now, aren’t these banks competitors?
MATT TAIBBI: Well, sort of. But that’s the main problem in this case, is what’s happening is that they’re colluding, which is a far more dangerous kind of corruption than what we saw, for instance, in 2008, when you saw a lot of banks, in house, committing fraud against their own clients and against the markets. This behavior, where you have a series of major banks colluding to fix the price of a currency, that is extremely dangerous. And if that behavior is allowed to go unchecked, the negative possibilities that could stem from that are virtually limitless.
NERMEEN SHAIKH: Well, the foreign exchange market is the largest, and yet the least regulated, market in the financial world.
MATT TAIBBI: Mm-hmm.
NERMEEN SHAIKH: Do you know why that is? And who would be in charge of its regulation?
MATT TAIBBI: Well, a variety of regulatory bodies would have what you would describe as a general purview over this kind of activity. Obviously, they got them on an antitrust violation, so this—it falls under the purview of the Department of Justice. The Fed, the banking regulators, the Commodity Futures Trading Commission, they all have a kind of a general mandate to look out for this sort of stuff. But the problem with the forex markets is that there isn’t a specific body that’s specifically looking at this all the time. It’s not like, let’s say, you know, the commodities market, where you do have a CFTC that’s specifically looking at that. This is one of many markets that simply falls between the cracks in the regulatory scheme, where there isn’t a single—you know, a targeted effort to look at this all the time.
AMY GOODMAN: Earlier this month, independent Senator Bernie Sanders of Vermont, who’s now running for president, introduced the Too Big to Fail, Too Big to Exist Act.
SEN. BERNIE SANDERS: The bill that I am introducing today with Congressman Brad Sherman would require regulators at the Financial Stability Oversight Council to establish too-big-to-fail list—a too-big-to-fail list of financial institutions and other huge entities whose failure would pose a catastrophic risk on the United States economy without a taxpayer bailout. This list must include, but is not limited to, JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Wells Fargo and Morgan Stanley.
It should make every American extremely nervous that in this weak regulatory environment—weak regulatory environment—the financial supervisors in our country and around the world are still able to uncover an enormous amount of fraud on Wall Street and other financial institutions to this very day. I fear very much that the financial system is even more fragile than many people may perceive. This huge issue simply cannot be swept under the rug. It has got to be addressed.
AMY GOODMAN: So that is Democratic presidential candidate Bernie Sanders, senator of Vermont, independent senator. About a decade ago, you stayed with Sanders for about a month, covering him for Rolling Stone, doing a profile.
MATT TAIBBI: Yeah. Sort of remarkably, he invited me to tag along and just sort of watch how the process works. I think he felt that the public should know about a lot of the nooks and crannies of the congressional bureaucracy. And I got this remarkable education into how things actually work. He didn’t hold anything back. Sanders is, you know, exactly as advertised. He’s a completely honest, I think, politician who is just really interested in seeing—you know, standing up for regular working people. So, his voice on this particular issue, I think, is really important, because he’s one of the few politicians who understands that it’s a truly bipartisan issue that affects everybody, people on both sides of the aisle, equally. And he’s absolutely right about breaking up the banks. That is the most single most important thing that has to be done with this issue.
NERMEEN SHAIKH: Well, there have been reports, Matt Taibbi, and I’m sure this is the case, that none of the significant changes that were to be put in place in the financial system since the crisis occurred several years ago—those changes have not yet taken place, and so this kind of thing is likely to recur. Could you talk about that and also the extent to which the new attorney general, Loretta Lynch, is likely to be tougher on banks and, indeed, on bankers?
MATT TAIBBI: Well, I don’t know if that’s exactly true. I definitely hear from people on Wall Street all the time that there are—there are certain things that are different. I think, you know, trading—banks trading for their own accounts, that’s been severely curtailed since Dodd-Frank. You know, there have been a number of regulations that have made it more difficult to engage in the kinds of risky activities that we saw before 2008.
But by and large, the general problem is more unwillingness to enforce existing laws. And it wasn’t so much an absence of new regulations that was the problem in 2008. It was more a failure of will on the part of the government. We had laws on the books that were perfectly sufficient in the late ’80s and early ’90s, when we, you know, conducted over 1,800 prosecutions and put 800 people in jail after the S&L crisis. We can do the same thing now, if we want to, with this or with robo signing or with subprime mortgage fraud or any of another dozen other scandals, and we just haven’t done it. And that—I think that’s the main problem, and it’s a failure of will. And I do hear from people that there is more serious now—seriousness now, in the waning years of the Obama administration, more willingness to go after the banks.
AMY GOODMAN: A new report from the Corporate Reform Coalition called “Still Too Big to Fail” says, since 2008, regulators have failed to enact key parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It found, quote, “The top six bank holding companies are considerably larger than before, and are still permitted to borrow excessively relative to the assets they hold. … Banks can still use taxpayer-backed insured deposits to engage in high-risk derivative transactions here and overseas. Compensation incentives fail to discourage mismanagement and illegality, given that when legal fees, settlements, and fines mount, it is usually the shareholders, not the corporate executives who pay.” The report concludes, quote, “Should one of these giant banking firms fail again, it appears that the damage will not be contained.” So there’s a lot here. One is that the U.S. could descend again. Number two is that even with the billions that are now—these banks have to pay, who is actually paying?
MATT TAIBBI: Oh, the shareholders. I mean, that’s—the pain is not going to come from the actual wrongdoers, you know, the people who actually committed these offenses—although there have been some criminal indictments in the previous Libor case, so we can’t say that nobody’s going to go to jail, because it is possible that that could happen. There could be a few low-level players who will get rolled up in this thing.
AMY GOODMAN: Because the non-prosecution agreement was voided because they did it again?
MATT TAIBBI: Yes, but even in the Libor case, there were people from other banks. Rabobank, there were a couple of employees who got—who were criminally indicted, if I remember correctly. But it was nothing like the roundup that should have happened. I’m just saying that there were a few individuals who got caught up here and abroad. But by and large, you know, that quote is absolutely correct.
There are a couple of points that are really important here. First, after 2008, we made the system far more concentrated. We made the too-big-to-fail banks much bigger than before. We actually did this intentionally. We used taxpayer money to merge banks together, to make them bigger and more dangerous and harder to regulate. And we saw, with episodes like the London Whale episode, that massive losses can happen in the blink of an eye, and we will have no idea when it’s coming. And so, this kind of activity—we’ve definitely made the system riskier, harder to regulate. And all those things are certainly true, and Dodd-Frank has failed to address those.
AMY GOODMAN: Matt Taibbi, we’re going to break, and when we come back, you’ve written another piece called “Why Baltimore Blew Up,” and we’re going to take a look at this. You say it goes far beyond the police killing of Freddie Gray. Matt Taibbi, award-winning journalist with Rolling Stone magazine. His recent book is now out in paperback, The Divide: American Injustice in the Age of the Wealth Gap. Stay with us.