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Greg Smith worked for Goldman-Sachs. He turned on his former employer and in fact the whole Wall Street Industry in order to let folks know the “ins and outs” of the dirty trading practices that brought down our Anglo-Euro Banking System in 2007. In his book: “Why I Left Goldman-Sachs” Smith points to some very specific reasons and solutions. Chairman of the FDIC Sheila Bair then came out with her version of the same story from the view that lack of regulatory support, virtually little oversight penalties, very favorable federal intervention for the banking institutions and more….in her book “Bull by the Horns”.
After listening to Greg Smith or reading Sheila Bair there is every feeling that the entire system…..is Too Big To Fail. The feeling comes to mind that anything we try to fix will be fruitless attempts which will neither clean up the problems, send the right folks to prison for wrong doing and certainly leaves us all with the uneasy awareness…..that it will take more than a village……..to correct the system. Those feelings of frustration however can be tempered with a little understanding of two things: The Terms and The Solutions that can change things.
Greg Smith identifies what caused the mess: 1999 - The Glass-Steagal Act of 1933 is overturned by the Clinton Administration. Deregulation of Banking, making it possible to join Traditional Banking with Risk Based Investment Banking. Additionally, the Leverage Investment Limits were removed from 7 to 1 to 30 to 1 and finally Derivatives Regulation was unfettered and literally made unlimited. Smith said that at that time Goldman-Sachs changed from a Long Term Greedy Company to a Short Term Greedy Company. The European Union soon followed suit. Meanwhile, Sheila Bair says that the SEC was unprepared and unfinanced to oversee the fundamental changes to the system. The key ingredient says Smith is that Proprietary Trading soon took center stage. Proprietary Trading meaning that the Institution could create markets and then go out and sell against those markets to actually steal money from there own clients. Recently, Jamie Dimon lost $16 to $50 Billion dollars at J.P. Morgan Chase…doing exactly the same thing while shifting the loss to his European Banking Offices.
Those that have heard of Dodd-Frank or the Volker Rule…..probably think that we have gone back to the old days over “over-regulation of the Banking Industry” and this type of behavior could not happen very often. Wrong! Only 15% of Dodd-Frank has been implemented. The Congress of the United States has been sitting on its collective hands as Industry Insiders/Lobbyists “Fatten Up” these regulations to the point that there are more holes than swiss cheese in the initial Regulatory changes back in July of 2010. Barney Frank…..has left the Congress….no doubt he was depressed by the results of all his hard work to try and fix the problems. Sadly, the short term greed of Mutual Funds and the huge Teacher/Public Employee Pension and Retirement Funds continue to go after those 22% returns of very risky Institutional Banking players…..all of which are still Too Big To Fail. The Investment Banks and Institutions simply call this behavior: “Hedging and Market Making”. Sounds like something out of Merlin and King Arthur doesn’t it?
Adding to this lovely mix you have to add the “Caribbean Off-Shore Investment Banking” and all the traditional Euro/Swiss-Banks, Asian Banking Interest and yet to be uncovered – Mumbai/Singapore/Qater/Dubai….and now adding in the BRIC…..Brazil-Russia-Chinese and India consortium. With this many opportunities to game the system….the challenges seem not only perplexing and an ordeal but impenetrable. It would be easy to throw up our collective hands and say: “Whatever!” Then you think of that old saying: “The idea is to get the money out of their pockets and bring it back to ours!” So, indeed although difficult….there are answers.
Some of the things that Greg Smith and Sheila Bair seem to agree upon: (1) Institute Dodd-Frank without the encumbrances immediately. (2) Break up the Big Banks immediately…..especially their Traditional Banking from the their Investment Risk taking branches. (3) Ban Proprietary Trading and Speculation by any Holding Bank or Banking Institution. They would have to create Risk taking Private Companies to make these trades. Make all banks be immediately removed from the NYSE or any Publicly Traded entity. Removing the Snake Oil Salesmen from the Global Banking Community will be a tough challenge but not exactly impossible. European will follow the American lead. The Asian Tigers will follow the Europeans and the BRIC will follow the Asian Tigers when it comes to “Best Banking Practices”. Maybe North Korean can start an Investment Bank that someone want to invest in – but probably not.
The question arises: Why did only Bernie Madoff, Bernie Ebbers and Jeff Skillings go to jail…..that the general public knows about? The reasons are simple; the entire system, philosophy and environment was dirty and based on Short Term Greed, Profits and Bonuses. There was no relationship with investors other than why they could pull from their bank accounts. Add to this, the so-called “Office Space Mentality”….that stealing a little several million times a day is really not stealing has created the Super Computer Gaming Program for the largest Investment Groups and Organizations. The Day Traders are now a thing of the past as well as traditional Floor Traders at the New York Stock Exchange or the Chicago Mercantile Exchange. Those days will soon go the way….of the buggy whip.
We live in a huge virtual investment world, which is being run by a few. That number will undoubtedly shrink even further as the months and years go by….too quickly for anyone to truly understand or grasp. We need to demand accountability by our electeds. We need to know what special interest banks, pharmacies, insurance companies, big chemical, big oil, big Agra are donating to their campaigns and especially – why they are doing nothing to stop the Banking abuses. You may wonder why the Big Banks do not loan to small companies and business, qualified new home buyers and others deserving and needy in our society. The answer is quite simple……..they are targeting certain areas of the country that they can get higher prices and interest from. This is not rocket science.
Currently, certain parts of the country are experiencing a resurgence of their Residential Real Estate markets. The Big Banks Foreclosed on millions of American home owners during the down-turn. They kept those properties, while still going after the current list of possible future foreclosure victims to add to their list – and now have raised the prices to whatever the local market will bear. This is not their fault……it is the fault of the electeds who have not been minding the store for the citizens. We have the answers to these problems. We have the list of bad guys that have done the dirty deeds to our banking system and that of the world. We could prosecute them. We could send them to jail. We can even keep Jeff Skillings in prison for another 30 years……..if we want to, even though he is pleading to get out of jail…..right now.
The solution: Every elected member of Congress, President Obama, The Banking Industry: How to fix Global Banking…101 is right before you. Don’t you think it is time…..to take your medicine? Greg Smith and Sheila Bair know what you should take and how much you should take…….and now so does everybody else!