Are Big Banks a Bunch of Organized Criminal Conspiracies?

The record of deceit and deception that has surfaced in just the past two months points to yes.

February 27, 2013 | By Les Leopold

Are too-big-to-fail banks organized criminal conspiracies? And if so, shouldn't we seize their assets, just like we do to drug cartels?

Let's examine their sorry record of deceit and deception that has surfaced in just the past two months:

Loan Sharking

You want to get really, really pissed off? Then read "Major Banks Aid in Payday Loans Banned by States " by Jessica Silver-Greenberg in the New York Times (2/23/13). In sickening detail, she describes how the largest banks in the United States are facilitating modern loansharking by working with Internet payday loan companies to escape anti-loansharking state laws. These payday firms extract enormous interest rates that often run over 500 percent a year. (Fifteen states prohibit payday loans entirely, and all states have usury limits ranging from 8 to 24 percent. See the list .)

The big banks, however, don't make the loans. They hide behind the scenes to facilitate the transactions through automatic withdrawals from the victim's bank account to the loansharking payday companies. Without those services from the big banks, these Internet loansharks could not operate.

Enabling the payday loansharks to evade the law is bad enough. But even more deplorable is why the big banks are involved in the first place.

For the banks, it can be a lucrative partnership. At first blush, processing automatic withdrawals hardly seems like a source of profit. But many customers are already on shaky financial footing. The withdrawals often set off a cascade of fees from problems like overdrafts. Roughly 27 percent of payday loan borrowers say that the loans caused them to overdraw their accounts, according to a report released this month by the Pew Charitable Trusts. That fee income is coveted, given that financial regulations  limiting fees on debit and credit cards have cost banks billions of dollars.

Take a deep breath and consider what this means. Banks like JPMorgan Chase provide the banking services that allow Internet payday loansharks to exist in the first place, with the sole purpose of breaking the state laws against usury. Then Chase vultures the victims, who are often low-wage earners struggling to make ends meet, by extracting late fees from the victims' accounts. So impoverished single moms, for example, who needed to borrow money to make the rent, get worked over twice: First they get a loan at an interest rate that would make Tony Soprano blush. Then they get nailed with overdraft fees by their loansharking bank.

For Subrina Baptiste, 33, an educational assistant in Brooklyn, the overdraft fees levied by Chase cannibalized her child support income. She said she applied for a $400 loan from Loanshoponline.com  and a $700 loan from Advancemetoday.com  in 2011. The loans, with annual interest rates of 730 percent and 584 percent respectively, skirt New York law.

Ms. Baptiste said she asked Chase to revoke the automatic withdrawals in October 2011, but was told that she had to ask the lenders instead. In one month, her bank records show, the lenders tried to take money from her account at least six times. Chase charged her $812 in fees and deducted over $600 from her child-support payments to cover them.

Let's be clear: JPMorgan Chase, the big bank that supposedly is run oh-so-well by Obama's favorite banker, Jamie Dimon, is aiding, abetting and profiting from screwing loanshark victims.

What possible justification could anyone at Chase have for being involved in this slimy business? The answer is simple: profit. Dimon and company can't help themselves. They see a dollar in someone else's pocket, even a poor struggling single mom, and they figure out how to put it in their own. Of course, everyone at the top will play dumb, order an investigation and then if necessary, dump some lower-level schlep. More than likely, various government agencies will ask the bank to pay a fine, which will come from the corporate kitty, not the pockets of bank executives. And the banks will promise -- cross their hearts -- never again to commit that precise scam again.

(Update: After the publication of Jessica Silver-Greenberg's devastating article, Jamie Dimon "vowed on Tuesday to change how the bank deals with Internet-based payday lenders that automatically withdraw payments from borrowers’ checking accounts," according to the New York Times. Dimon called the practices "terrible." In a statement, the bank said, it was “taking a thorough look at all of our policies related to these issues and plan to make meaningful changes.”)

Money Laundering for the Mexican Drug Cartels and Rogue Nations

HSBC, the giant British-based bank with a large American subsidiary, agreed on Dec. 11, 2012 to pay $1.9 billion in fines for laundering $881 million for Mexico's Sinaloa cartel and Colombia's Norte del Valle cartel. The operation was so blatant that "Mexican traffickers used boxes specifically designed to the dimensions of an HSBC Mexico teller's window to deposit cash on a daily basis," reports Reuters. They also facilitated "hundreds of millions more in transactions with sanctioned countries," according to the Justice Department.

Our banks got nailed as well. "In the United States, JPMorgan Chase & Co, Wachovia Corp and Citigroup Inc have been cited for anti-money laundering lapses or sanctions violations," continues the Reuters report. My, my, JPMorgan Chase, the biggest bank in the U.S. sure does get around.

And the penalty? A fine (paid by the HSBC shareholders, of course, that amounts to 5.5 weeks of the bank's earnings) and we promise – honest -- never to do it again.

Too Big to Indict?

Wait, it gets worse. Why weren't criminal charges filed against the bank itself? After all, the bank overtly violated money laundering laws. This was no clerical error. The answer is simple: "Too big to Indict," screams the NYT editorial headline. You see federal authorities are worried that if they indict, the bank would fail, which in turn would lead to tens of thousands of lost jobs, just like what happened to Arthur Anderson after its Enron caper, or like the financial hurricane that followed the failure of Lehman Brothers. So if you're a small fish running $10,000 in drug money, you serve time. But if you're a big fish moving nearing a billion dollars, you can laugh all the way to your too-big-to-jail bank.

Fleecing Distressed Homeowners

The big banks, in collusion with hedge funds and the rating agencies, puffed up the housing bubble and then burst it. Nine million workers, due to no fault of their own, lost their jobs in a matter of months. Entire neighborhoods saw their home values crash. Tens of millions faced foreclosure.

The big banks, which were bailed out and survived the crash, sought to foreclose on as many homes as possible, as fast as possible. Hey, that's where the money was. In doing so they resorted to many unsavory practices including illegal robo-signing of foreclosure documents. When nailed by the government, the big banks agreed to provide billions in aid for distressed homeowners. Were they finally forced to do the right thing? Not a chance. (See "Homeowners still face foreclosure despite billion in aid" NYT 2/22.)

The big banks, despite what they say in their press statements, found a convenient loophole in the government settlement. The banks began forgiving second mortgages, and then foreclosing on the first mortgage. That's a cute maneuver because in a foreclosure, the bank rarely can collect on the second mortgage anyway. So they're giving away something of no value to distressed sellers and getting government credit for it. Just another day at the office for our favorite banksters.

The Indictments Go On...

I could write a book about all the ways in which banks and their hedge fund cousins have turned cheating into a way of life. (In fact, I just did: "How to Earn a Million Dollars an Hour: Why Hedge Funds Get Away With Siphoning off America's Wealth. Here's the AlterNet interview. )

JPMorgan Chase, Citigroup and Goldman Sachs have been fined over a billion dollars for creating and selling mortgage-related securities that were designed to fail so their hedge fund buddies could make billions. And then we've got the recent LIBOR scandal where the biggest banks colluded to manipulate interest rates for fun and profit.

It's not about good people or bad people running these banks and hedge funds. It's the very nature of these institutions. That's what they do. They make big money by doing what the rest of us would call cheating. As the record clearly shows, they cheat the second they get the chance.

What kind of institution would loanshark, money launder, fix rates, game mortgage relief programs, and produce products designed to fail? Answer: An institution that should not exist.

Nationalize Now and Create State Banks

There are about 20 too-big-to fail banks which have been designated "systematically significant." These should be immediately nationalized. Shareholder value should be wiped out because these banks are repeatedly violating the law, including aiding and abetting criminal enterprises. All employees should be placed on the federal civil service scale, where the top salary is approximately $130,000.

Can the government run banks? Yes, if we break up the big banks and turn them over to state governments so that each state would have at least one public bank. (North Dakota has a strong working model.) The larger states would have several public state banks. But never again would we allow banks to grow so large as to threaten our financial system and violate the public trust. Let FDIC regulate the state banks. They're actually good at it.

(We'd also have to do something about the shadow banking industry -- the large hedge funds and private equity firms. Eliminating their carried-interest tax loophole and slapping on a strong financial transaction tax would go a long way toward reining them in.)

Won't the most talented bankers leave the industry?

Hurray! It can't happen soon enough. It's time for the best and the brightest to rejoin the human race and help produce value for their fellow citizens. Let them become doctors, research scientists, teachers or even wealthy entrepreneurs who produce tangible goods and services that we want and need. What we don't need are more banksters.

Isn't This Socialism?

We already have socialism for rich financiers. They get to keep all of the upside of their shady machinations and we get to bail them out when they fail. This billionaire bailout society is now so entrenched that our nascent economic recovery of the last two years has been entirely captured by the top 1 percent. Meanwhile the rest of have received nothing. Nada. (See "Why Is the Entire Recovery Going to the Top One Percent? ")

I know, I know, people say, "Next time, just don't bail them out!" Meanwhile, they get to rip us off, day in and day out, until the next crash? No thanks. Put them out of business now. If you have a better idea, let's hear it.

The Drug War Transformed

Connie Mack and the "Terrorist Insurgency" in the Americas

by TOM BARRY

 

“This is a terrorist insurgency,” says Connie Mack, the Republican who chairs the Western Hemisphere Subcommittee of the House Foreign Affairs Committee.

Mack, who introduced the Enhanced Border Security Act in mid-December, believes that the Merida Initiative has failed and that the administration needs to revamp the counterdrug assistance program to include a “counterinsurgency plan.”

Explaining why his Enhanced Border Security bill is needed, Mack said: “The Mexican drug cartels have evolved into what some call the greatest national security threat faced by the United States with the ability to severely damage the U.S. economy.”

Adopting the language of the Obama administration’s new strategy to “combat transnational organized crime,” Mack warns that both Mexico and the United States are facing a “terrorist insurgency” waged by transnational criminal organizations “along our southern border, with operations across Mexico and Central America as well as in over 1,000 U.S. cities.”

Five years after President Felipe Calderón launched Mexico’s drug war in December 2006 and three years into the Merida Initiative counterdrug assistance program, there is widespread anxiety in Mexico that the government is not gaining the upper hand on the drug cartels and that the drug-related violence, which has left a toll of 50,000 dead, will continue into the next sexenio, the six-year presidential term.

Whatever their politics, most close observers of the drug war in Mexico would agree with the Republican firebrand from Florida that the last five years of Mexico’s drug war have done little to increase governmental security and social stability. Most assessments of the Merida Initiative’s impact on Mexico and Central America are similarly negative.

The basic facts of the drug-related crisis in Mexico are clear enough, but what’s not so evident is its character and identity.

As President Calderón’s sexenio draws to an end and as the U.S. government evaluates its involvement in Mexico’s drug war and its border policy, new questions are being asked about drug threat and about the proper response.

Mack insists that traditional counternarcotics strategies are insufficient and out of step with the changing character of the drug trade in Mexico and in Central America.

What we are seeing in the region is not simply the business and violence of drug-related crime, says Mack. Instead, Mexico and the drug transit countries of Central America are facing insurgency and terrorism that threatens the security of region and of the United States.

Mexico has vociferously rejected Mack’s contention that the drug cartels represent an existential threat to state power.

But the basic facts of the drug war – widespread territorial loss of effective governing power, the involvement of local drug bosses in politics, the massive deployment of the military, the increasing firepower of the cartels, the war-level loss of life, and the use of horrific violence to make statements – seem to support Mack’s contention that Mexico is facing what he variously calls a “terrorist insurgency” and a “criminal insurgency.”

The inability of the Obama administration’s expanded border-security operations to significantly obstruct the crossborder flow of drugs from Mexico also points to the inadequacy of the U.S. response, whether at home or in Mexico.

Mack is, of course, not alone in his characterization of the Mexican drug-trafficking organizations (DTOs) as insurgents and narcoterrorists. Nor is he the only major public figure who is raising alarm about an increased threat to U.S. national security.

Two retired U.S. generals, including the former chief of the U.S. Southern Command, came to similar conclusions in a recent report commissioned by the Texas state government alarmingly titled Texas Border Security: A Strategic Military Assessment.

There’s no disputing the severity of the drug-related violence in Mexico and Central America. Yet the increasing discussion of the security implications of illegal drug trade also relates to the Obama administration’s own attempt to redefine the domestic and international drug problem as a battle against transnational criminal organizations.

The Transformed Drug Threat
The U.S. government has traditionally referred to Mexican and other Latin American drug cartels as drug trafficking organizations (DTOs). But the Obama administration has altered the nomenclature of the drug trade, and the DTOs are now routinely categorized as transnational criminal organizations (TCOs).

By newly designating the Mexican DTOs as transnational criminal organizations, the Obama administration has opened new political room for foreign policy hawks and anti-drug hardliners like Connie Mack to credibly argue that the U.S. needs to respond differently and more aggressively to the evolving drug trade scenario in the hemisphere.

Obama counternarcotics officials have dropped the term “war on drugs.” Instead, the four-decade war has been superseded by the newly organized “combat against transnational crime” and transnational organized criminal organizations – as spelled out this year by the White House in the Strategy to Combat Transnational Organized Crime.

The shift in the terminology to describe the U.S. national and international enforcement of its drug control laws – shedding an embarrassing military metaphor and adopting a more appropriate law-enforcement one – was long overdue.

Wars, after all, are fought to win not to flounder — with nary a sign of victory after four decades of drug war-fighting. In contrast, crime-fighting is accepted as a constant slog where no final victory is ever expected.

President Obama, however, insists, that the combat against the drug-trafficking TCOs is a matter of urgent national security, promising to prioritize the targeting of TCOs that represent a “high national security risk.”

In keeping with new parlance of the administration, Connie Mack, who chairs the Western Hemisphere Subcommittee, contends that the U.S. and Mexican governments no longer simply confront drug trafficking organizations but now face powerful transnational criminal organizations that threaten not only the region’s security but also U.S. national security.

In contrast to Mack, other critics, apart from those of the right wing, lambast the Merida Initiative for contributing to widespread human rights violations by the Mexican military and for continuing drug war strategies that are based on failed drug prohibition policies.

Counting on Connie Mack
During his seven years in Congress, Mack has won strong support from his conservative constituency for his hardline positions on U.S. Latin America policy, particularly with his shrill anti-communist critiques of Castro in Cuba, Chávez in Venezuela, and Zelaya (removed by military-backed coup) in Honduras.

As chairman of the Western Hemisphere subcommittee, Mack has won a larger megaphone for a view of hemispheric relations in which U.S. hegemony persists. In language reminiscent of the imperial era politics in Latin America, Mack states: “You can count on me to challenge these tyrants wherever they are and always stand on the side of freedom, security and prosperity.”

Mack’s hawkish views on Mexico represent an ideological continuity in that he regards the TCOs as insurgents who challenge the established order. Yet his new focus on Mexico and the border security also have more immediate political origins – including an opportunity to bash the Obama administration and an attempt to assuage anti-immigrant constituents outraged over Mack’s criticisms of the repressive Arizona immigration law as threat to “freedom-loving conservatives.”

Mack may see his hawkish stances on border security and on the Mexico drug war as restoring the trust of his conservative constituents and helping him in his likely bid to to unseat Democratic Senator Bill Nelson.

In a Sept. 16 letter to the State Department complaining about the failures of the Merida Initiative, Mack wrote that “the transformation of drug cartels into TCOs and their attempts to undermine the Mexican government through tactics labeled as characteristics of an insurgency” required an overhaul of the Merida Initiative to address the new security environment.

Mack told the State Department:

The failure of this Administration to set performance measures, target dates or tangible goals to measure the success of U.S. programs has made it impossible to claim ‘success’ on the initiative itself. Meanwhile, the Mexican drug cartels have capitalized on the United States’ sluggish assistance to actively undermine the Mexican state through insurgent activities such as violence, corruption, and propaganda.

Both the Calderón and Obama administrations insist that the battle against the cartels – called drug war in Mexico and combat against transnational crime in the U .S. – is making steady progress toward the goal of reducing the threat of the drug-trafficking organizations.
Responding to Mack’s letter, the State Department wrote:

We believe the [Merida] Initiative is already having a positive impact. Through its bold efforts, with U.S. support, the Mexican government has successfully dismantled drug smuggling routes, seized major amounts of illicit drugs and jailed drug kingpins.

Critiquing the Merida Initiative, Mack says, “If we are unable or unwilling to identify the problem correctly, then we are unable to properly put a policy forward to combat the issue at hand.  The security and safety of the American people depend on it.”

That’s exactly right. But it is not a problem that began with the Merida Initiative or with the Obama administration.  Mack only compounds the problem of incorrectly identifying the issue at hand in Mexico and at the border by introducing new identifiers such as “terrorist insurgency” and “criminal insurgency.” Such terms confuse tactics and methods with objectives and goals, while leading both countries down the path of increased militarization.

The Obama administration also confiscates the drug-related crisis in Mexico by raising the specter of transnational crime as a national security threat and by identifying the Mexican drug trafficking organizations as the cause of the crisis rather than as largely a product of America’s own drug war and drug prohibition policies.