Watching the Congressional Financial Crisis Commission hearing under Congressman Peter Angelides the past two days has been as enthralling as watching screeching chalk writing on a blackboard. It is so discordant. This is Kabuki Theater where all the players know their roles and the only question is who will break form or slip up. The bankers who made it this time were defiant and unrepentant:
JP Morgan Chase CEO Jamie Dimon insisting that financial crises are not unusual and we can expect one every 5-7 years. Or LloydBlankfein Goldmans Sachs CEO, unapologetic as ever, insisting that making the market for the toxic instruments, selling them to clients and then betting massively against those clients and their own instruments was the normal course of business – saying these buyers are big institutions they have people plus the wherewithal to analyze their investments. But the topper was Blankfein comparing the Financial Crisis to a natural disaster [no, no, not induced by Wall Street’s practiced greed] the intensity of which nobody could predict.
In general this was common theme among the Financial Top-Thinkers – the crisis was a freak of nature, a crisis which was hard to predict and few parties “connected the dots”. It was made worse by government policies that encouraged lending to minorities and other high risk groups. And Federal regulators were too lax. And so, of course, no apologies were necessary.
Paul Krugman in the New York Times catches this Kabuki strategy in his article, Clueless Bankers. Here is a salient quote:
Consider what has happened so far: The U.S. economy is still grappling with the consequences of the worst financial crisis since the Great Depression; trillions of dollars of potential income have been lost; the lives of millions have been damaged, in some cases irreparably, by mass unemployment; millions more have seen their savings wiped out; hundreds of thousands, perhaps millions, will lose essential health care because of the combination of job losses and draconian cutbacks by cash-strapped state governments.
And this disaster was entirely self-inflicted. This isn’t like the stagflation of the 1970s, which had a lot to do with soaring oil prices, which were, in turn, the result of political instability in the Middle East. This time we’re in trouble entirely thanks to the dysfunctional nature of our own financial system. Everyone understands this — everyone, it seems, except the financiers themselves.
In effect, Krugman says the CEO from the major Banks disqualified themselves from the debate on financial reforms because they are clueless as to the nature and depth of what they have done to the country. But I would beg to differ. The top financial CEOs did this “Clueless” act with cold calculation. They appear to have a devious plan and the first part is for them to be stonewalling and impertinent so the real line of attack can be deployed by their heavy-hitters – a disciplined army of PR specialists, legal experts, lobbying teams and deep-in-government minions.
The Banksters Goal: Derail Financial Re-Regulation
The top bankers want to preserve their elite money making position which they have just secured with two decades of persistent lobbying and training the media. This financial pinnacle is not going to be surrendered so easily. Elite bankers and investment funds want to protect:
1)Big enough to consistently be “must have” players in major world financial transactions.
2)Too big to fail so that national governments won’t allow their “every 5-7 years” of risk taking failures to take any one or all of them down. They want the ultimate government/taxpayer provided risk-failure insurance at a bargain rate: a)no self provision with a bankers/investment house paid for Risk Insurance Fund; b)no disclosure or regulation of their risk profiles so that as risks go up their contributions to the Risk Insurance Fund have to go up – none of the prudent financing limits/provisions that they demand of their customers.
3)No “artificial limits” to their capital leverage ratios where 30 to 1 to 50 to 1 are are not only acceptable but also are “protected” by sophisticated derivative and other risk amelioration instruments. No matter that Black Swan events took down derivative protections and the markets in 2007-2008. We have made “adjustments”.
4)No limits to their compensation policies or levels. No six-sigma or any other limits to how much they compensate the top executive teams and the traders/rainmakers. No loss of golden parachutes or other one-time sweeteners. No need for for clawback provisions for subsequent bad performance . No need for longterm stock or gradual payments to eliminate instant gratification or front-ended dealmaking with higher downstream risks of souring.
5)No limits to their bautocracy practices. No limits to their political financial contributions and the tax breaks for them. No limits to their lobbying teams access and “side” contributions to policy makers and lawmakers. No limits to their ability to outnumber and outcompensate government regulators. No limits to when their Congressional allies can become lobbyists. No limits or restrictions whatsoever to when their employees can enter or leave government financial bureaus
This is a privileged position that was not historically there. Traditionally, the Financial sector comprised less than 4% of total US market capitalization. But since the late 1970’s the financial sector has grown more than 5 times to 21 % of market capitalization’ With a downturn to 17% becuase of the Financial Crisis, the Financial sector is determined to regain its pre-eminent and power enabling position in short.
The Banksters Line of Attack
The term Banksters is appropriate because they are a group apart. Only a few banks and financial firms are “Too big to Fail”. They are organized separately. In the first 9 months of 2009 the American Banking Association spent $6m lobbying but a select set of corporate banks, investment houses and credit card companies did their own lobbying to the tune of $127 million – more than 20 times the ABA. And their lobbying efforts and PR action are quite different. Also, as we shall see below the Banksters are willing to discredit all banks and financial institutions as being complicit in the credit crisis.
To preserve their position of financial privilege, the basic Banksters line of attack of is to get their CEOs off the stage, limit and/or discredit any government or media efforts on regulation. Divert attention away from the major banks failures by paying back their TARP rescue funds much more rapidly then expected[“see the financial system works if governemnst allow it to”]. Spread the blame among all banks despite the major role of the big banks. Blame the government for causing the mess with political demands to finance the ‘high-risk’ poor. Cite the failure of governments to apply/enforce regulations fairly or at all. Continue credit-card malpractices including higher interest rates and shorter grace periods. Continue to empower with cash the financial schemers that disarmed Glass-Steagall Act plus a raft of financial regulations and enable them to derail any financial re-regulation. Here is a quick, reasonable sketch of the Financial Bautocrats line of attack.
1)CEOs disqualify themselves from participating directly in the financial reform talks so:
a)they are not flak catchers, constantly a “source of stories”, rallying point for “liberals”, or
b)Bankster CEO’s and top executives don’t become enmeshed in defending the indefensible; or
c)become liabilities by making errors and/or concessions that jeopardize their privileged position.
This means the Banksters will be relying on their bautocracy powers, which had just completed the dismantling of financial regulations, to keep it that way. This means intensive lobbying, pressure on Congressional Senators and Representatives of both parties who have received big donations from the Banksters. Also they will be calling upon their former employees now in government roles to keep them in the loop and discretely deflect “financially onerous” policy. It will be a behind the scenes, dirty, nasty brawl .
2)Show utter contempt and disregard for the thousands of small to medium size banks and investment houses who on the whole are trying to do the right thing and/or are committed to semblances of Fiduciary Trust and a financial Hippocratic Oath – do no harm to your clients. These good institutions are friendly-fire casualties in the battle to preserve a Bautocratic Financial Enclave.
3)Show that they are willing to discredit the Administration, Congress and state financial regulators any way they can. The target is to transfer responsibility for the Financial Crisis to the current administration, to lax regulators, to inept policies that forced the bankers to make bad loans etc. Tea Party activists will be told to concentrate on the deficit and poor Obama administration as the culprits. Downplay the role of the banks and their compensations systems – “we make less on average than many NBA teams or elite baseball players”. Discredit government and their ability to regulate effectively.
4)Recruit the Republican party and its iron voting discipline to be the base line of defense against any financial limits or reforms.
5)Finally show a willingness to use those huge profits being earned not to reduce mortgages or increase loans to small businesses but rather to finance the above defense of the Financial Privilege Enclave. It is almost as if the Banksters are taunting policymakers – “Our people are very good because we pay them 5 to 20 times as much as their government counterparts, and we have more troops – so we can beat you in the trenches anytime, any day, any place.
So the Kabuki Theater was succinct – the Top Bankers said “see you in the dirty, mean, greedy streets of New York where our gang expects to win”.