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Wednesday
Jun222011

Pocket-Change SEC Fines: Barely a Bark and No Bite

There's a reason yesterday's announcement that JPM Chase would 'settle' for a fine of $156.3 million, while neither admitting nor denying any wrong-doing, thereby forking over the whopping equivalent of a normal person's weekly grocery budget, pisses people off. Because it's a marginal fleabite on the teflon hand of the nation's second largest bank in terms of punitive pain, and absolutely meaningless in altering the grand scheme of toxic securities creation or  complex financial institution business as usual. 

The trivial settlement appears even tinier in comparison to the financial aid JPM Chase received in the wake of its financial crisis. Despite all of CEO Jamie Dimon's disingenuous, though fervently delivered, remarks to the contrary (he didn't need a bailout, he took it for the 'team' to ensure no bank would be singled out to sport a scarlet 'B' of bailout shame), JPM Chase at one point, during the height of the bank's federal subsidization program, floated on nearly $100 BILLION dollars worth of - exceptional assistance. That figure included: $25 billion from the TARP fund, which has since been repaid, $40.5 billion dollars of new debt backed by the FDIC's Temporary Liquidity Guarantee Program (TLGP), which has since been retired, about $6 billion through various aspects of the TARP HAMP program which aided a fraction of underwater borrowers, and $28.8 billion behind its Fed-backed, Treasury-pushed acquisition of Bear Stearns, which is still in place. That's aside from its government aided acquisition of Washington Mutual.

There are those that believe that the bailout program (which they continue to equate to just the $700 billion TARP program) was a success (like the Fed, Treasury Department, or any Administration).

Yet, subsidizing Wall Street's most powerful creatures, altered nothing for the banks that survived, while promulgating ongoing economic pain for the general population caught in the wake of a $14 trillion dollar asset creation machine, which became a globally leveraged $140 trillion still-decaying mess, spurred by rapacious speculation, that sat on just $1.4 trillion of sub-prime loans and various other properties. 

Banks want us to believe that widespread economic pain has nothing to do with them, that they were innocent participants. Maybe they made a few mistakes - for which they're paying SEC directed fines, but hey, we all do.

Meanwhile, the budget bantering that drones on in Washington keeps missing the fact that part of the bank subsidization process remains on the Fed's books. This includes $1.6 trillion dollars in EXCESS bank reserves - i.e. reserves for which the Fed is paying banks 0.25% to NOT lend, about $900 billion worth of mortgage-backed securities, and $1.5 trillion worth of Treasuries, partly from the QE2 program. That's an awful lot of captive non-stimulus. It sure isn't helping drive job creation or small business expansion sitting there.

Of course, this latest SEC settlement is not the first non-punishment for a bank's role in producing or promoting a leveraged mountain of faulty assets. The hush money action is part of a now-two-year SEC program to address, in the commission's own words, 'misconduct that led to or arose from the financial crisis.'

Leaving aside, the tepid characterization 'misconduct' instead of say 'racketeering', these fines don't, and won't, change the banking system. And nowhere does this fining regulatory body suggest a way to do so. It would be refreshing for the SEC, founded in conjunction with the Glass-Steagall Act that separated banks into institutions that dealt with the public's deposit and financing needs from those that created and traded speculative securities for private profit purposes, to suggest a modern equivalent of that act. It might help the commission do its job of protecting the public before unnecessary devastation, not years afterwards, or at the very least, untangle the web of layered borrowing and debt manufacturing at the core of these complex giants.

But, that's not going to happen. Not as long as small fines, absent any form of attached probation, stringent monitoring, or cease-and-desist requirements, can slowly make the issue go away. Seriously, it takes longer to argue a traffic ticket than it took Goldman Sachs to 'agree' to a $550 million settlement on July 15, 2010, after the SEC charged the firm with defrauding investors only three months earlier. People caught with minor amounts of crack or pot undergo stricter plea processes, probationary measures and detainments. 

To date, the SEC has charged four firms with CDO related fraud, including Wachovia, Goldman Sachs, and JPM Chase, who settled for $11 million, $550 million and $156 million respectively. A case against ICP Asset management remains open. 

The commission has charged five firms with making misleading disclosures to investors about mortgage-related risks, including American Home Mortgage, whose former CEO settled for a paltry $2.45 million fine and a 5-year officer and director bar, Citigroup, that settled for a $75 million penalty, Bank of America's Countrywide, whose former CEO, Angelo Mozilo agreed to a $22.5 million penalty and a permanent officer and director bar (a fraction of his pre-crisis take), and New Century, whose executives paid $1.5 million and agreed to a five-year bar. There is an ongoing case against IndyMac Bancorp.

In addition, the SEC charged six firms with concealing the extent of risky mortgage-related assets in mutual and other similar funds. Those included Charles Schwab that settled for a $118 million fine, Evergreen that settled for $40 million to mostly repay investors, TD Ameritrade that settled for $10 million, and State Street that settled to repay investors $300 million.

Separately, Bank of America agreed to a $150 million settlement for misleading its investors about bonuses paid to Merrill Lynch and not disclosing Merrill Lynch's mounting losses. This didn't stop the Federal Reserve and Treasury Department from remaining steadfastly behind the Bank of America/Merrill Lynch make-a-too-big-to-fail-bank-bigger merger, upon which the settlement was based.

In total, the SEC, mildly policing the vast financial system that pushed a criminal musical chairs game of last-one-holding-a-toxic-asset-or-underwater-mortgage-loses, charged 66 entities and individuals with 'misconduct', imposed 19 officer or director bars, and levied $1.5 billion of penalties, disgorgement, and other monetary relief fines. Put that in perspective, say, with the $28 billion in bonuses that JPM scooped up for just 2010, or the $424 billion in total bonuses the top six banks bagged between the crisis book-end years of 2007-2009, or the $128 billion of bonuses Wall Street got last year. Now, consider that not only is the penalty amount a pittance, but the impact of these fines, is even smaller. And, that's the bigger problem with fines, particularly tiny ones. They offer this illusion of a fix that leaves us worse off from a stability perspective than we were before.

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Reader Comments (13)

A case again ICP Asset management remains open.

"against"

Good article. I brought this up in a recent interview with someone. Hardly anyone in "mainstream media" seems to realize (or admit) the obvious fact that there is no mere political solution to this debt problem. But isn't this what the supposed free marketeers want - de-regulation?

June 22, 2011 | Unregistered CommenterJay

thanks Jay...if anything the political discourse is detrimental to any solution.

June 22, 2011 | Registered CommenterNomi Prins

Oh I agree. I just meant the idea of switching back and forth in political football with mainline US politicians as a political solution is futile.

Btw - you're gorgeous.

-Jay

June 22, 2011 | Unregistered CommenterJay

Can't dispute that these banksters are a gang of arrogant bandits and need some serious sanctions: not fines, but jail time. However, their evil activities are more symptom than cause of our present catastrophe. I'd attach much more weight to 30 years of open borders immigration, effectively sweatshopping the working class and destroying its (limited) real wealth and purchasing power, plus the flipside of the globalization racket, massive job-exporting "free trade" deals that continue to destroy middle class real wealth and purchasing power. What follows, inevitably, is an effort to force demand via cheap credit and easy debt. Thus bubble after bubble, with speculation on same (derivatives) making the mess still worse and increasingly explosive. I'm afraid this has gone way to far to reform...cf. the current Congressional posturing about the debt ceiling. The whole system will just have to collapse. Good riddance when it does; too bad the New Order that rises from the wreckage is going to be so hard on both plutocrats and entitlement groups.

June 22, 2011 | Unregistered CommenterCompassionateFascist

"But isn't this what the supposed free marketeers want - de-regulation?" -Jay

These free marketers killed the Goose. ... U.S. eoonomy had a nice expansion for first bubble years of 2000's largely due to americans using equity in homes like ATM machines (while value rose.) However at same time, and why they were going into greater debt, working people's i.e. middle class share of national income didn't rise like during previous expansions...worse it continued falling and now falling faster. Why? NAFTA and other free trade agreements. Millions and millions of jobs thousands and thousands of factories gone because it's easier to send American jobs across the border or overseas where they are doing the jobs for a lot less compensation.

The Goose upon which the u.s. dollar is based has been consumed. China wants to be world's reserve currency now. Probably will be by 2020. China doesn't eat its own people, I guess. I'd have to look further into that.

June 22, 2011 | Unregistered CommenterAlbert Samuelson

Thank you Nomi, i think you are very insightful in your work, loved your recent book. The Federal Reserve system needs to be shut down, until we do this, there will be no chance to end these policies of easy money and Banker support. Hopefully we will get someone like Ron Paul in the Whitehouse to finally make this happen and give this country back to the people

June 23, 2011 | Unregistered Commenterthecandidbull

I've never understood how an institution created on the back of banks as shareholders (that receive dividends on their shares based on their size), would do anything but support banks as its primary goal, whatever other goals are exposed: monetary stability, inflation guarding, or employment creating. The idea that taking the banking system's needs into account first, which is what has happened, is somehow net general economy positive can only be believed if you accept that there's a direct through-flow from banks to the general economy. But, that's a larger economic and philosophical discussion, and largely depends on how banks are allowed to operate and what federal backing they enjoy, including and in addition to the Fed, and what they do with that backing. I think if the Treasury Department were responsible for issuing debt/printing money, there'd still have to be a less risky plan behind that....

June 23, 2011 | Registered CommenterNomi Prins

http://www.forexyard.com/en/news/World-Bank-unveils-hedging-tool-to-aid-poor-farmers-2011-06-21T182259Z-UPDATE-1

"WASHINGTON, June 21 (Reuters) - The World Bank on Tuesday launched a new agricultural hedging tool to help farmers in developing countries curb increasing food price volatility.
The launch of the Agricultural Price Risk Management facility together with JP Morgan Chase & Co precedes a June 22-23 meeting in Paris of G20 agriculture ministers seeking a deal on improving global food security amid increasing global commodity prices."

Now why do I have a bad feeling about this? (Because it is yet another artificial revenue stream, which will most probably create further debt peonage, and because JPMorgan Chase is associated with it and I recall those billions of dollars of loans to Enron, which they colluded with Enron in hiding as commodities trades, and that JPMC has paid out something like between $5 billion to $7 billion in lawsuits and out-of-court settlements over the previous 10 years for fraud.....fraud....and fraud.)

June 23, 2011 | Unregistered CommenterJamesW

What I don't understand is why, if since Bretton Woods all that's backing the dollar is the federal tax pool - then why aren't the *principals on all loans owed to the people or their elected government. When that agreement in 1971 eliminated gold - backing fiat (internationally) without revamping the system itself as well, it seems to me it cast us all into a worldwide slave system. That--(and I'm no expert) like yourself Nomi, and thanks for your erudtion in these matters and patience--seems the crux, at least to my perhaps too simplistic/or dumb perception about this: that simply whoever or whatever is backing the currency owns the principals on all loans. And in a civilized society, not just who has more Benny-the-knee-breakers-on their payroll. If as a result of this mistake (of ours), the Chinese Yuan becomes the world's reserve currency then reality itself would finally make the Fed Reserve powerless. We'd see subsequently the Chinese Banking Regulatory Agency, (if they became the reserve currency, under the present international system)--[they'd] determine growth rates, interest rates, so even an American's mortgage rate would be determined, wouldn't it, by the Bank of China? ... I think we're yet a younger culture in the West experiencing the last of our old Roman heritage namely - both -: We can 'take' it (i.e. stoical, leading with one's chin); and we can "take" it (i.e. predatory or martinet, my sword, my armour). China's a bit older culturally. Remember they built the Great Wall to keep all us (barbarians) out. I don't know. I have to get more patient with the details you present here Nomi, is what occurs to me. Thanks for your efforts.

June 23, 2011 | Unregistered CommenterAlbert Samuelson

The hush money action is part of a now-two-year SEC program to address, in the commission's own words, 'misconduct that led to or arose from the financial runescape gold.'

June 24, 2011 | Unregistered Commentersinreal

We basically have created a robber baron class for the next 100 years.
Listen.

Why Didn’t Prosecutors Go After Wall Street?
In a word: Geithner.

http://www.ritholtz.com/blog/2011/07/why-didnt-prosecutors-go-after-wall-street/

July 14, 2011 | Unregistered Commenterrich

Someone named Mike left a post stating to the effect: 'we'd still all vote for the nanny state and thus how pathetic that or we are.' ... Wherever that post is, I can't find it, if it's still up, but it prompted this response from me which I've just found time to express:

Mike would eat the nanny, we would vote for her. Herein given the poles (or opposites of this context) you may sense the futility. The world, a (blue) bubble is imperfect, kept sanguine in truth. Too far outside of it, as the contemporary situation has been railroaded - poof. Bad people hoping everyone else - poof - leaving them sitting-pretty in the fortress of evil, their truth.

Sounds 'mythic', well if so, wrong myth for everyone, even bad 'guys'.

Myths too are imperfect even the ones in tradition that keep us or perception sufficiently in truth or the light, like Moses, Christ myths...or less so myth, Buddha (not an endorsement paid or otherwise) only an observation. Tradition although it may seem square is recourse and in which we must become grounded again for its salient aspects...Since human reality is such that the world, like it or not, hasn't a choice except myth in this regard. Or evil, big time, picks everyone off like insects, sadly before eating itself. Evil is a giant in the world since vice is the positive or easy force, virtue the vital mitigating, negative or difficult force.

The contemporary putch or push went too far into the theoretical-universal Ether (global myth) as if to escape the choice. It takes time to reground in tradition. Poster Mike perhaps-?-doesn't realize it hardly matters right now in the 'democratic' myth for whom one votes. The issue is transitioning, and the time it takes to go back.

Made mundane, scouts inform that the river raft or ark is heading toward the falls. How to turn the raft and bring back to shore 'in Time'. If possible, and accomplished then can consider too "nanny" heavy? Or perhaps whole expedition in other ways, too evil?

However at such a juncture answer is not - torpedo nanny raft - any more than torpedo fed reserve building and evil owners? Neither would help much given the situation and its goal avoid apocalypse.

It's much more serious a situation than 100% people voting at home on computers pressing buttons with our toes.

Still, centered-peaceful have a nice day in the mundane, and inevitably in myth.

P.S. 'sunrise, sunset, how quickly go the years [days] one season following another laiden with happiness and tears - '

July 17, 2011 | Unregistered Commentersunset

Sunset, thanks, loved your post. Here's mine on takimag.com. Not too shabby a site is that Here's mine now, which I do wish Nomi would comment upon. Frankly I do Not expect anyone there could with much insight. Nomi, you could, IMHO comment with light on mine below. -?- Wondering.

(Quote}:

Gold backed currencies aren't the answer but when we were still on gold prior to the Bretton Woods Agreement in 1971 gold was a break or governor on how much debt banks could issue as loans. As I understand it, the banks had to pretend they at least had 10% gold in reserve backing the 90% printed out of thin air in any national currency for subsequent loan. Why then, the 90% printed out of thin air was subsequently owed to private banks and not owed to the nations backing their own currencies and making subsequent loans possible is a good question. But instead in the lopsided system it's on the books as ultimate debt to the nations, owed to private banks that simply printed the nations' currency as if it's their own.

However since Bretton Woods in 1971 and being completely off gold, the only thing backing any nation's currency now 100% (and so making the currency itself possible) is the nation itself.

The nation itself 100% makes their currency possible, and thus possible for loan. Yet when a private bank prints it for loan out of thin air not only the interest but the entire principal (of the nation's own currency loaned) is owed in full *not to the nation (which backs the currency making both the currency and the loan itself possible.) But instead not just the interest but both the interest and *principal is on the books owed to the private banks the relatively few bankers, for simply printing any Western nation's currency for loan out of thin air. ... Really all of those loans' principal amounts, and/or the property collateralizing the loans printed out of thin air in case of default, in fact (if we weren't in this fantasy, but unfortunately real banking system in the West), really those repayments of principal loan amounts or the collateral backing them in case of default, belong to the nations whose currecncies are being printed and loaned. It's the nations themselves making their currency exist and thus the loans possible since only the nations themselves back the loans/take the risk. But instead it's played out in this lopsided system as if all of the debt belongs to the nations which make their own currencies possible for loan and all of the principals plus interest are instead owed to private banks simply for printing it.

Thus a comparitively few individuals collecting all of these principals on loans printed out of thin air or confiscating the properties in case of default are much wealthier in liquid terms than all of the Western nations, whose currencies the system presently allows the private few to literally own, print out of thin air, and loan, as if they were their own.

How does any Western nation expect not to be in debt? ... If you give me your currency and say, 'hey pretend it's yours, I know we make the currency possible, we are the ones backing it, we are the ones at risk, but you keep it all, not just the interest but the principal too, you keep everything, and just pretend we owe it all to you. Print it out of thin air and loan it, it's all yours at no risk to you, and just bill us we're in debt to you.'

In such a system as this, how does any Western nation no matter what it does if it doesn't own its own currency, expect (somehow?) not to be in debt.

If this is not the system and I am a complete fool, which I allow as a possibility (and usually hope is the case), would some erudite soul or lets keep it simple, person, please explain what is the system. ? ... I hasten to add, being undoubtedly too 'goy' myself, if you can *righteously explain this to me and so put me at ease, golly, I'll be in your *debt.

(end quote of what I posted at takimag.)

I'm old guys & dolls, like rodney dangerfield, remember him-?-I cant' get no respect. We don't want to piTHss me off do we? Where's my people? My people hear me, and I HEAR my people. Where's MY people? (humor-?- yes humor, and not; ... both. It's always both, when it is.) ... Only add to sunset's above re: Buddhism, she too became a box office proposition like all religions of necessity. Got to have members or you haven't a religion. So it's both, listen to god who'll tell you where to stay this day, in range or out. Yes of course the world the way she manifests is real and instructs. V'hat else is new?!

July 19, 2011 | Unregistered Commenteralbert samuelson

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