Have you heard about HSBC’s terrorist funding scandals? How about the many banks involved in LIBOR rigging, essentially playing games our money? If you’re an ordinary person, hearing these things was shocking. But let me be clear: it’s not shocking that banks have shady deals, what is shocking is the extent to which they were able to commit these crimes without any legal recourse whatsoever. Is the legal system in our country so fundamentally flawed that we are afraid to prosecute these banks for fear of a total economic collapse? Perhaps it is not only the legal system, but our whole economic system that allows these banks to be the end-all-be-all decisions on our money system. Why did we put so much faith, and so much power in these huge investment banks? When did it happen? When did we allow them to skirt above the law, committing obvious crimes that they can easily get away with a just slap on the wrist. I’d like to take a quick look at how we got to this current reality.
Today the four biggest banks in the US – JPMorganChase, Citigroup, Wells Fargo and Bank of America have benefitted from the repeal of the Glass-Steagall act of 1933, which essentially allowed commercial banks to engage in securities activities. At the most basic level, the act had forced a separation of commercial and investment banks by preventing commercial banks from underwriting securities, with the exception of U.S. Treasury and federal agency securities, and municipal and state general-obligation securities. Likewise, investment banks were not allowed to engage in the business of receiving federally insured consumer and business deposits. This all changed in 1999 when the Gramm-Leach-Biley Act repealed the Glass-Steagall’s restrictions on bank and securities-firm affiliations. This initiative inevitably led to consumer and business deposits getting mixed up with investments in and the promotion of risky, poorly run companies because the opportunity to raise the rate of return was too hard to resist. “Investment analysis” got confused with “a sales pitch” (NY Times) and as Ronald Glantz told Congress in 2001, “Now the job of analysts is to bring in investment banking clients, not provide good investment advice.”
For years this has been going on – commercial banks engaging in investment firm activities – giving unsound investment advice in order to push sales. Now we are learning that HSBC and other major banks have gained so much power since the Gramm-Leach-Biley Act that not only are they gambling with people’s money but they are in fact illegally accepting deposits, investing, transferring and essentially hiding money for terrorist organizations and greedily fabricating the LIBOR interest rates. Last year reports streamed in detailing HSBC’s laundry list of illegal activities which included supplying aircrafts to Mexican drug dealers, and moving millions of dollars to a firm called Tajco, run by the Tajideen brothers – who are major financiers of Hezbollah. Evading laws was (and is) commonplace in the HSBC workplace, as entire programs were actually developed within the bank to convince the government that they were remediating their illegal activities when in reality these programs did absolutely nothing.
What started as a conjoining of commercial and investment banks, which is a problem in and of itself, has ballooned to a situation in which bankers wield so much power they are able to go above the law and commit crimes – without being prosecuted. Because of their immense power, the federal government is openly afraid to prosecute for fear of another economic collapse.
So, when you hear battlecries of “break up the banks” that is what is being referred to: not only making the banks smaller but also separating investment firms from commercial banks to begin to strip them of their ubiquitous power and stranglehold on the government.
They have so much power, but we have the power to make choices too. Invest your money in a local credit union that you trust. Putting money in local credit unions or cooperatives isn’t going to solve everything, but wouldn’t you rather put your money in something you trust then let a few greedy banks do as they please?