May 12, 2014. It’s no secret that all the people, scams and mistakes that caused the global economic collapse in 2008 and ruined the lives of hundreds of millions of innocent people, are not only still in place today, but they have even more power, control and influence. The book 13 Bankers by Simon Johnson and James Kwak exposes the Wall Street banks and Washington politicians that created and perpetuate the rigged public-private economic system.
Co-author Simon Johnson is no stranger to the corrupt and destructive practices permeating the world’s financial communities. They are too big to fail and too big to jail, leading to a past, present and future overwhelmed by never-ending corporate bailouts and serial criminals running the governments and economies of the most powerful nations on Earth. Together with co-author James Kwak, Johnson brings his experience as a former IMF chief economist, MIT professor and a universally acknowledged expert on America’s unique and perverted financial system.
6 Banks that rule America
According to the book 13 Bankers, the six Wall Street financial institutions that rule America, both politically and economically are; Bank of America, JP Morgan Chase, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley. Together, they hold and control more than half of America’s entire wealth, with assets equaling more than 60% of America’s entire GDP.
The 2008 global economic collapse can be summed up with one sentence - Wall Street’s largest financial institutions bet each other trillions of dollars they didn’t have on investment properties that didn’t exist. When they lost, they didn’t have the trillions to pay each other off. So the US taxpayers bailed them all out, except for Lehman Brothers which was Goldman Sachs’ lifelong rival. How convenient for Goldman Sachs, who’s former CEO Hank Paulson was George Bush’s Treasury Secretary and personally responsible for the bailouts.
Imagine for one brief moment that you and your neighbor wagered each other one trillion dollars on a single ‘heads or tails’ coin toss. When one of you lost, you threatened the American people with economic catastrophe if they didn’t pay up on your behalf. Rather than just tell you to go to hell and let you lose your own home because of your own greed, stupidity and gambling problem, the American people were sold out by their Republican and Democratic representatives. They made Wall Street executives exempt from criminal prosecution and rewarded them with trillions in tax breaks, bailouts and plain old corporate welfare.
What happened to the half dozen most powerful bank CEO’s who almost single-handedly caused the worldwide depression? As detailed in the book 13 Bankers, the following year JP Morgan’s Jamie Dimon was paid $34 million, Lloyd Blankfein of Goldman Sachs $54 million, John Thain of Merrill Lynch $84 million, and Morgan Stanley’s John Mack $41 million. If readers think those amounts are outrageous, the authors reveal the fact that banking CEO’s are rarely the highest paid employees at the firm.
As far back as 1990 when the casino games began on Wall Street, Salomon Brothers shook the financial landscape by paying a number of its best traders in excess of $10 million in that year alone. Fast forward to 2009, the year after the economic collapse, and Citigroup paid one of its traders $100 million. That’s insulting to most Americans who still remember that Citi was supposedly the bank nearest to collapse and most desperate for a taxpayer bailout only 12 months earlier. And those salaries are nothing compared to Wall Street’s hedge fund managers, many of whom pulled in over $1 billion each in 2007, led by John Paulson who was paid a staggering $3.7 billion that year.
Road to destruction
Like many, the authors of 13 Bankers trace the beginning of the end of America’s economic legitimacy to a trader at Drexel Burnham Lambert named Michael Milken. In the 1970’s, he was called the ‘Junk Bond King’ because he figured out that not all poor-credit loans were defaulted on. Non-investment grade bonds, today called ‘high yield bonds’, were ignored by average investors. Milken was convicted of insider trading and securities manipulation for his experiments and tactics. But his idea took hold, going from $6 billion in 1970 to $210 billion in 1989, and eventually $3 trillion in 2007. By 2008, it was $8 trillion wagered on ‘junk’ assets with a payout value of $350 trillion. And then the bubble burst.
With their savings, jobs, national economy and even the value of their national currency being held hostage by a dozen powerful Wall Street financial institutions, US taxpayers approved bailout after bailout, without seeing a single banker ever brought to justice or seeing a corrupt and illegitimate system fixed. The authors quote Senate Majority Whip Dick Durbin (D-IL) a year after the bailouts began lamenting, “The banks, hard to believe in a time when we’re facing a banking crisis that many of the banks created, are still the most powerful lobby on Capitol Hill. And they frankly own the place.”
The book reminds readers that they probably shouldn’t be surprised that Wall Street has taken over their government. Both establishment political parties have done their share of betrayal. Democratic President Bill Clinton named a Goldman Sachs executive named Robert Rubin as Treasury Secretary. And Republican President George W. Bush name Goldman Sachs CEO Hank Paulson his Treasury Secretary. And illustrating that the system has only gotten worse, President Obama’s choice for Treasury Secretary was Tim Geithner, a former executive at the International Monetary Fund, Council on Foreign Relations, and the Federal Reserve.
The authors also demonstrate that not all the destruction was caused by the most well-known individuals. In 1993, Wendy Gramm the Chairwoman of the government’s Commodity Futures Trading Commission, issued an order exempting most over-the-counter derivatives from federal regulation. Almost immediately after taking that action, she was named a member of Enron’s Board of Directors. The book gives countless other examples of specific individuals who moved from Wall Street to Washington and back to Wall Street again.
Overthrowing the government
It’s difficult to come up with many terms to describe what Wall Street’s banks have done to America. They’ve infiltrated the highest levels of government, replaced protective laws with predatory laws, and even turned the nation’s entire economic system upside down for no other reason than getting richer than anyone could imagine in their wildest dreams. And they’ve proven they’ll do anything to get there. The authors provide one of many examples of how it was done.
When Travelers Insurance and Citicorp attempted to merge in 1998, the move was considered illegal. Protective laws were in place that prevented commercial banks - those that held the deposits of all Americans - from merging with investment banks - those that gambled on behalf of wealthy clients in exchange for a percentage of the winnings. This particular merger would have brought together some of the nation’s largest insurance, commercial and investment banks under one company.
The book’s authors describe how rather than break itself up as the law demanded, the new gigantic Citigroup instead had the law repealed, ‘Congress obliged in 1999 with the Gramm-Leach-Bliley Act, which created a new category of financial holding companies that are authorized to engage in any activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity - to include banking, insurance, and securities.’
That one act alone released a boogieman that had been held in check since the 1930’s. Merging the small deposits of everyday Americans into the pool of money Wall Street traders were using to gamble, pushed every major financial institution into the casino. Joining Citigroup in taking advantage of the new corporate classification were Goldman Sachs, Bank of America, JP Morgan, Chase, First Union, Wells Fargo and others. As the book explains, ‘Deposits that were insured by the Federal Deposit Insurance Corporation could be invested in risky assets, with the assurance that losses would be made up by the FDIC.’
It’s worth noting that not all of America’s elected Democratic and Republican Party officials sold out the American people. In small pockets scattered across the country, a number of people stood up and attempted to stop the self-destructive policies and practices enacted in Washington. The same year the Gramm-Leach-Bliley Act was passed, North Carolina state legislators passed a counter Bill called the North Carolina Predatory Lending Law. In 2002, Georgia followed suit and passed the Georgia Fair Lending Law. The book’s authors insist that if these laws were adopted by the US Congress, the entire economic collapse wouldn’t have happened.
As government leaders on the state and local level realized what was occurring on Wall Street, more and more states began passing legislation to protect its citizens from the predatory practices now legal according to federal law. Also in 2002, the New Jersey state legislature joined the list with its own Home Ownership Security Act. But all of those efforts were destroyed in August 2003 when the federal Office of the Comptroller of the Currency ruled that federal law takes precedent over state law regarding banking regulations and all of the recently enacted protections were void.
One final recollection worth repeating from the book 13 Bankers is the fact that in 2007, the US economy was collapsing. In 2008, the government enlisted taxpayers to reimburse Wall Street for every penny they invented, gambled and lost. By 2009, the American people were at rock bottom while Wall Street was booming with profits again. Illustrating that is Goldman Sachs’ 2009 employee compensation packages. The average salary for all the bank’s tens of thousands of employees that year was $750,000 per person.
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