The U.S. Justice Department and Facebook: Secretly Mining Personal Information

Collusion between business and government has hardly been a rarity; the extent of secrecy regarding it , however, may be a surprise. Whereas business-government economic partnerships (as well as university-government partnerships) have typically been made public, the extent to which government uses businesses to get information on citizens has hardly been transparent. In spite of a U.S. federal law enacted in 2015, documents released in September of 2019 “show how far beyond Silicon Valley the practice extends—encompassing scores of banks, credit agencies, cellphone carriers and even universities.”[1] The documents, which cover 750 of the half-million subpoenas issued since 2001, reveal that more than 120 companies and other entities received subpoenas for information on customers, users, or students. F.B.I. could lawfully “scoop up a variety of information, including usernames, locations, IP addresses and records of purchases” without a judge’s approval.[2] A gag order keeps the businesses from divulging even the receipt of a subpoena. So much secrecy accompanying so much power is, I submit, dangerous to a republic. In fact, the subtle effects on citizens in the public square can easily be overlooked even if the negative impact on freedom is serious.

The documents reveal that the credit agencies received a large number of subpoenas, as did financial institutions like Bank of America. Universities including Kansas State University and cellular providers including AT&T and Verizon, as well as tech companies like Google and Facebook also received subpoenas. The public was kept in the dark, due to “several large loopholes” enabling the U.S. Justice Department to refuse even to review “a large swath” of gag orders.[3] Loopholes have been a common practice in legislation impacting business, given the power of large businesses or industries to influence lawmakers via large campaign contributions. I submit that the loopholes enabling secrecy on the subpoenas are even worse for a republic’s viability because of the extent of governmental power that is possible from mining private data on citizens. The potential uses—again in the dark—go well beyond reducing or preventing crime.

Political uses, for example, should not be discounted. Even as Facebook’s CEO, Mark Zuckerberg, was assuring users that they had control over what data is shared, the company’s COO had devised a business model that would substantially raise Facebook’s revenue by secretly allowing third-party “app” companies access to user data. The practice enabled Cambridge Analytic to influence users politically without the users’ knowledge. In the case of the F.B.I. subpoenas, partisans in governmental roles could conceivable gain access to the data through political pressure (e.g., from Congress or the White House).

Moreover, I submit that a government with a lot of information on citizens is totalitarian with respect to information, and such a near-totality can easily breed a totalitarian state in the sense of control over citizens. They in term could be expected to increasingly fear sharing personal data with businesses. In 2018, for instance, I tried out Facebook. After just weeks with an account, I was surprised when the company demanded that I send a photo in which my face is recognizable. I had read that the company had been working on facial recognition technology, and the explicit demand for a recognizable face seemed strange to me. I also knew that Facebook regularly shared user information with third-parties, whether business or governmental in nature. I had nothing to hide, but I did not like feeling invasiveness even in the demand itself. So I experimented by taking a picture on a public sidewalk of a poor person not likely to have an account. Facebook deleted my account without explanation. I would have deleted the account anyway rather than use a fake picture. I wanted to see whether Facebook would use its facial-recognition technology to assess the picture. Either the person whom I photographed had an account or Facebook already had access from an external entity (such as my web-site) of my face. Even just the use of secret software to assess the photo I had submitted struck me as excessive, and I would not have been surprised to discover that Facebook had access to more personal information that what I had shared on my account. Facebook itself could be said to be a private totalitarian state. Given the compromised ethics in the company’s brief history, I felt uncomfortable with Facebook having any of my personal information and, moreover, concluded that such a company with a totalitarian approach to information as a means at the very least of raising revenue is major problem. Sadly, given the susceptibility of the Congress and White House to political influence from large campaign-contributions,  the company’s wealth and thus political pull could keep a law from being enacted that would force Facebook to permanently remove all information pertaining to me at my written request. It would be interesting if any U.S. citizen could have access to any data collected by the F.B.I. from businesses and other external entities unless deemed classified by a judge in the Judiciary. The purpose would obviously not be to help criminals.

With personal data being provided on “social networks,” as well as to other companies, banks, phone companies, and internet providers (including universities), and with the U.S. Government having unlimited access to that information, a person could be expected to feel that he or she has a contracted personal space. Even in one’s home, if a cell phone or computer is on (and even if it is off, I have read), the government may have a way to look in. Not even a personal conversation on a cell phone can any longer be regarded as private. The sphere of a sense of freedom of expression has likely come to be feel very restricted. I suspect that Americans have resisted this encroaching de facto sense of limitation on their personal freedom by being in the illusion that an actual phone call is private and that neither a government agency nor Facebook is keeping tabs on which sites are being visited or what is being said or done on a phone. Yet the diminishment of the sense of freedom, especially when a person is in public but also on private property, is real, which a decrease in the quality of life going along with the masked fear. The People can regard this constriction of freedom as being subject to the Will of the People rather than merely something that can evolve by means of vested interests inside and out of government. In other words, an electorate need not be passive.

Moreover, a government’s totalitarian approach to gaining information on the citizenry is contrary to the notion of a limited government wherein the People are the popular sovereign. A limited government is a key part of a republic, whereas a totalitarian government is vital to a dictatorship wherein the People have no power. Adding to the concern is a private company’s totalitarian approach to information-gathering, especially if such a company has lied to its users about it. Interestingly, the third-party commercial app makers can be considered the company’s clients, whereas the users supplying the data are suppliers. In other words, the users are not the customers. The suppliers are not paid in monetary terms; rather, Facebook pays those bills by allowing the suppliers to use the company’s platform—activity that increases the supply of information!

In supplying something, a supplier transfers a commodity to a buyer; the supplier cannot claim ownership or control of the commodity once it has been supplied. Obviously if the buyer lies to the supplier regarding the contract, the supplier has grounds to take back the commodity supplied. The suppliers did not agree (and thus were not “paid”) to allow Facebook to contract with Cambridge Analytic, a client, to use the commodity to manipulate the suppliers themselves. To be sure, ordinarily a supplier would not expect to have any say as to what a buyer does with the commodity, but Mark Zuckerberg made oral promises that the company’s user-suppliers would continue to have a veto over how Facebook uses the commodity, including with whom the said commodity is shared. Because the CEO lied, it is important for the suppliers to realize that what had begun as a social network for college students became a business model. Unfortunately, the typical user is not even aware that he or she is actually a supplier. 

Government use is of course different; it can legally be done secretly, thus without the knowledge of Facebook’s suppliers. So it becomes a political question of whether the People should allow their government, assuming it is a republic, to have access. Citizens would be wise to remember that absolute power corrupts absolutely, and that with great power comes a huge responsibility even if the powerful may tend to shrug off the responsibility as they seize even more power.

See related: Taking the Face Off Facebook: Strategic and Ethical Issues, available at Amazon.

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1. Jennifer Valentino-DeVries, “Secret F.B.I. Subpoenas Scoop Up Personal Data From Scores of Companies,” The New York Times, September 20, 2019.

2. Ibid.

3. Ibid.

Weak Corporate Governance at UBS Amid a $2.3 Billion Trading Loss in 2011

UBS chief executive Oswald Gruebel resigned on September 24, 2011 over the $2.3 billion trading loss by one of the Swiss bank’s traders, Kweku Adoboli. Kaspar Villiger, UBS's president, said the board regretted Gruebel's decision but had decided to accept it. "Oswald Gruebel feels that it is his duty to assume responsibility for the recent unauthorized trading incident," Villiger was quoted as saying in the statement. "It is testimony to his uncompromising principles and integrity."[1[ In presumably not pushing for the CEO’s resignation because of the magnitude in the lapse of risk management in the system, the bank’s board of directors did not take the initiative in holding the management accountable. Accordingly, shareholders have reason to be concerned about the protection of their owner’s equity, at least in terms of corporate governance providing accountability on the management. The culprit may be corporate governance itself, which as structured may proffer too much power to the CEO.

In the case of UBS, the shareholders ultimately had to rely on Gruebel’s  integrity rather than corporate governance for accountability. To be sure, the resignation of the CEO does not necessarily mean that the management itself has been held accountable. Ethical leadership thus has its limits in this respect. Where a problem is systemic in a company and has been allowed to perpetuate itself by many people in upper- and middle-level management, the resignation of the CEO is not sufficient in terms of accountability. Had the CEO embezzled over $2 billion, the resignation would have been sufficient, but relying on the CEO’s integrity would be foolhardy in such a case.  

In short, the case of UBS suggests that corporate governance ought to be strengthened or fortified with respect to enforcing accountability on a management so as to protect stockholder interests. Villiger said Gruebel, who was brought in to help revive the fortunes of the Zurich-based bank, had achieved "an impressive turnaround and strengthened UBS fundamentally." But surely there must have been some lapse in Gruebel’s oversight of the bank’s system; for over $2 billion to be lost by one trader is itself a red flag concerning the bank itself and its management as a whole. Depending on ethical leadership at the top to step aside in the interest of the design and implementation of a new system does not go far enough.

1. “UBS CEO Oswald Gruebel Resigns Over Rogue Trading Loss,” The Huffington Post, September 24, 2011. 

Unnecessary Systemic Risk: Banks' Price-Fixing and Racketeering in Side Businesses

A lawsuit filed in a Florida district-court in 2013 alleged that JPMorgan, Goldman Sachs, and the London Metal Exchange (LME) artificially inflated aluminum prices.  The plaintiffs accused the companies of anti-trust practices and racketeering, including the “manipulation of the aluminum market through supply price fixing.”[1] This sounds like what had led to the forced break-up of Rockefeller’s Standard Oil Company, though in that case exactly a century before, the restraint of trade had to do with the company’s main line of business (i.e., oil). In the case of the banks, however, owning commodity assets such as storage facilities and trading in raw materials do not constitute banking. This point triggers a larger question involving the repeal of the Glass-Steagal Act.

Should we allow banks to expand even beyond these functions to owning commodities and related real-estate? What does this do to the banks' systemic risk?    Image Source: salisburyareafoundation.org. 

Under Glass-Steagal, commercial banks were not permitted to engage in investment-banking activities, such as proprietary trading and market-making. The law’s repeal in the late 1990's is ironic, for in just a decade the notion of systemic risk would flash into the public’s consciousness under the label of banks being “too big to fail.”
Rather than confront systemic risk directly, U.S. lawmakers and regulators have consistently preferred focusing on incremental change in particular areas. For example, when the lawsuit was filed in Florida, regulators were “scrutinizing ownership of commodity storage facilities by major U.S. banks.”[2] Unfortunately, the scrutiny was limited to price-fixing and racketeering, and those regulators probably were not talking to regulators at the SEC who were still promulgating regulations as part of the Dodd-Frank Act of 2010, which was ostensibly geared to reducing systemic risk through providing for the “orderly liquidation” of banks and other financial institutions too big to fail.
Were the various government regulators to compare notes, they might ask each other whether branching off into trading commodities and owning storage facilities increase the banks’ systemic risk. By taking on market risk (i.e., of commodity and commercial real-estate markets) that is higher than the risks in commercial banking, the banks increase their systemic risk. Factor in the legal and reputational liabilities associated with price-fixing and racketeering and the systemic risk increases even more.
Therefore, beyond the question of collusion and restraint of trade in a side business, it can and should be asked whether banks should go into side businesses at all, given the matter of systemic risk. Focusing narrowly on whether lines formed at warehouses, and, moreover, debating secondary issues more generally, are at the very least distractions from the fundamental matter of systemic risk. To the extent that Dodd-Frank fails to curb such risk, we as a society put the economy and financial system at a higher risk of collapsing if we follow the government and the media in focusing too narrowly on just the possible wrong-doing of the bankers. Ironically, sustaining such a focus may be in the banks’ own financial interest.

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[1] Melanie Burton, “Glencore, JPMorgan Sued Over Warehouse Aluminium Prices,” Reuters, August 7, 2013.

[2] Ibid.

Police Aggress Protesters: Sadism or Politics?

The day after several marches and rallies by the “Occupy Wall Street” movement in New York City in 2011, The New York Times reported that “two dozen people were arrested at a Citibank branch on LaGuardia Place on trespassing charges. Some witnesses said that the protesters had tried to leave but were locked inside by bank employees. ‘They were trying to leave, but they wouldn’t let them,’ said Meaghan Linick, 23, of Greenpoint, Brooklyn. She said one woman who had been inside and left was forced back inside by police officers. Citibank, in a statement, said the protesters ‘were very disruptive and refused to leave after being repeatedly asked, causing our staff to call 911.’ The statement continued, ‘The police asked the branch staff to close the branch until the protesters could be removed.’” The Times report does not mention whether the protesters were existing Citibank customers trying to close their accounts. The report does refer to this at a Chase bank. “Earlier, about a dozen protesters entered a Chase branch in Lower Manhattan and withdrew their money from the bank while 300 other people circled the block, some shouting chants and beating on drums. The former Chase customers, who declined to reveal how much they had in their accounts — though a few acknowledged it was not much — said they planned to put their money into smaller banks or credit unions.’ The more resources we give to small institutions, the more they’ll be able to provide conveniences like free A.T.M.’s and streamlined online banking so they can compete with the larger banks,’ said Hannah Appel, 33, a postdoctoral fellow at Columbia University.” The report does not indicate whether the former customers were arrested.
From the report, it does not appear that anyone was arrested for closing a bank account; the protesters at Chase closed their accounts but were not arrested, while the protesters at Citi did not close their accounts but were arrested (for trespassing). Of course, the newspaper’s information could be mistaken. Were any customers arrested simply for closing a bank account, both the bank branch’s manager and the police involved should be terminated from their respective employments and prosecuted. The report does indicate that Citi employees locked protesters inside the bank. This act constitutes false imprisonment, which is illegal. I would think that the subsequent arrests would be thrown out by a judge.

I suspect that psychologically abusive persons are a sizable presence on many police forces. From casual observation, I have been surprised at how quickly and easily a significant number of police employees cross the line simply because they can—meaning that they assume without reservation that they can get away with trespassing the rights of others with impunity. The pattern is no accident.
Beyond orchestrated political uses of police forces (e.g., to teach those kids a lesson), present police recruitment procedures across the United States are inadequate in ferretting out mentally disturbed, abusive personalities. Furthermore, mechanisms to impose accountability on individual employees of police departments are woefully impotent, given the lack of self-restraint or even apparent self-questioning by police employees who are going to do what they are going to do, period. So, besides investigating particular cases of how the political or business elite uses police departments against the rights of protesters, elected officials in towns and cities (at the urging of state- or federal-level officials if necessary) could do more in seeing to it that the citizens are not abused by individual police employees by 1) ordering police chiefs to expand the role of psychological tests and interviews in the recruitment process and 2) instituting an external, independent committee or board with the power to fire police employees for abusing (or threatening to abuse) their authority.

Concerning recruitment, it is important to keep in mind that no one has a right to be on a police force. It is especially the case that bad attitudes need not apply, yet it does appear that they are extant on police forces. The NYPD, for example, has a long history of police brutality and cover-ups, which suggests that the recruitment process is woefully inadequate in screening out psychologically troubled candidates.

        Anthony Bologna of NYPD pepper-spraying protesters following his orders

Concerning accountability, enforcement of the law against police who go beyond their authority at the expense of other people should be strengthened and harsher sentences should be enacted. In some jurisdictions, even the laws by which police can make arrests should be tightened. In New York City, for example, police can arrest people for deemed “safety issues” even if no law had been broken. Outside an event run by the Huffington Post, the police lied to author Naomi Wolf when they stated that the Post’s permit barred protests on the sidewalk. Even though Wolf verified with the event organizer that the police claim was false, the police arrested her after she joined some protesters walking up and down the sidewalk (i.e., not obstructing foot traffic). At the police station, a sergeant told her she was arrested for a “safety issue.” According to the Huffington Post, “The cop didn’t dispute her claim that she wasn’t breaking the law. But she said he explained that whenever police deem it a safety issue, they can make an arrest.” Given the propensity of the police to arrest unlawfully, this loophole should be tightened or replaced with procedures triggered in the event of a disaster (not just safety) that can be independently documented (e.g., an explosion in a subway station).

I suspect that the lack of accountability on police employees who take it on themselves to extend their force beyond the law stems from the fact that enforcement mechanisms are not typically sufficiently independent of the police and local governments. Even “internal affairs” is evidently not sufficient. Police on the beat not sensing any viable external restraint in abusing others is itself indicative of too little accountability on the books as well as in practice. In other words, the attitude itself bespeaks a lapse in the system, which the offending persons undoubtedly know exists and can be counted on as they impose themselves even on people they know to be innocent. A police employee who uses his or her position to intervene in a civil matter, for example, should be fired because it can be assumed that the encroachment was intentional. Also, a police employee who pushes or hits a non-violent citizen without the latter having resisted arrest should be fired. Additionally, the offending officer should be prosecuted. In fact, state legislatures should stiffen the penalties as a deterrent. The penalties for police employees should be stiffer than for other citizens because the right to legitimate force carries with it a special obligation. Breaking a special duty warrants a longer sentence.

Whereas some of the “Occupy Wall Street” protesters referred to “police terrorism,” such hyperbole should be replaced by sadism, the deriving of pleasure by inflicting pain on others. This diagnosis would doubtless apply to Anthony Bologna, who sprayed innocent people with pepper-spray. Beyond politics, the deeper problem is that of sickness. What would happen, je me demande, if the protesters simply chanted, “Sicko! Sicko! Sicko!” or “You’re sick!” at an offending officer as he violently lashes out without provocation?  I suspect that the truth would hurt. Moreover, the protesters could pressure elected officials to stiffen the enforcement mechanisms and sentences.


Sources:

Cara Buckley and Rachel Donadio, “Buoyed by Wall St. Protests, Rallies Sweep the Globe,” The New York Times, October 16, 2011. 

Jason Cherkis, “Author Naomi Wolf Speaks Out About Her Arrest at Occupy Wall Street,” Huffington Post, October 19, 2011. 

Related essays: "When Police Are the Criminals" and "Christian Protests in Egypt" and "Protest Movements 101"

The U.S. Federal Reserve as a Regulator of Banks: An Institutional Conflict of Interest

According to the Wall Street Journal, the Federal Reserve “has operated almost entirely behind closed doors as it rewrites the rule book governing the U.S. financial system.” The paper notes that this has been in sharp contrast to the trend at the Fed toward greater transparency in its interest-rate policies and emergency-lending programs. The complaint of a dearth of public meetings misses, however, not only the scripted nature of such displays, but also the more fundamental question of whether a central bank buffered from political pressure should play such a salient role as regulator. At the very least, the democratic deficit and a lack of accountability may be exacerbated by the Fed’s greater role as a regulator of banks—particularly after the major investment banks become commercial banks, and thus subject to the Fed’s regulations.

“While many Americans may not realize it,” the Journal continues, “the Fed has taken on a much larger regulatory role than at any time in history. Since the Dodd-Frank financial overhaul became law in July 2010, the Fed has held 47 separate votes on financial regulations.” This was as of February 22, 2012. In the process, the Fed was “reshaping the U.S. financial industry by directing banks on how much capital they must hold, what kind of trading they can engage in and what kind of fees they can charge retailers on debit-card transactions.” Unlike other regulatory agencies, not even the Fed governor’s votes were made public. Considering the contact that Fed officials had with their regulated banks on these issues and the Fed’s ties to banking itself, the lack of public meetings (only two on the 47 votes) suggests an opportunity for a conflict of interest to operate below the radar in the interest of the banks while the public holds the risk.

On the Volker Rule, which was to be the part of the Dodd-Frank law that prohibits banks from proprietary trading using their own funds because doing so is too risky for a bank too big to fail, Fed officials met with bankers at JP Morgan Chase sixteen times, Bank of America ten times, Goldman Sachs nine, and Barclays and Morgan Stanley seven each. On the Dodd-Frank provision on regulating derivatives—something a dissenting Fed governor claimed has exemptions that are too wide—Fed officials met with JP Morgan Chase fourteen times, Deutsche Bank and Goldman Sachs twelve each, and Bank of America, Barclays, Morgan Stanley and Wells Fargo eleven each. Even just in relying on these banks for information and feedback, the Fed risks getting biased input on which to make judgments.

Morgan Stanley may have insisted that the regulation of commodity derivatives would put farmers who rely on the futures market at risk. Moreover, the bankers could have insisted that an exemption would not be abused, or they could coordinate their own pressure with a farming lobby and U.S. senators from farm states. The bankers’ intent was obviously to minimize the cost to them in the regulations that are put in place. The public interest, or risk to the public, was beside the point.

The banks played a similar role in the late 1990s as they lobbied the White House and Sen. Phil Gramm to keep derivatives unregulated. That unseen monster winded up biting us in the ass in 2008. Therefore, putting the public interest at risk is not just part of some theory; giving the regulated too much influence in the writing of regulations involves a conflict of interest that can literally result in the collapse of the global financial system. A public-level perspective, rather than that of a firm or industry, must be primary among regulators or the system itself is put at risk.

Pointing to the lack of public meetings in the Fed’s approach as a regulator, Sheila Bair, former chair of the FDIC, stated, “People have a right to know and hear the discussion and hear the presentations and the reasoning for these rules. All of the other agencies which are governed by boards or commissions propose and approve these rules in public meetings.” Fed officials point out that open meetings tend to be scripted and even perfunctory. As if to state good intentions are sufficient, Fed chair Bernanke said in a 2010 speech, “As an agent of the government, a central bank must be accountable in the pursuit of its mandated goals, responsive to the public and its elected representatives and transparent in its policies.” However, a central bank is closer to its banks in many ways that it is to the public or its elected representatives. In fact, a central banks is supposed to be buffered from political influence. While this makes sense in terms of monetary policy, regulating is a separate function and a democratic deficit there is problematic.

I think the public meeting issue is a red herring. The real problem lies in a central bank going beyond monetary policy and acting as a bank for the banks to also be a regulatory agency. That the Fed’s regulatory process differs from those of the “real” agencies suggests that the Fed officials do not even seen the Fed as such an agency. As Bernanke said, “a central bank is . . .” This is the Fed’s identity. It is distinct from a regulatory agency. Accordingly, Congress should establish a separate regulatory agency to cover the banks, leaving the Fed officials to concentrate on their core functions in operating a central bank. It is not as if Bernanke “got it right” leading up to September 2008. Even in 2007, he did not think the declining housing market would cause much of a problem. He had no idea that the swap and derivative markets were about to implode. This is not a good basis on which take on additional responsibilities, particularly writing new banking regulations. In other words, it is not like much would be lost were banking regulation written and enforced by a regulatory agency rather than the Fed. In addition, such an agency would not be so closely tied to the banks as the Fed is, as hinted at by its myriad of meetings with them. Such an agency would not be explicitly distanced from political pressure as the Fed is.

There is nothing wrong with elected lawmakers and executive branch officials making sure that the laws they have passed and are enforcing, respectively, are being operationalized and enforced by regulators who keep the public interest foremost in mind. As a central bank, the Fed is neither under the U.S. President in the executive branch nor under Congress. Meanwhile, Fed officials are very close to the banks they regulate. The problem of accountability that is in the Fed’s independence from the two branches added to the conflict of interest of the Fed being so close to the banks it regulates sets the public up for the sort of thing we saw in September 2008. That crisis did not come out of nowhere, and the reasons for it go beyond the housing market. At the very least, relying so much on an “agency” (and chair!) that failed to anticipate September 2008 and then geared a bailout to the banks rather than to the millions of foreclosed borrowers (hint: conflict of interest!) to write and enforce additional banking regulations on an industry that does not want them is beyond stupid; it is suicide. Meanwhile, the issue was presented as one of public meetings, which were scripted anyway and did not prevent the Fed from meeting with its bankers.

Source:

Victoria McGrane and Jon Hilsenrath, “Fed Writes Sweeping Rules From Behind Closed Doors,” The Wall Street Journal, February 22, 2012.

Related books: 

Essays on the Financial Crisis

Institutional Conflicts of Interest

How a Chairman of the Federal Reserve Made Strategic Use of the Media

Just as the US Senate was to take up the matter of Ben Bernanke’s re-appointment as Chair of the Federal Reserve in 2010, Time magazine came out with its announcement that he is to be its person of the year.  According to the magazine, “when turbulence in U.S. housing markets metastasized into the worst global financial crisis in more than 75 years, he conjured up trillions of new dollars and blasted them into the economy; engineered massive public rescues of failing private companies; ratcheted down interest rates to zero; lent to mutual funds, hedge funds, foreign banks, investment banks, manufacturers, insurers and other borrowers who had never dreamed of receiving Fed cash; jump-started stalled credit markets in everything from car loans to corporate paper; revolutionized housing finance with a breathtaking shopping spree for mortgage bonds; blew up the Fed’s balance sheet to three times its previous size; and generally transformed the staid arena of central banking into a stage for desperate improvisation. He didn’t just reshape U.S. monetary policy; he led an effort to save the world economy.”  Not to be outdone in service to the Chairman, CNN furnished its own reporters, who gave credit to Bernanke for these measures.  Interestingly, however, even though one reporter admitted that Bernanke had said in 2007 that the subprime market and its derivatives would not threaten the financial market and the banks, she attributed the fault there to the imperfections in the market rather than to Bernanke himself in being wrong.   So, he gets credit for cleaning up the mess (ignoring the foreclosed homeowners) but not the blame for being wrong about the contagion (and not urging regulation of the derivatives).  He could have urged the regulation of derivatives (he is a smart person), and once the crisis occurred, he could have tailored his response to the homeowners facing foreclosures that could have been stopped. For example, the Fed could have created dollars to subsidize the inordinate rates on the variable rate subprime mortgages (i.e. those bank assets would not have been toxic and the banks’ balance sheets would have been fine…two birds with one stone…rather than doing the bidding of one of the parties).  To be sure, if the Fed is inordinately friendly to banks because of the power they have in selecting their regulators (the NY Fed Chair’s appointing committee consists of bankers), then Bernanke might have simply been playing the good politics for staying in office.   “Our ships must all sail in the same direction; otherwise who can tell how long you will…last…with us.” (The Godfather, part III)  Bernanke is a player from the perspective of the real power behind the throne: America’s financial elite.  That elite literally owns the media companies. So what I want to point out here is that the timing of Time’s announcement and the asymetry in CNN’s laudatory coverage of the Chairman just as the Senate was about to consider his re-appointment led me almost instinctually to  be convinced that coincidence was not the driver here.  The Chairman undoubtedly had some powerful friends in the media who were giving him a publicity offensive, or campaign, just in time for the Senate debate on whether to appoint him.

Through all the admiration of this person of 2009, it should be remembered that he did not urge the regulation of sub-prime derivatives issued or held by the banks regulated by the Fed.  He was wrong about the subprime housing bubble being contained.  And he failed to protect homeowners sufficiently.  If the media was being used by the Fed Chair in his re-appointment campaign, it could be that what we are fed by CNN, Fox, MSNBC and the main network newscasts is not really as neutral or beyond their control as we think.   News as a campaign.  News because it is in some powerful actor’s vested interests.  While there is certainly coincidence in life, an alignment such as I have outlined here is far too transparent—or at least it ought to be.

The subtext here is that we, the American people, have become too much the pawns even as we think we are not.  The illusion of popular sovereignty is that we are in control.   I don’t think we have any idea of the extent to which we are manipulated by the powers that transcend our elected representatives and their appointees.  It is no wonder that real change does not get beyond the interests of the real power in America, whose interest is in the status quo or at best in an incremental change.   Essentially, we have allowed the anti-democratic power to concentrate to a degree that is dangerous to a functioning republic (i.e., a representative democracy).  We should not be surprised to find that powerful actors are operating at a subterranean level where transparency is intentionally lacking.    How do we get it back, you ask?  Hah!   We would have to see it first—realize its extent and depth—and I’m not holding my breath that enough people will wake up to see the light.

Too many of us are ensconced in Plato’s cave, taking what the puppets say for reality.  As Jack Nicholson said in A Few Good Men, “You want answers? YOU CAN’T HANDLE THE TRUTH!”    Even if we could stomach the emetic manipulation behind the scenes that is directed to us (and even our representatives—when they aren’t doing it themselves), we would have to be able to see it—and it is so well hidden.  We can only grasp at straws…confluences that seem like more than coincidences.  As a member of the black caucus of the US House (surprisingly) said to a reporter of Frontline on the TARP program passing the House just days after it had been voted down by that same body, “You have no idea how powerful the anti-democratic forces are here.”    You and I get only glimpses.  The puppets seem more real so we believe in them.   Please don’t take my thesis to be that there is one huge orchastrated conspiracy; rather, I’m simply suggesting that our system of representative democracy does not seem to be able to sufficiently constrain the invisible powers that are pulling strings without being accountable to the public power.  It is my ardent hope that the people will look beyond the status quo in voting for candidates—perhaps getting back to citizen representatives who do their duty then return to their preferred occupations—that we would elect people sufficiently principled and not desirous of a life in power to be willing to take on the financial power.   Do I think it will happen?  Sadly, no.  I’m sorry, but I just don’t think we have it in us…or we don’t have enough of what it would take to confront that which is in us that favors comfort and sleep.   In the story of the rise and fall of empires, the United States is not exempt.  The culprit, as with most things, lies within.   It is ultimately about what kind of people too many of us are.  Such a thing is very, very difficult to change, let alone see.  Decadence tends to be invisible to itself.

Note: A day after CNN covered the announcement, the Senate finance committee debated and voted on Bernanke’s re-appointment. See http://www.msnbc.msn.com/id/34463144/ns/business-stocks_and_economy/

 Source: http://www.time.com/time/specials/packages/article/0,28804,1946375_1947251,00.html#ixzz0Zs8WgpV1

The Downfall of MF Global: Implications for Banks Too Big To Fail

Here is an alphabet-soup of regulatory agencies that let MF Global, a financial services company that specialized in futures-trading, engage in much, too much, risk: SEC, CME, CFTC and FINRA. On one level, regulators will never be able to stop practitioners from making risky or simply bad decisions; a business system populated only by firms above average is by definition impossible. As long as their managers have any freedom of movement at all, some firms, including some in the financial sector, will inevitably fail. The question I want to pose is whether this means that firms too big to fail (TBTF) should be allowed to exist at all. In short, although MF Global itself was not TBTF, the risk Corzine (who had been chairman of Goldman Sachs) permitted suggests that human nature might be insufficiently disposed to support mammoth concentrations of private capital whose fall could mean the collapse of the financial system itself. Ultimately, I suppose, human nature can only go so far, organizationally speaking.

MF Global admitted to $630 million in missing customer funds. Although accounting errors and bank-cushions could account for the discrepancy, MF Global used customer funds to loan itself money. To be able to do so, the former U.S. Senator and Governor of New Jersey, Jon Corzine, met personally as head of MF Global with federal regulators to get them to relax their proposed rule that would have forbid such a loan. According to the New York Times, financing by borrowing customer funds is not unheard of on Wall Street, but is “carries substantial risk.”

Corzine’s influence with the regulatory agencies may have been similar to the role that Madoff’s status played in his dealings with the SEC. It would seem that regulators are readily “captured” by high status alone—never mind relying on the regulated firms for information and possibly even being influenced by political contributions via elected officials acting on the behalf of big donors. Given the riskiness in borrowing customer funds without the traditional banking oversight of lending, the regulatory “status lapse” syndrome is dangerous—particularly if a firm TBTF is involved. In other words, might we be rolling the dice in Dodd Frank by relying so much on regulators? The possible mix of duplicity and risky multi-billion dollar bets at MF Global should drive home this point.

People at an exchange that cleared trades for MF Global have indicated that Corzine’s firm might have moved money out of customer accounts “in a manner . . . designed to avoid detection” as the firm headed toward collapse. CME Group, the parent company of the Chicago and New York Mercantile Exchanges, indicated that it appears that MF Global dipped into customer accounts after CME finished an onsite review of the securities firm during the last week of October, 2011. The CME statement read in part, “It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection insofar as MF Global did not disclose or report such transfers to the [Commodity Futures Trading Commission] or CME until early morning on Monday, October 31, 2011.” CME served as a clearing house for trades that were made through MF Global, according to the Wall Street Journal.

Meanwhile, questions regarding MF Global’s $6.3 billion bet on E.U. state debt and the scrutiny by regulators were mounting, according to the Journal. That any bet would be for such a sum ought to raise a red flag for the firm making the bet. Although MF Global was not TBTF, the managers’ willingness to take on such risk suggests that the mentality to take on extraordinary risk carries on in the financial industry. This finding may render the very existence of financial firms deemed too big to fail as something we might want to revisit through legislation. In other words, if bets worth billions of dollars on European government debt were going on through the E.U. debt crisis, the risk alone (to say nothing of the utter stupidity) may suggest that financial-sector firms that are too big to fail are also too big to exist—especially if regulatory scrutiny is insufficient. The risk and the numbers may have reached a dangerous level, given how human nature treats risk (and the limits of human cognition).

Paul Volcker admitted on Charlie Rose in late October 2011 that he never thought he would talk in terms of trillions of dollars, but there it is, that day had arrived and with it, the horrendous risk of banks being too big to fail. Whereas Citigroup had $1.63 trillion in total assets at the end of June 2006, the bank had $1.94 trillion at the end of the third quarter 2011. Comparable figures for Bank of America are $1.45 trillion and $2.22 trillion. JP Morgan Chase: $1.33 trillion and $2.29 trillion. Wells Fargo: $500 billion and $1.3 trillion. Where is the lesson on TBTF from September 2008? It is as if the credit crisis and fall of Lehman Brothers had not happened. Thomas Hoenig, former Kansas City Fed chairman, said in a speech in February 2011, “We must break up the largest banks.” He said the government could do so by restricting the activities of government-backed banks “and significantly narrowing the scope of institutions that are now more powerful and more of a threat to our capitalist system than prior to the crisis.” According to the Wall Street Journal, regulators “can ultimately force a firm to sell off parts of itself if they don’t believe a firm could be wound down without threatening others.” Although Hoenig said he is not against BIG, just too big to fail, so it is possible that the biggest banks could show that “they are manageable, that their risk will not impact the taxpayer in the future,” I contend that the mere existence of concentrations of $1.94, $2.22, $2.29 and $1.3 trillion is inherently dangerous to the financial system and the greater economy. If even one of those should go under all at once, assuming losses are involved, investors, business managers, bankers and even consumers would surely hear a subtle fiscal “thud” and react aversely, even if in a self-fulfilling prophesy. If Wall Street bankers did not learn a lesson from September 2008, however, that “thud” could be far more than psychological. The example of MF Global may suggest that the bankers on Wall Street did indeed continue on in being all too willing to make risky multi-billion-dollar bets, having “slept through” the shrieking “wake-up call” of the financial crisis of 2008. The resumption of the extravagant bonus culture strongly suggests that the bankers still had an incentive to bet big with little regard for risk.

Treating the mega bank as too big to exist as a mega bank does not depend on regulatory scrutiny, which can be subject to the “status syndrome”; rather, once a firm hits the pre-established threshold, the regulators would simply come in and orderly “smash the atom” such that smaller firms result (with different owners, managers and employees—unlike the case of the companies coming out of Standard Oil, which had the same ownership and whose executives were even allowed to continue working in the same building!).

I think perhaps we presume too much regarding human nature, given the edifices we build ever higher and higher, as if in testament to the self-idolatry of our presumption that we cannot be wrong. Lest we come too close to the sun and turn our cities into deserts, we might want to fly our chariots a bit closer to the ground.

                                                

Sources:

Jean Eaglesham, Aaron Luchetti, and Jacob Bunge, “Regulators Enter the MF Fray,” The Wall Street Journal, November 3, 2011. 

Azam Ahmed and Ben Protess, “As Regulators Pressed Changes, Corzine Pushed Back, and Won,” The New York Times, November 4, 2011. 

Victoria McGrane, “Banks’ Critic Poised to Be Head of FDIC,” The Wall Street Journal, November 18, 2011. 

The Banking Lobby Amid Goldman Sachs' Culpability: A Danger to the Republic?

To simplify how Goldman Sachs got into trouble with the SEC: According to Annie Lowrey, the hedge fund Paulson & Co. handpicked mortgage-backed securities that were doomed to stop performing, being backed with subprime mortgages, and Goldman packaged them into a kind of bond. Paulson & Co. bet against the bond by buying short-sales, with Goldman acting as the broker. At the same time, Goldman sold the bond to other clients without disclosing that Paulson had engineered the bond to fail. The SEC filing notes that those other clients lost $1 billion. Goldman had no direct stake in the success or failure of the CDO. It made money either way. “This litigation exposes the cynical, savage culture of Wall Street that allows a dealer to commit fraud on one customer to benefit another,” Chris Whalen, a bank analyst at Institutional Risk Analytics, said in a note to clients on April 16, 2010. Someone at Goldman said on the same day that “the SEC’s charges are completely unfounded in law and fact.” If the SEC charges hold up (and it is doubtful that the agency would bring such charges without supporting documentation; it is more apt to miss something than go overboard), I am astonished that the people at Goldman simply dismissed the matter out of hand. It might make sense as their legal defense, but if the bankers are convicted, those lying ought to be fired even if they were not a party to the scheme. It also appears that the bankers lied about whether they made money in betting against the housing market. “The 2009 Goldman Sachs annual report stated that the firm ‘did not generate enormous net revenues by betting against residential related products,’ ” Senator Levin, chairman of the US Senate’s committee on investigations, said in a statement in April, 2010. “These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market.” When a spokesperson for the bank says something in the future, a rational person will be wont not to trust him or her. Lying has (or ought to have) consequences rather than being dismissed as harmless PR or a legal defense. The bank’s credibility is at issue here. The SEC has accused Goldman of outright lying to customers in order to make money both ways on a deal. Even though this ought to reflect negatively on Goldman’s future business, bigger issues involved that ought to consume more of our attention than how Goldman fares.

Given the strength of the financial sector’s lobby in Washington, this case involving Goldman suggests that we, the American electorate, were unwittingly putting our financial system and our republics in danger by enabling the lobby to have such effect in watering down the regulatory reform in the wake of the financial crisis of 2008.

In the election cycle in which the US Senate’s agricultural committee took up legislation that would regulate all derivatives (2010), people and organizations affiliated with financial, insurance and real estate companies gave members of the committee $22.8 million. Wall Street firms raised $60,000 at two fund-raisers for the committee’s chair’s re-election campaign in the cycle before the committee took up the legislation. Many of the chairs constituents want a crackdown on the speculation. This put Blanche Lincoln in a difficult situation, ethically speaking. At the very least, accepting money from the firms that would be subject to the legislation involves the appearance of a conflict of interest. I contend that given human nature, even such an appearance ought to be avoided or even outlawed. At the very least, it is unseemly in a republic, and I would argue dangerous to its viability.

Furthermore, as if the banks’ culpibility in the crisis was not sufficient to cancel their reservations at the regulatory table, the Goldman case strongly suggests that the banks ought not to be trusted as contributors to regulatory reform. And yet they push ahead to reduce the regulatation, in spite of it all. A child who drops his milkshake doesn’t turn around and tell his mother that she better not clean it up and that she had better not get involved if it happens again. Rather, such a child stands back. As if there is not enough of a natural feeling of shame at having made a mess, there is, or ought naturally to be, an even greater sense of shame in presuming to be in a position to direct the clean-up according to one’s self-interest over objections that the person who caused the problem is not the one best suited to fix it. Even if corporations can enjoy the legal fiction of personhood, there are actual human beings running them, and it is telling when those people dismiss their innate shame in their presumption–even pretending that it is not presumption! We are to blame in not calling them on it, and relegating them. We must relegate them if they won’t do it for themselves, as would be natural for them to do. In other words, we ought to call the artiface for what it is and relegate it as a parent would naturally tell a spoiled and misbehaving yet dogmatic child to go to his room. We, the American people, are enablers; bad parents. We ought to look toward solving the bigger problem, which the case of the Goldman children intimates.

The theory of regulatory capture points to the government’s need for information that the industry being regulated can provide. This theory ignores the broader power-base that an industry is apt to have in lobbying the government (and supporting candidates). In other words, information is just small change from the standpoint of an industry’s ability to influence a government. A better theory would have its primary focus on the macro level, asking the question, in effect, whether (and how) a republic is compromised by its moneyed corporations and banks. Besides looking at campaign finance law and uncovering actual lobbying practices, we ought to look at how much the society in question values money, commerical gain, wealth and economic freedom. We ought not be limited to the managerial or technocrat perspective in ascertaining whether our financial system and indeed our very republics are in danger from being used by unscrupulous firms or industies according to that which fits their peoples’ desires. Once we have uncovered the real problem, we really won’t have any excuse for not fixing it, and we would be bad parents indeed if we let the children fix it.

Sources:
http://washingtonindependent.com/82571/sec-charges-goldman-sachs-over-subprime-tied-product  http://opinionator.blogs.nytimes.com/2010/04/16/goldmans-stacked-bet/?ref=opinion
http://money.cnn.com/2010/04/16/news/companies/sec.goldman.fortune/index.htm?postversion=2010041616 ; http://money.cnn.com/2010/04/16/news/companies/goldman_sachs_questions.fortune/index.htm?postversion=2010041615 ; http://www.nytimes.com/2010/04/20/business/20derivatives.html?hp
http://www.nytimes.com/2010/04/25/business/25goldman.html?ref=us

Too Big to Fail: The Trillion Dollar Club

Banks with assets over $50 billion are considered “systemically important” according to the Dodd-Frank law of 2010. The act is geared to shoring up protection against systemic risk. The U.S. Government deems certain banks (and companies) systemically important if they are big enough to threaten the entire financial system should they fail. Such enterprises are subject to higher capital standards and stricter rules. Roughly three dozen banks in the U.S. had been classified as systemically important by mid-May 2011.

A major flaw in the law is its failure to sufficiently distinguish the banks having assets at just over $50 billion (the floor of systemically important) from the banks with assets over $1 trillion. For example, Bank of America ($2.28 trillion), J.P. Morgan Chase ($2.2 trillion), Citigroup ($1.95 trillion), and Wells Fargo ($1.24 trillion) can be clustered and distinguished from Huntington Bancshares ($52.95 billion), CIT Group ($50.85 billion), Zions Bancorp ($50.81 billion), and Marshall & Ilsley ($49.68 billion). If just one of the institutions in the over $1 trillion club fails, the financial system worldwide could be toast. In contrast, the system would be more likely to remain viable if just one of the banks with assets of around $50 billion were to fail.

Of the $50 billion club, Stephen Steinour, chair and CEO of Huntington, stresses, “We are not vital to the economic system of the U.S.” The chair and CEO of Bank of America could not make the same claim. However, Steinour is ignoring the possibility that Huntington could be a domino in a line of similar banks whose failures altogether could challenge the viability of the financial system; yet even this risk can and should be distinguished from the inherent systemic risk in just one of the banks in the $1 trillion plus club.  Furthermore, those big banks have grown even larger since before the financial crisis—meaning that their systemic risk is higher rather than lower after the crisis. At the end of 2010, the top ten banks in U.S. had 77% of the banking assets in the U.S.

In 2007, Bank of America had assets of $1.54 trillion; by 2011 that number had moved to $2.28 trillion. J.P. Morgan Chase had gone from $1.46 trillion to $2.20 trillion, and Wells Fargo went from $539 billion to $1.24 trillion. Citigroup bucks this trend, moving from $2.22 trillion down to $1.95 trillion. Generally speaking, this cluster of banks represents more rather than less systemic risk after the crisis of 2008.  Were one of these banks to founder, a government-arranged orderly liquidation as per the Dodd-Frank law might not be sufficient to keep credit markets from freezing up. The very existence of a bank with more than $1 trillion in assets should be questioned. Ironically, efforts to evade financial catastrophe in the fall of 2008 contributed to the increase in size. That is to say, staving off the crisis may have made another more likely in the future.

So especially after the scare in 2008, it is incumbant on us to question the sheer existence of the banks that have been allowed and in fact encouraged to get bigger. If a bank having more than $1 trillion in assets is deemed necessary for corporate capitalism to function in spite of such a bank's inherent systemic risk, one might ask how the system got along without them before they had grown so big. After all, it is not unheard of for a syndicate of banks to package financing on a mega-LBO (leveraged buy-out); one mega-bank is not necessary. Indeed, mega-LBOs themselves may result in unacceptable systemic risk. Finance itself, and particularly the increasing role of leverage, can also be subjected to question. 

Although distasteful from the vantage-point of the financial interests vested in the status quo, the trillion-dollar-plus club of banks could be treated differently than the banks of around $50 billion. Whereas the latter could be more strictly regulated, the former could be broken up not only in terms of management, but also in ownership (rather than the spin-offs having the same fractional owners, as was the case with Standard Oil after its “break-up”).  Considering that obviating financial collapse in 2008 included the byproduct of even larger banks, a second systemic-risk law delimiting a maximum size could complement existing anti-trust laws. Unfortunately, the Dodd-Frank law does not address this point, and is thus insufficient from the standpoint of obviating the systemic risk of firms being too big to fail.

Sources:

Robin Sidel and Jean Eaglesham, “Vital? Not Us, Say Small Banks,” The Wall Street Journal, May 13, 2011, p. C1.

2007 Bank Assets, ForbesAdvice.com.

Lehman's Dick Fuld as the Antagonist in the film, "Too Big to Fail"

The reporter-author of Too Big to Fail, Andrew Ross Sorkin, expressed the following fear as his 600-plus-page book was being made into a movie: "I went into the process I think worried – as I imagine most writers would be – that it would be sexed up and hollywoodized in some other way." To be sure, putting the Dick Fuld (CEO of Lehman Brothers) character into any sort of sex scene would have been counterproductive at best.

As it was, the director of the tv-movie based on Sorkin’s book let the drama inherent in the historical events to lead the narrative. The only quibble I may have with the historical veracity has to do with Bart McDade replacing Joe Gregory as President of Lehman. According to Larry McDonald, a former distressed-bonds trader at Lehman, the replacement also relegated Fuld even as he remained as CEO only to quell the markets. Specifically, on June 11, 2008, “Fuld was effectively deposed,” according to McDonald, “by Bart McDade with the support of the executive committee” (McDonald, p. 297). In the movie, however, Fuld was still in charge even in September of that year, with McDade still bowing to him in front of the Koreans.

While it could be that Sorkin and McDonald have different sources of information on whether there was a coup within Lehman, the film’s director and screenwriter could have kept Fuld in charge to maintain the character as the principal antagonist. Even so, McDonald’s description of McDade confronting Fuld in Fuld’s office and the subsequent decision of Gregory in the conference room to take the stunned CFO, Erin Callan, down with him in front of the executive committee would have made excellent scenes in the movie.

The other change I would have made to the screenplay would give the viewers an improved insight into how the sub-prime crisis could have been allowed to get so bad. Specifically, the Fuld character could have had a flashback to Mike Gelband’s warning on June 7, 2005 in defiance of Fuld that Lehman should get out of the housing-related CDO market; the bank was then leveraged twenty-two times its net worth (McDonald, p. 136). Meeting with Gelband and other senior executives on the 31^st floor on that day, Fuld and his allies insinuated that Gelband had some kind of attitude problem that needed to be changed “real fast” (McDonald, p. 138).  As a flashback, this scene would have shown the viewer Fuld’s recklessness in terms of risk (and leverage), and thus how the financial system could have been put in such peril by the “experts”. In fact, in the spring of 2007 Fuld decided to bully and belittle Gelband publically at the bank in order to get him to take on even more risk (McDonald, p. 235). This could have been fused into the “attitude problem” meeting, showing the viewer Fuld’s pathology, which goes beyond a bad temper.

Whether one points to Jim Cayne at Bear Stearns or Dick Fuld at Lehman, the role of pathology in the near-demise of Wall Street could uncover for us how recklessness could have gained such traction. In other words, HBO’s Too Big to Fail could have delved into Fuld’s character beyond having him drop some F-bombs. Speaking on Charlie Rose on the evening of the movie’s premiere, Sorkin marveled that it must be difficult for actors to convey their respective characters in just a few scenes. That is true; however, the director and screenwriter could have brought out Fuld’s pathology (beyond his anger) by a few well-chosen additional scenes. Sometimes what a character says, and to whom, can be more damning than how loud he or she says it. Concerning Fuld, the viewers could have been shaking their heads in utter disbelief rather than simply concluding that the guy is arrogant and has a temper.

See related essay: "Leadership at Lehman: On the Failure of Richard Fuld"

Sources:

Kamelia Angelova, “Andrew Ross Sorkin: I was Worried that ‘Too Big to Fail’ Will Be Sexed Up or Hollywoodized as a Movie,” Business Insider, May 24, 2011.

Lawrence McDonald, Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers (New York: Three River Press, 2009).

Bribery at Barclays: Can an Unethical Culture Be Changed?

Amid the financial crisis in 2008, Barclays raised $15 billion from Qatar and other investors. The infusion of capital saved the European bank from needing a government bailout. Unfortunately, the bank may not have disclosed the $390 million paid to the Qatari government for “advisory services” as part of the fund-raising, and the $3 billion loan facility that Barclays made available to that government.[1] The bank, along with three of its executives at the time were charged in 2017 with conspiracy to commit fraud by false representation, and providing unlawful financial assistance—in other words, paying a bribe to avoid needing an E.U. or state-level bailout. According to Amanda Staveley, a European financier, Barclays improperly favored the Qataris in the fund-raising. The relationship between the bank and the Qatari government rings of “mutual back-scratching.” Admittedly, any business deal involves both parties benefiting, and in much of the world bribery is de facto necessary cost of doing business. Nevertheless, Barclays may have had an organizational culture similar to that of Wells Fargo in which anything goes in pursuit of profit.

The full essay is at "Bribery at Barclays."

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1. Chad Bray, “Former Barclays Executives Appear in Court Over Qatar Deal,” The New York Times, July 3, 2017.

ECB Poised to Approve Italian Bailout of Monte dei Paschi Bank: An Instance of Federal-State Collusion?

Under the E.U.’s banking law enacted after the 2008 financial crisis, the state governments “are not supposed to inject fresh taxpayer money into a bank if it is deemed insolvent. When a bank gets into financial trouble, shareholders and bondholders, assumed to be sophisticated investors aware of the risks, are supposed to take the hit and bear the losses.” Much of the banking reforms were intended, moreover, “to prevent banks from becoming so big and so risky that they could hold the global economy hostage. Politicians and policy makers didn’t want taxpayers to be on the hook for the banks’ mistakes.” What about a mid-sized bank whose financial plight puts a state’s economy and reigning political elite in jeopardy? Should the E.U.’s central bankers look the other way and allow the state’s government to finance a bail-out so stockholders and bondholders need not feel the brunt?

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.