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Excerpt: "A friend of mine sent this article from Bloomberg, along with the simple comment: 'Perfect.' ... This story dovetails with the larger story I have out in the magazine now about Bank of America, another Too-Big-To-Fail behemoth that placed a very close second in the area of municipal bond business, according to the Bloomberg survey. Chase managed $35.7 billion in long-term bond sales, while BOA/Merrill Lynch came in at about $200 million less."

Matt Taibbi at Skylight Studio in New York, 10/27/10. (photo: Neilson Barnard/Getty Images)
Matt Taibbi at Skylight Studio in New York, 10/27/10. (photo: Neilson Barnard/Getty Images)



Gangster Banks Keep Winning Public Business. Why?

By Matt Taibbi, Rolling Stone

21 March 12

 

friend of mine sent this article from Bloomberg, along with the simple comment: "Perfect." From the piece, entitled "JPMorgan Claims No. 1 for Government Debt After Jefferson County":

JPMorgan, which emerged from the worst financial crisis since the 1930s as the most profitable U.S. bank, has parlayed crisis-era loans to cities and states and a willingness to outbid other firms in local government bond auctions into becoming the top underwriter of municipal debt last year, according to data compiled by Bloomberg. It was the first time the firm held that rank.

The turnaround was a milestone for JPMorgan's municipal- bond department, which has been marred by its involvement in two of the biggest scandals in the history of U.S. public finance: a so-called pay-to-play scheme in Jefferson County, Alabama, that contributed to the biggest-ever U.S. municipal bankruptcy, and a federal probe that uncovered bid rigging of municipal-bond investment products.

This story dovetails with the larger story I have out in the magazine now about Bank of America, another Too-Big-To-Fail behemoth that placed a very close second in the area of municipal bond business, according to the Bloomberg survey. Chase managed $35.7 billion in long-term bond sales, while BOA/Merrill Lynch came in at about $200 million less.

Why does this matter? Because both banks, Chase and Bank of America, have been repeatedly inveigled in scandals involving the issuance of public debt. Bank of America paid a $137 million settlement for rigging the bids of bond issues in numerous communities (including places as far away as Guam), while Chase also paid a big settlement of $211 million last year for more or less exactly similar offenses involving localities in 25 different states.

Chase also entered into a $722 million settlement with the government over its behavior in Jefferson County, Alabama, where the bank essentially bribed local officials to stake on onerous swap deals that left the county in debt until the next millenium.

Bid-rigging is an old-school crime of machine pols and gangsters. In the old days, it was parceling out garbage collection or construction contracts to each of the proverbial five mafia families, who would patiently pantomime real bids for government contracts. They would take turns "winning" the state's business with artificially low bids, guided by a corrupted insider who usually took a bribe to rig the auction.

In modern times, it's the same thing, except that it's banks now doing the pantomiming. Here a circle of organized crooks (read: banks) gets together, parcels out territories so that each party gets to "win" business in certain areas, and then they all get together and agree to a rigged bid system.

Typically, a subcontracted-out private broker/bidding agent takes all the bids for a municipal bond issue, and then quietly tells the "winner" whether he needs to jack up or reduce his bid. The broker might tell the bank, for instance, that its bid was too "aggressive," i.e. too high -- allowing the bank to come in with a lower bid that would still win.

If you read through these bid-rigging lawsuits/settlements, you'll find a striking commonality in the evidence collected by these states and municipalities. All across the country, the same banks use the same code words with the same bidding agents to win business with artificially lowered bids.

In one action involving California communities and a number of banks, authorities claimed the language was extremely overt. Some examples of "code" phrases agents would use:

"This one needs to go to JP Morgan."

"JP Morgan understands that they just won a big transaction and that this one needs to go to Bank of America."

Municipal bonds are boring. In fact, if you've even made it this far down this blog entry, you're probably fighting the urge to doze off. But the bottom line with municipal bid-rigging is that it costs all taxpayers (particularly those who pay property taxes) enormous damage in lost services and increased taxes.

If your town gets cheated out of $3million it would have received in an honest auction of its bond business, that's money that's not going to schools or firemen or cops. And it's money those towns will take out of your pocket to compensate, usually by raising taxes.

The settlements out there with banks like Chase, Bank of America, Wells Fargo and UBS cover hundreds of localities in virtually every state in the union. The sheer number of cases suggests that this activity is epidemic and systematic – in other words, that it's simply the way to do business in America.

I wouldn't be surprised if ultimately we're talking about tens of billions in lost revenue for states and towns. It might be more. If recent history is any guide, if a bank pays a $150 million settlement to the federal government for this sort of activity, one can guess that the bank probably made ten times that amount in profit, at least. And there are at least a dozen major banks that have been accused of this sort of activity in recent years.

The news about Chase and Bank of America continuing to dominate a market they've already admitted to feloniously rigging says a lot about the state of modern finance. Bloomberg offered a telling quote from a state official justifying the decision to continue to do business with these criminal banks:

"I haven't found an investment bank that hasn't had some problem in the last three years," California Treasurer Bill Lockyer said in a telephone interview. "We do business with them all. I think they provide good service. I think they've been highly ethical with us."

This is coming from an official whose state, California, has seen multiple bid-rigging cases in recent years, from Riverside to San Mateo to Sacramento to Los Angeles to Santa Barbara, for starters. So a quote like that is pretty sad. It tells you that the system works fine for state officials and banks -- and no one is representing the people who actually lose out.

 

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+52 # artful 2012-03-22 11:37
Banking is an organized crime ring. I assume the mafia is taking lessons, because banking is way more profitable and way less risky than drugs or prostitution.
 
 
+29 # John Locke 2012-03-22 13:22
Actually I wonder if the Mob went into Banking? I had always thought that any enterpise that used fraud (mail or wire) and several unlawful acts could be taken down under RICO (racketeering activity) why haven't the states filed these type of Civil RICO Claims? are they still getting some paymnet from the banks?
 
 
+13 # Jane Gilgun 2012-03-22 13:48
Yes, Michael Corleone would be a great banker.
 
 
+5 # John Locke 2012-03-22 15:30
Bank of America was founded by Italians "Amadeo Giannini" founded the Bank of Italy in San Francisco in 1904! They later changed the name during the war because we were at war with Italy. 1904 hummm, could have had Mob roots? Yhe Mofia was active in Italy!
 
 
+11 # KittatinyHawk 2012-03-22 19:38
Republicans took over Drugs and Prostitution a long long time ago
 
 
+3 # John Locke 2012-03-23 09:13
Kittatiny: It was the CIA and the Yale cult Skull and bones that took it over. Even Franklin Roosevelt had ties to the Opium emnpire through his grand father Warren Delano Jr.
Yale, is where three threads of American social history espionage, drug smuggling and secret societies intertwine into one. The Forbes and Coolidge families are just two of the notorious families that made their fortune smuggling Opium into China.
 
 
+16 # RNF123 2012-03-22 11:57
Too big to fail has had a contrary effect on the banking industry. Now there are only a few large banks that are too large too fail, we hope! JP Morgan and a few others financial institutions are able to withstand any potential disturbances in the market so there are fewer choice. That is why Goldman is still in business. Where else can the big players go? It is time to look at the Canadian banking system which avoided the mortgage meltdown in most part and are lenders not gamblers but they cannot obtain high rates of return unless they sell overpriced, high risk, garbage to their clients. The other problem is that most of Wall Street is based on commissions which encourages the sales of products without concern for the client. Put them on salaries with bonuses based upon customer satisfaction.
 
 
+24 # Kayjay 2012-03-22 11:59
Remember what most mothers had to say? Eat those vegetables, they are good for you. They should have added, do your banking at the local credit union, it's good for you. But unfortunately, most people don't listen to their mothers until it's too late. Now that the banking rat-like profiteers have pushed us to the end of our rope, maybe more of us will embrace any credit union.....which embraces non-profit status.
 
 
+10 # bugbuster 2012-03-22 13:11
I asked at my credit union about investing my retirement money with them instead of the big firm I'm using now. They said it didn't make any difference because they are all using the same contractors, or suppliers, or whatever you want to call them. I left my retirement money where it is except mostly in CDs, not stocks. Unfortunately the IRS won't let me invest in beer or guitars or something solid like that.
 
 
+4 # KittatinyHawk 2012-03-22 19:45
It is not a very good credit Union...many are investing where you want it invested, it is your money.
Look further, there are ways to make difference. I would look into Municipal bonds, and green contractors. Lots of school renovation going on, bridge projects.
You have to do the homework. Talk to Unions, they invest for their men, learned to change in past 10 years. But again you have to look, listen who is doing business and what their ethics are.
 
 
+3 # KittatinyHawk 2012-03-22 19:41
Most people have ranted, raved and I doubt a one has moved their accounts no less investing in green, municipal Everyone wants to be rich quick like the 1%
 
 
+19 # MidwestTom 2012-03-22 12:07
This is to be expected when both Bush and Obama appoint nothing but NYC bankers to top financial posts. Why not a banker fromDallas, or St. Louis? Somehow we must break Wall Streets hold on our government.
 
 
+9 # noitall 2012-03-22 13:18
Dallas?!
 
 
+2 # KittatinyHawk 2012-03-22 19:47
No where near Texas or any other Red State
 
 
+9 # KittatinyHawk 2012-03-22 19:46
Why a Banker from any big City. Why not look into people Like Nader instead of the crooks?
 
 
+1 # John Locke 2012-03-23 09:18
Why a banker period? We need people with common sense. Not someone who will steal all our dollars and cents.
 
 
+18 # DemocracyNeedsDefenders 2012-03-22 12:56
The bid rigging is only possible with the cooperation and complicity of the elected officials. But the key word is "elected". They only get away with this because WE as voters do not care enough. All too easy to blame "the politicians". Harder to take a stand and making ethics a key voting choice.
 
 
+8 # anarchteacher 2012-03-22 13:04
As always, Matt Taibbi has some very valuable insights on power elite analysis as it relates to the Wall Street banks. In this particular case, JP Morgan.

But a broader historical perspective is necessary to understand the full dimensions of the contemporary situation. Here are two excellent sources with which to begin exploring this crucial background:

http://library.mises.org/books/Murray%20N%20Rothbard/Wall%20Street,%20Banks,%20and%20American%20Foreign%20Policy.pdf

Wall Street, Banks, and American Foreign Policy, by economist/histo rian Murray N. Rothbard

http://lewrockwell.com/burris/burris21.1.html

"Who Rules America: Power Elite Analysis and American History, by Charles A. Burris
 
 
+18 # treadlightly 2012-03-22 13:06
Thanks Matt for another look inside what passes for fair trade these days. The only way to change is to make sure the crooks stay in the spotlight and you are the man when it come to that. I guess a lot of us have been naive in thinking that Washington and Wall-street might operate with integrity. Seems that the only way that is going to happen is if "We The People" force them to. Viva La Occupy!!!
 
 
+12 # cordleycoit 2012-03-22 13:13
They keep robbing us because there is no enforcement, The cops don't care. They will continue to rob us until the public stops dummying up and grabs the Congress by the throat or stops returning the elected accomplices to D.C. And if it isn't done soon there will be no accounting. The banks are inflating the next round of bubbles as we speak. We either halt these bankers now or get ready for what they do next to protect their lying, useless, criminal asses.
 
 
+9 # dick 2012-03-22 13:30
Why does anyone think Ayn Rand, Ron Paul, Rand Paul, Adam Smith, Milton Friedman, Free Enterprise, Free Market Competition, capitalist ideology, conservative philosophy have ANYTHING ON EARTH to do with US BASED GlobalCorps? I don't remember getting lectured on the "Magic of the Marketplace"(Ro nnie Raygun), the Invisible Hand, Laissez Faire non-interferenc e with the Mafia families? It's ALL about criminality, propaganda, lies, owning the "Justice" system, including Obama's. All these major criminals should have been RICOd into the hoosegow a long time ago, & not Club Fed.
 
 
+11 # DPM 2012-03-22 14:31
If you haven't seen "Inside Job" rent it. I would caution you not to watch and eat at the same time. Unless, of course, you have something to vomit into.
 
 
+16 # Majikman 2012-03-22 14:51
Now you know why the banks & Wall St. went after Elliot Spitzer.
 
 
+9 # James Marcus 2012-03-22 14:57
Firstly...'Artf ul', you got it Right. It's all A 'Legal' Scam!

Why Bankstas keep winning:
(Yes, I have a degree in Economics and Business from Boston U. More so, I graduated 'Cum Laude' from the Dinner Table Conversation, of a true-and honest Jewish Business man....My Dad! Lemme tell ya...)
Truth is, very few folks really understand this whole Banking System! And many of the ' Duly Educated', have been conditioned, for generations now, to accept as 'Reasonable ,Normal, and Legal the likes of:

'Fractional Reserve Banking' This is the Heart of 'Institutionali zed Embezzlement', (...if you will), whereby Bankstas (legally!) create lendable money (book entires) out of thin air, profit therefrom, and ALSO inherit hard assets, though default, should that occur).

Deficit Spending: Institutionaliz ed Fiscal Unsustainabilit y. ....with ....a 'Whink and a Nod'. This is Politico Speak for:
SHHH! Don't tell.... that we are All being Very Fiscally Naughty (well, it's for the 'Collective Good'). Don't tell, and we will also 'allow it ' for Persons (includes Corporations), as well (called 'Credit'). We can all 'Have It All Now' and... 'Pay Later'.

Neither Politicians nor Bankers look at, understand, nor question these (conveniently).
Folks, it is Now... 'Later'!
 
 
0 # barbaratodish 2012-03-22 15:19
Maybe we all need to indict each other for corruption! Let's have an Obnoxious Indictment Olympics, to see who is the most corrupt. Maybe the 99% are as much responsible as the 1% for corruption due to the acceptance of corruption by default! Let's start RICO (Racketeer Influenced corrupt Organizations) OLYMPICS! lol www.detectobnoxiousness.com
 
 
+5 # dick 2012-03-22 16:08
I don't think it's ALL a "legal" scam. All those token "settlements,"
to make it look like someone's on the job, suggest a whole lot of illegality going on. This, despite the fact that the crooks write many of the rules. Too bad Elliot, like Clinton, wasn't more self disciplined. Spitzer would have been spitting out indictments faster than Bill Maher spitting out spam samples in the super market. Is Obama(-Holder) colossally disappointing or what?
 
 
+7 # John Locke 2012-03-22 18:05
Dick: its the hand that feeds the politician...Th ey like an animal won't bite the hand that feeds them! So we can always know just how far they will go. Fines are ok, jail is not ok.
As the Mob used to do, if you remember the mobster Benny Binion of the Horseshoe casino in Vegas, he killed a rival bootlegger in Texas was convicted of murder and received probation. NO JAIL TIME. why, he owned the judge! Here the banks own the government.
 
 
+1 # whichwayforward 2012-03-23 06:54
thank you for helping us get informed about how our towns and counties are being swindled! It reminds me of how '3rd world' countries push families to despair by taxing the most basic services to pay corrupt debts. Somehow we never thought it would never happen to us. We're supposed to be special.
 

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