What’s the Connection Between TBTF Bank Arrogance and the TPP?

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At first glance, the secretive Trans-Pacific Partnership (TPP), which was drafted by corporate lawyers and lobbyists, and the arrogance of the too-big-to-fail (TBTF) banks may seem like unrelated events.

But what if this arrogance hinted at a building confidence that average people worldwide would now be more accountable to corporations than to their own sovereign governments?

Jamie Dimon of JPMorgan
Jamie Dimon of JPMorgan

That seems to be the pattern if people start to connect the dots between what the TBTF bankers and their friends have been warning about another impending financial crisis caused by too much government regulation and the small parcels of information that have been released by WikiLeaks about the looming  TPP deal.  The pattern become stronger if these recent events are put against the backdrop of the TARP bailout and how TBTF banks captured the U.S. Treasury program and circumvented Congressional intent to benefit themselves versus the homeowners who became victims of mortgage fraud.

Here are some clues about this connection:

–JPMorgan CEO Jamie Dimon has long complained about government regulations he says are overly restrictive and could make it difficult for banks to respond in a crisis. In January, he told reporters that JPMorgan was “under assault” by regulators. He also openly criticized Senator Elizabeth Warren, who taught bankruptcy law at Harvard Law School for almost 20 years that she does not fully understand the banking system and, presumably, should curtail her criticism of the global TBTF banks.

Dimon, who earned $23 million as CEO of the bank in 2011, said the banks can police themselves, even with the $6.2 billion trading mistake in made by a JPMorgan trader in 2012.

–Hedge fund billionaire Steve Schwarzman has complained that the Dodd-Frank banking law has helped create a liquidity crisis.  The reason:  “Since banks are holding on to more assets [as protection against asking for federal funds in the need of another bailout], there simply aren’t as many buyers and sellers of stocks, bonds and other investments.

“Taken together, these regulatory changes may well fuel the next financial crisis as well as slow U.S. economic growth,” Schwarzman said.

–Leaked information about the TPP, meanwhile, has indicated that global corporations in key industries (pharmaceutical, mining, energy, banking, communications) would be able to sue entire countries, states and municipalities if they suffered a profit loss due to local regulations or changes in local market economics.

In effect, this would mean that corporations will seek to recover “lost” phantom profits, profits they otherwise would not have made in an openly-competitive market, by instead gaining that money via lawsuits and settlements versus laissez faire capitalism.  The TPP has these pro-corporate provisions built into the treaty, based on the leaked reports about this secret treaty.

While much is being written about the TPP, the best lesson for individual citizens is that it represents a global power grab by major corporations to usurp local democratically-elected representative bodies by forcing them to kneel to corporate demand for “lost” profits and to evade open market competition at the expense of US taxpayers.

Just a Continuation of  TARP’s Goal of Bailing Out Errant Banks

The renewed TBTF banker arrogance buttressed by the TPP Treaty could just be another phase in the infamous TARP bailout resulting from the bank and mortgage industries inspired 2008 recession.

As you may recall, in that infamous taxpayer bailout of the nation’s largest banks (Bank of America, Chase, JPMorgan, Wells Fargo) and non-banks  (such as AIG), the U.S. Treasury spent $700 billion in taxpayer money to save the U.S. financial system from internal, U.S. financial industry  predators.

Remember, the people who caused the recession were not Islamic terrorists or Chinese hackers, but highly-paid U.S. citizens who just decided that prevailing ethical business standards were too complicated to apply in everyday business situations. These institutions and their high-paid executives caused so much damage to the U.S. economy that the government allocated up to $4.7 trillion to prop up the U.S financial system.

So in essence, these banking professionals  just developed their own sociopathic business practices and culture, which still seethes inside major financial institutions today, in order to accelerate their ascent up the income ladder at the expense of millions of other Americans.

In the process, the TAPR bailout neutered the idea of counter-party risk in the even of a systemic failure. If the unthinkable ever happens again, the counterparty will be uninformed U.S. taxpayers, not the informed financial experts who exceeded their abilities.

How bad did these people hurt the U.S. economy?

Neil Barofsky, former Special Inspector General in Charge of Oversight of TARP
Neil Barofsky, former Special Inspector General in Charge of Oversight of TARP

According to Neil Barofsky, the former Special Inspector General in Charge of the Oversight of TARP, and the author of the outstanding book, “Bailout,” the 2008 mortgage-banking caused the following:

Jobs lost: 9 million

Homes lost to foreclosure: 3.5 million

Housing wealth lost: $7 trillion

Rise in the poverty rate: from 12.5% to 15% since 2007

It’s no wonder that a McArthur Foundation research study released June 10, 2015, found that 79% of Americans comprising all ages and political parties said they thought more people would be exiting the middle class than entering it.

“We expected to see some pessimism for this, but the depth and breadth of this is quite profound,” said Rebecca Naser, a member of the McArthur Foundation team who conducted the research.

The same study found 55% of Americans have made some sort of financial sacrifice to afford their housing, including no longer saving for retirement or taking on a second job. Millennials were especially pessimistic about being able to afford a house. This situation is only aggravated by a decline in real wages. According to Robert Reich, professor at the University of California, the minimum wage today is 25% lower than it was in 1968 adjusted for inflation.

What TARP Events Tell Us about the Future

Financial experts love to wax on about the future, such as the date of the next hike in the Fed funds rate or what will transpire with Chinese interest rates or the EURO, but what the real failed TARP story tells us with certainty is that the TBTF banks are larger today than they were before the recession and that their behavior has not changed.

According to Barofsky, JPMorgan Chase (Jamie Dimon’s bank) grew by 36% from $1.56 trillion in assets at year-end 2007 to $2.12 trillion at year-end 2010.   Wells Fargo more than doubled in size to $1.26 trillion; Bank of America grew by 32% from $1.72 trillion to $2.27 trillion.  And this growth was not done by

Former SEC Chairwoman Mary Schapiro and former Treasury Secretary Tim Geithner
Former SEC Chairwoman Mary Schapiro and former Treasury Secretary Tim Geithner

creative lending, insightful trading or handing out toasters to new CD purchasers, but by taking taxpayer TARP money with very few strings attached.  It’s no wonder that Thomas Hoenig, the former president of the Kansas City Federal Reserve Bank, said these banks grew more powerful after the TARP program and now had “ever greater political influence than they had before the crisis.”  (Bailout, page 217.)

This same game of corporate banking capture of the U.S. Treasury by the very same people who caused the financial crisis in the first place is too real to be believed, but even in a  Jan. 21, 2011 editorial, the Wall Street Journal, certainly no friend of the average American investor, said “Dodd-Frank was supposed to reduce the odds of a back-pocket rescue decisions, but now even its main promoters are admitting that the law gives them enormous discretion to do it all over again, based on little more than their own ad-hoc judgments.”  Or as Barofsky concisely says, “Dodd-Frank didn’t change the post-crisis status quo of too-big-too-fail banks, it cemented it.”  (Bailout, page 220.)

The TARP program also changed capitalism. Economist Robert Samuelson in the book, The Great Inflation and Its Aftermath, noted that “a capitalist system must permit private property, must tolerate relatively free markets and must endorse the social value of risk taking—meaning that people who take greater risks or who work harder can earn greater rewards.”  (page 141.) But this assumes that the downside of risk taking is absorbed by the risk takers. TARP changed this basic premise and, in turn, the meaning of capitalism.

Finally, it is worth noting (as per the excellent suggestion of my astute friend Robyn’s observation) that the TARP bailouts of General Motors ($13.4 billion) and Chrysler ($4 billion) showed the highest level of cynicism and greed towards U.S. taxpayers.  Specifically, the April 2010 GM “re-payment” to U.S. taxpayers of billions in TARP money came from an escrow account of TARP (taxpayer) money and not from the sale of new cars. As Barofsky explains, (page 200), this  fake “re-payment” was made from the escrow account with the approval of the U.S. Treasury and its  chairman, Timothy Geithner, which was directly against the directive issued by TARP’s Inspector General Neil Barofsky.

This billion dollar free-for-all that was TARP and its related programs to help foreclosed and under-water home owners, showed that the TBTF banks worked their magic to control the U.S. Treasury.  This fact was not lost on the lawyers and lobbyists who took many lessons from TARP to write the secret TPP Treaty.

Even with all the behind-the-scenes discussions, TARP showed that even a hint of transparency to taxpayers and some in Congress was too risky.  It is much better to make bigger deals in private and that is one big thing large global banks and the TPP have in common.

 

 

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Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site, www.mutualfundreform.com, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).

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