September 2013 archive

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• God’s Work, Part Deux by ek hornbeck
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Sagging pavement closes Interstate 43 bridge over Fox River in Green Bay

THE ASSOCIATED PRESS  

September 25, 2013 – 5:31 pm EDT

The dip is 400 feet long and 20 inches deep, and goes across all four lanes of the interstate. That portion of the bridge was last inspected in August 2012. Cracks were found in the piers, but were determined to be normal wear.

Crews completed work on the bridge earlier this year as part of a nearly $17 million project to improve several miles of Interstate 43. The project included resurfacing the bridge’s span, replacing joints and repainting its steel support girders.

Federal data indicate the bridge deck, superstructure and substructure were rated as good to satisfactory in a 2012 inventory.

The dip was caused by a support pier settling about 2 feet.  There is no estimate on how long it could take to repair.

Once Again, Punishing the Bank but Not Its Top Executives

By PETER EAVIS, The New York Times

September 19, 2013, 3:48 pm

The government says there is wrongdoing at a large bank and makes it pay a fine. But senior executives who seemed to play a role in the missteps are not singled out for individual punishment.

It happened again on Thursday, when regulators in the United States and Britain hit JPMorgan Chase with nearly $1 billion in fines for the bank’s failure to properly handle a trading debacle last year.

The traders, based in JPMorgan’s London office, made wagers in complex financial instruments that saddled the bank with over $6 billion in losses. The bank’s problems became known as the London Whale affair, because the traders involved accumulated such large positions. In recent months, regulators have identified and gone after some of the employees who worked on the trades, saying that they had incorrectly valued the trades on JPMorgan’s books to make their losses look substantially smaller.

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But not only did the agencies fail to take action against any of the executives, they did not even identify them (although it is clear who some of them are).

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“JPMorgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses,” George S. Canellos, co-director of the S.E.C’s division of enforcement, said in a statement. “While grappling with how to fix its internal control breakdowns, JPMorgan’s senior management broke a cardinal rule of corporate governance and deprived its board of critical information it needed to fully assess the company’s problems and determine whether accurate and reliable information was being disclosed to investors and regulators.”

Given language like that, those who favor stricter sanctions for bankers raised questions on Thursday about why the regulators did not take individual actions against the JPMorgan executives.

In JPMorgan Case, a Missed Opportunity to Charge Its Executives

By JESSE EISINGER, ProPublica, The New York Times

September 25, 2013, 12:30 pm

By cracking down on the bank for its faulty internal controls in the $6 billion London Whale trading loss, the S.E.C. can claim to be the ferocious regulator we have all been waiting for. JPMorgan and its chief executive, Jamie Dimon, got the best coverage they could have hoped for under the circumstances: the sense that the bank is beleaguered, surrounded by regulators, but at least it could put the trading loss behind it.

Yes, the S.E.C. wrung an admission of wrongdoing out of the bank, and the regulators scored a large settlement. It’s an improvement for a regulator to display the ferocity of a mealworm, rather than a banana slug, but let’s hold the celebrations until it reaches at least the level of a garter snake.

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The admission was nice, but the S.E.C. did not charge any top executives with misleading disclosure. Why not?

Financial markets depend on true and accurate information. Disclosure isn’t some i-dotting, t-crossing regulatory nicety; it’s fundamental. And the Senate Permanent Subcommittee on Investigations, in its huge report on the trading loss, made a convincing case that the chief financial officer at the time, Douglas L. Braunstein, made several highly misleading statements in an April 13, 2012, conference call with shareholders and the public.

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On that April 13 call, Mr. Braunstein made four statements that the Senate subcommittee found erroneous about the trades made by the bank’s chief investment office. He said the trading was “fully transparent to the regulators.” He said of the trading that “all of those positions are put on pursuant to the risk management at the firmwide level.” He said they were “made on a very long-term basis.” And most important, he emphasized that the traders were hedging.

It wasn’t only Mr. Braunstein. His comments mirrored talking points the bank had prepared days earlier. The Senate subcommittee report says the bank’s communications officer and chief investor liaison circulated talking points and met with reporters and analysts with the “primary objectives” to communicate that the chief investment office’s activities were ” ‘for hedging purposes’ and that the regulators were ‘fully aware’ ” of the trading. “Neither of which was true,” the Senate report says.

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The trading wasn’t disclosed to regulators, the bank’s top risk managers had no window into it, and the traders were actively buying and selling. Most significant, it wasn’t hedging. The trading in the London group of the chief investment office was proprietary, intended to create profit for the bank. That’s the kind of activity that will presumably be banned under the interminably delayed Volcker Rule, should the regulators deign to finish it and not permit large exemptions.

“Given the information that bank executives possessed in advance of the bank’s public communications on April 10, April 13, and May 10, the written and verbal representations made by the bank were incomplete, contained numerous inaccuracies, and misinformed investors, regulators and the public,” the Senate report says.

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The S.E.C. says it isn’t finished yet. The investigation has three parts: the case against the traders for mismarking the value of the trades, for which two have been charged criminally; the look into the company for internal controls, which was settled last week; and a third, against senior individuals for misrepresentations. The third continues. The agency may yet come down on top executives for their misleading statements.

I got a different sense from the company, however. The S.E.C. investigated the April 13 statements and the bank regards its senior executives to be in the clear, a person at JPMorgan told me. Mr. Dimon, for one, has been cleared, according to bank statements that were approved by the S.E.C.

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The one unshakable talking point, repeated like a drumbeat, is the executives emphasizing their good faith.

The implications for the public are larger than this single case. One of the important aspects for the Volcker Rule, which aims to bar banks from speculating with money that is backed by taxpayers, will be how much disclosure regulators require.

Clear and complete disclosures would allow institutional investors, regulators, counterparties and financial experts to sort out whether the banks are complying with the law or not.

A slap for lesser sins darkens the future of the already enfeebled rule. Without serious disclosure and serious enforcement, the risk of another calamity rises.

You may think this represents the lamest sort of regulation.  Not so.

This is America’s worst regulator (and JPMorgan’s best pal)

By David Dayen, Salon

Wednesday, Sep 25, 2013 11:45 AM UTC

At times it doesn’t seem like JPMorgan Chase runs any legal businesses. The good news is that some in the federal government appear to be slowly catching up to their illicit enterprises. Unfortunately, there’s one regulator whose negligence is beyond problematic, and damaging the country. Meet Thomas Curry, head of the Office of the Comptroller of the Currency (OCC).

The OCC is the obscure yet powerful primary regulator for JPMorgan Chase and other national banks – and is frankly the reason why JPMorgan believes it can run multiple illegal businesses and get away with it. The OCC has been more of the mega-bank’s pal within the government, rather than a tough-minded regulator. And a settlement in yet another case of malfeasance at JPMorgan, released late last week, shows that nothing has changed.

The case involves litigation practices by JPMorgan in various collections, and a failure to comply with the Servicemembers Civil Relief Act (SCRA), a statute that protects members of the military in financial transactions. It turns out that JPMorgan conducted its credit card, auto and student loan collections in the same illegal fashion as it did its foreclosure operations: using affidavits where low-level employees testified to personal knowledge of the cases without actually knowing anything about them.

This is called “robo-signing,” and it means that fraudulent sworn documents were filed as evidence in court so JPMorgan could obtain judgments against borrowers. Often the sworn documents would have inaccurate financial information, so the bank was attempting to collect false sums from the borrowers. And it rarely complied with the SCRA, which sets maximum interest rates charged to service members and bans legal proceedings for service members in active duty in a war zone. JPMorgan couldn’t even manage that, suing soldiers while they served in Iraq or Afghanistan or elsewhere.

Unlike the SEC, the OCC agreed to a settlement without forcing JPMorgan Chase to admit or deny wrongdoing. Worse, they are giving the bank several months to design their own punishment, a fairly common but nonetheless appalling practice. It’s like arresting someone who knocked over a 7-Eleven and telling them they have 180 days to figure out how much of the money they stole they should have to give back. Needless to say, the criminal is an unreliable judge of the proper punishment.

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The other federal agencies attempting to render judgment on JPMorgan Chase certainly aren’t doing enough. The Justice Department did indict two ex-traders of the bank after it admitted fault in hiding their London Whale derivatives trading loss from regulators and investors, but they are both living in Europe and don’t expect to get extradited, rendering ineffective any effort to pursue them or their superiors. Senior management has faced no punishment in the Whale case or any others, up to and including CEO Jamie Dimon, despite obvious culpability. The bank has been forced to sell their physical commodities business after questions about market manipulation, and Dimon has promised to further simplify JPMorgan’s lines of business, reflecting a cumulative effect of the constant fines and lawsuits to their reputation. They’ve suffered billions in litigation costs and plan to spend another $4 billion this year to comply with regulations (don’t cry for them; they make about $6.5 billion every quarter). That’s about the best you can say about this sorry attempt at taking down the biggest crook on Wall Street.

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This negligence is particularly stark considering how many others are finally onto JPMorgan’s shenanigans. Just over the past week, it paid $920 million in fines and admitted fault in the aforementioned London Whale case; paid another $389 million in fines and reimbursements over charging credit card customers for services they never received; were informed of an imminent enforcement action over their manipulation of the commodities market; faced bribery investigations over hiring the children of well-connected Chinese politicians; faced another investigation from the state of Massachusetts over credit-card collection practices; were uncovered as the main beneficiary of ultra-cheap borrowing from the Federal Home Loan Banks, a program meant to help small community-based lenders; and just yesterday, learned of a civil lawsuit from the U.S. Justice Department over selling mortgage-backed securities to investors without informing them of the poor quality of the loans in the portfolio.

Our regular featured content-

• On This Day In History September 25 by TheMomCat
• Punting the Pundits by TheMomCat

These featured articles-

• Doing God’s Work by ek hornbeck
• Rania Masri on Syria and the Middle East by ek hornbeck
• The Grand Bargain Circus Is Back In Town by joe shikspack

Follow us on Twitter @StarsHollowGzt

Write more and often.  This is an Open Thread.

AIG CEO Robert Benmosche Compares Bonus Criticism to Lynch Mobs

By Matt Taibbi, Rolling Stone

POSTED: September 24, 3:50 PM ET

(W)hen you’re a white guy who just presided over a year of declining across-the-board sales but got a 24% pay raise anyway, to $13 million a year, largely because your company is invested in a market that’s overheating due to massive Fed intervention, and you’re so grateful for your cosmic good fortune that you immediately go out and publicly nail yourself to the cross of black victimhood – and not while stone drunk and with buddies at a bar, mind you, but sober and sitting in front of a Wall Street Journal reporter – that’s like a whole new category of asshole. Try to compute just exactly how obnoxious that is – you’ll be doing it until the end of time, like someone trying to figure pi.

Benmosche’s nooses-and-pitchforks fantasies have their origins in stories about some AIGFP executives who were made to feel uncomfortable by angry crowds on their way home from work, and one about a teacher somewhere in the Midwest who ridiculed in her third-grade class a child whose father worked at the firm. That last bit of course would be very wrong if it did happen, and it may very well have.

Still, comparing being leered at on a train for continuing to collect a huge undeserved bonus from the taxpayer to being taken from your wife and family and hung from a tree for no reason at all is preposterous on at least a hundred different levels.

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Those FP workers would normally have been counting on performance bonuses, but since AIGFP not only didn’t perform that year, but created a historically bottomless suckhole of losses that nearly destroyed the universe, there were, alas, no performance bonuses to be had.

So management cooked up a bunch of “retention bonuses” for many of the unit’s employees. This always seemed like a scam, a way of yanking a little last bit of value out of a company most thought was headed for collapse. Moreover, the notion that anyone (but especially the taxpayer) needed to pay millions in “retention bonuses” to prevent other financial firms from poaching employees of the biggest financial disaster/PR-cancer firm since Enron or Union Carbide – and this at a time when mass layoffs on Wall Street had flooded the labor market with thousands of other highly-qualified financial professionals who would have taken huge pay cuts to fill those slots – was always absurd.

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In tossing out this “everyone was a villain” line, the CEO, of course, only mentioned the small subset of ordinary people who were “villains” in those days, the low-level speculators who flipped houses and the homeowners who lied on their mortgage applications.

He conveniently left out the bigger institutional players who birthed this scheme, like the giant investment banks (including for instance Credit Suisse, where he worked) that not only knew that mass fraud was being committed at the mortgage application level but encouraged it, so that they could speed up the process of pooling and securitizing those mortgages and selling them off to unsuspecting third parties. Just to take the one example of his own former bank, investors in the mortgage securities sold by Credit Suisse incurred over $11 billion in losses, according to a complaint filed by New York AG Eric Schneiderman against the firm last year.

Banks knew, lenders knew, ratings agencies knew, and then of course firms like AIG knew that something was deeply wrong with the booming mortgage markets in the years leading up to 2008. The peculiar trade of AIGFP was the obviously crazy practice of selling hundreds of billions of uncollateralized insurance to the Goldmans and Deutsche Banks of the world, who in many cases were using these policies to bet against their own products. The 377-odd employees of that sub-unit of AIG took home over $3.5 billion in compensation for such socially-beneficial service in the seven years before it all went bust. If finance-sector pros in those years had reservations about where all that money came from, most, like Benmosche himself, kept them to themselves.

Stories like this “hangman nooses” thing give some insight into the oft-asked question of how the 2008 crisis could ever have happened, the answer being that the people who run our economy, like Benmosche, are basically idiots. They can read a spreadsheet and get through an investor conference call sounding like they know what they’re talking about, but in real-world terms, your average pimp is usually an Einstein in comparison.

These people are so used to being told by interns and finance reporters and other ballwashers that they’re geniuses that they pretty soon come to believe it, which is how concepts like “We’ll never lose a dollar – it’s all hedged” go unchallenged in rooms full of econ majors who’ve just bet the whole store on the mortgages of underemployed janitors and palm-readers. Somebody, please, tell these guys quick how smart they’re not, or else we’ll be in another crisis before we know it.