Matt Taibbi talking:
Bank of America grew out of the rivalry of a pair of Charlotte-based banks, First Union and NationsBank. There were a couple of executives there, Hugh McColl and Ed Crutchfield, who had this rivalry. They both wanted to be the biggest bankers in North Carolina, but they were constrained by federal laws which basically said that you couldn’t own a bank in more than two states. But these regulations slowly dissipated over the ’80s and the ’90s, and they were allowed to go on a sort of interstate acquisitions rampage, where these two men started buying up basically every bank in the Southeast. And they were so competitive that they even had a competition over who could have the tallest skyscraper in Charlotte. McColl, would become the father of Bank of America, was asked, when he finally built the very biggest one, whether he was happy to have the tallest one, and he said, “Yes, I prefer to have the taller one.” And that kind of sums up what the ethos behind Bank of America was. It was really driven by this incredibly acquisitive campaign by really one man who wanted to be the king of banking in America.
originally, the first bank that they bought was actually a small bank in Florida that they managed to buy because of an obscure loophole in Florida law. There was a grandfather clause that allowed them to buy a local bank in Florida. Then there was a Supreme Court case in 1985 which essentially said that you could cross state lines and buy other banks within a designated area. Now, that decision was important, because while it allowed Bank of America—well, actually, it was NationsBank at the time. While it allowed them to buy a series of banks in the South, it also protected them from bigger competitors in the North who weren’t in their designated area. So, in other words, they could go on this acquisitive spree, but they didn’t have to face the competition from the heavy hitters like Citibank, who were just a few miles north of them in New York City. So it was government protection, actually, that allowed them to do their first big expansion.
The big one was the acquisition of Countrywide. One of my sources described that as, they tried to catch a falling knife and ended up chopping both their hands and their feet off. The Bank of America executives always wanted the—they had a thriving mortgage business. They were already one of the biggest mortgage dealers in America. But they wanted to be even bigger, and nobody was bigger than Countrywide, which was the largest subprime lender in America at the time. And so, right at the moment when the mortgage market was beginning to collapse, Bank of America did two things: first they made a $2 billion investment in 2007, and then they finally kind of doubled down on their bet about six or seven months later and acquired the entire company. They thought they were getting a steal, but it ended up being completely catastrophic to the bank’s fortunes, because they inherited a whole range of liabilities and future lawsuits for a lot of the criminal behavior that Countrywide had been involved in with regard to subprime mortgages.
And then they went ahead also, in that same time period, and they acquired Merrill Lynch, which was one of the most innovative, but also the riskiest, investment banks in terms of bundling and packaging mortgage-based derivatives. So they ended up this gigantic conglomerate who ruled the mortgage world at the time when the mortgage market was exploding and all of these sort of hidden criminalities and conspiracies were burbling to the surface.
the deal is narrowly only supposed to cover a small part of the problems with the mortgages that went on during the crisis. It really only covers—it’s supposed to cover robo-signing. Now, what is robo-signing? Essentially, when—what the banks were doing is they were lending these companies like Countrywide billions of dollars to make loans all over the place to anybody with a pulse. Then they would make these billions of dollars’ worth of loans. The Countrywide-type companies would sell the loans back to a big bank like Goldman Sachs or Bank of America, who in turn would chop up these loans, turn them into securities, and then sell them off to customers like unions and pension funds and foreign retirement funds all over the world. Because they weren’t going to be holding on to those loans, they weren’t like traditional bankers that were going to be maintaining these loans over, you know, 20 or 30 years. Because they weren’t going to be doing that work, they just simply stopped doing the paperwork on these loans. It wasn’t cost-effective for them. So what they were doing was they just completely stopped servicing the loans. And only when they had to foreclose would they go back and try to reconstitute that evidence. And they would just assign a bunch of sort of entry-level people to make up affidavits so that they could go to court and foreclose on people. Completely illegal. It was really a system of mass perjury. That is what this settlement is supposed to cover, strictly the fraud in that one narrow area of this process.
There are much, much bigger problems in the areas of creating loans and securitizing the loans. That’s where the real fraud occurred. The real fraud was when Bank of America or some company went to a union, say, and they said, “Here’s a whole bunch of mortgages we want you to buy. They’re AAA-rated. They’re all good.” And they left out derogatory information about how bad the loans really were. That was the real fraud. That isn’t covered by this settlement. But there’s some ambiguity about what this settlement covers. Some people think it does cover more than the robo-signing. And if it does, if there’s a waiver for more than just robo-signing, then it’s an incredible giveaway to the banks. It might even be a bigger bailout than TARP.
This is, of course, extremely important to these pension funds. which were such huge investors, the California retirement and New York retirement funds, because they’ve all experienced huge losses. And now local government officials are reducing pension benefits because of the need to put in more money to these pension funds. So if they can’t recover from the fraud it’s working people that are going to suffer in their pensions.
That’s what people don’t understand about this mortgage crisis. Most people think of it as some, you know, airy abstraction, you know, bankers ripping off bankers. That’s not what it is. It’s bankers stealing from old ladies and retirees. That’s what it is. They essentially went to pension funds, and they said, “Here’s a whole bunch of relatively safe, you know, AAA-rated investments. AAA, that’s the same as United States T-bills or, you know, the sovereign debt of Luxembourg or something like that. It just earns you a little bit more, but it’s also AAA.” They bought this stuff. And then, you know, a year or two later, they’re looking at 30, 40, 50 percent losses. And that’s just money that’s coming straight out of the pockets of old people and retirees.
Now, the problem is, are they going to be able to recover any of that money from the banks? Well, with settlements like this, it just makes it that much harder for them to do that. And even though a lot of them have won settlements against these banks—New York state and New York City both won a settlement against Bank of America, $624 million—typically, it’s for pennies on the dollar. They only recover a small percentage of what they’re really owed.
When I was doing this piece, I actually had to have like a cheat sheet up on my wall with—that was color-coded. Like, you know, the green was for ripping off depositors. Yellow was for ripping off institutional investors. There are so many of these different scams they were involved with.
The two that, to me, are the most incredible are municipal bid rigging—Bank of America a couple years ago paid a $137 million settlement, because they were caught rigging the bids for municipal bond issues in at least 88 different cases across—I think that was 25 different states. What this means is whenever some municipality—it could be the Guam power authority or, you know, the city of Baltimore—when they want to raise money, they have to do it through an investment bank, and they’re supposed to do it through an auction process, where all the banks compete to see how much they’re going to pay to get that business. Well, these banks have been systematically colluding and submitting artificially low bids, and there’s usually an insider on the municipal side who kind of games the whole process. They’ve been systematically doing this around the country for years and essentially cheating municipalities out of hundreds of millions of dollars in revenues that they would have otherwise gotten. That’s a big one.
The other big one, that’s more of a recent story, is Bank of America has been accused, along with a number of other banks, of artificially suppressing LIBOR, which is the London interbank exchange rate. LIBOR is basically the exchange rate upon which all adjustable rate investment vehicles are based on: mortgages, Credit cards, everything. And they’ve been artificially suppressing LIBOR so as not to pay out as much to any investor who has a LIBOR-based instrument. There’s $350 trillion worth of investments are based on LIBOR. So they’ve been gaming the game, essentially. There’s really nothing that these guys haven’t been involved with.
Bank of America also has a contract to—in a number of states, to distribute unemployment insurance benefits. People would get a prepaid Bank of America card. And in one state, it was discovered that if the people getting the benefits didn’t go to a Bank of America ATM machine, that they could pay fees as high as $10 for each time they went to either a bank or another ATM. I’m sure that’s not what the state had in mind when it was trying to distribute unemployment benefits.
a number of states, and I think it was the United Methodist Church—look, there’s a whole range—I mean, let me just back up for a second. As part of these deals when banks were packaging mortgages, they offered a kind of guarantee to investors. They said, “Not only do we personally guarantee that these mortgages met our underwriting standards, we also agree that if any of these mortgages are defective or in default when you’re—at the time of purchase, we promise to buy those mortgages back. So don’t worry about it. Buy this stuff. If anything is wrong, just come back to us. We’ll pay you.” And a lot of these lawsuits, like the United Methodist Church, like the state of Iowa, state of Maine pension funds, they looked at the stuff that they were buying, and they found that a sizable percentage of these mortgages were defective. And they went to go get their buybacks, but suddenly Bank of America isn’t answering the telephone. And that’s what a lot of these lawsuits are about. They’re contractually obligated to buy this stuff back, and they’re just not doing it. And so, that is another thing that people are worried about they might get out of because of this foreclosure settlement and other settlements like that.
Occupy Wall Street, I think, over the winter, they wanted to put a specific face on some of the issues that they were talking about. You know, in the fall, I think there were a lot of—people had a sort of abstract conception of what they were protesting against. They wanted to say, “Let’s take a specific case of a specific actor, and let’s show people what these companies are really all about.” And there was some discussion over what company they should pick. And the almost universal consensus of all the experts that they talked to was, “You should go for Bank of America, because they’re involved in everything,” you know, whether it’s ripping off student loans, to the unemployed, to pensioners, to depositors. Bank of America got caught systematically overcharging its depositors by $4 billion. So they organized a series of protests. And there’s a campaign afoot to try to get people to move their money out of Bank of America. And this is going to be something that I think they’re going to focus on, from what I understand, for, you know, the immediate future.
There is a rationale that one can maybe see for supporting some other companies, some of these other “too big to fail” companies, because they might be functional, thriving companies with a little bit of help. Bank of America has consistently made bad decisions, in addition to all these corruption—all these activities that they’ve been involved with. Without government support, they would have been out of business absolutely in 2008, because of all the problems associated with Countrywide. They have needed massive government support ever since.
Just last year, they were in a very delicate situation where a number of their counterparties and creditors were concerned about the massive flow of derivatives that were on Merrill Lynch’s books. They convinced Bank of America to move that stuff onto its own depository side so it would be federally insured. So now we’re all on the hook for all this stuff. And that’s another thing that—another way that they’ve used the government to get out of their private problems. It’s just there’s an ongoing support of this company, and I think our administration believes that they have to support these companies at all costs.
– source democracynow.org
Goldman Sachs
The bank reportedly scanning internal emails for the term “muppet” and other evidence that employees referred to clients in derogatory ways. The decision was made after a Goldman executive named Greg Smith resigned last week and penned an explosive article about Goldman Sachs, an op-ed piece for the New York Times. Smith wrote, quote, “It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets.'” He said Goldman had become, quote, “as toxic and destructive as I have ever seen it.” He talks about them talking about ripping the eyes out of their muppets.
first of all, there are a lot of people who are saying this guy is a disgruntled employee, he’s got an ax to grind, so maybe he’s making all this stuff up. Everything that he said has—essentially, has already been confirmed in public documentation. There was a report by the Senator Levin a couple years ago where—they didn’t say “muppets,” but there was a—they have internal emails where we saw Goldman employees saying, “We found a company that was so stupid to buy our product that they’re a flying pig, a white elephant and a unicorn all at once.” They actually used that kind of terminology. So this history of them denigrating their own clients and celebrating ripping them off is already demonstrated, way before Greg Smith. But the significance of it is that it’s somebody from the company. And this gives, I think, people in the industry, institutional investors, tremendous pause: why would I want to do business with this company if this is their attitude towards me? They’re thinking how much can they get out of me, and not how much money they can make for me. That’s the problem.
I’m sure Goldman was always a ruthless company. And definitely, if you go back to the ’20s, they had a big part—you know, John Kenneth Galbraith writes about this in his book, The Great Crash, Goldman’s role in the speculative boom that led to the Depression. But to give them credit, there was a time—and I knew people who worked at Goldman when I lived in Russia, and they had this credo in the company, which was “long-term greedy.” In other words, we want to make money, but we want to make money for the long term. And I think that changed somewhere in the early ’90s to the early part of the last decade. They started grabbing the quick buck and gouging their clients, instead of looking for the long term.
Goldman is the leading commodities—they have their—Goldman Sachs Commodities Index is the—is where everybody goes to speculate on commodities. So they’ve always been a leader in pushing up commodities booms, like in 2008 when the oil went to $149. Goldman always has a central role in that, them and Morgan Stanley. So, yes, whenever you see a big bump in gas prices, always look to those two banks.
Discussion:
Matt Taibbi, contributing editor for Rolling Stone. He is the author of five books, most recently, Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America. His latest article in Rolling Stone is titled “Bank of America: Too Crooked to Fail.”
– source democracynow.org