LARGE FINANCIAL CORPORATIONS CONTINUE ILLEGAL ACTIVITY

ABSTRACT: The large US financial corporations, whose illegal and unethical activities caused the 2008 financial crash and recession, continue to engage in a wide variety of illegal activity. Clearly, the fines and penalties they’ve paid to-date, although hundreds of millions of dollars, haven’t been sufficient to deter them. Or they are so large and so impossible to manage that they are just out of control. The only way to reduce the risk to our financial system and economy, and to stop these illegal activities, is to break them up and institute much tighter regulation.

Their past behavior includes fraudulent creation of mortgages and the fraudulent packaging and selling of risky mortgage-backed securities, fraudulent foreclosures on home owners, manipulation of interest rates in multiple settings, money laundering for criminals and countries under international sanctions, and out-of-control speculative trading. Despite this, it doesn’t look like any senior managers will be charged with criminal activity.

More recently uncovered activities include speculation in and manipulation of commodities markets that costs consumers billions, fraudulent debt collection practices, and the selling of inappropriate securities to, among others, elderly investors seeking secure investments.

These are highlights of what we know about, and, therefore, are the tip of an iceberg of unknown size. The executives who profit (through pay, bonuses, and stock options) from these criminal and unethical activities currently have no reason to stop committing or allowing them.

The variety of illegal activities, the involvement of literally all the large financial corporations, and the scale of the impact on our economy and us individually is breathtaking. We need better laws and regulation overseeing these large financial institutions. See my posts of 8/6 and 8/4 for steps that are needed to move in that direction, including petitions of support you can sign.

FULL POST: The large US financial corporations, whose illegal and unethical activities caused the 2008 financial crash and recession, continue to engage in a wide variety of illegal activity. Clearly, the fines and penalties they’ve paid to-date, although hundreds of millions of dollars, haven’t been sufficient to deter them. Or they are so large and so impossible to manage that they are just out of control. In either case, they present a significant risk for another financial collapse, another possible bailout, and another recession. The only way to reduce the risk to our financial system and economy, and to stop these illegal activities, is to break them up and institute much tighter regulation. This is what the 21st Century Glass Steagall Act, recently proposed in the US Senate (see post of 8/6/13), and the Dodd-Frank Act (if appropriately implemented) would go a long way toward doing.

You probably remember the fraudulent creation of mortgages and the fraudulent packaging and selling of risky mortgage-backed securities as “safe” investments. These activities were key contributors to the 2008 financial system collapse. You may remember that these same handful of corporations engaged in fraudulent foreclosures on home owners, manipulation of interest rates in multiple settings, money laundering for criminals and countries under international sanctions, and out-of-control speculative trading (which cost JPMorgan $6 billion in early 2013). Many of these activities are still under investigation with penalties still to be finalized, but it doesn’t look like any senior managers will be charged with criminal activity. (In the Savings and Loan crash of the late 1980s, which was less than one-tenth the size of the 2008 crash, over 1,000 senior managers were convicted of felonies.) (See posts of 8/29/12 and 7/12/12 for more detail.)

Here are some other examples of illegal or unethical behavior by the large financial corporations that have come to light more recently.

Their speculation in and manipulation of commodities markets costs consumers billions. This includes oil and gasoline (see post of 3/5/12 for more detail), electricity, aluminum, wheat, cotton, coffee, and other commodities. [1] In the last year, US regulators have accused three financial corporations of manipulating electricity prices, including JPMorgan, which recently agreed to a $410 million settlement. [2][3]

In the commodities market for aluminum, Goldman Sachs and others make millions in profits that end up costing consumers many times that. Using special exemptions from the Federal Reserve and relaxed regulations approved by Congress, the large financial corporations have purchased much of the infrastructure used to store and deliver aluminum (and other commodities) as they are traded on commodities exchanges. Three years ago, Goldman Sachs bought one of the largest firms storing and delivering aluminum; almost a quarter of the supply of 1,500 pound aluminum bars bought and sold on commodities exchanges is in its 27 warehouses (1.5 million tons). Goldman, over the last three years, has increased the delivery wait time for customers from an average of six weeks to roughly 70 weeks. This significantly increases the rent and fees paid to Goldman for the storage and delivery of the aluminum in its warehouses. [4][5][6]

JPMorgan and other big financial corporations are under investigation for their debt collection practices. It has recently come to light that their efforts to collect delinquent credit card debt have suffered from faulty or forged documents, improperly reviewed documentation, and failure to notify debtors of legal filings. These are some of the same practices that resulted in the lawsuits and settlements over improper home foreclosures! [7]

Morgan Stanley just settled claims that it sold inappropriate securities to, among others, elderly investors seeking secure investments. [8]

These are highlights of what we know about, and, therefore, are the tip of an iceberg of unknown size. The amounts of the fines and settlements sound large, but they’re just a cost of doing business when compared to the revenue and profits at these mega-financial corporations. (See post of 2/20/12 on the mortgage foreclosure settlement for an example with more detail.) Because shareholders and not corporate executives bear the cost of these settlements, and, furthermore, they are subsidized by us as taxpayers because they are typically considered a business expense (which reduces taxable income), the executives who profit (through pay, bonuses, and stock options) from these criminal and unethical activities have no reason to stop committing or allowing them. And the record shows they are continuing. [9]

The variety of illegal activities, the involvement of literally all the large financial corporations, and the scale of the impact on our economy and us individually is breathtaking. We need better laws and regulation overseeing these large financial institutions. See my posts of 8/6 and 8/4 for steps that are needed to move in that direction, including petitions you can sign to support such actions. (See posts of 7/31/12, 5/31/12, 5/29/12, 3/25/12, 3/23/12, and 2/29/12 for more on the need for regulation of these giant financial corporations.)


[1]       Kocieniewski, D., 7/21/13, “Aluminum shuffle is pure gold to the banks,” The Boston Globe (from The New York Times)

[2]       Silver-Greenberg, J., & Protess, B., 8/8/13, “JPMorgan Chase faces civil, criminal inquiries,” The Boston Globe (from The New York Times)

[3]       Associated Press, 7/31/13, “JPMorgan owes $410 million in energy suit,” The Boston Globe

[4]       Kocieniewski, D., 7/21/13, see above

[5]       Morgenson, G., 8/1/13, “Goldman Sachs offers to speed up metal delivery,” The Boston Globe (from The New York Times)

[6]       Chan, K., 8/6/13, “Goldman Sachs, LME sued over aluminum storage,” The Boston Globe (from the Associated Press)

[7]       Silver-Greenberg, J., & Wyatt, E., 7/10/13, “Big lenders face scrutiny on collections,” The Boston Globe (from The New York Times)

[8]       Associated Press, 7/31/13, “Morgan Stanley settles EFT claims,” The Boston Globe

[9]       Eskow, R.J., 8/7/13, “7 Things About Prosecuting Wall Street You Wanted to Know (But Were Too Depressed to Ask),” The Huffington Post

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