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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Business scandals
September 25, 2014 at 10:19 AM

The Touchables: Holder and the rackets

Wall Street must be relieved by the resignation of Attorney General Eric Holder, its fierce and unstoppable nemesis. From their prison cells, Kerry Killinger of Washington Mutual, Lloyd Blankfein of Goldman Sachs, Sandy Weill of Citigroup, Stan O’Neal of Merrill Lynch, Hank Greenberg of AIG, Angelo Mozilo of Countrywide, Dick Fuld of Lehman Brothers, credit default…

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Comments | More in Business scandals | Topics: Eric Holder, Washington Mutual

August 7, 2013 at 1:46 PM

Justice, finally, on the ratings agencies?

It’s old, if dismaying, news that “they got away with it”: The big banks, shadow bankers and other Wall Street boyz that brought on the worst financial collapse since the Great Depression. But one group of suspects might still face some peril. The Securities and Exchange Commission is reportedly investigating how Standard & Poor’s handled a rating. According to the Wall Street Journal, “On that deal, S&P had initially agreed in July 2011 to evaluate a $1.5 billion security made up of commercial real-estate loans but announced at the 11th hour that it was withdrawing its ratings. The SEC is investigating whether the circumstances around that decision involved violations of securities laws….”

S&P said it had found “discrepancies” in the standards its analysts used, but they were still within what the company considered acceptable. Nevertheless, the sudden shift spooked the market and held up the deal for weeks. The SEC had already been evaluating S&P, and now this deal has apparently drawn special scrutiny. S&P, the largest ratings service, stayed out of the commercial mortgage-backed securities market for a year. Bloomberg writes, “Moody’s Investors Service, the second-largest credit rater, criticized its competitor, saying the underlying loans in the securities did not ‘merit’ the ranking.”

This sounds like a complex, limited case and it will be thin broth for those who see the ratings agencies as complicit in the disaster. These firms are supposed to provide objective ratings of securities, providing investors with disinterested information and the market with a check against frauds and bubbles.

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Comments | More in Business scandals | Topics: SEC, Standard & Poor's

March 12, 2013 at 10:37 AM

Who is Mary Jo White?

Barack Obama, Mary Jo White

President Obama announced in January that he was nominating Mary Joe White to lead the Security and Exchange Commission. (Photo by Carolyn Kaster/AP)

If your blood pressure is already up from the story in today’s newspaper detailing how the Federal Deposit Insurance Corp., facing $92.5 billion in losses from failed banks, “has typically preferred to settle for a fraction of the losses while helping the banks avoid bad press,” better schedule an appointment with the doctor. Mary Jo White, President Obama’s selection to lead the Securities and Exchange Commission, supposed protector of shareholders and markets, is expected to be confirmed by the Senate despite “tough questions” in a hearing today.

White is a classic example of the revolving door between government and Wall Street. She was a federal prosecutor during the Clinton administration and then went to work for Debevoise & Plimpton, a prestigious New York law firm. It was instrumental in defending the Too Big to Fail Banks after they helped bring on the near collapse of the world financial system and the Great Recession, ultimately being rescued by your tax dollars. White acted as a lawyer for former Bank of America Chief Executive Ken Lewis, JPMorgan Chase, Deloitte & Touche, and former Goldman Sachs director Rajat Gupta, who was sent to prison for conspiracy and securities fraud. Other clients of the firm include Morgan Stanley, UBS, General Electric, HCA and Siemens.

The list of cases she would have to recuse herself from is potentially long. The social circle in which she has moved for a decade — and no doubt wishes to return to — is not conducive for curiosity or holding the powerful to account. Indeed, her husband, John White, is a partner at Cravath, Swaine & Moore,  another powerful Wall Street law firm representing clients facing SEC scrutiny. John White also sits on the advisory council of the Financial Accounting Standards Board, which in 2009 allowed the big banks to value their assorted hustles however they wished.

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March 8, 2013 at 10:22 AM

Too big to jail

So let me get this straight. Eric Holder, the chief law-enforcement officer of the United States, is unwilling to say that the president won’t use a drone to kill an American citizen on American soil, provoking a heroic (real) filibuster by Sen. Rand Paul. But the Attorney General is very clear about what happens when big banks break the law. He told the Senate Judiciary Committee:

I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy, and I think that is a function of the fact that some of these institutions have become too large.

So this is why the Obama administration has refused to apply the rule of law to the frauds and hustles that brought on the Great Recession. The criminal syndicates, aka large financial institutions, are too big to jail.

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March 4, 2013 at 10:23 AM

The next bubble is here: Student loans

Friday’s report from Donghoon Lee of the Federal Reserve Bank of New York makes clear that the American bubble economy learned nothing from the Great Recession. With no meaningful reform in the financial sector, it’s cooked up a new one, this time in student loans. And it’s about to blow.

It’s not just that student debt is approaching $1 trillion compared with about $350 billion in 2004. “Student debt is the only kind of household debt that continued to rise through the Great Recession and has now the second largest balance after mortgage debt.” That means the burden is larger than credit cards, auto loans and others. While households have done some deleveraging after the big bust, people losing their jobs went back to school. With most Americans’ net worth about where it stood in 1992, they borrowed. The loans have been packaged into securities by outfits such as SLM Corp. and sold to investors. These derivatives are highly profitable and demand is rising. Now, as the new report makes clear, delinquency rates are rising.

Does this sound familiar?

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Comments | More in Banking, Business scandals, Debt, Student loans

June 20, 2012 at 9:50 AM

The great gig of being Jamie Dimon

Picking up the healthy retail side of Washington Mutual? $1.9 billion. Being asleep at the switch while the London Whale gambles? $2 billion, or is it $7 billion. Owning Congress? Priceless.

We are in debt to ProPublica for detailing the close connections between JPMorgan Chase and the lawmakers who “questioned” Chief Executive Jamie Dimon over the recent trading loss, which should be a bright red light about the danger of too-big-to-exist banks. Instead, almost all the honorable gentlemen and gentleladies pitched softballs and dished praise. One, Rep. Al Green, D-Texas, said, “I salute you for your salary. I am a capitalist.” Another called him, “Mr. Morgan.”

And no wonder. “Mr. Morgan’s” PAC and employees have been the second-largest contributors to House Finance Committee Chairman Spencer Bachus, R-Ala., since 1993. Democratic Rep. Barney Frank, D-Mass., he of the “dreaded” Dodd-Frank “re-regulation” has received $84,500 since 1989. And so it goes, along with the revolving door between bank and committee.

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Comments | More in Banking, Business scandals

December 1, 2011 at 9:46 AM

A decade later, Enron seems so quaint

Friday marks the 10th anniversary of Enron’s chapter 11 bankruptcy filing. Americans learned that this lionized giant, which seemed to represent the future of energy and corporate success, was in fact a bundle of frauds and hustles.

Led by the politically connected Ken Lay and Jeff Skilling, Enron was honored as “America’s Most Innovative Company” for six consecutive years by Fortune magazine. There was no there there. In the place of actual productive work was a bunch of complex frauds and gambling in energy markets that led to blackouts in California. In the end, 22,000 employees lost their jobs and shareholders — the stock was heavily pushed to investors by Wall Street — were wiped out. So were the workers, who put most of their 401(k) savings in Enron shares. They’re still picking up the pieces of their lives.

Enron’s sins sound familiar: Using deregulation to create swindles, a lapdog board of directors and the co-conspiracy in the whole con by one of the world’s most respected accounting firms, Arthur Andersen, and Citigroup’s Sandy Weill. As the house of cards collapsed, the entire poker game fell down for similar frauds at WorldCom, HealthSouth and Tyco.

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Comments | More in Business legal issues, Business scandals, Energy