Friendly Banks

I went to Chase Bank yesterday and deposited $10.00 in cash. The bank teller asked for my identification. Why? Because all cash despots at Chase banks now require an ID.

Bank RobberyThis should concern you because it’s evidence of the government’s anxiety. Chase Bank is not asking of their own accord, they are being told by the Feds to demand this information. The government is beginning to track how cash is circulating in the economy.

Recently, the former speaker of the House of Representatives, Dennis Hastert (R), was recently indicted for paying hush money to an “unnamed individual.” Hastert was caught because of the frequency and amounts of  cash withdrawals he was making. Let’s remove the politics from the story and focus on the salient point. His bank contacted the federal authorities over the cash withdrawals. There is no crime for taking your money out of your bank; yet his bank contacted the Federal authorities initiating an investigation.

I use to travel frequently overseas and I always had to notify my bank, in advance, so that my ATM card would work overseas. But these simple policies (ID cards, permission) implemented by the banks are also psychological triggers to control and monitor the populace. I had to ask the bank to give me permission to take out my cash.  The American public has been complacent in letting the banks dictate how and when we can use our cash to the extent that we have forgotten it’s our cash!

If you look at the glowing reports by the media and the government, you would think that the economy is doing great. Interest rates are low, unemployment is down, the stock markets are higher and housing is in the uptick. Yet, if everything was doing so great why would the government care what you were doing with your money?  Why would they track cash deposits and, for that matters, cash withdrawals?

When a government over regulates and over taxes, as ours does, citizens will inevitably resort to barter and cash to escape the heavy hand of government. When banks start tracking when you deposit or withdraw cash, you know something is amiss. The government knows that when things are over regulated, people will resort to cash to avoid paying taxes. In addition, when an economy is weak, the government knows it is imperative that people keep their money in the system, lest a bank run begin.

This is why they are monitoring all cash transactions.

In fact, the government is manipulating the economic numbers to present a picture of robustness. If  the economy was doing so well, Donald Trump would not be leading in the polls! His platform of getting America’s business back on track, and workers back to work, has catapulted him into the lead because the American public knows the economy is not doing well.

If you look at TV or magazine ads, the banks try to portray themselves as friendly and willing to help you. America’s biggest banks spend hundreds of millions of dollars to create a pristine image. They’re here to help out families and small businesses. They’re conservative stewards of your capital and they play by the rules. In reality, they are not your friends. In reality, they are in cahoots with the government to watch and track you.

These banks are not friendly institutions. Many have engaged in criminal activities. Yet they treat their retail clients as potential criminals and alert the Feds whenever they think you might be doing something suspicious.

Here is a small sample of some of the crimes that the banks have committed:

  • Wells Fargo, which owns Wachovia bank, paid a $160 million fine for conspiring with cocaine cartels to finance their operations.
  • Citibank was caught laundering money for a Mexican drug Kingpin in 2001.
  • American Express Bank admitted to laundering $55 million in drug money in 2007.

However,  these crimes are small change compared to the massive crimes they have committed in the financial markets. These crimes are so massive they affect us all by defrauding  customers and rigging financial markets.

For example:

  • In 2011, Bank of America paid a $335 million fine for discriminating against minority borrowers.
  • In 2013, J.P. Morgan paid $410 million for manipulating the electricity market. They also paid $13 billion to settle claims that it knowingly sold toxic loans.
  • In 2014, Bank of America paid a $6.3 billion fine for selling faulty mortgages.
  • And in 2015, five big banks paid $5.8 billion for rigging the currency markets.

These banks have no problem breaking the law when it benefits them. Yet, when their customers deposit or withdraw cash they are the first to alert the authorities over your “suspicious” behavior. We are living in a world where the fox is guarding the hen house. The banks have been caught time after time taking advantage of their customers… while helping criminals skirt the law. The result? Their only penalty has been to pay small fines. They see that merely as the cost of doing business.  After all, they make far more money from illegal activities than they pay in fines.

With the nation’s largest banks operating this way, how much faith do you have that our banks will be able to withstand the next financial crisis when it comes?

I’m just sayin’…


Thanks to Bill Bonner and his team which inspired this article

Respect Authority?

He never worked at a bank but he is responsible for the the signature piece of legislation that governs the banking industry. And since he wrote a law, it should be reasonable to expect that he would follow the others.

AuthorityBut it appears that would be presumptuous because former Massachusetts Senator Barney Frank used to solicit male prostitutes (it’s against the law to pay for sex) then had the prostitutes come live with him… where he ran a brothel out of his house (again, against the law).

Yet Frank is a welcome guest on CNBC where he gets to lecture the viewing public about corruption in the banking sector. Further, he asserts that since his law (Dodd-Frank) has been implemented, the banks will no longer be able to wreak havoc on the financial sector.

What most people don’t know, nor will CNBC report, is that Barney Frank was one of the main culprits of the financial scandal that rocked Wall Street in 2008. Here is a short version of the facts:

  • Barney Frank was the principal advocate in Congress for using the government’s authority to force lower underwriting standards in the business of housing finance.
  • They made banks, at risk of penalty, lower their lending standards so that more minorities could get home loans. Banks were penalized if they did not make these loans!
  • Once the loans were made, the banks then sold their sub-prime loans to government run Fannie Mae and Freddie Mac.
  • Frank (along with the Clinton’s) imposed “affordable housing” requirements on Fannie Mae and Freddie Mac in 1992. Before that time, these two government sponsored enterprises (GSEs) had been required to buy only mortgages that institutional investors would buy…in other words…prime mortgages.
  • Congress thought these standards made it too difficult for low income borrowers to buy homes and thereby discriminated against minorities.
  • The affordable housing law required Fannie and Freddie to meet government quotas when they bought loans from banks and other mortgage originators.
  • The GSEs then pooled these loans together and sold them out.
  • Since the GSEs had the implied backing of the US Government, investors thought they were buying quality loans backed by the U. S government.
  • Investors all over the world came in to buy all this paper which was supposedly of high quality and with good ratings.
  • The investors  never realized, until it was too late, that the U.S housing market was was  built on a house (no pun intended!) of cards courtesy of the programs pushed by Barney Frank.
  • In the end, the poor were encouraged to take out loans they could never afford and which were later foreclosed upon, destroying the borrower’s credit.

But only in Alice’s Wonderland, or the U.S. Congress, would the people most responsible for the banking crisis get to come back and blame the banks for the polices they enacted…and then get to rewrite the laws!

The motivating idea behind the Dodd-Frank was to reign in the size of the banks or as they said they said at the time, banks that were “to big to fail.” Never again would we allow banks to get so large they could destroy the economy.

But here we are just a few years years and the banks are bigger than they were in 2008.

So as each passing days we get closer to living in the world George Orwell’s futuristic book “1984.”. Up is down, and down is up. Too big to fail now means let’s have even bigger banks.

The sad fact is that we deserve the politicians we get. The press no longer challenges Barney Frank (or others like him) and when he comes on T.V the general public has no idea who he is or what he’s done.

I was recently on a trading desk when Barney Frank appeared on T.V. I informally polled the junior people on the desk to see if they knew who he was.  To a person no one could name him. After I told them who he was, and what he had done, one of the junior traders was generally impressed that I knew so much on this subject. I responded ‘You should not be impressed by how much I know about him. You should be embarrassed by how little you know about him.

This is the world we now live in where professionals who work in the finance industry have no idea about the politicians enacting and creating the laws under which they perform their jobs.

One of the main reasons that sycophants like Barney Frank are able to do what they do and get away with it is that we are trained from an early age that politicians are people worthy of respect. That by the sheer nature of the titles they hold, we should revere them as something more than mere mortals. In reality, Congress and politicians generally have come to excel at only one skill: getting elected and reelected.

Barney Frank’s career is prototypical.  He has never held a job in the private sector and knows nothing about banking or finance. What he does know is how to get elected… and the main way he got elected was by keeping people ignorant about who he really is.

He’s not alone. He’s in good company with Barack Obama.

What the Marines Can Teach The World of Finance

Before I worked on Wall Street, I served in the Marine Corps as an Infantry Officer in the 1st Gulf War. The Marine Corps trained me in ways of thinking that I still use today and I am forever grateful for what I learned. However, the thing that impressed me most was the integrity of the organization and the unity among its members. The motto “Semper Fidelis” (always faithful) means something real and tangible. They are not merely words.
marinesWhen I left the Marine Corps and entered the world of finance, especially the world of sales and trading,  Semper Fidelis meant nothing. The motto that best describes finance is, sadly, every man for himself. To be fair, I worked with some great people on Wall Street. The critique is aimed at the culture of finance than rather any individuals. Having worked in both worlds, its important to draw out the differences between the two.

The top banks believe the smartest people only go to the best ranked schools, while the Marine Corps believes highly intelligent people come from every walk of life and are educated at diverse institutions. Since the banks have an excess of  applicants, they decided to focus their attention only on those who are “the best” students from “the top schools.” When I worked on the Merrill Lynch sales and trading desk, over 80% of my co-workers had gone to an Ivy League school. The rest of us had worked in finance somewhere else before getting hired. By only selecting students from an approved set of recognized schools, it is easy for  collective group think to set in.

When the banking crisis of 2008 happened, it is no coincidence to me that all the major banks had the same set of problems: over- leveraged positions related to housing.  The main culprit was the AAA ratings that were given to the mortgage pools. My conclusion was and is that had more people within banking had different assumptions about mortgage debt, they would have debated the validity of assigning AAA ratings to pools of mortgage debt and the outcome would have been different.

In contrast the way the marines select their applicants is quite different. The Marine Corps Officer program has a specific way of finding their future leaders. They gather 25% from the enlisted ranks, 25% from the Naval academy, 25% from the ROTC program and the last 25% or so from the Officer Candidate School. Their reasoning is that they look for officers from a variety of background because they know that collective thought is dangerous. The main criteria for being a Marine Officer is intelligence, toughness and integrity. The Marine Corps culture is so strong that given those three ingredients they can mold these men into excellent officers. Given that war is brutal, hectic and confusing it is best to have a variety of backgrounds and viewpoints to solve problems. It is best to have a team with a wide range of backgrounds to come up with the best solutions.

The best banks cull the bottom 10% every year. Banks do this because they feel it gives people the incentive to always work hard and never slack off.  By constantly striving to improve yourself  the top employees never have to worry about being in the bottom 10%.  In practical terms, these policies make everyone incredibly stressed and fearful for their jobs. Having worked in finance, I have seen all types of people fired from the very best to the very worst. Because no one market goes straight up or down, sometimes the best employees get fired when their sector gets creamed. In 2002, thousands of people were fired from the technology sectors because that was the area that had seen the most drop in the market. I know of many great people that were fired during this time and the reality is that it was not because of their being in the bottom 10%.

The Marine Corps strives to create an environment where every one can do well and create a culture that promotes and supports that goal. If the Marine Corps gets saturated with too many Marines in a specific area they will look to transfer and retrain those Marines in a new job function. I have seen Marines transfer from infantry to aviation without any hesitation in order to keep the Marines high functioning and on mission. Because the culture is good at attracting the right people in the first place there is no need to weed them out later on.

In banking every one is a specialist. For example, I use to work on a trading desk and there would be people who would sit 10 seats away from me and I had no idea what they did. On the bond desk, you will have one trader that will only trade a handful of issues and you might find traders that only trade a specific set of derivatives and nothing else. Part of the reasoning is that it is very hard to make money in the financial markets. The only way to do so is to master  a certain niche. It is not unusual to see a trader sit in a certain seat for over 10 years trading the same product every day. If that trader were to make a ton of money for the firm he would then get promoted to run a group. So the qualification for running a group is dependent on your ability to make money in your specialty and not in your ability to manage a group. The fact is you might not have the ability to manage another traders position because you never had any  exposure to do so.

In the Marine Corps every one is a generalist, your job will change every 3 years. You will be moved from job to job to get you as much experience as possible. So by the time you get to a senior leadership position in the Marine Corps you have been exposed to a variety of jobs and settings from which to draw on.

In finance, if you disagree with your boss and the positions he takes you can get fired. In 2006, the head of mortgages for Merrill was fired because he wanted to reduce the firms exposure. His boss, Stanley O’Neal, wanted to increase the exposure as he felt it would make the firm more money. In the end the decision was to fire the head of mortgages which ultimately caused Merrill Lynch to go under. Had the firms leadership not been threatened by his opinion the results would have been different.

In the Marines a lowly Private can change a Generals battle plan.In the Marine Corps if a Private during the battle sees an attack on his unit, that observation will alter the General’s plan. The General will listen and act on the Private’s warnings because he knows if he doesn’t do so, people can die.

When Merrill Lynch fired Stanley O’Neal for the bets he took, he walked away from the firm with over 170 million dollars in the bank. He took all his money while the employees who stayed saw all of their life’s earnings wiped out.

In the Marines, leaders eat last. The subordinates come first and as the famous Marine James Webb stated, “There is no privilege without great responsibility.” Marines lead from the front…not the rear. The Marine Corps General steps on the battlefield with his Marines.

How different Merrill Lynch would have ended up had Stanley O’Neal lived and worked with the people that he had employed.

Steve Clark