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Forum Post: Big Bank Immunity: When Do We Crack Down on Wall Street?

Posted 6 years ago on March 12, 2013, 12:02 a.m. EST by LeoYo (5909)
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Big Bank Immunity: When Do We Crack Down on Wall Street?

Monday, 11 March 2013 10:46 By Dean Baker, Truthout | News Analysis


The Wall Street gang must really be partying these days. Profits and bonuses are as high as ever as these super-rich takers were able to use trillions of dollars of below-market government loans to get themselves through the crisis they created. The rest of the country is still struggling with high unemployment, stagnant wages, underwater mortgages and hollowed-out retirement accounts, but life is good again on Wall Street.

Their world must have gotten even brighter last week when Attorney General Eric Holder told the Senate Judiciary Committee that the Justice Department may have to restrain its prosecutors in dealing with the big banks because it has to consider the possibility that a prosecution could lead to financial instability. Not only can the big banks count on taxpayer bailouts when they need them; it turns out that they can share profits with drug dealers with impunity. (The case immediately at hand involved money laundered for a Mexican drug cartel.) And who says that times are bad?

It's hard to know where to begin with this one. First off, we should not assume that just because the Justice Department says it is concerned about financial instability that this is the real reason that they are not prosecuting a big bank. There is precedent for being less than honest about such issues.

When Enron was about to collapse in 2002 as its illegal dealings became public, former Treasury Secretary Robert Rubin, who was at the time a top Citigroup executive, called a former aide at Treasury. He asked him to intervene with the bond-rating agencies to get them to delay downgrading Enron's debt. Citigroup owned several hundred million dollars in Enron debt at the time. If Rubin had gotten this delay, Citigroup would have been able to dump much of this debt on suckers before the price collapsed.

The Treasury official refused. When the matter became public, Rubin claimed that he was concerned about instability in financial markets. It is entirely possible that the reluctance to prosecute big banks represents the same sort of fear of financial instability as motivated Rubin. In other words, it is a pretext that the Justice Department is using to justify its failure to prosecute powerful friends on Wall Street. In Washington, this possibility can never be ruled out.

However, there is the possibility that the Justice Department really believes that prosecuting the criminal activities of Bank of America or JP Morgan could sink the economy. If this is true, then it makes the case for breaking up the big banks even more of a slam dunk, since it takes the logic of too big to fail one step further.

Just to remind everyone, the simple argument against too big to fail is that it subsidizes risk-taking by large banks. In principle, when a bank or other company is engaged in a risky line of business, those who are investing in the company or lending it money demand a higher rate of return in recognition of the risk.

However, if they know that government will back up the bank if it gets into trouble, then investors have little reason to properly evaluate the risk. This means that more money will flow to the TBTF bank, since it knows it can undertake risky activities without paying the same interest rate as other companies that take on the same amount of risk. The result is that we have given the banks an incentive to engage in risky activity and a big subsidy to their top executives and creditors.

If it turns out that we also give them a get-out-of-jail free card when it comes to criminal activity, then we are giving these banks an incentive to engage in criminal activity. There is a lot of money to be gained by assisting drug dealers and other nefarious types in laundering their money. In principle, the laws are supposed to be structured to discourage banks from engaging in such behavior. But when the attorney general tells us that the laws cannot be fully enforced against the big banks, he is saying that we are giving them incentive to break the law in the pursuit of profit.

Our anti-trust laws are supposed to protect the country against companies whose size allows them inordinate market power. In principle, we would use anti-trust law to break up a phone company because its market dominance allowed it to charge us $10 a month too much on our cable. How could we not use anti-trust policy to break up a bank whose size allows it to profit from dealing with drug dealers and murderers with impunity?

Copyright, Truthout.



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[-] 2 points by LeoYo (5909) 6 years ago

Time to Break Up the Telecom Industry

Tuesday, 12 March 2013 15:22 By The Daily Take, The Thom Hartmann Program | Op-Ed


Last week, Forbes came out with its annual list of the world’s wealthiest people. And, once again, Carlos Slim topped the list, with an estimated net-worth of $73 billion.

So how did Slim get all of that money? He got it by controlling the majority of Mexico’s telecom industry.

Slim purchased Telmex, Mexico’s state telecoms company before it was privatized, in 1990. Since then, he’s continued to grow his Latin American telecom monopoly. This is thanks largely in part to his abundant connections with political officials in Mexico, who have let Slim put a stranglehold on the Mexican telecom industry without asking any questions.

However, it looks like Slim’s vast wealth could soon be taking a hit. Yesterday, the Mexican government announced a sweeping new proposal to crack down on the telecom monopolies and tycoons like Carlos Slim.

The bill, which is part of Mexico’s most ambitious economic reform package in a generation, would establish a telecom industry regulator, with a wide array of powers to curb companies’ control of markets, while opening more room for competition in the marketplace.

Thanks to Slim’s Mexican telecom monopoly, competition in that marketplace has been killed, driving up the prices for Mexican consumers. America Movil, Slim’s pan-American telecom provider, controls nearly 70 percent of the cellphone market in Mexico. Under the new proposal, the regulating body of the telecom industry could classify any company with more than 50 per cent of the market share as “dominant”. “Dominant” companies would then be subject to a variety of sanctions, including fines, pricing regulations and forced asset sales.

But why is this happening now? Why have lawmakers in Mexico finally decided to chip away at Carlos Slim’s empire?

It’s because they’ve realized that Libertarian capitalism, left unchecked, inevitably leads to monopoly. Slim’s telecom takeover was left unchecked, and he ended up gaining a virtual monopoly in the industry, at the expense of the Mexican people.

Unfortunately, here in the U.S., we’ve allowed our telecom industry to turn into a virtual duopoly, with AT&T and Verizon having a stranglehold on the market.

As a result, Americans are being squeezed dry when it comes to their cell phone plans.

With AT&T, a cellphone plan with unlimited minutes, unlimited texts and 5GB of data costs about $140. On Verizon, a similar plan would run you around $130 per month.

Meanwhile, across the pond in Europe, lawmakers and citizens caught on to the monopolistic tendencies of the telecom industry, and enforced the European version of the Sherman Anti-Trust Act. As a result, there is plenty of competition in the cellular market in Europe, which means lower costs for the consumer.

In the United Kingdom, a plan comparable to the AT&T and Verizon plans that cost well over $100 is just under $70 per month on Orange, one of Europe’s larger cellphone carriers. And, even if you were to increase the amount of data in your plan on Orange, you would still being paying less than on AT&T or Verizon. And on continental Europe, the cost could be as low as $20 a month. As of 2009, American cell phone customers paid, on average, $635 per year for service. Compare that to an unbelievable $131 per year in the Netherlands and Finland, and $137 per year in Sweden. In France, the average citizen pays about $33 per month, for what the New York Times described as, “Internet service twice as fast as what you get on Verizon or Comcast, bundled with digital high-definition television, unlimited long distance and international calling to 70 countries and wireless Internet connectivity for your laptop or smartphone throughout most of the country.”

So, Europe caught on to monopolies in the telecom industry and did something about it. And now Mexico is trying to do the same thing, to help ensure more competition in the marketplace and lower prices for consumers.

Isn’t it about time that we did the same thing? I don’t know about you, but I’m sick and tired of paying hundreds of dollars for cell phone service, when dozens of nations throughout the developed world are paying far less.

In an effort spearheaded by Richard Nixon, we used the Sherman Act to break up AT&T’s Bell System into seven different companies, known as the “Baby Bells”.

This left the market open for new players to jump in offering new services and new prices. AT&T was broken up, and in the end, it was good to all the investors involved. In fact, the value of AT&T and all its former subsidiaries tripled after the break-up.

Unfortunately, Ronald Reagan functionally stopped enforcing the Sherman Act, monopolies and oligopolies began to return with the “M&A Mania” of the 1980s, and the “Baby Bells” that had been successfully broken up began merging together yet again, forming bigger and bigger telecom companies.

If we were to give the telecom and internet oligopolies the same treatment today that Richard Nixon gave AT&T in the 1970's, then maybe we Americans could enjoy the same super-fast internet speeds and super-cheap rates that most of the rest of the developed world enjoys.

It’s time to break up the telecom industry once again, and this time, make sure it sticks.

This piece was reprinted by Truthout with permission or license.