TBTF's Double Dip Dessert

doubledipWe all know Too Big To Fail Banks became even bigger from the financial crisis. We also know previous mergers and acquisitions along with financial deregulation allow banks to own, invest and advise, often on the same transactions or deals. We also know time and time again, this has led to strong conflicts of interest and disaster for shareholders, taxpayers and customers.

The latest is an acquisition deal of El-Paso, a natural gas pipeline operator, by Kinder Morgan, a competitor. Seems Goldman Sachs made off with a $25 million fee for advising El-Paso, all the while having a 19%, $4 billion dollar stake in Kinder Morgan, plus a couple of seats on the Kinder Morgan board to boot.

There is a clear conflict of interest on the El Paso-Kinder Morgan deal. The stink is so bad, Goldman Sachs even brought the wrath of Delaware Chancellor Leo Strine who called the deal tainted with disloyalty. Of course the acquisition of El Paso by Kinder Morgan goes through anyway, in spite of the court admonishment.

Below is a Bloomberg law interview with a partner from Global law firm DLA Piper, John Reed, commenting on the Goldman Sachs as adviser plus profiteer scandal. Reed's response in the below interview is to let the Delaware corporate court handle these conflicts of interest, which is most telling. Delaware has been labeled a tax haven, the judgment proof state and notorious to make corporations untouchable. Literally, when commenting on the latest unbelievable ripoff by Goldman Sachs, Reed claims we wouldn't want any regulatory fix for this situation. Such is the typical attitude of Wall Street and their attorneys in spite of such overwhelming evidence of a corrupt and inbred financial system.



Now Goldman Sachs wants to buy a $3 billion European property debt fund:

A private equity arm of Goldman Sachs is looking to launch a $3 billion property debt fund in a bid to take advantage of a growing shortage of real estate financing across the UK and Europe, British newspaper the Times said on Monday.

Real Estate Principal Investment Area (REPIA) is exploring options to create a fund that would provide senior and mezzanine loans to property investors, and will target property lending that is riskier but which would offer higher potential returns, the Times said without citing sources.

Mezzanine debt is commonly used to plug the gap between equity and senior debt, usually in the 60-80 percent loan-to-value band. The fund's structure and make up would be similar to another $2.6 billion property debt fund that REPIA set up in 2009 to target U.S. property investors,

This is when the SEC is about to bring civil charges against Goldman Sachs for an earlier fund:

The Securities and Exchange Commission is likely to bring charges soon against Goldman Sachs (GS) for a 2006 mortgage investment deal. The agency hasn't said which one yet, but Fortune has learned there's a good chance the SEC's case will focus on Fremont Home Loan Trust 2006-E, a bundle of more than 5,000 mortgages that has cost investors, including mortgage guarantor Freddie Mac and by extension U.S. taxpayers, an estimated $545 million.

Goldman disclosed that it had recently received a "Wells" notice in a financial filing in late February, a heads-up that the SEC is considering bringing charges. The notice pointed to a $1.3 billion late-2006 mortgage deal. Goldman was the underwriter for nearly 100 mortgage investment deals in the second half of that year, according to a list produced by Dealogic at Fortune's request, but only the Fremont deal was worth $1.3 billion and met other criteria, such being primarily made up of subprime residential loans.

tentaclesThe SEC has levied fines against banks time and time again yet banks seem to view these fines as a toll down the corruption conflict highway. More amazing examples of hand in the cookie jar, caught red handed, financial institutions and still there is no demand to reinstate Glass-Steagall, the regulatory firewall which separated investment and commercial banking. The tentacles of TBTF just grow larger and larger.

Bloomberg reports JPMorgan Chase is now the largest holder of public debt:

JPMorgan, which emerged from the worst financial crisis since the 1930s as the most profitable U.S. bank, has parlayed crisis-era loans to cities and states and a willingness to outbid other firms in local government bond auctions into becoming the top underwriter of municipal debt last year, according to data compiled by Bloomberg. It was the first time the firm held that rank.

Even some at the Federal Reserve are noticing we simply must break up these financialization monstrosities. In Choosing the Road to Prosperity Why We Must End Too Big to Fail—Now Dallas Fed researcher Harvey Rosenblum makes it clear TBTF is literally strangling the overall economy.

On regulation he notes these financial institutions are so large, literally they are managing to stop any meaningful regulation.

The TBTF survivors of the financial crisis look a lot like they did in 2008. They maintain corporate cultures based on the short-term incentives of fees and bonuses derived from increased oligopoly power. They remain difficult to control because they have the lawyers and the money to resist the pressures of federal regulation. Just as important, their significant presence in dozens of states confers enormous political clout in their quest to refocus banking statutes and regulatory enforcement to their advantage.

While more and more are calling for TBTF to end and some claim it will happen, from the above stories, it sure doesn't look like TBTF institutions will get their just desserts anytime soon.

More reports are pouring in TBTF banks have had their way with stopping any regulations being implemented from Dodd-Frank:

After a four-month lobbying blitz led by firms including Goldman Sachs Group Inc., JPMorgan Chase & Co. (JPM) and Credit Suisse Group AG (CS), there are signs that the fight over the Volcker rule may be shifting in Wall Street’s favor.

U.S. regulators and lawmakers are signaling they’re receptive to delaying and revising their plan, named for the former Federal Reserve Chairman Paul Volcker, to stop banks from making speculative trades on their own accounts. Representative Barney Frank, a Massachusetts Democrat and co-author of the 2010 law mandating the ban, urged regulators last week to simplify their first draft, while a bipartisan group of senators proposed pushing back its effective date.

Needless to say practical ideas such as making sure financial products aren't quackery and scams, doesn't have a prayer's chance. In fact Congress is more interested in creating them.



Awesome blog, also PDF from Dallas

Thanks very much for this very important information! I'll see if I can wake some people up with this as to what the critical issues really are, for America today.

Great link to Dallas Federal Reserve Bank annual reports webpage. The complete PDF is well worth downloading.


watch out on that link

In 2010 the Dallas Fed also published pure propaganda on foreign STEM workers. It's astounding how U.S. STEM workers are dismissed & ignored as a complete waste, a talent loss, for America. In other words, the job loss, the career loss, the income loss and most importantly, the innovation loss from global labor arbitrage, STEM worker displacement, age discrimination, sex discrimination and so on is completely ignored.

They count foreign guest workers, and never count the massive number of America workers who were forced out of their careers, forced to train their replacements and denied opportunity, career. Viola, of course things come up rosy when one ignores half of an equation.

So, this is again, a cherry picking situation in reports, gotta read the fine print from these people.

The real news here is a Federal Reserve regional branch published a strong manifesto that TBTF needs to end. While it's true and obvious, usually the only ones who say that are people like us, the financial/economics sites, independent on the press and government and groups like OWS.

JPMorgan Chase Slap on the Wrist $20M fine

Here we go, yet another major outrage and another slap on the wrist, pay to play fine.


JPMorgan Chase & Co. (JPM), the largest U.S. bank, will pay $20 million to resolve a U.S. regulator’s claims that the firm mishandled customer funds from Lehman Brothers Holdings Inc. (LEHMQ) from 2006 to 2008.

Remember we have an incredible scandal going on at the moment where MF Global used customer money to make JPMorgan Chase margin calls due to their irresponsible derivatives trading in sovereign bonds, CDSes.