Occupy Wall Street’s inner circle, a group known as Occupy the SEC, has filed a lawsuit in federal court that names, well, every federal regulator of Wall Street that currently serves. The list includes everyone from Ben Bernanke, chairman of the SEC’s board of governors, to Acting Treasury Secretary Neal Wolin, to Martin Gruenberg, chairman of the FDIC. The current chairperson of the SEC, Elisse Walter, is also included.
Occupy the SEC brings to the attention of the court the fact that federal regulators have yet to enact the Volcker Rule, the part of the Dodd-Frank financial reform law that’s supposed to prohibit most types of proprietary trading. According to the lawsuit, the regulators of Wall Street were required to implement the Volcker Rule within nine months of the completion of a study by the Financial Stabilization Oversight Council, and that it has now been two years since that study was completed.
They may have an ally in the Senate, though it’s not known whether Elizabeth Warren (D-MA) would sign on or even just support such a lawsuit. However, in mid-February, she aggressively questioned regulators as to why they had not prosecuted any of the “too big to fail” banks, and flat-out asked when the last time was that any of them had taken a big bank to trial. The regulators at the hearing were unable to provide a real answer to that question.
Section II, paragraph 19 of Occupy the SEC’s lawsuit states:
“For instance, in April of 2012 it was reported that the Chief Investment Office (CIO) at the London office of JPMorgan Chase bank had utilized deposited funds, like those of Plaintiffs, to invest in extremely risky, speculative credit default swap indices (derivatives of derivatives). Further, it has recently been reported that other traders at JPMorgan actually bet against the CIO office, virtually guaranteeing that some division within the bank would suffer losses. The latest estimates reveal that the bank suffered approximately $6 billion in trading losses from the CIO debacle.” [SOURCE]
We are still paying for the top 10 “too big to fail” institutions on Wall Street. According to a Feb. 2013 op-ed on Bloomberg, when accounting for the lowered interest that these banks get on the government’s implied guarantee of a bailout, the total that we ultimately pay falls right around $83 billion. That’s about the amount of the sequester, which goes into effect at midnight, and is also the vast majority of their profits. In fact, the research noted by Bloomberg’s editorial staff shows that the banks would probably just break even without these savings, making the savings a gift from us to their shareholders.
While JPMorgan Chase’s CEO Jamie Dimon insisted that these losses didn’t cost the taxpayers anything, what he meant was that the Treasury didn’t have to write him a check using taxpayer dollars to bail the bank out from under that kind of a loss. But the perceived government safety net does cost the people, to the tune of $10 billion just for JPMorgan Chase alone. Bloomberg-Businessweek published an explanation of what’s known as the Merton model, and explains how this model shows the price of guaranteeing corporate debt. Two PhD candidates from Germany presented findings on their application of the Merton model to the credit-swap defaults that the big banks like to engage in. These act as insurance policies against default, and appear to lower a bank’s risk as a borrower, saving that bank money.
Their study shows that banks’ debt holders know that, even after a default, their money will be protected via the government’s corporate safety net. Dodd-Frank was supposed to end corporate bailouts and thus, end the confidence of debt-holders that these institutions are not a risk, thereby raising the cost of their loans. While it might seem like a bad idea to make loans more expensive for the banks, on the other side of things, the government’s implied guarantee of a bailout costs holders of U.S. Treasury bonds by making things more risky.
When Treasury bonds are riskier investments, the cost of borrowing goes up. That is how regular U.S. citizens are funding the banks.
The entire Occupy movement is made up of regular citizens for the purpose of protesting the crony-capitalism that the U.S. increasingly practices, and in protest to the plutocracy that we have become. It should not be up to regular citizens to police big corporations, including those on Wall Street. They should not have to take regulators to court. But the regulators have failed to do their job, costing the little people billions of dollars. At least someone has the gumption to do something about it.