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Banking’s Titans Finally Get Their Comeuppance

By Rick Ackerman Posted on September 14, 2011, 1:14 am EDT Last Updated September 14, 2011, 4:17 pm EDT

With Bank of America’s recent announcement that it plans to lay off 30,000 workers, the Great Recession has finally spread its shadow over a sector of the economy that had seemed inured to hard times.  Investment consulting, mortgages, mergers and acquisitions and the rest of banking’s most lucrative concessions have fallen into a more or less permanent funk, and so the banks are faced with the prospect of earning their money the hard way – i.e., through ruthless cost-cutting, and via fees on checking accounts, credit cards and other transaction-based services.  How dull! Embarrassing, even, since financial bigwigs who were pulling down seven-figure bonuses just a year ago thanks to the Federal Reserve’s extravagant bailout terms will now be fighting to earn their base pay by nickel-and-diming their customers to death. Imagine a loan officer having to concern himself with something so mundane as a local businessman’s request for money to finance inventory.

We feel sorry for the many bank employees who are about to lose their jobs, especially since they face such bleak prospects for re-employment. With respect to the fate of banking’s top brass, however, it’s going to be hard to hide our schadenfreude if a few of these prodigious paper-shufflers wind up living out of shopping carts.  Ditto for securities traders at the big banks, for they have turned the markets into a giant casino, exploiting mathematically arcane opportunities that have absolutely nothng to do with the business of making, buying and selling real things.  In recent years, stock and bond markets have almost completely decoupled from the real economy – so much so that they will probably have to collapse into ruin before honest markets can re-emerge – markets that serve the real commerce of the real world.  The epic fraud of financial markets reached its apotheosis with high-frequency trading, a tactic that uses computer-driven algorithms to exploit bid/offer spreads that exist for mere nanoseconds.  Because these trades can move no more quickly than the speed of light, it is necessary to execute them on servers that sit on the trading floor rather than on microprocessors associated with distant satellite feeds.  How long could that game have gone on?

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  • Rich September 15, 2011, 4:27 am

    Three trades we like right now without apology or explanation:

    DBA 32 to 60

    EDV 107 to 131

    SLW 38 to 61

  • Chris T. September 15, 2011, 4:16 am

    rg:

    thanks for the Bastiat quotes. The first one says what I was trying to say in my reply to Ben Dover above in just exactly the way it needs to be stated.
    No surprise that it comes from Bastiat, I will have to memorize that one (and get the essay)!

  • Chris T. September 15, 2011, 4:04 am

    Indeed, great comment Rick, no mincing words there.

    “…on servers that sit on the trading floor rather than….”

    That give “access” (in the cronie way) a whole new meaning.
    Should have known it was this way, but just never occurred to me. Amazing that the laws of nature found a limit to these people.

    All of it reminds me somehow of the old Star Trek episode, “A Taste of Armageddon” (the centuries old simulated war with real deaths) as far as making the unreal real.

  • Ben Dover (America, Cuz Here It Comes) September 14, 2011, 10:41 pm

    Keiser Report: Banking Looters & Looting Banksters! RT
    http://www.youtube.com/watch?v=N4GFiaZZuXM

    (Max Keiser Interviews William K Black)

  • Ben Dover (America, Cuz Here It Comes) September 14, 2011, 10:39 pm

    Hopefully, Bank of America is just the first. No one wants to see 30,000 MORE people lose their jobs, however, what we are talking about here – is a system – a banking system – based on FRAUD. The sad thing, is that everyday people, making less than $30,000 per year will take the hit, while the fat-cat CEO’s will walk away with HUGE severance packages – as always. And, yet – no handcuffs, to speak of.

    • Roger Erickson September 14, 2011, 11:04 pm

      Exactly. This ought to make your blood boil.

      http://inthesetimes.com/article/11941/feds_focus_on_foreclosure_fall_guys/>

      Would love to see the judge’s face while he/she reads this. Or are some judges bought too?

      You may not feel much sympathy for a fool parted from his money. Yet the fact remains that no one else in Calvin’s line of command has even been contacted, unless it was to get a bonus via TARP. Yet they were the accomplices who actively recruited him, in 2005!
      The FBI publicly warned of this scam in 2004, and testified about it to Congress. The result? After the FBI warnings, 500 FBI agents were immediately transferred from fraud litigation to Homeland Security.

      Stockbridge had it less than half right. The level of discussion in the highest levels of government isn’t just lower than you can imagine, it’s also more outright fraudulent & criminal than you can imagine.

      We’ve been through this all before. More than once. How, and how soon, can the public drive out this den of vipers? Where’s our modern day Andrew Jackson when we need him?

      ps: What does the sign say on airlines? The one covering the oxygen masks? “Put on your own mask before trying to help others.” How are we going to help other countries if we don’t clean up our own act first? Maybe we should just tell foreigners to do as some of us say, not as we allow ourselves to do?

    • Chris T. September 15, 2011, 4:08 am

      “And, yet – no handcuffs, to speak of.”

      why should there be?
      After all the rules are made by them, and enforced by them.
      Controlling the enforcement side isn’t really necessary when the conduct has been sanctioned.
      The reason the enforcement side still must be controlled is for those that test the last bit of greed, where even making the rules doesn’t produce the final gravy, so a little transgression becomes necessary.
      And of course to be able to stomp out any peons that dare complain.

  • mava September 14, 2011, 9:27 pm

    @Radek,

    No, you’re right, this will happen. And yes, you’re right it is not happening, because this is only a very beginning of a long fall, and we are on the top, it is still pretty shiny and warm up here. Once the drop takes us to where it is shady and cool, the things will take their turns.

    If you think about it, it should happen to the bankers simply because of a natural balance. “Those who live by the sword, shall die by the sword” right? Right!
    In the present, the reason that bankers do make money, is that they violently prohibit us all from doing what they do all day, everyday : Loaning money INTO EXISTENCE. I, for instance, is not allowed to write you a million dollar check having only 100,000 dollars on my account, and charge you interest on whole million. If I do that, and charge you 10%, then I will double my initial 100,000 in just one year. This is what banks do everyday. Except, they don’t even have the initial capital of 100,000, they borrow it from the fed at next to zero interest rate, which FED keeps as a sweet deal for the banks, while destroying your savings.

    If I do this, I would be VIOLENTLY punished. Not punished by some folks refusing to do business with me, nope, they will actually break out their assault weapons against me.

    This means, that bankers fully deserve, and even beg for violent resistance and payback. Those who use violence against others, should have violence used against them.

    I think we will start seeing those reports in about two to three years from now.

    This is not a happy ending, however. because most of those paying back with violence, historically are Bolsheviks, and not founding fathers. 99 out of 100 times, all this violence turns into a revoltion that produces USSR type of dark reich, and not the 1776 kind of America.

  • DG September 14, 2011, 7:32 pm

    Looks like Mises was right afterall…..
    There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

    Looks like the former was squandered and all that is left is the “currency system”. Data certainly supports that.

  • A. Rand Fan September 14, 2011, 6:11 pm

    Rick, Thanks for a terrific word (schadenfreude). My sentiments exactly.
    BOA’s demise is hitting a bit close to home though. My son-in-law is a recruiter for BOA. I haven’t talk to him or my daughter lately but my guess is they won’t be needing those kind of services much longer. He’s a talented kid so he should do okay.

  • robert kuester September 14, 2011, 6:03 pm

    Do you think we’ll ever see comeuppance for Goldman S. as long as they control our gov’t treasury The Dems & repubs come & go , but the treasury remains property of GS>

  • nonplused September 14, 2011, 5:46 pm

    It’ll be a lot worse than 30,000. BOA is going to implode.

  • rg September 14, 2011, 5:42 pm

    voices of sanity from the past…
    “When you see that trading is done, not by consent, but by compulsion-when you see that in order to produce, you need to obtain permission from men who produce nothing-when you see that money is flowing to those who deal, not in goods, but in favors-when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you-when you see corruption being rewarded and honesty becoming a self-sacrifice-you may know that your society is doomed”. – Ayn Rand
    “When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
    Frederic Bastiat. “The Law” (1853)

    “The law has been perverted, and the powers of the state have become perverted along with it. The law has not only been turned from its proper function, but made to follow an entirely contrary purpose. The law has become a tool for every kind of greed. Instead of preventing crime, the law itself is guilty of the abuses it is supposed to punish. If this is true, it is a serious matter, and moral duty requires me to call the attention of my fellow-citizens to it.”
    Frederic Bastiat. “The Law” (1853)

    • Roger Erickson September 18, 2011, 5:21 am

      re Rand & Bastiat;

      when you see your society periodically confront such ills, and repeatedly rise to the challenge, then you know you have hope
      Any Rand brought her biases with her from Russia.

      Only question we need face at this time is the same that Abe Lincoln faced while reading Bastiat ~160 years ago: “What is to be done about it?”

  • C.C. September 14, 2011, 5:37 pm

    “With respect to the fate of banking’s top brass, however, it’s going to be hard to hide our schadenfreude if a few of these prodigious paper-shufflers wind up living out of shopping carts. Ditto for securities traders at the big banks, for they have turned the markets into a giant casino, exploiting mathematically arcane opportunities that have absolutely nothng to do with the business of making, buying and selling real things.”

    Unfortunately, the logic above could easily be applied to a large cross-section of the entire U.S. ‘services’ based economy – financial services in particular…

    Let’s not get too carried away with piling on B of A. Show me B of A? I show you Northern California Real Estate agents…

    Now I understand what my old man meant when he expressed disdain at driving through one of various Northern California towns (I’m sure there’s a few in CO as well), seeing people wandering aimlessly through the streets, gazing at all the ‘curio’ and entertaining themselves with a glass of white wine in the process…

    His point was not a slight against those people personally, it was the fact that so much of our overall economy has changed during the past 30 years, from producing to ‘consuming’ – and ‘paper-pushing’.

    An old boss used to tell me: ‘I want to see assholes and elbows’. Meaning of course, people hard at work – Producing things. Which is also why I like to support U.S. based mining companies. Those guys are ‘producing’; taking risk, doing it the E.F. Hutton way…

  • Radek September 14, 2011, 5:37 pm

    You know, i’m surprised that there haven’t been any/many violent situations recently against high level bankers already…i.e. some laid-off worker ‘going postal’ on the banking execs and other white-collar thieves with their AR-15 or other assault weapon.

    Could it be because either – 1) the gov’t knows how to keep people from doing anything about it, or 2) things just haven’t gotten bad enough to create that ‘spark’, or 3) something else?

    I’m getting more afraid on a daily basis that America (and parts of Europe) will go this way…and this violence will spread to our own neighborhoods. What a crappy negative feedback loop we’re in!

    • Carol September 14, 2011, 6:21 pm

      I vote for something else! That something else being: fluoride, chloride, bromide (the targets have no energy left to fight);
      antidepressants (the targets have no will left to fight);
      mercury from immunizations and dental amalgams (the targets have no brains left to figure out who done em in);
      TV, sports, (the targets have no time left to fight too busy being programmed);
      etc you get my drift.

    • John Jay September 14, 2011, 6:24 pm

      Radek,
      I believe it is #3, something else.
      Americans still buy into the Horatio Alger myth, that anyone can be a millionaire, and if you can’t do it you are a failure and it’s all your fault. So they blame themselves and sink into state of depression and guilt.
      So they will work on their resume, go to jobfairs, and network. No matter how many jobs and factories are sent offshore, no matter how many millions of immigrants are brought in here to depress wages, they feel guilty. They are far more likely to commit suicide then to go bolshevik on the boss. The real hard cases will take their family with them, but not some oligarch. That’s the beauty of the current abusive relationship system, the victims blame themselves and can be counted on to do nothing.

  • Rich September 14, 2011, 4:45 pm

    Rick, very acute point about Banks.

    Thanks for reminding us capital markets ultimately exist to create companies that create jobs and industry, not for a three card Monte shell game casino bonus to the Bank House Pit Bosses taken from their customers.

    richcash8 Rich Cash
    We are selling all strength from the git go today as the European Dominoes begin to fall with the Bernanke Geithner kiss of death…
    3 hours ago

  • buck novak September 14, 2011, 4:40 pm

    This is all very, very touching but where’s the money.

  • gerold September 14, 2011, 4:32 pm

    Much as we all want to see the big, bad banks get their comeuppance it’s unfortunately the “little guy” the lowly, poorly paid clerks who will suffer the most while the greedy CEOs with their obscene bonuses will be largely unaffected. In that sense this is a microcosm of the overall U.S. economy: the rich get richer and the poor get the shaft once again.

  • Carol September 14, 2011, 2:29 pm

    As and aside I used to work in the BAC building in Charlotte, NC. It was the tallest building between Atlanta GA and NYC. Makes you wonder when the bank buildings are so lush and opulent.

    • John Jay September 14, 2011, 5:09 pm

      Carol,
      All made possible by the wonders of accrual accounting and fees. Book the “accrued” interest on your portfolio of mortgages, car loans, HELOCs, etc. It doesn’t matter if no one is actually making payments on those loans. Just ignore the defaults with government blessing. Add a dash of late fees, overdraft fees, debit card fees, ATM fees etc. We went from George Bailey to Angelo Mozilo, from RE agents getting 6% on a 20k house sale to 6% on a 500k house sale. Ditto for mortgage brokers and property tax collectors. One bright spot, sub prime car loans are back! All coming undone now and it’s not over yet. The high end house prices are starting to drop here in S Cal. So long Bedford Falls, hello Potterville!

  • John Jay September 14, 2011, 2:21 pm

    More evidence of the slow motion death spiral of our gutted economy. Politicans continue to talk about creating jobs while more Free Trade agreements are on the table. I see more and more empty stores in the small strip malls around here. It is the end game of forty years of inflation via credit creation and money printing. With a stable dollar and a small government we would never have seen house and auto prices zoom up by a factor of ten, along with everything else since the late 1960s. When the banks will loan everyone 500k for a home mortgage, houses will then cost…500k!
    Works great until it is time to pay back the money, and we all knew that money was never going to be paid back.
    Just like the Federal government debt, the last great credit bubble. Ten year Treasuries pay 2%, so they are still getting away with it for now.

  • Goodsport September 14, 2011, 1:33 pm

    Good riddance! I’ve been waiting for this moment for 5 years. I started a business a few years back and opened up an account with the BOA. After about a year, they started holding my deposits – very healthy sums – for 11 days. My company had never written a bad check or had a client check bounce. We deal only with big name accounts. I move the account to an honest bank within hours. An acquaintance who worked there later told me BOA was making tons off the scam. Obviously, my bank statements never reflected any holds, only my balance. America desperately needs to return to the good old local bank. And to all the sheep who worked there and who went along with this theft, I hope your BOA heritage makes you as welcome in a job line as a group of people from a leper colony.

    • David Tanner September 14, 2011, 4:08 pm

      “I hope your BOA heritage makes you as welcome in a job line as a group of people from a leper colony.”

      LOL! That’s a great line Goodsport!

  • DanX September 14, 2011, 6:30 am

    Nice post Rick! Hopefully in the not too distant future, the abomination of HFT will be expunged from the memory of the free markets.

  • mava September 14, 2011, 5:51 am

    Awesome post, Rick. And like yourself, I am afraid I am going to feel lots of schadenfreude over bank’s “misfortunes”.

    Actually having to earn money? What? I imagine the disdain they are possibly going through.

    One little thing left to do, however: Remove FDIC insurance from any account with the bank that uses fractional reserve banking practices.

    If I can not borrow one dollar and lend it out ten times, then banks should be able either.

    What a happy post. Thanks!


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