In December 2012, federal prosecutors failed to bring true justice to HSBC for massive, criminal money laundering because the giant UK bank was too big. An indictment, they thought, would ravage the financial sector.
In January 2013, with a full month to reflect about the non-prosecution of HSBC, Attorney General Eric Holder acknowledged the reason behind the decision: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large.”
Since then, numerous bank regulators and Obama administration officials have attempted to refute their role in or even the accuracy of Holder’s assertion. In testimony and speeches, officials from the Federal Reserve, FDIC, Comptroller of the Currency, and Treasury contradicted Holder’s claim that government deemed some banks were just too big to jail. Those denials may be explored when Justice Department official James M. Cole testifies before a House financial services subcommittee May 22.
Republicans on the House financial services committee have long been a cheap date for Wall Street. So it was no surprise that they voted unanimously on May 7 in favor of nine bills to eviscerate important safeguards in the 2010 Wall Street Reform Act pertaining to derivatives supervision. But American taxpayers would be discouraged to learn that most of the junior Democrats on this committee also jumped into the back seat with their Wall Street suitors.
Derivatives regard the gambling aspect of financial firms’ operations, the part in which they make high-stakes bets under the guise of “hedging.” For instance, the unregulated “credit default swaps” that nearly caused a full meltdown of the financial sector in 2008 were derivatives.
The bills in question include one (HR 1256) that cedes regulatory authority over foreign affiliates of American companies to foreign countries. Another (HR 992), allows taxpayer-backed banks to engage in risky derivatives bets that the Dodd-Frank reform law banned. The bills involve obscure terms, which, alas, are where the “muggers hide,” as Sen. Elizabeth Warren (D-Mass.) once said. Here is Public Citizen’s memo explaining the bills that was distributed to the committee. And here are materials from Americans for Financial Reform.
You, too, can be a successful Wall Street lobbyist simply by using these three words randomly in conversations. In Washington, deploy these words in any debate about financial reform and win. Like kryptonite, these words bring the strongest arguments for sensible, prudential bank rules to their knees.
Each word contains magic qualities:
Innovation. Innovations are GOOD. Think—automobile, airplane, the Internet, smartphone. Wall Street generates innovations, too. They are good.
But we cannot tell you what these innovations are, precisely, or why they are good, because of ….
Complexity. Wall Street innovations are COMPLEX. Complexity means you can’t understand. Don’t ask questions. Just trust us. This is above your pay grade. Let the folks who got A’s in math class take care of it.
Note: In the 112th Congress, Sen. Tom Harkin (D-Iowa) and Rep. Peter DeFazio (D-Ore.) introduced the Wall Street Trading and Speculators Tax Act. The nonpartisan Joint Committee on Taxation said the bill would raise more than $350 billion over 10 years through a miniscule fee on Wall Street transactions.
On Tuesday, European Union finance ministers took a giant step toward implementing a financial speculation tax. Eleven European governments – led by Germany, France, Italy and Spain – voted to approve a fee on the sale or transfer of stock, bonds and derivatives.
The fee will raise significant revenues for those countries’ ailing economies. It also will cut down on the kind of wasteful, predatory and speculative trading activities that have harmed financial markets.
Policymakers in the United States should act now to implement a similar policy so we don’t fall behind the rest of the world.
Sen. Harkin and Rep. DeFazio plan to re-introduce their bill in the coming weeks. Public Citizen urges the rest of Congress to immediately endorse the legislation.
One of the biggest industry criticisms of the financial speculation tax is that it would increase trading costs, which would cause trading to flow overseas. But with 11 countries appearing willing to implement an even higher tax than the one proposed by Sen. Harkin and Rep. DeFazio, that argument is swiftly becoming meritless.
Micah Hauptman is Public Citizen’s financial reform organizer
Flickr photo by Will Survive
Who, precisely, will pay the $1.9 billion fine that international mega-bank HSBC has agreed to pay in order to settle charges with the government that it illegally laundered money for Mexican drug lords and al Qaeda terrorists?
One fine payer is a plumber in Lowell, Massachusetts. Another is a school teacher in Boise, Idaho. A third is a nurse in La Jolla, California.
They’re paying the fine, but did these three really mastermind the HSBC scheme explored by the U.S. Senate Permanent Subcommittee on Investigations? Did one of them mask the name of Iran on 85 percent of $19 billion in transactions that HSBC completed with this country? Did another supply an al Qaeda-connected bank with $1 billion? Did one actually wave through money from the Mexican drug lords, as investigators discovered?
No, no, no and no. Not only are these fine payers innocent of HSBC’s infractions, they probably are unaware that they are paying the fine. They are HSBC shareholders. They may not even know that they are shareholders — they might own shares through one of the giant institutional investors such as Fidelity, Vanguard, or Dodge & Cox, all of which have substantial stakes in HSBC.
When the government fines a company, the money doesn’t come from executives or any individuals at the company. It comes from the owners of the company — meaning average Americans who own stock, largely through mutual funds.