Answers to All the Presidents' Bankers Quiz #1 - some historical facts!

Answers to All the Presidents’ Bankers Quiz #1 (of 3):

March 1, 2014

As promised, here are the answers and some background explanations to the All the Presidents' Bankers Quiz #1 with lots of factoids about the men and families in political and financiall power over the past century. Test your knowledge of the past century of blood, intermarriage, protégé-mentorship and other ties connecting the White House and Wall Street, that form America's political-financial genealogy and elite power circle.  You can also do Quiz #1 at: https://www.examtime.com/en-US/quizzes/553957/.

All the Presidents' Bankers by Nomi Prins is available for pre-order online now, and out April 8, 2014.  For more , see: http://www.nomiprins.com/presidents-bankers

Questions: 1) d, 2) d, 3) b, 4) d, 5) d, 6) d, 7) d, 8) b, 9) a, 10) b

1. Which president's father worked with which elite banker to form the prestigious Metropolitan Club in New York City?

a) Teddy Roosevelt's father and Junius Morgan

b) Calvin Coolidge's father and James Stillman

c) John F. Kennedy's father and John D. Rockefeller

d) Franklin Delano Roosevelt's father and John Pierpont Morgan

FDR's father, James A. Roosevelt and J.P. Morgan were two of the founding fathers of the Metropolitan Club in New York City, where many elite family patriarchs gathered together.

2. Which banker who would later chair a Big Six bank rented one of FDR's New York City townhouses during WWI? 

a) Winthrop Aldrich from the Chase Bank (now part of JPM Chase)

b) James Stillman from the National City Bank (now part of Citigroup)

c) George Baker, Sr. from the First National Bank (now part of Citigroup)

d) Thomas Lamont from the Morgan Bank (now part of JPM Chase)

While FDR served as Assistant Secretary of the Navy in Woodrow Wilson's administration during WWI,  his fellow Harvard alum, Thomas Lamont  rented out his NYC townhouse at 49 East 65th street from 1916-1920.  The annual rental price was $8000, or about $112,000 in today's dollars. Lamont was a partner at the Morgan bank at the time and became Chairman during FDR"s last term as president.

3. Which former Chase chairman shared a fascination of puddle jumper planes with which president?

a)  David Rockefeller and John F. Kennedy

b) John McCloy and Dwight D. Eisenhower

c) David Rockefeller and Harry Truman

d) John McCloy and Harry Truman

John McCloy spoke of their shared love of puddle jumper planes in his Oral History. During WWII, while General Eisenhower led the Allied troops in Europe, McCloy served as the Assistant Secretary of War under Henry Stimson in the FDR administration. Brought into the Rockefeller-Chase fold by Nelson Rockefeller, he became Chairman of Chase in 1953 and steered its 1955 $7.5 million merger with Bank of Manhattan (run by J. Stewart Baker) to form Chase Manhattan.

4. Which major banker from which bank worked most closely with FDR behind the scenes in Washington to pass the Glass- Steagall Act?

a) Jack Morgan (J.P. Morgan's son) from the Morgan Bank

b) James Perkins from National City Bank

c) Thomas Lamont from the Morgan Bank

d) Winthrop Aldrich from Chase

Though both Perkins and Aldrich met with FDR at the White House to discuss their support for passage of the Glass-Steagall Act, it was Winthrop Aldrich that took the most active role in supporting the strongest possible version of the Act, at the request of FDR.

5. The father of which president was appointed as the first head of the Securities and Exchange Commission (the SEC) by FDR in 1934 to police the banking industry?

a) Harry Truman

b) Gerald Ford

c) Lyndon B. Johnson

d) John F. Kennedy

Joseph P. Kennedy, John F. Kennedy's father helped FDR secure the state of California which proved a cornerstone of FDR's presidential campaigns. In 1934, FDR appointed him the first president of the new securities regulatory body, the SEC.  He later was appointed US Ambassador to the UK by FDR.

6. Who was the first president to select a major Wall Street bank CEO as  his Treasury Secretary?

a) Bill Clinton

b) George W. Bush

c) George H.W. Bush

d) Ronald Reagan

Ronald Reagan chose Donald Regan, CEO of Merrill Lynch as his first Treasury Secretary. Today, Merrill Lynch by virtue of its 2008 acquisition by Bank of America is part of the Big Six banks.

7. Which president appointed his son-in-law Treasury Secretary, and which banker that would later chair a Big Six bank, was appointed Assistant Treasury Secretary as a result?

a) Warren Harding and Albert Wiggin

b) Calvin Coolidge and Charles Mitchell

c) Teddy Roosevelt and William Potter

d) Woodrow Wilson and Russell Leffingwell

Woodrow Wilson appointed his son-in-law William McAdoo as Treasury Secretary, who in turn selected his Yonkers friend and neighbor, Russell Leffingwell to be his assistant Treasury Secretary.  Leffingwell later became partner and then Chairman of the Morgan Bank.

8. Which President's grandfather ran a bank that ultimately  became one of the Big Six banks that helped finance his campaign?

a) George W. Bush

b) George H.W. Bush

c) Ronald Reagan

d) John F. Kennedy

George Herbert Walker founded an investment bank, G.W. Walker & Co in 1900 that later employed many Bush family members and friends. It was taken over by Merill Lynch, which was subsequently taken over by Bank of America.

9. Which banker briefly dated the sister of which president?

a) David Rockefeller and John F. Kennedy

b) John McCloy and John F. Kennedy

c) Gabriel Hauge and Harry Truman

d) David Rockefeller and Harry Truman

David Rockefeller met John F. Kennedy's sister, Kathleen, at her coming out party in London in 1938, while their father, Joseph Kennedy was serving as FDR's UK Ambassador. According to his memoirs, David 'enjoyed the company of' Kathleen for a brief period after that.

10. The Treasury Secretary of which president recently joined a financial firm founded by a banker whose uncle was appointed one of the first Fed governors by Woodrow Wilson in 1914?

a) Ronald Reagan

b) Barack Obama

c) Bill Clinton

d) George W. Bush

Barack Obama's Treasury Secretary, Timothy Geithner, joined the private equity firm of Warburg, Pinkus after leaving his Washington post. The firm was founded by Eric Warburg, nephew of Paul Warburg, one of the original Fed architects at Jekyll Island and personally selected by Woodrow Wilson as one of its first governors. Wilson's campaign financing came from firms and families connected to Warburg.

Take the All the Presidents’ Bankers Quiz #1 (of 3) for free books or fun!

All the Presidents’ Bankers: The Hidden Alliances that Drive American Power: Quiz #1 (of 3) 

Presidents Day February 17, 2014.

Test your knowledge of the past century of blood, family, intermarriage, protégé-mentorship and other ties connecting the White House and Wall Street, that form America's political-financial genealogy, power circle and most elite caste.  The first five submissions of correct results will receive a free autographed copy of All the Presidents’ Bankers when it comes out. For consideration, please email your answers to nomi@nomiprins.com with the subject: APB Quiz 1. You can also do APB quiz #1 at: https://www.examtime.com/en-US/quizzes/553957/. Answers for APB Quiz #1 will be posted on March 1, 2014. Discuss or Enjoy!!!

All the Presidents' Bankers by Nomi Prins is available for pre-order online now, and out April 8, 2014.  For more , see: http://www.nomiprins.com/presidents-bankers

Questions:

1. Which president's father worked with which elite banker to form the prestigious Metropolitan Club in New York City?

a) Teddy Roosevelt's father and Junius Morgan

b) Calvin Coolidge's father and James Stillman

c) John F. Kennedy's father and John D. Rockefeller

d) Franklin Delano Roosevelt's father and John Pierpont Morgan

2. Which banker who would later chair a Big Six bank rented one of FDR's New York City townhouses during WWI? 

a) Winthrop Aldrich from the Chase Bank (now part of JPM Chase)

b) James Stillman from the National City Bank (now part of Citigroup)

c) George Baker, Sr. from the First National Bank (now part of Citigroup)

d) Thomas Lamont from the Morgan Bank (now part of JPM Chase)

3. Which former Chase Chairman shared a fascination of puddle jumper planes with which president? 

a)  David Rockefeller and John F. Kennedy

b) John McCloy and Dwight D. Eisenhower

c) David Rockefeller and Harry Truman

d) John McCloy and Harry Truman

4. Which major banker from which bank worked most closely with FDR behind the scenes in Washington to pass the Glass- Steagall Act?

a) Jack Morgan (J.P. Morgan's son) from the Morgan Bank

b) James Perkins from National City Bank

c) Thomas Lamont from the Morgan Bank

d) Winthrop Aldrich from Chase

5. The father of which president was appointed as the first head of the Securities and Exchange Commission (the SEC) by FDR in 1934 to police the banking industry?

a) Harry Truman

b) Gerald Ford

c) Lyndon B. Johnson

d) John F. Kennedy

6. Who was the first president to select a major Wall Street bank CEO as  his Treasury Secretary?

a) Bill Clinton

b) George W. Bush

c) George H.W. Bush

d) Ronald Reagan

7. Which president appointed his son-in-law Treasury Secretary, and which banker that would later chair a Big Six bank, was appointed Assistant Treasury Secretary as a result?

a) Warren Harding and Albert Wiggin

b) Calvin Coolidge and Charles Mitchell

c) Teddy Roosevelt and William Potter

d) Woodrow Wilson and Russell Leffingwell

8. Which President's grandfather ran a bank that ultimately  became one of the Big Six banks that helped finance his campaign?

a) George W. Bush

b) George H.W. Bush

c) Ronald Reagan

d) John F. Kennedy

9. Which banker briefly dated the sister of which president?

a) David Rockefeller and John F. Kennedy

b) John McCloy and John F. Kennedy

c) Gabriel Hauge and Harry Truman

d) David Rockefeller and Harry Truman

10. The Treasury Secretary of which president recently joined a financial firm founded by a banker whose uncle was appointed one of the first Fed governors by Woodrow Wilson in 1914?

a) Ronald Reagan

b) Barack Obama

c) Bill Clinton

d) George W. Bush

The Volcker Rule's Major Miss & Kim Kardashian's Bikini Bod

Something isn't always better than nothing. (This piece originally appeared at Truthdig. Also, hat-tip to Pam Martens at www.wallstreetonparade.) 

The subject of heated debate in financial circles, the Volcker Rule, which was originally passed as part of the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act, was finally approved by regulators. It will begin taking effect in April 2014 with full compliance required by July 2015. They say the devil is in the details. Regarding the Volcker Rule, the devil is in the details of its abundant exemptions. These include a laundry list of practices and businesses that mega-banks have performed under one roof, since the 1999 repeal of Glass-Steagall, as well as the myriad perks they won along the way to that power-consolidating event.

The Volcker Rule in its current form ostensibly focuses on mitigating the “excessive” risk of proprietary trading at banks (which it doesn’t do well). Worse, it leaves all the other risky trading related activity that poses a far greater systemic threat untouched, such as:

1) Market making—the ability of banks to trade on behalf of clients or eventual clients, which is how they make the bulk of their trading profits, and thus create risk.

2) Underwriting—the creation of securities that can contain multiple layers of financial complexity, such as the toxic assets at the heart of the recent crisis.

3) Hedging—or the desire of banks to “protect” themselves through trading, which is virtually impossible to detect from any other kind of trading.

4) Trading government bonds.

5) Organizing or offering hedge and private equity funds, which involves trading and was theoretically to be prohibited under the original intent of the Volcker Rule.

Other exclusions (yes, there are more) relate to the ability of banks to trade—proprietary or otherwise—within their brokerage arms (which are supposedly, but not actually, distinct from their deposit-taking arms) and insurance company arms (which have historically been eager buyers and accumulators of toxic assets).

The real danger of the Volcker Rule, though, isn’t just that it leaves the structure of Wall Street’s deposit-insured, security-distributing and market-making services intact. The danger is that Wall Street critics believe it makes a meaningful difference, that it’s an obvious road on the way to the Glass-Steagall reinstatement highway, and are thus not ranting and raving for it to be made stronger, even as the bank lobbyists and lawyers are making every effort to further weaken it.

The Volcker Rule Exclusions Are the Rule

Between effectiveness and legalese, you can drive an 18-wheeler of financial wizardry. And that’s even accepting the notion that proprietary trading was a key culprit in causing any major financial crisis, relative to nearly any other risk producing bank practice, which it wasn’t.

Even so, the banks have been lobbying for exemptions in this minimal attempt at regulation and won’t stop. Thus the eventual implemented rule will entail more pages of exemptions, particularly if the public remains oblivious to its current impotence to deter risk.

The Big Six banks (JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley) that control the majority of domestic deposits (and nearly all of U.S. derivatives) dangle them as financial hostages before complicit regulators, legislators and presidents. Too big to fail is about power, not size. These banks that sit atop the U.S. financial hierarchy by virtue of their legacy leaders having attacked 1933 Glass-Steagall regulations since the 1950s—piece by piece—own insurance companies, asset management companies, and brokerage or trading houses. They not only have access to an increasingly higher proportion of deposits, but also of pension and other funds, and insurance policies. That’s why one of the main things that banks did to weaken the possibility of broad restriction on any of their overall trading activities was to ensure these side financial service businesses would bear no restriction on trading, proprietary or otherwise, as per their exemptions in the Volcker Rule.

The Fed’s Language Game

The Volcker Rule won’t take full effect until July 15, 2015. Thus, the only thing that really happened on Dec. 10, 2013, was that the Fed announced that five federal agencies “issued final rules” to “implement section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the ‘Volcker Rule’).”

As Fed Chairman Ben Bernanke remarked with great fanfare from a media hailing the mere “adoption of final rules” as a deterrent to Wall Street’s most heinous behavior (December is a slow news month):

“This provision of the Dodd-Frank Act has the important objective of limiting excessive risk taking by depository institutions and their affiliates. Getting to this vote has taken longer than we would have liked, but five agencies have had to work together to grapple with a large number of difficult issues and respond toextensive public comments” (italics mine).

It’s true that the Volcker Rule has the ability to limit “excessive risk,” but only in the most literal sense. Even Bernanke’s choice of words indicated focus on a small portion of risk—not systemic risk and not the risk that these banks remain too powerful to fail.

A more misleading aspect of Bernanke’s statement was that he claimed it took so long to get to this point because of the need to address “public comments.” Given the comparative length of bank-supportive pages relative to public-protecting ones, “public comments” essentially means bank lobbyist demands.

Separately, the Fed’s press release underscored the elements of trading the rule would not touch as much, if not more so, than what it would. The release stated that insured-deposit-taking banks would be prohibited from “engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options on those instruments for their own account” plus be subject to “limits on investments in, or relations with hedge funds or private equity funds.” But it also stated that “the final rules provide exemptions for certain activities, including market making, underwriting, hedging, trading in government obligations, insurance company activities, and organizing and offering hedge funds or private equity funds.” In addition, it clarified that “certain activities are not prohibited.” That these exclusions were prominent in the Fed’s press release speaks volumes to the parties the Fed is trying to coddle.

For good political measure, under the Volcker Rule, each bank must establish a compliance program. CEOs must attest to the program’s integrity, under the eye of an outside regulator—who will have to take all this pious restraint at face value.

Breaking It Down

The proposed rules tally 892 pages, of which the beginning contains exposition and outlines the crux of the rule prohibiting certain proprietary trading and hedge and private equity fund activities.

The exclusions kick in on page 55. Through page 79, we get their general aspects, with more specific details following on page 80. We wander through Underwriting Exemptions from pages 80 to 139, followed by a long section on Market-Making Exemptions from pages 140 to 317.

Then, we get a bunch of permitted hedge fund related activities that nearly negate the idea of the Volcker Rule altering the relationship of big banks to big hedge funds from pages 317 to 361. From this point, we meander through permitted trading in certain government and municipal securities (including in foreign bonds). There are a few antiquated categories that seem open to more lobbying through page 388.

Permitted Trading on behalf of clients gets 10 pages, as does permitted trading by a regulated insurance company. Permitted trading activities of a foreign banking entity get 23 pages.

Then we come to a section that sounds sort of regulatory, but is too obtuse to tell from pages 433 to 447. After a few pages of definitions as to what constitutes “High-Risk Asset” and “High-Risk trading strategy,” we get one page—one page!—on trading that could “Pose a Threat to Safety and Soundness of the Banking Entity or the Financial Stability of the United States.”

Another section of loopholes begins with covered fund activities on page 463. This is the stuff that allows banks to trade almost anything anywhere as long as it’s named in such a way as to avoid suspicion. Section 10 begins with prohibitions on banks buying or having certain relationships with a “Covered Fund.”

Pages 500 to 637 provide lists of exemptions to the above such as foreign public funds, insurance company separate accounts, loan securitizations (which were central to the subprime crisis), derivatives on loan securitization (ditto), venture capital funds (another word for private equity funds) and credit funds (which can hold all sorts of AIG-type credit derivatives).

In Section 11, we get another laundry list of permitted activities in conjunction with organizing covered funds, including “permitted risk-mitigating hedging activities” (and aren’t they all?) from pages 638 to 766. These also include foreign funds and insurance companies. To cap it off, we get some obligatory legal jargon about how to comply with whatever weakened rules remain from pages 767 to 882. C’est tout.

Something Is Not Always Better Than Nothing

For those people who think the Volcker Rule is a swipe at the banks and will reduce risk in the system, I urge you to reconsider. The Volcker Rule (and Paul Volcker, for whom it’s named) might have had good intentions, but the form it has taken, and was destined to take as I’ve written before, is a placation. It is not substantive reform, or even the right path.

Only a resurrection of Glass-Steagall will truly reduce the risk mega-banks pose to our economic lives. The multiple decades of regulation assassination, the combining of financial services from insurance policies to our pension funds, the epic leverage in the banking system as part of the high-stakes game of global profit, the enabling of the derivatives market to reach many times the world’s GDP, disproportionally controlled by the Big Six U.S. banks—are all time bombs of financial devastation.

This immense power in the hands of the Big Six banks and their leaders is dangerous to all of us, whether we believe that something like the Volcker Rule or Dodd-Frank represents true reform or not. Without curtailing that power, through a full separation of deposits and loan taking services from any other kind of trading and security creation engine or other form of financial service—the intent of the original Glass-Steagall Act—we are not safe. There will be bigger and broader crises.

Our apathy is exactly what the banks, their CEOs, their lawyers and their lobbyists count on. They depend on citizens getting bored and glassy-eyed when a financial term is mentioned and turning to stories about Miley Cyrus twerking or Kim Kardashian’s bikini bod instead. They rely on journalists not reading between the lines or even tabulating the lines. They bet that most legislators (excluding Sens. Elizabeth Warren and Bernie Sanders) will focus anywhere else, because they can out-complicate the lingo. They are confident that the population will continue to furnish them chips on the global betting table. That is our current system. That is the system that must be abolished through the strict re-deployment of Glass-Steagall. We—all of us—have too much at stake to be blindsided by anything else.