From J.P. Morgan to Jamie Dimon

(This piece originally appeared in the New York Daily News, April 10, 2014): New York is a wonderful town — if you run a mega bank. Because for over a century, the Big Six banks and their leaders have dominated not just the U.S. banking industry, but American and global finance, traversing the power corridor between the White House and Wall Street to help themselves, their families and their friends in good times and bad, in partnership with the President.

But in the process of placing personal enrichment over the public interest and fair practices, particularly in recent years, they have created an atmosphere where the next big crisis is not a question of if, but of when. History has shown that absent true reform, those holding the power and the money can and will wreak havoc on the rest of the population.

For the first 80 years of the 20th century, four families largely controlled the nation’s top three banks: Morgan, Aldrich, Stillman and Rockefeller. National, financial and foreign policy was fashioned through personal connections to the Presidents — forged through blood, marriage, mentorships and connections made at Ivy League colleges, and through social activities like yachting, golfing, ranch barbeques and exclusive parties and clubs.

In October 1907, Manhattan was struck by a major bank panic. People from Fifth Ave. to Harlem rushed to extract their money from the Knickerbocker Trust Company because one of its leaders had made a horrendous bet on copper, which precipitated a wider panic. A fear of greater ramifications caused the “Trust-Buster,” President Teddy Roosevelt, to turn to the one man he believed could help — a banker, J.P. Morgan.

At midnight, Morgan and his entourage gathered at the Hotel Manhattan. With $25 million from the government to utilize as he saw fit, Morgan directed his financial friends to back the Trust Company of America, the “Too Big to Fail” firm of the time, embraced by the government and finance men who decided which banks lived and died — not the Knickerbocker Trust Company. President Roosevelt sat in Washington awaiting the results.

At 1 a.m., Frank Vanderlip, vice president of National City Bank (now Citigroup), informed reporters in the lobby that all would be well. And it was. New York papers sung Morgan’s praises. He had “saved” the city, the country. He was dubbed a “king.” The press omitted that he did it without dropping a dime of his own money.

Fast-forward through WWI and years of speculative buying and shady scams, and the stock market stood poised for collapse. In October 1929, it did.

Another meeting was called. The Big Six bankers gathered at the House of Morgan on 23 Wall Street before Thomas Lamont, acting Morgan Chairman. At his table were five other bankers: from National City Bank and First National Bank (both now part of Citigroup), from Morgan Guaranty and Chase (which, along with the Morgan Bank, became part of JPM Chase), and from Bankers Trust (which was controlled by the Morgan Bank). President Hoover sat in Washington awaiting the results.

The men hashed out a plan to boost the markets using their firms’ (or customers’) money. Each banker agreed to pony up $25 million. The stock-buying began. The mood and the markets were lifted. The media exalted. Nonetheless, over the next three years, the market lost most of its value, and a Great Depression ensued, crushing citizens.

Yet the Big Six survived, devouring thousands of smaller banks that failed.

Today’s Big Six banks are largely combinations (with additional members thrown in the mix) of the same Big Six banks that thrived through the Panic of 1907, Crash of 1929, WWII, the Bay of Pigs, the 1990s merger mania, and the recent financial crisis of 2008.

They now hold $9.4 trillion, or 84%, of FDIC-insured deposits, $12.5 trillion, or 85%, of all U.S. bank assets — and control 96% of all U.S., and 43% of the $693 trillion of global derivatives positions.

For the last 100 years, their leaders have collaborated with willing Presidents to run America. Given current global financial complexity, the Big Six chairmen have more economic control than Presidents, governments or central banks. We don’t elect them, but we do keep our money with them. We shoulder the cost of the risks they take.

With so much power in the hands of an elite few, America operates more as a plutocracy on behalf of the upper caste than a democracy or a republic. Voters are caught in the crossfire of two political parties vying to run Washington in a manner that benefits the banking caste, regardless of whether a Democrat or Republican is sitting in the Oval. Meanwhile, American inequality is reaching pre-1929 heights.

Mitigating the big banks’ power requires, at long last, breaking them up in such a manner as to split our deposits and taxpayers dollars from their speculative activities — by finally reinstituting the Glass-Steagall act of 1933.

In addition, we need to instill deposit and assets limits on these monstrosities to reduce the amount of control they have over America’s money. We need Congress to wake up to the looming mega-crisis around the corner that will happen without serious reform.

And, not least, we need a President who will get out of the bankers’ bed.

The Seven Sins of Wall Street by Bob Ivry - My Book Review

The Seven Sins of Wall Street: Big Banks, their Washington Lackeys, and the next Financial Crisis by Bloomberg reporter, Bob Ivry is both incredibly scary and ironically extremely funny – in a very dark way. This makes it essential reading for anyone with a finely tuned bullshit meter that doesn’t buy the notion that we’re all economically safer now than before the financial crisis of 2008 – which should be everyone. Ivry’s voice is appropriately sardonic and exasperated, his journalism and on-the-foreclosed-ground research, impeccable. His ability to empathize with readers that don’t hold a PhD in financial jargon (derivatives = “four syllables that launched a thousand naps”) allows him to render otherwise arcane topics simple enough to make you want to throw things at Jamie Dimon.

Most people living in the real world have a sense that the Wall-Street-Washington driven crisis hasn’t exactly evaporated into a haze of CEO repentance, or former politicians choosing to become gardeners rather than bagging plush jobs at elite financial firms. But Ivry’s book shows the ongoing crimes are much, MUCH worse than even the most alert or pessimistic of us think.  Not only has there been no meaningful reform or jail terms for committing fraud in broad daylight, but the same Big Six banks at the core of the crisis, are back to their old, and some new tricks, with a pat on the back from Uncle Sam. They are bigger and badder than ever, despite public rhetoric to the contrary.

Ivry divides his book into chapters paralleling the seven sins  - gluttony, wrath, envy, pride, lust, sloth, and greed. He doesn’t just excoriate the big bankers that played, and continue to play, freely and loosely with what he refers to as “Grandma’s money”, but embarks on an investigative search for the people living personal nightmares at the hands of these banks years after the “supposed” economic recovery and great reform myth of Dodd-Frank. Though the banks have supposedly repaid their bailout money with $20 billion interest to the American people (sure, no one got a check, but whatever), Ivry shines a harsh light on this irrelevant political babble. The big banks are not only bigger,  but they are also "fail –i- er” he says. Take note, Stephen Colbert.

Ivry’s aim is “not to re-litigate the bailouts, but to illustrate their legacy.” As he writes, “In the months and years after the financial crisis, the top people in Wall Street and Washington had engineered a closed loop the insured their feet never touched the dirty ground. Wall Street would originate the mortgages, and Washington would buy them. The Treasury would sell debt, and Wall Street would buy it, then sell it back to the Federal Reserve. (This was called “quantitative easing.”) The Federal Reserve would print money, and mostly would use it to push up prices on stocks and all sorts of commodities. Bankers traded derivatives…without anyone in the outside world catching a glimpse of the details. Ordinary people only got in the way.”

Ivry tells the tale of whistle-blower Sherry Hunt at Citi Mortgage who supplied Dick Bowen, her boss, with much of the data he used to first blow the whistle on Citi Mortgage’s quality-control department failures post crisis of 2008. Though she feared losing her job, as he actually did, and was demoted during the process of alerting the federal regulators to Citi’s ongoing frauds and cover-ups, she feared saying nothing more.

Ivry describes a January 2010 staff meeting, in which 1000 Citi Mortgage employees “gathered to listen to pep talks and sales reports. Then it came time to announce the workers of the month award. It went to the quality rebuttal crew.” Quality rebuttal was Citi’s way of stifling employees like Hunt that raised red flags about fraudulent practices.

Ivry’s more emotional passages relate to the efforts that Mark Pittman, fellow reporter-tour-du-force at Bloomberg, made to force the Federal Reserve to disclose details of the loans provided in particular to the Big Six US banks during the crisis that most of the media ignored. Bank of America, J.P. Morgan Chase, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley got far less from TARP openly, than they got from the Fed behind the scenes. The secrecy surrounding those extra trillions of dollars of loans was what Pittman sought to uncover. Pittman died too young, a moment Ivry captures poignantly, but Ivry continues to forge ahead unveiling ongoing secrets and deception -  no longer at the heart of the 2008 financial crisis, but at the heart of its aftermath. Of Pittman, Ivry writes "He knew what was at stake. Not just money. Not just economic policy. Not just the functioning of the world financial system. But the future of capitalism. The credibility of democracy.”

Ivry reveals the myriad Big Six bank schemes that continue unabated; the shadiness still rampant in the mortgage market, how the Fed is permitting banks with FDIC deposit support to make leveraged bets with Grandma’s money on everything from arcane derivatives to aluminum to copper, the Obama assistance programs that assisted the banks and not borrowers, the disgusting remorseless of Wall Street.

Ivry introduces us to people like Rebecca Black, one of the borrowers forced to leave her home at 698 Hazelwood Road. Her lender, a division of J.P. Morgan Chase called EMC Mortgage was part of Bear Stearns before it was taken over - with government aid - by J.P. Morgan Chase in late 2008. As Ivry says, "overnight borrowing by J.P. Morgan Chase, peaked on October 1, 2008 at $68.6 billion. Jamie Dimon, the lender’s Chief Executive Officer, got $23 million in compensation for 2011. All Rebecca Black got was the landscaping bill (for a house she could no longer afford, in the face of payments that blew up in her face, a by-product of some very shady practices.)

When Ivry visited Hazelwood Road in 2012, it was “four years after bad mortgages triggered a meltdown in the world's most resilient economy.” At the time,  “the biggest banks were reporting record profits and government agencies were trumpeting statistics showing a robust recovery.” On Hazelwood Road, there was just unnecessarily shattered lives, boarded homes and crime After the 2008 financial crisis, “an economic and political apartheid had emerged,” Ivry writes, “Washington, in the form of the federal government and Federal Reserve, the country's bank for banks, sacrificed the common good for the profit of the few.” And so the cycle of crime-and-no-punishment continues.

Ivry concludes with his stance “on the whole too big to fail thing: get rid of it. It's anti-competitive and antidemocratic.” Ivry calls out the Dodd-Frank Act for the sham it is: an Act that did nothing to level the playing field in which the biggest banks enjoy the most government-perks, and the lion’s share of the ability to abuse, and extort from, ordinary citizens. His book is an eye-opener, a wake-up call for those in Washington to get their heads out of Wall Street’s asses, a state unthinkable for most politicians. But, it’s also a wake-up call to us, to be ever more vigilant with every one of our financial dealings, because the worst is yet to come. 

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.