From Andrew Mellon’s nearly 11 years as Treasury secretary under Presidents Warren G. Harding, Calvin Coolidge, and Herbert Hoover to our time, when Timothy Geithner went from financial regulator at the New York Federal Reserve to Treasury secretary to investment executive, journalists have often employed the image of a revolving door to describe the flow of bankers between Wall Street and the U.S. Department of the Treasury. But few know that the White House and the Treasury are, arguably, a single building. A tunnel connects 1500 Pennsylvania Avenue with 1600. Presidents use this passageway to slip visitors in and out of the Oval Office.
Nomi Prins, in her new history All the Presidents’ Bankers, does not say it in so many words. But she shows that the tunnel from the White House to the Treasury extends, metaphorically, for 226 miles to Lower Manhattan. Prins digs into presidential libraries and national archives and mines a shelf of books. She also knows Wall Street from the inside. Equipped with degrees in mathematics and statistics, she worked at Chase, Lehman Brothers, Bear Stearns, and finally Goldman Sachs, where she was a managing director. Prins created something of a sensation eight years ago with one of her earlier books, Other People’s Money: TheCorporate Mugging of America.
Prins’s story begins in the ’80s—the 1880s. Science, engineering, and mass production were transforming what had been an agricultural nation into an industrial one, creating private fortunes that would have been beyond imagining before the Civil War. Rivers of cash flowed to titans of the Gilded Age. (...)
Prins notes that the bankers who mattered a century and more ago and the bankers who matter today have consistently numbered six, a group small enough to cooperate or collude during a crisis. On the overcast Thursday morning of October 24, 1929, the day of the crash that launched the Great Depression, Charles Mitchell of National City Bank, Al Wiggin of Chase, Seward Prosser of Bankers Trust (later bought by Deutsche Bank), and William Potter of Guaranty Trust (now part of JPMorgan) strolled to 23 Wall Street to meet with Thomas Lamont of J.P. Morgan and George Baker of First National Bank (later Citi), who had come in through a side door to avoid reporters. In 20 minutes, the six agreed to prop up the collapsing market; Lamont, standing in for J.P. Morgan Jr., who was in Europe, announced the plan.
In the 2008 banking collapse near the end of the George W. Bush administration, it was again the Big Six banks that set the terms. They met on September 12 and soon wrested from Congress more cash than the Defense Department spent that year. The banks’ champion was Bush’s Treasury secretary, Henry Paulson, who before serving in that office had run Goldman Sachs, the country’s biggest investment bank. (...)
In the 35 years from 1960 to 1995, fewer than 10,000 bank mergers took place. In the last half of the 1990s, when Clinton was occupied with impeachment, more than 11,000 bank mergers were consummated. Lobbyists ran up invoices, corporations and executives poured in campaign contributions, and most journalists accepted the meme that Glass-Steagall was outdated. The loophole that allowed Travelers and Citi to merge required the killing of Glass-Steagall by 1999. The inherent conflicts of interest Glass-Steagall had prevented, which few lawmakers or journalists understood, were now enabled. This in turn, Prins shows, fueled the unsound banking practices that were later to sink Bear Stearns, Lehman Brothers, and the whole economy. Meanwhile, in the early aughts Geithner proved a sightless sheriff at the New York Fed, ignoring accounting tricks, falsified warranties on mortgage securities, and weakened underwriting standards. He was told in 2005 that Fed supervision of Citigroup was inadequate but did nothing to strengthen it.
In late summer 2008, banking practices that Glass-Steagall would have barred combined with lax regulation to produce the worst financial disaster since 1929. Citigroup ended up getting a bailout of almost half a trillion dollars. The sum of money required to make good on all the bad bets and misconduct came to $12.8 trillion, Bloomberg News calculated—not much less than the output of the entire economy in 2009. (...)
Prins notes that the six big banks agreed to $80 billion in fines following the 2008 disaster. That sounds like a lot. She points out that the amount equals eight-tenths of 1 percent of their assets, the kind of insignificant penalty that The New York Times’ Gretchen Morgenson dismisses as the equivalent of a rounding error. (...)
America has nearly 7,000 banks. Just two of the biggest—Citigroup and Chase—hold $4.3 trillion in assets, or more than 30 cents out of every banking dollar.
Nomi Prins, in her new history All the Presidents’ Bankers, does not say it in so many words. But she shows that the tunnel from the White House to the Treasury extends, metaphorically, for 226 miles to Lower Manhattan. Prins digs into presidential libraries and national archives and mines a shelf of books. She also knows Wall Street from the inside. Equipped with degrees in mathematics and statistics, she worked at Chase, Lehman Brothers, Bear Stearns, and finally Goldman Sachs, where she was a managing director. Prins created something of a sensation eight years ago with one of her earlier books, Other People’s Money: TheCorporate Mugging of America.Prins’s story begins in the ’80s—the 1880s. Science, engineering, and mass production were transforming what had been an agricultural nation into an industrial one, creating private fortunes that would have been beyond imagining before the Civil War. Rivers of cash flowed to titans of the Gilded Age. (...)
Prins notes that the bankers who mattered a century and more ago and the bankers who matter today have consistently numbered six, a group small enough to cooperate or collude during a crisis. On the overcast Thursday morning of October 24, 1929, the day of the crash that launched the Great Depression, Charles Mitchell of National City Bank, Al Wiggin of Chase, Seward Prosser of Bankers Trust (later bought by Deutsche Bank), and William Potter of Guaranty Trust (now part of JPMorgan) strolled to 23 Wall Street to meet with Thomas Lamont of J.P. Morgan and George Baker of First National Bank (later Citi), who had come in through a side door to avoid reporters. In 20 minutes, the six agreed to prop up the collapsing market; Lamont, standing in for J.P. Morgan Jr., who was in Europe, announced the plan.
In the 2008 banking collapse near the end of the George W. Bush administration, it was again the Big Six banks that set the terms. They met on September 12 and soon wrested from Congress more cash than the Defense Department spent that year. The banks’ champion was Bush’s Treasury secretary, Henry Paulson, who before serving in that office had run Goldman Sachs, the country’s biggest investment bank. (...)
In the 35 years from 1960 to 1995, fewer than 10,000 bank mergers took place. In the last half of the 1990s, when Clinton was occupied with impeachment, more than 11,000 bank mergers were consummated. Lobbyists ran up invoices, corporations and executives poured in campaign contributions, and most journalists accepted the meme that Glass-Steagall was outdated. The loophole that allowed Travelers and Citi to merge required the killing of Glass-Steagall by 1999. The inherent conflicts of interest Glass-Steagall had prevented, which few lawmakers or journalists understood, were now enabled. This in turn, Prins shows, fueled the unsound banking practices that were later to sink Bear Stearns, Lehman Brothers, and the whole economy. Meanwhile, in the early aughts Geithner proved a sightless sheriff at the New York Fed, ignoring accounting tricks, falsified warranties on mortgage securities, and weakened underwriting standards. He was told in 2005 that Fed supervision of Citigroup was inadequate but did nothing to strengthen it.
In late summer 2008, banking practices that Glass-Steagall would have barred combined with lax regulation to produce the worst financial disaster since 1929. Citigroup ended up getting a bailout of almost half a trillion dollars. The sum of money required to make good on all the bad bets and misconduct came to $12.8 trillion, Bloomberg News calculated—not much less than the output of the entire economy in 2009. (...)
Prins notes that the six big banks agreed to $80 billion in fines following the 2008 disaster. That sounds like a lot. She points out that the amount equals eight-tenths of 1 percent of their assets, the kind of insignificant penalty that The New York Times’ Gretchen Morgenson dismisses as the equivalent of a rounding error. (...)
America has nearly 7,000 banks. Just two of the biggest—Citigroup and Chase—hold $4.3 trillion in assets, or more than 30 cents out of every banking dollar.
by David Cay Johnson, American Prospect | Read more:
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