Heart of Empire — March 20, 2014, 2:09 pm

Sins of the Fatcat

Bob Ivry’s guide for tracking down the live villains and unburied bodies of the 2008 crash
“Run on a Bank” (Harper's, February 1890)

“Run on a Bank” (Harper’s, February 1890)

Back in February, Congressman David Camp (R., Mich.), chairman of the tax-writing House Ways and Means Committee, unveiled a plan to reform the U.S. tax code, clarifying and simplifying its infinite and tortuous provisions. One of his proposals was to levy a tax of .035 percent on assets exceeding $500 billion held by U.S. megabanks and insurance companies. This, he explained, would offset the advantage big banks enjoy in borrowing costs thanks to their implicit government-bailout guarantee as too-big-to-fail institutions.

It was a laudable enough idea, in a modest kind of way. Coming from a House Republican it certainly had the merit of novelty. But no one among the massed ranks of financial-industry hirelings on K Street and Capitol Hill took it seriously enough to plan a vigorous counterattack. Camp is due to step down from his chairmanship soon, and everyone in Washington is well aware of the banks’ invulnerability to attempts at prizing away even a sliver of their hoards. “Dead on arrival” was the common verdict.

That wasn’t the way JPMorgan Chase CEO Jamie Dimon, Wall Street’s capo di tutti frutti, saw things, though. “He was calling everyone, from the Speaker on down,” one lobbyist reported to me in amazement. “He was frantic about the threat of Camp, as if anything was ever going to come out of that.”

The only interpretation the D.C. financial lobbying community could make of Dimon’s hysterical behavior was that they had done their work too well. “The banks have gotten absolutely everything they wanted, post-crash,” my lobbyist friend explained. The 2010 SAFE bill, through which Senators Sherrod Brown and Ted Kaufman attempted to break up the too-big-to-fails? Crushed like a bug in the Senate, 60–31.  The Volcker Rule restricting banks from trading on their own account? Riddled with more loopholes than a yard of chicken wire. The Lincoln Amendment barring institutions from gambling with taxpayer-insured money? On its way out the door. “There really are no outstanding issues left for them to fight over,” my friend said, “so now even the semblance of defiance from any quarter is taken as a personal affront, and they move to crush it.”

Nevertheless, in obeisance to Dimon’s fevered response, lobbyists are armoring up for an all-out offensive. In the fighting words of Cam Fine, chief of the Community Bankers Association of America: “We’re going to beat this like a rented mule.”

In a vague sort of way, most people are aware that Wall Street crashed the economy and rode out of town scot-free, collecting unimaginably huge bonuses along the way. But vagueness breeds passivity. Fortunately, we now have Bob Ivry’s Seven Sins of Wall Street (Public Affairs) as an indispensable guide for tracking down live villains and unburied bodies. By the time you reach the end, all the sheer fury anyone with the merest flutter of a moral pulse felt back in 2008 and 2009 at the sight of bankers and their apologists blaming the cratering of the global economy on “people buying houses they couldn’t afford” wells up again, white hot.

There are by now shelves full of histories of the bubble era, some of which even manage to be kind and understanding about the Gucci-clad perps who blew it up. (I’m thinking of Andrew Ross-Sorkin’s Too Big to Fail, in particular.) Ivry’s contribution is to explain in limpid prose just what they have been up to since the third week of September 2008, when, as he reports, “more than one high-placed man in American finance made a phone call to his wife, telling her to go to the ATM and withdraw as much cash as she could, because it looked like the ATMs might run dry.”

It’s not a pretty picture. Among the victims Ivry describes is Rebecca Black, a nurse in Memphis who lost her “dream house” to foreclosure in 2010 when she could no longer afford the upwardly adjusting rate of her usurious 2/28 mortgage (low interest for two years, remorselessly increasing thereafter). But EMC Mortgage, the JPMorgan subsidiary that owned the note, never actually took possession, so she was still liable for the property tax, plus the $520 the city charged her for boarding up her by-then-snake-infested house and mowing her lawn. Meanwhile, the total assets of JPMorgan, whose overnight borrowing from the Federal Reserve peaked on October 1, 2008, at $68.6 billion, have shot up 78 percent to $2.39 trillion since the crash. As Ivry writes, “The grass keeps growing and the snakes have come back.”

Just to take one snake in particular, let’s look at Citigroup. Sired by Sandy Weill and Jamie Dimon out of Commercial Credit, a Baltimore loansharking operation they bought in 1986 that offered credit at 40 percent interest to semiliterate Mississippi farmers, Citi is the behemoth that needed $99.5 billion from the Fed in a hurry on January 20, 2009. Even President Barack Obama thought it should be broken up and sold off, until National Economic Council director Larry Summers and Treasury Secretary Timothy Geithner stomped on the idea. Instead, Citigroup carried straight on doing what came naturally: buying up fraudulent mortgages and selling them on.

Before 2008, many of their customers had been private investors, but that market vaporized in the crash. So, as Ivry pithily explains, Wall Street opted for a comfortable and profitable life on public welfare: “In the months and years after the financial crisis, the top people in Wall Street and Washington had engineered a closed loop that ensured their feet never touched the dirty ground. Wall Street would originate the mortgages, and Washington would buy them. (The government was involved in nine out of ten home loans in 2013.) The Treasury would sell debt, and Wall Street would buy it, then sell it back to the Federal Reserve. (This was called ‘quantitative easing.’)”

Naturally, fraud was involved, certainly in the case of Citigroup and its mortgage-buying subsidiary CitiMortgage. We know this, as Ivry explains, because a public-spirited CitiMortgage executive, Sherry Hunt, thought there was something wrong with the shady mortgages whose purchase she was forcefully encouraged to approve for later sale to the taxpayer, as represented by the Federal Housing Administration.

After her efforts to raise the matter internally went nowhere, Hunt brought her concerns to the attention of Preet Bharara, U.S. Attorney for the Southern District of New York. He, too, thought there was something wrong, and brought suit against Citi. The bank quickly caved and paid $158.3 million to settle the charges. So watertight was the case against it that the bank actually had to admit to having done something wrong. But that didn’t stop Sanjiv Das, Citigroup’s chief executive, from telling Ivry with a straight face that “the FHA was not defrauded.” Hearing this astonishing claim, Ivry recalls trying “to find the switch on my bullshit meter, which I had on vibrate and which was now rattling my molars.”

By the way, you and I didn’t know about that $99.5 billion tide-them-over loan at the time, because the Fed’s colossal Wall Street bailout — $1.2 trillion committed on a single day — was a closely held secret, not to be mentioned in front of the children, thus enabling such lucky recipients as Wells Fargo to claim with a straight face that they never needed or wanted a bailout, and to explain that they took $25 billion from the Troubled Asset Relief Program (TARP, the bailout we did hear about) only because the Treasury Secretary forced it down their throats. In fact, Wells Fargo asked for $45 billion on February 26, 2009, because they really needed it, in a hurry. And of course they got it, no questions asked.

The Seven Sins of Wall Street, by Bob IvryWe know about these events now thanks to Ivry’s partner in crime at Bloomberg News, the late, great Mark Pittman, who conceived the idea of suing the Federal Reserve under the Freedom of Information Act. As Seven Sins recounts in chapter two (“Wrath”), the Fed and the Clearing House Association (a.k.a. Wall Street’s biggest banks) fought bitterly to keep the story of the crisis under wraps, citing the sanctity of “trade secrets.” Ultimately justice, buoyed by Bloomberg’s bounteous legal war chest, prevailed, and we got to learn how dirty some of those secrets were.

The sins go on and on, though Ivry hews to convention and stops at number seven, (“Greed”). Meanwhile Rebecca Black, the nurse who lost her Memphis home to the snakes, lives in a one-bedroom apartment and works an $11 per hour job. The company she works for is owned by JPMorgan Chase.

Share
Single Page
(@andrewmcockburn) is Washington Editor of Harper’s Magazine.

More from Andrew Cockburn:

From the April 2018 issue

Mobbed Up

How America boosts the Afghan opium trade

From the January 2018 issue

Swap Meet

Wall Street’s war on the Volcker Rule

From the October 2017 issue

Crime and Punishment

Will the 9/11 case finally go to trial?

Get access to 167 years of
Harper’s for only $45.99

United States Canada

CATEGORIES

THE CURRENT ISSUE

May 2018

Driven to Distraction

= Subscribers only.
Sign in here.
Subscribe here.

Dinner Party

= Subscribers only.
Sign in here.
Subscribe here.

Exiled

= Subscribers only.
Sign in here.
Subscribe here.

Church and State

= Subscribers only.
Sign in here.
Subscribe here.

Seven Years of Identity Theft

= Subscribers only.
Sign in here.
Subscribe here.

Drinking Problems

= Subscribers only.
Sign in here.
Subscribe here.

view Table Content

FEATURED ON HARPERS.ORG

Article
Exiled·

= Subscribers only.
Sign in here.
Subscribe here.

It has become something of a commonplace to say that Mike Pence belongs to another era. He is a politician whom the New York Times has called a “throwback,” a “conservative proudly out of sync with his times,” and a “dangerous anachronism,” a man whose social policies and outspoken Christian faith are so redolent of the previous century’s culture wars that he appeared to have no future until, in the words of one journalist, he was plucked “off the political garbage heap” by Donald Trump and given new life. Pence’s rise to the vice presidency was not merely a personal advancement; it marked the return of religion and ideology to American politics at a time when the titles of political analyses were proclaiming the Twilight of Social Conservatism (2015) and the End of White Christian America (2016). It revealed the furious persistence of the religious right, an entity whose final demise was for so long considered imminent that even as white evangelicals came out in droves to support the Trump-Pence ticket, their enthusiasm was dismissed, in the Washington Post, as the movement’s “last spastic breath.”

Illustration by Andrew Zbihlyj
Article
Church and State·

= Subscribers only.
Sign in here.
Subscribe here.

Just after dawn in Lhamo, a small town on the northeastern corner of the Tibetan Plateau, horns summon the monks of Serti Monastery to prayer. Juniper incense smolders in the temple’s courtyard as monks begin arriving in huddled groups. Some walk the kora, a clockwise circumambulation around the building. Others hustle toward the main door, which sits just inside a porch decorated in bright thangka paintings. A pile of fur boots accumulates outside. When the last monks have arrived, the horn blowers leaning out of the second-floor windows retire indoors.

When I visited Lhamo in 2015, most monks at Serti attended the morning prayers, but not Ngawang Chötar, the vice president of the monastery’s management committee, or siguanhui. Instead, he could usually be found doing business somewhere on Lhamo’s main street. Like all Tibetan monks, he sports a buzz cut, and his gait, weighed down by dark crimson robes, resembles a penguin’s shuffle. When he forgets the password to his account on WeChat, China’s popular messaging service—a frequent occurrence—he waits for the town’s cell phone repairman at his favorite restaurant, piling the shells of sunflower seeds into a tidy mound.

Illustration by Simon Pemberton
Article
The Pictures·

= Subscribers only.
Sign in here.
Subscribe here.

As he approached his death in 1987, the photographer Peter Hujar was all but unknown, with a murky reputation and a tiny, if elite, cult following. Slowly circling down what was then the hopeless spiral of ­AIDS, Peter had ceaselessly debated one decision, which he reached only with difficulty, and only when the end drew near. He was in a hospital bed when he made his will that summer, naming me the executor of his entire artistic estate—and also its sole owner.

The move transformed my life and induced a seething fury in lots of decent people. I can see why. Peter did not make me his heir for any of the usual reasons. I was a good and trusted friend, but he had scads of those. I was not the first person he considered for the job, nor was I the most qualified. In fact, I was a rank amateur, and my understanding of his art was limited. I knew his photographs were stunning, often upsetting, unpredictably beautiful, distinctively his. I also knew they were under­rated and neglected. But I did not then really grasp his achievement.

Photograph by Peter Hujar
Article
Drinking Problems·

= Subscribers only.
Sign in here.
Subscribe here.

The friendly waitress at the Pretty Prairie Steak House delivers tumblers of tap water as soon as diners take their seats. Across Main Street, the Wagon Wheel Café offers the same courtesy. Customers may also order coffee or iced tea, but it all starts at the same tap, and everyone is fine with that. This blasé attitude about drinking water surprised me: everyone in this little farm town in Reno County, Kansas, knew beyond the shadow of a doubt that the liquid flowing from the municipal water tower was highly contaminated with nitrate, a chemical compound derived from fertilizer and connected to thyroid problems and various cancers. At the time I visited Pretty Prairie, last fall, nitrate levels there were more than double the federal standard for safe drinking water.

Illustration by Jen Renninger.
Article
Nothing But·

= Subscribers only.
Sign in here.
Subscribe here.

The truth—that thing I thought I was telling.—John Ashbery To start with the facts: the chapter in my book White Sands called “Pilgrimage” is about a visit to the house where the philosopher Theodor Adorno lived in Los Angeles during the Second World War. It takes its title from the story of that name by Susan Sontag (recently republished in Debriefing: Collected Stories) about a visit she and her friend Merrill made to the house of Adorno’s fellow German exile Thomas Mann in the Pacific Palisades, in 1947, when she was fourteen. It seemed strange that the story was originally …
Photograph by Augusta Wood

Percentage of US college students who have a better opinion of conservatives after their first year:

50

Plastic surgeons warned that people misled by wide-angle distortion in selfies were seeking nose jobs.

Trump fires missiles at Syria, a former FBI director likens Trump to a Mafia boss, and New Yorkers mistake a racoon for a tiger.

Subscribe to the Weekly Review newsletter. Don’t worry, we won’t sell your email address!

HARPER’S FINEST

Report — From the June 2013 issue

How to Make Your Own AR-15

= Subscribers only.
Sign in here.
Subscribe here.

By

"Gun owners have long been the hypochondriacs of American politics. Over the past twenty years, the gun-rights movement has won just about every battle it has fought; states have passed at least a hundred laws loosening gun restrictions since President Obama took office. Yet the National Rifle Association has continued to insist that government confiscation of privately owned firearms is nigh. The NRA’s alarmism helped maintain an active membership, but the strategy was risky: sooner or later, gun guys might have realized that they’d been had. Then came the shootings at a movie theater in Aurora, Colorado, and at Sandy Hook Elementary School in Newtown, Connecticut, followed swiftly by the nightmare the NRA had been promising for decades: a dedicated push at every level of government for new gun laws. The gun-rights movement was now that most insufferable of species: a hypochondriac taken suddenly, seriously ill."

Subscribe Today