Grand Theft: Giant Banks Take Over Real Economy As Well As Financial System … Enabling Manipulation On a Vast Scale
July 10, 2013 | Washington's Blog
Big Banks Move Into Uranium Mining,
Petroleum Products, Aluminum, Ownership and Operation Of Airports, Toll
Roads, and Ports, and Electricity
Top
economists, financial experts and bankers say that the big banks are too large … and their very size is threatening the economy.
They say
we need to break up the big banks to stabilize the economy.
They say that too much interconnectedness
leads to financial instability.
They also say that the big financial players are able to manipulate
virtually every market in the world.
And that the government has given the banks
huge subsidies … which they are using for
speculation and
other things which don’t help the economy.
But the big banks have only gotten
bigger – and more interconnected – than before the
phony financial “reform” legislation was passed a couple of years ago.
As if that wasn’t bad enough, four congressmen point out that the big banks are not taking over the
tangible economy as well … which allows them to control and manipulate the markets.
Specifically, Congressman Grayson wrote – and Congressmen Conyers, Ellison and Grijalva co-signed –
a letter to the Federal Reserve which, in the words of a congressional aide:
Ask[ed] why large banks are engaged in a host of
commercial activities, including power production, management of ports,
oil drilling and distribution, and uranium mining. These activities have
nothing to do with the business of banking and it’s unclear how the Fed
or other bank regulators can actually regulate them. There’s useful and
somewhat crazy information in the 10Ks of the banks about what they are
currently doing. You can find that in the footnotes of the letter.
Here is their letter:
June 27, 2013
The Honorable Ben Bernanke
Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, D.C. 20551
Dear Chairman Bernanke,
We write in regards to the expansion of large banks into what had
traditionally been non-financial commercial spheres. Specifically, we
are concerned about how large banks have recently expanded their
businesses into such fields as electric power production, oil refining
and distribution, owning and operating of public assets such as ports
and airports, and even
uranium mining. [Isn't that a national security issue?]
Here are a few examples. Morgan Stanley imported 4 million barrels of
oil and petroleum products into the United States in June, 2012.
[i] Goldman Sachs stores
aluminum in vast warehouses in Detroit as well as serving as a commodities derivatives dealer.
[ii] This “bank” is also expanding into the ownership and operation of
airports, toll roads, and ports.
[iii] JP Morgan markets
electricity in California.
In other words,
Goldman Sachs, JP Morgan, and Morgan Stanley
are no longer just banks – they have effectively become oil companies,
port and airport operators, commodities dealers, and electric utilities
as well. This is causing unforeseen problems for the industrial sector
of the economy. For example, Coca Cola has filed a complaint with the London Metal Exchange that
Goldman Sachs was hoarding aluminum.
JP Morgan is currently being probed by regulators for
manipulating power prices in California, where the “bank” was marketing electricity from power plants it controlled. We don’t know what other price manipulation could be occurring due to
potential informational advantages accruing to derivatives dealers who also market and sell commodities. The long shadow of Enron could loom in these activities.
According to legal scholar Saule Omarova, over the past five years, there has been a “quiet transformation of U.S. financial holding companies.” These f
inancial
services companies have become global merchants that seek to extract
rent from any commercial or financial business activity within their
reach.
[iv] They have used legal authority in Graham-Leach-Bliley to
subvert the “foundational principle of separation of banking from commerce”.
This shift has many consequences for our economy, and for bank
regulators. We wonder how the Federal Reserve is responding to this
shift.
It seems like
there is a significant macro-economic risk in
having a massive entity like, say JP Morgan, both issuing credit cards
and mortgages, managing municipal bond offerings, selling gasoline and
electric power, running large oil tankers, trading derivatives, and
owning and operating airports, in multiple countries. Such a dramatic
intertwining of the industrial economy and supply chain with the
financial system creates systemic risk, since there is effectively no
regulatory entity that can oversee what is happening within these
sprawling global entities.
Our questions are as follows:
1) What is the Federal Reserve’s current position with respect
to allowing Goldman Sachs and Morgan Stanley to continue trading in
physical commodities and holding commodity-related assets after the
expiration of the statutory grace period during which they, as newly
registered bank holding companies, must conform all of their activities
to the Bank Holding Company Act of 1956? What is the legal justification
for this position?
2) Has the Federal Reserve been investigating the full range of
risks, costs, and benefits – to the national economy and broader society
– of allowing these institutions (and, possibly, other large financial
holding companies) to engage in trade intermediation and commercial
activities that go far beyond pure financial services? If so, please
share the results of your investigation. If not, why not?
3) What types of data do you collect about the regulated
financial holding companies’ non-financial activities? How does the
Federal Reserve interact with non-bank regulators who are in charge of
overseeing the areas and markets in which banking institutions conduct
their non-financial activities?
4) How do your examiners review, monitor, and evaluate banking
organizations’ management of potential conflicts of interest between
their physical commodity businesses and their derivatives trading?
5) If such an entity were to become insolvent, what
complications are likely to arise in resolving a company with such a
range of activities? Please share your analysis on the implications of
resolution authority on the commercial activities of systemically
important financial institutions. Please describe how these banks
approach this issue in their resolution plans (or “living wills”).
6) When your examiners work within these large institutions,
what framework do they use to, say, consider the possibility that a bank
run could ensue from a massive public oil spill by a Goldman
Sachs-owned oil tanker or a nuclear accident at a plant owned by a bank?
7) Does this relatively new corporate structure contribute to the likelihood of industrial supply shocks?
Thank you for your attention to this matter.
Sincerely,
Alan Grayson
Raul Grijalva
John Conyers
Keith Ellison
[i] http://www.morganstanley.com/about/ir/shareholder/10k2012/10k2012.pdf
Morgan Stanley, according to its investment documents, is engaged “in
the production, storage, transportation, marketing and trading of
several commodities, including metals (base a nd precious),
agricultural products, crude oil, oil products, natural gas, electric
power, emission credits, coal, freight, liquefied natural gas and
related products and indices. In addition, we are an electricity power
marketer in the U.S. and own electricity generating facilities in the
U.S. and Europe; we own TransMontaigne Inc. and its subsidiaries, a
group of companies operating in the refined petroleum products marketing
and distribution business; and we own a minority interest in Heidmar
Holdings LLC, which owns a group of companies that provide international
marine transportation and U.S. marine logistics services.”
[ii] http://www.goldmansachs.com/investor-relations/financials/current/10k/2012-10-K.pdf
Goldman Sachs, according to its own recent investment reports, is
engaged in “the production, storage, transportation, marketing and
trading of numerous commodities, including crude oil, oil products,
natural gas, electric power, agricultural products, metals (base and
precious), minerals (including uranium), emission credits, coal,
freight, liquefied natural gas and related products and indices.”
[iii] ibid
[iv]
“The Merchants of Wall Street: Banking, Commerce, and Commodities”
Omarova, Saule, University of North Carolina at Chapel Hill School of
Law
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2180647&download=yes
