In a fiery speech on the Senate floor Friday, Sen. Elizabeth Warren condemned a sweetheart deal smuggled into last week’s must-pass budget bill. That provision, which will soon become law, allows Wall Street banks to once again use government-guaranteed deposits in highly risky, and highly profitable, derivatives trading of the sort that helped bring about the 2008 financial meltdown.
“Democrats don’t like Wall Street bailouts,” Warren said. “Republicans don’t like Wall Street bailouts. The American people are disgusted by Wall Street bailouts. And yet here we are five years after Dodd-Frank, with Congress on the verge of ramming through a provision that would do nothing for the middle class, do nothing for community banks, do nothing but raise the risk that taxpayers will have to bail out the biggest banks once again.”
As Warren pointed out, the core language in the provision had literally been written by lobbyists for CitiGroup, which she accurately described as “the biggest recipient of bailout money in the history of this country.”
“During the financial crisis … Citi received nearly half a trillion dollars in bailouts,” she pointed out. “That’s half a trillion, with a ‘T’. That’s almost $140 billion more than the next biggest bank got.” (The specific figure, including loan guarantees, etc., was $472.6 billion.)
Now CitiGroup is back, once again eager to put the taxpayer back on the hook. In that light, it’s also important to consider some of the other headlines the company has made in 2014 alone:
— In April, CitiGroup agreed to pay $1.13 billion to major investors to whom it had sold mortgage securities, and to whom it had lied by claiming that the securities were secure investments when the company knew otherwise.
— In July, CitiGroup agreed to pay $7 billion to settle a federal investigation into its mortgage security business, agreeing in a “statement of facts” that it had told investors that the mortgages, were solid, well-documented loans to borrowers with good credit ratings when in fact CitiGroup knew otherwise, and in some cases had altered findings to hide that fact.
— In November, CitiGroup agreed to pay $1.02 billion in fines to British and American regulators for taking part in a large, multi-bank conspiracy to rig foreign-exchange markets to rip off its customers for its own benefit. As a result, Citi was forced to restate its third-quarter profit from $3.2 billion to a paltry $2.6 billion.
According to investigators, foreign exchange (FX) traders had created private chat rooms where they had “disclosed confidential customer order information and trading positions, altered trading positions to accommodate the interests of the collective group, and agreed on trading strategies as part of an effort by the group to attempt to manipulate certain FX benchmark rates.” That conspiracy was carried out even as CitiGroup and other top banks were dealing with a separate investigation into whether they illegally manipulated international interest rates.
“The market only works if people have confidence that the process of setting these benchmarks is fair, not corrupted by manipulation by some of the biggest banks in the world,” said Aitan Goelman, enforcement director for the Commodity Futures Trading Commission.
— In December, CitiGroup was one of 10 banks fined a total of $43.5 million for using its supposedly unbiased research analysts to help win business from Toys “R” Us in its initial public offering. In hopes of winning favor from Toys R Us, the banks influenced their analysts to give a falsely rosy assessment of the company’s prospects.
— Last week, CitiGroup announced that it would have to set aside another $2.7 billion to pay additional fines, legal and settlement costs in the fourth quarter of 2014.
It’s amazing and quite instructive that even with extensive record of wilfull malfeasance, Citigroup had the juice to get special-interest legislation into a bill whose failure would otherwise have forced a government shutdown. “Think about that kind of power,” Warren said. “If a financial institution has become so big and so powerful that it can hold the entire country hostage, that alone is reason enough to break them up. Enough is enough.”
That’s the thing, though: On Wall Street, enough is never enough.