If we bailed out the banks, why not Detroit? (#OWS)

This is crossposted from mathbabe.org. All the opinions below are those of Cathy O’Neil.

I wrote a post yesterday to discuss the fact that, as we’ve seen in Detroit and as we’ll soon see across the country, the math isn’t working out on pensions. One of my commenters responded, saying I was falling for a “very right wing attack on defined benefit pensions.”

I think it’s a mistake to think like that. If people on the left refuse to discuss reality, then who owns reality? And moreover, who will act and towards what end?

Here’s what I anticipate: just as “bankruptcy” in the realm of airlines has come to mean “a short period wherein we toss our promises to retired workers and then come back to life as a company”, I’m afraid that Detroit may signal the emergence of a new legal device for cities to do the same thing, especially the tossing out of promises to retired workers part. A kind of coordinated bankruptcy if you will.

It comes down to the following questions. For whom do laws work? Who can trust that, when they enter a legal obligation, it will be honored?

From Trayvon Martin to the people who have been illegally foreclosed on, we’ve seen the answer to that.

And then we might ask, for whom are laws written or exceptions made? And the answer to that might well be for banks, in times of crisis of their own doing, and so they can get their bonuses.

I’m not a huge fan of the original bailouts, because it ignored the social and legal contracts in the opposite way, that failures should fail and people who are criminals should go to jail. It didn’t seem fair then, and it still doesn’t now, as JP Morgan posts record $6.4 billion profits in the same quarter that it’s trying to settle a $500 million market manipulation charge.

It’s all very well to rest our arguments on the sanctity of the contract, but if you look around the edges you’ll see whose contracts get ripped up because of fraudulent accounting, and whose bonuses get bigger.

And it brings up the following question: if we bailed out the banks, why not the people of Detroit?

Laws to jail banksters

From the UK, we have word that the PM will be introducing a “New Law to Jail Banksters“.

I suppose this is a good thing but I do have a problem with it. It promotes the fiction that past bank behavior was legal. The refrain is “yes, they did some terrible things but unfortunately they weren’t against the law. ” Reject this myth.

Some of the activities in the sub-prime crisis were borderline but there was also clear lawbreaking, then or more recently. For instance, a tape just came out of Irish bankers talking about how they would deceive the government into bailing them out in 2008 by lying about how bad their situation was.

I’m not a lawyer but doesn’t that sound like conspiracy to commit fraud?

Then there was the decade of money-laundering to drug cartels and others that HSBC has admitted to. Aren’t there laws against that?

And most recently, the NY Times says that the SEC is accusing JPMorgan exec Blythe Masters of “‘false and misleading statements’ under oath”

Isn’t that the definition of perjury? Isn’t perjury a crime?

This is why a chapter of Alternative Banking’s upcoming book is titled: The Legal Rules the Financial Sector Just Ignores: a list of crimes.

You can get a preview of the book here (unfortunately, not yet including that chapter).

So, we don’t need new laws as much as enforcement of existing laws.




Small victory

Three years late, the Consumer Financial Protection Bureau finally has a leader who isn’t just “acting”.

This only happened after extensive pressure from the public including hundreds of thousands of names on petitions sponsored by the Americans for Financial Reform and other public interest groups.

We need to keep the pressure on Washington.

For instance, Obama caved on getting good people approved for the National Labor Relations Board. In a shadowy deal, he swapped the people labor wanted for more “acceptable” alternatives. Perhaps with more outcry this too would have come out better.

Occupy Finance, the book

Inspired by Strike Debt’s “Debt Resistors Operations Manual“, Alternative Banking is hard a work on a book titled “Occupy Finance”.

The audience for this book is the 99%. The mission of this group is to explain the financial system and its dysfunction in plain English and to offer suggestions for how to think about it and what we can do to improve it.

The book is a work in progress but there are several excellent drafts of chapters already available here: http://occupyfinancebook.wordpress.com/.

You can help improve the book by commenting on what we have written so far. We are also looking for help with layout, printing and covering the associated costs. So, i f you can help with that, please let us know.


This Sunday, Come to hear a talk on TPP – The Bankster’s Secret Plan to Escape Regulation and Kill Public Banks

Adam Weissman of OWS TradeJustice will be giving a talk on TPP (The Trans Pacific Partnership) on Sunday from 2-3 at Columbia.

Behind closed doors, the Obama administration is negotiating the Trans-Pacific Partnership (TPP), a secretive agreement between 12 Pacific Rim nations that Public Citizen describes as the “Banksters’ Delight.” Only one member of Congress has been granted access to the negotiating texts of the agreement, and the media, public interest groups, and the public have been denied the right to see even a word of it. Meanwhile 600 corporations have clearned advisor status, granting them access to read and influence this massive, binding international agreement. Disguised as merely a trade agreement, TPP is in fact a massive expansion of corporate power, a threat to national sovereignty, local governance, and democracy.

Corporations like Citi, Morgan Stanley, and Goldman Sachs have joined together under the umbrella of the US Business Coalition for TPP to push for an agreement that according to Citizens Trade Campaign “will handcuff the steps governments can take to protect against “too big to fail,” regulate trade in toxic assets, erect firewalls between different financial service firms and control the flow of short-term capital into and out of economies. ”

TPP may also be used by private banks to destroy public banks. According to Alternet’s Les Leopold,

“Clearly, from Wall Street’s perspective, the [publicly owned] North Dakota bank must go, and all other state efforts to replicate it must be thwarted. Wall Street’s stealth weapon may be lodged within the latest corporate trade agreement called the Trans-Pacific Partnership (TPP), which currently is being negotiated in secret. We already know that Wall Street is seeking to remove all tariff restrictions that prevent the U.S. financial services industry from doing business in countries like Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The biggest banks also want the treaty to eliminate “non-tariff” barriers including regulations that create “unfair” competition with state-owned financial enterprises.”

TPP also threatens to

– outsource US jobs to exploitative sweatshops
– empower corporations to attack environmental, food safety, animal welfare, and other public interest laws in international tribunals
– wipe out family farm agriculture while expanding markets for genetically modified and factory farmed “food”
– compromises internet freedom
– raise the cost of pharmaceuticals by expanding the intellectual property rights of pharmaceutical companies, placing lifesaving drugs out of reach for some of the world’s poorest people and hindering the ability of government health programs to purchase medicines for people in desperate need.

Join representatives of OWS TradeJustice to learn more about the looming threat of TPP – and to find out how we can take action to stop it!

AIG is still a threat to financial stability

It was just publicly and formally acknowledged, five years after AIG cost the US taxpayers billions of dollars that AIG is still a major problem.

The Financial Stability Oversight Council (FSOC) just unanimously agreed that AIG “could pose a threat to U.S. financial stability”. General Electric Capital, also.

FSOC includes Fed Chairman Bernanke, Treasury Secretary Jacob Lew and similar august personages. I do not agree with everything they say, but this I do.

It is not just the megabanks that are systemically threatening institutions.

Now that we know and it is publicly acknowledged, why don’t we do something about it?




Payroll cards: “It costs too much to get my money” (#OWS)

Crossposted from mathbabe.org. Opinions expressed are those of Cathy O’Neil.

If this article from yesterday’s New York Times doesn’t make you want to join Occupy, then nothing will.

It’s about how, if you work at a truly crappy job like Walmart or McDonalds, they’ll pay you with a pre-paid card that charges you for absolutely everything, including checking your balance or taking your money, and will even charge you for not using the card. Because we aren’t nickeling and diming these people enough.

The companies doing this stuff say they’re “making things convenient for the workers,” but of course they’re really paying off the employers, sometimes explicitly:

In the case of the New York City Housing Authority, it stands to receive a dollar for every employee it signs up to Citibank’s payroll cards, according to a contract reviewed by The New York Times.

Thanks for the convenience, payroll card banks!

One thing that makes me extra crazy about this article is how McDonalds uses its franchise system to keep its hands clean:

For Natalie Gunshannon, 27, another McDonald’s worker, the owners of the franchise that she worked for in Dallas, Pa., she says, refused to deposit her pay directly into her checking account at a local credit union, which lets its customers use its A.T.M.’s free. Instead, Ms. Gunshannon said, she was forced to use a payroll card issued by JPMorgan Chase. She has since quit her job at the drive-through window and is suing the franchise owners.

“I know I deserve to get fairly paid for my work,” she said.

The franchise owners, Albert and Carol Mueller, said in a statement that they comply with all employment, pay and work laws, and try to provide a positive experience for employees. McDonald’s itself, noting that it is not named in the suit, says it lets franchisees determine employment and pay policies.

I actually heard about this newish scheme against the poor when I attended the CFPB Town Hall more than a year ago and wrote about it here. Actually that’s where I heard people complain about Walmart doing this but also court-appointed child support as well.

Just to be clear, these fees are illegal in the context of credit cards, but financial regulation has not touched payroll cards yet. Yet another way that the poor are financialized, which is to say they’re physically and psychologically separated from their money. Get on this, CFPB!

Update: an excellent article about this issue was written by Sarah Jaffe a couple of weeks ago (hat tip Suresh Naidu). It ends with an awesome quote by Stephen Lerner: “No scam is too small or too big for the wizards of finance.”

Discussion of the “Bankers’ New Clothes” and Popular Regulation

There will be a “pre-meeting” from 2-3 PM this Sunday before the regular weekly meeting of OWS Alternative Banking.

We will have a lively, I hope, discussion of the proposal for requiring that banks raise much more of their funding from stockholders. The recent book, “The Bankers’ New Clothes” argues that this would be an important step to enhance financial stability and get rid of “Too Big To Fail” banks.

Josh Snodgrass will lead the discussion and also put it in the framework of “popular regulation” that will be simpler, more democratic and more effective than the current regulatory structure.