In ancient Greek mythology, there was a man named Diogenes who wandered the earth carrying a lantern while looking for one truly honest man. If Diogenes were to resume his search on Wall Street today, I fear he would be out of luck.
It is hard today not to become cynical about those who have been entrusted with the integrity of our nation’s banking system. It seems they frequently bend or break the rules for the sake of greed and personal gain. Consider the news of just the last few weeks. Morgan Stanley bungles the initial public offering of Facebook with rather solid evidence of insider trading, a clear violation of federal law. (Perversely, until recently, members or Congress could legally practice insider trading. How unfair was that?)
Wells Fargo is now under investigation for targeting Hispanics, African Americans, and other minorities during the housing boom of the early and mid-1980s. It created and sold mortgages that did not allow the buyer ever to build up real equity, thereby ensuring they would never actually own their home. This is both unlawful and immoral.
HSBC, a British banking firm that does business on Wall Street, was caught handling very lucrative accounts with the likes of Iran, various terrorist groups, and even a couple of Mexican drug cartels. They “explained” that they were not always sure who they were dealing with. This answer is implausible.
J.P. Morgan lost six billion dollars in one investment; CEO Jamie Dimon wants us to believe that it was just another day on Wall Street. And, in a scandal that affected almost anyone who has a credit card, we discovered that for a number of years there has been rate fixing of the LIBOR (London Interbank Offered Rate), the benchmark for almost all interbank loans around the world. Barclays will pay a $450 million fine and other banks are hoping to negotiate a mass settlement that keeps them out of the limelight. No one knows for sure how many millions this deceptive practice has cost pension funds, hedge funds, insurance companies, and investors in general.
Attempts to regulate undone
So how did we get into this mess in the first place? Part of the problem began in the mid-1990s when then-Secretary of the Treasury Robert Rubin (a Wall Street insider himself with powerful allies in Congress) received approval to abolish the time-honored Glass-Steagall Act which Franklin Delano Roosevelt fought long and hard to enact following the stock market crash of 1929. This piece of valuable legislation put a firewall between investment banks (Wall Street) and commercial or depository banks (Main Street). With Glass-Steagall gone, all banks were now free to engage in some very risky loan practices, which came back to haunt all of us when the market crashed in 2008.
Second, the Dodd-Frank banking reform bill was passed two years ago, but it has little or no “teeth.” Congress has removed a great many of its important oversight provisions including the Volcker Rule, which was discounted.
Last year, Wall Street spent $320 million lobbying Congress and the results of all this bribery are fairly obvious. Wall Street wants very little to do with audits, regulations, and oversight. It would seem that we are now moving from a democracy to a plutocracy, governance by the rich and for the rich. This is not what our founding fathers envisioned for this nation.
Worse yet, 56 percent of the wealth of this nation is currently controlled in some manner by five Wall Street banks. Never before has the national wealth been so narrowly concentrated. These institutions truly are now too big to fail. Perhaps we have now reached a point where a limit on the financial reserves of any bank must be set, so that if a bank continues to practice risky or illegal behavior and it does default, it will not be bailed out by the likes of you and me. It seems to me that if ever we needed a new infusion of accountability, transparency, and integrity into the banking sector of America, it is now.
In 1814, John Adams commented to a friend that “there never was a democracy yet that did not commit suicide.” Ben Franklin once told a group of friends, “I have given you a democracy if you have the good sense to keep it.” Let’s hope that Adams is wrong and that Franklin’s words are heeded, before it is too late.
Paul L. Harrington is pastor emeritus of Shepherd of the Valley Lutheran Church (ELCA), Apple Valley, Minnesota. He has been acting campus pastor at Luther Seminary for two years.
Tags: Ben Franklin, Dodd-Frank banking reform bill, ELCA, Facebook, Franklin Delano Roosevelt, Glass-Steagall Act, hedge funds, honesty, HSBC, insurance companies, J.P. Morgan, Jaimie Dimon, John Adams, LIBOR, London Interbank Offered Rate, Luther Seminary, Morgan Stanley, Paul Harrington, pension funds, Robert Rubin, Shepherd of the Valley Lutheran Church Apple Valley, Volcker Rule, Wall Street