How U.S. Bankers Play Their Shell Game … and Get Away With It!

Credit: Theodore Scott (CC)

Ever play the shell game? It’s a so-called gambling game where a small ball is shifted underneath one of three shells. And the spectator wagers on which shell covers the ball when the shifting stops.

If the spectator guesses correctly, the shell man will pay double on the bet. But if the guess is wrong, the spectator loses.

Actually, there’s no real gambling involved. It’s really just a confidence trick — a fraud.

Other supposed spectators — looking like they’re making bets and guessing — are called “shills.” But they’re just plants of the shell man. Their job is to the keep the spectator engaged.

Any half-decent shell man moves his hands way too fast for a spectator to be able to guess correctly. Of course the shills will win here and there — but that’s just to give the illusion of a legitimate gambling game. And if you keep playing the game, eventually you will lose it all.

Now imagine playing the game with 10,000 shells — not just three. Talk about stacking the odds!

But that’s exactly how U.S. bankers play their game.

According to a recent Federal Reserve study, U.S. banks created over 10,000 subsidiaries worldwide in the last 22 years. Why? To avoid paying taxes and complying with tighter regulations.

Here’s a few of the culprits:

JPMorgan Chase & Co. — 3,391 subsidiaries
Goldman Sachs Group Inc. — 2,000+ subsidiaries
Morgan Stanley — 2,000+ subsidiaries
Bank of America Corp. — 2,000+ subsidiaries
Citigroup Inc. — 1,645 subsidiaries

That’s over 11,036 subsidiaries used to game the banking system. And when the bottom fell out in 2007-’08, it was the banks looking to their shills in Washington for more money.

These five banks — the same ones that skirted taxes and government regulations for years — ended up with over $140 billion in taxpayer funds.

The irony is mind-boggling. And it just goes to show these big banks will continue behaving badly at the expense of American taxpayers.

Worse yet, Washington has no leverage over the banks and the bank executives know it.

Too Big to Fail — Too Big to Manage

For far too long Washington has been running — running from the hard task of confronting the financial crisis head-on. But two leaders seem to be stepping up the fight for sanity in the financial sector. And they’re both clearly against “too big to fail.”

One is Thomas Hoenig, a Federal Deposit Insurance Corp. (FDIC) board member. Hoenig is following up on a mandate in the “Wall Street Reform and Consumer Protection Act of 2010,” also known as the “Dodd-Frank Act.”

The Act has tasked the FDIC and Federal Reserve with making sure the largest banks — if they get into trouble — can be wound down without collapsing the financial system.

So regulators have released “living will” guidelines. They spell out exactly how the biggest banks can be wound down in a time of crisis.

And with living wills in hand, regulators have a bit more leverage than before. But we have a long way to go.

On the other end of the spectrum, U.S. Sen. Sherrod Brown (D-Ohio) is actually proposing much harsher regulations than living wills.

As Brown said, “When regulators are left to curtail the risk of trillion-dollar megabanks with hundreds of affiliates, we know that too big to fail is also too big to manage.”

And with 11,036 subsidiaries and counting, just among a few key players, who could argue?

Not the Federal Reserve. Their study confirmed that the 1999 repeal of the Depression-era “Banking Act of 1933” — the “Glass-Steagall Act” — was the main catalyst for the biggest banks getting bigger.

And since the law was repealed, the assets of the largest banks have tripled to $15 trillion.

Hoenig is calling for reinstating Glass-Steagall, which separates investment banking and commercial banking. But Brown is proposing a limit on asset size — in effect — a mega-bank breakup.

And candidly, I favor the latter.

When the largest U.S. banks hold nearly five times the annual budget of our nation’s government, it’s time for real change.

Leave a comment and let me know what you think!


[Original post at The Campaign for a Sound Dollar.]


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