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America's Band Of Brothers -- America's Greatest Scandal

It was as easy as taking candy from a baby, one insider said recently, for banks and bankers were trusted — wrongfully, but trusted.

New York

Institutional Abandonment

Out Voted By The Banking Lobby

Senator Byron Dorgan was one of eight Senators who opposed the repeal of Glass-Steagall.

On November 4, 1999, Dorgan spoke to the risks of repeal.

“I want to sound a warning call today about this legislation,” Senator Dorgan warned his colleagues, “I think this legislation is just fundamentally terrible.”

Over the last thirty years the men and women running, managing and overseeing this nation’s largest banking organizations  made a series of horrible mistakes. It wasn’t that they set out to intentionally bring down international banking and credit, but rather they they openly engaged in institutional abandonment and stakeholder gaming.

Managing any enterprise exclusively for short-term interests, especially when such interests accrue substantial benefits to senior management and temporal share owners, constitutes malfeasance. It is equally prima facie evidence of institutional abandonment to the degree that long term organizational stability and profitability are truncated or diminished.

Institutional abandonment and shareholder gaming occur whenever a company’s short-term earnings are artificially modulated for the benefit of temporal owners at the expense of long term investors. Temporal ownership, whether by public or private transactions, is inherently unstable and dangerous to the interests of all other stakeholders. It is also a foundation for criminal behavior, corporate gaming, wrongful disposition or utilization of assets, and institutionalized failure to disclose, i.e., junking the stats.

To the degree both happened at some or all big banking firms, the evidence suggest that it was because incentivized managers were so determined to make more money that they failed to consider the medium and long term consequences of their actions. Today, some of those consequences have begun to surface –  more than enough to make ordinary Americans mad as Hell about what the big banks, the those who run them, have done to millions of Americans who once trusted them.

Puff The Magic Dragon Changed All The Laws

Newsroom Magazine has recently learned how little the Band Of Brothers paid our congressmen and senators to drive Illinois Democrat Dick Durbin to proclaim,

“They quote frankly own the place!”

More on this in one of several upcoming articles on the issues facing American banks and financial services firms.

No more, for an increasing number of Americans are calling bankers crooks, criminals and worse. And for good reason, some argue, angry at how deftly these crooks turned giant banks into high-risk gamblers and irresponsible corporate citizens. Any who might wonder how deft they were, now that their empires have to some degree collapsed, need only look at how well they garnered control of the congress.

Not only did they invest in and oversee two major waves of banking deregulation — to conform the laws so that their criminal behavior would no longer be criminal — they did so for a pittance. They may be deft, they may be wealthy, and they still may nominally be running their banks, but they are immense pikers when it comes to buying influence.

If Madoff Owned A Bank He Would Likely Not Be In Jail

Those who understand the depth of big bank speculation, market trading, derivative entanglement, fake mortgage origination, securitization and packaging, are damned mad at what now appear to have been the most deft criminals in American history. While Bernie Madoff was clearly one of the most deft criminals on Wall Street, he wasn’t smart enough to make of himself a banker — whose greed and avarice strangely remains largely free from prosecution.

Bernard Madoff’s mistake may well have cost him his fortune and his freedom. Had he organized his criminal enterprise as a bank, he’d likely still be in business today. For being a member of the Federal Reserve, or sufficiently powerful to be among those thought competent to run the U.S. treasury, provides immense opportunities to do wrong and get away with it.

For some there is irony in the reality that Vikram Pandit, Jamie Dimon, John Stumpf, Ken Lewis, John Mack, Lloyd Blankfein, Ronald Logue, and Robert Kelly — just to name a few — did far more damage to investors and taxpayers than Bernard Madoff. But unlike Madoff, who is in prison serving a 150 year sentence, America’s high flying, risk taking and  criminally-stupid bankers remain free of prosecution, in possession of what may have been unlawfully accumulated wealth, and nominally in control of billions of dollars of other people’s money.

Abandoning Unwanted Stakeholders

The bankers who brought down international credit, and  criminalized so many major banks, understood exactly what they wanted to do. Beginning perhaps 30 years ago, they set out to abandon their least powerful stakeholders in favor of redirecting the income and wealth interests of employees and others to their own personal benefit.

They also set out to recapture  costs attributable to the communities that supported them,  the social structure that provided their customers, and the governmental agencies that served them, protected them and chartered them. Their goal, it now seems clear, was to re-channel the rightful interests of other stakeholders to their own personal wealth.

It was as easy as taking candy from a baby, one insider said recently, for banks and bankers were trusted — wrongfully, but trusted. Thus they transferred employee income to their own bonus-generating interest by way of layoffs, consolidations, using temporary workers and best of all — outsourcing jobs overseas. Branches that served communities were closed putting thousands of bank employees out of work.

Plundering America

Communities were damaged by branch closings, staff reductions, downsizing and eventually mergers that often moved entire banks out of the cities and states from which they were created. Less taxes, less consumer spending, less support for government, downstream businesses and vendors.

Such consolidations and relocations benefited senior managers, who, with the consent of their board of directors had put in place incentive pay and bonuses based on bottom line performance. It was all so easy — and so very profitable for bankers and their transient investors. Transiency is central to the demise of American banking, for, unlike what existed for many decades following the depression,  neither the managers nor the share owners are  permanent.

Today, few if any senior managers or stockholders are in banking for the long term. Whether one specific bank survives or fails is not very material today — for neither the guns for hire senior managers or  the fast-buck stock traders and fund managers care if the institution, or its depositors do well. It’s their interests, and only their interests, that they serve.

It’s All About Bankers Getting Rich

Individually and collectively, successors to generations of responsible bankers turned away from the traditional role of banking, being responsible and accountable fiduciaries of public trust, to making themselves and their institutions predators. Where once the goal of successful banking was to earn a profit by pooling liquidity and making loans, new wave managers redefined American banking to serve the interests of only two stakeholders — management and shareholders.

Some stakeholders, those economists believe among the most important to successful capitalism, were to be largely abandoned — not publicly of course, for that would present too many problems. But, whether or not anyone understood the wider implications of banking deregulation, the interests of management and shareholders were elevated while the interests of employees, the community ( whether city, state or nation ), society at large, and government(s) were relegated to lower priority, or simply discarded altogether.

Fiduciary Out, Predatory In

The ideas and attitudes of new wave bankers emerged during the 1970s when business schools began to emphasize case-study analysis and single-minded goal setting. Those who pursued advanced degrees, especially the finance and banking-modeled MBA, were encouraged to disregard nearly everything learned from the events leading up to the great depression in favor of a new paradigm — heedless profitability.

MBA degree holders who entered banking, finance and Wall Street brokerages during the 1970s were, in many ways, a new wave of managers long on specialized skills, technical knowledge and short on historical perspective. Government, regulators and propriety were common enemies — all to be vanquished in pursuit of temporal, largely personal wealth creation at whatever cost.

And now we know what the cost was — millions of jobs, bankruptcies, foreclosures and even more big bonuses for the deft criminals that sold out their depositors, investors and nation.

Jeffrey Slee, Harley Blank, Mikael Blaisdell and Richard Parsons contributed to this article.