Last Tuesday, January 14, 2014, the Federal Reserve finally had enough.
After supposedly looking into big banks ownership of commodity-related infrastructure operations (like warehouses, oil barges, and utilities) for the last two years, which came on the heels of their 2003 review of the same issues, the rock ’em sock ’em Fed came out swinging.
Now, they said, they needed to look at “all aspects” of what they’ve been looking at for two years. That’s not because they were looking the other way before.
It’s because now they’re thinking big and asking themselves, “What would be the systemic risk to the system if a big bank owned something like the Deepwater Horizon (the BP well that blew out and cost almost $50 billion to date), or Japan’s Fukushima Daiichi nuclear power plant (which was destroyed by an earthquake-related tsunami and is costing god only knows how much) and the bank got sued, and their share price collapsed, and depositors fled, and that caused a run on other banks, and put the entire financial system at risk?”
Yep, it’s time for a study, they said. And because they are maybe thinking about some related rule changes, in maybe a year or two or three (these things take time, you know), they put out a request for comment. You and I have 60 days to submit ours, and so do the big banks.
But that’s not the “timing” part of this story…
The timing of the Fed’s announcement on Tuesday was just amazingly coincidental, a stroke of almost incalculable luck.
Because the very next day, Wednesday January 15, 2014, at a hearing called by the Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection, a few well-meaning senators got all huffy about banks having their greasy hands all over stuff related to commodities.
The subcommittee wanted to know why nothing has been done to stop a handful of big banks from ripping off businesses and consumers by manipulating (that’s code for jacking up) commodity prices by controlling “gateway” commodity-related infrastructure? Inquiring minds want to know!
Of course, the banks believe that because they own this stuff, they have a right to manipulate it because it’s a free market, after all, and if you own the stuff… well, you know.
How’s that for timing? The senators had a Federal Reserve bloke give testimony, which was part of the Fed’s amazing luck, because the fellow had nothing much to say. Except of course that they had just put out a notice that they were looking into it and were waiting for public comment before taking a couple of years to put their ideas for new rules down into some regulation ledger so it could go out for even more public comment.
As you can imagine, it was another productive subcommittee hearing.
What the senators kind of wanted to say (but didn’t) was that their brethren in Congress back in 1999, in a sweetheart deal of a law proudly named for the senators who put the whole thing together, maybe shouldn’t have allowed big banks to continue to own commodity infrastructure assets.
But that was probably an oversight in the otherwise great Gramm-Leach-Bliley Act (also known as the Financial Services Modernization Act of 1999), the final nail in the coffin of the old Glass-Steagall Act, and which famously ushered in the era of mega-giant Transformer Terminator banks, the 2008 credit crisis, and the ensuing Great Recession.
Maybe you remember, maybe you don’t. The good Senator Phil Gramm, from the ten-gallon hat state of Texas, retired from his hard work in 2002 after delivering the law to his banker friends. He then rode off into his sunset years to ply his retirement dreams of barely working for millions of dollars a year as vice chairman of the investment banking division of mega-giant Transformer Terminator Swiss bank UBS AG (NYSE:UBS).
Yeah, that UBS. The one that has had to pay millions of dollars in fines for manipulating mutual fund prices, for money laundering, and for helping thousands of U.S. citizens evade taxes. The same UBS that, in 2002 (note the year), acquired Enron’s energy trading assets. Yeah, that Enron, the bastion of corporate fraud and corruption that managed to hide billions in debt from its investors in the biggest accounting scandal in American history. The same Enron that included Wendy Gramm, wife of Senator Phil Gramm, on its board of directors. (If you want to read UBS’ full rap sheet, check this out: http://www.corp-research.org/UBS).
You see, it’s all about timing.
So, is now the time for big banks to be forced out of their commodity manipulation and hijacking businesses?
Give me some time to think about that.