An unreformed, unrepentant Wall Street poses the gravest threat to America’s long-term vitality and economic might
By Pam Martens and Russ Martens of Wall Street on Parade
As front page news focuses more and more on the Russia-Trump investigation, there is rarely an in-depth journalistic investigation into the dangerous risks building up on Wall Street that makes front page news. And yet, as we know from the epic financial crisis of 2008, an unreformed Wall Street presents the gravest threat to America’s long-term vitality and economic might.
Take, for example, what happened this past Monday. The U.S. Securities and Exchange Commission (SEC) awarded a record $83 million to three whistleblowers from one of America’s largest retail brokerage firms, Merrill Lynch, part of the sprawling Bank of America. That bank holds $1.4 trillion in deposits, much of which is FDIC insured and backstopped by the U.S. taxpayer — the same taxpayer that bailed out Bank of America in 2008.
The SEC maintains the confidentiality of whistleblowers who come to it and does not name the company involved in the monetary awards to ensure that confidentiality. The public learned of the details in the case through a statement from the law firm representing the three whistleblowers, Labaton Sucharow.
The statement, also released on Monday, explained why this unprecedented amount of money was paid by the SEC. It said:
“The whistleblowers tipped the SEC to long-running misconduct at Merrill Lynch, which over numerous years, executed complex options trades that lacked economic substance and artificially reduced the required deposit of customer cash in the reserve account. Through the reckless conduct, Merrill Lynch violated the SEC’s Customer Protection Rules and put billions of dollars of customer funds at risk in order to finance its own trading activities.”
But wait. Wasn’t the Dodd-Frank financial reform legislation of 2010 with its Volcker Rule supposed to stop Wall Street firms with insured banking operations from trading for the house? We know from the London Whale saga of 2012 where JPMorgan Chase used hundreds of billions of dollars of depositors’ money to trade in high risk derivatives in London and lost $6.2 billion of depositors’ money that the Volcker Rule did not reform these Wall Street behemoths. Now we have even more evidence from this outrageous conduct by Merrill Lynch.
In fact, the JPMorgan London Whale and the Merrill Lynch debacles have five things in common: regulators were misled; customer cash was put at risk; the conduct was maniacally brazen; the actions took place under the nose of a key executive of the firms; and both incidents occurred at two of the largest Wall Street firms in the nation long after the passage of Dodd-Frank. This strongly suggests that Wall Street needs tighterregulation, not the de-regulation the Senate passed last week.
The SEC settled the case against Merrill Lynch on June 23, 2016 for $415 million and an admission of wrongdoing. According to the SEC’s order at the time, the mishandling of customer cash occurred from 2009 until 2012 while the mishandling of customers’ securities occurred from 2009 to 2016. Both sets of dates show clearly that the Dodd-Frank financial reform legislation, which was signed into law in 2010, is not taken seriously by the mega banks…