Since the repeal of Glass Steagall in 1999, the US  government has been of the big banks, for the big banks and yes, by the big banks.  Vast sums of money have been obtained by the very few. Many citizens have been hurt. More importantly, instead of helping businesses, small and large, which drive the US economy, these banks now spend most of their time on high risk derivative plays which include owning warehouses to store commodities until their price goes up and manipulating markets.

The tide is slowly turning with the alliance in the Senate of Elizabeth Warren, Sherrod Brown and Jeff Merkley.

While US regulators and the Department of Justice have been reluctant to take American-owned banks to task, propelled by the climate of the times, they have begun to go after foreign banks.

Last spring, after a dramatic session before the Senate Subcommittee on Investigations where Senators McCain and Levin let loose on the top manamagement of Swiss-based Credit Suisse, the Department of Justice followed with the announcement of a plea bargain that at last included the acceptance of a criminal charge of aiding and abetting tax evasion in addition to a large fine.  Most observers had noted up until this point that banks were being fined, but the fines  were ‘the cost of doing business.”  Only criminal indictments would deter their behavior, it was thought.

Criminal indictments have serious consequences.  Credit Suisse managed billions of dollars in pension funds in the US. Under law, a convicted felon can not manage these funds.  Credit Suisse is a convicted felon.  But they quickly applied for an  exemption.

While it is true that the Department of Labor has regularly granted exemptions to banks over the past fifteen years, this time the route to exemption was not going to be smooth.  Congresswoman Maxine Waters, and two other representatives called for a hearing.

Waters said:”Every commenter urged the DOL to enforce the law, and not grant Credit Suisse an exemption, with one exception: Credit Suisse. The Credit Suisse letter actually asks for even greater latitude in pension management. In the face of this comment record, bolstered by letters from senior members of Congress , from committees responsible for banking and pension fund oversight, it will be a miscarriage of the regulatory process if the DOL grants Credit Suisse a pass from this penalty without a hearing. Unfortunately, the DOL habitually grants such exemptions — 23 straight times in previous cases. We hope the comment record changes this streak.”

The hearing is to be held in Washington on January 15th.  The question is: Will the bank lobby or the American people win?  Let us hope that the DOL focuses on what Credit Suisse can do that no other bank can do. (Nothing.)  Why a guilty plea to criminal activity should be over looked?  How pension funds can be protected when the administrator is not governed by American law?  When are we going to scratch firms from the “Too Big To Ban” list?

Anders Aslund writes:  The current oil price will force Russia to cut its imports by half – a move that, together with the continuing rise in inflation, will diminish Russians’ living standards considerably. Add to that ever-worsening corruption and a severe liquidity freeze, and a financial meltdown, accompanied by an 8-10% decline in output, appears likely.

Russia’s ability to negotiate its current predicament hinges on its powerful president, Vladimir Putin. But Putin remains unprepared to act. When he finally does acknowledge reality, he will have little room for maneuver.

Putin could withdraw his troops from eastern Ukraine, thereby spurring the United States and Europe to lift economic sanctions against Russia. But this would amount to admitting defeat.

Short of initiating a major war, Putin has few options for driving up oil prices.  Even before the oil-price collapse, crony capitalism had brought growth to a halt – and any serious effort to change the system would destabilize his power base.

In fact, Putin’s leadership approach seems fundamentally incompatible with any solution to Russia’s current economic woes. There is economic expertise among Russian policymakers.  Russia’s key economic institutions boast competent managers. The problem is that policymaking is concentrated in the Kremlin, where economic expertise is lacking.

Putin has usurped authority not just from his more knowledgeable colleagues, but also from the prime minister, who has traditionally served as Russia’s chief economic policymaker. Indeed, since Putin returned to the presidency in 2012, Prime Minister Dmitri Medvedev has been all but irrelevant.

In short, Putin – who is no economic expert – makes all major economic policy decisions in Russia.

In the sensitive currency market, unlike in most other countries, the central bank does not retain the exclusive right to intervene. When the ruble tumbled in December, the finance ministry – which holds almost half of Russia’s foreign reserves, $169 billion, in two sovereign-wealth funds – deemed the central bank’s intervention to be insufficient. So it announced that it would sell $7 billion from its reserves to boost the ruble.

When the exchange rate plummeted again, the Kremlin urged the five largest state-owned exporting companies to exchange a portion of their assets into rubles.

Russia’s fiscal situation, determined by Putin’s arbitrary budget management, is hardly better. Putin’s priorities are clear: first come the military, the security apparatus, and the state administration; second are the major infrastructure projects from which he and his cronies make their fortunes; social expenditures (primarily pensions), needed to maintain popular support, come last. Suddenly, oil revenues are no longer sufficient to cover all three.

If Putin wants to save Russia’s economy from disaster, he must shift his priorities. For starters, he must shelve some of the large, long-term infrastructure projects. Though the decision in December to abandon the South Stream gas pipeline is a step in the right direction, it is far from adequate.

Likewise, Putin should follow Finance Minister Anton Siluanov’s sensible recommendation to cut public expenditure, including on social programs and the military, by 10%.

Russia faces serious – and intensifying – financial problems. But its biggest problem remains its leader, who continues to deny reality while pursuing policies and projects that will only make the situation worse.

Those nomination of Antonio Weiss to a treasury post has gotten ex tell burned democrats up in arms.  Elizabeth Warren is protesting his nomination.  While having the fox guard the chicken coop is a legitimate question for someone who has spent his career in investment banking,

Bloomberg View suggests suspicions are misplaced.  “The undersecretary for domestic policy oversees capital markets, financial institutions, consumer protections and not-insignificant matters like the national debt. For the last couple of decades, as an investment banker at Lazard in the U.S. and France, Weiss has been in the middle of complex financial deals involving businesses, banks, hedge funds and foreign governments. This is exactly the kind of real-world decision-making experience that will come in handy when interest rates finally start going up again — as they’re expected to this year — and the markets get jittery.”

Senator Elizabeth Warren may legitimately be leery after Congress weakened the Dodd-Frank financial reform law.  But this is probably  case of oveerkill.  Let’s focus on putting teeth in regulations that are on the books, empowering community banks, and splitting off high risk banking operations from tax payer backup.

Dave Michaels reports:  The Nobel laureate economist Joseph Stiglitz who called for a tax on high-frequency trading, has been blocked from a government panel that will advise regulators on issues facing U.S. equity markets.

Democratic Commissioner Luis Aguilar had pushed for Stiglitz, who has said high-frequency trading isn’t good for financial markets and should be curbed, possibly through a tax.

“I think they may not have felt comfortable with somebody who was not in one way or another owned by the industry,” Stiglitz said in a phone interview.

White said Jan. 3 that she will announce the members of the advisory market-structure committee in the coming days — six months after she first proposed the idea together with a blueprint for renewed market oversight. Each of the five commissioners — two Democrats, two Republicans and White, an independent — was allowed to nominate one person to the panel. The commission then had to come to agreement on the final list, which is expected to have more than 15 members.

Stiglitz, 71, wasn’t the only nominee that sparked wrangling. Earlier in the process, SEC Commissioner Michael Piwowar, a Republican, opposed the involvement of TIAA-CREF Chief Executive Officer Roger Ferguson.  Ferguson, whose firm manages hundreds of billions of dollars in retirement savings, is a former Federal Reserve vice chairman. He is married to former SEC Commissioner Annette Nazareth, who now advises some of Wall Street’s biggest banks on regulatory issues.

The panel is expected to include representatives of Wall Street brokerage firms and academic researchers. IEX Corp. Chief Executive Officer Brad Katsuyama and former Senator Ted Kaufman of Delaware are expected to be named to the panel, two people with knowledge of the matter said.

Katsuyama started the IEX trading platform with the aim of leveling the playing field for investors by curbing the pace of buying and selling — eliminating opportunities for the fastest firms to trade in front of slower ones. He has said the government should consider forcing greater transparency of trading venues’ operations.

High-frequency trading, which uses computer algorithms to buy and sell large numbers of shares in fractions of a second, accounts for more than 50 percent of U.S. trading volume.

The dust-up over Stiglitz is emblematic of the frequent conflict among commissioners that has slowed progress on regulatory policy and enforcement matters under White. A recent case against Bank of America Corp. was stalled for three months as commissioners, divided along political lines, fought over additional penalties that could have expelled the bank from the profitable business of raising money for private companies.

A former chief economist of the World Bank  Stiglitz argued in an April speech that high-frequency trading can make markets less efficient while driving other investors to cloak their orders by placing them away from exchanges using dark pools, leading to less transparency.

President Obama has nominated a community banker to the board of the Federal Reserve.  This nomination met with favorable comments from Senator Sherrod Brown, Fed board chair Janet Yellen and Frank Keating. It maybe time to take community banking functions away from the big banks, or me at least give them a ,choice between community baking sand investment banking.  Clearly a bank like JP Morgan Chase which only make 20 percent of its money on these functions would prefer to be an investment bank.   Goldman Sachs’ Richard Ramsden today suggests that the JPMorgan Chase that Jamie Dimon has taken years building would be worth more in pieces.  Can a break up be far behind?

The problem wirh break up of course is that the 80 percent of JP Morgan Chase’s acitivities that fall outside community banking might not be covered by tax payer dollars.  At any rate, they should not be.

An interesting side note:  Small banks benefit from regulation.  Is the flip side of this statement also true?

JP Morgan Chase’s parts are probably worth more to investors than the whole after regulators proposed tougher rules penalizing firms for size and complexity, according to Goldman Sachs Group Inc.

JPMorgan could unlock value by splitting its four main businesses or dividing into consumer and institutional companies, Goldman Sachs analysts led by Richard Ramsden wrote today in a research note. Units of New York-based JPMorgan trade at a discount of 20 percent or more to stand-alone peers, they wrote.

“Our analysis suggests that a breakup into two or four parts could unlock value in most scenarios, although the range of outcomes we assessed is wide, at 5 percent to 25 percent potential upside,” the analysts wrote.

The move would reverse much of Chief Executive Officer Jamie Dimon’s work since taking over JPMorgan in 2006. Under Dimon, 58, the firm grew to become the largest U.S. lender by assets and the world’s biggest investment bank after acquiring ailing firms during the 2008 financial crisis.

Dimon has said the firm’s size creates opportunities to cross-sell products and better serve clients.

“Each of our four major businesses operates at good economies of scale and gets significant additional advantages from the other businesses,” Dimon wrote in a letter to shareholders last year. “This is one of the key reasons we have maintained good financial performance.”

The logic of a breakup would rely on the consumer business, commercial bank, investment bank and asset management unit being valued closer to so-called pure-play financial companies, the Goldman Sachs analysts wrote. The parts probably could operate with lower capital levels as stand-alone firms, resulting in higher returns on equity, they wrote.

The maneuver would risk some of the $6 billion profit JPMorgan says it makes tied to synergies between businesses, though a split into halves would preserve much of those benefits, the analysts wrote.

The Federal Reserve laid out a plan last month that may require JPMorgan to add more than $20 billion to its capital by 2019. The rules could get even stricter, prompting banks to consider new business models, the Goldman Sachs analysts wrote.

Stan Gilani writes: The truth about crony capitalism, at the highest level, is being laid bare.

The public is finally getting a look inside the black box where the titans of Wall Street and their inside-jobbers in Congress and at the highest levels of the U.S. government make decisions.  Star International is suing the US for ripping off American International Group, AIG and its shareholders.   Starr is an insurance company controlled by Maurice “Hank” Greenberg, the former CEO of AIG, not long ago the largest insurance company in the world.

Apparently, this closely watched 37-day trial that was supposed to have ended in November is far from over.  Greenberg’s lawyers just got more than 30,000 new documents they were denied before.  What was covered up when the U.S. government and the Federal Reserve Bank of New York bailed out AIG (as the Fed and the government called it) washow Goldman Sachs inserted one of its directors, Edward Liddy, into the top position at AIG when the government saved it from itself.

Only no one knew how deep the Goldman connection went. No one knew how Liddy, the former CEO of Alllstate Corp. helped push through the bailout with the AIG board – without giving shareholders a chance to vote on it.

The problem for the New York Fed, the U.S. government, and Goldman Sachs was that Greenberg’s stock position was enough to kill the bailout if he had a chance to vote his shares.

He never got the chance…

It wasn’t enough that Goldman’s former CEO was Hank Paulson, the then-Secretary of the U.S. Treasury, and that Goldman got bailed out itself when the Fed and the U.S. government gave it a windfall of profits right out of AIG’s pocketbook for some credit-default swaps that weren’t even worth anywhere near what the government paid Goldman for them. That was theft, plain and simple.

it’s not theft if it’s government-sanctioned.  So, we’re finding out now how deep the rabbit hole is in this trial.

Kent Moors writes:  Oil prices are struggling to stabilize.  Some think it is a black swan, a theory popularized by Nassim Nicholas Taleb.  According to Taleb, a black swan event has three characteristics:

1. It is a surprise. Nothing in the past can convincingly point to its possibility.
2. It has a major impact.
3. People contend that they expected the event to take place (in hindsight).

Almost 15 years ago, Taleb applied this approach to the stock market.  As a consequence, the black swan is being used as an “explanation” for all kinds of things. It’s the obverse of the mantra “this time is different.” And that leads us back to the true nature of the 40% drop in oil prices.  Is the stunning fall of crude is a black swan event?

It isn’t. But calling it one may be a good way of clouding up what really is happening.

First off, there were always indications on both the supply and demand side that matters were softening. Second, the OPEC non-decision on Thanksgiving to keep production levels unchanged was both predictable (from the Saudi perspective) and telegraphed in advance. Then, the orchestration of the talking heads commentary on the tube made the whole move “legitimate.”

Unless, of course, there is another motive at work and the black swan becomes a convenient cover. Instead, this is what is really happening when it comes to oil prices.

Yes, there are traditional pressures driving down the price of crude. Rapidly increasing supplies and slower demand would have created a correction in oil prices in any event.  But dropping over $40 a barrel has required something else entirely.

When it comes to oil we are in a new age of massive short plays and swaps. The coordination of these moves is staggering, creating an impact that is immediate. Especially if there is a segue to important policy makers.

For instance, a Kuwaiti official tells the world oil can fall to $60 and… presto, within 48 hours, that’s where oil lands.

Of course, the targets of all of this are well known and have been discussed here at length: Russia, recalcitrant members of OPEC, and U.S. shale producers.

But we should look also at the positioning of sovereign wealth funds (SWFs).These funds have been designed to invest the proceeds from national revenues. Usually, the better a country’s balance of payments, the stronger the SWF. This is always a result of a trade surplus – as more is exported out of a country (being paid for by somebody else) than is being imported (requiring payment).  China, for example, is in this category.

But most of the SWFs of consequence involve investing the proceeds of oil sales. In the case of oil producers, that has usually meant the success of an SWF was perceived as dependent on the price of crude. The higher the price, the greater the leverage for an SWF.

Now these funds are almost always conservative, preferring guaranteed or long-term gains over a higher but riskier return. That explains SWF investments in Rockefeller Plaza and hotels on the one hand, or dull but secure 1.5% annualized return from somebody else’s sovereign low-interest bond on the other.

There is also the problem of limiting the financial downside from introducing the proceeds directly into a domestic economy. Given that oil revenues are in U.S. dollars, a direct flow into the economy ends up inflating the local currency rather quickly.

So the proceeds from export sales are largely segregated from domestic trade, kept outside the country, with the profits from investing introduced in ways to minimize the inflationary impact.

All of which has triggered a new development. SWFs have now become a player in the market, shorting the very product responsible for the funds to begin with. In other words, some OPEC members are making money on both sides of the crude pricing curve.

Transacting the deals outside their own borders via SWFs, these countries are hedging the product in both directions. That means they are currently pushing the lower cost of crude forward by pairing shorts to actual oil consignments.

Plain and simple: This is manipulating the market. It’s equivalent to being a poker dealer who is able to read everybody’s hand while taking a seat at the table.