Wall Street Back To Its Old Tricks, While Getting Busted For New Ones
It was around this time in 2008 when Wall Street was at the height of the Financial Crisis with events such as Lehman Brothers' bankruptcy, the largest in U.S. history, and AIG receiving an $85 billion bailout from the U.S. government. The subprime mortgage crisis was spiraling out of control with global credit conditions deteriorating and the largest banks on the brink of insolvency, creating panic and causing markets to plummet. With the passing of the Emergency Economic Stabilization Act of 2008, TARP was created bailing out countless banks, and the financial system was "saved." No bank executives went to jail.
So here we are in 2019 in the midst of the longest bull market in history. So what is Wall Street up to now? The same exact thing they were that caused the crisis. Over the last year, Citigroup, Goldman Sachs, Wells Fargo, and JPMorgan Chase have started to pull mortgages into securitized products, a market which basically disappeared following the crisis. Given this was a huge money-maker and they didn't get punished, why wouldn't they get back into this market?
While the market is much smaller than it was during the crisis, it is likely to continue to grow if Fannie Mae and Freddie Mac either shrink or are privatized, which is what the Trump administration is pushing for. So what's causing banks to create these products? Demand from investors for yield in a low-rate world, which has been caused by central banks' interest rate policies.
On the other hand, the gig is up for three JPMorgan employees who were busted by the U.S. Department of Justice for placing orders, and then cancelling them (known as spoofing), on precious metals such as gold and silver. The alleged market manipulation between May 2008 and August 2016 deceived other market participants about the actual supply and demand in the precious metals market.
U.S. prosecutors didn't mince words, calling JPMorgan's precious metals desk "a criminal enterprise operating inside the bank for nearly a decade." The list of charges against them is lengthy, with one standing out - "conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity." The RICO statute is rarely used against big banks. It's typically reserved for the likes of the mafia, but some may argue they're not much different.
So while the fate of the JPMorgan precious metal traders, or "criminal enterprise," will likely be worse than those of the financial crisis bank executives, those securitizing mortgage products seem to think it's different this time, or at least know if it isn't, that they will not be prosecuted.
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