Alexander Ryking

My companion, a senior UK investment banker and I, are discussing the most successful banking types we know and what makes them tick. I argue that they often conform to the characteristics displayed by social psychopaths. To my surprise, my friend agrees.

He then makes an astonishing confession: “At one major investment bank for which I worked, we used psychometric testing to recruit social psychopaths because their characteristics exactly suited them to senior corporate finance roles.”

Here was one of the biggest investment banks in the world seeking psychopaths as recruits.

There is absolutely no good reason why all debt issues are not put up to competitive bids. This is not like defense contracting, where in some situations it is at least theoretically possible that X or Y company is the world’s only competent manufacturer, say, of armor-plated Humvee doors, or some such thing. It’s still wrong and perverse when companies like Halliburton or Blackwater get sole-source defense contracts, but at least there’s some kind of theoretical justification there.

But this is a bond issue, not rocket science. In most cases, all the top investment banks will offer virtually the same service, with only the price varying. Towns and cities and states lose billions of dollars every year allowing financial services companies to overcharge them for underwriting.

It gets even worse in the derivatives markets, where banks routinely overcharge state and local governments for things like interest rate swaps, for one very obvious reason – swaps are not traded on open exchanges, so only the banks know how to price them.

June Geffre lost her husband Tom to pancreatic cancer in November 2009. Months before he died, he applied for the Home Affordable Modification Program (HAMP). Geffre said a permanent modification was granted shortly after he passed away – but she’s run into all sorts of problems because her dead husband never got to sign the papers.

“Here I was, paying every month (the amount the bank told me to pay), thinking I was OK and waiting for the OK that the loan would be approved in my name and everything,” said Geffre. “Then they hit me in July saying, ‘We can’t accept your money anymore.’”

She said bank representatives told her she was paying the wrong amount and was now in default. She was at her wit’s end when ASU’s Homeowner Advocacy Unit and other community agencies stepped in to help.

“Ms. Geffre sent at least five copies of the death certificate. It took that long for Bank of America to realize her husband was dead,” said Alyson Vivattanapa, a student attorney with the Homeowner Advocacy Unit.

[I]t seems to me that if you’re broke enough that you’re not paying any income tax, you’ve got nothing but skin in the game. You’ve got it all riding on how well America works.

You can’t afford private security: you need to depend on the police. You can’t afford private health care: Medicare is all you have. You get arrested, you’re not hiring Davis, Polk to get you out of jail: you rely on a public defender to negotiate a court system you’d better pray deals with everyone from the same deck. And you can’t hire landscapers to manicure your lawn and trim your trees: you need the garbage man to come on time and you need the city to patch the potholes in your street.

And in the bigger picture, of course, you need the state and the private sector both to be functioning well enough to provide you with regular work, and a safe place to raise your children, and clean water and clean air.

The entire ethos of modern Wall Street, on the other hand, is complete indifference to all of these matters.

President Barack Obama has selected Richard Cordray, a former Ohio attorney general, to serve as the director and top consumer cop at the CFPB. Cordray is an exceptional choice. That’s why he’s earned the support of business leaders such as Mike Van Buskirk, the CEO of the Ohio Bankers League; top executives of leading Ohio companies such as Nationwide, American Electric Power, Procter & Gamble, Forest City and Limited Brands and countless Ohio mayors and sheriffs from both parties…

The only opposition to Cordray and the CFPB is coming from Wall Street lobbyists and their allies in Congress — namely, 44 Republican senators, who have vowed to oppose any nominee unless the agency’s authority to help consumers is watered down.

Their opposition is unprecedented. This is the first time, according to the Senate historian, that a party has blocked a qualified nominee solely because it does not like the existence of the agency the nominee was selected to lead — in this case, an agency devoted to Ohio’s consumers. And consumers in every state.

A federal judge angrily blocked Citigroup Inc’s proposed $285 million settlement over the sale of toxic mortgage debt, excoriating the top U.S. market regulator over how it reaches corporate fraud settlements.

U.S. District Judge Jed Rakoff in Manhattan said the U.S. Securities and Exchange Commission appeared uninterested in actually learning what Citigroup did wrong, and erred by asking him to ignore the interests of the public.

“An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous,” Rakoff wrote in an opinion dated Monday.

The judge added that it was difficult to discern “from the limited information before the court what the SEC is getting from this settlement other than a quick headline.”

He said the proposed settlement was “neither reasonable, nor fair, nor adequate, nor in the public interest.”

As a story in the January issue Bloomberg Markets magazine shows, between August 2007 and April 2010, the Federal Reserve secretly administered the largest bailout in U.S. history without approval or oversight from the legislative branch. To give a sense of the scale of this effort, as of March 2009, the Fed had committed $7.77 trillion, more than half the value of everything produced in the U.S. that year, to the rescue.

Even as they were tapping the Fed for emergency loans at rates as low as 0.01 percent, the banks that were the biggest beneficiaries of the program were assuring investors that their firms were healthy. Moreover, these banks used money they had received in the bailout to lobby Congress against reforms aimed at preventing the next collapse.

By keeping the details of its activities under wraps, the Fed deprived lawmakers of the essential information they needed to draft those rules. The Dodd-Frank Wall Street Reform and Consumer Protection Act, for example, was debated and passed by Congress in 2010 without a full understanding of how deeply the banks had depended on the Fed for survival. Similarly, lawmakers approved the Treasury Department’s $700 billion Troubled Asset Relief Program to rescue the banks without knowing the details of the far larger bailout being run by the Fed…

There is no question that the Fed and other central banks should have an independent status that allows them to conduct monetary policy free from political interference and public pressure. That independence should be accompanied by transparency and accountability to the taxpayers who would have been on the hook if the central bank’s gamble hadn’t worked out.