(Note: To sign the petition, go to the bottom — the Petition is rather long (I apologize), so if you already know that you want to support our STOP Financial Crisis 2 campaign and our efforts to pass resolutions in Santa Cruz County (and in other California communities and, later, in the California Legislature), please sign the petition down at the bottom. Thank you ~ John French (founder, Republic Retooled) )
(NOTE #2: This petition may be amended to: 1.) NOT petition the president and Congress to implement the BWU 60-Day Plan and, perhaps, just refer to this financial-reform proposal as an example of the financial reform that needs to be implemented and just generally petition the president and Congress to implement reform that will end too-big-to-fail and address a few other critically-needed reform needs; and, 2.) very likely, simplify and reduce its content and length. We are asking citizens to sign the petition as it is currently written, because we want to keep its educational qualities intact (such as the expert opinions and our sources, etc.) -- at least until we earnestly begin our planned constituent meetings with Assembly and Senate members.)
(NOTE #2: This petition will be amended to: 1.) NOT petition POTUS and Congress to implement the BWU 60-Day Plan and, instead, just refer to this financial-reform proposal as an example of the financial reform that needs to be implemented and generally petition POTUS to immediately initiate implementation of the requisite reform that will END too-big-to-fail and END the status quo in our regulatory and law enforcement agencies that perpetuates “the criminogenic environment [in our financial markets] which produces the recurrent, intensifying epidemics of control fraud that drive our ever-worsening [financial] crises;” and, 2.) very likely, simplify and reduce its content and length. We are asking citizens to sign the petition as it is currently written, because we want to keep its educational qualities intact (such as the expert opinions and our sources, etc.) — at least until it we earnestly begin our planned constituent meetings with Assembly and Senate members.)
The undersigned are California citizens who are weary of waiting for Washington to take the effective action that should have been taken promptly in the wake of the last crisis more than a half decade ago — effective action to reverse what Phil Angelides (the chair of the Financial Crisis Inquiry Commission) described as the “30 years of a drive by this powerful interest [Wall Street] at deregulation; 30 years of emasculation of regulatory entities [i.e., desupervision — see Professor Black quote, below]; 30 years of weakened enforcement” (or a complete absence of enforcement in the case of the FBI’s record of zero prosecutions of the corporate executives who caused the crisis — despite the dozens of criminal referrals submitted to the Department of Justice by the Financial Crisis Inquiry Commission for potential prosecution (see: “Warren: Next Administration Should Probe, Maybe Jail Wall Street Bankers,” Bloomberg, Sept. 14, 2016) ).
The undersigned are California citizens who are weary of living under the dark cloud that is the threat of the next crisis and the next Great Recession (or worse) — a status quo that is attributable to the lack of complete and effective federal financial reform. (Note: See bottom of Petition for a sampling of expert opinions regarding this status quo (failed/failing) of our nation’s federal financial reform.)
We, the undersigned, will not tolerate another preventable financial crisis that is caused by an “epidemic” of fraud that is identified and recognized as capable of causing a crisis years before it becomes a crisis (as was the case with the last crisis, which was identified by the FBI as described in 2004 — years before the troubles began in the summer of 2007 (see: “FBI Warns of Mortgage Fraud ‘Epidemic,’ CNN, Sept. 17, 2004) ).
We, the undersigned, will not tolerate another crisis (and more bailouts) that could have been prevented if Congress and the White House had taken effective action (but failed to do so in a timely manner) to (Note: the quotes, below, are excerpts from the sampling of expert quotes at the bottom of this Petition):
- Effectively regulate and/or ring-fence “customer-accommodation derivatives [trading that] could bring down the financial system;”
- Address the “lack of transparency” that makes the “big banks… ‘black boxes’ that may still be concealing enormous risks—the sort that could again take down the economy;”
- Address the “central elements that create the criminogenic environment that produce the recurrent, intensifying epidemics of control fraud that drive our ever-worsening crises;”
- “Proactively… manage the shrinking of these [TBTF] firms to reduce the complexity of insolvencies so they create no future risks to taxpayers;”
We, the undersigned, refuse to accept the status quo of Washington’s financial “reform” that:
- Has failed to address “the same incentives that led to the 2008 crisis” and has left the nation’s economy threatened by “a financial system that concentrates risk in just a handful of large institutions, incentivizes them to take risks, guarantees that they will never be allowed to fail and ensures that the executives will never be held accountable for their actions;” and,
- Contains ambiguities and contradictions that are destined for failure, such as “Section 165(d) of Title I [which] could work if Title II didn’t exist… the problem… [of] the very existence of the FDIC’s single point of entry approach in Title II [the Orderly Liquidation Authority] obviate[ing] any need to require that ‘systemically important’ companies become smaller or less complex… [an OLA which] in reality… is little more than a new form of bailout.” (Note: A number of experts have expressed “no confidence” votes, if you will, in the ability of the OLA being effective in preventing another bailout in the next crisis.)
Furthermore, we, the undersigned, are citizens who are gravely concerned about actions that have been taken by Congress and the White House, as well as failures to act in accordance with the Dodd-Frank Act that, in effect, are deregulatory — worsening the already dangerous status quo of deregulation — which must be reversed or ended, such as:
- The repeal of the Lincoln Amendment/swaps push-out rule (in the Dodd-Frank Act, which requires that a certain type of derivatives trading be moved out of bank subsidiaries that are covered by federal deposit insurance and have access to Federal Reserve or U.S. Treasury funding) that was a part of the “CRomnibus” bill (December, 2014) – urgent, “must-pass” government-funding legislation that was rushed through Congress without public debate (an incident to which Senator Elizabeth Warren responded: “And now we’re watching as Congress passes yet another provision that was written by lobbyists for [Citigroup] and it’s attached to a bill that needs to pass or else the entire federal government will grind to a halt. Think about this kind of power. A financial institution has become so big and so powerful that it can hold the entire country hostage. That alone is a reason enough for us break them up. Enough is enough.” (See: “Dodd-Frank Is Five And Still Not Allowed Out of the House,” Public Citizen, July, 2015, p. 7) );
- The creation of the FDIC’s (in conjunction with the Bank of England) bail-in plan that establishes the option of converting private and local/state government bank account balances into equity (stock of the new bridge bank) to bailout (via bail-in) a G-SIFI (TBTF bank) in the event of insolvency (as a result of large derivatives trading losses — a scenario that is plausible, according to several experts, given the trillions of dollars of derivatives trading of the big banks) (See: “Winner Takes All: The Super-priority Status of Derivatives,” WebOfDebt.com (Author: Ellen Brown), April, 2013);
- The ongoing extensions by the Federal Reserve of the compliance deadline of the Volcker rule (the Dodd-Frank Act, section 619, prohibits proprietary trading — i.e., the buying/selling of securities must be for customers, not for bank profit — but the Fed, in December, 2014, extended the deadline for the banks to exit hedge funds an additional two years (now 2022) — to which Paul Volcker responded: “It is striking that the world’s leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries however complicated, apparently can’t manage the orderly reorganization of their own activities in more than five years.”) (See: “Dodd-Frank Is Five And Still Not Allowed Out of the House,” Public Citizen, July, 2015, p. 4);
We, the undersigned Californians, call upon our representatives in the state Assembly and Senate to pass resolutions (or a joint resolution) compelling the White House and Congress to immediately implement the Bank Whistleblowers United’s 60-Day Plan, which will: finally END too-big-to-fail (via risk-weighted capital requirements, similar to those recommended by the Minneapolis Federal Reserve Bank President in his Minneapolis Plan to End Too-Big-To-Fail); restore the ability of the finance-industry regulatory agencies and FBI to collaborate and effectively investigate and prosecute (and, thus, terminate) the white-collar crime being directed from Wall Street C-Suites (accounting control fraud) that causes financial crises (as it did in the last crisis); END the corrupting impact of the “revolving door” in federal agencies; reassign 500 FBI agents to the white-collar crime section to investigate elite financial frauds; request authority from Congress to hire 3,000 new FBI agents, who would be assigned to high priority white-collar crime investigations; require that the White House appoint new federal financial agency, FBI, and DOJ leaders who are committed to making the prevention of financial fraud epidemics and the resultant crises a top priority (as demonstrated by their distinguished track records as regulators, investigators, whistleblowers, and prosecutors in holding financial criminals personally accountable); and other needed reform (see the BWU Plan, below.)
Bank Whistleblowers United “60-Day Plan:”
- Restore the mandatory criminal referral process and Criminal Referral Coordinators at every financial regulatory agency
- Require that all new hires agree to conditions that will end the “revolving door” [from the “K Street” lobby in Washington to Congress and the White House and back…] – with no provision for waivers.
- The FBI and the Department of Justice (DOJ) will publicly terminate their “partnership” with the Mortgage Bankers Association – the industry trade association which has a clear conflict of interest and harms prioritization by pushing solely for the prosecution of what should be far lower priority cases of crimes v. banks and never for the prosecution of what should be the highest priority cases of frauds led by banks’ senior officers
- Ban DOJ from making deferred prosecution agreements with elite white-collar criminals
- Reassign 500 FBI agents to the white-collar crime section
- Request authority from Congress to hire 3,000 FBI agents, 250 DOJ attorneys, 250 SEC investigators and enforcers. This is the only portion of our plan requiring legislation.
- Stop prosecuting the mortgage fraud “mice” and use all DOJ and FBI resources against the fraud “lions” [translation: see #3 above – also, as explained by Phil Angelides: “DOJ has yet to hold a single senior Wall Street executive accountable. The unwillingness of DOJ under [former] Attorney General Eric Holder to pursue misconduct by high ranking individuals will stand as a seminal failure of his tenure — undermining efforts to deter future wrongdoing and rightly breeding anger and cynicism about the fairness of our legal system. The decision to give a pass to the Wall Street executives who drove the pervasively corrupt mortgage machine is particularly disconcerting when considered alongside of DOJ’s vigorous prosecution of more than 2,700 individuals at the local level — mortgage brokers, appraisers, borrowers — who were just small cogs [“mortgage-fraud ‘mice’”] in that machine.”]
- Rescind the FBI’s false claim on its web site that asserts:
“Ethnic groups involved in mortgage loan origination fraud include North Korean, Russian, Bulgarian, Romanian, Lithuanian, Mexican, Polish, Middle Eastern, Chinese, and those from the former Republic of Yugoslavian States.”
This false ethnic claim, again, leads the FBI to prioritize the fraud “mice” rather than the “lions.”
9. Prioritize FBI and DOJ resources by creating a “Top 100” list of the worst financial fraud schemes [one of the effective means used by regulators and the FBI in the 80’s and 90’s during the S & L crisis that “produced over 1,000 felony convictions” of white-collar criminals and prevented a financial crisis (see: “Hundreds of Wall Street Execs Went to Prison During the Last Fraud-Fueled Bank Crisis,” BillMoyers.com, Sept. 17, 2013) ]
10. Revamp the federal treatment of whistleblowers and False Claim Act complainants to encourage their efforts and use them to hold financial elites personally accountable
11. Make public a list of exemplary financial whistleblowers and set forth in writing what they have done for the Nation. (The President should, of course, do this for whistleblowers in each field, not just finance.)
12. The President should hold a public event at which he or she presents appropriate awards in person to these exemplary whistleblowers. We are not talking about financial awards and we are willing to be excluded from consideration for these Presidential awards lest we be charged with self-aggrandizement.
13. Review the backlog of whistleblower and False Claims Act complaints with fresh eyes committed to finding any useful source of information to assist in deciding whether to bring enforcement, civil, or criminal actions against elite financial frauds.
14. Make public the Clayton reports on secondary market sales. These reports document pervasive secondary mortgage market fraud [the securitization of the “liar’s loans” into worthless securities that were sold to investors worldwide and caused the crisis].
15. Federal banking regulators will:
1. Impose individual minimum capital requirements (IMCR) for all systemically dangerous institutions (SDIs) commensurate with the risk they pose because of their size
2. Impose IMCRs for all SDIs commensurate with the risk they pose because of their non-commercial bank activities
3. Impose IMCRs for all banks commensurate with the risk posed by their executive compensation systems
4. Impose IMCRs for all banks commensurate with the risk posed by their hiring, retention, and compensation systems for purportedly independent professionals such as outside auditors, appraisers, and credit rating agencies
5. Announce that it is the policy of the United States never to engage in a regulatory “race to the bottom” with any other government
16. Direct each major federally regulated bank to conduct and publicly report a “Krystofiak” study on samples of “liar’s” loans that they continue to hold. Krystofiak studies quantify the extent of loan origination and secondary market fraud by lenders.
17. Appoint new, vigorous heads of each federal financial regulatory agency
18. Promptly train federal banking and securities regulators, the FBI, and DOJ on sophisticated fraud schemes, particularly fraud via accounting [accounting control fraud]
19. End the use of deliberately unenforceable financial regulatory “guidelines”
Neil Barofsky (former federal prosecutor and first special inspector general of the Troubled Asset Relief Program), in September, 2012, said this about the status of Washington’s financial reform: “The real issue is the potential for another financial crisis because we haven’t fixed the core problems of our financial system... The whole point of Dodd-Frank was to end the era of too-big-to-fail (TBTF) banks. It’s fairly obvious that it hasn’t done that. In that sense, [Dodd-Frank] has been a failure… The same incentives that led to the 2008 crisis are still in place today and in many ways the situation is worse. We have a financial system that concentrates risk in just a handful of large institutions, incentivizes them to take risks, guarantees that they will never be allowed to fail and ensures that the executives will never be held accountable for their actions. We shouldn’t be surprised when there’s another massive financial crisis and another massive bailout. It would be naïve to expect a different result.”
Richard Fisher (Dallas Federal Reserve Bank President), in testimony, June, 2013, before the House Committee on Financial Services, said: “This morning, I want to address what I consider the injustice of perpetuating financial institutions that are so large, complex and opaque [referring to financial statements that hide risk more than they disclose the true financial condition of the firm] that they are seen as critical to the proper functioning of our economy and are therefore considered TBTF… These institutions operate under a privileged status that exacts an unfair and nontransparent tax upon the American people and represents not only a threat to financial stability, but to the rule of law as well as principles of fair and open competition—hallmarks of the democratic capitalism that makes our country great. …Dodd–Frank is, despite its best intentions, ineffective, burdensome, imposes a prohibitive cost burden on the non-TBTF banking institutions and needs to be amended [emphasis added]. …Dealing with TBTF is a cause that should be embraced by Republicans, Democrats and Independents alike. For regardless of your ideological bent, there is no escaping the reality that TBTF banks’ bad decisions inflicted harm upon the American people in the excessive credit boom through 2007 and particularly during the ‘awful moment’ of the 2008–09 crisis. The American people will be grateful to whoever liberates them from the risk of a recurrence of taxpayer bailouts and the serious threat of another Great Depression.”
Joshua Rosner, Managing Director, Graham Fisher & Co., in testimony, May, 2013, before the House Committee on Financial Services, said: “Nearly three years after its passage, Dodd-Frank, and especially Title II [of the law], has done almost nothing to mitigate the TBTF problem… [emphasis added] Title I should be proactively and specifically implemented to manage the shrinking of these firms to reduce the complexity of insolvencies so they create no future risks to taxpayers… Section 165(d) of Title I could work if Title II didn’t exist — the problem is that the very existence of the FDIC’s single point of entry approach in Title II [the Orderly Liquidation Authority] obviates any need to require that ‘systemically important’ companies become smaller or less complex. That is a key reason why these systemically risky banks support Title II — it purports to fix the problem that 165(d) was intended to fix. In reality it [Title II’s Orderly Liquidation Authority] is little more than a new form of bailout [emphasis added].”
Professor Alexander Arapoglou (finance, University of North Carolina’s Kenan-Flagler Business School; former derivatives trader and head of risk management worldwide for various global financial institutions), and Jerri-Lynn Scofield (who has worked as a securities lawyer and a derivatives trader) (May, 2015) said: “Reforms undertaken since the demise of Bear Stearns and Lehman Brothers have failed on several fronts [emphasis added]. The too-big-to-fail (TBTF) banks are not fail-safe. They are more brittle and unable to act as shock absorbers than they were before. Holders of their shares are not deploying capital efficiently and small business is starved of financing. Where did regulatory policy take a wrong turn? The missteps began during the financial crisis, when regulators were faced with two choices. The first would have turned back the clock on deregulation and re-erected walls between securities sales and trading, asset management, and commercial and retail banking [i.e., restore the Glass-Steagall separation of commercial and investment banking]. After such restructuring, smaller, more specialized financial firms would pose little risk to the rest of the economy if any failed. The alternative approach — the one that was followed — was to accept that there were institutions that were too big to fail. Making these giant institutions safer became the regulatory priority. New rules were enacted and more aggressive and intrusive regulatory scrutiny mandated so, it was hoped, to prevent financial institutions from shooting themselves in the foot… Since 2008, TBTF institutions have become much larger, posing an even greater risk to the economy than they did before. Bigger banks continue to increase their market share, the number of community banks has declined by 40%, and since June 2010, 500 of these have failed outright… Dodd-Frank has sidestepped dealing with the central problem — a concentration of systemic risk that hangs over the real economy. Bank shareholders are worse off. Excessive capital requirements have burdened the economy without any offsetting increase in safety. The benefits to the broader economy of greater competition and better distribution have been forfeited without any offsetting gain. The corporate bond market has lost liquidity, adding costs and risk to the overall system for financing jobs, pensions, university endowments and insurance. And the decline of community banks has fallen hardest on small businesses, America’s biggest employer [emphasis added].”
Jeffrey Lacker, President, Federal Reserve Bank of Richmond, in testimony, June, 2013, before the House Committee on Financial Services, said: “The Orderly Liquidation Authority of Title II of the Dodd-Frank Act gives the Federal Deposit Insurance Corporation the ability… to borrow funds from the Treasury to make payments to creditors of the failed firm… While the FDIC is to pay creditors no more than they would have received in a liquidation of the firm, the Act provides the FDIC with broad discretion to pay more. This encourages short-term creditors to believe they would benefit from such treatment and therefore continue to pay insufficient attention to risk and invest in fragile funding arrangements. Given widespread expectations of support for financially distressed institutions in orderly liquidations, regulators will likely feel forced to provide support simply to avoid the turbulence of disappointing expectations. We appear to have replicated [in the Dodd-Frank Act] the two mutually reinforcing expectations that define ‘too big to fail.’” [Note — Lacker, earlier in his testimony, described these two expectations as follows: “First, some [TBTF] financial institution creditors feel protected by an implicit government commitment of support [a bailout] should the institution face financial distress. This belief dampens creditors’ attention to risk and makes debt financing artificially cheap for borrowing [TBTF] firms, leading to excessive leverage and the overuse of forms of debt [versus equity funding] — such as short-term wholesale funding — that are most likely to enjoy such protection. Second, policymakers at times believe that the failure of a large financial firm with a high reliance on short-term funding would result in undesirable disruptions to financial markets and economic activity. This expectation induces policymakers to intervene in ways that let short-term creditors escape losses, thus reinforcing creditors’ expectations of support and firms’ incentives to rely on short-term funding. The result is more financial fragility and more rescues” [emphasis added].]
Professor William Black (former federal regulator, Office of Thrift Supervision, during the Savings & Loan crisis of the 1980’s/90’s), has been warning us for years about the failings of Washington’s responses to the last financial crisis (2007-9) (this quote is from September, 2013), said: “Dodd-Frank doesn’t address any of the three central elements that create the criminogenic environment that produce the recurrent, intensifying epidemics of control fraud that drive our ever-worsening [financial] crises” [emphasis added] (per Black, those elements are “the creation of the… ‘too-big-to-fail’ firms; modern executive compensation, which creates the perverse incentive structures and is the means of looting [control fraud] that the CEOs use; [and] what we call the three D’s — deregulation (when [Washington] reduces, removes, or blocks rules or laws, or authorizes entities to engage in new, unregulated activities), de-supervision (the rules remain in place but they are not enforced, or are enforced [by regulatory agencies] more ineffectively) and de facto decriminalization (when enforcement of the criminal laws becomes uncommon in the relevant industries).)” (Note: Black, in an earlier article, explains that these “three D’s” policies were “The Clinton and Bush [George W.] anti-regulatory policies [that] were a catastrophic failure that permitted the epidemics of fraud that drove the Great Recession and the loss of over 10 million jobs” (which were the result of the 2007-9 financial crisis).)
Professor Frank Partnoy (law and finance, University of San Diego) and Jesse Eisinger (senior reporter at ProPublica and a columnist for The New York Times’ Dealbook section), in another prescient warning regarding the failings of Washington’s financial “reform,” wrote (Januuary, 2013), said: “Sophisticated investors describe big banks as ‘black boxes’ that may still be concealing enormous risks—the sort that could again take down the economy. A close investigation of a supposedly conservative bank’s financial records [they analyzed Wells Fargo’s] uncovers the reason for these fears—and points the way toward urgent reforms. The financial crisis had many causes… but at its core, the panic resulted from a lack of transparency. The reason no one wanted to lend to or trade with the banks during the fall of 2008, when Lehman Brothers collapsed, was that no one could understand the banks’ risks. It was impossible to tell, from looking at a particular bank’s disclosures [financial statements], whether it might suddenly implode. For the past four years, the nation’s political leaders and bankers have made enormous—in some cases unprecedented—efforts to save the financial industry, clean up the banks, and reform regulation in order to restore trust and confidence in the American financial system. This hasn’t worked. Banks today are bigger and more opaque than ever and they continue to behave in many of the same ways they did before the crash [e.g., the money laundering, bid rigging and Libor scandals that Phil Angelides and many other experts have highlighted]… Only a few people have publicly expressed concerns about customer-accommodation trades. Yet some banking experts are skeptical of these trades, and suspect that they hide huge risks… Bankers and regulators today might dismiss warnings that customer-accommodation derivatives could bring down the financial system as implausible. But a few years ago, they said the same thing about credit-default swaps and collateralized debt obligations [the derivatives that played a very significant role in the collapse of Lehman Brothers, Bear Sterns and AIG during the last crisis] [emphasis added].”
(Note: The expert opinions above are just a small sample of the numerous warnings regarding the failings of Washington’s responses to the last financial crisis.)