The Resolution





Whereas      Neil Barofsky (former federal prosecutor and first special inspector general of the Troubled Asset Relief Program), in September, 2012, stated that, “The real issue is the potential for another financial crisis because we haven’t fixed the core problems of our financial system.  We still have banks that are ‘too big to fail…’  The whole point of Dodd-Frank was to end the era of TBTF banks.  It’s fairly obvious that it hasn’t done that.  In that sense, it [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;” and

Whereas      Phil Angelides, (Chair, Financial Crisis Inquiry Commission and former California State Treasurer) in January, 2013, said, “These [TBTF] banks need to be broken up for reasons beyond just market impacts. Simply stated, they have become a clear and present danger to our economy and democracy and must now go the way of the trusts that were dismantled at the turn of the last century…  [In the years following] the financial crisis… we’ve seen allegations of money laundering at major financial institutions… We’ve seen a bid-rigging scandal that’s broken out across this country where cities and towns were robbed of… hundreds of millions of dollars in interest earnings because banks colluded and rigged bids.  We’re seeing the Libor [London Interbank Offered Rate] scandal where… banks — investigations are ongoing — may well have been fixing interest rates…  [T]here is a corruption, I think, that’s very damaging to the sense of integrity of our financial markets and very damaging ultimately to our economy that’s got to be rooted out. But it won’t be rooted out if our system of broken enforcement continues…  I think this is a battle for the future of the country’s economy that has to be won…  The financial services industry ought to be in place to serve the larger economy. It ought to be about providing lending capital for business expansion, for job creation. It’s become something very different... full of speculation, full of risk, full of contempt for the rules of American society and our economy;” and

Whereas      The TBTF banks are even bigger now than they were before the most recent financial crisis (due to the government-assisted mergers/acquisitions of Countrywide and Merrill Lynch into Bank of America, Washington Mutual and Bear Stearns into JPMorgan Chase and Wachovia into Wells Fargo during the crisis) and they are still, post-Dodd-Frank, according to 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), “‘Black boxes’ that may still be concealing enormous risks—the sort that could again take down the economy.”  Referring to JPMorgan Chase and their “London Whale” incident, Partnoy and Eisinger wrote, “JPMorgan shareholders have filed numerous lawsuits alleging that the bank misled them in its financial statements...  Investors are now left to doubt whether the bank is as stable as it seemed and whether any of its other disclosures are inaccurate…”  Partnoy and Eisinger included this quote in their article: “Paul Singer, who runs the influential investment fund Elliott Associates, wrote to his partners this summer, ‘There is no major financial institution today whose financial statements provide a meaningful clue’ about its risks…”  Partnoy and Eisinger offered the following as an example of the hidden risks of TBTF banks: “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];” and

Whereas      Minneapolis Federal Reserve Bank President, Neel Kashkari, during his speech in November announcing the publication of his year-long effort to complete his “Minneapolis Plan to End Too-Big-To-Fail” project, stated, “While significant progress has been made to strengthen the U.S. financial system, I believe the biggest banks are still TBTF and continue to pose a significant, ongoing risk to our economy;” and

Whereas      A group of finance-industry experts, the Bank Whistleblowers United (a group that includes Professor William Black, a former federal finance-industry regulator), as they announced their federal financial-reform proposal (their “60-Day Plan,” in January, 2016), stated, “The systemically dangerous institutions (SDIs) [TBTF firms] pose a clear and present danger to the global economy.  When — not ‘if’ — the next one fails, most likely through elite fraud using accounting, it will cause [another] global financial crisis.  The SDIs are too big to manage (honestly), too big to fail, and the two most recent Presidents have treated them as too big to prosecute.  They imperil our economy and our democracy because of their political power, which must be broken.  It is delusional to think that anything in Dodd-Frank has made the SDIs ‘tame’ or removed the certainty that they will continue to fail.  Many, indeed, most of our SDIs have been revealed to be the world’s largest criminal enterprises.  It is also clear that their leaders can get wealthy through the ‘sure thing’ of accounting fraud [and commit these crimes] with impunity”  (Professor Black defines accounting control fraud as, “The use of the entity by the officials who control it as a ‘weapon’ to defraud others.  In finance, accounting is the fraudsters’ ‘weapon of choice.’  Epidemics of accounting control fraud drove our three modern crises — the Savings and Loan debacle, the Enron-era scandals, and the most recent crisis” (2007-9) ); and

Whereas      Professor William Black, in an article in April, 2011, explaining why bank regulators and the FBI were incapable of intervening and halting the “epidemic” (the FBI’s own description of what was happening in the housing markets) of fraud in the years leading up to the last financial crisis (the epidemic of fraud that caused that crisis and which was observed by the FBI in 2004), stated that, “[During the Bush (George W.) administration] the banking regulatory agencies (1) had their budgets and staff’s shredded and (2) were led by anti-regulators who ended the entire criminal referral process [referrals submitted by the regulators to the FBI] (without any public notice or rationale) [and] the Obama administration refus[ed] to restore an effective criminal referral process" in the banking regulatory agencies; and

Whereas      The Bank Whistleblowers United, explaining why it is critically important to restore this criminal referral process, stated that, “Local and state police forces rarely investigate sophisticated financial frauds.  That work is done overwhelmingly by roughly 2,000 FBI agents in the white-collar section.  That means that we have roughly two FBI agents per industry.  Those numbers mean that FBI agents don’t ‘walk a beat’ — they only [investigate] when they receive a criminal referral alerting them to a likely fraud.  It also means that they cannot possibly have more than a few agents with expertise in the particular industry.  There is one other key fact to keep in mind: corporations don’t make criminal referrals against their own CEOs for obvious reasons, even though frauds led by CEOs cause by far the greatest harm of any form of fraud. The financial regulators, therefore, must serve as the ‘regulatory cops on the beat’ and make the criminal referrals that alert the FBI white-collar specialists to the likely fraud so that they can begin an investigation.  The criminal referral also begins the process of the federal financial regulators transferring their vital expertise to the FBI and explaining how the fraud mechanisms, which typically involve accounting scams, work;” and

Whereas      Professor Black, in 2013, warned that, “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… [which he listed as] 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);” and

Whereas      This failure, during the near decade that has passed since the bankruptcy of Lehman Brothers, by both the executive and legislative branches to implement the effective financial reform that we need to protect our nation’s financial system and our economy from the threats posed by TBTF firms and the threats posed by the status quo of regulators and law enforcement officers not having the tools and direction (i.e., agencies which are “led by anti-regulators”) they need to properly supervise financial firms and investigate and prosecute the white-collar crimes (accounting control fraud) and criminals, respectively, that cause our nation’s ongoing financial crises, appears to demonstrate that Phil Angelides was very likely correct when he said that the TBTF firms “have become a clear and present danger to our… democracy” as a result of their “power and hubris” (i.e., their undemocratic influence in Washington) and provides significant evidence that Wall Street’s undemocratic influence will likely continue, indefinitely, to preclude the implementation of the reform that our nation requires; and

Whereas      Many experts have published reform plans and proposals (the Bank Whistleblowers United (BWU) and the Minneapolis Plan being just two examples) to address the TBTF issue (via risk-weighted capital requirements, in the case of the two plans mentioned) and address the regulator/FBI issue (by restoring the criminal referral process, as well as other reform components, as recommended in the BWU plan) and address several other threats to our financial system — all of which have not been addressed, or have been ineffectively addressed, by Washington’s current reform; now, therefore, be it

Resolved,     by the Board of Supervisors of the County of Santa Cruz that:

We, hereby, petition President Trump to immediately initiate the implementation of the financial reform (such as the comprehensive reform specified in the BWU Plan) that will END the threat of too-big-to-fail financial firms and END all of the other threats posed by Washington’s failure to implement the effective reform that is needed to 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.”

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