Matt Taibbi's Latest Beef Against Wall Street Is Straight Out Of The Godfather

the godfather

Matt Taibbi’s latest Rolling Stone blog post hits on something he grazed over in his big, nasty Bank of America article — bid rigging on Wall Street.

He was inspired by a recent Bloomberg piece about how JP Morgan is still number one bank for holding government debt, even after the Jefferson County (Alabama) bankruptcy. It was the biggest municipal bankruptcy in U.S. history, and JP Morgan ultimately paid out a $722 million settlement because of its involvement in a pay-to-play/municipal bond scandal that contributed to Jefferson’s downfall.

From Taibbi’s post:

Bid-rigging is an old-school crime of machine pols and gangsters. In the old days, it was parceling out garbage collection or construction contracts to each of the proverbial five mafia families, who would patiently pantomime real bids for government contracts. They would take turns “winning” the state’s business with artificially low bids, guided by a corrupted insider who usually took a bribe to rig the auction.

In modern times, it’s the same thing, except that it’s banks now doing the pantomiming. Here a circle of organised crooks (read: banks) gets together, parcels out territories so that each party gets to “win” business in certain areas, and then they all get together and agree to a rigged bid system.

Banks have gotten in trouble for this collusion before. For example, Bank of American paid a $137 million settlement for doing it all over the country (in places as far away as Guam, says Taibbi). Wells Fargo settled with New York for bid rigging back in November to the tune of $37 million.

If recent history is any guide, if a bank pays a $150 million settlement to the federal government for this sort of activity, one can guess that the bank probably made 10 times that amount in profit, at least. And there are at least a dozen major banks that have been accused of this sort of activity in recent years.

In other words, Taibbi is saying that these settlements are just the cost of doing business.

And banks aren’t the only problem. Politicians across the country continue to give major banks government contracts to the detriment of their constituents. California has sued banks time and time again for bid rigging and other things, yet, here’s a quote one state official’s testimony in support of the banks:

“I haven’t found an investment bank that hasn’t had some problem in the last three years,” California Treasurer Bill Lockyer said in a telephone interview. “We do business with them all. I think they provide good service. I think they’ve been highly ethical with us.”

Perhaps he’s saying that because, as Dealbreaker pointed out, these same banks keep giving states loans when they’re in the hole. Since we’re on California, let’s stick with it (Bloomberg via Dealbreaker):

In August 2009, after California closed a $24 billion budget deficit, JPMorgan loaned the state $1.5 billion so it could pay IOU’s issued during a cash crisis. The loan helped keep the state funded until September, when it could issue $8.8 billion in short-term debt.

Last month, JPMorgan loaned California $500 million for four months at 0.2 per cent so the most-populous U.S. state could pay bills after tax collections trailed budgeted amounts…

JPMorgan and Barclays also co-managed a $1.9 billion refinancing for the state…

So even if the states don’t want to do business with banks — tough. Like Michael Corleone said, “Just when I thought I was out… they pull me back in.”


Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.