Foreign Policy Blogs

Has US Banking Gone Native?

We are in big trouble. Everyone agrees – today, in fact, NPR’s Diane Rehm hosted Michael Greenberger (former regulator Commodities Future Trading Commission), Alan Blinder (Professor of Economics, Princeton), Alice Rivlin (former Director of OMB) and Douglas Holtz-Eakin ( a former economist with the Congressional Budget Office) — a group that struggled to outline solutions that might “prevent a double dip recession.” The question? “What options remain for the Federal Reserve to support the sagging economic recovery, spur businesses to hire more workers, and stabilize the housing market?”

None of the panelists was optimistic. One, in fact, announced a double-dip recession was definitely in the offing. The other three experts were more circumspect: while they believed a double-dip recession was “unlikely,” they did say it could happen. Why? Because, the group agreed, “business is just not spending and hiring.”

Imagine. There may be other factors at work here, shadowy motives and covert agendas slithering through the halls of governments and onto streets once paved with gold.

The problem: $700 hundred billion in TARP Funds distributed to US financial institutions in the form of direct investments, millions more to encourage new car sales and first-time homebuyers, and none of it has made life easier for the ‘little people’ (a phrase immortalized by the Swedish spokesperson for BP).

Banks Holding onto TARP Money

Washington saved Wall Street – bailing out banks “too big to fail” or “too small to be noticed,” as Maxine Waters argued, salvaging the careers of Wall Street CEOs on the brink of disaster, and preserving both their salaries and bonuses. Now the US financial industry is indebted, in too many ways to count, to Washington. But the fact is that, having stood so near to the abyss, many financial institutions and their directors/executives seem unwilling to release their vise-like grip on the billions the White House doled out to keep these institutions “up and running.”

They may be up, alright, but not all are running—which could mean a lot of things, none good. Some financial institutions may not have revealed how dire their circumstances actually were (OneUnited) before the bailout—they’re using TARP money, like the defibrillator EMTs use to jolt the human heart, in desperate attempts at resuscitation. Ninety-one of the small banks who received $700 billion in federal bailout money have missed deadlines for repaying dividends to the government.

Two of these banks, OneUnited and Saigon National, should have had DNR orders attached to their portfolios—they’ve missed six consecutive dividend repayments, a situation that gives the Department of the Treasury the right to place two directors of its own choosing on the boards of these two banks.

So far, the Department of the Treasury has not made any move in that direction, and US Treasury Deputy Secretary Neal S.Wolin has said the US government may choose not to appoint directors to the boards of small banks that miss payments on their federal bailout funds at all.

Other banks, whom we suspect may lack just as much confidence in the likelihood of a recovery as the business community does, are also holding onto their bailout money, crying “undercapitalization,” a desperate euphemism for hoarding until we’re sure there is no chance, none, of the barbarians scaling the walls of 21st century capitalism. The same barbarians who are losing jobs, paychecks, houses, public services, pensions, retirement funds—and in some places around the world—the patience to wait for public officials to respond to their increasing fears and anger. Many of these barbarians vote, however, and more than a few of them, in tough times at least, have even gotten a little rowdy.

Is Business to Blame?

Spokespeople for the financial industries keep blaming ‘business’ (which in the US today generally means ‘service industries’) for its lack of confidence, its refusal to spend money on equipment and salaries, but in reality, our banks are every bit as terrified as our local school districts cutting staff, our police forces cutting services, the regional hospital laying off every non-essential worker, Dominoes, McDonalds, and even Walmart.

Because what the leaders of the US financial community understand is that they broke the rules – maybe not the carved-in-stone legislation that should have been in place, but the unspoken rules that law-abiding citizens believe protect the ‘little people,’ and because nobody got fired, because the institutional perpetrators survived, because the entrepreneurial architects of credit-derivatives and subprime mortgage instruments lost neither their jobs nor their profits (much less their freedom – has anyone gone to jail?) – the same thing could, just possibly, happen all over again.

Consider this: if you were a top executive who’d steered your institution to the brink of collapse in pursuit of quick personal gain, and the government offered you millions, in direct investments (think ATM card), would you actually use those dollars in an attempt to restore life to an enterprise to which you yourself had nearly delivered a death-blow, or would you perhaps reason that, given your ‘insiders’ knowledge of how grievous the wound to the economy actually has been, it might be wiser to tend to the living (you, again) than to throw a new reserve of cash into a grave you and your colleagues have (ouch) already dug?

The same fox is guarding the same (repopulated) henhouse. Does anyone see a serious incentive for risk-management in this picture?

I know.

Sounds cynical.

But that’s the banking industry for you.

A Second Round Before the Ship Goes Down?

It’s called “profiteering,” and the culture of criminality that we freely admit defines ‘rogue nations’ across the developing world would not shy away from the same argument that underlies the decision of our policymakers to rescue financial executives and institutions whose lack of corporate integrity now accounts for so much misery. i.e., that these institutions are the larger drivers of national prosperity, and if they sink, we all go down with the ship. Or, as Carolyn Nordstrom says in Global Outlaws, “Governments may allow business irregularities for the sake of national profits.”

Alan Greenspan put it a little differently, but the thinking is compatible—he said he believed “banks would act in accordance with their own best interests.” Who knew that the short-term ‘best interests’ of so many Wall Street players would turn out to be so incompatible with the long-term interests of so many ordinary Americans?

There are people who are questioning the “too large to fail” theory, however, because the logical underpinnings of that argument seem to be crumbling as well: if we must save the banks (however ‘ irregular’ their dealings have been) to save ourselves, then is it not logical to assume that after such a rescue, “we,” the taxpayers, the folks who’ve bitten the bullet to save executives and institutions driven by greed, if not outright malfeasance, to the edge of self-destruction, should be feeling the healing forces of returning economic health?

The experts who pronounce a “double-dip recession unlikely” will tell you that the dynamic is unfolding as it should, but slowly. It takes time.

And, of course, that kind of reasoning also buys time.

Crossing the Line

We know that the global banking system is riddled with corruption (‘vulnerable’ to corruption may be more polite), some authored by its own principals, some embraced opportunistically by financial insiders to snatch sudden profits, a great deal ushered into the world’s financial system by bankers in search of the commissions and corporate profits that ‘high net-worth customers’ (in many cases, money launderers) bring in. And sometimes the bad guys exploit legitimate financial service providers. But the question remains, and it turns on the distinction between deregulation and irregularity, between fair play and laissez-faire, between the right of the ‘haves’ to have still more, and the right of the people to real economic protection under the law.

At what point does financial entrepreneurship turn criminal, and how blind an eye is the US prepared to turn toward banking practices that clearly prosper the powerful and imperil the growing ranks of the poor, in the United States and across the world?

US banks own controlling shares in many of Mexico’s major banks. This means that criminal revenues derived from Mexican and South American drug cartels, from the sale of meth precursors traveling through Brazil or Mexico, from human trafficking, from prostitution, from the sale of human organs, from arms deals and counterfeit products marketed through Cuidad del Estes (there have long been charges that terrorist monies from the Mideast are laundered in Cuidad del Estes as well) – all of this money, once deposited in a Mexican branch of a US bank is, for all intents and purposes, deposited and laundered via a correspondent account in the US branch of the same bank.

This is how globalization works, how it is custom-tailored by greed, by the pursuit of increasing profit—how means come to justify ends when nations argue that to remain economically competitive, indeed, to survive economically in a global market, trade (the GDP), the prosperity of the whole, must trump the security of a few.

Wachovia receives almost $400 billion from 13 wire remitting outfits in Mexico which funnel that money through Mexican branches of US banks. The FBI and DEA stumble across a scheme in which $110 million of that $387 billion—transferred from Wachovia to a Bank of America account in the US—was used by drug traffickers to purchase aircraft to transport cocaine from Venezuela to Mexico.

The US Government does not prosecute Wachovia under the Bank Secrecy Act. It demands no further investigations into the ownership and administration of 12 casa de cambios or wire remitters who funneled money into Wachovia’s Mexican accounts, but the US Department of Justice does offer Wachovia a Deferred Prosecution Agreement whereby the bank pays Treasury $110 million (the value of the aircraft) plus $50 million in civil penalties—‘the price of doing business’ for Wachovia and its customers.

Priorities—Mexico is our 2nd largest trading partner, NAFTA a gift from heaven for multinational corporations and manufacturers, and truth be told, it’s good business for Mexico and the US alike—excepting the 22,000 victims of cartel violence along Mexico’s northern border. We can argue there are two, three, maybe four degrees of separation between the US government, Wachovia, cartel dollars, and the violence that continues to claim the lives of innocent people in Mexico, but let us not pretend there are no connections.

Gentlemen, have we no shame?



Kathleen Millar

Kathleen Millar began her career in public affairs working for Lyn Nofziger, White House Communications Director. She has gone on to write about a wide range of enforcement and security issues for DHS, for the US Department of the Treasury (Customs & Border Patrol), for Senator Olympia Snowe (R-ME), then a Member of the Senate Intelligence Committee, and for top law enforcement officials in the United States and abroad.

A Founding Member of the Department of Homeland Security, Millar was also the deputy spokesperson-senior writer for the United Nations Office on Drugs and Crime in Vienna, Austria. She has authored numerous speeches, articles and opeds under her own and client bylines, and her work, focusing on trafficking, terrorism, border and national security, has appeared in both national and international outlets, including The Washington Post, The Washington Times, The International Herald Tribune, The Financial Times, and Vital Speeches of the Day.

Kathleen Millar holds an MA from Georgetown University and was the recipient of a United Nations Fellowship, International Affairs, Oxford. She is a member of the Georgetown University Alumni Association, Women in International Security (GU), the Women’s Foreign Policy Group, and the American News Women’s Club in Washington, DC. Kathleen Millar is currently teaching and writing about efforts to combat transnational organized crime.