Courtesy of Pam Martens
During the recent Democratic Presidential debate that aired on CNN on October 13, Senator Bernie Sanders of Vermont said: “Let us be clear that the greed and recklessness and illegal behavior of Wall Street, where fraud is a business model, helped to destroy this economy and the lives of millions of people.”
Most Americans clearly understand that reality, and yet, Wall Street’s regulators continue to look the other way at the most outrageous conflicts of interest.
On June 2, 2014, Wall Street’s self-policing body, FINRA, disclosed for the first time details on which publicly traded companies were being traded in dark pools and the source and volume of that trading. Dark pools are effectively unregulated stock exchanges and are operated by some of the largest commercial banks on Wall Street – which are also backstopped by the taxpayer for any losses to insured depositors.
As we wrote at the time, when FINRA released its first dark pool data, we were stunned to learn that not only were affiliates of the insured banks engaging in dark pool activity but they were actually trading in shares of their own bank’s stock.
According to the Senate hearings conducted after the stock market crash of 1929, it was illegal then under the National Bank Act for commercial banks to trade in their own stock. Ferdinand Pecora, Chief Counsel to the Senate Committee that conducted an in-depth investigation of the corruption leading to the crash, told Hugh Baker, an officer of National City Bank, the precursor to today’s Citigroup: “You know that a bank under the law cannot trade in its own stock, don’t you.” Baker answered: “Yes, that is right.”
What National City Bank did instead was to form an affiliate to trade its own stock, as one of many other market manipulations. On January 11, 1928, National City Bank delisted its stock from the New York Stock Exchange. Subsequently, the stock traded over the counter with the invisible hand of the bank’s brokerage firm, the National City Company, guiding the market price ever higher. As a result, according to the Pecora report, in September 1929, the book value of National City Bank stock was $385 million. The market value was $3.2 billion.
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