Editor’s note: This is the second of a two-part series that was initially published as the pamphlet, “The Myth of Democracy and the Rule of the Banks,” by PSL in 2012. Read the first part, which includes an updated preface, here.

Crimes of the bankers–a few examples

That the big banks have engaged in widespread and repeated criminal acts is beyond doubt. But in the country with the biggest prison system in the world—both in absolute and relative terms—none of the cells are occupied by Wall Street bankers. In fact, virtually none of the executives of any big Wall Street bank have even been charged with crimes since the crisis began.

The famous Wall Street exception that proves the rule is former Ponzi scheme king Bernard Madoff, who ran a fake investment firm. Madoff was aggressively prosecuted, convicted and jailed because he defrauded the super-rich, along with many others.

But the massive fraud and other blatant crimes committed by the banks against the rest of us do not get quite the same attention from prosecutors. A CBS News report on Dec. 4, 2011, began: “It’s been three years since the financial crisis crippled the American economy, and much to the consternation of the general public and the demonstrators on Wall Street [Occupy Wall Street], there has not been a single prosecution of a high-ranking Wall Street executive of a major financial firm.”

The lack of prosecutions is certainly not due to a lack of evidence. There is, in fact, overwhelming evidence, much of it publicly available. The only conclusion that can be drawn is that the bankers are under government protection. What follows are just a few among countless examples of the bankers’ criminality.

The real drug kingpins

Wachovia bank went under in the great financial collapse of 2008 and was taken over—with the aid of billions in government funding—by Wells Fargo.

In March 2010, Wachovia executives admitted to having laundered at least $378 billion (yes, billion with a “b”) in drug money from 2004 to 2007 for Mexican drug cartels, the same gangs that have wreaked murder and misery on much of Mexico, leaving more than 40,000 dead. Without money launderers, the big-time drug cartels cannot function.

In return for its invaluable services to the other drug kingpins, Wachovia raked in a sizable share of the loot through fees for its services.

Did the Wachovia CEO and his lieutenants know where this river of dirty money was coming from? They surely did not think it was from the meager earnings of Mexican small farmers or factory workers or even from legal industries in that country. There could have been only one source for $378 billion—an amount equal to over one-third of Mexico’s gross domestic product—the drug trade.

A June 30, 2010, Bloomberg News article quoted lead federal prosecutor, Jeffrey Sloman: “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations.” Martin Woods, the director of Wachovia’s anti-money-laundering unit, quit the bank after Wachovia executives repeatedly ignored his documentation of drug dealers laundering funds through the bank. Woods told Bloomberg, “It’s the banks laundering money for the cartels that finances the tragedy [in Mexico].”

The cartels used some of the laundered money, funneled through a “legitimate” bank, to buy large planes for the transport of hundreds of millions of dollars worth of cocaine. Some of the funds were laundered through Bank of America, which has long been notorious for the practice.

The drug cartels maintain large private armies, which also must be paid.

In U.S. federal court, conviction of possession of crack cocaine with a street value of only $378 can result in a minimum sentence of 5-10 years in prison. The majority of the 2.3 million jailed people in the United States are there for small-time drug offenses, while the big criminals making millions in drug money get immunity.

So, the Wachovia executives, who admitted their guilt, must have gotten really long sentences for their $378 billion drug business, right? Not exactly.

No Wachovia executive spent a night or even an hour in jail, although the value of their crime was millions of times greater than the average street dealer. The federal prosecutors, after making strong-sounding speeches for public relations purposes, settled the case by fining Wachovia, which by then had been acquired by Wells Fargo, only $110 million and penalizing them an additional $50 million. That amounts to about .04 percent of the $378 billion they laundered, and a mere 2 percent of Wells Fargo’s profits for 2010. If you operate a multi-billion-dollar bank, crime does pay, and very well.

The federal prosecutors agreed to suspend their criminal “investigation” for one year. In April 2011, they announced that it was all over and there would be no further “punishment” for Wachovia or Wells Fargo—as if they had ever been punished at all.

Preying on the elderly

Fees charged on refinancing mortgages were another source of billions of dollars in profits during the housing boom. In order to stimulate more refinancing, bankers preyed particularly on elderly people.

Take the situation of Doris Canales, an African American woman in her seventies sharing a home in Hackensack, N.J., with several family members. Ms. Canales had purchased the house in 1999 with a monthly payment of $1,700 on a mortgage of $192,000. By late 2008, now suffering from serious health problems, including kidney failure and declining lucidity, her monthly payment had soared to over $4,000 and the house was being foreclosed.

How did this happen? Referring to the many cold calls from banks she had received over the past several years, Ms. Canales told the New York Times, “They’d just call and say, ‘Hey, do you need money in the bank?’ And I was like, ‘Yeah, I need money in the bank.’ ”

Between 2002 and 2008, she refinanced 13 times with a wide range of banks including Wells Fargo, Wachovia, IndyMac, Countrywide and Chase. These were mostly “no-doc” transactions, meaning that she was not required to present any documentation.

While she received cash amounts ranging from $2,000 to $10,000, the bank fees for each transaction ranged from $19,000 to $39,000!

By 2008, her mortgage owed had nearly tripled to $544,000, while the market value of the house had dropped from a high of $619,000 to $480,000. She could no longer meet the mortgage payment nor refinance.

This kind of preying on elderly people was and is widespread.

Preying on students

Another source of enormous profits for the banks is student loans. Accumulated student debt stands at more than $1 trillion—$1,000,000,000,000—as of June 2012, and is growing fast. It is not unusual today for graduates to owe as much as $100,000 or more. Student loan debt has surpassed credit card debt, another source of huge profits for the banks.

Student loans are from private banks, which currently charge 6.8 percent interest, half of which is currently—as of June 2012—covered by the government. This is another government subsidy to the banks.

Millions of former students face decades, or even a lifetime, of debt servitude, that is, working to pay the banks. The bankers’ friends in Congress and the White House have made it nearly impossible to get out from under student loan debt. Even if a person goes into bankruptcy, the student loan debt is not erased.

Falling behind on payments triggers severe penalties, which together with additional interest can cause debt to quadruple in a short time. This is especially common today, as a record low number of college students are finding jobs of any kind following graduation. Even fewer are finding jobs in the fields for which they trained. Paying off the loans has become impossible for many.

Barmak Nassirian of the American Association of College Registrars and Admissions Officers, quoted in an Aug. 17, 2011, Atlantic Monthly article, said: “You will be hounded for life. They will garnish your wages. They will intercept your tax refunds.”

That’s not all. “Professional licenses can be revoked and you become ineligible for federal employment. Unable to pay, a key element of our society—our college-educated youths—will find themselves swamped by late fees and interest piling up insurmountably.” (letsfixthiscountry.org, Sept. 3, 2011) Relatives who co-sign for student loans, as is often the case, are also endangered financially as they can be held liable.

People over the age of 60 collectively owe more than $36 billion in student debt. Since 1996, the Debt Collection Improvement Act—passed by the Republican Congress and signed by Democratic President Bill Clinton—has authorized the Treasury Department to collect money owed to the federal government by garnishing federal benefits and pay. This includes garnishing up to 15 percent of Social Security benefits for student loans.

Barring revolutionary regime change in the United States, some people will be paying until the day they die.

In other countries, some with far less resources than the United States has, such as socialist Cuba, college education, including room and board, is free. Here, education is another source of super profits for the banks.

Too big to go to jail

While Wachovia’s escape from prosecution stands out due to the magnitude of its crime, it is hardly the only bank to be awarded a stay out of jail card by the feds. No one—including the banks themselves—challenge the fact that there was massive, often systemic, fraud during the run-up to the 2008 crash. Despite this, no financial executives have faced jail time, let alone criminal prosecution.

The Department of Justice, the FBI, the Security and Exchange Commission and others have settled many criminal investigations of the big banks with relatively minor fines and accepted promises “not to do it again.” For many of the banks, this process is repeated every few years.

 A Nov. 7, 2011, New York Times article reported on one such settlement going to court that day, regarding fraudulent practices by Citigroup, one of the biggest banks:

Citigroup is far from the only such repeat offender—in the eyes of the SEC—on Wall Street. Nearly all of the biggest financial companies, Goldman Sachs, Morgan Stanley, JPMorgan Chase and Bank of America among them, have settled fraud cases by promising the SEC that they would never again violate an antifraud law, only to do it again in another case a few years later.

A New York Times analysis of enforcement actions during the last 15 years found at least 51 cases in which 19 Wall Street firms had broken antifraud laws they had agreed never to breach.

The following month, the CBS program “60 Minutes” featured a segment on bank fraud particularly focused on Countrywide Financial and a former executive, Eileen Foster.

Foster was the executive vice president in charge of investigating fraud at Countrywide Financial when it was the biggest mortgage lender in the country. Foster’s job was to report instances of fraud at the company to top executives, like CEO Angelo Mozilo, and the U.S. Treasury Department. Countrywide went bankrupt during the 2008 financial collapse, after more than one-third of the mortgages it issued ended in default or foreclosure, many of them due to fraud.

On Dec. 4, 2011, Foster was interviewed by Steve Kroft on “60 Minutes”:

Steve Kroft: Do you believe that there are people at Countrywide who belong behind bars?
Eileen Foster: Yes.
Kroft: Do you want to give me their names?
Foster: No.
Kroft: Would you give their names to a grand jury if you were asked?
Foster: Yes.
Kroft: How much fraud was there at Countrywide?
Foster: From what I saw, the types of things I saw, it was—it appeared systemic. It, it wasn’t just one individual or two or three individuals, it was branches of individuals, it was regions of individuals.
Kroft: What you seem to be saying was it was just a way of doing business?
Foster: Yes.

After Bank of America took over Countrywide, Foster was asked by a higher-up to deceive government regulators. When she refused, she was immediately fired, then offered a multi-million dollar bribe if she would agree in writing to never talk about the crimes she was witness to. Foster again refused. Despite her extensive knowledge about the systemic fraud at Countrywide and the strong position she had taken, the Department of Justice never contacted Foster.

In 2009, the SEC charged Mozilo with insider trading and fraud. In 2010, the case was settled as a civil matter, with Mozilo paying a fine of $47.5 million, less than 8 percent of his $600 million net worth. A Wikipedia entry on Mozilo and his influence in Washington reads in part:

In June 2008, Conde Nast Portfolio reported that several influential lawmakers and politicians, including Senate Banking Committee Chairman Christopher Dodd, Senate Budget Committee Chairman Kent Conrad, and former Fannie Mae CEO Jim Johnson, received favorable mortgage financing from Countrywide by virtue of being “Friends of Angelo.” Senator Dodd received a $75,000 reduction in mortgage payments from Countrywide at allegedly below-market rates on his Washington, D.C., and Connecticut homes.

Neither Mozilo nor any other high-ranking Countrywide executive ever went to jail for their crimes.

Can the capitalist banking system be reformed?

Many books and articles have been written since the 2008 crash about the problems of the financial system. Many of the liberal critics have useful, and often incriminating, information about Wall Street that they have acquired as system insiders. To name a few of the more prominent: Joseph Stiglitz, former chief economist for the notorious World Bank; Simon Johnson, who held the same position at the equally notorious International Monetary Fund; and Robert Reich, former secretary of labor.

All of them decry the corruption, wild speculation and other abuses of the Wall Street banks. All call for better regulation; restoration of the Glass-Steagall Act separating commercial and investment banking, repealed by Clinton in 1999; breaking up or limiting the size of the “too big to fail” banks; and so on. But none of them challenge the system itself, despite the fact that the evidence they themselves present makes it clear that the system cannot be reformed in any kind of fundamental way. All are ardent defenders of “the market” and capitalism, just with a little more regulation.

One of the most prominent of the liberal critics is Robert Reich. Reich was secretary of labor in President Clinton’s first term, 1993-1997, and is now a professor at the University of California at Berkeley. He frequently appears on National Public Radio, CNN, “Democracy Now!” and so forth advocating reforms in the financial system. It is no exaggeration to say that he has lately become a darling of all liberaldom.

As secretary of labor and afterwards, Reich has been a proponent of the so-called North America Free Trade Agreement, which was passed in 1993, and other so-called free trade agreements. NAFTA broke down remaining barriers in Mexico to U.S. capital with disastrous results for millions of small farmers in that country and working people on both sides of the border.

In 2008, Reich claimed that corporate-created trade agreements like NAFTA were not responsible for the decline in manufacturing jobs in the United States “[I]t’s a shame the Democratic candidates for president feel they have to make trade—specifically NAFTA—the enemy of blue-collar workers and the putative cause of their difficulties. NAFTA is not to blame.”

Reich calls for a series of reforms to prevent a repeat of the economic crisis that hit with such ferocity in 2008 and continues to inflict suffering on tens of millions of people.

He correctly points out that the big banks deemed “too big to fail” and bailed out in 2008 to 2009 are much bigger today, some of them twice as big. The bankers are continuing their wild speculation safe in the knowledge that should they again threaten to fail, they would again be bailed out.

Dramatic evidence that little has changed since the 2008 bailouts came on May 10, 2012, when the biggest U.S. bank, JPMorgan Chase, announced billions in losses on speculative trading. It is not yet clear how many billions or what other big banks may have made similar kinds of losing bets.

In an interview on “Democracy Now!”, Reich reiterated a list of the reforms he advocates. These include stricter regulation, limiting the size of banks and reinstating the Glass-Steagall Act. Reich finished his list by saying we have to “get big money out of politics, otherwise everything else is hopeless.”

Get big money out of capitalist politics?

That sounds like an admirable idea. But the trillion-dollar question is: How exactly do you do it? How do you get big money out of politics when the ones writing the laws owe their positions to big money?

The banks and other big corporations spend billions every year, not just on election campaigns, but also to maintain an army of tens of thousands of lobbyists in Washington, D.C. These lobbyists wine, dine and enrich our so-called representatives in the House and Senate. And, they bankroll their election campaigns, as well as those of virtually all offices from city councils to the presidency.

Lobbyists not only buy influence, they actually write much of the legislation that ends up becoming law. They are ever so “helpful” in this way, helpful to the banks and corporations they represent, that is. They have written loophole after loophole into the tax code, which is why the code and accompanying regulation now amount to more than 70,000 pages and grows with every passing year. Many sections of the code were written by lobbyists to secure tax breaks for a single industry or often a single company.

Far from diminishing, the role of corporate money in U.S. politics is accelerating at breakneck speed, given added momentum by the infamous 2010 Citizens United decision. In Citizens United, the Supreme Court ruled that corporations have the same free speech rights as people (“corporate personhood”), and allowed them to spend unlimited funds on what are known as super-PACs. These are organizations that pretend to be non-partisan but support one or another candidate or proposition through massive ad campaigns.

In reality, of course, the banks and corporations have far greater rights and power under capitalism than any person, due to their immense financial resources.

But Reich is unfazed by objective reality. In an article following the May 6 French election won by Socialist Party candidate Francois Hollande, Reich begins, “Francois Hollande’s victory doesn’t and shouldn’t mean a movement toward socialism in Europe or elsewhere. Socialism isn’t the answer to the basic problem haunting all rich nations.”

“The answer,” he continues, “is to reform capitalism. The world’s productivity revolution is outpacing the political will of rich societies to fairly distribute its benefits. The result is widening inequality coupled with slow growth and stubbornly high unemployment.”

Reich blithely ignores the fact, proven countless times over the past few centuries, that no capitalist society has ever fairly distributed its benefits or eliminated unemployment, nor is it possible for capitalism to do so.

He concludes with more wishful irrationality: “We don’t need socialism. We need a capitalism that works for the vast majority. The productivity revolution should be making our lives better—not poorer and more insecure. And it will do that when we have the political will to spread its benefits.”

A more sober and rational conclusion is that getting money out of politics requires getting rid of capitalism itself.

Why we say: ‘Seize the banks!’

The idea that the capitalist system can be fundamentally reformed is an illusion. Even as popular anger is rising, as exemplified in the Occupy Wall Street movement, the bankers and their bought-and-paid for politicians are moving to demolish every last obstacle to even greater wealth and power.

A fundamental law of capitalism, driven by the cut-throat competition inherent in the system, is maximization of profits regardless of the cost to people or the planet. It is a law that cannot be repealed by Congress or anyone else, since any bank or corporation that falls behind in the competitive race risks going bankrupt or being swallowed up by rivals. The law will exist as long as capitalism and the dictatorship of the rich, of the one-tenth of the 1 percent, continues.

That is why the program of the Party for Socialism and Liberation is not “restore Glass-Steagall” or “better regulations.” It is “Seize the Banks.” Taking over the banks by a government of the working class and its allies would be a critical step toward reorganizing the economy on the basis of providing for the needs of the many, not the wealth of the few.

Taking over the banks would open the way to ending the recurrent and deepening crises caused by capitalism by ending the capitalist system itself.

The latest economic crisis has proven that no 21st century economy, capitalist or socialist, can function without major state intervention. The question is who benefits from that intervention, the 99 percent, or the 1 percent? Under socialism, the resources and major means of production are owned collectively by the producers themselves, who democratically plan for the economy to meet the needs of society in a sustainable fashion. Under capitalism, state intervention and ownership overwhelmingly serve the needs of the super-rich, the capitalist class.

We do, in fact, need socialism.

As powerful as the banks are, there is a greater power in society—the power of the people. The people have the power to overturn the rule of Wall Street, and it is only by doing so that society can be freed from the dictatorship of the richest of the 1 percent.

A people’s program

The case for seizing or expropriating the banks is straightforward. It does not include expropriating individuals’ bank deposits.

Banks, like all corporations, are not people. They are paper entities, which exist solely because laws and society permit them to exist. They have no inherent and inalienable rights, not even the right to exist.

Why should such a critical lever of the modern economy be in the hands of the super rich? Why should we tolerate a system that allows a handful of bankers to amass profits and fortunes greater than those of the worst emperors and kings of history?

Today, the banks exist to maximize the wealth of the 1 percent. The banking function should be used to maximize the well-being of society, the 100 percent. Since banks have no rights, there is no wrong—indeed, there are life-altering benefits for the vast majority—in seizing the banking function and placing it under the people’s democratic control.

The bankers torpedoed the economy through their fraud, corruption and criminal acts in pursuit of super profits for billionaires.

Millions of workers lost their jobs because of the bankers’ greed and the crisis of capitalism. The unemployed did nothing wrong. They lost everything because the 1 percent control and profit from banking and the entire economy.

Today, more than 10 million families have lost or are losing their homes to foreclosure, because the same banks are evicting them when they cannot keep up with their interest and mortgage payments to the banks.

Millions of college graduates cannot pay their student loans because they cannot find decent jobs due to the actions of the bankers, who destroyed vast parts of the economy. Student loans total over $1 trillion and are a source of obscene profit for the bankers.

As long as banks, finance and credit exist to make the 1 percent ever richer, the 99 percent will get ever poorer. By seizing, or expropriating, the assets and profits of the major private banks that are owned by the richest of the 1 percent and putting those funds in a publicly owned People’s Bank, with open books and a democratically elected leadership, we could:

• Fund a massive jobs program! Jobs could be created for all who can work with union wages, rights and benefits. All workers should be guaranteed a job regardless of citizenship or legal status.
• End all foreclosures and evictions! Abolish interest payments to the banks—access to affordable housing for all. By seizing the banks, there could be an immediate end to all housing foreclosures. The bankers would not get interest payments, but working families could remain in their homes. Everyone should have the right to a home.
• Create a universal, free health care system. Health care should be a right for every person, not a commodity to make the rich even richer.
• Provide free education for all—cancel student debt! Fund free, quality education for everyone from Pre-K through college.