Pensions vs Big Banks – fight to the death

The Big five American banks, Bank of America, JP Morgan, Morgan Stanley, Citi and Wells Fargo are, I think, waking up to the life threatening danger they are now in.

That danger is because the last reason why we ‘need to protect’ those banks has just gone up in flames.

Do you remember at the height of the crisis the reasons why we ‘had’ to save the banks?  Some of the ones I remember being trotted out were: If the banks went down the ATM’s would stop working, businesses would not be able to get loans to allow them to function, without the banks to lend there could be no recovery, and if the banks went down we’d all lose our pensions.

In various conversations I have had since then, advocating that the Big Banks had to be forced to suffer their own losses and go bankrupt as a result, it is the last one which is the most often brandished.  For those who believed the banks had to be saved, because without them we could not live, it was the ultimate argument.  How could you possibly argue for something that could harm ordinary people’s pensions?

That was the accusation I heard most often.  So to all those people I would like them to take note.

The pension funds of most of America, both the vast public pension funds such as Calpers (California public employees retirement system – $170 billion in assets) which every state has, plus all the professional retirement funds (Teachers etc) plus almost every private pension fund, hold between them hundreds of billions of mortgage backed securities issued by the Big Banks.  These are the securities which it now turns out were not legally constituted.  These are the securities which are the subject of a growing number of fraud allegations and legal suits.

These are also the securities which, it alleged, were over-valued and virtually designed to fail.  Designed by the banks which sold them. Again according to law suits already filed.

Thus the logic which was the last line of argument in favour of saving the banks is now reversed.  Those securities are rotten, the banks which issued them are rotten and all those pension funds who were sold them, now have the chance of making the banks BUY THEM BACK.

If the pension funds do not force the banks to buy them back then the pension funds are consigning their pension holders to suffer on-going and increasing losses on their pension investments.  Only if they aggressively seize this chance to force the banks to take the losses will their pensions have any chance of surviving.

If some pension funds put-back but others do not then those which do not will get zero. Because there will not be enough money in the banks to go around.  Only those at the front of the queue will get paid.

Not only that but foreign investors will certainly join the feeding frenzy.  They too have a legal and legitimate case for reimbursement.

The argument was the only way to save our pensions was to save the banks. The argument has reversed. Now the only way you will save your pension is by getting your money back from the banks.  It is the banks OR your pension.

At the moment it all hangs on whether Fannie and Freddie and the pension funds can force the banks to let investigators see whether or not the securities are legally constituted. SO far, despite more than 60 subpoenas issued by Fannie and Freddie the banks have simply refused to comply and open the paper work on the securities they sold.

If the banks manage to pay off enough politicians to stop the legal challenges and no one gets to see the evidence, then their victory will be your pension’s loss.

This will be a fight to the death. If the banks win it is justice for ordinary Americans which dies.