Getting gifts from taxpayers, attacking pension funds, more

Not only mortgages

Many ways to make money
There are many shady ways for the banks and private equity firms to make money, like forbidden dealings with criminal organisations. They can get gifts from the government. They can target pensin funds, public and private. They can bankrupt perfectly sound companies.

Many shady dealings by JPMorgan
Besides provoking the subprime crisis, banks are involved in many shady dealings. JPMorgan has an impressive list of transgressions of the law, to name but a few: Money laundering for drug cartels, violations related to the Vatican Bank scandal, violations of the Commodities Exchange Act, knowingly executing fictitious trades where the customer was on both sides of the deal, various SEC enforcement actions for misrepresentations of CDOs and mortgage-backed securities, assorted settlements, fraudulent sale of unregistered securities, auto-finance rip-offs, illegal increases of overdraft penalties, violations of New York state and federal ERISA laws, municipal bond market manipulations and acts of bid-rigging, filing of unverified affidavits for credit card debt collections, energy market manipulation, shifting trading losses on a currency trade to a customer account, fraudulent sales of derivatives to the city of Milan (Italy), obstruction of justice.

Government giving away money
Direct taxpayer subsidies to the banks did not end with TARP. With the government's low interest policy, banks could make big money just by getting federal next to zero interest loans and then buy government notes; a ten year note could give 3.70%, quite possibly even more. It's just giving taxpayer money away.

Public pension funds
People like policemen, sanitation workers and teachers, have public pension funds. These funds are financed partly by the workers, partly by the taxpayers. There are big differences between the states, some are paying even more than requested. Others are severely underfunded.
Instead of paying what's requested, some pension funds are put in high-risk, high fee alternate investments. Expensive hedge funds have become popular, with disclosed and undisclosed fees and with strict secrecy stipulations. Many states pay enormous sums to middlemen, just to "introduce" hedge funds to politicians holding the checkbook. The Apollo private-equity firm paid a former CalPERS (California Public Employees' Retirement System) board member $48 million for help in securing investments from state pensions and Apollo received $3 billion of CalPERS money. Not that the performance of the hedge funds is impressive. In 2008, Warren Buffet placed a bet that the S&P 500 index fund would beat a portfolio of five hedge funds hand-picked by the geniuses of New York hedge fund Protégé Partners. Five years later, the index fund is up 8.69 percent as compared to Protégé's 0.13 percent.

Private pension funds
Some financial advisers are fiduciary, they have a duty to act in the interest of their customers. Some are not. Currently, less than 20 percent are fiduciary. So maybe it is no wonder that a median-income, two-earner household will on average pay $155,000 during their lifetime to financial advisers. At least according to the think tank Demos. With a lifetime gain of around $230,000, nearly two-thirds will go to the industry.
Already in the early 1980s, a short paper expressed some puzzlement over the fact that asset management industry delivered negative value, that it was extractive. Hedge funds have been touting complex strategies and slick private equity fund professionals with cherry-picked success stories. Still, they have been underperforming since 2008. From 1980 to 2008, hedge funds have given the same returns as Treasuries, clearly below stocks. And it is not only rich people who suffer. Public pension funds is the biggest group of private equity limited partners, they are also significant hedge fund players. In Canada, seven pension funds are doing private equity directly, beating industry averages after fees.
Milton Friedman, free trade guru, thinks that the only good thing with American pensions is private alternatives. To him, a private pension fund is just as natural as a private car insurance. But they are not the same. Should your car insurance company fail, you lose at the most your car your premium for the last year. Should your pension fund fail, you could lose your life savings. Friedman did not expect the subprime crisis, he did not expect pension funds to buy the worst securities that the banks could find.

Private equity
Top bankers make a lot of money, no matter if their banks are profitable or not. Some people make even more. In 2006, Goldman's Lloyd Blankfein was Wall Street's highest paid investment banker with $44 million. Steve Schwarzman of private equity firm Blackstone made $398 million.
Private equity owners are not responsible for a company's debts. They can force a company to take big loans, take over the money as dividends and "fees", and then let the company bankrupt. A company's retirement plans can be forced to invest in the company. When the company bankrupts, either the workers lose their money or the taxpayers have to contribute.
They don't have to follow the law. When a private equity firm buys a company, it often includes an agreement that the company will pay a flat fee for undisclosed services, meaning that the equity firm has to do absolutely nothing at all. Fees for services are tax deductible but this assume that the fee is reasonable in terms of what is received. Still, in spite of letters from several public interest groups, the IRS does nothing.

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