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If you can believe it–Missouri being so adept at coming in number 49 in so many areas–we are the ONLY state where the Fed has two regional banks. There are only twelve in the country, but Kansas City and St. Louis each have one. Nice bit of trivia, right? In fact, it was one of the trivia questions at last month’s City Dems trivia night in St. Louis.

That factoid was part of Rod Jokerst’s presentation about the Fed to the West County Democrats on Monday, June 13th. As someone who works as a certified fraud examiner for the St. Louis branch of the Fed, he spoke to the group about how the Fed is organized and what its duties are. If he had stuck to a prepared statement, we’d have soldiered through with him, but five minutes into his speech, he asked if there were any questions. … Any questions? OH, yes.

The first questioner wondered why the Fed had allowed the banks to lend money on unsecured real estate transactions. She noted that the Dodd-Frank bill would at least have imposed a few restrictions on such behavior. Jokerst’s response was basically that the Fed didn’t have the jurisdiction to stop the craziness. It has authority over small banks as well as over entities that own many banks–and 80 to 90 percent of the banks, the small ones, were not involved in such dealings. But the Fed can only regulate behavior that the law specifies it can. It had no legal authority to stop such transactions. Congress needs to give it that authority by forbidding such practices. Jokerst took his analysis further, likening selling unsecured real estate loans to walking your dog, collecting its poop off the neighbors’ lawns in a plastic bag, and then trying to sell the bag of poop. Only big bankers would have the chutzpah to market that to investors as a valuable commodity. He asserted that small banks don’t need more regulation. They are more regulated than any other business entity.

The audience loved the derivatives/poop analogy and wanted more answers. The next questioner asked why, if the bankers knew the packages of derivatives were crap and sold them anyway, they weren’t charged with fraud. Why didn’t anybody go to jail? The answer–one that the bankers must have known–is that once they managed to find a sucker an investor to buy the derivatives, those are off the banks’ books, and there’s not much a regulatory agency can do to regulate a transaction that’s no longer a risk to the bank. Regulators may not have liked seeing what was going on, but there wasn’t much they could do.

Apparently, risks to buyers are not the Fed’s responsibility. Its job is to see that banks are sound, that is, not a risk to their own investors. Could laws have been crafted that would have made such bamboozling of the banskters’ customers illegal? The question wasn’t asked. What was asked was whether the rating agencies that gave the poop bags a grade of A should be held liable for fraud. Jokerst gave the rating agencies a pass. His attitude was that he, with his many years’ experience, doesn’t fully understand the incredibly complex derivatives, that in fact often the only people who did understand them were the ones who created these hybrid investment tools, and that it’s not surprising that the rating agencies themselves were taken in.

Still looking to lay the blame somewhere, another audience member said that plenty of people on the inside knew that banking behavior was going to end in tragedy and did nothing because they were making too much money. Jokerst nodded knowingly:

“Unfortunately a lot of what brought us here was greed. It was greed from all parties, because I don’t think anybody can say, ‘Well, it wasn’t our fault.’ For everybody that got into loans, whenever they went into the bank, they thought they could afford a $200,000 loan and then they came out with a $700,000 loan …. Granted there’s some education that needed to be done, but there were consumers that were at fault, there were banks that were at fault, there probably were regulators that were at fault, Congress was at fault, the rating agencies were at fault, the investment banks were at fault. I think everybody was to some degree. And it’s easy to point fingers, collectively we all made the mess. If we wouldn’t have bought the investment, you know, they wouldn’t have been doing it.”

The next questioner offered an eloquent response:

“There may have been a lot of people involved in the mess, but some of the people involved in the mess came out very well. They received $800 billion in a bailout and they are paying their CEOs record amounts in salary they weren’t making before, and yet they still are not issuing money. In that movie “Too Big to Fail” [an HBO movie mentioned by several questioners] someone says, ‘Are you going to insist that they make loans?’ And he said, ‘Well, we can’t do that.’ And the other person said, ‘We just gave them $800 billion, and we can’t make them make loans?’ The fact is that some people came out very well from this thing that was not regulated properly, and other people are losing their homes, they’ve lost their jobs. There’s a great deal of pain going on out here, and yet these people are walking around saying ‘It wasn’t my fault.’ It was, somebody’s fault. And somebody should have to be paying a price for it!”

Jokerst didn’t disagree. He considered such exorbitant salaries “insane” and thought that paying them to the very people who made the mess “wasn’t prudent”–though he pointed out that the firms that took TARP money were restricted in what they could pay their execs. He acknowledged that everyone has been touched by the pain. Most people have seen dramatic declines in the value of their homes and some can’t sell their houses now. (At this point, he lifted his own hand to signify that he’s in that group.)

We had in that room one cool professional and a bevy of angry people. Don’t mistake me. The angry ones were civil with their wrath, and their heat was certainly not aimed at Mr. Jokerst. But they were indignant and rightly so.

Republicans have fought banking regulation like Samurai warriors defending the homeland. Unfortunately their homeland is Bank of America. Spineless Democrats wouldn’t even square their shoulders and do some filibuster reform so that they could defend us against the Corpublicans. Oh sure, some ordinary Americans contributed to this mess by taking home loans they couldn’t well afford, but others defaulted on their loans because the Great Recession cost them their jobs or they had the effrontery to get seriously sick without having health insurance–or without having inadequate coverage.

So while I can appreciate Mr. Jokerst’s professionalism and his evenhandedness, I believe there are villains and cowards who caused this mess, who had and have the power to undo this mess. But they continue being villainous and cowardly. And I am not cool about it.