Readers of my last few posts on TPP would have noticed my complete disagreement with one Elizabeth Warren – junior Senator from the Bay State of Massachusetts. In this blogger\’s humble opinion she is a card carrying member of the loony left. And yet, here is proof that even from the loony left, an occasional wise word may arise (granted this is as rare as a bright sunny day in the great state of Oregon, but ….. !)
Her utterance was actually from last year – \”The message to every Wall Street banker is loud and clear. If you break the law you are not going to jail\”, said the good lady. Well, let us pass lightly over the fact that there are no banks on Wall Street and that the New York Stock Exchange is not the same as banks. She has a point, which has been doubly proven in the events of lastweek.
It was a familiar story. Six banks agreed to pay $5.6 bn in penalties for manipulating currency markets. Five of the six admitted to the crimes. And yet, there is not a single banker going to jail. In fact , in all the settlements (LIBOR rigging, abetting client tax evasion, etc etc), the penalties are in billions of dollars. And nobody has gone to jail.
The details of the current forex manipulation case are not the purpose of this post. The banks formed a cartel and used coded communication in online chat rooms to rig the daily fixes of the exchange rate between the Euro and the US dollar. We won\’t get into the details. Suffice to say that this is a fraud, and that if prosecution were to be brought against the perpetrators, they would go to jail. Yet this never happens. Why ?
Firstly it is hellishly difficult to prosecute banks. They have access to the best lawyers, tons of money, and their actions are of such a highly specialist nature that proving the fraud in a court of law is extremely difficult, time consuming and expensive. Secondly the authorities drool at the prospect of these huge settlements and greed wins them over the principle of criminal deterrence. Thirdly, even though banks agree to these huge settlements, it is far from clear that a criminal act was actually involved – banks are so terrified about losing a case and having their banking license revoked (an automatic consequence) that at the first possibility, they agree on a settlement however outrageous the amount is and however strong or weak the case against them is.
Look at who wins and loses. The shareholders of the bank lose (after all these settlements are being paid out of their profits). Their customers lose – by rigging forex rates they essentially screwed their customers. The winners are firstly the bank management and the actual employees who committed the fraud. Nothing happens the bank management. As for the employees caught in the act, they get fired allright, but simply join another bank or fund house across the street. Worse, they get to keep their bonuses.
This is an outrageous state of affairs. This will keep happening again and again. Fines, even of such gargantuan amounts, mean nothing to them. The bank committing the fraud must be taken to court. The employees who actally did the deed must be locked up in jail. The bank must lose its license and suffer the consequence. Only such a deterrence will prevent such monstrosities from happening again and again.
In this stand I am in the camp of the said Elizabeth Warren, the Tea Party (they are outraged at this too) and The Economist ! Strange bedfellows, eh ?