Restoring Regularity to the System

You’ve heard me wail and flail on numerous occasions at the Wild Wild West mentality of the massive financial services sector of our global economy. It’s not that I have the slightest repugnance over folks getting filthy, stinking, rotten rich – for that is a part of capitalism that I embrace – it’s just that I feel sick when they make big money through distortion, market manipulation, hard-to-trace complex bundles of obscure derivatives, insider information, rules and regulations that tilt the playing field in their favor and tax rates that only apply to folks lucky enough to work for funds where their bonus compensation is called a “carried interest” and then get a tax rate half that of their peers in other industries making the same amount. Bottom line: we need transparency, accountability, a level playing field for everyone and, most of all, sufficient regulation to make sure that an industry that has proven beyond a shadow of a doubt that it cannot regulate itself adheres to such principles.

Yet Wall Street resists the kind of oversight that might even save it from its worst possible enemy: Wall Street. Would JP Morgan Chase have lost the estimated $9 billion in rogue-trading losses if it were properly supervised? Would our banking community even have needed a bailout if they had avoided packaging subprime loans at values that no sane investor would ever accept… except the government failed to supervise the credit rating agencies who blessed such “trading crap” as lovely-smelling, value-impregnated, A-rated debt? Or would the “too big to fail” players like Bear Stearns and Lehman Bros. – exempted by the S.E.C. from normal and more modest ratios of debt (based on debt) and prone to hide true financial values by hiding the bad stuff in “off-balance” sheet machinations – have survived with a regulation that would never have allowed 30+ to-one multiples of debt over equity EVER!!!!

In a world where such missteps (a polite understatement, I might add) tank the value of virtually every house in the United States, pull the financial rug out from under the entire nation necessitating massive layoffs with concomitant long-term unemployment as its unjust reward, and decimate the local tax base of virtually every state and municipal government in the land, doesn’t the public have a right to demand regulations that say: NEVER AGAIN? Does it even matter that during this debacle, the power elite – the infamous 1% – was able to pick up additional assets that had fallen in value because of these misdeeds and raise their stake in America such that they now own 42% of this country’s entire wealth… a number that just keeps rising?

In Jolly Olde England, Barclays PLC is a mega-financial institution that provides everything from investment to commercial banking, sitting in 22^nd place on the London Stock Exchange and the fourth largest bank in the world. Big. But their British bankers weren’t sufficiently “Wild Wild West” aggressive enough, so they imported an American – Bob Diamond – to be their “Wild Wild West” chief executive officer. As you may be aware, Barclays is at the heart of a massive scandal in the UK because they admittedly manipulated the European equivalent of America’s prime rate, known as LIBOR (London Interbank Offered Rate) which is set as various banks report the interest rates they charge and expect to charge each other, to be much less than they were actually paying in order to drive their borrowing rates downward and to project a rosier financial picture of Barclays’ financial strength that they actually had. Basically, they knowingly submitted false data to the rate-setting authorities.

The manipulation was apparently pervasive throughout the bank and invariably involved some heavy collusion from other banks with an equally strong motivation in dropping their effective borrowing rates. Since financial transactions all over the world are based on LIBOR rates, this distortion rippled through global markets and has seriously impaired the credibility of the entire London-based banking sector. LIBOR is established daily based on a poll that asks banks at what rate they think they will be able to borrow money from each other in 10 major currencies and for 15 borrowing periods ranging from overnight loans to 12 months.

Barclays was fined about $450 million for its role in this rate-fixing scandal, but it could not have operated alone. Big Bad Barclays Banking Bob Diamond, claiming he was not aware of the collusion within his company to rig the interest rates, had to go anyway. After testifying before a Parliamentary committee and protesting his innocence (actually suggesting that some of his subordinates might have to face criminal sanctions), it was clear his time was at hand… and out he went, resigning for the good of the shareholders. German regulators are now looking at their giant Deutsche Bank. “Authorities in the United States, Europe, Japan and Canada are examining more than a dozen big banks over suspected rigging of the London Interbank Offered Rate … Britain's Barclays has so far been the only bank to admit wrongdoing…The rate-fixing scandal has exploded into the front ranks of politics, especially in Britain, where politicians say the bankers responsible should end up in jail.” Reuters, July 6^th.

We’re so used to banks’ lying and manipulating that this story barely got any coverage in the United States, even as it completely dominates European headlines. As Joe Nocera wrote in his July 6^th New York Times column: “Britain and America have reacted to the Libor scandal in completely different ways. Britain is in an utter frenzy over it, with wall-to-wall coverage, and the most respectable, pro-business publications expressing outrage. Yes, Barclays is a British bank, and the first word in Libor is ‘London.’ But still: The Economist ran a headline about the scandal that read, in its entirety, ‘Banksters.’

“Yet, on these shores, the reaction has been mainly a shrug. Perhaps we’re suffering from bank-scandal fatigue, having lived through Bank of America’s various travails, and the Goldman Sachs revelations, and, most recently, the big JPMorgan Chase trading loss. Or maybe Libor is just hard to gets one’s head around.

“But the Brits have this one right. They may not understand the intricacies of Libor any better than we do, but they sense, powerfully, that banks have once again made a mockery of the role that society entrusts to them.”

Since rate-fixing has been going on for years, even conservatives on both sides of the Atlantic are asking the big question: “As big banks face the fallout from a global investigation into interest rate manipulation, American and British lawmakers are scrutinizing regulators who failed to take action that might have prevented years of illegal activity.” NY Times, July 10^th. You mean the same U.S. lawmakers who only allowed only a very watered-down Dodd-Frank financial regulatory bill to pass Congress and then voted against adequately funding the regulatory agencies that were designated to create and implement the necessary regulations so the statute became almost meaningless?

Try this little survey for a reality check on the need for regulation: “In a survey of 500 senior executives in the United States and the UK, 26 percent of respondents said they had observed or had firsthand knowledge of wrongdoing in the workplace, while 24 percent said they believed financial services professionals may need to engage in unethical or illegal conduct to be successful… Sixteen percent of respondents said they would commit insider trading if they could get away with it, according to [survey sponsor and whistle-blower law firm] Labaton Sucharow. And 30 percent said their compensation plans created pressure to compromise ethical standards or violate the law.” Jobs.aol.com, July 10^th.

How in the world can there be any significant body of Americans who support reducing our regulatory oversight of these financial behemoths? And yet this combination of unbridled greed laced with the ability to secure votes (hey, hey, hey Super PACs paid for by Wall Street mavens!) from undereducated and gullible Americans has produced precisely this result in droves. How many more financial collapses will it take to get this point across… or is it already too late?

I’m Peter Dekom, and the seeming lack of concern by our largest financial institutions that they are undermining the entire political structure that allows them to exist still shocks me.