Bankers Hate Wearing Stripes

Despite the sea of manipulation, the tsunami of deceit, the superstorm of obfuscation and the horrors of the mega-trillion-dollar economic collapse that resulted, the Western world, notably the United States and Great Britain, have let the financial-universe miscreants escape with little more than a slap on the wrist and an occasional prosecution of a low-level scapegoat.

The May 4^th Economist tells us like it is: “In America the Federal Deposit Insurance Corporation has filed over 40 lawsuits against officers and directors of failed institutions since 2010; more actions are expected. But prosecutors have brought few criminal charges against high-profile bankers. The American government secured its first crisis-related conviction of a senior banker, a Credit Suisse employee charged with mismarking mortgage-backed securities, only in April; Kareem Serageldin will be sentenced in August.

“The prosecutorial coyness of British and American authorities contrasts with the harder-charging approach taken by their predecessors and by authorities elsewhere. During America’s savings-and-loans (S&L) crisis in the 1980s more than 800 bankers were jailed. A decade later directors of Barings, a British bank that was felled by the rogue trader Nick Leeson, were barred from holding directorships despite having no direct connection to his wrongdoing. Other countries, such as Iceland and Germany, have taken a more muscular approach in this crisis…

“Some of these differences seem to be down to political will. In America the federal government dedicated considerable resources to investigating fraud during the S&L crisis. William Black, a professor at the University of Missouri at Kansas City and a former bank regulator involved in charging S&L executives, has testified to lawmakers that regulators have given the FBI scant help during the current crisis…

“There are also differences in the laws that can be applied. The main reason that American and British regulators give for the paucity of prosecutions is that they have struggled to connect wrongdoing lower down in the bank, such as the LIBOR scandal, to those running it. Another is that it is generally not illegal to run a bank into the ground through incompetence (although British and German policymakers are consulting on the introduction of criminal sanctions for reckless management).”

Financial players have taken advantage of the repeal of Glass-Steagall (the U.S. statute that once separated trading from commercial banking) to generate access to cheap money used to trade on their own accounts, located high-speed computers near stock and commodities exchanges to allow flash trades to tilt the playing field in their favor, fought successfully to limit regulation of complex derivatives (trading instruments often so complex only their creators understand the underlying principles), engaged in the rawest form of self-dealing and – most of all – have learned how to lobby Congress to limit regulation and, where regulation is inevitable, to lobby Congress not to fund the enforcement arm that would implement restrictive policies. They have banks of legal experts, who don’t even address ethical or moral issues, to tell them how to skirt the law and maximize profits with zero regard for societal interests.

The derivatives market is a $700 trillion global marketplace, dominated by Wall Street traders. It’s potential to damage world markets is staggering (remember the collapse of AIG as one small example?). Many pension funds caught up in bets against market forces have been forced to divert funds to cover these bets, and regulators are going the wrong way. “Under pressure from Wall Street lobbyists, federal regulators [the Commodity Futures Trading Commission] have agreed to soften a rule intended to rein in the banking industry’s domination of a risky market… The changes to the rule… could effectively empower a few big banks to continue controlling the derivatives market, a main culprit in the financial crisis… It is a lucrative business that, until now, has operated in the shadows of Wall Street rather than in the light of public exchanges. Just five banks hold more than 90 percent of all derivatives contracts.” New York Times, May 15^th.

To make matters even worse, stock ownership is increasingly being relegated to fewer people, more at the top of the economic pyramid: “Gallup conducted its annual Economy and Finance survey from April 4-14, and found that, for the fifth year in a row, fewer than 60 percent of Americans own stocks. Moreover, the percentage [currently at 52%] who do has been generally decreasing since 2007, the year the recession began, and now stands at its lowest point since Gallup began tracking it in 1998.” DailyFinance.com, May 8^th.

So those in that rarified air at the top now thrive in a market that punishes long-term, value-building investors and rewards constant and often automated traders who thrive in periods of instability and boom/bust volatility, the precise opposite economic world most of us really want. These professional traders need that unstable up and down pricing, because they use derivatives to bet on marketmovement (and make money as long as values are changing, no matter the direction). What have we done to ourselves?!

The notion that without regulations companies won’t pollute, financial traders will be transparent and honest and that criminals won’t commit crimes because “it’s bad” is so profoundly naïve that it is almost laughable. Almost. Yet there are politicians who believe that there is a free market (despite the tax and regulatory schema they actually passed to give financial institutions a clear path to excess) and socially responsible companies that will spend “green-oriented” money (making them less competitive) without extrinsic intervention. Instead, these self-same politicos are voting to destroy the lives of average Americans and erode the very democracy they were sworn to uphold. All they have to do to get re-elected is repeat the following mantra: smaller government is good, taxes are bad and what would Jesus do (I’ll do that).

I’m Peter Dekom, and the slow but steady erosion of the American model of “democracy equally applied to all” is taking our nation apart, piece by piece.