July 16, 2012 |
Photo Credit: Shutterstock
Consider just
this month's news in financial services.
First, Barclay's has been manipulating the Libor, the main interest
rate upon which most other interest rates and financial transactions are
based, since 2005. Moreover, Barclay's traders were colluding with
traders in many other banks to assist them in manipulating the Libor
too, so that they could all profit from their bets on it.
Second, JP Morgan Chase is having a really great month. Recent reports describe how it is
resisting
Federal subpoenas related to price-fixing in U.S. electricity markets.
It is also accused (by former employees among others) of deliberately
inflating the performance of its investment funds to obtain business.
And finally, JP Morgan's failed "
London whale"
trade, which has now cost over $5 billion, is being investigated to
determine whether the loss was initially concealed from regulators and
the public.
Third, HSBC is
paying
a fine because it allowed hundreds of millions, perhaps billions, of
dollars of money laundering by rogue states and sanctioned firms,
including some related to terrorist activities and Iran's nuclear
efforts. But HSBC is only one of at least 12 banks now known to have
tolerated, and in some cases aggressively courted, money laundering by
rogue states, terrorist organizations, corrupt dictators, and major drug
cartels over the last decade. Others include Barclay's, Lloyds, Credit
Suisse, and Wachovia (now part of Wells Fargo). Several of the banks
created special handbooks on how to evade surveillance, created special
business units to handle money laundering, and actively suppressed
whistleblowers who warned of drug cartel activities.
Fourth, a new private lawsuit cites
documents
indicating that Morgan Stanley successfully pressured rating agencies
into inflating the ratings of mortgage-backed securities it issued
during the housing bubble.
Fifth, Visa and Mastercard have just
agreed to pay
$7 billion to settle a private antitrust case filed by thousands of
merchants, who alleged that Visa and Mastercard colluded to fix fees and
terms of service.
Just another month in financial services. Is it unusual? No, it's not.
If we go back just a little further, we have UBS, HSBC, Julius Baer, and
other banks actively marketing tax evasion services to wealthy U.S. and
European citizens. We have senior executives of several banks
(including JP Morgan Chase and UBS) strongly suspecting that Bernard
Madoff was running a Ponzi scheme, but deciding to make money from him
rather than turn him in. And then, of course, we have the financial
crisis and everything that led to it. As I show in great detail in my
book
Predator Nation,
we now possess overwhelming evidence of massive securities fraud,
accounting fraud, perjury, and criminal Sarbanes-Oxley violations by
mortgage lenders, investment banks, and credit insurers (including
senior executives of Countrywide, Citigroup, Morgan Stanley, Goldman
Sachs, Bear Stearns, AIG, and Lehman Brothers) during the housing bubble
that caused the financial crisis. If we go back to the late 1990s, we
have the massively fraudulent hyping of Internet stocks, and several
banks (including Merrill Lynch and Citigroup) actively aiding Enron in
committing its frauds.
So, July 2012 really isn't abnormal at all. The reason for this is very
simple. Over the past two decades, the financial services industry has
become a pervasively unethical and highly criminal industry, with
massive fraud tolerated or even encouraged by senior management. But how
did that happen?
Well, deregulation helped, of course. But something else was far more
important. It is the one critical factor that unites all of the episodes
cited above, including those of this month. This critical unifying
factor is the total number of criminal prosecutions of major firms and
senior executives as a result of all of these crimes combined.
And what is that number?
Zero.
Literally zero. A number that neither President Obama nor Mitt Romney shows the slightest interest in changing.
Consider the Obama administration's choices for the four most important
positions in financial sector law enforcement. The attorney general
(Eric Holder) and the head of the Justice Department's criminal division
(Lanny Breuer) both come to us
from Covington & Burling,
a law firm that represents and lobbies for most of the major banks and
their industry associations; indeed Breuer was co-head of its white
collar criminal defense practice, and represented the Moody's rating
agency in the Enron case. Mary Schapiro, the head of the SEC, spent the
housing bubble in charge of FINRA, the investment banking industry's
"self-regulator," which gave her a
$9 million severance for a job well done. And her head of enforcement, perhaps most stunningly of all, is Robert Khuzami,
who was general counsel for Deutsche Bank's North American business during the entire bubble. So zero prosecutions isn't much of a surprise, really.
In contrast, what do you think would happen to you if, as a lone
individual, you were caught supporting Iran's nuclear program? Do you
think that you would get off with a "deferred prosecution agreement" and
a fine equal to a few percent of your annual salary? No?
But that's because you don't live right. You probably haven't been to
the White House a dozen times since President Obama took office, or
attended White House state dinners, like Lloyd Blankfein has. Nor have
you probably overseen millions of dollars in lobbying and campaign
donations, or hired senior administration officials, or sent your
executives into the government in senior regulatory positions, or paid
$135,000 for a speech by someone who later became chairman of the
National Economic Council. And, well, you get the law enforcement that
you pay for.
Charles Ferguson is director of the Wall Street documentary 'Inside Job' and author of 'Predator Nation'
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