Thursday, July 5, 2012


Rolling Stone magazine's Mike Taibbi has an interesting question about the financial rate fixing scandal discovered between the banks in Europe: "Why is No One Freaking Out About the LIBOR Banking Scandal?I think I have the answer. Simply put, the players in the world's biggest financial institutions have become modern day untouchables. 

But rather than being medieval leper-like untouchables they are more like royal authority, who were insulated and protected by palace sycophants. The courtiers today are the politicians. Mesmerized by the power of the financial courts they seek to please, today's politicians are always ready to put their noses far up the rear ends of Wall Street and the world's biggest financial institutions.

The end result is that even with a steady string of acknowledged half billion dollar finesbig bribesJP Morgan's billion dollar "miscalculations," and Barclay's rate fixing scandal there is hardly a holler from Washington, or Main Street. 

And we're not even four years out from the 2008 market collapse. Worse, it was understood five years ago that the biggest banks were playing with the LIBOR rate (loosely speaking LIBOR is the interest rate financial institutions charge each other).

Think about it. The CEO of Barclays, Bob Diamond, resigned in disgrace for his role in (mis)managing and helping to "fix" the interbank exchange rate. Yet, virtually no one in Washington has anything to say about how this fits into a steady drip of bribes, payoffs (i.e. fines), and mismanagement that's been happening in the financial world.

Did I mention that we're not even four years removed from the 2008 market collapse? 

Sigh ...

So why have the biggest players in the world's biggest financial institutions become virtually untouchable? Simple. Instead of being held to account for wrecking and then mismanaging the global economy the world's biggest financial players have been allowed to pay fines and play kissy-face with financially illiterate politicians around the world.

So we end up with utterly useless and embarrassing staged shows that are supposed to be fact finding committee hearings ... you know, like the one we just saw with JP Morgan's Jamie Dimon in Washington. Truly pathetic.

It's why - as I pointed out nine months ago - a clueless Bill O'Reilly can ask his equally clueless audience why, if what they did was so bad, there haven't been any big investigations into Wall Street criminality. If you listen to O'Reilly it's because there is "no evidence" of wrongdoing because "they didn't violate any laws!"

Bill O'Reilly's ignorance on this issue is truly embarrassing. 

As I explained on my blog, we didn't get any big investigations - let alone big convictions - after the 2008 market collapse because we dumped trillions in taxpayer funded bailouts and other guarantees into the financial sector. I further explained that in the process of saving our financial system we effectively removed the threat of receivership, bankruptcy, disgrace, and the full force of our legal system from Wall Street's horizon. 

This is the way our legal and political system works for white collar executives with money (it's also why financial executives involved in hit and run cases can escape felony charges). Many in our modern political culture are too busy trying to kiss the rings of our financial overlords that they can't see any of this, let alone understand that the financial emperor(s) of America don't have any clothes.

So, to recap, no one is freaking out over the most recent major financial scandal because the world's biggest financial players have become politically untouchable.

If you are going to talk to your friends about this you want to explain that it's not that there wasn't illegality and corruption in the lead up to 2008. It's just that the rules of the game are rigged, and they prevent our financial mandarins from having to account for their actions.

Below is a partial list that explains how this has happened:

Purified Toxic Crap ... Bailouts essentially turned straw into gold by using taxpayer funded cash to purchase toxic "legacy assets," for example. To date well over $5 trillion in watered stock, bad assets, and toxic securities have been pretty much cleaned up (forcibly) by the U.S. government taxpayer. If the worst is cleaned up what do you go after? 
Information Blackouts ...  One of the cornerstones of any market economy - and any democracy - is transparency. Without it you can't get good information. Guess what? Bailout payout information was deliberately withheld from the public on orders from current Secretary of Treasury Tim Geithner. With an information blackout the most toxic and ethically challenged market instruments have been able to fly under the radar (and then get cleaned up).
Out of Court Legal Settlements ...  Instead of entering into court battles - which are critical for building precedent and case law - financial firms like Goldman Sachs routinely pay fines into the hundreds of millions of dollars. This is chump change when you look at the trillions the financial industry has hauled in (and the trillions more we are now on the hook for). It's hard to get convictions when you can pay a taxpayer subsidized fine and walk away. (This case, however, is refreshing.)
Right to Sue is Waived ...  At the center of all the toxic payouts in 2008 was A.I.G. In exchange for getting bailout cash A.I.G. was forced to give up it's right to sue Wall Street firms in court. In a few words A.I.G. was given an offer they couldn't refuse: Take the money and shut up, or you don't get any help at all (and you might even get caught up in a legal dragnet too). But it gets better (or is that worse?). At one point during the height of the market crisis in 2008 the Federal Reserve demanded unusual national security procedures before it would share or supply critical A.I.G. bailout related documents. 

There's more. Much more. This Matt Taibbi piece is an excellent place to start if
you like reading about Washington politics and our economic mess.

So, to simplify, you can't be sued or convicted if the problem is purified with a pile of taxpayer backed cash ... or information is deliberately withheld or distorted ... or if you pay record fines to avoid court trials ... or if the initial keystone bailout institution is told they can't sue as a condition for receiving taxpayer money.

Let me repeat the point. You can't get investigations - let alone sued - if the state intervenes to help you bury the financial bodies. The money guys and our financial institutions have become virtually untouchable because of the palace sycophants and financial illiterates who run the world's capitals.

It's really that simple.

- Mark

UPDATE: Well, this is good news. A trickle of LIBOR rate-fixing lawsuits is expected "to become a deluge" ... 

1 comment:

R. M. said...

I learned about the James Dimon/Congress fiasco on The Daily Show.

It's sad when a comedy show speaks more truth than a "credible" (word used lightly) news network such as FOX.