The LIBOR scandal is so much bigger and more important than this HSBC case but it seemingly gets a pass from public outrage since there's no easy TL;DR explanation of it.
In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything.
You're paying an interest rate on your car, your mortgage and your bank loan right? OK, that interest rate is set by the bank. The way they do that is to use LIBOR, and add a bit on top which is their profit. So your loans follow LIBOR. The banks basically rigged the game, and changed LIBOR as they saw fit, meaning that you paid more in interest than you should. Your neighbour did too. And his neighbour. If you add it all up it's billions.
They fucked everyone to make a quick buck, and it's illegal as hell.
See: http://www.bbc.co.uk/news/business-18671255
"At the onset of the financial crisis in September 2007 with the collapse of Northern Rock, liquidity concerns drew public scrutiny towards Libor. Barclays manipulated Libor submissions to give a healthier picture of the bank's credit quality and its ability to raise funds. A lower submission would deflect concerns it had problems borrowing cash from the markets."
...
"From as early as 28 August, the New York Fed said it had received mass-distribution emails that suggested that Libor submissions were being set unrealistically low by the banks."
Ie - you, the borrower - benefited from this manipulation.
The reason I omitted it was the difficult problem of explaining a complex subject in very few words, and still pointing the finger at banks. If you tell joe six-pack that his mortgage sometimes got cheaper you'll either have to divulge a complex explanation of why this is bad for him (which he won't understand or care about) or have him think that the banks should do some more of that LIBOR rigging so his mortgage can be lower.
It's a compromise.
http://www.rollingstone.com/politics/news/the-scam-wall-stre...
The second response is to embrace something like Bitcoin, which decentralizes everything. No central banking, no LIBOR scandal. But also no ability to stop "money laundering", defined as a transaction that a government doesn't want you to engage in. That's the tradeoff: the Bitcoin protocol is based on an adversarial environment and gives no special privileges to government or banking nodes.
LIBOR (banks), QE4 (govt), and the bailouts (both) are all enabled by the fact that some nodes in our system are granted special powers to set rates and print money.
Libor is not a central bank mechanism. It's a rate published by the British Bankers' Association, a private trade association. Similar to the S&P 500 for U.S. large caps, it is simply a metric that private parties have chosen to reference when setting. Libor is influenced by central banks' rates, but so would a Bitcoin economy's reference rate be a function of international money rates.
it is simply a metric that private parties have chosen to
reference when setting. Libor is influenced by central
banks' rates, but so would a Bitcoin economy's reference
rate be a function of international money rates.
Bitcoins are closer to cash than it may seem at first glance and just like cash you can't really fake having it.
Our financial sector is currently hopelessly corrupt and, at least in the US, the banking sector itself has a total grip on any attempt to regulate it.
[1] http://www.dailykos.com/story/2013/02/15/1187417/-Elizabeth-...
It is a little disingenuous for Warren to act surprised about this. She knows not only why regulators don't sue, but also how unlikely it is that we're going to start doing that (it'd be economically irrational for us to do so).
Her heart is in the right place. Too Big To Fail is a real problem. But if you've got a bunch of wasp nests in your back yard, you don't fix the problem by jamming sharp sticks into them.
I don't disagree with the factual correctness of this statement, but the implication is unsettling. Any kind of legal action from the government - from throwing someone in jail for possession of marijuana to suing banks over financial crimes - has negative economic consequences. If we send someone to jail for drug possession, we spend a lot of money investigating and prosecuting them, we pay to keep them locked up, we happily give up their productivity and any taxes they would have paid, and we reduce their long-term value to society by hanging a public arrest record on them. So, where do we stop using economic consequences as a reason for not enforcing laws?
I'm somewhat highly-compensated and I contribute a lot back to the economy, though consumption and taxes. Should the government prosecute me and someone who only earns minimum wage differently, since prosecuting me and throwing me in jail will have a substantially higher negative impact on the economy? Maybe I get 2 or 3 free misdemeanors per year, your average millionaire gets a free felony, and if you are on Fortune's top 100 list you get 3 free felonies?
I'm seeing more and more justification of not going after big companies and powerful executives due to the economic impact, and I think that is getting awfully close to codifying different legal systems for rich people and poor people. Certainly it already exists to a degree, but at least we sort of pretend that it is distasteful now.
If not, that's surely something we can and should change.
But it's not at all clear --- in fact, it seems unlikely --- that the core problem we face is a refusal by regulators to sue.
It seems more likely that the core problem is that the economic incentives in the finance industry, or at least in commercial banking, favor rapid and aggressive consolidation. Not enough disincentive exists to offset the externalities this creates. Maybe we should tax banks based on their sizes; maybe we should do that in the form of some kind of insurance premium.
But since anything we'd do to address any of the real problems is going to require bipartisan cooperation, first we need to be candid about what the problems are.
Completely different meaning. If ate a bar of chocolate in the library despite posted signs against eating and drinking. I broke a rule. If I threw my chocolate bar at the librarian's face with an intent to injure him, I broke a law (assault and injury etc.)
Or so the hypothesis goes. I'd argue that avoiding a hypothesized short-term economic problem in this way simply creates the much larger problem.
You can't just count the cost of one suit against one settlement and call it economically rational.
Corruption in the US looks different than in say China. Its puritan corruption. Convincing true believers that what's good for big corporations is good for everyone and for the all important jobs. Everything starts from there.
http://www.pbs.org/wgbh/pages/frontline/business-economy-fin...
The sad part about all of this, was that I notified the SEC on multiple occasions with physical proof that people were defrauding the government and individuals. The SEC's responsibility wasn't "to handle foreign citizens." Homeland Security "didn't handle securities cases." The IRS needed the person's Social Security Number, name and address. When someone moves from one state to another, the states stop communicating on any type of prosecution.
The whole process was a fascinating/scary insight into how easy it is to commit fraud in the United States.
So as a word to the wise for first time entrepreneurs, don't be afraid to ask investors, VCs or others where their money comes from.
The most difficult part will be figuring out how to condense it down.
Is the $150K Yuri Milner convertible loan offer still open?
slight exaggeration, right now, but it's certainly where hollywood would like to see things move.
I remembering reading about this way early on... and cast it aside as some false hyped up story.
Then I saw it being reported by high profile journals...
The biggest banks in the world are aiding terrorists and drug dealers do their work in the most crucial way: handling the financial end of things.
Isn't that just absolutely absurd? I don't know what to think at this point.
A key problem here is getting and maintaining attention by a significant majority of the population. Depressing information like this, coupled with the sense of powerlessness turns people off and relegates stories like this to the politically aware fringe of society.
The Daily Show and Colbert Report seem to have the right approach, but they are not enough.
I have an idea for a start-up that could do interesting things with this notion, but between time contraints and not having a partner in crime I fear it will never happen.
Even as a fairly politically-active person, I succumb to this exact sense of powerlessness. It's absolutely the key problem.
> I have an idea for a start-up that could do interesting things with this notion, but between time contraints and not having a partner in crime I fear it will never happen.
If you're comfortable sharing, I would love to hear it. It's a problem domain that really needs some attention and effort.
1999 "...clients, from Mexico, Nigeria, Pakistan and Gabon, whose sources of income were dubious and who passed millions through Citigroup banks." http://news.bbc.co.uk/2/hi/americas/511951.stm
2009 "Japan raps Citi for lax money laundering controls... bans Citi from retail banking promotions for a month... cites problems with governance, internal controls... Regulatory action follows similar violation in 2004" http://www.reuters.com/article/2009/06/26/citigroup-japan-id...
2012 "A US bank regulator cited Citigroup on Thursday for failing to comply with a federal law that requires banks to establish protections against money-laundering but did not impose a fine." http://www.nypost.com/p/news/business/us_regulator_cites_cit...
Indeed it seems he's had some commendations for his financial writing regarding the crap we've seen from banks in the last few years:
http://en.wikipedia.org/wiki/Matt_Taibbi#Financial_journalis...
Is there evidence he's been loose with facts in the past or do you take issue with his writing style?
Yes it does. I have read numerous Taibbi articles where he has only given half the salient facts to the reader, or omitted vital information in order to make the story more dramatic. He's right quite frequently but he consistently, and possibly deliberately, poisons the well of discourse.
Take HSBC. Yes, it is a cock up of grand proportions to allow Iranian money anywhere close to your American subsidiary. And yes, everyone involved in the Libor scandal should go to jail (as I expect many of them will).
Then one notices that this was largely trade financing for buyers in India, Greece, and South Korea. HSBC, like Standard Chartered, grew out of a tradition of giving a great deal of independence to country offices. Sort of like IBM. This increases flexibility but makes miscommunication more likely. Anti-money laundering is hard and margin compression at banks has thinned compliance teams. Financing terrorism suddenly becomes something more banal - a zealous banker shifting records around for a client he may have known from pre-revolutionary days (Iran was a U.S. ally until the 1979 revolution).
Does this excuse the behaviour? No. But it certainly dulls my pitchfork. Just as I avoid Fox News to stay abreast of American politics I would encourage you to seek out sources chasing understanding. Then again, a good outrage isn't a cheap good either :).
Regarding your point about "giving a great deal of independence to country offices." Why do these country offices need to belong to HSBC? Why do people bank with offices of HSBC rather than local banks? I'm fairly sure that these local offices provide essential connections to the larger financial network -- for example to move funds from African countries to the Gulf countries. But regulators do not, for example, require HSBC to divest itself of any of these country offices which abuse their independence -- which seems like a rather mild sanction under the circumstances, and likely to greatly mitigate the issues.
Why governments can not confiscate or nationalise HSBC and continue legal operations?
That's why it's safer o work through legislative means. People have wildly distorted ideas about the executive branch.
EDIT: see, for example, one of the sibling comments here.
The US has imposed trade sanctions and even been implicated in coups against foreign regimes responsible for relatively minor nationalizations.
Don't revoke license, so the world does not collapse, instead make decision makers lose sleep.
Large organizations like banks are fantastic for obscuring responsibility. The CEOs say, "I didn't know." The line workers say, "I was just following orders."
Everybody in between keeps things hazy because it's useful to their careers. When things go badly, they need to be able to claim it wasn't their fault. When things go well, they try to claim credit.
The net result is nobody gets punished when there is crime on a massive scale.
I think the only viable option is to punish the company. I think it would also be fair to change the law such that CEOs are treated as negligent if they let internal controls get to the point where criminal things are happening without an obvious, chargeable conspiracy by a group of workers. But good luck getting our bought-and-paid-for congressmen to approve something like that.
Should be personally liable for large-scale crimes.
| Banks are not in charge of policing the world.
| If the US wants to stop funds/goods from
| leaving/ending up in Iran they should stop those
| funds/goods from entering/leaving the US in the
| first place.
The article paints a picture that HSBC provided the service of routing money around so that people in Iran could transfer money to the US and vice versa. The entire purpose of this service would be to obfuscate the origin or destination of the transfer from the US government.
I wouldn't say that requiring HSBC to not do this would be requiring them to 'police the world,' but if they want to be chartered as a bank in the US, it certainly makes sense that they should 'play by the rules.' If they were specifically offering/advertising a service to clients where-by they would actively skirt those rules, it doesn't seem like there is an issue with (at the least) revoking their charter.
Corporations don't commit crimes, people do. Executives employed by this company were responsible for all of the illegal activities that this story describes. They get paid a shitload of money because they take risks on behalf of the company and are supposed to be responsible for the results of those actions. When they perform well, they get a huge bonus. When they don't, their punishment is that they get "only" their salary and no bonus. Fine, whatever. But when they authorize actions that are clearly illegal, they should go to jail.
The attorney general should be finding the responsible executives and prosecuting them. If the company doesn't cooperate, then throw the board in jail. The company can then hire/elect replacements who will be properly scared shitless of doing anything illegal. These guys are supposed to be compensated for the risks that they take. You can't have a multi-million dollar (personal) upside and no comparable downside. In a just society, the downside needs to be that if you're caught breaking the law, you go straight the fuck to jail like everybody else.
If you don't make people personally responsible for their actions, you're effectively giving them a blank check to do whatever the hell they want and then hide behind an operation that won't be touched because it's too big to fail. You also have employment contracts that require the corporation to pay legal fees and use their enormous resources to protect them from personal liability.
Obviously there are situations when a company needs to defend its executives in order to conduct normal operations, but the line in the sand needs to be drawn at accusations of criminal behavior.
but but corporations are people ?!? they said
Personally I'd like to see a country where the rule of law is still respected. Forget expediency. I'll take some pain every once in a while to avoid this kind of outrage.
Some of the more pure examples of this evil ( from the human standpoint ) are what happens in Amazons warehouse facilities [2]. But the more mundane examples show up with your monthly bills.
It seems not long from now that corporations wanting to redevelop a desirable plot of land will be able to buy a permit to exterminate the humans living on it. And while today that notion sounds faintly ridiculous, it's not unheard of; we are all american indians now.
1. http://www.kk.org/thetechnium/archives/2008/10/evidence_of_a...
Oh wait. No I'm not.