The Scam Wall Street Learned from the Mafia

The Scam Wall Street Learned from the Mafia

But the reason no one was whispering isn't that their actions weren't illegal – it's because the bid rigging was so incredibly common the defendants simply forgot to be ashamed of it. "The tapes illustrate the cavalier attitude which the financial community brought toward this behavior," says Michael Hausfeld, a renowned class-action attorney whose firm is leading a major civil suit against Bank of America, Wells Fargo, Chase and others for this same bid-rigging scam. "It became the predominant mode of transacting business."

As much as I defend the financial sector, there are some things that are unforgivable. It's situations like these where I wish America would follow China's lead in making the worst forms of financial fraud a crime punishable by death.

As much as I defend the financial sector

You shouldn't. The whole thing is rotten. This isn't even the tip of the iceberg.

But as the article points out, all we do is slap them on the wrist and then continue to give them money.

Edit: I'm so angry yet feel so helpless that I don't even know what to say.

Read any book about Enron and the extent to which still-existing financial institutions were happy to put their ethics into the toilet and join the feeding frenzy just leaps from every page.

If the American regulatory bodies had enacted jdzappa's suggestion, they would still be shooting people now.

Malor wrote:
As much as I defend the financial sector

You shouldn't. The whole thing is rotten. This isn't even the tip of the iceberg.

Ugh. As much as I hate posts like I'm about to make...

We're not all bad. The financial sector includes good parts too. I have never worked with CDOs, CDSes, or even junk mortgages. There's big parts of the financial sector directly tied to growing business, savings, and retirement.

Sorry. I know you were speaking with hyperbole and usually I gloss over posts like that. I understood your point.

For what it's worth, Seth, while I loathe the financial sector in general (particularly the Wall Street firms and groups that work directly with them), both from what we learn about them as well as from some personal experiences in supporting financial investors as a tech support guy, I don't ascribe that loathing to the 100% of the people (or even 100% of the companies) in the financial sector.

There is good and bad everywhere. But the problems that have been cropping up in the financial sector are definitely akin to a cancer.

Well, specifically, it seems like investment banking is a cancer.

Finance in general is okay. I actually think banks are a pretty good idea. Most of the little outfits seem fine. But high finance? The institutions big enough to be in bed with the government? Metastatic cancer.

Agreed,.on all fronts. Prior to citizens united, I think the repeal of glass-steagall was the most dangerous thing our government has done.

This article is about bond fraud. I don't work in public funds (or for a bank listed in the article), but there is a pub funds guy in the building. I think I'll show him this.

Malor wrote:

Well, specifically, it seems like investment banking is a cancer.

Finance in general is okay. I actually think banks are a pretty good idea. Most of the little outfits seem fine. But high finance? The institutions big enough to be in bed with the government? Metastatic cancer.

Banks themselves have gone off the rails ever since they moved from private partnerships to publicly traded entities. It's much easier to take massive risks when it's not your money and your board is going to give you and your executive team millions in compensation regardless of your actual performance. Which is why banks are spending around 50%+ of their revenues on compensation while manufacturing firms, for example, only spending around 20%.

OG_slinger wrote:

Banks themselves have gone off the rails ever since they moved from private partnerships to publicly traded entities. It's much easier to take massive risks when it's not your money and your board is going to give you and your executive team millions in compensation regardless of your actual performance. Which is why banks are spending around 50%+ of their revenues on compensation while manufacturing firms, for example, only spending around 20%.

I agree with your basic point here, but I wanted to point out that , besides personnel, banks don't really have anything else to spend their revenues on aside from maybe some ad buys in local markets; whereas other entities, especially hard good manufacturers, spend a lot of money on physical materials to create their products. So that's rather an apples/oranges comparison.

I think the fact that there aren't several thousand people in prison for the last disaster tells us all we need to know about our current system of oversight.

The sad thing is, I don't see it changing because the ones charged with changing it are whores to the financial industry. What I find most infuriating though is the people who suffered the most from their actions are the nameless folk who worked their lives in relative anonymity hoping one day to retire on an investment or 401k that was obliterated by these financial vampires.

If anyone is interested in being completely outraged, This American Life and Planet Money have done some AMAZING programs on these issues. The podcast that dealt with Magnatar is particularly rage inducing.

Minarchist wrote:

I agree with your basic point here, but I wanted to point out that , besides personnel, banks don't really have anything else to spend their revenues on aside from maybe some ad buys in local markets; whereas other entities, especially hard good manufacturers, spend a lot of money on physical materials to create their products. So that's rather an apples/oranges comparison.

I fail to see how it's an apples/oranges comparison. Both are businesses who have lots of expenses beyond salaries. For example, banks have to maintain hundreds or thousands of branches and real estate and office space isn't free.

The point remains that banks overcompensate their employees as compared to practically every industry. They don't have to do that. Instead, they could simply turn that into profits. But they don't. They pay themselves extremely well and use the tired excuse that they have to pay huge salaries in order to attract the best talent. Yet that best talent f*cked up horribly, meaning they either aren't the smartest people in the room, incompetent, or both.

OG_slinger wrote:

Yet that best talent f*cked up horribly, meaning they either aren't the smartest people in the room, incompetent, or both.

I think the problem wasn't their relative smartness, but rather the low upper limit of smartness.

It sure as hell smarted!

Tkyl wrote:

all we do is slap them on the wrist and then continue to give them money.

Who is we? Any sensible person would have stopped doing business with these banks a long time ago, and they'd have gone bankrupt. In any remotely market-aligned scenario, that would have happened already. They can get away with it, and continue to get away with it, because the government is part of the scam - it wouldn't work without the corrupt politicians and boondoogle borrowing schemes handing taxpayer's money over the scam artists.

OG_Slinger wrote:

It's much easier to take massive risks when it's not your money and your board is going to give you and your executive team millions in compensation regardless of your actual performance.

Which is precisely why the the larger scam continues to work. Politicians and government regulators have even less incentive than the bankers to protect the cities' investments; it's not their money, they will take more taxes next year, and they will almost certainly keep their job or be re-elected as an incumbent. It's pretty much a classic case of public choice mechanisms in action: concentrated gains for the politicians and banks, diffuse costs to the rest of society.

Aetius wrote:

Which is precisely why the the larger scam continues to work. Politicians and government regulators have even less incentive than the bankers to protect the cities' investments; it's not their money, they will take more taxes next year, and they will almost certainly keep their job or be re-elected as an incumbent. It's pretty much a classic case of public choice mechanisms in action: concentrated gains for the politicians and banks, diffuse costs to the rest of society.

This has nothing to do with the government or taxes, except the money and pressure the industry puts politicians and regulators to pervert the system and bypass regulations.

It has everything to do with the very heart of capitalism being rotten. The financial industry cannot continue to extract ever increasing amounts of money from the broader economy. It's become a parasite and one that is in danger of killing its host because it doesn't know how to moderate itself. In fact, the very idea of moderation has become anathema to it. Profits always have to increase, which mean it has to continually take bigger risks which endanger the economy, not just its investors.

As can be clearly seen over the past few years, the financial industry is working hard to prevent any reasonable re-regulation, let alone efforts to break up the big players.

They would already be broken, OG, shattered by their own stupidity, if not for the massive ransomsbailouts paid to them by the government.

Capitalism does fix itself, when it's allowed to. We've just done our absolute best to prevent that from ever happening, because it's an unpleasant process. (aka, "recessions") To avoid losing a toe today, we'll promise a foot tomorrow, and then when they come for the foot, we'll promise a leg. Eventually, you run out of things to promise, and then things get ugly -- when you could have just lost the toe.

Malor wrote:

They would already be broken, OG, shattered by their own stupidity, if not for the massive ransomsbailouts paid to them by the government.

Capitalism does fix itself, when it's allowed to. We've just done our absolute best to prevent that from ever happening, because it's an unpleasant process. (aka, "recessions") To avoid losing a toe today, we'll promise a foot tomorrow, and then when they come for the foot, we'll promise a leg. Eventually, you run out of things to promise, and then things get ugly -- when you could have just lost the toe.

Our entire economy would be shattered had we let the financial industry just die back in 2008.

We did the right thing to bail it out since that prevented everything else from crashing and burning as well. However, we've failed horribly since then because we haven't taken it down via controlled implosions. I've never said that we should just keep on doing what we're doing, but we're f*cking smart enough to plan things, not just sit back and let a faceless, mindless creature like the market absolutely wreck hundreds of millions of lives.

That capitalism can only fix things by popping the massive bubbles it creates doesn't say much about it as an economic system. An economic system worthy of the worship people pile on capitalism wouldn't constantly cycle through booms and busts. The economic and, most importantly, the human damage it continually does is too much.

The problem isn't that "capitalism" as a system requires bubbles to burst - it's that humans are evil scumbags who try and cheat the system and THAT creates the bubbles in the first place.

Our entire economy would be shattered had we let the financial industry just die back in 2008

Well, it would certainly have been hurt very badly. But the reason the economy blew up was because of the prior bailouts. The economy should have gone through a really nasty recession during the "Asian Flu", but Greenspan started printing money. Then all that printed money led to the huge stock market/Nasdaq bubbles, which popped in 2000 and should have brought about the Second Great Depression. Then he printed ooodles of money and held things together, and set off the much larger property bubble, which blew up in 2008 and should have resulted in the Greater Depression, much much worse than the blowup that would have happened in 2000-2001.

And, sure enough, everyone in the government stepped up with trillions of dollars to tell the economy to keep doing the stupid sh*t it was doing, so instead of improving, we're getting sicker, every day. When the next blowup happens, it's going to be even worse than the one in 2008, because we are not fixing anything, we are only digging deeper with each passing week.

Most of these guys would have been wiped out in 2000, if we'd let it happen as it should have.

You have to have recessions for capitalism to prosper. It needs them. They rid the economy of weak players and bad ideas. Capitalism self-corrects, but it has to be allowed. If you don't allow it, the damage builds up until it cannot be stopped, and then you have titanic wipeouts, instead of mildly painful adjustment periods.

OG_slinger wrote:

That capitalism can only fix things by popping the massive bubbles it creates doesn't say much about it as an economic system. An economic system worthy of the worship people pile on capitalism wouldn't constantly cycle through booms and busts. The economic and, most importantly, the human damage it continually does is too much.

If that is the case then is there a better economic system out there?

MacBrave wrote:
OG_slinger wrote:

That capitalism can only fix things by popping the massive bubbles it creates doesn't say much about it as an economic system. An economic system worthy of the worship people pile on capitalism wouldn't constantly cycle through booms and busts. The economic and, most importantly, the human damage it continually does is too much.

If that is the case then is there a better economic system out there?

Hopefully, yes. We just haven't figured it out yet.

MacBrave wrote:

If that is the case then is there a better economic system out there?

Why not? Humanity has structured its economic systems in many different ways throughout history. There's no reason to believe Adam Smith had the final word.

I, for one, would love an economic system that accounted for human happiness or quality of life instead of just profit since profit is an incredibly crude (and often wrong) thing by which to judge "success," especially for a society.

It should also factor in, as Duoae pointed out, that we're assholes and be structured in a way that either doesn't allow people to cheat and manipulate it or simply not allow people to become filthy rich. If there's no payoff for being a dick then fewer people will act like dicks.

In fact, such an economic system does exist. It's called "capitalism", and it encourages investment in the means of future production in contrast to the previously favored hoarding of goods.

You may note that this idea does not require a blind and unreasoning worship of "the free market".

And in fact, when you think about them, capitalist ideas suggest that the practice of some economic actors pillaging other economic actors (whether it's being done to foreign nations, to other companies, to local governments, to customers, or whatever) is deeply problematic, and a throw-back to older mercantilist behaviors. The means of production are still spread across the economy, as they should be. But the money that is meant to represent that wealth is being treated as a good in and of itself, and being hoarded in ways that do not reflect that actual distribution of wealth (productivity), and which are detrimental to the growth of the economy (the increase in wealth created by becoming more productive, which leads to higher standards of living as goods become cheaper through increases in productivity).

It's not particularly surprising that people would behave this way. If someone finds a way to "win" a game, some people will start using it--even when it makes the game stop working right. If it is extremely advantageous, everybody will start using that same tactic, and sometimes we'll decide that the game is broken. "Oh, that game was fun, but then people realized that doing X was the easiest way to win, and eventually everybody started doing X and it wasn't fun any more." In that case, we'll consider changing the rules of the game in order to make the problem less pronounced--in order to try to change the game back to being fun instead of just having everybody use the same exploit.

In the context of the economic game, the rules are set by regulation. When we see a behavior that's within the rules but has detrimental effects on society, we regulate to decrease the favorability of that behavior. For example, it's much cheaper to dump your dangerous chemical waste into the pond out back than it is to try to contain it safely or to process it into a safe form. However, this does bad things to a lot of people, so we regulate to prevent that pollution (also known as "externalizing costs"--making other people pay for what you're doing).

So, that's where the danger of this "free market-ism" comes from. There are always ways to get ahead at the expense of others. If those ways are too abusive, we must regulate economic activity to discourage doing things that way. If we blindly accept that "all regulation is evil, the market must be free!" then we have no way to deal with that. And, of course, that's exactly what those who profit from such abuse prefer.

Such people aren't investing in the future. They're not capitalists. They're pillagers who extract what they can from who they can and let other people pay the price.

A capitalist ought to say "change the rules to ensure that pillaging is not rewarded". Regulate the system, so that the economy achieves the goals it was intended to achieve.

--

Edit to add: And of course, there may be better future economic systems, too. I just wanted to point out that what we learned to call "capitalism" in opposition to "communism" is something quite different from "capitalism" as it was conceived. And that other "capitalism" is a lot closer to what we want than "free market-ism" is.