Finance is a cartel

Bob Diamond: banks across the world were fixing interest rates in run-up to the financial crisis.

Basically, the major banks have colluded and lied spectacularly about their numbers to modify their LIBOR ratings to profit massively at the detriment to pretty much everyone else.

Eliot Spitzer breaks it down pretty well with Matt Taibbi from Rolling Stone magazine.

Basically, the international finance system is a sham. This isn't one or two bad banks, they would all have to have agreed to this for it to work. The top 16 international banks are rotten to the core. There is no competition, it's a cartel, little different from OPEC meeting to declare oil will cost $110/barrel. I personally am waiting on the Libertarians' spin on how this is caused by regulations, and the free market would fix this if only we'd just let it.

Heh.

NM.

Too big to fail prosecute?

Finance has been a cartel since transferable money was invented. Anyone familiar with the study of international or economic history can tell you that.

If only it were a free enterprise system, the market would have corrected itself by now!

Eliot Spitzer has a Current show? Man, never knew that.

I listened to an episode of Planet Money yesterday that talked about this that I'd suggest checking out if you want a good, more detailed explanation about how LIBOR works. I want to say I'm surprised about this but I'm just not. These banks simply don't care about law or ethics because they know when things go bad, the people at the top will take golden parachutes and walk away while governments step in and save them. I don't want to see an economic collapse but I don't know what the solution is other than to just let these people fail as they're supposed to.

Parallax Abstraction wrote:

I don't know what the solution is other than to just let these people fail as they're supposed to.

Forced destitution for the people who create cartels like this. Redistribute their personal wealth to those they f*cked over in order to make that wealth.

None of the current penalties are sufficient deterrents, and we've seen enough consistent criminal behavior from "leaders" in the financial world to know that they're just going to keep doing this without more persuasive measures.

Parallax Abstraction wrote:

Eliot Spitzer has a Current show? Man, never knew that.

I listened to an episode of Planet Money yesterday that talked about this that I'd suggest checking out if you want a good, more detailed explanation about how LIBOR works. I want to say I'm surprised about this but I'm just not. These banks simply don't care about law or ethics because they know when things go bad, the people at the top will take golden parachutes and walk away while governments step in and save them. I don't want to see an economic collapse but I don't know what the solution is other than to just let these people fail as they're supposed to.

Because it isn't just the traders who fail - if Barclays fail, so does the savings and finance of millions of people.

Farscry wrote:

Forced destitution for the people who create cartels like this. Redistribute their personal wealth to those they f*cked over in order to make that wealth.

None of the current penalties are sufficient deterrents, and we've seen enough consistent criminal behavior from "leaders" in the financial world to know that they're just going to keep doing this without more persuasive measures.

I'd like to sign up for your newsletter!

It's ironic how when the financial "leaders" share the wealth it's never referred to as elitist socialism or wealth re-distribution but that's EXACTLY what it is.

Note the point from the interview - this is the fault of regulatory issues, and until we fix those, and put these guys in jail wholesale, it's not going to be fixed.

Robear wrote:

Note the point from the interview - this is the fault of regulatory issues, and until we fix those, and put these guys in jail wholesale, it's not going to be fixed.

I'm a filthy skimmer and haven't actually read the article yet. I will definitely read it later though when I have time!

It's in the Elliott Spitzer video interview.

I personally am waiting on the Libertarians' spin on how this is caused by regulations, and the free market would fix this if only we'd just let it.

It would! Most of these banks would be gone, in a free-market world. And they would have gone out of business long, long ago, well before this scandal ever had the opportunity to even get started.

The Federal Reserve is up to its eyebrows in this, because every time these banks tried to blow up from lying like this, the Fed rode to the rescue with gobs of cash. And then, when they finally dug a hole with their corruption too big for even the Fed to save them, Congress rode to the rescue and assumed all their liabilities.

Basically, the bankers dug huge holes, and when the governments of the world discovered the holes, they filled them with the bodies of their citizens, patting the bankers on the shoulder, consoling them even as people screamed from the holes, and told them to go start digging anew.

I just finished the Zeitgeist Documentary on Netflix... good timing!

Malor wrote:

It would! Most of these banks would be gone, in a free-market world. And they would have gone out of business long, long ago, well before this scandal ever had the opportunity to even get started.

The Federal Reserve is up to its eyebrows in this, because every time these banks tried to blow up from lying like this, the Fed rode to the rescue with gobs of cash. And then, when they finally dug a hole with their corruption too big for even the Fed to save them, Congress rode to the rescue and assumed all their liabilities.

Basically, the bankers dug huge holes, and when the governments of the world discovered the holes, they filled them with the bodies of their citizens, patting the bankers on the shoulder, consoling them even as people screamed from the holes, and told them to go start digging anew.

I don't disagree that the Fed has over-meddled and over reached but couldn't you also argue that a lack of oversight and strict regulation would have prevented this quasi-criminal activity?

It seems to me that a free market world only works if everything is always equal. By it's very nature, pure unbridled capitalism is driven to make things inherently unequal. If we're both in the same business I'm going to do everything and anything I can to put you out of business. Once you're gone I'm free to do whatever I want. Wouldn't I be free to become a financial monopoly then basically run unchecked in a pure free market system?

I view capitalism as a kindergarten class. Everything is great as long as you have a dominant authority that can step in once in a while and say "don't do that"!

A lack of oversight is surely a part of it. I think the bigger issue is that the regulators are funded by dues from the folks who they are supposed to be regulating. Also the revolving door system of industry folks getting jobs within the government and regulators. Like they are going to actually regulate their friends and future employers. There's also the lobbying. When you hire people to write the rules you are going to be regulated under, don't expect anything to actually matter.

That's what you call a good ol' conflict of interest.

I don't disagree that the Fed has over-meddled and over reached but couldn't you also argue that a lack of oversight and strict regulation would have prevented this quasi-criminal activity?

No, because you gotta realize, these guys are incredibly intelligent, and the regulators are always behind them. We can't define bad behaviors fast enough to stop them from coming up with new ones, and then looking innocent while we pass new laws and clean up their latest mess.

The only way to get these guys regulated is for them to regulate themselves, and the only way to do that is to A) let the institutions blow up when their traders blow them up, and B) throw them the f*ck in jail if their companies blow up from their trading. Make it a crime to be involved in the collapse or bankruptcy of a bank, and suddenly those giant brains will be laser-focused on making sure the bank stays profitable and healthy.

And we have to stop with the unlimited cash from nothing. That's what's allowed all these holes to be dug so, so deep. As Buffett says, it's only when the tide goes out that you find who's been swimming naked, and the Federal Reserve has been doing its absolute damndest, for the last 20+ years, to keep the tide from ever going out. Ever.

And the bankers haven't just been swimming without shorts, they've been quietly dissolving everyone's skin.

Malor wrote:

And the bankers haven't just been swimming without shorts, they've been quietly dissolving everyone's skin.

Think that metaphor might have gotten away from you a little there.

IMAGE(http://images.wikia.com/indianajones/images/e/e2/Death_by_face_melting.jpg)

The regulators are always behind those they regulate these days because they're captured. But just because they're muzzled doesn't mean they can't bite. Not too long ago, we had regulators that could take down Charles Keating. There was no shortage of manpower or brainpower in the FSLC, even against complex and well-connected frauds.

We could have useful regulators again, if our government had the political will. We'd need to prohibit the revolving door (and pay correspondingly more for good regulators), and it would take time to develop the expertise that the government has chosen not to maintain. But it's part of our history, and it could be part of our future.

No, actually, that's a pretty fair estimation of what the bankers have been doing to the world, Jonman. In fact, I'd call that a very solid choice of picture.

Malor wrote:

No, actually, that's a pretty fair estimation of what the bankers have been doing to the world, Jonman. In fact, I'd call that a very solid choice of picture.

Aye. We've had a couple of countries go off the deep end, the EU is deep in the sh*t, and the Fed is the only reason we're not in a horrific depression. (Arguments on if that is good or bad aside. I would say at this point, the Fed has no winning choices to get out of the hole they dug.)

You're right, they have only losing plays. Crash now, or crash worse later. It's the same problem they've had since Greenspan took over--- refusing to allow bad times now means worse times later, and Greenspan never, ever let bad times happen.

We're hooked on that easy money, almost exactly like a junkie that's hooked on meth. To a junkie, the solution always looks like more meth.

A depression would be the good outcome. At this point, we've been so frivolous with our cash for so long that recovering from the insanity will almost certainly cause the deepest, longest depression in human history. (Well, okay, it might not be Dark Ages bad, so maybe only the second worst ever.) It will be so bad that, with the climate change piling up, humanity might never recover. But as nightmarish as that scenario is, it's still the best scenario on offer.

Malor wrote:

A depression would be the good outcome. At this point, we've been so frivolous with our cash for so long that recovering from the insanity will almost certainly cause the deepest, longest depression in human history. (Well, okay, it might not be Dark Ages bad, so maybe only the second worst ever.) It will be so bad that, with the climate change piling up, humanity might never recover. But as nightmarish as that scenario is, it's still the best scenario on offer.

You are always so peachy, Malor. Why do you think things have to be so catastrophic? You are forecasting the end of the world here. No doubt things will be bad, but the financial system is on its last leg. And it will soon lose that, which will lead into a worsening depression. The same growth-based society simply won't be on the radar anymore. I do think my generation and those to come will live in a significantly more difficult world than the one enjoyed by the last few generations. Nevertheless, I am prepared to live with less as are many of my generation that are growing up in the same conditions of struggle.

Climate change is a real problem, but with the fundamental changes to the world economy that are coming, the emission trajectory proposed by scientists simply won't ever materialize. They are based on a world that continues to grow and grow exponentially. We both know that isn't going to happen. The very system that supports it is on life support. We will have to deal with the effects of the emissions thus far and the continued emisisions of the world in the future.

I admit that I share Malor's apparent pessimism. If there were a way for us to come back from the precipice of this economic/environmental catastrophe, we'd more than likely simply revert back to old habits and find ourselves yet again on the edge looking down. We likely won't change (banks, oil companies, and the governments that "regulate" them) until we are forced to.

Banks will continue to collude so long as there are two coins on earth to rub together, and oil companies will "drill baby, dill" until every drop of fossil fuel finds it's way into a gas tank.

Nicholaas wrote:

Banks will continue to collude so long as there are two coins on earth to rub together, and oil companies will "drill baby, dill" until every drop of fossil fuel finds it's way into a gas tank.

If we're all screwed anyway, what does any of that matter?

billt721 wrote:
Nicholaas wrote:

Banks will continue to collude so long as there are two coins on earth to rub together, and oil companies will "drill baby, dill" until every drop of fossil fuel finds it's way into a gas tank.

If we're all screwed anyway, what does any of that matter?

People are hurt - one way or another - by irresponsible banking and over-consumption of natural resources. In attempting to remedy those problems, we're mitigating some of the damage done; helping some is better than helping none. And if such measures lead to an actual, long-term solution, then all the better.

Nicholaas wrote:

I admit that I share Malor's apparent pessimism.

Well, I am pessimistic about things as well, but not to the point of doomsday prophecies. Compared to the last century, we will probably enter into a 'Dark Age' of sorts where the rampant consumption of generations past will no longer be possible. That, however, does not mean that sudden the developed world will turn into Somalia.

Nicholaas wrote:

People are hurt - one way or another - by irresponsible banking and over-consumption of natural resources. In attempting to remedy those problems, we're mitigating some of the damage done; helping some is better than helping none. And if such measures lead to an actual, long-term solution, then all the better.

Much of that consumption can be greatly curtailed without causing a dip in quality of life. Convenience might be sacrificed, for instance, but people can still enjoy many of the things we have come to have. It would simply be without the massive over consumption that people have grown accustomed to. As economic circumstances dictate, consumption patterns will shift and people will consume less and less to match that.

Nevertheless, for countries lacking in resources and with burgeoning populations, life will become difficult indeed.

ZaneRockfist wrote:

Much of that consumption can be greatly curtailed without causing a dip in quality of life. Convenience might be sacrificed, for instance, but people can still enjoy many of the things we have come to have. It would simply be without the massive over consumption that people have grown accustomed to. As economic circumstances dictate, consumption patterns will shift and people will consume less and less to match that.

Nevertheless, for countries lacking in resources and with burgeoning populations, life will become difficult indeed.

I hope the first thing to go are the executives, traders, financiers etc who are making 10, 15 to 100 or more times their employees. Pure unmitigated greed is the bus driver, we're all just along for the ride. Sort of like of the passengers in the movie Speed.

Bear wrote:

I hope the first thing to go are the executives, traders, financiers etc who are making 10, 15 to 100 or more times their employees. Pure unmitigated greed is the bus driver, we're all just along for the ride. Sort of like of the passengers in the movie Speed.

It is insane.

"In 2007 the richest 1% of the American population owned 34.6% of the country's total wealth, and the next 19% owned 50.5%. Thus, the top 20% of Americans owned 85% of the country's wealth and the bottom 80% of the population owned 15%."

That was before the collapse of the housing market, which has greatly reduced the wealth of average Americans. On the other hand, the top 1% have greatly increased their wealth since that time. And as far as the world goes:

"A study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned 1% of global wealth. Moreover, another study found that the richest 2% own more than half of global household assets."

Americans are going to need to greatly reduce their consumption of resources, which is entirely feasible without giving up the things that make modern civilization what it is. I get by without a car in a city that isn't particularly conducive to that lifestyle. I've been working on switching to a largely vegetarian diet. I have been trying to monitor our energy consumption at home and making changes to reduce that where I can.

The problem is that even Americans in poverty still consume like mad not because the American lifestyle requires it, but because they have always lived that way. My mom is a perfect example. She makes about $20,000 a year, has a lot of debt, but she drives her car all of the time and spends half of her money a year eating out. She is a good woman, but she is just driven to consume. And it is going to take a real shift in the economy to curb that. More and more people will drive less, eat less extravagant foods, less solitary living, etc.

I have my own problems, I realize. And I could do more to cut down on my consumption, but it is a work in progress. If I can, I plan on moving to a dense city, like NYC. Its consumption of energy is much less than that of your typical American community.

Sorry for the rant, but I typically go off on tangents and rants! Hah