Lie-More As A Business Model

By Simon Johnson.  For more discussion of these issues, listen to NPR’s All Things Considered, July 7, 2012.

On Monday, Bob Diamond – the CEO of Barclays, one of the largest banks in the world – was supposedly the indispensable man, with his supporters claiming he was the only person who could see that global megabank through a growing scandal.  On Tuesday morning Mr. Diamond resigned and the stock market barely blinked – in fact, Barclays’ stock was up 0.3 percent.  As Charles de Gaulle supposedly remarked, “the cemeteries are full of indispensable men.”

Mr. Diamond’s fall was spectacular and complete.  It was also entirely appropriate.

Dennis Kelleher of Better Markets – a financial reform advocacy group – summarized the situation nicely in an interview with the BBC World Service on Tuesday.  The controversy that brought down Mr. Diamond had to do with deliberate and now acknowledged deception by Barclays’ staff with regard to the data they reported for Libor – the London Interbank Offered Rate (with the abbreviation pronounced Lie-Bore).  Mr. Kelleher was blunt: the issue in question is “Lie More” not Libor.  (See also this post on his blog, making the point that this impacts credit transactions with a face value of at least $800 trillion.)

Mr. Kelleher’s words may seem harsh, but they are exactly in line with the recently articulated editorial position of the Financial Times (FT) – not a publication that is generally hostile to the banking sector.  In a scathing editorial last weekend (“Shaming the banks into better ways,” June 28th), the typically nuanced FT editorial writers blasted behavior at Barclays and nailed the broader issue in what it called “a long-running confidence trick”:

“The Barclays affair may lack the spice of some recent banking scandals, involving as it does the rather dry “crime” of misreporting interest rates.  But few have shone such an unsparing light on the rotten heart of the financial system.”

The editorial was exactly right with regard to the cultural problem – within that Barclays it had become acceptable or perhaps even encouraged to provide false information.  It underemphasized, however, the importance of incentives in creating that culture.  The employees of Barclays were doing what they were paid to do – and the latest indications from the company are that none of their bonuses will now be “clawed back”.

Martin Wolf, senior economics columnist at the FT and formerly a member of the UK’s Independent Banking Commission, sees to the core issue:

“banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with.”

This matters because, “Trust is not an optional extra in banking, it is, as the salience of the word “credit” to this industry implies, of the essence.”

As the FT editorial put it, “The bankers involved have betrayed an important public trust – that of keeping an accurate public record of the key market rates that are used to value contracts worth trillions of dollars”.

In the words of Mervyn King, governor of the Bank of England, “the idea that my word is my Libor is dead.”  Translation: No one will believe large banks again when their executives claim they could have borrowed at a particular interest rate – we will need to see actual transaction data, i.e., what they actually paid.  Presumably there should be similar skepticism about other claims made by global megabanks, including whenever they plead that this or that financial reform – limiting their ability to take excessive risk and impose inordinate costs on society – will bring the economy to its knees.  It is all special pleading of one or another, mostly intended to rip off customers or taxpayers or, ideally perhaps, both.

Mr. Kelleher has the economics exactly right.  Global megabanks have an incentive to deceive customers, including both individuals and nonfinancial corporations.  Their size confers both market power and the political power needed to conceal the extent to which they are engage in economic fraud.  The lack of transparency in derivatives markets provides them with an opportunity to cheat, but the abuses are much wider – as the Libor scandal demonstrates.

The rip-off is not just for retail investors; chief financial officers of major corporations who should be up in arms.  Boards of directors and shareholders of companies that buy services from big banks should be asking much harder questions about all kinds of derivatives transactions – and who exactly is served by the terms of such agreements.

As Mr. Kelleher puts it on his blog,

“They like to call themselves “banks,” but they aren’t banks in any traditional sense. They are global behemoths that are not just too-big-to-fail, but also too-big-to-regulate and too-big-to-manage. Take JP Morgan Chase for example. It has a $2.35 trillion balance sheet, more than 270,000 employees worldwide, thousands of legal entities, 554 subsidiaries and, as proved by the recent trading losses in London, a CEO, CFO and management team that has no idea what is going on in their own bank.”

“Let’s hope for the sake of the global financial system, the global economy and taxpayers worldwide that Mr. Diamond’s resignation is the first of many. What is needed is a clean sweep of the executive offices of these too-big-to-fail banks, which are still being governed by the same business model as before the crisis: do whatever they can get away with to get the biggest paychecks as possible. (Remember, CEO Diamond paid himself 20 million pounds last year and was the UK banking leader insisting that everyone stop picking on the banks.)

Lie-more is just the latest example of why that all has to change and the sooner the better”

An edited version of this post appeared on the NYT.com’s Economix blog; it is used here with permission.  If you would like to reproduce the entire post, please contact the New York Times.

63 responses to “Lie-More As A Business Model

  1. markets.aurelius

    Once again, a great public service, Simon.

    I agree with a lot of what you said, but I think the issue is far greater. Libor is the reference rate for every conceivable credit-based transaction in the world. Borrowers pay Libor-minus or -plus depending on where they stand in the credit hierarchy.

    Understanding the implications of this world-historical fraud will take a long time. Generations of economists will be trying to figure out the costs of this fraud. What exactly is the counterfactual to fraud of this scope: How do you answer the question of where individual economies — and the global economy — would be if credit markets had cleared as a function of the supply of and demand for credit instead of the made-up numbers reported by the banks in the Libor-setting ring? How was the Fed’s monetary policy distorted — and that of the other central banks — by this odious manipulation of interest rates that, at the margin, subverted monetary policy around the world? Who can answer such massive questions?

    If Barclays and that cohort of bankers reporting their borrowing costs at the 11 a.m. setting consistently lowballed their rates, was global creditworthiness and credit risk persistently mis-stated? Signals from interest-rate markets are a key variables — if not the critical variables — central bankers use to gauge and calibrate their monetary-policy decisions, and to revise their policy. Did the Fed and the other central banks not provide enough credit to the global financial system because the Libor setting was telling them things were not as bad as they actually were? Was Congress not sufficiently aware of how bad things actually were, giving its partisans an apparent open field to bicker over senseless trivialities while the economy’s collapse threw more and more people out of work?

    This appears to be somewhat plausible, given the revisions to GDP for 2007-09, doesn’t it? The BEA states, “The revised estimates show that for the period of contraction from 2007:Q4 to 2009:Q2, real GDP decreased at an average annual rate of 3.5 percent; in the previously published estimates, it had decreased at a rate of 2.8 percent. The cumulative decrease over the six quarters of contraction is now estimated as 5.1 percent, compared with 4.1 percent in the previously published estimates; both the revised and previously published estimates of GDP show that the recession was the deepest contraction since the beginning of BEA’s quarterly real GDP estimates in 1947.” (See http://www.bea.gov/faq/index.cfm?faq_id=1004 . Bloomberg does a good job of piecing it all together: http://www.bloomberg.com/news/2011-07-29/recession-took-bigger-bite-out-of-u-s-economy-than-previously-estimated.html )

    For individuals and firms engaged on the “real” side of things — oil producers, car makers, homebuilders, …, you get the idea (it’s the stuff that hurts when it falls on your foot or breaks when you drop it) — an enormous fraud has been perpetrated for years: Massive amounts of capital have been misallocated because of this fraud. A policy response consistent with magnitude of the economic disaster wrought by persistent fraud (first in the mortgage markets, then the credit markets) was not undertaken. As a result, the economic consequences for those not directly controlling policy response — i.e., the bankers and their regulators — were far more dire and long-lasting than they otherwise would have been. This means unemployment has been kept higher than it would have been had credit markets been clearing as a function of the supply of and demand for credit. It means factories did not get built. Houses could not be sold. Or built. A generation of young people is without prospects or hope.

    But, hey, it’s not all bad. In 2007 bankers’ bonuses were off the charts. In 2008 and 2009 they were looting their respective treasuries while the economies in which they were domiciled were in a state of freefall. The bankers were the only ones the central banks were listening to and looking out for: The central bankers made it their lives’ mission to ensure the bankers under their supervision got paid in the manner in which they were accustomed, and that no one got any whiff of how bad things actually were. (They could take comfort from the fact that, yes, things were bad, but Libor’s not going crazy, so things aren’t that bad … we arrested the collapse before it got too serious … .) God forbid the true state of the world ever be revealed. What would happen if everyone saw that yet another massive fraud had been perpetrated upon taxpayers worldwide, in addition to the world-historic mortgage fraud that leveled the so-called developed world? And that averaged citizens were once again paying the price?

    What would happen if taxpayers suddenly woke up and realized they’ve been lied to repeatedly, while the folks they’ve elected — and their appointees — aided and abetted these frauds? And that the only ones to pay the price for this were those same taxpayer-voters? You know, the ones who’ve been thrown out of the jobs and homes, and watched as their families became more and more impoverished, while the cohort that’s been protected by those same elected officials and their appointees — and held harmless for their recklessness — has gotten richer and more arrogant. All of which has allowed that cohort (in the public and private spheres) to gain even greater control over the political apparatus — it’s lawmaking and regulatory functions.

    What more do the megabanks have to do to demonstrate they are adversarial to the societies in which they are domiciled?

  2. markets.aurelius

    One more thought: The knock-on to the initial fraud was that, after the initial fraud apparently encouraged by UK central bankers, Libor deliberately was mis-stated by reporting banks so that interest-rate derivatives books could post a profit. Something of a quid-pro-quo world among the traders at the different Libor-reporting banks.

    It is highly unlikely the banks or their regulators will reveal the complete scope of this fraud, or how extensive it was. This is so for two reasons: 1) The persons committing the fraud were way smarter than the folks that were supposed to be catching it, so a lot of it will never see the light of day; and 2) it is so massive that to admit to its existence, and continuance, under the very noses of those charged with catching such things would be to admit these “markets” truly are out of control.

    Leave all that for history.

    There is something akin to morbid fascination to the whole thing: Trying to imagine the world’s allocation of capital bouncing along trying to find direction as markets interpret the signals coming out of these Libor settings is mind-boggling. Is it even conceivable the world’s capital allocation was a function of the actions of a gaggle of 25-year-olds gaming the Libor setting so they could max their comp based on their derivatives books’ performance?

    One begins to appreciate how Einstein must have felt contemplating the vastness of the universe.

  3. Andrew_M_Garland

    Barclays chief threatens disclosure
    === ===
    [edited]  Mr Diamond and the bank have been blamed for “lowballing” the rates at which Barclays said it could borrow from rivals at the height of the 2007-08 financial crisis. Bankers insist the authorities knew these rates were inaccurate but did not object at the time because of fears it could further destabilise panicked markets.
      A senior banker commented that “Regulators knew those rates were not the ones where banks were prepared to lend to each other. They had all the evidence.”
    === ===

    LiborGate
    Guido Fawk’s Blog
    === ===
    [edited]  The politicisation and manipulation of interest rates is ongoing. The £275 billion Quantitative Easing (QE) programme implemented by Mervyn King with George Osborne’s blessing is designed to artificially lower interest rates. We currently have a false market in Gilts, it is arguably the biggest bubble since the South Sea Bubble. It is cheating pensioners and savers of income on an unprecedented scale. This is a robbery organised from within the Bank of England
    === ===

    Bloomberg reports that the Libor interbank rate may have been quoted at 10 to 30 basis points lower than in actual transactions, off of a real rate around 2.82%. A basis point is 1/100th of a percentage point.

    Simon Johnson quotes FT above “The bankers involved have betrayed an important public trust – that of keeping an accurate public record of the key market rates that are used to value contracts worth trillions of dollars”.

    Keeping a record in this case means reporting accurate, market transactions. We believe that everyone should have the benefit of knowing the reality of each bank’s reliability and the availability of capital as determined by thousands of market participants.

    Compare this scandal of 30 basis points to the current non-scandal, that US, British, and other government influenced central banks have dictated and manipulated a ZIRP, Zero Interest Rate Policy, which may be distorting interest rates by 300 basis points (who knows?). There is a massive misallocation of resources because the market interest rate has been manipulated. No one can judge the true effects of national policy or the true availability of capital as determined by thousands of market participants.

  4. Or you could try to spin and balance an upside down pyramid on your nose as you conspire with the judge.

  5. It truly takes a depression to witness how truly inept and fraudulent and criminal the Big Men of corporations and government are in taking Money and Taxes from citizens and calling for Austerity.

  6. @markets aurelius, “One begins to appreciate how Einstein must have felt contemplating the vastness of the universe.”

    I think it is safe to say that they weren’t actually trying to BUILD a universe, they were defragmentailizing it for more efficient extraction of unearned wealth.

    Thank you for blogging, it was a good read.

    It is too big of a mess to fix. Best to seperate out the currency needed for a sustainable and efficient civilization grounded in life-maintenance (commercial banking). That was definitely under-capitalized for a LONG time. Heck, that is what they LEVERAGED off of – they used our cash to plunge us into poverty! C’mon, wars have been fought over less.

    We’re now in the phase of Jim Jones’s Jonestown where the plan is that everyone must die who is not a “follower” and also everyone who IS a follower….too stupid…

  7. Desi Girl - Doing God's Work

    Better Markets!! Madoff may as well have named his firm ‘Honest Brokers’. Rush Limbaugh calls himself a Centerist. Right!!

    Obviously Simon is completely ignoring the whole drama behind the Bank of England influencing Barclays to reduce its LIBOR submissions and the UBS document suggesting libor manipulation: http://www.cnbc.com/id/48107987

    Simon and Kwak routinely lie to ensure their business model built on bank bashing can continue.

    The most recent example is Kwak’s note about “Who wants Big Banks” where he used Book Value to compare bank valuations when no informed imvestor uses that metric. Banks are vanued on a Tangible Book Value basis and by that token, JP Morgan trades at a higher multiple than Goldman Sachs and Morgan Stanley. Bank of America trades at a higher multiple than Morgan Stanley. If James had used the relevant metric his entire article would have been moot. But then using factual information is not a part of the ethical framework of college professors.

    Simon and Kwak don’t care of course. Simon is paid for life by MIT and James is interested in preserving the business model based on pure lies.

  8. Banks, or financial institutions, must be cleaned out of most all the people there. The wrong people are attracted to that world: the greediest, most self-centered, superficial (and boring) folk, interested only in their cars and vast art collections, vacation homes and trophy wives. Would you enjoy a dinner, an evening, with one of these folk.

    Banks the world over must have salaries capped, say $250K? A bit more? A kind of public utility where the greedy rats will desert the ship — and gladly. Banks should be a public trust responsibility. It should attract the kids who might want to go into the Peace Corps, not the Harvard MBA’s who want to retire at 35. There are very smart people who would take better care of the world’s money than the folk we’ve got. Is Jamie Dimon an impressive interview. Lloyd Blankfein? Barkley’s pasty Mr. Diamond? Give me Noureil Rubini, Matt Tiabbi, Yves Smith, Simon Johnson. There are better folk than the greedy banksters who are so arrogant they actually think they “earn” those obscene salaries. They couldn’t fix a toilet or pound a nail. They are vapid shallow people. I might hire Lloyd Blankfein to mow my grass, but I wouldn’t trust him with much more responsibility

    Read Matt Tiabbi’s latest in Rolling Stone, The Scam Wall Street Learned from the Mafia:

    http://www.rollingstone.com/politics/news/the-scam-wall-street-learned-from-the-mafia-20120620.

    Even if we reintroduce Glass-Stegall, the bastards will still find a way to cheat. And one of those little banks will “grow up” and it will be the worst of the lot.

    Want to restrict Libor data to “actual transactions?” Okaaay. We can play that game. The cheaters will do “fixed” “actual transactions.” I will actually borrow from you at the “agreed upon rate,” BUT I want a “back scratch” in return. The world banking system is too corrupt.

    Someone needs to clean out the stables — worldwide.

    …..Lady in Red

    There’s a simple book by Jane Jacobs, Systems for Survival. It’s about having the right personality/mentality in the right job. Banking should be a public service utility. It’s peppered with the worst of the capitalist mentality who will always rig the system any way they can. We need the guardian mentality in banking.

  9. TonyForesta

    Desi Girl – we know where you stand and welcome you contrarian views. That said, my the goddess have mercy on you cold dark heart.

    “What more do the megabanks have to do to demonstrate they are adversarial to the societies in which they are domiciled?”

    Word markets aurelious. We are witness to systemic criminality at the highest levels of the predatorclass finance oligarchs, and bribed – I mean purchased regulatory apparatus, and governments.

    It’s obvious to anyone bothering to make the most cursory investigation into the wanton crimes and systemic criminality of the predatorclass oligarchs and the purchased spaniels in the socalled regulatory apparatus the respective goverents that the TBTF oligarchs are in fact cartels whose collusion and systemic corruption defines the systemic and endemic criminality of the socalled global financial system.

    Mr Johnson and numerous others are shining hot lights on this criminal enterprise and we on the otherwise value and appreciate their service.

    Sadly – we all know all of these revelations are moot and that NOTHING will be done at any level anywhere to right these monstrous wrongs.

    Criminals in the finance oligarchs will walk away unscathed with minor fines and continue to reap outrageous fortunes perpetrating wanton crimes.

    There is no balm in Gilead. These evils will never be fixed or even addressed under the current panjandrum.

    The entire system must be burnt to the ground and something entirely new and hopefully rooted in theruleoflaw and some basic equanimity erected in it’s place.

    There’s no other way. The entire system is a putrid toxic malignant cancer. There’s no fixing it. There is no way to repair it. It’s a cancer and must be excoriated completely.

    Burn it all down, reset !!!

  10. fresno dan

    Believing a banker is akin to believing a realitor. And believeing a banking regulator is also akin to believing a realitor.
    As long as there are no prosecutions, and no banks are allowed to fail, you will continue to have a “heads banks win, tails the public loses” economics.
    Who has been fired, who has been prosecuted, and who has been convicted???

  11. Their goal was to privatize the gains, and socialize the losses, they succeeded and guess what?, they want more, and have set it up so the larger the loss for them, the more the loss for you. And they tell you every day who they are, just watch him crow for more Bush tax cut extensions.

  12. markets.aurelius

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2083708

    A fascinating article by Henry Hu, the Allan Shivers Chair in the Law of Banking and Finance at University of Texas. Dr. Hu is the former head of Risk Fin at the SEC: http://www.utexas.edu/law/faculty/huht/

    The article, at least as I read it, is an acknowledgement that financial products developed and traded at banks (including the former investment banks) are too complicated to understand, depict or, by extension, regulate. Investors relying on the banks as intermediaries in explaining these products — and, again by extension, the regulators supervising these banks — literally cannot (and do not) understand the products being sold to them or traded on the banks’ trading desks. Also, as the JPM debacle in the case of the London Whale illustrates, the banks themselves do not understand the risks of the products they produce and trade. This applies to the products individually and in aggregate (i.e., in the trading desks’ books). All protestations to the contrary by people like Jamie are nothing but bluster.

    Leaving aside the suggestions for how to improve on this, it is a stunning acknowledgement of the failure of the SEC’s long-standing way of supervising investor disclosures and in regulating the capital markets.

    Hu notes, “To remain vital, the SEC disclosure paradigm must be able to encompass in a meaningful and systematic way the vast complexities of modern markets and institutions. A fundamental and comprehensive rethinking is essential.”

  13. For every Diamond you you cut off, 7 more spring up to take his place. The incentive to cheat has become enormous. And uncertantity rules, will I abel to make this last long enough to make me rich, or will it blow up first. What a stunning way to run a railroad. Nothing will change while these incentives are in place. This will just encourage even greater risk taking and cheating. $435 million dollar fine is just the cost of doing business, soon made up by new fees.

  14. Per Kurowski

    I have now at least registered a general complaint at the Consumer Financial Protection Bureau CFPB, established in the Dodd-Frank Act, indicating that the odious discrimination against the “risky”, present in the capital requirements for banks based on perceived risk does not seem to be allowed under the Equal Credit Opportunity Act (Regulation B).

    http://subprimeregulations.blogspot.com/2012/07/complaint-i-presented-to-consumer.html

  15. Let us begin by clawing back all of the profits and seizing any fruits of the profits. Then we can reinstate Glass Steagall. A mere 12 years after the repeal of Glass Steagall and the Commodities Reform Act we have a massive financial scandal/swindle that brought down the economy perpetrated by the financial class. They profited at our expense. And yet we still have not reformed the system.

  16. Lady in Red

    Clawing back profits — and bonuses — would give us a chunk of change
    to rebuild the system. And it would be a message to the rats to scamper off the ship. ….Lady in Red

  17. Lady in Red

    And…. let’s support Ron Paul’s audit of The Fed. There’s more rotten stuff that will disclose. ….Lady in Red

  18. It’s a sad day when the metier for big business is the big lie. Banks are not the only businesses lying through their proverbial teeth, but nonetheless, all the evidence points to a massive problem in this direction.

    Lying undermines confidence and is corrosive in its’ effects on daily operations, and a particular corporate culture. It may even lead to more felonious conduct, since lying and conspiracy to defraud go hand in hand with one another.

    Similarly, by extension, the outright lying of institutions become externalized, with more people living outside the LIE MORE institution, tend to become desensitized to lying, and thus more willing to engage in lying with Main Street customers. This certainly leads to overcharges, deceptions, and arguably, shoddier goods and services being provided.

    Telling the truth is the fundamental metric of a healthy marriage, and any productive relationship. We’ve been lied to long enough, and I do proclaim it is high time to speak the truth, and then honor the truth, by going out on a limb and staying true to principle, even if this results in loss of job, or some other adverse event.

  19. @woop – “Telling the truth is the fundamental metric of a healthy marriage, and any productive relationship. We’ve been lied to long enough, and I do proclaim it is high time to speak the truth, and then honor the truth, by going out on a limb and staying true to principle, even if this results in loss of job, or some other adverse event.”

    Think about it from the perspective of “freedom” – such a massive, savage, and predatory level of criminality has succeeded in taking away the RIGHTS of people to LIVE honestly and productively! You are punished for NOT being a lying cheating murdering scum bag.

  20. The Banksters are rigging their hand
    All of our rates have been planned
    The system is flawed
    These Bastards aren’t God
    Corruption has conquered our land
    The criminal Bankster has won
    He rules at the end of a gun
    He’ll never be caught
    The system is bought
    His stealing will never be done
    –The Limerick King

    http://www.zerohedge.com/contributed/2012-07-09/welcome-lieboro-country

  21. @Lady In Red – same psychological profile “types” have their fingers in every big river of money that can be sold as so “complex” that no one except the chosen few can understand it:

    http://www.pharmalot.com/2012/07/watchdog-probe-fund-mgr-for-pharma-short-sales/#comments

  22. I can’t help to think that shareholders would benefit in a big way if the major banks were broken up… the only people I can think of who would not be better off would be the existing management.

  23. Lady in Red

    Annie…. You are correct, I suspect. But banks should be done in the public interest. It’s not like selling cars. ….Lady in Red

  24. @ Annie, who wrote: “such a massive, savage, and predatory level of criminality has succeeded in taking away the RIGHTS of people to LIVE honestly and productively! You are punished for NOT being a lying cheating murdering scum bag.”

    Sad. but nonetheless true, as you know……

  25. @woop – They BELIEVE that they are better and smarter because they choose to be lying, cheating, and murdering scumbags. Perhaps even genetically superior because of such “strongest survive” skills….

    So we’re back to what monkey brains high on imagination BELIEVE about their “isms”. This level of genius:

    More misery for others = more $$$$ for ME ME ME

  26. Apparently BOA believes in the theorem, Annie:

    http://www.huffingtonpost.com/2012/07/09/los-zetas-laundered-money-bank-america_n_1658943.html

    They KNOW this is HIGHLY ILLEGAL and HIGHLY PROFITABLE.

  27. Here’s Mervyn King testifying before that Treasury committee back in 2008:

    “It is in many ways the rate at which banks do not lend to each other, and it is not clear that it either should or does have significant operational content. I think it is convenient, very often, for people to justify what they do for other reasons, in terms of Libor, but it is not a rate at which anyone is actually borrowing. It is hard to see how it can actually have much of an impact.”

    Now they’re shocked! Shocked! to find that LIBOR is an estimate only.

  28. More LIEBORES and LIEMORES on this board than holes in swiss cheese.

    Only an estimate, sure. But look at the SIZE Of penalty Barclays agreed to, and this tells you two things: !. money as a substitute to long jail terms; 2. egregious accounting malfeasance with the estimates.

    Patty wants you to believe its’ fluctuations in the measurement of the estimate and something else not sinister and illegal. NIce try, PAtty.

    Mervyn King was way off in his questionable testimony on the LIBOR, also.

  29. markets.aurelius

    That’s a generous characterization, Patrick. “estimate” indeed.

  30. So when do we demand these thugs be imprisoned, at the very least for their crimes? Unless they serve serious prison terms, none of this will stop. Sorry, I don’t accept that having to resign under a scandal is punishment enough for Mr. Diamond, or Mr Dimon. Incarcerate them, make examples of them. Otherwise, just hand over your “protection money” and stop crying.

  31. The time police will show up in due fashion, don’t worry bout that. But just as they give you recourse for other peoples crimes, you shall most likely be swept up in the pigpen that was created around you. Be careful what you wish for, you may just get it.

  32. Lady in Red

    The *only* solution is to pay them like priests, to drastically curtail their compensation. Very very good smart people will work for modest compensation. There is NO other solution:

    (Reuters) – If the ancient Greek philosopher Diogenes were to go out with his lantern in search of an honest man today, a survey of Wall Street executives on workplace conduct suggests he might have to look elsewhere.
    A quarter of Wall Street executives see wrongdoing as a key to success, according to a survey by whistleblower law firm Labaton Sucharow released on Tuesday.
    In a survey of 500 senior executives in the United States and the UK, 26 percent of respondents said they had observed or had firsthand knowledge of wrongdoing in the workplace, while 24 percent said they believed financial services professionals may need to engage in unethical or illegal conduct to be successful.
    Sixteen percent of respondents said they would commit insider trading if they could get away with it, according to Labaton Sucharow. And 30 percent said their compensation plans created pressure to compromise ethical standards or violate the law.
    “When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk,” Jordan Thomas, partner and chair of Labaton Sucharow’s whistleblower representation practice, said in a statement.
    The survey’s release comes as the fallout from Barclays PLC’s (BARC.L) Libor-rigging scandal continues and other banks including Citigroup Inc (NYS:C), HSBC Holdings PLC (HSBA.L), Royal Bank of Scotland Group PLC (RBS.L) and UBS AG (UBSN.VX) await the outcome of an industry-wide probe.
    (Reporting By Lauren Tara LaCapra; Editing by Leslie Adler)

  33. So the vote on weather it has teeth is yea, or ney??

    I thought it was my teeth and your nail(s).

  34. Some answers to questions asked by an independent investigator from Oyster consulting answered by George Hartzman on his Wells Fargo Whistleblower filing

    http://hartzman.blogspot.com/2012/07/some-answers-to-questions-asked-by.html

    Please get in touch via facebook if you would like more info.

  35. ‘The *only* solution is to pay them like priests, to drastically curtail their compensation.’

    Shall we make the borrowers repay the lenders the for the lower rates they got as a result of the lowball estimates?

    ‘ Very very good smart people will work for modest compensation.’

    Maybe they have much to be modest about.

  36. @woop2012 – “They KNOW this is HIGHLY ILLEGAL and HIGHLY PROFITABLE.”

    Yup, getting “jobs” shipped back into USA. What’s wrong with that?

    The financial fortunes of the Middle Class in USA were slammed below those of the Global War/Drug/Slave lords thanks to Wall Street Banksters and D.elusional C.ity.

    What is outstanding about this epoch of savage criminality launched by gambling algorithms from deep inside Wall Street’s connections in the internet is the merciless quality of the fraudclosures conducted by and for the erecting of the billion $$$$ homeland insecurity apparatus.

    President Eisenhower would have been on the front lines – mano et mano – WAY back when Brooksley Born first got in Greenspam’s face.

  37. Moses Herzog

    I know this is slightly breaking off topic, (as is often my sin on this blog) but I could argue it goes under the subject heading “Business Models”:
    I am wondering if the good readership of BaselineScenario has noticed this little piece of news. Romney’s company and favorite example of private enterprise, Bain Capital, had a high salaried position at the company called “Director of Outsourcing”.
    http://www.buzzfeed.com/zekejmiller/bain-co-employed-director-of-outsourcing

    Apparently, Romney’s plans to destroy this country by choking off government revenues wouldn’t be thorough enough for Romney. The only way Romney can be certain to put the death blow to the working class of America is by locating the USA tax base in East Asia??? So far, Mitt Romney’s only answer to this question has been “Change topic please!!!”

  38. Quoth DesiGirl: “Obviously Simon is completely ignoring the whole drama behind the Bank of England influencing Barclays to reduce its LIBOR submissions and the UBS document suggesting libor manipulation: ”

    I don’t get it. If the BoE was part of the scam (assuming the BoE, unlike the Fed in the US, has a governing structure that’s actually separate from the mgegabanks), then why should that minimize in any way Barclay’s apparently admitted role in the scam? And how does that impact anything Simon wrote? Why would anyone trust Barclay’s word even if they accept the drama around BoE, wouldn’t that simply raise the question of whether one should trust the BoE? What’s with the ‘shiny object’ distraction, if you disagree w/ what Simon wrote about Barclays and other megabanks then why not address Barclays?

  39. Instead of being indicted, Diamond to Receive About 2 Million Pounds on Leaving Barclays:

    Barclays Plc (BARC) will give former Chief Executive Officer Robert Diamond a 2 million-pound ($3.1 million) payoff, about a tenth of his full entitlement, after politicians protested his role in the Libor-fixing scandal. FULL ARTICLE AT BLOOMBERG.COM

  40. Teach your children the prevailing business ethos: “Just don’t get caught !!!”

    http://www.zerohedge.com/contributed/2012-07-11/banzai7s-new-and-improved-periodic-table-wall-street-criminal-elements

  41. The Bond Man

    LIBOR-LIEMORE scandal spreads to big US Banks, now under investigation:

    http://marketday.msnbc.msn.com/_news/2012/07/11/12684779-a-scandal-over-rate-fixing-is-about-to-hit-the-us?lite

    “Banker” is now obsolete. “Criminal gangster” is a better word for these fraudsters working at these large banking houses………filled with scam artists, prevaricators, and thieves, not exceptionally but generally.

  42. Forget the fiscal cliff, its claw back time at the OKAY corral.

  43. Per Kurowski

    And in this case Barclays helped to underestimate Libor, which might have saved them paying some interest to their creditors, not a lot. Can you then imagine the scandal, and what you would be saying here, if what Barclays had done, was to misreport in order to increase Libor, so as to collect more from all of their borrowers who operate with a Libor plus a margin interest rate?

    This Libor affair, though sad, and a reflection of many things gone wrong, if they ever were right, is unfortunately distracting the attention away from much much more urgent and important matters. Like the probably unwitting interest rate manipulations carried out by regulators.

  44. The Bond Man

    @ Per, nice try. The LIBOR understatements of Barclay made profits on its’ derivatives book desk, so, stop trying to gloss over reams and reams of technical manipulations and malfeasances, culminating in fraud with all the ZOMBIE BANK players. Your mind is sharp, but can you say your instincts are simply misdirected on this one?

  45. http://www.huffingtonpost.com/2012/07/11/libor-scandal-lawsuits_n_1665708.html

    Anyone TODAY who fails to realize what predatory vampires inhabit the big banks, is not paying attention. We’ve ALL been screwed, yes.

  46. Per Kurowski

    @ The Bond Man. Yes, and the derivative desks profits or losses are made among grownup speculators all, who should know and probably do, about caveat emptor. And so I still think it’s quite unfortunate this affair distracting us from much more urgent matters… How can you be sure it’s not on purpose?

  47. The Bond Man

    IT may be on purpose, Per. However, your “grownup speculators” are nurses, cops, firefighters, nurses, farmers, teachers, gov employees. etc. I can;t see where ANY caveat emptor fits with FRAUD, never did, never will, incidentally.

    We the collectivity called mankind or womankind were effectively robbed by manipulations that utilized LIBOR rates, as illustrated for the layperson like myself in the following pictorial diagram:

    http://www.dailyfinance.com/2012/07/11/the-libor-scandal-explained-in-one-simple-infographic/?icid=maing-grid7%7Cmain5%7Cdl32%7Csec1_lnk3%26pLid%3D177643

    What can be more urgent, than robbing the global peoples of hard earned wealth?? We’ve been stuck up, do you understand, PER>?

  48. Per Kurowski

    @ The Bond Man. No! The consequences of what is being done, if not urgently corrected, are far worse than those from simply being stuck up! You really think this is a question between the good and the bad?

    On the Libor Scandal explained in one Infographic? Yes, bad behavior indeed! But, the net financial damages, to hard peoples earned wealth, caused by wrong regulations and wrong monetary policies, surpasses by far, by about a million times, whatever financial damages caused by this. How much will the financial repression end up costing us?

  49. There’s a difference in kind between trying to illegally game the system and the designers of the system designing a game INTO the system. And in that sense Per is correct – the regulatory distortions designed into our finance system perhaps through well-intentioned hubris have and continue to cause huge misinvestments in non-productive instruments – a LEGAL mistake that continues to be overlooked and continues to erode our society. Deliver justice to the criminal, yes, but above all deliver to ourselves a better financial system.

  50. Per Kurowski

    @Oregano I much appreciate this well worded and clarifying support of what I have been trying to say. I know it can be difficult, but we must do our best efforts to try to keep our eyes on the ball… unless of course we harbor some revolutionary death wish for everything to crumble… something which absolutely I do not want to see happen.

  51. That’s too bad Per, I have praying and working that this system of accounting fraud and negative real interest rates goes away as soon as possible. And that time is vastly approaching where not only do you lose your finances, the consequences for such behavior require us to take your like minded lives too. You can’t turn the run away arrogance train around in a heartbeat, it wants to move and carry on in the same direction from the positive results seen in the past. No, I will welcome that day indeed, and separate from the mother country and the complete irresponsibility and hypocrisy of trusting money from big spenders.

  52. A matter of trust, becomes just a matter of time.

  53. http://economix.blogs.nytimes.com/2012/07/12/the-market-has-spoken-and-it-is-rigged/

    Save the cancer or save the patient?! Wow – let’s add that as excuse number 6 in the article above.

    NOTHING would fall apart if currency was restored to LIFE-MAINTENANCE commerce while the rest of the matrix crap gets jammed into the portfolios of those who made the stuff up….eat it, my friend….sprinkle some dope on it, it’ll go down easier….

  54. The Bond Man

    @ Per, your insistence on placing the lion share of blame on unwise Basel regulations regarding those perceived as non-risky, and too low capital requirements is systemically flawed. You seem not realize that all regulations have been widely breached on purpose, and mostly accomplished with a fraudulent set of devices to achieve that end. Your preferred regulatory regimen would have been consciously defeated, where it naturally would stand in the way massive and questionable profits.

    Banking is an un-regulated industry, which is a major plank in the GOP ideological forum…..to de-regulated everything so the carpet-baggers can clean up.

    They should have listened to you, PER, btw.

    And, PER> do you see an end to financial repression, without long prison sentences to the top leaders? I sure as heck do not, to answer your question.

  55. ‘And that time is vastly approaching where not only do you lose your finances, the consequences for such behavior require us to take your like minded lives too. ‘

    I hope Simon is proud of the high quality comments he provokes.

  56. ‘Banking is an un-regulated industry….’

    Uh huh, the Comptroller of the Currency, The Fed, FDIC, state banking examiners, the BBA, Bank of England, ECB, Basel….All just figments of our imaginations.

  57. @Bond Man, “…Your preferred regulatory regimen would have been consciously defeated, where it naturally would stand in the way massive and questionable profits….”

    I agree, in principle. There was just too much time-lag built in to when this or that reg would take effect – a “set up to fail” scenario by special interests who, as you note, openly admitted to wanting de-regulation….the regulators were de-regulating….and the WON – took out the 20 years of middle class wealth built up since the last time they pulled an S and L heist in the 1980s…

    and the “massive and questionable profits” were well known as this was nothing other than diverting the entire trillion dollar transaction river of commerce to, ONLY, the NON-life-sustaining global activity – perpetual war in the Middle East. Talk about your Welfare Queen!

    Just the facts, Ma’am.

  58. Per Kurowski

    @The Bond Man: “You seem not realize that all regulations have been widely breached on purpose, and mostly accomplished with a fraudulent set of devices to achieve that end. Your preferred regulatory regimen would have been consciously defeated”

    No, current regulations do not required the use of a “set of devices” that has already been built in. These are designed as if risk models of banks and credit ratings were always correct… and this even though the regulators should not have major concerns for when those risk models and credit ratings are correct, but for when they are incorrect.

    I do not hold that it cures all illnesses, but a very simple straight forward capital requirement, the same for all bank assets, produces much less distortions, and makes the regulations much harder to capture.

    In 2003, in a workshop for a couple of hundred regulators at the World Bank, after seeing a draft of Basel II, I told them:

    “Let me start by sincerely congratulating everyone… we can already begin to see how Basel II is forcing bank regulators to make a real professional quantum leap. As I see it, you will have a lot of homework in the next years, brushing up on your calculus—almost a career change.”

    Please read Basel II, read about the risk-weighting, and your first instinct must be…Get those regulators!

  59. TonyForesta

    The sad reality is that many good people imagine there is this thing called theruleoflaw and that players operate in goodfaith, beholden to laws and quaint notions of morality. You Gould NOT be more mistaken. Our enemies are ruthless psychopaths. This is ultimate fighting, kicks, elbows, knee’s, choke’s, joint locks. Queens rules do not apply. If you don’t fight dirty, if you don’t have mixed martial arts skills and the ability to fight and defend on the ground – you’re dead. You’ll be quickly wiped out. It’s way past time to take the gloves off and get rough. Our enemies walk amongst us, and we must fight in asymmetrical ways to defeat them. They don’t fight with any rules, nor should we!!!

  60. @ No, current regulations do not required the use of a “set of devices” that has already been built in. These are designed as if risk models of banks and credit ratings were always correct… and this even though the regulators should not have major concerns for when those risk models and credit ratings are correct, but for when they are incorrect.

    The notion that they were correct in the first place was flawed, they were more addicted than anything, and once behind guarded gates, they were no longer reachable physcially or mentally. And the proof is in the pudding, as these like minded people aged, and became perturbed at the slightest indication that their methods and ideas were or still are wrong. Additional proof is found when these same individuals finally must live off of fairy dust, B-12, and chocolate till the end of their lives because their perceived great ideas have abandoned them for some reason. But the pain goes on and on, and eventually they don’t have the stomach to talk about it anymore so why not just finish life out in our usual fashion. Since Washington obviously fits this mold, they are happy that the majority rules, they are not happy when the realization that they are wrong on so many issues arises, which is what accounted for all the silly mandates so as put their minds back at ease.

    Just say no to the Bush tax cuts extensions!