Voracious Finance Growing Like a Cancer


Human Wrongs Watch

Rome, 31 May 2015 – It is astonishing that every week we see action being taken in various part of the world against the financial sector, without any noticeable reaction of public opinion.

The New York Stock Exchange on Wall Street, the world's largest stock exchange per total market capitalization of its listed companies | Wikimedia Commons

The New York Stock Exchange on Wall Street, the world’s largest stock exchange per total market capitalization of its listed companies | Wikimedia Commons

It is astonishing because at the same time we are experiencing a very serious crisis, with high unemployment, precarious jobs and an unprecedented growth of inequality, which can all be attributed, largely, to speculative finance.

It is calculated that we will need to wait until at least 2020 to be able to go back to the levels of 2008 – so we are talking of a lost decade.This all began in 2008 with the mortgage crisis and the bursting of the derivatives bubble in the United States, followed by the bursting of the sovereign bonds bubble in Europe.

To bail out the banks, the world has collectively spent around 4 trillion dollars of taxpayers’ money. Just to make the point, Spain has dedicated more than its annual budget on education and health to bail out the banking sector … and the saga continues.

Last week, five major banks agreed to pay 5.6 billion to the U.S. authorities because of their manipulations in the currency market. The banks are household names: the American JPMorgan Chase and Citigroup, the British Barclays and the Royal Bank of Scotland, and the Swiss UBS.

“To bail out the banks, the world has collectively spent around 4 trillion dollars of taxpayers’ money”

In the case of UBS, the U.S. Department of Justice took the unusual step of tearing up a non-prosecution agreement it had reached earlier, saying that it had taken that step because of the bank’s repeated offences. “UBS has a ‘rap sheet’ that cannot be ignored,” said Assistant U.S. Attorney General Leslie Caldwell.

This is a significant departure from the Justice Department’s guidelines issued in 2008, according to which collateral consequences have to be taken into account when indicting financial institutions.

“The collateral consequences consideration is designed to address the risk that a particular criminal charge might inflict disproportionate harm to shareholders, pension holders and employees who are not even alleged to be culpable or to have profited potentially from wrongdoing,” said Mark Filip, the Justice Department official who wrote the 2008 memo.

Referring to the case of accounting giant Arthur Andersen, which certified as valid the accounts of the Enron energy company that went into bankruptcy for faking its budget, Filip said that “Arthur Andersen was ultimately never convicted of anything, but the mere act of indicting it destroyed one of the cornerstones of the Midwest’s economy.”

This was in fact a declaration of impunity, which did not escape the managers of the financial system, under the telling title of “Too Big to Fail”.

Two weeks ago, a judge from the Federal District Court of Manhattan, Denise L. Cote, condemned two major banks – the Japanese Nomura Holdings and the British Royal Bank of Scotland – for misleading two mortgage public institutions, Fannie Mae [Federal National Mortgage Association] and Freddie Mac [Federal Home Loan Mortgage Corporation], by selling them mortgage bonds which contained countless errors and misrepresentations.

“The magnitude of falsity, conservatively measured, is enormous,” she wrote in her scathing decision.

Nomura Holdings and the Royal Bank of Scotland were just two of 18 banks that had been accused of manipulating the housing market. The other 16 settled out of court to pay nearly 18 billion dollars in penalties and avoid having their misdeeds aired in public.

Nomura Holdings and Royal Bank of Scotland refused any settlement and instead went to court against the U.S. government, arguing that it was the housing crash which caused their mortgage bonds to collapse. Judge Cote, however, wrote that it was precisely the banks’ criminal behaviour which had exacerbated the collapse in the mortgage market.

It is worth noting that, until now, the cumulative fines inflicted by the U.S. government on just five major banks since 2008 amount to a quarter of a trillion dollars. No one has yet gone to jail – fines have been paid and the question closed.

Now the question: is all this due to the misconduct of a few greedy managers or is it due to the new “ethics” of the financial sector?

By the way, let us not forget that it was revealed recently that 25 hedge fund managers took close to 14 billion dollars only last year and that the highest paid manager took for himself the unthinkable amount of 1.3 billion dollars, equal to the combined average salaries of 200,000 U.S. professionals.

Well, just a week ago, the respected University of Notre Dame was reported as having published a startling report, based on a survey of more than 1,200 hedge fund professionals, investment bankers, traders, portfolio managers from the United States and the United Kingdom, in which about one-third of those earning more than 500,000 dollars a year said that they “have witnessed or have first-hand knowledge of wrongdoing in their workplace.”

The report went on to say that “nearly one in five respondents feel financial services professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment” and in any case,  nearly half of the high income professionals consider authorities to be ”ineffective in detecting, investigating and prosecuting securities violations.”

A quarter of respondents stated that if they saw that there was no chance of being arrested for insider trading to earn a guaranteed 10 million dollars, they would do so.

And nearly one-third “believe compensation structures or bonus plans in place at their companies could incentivise employees to compromise ethics or violate the law.”  It should also be noted that the majority were worried their employer “would likely to retaliate if they reported wrongdoing in the workplace.” So, the bonus that goes to those in the financial sector every year practically amounts to a bribe for silence on misconduct.

At the same time, we have learned that in Guatemala the Governor of the Central Bank has been arrested for embezzling 10 million dollars. Of course, everything is a question of scale…but in sociology there is a mechanism called “demonstration effect”.

The example of Wall Street and the City will increasingly seep down once a new “ethic” is in place. It will propagate if it is not stopped … and this is not happening.

A final note. In the same week (how many things have happened in such a short space of time), the Federal Trade Commission of Columbia accused four respected cancer charities of misusing donations worth millions of dollars.

One of them, the Cancer Fund of America, declared that it spent 100 percent of proceeds on hospice care, transporting patients to chemotherapy sessions and buying medication for children. The Federal Trade Commission found in fact that less than three percent of donations was spent on cancer patients.

The “new ethic” is in reality a cancer, and it is metastasising rapidly.

Roberto Savio

*Roberto Savio is the founder and former Director-General of international news agency Inter Press Service (IPS). In recent years he has also founded Other News, a service providing ‘information that markets eliminate’.

Roberto Savio: utopie@ips.org. http://www.robertosavio.info. The author has granted permission to Human Wrongs Watch to publish his article. 

Other articles by Roberto Savio on Human Wrongs Watch:

The Crisis of the Left and the Decline of Europe and the United States

My meeting with El Che

The West and Its Self-Assumed Right to Intervene

A Guide to the Religious Conflict in the Arab World

Blissful Ignorance Makes the West Slide into Mishaps

Pillar of Neoliberal Thinking Is Vacillating

It Should Be Clear What to Expect from the World Social Forum

Foreign Policy Is in the Hands of Sleepwalkers

What if Youth Now Fight for Social Change, But From the Right?

The Exceptional Destiny of U.S. Foreign Policy

Climate Change: Governments Say All the Right Things But Do Exactly the Opposite

The ‘Acapulco Paradox’

Global Governance and Common Values: the Unavoidable Debate

Of Banks, Inequality and Citizens

The Paris Killings – A Fatal Trap for Europe

Ten Major Handicaps Facing 2015 

The Sad Future of Our Planet

Europe Has Lost Its Compass

The Suicide of Europe

The Steady Decline of Social Europe

The “Incestuous Relations” Between Governments and Energy Corporations

Four Key Reasons to Understand the Irresistible Attraction of Radical Islam

Europe Is Positioning Itself Outside World Arena

Planet Racing Towards Catastrophe and Politics Just Looking On

OP-ED: International Relations, the U.N. and Inter Press Service

Ever Wondered Why the World is a Mess?

Economic Growth Is Anything But “A Rising Tide Lifting All Boats”

Banks, Financial Institutions and Citizens — The Urgent Need to Update the Seven Deadly Sins

The Decline of the Middle Class

The Rich Complain That We Do Not Love Them

The Free Market Fundamentalists Are Now in Europe

The ‘European Dream’ Going the Way of the ‘American Dream’

Thatcher, Reagan and Their “Revolutions”

Cyprus: Do You Understand What Has Really Happened?

Hugo Chávez’s legacy to Latin America

“The Tide Is Growing, But The System Does Not Realise It”

The Palestine Drama, Public Theories and Hidden Realities

China Opening a Confrontation on the Sea

After Two Lost Decades, Japan Went to Sleep

Japan – Ethics, Democracy, Growth

China, Japan Brewing a Serious Conflict

A Personal Experience with the American Justice System

Finance’s Ethics: a Leap into the Past

Banks and Politics Do Not Mix Well

Images:

**The New York Stock Exchange on Wall Street, the world’s largest stock exchange per total market capitalization of its listed companies.[1] | Wikimedia Commons

***The City of London skyline in December 2013 | Author: kloniwotski | Source: Flickr | Wikimedia Commons

2015 Human Wrongs Watch

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