A Possible Solution: Send the Bastards to Jail

When I was a kid my three older male cousins took me under their collective wing for a summer on a New Jersey boardwalk. My cousins had summer jobs on the boardwalk and so we had a free run behind the scenes. There were numerous arcades where one could win stuffed animals and other prizes. The customer gave the vender his or her money and the vender hit a switch that sent a large colorful wheel spinning. Where the wheel stopped determined which prize, if any, you won. What the punter could not see was a second small switch behind the counter where the vender was standing which he used if he thought the wheel might stop on a large and expensive prize. Just a quick on/off would jolt the wheel enough to move it beyond the big prize win. Basically, the vender defrauded the customer to increase his profits.

Boardwalk at Seaside New Jersey, Photo by Bob Palmisano*The rigged switch was common practice and used up and down the boardwalk. No one thought it bad practice or really thought about it at all. If you were to ask a vender if he was doing wrong he would probably be bemused by the question. It was an arcade on a boardwalk for God’s sake. What did you expect? Ethics? Legal practices? Don’t be naïve. Have fun. If you’re lucky you might get a small stuffed animal on your third try.

Welcome to the world of banking. On the boardwalk you might lose a few dollars. In the world of banking you can lose a whole lot more, like maybe your house or your business.

This week revealed yet another banking crisis. It started in Britain, but has now gone global. Investigators are looking at banks in the United States, Canada, Switzerland, Singapore and Japan. You just know it will spread. Preliminary evidence indicates bankers were involved in an international network that defraud their customers in order to increase their profits and thus their performance bonuses.

I read an article by Ian Leslie in The Guardian that explained this latest crisis, the rigging of interest rates, in ways even I could understand. There are two types of bankers involved: Traders and Submitters. The Submitters send information to the banking authorities about the day’s trading. The banking authorities then set “benchmarks interest rates” based on that data. The traders bet on the level of interest rates. So, if the Traders can influence the information sent out by the Submitters, then they, the Traders, can make substantial profits. And while the information sent out by the Submitter is utterly vital for the accurate running of the market and false reporting is disastrous, the falsifying of this data is not illegal. Why not? Indeed, while all this may seem rather esoteric, the fiddling of interest rates affects our mortgages, credit card payments, investments, pensions, etc.

Politicians in the UK are, of course, outraged and some (though not the prime minister) have suggested Barclays’ chief executive Bob Diamond should resign (the rigging slander was first exposed at Barclays). Not surprisingly he has refused. It seems that when the bank does well, Diamond is rewarded for his leadership in the form of huge bonuses. However, when the bank is found to be dishonest and failing, neither Diamond nor his leadership are held responsible. He has said he will forgo his bonus for 2011 which is supposed to impress me, though I would suggest that it is not his to give back. Either he didn’t know what was going on or he did. Either way a performance bonus seems utterly ridiculous.

The politicians are voicing all kinds of angst and anger at this latest crisis. Of course they are. However, it sounds all too reminiscent of the political rhetoric heard in 2008/2009, and if truth be told they did very little to rein in the banks after all their protestations to do so back then. We can only hope they are serious this time. I’ll believe it when I see it.

There is a lot of talk about the need to “change the culture” of the banking industry. There have even been some who have pointed out the obvious: that while bankers are proving incredibly immoral and unethical, that while they are interfering with the running of the market in ways that affect millions of people, they are doing nothing illegal. This dislocation between what is moral/ ethical and what is legal begs the question: Why is it that the law is not in harmony with what society deems immoral and unethical and politicians apparently think is unacceptable and deplorable behavior? Don't forget, these are the same bankers who brought the world economy to its knees in 2008/2009, who we bailed out at a the cost of billions, who refuse to grant loans to small business at levels agreed, who increased their pay by some 12% (in the UK) and gave themselves huge bonuses, who sold customers insurance they never needed, who flogged loans that could never be paid back. And through it all, no criminal charges. If ever you wondered who runs the world, stop wondering. Political talk is cheap, or rather in this case expensive.

So, our politicians delcare loudly the banking culture needs changing. Well, I have a possible solution.

To the politicians: Change the laws so that immoral and unethical banking behaviour is made illegal.
To the police: Arrest the criminals.
To the lawyers: Prosecute the criminals.
To the juries and judges: Send the bastards to jail.

That just might change the culture of banking.

Copyright © 2012 Dale Rominger
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* Boardwalk at Seaside New Jersey,  Photograph by Bob Palmisano