Who Will Shoot the Bankers?

[PeterRS]

The government of Ireland recently accepted a massive US$110 billion bailout package from the EU. Now I note from today's news that it has taken over its fourth bank, and is rapidly pumping money into two more. All this after Citigroup, Royal Bank of Scotland and many others had to be rescued with countless tens of billions of tax dollars in their respective countries.

 

Has anyone heard of any banker being tried, let alone jailed for causing gvernments to collapse, countries go even more broke than they were, and the savings and investments of hundreds of millions of people come crashing down?

 

So these poor bankers are losing their bonuses! Oh really? From what I've read, there base pay has been jacked up to compensate, so they are still way better off than people they defrauded. Madoff went to jail for 150 years. But thanks to claw backs by the New York bankruptcy trustee, it now looks like his investors will get as much as 50% of their principal back. What about the shareholders in Citi and RBS? If they had to cash out at the bottom of the market, they lost over 95% of their investments. Even today those stocks show losses of around 90%.

 

When, I wonder, will those banker fraudsters be hauled into court and handed multi-year jail terms? I don't care what laws are or are not on the statute books. If there is nothing there, pass a law and make it retroactive. In my view these bastards should not be allowed to walk free.

[KhorTose]

Has anyone heard of any banker being tried, let alone jailed for causing gvernments to collapse, countries go even more broke than they were, and the savings and investments of hundreds of millions of people come crashing down?

 

You have my vote, but in the US it would be very difficult under our present laws.

I truly believe in the rule of law, but if one of those stockholders who were wiped out were to shoot his banker, I would be hard pressed not to find some degree of justification in what he did. Involuntary Manslaughter due to tremendous stress would be my verdict.

[Guest]

When, I wonder, will those banker fraudsters be hauled into court and handed multi-year jail terms? I don't care what laws are or are not on the statute books. If there is nothing there, pass a law and make it retroactive. In my view these bastards should not be allowed to walk free.

 

I agree with you 100 percent. But, the laws of the USA are bought and paid for by lobbyists. The banking lobby is strong and well-supported. Passing laws to put them in prison won't happen as long as we have a Congress, Supreme Court and President that is bought and paid for by big business.

[Guest beachlover]

Has anyone heard of any banker being tried, let alone jailed for causing gvernments to collapse, countries go even more broke than they were, and the savings and investments of hundreds of millions of people come crashing down?

Why should they? They didn't break any laws. It's the responsibility of governments to regulate the industry. Regulate the market.

 

So these poor bankers are losing their bonuses! Oh really? From what I've read, there base pay has been jacked up to compensate, so they are still way better off than people they defrauded.

Haven't read up about this but I suspect increasing base pay and decreasing bonus scales may be to decrease motivation for short term risk-taking activity, which would make sense.

 

You might be using the word "defraud" loosely if you mean that in a literal criminal sense.

 

Madoff went to jail for 150 years.

Totally deserved. He actually committed a crime.

 

What about the shareholders in Citi and RBS? If they had to cash out at the bottom of the market, they lost over 95% of their investments. Even today those stocks show losses of around 90%.

Tough titties. You invest. You take a risk. If the business f*cks up, you lose.

 

When, I wonder, will those banker fraudsters be hauled into court and handed multi-year jail terms? I don't care what laws are or are not on the statute books. If there is nothing there, pass a law and make it retroactive. In my view these bastards should not be allowed to walk free.

What - for doing their jobs in the way, which the reward/incentive framework motivates them? These guys are human beings too.

 

Very few people predicted the crisis and of the ones who did, even fewer acted to position their businesses for it. Banks and listed investment vehicles were far from the only businesses to sink or come close to sinking. A lot of industrials, media and professional services were hammered too.

 

I truly believe in the rule of law

That's nice but the next statement demonstrates otherwise...

 

if one of those stockholders who were wiped out were to shoot his banker...

...Then he should be tried for murder.

 

I would be hard pressed not to find some degree of justification in what he did. Involuntary Manslaughter due to tremendous stress would be my verdict.

Let's say another farang stole your boyfriend and that put you under tremendous stress and you murdered the farang. Involuntary manslaughter due to tremendous stress?

 

You people really think it would be perfectly ok to go and murder an analyst or executive working for a bank or perhaps one of my friends who was C** (one of top 3 executive) of one of the smaller listed companies, which sank (complete kaput), just because something you invested in went bad?

 

When I was in my late teens, I lost about a quarter of my savings because of 3-4 rogue traders (amongst other factors) at a bank I had bought installment warrants (similar to options) for shares in. Sure I was pissed. I didn't want to kill them though. They got a hefty jail term. That was justice.

 

Some of you guys sound like you've never met in person or been friends with people who crunch these decisions day in day out because you certainly don't sound like you think they're human beings.

[PeterRS]

Why should they? They didn't break any laws. It's the responsibility of governments to regulate the industry. Regulate the market.

Thank you for your interesting observation.

[Guest voldemar]

Has anyone heard of any banker being tried, let alone jailed for causing gvernments to collapse, countries go even more broke than they were, and the savings and investments of hundreds of millions of people come crashing down?

 

You are making a very good point. The bankers in Switzerland are personally responsible

for the performance of their banks and can go to jail. There is no government guarantees

for bank deposits in Switzerland but one can hear very rarely about Swiss banks going bankrupt. I attribute it exclusively to the Swiss laws making bankers personally responsible. I would love to see similar law in US instead of growing shit of (unnecessary) socialist-type regulations.

[PeterRS]

The bankers in Switzerland are personally responsible for the performance of their banks and can go to jail.

 

Beachlover might have a hard time agreeing with the Switzerland regulations.

 

Some of you guys sound like you've never met in person or been friends with people who crunch these decisions day in day out because you certainly don't sound like you think they're human beings.

Oh, those poor bankers. Just because a tiny fraction of the world's population, a bunch of rich, greedy bankers, all but bankrupt governments around the world by sending their economies to the dogs for years through forcing them to pump a gazillion dollars into the banking system to keep it afloat, beachlover believes we should have sympathy with the bankers because they were only doing their jobs. I for one don't agree that those who packaged toxic assets where just doing their jobs. They were driven by greed. They wanted to ensure their fat bonuses kept growing fatter at an exponential rate. They also knew they were gambling, That's fact. They were gambling that house prices would keep rising. After all, ins't that what had always happened? So what if most of these new mortgages were thrown like confetti at people who would not meet their bank's minimum credit worthiness regulations? These crooks were absolutely no different from those who cram the tables in Macao, SIngapore and Las Vegas. Lose your cash at roulette, and you pay the consequences. Lose your firm's cash in a crap shoot, and to hell with the consequences if you bet wrong. The crooks knew they wouldn't be the ones to suffer.

 

To hell with the little town in Norway which was persuaded by suits from one of the world's top banks to move its town's long term savings into toxic assets. Its citizens will now pay for this folly for decades. To hell with the millions thrown out of their homes. To hell with hundreds of millions who now face austerity measures for years. But of course it's not the bankers fault. They were only doing their jobs. Blame the governments!

 

I am not talking about investors, although I think there is not a great gulf between them and Madoff's victims. At least Madoff's victims look as though they will come out a lot better off than many banks stockholders - those who did not kill themselves, that is. Those like that honourable investment banker, Thierry de la Villehuchet, and quite a few others. To say nothing of Madoff's own eldest son.

 

I may not know one of these banker crooks, as perhaps beachlover does. Frankly, I don't want to know any of these "human beings" inbeachlover's description. They and their banks should be prosecuted and many of the individuals thrown into jail for a long time - if only pour encourager les autres. Plain and simple.

[Guest beachlover]

Oh, those poor bankers. Just because a tiny fraction of the world's population, a bunch of rich, greedy bankers, all but bankrupt governments around the world by sending their economies to the dogs for years through forcing them to pump a gazillion dollars into the banking system to keep it afloat, beachlover believes we should have sympathy with the bankers because they were only doing their jobs. I for one don't agree that those who packaged toxic assets where just doing their jobs.

I don't disagree that they f*cked up. But I don't agree that they f*cked up to a criminal extent. There's a difference between a f*ck up and a criminal f*ck up.

 

You might be angry at what happened. But if you let that cloud your judgement, then you have the same intelligence and capacity to judge as a big angry mob.

 

They were driven by greed. They wanted to ensure their fat bonuses kept growing fatter at an exponential rate. They also knew they were gambling, That's fact. They were gambling that house prices would keep rising.

Who isn't?

 

In a competitive capitalist economy, it's the government's role to develop the right framework of regulations to guard against "market failures". That means things like anti-competitive behaviour, unconscionable contracts or business practices which put the lives or health of people at direct risk. Without these regulations, it's only natural for businesses to keep pushing as hard as they can to out-perform their competitors where they can get away with it.

 

To hell with the little town in Norway which was persuaded by suits from one of the world's top banks to move its town's long term savings into toxic assets. Its citizens will now pay for this folly for decades.

Yep, it's got nothing to do with the people who were dumb enough to make that decision has it? Every government entity or non-profit has a responsibility to assess and manage risk in its portfolio or seek professional advice when making such moves. Professional advice does not come from the people trying to sell you a product.

 

I am not talking about investors, although I think there is not a great gulf between them and Madoff's victims.

You don't think there's much difference between losing money in a giant financial criminal pyramid scheme and a legitimate business, which miss-manages its financial risk and loses a lot of value as a result?

 

They and their banks should be prosecuted and many of the individuals thrown into jail for a long time - if only pour encourager les autres. Plain and simple.

For what, exactly? What is their crime?

 

If a stock broker recommended (with adequate justification) an investment to you, which subsequently tanked, would you throw them in jail too? If an IT consultant designed a system, which later crashed, would you throw them in jail?

 

I think the GFC was so big and unprecedented it crept up on everyone and the enormity of it was difficult to understand or believe until it actually happened, hence the lack of action by most businesses to prepare. To most of the public, the GFC happened almost overnight. It's unbelievable how much the media portrayed a happy healthy economy on the lead up. Whilst in financial markets there were worrying reports of unprecedented problems in the months (months!) leading up to it. As an individual, it was easy to look at such reports and act on them with your own personal finances. But as someone managing a company's finances, you would've appeared hysterical if you made drastic enough moves needed to prepare.

[Guest voldemar]

In a competitive capitalist economy, it's the government's role to develop the right framework of regulations to guard against "market failures". You don't think there's much difference between losing money in a giant financial criminal pyramid scheme and a legitimate business, which miss-manages its financial risk and loses a lot of value as a result?

 

 

For what, exactly? What is their crime?

 

In reality government should play very limited role and let the market to sort out the problems. When bankers gamble with customers deposits and loose it, it is a crime (more precisely, it should be considered a crime) and they need to go to jail (and that should be the governmental role). Swiss experience shows that these types of laws is a very good deterent.

Regarding the crisis, many people saw it is coming , including the bankers. Many big firms like Goldman Sachs made corresponding bets and gained a lot. I do not think that share holders should have been bailed out but neither should be the failing banks (including " too big to fail"). HSBC has much better practices than CITIBANK (though they lost money on subprime mortgages but at least never asked for goverment money). If Citibank went out of business the banks like HSBC could gain extra share of customers and benefited as they should...

I am not anarchist and I see governmental role in financial issues but very limited one.

Nobody needs huge and growing unproductive government bureaucracy creating more and more idiotic regulations and keeping themselves busy enforcing them.

[PeterRS]

Without these regulations, it's only natural for businesses to keep pushing as hard as they can to out-perform their competitors where they can get away with it.

 

Re your comment above, I do believe that quite a number of the investment bankers involved in the toxic asset scandal knew perfectly well that they were taking wildly excessive risks with their bank's money, risks that went beyond the guidelines. Somewhat like the rogue traders Nick Leeson, who doomed Baring's Bank, Jerome Kerviel, the futures index trader at Societe Generale, and others, my view is they deserve to go to jail. As voldemar rightly pointed out, some of these crooks used even more of their banks money to bet against the products they were peddling to the public. And that was not just a normal hedging operation. They knew perfectly well that the market crash was coming and they were trying both to save their own skins and increase their own profits/bonuses. To hell with the clients.

 

If a stock broker recommended (with adequate justification) an investment to you, which subsequently tanked, would you throw them in jail too

 

If there was deliberate misrepresentation and/or criminal negligence, I would certainly seek to sue and have him thrown in jail. And I hasten to add that deliberate misrepresentation in my view (and I believe in the view of courts in most jurisdictions) would include an inadequate or false evaluation of the risk I'd be taking if I accepted his advice.

 

We're pretty far apart in our assessment and I think debating the issue here is not likely to reach much resolution. So having made these comments, I'll leave the floor to you and thereafter just agree to differ.

[KhorTose]

I could not agree more. You've hit the nail on the head.

[Bob]

I, too, side with Peter on this one. Sure, there were a fair number of bankers who were not guilty of any criminal offense although, civilly, gross negligence might hit the mark (along with their so-called expert advisers on the directors' boards). On the other hand, you had (besides the raft of Bernie Madoff types) the lead investment banks making big money shorting investments they were selling (and making money off those sales) to trusted clients. That's stealing in my book.

 

I don't see much difference between a guy sticking a gun in your face and taking your money versus the guy in the white suit lying through his nose to steal your money. On the other hand, the robber with the gun was at least honest up front about what he was doing.

 

What happened in the US banking system in the last many years is absolute proof in my eyes that regulation is needed. Even Greenspan has acknowledged that he was wrong in thinking that the bankers and the banking system could properly operate in a low regulatory environment.

[Guest voldemar]

What happened in the US banking system in the last many years is absolute proof in my eyes that regulation is needed. Even Greenspan has acknowledged that he was wrong in thinking that the bankers and the banking system could properly operate in a low regulatory environment.

Greenspan contributed himself to the crisis immensely and hardly should be considered an expert. Your statement is wrong. The best banking systems in the world (like Swiss and Singaporean) operate in low regulatory envornment. No Singaporean bank ever failed.

The key is not regulation (US progressively introduces various regulations which in reality effect only custmomers making their financial life more and more difficult which I can attest personally based on my last trip to HK but does not stop various crooks and greedy and incompetent CEO's) but keeping those who are in charge personally responsible.

The case in question is recent rogue trader in Societe Generale. Many of us are traders in a sense, we do trade through brokerages electronically but none of us can take billion dollar positions. It is quite clear that establishing proper controls is quite easy internally and the only reason it was not done because that particular trader brought substantial profits to the bank for a while. When Sarcozy asked CEO of Soc Gen to resign (and thus take at least some responsibily) the CEO declined to do so. Now imagine what would happen if CEO knew that he can go in jail in case of 5 billion losses.

I assure you the accident would never happen.

[Bob]

Greenspan contributed himself to the crisis immensely and hardly should be considered an expert. Your statement is wrong.

 

No, you're wrong (not that it's all that relevant). Greenspan (who's rather widely respected with the obvious exception of yourself and some others) originally advocated that the banks could and would regulate themselves. Since the almost crash of the system, he along with many others have acknowledged that they were not only surprised at the rapidity with which it happened but, also, that they were clearly wrong that the banks and investment houses could and would regulate themselves. Hence (as supported by him, most leading economists, and the banking experts in both the House and Senate), we have new regulations for the banks. Greenspan's change of tune and admission that he (and others) were wrong advocating less regulation in the first place was, at least to me, a refreshing acknowledgment that events required an altered view of what banks and investment firms ought to be allowed to do (and not do).

Your view seems to be that what works best is little or no regulation and it would appear that you, like Greenspan in earlier years, simply trust the bankers and investment houses to do the right thing, have adequate capital, be allowed to use depositors money to invest in whatever fly-by-night investment (or derivative) their hearts desire, etc. Recent events in the US (and other countries) obviously demonstrates that that theory doesn't work too well.

[Guest voldemar]

No, you're wrong (not that it's all that relevant). Greenspan (who's rather widely respected with the obvious exception of yourself and some others) originally advocated that the banks could and would regulate themselves. Since the almost crash of the system, he along with many others have acknowledged that they were not only surprised at the rapidity with which it happened but, also, that they were clearly wrong that the banks and investment houses could and would regulate themselves. Hence (as supported by him, most leading economists, and the banking experts in both the House and Senate), we have new regulations for the banks. Greenspan's change of tune and admission that he (and others) were wrong advocating less regulation in the first place was, at least to me, a refreshing acknowledgment that events required an altered view of what banks and investment firms ought to be allowed to do (and not do).

Your view seems to be that what works best is little or no regulation and it would appear that you, like Greenspan in earlier years, simply trust the bankers and investment houses to do the right thing, have adequate capital, be allowed to use depositors money to invest in whatever fly-by-night investment (or derivative) their hearts desire, etc. Recent events in the US (and other countries) obviously demonstrates that that theory doesn't work too well.

The Greenspan is the one who kept low interest rates for prolonged period of time and henceforce created cheap money which in turn led to various bubbles. It is very well understood by now and contrary to what you are saying he has very little credibility left.(let alone respect). Now, my view is that bankers should be kept personally responsible for the performance of their banks and punished criminally in case of losses

of their customers deposits due to irresponsible gamblings. The laws like that are on the books in places like Switzerland. I think I stated it quite clearly in my previous posts which you did not read(?). Otherwise, I do not understand why you distort my views. Do not understimate the intelligence of other people to the extent that they cannot read what is clearly stated.

Now, regarding various idiotic regulations , including the last monstrous piece

pushed through US congress by local commies , yes, it will do absolutely nothing good

to US financial system. All major US banks are insolvent as we speak, there are plenty of uncaught Bernie Maddoffs who laugh all the way to the bank, and there is still a culture of unsatible (and uncontrolled) greed which is awarded by fat bonuses.

New regulations do not preclude bail outs but (according to Peter Schiff) will require,for example, in a couple of years all Americans to report on their tax forms all foreign stocks, bonds and other financial instruments they own (including those owned

through US brokerages). Now, I wonder why this provision will do any good for US financial system (but I do understand that commies need this information when they will want to confiscate these staff for the benefit of their comprades).

The problems is vast majority of Americans do not realize what kind of social experiment they are subject to.

If you saw Obama interview with Jon Steawart, Obama mentioned that a lot has already been done that you guys do not know. To which Jon naturally asked what we do not know?

We definitely would like to know...

[Guest fountainhall]

Greenspan (who's rather widely respected with the obvious exception of yourself and some others) . . .

I wonder if this is in fact accurate? Is it not more true to say that "Greenspan was widely respected . . ?"

 

On economics, I am not on solid ground. I do recall, though, a couple of interviews (was one a Senate hearing?) in which Greenspan admitted some of his economic risk models had inherent flaws which he had only recently come to realise. I believe the following are excerpts from a Greenspan interview -

 

The problems, at least in the early stages of this crisis, were most pronounced among banks whose regulatory oversight has been elaborate for years. To be sure, the systems of setting bank capital requirements ... will be overhauled substantially... Also being questioned, tangentially, are the mathematically elegant economic forecasting models that once again have been unable to anticipate a financial crisis or the onset of recession.

 

Credit market systems and their degree of leverage and liquidity are rooted in trust in the solvency of counterparties. That trust was badly shaken on August 9 2007 when BNP Paribas revealed large unanticipated losses on US subprime securities. Risk management systems – and the models at their core – were supposed to guard against outsized losses. How did we go so wrong?

 

The essential problem is that our models – both risk models and econometric models – as complex as they have become, are still too simple to capture the full array of governing variables that drive global economic reality. ...

http://economistsview.typepad.com/economistsview/2008/03/alan-greenspan.html

 

I happen to agree with voldemar that bankers have to be held fully responsible for their actions. Until that happens, you can expand the size of the rule book several hundred per cent, but how can anyone ensure that this will " capture the full array of governing variables that drive global economic reality?" Only by making the bankers responsible for their actions - in the same way that doctors and other professional are held accountable - and therefore paying much more attention to a fuller understanding of the risks which they are taking and consequently asking the public to take, will the world be safer from future banking disasters.

[Bob]

I happen to agree with voldemar that bankers have to be held fully responsible for their actions.

 

 

I'm not sure anybody (here at least) disagrees with that concept. The only issue there is where is the line between civil and criminal responsibility and my view is that it is the state/federal regulators' job to determine that. If, for example, a bank is going to earn FDIC protection in the states, then it certainly needs to comply with certain capital and lending requirements (or no intelligent depositor ought to even consider depositing money there). I personally would attach criminal responsibility only where the banker knew or should have known what he did (or, more likely, what he said in written reports or assurances to the FDIC, Treasury, or others) was false or misleading.

 

Many years ago, the FDIC had to take over a relatively small (65 million US) bank in my town and it was found out that the bank had provided interest-free and non-collaterized loans to several of the members of its board of directors (so-called insider loans)and to relatives and personal friends of the officers and directors, most of which were never repaid. In my view, the bank officers that gave the loans and the directors who got them should all have gone to jail. None of them did.

[Guest voldemar]

I'm not sure anybody (here at least) disagrees with that concept. The only issue there is where is the line between civil and criminal responsibility and my view is that it is the state/federal regulators' job to determine that. If, for example, a bank is going to earn FDIC protection in the states, then it certainly needs to comply with certain capital and lending requirements (or no intelligent depositor ought to even consider depositing money there). I personally would attach criminal responsibility only where the banker knew or should have known what he did (or, more likely, what he said in written reports or assurances to the FDIC, Treasury, or others) was false or misleading.

 

 

The problem is that internal culture of banks encourage traders to take risky steps but , in some sense require that. You see it is very difficult to make money on legitimate investments. It does require a serious talent and even vision. Very few traders actually have these qualities but everybody wants fat bonuses and even more they are demanded to make big bucks. The only way to brake this trend is to make bank management on the very top to be criminally responsible for big losses. It definitely works in places like Switzerland and Singapore. There was a quite revealing documentary about rogue trader in Soc Gen made by Bloomberg which explains this phenomenon. Another documentary named "House of Cards" about subprime crisis was made by CNBC. It definitely shows that this is just nonsense that bankers did not see what is coming. They just were a part of vicious system which demanded them to make these crazy loans or "securatize" them. Not only that:

if you do that, you make big bucks . If you do not, you are out of business. Only top management is in position to stop these madness. Government regulators can only insist on regulations or introduce new ones with tons of undesirable consequences.

[Guest fountainhall]

Only top management is in position to stop these madness. Government regulators can only insist on regulations or introduce new ones with tons of undesirable consequences.

Isn't one of the problems the fact that top management are often not aware of what their underlings are doing? This was true in the case of Barings Bank and Nick Leeson. The management should have known, they had summoned him to explain irregularities several times, they should have seen large red flags waving in front of them as Leeson was losing their capital. But they were dazzled by the profits he was supposedly generating and chose to continue in their state of euphoric blindness.

 

I remember Edward Liddy, the Chairman of AIG who was appointed specifically to sort out the firm's huge financial problems, telling Congress he had no option but to keep employing the managers who had created the toxic asset mess and paying them bonuses, because they were the only ones who knew how to unravel it all. Fire them, and the new team would have been all but clueless. This indicates to me once again that individual bankers have to become legally responsible for their actions.

[Guest voldemar]

Isn't one of the problems the fact that top management are often not aware of what their underlings are doing? This was true in the case of Barings Bank and Nick Leeson. The management should have known, they had summoned him to explain irregularities several times, they should have seen large red flags waving in front of them as Leeson was losing their capital. But they were dazzled by the profits he was supposedly generating and chose to continue in their state of euphoric blindness.

 

 

Precisely. The idea that somehow the bank may not possibly know what their traders are doing is totally ridiculous. The organization where I am working is tracking every click on my office computers. Besides, nobody can just take 50 billion dollar position on his own

(that was rogue trader in Soc Gen did and it was twice the equity of the bank). You need to produce collateral at least or counter party or something. If the management does not know then they should know or just be removed as incompetent. The technical tools for risk control are available. It is impossible to stop progress, even financial one. You cannot ban derivatives because they are extremely helpful in various circumstances, you cannot just fix exchange rates (and then print money as if there is no tomorrow), you cannot ban the gold (because this is "atavism") etc. The mankind was not able to invent better financial tool than the market. But when bankers gamble with other people money and then ask for government bail out, this has nothing to do with markets and should be exterminated with harshest possible means.