Financial Crisis: Finally A Politician Called to Account

[Guest fountainhall]

One of the first countries to experience the effects of the global meltdown was Iceland. First, its 3 largest banks went belly-up; then, the entire economy. Now, in what is described in a front page article in today's International Herald Tribune as a desire for "deep and comlicated justice and retribution", criminal charges have been levied against the country's former Prime Minister, Geir Haarde.

 

He is accused of "violations against the laws of ministerial responsibility" and that he showed "serious nonfeasance of his duties as prime minister in the face of major danger looming over Icelandic financial institutions and the state treasury."

 

If found guilty of the charges, Haarde would face a maximum jail sentence of just 2 years. But I wonder if other countries will finally start taking more positive action to bring those who could see what was coming and did nothing about it, to book. And I also wonder how many other present and former prime ministers and finance ministers are starting to feel just a little less comfortable.

[Rogie]

He is accused of "violations against the laws of ministerial responsibility" and that he showed "serious nonfeasance of his duties as prime minister in the face of major danger looming over Icelandic financial institutions and the state treasury."

? psychopath

 

(see Testosterone: to blame for banking crash? topic - Post #4)

[Guest snapshot]

How about the understanding that people f--- up?

 

That's basically what happened. No one should be put in jail for decisions that led to the GFC unless they actually broken the law.

 

This is coming from someone who felt the effects of the GFC pretty heavily.

[Guest fountainhall]

No one should be put in jail for decisions that led to the GFC unless they actually broken the law.

 

This is coming from someone who felt the effects of the GFC pretty heavily.

I'm not sure I agree. If you are the CEO, CFO or other senior executive in a company, you are held to account if the sh-t hits the fan. I don't see why any banker who gambled with the company's funds - i.e. clients and shareholder funds - and took grossly unacceptable risks (many in the process covering themselves when they realised they were dealing with complete junk) should escape punishment when their very actions have had such devastating consequences that the world will be paying for for many more years. Why should a few self-serving bankers be allowed to get away with bringing such financial hardship to hundreds of millions?

 

Similarly, I believe governments and their leaders should be held to account when it is clear they fail to exercise due diligence in the handling of a nation's affairs. The fact is the governments of Iceland, Greece, Ireland, to name just three, knew precisely what they were doing, In the case of Greece, they were crooks and liars - plain and simple. In the case of Iceland and Ireland, they knew only too well what was happening in their economies but did precisely nothing to stop it. And let's not kid ourselves - they could certainly have stepped in much, much earlier.

[Bob]

In the insane modern world of corporate management, senior management is basically free from any intelligent oversight by anybody including their own boards of directors (those allegedly intelligent folks who, along with senior management, have a legal fiduciary duty to safeguard the company's and shareholders' assets). It almost seems that the more you screw up, the more money they'll pay you to go away. I absolutely disagree that some of these morons ought not to be constantly worried about somebody going after them for a horrendously stupid decision (as they are being paid gobs of money not to make those kinds of decisions).

 

In my hometown area in the US, they built a resort with a 20-story tower hotel (tallest building probably within 150 miles or so), spa, golf courses, etc. In the process of the expansion of the resort, funds were borrowed from the Detroit Pension Fund (a huge, multibillion-dollar fund handling the retirement funds for all City of Detroit employees, past and present). It got to the point that the Fund had loaned the resort a little over 72 million dollars and then the resort filed bankruptcy. The assets were appraised by the bankruptcy court and those appraisals (very thorough appraisals done by the best in the business) concluded that all assets together were worth 24.5 million dollars. Only an absolute moron would ever lend any business any more than about 50% of asset value. Lending 3 times asset value was incredible stupidity.

 

And, of course, nobody even suggested that the senior management or Board Members of the Pension Fund ought to be fined, fired, sued, charged with breach of fiduciary duty, or horse-whipped. A crying shame in my view.

 

We need to return to a time that senior management (including every one of the members of the Boards of Directors) is held to some standard of care. And, in the appropriate situation, I see no reason why criminal responsibility shouldn't apply (although I agree with Fountainhill that we don't go that route unless the standard of care breached exceeds the ordinary prudence level). Maybe some of these "brilliant investment" people just might be a bit more "brilliant" if they actually thought there might be a possibility that somebody was looking over their shoulder.

[Rogie]

"Every banker knows that there are three kinds of bankers - there are those who know how to count , and there are those who don't"

Cribbed from an article in The Guardian about bankers.

 

(Actually I cheated - the subject of ridicule wasn't wankers, it was economists . . . )

[Guest fountainhall]

There are some extraordinary comments on a CNN report about the announcement earlier today of yet another rogue trader at a bank losing an enormous sum of money. This time it is UBS and the amount is said to be around US$2 billion - "among the largest costs ever to a bank in unauthorized trading." A report in The Guardian suggested that this could have been a gamble that backfired when the Swiss franc dropped massively after it was pegged to the Euro. Yet the analysts consulted by CNN give other suggestions.

 

Market analyst Ralph Silva . . . outlined three possible ways a loss that big could take place: intentional fraud, "basic stupidity" in trading strategy, or what the banking industry calls "fat fingers," which means typing the wrong number by accident.

 

Perhaps the trader "put in an extra zero so instead of buying a million he or she bought ten million -- could be a problem," Silva said.

 

Lex van Dam, a former trader who is now a partner at Hampstead Capital in London, said chaos in the markets could have put more pressure on a trader desperate to hang onto his job.

 

"Trading has been incredibly difficult over the last year," said van Dam. "With the volatility in banking stocks, commodities and currencies, things can go wrong really, really easily. If you're worried about your job and you try to hide (a mistake or loss), you can see how these situations arise . . . He must have done something that he wasn't supposed to do, obviously.".

http://www.cnn.com/2011/BUSINESS/09/15/switzerland.bank.lost/index.html?hpt=hp_t2

 

"Basic stupidity?" "Fat fingers?" "More pressure?" "He must have done something he wasn't supposed to do?"

 

At which financial kindergarten were these analysts educated, I wonder? They must think we are all moronic idiots! UBS has said that "no client positions were affected by the loss." Nothing about shareholders and their losses after UBS shares dived almost 10%, though.

 

And how does an 'expert' analyst sum up the situation? In a sentence we have heard uttered too many times in recent years -

 

"The banks are too large," van Dam said. "The products are so complicated, and the management doesn't understand it."

The trader, who earned a seven-figure salary, has been arrested. I wonder when arrest warrants for the UBS Board and senior management will be issued?

 

Wasn't it more than 15 years ago that Nick Leeson's illegal trading brought down Britain's prestigious Baring's Bank? Pete Seeger got it right in his song "Where have all the flowers gone" more than 50 years ago -

 

When will they ever learn?

[Rogie]

The World of Banking explained, in a nutshell, by Market analyst Ralph Silva . . .

 

"Well it's like this, every banker knows there are three kinds of "F's" - fraud, f**k-ups, and fat fingers - quite simple really"

[Bob]

"Well it's like this, every banker knows there are three kinds of "F's" - fraud, f**k-ups, and fat fingers - quite simple really"

 

While I know there are some good bankers out there, these banking and investment people have in general been given far more credit in the respect and intelligence departments than they've ever deserved. As I've noted before, I legally need some education and a a governmental license (after some minimum testing) in the States before I can legally cut your hair, tinker with your car engine, repair your bathroom, etc.. I don't need diddley to be a banker.

 

Yet, for whatever reason, if somebody works at a bank and wears a 3-piece suit, people historically have presumed that person is worthy of respect, smart (financially), and can be trusted to act in the best interests of the given customer. Yea, sure.