Now before anyone gets excited about the specter of bankers doing a perp walk, the early word in a Wall Street Journal story on criminal charges being readied against former Barclays bankers says that the prosecutions will target “midlevel traders.” This exercise thus continues the established pattern of small fry serving as human shields for managers and executives.
As anyone in finance knows, just going after the little guys, while better than nothing, is hardly adequate. Senior executives get paid on the profits (or more accurately, the apparent profits) of the activities in their purview. And as we’ve also discussed (long form in ECONNED, but also often here on this blog) risk management and other control functions are too often politically weak by design. Even if the staff in those areas are making an honest effort at doing their job, their real function is often to serve as a fig leaf for management (“look, we had all the box checking stuff required by the law in place. It’s not our fault if some rogue employees were savvy enough to game our systems”). And on top of that, the incentives for the staffers in these units is frequently to curry favor with the producers. For instance, risk managers have technical skills but make less money than traders and often the folks who do trading analytics. So they have every reason to try to impress trading managers in the hopes of getting plucked out of risk management rather than riding herd on those producers.
Similarly, at Standard, the order by New York State’s Benjamin Lawsky revealed that the bank’s legal department was working aggressively to circumvent money laundering rules rather than enforce them, even when outside counsel told them they needed to clean up their act.
Things have gotten so topsy-turvy that a colleague has joined a major financial firm in a compliance role working for the head of a major product area. His job is to tell his boss what he can and can’t do and be firm about it. And based on his experience so far (more than a year) his boss seems to be tough about compliance. Why would a producer type be so concerned? Normally, you’d expect a guy like him to be fighting with firm-wide compliance. Apparently this top manager is concerned that if anything bad happened in his unit, he’d be thrown under the bus by top management. So while this is something of an improvement on the old status quo (of anything goes if you can blame low level staff), it still shows that top level management aren’t doing their jobs at these firm, of having serious controls in place, because they know they won’t be the ones who suffer much if a scandal arises.
From the Wall Street Journal:
U.S. and British authorities are preparing to bring criminal charges against former employees of Barclays PLC for their alleged roles trying to manipulate benchmark interest rates, according to people familiar with the plans, marking an escalation of a global investigation now entering its sixth year….
It isn’t clear which former Barclays employees are likely to face charges, or what the charges would be. A Barclays spokesman declined to comment….The current probe appears to be targeted at midlevel traders, not top-level executives, according to the people familiar with the planned charges.
It’s a safe bet that the traders who will be charged won’t be as big kahunas as Mark Tom Hayes, who is one of two UBS traders being prosecuted by the US, who was described as a “major trader” and the FSA had deemed UBS’s violations to be “considerably more serious” than those at Barclays. In other words, this move looks more to be about generating sound bites and appeasing a public that is sick of the lack of banker prosecutions than in producing real changes in conduct.
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And Jamie Dimon had no clue what was going on in CIO, though why should he be questioned whether he is up to handling both Chairman and CEO of JPMorgan?
It may be that they are targeting middlemen in order to flip them on their superiors.
That would be a first…that kind of thing may happen on shows like Law and Order, but it isn’t exactly common in the prosecution of financial crime (at least not in real life).
Do tell! What kind of time travel device are you using to speak to us from 2009 when that excuse might have had validity? Is it a flux capacitor? Or were you on a space ship near the speed of light and time moved more slowly for you? I think that would be the news story of the 21st century.
Eric Holder is still the Attorney General. This is to con the rubes who are starting to doubt the President. The great orator is perceived as weak, and the Democratic PR clowns are pushing the message the President is finally standing up to the Republicans*. Jon Stewart took Obama to task for his lack of prosecutions for financial crime. Democrats are worried. These are sacrificial lambs who don’t have the goods on anyone important.
*Gee, you would almost think that would undermine the President’s image by point out he spent his first term appeasing Republicans.
thoughts on your opening paragraph alone:
if small fry employees serve as shields for company mandated misdeeds, how long before none of even the “best & brightest” refuse to work on Wall Street due to downside risks?
or is the gamble that you can make it pay off big, stash your money in the Caymans and do a little “community service” before retirement?
sorry, all/none.
it comes of being an incredibly myopic mouse, and parking the screen 3 feet away.
ahem. . . Tom Hayes
I used to have faith that going after the small fry would be a means to get dirt to go after the big fry.
Now it seems the small fry is all they want, as scapegoats to protect the big fry.
They need to follow what Spitzer said — treat the banksters like the mafia. Find the low level guys, pressure them to get the goods on the top guys who are pulling the strings for it all.
Until they get serious about it, they’re going to keep enabling anti-economic, anti-competitive, criminal behavior.
OT – I’m still really angry at Spitzer for being too stupid to keep his pants zipped.
I suppose we might hope they intend to nick some of the small fry to ,get them to turn Queen’s evidence against the larger fish. Pigs might fly too.
By now any evidence is likely to be shredded or lodged on servers in Panama. The US case in which a judge found ‘legal reasons’ why fiddling Libor was OK (whatever) says it all. In fact, thousands of low level staff committed fraud selling ppi, interest rate swaps, personal pension plans and no doubt much more. It would only take a change of emphasis as we are seeing on sexual abuse in the UK to nick all of them. No ordinary decent criminal would get away with the excuse they were just doing what Mr Fagin told them. We can imagine the interrogation:
Cop: Are you a reasonably intelligent person Miss Bonusmaker?
Miss B: Yes.
Cop: Please examine this case study on ppi/interest rate swaps/personal pensions, deciding whether any of those listed as clients could ever benefit.
I used to run banking institute classes using such a case. All students in it recognised there was no case for any of this stuff.
Cop (after a bit of brow-beating) You’re facing ten years in one of our less salubrious women’s prisons. It might help if you tell us who put you up to this.
This won’t happen of course – but we do do something like this with ordinary decent criminals who don’t work in banks and have done a lot less damage. They don’t get away with saying Mr Fagin said selling the drugs was OK – and some of them, in my experience, were so thick they might have believed such. Quite a few of the daft crooks I put away should have been less culpable for their crimes than the bank clerks.
The government’s excuse that it’s too hard to prosecute banks and senior executive is a load of crap. In fact, it is easier today than ever despite the huge complexity of bank fraud and crime (LIBOR, CDO’s, commodity manipulation). It requires a simple mental step that our Bought and Sold leaders are paid not to do.
Any of these banks could be prosecuted under national security laws, especially in the US under the uber-fascist Patriot acts and their related diktats. If, for example, Al Qaeda formed a bank which went bust in an attempt to take down the US or UK banking system, all the managers would be in Gitmo as we speak, learning how to breath underwater and sleep with their heads bent into their anuses.
Dimon, Blankfein, et al have done more damage to democracy (what little remains) and our economies than Al Qaeda or any other “terrorist” group. Surely the NSA has all their phone, email, and texting records. But, gosh, using that would be an attack on free markets.
We leave the attacks on the free market to the banks and other corporations!
Just yank their banking licenses and get it over with.
I’d like to see high level prosecutions too, but that’s mainly because I think the whole system needs to reform/collapse. But if you’re interested in seeing the system stay as is, prosecuting middle frys actually works pretty well to get them to behave within the system. It’s like your story about “the producer” who’s afraid to be thrown under the bus. Being thrown under the bus is a strong fear and rational in light of how the bank bosses behave.
So no surprise which direction Obama is taking.
My Friday humor: It is being reported by the Guardian that folks are talking about moving LIBOR to Paris. So will it become PIBOR? How will we pronounce the revision, hard or soft “I” ?
Rounding up the usual suspects? Making “somebody” pay as long as that somebody isn’t a major campaign donor / player / high-level bankster. This way the Administration can say that somebody paid the price without making any meaningful changes to the status quo.
The notion that the banks are “too big to prosecute” and therefore no need to investigate into their shenanigans is disturbing, to say the least.
More important, its not very credible, given that two of the “Big 4” accounting firms (E&Y and KPMG) are operating under so-called “deferred prosecution agreements” for tax shelter fraud. The fact the banks have much deeper pockets inside the Washington beltway is the best distinguishing factor i can think of, and doubtless persuaded the President to stand between the banks “and the pitchforks.”
Maybe the Greenwald “leaks” will grow our Shadow Greek Prime Minister the nuts to go after the cream of the fraud-rife, for it is these who are behind these so-called “leaks,” hoping to push Attilos into overt alliance with the CIA’s Arab Legion in Syria that the drive for a crisis of civilizations at the borders of Russia and China move forward in service to Venice on the Thames whose game of wrecking the Treaty of Westphalia right up to and including the red, white and blue presently is threatened by Assad’s encirclement of the CIA’s bearded ones.