Here we go again. Four big banks—Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland—pleaded guilty this week to multiple crimes related to manipulating foreign currencies and interest rates. Bank traders created online chat rooms they referred to as “the cartel” and “the mafia” where they colluded to manipulate exchange rates. Little did they know how appropriate these terms were, for the big banks have rap sheets that would put a mob boss to shame.
The big four were fined $5.6 billion (on top of $4.25 billion some of them agreed to pay regulators in November), and, for the first time, the banks’ parent companies rather than a subsidiary were required to enter the guilty pleas. Lest you think that pleading guilty to a felony represents a ramping up of big bank punishment, it must be noted that the banks were able to negotiate exemptions to stiff future regulations as part of the deal. These exemptions, like so many others in plea-bargain deals with banks, will allow them to conduct business as usual.
The big four were fined $5.6 billion (on top of $4.25 billion some of them agreed to pay regulators in November), and, for the first time, the banks’ parent companies rather than a subsidiary were required to enter the guilty pleas. Lest you think that pleading guilty to a felony represents a ramping up of big bank punishment, it must be noted that the banks were able to negotiate exemptions to stiff future regulations as part of the deal. These exemptions, like so many others in plea-bargain deals with banks, will allow them to conduct business as usual.
The criminal culture that pervades the Wall Street community has shown itself to be immune to the government efforts to reign in fraudulent bank activity. Substantial fines, deferred prosecution agreements mandating reforms, and threats of restructuring and criminal prosecution of executives have proven inadequate deterrents to criminal behavior. As the recent currency trading fraud demonstrates, despite years of regulatory black marks, big banks continue to arrogantly defy laws as well as business ethics (is this an oxymoron?). The prevailing Wall Street freewheeling culture is perhaps best summed up by a comment made in one of the online chat rooms by a Barclay’s trader: “if you ain’t cheating, you ain’t trying.”
The deft ability of Wall Street banks to avoid harsher punishment for wrongdoing attests to their tremendous clout in the American political and economic systems. They have the power to not only avoid harsh punishment for law breaking, but to also shape financial regulatory laws. Big Banks have indeed proven themselves to be not only too big to fail and jail, but also curtail.
Big Wall Street banks have rap sheets that would put a mob boss to shame. Their misdeeds include mortgage, investor, credit card and consumer fraud, forgery, perjury, bribery, money laundering, sanction violations, discrimination against black and Hispanic borrowers, and now the rigging of currency exchange markets (and who knows what's next?). These misdeeds have inflicted immeasurable harm on the U.S. and global economy, causing much human misery. One would think for such misdeeds the big banks would be remorseful, but such a word doesn’t exist in the Wall Street vocabulary. On the contrary, the banks consider themselves victims.
As meek as their punishments have been in light of the gravity of their crimes, Wall Street thinks the federal government has overreached. After all, they are only thinking of their shareholders. Believing they’ve been subjected to excessive scrutiny and regulation, several large banks are now lashing out at senators they consider insufficiently friendly and deferential. They want a little respect.
Not enough respect? Wow! It’s not enough that their illegal activities led to a crash of our economy, to which the Federal government responded by granting them a taxpayer bailout, not enough that none of their executives have gone to jail, not enough that they’ve been able to fend off restructuring and possible charter revocation, not enough that most of the record financial penalties they’ve incurred were paid for out of stockholder cash and were tax deductible, and not enough that they’ve be able to easily continue their profiteering scams (the currency trade is completely unregulated). They’re now screaming at “unfriendly” senators, especially Elizabeth Warren, who has called for them to be broken up.
The banking giants want Warren and other regulation-minded senators to back off. To bolster their point, bank executives are threatening to withhold campaign donations to senate Democrats—not just to the unfriendly ones, but ALL Democrats. Reuters reports that Citigroup, JPMorgan, Goldman Sachs, and Bank of America are the offended banks doing the shouting. JPMorgan was so upset about the less than friendly atmosphere and the possibility that Warren might be given more power in the Democratic Senatorial Campaign Committee, it met with Democratic Party officials to stress that its campaign donations are dependent on “a friendlier attitude toward banks.”
Withholding campaign contributions to Democrats, many of whom are accustomed to receiving healthy amounts of bank cash, is not a hollow threat, especially given the growing importance of money in elections and the inferior position Democrats find themselves in with respect to cash-flushed Republicans. With unlimited and undisclosed money able to flow through such instruments as super-PACS and independent “black money” groups, Democrats are understandably worried about a money gap. Wall Street and friends, like the Koch brothers, are big players. Don’t be surprised if Democrats buckle under to the big bank threat.
All this underscores how dominant money has become in American politics. It overwhelmingly determines who runs for office, who wins elections, and, most importantly, what politicians do after getting elected. America has become a plutocracy and until we get a grip on the perverting influence of money in politics Wall Street will continue to get away with crime and our democracy will flounder.
For my previous Phronesis posts on Wall Street crimes and punishments, see:
- Will Heavy Fines Deter Wall Street Misdeeds?
- JPMorgan Chase Bankers Still Escaping Criminal Prosecution, but For How Long?
- Further Reflections on My JPMorgan Chase Criminality Posting: A Retreat From Wishful Thinking
- Crime Pays for JPMorgan Chase, but Does Anyone Care?
- Credit Suisse Pleads Guilty to a Felony, but Gets Off Easy
- Another Insult: Wall Street Fines Are Tax Deductible
I love their threat to withhold campaign funds Surprisingly I view this as a significant opportunity for Democrats. They should embrace this for two big reasons. First the threat is so brazen that it becomes very easy to portray it as extortion and could easily be spun into describing the contributions as bribes (which of course they are) This simply deepens public disdain for the banks and bolsters calls for campaign finance reform. Democrats should trumpet this too make it as big a campaign issue as possible. Second, the endless violations amplify the need for stronger regulations. The continued arrogance of the big banks could be their undoing if the Democrats show some backbone. Go for it Dems - make it a "bridge too far" for the banks
ReplyDeleteI can't imagine that the banks are as worried as it may seem. After all, with Reid gone, they have good old Chuckie (Schumer) rising. I am not aware of any Republican that is as friendly to Wall Street and Big Finance in general as our senior Senator from NYC. Are we surprized that banks get a virtual slap on the wrist? Not really. I believe Lenin called the US Government "a committee of millionaires." He was only off by a factor of ten or so. And you can be sure that whatever pathetic fines the banks receive will be passed on to their customers -- just good business.
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