Banks and crime

[kimmy]

What do you mean about 'rip off'? Are you complaining about service fees? They are annoying but are hardly a rip off. Are you complaining about the taxpayer bailouts that become necessary? You do know that not all banks needed bailouts and many that did were innocent parties that bought fraudulent mortgage packages? Condemning all banks because a few crossed the line is quite unreasonable. Are all lawyers crooks because some defend criminals?

Considering the rate news of bank scandals has been coming out, you'd have to be terribly naive to believe that these are isolated incidents, or that we have seen anything but the tip of the iceberg as far as scummy behavior. Do you really believe either of those things?

Who cares if not all bankers are bad-guys? If we were conducting a criminal trial with the intention of putting people in jail, then we'd need to prove their guilt. But that's not the question (except in a few specific circumstances, mind you, although criminal charges seem to be awfully scarce.)

We're not talking about putting people in jail, we're talking about regulating an industry. They have put the lie to the notion that they could be trusted to regulate themselves. They've disproven the theory that damage to their reputation or damage to the industry or the economy at large would deter them from unethical or reckless behavior. Clearly there are enough bad apples in the industry that trusting them is no longer an option.

A few specific examples of what I mean by "ripping off regular people"--

-the bail-outs, obviously.

-packaging up investments they knew were risky or worthless (bad mortgages, shares in Excite.com, and so on) and selling them to investors and retirement funds as "AAA"-rated investments.

-look up "Son of BOSS". I was just reading about this a few days ago, and it has been in the news a bit because Mitt Romney was on the board of directors of Marriott when it used a "Son of BOSS" tax shelter scam to try to cheat the IRS out of tens of millions of dollars. Basically what "Son of BOSS" boils down to is a fake transaction invented by investment banks for the express purposes of allowing investors to report a fictitious loss. Personally, I believe that cooking up schemes for the express purpose of allowing profitable corporations to dodge taxes definitely falls under the heading of ripping people off.

-k

[kimmy]

The trouble is no one on this forum likely has the detailed knowledge of the industry that would be required to determine what works and what does not.

http://www.washingtonpost.com/repeal-of-glass-steagall-not-a-cause-but-a-multiplier/2012/08/02/gJQAuvvRXX_story.html

For my part I think one if the root causes of the crisis were government regulations that pressured banks in to making doggy loans based on racial criteria. i.e. the crisis was caused by the wrong type of regulation rather than too little regulation.

Holy cow, you sure picked a poor article to support your views, considering the scorn and contempt and mockery he dishes out at opponents of regulation on the 2nd page.

-k

[TimG]

We're not talking about putting people in jail, we're talking about regulating an industry.

Where have I said we did not need to regulate? What I said is we need to the right type of regulations that create the right incentives. Poorly thought out regulations intended satisfy a public out for blood will not help.

the bail-outs, obviously.

The bailouts wiped out shareholder equity or were paid back. Why is this a 'rip off'?

packaging up investments they knew were risky or worthless (bad mortgages, shares in Excite.com, and so on) and selling them to investors and retirement funds as "AAA"-rated investments.

A process that started because politicians wanted banks to make risky loans in order to meet racial quotas.

tax shelter scam to try to cheat the IRS out of tens of millions of dollars.

And why is this different from when the 'average joe' pays a contractor by cash with no receipt?

Holy cow, you sure picked a poor article to support your views, considering the scorn and contempt and mockery he dishes out at opponents of regulation on the 2nd page.

An article that disagrees with my views but supports a narrow point I am making is useful because the author is obviously would not have made that concession unless they were convinced it was true. Edited August 10, 2012 by TimG

[kimmy]

Where have I said we did not need to regulate? What I said is we need to the right type of regulations that create the right incentives. Poorly thought out regulations intended satisfy a public out for blood will not help.

Right. "Don't regulate harder, regulate smarter!" Great idea, except that the only people who understand this crap well enough to design regulations for it are the same people who are able to make large amounts of money by making sure it stays unregulated.

The banks are making money hand over fist again, and they are spending hundreds of millions of dollars on lobbying to make sure it stays that way.

The bailouts wiped out shareholder equity or were paid back. Why is this a 'rip off'?

Which shareholders? Many of the biggest names in the field received tens or hundreds of millions of dollars in bonuses for their roles in these scams, some of which even came directly out of the bailout packages.

A process that started because politicians wanted banks to make risky loans in order to meet racial quotas.

That's a shoddy excuse. "The government passed some bad laws, so we decided to scam people and wreck the economy." It reminds me of the time that somebody parked their car in my parking spot, so I had to steal the car and commit drive-by shootings and a hit-and-run.

And why is this different from when the 'average joe' pays a contractor by cash with no receipt?

Because the 'average joe' gets punished if he gets caught.

Because cash-under-the-table contractors don't have hundreds of millions of dollars to spend on lobbyists to increase opportunities for underground contracting?

An article that disagrees with my views but supports a narrow point I am making is useful because the author is obviously would not have made that concession unless they were convinced it was true.

Nonetheless, he took a huge dump on the idea you're selling here.

As for the role of deregulation in the catastrophe: it was a major contributing factor in two ways. First off, "too big to fail" wouldn't have happened without deregulation. And secondly, the shoddy financial packages that were used to conceal bad mortgages and foist them on consumers as AAA investments wouldn't have existed if derivatives had been regulated back in the 90's. A group had been working on doing just that during the Clinton administration, and they were called into a room by Alan Greenspan and members of congress and an army of lobbyists and bank lawyers and told "no you don't."

-k

Edited August 10, 2012 by kimmy

[TimG]

Nonetheless, he took a huge dump on the idea you're selling here.

I am not 'selling' deregulation so you are arguing a strawman. I just would like to see some effort to address all of the contributing factors including:

1) severe restrictions on mortgage brokers with no skin in the game.

2) an end no recourse loans that allow people to walk away from a mortgage.

3) an end to politically motivated dodgy loans.

4) elimination of some derivatives products (insurance on mortgages packages - what a dumb idea).

I would also like to see some way to penalize management if the screw up the trouble is I cannot think of any effective way to do this.

[Argus]

The bailouts wiped out shareholder equity or were paid back. Why is this a 'rip off'?

Wherever did you get the idea the bailouts had been paid back? Or even all documented?

Federal Reserve loans out $16 trillon at zero interest

A process that started because politicians wanted banks to make risky loans in order to meet racial quotas.

There was a replay this morning of a Fifth Estate story on the start of the banking crisis focusing on Lehman Brothers and a shady mortgage lender called First Alliance. First Alliance kind of began the practice of high pressure misleading sales of mortgages, targeting seniors. They hired fast talking salesmen, glossed over all problems, and had very confusing contracts which locked people into mortgages at more than 20%. Lehman Brothers saw the profit in this, and despite realizing how incredibly unethical they were, they continued to support them. When First Alliance was driven out of business by various stage agencies Lehman Brothers got a small fine for knowingly aiding them in defrauding people. The point the documentary makes is that this small fine told the entire industry that such things were acceptable, that at worst, if caught, they'd only get a minor fine. From then on it was full steam ahead for Lehman Brothers in financing risky mortgages to people who could never pay them back, then selling these as AAA investments.

There was no government pressure to do any of this. The only pressure was greed. It was highly profitable -- like most ponzy schemes -- while it lasted.

You really should have a look at it before putting all the blame on government.

House of Cards

Edited August 11, 2012 by Argus

[TimG]

Federal Reserve loans out $16 trillon at zero interest

The Federal Reserve has one major mandate: preserve the money system. If these reports are true then the reason the only reason the fed would have handed out that kind of money was because it was convinced a complete collapse of the global banking system was likely. Are you arguing that a complete collapse of the global banking system would have been preferable to 'bailing out banks'?

What is annoying in these debates are the number of people who have no understanding of the fiat currency system and how much it depends on confidence and how a major loss of confidence can turn a minor problem into the major crisis.

I am also perfectly aware that once the band wagon got rolling the majority of subprime loans were not government mandated. I have made the point over and over again that it was the government that encouraged banks to securitize mortgages in the first place in order to meet the racial quotas imposed by the government.

[Argus]

The Federal Reserve has one major mandate: preserve the money system. If these reports are true then the reason the only reason the fed would have handed out that kind of money was because it was convinced a complete collapse of the global banking system was likely.

You don't know what care or intelligent thought went into it. For all you know it was as screwed up as anything else.

But the point is most of it hasn't been paid back.

I am also perfectly aware that once the band wagon got rolling the majority of subprime loans were not government mandated. I have made the point over and over again that it was the government that encouraged banks to securitize mortgages in the first place in order to meet the racial quotas imposed by the government.

Okay. Thing is, nobody but you buys the racial thing. The Republicans are a lot of things, but racially sensitive has never been a term used for them. Most Republicans would simply prefer all Blacks to just disappear off the face of the earth. The fact is that if you look at the reasons for the disaster, virtually everyone other than Wall Street agrees it was the greed of Wall Street, combined with the short-term rewards given to wall street CEOs, and the moron politicians who relaxed all oversight. You can start with the Clinton administration's repeal of the Glass Steagall act, and carry through various others like the Commodity Futures Modernization Act. The philosophy behind these acts, as well as massive relaxation of regulatory oversight was that government just interfered with the efficiency of the private sector. That is exactly what you seem to be saying, as well. Nobody is buying it any more.

[TimG]

You don't know what care or intelligent thought went into it. For all you know it was as screwed up as anything else. But the point is most of it hasn't been paid back.

So? The point is not whether the money was paid but the what were the reasons for the money being paid out. Perhaps the fed was simply did not what to do so they threw cash at the problem but their motivation was to protect the economy. You want to make it sound like it was some backroom deal designed to enrich bankers at public expense. It was not that.

The philosophy behind these acts, as well as massive relaxation of regulatory oversight was that government just interfered with the efficiency of the private sector. That is exactly what you seem to be saying, as well. Nobody is buying it any more.

The coming bust in China is what you get when government micromanages the banking sector. What we need is a the right balance of regulations. Governments need to be the referees - not the players. Edited August 12, 2012 by TimG

[kimmy]

I am also perfectly aware that once the band wagon got rolling the majority of subprime loans were not government mandated.

This is an admission that trying to blame it on Congress for making banks give mortgages to black people simply doesn't fly.

So? The point is not whether the money was paid but the what were the reasons for the money being paid out.

"So?" So a few messages ago you chastised me for saying the taxpayers had been ripped off, because the bail-outs had been either repaid or "wiped out shareholder equity", that's "so."

First off, I assume "wiped out shareholder equity" is a euphemism for "taxpayers bought billions of dollars worth of high-risk mortgages from the banks." yes?

And secondly, giving out 16 trillion dollars of interest-free loans is a rip-off even if the loans do get repaid eventually.

To me it seems like you are coming across less as an objective critic of regulation, and more as an apologist for the bankers.

-k

[TimG]

This is an admission that trying to blame it on Congress for making banks give mortgages to black people simply doesn't fly.

It is not my fault you refuse to see the relationship between bad regulation which creates the wrong incentives and then leads to a massive problem. There isn't much more I can say about the topic.

"So?" So a few messages ago you chastised me for saying the taxpayers had been ripped off, because the bail-outs had been either repaid or "wiped out shareholder equity", that's "so."

The 16 trillion came from the federal reserve which means they just wished the money into existence. It did NOT come from taxpayers - so NO taxpayers were "ripped off". The money that actually came from taxpayers wiped out shareholder equity or was paid back. See: http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#Participants

To me it seems like you are coming across less as an objective critic of regulation, and more as an apologist for the bankers.

No. Just reacting to angry people blaming all of the world's problems on bankers. Edited August 12, 2012 by TimG

[kimmy]

It is not my fault you refuse to see the relationship between bad regulation which creates the wrong incentives. There isn't much more I can say about the topic.

Oh, come on. The only "incentive" involved was greed. Maybe the word you're looking for is "opportunity", but even that's not true as the sub-primes were not really a result of racial quotas. I think probably the most accurate word to fit your argument is "excuse". Congress gave the banks an excuse for what they did.

In reality, what created the opportunity for banks to make mad cash off of bad mortgages was the ability to give bad mortgages and then pass the risks on to others. If the risk had been theirs, they wouldn't have assumed so much risk. And if they risk hadn't been disguised in indecypherable derivative packages, investors wouldn't have assumed so much risk either.

It appears to me that the "incentive" and "opportunity" for banks to engage in this behaviour was a result of the refusal to regulate derivatives in the 1990s.

No. Just reacting to angry people blaming all of the world's problems on bankers.

All of the world's problems? No. But it seems clear that a big portion of the economic troubles that have hit North America in the past 4 years are a result of terrible behavior by bankers.

The ongoing scandals dispel the idea that they can be trusted to govern themselves. They're no longer entitled to the benefit of the doubt. As a group they're simply not trustworthy, and trust can't be a part of any plan to prevent future trouble.

-k

[TimG]

But it seems clear that a big portion of the economic troubles that have hit North America in the past 4 years are a result of terrible behavior by bankers.

Sorry. I don't buy that. Greedy bankers screwed things up but the US political system which allowed Fanny May/Freddie Mac to be a clearing house for these dodgy mortgages along with no-recourse loans (i.e. people can walk away from a mortgage in the US) is what turned a problem into a disaster.

I not advocating less regulation on banks. I think derivatives are dangerous and need to be restricted. But if the people making the policy have do not understand of ALL contributing factors then we will have the same problem again in the future.

Edited August 12, 2012 by TimG

[GostHacked]

Sorry. I don't buy that. Greedy bankers screwed things up but the US political system which allowed Fanny May/Freddie Mac to be a clearing house for these dodgy mortgages along with no-recourse loans (i.e. people can walk away from a mortgage in the US) is what turned a problem into a disaster.

I not advocating less regulation on banks. I think derivatives are dangerous and need to be restricted. But if the people making the policy have do not understand of ALL contributing factors then we will have the same problem again in the future.

The focus on the bankers reaches far and wide. You can blame regulators/government as well for allowing the banks to essentially rape and pillage many countries we now see are in huge economic problems. The common factor here is the international bankers/financiers who have siphoned off plenty of money from these countries literally collapsing their economies.

The only solution is the Iceland solution which is to kick the bankers out, forgive the debt and did a restart of their economy. With any change, there will be troubled times, but Iceland understood that if that action was not taken right at that time, their country would be in huge problems economically today. Now they have gone through the pain, they are well on their way to a successful and continuing recovery. Yes many politicians had to go as well.

And when the bankers end up getting into high political positions of power (like what happend in Greece and Italy) then who are you going to blame? The crooks are the bankers. The facilitators of the crimes are the bought off hijacked government of the country.

[Argus]

Sorry. I don't buy that. Greedy bankers screwed things up but the US political system which allowed Fanny May/Freddie Mac to be a clearing house for these dodgy mortgages along with no-recourse loans (i.e. people can walk away from a mortgage in the US) is what turned a problem into a disaster.

I not advocating less regulation on banks. I think derivatives are dangerous and need to be restricted. But if the people making the policy have do not understand of ALL contributing factors then we will have the same problem again in the future.

What you seem to be failing to take into account was that many of the key regulators involved were bought and paid for by the banks and mortgage companies, and were doing what they were told by their patrons.

Therefore, saying it's the politicians fault does not, in this case, absolve the banks of any of their guilt. It increases it.

Edited August 13, 2012 by Argus

[cybercoma]

If these reports are true then the reason the only reason the fed would have handed out that kind of money was because it was convinced a complete collapse of the global banking system was likely.

The only reason, eh? No other reason is possible at all?

[TimG]

The only reason, eh? No other reason is possible at all?

Gee. Is it possible that ideology, peer and funding pressure has created an environment where scientists feel they have no choice but to exaggerate the potential harms caused by AGW? If you refuse to accept that as a valid premise then you can't seriously expect people to entertain your visions of a malevolent conspiracy by federal reserve.

[cybercoma]

you can't seriously expect people to entertain your visions of a malevolent conspiracy by federal reserve.

I have visions of a "malevolent conspiracy by the federal reserve?" That's news to me.

All I'm pointing out is how stupid it is to say that what you believe to be the case is the only reason.

[TimG]

All I'm pointing out is how stupid it is to say that what you believe to be the case is the only reason.

I don't see you offering alternate explanations. It is pretty stupid to criticize someone for saying there is only one reason yet refuse to offer alternates.

I stand by what I said: the federal reserve does not give away 16 trillion dollars for any reason other than stabilizing the financial system. The huge sums suggest that it must have been serious. So if you have an alternate explanation then lets hear it. Will it include the Bilderburgers?

Edited August 13, 2012 by TimG

[cybercoma]

I've been meaning to post this comic from The Economist in this thread for awhile and haven't gotten around to it until now:

http://www.economist.com/node/21558638

[dre]

The point is not whether the money was paid but the what were the reasons for the money being paid out. Perhaps the fed was simply did not what to do so they threw cash at the problem but their motivation was to protect the economy

Protect the economy from themselves?

The whole reason we had the realestate meltdown was because of them "throwing money at the problem" in the first place. The housing market was bid up with all the money they dumped into the system after the .com bubble burst.

And all this easing is going to fuel the NEXT asset bubble.

[kimmy]

I've been meaning to post this comic from The Economist in this thread for awhile and haven't gotten around to it until now:

http://www.economist.com/node/21558638

yet also, :angry:

-k

[Pliny]

I am starting to wonder if the ethics of the financial sector only extend to questions like "what can we get away with?" and "will we get caught?" It might be some comfort that no Canadian banks have been named yet, but given the potential scale of the LIBOR scandal, "yet" is a key word there.

-k

Well, the thread has drifted a bit away from the LIBOR scandal and into the general ethics of the banking sector.

If it is true, as you are starting to wonder, that bankers are simply asking themselves, "What can we get away with?" then I assume you mean they are asking how they can enrich themselves without risking their future; their jobs, their reputation, their status and their power.

Perhaps "too big to fail" might answer that. When you have the guarantee of government that if you get into trouble you will be bailed out by the taxpayer then it creates a thing called "moral hazard". A situation where your sense of ethics is overridden by a guarantee of security - saving your job, your reputation, your status and your power. All the things you hold dear in your life. Failure, loss of reputation, loss of a job with its status and power, are the true regulators of greed. Regulations are the rules set to operate efficiently, effectively, and co-operatively and are in that sense essential.

"Moral hazard" created by regulations to save banks from failure also results in a false sense of confidence in the public. When the banks have government oversight and are heavily regulated a "moral hazard" sets into the public's mind. They ignore and neglect their own due diligence, they believe they are secure in their investments because the government is overseeing and regulating the activities of the industry.

Blaming bankers for being human is not really productive. Greed will always exist and regulations are simply things to be used to work around to one's advantage. The true regulators are the failure or successes brought about because of one's personal behavior. When behavior has reached the point of being a simple legal matter of following regulations then ethics and morality have already been lost.

[dre]

Well, the thread has drifted a bit away from the LIBOR scandal and into the general ethics of the banking sector.

If it is true, as you are starting to wonder, that bankers are simply asking themselves, "What can we get away with?" then I assume you mean they are asking how they can enrich themselves without risking their future; their jobs, their reputation, their status and their power.

Perhaps "too big to fail" might answer that. When you have the guarantee of government that if you get into trouble you will be bailed out by the taxpayer then it creates a thing called "moral hazard". A situation where your sense of ethics is overridden by a guarantee of security - saving your job, your reputation, your status and your power. All the things you hold dear in your life. Failure, loss of reputation, loss of a job with its status and power, are the true regulators of greed. Regulations are the rules set to operate efficiently, effectively, and co-operatively and are in that sense essential.

"Moral hazard" created by regulations to save banks from failure also results in a false sense of confidence in the public. When the banks have government oversight and are heavily regulated a "moral hazard" sets into the public's mind. They ignore and neglect their own due diligence, they believe they are secure in their investments because the government is overseeing and regulating the activities of the industry.

Blaming bankers for being human is not really productive. Greed will always exist and regulations are simply things to be used to work around to one's advantage. The true regulators are the failure or successes brought about because of one's personal behavior. When behavior has reached the point of being a simple legal matter of following regulations then ethics and morality have already been lost.

The real problem is bankers are not bankers anymore.

Take a traditional banker... they accept deposits and they loan them out at interest, and split the returns with the depositor.

Not much trouble to get in there. You could overleverage but thats about it.

The problem though is that the government has passed off what is perhaps its MOST important responsibility to banks... the coining of the nations currency. And THAT is why so much regulation is required.

Separate those two logical functions, let the MINT create new money, let the bank loan out deposits.

If the government wants to increase the money supply they would make money at the mint (electronic, coin, or paper) and deposit it into thousands of smaller banks, who would lend that money into the economy. The mint would of course get some interest for all these deposits and that revenue could be used to partially replace things like income and consumption taxes.

[Jiblethead]

i was surprised how little attention is given to this problem, the rich bankers have the financial system by the balls. the LIBOR tampering people were fined something around 250 million i believe? sad thing is their networth was said to be in the trillions so it is a drop in the bucket to them

god dam 1%ers