Take HSBC. Yes, it is a cock up of grand proportions to allow Iranian money anywhere close to your American subsidiary. And yes, everyone involved in the Libor scandal should go to jail (as I expect many of them will).
Then one notices that this was largely trade financing for buyers in India, Greece, and South Korea. HSBC, like Standard Chartered, grew out of a tradition of giving a great deal of independence to country offices. Sort of like IBM. This increases flexibility but makes miscommunication more likely. Anti-money laundering is hard and margin compression at banks has thinned compliance teams. Financing terrorism suddenly becomes something more banal - a zealous banker shifting records around for a client he may have known from pre-revolutionary days (Iran was a U.S. ally until the 1979 revolution).
Does this excuse the behaviour? No. But it certainly dulls my pitchfork. Just as I avoid Fox News to stay abreast of American politics I would encourage you to seek out sources chasing understanding. Then again, a good outrage isn't a cheap good either :).
Regarding your point about "giving a great deal of independence to country offices." Why do these country offices need to belong to HSBC? Why do people bank with offices of HSBC rather than local banks? I'm fairly sure that these local offices provide essential connections to the larger financial network -- for example to move funds from African countries to the Gulf countries. But regulators do not, for example, require HSBC to divest itself of any of these country offices which abuse their independence -- which seems like a rather mild sanction under the circumstances, and likely to greatly mitigate the issues.
The LIBOR scandal is so much bigger and more important than this HSBC case but it seemingly gets a pass from public outrage since there's no easy TL;DR explanation of it.
In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything.
You're paying an interest rate on your car, your mortgage and your bank loan right? OK, that interest rate is set by the bank. The way they do that is to use LIBOR, and add a bit on top which is their profit. So your loans follow LIBOR. The banks basically rigged the game, and changed LIBOR as they saw fit, meaning that you paid more in interest than you should. Your neighbour did too. And his neighbour. If you add it all up it's billions.
They fucked everyone to make a quick buck, and it's illegal as hell.
"At the onset of the financial crisis in September 2007 with the collapse of Northern Rock, liquidity concerns drew public scrutiny towards Libor. Barclays manipulated Libor submissions to give a healthier picture of the bank's credit quality and its ability to raise funds. A lower submission would deflect concerns it had problems borrowing cash from the markets."
"From as early as 28 August, the New York Fed said it had received mass-distribution emails that suggested that Libor submissions were being set unrealistically low by the banks."
Ie - you, the borrower - benefited from this manipulation.
The reason I omitted it was the difficult problem of explaining a complex subject in very few words, and still pointing the finger at banks. If you tell joe six-pack that his mortgage sometimes got cheaper you'll either have to divulge a complex explanation of why this is bad for him (which he won't understand or care about) or have him think that the banks should do some more of that LIBOR rigging so his mortgage can be lower.
It's a compromise.
Seriously, who the fuck cares who wrote the articles?
Do you have any reason to think the article is wrong, besides who the author is and where it was published? Any at all?
The second response is to embrace something like Bitcoin, which decentralizes everything. No central banking, no LIBOR scandal. But also no ability to stop "money laundering", defined as a transaction that a government doesn't want you to engage in. That's the tradeoff: the Bitcoin protocol is based on an adversarial environment and gives no special privileges to government or banking nodes.
LIBOR (banks), QE4 (govt), and the bailouts (both) are all enabled by the fact that some nodes in our system are granted special powers to set rates and print money.
Libor is not a central bank mechanism. It's a rate published by the British Bankers' Association, a private trade association. Similar to the S&P 500 for U.S. large caps, it is simply a metric that private parties have chosen to reference when setting. Libor is influenced by central banks' rates, but so would a Bitcoin economy's reference rate be a function of international money rates.
it is simply a metric that private parties have chosen to
reference when setting. Libor is influenced by central
banks' rates, but so would a Bitcoin economy's reference
rate be a function of international money rates.
I wouldn't be able to pull it off, but banks do this all the time with cash-substitutes. A small number of people do insist on real cash, but there's a huge amount of credit and debt built on top of a small amount of actual currency.
The banks loan your money out, and charge interest to the borrowers. In return they keep your money safe, and pay you enough interest to encourage you to not switch banks, or demand "real" money.
And governments can go into debt on gold, or US dollars (even if they don't have them, and can't get them in the near future). You can get a complete collapse if the government finds itself bankrupt. In that case, you'll have a bank run, or the IMF will step in, or lenders will take a haircut. It's nothing revolutionary (well, it can start revolutions, but that's not really new).
They can do exactly the same thing with bitcoins.
There really is a difference between what would happen if people started demanding real paper USD as payment (i.e., just print more for the right banks) vs. what would happen if people started demanding real BTC as payment.
Bitcoins are closer to cash than it may seem at first glance and just like cash you can't really fake having it.
If I paint your fence and you give me an IOU, we just created money - real services were rendered and a nominal claim was accepted in return. Similarly, Bitcoins are as (if not more) theoretically fungible as Treasuries. Banks finance themselves in the wholesale markets collateralised by Treasuries. A repurchase agreement using Bitcoins is not beyond practical contemplation.
Note that fractional reserve banking originated on the gold standard.
Let's say the government does the exact same thing to make money that they do now : legislate that more money is printed. Now bitcoiners have 2 choices : use the modified code that specifically allows this transfer/money creation, or go to jail.
What do you think big players will do ?
Bitcoin is actually extra bad for this since it publishes a full financial record. To anyone with a sufficiently large source of identified transactions your accounts are an open book, if they can find just one transaction they're sure was done by you (say, paying your taxes). They don't have to contact 20 banks to find out where your funds went and who was involved, that information is public record. There is no way to pass through a bank in Saudi Arabia or some other bastard country to obscure and/or delay investigations.
Besides, having undeclared money in bitcoin is money laundering. Just having it. Penalty : up to 10 years jail time (Western Europe, and 50 km from here it's up to life in jail, gotta love the dutch). For the moment nobody's been found guilty, but that's mostly because it's only just starting to surface.
And frankly, this is exactly what we want. We may not like governments printing money and abusing it, but anybody who studied the great financial crises of the end of the 19th beginning of the 20th century, it is plainly obvious that the current situation (regularly "big financial scandal, you're probably overpaying your insurance $10") is better than what happened with the gold standard (regularly "surprise ! All your savings are gone. Oh and the same happened to the government so we're raising taxes 50%. Happy starving").
Let's say the government does the exact same thing to make
money that they do now : legislate that more money is
Russia recently made it almost impossible to extradite Russian citizens to the US:
And I don't think the USG is going to be renditioning Chinese citizens from the mainland anytime soon, given how broke the Americans are and how much they owe to China (not to mention that they are a nuclear power).
A lot of people wanted a multipolar world. We're going to get it, and among other things it means the USG will not be able to print money (and thereby dilute your stake, and seize your work product) for much longer.
Probably because the ledgers of the bullion vaults were kept secret.
Bitcoin is a global distributed ledger. You cannot claim to hold btc because the fact of the holding is verifiable through the ledger.
> Bitcoins are closer to cash than it may seem at first glance and just like cash you can't really fake having it.
Really? Banks do the same thing with cash. It's called "fractional reserve banking", and unless you want to outlaw it (and have more lobbying power than all of Wall Street) it's not going away just because you've substituted paper money for a digital equivalent.
If you want to keep cash under your mattress, you are free to do so. Bitcoins offer no massive advantage here. If you want to have the bitcoin equivalent (a digital wallet), go for your life. But normal people will want the 1% interest the banks pay, and the security of not having their life savings stolen if some bot cracks their computer.
There's only 3 differences between bitcoins, and paper money - they are easier to send, much easier to steal (since crackers can do it), and don't lose value to inflation (which isn't really a new thing - it's just a return to the "gold standard").
People aren't going to stop using banks any time soon. I don't even see which way bitcoins will shift the balance - a few cipherpunks will build their own vaults, and a few grannies will no longer bury their savings under their tulips.
This may sound a bit far-fetched but there were cases in the Middle Ages of artisans doing exactly that. In fact sometimes they'd even issue their own token-based currency and settle the accounts with other artisans after market day.....
Then imagine doing that 'as a bank', either you have a bitcoin or you don't, you can't borrow one you don't have. Bitcoin is very subtle in this way and it seems as though lots of people underestimate the amount of thinking that went into it.
Our financial sector is currently hopelessly corrupt and, at least in the US, the banking sector itself has a total grip on any attempt to regulate it.
It is a little disingenuous for Warren to act surprised about this. She knows not only why regulators don't sue, but also how unlikely it is that we're going to start doing that (it'd be economically irrational for us to do so).
Her heart is in the right place. Too Big To Fail is a real problem. But if you've got a bunch of wasp nests in your back yard, you don't fix the problem by jamming sharp sticks into them.
I don't disagree with the factual correctness of this statement, but the implication is unsettling. Any kind of legal action from the government - from throwing someone in jail for possession of marijuana to suing banks over financial crimes - has negative economic consequences. If we send someone to jail for drug possession, we spend a lot of money investigating and prosecuting them, we pay to keep them locked up, we happily give up their productivity and any taxes they would have paid, and we reduce their long-term value to society by hanging a public arrest record on them. So, where do we stop using economic consequences as a reason for not enforcing laws?
I'm somewhat highly-compensated and I contribute a lot back to the economy, though consumption and taxes. Should the government prosecute me and someone who only earns minimum wage differently, since prosecuting me and throwing me in jail will have a substantially higher negative impact on the economy? Maybe I get 2 or 3 free misdemeanors per year, your average millionaire gets a free felony, and if you are on Fortune's top 100 list you get 3 free felonies?
I'm seeing more and more justification of not going after big companies and powerful executives due to the economic impact, and I think that is getting awfully close to codifying different legal systems for rich people and poor people. Certainly it already exists to a degree, but at least we sort of pretend that it is distasteful now.
If not, that's surely something we can and should change.
But it's not at all clear --- in fact, it seems unlikely --- that the core problem we face is a refusal by regulators to sue.
It seems more likely that the core problem is that the economic incentives in the finance industry, or at least in commercial banking, favor rapid and aggressive consolidation. Not enough disincentive exists to offset the externalities this creates. Maybe we should tax banks based on their sizes; maybe we should do that in the form of some kind of insurance premium.
But since anything we'd do to address any of the real problems is going to require bipartisan cooperation, first we need to be candid about what the problems are.
Completely different meaning. If ate a bar of chocolate in the library despite posted signs against eating and drinking. I broke a rule. If I threw my chocolate bar at the librarian's face with an intent to injure him, I broke a law (assault and injury etc.)
Or so the hypothesis goes. I'd argue that avoiding a hypothesized short-term economic problem in this way simply creates the much larger problem.
You can't just count the cost of one suit against one settlement and call it economically rational.
Corruption in the US looks different than in say China. Its puritan corruption. Convincing true believers that what's good for big corporations is good for everyone and for the all important jobs. Everything starts from there.
As someone said higher up, the reason nothing is ever done is because the congressmen's incentives align with the banks and the power brokers. The only solution is to ensure that those with voting power in Washington have incentives that are the opposite of the banks. Term limits do not do this.
Possible solutions: Pay Congress and important oversight positions a salary proportional to their importance--somewhere in the multiple millions per year. Make lobbying any government official illegal (anything beyond writing a letter to your Congressmen). A lifetime ban from working for any company that is affected by decisions made while in office. 100% publicly financed campaigns.
The sad part about all of this, was that I notified the SEC on multiple occasions with physical proof that people were defrauding the government and individuals. The SEC's responsibility wasn't "to handle foreign citizens." Homeland Security "didn't handle securities cases." The IRS needed the person's Social Security Number, name and address. When someone moves from one state to another, the states stop communicating on any type of prosecution.
The whole process was a fascinating/scary insight into how easy it is to commit fraud in the United States.
So as a word to the wise for first time entrepreneurs, don't be afraid to ask investors, VCs or others where their money comes from.
The most difficult part will be figuring out how to condense it down.
Is the $150K Yuri Milner convertible loan offer still open?
To clarify, Yuri Milner was not an investor in the company referenced.
slight exaggeration, right now, but it's certainly where hollywood would like to see things move.
Corporations don't commit crimes, people do. Executives employed by this company were responsible for all of the illegal activities that this story describes. They get paid a shitload of money because they take risks on behalf of the company and are supposed to be responsible for the results of those actions. When they perform well, they get a huge bonus. When they don't, their punishment is that they get "only" their salary and no bonus. Fine, whatever. But when they authorize actions that are clearly illegal, they should go to jail.
The attorney general should be finding the responsible executives and prosecuting them. If the company doesn't cooperate, then throw the board in jail. The company can then hire/elect replacements who will be properly scared shitless of doing anything illegal. These guys are supposed to be compensated for the risks that they take. You can't have a multi-million dollar (personal) upside and no comparable downside. In a just society, the downside needs to be that if you're caught breaking the law, you go straight the fuck to jail like everybody else.
If you don't make people personally responsible for their actions, you're effectively giving them a blank check to do whatever the hell they want and then hide behind an operation that won't be touched because it's too big to fail. You also have employment contracts that require the corporation to pay legal fees and use their enormous resources to protect them from personal liability.
Obviously there are situations when a company needs to defend its executives in order to conduct normal operations, but the line in the sand needs to be drawn at accusations of criminal behavior.
but but corporations are people ?!? they said
| Banks are not in charge of policing the world.
| If the US wants to stop funds/goods from
| leaving/ending up in Iran they should stop those
| funds/goods from entering/leaving the US in the
| first place.
The article paints a picture that HSBC provided the service of routing money around so that people in Iran could transfer money to the US and vice versa. The entire purpose of this service would be to obfuscate the origin or destination of the transfer from the US government.
I wouldn't say that requiring HSBC to not do this would be requiring them to 'police the world,' but if they want to be chartered as a bank in the US, it certainly makes sense that they should 'play by the rules.' If they were specifically offering/advertising a service to clients where-by they would actively skirt those rules, it doesn't seem like there is an issue with (at the least) revoking their charter.
It appears they are not doing that and it appears their charter won't be revoked.
The point I tried to make was that no matter what you do to restrict such transactions from happening, they will happen. The only people that suffer from sanctions are the poor, the rest will continue underground.
If you want to play global policeman and if you want to limit access to goods/funds for some country you have but one option, to close your borders. Once stuff leaves your sphere of influence anything can happen, and making it illegal to do something typically has only one effect, it will drive up prices.
HSBC saw an opportunity to make money, and being a bank they acted on it and did not care about the consequences. If you want to make a principled stand then yes, by all means have their US banking charter revoked and jail their execs. But if you don't do that then this will simply repeat, different names, different labels same principle.
Having principles costs, sometimes it costs a lot.
I remembering reading about this way early on... and cast it aside as some false hyped up story.
Then I saw it being reported by high profile journals...
The biggest banks in the world are aiding terrorists and drug dealers do their work in the most crucial way: handling the financial end of things.
Isn't that just absolutely absurd? I don't know what to think at this point.
A key problem here is getting and maintaining attention by a significant majority of the population. Depressing information like this, coupled with the sense of powerlessness turns people off and relegates stories like this to the politically aware fringe of society.
The Daily Show and Colbert Report seem to have the right approach, but they are not enough.
I have an idea for a start-up that could do interesting things with this notion, but between time contraints and not having a partner in crime I fear it will never happen.
Even as a fairly politically-active person, I succumb to this exact sense of powerlessness. It's absolutely the key problem.
> I have an idea for a start-up that could do interesting things with this notion, but between time contraints and not having a partner in crime I fear it will never happen.
If you're comfortable sharing, I would love to hear it. It's a problem domain that really needs some attention and effort.
I'll send it to you directly for feedback, etc.
Essentially it's about using social media in a different fashion then currently done (i.e., social broadcasting), humor, mockery, ego, shame, titillation and story telling.
1999 "...clients, from Mexico, Nigeria, Pakistan and Gabon, whose sources of income were dubious and who passed millions through Citigroup banks." http://news.bbc.co.uk/2/hi/americas/511951.stm
2009 "Japan raps Citi for lax money laundering controls... bans Citi from retail banking promotions for a month... cites problems with governance, internal controls... Regulatory action follows similar violation in 2004" http://www.reuters.com/article/2009/06/26/citigroup-japan-id...
2012 "A US bank regulator cited Citigroup on Thursday for failing to comply with a federal law that requires banks to establish protections against money-laundering but did not impose a fine." http://www.nypost.com/p/news/business/us_regulator_cites_cit...
Indeed it seems he's had some commendations for his financial writing regarding the crap we've seen from banks in the last few years:
Is there evidence he's been loose with facts in the past or do you take issue with his writing style?
Yes it does. I have read numerous Taibbi articles where he has only given half the salient facts to the reader, or omitted vital information in order to make the story more dramatic. He's right quite frequently but he consistently, and possibly deliberately, poisons the well of discourse.
Why governments can not confiscate or nationalise HSBC and continue legal operations?
That's why it's safer o work through legislative means. People have wildly distorted ideas about the executive branch.
EDIT: see, for example, one of the sibling comments here.
The US has imposed trade sanctions and even been implicated in coups against foreign regimes responsible for relatively minor nationalizations.
Some of the more pure examples of this evil ( from the human standpoint ) are what happens in Amazons warehouse facilities . But the more mundane examples show up with your monthly bills.
It seems not long from now that corporations wanting to redevelop a desirable plot of land will be able to buy a permit to exterminate the humans living on it. And while today that notion sounds faintly ridiculous, it's not unheard of; we are all american indians now.
Don't revoke license, so the world does not collapse, instead make decision makers lose sleep.
Large organizations like banks are fantastic for obscuring responsibility. The CEOs say, "I didn't know." The line workers say, "I was just following orders."
Everybody in between keeps things hazy because it's useful to their careers. When things go badly, they need to be able to claim it wasn't their fault. When things go well, they try to claim credit.
The net result is nobody gets punished when there is crime on a massive scale.
I think the only viable option is to punish the company. I think it would also be fair to change the law such that CEOs are treated as negligent if they let internal controls get to the point where criminal things are happening without an obvious, chargeable conspiracy by a group of workers. But good luck getting our bought-and-paid-for congressmen to approve something like that.
Should be personally liable for large-scale crimes.
Personally I'd like to see a country where the rule of law is still respected. Forget expediency. I'll take some pain every once in a while to avoid this kind of outrage.
Look, I'm not saying that there's not a lock of fucked up in the world. There surely is, and some of the bank stuff is probably a part of it. But if you step back a bit and consider the big picture things really do appear to be moving in the right direction overall.
Agreed slavery was non-ideal but there were a lot of white guys that died during the Revolutionary war.
To me the only really worrying long term trend is environmental impact. We might be consuming our planets resources at an unsustainable rate.
Predictions are hard, especially about the future.
There's a big part of me that thinks that the "we're all doomed because of how we're ruining the environment" comes from the same place as "Americans used to have principles, but now we're just a bunch of self centered assholes" which comes from the same place as http://en.wikipedia.org/wiki/Tree_of_the_knowledge_of_good_a....
Everyone has their own way of thinking that things used to be perfect but then we turned to sinners and fucked it all up.
Oh wait. No I'm not.