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Bankers now Too Big to Jail (rollingstone.com)
244 points by jmah on Feb 16, 2013 | hide | past | web | favorite | 152 comments

Reading Taibbi as someone in finance is like watching Bravo's Silicon Valley for much of HN. It's hyperbolically relatable in a way that makes you laugh but simultaneously grimace-inducing as you realise how mis-informative it is to someone without prior knowledge.

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 :).

Well, the point I take away from Taibbi is that a big bank like HSBC can do things that are (a) criminal and (b) bad for us (US, developed world economy) and they won't be forced to change their ways, even after they are caught, repeatedly. I don't see anything in what you say that disagrees with that. What you say just amounts to "it is their business model." So they have a business model that encourages, or possibly requires, criminal behavior, and this appears to be effectively OK with regulators...

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.

Thank God this is at the top of the page. I'm always shocked to see Taibbi get so much attention on HN. I would take his commentary about as seriously as I would any other polemicist of the Glenn Beck / Michael Moore variety.

I've found that opinions that run contrary to the group leanings often do well on HN. Its still a pretty intellectually curious place.

Being a trader yourself, your sentiment is well seen and understood. I see how Taibbi's style can be of annoyance to you, but I think you're largely nitpicking. The essence of it stays valid and I yet to see an important executive going to jail, either in relation to 2008 or Libor.

It didn't make me laugh.

It amazes and depresses me that it takes bad behavior on a level that is easily explainable (i.e. help terrorist launder money) for people to get upset at how untouchable large international financial institutions have become.

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.

The first few pages of the OP, which focus on HSBC, were actually nowhere near as important as the last page, on LIBOR. The LIBOR case is much, much more important than whether or not HSBC had dealings with Iran. When he's talking about this, Taibbi sounds weirdly parochial, like he's more upset about America's interests being ignored than he is about any fundamental wrongdoing (I know he's American and Rolling Stone has a predominantly US audience, but still...)

I think he is just depressed that if the self appointed most powerful government in the world can't do anything to curb the behavior of these banks, then we have no hope in stopping them.

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.

here's one:

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.

LIBOR was mostly manipulated down.

See: http://www.bbc.co.uk/news/business-18671255

"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.

And this is exactly the problem with popular "simple" explanations of complex matters - people explain their prejudices ("banks rob the common man") instead of explaining what actually happened.

You're right, and I know. I have an education in economics :-)

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.

If you didn't know the facts it is excusable mistake, but if you knew the facts and still wrote something that is factually wrong - because "joe six-pack can't handle the truth" - then I can't see how you can consider you're doing anything but plain and simple deception. And when "joe six-pack" with discover it - and he will, eventually - you'd be surprised why he doesn't believe any word you say anymore. If you sacrifice the truth in order to further your goals, you're part of the problem.

What makes you think joe sixpack will ever know the truth? Chances are good that he is a birther or that he doesn't believe in evolution.

So you're saying "it's OK for me to lie to people because they're probably believing in some things that aren't true anyway"?

It's not a compromise. The "simpler explanation" in this case is not a simplification, it's a lie. It's fundamentally misleading on why LIBOR rigging is bad.

Benefited, that's one way to look at it. Another way is to consider that between LIBOR rigging, bailouts, mortgage fraud, bond rigging, money laundering, money printing, securities fraud, and other misc fraud, every single US citizen has undoubtedly realized a net loss on the matters in one way or another. But hey, cheap mortgages!

Libor TLDR: "Organizations set their interest rates to a random number that some banks came up with. The banks changed how they came up with the number without telling anyone, and the organizations got mad because it caused them to lose money while the banks made money."

Not "changed how they came up with the number". What you actually mean is "knowingly supplied false numbers" - note that the numbers were the offer rates, and instead, these banks would give numbers that were preferential to their positions, not an accurate reflection.

Libor TLDR: "Fraud."

I don't think that's enough to make people understand whether the governments should just fine them or that they need to put hundreds of people in jail.

Fraud is a crime. When it involves enough money (amount depending on jurisdiction) people are supposed to go to jail. It is my understanding that the amounts involved here were significantly above those required for any jurisdiction.

Considering the LIBOR was kept artificially low, it benefited consumers. Why would there be public outrage?

That is a simplistic assumption. Here is another Rolling Stone article about how some banks were convicted of colluding to suppress interest rates in the US municipal bond market. The Libor scandal is the same thing essentially they were defrauding small towns out of millions of dollars of interest by their collusion.


Wow, one Taibbi article backs up another Taibbi article? Coincidence, I'm sure.

Your comment backs up a previous comment you made. Coincidence, I'm sure.

Way to not actually address anything at all.

Seriously, who the fuck cares who wrote the articles?

I do. Once I realized all the Rolling Stone articles on HN were the same, I stopped clicking.

I don't think I have ever seen someone so fully embrace logical fallacies.

Do you have any reason to think the article is wrong, besides who the author is and where it was published? Any at all?

There are two responses to something like LIBOR. One response is Taibbi's, which is to ask for the US government to crack down on bankers. This fails because of the tacit assumption that the US government is any less corrupt.

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.

"No central banking, no LIBOR scandal."

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.

Right, I knew they were separate things. I meant only that widespread adoption of Bitcoin would obsolesce both; should have phrased that more clearly.

  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.
Yes. My point was that not all private parties would "choose to reference" things like LIBOR, nor be forced to participate in the Fed's quantitative easing schemes by virtue of holding US dollars. That is, with a distributed currency like Bitcoin (or perhaps a descendant of Bitcoin with even greater anonymity), we pull back a lot of control from what is currently a hypercentralized, opaque system.

Bitcoin would not prevent (or disincline) private banks from setting loan interest rates based on LIBOR. You can lend out 100 BTC at LIBOR+5% just as easily as you can with USD, and for all the same reasons. All bitcoin does is remove all control over creation of hard currency (not money in general - just M0, hard currency) - for better or for worse.

Banks could still loan bitcoins. They'd go bust if they loaned too much, like they did in the Great Depression under the gold standard. And governments could still bail them out, with bitcoin-denominated treasury bonds. Quantitative easing wouldn't be possible though, because bitcoins don't work that way, so you might get deflation. I guess the added danger of this lack of flexibility might encourage banks (and governments) to be more cautious but it hasn't stopped them in the past.

What jacquesm said. You could certainly try to trade your Bitcoin-substitutes at par with real Bitcoin, but as long as a (small) number of people insist on real Bitcoins, you can't expect to them survive, or at least be nearly as valuable as the real thing.

> You could certainly try to trade your Bitcoin-substitutes at par with real Bitcoin

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.

The difference is that with USD and other currencies, there's a central bank to print more money to make up for redemptions (real or potential) when people come to convert their electronic dollars for paper ones. There is no such mechanism with Bitcoin.

There's plenty of countries which borrow lots of USD, and can't print them. It's not really that different.

What matters in giving the derivative currency units par value to "the real thing" is the lender's ability to maintain liquidity by having a (central) lender of last resort, not the (in)ability of secondary borrowers to print them.

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.

Loaning out bitcoins you don't have is going to be pretty hard.

Bitcoins are closer to cash than it may seem at first glance and just like cash you can't really fake having it.

Money consists of central bank money, or currency and deposits at the central bank, and private money. Bitcoin would replace central bank money. It does not, however, replace private money.

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.

Sure, but you can't just turn around and ask the central bank of bitcoin to give you some more bitcoins fresh of the presses when you're low.

No ? Why not ?

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 
Which government? The US government? Or the Russian and Chinese governments? The USG is in decline and everyone knows it. Its ability to enforce laws around the world is not absolute. And by coming out and showing that it really wants X (e.g. the death of Bitcoin), it becomes obvious to many other governments that an interesting way to stick a finger in the eye of USG is to allow not X (e.g. free use of Bitcoin).

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.

> Note that fractional reserve banking originated on the gold standard

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.

> Loaning out bitcoins you don't have is going to be pretty hard.

> 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.

now what we need is a bit-tally-stick to handle IOU's in bitcoin the way that split tally sticks were used to handle IOU's in medieval times. In this way I could loan out the same money I have several times, with the assumption that I get it back before I have to pay it out really.

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.....

"Cash", or paper money, started out as IOU's for gold, and issuing extra expecting most people to not collect more than you could pay was always a possibility.

Are you suggesting we back paper money with bitcoin?

All I'm saying is that it won't be hard at all to loan out more bitcoin that you have, if you're a bank.

Try borrowing me a bitcoin that you don't have so I can spend it as a bitcoin.

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.

We could have a bitcoin iou protocol.....

I think the thing is that it takes something truly shocking to penetrate the defensive layers of "but liberal capitalism can't do this" thinking.

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.

This related hearing [1] led by freshman senator Elizabeth Warren is eye-opening. She can't get a straight answer on the last time a major bank was taken to trial over its offenses.

[1] http://www.dailykos.com/story/2013/02/15/1187417/-Elizabeth-...

She does get a straight answer. Regulators don't sue; they have a steady-state relationship with the banks where their concerns are addressed with consent decrees. Lawsuits are insanely expensive in the best of cases, but they're worse when you're suing a megabank, because the suit impacts the broader economy.

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.

> [...] but they're worse when you're suing a megabank, because the suit impacts the broader economy.

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.

That's a little uncharitable. It's obvious that Senator Warren's real question is: Do the banks have any reason to feel as if they face a threat of real legal action if they break the rules?

If not, that's surely something we can and should change.

I don't mean to be uncharitable. I'm glad Elizabeth Warren is there. She's demagoguing, but so is everyone else, and her side of the argument is underrepresented.

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.

s/break the rules/break the laws/

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.)

And if there wasn't anything you could do to land yourself in court, wouldn't you start to wonder if there are any real laws at all?

Oh there's no doubt that laws were and are being broken by top banks every single day. The problem is that they have enough concentration of power on their side (in most western countries) that it's almost impossible for the feeble democratic institutions to effectively punish them.

>..., but they're worse when you're suing a megabank, because the suit impacts the broader economy.

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.

It is not disingenuous, it is feigned. A subtle but important difference. She points out in the first 30 seconds of that clip why it is important that they SHOULD occasionally sue - leverage.

You can't just count the cost of one suit against one settlement and call it economically rational.

You also don't fix the problem by watching out the window as the wasp nests get bigger and more numerous.

Of course that's true.

Lawsuits (or filing charges) may be insanely expensive, yes. But I really doubt they are as expensive as never bringing charges against anyone or suing anyone, and the damage that eventually causes due to pervasive, unchecked corruption of the entire system.

Sue the individuals. No one individual is too big to fail.

I'm pretty sure that violates the entire point of having corporations whatsoever.

No it doesn't. The entire point of having corporations is to shield investors, not to shield decision-makers.

Just like officers of the company are legally responsible for the financials, they can AND should be help responsible for such actions.

It's really a shame more senators can't be as tenacious as Ms Warren. What is the cause of this? Is it because so many are 'bought off?'

People on HN have a warped view of how leverage works in American politics. The prevailing meme of congresspeople who are bought off has a lot of appeal, but its far from the facts. My wife was a lobbyist so I have a bit of insight into the situation. Fact is, the usual suspects don't need to bribe congressmen. Who needs bribes when you have beliefs? You just need something like the heritage foundation or AEI to say that suing banks or regulating them will cost jobs and boom: you can count on tons of votes from people whose ideological interests are aligned with those of the banks.

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.

Not necessarily 'bought off' as in handing over cash for favor, but a lot of politicians are already part of 'the machine' and profit handsomely from it, so their personal goals line up.

And that's the reason term limits are needed for each and every political office. Of course nothing on the order of a constitutional amendment is even remotely possible in the current US political system (that's likely to persist for a long long time to come).

Term limits are not the solution! In fact it will just exacerbate the problem. If Congress ends up as perpetual freshmen, who do you think will end up with an even higher proportion of power in Washington? The lobbyists and the staffers. These people have the insider knowledge, the connections, and the influence and they will be able to steamroll over an endless parade of newbie lawmakers.

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.

I don't think term limits fix what you're asserting. If anything, they just codify when people get out of office and go into particularly posh jobs with the people who were lobbying them.

Bought off, some maybe, for those that won't be bought, they'll either play along, or face fierce opposition within their own party, lose financial support and hence, have a slim chance to be reelected. Consider some of the things Ted Kaufman said in the recent PBS special about this exact issue.


Can anyone here answer Warren's question, even if the regulators couldn't? I'd be interested to learn about any court trials prosecuting larger banks (that is, if any exist), but it's proving difficult to Google.

The fact that the people in that room couldn't (who certainly know of any single time a wall street bank has gone to trial in the past years) and that Warren is so sure of her position is enough evidence for me personally


About 8 years ago an investor in my first company was defrauded by a con artist. This led me on a crazy 4 year chase which resulted in the discovery of a series of pump and dump stock frauds worth over $1 billion (think Enron, divided into smaller pieces) and possible ties to terrorism. This was a result of class action lawsuits, SEC investigations etc. None of which resulted in any type of jail time, and one of the individuals lives nicely in a 20 bedroom mansion in Barbados.

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.

I think it is easy to commit fraud because USA, even with myriads of regulations, is a relatively free state. If USA moved to be more of a police state, where you'd have to report every transaction to the authorities, and every "suspicious" action would have you explain yourself to men with guns, fraud would probably much harder. So would be the life of millions of people who are honest and lawful. It is very hard to be strict on fraud without causing trouble to regular activity, ask anyone who designed a security system.

Please write a blog post on this!

Will do. Mind being a second set of eyes on it?

Third set of eyes would be helpful.

The most difficult part will be figuring out how to condense it down.

If you're looking for a 3rd pair of eyes, happy to help. Ex-VC, CFA/MBA, have spent some time investigating stock frauds as well (but not quite to your level!).

May the audience get the link of where you're going to post it? Thanks.

No problem.

DB, can you send me your email?

Sent an email to the address on your website.


Yes, I've only learned about this after experiencing such fraud firsthand. The worst part is that many of the parties that operate the financial markets also have incentives to remain willfully ignorant. They can profit indirectly from the scam, too, and they have ample deniability.

> 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.

Is the $150K Yuri Milner convertible loan offer still open?

To my knowledge yes, but it was reduced in the last batch.


In that case if you are concerned with the source of your investors money (and I believe strongly that you should be) you should probably read this:


Thanks for sharing and good example of knowing the source of funds.

To clarify, Yuri Milner was not an investor in the company referenced.

Here is a link to the post you guys were asking for. Hope it is helpful.


but... download a copy of skyfall and watch fbi/cia/irs/statepolice and anyone else within 50 miles of your house come down on you like a ton of bricks.

slight exaggeration, right now, but it's certainly where hollywood would like to see things move.

> "Had the U.S. authorities decided to press criminal charges," said Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, "HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized."

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.

> Corporations don't commit crimes, people d

but but corporations are people ?!? they said

There are some very obvious issues here, like the deliberately un-investigated SARs; but I'm inclined to side with HSBC in some places here. Where transactions with and accounts held by persons or countries against whom the US has sanctions in place are concerned, I think HSBC was entirely correct in saying "these accounts aren't in the US, so we're not going to report them to the US government". The US government has the power to regulate banking in the US... not throughout the entire world.

But doing things like purposely obfuscating money flowing between the US and Iran as a middle man to get around sanctions?

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.

  | Banks are not in charge of policing the world.
I never claimed that they were. If HSBC wants to transfer money between (e.g.) Turkey and Iran, then the US has no say, even if they don't like it.

  | 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.
This is a straw-man. I'm not talking about attempting to prevent every possible thing that ever leaves the US from ever entering Iran under all possible circumstances. That's obviously impossible.

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.

> if they want to be chartered as a bank in the US, it certainly makes sense that they should 'play by the rules.'

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.

W.R.T. HSBC not being punished, you're preaching to the choir here.

If you want to commit a white collar crime make sure that it involves stealing or laundering billions of dollars through the banking system rather than downloading journal articles that are ostensibly in the public domain.

This is pretty incredible.

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.

We should stop talking about this immediately and focus on the real issues like arresting Julian Assange for aiding the enemy, several of the things he leaked could potentially be used by the enemy in some way, somehow.

I was tempted to add to the sarcasm thread but I'll save that for reddit.

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.

> 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.

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 know ideas are a dime a dozen and that it's execution that matters but it's hard for me to share on a site like HN.

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.

I just want to voice some token support. What little you've said here makes me want to encourage it. Even if you never manage to escape the time constraints, find some people who can get in on the vision and start the ball rolling. Hell, you might be able to get Stewart or Colbert to angel you.

More people need to get angry, it's incredible this can happen but you're right it just ends up with a feeling of powerlessness knowing that these people will never be brought to justice and will continue living with huge wealth

What's the idea?

It's been going on for years. Take the taxpayer bailed-out Citibank for example:

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...

In other news, we have to ban Bitcoin, because terrorists might use it.

Matt Taibbi? I agree with his general point of view, but it is amazing that people still consider him a journalist. It appears he has mastered the art of making smears look like journalism.

I'm not familiar with Taibbi's work but what exactly is wrong with this article? His facts are easily verifiable. Sure its polemical but that doesnt exclude it from being journalism.

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?

Sure its polemical but that doesnt exclude it from being journalism.

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.

Raise your hand if you guessed that it was Taibbi before clicking the link.

raises hand

Guessed? I knew.

I think it is the opposite, he makes journalism look like smears. I pretty much agree with him 100% on the issues but 0% on the presentation -- I can't stand to read his articles because they drip with vitriol. Over the years I've grown used to seeing that style associated with attempts to deliberately misinform and pander to the worst elements of the population's character. So when I see him do it, it compels me to distrust his reporting.

>"Had the U.S. authorities decided to press criminal charges," said Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, "HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized."

Why governments can not confiscate or nationalise HSBC and continue legal operations?

That sort of thing leads to investor panics and possibly social instability. Go to the Wall Street Journal website and read the comments on any political story. there's a large number of people who are convinced that Obama is a full-blown Communist and just waiting for his chance to go down the same path as Mao Tse Tung, Fidel Castro, Hugo Chavez etc.

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.

It's a huge, largely foreign-owned and run multinational company that looks after billions of dollars of largely innocent people's financial assets. I think it's fair to say the US government attempting to seize control of a large part of the operation might have a few negative side effects.

The US has imposed trade sanctions and even been implicated in coups against foreign regimes responsible for relatively minor nationalizations.

Because money is power

Or throw some managers in jail and let the business keep operating.

Mr. Obama, I had no idea you were a HNer!

The regulatory capture of pretty much every national government by the global financial superorganism[1] is an existential threat to humanity in ways that we are barely equipped to comprehend.

Some of the more pure examples of this evil ( from the human standpoint ) are what happens in Amazons warehouse facilities [2]. 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.

1. http://www.kk.org/thetechnium/archives/2008/10/evidence_of_a...

2. http://j.mp/XgOnkf

There is a simple solution: don't punish the bank, punish individual bankers.

Don't revoke license, so the world does not collapse, instead make decision makers lose sleep.

That's simple-sounding, but I don't think it's simple.

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.

CEO is totally responsible for the big picture.

Should be personally liable for large-scale crimes.

If you are a decision maker, though, that decision can come back and bite you in the ass.

I think that's the point. They should fear that when making decisions.

It's pretty disgusting that we're throwing principles away for the sake of expediency. How long before there are no principles left? What does that kind of country look like?

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.

Do we have fewer principles now than in the past?

Of course we do! The past was a perfect glorios place! Men were big strong men who supported a family all on their own. Women were perfect housewives that raised 2 beautiful children. Everyone had a big house a nice green lawn and 2 of those oversized 50s cars. It's been downhill ever since!

Well, uh, the country was founded on the principle that a government should be accountable to the people. A lot of men died toward that end. So I'd say that yes, at some point, we did have principles. And it was in the past, oddly enough.

Which dying men are we talking about? The ones that owned slaves or just the ones that made sure the black guys could only leave through the door to the alley?

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.

I would disagree with the idea that things are moving in the right direction overall, but I get that you think so. I don't even think you're totally wrong or crazy, I just disagree.

Agreed slavery was non-ideal but there were a lot of white guys that died during the Revolutionary war.

Look at some of the big picture statistics for worldwide poverty, health, lifespans, violence, freedom, corruption, etc. Nearly all of them are moving in a positive direction, in some cases dramatically so.

To me the only really worrying long term trend is environmental impact. We might be consuming our planets resources at an unsustainable rate.

Might be? How much more evidence would be needed? The planet can probably sustain less than a billion people long term at a first-world standard of living.

'eh, maybe. Though who knows what future technologies will bring? Maybe in a 100 years will have a 20 billion people but most of them will be uploaded to the singularity. Maybe nuclear & solar will save us all. Maybe we learn to mitigate the effects of global warming by some sort of large scale teraforming projects.

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.

I'm amazed at all the attacks on Matt Taibbi and Elizabeth Warren in this thread. They are standing up for what they believe is right in their own unique way. They have worked hard to get to where they are. Give them some respect.

At this point I have to believe that a Justice Department that will push a guy to suicide for taking files is plainly in partnership with corrupt banks. The Justice Department is merely the legal firm for the banks.

I'm amazed Taibbi could write an entire article on this subject and not mention Jon Corzine.

Oh wait. No I'm not.

Apologies for linking outside this thread, but some of the audience asked me to write this. Hope it is helpful.


I've started a WhiteHouse.gov petition - Send the Execs to Jail, but Keep the bank running by hiring replacements. Show that people who do this are held accountable, even if the business is too big to fail. http://wh.gov/dtmj

Excellent idea - have government-selected people with no experience with the company run the company, with a promise that if anything happens in the huge company they are managing, they go to jail. Oh yes, and to make things easier send all the people who know what happens in the company to jail so they aren't accessible and have zero motivation to help. Now you only have to properly cap the pay for new management - to ensure you pay them less than a comparable job elsewhere - and you have a winning recipe. I can't imagine how this could go wrong.

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