It is astonishing that every week we see action being taken in various part of the world against the financial sector, without any noticeable reaction of public opinion.

It is astonishing because at the same time we are experiencing a very serious crisis, with high unemployment, precarious jobs and an unprecedented growth of inequality, which can all be attributed, largely, to speculative finance.

Roberto Savio

This all began in 2008 with the mortgage crisis and the bursting of the derivatives bubble in the United States, followed by the bursting of the sovereign bonds bubble in Europe.

It is calculated that we will need to wait until at least 2020 to be able to go back to the levels of 2008 – so we are talking of a lost decade.

To bail out the banks, the world has collectively spent around 4 trillion dollars of taxpayers’ money. Just to make the point, Spain has dedicated more than its annual budget on education and health to bail out the banking sector … and the saga continues.

Last week, five major banks agreed to pay 5.6 billion to the U.S. authorities because of their manipulations in the currency market. The banks are household names: the American JPMorgan Chase and Citigroup, the British Barclays and the Royal Bank of Scotland, and the Swiss UBS.“To bail out the banks, the world has collectively spent around 4 trillion dollars of taxpayers’ money”

In the case of UBS, the U.S. Department of Justice took the unusual step of tearing up a non-prosecution agreement it had reached earlier, saying that it had taken that step because of the bank’s repeated offences. “UBS has a ‘rap sheet’ that cannot be ignored,” said Assistant U.S. Attorney General Leslie Caldwell.

This is a significant departure from the Justice Department’s guidelines issued in 2008, according to which collateral consequences have to be taken into account when indicting financial institutions.

“The collateral consequences consideration is designed to address the risk that a particular criminal charge might inflict disproportionate harm to shareholders, pension holders and employees who are not even alleged to be culpable or to have profited potentially from wrongdoing,” said Mark Filip, the Justice Department official who wrote the 2008 memo.

Referring to the case of accounting giant Arthur Andersen, which certified as valid the accounts of the Enron energy company that went into bankruptcy for faking its budget, Filip said that “Arthur Andersen was ultimately never convicted of anything, but the mere act of indicting it destroyed one of the cornerstones of the Midwest’s economy.”

This was in fact a declaration of impunity, which did not escape the managers of the financial system, under the telling title of “Too Big to Fail”.

Two weeks ago, a judge from the Federal District Court of Manhattan, Denise L. Cote, condemned two major banks – the Japanese Nomura Holdings and the British Royal Bank of Scotland – for misleading two mortgage public institutions, Fannie Mae [Federal National Mortgage Association] and Freddie Mac [Federal Home Loan Mortgage Corporation], by selling them mortgage bonds which contained countless errors and misrepresentations.

“The magnitude of falsity, conservatively measured, is enormous,” she wrote in her scathing decision.

Nomura Holdings and the Royal Bank of Scotland were just two of 18 banks that had been accused of manipulating the housing market. The other 16 settled out of court to pay nearly 18 billion dollars in penalties and avoid having their misdeeds aired in public.

Nomura Holdings and Royal Bank of Scotland refused any settlement and instead went to court against the U.S. government, arguing that it was the housing crash which caused their mortgage bonds to collapse. Judge Cote, however, wrote that it was precisely the banks’ criminal behaviour which had exacerbated the collapse in the mortgage market.

It is worth noting that, until now, the cumulative fines inflicted by the U.S. government on just five major banks since 2008 amount to a quarter of a trillion dollars. No one has yet gone to jail – fines have been paid and the question closed.

Now the question: is all this due to the misconduct of a few greedy managers or is it due to the new “ethics” of the financial sector?

By the way, let us not forget that it was revealed recently that 25 hedge fund managers took close to 14 billion dollars only last year and that the highest paid manager took for himself the unthinkable amount of 1.3 billion dollars, equal to the combined average salaries of 200,000 U.S. professionals.

Well, just a week ago, the respected University of Notre Dame was reported as having published a startling report, based on a survey of more than 1,200 hedge fund professionals, investment bankers, traders, portfolio managers from the United States and the United Kingdom, in which about one-third of those earning more than 500,000 dollars a year said that they “have witnessed or have first-hand knowledge of wrongdoing in their workplace.”

The report went on to say that “nearly one in five respondents feel financial services professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment” and in any case,  nearly half of the high income professionals consider authorities to be ”ineffective in detecting, investigating and prosecuting securities violations.”

A quarter of respondents stated that if they saw that there was no chance of being arrested for insider trading to earn a guaranteed 10 million dollars, they would do so.

And nearly one-third “believe compensation structures or bonus plans in place at their companies could incentivise employees to compromise ethics or violate the law.”  It should also be noted that the majority were worried their employer “would likely to retaliate if they reported wrongdoing in the workplace.” So, the bonus that goes to those in the financial sector every year practically amounts to a bribe for silence on misconduct.

At the same time, we have learned that in Guatemala the Governor of the Central Bank has been arrested for embezzling 10 million dollars. Of course, everything is a question of scale…but in sociology there is a mechanism called “demonstration effect”.

The example of Wall Street and the City will increasingly seep down once a new “ethic” is in place. It will propagate if it is not stopped … and this is not happening.

A final note. In the same week (how many things have happened in such a short space of time), the Federal Trade Commission of Columbia accused four respected cancer charities of misusing donations worth millions of dollars.

One of them, the Cancer Fund of America, declared that it spent 100 percent of proceeds on hospice care, transporting patients to chemotherapy sessions and buying medication for children. The Federal Trade Commission found in fact that less than three percent of donations was spent on cancer patients.

The “new ethic” is in reality a cancer, and it is metastasising rapidly. (END/COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

"Indignados" in Málaga, Spain, protest cuts in health and education. Credit: Inés Benítez/IPS

By Roberto Savio
ROME, Jul 8 2013 (IPS)

At the last summit of European heads of state held in Brussels at the end of June, the main theme was youth unemployment, which has now reached 23 percent of European youth (although it stands at 41 percent in Spain).

Last year, the International Labour Organisation issued a dramatic report on Global Employment Trends for Youth 2012 in which it spoke of a “lost generation”.

According to projections, the generation currently seeking to enter the market place will retire with a pension of just 480 euros – if it actually succeeds in entering the market – because of temporary jobs without social contributions.

After long discussions, Europe’s leaders decided to allocate six billion dollars to fight youth unemployment. After much shorter discussions, they decided to allocate up to 60 billion dollars to support Europe’s banks. This, on top of the striking subsidies already received: the European Central Bank alone has given 1,000 billion dollars to the banks at nominal cost.

All the efforts to create a European banking system under a central regulator are now on hold until the German elections in September. As a member of the German delegation at the June summit is reported to have said: ”We know well what we are supposed to do, to calm financial markets. But we are not elected by financial markets, we are elected by German citizens.” (IHT, Jun. 28, 2013).

And of course, no effort has been made to explain to Germany’s citizens why it is in their interest to show economic solidarity with the most fragile countries of Europe. Democracy, as it is understood today, is based on leaders who follow popular feelings, not on leaders who feel it their duty to push their electors towards a world of vision and challenges.

The summit was also obliged to accept the blackmail of British Prime Minister David Cameron: either you maintain the subsidies that then Prime Minister Margaret Thatcher obtained in 1973, when you insisted that we join Europe (which makes Britain a net recipient of European money), or we will block the European budget.

This is because the anti-Europe electorate in Britain is growing and Cameron could not afford to appear weak. But Cameron was one of the strongest proponents of the subsidy for the banks, and no wonder: the financial system now accounts for 10 percent of Britain’s gross domestic product (GDP).

It is a very curious situation, in which Europe has not only spent several hundred billion dollars on its banks, it has even invited the International Monetary Fund (whose controlling member is the U.S.) to join the European institutions and manage the European crisis.

And, in an unprecedented sign of independence from the U.S., Europe has rejected American calls for reducing austerity and starting policies of growth as Washington and Tokyo have been doing, so far with proven success.

Nevertheless, what is common to the three most powerful players in the West (U.S., Europe and Japan) has been their inability – and unwillingness – to place banks under control and react to their string of crimes.

Central bankers from the entire world join in the Bank for International Settlements (BIS) based in Basel. Now its Basel Committee on Banking Supervision has come up with a proposal that would tighten the relationship between the capital of the banks and the volume of financial operations they can afford. The proposal establishes that banks must maintain high-quality capital, like stock or retained earnings, equal to seven percent of their loans and assets, and that the biggest banks may be required to hold more than nine percent.

This is not exactly a revolutionary proposal, and has been criticised as insufficient by many analysts and regulators. This is confirmed by the fact that the U.S. Federal Reserve estimates that between 90 and 95 percent of banks with assets of less than 10 billion dollars already respect such parameters. Well, even this bland proposal has been received with a howl of protest from many banks, claiming that they would have great difficulty in raising capital.

Under the old capitalist economy, no enterprise would run without capital adequate to its need. Today we have a new branch of the economy, which wants to play without capital, and expects the state to bail it out if anything goes wrong. So, let us just look briefly at how many times things went wrong without anybody ever going to jail:

On Apr. 28, 2002, the U.S. Securities and Exchange Commission (SEC), won a lawsuit ordering 10 banks to pay 1.4 billion dollars in compensation and fines because of fraudulent activities. One year later, the SEC discovered that 13 out of 15 financial institutions randomly investigated were guilty of fraud. In 2010, Goldman Sachs agreed to a fine of 550 million dollars to avoid a trial for fraud.

In July last year, the U.S. Senate presented a 335-page report on the British bank HSBC. Over the years it helped drug dealers and criminals recycle illicit money. The fine was 1.9 billion dollars.

In November 2012, SAC Capital was fined 600 million dollars, and in the same month the second leading British bank, Standard Chartered, was fined 667 million dollars.

In February this year, Barclays Bank announced that it had set aside 1.165 billion euros to face fines for “illicit transactions”.

And in March this year, Citigroup accepted a fine of 730 million dollars for “selling investments based on junk to unsuspecting clients”.

We all know that the crisis in which we find ourselves (which, for the optimists, will end in 2020 and for the pessimists in 2025) originated in the U.S., caused by the 10 largest banks’ decision to sell derivatives based on junk and certified by the Standard & Poor’s and Moody’s rating agencies. U.S. taxpayers “donated” 750,000 million dollars to the banks, while the British did the same for HSBC, Royal Bank of Scotland, Barclays Bank and Northern Rock.

While this financial disaster was happening, the ‘Big Five’ (Goldman Sachs, Merrill Lynch, Morgan Stanley, Lehman Brothers and Bearn Sterns) paid their executives three billion dollars between 2003 and 2007, And, in 2008, they received 20 billion dollars in bonuses while their banks were losing 42 billion dollars.

All of this was certified by Standard & Poor’s and Moody’s, which control 75 percent of the world market. Now Standard & Poor’s has been requested to pay 500 million dollars.

But what about the millions of people who have lost their jobs? The millions of young people who see no future in their lives? It’s the old story: if you steal bread, you go to jail, but if you steal millions, nothing will happen to you … and if you steal millions in a bank, even less reason to worry.

Meanwhile, back at the summit table, the priority for survival is to allocate taxpayers’ money to banks, even if all talk is about youth unemployment.

(END/COPYRIGHT IPS)

Excerpt:

For anyone who might not have realised it yet, the current crisis is demonstrating beyond a shadow of a doubt that the financial markets are the lead players in the current economic situation in Europe. Power has passed from the politicians to speculators and crooked bankers. This is a fundamental change.

Ignacio Ramonet

Every single day a staggering quantity of money floods through the markets – for example, seven billion euros worth of eurozone governments’ debt alone, according to the European Central Bank. The daily collective decisions of these markets can now topple governments, dictate policies, and subjugate entire populations.

Moreover, these new “lords of the earth” have no concern whatsoever for the common good. Solidarity is not their problem, much less the preservation of the welfare state. Greed is the only motive for their actions. Speculators and bankers, driven by a hunger for profits, behave with total impunity, diving like birds of prey on target after target.

Since the crisis broke in 2008 no serious reform has been imposed to either regulate the markets or rein in the bankers. It is apparent that banks play a clear role in the economic system and that their traditional activities ­ encouraging savings, providing families with credit, financing businesses, spurring commerce ­ are constructive.

However, since the dawn in the 1980s of the “universal bank”, which added speculation and investment to the above mix of functions, risks to customers’ savings shot up dramatically along with deceit, scandals, and fraud.

One of the most shameless acts was carried out by Goldman Sachs, which now dominates the financial universe. In 2001 it helped Greece to cook its books so that Athens would meet the conditions to join the euro.

In under seven years, this scam was discovered and the reality exploded like a bomb. The consequence: a debt crisis engulfed almost an entire continent; Greece was sacked and forced onto its knees; recession struck, with massive unemployment and plummeting buying power of workers; restructuring and drastic cuts in social services followed, with widespread misery and the imposition of structural adjustment programmes.

How were the perpetrators of this devastating swindle punished? Mario Draghi, the ex-vice president of Goldman Sachs for Europe who was aware of most of the fraud, was named president of the European Central Bank. Meanwhile, for its crooked window-dressing for Greece, Goldman charged 600 million euros. The story has a clear moral: when it comes to major rip-offs by the banks, impunity is the rule.

For confirmation look no further than the thousands of Spanish depositors who bought stocks in Bankia the day it was listed on the stock market. It was known that the bank had no credibility and that according to the ratings agencies its stock was just a step above junk.

But the depositors trusted Rodrigo Rato, then president of Bankia and ex-managing director of the International Monetary Fund, who proclaimed on May 2, 2012 (five days before resigning in response to market pressure and just before the Spanish government had to inject 23.5 billion euros to keep it out of bankruptcy): “In terms of both liquidity and solvency, we are in a very robust position.”

It is known that a year earlier, in July 2011, Bankia apparently passed the “stress test” imposed by the European Banking Authority (EBA) on the 91 largest financial businesses in Europe. This should give an idea of the incompetence and ineptitude of the EBA, the European agency charged with guaranteeing the health of our banks.

But that wasn’t the end of the scandals. Indeed, new bank frauds have come to light in recent months. HSBC was accused of money laundering for Mexican narco-traffickers. J.P. Morgan engaged in massive speculation and unprecedented risk-taking that led to losses of 7.5 billion euros and ruined dozens of clients. The same happened at Knight Capital, which lost over 323 million euros in a single night because of a mistake by its automatic trading programme.

But the scandal that is most infuriating on a global scale is the Libor. The Association of British Bankers issues each day what is called the “London Interbank Offered Rate”, an average calculated by Reuters financial news agency of the interest rates obtained by the 16 largest banks for borrowing.

As the rate at which the major banks lend money to each other, Libor constitutes a fundamental benchmark for the entire world financial system. In particular, it is used to calculate mortgage rates for homeowners. Worldwide, Libor influences some 350 trillion euros in credit and any variation in it can have a colossal effect.

How did this scam work? Some of the 91 Libor banks colluded in lying about the rates they were obtaining, thus manipulating not only Libor but all derivative contracts and the credit rates for businesses and families alike. This went on for years.

Investigations have shown that about ten major international banks ­ Barclays, Citigroup, JP Morgan Chase, Bank of America, Deutsche Bank, HSBC, Credit Suisse, UBS, Societe Generale, Credit Agricole and the Royal Bank of Scotland ­ participated in the racket.

What we see from the Libor disaster is that criminal behaviour has infected the very heart of the financial industry, and that probably millions of families were issued mortgages at incorrect rates. Many had to leave their homes. Others were evicted because they couldn’t pay artificially-manipulated interest rates. And once again the authorities charged with overseeing the operation of the markets turned a blind eye to this crime. No one has been punished beyond four schemers.

How long can democracies continue to allow such impunity? In 1932 in the United States, Ferdinand Pecora, son of Italian immigrants who became a prosecutor in New York, was named by president Herbert Hoover to investigate the responsibility of the banks for the crash of 1929. His report was overwhelming. It was he who coined the term “banksters” (out of “bankers'” and “gangsters”).

On the basis of this report, president Franklin D. Roosevelt acted to protect the American people from the risks of speculation. He passed the “Glass-Stegall Act” which (until it was repealed in 1999) required the separation of commercial banking from investment banking. What government of the eurozone would dare pass similar legislation today? (END/COPYRIGHT IPS)

* Ignacio Ramonet is editor of Le Monde diplomatique en español.