Why All Must Demand A Stop To Financial Fraud


Oh boy, what a minefield to wade into today…

First, let’s start with Draghi.

European Central Bank President Mario Draghi said that revelations about the setting of the Libor, or London offered interbank rate, undermine confidence in the the world’s financial system, according to an interview with French newspaper Le Monde.

Of course the problem is that he and his cohorts knew about it and did nothing.  That much is documented fact at this point, just as it is documented fact that The Fed knew in early 2008 (and perhaps earlier) and did nothing.

The problem with these sorts of “exhortations” is that the way to restore confidence in the system is for those in government who knowingly averted their eyes to commit seppuku.  They won’t, of course.

Why not prosecute them?  Because we as citizens have consented to laws that have no “or else.”  Look at The Federal Reserve Act over on The Fed’s own web site.  Read the whole thing.  Do you see an “or else” anywhere?  There is no penalty clause anywhere within the “act”; it is therefore nothing more than a grant of power with a suggestion, but not a stricture, on how it is used and abused.  And abused it has been — serially and wantonly.

Barofsky, Mr. TARP, has written a book.  It is due out Tuesday and I may well pick up a copy and read it.  I don’t know if I need to read it though; the story says:

His story is illuminating, if deeply depressing. We tag along with Mr. Barofsky, a former federal prosecutor, as he walks into a political buzz saw as the special inspector general for TARP. Government officials, he says, eagerly served Wall Street interests at the public’s expense, and regulators were captured by the very industry they were supposed to be regulating. He says he was warned about being too aggressive in his work, lest he jeopardize his future career.

In other words, don’t prosecute frauds if you find them.  Issue “stinging rebukes” if you must and stern warnings, but by God, no breaking out of the handcuffs and indictments!

In other words, there is no “or else” to be applied.

Unfortunately when it comes to crime without an “or else” there is no reason to abstain from committing crime, other than your personal moral scruples.  And those seem to be in damn short supply these days, especially among financial types and politicians.  This is even more-true when one can take the cost of whatever crimes you commit and get caught executing and force others to pay for them.

This cost-shifting paradigm is particularly pervasive in the financial and medical industry.  The reason, of course, is that a bank is always free to pile on some junk fee and the medical industry, shielded from competitive forces by law, can effectively force you to cover the fines by jacking up the price of some drug, device or procedure.  It would be nice to believe that a bank that was fined $1 billion would be at a competitive disadvantage and thus would wind up bankrupt for lack of business, but it simply doesn’t work that way.  The reason is not very complex either; if virtually all major financial institutions commit the same offenses then the cost of doing business goes up for all of them and they’re all able to pass it on!  Further, for those who are penalized “more” than their competitors they simply cheat more, since there is nothing preventing them from continuing to do so — like a jail sentence.  Lehman serves as a prime example of this; they simply cheated more and more as their position deteriorated until finally the firm went “boom”, but nobody went to jail for all the cheating.

Sociopaths are willing to commit any crime they think they can get away with.  There are few if any “moral” barriers that can be aimed at these people and “work.”  The only sanctions that are effective are those that come with prison sentences; those cannot be shifted to others but must be personally served.  Likewise, corporate charter revocation works too, for the same reason — the entity involved cannot offload the expense on someone else.

Is there reason to be hopeful that this will change?  Not really, in the present tense.  People claim this is “too abstract” for the common man to understand but that’s not true either.  The simple fact of the matter is that theft is easily understood by virtually everyone if you bother to take the few minutes to explain it in that context.

Our real failure is that we as people refuse to rise and demand that thieves go to prison and that corporations that cheat lose their charters, thereby being forced from business.

Until that happens there will be no return of confidence, and no true economic recovery.

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