5 Scandalous Reasons Big Finance Is Trying Hard to Keep a Low Profile
Photo Credit: Songquan Deng / Shutterstock.com
Stay up to date with the latest headlines via email.
Few news outlets are more sympathetic to the financial services industry than the Wall Street Journal. So it’s interesting when the paper reports from London that “antibanking sentiment here is still off the charts,” leaving the industry “gun shy about flaunting wealth.” That was also true at the Olympics, even though “The games are typically one of the biggest corporate schmoozefests on the calendar.” This is part of what the Journal calls “a wave of banker austerity,” with executives skipping the usual “hired black sedan” and champagne, and even resorting to putting up important clients in mere three- or four-star hotels. Overall, “The City of London’s high-rolling banking industry is rolling as low as possible,” in order to “avoid displays of wealth that will further inflame an already angry public.”
So why is the public so “inflamed” with “antibanking sentiment?” Recent events here and in the UK make it easy to see.
1. Fool me 30 Times, Shame on You
For Britons, at the top of the list stands the LIBOR rate-fixing scandal, in which the UK’s most prominent banks conspired to fix a baseline interest rate that's used to calculate rates on thousands of financial products like mortgages. The scandal continues to unfold, with giants Citigroup and Chase still awaiting charges, among others.
But as is common in episodes where major banks have committed large-scale fraud, in this case involving hundreds of billions of dollars in financial instruments, the most heavily implicated bank, Barclay’s, is not facing legal prosecution, merely a large fine. The New York Times Dealbook described the settlement as “a multimillion dollar financial penalty and modest admission of wrongdoing, but no criminal conviction to affect its operation.” Pretty gentle treatment for a firm whose traders, while working to manipulate the key rate, said in emails while executing the collusion: “Always happy to help;” “For you, anything;” “Done…for you big boy;” and from a more conscientious employee, “I will reluctantly, gradually, and artificially get my libors in line.”
Especially notable in this connection is the conspicuous absence of Bob Diamond, the disgraced ex-CEO of Barclay’s, from the London Games, since Diamond “had been a fixture for years at UK events” and “had been planning to attend several Olympic events as a guest…[but] after the furor surrounding his resignation, he is expected to stay away.” The banks are politically smart enough to keep their heads down when they look bad.
Of course, the LIBOR affair pales in its human impact when compared with other recent banking scandals, like the “robo-signing” scandal in the US. In that scam, thousands of homes, mortgaged during the housing bubbles, were foreclosed upon without the required legal standing or paperwork. The implicated banks, including the four US megabanks—Bank of America, Chase, Citigroup and Wells Fargo—settled the charges with the Justice Department and the states for $26 billion, an impressive figure. However, the settlement does little for the real human families evicted fraudulently, including three-quarters of a million evictees who were foreclosed upon from the finance crisis through the end of 2011, most of whom received a check for $2000 each.
In the fast-moving world of banking scandals, Standard Chartered of London impressively secured a spot for itself when it was accused by a New York regulator of laundering a quarter trillion dollars in Iranian money, in violation of US economic sanctions on the country. You don’t have to support the efforts of the US government to economically strangle Iran to appreciate the disregard for law in company emails cited in the criminal charge, including an executive confiding that the Iranian trading had “the potential to cause very serious or even catastrophic reputational damage to the group.” Standard Chartered settled the charges for $334 million, in hopes it can “avoid admitting wrongdoing.”