Saturday, 20 April 2013

"And the burnt Fool's bandaged finger goes wabbling back to the Fire"

The Late 2000's Financial Crisis (which started about 2007 and is ongoing) accomplished one highly unlikely end, among others: it got me reading business and economic news reports. I wanted to learn, first, how we got into this mess; second, how bad was it going to get; and, third, once I had a good sense of answers to the first two matters, when are the bankers going to go to jail. At least, when would they be kicked out. Or resign. Preferably with an admission of guilt and an appropriate apology.

It has happened here and there. Iceland put the self-important scoundrels in jail, nationalized the banks, and repudiated unreasonable debt and debt payable in foreign currency. It recovered well. Britain's response has been less clear-cut. Bob Diamond, the head of Barclay's Bank, who saw no need to apologize or resign, was forced out. The Royal Bank of Scotland has been effectively nationalized, so a continuing stream of embarrassing stories has not been covered up by the board and management. There has been a parliamentary inquiry and a promise of new rules. On the other hand, Britain's going to court now, defending its right to remain unaffected by the Eurozone's new Financial Transaction Tax (FTT). This is despite two-thirds of British citizens supporting some form of FTT. The United States, though, has the honour of being the most deeply corrupted nation in terms of banker influence on policy. The banks at the heart of the Financial Crisis kept their management and received a trillion dollar loan. The bill to keep the same flawed activities from creating a new financial crisis (The Dodd-Frank Wall Street Reform and Consumer Protection Act) was fiercely resisted, especially the Volcker Rule section, which was blown hither and yon before it was passed.

All this is prequel to the story I want to link to now. According to the Financial Post, the same risky behaviour that created the last financial crisis has re-emerged. The key quotation is, "The Dodd-Frank regulatory overhaul is forcing banks to take extra steps in the process of bundling loans, but it does not change the basic approach."

The quotation that provides the title for this post is from Kipling's poem "The Gods of the Copybook Headings."
As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;


Update: An article on Rolling Stone, "Everything is Rigged: The Biggest Price-Fixing Scam Ever" by Matt Taibbi, explains that the price-fixing scandal over Libor in Britain is matched by a similar one in the US called USDAfix, which includes some of the same criminal players plus a few different ones. The problem extends beyond interest rates:
"In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together," Masters notes glumly.
That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.
All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world, and God knows what they'll find. The European Federation of Financial Services Users wrote in an official EU survey last summer that all of these systems are ripe targets for manipulation. "In general," it wrote, "those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion."

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