{"id":58790,"date":"2015-06-01T12:00:08","date_gmt":"2015-06-01T11:00:08","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=58790"},"modified":"2015-05-28T19:18:58","modified_gmt":"2015-05-28T18:18:58","slug":"finance-like-a-cancer-grows","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2015\/06\/finance-like-a-cancer-grows\/","title":{"rendered":"Finance like a Cancer Grows"},"content":{"rendered":"
\"Roberto<\/a>

Roberto Savio<\/p><\/div>\n

May 26 2015<\/em> – 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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

It is calculated that we will need to wait until at least 2020 to be able to go back to the levels of 2008 \u2013 so we are talking of a lost decade.<\/p>\n

To bail out the banks, the world has collectively spent around 4 trillion dollars of taxpayers\u2019 money. Just to make the point, Spain has dedicated more than its annual budget on education and health to bail out the banking sector \u2026 and the saga continues.<\/p>\n

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.<\/p>\n

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\u2019s repeated offences. \u201cUBS has a \u2018rap sheet\u2019 that cannot be ignored,\u201d said<\/a> Assistant U.S. Attorney General Leslie Caldwell.<\/p>\n

This is a significant departure from the Justice Department\u2019s guidelines issued in 2008, according to which collateral consequences have to be taken into account when indicting financial institutions.<\/p>\n

\u201cThe 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,\u201d said<\/a> Mark Filip, the Justice Department official who wrote the 2008 memo.<\/p>\n

\"abutres<\/a><\/p>\n

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 \u201cArthur Andersen was ultimately never convicted of anything, but the mere act of indicting it destroyed one of the cornerstones of the Midwest\u2019s economy.\u201d<\/p>\n

This was in fact a declaration of impunity, which did not escape the managers of the financial system, under the telling title of \u201cToo Big to Fail\u201d.<\/p>\n

Two weeks ago, a judge from the Federal District Court of Manhattan, Denise L. Cote, condemned two major banks \u2013 the Japanese Nomura Holdings and the British Royal Bank of Scotland \u2013 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.<\/p>\n

\u201cThe magnitude of falsity, conservatively measured, is enormous,\u201d she wrote<\/a> in her scathing decision.<\/p>\n

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.<\/p>\n

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\u2019 criminal behaviour which had exacerbated the collapse in the mortgage market.<\/p>\n

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<\/a>. No one has yet gone to jail \u2013 fines have been paid and the question closed.<\/p>\n

Now the question: is all this due to the misconduct of a few greedy managers or is it due to the new \u201cethics\u201d of the financial sector?<\/p>\n

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.<\/p>\n

Well, just a week ago, the respected University of Notre Dame was reported<\/a> 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 \u201chave witnessed or have first-hand knowledge of wrongdoing in their workplace.\u201d<\/p>\n

The report went on to say that \u201cnearly one in five respondents feel financial services professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment\u201d and in any case, \u00a0nearly half of the high income professionals consider authorities to be \u201dineffective in detecting, investigating and prosecuting securities violations.\u201d<\/p>\n

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.<\/p>\n

And nearly one-third \u201cbelieve compensation structures or bonus plans in place at their companies could incentivise employees to compromise ethics or violate the law.\u201d\u00a0 It should also be noted that the majority were worried their employer \u201cwould likely to retaliate if they reported wrongdoing in the workplace.\u201d So, the bonus that goes to those in the financial sector every year practically amounts to a bribe for silence on misconduct.<\/p>\n

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\u2026but in sociology there is a mechanism called \u201cdemonstration effect\u201d.<\/p>\n

The example of Wall Street and the City will increasingly seep down once a new \u201cethic\u201d is in place. It will propagate if it is not stopped \u2026 and this is not happening.<\/p>\n

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.<\/p>\n

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.<\/p>\n

The \u201cnew ethic\u201d is in reality a cancer, and it is metastasising rapidly<\/p>\n

_______________________________<\/p>\n

Roberto Savio is the founder and president emeritus of <\/em>Inter Press Service-IPS, publisher of <\/em>Other News, and a member of the <\/em>World Social Forum International Committee.<\/em><\/p>\n

Edited by Phil Harris<\/a><\/p>\n

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