Monday, January 20, 2014

Ed Milliband is right - There must be a 'reckoning' with the criminal banks!

A vast amount of self-righteous indignation is being spluttered by the banks and their media apologists, over Ed MIlliband's, frankly rather unremarkable observations, about the need to begin a re-alignment of our bloated banking sector.

Poor Ed, he is desperately trying to enunciate a sensible policy direction, in the teeth of a gale of hot air being blown at him by every Tom, Dick and Boris in the banking sector.

To listen to these people, and their friends in the City and the Tory party, you would think that everything in the banking garden was rosy, and that there was no need for any form of change or amendment.

And this is the root of the problem.

The banking industry in the UK has become hijacked by a an organised criminal fraternity who see the bank sector as their own personal fiefdom, within which they can manoeuvre to make obscene sums of money, way and beyond any meaningful relationship to the services they provide or the skills they possess.

It is not sufficient that they have good jobs and receive excellent salaries, they demand more and ever more. They view the receipt of million pound bonuses as literally, 'their due', they then demand double that figure and they become very exercised when any sensible individual challenges them and asks "...What do you really do for this return..?"

The fact is that they are nothing more than gamblers. They play the world's markets with other people's money, and their work is no more difficult than choosing whether to be on the red or the black.

We do not hold professional gamblers up as paragons of social virtue, possessing the kind of personal standards that any society needs if it is going to provide a fair and beneficial environment for all its citizens, so why do we feel the need to pay any form of obeisance to these speculators who reside in this moral vacuum?

Why are we not willing to admit that the artificial values placed upon these institutions are merely theoretical prices engineered by the casino market in which they reside! Why are we literally held to ransom by these spivs?

Even when Ed Milliband, the leader of the Labour Party and a putative future Prime MInister, set out a policy initiative for dealing with the bloated banking sector, his words had the immediate effect of moving the financial markets.

A billion pounds was wiped off the value of taxpayer-owned banks the day after he  promised to bring “reckoning” upon the industry. The taxpayer owns 81 per cent of RBS and 33 per cent of Lloyds. The institutions were bailed out following the 2008 banking crisis. The drop in share prices suggests the City believes Mr Miliband has a good chance of becoming Prime Minister in 2015.

So-called 'business leaders', which is nothing more than City apologist writer's speak for another bunch of wide-boys and con-artists, warned Labour’s flagship economic plan to break up the major banks’ dominance of the high street could end in disaster, while the party’s own shadow business secretary admitted taxpayers would lose out.

Chuka Umunna, the shadow business secretary, admitted on BBC Radio 4 the plan to cap the banks’ share of the market to stimulate competition would “hit” the value of state-owned institutions. Shares in the Royal Bank of Scotland and Lloyds dived as the Labour leader promised to force the big five high street lenders to shed branches.

Of course they will lose out, as soon as the speculators who are busily playing financial games with the share prices of the publicly-owned banks realise that their games are going to end, they will pull their money out and the share price will weaken. But that is not a reason for not acting soon.

"...Experts..." another spiv shibboleth, warned such a move could trigger a repeat of the doomed attempt by the Co-op to take over hundreds of Lloyds branches. The bid, overseen by the disgraced Methodist minister Paul Flowers, pushed the bank to the brink of collapse.

But why should it? Why should the action of a bunch of flaky gamblers hold the interests of millions of ordinary British people to ransom. There is nothing intrinsically wrong with requiring more banking competition on the High Street, although the real problem is that most banks couldn't care less about retail banking operations any more. In fact for the big players, retail bank accounts are not a means of making money, which is why they are so happy to get customers into debt, or screw them with dodgy products, cheat them with fraudulently offered insurance products, gouge them with interest rate swaps or any of the other many forms of downright criminality that they have committed in recent years.

The banking sector in the UK has lost the plot. They do not serve the interests of British industry any longer, they make it damn near impossible to get sensible lending to help small business develop, and when they do lend money to successful businesses, in so many cases they have then cheated their customers by falsely claiming falls in asset values, or a plethora of other lies in order to foreclose on the business and to take the assets over for their own portfolios.

The vast majority of British banking institutions are literally nothing more than money laundering operations for wealthy foreigners who for reasons of their own wish to relocate capital from their own countries and find some nice cosy safe-haven for their money, much of it of very dubious origin.

These banks will help them achieve their ambitions, and they will accept any money under any conditions. They routinely ignore the laws and regulations regarding the need to 'know their customers', they wilfully avoid engaging with any of the most important checks and balances which help identify Politically Exposed Persons, for fear that such information would require them to undertake more expensive regulatory requirements.

Indeed, so brazen are these institutions now that 'regulatory cost' becomes an excuse for not conforming to the law in the first place, and for providing an explanation for the absence of competitive business change!

An article in the Daily Telegraph, a leading City apologist reports;

"... Despite the advent of online banking, this is an industry which has so far remained largely untouched by the disruptive powers of the internet. Most other consumer-facing industries are being turned upside down; but not so banking, where market shares and established names remain stubbornly entrenched. A few new players are being carved by regulatory diktat out of the old, but this is basically no more than rearranging the deckchairs. As Paul Volcker, former chairman of the US Federal Reserve, has observed, there’s been nothing innovative in banking since the invention of the ATM.

One of the main reasons for this absence of change is the cost and demands of regulation, which stand as an almost insurmountable barrier to entry, deterring even goliaths of the internet age, such as Google, Amazon and Facebook, from entering the fray. If they think it not worth the candle, what chance the entrepreneur..?"

Always it is the nonsense talked about the impact of regulation upon innovation. It is almost as if any form of regulatory intervention has to be shouted down and its proponents described as being on a par with drooling imbeciles.

Even Adam Smith recognised the need for financial regulation. One financial blog reports; 

"...Some so-called “free-market” ideologues, who oppose all regulation whatsoever, should recognize, as Smith did (he was no ideologue), that the freedom of the market works best, when protected by laws of justice and when its participants exercise a high degree of prudence in their conduct before they can ruin it for everybody else..."

But still the ranters and free market ideologues continue to downplay the need for financial controls. The Telegraph again;

"...Unfortunately, the politicians haven’t yet got the message. Instead they remain bound by an increasingly oppressive and complex regulatory agenda which doesn’t in truth answer any of the concerns it is meant to address. With just months to go in his role as Europe’s internal market commissioner, the veteran French politician Michel Barnier has begun muttering darkly about “unfinished business”. By this, he means another lorry load of banking regulation, including banning banks from proprietary trading and dealing with hedge funds. It’s just possible he may get his chance. He’s yet to announce formally his candidacy for European Commission president, but it is certainly in his sights..."

The US financial market had the most tightly regulated financial market for 50 years following the Securities Exchange Act 1934. It enabled the US to win World War II and created the environment for the ultimate success of the 'American Dream'. It was badly damaged by the years of greed which followed and the financial ineptitude of Ronald Regan and George W Bush, neither of whom should have been allowed within a million miles of a financial market.

Between them they dismantled a structure that had worked for the protection of the savings of millions of American working and lower class investors, and instead, gave the proceeds to a small group of criminal supporters. The impact of that exercise in wholesale fraud was felt in Europe and the UK as well!

Ed Milliband is right to call for a day of 'reckoning' with the banks. It is vital that the ordinary British people can begin to believe that there literally is a way in which we all share the highs and lows of this era of financial fantasy. It is socially divisive, not to say complicit, to continue to permit this state of affairs where banks and bankers can continue to demand bizarre salaries and bonuses for doing virtually nothing for the benefit of UK and its people, and who simply exist to trouser the proceeds of their vile behaviour, without a thought for the consequences of their dishonesty or their crimes.

I am truly sickened by the rampant greed and the bullying threats that these low-life's exhibit. If you think I am a little hard-edged in my views, well you would be right. I spent too much of my formative years in turn as a Fraud Squad detective and later as a Regulator, and then as a lawyer dealing with City crime, finally as a regulatory consultant, not to have a Baedeker-like knowledge of these people, their dysfunctional moral status and their mafia-like mentality.

We the people of this country own two major banks. We own the bastards because we bailed them out when they were about to collapse, and we propped them up in the belief that we were doing this for the benefit of the UK. We kept a lot of idle, spoiled and grossly overpaid layabouts in work, when by any measure they should have found themselves on the streets, and still, the Government continues to pay heed to their special pleading and their overweening arrogant demands for more and more money.

Well, fuck 'em!

Mr Miliband has said that high street lenders would face a “reckoning” under his Government. He will seek the creation of two new “sizeable” banks to challenge existing high street lending.
By splitting up these errant institutions and creating a more competitive industry, Ed Milliband will do a great deal to create a climate of fairer enterprise and a more just society. Let the whingers whine and bleat, he cannot do any worse than has already been done, and we need to see some real basic common or garden fairness being exercised in the way in which we run our society.

 When the ordinary teacher, health worker, policeman, ambulance driver, fireman or any other person who truly does perform an important and useful socially-valuable service starts to see the bankers being brought to heel, and the worst criminals in their midst being sent to prison, which they richly deserve, then we will begin to feel that we really are all in austerity together.
This has now become a major electoral issue, and David Cameron would do better to recognise it, than by hoping he can win votes with cheap bribes when polling day draws near.

Let me finish with another quote from the Telegraph, never a paper to want to admit any fault on the part of the fat cats!

"...What ought to be the priority of growth has taken second place to the pursuit by posse of the wicked bankers. There are workable alternatives to the present stranglehold of the banks that would both restore market discipline to lending and deposit-taking, and get rid of the “too big to fail” problem. But they are perhaps too revolutionary for current thinking. In any case, almost anything is better than the never-ending drip feed of populist nonsense that passes for today’s financial reform agenda...".

As always, the regulatory model is dismissed as 'populist nonsense'. Such brave words no doubt play well to an audience of bankers and other spivs, but try telling that to the vast majority of decent people whom the banks have failed, defrauded, ripped off, gouged and cruelly damaged, and see if they would not rather prefer a little more regulation and a little less 'laissez faire'!

Monday, January 13, 2014

The Wolf of Wall Street - A modern parable!

Leonardo di Caprio was interviewed by Andrew Marr on Sunday morning about his new film 'The Wolf of Wall Street'.

The story of an ambitious young fraudster who created and set up a major bucket-shop share selling operation, revelling in the advice given to him by one of his mentors in immoral philosophy - "...the name of the game is to move the money from your client's pocket into your pocket..."

Marr raises the issue of the moral message being sent by the film and wonders why it seems to contain no final dénouement for the young con man. He posits that such films normally seek to end on an ethical message that crime does not pay, whereas this film does not, so the audience is left in a moral vacuum. It is as if Marr is a subscriber to the theory that films about financial criminality must never end with the protagonists getting away with the proceeds of their crimes, as this sends a suspect moral message to the audience about the nature of crime, greed and dishonesty. The film must, it seems, become the vehicle for a moral parable, whereby good, truth and justice triumph at the end.

In this film,. it seems, the obverse is true, and in such a representation, di Caprio, very cleverly, identifies the major conundrum at the root of financial regulation in the 21st century in Western capital markets. In the programme, Marr asks him whether his portrayal of the fraudster is authentic because in the end he gets away with his crimes. Di Caprio's answer is prophetic; he says; "...Yes, I believe it is authentic because when you look back, most of the people doing this stuff got paid bonuses..."

I believe that this revisionist view of the financial sector is closer to the truth than many people are willing to admit.

I believe that it has always been thus and it sometimes irritates me a little when I seek to point out the discrepancies between what is accepted wisdom and what is the reality of the case, that I get told by so many main-stream practitioners that I am some kind of disruptive element who doesn't understand the realpolitick of the financial sector.

The traditional view of the financial sector is that those who work within its walls are decent and honest, and that if there are any rotten apples, they are very much a minority and they are quickly weeded out by the good guys!

This is a shibboleth which is maintained by every principle to which the financial sector adheres, but when it is deconstructed, it quickly becomes obvious that it is not true.

I spent many years examining and investigating the activities of (mostly) men who ran criminal organisations from within the City of London, and in every case, they were fully aware of what they were doing.

They operated in the margins between what was acceptable conduct and what was considered to be too risky to permit because it was too obviously criminal.

One man I investigated (an incredibly intelligent guy) ran a retail futures brokerage. His company was a by-word in the City for sharp practice, and he attracted a very wide bad press. 

His clients were always complaining that they had been ripped off by his slick cold-calling sales-team, and yet, when I investigated his actions, I discovered that he was punctilious about informing his clients, right from the start, his business methods and his tactics.

He told them when he would invest their capital, when he would close their positions, how much commission he would charge them, when he would reposition them into another contract, etc.

All was explained before the money changed hands, and all clients signed a full disclosure statement indicating that they understood the tactics, and the methods, and that they were willing to go ahead and allow his traders to do business on their behalf.

He was completely open about what he intended to do, and he did not deviate from his disclosed methods subsequently.

Some of his clients ( a few) made a great deal of money. Most of them lost everything. He became a multi-millionaire.

He was never charged with any criminal offences, because there was no evidence that what he was doing was criminal. Sharp practice, certainly, but fully pre-disclosed.

When I interviewed him, he was quite open about his techniques. He told me how he had started in the City working for a sugar broker as a trainee after leaving Oxford. One day, early in his career, one of the traders on his desk made a small killing ripping off another trader in another house.

He told me; "...I was aghast, I was convinced we would all get the sack when the boss found out. You see, I genuinely accepted all that crap about 'Utmost good faith' and 'My word is my bond' and all that other City bullshit, so I believed I would lose my job and the entire trading desk would be sacked..."

"...As it was, the boss came down and was roaring with laughter and clapping the trader on the back and sending out for Champagne..."

"...The following week, the trader in the other house ripped our desk trader off, in another deal. The boss came down again, roaring with laughter, and sent out for more champagne, except this time he made our desk trader pay for it..."

"...After that I realised that the only rule of the City was to make money, and not to get caught out, so having learned everything they could teach me, I left and started up my own brokerage. I realised that I could make money simply by playing the market mathematics, which were stacked in the favour of the trading house, and as long as I disclosed everything to the client first then I would be covered..."

He was right, of course, and he retired a fabulously wealthy man, but not before the rest of his business milieu grassed him up to the regulators and tried to get an SFO investigation into has activities.

As it was, I was able to turn over to the SFO all my investigations which demonstrated that he was not formally breaking the fraud statutes, and his regulatory agency was later forced to drop most actions against him.

His fellow futures brokers denounced him because while they were engaging in exactly the same dirty tactics as he was, they were not undertaking all his risk-disclosure practices, which meant they were far more criminally exposed, but as long as they all stuck together claiming that as they were all engaged in the same egregious behaviour, it couldn't be dishonest, they were confident that no-one would investigate them.

For me it was a fascinating exercise in double standards and criminogenic behaviour and it was where I began to realise the truth of the work undertaken by the criminologist David Matza. Matza wanted to build upon Edwin Sutherland's theory of Differential Association which states that an individual learns criminal behaviour through (a) techniques of committing crimes and (b) motives, drives, rationalizations, and attitudes which go against law-abiding actions. These techniques reduce the social controls over the delinquent . Neutralization is defined as a technique, which allows the person to rationalize or justify a criminal act.

I am now convinced that the vast bulk of business conducted in the City possesses a quasi-criminogenic capacity, and that by far the majority of the city practitioners are willing and capable of committing criminal offences in return for the vastly inflated values of salaries and bonuses they habitually receive, which is not only how they make the vast profits they do, but is also a marvellous mechanism for keeping them in line, for fear of losing this level of income they could not legitimately earn elsewhere.

This is the problem faced by the politicians, and regulators who oversee the conduct of the financial markets, they are simply unable, but also unwilling to perceive the people they regulate as behaving in a criminal manner. They just will not accept that such is the case, and thus they fail to meet the requisite standards of understanding how to legislate and regulate the Square Mile, and this is why they continually fail to provide the standards and the conditions under which crime will be less likely to be committed.

The harsh reality is that the present regime of politicians who sit on Parliamentary oversight committees are not willing to accept that the financial sector is an organised criminal enterprise, a mafia, which operates by its own rules and mores, and ignores the conventional rules of engagement; while its financial regulators are simply not qualified to understand the nature of the criminals with whom they are called upon to deal, thus rendering themselves incompetent to engage with the vast bulk of the problems associated with City wrong-doing. All the time these people go unpunished, there is no incentive for them to obey the laws.

The American used not to suffer from this failing.

When I was sent to Washington to study with the Securities and Exchange Commission back in 1985, I recall the then head of the Enforcement Division, John Fedders saying to me;

"...You British seem to believe that financial markets can be regulated by gentlemen, in their spare time, in between making deals. You assume that every man who handles another person's money is a gentleman, and you are shocked and horrified when you discover it is not so. Here in America we assume that every man who handles another person's money has the propensity to be a criminal, and we legislate for the likelihood. Until you understand the truth of that reality you will continue to suffer from the kind of scandals that make you a joke. When you are prepared to spend the money necessary to implement a regulatory system that really works, then we will talk to you, but until then, don't waste our time...!"

That was back in the day when the SEC really was a force to be reckoned with and had not had its teeth and claws drawn by successive Administrations under Regan, Clinton and Bush.
Leonard di Caprio's new film seeks to make the case for a recognition that crime does pay, has paid and is still paying. I would make it compulsory viewing for every financial regulator so that they can understand the truth of the market they seek to police. The only problem is that none of them would believe it, so we shall continue to suffer from more and more financial scandals, while the bankers will continue to be paid their bonuses.