Updates on banking fiascos
A few articles that have caught my eye on varied aspects of the overall range of banking fiascos in play:
4/14 – New York Times – How Regulators Mess With Bankers’ Minds, and Why That’s Good – News the previous week was that many of the huge banks failed their ‘living will’ test. Each bank that is labeled as having ‘systemic risk’ must submit for approval a plan on how they would wind down in the event of failure. The purpose is to show they would not take down the entire financial system.
This article points out the banks were not told what their living will should contain or what it should look like.
As an expected result, likely intentional, the banks’ plans failed the test. When you don’t know how the test will be scored, or even what will be on the test, you are unlikely to pass. Sort of like having to turn in a term paper without know what topic the professor will select.
Again, this article thinks it is wonderful that the banks are evaluated on criteria that are not disclosed to them.
If I understand the author correctly, the serious problem is that having regulations that bankers can understand will mean that they arrange their financial structure, policies, and procedures to comply with the regulations. I am sensing it is a valuable thing to disclose the required rules after a compliance audit is finished because will improve compliance with the undisclosed, unknown rules.
Let’s do a thought exercise. How about we disclose the new libel laws in effect after the author appears in court to defend himself from a libel suit?
4/16 – Phil Angelides at The Sacramento Bee – No consequences, no justice in Goldman Sachs settlement – Author’s tally is the $5B fine against Goldman Sachs brings the total penalties for the mortgage issues against 18 major financial firms to over $18B.
The visible perspective of Mr. Angelides is that the private sector is the only possible source of blame for all the financial problems arising from the Great Recession.
Purpose of article is to point out those penalties have been paid by stockholders. There have been zero prosecutions of individuals at the level of big firms.
There is one fascinating bit of trivia in the article that I have not seen before:
The DoJ has prosecuted over 2,700 individuals who were part of the meltdown. Those would be borrowers, appraisers, and mortgage brokers.
My first hint that little players were pursued came in an interview with Scott London in which he said he met many people in prison who were there because of small-scale issues in the mortgage crisis.
I will circle back later to the whole issue of how widely the blame should be spread for the Great Recession. Short version: there is a tremendous amount of blame to spread with a host of players each of whom deserves a generous helping of blame while not all the responsible parties have received anything approaching their fair share of attention.
Small fry seem to have gotten their fair share of attention from the feds.
5/3 – Reuters – Seven big banks settle U.S. rate-rigging lawsuit for $324 million – These are private lawsuits, not efforts of the feds.
Seven banks settled up for between 30M (Barclays) and 52M (JPMorgan) each. Article says settlements have not been reached with five.
My notes show only one bank, Barclays, has reached a settlement with any government. That was for $115M with the U.S. CFTC.
This set of suits was over the ISDAfix index. This is a trivial issue compared to the other topics.
My calcs on settlements thusfar:
- $445M – ISFAfix
- $9,049M – Libor
- $12,372M – Forex
- $16,455M – money laundering
Those 4 issues have burned up over $38 billion, with a b, of stockholder equity.
5/23 – Wall Street Journal – Civil Antitrust Lawsuits Reinstated Against 16 Banks in Libor Case – A federal trial judge ruled out the anti-trust claims of a lawsuit against 16 major banks. The appeals court has ruled that claim back into the case. Presumably that part of the claim will proceed with the rest of the claims towards trial. My guess is a trial is years away.