Friday, May 10, 2013

The BBC's Program "Bankers - Fixing The System"



BBC 2 showed an important documentary on 8th May 2013. Entitled "...Bankers - Fixing The System..." they set out to analyse the recent failings in the financial sector, and they focused their attention on the scandals surrounding the LIBOR criminality.

Like so many journalistic essays, the makers seemed to feel that they had to look for a moment of focus, a specific image or element in time, which could give special emphasis to their programme, a pivotal moment which would coalesce all their research, and they chose the LIBOR manipulations. 

In a way, this was, in my view, a mistake, because it tended to give an undue emphasis on the LIBOR criminality, instead of seeing the LIBOR machinations as yet just another crime in a long line of organised criminal activities, another milestone on a long and dishonourable road of criminality and wrongdoing.

In so doing, it tended to gloss over all the other scams and crimes which have been committed, the thefts, the PPI frauds, the money laundering, the drug trafficking, the tax evasion, as well as the vast volume of insider dealing, front running and general market manipulation, to say nothing of the more mundane actions of a host of criminals who have abused their clients' affairs, stolen their assets, and generally behaved like a bunch of scavenging mercenaries.

I believe that the idea that the financial sector is little more than an organised criminal enterprise run by a group of mafia elites is an idea whose time has come. It is no longer unusual to hear the City of London or Wall Street referred to as criminal enterprises, indeed Professor Jeffrey Sachs, one of America's leading commentators on financial crime in the suites, in a recent interview -

(which you can watch at http://www.youtube.com/watch?v=ovPefDfJDao,)  

has described Wall Street as engaging in a "...mountain of criminal behaviour..." He identifies that where we used to talk about 'bubbles or mistakes', we are now looking at "...criminal fraud operating in an essentially lawless environment..."

This is the case I carefully made to the Treasury Banking Commission in my submission, the submission which was so scrupulously suppressed and covered up by the Civil Servants on the Committee, because they thought that my words about organised criminality would offend the banks!

This is the reason I believe why the BBC focused on LIBOR and its attendant criminality, to enable them to concentrate their attention merely on Bob Diamond, and in so doing to use him as a leitmotif for all the wrongs that have taken place in the financial sector.

To do this was, again in my opinion, to make a mistake and to miss a bigger trick, because my real fear is that the BBC didn't have the moral courage to go after the rest of the guilty men, many of whom are pillars of the British Establishment. Some of them appeared in the program, either as stills or as talking heads, but they were not made to look anywhere like as complicit as they are in the whole farrago, and they should be pilloried for their complacency and their arrogance, and some of them should be prosecuted for their crimes. If anything, they used the programme as a backdrop against which to parade Diamond, rather like some ghastly identification parade, except that he was the only suspect!

Please don't get me wrong, I hold no candle for Bob Diamond, except to say that as far as I know he never ever pretended to be anything he wasn't, which was an arrogant investment banker who had grown up in the school of aggressive banking in New York and who believed that his destiny was to make as much money as possible for both himself and those entities who relied on him.

Some may say 'And what's wrong with that?' and I would have to reply that in an era that knows the price of everything and the value of nothing, there is little wrong with that philosophy. My concern was not that he wanted to make money, but how he made it, and the culture he inculcated inside Barclays, which was to put aggressive, short-term profit-taking above everything else, until in the end, they were resorting to committing big crimes.

However, this is to get off the bigger point.

What the program did very well was to demonstrate precisely how the City of London, and the outdated and moribund bunch of hypocrites, toadies and lickspittles who run the place, are long past their sell-by date, and instead, preside over an organisation which is no longer fit for the purpose it once purported to provide.

All the emphasis that is placed upon the medieval traditions has very little other than historical significance any more. However, it is these very traditions and ceremonies and rituals that are preventing the modern City from fully engaging with the needs of the rest of the UK in the 21st Century.

The City really exists, indeed, it has always existed to serve the financial interests of a small group of carefully-selected elites who make use of its dubious services, whether in the banking sector, the law, accounting or consulting, to enrich themselves far beyond the dreams of avarice. We should not be surprised, after all, people go into the City with the sole aim of making a great deal of money for themselves. How they do it is not our concern, they would say, and it has been like that since its inception. 

They are not a group of people contributing to good causes, and they don't exist to serve the interests of UK plc. They perpetuate a continuation of a long list of (mostly) men from upper-middle class backgrounds, all of whom treat the City and its traditions as a private club, which they all believe is a perfectly normal basis for running a modern, trillion pound, global business facility. Along the way, they might be willing to spin off a bit of cash to the Exchequer, a sort of bribe to keep Government sweet, the trade-off being that Government keeps its nose out of their real affairs and doesn't intervene when things get a bit rough! But make no mistake, the City owes its allegiances to the Square Mile first, and everything else comes a long way behind! Like the BBC program says; "...The City of London is another country...They do things differently here..." 

But when something like LIBOR occurs, they express huge surprise. They draw their wagons into a circle and gravely opine that 'banks need to change their values' or 'the industry needs a lot of fixing'. Marcus Agius, of Barclays talks about feeling 'sick to his stomach' when he heard the details of what his traders were doing to rig LIBOR! Perhaps he should have been forced to listen to some of the tape recorded conversations these people had with each other, because they would have educated him beyond belief as to the kind of moral vacuum these bottom-dwelling creatures inhabit! It never once occurs to these patricians that the problems they are now facing is as a result of their own culture and their sense of smug self-satisfaction.

When talking about the LIBOR market, one commentator said; '...No-one thought it would need to be regulated...' Another observed; '...It was taken for granted that banks would submit honest estimates and they don't collude...'

This of course explains why they were content to allow the LIBOR rate-setting mechanism to be loosely overseen (never call it regulated) by the British Bankers' Association. This Trade Association found itself responsible for the administration of one of the most important global interest-rate setting facilities, but they damn-near burst a blood vessel on the programme to deny that they had any regulatory responsibility for the supervision of the mechanism! "...We are not there to police it..."

This all brought back to me the observations of John Fedders, the former Director of Enforcement of the Securities and Exchange Commission when I was studying there back in 1983. 

The UK Government had published their White Paper which would later become the basis of the Financial Services Act 1986. John had read this carefully and he said to me;

"...You British believe that any man who handles another man's money is a gentleman, and you are shocked and horrified when you discover that it isn't so. We Americans assume that any man who handles another man's money has the propensity to be a thief, and we legislate for the possibility..."

What finally nearly lost it for me and brought the tears to my eyes was when some City apparatchik, filmed against the background of a dealing room, pompously intoned that he had come into the City operating on the sole basis that 'My word is my bond', as if that settled everything you needed to know!

This motto of the Stock Exchange, "dictum meum pactum" dates back to the days when no details of any trade were written down. Why were they not recorded? Well, after the South Sea Bubble in 1720, Parliament enacted a law which outlawed the short-selling of stock. 'Naked' shorts, or speculators without stock in the company had been short selling the shares, in an attempt to manipulate the price of the stock, and this had been a significant influence in the destabilising of the market, leading to the ultimate crash!

Of course, the fact that Parliament had passed a law did not alter anything, and the City wide-boys carried on shorting stock as before, except that now, they could not record their dealings because to do so would have been proof positive that they were committing a criminal offence. So they had to trust each other's word on each deal they undertook, and the phrase grew from those times.

So, a motto which is supposed to be representative of utmost trust and honour, is nothing more than a criminals' charter!

One group of practitioners who evinced more than their fair share of surprise and shock at events were Lord Turner, former Chair of the FSA and his sidekick, Tracy McDermott, Head of Enforcement of the new FCA.

It has always seemed remarkable to me how people who have held down significant positions of importance in a former quasi-governmental agency which has attracted the level of criticism and public opprobrium that has been heaped upon the FSA for its failures, can continue to operate in the same roles within the new enforcement agency, all as if nothing has happened. 

I have no animus towards anyone in the former FSA except to observe that I believe that an awful lot of their problems stemmed from the fact that they just simply did not know what they were doing, and particularly so when it came to engaging with criminal wrong-doing. And I question whether they know any more now?

This is not their fault, they do not have this experience, and they were never given the training nor the qualified staff with which to deal with this problem. Lord Turner himself admitted to the Parliamentary Commission on Banking that he didn't have a clue as to how his Enforcement Division were trained, what areas of training they received, indeed, he wasn't even sure how many staff dealing with money laundering he really had. When Lord Lawson suggested they might benefit from receiving some training in the techniques and tactics of major frauds and scams of previous years, Lord Turner thought this would be an awfully good idea!

This man has absolutely no shame! He appears on the program and talks about his sense of incredulity at the various shenanigans being perpetrated by the LIBOR traders. He was the head of the statutory lead regulator, he had no right to be surprised, and if he had possessed any experience at all in dealing with financial criminals, he would have been on top of this problem months before. But he doesn't and he wasn't!

The Americans were on top of it though. The head of the CFTC, Gary Genster had been reading reports about LIBOR in the Financial Times and the Wall Street Journal, presumably these articles were available to the FSA and the Bank of England! He called in his head of enforcement, Steve Ovey, and asked him if it was something the CFTC should have been concerned about. Ovey's response was typical of US regulators; "...Good news, boss, we are already looking at it..!"

So it's not as if the Bank and the FSA were not fully aware of the likelihood of the problem, because they had already been alerted by the US Commodity Futures Trading Commission. In a memo sent in May 2008, the CFTC alerted the Bank, and the FSA that there was something of great concern going on in LIBOR. Even then, the inexperienced and naive Brits failed to act.

Tracey McDermott talks glibly about how they had "...heard rumours that there was something going on in the market, but that there were explanations provided which did not lead you to the conclusion of a deliberate attempt to manipulate..."

Someone with a background in criminal investigation would have acted on the CFTC memo, even if they were not already in the frame already, but no-one moved in the UK. Whether this was just complacency, or the more usual British tendency to stick one's official head in the sand and hope the problem would go away, is hard to say. The British have an in-built propensity to avoid publicising scandal wherever possible.

So, what does the program tell us?

It should, if anyone with ears to hear was listening have sounded huge alarm bells in Whitehall that this Square Mile cannot go on performing in the way it does, because it now means we have a criminally diseased and corrupted financial edifice at the heart of our body politic. It is not serving the interests of the country well, it is creating fiat money which is really destabilising the economy, driving inequality and exacerbating poverty, undermining democracy and pulling power from the margins into itself, while creating false social values in housing, commodities, and manipulating interest rates. Have a look at http://www.positivemoney.org.uk/2012/04/how-does-current-banking-system-affect-you-new-video/ .

I shall continue to assert that the City is a criminal enterprise until someone, somewhere is willing to do something to start bringing these crooks to heel by prosecuting them for their crimes.

As an aside, I was delighted to see the Police turning over a boiler room operation this week and arresting con-men who are scamming pensioners out of their pension funds, in an investment offer! Whether the FCA even knew anything about this is open to debate, but it is good that swift action has been taken by real policemen!

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