more lawless bankers. tis the season

Wells Fargo's brokerage firm has agreed to pay $6.58 million to settle federal civil charges that it failed to adequately inform investors about the risks tied to mortgage securities it sold.

http://www.csmonitor.com/Business/Latest-News-Wires/2012/0815/Wells-Fargo-settlement-for-risky-investments-6.6-million

Peanuts compared to other shills, but yet more unprosecuted fraud gets 'settled'.

Banks are on a roll... go banks go

@JohnAskew: civil charges, my,.. my,..

http://news.yahoo.com/bristol-goes-rogue-british-city-launches-own-currency-093913903.html

As Britain loses faith in its banks and feels shockwaves from the euro crisis, one city is trying to keep local wealth in local pockets with the launch of its own currency.

The Bristol pound...

"The perception of banking and money is that it's a very ruthless system: people are out for what they can get," co-founder Ciaran Mundy told AFP.

"This is about saying yes to something new. It's tapping into a different set of values about money."

The scheme has "captured people's imaginations", he added, in a recession-hit year when British banks have been beset by scandals and ministers talked openly of a possible euro collapse.

Wow. I've never heard of local currencies, but I like the reason for taking action well enough...

His model is the Chiemgauer, a German complementary currency of which millions of euros' worth is traded yearly.

Online database complementarycurrency.org lists more than 225 such minority currencies worldwide, of which 102 are in Europe.

Fascinating...

"If we're not doing a good job they won't use the system. Consumers will decide."

Is this a way to re-introduce the vaunted mythical "free market" that causes conservatives' knees to flex involuntarily?

@JohnAskew:

The problem with currency in general is that it doesn't hold any intrinsic value - it's a "promissory note" that the note can be changed into something of a particular value backed up by a sovereign bank (such as the Bank of England) and laws that make it illegal for traders to refuse sovereign currency as a form of payment.

The problem of local currencies is that they have neither. If you buy 20 "bristol pounds" (costing 20 british pounds) and nobody takes your cash in bristol or elsewhere, you've just got some bits of paper. The bank of england won't accept them, and traders aren't obliged to exchange them for goods.

The fact that bristol pounds are therefore more restrictive and higher risk than british pounds means that (in economic terms) they are less valuable - since converting your british pounds into bristol pounds adds risk to your portfolio.

What this ultimately means is that people trading in bristol pounds are getting a worse deal, unless items priced in bristol pounds are priced lower - in which case traders are getting a doubly bad deal (they get bristol pounds and fewer of them).

Lots of local currencies exist, but all of them are just drops in the ocean compared with real currency because nobody really wants to use them because they're not backed by the guarantees that real currency is, and are therefore less useful to the consumer.

http://edition.cnn.com/2012/08/16/opinion/banks-too-big-to-prosecute/index.html?eref=edition

Fines levied in the last few years for violating sanctions against trading with Iran:

Standard Chartered Bank = $340M, Lloyds Bank = $350M, Credit Suisse = $536M, ABN Amro = $500M, Barclays = $298M, ING = $619M.

No bank official has been criminally prosecuted and punished. [Though] they violated numerous federal laws, including the International Emergency Economic Powers Act, and the wire fraud, bank fraud, money laundering, and RICO statutes.

Why aren't bank officials being held criminally accountable? Perhaps cases such as these are too expensive, time-consuming and difficult to prove for prosecutors. Or maybe the reason we're not seeing mass indictments of senior bank officials has to do with a fear that such action could result in the target bank suffering devastating economic losses, which would be passed on to innocent shareholders.
 
Does this mean that the potential economic consequences resulting from criminal action could make certain banks "too big to prosecute"? Could criminal prosecution of senior bank officials result in the ultimate collapse of the bank?

We are held hostage by these institutions and the persons who run them. They flaunt their contempt for the law by actually planning for fines as a cost of doing business with Iran and Cuba and other sanctioned trading partners.

Who else gets a free pass?

@JohnAskew: well obviously we dont, coz we have to pay for all those fines.

@JohnAskew: I agree with you about a mythical free market. However, the countries that are trying to get closer to a free market system are creating some of the best economies in the world:

http://fullcomment.nationalpost.com/2012/08/17/pierre-poilievre-escaping-big-government-in-order-to-escape-the-recession/

http://edition.cnn.com/2012/08/18/business/money-libor-report/index.html

The report said the source of the scandal was a "deeply flawed culture" by Barclays and not just actions "small group of rogue traders."

"There was something deeply wrong with the culture of Barclays. Such behavior would only be possible if the management of the bank turned a blind eye to the culture of the trading floor," the report said.

The report regarded Barclays" "incentives and control systems" as "so defective" that they served to reward traders themselves, not matter what "the impact of shareholders and the bank's overall performance" would be.

Entitlements.

Bankers and traders' culture is one entitled to profit. No law can stop them.

16 hours ago, JohnAskew wrote

No law can stop them.

Hang on to your hat; I agree with you!

Ask yourself this, why do they care only about profit?

Is it really it's rotten culture?

No doubt, but how did this rotten culture came to be?

In a market, you as a bank, have three sets of people to serve;

1. Employees
2. Owners
3. Customers

Right now, the incentive of the bank is to provide value for group 1 and 2. More profit for bank, more wage for employees, higher market value for the bank's owners; group 1 and 2 happy. Group 3, as you clearly demonstrated in this thread, is just a source of money, to be plundered when things go good and to be plundered when things go bad (in the role of taxpayers).

Somebody has to pay for the higher wages and stock rating, it can only be people from group 1, 2 and 3. So we can see group 1 and 2 benefit at the expense of group 3.

Now why is this?

Why shouldnt the bank want to care for it's customers?

After all, no customers, no money, no bank,..

It's the government (law), by providing a safety nets and the guarantee of bailouts.

As stated earlyer in this thread, those systems are supposed to be for our benefit, but the facts clearly show they work against us. The systems took the customer out of the equation, they took away our voice.

So the bank looks after the people that have the biggest voice, group 1 and 2.

The solution is to ease government off, not to increase it. Increasing it, will only give us less control, as paying customer.

And all this nonsense about too big to fail is marketing created by banks.

Not bursting bubbles, but inflating them further, is only going to make the pain greater. Markets should fail, it's part of their design. You win some, you lose some. From the ashes a more healthy market will arise, when that fails an even more healthy market will take it's place,..... etc etc

some more great reading material for you;

http://georgereismansblog.blogspot.nl/2008/10/myth-that-laissez-faire-is-responsible.html

watch the full two hours;

Put fingers in your ears from time to time,.. Some of these 99%-ers are..... weird.....

I hold no contempt for the common man.

3 hours ago, JohnAskew wrote

I hold no contempt for the common man.

Then why call him that? I kid, I kid,.

But I dont know what you mean by that,..

16 hours ago, Maddus Mattus wrote

It's the government (law), by providing a safety nets and the guarantee of bailouts.

Rather than asking the question "were the bailouts justified", which is an interesting question, but probably one for the history books because the bailouts happened regardless of whether you wanted them or not, a much better question is "how can be make sure that we never bailout banks again".

I think the most important observation here is that savings and current accounts are immensely important in the modern world:

1)  They provide an electronic payment system reducing the need to physically transport currency e.g. from your employer to you, or from company X to company Y.

2) They provide a convenient way for the government to do data-analysis to look for tax-evasion and money-laundering, helping to tackle crime.

3) They provide a safe place to keep money, centralising the physical security needed to look after currency, and reducing the risk of burglary/mugging etc against ordinary citizens.

4) They provide a mechanism by which your idle money can be reinvested in the wider economy, encouraging growth (e.g. by lending the $1000 in your account as part of a $50000 loan to a small business)

The reason I'm bringing this up, is that it is:

A) In the interests of individuals to hold their money in a bank - even if the bank offers no interest on those savings.

B) Accruing interest - i.e. getting a high ROI on a savings account is a minor consideration for people getting a bank account. This can be seen by how rarely people move banks and the fact that most savings accounts are currently less than inflation. People that care about ROI typically get real investments rather than leave their money in a savings/current account.

C) It is much better for economic growth if people store their money in current and savings accounts than to store it at home as cash.

D) Most people would consider a minor risk of their savings vanishing - even if their savings are relatively small - as a deal breaker with most banks. This can be seen by the large number of people who don't invest anything at all, and by the queues around the block when a run-on-the-bank happens.

Now we come to the fun part - how do we avoid ever paying another bailout - i.e. how do we make banks accountable for their own business mistakes going forward (let's ignore the current bailout for now) so that if they gamble and lose, they go out of business.

Well, we have a few options:

1) We can tell customers that their savings are at risk. This is the pure-capitalist approach, but it will lead to large numbers of people opting out of using savings accounts at all, since a 0.1% interest rate doesn't look very attractive if it's coupled with a 0.5% risk of losing all your savings in a given year.

2) We can make it illegal for banks to put savings at risk - but this negates (4) above.

3) We can force banks to pay insurance on all savings to another private firm - but then we're just transferring the risk to insurance companies, who are typically backed by big banks (so you end up with incestuous insurance). 

4) We can force banks to pay insurance on all savings to the government in return for underwriting the savings - but this encourages the bank to obfuscate their risk and run rings round the government. It also makes the rate of insurance more a decision of politics than of risk.

5) We can try and force banks to take less risk overall (i.e. improve capital-asset to risk ratios) - but this reduces the amount of lending that happens in the short term as banks build up their capital ratios rather than lending out to small businesses.

You get to choose one of these five options, but none of them are all that great - but your suggestion of (1) is probably the worst option, since it would immediately lead to a run on the banks, leading to a total collapse of most lending institutions, leading to massive closures of businesses.

The government is currently opting for something between suggestion (4) and suggestion (5) by imposing higher banking taxes and introducing new banking regulations respectively.

I'm actually a reverse Maddus, I think nationalizing the entire banking system is the best idea. 

There is not really much a "free market" in banking actually offers. In fact, the free market encourages banks to take risks in lending to make a quick buck and hurt the country in the long term. This will not go away. Giving away money is how banks make money. It is core to their business model. The thing is, the effects of giving away money irresponsibly are delayed. But who cares about that. They have every interest in giving as much money away as possible even if will blow up in their (already retired) faces 10-20 years later.

And the system is already quazi-nationalized at least in the important parts (in the USA), eg. rules and regulations from a variety of different government agencies like HUD, FDIC, Federal Reserve, and more. Banks got the government all in their business for quite some time. Despite cries of deregulation, one of the most regulated industries short of maybe the nuclear power plant industry.

Basically just kill the * thing and replace it with a series of small shell scripts. With credit reports and software that determines credit worthiness and electronic transfers/online, computers have been handling most of the hard stuff already. Just open source the algorithms, put everything online, and nationalize it all and I think we'd have a much better situation today.

2 minutes ago, Bass wrote

I'm actually a reverse Maddus, I think nationalizing the entire banking system is the best idea. 

To me, it seems obvious. Decide what your end-goal is (not what the symptom is), and then tax-incentivise it. Then let capitalism drive towards the best (i.e. cheapest) way to achieve your end-goal rather than legislating how it must occur.

In this case, the problem is that savings and current accounts will always need to be underwritten by the government in some form or another, because society depends too much on normal people (i.e. the 99 percent that Maddus rightly notes are a largely simple folk many of whom aren't all that great at thinking) not being terrified of putting their spare pennies in banks.

For this reason, if I were in charge, I'd compel banks to insure their savings deposits through the government, so that at least the government gets a return on it's inevitable need to absorb some of the risk of the savings vanishing, rather than the status quo of underwriting an arbitrary amount of it (£50,000 per account) but getting no reward for absorbing the bank's risk to the tune of £50,000 per account.

Then, I'd basically charge them linearly proportional to the total amount of money that I'm underwriting (i.e. banks with lots of savings that would need a big bailout if they go titsup should pay more) and exponentially proportional to government's view of the in-year risk of those assets.

If you do that, suddenly banks see that putting savings at risk is expensive, and would find ways of de-risking the savings that they're having to hold. Investment banks would then naturally separate from retail banks because savings accounts would become a burden to investment banks, and retail banks would buy the savings accounts because the savings accounts hold less risk for them, and hence they'd pay a lower fee.

The great thing about this is that, so long as the government judges the charged-risk at or above the actual risk and punished obfuscated transactions by judging them to be exceptionally risk (and hence expensive), then capitalism just sorts out the rest. You end up with savings naturally migrating to institutions that are by definition less likely to need a bailout in future, and you end up with high-profit high-risk institutions needing less bailout when they go bust because they hold fewer underwritten savings. And finally, you end up with the extra risk getting passed down to the individual saver, who can then either choose to have an account like now, with say 0.1% interest and and 0.5% risk of default with Golden Investments PLC, or an account with Standard Banking Ltd with a rate of -0.3% with a 0% risk of losing them - and let the customers decide their own risk profile.

That way when Golden Investments PLC makes a dumb investment decision and their savings vanish, the customers can't say the government didn't warn them, and no bailout of those savings is needed, and when Standard Banking Ltd goes bust and their savers get bailed out, everyone can nod their head and agree that it's only fair since SB were paying insurance to the government, weren't engaging in risky activities and their customers got their money back, but frankly weren't getting that great a deal on their interest over the years, so it all seems a bit fairer.

@Bass:

Unfortunately government also has its own list of disadvantages. And it doesn't stop congressmen removing safety net from the government bank as well.

@magicalclick:

That's true, government has its own problems. But those problems are caused by the humans that run the government. Humans are greedy, self-serving, and lazy. And government employment seems to amplify these qualities for some reason.

The more decision authority you take away from humanity and the more you put into deterministic algorithms, the better. So I don't think it's good enough to say "here government, have total control over banking and do whatever the * you want", but rather, "here government, put _this specific_, peer reviewed software system in place to replace large portions of the banking industry".

Banking is one of those things that you don't need a ton of humans running around doing stuff. You need a place to CRUD operations (with simple business rules) on some Number types in a computer system (also known as currency).

The most complex business rule is determining credit worthiness, but that's been done with computers for god knows how long. If the computer likes you enough, you can get a $50k/$0 down car loan and walk out with the car in 15 minutes. I promise you no human was inspecting your chest hair to decide the chances of paying it back. It's all plugged into some magical probability formula and out comes out "here is $50k bruh" or "fu, go away".

So really, what the * is the point of the bank here? To be some kind of gatekeeper hangeron to a computer program?