What would it take to get the candy-ass prosecutors in the Department of Justice to indict banksters? We already knew that securities fraud wasn’t sufficient, but that got reinforced today with news that a hedge fund operator got off with civil case for taking money from the fund to pay his taxes and for manipulating the price of stocks and bonds. Phillip Falcone is facing a civil suit instead of leg shackles.
Also today we learn that manipulating LIBOR isn’t a crime. Barclays Bank paid $450 million to settle charges that it deliberately manipulated the bench-mark interest rate used to establish how much people pay on $350 billion worth of credit cards, student loans and mortgages. It’s also good news for other banksters who haven’t even been sued, like HSBC, Citigroup, JPMorgan Chase and other firms that are being looked at by regulators around the world.
Apparently the manipulation ran both ways, to increase the rate artificially for direct profit, and to reflect a lower rate to hide the fact that other banks were charging Barclays more than other banks because of its perceived weakness. Still, it’s hard to see a connection between a $450 million fine and the massive profits that could come by increasing LIBOR even fractionally. If LIBOR were .1% higher on $350 billion of debt, that comes to $350 million per year. The fraud went on for at least 4 years, which in my example means $1.4 billion in profits, all going directly to the bottom line.
Perhaps it will help to know that four executives gave up their bonuses. No? Me neither.
Joe Nocera points out that none of the banks that enabled Bernie Madoff’s Ponzi Scheme had to give back a nickel, despite the fact that they knew or should have known that he was a fraud. This bizarre outcome is the result of an old decision that the Bankruptcy Trustee for a cheating debtor is the same person as the debtor. The courts apply another old common law rule that a thief cannot sue a thief, or as we lawyers say, the Bankruptcy Trustee is in pari delicto with the thieving banks. Nocera thinks this is just fine: judges following the law. A good judge would ignore those old cases and follow the rule in state court receiverships that receivers appointed in state court proceedings aren’t in pari delicto, they are the agents of the state created to enforce the rights of the victims of crimes. That won’t happen, of course, SCOTUS would overrule that per curiam, 5-4, on the grounds that Banksters must be allowed to allocate capital to themselves no matter what.
J. Ezra Merkin was accused of lying to his hedge fund clients by charging them hundreds of millions in management fees for giving their money to Madoff. Good to know that isn’t a crime, especially because there may have been other people who did the same thing.
We know that stealing billions of customer assets from MF Global’s commodity brokerage clients is just the result of confusion and carelessness in the back office. And, now we know it was partly the use of a little-know rule that establishes an alternative method for calculating customer assets held in overseas accounts. As the New York Times explains:
The alternative calculation almost always resulted in a lower amount — sometimes much lower — that needed to be segregated in foreign accounts, because it covered only options and futures. Cash and securities held in customer accounts didn’t count. So if a customer held only cash and securities, the firm had no segregation requirement at all.
Now we know that not only is this not a crime, we can’t know the four other commodity brokerage firms who calculate customer balances using the MF Global loophole. It’s apparently enough to know someone is taking care of your money so you don’t have to worry.
The only people who have to worry about the federal government prosecutors are insider traders trying to steal a few million bucks. It’s disgusting.