Sunday, May 12, 2013

Putting More Bankers Behind Bars

American InJustice

Banking Fraud: Few bankers have been charged, let alone given jail sentences, for their malfeasance and fraud in the 2008 economic meltdown. Some argue that their collective actions were merely incompetence, which is less than comforting thought. As The Economist puts it: “But if locking people up for incompetence goes too far, regulators could still get a lot tougher. Summary justice isn’t desirable. Some justice is.”
Source: The Economist
An article in The Economist says that many American bankers involved in the 2008 financial meltdown have yet to be prosecuted; this is in contrast to what has taken place in a few European nations such as Germany and Iceland.

The Economist writes:
For better or worse, many people would love to see more bankers behind bars for their role in blowing up the West’s financial system. In Britain not one senior banker has faced criminal charges relating to the failure of his institution. A handful have faced the lesser sanction of being barred from running another bank or company, or agreeing in settlements with regulators not to do so. (Policymakers have proposed introducing a “rebuttable presumption” that the directors of a failed bank should be automatically barred from running another unless they could prove they weren’t at fault.)
In America the Federal Deposit Insurance Corporation has filed over 40 lawsuits against officers and directors of failed institutions since 2010; more actions are expected. But prosecutors have brought few criminal charges against high-profile bankers. The American government secured its first crisis-related conviction of a senior banker, a Credit Suisse employee charged with mismarking mortgage-backed securities, only in April; Kareem Serageldin will be sentenced in August.
The prosecutorial coyness of British and American authorities contrasts with the harder-charging approach taken by their predecessors and by authorities elsewhere. During America’s savings-and-loans (S&L) crisis in the 1980s more than 800 bankers were jailed. A decade later directors of Barings, a British bank that was felled by the rogue trader Nick Leeson, were barred from holding directorships despite having no direct connection to his wrongdoing. Other countries, such as Iceland and Germany, have taken a more muscular approach in this crisis (see table).
There might be other reasons that few bankers in America and Britain do not face the threat of prosecution, including a system that favours the wealthy and deep-seated cronyism, where the bankers and politicians are in bed together. There also might be the fear of what might be revealed in a criminal trial. Combined with little resources and little will, it is now unlikely—five years later—that any significant case will be brought against the Wall Street players who gambled and lost.  This is a black mark on the justice system.

And yet, the American justice system spends considerable resources on prosecuting drug crimes, an easier target which has little effect on public safety and morals. Petty criminals do not have the resources and political connections that the Wall Street barons do. Even so, the public is well-aware of the malfeasance and fraud committed by such individuals; I do not agree that it was collective incompetence on their part; it was and is a pathological way of operating, similar to the way professional gamblers think and act. (see Jeffrey Sachs interview here.)  Forget the well-tailored suits and glib talk.; behind these lies a criminal mind.

Whether or not such individuals face prosecution, and every one of them ought to, might now matter less than the fact that they have been found guilty in the court of public opinion.

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You can read the rest of the article at [The Economist]

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