Exposed: The Disaster Bankers Buying Their Way Out of Justice

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According to the National Audit Office, The UK National Debt rose by £1.5trn as a result of the Bank Bailout. This is twice the nation’s total annual budget.  For this amount, the UK could have funded the health service (£106.7bn a year) for fourteen years , the entire education system for forty years (£42bn a year) or over three hundred years of Job Seekers Allowance (£4.9bn a year).  Not a single banker has gone to court, let alone to jail.  Instead bankers are being let off with fines and the removal of honours, effectively buying their way out of justice.

Bailout Revisited

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Despite current propaganda that the national debt and the ensuing austerity policies are required to roll back excesses in public spending, the reality is the Financial Crisis was caused by the unregulated financial services sector.

There was collusion between government and the financial services industry, to avoid proper regulation of financial services in general, and the derivatives market in particular. There was intense lobbying in the US and the UK to maintain this position, with senior government figures on both sides of the Atlantic stepping in directly to prevent the Commodity Futures Trading Commission (in the US) and the Financial Services Authority in the UK, from ever coming close to putting the appropriate safeguards in place around these products.

This left banks, brokers and insurance companies free to mount the biggest assault on fiscal logic known to man. They started to rapidly expand their theoretical balance sheets by leveraging debt to almost infinite ratios.

High Street Banks and Mortgage Providers, credit card companies and other debt merchants chased the custom of individuals with little or no regard for their ability to pay back the loans. They did this to sell on to Investment Banks as Collateral Debt Obligations.

This product was then, with the support of the Cartel’s gatekeeper, the Credit Ratings Agencies, declared Triple A for its credit worthiness; the same as a government bond.

The banks then took these investment products and sold them to unknowing pension companies who bought them on the basis that they were now deemed perfectly safe.

The same banks then insured for the very product they sold the pension firm going toxic. These are called Credit Default Swaps (CDS). There was no limit on who could set up these CDS’s either. So, banks could place greater risk into the market by betting not only on their own toxic sell offs, but those of other banks.

At every point of these exchanges, significant fees are being handed over, generating paper profits, making balance sheets look amazingly positive, with no actual product or service underpinning them.

Finally, in 2007 all those little over leveraged consumers around the world started to find it impossible to repay their loans.  As CDS claims went in the insurers couldn’t cope with the financial hit and started to fold, the brokers balance sheets couldn’t handle the hit and started to fold, and the high street banks, unable to claim from broker, bank or insurer started to fold.

However, instead of these corporations collapsing, this extraordinary mountain of toxic private debt was transferred into public debt by the Bank Bailout.

What Happened to the Bankers Responsible?

Most of the individual traders responsible for the crash are still at work trading in the same dodgy derivatives that created the crisis.  The derivatives market is still unregulated and continues to accumulate a further pile of toxic debt which will one day implode again, currently standing at $700trn. This is nearly ten times the annual earning power of the entire planet ($79trn).

But beyond the individual traders are the leaders of the Banks, the people responsible for the strategy and the system of reward for unacceptable risk taking and greed.  Did they at least face culpability for their crimes?

Goldman Sachs – Hank Paulson

DB3Goldman Sachs played a key role in the crisis, making huge profits in the derivatives trades which busted the global financial system.  The CEO at the time of this egregious behaviour was one Hank Paulson.  Mr Paulson oversaw the sale of dodgy derivatives to pension firms, local governments and other misinformed investors.  The bank also, appearing to foresee the crisis, sold more than $3bn in CDOs in the first half of 2006, immediately betting against them.  That same year, Paulson left to become Treasury Secretary of the US and in doing so was able to sell his Goldman shares without paying Capital Gains tax.  He made $485m.  If he had held onto the stocks, they would have been worth just $278m.  In his new position, Paulson was also able to lead meetings with world leaders and become the chief architect of the taxpayer funded bailout of the crash he created.

Paulson now sits on a personal fortune estimated at over $700m, is a senior fellow in University of California’s Harris School of Public Policy and still an opinion former on the economics world stage.

Goldman Sachs dished out £8.3bn in bonuses in 2012/13, working out at an average £250k a year for each employee.  This is higher than the pre crash bonus pool in 2007.

RBS – Fred Goodwin

RBS_07_from_DanJones.jpgOn 7th October 2008, The Royal Bank of Scotland,  the world’s largest bank (measured by assets), failed.  The UK government made the choice to inject £45.5 billion of public money into the Bank to avoid total collapse.

The FSA report into the collapse blamed the bank’s failure on “underlying deficiencies in RBS management governance and culture which made it prone to make poor decisions”.

The RBS story has to be read to be believed.  It is simply a litany of greed stimulated dodgy trades to maximise short term profits at the expense of bank employees and the taxpayer.

For his role in the scandal, CEO Fred Goodwin was stripped of his Knighthood, got a few weeks bad press and saw his annual RBS pension reduced from £650k a year to £342,500 a year.  RBS employees who saw their pensions and share savings wiped out by the bank failure, could be left with as little as the basic state pension of £5,727 a year.

Hopes that RBS has turned a corner are also premature.  Since the crisis the Bank has also been found guilty of manipulating the LIBOR rate and fined £390m and is facing an investigation for incompetence over IT failures which saw customers unable to make payments or use cash machines.

HBOS – James Crosby

james crosby hbosWay back in January of 2004, the FSA and the HBOS Board were told by Group Finance Director Mike Ellis that “the Group’s growth had outpaced the ability to control risks. The Group’s strong growth, which was markedly different than the position of the peer group, may have given rise to “an accident waiting to happen”.

Both the FSA and the HBOS board ignored this warning and in 2007 the ‘accident’ happened, the bank crashed.  The UK government injected £8.5bn of taxpayer money into HBOS, but this was not enough.  HBOS needed to be taken over by LloydsTSB to survive and received a further £12bn from the taxpayer in the deal.

According to the damning verdict of a Parliamentary Commission report by the UK Treasury Committee “the FSA’s regulation of HBOS was thoroughly inadequate”.  The report states that the FSA’s focus moved away from HBOS after 2004, and even after HBOS collapsed the regulator took more than five years to launch an investigation into the bust bank.  In a stunning coincidence, HBOS’s Chief Executive James Crosby was appointed to the Board of the FSA in 2004, whilst still operating as the Chief Executive of the bank it was investigating.  He became Deputy Chair of the FSA in 2007, just as HBOS was crashing.  Although RBS didn’t fold until a year later, the FSA put HBOS at the back of the queue for investigation.

When the Bank’s own internal Head of Group Risk Charles Moore raised his concerns to Crosby he was summarily dismissed.  When Moore blew the whistle in 2006, Crosby denied the claims and was supported by both the FSA and then Prime Minister Gordon Brown.

We now know that Moore’s allegations were entirely accurate.  Crosby has since been enjoying a non executive directorship for catering company Compass worth £125k a year, a HBOS pension of £580,000 a year, alongside other lucrative positions with MoneyBarn and Bridgepoint.

Despite being found by the Parliamentary Commission to have been the person primarily responsible for the bank’s failure, the loss of £20bn of public money to save it, the summary dismissal of the Group of Risk for doing his job, and participating in a bungled investigation of these failures as board member and later Deputy Chair of the FSA, Crosby is angling to avoid his day in court.

Like Goodwin before him, Crosby is offering up his knighthood (for services to Banking) and just 30% of his pension, leaving him to struggle by on £406,000 a year.  He has resigned from his Bridgepoint directorship but maintains his other positions and is free to pick up others worth more than £125k a year.

What does it take for a Banker to go to Jail?

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One Goldman Sachs banker did go to jail.  Rajat Gupta was sentenced to two years in October 2012 for insider trading.  He was jailed for, as the judge in his case put it: “stabbing Goldman in the back”  Yes, he was jailed for losing Goldman Sachs money.

Gupta received letters from Kofi Annan and Bill Gates requesting leniency in his case.  The judge stated in his sentencing order:

“The Court can say without exaggeration that it has never encountered a defendant whose prior history suggests such an extraordinary devotion, not only to humanity writ large, but also to individual human beings in their times of need,”

Despite this, Gupta’s behaviour in providing a tip which lost Goldman cash was considered worthy of an example making custodial sentence.  Gupta’s crimes were far less harmful than Hank Paulson’s tipping off of Hedge Funds that Fannie Mae was to receive a government bailout in 2011 when it was non-public information.

The lesson here is: Bankers go to jail when they defraud banks, not when they defraud the public purse.

Meanwhile Among the 99%

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The cost of the bailouts is being met by ideological austerity on the poor.  A decade of planned austerity measures across Europe is delivering a lost generation of young people born into a world of zero opportunity.

An additional 200,000 children have been forced into poverty in the UK alone by the Coalition government’s austerity programme.

Greece’s youth unemployment has hit 60%; Spain’s just hit a record 55% last month and Italy coming close to 40%.

Average wages in the UK have fallen to their lowest in a decade since the Bailout, while inflation on essential items like fuel, utilities, food and rent stands at 33%.

The working poor and those others in our society reliant on the support of public money to live in dignity are paying the price for a financial crisis they did not cause.  Meanwhile, the men (and they are mostly men) who made themselves stinking rich by destroying their own banks and the global economy, continue to live lives of rampant indulgence.

Disaster bankers are being allowed to escape justice by throwing back loose change from the mountain of public money and ill gotten gains they acquired through their criminal behaviour.  This in effect, turns our justice system into a means tested rule enforcer: the rules only apply if you cannot afford to buy immunity.  Not only that, but it all but guarantees another great crash in coming years as the bad behaviour continues, unabated and ever more rewarded.

Find Out More

For those preparing a comment parroting the corporatized government line that the bankers didn’t commit any crime, I turn you to Charles Ferguson’s book Predator Nation.  It lays out, in detail exactly which crimes have been committed; by whom and the reasons they are not being indicted.

Watching Ferguson’s Inside Job (free online and wonderfully narrated by Matt Damon) is a great and accessible way of understanding the financial crisis and just how unnecessary and ideological the subsequent ‘austerity’ programmes really are.

Professor Steve Keen’s Debunking Economics is, in my humble opinion, the financial text of our age.  It explains in layman’s terms exactly how we ended up with this defunct economics, challenges and debunks its bogus assumptions, and introduces the exciting new schools of economics growing in the waste ground.  This should be on your reading list a high priority.

21 thoughts on “Exposed: The Disaster Bankers Buying Their Way Out of Justice

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  6. This is no accident. It has been all planned . The austerity measures are not an’unfortunate’ outcome of the banking fiasco, but a part of the plan to take back what is ‘rightfully’ the property of the 1%. In America the Republicans foresaw the opportunity to ‘starve the beast’ which was Government funds for anything other than military and approved spending,not welfare, or healthcare, or infrastructure, or education, arts et al. They don’t even pretend that this wealth will ‘trickle down ‘anymore.This is terribly short sighted ,of course, because if they force destitution on masses of people ,there will be some sort of rebellion and maybe they will be unable to save themselves from ‘off with their heads!” even with private armies.
    At any rate, let’s hope that there is a flash mob at Margaret Thatcher’s funeral singing ‘Ding Dong The Witch is Dead!

  7. A fabulously clear article.

    I’ve been wondering for a while what a good analogy would be . . . Building ships with dodgy welding, getting them rated as perfectly safe, selling tickets, then taking out insurance on the passengers?

    I’m sure someone can come up with one that nails it, and would help expand the circle of understanding.

    • In a previous article I equated it to an estate agent selling a house having lit a fire under the floorboards…then insuring against the home burning down. But as CDS’s are open, the agent could not only bet against your house burning down, but bet on other estate agents doing the same thing and make money from their crimes too.

  8. I can’t tell you how happy it makes me that there are conscious people around. I feel we need a shift in consciousness, much like the age of Enlightenment, but more accessible to the average person; if we do not fundamentally reassess the sources of authority in our age, I can see no other outcome than our own intellectual, emotional and financial doom. These bankers, politicians and others amongst the social ‘elite’ are mostly sociopaths completely unconcerned with the struggles of ordinary people. What is worse is that their institutionalised greed infects those who are susceptible to such a pull, and thus the problem grows, develops momentum and an inertia to change. These elitist attitudes have been around for as long as a social hierarchy has existed, thus the struggle against these ideas is difficult, especially when everyone has an opinion but very few have true knowledge, but in this age, we are in a unique position – knowledge is widely available for the diligent student, and thus, so is a means of edifying, educating and empowering oneself, regardless of social status. I think it’s important to remember that it was only a few centuries ago where only the social elite were educated. This issue of financial crisis and power hegemony is, at least in my eyes, the symptom of a much deeper problem, namely, the belief that any one person is superior to another; this belief is most rigidly cemented in the top of our social strata as a rule, thus how can we, as average people, allow this ‘elite’ to lead us? They are not impartial, they do not work for the greater good, they work only for themselves and their own circles. We are given scraps from the table and expected to be grateful for such an opportunity. Then when the system fails, as it is engineered to do so, we shoulder the burden. It is a nonsensical madness. The point made by Franklin about the monetary system is of great importance, any politician that truly represents the people should be making a whole lot of noise about monetary reform; if money is issued from its source as debt what hope is their for economic and political sovereignty? How can we be reliant upon private businesses for the flow of money in our economies? The way I see it is that if we ever want this to change it has to come from the bottom up, because seemingly, there is little representation in government for the common person. The average man, woman and child has to realise that we are being screwed and no one is going to help us but ourselves. It certainly will not be easy but what other option is there? I dream of a compassionate revolution that inspires people to see each other as equals; instead of seeing differences we need to similarities, instead of being divided we need to be united; ultimately, we’re all human. I’ll be very interested to hear your views, open dialogues between open minds is a must. Thank you for the informative article.

  9. This is an excellent summary of how the actions of institutions and individuals contributed to the crash but who then benefited from the public bailout. I look forward to your follow-up.
    I think, though, it’s worth putting the 2007/8 crash and extraordinary response in shifting private toxic debt to state/public debt in the context of the whole Neo-liberal project that established itself in the UK, US and most other developed capitalist states in the 1970s. While we can point to greed, irresponsibility and even criminality in the actions of ‘bankers’ we need to acknowledge how finance capital came to dominate both productive capital and the political class/state. I’d recommend John Bellamy Foster and Fred Magdoff’s book The Great Financial Crisis, Causes and Consequences.
    There is also this entertaining animation to David Harvey
    http://www.youtube.com/watch?v=qOP2V_np2c0

    Last year here in Edinburgh there was an interesting discussion on the role of the finance sector, Just Banking. Many of the contributions, including Steve Keen were recorded and can be seen here
    http://justbanking.org.uk.gridhosted.co.uk/video/
    I particularly liked Mary Mellor, author of The Future of Money.

    • Thank you. Really glad to have been able to get the story straight in a way people can just get. So much mystery wrapped around it, when it is actually a pretty straightforward tale of theft. Do come back for more :)

  10. A very good summary of the greatest robbery in history. Underlying this though is the failure to develop a functional and sustainable money system that does not hand over ownership of the products of people’s work and the world’s natural resources to a few who are positioned to benefit from money creation. Money created as debt by commercial banks has been only constrained by the supply of assets to borrow against, so everything has been about creating assets. The more assets (real or otherwise) the more lending. We moved from the gold standard to the asset standard. Derivatives create assets. Intellectual property laws create assets. Property bubbles create assets. Privatisation creates assets. Even books and films that show how this is a scam creates assets. This is madness that concentrates power and wealth behind a fog of economic nonsense noise. Its not just the people and the institutions that are rotten, its the deliberately half baked money system that they work with. No quantity of banker bashing or regulation will help until money itself is reformed.

    • Completely agree Franklin. Although I’d be disinclined to use the term ‘banker bashing’ as a) it’s been coined by those refusing to hold bankers accountable for their crimes, and b) holding bankers to account as other criminals are is not bashing.

      I do however believe firmly that the issue of currency, economics and contribution (versus ‘jobs’) are things we need to quite radically reimagine. All of these areas are stuck inside a neoliberal paradigm which is now incredibly inefficient in meeting our needs. I’m going to blog about this in more detail in coming days so you’ll have lots to get your teeth into! 😉

      • Re ‘banker bashing’. Mindless use of their propaganda term but my point was that the rot is systemic and that criminal finance is policy. Of course the individuals should be held to account and this is probably essential if there is to be reform, but we should be under no illusion that the crimes will stop even if there is a purge and a growth in the open prison population. The effect of the US Savings and Loans prosecutions was mostly to ensure that regulators had no teeth next time around.

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