Rule of Law vs. Law of Rule

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Image courtesy of William Banzai 7

The 7th January 2013 will likely go down as a great day for the world´s biggest banks. First, the leading central bankers of the world – that is, the “gatekeepers” of the global  financial system and big-time enforcers of the bankster mob – announced that the capital and liquidity requirements contained in the Basel III regulations, supposedly aimed at shoring up financial institutions in the wake of the crisis, would be drastically loosened.

As a result of this change, banks will be able to use a much broader basket of assets, including highly risky ones (sound familiar?) such as mortgage backed securities, as first-tier collateral for their endlessly expanding “asset bases.”

Later on in the day, the Federal Reserve added to Wall Street’s elation by announcing a major binding settlement with U.S. banks over “robosigning and fraudclosure.” As Zerohedge reports, the move benefited the large banks, impaired the small ones (which is great: room for even more consolidation opportunities for the handful of remaining megabanks), “and was nothing but one minor slap on the banking sector’s consolidated wrist involving a laughable $3 billion cash payment.”

The offending institutions, which include Bank of America, JPMorgan Chase, Citi and Wells Fargo, will end up paying in fines a tiny fraction of the vast sums of money they were able to accrue from years of blatant mortgage fraud.

For anyone who has been paying the slightest bit of attention over the last four or so years, these latest developments will hardly come as a surprise.

After all, the promise and eventual postponement or withdrawal of tougher regulations for the financial sector has become a well-honed instrument of government and central bank policy in the post-crisis era, allowing politicians to present the illusion that they are taking the matter of financial regulation seriously while actually doing effectively squat to curtail the crimes and misdemeanors of the out-of-control banking sector.

For instance, in 2011, proposals by Sir John Vickers to ringfence UK banks’ commercial operations from their much riskier investment banking activities were put on hold by the British government until 2019, at the very earliest.

None of this would matter, of course, if the actions of the too-big-to-fail banks didn’t represent such a grave threat to the proper functioning of the global economy. According to the World Bank, for example, the global economic crisis set in motion by the banks’ fraudulent behavior has already plunged as many as 100 million people into poverty.

Nor would it matter if the current regulations in place and the institutions charged with enforcing them were up to the task of keeping some semblance of order in the financial markets. But how could that possibly be when those charged with protecting the integrity of markets from the abuses of financial institutions are instead facilitating the abuses, as the London Banker deftly explains in his blog:

It used to be that the role of the state in financial market regulation was to ensure efficient market operations, promote transparency of prices and liquidity, protect consumers from abusive practices, and to resolve failed companies according to principles of equitable distribution of assets among like classes of creditors. If the role of the state now is to shield HFT, dark pool and OTC markets from transparency, provide liquidity where the market fails, oversee the orderly fleecing of consumers, and to ensure that some creditors of failing firms always win while others always lose, then we no longer have a market economy. And as virtually all these regulatory policies have evolved in the absence of public debate and legislative scrutiny, we also no longer have democratic governance of markets.

A Law Unto Themselves

In the absence of application and enforcement of strong regulations, big banks have become a law unto themselves, riding roughshod over the most basic standards of fiduciary responsibility.

Just take the case of HSBC, one of the UK’s “big four” banks, which in late 2012 admitted to laundering money for Mexican drug cartels and Saudi-based Islamist terrorist groups. Although the case against the bank was as open and shut as they come, the institution and its senior management walked away from the scene of the crime with the gentlest of slaps on the wrist. To wit, from Reuters:

“No bank or bank executives have been indicted. Instead, prosecutors have used deferred prosecutions, under which criminal charges against a firm are set aside if it agrees to conditions such as paying fines and changing its behavior.”

In defence of such blatant leniency, the Department of Justice criminal chief Lanny Breuer contended that “in trying to reach a result that’s fair and just and powerful, you also have to look at the collateral consequences,” – a barely veiled reference to the threat that prosecuting a bank for serious fraud would represent to a sector whose revenues and profits depend so heavily on fraudlent or criminal practices.

So, instead of prosecuting the executives involved, the U.S. Department of Justice fined HSBC a record 1.92 billion dollars – a figure that may sound like a princely fortune to common folk like you and I, but actually represents less than one month’s quarterly profits to HSBC and probably a mere drop in the ocean compared with the amount of money it was able to generate from laundering the dirty money in the first place.

HSBC is no stranger to the laundering of proceeds from the narcotics trade. Indeed, its original foundation depended on it, as even Wikipedia acknowledges:

“After the British established Hong Kong as a colony in the aftermath of the First Opium War, local merchants felt the need for a bank to finance the growing trade between China and Europe (with traded products including opium). They established the Hongkong and Shanghai Banking Company Limited [a founding member of the HSBC group] in Hong Kong (March 1865) and Shanghai (one month later).”

However, HSBC is by no means the only big bank whose business model depends on the laundering of narcotics cash. As a special report by The Observer notes, in 2010 Wachovia Bank – now part of Wells Fargo – was sanctioned (another “slap on the wrist”) for failing to apply the proper anti-laundering strictures to the transfer of $378.4bn – a sum equivalent to one-third of Mexico’s gross national product – into dollar accounts from Mexican currency exchange houses with which the bank did business.

Put simply, the too-big-to-fail banks are now too big to jail. Not only do governments and central bankers continue to ply them with ever-more generous state benefits, they also turn a blind eye to their increasingly dubious exploits, in return, of course, for a cut of their profits. As a result, the big banks have risen so far above the law that they can now consort and do business with some of the most dangerous and blood-thirsty criminal elements on the planet – at little or no risk to themselves.

These, my friends, are the very same institutions that much of our hard-earned tax dollars, pounds and euros are being used to keep alive. And it is no coincidence that the further they stray from the rule of law, the stronger they get and the weaker get our economies.

That said, there is still, I believe, a razor-thin ray of hope for the general public: namely that the money masters’ confidence trick still depends, to some degree or another, on the trust and faith of market participants and depositors (i.e. us). Which means that the one, and possibly only, weapon we have left in our defence against all-out financialisation of the economic eco-system is an honourable withdrawal from the banking system.

Perhaps it’s time we voted with our feet and stopped feeding the beast, by moving what is left of our money out of its criminal syndicates and into smaller, more law-abiding institutions.

18 thoughts on “Rule of Law vs. Law of Rule

    1. Hi Dom.

      Thanks for your comment. As far as reputable banks in the U.K. are concerned, it’s difficult for me to comment since I’ve been based out of Barcelona now for many years. As far as I know, though, there’s the co-op bank, which seems a popular choice among banking customers disullusioned with the “big four” (see http://www.guardian.co.uk/business/2010/mar/18/coop-profits-uk-banks). One of the co-op’s biggest selling points is that most of its investments are focused on local businesses and households. That said, the bank has expanded enormously in the last few years and now accounts for 7 percent of the current account market. Whether it can continue to operate on a more or less sound business and ethical basis despite its much greater size is a big “if”.

      Here in Spain, there’s the Dutch-based Triodos Bank, which is pretty much the only institution here devoted to “ethical banking,” if such a thing can truly exist. I believe the bank also has branches in the U.K. I have a number of friends who moved their money to the bank and all of them seem pretty satisfied with both the service they’ve received and the company’s mission. In fact, in the next month or so I plan to move my own current account from one of Spain’s too-big-to-fail savings banks to Triodos.

      According to its corporate website, Triodos Bank “belongs to a widespread net-work of national and international financial institutions active in the social economy. Triodos Bank is a founding member of INAISE (the International Association of Investors in the Social Economy) and of the Social Venture Network Europe (SVNE).”

      “Triodos Bank finances exclusively the development of renewable energy sources (solar and wind), organic agriculture, art and culture, protection of the environment and conservation of nature. Triodos Bank also plays an active role in the developing world (microcredit).”

      Anyway, hope that’s some help!

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      1. Triodos have just knocked me back, I wanted to borrow £250,000 against £150,000 of my own money and with good credit. I wanted to build a solar farm next to a school and it would have been quite succesful and lucrative (not to mention the environmental benefits). the reason for the knock-back was that my scheme was considered too small, FFS.

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