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Wednesday, May 20, 2015

Reforms that the Banking System Needs

Reuters reports that "Global banks admit guilt in forex probe, fined nearly $6 billion". Loretta Lynch, the new Attorney General announced today that:

“Today’s historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes, and they serve as a stark reminder that this Department of Justice intends to vigorously prosecute all those who tilt the economic system in their favor; who subvert our marketplaces; and who enrich themselves at the expense of American consumers,” said Attorney General Lynch. “The penalty these banks will now pay is fitting considering the long-running and egregious nature of their anticompetitive conduct. It is commensurate with the pervasive harm done. And it should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare.” [http://www.justice.gov/opa/pr/five-major-banks-agree-parent-level-guilty-pleas]

Except it's not. If Loretta Lynch really wants to do something about Banker Fraud she has to start prosecuting individuals. And if we want some permanent changes we need to hold individuals and their management accountable for their actions. As someone said on the Ed Show today [paraphrasing] if we start frog marching management the rank and file will stop breaking the law. I believe that all bonuses, stock options, etc... should be put up against a Bond for Good Behavior for all officers of company doing business with the Government or having government powers over other people's money. Then when something like this happens the Taxpayer gets back his and her money from those bonuses instead of the thief conning the Government to give him/her more bonuses to fix the fraud he or she had committed. An article in US News notes:

“The sheer volume of contracts based on LIBOR defies the imagination. Estimates vary, but $500 trillion seems reasonable. Even if the banks lied by as little as one-tenth of 1 percent, that percentage applied to $500 trillion multiplied by the six years of the fraud comes to $3 trillion stolen from customers. Cutting that amount in half to allow for the fact that some customers benefited from the fraud while others lost still gives implied damages of $1.5 trillion, greater than the combined capital of all of the too-big-too-fail banks in the United States. Taken to the full extent of the law, these damages are enough to render a large segment of the global banking system insolvent. These damages will be pursued not by regulators, but in private lawsuits by class action lawyers.” [http://www.usnews.com/opinion/blogs/economic-intelligence/2012/07/23/libor-fraud-may-be-the-mother-of-all-bank-scandals]

5 Billion to settle 3 Trillion in damages is that "cost of doing business" that the Banksters talk about openly when they are telling their employees to commit fraud and break the law. They will continue breaking the law until they start being frog marched. And some of them will continue to do so until we stop rewarding them for their fraud and letting them pocket profits they never earned.

Real Reforms

Every person with a job that gives them control over Other People's Money, or supervisory power over such people, should be bonded for the amount of money they are handling. They should pay an insurance premium based on the risk of their portfolio. That bond should be owned by an organization (company or agency) with power to make good any losses from their behavior from that bond and to raise or lower the premium on the bond. Every one of those bonds should be secured by any promises of bonuses, stock options, etc.... and the bonding agency have the power to freeze, seize or put a lien on those securities. And when that person breaks the law unless the supervisor reports the infraction to the bonding agency and takes disciplinary action both the employee and the supervisory should be subject to action from the bonding agency. Want a safe secure system? That would do it as long as the bonding agency isn't "owned" by the executive wall street body handling people's money but is owned by the people of the country and/or the customers of the Financial Industry. A law can be crafted to that effect. It would be one that finally would have real teeth. Every employee or supervisor involved in the Financial Industry would sign an agreement binding him or her to the terms of this oversight and to pay premiums based on the risk of their portfolio. And the bonding agency would arbitrate disputes between investors and consumers, etc... If customers don't agree they can take them to court. Only the employees and supervisors would be bound by such arbitration agreements, not the customers. This is the reverse of how they operate now where they mostly stiff their less powerful customers -- such as pension plans.

Further Reading

I've been writing on this for several years now. So here are some related blog entries:
Corruption American Style
Hightower on our Corrupt system
Wall Street's Long Con Swindle of America
Freebooters Stealing Homes
Our Officers earned a Black Spot
Occupy Coordinated
Why Summers and Wall Street should not run the Federal Reserve
General Material (and fixes) on the subject:
Satans Usury
Depreciation Stock Sustainability
Postal Banking, Stamp Scripts and Fixing the Economy
Saving Europe
Hamilton's 1781 Bank Plan
Irving Fisher and Stamp Script
Organizing Communities Around the Post Office
Hamilton's Revenge II

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