Jail the Bankers!

The Barclays Libor scandal did not occur over night. It was in the shadows of the bankers minds for decades. Observing a moral decline in our leaders, a blind eye to oversight, having the global economy under their control, and living in a time of uncapped greed, the time was ripe for their deceptive plan. Everything that happened was foreseeable and more importantly preventable. Even now, the risk prevails unless they are jailed.

Consider too, if Barclay’s traders are willing to rig Libor interest rates, surely they would rig gold price fixing? The price of precious metal is set and fixed twice a day by five banks: Bank of Nova Scotia, Deutsche Bank, HSBC, Société Générale and Barclays.

Much like setting interest rates, a leader proposes a price and then the five simulate trading by looking at their own and their client's buy and sell orders until the price is set. It’s less sophisticated than a game of monopoly, but not by much. The market is not regulated as such. However the London Bullion Market Association follows a code of conduct, if that is any comfort to you.

Just as fragile, the Foreign Exchange Market is really about manipulating pricing through hedge funds which are extremely active and their role seen as highly controversial. Fear of a forced devaluation and inflation, as well as concern over competitive export pricing, keeps the Federal Reserve and Central banks trying to push their currencies higher.

Many influential people question the so called "high-frequency traders" who use black boxes to place trades in nano seconds while manipulating the market flow.

Caught in the cross hairs of the banks, derivatives and hedge funds, is the oil market, sitting somewhat precariously when it comes to calculated rates and market manipulations. All of these markets have artificial influences that destroy meaningful and often necessary corrections.

Joseph Stiglitz, the 2001 Nobel Prize winner for economics, author of "The Price of Inequality", current professor at Columbia University and adviser to President Obama, and former member of President Clinton's administration is on a crusade to have bankers held accountable and jailed. With his credentials, it is hard to ignore his sage advice.

Joseph argues that halting the economic and political power of the financial sector is essential, specifically in the US and the UK. It is the only means “to build a more just and prosperous society.”

The first step, he says, is sending some bankers to jail. He wants legislation that prevents corruption much like New York’s Martin Act, “which basically says if you commit things that are equivalent to fraud, you're liable.”

Perhaps fraud can be circumvented even if we haven’t defined it. Do we really need to say that taking bonuses that exceed profits is fraud?

Bank bonuses far exceeded profits during the bank bailout 2008 year.

•   Goldman Sachs earned $2.3 billion, and received $10 billion in TARP funding, paid out $4.8 billion in bonuses.
•   Morgan Stanley, earned $1.7 billion, and received $10 billion in bailout funds, handed out $4.475 billion in bonuses.
•   JP Morgan Chase, earned $5.6 billion, and received $25 billion from the government, paid out $8.69 billion in bonuses.
•   Citigroup and Merrill Lynch lost a combined $54 billion, and received a total of $55 billion in bailouts and paid out $9 billion in combined bonuses. ($5.33 billion for Citigroup; $3.6 billion for Merrill Lynch, which was subsequently acquired by Bank of America.)

In this instance, the tax payer can easily define fraud. For the banker receiving a government windfall, it was just another day of doing business on the shady part of the street. Bank bailout full details read here.

Clearly we need legislation to address the fraud but we also need to stay away from the austerity measures to change the flow of our economy. We have the historical facts to redirect American leaders. Franklin D. Roosevelt got us through the Great Depression with his “New Deal” which focused on “Relief, Recovery, and Reform”. The relief for the unemployed and poor, the recovery of the economy and the reform of the financial system is exactly what is needed again.

Austerity measures will only lead to higher unemployment, which will lead to lower wages as workers compete for jobs. Subsequently, less growth will mean lower state and local tax revenue, which will lead to cutbacks in services that are important to struggling Americans.

Teachers, police officers and firefighters will continue to face an uncertain future from budget to budget, city to city. Tuition will continue to increase, data published last month show that the average tuition (for a four-year public university) rose 15 percent between 2008 and 2010. All the while, most Americans’ incomes and wealth were free falling and their debt rising.

Joseph Stiglitz would like to see some fundamental changes in banking.

•   Policies that force banks to be more transparent.
•   Reducing their scope of manipulation of the market.
•   Restrict banks abilities to impose risks on shareholders and others.
•   Eliminate conflict of interests.
•   Tax excessive risk taking at 70% or greater.
•   Create fraud legislation for bankers and JAIL them.
•   Don’t make corruption easy.
•   Bonuses should be tied to company performance, and not manipulated market profits.
•   Fines should not be paid by shareholders, only bankers.
•   Increase individual accountability.

“Even if you did not have a law against manipulation of the market, you should have had legislation that was broad enough to say this is market manipulation; if you do this you're guilty. If you don't have legislation like that, there's something wrong.” Joseph advised.

● Read more on Joseph Stiglitz.

(Lisa Cerda is a contributor to CityWatch, a community activist, Chair of Tarzana Residents Against Poorly Planned Development, and former Tarzana Neighborhood Council board member.) –cw