Lie, Buy, then Lie Some More: Global TBTF Banks' MO

Mar 22 2013 - 7:21am

 

You have to wonder if the global too-big-to-fail banks lie so much that they don't know the difference any more between lying and telling the truth or if they'd even recognize the truth.  Yes, some of this isn't technically lying because some actually believe what they are saying, but that doesn't change the fact that what they are saying is false, misleading and usually covering up despicable if not illegal or criminal conduct.  A few recent examples include the Libor (Lie-More) scandal, JP Morgan’s London Whale betting losses, HSBC money laundering for terrorists and drug dealers, Standard Chartered ditto, Goldman’s Abacus rip off, and the list goes on and on. 

While the too-big-to-fail banks lie and break the law, they very rarely get prosecuted or held to account for their conduct.  And, on that rare occasion when that happens, they get meaningless slap on the wrist settlements and/or get to use lots of shareholders' money to buy their too-big-to-fail bank and its executives out of trouble.  That's the MO:  Lie then Buy.  

It's shameful and pathetic; the banks & their execs get off; the regulators at the SEC and prosecutors at DOJ get to claim that the seemingly humongous fine was the biggest and therefore the bestest ever, notching their belts, puffing up their chests, bragging in press releases and press conferences, and sleeping well at night. 

This is great for Wall Street, the SEC and DOJ (and for future jobs for all involved, not to mention campaign contributions and all the other money spread among Wall Street's other mouthpieces and influencers).  Of course, for everyone else, this is indefensible because it rewards, incentivizes and guarantees more criminal behavior.  Worse, this pattern, indeed, habit, establishes a corrosive double standard where the rich, powerful, well connected of Wall Street get off, while Main Street gets the book thrown at them, as detailed here.  

Usually it ends there with the smug regulators and prosecutors offended by anyone suggesting that they aren’t the toughtest, bestest in the world while the too-big-to-fail bankers laugh all the way to the bank – literally -- and happily go back to doing what they were doing before, only more so because they are incentivized to do more by this Orwellian merry-go-round.  Until, inevitably, those very same too-big-to-fail banks do something again so outrageous that those very same regulators and prosecutors can’t continue to look the other way and are forced to go back and “punish” them again.  Citigroup and JP Morgan Chase are classic examples of this.

However, the next “punishment” is always similar to the past punishment:  a seemingly big fine to brag about, but nothing more, keeping the money-greased system rolling with no one important, powerful or well connected ever held to account and without interfering with the well-greased revolving door lucratively spinning away.

But will those same DOJ prosecutors continue the game even when one of those too-big-to-fail and too-big-to-jail banks and bankers makes the foolish mistake to admit that it’s all just a game, a big PR ruse?  That’s really what just happened with Standard Chartered, a UK based global too-big-to-fail bank, which settled a case with DOJ and was fined a total of $667 million just a few months ago for egregious, flagrant and repeated criminal money laundering for some of the most despicable criminals and outlaws in the world. 

Let’s see if it fits the MO:  Big bank lying and breaking the law?  Check.  Revolving door swings into action, working for big bank?  Check.  Empty near meaningless settlement agreed to?  Check.  Bank using today’s shareholders’ money to pay a seemingly big fine? Check.  Shareholders’ money used to buy executives and bank a no prosecution agreement?  Check.  No prosecution? Check.  DOJ unseemly bragging out of control? Check.  Everyone goes along their merry way? Check.

But, now the Chairman of the bank at a press conference – just a few months after the big, bad settlement -- has made the mistake of admitting that it was all just for show; they never did anything wrong; nothing criminal or illegal was done by anyone at the bank; and, no one lost their job or was punished -- all as detailed by Simon Johnson here.  This presumably inadvertent admission proves how these “settlements” are just for show, as the bankers laugh all the way back to their banks and continue doing the same non-illegal conduct as they did before.  After all, why stop doing something that you claim wasn’t illegal anyway and when no one was punished or held to account (other than a pile of shareholders’ money being used to pay off a prosecutor who needed bragging rights)? 

This was not just the isolated view of a rogue bank Chairman.  The bank's CEO and CFO were on the investor call with the Chairman.  No one corrected him or said anything.  This was clearly the view of the top three officers of the bank and, undoubtedly, the entire bank. 

How have DOJ/prosecutors responded to such a clear, blatant slap in the face to what they called a very tough settlement that supposedly showed that the bank and its executives were not only punished by the big fine and settlement, but understood the seriousness of their outrageous criminal conduct?  Apparently, they have insisted that the Chairman of the bank retract his statements.  To show how really tough they are, DOJ apparently made the Chairman retract his comments for himself and on behalf of the CEO and CFO.  Wow.  

That’s right:  DOJ’s response is, in effect, to require the bank through the bank’s Chairman to lie more.  He has candidly and publicly stated his belief:  the bank did no wrong; its executives and employees did no wrong; no one was punished; no one should have been punished; and, therefore, they just paid off DOJ to make them go away.

That’s clearly what he and the other executives at the bank believe as proved not just by what he just said, but by the banks’ actions in punishing no one and talking about it openly.  If that doesn’t send a message to the entire bank and global banking community that DOJ is a toothless tiger indifferent to criminal conduct, nothing will.

No doubt DOJ will shamelessly claim that making him retract his statements is tough because they claim that everything they do is tough, no matter how transparently ridiculous the claim is.  But, that is not going to cause the bank and bankers from Wall Street to worldwide shake in fear of the misleadingly named Department of Justice.  If DOJ lets this pass without swift, strong, real and meaningful action, then it should be renamed the Toothless Servant of Banks and Bankers Worldwide.

DOJ must immediately publicly declare the non-prosecution agreement violated and consider declaring it void.  It must also immediately bring charges against the Chairman personally.  It must also investigate and publicly report on what other executives have said about the settlement and charge them personally as well if they denied the criminal conduct admitted in the settlement.  But, even that won’t be enough.  DOJ must also determine what, if anything, the bank has done to hold executives and others accountable for their criminal conduct and what precisely they have done to make sure it will not ever be repeated.

Why is such strong action required and why is this so important?  Because trust in government and the very idea of equal justice before the law, a foundational pillar upon which our entire society depends, is being undermined by DOJ and others letting the too-big-to-fail banks and bankers get away with breaking the law and criminal conduct – and now cavalierly denying it.  This is what is at stake and this is the real price being paid by the indefensible practices of the DOJ (and the SEC).

The MO of break the law; lie about it; buy your way out of it; and then lie some more must end and Standard Charter should be the example that announces to the world that it is going to end.  This is not only the right thing to do, but the bank's chairman has given DOJ a golden opportunity:  DOJ can prosecute the specific offending individual bankers and not the bank, thereby avoiding its overstated concern about collateral consequences.  It can, finally, establish that no banker is too-big-to-jail even if the bank itself might be too-big-to-fail. 

If DOJ doesn't take such swift and strong action here then it will bring yet more shame, dishonor and disgrace on what is misleadingly still called the Department of Justice.