Normally the words ‘felony,’ ‘fraud,’ ‘collusion to defraud,’ and ‘criminal behavior’ result in arrests, but yesterday when the six largest banks in the world: Citigroup, JP Morgan Chase, Barclays Bank, Royal Bank of Scotland, UBS, and Bank of America pled guilty to rigging the currency markets for the past 5 years, not one criminal charge was filed.  No one was even fired!

They were cheating their own customers for their benefit.  Currency values are set, “FIXED,” at the end of each trading day.  The banks conspired to simultaneously place trades that brought the FIXED PRICE of currencies up or down depending on what was most advantageous for the positions they had taken for themselves during the day.  So much for the impartiality of the free market system.

The “teachable moment” here is that this is what the systemic risk that I have been warning of, looks like. The system itself is the danger.  The business model of the major financial institutions of the world is based on illegal activity and doing damage to the very people they serve and it goes unpunished.  The model, therefore, is inherently unstable because it operates on the principal that profits must be made at any cost.  This ethical blindness cannot sustain an international trading system that relies on trust and the expectation of fairness

This type of instability brought down the financial markets on September 15, 2008 when the derivative house of cards lost its faith in its own ability to function.  Fear is contagious.  Once players lose faith in the systems’ ability to deliver, it collapses.

The height of hypocrisy is Jamie Dimon, CEO of JP Morgan Chase, attempting to transfer the blame to “a small group of employees.”  Sorry, Jamie, but you get paid billions to know what your employees are up to and if you do not, you are incompetent and should resign.  After all, Jamie, this was not a group of janitors, it was traders, the heart of your brokerage business.

The truth is that there are not a few bad apples. The barrel is rotten and the barrel is the corporate culture executives like Dimon create within their own institutions.  They create an atmosphere in which employees understand that anything is acceptable UNLESS YOU GET CAUGHT.    “If you ain’t cheatin, you ain’t trying”, one trader boasted in an e-mail.    Even if you get caught no one goes to jail.  Fines are paid out of shareholder reserves and the individuals responsible keep their ill-gotten gains.

A recent study out of the University of Notre Dame, The Street, The Bull and the Crisis: a survey of the US and UK Financial Services Industry has some disturbing findings:

  • 47% of respondents find it likely that their competitors have engaged in unethical or illegal activity in order to gain an edge in the market.  This represents a spike from the 39% who reported as such when surveyed in 2012.  This figure jumps to 51% for individuals earning $500,000 or more per year.
  • More than one-third (34%) of those earning $500,000 or more annually have witnessed or have firsthand knowledge of wrongdoing in the workplace.
  • 23% of respondents believe it is likely that fellow employees have engaged in illegal or unethical activity in order to gain an edge, nearly double the 12% that reported as such in 2012.
  • 25% would likely use non-public information to make a guaranteed $10 million if there was no chance of getting arrested for insider trading.  Employees with less than 10 years’ experience are more than two times as likely as those with over 20 years’ experience, reporting 32% and 14% respectively.
  • In the UK, 32% of individuals said they would likely engage in insider trading to earn $10 million if there if there was no chance of getting arrested, compared to 24% of respondents from the US.
  • Nearly one in five respondents feel financial services professionals must at least sometimes engage in illegal or unethical activity to be successful.
  • 27% of those surveyed disagree that the financial services industry puts the best interests of clients first.  This figure rises to 38% for those earning $500,000 or more per year.
  • Nearly one-third of respondents (32%) believe compensations structures or bonus plans in place at their company could incentivize employees to compromise ethics or violate the law.
  • 33% of financial services professionals feel the industry hasn’t changed for the better since the financial crisis.

One of the most serious issues of our time is the impunity of corporations. Criminal behavior goes unpunished because corporations have limited liability under the law. At the same time they want to be considered as persons so that they can contribute to political campaigns without limits. The Supreme Court has granted them this right so they literally have their cake and eat it too.

It is said that every civilization identifies what it values by which segments of society have the largest buildings.  Egypt built the pyramids to honor their Pharaoh Gods, the churches of the middle ages bespoke Christianity as its unifying factor and for Capitalism, our corporate headquarters loom large.  Largest of all are the banks.  What does it say about us that while the most visible symbols of our way of life profit outrageously, they are morally bankrupt?

We can hope that our politicians can fix this but remember, it WAS fixed, until our politicians removed the regulations that protected us.