The banks got away with it

Not only have the world’s bankers gotten away with the two greatest scams in history, they're still playing whack-a-mole with politicians.

A New York hedge fund manager told the ADC Leadership Retreat at Hayman Island on the weekend that he expects US bankers to be led away in "handcuffs and pajamas” pretty soon over Libor rigging. What’s more, he reckons, civil damages over the scandal could end up being greater than all bank capital.

Nobody believed him; the audience smiled politely and moved on, thinking: "yeah, sure”. The market’s not too worried either: Barclays shares are up 22 per cent from their post Libor lows, and back to where they were in May, and shares in Standard Chartered Bank, which has been fined $340 million for breaking US sanctions on Iran, have gone up 16 per cent since that scandal broke.

But leaving aside the (remote) possibility of arrests over Libor rigging and the slap on the wrist for StanChart over Iran, you’d have to say the world’s bankers have gotten away with the greatest two scams in history, which are the US Sub-prime Mortgage Affair and the Great Euro Periphery Heist. Not only have they not been arrested in their pajamas, they haven’t had to give back their bonuses, regulators are getting nowhere and governments are still bailing them out with cash and cheap money.

The difference between their treatment and that of the tobacco companies is rather stark, you’d have to admit.

In Australia the banks didn’t join in the two big scams, at least not much anyway, because they’re better regulated and APRA wouldn’t let them. But they’re making hay now because their competitors have disappeared along with the swindle-ridden securitised mortgage market.

As a result, they have rebuilt their net interest margins and have become the world’s most profitable banks according to return on net assets. Of them, Commonwealth Bank is the stand-out: it’s the world’s most expensive bank by market value to net assets and yesterday broke $7 billion in profit (still only about a quarter of JP Morgan’s profit).

At this point after the 1929 crash, which was also caused by banks, US Congress had received the report of the Pecora Commission and already passed the Banking Act, also known as the Glass-Steagall Act, which separated the activities of banking and dealing in securities. In general, the regulatory attack and public opprobrium on banks in the 1930s was ferocious and effective.

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