Moral Vacuum: Jerry Sandusky and the LIBOR Scandal

What possible connection can one make with convicted child molester, Penn State Assistant Football coach Jerry Sandusky, and the LIBOR interest rates set in London by a select list of 18 banks lead by Barclays Bank? Another bit of trash journalism  or is there a possible connection?

Jerry Sandusky, convicted child molester

This last week, the public learned from the Freeh report that highest level Penn State officials including Head Football coach Joe Paterno, University President Graham Spanier, and Athletic Director Tim  Curley knew that Jerry Sandusky had been  molesting boys in the showers at Penn State. Six months after their decision to do nothing Jerry Sandusky was molesting another victim at Peen State. They did nothing for the sake of the football program and the”Penn State Brand”. And so Jerry Sandusky continued to abuse other boys.

The LIBOR Scandal Reaches the US


Tim Geithner – explaining no split up of big banks nor financiaal misdeed prosecutions

On Thursday of this last week, we learned that from 2007 to 2008, then New Yord Fed leader Timothy Gethner and other key Treasury Department officials in the Bush administration knew that the LIBOR rates were being illegally  fixed in London by Barclays Bank and others. The LIBOR rates are used across all sorts of financial instruments from home loan rates, to student loans , to trillions of dollars of derivative contracts. The LIBOR is a measure of the most fundamental financial indicator, the basis of  interest  rates.

 

So what did   Timothy Geithner do? Did he tell the British authorities in no uncertain terms that the US knew that the  LIBOR rate was being manipulated. No. Instead Timothy produces what one can only describe as  one of those cover-your-ass discussions and  memoes. He  tell the British authorities that they might want to  tighten up some of the LIBOR rate setting procedures.The The Bank of England chief, Mervyn King,  agreed that the measures for tighter control suggested by Geithner were “sensible”.  But  did nothing. Neither did Geithner nor the Treasury Department in any follow up. In recent weeks the two sides now now are barking ferociuosly at each other  about what was said and done. But the simple fact is that LIBOR manipulations continued through 2009  and 2010.

This is a strong foreshadowing of what would happen when Geithner became Treasury Secretary. Here is a trenchant description  by Economist James Galbraith [our  highlighting for emphasis]:

The original sin of Obama’s presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. Larry Summers. Timothy Geithner. Ben Bernanke. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures.

Up to a point, one can defend the decisions taken in September-October 2008 under the stress of a rapidly collapsing financial system. The Bush administration was, by that time, nearly defunct. Panic was in the air, as was political blackmail — with the threat that the October through January months might be irreparably brutal. Stopgaps were needed, they were concocted, and they held the line.

But one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.

Team Obama did none of these things. Instead they announced “stress tests,” plainly designed so as to obscure the banks’ true condition. They pressured the Federal Accounting Standards Board to permit the banks to ignore the market value of their toxic assets. Management stayed in place. They prosecuted no one. The Fed cut the cost of funds to zero. The President justified all this by repeating, many times, that the goal of policy was “to get credit flowing again.”

There have been no meaningful prosecutions of the bad financial players by the Treasury Secretary, the Attorney General nor President Obama. All have cited dangling excuses: “can’t afford to give up US brand and competitive advanatge in international finance”,  “no time in a period of crisis”,  “need to get credit flowing again”. Does this sound like the Penn State excuses for no action – “can’t ruin the football program or the Penn State Brand”.

So how has the Financial Community responded to its dispensation and grant of virtual immunity from prosecution by the Federal Governemnt. Well if one looks at the NYTimes Dealbook for just  the last week here is their tab on ” financial investigations and accusations”:

INQUIRY PRIMER PLAYERS THE STAKES
Airline Merger A C.E.O. is accused of delaying talks to receive a giant payday. American Airlines The fate of the third and fourth-largest airlines in the U.S.
Rate Rigging A global inquiry into how banks set key benchmarks. More than 10 big banks, including Barclays, JPMorgan and Citigroup. The pricing of $350 trillion of financial products, including credit cards, mortgages and student loans.
Money Laundering A bank lacked internal controls to prevent activities linked to terrorism and drug deals [for the 2nd time]. HSBC Fines of up to $1 billion.
Brokerage Fraud A futures firm and its chief charged with making false statements. Peregrine Financial Nearly $200 million missing.
Trading Loss A multibillion-dollar trading loss tied to credit derivatives. JPMorgan Chase $5.8 billion lost (and it could grow).
Sales Practices Claims that a bank pushed its own mutual funds over competitors’ investments. JPMorgan Chase Regulators are examining the tactics.
Coup at Energy Giant An abrupt leadership change following a merger. Duke Energy The status of the nation’s largest electric utility.

Okay, now consider how well the Financial community has behaved in the past half year:

Swiss banks – draw in over $100B in latest quarter despite hiding US tapxayer’s monies and other secrecy blows
Goldman Sachs Resignation – Executive Greg Smith says “ the environment now is as toxic and destructive as I have ever seen it.”
Obama, Politicians Refuse to Return Ponzi schemer Stanford’s political contributions 
MF Global  Bankruptcy – CEO John Corzine – just before ordered $200M of client funds transferred to JPMorgan Chase aand close to $1billion are “lost” .
Jenner Report on Lehman Brothers Bankruptcy– Ernst Young auditors and bank fail to report massive and illegal Repo 105 transactions; no legal actions taken by US government
Olympus Corporation – with accounting firm Ernst Young, Olympus was able to hide for several quarters hundreds of millions in losses – resulting in $1.7billion of investor losses
Kerviel say Management Knew – In $6.1B losses at French Bank SocGen  now  the question of who knew and who is responsible is on trial
JPMorgan Dervative Losses – Instead of $2B , reckless  derivative  trading losses could exceed $9B
Florida Robosigning Case –  Florida Supreme Court will decide Foreclosure Robosigning case with $100s of billions on the line
HSBC’s Money  Laundering – for 2nd time  HSBC is found to be deliberately fraudulent in massive DC  money laundering probe
CitiGroup – allowed to promote executive responsible for misleading research reports

Finally, since they were rescued by public taxpayers to the tune of $3,300 billions  and still counting, lets look at what the financial community have done for the country.
2008 to present – fiercely resisted any lowering of mortgage  levels or mortgage rates despite financial incentives to do so;
2008-2010 – committed robsosigning and other foreclosure illegalities on a massive scale, now in litigation with states;
2008 to present – have also fiercely opposed reinstating the Glass-Steagall act that does not allow retail bankers to engage in investment banking;
2008 to present – have steadfastly opposed the Volcker rule that would ban proprietary trading and investment/sponsoring of hedge funds/private equity;
2008 to present – after steep decline have increased complex derivatives “investments” to greater than 2007 levels;
2008 to present – have amassed huge derivative based losses – see Korviel, MFGlobal, and JPMorgan cases above;
2008 to present-  despite decline in financial industry jobs, total financial sector bonuses+compensation  exceeds 2007 levels.

The Moral Vacuum

The whole argument of this post is that there is a Moral Vacuum growing in the US. Major interests such as the Financial community and broader popular brands like  the gun lobby or collegiate sports like football and basketball have become  jurisdictions unto themselves . They now have the ability to shape or  transcend local and even national regulations and laws. Nowhere has this been more vividly  exemplified than by the Jerry Sandusky case at Penn State  and the ability of the Financial community to break laws at will and limit damages  to no admission of guilt and fines that are a tiny fraction of the total financial havoc they have wreaked on their customers, their shareholders, and the nation. Take this as a sign of the breakdown of community and governance in the US.

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