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July 19, 2012

Get the Bank Criminals, Then Ask What the Regulators Did or Didn't Do

People and the media are too easily distracted from what is really important and the Libor criminal rate rigging scandal is a perfect example. 

As the Barclays facts make clear, somewhere between 5 and 20 of the biggest global banks in the world engaged in a multi-year criminal conspiracy to defraud at least tens of millions of people.  Yes, the fraud had two phases:  one before the financial crisis where they were “just” doing it to defraud their derivatives counter-parties and one after the financial crisis where they doing it to defraud the market and their shareholders (as well as their counter-parties) by painting a false picture that they were in better shape financially than they were. 

Now, along comes the complication that the NY Fed and other banking regulators knew (to some extent) what the banks were doing in phase two of the multi-year fraud.  The banks apparently claimed they were presenting this false picture to prevent a run on the banks, which the regulators were also trying to prevent in the then unfolding crisis.

The added spice in the story, at least here in the U.S., is that Obama’s Treasury Secretary, Tim Geithner, was the head of the NY Fed at the time when some of this happened.  So, in typical Washington and media fashion, all anyone wants to talk about is what Geithner knew, when he knew it and what he did about it.  He is also being criticizing for being the servant of Wall Street and the too big to fail banks when he was head of the NY Fed (if you have lived on another planet for the last five years, this will be news to you).

This is the definition of dumb. 

This is like a masked bank robber going into a bank with a gun in one hand and an empty sack in the other. He not only robs the bank at gunpoint, filling his sack with millions of dollars, but he also shoots and injures lots of people and escapes, speeding down the street in the get-a-way car driven by his co-conspirators.  We learn, however, that the bank security guard opened the door and let the masked bank robber with his empty sack into the bank and then opened the door again to let the robber escape with a smoking gun in his hand and his sack stuffed with money.

Who in their right mind would ignore the fleeing bank robber and his victims to question the security guard about what he was thinking?  Of course we should know that, but only after we capture, arrest, try and imprison the robber, recover the money, and take care of the victims.

Talking about Geithner, the NY Fed or any other regulator before the nailing the crooks at the banks who ripped everyone off is like talking to the security guard while letting the robber not only get away, but also allowing him to continue on his crime spree (just like the big banks are apparently doing).  Regulator incompetence, indifference, subservience or stupidity should, of course, be determined and addressed, but not before the banks that committed a massive criminal conspiracy over years, defrauding tens of millions, and not before their victims have been compensated.  Then, but only then, let’s scrutinize the regulators and see how to make them more effective.  But, lets get the priorities straight and not be distracted from getting the bad guys.

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