The Securities and Exchanges Commission (SEC) said this Friday Citigroup had been charged. In a statement, SEC says:
“Citigroup misled users with assurances that high-frequency traders were not allowed to trade in Citi Match, a premium-priced dark pool operated by Citi Order Routing and Execution (CORE), when two of Citi Match’s most active users reasonably qualified as high-frequency traders and executed more than $9 billion of orders through the pool.”
How much profit they made on that $9 billion is unclear, but Citigroup now has to pay $12 Million in disgorgement and penalties after a settlement with the SEC.
Also on Friday, the British Financial Conduct Authority (FCA) said “Michael Nascimento (DOB 28th June 1977), was today sentenced to 11 years’ imprisonment for his role in a share fraud carried out through a series of boiler room companies which led to the loss of more than £2.8m of investors’ money.”
More than a decade in prison for £2.8 million. Another statement was made by FCA on Friday. They say FCA “has banned Christian Bittar from performing any function in relation to any regulated financial activity.” They further add:
“Mr Bittar formerly worked at Deutsche Bank where he traded interest rate derivative products referenced to benchmarks including EURIBOR. The FCA has found that Mr Bittar lacks integrity and therefore fitness and propriety to carry out such a role.
Mr Bittar made requests to EURIBOR submitters to make high or low EURIBOR submissions, both internally to Deutsche Bank submitters and externally to traders at other EURIBOR panel banks.
He did so to benefit the profitability of the trading positions for which he was responsible and, on occasion, the profitability of the trading positions of other traders.”
What sort of losses that led to, we do not know, but a good guess might be that many zeros probably need to be added to that £2.8 million. Yet the banker gets a slap for what may be sophisticated large scale fraud, while the simple fraudster get more than a decade in jail for what, in many ways, is pocket change relative to the subject matter.
That policy decision was made because they say banks are too big to fail. Our elected politicians, our civil service, our law enforcement, our judiciary, the entire system, has pretty much admitted they are scared of bankers.
Publicly many of them have said if they are arrested, then it might lower confidence in the bank, the market might turn, the bank might crash, and there may be a repeat of 2008.
In other words, they have publicly stated bankers are above the law. So they get a fine, which might be 1% or less of the profits rather than all of the ill gains, or they get barred from engaging in financial activities.
That’s after bankers led to trillions in losses, to an uprising both on the left and on the right soon after 2008, to a revolution in Arabia which didn’t turn out very well, and to an out of the box solution in public blockchains.
To say nothing of governments of the world now being deep in debt. Yet none of them carried out a royal commission, or its equivalent, so we don’t even know what really went wrong and how it can be prevented.
Effectively, we’ve all brushed it under the carpet, like bad memories no one wants to think of any more, but if nothing has been learned, a repeat of it is guaranteed and the longer boom times continue the more it becomes certain because the problem has not been solved and the problem is systemic.
In the absence of a royal commission, everyone has their own favorite cause to blame. Indeed, the US’ civil service report on the matter effectively blamed everyone and everything, something which is no different than blaming no one and nothing.
Yet the FED does need to be singled out. They raised interest rates 17 times in the two years preceding the crash. Thus anyone who had previously borrowed and could easily afford it, found themselves through no choice of their own, no input, and no recourse, having to pay back a lot more than they can afford.
The easy solution there, which would maintain FED’s responsibility of stabilizing prices, would be to have a banking system whereby the new rates apply only to new customers.
The system however is so complex, that while a change from 5.75% to 6% might not seem like much, the butterfly effect may lead to a cascading collapse.
Nor is anyone well placed to give even a reasonable estimate of the probabilities of it doing so because while they insist on financial surveillance for the common people, they themselves operate effectively in complete secrecy.
The Fed meetings are not even held in public. There has been no audit of one of the most important bank in the world. They sometime choose to not reveal certain data as they please. And the worst of it is that there is no accountability whatever, power is fully concentrated.
While the American system is largely based on the enlightenment idea of the separation of powers and checks and balances, agencies within the executive, like the Fed, like SEC, have effectively fully concentrated power, with no checks or balances.
Thus no one can turn around to the Fed and say you can’t raise interest rates. That’s technically of course because practically matters are a lot more complex. But while the executive, that being the cabinet, has parliament or congress and then the judiciary keeping them accountable, able to say no, and limiting their power, Fed has no equivalent.
The judiciary can not for example say Fed can not raise or lower interest rates even though that is a decision by the executive which significantly affects practically every individual.
Nor can the president or anyone else, or a jury of ordinary Americans, say we’ve heard all the arguments and we’re siding with yes or no.
In other words, Fed has unchecked power, power which necessarily corrupts, power which may have been intentionally or unintentionally misused just before the banking collapse and perhaps thereafter.
For the trillions that have been printed may have had no effect on inflation when the times were tight, but now that America is growing at 4%, inflation is picking up, and that may mean interest rates have to rise and they may rise to the point where everyone is bankrupt.
That’s just one of the many potential lessons, with a very big lesson being that banks are now systemically important. That statement has been said many times since 2008, but the realization of it means that a study should be carried out on the role banks have on our economy and on the role they should have.
That’s because banks are now effectively public institutions and they are nationalized by proxy and the taxpayer does pay for them. In turn, banks should have additional responsibilities. In particular, a bank account should be a right for all individuals and businesses engaging in legal activity.
Perhaps there should further be caps on the level of interest rates banks can charge for mortgages and perhaps there should be quotas on how many people of say $20,000 in income are entitled to a mortgage. Perhaps there should even be recourse to the judiciary on a decision a bank makes.
These are just some simple suggestions to highlight the fact banks now owe a duty to the wider public in addition to if not above that of their shareholders as it is the public that bailed them out, not the shareholders.
Ultimately, however, there are no easy solutions, but it is not the case that there are no solutions either. It is not the case that there aren’t lessons which can be learned, changes that can be made in an objective way, and measures that can be taken to potentially even fully prevent a repeat of 2008.
Yet it does appear to be the case that our political system has no appetite for it at all. Perhaps understandably, to some extent, as the focus rightly was to get out of the crisis. Now, however, when it appears some sort of boom times have returned, we perhaps should open the files and see what went wrong.
Something which is very unlikely. Britain of course is busy with Brexit. America is busy with Russia and/or with trying to impeach Trump. They both are busy with immigrants, the very poorest who have suffered the most during the past decade, and effectively no one dares stand up to the bankers.
Except this space, which rather than trying to fix the many problems with the banking system, focuses on providing an alternative to it, an equitable digital banking for a digital age.