— In 2001, the Transparency International corruption index rated the U.S. number 16 on its list of least corrupt countries. By 2011, it had moved the U.S. down to No. 24.
The recent Libor scandal demonstrates the growing corruption. Neil Barofsky, who oversaw Bush’s $700 billion TARP bailout, characterized the Libor rigging as “a global international conspiracy by the largest, too-big-to-fail banks to fix the most important interest rate in the world.” Barclays paid $453 million for its role in the fraud, but at least nine others, including U.S. banks, participated.
Before that, Wall Street collapsed in a morass of deceptive subprime lending, fraudulent ratings, and self-dealing. Borofsky wrote in “Bailout” that one of the causes of the collapse was “widespread fraud involving sophisticated groups of professionals.” Statistics show that half of all loans — millions of mortgages — involved fraud, almost invariably by the loan originators.
The corruption was pervasive: Goldman Sachs was fined $550 million for conspiring with hedge fund manager John Paulson to peddle risky securities while betting against those same “investments”; Morgan Stanley and other banks pressured rating agencies into inflating the ratings of its mortgage-backed securities during the housing bubble; Goldman Sachs helped Greece hide its level of indebtedness from its Euro partners, earning millions for the deception; UBS paid $780 million for defrauding the U.S. of tax revenue by creating 17,000 secret Swiss accounts for U.S. citizens, and simultaneously, a $200 million fine for actively marketing tax evasion services to wealthy U.S. citizens.
In a separate case in 2008, UBS paid a $150 million fine and agreed to refund $22.7 billion to clients it had defrauded by “pumping” failing securities while UBS’s top executives were “dumping” their own holdings.
More recently, four banks (UBS, Bank of America, Chase, and Wells Fargo) paid $673 million in fines and agreed to make restitution for rigging public bids on state and municipal bonds. According to the settlement, the banks systematically stole billions from “virtually every state, district and territory in the United States.”
Another case, USA v. Carollo, revealed May 11 that big banks were involved in racketeering, antitrust violations, wire fraud, bid rigging and price fixing. Charles Schwab has filed a lawsuit against 16 of those banks; in addition, four states are suing 17 large banks for defrauding them of transfer and recording fees, which they blame for the mortgage default crisis.
Meanwhile, the Federal Energy Regulatory Commission is investigating JPMorgan traders for artificially manipulating electricity prices — the Enron scam — in California to the tune of $73 million.
The Senate Permanent Subcommittee on Investigations this month found HSBC had knowingly laundered drug and terrorist money; at least 11 other banks are being investigated.
There’s more: Visa and Mastercard have just agreed to pay $7 billion to merchants for colluding to fix fees and terms of service; Capital One recently agreed to pay $210 million for deceptive marketing.
It is clear that the financial system is rotten to the core. The National Commission that investigated the 1980s S&L crisis found that fraud was invariably present in large S&L failures; over 1,000 bankers were sent to prison after that scandal. Nobody has gone to jail following the 2008 scandal, although it dwarfed the S&L bankruptcies. In fact, not a single major U.S. bank CEO was removed from his job.
According to PBS Frontline, the financial community has spent $320 million lobbying against the new financial regulations and against restoration of the Glass Steagall act, which kept Wall Street from blowing up the economy for 60 years.
Mitt Romney has said he will repeal Dodd-Frank, which means he supports this corrupt system. No surprise; the Wall Street cartel completely owns the Republican Party, along with half of the Democratic Party. In a few more election cycles, it will own the rest of the Democrat Party.
The 10-member bipartisan Financial Crisis Inquiry Commission reported in Jan. 2011 that “from 1997 to 2008, the financial sector expended $2.7 billion in federal lobbying expenses” and made more than $1 billion in campaign contributions to achieve what the commission called “deregulation redux.” Nobel economist George Akerlof and Christina Romer concluded in 1993 that widespread looting was the inevitable consequence of such deregulation.
As Charles Ferguson (“Inside Job”) has written, “Over the past two decades, the financial services industry has become a pervasively unethical and highly criminal industry, with massive fraud tolerated or even encouraged by senior management.”
The solution, as former Citigroup Chairman “Sandy” Weill told CNBC recently, is to break up the big banks.