Big banks damage financial health. Big tobacco damages physical health. Both groups are willing to lie, cheat, and steal to protect their franchises, maximize profits, and pay big bonuses to key executives. For decades big tobacco testified its products were safe, in fact it used to advertise smoking improved health (1950s). The big banks have adopted the slick marketing tactics of the tobacco companies. They advertise ethics then violate them to produce bigger profits. See Harold Meyerson’s article Big Bank’s dangerous mononopoly on life.
We have all seen the headlines. Big banks manipulated LIBOR. Big banks manipulated the California energy market to increase profits. Big banks manipulated commodities markets to increase profits. Big banks almost created another Great Depression when they sold AAA rated pools of toxic mortgages to individual and institutional investors. This is old news. It is already fading into a bad memory. Banks count on the short-term memories of their customers.
I am not writing another analysis that describes how big banks are ripping-off Americans in their quests to maximize profits. My focus is the key executives. Banks don’t make decisions, key executives make decisions. But in this case, they do it with impunity. When executives make big mistakes their companies pay big fines without admitting guilt. The executives get away relatively unscathed; they may be paid smaller bonuses, which is their penalty for getting caught. And, if they really screw-up, for example 2008 damaged the U.S. economy for years, they are bailed out with taxpayer money. The executives have the best jobs in America because they work for banks that are too big to fail, they make millions of dollars per year, and they are not accountable for their decisions. There aren’t too many career paths that have those characteristics. Why not roll the dice? There are no significant consequences!
Do fines work? There is no evidence that fines are an effective deterrent. They are a cost of doing business for major banks. And, the fines may be a fraction of what the banks earned with their fraudulent business activities. Or, the fines are a small percentage of their annual earnings. Fines do not work.
How do we fix the problem? We don’t. Only politicians have that power. But, politicians that matter have been bought and paid for by one of the largest special interest groups in the country (Wall Street). The banks spend hundreds of millions of dollars per year on lobbyists who make sure the rules favor banks and their executives – not investors. Big bank lobbyists send millions to corrupt politicians who use the money to stay in power. Bank executives stay out of jail and make millions. Politicians stay in power. Hundreds of millions of Americans are left holding the bag. In this case the empty bag used to hold their retirement savings.
Perhaps investment firms and sales representatives should come with warning labels like cigarettes.
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