Wall Street bankers are under siege. Everyone from Tony Blair to Nouriel Roubini is debating whether they should be “hung.” Are changes coming, or will we have a repeat of the Peasant Revolution of 1381?
People have always been touchy about their money. 3,700 years ago in Babylon, violators of a financial contract were “put to death as a thief.” In medieval Catalonia, if a banker went bust, he had to live on bread and water until he repaid his depositors in full. In Florence, during the Renaissance, money-changers who cheated clients were tortured on the “rack.” Dante’s Inferno is populated largely with financial sinners, including “misers”, “thieves”, “usurers”, and even “forecasters.”
The LIBOR scandal is just the latest black mark for banks. Leading banks have been alleged to manipulate a financial benchmark determining the interest rates charged to millions of borrowers and used in derivative contracts worth hundreds of trillions of dollars. The Economist describes it as the “rotten heart of finance.” Emails that have come to light re the scandal include: One employee after being asked to submit false information, answered: “Always happy to help.” And another, recruiting a colleague in the fix, wrote: “If you know how to keep a secret, I’ll bring you in on it.”
Neil Barofsky just added new fuel to the fire. He is the former special inspector general in charge of oversight of TARP, the bailout fund and has just released his book Bailout. In it, Mr. Barofsky argues that the Treasury Department worked with Wall Street firms to increase their profits at the public’s expense. Mr. Barofsky told Bloomberg that “Americans should deplore the captured politicians and regulators who distributed tax dollars to the banks without insisting that they be accountable.” Further, Mr. Barofsky indicated that the “American people should be revolted by a financial system that rewards those who drove it to the point of collapse and will undoubtedly do so again.”
People are very mad. Nouriel Roubini told Bloomberg recently: “Nobody has gone to jail since the financial crisis. The banks, they do things that are illegal and at best they slap on them a fine. If some people end up in jail, maybe that will teach a lesson to somebody. Or someone hanging in the streets.” Last week, Tony Blair, former British prime minister and current senior adviser to JP Morgan, responded, “We must not start thinking that society will be better off with 20 bankers at the end of the street.” We agree with Tony Blair on that point.
Regardless, it’s time for a change. Crony capitalism and radical deregulation in finance, particularly in the last 15 years, have hurt our economy and our country. Barry Ritholtz, chief executive of Fusion IQ, said it well in the Washington Post on Sunday, “We should be finding ways to definancialize the U.S. economy and reduce bankers’ influence.”
The question is whether public outrage over the LIBOR scandal and other financial misdeeds will lead to reforms. Or will we have to wait for a new peasants’ revolt until we see any real changes?