As the world slowly realizes just how much fraud, double-dealing and criminality lies at the heart of the banking system, there is a slow-motion horror, a reluctance. My God, the LIBOR, to which $370 TRILLION in assets are tied, everything from mortgages to car loans to credit cards – it’s gamed from the inside out. As I pointed out yesterday, even The Economist is suggesting that this is the Tobacco Moment, that point at which society gets a hold of the right internal communications inside these organizations and recognizes that many of these firms have gone from opportunistic to just plain evil.
My reaction is: Well, duh. Did you see the derivatives scandals? The foreclosure scams? The insultingly high bonus payouts on the very year these firms threatened the world with chaos if they didn’t receive trillion-dollar bailouts? Why does it take the LIBOR scandal for us to realize that these guys cannot be trusted, and that a serious new regulatory regime needs to be forced on this industry if we want capitalism to keep functioning?
Answer: Because Boomers are on the cusp of retirement.
You don’t change horses in the middle of a stream
Almost everybody who participates in the industrial economy believes in saving for retirement. Not everybody does it, for reasons of not having enough money or foresight or self-control, but almost everybody believes in it. Ask the average bus driver, bass player, or Congressman what you should be doing for retirement, and they’ll say “save money for your old age.” Some people are aggressive, and fill their Roth IRA to the brim while hedging in currencies, cash, stocks and bonds; other just have a buncha cash stashed in the ol’ mattress. Still others don’t save, but know they should. And the institutions you use to hoard this money are invariably: Banks. Preferably big, Wall Street brokerages. AG Edwards, Schwab, TD Ameritrade, that kind of thing.
Well, isn’t that the way it’s done? Actually, not for everybody – it’s a belief system. Ask the Navajo, for example. I got to work with the Washington Semester program at American University, which introduces kids from the American Indian reservations to how things function (ha ha) in DC, so they can take that wisdom (ha ha) back to their tribal communities. The program’s chair, Jack Soto, told me all about how natives just can’t understand the approach of hoarding cash as opposed to strengthening communities. After all, aren’t your children and neighbors and a healthy plot of land your real assets? How can it work out if the plan is for people to hoard while others don’t? Won’t that just impoverish people? So, there really is more than one philosophy out there.
But here we are in 2012, with millions of Boomers having bought into this game of hoarding cash through financiers. For the vast majority of these people, it’s too late to work on another strategy for retirement. That’s why they have wanted to make This Thing work out at any cost.
The banks are insolvent? Well, prop them back up!
They have trillions in untold toxic derivative swill still on the books? Have the Fed buy it – and suspend mark to market!
We caught the banks seizing homes that don’t even belong to them through outrageously corrupt foreclosure practices? Well, just ignore it, I’m sure they didn’t mean to do that 43,000 times.
Commodities traders such as MF Global just out and out stole from their customers to pay off their casino bets? Well, heavens, don’t indict Jon Corzine – there probably isn’t enough evidence to convict him anyhow.
The global effort to look the other way is reaching the point of satire. I believe that the Baby Boomers simply don’t have the energy to rewrite the global rules for banking on the eve of their retirement. Dammit, what will happen to their accounts if we actually apply the law and end up scalping the top 175 executives at a financial company? There will be a run on that bank, of course. And so everybody moves their money next door. And of course, they have been up to exactly the same crap, and so we arrest 200 of their top guys for conspiracy to commit fraud. And there’s a run on THAT bank. And so on and so forth.
It should come as no surprise why the world regulators haven’t gotten into the gritty business of actually applying the law. It’s not where would they start – it’s where would they even stop?
But this logic has gone on long enough.
We must get back to the rule of law
If we cannot re-establish some precedent that if you defraud people or steal from them, that you are going to JAIL, then we shouldn’t be surprised if the trust horizon folds all the way back to straight barter, skipping these institutions altogether. We need banks and we need credit, but we need trust to make either of them function. As it stands, it has been entirely too profitable to commit egregious, widespread acts of fraud and let the company attorneys work out some non-admission plea deal for a few million to shut the authorities up until next time. Who wouldn’t love that kind of game. Who wouldn’t keep doing it? The economic benefits – for a few – are probably a hundred-fold the risk. Bankers rarely get investments of that kind of return – so of course the behavior continues.
It is time for new, strict regulations not overseen by industry mavens – i.e., no more appointing former Goldmanites as the foxes to watch the henhouse. And it’s time for people to go to jail.
If we don’t, then the value of this whole economic system goes slowly down the toilet as trust evaporates. Lines of credit get pulled. Suppliers stop shipping goods. People stop paying their bills. Depression creeps in. And then, it doesn’t matter what it says about your retirement on that piece of paper – we’re in a future nobody wants.