Laundering $800 Mil in Drug $, How Did HSBC Execs Avoid Jail?

[an8150]

I follow your logic (I'm fine with utilitarian calculus in this example). And yes it makes sense if you can choose between many small failures and huge conglomerates failing, you choose the former. But I don't think small banks are much less susceptible to systemic failure than the conglomerates. When people hear macroeconomic news and want their money, they want it from their regional bank just as quickly.

As you say with your reference to Basel Regulations, the bank regulators are always figuring out new metrics to test for strength because you can meet all capital requirements but hold really low quality assets. The assets can also have risk that is all positively correlated and so will tend to a credit risk at the same time. So it's incredibly tough to use rules of thumb to make sure banks are well managed.

I think the federal insurance program we have in the U.S. has on balance helped prevent calamity. There are problems with it and it does increase industry concentration and moral hazard, but public fear is too great when it comes to money already earned. If we didn't have this insurance and people really were rational they would be demanding all sorts of exorbitant interest rates on simple checking even. Lower interest rates on checking are one of the most important sources of subsidy to the banks.

With uninsured banks, I don't think there would be enough liquidity for a large scale economy. It goes without saying I could be wrong. Tell me how.

I often think, broncofan, that in a libertarian world we would have had less economic development (or, if not less, then certainly different, more diffuse, with greater variety, and more opportunities to opt out and to avoid the blandishments of Big Business in governments' Big Tent; curious perhaps, but there is a hippy lurking inside most libertarians), so, without trying to pin down the meaning of 'large scale economy', to some extent I can see your point. Actually, as an aside I am sometimes amused and irritated by the fact that in the 'Progressive' and corporatist social democratic state we have the extensive motorway networks that, on other days with their Green hats one, the same 'Progressive' corporatist social democrats lament (I sometimes wonder whether, for this, Hitler, vegan pioneer of motorways and Romatic lover of unravaged forestry, is laughing at us from Hell); extensive motorway networks are, it seems to me, unlikely to have developed in a libertarian society. As another aside, talk of x (e.g. training children), y (e.g. house price inflation), z (what-you-will) as being of importance to the 'national economy' gives me the creeps. At best it's mercantilist propaganda, at worst, quasi-totalitarian dragooning. But anyway, back on topic, even if you're right that "[w]ith uninsured banks, I don't think there would be enough liquidity for a large scale economy", arguably the greatest periods of economic growth known to either your nation or mine were in the 18th and 19th centuries. With uninsured banks.

So, who knows what might have happened in an alternative universe? Certainly not I, although I'd be prepared to offer a few generalised predictive hostages to fortune. But actually, as always, that's the Big Argument for Big Government: stick with us, we'll see you right. I can understand why that appeals to the craven, the cowardly, the lazy, and even to those merely lacking self-confidence. I just happen to think it's a shame that entire populations, and particularly those of our two great nations, have been engulfed by this enervation. And, while I'm in full flow, that the Tribunes of this passivity trumpet their abasement as virtue.

A final though occurs, broncofan. Does your monster have a name? Is it Leviathan?

[fivekatz]

I am not sure what libertarian world we would look like if it was pure but IMHO you sure as heck can't have a standing army and taxation to support that army in times of peace and call that society libertarian. That alone means the USA has gone so far down the 'rabbit hole" that it can never be a pure libertarian society, because the society as constructed would take such a body blow between the death of the corporations that sell products to that standing military and all the members of the military that find themselves out of work that it might take the society a generation to dig out from under it.

There is in theory a lot that is great about Libertarian philosophy. I believe many laws regulating personal choice (drugs etc) are dumb. But the leap from here (where capitalism is today) and there is too far.

Just as on the flip side universal single payer health care in the US is too far a leap in economy that is loaded with private insurance, hospitals etc. And while such health care (universal single payer) is so anti-libertrian, if a country is going to spend whole ton of taxpayer dollars on something, should it be an army 8X's larger than anybody else's defending American business interests or should it be on defending America's citizens from disease?

At any rate the US has gone to far down the road to be pure, so the government can choose between making life better for everyone or making life better for the 1% because government is far too intrusive at this point to ever get back to pure libertarian ideals.

And on balance in IMHO the government in US needs to move center-left. Argue as they might about the greatness of the Reagan revolution the life of the vast of majority of Americans is not better in 2012 than it was in 1980.

[an8150]

I am not sure what libertarian world we would look like if it was pure but IMHO you sure as heck can't have a standing army and taxation to support that army in times of peace and call that society libertarian. That alone means the USA has gone so far down the 'rabbit hole" that it can never be a pure libertarian society, because the society as constructed would take such a body blow between the death of the corporations that sell products to that standing military and all the members of the military that find themselves out of work that it might take the society a generation to dig out from under it.

There is in theory a lot that is great about Libertarian philosophy. I believe many laws regulating personal choice (drugs etc) are dumb. But the leap from here (where capitalism is today) and there is too far.

Just as on the flip side universal single payer health care in the US is too far a leap in economy that is loaded with private insurance, hospitals etc. And while such health care (universal single payer) is so anti-libertrian, if a country is going to spend whole ton of taxpayer dollars on something, should it be an army 8X's larger than anybody else's defending American business interests or should it be on defending America's citizens from disease?

At any rate the US has gone to far down the road to be pure, so the government can choose between making life better for everyone or making life better for the 1% because government is far too intrusive at this point to ever get back to pure libertarian ideals.

And on balance in IMHO the government in US needs to move center-left. Argue as they might about the greatness of the Reagan revolution the life of the vast of majority of Americans is not better in 2012 than it was in 1980.

You are right that hooking large numbers of people up to the dripfeed of state largesse makes it almost impossible, in ordinary political terms, to turn around. And it's not just the military which is a client. In certain parts of Europe, including in my own country, if you remove the bulk of state spending then most people would, at least in the short term, be left without income or means to support themselves. Blood would be spilled, as it has been in Greece. Which reminds me of a story about Napoleon who, when arriving at the scene of a battle in the process of being lost by one of his marshalls, was asked by that marshall how to get out of the mess he was in. "I would not have got into this position in the first place", replied Boney. Which is not a terribly helpful answer, but I suppose it is what a libertarian would say to the dilemma you've described. The problem with your prescription, fivekatz, is that, quite aside from its lack of principle ("we might as well be hung for a sheep as for a lamb"), eventually economic reality will catch up with us all: the nations of the western world are spending more than they can afford. Your own government spends $4 trillion for every $2 trillion it raises in taxes. The difference is your national debt. In two years' time the interest payments on that debt will be financing the Chinese People's Army. Eventually you will not be able to service the debt. You will default. There will be blood. So in the final analysis, it doesn't matter what I think, or what any of the 'progressives' and 'liberals' think. When the money's gone, it's gone. And the more sheep feeding from the trough when that happens, the more blood will be spilled when the trough is empty (I know, the idea of ravening sheep is difficult to imagine ).

The irony is that the drive to create the New Jerusalem here on earth - government making life better for everyone, as you put it - is what will create a hell more vicious and devastating than any libertarian society so brutal as to lack government healthcare and welfare, yet apparently I'm the utopian.

[hippifried]

Well, I don't know about y'all, but I'm still waiting for any kind of evidence that supports the egoist philosophy. If anything even remotely resembling a successful individualist society has ever existed, give me the where & when.

As for the ability to afford all this mythical "government largesse": All monies are coined by the state, & always have been. Money is merely an artificial concept to simplify barter. Nowadays it's nothing but numbers in a ledger, with a little bit of pocket change. We can crunch the numbers & afford anything we want. That's WE. Collectively.

[Stavros]

You are right that hooking large numbers of people up to the dripfeed of state largesse makes it almost impossible, in ordinary political terms, to turn around. And it's not just the military which is a client. In certain parts of Europe, including in my own country, if you remove the bulk of state spending then most people would, at least in the short term, be left without income or means to support themselves. Blood would be spilled, as it has been in Greece. Which reminds me of a story about Napoleon who, when arriving at the scene of a battle in the process of being lost by one of his marshalls, was asked by that marshall how to get out of the mess he was in. "I would not have got into this position in the first place", replied Boney. Which is not a terribly helpful answer, but I suppose it is what a libertarian would say to the dilemma you've described. The problem with your prescription, fivekatz, is that, quite aside from its lack of principle ("we might as well be hung for a sheep as for a lamb"), eventually economic reality will catch up with us all: the nations of the western world are spending more than they can afford. Your own government spends $4 trillion for every $2 trillion it raises in taxes. The difference is your national debt. In two years' time the interest payments on that debt will be financing the Chinese People's Army. Eventually you will not be able to service the debt. You will default. There will be blood. So in the final analysis, it doesn't matter what I think, or what any of the 'progressives' and 'liberals' think. When the money's gone, it's gone. And the more sheep feeding from the trough when that happens, the more blood will be spilled when the trough is empty (I know, the idea of ravening sheep is difficult to imagine ).

The irony is that the drive to create the New Jerusalem here on earth - government making life better for everyone, as you put it - is what will create a hell more vicious and devastating than any libertarian society so brutal as to lack government healthcare and welfare, yet apparently I'm the utopian.

Free market capitalism is a liberation ideology; without the state as it is today, your arguments lack a target -you are dependent on the critique of contemporary capitalism to enable you to constantly say what is wrong without having to tell us what life will be like after the revolution. You refer to violence in Greece knowing full well that it is extremist neo-Nazis attacking immigrants from North Africa, the Middle East and the Indian sub-continent, and is part of the unresolved ideological fractures of the Balkans that date back to the dissolution of Ottoman rule there and which have shaped the garganuan mess that modern Greek politics has collapsed into.

As a free market capitalist I know you think all immigration controls are wicked and deplorable, but the simple truth is that you cannot conceive of a free market capitalist alternative to what we have now without getting all confused about what role in your Eden will be played by nationalism, globalisation, climate change, modern technology and its impact on jobs -like the Trotskyist waiting for the transition you wish it all away with the pie-in-the-sky fantasy of a politics free of government and taxation, economic relations regulated by markets, social relations shaped by individual self-interest, the majority of people living in the sunlit uplands of prosperity and bliss.

Or, politics in which democratically elected governments are replaced by the tyranny of market forces; in which economic relations are not controlled by any regulations so that 'meat manufacturers' can sell diseased rats as 'chicken burgers' and respond to customer complaints -nobody is forcing you to buy my burgers! And social relations shaped by violence, slavery and contempt for human rights.

Free market capitalism is a utopian fantasy in which privilege and wealth replaces the Nazi party as the arbiter of life and death. In this system, if your father's business goes bankrupt taking your inheritance with it, you force your father to his knees, and order him to open his mouth while you piss in it, just as Ayn Rand would expect you to deal with such a loser. Better still, lock him and the rest of the losers in your family into a barn, and set fire to it -why should the world carry this extra, surplus-to-requirements, breadcrumb begging extra bagagge?

An Idaho senator has introduced a bill that would require all high school students in the state to read Atlas Shrugged -evidence of the controlling mentality, the venal hostility to freedom that free market capitalists are addicted to. The fact that he doesn't even take it seriously underlines the contempt with which free market capitalists treats democracy. Or maybe he is just one of capitalsm's useful idiots? And in such a crowded market...

http://www.huffingtonpost.com/2013/0...n_2631414.html

[broncofan]

So, who knows what might have happened in an alternative universe? Certainly not I, although I'd be prepared to offer a few generalised predictive hostages to fortune. But actually, as always, that's the Big Argument for Big Government: stick with us, we'll see you right. I can understand why that appeals to the craven, the cowardly, the lazy, and even to those merely lacking self-confidence. I just happen to think it's a shame that entire populations, and particularly those of our two great nations, have been engulfed by this enervation. And, while I'm in full flow, that the Tribunes of this passivity trumpet their abasement as virtue.

A final though occurs, broncofan. Does your monster have a name? Is it Leviathan?

Libertarianism does tend to be efficient. I have pointed to market failures in such systems but they're not easy to correct. However, I point to these market failures not just to show challenges to the efficiency of pure free markets but also individual inequities suffered in the process.

To say that a market system is efficient says nothing about how capital is acquired. It says nothing about how it is distributed. It says nothing about what happens to individuals who are victims of a market failure, say through lack of information, and end up serving as a cautionary tale for others heeding their signals in the marketplace in furtherance of this sought after efficiency.

We have to consider in this calculus what happens to the person who has his money deposited at a bank when there's a bank run. The reason the government insures these banks, even if it is inefficient in the long run because of the costs we've talked about, is because it is unfair for any one individual to pay for a failure with his life's savings. In free market ideology, we might assume that individuals would be able to pick the more responsible banks and so the person who loses his money does so because he was seeking a higher return by taking on more risk. The truth is, this risk is not priced very efficiently by the market and someone could lose everything through no fault of his own. Credit risk is notoriously difficult to value.

When it comes down to it, Libertarians want a competitive system and they strive for efficiency (an aggregate number), but they forget about the people who through no fault of their own lose out in the process. There are basic things people are unable to live without. In a free market system, economic losers would be forced to go without for the benefit of some aggregate utility function. Life is not so easily reducible to mathematical abstractions. A hands off system avoids unintended consequences, but accepts all of the easily foreseen and avoidable misery. To me, this is a pessimistic ideology that says let the losers lose because helping them share in the economic success might involve some waste.

[Ben]

Gangster Bankers: Too Big to Jail

How HSBC hooked up with drug traffickers and terrorists. And got away with it

http://www.rollingstone.com/politics...-jail-20130214

[fivekatz]

Elizabeth Warren 1 - US Fed Regulators 0

The best argument the regulators could come up with is cost-benefit, but the problem with cost - benefit is if Jamie Dimon had to do 12 months maybe Goldman-Sachs and a few others may operate differently then you would have a true moral hazard in a world where financial institutions have become so big that world recession is the aftermath of their excessive gambles and quasi legal to illegal activities.

Forget Utopia, the world is what it is. Huge banks aren't the product of the FDIC, they were the product of repeal of regulation. Now I am not so naive that the repeal of Glass-Seaguall caused the all the issues of the meltdown, but it made it so much broader when players like Chase and Citi and an B of A could come to the party as players with FDIC insured deposits and drunken bets on sub-primes.

These people knew what they were doing. The fact that they leave the devastation richer for the experience as opposed to crushed, while individuals and institution investors got fucked is just wrong.

The philosophical arguments about pure capitalism is all well in good but that is not the world we live in. And in the world we live in companies like Goldman-Sachs, JP Morgan-Chase, Lehman Brothers, HSBC should be taken to the wood shed and the CEO's who either lead so poorly they hadn't a clue what was happening or led the charge, those dudes should spend some time in minimum security incarceration and that will create moral hazard.

What actually happened is bullshit and for all I am all for Obama his adminsitration let these guys walk away having earned a lot and learned nothing except the world can't live without them.

[broncofan]

I'm not saying only fdic caused industry conglomeration but it may have been a factor because it helps enable banks to get deposits easily and for lower interest rates. Also, regulators have not applied Sherman anti-trust principles well enough to industry mergers. They've allowed too much concentration when many established methods for measuring industry concentration (HHI) have specifically contraindicated it. Other issues include loosening of interstate banking regulations, loose regulations respecting both bank holding companies and financial holding companies that allow companies to create a broader corporate umbrella and operate many different financial services companies such as securities brokerage, insurance brokerage as subsidiaries.

I'm for more regulation. I'm just saying that all regulation changes incentives in the marketplace. Providing insurance makes people take on more risk, but that's not a good enough reason for withdrawing it. It's a good reason to provide MORE regulation so that their new incentives are properly checked by bank regulators.

[fivekatz]

IMHO the real issue with the 2008 crash was a lack of regulation. There wasn't any regulation of CDO's or Synthetic CDOs. By calling the insurance of CDO synthetic it allowed insurance to be written without any oversight.

None of the banks who were "insuring" their CDO's with AIG had any idea how much money AIG had committed to insuring and AIG did not have to hold reserves for it. But AIG allowed the cover for the CDOs to be Triple AAA rated by Moody's and S&P. Besides the banks not seeing that AIG had inadequate capital reserves to back up the bundles of sub-primes, the government could not see it either thanks largely to the key players in the Clinton Administration (Ruben, Summers and Greenpan).

The other deregulatory gap that caused things to get really bad was the repeal of Glass-Seageall. It allowed Travelers (broker and insurance co.) to merge with a commercial bank (Citi Bank). Once the walls went down between investments banks and commercial banks the amount of activity in CDO's grew tremendously. The fact that the commercial operations had depositor insurance wasn't as much a factor as was the shear greed of the banks.

Now IMHO sub-prime was bound to happen, but if the wall had been kept to investment banks, all of sudden Merrill-Lynch, Lehman Brothers and Goldman Sachs aren't the same body blow to the world economy that JP Morgan-Chase, B of A, HSBC, Well Fargo etc were.

I would agree that weakening of interstate banking regulations contributed and will contribute to fuel the reality of too big to fail. My personal opinion is that if a bank is too big fail it is too big to exist as is and should be broken into individual units or seperate regional units. The efficency of scale of big banks is dwarfed by the risks to the public if the institutions failure can trigger a world recession if the taxpayers bail it out and a depression if they don't.

Whilst I understand and applaud the Obama administration's decision to take on the issues of health care reform in the US, I personally think that it was in some ways an easy out versus taking on the basic structure of Wall Street and reeling in the damage done from Reagan to Clinton to Bush and the natural tendency of a capitalist to find the loopholes and run through them.

Unbridled greed is at the core of capitalism and regulation is the bridle that allows it to survive without either it's taking itself down or the 99% toppling it.