Hanging 20 bankers at the end of the street won't help, says Blair

edam - in the instance of Jp Morgan, Jamie Dimon has Managing Directors that are responsible for their own divisions/profit centers and they then report to him. The woman MD (Ina Drew) who was responsible for the recent losses (that came from the 'London Whale') was out of the office for months due to an illness. It was clear that she was unable to oversee what went on and whoever she put in her place was ineffective (many stories here about the power struggle among the big egos in the bank). She has now lost her job, and surprise surprise - exited the company with a big payout.

There was a fascinating documentary on the causes/origins of the global financial crisis a few months ago on PBS in America (Public Broadcasting) called 'Money, Power and Wall Street'. No idea if you can watch it online outside of America (sadly, BBC i-player doesn't work for us), but worth a try:

www.pbs.org/wgbh/pages/frontline/money-power-wall-street/

There are interviews with the people who invented credit default swaps, and how lucrative an idea it was. They watched, horrified, as their competitors adapted the concept and used it for massive short term profits with little understanding or regard for what would happen when the instrument was used incorrectly or what the consequences would b if/when things went wrong.....as they did.

The show also graphically describes how regulators and lawmakers either don't understand or are several steps behind this fast paced business so are left mainly to clear up the mess created by this testosterone-driven industry which essentially is gambling with the financial health of the world.

Exactly, Edgar. There is always a way around procedures if you are determined enough. What extra tools would a bank have to determine source of funds or ultimate beneficial ownership if there was not anything obvious from the usual information sources and the customer had a plausible story.

I am not saying that HSBC was or was not vigilant though. They are no doubt examining their procedures now. Hopefully, this will lead HSBC and all banks to tighten up their procedures. But even then, that is no guarantee things won't slip through the nets.

Ttosca, certain bankers are to blame, together with politicians who relaxed regulation which allowed the separation between retail (or 'utility') and investment (or 'casino' if you wish) banking to be removed so that banks could grow to the current size with its inherent conflicts of interests, because it suited the politicians to be seen to increasing the wealth in the economy. The regulators who fell in thrall with this thinking.

And don't forget the man in the street who gorged on easy credit.

" somehow a UK bank STILL managed to launder drugs money in its Mexican subsidary? WTF?"

think about this. last year there were 400-odd murders. murder is already illegal. you can't make it more illegal. changing the law does not prevent the crime happening.

regulation is therefore not the only thing to look at - i am sure HSBC will be looking deep at the procedural errors that allowed this as it has evidently caused them huge embarrassment (and will possibly end in financial loss).

although i do know that all bank employees have done Anti Money Laundering training and there are already bank systems in place..the question is why they weren't sufficient - was it real complicity?

if it was actual criminal intent on the part of bank employees, that's not something you can structure- or train- out the possibility of. ultimately, there is always a way round if you want there to be...

jrost-

No I'm not a banker, I just think that blaming all the problems in the economy is a very lazy analysis.

The financial collapse and the subsequent recession, which is the worst since the 1930s, was caused by the banks and financial sector. It's really not lazy to assign most of the blame on to them.

Read a letter to the editor somewhere - could have been the Telegraph - that pointed out senior people in other fields don't demand bonuses for doing their jobs. Judges and doctors for instance (merit awards for doctors are a bit different). I think we need to sort out banking so the banks are managed in the interests of shareholders and society, not senior employees who think the business is their personal goldmine. Get back to first principles where the business is run in the interests of the owners, the shareholders, and NOT in the interests of the top employees.

Agree with an awful lot in the past few posts. Interesting that the US banks are falling into a regulatory gap.

Mexico - yeah, we have all these apparently stringent money laundering regulations that are such a pain in the bum for ordinary account holders but somehow a UK bank STILL managed to launder drugs money in its Mexican subsidary? WTF? Clearly regulation is not and has not been working - too much faffing around with the small stuff while allowing huge wrong doing to slip past.

If banks are too big to manage, those who were paid to manage them were clearly incompetent - they should have warned their shareholders. And we should be cutting them down to size so chief executives and boards ARE able to manage the risks they take. How the fuck does a bank think it's a good move to start trading things they don't actually understand?

Other factors to consider: much larger and more complex financial instruments than in the past (which I am not sure lawmakers or regulators understand enough to monitor effectively), and the high speed/high volume trading done by machines rather than humans.

It is all a big mess, and I honestly believe that there is widespread corruption and fraud occurring all the time in our financial institutions. But, so much of it operates in areas too 'grey' to be blatantly illegal (so can't be prosecuted) or too complex to be regulated/traced.

i have heard it said over and over that the banks are simply too big and complex for a CEO/President to effectively oversee. Hence Jamie Dimon, Bob Diamond etc saying they weren't aware of many of the positions/practises until there was a big problem.

As far as regulation: many analysts trace the problems in the US system to a repeal of regulations that were put into place after the Great Depression and removed under President Clinton.

Earlybird: "I cannot understand why our politicians do not put into place some strong and effective regulations (and regulators) to protect our economy and our people."

That is a good question, Earlybird.

I suspect the answer is lies partly in the fact that the financial products became too complex and the banks became too big to be effectively regulated. I wonder how much people at the top like Bob Diamond (Barclays), Stuart Gulliver/Lord Green (HSBC) and Jamie Dimon (JP Morgan) actually know the nuts and bolts of what goes on the all the various arms of their far flung businesses. If the chief executives of these globally systemically important banks do not have a complete handle on their businesses, what hope is there for a regulator to regulate effectively.

This issue is how financial institutions became 'too big to fail' or, as it were, too big to govern effectively. The roots are in legislation and politics, yes, during Labour. Do have a read of My Judgeypants' link early on in this thread.

I wonder if the solution is more regulation? Already, the administrative burden of complying with increased regulation is drying up credit, increasing banks' overheads (I am not complaining as I work in compliance, but outside financial services) and creating a lot of uncertainty.

The key I feel to reforming financial services lies in how bankers are remunerated. Short termism is rife because pay is linked to immediate profits or worse, de-linked to performance. That does not just apply to financial services but to all corporates. Shareholder 'spring' is a good thing IMO.

One of the main/big areas for dodgy financial practise has been the London offices of the US banks/financial institutions. Who regulates them? US authorities don't seem to have the authority (and are hampered by geography), and I'm not sure UK authorities have any oversight/power either. It is a 'grey area' that has cost the world billions when deals have gone wrong.

The AIG debacle originated out of London with very complicated and virtually impossible to understand financial vehicles (credit default swaps). The man responsible for the whole mess (Joseph Cassano) sits very comfortably (one assumes) in his Connecticut home while the rest of the world is still picking up the pieces from that mess.

The recent JP Morgan mess also originated with the 'London Whale' (so named for the size of the positions he took). He and his team were not supervised properly (maybe his supervisors simply didn't understand the complicated vehicles), and what was initially estimated to be losses of 'only' $2billion is now currently estimated to be $9billion......and they're still not done unwinding the positions.

And now we have the bank of England and Timothy Geithner pointing fingers at each other about the LIBOR scandal - who knew about it and when, who was responsible for policing/fixing, who knowingly looked the other way, etc.

I cannot fathom that one of the main architects of this LIBOR mess at Barclay's left the bank last week with a payout of $8million (or was it
£8million?). That is the sort of warped and rotten business practise that makes me furious. How does that happen? What is the logic in the boardroom that permits that level of reward for someone who should arguably be going to prison for fraud?

I cannot understand why our politicians do not put into place some strong and effective regulations (and regulators) to protect our economy and our people.

ah well, and 'tipping off' catch 22s...

it was pfizer

"it's caused the collapse of the whole economy right across the developed world, "

not yet - certainly serious problems but not collapse.

rethinking is required - but to describe the FS sector as unregulated would be to ignore huge amounts of existing legislation...what was going on was already illegal (hence the payouts for PPI mis-selling) and there is already a body of law in place.

some of the regulation suggested would be antithetical to providing capital to SMEs and would slow growth not aid it (eg deposits vs loans ratios enforced, transaction taxation..etc etc..)

Exactly Edgar. UK anti-moneylaundering laws are one of the toughest in the world. Think of the OTT Proceeds of Crime Act and its hair trigger reporting requirements.

It is one of things that keeps me busy!

as a FS employee (albeit some way down the food chain!) i am very conscious that a person really determined to use banking services as a vehicle for money laundering would be very difficult to catch out if they came up with a good and consistent enough story.

this may not have been what was going on in Mexico, where it seems the bank was complicit - but i think to extrapolate from one region and one bank to the UK and all its banks is unfair to say the least.

there is in fact huge amounts of anti money laundering compliance law already!! - in this country at least. possible sentences are up to 15 years.

Yeah, but we just lost a pharmaceutical centre - can't recall which company, was it Pfizer?

Yes, it's daft to rely on one sector, which is why the reliance on the City was such a bad thing. We have allowed the City to dominate our economy and that has proved to be a massive mistake.

And it's not just 'a few problems', it's caused the collapse of the whole economy right across the developed world, and massive scandal after massive scandal. This isn't about telling off a few naughty individuals, it needs root and branch reform.

edam the Uks primary innovation area is in pharmaceuticals- still plenty of patenting work in this country in that area.

it would be stupid to expect any single sector to drive the UK economy - monoculture is always the most vulnerable way - diversity brings more stability.

"Finance and accountancy are supposed to support business, not pretend to BE what business is all about"

finance is a service required by business, just like cleaning and lunches...it is a business in its own right also.

but as i have said, best to have lots of things going on. Getting angry with the whole FS industry because of problems with some portions of it is a massive 'baby and bathwater' thing. FS still provides a great number of jobs in this country - as well as being the provider for that much needed capital to business, and paying out of bank profits a hefty lump of tax to the exchequer.

not wholly a negative force at all

We do have talent in those areas, but when people set up spin off companies to exploit scientific or technological innovations, they end up being sold off to the Yanks. We are good at start-ups but lack the oomph to turn them into big companies that compete internationally. The financial services industry is part of the problem here, wrt to the financing that would help small businesses to grow and make the most of their ideas.

For instance, Britain was ahead of the pack in the early days of home computing but allowed the Yanks to corner the market (and the Japanese to get better at manufacturing technology). We are still taking that short-term approach to technology now. Short-termism being something that is encouraged by the City and business leaders - grab as big a slice of the profits as you can now and never mind the medium or long term. Our business leaders and financiers prefer to make short-term gains through carving companies up, rather than investing for the long-term.

Edam, from your last sentence, I fear you are living in the past.

Interesting to think we have talent in science, technology and manufacturing ... the education system is of course churning out all the footsoldiers we need in this area

I did not go through the British education system. Broadly speaking, you so do not have an education system that nurtures that sort of industry. However, your talent is in the creativity, innovation, communication and diversity. All perfect for a thriving financial services.

I am not saying we cannot or should not go back to a manufacturing base. But it will involve a lot more than just talk and hotair.

the City was a false idol. Engine of economic recovery my backside! It's been exactly the opposite. And our unbalanced economy, with over-reliance on what should be a support function to the main act, has been shown up for the dreadful mistake it always was. We'd do far better to look at investing in and developing science, technology, manufacturing and creative industries - areas where we actually have some talent.

Finance and accountancy are supposed to support business, not pretend to BE what business is all about. It's like basing your entire economy on HR or facilities.

I can understand the fury against the bankers from the man in the street.

I just wonder what realistically will be the engine of economic growth that will take us out of this recession if we slaughter London's financial services in the name of outrage.

New York will be delighted as will the other financial capitals of the world.

Fine to bring those responsible to book but talking about hanging bankers (many of whom are not your Bob Diamonds) is really killing the goose that lays the golden egg. Do it too quickly and we are talking about shooting ourselves in the foot.

Even the politicians and the regulators who were responsible for what they call 'light touch regulation' admit it was crap and helped to get us into this mess. I don't think more regulation is a problem, it's the lack of regulation that was a disaster.