When a company scorches the earth or creates a pile of bodies, they are brought before society where specific allegations of law-breaking are presented, and vigorously defended, and if the allegations are judged to be true, damages are calculated and penalties are assessed.
Companies are vehicles driven by people, yet if I run over somebody with my car, it's not my car that is going to jail and fined; it is me.
If I can prove the brakes failed, and I was within all operating laws, then the victims or their families look to the auto manufacturer for compensation; they do not just walk away and absorb the wrongful loss.
I want to point you to some quotes coming out of Davos this year from this article.
"Nobody in Davos wants to get near a negative like redemption," said Robert Dilenschneider, chief executive officer of the Dilenschneider Group, "But the truth is that everyone here is part of the problem, and the public will soon begin demanding a pound of flesh." ... "It’s their view that everybody else did something wrong."
..before hosting a reception with champagne and canapes, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon expressed frustration at those who seek to pin all the blame on bankers.
"I take full blame for all the American banks and all the things they did," said Dimon, 52,... adding that he knows that’s what people want to hear.
Regulators, he said, should share some of the blame.
"God knows, some really stupid things were done by American banks," Dimon said. "To policy makers, I say where were they? They approved all these banks."
Notice the 3rd-person reference to 'these banks'.
Stephen Green, chairman of London-based HSBC Holdings Plc, and a Church of England lay minister, also criticized regulators at a panel about capitalism on Wednesday. He also talked about the need for self-regulation, saying that "no amount of rules is going to enforce good behavior."
At a press conference on Jan. 28, he dodged the question of personal responsibility, saying only that "the banking industry" has "something to apologize for."
Washington-based Carlyle Group’s managing director David Rubenstein, says responsibility shouldn't be tied only to him or his industry.
"There are six billion people on the face of the earth, and probably about five billion participated in what went on," Rubenstein said in an interview. "Everybody participated in some way or shape or form."
Abu Eesa Niamatullah, executive director of the Cheadle Mosque in Manchester, England, who is in Davos to tend the spiritual needs of global business leaders, says Islam calls its cleansing process "expiation" and that he doesn’t expect any takers.
"Bankers don’t want redemption for the moral wrongs they’ve committed against humanity," said Niamatullah. "Redemption is a heavy word for Davos Man because remorse must come with sincerity and the desire to atone for the transgression. There are no sincere acts of sorrow in Davos."
Over the next few days, we are going to hear the SEC express deep regret about the 'lapse' in the Bernie Madoff affair. They were handed a document (pdf) that very specifically, in no uncertain terms, detailed exactly what Bernie Madoff was doing, and it even said exactly who to contact and what to ask for. The SEC never even picked up a phone.
Now my guess is that this 'lapse' is going to be used as an excuse to reimburse investors of their fund losses. This is only a guess, but if true, then the taxpayer will be reimbursing basically filthy rich people (or charities run by them) for criminal behavior which was ignored by the government.
Two wrongs may not make a right, but several might do the trick.
I don't expect actual remorse from the bankers and Wall Street, because they are specifically sent there for only one purpose: to make as much money as is possible while theoretically staying within the law. They make no apologies for this, and they shouldn't when viewed through that narrow lens.
The problem is, this motivation spurns cooperation, and never considers any effect other than immediate returns on investments. If the banks made money from writing mortgages, then it made sense to remove any obstacle that prevented them from writing as many mortgages as they could. One obstacle was credit worthiness and repayment ability. If they simply didn't ask for that information, then the problem goes away. The next department spots the potential for danger in these mortgages, so they slice them and dice them and do what Alan Greenspan says, "spread the risk", somehow equating spreading with minimizing the risk only because it minimizes the risk to the originator.
There is an ugly rumor going around that the Fed is the lender of last resort, but we see this is not true at all. Besides all the capitol injections using public money, we are going to be facing an unprecedented amount of outlays against all the loan guarantees the government is making with very little noise in the media. This will happen after we buy some trillions of bad assets, if we buy them at all. There is some doubt that this is possible.
Besides the public monies that ideally should be paid back, what about the damage to the economy the financial system has wrought? How much is it worth?
We can start with a rough estimate using the contraction in GDP. The latest figures show a 3.8% decline in GDP but that includes inventory, which is at a very high level. If you do not allow credit for inventory, then GDP shrank by 5.1% so far.
3.8% of GDP would be a starting figure. Actually damages in the form of lost opportunity, lost taxes, and a host of other grievances would also be applicable.
The banks will say that those kinds of fines would cripple them, and I agree. The problems is, if there is no recourse, then there is no reason the banks should be allowed to exist as independent entities. Not if they are that integral to our society and can cause so much damage.
The only viable solution that solves all problems, and does so on the cheap is to nationalize the banks. I don't care what kind of mental associations it triggers, unless there is a better fix, then it is the right thing to do. Pull them in until a proper structure can be worked out.
We owe it to us.