Weekend Economists Repent! The End Is Here! July 20-22, 2012

[Demeter]

76. Dear DoJ: We Don't Want Financial Settlements, We Want Bankers Who Committed Massive Fraud In Jail

http://crooksandliars.com/susie-madrak/dear-doj-we-dont-want-financial-settl

The New York Times reports that the Justice Department has identified potential criminal wrongdoing at the center of the LIBOR scandal. One of the officials tells the Times they expect to file charges against at least one bank later this year, but it sounds as though they simply want to force a financial settlement -- which, once again, will simply be seen as the cost of doing business. Nothing in the banking culture will change until someone important goes to prison:

The prospect of criminal cases is expected to rattle the banking world and provide a new impetus for financial institutions to settle with the authorities. The Justice Department investigation comes on top of private investor lawsuits and a sweeping regulatory inquiry led by the Commodity Futures Trading Commission. Collectively, the civil and criminal actions could cost the banking industry tens of billions of dollars.

Authorities around the globe are examining whether financial firms manipulated interest rates before and after the financial crisis to improve their profits and deflect scrutiny about their health. Investigators in Washington and London sent a warning shot to the industry last month, striking a $450 million settlement with Barclays in a rate-rigging case. The deal does not shield Barclays employees from criminal prosecution.

The multiyear investigation has ensnared more than 10 big banks in the United States and abroad. With the prospects of criminal action, several firms, including at least two European institutions, are scrambling to arrange deals, according to lawyers close to the case. In part, they are trying to avoid the public outcry that stemmed from the Barclays case, which prompted the resignation of top executives.

The criminal and civil investigations have focused on how banks set the London interbank offered rate, known as Libor. The benchmark, a measure of how much banks charge one another for loans, is used to determine the borrowing costs for trillions of dollars of financial products, including mortgages, credit cards and student loans. Cities, states and municipal agencies also are examining whether they suffered losses from the rate manipulation, and some have filed suits.

With civil actions, regulators can impose fines and force banks to overhaul their internal controls. But the Justice Department would wield an even more potent threat by bringing criminal fraud cases against traders and other employees. If found guilty, they could face jail time.