Weekend Economists Ride With Sally into the Sunset July 27-29, 2012

[Demeter]

60. The Scandal Behind the Financial Scandals

http://online.wsj.com/article/SB10001424052702304388004577530730862959306.html

Two of the world's financial capitals are hurting. London, Europe's trading hub, and Chicago, America's bridge between the farm and the global commodity markets, have been rocked by scandals. The controversy over the London interbank offered rate, or Libor, and the unraveling of the brokerage Peregrine Financial Group Inc. share only their timing. But their collision in the headlines is deepening investors' antipathy toward the financial industry, capital markets and regulators.

My question to regulators, bankers and denizens of the trading world: Is this just a blip or are we at a breaking point that calls for a wholesale change in attitudes and rules? The first answer, from a longtime Chicago-based executive, was a long silence and a sigh. And then: "It's very bad. Peregrine Financial's collapse undermines the cornerstone of any market: trust between buyers and sellers. The trading community here is in state of shock." Another executive refused to talk other than to quote the 65-year-old independent trader and Peregrine Financial customer Peter Brandt, who went from escaping the Colorado fires into the frying pan of the scandal. Last week, he told The Wall Street Journal: "There's not supposed to be that much excitement in life when you get to be my age."

But excitement, mostly of the wrong kind, is what investors of all stripes have been getting, starting with the 2008 financial crisis, via the Madoff scandal, the bankruptcy of MF Global Holdings Ltd. and other assorted messes (R. Allen Stanford's Ponzi scheme, the mortgage settlement by U.S. banks and so on). With news like this, it is no wonder that ordinary savers have been deserting the stock market, yanking hundreds of billions of dollars from equity mutual funds (see table). Many bank stocks trade at a fraction of their liquidation value. Investors and politicians seem to view the glass as half-empty. Few in the press or in Washington, for example, have mentioned the fact that failures among the thousands of small brokerages are relatively rare.

In Britain, the action against Barclays BARC.LN +8.72% PLC—the first of many banks likely to be dinged over Libor manipulation—could have been seen as a sign that, sooner or later, the bad guys get caught. Instead, George Osborne, the U.K. Treasury chief, branded it "the epitaph to an age of irresponsibility" for the financial sector. In this feverish environment, some financial chiefs are getting worried. A top Wall Street banker likened the Libor probe to the 1998 tobacco settlement—a regulatory crackdown that could change the industry forever. In his view, the furor will lead to the overhaul in banks' practices and attitudes that was expected after the financial crisis but never fully materialized. "It will take a generation or two, but the industry has to regain its moral compass," he said....Perhaps the right answer came from the banker who wished me happy Bastille Day on July 14th: "We are at a 1792 moment," he said. "Remember, the French Revolution was in 1789 but it took three years to proclaim a Republic."

THEY ARE SUCH TEASES....ALL THIS TALK OF"OVERHAUL" AND "REFORMATION" AND REVOLUTION"

IT'S NOT LIKE THEY INTEND TO DO ANYTHING LIKE THAT....BUT THE WORLD IS FULL OF THWARTED INTENTIONS...AND THE BANKSTERS HAVE BEEN THWARTING EVERY PERSON'S NORMAL INTENTION.