One of the central dramas of the early seasons of The Wire is the cat-and-mouse game between Avon Barksdale’s drug operation and the detectives of the Major Crimes Unit. The drug dealers started off using pagers and pay phones. When the police tapped the pagers and the phones, Barksdale’s people switched to “burner” cell phones that they threw away before the police could tap them. By Season 4, Proposition Joe advised Marlo Stanfield not to use phones at all.
Well, apparently, Wall Street currency traders don’t watch The Wire. I don’t think anyone was surprised to learn that major banks including JPMorgan, Citigroup, Barclays, RBS, and UBS conspired to manipulate currency prices — something that regulators have been investigating for over a year and a half. One common strategy was cooperating to time large transactions in order to manipulate daily benchmark rates at which other client transactions are executed.
What is surprising is that these traders — supposedly the smartest people around — carried out their criminal conspiracy in online chat rooms whose contents could be discovered by investigators. (In this day and age, the last thing any bank’s general counsel wants to be accused of is destroying evidence, so you should assume that everything you do over a bank’s networks will be tracked.) Even using their personal cell phones would have been much safer. (Apparently they do watch The Sopranos, however: one of the chat rooms was nicknamed “The Mafia,” which is probably not a good idea when you are actually engaged in a criminal conspiracy.)
The main point to take away from this latest batch of guilty pleas is that nothing has changed on Wall Street.
The game is still to make money any way you can. “If you aint cheating, you aint trying” is the new money quote. The clients are just collateral damage — whether or not JPMorgan says, “Throughout our long and distinguished history, we have been steadfastly committed to putting our clients’ interests first.” The offenses described in the settlement documents extended at least into 2013 — more than four years after the financial crisis.
What we are witnessing is a one-sided, long-term game of whack-a-mole, in which regulators crack down on one type of illegal activity, only for the same type of face-ripping-off and client-blowing-up to resurface in another market. And who knows how much is going on under the underfunded radar of the regulators?
Even then, it’s not even clear what victory means for the Department of Justice in this case. Yes, the banks themselves pleaded guilty, which makes them convicted felons like Avon Barksdale. Yet it’s hard to see how the world will change as a result. The banks received waivers allowing them to continue business as usual, and no individuals have been prosecuted so far — so it’s hard to see why anyone should care, or anything should change.
It turns out that big banks aren’t Too Big to Jail. Instead, like Avon, they can continue to run their businesses from prison, so what’s the fuss?
With UBS, the DOJ took the once-unthinkable step of actually penalizing a bank for violating a non-prosecution agreement. In an NPA, the government agrees not to prosecute a defendant in exchange for the defendant’s promise to stop breaking the law (something that should go without saying, of course). Historically, a bank that then broke the law would simply sign another NPA. But no longer! Instead, UBS was forced to plead guilty — but in way that will have no consequences for its business.
It turns out that the guilty plea is just another symbolic act, as empty as a non-prosecution agreement or a civil settlement. Government officials are still too afraid to do anything that would actually affect a major bank’s ability to do business — even if it is a convicted felon.
That shows that our economy and now our legal system are still being held hostage by banks that are too big to fail.
When I was a management consultant, I had a client that had a large market share and was regularly the target of antitrust investigations. They were extremely well disciplined. For example, you would always say “market segment share” instead of “market share,” and it went without saying that you would never talk about “dominating” a market or a market segment. After a DOJ investigation turned out completely clean, they even gave out awards to people who participated. Now that was a well-managed company — not like these Wall Street banks that apparently don’t take the slightest interest in preventing egregious antitrust violations.
Stringer Bell would also never have tolerated the kind of amateurish behavior displayed by the traders rigging currency markets. (“Is you taking notes on a criminal fucking conspiracy? What the fuck is you thinking, man?”) He had ways of making incompetent associates go away — but without ordering their deaths in so many words.
At the end of the day, Stringer does have one thing in common with Jamie Dimon: both can deny any knowledge of the criminal activities of their subordinates. (Season 3 spoiler in the note to the right.) Stringer, like Tony Soprano before him, is careful to give orders in person. Dimon doesn’t give orders to commit crimes. He and his peers preside over a culture that: recruits ambitious, greedy people; lavishly rewards profits; and doesn’t ask questions about where those profits come from. (The banks presumably could have read all the chat room traffic that the feds eventually found.) The result is an institution that systematically flouts the law to make money any way it can. Coupled with a regulators and prosecutors who take pains not to impose any substantive penalties even when they discover actual crime, why should anything ever change?