When does money become more powerful than power itself?
A casual study of financial crimes
To what extent do banking misconducts considered as fraud? When you search “Bank Fraud” on Wikipedia, you will not find the names of HSBC, Goldman Sachs, or JP Morgan. But did you know that HSBC have paid out more than $1.9bn in fines to the US department of Justice for laundering money for Drug Cartels in Mexico? Or JP Morgan’s $920m fine for the 2012 trading scandal? Yet when we search “2012 JP Morgan trading scandal” on Google, the first title that appears is the Wikipedia page titled “2012 JPMorgan Chase trading loss”, when you click on the Wikipedia page, you won’t eve find the word “Fraud” written anywhere; making the banks look more like the victim than the villain.
The London Whale
In 2012, a trader worked for JP Morgan known as “The London Whale” (Bruno Iksil) lost more than $6.2 Billion in one year, a classic example of a gambler’s mindset: “double or nothing”. The story began when the Chief Investment Office Iksil worked for used $350Bn for risky trades in exchange for large returns instead of hedging the firm. The trades’ position became so huge that it disturbed the markets hence the nickname “Whale”. Eventually, the trades failed and it was reviled that Iksil’s colleagues kept two set of books to minimise the projected total loss. The investigations also indicated that the trades were quite complex, even flawed, and often poorly monitored and reviewed.
Iksil instantly became public enemy No.1, everyone that were following the news wanted his head on a platter. The media were quick to put the blame on a name, but recently an article written by the Financial News titled “The London Whale resurfaces: Bruno Iksil speaks out” have provided another insight. Iksil claimed innocence, he believed he was a pawn in a larger scheme; he tried to warn the senior executives at the bank about the the risks, but he was fired.
The Media was starving to get a word from Iksil the first week after the London Whale story was published. However, his lawyer told him“’if you communicate, they will go after you. They will go after you big time. They will take everything from you. Because you are nothing versus this firm.’”
It was later indicated that several members from JP Morgan lobbied the Congress for Damage control.
Too Big to Fail
JP Morgan’s trading scandal jumpstarted, again, discussions for financial institutions being too big to fail. The idea is that Governments would not allow large financial institutions connected with complex financial networks to fail because the failure of such would incur astronomical damages to the economy.
The U.S. is committed to a system resting on a small number of giant, government-aligned institutions…. Central banks — Financial columnist Holman Jenkins
Some consider the idea to be essential for the financial system as governments would just have to manage the risks of only a few financial institutions. However, the question lies on the impossibility associated with monitoring those large financial institutions packed with extremely complex financial products. The task is like Bailing out the ocean with a bucket, it’s simply impossible. Alternative views suggest smaller institutions with a more focused management and simpler areas of businesses would be more ideal.
Circle back to our question “When does money become more powerful than power itself?” Large institutions like JP Morgan are constantly under pressure from investors to gain large returns. It doesn’t take a three year old to know that risk is associated with returns, but some banks still knowingly invest in high return securities with risk of losing it all. In the JP Morgan case, some members of senior management purposely disclose information regarding the risks involved with the trades. However, with the loss of $6.2Bn, they still reported record earnings with a $22.9Bn and net income of $5Bn. The fine of $920M was only 4% of their total revenue and definitely not a lesson learned for JP Morgan as they were fined again in 2016 for unethical behaviours. The penalties imposed by the authority seem to have a minuscule effect on the actions of those financial institutions; insignificant dollar penalties and jail sentences for scapegoats instead of the real criminals. It’s rare to see a rich person go to jail; especially those who make money out of other people’s money. They like to claim dumb and stupidness when they lose people’s millions yet they have degrees from Ivy League Universities. The idea is one simply can’t jail someone for being less intelligent, but one can always jail someone for trying to get a little high.
Where is the justice? I’d say it’s in a market where anyone with the right price can purchase it.
Bank Misconducts
To give you some perspective, since the beginning of 2012, the world’s top 20 banks have been fined £264.03 billions($341.44B) for misconduct according to the Conduct Cost Project. Shockingly, this number is a 5% increase from the previous 5 year period. A trend of gradual increase of bank misconduct fines is evident. However, the some items associated with the trend can be explained by the fines of the 2008 Financial crisis that are only imposed recently.
By looking at Exhibit 2, Bank of America (BAC) have paid a significant amount of fines since 2008. To put it into perspective, in 2014 alone, Bank of America have paid $16.65 billion (£12.86 billion) in settlement fees to the US Department of Justice. It is still staggering to know that the costs of misconduct have increased in a steady trend since the CCP began its analysis.
Read more on : http://conductcosts.ccpresearchfoundation.com/
If you have seen Wolf of Wall Street or The Big Short, you should know that the fiction is not far from reality, in fact, it is based on real life stories. The ending of Wall of Wall Street ended with the protagonist Jordan Bellfort getting arrested; despite what should be considered as an optimistic ending, a large sum of people found it pessimistic about how far Jordan has fallen. Various people received different messages from the story. I was impressed by how Belfort took a bunch of dorks and turned them into successful and powerful assholes like himself the first time I watched it. However, the second time I watched it, I had real questions regarding Jordan’s character. The story should be a lesson for all individuals that the system will still get you at the end. In reality, however, most don’t go to jail.
The man who ate Argentina
Aman so powerful that he brought Argentina down to its knees. Back in 2001, Argentina was bankrupt and had $80 billion in debt. Since Argentina had almost no hopes in paying back the debt, 93% of the country’s creditors agreed to walk away with 30% of the total debt. However, a man named Paul Singer refused to settle. Before all this, he was already famous on Wall street and had a reputation of being an activist investor that buys shares of failing companies and force the management team to make changes. In addition, he also targeted several foreign governments by buying government issued bonds. In early 2001, Singer’s fund bought $600M worth of Argentina’s bonds with only $100M. At first the Argentina did not want to pay Singer, and the country decided to launch a campaign calling Singer a “financial terrorist ”. Argentina argued that by paying Singer, it will disclose an indication to other creditors that Argentina actually has the ability to pay. He then started to target the courts around the world to recapture the country’s assets such as central bank reserves and pension funds. The most famous case was when he pushed his efforts to the extreme by trying to seize Argentinian warships that were doing training sessions in Ghana.
After 15 years of ugly court battles, Argentina decided to payoff. Singer ended up with $2.4 billion, almost a 1200% return. In 2017, Singer was considered the main reason for impeachment of President of South Korea, Park Geun-hye.
I have deep respects for Singer and I think it’s completely ethical to take control of a failing firm and improve it’s management in return for profit. This investment strategy is hitting two birds with one stone and no one is hurt in the process. I also believe he is the vigilante for the balance of money and power; with his financial strength, he is able to force corrupt or failing governments to pick up their feet. Subsequently, the fear for this man could potentially allow countries to take less risky decisions and increase accountability. However, some could argue that this is simply a method of bullying poor countries and sucking them dry. The success of Singer could also just inspire more hedge funds to do the same and at the end of the day, power still lies with the money, not the people.
When does money become more powerful than power itself?
Money, of course.
There are definitely a lot more other evidence to explore that can support the idea of money controls power. I believe money is the liquid form of power, power can talk rough and instruct actions and execute punishments, but money whisper the commands. Politicians today gain their powers through connections and financial supports. Large financial institutions know this and have been exploiting it throughout history. Money instructs and power executes. Financial institutions such as banks and funds own the world’s money and have the ability to control aspects of the economy and this provides leverage for them against the authority. Power is replaceable and always depreciates, but money today is always worth more than money tomorrow. It’s a fact that the richest 1% owns half of the world’s wealth; any decision made by any single individual of the 1% has an impact on millions of lives, money is power.
I believe the only thing that might be more powerful than money is the people. If we all become active and use our voices to fight for the betterment of our society, we might just be able to dictate our own lives. On 14th February 2019, Amazon was force to cancel its plans in New York due to a protest by the local opposition. The plan would provide $3 Billion of tax incentives for Amazon and in return generate substantially more economic activities for the city of New York. However, a few politicians put their own political interest over the community and fought over the deal. Amazon’s impact on New York city could create more than 25,000 jobs and generate a revenue between $27Billion to $30 billion. If the deal doesn’t work in New York, they could simply move to another city and generate the same economic impact elsewhere. Many politicians value money over the power of the people, but history speaks for itself, and there is no evidence in our history that corrupt power ever leads to a good ending. There are lessons to be learned, but most importantly, we need to overcome our greed and materialistic incentives to focus on sustainability and the betterment of our society. Only then we can truly value power to be more powerful than money.
