Thursday, 14 November 2013

Banks, Energy companies, Estate Agents whose next?

There is an old saying that if you kill one man they put you in prison, if you kill 100,000 men they build a statue in your honour. It could be re-written today as, if an individual extorts money he is put into prison, if a government extorts money it is praised for getting tough on banks.

To a public angry at banks for their role in the financial crisis, this may all seem like reasonable retribution. Yet in many cases the rush to punish is overturning basic principles of justice. Take the settlement agreed to by JPMorgan. The accompanying statements from both the bank and the regulator involved, the Federal Housing Finance Agency, provided no indication of what the firm did wrong and no admission of guilt. JPMorgan is the fourth institution to settle over its dealings with Fannie and Freddie without going to trial, following settlements by General Electric, Citigroup and UBS.

Bank executives contend that they have little choice but to accept punitive settlements because the alternative, facing a criminal indictment and going to court, could destroy their businesses, even if they are subsequently found not guilty. This is because they risk losing their banking licences or being shunned by clients while charges are pending. In some cases regulators make these threats explicitly. Last year New York’s financial regulator threatened to revoke the state banking licence of Standard Chartered, which would in effect have excluded the British bank from America.

Most people react to this type of story that an emotional level; either the banks deserve what they’re getting [liberals] or they’re being treated unfairly [conservatives].

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