Financial Scandals and The Role of the Institutions.
Foreword
I would not say that the general public is gullible, but much of our money is tied up in “fund management” without our express knowledge or permission – for example our pension fund, or any credit balance we may have in our Bank Accounts.
Bank Liquidity.
It is a well-known fact that any major Bank faced with a requirement to return all funds and/or deposits owned by customers would not be able to comply.
Why?
Because Banks and other financial institutions are run as profit making businesses – their shares are quoted on the relevant Stock Market. Success or failure depends on their Share price: and, more importantly, the huge salaries and bonuses paid to the people at the the top of the “tree” are also geared to Share Price, which in turn depends on “profits” and “performance”. And this inevitably encourages risk taking or, better still, insider trading – if they can get away with it – using the funds they control, which are of course provided by the public.
Assets
At any one time, the assets of any financial institution or Bank will be “tied up” in loans and other “money making activities” such as hedge funds: some of these “assets” may well include dubious investments or unwise corporate lending or second mortgages on dodgy properties as happened recently in the USA. When the money making activities turn out to be too unwise or negligent, then the sort of Banking collapse witnessed in 2007/2008 occurs.
Were there any Consequences for the Financial Scandals and Banking Collapses?
Did the guilty parties in the Financial Institutions who really made and were responsible for these negligent decisions suffer financially or were they held to account?
NO
There were of course some “scapegoats” or other “sacrificial lambs” who appeared before the public and Investigatory Committees to be castigated, but the real culprits continued in charge, fortunes and power intact. These people are smart, and they are surrounded by the best legal and accounting advice that (our) money can buy. Any money- making schemes that potentially have a risk of failure are set up in such a way that the bosses are fireproof, and the finger of blame can be pointed elsewhere.
Are some International and National Banks too big to be allowed allow to fail?
YES is the simple answer.
Has Regulation Been Effective? Can Future Reglation be Effective?
No – Regulation and Regulators are simply Useless.
As an example, in the UK in 2012 as a direct result of their failure to prevent the financial scandals and resulting fallout, the Securities and Investment Board (SIB) and the FSA (Financial Services Authority) were axed, and regulatory control passed to the Bank of England.
Did the incompetent regulators suffer in any way for their failure?
NO
In truth, the people who work for Government Regulators are just not competent enough to do the job: they are mostly career politicians, with no experience of how big business operates. To catch a wolf, it is not a good idea to employ a sheep: and – in an effort to be fair to them – it is difficult to regulate an industry which is too large and important to fail, and where that Industry has access to the best possible legal and financial advice.
So is there a Solution?
Probably not. The entire global financial system – for better or worse – holds the world economy together. One possibility is to remove Banks from the “equation” by altering their licences so that they are no longer Quoted Companies, and can only carry out the business of supplying normal banking facilities to their clientele.