You can ‘bank’ on them

… to continue to violate laws with impunity. Here are three headlines that crossed my desk this morning:

(1) Hedge fund Renaissance Technologies has been accused of misusing complex financial structures, with the help of Barclays and Deutsche Bank, to avoid paying more than $6bn in US taxes, the Senate Permanent Subcommittee on Investigations said on Monday.

Renaissance is said to have made $34bn in trading profits, while the banks reportedly took more than $1bn in fees, by characterising the gains as long-term capital gains that avoided bigger tax bills, according to the year-long investigation by the subcommittee. Executives of the companies are set to testify before the Senate on Tuesday. [Link]

(2) Clients are fleeing Barclays’ “dark pool” in the wake of a US lawsuit alleging the UK bank misled them about high frequency activity in its private trading venue.

Barclays has fallen from second to 12th place in terms of volumes traded in US dark pools after news of the lawsuit emerged. The rapid decline means the group now lags behind rivals such as UBS, Merrill Lynch, Deutsche Bank, Morgan StanleyGoldman Sachs and JPMorgan, as it faces intense scrutiny over its management of its LX platform. – Looks like others are still operating dark pools. [Link]

(3) The U.K.’s Serious Fraud Office is gathering information about possible rigging of the foreign-exchange market, the latest sign of the seriousness of the global probe into currencies trading. [Link]

(4) On their part, hedge funds appear unable to make money except through tax dodge, evasion and insider trading. [Link]

This is why it makes sense to abolish these casinos (otherwise known as financial markets) and go back to old, traditional boring bank lending. At the minimum, governments should raise sufficient public (tax) resources out of their activities (because they are a very public nuisance and not public utility and because they cannot seem to be able to keep their hands off the vice jar).

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6 thoughts on “You can ‘bank’ on them

  1. If the banks have done something illegal, then they should prosecuted. Pointing to Apple or Google using legal tax avoidance to argue for something illegal is ridiculous. If we don’t like a law, argue for changing it. Do not argue for illegal behavior. Without rule of law there can be no civilization.

    As far as I understand it, bankers are careful to avoid personal criminal liability, not as careful when it comes to the institutions they work for. I am not a banker and I may be wrong–but that is what I infer from the fines on BNP and the censure of DB where no individual actually paid any penalty.

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  2. Your points on other things are valid.

    These things are prone to manipulation and require strong oversight and courage to stand up. Institutionally, it is very difficult to stand up to people and senior and junior people get bullied. While many institutional mechanisms can be set up, nothing can replace a bit more of spine in people and judgement (timing when to unsheath the knife and insert into the bowels to kill).

    I picked on the specific reference to tax matters as presented in the articles (Matt Levine in Bloomberg has written a better article in my view on this) that you inserted links to.

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  3. I am surprised and saddened that you chose to come to such a conclusion. Abolish financial markets? It is akin to saying technology has become too complex and leads to nuclear weapons so abolish all technology and go back to farming.

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    1. thank you for writing. It was deliberately provocative. Obviously, nothing of that sort would happen. But, financial markets have come a long way from being a mechanism for allocation of capital efficiently. You should read the Kay Report on UK Equity Markets, ‘Race to Zero’ by Andrew Haldane and his paper in the LSE report on the Future of Finance (2010) titled, ‘Finance: Miracle or Mirage’, ‘How to keep markets safe in the era of high-speed trading’ (Chicago Fed Letter, October 2012), the BaFin (German regulator) report on manipulation of metals trading. Now, the ongoing enquiry into rigging of FX markets is to be watched. There is the insider trading probe into the collusion between House Ways and Means Committee and 44 Hedge Funds. Are Financial Markets functioning the way they are envisaged? They have become cartels. Financial markets, as they are constituted today and as they are working today, deserve to be broken up. Or else, the next crisis would most likely accomplish that.

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  4. I would think that most banks carefully review these things and act upon full advice. As someone who does similar things for a living, I promise you that most of the people signing off including have nothing to gain by signing off “illegal” stuff.

    This is just poor reporting to what these days are typical reactions towards European banks in the US.

    It is a bit saddening that you’ve picked on this headline and reporting and choosing to tar everyone with the same brush. Only banks doing such a thing is bad, but Apple doing even worse though clearly legal is perfectly kosher? As one comment on the linked articles said “How dare Caterpillar do what the US tax code encourages them to do!” …

    We are bankers and therefore we are all guilty and damned 🙂

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    1. Dear SPV, Thank you for your frank feedback. On this specific post, I actually only linked to the three news-items and did not offer any personal comment. If anything, my comment was about financial markets which are rigged and have become casinos. Obviously, one is commenting on the way the entire system works and not about specific individuals. If transgressions are pervasive (across countries and banks) and persistent (over time), then even if one did not sign off on them, one would come to know of them and take action. But, transgressions persist. There have been persistent manipulation of the metals market, of the FX market, of the LIBOR and there are dark pools in stock markets. More articulate and evidence-based criticisms of the functioning of banks pre and post-crisis have come from Andrew Haldane, Frank Partnoy, et al. I have documented them here. I do believe that the financial system – and banks are at the centre of it – continues to pose a great danger to economic stability. OF course, there is no gainsaying that monetary policy has played an immensely important role in the evolution of the financial system as it has, today.

      Thank you very much for sharing your thoughts freely. Pl. continue to do so.

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