Cover-up and blame shifting

Recently, a very respected and authoritative public figure of impeccable integrity commented to the author that he is inclined more than the author of this blog to accept that the current crisis is a result of “madness” rather than premeditated criminal activities. The jury is out. So let us help the jury of public opinion by examining the matter in detail.

It is beyond a reasonable doubt that the current crisis was caused by lending with loan to deposit ratio above 100%. By a very nature of multiple deposit creation, this constitutes a classic pyramid building mechanism which is illegal.

Looking from a “madness” theory perspective, it is a secondary matter if people in the financial community did not realise this. If they were not educated well enough to realise immediately that they were building a financial pyramid, they were grossly incompetent or criminally negligent. Therefore either they (for criminal negligence) or people responsible for putting them as unsuitable (i.e. grossly incompetent) into their roles must face criminal charges.

Therefore madness may be somewhat an extenuating circumstance, when it comes to sentencing, but it does not absolve the perpetrators from responsibility for a criminal act which was a pyramid building.

Looking from a premeditated criminal perspective, it is unthinkable that senior financial executives, regulators and government officials did not realise that lending with loan to deposit ratio above 100% was a pyramid building. Any properly educated person suitable for work in finance must have known that. Therefore this only adds further charges of, for example, premeditation, conspiracy, another criminal negligence, i.e. knowing the system was getting into inevitable disaster and not trying to prevent it.

The legal test is that any reasonably well educated person suitable for employment in the financial sector (be it a banker or a regulator) knew or must have known, that lending with loan to deposit ratio above 100% was a pyramid building. If his judgement was clouded by greed or personal gain, this would constitute another serious criminal charge.

To summarise, even if at best those who were responsible for the banking system did not know that they were turning the financial system into a pyramid scheme, they are still responsible for criminal negligence. They should be tried for that and their wealth must be confiscated. It is unacceptable to let people be beneficiaries of their own negligence committed at the costs of others, in this case society at large.

In an interview, Professor Roubini points out that most US households have been “Ponzi businesses”. A corollary that “we can’t imprison most of the population” seems rather obvious. However it seems that Roubini wants to shift the responsibility for pyramid building from financiers, regulators and government officials to population at large. Every “Jo the plumber” is guilty. Indeed a shifty move. Whilst it was financiers, regulators and government officials responsibility to ensure that the banking system was not turned into a pyramid scheme, a typical member of the population (a customer of a bank) was not responsible for that. Suggesting that a prospective loan customer should ask a bank manager about loan to deposit ratio of the bank’s lending and other details like risk weighing is unreasonable. It was, and still is, banks, regulators and governments responsibility not an individual customer duty or even a slightest concern. Therefore Roubini’s argument seems like an attempt to get the establishment of the hook: by painting a picture that somehow we are all to blame.

No doubt, as this crisis keeps developing, mainstream analysts, scientists and journalists will continue putting forward arguments covering up the criminal responsibilities of financial establishment. As they are part of it. They already do it, using influential media and famous names, by attributing the responsibility for the current crisis to some form of unexpected outcome and by implicating the entire population to blame (“we were all on the financial binge”).

Whilst the cash beneficiaries of this crisis, mainly but not only financiers, keep their wealth and continue to benefit further , we all should feel guilty, since we are also to blame, and… keep on paying through our noses, the tax system to be precise, to support the said beneficiaries.

As they influence all mainstream media and are very powerful, the concern is that they will be able to convince very honest and thoughtful political decision makers who find it difficult to believe that the current crisis is a direct result of crimes committed by the financial establishment on their watch.