A vast gap has grown up between the financial industry and the rest of us. The evidence is piling up – and it’s not just a matter of wealth.
In London, the scandal over the manipulation of the Libor rate, the interest banks charge for borrowing from each other, has forced the resignation, first, of Barclays’ chairman and now, its CEO. Moreover, The Daily Mail, reported: “Since January 2011, Barclays has been found guilty of ripping off the elderly, avoiding up to £500 million in tax, manipulating interest rates, mis-selling payment protection insurance and systematically exploiting small firms with the sale of complex loans.”
The Guardian, reporting on the Libor scandal, concluded: “Only through a thorough-going examination of how Britain's banks have been allowed to metamorphose from sober, conservative guardians of our savings to high-stakes gambling dens run by overpaid alpha males will we see how our own society – and economy – have been warped and corrupted by that process.” (See, “Banking scandal: our whole society has been warped by the City.”)
In the US, according to new revelations in The New York Times, JPMorgan Chase has been putting its financial interests ahead of its customers. “I was selling JPMorgan funds that often had weak performance records, and I was doing it for no other reason than to enrich the firm,” said Geoffrey Tomes, who left JPMorgan last year . . . “I couldn’t call myself objective.” (See, “Former Brokers Say JPMorgan Favored Selling Bank’s Own Funds Over Others.”
This is the visible surface of what has to be a tidal flood of questionable and illegal practices pervading the financial industry on both sides of the Atlantic. Recent convictions in New York of prominent executives for insider trading suggest how “normal” such practices have become. Promised reforms following the 2008 credit crisis have largely been rendered innocuous or blocked. Banks, bigger than ever, are openly acknowledged to be “too big to fail,” essentially insured against their own mistakes. Executives who resign confess to mere “embarrassment,” and depart with their bonuses intact. Financial firms settle claims of fraud for hundred of millions of dollars, but then turn around to make up their temporary losses with new sources of profit. New revelations show that ratings agencies, presumably independent, have been in collusion with the companies they assessed.
What is happening here? The usual explanations seem woefully inadequate. Scapegoating and resignations focus on individuals, distracting us from a problem that is obviously system-wide, pervading the entire financial industry. Blaming a rogue pack of “Alpha males” is just another version of that. But what does actually account for a shift in our culture that enables whole new set of standards to emerge, while most of us continue to hope that the system still works?
The simple answer is that we no longer have one culture. The growing wealth of the super-rich, spearheaded by the finance industry and fueled by extravagant executive salaries and bonuses, has led to the creation of a new financial elite that believes in the sovereignty of money. That gives them a sense of entitlement as well as moral “flexibility.” Their superiority allows them to understand when the “rules” need to be bent.
As the bankers attempt to justify their actions, the evidence for this mounts. According to today’s New York Times, Barclay’s employees not only believed they had the support of government agencies, but they “coordinated with former colleagues who worked at rival firms . . . .” In other words, their primary allegiance was to each other, not their companies or customers and certainly not to the public.
In one call, a Barclays manager acknowledged to the Financial Services Authority that the bank was understating its Libor submissions. "So, to the extent that, um, the Libors have been understated, are we guilty of being part of the pack? You could say we are.” Or, as one Barclays official told the British Bankers Associations, the organization that oversees Libor, "we’re clean but we’re dirty-clean, rather than clean-clean.” (See, "Barclays’ C.E.O. Resigns as Bank Frames a Defense.")
They may not actually believe they do “God’s work,” as Goldman’s CEO once put it, but they do believe that they are the ones who know how the economy works and what needs to be done to keep money flowing. This new class has unparalled access to government officials through lobbyists and campaign contributions. They move their assets around the globe to take advantage of new investment possibilities as well as to escape taxation and regulation. They manipulate the public through their control of the media. They do what they think should be done.
They do it, of course, with an assist from the rest of us who are reluctant to see how much the system we thought we knew has been rigged. We see the high profile prosecutions, the scandals, the resignations, the testimony before government panels. We know that something has changed, but we do not put the pieces of the puzzle together because it would be too frightening to see what little control we actually have over this new world.
Elites tend to be arrogant. The last time we had such a vast gap in wealth, the robber barons openly paraded their power and influence. Today, the beliefs and attitudes of this new culture – and their indifference to and contempt for the rest of us -- are still largely hidden from view.