Trader Describes How Dishonesty Pays in Finance, Big Time

Yves here. It may seem like a “dog bites man” account to describe yet again how traders are fixated on their bonuses, often have tawdry personal habits (cocaine, whores, flashy cars) and have no compunction about leaving rubble in their wake, be it customers or the firms for which they work.

However, it’s one thing to hear it from outsiders or people who’ve managed to spend some time on a dealing room floor, and another to have someone in the industry describe what goes on. It’s almost as if two veils need to be pierced. The first is that behavior that most people would regard as predatory and pathological is cultivated and celebrated in big capital markets firms (ones with large trading and investment banking operations). And when outsiders get a dim perception of how things work and are properly incensed, the insiders get astonishingly angry and defensive (the vehemence of the response is proof that on some level they actually do know what they are doing is wrong but have built all sorts of denial mechanisms and narcissistic responses to protect themselves from that knowledge). The second veil is it’s hard for non-bankers to believe that the conduct is as deeply, pervasively as bad as it is. This is one of those cases where a difference in degree is a difference in kind.

I strongly recommend you read this post in the Guardian, ‘The most dishonest bankers walk away with the most money‘, in full. The opening section is the least interesting in that it gives the juiced up description of what traders like about the business, which is the sense of power, of making trades and seeing the market impact.

One part I thought that readers would find instructive relates to something I discussed in ECONNED, which is how the producers at financial firms (people who are paid on some measure of revenues) don’t merely lack loyalty to their employers, but actively seek to take advantage of them. They regard a firm at best as a place out of which to operate. From the Guardian:

“It’s a dog eat dog world. But at the same time it’s the traders versus the bank. This is why I think barrow boys do so well as traders; they seem to have some sort of sense of collaborating against the system for monetary gain. Even the head of markets, the guy in charge of all the traders, seemed mostly interested in maintaining the status quo. He is on the side of the traders, against the bank. Management consists of traders who have worked their way up. What kind of people do you think they are?….

“In the end the bank is like a shell. You need a place to trade from, this is how we saw our bank. Sometimes an entire team can be poached and go from one bank to another. There’s no loyalty either way. And the top at your bank has no idea what’s going on, how could they? Why would anyone tell them what’s going on?…

“I do wonder why there seem to be so many somewhat dishonest people in the bank, and why the most dishonest are often the ones to walk away with the most money. I suppose that on the way to the top there’s negative selection and most normal decent people conclude: this is not worth it or I am not doing this for money.”

He gives one example of how traders game bonuses:

“For instance when someone was made redundant a remaining trader would do a deal between his book and that person’s, creating a profit in his book and a loss in that of the person leaving.

“How that works is the guy leaving needs his positions [outstanding trades] closed. But he isn’t able to check whether the rates are reasonable at which these positions were transferred to another trader’s book. In any case he can’t do anything about it (when leaving or made redundant you have to leave instantly). Then the remaining traders will complain about the guy being a crap trader.”

And, quelle surprise, confirms that customers are there to be fleeced:

“Of course traders are constantly inquiring across the bank: what’s happening? What are our big clients like institutional investors doing? Then they ‘front run’ those investors; buying ahead of them so when the price rises due the subsequent buying, they pocket the difference.

“Chinese walls [between deal making, asset managing and trading bankers]? Bullshit. We could simply log on to our system and see what was happening and what they were doing all the time.

“If there is a lot of money at stake then people will not adhere outside rules and they will evade Chinese walls.”

And as if the regular reports of how municipalities and even Harvard lost big time on swaps and derivatives makes the news (corporations are usually better able to hide the dead bodies) aren’t warning enough, this trader stresses that those guys in fancy suits are not your friend:

“My advice to people dealing with the financial sector is: never buy anything that’s complex. Because the more complexity the more opportunities there are to screw you over. I just can’t get my mind around how banks can still call clients in the corporate world and say, look we’ve got this great idea that’s going to make you a lot of money. I mean, what are they thinking? Nobody in the City can be trusted because they don’t work for you, they work for themselves.”

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  1. craazyman

    faaaaaaak what is this? Sunday school with the Church Lady? What’s life in the big city without cocaine, whores and flashy cars? A big bore, that’s what.

    Just don’t support it with central banks and taxpayer bailouts.

    And when these fukkrs crash, let em pay their whores to scrape their bones off the wall. That’s what a real man would do. hahahah. If you run to the govermint and start crying, you’re a little boy.

    1. MyLessThanPrimeBeef

      Dishonesty pays in many areas, in sports, in kindergarten, in courtship, in politics, in getting a good seat at the opera, etc.

      1. MyLessThanPrimeBeef

        Dishonesty also pays in economics and in computing economic stats – how did I ever forget to mention that?

    2. dw

      would not complain if they would just take them selves out and not take me with them. and thats the problem. and for every one that tells they dont care, i wonder how long they will have a nose, cause they seem will to cut there nose to spite their face. the best solution would bt to nationalnatlize them and seel the parts off. and then pull back the money that was paid when they were causing the crash. but that wont happen since nobody willl support this, neither the tea party or GOP or democrats. no matter what they claim. watch what they do not what they say.

    3. rps

      “Traders are fixated on their bonuses, often have tawdry personal habits (cocaine, whores, flashy cars) and have no compunction about leaving rubble in their wake”

      What’s with the denigration of whores? Seriously, is it fair to tether their back breaking and hard working profession of dealing with limp misogynistic scum bags that other women wouldn’t touch with a 10 foot pole to Traders??? Have a heart….

        1. F. Beard

          It’s NOT just personal since the government-backed credit cartel drives people into debt else they are priced out of the market by those who do borrow.

    4. Yves Smith Post author

      First, I’m picking up themes of the piece as presented by the trader.

      Second, which I failed to add, these tawdry habits are often run through bank expense accounts. Paying for strip clubs is routine. I don’t have a problem with that except it excludes women (as in if a woman comes along when men are going to a strip club, it tends to spoil their fun). Third, they do run drugs and prostitutes through the research budgets, see the movie Inside Job and ex Goldmanite Tetsuya Ishikwawa (How I Caused the Credit Crisis) for examples.

      Fourth, as a result, the traders tend to see all women they think they pay for (as in their trading assistants and secretaries) as somehow owing them sex. There are enough laws against sexual harassment to keep them in line most of the time, but they view social events with women from the firm as opportunities to prey on the female help.

      1. craazyman

        Women aren’t excluded from strip club outings! That’s so 1980s!

        Here’s one from the 90s where 3 Goldman Sachs women went to SCORES with the office gang celebrating a colleague’s promotion.

        I guess the hormones got going and at least one got of the ladies (the Goldman women, not the strippers) got pinned against a wall afterward by a male colleague who evidently wanted more than just conversation.

        It ended up in a lawsuit of some kind.

        I don’t know if Wall Street offices go out to strip clubs on a regular basis or if this was unusual. But maybe if enough women get on the trading floor it’ll be male strippers next time. Just thinking about that makes me wince. Some dude in a G-string straddling my female colleagues while I sip a scotch and think as hard as I can about being someplace else. faaaaaaak

        But if one of the women pinned me up against a wall on the way home and didn’t seem to want to talk about economics, I’d probably just let nature take its course. I don’t see that as a situation requiring a lawyer, unless she was one herself. bowwahahahah

      2. F. Beard

        Can’t get an honest date, I reckon.

        Also it peeves me that women would even consider letting some jerk defile them. Please! Respect your bodies, women! And your dignity. Most men do. (at least the heterosexuals) :)

        1. aletheia33

          it peeves me that men even consider killing other people. especially en masse in wars in which men rape other men’s grandmothers, mothers, sisters, wives, and daughters, kill children, drop bombs from the safe distance of the sky, and expect them to just take it, and whine about their unfair treatment when their victims seek justice later. please! respect your selves, men! and your dignity. most women (of both sexual persuasions) don’t commit rape or murder or hire themselves out or volunteer to go to war and kill other human beings while loudly proclaiming they “have to do it” for the sake of some bullshit “higher good” like protecting one’s homeland which is better than anyone else’s in the world.

  2. Skeptic

    “My advice to people dealing with the financial sector is: never buy anything that’s complex. Because the more complexity the more opportunities there are to screw you over. ”

    One thing I have learned from The Great Deterioration is to limit the complexity in my life. The more complexity the more I am at a disadvantage and the more likely I will suffer some loss. This is true when dealing with doctors, realtors, auto mechanics, lawyers, accountants, cops, etc. There is only so much due diligence and research you can do then you are at the mercy of the specialist.

    The more complex a deal or situation, unless your are an expert in that field, the more you may suffer. One might look at Universities as places where people get to master the jargon and techniques of a particular speciality and then go out and prey on the public who do not have the insider knowledge of how things really work.

    Here’s a good example of this from a book called Holodeck Law:

    “What I now refer to as the “courtroom holodeck” is the scene of the crime, and the stage where this chimera is played out. In this virtual reality the judges and attorney(s) are holograms (mere images of justice), all working in the labyrinth of a “Litigation Vortex.” The unsuspecting public who either gets sucked into the vortex (unwillingly brought into court) or suckered into the maelstrom (thinking that justice would be received through the legal system), are real characters, but they do not realize they are on the court holodeck, nor do they realize that they are not being protected, or zealously represented as was taught to them in our government-funded elementary schools. They do not realize that nothing is as it appears.”

    The above good also for plumbers, dentists, etc. anyone in a specialized business where customer ignorance translates into $$$$$. Just a different stage.

    So when you hear:

    “You see you have a wiblle in this umer and that means if the dewsry doesn’t……….” (Apologies to NSA, these words do not actually exist, please do not spend our tax dollars trying to figure out what they mean.)

    Ca-ching every time.

    The more majestic question may be whether a Society built upon layers of Complexity can survive. Or must it become more Simple?

    1. indio007

      Courts and Banking are nearly identical in function. They just use different PR.
      They can not operate as the rigged carnival game that they are without significant information asymmetry.

    2. from Mexico

      @ Skeptic

      Well I think we should brace for some radical chaos and higher lunacy, for this is what happens when ruling mythologies hit the wall.

      Even though I think your description of reality is for the most part accurate, no good can come from this. As an attorney friend of mine who hailed from the wrong side of the tracks once told me: “If the courts don’t deliver justice, the street will.”

    3. Mickey Marzick in Akron, Ohio

      Well said!

      The division of labor [specialization] is butting up against the law of diminishing returns. I see it everywhere, but especially in medicine and IT, and often with disastrous consequences.

      1. nonclassical

        ..Lambert will know who said that the 30 year mortgage was the end of organized labor…

    4. Android 16

      I can relate to your post, have come to similar conclusions and have made similar decisions. Do not mean to troll but what your are describing reminds me of what Chris Hedges talks about in American Faschists and Empire of Illusion. I think that complexity and logocide are close relatives.

      ” … dominions and their wealthy rightwing sponsors speak in terms and phrases that are familiar in comforting the most americans but they no longer use words to mean what they meant in the past. They engage in a slow process of logocide, the killing of words. The old definition of words are replaced by new ones. Codewords of the old belief system are deconstructed and assigned diametrically opposed meanings. Words such as truth, wisdom, death, liberty, life and love, no longer mean what they mean in the secular world … justice under this process of logocide is perverted to carry our injustice and becomes a mirage of law and order … logocide slowly and stealthfully removes wholes segments of society from moral map … as J.Goebels wrote: the best propaganda is that which as it were works invisibly, penetrates the whole of life without the public having any knowledge of the propagandistic initiative … Paxton argues that the best way to understand authentic faschist movements, which he says exist in all societies, including democracies, is to focus not on what they say but on how they act, for as he writes some of the ideas that underlie faschist movements remain unstated and implicit in faschist public language and many of them belong more into realm of visceral feelings than to the real of reasoned propositions. Faschism is a kind of colonization, reverend Davidson Lore noted, a simple definition of colonization is that it takes people’s stories away and assignes them supportive roles in stories that empower others at their expense.”

      1. Skeptic

        Thanks to all for their comments.

        Thank you Android 16 for your comments on language. I regained my Irish citizenship a few years back after it was lost in my family for one generation. The Irish and many other peoples of the World lost their language, culture, customs due to colonization. Look at the poor Irish today, slaves to the TROIKA, having had less than one hundred years of independence and freedom. This is not theory; it is reality.

        Have you read Klemperer’s I Will Bear Witness, a diary of the Nazi years? I read it ten years ago and it shifted my brain. He was a trained philologist and understood the wider implications of language manipulation. Of course, they are now way ahead of the Nazis in technique and effect. Those Disney Imagineers and Mutations are hard at work. The good news in the book is that, the Great Third Reich only lasted a paltry 12 years. Pretty poor performance! Klemperer is much like us today, looking for some good news in a constant barrage of bad news and Propaganda. Some great humans have preceded us on this road.

        1. LifelongLib

          I mean to read Klemperer’s book someday.

          A quote from it that stuck in my mind was how during the war he could tell what was really happening because the German “victories” kept getting closer and closer to Berlin. “We’ve decisively defeated the enemy at Normandy”. “We’ve won a great battle in Paris”. “We’ve triumphed on the Rhine”. I guess we now have to view our own news with the same discernment.

          1. Android 16

            Interesting. It reminds me something else. Weeks ago I have by accident seen Fast and Furious 6. I think these movies are directed towards proletariat (those to breed for surplus labor, pay interest and catch bullets in wars). The story line went from the heroes living in a mansion (action bullshit follows) to ending up in a worn out shack somewhere nearby downtown LA, choosing that alternative over some reward. It seemed like it was imagineered to soothe the pain of the dispossesed.

  3. Jim Haygood

    ‘My advice to people dealing with the financial sector is: never buy anything that’s complex.’

    … or ILLIQUID, which goes hand in hand with complexity.

    Perfect example: hedge funds. Not only are they opaque and complex, but also investors typically have to give advance notice of withdrawals within a quarterly window … which can be restricted at the discretion of management.

    Plenty of nouveau riche arrivistes think that because they’ve qualified as accredited investors (>$200K income or >$1 million net worth ex residence), they should get themselves a fancy hedge fund to match the new Mercedes.

    But actually, owing to the dead weight of 2/20 fees, a disciplined investment policy using plain vanilla stocks and bonds can consistently beat the median hedge fund, simply because of lower fee drag.

    The hedge fund industry as a whole cannot possibly add enough value by active management to overcome its rich fee structure. And moderately illiquid to boot? Surely they’re joking!

      1. ScottS

        “There’s a sucker born every minute” is a phrase often credited to P. T. Barnum (1810–1891), an American showman. Though this phrase is often credited to Barnum, it was more likely spoken by a man by the name of David Hannum, who was criticizing both Barnum and his customers.

        It was said by a man who was criticizing what he considered to be an even bigger phoney than himself. I find it fascinating, even if Hannum was just talking his book.

    1. Bruno Marr

      “The hedge fund industry as a whole cannot possibly add enough value by active management to overcome its rich fee structure.”

      That’s why SAC, and some others, use insider-trading to get an advantage?

      1. Jim Haygood

        Probably. But the ones who want to stay in business don’t. Insider trading is pretty well policed. Any unusual trading volume before a corporate event is announced leaves tracks that are easily traced.

  4. peace

    Great Thanks!

    Individuals have conflicting worldviews (e.g., self-interested competition vs. mutual cooperation) and research on ethics will eventually focus on this to develop better social relations (maybe after we purge the cheating, lying stealing, bribing and bullying ethics researhcers who censor publications and otherwise bias research paradigms). We (as in a royal we the world) will eventually progress and develop more considerate (and mutually efficient!) social dynamics one day (yes, this is a post-vacation positivity bias here)

  5. from Mexico

    YVES said: “And when outsiders get a dim perception of how things work and are properly incensed, the insiders get astonishingly angry and defensive (the vehemence of the response is proof that on some level they actually do know what they are doing is wrong but have built all sorts of denial mechanisms and narcissistic responses to protect themselves from that knowledge).”

    It is a common phenomenon for a ponerogenic association or group to contain a particular ideology which always justifies its activities and furnishes motivational propaganda. Even a small-time gang of hoodlums has its own melodramatic ideology and pathological romanticism. Human nature demands that vile matters be haloed by an over-compensatory mystique in order to silence one’s conscience and to deceive consciousness and critical faculties, whether one’s own or those of others.

    If such a ponerogenic union could be stripped of its ideology, nothing would remain except psychological and moral pathology, naked and unattractive.

    –ANDREW M. LOBACZEWSKI, Political Ponerology: A Science on the Nature of Evil Adjusted for Political Purposes

    YVES said: “The second veil is it’s hard for non-bankers to believe that the conduct is as deeply, pervasively as bad as it is.”

    • The fact is, even normal people, who condemn this kind of union along with its ideologies, feel hurt and deprived of something constituting part of their own romanticism, their way of perceiving reality when a widely idealized group is exposed as little more than a gang of criminals… The job of effecting such a “strip-tease” may thus turn out to be much more difficult and dangerous than expected.

    –ANDREW M. LOBACZEWSKI, Political Ponerology: A Science on the Nature of Evil Adjusted for Political Purposes

    • Most rational and social justifications of unequal privilege are clearly afterthoughts. The facts are created by the disproportion of power which exists in a given social system. The justifications are usually dictated by the desire of men of power to hide the nakedness of their greed, and by the inclination of society itself to veil the brutal facts of human life from itself… [Individuals] therefore invent romantic and moral interpretations of the real facts, preferring to obscure rather than reveal the true character of their collective behavior. Sometimes they are as anxious to offer moral justifications for the brutalities from which they suffer as for those which they commit. The fact that the hypocrisy…expresses itself not only in terms of self-justification but in terms of moral justification of human behavior in general, symbolizes one of the tragedies of the human spirit.

    –REINHOLD NIEBUHR, Moral Man and Immoral Society

    1. steelhead23

      Once again Senor Mexico, you have shone a little light into my eyes. Thanks.

      Yves – all the above is true, yet I see little on NC about the downfall of the Fabulous Fabrice Tourre. The little punk may not be going to jail but is gearing up to have his pee-pee whacked. Isn’t this the kind of disincentive for looting we are looking for?

      1. rob

        The linked story also pertains to John Paulson.billionaire hedge fund invester. market manipulator.election swindler.etc.
        This is the guy Greg Palast has done stories on relating to the funding of many peoples campaigns. On his taking out mortgage insurance on other peoples homes ,who he figured that if/when they went under, he would be the beneficiary. The guy who bought us auto parts makers for $.65/share, and then sold months later after gov’t bailout for 4 billion in profits. After threatening gov’t owned car makers he was going to stop making parts, if his companies weren’t also “part of the deal”.
        This guy is a class A “A-hole”. And one seemingly where there is no court in the land to try him for anything. His crimes are legal…supposedly.
        I guess this shows the point of the thread. An even bigger schmuck,who makes more money and doesn’t get prosecuted in being a part of the same crime this guy is on trial for.

    2. Android 16

      “People will do anything, no matter how absurd, in order to avoid facing their own soul.”

      C.G. Jung

  6. rich

    It pays well…

    Swaps Probe Finds Banks Rigged Rate at Expense of Retirees

    Skyscrapers to Annuities

    ISDAfix is used to value derivatives trades known as swaptions, which are options on rate swaps. The contracts give the holder the right to swap a fixed- for a floating-rate obligation at some future point at a predetermined level. The amount of derivatives underlying swaptions contracts outstanding as of July 26 totaled $29.5 trillion, according to the Depository Trust & Clearing Corp.

    ISDAfix rates also help determine everything from borrowing costs on bonds that finance skyscrapers to interest on annuities. The benchmark, set in five currencies, is used to price euro-denominated corporate bonds and $550 billion of securities tied to commercial real estate. Fluctuations help determine the performance of structured notes bought by wealthy individuals.

    Kerrie Cohen, a spokeswoman for Barclays, declined to comment, as did Scott Helfman of Citigroup and Steve Adamske, a spokesman for the CFTC in Washington.

    “ICAP is cooperating with the CFTC’s wider inquiry into this area, and due to its pending nature we will not be commenting further,” Guy Taylor, a spokesman, said in a telephone interview.
    ‘Banging the Close’

    Banks set ISDAfix for 10-year rate swaps at 2.861 percent yesterday, up from 1.785 percent at year-end, according to ICAP data.

    CFTC investigators are piecing together evidence that shows swaption traders at banks worked with rate-swap traders at their own firms to manipulate ISDAfix, the person said. The swaption traders told their rate-swap colleagues the level at which they needed ISDAfix to be set that day in order to bolster the value of their derivatives positions before these were settled the next day, the person said.

    The rate-swap trader would then tell a broker at ICAP, the biggest arranger of the contracts between banks, to execute as many trades in interest-rate swaps as necessary to move ISDAfix to the desired level. This would be done just before 11 a.m. in New York, the time when current trades are used to create reference points that help determine the final ISDAfix rates, the person said.
    Treasure Island

      1. lurksquietlyusually

        And a laundry list that keeps getting longer. Matt Tiabbi, now of Rolling Stone, formerly of The eXile, has been doing a series on that called Everything Is Rigged, from the most recent; “Given the LIBOR story, the Interest Rate Swap manipulation story, the Euro gas price manipulation story, the U.S. energy price manipulation story, and (by now) countless others of the “Everything is Rigged” variety…This time the rates allegedly being rigged are in the foreign-exchange or “FX” markets, meaning that if this story is true, it would almost certainly trump LIBOR for scale/horribleness.”

        This was published before the Goldman aluminum story as well, so that one hasn’t made the list yet. Seems like a good portion of the price of everything people pay for, at every stage of the supply chain, from the financing end though every input and the power used to create are are purely extractive costs eh?

  7. matt

    What a surprise when someone leaves his job, colleagues are blaming him for a crap job. Honestly, this will happen everywhere from a school to software engineering, nothing special about traders.
    After all you read about traders how can you prefer this situation over automated trading (hft), I have no idea…

    1. MaroonBulldog

      I disagree. Traders are a little different, even from the other graduates of the MBA program. For one thing, they tend to be a little smarter, especially when low cunning and numeracy are involved. Second, they tend to have had their consciences dulled by too much uncritical study and acceptance of classifcal economics and finance. And they are more manipulative, or they wouldn’t be traders. These are the reasons why they are more dangerous than most.It was for good reason that the Enron expose was named for the traders, “The Smartest Guys in the Room.”

      1. Yves Smith Post author

        Actually, you should read the whole Guardian piece. In London, it’s still the reverse. You tend to have less educated types as traders. Pure street smarts and hunger. It was that way historically (places like Goldman having MBAs as traders in the early 1980s was an anomaly, although you did have MBAs as institutional bond salesmen at a fair number of shops). London (where I did some dealing room work in 1984) was all guys from the wrong side of the street as traders.

    2. MaroonBulldog

      It’s not always a matter of preferring human traders to robot traders–sometimes it’s a matter of whether the underlying “claims” reflect any contribution to social value–if not, then trades in those “claims” should not be allowed to proceed at all. Certainly some things should not be encouraged in the name of “free markets” and “innovation,” For the same reason that while we allow the defrauded to recover what they can in lawsuits against perpetrators, we do open the treasury vaults tot bail out people who invest in Ponzi schemes.

  8. MaroonBulldog

    Good advice to people dealing with the financial sector is, never buy any security that you can’t understand. If you can’t understand the investment someone is offering, it’s because you’re not meant to. If the offeror imports a French word to describe your claim (“tranche”), its because you are meant to be confused. If the offeror says you aren’t sophisticated enough to understand his accounting (Skilling), take him at his word–for that, but for that alone.

  9. Seal

    AND I’d like to see something about the NSA spying hookup and insider information and trading by US Government personnel including the military. It’s GOTTA be.

  10. allcoppedout

    It would be good to do a Goffman study on the different types of situation and presentation of trader-bankster language. I don’t know of any. I don’t believe the bosses don’t know either. Even at the teeming and lading levels of commercial fraud I’ve known evidence of downward direction. The key issue for bosses is to make speeches in public about integrity, write policies about such (as get out of being charged cards) and create a totally different informal culture.
    As a public we buy the sales scripts not people being honest with us. As for buying simple products, try and find one! It’s hard to believe our municipalities couldn’t insist on cutting out the small print that eventually hangs us denizens out to dry.
    Great theme Yves – any notions on a bigger data source?

  11. rob

    This is a case of “everything is as it should be”.
    This is just another example of what the world is; free from expectation.
    There is no universal truth.Might does make right.Life feeds upon life.Anyone can do anything they can get away with,for as long as they can get away with it.This is the law of nature.This is the only true law.
    Where this was supposed to go,when we formed a gov’t of the people ,for the people ,by the people;was to be on a path upwards.Of our own making.
    The idea of a secular humanist creation.The fact is there is no “god”.At least not one that has anything to do with humankind,or any earthly intrest.After all “the creator”, created the world.Life feeds upon life.This means that by design, in order to feed your children, you need to eat the children of others. This is the underlying natural fact of the evolutionary pattern we are a part of.
    As a consequence, we are to become “self-realized”, and make ourselves responsible for the humaneness to be imposed into our existence.That was the reason to create laws that were non-referential to kings.Here the mind of reason was supposed to reign.Not kings rights and grants of immunity,to the rakes who raped your daughters.
    This is an American problem. This is because we are the only nation on earth where the implied contract with the people, is still trotted before the masses who don’t yet realize the emporer wears no clothes.Though our system is not only broken now,but has been at every stage of its creation to get here,we can still change. Not our spots, but our ability to understand that man is not trustable to do good.The system of government, must include responsibilities to ALL.Right now, the laws pertain to main st.Not wall st.k street,or Pennsylvania ave.

    I just can’t believe we are still in the “look at these people” phase of understanding that the people with the money and power shouldn’t just be “trusted”.

    It is time to reign in our monetary system,with a new Chicago the Kucinich “need act” hr 2990 112th congress.
    Or a political campaign /election reform that requires telecom companies to provide free air time to candidates , BECAUSE they use the PUBLIC common property of wavelength spectrums;thus giving third and then some parties a voice over the supreme court sanctioned “money is speech” crap.
    If these intelligent ,but devious characters have gamed the playing field over these past generations.Well, it is time to change the board, and the rules.
    After all, the fourth estate is alive and well.Just not in the mainstream media.Places like NC, and democracy now, and the others are doing a real service for the people.

    1. 7th generation Texan

      Exactly spot on, Rob. My hobby is genealogy, and going through old court records (deeds, wills, lawsuits, etc) over the last several centuries is quite revealing to your point.
      It used to be standard that fiduciaries were held responsible for their actions, and had to post performance bonds with the court: estate executors, guardians of minors, bankruptcy trustees, etc all had to file regular reports to the court, which reports were examined and approved (usually!) by a judge. Assets, income, expenses, etc were all put on record, and derelict or dishonest fiduciaries were dismissed and replaced by the court and almost always sued by the offended party — though I have rarely come across such cases, I assume simply because of the layers of safeguards in place.

      If the pension fund managers, city finance directors, etc were all bonded and held personally liable for their performance, as in centuries past, I guarantee that their job results would improve quite dramatically! (and yes, I have seen documents where even county sheriffs had to post bond after an election before being sworn in).

      Of course, as you note, many of these “officials” are just minor bottom-feeding sociopaths taking these positions for what they can personally loot them for — and sadly, that’s often pitifully little: a few Vegas junkets, fancy banquets, whores and drugs (i.e., legal bribery – no actual cash changes hands!). Make them post a performance bond to actually do an honest job, and they won’t seek the position; problem solved.

      Of course, that brings up the next problem: finding honest, qualified men and women to fill the positions and work solely for the interests of their clients, the pension funds, municipalities, charities, etc. Surely those types of people still exist somewhere in this day and age….

      1. 7th generation Texas

        Ehhh, shinola — the above was supposed to be a reply to Lune! Sorry for the confusion.

  12. Lune

    But a parallel question is why customers haven’t fled these firms in droves? And I’m not talking retail investors who don’t know. They’re small potatoes by definition. Why do big institutional investors who know better continue to be fleeced year after year?

    I suspect the reason is that sell-side or buy-side doesn’t matter. Everyone has the same corrupt mentality. If you work for a pension fund, you don’t care whether your decisions will ultimately allow a retiree to keep his healthcare benefits 20 years from now. You only care if your decisions impact your own bottomline this year. You work for yourself as much as any trader.

    So if a sell-sider takes you to Vegas for a hooker-blow-blackjack bender, you reward him with a few million of your pension’s portfolio. As much as the traders’ behavior is repugnant, it’s their clients’ willingness to overlook it (or even seek it out) that’s the real problem…

    1. Nathanael

      Two key problems:
      (1) principal-agent problem. Individual investors *do* flee these firms, including *big* ones like Soros. Institutional investors… guys managing it are the problem, as you say.
      (2) among honest fiduciaries or those managing for their own acount, there are still a lot of naive optimists who can’t believe how corrupt things are.

  13. PaulArt

    When we were about to graduate from Grad school our seniors gave us a pithy saying about buying a car – ‘there is only one person worse than a car dealer and that is a used car dealer’. I now know that is false. A person worse than a used car dealer is a banker/trader, either ot both.

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