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Credit Suisse Traders Manipulated IT Systems To Hide $500m Losses
New submitter Qedward writes with a snippet from ComputerWorld UK: "Two traders at Credit Suisse have pleaded guilty to wire fraud and falsifying data after authorities said they had manipulated the bank's record systems, as the credit crunch approached, in order to help conceal over half a billion dollars' worth of losses. The traders admitted to circumventing a mandatory real time reporting system introduced by Credit Suisse, manually entering false profit and loss (P&L) figures as the products they handled collapsed in value. They did so, according to the accusations, under heavy pressure from their manager, who has also been charged."
...we don't need no stinkin' regulations.....
You are a genius. Let's introduce a regulation against fraud. Hooray!
I don't think putting incorrect data into the software can really count as manipulating the IT system.
Even banking systems have to obey the cardinal rule: Garbage in, Garbage out.
We only need protections against force and fraud. This is clearly fraud and would be punished even under the most libertarian business policies.
Taxation is legalized theft, no more, no less.
Comment removed based on user account deletion
So, these guys were fooling their bosses after the crisis had started. They must have thought prices were going to "come back" so that the deception would never be uncovered. It makes me wonder how many times in history traders have actually pulled this trick, and gotten lucky enough that prices really did revert and save their sorry behinds.
You have to actually fund regulatory agencies to notice this kind of behavior.
Revenge can be sweet, but if your objective is deterrence, forget about the death penalty. There's plenty of evidence that it's ineffective. Understandably, most of that evidence looks specifically at homocide rates (not many countries impose the death penalty for wire fraud at the moment).
"I dont understand why corporations didnt regulate themselves ...." (Alan Greenspan, in front of senate inquiry committee on wall street scam)
Read radical news here
This is indicative of the main problem in the banking system - money can be brought into existence regardless of whether it actually represents anything. In this case it's through fiddled figures, but it's perfectly normal and acceptable to do essentially the same thing en-masse. As long as enough people are claiming something is worth more than it is then it's worth more, and there's extra money to be had, the only mistake these guys made is not being thousands or millions of people. Look at the Facebook floatation - I don't know what the company is actually worth if you were to break it up today, but it's market value will be pretty much unrelated to that figure simply because lots of people want it to be valuable.
There's only one regulation that's really needed (outside obvious fraud), and that's a conservation law a-la momentum. You want more money? Well you're either going to have to achieve it by taking it from somebody else or by creating new resources through mining, manufacturing or man-hours etc. I'd like to see the hypothetical world-wide balance sheet for the last couple of decades, because I bet it would fail the most simple anti-fraud tests.
Please consider this account deleted, I just can't be bothered with the spam anymore.
we too narrowly avoided that shit here in turkey too. strict controls and standards were placed after 2001 liquidity crisis.
but, american government was pressuring the american backed islamist party here, to remove those regulations, so that there could be 'competition'. the street speak is, banks like Merrill lynch, goldman sachs were just wanting to enter turkish market to peddle their scam there. the economy minister here had had already started to babble about the issue, trying to make ground for the changes they were demanded by u.s., citing various run-off-the-mill right wing catchphrases about 'competition, free market' and whatnot. and those two banks had had already set up their first hqs in istanbul.
a month later, wall street scam had came out into open. and everyone shut up. bank-wise, turkish banks stayed as they were, intact. economically everyone got affected from the worldwide crisis though.
Read radical news here
And fund the court system to litigate this kind of behavior. And have some kind of fund to allow poor people to file lawsuits, lest it turns into a might makes right system. And have a system to create, collect and enforce the taxes necessary for this... Kinda like what we have now.
Those who can, do. Those who can't, sue.
Now some might say "Just think of what they would have been able to do with even LESS regulations!"
- that's the proper question, but it's incomplete.
Think about what they would be with less GOVERNMENT regulations!
The only real regulations are capital requirements that force banks to be risk averse by default, and no amount of government regulations does that, on the contrary - the Federal reserve of USA states that one of its goals is to ensure that people take MORE RISK than they would otherwise take in the market, which is obviously regulation and it's hurting the economy and it's done with counterfeit money.
So the correct statement is: think how much stronger a position of a bank would be that had REAL regulations, that are not corrupted by political system, but instead are ensured through the market - real money, gold.
The only real regulation in the market is real money. Can't gamble with real money without the government standing there with handouts.
Can't give risky loans, can't NOT have capital. Can't break contracts - otherwise you go to jail, thus can't commit fraud.
Committing fraud is all the 'government' regulation that needs to be enforced through CONTRACT LAW and the rest of the regulations are all market driven - gold as money and no fake credit, no fake mandates from government to give out risky loans. Can't buy worthless government paper either with real money, nobody would support a bank like that in the market.
--
But this requires people to understand that inflation is BAD for economy, not good, and people are obviously still not ready for it, even though they've been suffering the consequences of inflation in the world for near half a century (and countries have disintegrated because of counterfeiting of money in last century too, including USSR.)
Growth of economy depends on production, not consumption, of-course some think that 'supply side economics' is wrong, but they are the ones who don't understand that it worked marvellously for those, who actually manufacture the supply, not for those who stopped manufacturing and only consumed based on fake money.
The companies who want inflation in order to sell more of their goods - they have to be honest with their shareholders all of a sudden! It's not that they are gaining more purchasing power by selling more goods at lower valued money - the opposite is true. They are losing their purchasing power while gaining more nominal quantity of currency. So who benefits in that? Definitely not the people of the country and not even the shareholders. Do you know WHO benefits?
The top management, board of directors, simply because they can show nominal growth, which in reality is often a loss of a steady in real terms, but it looks like growth because more is sold in lower priced currency. Well, it's the same thing as selling in unchanged currency but cheaper! But it doesn't look good for their bonuses, and those are the people who go to the government to ensure that policy of inflation stays in effect.
They don't have to do much convincing there either, the government is happy to oblige - they love inflation, they are net borrowers and they want to win more elections, and giving out free money and creating inflation and using the nominal currency to give out more 'free stuff', programs, wars, laws, whatever pork, they get re-elected based on that.
The only real discipline does not come from government, it comes from real regulations - market money.
You can't handle the truth.
The thing is, many currently-death-penalty-inducing crimes are often not done while in the clearest state of mine, often in fact, in extreme states of fear or anger/rage or desperation.
Nonetheless, the penalty should outweigh the gain of omitting a crime, by simple application of game theory.
Note: gain here is the result of total gain, minus standard expenses
Normal gain: A
Extra gain from crime: B
Cost incurred if caught with crime: C
Probability of getting caught: f
Now we can calculate the reward:
Gain for not committing the crime (CLEAN): A
Gain for committing the crime (DIRTY): (1-f)(A+B)+f(A+B-C)
which can be rewritten as: A + B - f(A+B) + f(A+B) - f C
Or simply: A + B - f C
Now, for an ideal deterrent, the cost should generally be greater than the benefit, so
CLEAN > DIRTY, or CLEAN - DIRTY > 0:
A - (A + B - f C) = f C - B > 0
Then again, the people making the laws don't really care about game theory or morals or math like this, but rather, who greases their palms with the green lubricant... So why did I even bother?
Self proclaimed typo king, and inventor of the bear destroying coffee table (patent not pending).
The Nuremberg defense (aka Respondeat superior) is invalid in International Law.
I disagree. The further it is greater than 0, the incentive there is to avoid committing the crime, the deviation from 0 should increase based on how undesirable the crime is.
As I stated, the death penalty typically applied to crimes resulting from a person not thinking at their most rational. In such cases, game theory goes out the window. In such cases, the penalty serves more to permanently keep such loose canons out of society, rather than serve as a deterrent.
Self proclaimed typo king, and inventor of the bear destroying coffee table (patent not pending).
Your argument assumes that bank employees do what is good for the bank. The last fnancial crisis has showed that this is simply not true. The excessive compensation schemes put in place at banks have disconnected what is good for employees from what is good for banks.
Huge bonuses were obtained by employees for deals that were very bad for the banks. Enough money to retire was paid in bonuses in a couple of years, so why would those employees care about the long-term health of the bank? External market pressures won't change that dynamic -- banks have to reform their compensation schemes.
The real "Libtards" are the Libertarians!
They were sold on to government chartered non-profits (Freddy and Fannie).
Ignoring the fact that the government setup the secondary mortgage markets and wrote the underwriting rules is an example of selection bias.
You only want to focus on the unregulated aspects (derivative markets) while ignoring the miss-regulated aspects. Not unregulated, miss-regulated.
Mortgage markets are heavily regulated in the USA. Miss-regulation is the worst part of regulation.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
I don't think there are any libertarians that want to drop police/fbi forces from the budget. They're there for a reason.. though maybe FBI + ATF + CIA + NSA... is a bit excessive and redundant. It's not about no regulation, or not enforcing regulation. It's about all the ancillary agencies that don't serve a purpose in a leaner central government. For that matter, imho this includes reduction of government granted monopolies (copyright, patents, etc) in order to spur greater competition.
Michael J. Ryan - tracker1.info
What are you going to do, make it illegal twice? That'll show em. If they do it again, we'll make it illegal THREE times.
I wouldn't call it so much revenge as removing from society people who clearly have no intention of abiding by common rules of civility.
One doesn't need a religious edict to know that killing someone for their wallet is something you don't do or that raping anyone is acceptable.
While I wouldn't condone the death penalty in this case, there are numerous cases where the person has had numerous run ins such as burglary, assault, drunken driving, etc where it's obvious no amount of jail time will make them change their ways.
Since they refuse to live by common rules of decency, we, as a society, should not have to continually have our tax dollars poured down the bottomless pit housing, feeding and caring for these people.
Everyone makes mistakes or does something when they are desperate. I'm not talking about those folks. I'm talking about habitual recidivists who just don't care. If they don't care about hurting someone else, we shouldn't care if they are permanently removed from society.
We will bankrupt ourselves in the vain search for absolute security. -- Dwight D. Eisenhower
You are assuming that it is possible for bank management to do what they did without government backing them with free money and various regulations, that required them to give out much riskier loans than what they normally would give out if they didn't have either government backing in the money or regulations.
All of those huge bonuses, etc., it's all only possible when there is a huge government put on all those terrible risky loans that banks give out and it's prevented from ever happening with real money in the first place.
You can't handle the truth.
Disclaimer: I've got a Master's in Finance from a top university, hold a highly recognised multi-year professional qualification and have spent several years in the industry. Not primarily risk management or macroeconomic oversight, but I know enough to see the issues.
A lot of what is said about banks and bankers and contributions to "the financial crisis" is plain bunk. I'm not going to point out specifics here.
The one area where a finger should be pointed, and largely hasn't, is the enormous pressure that has been exerted to lower capital requirements.
Effectively it works like this: A bank doesn't create money out of thin air (in spite of what untold millions of crazies think - only the banking system does). Every dollar it lends out, it has to borrow. The bank's balance sheet consists of assets that interest is generated on (the loans it has made, interest-paying bonds it has purchased etc.) and liabilities that interest is paid on (the bank's own short term paper, the deposits people have placed at the bank, various other funny ways to borrow money).
Effectively, for a 'simple bank', the money that the bank makes is the margin between the two.
There is however a problem: what is some of the bank's assets disappear? In other words, what if someone who has borrowed money and promised to repay it, can't? The bank still has to repay its own liabilities. Suddenly your assets are 90m and your liabilities are 100m and you are effectively insolvent. The people the bank owns money would get only 90 cent on the dollar.
Which is why banks have a capital buffer. The 'equity' of the company. The only thing the shareholders really own and generates returns for them. If you have a capital buffer of 20m, then in the example above, your capital buffer would be cut in half. Equity owners take the first loss. The bank's creditors doesn't suffer.
Now, the calculation of shareholder returns is effectively the interest margin, in absolute monies, applied to the equity. So-called Return on Equity. For example, if you lend out 100 at 5%, borrow 100 at 3%, that gives you gross income of 2. If your equity is 10, that implies a 20% return e.g. that can be paid out as a dividend.
Increasing the size of a balance sheet is extremely easy. You can just give tons of risky loans at medium interest rates, and get funded by borrowing at slightly lower interest rates. This means if you e.g. have 10m, you could start a bank that immediately borrows 100m, lends 100m, and generates you 2m per annum. Quite a decent rate of return compared to other investment options.
This means that the amount of capital required is of _extreme_ importance. If you are required to hold 10% of your total loans/debts in capital, then in the example above, starting a bank with 10m lets you lend 100m and borrow 100m and make 2m per annum as described.
If this requirement is lowered to 5%, you can do one of two things: you can suddenly crank up your lending and borrowing to 200m, still generating a gross margin of 2% (now 4m per annum), which doubles the returns on your investment from 20% to 40% per annum. Or, you can start a bank with 5m instead, lend/borrow 100m, and generate a 40% RoE still.
There has been an enormous pressure from banks and investors to reduce capital requirements. This has been pushed along and justified with models, for example, that says that bankruptcies (assets disappearing) are not correlated with each other, so if e.g. you have 100 borrowers that each borrow 1m you only need to hold 2m in assets because it's statistically very very unlikely that more than 2 of these go bankrupt each year.
What happens if the model breaks down and 3 borrowers go bankrupt at the same time, e.g. in the housing market? The bank falls over. It's not simply a matter of injecting 1m, because an enormous legal mess occurs, other suppliers of capital to the bank run away fearing bankruptcy meaning that the bank has to recall loans to repay them (which it can't), etc.
Here comes the crucial par
It would never even be discovered under the most libertarian business policies.
Under the most libertarian policies, Credit Suisse would be the last place its investors would want to be now. They'd be deserting in droves, going somewhere their interests were actually cared about, not just CS's maximize profits & minimize loss.
Unburdened by onerous regulation and worried about their reputation, wanting to retain their customers, CS might consider it in its interests to spend some cash to actually know what's going on inside.
Regulation doesn't fix this stuff. It's been shown politicians can't keep their fingers off it and love to tweak the system for personal gain. And they did, and we ended up with the toxic assets disaster for their efforts.
"Tongue tied and twisted, just an Earth bound misfit
doesn't matter, Freddie and Fannie were an important part of the perverse incentive structure. Implied government guarantee turns everything upside down.
You earn more money when you give loans left and right and peddle them to the government with infinite funds than when you are cautious and prudent.
Also if you don't participate in that death race, you lose business; investors leave because the other guys offer better returns.
Flooding market with money to stimulate economy didn't help maintain sanity either - it was the root cause of that silly notion that housing can go 10%/year for eternity.
Gold has no inherent value, but cannot be easily gamed.
Well, for certain definitions of "easily". Quoting from http://www.fgmr.com/move-over-fisk-and-gould.html we read that a manipulator (ironically named Gould) did just that:
In 1869, Jim Fisk and Jay Gould tried to corner the gold market, and for a time, this notorious duo succeeded...When Fisk and Gould started their manipulations, gold hovered around GB$130....Gould got some newspapers to help him in his task by printing stories that a gold squeeze had begun. By Thursday, gold had risen to the low GB$140’s, but the real fireworks began the next day, September 24th, what has become known as Black Friday... Many faced ruin as gold began to soar, and the margin calls began to mount....The gold price had risen to GB$162, when James Brown (who with his brother took over the firm started by their father, which exists to this day as Brown Brothers Harriman) stepped up to the plate. He sold 250,000 ounces to a Fisk and Gould broker at GB$160
Under the most libertarian policies, Credit Suisse would never have told the investors anything.
Unburdened by onerous regulation and worried about their reputation, wanting to retain their customers, CS would save money and face by lying to the public.
Regulation is the only recourse. It is not perfect and people do corrupt the system, but it is the only option we have.
We had the kind of justice system you describe in place for most of recorded human history. The Romans crucified hundreds of thousands over their thousand year reign, the Janissaries of the Caliphate used to drop prisoners onto large spikes and impale them while alive as a warning to others, and so on and so forth. People still committed crimes. All you're advocating is reforming the system to provide immense personal satisfaction and vengeance to the wronged, rather than actual penance and rehabilitation.
Here's to hot beer, cold women, and Glaswegian kisses for all.
"Regulation doesn't fix this stuff. It's been shown politicians can't keep their fingers off it and love to tweak the system for personal gain. And they did, and we ended up with the toxic assets disaster for their efforts."
Bull Shit! Lobbyists are the ones who tweak the regulations not the politicians. Politicians just rubber stamp legislation handed to them from lobbyists.
The toxic asset fiasco was the doing of an UNREGULATED derivatives market. Wall Street got what they wanted, no regulations and we the American tax payer got saddled with the losses.
That's what happens when you undo Glass-Steagall.
I didn't know I had 'sock puppets', but whoever moded me up must find this extremely amusing.
You can't handle the truth.
just because you don't recognise a meaningful post doesn't mean nobody else does.
You can't handle the truth.