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Too Big to Fail

The evidence grows stronger with each passing day: The banking system is rigged by behemoth banks that need to be chopped down to size or extinguished altogether. Size does matter, and banks are abusing the term with regularity, perhaps even with irregularity. The latest colossal caper put upon us by the boys in the banking business was exposed today in the New York Times:

“The Justice Department forced four of the banks — Citigroup, JPMorgan Chase, Barclays, and the Royal Bank of Scotland — to plead guilty to antitrust violations in the foreign exchange market as part of a scheme that padded the banks’ profits and enriched the traders who carried out the plot. The traders were supposed to be competitors, but much like companies that rigged the price of vitamins and automotive parts, they colluded to manipulate the largest and yet least regulated market in the financial world, where some $5 trillion changes hands every day.” NYT.com. 5/20/2015

Currency trading in the Foreign Exchange market (FOREX) is not for the faint of heart. It is by far the biggest market in the world where $5.3 trillion in trades are made every day. That’s 30 times bigger than all the stock markets combined. Got the picture? What’s more it’s open 24/7, so it is a giant just waiting to suck you in and devour you in seconds, the words of all those in touting trading courses to the contrary notwithstanding. It’s Las Vegas, Atlantic City, and Monte Carlo on steroids. It’s where the big boys always win, and all others lose their shirts and delicate body parts.

Companies engaged in a lot of international trade are acutely aware of the perils involved in ignoring currency exchange rates. Small fluctuations in exchange rates can be very costly. So they hire specialists to hedge their investments against such changes. The FOREX provides the means for doing just that. It is a common practice and one that is necessary, proper, and legal. But like any other trading forum, it can be rigged. And if you are thinking the big players are the riggers, and you is the riggee, you is right. The DOJ just fined 4 of them a cool $5 billion today.

Anyone can trade currencies and make a profit—in the short run. But that is like “beating the house” in Las Vegas. You can do that a few times, just don’t fall into the delusional state that makes you believe you can do it every time. That is not going to happen. Same with currency trading—that is, unless you are one of the really big players. And you can collude by sending signals back and forth with your fellow big traders. And in the hubbub of millions of trades, such shenanigans are hard as heck to detect. And the big banks deal in trillions of dollars, so a billion dollar fine for collusion and rigging is small potatoes to them. Hence, the need to take them to the chopping block where they can be whittled down to size.

There is an additional problem in believing that all this is so obvious that everyone is ready to “put it” to the banks. How can they when the big banks have the legal decision makers right where they want them—in their back pockets?

When banks and the banking system got us all into trouble 7 or 8 years ago, we let them off the hook. We lent them big taxpayer dollars to keep them solvent long enough to recoup their losses. It worked, but did they learn a lesson? The answer is “yes!” And that lesson was and remains “Is this a great country, or what? Now we can do whatever we want because our boys in Congress will send us taxpayer money whenever we need it.”

In the aftermath of that debacle, Congress did pass a billed called “Dodd-Frank Act.” There is a provision in this act intended to stop banks from any proprietary trading in the currency market for their own profit. I don’t see how this admission of guilt by the banks could be interpreted by anything other than a violation of Dodd-Frank. But I am not a lawyer, and rarely look into ways of weaseling my way through loop holes in the law. And so, this too shall likely pass as just another flaw in the fabric of society that bankers came, saw, and conquered. Veni, vidi, vici. Still, this is another nugget to save. It could come in handy when deciding who gets your vote.

Sen. Elizabeth Warren, are you listening?