Wednesday, May 20, 2015

Record Fines for Currency Market Fix

5 of the largest influential banking institutions are facing massive fines for a variety of criminal charges such as maipulating the foreign exchange market, rigging benchmark interest rates and have been doing so for possibly up to 5 years. Due to the widespread nature of these large corporations that include JPMorgan, Barclays, CityGroup, and RBS (Royal Bank of Scotland) their actions have affected countless investors and institutions around the globe. The majority of the fines are being extracted under anti-trust laws that are supposed to prevent businesses from working together in this way. Now I'm not sure exactly why it's solely the US that's demanding fines from these companies, because the effect of their cartel reaches far beyond the United States, but do you think it's right that the US is the main plaintiff? How should a situation like this be prevented in the future? Why was the cartel able to fly under the radar for so long without getting caught?


Christian Carlson said...

I think it doesn't make too much sense that the US is the main plaintiff. Out of the ones that are pleading to the US fines, only two are really based mainly in the US: JPMorgan and Citigroup. Barclays, RBS, and UBS are definitely at fault here, but I don't understand why other involved countries are taking their own specific action. I think it's really difficult to prevent a situation like this in the future. Unless you diffuse some foreign exchange market responsibilities to government-backed institutions, it's just simply difficult. I guess the biggest thing is just to increase accountability for these banks, possibly making their actions more transparent. I think the cartel just wasn't caught because it was beneficial for the institutions and was well hid because of that.

Valerie Chen said...

I agree with Christian, and I think that in order to put a stop to these market manipulations, the government needs to start holding individuals, not just corporations, accountable. Though the Justice Department seems to have forced the banks to dismiss a handful of employees suspected of wrongdoing (NY Times), the powerful people who are actually making the decisions and sending out orders get off scot-free, protected by their lawyers and money. If the people who are causing these problems don't receive any personal consequences, I'm sure we'll see similar charges popping up again in the near future.

Douglas Kirsher said...

While there were many international corporations involved, the groups in the United States violated laws and should be punished. Unfortunately, when punishment is a fine no matter how large, the result is that companies are rarely hurt and end up passing the cost on to consumers. Many of these companies had been previously fined for other criminal acts. These are serious crimes commited by individuals. If someone robbed a bank, they would go to jail. Why don’t we treat people in these big corporations the same way? They are manipulating the system to steal from the public. If we wish to change this sort of behavior, we should start putting these criminals in jail just like other criminals. We need to keep our system held to high standards and face the fact that other nations many not have the same level of punishment as the US.

Ben Maison said...

Passing costs onto the customer still would work as an effective punishment provided the fine is proportionally large enough compared to the overall corporation to really hurt it and that also it's in a market which has enough alternatives to keep things competitive. In this case, passing the cost onto consumers can cause customer exodus to the alternatives. In this case, the the company has to eat the full bill or try to mitigate some of the damage very carefully. This fantasy hypothetical doesn't control for any number of things (contracts, for instance), but it would be a situation where

I'd usually assume fines are supposed to be considered disincentives, but at the rate banks rack 'em up along with the estimation of how much they make from each scandal, I'd much more like to sum up this situation as one where the banks can steal a $5 bill and only have to pay to the govt $1 as a fine. What is the point of these fines if they don't function as disincentives?

The US has a very unique doctrine when it comes to dealing with crime on the international scale. Essentially, the US finds itself going after entities with only the barest relation to the US provided they can find grounds in the US.