THE EVOLUTION OF SHAME SCANDAL OF ALL SCANDALS: THE WALL STREET VS MALAY STREET vs TAMIL STREET

Santosh Desai
Just when you thought Wall Street couldn’t sink any lower — when its myriad abuses of public trust have already spread a miasma of cynicism over the entire economic system, giving birth to Tea Partiers and Occupiers and all manner of conspiracy theories; when its excesses have already wrought havoc with the lives of millions of Americans, causing taxpayers to shell out billions (of which only a portion has been repaid) even as its top executives are back to making more money than ever; when its vast political power (via campaign contributions) has already eviscerated much of the Dodd-Frank law that was supposed to rein it in, including the so-called “Volcker” Rule that was sold as a milder version of the old Glass-Steagall Act that used to separate investment from commercial banking — yes, just when you thought the Street had hit bottom, an even deeper level of public-be-damned greed and corruption is revealed.
Corruption is the most intractable problem in the country. It is difficult to curb.
Younger brother to the Prime Minister and CIMB group chief executive Datuk Seri Nazir Razak told the Financial Times that the government must overcome corruption to move up from being a middle-income economy. He said that Malaysia could consider granting an amnesty for those involved in minor corruption, as has been done in Hong Kong, to reduce resistance from the vested interests.
It is doubtful that letting small fish go without an institutional reform can actually curb corruption. In fact, the biggest obstacle is, senior officials do not believe that corruption in the country is serious.
The Performance Management and Delivery Unit (Pemandu) pointed out at end of last month that Malaysia has been improving in its graft fight over the past three years. It added that a great controversy would be stirred like a dust storm every time when a corruption case was revealed, but it does not mean that the situation has turned serious.
However, the assessments of the outside world are inconsistent with the official statement.
When the Transparency International (TI) published the Corruption Perceptions Index (CPI) in 1995, Malaysia was ranked the 23th place among the total 41 countries, scoring 5.28. However, our ranking has been sliding in the recent three years, from the 56th place in 2010 to the 60th last year, and the score dropped from 4.4 to 4.3, which was lower than the government’s target of 4.9.
Why is the situation still worsening after so many anti-corruption movements have been launched? Why there was no follow up reports about the Government Transformation Plan (GTP) and the National Key Performance Areas (NKRA)?
It reminds me of an anti-corruption farce during the administration of Tun Dr Mahathir Mohamad.
The Malay Mail reported on August 11, 1989 that a prisoner was spotted walking freely to a family-run garment factory located at Jalan Ipoh. He was not accompanied by any prison officers and his expression was at ease. Only when he found that a reporter was following, he covered his face with hands and ran into the factory.
More behind stories were revealed later and it was reported that the prisoner, Chinese Muslim Abudullah Ang, was actually allowed to go out freely for private business and sleep on a water bed in his cell.
As usual, an investigation team was set up by the Prison Department and it claimed to conduct a thorough investigation. However, it was able to summit only a five-pages report. The Home Ministry was not satisfied with it and therefore, an investigation committee led by a deputy secretary-general of the Ministry was formed for an in-depth investigation. Later, the committee recommended dismissal or disciplinary actions to be taken against three involving prison officials.
It is still as dark as ever nowadays. The Berita Harian reported that some police and prison officers actually assisted prisoners to smuggle drugs into prison, which they could earn 30% to 50% of commission for contraband sold in the prison, while prisoners who provided assistance would also get a monthly bonus of RM20,000.
The drug smuggling network formed by police and prison officers, as well as prisoners is a perfect ring absolutely corrupted.
The prison still remains as dark even 23 years have passed. It will continue to decay if the curtain is not drawn back to reveal the culprits.
Anti-corruption has never been an easy task. Moreover, corruption tactics have been increasingly sophisticated. The Malaysian Anti-Corruption Commission alone would not be able to curb all highly organised groups.
If the authorities keeps denying and trying to trivalising the problems, just like how crimes are dealt, anti-corruption would remain only an idle ideal. Sooner or later, it will shake the country’s foundation.
Sit down and hold on to your chair.
What’s the most basic service banks provide? Borrow money and lend it out. You put your savings in a bank to hold in trust, and the bank agrees to pay you interest on it. Or you borrow money from the bank and you agree to pay the bank interest.
How is this interest rate determined? We trust that the banking system is setting today’s rate based on its best guess about the future worth of the money. And we assume that guess is based, in turn, on the cumulative market predictions of countless lenders and borrowers all over the world about the future supply and demand for the dough.
But suppose our assumption is wrong. Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them — bets that will pay off big for them because they have inside information on what the market is really predicting, which they’re not sharing with you.
That would be a mammoth violation of public trust. And it would amount to a rip-off of almost cosmic proportion — trillions of dollars that you and I and other average people would otherwise have received or saved on our lending and borrowing that have been going instead to the bankers. It would make the other abuses of trust we’ve witnessed look like child’s play by comparison.
Sad to say, there’s reason to believe this has been going on, or something very much like it. This is what the emerging scandal over “Libor” (short for “London interbank offered rate”) is all about.
Libor is the benchmark for trillions of dollars of loans worldwide — mortgage loans, small business loans, personal loans. It’s compiled by averaging the rates at which the major banks say they borrow.
So far, the scandal has been limited to Barclay’s, a big London-based bank that just paid $453 million to U.S. and British bank regulators, whose top executives have been forced to resign, and whose traders’ emails give a chilling picture of how easily they got their colleagues to rig interest rates in order to make big bucks. (Robert Diamond, Jr., the former Barclay CEO who was forced to resign, said the emails made him “physically ill” — perhaps because they so patently reveal the corruption.)
But Wall Street has almost surely been involved in the same practice, including the usual suspects — JPMorgan Chase, Citigroup, and Bank of America — because every major bank participates in setting the Libor rate, and Barclay’s couldn’t have rigged it without their witting involvement.
In fact, Barclay’s defense has been that every major bank was fixing Libor in the same way, and for the same reason. And Barclays is “cooperating” (i.e., giving damning evidence about other big banks) with the Justice Department and other regulators in order to avoid steeper penalties or criminal prosecutions, so the fireworks have just begun.
There are really two different Libor scandals. One has to do with a period just before the financial crisis, around 2007, when Barclays and other banks submitted fake Libor rates lower than the banks’ actual borrowing costs in order to disguise how much trouble they were in. This was bad enough. Had the world known then, action might have been taken earlier to diminish the impact of the near financial meltdown of 2008.
But the other scandal is even worse. It involves a more general practice, starting around 2005 and continuing until — who knows? it might still be going on — to rig the Libor in whatever way necessary to assure the banks’ bets on derivatives would be profitable.
This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us — whose money they’ve used for to make their bets — losers and chumps.
What to do about it, other than hope the Justice Department and other regulators impose stiff fines and even criminal penalties, and hold executives responsible?
When it comes to Wall Street and the financial sector in general, most of us suffer outrage fatigue combined with an overwhelming cynicism that nothing will ever be done to stop these abuses because the Street is too powerful. But that fatigue and cynicism are self-fulfilling; nothing will be done if we succumb to them.
The alternative is to be unflagging and unflinching in our demand that Glass-Steagall be reinstituted and the biggest banks be broken up. The question is whether the unfolding Libor scandal will provide enough ammunition and energy to finally get the job done.
Raja has conquered Tihar jail’ reportedly read some slogans on T-shirts worn by his celebrating supporters on his return to Chennai after spending 15 months in jail. To see his return from detention on charges of massive corruption as the return of a conquering hero requires a special kind of ability, one that does not seem in short supply today. Increasingly, corruption charges do not seem to carry a social taint, and even criminals convicted of more heinous crimes, people like SPS Rathore (of the Ruchika case notoriety) or Manu Sharma carry themselves with a swagger when seen in public. readmorehttp://themalaybusinesstribune.blogspot.com/2012/07/evolution-of-shame-scandal-of-all.html

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