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Credit Suisse's plea is kabuki theatre. Big US banks are still getting off easy Credit Suisse's plea is kabuki theatre. Big US banks are still getting off easy
(4 months later)
Getting a bank on tax evasion is like getting Al Capone on tax evasion. It's a punchline that suggests with absolute certainty that bigger crimes are going to go unpunished.Getting a bank on tax evasion is like getting Al Capone on tax evasion. It's a punchline that suggests with absolute certainty that bigger crimes are going to go unpunished.
Consider Credit Suisse, a giant international bank that on Tuesday pleaded guilty to one charge of conspiracy for helping wealthy Americans avoid taxes. It will pay a $2.6bn fine, which is triple the amount of money it had set aside.Consider Credit Suisse, a giant international bank that on Tuesday pleaded guilty to one charge of conspiracy for helping wealthy Americans avoid taxes. It will pay a $2.6bn fine, which is triple the amount of money it had set aside.
To be fair, the public image of the secretive system of Swiss banking, which has been the basis for plot lines in everything from James Bond to the Bourne films, is not too far from the truth: those banks are open only to the absurdly wealthy, and their promise of discretion is essentially their business model. The US government thinks the Swiss banks are helping rich people avoid taxes by fooling the IRS and filling out fake bank statements, and they're not entirely wrong: one colorful example involves a Credit Suisse banker who passed such fictionalized documents to a client in the middle of an issue of Sports Illustrated.To be fair, the public image of the secretive system of Swiss banking, which has been the basis for plot lines in everything from James Bond to the Bourne films, is not too far from the truth: those banks are open only to the absurdly wealthy, and their promise of discretion is essentially their business model. The US government thinks the Swiss banks are helping rich people avoid taxes by fooling the IRS and filling out fake bank statements, and they're not entirely wrong: one colorful example involves a Credit Suisse banker who passed such fictionalized documents to a client in the middle of an issue of Sports Illustrated.
Credit Suisse is taking the lash for being a linchpin of that system. So, if you're not a spy-movie buff, who cares? Because it's the biggest example yet of how misleading the theater of financial law enforcement can be.Credit Suisse is taking the lash for being a linchpin of that system. So, if you're not a spy-movie buff, who cares? Because it's the biggest example yet of how misleading the theater of financial law enforcement can be.
The Justice Department has a story to sell you here – that Credit Suisse's guilty plea is proof the government is getting tough on banks. Eric Holder, the attorney general, said Tuesday that the guilty plea proves "no bank is too big to jail".The Justice Department has a story to sell you here – that Credit Suisse's guilty plea is proof the government is getting tough on banks. Eric Holder, the attorney general, said Tuesday that the guilty plea proves "no bank is too big to jail".
Slightly undercutting his conviction is the reality that no one – at Credit Suisse or any other bank – is going to jail. There were several other banks that the US government and others went after (including UBS, HSBC, Standard Chartered and ING), and they all just paid fines. Slightly undercutting his conviction is the reality that no one – at Credit Suisse or any other bank – is going to jail. There were several other banks that the US government and others went after (including UBS, HSBC, Standard Chartered and ING), and they all just paid fines.
Holder and his team at Justice are singing a different tune than they were a year ago, when they shrugged and suggested that disciplining banks would destroy the financial system as we know it. They were seemingly convinced that these banks were fragile, trillion-dollar orchids, shivering in fear of a fine or guilty plea. Holder and his team at Justice are singing a different tune than they were a year ago, when they shrugged and suggested that disciplining banks would destroy the financial system as we know it. They were seemingly convinced that these banks were fragile, trillion-dollar orchids, shivering in fear of a fine or guilty plea.
The Justice Department embarrassed itself last year with those statements, so it is overcompensating now by crowing about its latest accomplishment: one guilty plea.The Justice Department embarrassed itself last year with those statements, so it is overcompensating now by crowing about its latest accomplishment: one guilty plea.
But the only people who think a guilty plea is important are prosecutors; Wall Street is over this already. Analysts who follow Credit Suisse said it will be "business as usual", and analysts at Nomura called the fine "affordable".But the only people who think a guilty plea is important are prosecutors; Wall Street is over this already. Analysts who follow Credit Suisse said it will be "business as usual", and analysts at Nomura called the fine "affordable".
The collective attention span for yet another bank scandal is short, and this one may be particularly hard to care about. The IRS is a terrible protagonist, and few people are going to root for the agency, even if it is getting more in taxes from few millionaires. And nobody is likely care about tax evasion charges when banks have foreclosed on millions of Americans.The collective attention span for yet another bank scandal is short, and this one may be particularly hard to care about. The IRS is a terrible protagonist, and few people are going to root for the agency, even if it is getting more in taxes from few millionaires. And nobody is likely care about tax evasion charges when banks have foreclosed on millions of Americans.
The Justice Department believes it has hit a home run for law and order – but the Zurich-based Credit Suisse is so massive that a $2.6bn fine won't even make much of a dent. The bank is used to sitting on so much filthy lucre that, after the financial crisis, it voluntarily cut about $1tn in assets – just to curry favor with investors. (You're living large if your casual weight-loss goal is a cool trillion.)The Justice Department believes it has hit a home run for law and order – but the Zurich-based Credit Suisse is so massive that a $2.6bn fine won't even make much of a dent. The bank is used to sitting on so much filthy lucre that, after the financial crisis, it voluntarily cut about $1tn in assets – just to curry favor with investors. (You're living large if your casual weight-loss goal is a cool trillion.)
But for Holder and Co, it's pretty easy to look tough on a bank that's based in Switzerland and spends little of its pocket change lobbying here in the US. Call me when Holder starts yelling about capturing corruption at JP Morgan, or declares that Bank of America isn't too big to jail.But for Holder and Co, it's pretty easy to look tough on a bank that's based in Switzerland and spends little of its pocket change lobbying here in the US. Call me when Holder starts yelling about capturing corruption at JP Morgan, or declares that Bank of America isn't too big to jail.
Nobody really cares about tax evasion as a criminal matter when 10.2m Americans are unemployed and the US is still mired in a housing crisis. People care about mortgage fraud, they care about a crash that emptied their retirement accounts, and they care about banks screwing them over. Jail the people who actually helped hurt the economy, and Americans will start caring about the Justice Department going after banks.Nobody really cares about tax evasion as a criminal matter when 10.2m Americans are unemployed and the US is still mired in a housing crisis. People care about mortgage fraud, they care about a crash that emptied their retirement accounts, and they care about banks screwing them over. Jail the people who actually helped hurt the economy, and Americans will start caring about the Justice Department going after banks.
The other problem is that "banks" feel no shame in a guilty plea (or about much of anything). Maybe once upon a time, the "moral giants" of the finance industry might have refused to do business with a firm found criminally guilty of something – even just out of scorn – but no one can afford those morals now. There are too few banks, and they control way too much money. The 10 largest banks in the world control over $25tn in assets, and there aren't many alternatives to the big boys. As a result, "guilty" becomes meaningless.The other problem is that "banks" feel no shame in a guilty plea (or about much of anything). Maybe once upon a time, the "moral giants" of the finance industry might have refused to do business with a firm found criminally guilty of something – even just out of scorn – but no one can afford those morals now. There are too few banks, and they control way too much money. The 10 largest banks in the world control over $25tn in assets, and there aren't many alternatives to the big boys. As a result, "guilty" becomes meaningless.
For example, look at what happened when SAC Capital, a hedge fund, was actually indicted for insider trading – the firm itself, not just its employees. Investors considered the matter finished and the principals, including founder Steve Cohen, just opened up a new shop called Point72.For example, look at what happened when SAC Capital, a hedge fund, was actually indicted for insider trading – the firm itself, not just its employees. Investors considered the matter finished and the principals, including founder Steve Cohen, just opened up a new shop called Point72.
This comes down to a matter of resources. It's not as if prosecutors haven't been working on the crimes of the financial crisis – they just haven't gotten anywhere. Notably, prosecutors tried to jail the people who created the housing crisis, but largely failed. One example was the prosecution of two Bear Stearns hedge-fund managers who were tried for fraud in 2009. A jury deliberated for two days before acquitting them of all charges. There haven’t been many cases brought against anyone after that.This comes down to a matter of resources. It's not as if prosecutors haven't been working on the crimes of the financial crisis – they just haven't gotten anywhere. Notably, prosecutors tried to jail the people who created the housing crisis, but largely failed. One example was the prosecution of two Bear Stearns hedge-fund managers who were tried for fraud in 2009. A jury deliberated for two days before acquitting them of all charges. There haven’t been many cases brought against anyone after that.
The Justice Department will persist, though, and that's just fine. Investigations that have been going on for years will keep moving forward – and dozens more banks are expected to fall into the same net as Credit Suisse. But imagine if all the resources used to finally get this plea had been used on something that people actually care about – like any one of the many injustices foisted on regular Americans by American banks. It may be too long until we see that kind of action.The Justice Department will persist, though, and that's just fine. Investigations that have been going on for years will keep moving forward – and dozens more banks are expected to fall into the same net as Credit Suisse. But imagine if all the resources used to finally get this plea had been used on something that people actually care about – like any one of the many injustices foisted on regular Americans by American banks. It may be too long until we see that kind of action.