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Phil Gramm, former US Senator, former Chair of the Senate Banking Committee, former UBS bank Vice Chairman, now suspected of probable direct knowledge of UBS involvement in the LIBOR scandal, to which UBS has admitted guilt, and will pay $1.5 Billion. 

Last week I happened to stumble on an op-ed piece in the Wall Street Journal, authored by Phil Gramm, former Republican Chair of the Senate Banking Committee.  Gramm’s editorial was a typical Texan “good ol’ boy” rant against subsidies for renewable energy at the expense of the natural gas industry, now on an unprecedented roll as a result of shale fracking for gas.     I dismissed the article as more of the same pap from the highly discredited apologist for banking deregulation, who is said to be the father of Rosemaary’s Baby: the sub-prime mortgage market, and a unfailing promoter of derivatives.   Gramm was also the architect of the repeal of the Glass-Steagall Act..  Ironically, when Gramm left the Senate in 2001, he was succeeded on the Banking Committee by Paul Sarbanes, co-author of the Sarbanes-Oxley Act, intended to strengthen corporate governance. I have written in an earlier blog post about the “sorry saga”  of Sarbanes Oxley, as no one has yet to be held to account under Sarbanes Oxley, not even Dick Fuld of Lehman Brothers.  I decided to go back and refresh my memory of Phil Gramm and was amazed by what I found.  On leaving the Senate, Gramm was rewarded with a plum job at UBS, the Swiss banking giant which has just recently agreed to pay $1.5bn (£940m) to US, UK and Swiss regulators for attempting to manipulate the LIBOR inter-bank lending rate.  It seems that Gramm just can’t help getting himself entangled in banking scandals. Many journalists are convinced that on account of his position in the bank, Gramm could not possibly have been ignorant of the LIBOR interest rate rigging by UBS and at least 15 other global banks.  What is most interesting is that so long after the 2008 meltdown, there has been little written about the obvious interconnections among the numerous scandals over the years.
On August 17, 2012, ABC News headlined a story on their website, “Eight High Profile Banking Scandals in 5 Months.”  J.P Morgan misreported losses, LIBOR, Standard Chartered Bank illegal Iranian money laundering, Knight Capital trading “error”, ING Cuban and Iranian transactions, HSBC laundering drug cartel and terrorist money, Capital One credit card customer deception, Peregrine Capital Group fraud.
Just for the record, last week Wegelin & Co., the oldest bank in Switzerland, which was established in 1741, has also agreed to pay $57.8m (£36m; 44m euros) in fines to US authorities.  It said that once this was completed, it “will cease to operate as a bank”. The bank had admitted to allowing more than 100 American citizens to hide $1.2bn from the Internal Revenue Service for almost 10 years.
Switzerland's oldest bank, Wegelin

Wegelin & Co., the oldest Swiss bank, founded in 1741, will close its doors after paying a $57.8M fine.


Martin Wheatley, Managing Director of Britain’s Financial Services Authority

Thinking about the $1.5 Billion fine to be paid by UBS as result of its guilty plea in the LIBOR scandal, and the likely admissions of guilt to come from Bank of America, Wells Fargo, HSBC, Citibank, Barclays, and probable hefty fines, I am left underwhelmed.  Only months ago, UBS also paid a $27 Million fine for “rogue trading.”   Many longtime observers of the banking and financial services industries are also underwhelmed.  Fines, no matter how big, are nothing more than a “cost of doing business,”  which is routinely passed on to shareholders and to consumers. With LIBOR we were all on a “pay as we go” plan with our credit card and mortgage rates rigged.  The Economist and The Telegraph have both commented on the unseemly thrashing around to salvage already trashed reputations.  Regulators in the U.S. have remarked that only criminal penalties will change behavior in the banking industry. Citing the case of “junk bond king” Michael Milken, who served a long stretch in federal detention, although in a “country club” facility similar to that which houses Bernie Madoff, no one wanted anything to do with junk bonds after that.  The criminal penalty message was clear.  With LIBOR, I can see nothing that will change banking behavior.   Perhaps a small hopeful sign, a glimmer of hope, is the case of Raj Rajaratnam, recently convicted of insider trading. This is an SEC focus, though the SEC has been far from aggressive in seeking criminal penalties.


Raj Rajaratnam, US federal felon, serving time for fraud and insider trading violations

Dozens of banks globally have been caught red handed laundering Iranian money, hiding money from U.S. taxes, manipulating global interest rates, rogue trading of derivatives and sub-prime mortgage instruments, and insider trading.  The U.S. financial press estimates that there may be as many as 250 individuals still be under investigation by the FBI and SEC for a variety of regulatory violations, fraud, misrepresentation, and perjury. The problem is that we are now more than 5 years down the road since 2008 and there is no indication of any definitive action against these individuals.  Dick Fuld, the now infamous former CEO of Lehman Brothers, has been subject to no criminal investigation, and his worst punishment appears to be a ban on any further involvement in the securities industry. It should be noted, that Michael Milken also lost his securities license, but he also served time in prison. Fuld apparently will serve no time.  I personally need to see more “perp walks” with the “perps”  wearing those cute sliver bracelets and orange pajamas.


Dick Fuld, former CEO of Lehman Brothers, likely to be banned for life from any further involvement in the securities business, but unlikely to serve any hard time, unlike Michael Milken

And who can forget the Bank of Credit and Commerce International scandal?

BCCI came under the scrutiny of numerous financial regulators and intelligence agencies in the 1980s due to concerns that it was poorly regulated. Subsequent investigations revealed that it was involved in massive money laundering and other financial crimes, and illegally gained controlling interest in a major American bank. BCCI became the focus of a massive regulatory battle in 1991 and on July 5 of that year customs and bank regulators in seven countries raided and locked down records of its branch offices.[4]
Investigators in the U.S. and the UK revealed that BCCI had been “set up deliberately to avoid centralized regulatory review, and operated extensively in bank secrecy jurisdictions. Its affairs were extraordinarily complex. BCCI’s officers were sophisticated international bankers whose apparent objective was to keep their affairs secret, to commit fraud on a massive scale, and to avoid detection.”


Bank of Credit and Commerce International

Additional members of this infamous rogue’s gallery of financial felons stretching back decades, we may have forgotten. The base question is when will governments’ have the courage to act to restore confidence in our international banking system?


Ivan Boeskey, insider trading felon, and the inspiration for the “Gordon Gecko” character in the 1980’s film Wall Street


Michael Milken, the “junk bond king,” served 2 years in federal detention. Banned for life from any involvement in the financial securities industry


Charles Keating, former CEO of Lincoln Savings and Loan, convicted of fraud in the 1980’s “S&L” scandal, that tainted Senator John McCain and was arguably the precursor to the 2008 global financial meltdown.

Post Author: David Mayes

Founder, Mayo615 Technology Partners Ltd., UBC adjunct faculty, Intel alumnus, technology assessment, international business, cleantech, fly fisherman, native Californian and citizen of France, who has been very fortunate to have traveled, lived and worked all over the globe. My wonderful wife, Isabelle has reintroduced me to my French Provençal heritage.

3 Replies to “Crony Capitalism: UBS, LIBOR, Phil Gramm, And The Junk Bond King”

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