Beta
×

Welcome to the Slashdot Beta site -- learn more here. Use the link in the footer or click here to return to the Classic version of Slashdot.

Thank you!

Before you choose to head back to the Classic look of the site, we'd appreciate it if you share your thoughts on the Beta; your feedback is what drives our ongoing development.

Beta is different and we value you taking the time to try it out. Please take a look at the changes we've made in Beta and  learn more about it. Thanks for reading, and for making the site better!

Credit Suisse Traders Manipulated IT Systems To Hide $500m Losses

timothy posted more than 2 years ago | from the doubling-down-down-down dept.

Crime 141

New submitter Qedward writes with a snippet from ComputerWorld UK: "Two traders at Credit Suisse have pleaded guilty to wire fraud and falsifying data after authorities said they had manipulated the bank's record systems, as the credit crunch approached, in order to help conceal over half a billion dollars' worth of losses. The traders admitted to circumventing a mandatory real time reporting system introduced by Credit Suisse, manually entering false profit and loss (P&L) figures as the products they handled collapsed in value. They did so, according to the accusations, under heavy pressure from their manager, who has also been charged."

cancel ×

141 comments

Sorry! There are no comments related to the filter you selected.

Regulations... (1, Flamebait)

oh_my_080980980 (773867) | more than 2 years ago | (#38915093)

...we don't need no stinkin' regulations.....

Re:Regulations... (3, Insightful)

Anonymous Coward | more than 2 years ago | (#38915113)

...we don't need no stinkin' regulations.....

You are a genius. Let's introduce a regulation against fraud. Hooray!

Re:Regulations... (0, Insightful)

Anonymous Coward | more than 2 years ago | (#38915149)

No just consequences. Sentence them to death, the problem will be resolved with a deterrent. Besides it is regulated they just didn't follow the rules retard...

Re:Regulations... (5, Insightful)

IcyHando'Death (239387) | more than 2 years ago | (#38915389)

Revenge can be sweet, but if your objective is deterrence, forget about the death penalty. There's plenty of evidence that it's ineffective. Understandably, most of that evidence looks specifically at homocide rates (not many countries impose the death penalty for wire fraud at the moment).

Re:Regulations... (5, Informative)

ByOhTek (1181381) | more than 2 years ago | (#38915637)

The thing is, many currently-death-penalty-inducing crimes are often not done while in the clearest state of mine, often in fact, in extreme states of fear or anger/rage or desperation.

Nonetheless, the penalty should outweigh the gain of omitting a crime, by simple application of game theory.

Note: gain here is the result of total gain, minus standard expenses
Normal gain: A
Extra gain from crime: B
Cost incurred if caught with crime: C
Probability of getting caught: f

Now we can calculate the reward:
Gain for not committing the crime (CLEAN): A
Gain for committing the crime (DIRTY): (1-f)(A+B)+f(A+B-C)
which can be rewritten as: A + B - f(A+B) + f(A+B) - f C
Or simply: A + B - f C

Now, for an ideal deterrent, the cost should generally be greater than the benefit, so
CLEAN > DIRTY, or CLEAN - DIRTY > 0:
A - (A + B - f C) = f C - B > 0

Then again, the people making the laws don't really care about game theory or morals or math like this, but rather, who greases their palms with the green lubricant... So why did I even bother?

Re:Regulations... (1)

mehrotra.akash (1539473) | more than 2 years ago | (#38915967)

Well, death penalty makes C infinite in the above equations.
The goal should be fC-B>0, but also it should be as close to 0 as possible

Re:Regulations... (2)

ByOhTek (1181381) | more than 2 years ago | (#38916157)

I disagree. The further it is greater than 0, the incentive there is to avoid committing the crime, the deviation from 0 should increase based on how undesirable the crime is.

As I stated, the death penalty typically applied to crimes resulting from a person not thinking at their most rational. In such cases, game theory goes out the window. In such cases, the penalty serves more to permanently keep such loose canons out of society, rather than serve as a deterrent.

Re:Regulations... (-1)

Anonymous Coward | more than 2 years ago | (#38917353)

"The further it is greater than 0, the incentive there is to avoid committing the crime,"

It's a great theory, there just isn't the slightest shred of evidence to support it.

Repeat after me, "There is no evidence that a death penalty reduces crime."

The killer never kills again. (0)

Anonymous Coward | more than 2 years ago | (#38918427)

Put that in your calculations and smoke it.

captcha: discord

Re:Regulations... (1)

h4rr4r (612664) | more than 2 years ago | (#38916601)

No it places a limit on it that just cannot be increased. This is not the same as infinite. If you are looking at death for your crime, you might as well kill any witnesses. Your failed logic has lead to many murders.

Re:Regulations... (1)

Maximum Prophet (716608) | more than 2 years ago | (#38916819)

You are ignoring the suicidal.

Some criminal could easily have this thought process:
"Life sucks. I could kill myself, or rob a bank. Might as well die, robbing a bank."

Also, there are certain mental states that make it impossible to consider getting caught. Remember Bill Clinton. "I may be the most powerful person in the world, but I'd give it all away to have sex with a moderately attractive big-haired intern". Bill was so narcissistic and powerful that he literally could not imagine being caught for that.

Re:Regulations... (0)

Anonymous Coward | more than 2 years ago | (#38916075)

Yes, you want to make B < fC, so you argue for greatly increasing C (the death penalty). A game minded criminal, faced with an extremely high value for C, would want to minimize f, say by killing anyone who can rat them out.

One might then argue that the existence of the death penalty could actually increase the likelihood of murder in the commissioning and cover-up of a crime.

Not quite the deterrent one is after.

Re:Regulations... (1)

ByOhTek (1181381) | more than 2 years ago | (#38916183)

I wasn't arguing for the death penalty, I was just arguing for stricter penalties in general for some of these crimes.

Re:Regulations... (0)

Anonymous Coward | more than 2 years ago | (#38916301)

You are assuming human beings are rational - We are not. Feel free to read any of the extensive literature on the subject of behavioural science.

This is why deterrents for major crimes are ineffective.

Re:Regulations... (1)

codemonkey2011 (2563911) | more than 2 years ago | (#38916577)

Normal gain: A
Extra gain from crime: B
Cost incurred if caught with crime: C
Perceived probability of getting caught: f

Now we can calculate the reward:
Gain for not committing the crime (CLEAN): A
Gain for committing the crime (DIRTY): (1-f)(A+B)+f(A+B-C)
which can be rewritten as: A + B - f(A+B) + f(A+B) - f C
Or simply: A + B - f C

Now, for an ideal deterrent, the cost should generally be greater than the benefit, so CLEAN > DIRTY, or CLEAN - DIRTY > 0: A - (A + B - f C) = f C - B > 0

Then again, the people making the laws don't really care about game theory or morals or math like this, but rather, who greases their palms with the green lubricant... So why did I even bother? As shown above, if a real game theorist seized control of congress then we would end up with a lot of dummies in police cars due to lack of funds. :)

Re:Regulations... (1)

Herkum01 (592704) | more than 2 years ago | (#38917143)

Sometimes, when I look at what are current system is, I think Hammurabi [wikipedia.org] was onto something...

Re:Regulations... (2)

smooth wombat (796938) | more than 2 years ago | (#38916783)

I wouldn't call it so much revenge as removing from society people who clearly have no intention of abiding by common rules of civility.

One doesn't need a religious edict to know that killing someone for their wallet is something you don't do or that raping anyone is acceptable.

While I wouldn't condone the death penalty in this case, there are numerous cases where the person has had numerous run ins such as burglary, assault, drunken driving, etc where it's obvious no amount of jail time will make them change their ways.

Since they refuse to live by common rules of decency, we, as a society, should not have to continually have our tax dollars poured down the bottomless pit housing, feeding and caring for these people.

Everyone makes mistakes or does something when they are desperate. I'm not talking about those folks. I'm talking about habitual recidivists who just don't care. If they don't care about hurting someone else, we shouldn't care if they are permanently removed from society.

Re:Regulations... (1)

BigSes (1623417) | more than 2 years ago | (#38917457)

homocide

Now thats a hate crime!

Re:Regulations... (1)

afabbro (33948) | more than 2 years ago | (#38917747)

Revenge can be sweet, but if your objective is deterrence, forget about the death penalty. There's plenty of evidence that it's ineffective.

...as currently practiced. If it takes 10-20 years to carry out, is done in virtual secrecy, etc., then yes, it's ineffective. On the other hand, if you eliminate the galactic stupidity of our appeals system so executions are carried out reasonably soon after conviction and you do it via public crucifixion or other visibly unpleasant, witnessable method, then deterrence is quite effective.

And frankly, even if there is no deterrence, the justice factor alone makes this kind of reform essential. If someone killed a member of my family, I would want them crucified and giving them 10-20 years of relative comfort (see the recent North Carolina inmate letter, taunting relatives about how much he enjoyed his life in prison) followed by a painless execution is not justice.

Re:Regulations... (3, Insightful)

Xaedalus (1192463) | more than 2 years ago | (#38919773)

We had the kind of justice system you describe in place for most of recorded human history. The Romans crucified hundreds of thousands over their thousand year reign, the Janissaries of the Caliphate used to drop prisoners onto large spikes and impale them while alive as a warning to others, and so on and so forth. People still committed crimes. All you're advocating is reforming the system to provide immense personal satisfaction and vengeance to the wronged, rather than actual penance and rehabilitation.

Re:Regulations... (4, Insightful)

Darkness404 (1287218) | more than 2 years ago | (#38915237)

We only need protections against force and fraud. This is clearly fraud and would be punished even under the most libertarian business policies.

Re:Regulations... (5, Insightful)

Anonymous Coward | more than 2 years ago | (#38915347)

You have to actually fund regulatory agencies to notice this kind of behavior.

Re:Regulations... (4, Interesting)

NeutronCowboy (896098) | more than 2 years ago | (#38915619)

And fund the court system to litigate this kind of behavior. And have some kind of fund to allow poor people to file lawsuits, lest it turns into a might makes right system. And have a system to create, collect and enforce the taxes necessary for this... Kinda like what we have now.

Re:Regulations... (3, Insightful)

aztracker1 (702135) | more than 2 years ago | (#38916635)

I don't think there are any libertarians that want to drop police/fbi forces from the budget. They're there for a reason.. though maybe FBI + ATF + CIA + NSA... is a bit excessive and redundant. It's not about no regulation, or not enforcing regulation. It's about all the ancillary agencies that don't serve a purpose in a leaner central government. For that matter, imho this includes reduction of government granted monopolies (copyright, patents, etc) in order to spur greater competition.

Re:Regulations... (1)

NeutronCowboy (896098) | more than 2 years ago | (#38916713)

And my point is that as soon as you allow for the fact that basic regulation and taxation is required for any semblance of a government, you're right back in a system that differs from ours only by the priorities of the voting public. I'm happy to discuss what should be a government priority and what shouldn't, but these calls of "government IS the problem" and "government is ALWAYS worse than free markets" are idiotic, completely short-sighted and ignorant of about the last 5000 years of civilization. To me, they're no different than the tantrums of a child that didn't get a pony.

Re:Regulations... (1)

davester666 (731373) | more than 2 years ago | (#38917955)

Welcome to American politics, where everybody gets a pony. Even terrorists and child molesters, because otherwise, who would we have to fight against?

Re:Regulations... (1)

Vaphell (1489021) | more than 2 years ago | (#38918145)

care to elaborate on that 'last 5000 years of civilization' part? i am genuinely curious.

Re:Regulations... (1, Informative)

NeutronCowboy (896098) | more than 2 years ago | (#38919961)

The concept of government is about 5000 years old. Look for the old Mesopotamian civilizations like the Sumerians and the Assyrians. Even at the onset of civilization, people understood that there basic needs for government, that government doesn't work for free, and that the only question about government is what we want the resources to be used for that we provide said government. For the last 5000 years, the need for government to exist, and to include a supporting infrastructure necessary for providing even basic government services, has been unquestioned. Not because no one questioned it, but because the answers were as blindingly obvious as in the Life of Brian skit.

For some reason, Ron Paul type Libertarians think that society can exist without government. Well, it can. But no one wants to return to those times.

Contingent Fees (1)

alexander_686 (957440) | more than 2 years ago | (#38919245)

In theory contingent fees solve this problem. A poor defendant can sell a portion of their suit to a rich investor for a upfront payment. Today that is normally the lawyer handling the case. So being poor is not the major issue.

What is the major issue is when the plaintiff doesn’t have the money. One can be poor, hire a good lawyer, but you can’t squeeze Bernie Madoff for money he does not have. (I am working off the assumption that he is telling the truth when he says he spent it all)

Re:Regulations... (1)

GameboyRMH (1153867) | more than 2 years ago | (#38918149)

Nah don't worry, they'll report themselves, out of the goodness of their hearts. Or you could trust private auditing companies like E&Y and KPMG which never miss such things.

Re:Regulations... (1)

h4rr4r (612664) | more than 2 years ago | (#38916581)

It would never even be discovered under the most libertarian business policies.

Last I checked I did not get to vote on how much theft occurred. Taxes are many things, theft they are not. That bumper sticker logic shows how little you really think about these issues.

Re:Regulations... (2)

tqk (413719) | more than 2 years ago | (#38918043)

It would never even be discovered under the most libertarian business policies.

Under the most libertarian policies, Credit Suisse would be the last place its investors would want to be now. They'd be deserting in droves, going somewhere their interests were actually cared about, not just CS's maximize profits & minimize loss.

Unburdened by onerous regulation and worried about their reputation, wanting to retain their customers, CS might consider it in its interests to spend some cash to actually know what's going on inside.

Regulation doesn't fix this stuff. It's been shown politicians can't keep their fingers off it and love to tweak the system for personal gain. And they did, and we ended up with the toxic assets disaster for their efforts.

Re:Regulations... (2)

h4rr4r (612664) | more than 2 years ago | (#38918879)

Under the most libertarian policies, Credit Suisse would never have told the investors anything.

Unburdened by onerous regulation and worried about their reputation, wanting to retain their customers, CS would save money and face by lying to the public.

Regulation is the only recourse. It is not perfect and people do corrupt the system, but it is the only option we have.

Re:Regulations... (0)

Anonymous Coward | more than 2 years ago | (#38917259)

We only need protections against force and fraud. This is clearly fraud and would be punished even under the most libertarian business policies
--
Taxation is legalized theft, no more, no less..

posting AC since I modded...god this is rich, the cognitive dissonance in your sig and post (bolding mine).

How exactly are you enforcing protections against force and fraud when taxation is theft? You think businesses are going to chip in the money for that voluntarily?

Re:Regulations... (2)

Bardwick (696376) | more than 2 years ago | (#38916685)

What are you going to do, make it illegal twice? That'll show em. If they do it again, we'll make it illegal THREE times.

Re:Regulations... (0)

Anonymous Coward | more than 2 years ago | (#38917561)

...we don't need no stinkin' regulations.....

They did so, according to the accusations, under heavy pressure from their manager, who has also been charged.

Management "oversight" is always a problem in this regard as Nick Leeson proved!

Manipulation? (4, Insightful)

jholyhead (2505574) | more than 2 years ago | (#38915189)

I don't think putting incorrect data into the software can really count as manipulating the IT system.

Even banking systems have to obey the cardinal rule: Garbage in, Garbage out.

Re:Manipulation? (0)

Anonymous Coward | more than 2 years ago | (#38915297)

Would that be people, products, or numbers?

Re:Manipulation? (3, Insightful)

betterunixthanunix (980855) | more than 2 years ago | (#38915333)

Considering that manually entering a URL is classified by some as "hacking..."

http://consumerist.com/2011/06/how-hackers-stole-200000-citi-accounts-by-exploiting-basic-browser-vulnerability.html [consumerist.com]

Re:Manipulation? (1)

Colourspace (563895) | more than 2 years ago | (#38915569)

I thought one of the definitions of hacking was 'to manipulate a system in order to make it do things that were unintended by the original designers'. So, yes I know what you mean, it is tenuous, but sort of correct, even if it's not l33t hax0rs.

Re:Manipulation? (1)

bondsbw (888959) | more than 2 years ago | (#38916057)

But how do you define or measure "things that were unintended by the original designers"? As a general concept, how do I know beforehand that what I am doing is unintended?

The guy who invented glass probably never intended it to be flown at thousands of miles per hour in outer space. He probably never intended it to be used as a keyboard on an iPad. So, does that mean that those applications are illegal or immoral?

The URL hack was immoral because once the information was viewed and understood to be private personally identifiable information, it should have been destroyed. Yet instead, the "hackers" decided to continue using the exploit to obtain more private PII.

It's the same as breaking into my house. It's fairly easy to do, just kick the door in or break my window. But that doesn't mean it's moral or legal.

Re:Manipulation? (1)

aztracker1 (702135) | more than 2 years ago | (#38916665)

I think it's more like leaving your garage door open, with a signed copy of the registration/title for all your cars, and the keys sitting on the seat, with the doors unlocked, and open... It's wrong to steal your car... but you made it way too easy.

Re:Manipulation? (1)

GameboyRMH (1153867) | more than 2 years ago | (#38918215)

Technically a URL hack is a hack, even if they're blindingly obvious sometimes.

Re:Manipulation? (3, Insightful)

fuzzyfuzzyfungus (1223518) | more than 2 years ago | (#38915557)

Ah, remember that there is a second, very important, factor that decides whether or not a system has been "hacked" or "manipulated" or some other sinister-sounding verb...

Whether or not it embarrasses the owner/seller of the system.

In this case, (where a multi-billion-dollar investment bank's anti-fraud system apparently allows the people it is supposed to be monitoring to just manually enter the data that the system is supposed to be verifying) it would be terribly embarrassing to People Who Matter to describe the situation in more honest terms. If anything, the fact that the 'manipulation' hasn't been described as 'highly sophisticated' and the accused as a 'hacking expert' is the surprising bit.

Were the shoe on the other foot, and this system were something being sold commercially for use in all sorts of important places(SCADA systems, say) it would be dreadfully impolite to say that it had been 'manipulated', much less(heaven help us!) 'hacked' or 'exploited'. No, it would, just naturally, be vulnerable to malconfiguration by insider threats.

Re:Manipulation? (0)

Anonymous Coward | more than 2 years ago | (#38915585)

Even banking systems have to obey the cardinal rule: Garbage in, Garbage out.

Fixed for software engineers who care about program correctness: Garbage in, well-defined result out.

Re:Manipulation? (1)

ackthpt (218170) | more than 2 years ago | (#38915799)

I don't think putting incorrect data into the software can really count as manipulating the IT system.

Even banking systems have to obey the cardinal rule: Garbage in, Garbage out.

Intentionally putting in incorrect information ... however ... is a time-honoured tradition in business.

Re:Manipulation? (0)

Anonymous Coward | more than 2 years ago | (#38919957)

I think doing so knowingly certainly qualifies as fraud or manipulation.

"manually entering false profit" (0)

QuasiSteve (2042606) | more than 2 years ago | (#38915259)

manually entering false profit and loss (P&L) figures as the products they handled collapsed in value

http://www.youtube.com/watch?v=DdF76QhVEFE#t=22s [youtube.com]

The thing is, though... this amount of money, that amount of money.. is just some numbers on a computer, sort of disappearing or reappearing or naughts going.. you know. It must be very tempting, at the point when you realize that, for somebody to sneak up to you and goes 'Just type it back in.' There's no actual stuff I mean nothing's caught fire or exploded or sunk or anything. It's just a load of wanker-bankers having made stupid bets with each other when they're drunk. No bad thing has happened. It's not like all the pigs in South America suddenly died of blight(!) It is just people were just juggling with numbers that didn't exist, and it got out of hand, because they're arseholes

Australian banks (5, Interesting)

KuRa_Scvls (932317) | more than 2 years ago | (#38915285)

Australian banks used to not register in the top WHATEVER of the world before the collapse.

But thanks to heavy regulation, the Aussie banks steered away from bad debts, and therefore were relatively immune from the collapse.

Where are they now?

The top 4 now rank within the TOP 12 in the WORLD.

Now some might say "Just think of what they would have been able to do with even LESS regulations!"

To which I say, go fuck yourself.

Re:Australian banks (1)

Anonymous Coward | more than 2 years ago | (#38915415)

"Regulation" is a meaningless term. There are useful regulations (be able to cover over half your debts at any given time) and damaging regulations (skip credit checks and background checks).

The danger of regulations is not that some exist, the danger is that some people will attempt to micro-manage everything if given a chance, and a few will try to micro-manage in fraudulent ways through oddly worded legalese in what appears to be a reasonable law.

Re:Australian banks (1)

Pinky's Brain (1158667) | more than 2 years ago | (#38915699)

The amount of losses caused by government enforced loans to minorities are an infinitesimal part of the mortgage losses, most bad performing mortgages were granted because they could be sold on for short term gain with credit rating agency collusion, not because of government force. Unless you like hockeystick theories, blaming the MBS's fiasco on government is insane.

Your first example of good regulation is actually micromanaging. It acknowledges that the incentives for "banks" (rather bankers) are to incorrectly judge risk, but tries to fix it by micromanaging their credit rating methods. Which is doomed to failure ... they will find other ways to take on bad risk for short term gain.

Re:Australian banks (2)

HornWumpus (783565) | more than 2 years ago | (#38916485)

They were sold on to government chartered non-profits (Freddy and Fannie).

Ignoring the fact that the government setup the secondary mortgage markets and wrote the underwriting rules is an example of selection bias.

You only want to focus on the unregulated aspects (derivative markets) while ignoring the miss-regulated aspects. Not unregulated, miss-regulated.

Mortgage markets are heavily regulated in the USA. Miss-regulation is the worst part of regulation.

Re:Australian banks (1)

Pinky's Brain (1158667) | more than 2 years ago | (#38916703)

They underwrote a lot of the mortgages ... but they didn't underwrite the majority. With TARP you could have bailed them out whole.

Re:Australian banks (2)

Vaphell (1489021) | more than 2 years ago | (#38918069)

doesn't matter, Freddie and Fannie were an important part of the perverse incentive structure. Implied government guarantee turns everything upside down.
You earn more money when you give loans left and right and peddle them to the government with infinite funds than when you are cautious and prudent.
Also if you don't participate in that death race, you lose business; investors leave because the other guys offer better returns.
Flooding market with money to stimulate economy didn't help maintain sanity either - it was the root cause of that silly notion that housing can go 10%/year for eternity.

Re:Australian banks (-1)

Anonymous Coward | more than 2 years ago | (#38915447)

It all depends on who writes and applies those regulations.

Look at the americans, they have laws that say pizza is a vegetable, that's how messed up their tax system is. Do you really believe those regulations wouldn't turn into something similar sooner or later?

Re:Australian banks (1)

Nadaka (224565) | more than 2 years ago | (#38915753)

Yes, America has a messed up tax system, no pizza being categorized as a vegetable has nothing to do with the tax system. That is just... the fuck?

Re:Australian banks (1)

Anonymous Coward | more than 2 years ago | (#38917821)

That is just... the fuck?

Congress didn't actually classify pizza as a vegetable. They said that it meets the federal requirements of a vegetable serving in school lunches.

In a nutshell:
The government wanted (wants) to make school lunches healthier choices to combat the rise in obesity - reduction in starchy foods (potatoes) and sodium, increases in whole grains, fruit and vegetable servings. Currently federal regulations require school lunches to include one half cup of vegetables. A loophole allows pizza in lunches (also salsas and spaghetti) to count as a vegetable because they contain tomato paste at levels which are supposed to be nutritionally equal to one half cup of vegetables.

The proposed changes the government wanted to introduce would have required a volume based vegetable serve size. For pizza to be classified as a vegetable it would actually have to have half a cup of vegetables on it or half a cup of tomato paste on it. Lunch providers such as ConAgra / Schwan, and the American Frozen Food Institute (AFFI) argued that the proposed changes would result in increased costs, congress caved to their lobbying (to the tune of US$6m) and blocked the proposed changes (this included blocking limiting of starchy foods, requiring further study on sodium reduction and requiring the USDA to classify whole grains before they could regulate it).

This pissed off the public / press and sensationalist headlines read: "Congress declares Pizza a vegetable" ;)

Re:Australian banks (1)

Anonymous Coward | more than 2 years ago | (#38915949)

Look at the americans, they have laws that say pizza is a vegetable, that's how messed up their tax system is.

I don't know about the tax system, but frankly, I'd rather have the American education system than whatever they're teaching you about taxes.

Re:Australian banks (0)

Anonymous Coward | more than 2 years ago | (#38919369)

How about you change your education system to teach you about taxes, interest rates, geography, food ... anything would be an improvement.

Re:Australian banks (4, Informative)

unity100 (970058) | more than 2 years ago | (#38915457)

we too narrowly avoided that shit here in turkey too. strict controls and standards were placed after 2001 liquidity crisis.

but, american government was pressuring the american backed islamist party here, to remove those regulations, so that there could be 'competition'. the street speak is, banks like Merrill lynch, goldman sachs were just wanting to enter turkish market to peddle their scam there. the economy minister here had had already started to babble about the issue, trying to make ground for the changes they were demanded by u.s., citing various run-off-the-mill right wing catchphrases about 'competition, free market' and whatnot. and those two banks had had already set up their first hqs in istanbul.

a month later, wall street scam had came out into open. and everyone shut up. bank-wise, turkish banks stayed as they were, intact. economically everyone got affected from the worldwide crisis though.

Re:Australian banks (3, Informative)

roman_mir (125474) | more than 2 years ago | (#38915623)

Now some might say "Just think of what they would have been able to do with even LESS regulations!"

- that's the proper question, but it's incomplete.

Think about what they would be with less GOVERNMENT regulations!

The only real regulations are capital requirements that force banks to be risk averse by default, and no amount of government regulations does that, on the contrary - the Federal reserve of USA states that one of its goals is to ensure that people take MORE RISK than they would otherwise take in the market, which is obviously regulation and it's hurting the economy and it's done with counterfeit money.

So the correct statement is: think how much stronger a position of a bank would be that had REAL regulations, that are not corrupted by political system, but instead are ensured through the market - real money, gold.

The only real regulation in the market is real money. Can't gamble with real money without the government standing there with handouts.

Can't give risky loans, can't NOT have capital. Can't break contracts - otherwise you go to jail, thus can't commit fraud.

Committing fraud is all the 'government' regulation that needs to be enforced through CONTRACT LAW and the rest of the regulations are all market driven - gold as money and no fake credit, no fake mandates from government to give out risky loans. Can't buy worthless government paper either with real money, nobody would support a bank like that in the market.
--

But this requires people to understand that inflation is BAD for economy, not good, and people are obviously still not ready for it, even though they've been suffering the consequences of inflation in the world for near half a century (and countries have disintegrated because of counterfeiting of money in last century too, including USSR.)

Growth of economy depends on production, not consumption, of-course some think that 'supply side economics' is wrong, but they are the ones who don't understand that it worked marvellously for those, who actually manufacture the supply, not for those who stopped manufacturing and only consumed based on fake money.

The companies who want inflation in order to sell more of their goods - they have to be honest with their shareholders all of a sudden! It's not that they are gaining more purchasing power by selling more goods at lower valued money - the opposite is true. They are losing their purchasing power while gaining more nominal quantity of currency. So who benefits in that? Definitely not the people of the country and not even the shareholders. Do you know WHO benefits?

The top management, board of directors, simply because they can show nominal growth, which in reality is often a loss of a steady in real terms, but it looks like growth because more is sold in lower priced currency. Well, it's the same thing as selling in unchanged currency but cheaper! But it doesn't look good for their bonuses, and those are the people who go to the government to ensure that policy of inflation stays in effect.

They don't have to do much convincing there either, the government is happy to oblige - they love inflation, they are net borrowers and they want to win more elections, and giving out free money and creating inflation and using the nominal currency to give out more 'free stuff', programs, wars, laws, whatever pork, they get re-elected based on that.

The only real discipline does not come from government, it comes from real regulations - market money.

Re:Australian banks (4, Insightful)

whoever57 (658626) | more than 2 years ago | (#38916223)

Your argument assumes that bank employees do what is good for the bank. The last fnancial crisis has showed that this is simply not true. The excessive compensation schemes put in place at banks have disconnected what is good for employees from what is good for banks.

Huge bonuses were obtained by employees for deals that were very bad for the banks. Enough money to retire was paid in bonuses in a couple of years, so why would those employees care about the long-term health of the bank? External market pressures won't change that dynamic -- banks have to reform their compensation schemes.

Re:Australian banks (2)

roman_mir (125474) | more than 2 years ago | (#38916939)

You are assuming that it is possible for bank management to do what they did without government backing them with free money and various regulations, that required them to give out much riskier loans than what they normally would give out if they didn't have either government backing in the money or regulations.

All of those huge bonuses, etc., it's all only possible when there is a huge government put on all those terrible risky loans that banks give out and it's prevented from ever happening with real money in the first place.

Re:Australian banks (1)

Freddybear (1805256) | more than 2 years ago | (#38915923)

"Some regulations are good, so ALL regulations MUST be good."

Re:Australian banks (1)

The Evil Atheist (2484676) | more than 2 years ago | (#38916677)

Go fuck yourself. That was not the argument being made. Yours is a strawman and completely polarizing. Someone can be for regulations without being for "regulations for everything". Yours is a packaged deal fallacy. So go fuck yourself.

Re:Australian banks (1)

phorm (591458) | more than 2 years ago | (#38917753)

Given the emergent issues with Canadian mortgages and banks/etc offloading the risk onto CMHC, I'd say that us Canucks are in for an unpleasant surprise sometime in the not-too-far future as well.

Post-onset (5, Interesting)

GlobalEcho (26240) | more than 2 years ago | (#38915289)

So, these guys were fooling their bosses after the crisis had started. They must have thought prices were going to "come back" so that the deception would never be uncovered. It makes me wonder how many times in history traders have actually pulled this trick, and gotten lucky enough that prices really did revert and save their sorry behinds.

Re:Post-onset (1)

Maximum Prophet (716608) | more than 2 years ago | (#38915525)

All the time. Ignore the cases where there was insider trading or other fraud, and try to find a single case where a trader is prosecuted for taking unjustified risk and making too much money. Usually though, when that happens the trader doesn't cover up his initial behavior, but even if he did, who would investigate?

Here are the possibilities:
  • Take unjustified risk, lose loads of money, notify management, get fired.
  • Take unjustified risk, lose loads of money, hid the loss, ???
  • Take unjustified risk, make loads of money, get promoted.

Re:Post-onset (1)

GlobalEcho (26240) | more than 2 years ago | (#38918077)

This is a different kind of event. These guys did not take unauthorized risk (so far as we know). Instead, they manipulated the apparent profitability of their authorized trades. That's not the same thing as unauthorized trading, though it is morally no better,

By the way, there exist counterexamples to your statements. I work in the industry and have seen coworkers fired for taking unauthorized, but profitable, risks. There's no criminal prosecution in those cases of course, but the consequence of dismissal was at least there. I have also seen such cases with small losses where the guy was fired but not prosecuted.

I imagine that profitable unauthorized trading is extremely hard or impossible to prosecute. If the "victim" made money and suffered no harm I am sure the legal case gets pretty weak.

Bringing the topic back to this situation, I have never seen a coworker blatantly and deliberately manipulate marks like these guys did. Judgment calls going in the "right" direction, sure, but nothing crossing the line from judgment call to dastardly misquote.

Re:Post-onset (1)

Maximum Prophet (716608) | more than 2 years ago | (#38919009)

I work in the industry and have seen coworkers fired for taking unauthorized, but profitable, risks. There's no criminal prosecution in those cases of course, but the consequence of dismissal was at least there. I have also seen such cases with small losses where the guy was fired but not prosecuted.

Not prosecuted, but also not publicized in both cases.

Why did your coworkers take the unauthorized risk in the first place, seeing as they would get fired, profit or loss? Seems more a case of stupidity, rather than malicious action.

They entered some more 0s on a spreadsheet (0, Insightful)

Anonymous Coward | more than 2 years ago | (#38915361)

Yeah so what ?. They added a few "0"s to a spreadsheet. Big deal.

Money that's not backed by gold (or other fuingible good) is worthless. All the current so called "debts" I keep hearing about are worthless. nobody's lost any real goods just some "0" characters ioff a spreadsheet.

Wise up suckers. Bankers write "0"s into spreadsheets and then expect you to carry out real work to pay them back for "Money" they create out of their ass.

Re:They entered some more 0s on a spreadsheet (1)

History's Coming To (1059484) | more than 2 years ago | (#38915511)

Where's the "+0 Insightful Flamebait" mod when you need it?

Re:They entered some more 0s on a spreadsheet (0)

Anonymous Coward | more than 2 years ago | (#38915675)

what makes you think gold is inherently valuable?

Re:They entered some more 0s on a spreadsheet (1)

Anonymous Coward | more than 2 years ago | (#38916439)

what makes you think gold is inherently valuable?

Thousands of years of human history?

Re:They entered some more 0s on a spreadsheet (1)

KiloByte (825081) | more than 2 years ago | (#38917905)

Gold has no inherent value, but cannot be easily gamed.

For certain definitions (2)

GlobalEcho (26240) | more than 2 years ago | (#38918265)

Gold has no inherent value, but cannot be easily gamed.

Well, for certain definitions of "easily". Quoting from http://www.fgmr.com/move-over-fisk-and-gould.html [fgmr.com] we read that a manipulator (ironically named Gould) did just that:

In 1869, Jim Fisk and Jay Gould tried to corner the gold market, and for a time, this notorious duo succeeded...When Fisk and Gould started their manipulations, gold hovered around GB$130....Gould got some newspapers to help him in his task by printing stories that a gold squeeze had begun. By Thursday, gold had risen to the low GB$140’s, but the real fireworks began the next day, September 24th, what has become known as Black Friday... Many faced ruin as gold began to soar, and the margin calls began to mount....The gold price had risen to GB$162, when James Brown (who with his brother took over the firm started by their father, which exists to this day as Brown Brothers Harriman) stepped up to the plate. He sold 250,000 ounces to a Fisk and Gould broker at GB$160

To put it in undying words of Alan Greenspan (3, Informative)

unity100 (970058) | more than 2 years ago | (#38915397)

"I dont understand why corporations didnt regulate themselves ...." (Alan Greenspan, in front of senate inquiry committee on wall street scam)

poor people suck. you are fucked. (0)

Anonymous Coward | more than 2 years ago | (#38915963)

Sadly, they haven't kept the series [rdwarf.com] up to date...

Re:To put it in undying words of Alan Greenspan (2)

Wahakalaka (1323747) | more than 2 years ago | (#38916043)

Why wouldn't they? If someone can run off with billions of dollars with (seemingly) no consequences, why wouldn't they? For how "brilliant" guys like Greenspan were supposed to have been, they seem frightfully naive in retrospect about basic human nature. The "market" can only punish misbehaving companies if there is complete transparency, which is a fantasy... obvious solution is to just hide what you're doing. They fail to realize that regulations (rules) are needed to protect a free market, just like laws and the constitution are needed to protect individual freedom. Without regulation there is not market freedom but market anarchy. Although in regard TFA what these traders did was always very against the law.

Re:To put it in undying words of Alan Greenspan (1)

Wahakalaka (1323747) | more than 2 years ago | (#38916069)

Why wouldn't they?

*Why would they Need an edit button =\

Re:To put it in undying words of Alan Greenspan (0)

Anonymous Coward | more than 2 years ago | (#38916203)

For how "brilliant" guys like Greenspan were supposed to have been, they seem frightfully naive in retrospect about basic human nature.

Did you stop to consider that maybe he WAS aware of human nature, and his response was a sarcastic dig at the Republican and Corporate statements that government Regulation isn't necessary...that the Companies will regulate themselves?

you heard it all the time under Bush Jr...and even now the GOP frontrunners trot out the same defecation. "We need to deregulate the Corporations so they can turn a profit. Oh, they will police themselves to make sure they 'do no wrong'". It's one of the greatest scams perpetrated on innocent Americans who vote for these boneheads.

And no, the Dems aren't any better. They just have different Corporations they want to give welfare to.

Re:To put it in undying words of Alan Greenspan (1)

unity100 (970058) | more than 2 years ago | (#38916921)

Did you stop to consider that maybe he WAS aware of human nature, and his response was a sarcastic dig at the Republican and Corporate statements that government Regulation isn't necessary...that the Companies will regulate themselves?

are you aware that the person quoted is alan greenspan, the leader of the holy church of free market since reagan era, the advocate who had caused all this 'deregulation' to happen over 2 decades in the first place ?

he reigned over u.s. economy for around a decade and more. all this deregulation is the result of his advocacy and his own doings.

Tip of the iceberg (5, Interesting)

History's Coming To (1059484) | more than 2 years ago | (#38915455)

This is indicative of the main problem in the banking system - money can be brought into existence regardless of whether it actually represents anything. In this case it's through fiddled figures, but it's perfectly normal and acceptable to do essentially the same thing en-masse. As long as enough people are claiming something is worth more than it is then it's worth more, and there's extra money to be had, the only mistake these guys made is not being thousands or millions of people. Look at the Facebook floatation - I don't know what the company is actually worth if you were to break it up today, but it's market value will be pretty much unrelated to that figure simply because lots of people want it to be valuable.

There's only one regulation that's really needed (outside obvious fraud), and that's a conservation law a-la momentum. You want more money? Well you're either going to have to achieve it by taking it from somebody else or by creating new resources through mining, manufacturing or man-hours etc. I'd like to see the hypothetical world-wide balance sheet for the last couple of decades, because I bet it would fail the most simple anti-fraud tests.

Re:Tip of the iceberg (2)

NeutronCowboy (896098) | more than 2 years ago | (#38915653)

or man-hours

What do you think is the result of productivity times man-hours? That's EXACTLY the reason why the Gold standard was abandoned: with it, you'd never be able to expand the economy through more productivity. The size of the economy would be shackled by how much gold is in circulation.

Re:Tip of the iceberg (1)

LoyalOpposition (168041) | more than 2 years ago | (#38916059)

That's EXACTLY the reason why the Gold standard was abandoned: with it, you'd never be able to expand the economy through more productivity.

That's not correct. The gold standard was abandoned because the government was a net debtor. With a fiat currency they were able to inflate it at will and pay off their debts with worth-less money. Plus, they got to spend the newly created money first.

The size of the economy would be shackled by how much gold is in circulation.

That's not correct. In general, prices would fall (the price of gold would rise in terms of the amount of goods and services it could buy) and more could then be bought with the same mass of gold.

~Loyal

Re:Tip of the iceberg (2)

NeutronCowboy (896098) | more than 2 years ago | (#38916547)

That's not correct. In general, prices would fall (the price of gold would rise in terms of the amount of goods and services it could buy) and more could then be bought with the same mass of gold.

I said shackled. I'm very well aware of the deflationary pressure that a gold standard brings, and so is every current economist, and so was everybody at the Bretton-Woods convention when the world decided to move away from the gold standard. And that deflationary pressure - and it's deflationary impact on the overall economy - is exactly part of the set of reasons why the Gold standard was abandoned.

Re:Tip of the iceberg (1)

LoyalOpposition (168041) | more than 2 years ago | (#38919613)

I'm very well aware of the deflationary pressure that a gold standard brings,

Gold standards don't necessarily bring deflationary pressures. In 1848-1855 it brought inflationary pressures to the United States after the discovery of gold in Sutter's Mill, California, and then again after 1887 when John Steward MacArthur of Scotland discovered the cyanide process for gold.

and it's deflationary impact on the overall economy

"Deflation" is a term applied to the money supply, and , more recently, to the general level of prices. The term used to describe an economy that is receding is recession or, if it's major, depression.

Recession cannot be the effect of an advance in the expansion of the economy (our original topic) together with static levels of gold while on a gold standard. That's by definition. If you have an expansion in the economy then you don't have a recession of the economy.

~Loyal

Re:Tip of the iceberg (1)

WillAdams (45638) | more than 2 years ago | (#38915781)

The problem w/ such a system is that one runs short of liquidity and it significantly curtails the ability to do business --- which arguably is a benefit as well, since slowing down financial transactions would help somewhat w/ stability.

What happens when a company like Nintendo takes 100 developers over 5 man years and creates something like Legend of Zelda: Skyward Sword --- if people don't have the liquidity to purchase it, one doesn't get an additional valuation for goods of 3.28 million * $50 (disregarding the collector's bundle for simplicity's sake --- anyone know how many were made?) == $164,000,000 [1]

William

1 - http://www.vgchartz.com/game/45669/the-legend-of-zelda-skyward-sword/ [vgchartz.com]

Re:Tip of the iceberg (0)

Anonymous Coward | more than 2 years ago | (#38916051)

Well you're either going to have to achieve it by taking it from somebody else

Now you're talking /. language. Piracy, yeah! That makes this good to /. readers. Go fraud!!!!

Transactions with real electronic cash (1)

La Gris (531858) | more than 2 years ago | (#38916759)

What we need is exchange transactions made with electronic signed cash species. Actually, transactions revolves around pure arithmetic and thus permit this type of frauds by creating more virtual fictional money with no real value.
If we could have signed species objects made of {{serial#,amount,emitter},emitter-signature},owner},owner-signature}, transactions made by signed clusters of species objects. No one except countries, central banks authorities would be able to electronically sign the species with the same process as printed money is done. Fictional fraudulent species would be much identifiable by their invalid signature. Each transaction would require a signed transfer from current owner and next owner of the currency/cluster, not the fictional arithmetic operation +/- we are used to.

Re:Tip of the iceberg (0)

Anonymous Coward | more than 2 years ago | (#38918569)

I am pretty sure this was illegal in very many ways.

In this case, it isn't that the laws primarily that were lacking, but that a crime that also was detected only insufficiently late was perpetrated. Well, perhaps specifying more detection mechanisms could also fall into the domain of laws, but you get my point...

Re:Tip of the iceberg (1)

Dotren (1449427) | more than 2 years ago | (#38919769)

You want more money? Well you're either going to have to achieve it by taking it from somebody else or by creating new resources through mining, manufacturing or man-hours etc.

This is interesting to me, especially the man-hours bit. A friend of mine recently brought up this idea in a discussion we were having about what a viable economic system alternative would be if someone like Ron Paul was eventually elected. The system he described still had government creating money (i.e. not based on gold) but it would be used to pay for public works (road improvements, parks, interstate mass transit, etc). Taxes would still be collected but the money collected would either be taken out of circulation or used in foreign trade.

So basically, all new money created would have real world backing of public works projects (also creating jobs) instead of debt and would therefore be available for use by everyone. The value of the money isn't just created on the spot with nothing of real physical value behind it. There are no shortage of projects that could be created so your economy isn't necessarily chained down or prevented from growing. The money comes out of the system in the form of taxes and/or foreign trade.

Honestly I'm not even remotely an economist so I don't know if this could even work but I do think it is an interesting idea.

Why (0)

Anonymous Coward | more than 2 years ago | (#38915547)

...in the fuck are the subordinates being charged? They were just following orders!

Re:Why (2, Informative)

Anonymous Coward | more than 2 years ago | (#38915813)

The Nuremberg defense (aka Respondeat superior) is invalid in International Law.

Long History (1)

DrewL216 (1409559) | more than 2 years ago | (#38916265)

Credit Suisse has a long history. http://en.wikipedia.org/wiki/Credit_Suisse#Criticisms [wikipedia.org] They should have been hit harder, sooner. However, I suspect that they're being investigated now because of their history of playing the harlot with Iran: "Credit Suisse settled on charges that it violated sanctions regulating financial transactions with Iran. The charges included "stripping", the practice of removing the identity and origin of funds used in transactions. Credit Suisse employees stripped the identities of Iranian banks enabling funds to be transferred to the Atomic Energy Organization of Iran and the Aerospace Industries Organization, entities respectively involved in the production of nuclear weapons and long range missiles. Credit Suisse advised Iranian banks such as Bank Melli and Bank Saderat on methods to hide their identities and send more than a billion dollars through New York banks."

Banks in Control of their Destiny? (1)

BoRegardless (721219) | more than 2 years ago | (#38916627)

Given all the issues with both hacked outside and inside manipulated complex IT systems in banking, I am surprised more banks haven't collapsed.

The mentality in the trading operations actually is a psychological statement that the bank is greedy and wants every penny it can wring out of trades and they think that doesn't affect their workers.

Hot tip: Where the finger should truly be pointed (5, Informative)

Anonymous Coward | more than 2 years ago | (#38917389)

Disclaimer: I've got a Master's in Finance from a top university, hold a highly recognised multi-year professional qualification and have spent several years in the industry. Not primarily risk management or macroeconomic oversight, but I know enough to see the issues.

A lot of what is said about banks and bankers and contributions to "the financial crisis" is plain bunk. I'm not going to point out specifics here.

The one area where a finger should be pointed, and largely hasn't, is the enormous pressure that has been exerted to lower capital requirements.

Effectively it works like this: A bank doesn't create money out of thin air (in spite of what untold millions of crazies think - only the banking system does). Every dollar it lends out, it has to borrow. The bank's balance sheet consists of assets that interest is generated on (the loans it has made, interest-paying bonds it has purchased etc.) and liabilities that interest is paid on (the bank's own short term paper, the deposits people have placed at the bank, various other funny ways to borrow money).

Effectively, for a 'simple bank', the money that the bank makes is the margin between the two.

There is however a problem: what is some of the bank's assets disappear? In other words, what if someone who has borrowed money and promised to repay it, can't? The bank still has to repay its own liabilities. Suddenly your assets are 90m and your liabilities are 100m and you are effectively insolvent. The people the bank owns money would get only 90 cent on the dollar.

Which is why banks have a capital buffer. The 'equity' of the company. The only thing the shareholders really own and generates returns for them. If you have a capital buffer of 20m, then in the example above, your capital buffer would be cut in half. Equity owners take the first loss. The bank's creditors doesn't suffer.

Now, the calculation of shareholder returns is effectively the interest margin, in absolute monies, applied to the equity. So-called Return on Equity. For example, if you lend out 100 at 5%, borrow 100 at 3%, that gives you gross income of 2. If your equity is 10, that implies a 20% return e.g. that can be paid out as a dividend.

Increasing the size of a balance sheet is extremely easy. You can just give tons of risky loans at medium interest rates, and get funded by borrowing at slightly lower interest rates. This means if you e.g. have 10m, you could start a bank that immediately borrows 100m, lends 100m, and generates you 2m per annum. Quite a decent rate of return compared to other investment options.

This means that the amount of capital required is of _extreme_ importance. If you are required to hold 10% of your total loans/debts in capital, then in the example above, starting a bank with 10m lets you lend 100m and borrow 100m and make 2m per annum as described.

If this requirement is lowered to 5%, you can do one of two things: you can suddenly crank up your lending and borrowing to 200m, still generating a gross margin of 2% (now 4m per annum), which doubles the returns on your investment from 20% to 40% per annum. Or, you can start a bank with 5m instead, lend/borrow 100m, and generate a 40% RoE still.

There has been an enormous pressure from banks and investors to reduce capital requirements. This has been pushed along and justified with models, for example, that says that bankruptcies (assets disappearing) are not correlated with each other, so if e.g. you have 100 borrowers that each borrow 1m you only need to hold 2m in assets because it's statistically very very unlikely that more than 2 of these go bankrupt each year.

What happens if the model breaks down and 3 borrowers go bankrupt at the same time, e.g. in the housing market? The bank falls over. It's not simply a matter of injecting 1m, because an enormous legal mess occurs, other suppliers of capital to the bank run away fearing bankruptcy meaning that the bank has to recall loans to repay them (which it can't), etc.

Here comes the crucial part: THERE IS NO SOCIAL BENEFIT OR GAIN TO SOCIETY FROM REDUCING THE CAPITAL REQUIREMENTS. IT SOLELY HELPS SHAREHOLDERS GENERATE HIGHER RETURNS. IF YOU WANTED MORE MONEY IN CIRCULATION YOU COULD JUST HAVE PRINTED IT. EVERY REDUCTION IN CAPITAL REQUIREMENTS OF WHICH THERE HAVE BEEN MANY HAVE PRODUCED STAGGERING RETURNS FOR SHAREHOLDERS BUT PLACED THE BANK AT MORE RISK OF NEEDING A BAILOUT.

There are some marginal modifications to this based on cost and economies of scale, but it's largely the case. The benefit is even just temporary for shareholders during the period capital requirements are reduced, because this causes the share price to rise so that the dividend risk/reward for future shareholders should remain the same as in the past. Similarly, if Japanese companies reduced their enormous cash buffers, it would produce a one-time gain for current shareholders, but not really help future shareholders.

Re:Hot tip: Where the finger should truly be point (0)

Anonymous Coward | more than 2 years ago | (#38919307)

A bank doesn't create money out of thin air (in spite of what untold millions of crazies think - only the banking system does). Every dollar it lends out, it has to borrow.

Where does it borrow that money from?

They made a simple mistake (1)

ThatsNotPudding (1045640) | more than 2 years ago | (#38918441)

Their fraud was too small. If they had gotten into the mid-billions, they wouldn't have been punished, and We the People would never have heard the grisly details we will be paying out for perpetuity.

Go Big or Go To Jail.
Load More Comments
Slashdot Login

Need an Account?

Forgot your password?