Makleg málagjöld?

Harðasta refsingin fyrir íslenska hrunverja hingað til virðist vera stundakennsla í Háskólanum í Reykjavík.

Gillian Tett, sem er breskur stjörnublaðamaður, á Financial Times, segir að nauðsynlegt sé að þeir sem hafi staðið í vafasömum fjármálagjörningum fái makleg málagjöld. Annars breytist ekki neitt.

En hún bendir á að lögfræðingar séu býsna kokhraustir, enda viti þeir að þekking á flóknum fjármálum í réttarkerfinu sé lítil, mikið af því sem orki tvímælis hafi einmitt verið „hannað“ til að komast í kringum lögin.

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A matter of retribution

By Gillian Tett

Published: September 3 2009 17:33 | Last updated: September 3 2009 17:33

How many financiers do you think ended up in jail after Americas Savings and Loans scandals? The answer can be found in a fascinating, old report from the US Department of Justice*.

According to some of its records, between 1990 and 1995 no less than 1,852 S&L officials were prosecuted, and 1,072 placed behind bars. Another 2,558 bankers were also jailed, often for offenses which were S&L-linked too.

Those are thought-provoking numbers. These days the Western world is reeling from another massive financial crisis, that eclipses the S&L debacle in terms of wealth destruction.

Yet, thus far, very few prison terms have been handed out. For sure, there have been a few high-profile dramas. Bernie Madoff is one, obvious, example.

But one reason why the Madoff drama has grabbed so much attention and already sparked a slew of books this month, is precisely because there are precious few other financiers behind bars, or facing momentous fines. Compared to the S&L days, the level of retribution so far seems almost non existent.

Why? In part, it may be a matter of timing. The wheels of American justice often grind slowly, and many cases are now passing through the system. Navigant, a financial consultancy, for example, says that private investors have filed more suits against financial companies in the last two years than they did in the S&L days. And some are now seeing the light of day.

Yesterday, an American judge rejected attempts to block a lawsuit lodged by Abu Dhabi Commercial Bank against Moodys, Standard & Poors and Morgan Stanley – meaning that case, which involves structured notes, will soon get underway. Separately, federal investigators have opened inquiries into at least 25 companies, including Lehman, AIG, Fannie Mae, Freddie Mac and Wamu.

Yet, in private many lawyers, and some government officials too, seem pretty cynical about just how many jail sentences or fines these initiatives will produce. In part that is because of the sheer complexity of the financial deals in the recent crisis, and the fact that these deals were often deliberately and cleverly constructed to “arbitrage” the law (ie skirt, but not break it).

Another big issue is the sheer number of powerful parties that typically participated in complex finance deals. Few private law firms have the resources or desire to go head to head with numerous Wall Street banks at one time, particularly since the Supreme Court has made it harder to bring and win securities cases in the last couple of years.. And government agencies are often short of resources too, partly because some, such as the FBI, have been forced to divert staff in recent years to terrorist financing issues.

However, another key problem is a lack of knowledge in Western courts about complex finance. That makes it time-consuming to hear cases. It also makes verdicts unpredictable.

Some senior figures in the financial world are looking for solutions to this. Jeffrey Golden, a prominent lawyer who helped to create the modern derivatives world, for example, thinks there is an urgent need for a specialist, cross-border financial court (in much the same way, say, that there are specialist family or trade courts.) This, he argues, could be staffed by former derivatives experts and lawyers, since these not only understand finance but also have a vested interest in ensuring that their beloved derivatives business is built credible foundations.

But there seems limited chance that Goldens sensible suggestion will fly soon. Right now, in other words, the Western financial system is stuck with a legal structure that seems ill-equipped to cope.

And that is worrying on several levels. On a personal level, I have little taste for seeing hordes of bankers heading for jail, or facing massive fines. Nor do I have any illusion that public or private prosecutions will resolve bigger structural flaws. A witch-hunt might be a media distraction.

But, on the other hand, if there is no retribution against financiers, it will be very difficult to force a real change in behaviour. After all, no amount of twiddling with Basel rules or pious statements about bonuses will ever scare a financier as much as the thought of jail.

Moreover, without some retribution it will also be hard to persuade voters that finance is really being reformed, or has any credibility or moral authority. That is bad for politicians and regulators. However, it is also bad for bankers too. So, in the months ahead, keep a close eye on what happens to the legal cases in the system and, above all, watch to see just how many do (or do not) quietly die, compared to those S&L days.