Another sordid example of banksterism -- money laundering -- surfaced this week accompanied, not surprisingly, by a blistering global poll that shows faith in capitalism is shrinking.
HSBC (Hong Kong and Shanghai Bank Corporation), the largest financial institution in Europe, revealed "major internal-control problems" and plans to apologize for its lapses next week to members of a U.S. Senate subcommittee into terrorist and trafficking money laundering. The bank could pay up to $1 billion in fines, according to news stories.
HSBC is also embroiled with more than a dozen others in the gigantic LIBOR interest rate rigging scandal, along with Barclays, that made headlines last week. Banks could pay fines of up to $22 billion worldwide, say some analysts.
The bank's statement was candid in advance of the Senate hearing: "Our anti-money laundering controls should have been stronger and more effective, and we failed to spot and deal with unacceptable behavior," Stuart T. Gulliver, the chief executive of HSBC, wrote in a memo to employees on Wednesday.
The period when the money laundering occurred was between 2004 and 2010, before its current management took over.
This scandal plus the LIBOR price fixing has sparked another large-scale Parliamentary probe into British banking in general, similar to one that probed Rupert Murdoch's media empire recently. Just as then, there are calls for an overhaul across the entire "banking culture."
What's also parallel, in political terms, is that HSBC's former chairman, Stephen Green, (in office from 2006 to 2010 when the money-laundering detection problems occurred) is currently trade minister in British Prime Minister David Cameron's government. Likewise, Cameron's former director of communications, Andrew Coulson, had left problems behind at the Murdoch empire then was forced to leave 10 Downing Street this spring because of the inquiry. He was recently arrested for perjury.
HSBC shares have tumbled as the market was notified on the Senate's website as to its agenda for Tuesday: "a hearing on the money laundering and terrorist financing vulnerabilities created when a global bank uses its U.S. affiliate to provide U.S. dollars, U.S. dollar services, and access to the U.S. financial system to high risk affiliates, high risk correspondent banks, and high risk clients, using HSBC as a case study."
But bad banking is only one issue. Another has been the continuing proliferation -- and lack of action by governments or banks -- against secrecy havens. The Organization for Economic Co-operation and Development has crusaded against this for years, the G-7 and G20 have issued countless manifestos against the practice, but absolutely nothing changes. Without prohibiting dirty money havens, the world's capitalist system can never been reformed because they hold billions of dollars worth of deposits on behalf of corrupt dictators or cunning political and business leaders.
This could easily be solved if the world's nations banned travel and trade with these places. The list was published this month by the OECD and contains some surprising countries: The "blacklist" includes Costa Rica, Philippines and Malaysia. Under the heading of "non cooperative countries" are Austria, Belgium, Brunei, Chile, Guatemala, Luxembourg, Singapore and Switzerland.
Then there is the so-called "grey list" of countries that have committed to change, whatever that means, but as yet haven't. These include the usual suspects: Andorra, Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Belize, Bermuda, British Virgin Islands, Cayman Islands, Cook Islands, Cyprus, Dominica, Gibraltar, Grenada, Guernsey, Isle of Man, Jersey, Liberia, Liechtenstein, Malta, Marshall Islands, Mauritius, Monaco, Monserrat, Nauru, Netherlands Antilles, Niue, Panama, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and Grenadines, Samoa, San Marino, Seychelles, Turks and Caicos Islands, US Virgin Islands, Vanuatu and Uruguay was recently added to this list.
Such malpractice, and accompanying immorality, are demoralizing enough to ardent free enterprisers like myself, but has created a global backlash against capitalism itself.
This week, the Pew Research Center released the results of its 21-country survey of 26,210 people. They have become increasingly pessimistic since 2008 and disenchanted with capitalism.
Not surprisingly, respondents in fast-growing emerging economies untouched by the financial crimes of 2008 onward, have rosier outlooks and positive opinions toward capitalism. These include countries such as Brazil, China and Turkey.
But the formerly rich basket cases like most of the EU (Germany excepted), Japan and even the recovering US or Canada, have increasing numbers of people who have been, or will be, left behind. They are dissatisfied with the status quo.
Of the 21 countries surveyed, only in China, Germany and Egypt do more than half of respondents say they are content with their nation's direction. Those who are angry about their national situation and direction mostly blame banks and financial institutions. As for belief in capitalism, only half of the respondents in 11 countries agreed that free markets were the best system.
Canadian opinions were not measured separately, but an April poll showed that the majority of Canadians living in booming Manitoba, Saskatchewan and Alberta were happy and confident, but Canadians living elsewhere were not. They worried about the future and a large proportion, 30 percent, claimed they had become incapable of making ends meet.
Frankly, banks, as poorly as they have performed, are not the only culprits that have caused the demoralization of rich nations. This is what the Great Markdown looks like after decades of spendthrift governments and a declining work ethic contrasted with thrift and hard work in emerging economies. It will only worsen.
This article previously appeared in the Financial Post.
Follow Diane Francis on Twitter: www.twitter.com/@dianefrancis1
And Mitt Romney is one of these cunning political leader with millions in offshore accounts -- think Bermuda and Switzerland -- AND he refuses to release his tax returns. And he's running for US president? Unbelievable.
And the 'Understatement of the Year Award' goes to Diane Francis!
In a perfect world, market pressures with a monetary zone generally control them selves. How ever with the frenzy of globalization where market zones are at different values for costs, wages, and support systems, the entire market system has been upset. At a point, not knowing even how to predict such, the equilibrium is likely to return. Very likely a measure of protectionism will re-emerge as well.
Certainly the North American and European industrial nations have been hard hit as a result of hundreds of thousands of jobs moved to less costly production countries. People are getting angry and are demanding a change as supporting high unemployment is not sustainable.
To expect that greed will be kept in check by self-regulation, rather than by appropriate government regulation and effective enforcement, amounts to a religious belief in virtuous outcomes. The incestous, revolving-door relationship between finance and government, lobbying by monied special interest groups, and out-of-control campaign financing in the U.S., thanks to the Supreme Court ruling in "Citizens United", all contibute to the rot.
We had the protection of regulation and oversight from the 1930s to the 1990s, with laws like Glass-Steigall in America that required the separation of commercial and investment banking. That's all gone now, thanks to the neo-liberal revolution that took hold under Reagan as a reaction to the social program overreach of the 1960s and stagflation of the 1970s.
Banks are STILL not loaning to business after their bailouts (most damaging, small and medium-sized job creating businesses). Why hasn't this caused more citizen outrage in America? Even now, banks seem more interesting in dreaming up another round of shady investment instruments for quick paper profit rather than supporting economic activity creating jobs, expecting they'll be bailed out again. Chalk up another hypocricy of modern capitalism - private profits and taxpayer-backed losses.
Is it any wonder people are losing "faith"?
Capitalism is a pretty good system for producing economic benefits but the distribution of those benefits has not been anywhere close to fair since the end of World War 2 . As you say , greed has become the driving factor and must be reined in . Unfortunately , the only way changes can be enacted is through the actions by governments but the political process is dominated by business interests resulting in the election of politicians that only represent this segment of society .
Like it or not , governments through taxes and regulation are the only vehicles for creating a more equal distribution of the wealth produced by capitalism. Until voters wake up and demand a more consensual and fair governmental process , not much will change . Short of a revolution that is.