For those looking for greater accountability from Wall Street, this week offered some good news and some bad news. The good news is, five major financial institutions will pay $5.6 billion in fines and plead guilty to multiple crimes. The bad news is, given the scope of their manipulative schemes, the penalty seems far less severe than it should be.
The New York Times reported yesterday on the latest entry "to Wall Street's growing rap sheet."
The Justice Department forced four of the banks -- Citigroup, JPMorgan Chase, Barclays and the Royal Bank of Scotland -- to plead guilty to antitrust violations in the foreign exchange market as part of a scheme that padded the banks' profits and enriched the traders who carried out the plot. The traders were supposed to be competitors, but much like companies that rigged the price of vitamins and automotive parts, they colluded to manipulate the largest and yet least regulated market in the financial world, where some $5 trillion changes hands every day, prosecutors said.
Underscoring the collusive nature of their contact, which often occurred in online chat rooms, one group of traders called themselves "the cartel," an invitation-only club where stakes were so high that a newcomer was warned, "Mess this up and sleep with one eye open."
It was an ugly, elaborate scheme, which included not only colluding and manipulating foreign-exchange markets, but also lying to clients. (For more details on what the banks did, exactly, Matt Yglesias' report for Vox was helpful.)
Of course, in this case, regulators caught the banks in the act, and took meaningful action, including demanding guilty pleas from the financial institutions themselves. The Times' report noted that the pleas "represent a first in a financial industry that has been dogged by numerous scandals and investigations since the 2008 financial crisis. Until now, banks have either had their biggest banking units or small subsidiaries plead guilty. But with the four banks charged with currency violations, the guilty pleas will come from their parent companies."
So, that's good news for Wall Street critics, right? Yes and no.