Email

Justice? Not When There’s This Much Money

11 | By Shah Gilani

Here’s something to tick you off today, something that you may not have figured out.

Lloyds Banking Group PLC (NYSE: LYG), the United Kingdom’s biggest mortgage lender, had to pay another fine yesterday.

(Yes, Lloyds is that too-big-to-fail bank I used to work for… but that was back in the 1980s, so don’t blame me.)

That Lloyds technically failed and had to be bailed out during the financial crisis and is still about 25% owned by UK taxpayers is beside the point.

Ask Lloyds traders how they feel about being saved to die another day. If they’re honest, and a bunch of them aren’t, they might tell you they’re glad to have the chance to continue screwing whomever they can in order to pad their bonuses.

Today, I’ll tell you all about how banking is an entitlement regime. In fact, it’s kind of like its own monarchy.

Here’s the travesty…

Bonus Babies

Lloyds just paid $350 million fine for its part in manipulating the Libor, the London Interbank Offered Rate, only the most important interest rate on the planet.

The Libor is so important because bankers use it to calculate the cost, value and price of trillions of dollars of loans from sea to shining sea.

That Lloyds got caught isn’t the travesty.

That’s just the cost of doing business.

The travesty is that Lloyds suspended two traders linked to the manipulation scheme. Not fired – suspended.

But it gets better.

One of the traders, who isn’t supposed to be named – psst, it’s Clive Jones – has been suspended before. That’s right. Jones rejoined Lloyds in mid-2012 as global director of money markets after being suspended for presumably manipulating Libor.

Of course, Jones said he didn’t do that. And, of course, the bank’s internal investigation team presumed he didn’t, so they let him come back to work on his next bonus.

The other derivatives trader the bank suspended, who you’re not supposed to know, is John Argent (while British, I don’t think he’s related to Rod Argent of “Hold Your Head Up” fame). And he’s probably going to get his job back, too.

Now, here’s where I tell you what you can’t figure out.

Because I know. I worked at Lloyds.

I ran the futures and options division to hedge the bank’s trading desks in Her Majesty’s Treasury. That’s where Lloyds trades all its money, for its own accounts as well as for big customers.

Lloyds traders – the head of the government bond trading desk, the head of the currency trading desk, the head of the OTC derivatives desk – ran the show… not management.

Traders rule because traders make the bank money. Management is nothing but a buffer, a group of executives who are liaisons between higher-ups and the traders.

I was supposed to hedge the trading desk’s giant positions because management was afraid their bets could get out of hand. Why would they get out of hand? Because the traders’ bonuses depend on what they make trading.

What happened there was telling, to say the least. The heads of the trading desks wouldn’t work with me because they told me that management had hired me out of Chicago to hedge their positions as a way to control them.

But they weren’t going to be controlled. They were running the show.

They won. Management admitted that’s what was going on. It was a struggle to control the traders. The traders won.

I was a good trader, too. So the bank gave me a huge chunk of money with which to trade futures and options. No mandate, no hedging – just make money, they said. So, I did.

In the end, the traders win. They always win, because higher-ups don’t get their fat paychecks and bonuses unless the traders make a killing.

That’s Trading 101. You eat what you kill, and your bosses eat off your plate.

That’s why no one is fired. That’s why traders might get suspended and slapped on the wrist, but not fired.

Why not fire a good trader who goes bad? Because good traders are hard to find – and good traders make lots of money.

As always, it’s about the money. It’s about bonuses.

11 Responses to Justice? Not When There’s This Much Money

  1. Felix Mosso says:

    You seem to be in the KNOW on all the gov fines, etc. But please explain WHY, as in this case LYG
    and others over the years, is fined $300 million and this has to be paid from SHAREHOLDERS money ?????? Shareholders had nothing to do with the supposed illegal act, it was the DIRECTORS! Some years ago when the banks were in a mess I mailed a letter and actually a
    lawyer CALLED me, but I was not home at the time. It still makes no sense or logic to me, just start fining the boards and all this stuff would probably stop!.

    Thanks for your time.
    Felix

  2. Bob says:

    So, Shah, we can therefore infer the same can of worms exists in the US banking system with bonuses, fat paychecks with those entrenched . A fine of multiple millions is the cost of doing business right? Shareholders pay it, no one culpable goes to jail. The lobbyists in collusion with those who create the laws and regulations in this country hope we never get fed up enough to do something about it. It’s a multi-headed anaconda! And we’re the meal..

  3. Will Harden says:

    I believe that the ’08 crash was the biggest robbery in history.
    It was rigged with the lifting of all sane mortgage requirements.
    An insider group did it so they could bet against AIG and other financial securities with derivatives.
    Hank Paulson made 3 billion and others made a lot more. Most of the honest bankers got hurt.
    I got so angry that I wrote a novel “Hit Squad” where a group of angry, unemployed guys decide to take out ten of the worst crooks.
    I had one publishing house serious about it when Sandy Hook happened.
    I got the rejection letter a week or so later.

    • Jack Lipszyc says:

      Will Harden, Those sane mortgage requirements were lifted by two Senate banking committee hotshots named Frank/Dodd. I was a realtor in Florida at the time and saw first hand what the banks and mortgage brokers were doing to protect themselves. I hope you see the irony of the names I just mentioned. However what you may not know is that they were asked to leave quietly so their party wouldn’t be accused of stupidity. Frank/Dodd are no longer in congress.

  4. Benton H Marder says:

    Shah, ol’ buddy, why not tell us the true story of that jackass trader for Baring Brothers that played both ends against the middle and busted Baring for good. The guy did some time, if I recall aright. He was trading out East, Singapore or thereabouts. We read about it but know about the lies.

  5. ALLAN says:

    Would I be wrong to say bonuses for traders is/should be good – that is in most other commerce EXCEPT the financial world. It (financial dealing) appears to be TOO easy to manipulate (using heaps of other peoples money)!
    I cant see it changing – money is power, and banks have control of all of it! (Until there is a revolution by the masses).

  6. KEN says:

    your insights are excellent it reflects what the mother teaches its children but in the end corruption cannot support itself in a run away society with both sides in conflict. they say corruption breeds contempt!

  7. Phil says:

    It’s too damn bad that nobody has the testicular fortitude to say “off with their heads” and put an end to these dreadful practices that only benefit those at the top of the food chain!

  8. Paul Gubert says:

    I think a large part of the problem is the fiat money. It wouldn’t make sense to pay a fine in the billions if the money was any good. If you or I had to make a choice between a year in jail or a million dollar fine I think the decision would be obvious. In the world of high finance the fines can be paid and then there is always more money available. And in the case of the government it is even worse. They can simply print more. For the average person money has value. For some others it has little..

  9. David Thomas says:

    Hi Are you sure Clive Jones was previously suspended ? as I think it was Argent, are you sue on your facts?

Leave a Reply

Your email address will not be published. Required fields are marked *