Are Bank Executives In Trouble?
The Dynamic Wealth Report
April 28, 2011
by Jay Chernoff, Editor
You know
what’s amazing?
It’s been almost three years since the peak of the 2008 Financial
Crisis… and no banking executives have served any time in jail. Not
one. And it doesn’t seem like any real punishment is forthcoming.
Keep in mind, these guys are a big part of why the US saw the worst
recession since the Great Depression.
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It was the big banks who sold billions of dollars of derivative
instruments they didn’t understand. The so called financial engineers on
Wall Street cooked up impossible-to-comprehend products, and their
bosses signed off on them without question.
Or worse, they knew how risky these investments were and lied to their
clients about them.
So, bank executives are either incompetent or frauds…
Nice to see what an Ivy League degree gets you. Now all I have to do is
get a finance degree from Princeton – and I can get paid millions of
dollars to be a professional criminal!
Yet somehow, not one of these geniuses has been punished. And many of
them still have their jobs… and are richer than ever.
Check out this quote from the fantastic (and Oscar winning) documentary
Inside Job. The speaker is Andrew Sheng, Chief Adviser to the China
Banking Regulatory Committee.
“Why should a financial engineer be paid four times to 100 times more
than a real engineer? A real engineer build(s) bridges. A financial
engineer build(s) dreams. And, you know, when those dreams turn out to
be nightmares, other people pay for it…”
So why are the banks getting away with it?
Basically, it’s because they have tons of money. That means they have
huge teams of lawyers for defense. And don’t forget, their money helps
get politicians elected.
But here’s the thing…
There might finally be a crack in Wall Street’s armor.
Just this month, two investors won a major case against Citigroup (C). We’re not talking small potatoes either… They were awarded
a whopping $54 million in damages.
The case came about after Citigroup put these two clients in a
supposedly safe, leveraged municipal bond strategy. This “ideal
investment for safe money” (as Citigroup called it) used 8 to 10 times
leverage to generate higher returns.
But the only thing this strategy generated was huge fees for the bank
itself. The strategy lost 50-75% of its value during the financial
crisis. Yeah… real safe.
The two clients were clearly ticked off about the performance of their
“conservative” investment. So they sued… and won.
Here’s why this is a huge deal…
Similar cases are starting to be decided in favor of individual
investors – but none as big as this one. $54 million is a big chunk of
change.
And more importantly, it means Wall Street banks aren’t invulnerable.
In fact, the normal Wall Street defenses didn’t hold up this time
around. Usually, banks can blame external factors for losses. Or, they
can claim that the risks of the investment are laid out in the
prospectus –and investors should understand what they’re getting in to.
Not this time though.
To put it simply, Citigroup’s risk assessment was just too far from
reality. There was no way they were getting the benefit of the doubt in
this case.
Make no mistake – this decision has the potential to change everything.
Because of the results of this case, other investors might follow suit. Wall Street isn’t above justice. And it could open up all the big banks
to all sorts of liability.
We may never see a bank exec behind bars for their role in the 2008
crisis. But that doesn’t mean their pocketbooks won’t take a serious
hit. The flood gates may just be opening up. And I wouldn’t want to be
on the other side as the lawsuits start piling up.
One of the top gainers this week in the ETF space is iShares Silver
Trust ETF (SLV). It’s up nearly 7% today and an impressive 147% over the
past year. SLV tracks the performance of silver by purchasing the
physical metal. Silver prices continue to set new highs on soaring
demand for precious metals.
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