A new report finds 53% of financial services executives say ethical standards inhibit career progression.
November 26, 2013
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My first year on Wall Street, 1993, I was paid 14 times more than I
earned the prior year and three times more than my father's best year.
For that money, I helped my company create financial products that were
disguised to look simple, but which required complex math to properly
understand. That first year I was roundly applauded by my bosses, who
told me I was clever, and to my surprise they gave me $20,000 bonus
beyond my salary.
The products were sold to many investors, many
who didn’t fully understand what they were buying, most of them what we
called “clueless Japanese.” The profits to my company were huge –
hundreds of millions of dollars huge. The main product that made my firm
great money for close to five years was was called, in typically dense
finance jargon, a YIF, or a Yield Indexed Forward.
Eventually,
investors got wise, realizing what they had bought was complex, loaded
with hidden leverage, and became most dangerous during moments of
distress.
I never did meet the buyers; that was someone else's
job. I stayed behind the spreadsheets. My job was to try to extract as
much value as possible through math and clever trading. Japan would send
us faxes of documents from our competitors. Many were selling far
weirder products and doing it in far larger volume than we were. The
conversation with our Japanese customers would end with them urging us
on: “We can’t fall behind.”
When I did ask, rather naively, if
this was all kosher, I would be assured multiple times that multiple
lawyers and multiple managers had approved the sales.
One senior
trader, consoling me late at night, reminded me, “You are playing in the
big leagues now. If a customer wants a red suit, you sell them a red
suit. If that customer is Japanese, you charge him twice what it costs.”
I
rationalized that our group was careful by Wall Street standards,
trying to stay close to the letter of the law. We tried to abide by an
unwritten "five-point rule": never intentionally make more than five
percentage points of profit from a customer.
Some competitors
didn’t care about the rule. They were making 7% or 10% profit per trade
from clients, selling exotic products loaded with hidden traps. I
assumed they would eventually face legal charges, or at least public
embarrassment, for pushing so clearly away from the spirit of the law.
They
didn’t. Rather, they got paid better, were lauded as true risk takers,
and offered big pay packages to manage similar businesses.
Being
paid very well also helped ease any of my concerns. Feeling guilty, kid?
Here take a big check. I was, for the first time in my life, feeling
valued for my math skills – the ones I had to hide throughout my
childhood, so as not be labeled a nerd or egghead. Ego and money are
nice salves for any potential feeling of guilt.
After a few years
on Wall Street it was clear to me: you could make money by gaming anyone
and everything. The more clever you were, the more ingenious your
ability to exploit a flaw in a law or regulation, the more lauded and
celebrated you became.
Nobody seemed to be getting called out. No
move was too audacious. It was like driving past the speed limit at 79
MPH, and watching others pass by at 100, or 110, and never seeing anyone
pulled over.
Wall Street did nod and wave politely to regulators’
attempts to slow things down. Every employee had to complete a yearly
compliance training, where he was updated on things like money
laundering, collusion, insider trading, and selling our customers only
financial products that were suitable to them.
By the early 2000s
that compliance training had descended into a once-a-year farce,
designed to literally just check a box. It became a one-hour lecture
held in a massive hall. Everyone had to go once, listen to the rushed
presentation, and then sign a form. You could look down at the audience
and see row after row of blue buttoned shirts playing on their
Blackberries. I reached new highs on Brick Breaker one year during
compliance training. My compliance education that year was still
complete.
By 2007 the idea of ethics education fell even further.
You didn't even need to show up to a lecture hall; you just had to log
on to an online course. It was one hour of slides that you worked
through, blindly pushing the “forward” button while your attention was
somewhere else. Some managers, too busy for such nonsense, even paid
younger employees to sit at their computers and do it for them.
As
Wall Street grew, fueled by that unchecked culture of risk taking,
traders got more and more audacious, and corruption became more and more
diffused through the system. By 2006 you could open up almost any major
business, look at its inside workings, and find some wrongdoing.
After
the crash of 2008, regulators finally did exactly that. What has
resulted is a wave of scandals with odd names; LIBOR fixing, FX
collusion, ISDA Fix.
To outsiders they sound like complex acronyms
that occupy the darkest corners of Wall Street, easily dismissed as
anomalies. They are not. LIBOR, FX, ISDA Fix are at the very center of
finance, part of the daily flow of trillions of dollars. The scandals
are scarily close to what some on Wall Street believe is standard
business practice, a matter of shades of grey.
I imagine the
people who are named in the scandals are genuinely confused as to why
they are being singled out. They were just doing what almost everyone
else was, maybe just more aggressive, more reckless. They were doing
what they had been trained to do: bending the rules, pushing as far as
they could to beat competitors. They had been applauded in the past for
their aggressive risk taking, no doubt. Now they are just whipping boys.
That's
the paradox at the core of the settlements we're seeing: where is the
real responsibility? Others were doing it, yes. Banks should be fined,
yes. But somebody should be charged. Yet the people who really should be
held accountable have not. They are the bosses, the managers and CEOs
of the businesses. They set the standard, they shaped the culture. The
Chuck Princes, Dick Fulds, and Fred Goodwins of the world. They happily
shepherded and profited from a Wall Street that spun out of control.
A
precedent needs to be set, to slow down Wall Street’s wild behavior. A
reminder that rules are there to be followed, not exploited. The
managers knew what was going on. Ask anyone who works at a bank and they
will tell you that.
The excuse we have long accepted is
ignorance: that these leaders couldn't have known what was happening.
That doesn't suffice. If they didn't know, it's an even larger sin.
Reuters
The alleged tax havens have signed agreements with the United States to tell the IRS about funds held offshore by Americans
The United States has signed agreements with the Cayman Islands and Costa Rica to help those countries' banks comply with an anti-tax evasion law starting next year, the Treasury Department said on Friday.
The deals are part of the US effort to enforce the Foreign Account Tax Compliance Act (FATCA), which was enacted in 2010 and is set to take effect in July 2014. FATCA requires foreign financial institutions to tell the US Internal Revenue Service about Americans' offshore accounts worth more than $50,000. It was enacted after a Swiss banking scandal showed that 17,000 US taxpayers had hidden substantial fortunes overseas. On Thursday a former UBS banker, Raoul Weil, agreed to be extradited to the US to face charges arising from that scandal.
With these two deals, both signed this week, the Treasury has now finished 12 FATCA "intergovernmental agreements" (IGAs), which help countries' financial institutions comply with the law.
The FATCA agreement with the Cayman Islands was initially agreed to in August. The island territory of 53,000 people has no income tax and is frequently labelled as a tax haven by critics. It is one of the world's most popular destinations for investment funds to organise for tax purposes..................
THINK PROGRESS
Tis the season for holiday spirit: Yule logs, egg nog, festive lights
and exchanging gifts with loved ones. If you work for McDonald’s,
though, be sure to save those receipts.
McDonald’s McResource Line,
a dedicated website run by the world’s largest fast-food chain to
provide its 1.8 million employees with financial and health-related
tips, offers a full page of advice for “Digging Out From Holiday Debt.”
Among their helpful holiday tips: “Selling some of your unwanted possessions on eBay or Craigslist could bring in some quick cash.”
Elsewhere on the site, McDonald’s encourages its employees to break
apart food when they eat meals, as “breaking food into pieces often
results in eating less and still feeling full.” And if they are
struggling to stock their shelves with food in the first place, the
company offers assistance for workers applying for food stamps.
McDonald’s corporate officers have a history of offering questionable
advice to their low-wage workers. Four months ago, the company
partnered with Visa to distribute a sample “budget.” In it, the chain suggested
that workers needn’t pay for such frivolous expenses like their heating
bills, and factored in a monthly rent of $600. To workers living in New
York City (home of 350+ stores) and other expensive metropolises, that
number is almost comical.
McDonald’s employees are some of the most underpaid workers in the
country. The company’s cashiers and “team members” earn, on average,
$7.75 an hour, just 50 cents higher than the federal minimum wage.
Responding to rising living costs, many stores have staged walk-outs, strikes and protests, demanding a living wage. In Europe, where the minimum wage for employees is $12, customers pay just pennies more
than their American counterparts for the same menu items, while the
stores themselves typically bring in higher profit margins than ones in
the United States.
Of course, McDonalds has shown little willingness to negotiate higher
salaries for their poorest workers even as labor rights groups up the
pressure. Instead, their website has another piece of advice for people
who are stressed about their meager paychecks: “Quit complaining,” the
site suggests. “Stress hormones levels rise by 15% after 10 minutes of
complaining.”
THINK PROGRESS
Oklahoma Gov. Mary Fallin (R) announced earlier this month
that state-owned National Guard facilities will no longer allow any
married couples to apply for spousal benefits, regardless of whether
they are same-sex or different-sex. The Supreme Court’s decision
overturning the Defense of Marriage Act means that servicemembers with
same-sex spouses are now eligible for federal benefits. Fallin’s unusual
tactic is designed to avoid having to recognize those couples, which
she asserts would violate Oklahoma’s constitutional amendment limiting
marriage to one man and one woman:
FALLIN: Oklahoma law is clear. The state of Oklahoma does
not recognize same-sex marriages, nor does it confer marriage benefits
to same-sex couples. The decision reached today allows the National Guard to obey Oklahoma law without violating federal rules or policies.
It protects the integrity of our state constitution and sends a message
to the federal government that they cannot simply ignore our laws or
the will of the people.
This decision directly contradicts an order from Defense Secretary Chuck Hagel
ordering states to provide same-sex couples with the federal benefits
they deserve under the law. All married couples will now have to travel
to one of the five federal facilities in Oklahoma to apply for benefits.
Incidentally, the state’s facilities were built almost entirely with
federal funds and 90 percent of the Oklahoma Military Department — which
includes the National Guard — is funded by the federal government.
Fallin’s tactic mirrors other attempts to punish an entire group to
avoid serving the gay community. When marriage equality came to the
District of Columbia, Catholic Charities decided to stop offering partner benefits
to all employees to avoid having to provide them to any employee’s
same-sex spouse. In various states, Catholic Charities has also abandoned all adoption services to avoid having to provide them to same-sex couples.
Schools have also employed this strategy to try to block gay-straight
alliances from forming. In 2011, for example, Flour Bluff Independent
School District in Corpus Christi, Texas considered banning all extracurricular clubs to avoid allowing a GSA to form.
Oklahoma is not alone in defying Hagel’s orders. The Texas Military Force acknowledged this week
that it will not allow same-sex couples to apply for a housing
allowance at state-run National Guard facilities, having already turned
away at least one couple. Mississippi, Louisiana, and Georgia have also refused to comply, but some states that previously had balked have begun complying, like West Virginia.
A total of 29 states have constitutional amendments banning same-sex
marriage, but most are complying with the federal recognition for
purposes of the National Guard.
Some states are also struggling in other ways with how to handle the
federal government’s recognition of same-sex couples in the wake of
DOMA. Missouri Gov. Jay Nixon (D) announced last week
that same-sex couples could file their state taxes jointly, even though
they won’t be eligible for state tax benefits. This has prompted one
Missouri state lawmaker, Rep. Nick Marshall (R), to pursue impeachment proceedings for Nixon. Meanwhile, Virginia is among the states that have ordered same-sex couples to file their taxes separately.
RAWSTORY
Fox News host Elisabeth Hasselbeck suggested on Monday that pregnant
women 65-years-old and older were losing their doctors because of
President Barack Obama health care reform law.
In a segment titled “Who’s Ruining the Economy Now?” Fox Business
host Stuart Varney announced that the president was not going to be able
to keep the promise that people could keep their doctors because
“United Healthcare has just dropped — we don’t know exactly how many —
but thousands of doctors have been dropped from United Heathcare’s
Medicare Advantage program.”
Conservative media outlets like The Washington Times have blamed United Healthcare’s decision on the Affordable Care Act.
“That
leaves hundreds of thousands of patients without the doctor that
they’ve had for many many years,” Varney added. “We don’t know how many
thousands have been dropped, but thousands have been dropped. What about
their patients? What about the people who used to have this doctor who
now no longer have this doctor? Broken promise.”
“And many of those people are women who are expecting babies and who
may just have a real relationship with their physician and want to see
the same doctor deliver possibly their second child,” Hasselbeck opined.
“And they are now left in the dark in a time that they feeling quite
vulnerable.”
“Most of them are elderly,” Varney pointed out.
Medicare Advantage is a type of Medicare offered by private companies
to people over 65 years of age. Medicare Advantage covers traditional
Medicare plus additional services, but customers must pay a premium.
It’s not clear how many women over the age of 65 are pregnant, but United Healthcare does offer maternity coverage to Medicare Advantage customers...................
