With a subject like this, I could write for weeks as there is no end to the material detailing how far off the rails our banking system has gone. Instead, today I am going to focus on two items:

• The inequality of justice between the bankers running the “too big to fail (TBTF)” megabanks (i.e. J.P. Morgan, Bank of America, etc.) and regular citizens; and
• The LIBOR Scandal

Unequal scales of justice. I am only going to cover one example of the different treatment our bankers receive vs. the average citizen. If I tried to cover all the examples I have seen in this year alone, this blog would run into hundreds of pages. The message is the same in each case. If you are running one of the large financial institutions and have good political connections, which they all do, you are free to commit any crime you can think up and know that at the end of the day, you will walk free and probably keep the exorbitant salary and bonuses you have been paying yourself. The banker case in point is the MF Global CEO Jon Corzine. I am sure you remember the headlines – MF Global suddenly goes bankrupt and over $1 Billion in client’s segregated funds go missing. Oh, and guess where they finally found the money – at JP Morgan and they didn’t give it back.

Well, NO ONE at MF Global is going to be prosecuted for stealing their client’s money. Our crack federal investigators concluded after ten long months of investigation that the loss was really due to “chaos and porous risk controls at the firm.” Really. There are some very interesting details about Corzine’s connections to the present administration that shed some light on why he won’t be charged for ANY crime or be required by regulators to repay the stolen funds. Corzine, who is a former U.S. senator and governor of New Jersey, was also the chairman of the Democratic Senatorial Campaign Committee. In this role, he helped Obama first win election to the Senate. He also worked to help him win the presidency. Corzine was praised by Obama and Vice President Joe Biden as the “go to guy” for financial and other issues relating to Wall Street. In fact, while the investigation into the theft of the $1 Billion was going on, Corzine was still acting as a “bundler” for Obama’s current re-election campaign. Bundlers are people who collect checks from friends, associates and other contributors and sends the pile of checks to the campaign office in one large batch. Even more telling is Corzine’s connection to the U.S. Attorney General, Eric Holder. It turns out that MF Global was a client of Holder’s former law firm, Covington & Burling. I could write pages on the deepness of Corzine’s connections to the present administration but you get the picture.

Now, let’s compare Corzine’s justice to that received by two ordinary citizens. The first is Gary Harrington. Mr. Harrington was sentenced to 30 days in jail and fined $1,500 for setting up a rainwater collection system on his private property to capture rainwater that falls on his property. This was due to a willful violation of an Oregon 1925 law that awards all water to the government.

Okay, that example was small potatoes. Do you remember the Martha Stewart case? She was convicted in 2004 of lying about a stock sale she did through her broker that was in response to some insider information. The government estimated that she averted about $51,000 in losses by selling when she did. For this serious crime, she was sentenced to five months in jail. Let’s review – steal $1Billion from your clients and you don’t have to worry about being prosecuted or having to reimburse your clients for the money you stole AND you can continue working on the President’s reelection campaign and start a hedge fund. BUT, if you don’t know the President or the Attorney General and you sell some stock on information your broker gave you that turns out to be from some insider, you get to go to jail for 5 months and pay a fine. Well, that’s fair. Right?

LIBOR Scandal. LIBOR isn’t a word you hear every day around the household. But, if you have ever worked in banking or have been involved in borrowing larger sums of money, you would have seen it often. LIBOR stands for London Interbank Offer Rate. Each day, the major banks tell Thomson Reuters the interest rate they would expect to pay on a loan from another bank. Reuters then throws out the top and bottom 25% of the rates reported and averages the remaining 50% and publishes the daily LIBOR rates. It is estimated that over $500 trillion in loans are tied to these rates, including real estate, commercial, credit card and student loans. So, obviously you would want these rates to have been set in a competitive manner. Well guess what, they aren’t. For the past many years, at least ten but probably much farther back, the banks who report their rates to Thomson Reuters have been colluding on setting the rates that were reported. Thus far, Deutsche Bank, Royal Bank of Scotland, HSBC, JP Morgan, Barclays, Citigroup, and UBS are being investigated in the U.S. for LIBOR rate manipulation and additional banks are under investigation in Europe and Asia.

The amount of extra interest charged customers because of these rate manipulations will probably be in the trillions of dollars. One interesting note relating to this developing scandal is that Timothy Geithner, who is our current Treasury Secretary, knew of these manipulations at least as early as 2007. At the time he was President of the New York Federal Reserve. He sent an e-mail to Mervyn King, head of the Bank of England, asking that they make the rate-setting process more transparent. I bet Geithner now wishes he called King instead since he can’t deny have known about the collusion. Geithner failed to point out this fraudulent manipulation to Congress or anyone else in the United States who might have taken exception to the fraud that was being perpetrated. No wonder he was appointed Secretary of the Treasury by President Obama. This man can keep a secret and has no issue with illegal activities going on during his watch.

Barclays Bank has already settled their case with U.S. and British regulators. They admitted they had submitted false information and have paid a fine of $453 million. I did not see an estimate of how much they had stolen from their customers by colluding on setting the rates but you can rest assured it was multiples of the $453 million fine they paid. I did not see any indication that there would be jail time for either the bank management or the individuals within the bank who provided false information. Barclays is also cooperating with the regulators in their on-going investigation of the other banks named above.

Well there you have it. If you are one of the “too big to fail banks”, it is perfectly okay to lie, cheat and steal. You may have to pay a fine but that is okay because you will be able to steal much more than the amount of the fine and no one in our government will come looking for you to do jail time or personally put up any money. Quite a system don’t you think?

P.S. – If you want to see why our political leaders allow the banks to continually break the law, do an internet search on top campaign contributors to both presidential candidates. You will see the names of our favorite “too big to fail” banks – JP Morgan, Chase, Goldman Sachs, Bank of America, Citigroup, UBS, etc. etc. The banks obtain their “get out of jail free” cards the old fashioned way, they buy them.