Business culture int he banking industry is favoring, or at least tolerating, fraudulent or unethical behaviors.
That’s what Ernst Fehr told reporters in a telephone interview last week.
Fehr is an economist at the University of Zürich in Switzerland who co-led a study about business behavior. Fehr’s team conducted a laboratory game with bankers, then repeated it with other types of workers as comparisons. Participants were asked to toss a coin 10 times, unobserved, and report the results. For each toss they knew whether heads or tail would yield a $20 reward. They were told they could keep their winnings if they were more than or equal to those of a randomly selected subject from a pilot study. The results showed the control group reported 51.6% winning tosses and the treatment group – whose banking identity had been emphasized to them – reported 58.2% as wins, giving a misrepresentation rate of 16%. The proportion of subjects cheating was 26%. The same experiments with employees in other sectors – including manufacturing, telecoms and pharmaceuticals – showed they don’t become more dishonest when their professional identity or banking-related information is emphasized.
The U.S. Senate Permanent Subcommittee on Investigations finished up a two-day hearing Friday on whether banks like Goldman Sachs Group Inc, J.PMorgan Chase and Morgan Stanley should be restricted from owning or trading physical commodities such as oil and metals.
The Senate subcommittee has been investigating whether banks’ participation in markets, where they also control infrastructure assets, influence prices and harm consumers. Some lawmakers argue such activity – particularly banks’ ownership of power plants, shipping containers, and metals warehouses – creates the potential for anticompetitive behavior.
Banks don’t own all these hard-asset facilities just because they are profitable businesses to own and run. Banks own them to manipulate prices and markets, which is infinitely more profitable than just owning storage and transportation facilities.
Last week, Sen. Carl Levin (D-MI), chairman of the subcommittee, spent three hours accusing two witnesses from Goldman Sachs of manipulating aluminum markets. He then asked J.P. Morgan Chase and Morgan Stanley why they had tried to hide their supposed “investments” in metals and natural gas from regulators.
Levin’s rhetorical quote of the day was this:
“If you liked what Wall Street did for the housing market, you’ll love what they’re doing for commodities.”
We don’t need to be reminded that bundling mortgages brought down the US economy.
Senate Hearing