The Facebook IPO: Shareholders Weren’t Invited to the Real Party

July 24th, 2012 § 1 comment

Matt Taibbi writing for Rolling Stone.

His point was that virtually every week now we see stories like this that hint at a kind of two-tiered market system – in which most of the real action takes place inside an unregulated black-box network of connected insiders who don’t disclose their relationships or their interests, while everyone else, i.e. the regular suckers, live in the more tightly-policed world of prospectuses and quarterly reporting and so on.

A few years ago I might have dismissed something like this as a crackpot conspiracy theory but when large banks collude to manipulate the LIBOR rate I can no longer dismiss such fears. Though not well known outside of financial circles the LIBOR rate “is the primary benchmark, along with the Euribor, for short term interest rates around the world.”. [emphasis added]

Planet Money’s coverage of the scandal shows the brazen manner in which the traders at these banks broke the law. There is an unambiguous email trail that speaks to an environment that doesn’t just tolerate but encourages corruption.

I think The Economist is right in calling for a dramatic increase in fines for financial wrongdoing. The rate that these stories are coming out suggests a cool calculus that determines the risk in fines is less than the potential gain in profit and therefore worth the risk. Lets use market forces to clean up the system by making the risk not worth it.


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