Banking scandals and government complicity at worst, or failure to protect the public at best are very old in the history of capitalism. The best example of the 20th century is that of the roaring 20's that resulted in the Great Depression of the 30's. The banking scandals of the 21st century are perhaps even larger in magnitude than those of the 1920's, but government safety nets are so ubiquitous today under welfare capitalism that today's banking crisis does not appear as bad as that of the 1920s.
We are currently experiencing a global crisis that started in 2008 and will continue for several more years because of banking scams and scandals, some of which politicians, the media and apologists of the free market present as 'legitimate hiccups' of the system. In the process of those 'hiccups' the 'insiders' who cause them profit while the rest of society suffers.
On 19 September 2011, Spain's central bank announced that it will cover $27 in losses for Caja Mediterraneo, an institution that the central bank took over in July 2011. Just a few days before the Bank of Spain's announcement, London police arrested a 31-year old whose 'after-hours action' cost Zurich-based UBS bank $2.3 billion, a scandal that potentially other rogue traders in other banks could be involved in as well. UBS is hardly an example of a model bank, considering that in February 2009 it was fined $780 million for tax evasion. The UBS scandal comes just weeks after the Society Generale $7.2 billion scandal of another rogue trader. No need to mention more of these, because the interested reader can easily research them.
On 21September 2011, Standard and Poor's downgraded seven Italian banks, after the country's debt rating was also downgraded. Greek banks, two of which are branches of French larger banks are volatile owing to the perennial fear of default and the reality that even without default the country is facing inescapable contraction for the balance of the decade. It is possible that a double dip recession - both the IMF and FED fear that it will take place - will be caused by banking losses amounting to a minimum of 300 billion euros, money that the European Central Bank (ECB) must provide. Keep in mind that the ECB is capitalized at two trillion, a figure hardly sufficient to cover banking losses and continue buying bonds to save the debtor nation members.
The links of European banks to Eastern Europe, Africa, Latin America, US and Japan would derail the world economy, especially if there is 'sudden and unexpected default' by Greece that would drag down the entire eurozone. While 300 billion euros in banking losses, or cash that EU banks will need to stay afloat, is a low figure when compared with the banking losses of 2008/2009, it is sufficient to put the stamp of lingering recession for the next two to four years for the advanced countries and for the entire decade for the weaker nations suffering high debt-to-GDP ratios and high balance of payments.
Banking losses will impact every sector of the economy around the world and will result in even higher unemployment and part time/seasonal employment, while living costs will rise as governments try to absorb more taxes to bail out banks. There have been reported rumors that the EU and US may be moving to crack down on banks, given that not much was done when the recession first shook the world in 2008. The reports are that there are banks laundering money of all sorts from drugs and guns to tax heavens for wealthy clients that include super rich government leaders and politicians.
That governments may resort to stricter banking measures may be a necessary step owing to public pressure and in order to save the capitalist system, such as it has evolved today. However, we must keep in mind that politicians are rewarded and often become wealthy themselves because they perform a valuable service to the financial elites. In short, the rumors regarding a cracking down on banks may be thin and may not reach very deep to clean out the entire mafia-style capitalist system.
The Wachovia Banking scandal, the last one before its merger with Wells Fargo and which the press exposed in April 2010, involved with a number of front companies that are involved with the Latin American cocaine trade and 'front companies' involved in the trade. The bank reached a deal with the government, admitting that it had moved $420 billion in drug money. The US fined the bank $160 million, while its executives and other operatives involved cashed in! Wachovia Bank had also been involved in a telemarketing scandal in which bank officials were stealing mostly from elderly customers.
The government also settled this case in 2008, but the bank continued business as usual, largely because the bank was making loans and campaign contributions in millions of dollars to politicians. Today we know that Wachovia was one of the big US banks responsible for the financial crisis that erupted in 2008. However, the government must collect the fines from Wells Fargo that purchased Wachovia with the government's blessing.
How can governments take on powerful banking houses like UBS, Deutsche Bank, Wachovia, and others that are the backbone of capitalism and whose corrupt practices could not possibly have taken place in the absence of a free pass by governments? When system itself is based on 'legalized theft', why not take that extra step and engage in illegal theft that includes everything from money laundering to telemarketing and mortgage scams, to concealing losses from quarterly reports, etc.?
The rules of the game are accumulation of wealth, so the only issue really is how wealth is accumulated. As far as financial institutions are concerned the process is whatever they can get away with after making generous contributions to politicians. The exchange of 'money for favorable treatment' is also part of the systemic process, no matter how corrupt it may appear to the public that seems to accept welfare capitalism as legitimate but individual corruption scandals by banks as reprehensible. It is as though the individual acts of mafia-style capitalism are worse than mafia-style capitalism as a whole.