It is increasingly apparent that the capital markets and their regulation are both broken. The financial press for July 2012 reads more like a scandal sheet than a newspaper. JPMorgan Chase lost as much as $9 billion on a trading strategy that probably would not have been illegal under the Volcker Rule, which is intended to separate commercial banking from bank proprietary trading, had it been passed.1 Barclays Bank was caught price fixing the London Inter-bank Offered Rate (LIBOR), which represents the rate charged when banks lend money to one another. An organization does not fix prices alone, so other big banks are under investigation as possible participants in this scheme. One of the banks under investigation is UBS, which last year settled a Securities and Exchange Commission (SEC) case involving bid rigging in the municipal securities market.2
HSBC has been laundering money.3 Nomura has been embroiled in a serious insider trading investigation.4 JPMorgan Chase, Goldman Sachs, Credit Suisse, Citigroup and Mizuho settled a case alleging misleading investors in a mortgage-related product by stuffing it with phony securities in order to secure a high credit rating.5 Peregrine Financial Group collapsed with a shortfall in customer funds that should have been segregated, only eight months after a similar failure by MF Global.6 August began with more problems for Wall Street. An automated stock trading program flooded the market with millions of trades, as the result of a software glitch, spreading chaos and imperiling the existence of Knight Capital Group.7 Standard Chartered was accused of violating U.S. sanctions against Iran.8
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