I am wondering how several of our authors are responding to Wall Street's latest mishap. Six banks- Citi, JP Morgan, UBS, RBS, HSBC and Bank of America- are paying a total of $4.3 billion to US, UK and Swiss regulators to resolve allegations of manipulating the foreign-exhcnage market. Why did banks do this? BBC most clearly explains, "traders attempted to manipulate the relevant currency rate in the market, for example to ensure that the rate at which the bank had agreed to sell a particular currency to its clients was higher than the average rate it had bought the currency. If successful, the bank would profit." Financial penalties are nothing new for these firms, who have racked up over $200 bill in penalties for interest rate manipulation, sanctions violations and "improperly selling a variety of financial products." Manipulation isn't a new concept either (let's not forget the housing crisis). After reading The Big Short and capturing Lewis's cynical view of Wall Street, I'm sure he is nothing less than surprised. In his book, he continuously points fingers at the Investment Banks for their manipulation in mortgage bond structuring. In Krugman's final chapters he addresses the need for heavy regulation of both the investment and shadowing banking systems. He'd probably say, "another example of the need to regulate banks (of both kinds)." After reading Lewis's book, I'd have to agree with this system of sticks. If the housing crisis wasn't enough, banks should be regulated and otherwise penalized for manipulative actions. However, I have to wonder, with such extensive internal/ external regulation, compliance and risk management departments at these banks, how do traders continue to get away with this?
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