A few weeks ago, Columbia economist Jeffrey Sachs lobbed a few mild criticisms at Wall Street: everyone's a "crook," "prima facie criminal behavior," "financial fraud on a very large extent," "a tremendous amount of insider trading" on the streets of Manhattan, "a corrupt politics to the core," a "pathological" moral environment, the like.
Well, he's had some time to think about it, and to hear from the corrupt, pathological criminals themselves. And he would like to revise and extend his remarks.
Almost every day brings new horror stories of illegality, lawsuits, charges, that this needed to be said….
When I really started to count in fact and keep track of the number of lawsuits, and the number of settlements, and it’s amazing actually how many there are, of course. Libor, Abacus, other financial fraud scandals, money laundering, insider trading. The list is actually extraordinary. The frequency of new cases, new settlements, new SEC charges, is stunning. And the lack of any apparent remorse from leaders of the industry.
[There hasn't been one] major figure in the industry acknowledging this rot, and also calling upon the industry to clean itself up. And I find that amazing because I would’ve expected at least one or two voices that would’ve have played that role and that hasn’t happened yet….
What one does feel is that the extent of abuse, the stench of it, is reaching such a high level that we’re not in an equilibrium, political or social, right now.
This is explosive stuff (scandals like Abacus and insider trading). It’s unbelievable. So far it hasn’t stopped the practice, but it can’t get more in your face than this actually.
And, as if it needed to be said, he's a big fan of Brown-Vitter.
This is on the right track, that basically we need more capital in the banks, fractional reserve banking by itself is an underlying structural problem, it’s then made vastly worse by the dismantling of regulations, by the intermixing with the so-called investment banking and basically the hedge funds, investment banks and commercial banks all being one party now, but reducing the amount of leverage is I think on every economist’s, near the top or at the top, of every economist’s list.
I would put criminal enforcement number one, statesmanship number two and reduction of leverage as number three.