Bank scandals can aid financial literacy
November 12, 2012|John Pelletier
BURLINGTON Vt. (MarketWatch)—Since the financial crisis began in 2008, Americans have witnessed a constant stream of scandals and settlement by the financial services industry. Banking, securities, consumer protection, commodity, asset management and brokerage regulators have all fined and penalized large institutions for putting profit and personal economic gain ahead of the law and doing the right thing for their clients.
The LIBOR scandal by itself is shocking enough. Large global banks manipulated the London interbank offer rate on products worth an estimated $800 trillion, and The Wall Street Journal estimates that these banks could face legal liability of $176 billion, excluding regulatory penalties.
A LIBOR lawsuit was recently filed by U.S. homeowners against 12 large banks. Ironically, the plaintiffs are suing under a law known as RICO, the Racketeer Influenced and Corrupt Organizations Act, a law that was created to go after the Mafia.
This LIBOR scandal is so large that the only situation you can compare it to is the more than $200 billion settlement in the late 1990s between big tobacco, the federal government and states’ attorneys general. The tobacco settlement was so enormous and complex that it required an act of Congress.
The LIBOR scandal by itself is shocking enough. Large global banks manipulated the London interbank offer rate on products worth an estimated $800 trillion, and The Wall Street Journal estimates that these banks could face legal liability of $176 billion, excluding regulatory penalties.
A LIBOR lawsuit was recently filed by U.S. homeowners against 12 large banks. Ironically, the plaintiffs are suing under a law known as RICO, the Racketeer Influenced and Corrupt Organizations Act, a law that was created to go after the Mafia.
This LIBOR scandal is so large that the only situation you can compare it to is the more than $200 billion settlement in the late 1990s between big tobacco, the federal government and states’ attorneys general. The tobacco settlement was so enormous and complex that it required an act of Congress.
We should realize that the LIBOR scandal is just a small part of the bigger problem. The question really isn’t whether banks are behaving badly. It’s more a question of how many billions of dollars they will ultimately pay in fines and penalties to regulators for illegal behavior.
So exactly how can banks behaving badly be leveraged to increase the personal finance knowledge of our citizens? It is this question that brings me back to the tobacco industry.
Tobacco is another major industry whose egregious behavior stunned our nation. The tobacco settlement created the National Foundation and the National Public Education Foundation, dedicated, in part, to reducing youth smoking and preventing diseases associated with smoking.
The National Foundation was funded by the tobacco industry with an initial payment of $1.45 billion and the education foundation was funded by an annual payment of $25 million a year for 10 years. This was a small sum, about 1% of the total global settlement. Since 1999, these foundations have played a major role in reducing teen smoking 24 % from 1997 to 2009.
We should use a portion of all penalties and fines levied on the financial services industry by federal regulators for these scandalous actions to fund the creation of a National Public Education Foundation for Financial Capability.
Initially, this foundation could be established using a percentage of the inevitable LIBOR scandal global settlement and thereafter could be supported by a small portion of all future financial services industry federal regulatory fines and penalties.
So exactly how can banks behaving badly be leveraged to increase the personal finance knowledge of our citizens? It is this question that brings me back to the tobacco industry.
Tobacco is another major industry whose egregious behavior stunned our nation. The tobacco settlement created the National Foundation and the National Public Education Foundation, dedicated, in part, to reducing youth smoking and preventing diseases associated with smoking.
The National Foundation was funded by the tobacco industry with an initial payment of $1.45 billion and the education foundation was funded by an annual payment of $25 million a year for 10 years. This was a small sum, about 1% of the total global settlement. Since 1999, these foundations have played a major role in reducing teen smoking 24 % from 1997 to 2009.
We should use a portion of all penalties and fines levied on the financial services industry by federal regulators for these scandalous actions to fund the creation of a National Public Education Foundation for Financial Capability.
Initially, this foundation could be established using a percentage of the inevitable LIBOR scandal global settlement and thereafter could be supported by a small portion of all future financial services industry federal regulatory fines and penalties.
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