Corruption and Fraud in the Financial Industry Get Worse and Worse

Felix Salmon explains that we have only begun to plumb the depths of financial industry corruption:

You want to know why pretty much the entire financial sector is still trading at less than book value? This is why: the number of investors who trust the banks is now zero, and banking seems to have become a game of picking up fraudulent nickels in front of a relentless justice-department steamroller.

This is a reaction to the latest shoe to drop in the LIBOR scandal. UBS, it turns out, wasn't just shaving its own submissions in order to manipulate the LIBOR rate (as Barclays did), it was actively bribing everyone in sight to do the same thing. "If Barclays was dreadful and UBS was much worse than Barclays," says Felix, "it’s hard to imagine that anybody has clean hands here." True. More to the point, if corruption around LIBOR was so widespread and extended so far into the executive suite, it's a pretty good guess that similar corruption extended to practically every other operation on Wall Street too.

The mammoth profits of the financial industry are bad for the economy because they suck money away from other activities with actual value. They're doubly bad because they were built on, and encouraged, vast amounts of fraud and corruption. That's what happens when there are enormous pools of money sitting around for the taking. None of us will be safe until profits in the financial sector are permanently cut by about three-quarters from the go-go days of the aughts.