Former traders in London trial may have been cleared, but case highlights financial industrys superstars are also among the most toxic employees So it turns out that Lord Libor and Big Nose didnt do it, after all. Translation: a British jury acquitted six men of helping former trader Tom Hayes rig the worlds mortgage markets.
The idea that someone can rig the London inter-bank lending rates (Libor) should terrify us all. Its estimated that $300tn (192tn) of contracts are based onlined up to strike a deal with regulators and pay a hefty penalty. As frustrated and outraged onlookers found in the aftermath of the financial crisis, however, holding individuals accountable has been far, far tougher. So far only three men have been convicted for their role in the events: Tom Hayes,convicted of 28 counts of criminal fraud in a Manhattan court late last year. They are scheduled to be sentenced in March. The colorfully nicknamed brokers found not guilty of helping Hayes interest rates called theirPrinz said he was generating $30m to $45m a year in profits for UBS and was too valuable to lose. Johansson signed off on a $2.5m bonus. This might actually have come as a warning sign of one kind of toxic employee, suggest Michael Housman and Dylan Minor, in ahavent managed to hold individuals to account. The fact that on Wall Street there tend to be clusters of individuals who are overconfident (and) self-regarding and to be such superstar performers might also be bad news for the institutions where they work. The more of them there are, the worse the cumulative effect and the greater the degree of contagion the less a position is monitored, the more likely a toxic person occupying it is to damage the business. Housman and Minor conclude that avoiding toxic workers is better for the firm in terms of net profitability, despite losing out on a highly productive worker. Thats a lesson that Wall Street has yet to learn, alas. True, the firms have paid out billions of dollars to mop up the messes created by their toxic workers, like Iksil or Hayes (to name only two of hundreds or thousands of bankers and traders whose lack of ethics has led them to push the envelope too far). But even the financial crisis when the toxic behavior of the bad apples repackaging subprime mortgages into securities doomed to fail ended up causing some institutions to actually fail doesnt seem to have caused bank leaders to realize that they need to proactively go on a hunt for bad apples, and start tossing them from the barrel. Too often tomorrows rogue traders are todays star employees. Consider the attitude of Jamie Dimon, CEO of JPMorgan Chase, to his own banks recent encounters with toxic people. The London Whale? Why, initially, that was a tempest in a teapot. Only reluctantly did Dimon accept that it was a big error, andin a statement. The lesson here is
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that the conduct of a small group of employees, or even a single employee, can reflect badly on all of us. That shouldnt have come as quite as much of an epiphany as it sounds that it may have done. Lets hope that Dimon, and his fellow Wall Street CEOs, are a bit quicker off the mark when it comes to reading the research produced by Housman and Minor, and absorbing its lessons. If they are, maybe we can look forward to a day when the phrase bankster can slip into the lists of archaic words. If not? Well, stay tuned for news of the next rogue trader who turns out to be anything but and the next, and the next. Read more:http://www.theguardian.com/us
Lord Libor reveals financial system where bad apples have the midas touch
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