The power of money

Just how venal can banks get? In the last two months HSBC got caught laundering money, Barclays fiddled with LIBOR, Goldman Sachs settled a $600-million class action suit on mortgage-backed securities, the London Whale lost billions for JP Morgan, and Wells Fargo did predatory lending. Whatever happened to 3-6-3? That was when bankers paid depositors 3 percent, charged borrowers 6 per cent, and were on the golf course by 3 p.m.

The first thing that happened was Bill Clinton ended Glass-Steagall, the 1930s legislation that kept commercial banks and securities firms separate. The second thing that happened was compensation got way out of whack. When the Ontario Securities Commission first forced corporations to reveal salaries, Scotiabank CEO Peter Godsoe was the worst-paid leader at the Big Five Banks with an annual salary of something like $600,000 a year. As a joke, Brascan’s Trevor Eyton passed the hat at a party to collect what he called Peter’s Pence to help out. Now a bank CEO can earn $600,000 every two weeks.

While some CEOs might be worth that much, too many people down the line, and way too many traders who are out of line can make as much in a month as most people earn in lifetime. Such fabulous sums have twisted capitalism far beyond what the robber barons of the Golden Age ever imagined. In that era, a few people got wildly wealthy on the backs of the workers. These days, too many people can make enough money in a few years to retire, leaving the system reeling and investors with no part of the pie.

There’s a parallel in all this with what’s happening as Toronto gangs trade gunfire that not only kills their intended victim but causes collateral damage to innocent bystanders. While politicians and police chiefs call for more patrols and social programs, the real problem may be intractable: broken homes and absent fathers. When there is no supervision, kids do whatever they want.

The same problem exists in banking. When regulators don’t prosecute individuals, there are no consequences for corrupt behavior. I don’t know how to fix broken homes and battleground neighbourhoods, but banking could be made better by putting into law the Volcker Rule against speculative activity. It won’t guarantee downtrodden investors aren’t the only ones to suffer ever again, but it would be a good place to start.