THE BLOG
05/09/2013 11:05 am ET Updated Jul 08, 2013

Of Bad Bankers and Mad Men

When I was growing up the leaders in our community were the local politicians, the mayor, and the bankers. I can remember how my grandfather, who was president of the school board, and his brother, the mayor, and his other brother, the chief of the fire department, would talk with their other brothers, one owned a deli and the other was a florist.

They respected the local bankers, they were the pillars of our community, and we all waited for All Savings Day to see what the annual interest rates were going to be. No one questioned how the rates were set. Bankers were like priests. They were above cheating, lying and stealing. Or so we thought.

Now we find out that bankers have been cheating us all on a global scale, and those too big to fail market makers have taken us all for fools, and taken our retirement savings along with our trust.

How did we get here? When did it become normal for greed and treachery to take over one of our most sacred institutions? I mean, it is a simple system. We give our money to the bank, and we trust them to care for it in our absence. To lend it to others who need it to start a business or buy a house.

What we never expected was that our trusted banker was in turn being played by unscrupulous greedy scam artists in international banking.

Here is how this scam worked: banks set what is called the "overnight rate." Every day multi-national corporations with millions in excess cash lend it to the banks. The banks in turn lend it to other businesses who need to make payroll and other expense payments. The lender earns and the borrower pays. The bank makes the deal making the difference. Sweet, right? The bank basically making money for transferring funds.

In the U.S., this rate was based on the prime rate, or prime lending rate, published daily. This rate is in turn impacted by international rates, like the LIBOR rate. Which is set by international bankers.

Now, we all know the market makers at Goldman Sachs and other investment banks are making millions on hedge fund management, which is basically making money for them with your money on hedged bets. And then those market makers got greedy and started to pillage client accounts, just blatantly packaging bad investments with good and using a little scam to cook the books to make themselves millions but cost most of us billions in lost earnings, homes and investments.

And that was unbelievable enough. I mean, really, bankers scamming clients? It was unthinkable. Most of us in finance still can't believe that there have not been mass arrests. Or that Goldman Sachs is still allowed to operate. And not only that, they are allowed to control a good deal of the wealth of this country, despite saying dangerously loud and terrifying up close to Congress that they had no fiduciary duty to their clients.

What? No fiduciary duty? None? Really? You take money from a client. That client pays you to manage that money, and you claimed no fiduciary duty. And you got away with that? Inconceivable.

At least to anyone in finance with a conscience it is. Or should be.

This was hammered to us in college. As an accounting major I had classes in finance, economics, law, tax and, of course, accounting. Every one of my professors reminded us, again and again, that our fiduciary duty to our clients was above all else, what had to guide our decisions. That we should never forget the trust our clients had invested in us when they entrusted us with their investments.

And to this day, I hold that belief. My job is to safeguard and protect my clients. Always. It is unthinkable to me that I would ever take their money illegally or knowingly give them bad advice. It would be a repudiation of everything I believe as a Finance professional.

It is why I was thoroughly disgusted by Goldman Sachs during the hearings. Those self-proclaimed "market makers" sat there in front of Congress and all those news cameras and told the biggest lie I have ever heard, that they had no fiduciary duty to their clients.

Now, unless you are a finance professional, this may not mean a whole lot to you, but let me tell you, to those of us who are entrusted by our clients with the care and protection of their assets, it means quite a bit.

For me to even consider taking one penny from a client is totally and absolutely unthinkable. But those market makers at Goldman Sachs pillaged and took advantage of clients for billions with nary a thought of responsibility or ethics. And now we hear that the fraud is going on at a global level. And believe me folks, you want to pay attention, this is costing our economy trillions.

Let's look at a simple example, say Corporation ABC has $10 million in excess cash at the end of the day. They agree to allow Bank DBA to sweep the funds and loan them to Corporation XYS. ABC will earn 2 percent, XYS will pay 2.5 percent, the bank will make the difference, 0.5 percent.

Simple. Straightforward.

But now, the twist is this, Bank DBA has colluded with other banks to set that rate, in actuality the lending rate was reasonably set at 2 percent but the borrowing rate was really only 2.25 percent, a difference of 0.25 percent, or $25,000. So the bankers basically rigged that rate to give themselves a little bonus pay.

You don't think this is a big deal? Okay. Let's imagine that each night on a global scale perhaps $1 billion is put into the overnight lending sweep. That would mean that in one day banks scammed $2.5 million in additional interest fees, annually that comes to $912.5 million.

You still aren't sure it is a big deal? Well, $1 billion is a conservative estimate. And who do you think is really paying for the near $1 trillion that is annually pulled from our economy in this example?

Think about it this way, for every product you purchase you are paying this interest for the banks. Forget the deficit, that is nothing compared to this. For every dollar you spend, you are paying for the greed and corruption in our banking system. It is beyond despicable, it is destroying our economy.

It is time to stop allowing bad bankers and mad men to tell us fairy tales about how the deficit is ruining our country but the banks are too big to fail. The problem isn't paying teachers a fair wage or providing pensions and health care to them and our police, the problem is greedy bankers sucking our money from our banks into their offshore tax havens.

The problem is politicians saying stupid things and refusing to prosecute corruption.

The problem is voters who would rather vote for an Idol, and who can't be bothered to vote in an election.

The problem is we allow those market makers to continue to steal our money even today.

We are not powerless. We are not victims. It is our money. It is our government. Take it back. Just take it all back. Don't use one of those too big to fail banks. Don't use their credit cards. Just start there. Move your money. Cut up that credit card. Find a local bank, or even better, credit union. Ask questions, what are they invested in? How do they set their lending rate? What are their values?

Values? Why should you ask a bank about their values? Because values matter. Your values. My values. Our collective values. That is what defines us. That is what makes us great.

And that is what differentiates us from bad bankers and mad men. Our values.

What are yours? Define them, then live them.