Economist Sachs: The Amount Of Financial Fraud Is Enormous

Columbia Economist Dr. Jeffrey Sachs speaks to the Philadelphia Fed about the international implications of the financial crisis and the banking sector. His focus is not on economic or monetary matters, it is on everything that is surrounding it: legal, moral, human, and other values. Or better, on the absence of all that. A couple of quotes from his speech.

The rest of the world is disappointed about the financial mismanagement in the US, to put it mildly:

Several of the [100] Ambassadors reflected that the US and the IMF more or less treat the policy discussions as if nothing really has happened. Some of the Abmassadors are asking why is it that we are taking advice from people that have mismanaged the financial system so badly. I think this is not an insignificant context. It is key to the key currency and center of the world financial system to hear this very well and take it as seriously as it should be taken.

In a similar context, professor Sachs questions the role of the Fed, or maybe the absence of its role in regulating things:

The backdrop from the world’s point of view is that the United States has failed badly in financial management and that the implications of that are felt around the world. My feeling about this is similar. It is worth speaking outside of the economic and monetary framework to reflect on the Fed’s role as a regulator and the real lessons of the financial crisis since 2008. The angel I would emphasize is not typical as an economist. It is the massive illegality in the financial system. We have really a mountain of criminal and fraudulent behaviour that is part of the 2008 scene. We usually speak in terms of bubbles and mistakes, but the amount of criminality and financial fraud is absolutely enormous. It is almost daily (LIBOR scandal, insider trading scandal, etc). Because we are inside of this, we are not actually feeling the full weight of the regulatory and moral failure but also the legal failure.

He condemns the im(p)unity of the financial industry:

I think the macro economics is important but the complete impunity of this system is absolutely massive. Wherever you look you see the same thing up until today: massive bonuses in the top of the financial market, massive fines being paid for incredible behaviour and massive campaign contributions from this leadership to the political class.

During his presentation, before 80 people of the Philadelphia Fed, he asks … where the Fed is:

My question is where is the Fed? This is about basic regulatory practice. we have a system that is out of political and regulatory control. I sit with the diplomats here in New York, and I can only say that the level of unhappiness has risen to a really very stark proportion. I can only agree with them that I do not see any progress getting this right.

His closing thoughts say it all:

This is my brief message. We are beyond the macro economics right now. We are beyond the prudential issues. We are to a level of legal accountability, tax regulation, transparency and a basic sense of fairness. We do not have it right now. Wall Street is pretty lawless and unfortunately the regulatory system that we have is nearly broken down.

Go to the full video (36 minutes)

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