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BusinessBanking & Finance

Bank robbers out in the open

Uncanny similarities exist between the mafia and many of the most important American bankers of the past decade, according to a US law don

PUBLISHED : Wednesday, 15 August, 2012, 12:00am
UPDATED : Wednesday, 15 August, 2012, 1:36am

Who's robbing banks now?

Willie Sutton, infamous as a bank robber, gained fame for his supposed response when he was asked why he robbed banks: "Because that's where the money is." *

A law professor from Utah has now turned the question round and asks in these modern times: "What is a bank robber?" Christopher Peterson answers his own question by asserting: "There are some profound organisational similarities between organised crime and the behaviour of many of the most important American bankers in the past 10 years."

His short paper, "What is a bank robber?", has recently been published by the highly respected Kirwan Institute of Ohio State University.

Peterson notes that newspaper columnists and bloggers, as well as ordinary Americans, describe bankers responsible for the financial crisis as "crooks", "criminals" and "Wall Street gangsters". He disappoints by not mentioning my favourite word "banksters", coined in the 1930s by Catholic priest Charles Coughlin and resuscitated by Liaquat Ahamed in his 2009 book, The Lords of Finance.

The terms of abuse are not taken seriously in academic or mainstream political circles, he says. "Perhaps there is more to these claims than initially meets the eye," he says, clearly determined to make his name with unholy thoughts of banksters.

He presents Italian-American mafia families as prototypical US gangsters. "Mafia organisational structure relied on insulating leadership positions from government prosecution through the use of expendable soldiers. Soldiers were expected to suffer through periodic arrests, incarceration, and violence associated with the illegal acts on which these criminal enterprises depended. But because the compensation for soldiers was high relative to their other employment prospects, crime families could maintain adequate staffing in the soldier class."

To objections that that's nothing like the way the modern financial sector is organised, he points out some uncomfortable similarities. "In residential-mortgage-backed securitisation deals, the management of investment banks insulated themselves and the bonuses they received through the use of less powerful, less capitalised mortgage origination and brokerage companies. Like mafia soldiers, mortgage brokers and originators were expected to commit or abet fraud, violate sound underwriting practices, and ignore or undermine consumer protection statutes."

When times got tough, the frontline soldiers were expected to suffer by declaring insolvency, equivalent to mafioso soldiers doing time in jail.

"Originator and broker insolvency absorbed and deflected government sanctions, preserving the vital link to world capital markets provided by the large investment banks," Peterson claims. "Both the mafia and structured finance featured and relied on high, but manageable, casualty rates in the soldier class."

Omerta, the oath of silence, was a vital feature underpinning mafia control and protecting the bosses from the law. Peterson sees a similar omerta in the financial crisis: "In securitisation, the 'true sale' of residential mortgages served a comparable organisational function. When law enforcement efforts pursue thinly capitalised originators and brokers, the securitised assets churned out by these soldier-class financiers are bankruptcy remote … The insolvent originator's creditors, including law enforcement, cannot capture the assets that were produced through fraudulent underwriting."

The mafia also stamped its control through violence. In the financial crisis, there have been suicides by people driven to despair at seeing their homes foreclosed. Peterson agrees the modern system has not resorted to physical violence, but "structured finance of subprime and exotic mortgages continues to rely on another form of violence that is structurally similar to homicide and disturbing in its own right. Foreclosure on family homes, the 'American dream' transformed into a nightmare, relies on the very real threat of state-sponsored violence.

"The strong and admirable respect for law and order" in middle-class America ensures there is little actual violence when people lose their homes. But "the threat of violence is quite real and casts a shadow across the … well-being of American families and their children". Peterson concludes: "One of the first and primary targets of organised criminals - banks - have in some cases taken on the organisational strategies of our country's most successful and feared criminals … The definition of 'bank robber' needs an update."

The "International Brotherhood of Bank Robbers" is clearly jealous of big bankers, claiming they have done more economic damage since 2007 than the total of all bank heists in modern history. "They are banksters. We are professionals. They endanger the worldwide economic system by stuff like rigging interest rates and constructing shaky derivatives. When we rob a bank, depositors lose no money. The stock market doesn't crash … We spend [the cash] locally and stimulate the economy. And if we screw up, consumers do not suffer and we never ask for bailouts."

* In his ghost-written autobiography, Sutton (1901-1980, who robbed more than 100 banks of an estimated US$2 million) claimed the quote was the invention of the reporter interviewing him. Nevertheless, it is the basis of the Sutton's Law taught in medical schools - in diagnosing an illness, first consider the obvious.

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