Science Proves What We Said About the Banksters

Special Report from Money Morning

by Shah Gilani, Money Morning

“Business culture in the banking industry is favoring, or at least tolerating, fraudulent or unethical behaviors.”

That’s what Ernst Fehr told reporters in a telephone interview last week.

Fehr is an economist at the University of Zürich in Switzerland who co-led a study about business behavior.

Fehr’s study proves what we’ve all long known – but it wasn’t the only piece of news last week that demonstrates the crookedness of banksters.

Today I’ll show you how Wall Street’s manipulations are affecting the prices we pay for everything from the cars we drive to our pots and pans.

So you know you want to know more about this…

A Genuine “Robber Baron” Class

The prospectus of Fehr’s study was published in Nature.

According to Reuters:

“Fehr’s team conducted a laboratory game with bankers, then repeated it with other types of workers as comparisons. Participants were asked to toss a coin 10 times, unobserved, and report the results. For each toss they knew whether heads or tail would yield a $20 reward. They were told they could keep their winnings if they were more than or equal to those of a randomly selected subject from a pilot study. The results showed the control group reported 51.6% winning tosses and the treatment group – whose banking identity had been emphasized to them – reported 58.2% as wins, giving a misrepresentation rate of 16%. The proportion of subjects cheating was 26%. The same experiments with employees in other sectors – including manufacturing, telecoms and pharmaceuticals – showed they don’t become more dishonest when their professional identity or banking-related information is emphasized.”

With that as background, here’s another news flash:

The U.S. Senate Permanent Subcommittee on Investigations finished up a two-day hearing Friday on whether banks like Goldman Sachs Group Inc. (NYSE: GS), J.P. Morgan Chase & Co. (NYSE: JPM), and Morgan Stanley (NYSE: MS) should be restricted from owning or trading physical commodities such as oil and metals.

While the hearings weren’t prompted by the University of Zürich’s research, it feels like they could have been.

The Senate subcommittee has been investigating whether banks’ participation in markets, where they also control infrastructure assets, influence prices and harm consumers. Some lawmakers argue such activity – particularly banks’ ownership of power plants, shipping containers, and metals warehouses – creates the potential for anticompetitive behavior.

Others looking at the same facts and figures extrapolate out their findings a step further. I’ll speak for them, because I am one of them.

It’s About the Option to Manipulate

Banks don’t own all these hard-asset facilities just because they are profitable businesses to own and run. Banks own them to manipulate prices and markets, which is infinitely more profitable than just owning storage and transportation facilities.

Last week, Sen. Carl Levin (D-MI), chairman of the subcommittee, spent three hours accusing two witnesses from Goldman Sachs of manipulating aluminum markets. He then asked J.P. Morgan Chase and Morgan Stanley why they had tried to hide their supposed “investments” in metals and natural gas from regulators.

Levin’s rhetorical quote of the day was this:

“If you liked what Wall Street did for the housing market, you’ll love what they’re doing for commodities.”

A good part of the hearings yesterday focused on activity at a Goldman aluminum-warehousing subsidiary, Metro International Trade Services LLC.

The Wall Street Journal today reported this from the hearings:

“A pair of Goldman Sachs executives said their actions didn’t affect those prices (aluminum) and they were acting on orders from clients. In a series of testy exchanges with Messrs. Levin and Senator John McCain, the executives acknowledged the warehouse firm introduced a new transaction structure after Goldman bought it in 2010, causing metal transfers between warehouses that created a logjam and drove up wait times for customers to withdraw aluminum. Metro International’s chief executive, Chris Wibbelman, said another part of Goldman, its commodity-trading arm, ordered withdrawals of 300,000 tons of aluminum from the warehouses and further extended wait times in 2012.”

No, there’s no manipulation there.

We don’t need international research studies to tell us banks are greedy, manipulative liars and cheats. We live it 24/7 and have ample proof they aren’t just robber barons.

They are something much worse.

They are an institutionalized, protected criminal class who run the United States – and too many other supposedly free nations – for their personal benefit.

If we aren’t jailing these criminals, ask yourself, “Why not?”