In 2008, The United States was in the midst of a historical presidential election and a recession. When global financial services firm Lehman Brothers filed for bankruptcy in September, the largest bankruptcy in history, the curtains were forced open to reveal a global financial mess that had been occurring since 2007 and still haunts the world today.
In the following months, many other financial giants would fall into bankruptcy and the word ‘bailout’ became part of the everyday conversation. As the public became more aware of the complicated series of events that led to the worst financial crisis in a generation, people looked at the source of the problems. Occupy Wall Street became a worldwide movement that called for financial reform and punishment of those involved.
While people were losing their homes by the thousands due to subprime loans, the U.S. Government chose to protect many institutions through government loans. There were token attempts to help ordinary citizens during the crisis through extension of things like unemployment insurance and home loan modification attempts. However, most of the help was given to corporations, banks and other financial institutions under the premise that these groups were “too big to fail.”
Years later, even after investigations have shown that these same institutions were directly responsible for the financial meltdown, none of them have seen anything more than a fine – with only a few having had to deal with what amounted to a slap on the wrist.
The domino effect of the financial efforts worldwide was handled differently around the world. Many smaller countries were forced into austerity programs that cut social and financial programs for their citizens in order to receive financial help from the World Bank. This led to protests and sometimes dissolution of governments for ones that had a more populist approach.
When Iceland found itself in the midst of the crisis, it chose a different approach. While it, too, received a bailout from the International Monetary Fund, Iceland refused to bailout the banks, which ultimate defaulted to the tune of $85 billion. Resisting international pressure, policymakers focused on helping the people instead. They forced the banks to bailout the people, making them write off the mortgages of their citizens. They have been able to maintain their budget allotment of roughly 43 percent for general welfare programs. In the end, only three banks remained, all of them Icelandic banks that were now under state control.
They also held the bankers accountable.
In December 2013, a Reykjavik district court sentenced four former bankers from the Icelandic Kaupthing Bank for their roles in the market abuses that led to the 2008 collapse. Two former CEOs, the former chairman, and the banks’ largest stakeholder were given sentences ranging from three-and-a-half to five-and-a-half years in prison. The charges related to a loan given to a Qatari sheikh, which he used to buy shares in the bank.
Other nations have taken a harsher stance against bankers.
Last month, a director of a Vietnam Development Bank was sentenced to death for fake loans amounting to $89 million. Two other bankers were sentenced to death in December. In China, economic crimes are subject to a range of harsh penalties, including death.
In the United States, bankers aren’t just too big to fail, they are also too big to punish.
While we have seen the prosecution of people like Bernie Madoff, convicted of a ponzi scheme that stole money from the very wealthy, financial executives have suffered no serious consequences. A billionaire hedge fund manager was indicted on criminal fraud charges in July 2013, and avoided jail time by paying a $1.2 billion in fines. JP Morgan Chase has been faced with a litany of litigation for its role in the financial meltdown, resulting in about $1 billion in fines, yet no one has been prosecuted.
In fact, CEO Jamie Dimon received a 74 percent pay raise due to an $18.5 million bonus in 2013.
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