A financial Nuremberg?

Ever since the 2008 financial crisis, there have been calls to bring to account the people responsible for the near-collapse of the international financial system and the subsequent worldwide recession. But very few have been prosecuted, either nationally or internationally. In individual countries, notably the USA, some have been convicted of fraud and further prosecutions are pending. But there has been no international action against the principal actors in this drama - the financiers, the politicians, the regulators, the auditors and the economists. Again and again we hear people asking why no senior bankers are in prison, why there is no enquiry into how the financial system came so close to collapse and why no-one has been prosecuted for causing such devastation across the whole world.

There are several reasons for this. Firstly, very few of these people have committed actual crimes under existing national or international law: endangering the international financial system isn't currently a crime, so unless there is evidence of actual fraud there is no basis for prosecuting these people. Secondly, there is no independent international body capable of conducting such an investigation or prosecuting the culprits. Thirdly, there is insufficient understanding of the global nature of the crisis. People still talk as if the banking collapse was in "their" country: so, for example, they will call for a UK enquiry into the collapse of Northern Rock, HBOS and RBS, without seeing that these need to be examined in the context of a worldwide catastrophic collapse of retail and investment banking.

And yet within the last century the international community, horrified by what was done, did create an international body capable of prosecuting people for crimes that previously had never been imagined. I refer, of course, to the Nuremberg trials after World War II, and the subsequent creation of the International Criminal Court. We have not had a war, and in no way can the financial crisis be regarded as repeating the horrors of the Holocaust. But the devastation that was caused in the financial crisis has nevertheless wrecked lives and communities, and we are nowhere near recovering from it yet. It seems appropriate to regard what was done as similar to war crimes.

So I would like to propose the following:

  • The creation of a new international crime of "endangering the global financial system and/or seeking to profit from its collapse"
  • An international body under the aegis of the United Nations to identify those principally responsible for the 2008 financial crisis and where appropriate to bring prosecutions against them in the International Criminal Court
  • The establishment of a permanent international overseeing body for the global financial system, with powers to call to account, and if necessary bring prosecutions against, the management of systemically-important institutions who act recklessly in pursuit of individual or corporate profit.  

I realise that this would involve nations voluntarily surrendering some control of institutions that they consider their own. It would particularly be an issue for the US and UK, I think. But in the interests of peace, nations have already surrendered the right to bring to justice war criminals themselves. Surely it is now time that nations surrendered the right to control financial institutions that, if mismanaged, can endanger the economy of the entire world?

UPDATE. I should make it clear there that the problem as I see it is that finance is an international industry, but there is no international body capable of regulating it or bringing to account those who endanger it.  The Nuremberg trials were criticised for the fact that they prosecuted people for crimes that did not exist in law at the time they were committed. This is a reasonable criticism, and it may be that it would not be appropriate to attempt to prosecute those responsible for the 2008 crisis. But we should look firstly to investigate how the crisis happened, how it was managed and what we can learn from it for the future: this should be done impartially and from an international perspective. Secondly, we should look to put in place international laws and institutions to deal with these problems in the future. National laws and institutions are inadequate.

Comments

  1. I agree.

    I can think of nothing short of total war, pandemic disease or a massive rise in sea level that can do more damage than has been done.

    The reckless gambling was in fact an economic crime - shades I know of Kafka or ex-Communist bloc justice. But as such I regard just a few people as guilty of economic crime.

    While it would be better done internationally as you suggest, it is also clear that both sterling and the Euro have been put at significant risk. In the Euro's case, you would have to include the architects of course.

    These activities are in my view treasonable and people should be charged within those currency areas. I don't think the dollar was so much at risk - the American economy has in some part recovered although that may be because of better stewardship.

    The Nuremberg parallel is interesting because I don't think the Nazi actions were considered to be against international law as it stood in 1942 or whenever - the actions were just unthinkable.

    So there is no reason why the actions of some people who don't appear to have committed any crime at the time should not lead to prosecutions now.

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  2. Brilliant idea Frances. We would have to shame our governments into agreeing to this though, public pressure will ensure they will be dragged kicking and screaming into the process, as most of them will be possibly in the frame.

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  3. A financial Nuremburg is a nice idea, but I don’t see it working. Reason is that banks get their way by gradually nibbling away at regulations. Plus they sometimes manage to get big chunks of regulations removed, like Glass-Steagall.

    And this watering down of regulations is all done with the agreement of regulators. I.e. it’s all perfectly legal. So I don’t see what you can charge bank executives with.

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    1. Ralph, you've missed the point. This isn't another "bash the bankers" idea. I did not limit this to bank executives. I included regulators, politicians, auditors, politicians, central bankers and anyone else who could be considered complicit. I also suggested that there should be a new international crime or crimes, because clearly existing laws are inadequate.

      The problem of course is getting sufficient international consensus and identifying genuinely independent yet knowledgeable people to conduct the investigation.

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  4. Yes, this needs to be done and to make sure it happens every politician should be on a warning that they will be impeached if it doesn't.

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  5. As the World Jewish Conference has pointed out, the tendency in the UK to compare the current crisis to Nazi Germany is very bad taste indeed.

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  6. As the Jewish World Conference has pointed out, the tendency in the UK to compare the current crisis to Nazi Germany is very bad taste indeed.

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    1. I am not comparing the two. In the post I specifically said that the financial crisis was in no way equivalent to the horrors of the Holocaust. Did you not read that bit?

      However, the aftermath of World War II does provide an example of world cooperation to bring people to justice who were guilty of crimes that had not been thought of previously. That is an example that could be followed again in my view.

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    2. By saying that the financial crisis is not as bad as the Holocaust, you are comparing the two, even if you come to the conclusion that the two are in fact not alike... Wouldn't it have sufficed to argue for an international court to deal with these matters withut reference to the Nuremberg trials??? There are other examples of international legal cooperation besides the Nuremberg trials... But I suppose mentioning the Holocaust is more of an eye-catcher. And yes, I think such attention seeking is very bad taste indeed.

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    3. You are a tad oversensitive, I think. Can I suggest you get that chip off your shoulder and consider my proposal on its merits?

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    4. Indeed, contamporary documentary has made me sensitive. Enough said.

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    5. Frances, while I completely disagree with your prescription here I see the logic behind your decision to make this comparision and I know you mean well by it. However, I don't think it is helpful to add to the noise already coming from ignorant columnists (take Medhi Hasan) that is not going down very well with some of our European friends. I also don't think the domestic audience needs any encouragement with their, frankly tiresome, hysterical ranting over bankers (let alone their exceedingly boring 'tax avoidance' campaign)!

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    6. "Hysterical ranting" and "exceedingly boring" are your personal value judgments, not reasoned arguments. If you think that there is nothing wrong with the banking system, and nothing wrong with tax avoidance on the part of the super-rich at a time when demand for food parcels is rising, then try to make your case using reason. You do not make it by uttering pejoratives.

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    7. DocRichard, I did not make a case I said the domestic audience needs no encouragement. Do you believe that people don't complain about bankers enough? 'Exceedingly boring' is certainly my value judgement: I am exceedingly bored by people going on about tax so-called avoidance. Hysterical ranting I certainly stand by - you just have to look at the 'hang the banker' language people deploy.

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  7. This approach is fundamentally incorrect. It is essentially a political issue - politicians thought they could create a new financial order in which they could have it all while defying capitalist principles. The only way to fix the problem is to replace the politicians with ones who understand their limitations and don't try to defy economic gravity. It's not easy - it's why people join political parties and work hard to get right-thinking people elected.

    The idea that supranational institutions are the answer when they behave as the EU's elite does is simply laughable - just look at Barosso living in denial with his recent comments in Mexico.

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    1. What makes you think that national politics is the way to deal with a global problem?

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    2. Indeed, contemporary documentary has made me sensitive. Enough said.

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    3. National politicians signed themselves up to a supranational project that has brought chaos to the continent and national politicians willed asset price bubbles in the UK and US, helped by a political MPC. Any one country, while not able to isolate itself completely, was able to avoid putting itself in the line of fire for this crisis if the will was there.

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    4. So national politics isn't the answer then - it's the cause of the problem.

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    5. I just said national politicos signing us up with a supranational project was part of the problem so you are imputing that we should get our national politicos to sign us up to a different supranational project?

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    6. Yes, in this case - because the financial industry is ALREADY supranational. National govts can't control it, and national laws and regulations simply give opportunity for arbitrage - as we are already seeing between the US and UK. The half-baked Euro is not a fair comparison, frankly. It was unnecessary, badly designed, and abused from the start.

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    7. The trouble with saying the Euro is exceptional is that you are putting your faith in an unknown of even greater magnitude - I cannot see where you can get the confidence that this can work.

      Arbitrage in regulation is good as long as failure is permitted (it keeps risk in private realm). The City benefitted from Sarbox overkill in US but it wasn't the lack of Sarbox that caused the '08+ crisis over here and certainly Clinton-era policies reinforced US housing bubble thus illustrating my point that governments merely reinforce cycles.

      Then take FTT - something which I think you know cannot help - this is an EU proposal likely to make things worse rather than better. Not as many EU states want it as have implicitly signed up for it because of the herd (lemming) mentality - they are scared of being different. This does not bode well for international oversight.

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  8. Boom followed by bust is inherent to capitalism. How do you legislate against irrational exuberance? It will happen again in a different form one lifetime form now.

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    1. Difficult, I agree. But there were examples of ridiculous excess in the run-up to this financial crisis that I think could be controlled by legislation. Not all "busts" involve near-collapse of the financial system.

      We don't know enough about the interaction of the various economic components. I read some research recently that looked at the effect on the financial cycle (which is different from the business cycle) of inflation targeting. There is some evidence that inflation targeting unaccompanied by management of other measures as well changes the profile of the financial cycle wave - lengthens the period and increases the amplitude. In other words, financial crisis occur less frequently, but when they do they are worse. More research needed on this I think, and as there is so little real-world data I fear some mathematical modelling using invented data might be necessary.

      This post is a straw man, obviously. I'm quite prepared to be talked down. Let's get some discussion going!

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  10. "The creation of a new international crime of "endangering the global financial system and/or seeking to profit from its collapse""

    This is logically inconsistent. An institution that endangers the system has to be long too much systemic risk, whereas an institution that is short systemic risk would be seeking to 'profit from collapse'. Even though the latter offsets the risks to the system of the former, as well as being crucial for the market to function.

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  11. In my book the fact that the financial institutions have been allowed to create money from thin air is fraud which makes governments complicite by permitting them to do so.

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