A cursory glance at the U.S. financial industry reveals a reputation that is, arguably, damaged beyond repair. This loss of trust isn’t incidental. Indeed, a quick look at recent headlines should solve any remaining mystery as to why our faith in financial institutions has virtually disappeared.
JPMorgan is reeling from the effects of a $6 billion loss related to yet-disclosed trading activity (rumor has it the firm had been betting on a mind-bogglingly complex algorithm involving derivatives on derivatives). The Federal Reserve, the SEC and the FBI are currently investigating the loss, which was deliberately kept secret by the firm for months. Ironically, JPMorgan executives said the catastrophe occurred as the result of a company initiative meant to reduce risky assets in the firm’s portfolio.
Russell Wasendorf Sr., CEO of commodities broker Peregrine Financial Group, made headlines in July when it was discovered he allegedly stole $200 million in funds from his firm’s customers over a 20-year period. During an ensuing FBI probe, the firm filed for bankruptcy protection. A few days later, Wasendorf attempted suicide. He failed, but had the wherewithal to leave a detailed suicide note incriminating himself in a litany of illegal activity.
In June, multinational financial services company Barclays was fined $450 million after it was discovered the firm deliberately lowballed rates set by the London Interbank Offered Rate (Libor), the interest rates by which banks lend each other money. A criminal investigation is currently underway in both Britain and the U.S.
Facebook’s recent IPO fiasco began as one of the most talked-about public offerings in investment history. A computer glitch in the NASDAQ system that accidentally rerouted investor funds, along with months of fevered hype for a grossly overvalued product, caused the social media giant’s share price to plummet to laughable lows, losing more than a quarter of its value in less than a month, with total investors’ losses estimated at $40 billion.
In July, the Senate Permanent Investigations Subcommittee released a 300-plus-page report citing London-based banking and financial services company HSBC of allegedly assisting money laundering for organizations with known terrorist ties. If guilty, HSBC could face a fine as high as $1 billion.
Finally there’s Capital One, which was fined $210 million by the Consumer Financial Protection Bureau for deliberately misleading two million customers by adding a number of products to its line of credit cards. In a hilarious twist or irony, Capital One is currently in negotiations to acquire HSBC’s credit card operations.
Taken together, the U.S. financial industry in 2012 now resembles something like the Mob: Universally nefarious, shamelessly criminal, and in some cases, untouchable.
As a result, U.S. opinion of these free-market reprobates has plummeted. Culturally, Americans have always been strangely tolerant of white-collar criminals. We routinely parrot “tough on crime” maxims for those who commit petty theft or non-violent drug offenses, yet there’s something about our ingrained meritocracy that has a habit of treating someone who stole $20 million as the victim of a trifling moral lapse, simply because the crook wore a suit and tie while committing the deed. But that attitude may be changing.
According to an essay in Public Opinion Quarterly by Lindsay A. Owens, Americans’ perceptions of banks and financial institutions have fallen to all-time lows. Owens studied national polls gauging American attitudes toward financial institutions since 1973, and noted a continued dip in public perception that has really fallen off the precipice in recent years. Between 2006 and 2010 alone, American confidence in banks and financial institutions fell 19 percentage points, to a historic low of 11%. In an October CNN op-ed, Owens concluded “animosity toward Wall Street is at its highest level in at least 40 years.”
Investment banks know their reputation is in the gutter, so they’re now hiring top-shelf PR counsel in a desperate attempt to resurrect their sullied image. Goldman Sachs recently brought on Andrew Williams, former public affairs staffer to Treasury Secretary Tim Geithner, and former Clinton White House Press Secretary Jake Siewert, as part of a massive effort to save the bank’s tattered image.
The question now is: will it do any good? We’ve grown to expect the worst from our financial sector. The question shouldn’t be whether things can get any worse, but whether Wall Street’s attempts to regain our trust will be an effort that came with too little, and much too late.