Things Really Do Change!!
This is a riff on Matt Taibii's story on Mitt's Venture Capital Adventures and how he got away with it. It has nothing to do with Mitt, but it has everything to do with Eric's balls.
Anyway, here is the story. In 1955, executives of General Electric, Westinghouse and Allis Chalmers got together in a hotel room and divided up the next year's electric turbine business. They would collect all of the upcoming bids and divide them up as follows: GE got 39%, Westinghouse got 35%, and Allis Chalmers got 7%. Little players got the rest. Prices were set for winning bids and for losing bids.
But in 1962, the Feds caught up with the crooks. Forty-five executives from 29 companies were indicted, and seven pleaded guilty and went to jail.
And here is a personal aside: During this period I worked for the Vice President of Marketing for the Atlantic Refining Company in Philadelphia. It was a time of incredible pricing problems. J. Paul Getty had just opened a refinery in Wilmington, Delaware to refine and sell all of his crude from Libya. We were literally paying dealers is some states, North Carolina for one, to sell our gasoline. Weekly VP meetings were full of pricing discussions and schemes.
Now here is the punch line. One of the guys that our VP played bridge with weekly worked for Westinghouse and went to jail!! WOW!! Did our guy ever get the message??? You Bet!! We stopped talking about prices. Message received, Lesson learned!!
O.K., back to the story. It's hard to put an exact price on what this scheme cost Americans like you and me, but it was probably a couple hundred million dollars. Adjust that for inflation and make it $500 million, too high, but O.K.
Now fast forward to 2012. A whole bunch of executives from the largest international banks got caught setting the LIBOR interest rates, a complete fraud. Now LIBOR is extremely complicated but the short strokes is that it is the rate used by banks all around the world to set the rates they charge for every kind of loan, mortgages, credit cards, etc. etc. Did it cost us much? Well here is what this Week's Business Week put it.
"If, for example, under reporting caused the LIBOR to be artificially depressed by 0.1% point for only a few months, payments on more than $300 trillion in mortgages, corporate bonds, and derivatives tied to the benchmark might have fallen short by about $75 billion, or so. If the problem lasted for a few years, the shortfall could be close to $1 trillion."
O.K., you have got the deal. Now here is what is important.
How many bankers have gone to jail over the LIBOR fraud? ZERO!
How many bankers have been indicted over the LIBOR fraud? ZERO!
How many bankers have ever been charged over the LIBOR fraud! ZERO!
Yes, things do change!! But not always for the better!!