"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 is finishing up a two-day hearing today 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.
Yesterday, 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.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.