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Perhaps most amazing is many people's apparent assumption that banks would never engage in this kind of behavior. It seems the most cynical predictions and exp

by leot 14y ago

Perhaps most amazing is many people's apparent assumption that banks would never engage in this kind of behavior. It seems the most cynical predictions and explanations of large bank behavior are likely to be the ones closest to the truth.

tedunangst 14y ago
There are people who think three bid systems actually work? Everyone I've ever talked to about three bid systems knows they mostly exist to give a faint dusting of propriety to the fact that somehow the mayor's brother in law is always the guy winning the contract. Are there roads in your town? Do you think they were paved by the honest lowest bidder?
- brazzy 14y ago
  Do you have a link that explains what exactly a "three bid system" is? The top hit on Google for the term describes a card game...
  - grabeh 14y ago
    My understanding is that it is simply a closed bid system where three separate banks submit bids (interest rate that will pay on sums invested with them) with the highest one winning.
  - tedunangst 14y ago
    In general, you want to buy something. You have to get a quote from at least three vendors, then you pick the lowest. For contracts, like to build something, paint city hall, whatever, you solicit bids by publishing a notice in the local paper. Usually the bids are sealed, which "guarantees" people make a fair bid without undercutting their competitor by a dollar.
- SideburnsOfDoom 14y ago
  What are you trying to say? The argument that "everyone knows it's crooked" does not make it legal. It does not make a prosecution impossible.
  - tedunangst 14y ago
    Of all the ways that municipalities and hospitals and whatnot get cheated, banks skimming a little interest is among the least interesting. What would have been interesting is a nice shiny pie chart showing where all the graft goes, but that would relegate this particular scandal to a sideshow.
    - SideburnsOfDoom 14y ago
      "least interesting" or "smallest amount of money" ? They're not necessarily the same. In the article, Matt Taibbi says it's "a business worth $3.7 trillion". A few percentage points of that is still interesting amounts.
- jbooth 14y ago
  You're pretty far off, here. I used to be in an elected position and would sign off on stuff like this. The "lowest bid" thing does actually tend to be enforced, at least where I was, and it was a huge pain in our butt for totally different reasons. You're presuming that every deal is a gladhanded corruption thing. Sometimes, but not most of the time. Often we would know what we wanted, have a good deal for it, it's not a very significant purchase (like a $500 piece of equipment or somethign), but we have to spend hours of employees' time getting ahold of 3 options so that we can get the one we were going to get anyways. The way worse situation is on big ticket items, like your example of roads or other big capital projects. Where I was they are actually done by the lowest bidder, by law. But we'd wind up paying way more than that, because in order to become the "lowest bidder", the contractor would have to unrealistically underbid and then run way over on the contract. At that point, we'd be screwed and it's usually a better idea to pay a little more to finish the project than to sue and have a half-finished project sitting there while you burn 6-7 figures on legal bills. Contractors with the professional integrity to give an honest estimate were unlikely to get the gig, because of the lowest bid law.
  - tedunangst 14y ago
    The lowest (or highest, in this case) bid was also enforced in this case. I totally agree with your point about small purchases, I've also dealt with it in the situation where you could walk down to Staples and buy something for $200, but we'd spend $300 because that was the best offer from an approved vendor.
  - newman314 14y ago
    Any reason not to do an open bid instead? Also, I'm more familiar with commercial than federal contracts. Did your contracts have not-to-exceed clauses or any penalties built in to manage overrun issues?
    - tedunangst 14y ago
      If I bid $100 and you see it, you can bid $99 and win. The theory is that if you can't see my bid, you'll bid $80 instead because you don't know how low to go.
kahawe 14y ago
> Perhaps most amazing is many people's apparent assumption that banks would never engage in this kind of behavior. I was sort-of witness to a shouting match between a well educated son and his hard-working working-class rest of the family over the fact that banks give out let's say ~ten times as much as they actually have. They called him stupid, outrageous and how could any company possibly do this and they can certainly not run their small wood-shops and small companies like that so how should a bank be able to do that? Mind you, these are average good natured law abiding folks, the kind that certainly is the majority of the population. This goes to show that there certainly is a vast amount of blind trust in banks in the average population; looks like acting all serious-business and putting on a suit AND being able to control or at least have an important stake in a lot of major aspects of working-class citizens' lives (tight budgets, making ends meet) makes for a powerful combination.
- mjwalshe 14y ago
  But presumably these "working class" peopel had a morgage that is highly leveraged - did they not see the diference?
  - 16s 14y ago
    33% (or slightly more) of homeowners have no mortgage at all. Edit - Some sources: http://www.ritholtz.com/blog/2012/04/debunking-the-housing-recovery-story-part-1-of-5/ http://www.ritholtz.com/blog/2012/04/debunking-the-housing-r... http://www.irishexaminer.com/ireland/kfsneyqlidgb/rss2/ http://www.irishexaminer.com/ireland/kfsneyqlidgb/rss2/
    - mjwalshe 14y ago
      Well don't forget that in the USA housing is reltivly cheap.
      - mjwalshe 14y ago
        Realy moded down try looking at house prices in London compared to SV before you pull the trigger
lolcraft 14y ago
Well, the defendants also admitted doing all this, but still didn't though there was anything wrong about it because they were expert investment bankers. That's quite amazing too.
dkarl 14y ago
It's because we don't feel comfortable telling people who wear suits and ties and working in high-rises that they're going to jail because they followed the prevailing ethics in their neigborhood. We have no problem sending black people or sweaty guys with ethnic names to jail just because they were joiners who went blindly along with the prevailing social mores in their social group, but we only send investment bankers to jail if we can prove they knowingly sunk lower than other investment bankers. We allow the Wall Street subculture to set the standard for its own behavior, and we consider that the desired normal state of things. Instead of reluctantly intervening to "send a message" once in a while when the corruption becomes too egregious to ignore, we should recognize that the complexity and lucrativeness of the finance industry makes Wall Street a natural locus of crime that requires constant attention. Just like a bad neighborhood or a bus station bathroom. That means we need a proactive and well-funded SEC, of course.

by leot 14y ago

tedunangst 14y ago

There are people who think three bid systems actually work? Everyone I've ever talked to about three bid systems knows they mostly exist to give a faint dusting of propriety to the fact that somehow the mayor's brother in law is always the guy winning the contract. Are there roads in your town? Do you think they were paved by the honest lowest bidder?

brazzy 14y ago
Do you have a link that explains what exactly a "three bid system" is? The top hit on Google for the term describes a card game...
- grabeh 14y ago
  My understanding is that it is simply a closed bid system where three separate banks submit bids (interest rate that will pay on sums invested with them) with the highest one winning.
- tedunangst 14y ago
  In general, you want to buy something. You have to get a quote from at least three vendors, then you pick the lowest. For contracts, like to build something, paint city hall, whatever, you solicit bids by publishing a notice in the local paper. Usually the bids are sealed, which "guarantees" people make a fair bid without undercutting their competitor by a dollar.
SideburnsOfDoom 14y ago
What are you trying to say? The argument that "everyone knows it's crooked" does not make it legal. It does not make a prosecution impossible.
- tedunangst 14y ago
  Of all the ways that municipalities and hospitals and whatnot get cheated, banks skimming a little interest is among the least interesting. What would have been interesting is a nice shiny pie chart showing where all the graft goes, but that would relegate this particular scandal to a sideshow.
  - SideburnsOfDoom 14y ago
    "least interesting" or "smallest amount of money" ? They're not necessarily the same. In the article, Matt Taibbi says it's "a business worth $3.7 trillion". A few percentage points of that is still interesting amounts.
jbooth 14y ago
You're pretty far off, here. I used to be in an elected position and would sign off on stuff like this. The "lowest bid" thing does actually tend to be enforced, at least where I was, and it was a huge pain in our butt for totally different reasons. You're presuming that every deal is a gladhanded corruption thing. Sometimes, but not most of the time. Often we would know what we wanted, have a good deal for it, it's not a very significant purchase (like a $500 piece of equipment or somethign), but we have to spend hours of employees' time getting ahold of 3 options so that we can get the one we were going to get anyways. The way worse situation is on big ticket items, like your example of roads or other big capital projects. Where I was they are actually done by the lowest bidder, by law. But we'd wind up paying way more than that, because in order to become the "lowest bidder", the contractor would have to unrealistically underbid and then run way over on the contract. At that point, we'd be screwed and it's usually a better idea to pay a little more to finish the project than to sue and have a half-finished project sitting there while you burn 6-7 figures on legal bills. Contractors with the professional integrity to give an honest estimate were unlikely to get the gig, because of the lowest bid law.
- tedunangst 14y ago
  The lowest (or highest, in this case) bid was also enforced in this case. I totally agree with your point about small purchases, I've also dealt with it in the situation where you could walk down to Staples and buy something for $200, but we'd spend $300 because that was the best offer from an approved vendor.
- newman314 14y ago
  Any reason not to do an open bid instead? Also, I'm more familiar with commercial than federal contracts. Did your contracts have not-to-exceed clauses or any penalties built in to manage overrun issues?
  - tedunangst 14y ago
    If I bid $100 and you see it, you can bid $99 and win. The theory is that if you can't see my bid, you'll bid $80 instead because you don't know how low to go.

kahawe 14y ago

> Perhaps most amazing is many people's apparent assumption that banks would never engage in this kind of behavior. I was sort-of witness to a shouting match between a well educated son and his hard-working working-class rest of the family over the fact that banks give out let's say ~ten times as much as they actually have. They called him stupid, outrageous and how could any company possibly do this and they can certainly not run their small wood-shops and small companies like that so how should a bank be able to do that? Mind you, these are average good natured law abiding folks, the kind that certainly is the majority of the population. This goes to show that there certainly is a vast amount of blind trust in banks in the average population; looks like acting all serious-business and putting on a suit AND being able to control or at least have an important stake in a lot of major aspects of working-class citizens' lives (tight budgets, making ends meet) makes for a powerful combination.

mjwalshe 14y ago
But presumably these "working class" peopel had a morgage that is highly leveraged - did they not see the diference?
- 16s 14y ago
  33% (or slightly more) of homeowners have no mortgage at all. Edit - Some sources: http://www.ritholtz.com/blog/2012/04/debunking-the-housing-recovery-story-part-1-of-5/ http://www.ritholtz.com/blog/2012/04/debunking-the-housing-r... http://www.irishexaminer.com/ireland/kfsneyqlidgb/rss2/ http://www.irishexaminer.com/ireland/kfsneyqlidgb/rss2/
  - mjwalshe 14y ago
    Well don't forget that in the USA housing is reltivly cheap.
    - mjwalshe 14y ago
      Realy moded down try looking at house prices in London compared to SV before you pull the trigger

lolcraft 14y ago

Well, the defendants also admitted doing all this, but still didn't though there was anything wrong about it because they were expert investment bankers. That's quite amazing too.

dkarl 14y ago

It's because we don't feel comfortable telling people who wear suits and ties and working in high-rises that they're going to jail because they followed the prevailing ethics in their neigborhood. We have no problem sending black people or sweaty guys with ethnic names to jail just because they were joiners who went blindly along with the prevailing social mores in their social group, but we only send investment bankers to jail if we can prove they knowingly sunk lower than other investment bankers. We allow the Wall Street subculture to set the standard for its own behavior, and we consider that the desired normal state of things. Instead of reluctantly intervening to "send a message" once in a while when the corruption becomes too egregious to ignore, we should recognize that the complexity and lucrativeness of the finance industry makes Wall Street a natural locus of crime that requires constant attention. Just like a bad neighborhood or a bus station bathroom. That means we need a proactive and well-funded SEC, of course.