Many have contacted me of late to herald a rumored criminal probe into the stock lending business.
Here's my take.
This will be the prosecution of some low-level schemers who are costing hedge funds dough, and helping competitors of the big banks.
What it won't be is a massive probe into stock counterfeiting, or into whether the entire market is now predicated on a lie and a sham. It won't target big names, or big companies. It may even target some of the newer stock lending companies who are COMPETING with the big names that own Wall Street - a la Milken getting the pork put to him when he started out-earning the big Wall Street names, and costing them their underwriting business.
Wall Street, for all its rhetoric, despises honest competition. It revels in a tightly-held market where it owns and controls all the pieces. The banks own the town, and the law. Simple. They just put on a nice show to convince the occasional watcher that they are subjects rather than rulers. Most don't question why a Bank of NY or any of the others can launder big money, and yet these for-profit companies aren't held to the same standard that you would be if you tried to launder a couple of hundred grand. Does anyone believe that the 85% of printed hundred dollar bills that aren't in the US got there via legal means, for the most part? Let's examine the possibilities: drug money laundered via US banks exports our inflation via hard currency to the rest of the world, OR all that money is simply stuffed into mattresses by the bad guys, who are stymied by the US' blindingly effective "war on drugs" and all the "anti-money-laundering" provisions that make it reportable for you to withdraw $3K you already paid taxes on, or criminalize your using that cash to buy things.
Which do you think is more likely?
Wall Street doesn't lose, and the banks that run the US financial system are pros when it comes to molding public opinion. When public outcry over Wall Street's larcenous ways reaches a crescendo, it will typically either crash the system, or throw some red herring minor figures to the wolves to create the illusion for the masses that the law is doing its job, and hunting down bad guys.
Russian mob laundering billions through Bank of NY? No executives in cuffs there. $7 billion in money laundering that it admits to, and the two primary execs that facilitated it got 6 months of "home confinement" and had to pay $725K. Big deal. A lot of the Wall Street crowd has had bar bills that big. Russia is suing for $22 billion, and Wall Street-employed analysts are rating the bank a buy, and pooh poohing the suit - apparently there really is no downside to laundering billions and billions for the mob. Why would there be ramifications, or accountability? Why would a for-profit bank be liable for the damage its money laundering caused in lost revenue to Russia? That's crazy talk. If Russia lost billions in tax revenue due to the direct actions of Bank of NY, it isn't their problem.
But I guarantee you, that if a few guys figured out a way to intermediate the stock lending business, and cost any hedge funds who still bother to borrow shares extra money, that Johnny Law will come down on them like they were Martha Stewart. Ditto for anyone foolish enough to be making money that the big banks covet.
So that's my take. Create a distraction to the massive rhino in the room, the delivery failure issue, and instead focus on some minor angle, and make a big to do out of it.
Maybe I'm just too cynical. But one thing I do know is, Wall Street never loses. I'll go with the last 100 years of history, and bet that this time is no different.