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>"It's very hard to police a world wide distributed teams, who have many conflicting views, all of who get paid based on what they produce and don't have much long term incentive to see things any other way."

Why is this hard for management to police their own departments? Other industries manage distributed teams just fine. I agree with your other points in that passage.

The real issues is that there exists a culture a criminality with little little fear of consequences. jail. The only way that's going to change is to start holding individuals accountable.

>"I mean, in this case even the risk team singed off on it. What more could a CEO do?"

Verify? These CEOs have insane compensation packages. They make more in a year than most people will in a lifetime. When questions about their insane pay packages arise, the party line always seems to be that they are worth it because they are "that good."

If they are that good then more should be expected of them. They should be conducting independent audits - "trust by verify" or do some innovating in the area of compliance. Their M.O. is always to blame someone else, the buck never stops with them.

Companies don't want to police their own departments. This is how lots of modern companies deal with laws they don't like. They commit to obeying the law, tell everybody not to do anything illegal, but at the same time place requirements and expectations on the peons that force them to break the law. Then the peons get caught, they tell everybody how it's not their fault, they told everyone not to do that. The peons get fired or worse, the company hires replacements, tells them not to break the law, gives them unrealistic expectations, and the cycle repeats.

The leaders need an incentive to ensure the law is followed.

How do you incentivize "produce less goods/generate less profit"[1]? That's a genuine question. We can barely de-incentivize flat-out criminal behavior. The line between malice and negligence is a tenuous at best. DA's feel lucky when they get a Grand Jury to indict which almost always results in a plea bargain being offered by the State, accepted by the indicted, and stamped on through by the Judge hearing the case.

Auditors were supposed to make sure books were GAAP-compliant. That was their entire job. Even they can't/won't keep up (RIP Arthur Anderson). And that whole "you have to file an 8-K with teh SECevery 3 months with the SEC" is limited to publicly traded financial institutions within the United States[2].

To make an analogy, the law can barely keep up with tech (see: amorphous definitions of 'data collection', 'meta-data', is your cryptographic keyphrase protected as a fifth amendment right, is PGP a "munition"?[3]). Financial markets are innovating at just as quickly a rate as we are.

So, in a modern day, how do we prevent 'cooking the books'? I assert that the problem is lack of transparency. Here's an idea that probably has many major issues as I haven't ruminated on it at all, but let me give it a shot: require all transaction data[4] to be independently audited by any stakeholder at any time. As a stakeholder who is keeping my retirement money with this institution I'm highly motivated to ensure that whoever is managing my money is doing so in what I deem to be a proper fashion. Access to their books (obviously with the account information/PII scrubbed), maybe after a business week of buffer time (to allow for some padding for any tactical content that may be in the current positions) should be perhaps be made available.

My second assertion is this will not only keeps the institution obligated to be 'honest' with their reporting as obligated to their stakeholders, but has an auxiliary benefit of incentivizing their competitors to act as very motivated auditors as they scrutinize their competitors books to uncover any malfeasance.

Since regulatory bodies can't keep up, _ensure that all actors within the market actively keep each other honest_. Sure, they can collude but collusion is far easier to detect and prosecute than internal book manipulation.

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[1] Subsidizes to under-produce (big agri. and the like) notwithstanding

[2] There's nothing preventing a pension fund to go take all of GM's money and put it into a private hedge fund, throwing tons of money at a PE firm, becoming a large stake holder in a real estate investment group, or throw their money into any sort of 'unconventional financial entity'. None of these have public reporting obligations, and their federal obligations are limited to tax entities ,co-operating with FINRA, and (if they are using instruments which fall under the regulatory domain of the SEC, then also) the SEC.

[3] https://en.wikipedia.org/wiki/Export_of_cryptography_from_th...

[4] Both internal and external-- you can do a lot with cost center accounting between arms of an MNC to misrepresent things

You could incentivise more people to audit their banks by eliminating deposit insurance.

Been there done that bought the Great Depression.

The US deposit insurance via FDIC was created close to the start of the Great Depression and did _not_ prevent the rest of it.

For something that did stabilize economies, see eg the Canadian free banking experience in the 19th century (https://www.alt-m.org/2015/08/08/thats-right-famously-sound-...), or the Scottish or Australian free banking eras.

What made the depression Great were eg FDR's high wage policies, and the American Feds tight money.

> How do you incentivize "produce less goods/generate less profit"[1]?

Simple, you make the fines bigger.

Until the fines become an existential threat to the company, the fines are too small.

Once the fines actually start impacting the returns, everybody inside the company will start paying more attention.

Well... Not really. The company going bankrupt doesn't really motivate the worker bee... His downside is limited to his potential bonus for this year.

The idea being that the companies that survive will be the ones that happen to have effective systems that incentivise law abiding behavior.

Wow I was downvoted for saying that management needs to be held accountable for criminality?

The cycle repeats because there is no disincentive to stop it. How many people went to jail after the 2008 crisis? I think you could count them on one hand and still not use all you fingers. Nobody will go to jail for Wells Fargo fraud either.

Downvotes happen. Maybe someone fat fingered. Maybe someone doesn't like you because of a different post. No point in dwelling on it, and in any event often enough it swings back later.

Gotta give everyone their fresh, daily dose of self doubt.

> Nobody will go to jail for Wells Fargo fraud either.

True. Also remember many people who tried to bowl a whistle on the fraud can't now get employed in the banking because Wells Fargo blacklisted them...

Like "self-employed" package deliverers. Many of them only can get their workload done by constantly breaking speed limits.

This is the unspoken foundation of the "sharing economy". You get a big pool of individual actors to make exchanges with each other in a marketplace like the ones provided by Uber, TaskRabbit, etc.

The market takes its little cut of every transaction, but takes zero percent of the risk. That's all passed on to the individual participants.

Car break down? Not Uber's fault. Get hit by a drunk driver? Lyft don't care. Have an allergic reaction to your latex gloves? Doesn't have anything to do with TaskRabbit as far as they're concerned.

a good analysis. Would be great to take a look at how much of the cost saving is actually reduced interaction with externalities that are now costed out or left to the final-service-provider instead of the "platform.

The core of the challenge is our measuring stick --- money --- is a too-aggressively lossy transaction representation system, yet it is press-ganged into use as such when it really should only ever represent just the money itself instead of all the imputed characteristics ascribed to it by current mainstream economic thought. All sorts of desirable information by involved parties is detached from the money when the transaction completes, and we currently have very incomplete mechanisms and highly fragmented platforms for conveying that information.

Taking this down to a more concrete level, if every transaction and popular properties in a market were recorded and undoxx-ably published blockchain-style, then market actors who try to externalize costs will find those properties they are externalizing upon others added to the system, and their activity shunned more quickly. Much rent-seeking and externalizing behavior today in businesses (especially gig economy-pitch-based businesses) relies upon a great deal of extreme asymmetric information postures between the parties, possible because of the much more complex information ecosystem we operate in as economic actors today.

Trading is an information war where the only edge you can get is through asymmetric information about the deals and the products/services (violence being a special case). I wonder what trade would look like with a complete transparent process.

People legitimately disagree about value. Investment horizon is a large factor. Two teams can do the opposite side of a trade and both profit on different horizons. Usually the agreement or disagreement is statistical, executed by a program in small fractions of a second. There is almost always some noise involved at the exchange, sometimes even some intentional randomness. It's not the same as getting people talk to each other about a project.

Lets review the claims I was responding to:

"Deutsche has paid more than $9 billion in further fines and settlements related to claims of tax evasion; violating sanctions against Iran, Libya, Syria, Myanmar, and Sudan; rigging the $300 trillion Libor market'

None of these are a byproduct of programatic trading.

And neither was this case. It was about one single dodgy trade

>If they are that good then more should be expected of them. They should be conducting independent audits - "trust by verify" or do some innovating in the area of compliance. Their M.O. is always to blame someone else, the buck never stops with them.

Isn't that a little extreme? $500MM sounds like a butt ton of money to you and I, but Deutsche Bank has over $800B aum. To successfully audit $800B in assets a year he'd need to look at almost $2.2B of deals a day, assuming there's 0 fluctuation in earnings per day. Then he'd have to no time for figuring out what units are the most profitable and growing those business. He'd spend 100% of his time assessing risk, kind of like that department he hires to handle risk assessments. Even if he spent an hour a day doing random spot checks of deals, their are so many sour ones to clean ones that it'd almost be a waste of time.

The person bearing overall responsibility to appoint the right people to build a system of internal controls that can audit whatever volume of trade they are doing. In this case it seems that the top people knew all about this trade and it is clear that the accounting treatment of a trade that spreads a loss into the future would be 'fair value'. IE 0. So if the courts find that this actually happened then of course the execs are culpable.

> in this case even the risk team singed off on it. What more could a CEO do.

This doesn't seem like a valid excuse. The risk team will just tell you the probability of being fined at various levels. If the risk team tells you "there's only a 0.1% chance you will get caught for this murder" and then you get caught murdering someone you can't just say "but the risk team said I probably wouldn't get caught!"

The laws have gotten increasingly vague, and enforcement increasingly discretionary, so you never know which rule (if any) will be applied to what action. As such, no one can guarantee that any action is 'legal', so the risk team will always say there is a 1-10% chance of being fined/prosecuted.

These enforcement actions have become an unavoidable cost of doing business.

>These enforcement actions have become an unavoidable cost of doing business.

I don't know if we realize the gravity of that statement.

The current environment rewards companies who take these sorts of actions. A bank that did not take these actions would be out-competed.

We want a world where people "deserve" the things they have/can-do; but I don't think we will ever get close to that (we sure can try tho)

It happens the same way in an individual level; the "wolf of wall street" (Jordan Belfortm) did a lot of illegal things; but despite being found guilty and forced to pay fines he is still better off for having done them (~10M offshore money and book/movie money among others).

Heck, it even happens in social interactions, for example kissing a random woman in the street without asking can give someone jail time (sexual harassment and what not) but if he is lucky she may fall for that; they may even get married later on.

I don't think the kiss example is a good comparison because if you go to jail you gain nothing, whereas banksters do.

Is it really so much that the current environment rewards companies that take regulatory risks, or that regulatory risks are so pervasive you can't do business without them?

There is some risk of harm of bad dealing at almost every level, but we try to pay attention to the people with the most financial power because they have the greatest ability to do harm. And of course the more incentive there is to subvert the laws. Probably any simple view of this issue is wrong.

I lead a department at a medium sized global business. I recently approached our internal counsel and external specialists about day to day legal issues my team encounters. I wanted to know: Can, Can't, Should, Shouldn't. All I got was a statistical probability of getting in trouble and a summary that stated do whatever, the chances of getting caught and the chances of that even mattering are nil. Better off doing what makes you most effective, even if that entails breaking the law.

When you look at it clinically it makes sense. Quite the slippery slope.

Everyone does the same thing in their personal lives.

"% chance of getting in trouble if I punch this asshole in the face?"

"% chance of getting a speeding ticket if I go 15 above?"

The financial instruments have become so complicated that I think the laws need to be vague to ensure that there is power to do something if an investigation happens.

At the same time there is complaints about how complicated the tax codes have become.

At some level you have to trust your people to make money and do it without breaking the laws of every country you do business in, even if those laws can conflict.

I have the sense that in many of these cases, the laws actually don't conflict. That is, they did things that are illegal in every country they do business in, and that's without even touching SarbOx.

You have an accurate assessment. It is the prisoner's dilemma problem: Do what others are doing & do it first. Or have them do it get, bet bigger and acquire you, and you'll end up doing it anyway.