The Financial Crisis 2 - now in 3d!

In many ways we've learned nothing from this financial crisis - or indeed from any previous one. As a victim of Bernie Madoff, I was particularly enraged to see loathsome sleazy two bit fraudster Azil Nadir crawl out from under his Cypriot rock last week.



Above: A sleazy old pervert.

The above Pervert (Asil Nadir) was a major player in the City in the 1980s and early 1990s. He took a small east London textile firm called Polly Peck, and through a series of takeovers and canny deals he turned it into a serious conglomerate. It owned a slice of the Del Monte fruit canning brand, a majority stake in Japanese electronics company Sansui, and also owned companies making colour televisions and Betamax video recorders.

Wait, Betamax? The man from delmonte, he say, bad investment.

Still, like shoulderpads, hairspray, and movies with volleyball & fighter jets, it was all very, very impressive in the 1980s.



Above: Some things that looked good in the eighties look less good now.

Shareholders flocked in, quicker than you could say "Asset Bubble". If you bought into Polly Peck early enough, say, in the year Top Gun came out, you could turn a £1,000 investment into £1m - a huge return even by the champagne-soaked Square Mile standards of the day.

But to cash in, you had to know when to sell.

The downturn started when Nadir tried, and failed, to take Polly Peck off the FTSE 100 and back into private ownership. The party was really over when the Serious Fraud Office raided the company that ran his family's financial affairs, called South Audley Management. Six weeks later, the administrators had been called in.

The UK authorities moved with their traditional speed, and it was just three short years later that Nadir was facing the prospect of 66 charges of theft and false accounting involving £34 million. Instead, he hopped on a flight to Paris, and was soon in Northern Cyprus - a territory with which Britain does not have an extradition treaty.

There he has stayed. Until last week.

He's now back.

Prosecution lawyers and Serious Fraud Office (SFO) investigators must now trace 183 witnesses, some of whom may have died since Nadir fled. Zillions of documents have to be recovered. In the meantime, he remains on conditional bail under curfew and, despite his lawyers' objections, electronically tagged.

A £250,000 bail security has been deposited with the City of London magistrates, and he must reside at his £20,000-a-month rented Mayfair home, where he is subject to a midnight to 6am curfew. He must report each week to Chelsea police station, and has already surrendered his Turkish and British passports.

I think this is ludicrous. He should be in a cell. Preferably sharing a bunk with a glue sniffing violent delusional transexual rapist. Well, that's not quite fair. And Michael Barrymore isn't in prison anyway.

But the truth is, we definitely shouldn't be letting Nadir keep his house, and generally lord it up while on remand.

Why?

Because fraud is a rational crime. It's not as though you turn around and steal £36 million through a complicated share swapping scheme in a moment of passion. Deterrence works well on rational criminals - especially ones in it for the money, who understand delayed gratification. If you think, well, "even if I get caught, I may only do seven or eight years in what amounts to a poor quality golf-club", then it's not nearly enough of a penalty to make them think twice.

On top of the deterrence factor, we treat white-collar criminals far too well - we as a society do not extract nearly enough retribution from them. The damage they wreak is enormous. The cost isn't in millions of pounds - it's in marriages broken up, houses lost, suicides, failed businesses, misery for thousands. The societal cost is at least as great as for acts like robbery - and robbery carries a minimum 20 year sentence.

Of course, this kind of white collar crime is going on all the time. No, really.

For example, recently JP Morgan won an award for providing the following service:

The process of rehypothecation allows institutions - in many cases hedge fund clients - to extract greater value from their collateral by reusing this collateral elsewhere in the market, increasing liquidity and reducing collateral costs.

Against this backdrop, JPMorgan's forward-thinking Rehypothecation Program stood out, directly addressing market misgivings regarding the practice while simultaneously allowing the practice to be safely extended to the benefit of clients. Winner of both this year's Chair's Choice and Innovation in Custody and Securities Services, JPMorgan Rehypothecation Program supports the multi-asset class, unlimited re-use of collateral.

Yes, unlimited re-use of collateral. Or, in other words, taking out as many loans as you can on a single asset. Disastrous? Short-Sighted? Of course. Sadly, they are unlikely to land up in jail - and lets face it, even if they do, they can probably evade justice as easily as Azil Nadir probably will.

Some people I know said to me recently that they didn't feel we didn't get enough concessions out of the banks during the financial crisis. To them I say, "don't worry - there'll be another one along in a minute".