On the morning of July 9, a financial executive in Cedar Falls, Iowa, was found near death in his car outside the glittering offices of the firm he'd founded. There was a hose running from the tailpipe back into the passenger compartment, and a note explaining that he'd embezzled more than $100 million from clients.
"I have committed fraud," an anguished Russell Wasendorf Sr. had written, according to authorities. "For this I feel constant and intense guilt."
But Wasendorf, now recovering but facing federal charges of lying to regulators, isn't the only bad actor in his line of work, and what he allegedly stole is peanuts compared to some of the other scandals that have rocked the financial system and all but demolished faith in it. In May the University of Chicago and Northwestern University reported polling data showing that just 22 percent of Americans trust the financial system.
No wonder. First there was the reckless lending of U.S. banks leading up to the financial crisis of 2008, which nearly blew up the global financial system and then threw millions of people out of work. A vast range of U.S. financial firms, including the biggest banks, had to be bailed out by taxpayers. Later it emerged that banks had cut legal corners in foreclosing mortgages, spawning the "robo-signing" scandal.
Then there was Bernie Madoff, who shocked the world with a Ponzi scheme that cheated investors of perhaps $20 billion. Soon enough came the disappearance of $1.6 billion in customer funds at MF Global, a financial firm headed by former New Jersey Gov. Jon Corzine. More recently, there was the London trader at JPMorgan Chase responsible for losses initially put at $2 billion. The figure soon widened to $5.8 billion -- and could reach $7.5 billion when the dust settles, the bank said Friday.
Now there's an international investigation of allegations that some of the biggest banks on both sides of the Atlantic rigged a benchmark interest rate used to set rates for trillions of dollars in lending to consumers, local governments and others. Barclays, a big British bank, has already agreed to pay $450 million in penalties for its role in rigging LIBOR, which stands for London Interbank Offered Rate, and at least 10 American banks reportedly are the subject of a criminal probe. Nassau County alone may have lost several million dollars, based on a quick calculation by its comptroller.
The growing LIBOR scandal is a familiar tale of greed and lies on the part of well-paid financial industry pros, along with lax and fragmented regulation. Central bank officials in this country and Britain could have acted sooner to stop the LIBOR manipulation, which first came to their attention several years ago. Now the scandal is likely to result in a massive tangle of litigation that could prove hugely expensive for banks.
Worse yet is the further toll the scandal is taking on what little faith remains in the financial system. It's imperative that regulators and law enforcement authorities get to the bottom of the rate-rigging mess, hitting the individuals responsible -- not just shareholders -- with stiff penalties and, where warranted, prison. Just as important, it's time for financial leaders to come clean about the mess, do some soul-searching, and act aggressively to restore public confidence.