Three big points this case makes:

1. It shows why bankers needed to be jailed in the post-wreckage days of the mortgage meltdown.

2. At a time when people are calling for more transparency in the financial industry, the trend is the opposite: towards less transparency and more lying.

3. The next crisis is just around the corner partly because there is virtually no oversight from the watchdogs–with a few exceptions like Schneiderman (who not only is thankfully my attorney general but, before that, was my state senator–his office was around the corner from me and, when I’d see him in the basement office, I used to toss pebbles at his window, which annoyed the crap out of him).

It shows why bankers needed to be jailed in the post-wreckage days of the mortgage meltdown.

I understand the argument some people make that cases were largely civil cases, not criminal cases, against the misdeeds–but that was partly because of choices prosecutors and the White House and others made not to file criminal cases, using RICO for example, partly for political reasons and partly because those cases can take longer.

You need to remember that Barclays already paid out a fine because it tried to manipulate interest rates in the global LIBOR scandal in which banks were found to be fixing benchmark interest rates. I said, then, the message to these guys is simple: if you do this again, you will not lose your freedom–meaning, go to jail — and you will not even lose your jobs. Indeed, we will help raise your level of mirth, comfort and happiness because, while you sock away more pay and benefits to buy your 3rd or 4th mansion, the SHAREHOLDERS and customers will pay for your misdeeds.

And most, if not all, those cases, never required that the CEO at the top–even if he wasn’t going to go to jail–be forced out of his position, along with the rest of the senior management. That to me was always astonishing.

And, boom, here we go again. It’s deeply felt in the culture. As The Wall Street Journal points out today:

Barclays CEO Antony Jenkins (pictured), who took the helm in August 2012, has been able to pin blame for previous scandals on his predecessors. Not this time. The New York suit alleges that Barclays was still misleading customers about its dark pool well into Mr. Jenkins’s tenure – possibly as recently as spring 2014.

At a time when people are calling for more transparency in the financial industry, the trend is the opposite: towards less transparency and more lying.Reading the complaint brings to mind those kinds of conversations inside these financial institutions that has become all too common: the greed, the arrogance, the lack of ethical behavior.

To wit, from the complaint:

A Vice President responsible for selling the dark pool to clients disputed that explanation, replying to the group that “[m]y point when selling that picture was always:‘here is a snapshot of the participants in[Barclays’ dark pool]as anaccurate view of our pool.’ I was never using it like an ‘illustration’ ” of Barclays capability to monitor the pool. “I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree” (emphasis added)[emphasis in the original]

And, describing a meeting with an unnamed client (referred to as “Institutional Investor”) during which findings would be shown showing that, contrary to Barclays’ claims to its clients, “all client orders were routed to Barclays’ dark pool first”:

In preparation for a meeting with the Institutional Investor to explain these
findings, two senior Directors prepared a PowerPoint presentation that included the results of the trading analysis. Two days before the scheduled meeting, one of those Directors was called into a meeting with senior leadership in the Equities Electronic Trading division, who instructed him not to disclose the findings to the client.According to this Director, “[t]here was no suggestion 24 at that meeting, or at any other point, that the analysis was wrong,” merely that it should not be shared with the client because it reflected poorly on Barclays. Despite the pressure from senior leadership, this Director declined to withhold the findings from Institutional Investor. The next day, and
prior to the scheduled meeting with the Institutional Investor, this Director was fired.

There is much more detail but, basically, there was a pattern of lying and hiding facts–a feature of the culture at Barclays.And, to that bigger point, we all know that one of the real corrosive factors in the mortgage collapse and the broader financial crisis is that banks and trading firms were not transparent, lied, manipulated and mislead investors, regulators and the public.

And it is happening again.

The next crisis is just around the corner partly because there is virtually no oversight from the watchdogs.

And, thus, the final point is: the house is ready to be burned down again. It was never really rebuilt–millions are still out of work, pensions remain devastated and the economy is anemic and sick. But, the boys in the financial industry…it’s as if it never happened.

And they are lighting the matches to burn the house down again.

And, generally speaking, the regulators are way behind, lacking information because the banks are lying and hiding the true nature of “dark pools” and other instruments of financial manipulation, and because the regulators just don’t have the urgency (and, in fairness, the resources, staff-wise and intellectually) needed to take these guys down before it implodes again.

At the end of the complaint, there is one thing worth noting. Schneiderman, under the second cause of action charging “Persistent Fraud and Illegality” invokes the Martin Act. It’s a state law with broad powers for the executive. In this analysis of the Martin Act, here’s a key sentence:

Specific intent to defraud is also not required to support a felony conviction under the Martin Act.[emphasis added]

Thuse, there could eventually be criminal charges. But, at least, as the suit demands, on the relief side “Granting such other relief as may be just and proper”, any settlement, if it is civil, should include the removal of the bank’s top management.Until these guys pays for this criminality with their jobs–if not their freedom–and forfeit the huge pay and benefits they pocket at the expense of the public, nothing will change.

At least, one could outcome, tiny for now, can be rung up [WSJ pay wall]:

Major brokers are shutting down their connections to a dark pool run by Barclays following accusations of fraud against the bank in a lawsuit filed Wednesday by the New York Attorney General, according to people familiar with the matter.Broker-dealers including Deutsche Bank, Royal Bank of Canada  and ITG have removed connections to the dark pool, called Barclays LX, from their routing systems, the people said. In some cases, the decision was a precautionary measure after the lawsuit was filed and in others it was the result of requests from large institutional investors, they said.