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Jim Armitage: This tale of corruption and greed should be an election issue in US

  • @ArmitageJim

Global Outlook General Electric is one of those companies that touch our lives from the moment we wake to the moment we turn in. And then it's present while we sleep as well.

From wind turbines generating electricity, to lighting, to power distribution, you just cannot escape this behemoth. As such, it's a true barometer of the economy.

Its figures for the third quarter were predictably poor as it fessed up to flagging sales of many of its product lines around the world. Now, you may say: "No doo-doo, Sherlock." The economy's flagging all over the joint – even in China and Brazil. How on earth can GE not be feeling the pain?

But, as is the way of these things, Wall Street's jaw dropped in astonishment and the shares tumbled. They didn't do a Google, you understand, but they dropped a good 2 per cent in afternoon trade.

"We did expect some messiness in the numbers," said a disappointed Sanford C Bernstein analyst Steven Winoker. "But we thought GE would find a way to pull out all the stops and beat estimates."

Unfortunately, the only way to really pull off a stellar set of growth figures for a diverse conglomerate like GE in these markets is by that tried and tested business plan: steal some stuff.

There's no sign of that kind of behaviour in GE today – hence an honest set of slightly weak numbers. But a court case that just wound up in New York showed how some of its staff were perfectly willing and capable of bending the law to boost its earnings back in the heady days before the financial crisis.

Three former bankers from its finance unit were jailed on Thursday for up to four years for effectively nicking money from taxpayers in the municipal bond market.

Muni bonds are debts issued by states and local councils across the country. When a council issues bonds, it doesn't spend the cash all at once. So it invests the spare money until it needs it, hopefully clawing back some of the cost of the original bond by lending at interest.

They hire brokers to find the best return on the money from the likes of UBS and JP Morgan, who line up to compete with the best interest rate. Except in this case the banks lined up to bid only after having agreed with each other beforehand who would bid what price. In other words, a good old price-fixing cartel was under way. The result was simple: big profits for the banks and a rip-off for taxpayers, who ended up shelling out way over the odds for their local authority's financing costs.

Only three GE staff were jailed this week, but the scam is far bigger. A total of 19 people and one company have been convicted or pleaded guilty so far as the government investigates municipal bond trading. Similar charges to those against the GE mob saw three former UBS bankers convicted in August.

In the GE case, the trio were paying kickbacks to brokers to solicit bids, win auctions and, of course, increase their profits.

According to the government's claims, this scam was going on for nearly seven years. GE, JP Morgan, UBS and Wells Fargo have all admitted illegal activities by former employees and paid more than $670m (£418m) in penalties and compensation.

Given the sheer scale of this scam, it seems remarkable that it isn't a major election issue. Here you have a whole bunch of bankers who were able to rip off provincial state bureaucrats with their fast and loose ways.

As US district judge Harold Baer said when he imposed the sentences "Corruption and greed certainly is what this case was about."

If I were on the stump in the US right now, I'd be asking: where are the checks and balances to stop this happening again? Was it really only 20 or so employees who were culpable? How far up the chain of command did the punishments go?

This is a major, systemic scandal of the order of the Libor-fixing outrage, but with a key difference: the Libor culprits nudged rates up some days and down on others. So it's nigh on impossible to count yourself a victim or a winner. With muni bonds, the public lost out on every trade.

It is a story that deserves far closer attention than it has received.