Even in the best of times, there is no shortage of financial scandals. In hard times, the production of scandals often seems like the only industry that's growing. No doubt some of this owes both to a media fixation on finance when the economy hits ruts, and the resulting pressure for finger pointing - preferably in a 30 second sound bite or less. In this article we'll look at the financial scandals that caught our attention in 2010. (For more, see Scandals That Bring The CEOs Out.)
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The BP Oil Spill
The BP (NYSE:BP) oil spill was far and away the biggest scandal of the year. It is disingenuous to call it a scandal because it suggest BP intentionally blew up its own rigs and killed its own people, but that's how it came off. The complexities of controlling and stemming the flow of oil into the ocean further raised frustration levels as days dragged into weeks and then months. Fortunately, this one is wrapped up, with the exception of pending court battles and ongoing environmental cleanup.
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Toyota and Sticky Parts
A bit of xenophobia crawled into this scandal to help puff it up. Moreover, Toyota (NYSE:TM) had the "gall" to suggest that driver error played a part in the uncontrolled acceleration issue. In the end, this proved to be largely the case. That said, Toyota was in a tough position from the start. Its accuser and judge was, at the time, the owner of the second largest competitor to the company and coming under pressure to stop the loss of jobs overseas. The fact that many parts (and entire cars) were made in U.S. factories by U.S. workers did complicate the matter, but dragging the Japanese CEO in front of a panel helped brush those concerns under the rug. Since then, much less popular stories have cropped up outlining some of the disproportionate and outright dishonest coverage Toyota faced over the recall. Better late than never, but you can ask Audi whether consumers have a better memory for accusations or retractions. (To learn more, see Analyzing Auto Stocks.)
The Banking Sector
Evidence would suggest that most banks have somehow mastered time travel and brought Marie Antoinette to act as the PR person. As Antoinette is supposed to have addressed the problem of starving masses with, "let them eat cake," so have the banks dropped the ball as per the Great Recession - eating cake paid for by taxpayer dollars.
Bank bonuses and pay dominated headlines until Europe began falling apart. Making matters worse, the Fed finally released some TARP data showing who was tapping the piggybank while talking big to media about not needing a bailout. Wall Street has never done humble very well, but 2010 was a particularly bad act. (To learn more, check out The Top 6 U.S. Government Financial Bailouts.)
Of course, Wall Street can't bear all the blame for a mediocre year. If proper timing is the key to making beautiful music, the government is tone deaf. There are times when a nation can decide that it is time to have public funding for large programs. There are even times when unfunded entitlement programs that will burden future generations can be reasonably discussed and decided upon. The middle of a recession already marked with trillions in deficit spending and stimulus is not the time.
The healthcare reform is just one example of the ambitious expansion of government that has, for the most part, passed in 2010. Adding payroll taxes to businesses that are already seeing their margins squeezed is not the way to address high-unemployment because it makes every employee more expensive. The government has made the most of hard times by ramming through initiatives the economy can't afford, and the scope, scale, cost and implications of which not even the legislators fully understand.
On the theme of unsustainable, entitlement-driven governance, Greece, Portugal, Ireland and even England have provided an enlightening example of some possible issues. The Greek debt crises set off a European bailout that will mostly cost the more responsible members of the union. It's a small group - mainly Germany. More significant than the actual numbers is the reaction of the people.
Images of protesters, fires and riot police spooked investors and roiled currency markets as the purity of the euro compared to the easy ways of the dollar was thrown into question. As the recent Irish bailout suggests, trouble in the European Union will not be confined to 2010.
The Bottom Line
Any time a list is compiled with the word "top" in the title, it becomes contentious. It could be "Top 4 Beatles Members" and someone would be outraged that Ringo Starr beat out Pete Best. Many events didn't make the list, and that, unfortunately, is the nature of the beast. A lot of equally newsworthy tales of corporate and government excess get passed over for the ones that are perceived as juicy.
For the latest financial news, see Water Cooler Finance: FBI Insider-Trading Bust.