Thomas Frank: Pity the Billionaires, Marxism for the Master Class

“Ayn Rand's 'philosophy' is nearly perfect in its immorality, which makes the size of her audience all the more ominous and symptomatic as we enter a curious new phase in our society....to justify and extol human greed and egotism.”

Gore Vidal


"It is not Man but nature that raises into one class those who are chiefly intellectual, in another those who are marked by muscular strength and temperament, and in a third those who are distinguished in neither one way or the other, but show only mediocrity -- the last-named represents the great majority, and the first two the select. The superior caste -- I call it the fewest -- has, as the most perfect, the privileges of the few...

The order of castes, the order of rank, simply formulates the supreme law of life itself; the separation of the three types is necessary to the maintenance of society, and to the evolution of higher types, and the highest types -- the inequality of rights is essential to the existence of any rights at all. A right is a privilege. Everyone enjoys the privileges that accord with his state of existence.

Wrong never lies in unequal rights; it lies in the assertion of equal rights."

Friedrich Wilhelm Nietzsche, Der AntiChrist

In light of the recent outcries by billionaire Tom Perkins for fair and loving treatment, I thought it might be interesting to explore the mindset that pictures the doyens of Wall Street, and those who have taken fortunes out of the dot.com and housing bubbles, as the real victims of the financial collapse and The Recovery™.

I think that part of this comes from the phenomenon that for some people, gratitude is their natural response to good fortune, even if it has come from hard work. Whereas others are possessed by a restlessness, an insatiable spirit, and their response to everything is 'I deserve more!.' 

Tom Perkins not only wishes his wealth, and his banal collection of toys, but he wishes to have public adulation as well, or at least the power to compel people to defer to him.

Mr. Frank thinks that this time around the cultural response to a Great Depression is 'backwards,' as compared to that of the 1930's, and one might tend to agree. There certainly has not been the rising of a national sympathy for victims, or a proper outrage at the arrogance and excesses of the financiers.

But this might overlook the fact that the US was a bit of an outlier back then, as only a few countries turned towards progressive reforms, while other developed nations embraced the hardness of totalitarianism, and even went so far as systematically murdering the weak.

But it is a mistake that the US is some sort of paragon, if one recalls John Steinbeck's The Grapes of Wrath. The allure of selfishness and evil is a natural tendency that we overlook in our economic models, among other things. And we certainly ought not overlook the consecration of the country to the principle that 'greed is good,' or more plainly to Mammon, in the latter part of the last century.

I agree with him that Obama has been a pivotal disappointment, and I was interested to hear the reasons why he thought this was so.  Overall I found his perspective to be interesting, as though he was not an American historian and journalist, but some foreign observer sharing an exterior perspective of wonderment.

I have started the tape beyond the introductory remarks and welcomes at this talk he gave in Seattle.

"Do you think he is so unskillful in his craft, as to ask you openly and plainly to join him in his warfare against the truth? No; he offers you baits to tempt you. He promises you civil liberty; he promises you equality; he promises you trade and wealth; he promises you a remission of taxes; he promises you reform.

This is the way in which he conceals from you the kind of work to which he is putting you; he tempts you to rail against your rulers and superiors; he does so himself, and induces you to imitate him; or he promises you illumination, he offers you knowledge, science, philosophy, enlargement of mind. He scoffs at times gone by; he scoffs at every institution which reveres them.

He prompts you what to say, and then listens to you, and praises you, and encourages you. He bids you mount aloft. He shows you how to become as gods. Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."

J.H.Newman, The Times of Antichrist

The Whining of the Bailout Boys: SEC Whistleblower Gary Aguirre and John Mack

"In an interview on Bloomberg TV, John J. Mack, the former chairman and chief executive of Morgan Stanley, called for an end to the harsh words that have been hurled at Mr. Dimon and Lloyd C. Blankfein, Goldman Sachs's chief executive, over their pay."

CNBC, 11 February 2014

The Bailout Boys

"In 2006, Gary Aguirre, a then-client of GAP [Government Accountability Project] attorneys, rocked the financial world by alleging wrongdoing by Securities and Exchange Commission officials for their failure to not allow a proper investigation to proceed, possibly due to political connections.

Aguirre is a former SEC lawyer who was dismissed by the agency following his attempt to subpoena John Mack – a prominent financial figure who later became the CEO of Morgan Stanley – in an insider trading investigation of Pequot Capital Management, one of the country’s leading hedge funds. Aguirre’s story sparked outrage, a Congressional investigation, and (eventual) vindication by the U.S. Senate.

Aguirre’s battle dates back to June 2005, when he suddenly encountered resistance at the S.E.C. during the course of his investigation of Pequot. A $7 billion hedge fund, Pequot’s CEO was Arthur J. Samberg, another prominent financial figure and longtime friend of John Mack, who preceded Samberg as Pequot CEO. Hedge funds are unregulated private investment funds that typically engage in unconventional investment strategies, such as short-selling.

Prior to that date, Aguirre had been investigating the case for months, issuing over 90 subpoenas without obstruction. When Aguirre recommended that Mack’s testimony be taken under oath, he was told by his supervisor that it would be difficult to obtain approval for the subpoena due to Mack’s powerful “political connections.” Over the course of the next two months, Aguirre’s supervisors refused to allow him to issue Mack a subpoena. Aguirre questioned this decision at every level up the chain of command (including SEC Chairman Christopher Cox), reporting his superior’s behavior and providing evidence supporting his subpoena request.

In September 2005, Aguirre was fired 11 days after being awarded a two-step pay increase....

Aguirre eventually testified again in front of the Senate Judiciary Committee, offering further analysis of the role of proper oversight in regards to hedge funds. More and more evidence emerged supporting Aguirre’s allegations. Finally, the Senate Finance and Judiciary committees released their full report, which completely validated all of Aguirre’s claims. This was a significant victory.

In May 2009, after numerous insider-trading investigations by the SEC, Pequot closed down. Many economists also feel that these large-scale hedge funds had a significant effect on the sub-prime mortgage market’s burst, which led to the current global recession. The S.E.C. continues to be criticized for a lack of internal oversight, as evidence by the Bernie Madoff scandal (which also involved a whistleblower)."

Government Accountability Project, The SEC and Gary Aguirre

Related:
Versailles Watch: John Mack Whines About How Badly Wall Street CEO's Are Treated - Yves
Report Says SEC Erred on Pequot - NY Times
Gary J. Aguire - Wikipedia

Why Isn't Wall Street In Jail: The Notorious Case of Gary Aguirre and John Mack - Taibbi
Mary Jo White's Involvement in the Gary Aguirre Case - Taibbi
Mobsters of Wall Street - Jim Hightower

"Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker 'doing God’s work'."

Times of London, Goldman Sachs and Lloyd Blankfein

Secrecy

We may wish to recall these words at this time.

Taibbi: Allegedly SEC Policy Not To Pursue Investment Management Fraud Allegations LIke Madoff

It sometimes looks like open season on the small investor and the public at large with some very selective enforcement of the laws.

"All animals are equal, but some are more equal than others."

Why Didn't the SEC Catch Madoff? It Might Have Been Policy Not To
By Matt Taibbi
May 31, 5:20 PM ET

More and more embarrassing stories of keep leaking out the SEC, which is beginning to look somehow worse than corrupt – it's hard to find the right language exactly, but "aggressively clueless" comes pretty close to summing up the atmosphere that seems to be ruling the country's top financial gendarmes.

The most recent contribution to the broadening canvas of dysfunction and incompetence surrounding the SEC is a whistleblower complaint filed by 56-year-old Kathleen Furey, a senior lawyer who worked in the New York Regional Office (NYRO), the agency outpost with direct jurisdiction over Wall Street.

Furey's complaint is full of startling revelations about the SEC, but the most amazing of them is that Furey and the other 20-odd lawyers who worked in her unit at the NYRO were actually barred by a superior from bringing cases under two of the four main securities laws governing Wall Street, the Investment Advisors Act of 1940 and the Investment Company Act of 1940.

According to Furey, her group at the SEC's New York office, from a period stretching for over half a decade through December, 2008, did not as a matter of policy pursue cases against investment managers like Bernie Madoff. Furey says she was told flatly by her boss, Assistant Regional Director George Stepaniuk, that "We do not do IM cases."

Some background is necessary to explain the significance of this tale...

Read the entire news story here.

Who Is Above the Law? There Is At Least a Partial Official List

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed."

Unanimous Declaration of the Thirteen United States of America, 4 July 1776

As you may have noticed, Google is trying to sort out its software that allows me to post links under Matières à Réflexion.

Sorry if this inconveniences you, but these things happen, particularly when programmers improve something, and in the process break something else.  Google are generally quite good about fixing this if one can catch their attention.  Normally I work around it, put in some temporary fix, but this week I am caught up in other matters pertaining to the holiest week in the Christian and Jewish tradition.

In the meanwhile, Golem XIV has a post that reminds us that there are some entities, and people, who are literally above the law. And he even provides a partial list, not including well connected individuals not otherwise associated with or operating under the cover of a systemically important bank.

The problem with selective justice, even if it is for what might otherwise be considered good intentions, is that it presents an enormous moral hazard, and tempts those who might otherwise be restrained by the law to excess. And by their example they teach the rest of the people lawlessness.

And this is the danger of the credibility trap in which we find ourselves today. Quis custodiet ipsos custodes?

Twilight of Justice
By Golem XIV
March 26, 2013

Back in December of 2012, when it was proved in U.S. court that billions of dollars of drug money had been laundered through HSBC and yet somehow it was also found that HSBC was NOT guilty of laundering and neither was anyone in the bank, there was an outcry.

In America Massachusetts Senator Elizabeth Warren, when she was grilling federal bank regulators at a Senate Banking Committee hearing, said

“No one individual went to trial, no individual was banned from banking and there was no hearing to consider shutting down HSBC’s activities here in the United States.

Which did seem outrageous at the time given that, for example, according to Senate and Justice department reports, HSBC had,

…failed to monitor over $670 billion in wire transfers and over $9.4 billion in purchases of physical US dollars from HSBC Mexico from at least 2006 to 2009.

And that,

HSBC’s Mexico bank had a branch in the Cayman Islands that had no offices or staff, but held 50,000 client accounts and $2.1 billion in 2008.

Who in the bank knew about this? Evidence uncovered by investigations into HSBC’s activities revealed,

“senior bank officials were complicit in the illegal activity.”

The Question
No wonder then, that Senator Warren was driven to ask,

So … what does it take? How many billions of dollars do you have to launder for drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this?”

What indeed.

In the UK it was noted that during the time the laundering was going on, the chief executive of HSBC in 2003 who then became its chairman in 2006, was Lord Green, who is now the UK trade minister. So obviously no great concern to get to any truth about HSBC, in the hierarchy of the UK establishment.

Warren’s question, ‘What does it take?’ was finally answered by U.S. Attorney General Eric Holder in March 2013, when he told the U.S. Judiciary Committee that the Justice department had decided not to pursue any criminal prosecution of HSBC because ,

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,”

The U.S. Justice Department felt it could not criminally prosecute the bank because a criminal conviction would mean the bank would lose its license to bank in the US which would kill it  and a whole range of other institutions, which the bank relies on to buy its debts and its investment products would be prohibited from doing so as soon as the bank was deemed to be criminal.

So the official answer to Senator Warren’s question, according to the mighty U.S. Justice Department, is that ,yes, HSBC had laundered, but it was simply too big to prosecute. The bank and its senior staff were and are untouchable. They could be fined but not criminally prosecuted. The real answer to Senator Warren’s question, “What does it take…?” is … that she asked the wrong question.
This isn’t about lack of proof or the complexities of financial crimes or showing who knew or proving actual intent. It is not about proof or criminality at all. It is about there being a new category of  financial entity which our law makers and prosecutors have decided for us, is above the law. They are called  G-SIFIs, Globally, Systemically Important Financial Institutions or G-SIBs, Globally Systemically Important Banks.

I think  we have not yet thought through the immense consequences of the decision that has been made for us, that G-SIFIs are above the law.  But I think we need to make a start.

The List

We all know the HSBC isn’t the only bank too large to prosecute. There is in fact a list.



The list is decided upon by the FSB. It is updated every year.

The FBS (Financial Stability Board) is a new international body. It is made of representatives from the central bank, financial regulator and Treasury from each of the 25 member nations plus representatives from:

The Bank for International Settlements (BIS), the ECB, the European Commission, the IMF, OECD and World Bank, plus representatives from the Basel Committee on Banking Supervision (part of the BIS), the Committee on the Global Financial System (another part of the BIS), the Committee on Payment and Settlement Systems (another part of the BIS), the International Association of Insurance Supervisors, the International Accounting Standards Board, and the International Organization of Securities Commissions.

Guess which institutions provide the membership for ALL of the above international bodies? Yes, you got it – the big banks. And how many Central banks can you think of that are staffed or even headed by people formerly from one of the Big Banks?
You tell me who is really staffs the FSB and whose world view and interests the FSB actually represents?

Then consider, they are the ones who decided who is above the law.

28 banks are officially above the law and WILL NOT be criminally prosecuted no matter what they do. Remember that’s not me saying this. It is the U.S. Department of Justice saying it.

Not only 28 banks but all their senior executives, chairman/woman and board members. It would be very difficult to find a senior person in a bank to be criminally guilty but yet not find the institution guilty. So we could compile a list of people who are now, at least as concerns any financial and professional actions, also above the law. They can do things you would go to goal for. How does that feel?

Oh, by the way, this year, in April, we will see the announcement of another list, this time of Globally Systemically Important Insurers (G-SIIs). They too will be above the Law.

Assets Above the Law

When we say a bank is above the law, not only should we remember that this means specific people are above the law (at least in how they make money) but we should also remember that this also means the assets in those banks are above the law. This means if a banks does things which are illegal but lucrative – such as laundering money in order to get the use of those laundered billions to then use them as, lets say, capital to underpin loans or for speculating, for example, and by doing those illegal things it makes out sized profits for its shareholders and staff, that money, those profits are also above the law.

Since the bank and its senior staff are above the law and breaking the law is profitable, a) no one has an interest to say no, b) shareholders and staff will directly benefit from breaking the law. They will make more money by participating in law breaking or by investing in a bank which is law breaking. They will, in fact have an interest making sure it continues.

Two questions. Whose wealth are we talking about and how much?

Second question first. Is this a big problem?

Read the rest here.

 

Elizabeth Warren: What Level of Criminality Will It Take to Shut Down a Bank, (Mr. President)?

"A court martial, under orders, has just dared to acquit a certain Esterhazy, a supreme insult to all truth and justice. And now the image of France is sullied by this filth, and history shall record that it was under your presidency that this crime against society was committed."

Émile François Zola

How far above the law can Banks and their management go before they will be brought to account, besides a fine that is considered a cost of doing business?

It's a good question asked in the most straight faced, almost naively innocent, manner by Senator Elizabeth Warren.

Apparently amongst the Washington bureaucrats, with regard to any indictments and prosecution of financial matter 'the buck stops' with Eric Holder and his Justice Department.  Without that tool, the regulators can only levy civil fines, although often those fines are only wristslaps.

And the other day Mr. Attorney General Holder said that considerations other than criminality, including instances of brazen and repeated offenses, inhibit the Justice Department from doing their jobs in prosecuting financial crimes. 

Those considerations are the importance of that institution to the economy and the systemic threat that a loss of confidence might provoke.  In other words, size and power, and the fear of the consequences of enforcing the existing laws, much less reform, are at the heart of the Administration's policy towards prosecuting significant financial crimes at the highest levels.   And that policy sets the tone for the economy, and the market's attitudes towards regulation and reform. 

But since Eric Holder is Obama's personal representative, almost certainly acting in consultation on financial matters with the Treasury Secretary, the offensive corruption in the financial sector is the result of the President's policies.   That is also known as moral hazard.  And at this point he has no one else to blame. 

And so Senator Warren might as well ask: "Mr. President, to what level of criminality must a Bank, and its management, rise before you would be willing to allow your Justice Department to indict and prosecute it?  And as an aside, why are you so zealous in prosecuting whistleblowers and reformers, but so tolerant of even extreme examples of white collar financial crime that abets unrelated, non-financial felonies?"

It is doubtful that the mainstream Republicans and Democrats will ever bring anyone to account, because they are as, or even more, complicit in this web of corruption, having been given enormous amounts of money by the Banks in speaking fees and campaign contributions, with the promise of greater amounts for consulting after their terms in office.

And there it is: the credibility trap.   Justice for some. However one wishes to rationalize it, but always in order to preserve it.

Senator Warren may as well have asked, like the childlike innocent, "Why is the Emperor naked?" 

C'est la mode du temps, cherie, c'est la mode.

"A credibility trap is a condition wherein the financial, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform, or even honestly address, the problems of that system without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves.

The status quo tolerates the corruption and the fraud because they have profited at least indirectly from it, and would like to continue to do so. Even the impulse to reform within the power structure is susceptible to various forms of soft blackmail and coercion by the system that maintains and rewards.

And so a failed policy and its support system become self-sustaining, long after it is seen by objective observers to have failed. In its failure it is counterproductive, and an impediment to recovery in the real economy. Admitting failure is not an option for the thought leaders who receive their power from that system.

The continuity of the structural hierarchy must therefore be maintained at all costs, even to the point of becoming a painfully obvious, organized hypocrisy.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery."

Related:

Treasury and Fed Officials Prevaricate Before Elizabeth Warren - Yves Smith
Failure to Prosecute Is Killing the Economy - Washington's Blog
Drug Possession Warrants Jail Time, But Laundering Billions of Drug Money Doesn't? - Raw Story

The Middle Class: Death By a Thousand Cuts - Is Nothing Sacred?

"The corporate right and the political right declared class warfare on working people a quarter of a century ago and they've won... Take the paradox of Rush Limbaugh, ensconced in a Palm Beach mansion massaging the resentments across the country of white-knuckled wage earners, who are barely making ends meet in no small part because of the corporate and ideological forces for whom Rush has been a hero."

Bill Moyers


"The escalation of the class war against the poor and the working class is intense. More and more working people are beaten down. They are world-weary. They are into self-medication. They are turning on each other. They are scapegoating the most vulnerable rather than confronting the most powerful. It is a profoundly human response to panic and catastrophe. I thought Barack Obama could have provided some way out. But he lacks backbone.

Can you imagine if Barack Obama had taken office and deliberately educated and taught the American people about the nature of the financial catastrophe and what greed was really taking place? If he had told us what kind of mechanisms of accountability needed to be in place, if he had focused on homeowners rather than investment banks for bailouts and engaged in massive job creation he could have nipped in the bud the right-wing populism of the tea party folk. The tea party folk are right when they say the government is corrupt. It is corrupt. Big business and banks have taken over government and corrupted it in deep ways.

We have got to attempt to tell the truth, and that truth is painful. It is a truth that is against the thick lies of the mainstream. In telling that truth we become so maladjusted to the prevailing injustice that the Democratic Party, more and more, is not just milquetoast and spineless, as it was before, but thoroughly complicitous with some of the worst things in the American empire."

Cornel West


"Politicians are the public face of corporate power. They are corporate employees. Their personal narratives, their promises, their rhetoric and their idiosyncrasies are meaningless. And that, perhaps, is why the cost of the two presidential campaigns is estimated to reach an obscene $2.5 billion. The corporate state does not produce a product that is different. It produces brands that are different. And brands cost a lot of money to sell...

Unfettered capitalism is a revolutionary force which turns everything into a commodity. Human beings become commodities, the natural world becomes a commodity, that you exploit until exhaustion or collapse...

You can dismiss those of us who will in protest vote for a third-party candidate and invest our time and energy in acts of civil disobedience. You can pride yourself on being practical. You can swallow the false argument of the lesser of two evils.

But ask yourself, once this nightmare starts kicking in, who the real sucker is."

Chris Hedges


"The most sacred of the duties of government is to do equal and impartial justice to all its citizens.”

Thomas Jefferson

Nihilne sanctum est?

Politicians from both sides of the aisle will swear pious oaths to protect and foster the well being of the middle class.  They will say that their policies and proposals are all designed for its betterment.  And yet the state of the middle class continues to dwindle into despair and disrepair. Why is this?

It is not because of the predominance of a right or left ideology, of taxation and deficits and austerity. It is not because of the re-emergence of a perversion of the gospel, in the predestination of prosperity. We have seen all this before. It is not because in our comfort we have lost the sense of the imperative of common cause.

It is because of the overwhelming corruption of power, and of the cynical amorality of thoroughly modern political managers who worship power and personal wealth as ends unto themselves.   They distract the people with artificially divisive social issues and crises, while robbing them blind.

It is driven by the allure of the cartels, monopolies, and  monied interests, and their corrupt political bargains.  It is a child of the subornation of perjury on a massive scale. It is the unscrupulous servility to power of those who have sworn to uphold and protect the law.   What is truth?  Whatever suits us, whatever we say it is, by whoever has the power and the craft to define 'we.'  It is not the triumph of evil so much as the absence of any sense of the good, of honor, honesty, and of simple common decency.

And it is marked by the daily subverting of the law as a matter of convenience and comfort to the insatiable few, and the cravenness of their enablers, driven by personal ambition, ignorance, and fear.  It is the will to power, the elevation of the ascendant self and the system that supports it, above all else.  Greed is good.  Whatever works.  And the enemy is all that is not the self, which is the other.

And where there is nothing sacred, the people perish.

Goldman, Banking, Washington, and Business Ethics: Cultural Observations from Two Smiths

"I'm a very firm believer that a liar is a cheat and a thief and a crook. I don't like liars. I never lie. I always told my own child, "If you murder somebody, tell me. I'll help you hide the body. But don't you lie to me."

"We don't pay taxes. Only the little people pay taxes."

Leona Helmsley


"There is not a more perilous or immoral habit of mind than the sanctifying of success.”

Lord Acton

I wish that C-Span would permit their videos to be 'embeddable.'

Greg's talk is excellent, and thanks to C-Span the video quality is good.


Greg Smith Speaking At Stanford on His Experience at Goldman and Reasons for the Corrosive Decline in Business Ethics


Speaking of excellent essays on corruption, Yves Smith has written a wonderful piece titled, Jack Lew’s Grotesque Citi Employment Deal and the Institutionalization of Corruption.

Corruption, facilitated by the credibility trap, is the biggest problem facing the West today. That is the real subsidy, the most debilitating entitlement.

It is the belief of the elite that the power of their office is an achievement that rewards them with the right to lie, cheat and steal, both for themselves and their friends.

Although it is most important to understand that they would be shocked and insulted if one uses those words, lie, cheat and steal, to describe what they are doing.  They view themselves as exceptionally hard working, as obligated by their natural gifts and superiority.

Through a long indoctrination that starts sometimes in their families, but is most often affirmed in their elite schools and with their circle of privileged friends, they learn to rationalize selective moral behaviour not as immoral but as 'the entitlement of success.'  And they are supported by a horde of morally ambivalent enablers who will tell them whatever they wish to hear.

There are one set of rules for themselves and their friends, and another set of rules for the rest.

Few who actually do evil consciously choose to be evil.  They rationalize what they do in any number of ways, but the deceit often hinges on their own natural superiority, and the objectification and denigration of the other.  We are makers, and they are takers. Although many may work hard, they see their own work as having special value and merit, while the actions of the others are inconsequential and unworthy.

Given enough time, their rationalizations become an ideology, desensitized to the meaning and significance of others outside their own select group.  This supremacy of ideology empties their souls, and opens the door to mass privation and even murder, although rarely done by their own hands.

This is what Glenn Greenwald calls 'justice for some.' Or even earlier what George Orwell captured in the slogan, 'Some animals are more equal than others.'

And just to be clear on this, with regard to the Anglo-American political situation, the tragedy is not that just some are corrupted, which is always the case. The tragedy is that the Democrats and the Labour Party learned that they could become as servilely corrupted by Big Money as the Republicans and the Conservative Party, while maintaining the illusion of serving their traditional political base.

And it has rewarded them very well in terms of extraordinarily well-funded political power, and almost unbelievable personal enrichment afterwards.  

In such a climate of corruption,  political discourse loses the vitality of ideas and compromise for the general good, and take on the character of competing gangs and crime families, engaged in aggressive schemes and protracted turf wars, tottering from one pitched battle and crisis to another.

"A credibility trap is a condition wherein the financial, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform, or even honestly address, the problems of that system without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves.

The status quo tolerates the corruption and the fraud because they have profited at least indirectly from it, and would like to continue to do so. Even the impulse to reform within the power structure is susceptible to various forms of soft blackmail and coercion by the system that maintains and rewards.

And so a failed policy and its support system become self-sustaining, long after it is seen by objective observers to have failed. In its failure it is counterproductive, and an impediment to recovery in the real economy. Admitting failure is not an option for the thought leaders who receive their power from that system.

The continuity of the structural hierarchy must therefore be maintained at all costs, even to the point of becoming a painfully obvious hypocrisy.

And you know how I feel about this.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

The problem which the modern world has not yet grappled is how to react to the rise of a global elite, which considers itself the children of a power which is above national restraints, and a law unto themselves.

Their success has been propelled by the dominance of Anglo-American financialization, and the rise of oligarchies in Russia, China, Latin America, and India.  Countervailing power has been co-opted and subsumed.  Any opposition has become marginalized and isolated.

The new oligarchs are supported by their fiat currencies, which together the increase of insubstantial 'cashlessness' in wealth,  provides the ability to define and allocate value at will. 

They have a penchant towards globalization and deregulation to support selective justice, to the extreme detriment of local rule, and individual choice and freedom.   Above all, they are a law unto themselves, above what they consider subhuman restraint.  Übermenschen.

“Our light-speed, globally connected economy has led to the rise of a new super-elite that consists, to a notable degree, of first- and second-generation wealth. Its members are hardworking, highly educated, jet-setting meritocrats who feel they are the deserving winners of a tough, worldwide economic competition—and many of them, as a result, have an ambivalent attitude toward those of us who didn't succeed so spectacularly. Perhaps most noteworthy, they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today's super-rich are increasingly a nation unto themselves...

A multibillion-dollar bailout and Wall Street’s swift, subsequent reinstatement of gargantuan bonuses have inspired a narrative of parasitic bankers and other elites rigging the game for their own benefit. And this, in turn, has led to wider—and not unreasonable—fears that we are living in not merely a plutonomy, but a plutocracy, in which the rich display outsize political influence, narrowly self-interested motives, and a casual indifference to anyone outside their own rarefied economic bubble."

Chrystia Freeland, The Rise of the New Global Elite

Of course this tendency is not new in history, as it is a facet of the human heart, and the empires of the past. But the scope of it is something rarely seen before this. And it is supported by technologies for mass action and control that seem terrifyingly powerful and new.

And as hard as it may be to believe, this too shall pass. But as always, we have some work to do in our own time.

“The mills of God grind slowly, yet they grind exceeding small;
Though with patience He stands waiting, with exactness He grinds all.”

Henry Wadsworth Longfellow

A Commentary on the Metals Markets: Gold and Silver Price Controls

This article excerpted below by Jeff Lewis seems to capture the nature of the recent action in the metals market. And the SP stock futures market, inversely. It is fairly heavy handed stuff.

I often watch 'the tape' throughout the day, and have been doing so, off and on, for the past fifteen years, and part time much longer, since 1976 at least.  What I see is how he describes it.

I have been through these cycles in metals and stocks many times, almost too many to count. And so I am not so overly moved one way or the other.  That is the benefit of no leverage, a proper allocation, and a suitably long time horizon. 

If I am concerned, it is because this sort of thing undermines the confidence in the markets and the financial system, and ultimately the currency.  And judging from the polls, the confidence and approval is quite low.

This fakery and gimmickry is not productive, and does not contribute anything to an economic recovery.  It does not recommend hard work, and savings, and sound investment. 

Quite the opposite, it teaches the arts of the conman,  greed and corruption, by example.  It makes the people cynical and ashamed of their leaders.  And that is corrosive of society as a whole, where the ends justify the means, honor means little, and oaths of office even less.

The plutocrats who recognize no justice but their own do not want to hear it, but this is the very essence of moral hazard.

"Consider for a moment the remarkably high volume of COMEX contracts traded during the days when the spot prices for gold and/or silver were driven sharply lower.

An illusion of weakness tends to prevail in these situations because the majority of precious metal traders do not seem to understand the difference between a paper claim and the real thing, nor do they seem to realize that only paper contracts or claims are being sold when the price of the precious metals drops — not the actual metal itself. Basically, the futures contract seller cannot be forced to deliver physical metal, and so sellers can simply settle their profit or loss on the trade in cash.

Furthermore, the fact that such price drops are typically initiated by the dumping of huge swaths of paper contracts by proprietary traders working at giant bullion banks that are too big to bail and/or fail, makes them seem more like manipulative attempts to scare the precious metals market into a selling panic.

No one is actually selling real bullion during these allegedly “not-for-profit”-led precious metal sell-offs.  Instead, the paper market is moving the metal prices as the tail seemingly wags the dog.

Perhaps this was once a civilized way to discover the fair price of a commodity, but in today's age — regardless of the obvious and highly questionable concentration of only a few sellers comprising the entire net short position of the futures market — every market trades in a high speed, momentum-based, and computer program monitored environment.

This manipulative activity is also permitted by regulators and exchanges in the equities market via dark pools that spoof and front-run millions of unsuspecting penny stock day traders who seem caught up in the race to catch the elusive Red Queen of a good trade.

Practically every notable move lower comes from concentrated short sellers intentionally destabilizing the market to force precious metal prices down, although the so-called exports never seem to see it this way. Furthermore, no matter how blatant the sudden dumping is, it is almost always painted and viewed publically as a 'longs selling' event.

If all of that were not enough, predictable sell-offs almost always occur after margin announcements. As a case in point, maintenance margins were lowered last week, thereby providing an incentive for unsuspecting momentum or technical oriented longs to enter the market.

As usual, these weak longs were quickly harvested in less than two trading sessions after the margin announcement was made...

The good news, or the flip side, is that open interest has remained high in the precious metals futures markets, despite the numerous downdrafts. This indicates that stronger hands are accumulating..."

Jeffery Lewis, The Untold Reality of Gold and Silver Price Controls

Audacious Oligarchy Reprise - A Question of Balance

Once again, that great summation of the Anglo-American experiment in crony capitalism by Robert Johnson.

If you can do nothing else, stop making excuses for those who promote the oppression of the financial interests, and stop listening to those who do.

Law is how the just associate to protect themselves against injustice and the wickedness of the world.

And if you charge forward, as happens from time to time, to willfully and recklessly tear down the laws in the name of some misbegotten ideology, and you stop and turn round, the winds of oppression that blow across the land will knock you down, no matter who you are, or how self-sufficient and powerful you may imagine yourself to be.

When you take an admirable concept and blind it, taking it to some imbalanced extreme by sticking an 'ism' on the end of it, you all too often unleash the madness, and the whirlwind.

If government has stopped working for the public interest of justice for all you reform it, you do not further weaken and burn it to the ground and destroy it in the vain hope that something better will accidentally come forward from some well-spring of natural goodness in the worst of us who serve only themselves, and the will to power.

You can believe what you will, but you will be accountable for what you believe.

"When bad men combine, the good must associate; else they will fall one by one, an unpitied sacrifice in a contemptible struggle."

Edmund Burke

If there is any significant weakness in this model I have constructed it is that it does not easily represent the extreme position of anarchism, or its little brother, libertarianism. I think that it is because they are 'no model' or rather a model of social disorganization. But I am giving it some thought.

But they stand in no middle ground, but an extreme on another scale. And I say they care naught for individual rights, because they adopts the law of the jungle, that might makes right and that each person stands alone. It is a romantic, almost utopian, view of the world that sounds good to an adolescent, but which one might quickly outgrow as they reach adulthood and start a family.

On the other end of that scale would be total government, or statism, which is part of the basis of the model below. As most extremes, the statists and the anarchists are so off center that they see only one another, and anyone who is not them appears the other. This is how most ideological groups tend to coalesce as they become something self-observing and self-perpetuating.

HSBC Management's Criminal Activity Above the Law: Justice for Some

"Now at this time of peril to your class and to your tribunal, when men are ready to attempt by speeches, and by the proposal of new laws, to increase the existing unpopularity of the senate, Caius Verres has been brought to trial as a criminal, a man condemned in the opinion of every one by his life and actions, but acquitted because of the enormousness of his wealth.

I have undertaken this cause as prosecutor with the greatest good wishes and hope on the part of the Roman people, not in order to increase the unpopularity of the senate, but to relieve it from the discredit which I share with it as a member of that class.

For I have brought before you a man, in whose case you have an opportunity by acting justly of retrieving the lost reputation of your judicial proceedings, of regaining your standing with the Roman people, and of giving satisfaction to foreign nations; a man, the embezzler of the public funds, the petty tyrant of Asia and Pamphylia, the thief who deprived the city of its rights, the disgrace and ruin of the province of Sicily.

And if you come to a decision about this man with severity and a proper respect for your oaths, that authority which ought to remain in you will cling to you still; but if that man’s vast riches shall break down the sanctity and honesty of the courts of justice, at least I shall achieve this, that it shall be plain that it was honest judgment that was lacking to the republic...

But now men are on the watch-towers; they see how every one of you behaves himself in respecting justice and observing of the laws. They see that, ever since the passing of the law for restoring the power of the tribunes, only one member of your class, and he, too, a very insignificant one, has been condemned."

Cicero, First Oration Against Verres, 70 B.C.

There is a disturbing trend in the US where corporate executives are able to commit serious crimes such as money laundering and outright theft (does MF Global ring a bell) and escape criminal prosecution and even personal fines by hiding behind the personhood of the corporation and a wall of implausible deniability.

You can fine a corporation, even by levying a very large penalty when judged by individual terms. But that is just a cost of doing business for the company that is absorbed by the system and the shareholders that sustain it.  And in the case of the TBTF banks, they are being supported by an ongoing government subsidy of cheap money from the public.  And the management that actually committed the crimes is allowed to continue on without serious personal penalty.

This is a 'live and let live' attitude amongst the privileged class, a type of professional courtesy. This is the 'CEO Defense' in which managers are paid enormous, outrageous compensation for their skills, but when criminal activity is exposed, they claim to know and do very little for that pay, and in fact claim to be barely involved with the business that they manage. This is not capitalism, this is corporatism, a form of organized crime.

This is the moral hazard of the credibility trap. Because there is little doubt that HSBC management has done things for and with other very important people that makes them truly above the law.

This is the menace of entitlement and privilege. And what is most discouraging is how easily they can turn the righteous anger of the people at this injustice into an attack on the weak, the elderly, the children, the 'other.' And this is our shame, and our own complicity.

As a reminder from history, the privileged Senatorial class did not engage in serious and meaningful reform. And within ten years they saw the rise of powerful men like Julius Caesar and Pompey, who sought in every way to subvert the laws of the Republic and the good of the people in their favor. And in 49 BC Caesar crossed the Rubicon. And most will remember what followed after.

Is the American republic to be nova Roma, the new Rome?

"At that time many will falter, and betray and despise each other. And false prophets will appear and deceive many people. Because of the increase of wickedness, the love of many will grow cold, but those who stand firm to the end will be saved. And the gospel of the kingdom will be preached in the whole world as a testimony to all nations, and then the end will come." Matt 24:10-14

Rolling Stone
Outrageous HSBC Settlement Proves the Drug War is a Joke
By Matt Taibbi
December 13, 3:25 PM ET

...Breuer this week signed off on a settlement deal with the British banking giant HSBC that is the ultimate insult to every ordinary person who's ever had his life altered by a narcotics charge. Despite the fact that HSBC admitted to laundering billions of dollars for Colombian and Mexican drug cartels (among others) and violating a host of important banking laws (from the Bank Secrecy Act to the Trading With the Enemy Act), Breuer and his Justice Department elected not to pursue criminal prosecutions of the bank, opting instead for a "record" financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank.

Though this was not stated explicitly, the government's rationale in not pursuing criminal prosecutions against the bank was apparently rooted in concerns that putting executives from a "systemically important institution" in jail for drug laundering would threaten the stability of the financial system. The New York Times put it this way:

Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system.

It doesn't take a genius to see that the reasoning here is beyond flawed. When you decide not to prosecute bankers for billion-dollar crimes connected to drug-dealing and terrorism (some of HSBC's Saudi and Bangladeshi clients had terrorist ties, according to a Senate investigation), it doesn't protect the banking system, it does exactly the opposite. It terrifies investors and depositors everywhere, leaving them with the clear impression that even the most "reputable" banks may in fact be captured institutions whose senior executives are in the employ of (this can't be repeated often enough) murderers and terrorists...

And not only did they sell out to drug dealers, they sold out cheap. You'll hear bragging this week by the Obama administration that they wrested a record penalty from HSBC, but it's a joke. Some of the penalties involved will literally make you laugh out loud. This is from Breuer's announcement:

As a result of the government's investigation, HSBC has . . . "clawed back" deferred compensation bonuses given to some of its most senior U.S. anti-money laundering and compliance officers, and agreed to partially defer bonus compensation for its most senior officials during the five-year period of the deferred prosecution agreement.

Wow. So the executives who spent a decade laundering billions of dollars will have to partially defer their bonuses during the five-year deferred prosecution agreement? Are you fucking kidding me? That's the punishment? The government's negotiators couldn't hold firm on forcing HSBC officials to completely wait to receive their ill-gotten bonuses? They had to settle on making them "partially" wait? Every honest prosecutor in America has to be puking his guts out at such bargaining tactics...

Read the entire article here.

SP 500 Futures - A Closer Look - Miseria Ex Machina

The woods decay, the woods decay and fall,
The vapours weep their burthen to the ground,
Man comes and tills the field and lies beneath,
And after many a summer dies the swan.

Alfred Lord Tennyson, Tithonus

This is a classic "wash and rinse cycle" within a greater uptrend. Whether it may continue to be so could be determined by the new earnings cycle that begins this week, the dilemma that is Europe, or the ongoing political process of financialisation.

Far from being a capital forming mechanism, the US equity market has been allowed to degenerate, once again, into a vehicle largely dominated by frauds and schemes of wealth transferral.

A person might as well brag of making a fortune in the stock market by short term speculation in the same manner that a first rate pickpocket might boast of making a rich harvest in the town square during some public event, distracting by spreading rumours, alarms, and other misdirection.

Having made their wealth in a generational fraud, the oligarchs mean to keep it by any and all means, including beggaring the world if only to make their own fortunes shine brighter.

This is capitalism in decline, as justice fails, or more precisely, is bought into silent partnership. And the killing of conscience in financial things opens a Pandora's box of maladies of the spirit and the madness of hardened hearts.

And there is no finer symbol of this decline than the current electoral contest, which appears but a Hobson's choice between the corruptly lax magistrate and the pre-eminently audacious highwayman.

Nanex: Investors Need to Realize that the Machines Have Taken Over

Simon Johnson: Money, Power, and the Rule of Law

The dominant political parties in the US or the UK really 'get this,' because they do not want to. They are fine with collaborating with the status quo as long as it serves them.

They have become a brothel for the monied interests and nationless corporations.

They seem to have lost their sense of honor and civic duty. It has been choked by greed and selfishness, a lack of empathy and proportion. Their hypocrisy knows no bounds

NY Times
Money, Power and the Rule of Law
By Simon Johnson
October 4, 2012

Economic policy is always torn between helping the broader social interest – lots of ordinary people – and favoring particular special interests. Unfortunately, special interests typically win out in the kind of situation we have in America in 2012, when it’s all about spending money to win friends and influence people.

The most effective way to push back against powerful special interests is to have the same rules for everyone – and to enforce those rules fairly, even when they are broken by the richest and most politically connected people in the land. Attorney General Eric Schneiderman of New York took a major step toward restoring the rule of law this week, by bringing a case against JPMorgan Chase. But it will be an uphill battle; the forces against him are incredibly strong, including some within the Obama administration.

Special interests always want to take over and organize society for their own benefit. In the terminology of economics, there are always some “rents” to be had – meaning some form of extra compensation that you get from tilting the playing field in your favor. Powerful people are always “rent-seeking,” another way of saying that they would like to feather their own nests. And such activities impose costs on society, lowering incomes and limiting opportunities for everyone else.

When money is the primary source of power, the special interests win hands down. They can create advantages for themselves. One way is through the market mechanism – as monopolists did with railroads and industrial sectors at the end of the 19th century.

Or they can capture the government and use state policies to help themselves – for example, by deregulating the financial sector and allowing excessive risk-taking in big banks. The ability to take such risks hurts all consumers and taxpayers while helping the special interests who get this advantage...

Read the rest here.

Romney Tax Files: Converting Management Fees Into Carried Interest

When Gawker first published the Bain Capital tax return data I remember reading somewhere that one should not bother even looking at them because they are not relevant and won't tell you anything.

That struck me as odd at the time. How could someone just dismiss information like this as not even worth reading? Move on, don't look at them?

Well, apparently that is not the case. They seem to contain some nuggets of information suggesting that Romney was being particular aggressive (euphemism for engaging in extra-legal activity) in misstating not trivial income for the purpose of avoiding taxes.

One can only wonder what those undisclosed personal returns might contain.

I don't want to pick on Mitt in particular, although he is starting to look like a setup to make the other guy look good. And what he had done with his income from Bain is certainly open to interpretation as the author admits.

But rather, this speaks to the 'rule of law' issue and how there is a duality in the US, and some animals are more equal than others. And strangely enough, the barnyard hoots its approval.

"Private equity fund managers are compensated in two primary ways: management fees and carried interest. The management fee, traditionally two percent annually, is paid to the managers to cover overhead, salaries, and so forth. The carried interest, traditionally twenty percent, is a share of the profits from the underlying investments. My paper Two and Twenty described the typical arrangement.

Management fees are taxed at ordinary income rates; carried interest is often taxed at capital gains rates (around 15 percent - Jesse). I focused in the article on why the carried interest portion is better viewed like bonus compensation and should be taxed at ordinary income rates.

Current law on carried interest is already a sweetheart tax deal for private equity, but why not make it better? Private equity folks are not the type to walk past a twenty-dollar bill lying on the sidewalk.

In the 2000s it became common for private equity fund managers to “convert” their management fees into carried interest. There are many variations on the theme, but here’s how many deals worked: each year, before the annual management fee comes due, the fund manager waives the management fee in exchange for a priority allocation of future profits. There is minimal economic risk involved; as long as the fund, at some point, has a profitable quarter, the managers get paid. (If the managers don’t foresee any future profits, they won’t waive the fees, and they will take cash instead.)

In exchange for a minimal amount of economic risk, the tax benefit is enormous: the compensation is transformed from ordinary income (taxed at 35%) into capital gain (taxed at 15%). Because the management fees for a large private equity fund can be ten or twenty million per year, the tax dodge can literally save millions in taxes every year.

The problem is that it is not legal. Because the deals vary in their aggressiveness, there is some disagreement among practitioners about when it works and when it doesn’t. But in my opinion, and the opinion of many tax practitioners, the practices that were common in the private equity industry in the 2000s became very, very questionable, and it’s unlikely that they would have stood up in court.

Gawker today posted some Bain documents today showing that Bain, like many other PE firms, had engaged in this practice of converting management fees into capital gain. Unlike carried interest, which is unseemly but perfectly legal, Bain’s management fee conversions are not legal. If challenged in court, Bain would lose. The Bain partners, in my opinion, misreported their income if they reported these converted fees as capital gain instead of ordinary income."

Victor Fleischer, Romney’s Management Fee Conversions

Read the entire article here.