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These dozen Congressmen are just the ones that would brag about it openly to Jack Abramoff.
Trading in insider information amongst the Congress and their staffs is a form of soft bribery that undermines the character of the legislation, and is a relative side dish compared to the huge amounts of lobbying funds being thrown around by corporate special interests. And both parties are in on it to varying degrees.
It can seem an odd corruption to the average person, given the lavish benefits and pensions granted to members of Congress. What is shocking is not that officials sell themselves, but rather, that they sell themselves so brazenly and often for so little. But it makes sense if one understands the attitude of privilege and the insatiable nature of greed.
Corruption of public officials is not news. But when it becomes epidemic, and when powerful interests can use even relatively petty offenses to blackmail representatives, when lobbyists write the legislation designed to reform their industry, and when enormous financial frauds result in show investigations and big talk but no prosecutions, then it is news. And it is a shame and the decline of the rule of law.
Big corruption starts to crowd out petty corruption, which is its seedbed. Once corruption becomes institutionalized, the morally ambivalent all aspire to be in the one percent club, as a symbol of status and power. If this is the age of greed, then not to be corrupt is to be out of step with fashion, because greed is inherently corrupting. Reformers and progressives are out of touch, and tedious. Squares.
As is so often the case amongst men in crowds, life imitates high school.
And this distortion of values becomes a self-perpetuating credibility trap, which is what the US is caught in today.
But when the status quo has lost its creative energy, is dwindling, and even become dead wood, there is always hope in the relative outsiders and the young. Life awaits the coming of Spring. Fashions change, and honor and liberty are renewed. And this may be the significance of the protests that are springing up around the country, and the world, today.
The invisible community of the mind and the spirit is resilient. Rising and falling in cycles, it sometimes hides underground beneath the surface, as the seeds of growth and freedom, ready to rise up once again. Over and over. Always.
CNBC
Congress Members Took Part in Insider Trading: Abramoff
By Eamon Javers
Friday, 11 Nov 2011
As many as a dozen members of Congress and their aides took part in insider trading based on foreknowledge of market moving information on Capitol Hill, disgraced Washington lobbyist Jack Abramoff told CNBC in an interview.
Abramoff, who was once one of the wealthiest and most powerful lobbyists in Washington before a corruption scandal sent him to federal prison for more than three years, said that many of those members of Congress bragged to him about their stock trading prowess while dining at the exclusive restaurant he owned on Pennsylvania Avenue.
But Abramoff, whose black trench coat and fedora became one of the most notorious images in recent Washington history after his fall from grace, said he didn't play the stock market himself — he considered it an inherently unfair "casino" in which the house had far more information than the players. Abramoff made most of his fortune representing — and, as it turned out, duping — Native American tribes rich with cash from casino operations.
The former lobbyist said the amounts members of Congress earned trading off their inside knowledge ranged from as little as $2,000 to, as much as "several hundred thousand dollars," that was claimed by one member of Congress.
Abramoff declined to name the members of Congress.
"It was more, 'Look at me, I'm a real great stock trader,'" Abramoff told CNBC of the congressional bragging. "All of a sudden somebody from a background maybe in law, maybe in some other unrelated business area, all of a sudden is picking winners and losers in the market."
"I was making far more money than they were," Abramoff recalled. "So I wasn't as impressed as perhaps they thought I'd be."
At the time, Abramoff, who was involved in an extensive corruption ring, didn't think much of it. But after years in prison to reflect on the culture of corruption in Washington, Abramoff says he thinks trading based on inside Congressional knowledge is wrong.
"These people should not be using whatever information they gain as public servants to benefit themselves, any more than they should be taking bribes," he said.
Generally, however, legal analysts say that Wall Street insider trading laws do not apply to Congress. As an open and public institution, the legal assumption has long been that any member of the public can have access to information about how Congress works. In practice, though, that's simply not true, as powerful members of Congress come into contact daily with market-moving tidbits. That gap between the law and the reality has made Capitol Hill a virtual free-fire zone for insider trading. Over the years, academic studies have found that members of the House of Representatives beat the market by as much as six percent per year and members of the Senate do even better than that...
"In this serious hour in our Nation's history when we are confronted with grave crises in Berlin and Southeast Asia, when we are devoting our energies to economic recovery and stability, when we are asking reservists to leave their homes and their families for months on end and servicemen to risk their lives--and four were killed in the last two days in Viet Nam--and asking union members to hold down their wage requests at a time when restraint and sacrifice are being asked of every citizen, the American people will find it hard, as I do, to accept a situation in which a tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility can show such utter contempt for the interests of 185 million Americans."
John F. Kennedy, April 11, 1962
"If a free society cannot help the many who are poor, it cannot save the few who are rich."
John F. Kennedy, January 20, 1961
I am glad for any relief that might be coming for the customers of MF Global whose funds are frozen and at risk.
I wonder how extraordinary these measures referenced in this press release really are, and why they had to be extraordinary given the guarantees presented by SIPC and the regulatory responsibilities of the Exchange in the first place.
As I recall the stated reserves of SIPC are multiples greater than the total customer money said to be at risk. Is the SIPC a legitimate insurance fund acting to secure customer deposits against loss, or a fig leaf? I am therefore struggling with the statement that they required emergency funding from the CME.
Here is the CME's public relations release below. A copy of it is also available here.
I hope that there will be a thorough investigation so that customers will understand what is insured, for how much and by whom, what is regulated and by whom, and how confident they can be that this will not happen again and require such 'extraordinary measures.'
CME is acting in what is clearly self-preservation and not out of some abundance of charity. Customers are viewing these developments with a critical eye, and choosing in some cases to withdraw their funds.
Rather than rely on the kindness of strangers, I think there needs to be a greater transparency and the clarity of law and much more responsible regulation.
The temptation to hide what happened in a smokescreen and sweep it under the rug must be rather strong. But it would be a great mistake. Once confidence is lost, it can only be regained with a long and difficult effort.
This was a systemic failure of the first order and not some odd exception, or infamous 'black swan.'
The system failed.
Extraordinary measures aside, it must be fixed and made sound so that customers are not placed in such significant risk of loss based on malfeasance and 'accounting errors.'
And the public deserves a real explanation of what happened and who was involved. One benchmark for this is a straightforward answer to a simple question:
"When were the customer funds and assets transferred, to whom were they given, for what reason, and on whose authority?"
News Release Issued: November 11, 2011 3:16 PM EST
CME Group and CME Trust to Provide $300M Guarantee to SIPC Trustee to Help Facilitate Release of Customer-Segregated Funds
- Guarantee intended to assist Trustee in making prompt distribution of customer segregated funds and frozen cash balances
- CME Trust to provide its roughly $50 million in assets to CME Group market participants to offset missing customer funds held at MF Global
CHICAGO, Nov. 11, 2011 /PRNewswire/ -- CME Group, the world's leading and most diverse derivatives marketplace, today took extraordinary measures in order to accelerate the return of substantial customer cash and other assets securely held at CME Clearing, other clearing houses and MF Global custodians following the failure of MF Global.
Though CME Clearing does not guarantee FCM-held assets, CME Group is willing to provide a $250 million financial guarantee to the Trustee to give the Trustee greater latitude to make an interim distribution of cash to customers now, given the monumental task he faces to sort through considerable data and claims in order to complete the MF Global liquidation and make distributions to creditors. Additionally, CME Trust will provide $50 million to CME Group market participants in the event there is a shortfall at the conclusion of the Trustee's distribution process.
Until this point, the Trustee has authorized the distribution of $1.45 billion in customer collateral, which permitted the transfer of open positions and avoided greater losses to customers that would have been incurred through liquidation. Cash balances remain frozen. Today's proposal is designed to ensure that customers would have access to a greater percentage of the total customer-segregated funds MF Global accounted for at CME Clearing, other clearing houses and MF Global custodians.
This unprecedented guarantee offered by CME Group would be used by the Trustee in the event that a final accounting determines that the Trustee distributed more property than was permitted by the Bankruptcy Code and CFTC regulations. In addition, if there is a shortfall at the conclusion of the distribution and the $50 million Trust has not been exhausted, the remainder of those funds will be used to restore the other CME Group customer accounts that suffered a shortfall in customer-segregated funds held at MF Global. The Trust was designed to be used in cases such as this if customers lose money due to the failure of a clearing member.
"The failure of MF Global and the firm's mishandling of customer segregated funds is absolutely uncharted territory for this industry, and this extreme measure will help to provide all former MF Global customers access to their account balances that had previously been frozen in the liquidation," said CME Group Executive Chairman Terry Duffy. "Throughout this process, we have been working with the Trustee to help him release securely-held customer property at CME Clearing to customers and transferee clearing members. We have and will continue to advocate on behalf of customers - wherever they cleared or traded."
"CME Group believes it is critical to pursue this option with the Trustee to distribute additional securely-held customer assets," said CME Group CEO Craig Donohue. "Our primary concerns are the protection of our customers at CME Clearing and the integrity of all futures markets. We recognize that the U.S. Bankruptcy Code requires the Trustee to account for all customer assets and claims to ensure a fair, pro-rata distribution of those assets, and we sincerely appreciate how complex this task is for the Trustee.
We believe this extraordinary measure is necessary to ensure that all customers are treated fairly during the unique and challenging circumstances surrounding the failure of MF Global. We continue to work with the Trustee to return all of the remaining segregated funds to customers as soon as possible as allowed by law."
Gold and silver rallied back from the bear raid yesterday.
The correlation between metals and stocks is still troubling, but it does provide a ready hedge to bullion positions. This suggests that the metals are rising with liquidity and expectations of money printing, and that short term reductions in liquidity will drive the price lower.
Speaking of gold and money, here is a recent video interview with Jim Grant and Jim Rickards, in which they discuss these topics and others.
It is well worth a look, although I admire him greatly, I fear Jim Grant makes a stand on somewhat shaky ground when he calls out Paul Krugman to explain how monetary and fiscal policy worked with regard to 'the depression of 1920-21' and compares it to the current US economy.
Jim forgets to mention that a significant driver for that particular slump was the end of World War I, the return of the soldiers from overseas, and the adjustment from a wartime to a peace time economy.
There is also the little detail that Europe had been ravaged, but the US infrastructure and industrial machine was untouched, and only in need of retooling. The US needed a strong currency to control inflation, and the Fed's primary task was to manage money supply in the face of a naturally growing aggregate demand and rising incomes in the post-war period.
Krugman might be tempted to have some fun with that example and the prescription that raising interest rates now and tightening money supply is the right thing to do. Far from comparable, the situation is almost the opposite! The US is now a net debtor and importer of goods, and domestic demand is slack due to a stagnant median wage.
Yes, the Fed was overly accomodative in the 1920's as can be shown in the last chart in this blog, but the discussion is much more complex than time allows.
Rickards is on case with his discussion of the mispricing of the gold standard back then, and with regard to the SDR as a possible successor to the dollar, although he likens it too much to the US dollar, and says that the IMF has a printing press. He ignores the fact that the SDR is tied to an external standard, in this case a basket of currencies. And there is a contentious discussion amongst the trade powers with regard to the change in that basket. China and Russia are lobbying for other currencies and gold and silver to be included.
So it is a bit glib to suggest that the IMF can print SDR's at will. They *could* do that at some point, but not under the current system. That change in the composition of the SDR could be a key development in the currency war.
Speaking of Currency Wars, it is the title of Rickards new book, and I am waiting patiently for my copy to arrive.
In the meanwhile I started reading Jack Kennedy by Chris Matthews. It is very well written. Matthews is a natural story-teller, and he offers a fresh view of Kennedy based on first person information from JFK's friends, colleagues, and family.
It is a delight to read so far. It is a little light on 'scholarship' for some tastes, but it rings true, and includes an enormous amount of primary source interviews. It is insightful, a unique perspective, and a great read. It answers the question, "Who was Jack Kennedy, and what was he like?" I am thoroughly enjoying it. Matthews hit this one out of the park.
The situation with MF Global is an absolute disgrace. I am spending quite a bit of time looking into it, and will try to keep you apprised of any developments.
Have a pleasant weekend.
There was intraday commentary on the SP 500 chart that shows some important chart formations and levels of support and resistance.
The market rallied today on relief that Italy's bond prices relented somewhat, and consumer confidence came in 'better than expected.'
Volumes were light and the bond market and banks were closed for Veteran's Day.
Keep an eye on the European situation, as it will continue to drive the markets.
