Simon Johnson: Restoring the Rule of Law in Financial Markets

“Crime, once exposed, has no refuge but in audacity.”

Tacitus

With campaign finance reform, the need to reform the financial markets is one of the greatest social policy issues of our time.

Simon Johnson is one of the few 'name' economists who recognizes this and is willing to talk about it.

There is a bitter campaign being waged in the think tanks and the media against reform. The campaign is similar to that which was waged for almost a decade to overturn Glass-Steagall.

Getting rid of bad government by eliminating all government is just giving the real perpetrators what they wish. What we need are the kind of rules and regulation that Simon Johnson and Elizabeth Warren talk about here.

It is the kind of reform that Franklin Roosevelt worked to put into place that lasted for almost 70 years, until the forces of Wall Street were able to guile the people into handing over their pursestrings to them once again.

What is discouraging is the deep involvement of both sides of the aisle in the Congress in enabling this sad corruption of the markets and the financial system--  for money.   And in particular how the moral and intellectual processes of the state have become corrupted by the power of the moneyed interests.

To put a fine point on it, once the professional classes become cowed or corrupt, reform of the process through systemic means is exceptionally difficult.   What we have is deep capture and the credibility trap reinforcing the worst of the abuses through a series of punishments and rewards.

And what may be particularly galling is when insiders who are at the locus of the corruption, like our recent crop of presidential candidates on both sides, talk about how they will change things, while the money is still flowing through their hands, and the spin is flowing out of their mouths.

And alas, even some of the reformers seem more interested in getting some of their own power and money than in promoting real reform.  We have a problem, not at the periphery of our actions, but at the moral root of our thinking.

 

I have always enjoyed listening to economist Robert Johnson's brief excerpt below, because it highlights the very crux of the problem.  Unless some of the well to do and the professional classes shake off the lure of big money and the credibility trap, and start acting responsibly, this is going to end very badly.  

 

And make no mistake, there are some of the self-deluded and their servants who see that turmoil that may come as just another opportunity for their looting and a rise to greater power as they energize the mob for their own ends.  But they forget the great lesson of history, that once the madness is unleashed, it tends to serve none but itself.

 

Why should anyone stop lying and cheating, when they are so profitable under the rule of the modern gods of the market, power and money?   Why stop at all?  And then comes the inescapable agent of the downfall of excess, Nemesis, with all that it implies.

 

I have no illusions.   Given the state of our condition, ninety nine percent of those who read this will go on and do absolutely nothing differently for themselves or their people.   But it is in the moral one percent that there is some hope for peaceful, evolutionary change.

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

No More Cheating: Restoring the Rule of Law in Financial Markets

By Simon Johnson

The political debate about finance in the US is often cast as markets versus regulation, as if “more regulation” means the efficiency of private sector decisions will necessarily be impeded or distorted. But this is the wrong way to think about the real policy choices that – like it or not – are now being made. The question is actually what kind of markets do you want: fair and well-functioning, with widely shared benefits; or deceptive, dangerous, and favoring just a relatively few powerful people?

In a speech on Wednesday, Senator Elizabeth Warren (D., MA) laid out a vision for better financial markets. This is not a left-wing or pro-big government agenda. Senator Warren’s proposals are, first and foremost, pro-market. She wants – and we should all want – financial firms and markets that work for customers, that encourage innovation, and that do not build up massive risks which can threaten the financial system and bring down the economy.

Senator Warren puts forward two main sets of proposals. The first is to more strongly discourage the deception of customers. This is hard to argue against. Some parts of the financial sector are well-run, providing essential services at reasonable prices and with sound ethics throughout. Other parts of finance have drifted, frankly, into deceiving people – on fees, on risks, on terms and conditions – as a primary source of profits. We don’t allow this kind of cheating in the non-financial sector and we shouldn’t allow it in finance either.

The unfortunate and indisputable truth is that our rule-making and law-enforcement agencies completely fell asleep prior to 2008 with regard to protecting borrowers and even depositors against predation. Even worse, since the financial crisis, the Securities and Exchange Commission, the Justice Department, and the Federal Reserve Board of Governors proved hard or near impossible to awake from this slumber.

We need simple, clear rules that ensure transparency and full disclosure in all financial transactions – and we need to enforce those rules. This is what was done with regard to securities markets after the debacle of the early 1930s...

Read the entire piece here.

"The problem of the last three decades is not the 'vicissitudes of the marketplace,' but rather deliberate actions by the government to redistribute income from the rest of us to the one percent. This pattern of government action shows up in all areas of government policy."

Dean Baker

"Most of them became wealthy by being well connected and crooked. And they are creating a society in which they can commit hugely damaging economic crimes with impunity, and in which only children of the wealthy have the opportunity to become successful. That’s what I have a problem with. And I think most people agree with me."

Charles Ferguson, Predator Nation

Gold Daily and Silver Weekly Charts - Round Numbers and Extraction Capitalism

Gold and silver managed to rally back today.

But they are still revolving around their round numbers, and moving in a trading range.

Silver is oscillating between 15 and 18, and gold between 1180 and 1220.

 

There was not much delivery action report at the Bucket Shop, and there was the usual moving around of bullion in the silver warehouses, with gold warehouse activity at a minimum.

 

This market is going to break.  I don't know when.  But all price manipulation schemes eventually do.

 

I am concerned that a number of things are going to break.  But that is the price of turning the keys to your society over to a gang of sociopaths.

 

I gave the Central Gold Trust issue more thought, and I still think that this looks like a venturesome arrangement for this fund to get a big short term gain.    The high threshold for redemption is more like GLD that anything Sprott might have, and the entire premise seemed poorly thought and lacked any longer term focus.  It was a short term focused shot at 'unlocking value.'  Once.

 

If I were a long term investor I would vote no.   But if I were a speculator who likes to trade in and out for a flip I would probably want to take it.

In answer to a query, a similar situation does not seem feasible with the Central Fund because the shares that trade are non-voting.  The voting shares are closely held by management of the Fund.

 

Have a pleasant evening.
 

 

Chris Hedges is not pulling many punches in this one.   I think he is a little on the dramatic side for my own centrism.  But things are certainly not going all that well,  injustice is widely tolerated, and the system is in dire need of reform.  Is a valid perspective depending on what assumptions and standards one applies.

 

If his views were taken up by a large minority of activists, it would probably shock most adults who are not early baby boomers, but would seem like the 1960's to those who were around back then. Activist sentiment became galvanized around a social cause in civil rights, and against aggressive wars such as Vietnam.

 

I won't say they were good times.  There was quite a bit of violence and blood, more than most people probably remember. Assassinations were popular methods of quieting dissent at home and abroad. 

 

But the politicians were less smug and complacent, and the music was markedly better.

So many things to think about. Whom will we elect for President this time, Bush or Clinton?

SP 500 and NDX Futures Daily Charts - Can't Stop Dancing While the Music's Playing

This bubble and bust is going to leave a mark.

Have a pleasant evening.

 

 

 

 

 

Gold Daily and Silver Weekly Charts - Choices About the Central Gold Trust?

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

There will be a time when this message is taken to heart-- most likely because there is no other viable choice left to the plutocrats.

I had this from a reader:

"Would appreciate your opinion on the following matter. In my mail today I received a request from Polar Securities asking basically that I vote for their nominees in the upcoming election for the positions of trustees on the board of Central Gold Trust. Their contention is that the trust has consistently traded below NAV which they feel is a disservice to its unit holders. Their aim is to make amendments so that the trust functions more like the Sprott fund including the ability to be redeemed in either cash or actual gold. I was wondering if you had heard of this and also if you have any opinion of Polar Securities about whom I know exactly nothing."

 I don't think I would vote in favor of such a change personally if I were a unit holder of the Central Gold Trust without some serious information  and safeguard that would prevent the fund from being stripped of its gold on the cheap by funds and bullion banks.

It sounds like a move to make the fund an instrument of short term arbitrage which would significantly change its character as a long term investment holding.

A discount to NAV is not a problem if is it constant.   Sure you may sell the units at a discount to NAV but if you also buy them at a similar discount what is the difference?   If done recklessly a change to the charter might provide a 'one-time' kick to the price, but then open the door to something deleterious to the trust.

It depends on why one hold the fund and what the specifics might be.  So obviously I cannot render an opinion based on what I know, and I doubt that any unit holder could do so either.

But I did think it was interesting that this is apparently happening and wanted to pass it along.

P.S. I found this with a web search. The objections of the shareholder were pretty much the thoughts that crossed my mind, but again, not strongly without knowing all the details.

It sounds like a move by speculators that would significantly change the nature of the fund.

Long Term Central Gold Trust Investor Joins Mounting Opposition

I also found this pro-change statement from the other parties.

Unlocking Unit Holder Value

'Unlocking Unit Holder Value' sounds like a flip and strip.  It might not be but I would vote no based on what I have read if I were a person who viewed the Gold Trust as a long term investment.

Have a pleasant evening.

 

SP 500 and NDX Futures Daily Charts - Shuffling Sideways

 

Stocks were moving sideways today as the markets waited for earnings and economic news.

 

Volumes are still light.  I think that the risks are being mispriced and overlooked, and willfully so.

 

Have a pleasant evening.

 

 

 

The Message from the 22 Year Old Suicide at the Nation's Capitol

Suicide is a prohibited form of violence in my own belief, as are all other forms of murder.  Therefore I would not hold this type of protest up as an example to anyone.

However, an even worse offense would be to completely ignore the message which this young man delivered, as most of the mainstream media has done in the US.

I did not even know what really happened until I read this article below from Wall Street On Parade today.  The police and media referred to it as a 'social protest.'   

 

Before he killed himself, the young man held up a sign that said "Tax the One Percent."

Perhaps an even more pointed message might be 'shut down the loopholes for the Top .01%.'  Those who make their money from wages and ordinary income pay fairly significant taxes. 

However, the uber-rich have so many loopholes and tax avoidance schemes that they often pay much lower percentage than even those in the lowest income levels.    The top .01% use the upper middle class as shields for their antics.
 

You may read the entire article about this here.

Rather than one young light be extinguished and quickly overlooked by the powerful, perhaps it would be better if a million people were to march on the Capitol, and effective shut it down in protest this Summer.  That might get their attention.   Alas, the apathy in the people is pervasive, at least for now. 

Wall Street On Parade

22-Year Old Commits Suicide at Capitol to Send Congress a Message

By Pam Martens: April 14, 2015

At approximately 1:07 p.m. on Saturday afternoon, April 11, during the annual Cherry Blossom Festival celebrating springtime in the Nation’s Capitol, a 22-year old man took his own life with a gun on the Capitol grounds with a protest sign taped to his hand. According to the Washington Post, the sign read: “Tax the one percent.”

Yesterday, the Metropolitan Police Department released the young man’s name. He was Leo P. Thornton of Lincolnwood, Illinois. Based on what is currently known, the young man had traveled to Washington, D.C. for the express purpose of making a political statement with his sign and then ending his young life.

The Chicago Tribune reported that “Thornton’s parents filed a missing persons report on the morning of April 11 after he never came home from work on April 10, Lincolnwood Deputy Police Chief John Walsh said.”

Those are the tragic facts of the incident itself. But there is a broader tragedy: the vacuous handling of this story by corporate media. The Washington Post headlined the story with this: “Rhythms of Washington Return after Illinois Man’s Suicide Outside Capitol.” The message he delivered to his Congress – tax the one percent – has yet to be explored by any major news outlet in America in connection with this tragedy.

Was the message of Leo P. Thornton of Lincolnwood, Illinois a critical piece of information for this Congress to hear at this moment in American history. You’re damn right it was. Outside of Wall Street’s wealth transfer system, provisions in the U.S. tax code are the second biggest wealth transfer system to the one percent. Together, these two systems have created the greatest income and wealth inequality since the economic collapse in the Great Depression. They threaten a repeat of the 2008 financial collapse because the majority of Americans do not have the wages or savings to support the broader economy...