"My fear is that we have seen the rule of law function in our country for so long that many of us have come to take it for granted. The rule of law is not self-executing. It depends on our collective commitment to apply it."
Jack Smith, Testimony to Congress, 22 January 2026
Highlights:
Yes. The only thing that was surprising how long the SEC took to do it.
The complaint does not go quite far enough. It was a blatant fraud, more than just a failure to disclose information.
And this may be the beginning of a lot of questions about a lot of investment banks. It has massive implications IF the SEC does its job right, which they have not done in the past.
Ted Butler April 16 Metals Review mp3
Here is an interesting graph of wealth distribution, or dispersion, as I call it from Cherchez La Verite.
I am not sure I agree with his conclusions or even his premise, not because I disagree but because it requires some thinking and leisure to digest it. But the data is most interesting.
I wonder if any of the quant economists have performed simulations on virtual populations, and then examined the results of varying different tax rates, and concentrations of wealth because of fiscal policy and regulatory structure, among other things.
I have an hypothesis that great concentrations of wealth lead to economic stagnation, but I am afraid that I have not the means or the talent anymore to conduct that type of research.
The difficulty in a study like this is that the assumptions are greatly magnified into the results. If you assume certain buying, spending, and savings behaviours, the downstream impact can greatly alter, and even distort, the outcomes.
And when people reason through this verbally, rather than perform a structured simulation based on transactions, the distortions increase by an order of magnitude or more based on their own biases.
I used to create simulations like this all the time, for industrial and commercial purposes, and also did a decent amount of econometric modeling. So I am sure someone is doing it somewhere. But I suspect they are doing it in think tanks and places where the outcome is predetermined by the basis of their grant.
Concentrated wealth magnifies the needs and predispositions of the holder. Since the amount they require for basic necessities can only consume so much, one would think that the amount spend on the aggregate of necessities will eventually be reduced. And what they do with their excess of necessity wealth is going to be greatly influenced by their character. Are they a gambler, who inherited the wealth? Are they productive and beneficent? Are they dissolute and venal?
And what about government? Taxation can concentrate enormous wealth in the government. What sort of government does one have, or does one assume? Are they warlike, productive, redistributive, and how corrupt? What about corporations? They can be like small governments, and levy taxes through monopoly and persistent frauds. How are they managed? Corporations are not rational machines, as the efficient market hypothesis would probably presume. Indeed, corporations are often much worse than governments in terms of sheer blockheadedness, greed, and short-termism.
Hard to say. But there is a related field of study in decision making theory, which looks not at wealth but the distribution of decision making power in organizations. It is concerned with the validity and effectiveness of decisions made across a range of broader consensus to a narrow oligopoly and even a great man dictatorship.
The general observation I came to in this study was that decisions tend to be more valid depending on the quality of the information, the facility of the evaluation of it, or intelligence/learning/experience, less the biases and distortions.
A decision becomes a little better if the information is more widely dispersed and a variety of actors can exchange freely in increasing and refining it. There is a point of decision dispersion where the returns not only diminish, but become counterproductive because of the noise and inability of new actors to add value, and actually detract from the process. But finally what I found interesting is that in the aggregate personal error, bias and distortions tends to diminish quickly as a detractor from the result, assuming a non-homogeneous population with some independence of thought.
So too this same sort of study can be applied to the concentration of wealth, since wealth is power. But it is even more interesting because spending habits will vary since the percentage of spending on essentials changes much more slowly than wealth can increase.
And how one assesses the outcomes is also essential. What is thought to be a 'good outcome?' Not necessarily in a rough measure like aggregate GDP, but perhaps GDP with modifiers like the median wage, and a poverty level of essential spending. This is important because so often economic policy arguments are presented with the goal of optimizing short term GDP.
Alas, I have little hope that this will be done now, for the US has had a leadership role in quantitative economic studies, and their work has been twisted generally into the service of whores, robber barons, and gamblers as the speculative society reaches a crescendo. But some day this too will change.
"Don't believe them, don't fear them, don't ask anything of them."
Alexander Solzhenitsyn
Here is a video interview on France 24 television with Max Keiser speaking on Goldman Sachs from almost one year ago.
By the way, NO ONE who is a serious player on Wall Street is legitimately surprised by this, and probably no one in regulatory bodies are either, unless they are just showing up to collect a paycheck and obtain free Internet access.
The antics of Goldman Sachs have been getting by on a 'wink and a nod' from the regulators and the market for some time. Why? Because they are powerful, and because like Lehman and their off balance sheet frauds, they are almost ALL doing it on Wall Street as part of the franchise. Goldman has just been a pig about it, and probably burned some insiders and powerful investors in their fraudulent Abacus trade.
The excuses being made for Goldman by some on Bloomberg Television and CNBC are setting new lows in journalism. It was just a simple failure to disclosure Paulson's involvement right? Almost a technicality. No one forced the customers to buy those fraudulently packaged and labeled assets or stocks (this was a favorite excuse from Joe Kernan during the Internet/tech bubble collapse). No involvement from the Ratings Agencies in the purposeful crafting of a fraudulent financial instrument. Guest Calls Cramer a 'PR Man for Goldman Sachs' and is ejected from the show by the resident money honey.
As you may recall, Mr. Cramer represents himself as highly experienced in manipulating stocks using CNBC reporters from his days as a hedge fund manager. So it might not be so outre to inquire if he is working the other side of that Wall Street scam these days.
Why, these derivatives were SO complex that the poor Goldman management barely understood them themselves. They were tricked by Paulson. Tourre is a rogue trader. Bernie Madoff ate their Series 7 cheatsheets. Compliance was seconded to the Riviera. Lloyd was busy doing missionary work in Bangkok. More regulation will just hurt the recovery.
Don't just regulate them. Break them up. And audit the Fed.
I am glad the professor is from HEC. I did my international business MBA sequence (an extended field trip for adults, but the refreshments were good) at the 'other' business school in Paris at La Defense, ESSEC.
Max Keiser
“Only fraud and falsehood dread examination. Truth invites it.”
Dr. Samuel Johnson
"The product was new and complex, but the deception and conflicts are old and simple. Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party,” said Robert Khuzami, director of the division of enforcement.This could be construed as a deft way of throwing red meat to the angry mob, nailing a specific individual at Goldman while limiting the criminal charges against the company although there will be significant civil cases, and dealing with the billionaire hedge fund owner Paulson who made a fortune betting against the subprime market.
Goldman will almost certainly attempt to spin this as the actions of a 'rogue trader' who was an aggressive exception.
Last week the White House asked Jamie Dimon and Lloyd Blankfein to 'cool it' on their intense lobbying efforts against derivatives and financial reform.
Perhaps this will help them in their decision.
This is just the tip of the iceberg. The Wall Street Banks are knee deep in fraud.
No one can obtain the kind of consistently odds defying returns that Goldman was producing without either cooking the books or engaging in some type of gaming the system, which is a polite word for fraud. That is the same 'tell' as the steady and outsized returns that Madoff is producing.
Let's see if this goes any deeper, and if serious punishments and reforms result.
The SEC can only enforce the Securities Laws, but cannot bring criminal charges. Since Paulson is not being charged, since he made no representations regarding the products, only Goldman is being sued by the SEC. Their alleged gain in this is $15 million dollars, the fees it obtained from Goldman. And Goldman will say that they were only serving their customer, Paulson.
Certainly Goldman will be subject to civil lawsuits and discovery. But the real test of the Obama government will be any role that the Justice Department does or does not take in this. They could of course defer, using the show trials of the Financial Crisis Inquiry Commission as a rationale to take no action.
This is blatant fraud and white collar crime being conducted by an organization that is paying contributions to half the Congress and the Administration, and staffing key positions in the government with its employees. Do you really think it will be brought to full disclosure and equal justice?
In a statement Goldman says that "The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation." Fabrice Tourre was last seen being thrown under a bus, and could not be reached for comment.
Watch the Justice Department and the Obama Administration to see what they do or do not do, and you will be able to know their character and intents. But in fairness the big Broker-Dealers in the US are RARELY indicted for anything. They virtually own the country's political and justice system.
"I did not run for office to be helping out a bunch of fat cat bankers on Wall Street." Barack Obama to CBS News.
Time do something besides talk the US to death about what you are going to do, and how the Republicans and lobbyists are getting in your way, and how great it will be when you finally do it. The SEC is relatively toothless, and probably by design. The FCIC will be tramping in the weeds for the rest of the year.
You do not need the Republicans, and you do not need the Congress, to fully engage the Justice Department and the FBI in investigating this fraud, Mr. Obama.
The most likely outcome will be a disgorgement of profits and a wristslap, and a promise by Goldman to change its business practices, while admitting no wrong. That will be the 'business as usual' outcome, and a sign that reform is an illusion.
Meanwhile, the market manipulation continues. I thought it was cute the way in which the metals bears used this news to sell the market in an attempt to sustian their huge naked short positions. "Never waste a crisis."
The US Congress reacts to the scandalous news.
Breaking news on breaking the rules, more to follow.
This is the way to start putting some 'teeth' into financial reform.
Bank managers must be held accountable for their actions, preferably by shareholders. The Swiss are showing the way on this.
SwissInfo.CH
UBS has “witnessed a Waterloo”
By Time Neville
Apr 15, 2010
Swiss newspapers on Thursday morning were full of praise for UBS shareholders who voted to hold 2007 executives partially responsible for the bank’s near collapse.
Commentators say the decision not to exonerate former CEO Marcel Ospel and other top managers of allowing the bank to suffer record losses and reputational damage is nothing short of historic.
“Shareholders yesterday preferred honesty over immediate profit,” the Geneva-based Le Temps newspaper said in an article titled, “Shareholder courage”.
“It was a courageous and responsible decision.”
During the big bank’s annual shareholder meeting in Basel, some 4,700 stockholders representing 1.7 billion shares, voted by a margin of 53 per cent to reject recommendations by the current board to absolve executives from all responsibility for the bank’s staggering subprime losses that prompted a SFr 60 billion federal bailout.
The decision means former managers are now exposed to potential lawsuits.
“This is something that no one for a long time thought possible,” said Blick. “By standing up to the board, the owners of UBS have written economic history.”
Shareholder democracy
The Tages-Anzeiger newspaper said the vote serves as a “slap” to top executives and represents a turning point that the bank cannot deny.
“With this ‘no’ chairman of the board Kaspar Villiger and UBS have witnessed a Waterloo,” the paper wrote. “Although this means little to nothing in concrete terms, symbolically it means much.”
The paper went on to say the vote is a “triumph for shareholder democracy”, and notes it was the first time shareholders of a large public company succeeded in going against the will of the executive board “not only to send a signal” but also in doing so with a majority of votes.
“Imagine: Managers selling their own shares worth SFr150 million at high market conditions through the summer…and then presenting SFr50 billion in losses. To absolve them of that, that’s too much for even the most good-natured shareholder,” the paper said.
That may be true but it was no knee-jerk reaction, countered the Neue Zürcher Zeitung.
“By agreeing with most of the board’s recommendations – such as 85 per cent agreeing that the current UBS top brass should be absolved of responsibility – the majority of shareowners are implying they do not want to hobble the bank despite their displeasure.”
What next?
“And now?” asked Le Temps.
The NZZ says the bank would be “well advised” not to go back to business as usual.
The Tages Anzeiger argues that to “really draw a line under the past”, Villiger must consider whether to prepare a case against former managers. At best, it’s a job for a “neutral judge” to decide whether "the old UBS" broke the law, it said.
“That way, [Grübel and Villiger] can take care of the new UBS uninhibited.”
Le Temps says it seems “unimaginable” that the board would stick to the status quo, after a vote akin to “the mutiny of the Bounty”.
“Yesterday’s vote will have consequences beyond the bank,” it argued, saying the era of powerful shareholder democracy has been crowned “with spectacular force”.
“But be careful,” it warned. “Shareholder democracy can’t regulate everything, in particular in the banking realm, where the central question of systemic risk remains intact.”
The paper’s cross-town rival, the Tribune de Genève, put it more bluntly. It shot down an argument that Ospel and company would never go before a civil or criminal court because such a suit would be too expensive or an exercise in futility.
“Whatever!” it said. “The penalty imposed yesterday has a symbolic significance far greater than all the judgments of the convoluted world. Swiss economic democracy has finally succeeded in overthrowing a regime. For that it is thanked.”
"Somewhere ahead I expect to see a worldwide panic-scramble for gold as it dawns on the world population that they have been hoodwinked by the central banks' creation of so-called paper wealth. No central bank has ever produced a single element of true, sustainable wealth. In their heart of hearts, men know this. Which is why, in experiment after experiment with fiat money, gold has always turned out to be the last man standing." Richard Russell
Mr. James G. Rickards is Senior Managing Director for Market Intelligence at Omnis, an applied research organization. He is also co-head of the firm's practice in Threat Finance & Market Intelligence and a member of the Board of Directors. Mr. Rickards is a senior counselor, investment banker and risk manager with extensive experience in capital markets including portfolio and risk management, product structure, financing and operations.
Prior to Omnis, Mr. Rickards held senior executive positions at "sell side" firms (Citibank and RBS Greenwich Capital Markets) and "buy side" firms (Long-Term Capital Management and Caxton Associates). Mr. Rickards has been a direct participant in many significant financial events including the 1981 release of U.S. hostages in Iran, the 1987 Stock Market Crash, the 1990 collapse of Drexel and the LTCM financial crisis of 1998 in which he was the principal negotiator of the government-sponsored rescue. He has been involved in the formation and successful launch of several hedge funds and fund-of-funds. His advisory clients have included private investment funds, investment banks and government directorates. Since 2001, Mr. Rickards has applied his financial expertise to a variety of tasks for the benefit of the national security community.
Mr. Rickards holds an LL.M. (Taxation) from the New York University School of Law; a J.D. from the University of Pennsylvania Law School; an M.A. in international economics from the JHU /SAIS, and a B.A. degree with honors from The Johns Hopkins University.
