When laws are for breaking

A relatively obscure case in Norway shows just how different the United States is from the rest of the industrialized world.
The Oslo Stock Exchange was halted by unusual trade action. It seems two Norwegians were trying to manipulate stock prices.

We believe the two are behind a number of cases of price manipulation. They have set purchase and sales orders that have not been real, because they have had another motive, namely to move prices, "said Stenberg.

In other words, they did exactly what every single bank on Wall Street does every single day. In New York it is called High Frequency Trading. In Oslo it is called getting six years of jail time for breaking the law.

So who is right? Is Norway some Socialist Hell for not allowing the free market to work, allowing faster traders to skim profits from slower traders? Or are laws in the United States too lax, allowing people to take money from the system without adding any value, thus destabilizing the economy?

To answer that we need to look at a couple more examples.

Engineered Failure

The Financial Times had an overlooked news story the other day. Believers in the recently passed financial reform should be shaken all the way to the bone by it.

The hedge fund strategy pioneered – and made notorious – by Long Term Capital Management is returning to prominence amid one of its most successful years yet, aided in large part by the massive issuance of bonds by the UK government and other sovereigns.
Fixed-income relative value trading – shunned by investors after the collapse of LTCM in 1998 – has been one of the industry’s few outperformers this year, thanks to massive pricing anomalies caused by fiscal stimulus packages and unconventional central bank monetary policies around the world.

There are two disturbing qualities to this news.
The less disturbing part is that the amount of central bank intervention is causing huge distortions in world bond prices, distortions so large that politically connected entities can front-run the news and make enormous amounts of money.

The more disturbing part is that the same practices that collapsed LTCM, and nearly collapsed the world bond markets in 1998, are surging again. For those of you who don't remember, the collapse of this one hedge fund nearly froze up the world's bond markets. The Fed had no choice but to backstop the major Wall Street banks when they bailed out LTCM.
The very next year, the same people who ran LTCM set up another hedge fund that operated on the same basis as LTCM, and it failed again in 2009.

It causes a person to ask: what benefit is there for the general economy, and society in general, by allowing this practice to continue year after year?

Robbing from the poor and giving to the rich

The talk on the right-wing airwaves these days is all about greedy public unions and those symbols of overpaid bureaucrats: schoolteachers, firefighters, and policemen. What hasn't gotten nearly as much attention is a very different reason why our cities are broke.

Jefferson County, Alabama, is broke. The reason it is broke is because of J.P. Morgan Chase sold them shady financial derivatives swaps that backfired. The reason that Jefferson County engaged in a financial product that they didn't understand was less a matter of country-bumpkins buying things they couldn't spell, and more of a case of being maneuvered into the situation.

West Virginia was just one stop in a nationwide conspiracy in which financial advisers to municipalities colluded with Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Wachovia Corp. and 11 other banks.
They rigged bids on auctions for so-called guaranteed investment contracts, known as GICs, according to a Justice Department list that was filed in U.S. District Court in Manhattan on March 24 and then put under seal. Those contracts hold tens of billions of taxpayer dollars.

This is a case of nationwide fraud. Yet no one has gone to jail over it. The same banks listed above were also involved in the Enron Scandal. They were at the heart of the 2008 financial meltdown. Yet none of them are in jail. Do you think the Norway government would treat them so easy?
There is a cost to their thievery. Take a look at Jefferson County today.

McTerry is playing catch-up financially. Registering four kids for public school has made a real dent in the bank account of this single mom, who works part-time. As she leans on a folding table - one of only two pieces of furniture in her living room - she does the math.
"Oh..... three or four hundred dollars! We had to do fees... and I didn't get everything either. I got the stuff that they needed. All the optional things, I told them they'd get it as time go."
What they got was school supplies, a locker, an assignment book and t-shirts that they’re required to wear on all field trips. McTerry also paid a “mailing” fee that covers any papers the school has to mail to her home.
...
Add the locker fee and the "voluntary donation" of $100 that the school asks from every child ... plus the 650 dollars for the marching band – and Fernow is paying just under one-thousand dollars.
Fees like this are common in Alabama, where many school systems are facing budget cutbacks. Principal Ron Griggs at Thompson High School in Alabaster says he’s already taken the lightbulbs out of the soda machines in the hallway to save money on electricity.
Alabama's not alone. Across the country in financially-strapped states, schools are increasingly asking parents to pay for supplies that used to be provided by the schools - even toilet paper for the bathrooms, according to Katie Campbell, president of the Alabama PTA.

Pay for your own toilet paper at school? Seriously?!? Locker fees. "Voluntary donations". It looks like the public school system is on the verge of system failure.
Meanwhile, Wall Street bank executives are giving themselves record bonuses after tricking cities and counties into crooked deals. Why aren't these people in jail? And why are we blaming schoolteachers or this mess?

Love that narco-terrorist money

A year ago the Pentagon released a report concluding that "Mexico is at risk of becoming a failed state" and beginning to resemble a narco-terrorist state.
It turns out that the reason for Mexico's tragic condition was because American banks were financing the drug trade.

Wachovia, it turns out, had made a habit of helping move money for Mexican drug smugglers. Wells Fargo & Co., which bought Wachovia in 2008, has admitted in court that its unit failed to monitor and report suspected money laundering by narcotics traffickers -- including the cash used to buy four planes that shipped a total of 22 tons of cocaine.

Laundering drug money is a very lucrative business to be in. This also isn't the first time that the banks have been caught with blood-and-cocaine-covered hands.
Every time it happens the banks cut a deal and pay a fine. No jail time. The authorities are after the drug runners, not the banksters.

No big U.S. bank -- Wells Fargo included -- has ever been indicted for violating the Bank Secrecy Act or any other federal law. Instead, the Justice Department settles criminal charges by using deferred-prosecution agreements, in which a bank pays a fine and promises not to break the law again.

That may sound insane to you and me, but the banks are merely following the example set by the largest banking regulator in America - the Federal Reserve.

(Bloomberg) -- Last week the New York Federal Reserve made what may go down as the most misguided move in the history of the Federal Reserve system. They laundered money for North Korea.

As far as I can tell, no one suffered any punishment for laundering North Korea's money, so why should anyone at a private bank do jail time?

Stealing money is like a drug. There is always a "gateway" drug, and that gateway drug for Wachovia (before they turned to real drugs) was their own customer accounts.

Last spring, Wachovia bank was accused in a lawsuit of allowing fraudulent telemarketers to use the bank’s accounts to steal millions of dollars from unsuspecting victims. When asked about the suit, bank executives said they had been unaware of the thefts.
But newly released documents from that lawsuit now show that Wachovia had long known about allegations of fraud and that the bank, in fact, solicited business from companies it knew had been accused of telemarketing crimes.

Let's not pick on Wachovia. They were just more crass about their mafioso business. The other major banks are much more classy about their generational theft. Well, at least they took the effort to make it look legal anyway.

Slowly, as the pieces fit together, we shared a horrifying epiphany: the banks, corporations and investors acting in each global region were the exact same players. They were a relatively small group that reappeared again and again in Russia, Eastern Europe, and Asia accompanied by the same well-known accounting firms and law firms.

Clearly, there was a global financial coup d’etat underway.

I want to summarize this by bringing in my favorite financial regulator - William K. Black.
When he was in charge of cleaning up the S&L Crisis, he managed to jail a thousand bankers. During those trials and investigations he exposed massive amounts of malfeasance. The current crisis is 40 times larger yet almost no bankers have been prosecuted.

The Black interview starts 13 minutes in, but the first 13 minutes are pretty good too.

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Comments

right on, overall theme

Even when it comes to IRS tax evasion, Tim Geithner gets to be head of the IRS, the Treasury, while "missing" a huge amount of taxes and blames "TurboTax". If that was a regular person on the street, they would have been hammered and no way would the IRS allow "TurboTax" as an excuse.

But the bottom line is when a corporation does it, they can get away with anything. When it comes to them, whatever they want, including obvious crime, such as laundering drug money.

When deficits are discussed, it's ALWAYS screw people out of social security now that pensions have been dismantled and the upcoming boomers have zippo for retirement as it is.

It's always "reduce wages" instead of collect more corporate taxes and stop the loopholes for corporations to not pay taxes and park their money in the Cayman Islands.

We have massive bail outs, yet HAMP (as we've both written about) is a Kafkaesque maze of bureaucratic bullshit, all designed to make sure people really are foreclosed on, or perhaps get as much money out of them before they are foreclosed or die.

We even have corporations taking life insurance policies out on workers, not to pay out to the families if something happens, but to pay out to that corporation. Literally they are playing the numbers game, looking to make profits over the death of employees.

On the drug war, I don't know about you, but it is so obviously stupid at this point, to not immediately legalize, regulate and tax the hell out of marijuana. Imagine the savings. Imagine the cash crop potential. The failure of making marijuana illegal is so obvious, so overwhelming and now we have organized cartels turning Mexico beyond Iraq and Afghanistan in terms of terror and danger and it's also crossing the border into the United States. We have, literally, our national forests and state forests being turned into illegal pot farms. Beyond pollution and destruction, there is one small problem with that....if a hiker happens to go back country....they might just come across a few guys with AK-47s. Oh well, what's another lost hiker?

We literally have the Obama administration giving U.S. taxpayer money to train foreigners abroad in skills, and this is long term training, for FREE, on the U.S. taxpayer dime, to increase offshore outsourcing of U.S. jobs.

So, your overall theme is truly right on, if the super rich/elite/connected powerful and of course any corporation, does anything and even other nations....that's ok, but if it's something for the U.S. workforce, the citiznry, the U.S. middle class, you can be sure it will be all about robbing from their pockets or some sort of sucking more money out of them.

That's when it's becoming obvious, by destroying the U.S. middle class, the U.S. workforce, they literally are creating another global crisis and even a collapse of the U.S. economy as a whole.

The ultimate "bubble" mentality, thinking to continue down this road, the U.S. isn't going to implode.

BTW: As far as the teacher's union goes, I do think education, K12 is seriously screwed up in terms of all of the requirements to even be a teacher. Seriously, so much crap and certifications when many don't even know their subject area well enough to teach it correctly. I'm not sure if that's the state regulations, i.e. government, federal and state requiring so much bureaucracy and crap to teach, but whoever is doing that...they make it a nightmare for anyone to learn anything.

Absurd certifications and bogus "education theories", yet the obvious, uh, it's impossible to teach 40 kids, which switch every 50 minutes to 40 different kids, on top of it...., is ignored. It's psycho politics, who can accomplish anything much in such a FUBAR system?

But your point, they have been putting on the teachers, students costs for years. Demanding a teacher pay for supplies for the entire class, such absurd horror stories...

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Excellent Article midtowng.

Excellent links. Fantastic job of bringing so many interwoven thoughts together.

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EP is a news source, folks, thats's your news

I hope all realize, at least on the economic report overviews, EP is a news source. Not that it's a huge deal by itself, but the reason I'm mentioning is we are being deluged with bogus trivial press for the last two weeks, the smoke screen has increased dramatically.

It's like Michael Jackson was on 24/7, but now we have "Mosque" and "people believe Obama is a Muslim" and a rehash of the typical masking types of "headlines" so the real news, which is the U.S. workforce is being pummeled and the government and both political parties will not confront their corporate masters and do something about it.

So, with that, you might consider voicing the real news, like this post does and try to push up the real stories into the headlines.

It's pretty disheartening for we cannot even get confrontation on China's currency manipulation and supposedly that's a bi-partisan issue with almost everyone in the Senate co-sponsoring a bill to do so, yet, magically, it's not brought up for a vote and passed. Lots of examples like this one.

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destabilizing the economy?

While there is no doubt in my mind banks and brokers commit financial fraud on a regular basis, bidding up an equity or selling shares of an equity in order to liquidate does not "destabilize the economy", nor should it be illegal. People with deep pockets and large positions will undoubtedly move markets more than others but that could be said regarding just about everything--it doesnt make it fraud.

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