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The Economist Issues a Myopic Defense of the White-collar Criminal

The Economist Issues a Myopic Defense of the White-collar Criminal

posted by Public Banking Inst | 0gb
November 04, 2016
http://www.publicbankinginstitute.org/too_smug_to_jail?utm_campaign=pbinews11_04_16

An editorial called "Jail bait" is the latest in a line of salvoes against what The Economist imagines is a wave of politically driven regulatory actions against corporate executives. It's bad enough that the self-pitying jerks on Wall Street who read magazines like The Economist think that paying taxes or giving employees benefits or adhering to any labor or environmental standards are unconscionable burdens. Now we're supposed to be so grateful for their sociopathic pursuit of profits that we should excuse them from the criminal code, too?

Too Smug to Jail

By Matt Taibbi, Rolling Stone
As we reach the close of an election season marked by anger toward the unaccountable rich, The Economist has chimed in with a defense of the beleaguered white-collar criminal.

An editorial called "Jail bait" is the latest in a line of salvoes against what the magazine imagines is a wave of politically driven regulatory actions against corporate executives.

The piece makes many of the usual Wall Street arguments: locking up executives wouldn't do any good, populist passions are ignorant, etc. But this is the crucial passage:

"Most corporate crime is the result of collective action rather than individual wrongdoing—long chains of command that send (often half-understood) instructions, or corporate cultures that encourage individuals to take risky actions. The authorities have rightly adjusted to this reality by increasingly prosecuting companies rather than going after individual miscreants."

Yikes! This extraordinary argument is cousin to the Lieutenant Calley defense, i.e., that soldiers bear no responsibility for crimes they were ordered to execute. The Economist here would have you believe that there's no such thing as an individual crime in a corporate context.

This is a line you hear a lot not only in the finance community, but among the lawyers who defend the likes of banks and pharmaceutical companies.

Former Attorney General Eric Holder, now back in his comfy old role as a partner in a prominent corporate defense firm, said almost exactly the same thing in a speech in New York two years ago (emphasis mine):

"It remains true that, at some institutions that engaged in inappropriate conduct before, and may yet again, the buck still stops nowhere. Responsibility remains so diffuse, and top executives so insulated, that any misconduct could again be considered more a symptom of the institution's culture than a result of the willful actions of any single individual."

That was a sitting attorney general saying people don't commit crimes – corporate culture commits crimes. No wonder there were no meaningful prosecutions after the financial crisis of 2008.

Ambrose Bierce once said that a corporation was "an ingenious device for obtaining individual profit without individual responsibility." Bierce was being funny, but this "individuals can't commit corporate crime" argument, sadly, is serious.

It's an idea grounded in a belief system backed by syllogistic reasoning. We live in a capitalist economy; private companies need to innovate and take risks in order to succeed; therefore, we should not do anything to discourage innovation or risk-taking, or what The Economist calls "testing the rules":

"Society should by all means punish white-collar criminals if they have obviously committed crimes and imposed harm. But it should resist the temptation to criminalize new businesses testing the rules. And it should certainly resist the temptation to single people out for harsh punishment simply because they are rich and successful."

The magazine decries the backlash against banks after 2008 as irrational populism. It also praises prosecutors for not bringing cases against firms for things like selling faulty mortgage-backed securities, which are described as "perfectly legal (if unwise)."

But this just isn't true. Most of the Wall Street scams that triggered what The Economist would decry as "populist" outrage in recent years weren't just morally despicable, but bluntly illegal. Many were just skyscraper-level versions of street crimes.

A Mexican-American racetrack owner launders perhaps tens of millions for Mexican drug gangs and gets 20 years. HSBC does the same thing on a much grander scale and everyone walks.

In the mortgage fraud cases, companies knowingly sold defective products to institutional investors, pension funds being a classic customer. Whistleblowers told of executives who knew they were selling investors packets of home loans prone to default, and did it anyway.

These executives weren't "testing the rules" in an effort to innovate their way to the next superconductor or smartphone. This was just plain old criminal fraud, ripping people off, with minorities and the elderly suffering disproportionate losses. The state of Illinois got $84 million from just one bank, Citigroup, for its fraudulent marketing of dangerous securities to state retirement funds.

In a non-corporate context, we'd consider this among the most serious kinds of crimes that we punish. What sentence would you want for someone who stole from your parents' retirement money? From your local teachers' union?

It's bad enough that the self-pitying jerks on Wall Street who read magazines like The Economist think that paying taxes or giving employees benefits or adhering to any labor or environmental standards are unconscionable burdens. Now we're supposed to be so grateful for their sociopathic pursuit of profits that we should excuse them from the criminal code, too?

What a bunch of clueless weasels these people are. Always lecturing the poor for wanting a free lunch, when they're the ones begging for a free ride.

 

NY Times Has a Fatal Wall Street Bias

NY Times Has a Fatal Wall Street Bias

posted by Public Banking Inst | 0gb
November 04, 2016 

http://www.publicbankinginstitute.org/the_ny_times_has_a_fatal_wall_street_bias?utm_campaign=pbinews11_04_16

The New York Times is the one paper in America that should be viewed with particular skepticism when it comes to Wall Street. It was a cheerleader for years on its editorial page, promoting the repeal of the Glass-Steagall Act. The Times apology, coming after the deregulated Wall Street had crashed the U.S. financial system and left millions of innocent Americans without jobs and in foreclosure, was too little too late.

Wall Street Is Hands Down the Most Corrupt Industry in America

By Pam Martens and Russ Martens, Wall Street on Parade
A few years back, when William D. Cohan (left) was writing for Bloomberg News, one could reliably count on him to hold Wall Street’s feet to the fire. Now Cohan is writing for the New York Times and it feels like the Times sent him for an in-house lobotomy or at least a crash course in reoriented thinking.
Consider Cohan’s article from yesterday in the Times, titled Why Washington Needs Wall Street. First Cohan piles on to the recent bashing of Senator Elizabeth Warren by Roger Lowenstein in the pages of the Times. Warren has led a meaningful, multi-year charge to expose the failed reforms and lapdog regulators overseeing Wall Street, which is hands-down the most corrupt industry in America and located in the same home town as the New York Times.  (If you can’t clean up your own home town, what good are you?)
Cohan calls Warren a demagogue, writing that “she goes overboard and seems like she is receiving way too much gratification getting headlines and television time for her stern and condescending lectures.” (If the business model of your industry is fraud – as Senator Bernie Sanders has correctly stated and the serial charges of crimes further attest – can anything said about you be condescending?)
But here’s where Cohan really flips wildly from his former personality. Cohan writes that there’s a “drumbeating” coming from the likes of Senator Bernie Sanders, Warren and former Labor Secretary Robert Reich to prevent anyone with a Wall Street background from filling cabinet or subcabinet posts if Clinton becomes the next President. Cohan now sees this as a bad thing, writing:

“The fact is that many jobs in Washington could be filled by someone with a Wall Street background to the benefit of the American people. What better way to improve the inner workings of the capital markets than by having someone with the authority to regulate them who knows precisely how they work, or how they are manipulated.”

Now consider the tune Cohan was whistling just a little over three years ago at Bloomberg News. Cohan wrote:

“…we get stuck again and again with people whose ties to Wall Street run deep. Indeed, the ‘revolving door’ between Wall Street and Washington seems to have been spinning faster than ever during the first five years of Barack Obama’s administration, contrary to what candidate Obama led us to expect. Is it just a coincidence that the president’s most important economic advisers — Jack Lew, the Treasury secretary; Sylvia Mathews Burwell, his choice to head the Office of Management and Budget; Gene Sperling, the director of the National Economic Council; and Michael Froman, a senior White House economic adviser — are all acolytes of Robert Rubin, the former Treasury secretary and longtime Wall Street honcho at Goldman Sachs Group Inc. and Citigroup Inc.?”

Thanks to WikiLeaks, the American people no longer have to guess why President Obama promised meaningful change and then stuffed his administration with Wall Street cronies. Emails released by WikiLeaks show that in the months leading up to Obama’s 2008 election win, Michael Froman, an executive at Citigroup, was emailing Obama and his advisers with the recommended personnel that he and his cronies wanted to see in the new administration. (See our coverage here and here.) Almost without exception, Wall Street got its way.
The outrage of Michael Froman submitting his personnel rosters to the future President in the Fall of 2008, using his official Citigroup email address, is that at that very moment Citigroup was an insolvent bank in the process of unraveling and on life support from the taxpayer. When the dust finally settled, Citigroup would receive the largest taxpayer bailout in U.S. history: $45 billion in equity infusions; over $300 billion in asset guarantees; and more than $2.5 trillion in secret below market-rate loans from the Federal Reserve.
Let that sink in for a moment. Citigroup’s business model of fraud had collapsed the bank and in the midst of that collapse one of its executives is in charge of staffing the next President’s administration. The man sitting at the helm of the New York Fed, Tim Geithner, who was funneling all of those secret loans to Citigroup, became Obama’s first Treasury Secretary. The Citigroup executive who received a $940,000 bonus while Citigroup was insolvent, Jack Lew, became Obama’s second Treasury Secretary with enhanced supervisory powers as head of the Financial Stability Oversight Council (F-SOC).
The New York Times is the one paper in America that should be viewed with particular skepticism when it comes to Wall Street. It was a cheerleader for years on its editorial page, promoting the repeal of the Glass-Steagall Act. As its editorial page editors acknowledged in 2012:

“While we are on this subject, add The New York Times editorial page to the list of the converted. We forcefully advocated the repeal of the Glass-Steagall Act. ‘Few economic historians now find the logic behind Glass-Steagall persuasive,’ one editorial said in 1988. Another, in 1990, said that the notion that ‘banks and stocks were a dangerous mixture’ ‘makes little sense now.’

“That year, we also said that the Glass-Steagall Act was one of two laws that ‘stifle commercial banks.’  The other was the McFadden-Douglas Act, which prevented banks from opening branches across the nation.

“Having seen the results of this sweeping deregulation, we now think we were wrong to have supported it.”

The Times apology, coming after the deregulated Wall Street had crashed the U.S. financial system and left millions of innocent Americans without jobs and in foreclosure, was too little too late. The Times failed to mention that it had not only waved the pompoms for the repeal of the Glass-Steagall Act but it had celebrated the illegal merger that formed Citigroup. On April 8, 1998, its editorial page editors wrote:

“Congress dithers, so John Reed of Citicorp and Sanford Weill of Travelers Group grandly propose to modernize financial markets on their own. They have announced a $70 billion merger — the biggest in history — that would create the largest financial services company in the world, worth more than $140 billion… In one stroke, Mr. Reed and Mr. Weill will have temporarily demolished the increasingly unnecessary walls built during the Depression to separate commercial banks from investment banks and insurance companies.”

Another Times writer, Andrew Ross Sorkin, has grossly misstated the facts of the 2008 crash to minimize the role played by the repeal of the Glass-Steagall Act. When Wall Street On Parade brought those gross inaccuracies to the attention of the Editor and Publisher of the New York Times, they ignored the errors and allowed the article to stand. To our way of thinking, that’s when “journalism” becomes intentional propaganda. Economist Paul Krugman rounds out the Wall Street propaganda team at the New York Times, using many of the same faulty “facts” as Ross Sorkin.
In Ross Sorkin’s preposterously inaccurate piece of 2012, he attempts to portray other financial firms as being at the center of the 2008 crash rather than the behemoth Citigroup. He writes: “But Citi’s troubles didn’t come until after Bear Stearns, Lehman Brothers, A.I.G., Fannie Mae and Freddie Mac were fallen or teetering — when all hell was breaking loose.”
Bear Stearns fell in March 2008. Lehman, AIG, Fannie Mae and Freddie Mac fell in the Fall of 2008. According to the General Accountability Office (GAO), the Federal Reserve began its secret lifeline of low-cost loans to Citigroup in December 2007. Those continued into at least 2010 and cumulatively totaled an astronomical $2.5 trillion.
Citigroup’s situation was so precarious in the summer of 2008 that Bloomberg ran an article headlined on July 23, 2008: “Citigroup Unravels as Reed Regrets Universal Model.” We would link to the text of that article but it seems to have up and disappeared from the Bloomberg News archive.
The Sydney Morning Herald on July 15, 2008 carried this assessment of Citigroup:

“At an investor presentation in May, Citigroup chief executive Officer Vikram Pandit said shrinking the bank’s $US2.2 trillion balance sheet, the biggest in the US, was a cornerstone of his turnaround plan.

“Nowhere mentioned in the accompanying 66-page handout were the additional $US1.1 trillion of assets that New York-based Citigroup keeps off its books: trusts to sell mortgage-backed securities, financing vehicles to issue short-term debt and collateralized debt obligations, or CDOs, to repackage bonds.

“Now, as Citigroup prepares to announce second-quarter results July 18, those off-balance-sheet assets, used by US banks to expand lending without tying up capital, are casting a shadow over earnings. Since last September, at least $US100 billion of assets have flooded back onto Citigroup’s balance sheet, accompanied by more than $US7 billion of losses.”

Before Citigroup’s death spiral was over, its stock was trading at 99 cents. Today, its pre-crash shareholders are still down 90 percent on their money. Its cronies in Washington have allowed it to build up a derivatives book even more dangerous than 2008 (see Citigroup Has More Derivatives than 4,701 U.S. Banks Combined After Blowing Itself Up With Derivatives in 2008) and Obama has allowed Citigroup to repeal the derivative protection rules put in place in the 2010 Dodd-Frank financial reform legislation.
If you’d like to send your thoughts on all of this to the Public Editor at the New York Times, the email address is public@nytimes.com.

INTELLIGENCE: US Takeover May Be Near

Former Treasury Secretary Summers Calls For End Of Fed

Former Treasury Secretary Summers Calls For End Of Fed Independence

by Tyler Durden

Nov 4, 2016 3:00 PM

http://www.zerohedge.com/news/2016-11-04/former-treasury-secretary-summer-calls-end-fed-independence-national-government

 

At an event in Davos, Switzerland earlier today, Former U.S. Treasury Secretary, Larry Summers, argued that Central Bank independence from national governments should be scrapped in favor of a coordinated effort between politicians, central bankers and treasury to engineer inflation.  Seems reasonable, right?...what could possibly go wrong?

According to Market Watch, Summers argued that Central Bank independence came from "an understanding of the macroeconomic policy problem that is not relevant to current times."  Ironically, he argued that Central Bank "insulation" was required in the 70s/80s when the "White House" and "Congress" could not be trusted to fight inflation. 

So does this indicate that Summers' baseline assumption is that politicians today are more trustworthy than in the 70s/80s?  Perhaps Summers is the one that is "insulated" from reality?  Is it possible that he's completely missed the fact that one of our presidential candidates is currently under multiple investigations by the FBI for various allegations of corruption and fraud?  Meanwhile, both presidential candidates are polling at among the lowest rates ever experienced for "trustworthiness" while the job approval rating of Congress has never been lower...but sure, we should grant them even more power to wreak havoc on the U.S. economy for political gain...why not?

Central bank independence “comes from an understanding of the macroeconomic policy problem that is not relevant to current times,” Summers said in a speech at the International Monetary Fund.

Central bank insulation was needed in the 1970s and 1980s to combat inflation, Summers said. That’s because the White House and Congress sometimes saw the short-run benefits of unexpected inflation, while the Fed kept its eyes on the long-run costs, he said.

But that was yesterday’s problem, Summers said. The economy now faces secular stagnation, or a chronic lack of demand.

To fight this, the Treasury should be issuing bonds with long maturities taking advantage of current ultra-low interest rates, Summers said. And the Fed should try not get in the way.

In the future, we will all be rental serfs

In the future, we will all be rental serfs
FT Alphaville
Izabella Kaminska,  Nov 02 2016
http://ftalphaville.ft.com/2016/11/02/2178646/in-the-future-we-will-all-be-rental-serfs/

Alternative title: When “smart” is a euphemism for vassal. 

It’s probably a sweeping statement but we’re going to go with it. The technology which made the 20th century great did so because it empowered and liberated people, giving them greater autonomy over themselves, not less.

The washing machine. The vacuum cleaner. The dishwasher. The car. The record player. All these technologies increased personal autonomy rather than decreased it, whilst also endowing people with leisure time. We became masters of our domains and kings of our very own castles.

There was, nevertheless, one downside.

The profit opportunities associated with these technologies were subject to diminishing returns. A continuous pipeline of newer, better, brasher and more gimmicky products was thus needed to ensure profits could be sustained into the long-term. In no time, this gave way to the planned obsolescence phenomenon — making products purposefully disposable — in a bid to keep customers captured and dependent.

But with the normalisation of disposable culture, the environmental costs of purposeful inefficiency became self evident. This was not long-term sustainable.
So how did the techno-capitalist community respond? Was it by going back to high-quality manufacturing processes focused on creating long-term durable goods for the masses? Not really. Such policy would have slowed production cycles and increased upfront costs, and led to a major descaling of the global economy. Where it did occur it could only ever cater to a privileged and increasingly shrinking luxury-consuming elite.

Or did they, as Carlota Perez — the tech industry’s favourite economist — has long argued, focus on creating business models which service, maintain or insure long-term durable goods, as as to extend their durability further? Perhaps a little bit. But not much, because servicing stuff is a low productivity activity which involves high-touch skilled labour which in and of itself is difficult to scale, and (if done well) ends up being a self-defeating activity.

No, what the techno-capitalists opted for was a world where we the public would never properly own anything ever again. Or more pertinently, even if we owned the hardware, we would never own the secret sauce which made the hardware work. For the washing machine to do its job, the idea would be for the common folk to pay eternal homage in personal information, contractually obligated behaviour or general economic predictability.

To wit, here’s a story from IEEE Spectrum (h/t Climateer) on how the divide between what we think we own and what we really own is widening by the minute. But also how, when it comes to cars at least, the public has seen through what’s really at stake and not taken the attempts to disempower them lying down. To the contrary, thanks to significant lobbying efforts on consumers’ behalf, some of their ownership privileges have been preserved (at least temporarily):

You may own your car, but you don’t own the software that makes it work— that still belongs to your car’s manufacturer. You’re allowed to use the software, but in the past, trying to alter it in any way (including fixing it by yourself when it breaks or patching security holes) was a form of copyright infringement. iFixit, Repair.org, the Electronic Frontier Foundation (EFF), and many others think this is ridiculous, and they’ve been lobbying the government to try to change things.
A year ago, the U.S. Copyright Office agreed that people should be able to modify the software that runs cars that they own, and as of last Friday, that ruling came into effect. It’s good for only two years, though, so get hacking.

Which begs the question, what is the self-driving craze in mobility really about? Improving road safety (something not yet proven or quantified) or creating a framework where control can finally and fully be ceded from users and transferred for all perpetuity to an increasingly concentrated and faceless capital and intellectual property-owning elite?

In other news, Amazon has obtained a patent for mini police drones. Taser is considering installing stun guns on drones. And a car insurance company (Admiral) wanted to scour user profiles to work our personal behaviour — although Facebook (for now at least) has ruled it out.

 
Related links:
The autoignition temperature of manual cars is much higher than Fahrenheit 451 – FT Alphaville
SILICON VALLEY’S GOD COMPLEX (2014) – Nesta (Izabella Kaminska contribution)
THX 1138 trailer (1978)- Youtube