We are entering the Age of
Rage.
It is
presently most visible in Europe as austerity programs that potentially could
shred a half century of social entitlement advances are met with increasingly
violent street demonstrations. It is seen in the US Tea Party rallies with
their fury that the very fabric which the US capitalist system is based on is
being destroyed and discarded. Unfortunately these demonstrations of rage are
focusing on the effects and not the cause. The cause is a systemic plaque of
unenforced financial control fraud.
Americans witnessed CEOs
arrested during the nightly news coverage of the S&L Crisis of the early
90's. They were placated as they heard the details of over 1000 indictments
of the perpetrators of fraud. In the aftermath of the tech bubble implosion
ten years later, injured investors once again witnessed the most senior
executives at Enron, WorldCom, Tyco, Qwest and others being led off in
handcuffs and disgrace to waiting police cruisers. Retirees with decimated
retirement plans felt that some level of restitution had been made when 25
year sentences were meted out to these formerly high-flying felons.
After nearly two years since
the greatest financial malfeasants in history and ten years since the last
public example of financial crime, the public haven't seen a single CEO
sentenced to hard time for the financial meltdown. They have not had their
thirst for revenge quenched by a single high level court case. Instead, the
public infuriatingly witnesses politically crafted theater in congressional
hearings that go nowhere, read watered down legislation that is replete with
even richer lobbyist-authored loopholes and only occasionally see small
headlines of quiet settlements with insulting token amends payments. Why?
Were there no crimes committed? No laws broken?
The public is forced to accept
excuses that we have enforcement agencies not enforcing, regulators not
regulating and legislators not equipped to legislate properly in our modern
fast moving financial world. The public is left with the gnawing concern of
whether it is incompetence or something much deeper, more troubling, and more
sinister. Confidence and trust in government and our democratically elected
politicians continue to worsen from already pathetic levels.
The taxpayer while standing in
long unemployment lines, reads in the newspapers of financial institutions
that were making mind-numbing profits and paying horrendous executive bonuses
suddenly being insolvent and needing taxpayer bailouts. Then as their
unemployment benefits near exhaustion, they read of the banks' profits
soaring once again. These are the foundations of the emerging new age of
public rage.
We have much more than a
crisis of integrity. We have fraud that is so pervasive that it is now
unknowingly institutionalized into our business and political culture. The
sickening part is that it a like a cancer; if it's not detected early, it
will be too late to fight. We need to fully understand and prosecute the
tenets of fraud before it is too late.
For the complete Research
Report see: TIPPING
POINTS - COMMENTARY
FRAUD
Fraud is the act of creating
trust then betraying it. Fraud is deceit.
If I was to articulate this
definition to the average person, I believe the vast majority (without formal
legal training) would immediately respond that this is exactly how they'd
describe the financial crisis! So why are there no indictments? Is the fraud
of liar's loans, NINJA (No income, No Job, No Assets) loans, false housing
appraisals, false AAA credit ratings and false contingent liability reporting
so hard to prove? Not really. It takes an indictment and that's often a much
too political process in America.
Some would argue it was not
intentional and therefore can't be seen as a felony. They'd say it is more a
matter of civil damages. Again, wrong.
CONTROL FRAUD
What emerged from the S&P
debacle was the concept of control
fraud. At the core of financial control fraud is the notion that a CEO
would deliberately use the S&L as a camouflage to make bad loans, thereby
gutting the underwriting process while knowing full well that the loans would
statistically fail over the long run. By doing this, money is made in the
initial stages, exactly in the fashion of a Bernie Madoff Ponzi scheme.
Profits are declared and rich bonuses are paid. Stocks soar and rich stock
options are executed. Then when the inevitable day arrives as the defaults
emerge, the CEO takes the company into bankruptcy with no claw-back
provisions, or an even newer and richer approach - the CEO seeks government
bailouts to replace the pillaged balance sheet.
Corporate Control Fraud might
be viewed as having four tell-tales:
- Deliberately
making bad loans or investments.
- Exceptionally
High Growth (because improperly accounted profits are being booked
today).
- The use of
extraordinary leverage to maximize profits while profits are
artificially available.
- False
representation of actuarial appropriate loss reserves.
Sound eerily familiar?
The S&L debacle prompted
the Prompt Corrective Action (PCA) Law (US
Code: Title 12,1831o). William K Black the author of "The
Best Way to Rob a Bank is to Own: How Corporate Executives and Politicians
Looted the S&L Industry, " argues
that this law is presently being broken through the misrepresentation of bank
asset positions. Additionally, because the Prompt Corrective Action Law is
not being enforced, the felony of accounting control fraud is being
committed.
I have written
extensively about the degree to which the banks 10K and 10Q balance sheets
do not represent current fair market value of their assets. When the FDIC
continuously takes over banks and declares that asset values are 25- 35%
overvalued, there's no further proof required. The banks, which are sold as
part of the regular FDIC "Friday night bank lottery" continuously
see no CEOs indicted for falsely representing FDIC-insured assets. We the
taxpayers are then unwittingly presented with the tab.
Above, I made the assertion
that indictments are too political a process in America. Control Fraud isn't
unique to just CEOs. Heads of sovereign governments and their empowered
representatives also fall within this type of fraud. We once again see
ourselves moving upwards hierarchically towards people in authority, who are
charged with a fiduciary and judiciary responsibility, taking positions that
enrich or politically benefit themselves at the expense of the innocent. This
is fraud. Though we find ourselves asking, where are they when we most need
them, we should be asking, who will bring them to justice?
If you think this is not
widespread, how do you rationalize that it was recently reported that Goldman
Sachs never had a trading day loss in April yet its clients in eight out of
ten cases lost money. Incompetence? Stupidity? The Financial Times reports
"The trading operations of Goldman Sachs and JPMorgan Chase made
money every single business day in the first quarter... Goldman's
trading desk recorded a profit of at least $25m(£16.8) on each of the
quarter's 63 working days, making more than $100m a day on 35 occasions,
according to a regulatory
filing issued on Monday ... JPMorgan also achieved a loss-free quarter in
its trading unit - making an average of $118m a day, nearly $5m an
hour". Morgan Stanley reported trading profits on a mere 93% of the
first quarter trading days. This defies any sort of logic in a freely trading
markets, unless the markets are controlled and the game fixed. These are
better odds than owning a casino.
The famous Barnum & Bailey
carnival barkers used to snidely boast "there's a sucker born every
minute". The carnival games were notoriously fixed so the 'sucker'
almost certainly lost. I'm not indicting anyone here (I will leave that to
our alarmingly incompetent regulatory and enforcement agencies), but rather
I'm only reinforcing why we have entered an age of public rage and why I felt
compelled to write the Extend
& Pretend series of articles.
RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS (RICO) ACT
Under
RICO, a person who is a member of an enterprise that has committed any
two of 35 crimes -- 27 federal crimes and 8 state crimes -- within a 10-year
period can be charged with racketeering. Racketeering activity includes:
In addition, the racketeer
must forfeit all ill-gotten gains and interest in any business gained through
a pattern of "racketeering activity." RICO also permits a private
individual harmed by the actions of such an enterprise to file a civil suit;
if successful, the individual can collect treble damages.
It seems it is the same names
I continue to read about in the press. Do these financial institutions settle
to avoid the magic '2 committed felony' threshold qualification for a RICO
indictment?
On March 29,
1989, financier Michael
Milken was indicted on 98 counts of racketeering and fraud relating to an
investigation into insider
trading and other offenses. Milken was accused of using a wide-ranging
network of contacts to manipulate stock and bond prices. It was one of the
first occasions that a RICO indictment was brought against an individual with
no ties to organized crime. Milken pled guilty to six lesser offenses rather
than face spending the rest of his life in prison. On September 7, 1988,
Milken's employer, Drexel Burnham Lambert,
was also threatened with a RICO indictment under the legal doctrine that
corporations are responsible for their employees' crimes. Drexel avoided
RICO charges by pleading no contest to lesser
felonies. While many sources say that Drexel pleaded guilty, in truth the
firm only admitted it was "not in a position to dispute the
allegations." If Drexel had been indicted, it would have had to post a
performance bond of up to $1 billion to avoid having its assets frozen. This
would have taken precedence over all of the firm's other obligations --
including the loans that provided 96 percent of its capital. If the bond ever
had to be paid, its shareholders would have been practically wiped out. Since
banks will not extend credit to a firm indicted under RICO, an indictment
would have likely put Drexel out of business. Is this really what is
behind too big to fail prosecution? (5)
You don't need a fancy high
priced Philadelphia lawyer to tell you that "when the glove fits you
can't acquit!" - A little old fashion common sense is all that is
required.
CONCLUSION
The Age of Rage during the
French revolution cost people their heads when the guillotine administered
public justice daily for the angry masses. Political and bureaucratic heads
will also roll in the future if justice is not soon administered. As Marie
Antoinette learned too late, it may be much worse than merely the loss of an
elected position with all its trappings.
ConspiracyCards.com
It takes public rage for
someone to spend the time to create expressions of frustration like the above
graphic represents!
Sign Up for the next release
in the Euro Experiment series: Commentary
The previous EXTEND &
PRETEND article: EXTEND
& PRETEND: Shifting Risk to the Innocent
(1) US
Code: Title 12, 1831o. Prompt Corrective Action
(2) April 2009 William
K. Black on The Prompt Corrective Action Law Bill Moyers Journal
(3) Accounting
Control Fraud Google Scholar
(4) 02-23-09 Why
Is Geithner Continuing Paulson's Policy of Violating the Law? The
Huffington Post
(5) RICO - Wikipedia
(6) 05-12-10 Goldman's
Perfect Quarter Eric Fry The Daily Reckoning
