Thursday, March 14, 2013

Bankers and Wars!

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By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen


Thursday, March 14, 2013
There’s been an unlikely yet welcome resurgence of chatter about breaking up the nation’s largest
and most powerful banks. Bloomberg’s story quantifying the too big to fail subsidy grabbed some eyeballs (and there’s an upcoming GAO report on the subsidy that will do the same). Sherrod Brown announced an unlikely pairing with David Vitter working on legislation on the subject. Dallas Fed President Richard Fisher is going to give a big speech on Friday on breaking up the banks… at CPAC, the largest conservative political conference of the year.
At the same time the unending stream of reports of abuses and fraudulent actions give fuel to the movement. And we’ll get another one Friday, when Carl Levin’s Senate Permanent Subcommittee on Investigations releases their report, complete with a companion hearing, on the London “Fail Whale” trades, the losses for which stretch as high as $8 billion. Early reports suggest that the report will be unsparing. Levin’s committee did an excellent job in prior investigations of Wall Street, including Goldman Sachs (which they gift-wrapped to the Justice Department as a criminal referral, only to see DoJ toss it in the wastebasket). People I’ve talked to expect the hearing to be explosive.
As an excellent preview for the Friday fireworks, I urge you to read an astonishing new report, which I’ve embedded below, from analyst Josh Rosner of Graham-Fisher and Co. The best way to describe the report, “JPM – Out of Control,” is that it reads like a rap sheet. Notably, Rosner takes mortgage abuses almost entirely out of the equation, and yet still manages to fill a 45-page report with documented case after documented case of serious fraud and abuse, most of which JPM has already admitted to (at least in the sense of reaching a settlement; given out captured regulatory structure the end result is invariably a settlement with the “neither admit nor deny wrongdoing” boilerplate appended). Rosner writes, “we could not find another ‘systemically important’ domestic bank that has recently been subject to as many public, non-mortgage related, regulatory actions or consent orders.”
Obviously this contrasts with Jamie Dimon’s spotless reputation (at least in Washington) and his bold talk of a “fortress balance sheet.” Yet as you read the report, it’s hard to see the bank as anything but a criminal racket just days away from imploding, were it not propped up by implicit bailout guarantees and light-touch regulators. Rosner paints a picture of a corporation saddled with pervasive internal control problems, which end up costing shareholders, and which “could materially impact profitability in the future.” He calculates that since 2009, JPM has paid out $8.5 billion in settlements for its outlaw activity, which equals nearly 12% of net income over the same period.
It’s hard to summarize all of the documented instances in this report of JPM has been breaking the law, but here’s my best shot. I try to keep up on these matters, and yet some of these I’m learning about for the first time:
Bank Secrecy Act violations;
Money laundering for drug cartels;
Violations of sanction orders against Cuba, Iran, Sudan, and former Liberian strongman Charles Taylor;
Violations related to the Vatican Bank scandal (get on this, Pope Francis!);
Violations of the Commodities Exchange Act;
Failure to segregate customer funds (including one CFTC case where the bank failed to segregate $725 million of its own money from a $9.6 billion account) in the US and UK;
Knowingly executing fictitious trades where the customer, with full knowledge of the bank, was on both sides of the deal;
Various SEC enforcement actions for misrepresentations of CDOs and mortgage-backed securities;
The AG settlement on foreclosure fraud;
The OCC settlement on foreclosure fraud;
Violations of the Servicemembers Civil Relief Act;
Illegal flood insurance commissions;
Fraudulent sale of unregistered securities;
Auto-finance ripoffs;
Illegal increases of overdraft penalties;
Violations of federal ERISA laws as well as those of the state of New York;
Municipal bond market manipulations and acts of bid-rigging, including violations of the Sherman Anti-Trust Act;
Filing of unverified affidavits for credit card debt collections (“as a result of internal control failures that sound eerily similar to the industry’s mortgage servicing failures and foreclosure abuses”);
Energy market manipulation that triggered FERC lawsuits;
“Artificial market making” at Japanese affiliates;
Shifting trading losses on a currency trade to a customer account;
Fraudulent sales of derivatives to the city of Milan, Italy;
Obstruction of justice (including refusing the release of documents in the Bernie Madoff case as well as the case of Peregrine Financial).
And, exhale.
The sheer litany of illegal activities just overwhelms you. And these are only the ones where the company has entered into settlements or been sanctioned; it doesn’t even include ongoing investigations into things like Libor, illegally concealing inclusions of mortgage-backed securities in employer funds (another ERISA violation), the Fail Whale trades, and especially putback suits for mortgages, where a recent ruling by Judge Jed Rakoff has seriously increased exposure. While the risks are still very much alive and will continue to weigh on the firm, ultimately shareholders will pay, certainly not executives as long as the no-prosecutions standard holds.
Again, read the report, but two case studies stand out. First, JPM is trying to stick the public with losses related to its purchase of Washington Mutual and its related liabilities. Rosner documents painstakingly how JPM originally accepted the risks and responsibilities with the WaMu deal, and continued to do so for several years. But now that they see the actual possibility of mass mortgage-related putback claims, JPM wants to shift losses on over $190 billion in MBS onto the FDIC. They hope to get out from under as much as $5 billion in losses in this fashion. It’s impossible to logically follow JPM’s claim that they purchased WaMu but not any of its risk-related activities. The case “demonstrates the unwillingness to accept responsibility for their own management failures,” Rosner writes.
Finally, we have the Fail Whale trade, the subject of the Friday Permanent Subcommittee on Investigations hearing. Rosner keys in on JPM’s internal “Task Force” report, which he compellingly characterizes as a complete whitewash. The Task Force was led by the heir apparent to the company, Michael Cavanagh (“like asking Joe Paterno to do the Penn State investigation instead of Louis Freeh,” in the words of former SEC chair Harvey Pitt). It limited the scope of the investigation to late 2011 and 2012, when now-public data clearly shows the problems at the Chief Investment Office going back years earlier, and fully known to senior management at the time. Rosner correctly brings up Sarbox Title III violations in conjunction with this, as top executives annually attested to the accuracy of financial statements now known to be untrue. The Task Force tried to exonerate Jamie Dimon by actually saying in a footnote that he was out of town for a period of time covered by the report.
And this footnote from the Task Force takes the cake:
The description of “what happened” is not a technical analysis of the Synthetic Credit Portfolio or the price movements in the instruments held in the Synthetic Credit Portfolio. Instead, it focuses on the trading decision-making process and actions taken (or not taken) by various JPMorgan personnel. The description of activities described in this Report (including the trading strategies) is based in significant measure on the recollections of the traders (and in particular the trader who had day-to-day responsibility for the Synthetic Credit Portfolio and was the primary architect of the trades in question) and others. The Task Force has not been able to independently verify all of these recollections.

Hey, who knows, don’t believe anything we’re saying, it’s not an investigation so much as an impressionistic collage.
Rosner has compiled an impressive dossier for any systemic risk regulator, if we had such things in more than name only in America. And I trust this will be a contribution to the ongoing debate – there really is one – over whether these mega-banks have become too big to manage, and too corrupt to continue.
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How the markets really work(from 2007)

How did these comedians see it coming
when financial reporters did not?
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Realities Behind Prosecuting Big Banks
March 11, 2013
Are banks too big to jail?
If there was any doubt about the answer to that question, Eric H. Holder Jr., the nation’s attorney general, last week blurted out what we’ve all known to be true but few inside the Obama administration have said aloud: Yes, they are.
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Eric Holder told senators last week that some banks are so large that prosecuting them could be economically destabilizing.
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“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy,” Mr. Holder told the Senate Judiciary Committee. “I think that is a function of the fact that some of these institutions have become too large.”
Mr. Holder continued, acknowledging that the size of banks “has an inhibiting influence.” He said that it affects “our ability to bring resolutions that I think would be more appropriate.”
To put this in the proper perspective, Mr. Holder said, for the first time, that he has not pursued prosecutions of big banks out of fear that an indictment could jeopardize the financial system.
Mr. Holder’s comment raises all sorts of questions. Does this mean that our banks are still too big to fail? Should we prosecute corporations? Should the size of an institution or its systemic importance influence the decision of prosecutors? What’s the right policy?
At a minimum, Mr. Holder’s comments are embarrassingly at odds with the Obama administration’s view that too-big-to-fail was fixed by the Dodd-Frank financial regulation law.
Here’s Timothy Geithner, the former Treasury secretary, with the administration’s official line at a hearing in 2010 right before the Dodd-Frank bill passed: “The reforms will end too-big-to-fail,” he said unequivocally. “The federal government will have the authority to close large failing financial firms in an orderly and fair way, without putting taxpayers and the economy at risk.”
Apparently, Mr. Holder didn’t get the memo.
As you can imagine, both the left and the right made hay of Mr. Holder’s statement, using it as a damning explanation for the lack of prosecutions of Wall Street. Senator Elizabeth Warren led the charge.
“It has been almost five years since the financial crisis, but the big banks are still too big to fail,” Ms. Warren, a Democrat, said in a statement. “Attorney General Holder’s testimony that the biggest banks are too-big-to-jail shows once again that it is past time to end too-big-to-fail.”
Putting aside the important matter of whether our banks are too big to fail, there is a more pressing and difficult question that needs to be answered here and now: Do we want to indict corporations? And is it effective?
In the aftermath of the financial crisis, the prevailing view is that nobody on Wall Street was held accountable for the damage caused to the economy and millions of Americans. But the fact that prosecutors have not claimed a big-time scalp in the financial crisis obscures the issue of prosecuting companies themselves and the complications such prosecutions raise.
Forgotten is the lesson of Arthur Andersen, the accounting firm that was charged with obstruction of justice in the bankruptcy of Enron. The charges against the firm put it out of business, and 28,000 employees — most of whom had nothing to do with the Enron case or the shredding of documents — lost their jobs. Making matters worse, the conviction of Arthur Andersen was overruled on appeal by the Supreme Court. Prosecutors decided not to pursue the case.
Ever since then, the Justice Department has been much more cognizant of the collateral damage of bringing a criminal case against a company — as opposed to prosecuting the individual employees responsible for the crime.
According to Justice Department guidelines, before bringing a criminal case, prosecutors must consider “the nature and seriousness of the offense, including the risk of harm to the public, and applicable policies and priorities, if any, governing the prosecution of corporations for particular categories of crime.”
The conventional wisdom is that simply charging a company with a crime raises the possibility of putting the firm out of business because customers, suppliers, counterparties and others will stop doing business with it. That is debatable, but it is a view that has been widely adopted by prosecutors.
In truth, our banks aren’t the only companies that are too big to jail. If any of the largest employers in the country were to be indicted, what would happen? The government could clamp down with new controls on operations. But it is also possible that charges could bring down the companies, leaving huge job losses in their wake, and harming shareholders, pensioners and suppliers.
“There is something fundamentally wrong about condemnation of one person for the actions of another, and if this is true for individuals, it is at least somewhat true when corporations, consisting of many component parts, are blamed for the actions of one component part,” Elizabeth K. Ainslie, a former prosecutor, wrote in a seminal paper called “Indicting Corporations Revisited: Lesson of the Arthur Andersen Prosecution.”
But what about the deterrence effect? Doesn’t charging an entire company with a crime make employees less likely to engage in criminal behavior?
“On balance, the public benefits generated by prosecuting Andersen criminally were minimal or, if they existed at all, were exceedingly subtle. No one went to jail as a result of its conviction, nor could they have under the law,” Ms. Ainslie wrote.
That’s not to say the government shouldn’t pursue prosecutions of criminal conduct at corporations. They should do so aggressively.
But there is a powerful argument to be made that prosecutors should focus on the individuals responsible for the misconduct.
If prosecutors had already claimed a prominent scalp from the financial crisis, there wouldn’t be such a loud conversation about too-big-to-jail.
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Elizabeth Warren Wants HSBC Bankers Jailed for Money Laundering

Chris Good
Mar 7, 2013
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Image credit: Andrew Harrer/Bloomberg via Getty Images
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Elizabeth Warren has a question: How much money does a bank have to launder before people go to jail?
Warren, the Democratic senator from Massachusetts and financial-regulatory maven, posed that question numerous times to financial regulators at a Senate Banking Committee hearing Thursday on banks and money laundering.
In December, U.S. Justice Department officials announced that HSBC, Europe’s largest bank, would pay a $1.92 billion fine after laundering $881 million for drug cartels in Mexico and Colombia. At the time, the Justice Department disputed accusations that it views some banks as too big to prosecute.
The two regulators, Under Secretary for Terrorism and Financial Intelligence David S. Cohen and Federal Reserve Governor Jerome H. Powell, deflected Warren’s questions, saying that criminal prosecutions are for the Justice Department to decide.
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 Senate Banking Committee Hearing - Bank Money Laundering
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“If you’re caught with an ounce of cocaine, the chances are good you’re going to jail. If it happens repeatedly, you may go to jail for the rest of your life,” an exasperated Warren said, as she wrapped up her questioning. “But evidently, if you launder nearly a billion dollars for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night — every single individual associated with this — and I just think that’s fundamentally wrong.”
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Why the Banking Elite Want Riots in America

Civil War 2: The economic imperative for mass social unrest
Paul Joseph Watson & Alex Jones
Infowars.com
February 11, 2013http://www.infowars.com/why-the-banking-elite-wants-riots-in-america/
Every indication clearly suggests that authorities in the United States are preparing for widespread civil unrest. This trend has not emerged by accident – it is part of a tried and tested method used by the banking elite to seize control of nations, strip them of their assets, and absorb them into the new world order.
There is a crucial economic imperative as to why the elite is seeking to engineer and exploit social unrest.
As respected investigative reporter Greg Palast exposed in 2001, the global banking elite, namely the World Bank and the IMF, have honed a technique that has allowed them to asset-strip numerous other countries in the past – that technique has come to be known at the “IMF riot.”
In April 2001, Palast obtained leaked World Bank documents that outlined a four step process on how to loot nations of their wealth and infrastructure, placing control of resources into the hands of the banking elite.
One of the final steps of the process, the “IMF riot,” detailed how the elite would plan for mass civil unrest ahead of time that would have the effect of scaring off investors and causing government bankruptcies.
“This economic arson has its bright side – for foreigners, who can then pick off remaining assets at fire sale prices,” writes Palast, adding, “A pattern emerges. There are lots of losers but the clear winners seem to be the western banks and US Treasury.”
In other words, the banking elite creates the very economic environment – soaring interest rates, spiraling food prices, poverty, lower standards of living – that precipitates civil unrest – and then like a vulture swoops down to devour what remains of the country’s assets on the cheap.
We have already seen this process unfold in places like Bolivia, Ecuador, Indonesia, Greece and Argentina. Next on the chopping block are Spain, Italy, Britain and France – all of which have seen widespread riots over the last two years.
As Ha-Joon Chang explains in the Guardian, the roots of Europe’s riots were sparked by “governments inflicting an old-IMF-style programme on their own populations,” namely the same programs of “austerity, privatisation and deregulation,” that caused the riots of the 80's and 90's in poorer countries.
Although the likes of the IMF and the World Bank have pillaged half of the globe with their economic terrorism, America remains the ultimate prize. The first step of the four step process for bankster seizure of a country – privatization of state-owned assets – is already well under way in America, with infrastructure being sold off to foreign corporations, with the aid of Goldman Sachs, at a frightening pace.
A key component of the banking elite’s insidious agenda to bring about an economic collapse in America by design also centers around the process of de-industrializing the country, eviscerating the nation’s platform for self-sufficiency and replacing it with dependence on banker bailouts. This has already been largely achieved in Europe – with just about every major economy on the continent run by Goldman Sachs-affiliated technocrats.
In the United States, 32 per cent of manufacturing jobs have been lost since 2000, while 56,000 manufacturing facilities have been mothballed since 2001. The Obama administration has also declared war on the coal industry, with Obama himself promising to “bankrupt” anyone who tries to build a new coal plant. Meanwhile, China builds a new coal plant every two weeks.
Given the clear economic motive for stirring unrest in the United States, we’d expect to see preparations for domestic disorder in numerous different guises – and indeed the signs are everywhere.


National Defense Authorization Act

The Obama administration’s passage of NDAA legislation that authorizes kidnapping and indefinite detention without trial of American citizens on U.S. soil serves to create the framework for mass arrests of protesters and journalists in a time of declared national emergency.


Obama’s War on Whistleblowers

The Obama administration’s brazen and aggressive prosecution of whistleblowers for divulging government corruption in the public interest is clearly a device designed to intimidate whistleblowers from speaking out when the proverbial hits the fan.


Spying on Social Media for Signs of Unrest

The Department of Homeland Security and other federal agencies are actively engaged in spying on social media as well as news websites to look for reports or comments that “reflect adversely on the U.S. government and the DHS.” The government is on the lookout for the ‘tipping point’ when heated online rhetoric spills onto the streets in the form of unrest.


Building Huge Spy Centers to Track Unrest

The NSA is building the country’s biggest spy center in the middle of the Utah desert. The purpose of the data facility is to intercept, “all forms of communication, including the complete contents of private emails, cell phone calls, and Google searches, as well as all sorts of personal data trails—parking receipts, travel itineraries, bookstore purchases, and other digital “pocket litter.”
By creating a gigantic database of every communication imaginable, the NSA hopes to monitor and pre-empt the spread of mass civil unrest in America.


Preparing Drones for Domestic Oppression

Last week, the Justice Department re-affirmed its position that the Obama administration can use armed drones to assassinate Americans. Under the NDAA, the whole of the United States has been declared a “battlefield,” meaning that drones may soon be used to execute American citizens on U.S. soil.
A government that resorts to killing its own citizens without any legal process whatsoever is clearly a dictatorship engaged in domestic oppression. The only imaginable scenario under which this program would be justifiable was if the U.S. was under a state of martial law and the government was on the verge of collapse.


Preparing for Martial Law

The Department of Homeland Security has purchased over 1.6 billion rounds of ammunition in the last 10 months alone. At the height of combat operations in Iraq, the U.S. Army only used 5.5 million bullets a month. Why has the DHS stockpiled enough bullets for a 30 year war if it is not preparing for some form of domestic disorder?
Preparation for martial law can be seen in numerous different guises, but perhaps the most chilling is a nationwide FEMA program which is training pastors and other religious representatives to become secret police enforcers who teach their congregations to “obey the government” in preparation for the implementation of martial law, property and firearm seizures, mass vaccination programs and forced relocation.


Characterizing the American People as the New Target of the War on Terror

The U.S. Army’s Operating Concept 2016-2028 dictates that the military’s “full spectrum operations” will include “operations within American borders.” Scenarios where Americans form into militia groups and become “insurrectionists” as a result of an economic collapse and have to be eliminated by the U.S. Army have already been mapped out by military planners.
A leaked U.S. Army manual also reveals plans for the military to carry out “Civil Disturbance Operations” during which troops will be used domestically to quell riots, confiscate firearms and even kill Americans on U.S. soil during mass civil unrest.
The Department of Homeland Security’s ‘See Something, Say Something’ program habitually portrays middle class Americans as terrorists. In addition, numerous DHS-funded reports have characterized “liberty lovers” and other constitutionalists as domestic terrorists.
Every indication presents us with the inescapable reality that the US government is preparing for mass civil unrest at some point over the next five to ten years. When we look at the recent history of nations that have suffered financial collapse, domestic disorder is clearly a key component of a deliberate agenda on behalf of the banking elite to undermine and loot economies – confiscating national sovereignty in the process.
In Part 2, we’ll explore why the elite, although keen on provoking mass social unrest and even civil war, are destined to lose the battle.
Paul Joseph Watson is the editor and writer for Infowars.com and Prison Planet.com. He is the author of Order Out Of Chaos. Watson is also a host for Infowars Nightly News.
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Also See:
The New World Order is Getting Closer
(Part 3)
08 February 2013
and
Insight into the Canadian Banking system!
28 January 2013
and
Bankers and Money!
(Part 1)
15 December 2011
and
(Part 2)
23 July 2012
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