Reckless Endangerment!

Over the next few days, I plan to post 3 additional pieces on the following topics: 401k’s unleveled playing field The Financial Industry’s overgrowth Principal Reduction Now! Credit Expansion (Quantitative Easing) or Debt Destruction?

Today’s piece focuses in on the reckless endangerment that the Financial Elite and Policy Makers have partaken in and what sort of accountability / punishment is or should be taking place. As you all know, Sarbanes Oxley was created a few years ago to help prevent corporate crime. What you may not realize is that since its inception, over 1,000 cases have been brought up under the “Whistle Blowers Act”. Of those cases, can someone please answer this simple question…?

How many convictions have there been?

With that said, it’s time for the American legal system to wake up. Hell, it’s time for American citizens to wake up. I have begun to do my part with the article below, but now it’s your turn to spread the word and demand action. I ask that readers who feel this article has merit, please grass root it throughout the internet. Maybe we can reach critical mass of popular support?  With your help, let’s make the pen mightier then the sword!

Criminal Negligence Finance???: In the criminal law, criminal negligence can be defined as:

The failure to use reasonable care to avoid consequences that threaten or harm the safety of the public and that are the foreseeable outcome of acting in a particular manner. (Unlike the TORT of Negligence, a person who is convicted of criminal negligence is subject to a fine, imprisonment, or both, because of the status of the conduct as a crime.)

Where do you draw the line when it comes to industry leaders and policy makers?

In May 2006, a jury sent an unmistakable message to CFOs and CEOs around the world: “You can’t lie to shareholders. No matter how rich and powerful, you must play by the rules.” Enron’s Ken Lay and Jeff Skilling were accused and found guilty of: knowingly overstating the health of the former energy giant shortly before it plunged into bankruptcy in December 2001. Skilling and Lay countered that the company was in pretty good financial shape, and blamed bad press, short sellers and a run on the bank for the company’s failure. (4 years of investigations provided details of more sinister affairs!) Skilling and Lay were convicted for defrauding their stockholders.  When do we see the same accountability placed on today’s CEO’s.  Who goes to jail for not only defrauding the stockholder… but for defrauding the general public, whom has been caught in this tidal wave of losses regardless of where they work sleep or invest!  How does the Enron case differ from the current CEOs/CFOs who make the same pledge of financial stability, while at the same time, not disclose overall debt and risk? To loosely use a pun, we are looking a “Murderers Row” of corporate elite and policy makers that are obfuscating the economic truths from the people. Let me draw up a “ridiculous” comparison.  Let’s say, I don’t like my neighbors.  I devise a plot to buy tons of bottled water. (And stock in their companies)  I then go out and throw a diuretic into the local water supply.  Although, my intention was to make my neighbors sick and profit hugely off of it… my plan goes horribly wrong.  The diarrhea causes mass dehydration.  That in turn causes mass panic.  Bottled water riots.  Death through dehydration related illness, due to the inability to now afford the ultra-expensive bottles that I have bought.  Should I be arrested for “Criminal Negligence”?  Is this scenario really that “ridiculous”?  Last time I checked, the Financial Elite and Policy Makers are the ones who threw this diuretic into our economy… and yet they all still have plenty of bottles of water in their private bank accounts!!!

Just as sure as I saw the downstream affects of this crisis coming, I believe it is reasonable to believe that the next steps down will likely lead to more grave consequences. The reality of financial hardship is; it brings about a downward spiral of macro economic affects. Employment will be cut. Crime will rise. People will go hungry. Eventually, social damages will result in loss of life due to the direct and indirect consequences that have been allowed to take place, with the financial elite using loopholes and financial/mathematic engineering to rob a financial system that wasn’t designed to outpace the innumerous variables of economic innovation.

The concept of “Corporate Manslaughter” has been criticized, with respect to law and economics. It argues that civil damages are a more appropriate means of compensation and recognized losses apply the appropriate level of deterrence. Clearly, through privatization of profits and socialization of losses, the government has now become complicit in eliminating that deterrence!

Reasonable Person Standard: In order to hold the Financial Elite and Policy Makers criminally negligent, a level of culpability for their recklessness has to be established. Whether they were malfeasant (where the defendant knowingly exposed the public and was still willing to run the risk.), nonfeasant (where the fault lies in the failure to foresee and so allow otherwise avoidable dangers to manifest.) or willfully blind (where the individual intentionally avoids adverting to the reality of a situation), the culpability is determined by applying a “reasonable person standard”.

A “reasonable person” is appropriately informed, capable, aware of the law (in this case regulations), and fair-minded. This standard can never go down, but it can go up to match the training and abilities of the particular accused. This objective yardstick, against which to measure the culpability, has directly relevant knowledge to the activities being undertaken by the accused. (Where a doctor is accused mistreatment, you would use similar doctor as your “reasonable person standards”.

In July of 2005, The Counterparty Risk Management Policy Group II sent a report to all industry heads that were involved in its creation, warning that operational risks from the use of credit derivatives and other financial innovations could, under the wrong circumstances, spiral out of control. THESE PEOPLE MEET THE “REASONABLE PERSON STANDARD!

Here’s the letter to Hank Paulson – CEO of Goldman Sachs http://www.crmpolicygroup.org/crmpg2/docs/CRMPG-II-Transmittal-Letter.pdf Here’s the Who’s Who of the Policy Group (so you can figure out the recipients) http://www.crmpolicygroup.org/crmpg2/docs/CRMPG-II-Ex-I-II.pdf

Regulatory Warnings and Inaction: In direct relationship to the Counterparty Risk Management Policy Group II Report, in May of 2006, Tim Geithner, the President of the Federal Reserve Bank of New York (while at the Third Credit Risk conference at the NYU Stern School of Business) stated that: The operational infrastructure and that backlog of unconfirmed trades is an ongoing source of concern. In addition, he encouraged banks to take “greater caution and conservativism” on their lending practices. He cited “very favorable credit conditions for hedge funds,” due to “erosion in loan covenants” and “higher levels of transaction leverage” He went on to say that “regulators had some concern and unease” based in part on uncertainty.

In January on 2007 U.S. and European regulators conducted a joint probe into whether banks and securities firms set strict enough limits on loans to hedge funds. The NY Fed, SEC and FSA met some of the biggest lenders to the hedge-fund industry, “to discuss margin practices,’’ In examining this incestuous relationship, it revealed that this lending was the most profitable source of income. (For example, it was reported that Bear Stearns generated 30% profit catering to hedge funds.) The regulators were concerned that there had been a decline in lending standards because hedge funds were such lucrative customers. It was common for prime brokers to relax margin requirements because the bigger the loans, the more the banks make charging interest and holding securities as collateral.

Prior to leaving, the SEC’s Annette Nazareth said “it’s not clear what steps, if any, the regulators may take.” In an earlier meeting regarding the same topic, Tim Geithner said: “It’s maybe as hard or harder to try to figure out whether you can bring about change that may be in the broader interests of all market participants.”

What and why were these people employed? If Tim Geithner’s intuition was correct, I found his strengths of conviction to be lacking. Without action, they were just words. In addition, as a “regulator”, shouldn’t the concerns of the overall economy and the public come before the “interests of market participants” and their profits! Conflicts of Interest: Much like banned substances in amateur athletics, financial innovation should have to receive approval PRIOR TO injecting itself into the financial system. If it exists within unregulated pools, then there has to be a separation between regulated and unregulated markets where they can NOT affect one another. Banks willingly increased margin to hedge funds (while knowing the downside risk) in order to chase profits and bring home larger bonuses, had become criminal and conspiratorial.

To me, this is no different then the tobacco industry (who knew they were selling cancer) selling financial cancer. Following the tobacco industry’s class action settlement, Big Tobacco securitized their debt with so called “tobacco bonds”, and as a result, we now have a perverse incentive to support the tobacco industry, to which we are now dependent for future payments against this debt.

Is this just morally grey or is it CORPOATE BLACKMAIL!?!?!?

People… It’s time to ACT NOW! Corporate Elite were made aware of the Risks that existed by their own industry policy groups. They chose to recklessly endanger the public for the purpose of private gain. The only real “deterrence” that existed for this Gross-Reckless-Negligence has been removed if these people are not prosecuted. The conflict of interests that existed!  Where profits multiplied by expanding that risk through loose lending practices, which was discussed by regulators and Corporate Elite is obvious and well documented.

At what point will something be done about this? Without culpability, we are officially in a financial lawless state. THIS IS NOT AN EXAGGERATION! What are people supposed to do if the people making decisions on their behalf are no longer doing what’s in the best interest of the people? This is the same question our forefathers asked and subsequently answered. As an American, it is the same question you must ask yourself and find an answer to.

Now it’s your turn to speak. Thank you reading, and may justice truly prevail! Miss America, Rich Hartmann

p.s. Not all corporate elite are criminals. I happen to be lucky enough to work for a CEO whose number one priority is the health and well being of his employees. On a weekly basis he emphasizes this.

p.p.s. If you are as bothered angered by our current system as I am… Take a minute more to read the following, and see if it once again should apply?

“When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation. We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.” …you should know the authors.

34 Responses to "Reckless Endangerment!"

  1. aerial view   December 4, 2008 at 8:45 am

    Excellent article! I wholeheartedly agree with your analysis and can only reiterate that unless we have transparency in government as well as corporations and impose stiff fines and prison terms for those who seek to illegally profit from their frauds, democracy will remain an empty word in the minds of most Americans!

    • GJW   December 4, 2008 at 12:35 pm

      I have no doubt the majority of Americans would subscribe to the notion of criminal justice for many supposed corporate elite. However, who is going to bring this action?Since the government appears to be complicit who expects the government to bring the culprits to justice?It has become a sad and pathetic situation where justice is compromised at the expense of the seemingly helpless taxpayer. Otherwise, George W. Bush would be in jail for crimes against humanity and many of his cronies would share his cell.We have become victims of a banking-corporate controlled governing system that is morally and economically bankrupt.Until or if it implodes we will never see the justice our founding fathers would have demanded.

      • MA   December 4, 2008 at 1:00 pm

        GJWThat’s why I say “spread the word”… do your part. The problem with doing nothing, is you’ll never know when you’re done.Do something. At some point something will have to give.If enough people demand it… we will get the results we deserve.Stop being a victim!I’ve attached my name to a paper that loosely calls for a revolt. What will you do?MA

  2. 2cents   December 4, 2008 at 10:14 am

    @ MAI concur with your vehemence, but since the actions are so pervasive then the reasonable person statute starts to get shaky. If all your peers are doing this stuff then it would be ‘unreasonable’ (by the same logic) for you not to join them also. Likewise, without specific laws pertaining otherwise, the corporate officers duties are to increase shareholder value period. Looking out for society and the country/world as a whole are admirable goals, but hey are not ‘legalized’ and therefore such an attack becomes hard to convict on.While I wholeheartedly agree with your disposition, I think that it is a big jump to say we can convict these perps without evidence that they knew they provided false information or ignored current law. What we lack in this country is leadership and the social stigma that people can apply to those who conduct their affairs at or within the letter of the law but wholeheartedly have a callous disregard for the societal impact of those actions.Thanks for putting it all out there MA.

  3. MA   December 4, 2008 at 10:35 am

    @ $0.02Thanks… I’ll be pissing some vinegar over the next couple of days!Personally, I think “change” will come about. It will have to start with tearing down some of the walls of the grey areas of legal certainty. Instead, a moral application will have to apply. (I’m not talking about capitol punishment for the guilty, where the indirect effects of their crimes will most certainly result in deaths) …so with this in mind I don’t see much of an option. Vigilante/street justice would be much more harsh towards the guilty. …and I believe if things get as ugly as I fear they can possibly become, the legal system would be well served in being proactive in averting this outcome.“That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness…. ….it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”I’d hate to see things come to this point.Sacrificial Lambs are need. The 99% can not suffer alone. It’s asking too much. If nothing else, their bottles of water must be taken away!Appreciate you stopping in, and good job threshing out some of the lesser known facts of the industry on NR’s page. In order to know more about what people are up against, they need to know the mechanics of the systemMiss America

  4. ex VRWC   December 4, 2008 at 11:20 am

    MA,I saw what the blogosphere could do as Obama was elected. I have been trying to preach ‘where is the transparency, where is the triage of the banks?’ here for the last couple of posts. We might start by seeing if we can get Roubini to start realizing that this issue is important, that his calls to action need to include accountability and transparency. Sadly he seems to have abandoned this.In any case, I think there should be some kind of credo that Americans can demand and hang their hat on, something like the Contract for America the Repblicans had a while back. Call it a Contract for America’s Tomorrow.Maybe it has these kind of elements in it (note that these address the financial system and crisis at the start:We demand the government not allow organizations too big to fail. Organizations claiming to be too big to fail that approach the government for rescue will be broken up.We demand an immediate review by a committee of citizens of all bailout actions taken since the start of the crisis. All actions are subject to review and reversal. All government money must be accounted for.We demand justice for those found culpable for causing or failing to avert the financial crisis. Justice will include taking back the assets that the criminals have looted from the systemWe demand the government immediately take steps to remove systemic dependency on private, for profit banks. Good banking functions should not be subject to the profit motive, and should be run independently of investments.We demand an overhaul of the investment system. This includes the elimination of investments with no real-world purpose, such as all forms of betting on failure (derivatives, short selling).Obviously this needs development, but if there can be some easy to grasp set of principals and demands that citizens can sign on to, maybe some momentum can build around it.

    • redleg   December 6, 2008 at 9:26 pm

      #4 – applies to health care?

  5. Tim   December 4, 2008 at 5:43 pm

    MA,The real question that would arise in trying to prosecute these guys is whether or not they were involved in a plot to hoard water or that it just turned out that way. You’d literally have to prove there was a plot in order to get the criminal negligence and I am not sure you could do that.Here’s an analogy to describe what I mean by that. Let’s say I go out and chop down a single tree to use for firewood. I burn it for heat and reduce my heating bill (I don’t need oil for heat). Now my neighbors see that my chopping down a tree reduced my bill so they now go out and chop down trees for themselves. Eventually we chop down all the trees and the whole land is deforested. So am I criminally negligent because I chopped down a few trees (out of thousands or millions) and conciously conspired to deforest the land or rather are we all guilty of overharvesting the land?That’s the critical thing that would have to be proven. Ie that those in charge decided to loot the system in some grand plot as opposed to selling a few CDO’s and making money then deciding to sell a few more until all of a sudden there are hardly any trees left (often by the time you realize you are running out of trees/suckers to buy mode CDO’s it’s already too late). When would a reasonable person figure out there aren’t many tree’s left (or CDO’s to sell)?In all of human history we tend to exploit anything until there is nothing left unless some external force stops us (regulations, so you could argue the regulators are to blame). An excellent example is the Passenger Pidgeon or Buffalo in the 1800’s. They went from millions (or billions in the case of the Passenger Pidgeon) to extinction in the course of a few years from exploitation and yet there were no grand plots to make those species extinct.Your Enron example is also an intesting one. In this article:http://www.newyorker.com/reporting/2007/01/08/070108fa_fact?currentPage=allMalcolm Gladwell argues pretty good case against putting all the blame on Skilling and instead puts a lot on those in Wall Street who failed to understand what Enron was telling them in their reports.

    • MA   December 4, 2008 at 9:27 pm

      hello tim,If you chopped down the tree… you didn’t endanger the forest. If others did the same… you’d all be responsible.The question here is, what if just a select few of you decided to chop down the whole forest, set it ablaze, and keep a percent for yourself… and leve the other 99% in the cold.these people were warned. They financed the commission to investigate the risk. The investigation came back saying that the was a legitimate risk that it could spiral out of control!!!So what did they do… They chose to iIGNORE THE RISK, and not only continue… but ratchet the risk up 3x more then what it was at the time the report was put together….ALL IN THE NAME OF PROFITS!!!RECORD PROFITS 2005RECORD PROFITS 2006RECORD PROFITS 2007They were paid on commission. They new they were robbing from the not too distant future.This is no conspiracy theory. They weighed risk against their wallets.Miss America

      • Tim   December 4, 2008 at 10:38 pm

        MA,I’m glad you don’t think there is a conspiracy theory here. I may have slightly misunderstood your analogy as to me it read that you were saying that they were consciously trying to bring everything down (because you made the hatred of the neighbor the reason for you putting the diuretic into the water which is clearly a premeditated thought).I also don’t think they decided to set ablaze the rest of the forest either. That logic just doesn’t make any sense to me. If you burn down everything then there won’t be anything left for you either and only mad men attempt suicide. I’d suggest that what happened is that when they started cutting (selling CDO’s) the forest seemed limitless so they cut with abandon (much as loggers in the 1800’s clear cut everything). Only late in the game did they probably realize things had spiraled out of control (theirs and everyone else s) and by then it might have been too late. That to me seems FAR more likely since the first large group of CDO’s didn’t have any adverse affects on the economy. Let me try another analogy to illustrate what I mean.Imagine you and I are in a crowded movie theater and we look down and notice that the electric outlet next to us is sparking and that suddenly a small flame erupts on the carpet. We could yell ‘fire’ right then and warn everyone. Of course we also know that would cause a stampede and many people could be trampled to death and we might be held criminally negligent especially if the fire is extinguished easily with no harm done. So should we yell fire right now as an early warning or instead should we keep it quiet and try to deal with the small fire and hope to control it before anyone realizes what happened. Lets imagine we decide to deal with the fire and keep it quiet. So we put out the flame and think all is well but we don’t notice that behind the wall another fire is burning. A few minutes later, the whole wall erupts in flame and many people die in the ensuing fire. Now we are going to be held criminally negligent for not warning everyone when we first saw the flame. In other words we are damned if we do and damned if we don’t.Going back to the real world, I’d imagine one day someone figured out how to write a CDO and they did and it made money. So they did it again and it made more money and of course Wall Street is inbred so it’s not long before we tell our friends and they are writing them too. At this point we try to assess some risk to these CDO’s and we hire someone to do it. Of course since you can’t see into the other companies it’s probably impossible to know how much of this is out there so the best assessment came back as a once in 400 year failure (which clearly was too liberal but it is what the forecasts said about the chance of a failure of a major broker dealer so they can always use that as a defense). Now lets consider the letter you mention. That’s the flame on the floor we see in my example above. If those two came out and yelled fire (remember the irrational exuberance statement by Greenspan and the affect it had) we know there would have been a stampede for the exits and a major market crash which would have landed them in huge trouble for causing a crash. So they decided to keep it quiet and hope to deal with it (I am speculating they actually attempted any correction like putting out the flame as we did in my example) but even they didn’t know how much was burning behind the wall (in other dealers, banks etc). Eventually all hell breaks loose and things crash anyway. So it’s possible they were damned if they did and damned if they didn’t by the time 2007 rolled around (after all by then Roubini claimed it was all a done deal anyway in terms of a housing crash/recession).The point of all my rambling is that it’s dangerous to look back in hindsight and claim someone should have known something especially when this is clearly the first time these instruments were created and loosed on the world. I’m always willing to give the benefit of the doubt to someone who experiences something for the first time because they have no prior experience to draw on. Never in history had these kinds of things been possible until only a few years ago so no one knew what the long term repercussion were. You can claim they should have known but you can never prove it (think of the frog in the water that’s heating up and until it boils all seems fine. It’s hard to blame that 1st frog since he didn’t know what would happen at the boiling point. But if there is another frog next to him in another pot that’s also heating up and he sees what happens to the 1st frog we can definitely say he should have known after he saw what happened to the 1st frog). The other reason its dangerous to do this is because it is an attempt to absolve everyone with the old excuse of ‘it was someone else s fault’ so that people have no reason to look to themselves for any blame. I’m all about you and the brain trust here looking for change and a new paradigm going forward that is sustainable. But to do that and truly make it stick, everyone in the USA has to be willing to ask what they did to contribute to the old paradigm (did I take a subprime I couldn’t pay, did I get a credit card I could not pay, did I keep dumping money into stocks etc trying to push up the next bubble, did I not regulate these new instruments, did I drive a gas guzzler etc), accept their part and agree to change going forward. But if there is an easy ready made excuse of ‘it was the fault of a few for this crash’ then everyone can continue blissfully along in the same system and say well if we put those few in jail, then everything will go back to the good times and the way it was and we’ll all live happily ever after with no more bubbles or recession and perpetual 10% stock growth.

        • Guest   December 5, 2008 at 8:51 am

          Tim,Thanks for standing up and taking the time to write your thoughts. We’ll have to agree to disagree.I would understand if they took these risks for the betterment of society (or something like that)… but I’m pretty sure they took these risks in the name of personal gain. (greed and ego)I’d like to hear them forced to explain why they took these risks… and then decide who is right.These CEOs know the economical and social importance of their companies. (look at AIG and auto… they’ve come out and stated that if they go down… millions lose their jobs!)They faced a risk (and they DID NOT properly weigh the risks, because they let greed cloud their vision.) When you’re a CEO, you are given power, and rewarded with wealth. It is you job to weigh these risks with the RIGHT judgement. In the game Wall St game of roullette, you spread your chips all around the table. You don’t start start borrowing from the house and putting it on 1 or 2 numbers.I believe their motivation for past decisions needs to be scrutinized. Let’s put em on a stand, and hear what they have to say. (you see the truth will come out, when the #2’s and #3’s don’t want to do time…. so they spill the beans on just how much the elite actually knem (a la Andy Fastow from Enron.)Get em up there, and make em say it under oath… then you nail em for exactly what I wrote about.Miss America

          • merry-will-go-round   December 6, 2008 at 1:36 pm

            Patient feedback to Tim’s post, MA! Especially since you did not use any type of forest fire analogy as Tim seems to have imagined you had. Like many Americans, Tim seems to view the current financial crisis as a raging fire that is all consuming. I think you did an excellent job in explaining, in your original posting, that the costs that were knowingly incurred by the “haves,” in their reckless pursuit of wealth hoarding, have been quite effectively transferred to the “have-nots. “ Why are so many Americans seemingly oblivious to these facts? Perhaps this denial is one of the insidious “Audacity of Hope” symptoms that inflict our diseased culture? American health officials should recommend that the U.S. media report more on the adverse impact of the continuing financial meltdown on the global have-nots (who have even less than American have-nots), to reduce these delusional symptoms.I would have had less patience than you in fielding arguments based on the hypothesis that human behavior is “rational” or directed towards “self-preservation.” For those who suffer from myopia or naivete, I recommend reviewing the historical record that evidences that individual and group actions can rarely be described as rational, particularly when viewed over the long term. World history is littered with the dust of the millions of bones of those who belonged to dominating, elite classes who laid waste to the environment, to the public treasury, and to the less powerful human subjects/slaves/enemies. Human beings (and clusters of same) behave as though they view themselves as geographically and sociologically / psychologically separate from, even superior to, organisms and resources outside the boundaries of identification / association. The resulting crises of the overburdening or damaging of the commons is rarely realized while the dominating class is greedily devouring it. And escalating costs and losses are rarely reversible by the time that the dominating class realizes fewer resources.MA, I hope you have the wherewithal to keep publishing on the “reckless endangerment” theme. Maybe, eventually the media will sit up and take notice; maybe US voters will begin taking this knowledge to the polls, to their elected officials, and to the streets.

        • artichoke   December 6, 2008 at 8:02 pm

          I’ve worked in the business. I still do in fact. These people knew what they were doing. It was their choice to ignore their risk management departments.These things should not be blamed on quants or risk management. The modelers are clearly aware of the limitations of their models and in my experience, if they are permitted to do so, will clearly caution as to those limits. I’m 100% sure that in every significant financial institution were many people concerned about credit risk, credit contagion, etc, by two years ago at the latest.But top management chose another path. Now I see Robert Rubin saying that he cannot be expected to know the details of the business, that’s really the job of Risk Management. Nope, it’s yours Bob. If you created an atmosphere where they did not dare to speak up, that’s your fault too, Bob. There may even be a law that says that and outlines criminal culpability. Wouldn’t that be funny, Bob? Bob??Now as for what to do: let’s start a new currency. It could simply be gold. Start trading around Federal Reserve Notes, not using them or the associated institutions. We have to start anew here, and we won’t be getting government help at least until there is some strength in what we are doing. It’s not going to be very fast because most of us are paid in dollars, and have to buy many things in dollars, but I hope it can grow.

          • artichoke   December 6, 2008 at 8:05 pm

            The currency could also be silver. It’s not as soft, and reasonable amounts of value have a reasonable weight. Try buying a candy bar with gold, the amount would be microscopic!

    • aerial view   December 5, 2008 at 7:51 am

      Most of the people I have spoken to look at the situation this way: We go to work each day, make somewhere beween $10-$25 per hour, can barely pay our daily living expenses, have no savings, have significant debt, will be fired if we show up late to work and prosecuted if caught stealing an item such as a $10 stapler. So when they read in the papers about people who make $1000 per hour an up, wear $2000 suits, own 3 or more exotic cars, 2 or more homes, a jet, etc, one can begin to see there really is no justification for their actions: they are not trying to survive, they are raping the system solely out of greed for their own benefit! For one to believe that all the smart attorneys, bond rating agencies and brilliant business minds had no idea of what they were doing, just doesn’t fly with the majority! So people begin to wonder: “if this is what I’m being told a democracy is, then maybe I don’t want it anymore”!

  6. bcdogs   December 4, 2008 at 5:55 pm

    Outstanding post Rich. I believe you hit the nail on the head, I believe that we are indeed in a “financially lawless state”, but the lawlessness is only allowed for the corporate and elite.I really don’t think the MSCM (main stream corporate media) has done a good job of explaining exactly the culpability of these people to the average citizen. I think there would be a lot more angry letters to the editor, etc. I wonder if the MSCM’s failings are by design or purpose (the tinfoil is firmly wrapped around head).

  7. Guest   December 4, 2008 at 5:55 pm

    Thanks for posting the D of I – its been a long time since I last read it and rereading it only reinforces the difference between people like Jefferson and GW’s Reign of Error over the past eight years. The concept of constant government lying has alternated between the brutish (think Cheney) and an art form (think Rove) over the past eight years.Another appropriate quote:“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”I presume everyone knows the JG who provided this wisdom.

    • Guest   December 4, 2008 at 5:56 pm

      oops – neglected to sign my post – crgordon

  8. OuterBeltway   December 4, 2008 at 8:45 pm

    Action. There is not substitute for action. Band together, identify fundamental causes, and solve the problems. Cooperate.Thinking and speaking isn’t enough. It takes actionWay to go, MA!

  9. Average Jane   December 4, 2008 at 10:27 pm

    There’s been little notice paid, if any, by the corporatist MSM to the indictment of VP Cheney and former AG Gonzales by a grand jury in Willay County, Texas, for the abuse of inmates in private prisons in south Texas. The DA is one Juan Gerra who worked tirelessly for two years poring over thousands of pages of documents to come up with the indictment. This was back on November 18. There’s a follow-the-money trail to Cheney who owns interest in certain prison-related enterprises such as the Vanguard Group. I believe the Judge wound up dismissing the charges, but I think a shout out to that plucky DA is in order. So many people are so afraid, and this fella has just got to have a big red target on his back. A little “way to go, fella” I’m sure would be appreciated. We need more courageous people like him.And, as usual, MA, I bow to your courage and intellect.

  10. cavjam   December 5, 2008 at 1:09 am

    As law, there has to be an actus reus for there to be a crime. I think criminal neglect is going to be a stretch for the prosecution. Gross negligence, usually a civil matter, seems a no-brainer, OTOH.

  11. runningdoglackey   December 5, 2008 at 8:26 am

    Interesting that an economics forum is entertaining the first cries for counterattack in the Class War that has impoverished the masses since Ronald Reagan started it in 1980. I first posted opinion online in late October 08 and I believe it should be accepted here as a strong second to the author’s motion.ATLAS VOMITEDThe current crisis confirms the tenets of Socialism.First, Alan Greenspan, an Ayn Rand devotee – he was a member of her circle – chaired the Federal Reserve for 18 years. Ayn Rand preached that enlightened self interest was the the core of successful capitalism and, by definition, the superior man would succeed despite the envy of the masses, and their populist media and political provocateurs, because the enlightened self interest of ideal capitalism would of itself prevail through the design and implementation of superior ideas. All that was required was for the pure capitalist/hero to persevere in the face of mass resistance to innovation and political inertia.Alan Greenspan, while never mentioning Ayn Rand by name (because she had been intellectually discredited by the 1960’s), nonetheless actively worked to make the Federal Reserve’s powers of regulation inactive. In this way he thought he was opening the door for the capitalist elite – who by “definition” must be the smartest and the brightest, to blossom with the great ideas. For example, Greenspan in 2005 testified before Congress that the vaunted Collateralized Debt Obligations, and Credit Swaps, were the single most important innovation in market vehicles to unlock the restraints of otherwise regulated capital flow. These would in turn cause new flows of capital into the Global System. He did more than pay lip service to the philosophy of his long ago discredited mentor. He removed those pesky restraints. Specifically, he intentionally stunted the regulatory arms of the Federal Reserve by reducing staff and declining to enforce statutory requirements for minimum reserves to be held against liabilities. He also weakened the Federal Reserve’s oversight of risk management functions within the private sectors – the banks, e.g., J P Morgan, Citibank, Bear Sterns, Lehman Brothers, et al, so that they could the more easily exploit these new capital flow vehicles.Yesterday, October 23, 2008, testifying before Congress again, he admitted to an error of judgment. He said he was “shocked” to find that the market had not acted in enlightened self interest, but had instead performed in the manner which Socialism predicts: the markets sought the fast easy buck, falsified their books, paid Congress and the President to look the other way while they let their reserves against losses dwindle to insignificance, and sold bogus paper many times over not only to other Americans, but to other greedy (and either misinformed or simply stupid) investors around the world.But one man alone with a faulty, to be gentle, philosophy, cannot send the entire World economy crashing into default. It took a coordinated effort and George Bush was just the man to make that happen.One of his first acts as President in 2001 was to relieve the head of the only other agency in the United States Government with sufficient power to reign in unfettered greed and mendacity on Wall Street, to replace him with a series of foxes to regulate the henhouse. The last of these, Christopher Cox who is still current chairman of the Securities and Exchange Commission, testified before Congress yesterday as well. He said that stringent controls must be imposed on Wall Street. This is the same man who completed the gutting of the SEC’s ability to enforce Federal Law on Wall Street by firing 2/3 of the regulatory enforcement staff. His predecessor (another Bush appointee) held a hearing in 2004 composed of 4 investment banks, including Goldman Sachs. The SEC was asked to rule that Credit Default Swaps and Collateralized Debt Obligations, particularly as they bore on mortgage bonds bundling subprime mortgage debt (mortgages given for houses bought by people who likely couldn’t repay the debt) should not be regulated and, moreover, that the holders of those bogus debt instruments should not be required to retain any (yes! That’s right, any!) reserves of cash to cover the eventuality that any of those bonds might default as a result of the subprime borrowers’ failure to pay back the debt.The head of Goldman Sachs at the time was the current Secretary of the Treasury, Henry Paulson.Over the last 8 years capitalism has run rampant and now millions of Americans are losing their jobs, losing the money they squirreled away in retirement accounts – all this while slow inflation forced them to spend less just in order to be able to keep saving for the dreams of a day when they would not have to work even if it meant they would have to wait for decrepit old age, instead of enjoying and exploring life while they still had their health and their youth.This because of a self-enforcing greed among the less than 1% at the top of the economic heap who fed the election machine of the Republican Party which in turn repaid their support with a systematic evisceration of the enforcement arms that kept capitalist greed from running completely amok.Barack Obama has been running for the Presidenct essentially on a platform of class warfare. He central tenet has been to tax the rich. But everyone, including the rich, have now taken a bath.Currently the contagion of American Capitalist greed has caused not only the collapse of major financial institutions. It has put the economies of the developing world in direct jeopardy of insolvency. It has threatened the ability of the world’s industrial powers to produce. It has undermined the world global flow of capital to come to a standstill.We are on the cusp of discovering whether the major economies of the world can print enough money to stave off a general collapse.Estimates of the liabilities for the CDO’s and CDS’s range up to $62,000,000,000,000.The total net worth of the real estate in the United States is (or was) about $15,000,000,000,000.That means that the insurance sold to protect investors in mortgage bonds composed of really fraudulent mortgage deals struck with stupid Americans who couldn’t read or do math, exceeds the value of the entire US real estate market by a factor of more than 4.And the World bought into this crap because they believed that America was the best regulated and most transparent economy, so why should they have to dig into the details?! The U.S. Government was regulating all this, right?But here’s the kicker. The rest of the world now HAS to believe in the full faith and strength of the US Government because, if they don’t, the alternative is a global collapse of confidence. So, the rest of the world, who bought this crap from the US now have no choice but to believe that the US can print enough money to stem the tide of defaults in virtually every form of currency because there is no economy anywhere else big enough to step in, not even China. China does not allow its currency to trade in an unregulated global market, OPEC with all their oil cannot match the US currency because they only have one thing to sell. And now that’s in trouble, too.Nonetheless, when the crisis is passed, whether it means the markets recover, or we are all trading vegetables we grow for a gallon of gasoline, the entire world is going to look at the US and wonder whether it wouldn’t be a good idea to get away from the $US?And our only saving grace right now is that the world does still peg currencies to the $US which means we can print money till the cows come home to try to solve this crisis, instead of trying to buy up somebody else’s currency to shore up our own reserves.This is not to pin it all on Ayn Rand. She was merely a half baked philosopher ( among many both before and after) who posited the following: that man is essentially good and if he recognizes the good, he will strive toward it.I don’t believe the American Founders are turning over in their graves. I believe they are now so astounded that they see no alternative but to laugh.They created a framework of checks and balances. Why? Because they were enlightened. Why would they create a system of checks and balances against excess if they believed that mankind was essentially good, even when possessed of absolute power to make laws and rule over their fellows?Could it be that they were enlightened enough to recognize the Man is what he is? That if you govern fairly keeping the balance between the congress and the executive, the judicial and the legislative, each responsible to the other, that excess might be avoided?Does anyone remember the Bush legal argument of the “Unitary Executive” which essentially argued that the President can damn well do what he pleases? Can anyone argue now that that is not one really brazen challenge to more than 200 years of constitutional government?! Yet, he did and he got away with it which means that the Establishment now condones rule by fiat by buying the governmental leadership to continue its class warfare on the general populace and reduce them to wage slaves in order to skim even more off the backs of the workers in favor of the Owners of the Means of Production. The constitution is now in its death throes and this situation will not reverse unless the American populace receives a decent historical education and is taught to think critically, or the Establishment consigns it to the “dustbin of history” with the virtuall concurrence of the ignorant sheep whom they will then begin to fleece in earnest.In the short term, the Republican Party is losing in this election for one really glaringly neon reason: EXCESS. They have not yet learned the lesson which the Democratic Party has: that the route to unchallenged power lies in bread and circuses, not simple massive theft.Socialism predicts that unfettered capitalism is not in the best interest of society and citizens.Anybody still willing to argue that point?

    • MA   December 5, 2008 at 11:57 am

      Damn that was a mouthful! I’m still digesting.I’m oblivious to Ayn Rand. I may have learned something today? I’ll have to do some more reading. (I spent the first 25 years of my life obsessed with sports. My “economic” brain only woke up in the last 10, so I have lots of catch-up to do.)Thanks for your post.MA

    • artichoke   December 6, 2008 at 8:25 pm

      It’s not really that the common man didn’t wake up. It’s that he was not in control of events, even collectively.There is much doubt about whether GWB actually won in either 2000 or 2004. There was no stopping his idiocy / corruption, especially in the first term. Then for another example we elected Democrats in 2006 for a single reason: to get us out of Iraq. They turn around and vote to stay in Iraq, but start pushing other agendas (cars that run on alfalfa sprouts, whatever) that are not why we put them there.No, it’s just theft. It’s not your fault, it’s theirs. What do we do now, for ourselves and to them?

  12. Guest   December 5, 2008 at 8:49 am

    GREED; Grabbing Raping Eradicating Eliminating Destroying the welfare of 99.9% of your brothers so that the 0.1% can live like Kings!

  13. Greg   December 5, 2008 at 10:06 am

    Great post runningdoglackey!Same to you MA, excellent as always.

  14. jack t. brady   December 5, 2008 at 11:54 am

    I agree with your premise.I remind your readers that Ebbers, Skilling, Koslowski, Leeson, Minkow,the Rigas family and the Fastows were all sentenced to jail terms.But there were many many others whose fate seems to be unknown.And it is the same today–Why shouldn’t Joseph Cassano, Angelo Mozilo, Bruce Karatz, Chad Dreier, Richard Fuld, Howie Rubin, Richard Syron, David Mudd,to name a few, be obligated to defend their outrageous behavior in a court of law ? Their collective actions caused millions of American workers to lose homes, jobs, pensions, health care and faith in the American system.

    • MA   December 5, 2008 at 12:03 pm

      EXACTLY!!! DAMNIT… why aren’t there writing campaigns going on RIGHT NOW calling for this to happen.I’m not looking for legal precedent!The law can NOT keep up with innovation. There has to be “hindsight law” that will weigh the intended goals.Much like hunting down Nazi criminals for war crimes!If you were a Nazi, running a death camp, you were doing your duty by your Gov’ts law.These people were rightly tracked down and prosecuted because the “laws they followed” were morally wrong. Just because their gov’t didn’t see it as a crime, doesn’t mean it wasn’t.MA

  15. pa   December 5, 2008 at 5:17 pm

    … “the behavior” they never confirm nor deny!removing ambiguous language that they seem to hide behind would be a good start.

    • Guest   December 6, 2008 at 8:30 pm

      It was equally ambiguous with respect to Lay and Skilling I would bet. But they were not of Wall Street.We need courts with consistency. Do what Lay did, get what Lay got.

  16. blindman   December 7, 2008 at 10:44 pm

    ma, like swimming in a chum slick on the high seas while the big fish feed. some links with kinks.that’s how it feels from here…http://www.derivativesstrategy.com/magazine/archive/2001/0301fea3.asp.The FAS’s Derivative Implementation Group has been singularly quiet on the treatment of exotic options, and no one has pushed the issue with the committee. “It is almost as if people are afraid to ask the question,” says Michael Joseph, an Ernst & Young partner and DIG member. “The statement simply explains that if you can demonstrate equal risk and reward on a hedge and overall hedge effectiveness, any product is all right.”..http://content.lawyerlinks.com/default.htm#http://content.lawyerlinks.com/sec/Accounting/derivatives.htm..http://www.sec.gov/rules/final/33-8518.htm..http://lawprofessors.typepad.com/securities/2008/11/sec-charges-fra.html.Lee fraudulently overvalued BMO’s portfolio of natural gas options by deliberately “mismarking” trading positions for which market prices were unavailable. Lee recorded inflated values that were then purportedly validated by Optionable, which held itself out to BMO and the public as a legitimate provider of independent derivatives valuation services. In fact, Cassidy, O’Connor and Connor schemed with Lee to have Optionable simply rubber-stamp whatever inflated values Lee recorded. After the scheme was discovered, BMO restated its financial results by reducing net income for the first quarter of its 2007 fiscal year by approximately $237 million Canadian dollars ($204 million USD), which reflects a 68% overstatement of BMO’s net income for that quarter…plus there are unheard of f.b.i. investigations perhaps amounting to nothing but who knows anything for sure anymore… great focus, great focus.

  17. grower   December 9, 2008 at 8:12 am

    MA a couple great stories on topic. Sad now adult supervision and integrity have been displaced.”Too Big To Jail” “Bystanders to this financial crime were many”http://jessescrossroadscafe.blogspot.com/2008/12/too-big-to-jail.html