A Tale Of Two Justice Systems – Wall Street Vs. Main Street

Authored by Mike Krieger via Liberty Blitzkrieg blog,

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

– Charles Dickens, A Tale of Two Cities

One of the major objectives of this site over the years has been to highlight the demoralizing and extremely destructive reality that two completely different justices systems exist in America — one for the wealthy, powerful and connected, and another for everyone else. While there will always be some element of this in any society of humans, extremes can and do occur, and the pendulum now has shifted in these United States to extremely dangerous Banana Republic-like levels.

Nowhere is this divergence of justice more in your face and deplorable than with respect to how Wall Street financiers are treated compared to the rest of us. Not only was the industry rewarded with endless financial lifelines and zero executive prosecutions after it destroyed the global economy, but the industry continues to do whatever it wants, whenever it wants, with zero repercussions. It doesn’t take genius to understand that if there’s no risk in committing financial crimes, you get a lot more of them.

Speaking of Wall Street being able to do whatever it wants, let’s take a look at what Goldman Sachs is up to courtesy of some excerpts from a recent article by David Dayen published at The Fiscal Times:

Goldman Sachs is on a shopping spree. Last week, it spent $500 million to buy 12 percent of Riverstone Holdings, a private equity firm focused on energy investments. This is part of a $2 billion private equity strategy for the vampire squid. Through a couple of subsidiary funds, Goldman has already acquired stakes in private equity players Littlejohn & Co. and ArcLight Capital Partners, and  Accel-KKR, a firm specializing in tech companies.

There’s only one problem with these investments: They’re supposed to be illegal under the Dodd-Frank Act. But “the law” is only as good as the men and women willing to enforce it, as Goldman Sachs has discovered to its delight. Big banks have turned one key section of Dodd-Frank into mush, such that Goldman can flaunt its defiance openly without an ounce of fear. It makes me wonder why House Republicans are working so hard to repeal Wall Street reform when regulators have shown so much willingness to repeal by neglect.

Bank lobbyists weakened the Volcker rule before it was finalized. Then-Senator Scott Brown, the 60^th vote for Dodd-Frank in the Senate, inserted a loophole that enabled firms like Goldman Sachs to keep a “de minimis” 3 percent stake in hedge funds or private equity firms. But what Goldman announced with Riverstone equaled four times that number. How is this allowable?

Under a regulatory interpretation from the Federal Reserve, if a new investment fund is in its “seeding” phase, banks can own as much as 100 percent for a “brief period” of up to one year. But Riverstone isn’t new, having been founded in 2000. However, if the investment were structured to look like it’s initiating new funds within Riverstone, the Fed could accept the deal.

At least under that interpretation, Goldman would have to scale back its investment to the 3 percent threshold after a year, right? Wrong. In their rule, the Fed officials write that they “understand that the seeding period… may take some time, for example, three years.”

The Fed has been all too happy to grant elongated timelines for the Volcker rule. Banks initially had four years from the passage of Dodd-Frank to get rid of existing investments in hedge funds and private equity firms. But the Fed delayed the divestiture for a year, then for another two years, which defied the statute, because the central bank was only permitted to delay one year at a time. Last week we learned in Goldman Sachs’ quarterly financial report that last December, the Fed allowed banks to apply for another five-year extension to liquidate the investments. “The firm received this extension for substantially all its remaining investments,” according to the filing.

So Goldman Sachs doesn’t have to jettison its old private equity investments, doesn’t have to limit itself to a 3 percent stake on new investments and doesn’t have to reduce those new holdings for at least three years. You begin to wonder whether the Volcker rule exists in name only, with the dictates mere suggestions instead of directives.

Even if Goldman were misbehaving, Volcker rule enforcement has been practically non-existent. Since the 2014 implementation date, exactly one bank has been fined for non-compliance, for a grand total of $19.7 million.

Goldman has found other ways to, in the words of The Wall Street Journal, “navigate the new rules” — for example, eliminating the private equity middleman and buying up real estate assets and private corporations through its merchant banking business, using a mix of client funds and in-house money.

Goldman has essentially dared regulators to stop its degradation of the rule. As then-Goldman president Gary Cohn said in 2012, “we will continue to source and pursue attractive investments on behalf of our clients.”

Cohn’s statement speaks to the near-impossibility of expecting anyone inside government to challenge Goldman; he’s now director of the White House’s National Economic Council. If the SEC wanted to look into this, it would go through former Goldman Sachs lawyer and current chair Jay Clayton. The main regulator, the Fed, has already shown its eagerness to interpret the law loosely. That’s why banks want the Fed to have sole authority on Volcker rule enforcement. And Donald Trump’s nominee to run financial supervision at the central bank, Randal Quarles, comes out of the private equity industry, and is presumably content with continued big bank investments in the space.

This gives Goldman the confidence to build a $2 billion fund for activities it’s not really supposed to be undertaking. And it’s why banks are far less interested in House Republicans’ attempt to overturn Dodd-Frank, which passed the Financial Services Committee last week, than in the regulators who will choose to ignore the law.

It speaks to the weaknesses of half-measures and technocratic tweaks when the banking industry is the adversary. The Volcker rule was needlessly vague and complex, providing industry lobbyists the space they needed to render it irrelevant. The lesson for the future is this: To really impact Wall Street’s activities, you have to attack the structure of finance directly, not at the margins. It’s the only way to even hope to get the job done.

Couldn’t agree more. Meanwhile, who in Congress is seriously talking about doing this?

So that’s what life feels like for Goldman Sachs, but what’s the law look like when your just an average American debt slave? Let’s turn to Attorney General Jefferson Sessions for some perspective.

From The New York Times:

WASHINGTON — Attorney General Jeff Sessions is expected to soon toughen rules on prosecuting drug crimes, according to people familiar with internal deliberations, in what would be a major rollback of Obama-era policies that would put his first big stamp on a Justice Department he has criticized as soft on crime.

 

Mr. Sessions has been reviewing a pair of memos issued by his predecessor, Eric H. Holder Jr., who encouraged federal prosecutors to use their discretion in what criminal charges they filed, particularly when those charges carried mandatory minimum penalties.

 

The policy under consideration would return the department to the era of George W. Bush. In 2003, Attorney General John Ashcroft ordered the nation’s prosecutors to bring the most serious charges possible in the vast majority of cases, with limited exceptions. Mr. Sessions could, however, craft his own policy that does not go quite so far; a draft is still being reviewed.

 

Mr. Sessions, who cut his teeth as a young prosecutor in Alabama during the height of the crack epidemic, came to office promising to make being tough on crime a top priority, and his new guidance on charging and sentencing would be the strongest articulation yet of his emphasis on a law-and-order agenda.

Sure, he wants harsh law and order when it comes to all those weak, poor American peasants, but where’s the “law and order” for white collar criminals? Crickets, of course.

“We do have strong evidence that aggressive prosecutions of federal laws can be effective in combating crime,” he wrote, attributing a rise in the number of murders in the United States to a decline in prosecutions for violent crimes. “Our department’s experience over decades shows these prosecutions can help save lives.”

If this is true, then why not aggressively prosecute Wall Street and corporate criminals generally more aggressively? After all, those crimes are much more destructive to society at large than some street corner drug pusher.

This twisted application of the law when it comes to two different classes of Americans is extremely corrosive, unethical and ultimately potentially fatal to any society. Until this is dealt with, nothing will get sustainably better for the masses of our fellow citizens.

All The Plenary's Men

Via BestEvidence,

“The King can do no wrong.”

—William Blackstone, Commentaries on the Laws of England

“When the president does it, that means that it is not illegal.”

—Ex-President Richard Nixon, interview with David Frost

The question at bar is why the U.S. Department of Justice has failed to prosecute any too-big-to-fail banks or - more importantly - their bankers, even for admitted crimes.

It’s a crucial question, because after eight straight years of unremitting prosecutorial failure, it looks very much as if a select group of top banks can, in fact, do no wrong. If that’s the case, then our constitutional republic isn’t merely in trouble. It"s dead.

A person or group of people who satisfy Blackstone’s criterion for ultimate sovereign power—the power to commit crimes with impunity—can’t exist in a nation where the law reigns supreme. And yet here we are a decade after the financial crisis began in earnest, and not one TBTF bank executive has gone to jail.

Legally, the TBTF banks are indistinguishable from the King, since the power to commit crimes with impunity swallows all other sovereign powers; such a power isn’t even supposed to exist in the U.S., and yet it does.

Moreover, since there can’t be two kings in a kingdom, the entire U.S. government, from the president on down, is just one of the King’s men under this formulation of power. The real job of the U.S. government, then, isn’t to represent the will of the people at all, it’s to do the King’s bidding. A nation that isn’t governed by law is governed by instead by a king—it’s one or the other—and the president’s inferiority to such an above-the-law sovereign was confirmed over 40 years ago with Nixon’s ouster. The president, unlike the King, answers to the law (despite Nixon"s opinion).

Now, you may say that while the TBTF banks might arguably have the de facto power of the King, that’s a far cry from wielding such power formally (i.e., having de jure criminal immunity).

The reply to that objection is set forth in this film, “All the Plenary’s Men,” which is a sequel to “The Veneer of Justice in a Kingdom of Crime.”

Another objection, raised by the DOJ itself, is that it HAS prosecuted TBTF bankers, citing cases like that of Raj Rajaratnam. These cases, however, in fact reveal the DOJ acting on behalf of the criminal global banking cartel.

On that score, the DOJ’s abysmal track record is by now so extensive and so thorough that it’s possible to spot legal patterns in the DOJ’s protracted miscarriage of justice, and, as you’re about to see, those patterns are very deeply disturbing indeed. What’s been going on cuts right past a garden variety constitutional crisis like Watergate straight to a crisis of sovereignty.

The backdrop for all of this is HSBC’s exoneration in December of 2012 for laundering money for drug dealers and terrorists, about which the House Financial Services Committee issued a report in July of 2016. Whether it was due to the political circus in town at the time, or to the Republican authorship of that report (albeit without dissent), it didn’t get nearly the scrutiny it deserved.

You see, prosecutors working on the HSBC case were actually going to indict the bank, but they got overruled, and HSBC and its team of criminals skated. The story of how exactly that reversal came about reveals, if not the King himself, then certainly many of the King’s top men.

Make the coffee extra strong before viewing. Lots of ground gets covered, quickly.

And don’t mothball those pitchforks and torches just yet.

It's Time To Get Painfully Honest: Banks Are Evil

I don"t talk to my classmates from business school anymore, many of whom went to work in the financial industry.

Why?

Because, through the lens we use here at PeakProsperity.com to look at the world, I"ve increasingly come to see the financial industry -- with the big banks at its core -- as the root cause of injustice in today"s society. I can no longer separate any personal affections I might have for my fellow alumni from the evil that their companies perpetrate.

And I"m choosing that word deliberately: Evil.

In my opinion, it"s long past time we be brutally honest about the banks. Their influence and reach has metastasized to the point where we now live under a captive system. From our retirement accounts, to our homes, to the laws we live under -- the banks control it all. And they run the system for their benefit, not ours.

While the banks spent much of the past century consolidating their power, the repeal of the Glass-Steagall Act in 1999 emboldened them to accelerate their efforts. Since then, the key trends in the financial industry have been to dismantle regulation and defang those responsible for enforcing it, to manipulate market prices (an ambition tremendously helped by the rise of high-frequency trading algorithms), and to push downside risk onto "muppets" and taxpayers.

Oh, and of course, this hasn"t hurt either: having the ability to print up trillions in thin-air money and then get first-at-the-trough access to it. Don"t forget, the Federal Reserve is made up of and run by -- drum roll, please -- the banks.

How much "thin air" money are we talking about? The Fed and the rest of the world"s central banking cartel has printed over $12 Trillion since the Great Recession. Between the ECB and the DOJ, nearly $200 Billion of additional liquidity has been -- and continues to be -- injected into world markets each month(!) since the beginning of 2016:

With their first-in-line access to this money tsunami, as well as their stranglehold on the financial system that it all runs through, the banks are like a parasite feasting from a gusher on the mother-lode artery.

It should come as little surprise that, with all this advantage they"ve amassed, the banks have enriched themselves and their cronies spectacularly. They have made themselves too big to fail, and too big to jail. Remember that their reckless greed caused the 2008 financial crisis, and yet, in 2009, not only did bankers avoid criminal prosecutions, not only did the banks receive hundreds of billions in government bailouts, but they paid themselves record bonuses?

And the bonanza continues unabated today. By being able to borrow capital for essentially free today from the Fed, the banks simply lever that money up and buy Treasurys. Voila! Risk-free profits. That giveaway has been going on for years.

Couple that with the banks" ability to push market prices around using their wide arsenal of unfair tactics -- frontrunning, HFT spoofing and quote stuffing, stop-running, insider knowledge, collusion, etc -- the list is long. James Howard Kunstler is dead on: we don"t have a free market anymore. Instead, we have rackets, run by racketeers. The rest of us are simply suckers to be fleeced.

Nobel Prize-winning economist Angus Deaton recently agreed:

Income inequality is not killing capitalism in the United States, but rent-seekers like the banking and the health-care sectors just might, said Nobel-winning economist Angus Deaton on Monday.

If an entrepreneur invents something on the order of another Facebook, Deaton said he has no problem with that person becoming wealthy.

“What is not OK is for rent-seekers to get rich,” Deaton said in a luncheon speech to the National Association for Business Economics.

Rent seekers lobby and persuade governments to give them special favors.

Bankers during the financial crisis, and much of the health-care system, are two prime examples, Deaton said.

Rent-seeking not only does not generate new product, it actually slows down economic growth, Deaton said.

“All that talent is devoted to stealing things, instead of making things,” he said.

(Source)

As further proof, let"s look at this data recently obtained by Zero Hedge. In the past 4 years, JP Morgan"s in-house trading group has had exactly 2 days of losses:

That"s not trading. Trading involves uncertainty and risk. This situation has none. It"s an extraction process -- siphoning value from the market day after day with ironclad dependability.

And it"s not just a few dollars here and there. In 2016, JP Morgan"s daily average trading revenues were $80 million. Per day! That"s nearly $20 billion for the year.

So if not "trading", what should we call it when a bank can extract tens of billions of dollars a year from the markets, with no downside risk? "Sanctioned theft" sounds about right.

Because for every trade there is a buyer and a seller. If JP Morgan is the winner every day, who is losing? Turns out, it"s the big pools of "dumb money" that don"t have the cheat codes for the system the way the banks do. These are the pension funds, the index funds, the retirement accounts -- the aggregated money of all the "little people" out there. Little people who don"t have visibility into how they"re being constantly fleeced; nor do they have agency to do anything about it even if they did.

So yeah, "theft" feels like a pretty accurate term.

And it"s reached the point where the banks don"t even care about hiding it anymore. If you had a nice inside racket going on, wouldn"t you at least pretend to hide your advantage, to avoid drawing attention? Not the banks. They"re either too proud or too obtuse to conceal it. Look at our string of perfect trading days! Look at our record bonuses!

These boasts fall on the ears of everyday American"s as the modern version of Let them eat cake!

And just like the out-of-touch French monarchs, the banks have positioned themselves as the enemy of the public. For as I claimed at the beginning of this article, a tremendous amount of the injustice in this country can be laid at the feet of the banks directly, or indirectly via the Federal Reserve.

Are you a senior who can"t afford to retire because you can"t live off your fixed-income savings? Thank the Fed"s 0% interest rates for that.

Are you a millennial who can"t afford to buy a home? Again, thank the Fed"s policy of suppressing interest rates and thereby blowing another housing bubble.

Are you struggling to get out of poverty? Are you finding it hard to remain in the middle class? Whatever your income, are you having to work harder and harder to just stay in the same place? See here how the Fed"s money printing, and the banks" first-position access to it, has created the most concentrated imbalance of wealth in our country"s history:

Are you frustrated with how our lawmakers seem to serve corporations instead of the people? Listen to this mind-blowing podcast of how gobs of lobbyist money, much of it provided by Wall Street, dictates how our politicians legislate: 

(Click here to launch podcast)

Whether it"s social equity, the security of your job or retirement, your day-to-day existence, or the fairness of the laws we live under -- our fate is currently in the hands of the banks. And, of course, should their behavior trigger another meltdown of the global economy -- something we warn about often here at PeakProsperity.com -- we"ll have them to thank for that, too.

Yes, the banks are going to keep writing the rules in their favor; and yes, there"s little agency any of us has individually to do much about it. But as a society, we need to start addressing the dire situation we"re in honestly and openly. By whatever path, we have granted the banks far too much control over our lives, and they are taking gross advantage of that. Exactly like a parasite, the banking system is siphoning off our wealth and limiting our freedoms and future prospects -- all for the benefit of an elite few. 

That"s wrong. It"s immoral. And it"s Evil.

It"s far beyond time to call a spade and spade. The path to change always begins with an accurate assessment of the problem. We need to start using accurate language  -- like "evil" -- when discussing the harm we"re being subjected to. We need to make it clear to our elected officials and to our communities that we understand what the banks are doing and that we find it unacceptable. 

We need to make the criticism specific and personal. To JP Morgan CEO Jamie Dimon. To Fed Chair Janet Yellen. We need to turn up the heat on the perpetrating decision-makers, so that the borg-like structure of the banking system no longer serves as a deflective shield to scrutiny and criticism. These people need to feel the disapproving stares when speaking to the public. They need to hear the disdainful boos, and see their faces on the protest signs and nightly media reports.

And if you yourself work in the financial system, I"ll be blunt. You"re part of the problem. Just like my former classmates, I"m sure you"re a very nice person in many ways -- but you"re complicit in the banks" rapaciousness.

I know it"s not pleasant to hear, or admit. I worked for an investment bank for a few years early on my career. I was part of the problem, too.

But we have a choice, both as individuals and as a society, to align our actions with our values. It"s not always easy. And likely not as profitable if you indeed end up leaving the financial industry (as I can tell you from personal experience). But it"s the only way we"ll ultimately gain back control of our destiny.

Look, the banks" dominion is going to end one day. Either due to collapsing under the weight of the stupendous amount of debt they"ve helped laden our economy with, or due to an uprising from the bottom 99% once it has become fully destitute. Neither path is appealing.

So our best choice here as individuals is to position ourselves where we can be least subjected to the game the banks want to force us to play. 

The 3-part series we"ve just concluded: The Mother Of All Financial Bubbles, The Coming Great Wealth Transfer, and When This All Blows Up offers our best guidance for preserving wealth from the predation of the bankers. If you haven"t read them yet, make that your weekend reading assignment.

Finally, as a society, we need to wake up and make some hard, courageous choices. Obviously, the banks will not relinquish their control willingly. But if we start speaking truthfully and openly about the evil we"re dealing with, we"ll start fearing it less. It"s time for us all to speak up.