financial fiascoes

Political Protection Money Thrives on the Street

Protection money is everywhere in society – but nowhere greater than in the relationship of Wall Street and Washington. And it all has to do with “asymmetrical payments”. For Wall Street bankers and investment houses, being able to dictate the Rule of Financial Law is priceless. Thus, just six large Wall Street banks are willing to spend over $100 billion in legal costs and fines to stave off further banking controls and thwart any downstream civil legal suits because they have managed to achieve “no admission of guilt” agreements with government regulatory agencies on almost every case regarding the Financial Crisis and their own continuing Financial Malpractices. .

In addition, the Financial sector is willing to pay 50% more than any other lobby group at $300M in total campaign contributions to continue to shape Federal financial policy.
Consider that Banking industry profits are running at $120B annually, the banking legal and fine costs are running at about $25B annually while the cost of buying political influence is only $0.300B annually. But for Senators or Congressmen a $100K to $1Million political contribution is invaluable.  Hence the asymmetrical payments – Wall Street has nearly 5 times the profits needed to cover its approximate annual legal costs but 3000 times coverage for political protection payments required to shape Financial Rule of Law to their liking. But the payoff for breaking the financial rule of law is even greater because perpetrators of white-collar financial crime almost never see jail and absolutely are never banned from the Wall Street job market – no Ray Rices here..

Ahh, but you don’t believe Wall Street has carte blanche dictating the Financial Rule of Law. Well look at the evidence:
1) Only 1 Wall Streeter went to jail for Financial Crisis and the meme “too big to jail” has real potency.
2)Consider the role and rewards to former GOP Minority Whip Eric Cantor.
3)Consider the role and rewards to former Obama Treasury Secretary Timothy Geithner.
4)Consider the assessment of current financial integrity by Marketwatch/WSJ columnist David Weidner.
And these articles are just the tip of the iceberg. In case you have any lingering doubts, this book, among several dozen, provides one of the better accounts of the true nature of Wall Street and the Rule of Law. .


So the continuing graft on Wall Street permeates politics, economics and even world affairs – sanctions against Russia or Iran may or may not work depending on what major International banks think they can get away with. And all of this rides on asymmetrical payments of protection money that the US Supreme Court has given it 5-4 GOP assent to: corporations are people and so their rights of free speech cannot be limited by decades old election spending limits [and no matter that the “free speech” granted to corporations reflects only the views and will of a tiny executive elite and in no way reflects the beliefs and views of all the corporation’s stakeholders]. So by spending less than 1/10th of 1% of their assets on “political protection money”, Wall Street executives can guarantee they will have the final word on Financial Rule of Law. In 2014, consider the black and white social implications – if you are black and 23 or over, 1/3 of you will go to jail nearly half for drug crimes [and if you are from NYC, Ferguson Missouri, or Sanford Florida you may get killed]; if you are white and part of a multimillion financial racket, you will  very likely get no jail time whatsoever. And as for being banned from working on the Street – lol, lol, lol….

Seen on Google + – More Political Irony

larrysThis Monday there was a classic Larry Summers story. It started with an editorial in the Washington Post calling for tax reforms that would redress a fraction of the income inequality that has accumulated over the past 30 years in the US. Larry called it the Downton Abbey economy. He also scuttled the argument that President Obama was off base raising the issue of Income and Wealth Inequality in the State of the Union Speech. His quotes from 2 Republican and 4 Democratic Presidents showed the shift from the Republican Progressives of the early 1900’s to the staunchly pro business GOP Presidents of the last 30 years.

However, the most interesting political irony is not that Summer’s tax reforms are doomed in an increasingly intransigent Congress controlled by the GOP; but rather the lateness of the message. In the first term of Obama administration Larry Summers had the economic advisory position and political clout to change the kid glove treatment of the Wall Street and Financial Sector for triggering the Housing Bubble. Even more important he counseled curbing the TARP and other programs instead of going big to turn around the job and income loss situation for millions of middle class American. So the man who cntributed mightily to Income Inequality now offers a “non starter” solution to the problem he made tangibly worse. Thanks Larry.

The Best Explanation of Wealth in the USA

This is the best information  by far on the nature of wealth in the USA and the series of problems spawned by ever-widening disparity in wealth. This has occurred before in the USA during the Gilded Age, then again in the Roaring 20’s. But World War II seemed to bring a new deal – an economy based on 70% consumer consumption . However since  Ronald Reagan’s Presidency set great inequality in motion, the ability of  Middle Class Consumption to sustain the Economy has dwindled. Meanwhile, the ultra-rich now set the laws they want in America allowing them to escape the Rule of Law as in Too-Big-To-Jail.

Caution to viewers – many will find the video very disturbing.

The Real Obama Flaw: Wall Street Now Too Big To Jail

The GOP has been attacking President Obama for all the Wrong Reasons: Benghazi Libyan embassy fight when the GOP had previously cut the State Departments defense funding. Or No New Taxes when there is general consensus that  tax revenues have dried up and tax reform is way overdue. Or the constant return to Obama’s birth certificate. Yet for the past four years, the  Obama administration has been handing an abysmal record on regulating and prosecuting Financial Institutions to the GOP on a tarnished platter for easy political pickings and exploitation. Just take a look.

The NYTimes has  described how the Obama Administration has caved yet again to the Banks . This time its on on illegal Foreclosures.  Here is the first part of the cave-in:

Federal banking regulators are trumpeting an $8.5 billion settlement this week with 10 banks as quick justice for aggrieved homeowners, but the deal is actually a way to quietly paper over a deeply flawed review of foreclosed loans ….To avoid criticism as the review stalled and consultants collected more than $1 billion in fees, the regulators, led by the Office of the Comptroller of the Currency, abandoned the effort after examining a sliver of nearly four million loans in foreclosure, the regulators and consultants said.

Because they have no idea how many borrowers were harmed, the regulators are spreading the cash payments over all 3.8 million borrowers — whether there was evidence of harm or not. As a result, many victims of foreclosure abuses like bungled loan modifications, deficient paperwork, excessive fees and wrongful evictions will most likely get less money[than deserved]….It’s absurd that this money will be distributed with such little regard to who was actually harmed,”

In a second editorial the NYTimes describes the Foreclosure deal as a “Wrist Slap”:

In the face of widespread evidence of illegal foreclosure practices, federal regulators in 2011 told the big banks to investigate themselves.  The banks had to hire consultants to review foreclosures in 2009 and 2010. If violations were found, they were supposed to reimburse wronged borrowers “as appropriate.” Regulators pledged to ensure that the reviews would be comprehensive and reliable. In practice, it was left up to banks to decide what constituted wrongful foreclosure and appropriate redress.

Not surprisingly, after spending an estimated $1.5 billion on consultants, the banks have found little wrongdoing and provided no meaningful relief. Equally unsurprising, regulators will let the banks off with a wrist slap for their failure to execute credible and effective reviews.

This week, the Federal Reserve and the Office of the Comptroller of the Currency reached a deal with 10 banks under which the regulators will end the reviews and the banks will instead provide $8.5 billion in aid to borrowers.

Even more disconcerting is this lets the banks legally and financially off the hook for all of their Foreclosure Misdeeds. All were done under the Obama administration and a most pliant Attorney General Eric Holder and equally compliant Treasury Secretary Timothy Geithner.

And these twoothless fairies have handed yet another financial  regulation debacle to the GOP if they care to take up  the failure to prosecute HSBC bank officials for a decade of money laundering. But the GOP is stuck on NO. No way they want to touch the issue of financial institution’s improprieties.  Again, the instrument of choice by the Obama administration is the wrist-slap of a record $1.9B fine. But this fines  is  just the tiniest wrist slap because the $1.9B amount is made up in less than 2 months of  HSBC’s record $13.7B in annual profits.

Now these two recent cases  would appear to be just the ammunition Republicans need
 to a)prove that regulations under Obama are not working and b)they could defend the Middle Class more effectively than Obama and the Democrats. And indeed two days before the $8.5B in fines, the House under GOP control did ask for a delay in approving the agreement on foreclosures. But this turned out to be nothing as the deal went ahead. So the GOP appears to have  given up any effort  against the Big Banks on behalf of the 3.8million Americans affected by unfair bank foreclosures. But  this a Foreclosure Deal that Salon and Bloomberg also found badly tainted. It is remarkable that such a bad  deal could not entice Republicans in the House into action. And as for the HSBC lack of prosecutions, there is no Republican  concerted opposition. So the professed needs to “get the housing market moving again” carried the day despite earlier promises to clean up the foreclosures mess “cleanly and fairly”.

This has a perverse echo in the recent HSBC Money Laundering Deal where the HSBC was declared to be “Too big to proescute” by Obama’s Attoney Generals office [and provoked this eloquent tirade by Mark Taibbi in Rolling Stone.]. But the details of the HSBC case provoked a great deal  of consternation from Reuters Jon Stewart’s the Daily Show,   BlacklistedHuffington Post, and CBS News. Political opportunity knocks for the GOP. The Republican reaction – Nada!

If you look at the record for 2012, one sees no letup in criminal activity by the banks. Many have suggested that the fact that there have been NO criminal prosecutions and no time served by any of the major bankers has removed a critical deterence- jailtime for executive.  the only record of prosecutions in the past 4 years have been Ponzi scheme where the collapse of the Ponzi schemes presented the government with  irrefutable evidence. yet the litany of malfeasance as we shall see below is long and disturbing.

Recent  Banks Scandals and Criminal Activity

Deep in the recesses of Goldman Sachs there is undoubtedly a Financial Scandal Scorecard which keeps track of the risk and rewards associated with Banks criminal activities. That scorecard  would look like this:

Year and Institution Event Profits Risk
2012 – HSBC Multiyear Money Laundering with Iran, Mexican  Columbian drug cartels, etc $16B in 2011 Fine $1.9B 1 resign, no criminal prosecutions,
2012 – Standard Chartered Money Laundering with Iran, Sudan, Libya, Myanmar, etc $5.4B in 2012 Fine $667M no criminal prosecutions
2012 – ING Money Laundering with Iran and Cuba, etc $4.7B in 2011 Fine $631M  no criminal prosecutions
2009 – Credit Suisse Money Laundering with Iran, Sudan, Libya, Myanmar, etc $3.5B in 2011 Fine $536M CEO Replaced, no criminal prosecutions,
2010 – RBS Money Laundering with Iran and Libya, etc $-2.1B in 2011 Fine $500M no criminal prosecutions
2009 – Llloyds Banking Money Laundering with Iran and Sudan, etc $-2.7B in 2011 Fine $350M no criminal prosecutions
2010 – Barclays Money Laundering with Sudan, Iran, Myanmar,  and Cuba, etc $3.9B in 2011 Fine $298M no criminal prosecutions
2012 – Barclays LIBOR Rate Manipulations for 20 years $3.9B in 2011 Fine $455, 2 top execs resign, still liable in Civil cases  no criminal prosecutions
2012 – UBS LIBOR Rate Settings  $4.4B Fine $1.5B, Civil case liable,  no criminal prosecutions
2012 – Peregrine Financial Missing customer funds of $195M Bankrupt Delayed prosecutions
2012 – MFGlobal Missing customer funds of $1.8B Bankrupt No criminal prosecutions
2012 – JPMorgan Chase London Whale  – massively bad $8-10B loss on derivative bets $21.3B Self investigation is dubbed “childish”, 1 exec fired, no criminal prosecutions
2012 – Capital One Defrauding Cardholders with false promises $858M Fine $210M, no criminal prosecutions

2012 – Financial Scandals

Now lets be clear again – these are some of  the major malfeasance of the Financial Community since the 2007-2008 Financial Recession. After promises since 2009 in Congress, in TV commercials to the American public, and in a cross section of media reports, the Banks have shown a degree of financial  criminal recidivism that would get you busted for a 30 year jail term in the criminal courts. And that is the problem. The federal financial regulators[everyone of the 17 federal agencies watching for financial malfeasance – could that be a problem?] have avoided and cutoff almost all criminal court prosecutions in favor of civil court cases. So the Rule of Law is mocked by “these largest fines in history” because a)the financial institutions will earn in 1 quarter or less enough to pay the fines, b)no criminal prosecution of finacial executives are pursued and c)the “admission of no guilt” as part of the settlement acts as a wall against others trying to secure redress in either civil or criminal cases. So no wonder the same financial criminal behaviour continues – the government has left the criminal element free to do as it pleases on the Street.


Since President Obama took office he has been dealing with an International Financial Community mostly based  in Big US Banks that almost brought the World Economy to its knees. Those financial executives have been excused from any criminal  prosecutions for wrong doing during the Mortgage Crisis and now for  Money Laundering and Foreclosure Misdeeds.  All of these crimes were callous and costly. How do you explain that? Even more vexing, how do you explain that the GOP, looking for a means of tarring and feathering the President in the recent presidential campaign, did not seize upon these miscarriages of justice? This kid glove treatment of the Financial Community has shaken the Rule of Law at its foundation – everybody must answer to the law from the lowest to the highest elites with the same and fair due process. Answer these questions of Democratic and Republican group decision making gone awry and you will have the tenor of the Times.

One More Time: How Goes Executive Pay?

The NYTimes had a recent story, The Infinite Pool of Executive Pay. It is  a little hit and miss. The report  comes down on the increase of 18.7% percent in corporate perks. But then we also learn  that overall median pay for the  top 100 CEOs  increased by just 2.8%. However, I had a devil of a time resolving this with the following direct quote:

Still, the data reveal the contours of executive pay packages. Besides the jump in perks, overall cash compensation also made a comeback, rising 19.7% percent, to $5.7 million. Cash bonuses jumped 25 percent.

Hunhh ? But perhaps this was deserved because “the typical company’s stock [was] returning 17 percent to shareholders.” Having just seen a report from the NYTimes about corporate governance and compensation levels going awry, one wonders what  point the NYTimes was trying to get at.

The Public knows only too well that corporate financial malfeasance,  taking their cue from the Untouchables on Wall Street, is continuing unabated and worldwide. And because key government officials are implicated either by lobby/campaign payments  or by “sharing in” tax havens, then they are reluctant to press the  issue. This has to be considered a logical conclusion given the huge $650million in financial campaign funds and lobbying expenses paid [see table below from OpenSecrets]. Thus  the failure of both the Democrats and Republicans to prosecute criminally  financial executives  is scandalous. But executive pay levels are even worse.

Rank Sector Amount Dems Repubs  To DEMS  To REPUBS
1 Finance/Insur/RealEst $656,923,622 24.8% 51.9% $162,718,879
2 Other $559,782,061 46.2% 41.9% $258,427,579
3 Misc Business $459,051,032 26.6% 39.6% $122,239,283
4 Ideology/Single-Issue $314,441,938 40.4% 43.1% $127,148,563
5 Health $260,528,381 33.7% 42.3% $87,832,041
6 Lawyers & Lobbyists $247,543,360 61.9% 29.8% $153,216,959
7 Communic/Electronics $202,587,915 46.3% 27.2% $93,734,321
8 Labor $141,187,722 43.1% 4.3% $60,908,165
9 Energy/Nat Resource $138,705,629 15.9% 63.9% $22,106,674
10 Construction $122,934,201 20.2% 50.6% $24,893,334
11 Agribusiness $90,592,526 22.4% 66.0% $20,297,484
12 Transportation $77,048,762 21.7% 69.0% $16,747,472
13 Defense $27,428,125 39.6% 59.6% $10,851,398


And perhaps the greatest misdemeanour is the pay that Executives reward themselves:

What this Forbes chart shows is open mischief in executive compensation. And this is not because the chart  above pokes fun at  executive pay  which defies the market credo of “Pay for Performance”. If that were true the biggest heads would be at the top  and the gradually decreasing to the smallest at the bottom. But since there is  no correlation between  performance and pay [see the Economist’s take here] the Little-Performance-TopExecHeads are mixed in with the Big-Performance-TopExecHeads.

Nor is the problem with pay due to that fact that US Top Executives earn roughly double the World average:
And the trend has just taken a interesting twist  in Switzerland where the Economist reports:

PUBLIC wrath at the widening gap between packages awarded to company bosses and the average citizen’s take-home pay resounded through Switzerland on March 3rd. Voters there overwhelmingly backed an initiative to give shareholders of Swiss listed companies a binding say on executive pay and an annual right to vet board appointments. Other sanctions would forbid the award to executives of severance packages, side contracts, and rewards for buying or selling company divisions. The penalty for infringements could be as much as three years in jail, or the forfeit of up to six years’ salary.

Now Swiss executives are at the World average pay level; but still the Swiss voters demanded tough controls be granted to Swiss shareholders. But the real problem is Executive Pay dwarfs average worker pay.

Executive Pay at 100’s of times Average Worker Pay

It is the Forbes chart above that gets at literally the heart of the problem with current executive pay levels – the ratio of top executive compensation to the average worker pay. The trend is hockey stick up and away as seen in this Economist graph:
Historically executive pay has been about 20-25 times that of the average worker pay in a company. But since the early 1980’s that ratio has shot up to 50 then 100 and as high as 400 times the average worker pay. In the US,  Consumer Consumption makes up 70% of the economy but average income is declining except for the top 1% wage earners where the increases are in the high teens just about every year.

Top Executives: Paid as if Infallible

So extravagant executive pay is helping to reduce Consumption in the US Economy. The fact that top executives have been madly outsourcing jobs and automating operations just worsens the problem of dwindling average worker pay and therefore reduced overall Consumption. As rational managers these CEOs should know better – Henry Ford did.

And the fallacy of current executive compensation is substantiated by pragmatic  business management practice. Six Sigma Operations theory indicate that to justify earning 325 times the average worker pay in 2012,  top executives would have to perform at roughly the 18 Sigma  level. Well  the  6 Sigma  level means that an executive will make 3 1/2 defective decisions in a million in comparison to the average worker. This is near infallibility. But at 18 Sigma top executives are being paid  for ridiculous levels because they should be delivering no defective decisions whatsoever. Just ask the JCPenny, MF Global, and Hewlett Packard shareholders if they are getting  infallible performances out of their top executives.


So yes, US executive pay is way out of line. There is no correlation with performance, twice the world average for executive pay and at a supposed level of infallible decisionmaking that even the Pope would want the executives to confess as utterly undeliverable. But what really rings hollow is the management dictum that business today requires constantly focused tight team efforts and decision making. So now, top executives   how do you tell that team of yours that you,  having gotten the team  to work double overtime, they  are now to be rewarded at 1/325th of your pay? Its like watching a hokey episode of CBS TV’s Undercover Boss. Also please tell employees and shareholders what management theory justifies this misbehaviour.

So I suspect the Swiss got the referendum on Executive pay right.

Finally, lets put to rest the knee-jerk GOP accusation that raising taxes or cutting CEO pay is “Class Warfare”:
Cartoon by Steve Sack Minnesota Tribune
First, from the Washington Post we know that in total taxes paid to all levels of government as % of their income, the 1% super rich pay 1% less than the rest of the top 20% income earners and about 1% more than the middle class average. So the Financial and CEO Super rich do not bear an unfair government  tax burden. Next, the Federal government annually dispenses about $100Billion in “Corporate Welfare” according to the Cato Institute helping CEO’s performance. And the NYTimes has just estimated that state and local government, already cash strapped, give up annually an additional $80 billion/year to corporations. And of course, there is the $1.2 trillion secret FED special payments to banks and corporations beyond TARP during the financial crisis that help fend off either bankruptcy or prohibitively high PayDay Loan like interest charges. But even more amazing is the fact that most corporations do not need the cash they are now hoarding – businesses have accumulated nearly $6Trillion in cash and short investments over the past 5 years.

It is very telling that in the early 1990’s when a second wave of automation, job outsourcing plus turning a blind eye by the Chamber of Commerce and other business associations towards use of illegal immigrants by a wide range of small to medium size businesses – all these measures started to lower wages across the board. So it is no wonder that by 2000 Middle Class wages stagnated At that same time Executive compensation crossed the 80 times worker pay or the 8 Sigma level of supposed near infallibility in executive decision making. So if the Occupy Wall Street and other Middle Class reactions are to be branded as Class Warfare – just remember, the War was started 20 years ago  by Business and the Financial+Executive elites and has continued unabated even during recessions to the detriment of the US Economy – no more so than now when Business elites attacks wages, benefits and jobs while rewarding themselves  ever so generously while getting themselves labelled as “Job Creators”.

Banks as Flak Catchers for Major Corporations

Tom Wolfe’s book Radical Chic & Mau-Mauing the Flak Catchers is about  PR and Spokespersons  who seemingly can turn any criticism to the advantage of their client. But “flak catcher” had a second nuanced meaning – those who bore the brunt of public scorn diverting attention away from client and upon themselves. As well, attention was diverted from  other 3rd parties who perhaps deserved the same or even greater scorn. Its this second meaning of Flak Catcher being used here.

Bankers are now known as Banksters. And why not ? The public pours scorn and disapproval on the banking community for its Too Big To Fail ability to pass huge spending obligations onto the Public, Too Big To Jail immunity of its top executives from criminal prosecutions for major malfeasance during and after the 2007-2009 Great Recession, and  Too Big To Manage failings of top managers who nonetheless reap huge multimillion dollar compensation including staggering golden parachute sums no matter how badly or indifferently they perform. But in the process of devoting so much attention and wrath on major Too Big Too Fail Banks and other Financial Institutions and their executive and financial trading elites => the Flak Catchers;  another group that has performed equally dismally has escaped scrutiny – US public corporations and their top executives and board of directors.

First, many non-banking public corporations took out major chunks of Federal Reserve bailout  money in 2008 to 2010 saving themselves large financing costs or even the danger of bankruptcy to a total of $1.1 trillion. And these are major corporations like General Electric, Toyota, Caterpillar and others. Caterpillar, for example, has rewarded the public for its bailout funds  with harsh anti-union activities.

Second, public corporations are playing hardball with Federal, State and local governments over keeping or opening up plants in their areas. The NYTimes has documented how major bailout beneficiary GM did and continues to do such hard bargaining for reduced taxes in a trade for jobs. The report details how broad these efforts are:

A NYTimes investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.

So in effect corporations are truly taking advantage of being “Job Creators” no matter that they may be only doing “some job preservation” and at lower pay and benefits. In a country that heretofore has thrived on a large middle class with 70%++ of the economy dependent on Consumer Consumption, this a brazen Raiding of the Commons if not killing theConsumer  Goose that produces the Golden Eggs of continued Economic Prosperity.

Third and most damning is seen in the following chart:
US Corporations are sitting on $5trillion in cash and short term investments.

More than half the money is lodged overseas because  companies are insisting on another tax holiday despite the fact that the last one in 2004 under George Bush was a major bust. In addition, corporations are demanding less regulation [think lowered FDA, EPA, and other Federal standards] and more certainty which appears to translate into more Federal guarantees and favorable terms in all of their areas of operation. As a result,it is no wonder that a sizable chunk of US Corporations are bad for US  Economy in general. More telling, it not a wonder that Chinese, Brazilian, Indian, Korean and European firms are now out innovating their American counterparts. Think Samsung over Apple and Motorola in mobile markets; Acer, Asus, and Lenovo over Dell and HP; and Smith Klein and Novartis over Merck and Pfizer for just a few examples.

In sum, the Too Big To Fail Banks have swept attention away from the the Too Complacent To Compete US Corporations. The Banks have become Flak Catchers for Corporate America distracting attention from the US Corporations extravagant compensation practices and Gilded Age rules of governance. So this raises the question – how long can major Corporations rely on the Banks as Flak-catching cover?

Historic Financial Penalty = Feds Cave Again

I dread reading the following headlines in the NYTimes or the Wall Street Journal – Gargantuan Fines Imposed on Wall Street Institution or Record Breaking Damages Inflicted on Bank. It might as well read =>  Hugest Biggest Historically Supercalifragilisticexpealidocious Compensatory Damages Imposed on Piteous Bank because of course it means the opposite. The Federal Government after the worst Wall Street Induced Recession of the last  80 years continues to cave and capitulate letting the Street off the hook not for civil but for criminal behaviour of its executives.

The latest Historical Penalty “settlement” is with SAC Capital and its owner, Steven Cohen.

Here is how the NYTimes Dealbook describes the “deal” on Saturday:

The government’s multiyear campaign to ferret out insider trading on Wall Street has yielded multiple prosecutions of former employees of SAC Capital Advisors, the giant hedge fund owned by the billionaire investor Steven A. Cohen. On Friday, federal authorities took aim at the fund itself.In what officials are calling the largest-ever settlement of an insider trading action, SAC agreed to pay securities regulators about $602 million to resolve a civil lawsuit related to improper trading at the fund.

For SAC, which is based in Stamford, Conn., manages $15 billion and holds one of the best investment records on Wall Street, the settlements, while another blow to its reputation, resolve a matter that caused some of its investors to withdraw their money. Investors became skittish last fall after regulators warned SAC that they planned to sue the fund.

… As part of its agreement with regulators, SAC neither admitted nor denied wrongdoing. That entrenched S.E.C. practice — permitting defendants to settle civil claims without acknowledging wrongdoing — has come under increased scrutiny by the courts…

But by Monday, the NYTimes Dealbook was reporting another viewpoint on the “deal”:

Friday’s settlements — for $602 million and $14 million — were criticized by a number of rival hedge fund managers and securities lawyers as not tough enough. Despite the S.E.C.’s trumpeting the $602 million payment as the largest settlement of an insider trading case, critics said that the commission could have sought a harsher punishment.

“While $616 million would normally be a massive penalty, for Cohen this is basically a drop in the bucket,” said Bradley D. Simon, a criminal defense lawyer and former federal prosecutor in New York. “There is also no debarment or admission of wrongdoing.”….

S.E.C. officials made clear on Friday that Mr. Cohen and his employees are not out of the woods. George S. Canellos, the commission’s acting enforcement director, emphasized that the settlements — the first time SAC has settled government allegations — do not prevent future charges against individuals, including Mr. Cohen. Then, speaking broadly, Mr. Canellos said, “There’s a lot more to come in insider-trading cases.”…

Critics of Friday’s settlements say that Mr. Cohen, a multibillionaire who lives in a 35,000-square-foot home in Greenwich, Conn., has bought his way out of trouble. Because SAC has been implicated in numerous insider-trading cases, the critics said, it should face stiffer penalties than a fine with no admission of liability. The settlements still require the approval of a federal judge.

The S.E.C. could have imposed an array of additional punishments, legal experts say. Among other things, it could have named Mr. Cohen as a defendant on a legal theory of control-person liability, alleging that he failed to properly supervise his employees. It also could have sought the revocation of SAC’s securities license and prohibited it from managing money for clients. Even the fine itself could have been substantially higher under securities laws.

For 4 years under the Obama Administration, the DOJ and various Treasury bureaus like the SEC have racked up many civil settlements but with no admission of guilt. The legal actions may impose large fines but the net effect is a)any further civil actions by affected shareholders or other third parties wither on the vine because the “no admission of guilt” with the large fines effectively precludes any other civil actions and b)the lack of criminal actions against financial executives means the “the rule of law” gets short changed because the financial executives behind the malpractices continue to operate with relative impunity. Thus, the same Board of Directors responsible for the 2007-2008 Financial Recession are also implicated in the Foreclosure Scandals or the recent Money Laundering Cases or the LIBOR Rate Malfeasance, etc.

No less a party than Attorney General Eric Holder has effectively added  a Too-Big-To-Jail “free pass” to the Too-Big-To-Fail dispensation already granted to the Big Banks and Financial Institutions for the past 4 years by Obama Administration. No wonder Financial Institution have become repeat offenders – the top executive know with near certainty they will get off Scott Free from just about any financial malfeasance they choose to do. At most they will have to pay a fine that most will be able to recover in one or two quarters of earnings.So now you know when and why to cringe – whenever you hear or read about “Historic Financial Fines”.

My gosh, Martha Stewart went to jail for insider trading that is minuscule in comparison to some of the SAC Capital deals. It appears the Obama Administration condones a two tier “rule of law” – relaxed for the large financial institutions, tough for everybody else. And of course the GOP is pip squeak silent about this perversion of justice.

Where is the David Einhorn for America

David Einhorn, the tiny $7Billion Hedge Fund manager, has tweaked the nose of computing’s Goliath, Apple. Since a week Thursday, David  has shocked the US business world with his direct, loud, and “uncivil’ attack on Apple’s huge cash hoard of nearly $130Billion. And Apple’s cash hoard islikely getting bigger on a  growth rate of 10%per quarter for the next year or two at least. And Apple is not alone:|
But Apple is the biggest by far -at around $130Billion. To put this amount in perspective consider that it exceeds the total combined GDP of Slovenia, Jordan and Paraguay.

But Apple is not alone. Us companies are sitting on ever growing cash balances.

This chart shows the cash pile as of 2010 mid-year. But by 2012 mid-year the business cash hoard reached $2.2 trillion. Again, US Business is sitting on Cash equal to total GDP of France or the total combined GDP of Australia, Saudia Arabia, and Belgium.

And the public was told  told by Paul Ryan and Mitt Romney that trickle down economics in which business get even more corporate income tax and capital gains breaks is vital to revive the economy. This is why David Einhorn’s challenge to Apple is so controversial in the business community. It gives lie to the facts that US Business needs tax relief plus local tax incentives by state and local  governments[already pressed for revenues, state and local governments have to give up even more cash breaks to get businesses to locate in their area and preserve or add to precious jobs]. Given sustained and historically low interest rates since 2008, US Business is a)flush with cash and low cost capital costs…what possibly more could they need? The current US Business peeves are uncertainty in the economy, growing entitlements, and too intrusive government. Anything to disguise a largely Chicken-Little investments by US Businesses in the huge opportunities opening up in the US and World economies in such areas as Water Suffiency, Non-intrusive and Green Energy production, huge Infrastructure upgrades across the transportation, education, communications and other basic sectors.


Yes, David Einhorn is acting for his own GreenLight Fund which has $1.6 Billion in Apple stock. He is trying to shake the Apple tree and get some more Apple dollars to fall into his funds. What is really needed is for US Business to make more concerted and positive efforts in revitalizing the economy. But already, the Financial sector flunked this test on reaching reasonable accords with cash strapped mortgage holders in helping to revitalize the housing markets. Are big capital equipment vendors like Cummins and Caterpillar going to be equally short sighted in demanding state and local concessions in the face of the huge infrastructure needs in the US? Are the Energy and Utility companies going to hold onto outdated tax concessions and old traditional energy production methods in the face of the need for domestic energy sources that are clean? Or is US Capitalism like US Primary Education becoming rapidly second rate?

Twinkies Demise

The Hostess Twinkies demise is a business case study that also has political implications. I would love to see if any of the major Business Schools like MIT, Harvard, Univ. of Chicago have taken this defining case on. David Weidner of WSJ and Marketwatch tells the story on who killed the Twinkie:

Modern finance is ruthless. Desperate companies sell themselves to Wall Street mercenaries who keep the names alive while extracting what little value is left. If, against the odds, the companies survive, they are leaner and meaner. If they don’t, the truth shows up quickly. Everyone’s piece of the pie has long ago disappeared.

Now, the starving are looking at each other nervously. It isn’t pretty.

Lets be frank . David is telling us a summary of the Bain Capital/Private Equity/Rapacious Hedge Fund story. This is not the first or last time where those ever rarer commodities in the US Economy, Jobs and Prosperity, have been lost to a rapine Wall Street.

Don’t Believe Dave Weidner?

How about that bastion of capitalism, Forbes Magazine. Adam Hartung at Forbes describes the Hostess Twinkie Defense is a Management Failure.

Hostess Brands file for liquidation this week. Management blamed its workforce for the failure. That is scapegoating.

In 1978 Dan White killed San Francisco‘s mayor George Moscone and city supervisor Harvey Milk. The press labeled his defense the “Twinkie Defense” because he claimed eating sugary junk food – like Twinkies – caused diminished capacity. Amazingly the jury bought it, and convicted him of manslaughter instead of murder saying he really wasn’t responsible for his own actions. An outraged city rioted.

Nobody is rioting, but management’s claim that unions caused Hostess failure is just as outrageous.

Adam supports David Weidner’s argument – a succession of expert management teams failed time and gain to revive Hostess but rather saddled it with huge debt in a cruel echo of what the GOP did for the US Deficit.

The problem is some Angel Cake agent will come in and scoop up Hostess for a song for just the brand names, not the plants and workers. And market forces will be proclaimed as the victors while jobs, pensions and benefits will be flushed down the toilet and into the already staggered and faltering Safety Net. Markets and the invisible hand will have triumphed – with nobody bothering to account for the real financial winners and losers. Is this all US Business can muster – Vulture Capitalism Triumphant while real innovations and astute risk taking migrates across the Pacific to Korean, Chinese and Indian shores? No wonder US Business Corporations are more unpopular than Congress and the Financial Sector. Corporations are sitting on $5trillion in cash and profits – and saying to their stakeholders – “Give us more”.

Daily Fact: GOP Presidents have worst record for Stock Market Performance

No less an authority than the Economist shows that under Democratic Presidents the stock market   has outperformed by a wide margin  what was accomplished by Republican Presidents.

And this GOP poor economic and stock market performance  goes back  80 years. The fundamental problem is that Republican Presidents have had poor economic policy and tolerated Business excesses. Hoover and Republican predecessors indulgence lead to the Great Depression. The economic disasters  of the George W. Bush Presidency lead to the recent Great Recession. And in between only Reagan”s 2nd term  and both terms of Eisenhower   showed sustained positive stock market growth. In contrast only Truman  and FDR’s  War  years showed notable stock market declines. But the overall results are decidedly in favor of the Democrats. Go here to see the detailed analysis.