Tuesday, July 10, 2012

US Oligarchy

The US is a great place to be an Oligarch.  You are permitted to steal with impunity from people who are too brain dead to notice they are being robbed.  Also in the US it is inexpensive to gain oligarch status.  In other societies you have to fight your way to the top and vigorously defend your power.  In the US it only takes a few hundred thousand dollars in campaign donations to buy immunity.  Let's take a look at the differences in treatment between an oligarch and a common citizen when committing crimes.  


At the end of 2011 these two men held up a gas station in Arlington, VA.  They stole some cigarettes and the register cash valuing the total haul at a few hundred dollars.  These two were swiftly apprehended and a trial date was set.  The jury was not sympathetic in this case as the sentencing shows.  They will have 24 years between the two of them to think about their actions.
In this case, the US justice system seems swift and thorough.  The real problem for these two guys is they didn't think big enough.  In the US, a small crime gets you a big punishment while a massive crime gets you a book deal.  


Let's take a look at a good example in the form of former Goldman Sachs CEO, NJ Senator and NJ Governor Jon Corzine.  Here is a man who gets the system and understands how to make it work for him.  He is not going to waste his time robbing a gas station.  In fact, he probably would not be able to locate a gas station considering he has not likely driven himself in 30 years.  When he pulls a heist he does it right.


Around the same time the previously discussed bandits were pulling their heist, Corzine was just wrapping up a $1,600,000,000 holdup of his own.  No guns were needed as he made effective use of political bribery and good politics.  Even though in the US it is illegal to speak of securities without being licensed and fulfilling an endless list of regulatory requirements, Corzine received a special waiver from security industry licensing requirements.      
So let's take a deeper look at what went on in the final days of MF Global.  When you open a trading account, cash and certain securities are to be held in a "Segregated Account."  In the event that the dealer becomes insolvent or runs into other troubles, your assets are not liable for their behavior.  


Between the CFTC, SEC, FINRA & NASD there are bureaucratic mules of mediocre intelligence by the thousands tasked with regulating this industry.  Instead of protecting you, they spend all of their time preventing people from entering the business in order to protect the oligarchs.  


MF Global placed trades in its own account separate from those handled for customers.  This is perfectly legal in a post Glass-Steagall era.  The firm was leveraged 40:1 on their actual capital meaning that a trading loss of 3% puts them in the red.  Last October the firm was sustaining serious losses driven by heavy exposure to insolvent European sovereign debt.  JP Morgan called in a large credit line extended to the firm for trading purposes.  There was no money to return so JPM simply seized the money it was holding in segregated accounts on behalf of the firm.   The lying and deception that shrouded this series of moves is typical.  
Are you surprised to learn that customers still have not received their cash which regulators had assured them was sitting in segregated accounts?  They are now hoping for a partial recovery in bankruptcy court.  Does it surprise you that Corzine has not been charged with any crime and faces no liability for the money lost by innocent and unsuspecting customers?  He has actually rented new office space on Wall Street and continues to exist as a pillar of finance in the US.  As for the $1,600,000,000 lost, he is deeply sympathetic.
This morning we woke up to news that the regulators had failed again.  This time only an estimated $200mil in segregated customer money is missing.  
Remember, the lesson here is that in the US there are two sets of laws.  If you rob a gas station you are a felon but if you rob 36,000 people you are a distinguished public servant.  It seems that Stalin is credited for a similar quote regarding his brutal behavior in office.  He would like the US system.