Thursday, May 01, 2014 - If the Cops Never Arrest the Killer, Nobody Really Died

If the Cops Never Arrest the Killer, Nobody Really Died

by Sinclair Noe

DOW – 21 = 16,558
SPX – 0.27 = 1883
NAS + 12 = 4127
10 YR YLD - .04 = 2.60%
OIL - .39 = 99.35
GOLD – 6.40 = 1285.90
SILV - .13 = 19.12

No record high for the Dow today. The Industrial Average was up and down, up and down throughout the day, but couldn’t hold positive territory. Today’s economic reports showed consumer spending increased, as did manufacturing activity, and unemployment claims.

Consumer spending increased 0.9 percent in March after rising by 0.5 percent in February, the largest gain in more than 4-1/2 years. The top 6 automakers backed up the spending report by reporting year over year gains in sales. The spending report supports the notion that cold weather just paused consumer activity and there is pent up demand that will lead to more economic activity in the second quarter. Income increased 0.5 percent in March, the biggest gain since last summer, but with spending outpacing income growth, the saving rate, which is the percentage of disposable income households are socking away, hit a 14-month low.

The Institute for Supply Management said its manufacturing index of national factory activity rose to 54.9 last month, up from 53.7 in March. A reading above 50 indicates expansion in the nation's factories. Manufacturing activity has now accelerated for 3 consecutive months and last month's gains were driven by a pickup in employment, export orders and inventories; although new orders were unchanged.

The Labor Department reports initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 344,000. Tomorrow morning we’ll get the monthly nonfarm payrolls report; look for 210,000 net new jobs in April and the unemployment rate to dip to 6.6%. That wouldn’t be enough to lift the labor market out of the doldrums but it would be another small step in the right direction.

A couple of news articles caught my attention, one from the Murdoch Street Journal and the other from the NY Times. You are forgiven if you missed them; they deal with banksters, and fraud, and regulators who look the other way, hoping for a post-government job with a golden parachute, and prosecutors without spines.

The Journal story deals with the Swiss units of Goldman Sachs and Morgan Stanley, and how they’ve agreed to hand over potentially incriminating details about how they helped Americans evade taxes; in return the banks won’t face prosecution.  Goldman's Swiss private bank had about $12 billion in assets under supervision as of the end of last year. Morgan Stanley's Swiss private bank had $50.7 billion in assets under management as of last year. The other big US banks likely did the same things, but they haven’t worked out a deal just yet.

Goldman and Morgan Stanley figured out the playbook, and it appears to go something like this: Senior officers of the banks aid and abet tax fraud by wealthy American clients, fail to make legally required criminal referrals, fail to comply with subpoenas, and then demand immunity from prosecution. Department of Justice prosecutors pee their pants and cave in to a slap on the wrist deal. No senior banker or bank was prosecuted. No banker was sued civilly by the government. No banker had to pay back his bonus that he “earned” through fraud. And the tax cheats that they aided and abetted have plenty of time to cover their tracks and might get away scot free, because the banksters aren’t required to turn over the client lists.

Then I read a New York Times story that claims federal prosecutors are getting close to criminal charges against at least a couple of major banks: Credit Suisse, for offering tax shelters to Americans, and BNP Paribas for doing business with countries like Sudan and Iran that the US has placed under sanctions. Prosecutors in New York and Washington have apparently held talks with BNP about a guilty plea from the bank’s parent company. Ben Lawsky, New York’s top regulator reportedly plans to impose steep penalties against BNP and its employees but would not revoke the bank’s license. Prosecutors have secured similar assurances from the New York Fed.

The discussions between regulators and prosecutors and lawyers was obtained under the Freedom of Information Act, and they demonstrate that defense lawyers were pushing prosecutors not to act without assurances that regulators will keep a bank in business. The question of culpability seems fairly straightforward; BNP conducted its own internal investigation that identified significant volume of transactions that could be considered impermissible under sanctions in place between 2002 and 2009, including improperly routing money through its New York branches.

There doesn’t seem to be a big concern at BNP about the possibility of criminal convictions that might result in loss of the bank’s charter, much less worry over executives facing jail time. It’s as if the criminal acts were performed by ghosts or phantasms.  BNP has set aside $1.1 billion in legal reserves; they expect a fine; it’s the cost of doing business.

Of course this is nothing new; two years ago, HSBC escaped criminal charges for violating economic sanctions and what appeared to be clear cut money laundering. JPMorgan recently paid a $2 billion dollar fine for its role in assisting Bernie Madoff’s Ponzi scheme, without having to admit guilt. Of course no one goes to jail. Almost no one. In January, Kareem Serageldin, a mid-to-upper level executive for Credit Suisse (not a CEO or CFO) was sentenced to 30 months in prison for concealing hundreds of millions in losses in the bank’s mortgage backed securities portfolio. Why this guy ended up going to prison and not somebody from Lehman, Bear Stearns, AIG, Countrywide, Bank of America, Merrill Lynch, Citigroup, HSBC – go figure; there is no rhyme or reason beyond the notion that regulators and prosecutors are simpering little cowards.

It didn’t used to be this way. After the crash of 1929, the Pecora Hearings seized upon public outrage, and the head of the New York Stock Exchange landed in prison. When FDR took office he immediately announced a banking holiday and the bankers snapped to attention. After the savings-and-loan scandals of the 1980s, 1,100 people were prosecuted, including top executives at many of the largest failed banks and S&Ls. In the late 90s and the turn of the century, when the tech bubble burst and revealed widespread corporate accounting scandals, top executives from WorldCom, Enron, Qwest and Tyco, among others, went to prison. And the accounting firm of Arthur Andersen was criminally convicted for its complicity in the fraudulent steaming scam that was Enron; Andersen went out of business in 2002; delivering pink slips to many good and decent accountants along with the pond scum. Since then prosecutors have walked lightly for fear of collateral damage.

Since then, the bankers realized they could act with impunity, and they have. There has been no crackdown following the meltdown of 2008. From 2004 to 2012, the Justice Department reached 242 deferred and nonprosecution agreements with corporations, compared with 26 in the previous 12 years. The idea behind a deferred prosecution agreement, or DPA, is that the banksters stop doing the illegal stuff and if they do any other illegal stuff, the deal is off the table, and prosecutors can come down with full weight for past and current wrongdoing. Instead, there is no follow-up. It’s like a criminal is released on parole, violates parole, violates parole again, and again, and again; and the courts turn a blind eye.

So, now, with the BNP and Credit Suisse cases, the prosecutors goal seems to be criminal prosecution without making the banks actually suffer the consequences of criminal charges. Prosecutors consider them test cases; BNP and Credit Suisse aren’t the biggest banks; prosecutors aren’t sure what would happen with criminal charges; they don’t really know what to expect if they actually get a criminal guilty plea. If they start small, it might mean the end of the BNP tennis tournament or it might mean 200-thousand pink slips for bank employees, or it might be the spark that ignites a financial panic. They overlook the slow, insidious, systemic rot of the foundations of all global financial transactions – trust. In the long run, that seems far more dangerous.

Attorney General Eric Holder has testified before the Senate “that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute, if we do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”

The bank lawyers play on this fear; they claim bank clients -- including trustees, fiduciaries and pension funds -- could be forced to cut ties with a financial institution labeled a criminal enterprise.  Counterparties also might think twice before entering into billion-dollar transactions with such firms. Damaging a bank’s business could lead to broader fallout across the financial industry, just as Lehman’s collapse in 2008 prompted investors to withdraw from other firms on concern its exit would set off a wave of losses. Even the threat of criminal action must be handled in such a way as to not spook customers.  

It seems to be a spurious argument; akin to a doctor telling you that surgery to remove a cancerous tumor is dangerous and painful, so there is nothing to do but let the cancer overwhelm the host, curl up and wait to die. And then there is the more absurd part of the defense; the idea that pension funds would be forced to cut ties with criminal banksters; as if it is perfectly fine to have pension funds and trustees doing business with bankers involved in criminal activity, just so long as there are no official criminal charges. A complete denial of wrongdoing based upon a lack of enforcement. If the cops never arrest the killer, nobody really died. Yea, that’s it, pay no attention to the bloody corpse, pay no attention to the wreckage and devastation of the global financial meltdown; whistle past the graveyard.

You know the meltdown involved criminal wrongdoing; the regulators know it; the prosecutors know it. What they don’t seem to know is the collateral damage from non-enforcement and non-prosecution. Every action has a consequence, and non-action is a form of action.

Thursday, May 30, 2013 - The Money Laundering Criminals at HSBC and Standard Chartered Continue to Skate

05302013 Script

The Money Laundering Criminals at HSBC and Standard Chartered Continue to Skate

by Sinclair Noe

DOW + 21 = 15,324
SPX + 6 = 1654
NAS + 23 = 3491
10 YR YLD un = 2.12%
OIL + .45 = 93.58
GOLD + 21.00 = 1414.70
SILV + .32 = 22.88
PLAT + 31.00 = 1487.00
PAL + 8.00 = 761.00

So, apparently Wall Street moved higher today because the economy looks weaker and that means the Fed won't taper or quit QE. It's twisted logic, but we figured it out a while back.

The weak economic news started with this week's initial claims for jobless benefits; applications increased by 10,000 to 354,000. One week does not make a trend. Next week we'll get the jobs report for the month of May. Today's figures were just a reminder that the Fed won't have an easy path to end QE without crushing the labor market.

In a separate report, the Commerce Department said first-quarter gross domestic product was revised down to 2.4%, down from an initial estimate of 2.5%.  The gain in first-quarter growth follows a sluggish increase of 0.4% in the fourth quarter. Consumer spending increased, but that was likely due to higher prices for gasoline and electricity. Government expenditures fell by 4.9%, up from initial estimates of a 4.1% drop. The bulk of the decline was in military spending. Inflation as measured by the PCE index was muted, rising just 1.0% overall or by 1.3% excluding food and energy.

So, the economy is slowing, the sequester cuts are just starting to kick in and act as a drag on the economy, and inflation is running at half the Fed's target, and the jobs market is weak. And don't forget the Fed is finding no help in the form of fiscal policy. Against this backdrop, it will be hard to make a case for ending QE.

There is a market “disconnect” between the world’s gloomy outlook and talk of tapering by the US Federal Reserve, the supposed moment when it starts to wind down its $85bn of monthly bond purchases. Yet the markets seem to be betting that the central banks will come to the rescue yet again if needed.

Maybe, but there is that slight risk the central bankers might feel the compulsion to strike a blow against moral hazard and display their displeasure for asset bubbles. In other words, we could see a nasty sell-off at some point. We have been through these episodes of putative Fed tightening twice since the Lehman crisis. Markets tanked in 2010 and again in 2012 after the Fed turned off the spigot.

Yet QE critics clearly have a point. As Pimco’s Bill Gross points it, there are “bubbles everywhere”. The Credit Suisse index of Global Risk Appetite has been flirting with the “euphoria” line, not far short of levels seen in 1987, 2000 and 2007. There is a big market disconnect. The Gini co-efficient of wealth inequality is soaring, which means that all the money that's been pouring into the markets isn't trickling down.

American households have rebuilt less than half of the wealth lost in the financial crisis, leaving them without the spending power to fuel a robust economic recovery. From the peak of the boom to the bottom of the bust, households watched nearly 40% of their net worth disappear amid sinking stock prices and the rubble of the real estate market. Since then, Americans have only been able to recapture 45 percent of that amount on average, after adjusting for inflation and population growth.

The report from the St. Louis Federal Reserve showed most of the improvement was due to gains in the stock market, which primarily benefit wealthy families. That means the recovery for other households has been even weaker. The report states: “A conclusion that the financial damage of the crisis and recession largely has been repaired is not justified.”

The economy is twice as large as it was three decades ago, and yet the typical American is earning about the same, adjusted for inflation. The notion that we can’t afford to invest in the education of our young, or rebuild our crumbling infrastructure, or continue to provide Social Security and Medicare and Medicaid, or expand health insurance is absurd. Maybe the Fed should look at tapering off QE. It doesn't really work. That doesn't mean they should eliminate stimulus; it just means they need to inject the stimulus directly into the veins of the middle class.

Remember last September when US authorities decided to fine HSBC for money laundering? It seemed a mere slap on the wrist. A new batch of emails and letters were released to a Washington-based advocacy group, Public Citizen, and they paint a picture of the Treasury Department making hasty decisions following more than a 10 year investigation. The pressure started to build when a New York state regulator threatened to revoke the banking license of another British bank, Standard Chartered.

Public Citizen is hoping to obtain even more documents under the Freedom of Information Act. The New york Department of Financial Services determined that Standard Chartered had laundered $250 billion in illegal transactions over nearly a decade of business with US-sanctioned countries including Libya, Burma and Sudan. The bank was fined $327 million.

HSBC took money laundering to the next level. In total, the bank's US and Mexican units failed to monitor more than $670 billion in wire transfers and more than $9.4 billion in purchases of US dollars from HSBC Mexico. - Bloomberg

HSBC laundered billions for murderous drug gangs around the world; in Mexico, they changed their teller's cages to accommodate the boxes of drug cash. HSBC aided Iranian entities to evade US financial sanctions on Iran. If Iran ever develops nuclear weapons, we can thank HSBC and Standard Chartered. HSBC aided terrorist organizations including Hamas, Hezbollah, and al Qaeda.

HSBC was fined $1.9 billion.

Now, Judge John Gleeson is considering cancelling December’s so-called deferred prosecution agreement that gave HSBC immunity from money laundering claims. This could leave the bank open to criminal prosecution and a ban from operating in America. However, HSBC disputes this.

The US Department of Justice (DoJ) is reportedly challenging Mr Gleeson’s need to sign off on the deal. The judge last mentioned the case in February, stating that he had not yet approved nor disapproved of the settlement.

In a statement, HSBC said: “For more than two years, our new leadership team in both New York and London has been implementing reforms and new controls, investing in compliance systems and staff, and putting in place the most effective global standards across our network to combat financial crime on a global basis.

“We are focused on taking all necessary steps to fulfill our obligation under the agreements with the US and UK governments, and on implementing effective global standards across HSBC.”

That would sound more credible if only they had stopped laundering money. In March, fresh money laundering and tax evasion allegations surfaced in Argentina.

Standard Chartered was forced to admit it had violated the International Emergency Economic Powers Act, and if they didn't misbehave, then the charge would be dismissed in two years. It only took a couple of months for Standard Chartered's Chairman John Peace to lie to reporters, and investors by claiming there was no “willful intention” to violate financial rules. US regulators then forced Chairman Peace to write an apology for lying about money laundering.

Nobody went to jail.

Nobody.

On Wednesday, the Department of Justice announced arrests for money laundering. The DOJ statement says: "Today, we strike a severe blow against a professional money laundering enterprise charged with laundering over $6 billion in criminal proceeds."

Nope, not Standard Chartered, not HSBC; they arrested some guy running an online mish-mash out of Costa Rica called Liberty Reserve, or as the Department of Justice described it: “a massive criminal enterprise”, and “the largest international money laundering prosecution in the history of the Department."

It sounds like puffery, but it's true, I guess. The Department of Justice did not prosecute HSBC or Standard Chartered for a combined $929 billion in money laundering. Now, that would have been something to brag about, but they handed out deferred prosecution agreements, which have been violated. Of course, the judge hasn't signed off on the deferred prosecution agreement; apparently feeling a twinge of remorse in letting these criminals off the hook in light of the fact that 35,000 people were brutally murdered at the hands of drug traffickers in Mexico, who then laundered money through HSBC. Or maybe the judge can't reconcile how HSBC faces no jail time, while the FBI reports that in 2011 there were 663,032 arrests in this country for marijuana possession.

Meanwhile, the Washington Post reports the Office of the Comptroller of the Currency is expanding a probe that began in 2011 with allegations that JPMorgan Chase was using error-filled documents in lawsuits against debtors. The regulatory agency is examining the process several banks use to verify consumers’ outstanding debt before taking legal action.

If it sounds familiar it is. Remember the housing crisis, and how mortgage servicers were accused of falsifying records and robo-signing thousands of documents without review? The banks did pretty much the same thing, filing thousands of lawsuits against delinquent credit card holders. Consumer lawyers began noting a number of collection cases built on shoddy records. 

Authorities in California, for example, say JPMorgan flooded the courts with lawsuits against credit card holders based on flimsy evidence that cardholders were in default. California Attorney general Kamal Harris filed a case against JPMorgan. Iowa attorney general Tom Miller is organizing a 50 state effort, a replay of the 50 state attorney general effort on mortgages. So, the OCC is now getting involved because it looks bad when the state AG's take the reins and the federal regulators act like they're in a coma.

A former JPMorgan employee claims nearly 23,000 delinquent accounts were riddled with inaccuracies. The bank fired her; she sued; the case was settled out of court.

And still, none of the banksters has been jailed.