Sunday, July 28, 2013

On the L(Edge)

This week we found out the use of covert information for individual advantage is officially a bad behavior…officially. Well, that’s so long as you’re not part of the Administration's Citizen Espionage Cabal in which case the misuse of secret-court-sanctioned covert collections is in the best paternalistic interest of the citizens who are incapable of knowing what is right or wrong and need a benevolent spy to insure that they are not seditious or subversive. And we’ve learned this because we have been treated to a steady drumbeat of the allegations of misdeeds perpetrated by Steven Cohen’s SAC Capital Advisors. For those of you who are trying to keep track of which criminal activity is criminal and which is “stimulus” to “support the economic recovery” you need one simple rule to keep it straight. If it’s authorized by the Administration, it’s good, legal and beneficial for the promotion of all of our collective interests. If it’s taking advantage of those stimuli monies by private traders not in the official Letter of Marque Privateering club, it’s criminal. Wasn’t it so much easier when you could see the Jolly Roger and say, “Oh, that’s a pirate!” before your wealth was stolen?

The indictment clearly highlights, among the alleged wrong-doing, “solicitation and use of illegal inside information”, (clearly you need a secret court to adjudicate as legal what is unconstitutional) on “a scale without known precedent in the hedge fund industry.” By accessing Inside Information, SAC Defendants provided “high conviction” trading ideas giving management and investors an “edge” over other investors.  In doing this, they made “millions of dollars of illegal profits and avoided losses at the expense of members of the investing public.” 

This activity was happening, according to the indictment at the same time Goldman Sachs was independently advising the Government of Mongolia to assume 12% debt on the development of one of the world’s largest copper reserves to “purchase” illiquid equity in their own national resource despite the fact that they were also advising people to buy into Ivanhoe and Rio Tinto – the beneficiaries of the structure developed to bankrupt the country.  This was happening at the same time that the World Bank and the IFC were advising governments around the world to enter into indentures that would destabilize governments for the sake of accessing natural gas reserves and minerals.  This was happening at the same time that rating agencies were defrauding investors using inflated credit quality ratings.  This was happening at the same time that the LIBOR price-fixing behavior was happening with nary a glance.  This was happening while the criminal enforcement division of the Internal Revenue Service was privately acknowledging billions of dollars of corporate taxpayer abuse of the In Process Research & Experimentation Tax Credit – one of the largest tax frauds by government estimates – while the Treasury turned a blind eye towards evidence provided by whistleblowers.  Unprecedented?  Seriously.  Steven Cohen’s indictment is a rounding error for the abuses listed above.  And the U.S. Department of Justice action on ANY of these other matters is…, well, umm…, oh, that’s right – these other ones are in our National Interest!

I don’t know Steven Cohen and I don’t know the individuals named in the indictment.  I am intimately aware of the industry.  What Steven did was wrong but the hedge funds that purchased real estate right next to equity and bond trading switches so that they can trade in and out of positions at the speed of light (literally) are perfectly legal.  High frequency, low latency trades; proprietary trades trading against high net worth wealth management account clients’ asset allocation; and, misrepresentation of pension solvency (and the insurers thereof) – these multi-billion dollar defrauding activities are beyond the scope of investigators.  No criminal indictments.  Just political donations.

It may be the case that SAC ran afoul of the law and for that I am certain that law enforcement (including criminal convictions) is appropriate.  But I’m getting quite tired of the selective enforcement of laws in which the language contained in indictments actually specifically indicts the un-prosecuted behavior of sanctioned actors.  This is the part that really is an offense.  And worst of all, the public is led to believe that the judiciary is actually doing its job while the real crimes go undetected.  We The People, the ones who pay taxes for the authorization of the Department of Justice, are being defrauded by “Justice” and nobody’s the wiser for it. 

“The accumulation of gold in the treasury of private individuals is ruin of the timocracy; they invent illegal modes of expenditure; for what do they or their wives care about the law?

Yes, indeed.  And then one, seeing another grow rich, seeks to rival him, and thus the great mass of the citizens become lovers of money.

Likely enough.  And so they grow richer and richer, and the more they think of making a fortune the less they think of virtue; for when riches and virtue are placed together in the scales of the balance, the one always rises as the other falls.  True.  

And in proportion as riches and rich men are honoured in the State, virtue and the virtuous are dishonoured. “  

Plato had it right.  And we need to be as wise today as he was when he dictated The Republic.  Sitting in the Shenandoah Mountains with my aunts and uncles at yesterday’s family reunion I was reminded that intelligent, thoughtful citizens are living in entire oblivion to the nature and structure of the perpetuation of financial high crimes.  That needs to change and you, the reader, need to make sure that you share information that can illumine what is being done in secret in our names.  Until we shine light on the real corruption, we’ll be hanging over the edge without knowing our own precarious state.

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Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave