Category: Corruption

Well, Ain’t That a F%$# You to the Community

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So, San Francisco, a place with lots of LGBT people, and decent mass transit has gotten a new archbishop who is homophobic and a drunk driver:

The Catholic Church on Thursday installed Salvatore Cordileone, a leader in the fight against same-sex marriage, as archbishop of the Archdiocese of San Francisco.

Following his installation as the religious leader of more than 500,000 Catholics in the largely gay-friendly Bay Area, Cordileone, 56, delivered a sermon and spoke about his recent arrest after failing a sobriety test at a police checkpoint.

“God has always had a way of putting me in my place,” he said. “With the last episode in my life, God has outdone Himself.”

Cordileone spent about 11 hours in a San Diego jail cell in August after he was arrested on suspicion of drunken driving. On Monday, he pleaded guilty to driving with alcohol in his system, said Gina Coburn, spokeswoman for the San Diego City Attorney.

Cordileone has been particularly outspoken in Church opposition to same-sex matrimony as chairman of the U.S. Conference of Catholic Bishops Subcommittee for the Promotion and Defense of Marriage, a role that has put him at odds with many Bay Area Catholics.

He also led Church support for the 2008 voter-approved California state constitutional amendment, Proposition 8, that banned gay marriage.

Seriously, I’m kind of surprised.

This is an archbishop, so you can be pretty sure that the entire chain of command, up to and including the Pope, had to sign off on this, and they had to know what it means.

I would have thought that they would be too busy covering up pedophile priests to take a break to piss on the LGBT community.

I guess that they multitask well.

What a Surprise

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David Axe talks to a former USAF general who says that his career was destroyed, and his retirement delayed in an attempt to cover up his report that was critical of the V-22 Osprey:

Don Harvel thought he was cruising to a well-deserved retirement after 35 years flying cargo planes for the U.S. Air Force. Then in the spring of 2010 he was tapped to investigate the fatal crash of a high-tech Air Force tiltrotor aircraft – and everything changed.

What Harvel discovered about the controversial hybrid aircraft drew him into a battle of wills with his superiors at Air Force Special Operations Command. Harvel, then a brigadier general, uncovered evidence of mechanical problems — and resulting safety woes — in the V-22 Osprey, which takes off like a helicopter and flies like an airplane. These are issues the Pentagon has been eager to downplay. So when Harvel refused to alter his findings to match the Defense Department’s expectations, he knew that was the final chapter of his decades-long military service. Harvel’s long-planned retirement was held up for more than two years, effectively silencing him during a troubling chapter in the Osprey’s often-troubled history.

“I turned [my report] in and I knew that my career was done,” Harvel says.

………

But the stats reflect altered and miscategorized data. Engine fires clearly costing millions of dollars to fix were downgraded in the paperwork. One malfunction that resulted in a V-22 accidentally taking off uncommanded before crashing to the ground was labeled a ground incident and left off the record. Even leaving out the 1991-2000 crashes, the Osprey’s crash rate before this year’s accidents was roughly double the officially stated figure, making the V-22 no safer than the Marines’ conventional helicopters and far, far more dangerous than its fixed-wing cargo planes.

And that’s mostly due to inadequate testing, Harvel claims. “In their hurry to get this thing painted in a positive light for Congress, some things are coming back to haunt them,” he says of the V-22′s supporters.

We need to understand that the military establishment of the United States is completely captured by the defense industry, and this does not serve either our military needs or the interest of the taxpayers.

But It’s Not Happening Here

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It looks like the rest of the industrial world is seriously address the risks and effects of high frequency trading:

After years of emulating the flashy United States stock markets, countries around the globe are now using America as a model for what they don’t want to look like.

Industry leaders and regulators in several countries including Canada, Australia and Germany have adopted or proposed limits on high-speed trading and other technological developments that have come to define United States markets.

The flurry of international activity is particularly striking because regulators have been slow to act in the United States, where trading firms and investors have been hardest hit by a series of market disruptions, including the flash crash of 2010 and the runaway trading in August by Knight Capital that cost it $440 million in just hours. While the Securities and Exchange Commission is hosting a round table on the topic on Tuesday, the agency has not proposed any major new rules this year.

Here is the kicker, unlike the claims of the HFT mafia, it turns out that markets run better when they have limits placed on them:

The broadest and fastest changes have come out of Canada, where this spring regulators began increasing the fees charged to firms that flood the market with orders. The research and trading firm ITG found that the change had already made trading more efficient by reducing the crush of data burdening the market’s computer systems.

Now Canadian trading desks are preparing for rules that will come into effect on Oct. 15 and curtail the growth of the sophisticated trading venues known as dark pools that have proliferated in the United States. While the regulation has been hotly debated, many Canadian bankers and investors have said they don’t want to go any further down the road that has taken the United States from having one major exchange a decade ago to having 13 official exchanges and dozens of dark pools today.

It’s time to realize that most financial innovation is not an advance in the art, but rather an exercise in fraud and rent seeking, and we need to stop it.

It’s Called Projection………………

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The reason that Republicans are pushing voter ID is straightforward, they don’t want n*****s to vote. The descendants of “Bull”Connor run the party now.

But there is another element to this, that of projection: The Republicans believe that Democrats engage in vote fraud, because they themselves routinely engage in vote fraud, largely through the absentee ballot process.

In Michigan, we have Thaddeus McCotter’s staffers charged with voter fraud over his crudely forged reelection petitions. And some context:

This incident perfectly highlights the dirty little secret about election fraud. Election fraud overwhelmingly happens on the campaign side, not the voter side. It’s far easier – and more rewarding – to cheat while working from within the system than it is to commit in-person voter fraud. The GOP is legislating against cases of voter fraud in which a person would have to give someone else’s name at the correct polling place in order to falsely vote once; meanwhile a Republican Congressman and his staff fabricated 1,756 signatures so that he could run illegally.

And this is the truth about so many Republican policies: rules and regulations are put in place to scapegoat people who aren’t causing problems. In Florida, drug testing welfare recipients showed that less than 3% of those receiving welfare were using drugs illegally, while that discriminatory testing cost the state nearly $120,000. Mitt Romney has evoked the “47% of people [who] pay no income tax,” conveniently ignoring that collecting income tax from all of those households would bring in less than than the president’s Buffett Rule which would slightly raise taxes for the country’s wealthiest. Reagan’s racist welfare queen myth still looms large in the conservative narrative, despite the fact that the Bush-era bailout for corrupt and irresponsible banks cost far more than years of welfare programs.

And then we have Western Massachusetts, the Republican part of the state, not so far where I went to college, where voter fraud in East Longmeadow is so blatant that the state was compelled to take over the election:

There’s just one Republican primary in East Longmeadow next month.

Marie Angelides and Jack Villamaino are vying for a Massachusetts State Representative seat.

Secretary of State Bill Galvin says his office will be running the election. That’s because fraud has found way into the race.

Experts say in a State Representative race, there’s often 30-45 absentee ballots that are filed. This summer, there’s been more than 400.

Galvin confirms that hundreds of the applications were never filled out by voters; somebody forged the applications and even changed the political parties of Democrats to Republican so they would receive an absentee ballot in the mail. The Boston Globe reports it’s widely believed the Villamaino’s campaign and an East Longmeadow clerk’s office employee are behind the scheme.

“I have had a substantial amount of experience in running elections. I cannot recall a single instance where i saw such a brazen effort to steal the rights or identities of voters, to change their party enrollments and in effect to steal their ballots,” Galvin said.

“I’m disheartened to see that in the political process,” former State Representative and District Court Judge Robert Howarth said.

You notice just how much easier it is to commit voter fraud with absentee ballots?

If Villamaino’s had been a bit less greedy, no one might have noticed.

And then again, there is Palm Beach, Florida, the home of the infamous butterfly ballot, and the epicenter of Republican vote fraud, where Virginia based Strategic Allied Consultants, one of Nathan Sproul’s network of voting fraud shops:

The Republican Party of Florida is dumping a firm it paid more than $1.3 million to register new voters, after Palm Beach County Elections Supervisor Susan Bucher flagged 106 “questionable” registration applications turned in by the contractor this month.

Bucher asked the state attorney’s office to review the applications “in an abundance of caution” because she said her staff had questions about similar-looking signatures, missing information and wrong addresses on the forms.

The state GOP hired Strategic Allied Consultants of Glen Allen, Va., for “voter registration services” and get-out-the-vote activities. The firm got identical payments of $667,598 in July and August.

“When we learned today about the instances of potential voter registration fraud that occurred in Palm Beach County, we immediately informed the Republican National Committee that we were terminating the contract with the voter registration vendor we hired at their request because there is no place for voter registration fraud in Florida,” said RPOF Executive Director Mike Grissom late Tuesday.

An employee of the company said no one was available to comment Tuesday evening.

Bucher said some of the applications she questioned were for new voter registrations while others were for address or party affiliation changes or requests for new voter cards, Bucher said.

Seriously, if the DoJ seriously went after real voter fraud, half the Republican consultants in the nation would be under indictment.

It’s like the old days of the cold war:  You knew what the USSR was doing, because they would accuse us of doing it.

This is F%$#ing Nuts!

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The Department of Justice has charged Aaron Schwartz with 13 felonies for violating the terms of service TOS of a web site:

Federal prosectors added nine new felony counts against well-known coder and activist Aaron Swartz, who was charged last year for allegedly breaching hacking laws by downloading millions of academic articles from a subscription database via an open connection at MIT.

Swartz, the 25-year-old executive director of Demand Progress, has a history of downloading massive data sets, both to use in research and to release public domain documents from behind paywalls. He surrendered in July 2011, remains free on bond and faces dozens of years in prison and a $1 million fine if convicted.

Like last year’s original grand jury indictment on four felony counts, (.pdf) the superseding indictment (.pdf) unveiled Thursday accuses Swartz of evading MIT’s attempts to kick his laptop off the network while downloading millions of documents from JSTOR, a not-for-profit company that provides searchable, digitized copies of academic journals that are normally inaccessible to the public.

………

In essence, many of the charges stem from Swartz allegedly breaching the terms of service agreement for those using the research service.

“JSTOR authorizes users to download a limited number of journal articles at a time,” according to the latest indictment. “Before being given access to JSTOR’s digital archive, each user must agree and acknowledge that they cannot download or export content from JSTOR’s computer servers with automated programs such as web robots, spiders, and scrapers. JSTOR also uses computerized measures to prevent users from downloading an unauthorized number of articles using automated techniques.”

It gets better.

The DoJ lost big in the 9th circuit court, which said that a violation of the TOS was a matter for civil court, but Obama’s DiJ decided not to appeal, so that they could continue to use their bogus vendettas in other jurisdictions.

Prosecutors have an obligation to represent the people.

This obligation goes beyond fishing for a suitably technically illiterate jury and using multiple indictments and the threat of decades in jail to extract a plea bargain.

This is a despicable case of prosecutorial overreach.

They are saying that, for example, lying about my appearance on a dating site would be a felony.

Prosecutors want to make their job easier, but their method, creating a world where everyone can be thrown in jail for a felony, because there is some law that they are in violation of, is repellant.

It is the hallmark of a police state.

Megan “Math is Hard” McArdle Is Worse Than I Thought

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Due diligence, what due diligence?

I’ve always thought of her as a partisan hack, but it turns out that it’s worse than that. She is yet another bit of Koch brothers bought and paid for AstroTurf:

Megan McArdle is a Koch-trained conservative activist working as a business journalist and pundit. She earned her MBA from the University of Chicago, received journalism training at the Kochs’ flagship libertarian think-tank, the Institute for Humane Studies, and has used her position at The Atlantic and, most recently, Newsweek/ The Daily Beast, to run cover for and promote Koch interests and the Republican Party agenda. In early 2009, a GOP outfit backed by the Kochs hailed McArdle for her “leadership role in … re-branding the Republican party.” McArdle continues to conceal the extent of her deeply conflicted relationships with the Koch influence-peddling machine.

There is a line between being a hack, and being a wholly owned subsidiary of the Koch brothers.

If you hire someone while they are paid agents of an entity that they cover, you are making the integrity of your news organization a joke.

I have made the same argument about NPR’s religion reporter, Barbara Bradley Hagerty, who interestingly enough is the sister of the multi-millionaire owner of MCardle’s employer The Atlantic, David Bradley. (The world is weird that way)

There are some good people at The Atlantic, but even before these revelations, it was clear that giving McArdle a megaphone was a blight on the magazine.

No Prosecutions of Banksters, People are Finally Noticing

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At least the reporters at McClatchy are noticing:

Running for re-election, President Barack Obama frequently blames Wall Street and the deep financial crisis it caused for the underperforming economy. He doesn’t advertise that no major honcho of finance has been jailed under his watch for the mess, however.

The lack of a high-profile arrest and trial is all the more surprising given that Obama has tried to stain his Republican rival, former Massachusetts Gov. Mitt Romney, as a creature of Wall Street.

Past financial crises have always had antagonist. The savings and loan crisis of the late 1980s had banker Charles Keating. The CEO of collapsed energy trader Enron, Kenneth Lay, became the face behind a drive to revamp accounting laws in 2002. Both men were prosecuted for and convicted of financial crimes.

In the aftermath of the financial crisis of 2007-08 and the subsequent Great Recession, there’ve been plenty of scapegoats but no important actor fitted for pinstripes.

Why not? There’s no single compelling answer to that question.

“Some people (in regulatory agencies) believe that the folks at the Treasury and the Fed felt that pursuing chief executive officers would delay the economic recovery and continue to destabilize the financial system,” said John Coffee, a Columbia University law professor who frequently testifies before Congress on securities law. “They had that point of view. Whether they had any influence over the Department of Justice is very uncertain.”

Yeah, very uncertain.

The issue is not the influence of the Treasury Department over the Department of Justice.

Not prosecuting is the official policy of the President.  His response to wrongdoing whenever someone connected (CIA torturers and Dick Cheney) or powerful (banksters) is to say that he will “look forward, not back.”  (But he’s going balls to the wall prosecuting medical marijuana).

Whether Treasury has influence does not matter.  This is the a directive from Potus.

As an aside, McClatchy was just about the only major US news org to treat the run up to Iraq with any skepticism.

What I want, and what a solid majority of Americans want, is some bankster heads on a pike.

Least Surprising Data Point: Of The Day

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Using OCC data, the Federal Reserve Bank of Chicago, the Office of the Comptroller of the Currency, the Columbia Business School, Ohio State University, and the University of Chicago crunched the numbers to find the number of unnecessary foreclosures, and 800,000 homes were foreclosed on that should not have been:

But while evidence of these problems was pervasive, it was always hard to quantify the damage. Just how many more people could have qualified under the administration’s mortgage modification program if the banks had done a better job? In other words, how many people have been pushed toward foreclosure unnecessarily?

A thorough study released last week provides one number, and it’s a big one: about 800,000 homeowners.

 The study’s authors — from the Federal Reserve Bank of Chicago, the government’s Office of the Comptroller of the Currency (OCC), Ohio State University, Columbia Business School, and the University of Chicago — arrived at this conclusion by analyzing a vast data set available to the OCC. They wanted to measure the impact of HAMP, the government’s main foreclosure prevention program.

What they found was that certain banks were far better at modifying loans than others. The reasons for the difference, they established, were pretty predictable: The banks that were better at helping homeowners avoid foreclosure had staff who were both more numerous and better trained.

 Unfortunately for homeowners, most mortgages are handled by banks that haven’t been properly staffed and thus have modified far fewer loans. If these worse-performing banks had simply modified loans at the same pace as their better performing peers, then HAMP would have produced about 800,000 more modifications. Instead of about 1.2 million modifications by the end of this year, HAMP would have resulted in about 2 million.

 That’s still well short of the 3-4 million modifications President Obama promised when he announced the program back in early 2009. But it’s a big difference, and a reasonable, basic benchmark against which to compare the program’s failings.

………

 The report does not identify these poor performing banks, but it’s not hard to ID them. A “few large servicers [have offered] modifications at half the rate of others,” the authors say. The largest mortgage servicers are Bank of America, JPMorgan Chase, Wells Fargo and Citi.

 Bank of America in particular (the largest of all the servicers when HAMP launched) has been far slower to modify loans than even the other large servicers, as other analyses we’ve cited have shown.

These are the banks that we bailed out, either directly, or by bailing out their counter parties, and they responded by f%$#ing home owners, and by extension, the the real estate market and the entire country.

This is why not prosecuting the banksters was such a bad thing.  People who know that they have impunity, and know it, it does not produce ethical, or competent, behavior.

Dodd Frank is Working

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Not.

Case in point, the new clearinghouses are allowing for “collateral transformation” which serves to once again misstate counter-party risk to the detriment of society and the markets:

More obviously troubling was a Bloomberg story on how major financial firms are going to undermine the effectiveness of clearinghouses by engaging in “collateral transformation”:

Starting next year, new rules designed to prevent another meltdown will force traders to post U.S. Treasury bonds or other top-rated holdings to guarantee more of their bets. The change takes effect as the $10.8 trillion market for Treasuries is already stretched thin by banks rebuilding balance sheets and investors seeking safety, leaving fewer bonds available to backstop the $648 trillion derivatives market.

The solution: At least seven banks plan to let customers swap lower-rated securities that don’t meet standards in return for a loan of Treasuries or similar holdings that do qualify, a process dubbed “collateral transformation.” That’s raising concerns among investors, bank executives and academics that measures intended to avert risk are hiding it instead.

Understand what is happening here: clearinghouses are one of the major elements of Dodd Frank to reduce counterparty risks. But the banks are proposing to vitiate that via this “collateral transformation” which will simply create new, large volume counterparty exposures to deal with fictive clearinghouse risk reduction program. And get a load of this:

U.S. regulators implementing the rules haven’t said how the collateral demands for derivatives trades will be met. Nor have they run their own analyses of risks that might be created by the banks’ bond-lending programs, people with knowledge of the matter said. Steve Adamske, a spokesman for the U.S. Commodity Futures Trading Commission, and Barbara Hagenbaugh at the Federal Reserve declined to comment

Translation: the regulators are aware of the banks’ plans to finesse the clearinghouse requirements, and they neither intend to put a kebosh on it (which could easily be done by taking the position that any collateral transformation to meet clearinghouse requirements was an integrated part of the clearinghouse posting and could not be done separately on bank balance sheets) nor understand the impact of their flatfootedness.

The problem is that with complexity (“Innovation”) does not create benefits as much as it creates opportunities for fraud. (Saroff’s rule restated)

The problem is that finance lends itself to the selling of snake oil even more than does the sale of patent medicine, and the excesses of patent medicine, most notably Radithor, led to the requirement that medications be proven safe and effective before being foisted off on the public.

We need the same policy for financial instruments.

What, Senior Military Officials Are Willing to Put Sailors At Risk to Appease Defense Contractors?

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I’m shocked, shocked to find that gambling is going on here!

The officers evaluating the Lottoral Combat Ship (LCS) suppressed negative testing data:

U.S. Navy emails and other documents suggest that officials muzzled bad test results for the first Littoral Combat Ship (LCS-1) variant, the USS Freedom, at a crucial time in the program’s development, when the service was considering which seaframe to pick for the $30 billion-plus fleet.

Top program officers for the ship and at Naval Sea Systems Command (Navsea) told subordinates to avoid certain language in the test-result reports because of concerns over the downselect decision, the documents show. One naval officer said in an email he would delete the offensive wording of the report.

The Navy acknowledges it clamped down on “widespread” discussion of “preliminary” test results, but says it did so to prevent an “unfair comparison” between LCS-1 and the competing LCS-2, the USS Independence, because the second ship had yet to go through the same trials.

Yeah, sure.

They were just trying to be fair.

I’m not taking personal checks from these wankers.

Hun, Some of Rmnney’s Tax Evasion Was Pretty Simple

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Basically, he took management fees and converted them to carried interest, in order to secure the lower capital gains rate:

Two and Twenty. Private equity fund managers are compensated in two primary ways: management fees and carried interest. The management fee, traditionally two percent annually, is paid to the managers to cover overhead, salaries, and so forth. The carried interest, traditionally twenty percent, is a share of the profits from the underlying investments. My paper Two and Twenty described the typical arrangement. Management fees are taxed at ordinary income rates; carried interest is often taxed at capital gains rates. I focused in the article on why the carried interest portion is better viewed like bonus compensation and should be taxed at ordinary income rates.

Management Fee Conversion. Current law on carried interest is already a sweetheart tax deal for private equity, but why not make it better? Private equity folks are not the type to walk past a twenty-dollar bill lying on the sidewalk. In the 2000s it became common for private equity fund managers to “convert” their management fees into carried interest. There are many variations on the theme, but here’s how many deals worked: each year, before the annual management fee comes due, the fund manager waives the management fee in exchange for a priority allocation of future profits. There is minimal economic risk involved; as long as the fund, at some point, has a profitable quarter, the managers get paid. (If the managers don’t foresee any future profits, they won’t waive the fees, and they will take cash instead.) In exchange for a minimal amount of economic risk, the tax benefit is enormous: the compensation is transformed from ordinary income (taxed at 35%) into capital gain (taxed at 15%). Because the management fees for a large private equity fund can be ten or twenty million per year, the tax dodge can literally save millions in taxes every year.

The problem is that it is not legal. Because the deals vary in their aggressiveness, there is some disagreement among practitioners about when it works and when it doesn’t. But in my opinion, and the opinion of many tax practitioners, the practices that were common in the private equity industry in the 2000s became very, very questionable, and it’s unlikely that they would have stood up in court.

Tax attorney and professor Victor Fleischer does the dumpster diving in Gawkers Bain document dump and this is the first bit of specific skulduggery that I’ve seen as a result.

Read this Series

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Naked Capitalism is doing a series analyzing private equity, and their first article, which explains how private equity exists solely through a massive infusion of government money:

This is the first in a series of postings on the private equity industry (“PE”) and will serve as an introduction to private equity investing.

Private equity practitioners, including most famously Mitt Romney, often depict their sector as the epitome of private enterprise. These claims are false. Private equity firms not only depend directly and substantially on government support, they have also actively cultivated links to the state.

Some readers may know that private equity relies heavily on tax subsidies. Private equity firms engage in debt-leveraged buyouts of public and private companies, and the interest charges on this debt are tax deductible. But most members of the public do not know that close to half the investment capital in private equity funds is contributed directly by government entities. In this respect, private equity is little different than companies like Fannie, Freddie, and Solyndra that are regularly criticized in the media as recipients of government subsidies.

Their decisions to invest government funds in private equity reflect assumptions by government officials that have gone unchallenged and, we contend, are quite likely incorrect. Moreover, virtually all of the important details of the private equity investments made by these state investors are kept secret at the insistence of PE firms, in striking contrast to every other type of government contract.

………

This is not surprising.

Private equity, even when compared to hedge funds, are remarkably opaque, with no prospectus, and little information given to investors.

Even the payoff date is not revealed to investors.

Of course for a public pension manager, they will be gone when it all turns to sh%$.

They’ll probably working for a private equity fund.

If you are investing other people’s money (as in the contributions of state employees) and someone lies to you about possible return on investment, and this would allow your bosses in the governors’ mansions and the state houses to balance the budget, you are inclined to be quite credulous.

An Update from Obama’s Gulag

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Looks like those military tribunals are not going as well as expected, so now they are trying to ensure that effective and vigorous representation by counsel is impossible:

In a federal court hearing that fully disclosed the deepening level of distrust between the military officers who run the Navy’s prison at Guantanamo Bay, and the volunteer lawyers who represent the detainees there, the presiding judge reacted with obvious skepticism to the military’s new move to curb those lawyers’ activities there.

………

As the hearing unfolded, a government lawyer suggested darkly that detainees’ lawyers have brought unspecified “contraband” into their meetings with clients at the Naval prison, and argued that intensifying activities in prosecuting war crimes cases there are raising new security fears among military officers, with many more lawyers in their midst. Answering those expressions of distrust, lawyers for detainees countered that the government cannot be trusted to keep its word even if it promises not to interfere with legal representation; they cited shifting details of lawyer curbs as well as the government’s more fully expressed doubts that some of the detainees have any remaining right to a lawyer.

“‘Counsel visits [to Guantanamo] are a burden on the resources and manpower of Guantanamo Bay to provide accommodations for counsel and on security personnel to ensure the safety of counsel and their good behavior as well,” Justice Department attorney James J. Gilligan said at the hearing. In turn, one of the lawyers for the detainees, New York attorney Rebecca Briggs, contended that “these limitations [on counsel’s access] that are being added in footnotes [in government access rules] just highlight the fact that their assurances to yield their discretion responsibly cannot be taken at face value, unfortunately.”

When the rabid right wing rants that Barack Obama wants to create some sort of Soviet style totalitarian state, they miss the fact that Obama has already done so, but he hasn’t expanded it beyond Muslims ……… yet.

Why the Banksters Should Go to Jail, Part XXIX

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There is an interesting article in Scientific American which argues that punishing cheaters produces evolutionary pressures toward cooperation:

Humans are one of the most cooperative species on the planet. Our ability to coordinate behavior and work collaboratively with others has allowed us to create the natural world’s largest and most densely populated societies, outside of deep sea microbial mats and a few Hymenoptera mega-colonies.

However, a key problem when trying to understand the evolution of cooperation has been the issue of cheaters. Individuals in a social group, whether that group is composed of bacteria, cichlids, chimpanzees, or people, often benefit when cooperating with others who reciprocate the favor. But what about those individuals who take advantage of the generosity of others and provide nothing in return? These individuals could well thrive thanks to the group as a whole and end up with greater fitness than everyone else because they didn’t have to pay the costs associated with cooperating. For decades the idea that cheaters may in fact prosper has been the greatest difficulty in understanding cooperation as an evolved trait.

However, it turns out that cooperation could be a viable evolutionary strategy when individuals within the group collectively punish cheaters who don’t pull their weight. For example, Robert Boyd, Herbert Gintis, and Samuel Bowles published a paper in the journal Science in 2010 with a model showing how, so long as enough individuals work together to punish violators, each cooperative individual in the group can experience enhanced fitness as a result.

This is why, “Looking forward and not back,” is so harmful to society.

Whether it’s the torture by the Bush administration (or for that matter by the Obama administration) and the misdeeds of the banksters must be prosecuted to the fullest extant of the law.

In failing to do this, Obama and Holder are, whether they realize it or not, are actively selecting for corruption and fraud.

Paul Ryan, Insider Trader

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Click for full size


Found on Facebook

Brad Delong looks at Paul Ryans trading records in 2008, and concludes that he had to be trading on information from the Federal Reserve and the Treasury:

I don’t want to hire as my vice president and federal budget czar somebody who uses Congressional inside information to profit by switching his portfolio back and forth between Citigroup and Goldman five times a year: I want somebody with better ethics.

I don’t want to hire as my vice president and federal budget czar somebody who investing very part-time with no analytical support and without inside information switches his portfolio back and forth between Citigroup and Goldman five times a year: I want somebody with a better brain.

Look at the trades. He’s clearly trading on inside information.

Time to Keep Your Cash in Your Mattress

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In a ruling from the failure of a brokerage in 2007, a court has ruled that segregated client funds can be used by the firm for as collateral, and the bank gets priority for the clients’ money:

A ruling in the case of failed futures brokerage Sentinel Management Group could make it more difficult for customers to recoup money lost in the much larger collapse of MF Global, according to Sentinel’s bankruptcy trustee.

A federal appeals court on Thursday upheld a ruling that puts Bank of New York Mellon ahead of former customers of Sentinel in the line of those seeking the return of money lost in the 2007 failure of the suburban Chicago-based futures broker.

The appeals court affirmed an earlier district court ruling that the bank had a “secured position” on a $312 million loan it gave to Sentinel, which turned out to have been secured by customer money.

Futures brokers are required to keep customers’ funds in dedicated accounts to protect them from being used for anything other than client business.

However, Thursday’s ruling suggests that brokerages can use customer funds to pay off other creditors, Sentinel trustee Fred Grede told Reuters.

“I don’t think that’s what the Commodity Futures Trading Commission had in mind” with its requirement that brokers keep customer money separate from their own, he said.

“It does not bode well for the protection of customer funds.”

Worse, Grede said, is that the ruling suggests that a brokerage that allows customer money to be mixed with its own is not necessarily committing fraud.

That may raise the bar for proving that MF Global Holdings Ltd, under then-CEO Jon Corzine, misused customer funds as it scrambled to meet margin calls to back bets on European debt in the brokerage’s final days. A $1.6 billion customer shortfall remains.

………

Customer funds were allegedly moved from the protected accounts to other accounts so they could be used as collateral for loans to Sentinel’s own trading operations.

The appeals court said that “perhaps the bank should have known that Sentinel violated segregation requirements” but agreed with the district court’s earlier ruling that “such a lack of care does not rise to the level of the egregious misconduct” needed to reprioritize a claim.

“That Sentinel failed to keep client funds properly segregated is not, on its own, sufficient to rule as a matter of law that Sentinel acted ‘with actual intent to hinder, delay, or defraud’ its customers,” U.S. Circuit Judge John D. Tinder wrote in the ruling.

If you have your money in an account, the firm can steal it and use it for loan collateral, and the bank gets it all.

For ordinary people who, for example, simply get a good deal on a used car that later turns out to have been stolen, they have to give the car back, even though they had no reason to know that he car was stolen.

But for the banks, if they are willfully blind,  they get to keep the stolen property, because the law does not apply to them.

We need to end this sh%$.  My next post discusses what would work, but ever won’t be done by either the current administration, or by a possible Romney administration.

Just Lock Them Up

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Giancarlo Spagnolo, a professor at the University of Rome, makes a rather appealing suggestion, that we start criminally charging the banksters:

Recent revelations on traders’ behaviour in the Libor rigging case are worrisome not only as a sign of the rotten culture of financial operators, but also for the sense of legal impunity prevailing among them (Economist 2012). They suggest that bank CEOs and supervisors may have tolerated or encouraged rate rigging, or negligently lost control of banks’ operations, for years. They also indicate that law enforcement has been extremely weak in the realm of banking and finance. The recent allegations that some large UK banks have been involved in extensive money-laundering activities in favour of Mexican drug cartels and Iran reinforce this impression considerably.

In the light of these revelations, on 25 July the European Commission amended its proposal for a Regulation and a Directive on insider dealing and market manipulation to include criminal sanctions against that type of price fixing. Meanwhile, following a report by the FSA on the failure of the Royal Bank of Scotland, the UK Treasury had already opened a consultation on how to introduce criminal sanctions against failed banks’ directors, ranging from automatic debarment to full fledged prison for extreme reckless behaviour.

The need for tougher sanctions is self-evident, as is the need to hold accountable negligent regulators. But are criminal sanctions a good remedy for financial misbehaviour? Wouldn’t it be better to substantially increase monetary fines? The question is warranted given that, with few exceptions, modern economists from Becker (1968) onwards regard monetary fines as a more efficient law enforcement instrument than non-monetary criminal sanctions (Polinski and Shavell 2000, Werder and Simon 1986).

The problem with monetary fines is that not always can wrongdoers be fined at a sufficient level to achieve deterrence. Wrongdoers may:

  • Not have sufficient wealth, or may conceal it;
  • Transfer fines to other parties (uninformed shareholders, directors’ insurance funds, etc.); or
  • Be protected by limited liability (for corporate fines).

In the remainder of this column, I will try to clarify why these problems are particularly acute for banks and in particular for bankers, intended as those individuals with inside information and control on the banks’ business (traders, directors, CEOs…). As we will see, the same reasons that for a long time have made banks ‘special’ for competition policy also ensure that to deter bankers’ wrongdoing, non-monetary criminal sanctions are necessary.

As an aside here, the idea of piercing the veil of corporate indemnification, so, for example, income of all forms in excess of (for example) that of the President of the United States, would not be covered by limited liability for a period of a few years.

Prof. Spagnolo does not discuss this, but it should be up there.

If people knew before the fact that if their banks had to bailed out, that all their property could be taken by a court judgement, it would deter them.

As it stands now, the worst case, taking the example of Michael Milken, who did his few years at club Fed, and left still prison fabulously wealthy.

H/t Naked Capitalism.

There are Really Evil People in Kansas

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Case in point, most of the members of the Kansas State Board of Healing Arts, who are attempting to strip a doctor’s license for not forcing a 10 year old girl with mental health issues to carry her uncle’s baby to term:

The Kansas State Board of Healing Arts, the governing body that regulates the practice of medicine in the state, stripped the medical license of a woman who refused to force a mentally-ill 10 year old to give birth.

As Robin Marty reports, Dr. Ann Neuhaus became the target of domestic terror group Operation Rescue after her colleague, Dr. George Tiller, was murdered. Neuhaus assisted Tiller by providing second opinions for mental health exceptions for late-term abortions.

Operation Rescue filed a negligence complaint against Neuhaus alleging that her exams were not thorough enough to support her medical conclusions and her follow-up care was inadequate because she did not recommend counseling or hospitalization after each procedure.

Neuhaus offered a rebuttal of her own. “To even claim that isn’t medically necessary qualifies as gross incompetence,” said Neuhaus. “Someone’s 10 years old, and they were raped by their uncle and they understand that they’ve got a baby growing in their stomach and they don’t want that. You’re going to send this girl for a brain scan and some blood work and put her in a hospital?”

Seriously, these are deeply evil religious zealots, and they are way closer to terrorists who intend to strike in the United States than most of the threats that the FBI manufactures.

I’m not hoping for drone strikes against these folks, but it’s clear that there are more direct links to terrorism with Operation Rescue than there is with, for example, the now shuttered Holy Land Foundation.

What a Surprise, The Vampire Squid Skates

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What a surprise, Goldman Sachs gets to defraud its customers in and lie to Congress about the Abacus deal, where they sold bad loans to investors, and then bet against them, and there is no prosecution:

Neither Goldman Sachs Group Inc nor its employees will face U.S. criminal charges related to trades they made during the financial crisis that were highlighted in a 2011 U.S. Senate report, the Justice Department said on Thursday.

The unusual announcement not to prosecute criminally came in an unsigned statement attributed to the department.

Few expected the bank to face criminal charges, but in April 2011, U.S. Senator Carl Levin asked for a criminal investigation after the subcommittee he leads spent years looking into Goldman.

Levin’s subcommittee held televised hearings as part of its inquiry, which centered on a subprime mortgage product known as Abacus. He said Goldman misled Congress and investors.

Goldman employee Fabrice Tourre still faces a civil complaint from the U.S. Securities and Exchange Commission. He has denied any wrongdoing and was the only person accused.

Goldman itself settled with the SEC for $550 million in July 2010 without admitting wrongdoing.

(emphasis mine)

Why am I not surprised?