Bill Black: Leaving Felons in Charge of our Largest Financial Institutions is Now United States Policy

Bitcoin Arouses Passions: Why You Should Buy Now. And Why You Should Buy Never.

March 23, 2013

Apparently I struck a nerve this morning when I asked Barry Ritholtz when he was going to write something about Bitcoin's recent activity. He lashed out at me for asking his opinion. In case you are not familiar with Barry Ritholtz, he writes The Big Picture blog. He covers macro trends. Rithotz is somewhat unique in the world of money and analysis in that he is honest, has integrity, and is incredibly even-handed in his approach to investments. He also does not pull his punches when it comes to calling out cronyism, corruption, and fraud.

So why is it that even-handed Ritholtz is reacting with scorn and vitriol when asked his opininion of Bitcoin? There are a few possibilities. One is that he is in the money-making-advice business and  his clients are badgering him about why they are missing out on the parabolic rise of Bitcoin's value.

Another possibility is that he lumps Bitcoin with gold accumilation, tin hats, and conspiracy nuts. I'm guessing he started with the latter perspective and is now dealing with the former.

I understand BR's discomfort with these things. He is a quant. He is an excellent analyst when it comes to risk and income and assets and liabilities. He is also adept at overlaying the psychological component of investment behavior when it comes to traditional assets and markets. But things that do not produce income and are of questionable mainstream acceptance make him understandably nervous. He warns regularly against getting too caught up in narratives that confidently point investors to keep money on the sidelines or in non-traditional, faith-based vehicles.

My own opinion is that anyone who blogs about the economy and technology should be willing to address one of the most important money developments of the millenium... even if he or she does not consider it to be a currency. It is unquestionably global, it is currently a store of value, it is being used for transactions and speculation, and it is an outlet for people who lack confidence in the global economic system and in central bank management of currency.

Since BR is not taking on the challenge, here is my own take on purchasing Bitcoins:

Why buying Bitcoins is a terrible idea:

1. No legal entity = no accountability. What happens if your Bitcoins disappear? Whom do you sue? What law enforcement unit do you call? Answer: You may well be SOL.

2. No income, no assets, no P/E, no equity...

3. Governments must oppose Bitcoin because Bitcoins are designed to evade government. You can be sure that Bitcoin is in the crosshairs of the US, and other, governments. See this: On Monday, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) released its first “guidance” as to how “de-centralized virtual currencies” should fit into the larger regulatory regime under which currencies of all kinds are required to operate.


4. The next crash may be worse than the last one. And governments have an interest in making this happen.

5. People are at this moment conspiring to manipulate and milk the Bitcoin market. How could they not be? Given the relatively small market cap, there are serious opportunities for manipulation. Given the anonymous nature of the market, it is attracting everyone who is interested in hiding assets and transactions. Guess what happens when you attract everyone who has a nefarious financial goal and everyone who knows how to manipulate financial markets? Those are the people on the other end of your transactions. Let us not underestimate what will be attempted with Bitcoin as the tool. Think of the Hunt Brothers without effective tools to bring them down. There will be hackers attacking the Bitcoin world in every possible way. Will its encryption hold?

6. The train has left the station. You missed the time to buy. Unfortunately no one knows where the next station is. It may be back at the first station (or it may be on the moon).

7. Someone created the Bitcoin formula. That person knows the back door. That person knows how to break the code. That person knows how to circumvent the mining process. After all, it is, at its core, just a series of ones and zeros. (Good point, Peter)


On the other hand, here is why you are a complete fool if you do not purchase Bitcoins immediately:

1. Compromised equity markets. Our laws are written by bankers for bankers. Corrupt politicians are the catalyst. If legislators were woking for citizens of America, we would have very simple legislation and we would have bankers behind bars. As it stands now, we have maintained a deeply compromised financial system and have maintained criminals in positions of influence and power.

2. Compromised central banks. Central bankers in the US and UK have no interest in cleaning up the fraud and corruption that permeates our financial world. Their answer is to paper over the problems, infuse ever more debt into the system, and to enrich the rich by keeping asset prices rising. There is an end-game to this cycle.

3. Compromised legislators and regulators. Legislators and regulators work primarily for the financial institutions now known as Too Big Too Fail. They are not in the business of protecting investors, savers, or the general public.

4. The United States crisis management team, made up of all the compromised parties named above, will be saving themselves and their benefactors when the next crisis hits.

5. The value of Bitcoins has gone from practically nothing to over $100 in a very short period of time. A Bitcoin could be worth $1000 soon. Or $10,000. No one knows.

6. Manipulation of Bitcoin will mean more parabolic moves relative to whatever crappy fiat currency you currently hold.

7. The credit rating agencies maintain their conflicted structure. While there is now some scrutiny on them, nothing has changed to make those ratings inherently more trustworthy. Those ratings form a foundation for much of our current financial system. Guess what happens when you layer trillions in derivatives and debt on top of a compromised financial foundation?

I don't know why Ritholtz is so testy about Bitcoins. He was inappropriately insulting when I brought it up. But there is no denying that Bitcoins are here today and are making some people very rich very quickly. Who knows where they will be tomorrow? Maybe they will disappear. Or maybe they will become a darling of central bankers once they figure out how to harness its power. Or maybe the inventor is right now in Shanghai selling the secret formula to the Chinese government. Lots of questions. Not a lot of real answers.

In the meantime, it is quite fascinating to watch Bitcoins as they vault into mainstream consciousness.

Bill Black: Pervasive Fraud by Our "Most Reputable" Banks

A recent study confirmed that control fraud was endemic among our most elite financial institutions:Asset Quality Misrepresentation by Financial Intermediaries: Evidence from RMBS Market. Tomasz Piskorski, Amit Seru & James Witkin (February 2013) ("PSW 2013").

The key conclusion of the study is that control fraud was "pervasive."

Jacob Lew: Poster Child for Revolving Door Disease

Spotlight on Jounalist Amy Goodman

What’s Wrong with the Financial Services Industry?

By Barry Ritholtz - February 21st, 2013, 7:20AM

If you hang around these parts for any length of time, you will occasionally run across one of my jeremiads complaining about the Financial Services Industry.

I’ve been thinking about this more than usual lately. This has led to some correspondence with Helaine Olen, whose book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry is next up in my queue. (Her appearance on the TDS yesterday is here). It is similar to the deep dive my colleague Josh Brown took inBackstage Wall Street.

Frederic Bastiat: When Plunder Becomes a Way of Life for a Group of Men...

“When plunder becomes a way of life for a group of men living in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it.”

 Frederic Bastiat, French writer and economist

Bill Black: Judge Rakoff Rules in Favor of Insurer against Lender in Important Decision

Flagstar, mortgage lender and user of liars loans (which are pervasively fraudulent) has lost a lawsuit brought by monoline insurer Assured Guaranty. Assured Guaranty specializes in guaranteeing the quality of such loans, once packaged.

Tom Ferguson's Investment Theory of Politics

"Elections are occasions when groups of investors coalesce to invest to buy the state."

Tom Ferguson

Excellent Daily Show and Bloomberg Neil Barofsky Interviews

Great Bloomberg segment:  http://www.bloomberg.com/video/neil-barofsky-on-u-s-lawsuit-against-s-p-hic2xOmuTZ2oH5bhNHylxw.html

Neil Barovsky discusses Bailout on Bloomberg and the Daily Show:

Leaving Felons in Charge of our Banks is Good Policy and Will Lead to Financial Stability

This is another excellent Bill Black commentary on the insanity that defines our (in)justice system and mainstream media when it comes to addressing financial sector misdeeds.

Lanny Breuer on Whistleblowers and Prosecuting Bankers (Liar Liar version)

Note: This is satire.

I received some complaints when links to this were posted elsewhere. Some people think I am tying to pass this off as what Lanny Breuer actually said in The Untouchables. To me that seems ludicrous. But just to clarify, this is satire. The spoken words are not what Mr. Breuer actually said. Listen carefully and ask yourself if this could be anything but satire.

President of Iceland: Preventing Bank Failure Kills Competitiveness and Harms the Economy

h/t Zero Hedge

Tyler Durden's comment: "Why do we consider banks to be like holy churches?" is the rhetorical question that Iceland's President Olafur Ragnar Grimson asks (and answers) in this truly epic three minutes of truthiness from the farce that is the World Economic Forum in Davos. Amid a week of back-slapping and self-congratulatory party-outdoing, as John Aziz notes, the Icelandic President explains why his nation is growing strongly, why unemployment is negligible, and how they moved from the world's poster-child for banking crisis 5 years ago to a thriving nation once again. Simply put, he says, "we didn't follow the prevailing orthodoxies of the last 30 years in the Western world." There are lessons here for everyone - as Grimson explains the process of creative destruction that remains much needed in Western economies - though we suspect his holographic pass for next year's Swiss fun will be reneged...

The OCC's Tragic Response to the Frontline Expose: The Untouchables

William K. Black

On January 25, 2013, I made this comment onFrontline's web site discussing its documentary: "The Untouchables" and an accompanying (January 22, 2013) article by Jason Breslow entitled: "Were Bankers Jailed In Past Financial Crises?

The Untouchables

Watch The Untouchables on PBS. See more from FRONTLINE.

Jaime Falcon vs. Frontline: Why Wall Street's Leaders Have Escaped Prosecution

Below is a promo video for Frontline's series, beginning January 22, 2013. I have not seen any of it. It may be terrible. Or perhaps excellent. We will know they are taking the issue seriously if Bill Black is featured prominently. Here is Jaime Falcon's view of why Wall Street leaders have avoided prosecution:

Charles Ferguson: Reforms Necessary to Fix the Financial Sector

Charles Ferguson addresses needed reforms in the financial sector. I would suggest he use the term "skin in the game." Americans bristle when anyone says "regulation" because regulation is so awful in this country (it's written by lobbyists to benefit their special interests). But everyone understands that "skin in the game" is necessary for every party in a capitalist economy. And the financial sector has gamed the system to such an extent that they have exempted themselves from normal risk/reward analysis. They gain, everyone else takes on their risk. They get the upside, everyone else gets their downside.

Lawrence Lessig on Aaron Swartz

"In a world where the architects of the financial crisis dine regularly at the White House, it is ridiculous to consider Aaron Swartz a felon."



Source: Democracy Now

Charles Ferguson, Bill Black, and Matt Taibbi on Jack Lew's Appointment: Fail

Article by Charles Ferguson. Democracy Now video embedded below text.

The long-anticipated departure of Tim Geithner and the appointment of his successor, Jacob Lew, has brought much discussion of Geithner's record, his legacy, and the likely trajectory of the Obama administrationtreasury department under Lew. In considering this question, I found inspiration in our most profound political philosophers. I refer, of course, to The Who, in the finale of their immortal and highly relevant Won't Get Fooled Again:

This Shaolin Rebel Intruder Wishes a Superb 2013 to All*

CapitalismWithoutFailure.com has been named Shaolin Rebel Intruder by Josh Brown of thereformedbroker.com: http://www.thereformedbroker.com/2012/12/24/enter-the-financial-blogosphere/.

2012 - The Year of Bank Fraud

By Ben Walsh

 

DECEMBER 19, 2012

It’s been a relatively decent year for financial stocks: they’ve had their best performance since 2003. It’s truly been a boom year, though, in investigations, lawsuits, fines, and settlements at the world’s biggest and most important banks. There are 28 banks on the FSB’s list of systemically important financial institutions, and as Felix writes, “pretty much the whole financial sector is still trading at less than book value”.

What follows is a list of notable accusations, admissions and settlements in 2012 alone. 

Glenn Greenwald: Woman Imprisoned for Life for Minor Drug Offense; Banking Giant Immune to Justice for Massive Drug Laundering

Justice is dead in America.

December 17, 2012  |  

 

Asia-focused bank HSBC said on Tuesday it would pay US authorities a record $1.92 billion to settle allegations of money laundering that were said to have helped Mexican drug cartels, terrorists and Iran.

 

The US is the world's largest prison state, imprisoning more of its citizens than any nation on earth, both in absolute numbers andproportionally. It imprisons people for longer periods of time, more mercilessly, and for more trivial transgressions than any nation in the west. This sprawling penal state has been constructed over decades, by both political parties, and it punishes the poor and racial minorities at overwhelmingly disproportionate rates.

The Second Great Betrayal: Obama and Cameron Decide that Banks are above the Law

By William K. Black

One of the “tells” that reveals how embarrassed Lanny Breuer (head of the Criminal Division) and Eric Holder (AG) are by the disgraceful refusal to prosecute HSBC and its officers for their tens of thousands of felonies are the false and misleading statements made by the Department of Justice (DOJ) about the settlement.  The same pattern has been demonstrated by other writers in the case of the false and disingenuous statistics DOJ has trumpeted to attempt to disguise the abject failure of their efforts to prosecute the elite officers who directed the “epidemic” (FBI 2004) of mortgage fraud.

Matt Taibbi: HSBC Epitomizes the Double Standard in American Justice

Why Did Obama and Cameron Save a Criminal Enterprise Like HSBC?

Why is HSBC still in operation? On the same day (December 10, 2012) that the Barack Obama administration leaked the story of the HSBC settlement, astory ran in the New York Times that was full of self-praise by the Obama and David Cameron (U.K.) governments for their "cooperative approach" to cracking down on systemically dangerous institutions (SDIs). SDIs are treated as "too big to fail" because they pose a global systemic risk when they fail. The HSBC settlement puts the lie to the Obama/Cameron crack-down on the SDIs for it revealed a disgrace -- Obama and Cameron treat the SDIs as too big to prosecute. Indeed, HSBC demonstrates that the SDIs' senior officers are treated by Obama and Cameron as too elite to prosecute. The propaganda meme of the NYT story -- that the SDIs would never again be given special favors due to reforms being adopted by Obama and Cameron -- lasted four hours before it was destroyed by the disgraceful reality of the Obama and Cameron governments' refusal to prosecute HSBC and its officers for their tens of thousands of felonies.

Dear President Obama: Now is Your Chance to Clean Up the Financial Sector

Dear President Obama,

Now that you are a 2nd-term president, I am hoping that you will consider cleaning up the financial sector. I understand that a 1st-term president has to be cognizant of the realities of re-election; You need money. And a lot of money comes from Wall Street. So, as frustrating as it has been for Americans, I understand that you had to temper your displeasure with the financial sector. You felt like you had to coddle them so that they would not throw you under the bus.

One Safety Net that Needs to Shrink

By GRETCHEN MORGENSON

Published: November 3, 2012

• 
  

ELECTION Day is upon us, and neither President Obama nor Mitt Romney has really addressed one of the nation’s most pressing economic issues: the risk that one day taxpayers might have to bail out swashbuckling financial institutions again.

Dan Kervick Pleads with Americans: Barack Obama has Seriously Disappointed this Country... Please Vote for Him

I was seriously hoping to avoid discussing the election here. After all, I have spent the past 4 years quite upset with Barack Obama for having done nothing to clean up the fraud in our financial sector. He has been such a disappointment.

Glenn Greenwald: Rule-of-Law in America is being Destroyed as Wealth is Used to Co-opt Our Political and Legal Institutions

Brilliant constitutional lawyer Glenn Greenwald discusses how rule-of-law has been destroyed by wealthy elites co-opting our political and legal institutions. This 1-hour video (embedded below) contains significantly more material than what is summarized here.

How “Brazen” does a Banker’s Fraud have to be before he is Prosecuted?

By William K. Black

I’ll get the obvious out of the way first and then turn in future columns to the aspects of the Department of Justice’s (DOJ) civil suit against Bank of America (B of A)/Countrywide that are vital to understand but are more subtle.  The obvious issue arises from the facts that the DOJ alleges that its investigation has found.  The complaint and the DOJ press release state that elite financial criminals committed tens of thousands of “brazen” frauds targeting U.S. government funds.  We are on the hook for all the resultant losses because Fannie and Freddie were systemically dangerous institutions (SDIs) that the Bush administration concluded had to have their creditors bailed out to prevent a far graver global systemic crisis.