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September 28, 2013


What’s new? This – The DOJ signaled that it is going to start getting tough on corporate board members for crimes committed under cover of corporate non-liability too far extended. It’s about time.

I have been blogging repeatedly for months on end that we will not see a reduction in corporate crime until we hear the jingle of handcuffs in the boardroom. So called “settlements” between government agencies such as the SEC with corporations within its jurisdiction who have committed what you and I would call crimes typically contain language to the effect that wrongdoing is denied, that the money being paid is to resolve a doubtful and disputed claim for which liability is expressly denied etc. All the language is exculpatory, as though those on the board who well knew that a crime was in the making were totally unaware of it and had no part in it. The particular government agency in charge of enforcement of specific laws, rules and regulations germane to the claimed corporate misconduct signs off, takes the money, and seeks out other corporate criminals to fine but rarely jail – too rarely.

They will not have far to go. I understand that JP Morgan Chase is going to pay a fine of over a billion dollars for its recent 6 billion dollar plus derivatives disaster brought on by a trader on their London Desk known as “The Whale.” It was not of a magnitude that would require a bailout like last time because the bank had the reserves to cover the loss, but there was substantial loss nonetheless to shareholders and the bank’s bottom line, loss occasioned by at least the negligence of lack of supervision etc. and other rule-breaking misconduct, and knowing banksters, probably much more (like it’s back to the good old crapshooting days of 2008 with derivatives, the crapshoot that caused a near collapse of the world’s economy, bailouts, chronic unemployment, trillions in lost production, a faltering economy at near-recession levels, foreclosures etc.). Lack of space prevents enumeration of all the economic evils and the heart-rending stories accompanying them practiced on America and its people by the big banks.

We all hear that Wall Street banks are “too big to fail,” as though there is nothing we can do about them and just have to sit here and hope the banks will do what is right for America. Vain hope! Big banks are in business to make a profit, whether boring banking such as lending to people for cars and houses all the way to investing in Greek junk bonds (knowing that Merkel – just reelected – and the EUB will protect their holdings and the sky-high interest they are gathering from such investments).Wall Street bank are not “banks” as most think of banks; they are trading houses with bank licenses.

Stiglitz in his wonderful new book, The Price of Inequality, reports that the governor of the Bank of England, Mervyn King, has pointed out that if the big Wall Street banks are too big to fail, then they are too big to exist. Paul Volcker, former Fed chairman, has another take. He observes that the big Wall Street banks are too big to be managed. So if big Wall Street banks are too big to fail and perhaps also too big to exist and/or even manage, enjoy lax supervision by regulators, and yet further enjoy potential bailout protection for their trading (not banking) losses, what are we to do? Must we sit here and (effectively) allow the big banks to run our (not their) economy and effectively make public policy, policy that suits their sole purpose of profit-making which is unrelated to what is or may be beneficial to the American economy and its citizens? That will be the topic for another essay I will be writing shortly.

One of the reasons that banksters and other corporate criminals are willing to pay off on condition that the language of the settlement contain exculpatory language is to avoid a ton of shareholder lawsuits. If a board member or CEO or senior executive admits to wrongdoing, especially a crime, you can rest assured that summons and subpoenas and notices of deposition will be filed and served by the tub full, courtesy of lawyers retained by shareholders (and perhaps holders of corporate debt as well, who are justifiably concerned with criminal management of a corporation that owes them money).

Trades booked in the Cayman Islands to avoid supervisory oversight still affect American shareholders. Criminally run corporations (especially big banks) are not only in the business of hiding from supervisory oversight; their resistance to transparency even extends to their own shareholders (the supposed “owners” of the corporation). “Management” is always putting out propaganda that they are charged as fiduciaries to obtain the best results for shareholders, and to some extent, that is not propaganda, but “management” betrays its real reason for wanting to be free of regulatory restraint and the eyes of prying shareholders when it treats shareholders as though shareholders are a bother rather than owners of the corporation management is running. Management wants not only to be free of prying regulators who are hampering its corporate activities, but free even from the prying eyes of its owners!

Management has thus become a “third empire” in this troika. The CEOs are largely interested in making lots of profit for the corporation they head so that they can pay themselves handsome bonuses, bonuses that reduce the amount of dividends that would otherwise be available to shareholders. Some CEOs are paid in excess of $100 million dollars a year for their “services.” What should be a harmonious relationship between manager and owner of an enterprise turns out in practice to be one where the employees are telling the employers how things are going to be, all as explained by board members at annual shareholders’ meetings in which there is a deliberate design of asymmetry of information. The board members and their CEOs and senior executives know what is going on, but the shareholders do not, and the employees want to keep that asymmetry intact via placating bromides. It is working so far.

The DOJ (via the AP) has announced that “Nine Japanese auto parts manufacturers and two of their executives will plead guilty and pay $740 million in criminal fines for conspiring to fix the prices of more than 30 products sold to many of the world’s largest automakers operating in the U.S.” The price-fixing conspiracy went on for more than ten years and involved more than $5 billion, which resulted in Americans’ paying more than they should have on more than 25 million cars purchased over the period covered. The investigation found that executives used code names and met face to face in remote locations in the U.S. and Japan to rig bids, fix prices and allocate the supply of auto parts.

AP further reports that “Seventeen of the 21 executives charged so far have been sentenced to serve prison terms in the U.S. or have plea agreements calling for significant time behind bars.” Hallelujah! These crooks are where they belong – in jail – but let’s not just put Japanese crooks in jail. Let’s do a fine tooth comb investigation of Wall Street banks and other corporate “fraudsters” and arrange for American crooks to join their fellow Japanese felons in the lockup. Most people buy cars on payments (at interest) and with 25 million sold at inflated prices, the Japanese crooks cost American car-buyers billions – but in perspective – that’s peanuts compared with what Wall Street banks lifted from our wallets and our futures in their 2008 “ruin the world” games. Keep digging, DOJ, in New York. GERALD E

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