In 1998 Los Angeles rapper Coolio recorded the legendary paean to the streets of LA titled “Gangsters Paradise”, an ode the particular combination of lawlessness and opportunity for crime of his hometown. To Coolio, the conditions of overwhelming criminality and undermanned law enforcement situated within a wealthy city combined to create a perfect storm of juicy prospects for a young man living the “thug life”.
But with all due respect to Coolio, he and Tupac and NWA and the rest could never have imagined that the gangster ethos they espoused would eventually be realized in its fullest incarnation by middle-aged bankers, pillaging their way through the wealth of an entire nation. As strange as it may sound, today’s Wall Street is the pure embodiment of Coolio’s vision of a Gangster’s Paradise.
“To a kid lookin’ up to me?
Life ain’t nothing but Bitchez and Money.”
- Easy E, Straight outta Compton
Don’t believe me? Think this is just internet hyperbole? Take a look at this gangland-style pattern of behavior and you tell me where ethics or the rule of law applies in any of this:
Bank of America has been laundering enormous sums of drug money for international cartels: (Link). B of A was also caught hiding $5.8 billion in bonuses from shareholders as part of its takeover of Merrill Lynch. The fine for this, levied by the SEC, was so ridiculously low (33 million dollars) that the Judge in the case was literally too embarrassed to sign off on it, calling a "facade of enforcement.” Ultimately, B of A paid a larger fine, one that still represented just 2% of the 5.8 billion. (Link)
All the big banks manipulated the London Inter-Bank Offer Rate (a foundational rate that affects virtually every other interest rate) but Citigroup was the biggest Libor manipulator of all. (Link)
Goldman Sachs has been busy. Between getting themselves fined for illicitly leaking trading information to its biggest clients, (Link), manipulating the Aluminum market, selling Collateralized Debt Obligations to investors that they knew were dogs then taking the other side of the trade and making billions from the housing collapse, it is shocking that they found the time to 1. Set up AIG to go bankrupt primarily because Goldman sold them rancid Credit Default Swaps, then 2. Taking for themselves the billions in taxpayer dollars used to bailout AIG when AIG went bankrupt thanks mostly to Goldman’s actions (Link). Tupac would have understood:
Maaan, I don't worry about the Five-O
If they start, It’s all about survival
Keep your mind on your bank roll
Thug life. Y’all know the rule:
Do what ya gotta do.
-Tupac Shakur, Stay True
JP Morgan has been even busier. Their criminality has been so blatant that the authorities are temporarily being forced to pretend to reign them in on multiple fronts, just to put on a decent show for the public. JPM is currently facing scrutiny by at least seven federal agencies, several state regulators, and at least two foreign countries. They have agreed, to date, to pay a total of 21 billion in fines for transgressions ranging from the London Whale manipulations to Mortgage fraud (Link).
“I’m doped-out, gangsta. As set-trippin Banker
And my Homies are down, so don’t arise my anger.”
-Coolio, Gangsters Paradise
It is not a surprise that rampant and widespread criminality is the norm. Most people don’t realize that this was essentially announced as official policy by no less than the Enforcement Director of the SEC, Robert Khuzami. In 2009 at a financial industry conference in New York, Khazami spoke to a room filled with 1,500 people from all of the top Wall Street financial institutions. Amazingly, in this speech he described the process that the government would use to give Wall Street a free pass to commit crime on a massive scale:
Khuzami, the SEC's director of enforcement, talked about a new "cooperation initiative" the agency had recently unveiled, in which executives are being offered incentives to report fraud they have witnessed or committed. From now on, Khuzami said, when corporate lawyers like the ones he was addressing want to know if their Wall Street clients are going to be charged by the Justice Department before deciding whether to come forward, all they have to do is ask the SEC.
"We are going to try to get those individuals answers," Khuzami announced, as to "whether or not there is criminal interest in the case — so that defense counsel can have as much information as possible in deciding whether or not to choose to sign up their client."
Aguirre, listening in the crowd, couldn't believe Khuzami's brazenness. The SEC's enforcement director was saying, in essence, that firms like Goldman Sachs and AIG and Lehman Brothers will henceforth be able to get the SEC to act as a middleman between them and the Justice Department, negotiating fines as a way out of jail time. Khuzami was basically outlining a four-step system for banks and their executives to buy their way out of prison. "First, the SEC and Wall Street player make an agreement on a fine that the player will pay to the SEC," Aguirre says. "Then the Justice Department commits itself to pass, so that the player knows he's 'safe.' Third, the player pays the SEC — and fourth, the player gets a pass from the Justice Department." (Link)
Now do you understand why an outfit like JPM can seemingly do what they do and only wind up paying fines?
Please note that there is a very good reason for all of the above: This is precisely how central planners assert and maintain control over a large and complex economy while maintaining the public fiction that the system is still a “free market”. If you get all the major players engaged in lucrative but illegal behavior, and if the Fed and their minions are the ultimate arbiters of who goes to jail and who get a pass, you then have the power to control everything those entities do. You can have those firms buy or sell to lower interest rates, prop-up stocks on command, control inflation in commodities, and pretty much anything and everything you want them to do. In short, this is how you impose a regime of central planning under the guise of a system that is supposed to be a free market economy.
Welcome to Wall Street, Comrade.
That this is the case- that we now live and work in an economy where the actions of the dominant companies are just as centrally controlled by the government as Mussolini’s Italia ca. 1938- was proven once and for all by one Mr. Timothy Geithner. In 2009, the Fed and Treasury were bailing out Wall Street firms left and right, and he made it crystal clear how the rights of ownership and control would work henceforth. Geithner stated publicly that he was prepared to oust any CEO who did not run his bank in accordance to the wishes of the Fed and Treasury, implying the right of the government to dictate policy, investments, and anything else they wished, regardless of the desires of the shareholders, board members, or the duly elected CEOs (Link). Think about the implications of this: If you do not do exactly as we say, we will replace you with someone who will.
What are the Banksters going to do, suddenly complain that the Government has no right to control their businesses? Are these crony capitalists suddenly going to go misty-eyed and complain to the press about the destruction of the free market? Why would they, when they are otherwise given such exceptional opportunities for graft and profit as insiders and a marker-makers? The formula is simple: do what Central Command dictates, and the law doesn’t apply to you. A Gangster’s Paradise indeed.
In Gold and Silver investing, we often tend to get tunnel vision. We all see the manipulation on a regular basis but we keep hoping that something or someone will come along and it will all be fixed. Maybe if the COMEX breaks it will all be fixed. Maybe if the LBMA goes under, it will all be fixed. Maybe if a whistleblower comes forward, or maybe if Chilton resigns and goes to the press, it will all get better.
It won’t. We are not “one USA Today article away” from genuine price discovery. PM manipulation is merely one tiny part of an enormous machine that is trying to centrally plan EVERY market- and at this point in time, is largely succeeding. Mortgages, business loans, property values, stock prices, the value of the dollar… ALL OF THESE are either mostly controlled or are set outright by the machinations of central planning.
There are no free markets now, only varying degrees of control within specific markets. But you know what always happens in a centrally planned economy? The laws of supply and demand cannot be cheated. Items whose price is artificially suppressed become scarce, and ultimately become very, very valuable.
You should prepare accordingly.